High Court · Decided 10 April 2014

Columbia Asia Healthcare Sdn Bhd and another v Hong Hin Kit Edward and another and other suits

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[2014] SGHC 65Case no. Suits No 861 and 862 of 2008 and 964 of 2009

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Woo Bih Li J:
[1] There are three sets of proceedings stemming from the purchase of Gleni International Hospital (“the Hospital”) erected on No 2A Jalan Listik, Medan, Sumatera Utera, Indonesia (“the Land”). The purchaser was Columbia Asia Healthcare Sdn Bhd (“Columbia”). The vendors (“the Vendors”) were Mr Edward Hong Hin Kit (“Edward Hong”), Mr Albert Hong Hin Kay (“Albert Hong”) (collectively, “the Hongs”) and Mr Boelio Muliadi (“Boelio Muliadi”).
[2] The purchase of the Hospital and the Land was structured in the form of a share purchase. The Hospital and the Land were owned by PT Nusautama Medicalindo (“PTNM”). PTNM was in turn wholly-owned by Universal Medicare Pte Ltd (“UMPL”). The Vendors held all the shares in UMPL. Columbia agreed to purchase 99% of the shares in UMPL (“the Sale Shares”) from the Vendors pursuant to a share sale agreement (“the SSA”) dated 24 December 2007. Columbia subsequently acquired the remaining 1% of UMPL’s shares pursuant to an option also dated 24 December 2007 (“the Call Option Agreement”).
[3] At the time of completion of the SSA, a Singapore company, Medical Equipment Credit Pte Ltd (“MEC”), was registered as the chargee of a charge on the title certificate to the Land (“the MEC Charge”). MEC was owned by DVI Inc (“DVI”), an American corporation.
The proceedings
[4] The three sets of proceedings are Suits No 861 and 862 of 2008 (“Suit 861” and “Suit 862” respectively) and Suit No 964 of 2009 (“Suit 964”). They were consolidated and heard together.
Suits 861 and 862
[5] Suits 861 and 862 were brought by Thermal Industries & Supplies (Pte) Ltd (“Thermal Industries”) and Thermal International (S) Pte Ltd (“Thermal International”) (collectively, “the Thermal Companies”) respectively against PTNM on 19 November 2008. The Thermal Companies are Singapore companies involved in the provision of medical supplies and equipment to hospitals and medical facilities. The Thermal Companies are controlled by Edward Hong, who is a director and substantial shareholder in both companies. These are a breakdown of the claims made by the Thermal Companies in Suits 861 and 862:
(a) In Suit 861, Thermal Industries claimed from PTNM the sums of S$262,934.48 and S$10,000. The former was the balance of monies advanced by Thermal Industries as a loan to PTNM; and the latter was for four second-hand servers sold by Thermal Industries to PTNM.
(b) In Suit 862, Thermal International claimed from PTNM the sums of S$393,399.70, S$3,320 and US$9,763.00. The first was the balance for a Magnetic Resonance Imaging (“MRI”) machine sold by Thermal International to PTNM. The latter two were for various supplies provided by Thermal International to PTNM.
[6] PTNM disputed these claims. Columbia applied successfully to be joined as a defendant in Suits 861 and 862. Should PTNM be found liable in Suits 861 and 862, PTNM and Columbia brought third-party proceedings against the Hongs for indemnities provided by them as vendors under the SSA.
[7] In Suit 861, PTNM also counterclaimed against Thermal Industries for damages to be assessed for the supply of allegedly defective second-hand servers.
[8] In Suit 862, both PTNM and Columbia counterclaimed against Thermal International the sum of S$144,046.03 as payment mistakenly made by PTNM to Thermal International for a Philips angiography machine.
Suit 964
[9] Suit 964 was filed on 11 November 2009, more than a year after Suits 861 and 862 were commenced. The plaintiffs, Columbia and PTNM, claimed against the Hongs for alleged breaches of the SSA. The claims in Suit 964 sought, amongst others:
(a) An order for damages to be assessed for receiving an encumbered title to the Land because of the existence of the MEC Charge and/or costs, including legal costs, of taking the necessary measures to remove the MEC Charge on the Land so as to obtain a good and marketable title to the Land.
(b) A declaration that the Hongs are liable to indemnify Columbia/PTNM for any claim by DVI in relation to the transfer of shares held by DVI in PTNM (“the DVI Shares”) to Albert Hong, including all costs of defending any such claim.
(c) A declaration that the Hongs are liable to indemnify Columbia and/or PTNM in relation to actual and potential liabilities as a result of the Vendors’ breaches of various warranties given in the SSA (principally relating to the under-declaration and under-payment of tax).
(d) An order for damages to be assessed for over-payment for the Sale Shares and/or the diminution in value of PTNM and/or the Sale Shares as a result of the inflation of PTNM’s 2007 revenue figures.
[10] The Hongs disputed the claims in Suit 964. They also counterclaimed against both Columbia and PTNM damages for abuse of process and conspiracy with the predominant purpose of injuring the Hongs, by seeking to extort a favourable outcome in Suit 964 and Suits 861 and 862. The damage allegedly suffered by the Hongs’ includes loss of business and personal reputation.
[11] At the outset, I should say that the statement of claim in Suit 964 did not state why PTNM is a co-plaintiff with Columbia. PTNM was not a party to the SSA. The warranties given by the Vendors under the SSA were given to Columbia. Neither did the statement of claim assert any right of PTNM to rely on the Contracts (Rights of Third Parties) Act (Cap 53B, 2002 Rev Ed) (“the CRTPA”) to enforce the terms of the SSA, unlike the third-party claims made by PTNM (and Columbia) against the Hongs in Suits 861 and 862. In those two suits, PTNM claimed that various warranties given by the Vendors in the SSA purported to confer a benefit on it (PTNM), and that it was entitled to enforce those warranties against the Hongs by virtue of s 2 of the CRTPA. Coming back to Suit 964, PTNM’s only reliance on the CRTPA was in para 22(b) of its defence to counterclaim. I do not think such a plea is appropriate. It should be in the statement of claim. In any event, I am not persuaded on the merits that PTNM is entitled to rely on the CRTPA to enforce the warranties in the SSA. I will say more about this later.
[12] Accordingly, I am of the view that PTNM has not been correctly included as a co-plaintiff in Suit 964. Neither is it entitled to rely on the CRTPA to make a claim against the Hongs in Suits 861 and 862 for breaches of warranties. Henceforth, I shall refer only to Columbia as the plaintiff in Suit 964 and Columbia as the defendant making a claim against the Hongs in Suits 861 and 862.
[13] The Hongs argued that Columbia’s claims were not made in good faith. They relied on the fact that Columbia’s claim in Suit 964 was against only the Hongs, even though Boelio Muliadi was also a named vendor in the SSA, and had also given the same warranties as the Hongs. This argument is untenable. It is up to Columbia to decide who it wishes to sue. The fact that it decided not to sue Boelio Muliadi was neutral. Indeed, one might argue that it made sense not to sue Boelio Muliadi, as there is no evidence as to whether he is likely to have assets in Singapore, as opposed to the Hongs, who assert that they are “prominent Singaporeans with substantial reputations in Singapore and internationally”.
[14] This brings me to the next point, which can be dealt with quickly. I refer to the Hongs’ counterclaim in Suit 964 for damages for abuse of process and conspiracy. I agree with Columbia that this counterclaim is without legal basis. If Columbia’s claims in Suit 964 are invalid, they will be dismissed. The claims cannot, in and of themselves, give rise to the counterclaim brought by the Hongs. Otherwise, every claim will be met by such a counterclaim. The absence of evidence and closing submissions from the Hongs to support their counterclaim reinforces the point that the Hongs were never serious about their counterclaim. It should never have been made.
Issues before this court
[15] The main disputes between the parties lay in the claims made in Suit 964. I will thus address the issues raised in that suit first.
[16] There are four main issues in Suit 964:
