Yap Son On v Ding Pei Zhen

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 19 December 2016
• Neutral Citation: [2016] SGCA 68
• Plaintiff Counsel: Devinder K Rai and Tan Wei Jie Joel (ACIES Law Corporation)
• Docket Number: Civil Appeal No 194 of 2015
• Date: 19 December 2016
• Hearing Date: 22 August 2016
• Subject Matter: Contract,Contractual terms
• Published date: 04 January 2017
• Defendant Counsel: Hee Theng Fong, Lee Hui Min, and Lin Chunlong (Harry Elias Partnership LLP)
• Court: Court of Appeal (Singapore)
• Citation: [2016] SGCA 68
• Year: 2016

Sundaresh Menon CJ (delivering the judgment of the court): Introduction

This appeal raises some questions as to the proper limits of contractual interpretation. The parties collaborated to assist a Chinese company in its effort to get listed on the Frankfurt Stock Exchange. They agreed to expend efforts and to bear the expenses associated with the listing in exchange for share capital that would be issued in the listed entity. The company was listed and a quantity of shares was issued, a portion of which was registered in the names of various companies owned by the Appellant. A part of the shares registered in the names of the Appellant’s companies was to be transferred to the Respondent pursuant to a share allotment agreement (“Allotment Agreement”). The main issue before us centres on how the Allotment Agreement is to be construed.

Both parties put forward flatly inconsistent accounts of what happened in the lead-up to the listing and, on that basis, advanced vastly different constructions of the Allotment Agreement. On the Respondent’s construction, she was entitled to more shares than she had thus far received; under the Appellant’s construction, the Respondent had already received all the shares she was entitled to. The High Court judge (“the Judge”) saw problems with both parties’ accounts but held that the Respondent’s was, on the whole, to be preferred. On that basis, she accepted the Respondent’s interpretation of the key term in the Allotment Agreement and ruled in her favour for damages representing the value of the untransferred shares. The Appellant counterclaimed for some unpaid expenses. The Judge allowed the counterclaim, but only in part as she found in favour of the Respondent in relation to certain disputes of fact. Her written judgment was published as Ding Pei Zhen v Yap Son On [2015] SGHC 246 (“the Judgment”). Dissatisfied, the Appellant challenges the Judge’s construction of the Allotment Agreement as well as her findings on the counterclaim.

In this appeal, we take the opportunity to underscore the importance of conceptual clarity, evidentiary discipline, and procedural rigour in the process of contractual interpretation. In Sembcorp Marine Ltd v PPL Holdings Pte Ltd and another and another appeal [2013] 4 SLR 193 (“Sembcorp Marine”), we warned that the modern contextual approach towards contractual interpretation could lead to greater uncertainty and a needless increase in the cost of litigation if parties treated the contextual approach as giving a “licence to admit all manner of extrinsic evidence” (at [72]). This appeal is a case in point. The Allotment Agreement is an agreement in Mandarin of some 8 handwritten lines at the bottom of a page in a company prospectus. It could not have taken long to draft, but the parties spent eight days on a wide-ranging inquiry into the minutiae of the parties’ commercial dealings in an attempt to construe a single term of the Allotment Agreement. The result, however, was less, rather than more, clarity.

After careful consideration of the parties’ arguments, we allow the appeal in relation to the main claim in full and the appeal in relation to the counterclaim in part. We now give our reasons, beginning with a more detailed recitation of the relevant facts.

Background

The background facts are largely undisputed and were summarised with clarity by the Judge at [5]–[17] of the Judgment. We will only reproduce those aspects which are germane to this appeal. The Appellant, Yap Son On, is a Malaysian businessman who resides in Singapore while the Respondent, Ding Pei Zhen, is a Chinese businesswoman who resides in the People’s Republic of China. They were business partners who agreed to work together with one Mr Xie, a business associate of the Respondent, to procure the listing of some Chinese companies on foreign bourses. Under this arrangement, the present parties would bear the expenses of the listing in return for share capital in the listed entities.

In 2010, the Appellant became acquainted with one Mr Li Wenwen (“Mr Li”), who was the owner of Jinjiang Goldrooster Sports Goods Co Ltd (“Goldrooster Jinjiang”), a sports apparel company operating in the People’s Republic of China. In July 2010, Mr Li contracted with One Capital Group Investment Limited (“One Capital”) – a company solely owned and controlled by the Appellant – to engage the Appellant as a consultant in the intended foreign listing of Goldrooster Jinjiang. This contract was known as the “Listing Agreement” and it provided that One Capital would be paid, among other things, 12% of “[Goldrooster Jinjiang’s] shares of the after-listing total capital.” Mr Li and the Appellant agreed that the Appellant would bear all expenses associated with the listing (“the Listing Expenses”). Separately, the Respondent and Appellant agreed that the Listing Expenses would be apportioned between them on a 60:40 basis and that this would reflect their entitlement to the shares they would eventually acquire in the Goldrooster listed entity (that is to say, the Respondent would be entitled to 60% of those shares while the Appellant would be entitled to 40%).

