Real Estate Consortium Pte Ltd v East Coast Properties Pte Ltd and another

Andrew Ang J:

[1] The present matter involves a Convertible Bond Agreement (“CBA”) entered into between the plaintiff and the defendants under which the plaintiff provided to the first defendant financing of approximately $3m (referred to interchangeably by parties as “$2.95m”) for a housing development project at No 25 Shelford Road (“the Shelford Project”). The defendants failed to repay the principal sum of $3m when it fell due a year later. The plaintiff subsequently terminated the CBA and claimed for moneys owed under the CBA. The defendants initially argued that the CBA was wrongfully terminated and disputed the plaintiff’s rights under the CBA. Subsequently, the defendants offered to resolve the disputes amicably. This resulted in a settlement agreement between the parties. The main questions raised in the present matter are:

(a) whether the disputes which arose from the CBA were finally and conclusively resolved by the settlement agreement between the parties; and

(b) if not, whether the contentions raised by the defendants prior to the settlement had any merit.

[2] The first defendant, East Coast Properties Pte Ltd, is a real estate company incorporated by the second defendant, Ng Chun Yong Alvin. It is the developer of three residential projects, namely, the Whitley Project at No 121B Whitley Road, the Eight@East Project at No 8 East Coast Avenue and the Shelford Project.

[3] The second defendant is the sole shareholder and director of the first defendant and he is also a director and/or shareholder of many other companies in the real estate construction and development industry.

[5] In order to “free up” the cash deposit in connection with the purchase of No 25 Shelford Road, the second defendant asked one Chan Hui-Ling Angelena (“Angelena” or “Chan”) whether she was interested in investing a sum of $3m in the Shelford Project. He had known her for about five years from collaborating with her in other development projects where she had worked as an interior designer. Sometime in January 2007, the second defendant met up with Chan and one Sern Chia Lung (“Sern”), a friend and former client of Chan who was also interested in investing in the Shelford Project. The second defendant gave Chan and Sern particulars of the Shelford Project.

[6] According to the second defendant, it was agreed between the second defendant and Chan in a meeting at M/s Kelvin Chia Partnership’s offices in March 2007 that a loan of $3m would be granted to the first defendant. The lender would be a company incorporated by Chan and Sern. The second defendant offered a 100% return on the loan. At the trial, the second defendant averred that the parties had agreed that the loan would be repaid one year after its disbursement, as it was anticipated that purchasers of units in the Shelford Project would then be paying their 20% deposit. According to the second defendant, that was the time when the temporary occupation permit (“TOP”) for the Shelford units was expected to be issued. The second defendant explained how he had figured that he would be able to pay a 100% return on the loan: the profit in the Shelford Project was projected to be $700 per sq ft of saleable space. Given a total saleable area of 40,000 sq ft, the project was projected to bring in $28m in profit. Based on this calculation, there would be more than enough money to pay the lender a 100% return on the loan at the TOP stage.

[7] In the meantime, Chan persuaded Sern and three other friends (Nina Hong, Lawrence Lim, and Steve Seah) to share in the investment in the Shelford Project. The five of them came up with the $3m sum and agreed on using Real Estate Consortium Pte Ltd (“the plaintiff”) as the vehicle to make their investment in the first defendant. Chan is a director and the sole shareholder of the plaintiff.

[8] Chan and Sern had discussed with the second defendant about security for the investment in the Shelford Project. On 30 April 2007, Chan and Sern instructed Lee Ying Ying (“Ms Lee”) of M/s Kelvin Chia Partnership to prepare a draft of the CBA intending it as some form of security for the investment.

[9] Subsequently, on 2 May 2007, the second defendant had a meeting with Sern and Ms Lee at the offices of M/s Kelvin Chia Partnership. According to Sern, he went through each term in the draft CBA with the second defendant. Ms Lee was present when this took place. It was highlighted to the second defendant that the plaintiff would have an option to convert the loan into shares in the first defendant. In particular, a significant change to an earlier draft was highlighted to the second defendant. Under cl 12(c), instead of a fixed sum of $3m, the return would be a sum equivalent to 10% of the sale proceeds of the Shelford units. The plaintiff’s position is that the second defendant was told at the meeting that he should consult his own lawyer on the terms of the CBA. According to Sern, the second defendant replied that he did not need to see a lawyer. Sern said that the second defendant had suggested amendments to the CBA, most significant of which was that with respect to cl 12(g) of the CBA so that if the plaintiff received a return of $3m but it subsequently turned out that 10% of the sale proceeds fell below $3m, the plaintiff would have to refund the amount by which 10% of the sale proceeds fell short of $3m. The second defendant was allegedly content with the amendment as made. The plaintiff and the defendants duly executed the CBA on the same day, on 2 May 2007.

