Real Estate Consortium Pte Ltd v

• Jurisdiction: Singapore
• Judgment Date: 29 December 2010
• Date: 29 December 2010
• Docket Number: Suit No 376 of 2009
• Court: High Court (Singapore)

Real Estate Consortium Pte Ltd

Plaintiff

and

East Coast Properties Pte Ltd and another

Defendant

[2010] SGHC 373

Andrew Ang J

Suit No 376 of 2009

High Court

Contract—Law of compromise—Whether issues raised had formed subject matter of valid and binding compromise agreement—Effect of compromise agreement—Circumstances where issues that had been resolved by compromise agreement might be reopened—Whether there was, in any case, any merit in issues raised

This case involved disputes which arose from a convertible bond agreement (“CBA”) entered into between the plaintiff and the defendants, where the former provided financing to the first defendant in an amount of approximately $3m for a housing development project (“the Shelford Project”). The second defendant, being the sole shareholder and director of the first defendant (in addition to being the director of several other companies in the real estate construction and development industry), approached one Angelena Chan (“Chan”) on whether she was interested in investing a sum of $3m in the Shelford Project. It was agreed that the plaintiff, a company incorporated by Chan and one Sern, would provide financing of $3m (“the principal amount”) to the first defendant. The second defendant offered a 100% return on the principal amount, in anticipation of the projected profits of the Shelford Project.

The CBA was executed on 2 May 2007. Under the CBA, the plaintiff was given a Conversion Option to convert the loan into 3 million shares in the first defendant comprising not less than 75% of its share capital. The second defendant also granted the plaintiff two put options under the CBA. The plaintiff could, under the first option, put to the second defendant 1.5 million of the converted shares or, if conversion had not taken place, require the second defendant to purchase a part of the loan equivalent to $1.5m, at the fixed price of $3m. Under the second option, the plaintiff could put to the second defendant 1.5 million converted shares or the remaining part of the loan equivalent to $1.5m in return for a transfer price that was equivalent to 10% of the sale proceeds of the Shelford units (under cl 12 (c) of the CBA). If, at the time of exercise of the second option, only some of the units had been sold, the second defendant would pay the plaintiff in the interim a sum equivalent to 10% of the sale proceeds of those units or $3m, whichever was higher. After the sale of the remaining units, 10% of the aggregate proceeds of sale of all units would then be determined. If it exceeded $3m, the excess would be paid to the plaintiff. If it turned out that 10% of the sale proceeds fell below $3m, the plaintiff would have to refund the shortfall amount. The plaintiff was also entitled to terminate the CBA if any event arose which gave the plaintiff reasonable grounds for believing that the defendants might not be able to perform their obligations under the CBA. Provided that none of the options had been exercised, cl 18 allowed for 100% interest to be charged upon the principal amount upon termination of the CBA.

As the defendants were unable to repay the principal amount by 2 May 2008, which was about 12 months after the CBA was executed, the plaintiff wrote to terminate the CBA in its letter dated 10 May 2008. The defendants replied in its first letter of 15 May 2008 to dispute the plaintiff's rights under the CBA by raising several issues. In particular, it was alleged that the second defendant signed the CBA without a full understanding of the terms; that the CBA was a sham transaction and an unenforceable moneylending transaction with an exorbitant interest rate; and that the CBA was wrongfully terminated (“the issues”). On the same day, the defendants wrote a without prejudice letter to express their intention to negotiate in good faith with a view to reaching an amicable settlement. The defendants wrote a further letter dated 23 May 2008 stating that they did not wish to dispute the plaintiff's claim, and offered to resolve the matter amicably. After an exchange of correspondence, an instalment payment schedule was agreed, and the defendants delivered to the plaintiff four post-dated cheques for the amounts owed. The defendants defaulted with respect to three of the cheques. At trial, the defendants claim that they had entered into the settlement agreement with the plaintiff under economic duress, as they were concerned with the threat of legal proceedings allegedly made by the plaintiff.

