CONSTRUCTION Contractor successfully claims against sub -contractor for collapse of a tower crane at the project site... 3.

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1 LawWatch February 2011 EXECUTIVE SUMMARY WONGPARTNERSHIP ACTS IN The conditional acquisition of and possible mandatory cash offer for Kim Eng Holdings Limited by Aseam Credit Sdn Bhd CONSTRUCTION Contractor successfully claims against sub -contractor for collapse of a tower crane at the project site CONSTRUCTION A performance bond which obliged a bank to indemnify a developer only against all losses, damages, costs, expenses was an indemnity performance bond, not an on-demand performance bond \ FUNDS Where an investor in a fund incorporated in the Cayman Islands gave notice of redemption to the fund, held that it became a prospective creditor as soon as the notice was given and a creditor upon expiry of the redemption notice period notwithstanding that the fund had subsequently resolved to suspend redemptions INSOLVENCY In establishing that a debtor had unfairly preferred one creditor over others, it was not necessary to show that the debtor knew that it was insolvent or imminently insolvent, and further that pressure on a debtor to pay one creditor only vitiates the desire to prefer if there were good commercial reasons for the payment to be made RECENT BILLS AND ACTS

2 WONGPARTNERSHIP ACTS IN The conditional acquisition of and possible mandatory cash offer for Kim Eng Holdings Limited by Aseam Credit Sdn Bhd Aseam Credit Sdn Bhd ( Aseam ), a wholly-owned subsidiary of Malayan Banking Berhad ( Maybank ), recently entered into conditional sale and purchase agreements with certain controlling shareholders of Kim Eng Holdings Limited ( Kim Eng ) to acquire an aggregate of 44.63% of the ordinary shares in the capital of Kim Eng for S$798.5 million. In the event of the satisfaction or waiver of the conditions to the acquisition, Aseam will be required to make a mandatory cash offer pursuant to the Singapore Code on Take-overs and Mergers for all the remaining ordinary shares in Kim Eng that are not already owned by Aseam, its related corporations and their respective nominees. NG Eng Leng DID: engleng.ng@ Kim Eng is a leading stock broker in ASEAN with a top five position in Singapore, Thailand, Indonesia, and the Philippines, and a presence in global financial centres, including Hong Kong, London and New York. The transaction values Kim Eng at approximately S$1.79 billion. The Partners acting for Kim Eng and the vendors/controlling shareholders in the transaction are Ng Eng Leng and Tay Liam Kheng, both of wh om are part of the Corporate/Mergers & Acquisitions Practice. Eng Leng has been involved in some of the biggest mergers and acquisitions in the Singapore market, and his recent deals include the acquisition of the following businesses/companies: Chartered Semiconductor Manufacturing Ltd, Low Keng Huat (Singapore) Ltd and Avaplas Ltd. He also advised on the corporate and debt restructuring of the Frasers Group's investments in the United Kingdom. Eng Leng is also the Joint Head of our Business Establishme nt Practice, and his main areas of practice are domestic and cross-border private and public mergers and acquisitions and corporate commercial work, corporate finance, corporate restructurings, securities law, general corporate law and laws and practices relating to business establishment. 1 < Previous item Front Page Next item >

3 Other recent matters that the Firm has been involved in are: DESCRIPTION Issue by CapitaMalls Asia Limited of S$200 million worth of 1-year and 3-year retail bonds Corporate and debt restructuring of Frasers Property (UK) Limited, an indirect subsidiary of the Fraser and Neave Group, and its subsidiaries and investments Initial Public Offering and secondary listing of Malaysia Smelting Corporation Berhad, one of the world's leading integrated producers of refined tin metal Financing for the acquisition of a one-third interest in some properties of Marina Bay Financial Centre by Suntec REIT Acquisition by NTUC Income Insurance Co- Operative Ltd of a 49% equity stake in Savu Investments Pte. Ltd, an investment holding company owning an office building located at 16 Collyer Quay (previously known as Hitachi Tower), and the refinancing of Savu Investments Pte Ltd s credit facilities Syndicated financing to Orchard Turn Retail Investment Pte. Ltd for the refinancing of ION Orchard Proposed voluntary delisting of Reyoung Pharmaceutical Holdings Limited from the Singapore Exchange and exit offer by R&Y Holdings Limited Initial Public Offering of Sri Trang Agro-Industry Public Company Limited, the first listed company on the Stock Exchange of Thailand to have a dual primary listing on the Singapore Exchange Proposed voluntary delisting of Time Watch Investments Limited from the Singapore Exchange and exit offer by Red Rewarding Limited TYPE Debt Capital Markets Corporate Equity Capital Markets Banking & Finance Mergers & Acquisitions / Banking & Finance / Corporate Real Estate Banking & Finance Corporate Equity Capital Markets Corporate 2 < Previous item Front Page Next item >

