Case Update: ACTAtek, Inc v Tembusu Growth Fund Ltd: SGCA holds wrongful call of event of default as anticipatory repudiatory breach of contract

ACTAtek, Inc and another v Tembusu Growth Fund Ltd [2016] SGCA 50 PDF

This case concerned a venture capital fund, Tembusu Growth Fund Ltd (“Tembusu“), suing an investee company ACTAtek Inc., which is part of a group of companies providing identification management solution, under the tort of misrepresentation in relation to two convertible loan agreements and its plan to list on the New Zealand stock exchange. The Singapore Court of Appeal reversed the High Court’s decision below, holding that the venture capital fund was in anticipatory repudiatory breach of the contract by wrongly calling events of default such that the investee company’s plan to list on the NZ stock exchange was derailed. The Court considered the interesting point of law being “what are the legal consequences that flow if an event of default is found to have been wrongly declared and damages are suffered as a result?” ([at [2]). The decision also traversed other issues of law including misrepresentation and the application of Sembcorp Marine Ltd v PPL Holdings Pte Ltd [2013] 4 SLR 193 principles regarding implied terms in contract.

The Court analysed two UK decisions: the House of Lords decision in Concord Trust v The Law Debenture Trust Corporation [2005] 1 WLR 1591 (“Concord Trust”) and the decision of the English Court of Appeal in Jafari-Fini v Skillglass Ltd and others [2007] EWCA Civ 261 (“Jafari-Fini”).

In those two decisions, the UK courts held that a wrongful call of an event of default did not constitute a breach of contract because there was no express or implied term in the contracts which could be breached by virtue of the wrongful call.

The Singapore Court of Appeal distinguished those two decisions from the present case on the basis that in the two UK cases, the lenders did not have any continuing obligations under the contract because they had already provided the loans, whereas in the present case, Tembusu still had continuing obligations under one of the convertible loan agreements. By wrongly calling the event of default, Tembusu had evinced an intention not to comply with that continuing obligation, and was thereby in anticipatory repudiatory breach of contract: [106]-[110].

The Court cited Edwin Peel, “No liability for service of an invalid notice of ‘event of default’” (2006) 122 (Apr) LQR 179 in his observation that in Concord Trust the bondholders were not relying upon the event of default “to withhold performance of any of its obligations” and that the outcome would be different if in calling the event of default, there was nonperformance in the form, for example, of the lender refusing payment of an instalment which is due or if security was enforced pursuant to what turned out to be an invalid notice. The Court also cited Qiao Liu, “Inferring Future Breach: Towards a Unifying Test of Anticipatory Breach of Contract” (2007) 66 Cambridge LJ 574, on the observation that there was no anticipatory breach in Concord Trust because the manifestation of an intention not to be bound by the contract in that case did not entail future non-performance of the contract.

The Court also opined in obiter dicta that in the two UK cases, “the courts proceeded on the basis that it was not a breach for a lender to accelerate the repayment of a loan contrary to the agreed terms for repayment or to assert an event of default without basis”: at [112]. The Court then commented that they “therefore leave open for decision on another occasion whether such conduct if wrongly done would amount to a breach of the implicit obligation to act in accordance with explicit obligations that have been undertaken in the contract”: at [112].

It thus appears that the Court is suggesting the possibility that a wrongful call on an event of default by a lender such as to accelerate repayment of loan or to assert event of default wrongfully resulting in some non-performance or performance contrary to the express terms of the contract could constitute a breach of contract. This obiter dicta has significant implications on lenders, bondholders and the like in calling events of default.