High Court · Decided 9 April 2012

Cherie Hearts Group International Pte Ltd and others v G8 Education Ltd

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[2012] SGHC 70Case no. Suit No 211 of 2011

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Judith Prakash J:
Introduction
[1] This case concerns an attempted acquisition of a Singapore business by an Australian listed company. The Australian company still wishes to buy the Singapore business and in fact has taken over the running of much of its operations. The Singaporeans involved, however, no longer want to proceed and wish to take back the business.
Parties to the dispute
[2] The Australian company, which is listed on the Australian Securities Exchange, is G8 Education Limited (“G8”), the defendant in this action. It is in the business of operating childcare centres in Australia. The officers of G8 who generally controlled and conducted G8’s dealings in Singapore are Jennifer Joan Hutson (“Ms Hutson”), the chairman of G8, and Christopher John Scott (“Mr Scott”), G8’s managing director.
[3] The business which G8 wished to acquire was that conducted in Singapore by Cherie Hearts Group International Pte Ltd (“CHG”). CHG is the first plaintiff in this action. The second and third plaintiffs are Yap Soon Guan (“Dr Yap”), and Gurchran J Singh s/o Amer Singh (“Dr Singh”) respectively, who are the founders of CHG and two of its directors and shareholders. The third director of CHG is Wenda Ng Li Ha (“Ms Ng”).
[4] CHG was incorporated in Singapore on 18 September 2007. It is the holding company of a large chain of childcare centres, identified as “Cherie Hearts” childcare centres. Its subsidiaries include the wholly owned Cherie Hearts Child Development Pte Ltd (“CHCD”) which is in turn the sole shareholder of Cherie Hearts Childcare Services Pte Ltd (“CHCCS”). In addition, CHG had franchise arrangements with other childcare centres which were entitled to use the words “Cherie Hearts” as part of their names and to adopt CHG’s style of operation in return for payment of a franchise fee. In the action, the plaintiffs referred to the various entities which operated under the “Cherie Hearts” banner and which were the subject of the transaction with G8 as “the Cherie Hearts Group”.
[5] G8 owns three Singapore companies which were set up for the purposes of its takeover of the business of CHG. The first of these is G8 Education Singapore Pte Ltd (“G8 Singapore”) which was incorporated on 19 October 2010. G8 Singapore in turn has two subsidiaries, Cherie Hearts Corporate Pte Ltd (“G8 CHC”) which was incorporated on 11 November 2010 and Cherie Hearts Holdings Pte Ltd (“G8 CHH”) which was incorporated on 22 October 2010.
Background
Negotiations and documentation
[6] In 2001, Dr Yap and Dr Singh set up a childcare centre. This business thrived and in the years that followed they acquired more childcare centres and expanded their business to include franchised childcare centres, childcare teaching and training centres and enrichment centres. In 2007, CHG became the holding company for all their businesses; by that time, they had acquired other directors and shareholders but the majority of the shares remained held by Dr Yap, Dr Singh and Ms Ng.
[7] In June 2010, discussions started between Dr Yap and Mr Scott on the possibility of G8 acquiring CHG. At that time, Dr Yap represented that the Cherie Hearts Group was profitable, although it owed approximately $4.5m to private equity funds namely, Tembusu Growth Fund Limited (“Tembusu”) and The Enterprise Fund II Limited (“Crest”).
[8] Negotiations followed which led to various agreements over the following months. The nature of the transaction changed as the months wore on. The earlier agreements were superseded but it may be helpful, in view of the parties’ submissions, to give an account of them as well as of those that presently govern the parties’ relationship.
[9] The first of these agreements was a document dated 30 June 2010 entitled “Heads of Agreement”. It was made between G8 and Dr Yap in respect of a “Proposed Transaction” (defined as the acquisition by G8 of all the ordinary shares in CHG and its related companies). The Heads of Agreement provided that no legal obligation would arise until transaction documents which would implement the Proposed Transaction were signed. The Heads of Agreement indicated that G8 would pay the following in relation to the Proposed Transaction: a sum of $36.2m for the shares (of which $14.7m would be used to settle certain “Excluded Liabilities” (ie indebtedness of the Cherie Hearts Group)) and a sum of $13.8m to Dr Yap and Dr Singh in consideration of their agreement to remain and manage the operation for three years. The total amount payable by G8 would, therefore, be $50m.
[10] The Heads of Agreement was followed in August 2010 by a “Share Sale Agreement” between G8 as purchaser and Dr Yap and Dr Singh as sellers. By this agreement, the sellers agreed to sell 100% of the ordinary shares in the Cherie Hearts Group for $32m which included a sum of $18.06m to be used to pay the “Excluded Liabilities”. Another $13m was to be paid as bonus to Dr Yap and Dr Singh in the event that certain earnings targets were met. A separate document (the “Bonus Deed”) was signed between the same parties to reflect this agreement. Accordingly, the total value of the transaction was reduced to $45m.
[11] The parties knew that CHG needed funds to pay off Tembusu and Crest so that these parties would no longer have any interest in the Group. Therefore, it was provided by cl 2.1 of the Share Sale Agreement that completion under that agreement was conditional upon, inter alia, G8 advancing $5m to CHG for agreed purposes not later than 21 September 2010 provided that a satisfactory loan agreement and security documents were executed prior to disbursement of the loan. On 17 September 2010, an agreement (“the Loan Agreement”) between CHG and G8 was executed. This agreement provided for G8 to extend a loan facility of up to $5m to CHG for the purpose of repaying its existing liabilities to Tembusu. As security for this facility, on the same day, CHG executed a debenture (the “Debenture”) in favour of G8 whereunder it granted fixed charges and legal mortgages over various specified assets to G8 as well as a floating charge over all its undertaking and its assets, both present and future. The assets pledged included shares in CHG’s subsidiaries. Dr Yap and Dr Singh also provided a personal guarantee to G8 in respect of the indebtedness. The Loan Agreement provided that the loan was to be repaid on the Repayment Date, which was defined as “31 December 2010, or such earlier date as may be agreed in writing between the Parties, or such earlier date pursuant to a notice issued by the Borrower to the Lender to repay the loan”.
[12] On 7 October 2010, CHG and G8 entered a document entitled “Variation of Loan Agreement” (“First Loan Variation”). This document provided, inter alia, that the loan facility would be increased from $5m to $6,888,000. About a week later, on 15 October 2010, another document entitled “Variation of Loan Agreement” (“Second Loan Variation”) was concluded. By the Second Loan Variation, the loan facility was increased to $16,044,000 and further amendments were made to the Loan Agreement.
[13] In the meantime, G8’s auditors were undertaking a review of the accounts of CHG and its related companies in order to satisfy the due diligence requirements of the Share Sale Agreement. It became clear that certain accounts could not be verified and this would make it difficult for CHG to meet the conditions for completion. The parties then renegotiated the terms of the acquisition and it was decided that instead of taking over the shares of the various companies, G8 would purchase the businesses of the Cherie Hearts Group. This agreement was embodied in a document called the “Business Acquisition Contract” (“the BAC”) which was signed sometime in mid October 2010 and dated 28 October 2010. The parties to this document were CHG and 19 other entities listed in Schedule 1 as sellers (collectively, “the Sellers”), G8 as buyer, and Dr Yap and Dr Singh as covenantors. At about the same time, G8, Dr Yap and Dr Singh entered into a separate agreement to assist G8 in acquiring the businesses of childcare centres that were not part of the Cherie Hearts Group. This agreement, the “M&A Deed” was dated 27 October 2010. The premise of the M&A Deed was that Dr Singh and Dr Yap had a business network which would help G8 acquire additional childcare centres. The Share Sale Agreement was thus superseded.
