Qilin World Capital Ltd v CPIT Investments Ltd and another appeal

JurisdictionSingapore
CourtCourt of Three Judges (Singapore)
JudgeSundaresh Menon CJ,Bernard Rix IJ,Dyson Heydon IJ
Judgment Date06 March 2018
Neutral Citation[2018] SGCA(I) 1
Citation[2018] SGCA(I) 1
Hearing Date15 January 2018
Subject MatterCredit and Security,Causation of Loss,Non-recourse Loan Agreement,Breach,Mortgage of Personal Property,Contract,Stocks and Shares
Plaintiff CounselTan Poh Ling Wendy and Chua Han Yuan, Kenneth (Morgan Lewis Stamford LLC),Martin Roderick Edward SC, Renganathan Nandakumar, Nandhu and Yap Yongzhi, Gideon (RHTLaw Taylor Wessing LLP)
Published date09 March 2018
Docket NumberCivil Appeal Nos 126 and 145 of 2017
Date06 March 2018
Dyson Heydon IJ (delivering the judgment of the court): Introduction

Before the court are two appeals arising out of a loan transaction. The two appeals were argued together. The appeals are against orders made by Ramsey IJ sitting in the Singapore International Commercial Court. His decision is recorded at CPIT Investments Ltd v Qilin World Capital Ltd [2017] SGHC(I) 05.

Many complex questions were dealt with by Ramsey IJ in a manner which has not attracted challenge in these appeals.

Facts The Loan Agreement

On 16 November 2015 the parties entered two agreements. The first was a Stock Secured Financing Agreement (“the Loan Agreement”). The lender was Qilin World Capital Ltd (“Qilin”). It is incorporated in the British Virgin Islands. The Loan was advanced on 2 December 2015. The borrower was CPIT Investments Ltd (“CPIT”). The sum lent was HK$31.25 million (“the Loan”).

The Loan was secured on 25 million shares (“the Pledged Shares”). The expression “Pledged Shares” is a misnomer. The process of pledging applies to choses in possession (see Chase Manhattan Bank NA v Wong Tui Sun and others [1992] 3 SLR(R) 436 at [24]). A share is a chose in action, not a chose in possession. While share certificates, which were once common, can be treated as choses in possession, there is no evidence that there were any share certificates involved here. By “Pledged Shares” the parties meant “shares used as security for the Loan”. The Pledged Shares were shares in Millennium Pacific Group Holdings Ltd (“Millennium”). CPIT also owned 1.27 billion shares in Millennium which were not used as security for the Loan.

The term of the Loan was 36 months. It was agreed that repayment would only take place after 18 months. Thus Qilin was assured of interest on the Loan for that period. On repayment of the Loan, Qilin was obliged to return the Pledged Shares. The Loan was a non-recourse loan. In the event that it was not repaid, Qilin could only enforce its rights against the security – the Pledged Shares. Qilin had no right to pursue personal claims against CPIT as debtor.

On 1 December 2015 a stock price of HK$2.50 was set. It was by reference to that figure that the Loan lent was fixed at HK$31.25 million.1 In short, the Lender was only prepared to lend against security agreed to be worth twice as much as the Loan.

The Control Agreement

The second agreement entered into on 16 November 2015 was the Control Agreement (“the Control Agreement”). The parties were CPIT, Qilin and Prominence Financials Ltd (“Prominence”, also described as the “Depository Broker”). The recitals recorded that Qilin had agreed to make a Loan to CPIT and that CPIT had granted to Qilin “a security interest and/or pledge in [CPIT’s] assets” which were held in a brokerage account maintained by Prominence for CPIT (“the Account”).2

Clause 1 of the Control Agreement provided that “[Qilin] may from time to time provide notifications to the Depository Broker directing it to transfer, pledge, hypothecate, withdraw or redeem any funds or other property in the Account…”.3 Clause 1 gave the Lender (ie, Qilin) complete control of the property in the Account until the Lender’s security interest had come to an end.

The Loan Agreement and the Control Agreement each contained an exclusive jurisdiction clause in favour of Singapore and a choice of law clause choosing Singapore law as the governing law.4

Prominence Account 03

On or about 20 November 2015 an account was opened in the name of CPIT with Prominence (“Prominence Account 03”). CPIT transferred 210,000,000 shares in Millennium into that account. At that time, it was contemplated that some or all of them might be used as security for further loan advances from Qilin to CPIT.

The 2 December Transaction

By letter of 2 December 2015, Qilin gave certain instructions to the Depository Broker. One was to create a sub account in the name “Qilin sub acct CPIT Invs Ltd”. Another was to transfer the Pledged Shares into the new sub account “for value 2nd December, 2015 free of payment”. Another was to “debit Qilin World Capital Ltd (C083188) for HK$30,781,250 to the account of Qilin sub acct CPIT Investments Ltd for value 2Dec15”. Another was: “[u]pon successful of funds tranefer [sic] into Qilin sub acct CPIT Invs Ltd, pls debit HK$30,781,250 into CPIT Investents [sic] Ltd (C083103) with you value 2Dec15”.5 Those instructions were obeyed. and a new account was opened in the name of “Qilin sub acct CPIT Invs Ltd” (“Prominence Account 20”).