It was eventually decided that Goldrooster Jinjiang would be listed on the Frankfurt Stock Exchange through a listing vehicle incorporated in Germany (“Goldrooster AG”). On completion of all preparatory work for the listing, Goldrooster AG had an issued share capital of 20 million par value ordinary bearer shares. These shares were held by the following four companies, all of which were incorporated in the British Virgin Islands: Zhuo Wei Investments Limited (“Zhuo Wei”), which held 14.5m shares; Season Market Limited (“Season”), which held 3,005,000 shares; Xanti Investments Limited (“Xanti”), which held 1,247,500 shares; and Fortune United Investment Limited (“Fortune”), which held 1,247,500 shares. Mr Li was the ultimate owner of Zhuo Wei whereas the Appellant was the ultimate owner of the remaining three companies. The three companies owned by the Appellant were referred to collectively as the “Yap Companies”. At this point, the Yap companies held a total of 5.5m shares in Goldrooster AG, which represented 27.5% of the issued share capital.

On 18 May 2012, Goldrooster AG was successfully listed and an initial public offering (“IPO”) of 5m shares was made of which 720,026 shares were subscribed for. This took the total number of shares in Goldrooster AG to 20,720,206 (“the post-listing shares”). Goldrooster AG’s listing prospectus (“the Goldrooster Prospectus”) is of particular significance to this dispute and we reproduce the relevant section of it below (we have added the shaded row to set out the percentage shareholding of the Yap Companies in each of the different scenarios listed in the prospectus):

SHAREHOLDER STRUCTURE

The following table provides an overview of the shareholding structure and the participation of the shareholders in the share capital of [Goldrooster AG] prior to the Offering and upon completion of the Offering assuming the placement of all of the Offer Shares.

Name	Shareholdings before the Offering (percentage and number of shares)	Shareholdings following completion of Offering (without exercise of Greenshoe Option)	Following completion of Offering (with full exercise of Greenshoe Option)
Zhuo Wei Investments Limited	72.50% 14,500,000	58.00% 14,500,000	58.00% 14,500,000
Season Market Limited	15.025% 3,005,000	12.02% 3,005,000	10.37% 2,592,500
Xanti Investments Limited	6.2375% 1,247,500	4.99% 1,247,500	4.315% 1,078,750
Fortune United Investment Limited	6.2375% 1,247,500	4.99% 1,247,500	4.315% 1,078,750
Shareholding of Yap Companies (%)	27.5%	22%	19%
Free Float	0% 0	20.00% 5,000,000	23.00% 5,750,000
Total	100.00% 20,000,000	100.00% 25,000,000	100.00% 25,000,000

Two points should be noted. The first concerns the third column of this table. If all the 5m shares made available in the IPO had been sold, Goldrooster AG would have had a total issued share capital of 25m shares (“estimated post-listing shares”) of which 22% would been owned by the Yap Companies. The second concerns the so-called “Greenshoe Option” which was referred to in the third and fourth columns of the table. This was an overallotment provision in the IPO which would be triggered if Goldrooster AG’s shares were oversubscribed. In such a scenario, the Yap companies would have to yield up to 750,000 shares of the 5.5m shares which they held at that time (3% of a projected maximum share capital of 25m shares) for public subscription, taking their shareholding in Goldrooster AG down to 4.75m shares, which would be 19% of the total. As will become clear in the course of this judgment, the figures of 22% and 19% are of great significance to this dispute. In the event, the Greenshoe Option was not exercised due to the low demand for the shares.

After the listing, the parties could not agree on how their respective shareholdings were to be distributed. On 15 June 2012, they met together with Mr Xie in China to work out how they would distribute the shares (“the June Meeting”). This was when they concluded the Allotment Agreement. It was literally an annotation written in Mandarin at the bottom of the page of the Goldrooster Prospectus containing the table reproduced above. There was no dispute as to its authenticity or as to its translation, which is as follows:

[Yap Son On]: For Ding Peizhen’s investment in Jinjiang Goldrooster Co, her shareholdings after listing in Germany is confirmed as follows:

Total 19%

Ding Peizhen confirmed holding 10.35% in Goldrooster Co, to be gradually held on behalf by...