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  • Vita Health Laboratories Pte Ltd and Others v Pang Seng Meng[2004] 4 SLR 162; [2004] SGHC 158
    because of his personal indemnity obligation to these investors is utterly implausible He never informed them that he was discharging such an obligation No demand had been made Indeed Linus Koh Koh DMG s nominee director on VHLS at the material time expressed undisguised surprise in court when informed of the defendant s inexplicable conduct It bears mention that Koh was a witness for the defence This baffling payment provides compelling evidence of the defendant s scheme to maintain the appearance of VHLS running a profitable business with Vitaton and VHLP 39 I also draw an adverse inference against the defendant for not making serious attempts to arrange for Tang to give evidence via a video link Several of the plaintiffs witnesses gave evidence through this medium I do not understand why the defendant did not take strenuous steps to enable Tang to give evidence if it could help his case Tang is in Canada and it would not have been difficult to make arrangements for him to give evidence see Cheong Ghim Fah v Murugian s o Rangasamy 2004 1 SLR 628 at 37 to 45 It is incontrovertible that Tang was purporting to liaise with the owners of Vitaton and VHLP It appears to me that the defendant and Tang worked hand in glove in the gestation of the Vitaton VHLP charade Both of them knew that there were no owners behind Vitaton or VHLP 40 The farcical nature of the trading relationship is further exposed when two credit notes that the defendant caused VHLS to issue are scrutinised These credit notes amounting to 800 000 and 500 000 were ascribed to Vitaton and VHLP respectively The purported consideration for these credit notes which first surfaced in 1999 included the purchase of a the existing product licences b the sales and distribution networks and c all unsold stock which these two entities owned The 500 000 credit note in favour of VHLP subsequently ballooned into 783 000 in December 2001 There is clear evidence that this amount was arbitrarily tied to the latest current outstandings of VHLP In an e mail dated 13 December 2001 Paul Teo the then finance manager who had replaced Tang directed George Chong to rework the valuations to about 700 000 which allow us to also capitalize all VHLP s owing as at to date Both credit notes were plainly a sham There was no need to purchase any assets VHLS already owned and managed these entities The true purpose of these credit notes was to reduce the outstandings due from Vitaton and VHLP without exposing the charade It should be noted that there is congruence between part of the 600 000 paid by the defendant on behalf of the owners and the 500 000 he initially sought to write off in respect of VHLP s accounts The defendant cannot now rely on the ostensible approval for these arrangements he had procured from the boards of VHLS and or VLS Any such approval was procured entirely through deceit and is to that extent wholly ineffective in shielding the defendant from the consequences of his conduct 41 There is yet another matter that merits mention The Indonesian and Philippines entities have two essential and telltale attributes They use the Vita trade name and deal only with VHGC supplied products It is impossible to permit the defendant momentary lapses in allowing the utilisation of the Vita trade name in circumstances that would subsequently entail a ransom be paid This was not an instance of Homer nodding The defendant struck me as nothing less than an astute businessman 42 In the circumstances I unreservedly accept the plaintiffs contention that VHLP like Vitaton was a de facto subsidiary of VHLS I do not accept the alternative contention that the defendant owned VHLP and surreptitiously conducted its business entirely for his direct benefit The benefit was indirect He had installed in the Philippines an arrangement similar to the Indonesian arrangement The intention was again to create the illusion to outside investors that a viable business arrangement had taken root in the Philippines Inter company debts were reflected in VHLS s accounts at all material times as sales and booked as third party receivables This was nothing short of a deception While I am prepared to accept that the defendant may have believed at some stage that the activities in Philippines were a prudent long term investment decision they were never disclosed as such DMG Nomura and VLS were in turn actively and fraudulently misled into thinking that VHLS had an important and successful business relationship with a Philippine entity 43 VHLS has a further claim based on outstandings due from Zuellig Pharma Corporation Philippines Zuellig Philippines As pleaded the claim is principally anchored to an alleged breach of duty by the defendant in failing to ensure collection of payments for products sold to them There is a further subsidiary allegation that he caused Zuellig Philippines to advance funds to VHLP Ho s testimony on this issue is unsatisfactory as he failed to adequately understand the relationship between the various entities The claim is further undermined by reason of settlement arrangements VHLS entered into with the Zuellig group which allowed them to have a fresh clean start for 2003 Gerald Adams the current managing director of VLS confirmed that the plaintiffs were averse to taking steps to collect debts from inter alia Zuellig Philippines because of the greater relationship the parties had Given this stance it would not be appropriate for the plaintiffs to maintain this claim against the defendant It also appears that the plaintiffs have strayed beyond their pleadings in pressing this claim which has some degree of overlap with the claim apropos VHLP Taiwan 44 The plaintiffs have four different claims arising from business transactions in Taiwan There are four separate entities involved Weider Pharma Taiwan Co Ltd Weider Baillian Enterprises Baillian Dragon Pharmaceutical Company Ltd Dragon and Zuellig Pharma Inc Taiwan Zuellig Taiwan For convenience I will deal only with the Weider issues under this head The main plank in respect of the plaintiffs claims for the other entities is the defendant s failure to act diligently or reasonably in collecting longstanding receivables The other claims are also subsumed under VLS s claim based on the defendant s alleged breach es of his contractual warranties and undertakings 45 The plaintiffs claims in respect of Weider largely mirror the charges levelled in respect of the business arrangements VHGC had with Vitaton and VHLP It is alleged that Weider too was a de facto subsidiary and that this was concealed from the plaintiffs and in particular VLS However it bears mention that the defendant s stance on this issue is quite the opposite of his position on Vitaton and VHLP In his defence he admits that Weider was indeed a de facto subsidiary of VHLS established to assist in the facilitation of its sales to Zuellig Taiwan In support of his position several witnesses were called by the defence to give evidence on the arrangements in Taiwan and the genesis of some rather controversial business practices This too was an entirely different stance from the defendant s approach in addressing the claims apropos Vitaton and VHLP where he was effectively the sole factual witness called in rebuttal 46 Weider was created because Zuellig Taiwan had concerns about dealing directly with VHLS There are no real issues pertaining to the legitimacy of VHLS s transactions with Zuellig Taiwan The Zuellig group continues to maintain a sound business relationship with the plaintiffs VHLS had in the course of time under declared the price of goods it shipped to Zuellig Taiwan Zuellig Taiwan discovered that Sophia Cheng Sophia VHLS s Taiwan representative had forged its company stamp to facilitate this Not wanting to be implicated by dealing directly with VHLS Zuellig Taiwan thereafter required that it interpose an intermediary Sophia then established Weider using family members as directors Indeed one of the directors was Sophia s four year old son Clearly Weider was another charade That much is undisputed at least for this aspect of VHLS s operations The question remains however whether this was another charade that the defendant both created and concealed from the plaintiffs The plaintiffs plead that the true nature of Weider was concealed from and or misrepresented to VLS their directors the plaintiffs officers employees It is axiomatic that the burden to establish these facts lies on the plaintiffs 47 It must be observed at the outset that apart from the defendant s pleaded position there are other significant differences between Weider on the one hand and Vitaton and VHLP on the other First Weider was only incorporated after VLS bought into VHGC It was established in March 2001 Secondly the defendant quite clearly made no attempt to mask this arrangement from VHGC s employees and officers Perhaps because all the investors were already in unlike the establishment of Vitaton and VHLP where clandestine arrangements were initiated concluded and concealed by the defendant Weider enjoyed an altogether different gestation The problems pertaining to the business operations and sales in Taiwan were well documented and freely discussed among the management of VHGC Thirdly and most importantly I find that no attempt was made to conceal the peculiar structure and arrangements from VLS David Allison the plaintiffs then group financial manager and VLS s company secretary was privy to the Weider arrangements Indeed he was present at a crucial meeting on 3 July 2001 where it was minuted that to resolve Zuellig s issues management agrees to set up a company for import purposes Sophia set up Weider in 2001 for the purposes of importing goods to be sold to Zuellig This company is owned by Sophia and family It should also be noted that in May 2001 the defendant had personally asked Allison to look into the Taiwan situation and asked him to follow up with all concerned on this matter as well There was no suggestion from plaintiffs counsel that the defendant had asked any of VHGC s staff involved in its Taiwan business to conceal the true nature of the Weider operations from Allison or VLS This was not a clandestinely evolved arrangement like Vitaton and VHLP 48 There are obviously a number of improprieties pertaining to VHGC s Taiwan operations Notwithstanding the responsibility for this cannot be brought to bear upon the defendant The plaintiffs are limited by their narrowly pleaded case on this issue Unlike the instances of Vitaton and VHLP Weider s origins and structure were an open secret within the plaintiffs I also take into account that in 2001 the defendant was no longer engaged in the day to day operations of VHLS particularly after Lam s arrival as a result of his heavy engagements outside Singapore Granting that he clearly had the final say with regard to all decisions he nevertheless assumed a more broad brush approach upon Lam s appointment allowing the minutiae to be addressed by others in VHLS s management He quite reasonably left it to them to resolve this issue in the interests of VHLS As for the plaintiffs claim that Weider was another improper operation that was wilfully concealed from them such a claim is untenable and fails Indeed Allison and Lam knew about this arrangement and were attempting to resolve the unsatisfactory position Unlike the earlier episodes it cannot be fairly said that the defendant initiated and concealed this arrangement Malaysia 49 The defendant admits that he inflated the receivables due from Zuellig Pharma Malaysia Zuellig Malaysia He signed a letter dated 31 March 2001 unilaterally increasing the price of certain products already sold to Zuellig Malaysia The letter was backdated 50 The defendant conceded that the price increase of 20 was effected to ensure that the planned half year results of VLS could be achieved He also asserted that Henry Townsing Townsing another director of VLS had acquiesced in this exercise Leaving aside the truth of this assertion it must be observed that this position was neither pleaded nor put to Townsing when he gave evidence I therefore leave this issue open In the final analysis the fact remains that the defendant initiated and effected this exercise in creative accounting to dress up VHGC s accounts This is wholly unacceptable conduct for which the defendant as managing director is personally answerable Even if Townsing played a role in this abject pantomime of creative accounting the defendant cannot shirk his responsibility 51 Ho gave evidence that the plaintiffs loss arising from this exercise was the precise amount of the improper increase Despite being queried by me he adamantly insisted that this loss was both theoretically and practically recoverable Ho s evidence on this point does not stand up to scrutiny If the increase was not justified in the first instance how could he claim the plaintiffs had been damaged to the extent of the purported increase He did not strike me as an objective witness on this and indeed some other issues see 87 to 90 Counsel for the plaintiffs to his credit neither pursued this line of quantification nor attempted to shore up his expert s untenable stance He submitted that the damage recoverable by the plaintiffs as a consequence of this exercise was limited to excessive taxes paid and the costs of restating the accounts However as no evidence was led by the plaintiffs to quantify these claims no award is called for Ordering excessive stock 52 On 26 November 1998 the defendant signed a trademark licence agreement with Sunkist Growers pursuant to which VHLS was allowed to manufacture market and sell certain Sunkist products In June 2000 the defendant arranged for VCL to enter into a distribution agreement with Nestlé Australia for the distribution of Nestlé products The plaintiffs have pleaded that in breach of his fiduciary duties the defendant caused VHLS to purchase excessive amounts of Sunkist and Nestlé products which it had no reasonable prospect of selling The defendant s case is that in so far as the Sunkist agreement is concerned there was a prior commitment to purchase minimum quantities on an annual basis This estimation had been reasonably arrived at As for the Nestlé arrangement the products were ordered on the basis of sales forecasts made by the various country managers in VHGC 53 In their submissions the plaintiffs contend that the Sunkist and Nestlé disaster should be seen in the context of the defendant s attempts to inflate the financial performance of VHLS As a consequence the plaintiffs suffered losses by being forced to write off 1 734 434 worth of Sunkist and Nestlé products It is also asserted that the defendant signed the Sunkist agreement without due diligence and committed VHLS to overly aggressive sales targets For good measure it is further maintained that he failed to supervise the various country managers in relation to these matters None of these assertions was pleaded Despite a request for further and better particulars of the statement of claim on this issue the plaintiffs case remained unsatisfactorily threadbare The defendant has rightly taken serious objection to this There appears to be a chasm between the plaintiffs pleaded case on an alleged breach of fiduciary duties in effecting the orders and the re crafted case in submissions hinging on the absence of due diligence in entering into the relevant agreements The particularity of a pleaded claim should invariably be commensurate with the seriousness and complexity of the claims being made By omitting to detail the basis on which they allege there were no reasonable sales prospects the plaintiffs failed to adequately plead these claims There is merit in the defence counsel s contention that the plaintiffs changed horses in mid stream on this issue 54 There is another reason why the plaintiffs claim under this head must fail Alex Chen Alex VHLS s former business manager in charge of Sunkist and Nestlé products gave evidence that he liaised with the various country managers on the orders before they were placed I found him to be a credible and forthright witness His evidence though not a model of perfection was largely corroborated by contemporaneous documents and correspondence No evidence was led to show that either he or the other country managers had been asked to manipulate the sales and conjure up orders Leaving aside the issue of pleadings which does not appear capable of being satisfactorily resolved the concatenation of circumstances precludes any finding of fraudulent conduct on the part of the defendant on this issue 55 With the benefit of hindsight there are facets of the defendant s oversight or lack of foresight which can be criticised Arguably he could have paid closer attention to the sales figures and the concurrent issues This does not by itself merit a finding of liability based on lack of due diligence against the defendant I do not think it was unreasonable for him to rely on Alex and the country managers The temptation to judge the defendant with the benefit of hindsight for a commercial decision gone awry should be resisted 56 In any event the plaintiffs have not clearly spelt out a case for visiting these losses on the defendant The damages claimed by the plaintiffs for these losses rely primarily on Ho s rather unsatisfactory evidence See 87 to 90 He concluded that the write offs which amounted to 59 4 of the total sales inevitably meant that the orders were excessive I do not find this contention particularly helpful I am not prepared to conclude that the defendant entered into these agreements because he was motivated by improper considerations There appears to be adequate business consideration grounded on management input experience and market cum development potential leading to these forays and the agreements Clearly all of this now appears to have been over optimistic and somewhat excessive However minimum portions had already been committed to and VHLS had no choice but to make the best out of an unhappy situation Excessive salaries paid to defendant s brother and wife 57 The plaintiffs claim that the defendant s brother Seng Hock had been improperly and excessively remunerated for the period from August 2001 to February 2002 It is undisputed that Seng Hock ceased attending VHLS s offices from August 2001 He was also not included or named by the defendant as an employee in an organisation chart sent by him to Lam on 6 May 2001 If indeed he continued to be an employee of VHLS or VHGC I find it wholly inexplicable that the defendant did not deal with this issue in a direct manner I accept the plaintiffs further contention that no proper disclosure of his alleged role qua employee of VHLS was made to them The private arrangement the defendant had directly arrived at with his brother appears to be shrouded in mystery and clouded by uncertainty The defendant did not take steps to adequately bring this matter to the attention of the other directors before sanctioning the payment of his brother s remuneration VLS had reporting obligations to the ASX in so far as there was any remuneration paid to the family members I accept Vanda s and Lam s evidence that the employment of relatives was an issue of niggling concern for them which the defendant held out as having been resolved by his brother s departure from VHLS qua employee The amount to be reimbursed by the defendant under this claim is 60 389 58 There is a further claim by the plaintiffs in respect of the defendant s wife Michelle Nicholas Michelle It is alleged that Michelle s salary which had been adjusted downwards to address certain listing requirements on disclosure had subsequently been restored without proper authorisation I do not think it is legitimate for the plaintiffs to maintain this petty claim Soon after a remuneration committee meeting on 20 March 2001 Tang sent an e mail to David Allison asserting his belief that the committee had approved the restoration of Michelle s pay Neither Allison nor