4 CONSTRUCTION Contractor succe ssfully claims against sub-contractor for collapse of a tower crane at the project site: -- Kimly Construction Pte Ltd v Lee Tong Boon [2011] SGHC 26 (Singapore, High Court, 28 January 2011) To discuss the possible implications of this for your business, please contact: This case involved a successful claim by a contractor against a subcontractor arising from the collapse of a tower crane. Christopher Chuah acted for the successful contractor. Facts The contractor had rented the tower crane from the sub-contractor for use in its construction project: a five-storey building located at the National University of Singapore. After the crane had been erected on the site, the sub-contractor engaged the third party, an expert who was approved by the Ministry of Manpower to examine the crane and certify that the crane was of sound material and suitable for use. The certification stated that it covered the critical parts of the tower crane and found it to be sound. About a year later, the crane collapsed, killing three persons. Experts called in to determine the cause of the collapse agreed that the mast anchors of the crane had contained pre-existing cracks in the pin joints and this was what had led to the collapse. The mast anchors had not been inspected by the third party at the start of the construction although these were considered to be part of the critical parts of the crane tower. Christopher CHUAH DID: christopher.chuah@ TAY Peng Cheng DID: pengcheng.tay@ Decision The contractor sued the sub-contractor for loss and damage suffered by it arising from the collapse. The sub-contractor then sought to claim an indemnity from the third party in the event that it was found liable to the contractor. The third party also issued similar indemnities against the fourth parties, a professional civil and structural engineer engaged to design the construction of the foundation of the tower crane and an approved crane contractor responsible for erecting the tower crane. The contractor s claim against the sub-contractor was for breach of contract under which the sub-contractor had agreed to comply with all applicable legislation, including the requirement under Regulation 134(1) of the Workplace Safety and Health (Construction) Regulations This provides that the owner of a tower crane had to ensure that it was of good 3 < Previous item Front Page Next item >

5 construction, sound material and adequate strength and was free from patent defects. The sub-contractor argued that it had done all that could have been expected of him as it had appointed a third party expert to inspect and test that the tower crane was safe for use. However, the Court held that the sub-contractor was clearly liable for breach of the express terms of the contract and awarded damages. The third party expert contended that there was no case for him to answer as the defendant s evidence at face value did not establish a case in law against the third party or that it was so unsatisfactory or unreliable that his burden of proof was not discharged. However, the Court held that there was clearly a case for him to answer. Thus, the sub-contractor could claim against the third party engineering expert who had inspected and tested the crane. As a result of the third party s submission of no case to answer, the third party s undertaking to call no evidence was held to be extended to his case against the fourth parties in the event that his submission was dismissed. Comment The Court s ruling in entering judgment for the defendant on the third party s no case to answer submission was premised on the facts in the case and would not necessarily be applicable to all third party and fourth party proceedings. If the issues between the different parties were completely distinct and separable, which was not the case here, the Court may adopt a different view as to the further conduct of the case after a submission of no case to answer. CONSTRUCTION A performance bond which obliged a bank to indemnify a developer only against all losse s, damages, costs, expense s was an indemnity performance bond, not an on-demand performance bond: -- JBE Properties Pte Ltd v Gammon Pte Ltd [2010] SGCA 46 (Singapore, Court of Appeal, 3 December 2010) In this case, the Court of Appeal recharacterised a performance bond as an indemnity performance bond, and not an on-demand performance bond. Whether a performance bond is characterised as an indemnity bond or an on-demand bond affects the ease with which a bond beneficiary may 4 < Previous item Front Page Next item >