[14] The change in structure and documentation was not intended to affect the maximum consideration to be paid by G8. The BAC provided for the sale of all of the businesses of the Cherie Hearts Group by CHG to G8 for a purchase price of $24,610,027 (the “Purchase Price”). Under the M&A Deed, G8 was to pay Dr Yap and Dr Singh a sum of up to $7.39m for identifying and assisting G8 finalise other childcare centre acquisitions in Singapore. Finally, under the Bonus Deed, amounts of up to $13m would continue to be payable. Under the new arrangements, the total amount to be paid by G8 could still come up to $45m provided certain targets were met.
[15] The Sellers under the BAC were, at the time, operating 18 childcare centres. In the documentation, these were divided into one centre operated by CHCD (referred to as the Limau Centre), 10 Other Centres which were operated by companies in which CHCD had an interest and 7 AO Centres which were operated by companies in which CHCCS had an interest. It was agreed in the BAC that CHCD would acquire the rest of the shares in each of the entities that operated the Other Centres so that they would become wholly owned subsidiaries of CHCD. It was also agreed that CHCCS would acquire the legal and equitable ownership of all the shares in the entities operating the AO Centres so that they would become wholly owned subsidiaries of CHCCS.
[16] The structure contained in the BAC was the final structure adopted by the parties to implement their intentions regarding the sale of the businesses of the Cherie Hearts Group to G8. Later, a number of supplemental and amending documents were concluded to modify details of the structure.
[17] On 22 November 2010, CHG and G8 executed the “3 Deed of Variation of Loan Agreement” (“Third Loan Variation”) which reduced the loan facility to $10,804,082 from $16,044,000. The Loan Agreement was also further amended. On the same date, the various parties to the BAC executed a “Deed of Variation to Business Acquisition Contract” (“First BAC Variation”) amending various terms of the BAC. A third document was executed on 22 November 2010 ie a “Deed of Assignment of Franchise Agreements” (“Franchise Deed”) made between CHCD and G8 CHH.
[18] The next set of changes came in January 2011. On 22 January 2011, the relevant parties executed, inter alia, a “2 Deed of Variation of the Business Acquisition Contract” (“Second BAC Variation”) and a “Deed of Variation to Deed to the M&A Deed” (“M&A Variation Deed”). On 27 January 2011, G8 and Dr Yap and Dr Singh entered into a new deed (the “New Bonus Deed”) to provide for the payment of the bonus to the two men as the Bonus Deed had been rendered ineffective when the Share Sale Agreement was superseded by the BAC.
Relevant terms of the documentation
[19] I will start with the loan documentation. The initial purpose of the loan facility was to help CHG pay off its indebtedness to Tembusu. The First Loan Variation increased the facility so that CHG would additionally be able to repay its indebtedness to Crest. Thus, by the Loan Agreement and the First Loan Variation, G8 agreed to advance monies to CHG to settle its indebtedness to the private equity funds who had financed it.
[20] The Second Loan Variation increased the facility further for the following additional purposes:
(a) a total of $4,970,000 was to be advanced to CHG to help it “finalise the acquisition of 100% of the AO Centres”;
(b) a total of $2,186,000 was to be advanced to CHG to help it “finalise the acquisition of 100% of the issued share capital in the Cherie Hearts Group Subsidiaries that own the Other Centres”; and
(c) a total of $2m was to be advanced to CHG for working capital.
In the Second Loan Variation, the term “Cherie Hearts Group” was defined to mean CHG and all companies which CHG owned or was entitled to own 20% or more of the issued share capital. Thus, the Second Loan Variation documented G8’s willingness to assist CHG in acquiring certain businesses which the Sellers had agreed to sell to G8 under the BAC.
[21] Under the BAC, the Sellers agreed to sell the “Businesses” to the buyer. The “Businesses” meant:
[22] The BAC provided that G8 must buy the Businesses for “the Purchase Price” on “Financial Close” and free of security interests. Clause 2.2 dealt with the Purchase Price and provided as follows:
The BAC defined “Financial Close” as 1 January 2011 or such earlier date as might be agreed by the parties. The term “Total Indebtedness” was defined as the sum total of CHG’s liabilities to G8 arising out or in connection with the loan under the Loan Agreement.
[23] It should be noted that in order to operate a childcare centre in Singapore, the operator needs a Child Care Centre Licence (“Licence”) issued by the Ministry of Community Development, Youth and Sports (“MCYS”). CHG and its related companies held such Licences and at the time that the parties contemplated a sale of shares, there was no need to apply for new Licences although an application had to be made to MCYS for approval of the proposed changes in the shareholders of the various childcare centres. Once it was decided, however, that the businesses were to be acquired, new Licences had to be applied for in the name of the intended operator of the childcare centres. It was therefore provided that completion under the BAC was conditional on MCYS providing written approval for G8 to hold a Licence to operate each relevant childcare centre. Two other conditions precedent were first, that the sellers had to acquire the seven AO Centres for $4,970,000 (at cl 3.1(d)) and, second, that the sellers had to acquire and pay for “all the currently unpaid shares in the Other Centres” for $2,160,000 (at cl 3.1(e)).
[24] Another important condition precedent had to do with payment of loan monies. Under cl 3.1(a) it was provided that completion was conditional upon:
It should be noted that the Sunset Date was defined as “31 March 2011”.
[25] There are various other clauses of the BAC which parties invoked in the course of the submissions. It is, however, sufficient at this stage to note that the BAC included a clause stating that it could only be amended by written document signed by the parties or their solicitors and another stating that it superseded all previous agreements about the subject matter and embodied the entire agreement between the parties.
[26] About a month later, the documentation was revised with parties executing the Franchise Deed, the Third Loan Variation and the First BAC Variation.
[27] The First BAC Variation changed the manner of payment of the purchase price. Clause 2.2 of the BAC was amended to read as follows:
I will for convenience refer to the last paragraph quoted above as the “Original Second Rider”.
[28] Clause 3.1(a) of the BAC was amended to provide that the amount which G8 had to advance to CHG for agreed purposes was $10,804,082 instead of $16,018,000. The amended cl 3.1(a) also provided:
At this stage, there was no change in the definitions of “Financial Close” or “Sunset Date”.
[29] The parties had also agreed at this point that CHCD would assign all its rights, entitlement and interest in respect of 48 franchised childcare centres to G8 CHH and this was reflected in the Franchise Deed. Clause 4.1.1 of the First BAC Variation provided for a setoff of $7,172,504 owing to G8 on the assignment of the franchise agreements to G8 CHH. The clause read:
[30] The Franchise Deed was made between CHCD as assignor and G8 CHH as assignee. It dealt with the Franchise Agreements (ie the franchise agreements between CHG and the owners of the franchise child care centres set out in Schedule 2 of the First BAC Variation). It provided that in consideration of G8 CHH releasing the sum of $1.5m to CHCD as part of the Purchase Price as defined in the BAC, CHCD assigned to G8 CHH all its rights, entitlement and interest in the Franchise Agreements with effect from 1 December 2010.
[31] The Third Loan Variation reflected the changes which were contained in the First BAC Variation. First, it reduced the maximum loan amount from $16,044,000 to $10,804,082. Clause 4.1(d) of the Loan Agreement was amended to provide that the maximum amount to be advanced to CHG to acquire 100% of the shares in the entities owning the AO Centres was $2,155,000 (instead of the earlier amount of $4,970,000). Clause 4.1(e) of the Loan Agreement was amended to provide that the maximum amount to be advanced to CHG to acquire the shares of the subsidiaries owning Other Centres was $734,400 (instead of $2,186,000). Additionally, G8 agreed to lend CHG a sum of $350,000 to enable the latter to finalise the acquisition of the remaining issued share capital in a company called “Our Juniors’ School House Pte Ltd”.
