RHB Private Equity Holdings Sdn Bhd v 1. ) Peter Charles Smerling (WA-22NCC-118-03/2023)

PETER CHARLES SMERLING (United States of America Passport No.: 422022633)

ZURAIDAH BAKERCHE SMERLING (Singapore NRIC No.: S7139318-F) …DEFENDANTS JUDGMENT Introduction [1] This is my judgment in respect of the Plaintiff’s application for summary judgment for a claim arising from a Put Option Agreement. [2] The Defendants raised only 2 triable issues both of which did not find any favour from this Court. Background Facts [3] The Defendants are husband and wife. The 2nd Defendant, is at all material time, a proxy to her husband, the 1st Defendant. [4] In 2012, the 1st Defendant came to know about the business of L&S Cosmetic and Toiletries (M) Sdn. Bhd. (“LSSB”) and LSSB’s wholly subsidiary, Citychemo Manufacturing Sdn. Bhd. (“CMSB”). These companies are involved in the manufacture and supply of cosmetic products and hair shampoo. The previous owner was one Seng San Bing who represented to the 1st Defendant that LSSB’s and CMSB’s revenue were substantially contributed from Cosway’s and Summit’s orders. [5] The 1st Defendant looked for investors to acquire the two companies. The Plaintiff then was interested to finance and become a shareholder of the Defendants’ company. [6] Negotiations took place between parties. It is the Defendants’ case that the Plaintiff, being the private equity entity, represented to the 1st Defendant that it would be responsible for funding the acquisition of LSSB and CMSB as well as to provide additional funds in LSSB and CMSB from time to time after the completion of the acquisition. [7] As a result of the aforesaid, the Plaintiff and Defendants entered a Shareholders’ Agreement (“SSA”), a Subscription Agreement (“SA”) and a Put Option Agreement (“POA”). It was agreed that one Satin Straits Sdn. Bhd. (“SSSB”) shall act as a special vehicle company to acquire LSSB and CMSB under which the Plaintiff owns 45,000,000 redeemable convertible preference shares (“the Shares”) in SSSB. [8] In or around 2015, LSSB was technically insolvent and needed funds to continue its business. The request was made to the Plaintiff by the 1st Defendant. However, the Plaintiff did not accede to the 1st Defendant’s request because it was not prepared to increase its exposure in this business anymore. [9] The Plaintiff’s representative and the Defendants did a fund-raising exercise which led to one Tan Boon Seng (“Tan”) investing in LSSB through his company, Proton Generasi Sdn. Bhd. (“PGSB”). [10] Tan, through PGSB then owned 50% of LSSB whereas SSSB owned the other half. After Tan’s initial investment, the fund was still insufficient to grow the businesses of LSSB and CMSB. As of 2019, Tan then further invested a sum of RM 29 million which resulted in a dilution of shares belonging to SSSB in LSSB. [11] In 2019, the Plaintiff filed an oppression action against the Defendants, Tan and PGSB in the High Court vide Civil Suit No. WA-22NCC-177-04/2019 (“CS177”) seeking relief that the Shares be bought out in the sum of RM 111,974,400.00. The Plaintiff’s action was dismissed. The finding of the High Court was also affirmed by the Court of Appeal. [12] Having failed in its oppression action, the Plaintiff then commenced this action for specific performance against the Defendants under the POA to compel the Defendants to purchase the Shares in the sum of RM 268,220,901.50. Salient terms of POA [13] The terms of the POA between the Plaintiff and the Defendants are clear. Essentially the POA gives the Plaintiff the right to ‘put’ the Shares to the Defendants and require the Defendants to purchase the Shares from the Plaintiff at the agreed price. [14] The Plaintiff had invested RM45 million in the Defendants’ company, SSSB by subscribing to the Shares pursuant to the SA. [15] In consideration of, amongst others, the Plaintiff entering into the SA, the Defendants irrevocably granted to the Plaintiff the option to require the Defendants to purchase from the Plaintiff the Shares at the Put Option Price [see Clause 3.1, Put Option Agreement]. [16] The Put Option Price is also defined in Clause 1.1 of the POA. Essentially, it is the subscription price of the Shares and a premium at 25% of internal rate of return per annum compounded for the period of investment. The calculation for the Put Option Price amounting to RM268,220,901.50. [17] The Plaintiff