eSys Technologies Pte Ltd v nTan Corporate Advisory Pte Ltd

• Judge: Lai Siu Chiu J
• Judgment Date: 29 June 2012
• Neutral Citation: [2012] SGHC 136
• Citation: [2012] SGHC 136
• Docket Number: Suit No 690 of 2010
• Published date: 11 April 2013
• Hearing Date: 13 March 2012,15 March 2012,10 March 2012,11 March 2012,17 March 2012,18 March 2012,14 March 2012,12 March 2012,16 March 2012,09 March 2012
• Plaintiff Counsel: Samuel Chacko and Yeo Teng Yung Christopher
• Date: 2012
• Defendant Counsel: Edwin Tong, Kristy Tan and Valerie Tay Yie Shan (Allen & Gledhill LLP)
• Court: High Court (Singapore)
• Subject Matter: Contractual terms,Contract

Lai Siu Chiu J: Introduction

This is a case where eSys Technologies Pte Ltd (“the plaintiff”) should have adhered to the adage “let sleeping dogs lie” instead of suing nTan Corporate Advisory Pte Ltd (“the defendant”) for, inter alia, the refund of the balance of the deposit of S$2m (“the Deposit”) that it paid to the defendant for the latter’s consultancy services. Its filing of this suit prompted the defendant to file a counterclaim against the plaintiff for a sum far in excess of the balance of the Deposit.

The parties

The plaintiff is a company which was founded and incorporated in 2000 by Vikas Goel (“Vikas”). At the material time in November 2006, the plaintiff was in the business of distributing computer hardware. As of October and November 2006, the plaintiff had several worldwide distribution agreements with Seagate Technology (“Seagate”). Seagate is and was at all material times a multinational corporation based in the United States which designs, manufactures and markets the Seagate and Maxtor brands of hard disk drives. It is not disputed that the distributorship agreements with Seagate were significant to the plaintiff as 40% of the plaintiff’s sales comprised of Seagate and Maxtor products and that 40% of the plaintiff’s receivables were derived from the same.

The defendant is a Singapore company. The defendant is and was at all material times engaged in business and management consultancy services, as well as corporate finance and restructuring services. Its chief executive officer is and was at all material times, Nicky Tan (“Nicky”). Prior to setting up the defendant, Nicky was the Head of Advisory Services at PricewaterhouseCoopers Singapore. In addition, he was also the Chairman of Financial Advisory Services of PricewaterhouseCoopers Asia Pacific, as well as the previous Head of Global Corporate Finance at Arthur Andersen for Singapore and the ASEAN region. Nicky’s curriculum vitae was testimony to his expertise in the fields of corporate restructuring and insolvency.

Facts leading to the commencement of the relationship

The relationship between the parties arose from events which took place in November 2006. On 6 November 2006, Seagate terminated various distributor agreements which it had with the plaintiff and its subsidiaries. In doing so, Seagate filed an announcement with the United States Securities and Exchange Commission (“SEC Announcement”) which stated, inter alia:

Today we took steps to commence the process of terminating our distributor relationships with [the plaintiff] and we have ceased shipments of our products to [the plaintiff]. [The plaintiff] was the largest distributor of Seagate products (including Maxtor products) for the fiscal year ended June 30, 2006 and for the quarter ended September 29, 2006, representing approximately 5% and 6% of our revenues for those respective periods.

In early October 2006, we initiated an audit of [the plaintiff’s] point of sale records pursuant to our contractual rights to confirm the accuracy and completeness of [the plaintiff’s] claims for program credits under our distributor sales incentive programs. Discussions with [the plaintiff] surrounding the timing, scope of work, and selection of third party auditors continued until last week when [the plaintiff’s] officials informed us they would deny our third party auditors access to [the plaintiffs’] records to perform the requested audit notwithstanding our contractual rights to do so. [The plaintiff’s] officials also indicated to us that an audit would likely reveal irregularities in [the plaintiff’s] compliance with the terms of our incentive programs and other unspecified irregularities. In addition, [the plaintiff] has failed to make full current payments on its obligations to us. Accordingly, today, we notified [the plaintiff] that we are terminating our commercial distributor relationships with [the plaintiff].

Then in December 2006, Seagate (and its related companies) commenced Suits No. 844 of 2006 and No 854 of 2006 against the plaintiff and Vikas respectively. (The two suits will be collectively referred to hereinafter as “the 2006 suits”.) Suit No 844 of 2006 was Seagate’s claim against the plaintiff for the then outstanding sum of more than US$4m due from the plaintiff for the supply of Seagate products. Suit No 854 of 2006 was Seagate’s claim against Vikas as the guarantor of the plaintiff’s debts under a guarantee dated 8 October 2004. In October 2006, this court dealt with five Registrar’s Appeals arising out of the 2006 suits.

