High Court · Decided 15 September 2010

E C Investment Holding Pte Ltd v Ridout Residence Pte Ltd and another (Orion Oil Limited and another, Interveners)

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[2010] SGHC 270Case no. Originating Summons No 1357 of 2009

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Companies Act 1967

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Quentin Loh J:
Background
[1] 39A Ridout Road, Singapore, (the “Property”), is a rectangular plot of land comprising some 40,600 square feet, or 3779 square metres, in a good class bungalow area. A two-storey house together with a swimming pool and tennis court sits on this elevated plot with good frontage of about 170 feet, (52 metres), along Ridout Road and a generous depth of 240 feet, (73 metres).
[2] The 1 Defendant, a company incorporated in Singapore, is the registered proprietor of the Property. Mr Agus Anwar, (“AA”), is its only director and shareholder. The 2 Defendant, Hong Leong Finance Ltd, (“HLF”), is a mortgagee having provided credit facilities of $30 million to AA to finance the purchase of the Property and for AA’s share trades. HLF registered its mortgage over the Property on 18 September 2006. Mr Phua Siow Choon, for HLF, informed me that as of 16 July 2010, the sum outstanding to the 2 Defendant was $20,346,252.42 and interest was accumulating at about $5,408 a day.
[3] Two parties are claiming specific performance of the sale of the Property to them:
(a) the Plaintiff, EC Investment Holding Pte Ltd, claims specific performance of the sale of the Property to it under an Option dated 5 June 2009, (the “1st Option”), for a purchase price of $20 million; and
(b) the 2nd Intervener, Mr Thomas Chan Ho Lam, (“TC”), also asks for specific performance of the sale of the Property to him under an Option dated 7 October 2009, (the “2nd Option”), but at a purchase price of $37 million.
[4] The 1 Intervener, Orion Oil Ltd, a BVI company, (“Orion”), claims an interest in the proceedings by virtue of its charge registered against the 1 Defendant pursuant to a Deed of Charge dated 24 September 2008 over the proceeds of sale of the Property. Orion says it made a loan of $10 million to AA pursuant to a loan agreement dated 22 September 2008 and it is secured by the Deed of Charge given by the 1 Defendant.
Mr Agus Anwar’s Financial Woes
[5] From his affidavit dated 23 December 2009, (set out in 2.AB pp 400-461), in separate proceedings, (OSB No 58/2009/V), AA appears to have been a man of some means. He was originally an Indonesian citizen and businessman, holding a Masters in Mechanical Engineering from Fachhochschule Dusseldorf, Germany. At one time he was a significant shareholder in two Indonesian banks, PT Bank Kredit Asia and PT Bank Pelita, but in the 1997 financial meltdown, there was a run on “his” banks and they were taken over by an Indonesian Government agency known as IBRA in 1998. AA came to Singapore in 2000 to start on a clean slate. In 2004 he became a Singapore citizen. Having worked in the financial sector for most of his working life, AA became an investor in several companies. This included acquiring a 28% stake in the Singapore Petroleum Company in 2003 through his own company, Kapital Asia Co. Ltd, (“Kapital Asia”), and a substantial stake in Keppel Telecommunications and Transportation Ltd as well as coal mines in Indonesia.
[6] AA purchased the Property in September 2006 for $28 million. He put up $11 million and the stamp duty of over $744,000 from his own funds and took the balance $17 million from a facility of $30 million extended to him by HLF earlier in June 2006. As noted above, HLF registered its mortgage over the Property in September 2006.
[7] On 16 May 2008, HLF recalled the loan and terminated their facility. Payment was not forthcoming and HLF eventually commenced OS No. 1458 of 2008/A, obtaining an Order of Court on 2 February 2009 for the 1 Defendant to deliver vacant possession of the Property and for AA to pay the $20,742,627.50 that was due as of 12 November 2008 under the mortgage. AA was coming under increasing financial pressure. His investments were then badly hit by the global financial crisis sparked off by the collapse of Lehman Brothers in September 2008. AA made partial payment of $505,847 in March 2009 and $1.35 million over April and May 2009. In May 2009, HLF was pressing AA to reduce his outstanding loan of $19.638 million to $18 million.
[8] It was within this context that AA came to give the 1 Option to the Plaintiff. This will be dealt with in greater detail below.
[9] HLF filed a Writ of Possession on 22 September 2009 and vacant possession of the Property was delivered to HLF on 22 October 2009. There were a number of abortive attempts to auction off the Property but I was told by counsel during the interlocutory stages that the auction, after the grant of the 1 Option, was put off because there were certain assurances from the Plaintiff to HLF that the Plaintiff will make good any shortfall from the 1 Defendant for the outstanding loan. I was told by counsel during the hearing that this assurance is no longer there, presumably because this matter went into full blown litigation with rival claims being made. In any case, HLF have their security and no purchaser can get unencumbered title unless HLF’s mortgage is discharged.
Mr Anwar’s Section 45 Bankruptcy Act Individual Voluntary Arrangement
[10] It is necessary to deal with an intervening development. At an interlocutory hearing on 18 May 2010, I was told by counsel for the 1 Defendant, Prof Tan Cheng Han SC, that a Court Order had just been made under section 45 of the Bankruptcy Act (Cap 20, 2009 Rev Ed) (the “Bankruptcy Act”), ordering all matters against AA to be stayed for 42 days. Prof. Tan SC had been shown a copy of a trust deed stating that the 1 Defendant was holding the Property on trust for AA. Mr Alvin Yeo SC, counsel for TC and who was applying for an interim injunction, took the position that the facts surrounding the trust deed should certainly be investigated and he for one wanted to inspect the same. I ordered, inter alia, that the 1 Defendant’s team secure copies of this trust deed and circulate copies to all counsel to take instructions.
[11] AA filed OSB No. 58 of 2009/V on 23 December 2009 and obtained an order under section 45(3) of the Bankruptcy Act (the “section 45(3) IVA Order”) from Choo J on 17 May 2010. AA had to submit his proposal by the end of June 2010.
[12] On the first day of the hearing of this OS, 5 July 2010, Mr David Chan from Messrs Shook Lin & Bok LLP appeared stating that he was acting for AA’s nominees under AA’s Individual Voluntary Arrangement, (“IVA”) and asked for the proceedings to be stayed pending the decision of the Creditors’ Meeting scheduled for 23 July 2010. Mr Chan said the IVA proposal had been submitted to the nominees on 25 June 2010. The notices had “been done”, (which I take to mean had been drafted and finalised), and they would be sent to all creditors shortly.
[13] Mr Chan submitted that I should not be making any orders for specific performance because the Property was part of AA’s assets. The Property was listed as belonging to him personally in his affidavit setting out his assets. Any disposal of the Property by me in these proceedings was therefore caught by the section 45(3) IVA Order and would be disposing off an asset of AA’s insolvent estate. Mr Chan said the Property was worth much more than $37 million today but accepted that he had no valuation to back that statement from the bar. Mr Chan’s oral application was opposed by all counsel present on various grounds.
[14] Mr Lee Eng Beng SC, counsel for the Plaintiff, (who had just taken over the matter from their previous lawyers), took objection not only to the lateness of the application and lack of notice but also to the legal basis of Mr Chan’s application that the Property should fall into AA’s insolvent estate. Mr Lee SC said the application must falter on the well-known principle that if a party entered into a contract to purchase property, the beneficial ownership shifts to the buyer and if there is a supervening bankruptcy, the bankruptcy takes subject to the buyer’s interest. Mr Yeo SC agreed and submitted on a more basic point, and I agreed with him – that there was no proper application supported by an affidavit before me. Mr Yeo SC reminded me that when I first learned of the section 45(3) IVA Order at the PTC on 18 May 2010, I asked Prof Tan SC and his instructing solicitor, Mr P Balachandran, to invite Messrs Shook Lin & Bok LLP to attend the next PTC and update all concerned on those proceedings. They did not. Nor did they write to any of the parties.
