eSys Technologies Pte Ltd v nTan Corporate Advisory Pte Ltd

Andrew Phang Boon Leong JA (delivering the judgment of the court):

[1] This is an appeal against the decision of the High Court Judge (“the Judge”) in eSys Technologies Pte Ltd v nTan Corporate Advisory Pte Ltd [2012] SGHC 136 (“the Judgment”). It raises, in the main, issues of contractual interpretation of crucial terms between a financially distressed company and a corporate finance and restructuring expert.

[2] eSys Technologies Pte Ltd (“the Appellant”) is engaged in the business of distributing computer hardware and in particular hard disk drives. Its founder is Vikas Goel (“Mr Goel”), who is also a 99.999% shareholder and managing director of the company. The Appellant’s commercial relationship with Seagate Technology (“Seagate”), a US-based multinational company which designs, manufactures and markets hard drives, was critical to its business. In particular, the Appellant relied heavily on its distributorship agreements with Seagate as 40% of its sales comprised Seagate products.

[3] On 6 November 2006, Seagate decided to terminate its worldwide distributorship agreement with the Appellant and filed a public announcement with the US Securities and Exchange Commission (“the SEC Announcement”) to this effect. The SEC announcement alleged that:

(a) The Appellant had committed material breaches of its distribution agreements with Seagate;

(b) The Appellant had refused to allow Seagate to perform a contractual audit of its sales records to confirm the accuracy of its rebate claims;

(c) The Appellant’s officials had indicated that an audit would reveal irregularities in the Appellant’s compliance with the terms of Seagate’s sales incentive programs and other unspecified irregularities;

(d) Some US$50 million was owed by the Appellant to Seagate; and

(e) Seagate fully intended to pursue its contractual audit rights and claims against the Appellant.

[4] The SEC announcement not only had a crippling effect on the Appellant’s bottom-line but also seriously damaged its commercial reputation. In particular, it raised alarm among the Appellant’s trade and bank creditors and prompted demands for the repayment of, or additional security for, outstanding loans amounting to a total of some US$50 million. In addition, the Appellant’s bank creditors cancelled some US$132 million of credit lines and its suppliers cancelled another US$90.5 million of credit lines. The cancellation of these various credit lines dried up the Appellant’s cashflow and threatened the company’s survival as a going concern as it was heavily dependent on credit to facilitate its trading operations. One of the bank creditors, KBC Bank (“KBC”), even spoke to the Appellant about KBC’s intentions to appoint a judicial manager.

[5] Given the deluge of creditors’ demands, the key problem facing the Appellant was the fact that, as it was a trading company whose primary assets were inventories and receivables, it needed time to first realise its inventories and collect its receivables, in order to perform its repayment obligations. In the meantime, the Appellant required help to stave off the creditors’ demands and prevent them from commencing legal action.

[6] In this connection, the Appellant’s legal advisors, Drew & Napier LLC, recommended nTan Corporate Advisory Pte Ltd (“the Respondent”). On 11 November 2006, an urgent meeting was arranged between Mr Goel and Nicky Tan (“Mr Tan”), Chief Executive Officer of the Respondent.

[7] On 14 November 2006, it was decided that the Appellant would engage the Respondent as an independent advisor. An agreement for the “appointment of independent advisor” was executed between the Appellant and the Respondent (“the Engagement Letter”).

[8] The Engagement Letter was drafted by the Respondent and under the heading “Scope of Work” it listed the following material items (“the Scope of Work Clause”):

[9] In addition, under the heading “our fee arrangements”, it was set out that there would be two distinct component of fees due to the Respondent:

(a) Time costs fee, out of pocket expenses (including fees of any experts or professionals) and such other fees as may be provided for in any addendum to the Engagement Letter (“Time Cost Fees”);

(b) A Value Added Fee (“VAF”) computed at 5% of the Total Gross Value Added (“TGVA”).

[10] The TGVA is defined to be the sum total of the following (“the VAF Clause”):

(a) Value of the Group’s liabilities written off, extinguished, avoided or restructured;

(b) Fair value of new assets injected and recovered by the Group;

(c) Value of new equity and/or debt raised by the Group; and

(d) Any other value add agreed with [the Appellant] and the Group.

[11] Under paragraph 8 of Appendix A to the Engagement Letter, it was further provided that, even after termination of the engagement, the Respondent would continue to be entitled to any VAF earned if the Appellant adopted or implemented its advice relating to the scope of work within 36 months from the date of such termination.