contended that it is entitled to exercise the Put Option in the event SSSB fails to redeem the Shares and the default and or breach continues for more than 90 days from the date of notice given by RHB [see: Clause 4.1(a), Put Option Agreement]. Plaintiff exercises Put Option [18] As SSSB did not redeem the Shares, the Plaintiff had proceeded to exercise the Put Option under the POA. [19] By a notice dated 26.9.2022, the Plaintiff required the Defendants to, as agreed, purchase the Shares from the Plaintiff at the Put Option Price of RM268,220,901.50 within 30 days from the date of the notice. The Defendants, in breach of the POA, failed to take any steps to do so. [20] By a letter dated 10.1.2023, the Plaintiff through their solicitors, Messrs. Lee Hishammuddin Allen & Gledhill, gave the Defendants another 30 days to comply with their obligations under the POA. The Defendants failed to do so, hence this legal action and the present application under Enclosure 8 for summary judgment. Triable Issues [21] The Defendants raised 2 triable issues to resist the summary judgment application. [22] First, it is the Defendants’ case that they were at the material time induced by the Plaintiff’s representations into entering the POA. These representations turn out to be false. Of significance is the representation that the Plaintiff would provide additional capital in SSSB’s subsidiary, namely LSSB, and LSSB’s subsidiary, namely CMSB even after acquiring the Shares. [23] The Defendants contended that there is a prima facie circumstantial evidence on the aforesaid pleaded matter. It is this. Prior to the commencement of the present suit, the Plaintiff had prosecuted the abovementioned claim of minority oppression against the shareholders of SSSB and its subsidiary LSSB, including the Defendants here. [24] In CS177, the Plaintiff had prayed for a Buy Out of the Shares by the Defendants therein. This is significant because instead of exercising its’ put-option under the POA, the Plaintiff elected to embark on a complex journey of having the Shares disposed of by alleging oppression. [25] The CS177 suit was dismissed by the Court after a full trial. After having failed to pursue its relief of a buyout, the Plaintiff now resorted to the POA as a backdoor attempt to have the Shares disposed of. [26] It was contended that after having elected to pursue a relief for a Buy Out in the oppression suit CS177 vide a full trial, it is now trying to secure a summary judgment for the disposal of the same subject matter. It gives rise to a reasonable inference in the Defendants’ favour, that the Plaintiff must have realised that there was a perceived difficulty in enforcing the POA due to the representations which it had made to the Defendants. In other words, it was contended that the Plaintiff at all material times knew there were some factors vitiating the Defendants’ free consent when they entered into the POA. This defence, if proven at trial, is a complete defence to a specific performance action. Reference was made to the case of Yap Khay Cheong Sdn Bhd v Susan George TM George [2018] 5 CLJ 345 whereby the Court of Appeal held as follows: - “[16] The second SPA, since it was found by the learned trial judge to have been executed without free consent and by undue influence, is voidable at the option of the defendant, as provided under s. 19(1) of the Contracts Act 1950. The defendant had correctly exercised her right to vitiate the second SPA, hence there was no valid contract to enforce any specific relief sought by the plaintiff. It was for this reason that we agreed with the learned judge that, no specific relief is available to the plaintiff.” [See also: - Tenaga Nasional Bhd v Irham Niaga Sdn Bhd [2011] 1 MLJ 752]. [27] In fact, during the trial of CS177, the Plaintiff’s witness testified to the Plaintiff’s failure to provide additional capital in LSSB and its subsidiary CMSB. According to her testimony, the Plaintiff made the decision not to provide additional capital because of its fear of exposure. The High Court held in CS177 that as a result of the Plaintiff’s aforesaid decision, other investors had to be brought in and hence the dilution of the Plaintiff’s stake in LSSB held through SSSB. [28] In CS177, the Plaintiff did not take the position that it was not bound to provide capital. This, again, shows a prima facie circumstantial