6 require payment to be made. An indemnity bond will require proof of loss, which can delay the process of payment. Performance bonds are a standard feature in many construction projects. To discuss the possible implications of this for your business, please contact: Facts This was an appeal by the appellant, JBE Properties Pte Ltd ( JBE ) against the decision of the High Court to grant an interim injunction restraining JBE from receiving any money under a performance bond ( Bond ) on the ground that JBE s call on the Bond was unconscionable. In this case, JBE Properties Pte Ltd ( JBE ) was the developer of an eightstorey residential building. It awarded construction of the building to Gammon Pte Limited ( Gammon ). There were various defects in the construction of the building and it was in respect of the cost of rectifying some of these defects that JBE made a call on the Bond provided earlier by Gammon for its benefit. Christopher CHUAH DID: christopher.chuah@ Gammon then applied for an interim injunction to restrain JBE from receiving any payment under the Bond from the issuing bank, BNP Paribas Singapore ( Bank ). Before the High Court, it argued that the Bond was not an on-demand performance bond, but an indemnity performance bond and therefore payment under it could only be made upon proof of loss. However, the High Court disagreed and held that it was an on-demand bond. TAY Peng Cheng DID: pengcheng.tay@ The High Court went on to consider whether JBE should be restrained from receiving payment on the grounds of either fraud or unconscionability. It held that Gammon had shown a strong prima facie case of unconscionability and granted Gammon the interim injunction. JBE appealed to the Court of Appeal. The two main issues that were discussed in the Court of Appeal s decision were: Whether the Bond in question was an on-demand performance bond or a indemnity performance bond; and Whether the judge in the High Court was right to restrain JBE from making a call on the Bond on the ground of unconscionability Characterisation of the Bond The Court of Appeal took a different view of the Bond. This was an interesting development as Gammon had not challenged the High Court s 5 < Previous item Front Page Next item >

7 ruling that the Bond was an on-demand performance bond. Nevertheless, the Court of Appeal held that the ruling merited some discussion in view of its potential ramifications for the construction industry. The threshold question was whether, on a true construction of the Bond, the Bank was liable to pay on demand, or only later, upon proof of breach by Gammon and loss by JBE. The Court of Appeal noted that this construction process should look to the substance of the parties rights and obligations; the label adopted by the parties was inconclusive. The Court of Appeal held that the crucial determining factor in this case was clause 1 of the Bond, which stated that the Bank was obliged to indemnify JBE only against all losses, damages, costs, expenses or [sic] otherwise sustained by [JBE] as a result of Gammon s breach of the building contract. Therefore, the obligation of the Bank under the Bond was limited to indemnifying JBE against actual losses which it had sustained as a result of Gammon s breach. Accordingly, it was of the view that since the payment obligation of the Bank was so limited, the Bond had the character of a true indemnity performance bond. Given the ruling that the Bond should be construed as a true indemnity performance bond, the Court of Appeal held that the correctness or otherwise of the High Court s decision would depend on the evidence adduced by JBE to prove its alleged actual loss. In this regard, the only evidence that JBE relied on was the fact that it had to appoint another company to rectify defects in the cladding of the building. The Court of Appeal examined the evidence and concluded that even if the quotations obtained by JBE from the contractors were genuine, it was incongruous for JBE to have relied on quotations for replacing the existing cladding of the whole of the building and installing new cladding, as opposed to quotations for rectifying the cladding defects. Further, even if the contractors quotations were indeed for the rectification of the cladding defects, such evidence adduced by JBE of its alleged actual loss indicated that the costs of rectification were grossly exaggerated. Accordingly, the Court of Appeal held that at the date of its call on the Bond, JBE had failed to show that it had suffered actual loss arising from Gammon s breach of the building contract. Unconscionability The Court of Appeal also reiterated a crucial difference between Singapore law and English law regarding the circumstances in which the 6 < Previous item Front Page Next item >

