CPIT Investments Ltd v Qilin World Capital Ltd and another

• Jurisdiction: Singapore
• Judge: Vivian Ramsey IJ
• Judgment Date: 17 July 2017
• Neutral Citation: [2017] SGHC(I) 5
• Docket Number: Suit No 5 of 2016
• Date: 17 July 2017
• Published date: 09 March 2018
• Plaintiff Counsel: Tan Poh Ling Wendy and Kenneth Chua (Morgan Lewis Stamford LLC)
• Defendant Counsel: Roderick Martin SC, Renganathan Nandakumar, Vernon Voon and Sharon Chung (RHTLaw Taylor Wessing LLP)
• Hearing Date: 15 December 2016,13 December 2016,26 January 2017,14 December 2016
• Court: International Commercial Court (Singapore)
• Subject Matter: Tort,Conversion,Non-recourse Loan Agreement,Conversion of Shares,Trusts,Credit and Security,Mortgage of Personal Property,Stocks and Shares,Constructive Trusts

Vivian Ramsey IJ: Introduction

These proceedings concern a non-recourse loan under which shares were provided as collateral for the loan. The issues dealt with in this judgment concern the rights and liabilities of the parties, including the rights of the lender to sell the shares provided as collateral and the rights of the borrower to terminate the two agreements under which the loan was made, together with the liabilities of the parties which arise from the sale of the shares and the termination of the agreements.

In this judgment I shall refer to the Plaintiff borrower as “CPIT”. There is an issue as to whether the First Defendant, a Hong Kong company or the Second Defendant, a British Virgin Islands company is the relevant lending party. They both have the same name. I shall refer to the relevant party as “Qilin”.

A list of issues has been produced and I shall deal with those issues under a series of topics before summarising my answers to the issues at the conclusion of this judgment by way of an annex.

Background

In late 2015, CPIT was seeking to raise finance. CPIT had a substantial shareholding in Millennium Pacific Group Holdings Limited (“Millennium”). Millennium’s stock code is 8147 and its shares are publicly traded on the Growth Enterprise Market of the Hong Kong Stock Exchange.

In about mid-October 2015, Lee Kai Ming, also known as Prior Lee (“Mr Lee”), was introduced to Sum La Lok Alex (“Mr Sum”) who, among other things, was a valuation surveyor in Hong Kong. Mr Sum apparently had contacts in the Hong Kong financial sector and acted through a consultancy, All Might Investments Limited (“All Might”). Mr Lee’s precise role within or on behalf of CPIT is not clear but Mr Sum mentioned to him that there was an opportunity for CPIT to obtain loan facilities of up to HK$200,000,000.00. This information was relayed by Mr Lee to the sole director of CPIT, Chan Kwong Chi Vicky (“Mr Chan”) who was evidently interested in this potential loan.

Mr Lee then pursued this loan opportunity with Mr Sum and, on 27 October 2015, Mr Sum emailed a “Term Sheet For Non-Recourse Loan Relating To Shares of [Millennium]” dated 26 October 2015 to Mr Lee. Mr Sum stated the terms, in summary, as “final offer is 36 months on LTV 50% of 8147. 4% interest + 1.5% lender fee + 5% handling fee (All Might)”.

It seems that the term sheet was provided to Mr Sum by Ms Becky Suen (“Ms Suen”). Ms Suen was formerly a stockbroker but by October 2015 she was working as a stock loan agent. She used a business card indicating that she was a Senior Account Manager with MIFA Data Service Company Limited (“MIFA”). That company was run by a person called Laurence, a mutual friend of Mr Sum and Ms Suen and the person who had introduced them to each other.

Ms Suen operated as an intermediary bringing lenders and borrowers together. She said that she came to know of Qilin in about September 2015 as a result of an internet search. She said that this led to contact with Morgan Wilbur (“Mr Wilbur”) at Qilin. Ms Suen explained that when there was a potential borrower she would first obtain a term sheet from Qilin which she would provide to a potential borrower. If the terms of the term sheet were acceptable to that borrower she would proceed to the next stage, which was to send template documents consisting of a financing agreement and a control agreement. Ms Suen explained that the name of the lender was not mentioned in the term sheet to protect the interests of the intermediary and the lender. This avoided people bypassing the intermediary and also avoided people making Qilin’s terms known to competitors.

Following receipt of the terms on the term sheet of 27 October 2015, Mr Lee discussed those terms with Mr Chan. Mr Chan also discussed the commercial terms of the loan with Chu Chun Kit (“Mr Chu”), an acquaintance of his and of Mr Lee. Mr Chan said that the terms were acceptable to CPIT and Mr Lee then communicated this to Mr Sum. Mr Sum, it seems, in turn communicated this to Ms Suen because, on 28 October 2015, Qilin’s Chief Administrative Officer emailed Ms Suen drafts of a Stock Secured Financing Agreement and a Control Agreement. They identified CPIT as the prospective borrower and Qilin as the potential lender. However, in error, they showed the wrong stock code for Millennium, 8397 instead of 8147.