(a) The first main issue is whether the Hongs were in breach of the terms of the SSA that the Land would be free from encumbrances (on the date of completion of the SSA), and that Columbia would have good and marketable title to the Land, because the MEC Charge constituted an encumbrance on the Land (“the Encumbrance Issue”). If so, the sub-issue is whether Columbia is estopped or otherwise precluded from alleging this breach. If not, the consequential issue is the relief which Columbia is entitled to.
(b) The second main issue is whether the Hongs are liable under the SSA to indemnify Columbia against claims made by DVI, in relation to the transfer of the DVI Shares to Albert Hong, including costs of defending any such claim (“the DVI Issue”). If so, the consequential issue is whether the court should grant a declaration to that effect.
(c) The third main issue is whether the Hongs have breached the SSA due to PTNM’s alleged improper book-keeping, and under-declaration and under-payment of tax (“the Tax Exposure Issue”). The sub-issue is whether a provision of the SSA should be expunged or rectified. If not, and if the Hongs are in breach of the SSA on the third main issue, the consequential issue is the relief which Columbia is entitled to.
(d) The fourth main issue is whether the Hongs have breached the SSA by inflating revenue figures because of under-declaration and under-payment of tax (“the Inflated Revenue Issue”). If so, the consequential issue is the relief which Columbia is entitled to. Columbia alleged that it had determined the actual purchase price for the Sale Shares by applying Earnings before Interest, Taxes, Depreciation and Amortisation (“EBITDA”) with an appropriate multiplier. Hence Columbia claimed a diminution of the actual purchase price based on a similar formula.
[17] The following issues arise for determination in Suit 861 as between Thermal Industries and PTNM:
(a) Whether Thermal Industries is entitled to S$262,934.48, the alleged balance of sums paid by Thermal Industries to MEC on PTNM’s behalf.
(b) Whether the servers sold by Thermal Industries to PTNM were defective second-hand goods which were unusable from the time they were delivered to PTNM.
If Thermal Industries’ claim for S$262,934.48 succeeds, the following issues arise for determination as between Columbia and the Hongs, who are third parties in Suit 861:
(c) Whether Columbia has standing to bring a claim against the Hongs for an indemnity for the S$262,934.48.
(d) If so, whether s 2.1.24 of the SSA should be expunged or rectified so that the definition of “Liabilities” under s 2.1.24 excludes debts owing by PTNM to the Thermal Companies such that the Hongs are not liable for such debts.
(e) If s 2.1.24 of the SSA is not expunged or rectified, whether the debt of S$262,934.48 falls under the definition of “Liabilities” in s 2.1.24 for which the Hongs have agreed to indemnify Columbia.
[18] The following issues arise for determination in Suit 862:
(a) Whether PTNM is liable to pay Thermal International the sums of S$393,399.70, S$3,320 and US$9,763.00.
(b) Whether Columbia has standing to bring a claim against the Hongs for an indemnity for the sums claimed against PTNM by Thermal International.
(c) If so, whether s 2.1.24 of the SSA should be expunged or rectified to exclude debts owed by PTNM to the Thermal companies so that the definition of “Liabilities” under s 2.1.24 excludes debts owing by PTNM to the Thermal companies and, consequently, the Hongs are not liable for such debts.
(d) If s 2.1.24 of the SSA is not expunged or rectified, whether the sums of S$393,399.70, S$3,320 and US$9,763.00 fall under the definition of “Liabilities” in s 2.1.24 for which the Hongs have agreed to indemnify Columbia.
(e) Finally, in respect of the counterclaim, whether PTNM mistakenly paid S$144,046.03 to Thermal International for a Philips angiography machine.
The parties and witnesses
[19] Columbia is a Malaysia-based company in the business of developing and operating medical facilities across Asia. Pursuant to the SSA and the Call Option Agreement, Columbia acquired 100% of the issued share capital of UMPL, a company incorporated in Singapore. PTNM is an Indonesian company. Its primary asset is the Land and the Hospital in Medan, and its primary business is the operation of the Hospital. I will first set out the witnesses that were called to give evidence by the respective parties during the trial. The following factual witnesses testified on behalf of Columbia during the trial:
(a) Rick Evans, the Chairman of the Columbia group of companies, which Columbia and now PTNM are part of. Rick Evans was the person chiefly representing Columbia in the negotiations leading up to the SSA;
(b) Prem Abraham, the Chief Financial Officer (South East Asia) of the Columbia group of companies, who gave evidence on Columbia’s due diligence exercise and the financial aspects of the share sale transaction;
(c) Alan Lim, a partner of a Malaysian law firm, Tengku Mohamed & Alan Lim (“TMAL”), who acted for Columbia during negotiation of the SSA;
[20] Two expert witnesses also gave evidence for Columbia and PTNM, namely:
(a) Roy Tedja, a partner of an Indonesian tax-consulting firm JL Tax & Customs Advisory, who gave expert evidence mainly in relation to PTNM’s alleged under-declaration and under-payment of taxes and inflation of revenue; and
(b) James Searby, Managing Director of the Singapore office of FTI Consulting, an expert services firm specialising in litigation support and valuation. He gave evidence on how the diminution in the value of the Land and the Sale Shares ought to be computed.
[21] Prior to the completion of the SSA, the shares in UMPL were held by the Vendors in the following percentages: 12.5% by Edward Hong, 70% by Albert Hong and 17.5% by Boelio Muliadi. Edward Hong is also a managing director and substantial shareholder in both the Thermal Companies. The following factual witnesses gave evidence on behalf of the Hongs and/or the Thermal companies during the trial:
(a) Edward Hong.
(b) Eddie Foo, the General Manager of the Thermal Companies who, as Edward Hong’s trusted advisor, was intimately involved in the negotiations leading up to the SSA.
(c) Michael Chow, the Chairman of Valued Partners Limited (“Valued Partners”), a mergers and acquisitions advisory practice. Michael Chow was an advisor to Columbia in various hospital transactions over the years, but left Columbia more than two years before the start of the trial. Michael Chow acted as an intermediary between the Hong brothers and Rick Evans in the sale of UMPL’s shares, and was the first person to raise the prospect of acquiring the Hospital to Rick Evans.
(d) Michael O’Hanlon, the Chief Executive Officer of DVI and the Chairman of MEC at the material time. DVI was a company that provided loans to the global medical community. It operated through its wholly owned subsidiary, MEC, in the Asia Pacific region. MEC was the provider of certain loans which feature prominently in Suits 861 and 862. DVI and MEC have since gone into liquidation. Counsel for PTNM and Columbia, Mr Harish Kumar (“Mr Kumar”), chose not to cross-examine Michael O’Hanlon and accepted his affidavit of evidence-in-chief (“AEIC”).
[22] The Hongs relied on two expert witnesses. First, they called Nick Graham, a chartered accountant of RSM AAJ Associates. Second, they sought to admit two affidavits by Tay Puay Cheng, an Executive Director in the Forensic division, and Head of the Restructuring division of KPMG Services Pte Ltd. Mr Kumar chose not to cross-examine Tay Puay Cheng. Mr Kumar was prepared to accept Tay Puay Cheng’s affidavit of evidence in chief, subject to the qualification that he (Mr Kumar) was of the view that the evidence was irrelevant. None of the parties gave much weight to Tay Puay Cheng’s evidence in their submissions, so I will not refer to it further.
Background facts
[23] I will go into some detail on the background facts because of the many allegations made in the three actions.
The history of PTNM and the loans from MEC
