Leow Tiak Cheow & Another v Pan-United Industries Pte Ltd

JudgeWoo Bih Li JC
Judgment Date28 October 2002
Neutral Citation[2002] SGHC 250
Date28 October 2002
Subject MatterWhether revaluation of company property necessary to reflect correct net tangible asset value,Contractual terms,Contract,Warranties,Whether breach of warranty in share sale agreement on net tangible asset value of company
Docket NumberSuit No 1568 of 2001
Published date19 September 2003
Defendant CounselFrancis Xavier and Mark Tan (Rajah & Tann)
CourtHigh Court (Singapore)
Plaintiff CounselJeffrey Beh Eng Siew (Lee Bon Leong & Co) and Leow Tiat Hong (T H Leow & Co)

Held, giving judgment to the plaintiffs for part of their claim:

Nam Kee’s statutory accountant Irving Tan did not carry out a further audit up to 15 January 2001 in respect of the 16 May 2001 and 8 August 2001 Completion Accounts. This was because Irving Tan himself had used the word ‘review’ in each of his cover letters enclosing the respective Completion Accounts and also because he had failed to take the necessary steps which would have been done in an audit. (See [12] – [13]).

It was not the NTA value per se that was important in the dispute but the NTA value as determined in accordance with clause 8.4.1 that was important. (See [19].)

The plaintiffs’ suggestion that the 16 May 2001 Completion Accounts, under which the NTA as determined according to clause 8.4.1 was $2,038,808.95, were for discussion purposes only was a desperate excuse to justify its revision. (See [22], [26]).

Clause 6.2 of the SSA did not require a revaluation of the Property and the plaintiffs had breached the NTA warranty. This was because there was no specific plea by the plaintiffs that the Statement of Accounting Standards would require revaluation of the property and in any event, the Property being last revalued on 30 August 1997, needed another revaluation only in August 2002 in the absence of evidence of volatile market conditions. Moreover, Irving Tan did not seek a revaluation of the Property when auditing the 16 May 2001 Completion Accounts and neither did the plaintiffs propose a revaluation. The idea of using Mr Wong’s 3 January 2001 valuation came about only after it was admitted on behalf of the plaintiffs that they had not met the NTA warranty. The case of Pacific Century Regional Development Ltd v Estate of Seow Khoon Seng was distinguished from the one at hand. (See [36] – [37], [50] – [54], [57]).

The NTA value, as determined in accordance with clause 8.4.1 had resulted in a shortfall of $461,191.05. After setting off the shortfall against the Retention Sum, PUI still had to pay the plaintiffs $38,808.95. Judgment was granted to the plaintiffs for this sum and interest thereon at 6% per annum from the date of the writ to the date of judgment. (See [79]).

Case(s) referred to

Pacific Century Regional Developments Ltd v Estate of Seow Khoon Seng

[1997] 3 SLR 761 (not flld)

Lim Bio Hiong Roger v City Developments Ltd

[2000] 1 SLR 289 (not flld)

Judgment Cur Adv Vult



1. Leow Tiak Cheow, the first plaintiff, was the beneficial shareholder of all the issued shares in Nam Kee Asphalt Pte Ltd (‘Nam Kee’) i.e 5,014,000 shares. In 2000, Pan-United Industries Pte Ltd (‘PUI’), the defendant, was interested in buying all the issued shares in Nam Kee. There were negotiations resulting in a Memorandum of Understanding dated 12 October 2000. Subsequently, a Sale and Purchase of Assets Agreement dated 23 December 2000 was entered into between Nam Kee, Tiak Cheow and Pan-United Engineering Pte Ltd (a related company of PUI) and a Share Sale Agreement (‘SSA’) dated 8 January 2001 was entered into between Tiak Cheow, Leow Tiak Chuan who is the second plaintiff and PUI. There was also a Put Option and a Deed of Indemnity but these agreements are irrelevant for present purposes.

2. Tiak Chuan came to be a registered shareholder of two shares in Nam Kee in the following circumstances. Out of the 5,014,000 shares, two had been held by one Leow Lee Choo as nominee for Tiak Cheow. The rest were registered in Tiak Cheow’s name. As Lee Choo was in London at the material time and in anticipation of the sale of his shares in Nam Kee to PUI, Tiak Cheow caused Lee Choo to transfer the two shares to the name of Tiak Chuan.

3. It was agreed that the Pan-United group would buy certain assets of Nam Kee and the shares beneficially owned by Tiak Cheow in Nam Kee at a certain aggregate price. It was also agreed that the price be apportioned so that the consideration for the shares was $3,985,000. I would add that there was also a sweetener on top of the aggregate price but that is not material to the dispute before me and only the terms of the SSA are material.

4. Clause 3 of the SSA provides for the consideration to be payable in the following manner:

    ‘3.1 S$3,485,000 at Completion; and

    3.2 S$500,000 ("the Retention Sum") less any deductions by [PUI] pursuant to Clause 10.3 without interest at the expiry of 6 months after the Completion Date.’

The Completion Date was defined to mean 15 January 2001 or such other date as the parties may agree in writing. The actual completion was on 17 January 2001.

