Liberty Sky Investments Ltd v Goh Seng Heng and another

• Jurisdiction: Singapore
• Judge: Audrey Lim JC
• Judgment Date: 20 February 2019
• Neutral Citation: [2019] SGHC 40
• Court: High Court (Singapore)
• Hearing Date: 19 October 2018,16 October 2018,19 November 2018,18 October 2018,21 December 2018,17 October 2018
• Docket Number: Suit No 457 of 2017
• Plaintiff Counsel: Harpreet Singh Nehal SC, Keith Han, and Tan Tian Yi (Cavenagh Law LLP)
• Defendant Counsel: Narayanan Sreenivasan SC, Rajaram Muralli Raja, Ivan Qiu, and Kyle Gabriel Peters (Straits Law Practice LLC)
• Subject Matter: Credit and Security,Guarantees and indemnity,Contracts of indemnity,Discharge
• Published date: 12 February 2020

Audrey Lim JC: Introduction

The plaintiff (“LSI”) is an investment vehicle incorporated in the Seychelles, with Florence Gong (“Florence”) as its sole shareholder and director. At the material time, Florence and her husband Andy Lin (“Andy”) were LSI’s representatives. The first defendant (“Goh”) is a medical doctor providing aesthetic services and skincare-related products and services. He founded the second defendant Aesthetic Medical Partners Pte Ltd (“AMP”) in 2008. AMP was in the business of aesthetic services.

On 25 November 2014, LSI entered into a sale and purchase agreement with Goh (“the SPA”) to purchase 32,049 shares in AMP from Goh for $14,422,050 (“the Sale Price”), purportedly on the basis of certain representations made by Goh that a trade sale of AMP would take place very soon and, if not, that it was intended for AMP to be publicly listed by around June 2015. LSI claimed that, around the same time, it entered into an agreement with AMP whereby AMP would “indemnify” LSI the Sale Price plus 15% annualised internal rate of return (“IRR”) if AMP did not achieve a trade sale or public listing (“IPO”) within 24 months of the execution of the SPA (“the Purported Indemnity”). As neither a trade sale nor an IPO occurred, LSI filed this suit, inter alia, to claim against AMP on the Purported Indemnity.¹

Background matters

Sometime in late 2013 or 2014, Florence and Andy became franchise owners of a clinic in Suzhou, China that provides laser facial treatments. At a dinner in Singapore on 23 October 2014, Goh invited Florence to purchase shares in AMP. LSI’s case is that Goh made various representations to Florence to induce LSI to enter into the SPA and thereafter, Goh and Lee Kin Yun (“Lee”), who was in charge of AMP’s operations, repeated the representations to Florence and Andy. These representations formed the subject of Suit No 1311 of 2015, commenced on 31 December 2015, and my decision was published as Liberty Sky Investments Pte Ltd v Goh Seng Heng and another [2019] SGHC 39 (“Suit 1311”). Briefly, the alleged representations were as follows: There would be a trade sale of all the shares in AMP to an important person in Singapore, namely Peter Lim, which was imminent and likely to take place within one month and with a 99% probability of being concluded. If the trade sale did not materialise, Goh intended to list AMP through an IPO on the Singapore Exchange, targeted for completion around March to June 2015 and in any event no later than 24 months after LSI acquired the AMP shares. Goh required LSI’s financial support to buy out certain minority investors in AMP with voting rights who could stifle the trade sale or IPO, as he was unable to do so then because his money was “stuck” elsewhere.

As neither a trade sale nor an IPO took place, LSI filed Suit 1311 and claimed against Goh for misrepresentation. In line with the claims, LSI issued a letter of demand to Goh on 24 November 2015 giving notice that it was electing to rescind the SPA.² Suffice to say, both parties accept that the SPA has come to an end. LSI claimed that it was entitled to and did validly rescind the SPA by virtue of the misrepresentations. Goh claimed that LSI had wrongfully repudiated the SPA as the misrepresentations were not made out.

On 2 December 2016 (which was after the 24-month deadline mentioned in the Purported Indemnity), LSI’s counsel wrote to AMP to state that it had formally notified Goh under Clause 4(vii) of the SPA and demanded that Goh repurchase the shares and, if he did not do so, LSI would claim against AMP on a “Guarantee” (in the words of LSI’s counsel) that LSI alleges is the Purported Indemnity.³ As Goh failed to repurchase the shares, LSI’s counsel further wrote to AMP on 30 December 2016 to demand that AMP make payment pursuant to the obligations outlined in its 2 December 2016 letter (ie, the “Guarantee”, which it alleges in this suit as the Purported Indemnity).⁴ AMP did not do so and in May 2017 LSI commenced this suit against Goh for a declaration that he re-purchase the shares from LSI at the Sale Price plus 15% IRR totalling $19,073,162, and against AMP for payment to LSI of the same amount under the Purported Indemnity. This suit was heard immediately after Suit 1311 as the facts pertaining to the SPA and the Purported Indemnity were inextricably linked and the plaintiffs were the same in both proceedings.

