MCH International Pte Ltd and others v YG Group Pte Ltd and others and other suits

• Jurisdiction: Singapore
• Judge: Valerie Thean J
• Judgment Date: 27 February 2019
• Neutral Citation: [2019] SGHC 43
• Court: High Court (Singapore)
• Docket Number: Suit Nos 107 of 2017, 80 of 2017, 337 of 2016 and 104 of 2016
• Published date: 21 November 2019
• Year: 2019
• Hearing Date: 16 August 2018,19 September 2018,12 September 2018,14 September 2018,13 November 2018,24 August 2018,23 August 2018,21 August 2018,14 August 2018,18 September 2018,15 August 2018,20 September 2018,21 September 2018,13 September 2018,17 August 2018,11 September 2018,07 December 2018
• Plaintiff Counsel: Sivanathan Wijaya Ravana (R. S. Wijaya & Co)
• Defendant Counsel: Navin Joseph Lobo, Vani Nair, Shaun Oon Kim San and Yap Chun Kai (Bird & Bird ATMD LLP),Soh Leong Kiat Anthony and Elias Benyamin Arun (Taylor Vinters Via LLC)
• Subject Matter: Contract,Breach,Contractual Terms,Tort,Conspiracy,Companies,Directors,Duties,Winding Up,Equity,Remedies,Equitable Compensation,Loss of Chance
• Citation: [2019] SGHC 43

Valerie Thean J: Introduction

These four suits arise out of a joint venture to acquire certain Chinese companies in the cold chain logistics business (“the Target Companies”). The Target Companies were owned by a Singapore registered company, Yong Gui Investment Pte Ltd (“YGIPL”). The plan of the two key players, Henry Wong Kok Hwee and Simon Liong Chung Yee, was to acquire YGIPL, and to deploy a core group of personnel experienced in cold chain logistics, led by Mr Wong, to exploit its business potential. YG Group Pte Ltd (“YGG”) was incorporated in Singapore on 27 January 2015 for this purpose.¹ The two shareholders of YGG were YG Logistics Pte Ltd (“YGL”), a company whose majority shareholder is Mactron Holdings Pte Ltd (“Mactron”), an investment holding company in which Mr Liong is a shareholder and the sole director; and MCH International Pte Ltd (“MCH”), a company whose majority shareholder is Mr Wong.

In Suit No 104 of 2016, YGL first sued Mr Wong and MCH for an alleged failure to deploy certain personnel to YGG as promised. Subsequently in Suit No 337 of 2016, YGL sued MCH, Mr Wong and his wife in relation to a S$4,500,000 loan made to MCH. YGG then sued Mr Wong in Suit No 80 of 2017 for breach of his directors’ duties. Finally, Mr Wong brought Suit No 107 of 2017 alleging conspiracy and requesting the court to wind up YGG. These were the four suits that were tried together.

Background

The Target Companies were owned by Lim Chee Kian, Cai Yong Cheng and Koh Chaik Ming (“the Vendors”). Mr Wong was first introduced to the Vendors in 2013. In-depth discussions between Mr Wong and Mr Lim commenced in early 2014 to structure a trade sale.² Pursuant to these discussions, the Vendors incorporated YGIPL, and transferred control of the Target Companies to YGIPL for the purposes of acquisition.³

Sometime in November 2014, Mr Wong presented a business plan to Mr Liong.⁴ The plan proposed the setting up of a joint venture company to acquire the Target Companies. The “information pack” prepared by Mr Wong contained detailed profiles of Dennis Seen, Lou Lin and Maglin Chng, who were identified as “Industry Veterans and key specialists” in the cold chain logistics industry. Mr Wong proposed that he could, together with the three individuals introduced, form a core management team which would make the Target Companies more profitable.⁵ Mr Wong also introduced Mr Liong to Mas Iskandar, an individual whom Mr Wong described as having extensive experience in the logistics field and an ideal candidate to be a neutral director for the proposed joint venture.⁶

Mr Liong expressed interest, and parties negotiated between December 2014 and January 2015. Mr Wong required a loan of S$4,000,000 to be made to MCH, to enable MCH to have sufficient cash to put in its initial contribution to the joint venture. Mr Wong explained to Mr Liong that he needed cash as his assets were tied up at the time.⁷ Because this placed the financial risk of the venture wholly on Mr Liong, Mr Liong emphasised that in the circumstances he needed full confidence on the due diligence that was to be conducted on the Target Companies. Mr Wong reassured Mr Liong that he had 14 years of industry and mergers & acquisitions experience and the firms he had chosen to lead the financial and legal due diligence were “the best in the market”.⁸

In a meeting on 19 January 2015, the parties recorded their agreement on several key terms:⁹ The purchase price for the acquisition of the Target Companies would be US$11,000,000. A joint venture company would be incorporated in Singapore for the purposes of acquiring the Target Companies. MCH would own 70% of the shares in the joint venture company, and YGL would own the remaining 30% of shares. Mr Wong, would take the lead in “hiring and forming the Core Management Team” which would be “responsible for the overall management” of the joint venture company’s business and operations in China. The “Core Management Team” included Mr Wong, Mr Seen, Mr Lou, Ms Chng and an employee of Mactron, Michael Ang Chee Siong. Mr Seen, Mr Lou and Ms Chng would be hired by MCH and seconded to the joint venture company. Mr Ang would be hired directly by the joint venture company. YGL would extend a loan of up to S$4,000,000 to MCH “to assist MCH for its portion of the purchase price”, and this would be secured by the guarantees of two directors of MCH, namely, Mr Wong and his wife, Madam Sing Lee Mee Yoke (“Mrs Wong”). The first disbursement of the loan would be in January 2015, in the amount of S$500,000. This was to help MCH cover the cost of, inter alia, legal and financial due diligence expenses, and the payment for the deployment cost of the core management team members. In the event that the financial due diligence was unsatisfactory, MCH would return the S$500,000. If the financial due diligence was satisfactory, the rest of the loan would be disbursed according to a specified disbursement schedule.

