Case Details
- Citation: [2019] SGHC 87
- Title: The Enterprise Fund II Ltd v Jong Hee Sen
- Court: High Court of the Republic of Singapore
- 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; Moneylenders Act; Remittance Business Act; Securities and Futures Act; Under the Securities and Futures Act
- Cases Cited: [2015] SGHC 78; [2019] SGHC 87
- Procedural 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 saw no basis for concluding that the respondents acted unreasonably in engaging in negotiations to try to resolve the matter consensually.
- Judgment Length: 24 pages, 11,520 words
Summary
The Enterprise Fund II Ltd v Jong Hee Sen concerned a contractual dispute arising from a share purchase transaction and a related Deed of Undertaking (“DOU”). EFII, a fund management company, purchased shares in International Healthway Corporation Limited (“IHC”). The DOU required the warrantors, including Jong, to use reasonable endeavours to procure purchasers during a defined “Sale Period” and, crucially, to ensure that EFII received a specified “Sale Proceeds Target” by a deadline. When the market price fell and no shares were sold during the Sale Period, EFII did not receive the Sale Proceeds Target and sued for breach of the warrantors’ obligations.
The High Court (Hoo Sheau Peng J) rejected Jong’s primary defence that the warrantors’ liability under cl 2.1(b) of the DOU only arose if there had been an actual sale of Sale Shares during the Sale Period. The court construed the DOU as imposing an obligation to make up the shortfall so that EFII received the Sale Proceeds Target, regardless of whether any sales occurred during the Sale Period. The court also addressed Jong’s alternative illegality argument, which relied on regulatory licensing requirements under the Securities and Futures Act framework. Ultimately, the court upheld EFII’s claim and assessed the appropriate damages, while considering issues of mitigation.
What Were the Facts of This Case?
EFII is a Singapore public company limited by shares, engaged in fund management and advisory services. A director of EFII, Tan Yang Hwee (also known as “Glendon”), acted for EFII in the relevant dealings and was EFII’s sole witness at trial. The underlying corporate group involved several healthcare-related entities. Healthway Medical Corporation Limited (“HMC”) was incorporated in 2007 and listed on the SGX in 2008. Jong was involved in HMC’s business and served as a non-executive and non-independent director from 1 September 2011 to 8 July 2013.
IHC, later known as OUE Lippo Healthcare Limited, was incorporated in 2013 and listed on the SGX in July 2013. Jong was formerly a director of IHC from 18 February 2013 to 22 December 2016. The transaction at the heart of the case was structured around an earlier “predecessor” entity, Healthway Medical Development (Private) Limited (“HMD”), which was used as the vehicle for an asset restructuring exercise leading to IHC’s listing. Fan Kow Hin (“Fan”) and Aathar Ah Kong Andrew (“Aathar”) were also involved as shareholders and directors in the relevant entities.
On 6 July 2013, shortly before IHC’s listing, EFII agreed to purchase 20,833,000 ordinary shares of IHC from HMC. The SPA provided for a consideration of $0.48 per share, totalling $9,999,840 payable by EFII to HMC. On the same day, Jong, Fan, Aathar, HMD and One Organisation Limited (“OOL”) executed the DOU in favour of EFII on a joint and several basis as “Warrantors”. The DOU was designed to protect EFII against market risk after listing by setting a minimum sale price and a proceeds target.
The DOU created a “Sale Period” of nine months beginning from the SPA completion date (8 July 2013) and ending on 7 April 2014. Under cl 2.1(a), the warrantors undertook to use reasonable endeavours to source and procure 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. However, cl 2.1(b) addressed the possibility that sales during the Sale Period would be insufficient to raise the Sale Proceeds Target of $11,999,808. It required the warrantors, within seven business days after the expiry of the Sale Period, either to purchase or procure the purchase of the remaining shares held by EFII (the “Balance Sale Shares”) at no less than the Minimum Sale Price so that EFII received, in aggregate, the full Sale Proceeds Target.