[32] Second, the Third Loan Variation also provided for a partial repayment of the Total Indebtedness by a set off to be effected when CHG caused 48 Franchise Agreements to be assigned to G8 CHH or another entity nominated by G8. The new cl 5.2 which was inserted into the Loan Agreement repeated what had been said in the First BAC Variation ie that in the event that CHG caused 48 Franchise Agreements to be assigned to G8 CHH with effect from 1 December 2010, the sum of $7,172,504 would be deemed to be fully paid and off-set against the Total Indebtedness.
[33] Due to developments which I will recount below, further changes were made to the documentation in January 2011. Three documents were executed but only the Second BAC Variation needs to be dealt with at this juncture.
[34] First, there were some changes in the definitions of terms in the BAC. The term “Financial Close” was amended to mean “the earliest date where all the AO Centres and Other Centres have been given OBLS approval for the transfer to the Buyer’s nominated entity, or such other date as agreed by the parties”. Similarly, the Sunset Date was amended to mean “30 April 2011”.
[35] Second, cl 2.2 of the BAC relating to payment of the Purchase Price was further amended to read as follows:
This was an important amendment as one of the central issues to be determined in this case is the true interpretation of this amended cl 2.2 and in particular that of the second proviso reproduced above in italics. This proviso was referred to by the parties as “the Amended Second Rider” and I will use that term in this judgment as well.
[36] Third, another significant amendment was made by the addition of a new cl 3.3 to the BAC. This new clause provided:
[37] The new cl 3.3 of the BAC was also reflected in amendments made to the M&A Agreement on 22 January 2011. The Deed amending the M&A Agreement (the “M&A Variation”) which was signed by Dr Yap, Dr Singh and G8 provided that:
(a) The performance of the M&A Deed by both parties would commence upon any part performance of the BAC or after 1 February 2011 whichever was the earlier;
(b) G8 would purchase the business of each childcare centre identified and presented by Dr Singh and Dr Yap on the basis of a purchase price determined according to a prescribed formula unless after carrying out due diligence over 14 days G8 rejected the childcare centre on reasonable grounds;
(c) G8 would pay Dr Singh and Dr Yap $1m when an aggregate consideration of $5m had been achieved for executed sale and purchase agreements for childcare centres purchased pursuant to the M&A Deed or upon Financial Close whichever was the earlier; and
(d) Dr Singh and Dr Yap would be entitled to receive a maximum consideration of $7.39m for identifying childcare centres which G8 subsequently successfully acquired.
Events and attitudes after November 2010
[38] It is not possible at this stage to give a completely objective account of the reasons that led to the contents of the documents which were concluded in November 2010 and January 2011. Each party has proferred a version. Therefore, in what follows, I will indicate where I am putting forward the perspective of any particular party.
[39] The plaintiffs say that it is clear that under the BAC read together with the Second Loan Variation it was agreed that:
(a) G8 would advance a total of $4,970,000 for the payments required to finalise the acquisition of all shares in the entities owning the AO Centres and $2,186,000 for the payment required to finalise the acquisition of all shares in the entities owning the Other Centres;
(b) Licences required to operate each of the AO Centres and the Other Centres would be issued to the relevant “Cherie Hearts companies” meaning the companies that owned the OA Centres and the Other Centres prior to the BAC; and
(c) Consents from landlords would only be required for the relevant Cherie Hearts companies to operate the AO Centres from the landlords’ premises.
[40] As a consequence of this understanding, in mid October 2010, CHG began to lodge applications on the Online Business Licensing Service (“OBLS”) for the issue of the Licences to Cherie Hearts companies for the operation of the child care centres.
[41] Then, on or about 8 November 2010 G8 informed the plaintiffs that it wanted to reduce the amounts that it had agreed to disburse under the Second Loan Variation and also wanted its subsidiary G8 CHC to be issued with the Licences and to be given the respective landlords’ consents to operate the AO Centres and the Other Centres from the landlords’ premises. G8 also wanted CHG to provide, as security, executed but undated share transfer forms and share certificates for 100% of the issued share capital in the entities that owned the AO Centres and the Other Centres. Ms Hutson’s explanation for the changes in the transactions was that at about that time G8 had discovered that CHG had serious cashflow difficulties and therefore, for its own protection, G8 wanted to convert the loans that it had extended up to that point into hard assets. Consequently, G8 proposed that the 48 Franchise Agreements be transferred as consideration to be set off against the existing loan. The set off amount of about $7m was, Ms Hutson maintained, not a valuation of the Franchise Agreements but based on the amount which had been lent to CHG and interest which had accrued thereon as of November 2010. Dr Yap agreed that the $7m did not reflect the true value of the 48 franchised child care centres.
[42] The plaintiffs say that although G8 wanted to reduce the amounts that it had agreed to disburse and also wanted further security, CHG had no choice but to go along with the changes because it had been in negotiation with the shareholders of the entities that owned the Other Centres and had already reached in principle agreements with them to acquire the rest of the shares in those entities.
[43] It was against this background that the various amending documents were executed on 22 November 2010.
[44] The MCYS has “Guidelines on Transfer of Ownership” which lay down the requirements to be fulfilled when a new Licence has to be issued because the ownership of a childcare centre has been transferred. Typically, it takes approximately two to three months to fulfil these requirements because not only does an application (accompanied by many supporting documents) have to be made under the OBLS but also there is generally a pre-licensing visit by a child care officer from MCYS who will check if the childcare centre meets the prescribed standards. The evidence was that generally, if an application was acceptable, it would at first be approved on the OBLS (“OBLS Approval”) but that the hard copy Licence would not be issued until after a satisfactory visit to the childcare centre by an MCYS officer had taken place. In some cases, however, the MCYS would waive the requirement for a physical inspection of the childcare centre concerned.
[45] On 3 December 2010, the plaintiffs’ representative met officers from MCYS to find out how they could expedite the application process in respect of the new Licences. They were told that the Transfer of Ownership procedure had to be followed and that because of the approaching holiday season, MCYS did not have sufficient manpower to process the applications for new Licences for 18 childcare centres. The net effect of this, according to Dr Yap, was that even though the plaintiffs started as early as they could to collate the documents necessary for the applications, it was not realistic to expect the Licences to be issued to G8 CHC by 1 January 2011 even though Financial Close remained scheduled for that date.
[46] In December 2010, the parties’ relationship became difficult. From the plaintiffs’ point of view, G8 was evincing reluctance to proceed with its contractual obligation to consider and purchase the childcare centre businesses (referred to by the parties as “the second batch of acquisitions”) which Dr Yap and Dr Singh had sourced for under the M&A Deed. G8’s view was that CHG was not entitled to push for the second batch of acquisitions when it had yet to obtain Licences and lease assignments in respect of the AO Centres and Other Centres. As far as G8 was concerned, the M&A Deed would come into effect only after Financial Close. The parties exchanged correspondence expressing their respective concerns but it is not necessary to go into that correspondence at this point.
[47] New Year’s Day in 2011 came and went without Financial Close taking place. Parties were aware that they had not been able to meet the requirements of the amended BAC and that further amendments needed to be made to the documentation if the transaction was to proceed.
[48] Between 19 and 22 January 2011, the parties entered into negotiations for the second variation of the BAC. The persons present during the negotiations were, from G8, Ms Hutson (who came to Singapore for the meetings) for all meetings and Mr Scott (who was already based in Singapore) for some meetings, and from the plaintiffs, Dr Yap, Dr Singh, Ms Ng and Mr Jimmy Yap for different parts of the meetings. The Second BAC Variation was drafted by Ms Hutson and reviewed by G8’s lawyers.
