DB Trustees (Hong Kong) Ltd v Consult Asia Pte Ltd

• Jurisdiction: Singapore
• Judge: Tay Yong Kwang J
• Judgment Date: 13 March 2009
• Neutral Citation: [2009] SGHC 62
• Court: High Court (Singapore)
• Published date: 13 March 2009
• Citation: [2009] SGHC 62
• Plaintiff Counsel: Sarjit Singh Gill SC/Koh Junxiang (Shook Lin & Bok LLP)
• Defendant Counsel: Jimmy Yap/Ernest Subramaniam (Jimmy Yap & Co)
• Subject Matter: Credit and Security
• Year: 2009

13 March 2009

Tay Yong Kwang J:

Introduction

1 This is an application made by DB Trustees (Hong Kong) Limited (“the plaintiff”) against Consult Asia Pte Ltd (“the defendant”) for the following orders:

(a) That the plaintiff is entitled to declarations that pursuant to the terms of the Trust Deed dated 28 December 2006 entered into between the plaintiff and the defendant (“the Trust Deed”) and the Security Deed also dated 28 December 2006 entered into between the plaintiff and the defendant (“the Security Deed”):

(i) An Event of Default has occurred pursuant to inter alia Clause 10.1(a) of the Conditions of the Notes set out at Part 2 of the Trust Deed (“the Conditions of the Notes”); and

(ii) The plaintiff’s appointment of Mr Kon Yin Tong, Mr Wong Kian Kok and Mr Aw Eng Hai, all of Messrs Foo Kon Tan Grant Thornton as joint and several receivers and managers (“the Receivers”) of the defendant is valid.

(b) An injunction restraining the defendant, by itself or by its officers, directors, shareholders, agents or employees from interfering with and/or preventing the Receivers from the lawful execution of the Receivers’ powers and performance of the Receivers’ duties under the Security Deed;

(c) That the defendant forthwith deliver up and/or furnish to the Receivers all property, books and records as the Receivers may reasonably require in order to carry out the lawful execution of the Receivers’ powers and performance of the Receivers’ duties under the Security Deed;

(d) Judgment for the sum of US$42,080,000 and interest at the rate of 2% per annum from 1 July 2008 to the date of payment pursuant to Clause 2 of the Trust Deed and Condition 5 of the Conditions of the Notes; and

(e) Costs on an indemnity basis.

2 The defendant, in turn, seeks the following relief by way of Counterclaim in these proceedings:

(a) a declaration that the plaintiff is barred by Section 15 of the Moneylenders Act (Cap 188, 1985 Rev Ed) from enforcing its rights under the Trust Deed or the Security Deed with consequential relief including an injunction to require the plaintiff to remove the Receivers and deliver up the security held in respect of the transaction;

(b) further or in the alternative, if the plaintiff is not exempted from obtaining a trust business licence under the Trust Companies Act (Cap 336, 2006 Rev Ed), a declaration that the plaintiff is precluded by the principles of illegality and public policy from enforcing its rights under the Trust Deed or the Security Deed with consequential relief including an injunction to require the plaintiff to remove the Receivers and deliver up the security held in respect of the transaction;

(c) further or in the alternative, a declaration that in the events that have happened and upon the true construction of the Trust Deed, the Conditions of the Notes as well as the other documents including the mortgage documents in the transaction, an “Event of Default” within the meaning of Condition 10.1 of the Notes has not occurred in that it was the plaintiff which wrongly prevented the defendant from paying the amounts due;

(d) further or in the alternative, a declaration that the plaintiff’s appointment of the Receivers is invalid because of bad faith with consequential relief including damages and/or an injunction to require the plaintiff to remove the Receivers.

In essence, therefore, the defendant has raised two contentions of law in (a) and (b) above and two issues of fact in (c) and (d) above.

Factual background

3 The plaintiff is a limited company incorporated under the laws of Hong Kong. The defendant is a local exempt private company limited by shares and was incorporated in 1993.

4 The defendant owns two properties in Singapore. The first property is a refurbished conservation two-storey corner shophouse and a six-storey extension with attic hostel block at Balestier Road (“the Balestier property”). The second property is a piece of land off the junction of Still Road and Changi Road (“the Changi property”). It is not in dispute that these two properties constitute the entirety of the defendant’s assets. As at July 2008, the two properties were worth a total of S$107 million (on an as is basis) and S$147 million (on the basis that the Changi property would be fully developed into the proposed Beulah Regency Mall and Studios).

5 The defendant financed its acquisition and development of the two properties through two avenues: shareholder funds and borrowings from financial institutions. In 2006, the Balestier property was mortgaged to OCBC and the Changi property was mortgaged to DBS to secure the borrowed funds from the respective banks (totalling approximately S$27 million).

