OCBC Capital Investment Asia Ltd v Wong Hua Choon

• Jurisdiction: Singapore
• Judge: Steven Chong J
• Judgment Date: 03 February 2012
• Neutral Citation: [2012] SGHC 25
• Court: High Court (Singapore)
• Docket Number: Suit No 63 of 2010
• Year: 2012
• Published date: 10 February 2012
• Hearing Date: 13 October 2011,14 October 2011,23 November 2011,11 October 2011,12 October 2011
• Plaintiff Counsel: Edwin Tong, William Ong, Joseph Tay and Ling Liwei (Allen & Gledhill LLP)
• Defendant Counsel: Chew Kei-Jin, Chen Yixin Edith, Teo Jun Wei Andre and Winston Yien (Tan Rajah & Cheah)
• Subject Matter: Contract
• Citation: [2012] SGHC 25

Steven Chong J: Introduction

This case concerns the classic issue as to whether parties to an oral agreement had intended to be bound only upon formal execution of a written agreement. In determining this issue, it is not necessarily decisive to establish that the parties had orally agreed to the terms of an intended agreement since written agreements are typically preceded by oral agreements on the terms between the parties. Ultimately that issue must be determined by reference to the objective evidence before the court. In this process, the court will attach significance and weight to the parties’ expressed intention on the requirement for the execution of a written agreement. When such an intention is manifested in the contemporaneous documentary evidence, does an inference necessarily arise that the parties had agreed to defer legal relations until the formal execution of a written contract and if so, which party has the burden to displace such an inference?

The present dispute concerns a bank that sought to provide support and assistance to a valued customer during the recent financial crisis. In so doing, the bank was understandably also motivated to advance its own financial interest. In this case, the parties had expressly stated that “[a] Supplemental Agreement [is] to be executed to effect necessary changes” following a meeting where the parties essentially agreed on the terms of the agreement. The preparation of the written agreement was left to the bank. The signing of the written agreement was however time-sensitive in that there was an expiring time limit during which the bank could exercise certain rights of sale. The written agreement was only finalised between the bank and its lawyers on the “eve” of the expiry of the time limit. All reasonable attempts by the bank to contact the customer to sign the written agreement proved to be futile. The bank claimed that the customer was deliberately avoiding its calls to take advantage of the expiring time limit and indeed the time limit eventually expired without the customer signing the written agreement. The question before me is whether the customer was entitled to take advantage of the situation even if he was somewhat “morally reprehensible” in his conduct. He would be entitled to do so if there was in fact no binding oral agreement. Unfortunately for the bank, which behaved fairly throughout the entire episode, I find that the customer is entitled to do so because I am satisfied from the evidence that the objective intention of the parties, including the bank, was not to be bound prior to the formal execution of the written agreement.

Facts The original agreement

The defendant, Wong Hua Choon (“Mr Wong”), is the President and Chief Executive Officer of Frontken Corporation Berhad (“Frontken”), a company listed on the Main Board of Bursa Malaysia Securities Berhad. The plaintiff, OCBC Capital Investment Asia Limited (“OCIA”), is an investment vehicle of Oversea-Chinese Banking Corporation Limited (“OCBC”).

In April 2007, Mr Wong and/or Frontken approached OCIA to participate in a placement exercise in respect of shares in Frontken and on 24 July 2007, OCIA invested RM14,999,380.00 in the placement exercise. The terms of the arrangement between OCIA, Mr Wong and Frontken in respect of the placement exercise were as follows: OCIA would subscribe to 19,736,000 shares in Frontken at a subscription price of RM 0.76 per share; Mr Wong would enter into a Risk Participation Agreement (“RPA”) under which Mr Wong agreed to personally underwrite the downside risk of any fluctuation in the value of the shares acquired by OCIA. The relevant terms of the RPA were as follows: There would be a moratorium period of six months from the date the shares were initially listed on the Malaysian Exchange of Securities Dealing and Automated Quotation (“MESDAQ”) during which OCIA would not be able to sell the shares. After the moratorium, there would be a further period of six months commencing from the 19th month (ie, on 11 February 2009) and ending on the 24th month (ie, on 10 August 2009) after the listing of the shares on MESDAQ (“the Risk Participation Period”) during which if the shares are sold by OCIA (subject to certain conditions and procedures) below a “floor price”, which was stipulated at 85% of the cost of each Frontken share, Mr Wong would have to pay the difference between the sale price and the floor price (“Risk Participation”).

There was a subsequent bonus issue of 7,894,400 shares to OCIA, such that OCIA was allotted a total of 27,630,400 shares in Frontken at an average cost of about RM 0.54 per share. All these shares were subject to the terms of the RPA. The floor price was rounded up to RM 0.47, in accordance with the definition of “floor price” provided in the RPA. In the meantime, Frontken shares were also migrated from the MESDAQ to the Main Board of Bursa Malaysia.

