SINGAPORE – Mainboard-listed Stamford Land Corporation has won a $1.9 million claim against UOB after the High Court found that the bank had been grossly negligent when it gave the company non-compliant advice on how to allocate excess shares in a 2021 rights issue.
In a judgment released on Sept 29, Justice Dedar Singh Gill said UOB, the appointed manager of the rights issue, should have ensured that the allocation complied with Singapore Exchange (SGX) rules.
Excess shares are those left over when some shareholders do not take up all the shares they were entitled to buy.
UOB came up with a method that allocated some shares to the property developer’s directors and substantial shareholders before all applications from minority shareholders had been satisfied, even though the latter received a higher allocation rate.
The judge said this contravened Rule 877(10) of the SGX Mainboard Rules, which says that directors and substantial shareholders with control or influence over a listed company, or its rights issue, will “rank last in priority” for the allocation of excess rights shares.
In December 2021, Stamford Land, which owns and operates luxury hotels in Australia, offered about 703.7 million new shares at 34 cents each, on the basis of nine new shares for every 10 existing shares.
The issue was oversubscribed, with applications for about 1.01 billion shares. After valid applications for the rights shares were taken into account, 106.1 million shares remained for allocation as excess rights shares.
This excess pool was itself heavily oversubscribed.
Non-restricted shareholders – broadly, shareholders without the control or influence covered by the rule – applied for about 91.4 million of the excess shares.
Restricted shareholders, including Stamford Land’s controlling shareholders, applied for about 321.7 million.
A preliminary proposal from Stamford Land’s other adviser would have fully satisfied the applications from non-restricted shareholders first. It would then have left about 14.7 million excess shares for restricted shareholders.
But UOB proposed a different approach – what it called the “success rate” methodology. The idea was to give non-restricted shareholders a significantly higher percentage of their applications than restricted shareholders.
Several versions of the method were considered.
Under UOB’s final proposal, 46,022,551 excess shares were allotted to non-restricted shareholders, while 60,043,712 went to restricted shareholders.
UOB ‘creative but legally unsound’
But Gill said UOB’s approach did not satisfy the SGX rule, describing UOB’s interpretation as “creative but legally unsound”.
He noted that where there were enough excess shares to satisfy all the non-restricted applications, those applications had to be dealt with first.
“The necessary implication is thus that any application by the non-restricted individuals must be satisfied before the restricted individuals are allotted excess rights shares,” he said.
The bank had also argued that the rule was open to interpretation at the time, and that SGX’s interpretation was not publicly available during the rights issue.
The judge rejected this.
He noted that UOB had itself previously handled rights issues where restricted shareholders had applied for excess shares but received none because the non-restricted shareholders’ applications were satisfied first.
In one such internal precedent, two restricted individuals had applied for excess rights shares but received nothing. Justice Gill said this was “a real-life example” of how the SGX rule operated.
Yet, UOB’s employees had not checked those internal precedents before advising Stamford Land.
The judge found that neither senior director David Tham Fook Thai nor vice-president Kelvin Kwek Rui Sen properly checked UOB’s previous cases.
Although Kwek said he “probably” would have checked, there was no documentary evidence showing that he had done so.
Gill said this was particularly serious because UOB regarded the situation as “unprecedented”.
The bank had limited recent experience with rights issues and had not encountered a situation where the non-restricted shareholders had not fully taken up the excess shares, but the issue was oversubscribed because of applications by restricted shareholders.
“If, indeed, the situation was truly ‘unprecedented’, a reasonable adviser would have done more, not fewer, checks to ensure compliance,” the judge said.
UOB could have checked its own precedents, looked at market precedents, or asked SGX for guidance, he added.
Instead, UOB persisted with its interpretation.
Shareholder complaint
SGX began looking into the allocation in April 2022 following a shareholder complaint.
In August 2022, it told Stamford Land that it might have breached Rule 877(10). The company engaged lawyers Drew & Napier and Eng & Co to deal with the investigation.
UOB initially continued to tell Stamford Land that its method was compliant.
In September 2023, UOB’s Tham told Stamford Land that the bank would “continue to stand by” it and provide further assistance.
But he did not respond when Stamford Land executive chairman Ow Chio Kiat later asked him to provide a written statement to support the company’s defence.
Stamford Land was left to defend the SGX proceedings or, in Ow’s words, face the “firing squad” on its own.
It later emerged at trial that UOB’s legal team had instructed Tham not to respond.
During its disciplinary proceedings against Stamford Land, SGX said the “clear and obvious” interpretation of Rule 877(10) was that non-restricted shareholders’ valid applications had to be fully satisfied before restricted shareholders could receive any excess shares.
These proceedings were eventually settled in December 2023 without an admission of liability.
As part of the settlement, Stamford Land’s controlling shareholders donated $2 million to the SGX Investor Education Fund.
Stamford Land then sued UOB to recover $1,887,946.31 in legal costs it had incurred in dealing with the SGX investigation and disciplinary proceedings.
UOB argued that its advice was reasonable and that the contractual terms between the parties protected it from liability except where there was a final court judgment showing “wilful default or gross negligence”.
The judge found that exclusion clause reasonable because it had been negotiated between the parties.
But this did not save UOB.
Gill found that the bank had breached both its contractual duty to advise Stamford Land and its contractual duty to exercise reasonable skill and care.
More importantly, he found that UOB’s conduct crossed the higher threshold of gross negligence.
“UOB had limited relevant experience in rights issues,” he said.
The bank’s team had been told the normal method of allotment. “They chose not to follow it.”
“They considered the position to be unprecedented. Yet they did not look for precedents within UOB, or beyond it.”
Justice Gill said UOB had rendered its advice with “serious disregard to the obvious risk of non-compliance” with the SGX rule.
More importantly, he found that UOB’s conduct crossed the higher threshold of gross negligence and awarded Stamford Land the full $1,887,946.31 claimed.
UOB was also ordered to pay costs of the court action.