[15] I therefore informed Mr Chan that we were proceeding with the taking of the evidence for the rest of that week and oral submissions were going to be made the following week on 15 and 16 July 2010. That would give him the time, if his clients wished, to intervene and take out a proper application supported by an affidavit. In the event, no such application took place. It will also be noticed that AA was giving evidence in these proceedings and had filed four affidavits, (6 January, 9 April, 25 June and 1 July 2010).
The Plaintiff’s Case
[16] The Plaintiff contends that its case is very simple and straightforward. The terms of the deal between the Plaintiff and the 1 Defendant are very clearly and unambiguously set out in the 1 Option and the Deed of Settlement dated 8 June 2009 (the “Deed of Settlement”). In exchange for a $1.5 million option fee, the Plaintiff was granted an option by the 1 Defendant to purchase the Property for $20 million. That option could be cancelled by the 1 Defendant within 60 days of the execution of the Deed of Settlement by payment of a cancellation fee of $180,000 and refund of the option fee of $1.5 million. If the 1Option was not cancelled, the Plaintiff would be entitled to exercise the 1 Option to purchase the Property at $20 million.
[17] The 1 Defendant failed to cancel the 1 Option by failing to make repayment of the $1.5 million option fee and “compensation” of $180,000 within the 60 days and the Plaintiff therefore claimed specific performance.
[18] All the technical issues raised by the 1 Defendant, the 1 and 2 Interveners were raised to obfuscate the simple and unarguable fact of the Plaintiff’s prior, valid and enforceable right to purchase the Property. This attempt to detract from the Plaintiff’s undisputable legal position was no doubt due to the dramatic rise in the value of the Property since June 2009.
The 1 Defendant’s Case
[19] The 1 Defendant contends that it holds the Property on trust for AA. The whole transaction was intended as a loan from the Plaintiff to AA and/or the 1 Defendant, of which AA was the sole shareholder and director. The 1 Defendant, acting through AA, never intended to sell the Property. Because it was truly a loan, the loss of the Property upon default amounted to a penalty. Further, the 1 Option and Deed of Settlement was in effect an illegal moneylending transaction under sections 2, 3 and 14 of the Moneylenders Act (Cap 188, 2010 Rev Ed) (the “Moneylenders Act”) and was therefore void and unenforceable. The 1 Option and Deed of Settlement was a cloak to disguise a loan made at a monthly interest of 6% per month or 72% per annum. Also, in the circumstances the 1 Option and Deed of Settlement were vitiated by reason of illegality, fraud, duress and/or misrepresentation.
[20] The 1 Defendant also alleged that the Plaintiff was estopped from enforcing its rights under the 1 Option and Deed of Settlement. The 1 Defendant was always ready and willing to repay the sum. The 1 Defendant alleged an agreement to vary the terms of the Deed of Settlement and that it duly attempted to repay the sum by a cheque for $1.68 million on 7 August 2009 which was rejected by the Plaintiff. The 1 Defendant also contended that there was a valid compromise agreement between the parties that the transaction be cancelled for an agreed sum. There is some dispute as to when this compromise was reached and whether the compromise payment was $3.5 million or $5 million, (inclusive of the $1.5 million). The 1 Defendant also claimed an entitlement to recover damages from the Plaintiff for all additional interest payable to HLF by reason of the 1 Defendant’s inability to sell the Property due to the Plaintiff’s action and all damages which the 1 Defendant may have to pay the 2 Intervener.
HLF’s Case
The 1 Intervener’s Case
[22] The 1 Intervener alleges it made a loan of $10 million to AA pursuant to a loan agreement dated 22 September 2008 and a supplemental loan agreement dated 24 September 2008. The 1 Defendant agreed to grant a charge over the balance of proceeds of sale of the Property and this is evidenced by the Deed of Charge over Proceeds dated 24 September 2008, which was duly registered against the 1 Defendant.
[23] The issues between the Plaintiff and the 1 Intervener are:
(a) Whether the Plaintiff wrongfully rejected the 1 Defendant’s cancellation of the 1 Option under the Deed of Settlement;
(b) Whether the purported sale of the Property to the Plaintiff was at an undervalue and was in contravention of section 340 of the Companies Act (Cap 50, 2006 Rev Ed); and
(c) Whether the Plaintiff induced the 1 Defendant to act in breach of its contractual obligations to the 1 Intervener.
The 2 Intervener’s Case
[24] TC contends that there is a binding contract of sale for the Property and seeks specific performance. He argues that he obtained the 2 Option from the 1 Defendant acting through its only shareholder and director, AA, to purchase the Property at $37 million. He paid the option fee of $1 million to the 1 Defendant on 8 October 2009 and properly exercised his option on 6 November 2009 and paid a further $850,000 to the 1 Defendant to do so. The $1.85 million amounted to 5% of the purchase price. TC also paid the stamp duty of $1.1 million around 20 November 2009 on the 2 Option. TC contends that there is no challenge by the 1 Defendant or any other party to the validity of the 2 Option or to its exercise to constitute a binding contract for the sale of the Property. TC also points out that his purchase price is more than sufficient to discharge HLF’s claims with a surplus available to AA (or his creditors).
[25] TC adopts the issues as between the Plaintiff and the 1 Defendant challenging the Plaintiff’s claim that the 1 Option is a valid and binding right to purchase the Property. TC’s main contentions are:
(a) the Plaintiff has not come to court with “clean hands” as is required of a party seeking equitable relief;
(b) Clause (B)(b) of the Deed of Settlement which provides for the exercise of the 1st Option in the event the Defendant fails to pay the loan in accordance with the Deed of Settlement is unenforceable as a penalty;
(c) the Plaintiff’s purported loan and security are unenforceable for being in contravention of the Moneylenders Act;
(d) even if the Plaintiff’s claim is valid, which is denied, the Plaintiff is estopped from claiming specific performance as it had agreed with the 1st Defendant to waive its right to complete in exchange for payment of a sum of money and/or its recent application in Summons No. 2585 of 2010/G (an application for, inter alia, leave to discontinue its action against HLF, that the proceeds for any mortgagees sale of the Property be paid into court, that the proprietary interests of the Plaintiff, the 1st Defendant and 1st and 2nd Interveners shall subsist in the monies so paid into court, leave be given to the 2nd Defendant to withdraw Summons No. 1724 of 2010/A, with costs to be paid by the Plaintiff to the 2nd Defendant);
(e) in any event the Plaintiff is not entitled to specific performance as (i) it would cause hardship on the 1st Defendant, (ii) the transaction is unfair to the 1st Defendant, and (iii) the conduct of the Plaintiff does not entitle it to an equitable remedy.
Findings of Fact
[26] Save for [28] – [31], [36]-[38] and what happened after 11 August 2009, which I shall deal with in detail later, the following facts are not really in contention. Insofar as they are disputed, then the following are my findings.
[27] In May 2009, AA was being pressed by HLF to reduce his loan to $18 million or face foreclosure. AA was quite desperate for funding and put the word out in the market that he was looking for a loan.
[28] One of the persons through whom AA put the word out was Mr Lim Kheng Lim Ivan, (“Ivan Lim”), the Managing Director of Global Exotic Cars Pte Ltd. Ivan Lim, who was subpoenaed by AA, had dealings with AA since 2000. Ivan Lim’s evidence was not very clear. He had difficulty remembering details and I therefore find his evidence of peripheral utility. What he could say with some degree of certainty, and I so find, was that:
(a) AA was looking for lenders for short term finance in May 2009;
(b) Ivan Lim spoke to about 5 people and none were interested; one of the persons he spoke to was Lim Swee Hoe, (“LSH”), who initially was not interested;
(c) However there were “...a few friends who were quite interested...” to purchase the Property, not to lend AA money;
(d) Ivan Lim told AA that no one was prepared to lend money but there were persons interested to purchase the Property; and
(e) AA’s secretary gave Ivan Lim a Valuation Report from Colliers International dated 15 April 2009, (the “Colliers Valuation”).