[24] PTNM was set up in the early 1990s as a joint venture between four parties: Gleneagles Development Pte Ltd (“Gleneagles”), Albert Hong and two Indonesian business partners, one of whom was Boelio Muliadi. In 1995, PTNM obtained a loan for US$25m (“the Syndicated Loan”) from a banking syndicate headed by the Hongkong and Shanghai Banking Corporation Limited (“the Syndicated Lenders”) for the construction of the Hospital. The Syndicated Loan was guaranteed by the four shareholders of PTNM in the proportion of their shareholdings.
[25] The Syndicated Lenders subsequently recalled the loan. The shareholdings of the two Indonesian partners were confiscated by the Syndicated Lenders because they were unable to pay their share of the loan. At this juncture, Edward Hong saw an opportunity for the Hongs to take over the entire business of the Hospital by repaying the balance of the Syndicated Loan.
[26] In the course of the negotiations, the Syndicated Lenders agreed to a payment of US$12m as a full and final settlement of their claim. Gleneagles indicated that they would give up their shares in PTNM if the Hongs could settle the entire loan. On 2 July 2002, UMPL obtained a US$12m facility from MEC (“the MEC Loan”) to be applied to the settlement of the Syndicated Loan. Pursuant to this arrangement, MEC obtained the MEC Charge over the Land (the Land was owned by PTNM). MEC was registered as a chargee of the Land on 1 September 2003.
[27] The Hongs decided that UMPL would be the vehicle to hold the shares in PTNM. However, 10% of the shares in PTNM were to be held on trust for UMPL by an Indonesian company, in order to comply with Indonesian law. UMPL thus became the owner of 90% of PTNM’s shares, and the beneficial owner of the remaining 10% of PTNM’s shares. The shares of UMPL were in turn allocated between Albert Hong, Edward Hong and Boelio Muliadi. Subsequently, 10% of the shares in UMPL were re-allocated by Albert Hong to DVI.
[28] In addition to the US$12m facility used to settle the Syndicated Loan, MEC also provided a loan of US$3m to Thermal International for working capital. On 1 July 2002 Edward Hong requested MEC to remit US$740,000 out of the US$3m loan directly to PTNM in order to alleviate PTNM’s cash-flow at the time. Accordingly, US$740,000 was paid to PTNM out of Thermal International’s loan from MEC.
[29] Thereafter, DVI and MEC went into liquidation. Goldman Sachs (Asia) Finance (“GSAF”) bought over UMPL’s and Thermal International’s debts to MEC on 20 September 2004. MEC’s rights, title and interest under the MEC Loan and the US$3m loan facility were assigned to GSAF. I will refer to the aggregate of the sums owed by UMPL to GSAF under the assigned debt as the “Goldman Sachs Indebtedness”. GSAF was supposed to become a chargee of the Land, but GSAF was apparently not registered on the land title certificate as such. GSAF also did not procure the removal of the MEC Charge at that time. MEC therefore remained registered as a chargee of the Land, notwithstanding the assignment to GSAF.
[30] In 2005, Edward Hong took control of the running of the business from Boelio Muliadi, who had been running the Hospital since the start of operations in 1997.
Preliminary negotiations
[31] By 2007, the Hongs were looking to sell the Hospital. Edward Hong was referred to Valued Partners, which was headed by Michael Chow, with a view to finding a buyer for PTNM. Michael Chow contacted Rick Evans who indicated his interest in purchasing the Hospital.
[32] According to Rick Evans, a meeting was arranged between himself and Edward Hong in Kuala Lumpur either at the end of September or the beginning of October 2007. The Hongs dispute the occurrence of this meeting. On 19 October 2007, Rick Evans, accompanied by Michael Chow and Lucia Voon, a Columbia employee, made a visit to the Hospital in Medan. There, Rick Evans met with Edward Hong and took a tour of the facilities.
[33] Rick Evans’ evidence was that he was given an information sheet on the Hospital either at the first meeting around September 2007 or at the 19 October 2007 meeting. That sheet of paper showed the operating cash flow of the Hospital for 9 or 10 months. Rick Evans was able to infer from this that the Hospital would generate a positive annual cash flow of about US$2.5m for 2007. The annual cash flow was also referred to during the trial as the EBITDA of the business for 2007. Rick Evans also claimed that he had made it clear to the Hongs that any acquisition would be made on the basis that UMPL and PTNM were handed over “clean”: with all current liabilities and current assets equalised and all long-term debts retired at completion. Conversely, the Hongs deny that any representation was made on cash flow at this point in time.
[34] According to Rick Evans, when Columbia acquired hospitals, it typically determined the purchase price with reference to the hospital’s annual cash flow or EBITDA multiplied by an appropriate number, also known as the appropriate multiplier. After the 19 October 2007 meeting, Rick Evans said that he discussed the proposed purchase with Prem Abraham. They agreed that 12 was an appropriate multiplier. The EBITDA of US$2.5m and a multiplier of 12 yielded a figure of US$30m. Rick Evans thus decided to make an offer of US$30m for the Hospital.
[36] On 22 October 2007 Rick Evans sent a letter containing an initial conditional offer of US$30m to Edward Hong. The letter indicated, amongst others, that “[a]ny and all debts, obligations and/or other liens owed by UMPL and/or by [PTNM] [were] to be retired at closing”. Edward Hong replied on 23 October 2007 stating that he was comfortable with all the terms outlined in the conditional offer, save for the price.
[38] On 27 October 2007, Rick Evans, Edward Hong and others met at Columbia’s facility in Puchong, Kuala Lumpur. Rick Evans’ evidence was that at this meeting, he received an information memorandum dated September 2007 (“the IM”). There is some dispute as to the actual date when Rick Evans received the IM. But this is not material, as it was not disputed that he received it before the SSA was signed by him and the Vendors. The IM projected PTNM’s EBITDA for 2007 at IDR 25,240,889,000 (or approximately US$2.68m). Columbia’s case was that Prem Abraham had seen and relied upon the IM to corroborate the represented cash flow of US$2.5m.
[39] During the meeting of 27 October 2007, Columbia was asked to raise its initial offer. Rick Evans acceded and increased Columbia’s offer to US$31m. Immediately after the meeting, Rick Evans sent a second conditional offer to Edward Hong for US$31m, which was otherwise identical in terms to the first conditional offer.
[40] Edward Hong responded to the second conditional offer with a letter dated 29 October 2007. In the letter, Edward Hong asked for the due diligence and the finalisation of the sale and purchase agreement to proceed simultaneously in order to accelerate completion. This was, in effect, a tacit acceptance of Columbia’s offer of US$31m. Rick Evans instructed Alan Lim to begin drafting the sale and purchase agreement.
[41] On 6 November 2007, Eddie Foo sent an email to Rick Evans, explaining the outstanding Goldman Sachs Indebtedness reflected in PTNM’s accounts. Eddie Foo explained that these moneys were originally borrowed by UMPL and Thermal International respectively from DVI and on-lent to PTNM. He explained that these debts had been subsequently sold by DVI to GSAF. He also mentioned that the Vendors would liaise with GSAF such that all titles and securities would be released free and unencumbered when settlement payments were made on 31 December 2007, which was the completion date the parties were aiming for.
[42] Eddie Foo’s explanation to Rick Evans was inaccurate in at least two respects. First, the loans were extended to UMPL and Thermal International by MEC and not by DVI. Second, of the US$3m that Thermal International had borrowed from MEC, only US$740,000 was actually remitted to PTNM by MEC. Whether this remittance of US$740,000 made PTNM a debtor of MEC, Thermal Industries or Thermal International is a matter of considerable dispute, which I will elaborate on later.
[43] In mid-November 2007, Columbia’s due diligence team headed by Prem Abraham visited the Medan Hospital to conduct the due diligence exercise. The team looked primarily at PTNM and UMPL’s draft unaudited accounts for 2007 and the audited accounts for 2006. According to Prem Abraham, the team spoke primarily with Eddie Foo as well as PTNM’s Financial Controller, K C Leong, and General Accounts Manager and Senior Finance Manager, Kimun Kuara. After the due diligence was undertaken, summaries and supporting documents were produced by Columbia.
