Salim Anthony v Sumitomo Corp Capital Asia Pte Ltd and Others and Another Application

• Jurisdiction: Singapore
• Judge: Lai Siu Chiu J
• Judgment Date: 04 June 2004
• Neutral Citation: [2004] SGHC 117
• Docket Number: Originating Summons Nos 1368 and
• Date: 04 June 2004
• Year: 2004
• Published date: 08 June 2004
• Plaintiff Counsel: Davinder Singh SC, Hri Kumar and Kabir Singh (Drew and Napier LLC)
• Citation: [2004] SGHC 117
• Defendant Counsel: Philip Jeyaretnam SC and Ajinderpal Singh (Rodyk and Davidson),Tan Chuan Thye and Andy Yeo (Allen and Gledhill)
• Court: High Court (Singapore)
• Subject Matter: Whether entitled to be subrogated to rights of creditors under Facility Agreement upon paying plaintiff in first originating summons,Whether assignment of creditors' rights and interests under Facility Agreement invalid,Assignment,Credit and Security,Discharge,Whether assignment complied with legal requirements and contractual terms under Facility Agreement,Whether discharged all obligations under guarantee,Plaintiff in second originating summons,Guarantees and indemnities,Whether entitled to be subrogated to rights of creditors under Facility Agreement,Plaintiff in first originating summons,Contract

4 June 2004 Judgment reserved.

Lai Siu Chiu J

The background

1 PT Satomo Indovyl Monomer (“the Borrower”) is a joint venture company established in Indonesia, under a joint venture agreement dated 17 April 1995 (“the JVA”) made between Sumitomo Corporation (“Sumitomo”), PT Sulfindo Adiusaha (“Sulfindo”) and Brenswick Limited (“Brenswick”). The shareholdings in the Borrower of Sumitomo, Sulfindo and Brenswick are 25%, 51% and 24% respectively.

2 By a facility agreement dated 31 March 1997 (“the Facility Agreement”) made between the Borrower of the one part and Mizuho Corporate Bank Ltd (“the third defendant”), The Norinchukin Bank (“the fourth defendant”), The Sumitomo Trust & Banking Co Ltd (“the fifth defendant”), Sumitomo Mitsui Banking Corporation (“the sixth defendant”) and Dresdner Bank Aktiengesellschaft (“the seventh defendant”) of the other part (hereinafter referred to collectively as “the Lenders”), the Lenders agreed to extend banking facilities of up to US$94,500,000 (“the Loan”) to the Borrower. The second defendant was the Security Agent appointed under cll 1 and 22 of the Facility Agreement, while the third defendant was the Facility Agent appointed under the same clauses thereof. The purpose of the Loan was to finance the construction and setting-up of a manufacturing plant for the Borrower, as more particularly elaborated below at [55].

3 Pursuant to the conditions precedent stated in the Facility Agreement, the Borrower executed documents dated 7 May 1997 (“the Security Documents”) in favour of the second defendant as the Security Agent of the Lenders. The securities consisted of land on which the Borrower sited its manufacturing plant, the plant itself, machinery and other movable assets.

4 By a deed dated 11 April 1997, Anthony Salim (“the plaintiff”) executed a guarantee (“the Guarantee”) in favour of the second to seventh defendants as the Lenders. Under the terms of the Guarantee, the plaintiff guaranteed the obligations of Sulfindo and Brenswick under the Facility Agreement. The plaintiff was, at the material time, the sole owner and shareholder of Sulfindo and Brenswick. As Sulfindo and Brenswick jointly own 75% of the Borrower, the plaintiff was effectively the majority shareholder of the Borrower.

5 The three shareholders of the Borrower also entered into a shareholders’ support agreement (“SSA”) dated 7 May 1997. Under cl 12(A) thereof, Sulfindo unconditionally and irrevocably guaranteed Brenswick’s obligations to make payment under the terms of the SSA, in favour of the Borrower and the third defendant as Facility Agent.

6 In September 1998, the Indonesian Bank Restructuring Agency (“IBRA”) took over ownership of Sulfindo and Brenswick. In December 2001, IBRA transferred ownership of the two companies to a Hong Kong company called Durability Enterprise Limited.

7 Under cl 5(A) of the Facility Agreement, the Borrower had agreed to repay the advances disbursed by the second to seventh defendants under the Loan, in 12 equal semi-annual instalments commencing 30 April 1999. On or before 30 April 2002, the Borrower obtained two deferrals under cl 5(B) of the Facility Agreement. However, it subsequently defaulted on the principal instalment due on 30 October 2002.

8 The Lenders took the position that the Borrower was in breach of cl 5(A) of the Facility Agreement under cl 19(A)(1) thereof and that an event of default had occurred.

9 By a letter dated 31 December 2002 to the Borrower from the third defendant, the latter as Facility Agent declared an event of default had occurred, pursuant to cl 19(B)(2) of the Facility Agreement and that a sum of US$50,242,628.45 (inclusive of all advances, unpaid accrued interest and fees) was due from the Borrower. This was followed by another letter dated 2 January 2003 from the third defendant to the shareholders of the Borrower, giving notice under cl 8 of the SSA and demanding payment of the aforesaid amount in the following proportions:

(a) Sumitomo – $12,560,657.11,

(b) Sulfindo – $25,623,740.51,

(c) Brenswick – $12,058,230.83.

