Columbia Asia Healthcare Sdn Bhd v Hong Hin Kit Edward

• Jurisdiction: Singapore
• Judgment Date: 10 April 2014
• Date: 10 April 2014
• Docket Number: Suits Nos 861 and 862 of 2008 and 964 of 2009
• Court: High Court (Singapore)

Columbia Asia Healthcare Sdn Bhd and another

Plaintiff

and

Hong Hin Kit Edward and another and other suits

Defendant

[2014] SGHC 65

Woo Bih Li J

Suits Nos 861 and 862 of 2008 and 964 of 2009

High Court

Contract—Breach—Share sale and purchase agreement—Whether warranty that land would be delivered free of encumbrances had been breached—Whether tax warranties had been breached—Whether accounts warranties had been breached

Contract—Privity of contract—Whether parties to share sale and purchase agreement intended to confer benefit of warranties in share sale agreement on target company—Whether parties to share sale and purchase agreement intended warranties to be enforceable by target company—Contracts (Rights of Third Parties) Act (Cap 53 B, 2002 Rev Ed)

Contract—Remedies—Damages—Share sale and purchase agreement—Measure of damages for breaches of warranties

Three suits stemming from the purchase of a hospital (‘the Hospital’) situated in Indonesia were consolidated and heard together. The Hospital was wholly owned by an Indonesian corporation (‘PTNM’). PTNM was in turn wholly owned by a Singapore corporation (‘UMPL’). The purchase of the Hospital was structured in the form of a sale and purchase agreement (‘the SSA’) of the shares in UMPL. The purchaser was a Malaysian corporation (‘Columbia’). The vendors, who owned all the shares in UMPL, were two Singaporean brothers and their Indonesian counterpart (‘the Vendors’).

Suit No 964 of 2009

The plaintiffs were Columbia and PTNM. The defendants were the two Singaporean brothers (‘the Hongs’). Columbia claimed damages and indemnities from the Hongs for breaches of the SSA. Under the SSA, the Vendors were obliged to hold Columbia harmless against any loss it might suffer in relation to breaches of the SSA.

The first set of breaches related to title to the Hospital (and the land on which it was situated). Under the SSA, the Vendors were required to transfer the title deed to the Hospital and land free of encumbrances, and warranted that PTNM had good and marketable title to the land. On completion, there was a charge on the land title certificate registered in the name of an unrelated third party debtor. Although the debt underlying the charge had been discharged, the charge had not been removed. The charge was only removed after proceedings had begun. Columbia sought damages for these breaches.

The second set of breaches related to certain UMPL shares. Under the SSA, the Vendors warranted that they had title to all the shares in UMPL, and that the shares were free from encumbrances. Subsequent to completion, an unrelated third party made a claim for a certain quantity of UMPL shares. The action was subsequently discontinued without prejudice to bringing a fresh claim. Columbia sought a declaration that the Hongs were liable to indemnify Columbia against any further claim brought by the third party.

The third set of breaches related to tax warranties. Under the SSA, the Vendors warranted that all of PNTM's tax liabilities and information in relation to taxation for pre-completion transactions had been discharged and properly provided to the authorities. Columbia subsequently discovered that PTNM had been under-declaring tax. Columbia was required by the Indonesian tax authority (‘the ITA’) to pay additional tax in respect of pre-completion transactions. There was also the possibility of the ITA imposing even more tax liabilities on Columbia in respect of pre-completion transactions and of the ITA reopening PTNM's accounts on the basis of a tax crime. Columbia sought an indemnity for the tax liabilities that it had already paid and damages for the loss of a chance to negotiate a lower purchase price for the sale shares in view of the potential liability for future tax liabilities.

The fourth set of breaches related to warranties about PTNM's accounts. Under the SSA, the Vendors warranted the accuracy of PTNM's accounts. The under-declared tax, however, was dressed up as revenue, inflating PTNM's earnings before interest, taxes, depreciation and amortisation (‘EBITDA’). Columbia sought damages for these breaches on the basis of the diminution in value of the sale shares. It claimed that the price of the sale shares was calculated by a formula with reference to EBITDA, and therefore, that the damages should be the difference in sale price by applying that formula, taking into account the change in EBITDA.

Suits Nos 861 and 862 of 2008

The plaintiffs were two companies, Thermal International and Thermal Industries (collectively, ‘the Thermal Companies’) controlled by one of the Hong brothers. The defendants were PTNM and Columbia.