[12] Upon execution of the Engagement Letter, the Appellant placed a deposit of S$2 million (“the deposit”) with the Respondent. The Engagement Letter also provided that, at the end of the engagement, the balance of the deposit after setting off all fees and expenses would be returned to the Appellant.

[13] Following the Respondent’s engagement, it proceeded to organise a meeting with the Appellant’s bank creditors. The purpose of the meeting was to convince the various bank creditors to agree to a standstill, pursuant to which the bank creditors would withhold their demands for repayments and give the Appellant more time to repay its debts (“the Bank Liabilities”). The Respondent thus undertook the preparation of the necessary materials for the bank creditors’ meeting with this goal in mind. In accordance with the advice from Mr Tan, the Appellant offered to appoint PricewaterhouseCoopers as the bank creditors’ financial advisor in order to boost the bank creditors’ confidence in the Appellant.

[14] On 24 November 2006, the bank creditors’ meeting was held (“the Meeting”). Mr Tan chaired the Meeting and informed the bank creditors of the following:

(a) The current financial status of the Appellant;

(b) There were potential investors in the Appellant;

(c) The nature of the Appellant’s business and that it would be in the banks’ best interest to hold off their demands against the Appellant;

(d) The Appellant was in the midst of formulating a repayment plan which it was estimated would be ready in two weeks;

(e) No creditor would be paid in preference to others; and

(f) The Appellant was prepared to file an application under s 210(10) of the Companies Act (Cap 50, 2006 Rev Ed), if necessary.

[15] The Meeting ended with the banks agreeing to meet among themselves on the following Tuesday (ie, 28 November 2006). It was resolved that until then none of the banks would commence legal proceedings against the Appellant to recover the Bank Liabilities.

[16] As it turned out, even after 28 November 2006, none of the bank creditors commenced legal proceedings against the Appellant and the latter eventually managed to repay all its debts to its creditors by March 2007.

[17] The other significant work allegedly done by the Respondent related to an investment by Teledata Informatics Ltd (“Teledata”) of approximately US$100 million in the Appellant (“the Teledata Transaction”). Earlier, on 10 November 2006, soon after Seagate terminated its worldwide distributorship agreements with the Appellant, a letter of interest was sent by Teledata indicating an interest on Teledata’s part to purchase 51% of the total paid up equity shares of the Appellant for a consideration of US$60 million (“the Direct Funding Structure”). In addition, Teledata would provide a loan of US$40 million to the Appellant as working capital.

[18] According to Mr Tan, during his first meeting with Mr Goel on 11 November 2006, he had informed the latter that the Direct Funding Structure was not a good idea as it might give the bank creditors impetus to put the Appellant into liquidation so as to gain access to the fresh funds via a pari passu distribution. Instead, Mr Tan advised that the Appellant should be restructured so that it became wholly owned by a special purpose vehicle holding company (“Holdco”), with the new monies being received by Holdco, and then extended to the Appellant via a conditional secured loan.

[19] On 25 November 2006, further discussions took place between Mr Goel and Mr Tan. On 29 November 2006, a Share Subscription Agreement (“the SSA”) was entered into by the Appellant, Mr Goel, and Teledata, essentially implementing the Holdco structure for the purposes of Teledata’s investment. The company eventually used as the holding company was Rainforest Trading Limited.

[20] Mr Goel had had some specific concerns in relation to the Teledata Transaction. In particular:

(a) He was concerned to exclude the value of a piece of land in India owned by eSys India, the Appellant’s subsidiary, from the Teledata deal. This was later effected through the eSys India Transfer Structure; and

(b) He was also keen to receive a cash payout of US$5 million from the Teledata deal but Teledata was unwilling to pay him an additional sum of money, over and above the US$60 million.

Mr Tan suggested two methods of achieving this aim, viz, “the Re-evaluation Excess VG Payment Structure” and “the US$5 million VG Payment Structure”, respectively.

[21] A series of supplemental agreements to the SSA were thus also executed by the Appellant, Mr Goel and Teledata on 29 November 2006 to give effect to the above arrangements.

[22] On 4 January 2007, the Respondent issued an invoice in the sum of S$663,759.64 to the Appellant for the services rendered from 14 November 2006 to 31 December 2006.

[23] By way of a letter dated 6 February 2007, the Appellant terminated the Respondent’s appointment, and requested a refund of the balance of the deposit.

