The Court of Appeal upheld, among other things, the freedom of contract in Citicorp Investment Bank (Singapore) v Wee Ah Kee. Under a loan agreement to fund Wee's purchase of shares in CIL, Wee granted Citicorp a charge over CIL shares to secure his indebtedness and a call option to purchase 30% of the CIL shares acquired using the loan.
Wee repaid the loan fully. Citicorp returned to Wee only some of the shares alleging that Wee had promised to pay Citicorp a sum as consideration to terminate the call option. Wee had not made such a payment and this constituted an indebtedness secured by the charge.
Wee argued that the option constituted a clog on the equity of redemption which rendered it void ab initio; the promise to pay was thus without consideration and unenforceable, hence there was no indebtedness.
The Court held that the option was not intended as a term of the loan and security agreement but was rather the subject of an independent bargain. Wee was an experienced businessman and the option was not unfair, oppressive or unconscionable. Citicorp was not just a lender but was an investment bank looking for potentially profitable ventures. The option was to give Citicorp an opportunity to buy into a restructured and listed CIL and share its profits. The option was a valid collateral bargain and not a clog on the equity of redemption.
The Court recognized that there exists a wide range of innovative financing methods including some which tie a lender's return on advances to increasing the value of secured property or profits earned thereon. There was no reason why commercial parties should not ordinarily be free to seek and pursue legitimate expectations through such financing schemes: "Since such parties are businessmen capable of protecting their own interests, the doctrine of clogs on the equity of redemption should arguably have no application ... The courts ... would be most chary and slow in applying the doctrine to interfere with the freedom of contract."