Keywords: Jonathan Chee, Jonathan Chee SinCo, Jon Chee, Jon Chee SinCo
Case Number : Suit No 7 of 2017 (Summons Nos 416 and 1366 of 2017)
Decision Date : 27 September 2017
Tribunal/Court : High Court
Coram : Lai Siu Chiu SJ
Counsel Name(s) : Koh Kia Jeng and Geraldine Yeong Kai Jun (Dentons Rodyk & Davidson LLP) for the plaintiff; Tan Teng Muan and Loh Li Qin (Mallal & Namazie) for 1st defendant; Anna Oei Ai Hoea and Deannier Yap (Tan, Oei & Oei LLC) for 2nd defendant.
Parties : — Sinco Technologies Pte Ltd — Singapore Chi Cheng Pte Ltd — Chang Tsuei-Yun
Conflict of laws – Natural forum – Forum non conveniens
Conflict of laws – Natural forum – Stay of proceedings
27 September 2017
Lai Siu Chiu SJ:
1 Sinco Technologies Pte Ltd (“the plaintiff”) is a company incorporated in Singapore on 2 November 1995 and is in the business of manufacturing plastics, rubber and silicon engineering components.
2 Singapore Chi Cheng Pte Ltd (“the first defendant”) is a private exempt company and was incorporated on 23 April 1997 as an investment company by Taiwan Chi Cheng Enterprise Co Ltd (“TCC”) which is listed on the Taiwan Stock Exchange.[note: 1] TCC was the sole shareholder of the first defendant until 30 December 2016 when TCC sold its interest to Finno Technology (Hong Kong) Company Ltd.
3 The first defendant owns 96.91% in a company called Zhuhai Chi Cheng Technology Co Ltd (“ZCC”) which carries on business in Zhuhai, China, in precision metal stamping and manufacturing accessory components for communications equipment, electronics, computers, cameras and related peripherals. ZCC also owns prime land, factories, plants, other buildings and private residences in Zhuhai. Besides the first defendant, ZCC’s other shareholders are Zhuhai Guanyao Paper Packaging Co. Ltd (“Zhuhai Guanyao Paper”) and Kunshan LitaXiang Machinery & Equipment Co. Ltd (“Kunshan LitaXiang”). The shareholdings of Zhuhai Guanyao Paper and Kunshan LitaXiang in ZCC are 2.93% and 0.16% respectively.[note: 2]
4 ZCC also holds 75% of the shares in a Chinese company called Kunshan Chi Cheng Technology Co Ltd (“KCC”) which is located at Kunshan. TCC owns 15% of the remaining shares in KCC while the balance 10% shares are held by Hong Kong Chi Cheng Limited.[note: 3]
5 The court was informed that on 20 March 2017, the first defendant together with the other two shareholders of ZCC namely Guanyao Paper and Kunshan LitaXiang had commenced proceedings against the plaintiff in Zhuhai for this dispute.
6 The plaintiff commenced this Suit No 7 of 2017 (“the Suit”) on 3 May 2017 alleging fraudulent or negligent misrepresentation on the part of the first defendant that induced the plaintiff to enter into a letter of intent on 1 August 2016 (“the LOI”). The plaintiff also claimed unjust enrichment against the defendants in the sum of US$3m. The Suit was also filed against Chang Tsuei-Yun (“the second defendant”) who is a director of the first defendant, the vice chairman of TCC, the legal representative of ZCC as well as a majority shareholder of TCC. The plaintiff alleged that the second defendant is the prime mover and ultimate controller of the Chi Cheng group of companies and is responsible for the business and management of the companies in the group.[note: 4]
7 Shortly after the plaintiff’s commencement of the Suit, the first defendant applied in Summons No. 416 of 2017 (“the first defendant’s application”) for a stay of proceedings on the ground of forum non conveniens. The second defendant followed suit and filed Summons No. 1366 of 2017 (“the second defendant’s application”) applying for a similar stay of the Suit. (Henceforth, the two defendants’ applications will be referred to jointly as “the defendants’ applications”).
