CIFG v Polimet: Interpretation of Indemnity Clause in Convertible Bond Agreements

In CIFG Special Assets Capital I Ltd v Polimet Pte Ltd, the Singapore High Court addressed the interpretation of an indemnity clause in Convertible Bond Subscription Agreements (CBSAs). CIFG, the plaintiff, sought to recover monies from Polimet, the first defendant, and its initial shareholders (Lee Sin Peng, Andy Ho, Ong Puay Koon, and Yap Tien Sung) after Polimet defaulted on a series of loans. The court dismissed CIFG's claim against the initial shareholders, finding that the indemnity clause did not cover losses arising from Polimet's default. The court also found that the default interest provided for under Clause 5.5 of the CBSAs is valid and enforceable.

1. Case Overview

1.1 Court

High Court of Singapore

1.2 Outcome

Plaintiff's claim against the Initial Shareholders for the outstanding sums owing by Polimet under Clause 12.1 of the CBSAs is dismissed.

1.3 Case Type

Civil

1.4 Judgment Type

Judgment

1.5 Jurisdiction

Singapore

1.6 Description

Singapore High Court judgment on interpreting an indemnity clause in Convertible Bond Subscription Agreements (CBSAs) and the enforceability of default interest.

1.7 Decision Date

2. Parties and Outcomes

Party NameRoleTypeOutcomeOutcome TypeCounsels
CIFG Special Assets Capital I Ltd (formerly known as Diamond Kendall Limited)PlaintiffCorporationClaim dismissed against Initial ShareholdersLost
Ong Puay KoonDefendantIndividualClaim dismissed against Ong Puay KoonWon
Lee Sin PengDefendantIndividualConsent judgment recorded against Lee Sin PengLost
Andy HoDefendantIndividualConsent judgment recorded against Andy HoLost
Yap Tien SungDefendantIndividualClaim dismissed against Yap Tien SungWon
Chris Chia Woon LiatThird partyIndividualThird party claim dismissedNeutral
Yeo Kar PengThird partyIndividualThird party claim dismissedNeutral
Polimet Pte LtdDefendantCorporationConsent judgment recorded against PolimetLost

3. Judges

Judge NameTitleDelivered Judgment
Audrey LimJudicial CommissionerYes

4. Counsels

Counsel NameOrganization
Tan Ben MathiasDrew & Napier LLC
Hri Kumar NairDrew & Napier LLC
Shivani d/o Sivasagthy RetnamDrew & Napier LLC
Zhao Liwen ConstanceDrew & Napier LLC
Tan Chee MengWongPartnership LLP
Sngeeta RaiWongPartnership LLP
Lim Xian Yong, AlvinWongPartnership LLP

4. Facts

  1. CIFG entered into CBSAs with Polimet and its initial shareholders.
  2. Polimet defaulted on a series of loans under the CBSAs.
  3. The CBSAs contained an indemnity clause (Clause 12.1) under which the Initial Shareholders agreed to hold CIFG harmless from losses.
  4. Lee and Ho provided personal guarantees for up to 50% of Polimet’s liabilities.
  5. The Initial Shareholders argued that Clause 12.1 was a third-party indemnity and did not cover Polimet’s default.
  6. The plaintiff claimed that the language of Clause 12.1 is clear and unambiguous and that it is a general indemnity which imposes a joint and several obligation on the Initial Shareholders.
  7. The parties entered into a partial Settlement Agreement and recorded a consent judgment against Polimet and Lee and Ho.