[49] The more significant provisions of the Second BAC Variation have been described above. In particular, it amended the definition of Financial Close and also the provision governing payment of the Purchase Price. The Sunset Date became 30 April 2011 and a new clause 3.3 was inserted in the BAC to provide for the timing of the second batch of acquisitions. One of the major disputes between the parties arising from the amendments effected by the Second BAC Variation is whether it required CHG to effect legal transfer of the AO Centres and the Other Centres to G8 on 28 February 2011 and whether the conditions precedent to Financial Close would be met simply by lodgement of the applications for the Licences on the OBLS by 28 February 2011 or whether the requirement was for the Licences to be issued in G8 CHC’s name by that date.
[51] On 11 February 2011, Mr Scott informed CHG that he had no objections in principle to replacing the Withdrawn Centres with the Replacement Centres and that G8 would require basic due diligence checks on the Replacement Centres. In the second half of February 2011, G8 entered into sale and purchase agreements directly with the Replacement Centres to acquire their businesses. It should also be mentioned that on 4 March 2011, Ms Hutson wrote that the proposal made by CHG that the Withdrawn Centres be replaced by the Replacement Centres did not raise any conceptual issues. CHG prepared a draft third deed of variation of the BAC to reflect, inter alia, the change in centres and this was sent to G8 on 3 March 2011. It was, however, never signed. The parties are now in dispute over whether there had been an agreement to replace the Withdrawn Centres with the Replacement Centres.
[52] It may be recalled that under cl 2.2 of the BAC as amended, it was provided, inter alia, that:
In his affidavit, Dr Yap explained what the plaintiffs had done prior to 1 March 2011 in relation to the matters covered by this provision.
[53] In particular, the centres to be transferred to G8 CHC (excluding the Withdrawn Centres) operated under two different types of leases. Seven of the centres had leases from the Housing and Development Board (“HDB”). The other eight centres operated in premises leased from private landlords. Dr Yap asserted that CHG had successfully arranged for the novation or transfer of all these tenancies to G8 or G8 CHC by the end of February 2011.
[54] In relation to the seven centres which were tenants of the HDB, the direction of MCYS was that it would inform G8 CHC and CHG to apply to the HDB for the leases to be assigned and that, after the Licences were approved, MCYS would work with HDB to issue the new tenancy agreements to G8 CHC. As for the other eight childcare centres, CHG arranged for G8 CHC to enter into new tenancy agreements for tenancies commencing from 1 March 2011, with all the respective landlords. CHG also arranged for G8 CHC to enter into tenancy agreements with the landlords of the premises from which the Replacement Centres operated.
[55] In relation to its employees who were involved in the direct operations of the childcare centres, CHG had arranged with G8 for the latter to take over the employment contracts of these staff members by 1 March 2011. By 1 March 2011, CHG had also already provided G8 with the entire set of curriculum materials that it had developed for use in all the centres.
[56] In relation to the Licences, Dr Yap pointed out that under cl 11.1 of the BAC, it was G8’s obligation to apply for the Licences and to do all things reasonably necessary to secure approval for the issue of the same. CHG assisted G8 by preparing the applications and filing them. CHG managed to lodge applications for Licences in respect of 15 centres by 16 February 2011. In fact altogether 16 applications were submitted on that date as CHG had also applied for a Licence for one of the Replacement Centres on behalf of G8.
[57] On 25 February 2011, Dr Singh instructed his subordinate, Mr Edmund Phang Chin Sian (“Mr Phang”), to inform MCYS that he did not want the Licences for the AO Centres to be issued. Subsequently, he asked MCYS if it could issue all the remaining Licences on 15 March 2011. CHG’s explanation for this action was that it wanted to streamline the issue of the rest of the Licences so that they would bear the same issue dates and expiry dates.
[58] On 1 March 2011, MCYS approved two applications and issued two Licences. One more application was approved and a further Licence was issued on 2 March 2011. By that date, G8 CHC had Licences for the operation of the child care centre owned by Teeny Tiny Childcare & Development Pte Ltd (“Teeny Tiny”) and the two childcare centres owned by Our Juniors’ Schoolhouse Pte Ltd. The applications for the other Licences remained outstanding. No further Licences were issued on 15 March 2011 nor were further OBLS approvals given by that date.
[59] On 1 March 2011, G8 and/or G8 CHC employed a number of CHG’s former employees including Mr Phang. They also took over the operations of a number of centres. G8, however, took the view that Financial Close had not occurred on 1 March 2011 because of alleged breaches on the part of CHG in failing by that date to procure OBLS approvals of Licences for all 18 centres that should have been transferred and the transfer of the leases for all these centres. To G8, this meant that the Total Indebtedness had not been set off against the Purchase Price on 1 March 2011 and that it remained outstanding.
[60] By March 2011, G8 no longer trusted the plaintiffs. On 2 March 2011, Mr Scott told Ms Hutson that CHG was using the delay in OBLS approval as leverage against G8. He had learnt from Mr Phang that Dr Singh had asked the HDB to date the new tenancy agreements from 15 March 2011 instead of from 1 March 2011. Tensions had arisen between Mr Scott and Dr Singh over the fact that G8 had not taken over all of CHG’s employees. G8 considered that CHG was not prepared for Financial Close and was attempting to delay it. G8 thought that it had to take serious steps to secure its position.
The action
Commencement of legal proceedings
[61] On 10 March 2011, G8’s solicitors, Messrs Harry Elias Partnership, sent a letter of demand to CHG. This letter stated that pursuant to cl 5.1 of the Loan Agreement, CHG had agreed that the loan and other sums owing under the Agreement would be “repaid on the Repayment Date (31 December 2010)”. The letter gave CHG notice that as repayment had not been made by the Repayment Date, pursuant to cl 14.3 of the Loan Agreement, G8 declared the occurrence of an event of default and the Total Indebtedness was immediately due and payable and G8 was entitled to exercise its rights as set out in the Loan Agreement. CHG responded immediately to this letter and stated its position that a valid set off of the Total Indebtedness against the Payment Price had occurred on 1 March 2011 and that there were no monies owing to G8 under the Loan Agreement read with the BAC.
[62] Further correspondence followed. G8 stated its position that without the legal transfer of the businesses of the AO Centres and the Other Centres, there could be no off set against the Total Indebtedness under the Loan Agreement and no partial satisfaction of the Purchase Price. By its letter of 14 March 2011, CHG maintained that it was ready able and willing to effect Financial Close in March 2011 when all the OBLS approvals had been procured. CHG did not disclose that shortly before that date it had requested the MCYS to “hold back” the Licences.
[63] On 22 March 2011, G8 exercised its rights under the Debenture. It appointed receivers of CHG. At the same time, it transferred all shares in 12 subsidiaries of CHG to itself. Simultaneously G8 removed Dr Singh, Dr Yap and one Mr Johnny Phua as directors of said companies and appointed Mr Scott and his wife in their place.
[64] CHG fought back. On 28 March 2011, it filed the writ in this action and applied for an injunction requiring G8 to withdraw the appointment of the receivers. In his affidavit in support of this application, Dr Yap explained that there was what he termed an “Overarching Agreement” between the parties. He stated that the application arose out of the Heads of Agreement concluded on 30 June 2010. Pursuant to subsequent negotiations, G8, CHG, Dr Singh and Dr Yap had entered into an agreement for, inter alia, CHG to sell and for G8 to acquire CHG’s childcare businesses for approximately $50m and this constituted the “Overarching Agreement”. In order to carry out the Overarching Agreement, the parties had later entered into various transaction documents including the BAC which was subsequently varied in November 2010 and January 2011, the Loan Agreement, the M&A Deed and the Bonus Deed.