[25] The invoice of 23 February 2007 was accompanied by a letter from the Respondent responding to the Appellant’s letter of termination of 6 February 2007. The Respondent’s letter of 23 February 2007 further referred to “paragraph 8, Appendix A of our letter of appointment dated 14 November 2006”, and invited the Appellant to make proposals as to how to deal with the terms of that paragraph. This was a reference to the VAF which the Respondent could be entitled to even after termination of the engagement (see above at [11]).

[26] On 5 April 2007, an email was sent to Mr Tan by Emily Chay (“Ms Chay”), the Appellant’s Chief Financial Officer, asking for the refund of the deposit. Mr Tan replied one day later on 6 April 2007 stating that the Respondent would “deal with the deposit in accordance with the terms of [the] engagement letter”.

[27] Many months later, on 28 January 2008, Ms Chay wrote again to the Respondent. She attached a statement of account which set off the two invoices against the deposit, and pressed for the return of the remainder of the deposit with interest. On 14 February 2008, the Respondent replied to the Appellant, stating that the VAF due to the Respondent far exceeded the balance of the deposit, and that the Respondent had repeatedly asked the Appellant for the relevant information and documents to facilitate the computation of the VAF albeit to no avail. In the circumstances, the Respondent requested that the Appellant provide the said information and documents as soon as possible, in order to facilitate the computation of the VAF.

[28] On 6 August 2010, Legis Point LLC, the solicitors for the Appellant, sent the Respondent a letter of demand requesting the return of the balance deposit with interest and an account of the Respondent’s two invoices. Following a series of exchange of solicitors’ letters, on 9 September 2010 the Appellant commenced the proceedings that eventually led to the present appeal.

[29] On 22 August 2011, the Respondent filed its Defence and Counterclaim (Amendment No 1). In particular, the Respondent counterclaimed for VAF in relation to: (a) the restructured Bank Liabilities; and (b) the injection of funds via the Teledata Transaction.

[30] The court below dismissed the Appellant’s claim for an account as well as its claim for the balance of the deposit, and allowed the Respondent’s counterclaim for VAF in respect of the Bank Liabilities successfully “re-structured” by the Respondent as well as for the Teledata deal.

[31] The Judge made the following material findings:

(a) It was an implied term of the Engagement Letter that the Respondent was to provide an account to the Appellant (see the Judgment at [33]);

(b) As the Appellant’s claim for an account was a claim in equity, the doctrine of laches applied and the Appellant ought to be denied its claim for an account even though its claim was not time-barred, as it was more than three and a half years late (see the Judgment at [90] and [91]);

(c) The Appellant’s request for an account was neither genuine nor bona fide (see the Judgment at [92]);

(d) The Respondent was entitled to its counterclaim for VAF on the restructured Bank Liabilities as the informal standstill achieved by the Respondent constituted “restructuring” within the meaning of the Engagement Letter (see the Judgment at [65]–[75]); and

(e) The Respondent was entitled to its counterclaim for VAF on the Teledata Transaction as the Holdco structure was incorporated into the deal as a result of the Respondent’s advice (see the Judgment at [80]).

[32] There are three issues which arise for consideration before this court:

(a) Was the Respondent under a legal duty to render an account to the Appellant with regard to the two invoices sent by the former to the latter; and, if so, has the Respondent in fact discharged that duty (“Issue 1”)?

[33] Let us consider each of these issues seriatim.

[34] It is now common ground between the parties that it was an implied term (presumably, a “term implied in fact”) of the Engagement Letter that the Respondent was obliged to provide an account to the Appellant.

[35] The law relating to “terms implied in fact” in the Singapore context is clear. The governing tests to be applied by the court concerned in ascertaining whether or not a term should be implied “in fact” in relation to any given contract are the “business efficacy” test and the “officious bystander” tests. The tests complement each other, with the officious bystander test constituting the practical mode by which the business efficacy test is implemented (see generally the recent decision of this court in Foo Jong Peng and others v Phua Kiah Mai and another [2012] 4 SLR 1267 (as well as the authorities cited therein), which decision reaffirms these established principles in the local context and which does not follow the Privy Council decision of Attorney General of Belize and others v Belize Telecom Ltd and another [2009] 1 WLR 1988, at least in so far as that decision departs from the principles just mentioned). Applying both tests to the present case, it is clear (as the Judge found) that a term ought to be implied “in fact” in the manner set out in the preceding paragraph. It is surely necessary to give business efficacy to the Engagement Letter that the Appellant be furnished with sufficient information by the Respondent to determine whether the latter’s fees (as contained in the two invoices) are justified. Indeed, if the officious bystander had asked whether such information ought to be given, the parties would have unanimously suppressed him with a testy “Oh, of course!” As the Judge pointed out, this was buttressed – and, in fact, borne out – by testimony given on behalf of the Respondent itself (see the Judgment at [32]).

