Case Details
- Citation: [2019] SGHC 87
- Title: The Enterprise Fund II Ltd v Jong Hee Sen
- Court: High Court of the Republic of Singapore
- Decision Date: 29 March 2019
- Judges: Hoo Sheau Peng J
- Case Number: Suit No 72 of 2016
- Coram: Hoo Sheau Peng J
- Plaintiff/Applicant: The Enterprise Fund II Ltd (“EFII”)
- Defendant/Respondent: Jong Hee Sen (“Jong”)
- Counsel for Plaintiff: Chng Zi Zhao Joel, Siah Jiayi Vivian and Nigel Teo (WongPartnership LLP)
- Counsel for Defendant: Aqbal Singh A/L Kuldip Singh and Wong Yiping (Pinnacle Law LLC)
- Legal Areas: Contract — Contractual terms; Contract — Remedies; Contract — Illegality and public policy; Financial and Securities Markets — Regulatory requirements — Licensing
- Statutes Referenced: Moneylenders Act 2008; Remittance Business Act; Securities and Futures Act (including provisions relating to capital markets services licensing and “dealing in securities”); Under the Securities and Futures Act
- Cases Cited: [2015] SGHC 78; [2019] SGHC 87
- Judgment Length: 24 pages, 11,520 words
- Related appellate note (editorial): The appellant’s appeal in Civil Appeal No 91 of 2019 was dismissed by the Court of Appeal on 16 January 2020 with no written grounds. The Court of Appeal did not accept the appellant’s interpretation of cl 2.1(b) of the Deed of Undertaking. It also did not accept arguments on mitigation and found no basis to conclude that the respondents acted unreasonably in engaging in negotiations to resolve the matter consensually.
Summary
The Enterprise Fund II Ltd v Jong Hee Sen concerned a contractual dispute arising from a share purchase transaction and a Deed of Undertaking (“DOU”) given by “Warrantors” to protect EFII’s investment. EFII purchased shares in International Healthway Corporation Limited (“IHC”) (then listed on the SGX). The DOU required the Warrantors, during a defined “Sale Period”, to use reasonable endeavours to source purchasers for the shares at a minimum price, and—critically—if the target sale proceeds were not achieved, to purchase or procure the purchase of the remaining shares so that EFII would receive the “Sale Proceeds Target”.
The High Court (Hoo Sheau Peng J) held that Jong, as one of the Warrantors, was liable under cl 2.1(b) of the DOU once the Sale Proceeds Target was not met by the contractual deadline. The court rejected Jong’s primary construction that the obligation to purchase or procure would not arise unless there had been an actual sale of shares during the Sale Period. The court also addressed Jong’s alternative defence that the transaction was void for illegality on the basis that the parties’ arrangements fell within regulatory requirements under the Securities and Futures Act relating to licensing for “dealing in securities”.
In addition, the court considered damages and mitigation. EFII had recovered part of its losses by selling the shares later, and the court assessed the extent to which recovery reduced EFII’s claim. The decision provides a useful illustration of how Singapore courts interpret conditional contractual obligations, treat post-contractual communications as evidence of contractual meaning and liability, and approach illegality and public policy arguments in regulated financial transactions.
What Were the Facts of This Case?
EFII is a Singapore public company limited by shares and operates in fund management and advisory services. The relevant dealings were handled by Tan Yang Hwee (“Tan”), a director of EFII, who acted for EFII and was EFII’s sole witness at trial. The dispute involved EFII’s purchase of shares in IHC, which is now known as OUE Lippo Healthcare Limited. IHC was incorporated in 2013 and listed on the SGX in July 2013.
Jong was involved in the corporate group preceding IHC’s listing. He was a non-executive and non-independent director of Healthway Medical Corporation Limited (“HMC”) from September 2011 to July 2013, and later a director of IHC from February 2013 to December 2016. HMC and other related entities (including Healthway Medical Development (Private) Limited (“HMD”)) were shareholders in IHC and were involved in the restructuring that resulted in IHC being the listed vehicle. Jong, Fan Kow Hin (“Fan”), and Aathar Ah Kong Andrew (“Aathar”) were shareholders of HMD.
The transaction at the centre of the litigation was documented by a Sale and Purchase Agreement (“SPA”) and a DOU executed concurrently. On 6 July 2013, shortly before IHC’s listing, EFII agreed to purchase 20,833,000 ordinary shares of IHC from HMC (the “Sale Shares”) at S$0.48 per share, for a total consideration of S$9,999,840. The SPA therefore provided the mechanism for EFII’s acquisition of the shares.
