Straits Engineering Contracting Pte Ltd v Merteks Pte Ltd

• Jurisdiction: Singapore
• Judge: Karthigesu JA
• Judgment Date: 29 November 1995
• Neutral Citation: [1995] SGCA 83
• Citation: [1995] SGCA 83
• Defendant Counsel: Anwarul Hague and Yoga Sharmini Yogarajah (Haridass Ho & Pnrs)
• Published date: 19 September 2003
• Plaintiff Counsel: Michael Hwang and Tan Chuan Thye (Allen & Gledhill) and Lisa Chong (Lisa Chong & Pnrs)
• Date: 29 November 1995
• Docket Number: Civil Appeal No 10 of 1995
• Court: Court of Appeal (Singapore)
• Subject Matter: Discharge,Damages,Readiness and willingness to complete,Breach,Nature and conditions of award under this head,Whether necessary where other party had clearly intimated that they would not complete the contract,Completion,Loss of chance to profit,Contract,Proof

Cur Adv Vult

(delivering the judgment of the court): The facts

The respondents, Merteks Pte Ltd, are engaged in the business of ship repair, mechanical engineering and fabrication work. In 1988, they acquired a workshop at Loyang estate and commenced business. Subsequently, they decided to acquire a site with a seafront to expand their business, and in November 1989 they applied to the Jurong Town Corp (JTC) for an industrial site with a waterfront for the carrying out of ship repairs, ship building and engineering works. Their application, however, was unsuccessful. They then looked around for a site with such facility in the open market and in early March 1990, discovered that a company called Nicol & Andrew (Far East) Pte Ltd (the company) occupying a site with a seafront facility was up for sale. The company was wholly owned by the appellants, Straits Engineers Contracting Pte Ltd, and had an issued and paid-up share capital of $1m divided into 100,000 shares of $10 each.

Sometime in March 1990, the respondents` managing director, Arthur Teo (Teo), a marine engineer by training, and Alan Chan (Chan), another of the respondents` directors, arranged a meeting with one Ambrose Lim (Lim), the managing director of the company. They had a general discussion on the facilities and business of the company. Lim indicated that the owners had in mind a price of $5.5m and he informed Teo and Chan that the lease of the site held by the company from JTC had about 20-odd years left. Although Chan felt that the place was small compared to what they had applied for to JTC, it was nevertheless suitable. Upon request, Lim also showed Teo and Chan a set of accounts of the company ending March 1989, which were the latest accounts available then.

Teo and Chan themselves had an interest in shipping. Together they owned a company, Petroships Pte Ltd (Petroships), which managed a fleet of vessels, and the respondents are a wholly-owned subsidiary of Petroships. The vessels were in turn owned mainly by Teo and Chan through separate companies. Teo and Chan wanted to acquire the company as they were interested in the company`s physical facilities and seafront and hoped to upgrade the capacity of the respondents so that it would join the `upper league` and do higher value work.

A few days after the first meeting, Teo and Chan visited the company`s site again and found that the premises suited their needs. A second meeting was arranged for 29 March 1990 at the office of Petroships at the Port of Singapore Authority building. Present thereat were Teo and Chan representing the respondents, and Lim and one David Toms (Toms), the managing director of the appellants, representing the appellants. The purpose of the meeting was to discuss the sale by the appellants to the respondents of all the shares in the company. Obviously there was a great deal of discussion on the price at the meeting. Toms wanted $5.5m for those shares but Teo and Chan counter-offered $4.2m. Eventually both parties agreed to the price of $5m. The accounts of the company were also produced at the meeting in which the net current assets of the company were shown to be worth $2,277,718.

The upshot of their discussions was that an agreement in writing was made between the appellants and the respondents on the very day, 29 March 1990. It was prepared by Chan after consulting Frankie Tan, the financial adviser for the respondents. The agreement (the March Agreement) contained only four clauses which were as follows:

It is agreed between Straits Engineers Contracting Pte Limited (the vendor) and Merteks Pte Ltd (the purchaser) that:

1 The vendor has agreed to sell and the purchaser has agreed to purchase the whole of the issued and paid-up shares in Nicol & Andrew (Far East) Pte Ltd, incorporated in Singapore for $5,000,000 (Singapore Dollars Five Million).

(2) The completion date shall be within 60 days or such other date as mutually agreed.

(3) The vendor agrees to hold the purchaser fully indemnified against any liability to any debts, obligations, guarantees, business contracts, litigation, and such other liabilities that may arise before the completion date.

(4) The purchaser shall pay the vendor $10,000 on signing this contract.

