iTronic Holdings Pte Ltd v Tan Swee Leon and another suit

• Jurisdiction: Singapore
• Judge: George Wei J
• Judgment Date: 21 April 2016
• Neutral Citation: [2016] SGHC 77
• Published date: 27 April 2016
• Date: 21 April 2016
• Year: 2016
• Hearing Date: 05 November 2015,28 October 2015,02 November 2015,26 October 2015,30 October 2015,27 October 2015,04 November 2015,03 November 2015,04 December 2015,29 October 2015
• Subject Matter: Damages,Liquidated damages or penalty,Debt and recovery
• Plaintiff Counsel: Sim Chong and Alex Goh Wei Sien (JLC Advisors LLP)
• Citation: [2016] SGHC 77
• Defendant Counsel: Pradeep G Pillai, Joycelyn Lin and Simren Kaur Sandhu (Shook Lin & Bok LLP)
• Court: High Court (Singapore)
• Docket Number: Suit No 149 of 2013 and Suit No 982 of 2012

George Wei J: Introduction

This is a simple claim for loans due and owing. The defendant resists the claim on the basis that the loans were part of an elaborate sham built on an intricate web of lies and pretences set up to assist the defendant in the listing of a company on Catalist, the sponsor-supervised board of the Singapore Stock Exchange.

Background The parties

The plaintiffs, iTronic Holdings Pte Ltd (“iTronic”) and PPS Capital Pte Ltd (“PPS”), are companies incorporated in Singapore. They are represented by their directors, Poh Eng Kok (also known as Eric Poh) (“Eric”) and Phua Chee Meng (also known as Derek Phua) (“Derek”).

Tronic International Pte Ltd (“TIPL”) is a Singapore-incorporated company that has since been wound up. ¹ Prior to its winding up, TIPL was in the business of providing technology solutions in various countries including Singapore, Taiwan and Russia.²

iTronic’s claim is premised on a loan that was initially extended by TIPL and later assigned to Tronic Holdings Pte Ltd (“THPL”). THPL later became iTronic by a change of name.

The defendant, Tan Swee Leon (also known as Kevin Tan), is the founder of the Mactus group of companies which includes Mactus Corporation Pte Ltd (“MCPL”), Mactus Leisure Pte Ltd (“Mactus Leisure”), Mactus Pte Ltd (“MPL”), and Carrindon Inc (“Carrindon”). For ease of narration, I will refer to these entities collectively as the Mactus Group. The Mactus Group is primarily in the business of organising entertainment events and providing event management and exhibition services.³ At all material times, the defendant was a director and the sole shareholder of MCPL.

The key events

Sometime in or around 2009, the defendant embarked on plans to list MCPL on Catalist (“the Listing Exercise”). He approached Ang Boo Hock Stephen (“Stephen”), a business consultant specialising in assisting and facilitating the listing of companies, to advise MCPL on its proposed listing. Apart from Stephen, the following professionals were engaged to assist in the Listing Exercise: Paul Wan & Co as the Reporting Accountant; KhattarWong LLP (“KhattarWong”) and subsequently Shook Lin & Bok LLP as the solicitors advising on the Listing Exercise; and Prime Partners Corporate Finance Pte Ltd (“Prime Partners”) as the Sponsor.

On 17 December 2009, Stephen introduced the defendant to Eric. On various other occasions in December 2009, the defendant, Stephen and Eric met to discuss the defendant’s business plans. These discussions culminated in the execution of a series of transactions. Derek was present during some of these discussions. The genuineness of these transactions lies at the heart of the dispute.

The Body Show

The first transaction involved an asset belonging to the Mactus Group: the exhibits of the Body Show (“the Show Assets”). The Body Show was an exhibition showcasing actual preserved human bodies which were dissected to display bodily systems. The defendant was looking to sell the Show Assets and lease the same back. This arrangement was calculated to enhance MCPL’s listing prospects by improving the cash position of the Mactus Group.

It was subsequently decided between the parties that the Mactus Group would enter into agreements for the sale of the Show Assets to TIPL, which would lease the same to an entity within the Mactus Group.

Sometime after 21 December 2009, TIPL and Mactus Leisure entered into a sale and purchase agreement (“the TIPL-Mactus SPA”) wherein TIPL bought the Show Assets from Mactus Leisure for S$2.8m.

Under cl 3.1 of the TIPL-Mactus SPA, TIPL granted Mactus Leisure the right of first refusal to purchase the Show Assets if TIPL wanted to sell the same. TIPL paid Mactus Leisure S$1.7m for the Show Assets in the following instalments (leaving a balance of S$1.1m unpaid): S$400,000 by way of a cashier’s order dated 24 March 2010; S$400,000 by way of a cashier’s order dated 30 March 2010; and S$900,000 by way of a cashier’s order dated 4 June 2010.

Sometime after 12 May 2010, TIPL and Mactus Leisure entered into a lease agreement wherein TIPL leased the rights for the Show Assets to MPL for the sum of S$300,000 (being S$150,000 each for the exhibition in Malaysia and Indonesia respectively) (“the Lease Agreement”). The payment was made in the following instalments: S$60,000 by way of a cheque dated 14 May 2010; S$180,000 by way of a cheque dated 8 June 2010; and S$60,000 by way of a cheque dated 10 June 2010.