[10] According to the second defendant, Sern had “briefly explained” the terms of the CBA at the meeting of 2 May 2007. The second defendant was “taken by surprise” that cl 12 of the CBA allowed the plaintiff to benefit more than $3m. The second defendant alleged that he was assured that the transaction was a loan of $3m repayable within one year after disbursement of the loan and that the return of a further $3m was to be paid only after the TOP was issued. The second defendant asserted that he did not read the CBA in full and was unaware of the consequences of all the terms in the CBA. He signed the CBA because he “needed the funds urgently” and he “trusted Angelena”.

[11] The term “Convertible Bond Agreement” is a curious misnomer since the agreement did not provide for any issuance of bonds. However, the commercial purpose of the CBA as a means of investment in the Shelford Project is apparent from the first few clauses of the CBA, the material parts of which are set out below:

[12] It can therefore be seen that the first defendant gave the plaintiff a Conversion Option to convert the loan into shares in the Borrower comprising not less than 75% of the first defendant’s share capital.

[13] Under cl 10 of the CBA, the second defendant granted the plaintiff two put options. The first put option (referred to as the “First Option” in the CBA) was exercisable upon the earliest to occur of a number of events set out in cl 11(a). Clause 11(a) stated:

[14] Under the First Option, the plaintiff could put to the second defendant 1.5 million converted shares (“First Option Shares”) if conversion had taken place. Alternatively, if the conversion had not taken place, the plaintiff could require the second defendant to purchase a part of the loan equivalent to $1.5m (“First Option Loan”) (pursuant to cl 10(a)). Once the First Option had been exercised, the second defendant was bound to purchase from the plaintiff the First Option Shares or the First Option Loan (as the case may be) at the fixed price of $3m. Clause 11(b) stated:

[15] The second put option (referred to as the “Second Option” in the CBA) conferred by the first defendant was in relation to the return on the investment. The Second Option was exercisable by the plaintiff at any time from the date of issue of the TOP for the Shelford Project or upon the occurrence of any of the events of default by the first defendant(under cl 17). Clause 12(a) stated:

[16] Under the Second Option, the plaintiff could put to the second defendant 1.5 million converted shares (“Second Option Shares”). As in the case of the First Option, if the plaintiff had not converted the loan into shares pursuant to the Conversion Option, the plaintiff could put to the second defendant a part of the loan equivalent to $1.5m (“Second Option Loan”) (pursuant to cl 10(b)). The second defendant was bound to purchase the Second Option Shares or the Second Option Loan (as the case may be) once the Second Option was exercised. Clause 12(b) stated:

[17] However, as was mentioned earlier, the return on the investment was not to be a fixed sum of $3m. Clauses 12(c) and 12(g)(i)–(ii) stated:

[18] If it turned out eventually that 10% of the sale proceeds fell short of $3m, the plaintiff would have to refund the shortfall. Clause 12(g)(iii) stated:

[19] Clause 17 of the CBA stated the various grounds on which the plaintiff was entitled to terminate the CBA with immediate effect. In particular, cll 17(a) and (g) read as follow:

[20] Clause 18 of the CBA provided that all amounts payable under the CBA became immediately due and payable to the plaintiff upon the termination of the CBA. In addition, cl 18 allowed for 100% interest to be charged upon termination of the CBA:

[21] It would appear that the second defendant took speculative risks in the Singapore property market in the months following the execution of the CBA. In or around June 2007 (one month after the execution of the CBA), the second defendant paid for an option for the purchase of the Dapenso Building, a nine-storey office building block in Cecil Street, for the sum of $96m without the financial resources to meet even the deposit payable upon the exercise of such option. The second defendant had to borrow a sum of $12m from one Delia Chua (introduced to him by Chan) in order that his company, East Coast (Cecil) Investment Pte Ltd, could exercise the option to purchase the Dapenso Building. He borrowed a further sum of $80m from one K S Tan to pay the balance of the purchase price. Subsequently, the second defendant secured a sub-sale of the Dapenso building to the KOP group of companies for about $120m. The second defendant admitted that he had taken a “gamble” as he would have lost Delia Chua’s $12m if he had failed to borrow the $80m. He admitted that he had taken this risk as the property market in 2007 was “bullish”.

[23] On 2 April 2008 (about one year after the CBA had been executed), Sern reminded the second defendant of the defendants’ obligation to make repayment of the principal sum of $3m by 2 May 2008. Sometime in April 2008, the second defendant informed Chan that the first defendant would not be able to repay the principal sum by 2 May 2008. The second defendant explained that the launch of the Shelford Project had to be delayed because “time was required to demolish and clear the [Shelford] [work]site”.

[24] On 10 April 2008, the second defendant unsuccessfully sought to borrow a sum of $3m from Delia Chua for the repayment of the principal sum of $3m to the plaintiff. Delia Chua informed Chan of the second defendant’s request for financial assistance. This was important as it contributed to the plaintiff’s grounds for belief that the first defendant was unable to repay the principal sum. Subsequently, the second defendant asked Chan and Sern for an extension of three months to repay the principal sum. In consideration of such extension, the second defendant offered to pay an additional $1m over and above what would have been due upon issue of the TOP. By 7 May 2008, the defendant managed to make payment of only $1.2m.

