Yamashita Tetsuo v See Hup Seng Ltd

• Jurisdiction: Singapore
• Judge: Chan Seng Onn J
• Judgment Date: 11 February 2008
• Neutral Citation: [2008] SGHC 21
• Docket Number: Registrar's Appeal from the Subordinate Courts No 104 of 2007
• Date: 11 February 2008
• Year: 2008
• Published date: 18 February 2008
• Plaintiff Counsel: Koh Swee Yen (WongPartnership)
• Citation: [2008] SGHC 21
• Defendant Counsel: Joseph Liow (Straits Law Practice LLC)
• Court: High Court (Singapore)
• Subject Matter: Construction of deed of settlement,Deeds and Other Instruments,Whether outstanding convertible loan not converted to shares must be repaid in cash on repayment date,Interpretation,Deeds,Whether parties could have intended less than 100% of outstanding unconverted loan to be repayable,Option granted to convert company's convertible loan into shares in company

11 February 2008

Chan Seng Onn J

Introduction

1 This was an appeal against the decision made by District Judge Miranda Yeo (“DJ Yeo”) in chambers. The appellants are See Hup Seng Limited (“SHSL”), a company incorporated in Singapore and listed on the main board of the Singapore Exchange. The respondent, Tetsuo Yamashita (“Tetsuo”), is a Japanese national who held rights derived from a deed of settlement (the “Deed”). The Deed was entered into on 29 September 2003 by SHSL and a company known as SHS Holdings (Pte) Ltd. (“SHSH”). SHSL acknowledged in the Deed that it owed SHSH a sum of S$4,043,337.50 (the “SHSH Liability Amount”). In order to settle this, clause 2.2 of the Deed provided that the SHSH Liability Amount be split into two amounts:

(a) Warrant Liability Amount -- The sum of $1,773,337.50 was to be constituted and deemed as a loan owing by SHSL on certain terms and conditions set out in clause 4 of the Deed; and

(b) SHSH Convertible Loan -- The remaining sum of $2,270,000 was to be constituted and deemed as a loan owing by SHSL on certain terms and conditions set out in clause 5 of the Deed.

2 The Deed granted an option to SHSH to convert the SHSH Convertible Loan into shares in SHSL subject to certain conditions.

3 The proceedings in the District Court were commenced by Tetsuo, who was seeking a declaration that on a true construction of the Deed, he (as an assignee of some of the rights under the Deed) was entitled to be repaid a further sum of $118,309.60. As there were no material facts in dispute, the parties agreed that the appeal could be decided solely by the proper interpretation to be given to the Deed.

4 The crucial issue before the court was how much of the outstanding SHSH Convertible Loan which was not converted to shares would have to be repaid in cash on the repayment date. Was the cash repayment to be 100% of the unconverted outstanding loan amount or only 75% of the unconverted outstanding loan amount?

5 SHSL contended that under the Deed, Tetsuo was only entitled to cash repayment of 75% and not 100% of the unconverted loan amount that remained outstanding. Since SHSL had already paid 75% of the outstanding unconverted loan amount to Tetsuo, no further payments were owing to him. However, Tetsuo argued that 100% of the unconverted loan amount must be repaid in full in cash. Tetsuo thus claimed a further $118,309.60 from SHSL, being the balance of 25% of the unconverted loan amount unpaid.

6 I noted that some three years before the dispute arose, SHSL had made clear their position publicly that it was obliged under the Deed to repay only 75% of the principal amount of any outstanding convertible loan in cash at the end of the tenor of the SHSH Convertible Loan. This can be seen at item 15 of the Notes to the Financial Statements in the Annual Report for the year 2003, in which SHSL specifically reported on the transaction relating to the Deed as follows:

“15. AMOUNTS DUE FROM/(TO) RELATED PARTIES (CONTINUED)

The loan from a corporate shareholder and the director are unsecured and interest free. On 29 September 2003, the Company (SHSL) entered into separate deeds of settlement with a substantial shareholder SHS Holding (Pte) Ltd (“SHSH”) , and the director, Lim Siok Kwee Thomas (“TL”), to settle their loans to the Company as follows:

SHSH

Under the deed between SHSH and the Company, SHSH will settle the loan of S$4,043,337 to the Company as follows:

(i) Apply an amount of S$1,773,337 towards the exercise of the 16,121,250 warrants of the Company held by it within 7 months from the date of the deed (or such later dates as the parties thereto may agree), failing which this amount shall be deemed to be settled; and

(ii) Convert the balance of S$2,270,000 into a three-year (with effect from the date of the deed) interest free loan which may be converted into new shares of the Company at the option of SHSH at any time during its tenor at a conversion S$0.15 per new share (the “Conversion Feature”).