5. As stated, the Retention Sum is subject to any deduction by PUI pursuant to Clause 10.3 of the SSA. Clause 10.3 entitles PUI to deduct from the Retention Sum the amount of any claim which PUI may have pursuant to Clause 10.1 which in turn provides for the Plaintiffs to indemnify PUI for any breach of the warranties in the SSA.

6. The material warranty is Clause 8.4.1 of the SSA. It states:

    ‘8.4 The Vendors further jointly and severally represents and warrants to and undertake with the Purchaser and its successors in title … that:-

    8.4.1 the net tangible asset value of the Company as at the Completion Date as reflected in the Completion Accounts, adjusted to exclude the Completion Account Receivables, the Completion Liabilities and any amount owed to the Company by Pan-United Engineering Pte Ltd pursuant to the Asset Sale Agreement, will not be less than S$2,500,000;


I will refer to the warranty under clause 8.4.1 as ‘the NTA warranty’.

7. The Completion Accounts are defined in the SSA to mean ‘the audited balance sheet of the Company as at the Completion Date and the audited profit and loss statement for the period from 1 January 2001 to the Completion Date’.

8. Clause 6.2 of the SSA provides

    ‘6.2 The Parties shall jointly procure, as soon as practicable and in any event within 30 days after Completion, the preparation of the Completion Accounts which shall be prepared by the Company on the basis of the same accounting principles as the Audited Accounts and the Nine-Months Audited Accounts and audited by the Company’s auditors, who shall also be instructed to certify the Completion Account Receivables and Completion Liabilities.’

9. The Plaintiffs’ position is that they are entitled to the payment of the Retention Sum and that there is no breach of the NTA warranty. The Plaintiffs’ position on the NTA warranty is based on their assertion that there should be a revaluation of Nam Kee’s leasehold land, and buildings thereon, at 15 Sungei Kadut 3, Singapore (‘the Property’) and the revaluation would result in a net tangible asset (‘NTA’) value which, when determined in accordance with clause 8.4.1, will meet the NTA warranty. In respect of the revaluation, the Plaintiffs rely on a valuation of the Property done by one Wong Kum Sek dated 3 January 2001. That valuation was done actually for the purpose of stamping the transfer of shares from Lee Choo to Tiak Chuan.

10. PUI’s primary position is that there is a breach of the NTA warranty in that the NTA value of Nam Kee as at the Completion Date and as reflected in the 16 May 2001 Completion Accounts, which I shall come to, and as determined in accordance with clause 8.4.1, is $2,038,808.95 only. Therefore the shortfall is $461,191.05. PUI’s primary position is based on its stand that the Property need not be revalued for the Completion Accounts. There was also evidence for PUI that even if revaluation should be carried out, the Plaintiffs would still be in breach of the NTA warranty because the valuation which PUI has obtained is even lower than the book value of the Property before revaluation. However PUI’s pleadings do not assert this alternative. This means that the minimum that the Plaintiffs are entitled to is the difference between the Retention Sum and the shortfall in the NTA warranty as determined in accordance with clause 8.4.1 from the 16 May 2001 Completion Accounts i.e $500,000 - $461,191.05 = $38,808.95. In its pleadings, PUI also alleges other breaches by the Plaintiffs and counterclaimed damages. However, in the course of the trial, PUI abandoned its allegation of other breaches and relied solely on the breach of the NTA warranty. This means that PUI’s counterclaim is effectively abandoned.

Further facts and allegations

11. The statutory auditor of Nam Kee’s accounts was Tan Peck Leng, Irving of Irving Tan & Co. After some chasing, he provided the Completion Accounts purportedly audited by him with his cover letter dated 16 May 2001. I have refereed to this set of Completion Accounts as ‘the 16 May 2001 Completion Accounts’. These Completion Accounts were prepared and purportedly audited as at 15 January 2001, the contractual completion date even though the actual completion date was 17 January 2001. However, no issue was taken on the difference of two days.

12. I would add that Irving Tan insisted that he did audit the 16 May 2001 Completion Accounts, as well as a revised set of Completion Accounts forwarded with a cover letter dated 8 August 2001 (‘the 8 August 2001 Completion Accounts’), even though each of his cover letters enclosing the respective Completion Accounts used the word ‘review’ and not ‘audit’. Although he has about ten years’ experience as a certified public accountant, he said he was not aware that the Singapore Standard of Accounting made a distinction between a review and an audit. To him, the two words were used interchangeably. On the other hand, PUI’s expert witness Mr Foong Daw Ching was of the opinion that Irving Tan did not do an audit, partly because Irving Tan himself had used the word ‘review’ and also because Irving Tan had failed to take certain necessary steps which would have been done in an audit, for example, a bank reconciliation, and a debtors and creditors circularisation as at 15 January 2001 (NE 216 and 217).

13. I accept Mr Foong’s evidence on this point....

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1 books & journal articles
  • Contract Law
    • Singapore
    • Singapore Academy of Law Annual Review No. 2003, December 2003
    • 1 december 2003
    ...Pte Ltd[2003] 2 SLR 23 (also considered para 9.82 infra, with regard to ‘Illegality’); Leow Tiak Cheow v Pan-United Industries Pte Ltd[2003] 1 SLR 569 (involving an alleged breach of warranty); Adventure Training Systems (Asia-Pacific) Pte Ltd v Signature Lifestyle Pte Ltd (para 9.33 supra)......

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