Indulge Food Pte Ltd v Torabi Marashi Bahram

• Jurisdiction: Singapore
• Judgment Date: 19 January 2010
• Date: 19 January 2010
• Docket Number: Suit No 717 of 2007
• Court: High Court (Singapore)

Indulge Food Pte Ltd

Plaintiff

and

Torabi Marashi Bahram

Defendant

[2010] SGHC 22

Belinda Ang Saw Ean J

Suit No 717 of 2007

High Court

Civil Procedure–Parties–Non-joinder–Whether joinder possible after trial where party was aware of need to join and had not provided any reason for failure to join

Contract–Contractual terms–Implied terms–Whether term ought to be implied–Whether in any case implied term could trigger express termination clause

Contract–Contractual terms–Interpretation–Whether obligation to transfer shares fulfilled by cancellation of old shares and issuance of new replacement shares

Contract–Contractual terms–Obligation to provide evidence that transfer of shares in foreign corporation was effected–Discretion to reject evidence that share transfer was effected–What evidence should be provided–How discretion to be exercised–Whether evidence validly rejected

Contract–Remedies–Action for agreed sum–Historical bases and rationales for that action–Whether action necessarily available upon fulfilment of conditions precedent to payment of agreed sum–Whether action available if claimant had not and could not fulfil its continuing obligation under the contract

Contract–Remedies–Specific performance–Whether party to tripartite contract could obtain specific performance of obligation to pay another party to the contract who was not joined

The plaintiff, Indulge Food Pte Ltd ( Indulge ), was a holding company. The defendant, Torabi Marashi Bahram ( Marashi ), was the founder and managing director of Euoro International Pte Ltd ( Euoro ), a company that was in the business of selling herbal products and fruit and floral teas. Indulge, Marashi and Euoro entered into a tripartite share subscription agreement ( the Subscription Agreement ). In the Subscription Agreement, Indulge agreed to invest $1m in Euoro in return for 50% of Euoro's shares plus one share. The investment was to be made in four tranches of $250,000 each. The business aspect of the Subscription Agreement envisaged joint efforts by Indulge, Marashi and Euoro to expand Euoro's business to open new stores.

Clause 3.4 of the Subscription Agreement set out certain conditions precedent for the payment of the third tranche. Among other things, Marashi was to transfer all his shares in Nate Corporation ( Nate Corp ), a Californian corporation, to Euoro, and to provide evidence of the share transfer to the satisfaction of Indulge. A failure to satisfy the conditions precedent in cl 3.4 would allow Indulge to terminate the Subscription Agreement and recover from Marashi the first two tranches already paid out to Euoro.

In the event, the shares of Marashi and Sutti Corporation ( Sutti Corp ) (another USA corporation) in Nate Corp were cancelled, and new Nate Corp shares were issued to Euoro, with the result that Euoro was, at the relevant time, the owner of 100% of Nate Corp's shares. Indulge nevertheless refused to pay the third and fourth tranches and claimed against Marashi for the return of the first two tranches, arguing that the termination provision in cl 3.4 was triggered because (a) Marashi failed to directly transfer his Nate Corp shareholding to Euoro; (b) Marashi had not provided satisfactory evidence of the share transfer, and (c) there was a failure of an implied condition that Sutti Corp was to remain a shareholder of Nate Corp. Marashi argued that the termination provision in cl 3.4 was not triggered, and counterclaimed for the payment of the third and fourth tranches.

Marashi confirmed that Euoro had ceased business in August 2008. Counsel were directed to submit on the relevance to the counterclaim of Euoro's cessation of business and its consequent inability to perform its obligation to use best endeavours to implement the business expansion plan agreed to by the parties, and further to explain the absence of Euoro as a party to the proceedings.

Held, dismissing both the claim and the counterclaim:

(1) Clause 3.4, when read in context, required Marashi to put Euoro in ownership of Nate Corp shares, and was indifferent to whether Marashi did so through a direct transfer, or through the issuance of Nate Corp shares to Euoro and the cancellation of his own shares. Accordingly, since Euoro was in fact put in ownership of 100% of Nate Corp's shares, Marashi was not in breach of his obligation to transfer shares to Euoro: at [9] and [10].