OCIA’s intention to divest

In 2008, the onset of the global financial crisis caused the share price of Frontken to plummet below the floor price. In February 2009, OCIA decided to exit from its investment in Frontken, and this intention was expressly communicated to Mr Wong by two officers of OCIA, namely Vincent Ng Fook Cheong (“Vincent”) and Goh Chong Jin (“Mr Goh”).

At this point of time, should OCIA exit from its investment, it would suffer a minimum loss of 15% of its investment in Frontken, being the difference between its cost and the floor price of each Frontken share, assuming that OCIA could sell all its shares and that Mr Wong would be able to meet his liabilities under the RPA. The loss would be greater if Mr Wong did not have adequate liquidity to meet his liabilities under the RPA. On the other hand, Mr Wong faced a potential liability of about RM7 million to OCIA, being the difference between the sale price and the floor price of OCIA’s Frontken shares should OCIA sell its entire shareholding on the open market. In addition, an open market sale of OCIA’s 4% shareholding in Frontken would likely further depress the share price of Frontken and thus adversely affect the paper value of Mr Wong’s 20% shareholding in Frontken. As such, both parties embarked upon discussions in order to find a mutually beneficial exit option for OCIA. At this point, OCIA’s representatives were introduced to Nicholas Ng Wai Pin (“Nicholas”) as Mr Wong’s assistant and aide. Nicholas is legally trained and was, at all material times, an independent director of Frontken.

On 16 March 2009 (some five months prior to the expiry of the Risk Participation Period), Mr Wong requested OCIA for time to raise sufficient funds to purchase OCIA’s Frontken shares. Mr Wong indicated that he would have some of the funds required immediately and the remainder in a few months’ time. He proposed to make progressive purchases which were to commence immediately. Subsequently, on 19 March 2009, Mr Wong communicated to Vincent at a meeting that he had difficulty raising the funds to purchase OCIA’s entire shareholding in Frontken. Vincent suggested that there could be alternative solutions available, but emphasised that OCIA could proceed to sell the shares on the open market “as early as [in] a couple of weeks” if there was no firm proposal from Mr Wong.

During a follow-up meeting on 25 March 2009, Mr Goh put forward a proposal whereby Mr Wong would purchase part of OCIA’s Frontken shares and the Risk Participation Period in respect of its remaining shares would be extended. Mr Goh’s minutes of the meeting indicated that Mr Wong had appeared “receptive” at this meeting, as well as at a subsequent meeting on 9 April 2009. Thereafter, negotiations between the parties were centred upon this proposal. In the meantime, from the instructions given by OCIA to the brokers of OCBC Bank on 6 April 2009, it was evident that OCIA had completed its internal preparations to sell its shareholding on the open market at a moment’s notice.

The 23 June 2009 meeting

Substantive negotiations involving Mr Goh, Mr Wong and Nicholas between 14 April 2009 and 10 June 2009 culminated in a firm proposal from OCIA, the essence of which obliged Mr Wong to: (a) purchase 3,703,704 Frontken shares at RM 0.54 per share; (b) agree to a new Risk Participation Period commencing 1 July 2010 with no expiry date as long as OCIA held its Frontken shares; and (c) pledge such number of Frontken shares as would be required to secure Mr Wong’s liabilities to OCIA under the terms of the proposal.

Seven points in relation to the proposal were raised by Mr Wong and/or by Nicholas on the behalf of Mr Wong: The imposition of a “moratorium period”, during which OCIA could not claim for Risk Participation should it sell its Frontken shares. The inclusion of a term that Risk Participation should not be claimable in respect of the last 15% of OCIA’s Frontken shares. The quantity of Frontken shares to be pledged by Mr Wong as security. The issue of whether the share pledge should only be given after the moratorium period. The inclusion of a term requiring OCIA to forfeit a compensation sum, which was payable by Mr Wong in relation to the share sale from OCIA to Mr Wong, if there was a breach of the moratorium period. The inclusion of a term for Mr Wong’s right to purchase OCIA’s remaining Frontken shares. The issue of the amount of fees for the new arrangement that would be payable by Mr Wong to OCIA.

On 16 June 2009, Mr Chua Choon Kiang (“Mr Chua”), the Vice-President of the Mezzanine Capital Unit of OCBC, began to be directly involved in the negotiations and requested for a meeting with Mr Wong to obtain an in-principle agreement by 22 June 2009, stressing the urgency of the situation as the window for OCIA to exit within the existing Risk Participation Period was getting smaller. A meeting was scheduled for 23 June 2009 (“the 23 June 2009 meeting”), and on 17 June 2009, Mr Chua...