[36] However, counsel for the Respondent, Mr Edwin Tong (“Mr Tong”), sought to argue that this particular implied term also required the Appellant to request an account within a reasonable time and that this element had not been met in the present case as the Appellant had only sought the information after a period of three and a half years from the issuance of the second invoice on 23 February 2007. It seems to us, however, that this argument at least overlaps, or even deals with (in substance), the same question as the argument from laches which the Judge adopted in the Respondent’s favour. It would therefore be appropriate, at this juncture, to turn to and deal directly with the argument from laches.

[37] In our view, there is a threshold difficulty in so far as the argument from laches is concerned. The Appellant premises its remedy on an implied term under the common law of contract (ie, it was a legal remedy seeking to enforce a legal right, where a statutory limitation period applies). There is local case law holding that in such circumstances the equitable doctrine of laches is not applicable. In the High Court decision of Cytec Industries Pte Ltd v APP Chemicals International (Mau) Ltd [2009] 4 SLR(R) 769 (“Cytec Industries”), Andrew Ang J observed (at [43]–[50]):

[38] There is certainly much to commend in the reasoning of Andrew Ang J in Cytec Industries as set out in the preceding paragraph (and endorsed by Quentin Loh JC as well in the High Court decision of Tan Yong San v Neo Kok Eng and others [2011] SGHC 30 at [97]–[100]) and we gratefully adopt it (subject to the caveat mentioned below at [41]–[42]). The doctrine of laches therefore cannot apply in the context of the present case.

[39] In Andrew McGee, Limitation Periods (6th Ed, Sweet & Maxwell, 2010) at para 3.021, it was also observed that:

[40] The observation by the learned author in the preceding paragraph, together with Cytec Industries, effectively disposes of the Respondent’s suggestion that there exists an implied term requiring the Appellant to request an account within a shorter period of time than that afforded to it under s 6 of the Limitation Act (Cap 163, 1996 Rev Ed) (“the Limitation Act”). Indeed, allowing the Respondent’s argument to succeed would, in our view, be to permit the Respondent to obtain by the back door what it could not obtain by the front. Given that the Appellant had six years to mount any claim under the contract entered into between the parties pursuant to s 6 of the Limitation Act, we do not see any juristic basis for the Respondent to argue that the Appellant should have brought their claim earlier based on the authorities cited above.

[41] In arriving at our decision, we are fully cognizant of Management Corporation Strata Title No 473 v De Beers Jewellery Pte Ltd [2002] 1 SLR(R) 418 (“De Beers”), where this court was willing to apply the doctrine of laches to a common law claim in restitution even though no equitable relief was sought. The proposition put forth in Cytec Industries – ie, that the doctrine of laches could not apply to a claim at common law where no equitable remedies are sought – would appear, at first blush, to contradict this court’s decision in De Beers. We note, however, that De Beers could possibly be distinguished on the basis that, unlike a claim founded on contract (as is the case in the present appeal), a claim in restitution (which was the situation in De Beers) does not, on its face, appear to fit neatly into any of the causes of action set out in s 6 of the Limitation Act (see De Beers at [32]). However, some doubt appears to have been cast on such an approach by this court in its recent decision in OMG Holdings Pte Ltd v Pos Ad Sdn Bhd [2012] 4 SLR 231 (“OMG Holdings”) where it was suggested (at [41], albeit only by way of obiter dicta) that a claim in restitution (at least in so far as it is coincident with a quasi-contractual claim) “could well be time-barred under [s 6] of the Limitation Act”. This court in OMG Holdings made this suggestion after considering, inter alia, the English High Court decision of Kleinwort Benson Ltd v Sandwell Borough Council [1994] 4 All ER 890 (“Kleinwort Benson”), where Hobhouse J was of the view (at 942–943) that the limitation period of six years for an action “founded on simple contract” was “sufficiently broad” to encompass a claim for money had and received because such a claim was quasi-contractual. It might be noted – parenthetically – that Kleinwort Benson was (as noted by the High Court in Chip Hup Hup Kee Construction Pte Ltd v Yeow Chern Lean [2010] 3 SLR 213 (“Chip Hup Hup Kee Construction”) at [17]) not brought to the attention of this court in De Beers nor to that of the High Court, whose decision (in Management Corporation Strata Title Plan No 473 v De Beers Jewellery Pte Ltd [2001] 2 SLR(R) 669) it affirmed. Be that as it may, it suffices to note, for the purposes of the present appeal, that the underlying thread in both De Beers and OMG Holdings appears to be that it would be contrary to both logic as well as public policy for there to be no applicable time constraint whatsoever to a claim founded on restitution as opposed to contract or tort (see Report of the Law Reform Committee on the Review of the Limitation Act (Cap 163) (February 2007) (Chairman: Charles Lim Aeng Cheng) of the Singapore Academy of Law at para 29 as well as Chip Hup Hup Kee Construction at [24]). Indeed, in Terence Prime & Gary Scanlan, The Law of Limitation (Oxford University Press, 2nd Ed, 2002), the learned authors also observed (in relation to the UK context, which observation applies generally) thus (at p 304):

