OCBC Capital Investment Asia Ltd v Wong Hua Choon

• Jurisdiction: Singapore
• Judge: Chan Sek Keong CJ
• Judgment Date: 28 September 2012
• Neutral Citation: [2012] SGCA 54
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeal No 16 of 2012
• Published date: 11 October 2012
• Year: 2012
• Hearing Date: 26 July 2012
• Plaintiff Counsel: Lee Eng Beng SC and Jonathan Lee Zhongwei (Rajah & Tann LLP)
• Defendant Counsel: Chew Kei-Jin, Chen Yixin Edith and Teo Jun Wei Andre (Tan Rajah & Cheah)
• Subject Matter: Contract
• Citation: [2012] SGCA 54

Andrew Phang Boon Leong JA (delivering the judgment of the court): Introduction and facts

This is an appeal against the decision of the trial judge (“the Judge”) in OCBC Capital Investment Asia Ltd v Wong Hua Choon [2012] 2 SLR 311 (“the Judgment”).

The dramatis personae

The Appellant, OCBC Capital Investment Asia Limited, is an investment holding company incorporated in Hong Kong which is wholly owned by Oversea-Chinese Banking Corporation Limited (“OCBC”). Messrs Vincent Ng Fook Cheong (“Vincent”) and Goh Chong Jin (“Mr Goh”) were officers of the Appellant at the material time. Mr Chua Choon Kiang (“Mr Chua”) was the Vice-President of the Mezzanine Capital Unit of OCBC at the material time. Vincent, Mr Goh and Mr Chua shall collectively be referred to as “the Appellant’s representatives” in this judgment.

The Respondent, Mr Wong Hua Choon, is the Appellant’s customer. He is the President and Chief Executive Officer of Frontken Corporation Berhad (“Frontken”), a company incorporated in Malaysia and listed on the Main Board of Bursa Malaysia Securities Berhad (“Bursa Malaysia”). He is also a shareholder of Frontken, with a shareholding of about 20%. Mr Nicholas Ng Wai Pin (“Nicholas”) was an independent director of Frontken and a personal friend of the Respondent at the material time. He was also legally trained and had practised law before. In fact, the Respondent relied on Nicholas who acted upon the Respondent’s instructions as well as on his behalf in the Respondent’s dealings with the Appellant’s representatives at the material time. Nicholas was first introduced to both Mr Goh and Vincent at a meeting held on 26 February 2009 between the Respondent, Nicholas, Mr Goh and Vincent.

The original agreement – the Risk Participation Agreement

On 20 July 2007, the Appellant and the Respondent 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 within a stipulated period (“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 proceeded to subscribe to a total of 27,630,400 Frontken shares. Pursuant to the terms of the Risk Participation Agreement, the Risk Participation Period was scheduled to expire on 10 August 2009.

The impact of the global financial crisis in late 2008 and the search for a mutually beneficial solution

In late 2008, the global financial crisis struck and the market price of the Frontken shares fell drastically below the floor price. In February 2009, the Appellant decided to divest itself of its investment in Frontken. This intention was communicated to the Respondent at a meeting on 10 February 2009 held between the Respondent, Mr Goh and Vincent.

As mentioned above at [3], the Respondent owned about 20% of the shares in Frontken then and was the largest single shareholder in Frontken. If the Appellant were to sell its Frontken shares, the Respondent would be exposed to a large personal liability under the Risk Participation Agreement and the share price of Frontken would be depressed, hence reducing the value of the Respondent’s shareholding in Frontken. In so far as the Appellant was concerned, in the best case scenario, the Appellant would suffer a 15% loss on its investment in Frontken, assuming buyers for its Frontken shares could be found and the Respondent was able to meet his liabilities under the Risk Participation Agreement. There was hence an additional risk to the Appellant if it could not find buyers for its Frontken shares and if the Respondent did not have the financial liquidity to meet his liabilities to the Appellant under the Risk Participation Agreement.

In the circumstances, the Appellant and the Respondent entered into negotiations in order to find a mutually beneficial solution, which would simultaneously furnish the Appellant with an acceptable exit option and safeguard the Respondent’s interest in the Frontken shares.

The 23 June 2009 meeting

These 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”) which was earlier drawn up on 16 June 2009.