[44] Correspondence was exchanged between the parties in relation to this due diligence exercise. Eddie Foo’s letter of 26 November 2007 (mistakenly dated 26 November 2006), referred to the Vendors settling the Goldman Sachs Indebtedness directly with GSAF with “no further financial advantage or disadvantage to [Columbia] as the Buyers.”
[45] In the meantime, Alan Lim was working on a draft of the sale and purchase agreement. A number of drafts were exchanged between him and MKP, solicitors for the Vendors. Four drafts were prepared in total, two of which passed between the solicitors.
[46] On 29 November 2007, Eddie Foo sent an email to Rick Evans with the subject “S&P in Medan” which brought up the following points:
(a) Albert Hong was proceeding to acquire DVI’s 10% share in UMPL with the result that the Vendors in the share sale agreement would be the Hong brothers and Boelio Muliadi. If there was a claim by DVI in relation to its shares that were to be acquired by Albert Hong, the Vendors would stand liable and this was to be included in the SSA.
(b) The Vendors would, as a condition precedent, obtain GSAF’s agreement to release all securities upon payment of the amounts owing to GSAF. It was envisaged that the Goldman Sachs Indebtedness would be paid off and the release of the securities obtained simultaneously with the completion of the sale and purchase agreement.
The Short-Form Agreement
[47] Between 30 November and 3 December 2007, Rick Evans paid a visit to Medan. This visit culminated in the Short-Form Agreement (“the SFA”) dated 1 December 2007 signed by Edward Hong on behalf of the Vendors and by Rick Evans on behalf of Columbia.
[48] Prior to the SFA being signed, the parties had reached an agreement to reduce the purchase price by US$341,000. This was because Columbia had discovered that PTNM’s current liabilities exceeded its current assets by US$841,000 according to management accounts and balance sheet figures as at September 2007 which were provided on behalf of the Vendors. Columbia was of the view that the Vendors were obliged to bear this excess in liabilities, in accordance with what had been agreed upon in negotiations. Rick Evans nevertheless agreed that Columbia would be responsible for US$500,000 of these liabilities, leaving the Vendors to bear the remaining US$341,000.
[49] The apportionment of the US$841,000 was done in the following manner. The purchase price for the Sale Shares (99% of the Shares in UMPL) was reduced by US$841,000, from US$31m to US$30,159,000. The US$500,000 which Columbia agreed to be responsible for became the purchase price of Yayasan Gleni, a nursing academy, which was to be the subject of a separate agreement. There was initially no separate agreement to purchase Yayasan Gleni.
[50] The SFA incorporated the abovementioned arrangement. The salient terms of the SFA were that:
(a) Columbia would acquire the Sale Shares from the Vendors. Edward Hong would retain 1% of the shares in UMPL and continue to serve as a commissioner and director of PTNM. He would grant an exclusive option to Columbia to purchase his 1% share at a purchase price of US$1,000 (pursuant to the Call Option Agreement).
(b) The purchase price for the Sale Shares was to be US$30,159,000, which was to be paid in its equivalent in Singapore dollars.
(c) The Vendors were to deliver both UMPL and PTNM free and clear of all liens, debts and encumbrances. There were two exclusions in the case of PTNM: (1) obligations to trade vendors and doctors that were part of the day to day operations; and (2) debts owed to UMPL. The Vendors were not liable to Columbia for these two categories of debts.
(d) Completion was targeted for 31 December 2007 with the possibility of an extension of up to a month for reasons outside the control of the parties.
(e) Edward Hong was to sell to Columbia the entire interest in Yayasan Gleni pursuant to a separate agreement, for a purchase price of US$500,000.
(f) All taxes payable to the Indonesian authorities for business operations of UMPL and PTNM through 31 December 2007 were to be paid by the Vendors, provided that this obligation would expire on 31 December 2008.
(g) The Vendors warranted that all the shares of UMPL were owned by them, and that all the shares of PTNM were owned by UMPL (this included the 10% of PTNM’s shares that were held by an Indonesian company on trust for UMPL).
(h) Columbia was to complete all due diligence processes no later than 10 December 2007.
(i) Columbia was to deliver a draft of a formal agreement incorporating the terms of the SFA by 4 December 2007 and the parties were to make best efforts to sign such an agreement by 7 December 2007.
(j) Columbia had the option of assigning up to 35% of the Sale Shares to an interested third-party investor, Kuwait Finance House (M) Berhad (“KFH”) or one of its subsidiaries.
(k) Columbia was to pay a deposit of US$1m upon the execution of the formal agreement.
[51] On 3 December 2007, Eddie Foo wrote to GSAF offering S$25.5m in full settlement of the Goldman Sachs Indebtedness to be paid on 31 December 2007, in accordance with a proposal made by GSAF on 7 May 2007. GSAF responded by email on 6 December 2007 stating that it would accept S$25.5m in settlement provided the money was paid by 31 December 2007 and a settlement deed was executed.
The preparation and execution of the SSA
[52] After the SFA was signed, Alan Lim communicated with MKP about the draft formal agreement, that is, the SSA. Eventually, the signing of the SSA was scheduled for 7 December 2007. On 7 December 2007, Michael Chow, Alan Lim, Rick Evans, Boelio Muliadi, Edward Hong, Albert Hong and Eddie Foo attended a meeting in Singapore for the finalisation and signing of the SSA by the Vendors. There were discussions to finalise the terms of the SSA. Upon finalisation of the terms, the SSA was engrossed and seven undated copies of it were signed off by the Vendors and given to Alan Lim. Some of the terms in the SSA were not identical to those in the SFA. This gave rise to some allegations by the Hongs which I will elaborate on later.
[53] Under the SSA, the Vendors agreed to sell 99,000 shares comprising 99% of the issued share capital of UMPL to Columbia. The purchase price was agreed to be US$30,159,000. At an agreed exchange rate of US$1 to S$1.45, this worked out to S$43,730,550. This sum was apportioned as follows:
(a) S$25.5m was to be paid by Columbia directly to GSAF to discharge the Goldman Sachs Indebtedness; and
(b) S$18,230,550 was defined as the purchase price for the Sale Shares (notwithstanding that the actual purchase price was S$43,730,550).
The agreed completion date was 31 December 2007. The “Goldman Sachs Indebtedness”, was defined as follows:
[54] Under s 3.2 of the SSA, the S$18,230,550 was to be paid by Columbia to MKP as stakeholders in the following manner:
“Balance Purchase Price” and the “Deposit Sum” were defined in s 2.1 of the SSA as follows:
[55] Section 3.4 of the SSA provided that the Vendors’ solicitors were to release the balance of S$18,230,550 and the interest thereon in the following manner:
Section 3.4.1 therefore provided that the purchase price was to be first deployed towards settling the “Liabilities”, with “Liabilities” being defined in s 2.1.24 of the SSA as follows:
Under s 3.4.2, the Vendors would also have the obligation to ensure that the security documents executed in relation to the Goldman Sachs Indebtedness were released and discharged before they could pay themselves.
[56] On 13 December 2008, MKP sent Alan Lim four undated copies of the Call Option Agreement signed by Edward Hong. Under this agreement, Edward Hong granted Columbia an option to acquire the remaining 1,000 shares in UMPL comprising 1% of UMPL’s issued share capital at the purchase price of S$1,450.
[57] The next day, a directors’ meeting of UMPL was held whereby DVI’s share certificate for 10,000 shares in UMPL (“the DVI Shares”) was cancelled and a new share certificate for a corresponding number of shares was issued to Albert Hong.
[58] On 19 December 2007, Rick Evans informed Edward Hong that he had signed the SSA and the Call Option Agreement on behalf of Columbia.
