Metro Alliance Holdings & Equities Corp v WestLB AG

• Jurisdiction: Singapore
• Judge: Lee Seiu Kin J
• Judgment Date: 15 October 2007
• Neutral Citation: [2007] SGHC 175
• Docket Number: Suit No 446 of 2006 (Registrar's Appeals Nos 15 and 16 of 2007)
• Date: 15 October 2007
• Year: 2007
• Published date: 03 December 2007
• Plaintiff Counsel: Timothy Kho (Tan Peng Chin LLC)
• Citation: [2007] SGHC 175
• Defendant Counsel: Harish Kumar (Engelin Teh Practice LLC)
• Court: High Court (Singapore)
• Subject Matter: Conditions,Discharge,Whether full assignment and transfer of legal and beneficial title condition precedent to payment of balance purchase price,Contractual terms,Against forfeiture,Whether equitable relief could be granted to contracts unconnected with any interests in land,Relief,Whether failure to pay balance purchase price discharging contract and resulting in forfeiture of deposit,Contract,Whether forfeiture of deposit unconscionable,Equity,Breach

15 October 2007

Lee Seiu Kin J

1 The plaintiff is a company incorporated in the Philippines. The defendant is a German bank with a branch in Singapore. In this suit, the plaintiff claims against the defendant the sum of US$1,635,000.00, alternatively damages, for repudiatory breach of a written agreement dated 2 June 2003. The facts of the matter are as follows.

2 Sometime in early 2003, the plaintiff was interested to purchase a sub-participation interest in the debt owed by a Philippines company, Bataan Polyethylene Corporation (“BPC”), to an international consortium, International Finance Corporation (“IFC”). Initially, the plaintiff was referred to Citigroup Financial Products Inc (“Citigroup”) as a bank from whom they could buy such an interest. Citigroup advised that there were restrictions in the master participation agreement preventing the plaintiff from taking a direct assignment of a sub-participation interest from Citigroup. However, Citigroup recommended the defendant as a party that could purchase the sub-participation interest from Citigroup and thereafter sell and transfer this interest to the plaintiff.

3 Following discussions between the plaintiff and defendant, the plaintiff agreed to purchase from the defendant a sub-participation interest in the debt of BPC in respect of the principal amount of US$29,198,650. To this end, the parties signed an option agreement and a trade confirmation agreement, both dated 2 June 2003. Under the option agreement, with the defendant as vendor and the plaintiff as purchaser, the plaintiff was granted a call option over the “option participation assets” which comprised the sub-participation interest in question of the debt of BPC. Pursuant to the call option, the plaintiff has the right to require the defendant to sell to the plaintiff the option participation assets (or part thereof) subject to the terms specified. The consideration for this is a “premium” which is the price at which the defendant purchased the option participation assets plus transaction costs. The plaintiff may exercise the call option by serving a written notice to the defendant whereupon the defendant is obliged to sell the option participation assets for the sum of US$1.00.

4 Clause 3.2 of the option agreement required the plaintiff to deposit the sum of US$1,632,242 (“the Deposit”) into a New York bank account (“the Account”) within three days of the date of the agreement, and to deposit additional sums from time to time as requested by the defendant. Clause 3.3 authorised the defendant to transfer from the Account into its own account an amount equal to the premium that the defendant estimates to be payable by the plaintiff. In clause 3.4, the plaintiff authorised the defendant to purchase the option participation assets at any price below or equal to the “mandate price” (defined as 35% of the par value of each of the option participation assets, or such other price as the parties may agree in writing) and in accordance with the trade confirmation agreement issued by the defendant in the form specified in Schedule 2 to the option agreement. Clause 3.5 provided that the defendant shall not be obliged to purchase option participation assets if the Account did not contain sufficient funds for the defendant to withdraw and transfer an amount equal to the premium.