6 Around October or November 2006, the defendant decided to seek alternative financing with the view of discharging the OCBC and the DBS loans and in order to finance its proposed development of the Changi property. The defendant’s director, Florence Koh (“Florence”), a lawyer by training, was introduced to one Enoch Tan (“Enoch”) of UBS AG (“UBS”). Enoch proposed that UBS raise a credit facility in the sum of US$32 million for the defendant to:

(a) discharge the S$27 million loan from DBS and OCBC;

(b) pay UBS for the arrangement fees;

(c) pay the professional fees of lawyers, trustees and valuers;

(d) pay the 1st year interest for the US$32 million loan;

(e) pay the construction costs and/or purchase adjoining houses and land to expand the proposed development; and

(f) use the rest of the funds as working capital.

7 On 11 December 2006, Florence signed an Engagement Letter prepared by UBS appointing UBS as the defendant’s sole arranger and lead manager to raise the US$32 million credit facility.

8 The rest of the saga revolves around four finance documents all of which were signed by Florence and her co-director, Tan Swee Oon Maureen (“Maureen”), on 28 December 2006. The four documents are as follows:

(a) Subscription Agreement between the defendant and UBS dated 28 December 2006 (“the Subscription Agreement”);

(b) Trust Deed between the plaintiff (which acted as the trustee) and the defendant dated 28 December 2006 (the Trust Deed as in [1] above);

(c) Security Deed between the plaintiff (which acted as the security trustee) and the defendant dated 28 December 2006 (the Security Deed as in [1] above); and

(d) Agency Agreement between the plaintiff, the defendant and Deutsche Bank AG, Hong Kong Branch (“Deutsche Bank”) dated 28 December 2006 (“the Agency Agreement”)

Subscription Agreement

9 Pursuant to the terms of the Subscription Agreement, the defendant agreed to issue US$32 million Senior Secured Notes (“the Notes”) due in 2008 and UBS, in turn, agreed to subscribe and pay for the Notes at an issue price of 100%. In this regard, it was agreed that the Notes would be constituted by a Trust Deed and issued subject to and with the benefit of an Agency Agreement.

Trust Deed

10 In accordance with the terms of the Trust Deed, which constituted the Notes, the plaintiff agreed to act as trustee and security trustee of the Trust Deed for the benefit of the Noteholders. In particular, Clause 2.2 of the Trust Deed reads as follows:

The [defendant] covenants with the Trustee that it will, in accordance with this Trust Deed, on the due date for the final maturity of the Notes provided for in the Conditions, or on such earlier date as the same or any part thereof may become due and repayable thereunder, pay or procure to be paid unconditionally to or to the order of the Trustee in U.S. dollars in New York City in immediately available funds the principal amount of the Notes repayable on that date together with any other amounts comprising the Mandatory Prepayment Amount and shall in the meantime and until such date (both before and after any judgment or other order of a court of competent jurisdiction) pay or procure to be paid unconditionally to or to the order of the Trustee as aforesaid interest (which shall accrue from day to day) on the principal amount of the Notes at rates calculated from time to time in accordance with Condition 5 (Interest) and on the dates provided for in the Conditions…

11 Clause 9.1 of the Trust Deed reads as follows:

Each of the Trustee and the Security Trustee may at any time, at its discretion and without notice, take such proceedings and/or other steps as it may think fit against or in relation to the Issuer to enforce its obligations under this Trust Deed, the Security Documents and the other Finance Documents (as the case maybe).

12 The Conditions of the Notes have been incorporated by reference into the terms of the Trust Deed. The salient conditions are Conditions 7.1 and 10.1(a).

13 Condition 7.1 provides:

Unless previously redeemed or purchased and cancelled as provided below, the Issuer shall redeem the Notes at 128 per cent of their principal amount on the second Interest Payment Date.

The plaintiff therefore asserts that the aggregate amount due to the plaintiff on the second Interest Payment Date (stated in Condition Rule 5.1 to be 28 June 2008) was US$42,080,000. This figure of US$42,080,000 is, in my view, the correct amount that the defendant has to pay to the plaintiff on 28 June 2008.

14 Condition 10.1(a) provides:

The Trustee at its discretion may, and if so requested in writing by the holders of at least 25 per cent in principal amount of the Notes then outstanding or if so directed by an Extraordinary Resolution of the Noteholders shall (subject in each case to being indemnified to its satisfaction) give notice to the [defendant] that the Notes are, and they shall accordingly forthwith become, immediately due and repayable at the Mandatory Prepayment Amount, in any of the following events (Events of Default):

(a) if default is made in the payment of any interest or principal in respect of the Notes or any of them; …

It is therefore clear that default in payment of any interest or principal in respect of the Notes is considered an Event of...