Lew Chee Fai Kevin v WBL Corp Ltd

• Jurisdiction: Singapore
• Judge: Lai Siu Chiu J
• Judgment Date: 30 July 2010
• Neutral Citation: [2010] SGHC 213
• Date: 30 July 2010
• Docket Number: Suit No 129 of 2008
• Published date: 09 April 2013
• Plaintiff Counsel: Thio Shen Yi SC, Leow Yuan An Clara Vivien and Charmaine Kong (TSMP Law Corporation)
• Hearing Date: 27 May 2009,14 October 2009,12 October 2009,01 October 2009,28 May 2009,15 October 2009,06 October 2009,02 October 2009,26 May 2009,21 May 2009,07 October 2009,29 May 2009,09 October 2009,13 October 2009,05 October 2009,22 May 2009,25 May 2009,08 October 2009
• Court: High Court (Singapore)
• Subject Matter: Contract,Illegality

Lai Siu Chiu J:

This is the second action arising from the sale of shares in the defendant company, WBL Corporation Limited (“WBL”). The plaintiff here is Kevin Lew Chee Fai (“Lew”). The sale of shares took place on 4 July 2007.

In the first action before this court (i.e. Suit No. 71 of 2009), the Central Bank of Singapore viz the Monetary Authority of Singapore (“MAS”) claimed a civil penalty from Lew under s 232(2), read with s 218, of the Securities and Futures Act (Cap 289, 2006 Rev Ed) (“the SFA”). There, MAS alleged that Lew had contravened the rules prohibiting insider trading under s 218 of the SFA by selling 90,000 WBL shares on 4 July 2007. For convenience, I will refer to the sale of shares by Lew on 4 July 2007 as the “Insider Trade”. In my earlier judgment (see Monetary Authority of Singapore v Lew Chee Fai Kevin [2010] SGHC 166 (“MAS v Lew”)), I held that Lew had contravened the relevant provisions of the SFA by entering into the Insider Trade and ordered him to pay a civil penalty amounting to $67,500. In the present action, Lew claimed for shares to be issued to him pursuant to an employee share option scheme that was operated by WBL, as he claimed to have validly exercised various options on 9 July 2007. WBL denied Lew’s claims primarily on the grounds of illegality.

The facts

The salient facts are not in dispute and I shall set them out briefly.

WBL operated an Executive Share Options Scheme (“ESOS”) to motivate and retain its key executives. The following are the key terms of the ESOS: 6. Right to Exercise Option (a) Subject as provided in this Rule 6 and Rule 7, an Option shall be exercisable, in whole or in part, at any time during the Option Period. (b) An Option shall, to the extent unexercised, immediately lapse without any claim against the Company:- (i) subject to Rules 6(c) and 6(d), upon the Participant ceasing to be in the full-time employment of the Group for any reason whatsoever; or (ii) upon bankruptcy of the Participant. (c) If a Participant ceases to be employed by the Company or any of its subsidiaries by reason of ill-health, injury, disability (in each case evidenced to the satisfaction of the Committee), redundancy, retirement at or after attaining normal retirement age or for any other reason approved in writing by the Committee, subject to the written approval of the Committee in its absolute discretion, he may exercise any unexercised Option within the Option Period.

...

8. Exercise of Options, Allotment and Listing of Stock Units (a) An Option may be exercised, in whole or in part by a Participant giving notice in writing to the Company in or substantially in the form set out in Appendix C.... Such notice must be accompanied by a remittance for the Aggregate Subscription Cost. An Option shall be deemed to be exercised upon receipt by the Company of the said notice duly completed and the remittance for the Aggregate Subscription Cost. (b) The Company shall, as soon as practicable after the exercise of an Option, allot the relevant Shares to the Participant and shall apply ... for permission to deal in and for quotation of such Stock Units. Subject to such consents or other required action of any competent authorities under regulations or enactments for the time being in force as may be necessary and subject to compliance with the Rules of the Scheme, the Shares shall be allotted and issued not later than ten (10) Market Days after the exercise of the Option.

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19 Conditions of Option

Every Option shall be subject to the condition that no Shares shall be issued pursuant to the exercise of an Option if such issue would be contrary to any law or enactment, or any rules or regulations of any legislative or non-legislative governing body for the time being in force in Singapore or any other relevant country.

Between 2000 and 2004, Lew was granted (on a number of occasions) options to purchase WBL shares at various exercise prices. As of 9 July 2007, the following share options remained unexercised by Lew:

Date of Grant	No of shares granted	Exercise Price	Option Period
21 January 2000	37,500	$2.720	21 October 2002 – 20 December 2009
6 January 2004	146,000	$2.947	6 October 2006 – 5 December 2013
17 December 2004	153,000	$3.220	17 September 2007 – 16 November 2014

I have already set out the facts giving rise to the Insider Trade in MAS v Lew and will not repeat them here. Lew received a total of $446,773.26 from the Insider Trade. Lew does not now dispute that the loss which he avoided was $27,000.

