CPIT Investments Ltd v Qilin World Capital Ltd

CourtHigh Court (Singapore)
JudgeVivian Ramsey IJ
Judgment Date17 July 2017
Docket NumberSuit No 5 of 2016
Date17 July 2017

[2017] SGHC(I) 5

Singapore International Commercial Court

Vivian Ramsey IJ

Suit No 5 of 2016

CPIT Investments Ltd
Qilin World Capital Ltd and another

Tan Poh Ling Wendy and Kenneth Chua (Morgan Lewis Stamford LLC) for the plaintiff;

Roderick Martin SC, Renganathan Nandakumar, Vernon Voon and Sharon Chung (RHTLaw Taylor Wessing LLP) for the defendants.

Adams v Bank of New South Wales [1984] 1 NSWLR 285 (refd)

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Alwie Handoyo v Tjong Very Sumito [2013] 4 SLR 308 (folld)

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Ching Mun Fong v Liu Cho Chit [2001] 1 SLR(R) 856; [2001] 3 SLR 10 (refd)

CPIT Investments Ltd v Qilin World Capital Ltd [2017] 3 SLR 1 (refd)

Crerar v Bank of Scotland (1922) SC (HL) 137 (refd)

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Conveyancing Law and Property Act (Cap 61, 1994 Rev Ed) s 24(1)(a)

Securities and Futures Act (Cap 289, 2006 Rev Ed) ss 197, 198

Credit and Security — Mortgage of personal property — Stocks and shares — Non-recourse loan agreement — Interpretation of non-recourse loan agreement — Whether terms of non-recourse loan agreement permitted sale by mortgagee of shares pledged as collateral

Tort — Conversion — Conversion of intangible property — Conversion of shares — Whether action for conversion of shares could be maintained where there was no evidence of operation of share transfer system or any allegation of interference with share certificates

Trusts — Constructive trusts — Constructive trust arising from sale of property by equitable mortgagee — Whether equitable mortgagee held surplus proceeds of sale on constructive trust for mortgagor — Whether such constructive trust arose when sale was in breach of terms of mortgage or loan agreement

The plaintiff (“CPIT”) entered into a non-recourse loan under which it borrowed HK$31.25m. It was not clear whether the lending party (“Qilin”) was the first defendant, which was incorporated in Hong Kong, or the second defendant, a British Virgin Islands company, as both were named Qilin World Capital Ltd. As collateral for the loan, CPIT provided Qilin with control over 25m shares (“Pledged Shares”) in Millennium Pacific Group Holdings Limited (“Millennium”). These shares were publicly traded on the Growth Enterprise Market of the Hong Kong Stock Exchange. The loan was disbursed pursuant to two contracts: a stock secured financing agreement (“the Loan Agreement”) and a control agreement, which were both executed in November 2015.

In December 2015, Qilin transferred the Pledged Shares into a new account, and executed a sale note by which it sold the shares to itself at HK$2.50 per share, for a total of HK$62.5m. It then transferred the Pledged Shares to its account with another trading company, Haitong International Securities Company Ltd (“Haitong”), and started selling the shares from 8 December 2015 onwards. The shares of Millennium then sharply fell in value. Thus a dispute arose over whether Qilin had committed a breach of the Loan Agreement by selling the Pledged Shares, or whether a price default clause in the Loan Agreement had been triggered, which required CPIT to provide additional collateral for the loan.

Proceedings were commenced in the Singapore courts, and a Mareva injunction was granted restraining Qilin from disposing of the Pledged Shares. This injunction was later varied, by consent, so that the proceeds from the sale of the Pledged Shares, amounting to approximately HK$25.4m, together with a further sum of approximately HK$2.1m was to be paid by Qilin into a designated account with its solicitors.

CPIT claimed that Qilin committed a repudiatory breach of the Loan Agreement by selling the Pledged Shares, and that CPIT had validly terminated the contract when it sent Qilin a letter of termination on 4 January 2016. CPIT also claimed that Qilin owed fiduciary duties to it as an equitable mortgagee and therefore held the proceeds from the sale of the Pledged Shares on trust for CPIT, and was liable to account for any profits from the sale and disposal of the Pledged Shares. In addition, CPIT submitted that Qilin had committed the tort of conversion by selling the remaining Pledged Shares after the termination of the Loan Agreement on 4 January 2016, when Qilin's right to immediate possession of the remaining Pledged Shares had reverted back to CPIT. For the claim in contract, CPIT claimed damages for the loss in the value of the Pledged Shares following the fall in the Millennium share price, which CPIT asserted was a direct result of the disposal of the shares by Qilin in breach of the Loan Agreement.

In response, Qilin relied on cl 5(f) of the Loan Agreement which provided as follows: “The Lender shall have the right to transfer, re-hypothecate and assign the shares. In the event of a default, the Lender shall have the right to dispose of the shares.” Qilin's defence was that it was entitled to sell the Pledged Shares under cl 5(f) and that the clause allowed Qilin to sell the shares to “hedge” so that it could manage the risk of the shares decreasing in value. In the alternative, Qilin pleaded that CPIT was estopped from enforcing its rights under the Loan Agreement because of certain communications in December 2015 between Qilin, CPIT and the persons who introduced the two parties to each other by which CPIT purportedly represented that it would continue with the Loan Agreement notwithstanding the sale of the Pledged Shares by Qilin. Qilin also asserted that the loss in the value of the Pledged Shares was not caused by Qilin's disposal of the shares, but was an inevitable eventuality because the share price of Millennium was artificially maintained with CPIT's involvement and/or knowledge. Finally, Qilin brought a counterclaim on the basis that it was CPIT which had committed a repudiatory breach of the Loan Agreement by not curing the breach of the price-default clause, cl 5(b)(i), following a decrease in the price of the Pledged Shares of more than 35% for three consecutive trading days.


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