Held, allowing the claim:

(1) The overarching question was whether the issues raised by the defendants were the subject matter of a compromise agreement; and, if so, what the consequence was of compromising those issues. A compromise was essentially based on contract and for a compromise to be reached between two parties, there had to necessarily be actual or potential disputes between the parties. On the facts, it was clear that the issues had been compromised by a settlement agreement. The defendants stated clearly in their letter of 23 May 2008 that they did not wish to dispute the plaintiff's claim, and had offered to resolve the matter amicably. The defendants affirmed the compromise agreement when they delivered four post-dated cheques to the plaintiff: at [40] to [42].

(2) The defendants' claim that the settlement agreement was entered under economic duress was not accepted. Quite apart from the settled principle that the mere assertion to take legal action was insufficient to amount to illegitimate pressure, there was not the slightest mention of the alleged threats in the defendants' letters or e-mail correspondence. Indeed, the second defendant admitted that from the time when the settlement agreement was reached in June 2008 to the commencement of the action, he had never disputed the plaintiff's rights under the settlement agreement. The defendants had the benefit of independent legal advice throughout the process of negotiating the terms of the settlement agreement. The defendants also had the viable alternative of defending the claim: at [43] to [51].

(3) Where parties had agreed to resolve their disputes amicably by way of a validly formed settlement agreement, the settlement agreement alone governed the parties' legal relationship; the effect of the settlement agreement was to put an end to the issues previously raised by the defendants. Where this was so, parties were not allowed to renege on their mutual compromise for to do so would be to breach the contract. Subject to the parties' intentions as manifested in the language of the settlement agreement, any issues between the parties would have been resolved with the terms and conditions, express and implied, found in the settlement agreement. The settlement agreement essentially took over as the basis of the parties' legal and contractual relationship. In this regard, the only relevant disputes, if any, were those arising from the settlement agreement. The raison d'etre for this principle was manifold. There was much public interest in the final resolution of disputes; interest reipublicae ut sit finis litium. There was also the policy in holding parties to their compromised bargain to ensure commercial certainty. This consideration was especially compelling when it came to commercial transactions involving corporate men acting with the benefit of legal advice: at [53] to [59].

(4) As the juridical basis of a settlement agreement lay in contract, the circumstances in which issues resolved by a settlement agreement could be reopened had to necessarily lie in the law of contract. As such, prior issues might be relevant in situations where the settlement agreement was tainted by illegality or affected by fraud, duress, undue influence or mistake. In these circumstances, there could not be said to be a resolution of issues in the true sense. In the present case, the defendants' attempt to set aside the settlement agreement by alleging economic duress was found to be without basis: at [61] and [62].

(5) Even assuming arguendo that the issues were reopened, the Court found the defendants' arguments to be without merit. The argument based on non est factum was not accepted. The second defendant was an experienced market player used to taking risks in the development and construction business. The second defendant was also found to lack credibility; he claimed at trial that he had effectively “blindfolded himself” at the time when he signed the CBA, only to change his evidence subsequently when he explained that he had read some terms of the CBA. The undisputed contemporaneous evidence showed that Sern had explained to the second defendant the structure of the CBA: at [63] to [69].

(6) The defendants' argument that the CBA was a sham was not accepted. There were features in the CBA which showed the plaintiff's intention to invest in the Shelford Project, not least the clauses which entitled the plaintiff to convert the loan into shares in the first defendant comprising not less than 75% of its share capital; that would entitle the plaintiff to the lion's share of the profits if the Shelford Project did well. If the Shelford Project did not do well, the plaintiff could exercise the put options. The objective evidence also showed that the defendants themselves regarded the plaintiff's financing as an investment in the Shelford Project: at [72] to [75].

(7) Clause 18 allowed for any sums “then” payable under the CBA “prior to the exercise of any option” to be immediately due and payable. Since the return based on 10% of the selling price was contingent upon the exercise of the second option under cl 12 (a), the plaintiff would not be entitled to the return if the CBA was terminated prior to the exercise of the second option. As such, the interest of $3m was effectively, and in substance, in lieu of the estimated return on the investment that the plaintiff could have obtained if it had...