Townsing responded to this Townsing now purports that there were some further discussions which led to a contrary position These alleged discussions were not documented Allison has not given any satisfactory response why he did not expressly contradict Tang s belief and assertion as recorded in this e mail It must also be noted that the relationship between the plaintiffs and the defendant at that juncture was cordial I therefore find the plaintiffs complaint here unsubstantiated The sum involved is 42 790 There was no attempt by either Tang or the defendant to conceal the restoration of this rather minor pay adjustment The plaintiffs temptation to tar them for all manner of irregularities should not be exercised extravagantly The car purchase 59 On 5 March 2000 the directors of VLS resolved that any capital expenditure within VHGC in excess of 200 000 required board approval It is accepted that the defendant was aware of this given that he was present when the resolution was passed 60 In April 2001 the defendant caused VHLS to purchase a Mercedes S320 which cost 357 000 The plaintiffs assert that it was only noticed around 25 February 2002 that the capital expenditure threshold had been exceeded through this purchase 61 The defendant asserts that Vanda and Townsing had seen the car in Singapore on more than a few occasions when they visited Singapore He says they knew of the purchase and had by their conduct assented to the purchase Vanda and Townsing deny knowledge both of the purchase using company s funds and of the car s value It is axiomatic that even if the other directors knew of the purchase the real issue is whether the defendant openly disclosed to them the purchase price It is clear that he did not seek the board s prior consent before the purchase Was VLS s board subsequently informed of the purchase and did it ratify the purchase by its conduct 62 The defendant finally asserts that in any event he had disclosed the purchase of the car in the management reporting package dated 31 May 2001 which Tang had sent to VLS s board The schedule dealing with Property plant equipment as at 31 May 2001 included a section captioned Major addition 5 200 Description Category Amount SM BGT Car Mercedes 5320L Motor Vehicle 357 000 The plaintiffs complain that this information is hidden among a mass of corporate information I disagree Any reasonable director looking at the information would have immediately realised that disclosure had been made of a recent purchase of the car for the defendant It does not appear to me that Tang and the defendant were trying to camouflage this information The plaintiffs complaint here is again redolent of overkill 63 In the extant circumstances a resolution to approve this purchase was not needed The records of the company coupled with the testimonies adduced ineluctably lead to the conclusion that the board of VLS had been run rather informally Not every decision of substance warranted a resolution Business was often transacted over the phone or through e mails Board resolutions and papers were not required for all transactions and or purchases The relationship between board members was such that the board operated on the basis of disclosure rather than a rigid adherence to documentation Considering the evidence I also accept the defendant s assertion that he disclosed this fact orally to Vanda and Townsing It must be borne in mind that their relationship at that juncture was good There was no need for the purchase to be concealed I find that the VLS board not only knew of the purchase of the car but approved it informally by their conduct Breach of share sale agreement 64 VLS has pleaded a further independent cause of action against the defendant based on the share sale agreement SSA made inter alia between them on 29 October 1999 This springs from several alleged breaches by the defendant of warranties and obligations he undertook in the SSA 65 The SSA contains specific warranties made by the defendant that the VCL s financial statements at the material dates presented a true and fair view of the profit or loss of the company and the trade debts are good debts and will produce the full amount of the debts without deduction It is not in dispute that a finding of a breach will entail personal liability on the part of the defendant to repair the consequences 66 The trade debts and receivables owing to VHLS as at the completion date ie on 3 February 2000 was 12 762 722 From that sum the plaintiffs assert the amount of 2 206 189 87 still remains unpaid Given that Ho s findings on this issue were neither contradicted by Tim Reid Reid the defence expert nor tested in cross examination I accept them see 90 The outstanding sums as identified by Ho are S N Name Amount S 1 Baillian Enterprise Ltd 197 564 45 2 Zuellig Pharma Inc Taiwan 298 959 12 3 PT Doves Soper Indonesia 36 551 40 4 PT Dayasembada Swadarma 8 928 54 5 PT Rajawali Int l Retail 10 460 87 6 PT Muara Sehat Permai 12 717 92 7 PT Caturabadi Jayasakti 746 98 8 Barclay Marketing Pte Ltd 7 615 00 9 CV Prima International Melawai 2 481 50 10 Dragon Pharmaceutical Co Ltd 148 403 77 11 Kenda S Pte Ltd 258 75 12 Takehaya Co Ltd 360 00 13 PT Vitaton 1 025 546 06 14 VHLP 618 227 63 2 368 821 99 67 It is axiomatic that the defendant is liable in full for all amounts warranted as good debts from Vitaton and from VHLP Given that these debts do not exist it is immaterial whether they can be properly characterised as good debts in short they are neither real nor genuine let alone good The warranty was patently false 68 In relation to the Zuellig Taiwan debts it cannot really be argued that there had been an actual vivid portrayal by the defendant qua vendor in the SSA that this was a genuine debt which would be paid without deduction It is not open to him now to rely on the complex set off arrangements between Weider and Zuellig to wipe out this obligation It is also clear that the Barclay Baillian and other debts referred to in the list of receivables remain outstanding and cannot now be satisfied by any means reasonable or otherwise More than four years have passed since these warranties were given and the defendant has been unable to adduce a scintilla of credible evidence as to what other steps the plaintiffs could plausibly have taken or can now take to recover these amounts VLS is entitled to recover the losses pleaded under this head The disclosure letter 69 The defendant claims that pursuant to a disclosure letter dated 26 October 1999 his obligation to make good some 1 3m of debts purportedly due from Vitaton and VHLP has been effectively avoided The disclosure letter it is said discloses the intention to set off 1 3m worth of debts from Vitaton and VHLP Pursuant to the terms of the SSA and or subsequent ratification by the plaintiffs it is asserted that these obligations have now been extinguished 70 Generally speaking the rationale of disclosure letters is well captured by the expression confess and avoid The essence of any disclosure letter subject to the terms of its contractual setting is candour Indeed the SSA itself refers only to the avoidance of exceptions fairly disclosed in a disclosure letter The facts disclosed in the purported disclosure letter sent on behalf of the defendant wilfully misstated the relationship between VHLS on the one hand and Vitaton and VHLP on the other What did the defendant disclose That there would be an arrangement where valuable consideration would be given for the setting of these debts The so called consideration it should be reiterated was inter alia the purchase of the relevant product licences and networks which VHLS already had control of 71 Quite apart from this fundamental issue that undermines the thrust of the defendant s contention I accept the plaintiffs submissions that the facts pertaining to the sending and receipt of the disclosure letter have neither been properly pleaded nor proved by the defendant For these reasons the disclosure letter does not assist the defendant in diminishing his liability to VLS 72 The defendant also contends that the plaintiffs are estopped from denying the applicability and or validity of the disclosure letter by reason of their subsequent acceptance of the write offs for Vitaton and VHLP For good measure it is also pleaded that the plaintiffs failed to object to the write off Considerable ingenuity was exercised by defendant s counsel in extrapolating the various facets of this contention and in dissecting the available evidence In my view the defendant s contentions are wholly misplaced Having concluded that the set off arrangements were a sham I do not see how the defendant can sustain an argument that the plaintiffs had consented to this sham It is a remarkable argument and ought to be dismissed in limine In any event it seems clear to me that there was no such agreement prior to the signing of the SSA Indeed if there was such an understanding why was the disclosure letter necessary Furthermore the defendant s reliance on a cryptic defence of capitalisation is bereft of credible particulars and should be dismissed altogether For good measure I should also add that I accept Townsing s and one Alexander Beard s evidence on this issue Any inconsistencies in their evidence should also be interpreted and viewed in light of their mistaken state of knowledge at the material time s Finally even if VLS were not contractually entitled to maintain this claim the defendant would be unable to fend off claims for the identical amounts apropos the vehicle of VHLS It is also noteworthy that in an e mail dated 14 March 2002 the defendant confirmed to Vanda Indonesian and Philippines debt Henry has reminded me of the conditions for the sale of Vita Health to VLS I will stand by all legal obligations pertaining to these debts emphasis added This is an acknowledgment made by the defendant after the claim was made known to him His spirited attempts to now resile from his earlier solemn undertakings are simply put a misconceived afterthought Miscellaneous claims 73 The plaintiffs have also included a catalogue of claims pertaining to breach es of warranties These claims relate to the lack of disclosure of de facto control of Vitaton and VHLP related party transactions with Vitaton and VHLP and the defendant s alleged failure to staunch infringing activities by the Malaysian country manager Khoo Seng Kang They invite the court to direct that damages be assessed for these losses In so far as the additional claims pertaining to Vitaton and VHLP are concerned these appear to overlap with the preceding claim for receivables It is clear that the plaintiffs did not wholly rely on the purported collectability of these good debts hence the personal indemnities required from the defendant The warranty in the SSA however does not purport to embrace Khoo s infringing activities In this connection I also note that separate claims have already been made in Malaysia in respect of these alleged breaches There does not appear in these proceedings to be any cogent evidence directly and personally implicating the defendant in this connection While his management may be open to criticism this alone does not appear to be capable of crystallising into a basis for a contractual tortious or fiduciary claim 74 There is also a claim by VCL for an outstanding loan of 2 564 66 purportedly extended to the defendant This is not satisfactorily evidenced in Ho s testimony or documented and is disallowed Misrepresentation 75 Under this head VSL assert that they were fraudulently induced to enter into the SSA by the falsely portrayed status of Vitaton and VHLP They plead that there was an overstatement of receivables and concealment of bad or doubtful debts Having relied on these misrepresentations VSL says it has suffered loss es and is entitled to damages It is asserted that the value of VCL has been diminished given that the independent network in Indonesia and Philippines does not exist 76 VSL does not ask for the SSA to be rescinded It asks that damages be awarded in lieu of rescission pursuant to s 2 2 of the Misrepresentation Act Cap 390 1994 Rev Ed Their expert has not specifically quantified the loss under this head despite an invitation by the court to produce evidence that might assist In the course of the proceedings I had asked the plaintiffs whether their expert could present a financial statement reflecting the true financial position of VHGC if the purported sales figures of Vitaton and VHLP had not been included in VHGC s financial statements at the material time Counsel for the plaintiffs informed the court that it could not be done at that juncture as the plaintiffs no longer had access to the accounts of Vitaton and VHLP Granting that this could not have been done at the hearing stage I am not satisfied why it could not be prepared earlier The plaintiffs appear to have had Dr Pat s and Dr Gabiola s co operation in prosecuting their present claim against the defendant With diligence Ho could have utilised this method or some other approach to give evidence as to how this head of damages ought to be assessed A line has to be drawn Given that the plaintiffs have had the opportunity both before these proceedings and in the course of these lengthy proceedings to adduce additional evidence it is not appropriate that they be accorded a further opportunity to repair their claim by having damages assessed separately Interestingly the plaintiffs concede in their submissions that general damages for such misrepresentation are difficult to quantify in full 77 In any event I am not satisfied that having recovered their losses under the indemnity VLS can really mount a further claim for misrepresentation independent of VHLS s claims for losses caused by operations in Indonesia and the Philippines To the extent that there is an overlap it is preferable to deal with such a claim as a VHLS claim see 99 to 104 It must also be emphasised that Singapore and Malaysia have proved to be viable and valuable markets for the plaintiffs and no valid complaints have been made out in respect of business operations in these markets Return of bonus shares 78 Clause 8 of the SSA obliged VLS to issue additional shares to inter alia the defendant if certain net profit targets were reached by VCL in 2000 and 2001 These profit targets were reached assisted in no small measure by misstatements of the actual sales to Zuellig Malaysia for financial year 2000 and other irregularities The defendant contends that there was no reason to inflate profits for the financial year 2000 because he could and would have earned the additional shares in 2001 This is a strange argument It cannot really be denied that the issue of the bonus shares was premised on the achievement of a particular profit target for that financial year Quite apart from the misstatement of the Zuellig Malaysia share profits in 2000 I am constrained to take notice of the various misstatements and chicanery that the defendant was party to in the preparation of the accounts of VCL I am prepared to conclude on the basis of the evidence that the profits of VCL were misstated not only in 2001 but the preceding year as well when the defendant

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  • Chew Kong Huat and Others v Ricwil (Singapore) Pte Ltd[2000] 1 SLR 385; [1999] SGCA 90
    its part of the agreement and to pay off the outstanding hire purchase instalments Mr Chew had allowed his interest in Sintalow to influence his actions as director of Ricwil It prevented him from acting in accordance with his fiduciary duties and resulted in Ricwil being deprived of the ownership of the machinery 11 The appellants challenge this conclusion of the trial judge First it is submitted on their behalf that in relation to Ricwil s loss of the ownership of the machinery the dominant or effective cause was not Mr Chew s breach of fiduciary duties but Ricwil s complete indifference to the fate of the machinery during the period between 15 January 1996 and 25 June 1996 when there were opportunities for Ricwil to acquire the machinery by making payment of the balance sum due to DBS Finance As no payment was made by Ricwil the machinery was repossessed on 25 June 1996 by DBS Finance pursuant to the terms of the hire purchase agreement made between them and Kailay Thermosel subsequently purchased the machinery only after it had been repossessed by DBS Finance Secondly Sintalow was under no obligation to Ricwil either to enter into the arrangement with Kailay on 13 December 1995 or to pay off the balance of the instalments due to DBS Finance Nor was Mr Chew personally 12 We find some force in this argument We think that the trial judge has misdirected himself on certain material facts in relation to the findings he made It is clear to us that the transaction relating to the acquisition of the machinery from Kailay was arranged by Mr Chew on behalf of Ricwil with the intention of recovering in kind some moneys from Kailay The purchase price of 325 000 for the machinery was to be paid by setting it off against part of the amount owed by Kailay to Ricwil Under the agreement made with Kailay the machinery was to be free from all encumbrances However unknown to Mr Chew the machinery was still under hire purchase from DBS Finance and there were outstanding payments to be made which Kailay was unable to pay Mr Chew then proceeded to make further arrangements with Kailay and this time he made use of Sintalow presumably because Kailay also owed Sintalow considerable sums of moneys He made two arrangements as we have narrated Under the second arrangement made on or about 13 December 1995 Sintalow in return for certain pipes and fittings would among other things pay to DBS Finance the outstanding instalments under the hire purchase agreement For reasons which the trial judge did not accept this arrangement was not implemented by Sintalow it did not pay the sum as agreed The trial judge found at para 49 of his grounds of judgment that Ricwil was put in a disadvantageous position while Sintalow which bought the materials from Kailay for 100 000 of which 70 268 42 was to be paid to DBS Finance benefitted by being relieved of this obligation The trial judge accepted the evidence of one Mr Chai Meng Shep the then project manager of Kailay and found that pursuant to the agreement of 13 December 1995 Sintalow did take delivery of the materials agreed to be sold by Kailay and that Sintalow did not perform the agreement by making the payment to DBS Finance as agreed with Kailay The trial judge was entitled to make this finding However he fell into error in concluding that Sintalow by not performing the agreement made with Kailay had put Ricwil in a disadvantageous position As between Kailay and Sintalow the latter was clearly in breach of the agreement made on 13 December 1995 as having taken the materials from Kailay it failed or refused to pay to DBS Finance the sum of 70 268 42 However that obligation was owed to Kailay and not to Ricwil Sintalow was under no obligation to Ricwil to pay that amount Ricwil itself purchased the machinery from Kailay for 325 000 and under the agreement the machinery was to be free from all encumbrances but as it turned out it was still on hire purchase from DBS Finance and there was a remaining sum of 70 268 42 to be paid to DBS Finance In these circumstances if Ricwil intended to retain the machinery it would have to pay the sum to DBS Finance If this sum was not paid as it was not DBS Finance would be entitled to repossess the machinery which eventually they did Mr Chew vis à vis Ricwil was under no obligation to use his or Sintalow s funds to effect the payment to DBS Finance 13 That was not all A meeting of the board of directors of Ricwil was convened for 15 January 1996 and the first item on the agenda was the takeover of machinery of Kailay S Limited At the meeting the transaction of the acquisition of the duct fabricating machinery from Kailay was discussed Mr Chew informed the board that in view of the huge amount owed by Kailay to Ricwil and impending liquidity crisis of Kailay he had acted on his own and