The Conversion Feature is subject to, inter alia, the approvals of the shareholders of the Company and the Singapore Exchange.

If SHSH is unable to exercise the Conversion Feature because the relevant approvals are not obtained or it is not valid or enforceable, the Company will repay SHSH the principal amount of the convertible loan in cash at the end of three-year tenor. In any other case, the Company is only obliged to repay 75% of the principal amount of any outstanding convertible loan in cash at the end of tenor as full settlement.” [emphasis added]

7 SHSH, being the 4^th largest shareholder of SHSL, should have received a copy of the 2003 Annual Report. I would imagine that if what was stated in Note 15 above was inaccurate or did not reflect the true intention of the parties when they negotiated and entered into the Deed, SHSH as a party to the Deed would have raised objections or sought an amendment to what was stated above in the Annual Report. I assumed that if there were any amendments, counsel would have placed the latest version of the 2003 Annual Report before me.

8 To avoid any doubt, I must add that what I noted above did not form any part of the considerations that went into my interpretation of the Deed.

The Deed and the assignments

9 As mentioned above, the Deed was entered into on 29 September 2003 between SHSH and SHSL. At the material time, one Thomas Lim Siok Kwee (“Thomas”) owned 32% of the shares of SHSH and the remaining 68% was owned by Linguafranca Co. Ltd (“Linguafranca”), a company incorporated in the Cayman Islands. In March 2004, Thomas and Linguafranca entered into an agreement (the “TL Agreement”) for SHSH to be placed in a members’ voluntary liquidation and for the assets of SHSH to be distributed according to the terms of the TL Agreement. One of SHSH’s assets was the SHSH Convertible Loan of $2,270,000. As per clause 1.2(a)(iv) of the TL Agreement, Thomas and Linguafranca agreed to distribute the SHSH Convertible Loan such that Thomas would receive $1,796,761.60 (approximately 79%) and Linguafranca would receive $473,238.40 (approximately 21%) of the SHSH Convertible Loan. This arrangement was subsequently formalised by a deed of assignment dated 16 September 2005 whereby SHSH assigned and transferred to Linguafranca all of its rights, title and interest in $473,238.40 of the SHSH Convertible Loan. Linguafranca subsequently assigned all of it to Tetsuo. Linguafranca thereafter informed SHSL of its assignment to Tetsuo by way of a Notice of Assignment dated 21 March 2006.

10 Unlike Thomas who chose to convert all of his interest in the SHSH Convertible Loan into the shares of SHSL, Tetsuo decided not to convert any part of his interest in the SHSH Convertible Loan. Tetsuo opted instead to receive cash for the repayment of $473,238.40 of the SHSH Convertible Loan at the repayment date.

11 It was not disputed that on the repayment date, SHSL paid Tetsuo a sum of $354,928.80 (amounting to 75% of the outstanding SHSH Convertible Loan amount of $473,238.40). According to Tetsuo, there thus was a balance sum of $118,309.60 (amounting to 25% of the SHSH Convertible Loan amount of $473,238.40) still owing to him. SHSL disputed that such a balance sum was owed.

The Law on Interpretation of Documents

12 Counsel for SHSL submitted that where the terms of an agreement are clear and unambiguous, they should be given their plain ordinary meaning without the aid of extrinsic evidence. He referred me to the Court of Appeal decision in Pacific Century Regional Development v Estate of Seow Khoon Seng [1997] 3 SLR 761 where Karthigesu JA said at [17]:

17. The law on the construction of documents is clear. In the case of a contract, such as the agreement in question which is wholly in writing, the court is required to ascertain the mutual intention of the parties as expressed in the words of the agreement. The law is concerned with the objective appearance, rather than with the actual fact, of agreement. It is not concerned with the actual intentions of the parties, rather it is the court’s task to decide what each party was reasonably entitled to conclude from the conduct of the other.

13 Counsel for Tetsuo cited the leading judgment of the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, where Lord Hoffmann summarised at pages 912 and 913 the general principles by which contractual documents are to be construed:

(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the “matrix of fact”, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the...