Columbia Asia Healthcare Sdn Bhd v Hong Hin Kit Edward and another and another appeal
| Judge | Sundaresh Menon CJ |
| Judgment Date | 22 January 2015 |
| Neutral Citation | [2015] SGCA 3 |
| Subject Matter | Damages,Remedies,Breach,Contract |
| Citation | [2015] SGCA 3 |
| Docket Number | Civil Appeals Nos 68 and 69 of 2014 |
| Year | 2015 |
| Hearing Date | 02 October 2014 |
| Court | Court of Three Judges (Singapore) |
| Published date | 16 October 2015 |
| Defendant Counsel | Niru Pillai, Liew Teck Huat and Jason Yeo (Global Law Alliance LLC) |
| Plaintiff Counsel | Harish Kumar and Jonathan Toh (Rajah & Tann Singapore LLP) |
Four appeals were before us at the hearing on 2 October 2014. The appeals arose from three sets of proceedings that were consolidated and heard together by the High Court Judge (“the Judge”), namely:
The purchase of the Hospital and the Land was structured in the form of a share purchase. The Hospital and the Land were owned by PT Nusautama Medicalindo (“PTNM”) which was in turn wholly owned by Universal Medicare Pte Ltd (“UMPL”). Pursuant to a Share Sale Agreement (“the SSA”) dated 24 December 2007, Columbia Asia Healthcare Sdn Bhd (“Columbia”) agreed to purchase 99% of the shares in UMPL (“the Sale Shares”) from Mr Edward Hong Hin Kit (“Edward Hong”), Mr Albert Hong Hin Kay (“Albert Hong”) (collectively, “the Hongs”) and Mr Boelio Muliadi (“Muliadi”), with an option to acquire the remaining 1% of UMPL’s shares, also dated 24 December 2007 (“the Call Option Agreement”).
Suit 964 was brought by Columbia against the Hongs for alleged breaches of the terms of the SSA. The Judge held and ordered/declared that the Hongs (a) pay damages for their breach of the SSA in failing to ensure that title to the Land was unencumbered; (b) indemnify Columbia against any claim arising from the transfer of shares; and (c) indemnify Columbia for any actual or contingent tax liabilities flowing from their breach of tax warranties in the SSA. The Hongs appealed against this part of his decision in Civil Appeal No 74 of 2014 (“CA 74”). The Judge also rejected Columbia’s claim for multiplier damages for the diminution in value of the Sale Shares and Columbia appealed against this part of the Judge’s decision in Civil Appeal No 68 of 2014 (“CA 68”).
Civil Appeal No 75 of 2014 (“CA 75”) was the Hongs’ appeal against the Judge’s decision in Suit 861. The suit concerned a claim by Thermal Industries & Supplies (Pte) Ltd (“Thermal Industries”) against Columbia for various sums due and owing. Columbia brought third-party proceedings against the Hongs for indemnities provided by them as vendors under the SSA. The Judge granted judgment in favour of Thermal Industries for the debts owed to it but also found that the Hongs were liable to indemnify Columbia for the said amount.
Civil Appeal No 69 of 2014 (“CA 69”) was Columbia’s appeal against the decision of the Judge in Suit 862. This was a claim by Thermal International (S) Pte Ltd (“Thermal International”) against Columbia for sums due and owing to it, including a sum owed for the purchase of an MRI machine (“the MRI debt”). Columbia brought third-party proceedings against the Hongs for indemnities provided by them as vendors under the SSA. The Judge granted judgment in favour of Thermal International and found that the Hongs were not liable to indemnify Columbia for the said sums. Columbia appealed against the Judge’s decision in respect of the Hongs’ liability to indemnify Columbia for the MRI debt.
At the end of the hearing, we dismissed the appeals in CA 74 and CA 75 with brief oral grounds reaffirming the decision of the Judge below but reserved judgment in respect of CA 68 and CA 69. We now deliver the judgment of the court in respect of CA 68 and CA 69.
Background facts The full background to the dispute is set out in
In 2007, the Hongs were looking to sell the business of PTNM and were referred to Valued Partners Ltd (“Valued Partners”), a company specialising in mergers and acquisitions. Michael Chow, the head of Valued Partners, contacted the Managing Director of Columbia, Rick Evans, who expressed interest in purchasing the Hospital and the Land.