[42] Nevertheless, the specific issues of (a) whether (and precisely when) the doctrine of laches is applicable to a common law claim; and (b) whether a restitutionary action falls within the ambit of s 6 of the Limitation Act were not argued before us (as the Respondent did not even expressly rely on the doctrine of laches, nor was its claim founded on restitution) and we would prefer not to express any conclusive view, leaving it to a future court to decide these issues when they next arise squarely for its determination. In the present appeal, it suffices for us to point out that, unlike the situation in De Beers, the Appellant’s claim is founded on contract and is regulated by the Limitation Act. Having regard to the authorities cited above, we are of the view that neither the doctrine of laches nor an obligation to request an account earlier than the period of three and a half years taken by the Appellant applies or arises in the context of the present appeal.

[43] Given our rejection of the Respondent’s arguments centring on the implied term, has the Respondent nevertheless furnished the requisite account in any event via Mr Tan’s Affidavit of Evidence-in-Chief (“AEIC”) filed on 19 October 2011 (“the 19 October 2011 AEIC”) read together with the relevant exhibits thereto? Having perused the documents just mentioned, we are of the view that there has not been a sufficient account given. We envisage that a sufficient account would have been more organised and detailed.

[44] In particular, Mr Tan deposed at para 475 of the 19 October 2011 AEIC that the system for recording time and expenses at the Respondent, and for billing clients, was through the “Time and Expense Report Excel File” which were spreadsheets maintained by each individual employee. Even a cursory review of these spreadsheets, however, reveals that they are merely a collation of the number of hours worked each day on the matter concerned by each employee, as well as of that employee’s expense claims. There is no description at all of the type of work performed by the employee who submitted the time sheets over the time period billed. This is despite the fact that the first column of each time sheet is entitled “Client Name and Description of Work”. While we acknowledge that the level of detail recorded in time sheets for the purposes of billing may vary across different industries, we are of the view that, at the very minimum, some description of the nature of work performed over each time period is necessary, for the process would otherwise be rendered perfunctory and (more importantly) of no utility and intelligibility in so far as the client (here, the Appellant) is concerned. For instance, in the present case, the Time and Expense Report filed for Mr Dan Yock Hian, a Director of the Respondent, for December 2006 merely reflects that he worked a total of 139.5 hours that month, with the breakdown of the number of hours he worked each day of that month, and nothing more.

[45] It further bears mentioning that, according to Mr Tan, the Respondent’s consultants were not subject to even the Excel spreadsheet system of recording and “it is up to them to keep their own time records in a manner which suits them”. In addition, Mr Tan himself was also not subject to the Excel spreadsheet system of recording and instead he apparently kept a manual record of the hours he spent on the various matters.

[46] For the purposes of providing an account to a client in order to justify billings, it is evident that the spreadsheets provided by the Respondent were manifestly lacking. Indeed, Mr Tan himself implicitly accepted this when he said at para 478 of the 19 October 2011 AEIC that:

[48] Whilst the Respondent in the present appeal might have been engaged in merely a private contractual dealing with the Appellant, its role vis-à-vis the Appellant is substantially similar to that of an “insolvency practitioner” engaged by a financially distressed company for its professional assistance. As such, the following admonition in the High Court decision of Re Econ Corp Ltd (in provisional liquidation) [2004] 2 SLR(R) 264 (at [61]) applies in equal measure to the Respondent in the present case:

[49] In the circumstances, we find it unsatisfactory for the Respondent to simply make reference to the key areas of work undertaken by the Respondent during its engagement by the Appellant for the purposes of meeting the obligation of furnishing an account of the time spent, which calls for a “breakdown identifying the tasks and persons employed”. Unless the account provided was sufficiently organised and contained adequate detail of the work performed by each of the Respondent’s employees over the time period billed for, the obligation to account would be devoid of meaning. We also reject the Respondent’s complaint that “[the Appellant] never made an issue at trial over the truth of the contents of the time sheets” (underlining in original), for the simple reason that without the adequate detail warranted by law in the respective time sheets, it was not open to the Appellant to evaluate the truth of the contents of the time sheets even if it had wanted to.