8 court may restrain a call on a performance bond. It noted that it was now well-established under Singapore law that, apart from fraud, unconscionability was a separate and independent ground for the court to grant an interim injunction restraining a beneficiary from making a call on a performance bond. This is wider than the English position, which requires fraud to be clearly proved before a call on a performance bond could be restrained. The Court opined that the Singapore position on this was justified for functional and commercial reasons. It also noted that the juridical basis for adopting unconscionability as a relevant ground in determining whether a call on a performance bond should be restrained lies in the equitable nature of the injunction. Comment In ascertaining the nature of the Bond, the Court of Appeal considered the relevant provisions of the Bond to determine whether it was an on-demand performance bond or an indemnity performance bond. Thus, a developer who intends to obtain an on-demand performance bond from a contractor must pay close attention to the wording of the Bond so as to ensure that the obligation of the Bank would not be limited to indemnifying the developer against actual losses which it sustained due to the contractor s breach of the building contract. FUNDS Where an investor in a fund incorporated in the Cayman Islands gave notice of redemption to the fund, held that it became a prospective creditor as soon as the notice was given and a creditor upon expiry of the redemption notice period notwithstanding that the fund had subsequently resolved to suspend redemptions: -- Culross Global SPC Ltd v Strategic Turnaround Master Partnership Ltd [2010] UKPC 33 (United Kingdom, Privy Council on appeal from the Cayman Islands, 13 December 2010) Facts The shareholder in this case was Culross Global SPC Ltd ( Culross ). It had subscribed for shares in Strategic Turnaround Master Partnership Ltd ( Strategic ), a fund incorporated in the Cayman Islands. Shortly after, it 7 < Previous item Front Page Next item >

9 gave notice of redemption and the parties agreed to a redemption date of 31 March However, no payment was made on that date and about two weeks later, in view of the market volatility arising from the global financial crisis, Strategic decided to suspend all redemptions. Such a power to suspend redemptions was set out under its articles of association. However, these articles did not expressly deal with the situation where the power of suspension was exercised after the redemption date had already passed. When, some two months later, Strategic had yet to pay any part of the redemption sum, Culross took out a petition to wind it up. Strategic argued that this was an abuse of process as, because the redemption process had been suspended, Culross had only a prospective debt and was therefore not a creditor of Strategic. To discuss the possible implications of this for your business, please contact: LOW Kah Keong DID: kahkeong.low@ Decision The Privy Council found in favour of Culross. In doing so, it reversed the decision of the Cayman Islands' Court of Appeal which had held that due to the suspension Culross was only a prospective creditor. The Court of Appeal's reason for this decision was that redemption was a process that started with the redemption notice but which continued until the shareholder was removed from the register of members. This reasoning was derived from the general principle at law that a shareholder remained a shareholder of a company until his name was removed from the register of members. The Privy Council disagreed with the reasoning of the Court of Appeal. It noted that any analysis of the rights and obligations in relation to redemption must turn on a careful reading of the articles of association, rather than the application of a blanket principle. It examined Strategic's articles and noted that while there were provisions dealing with a situation where a redemption notice was still outstanding at the time a power of suspension was exercised, none of them dealt with a situation where the power of suspension was exercised after the date of redemption had passed. The natural inference to be drawn was therefore that the power of suspension was never intended to affect such redemptions; clear words would be needed before the Privy Council would find that the articles intended to allow the exercise of the power of suspension to essentially retrospectively reverse the effect of a valid redemption notice once the 8 < Previous item Front Page Next item >

