Justlogin Pte Ltd and Another v Oversea-Chinese Banking Corp Ltd and Another

1. The parties in this case sought to carry out a series of corporate operations involving themselves and their associate companies. There were two underlying motivations, one to acquire the cash assets of a company, and the other, to dispose of an investment without showing a loss. The exercise ended without reaching the first stage.

2. The first plaintiff Justlogin Pte Ltd (“JLI”) is an applications service provider offering office collaborative applications. Singapore Engineering Software Pte Ltd holds approximately 22.9% of its shares and the first defendant Oversea-Chinese Banking Corporation Ltd (“OCBC”) holds 16.6% of it. The second plaintiff Justlogin Holding Pte Ltd (“JLI-H”) holds a majority 58.4% of the shares.

3. OCBC is, as its name declares, a bank, and the second defendant Bank of Singapore Ltd (“BOS”) is its wholly-owned subsidiary.

4. OCBC made some investments in the computer industry. Besides the shares in JLI it held through BOS 12.79% of an e-commerce enabler known as iPropertyNet Pte Ltd (“iProp”). The investment was not a success. There was dissent amongst the shareholders of iProp. The shareholders intended to make an initial public offering and float the company, but that was not carried through because of unfavourable stock market conditions. Some shareholders wanted to wind up the company and recoup their investments as the company had about $5.6m in cash, but OCBC were not in favour of that.

5. JLI was a company on the move. It needed funds for its project, and was attracted by iProp’s $5.6m cash holdings.

6. The plaintiffs alleged that in order to thwart the move OCBC wanted to acquire a further 44.44% of the shares of iProp in August 2001 so that its shareholding would go up to 57.23%, and iProp would become a subsidiary of OCBC. Before OCBC can acquire those shares it needed to obtain the approval of the Monetary Authority of Singapore (“MAS”).

7. The defendants did not intend to keep their interest in iProp in the long term. Even before the completion of the purchase of the additional iProp shares they entered into two deeds with the plaintiffs on 20 July 2001 which main intention and effect were that

10. The schedule mentioned in clause 1, which is also referred to as the term sheet by the parties sets out in some detail the terms for the sale of the assets -

and the latter provides that

12. Matters did not proceed beyond the deed. The next stage envisaged – the execution of the assets sale agreement between JLI and iProp, did not take place.

13. The plaintiffs complained that the defendants did not fulfill their obligations under the deeds. Ng Chee Yong, a Vice President of OCBC who had dealt with the plaintiffs on behalf of the defendants up to 31 August 2001 when he left the bank, gave evidence on behalf of the plaintiffs. He deposed that when the defendants proposed buying the 44.44% additional iProp shares, the bank’s senior management was concerned that MAS may not approve the acquisition unless there was a third party to buy over the shares from the bank.[1] He recalled that when MAS approval was granted on 20 July 2001 with no requirement for the bank to divest those shares, it came as a pleasant surprise to Winston Koh Teow Hock, Senior Vice President, OCBC, the most senior OCBC officer directly involved in the matter. Ng deposed that “Mr Winston Koh made it known to me and some of the others … that in his view there were other (better) ways of deploying iProp’s cash”[2] and was not challenged on this part of his evidence. Koh denied that he was surprised by the unconditional approval[3] but admitted that he was looking for other investment opportunities for iProp.[4]

14. It was not long that the first sign of trouble appeared. OCBC completed the acquisition of the additional iProp shares on 29 August 2001. This was the Event which marks the commencement of the 30 days for the assets sale agreement to be concluded.

15. The plaintiffs were not a party in that transaction, and would not have first hand knowledge of it. They complained that they were not informed of it. Kwa Kim Chiong, the plaintiffs’ director and the principal person engaged in the transactions on behalf of the plaintiffs, deposed that he only came to know about it from a newspaper article. He sent an email to Simon Seow Hung Ming, a Vice President of OCBC he was dealing with that

17. Seow put the matter in a different light in his affidavit. He deposed that “I had contacted Kwa by telephone to inform him of the purchase of the … shares. Kwa subsequently confirmed this by email on 3 September 2001.”[5] He misread Kwa, who was not confirming anything, but was seeking confirmation. His assertion does not match his reply of 5 September which did not show any puzzlement over Kwa bringing up something that he was informed of over the telephone. And if indeed Kwa was informed of that, why was he excited over the newspaper article? After looking at the correspondence and observing the two witnesses, I found Kwa’s account clearly preferable to Seow’s.