In the interim, Goh applied to strike out LSI’s claim on the basis that LSI was precluded from relying on the SPA, which LSI had rescinded and thus brought to an end. AMP also applied to strike out LSI’s claim on the basis that the Purported Indemnity was in effect a guarantee that was embodied in the SPA. As AMP was not a party to the SPA, LSI could not claim on the guarantee against AMP. I found that LSI had made an unequivocal election to rescind the SPA. Given that any agreement with Goh was embodied in the SPA, it was no longer open to LSI to enforce a claim against him. I therefore granted Goh’s application. However, it remained open to LSI to show that an agreement between LSI and AMP continued to exist outside the SPA. Hence, the trial proceeded only between LSI and AMP on the Purported Indemnity.

LSI’s case

LSI’s evidence in relation to how Florence and Andy came to know Goh and others in AMP, the representations made by Goh, and the negotiations on the terms of the SPA and the various terms that speak of the Purported Indemnity have been set out in Suit 1311 and my decision therein, and I will not repeat these. Counsel for LSI and AMP have no objections to allowing the evidence given by Florence and Andy in Suit 1311 to apply in these proceedings.

At the outset it is important to point out that in an indemnity the indemnitor’s liability is undertaken primarily to his obligations and original to the creditor. In contrast, under a guarantee, the guarantor’s liability is essentially secondary to the principal. Further, an indemnity need not be evidenced in writing, unlike a contract of guarantee pursuant to s 6(b) of the Civil Law Act (Cap 43, 1999 Rev Ed) (“the CLA”). LSI accepted that if the written and signed SPA had been rescinded, then any indemnity or guarantee within the SPA could no longer operate to bind those parties to the indemnity or guarantee.⁵

Instead, LSI ran two alternative cases. It claimed that while the SPA had been rescinded, the SPA and Purported Indemnity were standalone contracts independent of each other.⁶ This separate contract of indemnity survived the rescission and did not need to be evidenced in writing. Alternatively, the Purported Indemnity was an independent contract of guarantee, whereby AMP would be liable to pay LSI (the Sale Price plus IRR totalling $19,073,162) if Goh failed or refused to repurchase the shares.⁷ LSI pleaded that the formality requirements for this independent guarantee had been complied with, alternatively, that AMP was nevertheless precluded on relying on the formality requirements due to the doctrine of part performance or estoppel.

I focus here on the Purported Indemnity terms and how they came to be. On its primary case, LSI claimed that the Purported Indemnity was entered into between LSI and AMP “on or about” 25 November 2014, whereby AMP agreed to indemnify LSI the Sale Price plus 15% IRR if AMP did not achieve a trade sale or an IPO within 24 months of executing the SPA. LSI claimed that the Purported Indemnity was “evidenced in writing” by the following:⁸ Clauses 4(ii) and 4(vii) of the SPA. An email dated 24 November 2014 sent by Goh (who was then the Group Executive Chairman, director and substantial shareholder of AMP) to Florence and Andy, in which Goh stated that “we use [AMP] to guarantee your share capital and IRR for 2 years because we did not give you sufficient time [and] material for Due Diligence …”. AMP’s awareness and express approval, before the SPA was executed, of the SPA terms including the Purported Indemnity contained in clauses 4(ii) and 4(vii) of the SPA. In this regard, on 25 November 2014, Lee emailed Andy, Florence, Goh and Goh’s daughter Michelle (who was then the Chief Executive Officer and director of AMP) to state essentially that “[AMP] is able to guarantee the value of a contract that is approved by its Board of Directors”, that “the Board has approved this SPA” and that “[AMP] is obligated to service its guarantees”.

It is not disputed that the SPA was executed on 25 November 2014 by only LSI and Goh, and that it has in any event been terminated or rescinded. Nevertheless, LSI alleged that the Purported Indemnity existed outside the SPA, and that its terms were based on the communications and conduct of Goh and Lee (see [10] above) who had authority to act on AMP’s behalf.

LSI further stated that it had given consideration for the Purported Indemnity by entering into the SPA without sufficient opportunity to conduct proper due diligence of AMP, and this was done at the request of Goh (who was at that time also representing AMP)⁹. Florence explained that the deal to buy Goh’s AMP shares had to be completed quickly as Goh had informed her that a trade sale was imminent and that he needed her and Andy’s money to buy out the minority investors. Andy thus asked for an assurance that there would be a “guarantee” or minimum return on their investment should the trade sale or IPO not occur, hence the “guarantee” for their capital (the Sale Price) plus the 15% IRR to protect their investment.

On LSI’s alternative case, the Purported Indemnity was a contract of guarantee which existed outside the SPA and on the same terms as in the Purported Indemnity, in that AMP would guarantee Goh’s default to the sum of the Sale Price plus 15% IRR. It should be noted however, that in LSI’s Closing Submissions, it took the position that the Purported Indemnity was in the nature of an indemnity and not a guarantee.¹⁰

AMP’s defence

AMP...