[59] A deed of settlement and discharge dated 21 December 2007 (“the Deed of Settlement”) was signed between various parties including UMPL, Thermal International, Edward Hong, Albert Hong and GSAF. Also, on 21 December 2007, Columbia gave instructions to remit the deposit of S$1.45m under the SSA. The deposit was received by MKP on or about 24 December 2007. The SSA and the Call Option Agreement were both dated 24 December 2007.
The novation agreement(s)
[60] Since PTNM was to be sold with its liabilities (except for the excluded liabilities) discharged, there were discussions to assign or novate any debts in PTNM’s books shown as owing to the Thermal Companies. According to Rick Evans, the parties met at Albert Hong’s office in Singapore on 31 December 2007. The Hongs denied that any meeting took place that day.
[61] Rick Evans’ evidence was that at the alleged meeting of 31 December 2007 one of the items agreed on was that the advances made by Thermal International to PTNM, as shown in PTNM’s balance sheet for October 2007, were to be assigned to Columbia. This led to a novation agreement in respect of certain debts owing by PTNM to Thermal International being executed at completion.
[62] There was also some correspondence to the effect that Columbia wanted a second novation agreement with respect to debts owing by PTNM to Thermal Industries. However, only the novation agreement involving Thermal International was eventually executed at completion (the detailed facts involving these debts are discussed later below in relation to Suit 861). Thermal Industries alleged that Edward Hong refused to sign the novation agreement for the debts owed by PTNM to Thermal Industries because these were trade debts and, hence, the Vendors were not obliged to discharge them. Columbia was informed of this. Columbia did not dispute that they were told about Edward Hong’s reason for not signing that novation agreement, but Columbia’s position was that it never agreed with Edward Hong’s reason. It was content to proceed without the second novation agreement and to see how things developed.
Events leading up to completion
[63] As 31 December 2007 approached, it was agreed between the parties to the SSA that Columbia would pay S$26,974,858 to MKP and that the latter would use that sum to settle the Goldman Sachs Indebtedness. The sum of S$26,974,858 was Columbia’s 65% share of the actual purchase price (that is, S$43,730,550 (see [53] above)) less the deposit of S$1.45m already paid. It was not clear at that time whether KFH was proceeding to take up 35% of the investment.
[64] MKP received the S$26,974,858 on 2 January 2008, and on 4 January 2008, MKP paid S$25.5m to GSAF. On 9 January 2008, Edward Hong wrote to Rick Evans by email asserting that GSAF had already been paid from the money that Columbia had sent and that s 3.4.2(b) of the SSA had been fulfilled, ie, that “all the security documents [had been] fully and unconditionally released and discharged”.
[65] On 15 January 2008, MKP sent an email to Alan Lim forwarding an email from GSAF dated 8 January 2007 confirming receipt of S$25.5m. MKP also forwarded a letter from GSAF’s solicitors, Allen & Gledhill LLP (“A&G”) dated 8 January 2008. The letter from A&G to MKP forwarded various documents pursuant to the Deed of Settlement dated 21 December 2007.
[66] On 16 January 2008, Alan Lim responded to MKP saying that he was unable to conclude that the documents enumerated in A&G’s letter of 8 January 2008 were in fact exhaustive, and that Columbia’s Singapore solicitors, TSMP Law Corporation, had not been able to complete the legal due diligence because documents were still outstanding. Alan Lim further asked MKP to take note of s 3.4.2 of the SSA.
[67] This drew a lengthy written response from MKP on 17 January 2008. The response referred to a telephone conversation which Rick Evans had with Edward Hong, in which Rick Evans told Edward Hong that KFH was not proceeding with the transaction, and that Columbia would pay the balance of the actual purchase price. According to MKP’s response, Rick Evans had informed Edward Hong during their telephone conversation “that payment of the Balance Purchase Price would be received in Singapore on 22 January 2008”. MKP’s response also stated that Edward Hong had “agreed to this extended date for payment, with the understanding that on receipt of the balance, the Vendors will have access to the funds.”
[68] Rick Evans in his AEIC disputed the above version of events. He asserted that while he had indicated that Columbia might be able to complete by 22 January 2008, he had not made a firm commitment to that date. In any case he had never agreed that the Vendors would have access to the money. On 17 January 2008, Alan Lim wrote back to MKP stating that Columbia would pay the balance by 25 January 2008 and that all moneys paid were to be dealt with in accordance with s 3.4 of the SSA.
[69] On 18 January 2008, MKP responded to reiterate the Vendors’ position that Edward Hong had only agreed to further extend the completion date past the already extended date of 18 January 2008 provided that the remaining 35% of the actual purchase price would be received by the Vendors on or before 22 January 2008 and that the SSA be varied to allow the Vendors to have access to this balance.
[70] On 20 January 2008, Rick Evans spoke with Edward Hong and they agreed that they would complete on 22 January 2008. Later that day, Alan Lim wrote to MKP setting out the arrangements upon completion.
[71] Alan Lim subsequently sent to MKP an amended draft of the novation agreement for Thermal International, a draft of the novation agreement for Thermal Industries and a draft of an agreement for the purchase of Yayasan Gleni. I have referred to the intended novation agreements earlier. The Yayasan Gleni agreement was duly executed on 22 January 2008 and the consideration of S$725,000 (being the equivalent of US$500,000) was subsequently paid.
[72] Completion under the SSA occurred on 22 January 2008 at MKP’s office. A bank draft for S$15,305,692 (being the balance of the purchase price) was handed to MKP. In return, MKP handed over certain documents, including the land title certificate for the Land. MKP’s letter of 22 January 2008 also stated that the land title certificate in PTNM’s name for the Land was “free from all and any Encumbrances whatsoever”. However, it was later discovered that MEC’s name had not been removed (as a chargee) from the land title certificate. Shortly after completion, Columbia took over the management of the Hospital.
Post-completion events
[73] Post-completion, MKP sent a number of emails to Alan Lim. In these emails MKP sought confirmation that they could pay out the balance of the money they were holding to the Vendors, on the basis that Rick Evans had purportedly agreed with Edward Hong to vary the SSA to allow the Vendors access to the funds. Columbia’s stance at that point was that they had never agreed to a waiver of s 3.4 of the SSA (which provided for how the purchase price was to be released). Nevertheless, preparations were made to allow MKP to release to the Vendors 90% of the money currently held by them as a gesture of goodwill. The 10% remainder was to be retained by MKP as stakeholder until all the conditions in s 3.4 had been complied with. This position was communicated to MKP in Alan Lim’s email to them dated 24 January 2008.
[74] On 29 January 2008, MKP wrote to Alan Lim. The letter attached various forms that had been provided by GSAF’s solicitors. MKP was of the understanding that those forms had to be filed in Indonesia in order to obtain clean title to the Land. The executed documents were eventually sent by MKP to Alan Lim’s office under the cover of their letter of 14 February 2008. As it transpired, these documents proved ineffective to remove the MEC Charge.
[75] By a letter dated 31 January 2008, MKP wrote to Alan Lim enclosing a letter of release signed by GSAF dated 21 January 2008. On the same day, MKP sent an email to Alan Lim asserting that the Vendors had fully complied with the SSA and that they were entitled to the rest of the moneys being retained by MKP. MKP specifically asserted that “[i]n so far as section 3.4.1 and section 3.4.2(a) are concerned, the Liabilities have been fully and finally settled and all security documents (of the Company) have been fully and unconditionally discharged”.
