OCBC Capital Investment Asia Ltd v Wong Hua Choon

• Jurisdiction: Singapore
• Judgment Date: 28 September 2012
• Date: 28 September 2012
• Docket Number: Civil Appeal No 16 of 2012,Suit No 63 of 2010
• Court: High Court (Singapore)

OCBC Capital Investment Asia Ltd

Plaintiff

and

Wong Hua Choon

Defendant

[2012] SGCA 54

Chan Sek Keong CJ, Andrew Phang Boon Leong JA and V K Rajah JA

Civil Appeal No 16 of 2012

Court of Appeal

Contract—Formation—Parties negotiated and settled on terms in term sheet at meeting—Term in term sheet provided for agreement to be executed to effect necessary changes—Party refused to sign formal documentation—Whether binding oral contract formed at meeting

The appellant (‘the Appellant’) was an investment holding company. The respondent (‘the Respondent’) was the chief executive officer of Frontken Corporation Berhad (‘Frontken’). He was also the Appellant's customer and a substantial shareholder of Frontken.

On 20 July 2007, the parties entered into a contract (‘the Risk Participation Agreement’). Under the terms of the Risk Participation Agreement, if the Appellant subscribed for shares in Frontken (‘the Frontken shares’) and subsequently sold them before 10 August 2009 (‘the Risk Participation Period’), the Respondent had to pay the Appellant the difference between the sale price and the ‘floor price’ (which was stipulated as 85% of the cost price of each Frontken share) of the Frontken shares less any capital distributions received. After the parties entered into the Risk Participation Agreement, the Appellant subscribed to the Frontken shares.

Subsequently, in late 2008, the global financial crisis struck and the market price of the Frontken shares fell drastically below the floor price. The parties entered into negotiations in order to find a mutually beneficial solution. The negotiations culminated in a meeting on 23 June 2009 (‘the 23 June 2009 meeting’), in which the parties settled on the terms contained in a term sheet (‘the term sheet’). The term sheet provided for, inter alia, the sale of a certain amount ofthe Frontken shares owned by the Appellant to the Respondent in five tranches and the remaining Frontken shares to be subjected to a new Risk Participation Period commencing from 1 July 2010 and continuing as long as the Appellant held any Frontken shares. Importantly, an express term of the term sheet (‘the crucial term’) stated as follows: ‘Documentation: ASupplemental Agreement to be executed to effect necessary changes’.

After the 23 June 2009 meeting, an Oversea-Chinese Banking Corporation investment committee (‘OIC’) internal meeting was held and the OIC approved the terms of the term sheet. The parties then agreed on the solicitors to be appointed to prepare the formal documentation. Under the term sheet, the Respondent was supposed to purchase the first tranche of Frontken shares from the Appellant on 31 July 2009, but the Respondent did not do so.

The formal documentation, which included the Supplemental Agreement, was eventually completed. In one of these documents, the date for the sale of the first tranche of Frontken shares was changed from 31 July 2009 to 15 August 2009. The formal documentation was then sent to the Respondent for execution on 6 August 2009, four days before the expiry of the Risk Participation Period on 10 August 2009. Despite persistent attempts to contact the Respondent, the Appellant was unable to reach him. The Respondent only replied on 11 August 2009, the day after the expiry of the Risk Participation Period. The Appellant asked the Respondent to sign the formal documentation. The Respondent refused to do so.

The Appellant sued the Respondent, arguing, inter alia, that the parties had concluded a binding oral contract in the terms of the term sheet at the 23 June 2009 meeting and that the Respondent had breached the contract. The Respondent argued that no binding oral contract had been formed at the meeting.

The trial judge (‘the Judge’) dismissed the Appellant's suit. The Judge applied the principles set out in Norwest Holdings Pte Ltd v Newport Mining Ltd[2011]4 SLR 617; he found that the crucial term had the same effect as a ‘subject to contract’ clause and, after examining the evidence and the parties' conduct, held that the parties' objective intention was for the agreement between them to be legally binding only after the execution of the formal documentation.

