CIFG Special Assets Capital I Ltd (formerly known as Diamond Kendall Limited) v Polimet Pte Ltd and others

• Jurisdiction: Singapore
• Judge: Jean Chan Lay Koon AR
• Judgment Date: 16 April 2014
• Neutral Citation: [2014] SGHCR 8
• Court: High Court (Singapore)
• Docket Number: Suit No 758 of 2013 (Summons No 5740 of 2013 and Summons No 424 of 2014)
• Published date: 28 April 2014
• Year: 2014
• Hearing Date: 04 March 2014,02 April 2014,03 April 2014
• Plaintiff Counsel: Hri Kumar Nair S.C. and Joseph Yeo (Drew & Napier LLC)
• Defendant Counsel: Tan Chee Meng S.C., Lim Ke Xiu (WongPartnership LLP), Nandakumar Renganathan and Simren Kaur (RHTLaw Taylor Wessing LLP)
• Subject Matter: Civil Procedure,Striking Out,Summary Judgment,Contract,Contractual Terms,Rules of Construction,Parole Evidence Rule
• Citation: [2014] SGHCR 8

Jean Chan Lay Koon AR:

This judgment concerns two separate applications. Sum 5740/2013 is the plaintiff’s application for summary judgment to be entered against all five defendants under O 14 r 1 of the Rules of Court (Cap 332, R 5, 2006 Rev Ed) (“Rules of Court”). Sum 424/2014 is the defendants’ application for the Plaintiff’s claim against the 4th and 5th defendants to be struck out under O 18 r 19(1). Background facts

The plaintiff is a private company incorporated in Mauritius. It was set up as a special purpose vehicle for the purpose of entering into bond subscription agreements with the defendants. The plaintiff was known as “Diamond Kendall Limited” up to its sale to Global Distressed Alpha Fund III Limited Partnership in or about July 2013 and its name was changed to CIFG Special Assets Capital I Ltd (“CIFG”) on 13 August 2013.

The 1st defendant is a private limited company incorporated in Singapore. The 1st defendant owns a number of subsidiaries which are in the business of, amongst others, manufacturing lead-in wires and cold formed components for the glass diodes and semiconductor industry. At the material times, the 1st defendant had four wholly owned subsidiaries, namely, Delta China Technologies Ltd (“Delta”), Citi-Venture Limited (“Citi”), Fortuna Development Pte Ltd (“Fortuna”) and Boulo United Diode Lead Co. (“BUDL”). Delta, in turn, had a wholly owned subsidiary FDP (Huizhou) Co. Ltd (“FDP”).

The 2nd to 5th defendants were the initial shareholders of the 1st defendant. At present, the 2nd defendant is a director of the 1st defendant. By an agreement in writing between the plaintiff and the defendants as evidenced by, amongst others, a Convertible Bond Subscription Agreement dated 5 October 2007 (“2007 CBSA”) and a Supplemental Bond Subscription Agreement dated 16 October 2008 (“Supplemental 2007 CBSA”), the 1st defendant issued and the plaintiff subscribed for the full amount of a convertible bond (“2007 Bond”) with a redemption value of US$8,333,333 (subsequently increased to US$9,166,667 upon the draw-down by the 1st defendant of the Third Tranche (as defined below), pursuant to which the plaintiff would grant the 1st defendant a facility in the sum of US$5,500,000 (the “first facility”), to be drawn down in three tranches.

It is undisputed that the 2007 CBSA was entered into for the purposes of financing the 1st defendant’s acquisition of the dumet manufacturing line of Philips Lighting B.V. and for the working capital of the dumet business. It is also undisputed that the entire first facility was drawn down by the 1st defendant. Clause 3.1(f) of the 2007 CBSA specifically required the 2nd to 5th defendants to transfer their shares in the 1st defendant to the plaintiff as a condition precedent to the plaintiff’s obligation to provide the first facility. Since the execution of the 2007 CBSA, the plaintiff has been and remains the sole shareholder of the 1st defendant.

At all material times, during negotiation and up to the signing of the 2007 CBSA, the plaintiff’s side was represented by Chris Chia Woon Liat (“Chia”) and Yeo Kar Peng (“Yeo”). Pursuant to clause 3.1(m) of the 2007 CBSA, Chia and Yeo were appointed as nominee directors of the plaintiff to the Board of Directors of the 1st defendant. Yeo was also appointed as a nominee director to the Boards of Directors of Delta, Citi, Fortuna, BUDL and FDP. Even after its name change from Diamond Kendall Limited to CIFG, the plaintiff continued to be represented by Chia and Yeo in all matters related to and arising out of the bond subscription agreements.