8 Both summonses came up for hearing before this court. At the conclusion of the hearing, I granted the defendants’ applications (with a stay of six months until 12 January 2018) and further ordered (in regard to the first defendant’s application) that the plaintiff commence proceedings afresh in Zhuhai which claim should be tried together with the first defendant’s claim against the plaintiff there. The plaintiff is dissatisfied with my decision and has filed Notices of Appeal in CA Nos.133 and 134 of 2017 respectively against my granting of the defendants’ applications. Consequently, I now set out the grounds for my decision.
9 The facts set out below are extracted from the pleadings as well as from the affidavits filed by the parties.
10 Around April 2016, the shareholders of ZCC decided to divest their shares in ZCC which was in financial difficulties. The plaintiff expressed an interest in acquiring the shares because ZCC held an anodising licence in China. Securing the licence would enable the plaintiff to expand some of its own manufacturing processes in China (according to the affidavit filed by the plaintiff’s Chief Operations Officer [“COO”] Jonathan Chee [“Chee”]).
11 According to Chee, the plaintiff would have faced difficulties if it were to transfer the anodising licence to itself from ZCC. He thought the best way to do the transfer was to acquire the owner of the licence, namely the first defendant. Chee was reassured by the fact that ZCC’s majority shareholder was the first defendant, a Singapore registered company which held substantial and real assets including receivables of more than S$5m, fixed deposits of more than S$1m and cash or cash equivalent close to S$17,000. Additionally, Chee noted that the first defendant had a viable business as it provides manufacturing and repair services for industrial and commercial electronic products. [note: 5]
12 The plaintiff’s interest in acquiring ZCC was conveyed by Chee to one Joey Hsu who was previously with ZCC. Chee then contacted Chen Pao Shun (“Leon Chen”), the chief financial officer of ZCC.[note: 6]
13 On or about 4 May 2016 (“the 4 May meeting”), the plaintiff’s representatives, namely its chief executive officer Bryan Lim, Chee and its financial controller Poh Leong Wee Terence (“Terence”), met the second defendant, Leon Chen and ZCC’s general manager Sam Tung (“Tung”) at ZCC’s office at Zhuhai. The plaintiff’s representatives expressed interest in purchasing the first defendant’s shares in ZCC. The second defendant informed them that the sale and purchase transaction, including negotiations, would be handled by a lawyer, Lu Dongbiao (“Bill Lu”), from the Zhuhai law firm called Guangdong Jiatong Law Firm (“Guangdong Jiatong”).[note: 7] Guangdong Jiatong was the custodian trustee of ZCC’s assets while Bill Lu held a power of attorney granted by the first defendant, TCC and ZCC.
14 Soon after the 4 May meeting, the plaintiff conducted extensive due diligence on ZCC in China from May to July 2016.[note: 8] This included a visit by Terence and other representatives of the plaintiff to ZCC’s premises. The plaintiff also engaged a firm of valuers, Dongguan Hualian Asset Appraisal, as well as a team from the Hong Kong branch of DBS Bank’s mergers and acquisition division. Legal due diligence for the plaintiff was conducted by a Zhuhai law firm Dentons Law Office LLP (“Dentons”) and one Xue Peng (“Xue”) in particular.
15 Leon Chen asserted that it was made known to the plaintiff in the course of its due diligence exercise that ZCC faced financial and legal problems.[note: 9] The financial problems included the company’s main banker, Bank of Communications (Zhuhai Branch) (“the Bank”), recalling the loans it had extended to ZCC and suing for their repayment. Another problem involved the sale transaction by ZCC of its shares in KCC (at ) to two individuals namely Li Jiong and Madam Luo Feng (collectively “the buyers”). The sale price of KCC’s shares to the buyers was around RMB170,000,000 of which RMB132,500,000 was then outstanding. The sale was effected pursuant to an Equity Transfer Agreement dated 19 October 2015 (“the ET Agreement”). The balance of RMB132,500,000 was booked as an account receivable in the books of ZCC. Henceforth the sum of RMB132,500,000 will be referred to as the “Account Receivable”.
