Ma Hongjin v SCP Holdings Pte Ltd and another

• Jurisdiction: Singapore
• Judge: Vinodh Coomaraswamy J
• Judgment Date: 13 December 2019
• Neutral Citation: [2019] SGHC 277
• Court: High Court (Singapore)
• Docket Number: Suit No 765 of 2016
• Year: 2019
• Published date: 21 December 2019
• Hearing Date: 29 January 2019,08 February 2019,30 January 2019
• Plaintiff Counsel: Derek Kang and Kathy Chu (Cairnhill Law LLC)
• Defendant Counsel: Alvin Tan (Wong Thomas & Leong)
• Citation: [2019] SGHC 277

Vinodh Coomaraswamy J: Introduction

The plaintiff lent the first defendant $5m under a loan agreement. The parties then entered into a supplemental agreement. The supplemental agreement sought to vary the loan agreement by imposing additional obligations on the first defendant. The first defendant failed to perform one of those additional obligations when it fell due. The plaintiff brings this action against the first defendant to enforce that additional obligation.¹

I have dismissed the plaintiff’s claim. I have held that the supplemental agreement was unsupported by consideration. The first defendant received no benefit and the plaintiff suffered no detriment in exchange for the additional obligation.

The plaintiff has appealed against my decision. I now set out my grounds.

Facts

The plaintiff is an investor. Her husband, Mr Han Jianpeng, is a businessman. He was the driving force behind the couple’s dealings with the first defendant and its group of companies. I shall refer to that group as the “Biomax group”.

The first defendant is an investment holding company. It is the ultimate holding company of the Biomax group. The first defendant owns and controls Biomax Holdings Pte Ltd (“Biomax Holdings”)² which, in turn, owns and controls the second defendant.

The second defendant is the only operating company in the Biomax group. It manufactures fertilisers and nitrogen compounds and sells agricultural machinery and equipment.³

Mr Sim Eng Tong is the driving force behind the Biomax group. He is the controlling shareholder of the first defendant. He is also a director of all three companies: the first defendant, Biomax Holdings and the second defendant.⁴

Mr Sim and Mr Han were introduced to each other in late 2014. They became friends.⁵ They met frequently to discuss, amongst other things, potential investments in the Biomax group.⁶ Mr Han and Mr Sim personally conducted all of the critical negotiations leading to a number of investments which Mr Han made in the Biomax group.⁷ The plaintiff participated only to a limited extent.⁸ These investments include the loans which form the subject-matter of this action.

Mr Han and the plaintiff agreed that the first such investment would be in the plaintiff’s name.⁹ That investment was a convertible loan of $5m from the plaintiff to the first defendant.

The plaintiff and the first defendant duly entered into a formal agreement dated 6 January 2015 known as the Convertible Loan Agreement (“the CLA”).¹⁰ Under the CLA, the plaintiff agreed to lend $5m to the first defendant for two years. The first defendant, in return, agreed to pay interest to the plaintiff on the $5m at 10% per annum and granted the plaintiff an option to convert the loan into shares at the end of the second year.

Clause 3 of the CLA sets out the first defendant’s specific obligations. At the end of the first year, in January 2016, the first defendant was obliged to pay the plaintiff $500,000. At the end of the second year, in January 2017, the second defendant was obliged to repay to the plaintiff the $5m principal with a payment of a further $500,000 in interest. But the plaintiff had the option to require the first defendant to procure a transfer to her of 15% of the shares in Biomax Holdings in discharge of the first defendant’s obligation to pay the total sum of $5.5m falling due in January 2017. Clause 3 provides as follows:¹¹ 3. INTEREST AND REPAYMENT OF THE LOAN 3.1 The interest rate on the Loan is ten (10) per cent per annum. 3.2 Subject to Clauses 4 and 7, the Lender shall be entitled to require the Borrower to repay the Loan in the following manner: (a) On 5th January 2016: To repay the interest accruing up to 5th January 2016 (S$500,000). (b) On the Maturity Date (5th January 2017): i. Option 1 : Borrower to repay the principal amount of the Loan in full and the amount of unpaid interest accruing up to 5th January 2017 (S$500,000, assuming that the Borrower has repaid the interest accruing up to 5th January 2016 at point (a) above); OR ii. Option 2 : Borrower to procure the transfer of 15% of the total number of shares in [Biomax Holdings] (the “Full Repayment Shares”) from the Borrower to the Lender. For avoidance of doubt, the transfer of the Full Repayment Shares from the Borrower to the Lender shall represent the full and final repayment of the principal amount of the Loan and interest on the Loan.