evidence of the Defendants’ pleaded case. [29] With respect to learned counsel for the Defendants, I see no merits in the contentions raised. [30] The Defendants say the POA is voidable. They alleged that the Plaintiff had verbally represented that it would inject additional funds from time to time but did not do so. [31] This allegation is not only inherently improbable as no investor is able to commit to providing additional unlimited funds for an unlimited time, it is also inconsistent with the contemporaneous evidence. [32] There is nothing in the POA (or even the SA and or the SSA) to indicate that the Plaintiff will continue to provide additional funds. [33] There is nothing in the POA (or even the SA and or the SSA) to indicate that the Plaintiff will financially support and continue to invest in SSSB and its subsidiaries as and when needed. [34] As aptly put by Kang Hwee Gee J (as his Lordship then was) in Sime Bank Bhd (formerly known as United Malayan Banking Corp Bhd) v Kuala Lumpur City Securities Sdn Bhd [2001] 5 MLJ 670 at page 683: “The put option agreement, it is clear to me, is a highly formal, properly negotiated and professionally drawn up document by practitioners of law. It imposes upon the defendant the liability to pay out at its worst a very large sum of money should the borrower default on the loan and the plaintiff decides to exercise the option. Correspondingly, for the put option that it gave to the plaintiff, the defendant stands to gain a put option fee of 2% of the said sum — a hefty RM3.68m from the borrower. It would be totally inconceivable in my view, that for a contract of such importance, the contracting parties would not have drafted into the put option agreement all the essential terms and conditions they had agreed upon with accuracy and certainty, so as to leave little or none to construction in the event of a dispute. Least of all it is inconceivable that they would have left unsaid those other terms and conditions they had orally agreed upon that would bind them. In the event, I would have to find that the agreement is conclusive of all the essential terms that would govern their contractual relationship at the time they signed it. It follows that any such pre-contract promises, representations and understandings, verbal or otherwise, whether made by Mr Robert Young, Ms Chan Mo Lin or by anyone else, even if true, are clearly extrinsic evidence which can never be allowed into evidence to add, subtract, vary or contradict the black and white terms and conditions of the put option agreement in a trial. Having to exclude such extrinsic evidence, it follows that the parties would have to be bound by the terms embodied within the four corners of the put option agreement read wherever necessary (by reason of cl 16 of the agreement), in conjunction with the facility agreement and the charge of securities.” (emphasis added) [35] The POA expressly sets out the parties’ representations made in Clause 7. There is clearly no such representation as now alleged by the Defendants. [36] The POJ also contains an ‘entire agreement clause’ in Clause 18 – all the terms and conditions agreed upon are embodied in the agreement. [37] Accordingly, there is no basis to this desperate attempt by the Defendants to evade their legal obligations under the POA. These are legal obligations that they were happy to assume when they wanted the Plaintiff’s investment of RM45 million. [38] In fact, the Defendants were unable to produce any contemporaneous communications alluding to the alleged representation. Furthermore, no steps were ever taken to rescind the POA on the ground of misrepresentation as claimed. Previous minority oppression proceedings [39] The Defendants raised the previous minority oppression proceedings in Suit CS177 taken by the Plaintiff which has been dismissed by the Courts. [40] However, these previous proceedings were on completely different footings and cause of action. In the previous proceedings, the Plaintiff was seeking relief as a minority shareholder for alleged oppression. In the present proceedings, the Plaintiff is exercising its contractual rights under the POA. The Put Option had not been exercised previously. It was irrelevant to the minority oppression proceedings and could not in any case have been raised there. [41] Res judicata does not arise as the cause of action and issues