(See Notes of Evidence, 9 July 2010, pp 145-147)
Ivan Lim then gave LSH a copy of the Colliers Valuation to see if there were any persons “...interested or not ... [t]o do the deal...” (See Notes of Evidence, 9 July 2010, p 140) and subsequently LSH found someone and they all met up at the lawyer’s office in the CPF Building. LSH’s evidence on whether AA was prepared to sell rather than to just borrow money and whether the Plaintiff was only interested to buy the Property was vague and even contradictory. I therefore could not place much reliance on his evidence on this score.
[29] LSH is a director of LSH Realty Pte Ltd, the real estate agents who acted for the Plaintiff in this matter. LSH had acted for the Plaintiff in 2 or 3 transactions prior to this. He confirms Ivan Lim spoke to him about AA wanting a loan but LSH knew of no one who was prepared to lend money. LSH alleges that he spoke to Mr Tan Koo Chuan (“KC Tan”), a director of the Plaintiff, but he was not interested; KC Tan allegedly said in reply that they were property developers and not money lenders. LSH met Ivan Lim at the latter’s office at some later date and Ivan Lim showed LSH the Colliers Valuation. LSH recalled that the Colliers Valuation had two figures, $29 million and $23-point-something million (See Notes of Evidence, 7 July 2010, p 100); this was in fact a reference to the Colliers Valuation of the Property in mid-April 2009 at $29 million and a forced sale value of $23.2 million. LSH showed this to KC Tan and his reaction was that he was only prepared to buy at the lowest possible price. According to LSH, KC Tan also knew AA was in urgent need of funds (see Notes of Evidence, 7 July 2010, p 102 lines 19-21). A meeting was subsequently set up with the lawyers. I find LSH’s evidence not the most reliable. He was not clear on details and understandably took the side of the Plaintiff in giving some of his answers. However his evidence was not pivotal. Two points of some interest emerge from his evidence:
(a) First, he confirmed that AA telephoned him on 6 August 2009 saying that the $1.68 million would be paid on 7 August 2009. LSH’s AEIC states that his response to AA was: “...please talk to the lawyers...”. During cross examination he admitted he had informed KC Tan about this telephone conversation and request. This was not in his AEIC.
(b) Secondly, although LSH was asked why, if as he says he was acting for the Plaintiff and not the 1 Defendant, he sent a lawyer’s letter to the 1 Defendant demanding payment of a commission for the sale of the Property. That letter of demand was sent on 11 November 2009 by Messrs Tan Lee & Partners, (“TLP”), the same lawyers acting for the Plaintiff. LSH was obviously caught off guard by these questions and gave the most unconvincing answers as to why such a demand was made. He claims that it was to make a claim on behalf of Ivan Lim since Ivan Lim did not have a real estate agent’s licence and he and Ivan Lim had agreed to split the commission, but this was never put to Ivan Lim (see Notes of Evidence, 7 July 2010, pp 105-106); the Plaintiff’s lawyer, Mr Lee Chow Soon (“CS Lee”) of TLP, also gave a very unconvincing explanation as to why his firm sent out this letter. To a direct question whether he understood LSH was acting for the Plaintiff, CS Lee claimed, not that he did or did not know, but that, “I cannot confirm that.” I unfortunately find that very evasive and difficult to accept as true. CS Lee was a conveyancing lawyer with many years of experience in that field. His first answer, (at Notes of Evidence, 8 July 2010, pp 45-48), was very garbled:
I find that CS Lee wrote that letter, knowing that LSH was not the Plaintiff’s agent, but like sharks circling around bleeding prey, opportunistically made a claim when there was no basis to do so. This is all the more so when one considers what was going on at that point in time, this is something I will come to later. Despite CS Lee’s central role in this matter, the only excuse he could muster was that LSH instructed him to make the claim and he just did so.
[30] I find that as at end May or early June 2009, AA had been unsuccessful in raising short term finance to meet HLF’s demand that he reduce his indebtedness to them. AA then contemplated using the Property as a means of raising money. For reasons which I shall elaborate on later, he did not contemplate selling the Property, but to use it as security or collateral. On the Plaintiff’s side, I find that they sensed an opportunity to make money. If they could drive a hard bargain, they had nothing to lose. If AA managed to pay off the $1.5 million, they would reap a profit of $180,000 for their 60-day loan. If AA did not manage to pay off the $1.5 million, they had the option to purchase the Property at $3.2 million below the forced sale valuation of $23.2 million.
[31] I find that the Plaintiff discussed this with CS Lee who structured this as an “Option” for the sale and purchase of property and a “Deed of Settlement” which gave the vendor an opportunity to cancel the option upon repaying the loan with “compensation” – no doubt an euphemism for interest.
[32] AA’s evidence on this early period leading to the meeting on 5 June 2009 was contradictory and hopelessly tangled. Nonetheless I find that there is some truth in Prof Tan SC’s submission that AA was a “big picture” man who did not pay attention to details. AA struck me as someone who has been struggling with insolvency for some time. During cross-examination he said whatever was expedient to him at that moment, whether it contradicted his affidavits or not. Some of his answers, for example, that he never authorised Ivan Lim to seek financing using the Property and was unsure how Ivan Lim came to possess a copy of the Colliers Valuation, (see Notes of Evidence, 8 July 2010, pp 177 and 185), just did not make any sense when viewed against the objective and documentary evidence and could not be believed. AA’s lawyer, Mr Low Yew Shen, (“YS Low”), from Ng Chong & Hue LLC, (“NCH LLC”), whose evidence I accept, said in his AEIC that AA told him that the 1 Defendant had negotiated “...a plan to raise money by using the property known as 39A Ridout Road...” (See Notes of Evidence, 8 July 2010, pp 61-63).
[33] Through LSH and Ivan Lim, the respective lawyers for the parties and their contact information was exchanged. Consequently, on 2 June 2009, YS Low sent an email to TLP’s CS Lee referring to their request for and attaching HLF’s Statement showing the outstanding sum of $19,638,690.19 as of 31 May 2009. On 3 June 2009, CS Lee sent YS Low a draft Option and draft Deed of Settlement for his perusal and comments:
(a) The draft Option had the appearance of a standard option, subject to the Singapore Law Society’s Conditions of Sale 1999, with a purchase price of $20 million. However, some unusual features were that the option money or fee was $2 million (10% of the purchase price) with no further sum to be paid on exercise of the Option. Also, there was a long option period of almost 4 months (up to 30 September 2009). The sale and purchase was to be completed within 16 weeks from the date of acceptance or exercise of the Option. The $2 million option fee was to be treated as payment towards the purchase price upon exercise of the Option but if not, it “...shall be forfeited by the Vendor”.
(b) The draft Deed of Settlement recited that an Option had been granted by the Plaintiff to the 1 Defendant for the sale of the Property for the option fee of $2 million and the “...Vendor and the Purchaser have since negotiated and it is now agreed...” inter alia, that (i) the Vendor has the option to cancel the Option within 60 days “...from today...” and subject to (ii) the Vendor refunding the Purchaser the option fee of $2 million, (iii) paying a lump sum compensation of $250,000, failing which the Purchaser “...may...” proceed to exercise the Option within the option validity period and complete the sale and purchase according to the terms of the Option. If the Vendor chose to cancel the Option, it had to give notice forthwith in writing and forward, together with such notice, a Cashier’s Order for the sum of $2,250,000 made in favour of the Purchaser (see 1.AB pp 157A-157I).
YS Low said in his AEIC that he explained the documents to AA although AA took the view that this was a financing arrangement. NCH LLC returned the drafts with some comments by email on 4 June 2009, two of which were that the purchase price should be $22 million, not $20 million and that the Option should only be open for acceptance up to 31 August 2009 (See 1.AB pp 158-159).
