Ng Swee Hua v Auston International Group Ltd and Another

• Jurisdiction: Singapore
• Judge: Belinda Ang Saw Ean J
• Judgment Date: 29 December 2008
• Neutral Citation: [2008] SGHC 241
• Plaintiff Counsel: Boey Swee Siang and V Jesudevan (Rajah & Tann)
• Published date: 09 January 2009
• Court: High Court (Singapore)
• Defendant Counsel: N Sreenivasan and Valerie Ang (Straits Law Practice LLC)
• Subject Matter: Contract

29 December 2008

Belinda Ang Saw Ean J:

Background

1 The background to this case may be shortly stated. The first defendant, Auston International Group Ltd (“Auston”) is a company listed on the Singapore Stock Exchange. It is in the business of providing tertiary and post-graduate education. The second defendant, Auston Institute of Management & Technology Pte Ltd (“AIMT”) is a wholly owned subsidiary of Auston. AIMT was incorporated on 22 July 2005.

2 In early 2005, Auston was in financial difficulties and in need of funding assistance. Its managing director, one Ricky Ang, approached the plaintiff, Ng Swee Hua (“Mr Ng”) who, at the request of Ricky Ang, agreed to (i) provide an urgent injection of funds in the sum of $200,000 to meet Auston’s financial obligations, and (ii) manage its tertiary education business under AIMT in accordance with Auston’s corporate restructuring plans. A loan of $200,000 was duly made by Mr Ng.

3 By an Investment Agreement dated 15 December 2005 (“the Investment Agreement”), Mr Ng, Auston and AIMT agreed that Mr Ng would subscribe for convertible bonds of an aggregate principal amount of up to $600,000 on the terms and subject to the conditions in the Investment Agreement. Of this principal amount of $600,000, Mr Ng was obliged by cl 2.1.1 to subscribe and AIMT was correspondingly obliged to issue the first tranche of convertible bonds for a principal amount of $200,000 (hereinafter referred to as “the first tranche of convertible bonds”). It was also expressly stated that Mr Ng’s loan of $200,000 would be utilised in satisfaction of the consideration for the subscription of the first tranche of convertible bonds which, at the option of Mr Ng, could be converted into shares of either Auston or AIMT, or a combination of both. Apart from the first tranche of convertible bonds, Mr Ng could, within six months, subscribe for an additional $400,000 worth of convertible bonds to be issued by AIMT. However, some six months later, the Investment Agreement was amended by a Supplemental Investment Agreement of 14 June 2006 (“the Supplemental Investment Agreement”). It is common ground that the year “2005” appearing on the first page of the Supplemental Investment Agreement was a typographical error. I shall come back to the relevant terms of the Supplemental Investment Agreement a little later.

4 Mr Ng was the Managing Director of AIMT from 3 January 2006 to 13 September 2006, and a director of both defendants from 2 May 2006 to 4 January 2007. Mr Ng was also appointed President and Chief Operating Officer of Auston from 10 July 2006 to 13 September 2006.

5 On 3 November 2006, Mr Ng sent his notice in writing to both defendants directing them to procure the issuance of 5,000,000 fully paid ordinary shares of Auston pursuant to the Investment Agreement (“the Notice of Conversion”). A reminder was sent on 17 November 2006. Instead of responding directly to Mr Ng, the defendants instructed their then solicitors, M/s Colin Ng & Partners, to draft a circular to the shareholders seeking, inter alia, shareholders’ approval to execute the conversion pursuant to Mr Ng’s conversion notice. That draft circular, however, was never finalised and acted upon.

6 On 4 January 2007, Mr Ng resigned from all his directorships in the defendants. He instituted the present action on 1 March 2007 to enforce the terms of the Investment Agreement and Supplemental Investment Agreement (hereinafter collectively referred to as “the Agreements”).

Competing arguments

The plaintiff’s case

7 The plaintiff’s case is that he had fulfilled all his obligations under the Agreements having paid in full $200,000 for the first tranche of convertible bonds. Mr Ng maintained that AIMT breached its obligations under the Investment Agreement as it had since 14 June 2006 failed to issue the first tranche of convertible bonds. That breach, as the argument developed, resulted in Mr Ng losing a real and substantial chance of converting the first tranche of convertible bonds into shares of Auston. Apart from damages, interest is also claimed pursuant to cl 2.3 of the Investment Agreement and cl 4.1 of Schedule 1 thereto.

8 Counsel for Mr Ng, Mr Boey Swee Siang, contended that separately, Auston breached the Agreements in two respects: first, in failing to ensure that AIMT issued the first tranche of convertible bonds and second, in failing on 4 January 2007 to convert the convertible bonds into shares in Auston.