The Appellant appealed against the Judge's decision, arguing, inter alia, that the Judge was wrong in his construction of the crucial term and his assessment of the evidence. The Respondent argued, inter alia, that the fact that the Appellant was still required to obtain approval from the OIC indicated that the Appellant's representatives at the 23 June 2009 meeting did not have the authority to enter into a binding oral contract and as such no binding contract had been entered into between the parties at the meeting. The Respondent also argued that, since the date for the sale of the first tranche of Frontken shares was amended, no binding oral contract was entered into between the parties at the 23 June 2009 meeting.

Held, allowing the appeal:

(1) The court agreed with the Judge's exposition of the applicable legal principles but disagreed with the conclusion that the Judge reached based on his assessment of the evidence. In the court's view, the objective and relevant facts pointed towards the existence of a binding oral contract entered into between the parties at the 23 June 2009 meeting: at [38], [40] and [58].

(2) Much emphasis was placed on the oral testimony given by various witnesses in the court below. The first port of call for any court in determining the existence of an alleged contract and/or its terms would be the relevant documentary evidence. Where the issue was whether or not a binding contract existed between the parties, a contemporaneous written record of the evidence was obviously more reliable than a witness's oral testimony given well after the fact, recollecting what had transpired. Such evidence might be coloured by the onset of subsequent events and the very factual dispute between the parties. In this regard, subjective statements of witnesses alone were, in the nature of things, often unhelpful. Further, where the witnesses themselves were not legally trained, counsel ought not to forensically parse the words they used as if they were words in a statute. This was not to state that oral testimony should, ipso facto, be discounted. On the contrary, credible oral testimony could be helpful to the court, especially where such testimony was given for the purpose of clarifying the existing documentary evidence. There was, however, no magic formula in determining the appropriate weight that should be given to witness testimony. Much would depend on the precise factual matrix before the court. However, it bore reiterating that the court would always look first to the most reliable and objective evidence as to whether or not a binding contract was entered into between the parties and such evidence would tend to be documentary in nature: at [41].

(3) The court disagreed with the Judge's finding that the crucial term was an ordinary ‘subject to contract’ clause. The critical requirement in the crucial term was not that a Supplemental Agreement should be executed, but ‘to effect the necessary changes’. This form of words implied that there was already an existing underlying agreement on the Appellant's Frontken shares, and that the Supplemental Agreement was merely to give effect to the changes: at [42].

(4) Both parties were urgently seeking a mutually beneficial solution to their respective problems in relation to the disposal of the Frontken shares of which market value had dropped sharply in 2008: at [43].

(5) The relevant e-mails sent by the Appellant's representatives to the Respondent demonstrated that the Appellant was keen for a quick and final resolution of the outstanding issues previously discussed by the parties, which was the purpose of the 23 June 2009 meeting. Such finality could only have been achieved by a binding agreement between the parties. In so far as the Appellant was concerned, the Supplemental Agreement was merely documentation that would formally embody the binding agreement that the parties would finalise at the 23 June 2009 meeting itself: at [44] to [46].

(6) The relevant e-mails sent by the Respondent or his representative as well as the relevant parts of their testimonies showed that, from the Respondent's perspective, the parties had entered into a binding oral contract at the 23 June 2009 meeting. The Respondent was wholly in agreement with the terms of the term sheet and there was nothing left to be discussed after the meeting. The Supplemental Agreement merely documented the oral contract already entered into by the parties: at [47], [49], [53] and [54].

(7) The Respondent's assertion that there were still ‘some unresolved issues’ in his e-mail sent to the Appellant after the 23 June 2009 meeting was a mere afterthought. Save for this assertion, there was no evidence on record to demonstrate that the parties had any ‘unresolved issues’ during and following the meeting itself. This assertion appeared to be a legal ploy on the part of the Respondent, who sent the e-mail a day after the expiry of the Risk Participation Period, claiming that he had been away. The reality of the situation, however, was that the Respondent himself had admitted during cross-examination that he knew that the Supplemental Agreement sent by the Appellant had arrived on 6 August 2009 itself, although he also claimed that he had ‘no time to handle’ it. Even after the Appellant's representatives continued to correspond with the Respondent after the latter had sent the e-mail, the Respondent merely strung the Appellant along. The Respondent was in fact not entitled to change his mind following what was - by his own admission - his complete assent to the terms in the term sheet at the meeting: at [48], [52], [55], [56] and [58].

(8) As the case involved the modification of an existing contract between the parties and given the...