[65] After hearing the parties, on 14 April 2011, Lee Seiu Kin J made orders to the following effect:
(a) The appointment of the receivers was set aside.
(b) G8 was restrained from appointing receivers pursuant to the debenture dated 17 September 2010 until the trial of the action or until further order.
(c) The transfers of shares in the 12 subsidiaries of CHG were set aside.
(d) All changes in directorships in the subsidiaries were set aside and the directors holding office immediately prior to the date of the purported share transfers were to continue as directors of the subsidiaries.
(e) The plaintiffs were to deliver to G8 in respect of the shares in the subsidiaries share transfer forms executed in blank, directors’ resolutions and share certificates.
(f) G8 was restrained from exercising its security in respect of the shares in the subsidiaries until the trial of the action or further order.
(g) The plaintiffs were to:
(i) collect and pay such monies as they received for the operation of the childcare centres owned by the subsidiaries from 1 March 2011, including, without limitation to the generality thereof, the subsidies from MCYS and the fees from parents, to G8 as soon as practicable and, in any event, within two weeks from the receipt of such monies; and
(ii) allow G8, within one week of G8’s request, reasonable access to all records of the subsidiaries to establish that the monies received for the operation of the childcare centres by the subsidiaries from 1 March 2011 were paid to G8 in accordance with court order.
[66] On 21 April 2011, G8’s solicitors wrote to CHG’s solicitors giving notice that G8 was ready, willing and able to complete the BAC on the Sunset Date, ie, 30 April 2011. The letter also stated that pursuant to cl 3.2(c) of the BAC, CHG’s failure to satisfy the conditions precedent to completion by the date specified in the condition or by Sunset Date would entitle G8 to terminate the BAC.
[67] On 25 April 2011, CHG’s solicitors wrote to G8’s solicitors referring to the Overarching Agreement and the specific agreements that were entered into on the basis of the Overarching Agreement as set out in Dr Yap’s first affidavit dated 28 March 2011. The letter asserted that G8 had committed various acts in or around March 2011 in breach of the Overarching Agreement.
[68] The letter went on to state that the plaintiffs regarded G8’s acts to be repudiatory breaches of the Overarching Agreement. Further, these repudiatory breaches had led to a complete breakdown of the trust and confidence between the parties necessary for the performance of the M&A Deed and the Bonus Deed. On this basis, the plaintiffs accepted the repudiatory breaches and considered the Overarching Agreement and the BAC to be terminated. This was contained in paras 5 and 6 of the letter which read:
The pleadings
The plaintiffs’ case
[69] The reliefs sought by the plaintiffs in this action are the following:
(a) A declaration that G8 is in repudiatory breach of “the Overarching Agreement including the BAC”;
(b) A declaration that the Overarching Agreement was terminated on 25 April 2011 by the plaintiffs’ solicitors’ letter of that date to the defendant’s solicitors;
(c) Damages to be assessed, interest and costs; and
(d) All necessary and consequential orders arising from the termination of the Overarching Agreement.
[70] It is necessary to recite or paraphrase parts of the Statement of Claim so that the way in which the plaintiffs have framed their case can be appreciated.
[71] In para 9, the plaintiffs state:
[72] In para 10, it was pleaded that it was on the basis of the Overarching Agreement that the BAC, the First BAC Variation, the Second BAC Variation, the Loan Agreement, the First Loan Variation, the Second Loan Variation, the Third Loan Variation, the Debenture, the M&A Deed, the M&A Variation Deed, the Bonus Deed and the Deed of Restraint (dated 22 January 2011) were concluded.
[73] Paragraphs 11 to 26 of the statement of claim set out the plaintiffs’ case in relation to the BAC as amended on the basis that the BAC was entered into to carry out the first component of the Overarching Agreement. It set out various relevant terms of the BAC and the various amendments thereto. I need not rehearse these. These paragraphs also dealt with the 48 franchised childcare centres and the Franchise Deed. In para 25, the plaintiffs set out their stand that under cl 2.2(b) of the BAC there was, on 1 March 2011, to be an automatic set off of the monies advanced by G8 against the Purchase Price. Para 25 reads:
In para 26, the plaintiffs assert that it is an implied term of the BAC that no monies can be due and owing to G8 as long as there has not been complete satisfaction of the Purchase Price.
[74] Paragraphs 27 to 28 of the statement of claim set out the plaintiffs’ contention that the M&A Deed and the M&A Variation Deed were entered into to carry out the second component of the Overarching Agreement.
[75] Paragraphs 29 and 30 of the statement of claim set out the plaintiffs’ contention that the Bonus Deed was entered into to carry out the third component of the Overarching Agreement.
[76] The plaintiffs then move on to deal with loan monies disbursed by G8. By para 33 they state that as at 30 November 2010, the total amount disbursed by G8 was $6,904,682 and this carried interest amounting to $267,822. In para 34, they assert that the total sum of $7,172,504 was deemed to be fully paid and set off against the Total Indebtedness on 1 December 2010 upon the assignment of CHCD’s rights, title and interest in and to the 48 franchised childcare centres to G8 CHH.
[77] Paragraphs 35 and 36 set out the amounts disbursed by G8 between November 2010 and March 2011 to assist CHG in becoming the registered shareholder of all the shares in the entities which owned the AO Centres and the Other Centres. Paragraph 37 sets out details of other amounts disbursed by G8 pursuant to the BAC. In para 38, the plaintiffs aver that the total amount disbursed by G8 was $15,365,362 of which the amounts set out in para 33 of the Statement of Claim had been deemed to be fully paid and set off in connection with the assignment of the franchised childcare centres.
[78] In para 39, the plaintiffs aver that G8 did not disburse monies for CHG to become the 100% registered shareholder of a company called “Cherie Hearts School House Pte Ltd” (“CH School House”) despite being reminded to do so.
[79] Paragraph 40 deals with the three Withdrawn Centres. After reciting certain facts, the plaintiffs plead that G8 was estopped from insisting on the transfer of the Withdrawn Centres.
[80] In para 41, the plaintiffs aver G8 took various actions in breach of the Overarching Agreement, including the BAC, in March 2011. The specified acts included the appointment of receivers and the wrongful transfer of shares into G8 CHC’s name.
[81] In para 42, the plaintiffs aver that the appointment of the receivers was done in bad faith and give particulars of this allegation. These breaches by G8 were repudiatory breaches of the Overarching Agreement and had led to a complete breakdown of the trust and confidence between the parties necessary for the performance of the M&A Deed and the Bonus Deed. In para 44, the plaintiffs say that given the above, CHG had, by way of its solicitors’ letter of 25 April 2011, given G8 notice that it accepted the repudiatory breaches and elected to terminate the Overarching Agreement.
The defence
[82] G8’s position is that there is no such thing as an Overarching Agreement. It also denies that it has been in breach of the BAC and that CHG was entitled to repudiate it. It asserts that CHG itself was in breach of certain warranties in the BAC and has set out a counterclaim on this basis. In the account that follows, I will only highlight certain portions of the defence and counterclaim.
[83] In para 2 of the defence and counterclaim, G8 denies the existence of an Overarching Agreement and asserts that all the documents entered into between the parties were separate and distinct agreements. In para 3, G8 denies that the agreements were into to implement “components” of the Overarching Agreement. There was no Overarching Agreement and each of the agreements set out in para 10 of the Statement of Claim were entered into at different times for different purposes incidental to G8’s acquisition of CHG’s childcare business.
[84] In para 4, G8 avers that the Loan Agreement was not initially contemplated by the parties as part of the acquisition process. G8 agreed to lend money to CHG at its request because first, CHG required financial assistance to discharge its outstanding liabilities to Tembusu and Crest so that it could enter into an acquisition arrangement with G8; and second, because by its own means, CHG was unable to acquire the childcare centres for subsequent acquisition by G8.