10 redemption date had passed. It further noted that to so construe Strategic's articles would not be consistent with commercial sense. The Privy Council therefore held that the appellant had become a prospective creditor upon giving notice of redemption as of the date on which notice was given and a creditor upon expiry of the redemption notice period. Comment A similar case was decided in the British Virgin Islands in the middle of The case, Western Union International Limited v Reserve International Liquidity Fund Limited, also addressed the issue of when during the redemption process a redeeming investor becomes a creditor of the fund and is therefore entitled to apply for the appointment of a liquidator. The British Virgin Islands Commercial Court reached a conclusion similar to that of the Privy Council in this case. While the issue has yet to arise in Singapore, it is hoped that the reasoning in the British Virgin Islands' decision and that of the Privy Council will be persuasive to the Singapore courts. INSOLVENCY In establishing that a debtor had unfairly preferred one creditor over others, it was not necessary to show that the debtor knew that it was insolvent or imminently insolvent, and further that pressure on a debtor to pay one creditor only vitiates the desire to prefer if there were good commercial reasons for the payment to be made: -- Jurong Technologies Industrial Corp Ltd (under judicial management) v Coöperatieve Centrale Raiffeisen-Boerenleenbank BA [2010] SGHC 357 (Singapore, High Court, 9 December 2010) Facts The plaintiff had several banking facilities, including one with the defendant. The plaintiff started having financial difficulties with its various creditors and found it difficult to keep up with its repayment obligations. The various banks made demands for repayment, and the plaintiff agreed to sell off several of its assets to satisfy those demands. 9 < Previous item Front Page Next item >

11 The plaintiff's chairperson had close ties with the defendant's relationship manager for the plaintiff, and in December 2008 and January 2009, when the plaintiff sold certain shares that it held for about US$2.8 million, part of the proceeds from the sale were paid over to the defendant as repayment for its debt obligations. When the company went into ju dicial management, the judicial managers sought to recover these sale proceeds from the defendant on the ground that the payment constituted an undue preference. Legal Background Under section 227T of the Companies Act, where a payment made to a creditor constitutes an undue preference, this payment may be clawedback upon the commencement of insolvency proceedings. This includes where a company is under judicial management (as was the situation in this case). Section 227T of the Companies Act provides that a payment made by a company will be void as against the judicial manager if, being made by a natural person, it would have been void as against the Official Assignee under section 99 (read with sections ) of the Bankruptcy Act. Section 99 of the Bankruptcy Act sets out what amounts to an unfair preference. The criteria to be satisfied are as follows: The payment put the creditor in a better position than it would otherwise have been in upon the debtor's insolvency. In making the payment, the debtor was influenced by a desire to put the creditor in a better position. The payment was made within a period of six months prior to the date of the application for the judicial management order. The debtor was insolvent at the time the payment was made, or became insolvent as a result of making the payment. To discuss the possible implications of this for your business, please contact: CHOU Sean Yu DID: seanyu.chou@ Manoj Pillay SANDRASEGARA DID: manoj.sandra@ Knowledge of Insolvency Not a Requirement In this case, the defendant argued (relying on the earlier case of Amrae Benchuan Trading Pte Ltd (in liquidation) v Tan Te Teck ) that to show an undue preferenc e, the judicial manager also had to show that the debtorcompany knew of its own insolvency or imminent insolvency when deciding to make the payment. The Court held that there was no requirement the company s management must have known that it was actually or imminently insolvent at the material time. While such knowledge or belief is relevant to proving 10 < Previous item Front Page Next item >

12 the requisite desire, it did not mean that a judicial manager had to show such knowledge or belief on the part of the debtor-company in order to establish the existence of the desire. On the facts, however, even if such knowledge were a pre-requisite to establishing a desire to unfairly prefer, it could not be said that the plaintiff did not know that it was insolvent or imminently insolvent given the manifest difficulties that it was having repaying the demands of its creditors. Commercial Pressure Vitiating Desire The defendant also argued that where pressure had been placed on the plaintiff to make payment, prior cases had established that such pressure could negate any desire to prefer. This was because the plaintiff-debtor had acted under the pressure, and not under the influence of a desire to prefer. However, the Court opined that there had to be a limit to the defence of pressure exerted by creditors as it would otherwise mean that any creditor that pressured a corporate debtor could rely on this as a defence to a claw-back action based on unfair preference. This would run contrary to the intent of the provision. The Court held that this limit is provided by a reference to commercial purpose. Thus, in circumstances where the directors of a debtor company bow to creditor pressure in order to act in the commercial interests of the company as a viable going concern, i.e., for proper commercial considerations, the requisite desire will not be established. Conversely, if there is no commercial benefit to the company at all in paying any creditor, then the Court should be extremely slow to find that pressure from the creditor is a defence to the claim of unfair preference. In this case, the defendant was one of several creditors pressing for payment. It did not do more than the other creditors who were also exerting pressure on the plaintiff. Furthermore, the plaintiff had not acceded to the pressure to pay as a means of staving off insolvency proceedings or otherwise allowing it to carry on business. The plaintiff s payment to the defendant also did not confer any benefit on the plaintiff. The payment was not made in exchange for any continuing funding from the defendant so as to keep the plaintiff operating as a going concern. Accordingly, the element of pressure did not apply. 11 < Previous item Front Page Next item >

