Nanyang Medical Investments Pte Ltd v Kuek Bak Kim Leslie and others

• Jurisdiction: Singapore
• Judge: Mavis Chionh Sze Chyi JC
• Judgment Date: 28 November 2018
• Neutral Citation: [2018] SGHC 263
• Court: High Court (Singapore)
• Docket Number: Suit No 152 of 2017
• Year: 2018
• Published date: 06 July 2019
• Hearing Date: 30 July 2018,12 June 2018,07 June 2018,06 June 2018,05 September 2018,08 June 2018
• Plaintiff Counsel: Eugene Singarajah Thuraisingam, Syazana Binte Yahya and Teo Sher Min (Eugene Thuraisingam LLP)
• Defendant Counsel: Ho Pei Shien Melanie, Lim Xian Yong, Alvin and Chia Shi Jin (WongPartnership LLP)
• Subject Matter: Contract,Contractual terms,Express terms,Interpretation,Admissibility of evidence,Penalty clause,Compromise agreement,Requirements for valid compromise,Equity,Estoppel,Promissory estoppel
• Citation: [2018] SGHC 263

Mavis Chionh Sze Chyi JC: Background

The Plaintiff in this case is an investment holding company. Its director is one Fan Hanxi, (“Dr Fan”), who is also one of its shareholders. The 1st Defendant is a plastic surgeon with his own practice in Singapore. The 2nd Defendant is his wife. The 3rd Defendant is a company incorporated by the 1st and 2nd Defendants as a corporate vehicle for running a private plastic surgery practice. Both the 1st and 2nd Defendants are its directors. At the time the present suit was filed, the Plaintiff, the 1st Defendant, and the 2nd Defendant were all shareholders of the 3rd Defendant, with the Plaintiff holding 11.54% of the shares, and the 1st and 2nd Defendants holding the remaining shares in equal proportions.

The Plaintiff became a shareholder of the 3rd Defendant pursuant to a Share Sale Agreement (“the Share Sale Agreement”¹) which the Plaintiff, and the 1st and 2nd Defendants, entered into on 13 February 2015. Under this Share Sale Agreement, the 1st and 2nd Defendants transferred to the Plaintiff 11.54% of the shares in the 3rd Defendant upon the Plaintiff paying the agreed purchase price of $1.5m. At that point in time, Dr Fan had valued the 1st Defendant’s plastic surgery business at $13m.²

On the same date (ie, 13 February 2015), the parties also entered into the following other agreements: Shareholders’ Agreement between the Plaintiff and all three Defendants (“the Shareholders’ Agreement”);³ Two separate Put Option Agreements (collectively, “the Put Option Agreements” or “the POAs”) – one between the Plaintiff and the 1st Defendant,⁴ another between the Plaintiff and the 2nd Defendant;⁵ and Two separate Call Option Agreements (collectively, “the Call Option Agreements” or “COAs”) – one between the Plaintiff and the 1st Defendant,⁶ another between the Plaintiff and the 2nd Defendant.⁷

The Plaintiff filed the present suit to seek firstly an order of specific performance to compel the 1st and 2nd Defendants to purchase its shares in the 3rd Defendant at the price of $1.2m; or alternatively, an award of damages in the sum of $1.2m. The Plaintiff asserted that it had exercised its put options in respect of these shares on 25 August 2016, pursuant to cl 2.2 of the POAs. Under cll 2.3 and 3 of the POAs, the 1st and 2nd Defendants were obliged to purchase its shares at 80% of the aggregate purchase price paid by the Plaintiff (which came to $1.2m), but the 1st and 2nd Defendants had failed to do so.

Secondly, the Plaintiff also sought in this suit an order of specific performance to compel the Defendants to pay it a sum of $35,952.18 which it claimed represented its share of the total dividends of $311,544 declared by the 3rd Defendant for the year ending 31 January 2016.

The Defendants denied the validity of the Plaintiff’s put option notices. The Defendants asserted that on 4 September 2015, they had notified the Plaintiff of the occurrence of a Default Event as defined in the COAs: namely, the “failure of the [Plaintiff] to refer (through itself and / or Nanyang Travel Planner Pte Ltd [a related company] … at least sixty (60) clients to the [3rd Defendant] within a consecutive six (6)-month period from the date of [the COAs]”. The Defendants asserted that the Plaintiff had itself admitted the occurrence of the Default Event, as well as the consequence of such a Default Event, which was that the 1st and 2nd Defendants were entitled to exercise their respective call options – pursuant to cll 2 and 3 of the COAs – to purchase the Plaintiff’s shares in the 3rd Defendant for $1. Subsequently, on 6 May 2016, the 1st and 2nd Defendants exercised their respective call options under the COAs to purchase the Plaintiff’s shares for $1. The effect of this exercise by the two Defendants of their call options was to terminate the POAs, pursuant to cl 7(iii) of the POAs. As the Plaintiff had failed to execute the relevant share transfer forms forwarded by the Defendants, the 1st and 2nd Defendants counterclaimed in the present suit for an order of specific performance to compel the Plaintiff to transfer its shares to them for the price of $1 (payable by each Defendant).