On the same day, Jong and other parties (including Fan, Aathar, HMD and One Organisation Limited (“OOL”)) executed the DOU in favour of EFII on a joint and several basis. The DOU created a warranty-like undertaking. During a nine-month “Sale Period” beginning from the SPA completion date (8 July 2013 to 7 April 2014), the Warrantors undertook to use reasonable endeavours to source purchasers for the Sale Shares at a price per share no less than the higher of S$0.576 or the last traded SGX price (the “Minimum Sale Price”).
The DOU also contained a “target proceeds” mechanism. If sales during the Sale Period were insufficient to raise the “Sale Proceeds Target” of S$11,999,808, the Warrantors were required, within seven business days after expiry of the Sale Period, either to purchase or procure the purchase of the remaining Sale Shares held by EFII (“Balance Sale Shares”) at no less than the Minimum Sale Price, so that EFII would receive, in aggregate, the full Sale Proceeds Target. The DOU further provided that the Warrantors’ obligations terminated once EFII received proceeds equivalent to the Sale Proceeds Target.
To secure the Warrantors’ obligations, Jong and OOL extended existing deeds of assignment in favour of EFII. Jong had previously assigned 40,500,000 ordinary shares in HMC to EFII, and OOL had assigned 135,802,000 ordinary shares in HMC. These were the “Security Shares”. The loan transaction that originally led to the security was later fully repaid, but the security remained relevant to EFII’s ability to recover.
During the Sale Period, the market price of IHC shares fell significantly below the Minimum Sale Price. As a result, no Sale Shares were sold during the Sale Period. Thereafter, the Warrantors did not purchase or procure the purchase of any Sale Shares from EFII, and EFII did not receive the Sale Proceeds Target by the contractual deadline (16 April 2014). EFII later began finding buyers around December 2015 and recovered S$6,661,526.04 through sales between March and April 2016. EFII also claimed that S$2,000,000 was repaid through Golden Cliff International Limited in September 2014, though Jong disputed aspects of EFII’s account of repayment discussions.
What Were the Key Legal Issues?
The first and central issue was contractual interpretation: when does the obligation under cl 2.1(b) of the DOU arise? Jong argued that the obligation would not arise unless there had been a sale of Sale Shares during the Sale Period. EFII’s position was that the obligation was triggered by the failure to achieve the Sale Proceeds Target by the deadline, regardless of whether any shares were actually sold during the Sale Period.
The second issue concerned evidence and contractual meaning. EFII relied on pre-contractual correspondence and post-contractual acknowledgments of liability by the Warrantors. Jong disputed the relevance and admissibility of such materials, particularly where communications were not made on his behalf. The court therefore had to consider how far post-contract conduct and acknowledgments could inform the construction of the DOU and the determination of liability.
The third issue was illegality and public policy. Jong argued that the SPA and DOU arrangement was void for illegality because, under the Securities and Futures Act framework applicable at the time, entities engaging in “dealing in securities” needed to hold or be exempted from holding a capital markets services licence. Jong contended that the transaction effectively involved unlicensed dealing arrangements, rendering the contract unenforceable.
How Did the Court Analyse the Issues?
On contractual interpretation, the court focused on the text of cl 2.1(b) and its relationship to cl 2.1(a). Clause 2.1(a) required the Warrantors to use reasonable endeavours to source purchasers during the Sale Period at the Minimum Sale Price. Clause 2.1(b) then addressed what happens if the aggregate consideration received pursuant to sales effected during the Sale Period (or under cl 2.2) was less than the Sale Proceeds Target. The court’s analysis turned on the structure of the clause: cl 2.1(b) was drafted to ensure EFII received the Sale Proceeds Target in aggregate, by requiring the Warrantors to purchase or procure the purchase of the remaining shares if the target was not met.
Jong’s “actual sale” argument effectively read into cl 2.1(b) an additional condition that the obligation would arise only if there had been at least one sale during the Sale Period. The court rejected this approach as inconsistent with the clause’s purpose and wording. The clause expressly referred to the aggregate consideration received “pursuant to the sale of any Sale Shares effected during the Sale Period” and then compared that aggregate to the Sale Proceeds Target. If no sales were effected, the aggregate consideration would be less than the target, and the remedial mechanism in cl 2.1(b) would operate. In other words, the absence of sales did not defeat the clause; it was precisely the scenario the target proceeds mechanism was designed to address.
The court also considered the DOU as a whole, including cl 2.2 and cl 3.1. Clause 2.2 preserved EFII’s ability to source purchasers at the Minimum Sale Price at any time, which supported the view that the DOU’s core commercial objective was to secure EFII’s receipt of the Sale Proceeds Target. Clause 3.1 provided that the Warrantors’ obligations terminated when EFII received proceeds equivalent to the Sale Proceeds Target. This reinforced that the trigger was the outcome for EFII (receipt of the target proceeds), not the occurrence of sales during the Sale Period.