[76] On 1 February 2008, Alan Lim wrote to MKP indicating that while the Vendors had not fully complied with s 3.4 of the SSA, Rick Evans was agreeable to the “release of the 10% Balance Purchase Price to the Vendors upon Mr Edward Hong’s undertaking to assist our client to resolve all outstanding issues”. The email emphasised that this was done “in the spirit of goodwill and good faith”. MKP wrote back on the same day to confirm Edward Hong’s undertaking and that accordingly they would be releasing the remaining 10% of the money to the Vendors.
[77] On 27 February 2008, UMPL received a letter from DVI’s solicitors, Shook Lin & Bok LLP (“Shook Lin”). DVI’s assets were, at that point, under the control of a liquidating trustee. Shook Lin’s letter asserted DVI’s claim to 10,000 shares in UMPL. On 7 March 2008, MKP wrote to Alan Lim stating that his “clients shall deal with the purported claim of [DVI’s liquidating trustee] with [Shook Lin] directly if the need arises.” The liquidator of DVI eventually brought legal proceedings against the Hongs and UMPL to enforce its rights, but later discontinued the action.
[78] By a letter dated 16 May 2008, Alan Lim sent a notice to MKP that Columbia intended to exercise its option under the Call Option Agreement to purchase the 1,000 shares in UMPL held by Edward Hong. Columbia accordingly paid S$5,800, and the last 1,000 shares in UMPL were transferred to them in early July 2008.
[79] In May 2008, there was communication between Eddie Foo and Prem Abraham concerning debts that were allegedly due from PTNM to Thermal International as a trade vendor, and which had not been assigned under the novation agreement which Thermal International had signed. On 28 May 2008, PTNM made a payment of S$200,000 to Thermal International. I will elaborate on this below as it features in Suit 862.
[80] A few months after completion, Columbia discovered issues regarding what they alleged to be under-declaration and under-payment of income tax by the Hospital in the past. Columbia was concerned, in particular, about Article 21 withholding tax (“Art 21 WHT”). This was tax that the Hospital, as an employer, was obliged to withhold from its employees (in this case doctors). The Hospital was then to pay this withholding tax directly to the Indonesian Tax Authority (“the ITA”) on behalf of its employees. Edward Hong claimed that he and Eddie Foo met with Rick Evans in the middle of March 2008 to discuss these issues. In his AEIC, Edward Hong stated that:
The position of Rick Evans and Columbia was that such a meeting never occurred.
[81] On 30 May 2008, Rick Evans met Edward Hong for a lunch meeting in Singapore to discuss the tax issues. At this meeting, Rick Evans indicated to Edward Hong that he was aware of the practice of under-declaration and under-payment of Art 21 WHT in the Hospital and that Columbia, now in control of the Hospital, intended to comply with Indonesian law in the future and abandon the Hospital’s previous practice in this regard.
[82] Following the lunch meeting, Edward Hong sent an email to Rick Evans on 2 June 2008 where he stated that the past practice in relation to the under-declaration and under-payment of Art 21WHT (what he called “the old system”) had been in place since the inception of the Hospital. Edward Hong further stated that PTNM had not had trouble with the ITA. Referring to Rick Evans’ decision to comply with Indonesian tax law, Edward Hong wrote that:
[83] On 11 June 2008, Rick Evans responded, stating that the Vendors were bound by the SSA, and could not unilaterally absolve themselves from any liabilities whether of UMPL or PTNM, if such liabilities flowed from the failure in the past to observe or comply with the relevant tax legislation.
[84] Subsequently, Columbia ran into difficulties removing the MEC Charge (“the Land problem”). Alan Lim requested help from the Hongs to resolve the problem. Emails were exchanged between the parties on the resolution of the Land problem. Columbia also made various allegations of improper book-keeping and potential tax liabilities incurred by PTNM when under the management of the Hongs. The Hongs, on their part, continued to demand payment for various sums allegedly owed by PTNM to the Thermal Companies (these payments form the subject matter of Suits 861 and 862).
[85] MKP’s letter dated 30 October 2008 to Alan Lim accused Columbia of raising various “non-issues”, “to delay payment of the undisputed sums of S$669,654.28 and US$9762, due and owing to [Thermal International] by PTNM”. In relation to the Land problem, MKP also stated that their clients, the Hongs, found it “amusing that Columbia Asia has chosen, for their own improper purpose, not to see through the scam for what it is – that those Indonesian security-registering authorities just want their palms greased before agreeing to the OBVIOUS.” In respect of the improper book-keeping and tax liabilities, MKP made the general assertion that everything had been declared to Columbia and that it had been factored into the price.
[86] By an email dated 20 November 2008, MKP wrote to Alan Lim to inform him that he had issued two writs against PTNM on behalf of Thermal Industries and Thermal International. Those writs were Suits 861 and 862 respectively.
[88] On 6 March 2009, Rick Evans and Edward Hong met in Singapore in an attempt to resolve the Land problem and the alleged debts owed by PTNM to the Thermal Companies. Rick Evans claimed he told Edward Hong that if the Land problem could be resolved, he would be prepared to discuss the outstanding amounts claimed by the Thermal Companies. Edward Hong said that he would resolve the Land problem and have the MEC Charge removed from the land title certificate by the end of the month.
[89] An email was sent from Edward Hong to Rick Evans on the same day (6 March 2009) purporting to summarise their discussion. According to that email, Rick Evans had agreed, in exchange for the Hongs resolving the Land problem by the end of the month, to pay “the full amount of the agreed outstanding trading debt that still exists between our 2 companies, as claimed/documented, approximately S$670K plus US$10K.” In his evidence, Rick Evans disagreed with this aspect of Edward Hong’s email, contending that he had never agreed to pay the outstanding sums mentioned therein. However, in Rick Evans’ reply to Edward Hong’s email, dated 11 March 2009, he did not dispute Edward Hong’s allegation that he had agreed to pay the alleged outstanding trade debt in return for the removal of the MEC Charge.
[90] Despite Edward Hong’s personal efforts after 6 March 2009, he could not procure the removal of the MEC Charge. Towards the tail end of his unsuccessful efforts, Edward Hong wrote in an email dated 19 June 2009 that Columbia had not informed the Hongs that “[GSAF] and [Columbia] had unsuccessfully endeavoured to have MEC’s interest on the relevant title removed” when Columbia encouraged the Hongs to commit to cleaning up the title of the Land. Edward Hong’s email also alleged that their commitment to clean up the land title was given on a “best endeavour” basis at a without prejudice meeting on 6 March 2009. Nevertheless, he assured Columbia that “we are advised by the various parties working on our behalf that we are close to having the matter resolved by the first week of July 2009”.
[91] In a further email from Edward Hong dated 8 July 2009, Edward Hong reiterated that the 6 March 2009 meeting in Singapore was a “without prejudice” meeting, and that he had agreed to clean up the land title “as a good corporate Samaritan”. Edward Hong further stated that “I cannot assist you further with this Land issue and will allow the matter to rest.” He ended his email by saying that the matter should be between GSAF and Columbia as Columbia had paid the Goldman Sachs Indebtedness and “in consideration for which [GSAF] were meant to deliver an unencumbered title”.