[51] The nub of the Respondent’s case with regard to this particular issue is neatly encapsulated within the following paragraph in the Judgment (see the Judgment at [39]):

[52] Indeed, in delivering her decision with regard to this particular issue, the Judge restated – in similar terms – what appeared to her to be the “critical issue for determination”, as follows (see the Judgment at [64]):

[53] As already noted above, the Judge decided this issue in favour of the Respondent, observing thus (see the Judgment at [65]):

[54] The crucial parts of the Engagement Letter (as the Judge identified), include item (iii) of the Scope of Work Clause, which reads as follows:

[55] Another crucial part (also identified by the Judge) is (a) of the VAF Clause, which reads as follows:

[56] A closer analysis of the factual matrix of the present case is warranted at this stage. It is clear, from the minutes of the Meeting, that the informal standstill which Mr Tan achieved would definitely last only until the following Tuesday (see above at [15]). It was patently unclear what would happen beyond that particular point in time. A binding legal agreement between the Appellant and the bank creditors was absent –as the bank creditors had merely agreed to hold their hands until (only) the following Tuesday after the Meeting. More importantly, perhaps, it is clear that – absent a binding legal agreement between the Appellant on the one hand and the bank creditors on the other – any one (or more, or all) of the bank creditors could have, at any time, chosen to have resiled from the informal standstill. Put simply, there was no indication how long – beyond the Tuesday following the Meeting – the informal standstill would have lasted. Mr Tong submitted that the Respondent was responsible for an ongoing effort to maintain the informal standstill. However, what evidence there is on record does not bear this out, bearing in mind the fact that the burden of proof in this particular regard lies on the Respondent. Notwithstanding these factual deficiencies, it remained the Respondent’s case throughout the hearing before us that the informal standstill “restructured” the Bank Liabilities of the Appellant, thus entitling the Respondent to the VAF.

[57] In our opinion, the Respondent’s view of what constituted a “restructuring” for the purposes of a claim under item (iii) of the Scope of Work Clause read with (a) of the VAF Clause is unpersuasive in the context of the Engagement Letter. As a matter of sound contractual interpretation, “restructuring” in the present context necessarily entailed a systematic change in the structure of the operational activities and/or of the financial arrangements of the Appellant. Put simply, a literal change, even if effected on the advice and with the assistance of the Respondent, would not be sufficient to amount to a “restructuring” within the meaning of the Engagement Letter between the parties if it did not contain this element of system or structure. We will now elaborate on why we have come to this view.

[58] Looking at its plain English meaning, the word “restructuring” already connotes a structure such that a temporary and/or ad hoc approach would generally be insufficient. However, a more nuanced approach is required as explained in Pearlie Koh & Andrew Phang Boon Leong, “Express and Implied Terms” in ch 6 of The Law of Contract in Singapore (Andrew Phang Boon Leong gen ed) (Academy Publishing, 2012) as follows (at para 06.042):

[59] The “relevant background” that would be helpful in this hermeneutical exercise comes from, invariably: (a) the industry practice; and (b) the entire contract properly construed. On the first point of inquiry, the court is guided by asking “what a reasonable person in the position of the parties would have understood the words to mean” (see Chitty on Contracts, vol 1 (H G Beale gen ed) (Sweet & Maxwell, 31st Ed, 2012) (“Chitty on Contracts”) at para 12-043 [emphasis added]; see also the House of Lords decision of Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912). This entails an inquiry into the issue as to whether, in the practice of insolvency or restructuring, an “informal standstill” in itself is sufficient to constitute the very meaning of the word “restructuring”.

[60] In Christopher Mallon and Shai Y Waisman, The Law and Practice of Restructuring in the UK and US (Oxford University Press, 2011) (“Mallon and Waisman”), the learned authors described a “contractual standstill” as follows (at para 6.09):

[61] In essence, we understand Mallon and Waisman’s description of a standstill as being a prelude to the eventual restructuring of a financially distressed company, rather than constituting the entire “restructuring” process itself. This description is in harmony with the “London Approach” mentioned in Alice Belcher, Corporate Rescue: A Conceptual Approach to Insolvency Law (Sweet & Maxwell, 1997) where a standstill is described as the first of four phases which “allows information to be gathered and a plan to be formulated” (at p 119). Given that a similar process can be identified in the local case law as well (see the High Court decision of Citibank NA v Lim Soo Peng and Another [2004] SGHC 266), it could be said that “a reasonable person in the position of the parties” would have understood the word “restructuring” as connoting more than simply an “informal standstill”.