9 It was argued that if the defendants are correct and shareholders’ approval was necessary for both the issuance of the first tranche of convertible bonds and conversion of the same into shares in Auston, the onus was on Auston to call the necessary general meeting of its shareholders. At all material times, Auston was the sole shareholder of AIMT, and since Auston failed to call the necessary general meeting, it breached its obligations under the Investment Agreement. By their defaults, Mr Boey submitted that damages should be assessed on or around 4 January 2007 because that was the time (i) Mr Ng resigned as director of the defendants and (ii) the defendants evinced an intention to abandon the Agreements. Pausing here, I did not view the latter assertion as a claim for repudiatory breach simply because Mr Boey had included, albeit as an alternative plea, a claim for specific performance. Such a relief is not consistent with the innocent party’s election to treat the contract as discharged from further performance by the defendants.

The defendants’ case

10 The defendants denied liability for several different reasons. First, there was no issuance of any convertible bonds as completion contemplated under the Investment Agreement did not take place. Counsel for the defendants, Mr N Sreenivasan, argued that the non-action of Mr Ng to complete, effectively rescinded the Agreements. Second, even if the Agreements were not rescinded, the condition precedent numbered as cl 3.4(i) was not fulfilled, viz the Listing Manual mandated that shareholders’ approval had to be sought to approve the issuance of the convertible bonds as well as the exercise of the convertible bonds for the issue and allotment of the conversion shares to Mr Ng.

11 Specifically, clause 2(c) of the Supplemental Investment Agreement reads:

Clause 3.4 shall be added as follows:-

Conditions Precedent: The issue of the Convertible Bonds and the issue of any Conversion Shares pursuant to the terms of this Agreement shall be subject to the following conditions precedent:-

(i) if required under the Listing Manual of the SGX-ST, the shareholders of Auston International Group Limited having passed an ordinary resolution at general meeting of Auston International Group Limited to approve the issue of Convertible Bonds as well as the exercise of the Convertible Bonds for the issue and allotment of Conversion Shares to Ng Swee Hua.

(ii) the allotment and issue of Conversion Shares not being prohibited by any statute, order, rule, regulation or directive promulgated or issued by any legislative, executive or regulatory body or authority of Singapore which is applicable to the Parties; and

(iii) all consents, approvals, authorisations or other orders of all relevant regulatory authorities required for or in connection with the issue of the Convertible Bonds and upon its exercise, the conversion of the Convertible Bonds into Convertible Shares to be allotted and issued to Ng Swee Hua, having been unconditionally obtained and are in full force and effect.

12 The parties referred to rules in the SGX Listing Manual and it is now convenient to reproduce them:

804 Except in the case of an issue made on a pro rata basis to shareholders or a scheme referred to in Part VIII of this Chapter, no director of an issuer, or associate of the director, may participate directly or indirectly in an issue of equity securities or convertible securities unless shareholders in general meeting have approved the specific allotment. Such directors and associates must abstain from exercising any voting rights on the matter. The notice of meeting must state:-

(1) the number of securities to be allotted to each director and associate;

(2) the precise terms of the issue; and

(3) that such directors and associates will abstain from exercising any voting rights on the resolution.

805 Except as provided in Rule 806, an issuer must obtain the prior approval of shareholders in general meeting for the following:-

(1) The issue of shares or convertible securities or the grant of options carrying rights to subscribe for shares of the issuer; or

(2) If a principal subsidiary of an issuer issues shares or convertible securities or options that will or may result in:-

(a) the principal subsidiary ceasing to be a subsidiary of the issuer; or

(b) a percentage reduction of 20% or more of the issuer's equity interest in the principal subsidiary. For example, if the issuer has a 70% interest in a principal subsidiary, shareholders’ approval will be required for any issue of shares in the principal subsidiary reducing the issuer’s equity interest to 56%.

806 (1) Approval by an issuer's shareholders under Rule 805(1) is not required if shareholders had, by ordinary resolution in a general meeting, given a general mandate to the directors of the issuer, either unconditionally or on such conditions to issue:-

(i) shares; or

(ii) convertible securities; or

(iii) additional convertible securities issued pursuant to Rule 829, notwithstanding that the general mandate may have ceased to be in force at the time the securities are issued, provided that the adjustment does not give the holder a benefit that a shareholder does not receive; or

(iv) shares arising from the conversion of the securities in (b) and (c), notwithstanding that the general mandate may have ceased to be in force at the time the shares are to be issued.

…

812 (1) An issue must not be placed to any of the following persons:-

(a) The...