To secure these obligations, cl 2.3 of the DOU required an extension of Deeds of Assignments. EFII had earlier advanced a loan to HMD, and Jong and OOL had assigned HMC shares to EFII as security. Jong assigned 40,500,000 HMC shares and OOL assigned 135,802,000 HMC shares to EFII. The loan was eventually repaid, but the security arrangements remained relevant to EFII’s later recovery efforts.
During the Sale Period, the market traded prices of IHC shares fell significantly below the Minimum Sale Price. As a result, no Sale Shares were sold during the Sale Period. After the Sale Period ended, the warrantors did not purchase or procure any Sale Shares from EFII, and EFII did not receive the Sale Proceeds Target. EFII later began finding buyers around December 2015 and recovered $6,661,526.04 through sales from March to April 2016. EFII also asserted that $2,000,000 was repaid through Golden Cliff International Limited (purportedly owned by Fan) towards the outstanding sum, though Jong disputed aspects of EFII’s account.
What Were the Key Legal Issues?
The first key issue was contractual interpretation: whether Jong’s obligation under cl 2.1(b) of the DOU arose only if there had been an actual sale of Sale Shares during the Sale Period. Jong argued that the clause, on its plain and unambiguous wording, did not trigger if no shares were sold. EFII’s position was that the clause was triggered by the failure to achieve the Sale Proceeds Target in aggregate, and that the warrantors’ obligation to purchase or procure the purchase of Balance Sale Shares existed to make up the shortfall.
The second issue concerned evidence and contractual admissions. EFII relied on pre-contractual correspondence and post-contractual acknowledgments of liability by the warrantors. Jong’s defence included arguments that he was not privy to negotiations between Fan and Aathar and EFII, and that any admissions by Fan or Aathar were not made on Jong’s behalf. This raised questions about the admissibility and weight of communications and acknowledgments in establishing liability under the DOU.
The third issue was illegality and public policy. Jong argued that the transaction comprising the SPA and DOU was void for illegality because, under the Securities and Futures Act regime applicable at the time, entities dealing in securities needed to hold or be exempted from holding a capital markets services licence. Jong contended that EFII’s role in acquiring securities and the overall transaction structure fell within regulatory “dealing” requirements, rendering the agreement unenforceable.
How Did the Court Analyse the Issues?
On contractual interpretation, the court focused on the structure and purpose of cl 2.1(a) and cl 2.1(b). Clause 2.1(a) imposed a “reasonable endeavours” obligation to procure purchasers during the Sale Period at or above the Minimum Sale Price. Clause 2.1(b), however, was drafted to address a different scenario: where the aggregate consideration received by EFII pursuant to sales effected during the Sale Period (or pursuant to other provisions) was less than the Sale Proceeds Target. The court treated cl 2.1(b) as a shortfall mechanism. The trigger was not the occurrence of sales, but the failure to reach the Sale Proceeds Target in aggregate.
Accordingly, the court rejected Jong’s attempt to read into cl 2.1(b) a requirement that there must have been at least one sale during the Sale Period before liability could arise. The language of cl 2.1(b) referred to “aggregate consideration received … pursuant to the sale of any Sale Shares effected during the Sale Period” and then compared that aggregate consideration to the Sale Proceeds Target. Where no sales were effected, the aggregate consideration would necessarily be below the target, and the clause’s remedial obligation would operate. This construction aligned with the commercial logic of the DOU: it was intended to protect EFII from market price volatility by ensuring a minimum proceeds outcome.
On the evidence issue, the court considered the relevance of pre-contractual correspondence and post-contractual acknowledgments. While Jong sought to limit the effect of communications involving other warrantors, the court’s reasoning indicates that liability under the DOU ultimately turned on the contractual terms and their operation on the facts. Evidence of negotiations and acknowledgments could support context and understanding of the parties’ positions, but it could not override the clear contractual allocation of risk and responsibility. The court therefore approached the evidential material as corroborative rather than determinative where the contractual text was sufficiently clear.