[92] I pause here to mention that I have referred to the 6 March 2009 meeting and the email sent by Edward Hong on 6 March 2009 in respect of that meeting, even though Edward Hong subsequently alleged that the 6 March 2009 meeting was on a without prejudice basis. I do not accept that that meeting was conducted on a without prejudice basis. That allegation was made by Edward Hong too late in the day to try and prevent Columbia from relying on the meeting. When he wrote on 6 March 2009 to refer to that meeting, he did not say it was on a without prejudice basis. He only alleged that the meeting was on a without prejudice basis for the first time in his email dated 19 June 2009, when he had encountered difficulties in removing the MEC Charge. In any event, the closing submission for the Hongs for Suit 964 relied on that meeting in respect of the Inflated Revenue Issue. Therefore, the Hongs have waived disclosure of the substance of the meeting even if it had been conducted on a without prejudice basis.
[93] Rick Evans replied to Edward Hong on 13 July 2009 stating that he had been closely following the Hongs’ efforts to deliver a clean land title and that his previous statements that the Land problem would be easy to resolve had been unrealistic. Rick Evans also emphasised that the Vendors had an obligation to deliver the Land free of all encumbrances and that they had, to date, failed to discharge this obligation. He also said that an unsuccessful attempt by GSAF to transfer the security interest in the Land to themselves between 2005 and 2006 had never been disclosed to Columbia by the Vendors. Rick Evans stated that Edward Hong’s assertions with respect to “a best endeavour commitment” and on a “without prejudice basis” were imagined and he enjoined the Hongs to resolve the Land problem.
[94] On 11 November 2009, Columbia instituted Suit 964 against the Hongs. Further efforts were taken by Columbia and/or PTNM to resolve the Land problem, but they proved futile until on or about 15 October 2012 when the MEC Charge was finally removed.
Suit 964
Issue 1: the Encumbrance Issue
Summary of relevant facts
[95] It is to be recalled that on or about June 2002, UMPL obtained the MEC Loan for US$12m from MEC which was secured by the MEC Charge, which was accordingly reflected in the land title certificate. Under an agreement dated 30 September 2004, MEC’s rights, title and interest under the MEC Loan were assigned to GSAF. However, GSAF was unable to register a security interest in its own name with the Medan Land Office. Neither did it obtain the removal of the MEC Charge.
[96] The MEC Loan formed part of the Goldman Sachs Indebtedness as defined in s 2.1.15 of the SSA. Columbia paid the sum of S$26,974,858, which included the Goldman Sachs Indebtedness of S$25.5m to MKP as stakeholders on 2 January 2008. MKP in turn paid S$25.5m to discharge the Goldman Sachs Indebtedness on or about 4 January 2008. Upon receiving payment, Goldman Sachs signed and issued a Form of Release dated 21 January 2008, purporting to release a security interest over the Land.
[97] On 19 March 2009, PTNM applied to the Medan Land Office for the removal of the MEC Charge from the land title certificate. PTNM was informed by the Medan Land Office on 6 April 2009 that MEC remained registered as the security interest holder and that, in the circumstances, GSAF was not in a position to grant a release of the security interest. Consequently, the form of release signed by GSAF was rejected by the Medan Land Office.
[98] The MEC Charge remained on the land title certificate until on or about 15 October 2012, after the first tranche of this trial, when efforts in removing it were finally successful.
Whether the Hongs are liable under the SSA for failing to deliver the Land free of encumbrances
[99] The SSA laid out a number of obligations on the Vendors regarding title to the Hospital and the Land, including:
(a) The obligation to forward the completion documents to Columbia (s 7.1.1.1 of the SSA). The completion documents included “the original title deed to the Hospital in the name of [PTNM] free from all and any Encumbrances whatsoever” (s 2.1.9.1 of the SSA).
(b) The Hospital and the Land were warranted to be “free from all and any Encumbrances” (s 9.1.1.2 of the SSA).
(c) PTNM was warranted to have “good and marketable title” to the whole of the Land (s 26.2.1 of the Third Schedule to the SSA).
[100] “Encumbrance” was defined in s 2.1.12 of the SSA as follows:
[101] Columbia’s case was that the Hongs were in breach of the above terms. They had failed to deliver the original title deed to the Land free of encumbrances, as the MEC Charge had not been removed.
[102] The Hongs’ defence was two-fold. First, that the MEC Charge was not an “encumbrance” because there was no debt underlying it; the MEC Charge was, at most, an administrative oversight. Second, that Columbia had waived its rights, or was estopped from alleging that the existence of the MEC Charge on the land title certificate was a breach of warranty. This was due to the fact that Columbia affirmed and completed the SSA despite having had full knowledge of the MEC Charge on the land title certificate.
(1) Whether the MEC Charge was an “encumbrance” under the SSA
[103] The MEC Charge clearly fell within the definition of “encumbrance” on a plain reading of s 2.1.12 of the SSA. The fact that the debt that the MEC Charge was meant to secure had been paid off did not make it any less a charge that remained on the land title certificate.
[104] The existence of an encumbrance is not to be confused with the quantum of the debt secured by the encumbrance. Hence, the existence of an encumbrance does not vary depending on whether it secures a large debt, a small debt, or no debt at all. The existence of an encumbrance is also not to be confused with the ease or difficulty of removing the encumbrance.
[105] The argument for the Hongs that no one else could claim under the MEC Charge because the debt has been paid was irrelevant to the Encumbrance Issue. It was a disingenuous argument which reflected their desperate situation. Absurd results would follow if it were correct.
[106] It would mean that if there was a GSAF charge registered on the land title certificate, all that the Hongs would have had to do under the SSA was to discharge the Goldman Sachs Indebtedness. They would not have had to remove the GSAF charge, as the latter too would not constitute an encumbrance once the underlying debt was paid off. The unsustainability of the argument is obvious.
[107] The Hongs cited a Court of Appeal authority, Huang Ching Hwee v Heng Kay Pah and Anor [1992] 3 SLR(R) 452 (“Huang Ching Hwee”), for the proposition that “the continued entry of MEC’s name on the register was not a defect of title ... because neither MEC nor any other third party had any subsisting rights over the Land”. In my view, this case is irrelevant in the present context. In Huang Ching Hwee, the court considered whether there was an implied term under a contract for sale of land that the vendor has a duty to disclose latent defects of title. The court there held that a potential statutory liability (in contrast to one where notice had already been issued by the relevant authority) arising from unauthorised alterations to the property was not a defect of title. The issue in the present proceedings is a different one altogether. There was nothing in that case suggesting that the MEC Charge was not an encumbrance. In any event the definition of “Encumbrance” in the SSA is clearly against the Hongs. The MEC Charge was an encumbrance whether or not it was disclosed to Columbia.
[108] Furthermore, I reiterate that even in Edward Hong’s own email dated 8 July 2009, he had said that the issue of the MEC Charge should be between GSAF and Columbia (see [91] above). The reason was that Columbia had already paid off the Goldman Sachs Indebtedness, in return for which GSAF was meant to deliver “an unencumbered title”. Edward Hong’s reference to “an unencumbered title” demonstrated that the Hongs knew all along that the MEC Charge was an encumbrance. Consequently, they must have known that it was their obligation to procure the removal of the MEC Charge but chose to contend otherwise when it suited them.
[109] It follows that any suggestion by MKP in communication with Alan Lim that the Hongs had done all that they were obliged to do under the SSA in respect of the Land was just wishful thinking.
(2) Whether the MEC Charge resulted in PTNM not possessing “good and marketable title” to the Land