[62] Be that as it may, counsel for the Appellant, Mr Samuel Chacko (“Mr Chacko”), was prepared to concede that a “restructuring” could take the form of simply a change in the legal obligations owed by his client to the bank creditors, such that a standstill of a binding legal effect which required the bank creditors to hold their hands for a specific period of time could be described as “restructuring”. However, these elements were wholly absent on the facts of the present appeal. As Mr Chacko correctly pointed out, there was, in substance, no change whatsoever in the obligations owed by the Appellant to the bank creditors. While Mr Tong sought to run the argument during oral submissions that by the conduct of the banks, they had given the Appellant an extension of time constituting a change in the latter’s obligations, it was pointed out to him that the Appellant’s debts were still due and payable beyond the Tuesday following the Meeting; and subsequently, the Appellant had duly paid the debts on the basis that they were always and at all material times due and payable.

[63] As Mr Tong candidly admitted (and, correctly, in our view, based on the relevant evidence on record before us), the informal standstill arrived at in the context of the present case was not legally binding. This is not to state that a legally binding agreement or arrangement could not have been arrived at between the Appellant and the bank creditors, even in the context of an informal standstill. Put simply, the agreement would have been “informal” only inasmuch as it was not yet rendered into the form of a written document. It is, however, clear that this conception of the concept of “informality” was not (as just noted) what the Respondent was referring to. It was, instead, an arrangement that was not only oral but also not intended to have any binding legal effect at all. Therefore, even on Mr Chacko’s concession, the informal standstill does not constitute a “restructuring” in the present circumstances.

[64] At this juncture, it is important for us to point out that we are not oblivious to the commercial possibility of parties preferring an informal (ie, non-legally binding) standstill arrangement, nor are we prescribing to insolvency practitioners how restructuring arrangements should be conducted. We acknowledge the multi-faceted complexity of these professional undertakings and take heed of Prof Roy Goode’s views in Roy Goode, Principles of Corporate Insolvency Law (Sweet & Maxwell, 4th Ed, 2011) at p 479 that:

[65] However, this is precisely where a second point of inquiry to take into account the “relevant background” (see above at [59]) is of critical importance. To reiterate, the role of this court is not to determine, in the abstract, or even as a matter of general law, whether and when an informal standstill can constitute the whole of a restructuring process. Rather, we are merely interpreting, as a question of fact in relation to this case, the meaning of the word “restructuring” in the context of the Engagement Letter. On this note, it is trite law that the contract between the parties in general and the relevant portions of that agreement that bear upon the present issue in particular must be viewed contextually (see the leading decision of this court in Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR(R) 1029). Indeed, as this court observed in Straits Advisors Pte Ltd v Behringer Holdings (Pte) Ltd and another and another application [2010] 1 SLR 760 (at [8]), “[n]arrow and technical constructions which are inconsistent with the whole scheme of a given contract and the circumstances in which it was concluded must be eschewed”. It is also mentioned in Chitty on Contracts (at para 12-063) that “[e]very contract is to be construed with reference to … the whole of its terms, and accordingly, the whole context must be considered in endeavouring to interpret it, even though the immediate object of inquiry is the meaning of an isolated word or clause”.

[68] In so far as this particular issue is concerned, the Respondent based its claim on both items (ii) and (v) of the Scope of Work Clause, which read as follows:

The Respondent submitted that the work it had performed for the Teledata Transaction (ie, items (ii) and (v) above) had resulted in the injection of “new equity raised by the Appellant” pursuant to (c) of the VAF Clause (see above at [10]), thus entitling it to VAF of 5% of the Teledata Transaction.

[69] Mr Chacko argued that item (v) (reproduced in the preceding paragraph) was clearly inapplicable on the facts. In particular, he argued that the Respondent had neither “identified” nor “secured” the loan pursuant to the Teledata Transaction (“the Loan”). Mr Tong, on the other hand, whilst conceding that the Loan had not been “identified” by the Respondent (the Loan having already been onstream even prior to the employment of the Respondent by the Appellant), argued that the Loan had nevertheless been “secured” through the efforts of the Respondent.