[34] A meeting was convened for 5 June 2009 at TLP’s office. The persons present at this meeting were as follows: on the Plaintiff’s side, Mr Melvin Poh, (“Melvin”), another director, KC Tan and CS Lee; on the 1 Defendant’s side, AA, Mr Panthradil (“Panthradil”), the CFO of AA’s Kapital Asia (now re-named InvestoAsia) and YS Low. YS Low arrived at the meeting late but his legal assistant, Mr Mario Tjiong, was there earlier. LSH and Ivan Lim were also present. AA, Melvin and KC Tan were meeting each other for the first time.
[35] The finer details as to what occurred at this meeting are strongly disputed. Each side put forward evidence supporting its theory of the transaction, viz., the Plaintiff was only interested if it was a sale of the Property, the 1 Defendant and AA never intended to sell the Property and was forced in his desperation for immediate funding to agree to their terms, which included forcing the “loan” down to $1.5 million. I find the detailed evidence on these main themes from all the witnesses unreliable. Each side and their witnesses were stating what was favourable to their respective cases. At the end of that meeting there was an Option and a Deed of Settlement that were signed by the parties. Those are the terms that bind the parties.
[36] I find that the following relevant facts did take place during this meeting on 5 June 2009:
(a) CS Lee produced a search on AA which showed numerous actions against AA. CS Lee, KC Tan and Melvin said there was therefore a significant credit risk for the Plaintiff in going forward with the deal. At a separate break-out meeting, when there were only 3 of them, KC Tan and Melvin told AA in no uncertain terms that they were only willing to go up to $1.5 million for the upfront option fee and that the “price” had to be reduced from $22 million to $20 million.
(b) AA agreed to this $1.5 million option fee under the circumstances then prevailing. KC Tan, Melvin and AA then rejoined the meeting. By that time YS Low was present. More than one witness said that they heard YS Low say to AA: “Pak ... are you sure? ... its $20 million – are you sure ...” and AA’s reply: “... don’t worry, I don’t need 2 months, I can settle this in one month...”. AA entered into the deal confident that he could get funds within one month which would enable him to cancel the 1 Option. He knew the default position was that the Plaintiff could proceed to purchase the Property (however see my findings below on events after 11 August 2009).
(c) The deal that was finalised was the 1 Option and Deed of Settlement with the essential terms set out above except that (i) the Option provided for a purchase price of $20 million and an option fee of $1.5 million, (ii) the Option period was up to 4 pm on 31 August 2009, (iii) completion was to be within 12 weeks from the date of acceptance of the Option, (iv) that the Vendor had the option “... within 60 days from today...” to cancel the Option by notice in writing, subject to (v) refunding the option fee of $1.5 million and paying compensation of $180,000 to the Purchaser. The other terms of note, which were also in the earlier draft, were (vi) payment for cancellation of the Option was to be by Cashier’s Order to be forwarded together with the written notice of cancellation whereupon the Option was to be null and void and neither party was to have any claim against the other for damages, loss, cost or otherwise, (vii) if the Vendor did not cancel the Option as provided in (iv) above, then the Purchaser or its nominee may proceed to exercise the Option and complete the sale and purchase according to the terms of the Option, (viii) time was of the essence and (ix) subject to the terms of the Deed of Settlement, the Purchaser shall be entitled to enforce all their rights against the Vendor in any manner howsoever including institution of legal proceedings and seeking judgment and enforcement on the basis of the admission herein by the Vendor of the payments herein stated.
(d) The purchase price on the 1 Option was below the Colliers’ forced sale valuation of $23.2 million.
(e) Although the 1 Option and the Deed of Settlement were both signed at the meeting of 5 June 2009, the 1 Option was dated 5 June 2009 and the Deed of Settlement was left blank and subsequently dated 8 June 2009. There is some uncertainty as to who dated the Deed of Settlement. YS Low’s recollection was that TLP dated it and LSH’s recollection was that YS Low or someone in his office dated it when it was brought back after the meeting to NCH LLP to affix the common seal of the 1 Defendant. YS Low said and I accept his evidence, that it was clear to all, including the lawyers, that the Deed of Settlement was to be dated a later date than the 1 Option because CS Lee felt it would be “strange” if the 1 Option and Deed of Settlement were dated the same day, (see Notes of Evidence, 8 July 2010, p 96). I find that CS Lee, on behalf of the Plaintiff insisted on this and everyone agreed or at the very least acquiesced.
[37] The Deed of Settlement provided that AA could exercise his right to cancel the 1 Option “…within 60 days from today...” (emphasis added). The use of the word “today” raises two possible dates – was the 60 days to run from 5 June 2009, ie, when the Deed of Settlement was signed, or 8 June 2009, ie, the date appearing on the Deed of Settlement? If it was purely governed by the terms appearing on the Deed of Settlement, then it would probably be the latter because it was expressed to be made on 8 June 2009; under the second recital, the parties “...have since [the 1 Option] negotiated...” and “... it was now agreed...etc”; the parties “... set their hands and seals on this 8 day of June 2009…”. However, all parties accepted that the Deed of Settlement was signed and executed on 5 June 2009. The relevant phrase used was not the usual “...within 60 days from the date hereof...” but “...from today...” [emphasis added] and in the context must be taken to mean the day the parties executed the Deed of Settlement, viz, 5 June 2009. It must have been due to this ambiguity, and I so find, that the lawyers, CS Lee and YS Low, discussed what the last day for the cancellation of the 1 Option was. YS Low then sent a fax on 5 August 2009 to TLP referring to a telephone conversation between YS Low and CS Lee on 4 August 2009, confirming that AA had until 6 August 2009 to cancel the 1 Option.
[38] As noted above, AA alleged that he telephoned LSH on 6 August 2009 and asked him if he could pay the $1.68 million (the $1.5 million option fee and the $180,000 compensation fee) by cheque on 7 August 2009 and LSH, on behalf of the Plaintiff, agreed asking AA to send his cheque to the lawyers. LSH denies agreeing at all and says his response to AA was to ask him to talk to the lawyers. LSH admitted in cross-examination that he informed KC Tan of this request. LSH also said he told KC Tan that he asked AA to speak to the lawyers but denied the suggestion that KC Tan agreed to the request. I find that LSH did not agree to AA’s request or say that the Plaintiff agreed to his request. He did not have the authority to do so. There is no evidence that KC Tan agreed to this request, on the contrary, I find it more probable than not that KC Tan realised AA was having trouble making payment and cancelling in time and waited to have AA over a barrel. In his usual haphazard way, AA did make the request and assumed it was forthcoming or agreed to when it was not.
[39] On 7 August 2009, NCH sent a letter to TLP enclosing AA’s cheque for $1.68 million but there was no reference to this alleged agreement from LSH. This would be strange given that just 2 days before this, YS Low had written to CS Lee to confirm their discussion and agreement that the last day to cancel the 1 Option was 6 August 2009. Furthermore, payment must be by way of a Cashier’s Order under the terms of the Deed of Settlement. YS Low said in his AEIC that AA telephoned on 6 August 2009 to inform him that he had agreed with LSH to pay the $1.68 million by cheque on 7 August 2009. But YS Low could not give any convincing explanation why he did not refer to the agreement in his letter of 7 August 2009. I find that inexplicable as was his first reason given under cross-examination that he did not do so because there were no details given to him about the agreement and subsequent retraction and then the proffering of the excuse that he did not because AA told him CS Lee knew about it. I do not find YS Low to be dishonest, but more someone who could not recall exactly what happened and put forward a version that was more favourable to his former client. Given that the lawyers agreed only 2 days earlier that the last day for cancelling the 1 Option was 6 August 2009, and payment was to be by way of Cashier’s Order with time being of the essence under the Deed of Settlement, anyone would have expected the 7 August 2009 letter to refer to an agreement varying these two important terms. But it did not.