Those documents were sent by Ms Suen to Mr Sum who sent them to Mr Lee on 6 November 2015. At some stage the identity of Qilin had been deleted from the two agreements. Mr Sum said in an email that he would ask the lender to amend the stock code and he asked Mr Lee to pass the agreement to CPIT for review. He requested certain documents in terms of relevant CPIT board resolutions, CPIT’s account statement showing its holding and other necessary identification documentation.

On 12 November 2015 Mr Sum sent an email to Mr Lee referring to a checklist of the documents required to open the “custodian account” and indicated the documents which CPIT would have to sign the following week in the office of Qilin’s lawyers firm. These included a Commission Agreement (“the Commission Agreement”) between CPIT and Mr Sum’s consultancy, All Might, which was signed but now only exists in the draft version sent by Mr Sum to Mr Lee on 6 November 2015. The documents also included an account opening form with Prominence Financials Limited (“Prominence”) sent by Mr Sum to Mr Lee on 13 November 2015.

There was no direct contact, it seems, in relation to setting up the transaction except between Mr Chan and Mr Lee, Mr Lee and Mr Sum, Mr Sum and Ms Suen and Ms Suen and Qilin.

On 16 November 2015, Mr Lee, Mr Chan and Mr Chu met Mr Sum. This was the first contact between Mr Sum and Mr Chan or Mr Chu. Mr Sum then took Mr Chan, Mr Lee and Mr Chu, to the office of Qilin’s solicitors, M/s Gallant YT Ho (“Gallant”), in Hong Kong although he did not stay for the meeting. Ms Suen was also in attendance and Mr Chan, Mr Lee and Mr Chu were introduced to her for the first time. She was asked by Mr Chu whether she was from Qilin and she said that she was not but was from an intermediary. She produced her business card from MIFA.

A lawyer working for Gallant, Leung Yunn Kei Kelvin (“Mr Leung”) or his assistant handed Mr Lee execution copies of a Stock Secured Financing Agreement and a Control Agreement which identified Qilin as the lender. Mr Chan executed those agreements and the Prominence account opening forms and left them with Gallant for Qilin to sign. The two agreements, both dated 16 November 2015, were a Stock Secured Financing Agreement made between CPIT and Qilin (“the Loan Agreement”) and a Control Agreement made between CPIT, Qilin and Prominence (“the Control Agreement”) (collectively, “the Agreements”).

Before leaving Gallant’s offices, Mr Lee gave Ms Suen details of CPIT’s nominated bank account for the loan to be deposited into. It appears that, at the time, CPIT did not have a bank account in Hong Kong. Ms Suen then drafted a manuscript note in which she wrote: “It is resolved that our company agrees to assign the loan to MK Investments Limited. Please send the fund to the bank account below.” The bank account details for MK Investments Limited were then set out and the document was signed by Mr Chan.

A few days after 16 November 2015, Mr Chan asked Mr Chu to contact Ms Suen to confirm that the Agreements had been executed by Qilin and to ask when the loan would be ready for disbursement. Ms Suen* said that the signed agreements would be provided to CPIT and that Qilin was still calculating the closing/strike price for the Millennium shares and needed to see the closing price for five days to calculate an average.

Mr Sum had some involvement in relation to the opening of a bank account for CPIT. On 20 November 2015, DBS Bank (Hong Kong) Ltd (“DBS”) confirmed by an email to Mr Sum that it had received CPIT’s application to open a current and savings account and that it was being processed. It seems that Prominence needed proof of the bank account opening and Ms Suen forwarded the email from DBS to Cheng Yin Kong Michael (“Mr Cheng”), the Chief Operating Officer of Qilin, which he then sent to Prominence. The Prominence account (“Prominence Account 03”) was then opened and on 22 November 2015, Mr Cheng emailed Ms Suen to say that she might want to send instructions to CPIT to transfer the shares to that account.

It seems that these instructions were relayed by Ms Suen to Mr Sum. Mr Sum contacted Mr Lee and requested that CPIT transfer 210,000,000 Millennium shares to the Prominence account. This was more than the 187,272,728 shares stipulated in the Loan Agreement and Mr Chan said that this was for convenience and to allow for fluctuations in the price of the shares. Ms Suen informed Mr Cheng on 23 November 2015 that the 210,000,000 shares would be transferred on 24 November 2015 and, on that date, CPIT did make a transfer of those shares from its Emperor Securities Ltd account to Prominence Account 03.

Mr Chu was then asked by Mr Chan to check on the status of the loan. Mr Chu called Ms Suen on several occasions to chase the release of the loan. She told him that Qilin was finalising the closing/strike price and that she would be sending over a Closing Statement soon. Mr Chan also asked Mr Lee to chase the loan and he then spoke to Mr Sum. Mr Sum informed him that Qilin proposed for CPIT to draw down HK$31,250,000.00 for the first tranche of the loan and for CPIT to pledge 25,000,000 Millennium shares as security for the loan based on the average closing price of the past 10 days of HK$2.50 per share. Mr Sum explained that this would be the first of three tranches of the loan.

On 2 December 2015 at 10:13 Ms Suen sent Mr Chu the Closing Statement showing the transaction for the first tranche as Mr Sum had explained to Mr Lee. She asked Mr Chan to sign it with the company chop and return...