The key provisions of the Term Sheet¹ were as follows: Risk Participation Period: “In force immediately following Restricted Period (1 July 2010) for as long as [the Appellant] continues to hold its Frontken shares”. Restricted Period: “1 July 2009 to 30 June 2010. Risk Participation does not apply during this period; Compensation Sum will also not apply to the balance Sale Shares if [the Appellant] sells any shares below [RM 0.47] during this period”. Sale of Shares to [the Respondent] (“Sale Shares”): The Appellant shall sell 3,703,704 [Frontken shares] to the Respondent in five tranches at Market Price, ie, the closing price quoted by Bursa Malaysia for the trading day immediately preceding the date of the sale of shares. The Respondent “shall compensate difference between Market Price and [RM 0.54]” (“the Compensation Sum”). The Appellant “may sell balance [Frontken shares] at anytime [sic] but if any shares are sold below [RM 0.47] during Restricted Period, [the Appellant] must forgo balance Compensation Sum for subsequent tranches of the Sale Shares”. Security: The Respondent has to pledge [his] Frontken shares to the Appellant upon signing of this agreement. The Respondent “shall undertake to maintain the [Loan-to-Value ratio (“LTV”)] to be not more than 1. Should the LTV be more than 1, [the Respondent] is required to top up by pledging additional Security so that the [LTV] immediately after topping up is not more than 0.9”. Shareholder Profit Sharing: The Respondent would be entitled to profit-sharing, should the Appellant make any profit from any eventual disposal of its Frontken shares, according to the following formula: “(Total Net Proceeds from sale of all Investor shares – RM 15M) x 25%”. Right of first refusal: The Respondent shall have a right of first refusal to purchase the Appellant’s remaining Frontken shares, whereby “the [s]elling price shall be at least 87.5% the previous day’s closing price”. Fees: Waived by the Appellant. Documentation: “A Supplemental Agreement to be executed to effect necessary changes.”

The Term Sheet essentially provided for the sale of 3,703,704 Frontken shares owned by the Appellant to the Respondent in five tranches. It also provided for the remaining 23,926,696 shares to be subject to, inter alia, a new Risk Participation Period commencing from 1 July 2010 and continuing as long as the Appellant holds any Frontken shares. The Respondent had a right of first refusal to the remaining Frontken shares that the Appellant chose to sell. If the Appellant made a profit from selling the remaining Frontken shares, it was obligated to share its profits with the Respondent in accordance with a specified formula (see above at [9(e)]). The Respondent also had to pledge a certain amount of his shares in Frontken as security.

Most importantly, for the purposes of the present appeal, the parties agreed to execute a “Supplemental Agreement” (hereafter referred to as “the Supplemental Agreement”) to “effect necessary changes”. Because of its importance, the term providing for this (“the crucial term”) is reproduced once again, as follows:²

Documentation: A Supplemental Agreement to be executed to effect necessary changes. [emphasis added in italics and bold italics]

The events following the 23 June 2009 meeting

After the 23 June 2009 meeting, an OCBC investment committee (“OIC”) internal meeting was held in the early evening of that same day. The OIC approved the terms of the Term Sheet on 23 June 2009 itself.³

On the night of 23 June 2009, Mr Goh forwarded to the Respondent and Nicholas a list of the panel of lawyers that the Appellant would be agreeable to appoint to prepare the formal documentation.⁴ The Respondent had agreed to bear the legal fees in connection with the preparation of the formal legal documentation. On 24 June 2009, Mr Goh sent a follow-up email to the Respondent and Nicholas, requesting their feedback on the list of the panel of lawyers. On the same day, Mr Chua also sent an email to the Respondent and Nicholas, stating “its [sic] was great that [they] were able to quickly agree on the outstanding matters” and that he “[l]ook[ed] forward to signing of this [S]upplemental [Agreement] with the same urgency”.⁵

From 24 June 2009 to 6 July 2009, Nicholas (who, as already noted above at [3], represented the Respondent) exchanged correspondence with Mr Goh and Mr Chua in which he attempted to minimise the legal fees for preparing the formal documentation. On 8 July 2009, the Respondent agreed to the appointment of Shook Lin & Bok (Malaysia) to prepare the Supplemental Agreement, with OCBC’s internal legal department drafting the Sale and Purchase Agreement as well as the Memorandum of Deposit. From then till the time when the documentation was sent to the Respondent, there was no communication or any meeting between the parties.

The formal documentation (which included the Supplemental Agreement) was eventually completed by the Appellant and sent to the Respondent for execution on 6 August 2009, just four days before the expiry of the Risk Participation Period on 10 August 2009 (see above at [4]). Despite persistent attempts by Mr Chua and Mr Goh to contact the Respondent, they were unable to reach him. The Respondent only responded by email on 11 August 2009, the day after the expiry of the Risk Participation Period. In that...