[40] It is therefore not surprising that on 11 August 2009 (7 August 2009 being a Friday and 10 August 2009 being a public holiday), TLP wrote to NCH LLP rejecting the cancellation of the 1 Option as being out of time and for non-compliance with the mode of payment and returning the cheque. Strangely, this letter did not say anything about proceeding to complete the sale and purchase of the Property. It should also be noted that under cross-examination, AA admitted that he did not have $1.68 million in his Maybank account to meet that cheque if it was presented for payment (see Notes of Evidence, 9 July 2010, pp 35 and 36). I do not accept his later attempt to explain that he could have found the funds from friends if necessary. He clearly had no more friends who could lend him money, otherwise he would not have been in that predicament in the first place.
[41] It will be convenient to state my further findings of fact in relation to the specific issues raised by the parties later and I first turn to deal with AA’s defences of duress and unconscionability as vitiating the 1 Option. AA has also raised misrepresentation. This was not pursued in cross-examination or Closing Submissions and rightly so. There is accordingly no need to deal with this issue, and in any case it does not arise at all on the facts of this case.
Duress
[42] It has long been recognised that a party may be able to avoid a contract for duress where he entered it because of a wrongful or illegitimate threat or pressure by the other party, normally because the threat left him with no practical alternative: see Chitty on Contracts, Vol.1, General Principles, (Sweet & Maxwell, 13th Ed) at para 7-001. The traditional categories of illegitimate pressure or threats were those of violence to the victim’s person or a threat to destroy or damage property or, (after some doubt), a threat to seize or detain goods wrongfully, (see eg, Maskell v Horner [1915] 3 KB 106; Occidental Worldwide Investment Corp v Skibs A/S Avanti [1976] 1 Lloyd’s Rep 293 at 335; The Evia Luck [1992] 2 AC 152, overruling Skeate v Beale (1840) 11 Ad & E 983; Chitty at para 7-012). These traditional categories seldom trouble the courts today. The older analyses justifying duress as having one’s will overborne, or acting involuntarily or not having a free choice, have since Lynch v DPP of Northern Ireland [1975] AC 653 given way to the more flexible and realistic concept of not having no choice at all, but leaving the party with a choice between two evils or choosing unwillingly in circumstances which prevents the law from accepting what has happened as a valid contract in law: per Lord Wilberforce at 680 or, in the words of Lord Simon at 695, it “…deflects without destroying the will of one of the contracting parties ... thereby making the contract voidable”. This change inevitably led to the question whether economic duress was a possible vitiating factor in contracts.
[43] One year later, Kerr J was able to state in Occidental Worldwide Investment Corp v Skibs A/S Avanti [1976] 1 Lloyd’s Rep 293 at 333-334 that it could. The learned judge was of the view that duress was not necessarily limited to cases of threats to the person or in relation to goods but the true question was ultimately whether or not the agreement in question was to be regarded as having been concluded voluntarily. In that case a slump in charter rates occurred soon after charter parties were entered into. The charterers used strong coercive threats of allowing themselves to go bankrupt, as they had no substantial assets (which was untrue), if the owners did not re-negotiate charter hire. On the facts, Kerr J held at 336 that even though the owners were acting under great pressure when they entered into the re-negotiated terms, it was only commercial pressure and not under anything which could in law be regarded as a coercion of will so as to vitiate the consent. Kerr J took into account the fact that the owner made no protest in entering into the re-negotiated terms and had at all times treated the agreement then reached as binding. The plea of duress thus failed (although the defence of fraudulent misrepresentation succeeded). This decision, recognising economic duress as a ground to avoid a contract, was followed 3 years later in North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd and Another (The Atlantic Baron) [1979] QB 705 at 718-719 where shipbuilders renegotiated a 10% increase in the price for construction of a vessel with a threat to break their contract when they had no basis to do so. The owners feared losing a lucrative charter if there was a delay in delivery of the vessel and reluctantly agreed, reserving all their rights. Mocatta J held at 719-720 that this amounted to economic duress entitling the owners to set aside the renegotiated rates, but on the facts, there had been a subsequent waiver of the right to avoid the re-negotiated contract. Accordingly the owners’ claim failed.
[44] In Pao On v Lau Yiu Long [1980] AC 614, the Privy Council, on appeal from the Court of Appeal of Hong Kong, considered the applicability of economic duress as a ground for rendering a contract entered into between commercial parties voidable. Lord Scarman, who delivered the judgment of the Privy Council, stated at 634:
Lord Scarman stated at 635-636 that there is nothing contrary to principle in recognising economic duress as a factor which may render a contract voidable, provided always that the basis of such recognition is that it must amount to a coercion of will, which vitiates consent. Lord Scarman emphasised that commercial pressure is not sufficient and in determining whether there is a coercion of the will, it is material to consider the following factors:
[45] In Universe Tankship Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366, Lord Diplock stated at 384 the rationale for the doctrine of economic duress but declined to elaborate on what would amount to legitimate commercial pressure which did not give rise to duress:
[46] Economic duress as a vitiating factor in contracts has also been adopted in Singapore. In Third World Development Ltd v Atang Latief and another [1990] 1 SLR(R) 96, the Court of Appeal was able to say at [17]: “Assuming that there was some pressure – commercial pressure – exerted on the appellant at the time of his execution of the undertaking, such pressure does not constitute economic duress unless it amounts to a coercion of his will which vitiates consent...” referring to the Pao On decision. Some 11 years later, in Sharon Global Solutions Pte Ltd v LG (International) Singapore Pte Ltd [2001] 2 SLR(R) 233, Kan J noted at [30] that economic duress as a ground for avoiding contractual obligations is still in its formative stage of development and the acts that constitute economic duress and the effect they must have on the receiving party have not been defined with certainty or finality. Kan J was of the opinion that in determining whether a case of economic duress has been made out, it is necessary to consider all the circumstances of the case, including the state of mind of the parties.
[47] In Wu Yang Construction Group Ltd v Zhejiang Jinyi Group Co Ltd [2006] 4 SLR(R) 451, a case on the tort of conspiracy and use of unlawful means, Phang J (as he then was), rejected the older analysis of the overborne will theory and adopted, obiter, at [78], Prof Atiyah’s view of “coercion” or “vitiation of consent” from the “... perspective of pressure that so distorts the voluntariness of the consent of the party that is the alleged victim of economic duress that the law regards such pressure as illegitimate. And what the law regards as illegitimate becomes, from that particular perspective, situations where there has in effect been no consent at all.” The learned Judge then referred to the Court of Appeal decision noted above, Third World Development Ltd v Atang Latief, which cites with approval the Occidental Worldwide Investment Corp and Pao On cases, and states that the concept of vitiation of consent should now be read in light of the Commonwealth precedents; this includes the New South Wales Court of Appeal decision in Crescendo Management Pty Ltd v Westpac Banking Corp (1988) 19 NSWLR 40, another Privy Council case on appeal from New Zealand, R v Her Majesty’s Attorney-General for England and Wales [2003] UKPC 22 and Dimskal Shipping Co SA v International Transport Workers Federation [1992] 2 AC 152. The learned Judge also said at [77] that there is a close analogy with the tort of conspiracy with its two-fold formulation of an unlawful act and “lawful act duress”. Where acts are lawful in themselves, it would be “extremely difficult” to prove economic duress simply because the doctrine of economic duress generally requires proof of illegitimate pressure, as opposed to mere commercial pressure. This is something that was taken up in a more recent case.
