WBL Corporation Ltd v Lew Chee Fai Kevin and another appeal

• Jurisdiction: Singapore
• Judge: Chan Sek Keong CJ
• Judgment Date: 10 February 2012
• Neutral Citation: [2012] SGCA 13
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeals Nos 149 and 150 of 2010
• Year: 2012
• Published date: 16 February 2012
• Hearing Date: 01 March 2011
• Plaintiff Counsel: Yeo Khirn Hin Andrew, Aaron Lee Teck Chye, Tay Yong Seng and Chang Ya Lan (Allen & Gledhill LLP)
• Defendant Counsel: Thio Shen Yi SC, Leow Yuan An Clara Vivien and Charmaine Kong (TSMP Law Corporation)
• Subject Matter: Contract,Illegality and public policy,Whether performance of contract illegal,Section 47 Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (Cap 65A, 2000 Rev Ed),Criminal law,Statutory offences,Corruption, Drug Trafficking and Serious Crimes (Confiscation of Benefits) Act (Cap 65A, 2000 Rev Ed)
• Citation: [2012] SGCA 13

Andrew Phang Boon Leong JA (delivering the judgment of the court): Introduction

This appeal and cross-appeal (collectively, “the present appeals”) arose out of the judgment of the trial judge (“the Judge”) in Suit No 129 of 2008 (“Suit 129”) (see Lew Chee Fai Kevin v WBL Corp Ltd [2010] 4 SLR 774 (“the Judgment”)). For ease of reference in the present appeals, we will refer to Kevin Lew Chee Fai as “Lew” and WBL Corporation Limited as “WBL” instead of as “the appellant” and “the respondent” in their respective appeals.

Lew was, at the material time, the Group General Manager of WBL’s Enterprise Risk Management Group. He commenced proceedings against WBL, seeking, inter alia, specific performance of WBL’s obligation to issue him a total of 167,500 shares in WBL (“the Relevant Shares”) under an Executive Share Options Scheme (“ESOS”). WBL had refused to issue the Relevant Shares to Lew because he had purportedly paid for them using the proceeds from share transactions that were alleged to constitute insider trading. WBL’s defence was that it was not in breach of its obligation under the ESOS to issue the Relevant Shares to Lew (referred to hereafter as WBL’s “contractual obligation under the ESOS to issue the Relevant Shares” where appropriate) because it would have been illegal under either the common law or s 44 or s 47 of the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (Cap 65A, 2000 Rev Ed) (“the CDSA”) to issue those shares. Suit 129 was heard before the Judge together with Suit No 71 of 2009 (“Suit 71”).

Suit 71 was the action by the Monetary Authority of Singapore (“MAS”) against Lew for violating the insider trading provisions of the Securities and Futures Act (Cap 289, 2006 Rev Ed) (“the SFA”), the alleged insider trade being Lew’s sale of 90,000 shares in WBL on 4 July 2007 (“the Transaction”). Suit 71 was a civil action and MAS sought a civil penalty under s 232(2) of the SFA. The Judge found Lew liable for insider trading under s 218 of the SFA and therefore liable to pay a civil penalty. We dismissed Lew’s appeal against that decision in Civil Appeal No 123 of 2010 (“CA 123”) and delivered our grounds in Lew Chee Fai Kevin v Monetary Authority of Singapore [2012] SGCA 12 (“Kevin Lew v MAS”).

For the purposes of this judgment, we will proceed on the basis of the facts established in Kevin Lew v MAS, together with the relevant additional facts below.

The material facts Background to the dispute WBL’s ESOS

WBL operated an ESOS under which its senior executives were offered share options, ie, the right to be issued shares in WBL (referred to hereafter as “WBL shares”) at a specific purchase price.

The terms of the ESOS central to the dispute between WBL and Lew are cll 6, 8 and 19, which are reproduced below:¹ 6. Right to Exercise Option (a) Subject as provided in this Rule 6 and in Rule 7, an Option shall be exercisable, in whole or in part, at any time during the Option Period. (b) An Option shall, to the extent unexercised, immediately lapse without any claim against the Company:- (i) subject to Rules 6(c) and (d), upon the Participant ceasing to be in the full-time employment of the Group for any reason whatsoever; or (ii) upon [the] bankruptcy of the Participant.

…

8. Exercise of Options, Allotment and Listing of Stock Units (a) An Option may be exercised, in whole or in part, by a Participant giving notice in writing to the Company in or substantially in the form set out in Appendix C … Such Notice must be accompanied by a remittance for the Aggregate Subscription Cost. An Option shall be deemed to be exercised upon receipt by the Company of the said notice duly completed and the remittance for the Aggregate Subscription Cost. (b) The Company shall, as soon as practicable after the exercise of an Option, allot the relevant Shares to the Participant and shall apply to the SES and any other stock exchange on which the Stock Units are quoted, for permission to deal in and for quotation of such Stock Units Subject to such consents or other required action of any competent authority under regulations or enactments for the time being in force as may be necessary and subject to compliance with the Rules of the Scheme the Shares shall be allotted and issued not later than ten (10) Market Days after the exercise of the Option.