[85] In para 7 of the defence, G8 asserts that the Purchase Price ($24,610,027) was derived from the plaintiffs’ valuation of the 18 childcare centres set out in para 11 of the Statement of Claim and the 48 franchise agreements (set out in schedule 1 of the Statement of Claim).
[86] In para 6 of the defence, G8 avers that the acquisition was initially intended by the parties to be an acquisition of the shares of CHG. However, due diligence revealed that CHG’s accounts for the years 2008 and 2009 were qualified and the plaintiffs and G8 therefore agreed in the BAC that the acquisition would be of specific businesses and assets of CHG only and not a share acquisition.
[87] Regarding the set off on 1 December 2010 in respect of the 48 franchise agreements, G8 states (para 15) that there was no valuation of the rights, entitlement and interest in the agreements and it had accepted the assignment in exchange for a set off of $7,172,504 advanced to CHG under the Loan Agreement as CHG had no other means to repay the sums due.
[88] G8’s reply to one of the main planks of the plaintiffs’ case ie that the Total Indebtedness was set off on 1 March 2011 is contained in para 16 of the defence and counterclaim. This reads:
[89] G8 denies (para 17) that there was any implied term in the BAC and refers to cl 20.11 of that document which is the entire agreement clause. It also contends that such an implied term would be contrary to the parties’ intentions.
[90] G8 disagrees with the plaintiffs’ calculations as to how much had been advanced under the Loan Agreement. According to it (para 38), excluding the amounts set off at the time of the Franchise Deed, the Total Indebtedness as at 30 April 2011 was $6,187,949.72 including interest (if interest is excluded, the amount advanced came to $5,703,180).
[91] G8 avers that with regard to two AO Centres (referred to as “the Gloryland Centres”), the money disbursed by it to CHG under cl 4.1(d) of the Loan Agreement had not been paid or relayed by CHG to the beneficial owners of the Gloryland Centres by 28 February 2011 in full or at all (para 22A). It explains in para 24 why it had not disbursed monies for the purchase of shares in CH School House.
[92] Regarding the Withdrawn Centres, G8’s position (para 25) is that it had not agreed to replacing them with the four Replacement Centres. CHC had entered into the sale and purchase agreements with the owners of the Replacement Centres on the basis that they were acquisitions under the M&A Deed and not that they were replacements for the Withdrawn Centres. G8 denies that it was estopped from exercising its contractual rights under the BAC to demand the legal transfer of all 18 OA Centres and Other Centres including the Withdrawn Centres.
[93] G8 denies (para 26) that its actions in demanding repayment of the Total Indebtedness and enforcing its security for the same were in breach of contract. Its position is that it was entitled to effect such actions because the Total Indebtedness was outstanding and had not been set off on 1 March 2011 due to CHG’s inability to satisfy the conditions for Financial Close. It also denies that these acts amounted to repudiatory breaches of the BAC.
[94] In relation to the plaintiffs’ allegation of bad faith, G8 denies this and avers, inter alia, (para 28):
(a) The appointment of receivers only served to protect G8’s legitimate commercial interest in seeking repayment of the Total Indebtedness;
(b) The 18 AO Centres and Other Centres were not legally transferred to G8 by 1 March 2011 as required by cl 3.3 of the BAC;
(c) CHG had failed to deliver the Withdrawn Centres and the purported transfers of Other Centres were incomplete as the leases had not been assigned and the Licences had not been issued by the specified date;
(d) G8 did not obtain substantial benefit of the acquisition that had been unilaterally aborted by the plaintiffs.
[95] The rest of the defence contains the allegations which G8 has made in support of its counterclaim. I do not need to deal with those in this judgment.
[96] The plaintiffs filed a reply and defence to counterclaim. I do not need to set out the particulars of the same.
Bifurcation of the trial
[97] The proceedings were conducted on an expedited basis because the plaintiffs wanted to recover total control of the childcare centres and CHG’s business from G8 as soon as possible. At a pre-trial conference held on 4 July 2011, directions were given for the exchange of affidavits and trial dates were fixed between 5 and 16 September 2011. Subsequently, G8 applied for the trial dates to be vacated because it needed more time to obtain discovery from the plaintiffs in relation to the counterclaim. G8 was not successful in having the whole trial vacated but, on 18 August 2011, the court ordered that only the plaintiffs’ claim would proceed for trial between 7 and 16 September 2011 and G8 would be given further dates for the trial of the counterclaim.
[98] Accordingly, the proceedings conducted before me from 7 September 2011 onwards dealt only with the plaintiffs’ claim and this judgment will be restricted to that claim without any consideration of the counterclaim.
Issues, submissions and analysis
Issues
[99] The plaintiffs have, more or less but not completely clearly, identified the issues in these proceedings as follows:
(a) The central issue is whether there had been a set off of the Total Indebtedness as at 1 March 2011 (this is the only issue clearly formulated as an issue by the plaintiffs);
(b) If there was no set off as at 1 March 2011, whether the Total Indebtedness had become due and owing;
(c) Whether G8 was in repudiatory breach of the BAC; and
(d) Whether the Overarching Agreement, including the BAC, had been terminated by reason of G8’s breaches.
[100] G8 contended that the issues are as follows:
(a) Was there an Overarching Agreement in fact or in law;
(b) Was the Total Indebtedness under the Loan Agreement due and outstanding;
(c) Did a legal set off occur on 1 March 2011; and
(d) Did the plaintiffs lawfully terminate the Loan Agreement, BAC, M&A Deed and Bonus Deed on 25 April 2011?
[101] Although the Overarching Agreement was emphasised in the plaintiffs’ pleadings, in their closing submissions, they used it as background to explain the various transactions. They did not deal in detail with whether this construct of the “Overarching Agreement” met the legal requirements necessary for it to be a binding contract. That issue was assumed to have been decided in its favour. However, I think that I should consider that issue first as its outcome may affect consideration of the other issues. As regards the other issues, it appears to me that they should be formulated as follows and considered in the following order:
(a) What is the true construction of cl 2.2(b) of the BAC and in particular the Second Amended Rider;
(b) Whether on that true construction, there was a set off of the Total Indebtedness against the Purchase Price on 1 March 2011;
(c) If there was no set off of the Total Indebtedness on 1 March 2011, was the Total Indebtedness then due and payable;
(d) Were G8’s actions after 1 March 2011 in breach of contract and if so would such breaches be considered to be repudiatory breaches of the BAC;
(e) Did the plaintiffs lawfully terminate the BAC, Loan Agreement, M&A Deed and Bonus Deed on 25 April 2011?
Was there an Overarching Agreement?
[102] As all lawyers know, for a contract to exist, the following elements must be present: identified parties, agreed terms, consideration and an intention to create legal relations. I will consider the issue of whether the Overarching Agreement exists by reference to these elements.
[103] The plaintiffs’ position is that the parties to the Overarching Agreement are CHG, Dr Yap, Dr Singh and G8. As for the terms, the plaintiffs did not identify terms as such. Instead, they identified “components” which they elaborated referred to as being:
(a) The acquisition of the business of the Cherie Hearts Group;
(b) The acquisition of other childcare centres; and
(c) Bonus payouts to Dr Singh and Dr Yap.
According to the plaintiffs, it was in order to effect those components that the various written agreements were concluded subsequently. The plaintiffs did not specify any other terms of the Overarching Agreement though one might have expected there to be some basic details of pricing, amounts payable and in what stages, and completion targets. The absence of agreed and identifiable terms is, in my opinion, a significant pointer to the non-existence of the Overarching Agreement. As for consideration, though the plaintiffs did not deign to specify the same, it is possible they would argue that the consideration would be mutual promises by each set of parties to the other to take the necessary action to give effect to the components. Since they made no such contention, however, I will not examine it further.