[48] In Tam Tak Chuen v Khairul bin Abdul Rahman [2009] 2 SLR(R) 240, Prakash J cited at [22] Universe Tankships Inc of Monrovia where Lord Scarman stated that there are two elements in the wrong of duress:
(a) pressure amounting to compulsion of the will of the victim; and
(b) the illegitimacy of the pressure exerted.
With regards to the second element, ie, what constitutes an illegitimate pressure or threat, Prakash J cited Nelson Enonchong, Duress, Undue Influence and Unconscionable Dealing (Sweet & Maxwell, 2006) (“Enonchong”) at para 3-031:
Prakash J further considered at [50] the categories listed in Enonchong of circumstances which indicate when a threat of lawful action is illegitimate:
Prakash J held at [62] that once the plaintiff had proved that illegitimate pressure had been exercised on him, it was up to the defendant to prove that the pressure had not contributed to the plaintiff’s decision to execute the agreement. With respect, I adopt these principles espoused by Kan J, Phang J (as he then was) and Prakash J as correct statements of the law of contract in Singapore in relation to duress, with one caveat.
[49] I do not think Enonchong’s basis at para 3-031 cited above should be adopted without a great degree of caution. The proposition that if the threat comprises lawful action, but the terms secured “...are so ‘manifestly disadvantageous’ as to make it unconscionable for the defendant to retain the benefit of it...” [emphasis added], if accepted, would open the door to uncertainty. It comes too close to re-writing disadvantageous contracts. We should not regress to those days where equity is measured by the length of the Lord Chancellor’s foot. Whilst I accept that doctrines like unjust enrichment are useful tools in equity’s armoury to prevent injustice, unconscionability has not been accepted in Singapore as a separate ground for vitiating a contract. Unconscionability should remain in equity and discretionary remedies, including calls on performance guarantees or bonds. It is worth repeating the warning of Enonchong that courts must approach the issue of duress with caution because of the need for certainty in commercial contracts and the bargaining process. It has been said time and again that our courts are always mindful of the need for contractual certainty and predictability, especially in commercial contracts, see eg, Zurich Insurance (Singapore) Pte Lte v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR(R) 1029 at [111] and Forefront Medical Technology (Pte) Ltd v Modern-Pak Pte Ltd [2006] 1 SLR(R) 927 at [26]. We are not yet in Utopia and so there remains a distinct and discernible difference between what is “illegitimate” and what is “unconscionable” and it is worth remembering that what is unconscionable is not necessarily illegitimate.
[50] I therefore cannot accept Prof Tan SC’s suggestion that the Wu Yang Construction Group Ltd case should be read to suggest a wider concept of duress than cases like that of Universe Tankships Inc of Monrovia. Consider the facts of Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, where a main contractor, refurbishing a block of flats, entered into a subcontract for the carpentry work with a subcontractor for £20,000. As is not uncommon, the subcontractor got into financial difficulty after carrying out some of the work, partly due to the fact that he underpriced for the work and partly because of his inability to properly supervise his labour workforce. There was little doubt that the subcontractor would be delayed in completing his subcontract works. The main contractor knew that if the subcontractor delayed him, he would suffer hefty liquidated damages under his main contract with the owner of the block of flats. The main contractor called for a meeting with the subcontractor and agreed to pay the subcontractor an extra £10,300 at the rate of £575 extra per flat to ensure the main contractor’s completion date is not delayed. After the subcontractor completed 8 more flats, the main contractor only paid a further £1,500. The subcontractor sued the main contractor who argued that the subcontractor furnished no consideration for the promise of extra payment. Equally this could be said to be duress vitiating the agreement to make the additional payment. The English Court of Appeal held that the main contractor had obtained a practical benefit as a result of the subcontractor’s promise to complete on time and that was sufficient consideration. But would it be different if it was the subcontractor who called the main contractor for the meeting? Why should it depend on who called the meeting if the message passed was the same – “if you do not pay me more, I will be in delay or may not be able to complete my work at all”. How different then would this be from the threat in Occidental Worldwide Investment Corp or North Ocean Shipping Co Ltd? These kinds of situations arise all the time in construction contracts.
[51] There should therefore be two elements kept firmly in mind for actionable duress. As held by Prakash J in the Tim Tak Chuen case, first, pressure amounting to compulsion of the will of the victim, and secondly, the illegitimacy of the pressure exerted. I do not say that lawful pressure can never amount to duress, for that would be constraining the doctrine unjustifiably bearing in mind why it was developed in the first place, but it certainly will be a very rare case indeed for a contract to be set aside for duress when only lawful means or pressure was used.
[52] Thirdly, lawful commercial pressure must never be mistaken for “duress” capable of avoiding a contract. The learned author in Treitel, The Law of Contract (Sweet & Maxwell, 12th Ed, 2007) at para 10-005 sets out some helpful comments in distinguishing between “commercial pressure” and “unfair exploitation”:
Lastly, the question then of whether a transaction was entered into as a result of duress is a question of fact, taking into account all the circumstances of the case. It is apt to remember the approach espoused by Dyson J in DSDN Subsea Ltd v Petroleum Geo-Services ASA [2000] BLR 530, at 545:
[53] Turning to the present case, in all the circumstances of the case, did the pressure amount to compulsion of AA’s will and was that pressure illegitimate such that AA’s consent was vitiated? Since AA is the only shareholder and director of the 1 Defendant, I treat AA as being synonymous with the 1 Defendant and where appropriate, references to AA will include the 1 Defendant.
[54] The following paragraphs also contain my further findings of fact if not already been made above.
[55] If the Plaintiff had agreed to lend AA $2 million with the Property as security, delayed matters to the last minute and when AA turned up to pick up his cheque he was then presented with a loan agreement, a smaller sum of $1.5 million and an option to sell the Property to the Plaintiff for $20 million (instead of $22 million) which was even below the forced sale value, and it was by then too late for AA to refuse and look for other sources of funds, then applying the above authorities, there may have been sufficient illegitimate pressure and coercion of AA’s will to set aside the option to purchase the Property at $20 million. I emphasize the word “may”.
[56] The fact is that AA had been unsuccessful in raising a loan and was coming under increasing pressure to reduce his loan with HLF. I have made my findings on how the Colliers Valuation ended up in LSH and the Plaintiff’s hands. On AA’s own lawyer’s evidence, AA had told him that he had negotiated a plan to raise money using the Property (see [32] above). CS Lee structured the deal with his draft Option and Deed of Settlement and this was sent to YS Low two days before the 5 June 2009 meeting. YS Low said, and I accept his evidence, that he discussed these documents, and I find that this includes the structure of the deal, with AA. YS Low also confirmed that AA understood his advice (see Notes of Evidence, 8 July 2010, p 79). AA says he passed the drafts to Panthradil and in the car on the way to the meeting on 5 June 2009, Panthradil explained to him the effect of the documents. Under cross-examination Panthradil said that he received the draft Option and draft Deed of Settlement on or after 3 June 2009 and upon reading them, said to AA: “Hey, Pak, this looks like you’re selling the property.” Panthradil said AA’s response was: “No, I will clear it before that. Its just the structure to enable the borrowing”, (see Notes of Evidence, 9 July 2010, p 130 lines 14 to 18). I accept Panthradil’s evidence over AA’s version. Panthradil said when he saw the cancellation and the factoring in of the interest he saw the documents as a secured loan structure. Panthradil said they were desperate for funds because no one was going to lend AA $2 million “clean”. I therefore find that AA intended to use the Property as security for the loan.
