The Enterprise Fund III Ltd and another v CNPLaw LLP

The plaintiffs, The Enterprise Fund III Ltd (EFIII) and Value Monetization III Ltd, are investment funds managed by Crest Capital Asia Fund Management Pte Ltd. The defendant, CNPLaw LLP, had acted for Crest and its affiliates since 2008. In 2015 the funds entered a loan facility agreement, drafted by CNP, with International Healthway Corporation Ltd (the borrower); it was executed on 21 July 2015, backdated to 16 April 2015, and stated that the loan was for the borrower's general working capital. EFIII instead used the facility money to buy the borrower's shares on the open market, for a total of $17,332,081.15, between 16 April 2015 and 24 August 2015.

The borrower later repudiated the agreement for illegality. In earlier proceedings the Court of Appeal held the loan, the share purchases and the trust declarations void for breaching the prohibition in s 76(1A)(a) of the Companies Act on a company financing the purchase of its own shares, and the funds lost a second related action. Left holding shares worth much less than they paid, the funds sued CNP in Suit No 355 of 2021, alleging it negligently failed to advise them on s 76 and the legal effects of the facility. A related suit by EFIII against its former manager, Glendon Tan, had been settled.

1. Whether CNP's case at trial was materially inconsistent with its pleaded defence
2. Whether CNP had advised the funds against using the facility to buy the borrower's shares and so met its duty
3. Whether CNP owed a continuing duty to advise on the facility after the agreements were executed

The court found no inconsistency. CNP's position was that it was told of an initial plan to use the loan to buy shares, advised against it, and then accepted instructions that the loan was for working capital, so it did not know the money was later used to buy shares.

The contemporaneous documents supported CNP. Early drafts left the loan purpose blank and an associate asked whether it was for a share buyback; later drafts sent to the funds stated general working capital, consistent with the partner's account that Glendon Tan had confirmed that purpose. The partner had given s 76 advice to Crest in an earlier deal, and CNP's lawyers first learned of the share purchases in November and December 2015. The share buying also bypassed the agreement's disbursement clause, with most purchases made before the facility was even executed. The funds' only witness, Mr Chan, had no personal knowledge, and Glendon Tan, who dealt with CNP, was not called. The absence of written records of advice was one factor but not fatal. The funds also had to explain the Court of Appeal's finding in Crest Capital Asia Pte Ltd and others v OUE Lippo Healthcare Ltd (formerly known as International Healthway Corp Ltd) and another and other appeals [2021] 1 SLR 1337 that Glendon Tan knew of the prohibition and its breach and that this knowledge was attributable to Crest and EFIII, and their earlier contrary position before Hoo J; they gave no satisfactory explanation.

Finally, a continuing duty was never pleaded, and CNP's duty ended when it rendered its invoice on 3 August 2015.

The High Court dismissed the funds' negligence claim against CNP, finding that the claim had not been made out, and said it would hear the parties on costs if they could not agree.