[25] The plaintiff then decided to terminate the CBA. In a letter dated 10 May 2008, the plaintiff gave notice to the defendants of the exercise of its right under cl 17 of the CBA to terminate the CBA with immediate effect. It gave notice that the right of termination arose, inter alia, under cl 17(g) as the plaintiff had notice that the defendants did not have sufficient funds for the Shelford Project. That, in the plaintiff’s view, provided reasonable grounds for the plaintiff’s belief that the defendants might not be able to perform its obligations under the CBA. The same letter informed that the following amounts had become immediately due and payable:

(a) the principal sum of the loan in the amount of $2.95m;

(b) interest in the sum of $2.95m; and

(c) the sum of $8,051.75 being the sum of legal costs in the negotiation and preparation of the CBA.

[26] The demand for payment of item (b) above was based on cl 18 of the CBA which provided that 100% interest on the loan was immediately due and payable upon termination of the CBA.

[27] Initially, the defendants adopted an aggressive position against the plaintiff’s termination of the CBA. The defendants’ solicitors wrote a letter dated 15 May 2008 (“the first letter of 15 May 2008”) to dispute the plaintiff’s rights under the CBA. The following contentions were raised by the defendants:

(a) When the CBA was presented to the second defendant, he thought that it looked complicated but signed it when he was assured that the CBA provided for the terms as agreed [this resulted in the defendants’ plea of non est factum].

(b) The CBA was a sham transaction. Chan and Sern had employed the plaintiff as a vehicle to effect a moneylending transaction and used the CBA to mask the real intention to lend money at a prohibitive interest rate.

(c) The loan given pursuant to the CBA was unenforceable as the plaintiff was not a licensed moneylender under the Moneylenders Act (Cap 188, 1985 Rev Ed) (“MLA 1985”).

(d) The 100% interest rate found in cl 18 of the CBA was exorbitant. Section 23(5) of the MLA 1985 capped the chargeable interest rate at 20% per annum.

(e) The plaintiff had wrongfully terminated the CBA as there was no amount due and payable under the CBA, the plaintiff not having exercised the first option under cl 11 of the CBA.

(f) The defendants, after having had the benefit of legal advice, realised that cll 7 and 9 of the CBA would entitle the plaintiff to own 75% of the first defendant. The second defendant did not intend to confer on the plaintiff 75% ownership in the first defendant for a mere $3m. This made the CBA “grossly unconscionable” [This was not pleaded. No evidence was led on the point of unconscionability].

[28] After this first letter of 15 May 2008, the defendants’ solicitors wrote a “without prejudice” letter of the same date to express the defendants’ intentions to negotiate in good faith with a view to achieving an amicable settlement (“the second letter of 15 May 2008”):

The defendants took matters a step further when they offered to compromise their issues in the letter dated 23 May 2008, the material parts of which are reproduced below:

[30] The defendants’ solicitors replied in a letter dated 30 May 2008 agreeing to delivery of a current-dated cheque of $14,051.75 as well as to paras 3 and 4 of the plaintiff’s solicitors’ letter dated 28 May 2008. However, they counter-proposed a different repayment schedule.

[31] An instalment payment schedule was finally agreed between the parties. The defendants delivered to the plaintiff four post-dated cheques as follows:

(a) a cheque dated 31 August 2008 for the sum of $1,740,870.31;

(b) a cheque dated 31 October 2008 for the sum of $1m;

(c) a cheque dated 31 December 2008 for the sum of $1m; and

(d) a cheque dated 31 March 2009 for the sum of $1m.

In addition, the defendants sent a cheque dated 10 June 2008 for the sum of $14,051.75 representing the legal costs for preparing the CBA.

[32] The defendants then defaulted in making payment under the agreed instalment payment schedule. While the cheques for the respective sums of $14,051.75 and $1,740,870.31 were duly met on presentation, the defendants defaulted with respect to the three remaining instalments of $1m each. The plaintiff then filed a writ seeking:

(a) payment of $2.9m;

(b) interest in the sum of $173,391.78 at the rate of 12% per annum on the sum of $2.9m from 1 November 2008 to the date of the issue of the writ;

(c) interest on the sum of $2.9m at the rate of 12% per annum from the date of issue of the writ to the date of payment; and

(d) legal costs of $18,550.00.

[33] The defendants claim that the CBA was a sham and that the transaction was that of moneylending unenforceable under the MLA 1985 as the plaintiff was not a licensed moneylender. The defendants further claim that the plaintiff was used as a vehicle to lend money at an exorbitant interest rate.

