Citibank NA v Lim Soo Peng and Another

• Jurisdiction: Singapore
• Judge: Lai Siu Chiu J
• Judgment Date: 30 November 2004
• Neutral Citation: [2004] SGHC 266
• Court: High Court (Singapore)
• Year: 2004
• Published date: 30 November 2004
• Plaintiff Counsel: Hri Kumar and Shivani Retnam (Drew and Napier LLC)
• Defendant Counsel: Harry Elias SC and Josephine Choo (Harry Elias Partnership)
• Subject Matter: Civil Procedure,Summary judgment,Whether triable issues raised,Whether other reason for trial,Whether order granting conditional leave to defend should be affirmed,Amount of security to be furnished by defendant,Contract,Duress,Economic,Whether economic duress established,Undue influence,Whether undue influence presumed,Whether actual undue influence established
• Citation: [2004] SGHC 266

30 November 2004

Lai Siu Chiu J:

Introduction

1 Citibank NA, the plaintiff, applied by way of Summons in Chambers No 1808 of 2004 (“the O 14 application”) for summary judgment against Ee Tai Ting, the second defendant, on its claim of $12,643,654.22 (“the plaintiff’s claim”).

2 The O 14 application came up for hearing on 25 May 2004 before an assistant registrar. She granted conditional leave to the second defendant to defend the claim provided the second defendant furnished a banker’s guarantee for the plaintiff’s claim within 21 days (viz by 15 June 2004). The second defendant appealed against the assistant registrar’s order in Registrar’s Appeal No 151 of 2004 (“the Appeal”) and prayed for the following orders:

(a) that the second defendant be granted unconditional leave to defend the plaintiff’s claim;

(b) alternatively, that the second defendant be granted conditional leave to defend the plaintiff’s claim by the court setting aside the conditions imposed by the assistant registrar and imposing other appropriate conditions, including, but not limited to, reviewing the security to be provided by the second defendant and the time within which the security was to be furnished by the second defendant.

3 I dismissed the Appeal vis-à-vis the prayer for unconditional leave to defend the plaintiff’s claim, affirmed the decision of the assistant registrar on conditional leave to defend, but varied her order on security. I granted, under prayer (b) of the Appeal, a reduction of the security to be furnished by the second defendant from $12,643,654.22 to 25% thereof amounting to $3,160,913.56 ($12,643,654.22 x 25%).

4 The second defendant is dissatisfied with my orders and has now appealed against my decision (in Civil Appeal No 91 of 2004).

The background

5 According to the pleadings and affidavits filed for the hearing below, the plaintiff had, between 1990 and 1995, extended credit facilities (“the facilities”) from time to time to two companies, viz Fook Huat Tong Kee Pte Ltd (“FHTK”) and Fook Yong Pte Ltd (“FY”). Both FHTK and FY are wholly owned subsidiaries of a company which was listed on the Stock Exchange of Singapore in January 1977, called FHTK Holdings Ltd (“the holding company”).

6 The facilities were secured by various guarantees (“the personal guarantees”) furnished by the second defendant and Lim Soo Peng, the first defendant, on a joint and several basis in favour of the plaintiff. The holding company was the corporate guarantor for the facilities.

7 In or about 1991, FHTK and FY incurred substantial debts with the plaintiff and various other Singapore banks (“the creditor banks”) and experienced severe financial difficulties. Apart from the plaintiff, the five other creditor banks were owed in excess of $150m.

8 As a result, on or about 24 June 1999, the holding company entered into a standstill agreement (“the Standstill Agreement”) with the creditor banks to facilitate the development of a debt restructuring plan in respect of its debts and those of its two subsidiaries (hereinafter referred to as “the FHTK debts”).

9 As at 20 October 2000, the moneys owed to the plaintiff alone stood at $47,716,216.59 (“the Debt”). Pursuant to the personal guarantees they had given to the plaintiff, the first and second defendants were liable to the plaintiff for the Debt; so too was the holding company. None of the other creditor banks, apart from United Overseas Bank (“UOB”), held personal guarantees from the defendants.

10 On 23 October 2000, the holding company entered into a restructuring agreement (“the Restructuring Agreement”) with the creditor banks in respect of the FHTK debts. Under the Restructuring Agreement, the creditor banks (including the plaintiff) accepted a debt to equity conversion. The holding company would issue ten new shares to each creditor bank for every $3.20 of the FHTK debts. FHTK and FY would in turn issue new shares in their capital to the holding company. The issue of shares in the holding company (“the Shares”) would constitute a full and final discharge to the creditor banks of the FHTK debts, subject to the terms and conditions set out in the Restructuring Agreement.

11 The Restructuring Agreement was subsequently amended and supplemented by two agreements both dated 31 July 2001, one of which was an extension and amendment agreement, and the other a supplemental agreement to the extension and amendment agreement (“the Amendment Agreements”).