acquired from Kailay the machinery on behalf of Ricwil at the price of 325 000 and that the purchase was a bargain This sum was to be paid by setting it off against part of the moneys owed by Kailay to Ricwil and there was still an outstanding sum of about 70 000 which Ricwil had to pay to DBS Finance He further informed the board that should Ricwil decline to take the machinery Sintalow would buy it It appeared that the agreement made between Kailay and Ricwil was tabled at the meeting The chairman of the board Mr Low Chok Yin commented that the purchase of the machinery costing 325 000 warranted the board s approval as that was specifically provided for in the joint venture agreement Mr Chew defended the acquisition by saying that it was only a contra of account and not a purchase To this another director Ms Judy Kuan responded that despite the fact that the price of the machinery was to be paid by way of a set off against the moneys owed by Kailay it was nevertheless a purchase and approval of the board was required The board eventually decided to defer its decision on the machinery until it had obtained legal opinion on the documents 14 Further at that meeting Mr Chew and Ms Aw tendered their resignations as managing director and director respectively which were to take effect three months from that date Effectively as from 16 January 1996 the day to day running of Ricwil was taken over by another director Mr Stanley Wong who prior to that was the general manager of Sintalow from which position he resigned 15 The trial judge found that Mr Chew did not disclose fully the circumstances surrounding the undated letters which he found were a sham He said at para 58 Mr Chew did not make a full disclosure of the circumstances surrounding the undated letters The agreements evidenced by them were shams as I have found Ricwil did not have to pay DBS Finance If they were not shams then they were inconsistent with each other and could not have been valid all at the same time An explanation was called for None was given We agree that Mr Chew did not make full disclosure at the meeting However with respect we are unable to agree with the trial judge that Ricwil did not have to pay DBS Finance The trial judge continued at para 58 No arrangements were made at any time after the directors meeting or at all for DBS Finance to be paid and if such arrangements were made they were not carried out Mr Chew allowed his interests in Sintalow to influence his actions as a director of Ricwil He failed to act in the interest of Ricwil and Ricwil was deprived of the ownership of the machine With respect we are unable to agree with this conclusion of the trial judge No arrangement was made at any time after the board meeting for DBS Finance to be paid because the board rightly or wrongly had decided to defer its decision until after legal opinion on the documents was obtained As we have recounted after the board meeting Mr Chew was not effectively in control of the day to day management of Ricwil thenceforth Mr Stanley Wong was in charge 16 There were further significant events which occurred after the board meeting which appeared to have escaped the attention of the trial judge First on 11 April 1996 DBS Finance wrote a letter to Ricwil marked for the attention of Mr Chew offering to provide a hire purchase facility of 68 690 01 repayable over 24 months to enable Ricwil to pay off the outstanding amount still owing under the hire purchase agreement made with Kailay On 23 April 1996 Mr Chew forwarded this letter to Ricwil marked for the attention of Mr Stanley Wong Nothing appeared to have been done in response to the offer of DBS Finance and no action was taken by Mr Stanley Wong or anyone on behalf of Ricwil in relation to the payment of the sum outstanding in order to obtain the ownership of the machinery 17 Secondly in mid June 1996 Ricwil moved out of the premises No 8 Fan Yoong Road However the machinery was not taken along and no request then or subsequently was made by Ricwil to take the machinery Those in charge of Ricwil appeared to be disinterested in acquiring the machinery 18 Lastly on 19 June 1996 officers from DBS Finance showed up at No 8 Fan Yoong Road and gave notice of intention to repossess the machinery On 25 June 1996 Chew again wrote to Mr Stanley Wong enclosing a letter from DBS Finance which stated that repossession was going to take place and Mr Chew asked why the situation had been allowed to deteriorate to such an extent Ricwil did not respond to the letters and did nothing whatsoever with respect to the acquisition of the machinery or the payment of the outstanding sum due to DBS Finance 19 The machinery was subsequently repossessed by DBS Finance and was put up for sale in a public auction in July 1996 As the bids were low DBS Finance did not accept any of them DBS Finance subsequently sold the machinery to Thermosel on 8 July 1996 at the price of 60 000 20 In all the circumstances we do not see how Mr Chew could be held responsible for Ricwil s loss of the ownership of the machinery The failure to acquire the machinery was clearly not due to anything done or omitted to be done by Mr Chew On the contrary Mr Chew was interested in acquiring the machinery for Ricwil but the decision taken by Ricwil s board of directors on 15 January 1996 was that the acquisition should be deferred pending legal opinion on the documents It is unclear whether or not any legal opinion was indeed sought on the documents but the fact remained that no action was taken with reference to the acquisition of the machinery or payment of the outstanding sum to DBS Finance After the board meeting on 15 January 1996 Mr Chew was no longer effectively in control of Ricwil s affairs Even if he were still in control he could not proceed further to pay the outstanding sum to DBS Finance or do anything towards acquiring the machinery as the board had taken a clear stand that such acquisition required its approval and the board had not given any approval instead the board had decided to defer its decision on the machinery after legal advice was sought The board or those in charge of the affairs of Ricwil at the time also took no action in relation to the offer of a new scheme of payments made by DBS Finance that was made on 23 April 1996 Ricwil also appeared not to assert any ownership over the machinery when it left the premises No 8 Fan Yoong Road in June 1996 and did not even respond to the notice of repossession sent by DBS Finance on 25 June 1996 In our view Ricwil s failure to acquire the machinery was not caused by and was not attributable in any way to any breach of duty on the part of Mr Chew as a director of Ricwil but was due essentially to the indifference to or disinterestedness in the machinery on the part of the board or those in charge of the affairs of Ricwil at the material time At any rate it seems to us that the board did not at any time recognise or accept that Ricwil owned the machinery in the first place 21 In our judgment Mr Chew did not commit a breach of duty as a director of Ricwil in relation to the machinery and was not responsible for its loss as a result of the repossession thereof by DBS Finance While it is true that Mr Chew did not at the board meeting make full disclosure of the entire circumstances relating to the arrangement whereby Sintalow would pay the sum of 70 268 42 to DBS Finance in return for certain materials from Kailay this failure was not a breach of duty as regards the acquisition of the machinery The two matters were not connected As such Ricwil could not be said to have been responsible for the loss of the machinery 22 Ricwil s claim for damages against Mr Chew for being deprived of the ownership of the machinery therefore fails Accordingly the order below awarding to Ricwil damages to be assessed for the loss of the ownership of the machinery cannot stand and must be set aside For the same reasons the claim against Thermosel for an account of profit for the use of the machinery also fails In the circumstances that had transpired Thermosel purchased the machinery from DBS Finance in an arm s length transaction free from any claim of Ricwil and cannot be called upon to account to Ricwil for any profits derived from its use of the machinery It follows that the order requiring Thermosel to give an account of the profits it made with respect to its use of the machinery must also be set aside Contract with Speed Air 23 The next area of contention relates to the contracts for the manufacture and supply of certain ducts to Speed Air The orders for these ducts were placed by Speed Air with Ricwil sometime in September 1995 In these orders Ricwil s stationery and order forms were used It was claimed by Ricwil that these contracts were made with and were performed by Ricwil and that subsequently Mr Chew and Ms Aw caused these contracts to be cancelled and transferred to Thermosel As a result these contracts had been diverted from Ricwil to Thermosel and Ricwil had thereby lost the benefit of these contracts 24 The trial judge found that the orders for the manufacture of ducts were placed by Speed Air with Ricwil not Thermosel The contract was performed by Ricwil using its materials and goods After this had been done Mr Chew and Ms Aw caused the contracts to be cancelled and transferred to Thermosel by issuing Thermosel s delivery orders in place of Ricwil s thus enabling Thermosel to receive the profits of the contracts without providing the resources The trial judge held at para 26 28 26 In August and September 1995 Thermosel had no employees of its own although it took on Mr Ding from Ricwil in September 1995 It had no inventory It had no money The business with Speed Air was business of the kind that Ricwil could undertake 27 Ricwil s forms of delivery order were used in each case but not because Thermosel had no stationery of its own It had its own stationery for the purpose of the quotations I see no reason why it did not have delivery order forms I see no reason why Ricwil s forms were not overstamped with Thermosel s name if they were to have been for Thermosel s use I think Ricwil s forms were used because the fabrication work was done by Ricwil The materials used came from Ricwil The goods were drawn from Ricwil s inventory The business with Speed Air was undertaken by Ricwil 28 I find that all the contracts particularised in para 19 of the particulars under para 10 of the statement of claim were contracts made by Ricwil with its customer Speed Air I find that after these contracts had been performed by delivery of the goods sold Mr Chew and Ms Aw caused them to be cancelled and transferred to Thermosel by issuing Thermosel s delivery orders in place of Ricwil s I find that Mr Chew and Ms Aw have failed to act in the interest of Ricwil 25 Counsel for the appellants argues that as the board of directors of Ricwil had never ratified the purchase of the machinery Ricwil had not acquired the machinery and could not claim to be in the business of duct fabrication Ricwil could therefore not have entered into the contracts with Speed Air to supply the ducts These contracts thus belonged to Thermosel even though the stationery used in relation to the placing of these orders was Ricwil s Furthermore Thermosel had already been ordered to pay Ricwil 55 149 08 as expenses incurred by Ricwil on behalf of Thermosel in the course of and for the duct fabrication business There was no appeal against this order The appellants say that if Thermosel was ordered to reimburse Ricwil this sum of money Ricwil could not at the

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  • Kumagai-Zenecon Construction Pte Ltd and Another v Low Hua Kin[2000] 2 SLR 501; [1999] SGHC 313
    of the lessor s refusal to renew for the benefit of the infant Then the trustee got the lease made to him The infant brought an action to have the lease assigned to him and for an account of the profits Lord King LC gave judgment in favour of the infant The ratio of the decision is contained in this passage If a trustee on the refusal to renew might have a lease to himself few trust estates would be renewed to cestui que use though I do not say there is a fraud in this case yet he should rather have let it run out than to have had the lease to himself This may seem hard that the trustee is the only person of all mankind who might not have the lease but it is very proper that rule should be strictly pursued and not in the least relaxed for it is very obvious what would be the consequence of letting trustees have the lease on refusal to renew to cestui que use Even before Keech v Sandford there was a basic duty governing a fiduciary a fiduciary must not in general make a profit for himself out of his position Keech v Sandford raised the standard to the highest level a fiduciary cannot have the liberty allowed to all other men The object of the rule is to prevent misuse of delegated power 15 In Hospital Products Ltd v United States Surgical Corporation 1984 156 CLR 41 Mason J stated at pp 96 97 The fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position 16 A fiduciary relationship at times may be superimposed on a prior contractual relationship such as employer employee solicitor client and partnership A company director by reason of his fiduciary position subjects himself to the above responsibilities vis à vis the source of his power He cannot use his position for his own advantage Low was not entitled to except himself from this basic rule He was in a worse position because he acted furtively vis à vis Kumagai J Low was in blatant breach of the basic as well as the higher equitable obligation 17 In these circumstances Kumagai J having filed OP 9 92 obtained a court order on 11 February 1952 appointing provisional liquidators of the JV company Originating Petition 9 92 named nine respondents The JV company the investment company and Low were three of the nine respondents It is now necessary to advert to certain important events that happened after the appointment of provisional liquidators Investment company is in trouble 18 The investment company at that time was indebted to Arab Bank plc in the sum of well over 3m The Pac Can shares were pledged as security In April 1992 the value of the Pac Can shares was low In these circumstances Arab Bank made a margin call for 30 000 As the margin call had not been met the bank threatened to sell part of the Pac Can shares which had been pledged to it This was however averted Later the Bank made another margin call for 150 000 by 6 May 1992 19 The investment company clearly was in deep financial trouble The misdeeds of the defendant were the direct cause of it 20 On 12 June 1992 Low his wife Madam Teo Yit Bee and Loo Yong Ling were removed as directors of the investment company 21 Later on 10 July 1992 an extraordinary general meeting of the members of the investment company was held One Jason Lim Cheng Tiong was present at the meeting as the proxy for Low and his wife Teo Yit Bee The following resolution was passed at the meeting That the directors or any one of the directors of the company be authorised to dispose the whole or substantially the whole of the company s undertaking in Pacific Can Investments Ltd shares pursuant to s 160 of the Companies Act Cap 50 Jason Lim abstained from voting Thus the decision to dispose of the Pac Can shares was made by the JV company without any protest from Low 22 In late June after Low and his band had been removed as directors of the investment company Arab Bank made a demand for the repayment of 3 074 040 37 The investment company was not in a position to meet the demand The defendant was made aware of the demand As it was a direct result of his misdeeds Low should have offered assistance He should have paid the bank He failed He left the investment company to fend for itself 23 The provisional liquidator on behalf of the investment company asked the bank to agree to an arranged en bloc sale The bank agreed and gave till 3 July 1992 to effect a married deal 24 The defendant was not averse to the shares being sold In fact he wanted a first right of refusal The investment company was prepared to negotiate with him It wrote to him stating that after redeeming the loan from the bank the surplus would be deposited in an interest bearing account and that the company would be liquidated after disposal of the assets 25 On 15 July 1992 the bank extended the time to effect the en bloc private sale to the following day Later the time was further extended to 20 July 1992 and subsequently to 21 July 1992 26 In these circumstances the investment company authorised brokers to source for a married deal for en block of 7 599

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  • Dayco Products Singapore Pte Ltd (in liquidation) v Ong Cheng Aik - [2004] SGHC 192
    unmeritorious attempt in his Closing Submissions to resuscitate the failed preliminary argument that questioned the liquidator s authority to bring this action That preliminary point was concluded at the early stages in favour of the plaintiff and it was on that footing that the trial proceeded on the substantive issues 5 I begin with a narration of some of the background facts The plaintiff was at all material times the wholly owned subsidiary of Dayco Products Inc a company incorporated in Delaware USA The ultimate holding company was Mark IV Industries Inc a company incorporated in Buffalo USA The subsidiaries of Mark IV Industries Inc were arranged into two separate divisions the industrial division and the automotive division Dayco Europe SRL Dayco Europe Dayco Products Inc and the plaintiff all of whom were involved in the automotive business were grouped in the automotive division Dayco Products Inc changed its name to Dayco Products LLC on 13 September 2000 6 At the relevant times John Purden Purden was the vice president and general manager of Dayco Europe for the geographical area of Europe South America Asia and Australia The defendant was in charge of the day to day management of the plaintiff The defendant reported directly to Purden who in turn reported to Kurt Johansson Kurt Johansson was the head of the Mark IV automotive division He was a director of Dayco Europe and an officer of Mark IV Industries Inc and he reported to the board of directors of Mark IV Industries Inc on the affairs of the plaintiff 7 The board of the plaintiff comprised the defendant Tan Meow Kheng the defendant s wife William P Montague Sal H Alfiero and Gerald S Lippes It is not disputed that Tan Meow Kheng was a director in name for administrative reasons The other three foreign directors were not resident in Singapore Purden explained in his Supplemental Affidavit of Evidence in Chief that Dayco Product Inc did not have its own board of directors and was controlled by Mark IV Industries Inc 8 It is common ground that on 28 June 1999 the defendant was told that the plaintiff s operations would be closed down by 31 December 1999 and the company would thereafter be voluntarily liquidated In its place a sales representative office of Dayco Europe would be set up The defendant was to stay on after 31 October 1999 on a full time basis to close down the company and transfer the existing business to the sales representative office to be headed by Josephine Yap Yap who was the sales administration manager of the plaintiff The sales representative office was set up in January 2000 In April or May 2001 the sales representative office changed its name to Dayco Aftermarket SRL 9 The parties had referred to the transactions in question as the sale of Returned Goods the Bonded Warehouse Stock and finally the Excess Singapore Stock It is not disputed that by 26 July 1999 the plaintiff and the defendant agreed to the following a To sell the Returned Goods and Bonded Warehouse Stock at a lump sum price of US 150 000 to the plaintiff s Hong Kong and or Singapore distributors b To sell the Singapore inventory ie Excess Singapore Stock at a maximum discount of 50 of inter company costs c Any offers other than a and b would have to be approved by the plaintiff 10 The Returned Goods represented