Straits Advisors Pte Ltd v Michael Deeb (alias Magdi Salah El-Deeb) & Ors [2014] SGHC 94

The Singapore High Court in Straits Advisors Pte Ltd v Michael Deeb (alias Magdi Salah El- Deeb) & Ors considered a variety of claims made in relation to agreements concerning a company's initial public offering. The court found that the plaintiff had failed to establish any of its claims.

The parties

Straits Advisors Pte Ltd (the "plaintiff"), a corporate finance advisory firm in Singapore, commenced the present action against Bermuda-incorporated company Music Group Ltd (the "third defendant") and its subsidiary in Singapore, Music Group Services SG Pte Ltd (the "second defendant") (collectively, the "Companies"). The first defendant, Michael Deeb ("Deeb"), was the former managing director and CEO of the second and third defendants respectively. Deeb was no longer employed by the Companies at the time of the proceedings.

The facts

The plaintiff had entered into a contractual engagement (the "Original Agreements") with the Companies in early 2006 whereby the plaintiff was to provide corporate finance advisory services with the aim of steering the third defendant towards an initial public offering ("IPO"). Upon a successful IPO, the plaintiff would be issued a portion of the third defendant's shares (the "Shares"). The planned IPO did not materialise and the contractual engagement between the parties was renegotiated with a new agreement then being entered into in late 2006. The contractual relationship between the parties came to an end in 2008 when it became clear to the third defendant that it would not be restarting an IPO in the foreseeable future. The third defendant refused to issue any shares to the plaintiff. The plaintiff believed that it was entitled to the Shares under the renegotiated contract so long as the parties' engagement was terminated, regardless of whether the third defendant pursued an IPO and therefore began legal proceedings. Its claim failed before both the Singapore High Court and the Court of Appeal.

Present action

The plaintiff commenced the present action on the basis of information which it alleged cast suspicions on the propriety of the three defendants' conduct. The previous suit turned solely on the issue of contractual interpretation; the present suit involved causes of action in fraudulent misrepresentation, negligence, breach of contract and conspiracy.

The Singapore High Court considered each claim made by the plaintiff.

Misrepresentation claims

The plaintiff claimed that Deeb made oral representations to the plaintiff's director ("Dominic") during pre-contractual negotiations leading up to the Original Agreements. Broadly, these alleged representations concerned the qualifications and abilities of the third defendant's management team, the circumstances in which the IPO was first sought with the Singapore Exchange (the "SGX") and then the NASDAQ, and intimations regarding commitment and motivation to complete an IPO. The plaintiff contended that these representations were false and that Deeb made them knowing that they were false. The motivation for the "false" representations was allegedly due to the defendants' "desperation" to have Dominic as Chief Financial Officer ("CFO"). The court found that there was no proof these representations had ever been made and stated that the defendants were not dishonest. The court noted in coming to this conclusion that there was an established pattern of Dominic documenting discussions after the fact and questioned why this was not done here if the representations had indeed been made.

The plaintiff also argued that after the suspension of its NASDAQ IPO, the defendants' made representations regarding its commitment to still seek an IPO (the "Further Representations"), which induced the plaintiff to contract again with the defendants. The court noted that the Further Representations constituted a statement of intent and not a statement of fact and was therefore not actionable. The court characterised the statement concerning its continuing intention to pursue an IPO as innocuous statements of future intent. The court noted that there were sound issues to suspend the IPO at the time of the Further Representations, as the Companies had serious operational issues. The court also pointed out that there was ample evidence that Dominic was aware of these serious operational issues. The court found no evidence that the Further Representations served to induce the plaintiff to act as it did. Indeed, the court was of the opinion that the plaintiff would still have agreed to act as consultant for the Companies even if it were to be made aware of the true academic qualifications of Deeb and the Chief Operating Officer (the "COO"), due to the lucrative success fee payable in the event of a successful IPO.

Negligence claims

The plaintiff argued that the Companies owed a duty of care to the plaintiff to provide accurate and complete information and that this duty had been breached in the draft Preliminary Prospectus provided to it prior to an attempt by the third defendant to list on the SGX. It was not disputed that the academic qualifications of Deeb and the then COO of the third defendant were inaccurately stated in the draft prospectus. The court disagreed that the mere provision of the draft prospectus meant the Companies had voluntarily assumed any responsibility to the plaintiff.

The court also dismissed out of hand the plaintiff's submission that the third defendant should have verified the allegations made against certain officers of the third defendants in anonymous communications and to not do so was a breach of duty.

Breach of contract claims

The plaintiff alleged that the Further Representations were false and had breached the plaintiff's Standard Terms and Conditions (the "STCs"). However, the court noted that the STCs were not appended to the agreement between Dominic and the Companies appointing Dominic as Group CFO (the "Employment Agreement") but to other contracts entered into at the same time. The plaintiff argued that these agreements should be construed as a whole and the STCs would apply to all. The court disagreed, finding that each agreement concerned a different purpose and therefore they should each be considered individually. The court found that the Further Representations was conveyed to Dominic as an employee of the Companies and should be governed within the employer-employee relationship.

The plaintiff also alleged that a contractually-defined event known as "IPO Activation" should have been triggered by the defendants at the time of the previous proceedings and the failure to do so constituted a breach of contract. Whether an IPO Activation was triggered was a matter to be decided by the Companies in accordance with the contract which required written notice of the event to be provided by the Companies. The court noted that IPO Activation is usually triggered where there is a decision to proceed with an IPO. In this case, the court considered the specific circumstances to determine whether the IPO Activation clause had been triggered. While there were discussions of a possible trade sale by key employees of the Companies, those discussions never reached a stage where it would or should trigger IPO Activation. The court emphasised that the wishes and predilections of individuals cannot form the basis for IPO Activation as that would ignore the fact that it is the Companies which must be primed for the IPO.

Conspiracy

The plaintiff argued that the defendants and some of its specified employees had combined to injure the plaintiff by depriving it of the Shares under the Employment Agreement. The reasoning for the argument of conspiracy was that despite the suspension of the NASDAQ IPO, the Companies continued to be contractually obliged to pay Dominic and did not wish to terminate the contractual engagements with the plaintiff as it would then have to pay out the Shares. The plaintiff alleged that it was these circumstances that caused the defendants to make the Further Representations.

The court disagreed, finding the scenario above as painted by the plaintiff was not supported by documentary evidence. The court found that the plaintiff had put forward a conspiracy theory, something courts are not minded to take any cognisance of.

Judgment

The court dismissed all the plaintiff's claims, finding that none of them had been established.