[70] We find great force in Mr Chacko’s argument simply because, as he argued, item (v) contemplates a cumulative effort of not only “identifying” but also “securing” potential investors. That this is so is clear from, as Mr Chacko argued, the word “and” between the words “identifying” and “securing” in item (v) itself. This is, in our view, no mere literal exercise and is consonant with the rationale centring on the element of reward for additional effort and results inherent in the award of the VAF to the Respondent. In particular, it is not unreasonable for the parties to have agreed that mere identification of a potential investor would not be sufficient but that, if such was coupled with the securing of a potential investor, that would suffice to satisfy the requirements of item (v) and enable the Respondent to secure the award of a VAF pursuant to (c) of the VAF Clause.

[71] However, even assuming that the requirements of “identifying” and “securing” of potential investors are disjunctive ones, we are of the view that the latter requirement has nevertheless not been met by the Respondent. Let us elaborate.

[72] The Respondent’s argument in so far as the alleged fulfilment of item (v) is concerned rests on the fact that it had, by proffering the advice it did, assisted the Appellant in “securing” the Loan. Much would therefore turn on the meaning of the word “securing” in item (v), looked at in the context of item (v) in particular and the agreement between the parties in general.

[73] Crucially, we observe that the Loan was already onstream even before the Appellant had engaged the Respondent. The Respondent’s argument, however, is that it had – through Mr Tan – advised the Appellant to modify the form in which the Loan should be structured (principally, by recourse to a Holdco structure, as opposed to simply receiving the funds concerned directly), which modification was apparently adopted by the Appellant in the contract entered into in relation to the Loan. However, whether or not the modified form in which the Loan was structured was superior to the original form in which the Loan was to be structured is, in our view, an exercise in speculation. Even if this were not the case, it is not entirely clear that, if the Loan had been structured in the latter fashion (ie, in its original form), the results sought to be achieved by the Appellant would not, on balance, have materialised. In any event, item (v) relates – in the context of the present case – to a situation in which it was the Loan which was “secured”, regardless of what happened subsequently to the funds received pursuant to the Loan. Looked at in this light, it is clear, in our view, that the Loan was, in fact, “secured” by the Appellant even prior to its engagement of the Respondent.

[74] Let us turn now to the Respondent’s primary argument before us, viz, that it had fulfilled the requirements under item (ii) (reproduced above at [68]) thus entitling it to 5% of the value of new equity brought about by the Teledata Transaction. In our view, item (ii) has been phrased in too broad a fashion. Indeed, it is so broad as to encompass virtually any action by the Respondent – save for the most trivial of actions. More importantly, this particular item does not appear to be result-driven. How, then, can it be ascertained whether or not the “strategic options” reviewed as well as developed (in the words of item (ii) themselves) were done so “with the objective of enhancing value to all stakeholders” [emphasis added] resulting in “new equity and/or debt” to the benefit of the Appellant? And, given the potential ease with which item (ii) can be met, it would be a fairly simple task for the Respondent to then rely on this particular item in order to trigger the payment of VAF under the VAF Clause for all kinds of “new equity and/or debt” raised by the Appellant in the period it has engaged the Respondent. But could this have been the common intention of the parties? We would hardly think that this could have been the case – especially when we bear in mind the fact that a VAF is fundamentally premised on there being a substantive (and additional) value which has resulted from the Respondent’s work. As alluded to earlier at [66], it could not have been intended by the parties, unless it was expressly drafted as such, that a VAF could be charged based on any work performed by the Respondent (which would, as we have noted, have invariably come within the ambit of item (ii), given the extremely broad and general manner in which it has been phrased).

[75] It seems to us, therefore, that for the purposes of satisfying (c) of the VAF Clause, item (ii) ought – given its immense generality – to be read in tandem with the more specific (as well as concrete) item (v). In other words, the Respondent would only be entitled to VAF in relation to (c) of the VAF Clause (read together with items (ii) and (v) of the Scope of Work Clause) if it has reviewed and developed strategic options with the Appellant, and having done so, procured or introduced an investor who makes the investment into the Appellant. As these elements were not present, the Respondent is not entitled to the VAF it claimed to have earned via the Teledata Transaction.

[76] In the result, the Respondent’s claim for the VAF with respect to the Loan pursuant to the Teledata Transaction fails to pass muster under both item (ii) as well as item (v) of the Scope of Work Clause. The Appellant’s appeal on this particular issue therefore succeeds as well.