stock previously sold to the plaintiff s distributor in Seoul South Korea Shin Young Trading whose sole proprietor was An Wea Don AWD AWD was a casualty of the Asian financial crisis and with the devaluation of the Korean won he had difficulties paying the plaintiff for the stock he had bought There was still an outstanding sum of US 599 032 due and owing to the plaintiff The plaintiff agreed in a letter dated 18 August 1999 to take back the stock and to refund him his earlier payment of US 144 344 The Bonded Warehouse Stock on the other hand represented stock warehoused in Singapore pending shipment to AWD 11 The plaintiff alleged that the defendant knowingly misrepresented the true value of the Returned Goods and Bonded Warehouse Stock and induced the plaintiff to sell them to Tong Chieh Trading Hong Kong Co Ltd Tong Chieh The sale to Tong Chieh evidenced by the plaintiff s invoice no 903621 dated 31 August 1999 was a sham arranged by the defendant to conceal the true nature of the sale from the plaintiff so that the defendant could deal with the goods for his own benefit The defendant used APA s name and dealt with these goods through Mark IV Singapore The Returned Goods remained in South Korea and were treated as part of Mark IV Singapore s initial capital injection for an 80 shareholding in a new Korean company that was subsequently renamed Shin Young Trading Co Ltd In the case of the Bonded Warehouse Stock Mark IV Singapore in reality sold the stock to Shin Young Trading Co Ltd for a profit 12 The Excess Singapore Stock was from the plaintiff s inventory in Singapore The allegation was that the defendant arranged for the Excess Singapore Stock to be sold to APA without disclosing his directorship and shareholding in APA Mark IV Singapore paid for the goods and later sold them at a profit to the plaintiff s distributors in the Philippines and Singapore 13 There is no difficulty here with the formulation of the law on this topic and in the analysis of the facts A director being a fiduciary cannot exercise his powers for his own benefit or gain without clearly disclosing his interest and obtaining the necessary consent The English Court of Appeal in Gwembe Valley Development Co Ltd v Koshy No 3 2004 1 BCLC 131 at 65 said The requirement of the general law is that although disclosure does not have to be made formally to the board a company director must make full disclosure to all the shareholders of all the material facts The shareholders in the company to which he owes the fiduciary duty not to make an unauthorised profit from his position must approve of or acquiesce in his profit Disclosure requirements are not confined to the nature of the director s interest they extend to disclosure of its extent including the source and scale of the profit made from his position so as to ensure that the shareholders are fully informed of the real state of things as Lord Radcliffe said in Gray v New Augarita Porcupine Mines Ltd 1952 3 DLR 1 at 14 14 Separately s 156 1 of the Companies Act Cap 50 1994 Rev Ed and sometimes the articles of a company permit a director who is interested in a proposed transaction to take the benefit of the transaction if he discloses his interest to the board and takes no part in the decision of the board on the transaction If the director makes that disclosure and abstains from taking part in the decision the validity of the transaction is not impaired 15 A failure to adequately disclose will render the director accountable to the company for the profits made from the transaction The law governing the liability to account by one in a special fiduciary relationship with another has been authoritatively declared by the House of Lords in Boardman v Phipps 1967 2 AC 46 The plaintiff must on the facts demonstrate a real sensible possibility of conflict Queensland Mines Ltd v Hudson 1978 3 ACLR 176 16 The defendant submits that there can be no breach of fiduciary duties as alleged because Purden had acquiesced in the sales as he was aware of the defendant s interest in APA and Mark IV Singapore Purden was the person whom the defendant primarily looked to for information advice and instructions relating to the conduct of the affairs and business of the plaintiff The defendant had talked to Purden about his plans after the closure of the plaintiff s Singapore office and the reasons for the incorporation of APA and Mark IV Singapore As such Purden was under a duty to communicate to the plaintiff s overseas management what he knew about APA and Mark IV Singapore Where an agent has a duty to communicate certain facts to the principal the principal is imputed with knowledge of these facts 17 In short can the knowledge and acquiescence of Purden be attributed to the plaintiff in the present case The short answer to the defendant s contention on this question is that the law requires disclosure to and the consent of a fully independent board under s 156 1 of the Companies Act or the shareholders under general law before it will regard the fiduciary as absolved As the essential fiduciary obligation is to avoid conflict between personal interest and duty to the plaintiff it is necessary for the defendant to actually disclose that his companies were buying the plaintiff s goods and to seek its approval for the sales As counsel for the plaintiff rightly submits there was factually no disclosure as such in the present case leading to informed consent that would absolve a fiduciary from what would otherwise have been a breach of duty It was never suggested that the defendant had formally informed the board of directors of the plaintiff or its shareholders or that they had given their consent to sell the respective stocks in question to APA and Mark IV Singapore 18 Specifically on the question posed in 17 which is about whether informal disclosure or knowledge informally acquired is sufficient to satisfy the disclosure requirements I am of the view that it is unsustainable in law or fact The defendant has not established on a balance of probabilities that Purden knew or was aware of or even acquiesced in the respective sales of the Returned Goods Bonded Warehouse Stock and Excess Singapore Stock to the defendant s companies APA and Mark IV Singapore The evidence before me is limited and cannot constitute a vicarious attribution of knowledge sufficient to satisfy the requirement of disclosure to the board or shareholders I shall now elaborate on my decision 19 The defendant s pleaded case is that he wanted to take over the business operations of the plaintiff upon its cessation and he was in discussion with management of the automotive division between June and September 1999 about this He also discussed the setting up of a joint investment in a regional factory to manufacture Dayco products at a low cost His vision was for the distributors of Dayco products in Asia to form a partnership venture The partnership venture would involve the incorporation of a holding company for the various regional distributors of Dayco products The holding company would own substantial shareholdings in the distributors and the distributors would in turn own a stake in the holding company 20 The defendant testified that this partnership venture was discussed with Purden in late June or early July 1999 Purden was supportive of the defendant s ideas and had assured him of his belief that management of the automotive division would be receptive to the idea With that assurance the defendant incorporated Mark IV Singapore and APA on 23 July 1999 and 31 July 1999 respectively 21 Mark IV Singapore was intended to be the vehicle for the partnership venture to set up the factory as well as to take over the distribution management in Asia APA was to assume the business of distributing Dayco products in Singapore and Indonesia The shareholders of Mark IV Singapore were to comprise of distributors in Singapore Hong Kong South Korea and the Philippines Both Purden and Yap were each to be 5 shareholders and their shares were to be held in trust by the defendant They were described in the list of shareholders as JP Nominees 22 The plaintiff denies any discussions of a venture as alleged Purden testified that the defendant approached him about taking over the plaintiff s operations only in October 1999 He wrote to his management on 1 November 1999 about the proposal However management was not in favour of the defendant taking over the business of the plaintiff as Dayco Europe through its sales representative office could continue to supply the plaintiff s existing customers directly from Europe Purden orally communicated management s decision to the defendant on or around the first week of November 1999 23 Both Yap and Purden deny acquiring a stake in Mark IV Singapore Yap said she declined the offer for two reasons she was still an employee of the plaintiff and later of Dayco Europe and she did not have the money to subscribe to the shares Purden s evidence is that sometime around the first week of July 1999 the defendant approached him and orally offered him shares in a company to be set up by the defendant to engage in business relating to batteries filters brake pads and windshield wipers none of which the plaintiff nor Dayco Europe dealt in Purden said he was interested as the proposed business was to be complementary and not in competition with Dayco Europe He was not aware of the name of the new company until September 1999 when he wrote out a cheque for his proposed shareholding Purden later stopped payment on the cheque after he changed his mind about participation despite having told the defendant to change the company name Mark IV Singapore 24 According to the Defence the Returned Goods and Bonded Warehouse Stock were sold to Tong Chieh the plaintiff s distributor in Hong Kong for a total price of US 150 000 Tong Chieh resold the Returned Goods and Bonded Warehouse Stock to the plaintiff s distributor Shin Young Trading Co Ltd in South Korea APA paid for the goods on behalf of Tong Chieh who then repaid APA 25 Subsequently the defendant revealed in the Further and Better Particulars of the Defence filed on 7 June 2002 that Tong Chieh was a nominee purchaser of the Returned Goods and Bonded Warehouse Stock Tong Chieh did not actually pay for the Returned Goods and Bonded Warehouse Stock APA paid the plaintiff In April 2000 Mark IV Singapore paid APA for the goods 26 Similarly the defendant revealed that the Excess Singapore Stock was bought by APA as nominee purchaser and then resold to Mark IV Singapore on or about 19 August and 2 September 1999 The defendant said that APA was at that time a distributor of the plaintiff and the Mark IV automotive division Mark IV Singapore then sold the stock to DAV Commercial Asia Pacific Rubber Plastics Pte Ltd and Ultra Auto Trading Co Ltd The defendant however agreed with Mr Kumar that APA at the material time was not the plaintiff s distributor The distributor in Singapore was Asia Pacific Rubber Plastics Pte Ltd In August 1999 APA was not yet appointed a distributor of Dayco products for Indonesia and Singapore Purden s evidence is that he did not know about APA until he signed the distributorship agreement dated 8 November 1999 Mr Kumar made the point that on 26 July 1999 APA was yet to be incorporated Therefore there could have been no understanding that APA would purchase the Excess Singapore Stock 27 The defendant alleges that Purden knew about APA much earlier than he would care to admit The defendant produced documents from BTS Renovation and called its sole proprietor Tay Ming Wah to testify that the signage of APA was already in full view at the plaintiff s premises at the time of the transaction in August 1999 and argued that Purden who frequently visited the office would have seen the name It transpired that BTS Renovation was not registered at that time and Mr Kumar invited me to reject both the invoice and receipt issued by BTS Renovation and the evidence of Tay Ming Wah I agree with Mr Kumar that the defendant s explanation that he asked BTS Renovation for the invoice and receipt for Mark IV Singapore s auditors is implausible as the audited accounts had already been filed for some time Moreover the plaintiff was able to provide countervailing evidence to show that the APA signage was ordered much later The plaintiff disclosed an invoice dated 3 February 2000 from Universal Displays Pte Ltd for the supply of signage for APA dated 3 February 2000 28 The use of nominee purchasers was not explained at all In my judgment the defendant tried to hoodwink the plaintiff into thinking that the sales were indeed to an existing distributor of the plaintiff in Asia The defendant quite clearly had wanted to buy over the plaintiff s goods at the discounted price and he made use of nominee purchasers to circumvent the plaintiff s authorisation of 26 July 1999 to sell the goods to its current distributors It bears repeating that the plaintiff was willing to sell the Returned Goods and Bonded Warehouse Stock at a lump sum price of US 150 000 to its then current distributors Tong Chieh or Singapore distributor who at that time was Asia Pacific Rubber and Plastic Pte Ltd Purden s fax dated 1 July 1999 discussed selling the Returned Goods to the current distributors The defendant s fax of 26 July referred to the fax of 1 July and Purden s agreement and authorisation to the defendant to sell the Returned Goods and Bonded Warehouse Stock at US 150 000 to our Hong Kong Singapore distributors 29 Originally Purden had wanted to sell the goods at US 250 000 even though they were worth US 743 000 as it was economically and commercially unattractive to ship the goods back to Europe The defendant had informed Purden that the Bonded Warehouse Stock was not worth very much and it should be sold to one

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  • Ng Heng Liat and Others v Kiyue Co Ltd and Another[2003] 4 SLR 218; [2003] SGHC 62
    because a there is no clear authority that the rule in Foss v Harbottle extends to bar a defendant from raising a counterclaim b the rule is largely abrogated by statutory inroads in ss 216 and 216A of the Companies Act c the plaintiffs had waived the rule d the claim and counterclaim are so closely and intricately related that it would be absurd to strike out the counterclaim e Order 28 r 7 1 of the Rules of Court is wide enough to allow Kiyue to bring the counterclaim f it is procedurally convenient for the claim and counterclaim to be determined in the same action and g the justice of the case demands that Kiyue be permitted to proceed with the counterclaim It was not Kiyue s case that the counterclaim came within the exceptions to the rule in Foss v Harbottle 12 I shall first deal with the issues connected to the rule in Foss v Harbottle The proper plaintiff rule is grounded on the plaintiff claimant s right to the redress it seeks When there is a breach of an obligation to a company the company is the wronged party which is entitled to redress and is the proper plaintiff to sue the wrongdoers The foundation for this rule is the connection between the claimant and the relief sought In most cases the claimant for relief is the plaintiff But a defendant can be a claimant when he makes a counterclaim When he does that there is no reason why his claim should not have to satisfy the same requirement Even if counsel is right that there is no clear authority for this reason and logic dictate that the rule applies to counterclaims with equal force 13 The Companies Act allows for the rule to be relaxed in some circumstances Section 216 allows a shareholder to apply to court to seek personal remedies in cases of oppression or injustice Section 216A enables a shareholder to apply to court for leave to bring a derivative or representative action in the name of the company Counsel is right in saying that they are statutory inroads to the proper plaintiff rule However that falls short of substantiating her contention that the rule is largely abrogated by these inroads The legislature did not abrogate the rule and there is no justification for saying that the inroads are longer or broader than those enacted A shareholder can in proper circumstances avoid the full force of the proper plaintiff rule with the court s approval a shareholder cannot take the rule to have been annulled 14 Counsel also contended that the plaintiffs had waived the rule when they sued Kiyue She submitted that in suing Kiyue the Plaintiffs have acknowledged a dispute with Kiyue pertaining to such breaches of fiduciary duties and they cannot now bar Kiyue from raising all relevant and material facts and all instances and allegations of their breach of fiduciary duties 15 That is correct The plaintiffs must

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  • Sinwa SS (HK) Co Ltd v Morten Innhaug
    bring a derivative action in good faith believing albeit erroneously that the company had a reasonable case against the defendant it would not be fair to the company for the action to be allowed to proceed further because the company would then have to bear unnecessary costs through no fault of its own In either case it is right that the court at an early stage examine whether the company has a reasonable case on a prima facie basis against the defendant before allowing the action to proceed further 23 This of course does not mean that the court at this stage should make an extensive inquiry into the merits of the claim Indeed it must be remembered that at this stage the court is merely ascertaining whether to grant leave for an action to be brought and not trying the action itself Rather the court must having regard to the affidavits filed by both parties in support of their claims and the evidence presented before the court ascertain whether the case brought in the company s name has a semblance of merit There is no need to demonstrate that the case will or is likely to succeed In this regard we may take a leaf out of case law relating to the statutory derivative action In Agus Irawan v Toh Teck Chye 2002 1 SLR R 471 Agus Irawan the plaintiff applied for leave to commence a derivative action in the name of a company pursuant to s 216A of the Act Choo Han Teck JC dismissed the application In so doing Choo JC held at 6 8 as follows 6 At this stage the court need not and ought not be drawn into an adjudication on the disputed facts That is what a prima facie legitimate or arguable case is all about Leave to cross examine in such situations ought to be sparingly granted I need only consider the grounds and points of challenge raised by the defendants to see if they are sufficient in themselves to destroy the credibility of the plaintiff s propounded case without a full scale hearing to determine who was truthful and who was not 7 Mr Bull referred to the decision in Teo Gek Luang v Ng Ai Tiong 1998 2 SLR R 426 for his argument that the phrase prima facie in the interests of the company means that the applicant must show a good arguable case I set out below the passage relied upon by counsel at 14 for ease and convenience Although it was and is a piece of remedial legislation enacted to put in place a procedure to protect the interests of minority shareholders the interpretation of the provisions should be purposive and I entertained some reservation that a liberal interpretation in favour of the complainant should be given as stated by the Ontario Court of Appeal in Richardson Greenshields of Canada Ltd v Kalmacoff 1995 123 DLR 4th 628 at 636 Management decisions should generally be left to the board of directors Members generally cannot sue in the name of his company A minority shareholder could attempt to abuse the new procedure which would be as undesirable as the tyranny of the majority directors who unreasonably refuse to act The Canadian appellate court however at the same page went on to say that b efore granting leave the court should be satisfied that there is a reasonable basis for the complaint and that the action sought to be instituted is a legitimate or arguable one I agreed with this latter formulation and adopted that approach emphasis added 8 I