Cheong Chee Hwa v. China Star Food Group: Breach of Contract & Best Endeavours in Reverse Takeover

In Cheong Chee Hwa v China Star Food Group Limited, the High Court of Singapore addressed a breach of contract claim by Mr. Cheong, a shareholder, against China Star, concerning a reverse takeover and subsequent share consolidation. Mr. Cheong alleged that China Star breached contractual obligations by undermining the value of his shares prior to re-listing. The court, presided over by Belinda Ang Saw Ean J, dismissed the action, finding no breach of contract or implied terms.

1. Case Overview

1.1 Court

High Court

1.2 Outcome

Action dismissed.

1.3 Case Type

Civil

1.4 Judgment Type

Judgment

1.5 Jurisdiction

Singapore

1.6 Description

Shareholder Cheong Chee Hwa sues China Star Food Group for breach of contract related to a reverse takeover and share consolidation. The court dismissed the action.

1.7 Decision Date

28 March 2019

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
Cheong Chee Hwa	Plaintiff	Individual	Action dismissed	Lost	Foo Maw Shen
China Star Food Group Limited (formerly known as Brooke Asia Limited)	Defendant	Corporation	Action dismissed	Won	Joseph Tay Weiwen

3. Judges

Judge Name	Title	Delivered Judgment
Belinda Ang Saw Ean	Judge	Yes

4. Counsels

Counsel Name	Organization
Foo Maw Shen	Dentons Rodyk & Davidson LLP
Joseph Tay Weiwen	Shook Lin & Bok LLP

4. Facts

Cheong Chee Hwa invested S$2 million in China Star Food Holding Pte Ltd (CSFH) before its reverse takeover (RTO).
China Star Food Group Limited (formerly Brooke Asia Limited) underwent a reverse takeover by CSFH.
Cheong received 16,632,000 shares in Brooke Asia Limited (BAL) at S$0.20 per share.
BAL's shares were suspended from trading due to being a 'cash company' under Catalist Rules.
China Star proposed a share consolidation, consolidating every four shares into one.
China Star issued consolidated placement shares at S$0.23 each with detachable warrants.
Cheong claimed the share consolidation and placement undermined the value of his investment.

5. Formal Citations

Cheong Chee Hwa v China Star Food Group Ltd (formerly known as Brooke Asia Ltd), Suit No 1177 of 2016, [2019] SGHC 86

6. Timeline

Date	Event
2014-11-05	Sale and purchase agreement entered into
2015-04-16	Convertible Loan Agreement entered into
2015-04-16	Supplemental Agreement to the SPA entered into
2015-07-20	Extraordinary General Meeting held
2015-07-21	Automatic conversion under the CLA took place
2015-09-22	Annual General Meeting held
2015-09-22	BAL changed its name to China Star Food Group Limited
2015-09-29	Shares listed and quoted on SGX
2015-11-18	Proposed Share Consolidation announced
2015-11-25	Notice of EGM released
2015-12-11	Shareholders approved the Proposed Share Consolidation at the EGM
2015-12-22	Share Consolidation completed
2016-04-18	Compliance Placement completed
2016-04-20	Suspension on the trading of China Star’s shares was lifted
2016-07-29	Shareholders of China Star ratified the issuance of the Consolidated Placement Shares with the Warrants at the AGM
2019-03-29	Judgment reserved

7. Legal Issues

Breach of Contract
- Outcome: The court found no breach of contract.
- Category: Substantive
- Sub-Issues:
  - Failure to comply with compliance placement obligations
  - Unilateral undermining of share value
Interpretation of Contractual Terms
- Outcome: The court interpreted the contractual terms against the plaintiff's favor.
- Category: Substantive
- Sub-Issues:
  - Implied terms
  - Best commercial endeavours
Breach of Best Commercial Endeavours Warranty
- Outcome: The court found no breach of the Best Commercial Endeavours Warranty clause.
- Category: Substantive

8. Remedies Sought

Monetary Damages

9. Cause of Actions

Breach of Contract

10. Practice Areas

Commercial Litigation
Corporate Law
Securities Law

11. Industries

Food and Beverage
Financial Services

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd	Court of Appeal	Yes	[2008] 3 SLR(R) 1029	Singapore	Cited for the law on contractual interpretation.
Sembcorp Marine Ltd v PPL Holdings Pte Ltd and another and another appeal	Court of Appeal	Yes	[2013] 4 SLR 193	Singapore	Cited for the law on contractual interpretation.
CIFG Special Assets Capital I Ltd (formerly known as Diamond Kendall Ltd) v Ong Puay Koon and others and another appeal	Court of Appeal	Yes	[2018] 1 SLR 170	Singapore	Cited for the principles in relation to contractual interpretation.
PT Bayan Resources TBK and another v BCBC Singapore Pte Ltd and another	Court of Appeal	Yes	[2019] 1 SLR 30	Singapore	Cited for the principles in relation to contractual interpretation.
Lim Sze Eng v Lin Choo Mee	Court of Appeal	Yes	[2019] 1 SLR 414	Singapore	Cited for the principles in relation to contractual interpretation.
KS Energy Services Ltd v BR Energy (M) Sdn Bhd	Court of Appeal	Yes	[2014] 2 SLR 905	Singapore	Cited for the interpretation of a “best endeavours” clause.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute Name	Jurisdiction
Rule 1017 of the SGX-ST Catalist Rules	Singapore
Rule 406(1) of the SGX-ST Catalist Rules	Singapore
Rule 1015(3) of the SGX-ST Catalist Rules	Singapore
Rule 422 of the Catalist Rules	Singapore
Rule 429 of the Catalist Rules	Singapore

15. Key Terms and Keywords

15.1 Key Terms

Reverse Takeover
Share Consolidation
Compliance Placement
Catalist Rules
Best Commercial Endeavours
Consideration Shares
Placement Shares
Consolidated Placement Shares
Warrants
Listing Rules

15.2 Keywords

breach of contract
reverse takeover
share consolidation
best endeavours
Catalist
Singapore
shareholder
investment

16. Subjects

Contract Law
Corporate Law
Securities Regulation
Reverse Takeovers
Shareholder Rights

17. Areas of Law

Contract Law
Company Law
Financial and Securities Markets Law
Reverse Takeovers
Listing Rules
Catalist Rules