16 The Bank sued ZCC because KCC had furnished a corporate guarantee to the Bank as part of the securities given by ZCC for the Bank’s loans. As a result, the buyers suspended their instalment payments of the Account Receivable.[note: 10]
17 By email, Leon Chen furnished to the plaintiff through DBS Hong Kong a list of all the legal suits faced by ZCC. He claimed that the plaintiff and Dentons expressly informed him and Bill Lu that the legal issues involving KCC would not affect the intended acquisition of the ZCC shares.[note: 11]
18 On or about 25 July 2016, the plaintiff informed the first defendant by email that it was ready to pay a deposit of RMB20m (equivalent to US$3m) for the purchase of ZCC shares, subject to certain terms and conditions. In a telephone exchange between Xue and Bill Lu, the former informed the latter that the deposit would be paid into a joint account and the monies would not be used until after the completion of the sale and purchase transaction. [note: 12]
19 On 27 July 2016, Bill Lu informed the plaintiff by email that it had to pay US$3m to ZCC by 28 July 2016 as earnest money before ZCC would allow the plaintiff to continue its negotiations and due diligence on ZCC. Further, ZCC would be at liberty to use the US$3m (which was not to be placed in a joint account) and the plaintiff had to complete its evaluation and make an offer price for ZCC shares by 5 August 2016.[note: 13]
20 The plaintiff did not pay by 28 July 2016 the US$3m that was requested. Instead, on that day, Xue emailed Leon Chen a draft letter of intent (“the draft LOI”) in respect of the plaintiff’s intended purchase of ZCC’s shares. The draft LOI did not contain a clause on the issue of earnest money.
21 On 29 July 2016, the second defendant emailed Chee to say the ZCC shareholders did not agree to the draft LOI. She referred to Leon Chen’s email of 27 July 2016 (at ) and added that since no earnest money was paid by 28 July 2016 as ZCC stipulated, the latter’s shareholders would be accepting offers from other interested buyers. She added that if the plaintiff was still interested in purchasing ZCC’s shares, it would have to pay US$500,000 (or its equivalent in RMB) as earnest money to Guangdong Jiatong by that day. The plaintiff would also have to sign a share transfer agreement providing for a purchase price of not less than US$10m and pay a deposit of US$3m by 5 August 2016.[note: 14]
22 On 1 August 2016, Chee, Xue and the plaintiff’s accountant attended at the offices of Guangdong Jiatong and met Bill Lu and Leon Chen (“the 1 August meeting”). The plaintiff offered US$8m for the shares in ZCC with an immediate deposit of US$3m. In exchange, the plaintiff requested that ZCC’s shareholders return forthwith all earnest monies received from other potential buyers and deal solely with the plaintiff.[note: 15]
23 At the 1 August meeting, Bill Lu prepared a letter of intent for acquisition of shares in ZCC. On Xue’s advice, the plaintiff made amendments to the document. After the amendments were completed, the finalised version of the document was engrossed and the parties signed the LOI.[note: 16] Clause 7 of the LOI states:
The place for the performance of this Letter of Intent shall be Zhuhai.
24 At the 1 August meeting, Xue handed to Chee and to the plaintiff’s accountant the due diligence report. During the ensuing discussion, the parties touched on the Account Receivable due from the buyers. Bill Lu apparently told Xue that once the plaintiff settled the debt due to the Bank from ZCC, the buyers would have no basis to refuse to pay the Account Receivable for their shares in KCC.[note: 17]
25 The plaintiff’s version of the discussion at the 1 August meeting formed the gravamen of its case in the Suit. In the plaintiff’s statement of claim (Amendment No 1) (at ), it was alleged that at that meeting, Leon Chen and Bill Lu made the following representations on behalf of the ZCC shareholders:[note: 18]
(a) From the date of the signing of the ET Agreement (at ) until 1 August 2016, the value of KCC’s land and plant had increased in value by around RMB5-6m, which exceeded the agreed penalty of RMB3m under the ET Agreement;
(b) The buyers would definitely continue to pay to ZCC the rest of the purchase price under the ET Agreement; and
(c) The Account Receivable was definitely recoverable from the buyers.