[34] The second defendant claims that he did not read the CBA when he signed it and that he did not fully understand the consequences of signing the CBA. In addition, the defendants claim that the plaintiff had wrongfully terminated the CBA and that the plaintiff could not rely on cll 17(a) and 17(g) to terminate the CBA. The defendants claim to have had more than sufficient funds for the Shelford Project as evidenced by the payment of $1.2m to the plaintiff on 7 May 2008.

[35] In relation to the settlement agreement, the defendants claim that they entered into the same under economic duress, the defendants being concerned then that the threatened legal proceedings might adversely affect HLF’s financing of the Shelford Project.

[36] The defendants also have a counterclaim for moneys already paid to the plaintiff on the basis that the CBA had been wrongfully terminated.

[37] The plaintiff argues that the issues raised by the defendants in relation to the CBA were irrelevant because the parties had, subsequent to the CBA, entered into a settlement agreement.

[38] The plaintiff claims that, in any event, it was entitled to terminate the CBA. The plaintiff maintains that it had reasonable grounds to believe that the defendants might not be able to perform or comply with their obligations under the CBA. It was argued that the plaintiff had come to know that the defendants did not have sufficient funds for the project and might not be able to secure funds for the project on a timely basis.

[39] The following issues arise for determination:

[40] The overarching question in the present matter is whether the issues raised by the defendants were the subject matter of a compromise agreement; and, if so, what was the consequence of compromising those issues. In determining the definition of “compromise”, reference is made to the Court of Appeal decision Gay Choon Ing v Loh Sze Ti Terence Peter and another appeal [2009] 2 SLR(R) 332 (“Gay Choon Ing”) where the observations of David Foskett, The Law and Practice of Compromise (Sweet & Maxwell, 6th Ed, 2005) (“Foskett”) at para 1-01 were endorsed (at [41]):

The Court of Appeal (at [43]) clarified that a compromise is essentially based on contract and for a compromise to be reached between two parties, there must, of necessity, be “an actual or potential dispute between parties that can be disposed of”. It was observed at [42]:

[41] The High Court decision in Info-communications Development Authority of Singapore v Singapore Telecommunications Ltd [2002] 2 SLR(R) 136 was also endorsed by the Court of Appeal at [44], where it was noted that Lai Kew Chai J had cited Foskett’s following observations:

[42] On the facts of the present case, it is clear that the issues had been compromised by a settlement agreement between the parties. The issues were first raised in the first letter of 15 May 2008 by the defendants’ solicitors. Thereafter, the defendants signified in the second letter of 15 May 2008 their intention to negotiate in good faith “with a view to reaching an amicable settlement”. The defendants’ intentions were made patently clear when, in the letter dated 23 May 2008, it was stated that the defendants “[did] not wish” to dispute the plaintiff’s claim and wished to “resolve the matter amicably”. The defendants’ letter dated 30 May 2008 accepted the terms set out in paras 2 to 5 of the plaintiff’s letter dated 28 May 2008. Finally, the defendants affirmed the compromise agreement by delivering four sets of post-dated cheques in the defendants’ letter dated 9 June 2008; this was unequivocal acceptance of the instalment payment schedule proposed by the plaintiff. Looking at the correspondence between the parties in its totality, there is no doubt that a valid “compromise agreement” (or “settlement agreement”) had been formed. The plaintiff agreed not to pursue its claim under the CBA (forbearance to sue) in exchange for the defendants’ payment of the instalment sums by way of post-dated cheques delivered to the plaintiff.

[43] Based on the defendants’ pleaded case, the only substantive argument against the compromise agreement was that it was reached under economic duress. The defendants allege that they were forced to enter into the settlement agreement under economic duress. According to the second defendant, when he informed Chan in April 2008 that the defendants would not be able to repay the principal sum of $3m by 2 May 2008, Chan informed him that failure to do so would result in “serious repercussions”. The defendants took this as a threat that legal action would be instituted against them. The defendants alleged that Sern had warned the second defendant over the telephone on 14 May 2008 that legal action would be taken if the defendants failed to make payment of the balance of $2.75m (since only $1.2m had been paid). The defendants claim that on the same day, on 14 May 2008, at around 10.30am, Chan told the second defendant over the telephone to settle as the plaintiff’s solicitors were ready to take legal action against the defendants.

[44] In my view, the defence of economic duress is clearly untenable. Quite apart from the fact that prima facie the threat of legal action to enforce one’s legal rights is not a wrongful threat, the evidence does not bear out the defendants’ allegation.

[45] First, it is clear that the offer to settle was initiated by the defendants themselves. Given that the offer to settle was made by the defendants, the attempt to avoid the settlement agreement with the lame allegation of economic duress borders on the frivolous.

