Xia Zhengyan v Geng Changqing

• Jurisdiction: Singapore
• Judge: Edmund Leow JC
• Judgment Date: 30 July 2014
• Neutral Citation: [2014] SGHC 152
• Court: High Court (Singapore)
• Docket Number: Suit No 346 of 2013
• Year: 2014
• Published date: 31 July 2014
• Hearing Date: 12 February 2013,20 November 2013,21 November 2013,22 November 2013,12 May 2014,14 April 2014,19 November 2013,11 February 2013
• Plaintiff Counsel: Chia Boon Teck & Wong Kai Yun (Chia Wong LLP)
• Defendant Counsel: Ng Kim Beng & Cynthea Zhou (Rajah & Tann LLP)
• Subject Matter: Contract,Breach,Misrepresentation,Equity,Remedies,Rectification
• Citation: [2014] SGHC 152

Edmund Leow JC: Introduction

This suit concerned a share transfer agreement (“the Agreement”) under which the Plaintiff agreed to purchase certain shares from the Defendant for $1.5m. The Plaintiff claimed that the Defendant had: breached the Agreement by failing to transfer certain shares to Plaintiff; and made various misrepresentations which induced the Plaintiff to pay $1.5m for the shares even though they were in fact worth far less.

The Defendant denied the Plaintiff’s claims and counterclaimed for: an order that the Plaintiff deposit a sum of $300,000 into the parties’ joint account, which was withdrawn by the Plaintiff in breach of the Agreement; and an order for the Agreement to be rectified in order to correct certain alleged drafting mistakes.

On 9 June 2014, I dismissed the Plaintiff’s claim and allowed the Defendant’s counterclaim in large part. I now give my reasons.

The facts

The Plaintiff is a Singapore Permanent Resident from China. She is a homemaker with a background in business and teaching, and holds a master’s degree in education from the University of Cardiff.

The Defendant was a Singapore Permanent Resident from China until late 2012 when she became a Singapore Citizen. She is the founder of Apple Plus School International Pte Ltd (“the Company”). The Company entered into franchise agreements with the following registered companies (“the Franchisees”) to operate education centres under the name of “Apple Plus School”: Apple Plus School (Tampines) Pte Ltd; Apple Plus School (Bukit Timah) Pte Ltd; Apple Plus School (Serangoon) Pte Ltd; Apple Plus School (Thomson) Pte Ltd; and Apple Plus Sdn Bhd registered in Kuala Lumpur, Malaysia.

The Company did not own any shares in the Franchisees. Instead, under the franchise agreements, the Franchisees would pay the Company a fee in return for the training, materials and teaching and operation support provided by the Company. The Defendant owned shares in the Franchisees as follows: 25% of Apple Plus School (Tampines) Pte Ltd; 26% of Apple Plus School (Bukit Timah) Pte Ltd; 25% of Apple Plus School (Serangoon) Pte Ltd (subsequently sold by the Defendant on 22 October 2012); 25% of Apple Plus School (Thomson) Pte Ltd; and 50% of Apple Plus Sdn Bhd.

Separately, the Defendant is also the sole proprietor of the unincorporated entity known as Apple Plus School (“APS”). The Company is the registered proprietor of the trademarks “Apple Plus School” and “Monkey Abacus” in Singapore, while APS is the registered proprietor of the same trademarks in Malaysia.

On 22 September 2011, the Defendant met the Plaintiff at an event held at the Serangoon branch of Apple Plus School organised for people who had previously expressed interest in investing in the Apple Plus School franchise business. At that meeting, the Plaintiff informed the Defendant that she was not interested in entering into a franchise agreement with the Company but wanted to invest in the Company itself. The Defendant indicated that she was open to taking on the Plaintiff as a business partner in the Company, and the Plaintiff said that she would contact the Defendant again.

Between late September and mid-October 2011, the Plaintiff visited her family in China and consulted them about investing in the Defendant’s business. After the Plaintiff returned to Singapore, she met with the Defendant on 17 October 2011 at the Grand Hyatt Hotel to discuss the form and terms of the investment. The next day, the Defendant sent an email¹ to the Plaintiff requesting the following information: the Company’s general operation profile; the patents and qualifications that the Company held; the Company’s current financial report; and the Company’s future business plans.

The Defendant replied on 20 October 2011 stating that it was difficult for her to provide the documents requested by the Plaintiff because the Company was still in a loss-making state. Nonetheless, she attached a report (“the Report”) to her email which: set out her shareholdings in the Company and the Franchisees; made reference to collaborations with four PAP Community Foundation (“PCF”) kindergartens and three private nurseries; described the Company’s business development plans in Singapore, Malaysia, Indonesia, Australia, China and the Philippines; and stated that the Defendant was in the process of registering patents in Indonesia, Australia, China and the Philippines.

