Laguna’s trustee asked to give evidence in hearing on noteholder’s winding-up application

SINGAPORE’S High Court has on Monday (Sep 12) asked the trustee of Laguna National Golf and Country Club to give evidence before the court so it can assess whether the trustee had acted according to its fiduciary duty in looking after debenture holders’ interest.

The British and Malayan Trustees has 1 month to file an affidavit, if it wishes, addressing whether it was aware that the club was in default before it failed to redeem the unsecured notes; and if so, what steps it was going to take.

In its attempt to restrain pioneer club member Lim How Teck’s application to wind up the club, the club had argued, among other things, that a “non-action clause” in a trust deed prevents Lim from taking such an action.

“Non-action clauses” are commonly found in documentation for a bond issue where a trustee structure is used. The clause usually allows only the trustee to take enforcement action against the issuer or guarantor of the bonds.

Individual bondholders can typically only take legal action if the trustee fails to take action in accordance with the bond documentation.

At the heart of this dispute is money – to the tune of tens of millions of dollars – that has not yet been paid back to debenture holders, even though the 30-year-old notes were due for redemption in June last year.

Laguna National was Singapore’s first proprietary golf club launched by a consortium of 3 government-linked companies.

Its first batch of members had in 1991 taken up non-interest bearing unsecured notes of S$120,000 due to mature on Jun 11, 2021. In addition, each paid about S$40,000 in membership fees, as well as monthly subscription dues.

Lim’s lawyers from Wong Partnership, led by Tan Chee Meng, said that Lim first had sight of the trust deed in 2004, some 14 years after subscribing to the unsecured notes. There is therefore no evidence that he had agreed to be bound by it at the time he became a subscriber.

“Even if the trust deed was applicable, the ‘no-action clause’ should not apply because the trustee is potentially in a position of conflict, and has been demonstrated to be unjustifiably unwilling to enforce the terms of the trust deed,” they argued.

Some S$72.6 million has “gone unanswered” on the trustee’s watch, and there is no evidence of the trustee having enforced, or seeking to enforce, compliance by the club over the lifetime of the 30-year-old notes, the lawyers argued.

There was also no evidence of the trustee having done anything to protect noteholders’ interest when the club appears to have been left “abjectly insolvent” when it came time to redeem the notes in 2021, they added.

On the day before the notes were to be redeemed, club owner Peter Kwee had written to the trustees, stating that the club was unable to fulfil the redemption “due (to its) current financial position”.

“The trustee appeared to be in a position of conflict, given the possibility that the outstanding subscribers of the unsecured notes would want to pursue actions against the trustee for their apparent failure to properly consider their interests,” the lawyers said.

Laguna, represented by Chong Kuan Keong, is arguing that the no-action clause is all-encompassing.

It has also argued that Lim’s actions are “vexatious and/or an abuse of process” because Lim has allegedly demonstrated personal prejudice against Kwee and is using the winding-up application to ventilate that prejudice.