[46] Second, I am unable to accept the defendants’ assertion that Sern and Chan forced the second defendant over the telephone (over two separate telephone calls on 14 May 2008) to settle. If the threats had indeed been uttered on 14 May 2008 and if there had been, as alleged, a series of threats made over the telephone since April 2008, there was not even the slightest hint of the same in the defendants’ first letter dated 15 May 2008. Neither were the alleged threats of legal proceedings raised or mentioned in the defendants’ e-mail correspondence of 28 May 2008 and 4 June 2008.

[47] Third, the defendants’ actions after the compromise agreement was made were inconsistent with the alleged economic duress. For example, instead of making protest that the settlement agreement was made under duress, the defendants actually requested for an extension of time to make the payment of the accelerated sum of $3m in the e-mails dated 24 November 2008 and 9 December 2008. In addition, the second defendant himself wrote an e-mail dated 25 February 2009 to seek an extension of time to make payment.

[48] Fourth, the second defendant admitted during cross-examination that throughout the period, from June 2008 (when the settlement agreement had been formed) to the commencement of the action in April 2009, he had never disputed the plaintiff’s rights under the settlement agreement. After showing the second defendant the series of correspondence up to the e-mail dated 24 November 2008, the second defendant was asked:

[49] Fifth, it was undisputed that the defendants had the benefit of independent legal advice throughout the process of negotiating the terms of the settlement agreement as well as after the settlement agreement had been entered into. The defendants also had a viable alternative to settlement, they could have defended their claim. After all, the second defendant himself admitted in court that he had told the plaintiff (and had legal advice to the effect) that the defendants had “strong grounds” to dispute the plaintiff’s claim:

[50] There was even more confidence shown in the defendants’ first letter of 15 May 2008 where the defendants represented to the plaintiff that:

In my view, there is not an iota of evidence of any form of illegitimate pressure placed by the plaintiff.

[51] In any event, even if I were to accept the defendants’ allegations that Chan and Sern had threatened the second defendant that the plaintiff would take legal action if the defendants failed to make payment of the principal sum, that alone is insufficient to amount to “illegitimate pressure”. It has been observed in Chitty on Contracts, vol 1 (Sweet & Maxwell, 30th Ed, 2009) at para 7-050 (endorsed in Shunmugam Jayakumar v Jeyaretnam Joshua Benjamin [1996] 2 SLR(R) 658 at [51] (“Shunmugam”); also see Miles v New Zealand Alford Estate Company (1886) 32 Ch D 266 and Jayawickreme v Amarsuriya (since deceased) [1918] AC 869) that:

[52] The defendants next argued that there had been a total failure of consideration to form a valid settlement agreement. The argument ignores the fact that the plaintiff could have sued the defendants to enforce its rights under the CBA but refrained from so doing as the parties had entered into the settlement agreement. It is established law that forbearance to sue constitutes sufficient consideration: see the Court of Appeal decisions of Ang Sin Hock v Khoo Eng Lim [2010] 3 SLR 179 at [71]; Sea-Land Service Inc v Cheong Fook Chee Vincent [1994] 3 SLR(R) 250; and the High Court decisions of Imperial Steel Drum Manufacturers Sdn Bhd v Wong Kin Heng [1997] 1 SLR(R) 297; Hongkong & Shanghai Banking Corp Ltd v Jurong Engineering Ltd [2000] 1 SLR(R) 204.

[53] At the trial, the defendants attempted to resurrect the same issues that formed the subject matter of the compromise agreement. In my view, the defendants are precluded from doing so. Where parties have agreed to resolve their dispute amicably by way of a validly formed settlement agreement, the settlement agreement alone governs the parties’ legal relationship; the effect of the settlement agreement is to put an end to the issues previously raised by the defendants. This oft-stated principle has been regarded as self-evident as its rationale has seldom been adequately articulated. It has been observed in the leading commentary in David Foskett, The Law and Practice of Compromise (Sweet & Maxwell, 7th Ed, 2010) (“Foskett 2010”) at paras 8-01 and 8-02 ([40] supra):

[54] Foskett 2010 makes clear that the factual and legal basis upon which the parties have entered into the compromise agreement cannot be reopened, at paras 2-01, 2-16 and 6-01:

[55] These principles were accepted by the Court of Appeal in Gay Choon Ing ([40] supra) at [54] and [56]:

[56] The same view was held in Lee Kuan Yew v Chee Soon Juan [2003] 3 SLR(R) 8 at [25]:

In Shunmugam ([51] supra) at [50], it was observed that:

[57] In England, the Court of Appeal in Prudential Assurance Co Ltd v McBains Cooper (a firm) and others (CA) [2000] 1 WLR 2000 observed at 2005:

In Plumley v Horrell (1869) 20 LT 473, Lord Romilly MR said:

[58] Based on these authorities, it is clear that disputes between the parties have been resolved by a validly formed compromise agreement entered into in good faith and therefore the issues that previously divided them are brought to an end; the parties are not allowed to renege on their mutual compromise for to do so would be to breach the contract. The rationale behind this general principle lies in contract. Where a compromise agreement has been validly formed, that puts an end to the parties’ disputes. The parties are not allowed to reopen the prior issues. This is not because they are estopped from doing so, but because there no longer exists any issues between the parties. Subject to the parties’ intentions as manifested in the language of the compromise agreement, any issues between the parties have been resolved with the terms and conditions (express and implied) found in the compromise agreement. The compromise agreement therefore essentially takes over as the basis of the parties’ legal and contractual relationship. In this way, save for any prior issues expressly reserved, the only relevant disputes (if any) are those arising from the compromise agreement.