…

19. Conditions of Option Every Option shall be subject to the condition that no Shares shall be issued pursuant to the exercise of an Option if such issue would be contrary to any law or enactment, or any rules or regulations of any legislative or non-legislative governing body for the time being in force in Singapore or any other relevant country.

Lew’s participation in the ESOS

Lew was one of the senior executives of WBL who participated in the ESOS. Between 2000 and 2004, Lew was granted several share options to purchase WBL shares pursuant to the ESOS at various purchase prices.

The following share options remained unexercised by Lew as at 9 July 2007:

	Date of Grant	No. of shares granted	Exercise Price	Option Period
(a)	21 January 2000	37,5000	$2.720	21 October 2002 – 20 December 2009
(b)	6 January 2004	146,000	$2.947	6 October 2006 – 5 December 2013
(c)	17 December 2004	153,000	$3.220	17 September 2007 – 16 November 2012

Lew’s exercise of his ESOS share options with proceeds from the Transaction

As stated in Kevin Lew v MAS at [1], 2 July 2007 was the date on which Lew allegedly acquired confidential, price-sensitive information about WBL at an internal executive meeting. 4 July 2007 was the date of the Transaction, ie, the date on which Lew sold 90,000 of his WBL shares. On 9 July 2007, Lew submitted two notices to WBL pursuant to cl 8(a) of the ESOS for the Relevant Shares to be issued to him pursuant to the options granted on, respectively, 21 January 2000 and 6 February 2004 (“the Options”).

Lew raised a total of $446,773.26 from the Transaction and he tendered two cheques totalling $485,110 (“the Cheques”) as payment for the Relevant Shares. It is not disputed that the Cheques were drawn from the proceeds received from the Transaction.

Pursuant to WBL’s obligation under s 39 of the CDSA to make a report if it had knowledge or reasonable grounds to suspect that any property represented the proceeds of criminal conduct, WBL lodged a Suspicious Transaction Report with the Commercial Affairs Department (“CAD”) on 17 July 2007 with regard to the Transaction.

WBL declines to issue the Relevant Shares

Lew resigned from WBL on 19 July 2007. In his resignation letter, he reminded WBL that he had applied to exercise the Options and sought confirmation that he was entitled to do so. WBL did not respond to Lew’s question on the Options.

Lew thus wrote again on 27 December 2007 seeking a response. WBL’s reply on 8 January 2008 was that it was “bound by legal restrictions”² from taking any action with respect to Lew’s purported exercise of the Options using the proceeds from the Transaction. WBL took the position that it was entitled to decline to issue the Relevant Shares to Lew because the Options had been exercised using the proceeds of the Transaction.

Lew then commenced the proceedings below seeking, inter alia, specific performance of WBL’s contractual obligation under the ESOS to issue the Relevant Shares.

The decision below and the parties’ respective appeals

The Judge held that WBL would have contravened s 44 of the CDSA if it had issued Lew the Relevant Shares pursuant to his purported exercise of the Options on 9 July 2007. However, the Judge also held that there was a means by which WBL could have legally performed its contractual obligation to issue those shares to Lew, ie, by obtaining the consent of CAD under s 44(3) of the CDSA for the shares to be issued. Section 44(3) of the CDSA provides as follows:

(3) Where a person discloses to an authorised officer his knowledge or belief that any property, funds or investments are derived from or used in connection with criminal conduct or any matter on which such knowledge or belief is based —

(a) if he does any act in contravention of subsection (1) and the disclosure relates to the arrangement concerned, he shall not be guilty of an offence under this section if the disclosure is made in accordance with this paragraph, that is —

(i) it is made before he does the act concerned, being an act done with the consent of the authorised officer; or

(ii) it is made after he does the act, but is made on his initiative and as soon as it is reasonable for him to make it;

(b) the disclosure shall not be treated as a breach of any restriction upon the disclosure of information imposed by law, contract or rules of professional conduct; and

(c) he shall not be liable in damages for any loss arising out of —

(i) the disclosure; or

(ii) any act done or omitted to be done in relation to the property, funds or investments in consequence of the disclosure.

[emphasis added]

Under cl 8(b) of the ESOS, WBL was obliged to avail itself of this means of legally performing its contractual obligation under the ESOS to issue the Relevant Shares. The Judge therefore directed WBL to seek the consent of CAD to issue those shares to Lew.

As we stated at the outset, the present appeals consist of an appeal and a cross-appeal against the Judge’s decision. Civil Appeal No 149 of 2010 (“CA 149”) is WBL’s appeal against the Judge’s direction that it must apply to CAD for consent to issue the Relevant Shares to Lew. WBL also appealed against the Judge’s order awarding Lew costs. Civil Appeal No 150 of 2010 (“CA 150”) is Lew’s appeal against the Judge’s decision in so far as it was held that WBL would have contravened s 44(1) of the CDSA had it issued the Relevant Shares to Lew...