12 On 30 August 2001, a share escrow agency agreement (“the Escrow Agreement”) was executed by the holding company, FHTK, FY, the creditor banks and Arthur Andersen (S) Pte Ltd (“the Escrow Agent”). Pursuant to the Escrow Agreement, the holding company appointed the Escrow Agent to discharge, perform and carry out all the functions, duties and obligations of the Escrow Agent under the Restructuring Agreement and the Amendment Agreements.

13 The Shares issued to the creditor banks were held on trust for the creditor banks by the Escrow Agent and were released to the creditor banks by the Escrow Agent in the following manner:

(a) 70% in yearly tranches spread over four years;

(b) 30% in equal monthly tranches spread over 36 months.

14 In consideration of the plaintiff agreeing to enter into the Restructuring Agreement, the defendants entered into a deed of irrevocable undertaking with the plaintiff dated 2 October 2000 (“the deed of undertaking”). The deed of undertaking was subsequently amended by a supplemental deed dated 31 July 2001 (“the supplemental deed”).

15 The material terms of the deed of undertaking as amended by the supplemental deed are the following:

Clause 3.1

Subject to Clause 3.2, the [defendants] undertake to pay the [plaintiff], within 30 days after the end of each half-year of the first 5 years after the issue of [the Shares], the amount as represented by: –

(B-N)

where:-

B = (a) at the end of each half-year in the 1st year, the amount which is the number of Sold Shares (defined below) multiplied by S$0.33;

(b) at the end of each half-year in the 2nd year, the amount which is the number of Sold Shares (defined below) multiplied by S$0.35;

(c) at the end of each half-year in the 3rd year, the amount which is the number of Sold Shares (defined below) multiplied by S$0.37;

(d) at the end of each half-year in the 4th year, the amount which is the number of Sold Shares (defined below) multiplied by S$0.38;

(e) at the end of each half-year in the 5th year, the amount which is the number of Sold Shares (defined below) multiplied by S$0.40.

(each such amount deemed to include interest on the amount of the Debt converted into [the Shares] and held by the [plaintiff] during that period);

N = the net sale proceeds from the sale or placement of [the Shares] by the [plaintiff] (including without limitation any [shares] sold to the [defendants] or any of the other shareholders of [FHTK] pursuant to this Undertaking or the Scheme) during the preceding half-year in the relevant year (Sold Shares).

Clause 3.4

During the first 5 years after the issue of [the Shares], the [plaintiff] will also promptly notify the [defendants] of the price of the Sold Shares and, where practicable, the person to whom any of [the Shares] are sold or placed out.

16 The Shares were issued to the creditor banks on or about 28 September 2001 and deposited with the Escrow Agent to be periodically released in accordance with [13] above.

17 Between 28 May 2003 and 18 September 2003, the plaintiff sold 54,103,318 of the Shares, netting proceeds of $6,292,507.08. For each sale, the plaintiff gave written notice and particulars thereof to both defendants, pursuant to cl 3.4 of the deed of undertaking.

18 Based on the formula in cl 3.1 of the deed of undertaking, the defendants were obliged to pay the plaintiff’s claim computed as follows:

where B = $54,103,318 x $0.35 = $18,936,161.30

and N = $6,292,507.08

B – N = $12,643,654.22

19 The defendants failed to pay the plaintiff’s claim with the result that the plaintiff commenced this action on 30 December 2003. The second defendant filed his defence to the action on 30 January 2004. Separately, the plaintiff applied and obtained summary judgment from the deputy registrar against the first defendant on 2 April 2004. The first defendant filed a Registrar’s Appeal against the decision of the deputy registrar, but on 5 May 2004, he withdrew his appeal.

The proceedings below

20 The second defendant resisted the O 14 application by his show cause affidavit filed on 24 April 2004 pursuant to O 14 r 2(4) of the Rules of Court (Cap 322, R 5, 2004 Rev Ed) (“the Rules”). He deposed, inter alia:

(a) He was not conversant in English and only had three years of primary school education in a Chinese school. His staff had to translate English letters and documents for him in order for him to understand their contents.

(b) He started FHTK as a sole proprietorship in 1965 (when he was 28 years old), before converting it into a limited company in or about 1977 with him holding 40% of the issued shares.

(c) After FHTK was incorporated, he became FHTK’s managing director while the first defendant (who joined the business in 1977) was a director who became the chairman and then executive chairman in 1987.

(d) Since the commencement of their business relationship, there was a clear division of functions between him and the first defendant. The first defendant dealt with the financial aspects of the business whilst the second defendant took care of the operational aspects. This necessitated frequent travel to China, North America and South America to oversee the factories and farms where the fruits sold and/or distributed by FHTK and the holding company were produced.

(e) The first defendant dealt and corresponded with FHTK’s bankers, including the creditor banks and the plaintiff, to the exclusion of the second defendant, due partly to the second defendant’s inability to communicate in English with the bankers. The...