[59] The raison d’etre for this principle are manifold and may well extend to broader considerations concerning alternative dispute resolution and the efficacy of the administration of justice. There is much public interest in the final resolution of disputes; interest reipublicae ut sit finis litium (see Foskett 2010 ([40] supra) at 6–02. In a sense, parties with unresolved disputes ought to have better claim to the court’s time and resources than those who have already settled their disputes in good faith. There is in addition the sound policy in holding parties to their compromised bargain to ensure commercial certainty. This consideration is especially compelling when it comes to commercial transactions involving corporate men acting with the benefit of legal advice. However, the general principle is subject to inherent limits. It cannot be said that a compromise agreement is an absolute bar to reopening disputes regardless of the circumstances surrounding the agreement. Lord Denning, in the English Court of Appeal decision of Binder v Alachouzos [1972] 2 QB 151 (“Binder”), cautioned against possible abuse of a compromise agreement (at 157 and 158):

[60] In Binder, a lender commenced action against the borrower for default in repayment of loans. The borrower claimed that the loans were unenforceable as they were made in the course of the business of moneylending. Before trial, an agreement was reached between the parties which provided that the lender’s actions would be discontinued and that the borrower should make payment of a sum of money by way of instalments. It was further expressly agreed that the Moneylenders Act did not apply to the loan transactions. Lord Denning (at 158) found that the dispute as to whether the lender was a moneylender had already formed the subject matter of a bona fide compromise agreement, and it followed that the dispute could not be reopened unless the lender had taken “undue advantage” of the borrower.

[61] I respectfully agree with the proposition in Binder that a compromise agreement is not an absolute bar to reopening issues. There are indeed circumstances in which a compromise agreement could be set aside. However, inasmuch as the court will not make a contract for the parties; there is limited scope for the court to determine whether the terms contracted between two commercial parties were “fair and reasonable”. In my view, having regard to the fact that the juridical basis of a compromise agreement lies in contract, the circumstances in which issues that have been resolved by a compromise agreement can be reopened, must necessarily lie in the law of contract. As such, prior issues may still be relevant and may even be “live” in situations where the compromise agreement was tainted by illegality or affected by fraud, duress, undue influence or mistake. In circumstances such as these, there cannot be said to be a resolution of issues in the true sense. The compromise agreement would therefore be set aside (or depending on the circumstances, declared to be void ab initio) and the issues that have never truly been compromised would be live again.

[62] In the present case, I have considered the defendants’ argument based on economic duress and have found it to be without basis. The issues raised by the defendants have been put to an end by way of the settlement agreement.

[63] In any event, even assuming arguendo that the issues were reopened, I find that the defendants’ arguments in relation thereto lack merit for the reasons set out below.

[64] According to the second defendant, the signing of the CBA was only a “formality” to him. He had allegedly understood the transaction to be a simple loan of $3m repayable within one year after disbursement of the loan, and a profit of an additional $3m was to be paid only after the TOP had been issued. The second defendant contended that Sern had only “briefly explained” the terms of the CBA at the meeting of 2 May 2007. He claimed that he did not read the CBA and was unaware of the effect of all the terms in the CBA. He had only signed the CBA because he “needed the funds urgently” and he “trusted Angelena”.

[65] In my view, the second defendant’s defence of non est factum was doomed to fail. He is an educated person and an experienced market player used to taking risks in the development and construction business. The second defendant is a director/shareholder of more than five development companies and a shareholder of one construction company; he had also managed several development projects at the same time. Indeed, his penchant for risk-taking was evident from the fact that he had managed several development projects that were highly leveraged. As was earlier recounted (at [21] above) he took a gamble with money he borrowed from Delia Chua when, through his company East Coast (Cecil) Investment Pte Ltd, he exercised an option to purchase Dapenso Building.