On 9 July 2007, Lew submitted two notices to WBL (as required under clause 8(a) of the ESOS, see above at [4]) (“the “Notices”). The first notice was to exercise the share option granted on 21 January 2000 to purchase all the WBL shares allotted to him under that option. The second notice was to exercise the share option granted on 6 January 2004 to purchase 130,000 WBL shares. Lew tendered two cheques totalling $485,110 as payment for exercising those share options (the “Cheques”). It is not disputed that Lew had used the funds received from the Insider Trade to pay for the exercise of the options. Lew informed Tan Swee Hong (“Tan”), WBL’s Group General Manager (Legal and Compliance) and Company Secretary, that he had sold the shares under the Insider Trade on the very same day (i.e., 9 July 2007). After Tan informed Lew that his actions could be construed as an insider trading, Lew told Tan that he had executed the Insider Trade to “raise cash to exercise my WBL options”.

On 19 July 2007, Lew resigned from WBL. In his letter of resignation, Lew highlighted that he had applied to exercise options to receive a total of 167,500 WBL shares on 9 July 2007 and sought confirmation that he was entitled to exercise the remaining share options which were either unexercised or unvested. WBL did not respond to Lew’s question on the share options. As a result, on 27 December 2007, Lew wrote to the company seeking a response. WBL replied on 8 January 2008 as follows:

…we are bound by legal restrictions from taking any action with respect to your attempt to exercise these options using the proceeds of your trades.

With regard to your request for the vesting/exercising of the options/SARs, the company will reserve any decision pending the final outcome of the proceedings against you initiated by the authorities.

Subsequent letters were exchanged between WBL’s and Lew’s solicitors on this matter. WBL took the position that it was not in breach of any contract or liable in any way to Lew for the 167,500 WBL shares, and that Lew was not entitled to any of the unexercised or unvested options. Disagreeing with WBL, Lew commenced the present action to claim for the 167,500 shares and for damages.

Arguments before this court

I will now summarise the parties’ main arguments, starting with Lew’s case. He took the position that he was entitled, on 9 July 2007, to exercise the share options that had been granted to him on 21 January 2000 and 6 January 2004. Having submitted the Notices and Cheques on 9 July 2007, he had therefore accepted WBL’s offer to issue and allot WBL shares to him and had consequently exercised those share options within time. As a result, Lew claimed that WBL was in breach of contract in refusing to allot and issue the 167,500 WBL shares to him. Lew sought specific performance of the share options that he exercised as well as damages (viz dividends that were declared by WBL after Lew had submitted the Notices and Cheques and the lost opportunity to sell those WBL shares at a higher price than prevailing at the time of the issue and allotment).

WBL did not deny that Lew had submitted the Notices and Cheques on 9 July 2007. However, it took the position that Lew was not entitled to purchase the shares under those share options because Lew was in breach of s 218 of the SFA (which sets out the rules prohibiting insider trading) as well as of his common law, contractual and statutory fiduciary duties. WBL highlighted that Lew had used the proceeds of his Insider Trade to exercise the share options on 9 July 2007. It contended that it would be in contravention of the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (Cap 65A, 2000 Rev Ed) (the “CDSA”) if it was to allot and issue those 167,500 WBL shares to Lew. As a result, WBL’s position was that under the ESOS, performance of the share options was unenforceable or illegal, as it was impliedly prohibited by the CDSA, and/or would offend the conscience of the court and/or was contrary to public policy to do so.

For the reasons stated in MAS v Lew, I had found that Lew had contravened s 218 (read with s 232) of the SFA (although I should state that he has been granted leave to appeal and has done so in Civil Appeal No 123 of 2010). For present purposes, there is no dispute that Lew was involved in some wrongdoing. Neither is there any doubt that Lew had used the proceeds from the Insider Trade to fund the exercise of his share options on 9 July 2007.

Issues before this court

The main thrust of WBL’s case was that it would infringe s 44(1) of the CDSA by allotting and issuing the 167,500 WBL shares to Lew pursuant to his exercise of the share options on 9 July 2007. Section 44(1) of the CDSA states:

Assisting another to retain benefits from criminal conduct 44. —(1) Subject to subsection (3), a person who enters into or is otherwise concerned in an arrangement, knowing or having reasonable grounds to believe that, by the arrangement — (a) the retention or control by or on behalf of another (referred to in this section as that other person) of that other person’s benefits of criminal conduct is facilitated (whether by concealment, removal from jurisdiction, transfer to nominees or...