The March Agreement was signed by Toms on behalf of the appellants, and by Chan on behalf of the respondents, and their signatures were witnessed by Lim and Teo respectively. It was agreed by both parties that the March Agreement constituted a binding contract.

On 4 April 1990 the respondents received a draft agreement from Lim, which had been prepared by the appellants` then solicitors, M/s Ann Tan & Associates. The draft set out the terms of the March Agreement and also contained two provisions, which the respondents felt were contrary to the March Agreement and which caused them some concern. They were as follows:

3(b)(2) In addition, the purchaser shall pay the vendor the audited difference of the sum between sundry creditors and sundry debtors, if any, as at 28 May 1990, a list of which is annexed hereto as Sch 1;

(4) (a) It is understood and agreed that the vendor shall be responsible for payment of the company`s trade creditors and enjoy the benefit of payments from the company`s trade debtors as at 28 May 1990, as set out in Sch 2 annexed hereto. These debts shall be utilized for payment of all creditors, any insufficiency arising therefrom is the responsibility of the vendor.

On the following day, Teo and Chan discussed the draft with their solicitor, Chan Kam Foo and with Frankie Tan. As they felt that it was necessary to clarify the two provisions in the draft, they went to see Mrs Ann Tan at her office. Mrs Ann Tan explained that according to her clients` instructions, the appellants would be selling the company to the respondents without any trade debtors and trade creditors, ie on completion the company would have only fixed assets without any current assets and liabilities. To that Tan remarked that the current assets belonged to the company and could not be taken out or given away. Mrs Ann Tan suggested to Teo and Chan that they could put up a proposal on the matter. Accordingly, on the next day, Teo and Chan prepared a draft and handed a copy to Lim. On 11 April 1990, Teo wrote to the appellants as follows:

Further to the agreement signed on 29 March 1990, we will be pleased to know when we can meet to finalize the sale and purchase arrangements as drafted and handed to your representatives on Friday, 6 April 1990.

Again, on 17 April 1990, the respondents reminded the appellants and pressed for an early date when they could meet, as they would like to show to their bank the details of the transaction at an early date. The next day, the appellants replied as follows:

There is already in existence an agreement on our part to sell and your part to buy our above company for S$5m.

We do not agree with your new proposals on how to finalize the sale and purchase arrangements, which is contrary to our written agreement.

Please note that on 28 May 1990, the sale will be completed upon your giving us a cashier`s order for the sum of S$4,990,000 made in our favour. In exchange, we shall hand over to you the following:

(1) The 100,000 shares of the company together with the transfer forms duly executed;

(2) The title deeds relating to the property;

(3) As at 28 May 1990, you will get a clean company, ie a company without any trade creditors or trade debtors as at that date.

In response, the respondents wrote to the appellants on 4 May 1990 stating:

The agreement of 29 March 1990 was reached on the basis of the balance sheet, as at 31 March 1989, of Nicol & Andrew (FE) Pte Ltd, tabled at the meeting.

The net worth was S$2,277,718 for which the price of S$5m was agreed on. The agreed price was more than double the net assets value. In terms of 88/89 earnings, the P/E ratio ran in the hundreds.

The scheduled completion would not be helped by the attempt in your letter dated 18 April to read irrational ideas into that part of the agreement that provided the buyers with a simple and customary safeguard.

On 25 May 1990, M/s Ann Tan & Associates, representing the appellants, asked the respondents to complete the purchase by 4pm on 28 May 1990 by delivery of a cashier`s order in the sum of $4,990,000 in exchange for the certificates for the 100,000 shares in the company, together with the transfer forms duly executed and the title deeds to the property. The letter further warned that should the respondents fail to complete on 28 May at 4pm, they would be in breach of the March Agreement and the appellants would be entitled to forfeit the deposit of $10,000 without prejudice to their rights to take whatever legal remedies available to them. In response, Chan Kam Foo & Associates replied on 28 May 1990 stating, inter alia, that the respondents were ready to complete the transaction in accordance with the March Agreement subject to the appellants withdrawing item (3) of para 3 of their letter dated 18 April 1990.

The parties subsequently did not resolve their disagreement, and on 12 June 1990, the respondents instituted an action against the appellants in the High Court claiming specific performance and damages for breach of contract. In defence, the appellants counterclaimed a declaration that it was an express term of the March Agreement that they would sell the shares on the basis that the company would be free of trade debtors and trade creditors. Notwithstanding that the action had been commenced, the parties` solicitors continued with their negotiations with a view to seeking an amicable solution. By then, the solicitors acting for the appellants were M/s Donaldson & Burkinshaw. The privilege attaching to such negotiations was waived by the parties at the trial and documents relating thereto were produced and admitted. Between July and September 1990, there were discussions...