Some of the salient terms and conditions under the 2007 CBSA are: Schedule 2 setting out the schedule pursuant to which the 1st defendant was to make payment to the plaintiff towards the redemption of the bonds; By clause 9.1, the 1st defendant together with the 2nd to 5th defendants in their personal capacities as initial shareholders of the 1st defendant, also covenanted to abide by, inter alia, the following conditions set out at clauses 9.2 and 9.3 of the 2007 CBSA, failing which the plaintiff was entitled to withdraw the facilities granted and demand immediate redemption of the same. In particular, the defendants covenanted to maintain the financial ratios set out at clause 9.2(xxix) and clause 9.3 (xxix) of the 2007 CBSA. The financial ratios were subsequently varied by way of clause 1.1(iii) and clause 1.1(iv) of the Supplemental 2007 CBSA; and Clause 11 setting out specific events of default pursuant to which the plaintiff may, by notice to the 1st defendant, declare the 2007 Bond and the facilities extended thereunder cancelled. In that event, all the outstanding sums due will be immediately due and payable and the plaintiff would be entitled without further notice to institute proceedings to enforce such payments.

The 2007 CBSA also provides for an “indemnity clause” under clause 12. As the interpretation of clause 12 is a subject matter of dispute in both applications (see details in paragraphs 21 to 25 below), it is reproduced in its entirety below: INDEMNITY 12.1 General Indemnity: The Initial Shareholders and the Issuer hereby jointly and severally agree and undertake to fully indemnify and hold the Bondholder and its shareholders and their respective fund managers, directors, officers and employees (the “Indemnified Parties”) harmless from and against any claims, damages, deficiencies, losses, costs, liabilities and expenses (including legal fees and disbursements on a full indemnity basis) directly or indirectly caused to the Indemnified Parties and in particular, but without prejudice to the generality of the foregoing, for any short-fall, depletion or diminution in value of the assets of the Issuer, the Group or any Group Company resulting directly or indirectly from or arising out of any breach or alleged breach of any of the representations, warranties, undertakings and covenants given by the Initial Shareholders and/or the Issuer under this Agreement or for any breach or alleged breach of any term or condition of this Agreement. 12.2 Conduct of Defence: If any action, proceeding, claim or demand (including a governmental investigation) shall be instituted involving any of the Indemnified Parties in respect of which indemnity may be sought pursuant to Clause 12.1, such Indemnified Party shall promptly notify the Issuer and the Initial Shareholders in writing and the Issuer and the Initial Shareholders shall, unless the Indemnified Party elects to assume the defence itself, assume the defence thereof and appoint lawyers satisfactory to the Indemnified Party (which approval shall not be unreasonably withheld or delayed) and shall be liable to pay the fees and expenses of such lawyers related to such proceeding. If such Indemnified Party elects to appoint its own lawyers in a connected legal proceeding, the Issuer and Initial Shareholders shall pay for all reasonable legal costs as well if and only if: (a) the use of counsel appointed by the Issuer and the Initial Shareholders to represent the Indemnified Party would present such counsel with a conflict of interest; (b) the actual or potential defendants in or targets of such action include both (i) the Indemnified Person and (ii) the Issuer and/or the Existing Shareholder, and the Indemnified Person shall have reasonably concluded that there may be legal defences available to it; (c) the Issuer and the Initial Shareholders shall not have employed counsel satisfactory to the Indemnified Person to represent the Indemnified Person within a reasonable time; or (d) the Issuer and the Initial Shareholders shall have authorised the Indemnified Person to employ separate counsel at the expense of the Issuer and the Existing Shareholder. 12.3 Defence by Indemnified Person: In any proceeding, pursuant to Clause 12.2, if the Indemnified Person has elected to assume the defence itself or the Issuer has and the Initial Shareholders have failed to appoint lawyers satisfactory to the Indemnified Person within a reasonable time, the Issuer and the Initial Shareholders shall reimburse such fees and expenses as are incurred by the Indemnified Person. The Issuer and the Initial Shareholders shall not be liable for any settlement of any such proceeding effected without its written consent (provided that such consent shall not be unreasonably withheld or delayed), but if settled with such consent (or without such consent in circumstances where such consent shall have been unreasonably withheld or delayed as aforesaid) or if there be final judgment for the plaintiff, the Issuer agrees and the Initial Shareholders jointly and severally agree to indemnify the Indemnified Person against any loss or liability by reason of such settlement or judgment. The Issuer and Initial Shareholders shall not settle any proceeding without the written consent of the Indemnified Person (such consent not to be unreasonably withheld or delayed).

The 2007 CBSA also provides for an “entire agreement clause” under clause 14 and it reads as follows: - PREVIOUS AGREEMENTS 14.1 Entire Agreement: This Agreement and the documents referred to herein are in substitution for all previous agreements, both written and oral, between all or any of the parties and contain the whole agreement between the parties relating to the subject matter of this Agreement.

In respect of the 2nd and 3rd defendants, it is undisputed that they are at all material times, the personal guarantors of 50% of the liabilities of the 1st defendant to the plaintiff under the 2007 CBSA as a result of a Personal Guarantee and Indemnity dated 5 October 2007 (“2007 Guarantee”) executed by them in favour of the plaintiff and as varied by the Supplemental Guarantee Agreement executed on 16 October 2008 (“Supplemental Guarantee”).

Pursuant to the 2007 CBSA, the First Tranche of the 2007 Bond amounting to US$3,000,000...