Thermal Industries claimed for debts arising from second-hand servers sold to PTNM, as well as a loan purportedly extended to PTNM. Thermal International claimed for debts arising from supplies and machinery that was sold to PTNM.

PTNM and Columbia brought the Hongs in as third parties and sought an indemnity under the SSA for the sums claimed by the Thermal Companies if PTNM owed such sums.

Held:

Suit No 964 of 2009

(1) The charge on the land title certificate was a breach of the obligation under the SSA to transfer the land title certificate free of encumbrances. This was so notwithstanding that the underlying debt which the charge secured had been paid off: at [103] and [104] .

(2) The charge on the land title certificate was also a breach of the warranty under the SSA that PTNM had good and marketable title to the land.‘Marketability’ was an additional requirement above having good title or the land being free from encumbrances. The saleability of the land was impaired as long as the charge remained on the land title certificate: at [111] and [112] .

(3) The appropriate measure of damages for the breaches in relation to the charge on the land was the cost of cure. This was the cost of taking the necessary measures to remove the charge. The diminution in value of the sale shares due to the breaches was not an appropriate measure of damages. It would have taken into account the existence of a charge of an uncertain duration. Since the charge had already been removed, it was illogical for the court to make an assessment of damages based on probable outcomes, when one of the outcomes has already materialised: at [127] , [129] and [131] to [133] .

(4) A declaration that the Hongs indemnify Columbia against any claims brought by the unrelated party for UMPL shares should be granted. There was a real controversy whether the Hongs would be liable to indemnify Columbia if a subsequent claim were to be brought against the UMPL shares. It did not matter that that claim, if brought, might be unsuccessful on the merits: at [144] to [146] .

(5) The under-declaration of tax was a breach of the tax warranties. The principle of compensation was fundamental in determining the appropriate measure of damages. The appropriate relief was an order for the Hongs to indemnify Columbia against any taxes that have already been imposed on PTNM and paid, and a declaration that the Hongs are liable to indemnify Columbia in respect of any future tax assessments in respect of pre-completion transactions. That would have put Columbia in as good a position as it would have been in had there been no breach of the relevant tax warranties. The present situation was not one where Columbia lost the chance to negotiate; it proceeded with the transaction considering itself sufficiently protected by the warranties in the SSA: at [202] to [204] and [206] .

(6) Columbia had not proved that the loss it suffered was the difference in purchase price that would have been obtained by applying the formula to the difference in EBITDA. Columbia had failed to establish that the purchase price was based solely on EBITDA. The purchase price was based on a multitude of factors, one of which was EBITDA. Columbia had not proved that it suffered a discrete loss for inflation of revenue: at [258] to [260] .

Suits Nos 861 and 862 of 2008

(7) PTNM was not entitled to enforce the terms of the SSA against the Hongs under the Contracts (Rights of Third Parties) Act (Cap 53 B, 2002 Rev Ed). The warranties in the SSA did not purport to confer a benefit on PTNM. Although PTNM benefitted from those warranties, PTNM was only an incidental, and not an intended beneficiary. The warranties were meant for the benefit of Columbia: at [281] .

(8) Even if the warranties purported to confer a benefit on PTNM, an objective construction of the SSA showed that the parties did not intend PTNM to be able to enforce the warranties in the SSA: at [282] .

(9) It was unclear which of the Thermal Companies extended the purported loan to PTNM. The events surrounding the loan were convoluted. The loan was extended to PTNM on the instructions of Thermal International. PTNM's accounts, however, recorded the loan as being from Thermal Industries. The loan was advanced to PTNM on the instructions of Thermal International. Thermal International was therefore the lender of the funds. Subsequently, Thermal Industries was substituted as the creditor in place of Thermal International: at [310] and [311] .

(10) The sum claimed by Thermal Industries against PTNM for the loan extended to PTNM fell within the scope of the indemnity under the SSA. The Hongs were therefore liable to indemnify Columbia for the sum: at [334] and [335] .

(11) The sums claimed against PTNM for supplies and machinery did not fall within the scope of the indemnity under the SSA. The Hongs were therefore not liable to indemnify Columbia for the sums: at [337] , [352] and [353] .

Chng Bee Kheng v Chng Eng Chye [2013] 2 SLR 715 (refd)

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Dolphin Maritime & Aviation Services Ltd v Sveriges Angfartygs Assurans Forening [2009] 2 Lloyd's Rep 123 (refd)

Holland Leedon Pte Ltd v Metalform Asia Pte Ltd [2012] 3 SLR 377 (refd)

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