raised in this suit are separate and entirely different from the previous oppression proceedings. [See: Loh Holdings Sdn Bhd v Peglin Development Sdn Bhd & Anor [1984] 2 MLJ 105, FC] [42] In addition, the Defendants contended that in the circumstances of the present action, it is not fit and proper for a decree of specific performance. This defence was founded on section 21 of the Specific Relief Act 1950. It has two folds. [43] It is said that a decree of specific performance would be giving an unfair advantage to the Plaintiff. This is because in the event that a decree of specific performance is granted, the Plaintiff will be given an unfair advantage over the full actual and or potential value of shares in SSSB as if SSSB still wholly owns LSSB. In fact, it is not the case now. SSSB, after the dilution, only owns approximately less than 10% of LSSB. It is said that this directly affects the value of SSSB’s shares. [44] To compound matters, this unfair advantage is intertwined with the issue of the Plaintiff’s misrepresentation. Had the Plaintiff fulfilled its representation by providing an additional capital, a third-party investor would not have been involved in the business of LSSB which had affected the value of SSSB. [45] In the case of LY Furniture Sdn. Bhd. v Lifestyle Enterprise LY [2015] 1 LNS 1557, the Court of Appeal held as follows: - “[85] It follows that section 21(b) which also falls under Chapter II of the SRA is also applicable. This section requires the court to consider as relevant factors the relative hardships caused by the enforcement or non-enforcement of the contract. [86] As such the extreme position taken by Lifestyle, namely that factors like hardship and other equitable considerations are irrelevant to the exercise of discretion by the court, is less than convincing. It would not be tenable for a court to simply exclude from the sphere of its consideration such factors as hardship and reasonableness in determining whether or not a negative undertaking or covenant in a contract ought in fact to be enforced.” [46] Also, it is contended that a decree of specific performance would involve some hardship on the Defendants. [47] The Put-Option Price stated in the POA was derived from the information given by the previous owner of LSSB and CMSB, Seng San Bing. It turned out that the information was false. Seng San Bin was sued by SSSB for his misrepresentation as Seng San Bin suppressed material facts on the orders of Cosway and Summit from the 1st Defendant through SSSB. This Civil Suit was filed in the High Court which found liability in favour of SSSB but only awarded nominal damages. [See: Satin Straits Sdn. Bhd. Seng San Bin [2020] 8 MLJ 553] [48] The contention was that the Defendants could not have foreseen the aforesaid circumstances that Seng San Bing would make a false misrepresentation to the Defendants which the same led to fixing the Put Option Price in the POA. [49] Again, with respect, the is also no merits to the issue. [50] The contention is inextricably linked to the alleged misrepresentation which I have dismissed above and with that, the contention by the Defendants simply cannot be sustained. [51] As regards the Put Option Price of the Shares under the POA, this is a commercial matter between the parties and this Court will not interfere with the terms of the POA setting out the manner in which the Put Option Price is to be computed. Conclusion [52] Accordingly, for the reasons above, this Court grants the Plaintiff an order in terms of the application for summary judgment under Enclosure 8 with costs. Dated the 12th day of December 2023 ONG CHEE KWAN Judge of the High Court of Malaya High Court of Kuala Lumpur, NCC2 Counsel:

Sean Yeow together with Andrea Chew and Ang Yi Shan (PDK) for

Dato' C. K. Lim together with Damien Chan, Ian Hannibal, Jeff Ng and Lee Yu Jun (PDK) for Defendants Messrs. Damien Chan, Hannibal & Ng Chambers (Kuala Lumpur)

Yap Khay Cheong Sdn Bhd v Susan George TM George [2018] 5 CLJ 345 2. Tenaga Nasional Bhd v Irham Niaga Sdn Bhd [2011] 1 MLJ 752 3. Sime Bank Bhd (formerly known as United Malayan Banking Corp Bhd) v Kuala Lumpur City Securities Sdn Bhd [2001] 5 MLJ 670 4. Loh Holdings Sdn Bhd v Peglin Development Sdn Bhd & Anor [1984] 2 MLJ 105 5. LY Furniture Sdn. Bhd. v Lifestyle Enterprise LY [2015] 1 LNS 1557 6.

Section 21 of the Specific Relief Act 1950