[110] I proceed now to examine whether the existence of the MEC Charge resulted in a breach of the warranty that PTNM had “good and marketable title” to the Land. This point was not addressed specifically by the Hongs’ defence. I will deal with it quickly.
[111] I find the remarks on this point in Sinclair on Warranties and Indemnities on Share and Asset Sales (Robert Thompson gen ed) (Sweet & Maxwell, 8th Ed, 2011) at para 6-14 instructive:
[112] It can be seen that the requirement of “marketability” is an additional requirement. In my view, the saleability of the Land was impaired so long as the MEC Charge remained. Buyers would obviously require and assume that the MEC Charge would be removed, just as Columbia did. As an aside, it remains a mystery to me why GSAF acquired MEC’s rights under the MEC loan and the US$3m loan facility without ensuring that the MEC Charge was removed. The terms of GSAF’s acquisition were not made known to the court. Also, the non-removal may have been due to an omission on someone’s part.
[113] Accordingly, I find that the Hongs are in breach of their obligations under the SSA to deliver the original title deed to the Land and the Hospital free from encumbrances, and to deliver good and marketable title to the Land.
(3) Whether Columbia has waived or was estopped from relying on the Hongs’ breaches
[114] I turn now to the Hongs’ contention that Columbia had waived the obligation to deliver the land title certificate to the Land free from encumbrances, or that they were estopped from insisting on the performance of this obligation. The Hongs relied on the completion under the SSA and the release of the entire purchase price to support their contention.
[115] I have set out above (at [73], [75] and [76]) in detail the circumstances as to how the completion and the eventual release of the entire purchase price came about. It is obvious that Columbia did not waive the relevant requirement. Neither did Columbia make any representation which would have caused the Hongs to believe that Columbia would not rely on the relevant requirement.
[116] I recognise that neither Rick Evans nor Alan Lim mentioned specifically at either the time of completion or the release of the entire purchase price that the MEC Charge was still to be removed. However, it is clear from the communication set out above that neither had agreed that the Hongs had done all that they were required to do. Indeed, as stated at [76] above, when Alan Lim wrote to MKP on 1 February 2008, he made it clear that the Hongs had not fully complied with s 3.4 of the SSA, and that Rick Evans was agreeable to releasing the last 10% of the actual purchase price only on Edward Hong’s undertaking to assist in resolving all outstanding issues.
[117] Columbia had taken things for granted. It had assumed, wrongly, that there would be no difficulty in getting the MEC Charge removed. On that basis, it was agreeable to the completion and the release of the entire purchase price. However, I do not accept that Edward Hongs’ undertaking (given through MKP’s email of 1 February 2008 (see [76] above) to assist Columbia to resolve all outstanding issues was given gratuitously, as was suggested in their closing submissions. Nor do I accept that the Hongs were only obliged to use their best endeavours to get the MEC Charge removed, as Edward Hong had belatedly suggested in his email of 19 June 2009 (see [90] above).
[118] Accordingly, I find that Columbia did not waive nor was it estopped from relying on the Hongs’ breaches of their obligations under:
(a) s 7.1.1.1 of the SSA to transfer the Land and the original title deed to the Hospital free from all encumbrances;
(b) s 9.1.1.2 of the SSA that the Hospital and the Land would be free from all encumbrances at the Completion Date; and
(c) s 26.2.1 of the Third Schedule to the SSA that PTNM had “good and marketable title”.
The appropriate measure of damages
[122] Columbia submitted that s 8.4.2 of the SSA stipulated that the diminution in value was the appropriate measure of damages:
[123] To begin with, Rick Evans’ evidence was that he would not have completed the transaction if he had known of the Land problem:
In the circumstances, Columbia submitted that the appropriate measure of damages is the diminution in the value of the property as a saleable asset.
[124] In support of its contention, Columbia cited the following passage from Harvey McGregor, Martin Spencer & Julian Picton, McGregor on Damages (Sweet & Maxwell, 18thEd, 2012) (“McGregor”) at para 22-026 for the general position at law:
[126] James Searby’s report analysed the difference in value between the Land free from encumbrances, and the Land encumbered by “a charge of an uncertain duration”. According to James Searby, the best measure of this would be the effect on the marketability of the Land of an encumbrance of uncertain duration. James Searby considered it appropriate to use what he termed the “transaction-based” approach, which compared the market value of a marketable asset to the observed value of a similar, non-marketable asset. James Searby then went on to examine a range of studies known as “restricted stock studies” comparing trading prices of restricted stock in public company shares with contemporaneous prices for identical (but unrestricted) stock in public markets. James Searby noted that post-1990 restricted stock studies indicated discount rates of between 9% and 22%. He also cited two studies which used regression analysis on restricted stocks to try to isolate the discount for lack of marketability from other factors, which indicated discounts in a range of between 7.23% and 13.5%. Based on the preceding figures, James Searby concluded that a reasonable discount for the lack of marketability in the present case would lie between 10% and 20%. Assuming the value of the Land to be US$7m, which was the value put on the Land by Eddie Foo on 25 October 2007, James Searby estimated that an appropriate discount for the encumbered land should have been US$1.05m or S$1.52m.
[128] I do not accept the argument that the MEC charge was of uncertain duration and that the damage caused by the encumbrance ought to be considered as at the time of completion.
[129] I make two observations. First, at the time of completion, neither side believed that there would be any difficulty in removing the MEC Charge. Aside from their beliefs, it is undisputed that the underlying debt had been paid off. It should not have been difficult to have the MEC Charge removed. The uncertainty or difficulty in removing the MEC Charge was known to the parties only after completion. It is therefore inappropriate to say that at the time of completion, the MEC Charge was for an uncertain duration. Second, Columbia appeared to be suggesting that this court should not take into account developments after completion. I do not agree with that suggestion. If Columbia was right, it would still be entitled to full damages even if the MEC Charge was removed one day or one week after completion. Such a suggestion is unjust and preposterous.
[130] I do not accept that s 8.4.2 of the SSA is applicable. That provision applies only if the value of PTNM or the Sale Shares is permanently affected, which is not the case here, since the MEC Charge has been removed.

The judgment continues past this page. Read the rest at eLitigation.

Columbia Asia Healthcare Sdn Bhd and another v Hong Hin Kit Edward and another and other suits

Grounds of decision

The proceedings

Suits 861 and 862

Suit 964

Issues before this court

The parties and witnesses

Background facts

The history of PTNM and the loans from MEC

Preliminary negotiations

The Short-Form Agreement

The preparation and execution of the SSA

The novation agreement(s)

Events leading up to completion

Post-completion events

Suit 964

Issue 1: the Encumbrance Issue

Summary of relevant facts

Whether the Hongs are liable under the SSA for failing to deliver the Land free of encumbrances

(1) Whether the MEC Charge was an “encumbrance” under the SSA

(2) Whether the MEC Charge resulted in PTNM not possessing “good and marketable title” to the Land

(3) Whether Columbia has waived or was estopped from relying on the Hongs’ breaches

The appropriate measure of damages