Straits Advisors Pte Ltd v Behringer Holdings (Pte) Ltd and Another

Lee Seiu Kin J:

[1] This is an appeal from the decision of Assistant Registrar Then Ling (“the AR”) in Summons No 4224 of 2008 (“Sum 4224/08”). The defendants had taken out Sum 4224/08 to determine the following question:

[2] The plaintiff is a corporate finance advisory firm. The first defendant is a limited private company incorporated in Singapore and is in the business of general wholesale trading. The second defendant, an unregistered foreign company, is the sole shareholder of the first defendant. On 11 January 2006, the defendants engaged the plaintiff to provide services related to an intended initial public offering (“IPO”) of the shares of the second defendant.

[3] The plaintiff and the defendants entered into four separate agreements on 11 January 2006. First, there was a letter (the “Release Letter”) under which the plaintiff released Dominic Andrla (“DA”) so that he could be appointed as the defendants’ Group Chief Financial Officer (“CFO”). Second, there was a letter which clarified the terms of the Release Letter (the “Side Letter”) with respect to the plaintiff’s remuneration. Third, there was an employment agreement entered into between DA and the defendants under which DA was appointed as Group CFO of the defendants (the “CFO Agreement”). I will refer to these three agreements (the Release Letter, the Side Letter and the CFO Agreement) collectively as the Previous Agreements. The fourth was a secondment agreement, under which Mr Ricardo Villanueva was to be seconded to the defendants as head of corporate finance.

[4] On 16 October 2006, the defendants appointed a new CFO, Roch Low, and DA’s responsibilities as CFO were transferred to Roch Low. As a result, the plaintiff and the defendants entered into a consultancy agreement dated 10 November 2006 (the “Consultancy Agreement”) which was to supersede the Previous Agreements.

[5] There arose a dispute as to whether the plaintiff’s or DA’s appointment had been terminated by the defendants. There was an exchange of email between Roch Low and DA with respect to the necessity of the plaintiff’s services but it is not necessary for me to make any finding as to whether the plaintiff’s services were terminated by the defendants. Thereafter, the plaintiff commenced Originating Summons No 417 of 2008 (“OS 417/08”) against the defendants, claiming to be entitled to 5,668,852 shares of the second defendant (the “Shares”) under the Consultancy Agreement. OS 417/08 was heard by Belinda Ang J, who ordered it to be converted into a writ. After this was done, the defendants applied under O 14 r 12 of the Rules of Court (Cap 322, r 5, 2006 Rev Ed) for the determination of the above question (at [1]).

[6] I set out the salient terms of the Consultancy Agreement:

[7] No IPO Activation notice was provided by the defendants. Therefore, an issue arose as to whether the plaintiff was entitled to the Shares (as provided in s 4(3) of the Consultancy Agreement) if the defendants had terminated the plaintiff’s services before giving the IPO Activation notice. The defendants estimated that the Shares in question were worth approximately US$340,131 (using the par value of each share in the second defendant to calculate the approximate value).

[8] The plaintiff relied on the words “with immediate effect” in s 4(1) to argue that s 4 of the Consultancy Agreement was distinct from s 3. Therefore, the plaintiff argued that there were two circumstances in which the second defendant’s shares would be allotted to the plaintiff under s 4 of the Consultancy Agreement. The first was in the event of success (where approval for listing was granted or where an unconditional offer for a takeover was made). The second was in the event of termination of the plaintiff’s services by the defendants. The plaintiff claimed that this was supported by how s 4(6) had provided for a mechanism to determine the number of shares to be issued in the event the post-IPO/takeover issued share capital of the second defendant could not be ascertained (see italicised portion above at [6]). This, according to the plaintiff, supported the interpretation that the termination fee was applicable where such termination took place before the defendants had given notice of IPO Activation.

[9] Further, the plaintiff argued that the reference to Success Fee in s 3 could only be read in relation to s 4(2) and did not extend to the entire s 4. Success Fee was not a defined term. Section 3 referred to s 4 (see Success Fee under s 3) only because s 3 dealt with the possibility of reaching a success event and was therefore linked to s 4(2), which sets out the conditions for receiving the Success Fee.

[10] The plaintiff also argued that the contra proferentum rule did not apply because there was no doubt or ambiguity. In the plaintiff’s view, their interpretation of s 4 was consistent with the commercial objectives of the Consultancy Agreement because it preserved the position that was originally intended under the CFO Agreement. Article 3.1 of the CFO Agreement stated as follows:

Shares:

Behringer hereby agrees to issue shares in BCL to Straits Advisors or its nominee equivalent to 0.37 per cent of the post IPO share capital of BCL for a total nominal sum of not more than US$100/- (the “Shares”). The Shares will be issued under the following circumstances:

(ii) In the event of a takeover of BEHRINGER or all or substantially all of its business, all the Shares shall be issued on the offer becoming unconditional and, if applicable, the acquiror having secured more than 50 per cent of the issued share capital.

In the event that BEHRINGER terminates the appointment (other than for just cause) of Dominic and/or Straits Advisors, prior to the conditions in (i) or (ii) above being satisfied, the Shares shall immediately be issued to Straits Advisors or its nominee for the total nominal sum of not more than US$100/-.

[emphasis in original]

[11] Since the terms of the Previous Agreements entitled the plaintiff to the Shares if the defendants had terminated its appointment prematurely, it would have been commercially sensible for the same arrangement to be in place for the Consultancy Agreement.

[12] The defendants argued that the Consultancy Agreement envisaged two distinct regimes: one regime before the IPO Activation notice is issued (the “pre-IPO Activation” stage) and the other regime after the same is issued by the defendants (the “post-IPO Activation” stage). Further, s 4 was incorporated into s 3 and was applicable only post-IPO Activation, since s 3 stated “Success Fee: See section 4 below”.

