Freight Links Fabpark Pte Ltd v DB International Trust (Singapore) Ltd

• Jurisdiction: Singapore
• Court: High Court (Singapore)
• Judge: Lee Seiu Kin J
• Judgment Date: 07 May 2010
• Neutral Citation: [2010] SGHC 146
• Citation: [2010] SGHC 146
• Published date: 21 July 2010
• Subject Matter: Contract
• Plaintiff Counsel: Tan Cheng Han SC, Karen Teo, Clara Leow and Charmaine Kong (TSMP Law Corporation)
• Defendant Counsel: Michael Hwang SC (Michael Hwang) and Dinesh Dhillon Singh and Melanie Chng (Allen & Gledhill LLP)
• Hearing Date: 18 September 2009,06 November 2009
• Date: 07 May 2010
• Docket Number: Originating Summons No 1562 of 2008

Lee Seiu Kin J: Introduction

This dispute arose from a Put and Call Option Agreement dated 7 December 2007 (the “Agreement”) between the plaintiff and the defendant (acting in a representative capacity) relating to factory premises at 30 and 32 Tuas Avenue 8, Singapore (the “Property”).

The Property was originally leased by ST Microelectronics Pte Ltd (“STM”) from JTC Corporation (“JTC”) for a term of 60 years commencing 1 September 1996 (the “JTC Lease”) and ending in 2056. STM subsequently assigned the JTC Lease to the plaintiff in 2005. That same year, the plaintiff sub-leased the Property to Microcircuit Technology (2002) Pte Ltd (“Microcircuit”) for a period of ten years commencing 28 September 2005 (the “Existing Tenancy Agreement”) and ending on 27 September 2015. Microcircuit’s obligations under the Existing Tenancy Agreement were secured by a banker’s guarantee of $700,000 and a guarantee by its parent company, AEM Holdings Limited (“AEM”). The relationships between the various entities are illustrated in the following chart:

Under the Agreement, the plaintiff granted the defendant the right to purchase the JTC Lease (the Call Option), and at the same time, the defendant granted the plaintiff an option to sell the JTC Lease (the Put Option). Both parties were entitled to exercise the options upon certain terms, the principal one being that the price shall be $20,800,000. As the JTC Lease was subject to a prohibition against assignment to a third party for a period of three years, the Agreement could not be completed until around December 2008, one year after it was made. The Agreement was also conditional upon approval by JTC (“JTC Approvals”) being obtained by 30 November 2008.

By letter of 30 October 2008 (“the Rescission Letter”), the defendant wrote to the plaintiff to rescind the Agreement under cl 9.4 of the Agreement. The plaintiff disputed this and continued to take steps to procure the JTC Approvals. On 11 December 2008, the plaintiff commenced this action for, inter alia, specific performance of the Agreement. On 15 January 2009, the defendant through its solicitors wrote to the plaintiff’s solicitors to rescind the Agreement on two other grounds: (a) that the plaintiff had failed to obtain the requisite JTC Approvals as defined in cl 1.1 of the Agreement; and (b) that even if the JTC Approvals had been obtained, the defendant had reasonably determined the conditions to the JTC Approvals to be unacceptable.

The plaintiff’s contentions may be summarised under the following three issues: there had not been a material and adverse difference in the two due diligence exercises; the defendant’s right of rescission had not arisen by 30 October 2008 when it sent the Rescission Letter to the plaintiff; and the defendant was not entitled to rely on the alleged lack of JTC Approvals and the conditions to the JTC Approvals to rescind the Agreement.

Under issue (a), viz whether there had been a material and adverse difference between the two due diligence exercises, the relevant provisions are found in cll 9.1 and 9.4 of the Agreement. They provide as follows: 9.1 ... the rights of the Purchaser to issue and serve on the Vendor the Call Option Exercise Notice and the rights of the Vendor to issue and serve on the Purchaser the Put Option Exercise Notice are conditional upon the Purchaser updating its due diligence investigations, including but not limited to the Property, the Building, the Mechanical and Electrical Equipment, the Existing Tenancy Agreement, the Existing Tenant, AEM-Evertech, the Existing Guarantee and Undertaking (“Due Diligence Investigations”) … and obtaining results which must not be materially and adversely different from the results of the Due Diligence Investigations conducted by the Purchaser prior to the date of this [Agreement]. 9.4 In the event that the results of the Purchaser’s update of the Due Diligence Investigations are materially and adversely different from the results of the Due Diligence Investigations conducted by the Purchaser prior to the date of this [Agreement] and not acceptable to the Purchaser in all respects acting reasonably, the Purchaser shall be entitled to give written notice to the Vendor that it is not satisfied with its update of the Due Diligence Investigations … furnish to the Vendor reasonable supporting documentary evidence of the results of the Due Diligence Investigations that are materially and adversely different from the results of the Due Diligence Investigations conducted by the Purchaser prior to the date of this [Agreement] and immediately rescind this [Agreement] by giving written notice to the Vendor on or prior to the Due Diligence End Date … Provided Always that such right of rescission shall not apply until the Purchaser shall first allow the Vendor at least one (1) month to rectify, to the reasonable satisfaction of the Purchaser, any defects (to the extent that such defects are capable of rectification) … that constitutes a material adverse difference between the results of the update of the Due Diligence Investigations and the Due Diligence Investigations by the Purchaser before...