13 Comments There are some practical takeaways from this case for creditors. By re-affirming that knowledge of actual or imminent insolvency on the part of the debtor company is not a pre-requisite to establishing a desire to unfairly prefer, the Court has placed the onus on creditors to conduct proper due diligence before accepting payments from debtor companies. The paradox is that at the point of payment, the only source of information which the creditor has with respect to the solvency of the debtor company is from the company s management. Accordingly, it would be advisable for creditors to conduct appropriate litigation and corporate due diligence before accepting payments from debtor companies circumstances. under trying In the event the debtor is vulnerable to being insolvent, creditors, in order to protect any payments that may be regarded as unfairly preferential, would have to offer something of tangible value to the debtor. Allowing existing credit facilities or contractual arrangements to remain, or withholding from commencing or continuing legal proceedings to enforce the debt, are unlikely to be regarded as sufficiently proper commercial reasons for a debtor to legitimately prefer a creditor. The commercial benefits would not only have to be over and above that offered by the rest of the creditors, they would likely have to be vital to the debtor s survival as a going concern. RECENT BILLS AND ACTS At the recent parliamentary session on 14 February 2011, the following bills were passed into law: Legal Profession (Amendment) Bill: Establishes the Singapore Institute of Legal Education, and provides for an examination to qualify foreign lawyers to practise limited areas of Singapore law. It also contains amendments to streamline and improve the current framework for admission to the Singapore Bar. Private Lotteries Bill: Formalises the transfer of regulation of private lotteries from the Inland Revenue Authority of Singapore to the Ministry of Home Affairs. It also changes the method of computation of duty for private lotteries from one based on deemed turnover to one based on actual turnover. 12 < Previous item Front Page Next item >

14 Amusement Rides Safety Bill: Sets up a new regulatory framework for amusement rides. Under the new framework such rides will be classified according to their risk and safety profile, which is to be determined by factors that will include the ride's speed, height displacement and acceleration. The new bills tabled for consideration were the Environmental Protection and Management (Amendment) Bill, and the United Nations Personnel Bill SOME OF OUR OTHER UPDATES DATE January 2011 February 2011 TITLE LawWatch January 2011 Edition LawWatch February 2011 Financial Services Edition 14 February 2011 CaseWatch: Sand Ban Results in an Event of Force Majeure 17 February 2011 ChinaWatch: Shanghai PE Fund Implementation Measures Sin gapore WongPartnership LLP Financial Services / Corporate / Intellectual Property One George Street #20-01 Singapore Tel: Fax: WongPartnership LLP Litigation & Dispute Resolution / Tax 63 Market Street #02-01 Singapore Tel Fax Ch ina WongPartnership LLP Shanghai Representative Office Unit 5006 Raffles City Office Tower 268 Xizang Road Central Shanghai, PRC Tel: Fax: Middle East WongPartnership LLP A bu Dhabi Branch A l Bateen Towers, Bu ilding C3 Office (P1) P.O. Box N o A bu Dhabi, UAE Tel: Fax: WongPartnership LLP Licensed by the QFCA Office 12-20, Amwal Tower, West Bay P.O. Box N o Doha, Qatar Tel: Fax: < Previous item Front Page Next item >