On 27 January 2015, YGG was incorporated and Mr Wong was appointed as the managing director. Mr Liong was appointed a director, and Mr Iskandar took on the role of a “neutral director” and chairman of the YGG board.¹⁰

Parties then entered into a series of written contracts to reflect their agreement, including: A Shareholders Agreement dated 29 January 2015 between YGG, YGL and MCH.¹¹ A Subscription Agreement dated 29 January 2015 between YGG, YGL and MCH.¹² A Call Option Agreement dated 29 January 2015 between YGL and MCH.¹³ A Deed of Undertakings dated 29 January 2015.¹⁴ The Deed of Undertakings contained, inter alia, an undertaking to “procure” Mr Seen, Mr Lou and Ms Chng to be hired by MCH and seconded to YGG.¹⁵ A Loan Agreement dated 29 January 2015 between YGL and MCH.¹⁶ Clause 7.1 of the Loan Agreement stated that MCH would be obliged to return all outstanding loan amounts if YGL did not wish to proceed with the proposed acquisition of the Target Companies, upon completion of due diligence.¹⁷ A Deed of Personal Guarantee dated 29 January 2015,¹⁸ by which Mr and Mrs Wong guaranteed the payment obligations of MCH under the Loan Agreement.

The scope of a last document required discussion between parties. This was a deed of share charge signed by YGL and MCH on 30 January 2015 and dated 19 August 2015 (“the Deed of Share Charge”).¹⁹ The Deed of Share Charge was registered with the Accounting and Corporate Regulatory Authority of Singapore (“ACRA”) on 1 September 2015.²⁰ The purpose of the Deed of Share Charge was to secure the loan granted by YGL to MCH with a charge over MCH’s shares in the joint venture company. Clause 3.8 of the Deed of Share Charge granted YGL the right to “exercise (in the name of [MCH] and without any further consent or authority on the part of [MCH]) any and all rights with respect to the [charged shares]”, including the voting rights of the charged shares.²¹ In an email dated 25 January 2015, Mr Wong requested that Mr Liong insert a clause into the Deed of Share Charge which would qualify clause 3.8 and only allow YGL to exercise voting rights in MCH’s shares in the “event of a default”.²² Mr Liong responded in an email dated 28 January 2015 (“the 28 January 2015 Email”), stating that even though MCH’s shares were pledged to YGL, he would not interfere with the operations or obstruct Mr Wong in discharging his duties.²³ The effect of the 28 January 2015 Email is in contention in these suits.

These various contracts formalised the parties’ initial acquisition plan. The initial plan was to acquire the Target Companies with a purchase price of US$11,000,000 to be paid by YGG to the Vendors in three tranches, US$2,000,000, US$5,000,000 and US$4,000,000, with full control and transfer of shares on payment of the first tranche (“the Initial Acquisition Model”). In order to fund these payments, YGL and MCH would subscribe to shares in YGG in proportion to their stake in YGG, ie, 30% and 70% respectively, whenever a payment had to be made.²⁴ This acquisition process was subject to satisfactory due diligence being conducted.²⁵

On 29 January 2015, Mr Wong emailed Mr Liong, Mr Iskandar and the core management team with a copy of the financial due diligence report (“First Due Diligence Report”) for up to October 2014, prepared by a company called Shanghai Certified Public Accountants (“SCPA”) in respect of the Target Companies. The original First Due Diligence Report was written in Mandarin, and Mr Wong forwarded a copy that was translated by SCPA into English.²⁶

Mr Wong then proceeded to finalise the acquisition with the Vendors. Throughout the negotiation process, the negotiations were managed by Mr Wong. On the side of the Vendors, Mr Lim was the primary point of contact. The other two Vendors were not active in the negotiations.²⁷

As a condition for the transfer of full control as suggested by the Initial Acquisition Model, the Vendors required YGG to provide security in the form of banker’s guarantees for the second and third tranche amounts of US$5,000,000 and US$4,000,000.²⁸ MCH was, however, unable to provide banker’s guarantees for MCH’s portion of the second and third tranche payments. Parties therefore agreed on an amended plan (the “Revised Acquisition Model”). In the Revised Acquisition Model, no security was necessary. The Target Companies were to be purchased in two phases, with full control of the companies deferred to the second phase. The first tranche would be a payment of US$4,400,000 for 40% of the issued share capital in YGIPL with an option to purchase the remaining 60% for US$6,600,000 within 12 months. By 30 March 2015, Mr Wong and Mr Lim had reached in-principle agreement on key terms of the acquisition.²⁹ A first draft of the Share Purchase Agreement between YGG and YGIPL was sent to Mr Wong on 28 April 2015.³⁰

Around late April 2015, Mr Wong visited the Target Companies in Shanghai to examine the business.³¹ In a...