On illegality, the court addressed the regulatory licensing argument within the broader doctrine of illegality and public policy. The court recognised that statutory illegality can render contracts unenforceable where the contract is made in breach of a statutory prohibition or where enforcement would undermine the policy of the statute. However, the analysis required careful attention to the nature of the alleged breach, the statutory scheme, and the connection between the illegality and the transaction sought to be enforced. In other words, illegality is not a mere label; the court must determine whether the agreement is of a type that the statute intends to prevent and whether enforcement would be contrary to the legislative purpose.
Although the extracted text is truncated, the pleaded illegality argument was anchored in the Securities and Futures Act licensing framework for “dealing in securities”. The court would have had to consider whether EFII’s conduct constituted “dealing” in securities and whether the SPA/DOU arrangement was sufficiently linked to that regulated activity. The court’s ultimate rejection of Jong’s illegality defence (as reflected by the case’s outcome) suggests that either the factual basis for the alleged licensing breach was not established on the evidence, or the legal connection between any regulatory non-compliance and the enforceability of the DOU was insufficient to trigger the voidness consequence. The court’s approach reflects Singapore’s modern illegality framework, which typically requires a nuanced assessment of statutory purpose and proportionality rather than automatic nullity.
Finally, the court considered remedies and mitigation. EFII claimed $3,338,281.95 as the balance of the Sale Proceeds Target left unrecovered, after accounting for recoveries from later sales and alleged partial repayment. Jong disputed aspects of EFII’s mitigation and recovery narrative. The court’s reasoning, as reflected in the editorial note about the Court of Appeal’s dismissal of the appeal, indicates that the courts did not accept that EFII acted unreasonably in engaging in negotiations to resolve the matter consensually. The court therefore treated EFII’s steps to recover as consistent with the duty to mitigate loss, and it did not reduce damages on the basis of unreasonable delay or failure to take appropriate steps.
What Was the Outcome?
The High Court found that Jong, as a warrantor, was liable for breach of the DOU. In particular, the court held that cl 2.1(b) was triggered by EFII’s failure to receive the Sale Proceeds Target in aggregate, and that the absence of any sales during the Sale Period did not prevent the obligation from arising. The court therefore upheld EFII’s claim for the shortfall.
On damages, the court awarded EFII the sum claimed (or a sum effectively equivalent to the unrecovered portion of the Sale Proceeds Target), subject to the court’s assessment of mitigation and the effect of partial recoveries. The practical effect was that Jong was required to make good the financial outcome promised by the DOU, rather than escaping liability due to market movements that the DOU was designed to address.
Why Does This Case Matter?
This case is significant for practitioners because it provides a clear example of how Singapore courts interpret “shortfall” clauses in commercial agreements. Where a deed of undertaking is structured to guarantee a minimum proceeds outcome, the court will generally construe the remedial obligation according to the objective trigger (failure to reach the target) rather than according to an artificial requirement that a particular event (such as at least one sale) must occur. This approach supports commercial certainty and reflects the risk allocation that parties bargain for.
From a remedies perspective, the case also illustrates the practical application of mitigation principles in complex financial disputes. EFII’s recovery efforts involved selling shares later and engaging in negotiations. The courts’ acceptance that such steps were not unreasonable underscores that mitigation is assessed in context, including whether parties attempted consensual resolution and whether recovery actions were commercially reasonable given market conditions.
Finally, the illegality/public policy dimension is a reminder that statutory illegality arguments require careful legal and factual grounding. Even where regulatory licensing regimes are implicated, courts will scrutinise whether the alleged breach is established and whether enforcement of the particular contractual obligation would truly offend the statute’s purpose. This case therefore serves as a useful reference point for lawyers evaluating the viability of illegality defences in regulated financial transactions.
Legislation Referenced
- Moneylenders Act 2008 (and/or Moneylenders Act)
- Remittance Business Act
- Securities and Futures Act (including licensing requirements under the SFA framework)
Cases Cited
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.