Sunway sues Tropicana for breach of agreement and alleged double-dealing in sale of education institution

KUALA LUMPUR (Oct 10): Tropicana Corporation Bhd and its education arm Tropicana Education Management Sdn Bhd (TEM) are being sued by Sunway REIT Management Sdn Bhd and Sunway Education Group Sdn Bhd for alleged breach of agreement and double-dealing over the sale of shares and a stake in St Joseph International School operated by TEM.

In the suit filed by Messrs Rosli Dahlan Saravana Partnership on Aug 25, RHB Trustees Bhd has also been named as a plaintiff. The three plaintiffs claim that Tropicana Corporation had offered to sell TEM and a portion of its Tropicana Corporation shares for an aggregate price of RM208 million in a letter to Sunway dated April 20, 2023.

The letter contains provisions — called conduct provisions — for the purchase of the said property, that it was subsequently agreed between Tropicana Corporation and Sunway that Sunway REIT would own the education institution and Sunway Education Group would own the shares.

Following the understanding, Sunway agreed to pay a refundable deposit of RM4.16 million to Messrs Mah-Kamariyah & Philip Koh on May 2, where it was agreed that upon payment, Sunway is allowed to carry out a due diligence review (DDR) of the property and TEM within one month from the date (May 2). Sunway claimed that the due diligence period ought to be given a commercially sensible construction.

After the payment of the refundable deposit, a conduct agreement was drawn up, comprising terms, conditions and/or obligations that included Tropicana Corporation and TEM as vendors during the due diligence review, and that they comply with the time and obligations. A termination clause was also inserted in the agreement.

Tropicana alleged to be uncooperative

The plaintiffs claimed that Tropicana Corporation and TEM were uncooperative during the DDR period in providing information on the said properties (building and shares). A virtual shared folder called “data room” was formed, whereby the vendors were required to furnish the due diligence information. A link was sent on May 5 by the vendors but its contents were empty.

The vendors informed the plaintiffs to revisit the link on May 8. However, the plaintiffs claimed that as at May 12, the vendors had only provided 20% of the due diligence information, as the major part of the information in relation to material litigation, material contracts, property owned, banking documents, business activities and taxation were not provided.

The plaintiffs further claimed that as part of the DDR, Messrs Mah-Kamariyah conducted a Credit Tip-Off Service (CTOS) search on TEM directors and shareholders of Tropicana Corporation.

To conduct the searches, the law firm required consent from TEM and Tropicana Corporation but the purchasers claimed that both vendors did not provide consent up to the date of the filing of the suit, despite reminders by Messrs Mah-Kamariyah on May 18 and subsequent follow-ups.

Because of the vendors’ delay, the plaintiffs claimed that they would not be able to comply with the DDR timeline, as the vendors had refused, neglected and failed for the purchasers to access a sizable amount of information by May 24.

As a result of the delay in providing the information, the plaintiffs sought an extension of time to comply with the DDR, as they alleged that this was due to the vendors’ or defendants’ delay. However, the defendants refused to respond to the extension request.

The plaintiffs also alleged that information with regard to the education institution among others, including material contracts entered into by TEM, the teaching permits pursuant to Education Act, and encumbrances over the property, were not provided to them.

The St Joseph International School in Petaling Jaya offers international primary curriculum, Singapore Mathematics, Mandarin programme, International General Certificate of Secondary Education (IGCSE), and the International Baccalaureate Diploma programme.

Discovery of double-dealing

On June 28, representatives from both sides met with Tropicana Corporation, which was led by its chairman Tan Sri Tan Chee Sing. It was at the meeting that the plaintiffs learnt that Tropicana Corporation had held third party discussions with another interested party. The plaintiffs alleged that this showed that the vendors started negotiations behind their back before the DDR period was over and constituted double-dealing.

On July 4, the plaintiffs received notice of invocation of the termination clause to cancel the agreement. Sunway and RHB Trustees claimed that the meeting held on June 28 showed that the DDR deadline on June 1, 2023 should not have kicked in.

The plaintiffs claim to have suffered loss and damages including wasted expenses to comply with the conduct agreement, legal costs due to the agreements made and loss of business opportunity to enjoy from the purchase of the property and shares.

They are seeking declaratory relief that the vendors committed breaches of the conduct agreement, that the due diligence review period be suspended or stayed, owing to the vendors’ actions; that the due diligence period be varied and that the deemed aborted clause is subject to the vendors’ compliance and obligation to provide more information to the plaintiffs.

They are also seeking that the invocation of the deemed aborted clause be declared wrongful, invalid, void and of no effect, and for an order to preserve the status quo of the subject properties.

In addition, they are also seeking special and general damages from the defendants for the wasted expenditure incurred by them.

A case management on the matter was held last Friday (Oct 6) at the Kuala Lumpur High Court, where law firm Shearn Delamore & Co entered an appearance to represent Tropicana Corporation and TEM. The court fixed Nov 16 for the next case management.