As to the Plaintiff’s claim in relation to its share of the dividends declared by the 3rd Defendant, the Defendants stated that the sum of $311,544 represented the total dividends declared for the financial periods ended 31 January 2015 and 31 January 2016 respectively, and that the sum was broken down as follows: $261,544 for the period ended 31 January 2015; $50,000 for the period ended 31 January 2016.

The Defendants asserted that as the Plaintiff had become a shareholder of the 3rd Defendant only on 13 February 2015, it was entitled only to share in the $50,000 dividends for the period ended 31 January 2016, which worked out to a sum of $5,769.24.

At the conclusion of the trial, I dismissed the Plaintiff’s claims and allowed the Defendants’ counterclaim for an order of specific performance to compel the transfer of the Plaintiff’s shares to the 1st and 2nd Defendants for $1 (per Defendant). As the Plaintiff has filed an appeal against my decision, I am setting down my reasons in these written grounds.

The competing claims in relation to the disposal of the Plaintiff’s shares in the 3rd Defendant The relevant contractual clauses

I will first address the Plaintiff’s claim and the Defendant’s counter-claim in relation to the disposal of the Plaintiff’s shares in the 3rd Defendant. Parties were agreed that the central dispute concerned whether, on 6 May 2016, the 1st and 2nd Defendants could have validly issued call option notices to purchase the Plaintiff’s shares for $1. I will refer to the exercise of such call options as “default call options”. If this question were to be answered in the affirmative, it meant that the Plaintiff could not have validly exercised its put options on 25 August 2016 because the POAs would have been terminated upon the valid exercise of the two Defendants’ call options – as provided by cl 7(iii) of the POAs (which I set out below).⁸ On the other hand, if the question were to be answered in the negative, the Defendants’ objections to the Plaintiff’s exercise of its put option on 25 August 2016 fell away. Much of the argument in this trial thus revolved around the interpretation of the contractual clauses which delineated the scope of the 1st and 2nd Defendants’ right to exercise their call options on 6 May 2016 on the basis of a “Default Event” as defined in the COAs.

For ease of reference, I set out below the relevant clauses from the COAs: 1 DEFINITIONS 1.1 The following words and phrases, wherever used in this Agreement, shall have the following meanings:

...

“Call Option”	shall mean the right of the Purchaser to purchase from the Grantor, on the terms and subject to the conditions contained in this Agreement, the Call Option Shares at the Exercise Price
“Call Option Period” ...	shall mean the period of twenty-four (24) months from the date of this Agreement, or such other period as may be mutually agreed between the Parties;
“Completion Date”	shall mean the date falling ten (10) Business Days after the date of the Notice, or such other date as may be mutually agreed between the Parties;
“Default Event”	shall mean such failure of the Grantor to refer (through itself and/or Nanyang Travel Planner Pte. Ltd.) (regardless of whether any agreement is ultimately entered into with) at least sixty (60) clients to the Company within a consecutive six (6)-month period from the date of this Agreement;
“Default Period”	shall mean the period of six (6) months from the date of this Call Option (which shall run concurrently with the Call Option Period);

…

2 CALL OPTION 2.1 In consideration of the sum of S$1.00 only paid by the Purchaser to the Grantor (the receipt, adequacy and sufficiency of which the Grantor acknowledges), the Grantor hereby irrevocably grants the Purchaser the right to exercise the Call Option at any time during the Option Period (or the Default Period, as the case may be) over the Call Option Shares. 2.2 The Call Option may only be exercised by the Purchaser in respect of all of the Call Option Shares (and not part thereof only), by serving on the Grantor a Notice during the Option Period (or the Default Period, as the case may be). The Notice, upon being served by the Purchaser, may not be withdrawn except with the written consent of the Grantor. 2.3 The Grantor shall, upon service of the Notice by the Purchaser, sell to the Purchaser (or his designated nominee, as shall be informed in writing to the Grantor) the Call Option Shares at the Exercise Price. 3 EXERCISE PRICE

The aggregate Exercise Price for the Call Option Shares shall be as follows:

(a) should there be non-occurrence of the Default Event, based on the higher of either: (i) 120% of the aggregate price paid by the Grantor at the relevant date(s) on which it had purchased the Call Option Shares (the “Acquisition Date(s)”), LESS all accumulative dividends since received by the Grantor from the Acquisition Date(s) up to the date of exercise of the Call Option; or (ii) the purchase price offered by an unrelated third party for the Call Option Shares in relation to a proposed purchase of the entire (and not part thereof only) issued and paid-up share capital of the Company, and (b) on the occurrence of a Default Event, at S$1.00.

…

7 DURATION OF OBLIGATIONS

This Agreement shall terminate upon the earlier of: (i) the expiry of the Option Period; (ii) the exercise of the Call Option by the Purchaser; or (iii) the exercise of the Put Option by the Grantor.

I also set out...