Pun Serge v Joy Head Investments Ltd

• Jurisdiction: Singapore
• Judge: Belinda Ang Saw Ean J
• Judgment Date: 29 June 2010
• Neutral Citation: [2010] SGHC 182
• Plaintiff Counsel: Jason Lim Chen Thor and Kevin De Souza (De Souza Lim & Goh LLP)
• Docket Number: Suit No 189 of 2009
• Date: 29 June 2010
• Hearing Date: 08 February 2010,01 December 2009,03 December 2009,02 December 2009
• Subject Matter: Contract
• Year: 2010
• Citation: [2010] SGHC 182
• Defendant Counsel: Andre Yeap SC, Danny Ong Tun Wei and Yam Wern-Jhien (Rajah & Tann LLP)
• Court: High Court (Singapore)
• Published date: 09 July 2010

Belinda Ang Saw Ean J: Introduction

Under an agreement dated 15 September 2008 (“the Agreement”), the plaintiff, Serge Pun (henceforth, “the Purchaser”), agreed to purchase the interests of the defendant, Joy Head Investments Limited (henceforth, “the Vendor”), in Winner Sight Investments Limited (“WSIL”), a company incorporated in Hong Kong, for a total consideration of HK$84,974,780 (“the Consideration”). These interests comprised 2,000 sale shares in the issued capital of WSIL and an outstanding shareholder’s loan by the Vendor to WSIL (henceforth collectively “the Vendor’s interests in WSIL”).

The Agreement was designed primarily to bring an end to earlier litigation between the Vendor and Purchaser in Suit No 225 of 2008 (“the Initial Action”). The details of the Initial Action are not relevant for present purposes; it suffices to say that that action was commenced against the Purchaser by the Vendor in respect of disputes relating to the purchase of the Vendor’s interests in WSIL.

It is common ground that the Purchaser acquired the Vendor’s interests in WSIL on 15 December 2008, having earlier failed to complete the transaction on 9 December 2008 as agreed (“the Agreed Completion Date”). This present action concerns the Vendor’s retention of S$1m which it received after it called on a performance bond furnished by the Purchaser in the form of an on-demand banker’s guarantee pursuant to the Agreement (“the Performance Bond”) immediately following the Purchaser’s breach of the Agreement on 9 December 2008. In brief, the nub of the issue between the parties is whether the Vendor is entitled, as it contends, to keep the full amount paid under the Performance Bond even though it had suffered no loss¹ as a result of the Purchaser’s breach of the Agreed Completion Date of 9 December 2008. The events leading to the breach and the post-breach dealings between the parties are narrated below (see [4] to [7]).

The material facts and the parties’ contentions

The salient facts relevant to the dispute between the parties are relatively straightforward. Originally, under the Agreement, the Completion Date was stipulated to be 19 December 2008. However, on or about 5 December 2008, the parties agreed, at the Purchaser’s suggestion, to bring forward the Completion Date to 9 December 2008, the Agreed Completion Date. This was consistent with the terms of the Agreement, which stated that completion could take place on “such other earlier date as may be agreed in writing between the Vendor and the Purchaser”.² On 9 December 2008, the Purchaser gave instructions for the Consideration to be remitted to the Vendor’s designated account. As it turned out, however, due to certain technicalities with the Purchaser’s financier, the money was not received in the designated account that day. Accordingly, completion did not take place on 9 December 2008.

On 10 December 2008, the Vendor demanded from the issuing bank (“OCBC Bank”) payment of the full amount of S$1m payable under the Performance Bond, and OCBC Bank duly paid the S$1m to the Vendor’s solicitors, M/s Rajah & Tann LLP (“R&T”), on or about 16 December 2008.

Between 10 December 2008 and 15 December 2008, the Purchaser’s representatives provided assurances and copies of documents to the Vendor in an attempt to satisfy the latter that instruction had indeed been given for the Consideration to be remitted into its designated account on 9 December 2008. Subsequently, on 15 December 2008, the Vendor confirmed that it had received the Consideration in its designated account. The parties then proceeded to exchange the requisite documents to effect the sale of the Vendor’s interests in WSIL to the Purchaser.

This “completion”, however, proceeded (so the Vendor argues) on the supposed basis (as per R&T’s letter of 15 December 2008 ³) that it would be without prejudice to the Vendor’s rights under the Agreement in respect of the Purchaser’s tardiness and breach on 9 December 2008, including but not limited to the alleged right to make a demand on the Performance Bond (which it had done on 10 December 2008) and to retain the proceeds thereof.⁴ In other words, from the Vendor’s point of view, the exchange of documents for the Consideration (the Vendor does not accept that what took place on 15 December 2008 was “Completion” as defined in the Agreement) was on the basis that the Vendor was entitled to demand and retain the sum of S$1m under the Performance Bond without more. Arising from these facts, it is the Vendor’s case that: the Purchaser acquired the Vendor’s interests in WSIL on the basis that the Vendor was entitled to demand the sum of S$1m under the Performance Bond and would be retaining the same, which the Purchaser had accepted without any protest whatsoever;⁵ and that basis constituted a new contract which was separate and distinct from the Agreement and the completion of the sale as contemplated therein;⁶ and/or the S$1m was separate consideration payable by the Purchaser to the Vendor under cl 4.2.6 of the Agreement.⁷

