Oversea-Chinese Banking Corp Ltd and Another v Justlogin Pte Ltd and Another

• Judge: Chao Hick Tin JA
• Judgment Date: 27 April 2004
• Neutral Citation: [2004] SGCA 20
• Citation: [2004] SGCA 20
• Defendant Counsel: Foo Maw Shen and Benjamin Goh (Yeo Wee Kiong Law Corporation)
• Published date: 22 May 2004
• Plaintiff Counsel: Vinodh Coomaraswamy and Chua Sui Tong (Shook Lin and Bok)
• Date: 27 April 2004
• Docket Number: Civil Appeal No 131 of 2003
• Court: Court of Appeal (Singapore)
• Subject Matter: Contract,Whether court will interfere in exercise of such directors' judgment,Whether actions taken satisfied "best endeavours" test,Obligation to procure third party to execute assets sale agreement,Breach,Duties of nominee directors

27 April 2004

Chao Hick Tin JA (delivering the judgment of the court):

1 This was an appeal against a decision of Kan Ting Chiu J (reported at [2004] 1 SLR 118), where he held that the appellants were in breach of their obligations to the respondents under two deeds entered into between them. Accordingly, he ordered that judgment be entered against them with damages to be assessed by the Registrar. We heard the appeal on 23 March 2004 and dismissed it. We now set out our reasons.

The background

2 The appellants, Oversea-Chinese Banking Corporation (“OCBC”) and Bank of Singapore Ltd (“BOS”), are in the business of banking. BOS is a wholly-owned subsidiary of OCBC.

3 The first respondent, Justlogin Pte Ltd (“JLI”) was an applications service provider offering a range of office collaborative applications. JLI was an off-shoot of Singapore Engineering Software Pte Ltd, which in turn was a company within the Singapore Technologies group of companies. JLI’s Chief Executive Officer (“CEO”) was one Mr Kwa Kim Chiong (“Kwa”). He dealt with the officers of the appellants relating to the matter which gave rise to the action.

4 The second respondent, Justlogin Holdings Pte Ltd (“JLI-H”), was an investment holding company incorporated by Kwa and others in the management team of JLI. It held 58.4% of the issued share capital of JLI.

5 In the 1990s and early 2000s, the appellants were keen on making capital investments in start-up companies. Pursuant to that objective, in December 2000, OCBC, through the investment arm of BOS, eVentures, invested $2m in JLI, giving the appellants 16.6% of the shareholding in JLI. A little earlier, in October 2000, OCBC, also through BOS, obtained some 12.79% of the issued share capital of another company, iPropertyNet Pte Ltd (“iProp”). iProp was also an applications service provider which developed and maintained Internet-based software applications for property-based businesses.

6 iProp had considerable liquid cash but had no viable business to put its money into. This was, in a large part, due to the fact that its shareholders could not agree on its business direction. At the time when BOS bought into iProp, the latter had received an in-principle approval to list its shares on the Stock Exchange of Singapore. However, BOS was not keen to have iProp’s shares listed as the market then was bearish. Following the listing being aborted, some shareholders of iProp wanted the company wound up so that they could recover their investment. To prevent the voluntary winding up from taking place, BOS negotiated with some shareholders (“the Brilliant Parties”) to buy over their shares. By August 2001, the appellants acquired a further 44.44% of the issued share capital of iProp (“additional shares”), making the appellants the single largest shareholder in iProp with 57.23% of the shares and rendering iProp a subsidiary of OCBC.

7 It was in relation to the proposed acquisition of the additional shares that the two deeds in question came into being. The appellants were then concerned that the proposed acquisition of the additional shares from the Brilliant parties might give rise to objection by the Monetary Authority of Singapore (“MAS”), whose policy then was that banks should not own more than a certain percentage of non-core banking businesses. As a pre-emptive measure, and also because the OCBC’s senior management was not keen to increase its investment in iProp, a back-to-back arrangement, with the object of divesting the appellants’ additional shares of iProp to a third party, was hatched. This was why JLI and JLI-H were brought into the scheme of things, resulting in the eventual execution of the two deeds.

8 The two deeds were entered into on 20 July 2001 but they were contingent upon the appellants successfully acquiring the additional shares. One deed was with JLI (“the JLI deed”) and the other with JLI-H.

9 Three officers at OCBC handled the investments in iProp and JLI. They were Mr Winston Koh Teow Hock (“Koh”), a senior vice-president of OCBC and general manager of eVentures; Mr Simon Seow (“Seow”), a vice-president of OCBC; and Mr Ng Chee Yong (“Ng”) also a vice-president. Koh and Seow were OCBC’s nominees as directors in iProp. After iProp became a subsidiary of OCBC, Koh became the chairman of the board of iProp. By the time the present action was instituted at the High Court, all three OCBC officers had left their employment.

