Judah Value Activist Fund v Open Faith Investment Ltd

• Jurisdiction: Singapore
• Court: International Commercial Court (Singapore)
• Judge: Sir Henry Bernard Eder IJ
• Judgment Date: 02 July 2021
• Neutral Citation: [2021] SGHC(I) 7
• Citation: [2021] SGHC(I) 7
• Hearing Date: 25 February 2021,24 February 2021,23 February 2021,12 March 2021,22 February 2021
• Docket Number: Suit No 6 of 2020
• Defendant Counsel: Tnee Zixian Keith (Zheng Zixian), Chan Michael Karfai and Lim Weisheng Joseph (Tan Kok Quan Partnership)
• Plaintiff Counsel: Zhulkarnain Bin Abdul Rahim, Tan Yiren Leon, Chen Siang En Sean and Cheong Wei Wen John (Dentons Rodyk & Davidson LLP)
• Published date: 07 July 2021
• Subject Matter: Remedies,Causation,Quantum,Breach,Contract

Sir Henry Bernard Eder IJ: Introduction

The plaintiff, Judah Value Activist Fund, is an exempted company incorporated in the Cayman Islands. It is an activist hedge fund which targets mainly Singapore and Hong Kong listed companies. Activist hedge funds typically seek to make a large investment in a company so as to be able to participate in or influence the management and decision-making of the company invested in. Activist hedge funds are also different from traditional funds in that they usually have a less diversified portfolio.

The plaintiff’s Chief Investment Officer (“CIO”) is Mr Roland Jude Thng Qida (“Mr Thng”). His role was to monitor the plaintiff’s portfolio of assets and liaise with investors. He was the individual in charge of making decisions on behalf of the plaintiff. Mr Thng is also a shareholder of the plaintiff (through Judah Group Limited) together with a number of other corporate and individual investors. The plaintiff is also managed by Swiss-Asia Financial Services Pte Ltd (“Swiss Asia”) under an investment management agreement. The fund administrator is the Apex Group (“Apex”).

At the relevant time, i.e. end-December 2019, the plaintiff’s portfolio of shares comprised 157,995,000 shares in Agritrade Resources Limited (“Agritrade”), a company listed on the Hong Kong Stock Exchange. Agritrade International Pte Limited (“APIL”) was the controlling shareholder of Agritrade, holding approximately 55.7% of the issued shares of Agritrade. In turn, APIL was owned in proportions of 40.1% by Mr Ng Say Pek, chairman of the Board and the executive director of APIL, and 59.9% by his son, Mr Ng Xinwei, (sometimes referred to as “Xman”), the executive director and Chief Executive Officer of Agritrade.

The plaintiff had a margin loan facility (“MLF”) with Maybank Kim Eng Securities Pte Ltd (“Maybank”) under which, according to the plaintiff, the plaintiff was required to maintain a Loan-to-Value Ratio (“LTV Ratio”) below 70%. The terms of the MLF were contained in a letter dated 22 November 2018 (the “MLF Letter”) which provided in material part as follows:

We are pleased to inform you that your application for a Margin Facility has been approved, subject to the terms and conditions governing the Margin Facility (the “Margin Facility Terms”) and the terms and conditions set out below … The Margin Facility Terms is available on our website …

1. Your initial Margin Limit shall be S$ 4,000,000

[…]

5. A Margin Call occurs if and when the Margin Ratio falls below 140% or the Margin Limit is exceeded. 6. We may sell all or any part of the Securities in your Account immediately without prior notice to you if and when (i) a Margin Call is not satisfied by taking such actions required by us within 5 days of the occurrence of the margin call or (ii) the Margin Ratio falls below 130%.

During the trial, there was a dispute between the parties concerning what were, in fact, the relevant and applicable “Margin Facility Terms” stated to be “available on [Maybank’s] website” as referred to in the letter extracted above. I was told by the plaintiff’s Counsel that the plaintiff did not have a copy of those terms. Certainly, none had been disclosed by the plaintiff. However, the defendant’s expert, Mr Kon Yin Tong (“Mr Kon”), had sourced a copy of what he considered to be the relevant terms from Maybank’s website (as referred to in the MLF Letter). He appended those terms to his report and referred to them extensively in the body of his report. I shall refer to these as Maybank’s T&Cs. In the course of Mr Kon’s cross-examination, it was suggested by the plaintiff’s Counsel, for the first time, that these terms were not, or at least might not be, the relevant terms applicable to the MLF; such suggestion subsequently developed into a forceful submission by Counsel on behalf of the plaintiff in the course of closing arguments at the end of the trial that these terms were inapplicable. Given that Mr Kon’s report had been served some four weeks before the trial, and further that the parties’ experts had been in communication and produced a Joint Statement (“JS”) without any suggestion that these terms were or might be inapplicable, that belated suggestion and subsequent submission by Counsel on behalf of the plaintiff were, to say the least, somewhat surprising. If those terms were neither relevant nor applicable, this could and should have been raised much earlier: trial by ambush is inappropriate in modern commercial litigation.

