Firstlink Energy Pte Ltd v Creanovate Pte Ltd and Another Action

• Jurisdiction: Singapore
• Judge: Andrew Ang J
• Judgment Date: 22 December 2006
• Neutral Citation: [2006] SGHC 240
• Date: 22 December 2006
• Subject Matter: Directors,Whether plaintiff entitled to refund of moneys advanced to defendant on ground of such total failure of consideration,Conditions,Contract,Whether defendant-company's failure to fulfil conditions precedent under agreement with plaintiff-company amounting to total failure of consideration,Companies,Duties,Whether directors breaching fiduciary duties to plaintiff and breaching ss 162 and 163 Companies Act by causing plaintiff to advance moneys to defendant-company such that plaintiff suffering loss as result,Sections 162, 163 Companies Act (Cap 50, 1994 Rev Ed),Directors of plaintiff also having interest in defendant-company,Contractual terms
• Docket Number: Suit Nos 521 and 523 of 2005
• Published date: 22 March 2007
• Defendant Counsel: Chopra Sarbjit Singh and Suja Michelle Sasidharan (Lim & Lim),Tan Teng Muan and Loh Li Qin (Mallal & Namazie)
• Court: High Court (Singapore)
• Plaintiff Counsel: Low Chai Chong, Loh Kia Meng and Joanna Yeo (Rodyk & Davidson)

22 December 2006

Andrew Ang J:

1 This case concerns two actions which were consolidated by a court order dated 28 December 2005. In the first action, the plaintiff commenced suit against Creanovate Pte Ltd (“Creanovate”) alleging that the latter had breached the terms and conditions of an agreement (“the Subscription Agreement”). In its re-amended statement of claim, the plaintiff alleged the following breaches by Creanovate:

(a) Failure to fulfil the conditions precedent in the Subscription Agreement on or before the cut-off date for satisfaction of the same; and

(b) Breach of warranty, representation or undertaking in the Subscription Agreement.

The plaintiff thus sought to recover the aggregate sum of $3.26m which it had advanced to Creanovate. The plaintiff demanded a refund on the basis that Creanovate’s breach had caused it to suffer loss and/or that there had been a total failure of consideration under the Subscription Agreement. In addition, the plaintiff sought to recover another sum of $1m lent by the plaintiff to Creanovate which the latter failed to repay despite the plaintiff’s demands.

2 The plaintiff’s second action was against Ngu Tieng Ung (“Ngu”) and Tang Kok Heng (“Tang”), who were formerly directors of the plaintiff. In its re-amended statement of claim, the plaintiff alleged the following breaches by Ngu and Tang:

(a) Breach of fiduciary duties and breach of trust in permitting the plaintiff to advance a total of $4.26m to Creanovate and/or Tang; and

(b) Breach of ss 162 and 163 of the Companies Act (Cap 50, 1994 Rev Ed) (“the Companies Act”) in permitting a total of $4.26m to be advanced to Creanovate and/or Tang.

3 At the close of the plaintiff’s case, all three defendants made a submission of no case to answer.

4 Having considered the case in its entirety, I am of the view that there is a case to answer with respect to each of the defendants.

The facts

5 The plaintiff is a wholly-owned subsidiary of Firstlink Investment Corporation (“FICL”), a public company listed on the Singapore Exchange, and served as a vehicle for FICL in respect of its venture into the coal industry.

6 Creanovate is an exempt private limited company, whose main business activities are those of general wholesale trade. The directors of Creanovate at the material time were Tang and May Wijaya. Tang was also the majority and controlling shareholder in Creanovate.

7 Ngu is a Malaysian businessman who became a substantial shareholder of FICL sometime in November 2003 and was appointed to the Executive Committee of FICL in or about July 2004. He officially became a director of FICL on 22 December 2004 and of the plaintiff on 15 September 2004.

8 Prior to August 2004, the plaintiff had no experience whatsoever in the coal trading business. It was a dormant company and had only two directors – Darren Kee Chit Huei (“Kee”) and Joe Wong Siu Kay (“Wong”). Kee was the executive director of FICL at that point in time. Wong was also a director of FICL at the material time.

9 In July 2004, Tang approached Ngu with a business proposal for coal trading. Ngu introduced Tang to Kee. Shortly after, on 19 August 2004, the plaintiff, Creanovate and Tang entered into a Joint Venture Agreement (“JVA”). The decision to enter into the joint venture was made by Ngu, Kee and Wong, and the JVA was only presented to the FICL board of directors on 24 August 2004.

10 The JVA was stated to be for the purposes of coal trading. Tang and Creanovate supposedly had ready access to a supply of coal and agreed to “exclusively supply” coal to the plaintiff under the JVA. Pursuant to cl 3 of the JVA, the plaintiff was required to advance $171,000 to “set up basic communications, living and transport infrastructure at the stock pile site prior to the start of the business”. The plaintiff therefore disbursed $170,000 to Creanovate. Those moneys appear to have been lost and have since been written off entirely in FICL’s accounts for the financial year ending 31 December 2004. They do not form part of the present actions.

11 On or about 1 September 2004, even before the coal trading venture under the JVA had commenced, Tang started to request for more advances from the plaintiff. In his letter of 1 September 2004, Tang sought an advance of $30,000 as he “need[ed] the money urgently to settle some urgent outstanding matters”. This sum would purportedly be treated as an advance of investment in Creanovate for coal mining.