[57] As for the 5 June 2009 meeting, Panthradil says the figure was $22 million (for the 1 Option) and to borrow $2 million. That was what YS Low also said in response to the drafts sent to him on 3 June 2009. However, it should be nonetheless noted that the drafts first sent by CS Lee to YS Low stated $2 million for the “option” and $20 million as the purchase price under the option and there was no subsequent agreement between the lawyers to revise those figures. There was therefore no agreement on these figures prior to the meeting on 5 June 2009.
[58] AA is a seasoned businessman who has been through much in his business career. The figures were not final when the meeting commenced on 5 June 2009. There was no promise or agreement. A deal had been proposed, the drafts had been with AA’s lawyer and his CFO. I find that they were there to negotiate. During the course of the meeting, searches had been made and the actions against AA were tabled. Based on the information on the searches, CS Lee stepped out of the meeting room to discuss this with his clients, KC Tan and Melvin. Subsequently, AA did negotiate with KC Tan and Melvin alone in a break-out meeting, but when he returned to the main meeting, he had his CFO and his lawyer with him. A number of witnesses heard them ask him if he was sure of what he was doing and he was confident he could settle the “loan” in one, or at the maximum, 2 months and therefore cancel the 1 Option given to the Plaintiff. There was certainly no protest or suggestion of illegitimate pressure from AA or his advisers or that some understanding had been breached.
[59] The fact that AA was very desperate for funds and that fact was known to the Plaintiff only meant that they had the upper hand in the negotiations. That was a legitimate commercial advantage and not pressure because the Plaintiff was not obliged to lend AA money: see CTN Cash and Carry Ltd v Gallaher Ltd [1994] 4 All ER 714, where a threat by a supplier, who enjoyed a monopoly in the distribution of certain goods, not to provide the buyer with urgently needed credit facilities in future transactions if certain payment, which it genuinely believed was owing to them, was not paid was held not to constitute duress. Holding otherwise would mean that many hard pressed debtors would be able to avoid contractual obligations on this ground. That fact alone cannot amount to unlawful exploitation or illegitimate pressure. The truth is, and I so find, that AA entered into this transaction and signed the 1 Option and Deed of Settlement because he was confident he could repay that sum within one or two months. AA had the benefit of advice from his lawyer and his CFO, both of whom were also with him at the 5 June 2009 meeting. He understood what he was signing. I therefore cannot see how there is any duress in this case that could vitiate the contract or that there is any illegitimate coercion which vitiated the will.
[60] At this stage, it suffices for me to hold that what was entered into was a secured loan with a twist, the security could be enforced at a price that had no relation to and was below the then forced sale value indicated on the Colliers Valuation. I will deal with this in detail later but this brings us to whether this agreement is “unconscionable” and if so, can it be set aside as a matter of contract law.
Unconscionability
[61] The facts relied upon by the defendant in seeking to establish the defence of unconscionability largely overlaps with those relied upon for the defence of duress. If the doctrine of economic duress is still in its formative stage of development, then it will be all the more so for the doctrine of unconscionability: see Gay Choon Ing v Loh Sze Ti Terence Peter and another appeal [2009] 2 SLR(R) 332 at [112] and [114].
[62] Prof Tan SC bravely submitted that this was an appropriate time to cautiously recognise and apply this doctrine. There exists a broad doctrine of unconscionability in Commonwealth jurisdictions like Canada, Australia, New Zealand, and as well in the USA, where unconscionability is used to set aside contracts in a far broader range of situations than under English law. In Canada, unconscionability is found when there is “...proof of inequality in the position of the parties arising out of the ignorance, need or distress of the weaker, which left him in the power of the stronger...”: see Morrison v Coast Finances Ltd (1965) 55 DLR (2d) 710 at 713 (BCCA), or when “…the transaction, seen as a whole is sufficiently divergent from community standards of commercial morality that it should be rescinded…”: see Harry v Kreutziger (1978) 95 DLR (3d) 231 (BCCA). In Australia, the doctrine of unconscionability is broader in two respects than in Canada in that it is not always necessary for the weaker party to have suffered detriment from the bargain and the Canadian grounds of ignorance, need or distress are replaced by a longer and open ended list: see Blomley v Ryan (1956) 99 CLR 362. However Australian law requires the stronger party to know the weaker party’s disadvantage and to take advantage of it, see Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447. The doctrine in New Zealand is closer to the Australian position: see Hart v O’Connor [1985] 2 All ER 880. In the USA, the doctrine is enshrined in Section 2-302 of the Uniform Commercial Code and it is often treated as part of their common law if the Code is inapplicable.
[63] The starting point for the doctrine of unconscionability in contract law is Cresswell v Potter [1978] 1 WLR 255 where Megarry J stated at 257 that three requirements had to be met in order to set aside a contract on the ground of unconscionability:
(a) whether the plaintiff was poor and ignorant;
(b) whether the sale was at a considerable undervalue; and
(c) whether the vendor had independent advice.
Few would quarrel with the above formulation of the doctrine. However, Megarry J stated that the euphemisms of the 20 century may require the word “poor” to be replaced by “a member of the lower income group” or the like, and the word “ignorant” by “less highly educated” and he added that the three requirements were not the only circumstances which would suffice but that there may be circumstances of oppression or abuse of confidence which would invoke the aid of equity.
[64] In Rajabali Jumabhoy and others v Ameerali R Jumabhoy and others [1997] 2 SLR(R) 296, Prakash J was concerned with whether an option to purchase shares in a company granted to its director was liable to be set aside on the ground of, inter alia, unconscionability. Prakash J cited Megarry J and rejected the defendants’ submission on this issue at [197] to [198]:
[65] Prakash J was concerned that the uncertain concept of “special disability” recognised by the Australian courts would undermine contractual certainty, which forms the bedrock of all commercial contracts in Singapore. I respectfully agree. The common law ensures that parties are not allowed to simply rely upon their inferior bargaining power to subsequently set aside disadvantageous agreements freely entered into when things go awry. I also respectfully agree with what the learned Judge said at [195]:
[66] I do not think unconscionability as a vitiating factor in contract forms any part of Singapore law, in spite of the rather tentative comments, undoubtedly dicta, of the Court of Appeal in Gay Choon Ing, at least not until the time comes for an abandonment of the doctrine of consideration in favour of doctrines like economic duress, undue influence and unconscionability. We already have the doctrines of undue influence, constructive fraud in equity and even non est factum in contract for the protection of the weak, the elderly, the very young and the ignorant. To do more and put forward a fledgling doctrine of unconscionability, without some considered, comprehensive and rational basis, and which the Court of Appeal itself recognises is not without its own specific difficulties (at [114]), would be in my respectful view to inject unacceptable uncertainty in commercial contracts and in the expectations of men of commerce. Where this is needed it is best left to Parliament. Hence we have the Unfair Contracts Terms Act and no doubt in time to come, we will have specific consumer legislation, as in other Commonwealth countries.