There is in evidence a “Sold Note” dated 2 December 2015 stating that 25 million shares in Millennium at HK$2.50 each were transferred to Qilin.6 It stated “Consideration Received” as HK$62,500,000. There is also in evidence a corresponding “Bought Note” of 2 December 2015. It stated that the transferor of 25 million shares in Millennium at HK$2.50 was “Qilin World Capital Ltd sub acct CPIT Investments Ltd”. It, too, stated, “Consideration Received” as HK$62,500,000. Thus, the documents suggested, mysteriously, that both seller and buyer received consideration of HK$62.5 million.

On each of the Sold Note and the Bought Note is a stamp placed by the Assistant Collector Stamp Office Hong Kong on 17 December 2015, recording the payment of HK$125,000 as well as an indication that the payment included a penalty for late stamping. It is to be inferred that each of the sale and the purchase required the payment of HK$62,500 of stamp duty (0.1% of HK$62,500,000) and that in each case a penalty was imposed equal to the amount of the stamp duty because stamping took place more than two days after the sale or purchase (see ss 9(1) and 19(1), and First Schedule, head 2(1) of the Hong Kong Stamp Duty Ordinance (Cap 117)). The total stamp duty was HK$250,000. CPIT submitted that the incurring of liability for this substantial sum excludes the possibility that the consideration was another sum, or was non-existent.7

On 3 December 2015, on Qilin’s instruction to Prominence, the Pledged Shares were transferred from Prominence Account 20 to Qilin’s account with Haitong International Securities Company Ltd (“Haitong”) (Judgment at [23]–[24]).8 On 4 December 2015, CPIT became aware of this.9 The transfer of the Pledged Shares from Prominence Account 03 to Prominence Account 20 and then to Qilin’s account with Haitong shall be referred to as the “2 December Transaction”.

CPIT did not become aware that the “Sold Note” and the “Bought Note” existed until it received Qilin’s Third Supplementary List of Documents filed on 30 November 2016.10 The affidavit verifying the list stated in para 7(b) that “the transfer form…indicates that stamp duty was paid when legal title in the [Pledged] Shares was transferred subsequent to the said disbursement of the loan amount [CPIT]”.11

The 8 December 2015–14 January 2016 share sales

Between 8 December 2015 and 14 January 2016, Qilin sold most of the Pledged Shares on the open market. The following table sets out the closing price, the numbers Qilin sold on each day, and the total numbers sold on the market on each day.

Date Closing Price (HK$) Numbers of Millennium shares sold by Qilin Total Traded
8 December 2015 1.98 1,500,000 4,100,000
9 December 2015 1.65 1,160,000 6,108,000
14 December 2015 1.73 2,340,000 6,332,000
15 December 2015 1.66 800,000 4,668,000
16 December 2015 1.58 136,000 2,040,000
18 December 2015 1.42 1,000,000 3,988,000
21 December 2015 1.35 1,556,000 3,372,000
22 December 2015 1.27 824,000 3,628,000
23 December 2015 1.30 92,000 752,000
28 December 2015 1.33 204,000 2,820,000
29 December 2015 1.29 476,000 2,028,000
31 December 2015 1.24 44,000 116,000
4 January 2016 1.20 24,000 168,000
5 January 2016 1.00 1,368,000 2,004,000
11 January 2016 0.89 368,000 5,352,000
12 January 2016 0.75 4,644,000 9,148,000
13 January 2016 0.70 4,488,000 5,404,000
14 January 2016 0.68 1,116,000 11,336,200

Thus in this period Qilin sold 22.14 million Pledged Shares. That left a balance of 2.86 million Pledged Shares.

The origins of the proceedings

By letters of 18 and 22 December 2015, Qilin claimed that there had been “a decrease in the price of the collateral of more than thirty-five (35%) for three consecutive trading days” within the meaning of cl 5(b)(i) of the Loan Agreement. The letters contended there was thus a default under the Loan Agreement.

On 4 January 2016, solicitors for CPIT contended that Qilin’s sales of Pledged Shares were in repudiatory breach of the Loan Agreement and the Control Agreement, and stated that CPIT accepted the repudiatory breaches as terminating the Agreements. On 11 January 2016, solicitors for Qilin challenged this.

On 12 January 2016, CPIT commenced proceedings in the High Court of Singapore. On 12 and 13 January 2016, CPIT applied for an injunction to restrain Qilin from selling further Pledged Shares or disposing of the proceeds of sale in relation to those sold (“the First Injunction”), and for a Mareva injunction. Despite these events Qilin continued to sell the Pledged Shares until 14 January 2016.

On 18 January 2016, the First Injunction was granted. On 12 February 2016, parties reached an agreement for Qilin to pay the proceeds of sale of the Pledged Shares, together with other money, into a designated solicitor’s account. This was recorded in a consent order (Judgment at [40]).

On 28 June 2016, the proceedings were transferred to the Singapore International Commercial Court.

The decision below The orders of Ramsey IJ

The trial took place over three days from 13–15 December 2016. On 17 July 2017, Ramsey IJ made orders...

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