[67] Furthermore, there are serious doubts as to the second defendant’s credibility as a witness. Even if the court were to believe his version that the CBA was a “simple” loan agreement, it was still a loan of a sum of $3m that was repayable one year later, with a promised return of 100% on the loan. These are not insubstantial sums. In the circumstances, it would require a lot to believe the second defendant’s testimony that he virtually shut his eyes while signing the CBA:

[68] Having said repeatedly that he did not read any part of the CBA when signing it, the second defendant threw his credibility out of the window when he gave the contradictory testimony that he had indeed read a part of the CBA:

[69] Lastly, there is undisputed contemporaneous evidence (from the first letter of 15 May 2008) to show that Sern had explained to the second defendant and that the second defendant had understood the structure of the transaction in the CBA during the meeting on 2 May 2007:

[70] This first letter of 15 May 2008 contains an unequivocal admission that the second defendant fully understood the transaction he had entered into. This undisputed documentary evidence is consistent with the second defendant’s admission that at the meeting of 2 May 2007 Sern did direct the second defendant’s attention to cl 12(c) of the CBA which would entitle the plaintiff to 10% of the sale proceeds of the Shelford units:

[71] For the reasons above, I find that the second defendant’s plea of non est factum is disingenuous.

[72] The defendants contend that the CBA was a sham to hide the true moneylending nature of the transaction which as such was unenforceable under the MLA 1985, the plaintiff not being a licensed moneylender. The defendants further claim that Chan and Sern had used the plaintiff as a vehicle to lend money at an exorbitant interest rate.

[73] Although the transaction originated as a loan, there are features in the CBA that suggest the plaintiff’s intention was to invest in the Shelford Project. Firstly, the plaintiff was contractually entitled under cll 7 and 9 of the CBA to convert the loan into shares in the first defendant comprising not less than 75% of the enlarged capital of the first defendant. This was a valuable right exercisable at any time after the First Drawdown Date which, in the event the Shelford Project was successful, would enable the plaintiff to obtain the lion’s share of the first defendant’s profits. Secondly, under the First Option (see [14] above) the plaintiff was able to put to the second defendant $1.5m of the loan or (if already converted) 1.5 million of the converted shares at a price of $3m. This effectively made the second defendant a guarantor for the repayment of the $3m loan. Moreover, it enabled the plaintiff, even after conversion of the loan into shares, to avoid the consequences of such conversion if the first defendant suffered any set-backs in the Shelford Project. Thirdly, upon exercise of the Second Option (see [15] to [18] above), the plaintiff would obtain a return equivalent to 10% of the sale proceeds (under cl 12(c) of the CBA). This return could be more or less than $3m depending on the prices at which all the units in the Shelford Project were sold. Essentially, the plaintiff’s return depended on how successful the Shelford Project was. If the Shelford Project did well, the plaintiff could hold on to the converted shares and enjoy the fruits as a shareholder. If the Shelford Project did not do well, the plaintiff could exercise the put options. Even though the terms of the CBA were preponderantly in favour of the plaintiff, that does not preclude the plaintiff from maintaining that it had invested in the Shelford Project. The defendants’ solicitor’s e-mail dated 9 December 2008 shows that the defendants also regarded the plaintiff as having invested in the Shelford Project. It stated:

[74] In addition, the defendants’ solicitors wrote a letter dated 4 November 2008 to request for an extension of time to make payment under the settlement agreement where it was acknowledged that the additional sum of $3m was the profit on the Shelford investment:

[75] It can be seen therefore that the defendants themselves regarded the sum of $3m as a profit on the plaintiff’s investment. This was unequivocally affirmed by the second defendant’s testimony under cross-examination:

[76] The defendants’ contention that the CBA was a sham was given a boost when Chan stated under cross-examination that the plaintiff never intended to convert the loan unless the Borrower went into default. That answer did not make commercial sense for if the Borrower went into default, it would likely have been in poor financial health. In such a situation, it is unlikely, to say the least, that the plaintiff would have chosen to become a shareholder. (In so saying, I am not unaware that in exceptional circumstances, it might be that a creditor would want to gain control of a debtor company to bring it to even keel. Nor have I forgotten that the plaintiff could extricate itself by exercise of the put options.) The notes of evidence suggest that it is possible that Chan was confused when she gave the answer (under cross-examination that the plaintiff never intended to convert the loan into shares unless the Borrower went into default):

However, there is no need for conjecture. Even assuming that the CBA was drafted by the plaintiff’s lawyer to forestall any allegation that the loan was a moneylending transaction, we would still need to examine the facts to see whether, shorn of the convertibility feature, the transaction indeed breached the MLA 1985.

[77] In this regard, it must be remembered that the objective of the MLA 1985 is not to prohibit legitimate commercial transactions as emphasised in the decision of City Hardware Pte Ltd v Kenrich Electronics Pte Ltd [2005] 1 SLR(R) 733 at [47] (“City Hardware”):