5 The trade confirmation agreement (referred to in the option agreement as the confirmation notice), also dated 2 June 2003, provides the following additional terms:

(a) under the title “Other Terms of Trade”:

(i) There will be full assignment and transfer of legal and beneficial title to the Asset from the Vendor to Purchaser as soon as all necessary consents are obtained under Loan documentations and at law,

(ii) Purchaser shall pay Vendor a non-refundable deposit of US$1,459,932.50 (the “Deposit”) three business days before the Signing Date,

(iii) Purchaser shall pay Vendor the remaining balance of US$8,759,595.00 (the “Purchase Price Balance”) on Settlement Date.

(b) under the title “Termination Clause”:

The Purchaser’s rights to the Assets, the Deposit, the PDI and Other Distributions shall be forfeited if the Purchaser fails to pay (a) the Deposit three business days before the Signing Date or (b) the Purchase Price Balance on Settlement Date, unless the Vendor, in its sole discretion, agrees to extend the Signing Date or the Settlement Date, as applicable.

It is common ground that the signing date is 2 June 2003 and the settlement date is 31 October 2003.

6 The plaintiff duly paid to the defendant US$1,635,509.73 comprising the deposit of US$1,459,932.50 specified in term (ii) of “Other Terms of Trade” plus interest and fees. The transaction broke down thereafter and the plaintiff’s case is set out in paragraphs 4.6 to 4.8 of their Statement of Claim as follows:

4.6 The Plaintiffs were to deposit with the Defendants part payment of the Purchase Price of US$1,459,932.50 three business days before the signing date of the Trade Confirmation Agreement.

4.7 In consideration, the Defendants were to immediately effect a “full assignment and transfer of the legal and beneficial title to the Asset from the Defendants to the Plaintiffs as soon as all necessary consents were obtained under the Loan documentation and at law”.

4.8 There was provision for the Plaintiffs to pay the balance Purchase Price of US$8,759,595 no later than 31 October 2003. The Plaintiffs say that the full assignment and transfer of the legal and beneficial title to the Asset referred to at paragraph 4.7 above was a condition precedent to the payment of such balance Purchase Price. Otherwise, there would have been no consideration or reason for the balance Purchase Price to be payable.

7 The defendant’s position is the direct opposite of that of the plaintiff’s in paragraph 4.8. The defendant’s case is that it was a condition precedent that the plaintiff placed the defendant in sufficient funds so that the defendant could in turn pay the balance of the purchase price to Citigroup to complete the purchase of the sub-participation interest. The entire dispute hinges on the interpretation of the option agreement and the trade confirmation agreement on this issue. The defendant also claims that the contract between them was discharged by reason of the plaintiff’s failure to pay the balance purchase price by the settlement date and that pursuant to the termination clause in the trade confirmation agreement, the defendant was entitled to forfeit the deposit. The plaintiff’s position, in the event that it is found to be in breach, is that it is entitled to equitable relief from forfeiture.

8 In Summons No 4576 of 2006 the plaintiff applied for summary judgment for the sum of US$1,635,000. This application was dismissed by the assistant registrar on 4 January 2007. The plaintiff appealed against this dismissal in Registrar’s Appeal No 15 of 2007.

9 In Summons No 4587 of 2006, the defendant applied under O 14 r 12 of the Rules of Court (Cap 322, R5, 2006 Edition) for a determination of the following questions of law or construction:

(1) Whether the full assignment and transfer of the legal and beneficial title to the Asset was a condition precedent to payment by the plaintiff of the balance purchase price to the defendant?

(2) If not, then whether the contract between the plaintiffs and the defendants was discharged by reason of the plaintiffs’ failure to pay the Balance Purchase Price by the Settlement Date?

(3) Whether the Termination Clause in the WestLB-Metro Trade Confirmation is a penalty and therefore unenforceable?

(4) Whether the plaintiffs are entitled in principle and/or on the facts to equitable relief from forfeiture of the Deposit?

The defendant prayed for the plaintiff’s claim to be dismissed with costs if the questions are determined in the defendant’s favour.

10 Summons No 4587 of 2006 was also heard in the same hearing on 4 January 2007. The assistant registrar determined the questions in the following manner:

Question (1): No.

Question (2): Yes.

Question (3): No, not in the sense of Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 15 as...