in turn agree entirely with what was said in the above case The terms legitimate and arguable must be given no other meaning other than what is the common and natural one that is that the claim must have a reasonable semblance of merit not that it is bound to succeed or likely to succeed but that if proved the company will stand to gain substantially in money or money s worth But it is axiomatic that ordinarily legal action is best left to the decision of the board of directors It will not be in the interests of a company if all shareholders are at liberty to take it to court on Quixotic crusades The above approach was approved by the Court of Appeal in Pang Yong Hock v PKS Contracts Services Pte Ltd 2004 3 SLR R 1 Pang Yong Hock 24 To put the test another way it may be said that the application ought to be denied if it appears that the intended action is frivolous or vexatious or is bound to be unsuccessful see Re Marc Jay Investments Inc and Levy 1975 5 OR 2d 235 at 237 Marc Jay and Teo Gek Luang v Ng Ai Tiong 1998 2 SLR R 426 Teo Gek Luang at 14 25 Although the above cited cases ie Agus Irawan Marc Jay and Teo Gek Luang all involved the interpretation of a statutory provision the principles stated therein apply equally to the common law derivative action Whether under statute or common law the objective behind the derivative action is to provide an alternate voice for the corporate entity in situations where a wrong has been done to it and the wrongdoers are the very persons who are the usual spokespersons However at the same time the court must be wary of backseat drivers who attempt to control the corporate vehicle by use of a derivative action As was stated in Teo Gek Luang at 14 a minority shareholder could attempt to abuse the new procedure and this would be as undesirable as the tyranny of the majority directors who unreasonably refuse to act Thus whether a derivative claim is brought under statute or common law the court must from the outset assess whether the company has a reasonable case against the defendant for which the company may recover damages or other relief 26 In the present case the plaintiff spent a large part of its submissions explaining why NIL was entitled to the relief claimed Save with respect to one allegation I found myself unable to agree with the plaintiff s contentions For completeness I shall examine each of the plaintiff s allegations in turn Assignment of Time Charter 27 The plaintiff alleged that the defendant had breached his duties to NIL by procuring a purported assignment of a lucrative time charter party entered into between NIL and BGP to a company owned and controlled by the Defendant namely NGS see para i of the Schedule to the originating summons The plaintiff however did not make clear what exactly it was about the assignment that it was objecting to At different points in its submissions and affidavits the plaintiff seemed to make three distinct allegations First the plaintiff seemed to take objection to the fact that the defendant as director of NIL had somehow caused BGP to assign its rights and liabilities under the Time Charter to NGS Second the plaintiff also suggested that the Plaintiffs and or the Board of NIL had not been given notice of the assignment see para 12 of the plaintiff s submissions Third the plaintiff as director of NIL approving the assignment without disclosing his interest in NGS to the plaintiff I will deal with the objections in the same order 28 The first objection is without merit The Time Charter unequivocally states that BGP has the right to assign the charter of the vessel to another party Clause 17 of the Time Charter reads as follows 17 Sublet and Assignment a Charterers The Charterers shall have the option of subletting assigning or loaning the Vessel to any person or company not competing with the Owners subject to the Owners prior approval which shall not be unreasonably withheld upon giving notice in writing to the Owners but the original Charterers shall always remain responsible to the Owners for due performance of the Charter Party and contractors of the person or company taking such subletting assigning or loan shall be deemed contractors of the Charterers for all the purposes of this Charter Party The Owners make it a Condition of such consent that additional Hire shall be paid as agreed between the Charterers and the Owners having regard to the nature and period of any intended service of the Vessel b If the Vessel is sublet assigned or loaned to undertake rig anchor handling and or towing operations connected with equipment other than that used by the Charterers then a daily increment to the Hire in the amount as stated in Box 29 or pro rata shall be paid for the period between departure for such operations and return to her normal duties for the Charterers c Owners The Owners may not assign or transfer any part of this Charter Party without the written approval of the Charterers which approval shall not be unreasonably withheld Approval by the Charterers of such subletting or assignment shall not relieve the Owners of their responsibility for due performance of the part of the services which is sublet or assigned Clearly cl 17 a of the Time Charter provides that the option of assigning the vessel belongs to BGP NIL s role should BGP decide to assign the vessel is merely to give approval which approval cannot be unreasonably withheld If the defendant did indeed procure the assignment he did not do so qua director of NIL but as controller of NGS At the highest the defendant qua director of NIL merely gave approval for the assignment It is not the plaintiff s case that NIL was entitled to additional hire pursuant to cl 17 a of the Time Charter Hence if the plaintiff was suggesting that the defendant had breached his duties as a director of NIL by giving approval for the assignment such an assertion was not substantiated by any evidence as to why approval in the circumstances ought to have been withheld 29 Similarly the second objection is completely untenable The allegation was that the plaintiff and or the board of NIL had not been given notice of the assignment as required under cl 17 a of the Time Charter However this obligation to provide notice lay with BGP Hence even if such notice was not provided it was a breach of BGP s obligations to NIL not the defendant s obligations qua director of NIL In any case it appeared to me that such notice had been given as the defendant was at all times fully aware of the assignment 30 I was also not persuaded by the plaintiff s third objection Taking the plaintiff s case at its highest it was alleged that the defendant was the controlling mind of NGS As such the argument was presumably that the defendant had breached his fiduciary duties to NIL to avoid profiting from his position as director of NIL the no profit rule and to avoid conflicts of interest the no conflict rule 31 In so far as the no profit rule is concerned the pithy statement of law adopted in Walter Woon on Company Law 13 supra at para 8 38 is apposite unless he has provided full disclosure and obtained the informed consent of the company a director who acquires a benefit in connection with this office is accountable to the company for that benefit In Furs Limited v Tomkies 1935 35 CLR 583 the Australian High Court explained the rationale behind the no profit rule at 592 as follows no director shall obtain for himself a profit by means of a transaction in which he is concerned on behalf of the company unless all the material facts are disclosed to the shareholders and by resolution a general meeting approves of his doing so or all the shareholders acquiesce An undisclosed profit which a director so derives from the execution of his fiduciary duties belongs in equity to the company It is no answer to the application of the rule that the profit is of a kind which the company could not itself have obtained or that no loss is caused to the company by the gain of the director It is a principle resting upon the impossibility of allowing the conflict of duty and interest which is involved in the pursuit of private advantage in the course of dealing in a fiduciary capacity with the affairs of the company If when it is his duty to safeguard and further the interests of the company he uses the occasion as a means of profit to himself he raises an opposition between the duty he has undertaken and his own self interest beyond which it is neither wise nor practicable for the law to look for a criterion of liability The consequences of such a conflict are not discoverable Both justice and policy are against their investigation emphasis added Significantly as was emphasised repeatedly in the above passage the no profit rule only applies when the director has obtained a benefit in the course of execution of his duties ie qua director of the company and not in any other capacity 32 Turning now to the no conflict rule it is a principle of company law that a director is under an obligation not to place himself in a position where the interests of the company whom he is bound to protect comes into conflict with either his personal interest or the interest of a third party for whom he acts see Walter Woon on Company Law at para 8 40 The scope of the no conflict rule is wide it applies not only to situations where there are actual conflicts of interest but also to situations where there may potentially be conflicts of interests As described by Lord Cranworth in Aberdeen Rail Co v Blaikie Brothers 1843 60 All ER 249 at 252 it is a rule of universal application that no one having such duties to discharge shall be allowed to enter into engagements in which he has or can have a personal interest conflicting or which possibly may conflict with the interests of those whom he is bound to protect emphasis added After all the no conflict rule is a prophylactic principle aimed at avoiding the risk that the director might prefer his personal or a third party s interests over those of the company Thus it matters little that the director did not in fact subordinate the company s interests as long as there is a potential that he may do so 33 However the no profit and the no conflict rules while strict are not absolute A director may obtain a release of his obligations under both rules by making a full disclosure of the relevant facts to the company As is explained in Walter Woon on Company Law at para 8 45 directors are not required to be insensible to their own interests They do not have to live in an unreal region of detached altrusim in which their own interests are forgotten Being in a position of conflict is not per se a breach of fiduciary duty it is the failure to disclose the material facts to the members and obtain their release that constitutes the breach 34 In the present case the plaintiff averred that the defendant engineered the assignment of the Time Charter to further his personal interests In particular the plaintiff alleged that the defendant was trying to profit from an option embedded in the Time Charter for the charterer to purchase the vessel after the charter period of three years Clause 40 of the Time Charter reads as follows Purchase option The charterers have the option to Purchase the vessel with equipment for a price of USD 5 000 000 after completion of the three years charter period The plaintiff s case was that the assignment would allow the defendant via NGS and NMPL to take advantage of the purchase option to buy the vessel on the cheap thus breaching the no profit rule Further the defendant was in a position of conflict in giving consent to the assignment since he might potentially profit from cl 40 The defendant while not addressing those allegations directly averred that the reason for the assignment was that BGP was dissatisfied with the physical condition of the vessel and was looking for a way out of the Time Charter The defendant merely facilitated this by having NGS take over BGP s rights and obligations under the Time Charter 35 There is no merit to the plaintiff s arguments With regard to the no profit rule the opportunity to purchase the vessel was provided to the charterer of the vessel and not to the director s of NIL or to the defendant Therefore even if the defendant on the expiry of the charter period does profit by causing NGS to take advantage of cl 40 of the Time Charter he does so not qua director of NIL but as controller of NGS The no profit rule therefore would not be breached 36 Addressing now the no conflict rule I must first state that the defendant s explanation was insufficient to excuse him from having to disclose his interest in NGS to NIL The rationale for the no conflict rule lies in the potential for a conflict of interests It does not matter that the director has no intention of benefiting from the transaction as long as the director may profit Hence if the defendant may profit from the assignment by causing NGS to take advantage of the purchase option it behoves him to disclose his interest in NGS to the board of directors of NIL especially the directors nominated by the plaintiff before the assignment is completed However it appeared to me that this interest had indeed been disclosed albeit informally and indirectly From the evidence made available it appeared that the assignment was completed via the two documents signed on 22 September 2008 the Notice of Assignment and the Acknowledgment of Assignment Prior thereto the plaintiff s director Ms Tan Lay Ling had been informed of the assignment of the Time Charter via the 11 September e mail In the same e mail it was also mentioned that NGS was a wholly owned subsidiary of NMPL At all material times the plaintiff was well aware that the defendant was a director and shareholder of NMPL Under those circumstances it seemed to me that the defendant s interest in NGS through NMPL had been disclosed to the plaintiff before the assignment of the Time Charter was completed The plaintiff made no objection at that point of time The plaintiff only raised its opposition to the assignment on 23 October 2008 In other words for more than a month the plaintiff kept silent and did not respond to the defendant s disclosure In the circumstances it did not appear to me open to the plaintiff belatedly to allege that the defendant had breached his duty to disclose his interest in NGS before the completion of the assignment Withholding charter hire 37 The plaintiff next alleged that the defendant withheld payment or caused the withholding of payment of charter hire to NIL by reason of the assignment to NGS The payment withheld was said to amount to US 6 697 000 being charter hire under the Time Charter for the periods January to June 2009 As with the allegation of procurement of the assignment of the Time Charter this allegation was badly framed Upon careful reading of the plaintiff s submissions it appeared to me that the plaintiff was not asserting that the defendant had withheld payment of the charter hire per se Rather the gravamen of the plaintiff s allegation was that the defendant blocked the commencement of legal proceedings against BGP to recover the said charter hire According to the plaintiff it had on behalf of NIL appointed solicitors H A Chung Partnership H A Chung to take legal action against BGP for failure to pay the charter hire for the period January to June 2009 Needless to say this was without the defendant s concurrence Upon learning of this the defendant instructed his lawyers to write to H A Chung to cease and desist from taking further action against BGP and from representing that they acted for NIL 38 Generally where it is contended that there was a breach of duty on the part of a director in refusing to collect a debt owing to the company the court ought to examine the reason if any for the director s refusal However in so doing the court should not substitute its judgment for the business decision of the director The issue is not whether the decision not to collect the debt was the best or most appropriate business decision in the circumstances Rather the question is whether the decision was made bona fide in the best interests of the company It is not the role of the courts to act as arbiters of management decisions by the directors unless there is evidence of their voting power being exercised for an improper purpose or in bad faith Re Tri Circle Investment Pte Ltd 1993 1 SLR R 441 at 4 39 In the present case the defendant explained his decision for not collecting the charter hire for the months January to June 2009 thus After the assignment of the Time Charter from BGP to NGS which the plaintiff did not recognise NGS continued to pay the charter hire for the months of September to December 2008 However in December 2008 TGS decided to terminate the seismic acquisition agreement with NGS owing to some unhappiness with the condition of the equipment on the vessel As a result the vessel was laid up at anchorage from 19 December 2008 without any employment at all The defendant averred that in the light of the financial crisis at that point in time it was almost impossible to find alternative employment for the vessel On 29 January 2009 more than a month after the vessel had been laid up the defendant in his capacity as a representative of NGS wrote to the plaintiff as follows Please be informed that M V Nordic Venturer the vessel is being laid up in Singapore anchorage since 19 December 2008 till date The reason for the lay up is that TGS seismic charterer have cancelled the seismic Contract with NGS Therefore NGS as the assigned charterer would like to propose the following solution to NIL NGS recognizes their responsibilities and have agreed to pay the charter hire to NIL according to the C P signed between NIL and BGP However as there is currently no income from the Vessel we would like to propose that the day rate is reduced to cover the payment of the bank loan and the Opex expenses incurred during lay up in Singapore In other words NGS would cover all and whatsoever expenses to NIL during the time of Vessel lay up but without any profit element of any kind but at the same time ensuring that the loan to the bank OCBC can and will continue to be paid in a timely manner Kindly revert with your confirmation and we await your positive response to the above According to the defendant NGS was entitled to a reduction of the charter hire by virtue of cl 5 d of the Time Charter which reads as follows Laying up of Vessel The Charterers shall have the option of laying up the Vessel at an agreed safe part sic or place for all or any portion of the Charter Period in which case the Hire hereunder shall continue to be paid but if the period of Such lay up exceeds 30 consecutive days there shall be credited against such Hire the amount which the Owners shall reasonably have saved by way of reduction in expenses and overheads as a result of the lay up of the Vessel However the plaintiff in line with their stand not to recognise the assignment refused to discuss a reduction of the charter hire rate In those circumstances NGS stopped paying charter hire from January 2009 pending clarification on the issue of the assignment of the Time Charter and the payable charter hire rate Presumably the defendant as director of NIL did not support the plaintiff s attempt to collect the full charter hire as he too felt NGS was contractually entitled to a reduced rate 40 It was in respect of this argument that prima facie the plaintiff s claim might have some merit I agreed with the defendant that cl 5 d of the Time Charter afforded NGS a right to seek a reduction in the payable charter hire This was so if the vessel was laid up for 30 consecutive days which was clearly the case by late January 2009 Even if the assignment did not take place BGP would be entitled to the same discount Thus there was no basis for NIL to demand the full sum of US 6 697 000 from BGP However that did not mean that BGP or NGS could stop paying charter hire altogether Indeed NGS in its letter of 29 January 2009 to NIL accepted its responsibility to pay charter hire However the quantum of charter hire payable had yet to be agreed In the