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

JurisdictionSingapore
JudgeLee Seiu Kin J
Judgment Date07 May 2010
Neutral Citation[2010] SGHC 146
Plaintiff CounselTan Cheng Han SC, Karen Teo, Clara Leow and Charmaine Kong (TSMP Law Corporation)
Docket NumberOriginating Summons No 1562 of 2008
Date07 May 2010
Hearing Date18 September 2009,06 November 2009
Subject MatterContract
Published date21 July 2010
Citation[2010] SGHC 146
Defendant CounselMichael Hwang SC (Michael Hwang) and Dinesh Dhillon Singh and Melanie Chng (Allen & Gledhill LLP)
CourtHigh Court (Singapore)
Year2010
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: 2010 HC 146

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: ... 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]. 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 the date of this [Agreement] …

[emphasis in bold in original, emphasis in italics added]

In the Rescission Letter, the defendant stated that its updated Due Diligence Investigations disclosed that the financial position of AEM was materially and adversely different from the results obtained in December 2007, prior to execution of the Agreement.

The plaintiff proceeded with its first line of argument by setting out the proposition that “due diligence had to be done as a whole and reasonably, and difference in results of updated due diligence had to be material and adverse as a whole”. The plaintiff then argued that the defendant had conducted its Due Diligence Investigations solely in respect of one factor, viz the guarantor, AEM, and not in respect of any of the other factors specified in cl 9.1. For example, no due diligence was done in respect of the building, mechanical and electrical equipment. Therefore, even assuming that, by itself, the updated due diligence done on AEM had revealed a severe deterioration of its credit standing, this could not constitute a material adverse difference for the purpose of cl 9.1 because due diligence had to be done as a whole and the defendant was not entitled to look to only one factor but to all relevant factors. I was unable to agree with the plaintiff. First of all, cl 9.1 did not comprehensively set out all the areas that the defendant was entitled to conduct due diligence on; indeed the factors listed therein were prefaced with the words “including but not limited to”. In the absence of a comprehensive list of factors, the plaintiff’s interpretation would have led to an impossible situation because no matter what factors the defendant had taken into account, it could always be argued that they were not comprehensive.

Furthermore, the due diligence clause existed for the benefit of the defendant. It was for the defendant to elect what areas it wished to carry out due diligence on. The defendant could not be faulted for deciding against carrying out due diligence on the building or mechanical and electrical works or whatever other matters...

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