[78] In any event, given that the plaintiff had indisputably made only one loan, there was insufficient evidence adduced by the defendants to establish a “system and continuity” which one would expect to see in the alleged moneylending business (see Ang Eng Thong v Lee Kiam Hong [1998] SGHC 64 at [21]; Mak Chik Lun v Loh Kim Her [2003] 4 SLR(R) 338 at [11]; and Agus Anwar v Orion Oil Ltd [2010] SGHC 6). Neither is there sufficient evidence, from the mere fact of a one-time loan, to find that the plaintiff was ready and willing to lend money to “all and sundry” (see Litchfield v Dreyfus [1906] 1 KB 584 at 589). That said, there is nothing in principle to prevent a court from finding that even a one-time loan could constitute a moneylending business if there was sufficient evidence to support such a finding. A single loan is sufficient to give rise to a rebuttable presumption that the lender is a moneylender under s 3 of the MLA 1985. Ultimately, whether a person is a moneylender and whether there exists a moneylending business are questions of fact: see City Hardware ([77] supra) at [24]. The arrangements involved must be considered in totality to determine the substance of the transaction: see City Hardware at [24] and Nissho Iwai International (Singapore) Pte Ltd v Kohinoor Impex Pte Ltd [1995] 2 SLR(R) 170 at [13]. On an overall view, taking into account all the facts and circumstances, I am of the view that there was a genuine commercial purpose for which the CBA was entered into. The defendants’ contention is therefore dismissed.

[79] The defendants made a further submission. They argued that the sum of $3m (claimed by the plaintiff as interest) was “exorbitant”. That can be readily dismissed. The plaintiff’s claim for the sum of $3m as “interest” was founded upon cl 18 of the CBA which states as follows:

[80] Clause 18 allowed for any sums “then” payable under the CBA “prior to the exercise of any option” to be immediately due and payable. Since the return based on 10% of the selling price was contingent upon the exercise of the second option under cl 12(a), the plaintiff would not be entitled to the return if the CBA was terminated prior to the exercise of the second option. In the circumstances, the “interest” of $3m was effectively, and in substance, in lieu of the estimated return on the investment that the plaintiff could have obtained if it had exercised the Second Option at the TOP stage. In this regard, cl 18 is in substance an express provision for the plaintiff’s expectation losses, that is, what the plaintiff would have obtained if the defendants performed their obligations under the CBA up to the TOP stage. The second defendant could not complain about the exorbitant interest as it was he who offered a 100% return on the investment based on his optimistic projected profits from the sale of the Shelford units. His affidavit recounted that:

[81] Indeed, the second defendant admitted in court that the 100% return on the investment was offered by him to Chan:

[82] Given that the 100% return on the investment (constituting a sum of $3m) was offered by the second defendant himself, it did not lie in his mouth to assert that the 100% return was exorbitant.

[83] Following the first defendant’s failure to repay the principal sum of $3m 12 months from the first drawdown date, the plaintiff had the right to terminate the CBA under cl 17(a). Curiously, the plaintiff failed to use cl 17(a) as an independent ground in its termination letter dated 10 May 2008, relying instead on cl 17(g). In any event, I find that the plaintiff was entitled to terminate the CBA under cl 17(g). There was more than sufficient evidence to provide the plaintiff reasonable grounds for belief that the defendants were unable to make repayment of the principal sum of $3m.

[84] The plaintiff had, on 2 April 2008, effectively given notice of its intention to demand the return of the principal sum when the plaintiff reminded the second defendant to make repayment of the principal sum by 2 May 2008. In response thereto, the defendants made the material admission that the first defendant would not be able to repay the principal sum of $3m by 2 May 2008. It was admitted in the defence that:

[85] There were also admissions in the defence to the effect that the second defendant did not have the funds to repay the principal sum:

[86] In addition, the second defendant had, by way of an e-mail dated 30 April 2008 to the plaintiff’s solicitors, requested for a three-month extension of time to pay the sum of $3m and had offered to pay the plaintiff the sum of $1m in consideration of such extension of time. The letter stated that the defendants were unable to launch the project in November and December 2007 owing to unexpected market conditions. The promise to make repayment of the principal sum after a three-month extension was an empty one as the second defendant had admitted that he had no money for completion of the Shelford Project:

[87] Indeed, the request for extension of time appeared to be a delaying tactic to allow the second defendant enough time to borrow money from Delia Chua to repay the plaintiff. Delia Chua informed Chan of the second defendant’s request. Most pertinently, the second defendant himself conceded that the plaintiff had the contractual right to terminate the CBA:

[88] The second defendant also conceded that because the defendants had defaulted in making repayment of the principal sum, the plaintiff was entitled to accelerate the repayment of the loan:

[89] Given the material admissions made by the second defendant, there is no room for the second defendant to argue that the CBA was wrongfully terminated. For this reason, there is no need to consider the other clauses relied upon by the plaintiff to terminate the CBA. The defendants’ counterclaim (based on the contention that the CBA was wrongfully terminated) is also dismissed.

(a) Payment of the sum of $2.9m.

(b) The sum of $173,391.78 being the contractual interest due at the date of issue of the writ;

(c) Further interest on the said sum of $2.9m at the contractual rate of 12% per annum from the date of issue of the writ to payment;

(d) Costs to be taxed unless agreed.