circumstances BGP or NGS should have at least tendered the charter hire which it thought was reasonable BGP or NGS could not avoid paying any charter hire for six whole months while still having the vessel at its disposal While NIL might not be able to recover the full sum of US 6 697 000 it would in any case be awarded some damages as a result of BGP or NGS s failure to pay any charter hire Accordingly the defendant s refusal to approve of the legal proceedings against BGP was unlikely to have been in NIL s best interests Such reticence to my mind could perhaps be explained by the distinct possibility that BGP would seek to be indemnified by NGS for any damages and costs awarded against itself 41 Therefore prima facie NIL has a reasonable cause of action against the defendant for his refusal to support legal proceedings against BGP However to be clear I am not in any way pre judging the merits of NIL s case against the defendant in this respect My decision is merely limited to the view that on a prima facie assessment of the evidence adduced before me NIL has a cause of action which has some chance of success Profiting from the sale of the vessel 42 A baseless allegation launched against the defendant was that he had breached his duties as a director of NIL by profiting or intending to profit from the sale of the vessel after the completion of the 3 year charter period at the discounted amount of USD5 000 000 00 see para iii of the Schedule to the originating summons This argument overlaps with part of the objection regarding the assignment of the Time Charter and has been addressed at 30 36 above Auditing discrepancies 43 The plaintiff also alleged that an audit conducted by the plaintiff of NMPL s management of the vessel revealed several discrepancies In sum these accusations were regarding overpayment of various charges and expenses As before these allegations had nothing to do with the defendant in his capacity as a director of NIL Even if the allegations were well founded they merely provide NIL a cause of action against NMPL and not the defendant Misappropriation of funds 44 As previously mentioned at 9 above another source of unhappiness lay in an alleged misappropriation of US 400 000 that the defendant had loaned to another entity without the plaintiff s approval However what is significant is that the US 400 000 had earlier been properly transferred to NMPL to meet operating expenses for the vessel Hence even if the defendant had caused the US 400 000 to be transferred out of NMPL without authorisation he did so as director of NMPL not as director of NIL As such any claim NIL might have in this regard would be against NMPL Failure to provide information 45 The last allegation laid at the door of the defendant was the assertion that he had failed to provide information to the plaintiff regarding various matters when queried including information regarding a payment to an entity known as Eagle Clarc This as before was not a failure for which NIL could claim against the defendant for breach of duties qua director If anything this would at the most found a claim by the plaintiff against the defendant to enforce the plaintiff s rights as a member of NIL It is patent that NIL would not be the party seeking information regarding itself Summary on entitlement to relief 46 In sum therefore on a prima facie assessment of the evidence none save one of the plaintiff s allegations against the defendant was made out In respect of the sole exception viz the allegation that the defendant had breached his duty as a director of NIL by refusing to support legal proceedings taken out against BGP NIL may have a reasonable case against the defendant Locus standi 47 Given the foregoing conclusion that NIL may be entitled to some relief in respect of the defendant s refusal to allow legal proceedings to be taken out against BGP it is now necessary to ascertain if the plaintiff has the locus standi to commence a derivative action in the name of NIL In 1982 the English Court of Appeal in Prudential Assurance CA 12 supra summed up the rule in Foss v Harbottle as well as its exceptions at 210 211 thus 1 The proper plaintiff in an action in respect of a wrong alleged to be done to a corporation is prima facie the corporation 2 Where the alleged wrong is a transaction which might be made binding on the corporation and on all its members by a simple majority of the members no individual member of the corporation is allowed to maintain an action in respect of that matter because if the majority confirms the transaction cadit quaestio the question is at an end or if the majority challenges the transaction there is no valid reason why the company should not sue 3 There is no room for the operation of the rule if the alleged wrong is ultra vires the corporation because the majority of members cannot confirm the transaction 4 There is also no room for the operation of the rule if the transaction complained of could be validly done or sanctioned only by a special resolution or the like because a simple majority cannot confirm a transaction which requires the concurrence of a greater majority 5 There is an exception to the rule where what has been done amounts to fraud and the wrongdoers are themselves in control of the company The above passage represents the orthodox understanding of the rule in Foss v Harbottle and has been accepted locally in Ting Sing Ning 14 supra at 12 Fraud on the minority exception 48 Of the three exceptions cited by the Court of Appeal in Prudential Assurance CA to the rule in Foss v Harbottle see points 3 5 in 47 above only point 5 is a true exception This exception is also known as the fraud on the minority exception The others ie points 3 and 4 are not true exceptions as they involve situations where the rule in Foss v Harbottle does not even apply Where the fraud on the minority exception is concerned see Prudential Assurance CA at 211 the rule is relaxed in favour of the aggrieved minority who are allowed to bring a minority shareholders action on behalf of themselves and all others The reason for this is that if they were denied that right their grievance could never reach the court because the wrongdoers themselves being in control would not allow the company to sue There are then two constituent elements to this exception fraud and control Fraud 49 What is meant by fraud for the purposes of establishing the fraud on the minority exception has been the subject of some controversy and much academic debate Given that the resolution of the present application did not turn on this issue I shall not attempt to set out at length the substance of the debate The following summary will suffice 50 The orthodox school of thought defines fraud by distinguishing between two different types of wrongs perpetrated against the company ratifiable wrongs and unratifiable wrongs In so far as ratifiable wrongs are concerned no question of a derivative action arises as such wrongs may be ratified by a resolution passed by the shareholders of the company In contrast the nature of unratifiable wrongs is so egregious that no ratification is possible Such unratifiable wrongs therefore constitute a fraud on the minority by virtue of their very nature the fraud is one that inheres in the act giving rise to a breach of duty by the directors The difficulty of course is determining where the demarcation lies between ratifiable wrongs and unratifiable wrongs It is clear from case law that a case of dishonesty or cheating by a director would qualify as an unratifiable wrong see Burland v Earle 1902 AC 83 at 93 The ambit of unratifiable wrongs also extends beyond dishonesty and cheating see Estmanco Kilner House Ltd v Greater London Council 1982 1 WLR 2 at 12 However it is unclear how far beyond actual dishonesty it would extend 51 Given these difficulties a different way of understanding the term fraud was propounded by Vinelott J in Prudential Assurance Co Ltd v Newman Industries Ltd No 2 1981 Ch 257 Prudential Assurance HC That case involved two senior directors Bartlett and Laughton of two companies Thomas Poole Gladstone China Ltd TPG and Newman Industries Ltd Newman Bartlett and Laughton were also shareholders of Newman but they on their own did not have voting control at the shareholder level However they also had control of TPG which held 25 6 of the shares of Newman If this 25 6 was added to shares held in their own name Bartlett and Laughton would have voting control of Newman TPG was in financial difficulties and in order to alleviate those difficulties Bartlett and Laughton arranged for Newman to purchase the main assets of TPG at a gross over valuation In accordance with Stock Exchange requirements the consent of the shareholders of Newman was required before such a transaction could be completed This was obtained by a tricky and misleading circular Prudential Assurance HC at 263 disseminated to the shareholders The Prudential Assurance a corporate minority shareholder in Newman claimed damages against Bartlett Laughton and TPG In deciding the case for the Prudential Assurance Vinelott J eschewed the orthodox ratifiable wrong unratifiable wrong dichotomy Instead for Vinelott J the term fraud as understood in the context of the rule in Foss v Harbottle refers to a composite of the breach of director s duties and the attempt to stifle action by the company in respect of the breach by means of manipulation within the company see Prudential Assurance HC at 325 Indeed t he fraud lies in the errant directors shareholders use of their voting power not in the character of the act or transaction giving rise to the cause of action see Prudential Assurance HC at 307 Thus any wrong committed by a director if accompanied by an improper attempt to stifle an attempt by the company to obtain redress in respect of that wrong may amount to fraud 52 This approach by Vinelott J was certainly novel and prompted

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  • Ng Kek Wee v Sim City Technology Ltd
    5 460 046 00 pursuant to a Sale and Purchase Agreement dated 17 January 2011 the HiSoft SPA note 27 A Deed of Assignment note 28 was executed on the same day wherein Beans Group assigned to the Appellant all its rights entitlement title and interest whatsoever that it had under the HiSoft SPA 24 On 13 February 2012 pursuant to a winding up application brought by a creditor Beans Group was ordered to be wound up with the Official Receiver being appointed as its Liquidator However as at 9 January 2013 no Statement of Affairs had yet been filed for the company The decision below 25 We will only summarise that part of the Judgment which concerns the present appeal The Judge made the following findings of fact First the Judge accepted the Respondent s case that the Transfers had been made without the necessary approvals required under s 160 of the Companies Act In this regard the Judge found that the 12 June 2006 Meeting did not take place and that there was no evidence that the Respondent or Accord Investment knew of let alone authorised the Transfers Second the Judge found that the Appellant had misappropriated the funds of and mismanaged the accounts of SPL and he was accordingly in breach of his duty to SPL at common law as well as his duty under s 157 1 of the Companies Act to act honestly in the interests of SPL Finally the Judge found that the Appellant was the controlling mind behind Beans Group and that the Appellant had diverted assets business and talents of SPL to Beans Group in breach of his duties to SPL 26 The Judge also found that the Respondent had made its case that it was the victim of commercial unfairness and was therefore entitled to a remedy under s 216 of the Companies Act Such commercial unfairness would have been made out solely on the basis that the Transfers were wrongful However the Judge also found that as a matter of law she was entitled to take into account the Appellant s misconduct of the affairs of SPL in the assessment of whether the Appellant s conduct of the affairs of Singalab International was such as to amount to commercial unfairness On this alternative basis the Judge found that the Respondent was also entitled to a remedy under s 216 27 On the issue of the remedies that would be available the Judge considered that under s 216 2 of the Companies Act she had ample discretion to tailor the relief to the facts before her and that she was not bound by the relief pleaded for by the Respondent Accordingly she made the following orders a The Deed of Assignment was to be set aside and the Appellant was to hold all the monies and shares due from Hisoft to Beans Group under the HiSoft SPA on trust for Beans Group and the latter should in turn hold the same on trust for SPL b The Appellant should within 30 days of the Judgment compensate SPL for the losses it suffered and was to make good to SPL the following sums which the Judge found had been improperly withdrawn i RM1 433 383 80 being the Malaysian Cash Withdrawals ii S 4 476 646 00 being the SPL Withdrawals iii S 495 836 40 being the SPL Payments and iv the adjusted profits of S 94 599 made by SPL for the period between 1 April 2007 and 31 March 2008 c The transfer of Singalab International s interest in SPL was to be set aside d Once the Appellant had complied with these orders he was further required to purchase the Respondent s shares in Singalab International within 30 days the Buyout Order The price and other terms of the buyout was to be determined taking into account the fact that the Appellant would by this stage have complied with the other orders above e In the event that the Appellant did not comply with the Buyout Order within the 30 day period the Respondent was entitled to apply for the winding up for Singalab International with the costs of the winding up borne by the Appellant f Costs of the Suit were awarded to the Respondent to be agreed or taxed on a standard basis with disbursements to be paid on an indemnity basis The issues before this Court 28 The Appellant does not challenge the Judge s findings that the Transfers were wrongful that he had mismanaged the accounts and misappropriated the funds of SPL and that he had set up Beans Group in breach of his fiduciary duties to SPL Instead his main contentions are as follows a The Respondent s claim was improperly pleaded because it had not expressly pleaded that it was bringing a claim for relief under s 216 of the Companies Act b The Judge had erred in finding that commercial unfairness had been made out on the facts c The Respondent s claim could not properly be characterised as being for a personal wrong and d The Judge had erred in purporting to exercise her discretion to grant unpleaded relief under s 216 2 of the Companies Act Our decision Was the oppression claim satisfactorily pleaded 29 The Appellant contends that since the Respondent did not expressly plead that its claim was for relief under s 216 of the Companies Act it was therefore not open to the court to grant relief under that provision 30 We disagree We are not aware of any authority whatsoever for that proposition Neither the Companies Act nor the Rules of Court Cap 322 R 5 2006 Rev Ed the ROC states that relief under s 216 may be granted only if that section is specifically invoked in the pleadings Order 88 r 2 4 of the ROC states that an application under s 216 of the Companies Act shall be made by writ That is the only procedural requirement and it was undoubtedly fulfilled in this case The Appellant also could not cite a single case as authority for the proposition it advanced 31 In any case as a matter of principle we cannot see why there ought to be such a requirement The general position with regard to pleadings is that stated in O 18 r 7 1 of the ROC which is that every pleading must contain and contain only a statement in a summary form of the material facts on which the party pleading relies for his claim or defence emphasis added The objective behind this general rule is to ensure that neither party is taken by surprise in relation to the case that he must meet at trial We are satisfied that in the present case there could have been no question of any surprise because in our judgment the Respondent had adequately pleaded the material facts which it was relying on for its claim In its statement of claim Amendment no 2 SOC Amendment no 2 the Respondent stated as follows 39 The Respondent further avers that the foregoing demonstrates that the affairs of the Singalab Beans Group are being conducted in a manner oppressive to the Respondent and or in disregard of the Respondent s interest 40 The Respondent further avers that the conduct of the Appellant was clearly designed to unfairly discriminate the Respondent as a member of Singalab International The above clearly sufficed to put the Appellant on notice that the Respondent s claim was one for relief under s 216 of the Companies Act 32 We also find that the Respondent had in any event validly amended its SOC to make express reference to ss 216 a and b of the Companies Act in the paragraphs quoted above note 29 so that even if the pleadings were originally defective such defects were cured by the amendments The Respondent applied for and was granted leave to amend its pleadings in this regard note 30 following the observation made in the course of the trial by the Judge that s 216 of the Companies Act had not been expressly pleaded anywhere in the Respondent s SOC Amendment no 2 note 31 We do not take the Judge s observation as laying down any principle of law that s 216 must be expressly pleaded in every claim mounted for relief from oppression In any case Mr Lim Chee San Mr Lim counsel for the Appellant here and below did not raise any objections to the amendment and did not file an appeal against the Judge s decision to allow the amendment It is trite that a court has a wide power to allow amendments to pleadings at any stage of the proceedings which would enable the real issues between the parties to be ventilated unless the amendment would cause injustice or injury to the opposing party Wright Norman and another v Overseas Chinese Banking Corp Ltd 1993 3 SLR R 640 at 6 We do not see how that power was in any way improperly exercised by the Judge in allowing the amendments neither can we see how that would cause the Appellant any injustice or injury Accordingly we hold that the Respondent s claim for relief under s 216 of the Companies Act was adequately pleaded Did the Judge err in finding that commercial unfairness had been made out 33 Section 216 1 reads as follows Personal remedies in cases of oppression or injustice 216 1 Any member or holder of a debenture of a company or in the case of a declared company under Part IX the Minister may apply to the Court for an order under this section on the ground a that the affairs of the company are being conducted or the powers of the directors are being exercised in a manner oppressive to one or more of the members or holders of debentures including himself or in disregard of his or their interests as members shareholders or holders of debentures of the company or b that some act of the company has been done or is threatened or that some resolution of the members holders of debentures or any class of them has been passed or is proposed which unfairly discriminates against or is otherwise prejudicial to one or more of the members or holders of debentures including himself 34 On the words of the subsection there are a number of limbs under which a claim for relief may be brought but the common thread between all of them is the element of commercial unfairness which would justify the invocation of the court s jurisdiction under s 216 Over Over Ltd v Bonvests Holdings Ltd and another 2009 2 SLR R 111 at 68 35 On the question of whether there was commercial unfairness in the present case such as to justify an order under s 216 two issues were raised for our decision The first is the Appellant s argument that because the Respondent s claim was brought qua its position as a member of Singalab International the Judge was not entitled under s 216 to have any reference whatsoever