(2) The contractual discretion in cl 3.4 was conferred for a specific purpose, viz, to satisfy Indulge that the transfer of Nate Corp shares had taken place. In the absence of any contrary language it had to be the parties' intention that the discretion ought to be exercised in good faith for this purpose only. In addition, as the contractual discretion was ancillary to a defined and objective purpose, it had to also be exercised reasonably: at [14]and [15].

(3) The matter sought to be proven under cl 3.4 was the legal efficacy of a transaction, viz, the share transfer, which was obviously governed by Californian law. The production of documentary evidence itself without a legal opinion would not be sufficient assurance that the documents provided were legally efficacious. What was needed was a legal opinion on the matter by a qualified person. In the circumstances, the material evidence produced were two e-mails from one Robert L Shepard, who was licensed to practise before the Californian Supreme Court and, read together, his e-mails confirmed that (a) there were no official records of Nate Corp's shareholding, and (b) Euoro was the sole shareholder of Nate Corp. The e-mails represented reliable legal opinions and obviated the need to depend on the primary documents as effecting and evidencing the share transactions. Indulge's grounds for rejecting Mr Shepard's e-mails were unreasonable and hence invalid: at [17] to [25].

(4) The involvement of Sutti Corp as a shareholder of Nate Corp was not so obviously necessary for the business efficacy of the Subscription Agreement that such a term would be implied in fact. In any case, cl 3.4 expressly provided for the termination of the tripartite agreement in specific situations. Any other situation that was not expressly spelled out by the parties must fall outside of the scope of the right to terminate: at [29] to [31].

(5) Marashi could not claim for the recovery of the third and fourth tranches because they were payable to Euoro and not to him. Marashi's argument that he could claim specific performance for a third party like Euoro was based on cases such asBeswick v Beswick [1968] AC 58 and Family Food Court v Seah Boon Lock [2008] 4 SLR (R) 272, which operated to alleviate the difficulties caused by the doctrine of privity of contract. Those decisions were plainly distinguishable from the present case, where Euoro was privy to the Subscription Agreement and could sue in its own right, and was unable to do so only because of Marashi's procedural omission to join it as a party to the proceedings. If Euoro were to recover, it had to claim in its own right: at [34] and [35].

(6) Marashi's claim for specific performance would also fail because the requirement of reciprocity (see Observation below) needed for such an order was not met: at [36].

(7) The court's discretion to join Euoro should not be exercised, for several reasons. First, Marashi was aware of the need to join Euoro and indeed a joinder application was filed on his behalf. Second, there was no appeal against the Assistant Registrar's no order on the joinder application. Third, there was no explanation, despite a specific question by the court, why nothing was done after the Assistant Registrar made no order upon Marashi's application to join Euoro. Indulge's objection that its conduct of the litigation would have been different with Euoro in the proceedings was also noted: at [38].

[Observation: The existing form of the action for an agreed sum held that an agreed sum was recoverable upon the occurrence of the event or condition upon which the agreed sum fell due. The action was most clearly correlated with three historical doctrines: (a) the proprietary conceptions underlying the ancient action of debt; (b) the juristic basis of the indebitatus assumpsit action as an action on a separate undertaking; and (c) the doctrine of independent promises. It was plain that these historical doctrines could not stand today as convincing rationales for the action for an agreed sum: at [42]- [52].

It was far from obvious that a contractual promise to pay money was necessarily enforceable once its conditions precedent had been met, without regard to the rest of the contract. Such an approach would not be congruent with the position in relation to the grant of specific performance of non-monetary obligations, which was subject to the requirement of reciprocity, viz, that the claimant had to have performed or been ready and willing to perform the terms of the contract on his part to be then performed and that he was ready and willing to do all matters and things on his part thereafter to be done. The requirement of reciprocity recognised that, when the several obligations of a contract were on their true construction part of one indivisible bargain, a party could not expect to enforce his counterparty's obligations when he himself did not, could not, or would not, perform his own obligations. This principle applied with equal force to the enforcement of monetary as well as non-monetary primary obligations. The requirement of reciprocity could also be said to be consistent with, and in fact to flow from, the modern and developing concept of the performance interest : at [53] to [57].

The rationale underlying the requirement of reciprocity and the full protection of a party's performance interest required the following two remedial responses. Where there existed an effective and adequate counterclaim, it was for the party to bring a counterclaim against his...