The Enterprise Fund II Ltd v Jong Hee Sen

• Jurisdiction: Singapore
• Judge: Hoo Sheau Peng J
• Judgment Date: 29 March 2019
• Neutral Citation: [2019] SGHC 87
• Plaintiff Counsel: Chng Zi Zhao Joel, Siah Jiayi Vivian and Nigel Teo (WongPartnership LLP)
• Docket Number: Suit No 72 of 2016
• Date: 29 March 2019
• Hearing Date: 07 September 2018,09 November 2018,06 September 2018,04 September 2018,05 September 2018
• Subject Matter: Admissibility of evidence,Financial and Securities Markets,Regulatory requirements,Illegality and public policy,Remedies,Statutory illegality,Licensing,Contractual terms,Contract,Express terms,Mitigation of damage
• Published date: 18 January 2020
• Defendant Counsel: Aqbal Singh A/L Kuldip Singh and Wong Yiping (Pinnacle Law LLC)
• Court: High Court (Singapore)
• Citation: [2019] SGHC 87
• Year: 2019

Hoo Sheau Peng J: Introduction

This suit involves a claim by The Enterprise Fund II Ltd (“EFII”) against Jong Hee Sen (“Jong”) for breaching his obligation as a warrantor under a deed of undertaking (“DOU”). The DOU was executed concurrently with a sale and purchase agreement (“SPA”) for EFII to purchase shares in International Healthway Corporation Limited (“IHC”). As loss and damage, EFII claims a sum of $3,338,281.95 from Jong.

In response, Jong denies the claim. He counterclaims against EFII for wrongful conversion of shares in Healthway Medical Corporation Limited (“HMC”) which he had assigned to EFII as security under two deeds of assignment (“the Deeds of Assignments”). He prays for damages to be assessed. EFII disputes the counterclaim.

Having heard the trial, and having considered the closing submissions and reply submissions from EFII and Jong, this is my decision.

Background The parties and related entities

EFII is a public company limited by shares, incorporated in Singapore. It is in the business of fund management, providing investment or fund management and advisory services.¹ Tan Yang Hwee (“Tan”), also known as Glendon, was a director of EFII.² He acted for EFII in the relevant dealings, and was EFII’s sole witness at the trial.

HMC was incorporated on 16 May 2007, and was listed on the Singapore Exchange Limited (“SGX”) on 4 July 2008.³ It is in the business of providing healthcare services and facilities in Singapore. It was set up by Jong and his two business partners – Fan Kow Hin (“Fan”) and Aathar Ah Kong Andrew (“Aathar”).⁴ Jong was a non-executive director and non-independent director of HMC from 1 September 2011 to 8 July 2013.⁵ Jong resigned from the board of HMC to focus on the management of IHC.⁶

IHC, now known as OUE Lippo Healthcare Limited, was incorporated on 18 February 2013, and was listed on the SGX on 8 July 2013.⁷ Jong was formerly its director from 18 February 2013 to 22 December 2016.⁸ Fan and Aathar were also involved in IHC. While HMC operated locally, IHC was meant to develop and manage healthcare facilities internationally.⁹ Prior to the listing of IHC, HMC was a shareholder of IHC, but it gradually divested its stake in IHC following IHC’s listing.¹⁰

I should also mention Healthway Medical Development (Private) Limited (“HMD”). This entity was what Jong termed the “predecessor” of IHC. As part of the listing process, IHC was the vehicle listed in place of HMD following an asset restructuring exercise.¹¹ Fan, Aathar and Jong were shareholders of HMD.¹²

As for Jong, apart from his involvement in the various companies mentioned above, he was employed as a Chief Executive Officer of an unrelated company at the time of making his affidavit for the trial.¹³ Jong also described himself as an executive with over 25 years’ experience in various technical and managerial roles.¹⁴

The relevant transaction

The relevant transaction at the centre of this action is documented by the SPA and the DOU, with reference to the Deeds of Assignments. The details are as follows.

Sale of International Healthway Corporation Limited shares, and undertaking by the Warrantors

On 6 July 2013, shortly prior to the listing of IHC, EFII agreed to purchase 20,833,000 ordinary shares of IHC from HMC. I shall refer to these shares as the “Sale Shares”. The sale and purchase was documented in the SPA, which provided for a consideration of $0.48 per share for a total sum of $9,999,840 to be paid by EFII to HMC.¹⁵

On the same day, Jong, Fan, Aathar, HMD and One Organisation Limited (“OOL”) (collectively known as “the Warrantors”) executed the DOU, on a joint and several basis, in favour of EFII.¹⁶ The DOU is the key document of concern, and these are its material terms.

By cl 2.1(a) of the DOU, the Warrantors undertook to EFII that during a period of nine months beginning from the completion date of the SPA (“Sale Period”), they would “use reasonable endeavours to source for and procure purchasers for the Sale Shares from [EFII], at a purchase price per Share of no less [sic] S$0.576 or the last traded price of Shares on the SGX-ST, whichever is the higher (the “Minimum Sale Price”) …” [emphasis in original in bold].