to any prejudicial manner in which the activities of Singalab International s subsidiaries were conducted in particular SPL The words affairs of the company in s 216 1 a ought to be read strictly to refer only to the affairs of that company whose member or members were seeking relief under s 216 and not to the affairs of that company s subsidiaries 36 The second issue is whether the Respondent is disentitled from relief under s 216 because it is the majority shareholder of Singalab International 37 We consider each in turn The Appellant s conduct in relation to the affairs of the subsidiaries 38 The Appellant contends that the Judge should not have taken into account matters which pertained to the conduct of the affairs of SPL and that by doing so the Judge had deprived the Appellant of his right to raise a defence or bring a counterclaim against SPL We note here that the Judge had held that solely on the basis of the wrongful Transfers there was commercial unfairness in the conduct of the affairs of Singalab International that was prejudicial to the Respondent If the Judge were correct in holding this it would not have made a difference to the outcome if the Judge had taken into account matters that pertained to the conduct of the affairs of SPL 39 In our judgment the Appellant s contentions are off the mark In the context of groups of companies our courts take a practical rather than narrow and legalistic approach in construing the words affairs of a company in s 216 In Kumagai Gumi Co Ltd v Zenecon Pte Ltd 1995 2 SLR R 304 Kumagai the appellant had sought relief under s 216 of the Companies Act in respect of a joint venture company KZ of which the appellant was a 49 shareholder and the respondent was a 51 shareholder KZ had a subsidiary company KPM This court rejected the argument that the appellant had to show that the oppressive conduct or unfair discriminatory acts complained of were in respect of the affairs of KZ and not KPM and stated at 44 that It seems to us that counsel has adopted a much too legalistic approach relying on the separate legal personalities of KZ and KPM KPM is a subsidiary of KZ and the affairs of KPM were very much under the control of KZ and both were managed and run by Low and his group 40 A similar approach was taken in the case of Low Peng Boon v Low Janie and others and other appeals 1999 1 SLR R 337 Low Peng Boon In that case the respondent was the minority shareholder of a company which was the holding company of profitable subsidiaries in Malaysia and Hong Kong She sought relief under s 216 of the Companies Act alleging amongst other things that the managing director of the holding company had used the funds of the Hong Kong subsidiary to pay for his personal travel expenses and had deliberately hoarded the profits of the Hong Kong subsidiary by refusing to declare dividends so as to maximise his own bonus This court took into account the commercially unfair acts that took place in respect of the affairs of the subsidiary as well 41 Finally in Lim Chee Twang v Chan Shuk Kuen Helina and others 2010 2 SLR 209 Lim Chee Twang Quentin Loh JC as he was then observed that the doctrine of separate legal personalities could not to be invoked as a shield for clearly oppressive and commercially unfair conduct in a group of companies where this could lead to a serious gap in the remedies available to an aggrieved minority shareholder at 98 However in the final analysis the plaintiff had to be able to show on the facts that the affairs of the subsidiary actually affected or impacted the holding company at 97 42 We think that the approach adopted in the above cited cases is sound and we also agree that in the final analysis the question that must be answered in this regard is whether the affairs of the subsidiary affect or impact the holding company Lim Chee Twang at 97 Legitimate claims for relief from oppression should not be defeated by technical and legalistic objections relating to the company s shareholding structure at the same time the doctrine of separate legal personalities and the strict words of the statute the affairs of the company emphasis added must be respected In our view the balance between these competing interests would be properly drawn by a requirement that commercially unfair conduct in the management of a subsidiary would be relevant so long and to the extent that such conduct affected or impacted the holding company whose member was the party claiming relief from oppression The purpose and policy behind s 216 of the Companies Act is above all to grant relief from the oppressive behaviour to shareholders who would otherwise be unable to stop that abuse see below at 49 If the affairs of the subsidiary do not affect or impact the holding company shareholders and members of the latter could hardly complain that their interests were therefore prejudiced 43 Turning to the present case Singalab International had clearly been incorporated as a holding company and its sole assets were shares in its wholly owned subsidiary companies The business of the holding company was therefore in practical terms comprised wholly of the businesses of its subsidiaries Thus the way in which the Appellant conducted the business of the subsidiary SPL would undoubtedly have impacted Singalab International The evidence showed that the parties did not intend or in fact treat Singalab International and its subsidiaries as separate corporate entities This is evinced by the understanding between the various shareholders that the shareholding structure in Singalab International was also to be applied to its subsidiaries and the fact that the Appellant managed both Singalab International and its subsidiaries under the supervision of the Exco see above at 7 8 Thus we find that the Judge did not err in taking into account the Appellant s conduct of the affairs of SPL an operational arm of Singalab International 44 The Appellant says that as a consequence of the Judge s error in taking into account the prejudicial manner in which SPL s affairs were conducted the Appellant had been deprived of his right to raise a defence or bring a counterclaim against SPL As we have said above the first part of this proposition is erroneous it follows that the Appellant s entire argument on this point must fail But the second part to the proposition is in our judgment wholly without merit as well The Appellant had been given ample opportunity to defend himself against the allegations that he had acted in breach of his fiduciary duties to SPL and did in fact avail himself of such opportunities As we pointed out to Mr Lim during the hearing there was nothing to preclude the Appellant from pleading that in the event he should be found to have acted oppressively or in an unfairly prejudicial manner there were amounts owing to him by SPL that ought to be set off against any order made against him in favour of SPL The Appellant was clearly in the best position and had ample opportunity to put forward these claims yet he did not do so A reasonable inference would be that there was no such debt owing by SPL to the Appellant In any event we reiterate our observation made during the hearing that if SPL were in fact a debtor of the Appellant the orders made in this proceeding would not preclude the Appellant from bringing a fresh action against SPL for the sums owing to him Plainly the Appellant has not been prejudiced in pursuing his alleged legal rights against SPL 45 The inescapable corollary to our finding at 43 above that the assets of Singalab International were comprised wholly of the businesses of its subsidiaries is that the effect of the Transfers was to denude Singalab International of all its value and to reduce it into an empty shell company The Appellant thereby enriched himself at the expense of the company Control of Singalab International 46 The second issue is whether the fact that the Respondent is the majority shareholder in Singalab International would preclude it from claiming relief under s 216 of the Companies Act The Judge found that it would not 47 As a preliminary point we note that the Appellant does not appear to challenge this finding but as this is a question of law we do not think we are constrained from considering this issue The Court of Appeal has broad powers to determine the real issues in the dispute that is placed before it see generally s 37 of the Supreme Court of Judicature Act Cap 322 2007 Rev Ed We would add that this issue of control is not a new argument the point was pleaded in the Appellant s defence note 32 and the parties arguments on this issue were fully canvassed with the relevant evidence led at the trial below As the point was not raised in the Appellant s case the Respondent did not prepare written submissions addressing it but in the course of the hearing before us we gave counsel for the Respondent Mr Chan an opportunity to present oral submissions 48 In our judgment the touchstone is not whether the claimant is a minority shareholder of the company in question but whether he lacks the power to stop the allegedly oppressive acts Section 216 1 of the Companies Act states only that any member of a company may bring an action for relief under that provision there is no further requirement that only members who are minority shareholders are so entitled Having regard to the purpose underlying s 216 we think the correct position is that where a member is able to remedy any prejudice or discrimination he has suffered through the ordinary powers he possesses by virtue of his position the conduct of the defendant cannot be said to be unfair to him see also the dicta of Knox J in Re Baltic Real Estate Ltd No 2 1993 BCLC 503 at 507 Section 216 of the Companies Act is save for a few minor amendments based on s 210 of the UK Companies Act 1948 c 38 UK the UK Companies Act 1948 and s 186 of the Australian Companies Act 1961 which was also essentially identical to the English provision see clause 181 of the Companies Bill 1966 which became our Companies Act Act 42 of 1967 Section 210 of the UK Companies Act 1948 came about following a recommendation made by the Cohen Committee of 1945 that the position of minority shareholders of a private company in resisting oppression by the majority shareholders or the controllers of a company should be strengthened Report of the Committee on Company Law Amendment Cmnd 6059 1945 at para 60 The effective protection of minorities was again emphasised in the report of the Jenkins Committee some years later in respect of possible amendments to the section Report of the Company Law Committee Cmnd 1749 1962 the Jenkins Report at para 200 In Re Legal Costs Negotiators Ltd 1999 BCC 547 Re Legal Costs Gibson LJ examined these English oppression provisions which as we have shown above are directly relevant to our s 216 and concluded that there is academic and judicial consensus as to the meaning of the section and as to the mischief which it was intended to cure viz the abuse of power to the prejudice of shareholders who lack the power to stop that abuse emphasis added 49 We think this is correct in principle It would be contrary to the purpose and intent of s 216 of the Companies Act to permit a shareholder to seek relief where he possesses the power to exercise self help by taking control of the company and bringing to an end the prejudicial state of affairs see Re Legal Costs at 552 As was observed by Margaret Chew in Minority Shareholders Rights and Remedies Lexis Nexis 2 nd Ed 2007 Chew at pp 219 220 The pertinent issue is to ascertain whether an applicant alleging oppression under section 216 of the Companies Act has control over the affairs of the company for there is good sense in saying that an applicant ought to lack such control Evidently an applicant that is in control of the affairs of the company cannot convincingly allege to have been oppressed emphasis added While the learned author used the narrower term oppression in our judgment the principle stated in the emphasised portion of the passage above is one that is of general applicability whenever commercial unfairness is alleged in a claim for relief under s 216 see above at 34 see also Ng Sing King and others v PSA International Pte Ltd and others 2005 2 SLR R 56 at 93 and Lim Swee Khiang and another v Borden Co Pte Ltd and others 2006 4 SLR R 745 at 80 82 50 It is always a question of fact whether in a particular case a shareholder claiming relief ought to be considered to lack control over the affairs of the company In ordinary cases where the shares carry equal voting rights a majority shareholder will generally have the power to end the unfairly prejudicial conduct of the company s affairs see Re Legal Costs at 553 However this might not be the case where for example there is a separate shareholder agreement amongst the shareholders which confers managerial powers solely on the minority shareholder Thus in Kumagai Gumi Co Ltd v Zenecon Kumagai Sdn Bhd Ors and another application 1994 2 MLJ 789 the Malaysian High Court held that a claim for relief from oppression was at p 808 available to majority shareholders who are not in control of the management of the company and who for any given reason are unable to control the board eg because they have agreed to a management power sharing formula in a separate agreement among the shareholders 51 The position may differ where the company has issued shares of different classes some of which may carry voting rights and some of which may not For instance in the case of In re HR Harmer Ltd 1959 1 WLR 62 Harmer the father and patriarch of the company along with his wife controlled a preponderance of the class B shares which carried all the voting power but only a minority of the class A shares which carried the right to divisible profits but no voting power Jenkins LJ held that the sons who had the majority of the class A shares were not thereby barred from claiming relief from their father s oppressive behaviour His Lordship also rejected the father s contention that the acts complained of might have been restrained by an injunction in so far as they were acts done without the authority of the board Having found that the father was in control of the company and that his conduct amounted to oppression of the other shareholders Jenkins LJ considered that it did not lie in the mouth of the controlling party ie the father to argue that other causes of action were also available to the oppressed parties 52 The Judge cited Chew at p 219 220 see 99 of the Judgment which passage relied on Harmer as authority for the proposition that majority shareholders cannot be considered to have effective management control by the mere fact of being in the majority In particular where wrongdoing by directors is concerned it ought not to be a defence by the wrongdoing directors that their wrongdoing could have been restrained by injunction or addressed by an action for breach of duty by the company because by virtue of being the majority shareholders the majority could have moved the company to take action against the directors Such an argument by counsel for the wrongdoer in Re H R Harmer Ltd was not well received by Jenkins LJ who said C ounsel for the father said that the acts complained of might have been restrained by injunction so far as they were acts done without the authority of the board As to this I do not think that a wrongdoer in this field can well complain that the person wronged might have chosen another remedy 53 Applying this principle the Judge found that the fact that the Respondent had majority control of Singalab International could not be held against it in a claim for relief under s 216 54 We disagree In our judgment this passage in Chew and the construction placed on it by the Judge are incorrect and clearly run counter to the intent and purpose of s 216 of the Companies Act On the authority of Harmer it will not lie in the mouth of a defendant who is in control of the company and who has been found guilty of oppressive conduct to say that the claimant ought to have taken other remedies that might have been available to him But if on the facts the claimant was entitled for instance to change the board of directors or otherwise to take control of the company then such a claimant would not be entitled to relief under s 216 In such a case the defendant may legitimately claim that the claimant ought to have exercised his right to take control of the company instead of coming to court for relief under s 216 55 That in our view is the crux of the present case and in our judgment the fact that the Respondent has the majority voting power and was able to use it to take control of the company disentitles it from claiming relief under s 216 The Judge was correct in observing that as managing director of Singalab International the Appellant had effective day to day control over the company This however should not have been the end of the analysis As the Judge noted the Respondent being the majority shareholder of Singalab International could have voted its representatives onto its board of directors and did in fact do so after the commencement of the Suit see above at 21 Once it had effective control of the Board and the affairs of Singalab International in its hands it could have removed the Appellant from the Board or caused the company to claim against the Appellant for the assets which had been improperly siphoned away 56 We note also that there is nothing in the Memorandum or Articles of Association of Singalab International conferring special powers of control on the Appellant as Managing Director or precluding the participation of the Respondent in the Board Table A of the 4 th Schedule to the Companies Act was adopted wholesale in the company s constitutional documents note 33 Under cross examination Mr Lim KE conceded that the Respondent by virtue of its position as majority shareholder had voting control of Singalab International and that it could have removed the Appellant as a director of the company at any time notwithstanding their conscious decision to give the Appellant day to day control of the company note 34 57 Apart from the formal arrangements evidenced by the Articles and Memorandum of Singalab International the Judge also found that there was an understanding between the parties that the Appellant was to run and manage Singalab International although he was to report to the Exco Whilst we concur with this finding we do not think that this understanding had the effect of precluding the Respondent from participating in the Board of Singalab International Apart from Mr Lim KE s own evidence above at 56 Mr Ng HK had been appointed as a director of the Singalab International from 1 September 2004 to 30 June 2005 which was after the Exco had been formed 58 To Mr Chan s credit he conceded at the hearing before us that with the benefit of hindsight the Respondent could have commenced proceedings for a different kind of relief We note in this regard that Mr Chan and his firm were not involved in the trial below He submitted however that the issue of whether the Respondent had control over the company was a technicality that did not cause any prejudice to the Appellant With respect this submission was misconceived The requirement that the shareholder here the Respondent claiming relief under s 216 must be otherwise powerless to change its fate by taking control of the company is a substantive one that goes to the very heart of the s 216 process 59 For the foregoing reasons we find that the Judge erred in holding that the Respondent had successfully made out its claim under s 216 of the Companies Act This finding would suffice to dispose of the appeal However we would like to discuss briefly a further issue raised by the Appellant which may be of general interest The distinction between wrong done to the company and a personal wrong suffered by a shareholder 60 The Appellant submits that the wrongs alleged here are wrongs done to Singalab International viz its subsidiaries and not a wrong suffered by the Respondent in its personal capacity as a member of Singalab International He argues therefore that the Respondent should not be allowed to use s 216 of the Companies Act to circumvent the proper plaintiff rule and reflective loss principle and that a derivative action should have been pursued by the Respondent instead 61 The proper plaintiff rule in Foss v Harbottle 1843 2 Hare 461 Foss provides that in an action for a wrong alleged to have been done to a company ie a corporate wrong the proper plaintiff is prima facie the company itself The reflective loss principle is a variant of the proper plaintiff rule Townsing Henry George v Jenton Overseas Investment Pte Ltd in liquidation 2007 2 SLR R 597 at 78 Where the shareholder s loss merely reflects the company s loss that would be made good if the company had enforced its full rights the proper party to recover the reflective loss is the company and not the shareholder Johnson v Gore Wood Co a firm 2002 2 AC 1 Johnson per Lord Bingham at 35 Section 216 of the Companies Act however provides for a remedy for a wrong suffered in the member s personal capacity The individual member sues in his own right to protect his interests as a member of the company see Edwards v Halliwell 1950 2 All ER 1064 Thus s 216 of the Companies Act is not a true exception to the proper plaintiff rule but rather a situation where the proper plaintiff rule does not apply see Tan Cheng Han ed Walter Woon on Company Law 3 rd ed Sweet Maxwell 2005 Woon at paras 9 25 9 26 62 In reality the distinction between personal and corporate wrongs is rarely clear The lack of clarity is compounded in the context of s 216 of the Companies Act because the concept of commercial unfairness also appears to embrace wrongs done to the company In this regard we think it pertinent to note that s 216 1 a of the Companies Act is drafted in terms of the claimants interests as members shareholders It is plain to us that a wrong done to the company may affect the interests of its members The Jenkins Report clearly recognised this at para 206 In addition to these direct wrongs to the minority there is the type of case in which a wrong is done to the company itself and the control vested in the majority is wrongfully used to prevent action being taken against the wrongdoer In such a case the minority is indirectly wronged 63 Thus whilst not all complaints of oppression will involve wrongs against the company it is not uncommon to find a petition founded upon facts which also disclose a concurrent wrong against the company which would usually be a breach of director s duties For example in Kumagai the defendant s breach of his director s duties to the said company was found also to amount to oppressive conduct as against the claimant In Low Peng Boon the factual allegations made to support the claimant s petition disclosed various breaches of director s duties mainly involving the misuse of corporate funds these acts were found to constitute oppressive conduct as against the petitioner That being said we emphasise that this