[13] The defendants also argued that the purpose of the plaintiff’s services was to help the second defendant achieve either an IPO or takeover. They also relied on the fact that the success fee was to be measured in relation to the second defendant’s post IPO or post takeover share capital. Further, the defendants also argued that their interpretation was commercially sensible. The success fee involved was a hefty reward to recognise DA’s effort to bring about a successful event and was included to protect the plaintiff from being deprived of the success fee if he was terminated when the second defendant was on the brink of an IPO or takeover (which would have been after DA had expended much time and effort assisting the defendants with such). It would not be commercially sensible for the plaintiff to obtain a windfall if no success event had crystallised. The defendants further argued that any ambiguity with respect to s 4 had to, applying the contra proferentem rule, be interpreted in its favour.

[14] The applicable canons of interpretation were stated by the Court of Appeal in Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR 1029 to be as follows (at [131]):

[14] To summarise, in interpreting a contract, the court should look at the contract objectively and ascertain the meaning which a reasonable person would adopt. In so doing, the court should adopt a holistic approach with the emphasis being on the document as a whole, while taking the relevant background and the commercial objectives into account. Applying the above principles to the Consultancy Agreement, I now consider whether the plaintiff was entitled to the Shares upon termination before IPO Activation notice was given.

[15] The main thrust of the plaintiff’s arguments was that the words “with immediate effect” in s 4 meant that this section was intended to be a standalone section (that was distinct from s 3) as the words indicated that s 4 became operative immediately. I note that the words “with immediate effect” were similarly used in the preamble of the Consultancy Agreement as follows:

[16] For convenience, I set out s 4(1) of the Consultancy Agreement again:

[17] Comparing the preamble with s 4(1), it is apparent that the words “with immediate effect” followed references made in the Consultancy Agreement to specific sections of the Previous Agreements. The above two examples were the only instances in which reference had been made to specific sections of the Previous Agreements in the Consultancy Agreement. Objectively, it seemed that the words “with immediate effect” were used to emphasise that the Consultancy Agreement would supersede the Previous Agreements from the date of the Consultancy Agreement. I would also observe that had the plaintiff intended for s 4 to be of general applicability (as it contended), it would have used words stronger and more direct than “with immediate effect” to indicate so. Therefore, the words “with immediate effect” did not support the plaintiff’s argument that it was included to show that s 4 was to be distinct from s 3.

[18] I further note that s 3 (under Success Fee) refers to s 4 generally and not a specific part thereof. In my view, a reasonable reader would interpret this to mean that s 4 was applicable only in relation to s 3, especially since the words “with immediate effect” did not have the effect of making s 4 distinct. There was nothing else in s 4 which indicated that the section was distinct from s 3 or that s 4(3) would operate pre-IPO Activation.

[19] In my view, the plaintiff’s reliance on the italicised portion of s 4(6) of the Consultancy Agreement at [6] above did not assist its case. Section 4(6) of the Consultancy Agreement provided a mechanism for determining the number of shares to be issued in the event the second defendant’s post-IPO or post-takeover issued share capital cannot be ascertained. Section 4(6) would therefore cover the situation whereby the plaintiff was terminated after IPO Activation, but before approval for listing or an unconditional takeover offer was obtained. However, s 4(6) did not say anything pertaining to termination before IPO Activation. Section 4(6) would not be otiose if the plaintiff’s interpretation was not adopted; neither were there any words in s 4(6) which suggested that the plaintiff’s interpretation was correct. Therefore, in my view, there is nothing in s 4(6) that supported the plaintiff’s claims.

[20] Having construed the terms of the Consultancy Agreement, I now turn to consider the commercial objectives of the Consultancy Agreement. The Previous Agreements contemplated that the Shares would be issued once the defendants had terminated the plaintiff’s services. It could be argued that the parties had intended for the same arrangement (with respect to the termination fee) to continue. However, the regime contemplated under the Previous Agreements was different from that in the Consultancy Agreement. The Previous Agreements contemplated only one phase, during which DA was to be actively involved. Under the CFO Agreement, while DA was allowed to continue to be employed as a director elsewhere (but only under limited circumstances), he was to spend the “majority of his time” working as the second defendant’s CFO. In addition, the CFO Agreement provided that the plaintiff was entitled to monthly payments of $28,333 for DA’s services. Comparing the CFO Agreement and the Consultancy Agreement, it is clear that DA’s level of involvement in the second defendant’s pre-IPO Activation was much lower. From having to spend at least a majority of his working time, under the Consultancy Agreement, DA only had to spend at most two working days a month working for the defendants and could attend to business matters not relating to the defendants. After the Consultancy Agreement came into being, the defendants had appointed a new CFO to replace DA. Indeed the plaintiff’s reduced involvement was reflected in the monthly payments payable under the Consultancy Agreement, which was less than 30% of what was payable under the Previous Agreements. In my view, the plaintiff therefore could not rely on the termination fee structure in the Previous Agreements as the arrangements contemplated in the Previous Agreements were very different from that contemplated under the Consultancy Agreement. Objectively, it would be unlikely for the parties (especially the defendants) to have agreed for the plaintiff to receive the second defendant’s shares if the plaintiff’s services were terminated at a stage where its involvement was minimal. It was not commercially sensible for the defendants to have agreed to issue the Shares (which were worth a large sum) at a time when the parties had negotiated for the plaintiff’s role in the defendants to be reduced due to uncertainty as to whether the second defendant would proceed with its IPO.

[21] Therefore, taking a holistic approach towards interpreting the Consultancy Agreement and considering the relevant commercial objectives, I conclude that s 4(3) was not applicable where termination had taken place pre-IPO Activation.

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