However, should the sale of Sale Shares during the Sale Period be insufficient to raise the sum of $11,999,808 (also known as the “Sale Proceeds Target”), by cl 2.1(b) of the DOU, the Warrantors undertook to effect the purchase of the remaining Sale Shares such that EFII receives, in aggregate, the Sale Proceeds Target. Since much of the present dispute relates to when such liability arises, which turns on the exact words used in cl 2.1(b) of the DOU, I set out the relevant provision here:¹⁷ (b) in so far as the aggregate consideration received by [EFII] pursuant to the sale of any Sale Shares effected during the Sale Period (the “Aggregate Consideration”) pursuant to Clause 2.1(a) above or Clause 2.2 below is less than the Sale Proceeds Target, [the Warrantors] shall, within no later than seven (7) Business Days of the expiry of the Sale Period, either purchase or procure the purchase from [EFII] of such portion of the remaining Sale Shares held by [EFII] (the “Balance Sale Shares”) at … no less than the Minimum Sale Price, such that [EFII] receives, in aggregate, the full amount of the Sale Proceeds Target …

[emphasis in original in bold; emphasis added in italics]

By cl 2.2, EFII was not precluded from “at any time sourcing for and procuring purchasers for all or any part of the Sale Shares at a price per Share which is no less than the Minimum Sale Price”.

To round off, by cl 3.1, it was provided that “[t]he obligations of the Warrantors … shall terminate on the date on which [EFII receives], in aggregate, [proceeds] that are equivalent to the Sale Proceeds Target”.

Extension of Deeds of Assignments

To secure the Warrantors’ obligations, by cl 2.3 of the DOU, an undertaking was provided by Jong and OOL to the effect that the Deeds of Assignments would be extended in favour of EFII.

To explain, on or around 15 June 2011, EFII provided a loan to HMD.¹⁸ To secure HMD’s obligations to EFII under the loan transaction, Jong and OOL entered into the Deeds of Assignment. Under these deeds, Jong assigned 40,500,000 ordinary shares in HMC to EFII. As for OOL, a company controlled by Fan and/or his wife,¹⁹ it assigned a total of 135,802,000 ordinary shares in HMC to EFII.²⁰ I shall refer to these shares as “the Security Shares”. In other words, by cl 2.3 of the DOU, Jong agreed to continue with the existing assignments of his portion of the Security Shares to secure the Warrantors’ obligations under the DOU. It is not disputed that eventually, the loan to HMD was fully repaid.²¹

Events leading up to the action

The Sale Period ran for nine months from the SPA’s completion date of 8 July 2013 to 7 April 2014. Should obligations arise under cl 2.1(b) of the DOU, the Warrantors should perform the obligations no later than 16 April 2014, ie, seven business days after 7 April 2014.

During the Sale Period, the actual traded prices of IHC shares on the SGX fell significantly lower than the Minimum Sale Price. Eventually, no Sale Shares were sold during the Sale Period. Thereafter, none of the Warrantors purchased or procured the purchase of any of the Sale Shares from EFII, and EFII did not receive the Sale Proceeds Target.²² In this regard, I should add that the parties are not in dispute that any sale could have been conducted in the market or off the market (through private arrangements).

As the Warrantors did not satisfy EFII’s claim for the Sale Proceeds Target, EFII claims that it engaged in discussions with Aathar and Fan on repayment by the Warrantors. EFII also claims that on 30 September 2014, a sum of $2,000,000 was repaid through Golden Cliff International Limited (“Golden Cliff”), a company purportedly owned by Fan, towards the outstanding sum. Jong disagrees with these assertions.

Quite some time later, EFII took steps to sell the Sale Shares and the Security Shares. According to EFII, and undisputed by Jong,²³ EFII only began to find buyers starting from around December 2015.²⁴ Eventually, EFII recovered the sum of $6,661,526.04 through sales effected from March 2016 to April 2016.²⁵

With these background facts in mind, I turn to the parties’ cases.

The parties’ cases EFII’s claim

By EFII’s case, Jong, as one of the Warrantors, had an obligation to purchase or procure the purchase of the Sale Shares, and such obligation will only be discharged when the Sale Proceeds Target is met.²⁶

Jong has accordingly failed to perform his obligations under cl 2.1(b) of the DOU, because there was no sale of the Sale Shares and EFII did not receive the Sale Proceeds Target of $11,999,808 by 16 April 2014.²⁷

In support of its case, EFII relied on pre-contractual correspondence,²⁸ and post-contractual acknowledgments of liability by the Warrantors.²⁹

EFII managed to mitigate its losses by selling the Sale Shares and the Security Shares, and recovered $6,661,526.04. It had also received part payment of $2,000,000 through Golden Cliff.³⁰

EFII’s claim is therefore for the sum of $3,338,281.95 or alternatively, for damages to be assessed, in addition to interest.³¹ The claimed sum is the balance of the Sale Proceeds Target left unrecovered.

Jong’s defence and counterclaim

Jong’s primary case is that the Warrantors’ obligations under cl 2.1(b) of the DOU do not arise if there was no sale of any Sale Shares during the Sale Period.³² Jong pleaded that this is the plain and unambiguous meaning of the words of cl 2.1(b) of the DOU.³³

Further, Jong was not privy to any negotiations between Fan, Aathar and EFII, and neither acquiesced nor consented to Fan and Aathar negotiating on his behalf. Accordingly, their conduct should not affect his obligations under the DOU.³⁴ Similarly, any admission...