(Hereinafter the above allegations will be referred to collectively as “the Representations”). The plaintiff alleged that it relied on the Representations and was thereby induced to enter into the LOI and pay the deposit of US$3m on or about 4 August 2016.[note: 19]
26 On 16 August 2016, the plaintiff alleged it was informed by Leon Chen and Bill Lu that the buyers had threatened proceedings against ZCC for alleged breach of the ET Agreement and were demanding compensation equivalent to 20% of their purchase price namely around RMB34m.[note: 20]
27 The plaintiff further alleged that between 16 August and 14 September 2016, Leon Chen and Bill Lu made further representations to the plaintiff on behalf of the ZCC shareholders as follows:[note: 21]
(a) The buyers would not commence proceedings against ZCC;
(b) The Account Receivable was recoverable; and
(c) A guarantee for (a) and (b) would be provided in the share purchase agreement.
(Collectively the above allegations will be referred to hereinafter as “the Further Representations”).
28 On or around 14 September 2016, the second defendant requested the plaintiff to make an advance payment of US$2.6m to the first defendant. In good faith and relying on the Further Representations, the plaintiff made an advance payment of US$2.6m by cheque crediting the first defendant’s Singapore bank account.
29 The defendants’ version of the 1 August meeting was as follows:[note: 22]
(a) The plaintiff wanted to sign an agreement immediately and place a deposit of US$3m for the purchase of ZCC shares for which the plaintiff was prepared to pay a total price of US$8m;
(b) In exchange, the plaintiff wanted the ZCC shareholders to deal solely and exclusively with the plaintiff. Chee required Bill Lu to return all earnest money received from other interested buyers;
(c) At the 1 August meeting, Xue submitted Dentons’ completed due diligence report to Chee and Terence. The discussion turned to the Account Receivable. Bill Lu opined to Xue that once the plaintiff settled the debt owed to the Bank by ZCC, the buyers would have no basis to refuse to pay the Account Receivable. Xue agreed. Chee then said that upon signing the LOI, ZCC’s problems would henceforth be his (the plaintiff’s);
(d) At no time whether at the 1 August meeting or otherwise did the ZCC shareholders or their representatives make any of the Representations alleged in the statement of claim or to similar effect;
(e) Neither Bill Lu nor Leon Chen consulted with or took instructions from the second defendant at the 1 August meeting, the reason being that both of them were already authorised by the second defendant to represent ZCC; they only had to report to the second defendant on the outcome of the 1 August meeting;
(f) Bill Lu drafted the LOI on the spot. It was reviewed by Xue who gave his input on the draft including adding Clause 7 (at ) providing for Zhuhai to be the place of performance. The first defendant, at the plaintiff’s request, was designated the payee of the purchase price, including the deposit of $3m. The plaintiff then signed the LOI.
30 The plaintiff paid the $3m deposit on 4 August 2016 into the first defendant’s bank account.[note: 23]
31 On 8 August 2016, ZCC received a letter of demand dated 7 August 2016 addressed to its shareholders from the buyers alleging that the shareholders had failed to disclose KCC’s contingent liabilities; the buyers demanded compensation amounting to 20% of their purchase price.[note: 24] On 16 August 2016, Leon Chen forwarded the buyers’ letter of demand to the plaintiff via email. His email’s subject matter in Mandarin was “Pointing out legal risks”.