The agreement between the parties

The events detailed at [4] and [5] above had severe ramifications for the plaintiff. The termination of the distributorship agreements with Seagate, a significant revenue generator of the plaintiff, raised concerns in various parties who had vested interests in the plaintiff. Such concerns resulted in actions which were financially detrimental to the plaintiff. In particular, creditors and suppliers of the plaintiff cancelled credit facilities while bank creditors demanded repayment or furnishing of additional security.

In a bid to alleviate its dire situation, the plaintiff sought legal advice from its solicitors, Drew & Napier LLC, whose S Nair (“Nair”) recommended that the defendant be engaged as an adviser. Nair then arranged a meeting with Nicky on 11 November 2006 on an urgent basis. On 14 November 2006, the plaintiff and defendant signed a letter of engagement (“the Engagement Letter”).

As the Engagement Letter is central to the dispute between the parties, its salient terms are reproduced below.

The main reason for appointing the defendant was stated in the Engagement letter (“the Appointment Clause”) as follows:

APPOINTMENT OF INDEPENDENT ADVISOR Allegations of irregularities in a distribution deal between [the plaintiff] and [Seagate] was made by Seagate in a filing on 6 November 2006 with the United States Securities Exchange Commission (“the Allegations”) by Seagate. The Allegations may result in litigation (“Potential Litigation”).

The scope of the defendant’s employment was stated in the Engagement Letter (“Scope of Work Clause”) as follows:

Scope of work The board of directors of [the plaintiff] (“Board of Directors”) has resolved to and appointed [the defendant] as independent advisor to [the plaintiff] and its subsidiary and associate companies (together, the “Group”) to:

(i) review all matters which are the subject of the Allegations and such other related transactions arising from or connected thereto; (ii) advise and assist the Group in reviewing and developing strategic options with the objective of enhancing value to all stakeholders; (iii) advise and assist the Group, as appropriate, on suitable options to restructure its operational activities and financial arrangements; (iv) advise and assist the Group on acquisitions and strategic alliances with the objective of enhancing stakeholder value; (v) advise and assist the Group in identifying and securing potential investors; (vi) advise and assist the Group in engaging and instructing relevant professionals, such as accounting, legal and tax who are experts as needed in the circumstances; (vii) assist lawyers and other professionals who have been and may be appointed by [the plaintiff] in connection with the Allegations and Potential Litigation; and (viii) review such other matters, transactions and affairs as may be agreed between the Board of Directors and [the defendant].

The Engagement Letter provided that two types of fees were liable to be paid by the plaintiff to the defendant. The first type of fees comprised of, inter alia, time costs and out-of-pocket expenses. This was stated in the Engagement Letter as follows (“the Fees Clause”):

[The defendant’s] fees for the engagement comprise our time costs fee, out-of pocket expenses (including fees of any experts or professionals) and such other fees as may be provided for in any addendum to this letter. [The defendant] will raise monthly progress billings (“Monthly Progress Billings”) based on our time costs and other fees and expenses. [The defendant’s] charge out rates and other charges and expenses, are set out in the attached schedule.

The schedule (“the Fees Schedule”) to the Engagement Letter, referred to in the Fees Clause (at [11] above) essentially detailed the hourly charge-out rates of personnel of the defendant, which was based upon seniority. The rates ranged from US$100 per hour for an associate, to US$1,000 per hour for Nicky.

The second type of fees were value-added fees (“VAF”), which were contingent upon the defendant performing certain types of work which resulted in value being added to the plaintiff. This was stated in the Engagement Letter as follows (“VAF Clause”):

Upon the successful completion of any of the above foregoing scope of work (“Successful Completion”), a Value-Added Fee (“VAF”) computed at 5% of Total Gross Value Added (“TGVA”), shall be payable by [the plaintiff] to [the defendant].

TGVA is the sum total of the following:

a) Value of the Group’s liabilities written off extinguished, avoided or restructured; b) Fair value of new assets injected and recovered by the Group; c) Value of new equity and/or debt raised by the Group; and d) Any other value add agreed with [the plaintiff] and the Group.

The Engagement Letter also provided that the plaintiff pay the Deposit upon execution. The plaintiff duly paid the Deposit, and as noted above at [1], brought the present suit to claim the refund of the balance of the Deposit.

Clause 8 of Appendix A to the Engagement Letter provided for termination and reads:

Termination

It is understood that the services to be provided by [the defendant] under this letter may be terminated by either of us at any time by written notice to the...