5. Formal Citations

  1. CIFG Special Assets Capital I Ltd v Polimet Pte Ltd and others, Suit No 758 of 2013, [2017] SGHC 22

6. Timeline

DateEvent
BUDL was started by Ong Puay Koon.
Citi-Venture was incorporated.
Fortuna HK was started by Lee and Ho.
A business decision was made to acquire the dumet manufacturing line of Philips.
Chia first met Lee, Chua and AFG’s representatives for preliminary discussions.
Chia met Lee, Ho and AFG’s representatives to inform them of the main commercial terms on which KC was willing to invest.
Chia sent a first draft Indicative Term Sheet to AFG setting out the broad terms of the proposed investment.
Chia spoke to Lee on the phone to discuss the terms of Term Sheet 1.
Lee emailed Chia and informed him that she had convinced Ho to provide a PG.
Chia emailed Lee a revised draft Term Sheet.
Chia, Yeo, Lee, Ho and Ong met at a dinner meeting in Kuala Lumpur, Malaysia.
KC met Yap during a site visit to China.
Drafts of the execution documents were prepared by KC and sent to Lee.
Chia called Lee to briefly outline the draft documents.
Lee, Chia and Yip met at a hotel in Salzburg, Austria to review the terms of the draft 2007 CBSA documents.
The parties finalised the terms of the 2007 CBSA which was executed. Polimet was incorporated the same day.
The parties entered into a 2008 CBSA and a 2008 Supplemental CBSA.
The parties entered into a 2009 Supplemental CBSA.
The parties entered into a Debt Moratorium and Distribution Arrangement Term Sheet and started negotiations on a second supplemental CBSA.
The plaintiff issued letters of demand to the defendants.
The plaintiff issued letters of demand to the defendants.
KC sold the plaintiff to GDAF.
A further letter of demand was sent to the addresses of Polimet, Lee and Ho, and Ong.
Ong and Chia met.
The plaintiff issued a Notice of Cancellation to the defendants.
The defendants’ solicitors responded, requesting for the basis for the demand against Ong and Yap. The plaintiff’s solicitors replied on the same day and cited Ong and Yap’s obligations under Clause 12 of the CBSAs.
Chua passed away.
The parties entered into a partial Settlement Agreement and recorded a consent judgment.
Trial began.
Judgment reserved.

7. Legal Issues

  1. Interpretation of Contractual Terms
    • Outcome: The court found that Clause 12.1, as a matter of interpretation, does not cover losses arising from Polimet’s default despite its broad language.
    • Category: Substantive
    • Sub-Issues:
      • Ambiguity in contract language
      • Intention of parties
      • Scope of indemnity clause
    • Related Cases:
      • [2007] 3 SLR(R) 537
      • [2013] 4 SLR 193
      • [2015] 5 SLR 1187
      • (1985) 9 ACLR 909
      • (1977) 6 BLR 16
      • (1965) 109 SJ 471
      • [2008] 3 SLR(R) 1029
      • [2013] 1 SLR 1
      • [2006] 2 SLR(R) 195
      • [1994] 1 WLR 221
      • [2007] 3 SLR(R) 782
      • [2012] 2 SLR 1
  2. Enforceability of Default Interest
    • Outcome: The court found that the default interest provided for under Clause 5.5 of the CBSAs is valid and enforceable.
    • Category: Substantive
    • Sub-Issues:
      • Penalty doctrine
      • Extravagant and unconscionable sum
      • Negotiated contract
    • Related Cases:
      • [1915] AC 79
      • [2010] 2 SLR 386
      • [2016] 3 SLR 663
      • [2016] AC 1172

8. Remedies Sought

  1. Monetary Damages
  2. Recovery of Monies Owed

9. Cause of Actions

  • Breach of Contract
  • Enforcement of Indemnity
  • Enforcement of Personal Guarantees