18. There was another sign of discord – Seow’s request in the last paragraph of his email that Kwa should abide by the confidentiality undertaking and his unhappiness over Kwa telling Riady Hardjabrata, the acting CEO of iProp appointed by the defendants, of the agreement between the plaintiffs and the defendants. He insisted that the plaintiffs not inform iProp of the deeds and term sheet, and he took no action himself to inform iProp about them.

19. Kwa was concerned by the defendants’ hands-off stance and the insistence on keeping the deeds and term sheet confidential from iProp. He replied to Seow that

22. Riady was not informed of the nature of the proposed transaction with JLI. His evidence that towards the end of August 2001

was not disputed.

23. Winston Koh apparently held a more relaxed view on confidentiality. To him the deeds were confidential, not the term sheet. He said

24. The fact was Kwa was only informed of Seow’s restrictive view and Riady was only informed of the agreement on 28 September, the original deadline for securing the assets sale agreement. If Koh had communicated with Kwa and Riady directly better progress may have been made.

25. Kwa submitted a business plan to iProp on 6 September, but Riady found it wanting and requested for more information on the financial projections and assumptions. When he did not receive the further information, he sent a reminder of 13 September.

26. On 17 September Kwa requested Seow to forward the detailed business plan to Riady. Seow replied to on the following day that he had to deal directly with Riady and that Riady would evaluate the business plan and place it before iProp’s board of directors. Kwa sent the plan to Riady, but reiterated to Seow that there was no requirement for it and that the plaintiffs were doing it to assist the defendants. He also asked that the assets sale agreement be signed by 25 September.

27. There was no agreement signed on 25 September. Instead the plaintiffs received letters from the defendants giving notice that any failure by JLI to secure the assets sale agreement by 28 September would be regarded by them as a breach of the deed.

28. The plaintiffs replied by their solicitors Arthur Loke Bernard Rada & Lee (“ALBR&L”) to the defendants’ solicitors Shook Lin & Bok (“SL&B”) on 28 September. They informed the defendants’ solicitors that the understanding between the parties was that the defendants were to prepare the draft assets sale agreement and to procure iProp’s performance of the term sheet. They informed the defendants’ solicitors that the plaintiffs were nevertheless prepared and delivered to iProp a draft assets sale agreement incorporating the terms in the term sheet, and that the defendants were required to procure the execution of the agreement.

29. On 29 September the defendants on their own initiative granted JLI an extension of 14 days to 13 October for the execution of the assets sale agreement.

32. This letter revealed the breadth and depth of the defendants’ efforts towards getting the assets sale agreement signed. There was no reference to the deed, the term sheet or the promise to procure the assets sale agreement. They believed, even after the first deadline of 28 September had passed, that they need not do anything more active than inform iProp that “(w)e would be pleased to assist you in any way reasonably necessary to facilitate and expedite the signing of the S&P Agreement.”

33. In the event the plaintiffs were not able to persuade iProp to accept the terms in the term sheet.

34. When no assets sale agreement was signed by 13 October, the defendants informed the plaintiffs that they regarded that as a repudiating breach by JLI of the deed, and they treated the deed as terminated.

35. The negotiations continued beyond 13 October without a withdrawal of the notice of termination. Given the disagreements that had arisen, it could not have come to anyone’s surprise that those attempts failed, and iProp was eventually wound up.

No issue was taken whether the failure to secure the agreement was caused by the alleged breach.

37. The plaintiffs’ case is that “upon the completion of the Defendants’ acquisition of the additional iProp shares (with the result that iProp became a subsidiary of OCBC), the Defendants have a contractual obligation to procure iProp to enter into the iProp Assets Sale Agreement in accordance with Clause 1(a) of the JLI Deed”,[9] which counsel explained meant that they have to take reasonable steps to obtain the agreement.[10]

39. The parties agree that the defendants were not under an absolute obligation to secure the assets sale agreement, and were only obliged to take reasonable steps/use their best endeavours to get it executed. The question then is whether the defendants had done that.

