Kong Swee Eng v Rolles Rudolf Jurgen August

• Judge: Steven Chong J
• Judgment Date: 12 October 2010
• Neutral Citation: [2010] SGHC 300
• Citation: [2010] SGHC 300
• Docket Number: Suit No 630 of 2009
• Published date: 05 April 2011
• Hearing Date: 22 July 2010,15 July 2010,19 July 2010,16 July 2010,14 July 2010
• Plaintiff Counsel: Alvin Tan Kheng Ann (Wong Thomas & Leong)
• Date: 12 October 2010
• Defendant Counsel: Pradeep Pillai and Zhang Xiaowei (Shook Lin &Bok LLP)
• Court: High Court (Singapore)
• Subject Matter: Contract,Credit and Security

Steven Chong J: Introduction

The present action arose out of an agreement for the sale and purchase of 3,218,458 ordinary shares (“the S&P Agreement”) in Golden Oriental Pte Ltd (“the Company”). These shares (“the Shares”) were sold by the defendant to the plaintiff pursuant to a Charge dated 9 March 2007 (“the Charge”) granted by Mr Guo Ze Ming (“Guo”), the former founder, director and majority shareholder of the Company, in favour of the defendant and several other shareholders. In brief, the plaintiff in this action sought to be released from her obligation to complete the sale and purchase and also for the refund of her deposit of $500,000, on the principal ground that the Shares that were sold to her were still encumbered by a subsequent charge in favour of United Overseas Bank Limited (“the UOB charge”) and the sale was therefore in breach of a condition precedent of the S&P Agreement which required the Shares to be free from all encumbrances. This dispute has raised an interesting question of law whether the sale of the Shares by the defendant pursuant to a contractual as opposed to a statutory power of sale had overreached the UOB charge, such that the plaintiff took the Shares free from the UOB charge and UOB’s interest in the Shares was transferred to the actual proceeds of the sale.

The material facts The First Investment Agreement

On 8 March 2007, the defendant together with three other investors namely, Ms Goh Bee Lan (“Ms Goh”), Ms Chong Li Pin (“Ms Chong”) and Mr Wong Tat Hei (“Mr Wong”) (collectively “the Investors”) entered into a Sale and Purchase Agreement (“the First Investment Agreement”) with Guo and the Company, under which, in return for 6% of the Company’s ordinary shares (“the sale shares”), they collectively invested $2 million in the following proportions:

Investor	Contribution	Number of shares
The defendant	$1.3 million	390
Ms Goh	$300,000	90
Mr Wong	$300,000	90
Ms Chong	$100,000	30

To protect their investment, the Investors obtained an undertaking that Guo and the Company would use their best endeavours to procure a listing of the Company’s shares (“the undertaking to list”) by 31 December 2008 (“the deadline”), and in the event that the listing was not achieved by then, the Investors were entitled to exercise a put option requiring Guo and/or the Company to buy the sale shares back from the Investors at an agreed “put” price calculated at their respective contributions plus a premium of 20%.

To further secure the performance of the Company’s and Guo’s obligations under the First Investment Agreement, Guo executed the Charge on 9 March 2007 in favour of the Investors.

The Charge

The Charge was granted by Guo in favour of the Investors (including the defendant) by way of a fixed charge free from any security interest, all his present and future rights, title and interest in all his shares in the Company. Under clause 8, the Investors were entitled to enforce the Charge upon the Company and/or Guo’s default under the First Investment Agreement to secure payment and discharge of the Company or Guo’s indebtedness towards the Investors. A power of sale was specifically conferred on the Investors under clause 8.2: 8. ENFORCEMENT OF SECURITY 8.1 The security hereby constituted shall become immediately enforceable upon the occurrence of any non-compliance or non-fulfilment of the Company’s and [Guo]’s obligations under this Agreement and the Share Sale and Purchase Agreement, including without limitation the payment and discharge of the Indebtedness and the fulfilment of obligations under the Put Option (if exercised). 8.2 At any time after the security hereby constituted has become enforceable and after five (5) Business Days of prior notice in writing to the Vendor, the [Investors] may, in the name of [Guo] or otherwise: (a) with the assistance of [Guo], sell or dispose of the Shares or any part thereof at such time or times and in such manner and for such consideration (whether payable or deliverable immediately or by instalments) as the [Investors] may think fit in their sole and absolute discretion; (b) themselves, or by their nominees, exercise at their sole and absolute discretion with regards to the exercise of all voting rights and all other powers and rights attaching to or incidental to all or any of the Shares as if they were the outright owner thereof; and/or (c) apply any moneys received under or pursuant to this Agreement in or towards reduction or satisfaction of the Company’s and [Guo]’s obligations under the Share Sale and Purchase Agreement, including without limitation the payment and discharge of the Indebtedness and the fulfilment of obligations under the Put Option (if exercised), in such manner as the [Investors] thinks fit in their sole and absolute discretion. 8.3 Any moneys received pursuant to the exercise of the power of sale described in Clause 8.2 shall be apportioned amongst the [Investors] proportionately. The [Investors] are hereby authorised to give a good discharge for any moneys received by them pursuant to the exercise of the power of sale described in Clause 8.2 and a purchaser shall not be bound to enquire whether the power of sale has arisen as herein provided nor be concerned with the manner of application of the proceeds of sale. Any balance shall be returned to the Vendor.