[67] AA cannot by any standard be said to be “poor and ignorant”. He entered into the agreement with the Plaintiff having had the benefit of legal advice. He had his CFO on hand. In any case, AA fails to meet two of Megarry J’s three criteria. Even though he was facing severe financial difficulties, a fact which the Plaintiff was clearly aware of, this would not entitle him to the defence of unconscionability as set out in Creswell v Potter.
The True Nature of the Transaction Entered into on 5 June 2009
[68] The 1 Option and Deed of Settlement entered into by AA with the Plaintiff are therefore not susceptible to being set aside for duress or, even if there was such a ground, unconscionability. This brings us to the question: what exactly was the transaction that the Plaintiff and 1 Defendant entered into. Both parties, perhaps understandably, overstated their case. The Plaintiff’s KC Tan and Melvin insisted that they were only out to buy the Property, and they built in a handsome compensation if AA chose to cancel the 1 Option. AA on the other hand insisted that he only entered into a loan transaction.
[69] The true analysis in law must be this: if A only wanted a loan and made that clear, and B only wanted to buy A’s property and made that clear and B openly and to the knowledge of A, agreed to lend money on terms, then short of applicable vitiating factors, they willingly enter into an agreement on terms that are clear, then A and B are bound by their agreement.
[70] However that is not the true analysis of these two documents. Apart from its unusual terms, it was not an option simpliciter. There was a contemporaneous Deed of Settlement that was meant to work in tandem with the 1 Option and both were executed at the same time. I find that the idea originated from the Plaintiff and between KC Tan, Melvin and their lawyer, they structured the deal and documentation accordingly. CS Lee agreed in cross-examination that he gave his “input” to his clients and their instructions. The idea of calling the second document a “Deed of Settlement” was his and I find that the idea to date this later than the 1 Option was also, despite his denial, at CS Lee’s insistence (see Notes of Evidence, 8 July 2010, p 34). CS Lee was evasive and combative in cross-examination but it was more in the spirit of putting forward the best case for his client and defending his part in the structuring of the deal. Whilst at times he came close to it, CS Lee did not cross the line. But it did damage the credibility of his version of the facts. The 1 Option, as noted earlier, has a number of very unusual features. More than that, it was accompanied by a rather misleading Deed of Settlement, which was signed at the same time as the 1 Option, but the language contained there was, as CS Lee himself admitted, apt to “mislead” an uninformed party of the true situation. CS Lee admitted in cross-examination this was an “unusual transaction” and despite his efforts in trying to equate this to a granting of an option and a genuine subsequent agreement to cancel the option, the effect of his evidence was that he had not done this kind of deal before.
[71] Despite the claims of the Plaintiff otherwise, I find that on the evidence of the parties and the documents, the true nature of the 1 Option and the Deed of Settlement was to disguise a loan with security, the security being the Property. There are many objective factors that point to this in addition to the unusual terms and the need for two documents as set out above.
[72] First, I find it telling that in all the evidence of the 5 June 2009 meeting, no one really negotiated the purchase price, in the sense of bargaining over it, and this was despite the many statements of intention. I find that the focus of the meeting was on AA’s ability to repay the $1.5 million and compensation. The Plaintiff’s KC Tan and Melvin also admitted that the “purchase price” of $20 million had no relation to the value of the Property and it was referenced to the outstanding loan of the 1 Defendant to HLF (see Notes of Evidence, 5 July 2010, pp 37-38 and 7 July 2010, pp 7-8). The only valuation that was in existence then – the Colliers Valuation – had a forced sale value of $23.2 million. Even with ex post facto justification, the Plaintiff’s valuation expert, Mr Daniel Ee, put the forced sale value at the relevant time as $21.6 million. It was totally illogical and highly unlikely that three experienced businessmen would “agree” upon a genuine purchase price that was significantly below that of the forced sale value. I cannot see how KC Tan and Melvin could believe AA would agree to such a proposal – to sell below the forced sale value just for an immediate loan of $1.5 million - when AA could just let HLF take over the Property and sell it for at least $23.2 million. AA would have cleared his loan with HLF and have a balance of some $2 to 3 million left over. The draft documents prior to the 5 June 2009 meeting showed no agreed price nor agreed “option fee”. I do not accept the evidence of KC Tan and Melvin that they only wanted to purchase the Property at the “lowest” price and were not interested in giving any loan.
[73] Secondly, there was another very telling fact. The evidence of the parties was, and I so find, that what was put on the table, “hot-off-press”, was a search made on AA on 5 June 2009 itself and it showed many actions against AA. It is not in dispute that KC Tan and Melvin used this high “credit risk” to push the option fee down from $2 million to $1.5 million. CS Lee, who is a very senior and experienced conveyancer, had to admit that it is not disputed in law (a point that I shall deal with below), that AA’s financial position would not affect the 1 Defendant’s, as contradistinct to AA’s, ability to give good title as registered proprietor in a conveyancing transaction. Both KC Tan and Melvin admitted that they knew and were advised that they could buy from a registered proprietor unaffected by the interest of a shareholder or beneficiary under a trust in relation to the company; in short, AA’s personal financial status would not affect the purchase of the Property (see Notes of Evidence, 6 July 2010, pp 87-88; 8 July 2010, pp 19-20). If they were really only interested in the purchase of the Property, these actions against AA would not have affected any “credit risk” and they could proceed with the purchase unaffected by AA’s personal financial position.
[74] It is appropriate to say at this juncture that I find KC Tan’s evidence very unreliable. He feigned ignorance on many things and kept up the simple mantra that he was only interested in property, smelt a good deal and went after it. He very unconvincingly tried to maintain that unless something was in writing, there was no contract. He ended up getting tangled in his own mind over the effect of an oral agreement. His answers came quite close to AA’s approach in saying what suited his purpose, irrespective of whether that made sense or not. I find that he is no simpleton, he is shrewd and street-smart. Although he chose to give his evidence in Chinese, he spent most of his time intently reading the live note before him instead of listening to the translator. He was very combative and a good example of his sparring with counsel and not answering the question appear at the Notes of Evidence, 7 July 2010, pp 43 to 53. Melvin fared better. He came across as a very intelligent, calm and collected witness. But under relentless cross-examination, his untenable positions came through and his lack of candour became evident. He maintained he was concerned over AA’s financial position even after he admitted he was advised that it did not affect his right to buy from a registered proprietor (see Notes of Evidence, 6 July 2010, pp 81-82). There were also times when he clearly understood the question but played for time by pretending not to understand the question and asked for it to be repeated or simplified.

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E C Investment Holding Pte Ltd v Ridout Residence Pte Ltd and another (Orion Oil Limited and another, Interveners)

Laws this judgment relies on

Grounds of decision

Background

Mr Agus Anwar’s Financial Woes

Mr Anwar’s Section 45 Bankruptcy Act Individual Voluntary Arrangement

The Plaintiff’s Case

The 1 Defendant’s Case

HLF’s Case

The 1 Intervener’s Case

The 2 Intervener’s Case

Findings of Fact

(See Notes of Evidence, 9 July 2010, pp 145-147)

Duress

Unconscionability

The True Nature of the Transaction Entered into on 5 June 2009