10. Practice Areas

  • Commercial Litigation
  • Contract Law

11. Industries

  • Finance
  • Investment

12. Cited Cases

Case NameCourtAffirmedCitationJurisdictionSignificance
Lee Chee Wei v Tan Hor Peow Victor and others and another appealCourt of AppealYes[2007] 3 SLR(R) 537SingaporeCited for the principle that entire agreement clauses will generally be given effect to, absent fraud or some other vitiating element.
Sembcorp Marine Ltd v PPL Holdings Pte Ltd and another and another appealCourt of AppealNo[2013] 4 SLR 193SingaporeCited for the principle that interpretation is the ascertainment of the meaning which the expressions in a document would convey to a reasonable person.
Y.E.S. F&B Group Pte Ltd v Soup Restaurant Singapore Pte Ltd (formerly known as Soup Restaurant (Causeway Point) Pte Ltd)Court of AppealNo[2015] 5 SLR 1187SingaporeCited for the principle that the court must ascertain, based on all the relevant objective evidence, the intention of the parties at the time they entered into the contract.
Scottish Amicable Life Assurance Society v Reg Austin Insurances Pty Ltd and othersUnknownNo(1985) 9 ACLR 909UnknownCited to show that it is possible for an indemnity clause in a loan instrument entered into by a company to also impose personal liability on its directors or shareholders.
General Surety & Guarantee Co Ltd v Francis Parker LtdUnknownNo(1977) 6 BLR 16UnknownCited for the principle that contracts of indemnity are to be construed strictly in favour of the indemnifier.
Stadium Finance Co Ltd v HelmUnknownNo(1965) 109 SJ 471UnknownCited for the principle that a clearer form must be in place if a primary obligation is intended to be imposed.
Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte LtdUnknownNo[2008] 3 SLR(R) 1029SingaporeCited for the principle that where a particular species of transaction, contract, or provision is one-sided or onerous it will be construed strictly against the party seeking to rely on it.
Kay Lim Construction & Trading Pte Ltd v Soon Douglas (Pte) Ltd and anotherUnknownNo[2013] 1 SLR 1SingaporeCited for the principle that courts will start with a presumption that parties are unlikely to have agreed to bear the liability for the acts of another unless set out in clear and unequivocal terms.
Singapore Telecommunications Ltd v Starhub Cable Vision LtdCourt of AppealNo[2006] 2 SLR(R) 195SingaporeCited for the principle that exemption clauses are to be construed strictly and if a party seeks to exclude or limit his liability, he must do so in clear words.
E E Caledonia Ltd v Orbit Valve Co EuropeUnknownNo[1994] 1 WLR 221UnknownCited for the contra proferentum rule that contractual provisions should prima facie be construed against the party who was responsible for the preparation of the contract and/or who is to benefit from the provision.
Sunny Metal & Engineering Pte Ltd v Ng Khim Ming EricUnknownNo[2007] 3 SLR(R) 782SingaporeCited as a case where the relevant clause necessarily presupposed liability incurred by the indemnified party to a third party.
China Taiping Insurance (Singapore) Pte Ltd (formerly known as China Insurance Co (Singapore) Pte Ltd) v Teoh Cheng LeongUnknownNo[2012] 2 SLR 1SingaporeCited for the definition of an indemnity clause.
Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co LtdHouse of LordsNo[1915] AC 79United KingdomCited for the test of whether the sum stipulated for is extravagant and unconscionable in comparison with the greatest that could conceivably be proved to have followed from the breach.
CLAAS Medical Centre Pte Ltd v Ng Boon ChingUnknownNo[2010] 2 SLR 386SingaporeCited for the principle that the burden of proving that the default interest is an unenforceable penalty is on the defendants.
iTronic Holdings Pte Ltd v Tan Swee Leon and another suitHigh CourtNo[2016] 3 SLR 663SingaporeCited for the applicable principles in determining whether the default interest is an unenforceable penalty.
Cavendish Square Holding BV v MakdessiUK Supreme CourtNo[2016] AC 1172United KingdomCited for the strong initial presumption that the parties themselves are the best judges of what is legitimate in a provision dealing with the consequences of breach in a negotiated contract between properly advised parties of comparable bargaining power.
Chwee Kin Keong and others v Digilandmall.com Pte LtdUnknownNo[2005] 1 SLR(R) 502SingaporeCited for the test of whether the mistake was sufficiently important or fundamental.
Ho Seng Lee Construction Pte Ltd v Nian Chuan Construction Pte LtdUnknownNo[2001] 4 SLR 407SingaporeCited for the common law threshold for common mistake.
Associated Japanese Bank (International) Ltd v Crédit Du Nord SAUnknownNo[1989] 1 WLR 255UnknownCited for the common law threshold for common mistake.
Great Peace Shipping Ltd v Tsavliris Salvage (International) LtdEnglish Court of AppealNo[2003] 1 QB 679EnglandCited for the holding that there is no equitable jurisdiction to grant remedy for common mistake in circumstances which fall short of those in which the common law held a contract void.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute NameJurisdiction
Evidence Act (Cap 97, 1997 Rev Ed)Singapore
Moneylenders Act (Cap 188, 2010 Rev Ed)Singapore

15. Key Terms and Keywords

15.1 Key Terms

  • Convertible Bond Subscription Agreements
  • CBSAs
  • Indemnity Clause
  • Personal Guarantees
  • Default Interest
  • Initial Shareholders
  • SPV
  • Entire Agreement Clause
  • Penalty Doctrine

15.2 Keywords

  • contract
  • agreement
  • loan
  • default
  • indemnity
  • guarantee
  • interest
  • shareholder
  • liability

17. Areas of Law

Area NameRelevance Score
Contract Law90
Commercial Disputes70
Contractual Interpretation60
Company Law50
Guarantees and indemnities40
Banking and Finance30

16. Subjects

  • Contract Law
  • Financial Law
  • Corporate Finance
  • Insolvency