The Plaintiff replied the next day noting that the report contained no relevant data and that the situation was “somewhat special”, but nonetheless promised to get back to the Defendant after deliberations with her investment associates.²

There were conflicting accounts between the Plaintiff and the Defendant on what happened next. The Defendant said that a meeting occurred on 1 November 2011 at the Grand Mercure Roxy Hotel whereby she agreed to sell half of her shares in the Company to the Plaintiff for $1.5m,³ but the Plaintiff denied that that meeting occurred.⁴ Instead, the Plaintiff averred that a meeting took place at Parkway Parade in mid-November 2011,⁵ with the price for the sale of shares being agreed sometime between mid- and end-November 2011 (after the Parkway Parade meeting).⁶ A number of further meetings and correspondences via email, telephone and text messages ensued between the parties, during which the Defendant sent the Plaintiff a draft memorandum of understanding (“MOU”) and the parties went through several draft sale and purchase agreements. I will examine these communications in further detail later where they are relevant to the issues raised in this case.

Eventually, the parties signed a Chinese version of the Agreement on 17 January 2012, and an English translated version of the Agreement on 20 January 2012. The relevant portions of the English version are reproduced below:

Both parties have, upon consultation, entered into the following agreement in respect of the transfer of shares in Apple Plus School International Pte Ltd (hereinafter referred to as Company).

1. Pursuant to the terms of this Agreement, [the Defendant] shall transfer the 50% share in Apple Plus School International Pte Ltd (specifically including 50% share in Apple Plus School International Pte Ltd, 50% share in Apple Plus School including trade mark and patent of Apple Plus School and Monkey Abacus, 12.5% share in Apple Plus School (Tampines) Pte Ltd, 13% share in Apple Plus School (Bukit Timah) Pte Ltd, 12.5% share in Apple Plus School (Serangoon) Pte Ltd, 12.5% share in Apple Plus School (Thomson) Pte Ltd and 25% share in Apple Plus School (Malaysia)) held by her to [the Plaintiff] in accordance with the provisions of the law.

2. [The Plaintiff] agrees to accept the shares to be transferred, the transfer price shall be SGD1,500,000 (Singapore Dollar one and a half million), [the Plaintiff] shall, upon the successful transfer of the shares, enjoy the corresponding rights and interests accorded to a shareholder under the transferred shares and shall assume the corresponding obligations.

3. Mode of payment, time and supplementary notes: [The Plaintiff] to pay in cash (by cheque) in 3 installments, specific dates as follows:

(1) Before 31 January 2012, SGD500,000 (Singapore Dollar half a million) (of which SGD200,000 shall be placed in the Company’s account and to be used for the Company’s operations; payment of SGD100,000 to be made on the date of signing of the Agreement).

(2) Before 30 April 2012, SGD500,000 (Singapore Dollar half a million).

(3) Before 30 June 2012, SGD500,000 (Singapore Dollar half a million) (of which SGD300,000 is to be deposited into a bank account that requires the joint signatures of [the Defendant] and [the Plaintiff] for withdrawals. And if within 2 years from the effective date of this Agreement, (January 2012 to January 2014), total bonus received by [the Plaintiff], excluding salary, exceeds SGD500,000, all monies in the joint account shall be given to [the Defendant] unconditionally; if within 4 years from the effective date of this Agreement, (January 2012 to January 2016), total bonus received by [the Plaintiff], excluding salary, does not exceed SGD500,000, all monies in the joint account shall be given to [the Plaintiff] unconditionally).

4. Creation of Shareholder: Upon [the Plaintiff’s] payment of the 2nd instalment to [the Defendant], i.e. after 30 April 2012, [the Plaintiff] shall be accorded the status of a shareholder and shall become an official shareholder of the Company. The relevant formalities for registration of changes shall be completed within 15 days.

5. Rights and obligations

(1) Within 6 months from the date of signing this Agreement, [the Defendant] shall be responsible for the Company’s major decisions while [the Plaintiff] shall participate in its management; after the 6-month period, [the Defendant] and [the Plaintiff] shall be jointly involved in the Company’s decision-making process and management.

(2) [The Plaintiff] shall from the day she becomes the Company’s shareholder, be jointly responsible with [the Defendant] for the Company’s profits and losses.

6. Warranties, Undertakings and Force Majeure

(1) [The Defendant] warrants that she has full disposition rights in respect of the transfer of the Company’s shares (no mortgage, pledge or security created and exempted from any 3rd party claims), otherwise, all liabilities arising thereof shall be borne by [the Defendant].

(2) A franchisee currently in operation shall continue to operate as per the agreement entered into with the Company, the signing of this Agreement shall in no way affect the operations of the franchisee.

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7. Dispute Resolution

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(2) Both parties agree that for the period between the signing of the Agreement to the time [the Plaintiff] becomes a shareholder officially, if [the Defendant] refuses to transfer the shares to [the...