The subsequent agreements

Subsequently, on 14 December 2007, the defendant and two others entered into another sale and purchase agreement with Guo and the Company (“the Second Investment Agreement”), under which the defendant invested an additional sum of $1.2 million in return for 150 of the Company’s ordinary shares. Similar to the First Investment Agreement, there was an undertaking to list under clause 5.1 of the Second Investment Agreement, failing which the defendant was entitled to exercise a put option requiring Guo and/or the Company to buy the defendant’s shares back at the price of $1.2 million, being the defendant’s contribution, plus a premium of 8%.

Barely a week later, on 20 December 2007, the Investors and a few others entered into a subscription agreement with Guo and the Company (“the Third Investment Agreement”), under which the Investors made additional investments in the Company and obtained new shares as follows:

Investor	Contribution	Number of shares
The defendant	$320,000	40
Ms Goh	$120,000	15
Mr Wong	$448,000	56
Ms Chong	$48,000	6

The Third Investment Agreement also contained the undertaking to list and a similar put option whereby Guo and/or the Company were required to buy the Investors’ shares back at the put prices, calculated as their respective contributions plus a premium of 8%, in the event that the put option was exercised upon a failure to list by the deadline. By then, the defendant had obtained a total of 580 shares in the Company through the three abovementioned agreements (collectively “the Investment Agreements”).

Separately, through a resolution passed on 28 March 2008, each ordinary share in the Company was divided into 1,000 shares, and, as a result, the 580 shares that the defendant had obtained through the three Investment Agreements became 580,000 ordinary shares.

Guo’s failure to deposit the share certificates

Pursuant to clause 3.3 of the Charge, Guo was required to deposit the share certificates of all his shares in the Company, together with duly executed share transfer forms in blank, with The Bank of East Asia, who were appointed as the escrow agent. However, due to an oversight by the Investors, this was in fact not done by Guo. On 5 November 2008, after they had found out about this lapse, the defendant’s solicitors wrote to Guo, giving him until 11 November 2008 to remedy the situation and deposit the share certificates and the share transfer forms with the escrow agent, but Guo did not respond or comply with their request.

Guo and the Company’s failure to list and their subsequent default

As it turned out, the Company failed to achieve the listing by the deadline, and on 23 January 2009, the defendant exercised his put options under the respective Investment Agreements and notified the Company and/or Guo accordingly. Neither the Company nor Guo complied with the put options. As a result of the non-compliance, the defendant together with two of the Investors namely Ms Goh and Ms Chong (collectively “the Creditors”), through their solicitors, declared on 12 February 2009 that an event of default had occurred under the Investment Agreements and demanded payment of the following sums due: (a) $1.7 million plus a premium of 20%; and (b) $1.688 million plus a premium of 8%. These figures were arrived at based on the following calculations of the sums due under the respective Investment Agreements (see [2]–[3], [6]–[7] above):

Investor	Investment Agreement
	First	Second	Third
The defendant	$1.3m + 20%	$1.2m + 8%	$320,000 + 8%
Ms Goh	$300,000 + 20%	-	$120,000 + 8%
Ms Chong	$100,000 + 20%	-	$48,000 + 8%
Total	$1.7m + 20%	$1.2m + 8%	$488,000 + 8%

Originating Summons 228 of 2009

The Creditors decided to take steps to realise their security under the Charge. However, as Guo had failed to deposit the share certificates and the share transfer forms with the escrow agent (see [9] above), they realised that they needed the Court’s assistance in order to enforce the Charge. It was under these circumstances that the Creditors commenced Originating Summons No 228 of 2009 (“OS 228”) on 25 February 2009 and sought a court order, pursuant to the Charge, allowing them to transfer and register Guo’s shares in their names.

At that time, Guo was the owner of 4,951,475 ordinary shares in the Company. Although the Charge...