10 Upon iProp becoming a subsidiary of OCBC, there was also a change in the CEO of iProp, with OCBC appointing Mr Riady Hardjabrata (“Riady”) to take over from Mr Alex Khoo (“Khoo”), a founder of iProp, who remained a substantial minority shareholder.

Arrangements under the deeds

11 Under the JLI deed, JLI was required, within 30 days of OCBC acquiring the additional shares and of iProp becoming OCBC’s subsidiary (“the event”), to enter into an agreement with iProp (“iProp Assets Sale Agreement”) in accordance with the terms and conditions set out in the schedule to the deed. The schedule was also referred to in the deed as “the term sheet”. The object of the iProp Assets Sale Agreement was to enable JLI to acquire all of iProp’s business and assets, including cash-in-hand of not less than $5.6m and in return, JLI would issue new JLI shares to iProp such that iProp would hold just one share short of 50% of JLI’s expanded share capital. Under the JLI deed, time was to be of the essence.

12 In addition, besides the iProp Assets Sale Agreement, there were also other consequential transactions which the parties were required to enter into, as follows:

(a) JLI and JLI-H were to “buy over” the additional shares from the appellants. In the case of JLI, this was to be done by JLI issuing shares equivalent to 16% of its enlarged share capital to the appellants. In the case of JLI-H, it was provided that although it was a “purchaser” of the additional shares, JLI-H would not have to make immediate payment for the purchase; rather, the appellants would be granted an option to buy back the additional shares from JLI-H, and JLI-H would have to pay for the shares only if and when the same were sold to third parties; and

(b) JLI and JLI-H were also required by the appellants to use a part (namely $1.5m) of the moneys that JLI would obtain from iProp to buy over from the appellants their shares in Bizibody.com and Ezybills, which were two other investee companies of OCBC, so that the accounts of the appellants would show that the moneys the appellants had invested in those two companies were fully recovered.

13 However, it was common ground that all these other transactions were contingent upon the execution by JLI and iProp of the Assets Sale Agreement. As that event did not occur, it was wholly unnecessary to examine why those other transactions never materialised.

14 On the same day that the two deeds were executed, ie 20 July 2001, the MAS wrote to inform OCBC that it would be permitted to acquire the additional shares. No conditions were attached. In view of this pleasant development, Koh told Ng that there could be other better ways of utilising the spare cash of iProp, which under the JLI deed, would go into the kitty of JLI.

15 On 29 August 2001, OCBC completed the acquisition of the additional shares (“the event”), thus triggering the need for JLI and iProp to conclude the iProp Assets Sale Agreement within 30 days as spelt out in the JLI deed. However, though time was of the essence, OCBC never informed JLI of the event and of the need to proceed to conclude the iProp Asset Sale Agreement with due despatch. For reasons which we will go into later, the Assets Sale Agreement was never executed. This led to the eventual liquidation of iProp by its members on 27 March 2002 and the present action.

16 The complaint of JLI and JLI-H was that the appellants failed to fulfil their obligations under the JLI deed where they were required to procure the execution by iProp of the iProp Assets Sale Agreement with JLI.

Relevant clauses

17 Two clauses in the JLI deed were particularly germane to the present cause of action and they were:

Clause 2:

This Deed sets out the understanding and intention of the respective parties hereto with respect to the transactions and matters referred to herein. Subject to the completion of the Event, the parties shall cause (and where applicable, procure other relevant parties named herein), in due course and within the time frames specified herein, to inter alia enter into the Agreements which will provide in detail the respective matters set out in this Deed.

Pending the execution of the Agreements:-

(a) the respective terms and conditions set out in this Deed shall be binding on each of the respective parties hereto with respect to the transactions set out herein; and

(b) no modifications to the nature of any of the transactions contained herein and/or to the terms and conditions in relation to such transactions shall be made without the written agreement of all parties named herein.

The parties acknowledge that they intend this Deed to be binding and legally enforceable notwithstanding that there are certain matters in the Agreements yet to be agreed.

The parties agree and acknowledge that in the event of a breach or threatened breach or, an intention evinced by any party to breach, any provision of this Deed, damages will not be an adequate remedy for the non-breaching party and that the non-breaching party may seek all available remedies at law or in equity. ...

[emphasis added]

Clause 4:

Each party shall keep strictly confidential the negotiations relating to this Deed, the existence of this Deed and its contents, and each party shall not disclose the same to any other person without the prior written consent of the other parties, other than to its holding company, its directors, employees and advisers and the directors, employees and advisers of its holding company on a strictly need to know basis, …

Findings of court below

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