40. The plaintiffs pointed to many instances where they claimed that the defendants failed in their duty. They complained about the defendants’ request for a further business plan, their refusal to prepare the draft assets sale agreement and other perceived defaults, but I shall deal with the more basic ones which related to the defendants’ non-disclosure of the Event, the defendants’ insistence on non-disclosure of the deed and term sheet, and the defendants’ level of involvement in the transactions.

42. I have found that the defendants did not inform the plaintiffs of the completion of purchase of the additional iProp shares. If they had been earnest in keeping to their commitments under the deed, they would have informed the plaintiffs that the Event had occurred and the 30-day countdown had started since time was of the essence.

43. Seow’s request to Kwa to exercise caution with regard to the confidentiality undertakings in the deed when they negotiated with iProp prevented the negotiations from starting with the plaintiffs informing iProp of the terms they and the defendants had agreed to. If the defendants had shared the plaintiffs’ anxiety in seeking the agreement, they would have allowed disclosure, as they were entitled to do, subject to necessary and appropriate conditions. This is more unfortunate because Koh would have allowed the term sheet to be disclosed to iProp, but that was not communicated to the plaintiffs.

45. I do not understand why it was unwise to do that. One might think that good corporate governance would commend that they as the majority shareholders inform iProp of the deeds and the term sheet so that the management and the minority shareholders of iProp would have all the facts before them when they decide whether to support or oppose the sale.

46. As a result of the defendants’ position, the plaintiffs were not able to inform iProp of the deed and the term sheet. As I have found in paras 22, 31 and 32, the defendants themselves did nothing to acquaint iProp on the agreements that they had reached with the plaintiffs on the sale of iProp’s assets.

47. The defendants contend that their obligations are restricted to using their best endeavours to facilitate the execution of the assets sale agreement. They disputed and denied the plaintiffs’ complaints, but they did not identify what endeavours they made to discharge that duty. They should have stated “The plaintiffs are wrong to say we did not do enough, because we have used our best endeavours”, and enumerate the efforts they have made. There was little or no involvement, encouragement or assistance from them to help secure the agreement. They did not want to be involved except to refer iProp to five investment prospects including JLI for its consideration. They suggested that attention was to be focussed on the deal with Sygate because of a deadline for the deal in late September, but made no reference to the 28 September deadline for the deal with the plaintiffs.

48. Accepting and adopting the defendants’ construction that they had to use their best endeavours, what does that involve? In IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335 a dispute arose out of a contract for the sale of land. The sale was conditional to planning permission being obtained. The purchaser agreed “to use its best endeavours to obtain” it. The purchaser made an application for approval, but when it was rejected it did not exercise its right of appeal against that decision. The purchaser asserted that it had used its best endeavours but this was not accepted by the Court of Appeal. Geoffrey Lane LJ held at p 345

49. In Sheffield Railway Co v Great District Railway Co (1911) 27 TLR 451, the defendant company undertook “to use their best endeavours” to develop the traffic system of the plaintiff company. The plaintiff alleged that the defendant failed to discharge its duty because it continued to treat the plaintiff company as a competitor. AT Lawrence J held at p 452

I do not think that the law as stated in these cases has changed.

51. Against this backdrop, the irresistible conclusion is that the defendants have failed to use their best endeavours to get iProp to execute the assets sale agreement. They have therefore breached clause 2 of the deed. Judgment will be entered against them, with costs, and damages to be assessed by the Registrar.

[1] Affidavit of evidence-in-chief of Ng Chee Yong paras 22-3

[2] Affidavit of evidence-in-chief of Ng Chee Yong paras 35-6

[3] Notes of Evidence page 108

[4] Notes of Evidence page 109

[5] Affidavit of evidence-in-chief of Seow Hung Ming Simon para 96

[6] Affidavit of evidence-in-chief of Riady Hardjabrata

[7] Notes of Evidence page 115

[8] Plaintiffs’ Opening Statement para 21, Defendants’ Opening Statement para 2

[9]Plaintiffs’ Closing Submissions para 24

[10]Notes of Evidence page 69

[11]Defendants’ Opening Statement para 27

[12]Notes of Evidence page 157