[104] Then we come to the requirement of intention to create legal relations. The plaintiffs have not clearly specified how this intention was manifested. First, the plaintiffs did not specify a date on which the parties agreed that the Overarching Agreement had been concluded with its agreed terms. It was only pleaded that “from September 2010” the parties had entered into the Overarching Agreement. This is vague to say the least since the parties were in talks from June 2010 onwards and had no difficulty signing documents to reflect their negotiations in June, September, October, and November 2010 and in January 2011. If the plaintiffs want to establish the existence of the Overarching Agreement, it is incumbent on them to show when the parties were ad idem on the terms so that that Agreement came into existence. They did not do so.
[105] In this vein, it is significant that, as G8 pointed out, there was no reference to the existence of the Overarching Agreement before the litigation started. No one mentioned this agreement during the negotiations nor was it mentioned in any piece of correspondence prior to the litigation. Even in March 2011 when CHG was disputing the defendant’s right to declare an event of default under the Loan Agreement, it did not invoke the Overarching Agreement as a contract which prohibited the defendant from acting as it sought to do. The “Overarching Agreement” first saw the light of day in the writ in this action filed on 28 March 2011. It is also interesting that when the plaintiffs’ witnesses were asked in court the date on which the Overarching Agreement came into existence, they gave different responses. Dr Yap said at one point that it was formed in 2010 whereas at another point he said it came about in August 2010. Dr Singh and Ms Ng also gave two dates. Dr Singh said 30 June 2010 and 15 October 2010 while Ms Ng said August 2010 and June 2010. As G8 submitted, if the plaintiffs’ witnesses are unable to give one coherent date when the Overarching Agreement commenced, then more than likely, it does not exist.
[106] Second, the absence of any intention to enter legal relations in the form of an oral Overarching Agreement is manifested by the presence in the BAC, the M&A Deed and the Bonus Deed of an “entire agreement” clause. None of these agreements contain any term indicating that they were entered into as a component of the Overarching Agreement. Instead, the recitals of these agreements spell out the specific purposes for which the same were concluded and do not either expressly or impliedly mention the Overarching Agreement. In fact, the purpose and effect of an “entire agreement” clause negates the existence of an overarching agreement in the terms asserted by the plaintiffs. The purpose of such a clause is to show that the full contractual terms to which the parties have agreed are contained in the written document. This was well put by Lightman J in Inntrepreneur Pub Co (GL) v East Crown Ltd [2000] All ER (D) 1100 when he said at [8]:
[107] In the present case, cl 20.11 of the BAC provided that it superseded all previous agreements about its subject matter and embodied the “entire agreement” between the parties. All the plaintiffs (in addition to the other 19 Sellers) and G8 were parties to the BAC; accordingly, as between the plaintiffs and G8, the “entire agreement” clause must have the effect of superseding any other oral agreement amongst them regarding the acquisition of the businesses of the Cherie Hearts Group. The same observation can be made in respect of the M&A Deed and the New Bonus Deed. Indeed the “entire agreement” clauses in the M&A Deed and the New Bonus Deed go even further in that the same also state that any previous understanding or agreement relating to the subject matter of the M&A Deed/New Bonus Deed has been replaced by the M&A Deed/New Bonus Deed and has no further effect. If an overarching agreement did exist which contained a term relating to the acquisition of other childcare centres or to the payment of bonus, then that agreement would have ceased to have any effect when, respectively, the M&A Deed and the New Bonus Deed were concluded.
[108] Bearing in mind that all the parties had access to legal advice, if the Overarching Agreement existed and had been intended to continue to have effect, it would either have been mentioned in subsequent agreements or, at the very least, the respective entire agreement clauses would have been left out or modified in some fashion. Further, the parties had painstakingly and purposefully entered into multiple deeds of variation of the specific agreements in order to record the agreed variations to the original terms. There was no initial term let alone a variation to reflect that the parties were contracting on the fundamental basis of an overarching agreement.
[109] It appears to me on the evidence and on the law that G8 and the plaintiffs never entered into an oral agreement in terms of the Overarching Agreement. The factual situation was that G8 was extremely interested in getting into the childcare industry in Singapore and Dr Singh and Dr Yap were similarly extremely interested in selling their childcare business for a good figure to G8. That was why the Heads of Agreement was signed in June and the Share Sale Agreement was entered subsequently. That was also why when the Share Sale Agreement could not be completed due to the absence of audited accounts, the parties negotiated to find a different way of accomplishing their aim. In the course of these negotiations, the structure of the deal changed, the amounts involved changed and the parties involved changed. The fact that the parties were eager to accomplish a transfer of the childcare business from one to the other does not lead to a finding that there was an oral agreement to accomplish this when the parties were at the same time very careful to document all the terms on which they agreed and to execute such documentation. When parties are so concerned with proper documentation that all agreed variations are cast into the form of an amending deed, it is against the balance of probabilities that such parties would at the same time be operating under the umbrella of an oral Overarching Agreement. I agree with the defendant’s submission that the “three components” of the Overarching Agreement were constructed ex post facto and that there was no evidence to show that the parties had intentionally entered into such an agreement at any time.
How should the Second Amended Rider be construed?
[110] In order to assist understanding of the discussion that follows, I think it helpful to set out again the relevant portions of cl 2.2 of the BAC as amended by the Second BAC Variation:
[111] The principles of construction of contracts were considered by the Court of Appeal in Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR(R) 1029. In that case, the court found helpful the summary of principles in an academic text, The Construction of Contracts: Interpretation, Implication, and Rectification by Gerard McMeel (Oxford University Press, 2007) at paras 1.124, 1.133 and endorsed their application in Singapore. The cited principles relevant to the present case are as follows:
Bearing the above principles in mind, I will now consider the parties’ arguments.
[112] The plaintiffs submit that the proper construction of the Amended Second Rider is as follows:
(a) that the parties agreed that the remainder of the Total Indebtedness under the Loan Agreement was to be set off on 1 March 2011, in exchange for which G8 would be entitled to receive the profits from the businesses of the AO Centres and the Other Centres generated from 1 March 2011;
(b) the plaintiffs were only required to perform the following by 28 February 2011;
(i) Assign to G8 CHC the leases of the premises from which the AO Centres and the Other Centres operate; and
(ii) Lodge the applications for Licences to be issued to G8 CHC.
(c) G8 would only “physically receive the profits of the businesses of the AO Centres and the Other Centres generated from 1 March 2011 upon the ‘legal transfer’ of the AO Centres and the Other Centres” which would occur after MCYS approved the applications for the Licences via the OBLS and therefore the “legal transfer” was not a condition precedent to set off of the Total Indebtedness under the Loan Agreement.