On 19 October 2007, Rick Evans visited the hospital in Medan and met Edward Hong (“the First Key Meeting”). According to Rick Evans, he was given a sheet of paper purporting to show the operating cash flow of the Hospital for nine or ten months at this meeting or at an earlier meeting in September. From this, he was able to infer that the Hospital would generate a positive annual cash flow of about US$2.5m for 2007. The Hongs denied that there had been an earlier meeting in September and that any representation had been made as to the Hospital’s annual operating cash flow for 2007 at that time.
Following the First Key Meeting, Rick Evans wrote to Edward Hong on 22 October 2007 with an initial conditional offer of US$30m for the Hospital and the Land (“the First Conditional Offer”). According to Rick Evans, it was Columbia’s practice to determine the purchase price of its acquisitions with reference to the target hospital’s Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) multiplied by an appropriate multiplier. He claimed that following a discussion with Prem Abraham, the Chief Financial Officer of Columbia, they decided to apply a multiplier of 12 to PTNM’s 2007 EBITDA of US$2.5m to arrive at the US$30m offer price. Another key condition contained in the First Conditional Offer was that the Hospital and the Land would come to Columbia free of all debts and obligations. Edward Hong replied the next day stating that he was comfortable with all the terms outlined in the First Conditional Offer, save for the price.
On 27 October 2007, Rick Evans, Edward Hong, Eddie Foo (Edward Hong’s trusted advisor) and others met at Columbia’s facility in Kuala Lumpur (“the Second Key Meeting”). Immediately after this meeting, Rick Evans made a second conditional offer (“the Second Conditional Offer”) to Edward Hong, raising the offer price to US$31m, with all other conditions remaining the same. On 29 October 2007, Edward Hong tacitly accepted this offer. Rick Evans therefore instructed Alan Lim, the lawyer acting for Columbia in the negotiations, to begin drafting an agreement.
Subsequently, Columbia discovered from management accounts and balance sheet figures provided by the vendors that PTNM’s current liabilities exceeded its current assets by US$841,000 as at September 2007. Columbia was of the view that the vendors were obliged to bear this excess in liabilities in accordance with what had been agreed upon in negotiations. Nevertheless, Rick Evans and Edward Hong agreed that Columbia would be responsible for US$500,000 of these liabilities and the vendors would bear the remaining US$341,000. The purchase price of the Sale Shares was therefore reduced by US$841,000, from US$31m to US$30,159,000. The US$500,000 that Columbia agreed to be responsible for became the purchase price of a nursing academy, Yayasan Gleni (“the Nursing Academy”).
The short-form agreement Between 30 November and 3 December 2007, Rick Evans paid a visit to Medan that culminated in a Short-Form Agreement (“the SFA”) dated 1 December 2007, which was signed by Edward Hong on behalf of the vendors and by Rick Evans on behalf of Columbia. In addition to the agreed reduction of the purchase price of the Sale Shares to US$30,159,000, Edward Hong would grant an exclusive option to purchase the remaining 1% of the shares in UMPL for US$1,000 by way of separate agreement,
A salient term of the SFA was that both UMPL and PTNM were to be delivered free and clear of all liens, debts and encumbrances. However, in respect of PTNM, the vendors would not be liable to Columbia for the following two categories of debts: (a) obligations to trade vendors and doctors that were part of its day-to-day operations (“the Trade Vendor Exclusion”); and (b) debts owed to UMPL (“the Intercompany Debt Exclusion”).
The Share Sale Agreement Following the signing of the SFA, there were further communications between Alan Lim and the vendors’ solicitors, Michael Khoo & Partners (“MKP”), about the draft SSA. On 7 December 2007, a meeting was held in Singapore to finalise and sign the SSA. Under the SSA, the purchase price of the Sale Shares was to be paid in Singapore Dollars at an agreed exchange rate of US$1 to S$1.45 which worked out to be S$43,730,550. This sum was apportioned as follows:
Under s 3.2 of the SSA, the SSA Purchase Price was to be paid by Columbia to MKP as stakeholders. Section 3.4 of the SSA provided that the SSA Purchase Price was to be released first towards the "full and final settlement of the Liabilities” and the balance (if any) to the Vendors upon the fulfilment of certain conditions.
“Liabilities” were defined in s 2.1.24 of the SSA as follows:
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