32 The defendants denied the plaintiff’s allegation that they made the Further Representations as set out in  above. They contended that the contemporaneous documents told a different story. The defendants claimed that when Leon Chen notified the plaintiff of the buyers’ letter of demand, neither the plaintiff nor Dentons raised any concerns or were alarmed over the turn of events. Instead, the plaintiff requested clarification on the ET Agreement and that ZCC grant a power of attorney to Xue and his team at Dentons to act on behalf of ZCC in respect of all law suits, arbitration proceedings and potential claims in which ZCC was involved; ZCC acceded to the request.[note: 25]
33 Between 20 and 24 August 2016, Chee called Leon Chen to say that having consulted Xue, he was not worried about the Account Receivable. Separately, Xue advised Chee on 23 August 2016 that the dispute on the ET Agreement was controllable and that the buyers were trying to take advantage of the misfortunes of ZCC and KCC. This was repeated by Xue in the presence of Chee and the plaintiff’s marketing manager to Bill Lu and Leon Chen.[note: 26]
34 On 19 August 2016, Guangdong Jiatong wrote to the plaintiff to say that the plaintiff had yet to provide any funds to ZCC for it to maintain its normal operations. The plaintiff was advised that it was required to sign the final share transfer agreement by 15 September 2016 and to pay within three days thereafter US$2.6m towards the purchase price of ZCC shares. Notwithstanding the outright sale of ZCC shares to the plaintiff, the defendants’ case was that it was the plaintiff’s request that ZCC continued its operations.[note: 27]
35 The plaintiff agreed to pay US$2.6m by 15 September 2016 as the defendants requested but asked that the share transfer agreement by signed by 19 September 2016 to accommodate Jon Chee’s SinCo schedule. The plaintiff paid the US$2.6m requested on or about 14 September 2016.[note: 28]
36 Between 4 August and 18 September 2016, the parties exchanged draft transfer agreements through their solicitors. The first draft was prepared by Dentons and contained clause 11.5 which states:[note: 29]
Applicable Law and Dispute Resolution
11.5.1 The formation, validity, interpretation and performance of the Agreement shall be governed by the laws and regulations of the People’s Republic of China,
11.5.2 Any dispute arising out of or in connection with this Agreement shall be settled by the parties through amicable negotiations. If the dispute cannot be resolved amicably through negotiations within fifteen (15) days after the dispute has arisen, either party shall have the right to submit it to the South China International Economic and Trade Arbitration Commission for arbitration in accordance with the arbitration rules in force at that time. The place of arbitration shall be Shenzhen. The arbitral award shall be final and legally binding upon the parties.
The above clause remained in all subsequent drafts of the transfer agreement.
37 The defendants pointed out that none of the Representations or Further Representations pleaded in the statement of claim appeared in the draft transfer agreement.[note: 30]
38 Eventually, the share transfer agreement fell through as the plaintiff disputed that it was obliged to bear ZCC’s daily operating expenses prior to the execution of the share transfer agreement whereas the defendants contended the plaintiff was liable to do so under the LOI with effect from 1 July 2016. By Bill Lu’s email dated 30 September 2016, ZCC shareholders indicated they were prepared to compromise on this issue by bearing certain specific expenses incurred by ZCC in the period July to September 2016.[note: 31]
39 It was the defendants’ case that the plaintiff unilaterally withdrew from the acquisition of ZCC’s shares by Xue’s email dated 14 October 2016. The plaintiff sought a refund of the total sum of US$5.6m it had paid.[note: 32]
40 On or about 17 October 2016, the first defendant refunded the plaintiff the sum of US$2.6m but refused to refund the deposit of US$3m. The defendants took the position that the plaintiff was in breach of contract and the defendants had thus forfeited the deposit in accordance with the deposit penalty rule in Chinese law. Hence, the plaintiff’s claim for unjust enrichment.
41 In support of the defendants’ applications, the defendants relied on an opinion of the plaintiff’s Chinese law expert Dong Chungang (“Dong”) dated 3 May 2017 (“Dong’s opinion”).[note: 33] Dong is a partner in a Beijing law firm and is also a member of the New York Bar. Dong’s opinion in essence stated:
(a) The LOI is a legally binding contract under PRC law;
(b) The Representations and Further Representations are actionable under People’s Republic of China (‘PRC”) law;
(c) The plaintiff’s claim for unjust enrichment is actionable under PRC law; and
(d) The plaintiff would have to pierce the corporate veil under Article 20 of the Company Law of the PRC in order to hold the second defendant personally liable to the plaintiff under PRC law.
The defendants submitted that it was implicit in Dong’s opinion that Dong accepted that Chinese law is applicable to the plaintiff’s claim.[note: 34]