[113] The plaintiffs submitted that this interpretation was consistent with the revised definition of Financial Close, which was not defined with reference to 28 February 2011 or any particular date. This interpretation was also consistent with cl 2.3 of the BAC which provided that title “to the Business Assets and risk in the Business Assets will pass to the Buyer on Financial Close”. The plaintiffs further said that their interpretation was consistent with the context within which the Amended Second Rider was inserted in cl 2.2(b) of the BAC on 22 January 2011.
[114] G8’s interpretation of the Amended Second Rider was that it did not effect an automatic set off of the Total Indebtedness on 1 March 2011. Instead, the rider has to be construed in the context of cl 2.2(b) as a whole and of cl 3.3. Pursuant to cl 3.3, the parties had agreed that “notwithstanding any other provision of this agreement the AO Centres and Other Centres will be transferred to the Buyer on 28 February 2011 ...”. Based on the Amended Second Rider, the parties had also agreed that in order for the set off on 1 March 2011 to take place, the plaintiffs must effect a legal transfer of the AO Centres and the Other Centres to G8’s nominee, G8 CHC on 28 February 2011. In order for the legal transfer to occur, it was necessary for the OBLS approvals to be given to G8 CHC and, in order for G8 CHC to receive the revenues of the childcare centres, it had to be issued with the Licences. As no OBLS approval or any Licence was issued by 28 February 2011, the AO Centres and Other Centres were not transferred to G8 CHC by that date and the set off of the Total Indebtedness did not occur on 1 March 2011.
[115] There is no doubt, looking at the Amended Second Rider itself, that this is a dense and rather poorly drafted provision which does not lend itself to easy interpretation or understanding. In order to construe it, whilst the exercise needs to be an objective one, knowledge of the factual matrix is essential in ascertaining what the parties were attempting to achieve by this clause. The rider must be read in the context of cl 2.2 and of the BAC as a whole as well.
[116] The first thing to note is that the rider is part of a payment provision ie cl 2 of the BAC. Clause 2.4 deals with the date of payment which is specified as being “on or before Financial Close”. Clause 2.2 as a whole deals with the method of payment and specifies five ways in which payment is to be made. The second method of payment, in cl 2.2(b), is “by way of set off of the Total Indebtedness under the Loan Agreement”. One of the reasons G8 gave for saying that there could be no automatic set off was that under the Loan Agreement, the right of set off was at G8’s discretion. I do not accept, however, that G8 could exercise such discretion without regard to cl 2.2(b) because by agreeing to that wording, G8 fettered its own discretion, at least to the extent that, assuming there was no breach of the BAC when Financial Close took place, G8 would be obliged to set off whatever amount comprised the Total Indebtedness as at that date against the Purchase Price and would not be able to ask for payment of the Total Indebtedness in cash.
[117] The question that arises is how the Amended Second Rider is to work in this context. The plaintiffs’ argument basically is that after the Second BAC Variation, Financial Close became irrelevant and the set off would take place on 1 March 2011 provided certain things were done. The plaintiffs have not gone so far as to contend that they did not need to meet any conditions at all before 1 March 2011 and that set off would take place regardless of what had happened in respect of the transfer of the AO Centres and the Other Centres to G8 or its nominee.
The plaintiffs’ arguments in favour of their interpretation
[118] The circumstances leading up to this amendment showed, the plaintiffs said, that the commercial purpose of the same was “to address the uncertainty arising from when the OBLS approvals would obtained and to allow G8 Education to be entitled to the profits generated from 1 March 2011”. The plaintiffs said that this was because there would be a lapse of time (the precise length of which could not be predetermined) between the lodgement of the applications for Licences and the approval of those applications. The amendment was to accommodate G8’s desire to be paid the profit generated from 1 March 2011 despite the fact that the OBLS approvals might not be issued prior to that date.
[119] The plaintiffs’ argument is based on their interpretation of the events that occurred between November 2010 and January 2011. Some of the facts that they rely on are, however, not correct.
[120] In their closing submissions, the plaintiffs said that under the BAC, the initial agreement was for G8 to acquire the childcare centre businesses by the acquisition of the shares in the subsidiary companies of CHG which owned those businesses. That was wrong. From the time it was signed, it was plain from the provisions of the BAC that G8 was buying the businesses of the Cherie Hearts Group and not the shares in any subsidiary company. The second error of fact related to the plaintiffs’ contention that G8 proposed in November 2010 that it should acquire the businesses directly instead of acquiring those businesses through the acquisition of shares in the companies. That was wrong too. What G8 proposed in November 2010 was that the businesses should be transferred to G8 CHC instead of to itself.
[121] The plaintiffs said that this change of position necessitated fresh applications being lodged with MCYS for the Licences to be issued to G8 CHC. That was also wrong. It was not the change in the proposed licence holder from G8 to G8 CHC that necessitated the lodging of fresh applications. What caused the lodging of fresh applications was the MCYS’ insistence that the “Transfer of Ownership” procedure had to be followed. MCYS told CHG that it could not utilise the simpler procedure that applied when there was a change in the shareholding of a licence holder.
[122] The plaintiffs said that G8’s change of mind required them to follow the more time consuming “Transfer of Ownership” approval. In my view, the plaintiffs cannot, however, blame G8 for this. G8 was not the party who dealt with MCYS. It was clear from the evidence that G8 relied on the plaintiffs to deal with MCYS and on their advice as to what was required to effect the transfer. It was the plaintiffs who tried to persuade MCYS not to insist on the Transfer of Ownership procedure but to accept the other simpler procedure which MCYS did not agree to. Accordingly, it was the change in the method of acquisition when the BAC replaced the Share Sale Agreement that resulted in a change in the MCYS application procedure and not the change of proposed licence holder to G8 CHC rather than G8 itself. The plaintiffs were aware of the two different procedures at the time of signing because under cl 5.5 of the BAC, the sellers (including CHG) undertook that at Financial Close they would give G8:
That clause also shows that the plaintiffs were aware when the BAC was signed that G8 could nominate another entity to hold the Licences. I do not accept the plaintiffs’ efforts to make G8 responsible for the fact that in the end the Transfer of Ownership procedure had to be adopted.
[123] The plaintiffs relied on evidence from Dr Yap and Dr Singh that they had explained to G8 that the Transfer of Ownership procedure was more time consuming than the other procedure and that typically it took approximately two months from the time an application for a Licence was lodged on the OBLS for MCYS to grant the Licences. They said that the parties were aware that the timing of the issue of the Licences, especially whether they would be issued to G8 CHC in time for Financial Close (which then meant 1 January 2011), was entirely dependent on MCYS. Thus, the parties agreed that G8 would only be entitled to the profits of the childcare centres upon legal transfer of the centres. The BAC was therefore amended by the First BAC Variation which inserted the following original second rider to cl 2.2(b):

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Cherie Hearts Group International Pte Ltd and others v G8 Education Ltd

Grounds of decision

Introduction

Parties to the dispute

Background

Negotiations and documentation

Relevant terms of the documentation

Events and attitudes after November 2010

The action

Commencement of legal proceedings

The pleadings

The plaintiffs’ case

The defence

Bifurcation of the trial

Issues, submissions and analysis

Issues

(d) Did the plaintiffs lawfully terminate the Loan Agreement, BAC, M&A Deed and Bonus Deed on 25 April 2011?

(e) Did the plaintiffs lawfully terminate the BAC, Loan Agreement, M&A Deed and Bonus Deed on 25 April 2011?

Was there an Overarching Agreement?

How should the Second Amended Rider be construed?

The plaintiffs’ arguments in favour of their interpretation