12 On 6 September 2004, Tang wrote to the plaintiff once again inviting the latter to participate in a coal mining investment in Indonesia. In the letter, Tang wrote:

To show your interest in such investment, we require you to advance us a total of SGD 2 million as we need the money to pay expenses related to mine acquisition in Indonesia. The advancement of SGD 2 million should be disbursed to us as and can (sic) the needs (sic) arise (sic). However, we will require SGD 940,000 by tomorrow to meet our financial obligations.

This “investment” in coal mining would later form the basis of a Subscription Agreement between Creanovate, the plaintiff and PT Perdana Andalan Coal (“PT PAC”). PT PAC was an Indonesian company formed recently by Tang.

13 The plaintiff duly complied with Tang’s request and advanced the sum of $940,000 to Creanovate on 7 September 2004.

14 At the same time, Tang proposed to be appointed as a director of the plaintiff in order to acquire a higher standing in Indonesia and thereby facilitate the alleged intended and ongoing coal investments. Tang was appointed as a director of the plaintiff on 9 September 2004 while Ngu was similarly appointed shortly after on 15 September 2004.

15 Thereafter, Ngu and Tang took full control in managing the plaintiff, where coal-related activities were concerned. Wong and Kee, on the other hand, dealt with the other existing businesses of FICL.

16 Further monetary advances to Creanovate followed shortly thereafter. On 3 November 2004, a further sum of $500,000 was advanced to Creanovate by the plaintiff. On 17 November 2004, $280,000 was advanced. They were stated to be part of the $2m which Tang and/or Creanovate required.

17 The advances were made before the parties’ entry into the Subscription Agreement. It was only on 8 January 2005 that the plaintiff, Creanovate and PT PAC entered into the Subscription Agreement.

18 The Subscription Agreement was the product of discussions between Ngu and Tang. Tang had represented on various occasions that PT PAC had a 60% equity interest in PT Kencana Artha Buana (“PT KAB”), which in turn had a 72.5% equity interest in PT Senamas Energuido Mula (“PT SEM”). PT KAB purportedly had rights to exploit coal with various companies in southern Kalimantan. Tang also represented that PT SEM owned concessions to extract coal from mines in Kota Bahru, South of Kalimantan.

19 Under the terms of the Subscription Agreement, the plaintiff was to advance a sum of $2m to Creanovate, the aggregate of $1.72m which had already been advanced in anticipation of the Subscription Agreement being taken into account. Subject to the satisfaction of the conditions precedent described below, the plaintiff would subscribe for $3.5m of exchangeable bonds (which could be converted into a 30% equity interest in PT PAC) using the $2m advance and an additional $1.5m payable at completion. (This was a modification of the original proposal, where the parties had envisaged the investment to take the form of a 25% share in Creanovate’s subsidiary.) The conditions precedent, which had to be satisfied by 22 February 2005 (“the deadline”), were: the receipt by the plaintiff of confirmations from qualified sources that PT PAC’s group structure was indeed as represented in the Subscription Agreement, as well as confirmation with regard to “the rights of the coal concessions” of PT SEM and PT KAB. In the event that the conditions precedent were not fulfilled by the deadline, the advanced sum of $2m would be returned to the plaintiff and the Subscription Agreement terminated.

20 The Subscription Agreement was approved by the FICL board by a circular resolution dated 8 January 2005.

21 The plaintiff subsequently advanced even more moneys to Creanovate. Over a period of three days, from 18 to 20 January 2005, the sums of $250,000, $300,000 and $280,000 were advanced to Creanovate. On 3 February 2005, a further sum of $710,000 was advanced, bringing the total advances to $3.26m. The aggregate sum advanced was far in excess of the $2m contemplated under the Subscription Agreement. A breakdown of the sums advanced is as follows:

No	Date	Mode of Payment	Amount ($)
1	07.09.04	Telegraphic transfer	940,000
2	03.11.04	Telegraphic transfer	500,000
3	17.11.04	Cheque No 680668	280,000
4	18.01.05	Cheque No 515047	250,000
5	19.01.05	Cheque No 515048	300,000
6	20.01.05	Cheque No 515064	280,000
7	03.02.05	Cheque No 515096	710,000
		TOTAL:	3,260,000

22 After the Subscription Agreement was signed, Wong and Kee repeatedly asked Ngu and Tang about the conditions precedent since they saw each other daily at the office. Ngu and Tang gave constant reassurances that the conditions precedent were being attended to. Despite those assurances, the conditions precedent were not fulfilled by the deadline.

23 On 7 March 2005, the plaintiff wrote to Creanovate to remind the latter of its obligations as to the conditions precedent. Tang replied, setting out the reasons for the delay and requesting an extension of the deadline to 15 March 2005.

24 The plaintiff agreed to the extension. However, it stipulated that if the conditions precedent remained outstanding by 15 March 2005, it would require Creanovate to refund all the advances which had been made under the Subscription Agreement.

25 On 15 March 2005, Tang wrote to the plaintiff purporting to attach a legal opinion on the Indonesian coal mines structure. Tang indicated that...