Subsequently, TIPL decided to sell the Show Assets. Mactus Leisure declined to exercise its right of first refusal and TIPL proceeded to sell the Show Assets to ARG International Ltd (“ARG”). It is apposite at this juncture to briefly describe the relationship between ARG and the parties in this dispute. In 2004 or 2005, Eric, Derek and one Anatoly Karmazin (“Anatoly”) came together to form ARG. Eric and Derek each held 20% of the shares in ARG whereas Anatoly held the remaining 60% of the shares in ARG.⁴ Eric and Derek eventually divested their shares in ARG by selling them to Anatoly.⁵

The sale and purchase agreement between TIPL and ARG (“the TIPL-ARG SPA”) was dated 15 June 2010 and provide for a sale price of S$2.7m. The sale was structured such that ARG would pay S$1.6m to TIPL and the balance of S$1.1m to Mactus Leisure directly. A total of S$2m was paid by PPS on behalf of ARG. Of the S$2m, S$1.6m was paid to TIPL and S$400,000 was paid to Mactus Leisure.

Sometime in 2011, the parties decided to enter into agreements to reflect: (a) a sale of the Show Assets from Mactus Leisure to Carrindon Inc (an offshore company linked to the defendant); and (b) a sale of the same assets from Carrindon to ARG (“the Carrindon Agreements”). It is common ground between the parties that the purpose of the Carrindon Agreements was to mask the reality of the sale and leaseback agreements which had been previously executed.

The convertible loan agreements

The parties also entered into a series of convertible loan agreements (collectively as “the CLAs”), the purpose of which is hotly disputed between the parties. The CLAs may be broadly divided into two categories: first, those between TIPL and the defendant; and second, those between PPS and the defendant. It would suffice for now to note that the defendant’s case is that the entire series of CLAs that were executed between the parties were sham agreements that were designed to mislead third parties in connection with the hoped-for listing exercise.

On 4 June 2010, TIPL and the defendant executed a convertible loan agreement wherein TIPL agreed to extend to the defendant the Tronic Principal Convertible Loan, being the sum of S$1m (“Tronic CLA”).⁶

Later in the same month, on 23 June 2010, PPS and the defendant executed another convertible loan agreement wherein PPS agreed to extend the PPS Principal Convertible Loan, being the sum of S$500,000 (“PPS CLA”).⁷

Under the Tronic CLA and PPS CLA, the plaintiffs were entitled to convert the loans thereunder into MCPL shares worth twice the value of the loan amounts just before MCPL’s listing. At that point in time, it was envisaged that MCPL’s listing would be completed by 31 December 2010. Pertinently, in the event that the listing did not take place by 31 December 2010, the Tronic CLA and PPS CLA provided that only the compensation sums of S$50,000 and S$25,000 were to be repaid to TIPL and PPS respectively. I will refer to these sums as “Tronic Compensation Sum B” and “PPS Compensation Sum B”.

I pause to note that the PPS Principal Convertible Loan was funded by PPS as well as two other investors. The sum may be broken down as follows: S$300,000 from PPS; S$50,000 from Tan Kheng Tiong; and S$150,000 from Yang Chi-Cheng.

On or about 5 August 2010, Eric was informed by Stephen that the listing would be delayed to March 2011 (“the First Delay”).⁸ This was confirmed by the defendant who assured Eric that there were no adverse circumstances that would affect MCPL as a going concern or its listing plans.⁹

In view of the delay, PPS and the defendant entered into a supplemental agreement on 16 September 2010 to extend the PPS Principal Convertible Loan to 30 June 2011 (“PPS SA”).¹⁰ PPS SA also corrected what was described by the plaintiffs as an error in the earlier PPS CLA. According to Eric, the understanding of the parties when PPS CLA was executed was that if the listing did not take place by 31 December 2010, the defendant would be obliged to return: (a) TIPL, the Tronic Principal Convertible Loan and Tronic Compensation Sum B; and (b) PPS, the PPS Principal Convertible Loan and PPS Compensation Sum B. However, the CLAs stated that only the compensation sums would be returned if the listing did not take place by 31 December 2010 (as noted at [19] above). To correct the alleged error, the terms of the PPS SA provided inter alia that the defendant was to repay the PPS Principal Convertible Loan, the PPS Compensation Sum B plus a further compensation sum of S$25,000 (“PPS Compensation Sum C”) in the event that the listing did not take place by 30 June 2011.¹¹

In early 2011, a supplemental agreement was also executed by TIPL and the defendant (“Tronic SA”) to correct the same error.¹² The terms of Tronic SA were along the same lines as PPS SA and provided inter alia that the defendant was to repay the Tronic Principal Convertible Loan, the Tronic Compensation Sum B plus a further compensation sum of S$50,000 (“Tronic Compensation Sum C”) in the event that the listing did not take place by 30 June 2011.¹³

On 8 April 2011, Eric was informed during a meeting with Stephen and the defendant that MCPL was unlikely to be listed by 30 June 2011 (“the Second Delay”).

On 6 June 2011, a further supplemental agreement was entered into by PPS and the defendant to cancel PPS SA (“PPS 2SA”). Thereunder, PPS agreed to extend a further loan of S$100,000 to the defendant (“PPS...