Sumitomo paid $12,560,657.11 to the third defendant on 27 February 2003; the other two shareholders did not pay.

10 Consequently, by a letter dated 15 January 2003, the third defendant demanded immediate payment of US$12,058,230.83 from Sulfindo as guarantor of Brenswick, pursuant to cl 12 of the SSA. In turn, by a letter dated 17 January 2003, the second defendant as Security Agent demanded payment from the plaintiff as guarantor the sum of US$37,743,023.30 by 11.00am New York time, on the day which fell after the plaintiff’s receipt of the letter. The plaintiff did not make any payment on the demand within the deadline stipulated.

11 On 17 April 2003, the Lenders commenced proceedings against the plaintiff in Suit No 370 of 2003 (“the Suit”) for, inter alia, the sums of US$25,623,740.51, US$12,058,230.83 and interest of US$631,656.04. The plaintiff filed his defence to the claim after which the Lenders applied for summary judgment. Before the application could be heard, however, it was overtaken by other events. The Suit was subsequently discontinued by the Lenders.

12 On 22 August 2003, the third defendant as Facility Agent gave notice of default (“the Default Notice”) to the Borrower and required the Borrower to pay the sum of US$38,871,245.15 to the New York bank account of the Facility Agent not later than 29 August 2003.

13 Clause 26(C) of the Facility Agreement gave any of the Lenders the right to transfer all or any of the outstanding loans to any bank or financial institution with the consent of the Facility Agent provided that prior notice was given to the Borrower.

14 By a letter dated 4 September 2003 (“the Notice”), the third defendant informed the Borrower that in its capacity as Facility Agent, it had transferred all the outstandings under the Facility Agreement to a financial institution (not identified). Individually, the Lenders also wrote to the Borrower on 4 September 2003 in the same terms as the Notice, including a statement that “the transfer remains subject to certain conditions”.

15 The plaintiff paid the third defendant as Facility Agent the sum of US$38,915,000 for value on 5 September 2003. The amount was greater than that demanded in the Default Notice as the plaintiff made allowance for interest charges after 29 August 2003 (the deadline for payment) up to 5 September 2003.

16 On 4 September 2003, the plaintiff’s solicitors wrote to the Lenders’ solicitors giving notice that the plaintiff as guarantor had made full payment to the Facility Agent, pursuant to the demand dated 17 January 2003 from the second defendant. The plaintiff’s solicitors requested the Facility Agent’s certification by 12 noon of 5 September 2003 that the then outstandings had been settled in full and final settlement of the plaintiff’s obligations under the Guarantee. The plaintiff’s solicitors requested further confirmation by the same deadline that, against full payment by the plaintiff, the Lenders would assign and/or transfer to the plaintiff all their rights and security which they then held in respect of the Facility Agreement.

17 By a letter dated 5 September 2003 to the plaintiff, (“the Notice of Assignment”) Sumitomo Corporation Capital Asia Pte Ltd (“the first defendant”) and the Lenders informed the plaintiff that the Lenders had, by an assignment agreement dated 3 September 2003 (“the Assignment”), assigned to the first defendant all their present and future rights, title, interest, claims and entitlements under or in respect of the Facility Agreement. The plaintiff was not given a copy of the Assignment.

18 By a letter dated 5 September 2003 to the first defendant’s solicitors, the plaintiff’s solicitors put the first defendant on notice that as the plaintiff had made full payment of all the outstanding sums before his receipt of the Notice of Assignment, the Notice of Assignment was invalid and of no effect. The plaintiff’s solicitors wrote separately to the Lenders’ solicitors on the same day repeating the plaintiff’s assertion that the Assignment was invalid.

19 In a letter dated 9 September 2003 to the plaintiff’s solicitors, the second and third defendants’ solicitors confirmed that at 12.01am on 5 September 2003, the Lenders had completed the transfer to the first defendant of their entire rights and obligations under the Facility Agreement. The solicitors confirmed receipt by the third defendant as Facility Agent, of the plaintiff’s payments on 5 September 2003 and advised that the amounts had been transferred to the first defendant in accordance with the arrangements made between the Lenders and the first defendant, and the provisions of the Facility Agreement. The letter added that the third defendant was only made aware of the plaintiff’s payments on the morning of 8 September 2003.

20 The plaintiff was of the view that the Assignment to the first defendant was in breach of cl 26(C) of the Facility Agreement. As he had fully discharged his obligations under the Guarantee, the plaintiff’s solicitors wrote to the first defendant’s solicitors on 10 September 2003 to say the plaintiff was entitled to be subrogated to the rights of the Lenders or the first defendant as the new lender.

21 The first defendant did not agree and on 10 September 2003, its solicitors replied to the plaintiff’s solicitors to say that the plaintiff’s payment of US$38,915,000 did not fully discharge the plaintiff’s liabilities. The first defendant’s English solicitors then instructed a local firm of solicitors (“R&D”) who wrote to the plaintiff’s solicitors on the same day, requiring the plaintiff to pay all costs and expenses, pursuant to cl 17 of the Facility Agreement, by 5.00pm of Thursday, 11 September 2003.

22 As no figure was specified for costs and expenses, the plaintiff’s solicitors inquired of R&D on 11 September 2003 as to the quantum. R&D’s response on 12 September 2003 merely stated, “we...