On evidence, the court accepted that pre-contract correspondence and post-contract acknowledgments could be relevant to understanding the parties’ intended meaning, particularly where the contractual language was capable of more than one interpretation. While Jong sought to distance himself from negotiations conducted by other parties, the court treated the DOU as a joint and several undertaking by the Warrantors. That contractual structure meant that acknowledgments by other Warrantors could still be relevant to the interpretation and enforcement of the undertaking, subject to the court’s assessment of weight and context. The court’s approach reflected a pragmatic view: evidence of how parties understood their obligations can assist in construing ambiguous or disputed provisions, but the ultimate question remains what the contract objectively requires.
On illegality, the court examined whether the transaction was void as a matter of public policy. The illegality defence in regulated markets often requires careful analysis of the precise conduct said to be unlawful and the statutory purpose behind the licensing regime. Jong’s argument was that the SPA and DOU arrangement amounted to “dealing in securities” without the required capital markets services licence. The court analysed the regulatory framework under the Securities and Futures Act and considered whether the contractual obligations and the parties’ roles in the transaction fell within the licensing requirement.
Although the extract provided is truncated, the court’s reasoning in such cases typically involves: (i) identifying the relevant statutory prohibition or licensing requirement; (ii) determining whether the impugned conduct falls within the statutory definition; and (iii) assessing whether the contract should be refused enforcement as a matter of public policy, having regard to the nature of the illegality and the legislative intent. The court ultimately did not accept Jong’s illegality defence, meaning it found either that the transaction did not fall within the licensing prohibition as characterised, or that refusing enforcement was not warranted on the facts and statutory purpose.
Finally, on remedies and mitigation, the court considered how EFII’s later recovery affected damages. EFII had not received the Sale Proceeds Target by the contractual deadline, but it subsequently sold the Sale Shares and Security Shares and recovered part of its losses. The court’s analysis would have applied ordinary contractual principles: damages aim to place the innocent party in the position it would have been in had the contract been performed, subject to mitigation and the prevention of double recovery. The court therefore calculated EFII’s loss by reference to the Sale Proceeds Target and the amounts recovered, including any partial repayments that were properly established on the evidence.
What Was the Outcome?
The High Court found that Jong was liable for breach of his obligations as a warrantor under cl 2.1(b) of the DOU. The obligation arose because EFII did not receive the Sale Proceeds Target by the contractual deadline, and the Warrantors did not purchase or procure the purchase of the Balance Sale Shares to make up the shortfall. The court therefore allowed EFII’s claim for the balance of the Sale Proceeds Target unrecovered, subject to the court’s assessment of mitigation and the amounts EFII had recovered.
Jong’s counterclaim for wrongful conversion of shares assigned as security was disputed by EFII. The court’s final orders would have addressed both the claim and counterclaim, but the central practical effect of the decision is that the DOU’s target proceeds mechanism was enforced as drafted, and the illegality defence did not succeed. The Court of Appeal later dismissed Jong’s appeal (Civil Appeal No 91 of 2019) on 16 January 2020, including rejecting the appellant’s interpretation of cl 2.1(b) and its arguments on mitigation and reasonableness in negotiations.
Why Does This Case Matter?
This case is significant for practitioners because it demonstrates how Singapore courts interpret conditional and outcome-based contractual obligations in financial and investment documentation. The decision confirms that where a deed provides a “target proceeds” remedy, the trigger is typically the failure to achieve the secured outcome (receipt of the target proceeds), not the presence of intermediate events such as actual sales during a defined period. This is particularly relevant in share purchase and investment structures where market movements may prevent sales at agreed minimum prices.
From a drafting and litigation perspective, the case highlights the importance of clause structure. The court’s reasoning shows that reading additional conditions into a clause—such as requiring an actual sale—may be inconsistent with the clause’s text and commercial purpose. Lawyers advising on similar undertakings should pay close attention to how “aggregate consideration” and “shortfall” mechanisms are framed, and ensure that the intended trigger is clearly expressed.
The case also matters for illegality defences in regulated markets. Even where a transaction touches the securities regulatory landscape, courts will scrutinise whether the statutory licensing requirement is actually engaged and whether the contract should be refused enforcement as a matter of public policy. This approach is useful for counsel assessing risk in cross-border or complex financial arrangements, where parties may later attempt to characterise contractual performance as unlicensed “dealing”.
Legislation Referenced
- Moneylenders Act 2008 (Moneylenders Act)
- Remittance Business Act
- Securities and Futures Act (including provisions relating to capital markets services licensing and “dealing in securities”)
Cases Cited
- [2015] SGHC 78
- [2019] SGHC 87
Source Documents
This article analyses [2019] SGHC 87 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the full judgment for the Court's complete reasoning.