On this second point (b), much of the present dispute turns on the interpretation of several clauses in the Agreement relating to the provision (and subsequent discharge) of the Performance Bond by the Purchaser. Clause 4.1.1 of the Agreement provides, very broadly, for the securing of “the obligations of the Purchaser under [the] Agreement” via the Performance Bond, as follows:⁸

At the time of the execution of this Agreement by the Parties and against delivery by the Vendor of the executed copy of this Agreement to the Purchaser or the Purchaser’s Solicitors, the Purchaser shall deliver to the Vendor and the Vendor shall receive from the Purchaser a performance bond issued by a first class bank in Singapore on terms acceptable to the Vendor whereunder the performance of the obligations of the Purchaser under this Agreement shall be irrevocably and unconditionally secured by the above bank up to the maximum sum of S$1,000,000“Performance Bond”). [emphasis added]

Based on the terms of the Agreement, it appears that the Performance Bond, which was in effect an on-demand banker’s guarantee, was meant as assurance for the Vendor against a multitude of contingencies that might have occurred pending the completion of the sale and purchase of the Vendor’s interests in WSIL. These contingencies comprised, among other things, a failure by the Purchaser to:⁹ pay any money payable by the Vendor towards any increase in share capital and/or any shareholder’s loan (“Additional Capital Injection”) which the Vendor was required to pay for pursuant to certain budget and capital proposal approvals (“Approvals”) sought by the Purchaser under the Agreement and given by the Vendor at the Purchaser’s request; and ensure that completion took place on the Completion Date as provided for in the Agreement and as agreed between the parties. (On the fact of this case, the Agreed Completion Date.) In the event of any of the contingencies occurring, the Vendor argues that it was entitled, pursuant to cll 4.2.6(i) and 4.2.6(ii) of the Agreement, to retain the full amount payable under the Performance Bond. For completeness, I should mention that the Vendor in its pleadings also relies on cl 5.5.2(b) as entitling it to retain the S$1m. (The specific clauses of the Agreement referenced here and immediately below shall be addressed in greater detail later on in this judgment.)

The Purchaser disagrees with the Vendor’s contentions and is now claiming for the return of the S$1m paid out under the Performance Bond. The Purchaser’s primary argument is that the Agreement was not terminated by the Vendor after the Purchaser’s default on 9 December 2008, and, as such, what took place on 15 December 2008 could only have been completion proper, and not a mere “exchange of documents” as alleged by the Vendor.¹⁰ Consequently, the Vendor is obliged to return the S$1m under cl 5.6.2 of the Agreement. (I should mention again that S$1m was paid by OCBC Bank to R&T on or about 16 December 2008, and that R&T wrote to OCBC Bank on 17 December 2008 to acknowledge receipt of the payment.¹¹) The Purchaser’s point, in short, is that the S$1m was received after the Purchaser acquired the Vendor’s interests in WSIL, and should, therefore, be returned to the Purchaser under cl 5.6.2 or cl 4.2.6(iii) of the Agreement which provides for the payment of S$1m to be deemed waived in the event of “Completion” as defined in cl 1.1 of the Agreement (see [29] below).¹² On the Vendor’s further argument that the exchange of documents on 15 December 2008 constituted a new contract which was separate and distinct from the Agreement as “Completion” under the Agreement was no longer possible,¹³ the Purchaser rejects the Vendor’s contention of a “new contract” since the Agreement was never terminated by the Vendor following the Purchaser’s breach of the Agreement on 9 December 2008. As for the Vendor’s alternative argument that the S$1m was a separate consideration prescribed under cl 4.2.6 and, by reason thereof, the Vendor is entitled to retain the full amount payable under the Performance Bond, the Purchaser says that cll 4.2.6(i) and 4.2.6(ii) were not engaged because prior to 15 December 2008, there was no call on the Vendor by WSIL to subscribe and pay any increase in its share capital and/or any shareholder’s loan. It is the Purchaser’s case that, in the circumstance as described, he was under no obligation to pay the separate consideration for the Approvals: he had completed the purchase of the Vendor’s interests in WSIL on 15 December 2008, and by virtue of cl 4.2.6(iii), the Vendor is deemed to have waived the payment of the sum of S$1m as separate consideration for the Approvals.¹⁴ The relevant portions of cl 4.2.6 are reproduced in this judgment at [36] below.

The nature of the Performance Bond

At this juncture, a proper consideration of the nature of the...