[emphasis added in italics]

The plaintiff duly disbursed the loan to the first defendant. She did so in three tranches: (a) $2.5m on 6 January 2015;¹² (b) $1m on 14 January 2015;¹³ and (c) $1.5m on 30 March 2015.¹⁴

Within two months of entering into the CLA, Mr Han and the plaintiff became unhappy with the first defendant’s financial results.¹⁵ In March 2015, Mr Han and Mr Sim, in their own words, “re-negotiated some of the terms of the CLA”.¹⁶ The renegotiation resulted in the plaintiff and the first defendant entering into a supplemental agreement dated 16 April 2015. It bears the title “Supplemental Agreement relating to a S$5,000,000 Convertible Loan Agreement Dated 6 January 2015”. I shall call it “the SA”.

The SA recorded the parties’ agreement to vary the terms of the CLA in two ways. First, it increased from 15% to 20% the Biomax Holdings shares which the plaintiff had the option to call for in January 2017. Second, it increased from $500,000 to $750,000 the first defendant’s payment obligation in January 2016.¹⁷ These variations are recorded in cl 2 of the SA: 2. AMENDMENTS

In accordance with Clause 9.3 of the [CLA] and pursuant to this Supplemental Agreement, the parties agree that the [CLA] be hereby amended as follows: (a) Clause 3.2(b)(ii) of the [CLA] shall be amended by deleting the words “15%” appearing at line 1 and inserting the words “20%” in place thereof. (b) A new Clause 3.3 shall be inserted as follows: “3.3 The Borrower agrees to pay an additional lump sum facility fee of S$250,000 on 5th January 2016.”

The SA was an attempt to effect a one-sided variation. By that, I mean a variation which imposes additional obligations on only one party to an existing contract without conferring any additional benefit on that party or imposing any additional obligation on the counterparty. To that extent, the characterisation of the additional $250,000 due in January 2016 as a “facility fee” was a complete misnomer. The plaintiff extended the first defendant no facility whatsoever under the SA in exchange for the fee. This additional $250,000 therefore amounted to nothing more than the plaintiff attempting to impose a one-sided increase of 50% in the rate of interest payable in the first year of the loan, ie, from 10% per annum to 15% per annum.

I therefore do not accept that the recitals to the SA are accurate when they record that it was the first defendant which asked the plaintiff to vary the CLA in the terms set out in the SA. The first defendant had no reason to agree to a one-sided variation, entirely against its own interest. Recital (B) reads as follows:¹⁸ (B) The Borrower has requested the Lender and the Lender has agreed to amend the [CLA] to the extent set out in this Supplemental Agreement.

In January 2016, the first defendant duly paid the plaintiff the first tranche of interest which fell due on the loan under cl 3.2(a) of the CLA (see [11] above).¹⁹ The first defendant has, however, failed to pay the plaintiff the $250,000 facility fee, then or at all.²⁰

Procedural history Claim against the first defendant

The plaintiff commenced this action in July 2016. At that time, the first defendant’s only arguable breach of contract was its failure to pay the facility fee in January 2016. The plaintiff’s claim in this action as against the first defendant is therefore limited to a claim to recover the facility fee of $250,000.²¹

While this action was pending, the first defendant also failed to pay the plaintiff the $5.5m which fell due in January 2017 under cl 3 of the CLA. The plaintiff accordingly initiated a separate action²² against the first defendant for that separate breach of the CLA.²³ In October 2017, the plaintiff secured summary judgment against the first defendant in that separate action for $5m plus contractual interest at 10% per annum from January 2016 to the date of payment.²⁴ I need say nothing further about that claim or that action.

Claim against the second defendant

I have thus far described the background to the plaintiff’s claim in this action against only the first defendant. The plaintiff also brings a claim in this action against the second defendant. She brings that claim under three loan agreements which the plaintiff entered into with the second defendant in the second half of 2015. Those loan agreements are not connected to the CLA, save that they are all part of Mr Han’s overall investment in the Biomax group. The plaintiff’s claims against the two defendants in this action are therefore distinct and severable, both factually and legally, from each other.²⁵ For the reasons which follow, the plaintiff’s claims were tried separately as against the individual defendants.

The plaintiff’s claims as against both defendants were fixed to be tried before me in January and February 2019. However, the day before trial, the second defendant put itself into creditor’s voluntary liquidation.²⁶ The result was that, under s 299(2) of the Companies Act (Cap 50, 2006 Rev Ed), the plaintiff’s claim against the second defendant was automatically stayed. She could not have that claim tried without the leave of court.²⁷ The trial of the plaintiff’s claim against the second defendant was vacated to allow that application for leave to be made and argued.²⁸ I eventually granted the plaintiff leave to proceed. Her claim against the second defendant was eventually tried before me in November 2019. That trial is not the subject of these...