By way of riposte, it was the defendant’s submission that the Court should draw an adverse inference against the plaintiff that the plaintiff had failed, refused, or neglected to disclose the Maybank T&Cs because its contractual provisions are applicable to how the Margin Ratio was to be computed and would show that Mr Kon’s approach is correct. In support of that submission, I was referred to illustration (g) of s 116 of the Evidence Act (Cap 97, 1997 Rev Ed.), Evidence and the Litigation Process (Jeffrey Pinsler, 7th ed) (LexisNexis, 2020), and several guiding principles set out by the Court of Appeal in Sudha Natrajan v The Bank of East Asia Ltd [2017] 1 SLR 141 (“Sudha Natrajan”).

In my view, Maybank’s T&Cs were plainly highly material to this case. As appears below, the issue of causation (which is important in this case) turns on how the Margin Ratio is computed, and the Maybank T&Cs are potentially critical to that issue because they contain the relevant provisions to compute the Margin Ratio. I find it surprising that the plaintiff did not have a copy of the Maybank T&Cs. But, even if that is correct, it seems to me that it would have been entitled to request a copy from Maybank and, as such, the Maybank T&Cs would have been within the plaintiff’s “control” and therefore discoverable in these proceedings. At the very least, it seems to me that it would have been very easy indeed for the plaintiff to ask Maybank for a copy of the Maybank T&Cs, and there is no reason to suppose that Maybank would not have complied with such a request. In my view, it is no answer that the defendant might itself have requested Maybank to provide a copy of the Maybank T&Cs, particularly since I was told that they were, in any event, publicly available on the Maybank website and, as I understand, no objection had been raised by the plaintiff to the fact that Mr Kon had exhibited a copy of the Maybank T&Cs to his report and made extensive reference to them in the body of his report.

Be all this as it may, the plaintiff has not pointed to a different set of terms as it could easily have done if different terms were applicable. In these circumstances, I accept Mr Kon’s evidence that he had sourced Maybank’s T&Cs from Maybank’s website as referred to in the MLF Letter and proceed on the basis that these were the applicable terms.

As to the relevant terms of the contractual relationship between the plaintiff and Maybank, I note the following: The MLF Letter itself provided on its face that (i) the Margin Ratio must at all times be maintained at a ratio of at least 140%; (ii) a Margin Call occurs if and when the Margin Ratio falls below 140% or the Margin Limit is exceeded; and (iii) Maybank had the right to sell all or any part of the Securities without prior notice if and when, inter alia, the Margin Ratio fell below 130%. Maybank’s T&Cs (as referenced in Mr Kon’s report) provided in material part as follows: In Clause 1 (Definitions): “Collateral” means “all the Approved Securities and other Securities that are or will be provided by way of security to [Maybank] pursuant to the Security Document” “Collateral’s Security Value” means “the sum of the Security Value of each Collateral” “Loan-to-Value” means “… the percentage of the Market Value that [Maybank is] prepared to finance; the percentage determined by [Maybank] from time to time may vary depending on the type of Approved Securities.” “Security Value” means “… an amount determined using [an Approved Security’s] Loan-to-Value; and for any other Collateral, an amount as may be determined by [Maybank]” “Margin Ratio” means “the percentage determined by [Maybank] based on the following formula: Collateral’s Security Value ______________________ (Outstanding Amount – cash in Account, if any)” In Clause 14.1 (Margin Calls): “A Margin Call occurs if we determine at any time and on any day that the Margin Raito [sic] has fallen below a certain ratio prescribed by us.” The remainder of Clause 14 set out what Maybank may request its counterparty to do in the event of a Margin Call and the consequences of non-compliance with such a request. In Clause 17 (Event of Default), a list of events of default and the consequences of an event of default, including a right by Maybank to sell property subject to the security interest, is set out. In Clause 27 (Rights and Waivers): “[Maybank has] absolute discretion as to what we do or do not do under or for the purposes of any Finance Document. We do not have to give any reasons for doing or not doing something under or for the purposes of any Finance Document.” As appears below, the plaintiff’s pleaded case is that Maybank was entitled to make a margin call when the LTV Ratio exceeded 70%. The LTV Ratio is, of course, different from the Margin Ratio although the two are related. So far as relevant, I consider this further below.

The defendant is a company incorporated in the British Virgin Islands. It is in the business of consultancy and investment holdings. The defendant’s sole director and shareholder is Mr Tay Jing Yi Joseph (“Mr Tay”).

Before this dispute, Mr Thng and Mr Tay had known each other for about 3 years. They were friends. They share the same Christian faith, went to the same church, and had common interests in investment and fund management. They also periodically met up for coffee. As appears below,...