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  • Wah Yuen Electrical Engineering Pte Ltd v Singapore Cables Manufacturers Pte Ltd[2003] 3 SLR 629; [2003] SGCA 23
    the creditors voted together at the same meeting 12 Singapore Cables took objection to the claims of three related parties namely Mr Stanley Lee Kiang Leng Mr Lee Mr Wong Beng Huat Mr Wong and R N Electrical Engineering Pte Ltd R N The related party debts accounted for 61 72 of Wah Yuen s total unsecured debt The extent of the three parties relationship with Wah Yuen as well as the quantum of each of their three claims was as follows Related party Quantum of claim a Mr Stanley Lee Kiang Leng the managing director and 70 10 shareholder of Wah Yuen 4 296 254 10 b Mr Wong Beng Huat a director and 14 95 shareholder of Wah Yuen 20 000 00 c R N Electrical Engineering Pte Ltd a company in which Mr Lee held 90 of the shares and of which he was managing director 964 833 61 Total 5 281 087 71 13 Counsel for Wah Yuen correctly submitted that related party creditors did not constitute a separate class of creditors for voting purposes simply because they were related parties This is because the test is based on similarity or dissimilarity of legal rights against the company not on similarity or dissimilarity of interests not derived from such legal rights The fact that individuals may hold divergent views based on their private interests not derived from their legal rights against the company is not a ground for calling separate meetings UDL Argos Engineering Heavy Industries Co Ltd v Li Oi Lin 14 The position of Singapore Cables however was not that the two directors and R N should have voted separately by virtue of the fact that they were related parties rather counsel for Singapore Cables argued that the three parties should not have been allowed to vote at all because there were legitimate concerns over the existence and extent of the related party debts In so far as Mr Lee and Mr Wong were concerned the debts owing to the two directors witnessed a dramatic increase a In 1999 the amount Wah Yuen allegedly owed to their directors was only 161 188 00 b In Wah Yuen s audited balance sheet as at 31 December 2000 this amount had increased to 2 109 390 00 an increase of 1 948 202 00 c In Wah Yuen s unaudited balance sheet as of 30 November 2001 this amount had further increased to 3 936 847 00 an increase of 1 827 457 00 Out of this total amount the sum 3 916 847 00 was allegedly owing to Mr Lee alone d At the second creditors meeting the debt allegedly owing as admitted for the purposes of voting by Wah Yuen to both their directors as stated in the summary of results was 4 316 254 10 out of which the amount allegedly owing to Mr Lee alone was 4 296 254 10 This was more than the total amount allegedly owing to all the directors as at 30 November 2001 In so far as R N was concerned the debt owing to the company witnessed a dramatic decrease a The amount owing by Wah Yuen to R N in 1999 was only 356 028 00 b In Wah Yuen s audited balance sheet as at 31 December 2000 this had increased to 2 497 632 00 an increase of 2 141 604 00 c In Wah Yuen s unaudited balance sheet as at 30 November 2001 this amount decreased to 1 006 391 00 a decrease of 1 491 241 00 d At the second creditors meeting the debt allegedly owing as admitted for the purposes of voting as stated in the summary of results was 964 833 61 reflecting a further decrease of 41 557 39 15 Singapore Cables argued that it was not possible to verify the extent of the related parties claims or indeed if they were creditors at all on the information that was currently available In the premises the three related parties should not have been allowed to vote on the revised scheme If one were to discount the values attributable to these related parties the creditors in value supporting the scheme 8 556 893 43 less 5 281 087 71 would be 3 275 805 72 which worked out to 63 96 a figure that fell short of the 75 requirement of s 210 3 If one were to exclude the claims of the related parties from the equation Singapore Cables would have the single largest unsecured claim against Wah Yuen with a claim in excess of 1 1m and would have sufficient votes to effectively veto the scheme In the result Singapore Cables submitted Wah Yuen s application failed at the outset because the percentage requirements in s 210 3 had not been met 16 At the appeal hearing counsel for Wah Yuen sought to overcome this objection by arguing that the 75 threshold would have been crossed even if the related parties had voted on less favourable terms He tendered one set of calculations to show that the proposed scheme would have received the support of 81 03 in value of the creditors even if the quantum of related party debts had remained unchanged since the accounts were last audited for the financial year 2000 He tendered yet another set of calculations to show that the proposed scheme would have received the support of 77 48 in value of the creditors even if the amount owing to R N had dropped to 964 833 61 but the amount owing to the two directors had not increased since the financial year 2000 17 We were left unimpressed by this submission In our opinion it was always possible to cobble together some hypothetical scenario to show that the percentage requirements in s 210 could have been met Those scenarios however were just that hypotheticals and they did nothing to allay the real concerns that the changes in the related party debts had provoked 18 Nevertheless as much as we shared Singapore Cables concern over Wah Yuen s lack of transparency over its related party debts we were of the opinion that it was better dealt with when the bona fides of the related parties votes or the merits of the proposed scheme were assessed If it were a condition precedent that a company had to satisfy each creditor of the genesis and extent of all of its debts before the scheme could be put to the vote the entire process would be cumbersome and administratively inconvenient especially when the scheme might itself already provide for a procedure for the adjudication of claims for voting purposes as it did in this case Any remaining concerns therefore were better dealt with on a discretionary basis Whether the 36 creditors who stood to recover more than 15 of their claims should have been sub divided into separate classes for voting purposes 19 In the alternative Singapore Cables submitted that the votes of the remaining creditors were not representative of the views of the majority of the creditors as a whole because of the 75 creditors who voted for the scheme of arrangement 36 of them almost half of the creditors voting for the scheme of arrangement may be said to have rights which were so dissimilar from the other creditors that they would not be in a position to consult together with a view to their common interest Fourteen of the creditors stood to recover 100 of their claims Of the remaining 22 creditors Singapore Cables submitted that they too were not in position to consult together with a view to their common interest because they stood to recover various percentages of their claims ranging from 15 33 to 89 07 20 Although counsel for Wah Yuen took no objection we noted that Singapore Cables had not advanced this argument before the judge below According to the Court of Appeal in Management Corporation Strata Title No 473 v De Beers Jewellery Pte Ltd 2002 2 SLR 1 at 15 a party cannot raise a new argument on appeal unless the court is satisfied beyond doubt that a it has before it all the facts bearing upon the new contention as completely as would have been the case if the controversy had arisen at the trial and b that no satisfactory explanation could have been offered by those whose conduct is impugned if an opportunity for explanation had been afforded them when in the witness box The underlying principle behind the test is that the Court of Appeal should not allow any party to advance a new argument on appeal unless it is convinced that it is in as good a position as the judge below would have been to determine the merits of the new contention In the present case the court was indeed in such a position because it could resolve the question as to whether the creditors should have been divided into separate classes based on the material before it without having to call for further evidence 21 What Singapore Cables was essentially advocating was that the creditors should have been put into separate classes based on minor differences in the percentages that they stood to recover We found this to be both unrealistic and impractical If Singapore Cables was correct at least 12 classes of creditors would have to be given separate meetings each of which would be attended by anything from one to 14 creditors Just as the court must be careful not to empower the majority to oppress the minority by allowing the company to put everyone in the same class it must be careful not to enable a small minority to thwart the wishes of the majority by fragmenting the creditors into small classes see UDL Argos Engineering Heavy Industries Co Ltd v Li Oi Lin at 646 647 22 On the facts of the present case one could only adopt a fairly robust approach Re Crusader Limited 1995 QSC 95 and classify the creditors in a broad and objective manner Re Jax Marine Pty Ltd and Companies Act 1961 1967 1 NSWR 145 at 149 Complete identity of interest among the creditors was impossible Any attempt to subdivide the creditors into classes based on the precise percentage they stood to recover would lend itself to the charge of arbitrariness 23 What did cause us more concern however was whether Wah Yuen should at least have put the 14 who stood to recover 100 of their claims as well as the three whose claims were subordinated to the rest of the creditors into separate classes for voting purposes Prima facie it seemed to us that the rights of these two groups of creditors were so dissimilar from the remaining creditors that they could not sensibly consult together with a view to their common interest We did not find it necessary however to come to a definitive view on this because Wah Yuen s lack of transparency over its related party debts was sufficient reason not to sanction the proposed scheme of arrangement The adequacy of information The duty to give full information 24 Where a meeting is summoned under s 210 of the Act s 211 1 requires the company to provide its creditors with a statement explaining the effect of the compromise or arrangement and in particular stating any material interests of the directors whether as directors or as members or as creditors of the company or otherwise and the effect thereon of the compromise or arrangement in so far as it is different from the effect on the like interests of other persons Quite apart from statutory authority it is an independent principle of law that the creditors should be put in possession of such information as is necessary to make a meaningful choice As Selvam J held in Re Halley s Departmental Store Since s 210 does not lay down any matters on which the application must be based it is of extreme importance that the company furnishes full information to the creditors and the court before they can give their approval This point was stated by Maugham J in Re Dorman Long Co Ltd 1934 Ch 635 at 657 as follows it is essential to see that the explanatory circulars sent out by the board of the company are perfectly fair and as far as possible give all the information reasonably necessary to enable the recipients to determine how to vote I am assuming of course that following the usual procedure explanatory circulars are sent out because I may observe there is nothing in the Act to render them essential Plowman J in Re National Bank Ltd 1966 1 WLR 819 at 829 reiterated the point Section 206 say s nothing about disclosure either of valuations or of profits or of assets or of liabilities By s 206 the court is given the widest possible discretion to approve any sort of arrangement between a company and its shareholders The contentions of the parties 25 Counsel for Singapore Cables contended that this court should not sanction the proposed scheme because Wah Yuen did not provide the creditors with such information as was necessary for the creditors to assess the bona fides of the related parties votes or the fairness and reasonableness of the proposed scheme In essence Singapore Cables feared that the related parties under the guise of subordination were attempting to use this scheme to continue operating the business for their own benefit and prevent an investigation into possible misfeasance 26 In the present case besides the statutorily required explanatory statement Wah Yuen also furnished all voting creditors with its audited accounts for the year ending 31 December 2000 and its unaudited balance sheet as at 30 November 2001 27 Singapore Cables was dissatisfied with the extent of disclosure and attempted to seek further information on Wah Yuen s financial status at the two creditors meetings Counsel for Singapore Cables alleged that Wah Yuen did not tackle Singapore Cables queries at the first creditors meeting of 20 March 2002 and evaded the issue by saying that any creditor aggrieved by any lack of transparency by the company could make further enquiries from the company or vote against the proposed scheme of arrangement Singapore Cables subsequently wrote to Wah Yuen on 26 March 2002 with a list of questions regarding the proposed scheme Wah Yuen s audited accounts for the year ending 31 December 2000 and the unaudited balance sheet as at 30 November 2001 Singapore Cables was of the opinion that Wah Yuen s response of 3 April did not answer its queries adequately or at all At the second creditors meeting held on 3 April 2002 Singapore Cables again queried Wah Yuen on its alleged lack of transparency However it was merely told that it was at liberty to make representations to the court if the company eventually applied to the court for its approval of the revised scheme 28 For the purposes of the hearing below Singapore Cables obtained the services of an outside expert who in a report prepared after a perusal of all the accounting documents relating to Wah Yuen that had been made available to Singapore Cables pointed out various discrepancies and raised various queries on the amounts owed to the directors and R N Singapore Cables position was that Wah Yuen had yet to address any of its concerns to its satisfaction 29 Wah Yuen s position was that it had cooperated with Singapore Cables to the extent possible under the circumstances and that Singapore Cables was simply being fastidious in continuing to oppose what was a fair and reasonable scheme 30 Counsel for Wah Yuen submitted that it was not practical or realistic for the company to furnish an audited set of accounts for the year ending 31 December 2001 when the application to convene the first creditors meeting was scheduled for 16 January 2002 just two weeks after the close of the financial year An urgent special audit counsel argued was not feasible and could well have delayed the implementation of the scheme Quite apart from the fact that Wah Yuen allegedly could not even afford a special audit the company faced significant difficulties in updating its financial records and managing its projects because of the high turnover in its accounting and project management staff Far from being evasive Wah Yuen responded to each and every one of Singapore Cables queries of 26 March 2002 within a week While its response may not have appeared adequate to Singapore Cables it was the best that it could achieve within the short time frame and its financial constraints While Wah Yuen did not respond to the expert s report tendered on behalf of Singapore Cables counsel submitted that this should not be taken as a sign of bad faith because the fact of the matter was that the company could not afford to hire an accountant to respond to the queries 31 In so far as the related party debts were concerned Wah Yuen accused Singapore Cables of being unduly suspicious Wah Yuen contended that it was only natural for the directors to sustain the company in a time of grave financial difficulty by lending it substantial sums of money In so far as R N was concerned Wah Yuen submitted that it was not unusual for its running accounts with R N to fluctuate over time since it undertook projects of substantial size and R N was its primary subcontractor 32 If the related parties really did have oblique motives they would not have allowed their claims to be subordinated to the rest of the creditors nor permitted an outsider in the form of the new investor to be involved in the company s affairs In the circumstances Singapore Cables had no legitimate cause for complaint particularly when no other creditor had raised objections

    Original URL path: http://www.singaporelaw.sg/sglaw/laws-of-singapore/case-law/cases-in-articles/company/1456-wah-yuen-electrical-engineering-pte-ltd-v-singapore-cables-manufacturers-pte-ltd-2003-3-slr-629-2003-sgca-23?tmpl=component&print=1&page= (2016-01-30)
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