High Court · Decided 8 September 2010

Lian Hwee Choo Phebe and another v Maxz Universal Development Group Pte Ltd and others and another suit

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[2010] SGHC 268Case no. Suits Nos 536 and 75 of 2008

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Companies Act 1967

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Andrew Ang J:
Introduction
[1] These two suits involve various claims by the plaintiffs, Lian Hwee Choo Phebe, also known as Jennifer Lian (“LHC”), and Kok Lan Choo (“KLC”), who were two minority shareholders in a company, Maxz Universal Development Group Pte Ltd (“MDG”).
[2] The plaintiffs originally filed Originating Summons No 18 of 2008 (“OS 18”) on 8 January 2008 seeking, inter alia, an injunction against MDG and its directors to restrain them from allotting new shares in MDG. OS 18 was subsequently converted to a writ action, Suit No 75 of 2008 (“Suit 75”), on 29 January 2008. The main relief sought in Suit 75 was to set aside a rights issue of shares (“First Rights Issue”) pursuant to a resolution by MDG dated 13 December 2007 (“First Rights Issue Resolution”). On 1 August 2008, the plaintiffs filed Suit No 536 of 2008 (“Suit 536”) for relief from oppression under s 216 of the Companies Act (Cap 50, 2006 Rev Ed) (“Companies Act”). Suit 536 arose from substantially the same facts as Suit 75. The defendants in Suit 75 were also defendants in Suit 536, although another five defendants were added as co-conspirators in oppression in the latter action. They were all directors or majority shareholders of MDG at some point. Although the plaintiffs originally pleaded the tort of conspiracy under Suit 536, this was abandoned in their closing submissions.
[3] I heard both actions intermittently from July to October 2009. The parties agreed that the evidence adduced for the purpose of addressing the issues in Suit 536 would also be used to deal with the issues arising in Suit 75. On 1 February 2010, I ordered that the First Rights Issue be struck down and, by way of relief under s 216 of the Companies Act, ordered a buy-out of the plaintiffs’ shares. I now give my reasons for doing so.
Background
[4] MDG was founded by one Vincent Ling Wong King (“Ling”), KLC’s husband. He was approached by Seeto Keong (“Seeto”) and Koh Keng Guan (“Gary Koh”) to use the company as their corporate vehicle for property development. Ling agreed and gave shares to Seeto and Gary Koh, both of whom became directors. However, Gary Koh left sometime in 2003 because of bankruptcy proceedings taken out against him. In 2004, Ling transferred his shares to KLC. He remained active in the affairs of the company despite not holding shares or a directorship.
[5] The first plaintiff LHC was in the business of property development. In January 2005, at the invitation of one Benedict Kusni (“Kusni”), she invested $100,000 in MDG through her corporate vehicle, Phebe Investments Pte Ltd (“PIPL”). She received 30,000 shares which comprised 10% of the shares in MDG. Those shares were registered under PIPL. (She later alleged that she ought to have been issued 60,000 shares but instead half of that number of shares was issued to Kusni without her knowledge or consent.)
[6] MDG was controlled at that time primarily by Seeto, the third defendant, and Sebastian Wong Cheen Pong (“Sebastian Wong”), the sixth defendant. Seeto was the chief executive officer of MDG and held MDG shares from around May 2003 to May 2007. Sebastian Wong was an undischarged bankrupt and, oddly, the financial controller of MDG. The plaintiffs alleged that he was a de facto director and also a beneficial shareholder in MDG through his wife, the seventh defendant Loke Sau Fun (“Loke”) and subsequently his daughter, Gwendolyn Wong Sze Wen (“Gwendolyn Wong”), the eighth defendant. Loke held 226,000 shares in MDG from November 2004 to June 2006 at the behest of Sebastian Wong because the latter was facing bankruptcy proceedings. When bankruptcy proceedings were commenced against Loke as well, she transferred the shares to their daughter Gwendolyn Wong. The shareholdings in MDG in January 2005 were as set out below:
[7] Sometime later in 2005, MDG successfully negotiated with the Sentosa Development Corporation (“SDC”) for the acquisition and redevelopment of the former Sijori Resort at 23 Beach View, Sentosa Island (“the Property”) then leased by SDC to Sijori Resort Pte Ltd (“SRPL”) into a 200-room, five-star hotel (“the Project”). A special purpose vehicle, Treasure Resort Pte Ltd (“TR”), was incorporated on 28 June 2005 to be the owner and operator of the hotel (then renamed the “Treasure Resort”) and to run the Project. MDG thus became, essentially, a holding company with approximately 94.6% of TR’s share capital. (The exact number of shares in TR owned by MDG remains the subject of litigation between MDG and other parties with which we are not concerned.) The value of the Property subsequently increased substantially after the Singapore government announced that a new integrated resort would be built on land adjacent to the Property.
[8] In November 2005, the share capital of MDG was increased to $20m and 830,000 new shares were issued and allotted to the existing shareholders in proportion to their existing shareholdings. On 11 May 2006, LHC was appointed a director of MDG. She caused the MDG shares under PIPL to be transferred to herself. At or about this time, Loke transferred her shares in MDG to her daughter Gwendolyn Wong. In November 2006, following a dispute between LHC and Kusni, a shareholders’ meeting was held at which it was agreed that Kusni would transfer to LHC the 10% shareholding previously issued to him. In turn, MDG would issue 113,000 shares to Kusni for a consideration of $100,000. The shareholdings in MDG in December 2006 became as follows:
[9] Apart from her initial investment of $100,000, LHC, through her corporate vehicle Corporate United Ltd (“CUL”), procured a standby letter of credit (“SBLC”) for $200,000 to secure a $200,000 overdraft facility from Oversea-Chinese Banking Corporation Ltd (“OCBC”). This SBLC was to be discharged by 11 November 2005 but MDG failed to arrange for such discharge. In November 2005, LHC, again through CUL, provided another “loan” of $100,000 (it is unclear if what was provided was another SBLC) upon the request of Kusni and Seeto apparently to be used towards the acquisition of the Property. This “loan” was to be repaid by 16 December 2005 but it was not.
[10] On 11 May 2006, LHC was made a director of MDG. Two weeks later, she agreed, after persuasion by Seeto, to procure another SBLC through CUL, this time for $1m to secure MDG’s bank borrowings from OCBC. It was agreed that the SBLC would be discharged on or before 30 November 2006 but later, at Seeto’s request, this was extended to 27 February 2007. Seeto provided his personal guarantee to CUL and also gave MDG’s post-dated cheque for $1m as assurance that the SBLC would be discharged.
[11] In or about June 2006, MDG obtained credit facilities from Moscow Narody Bank Ltd (later re-named “VTB Bank”) of up to $8m to be used towards the purchase, renovation and refurbishment of the Property and for working capital.
[12] On or about 1 November 2006, MDG also obtained banking facilities of up to $2.5m from Malayan Banking Berhad (“Maybank”). The facilities were later in November 2006 increased to $5m (“the Maybank loan”) and utilised. The Maybank loan was secured by the joint and several guarantee of Seeto and LHC and by two Insurance Guarantee Bonds for a total of $5m by SHC Capital Ltd (“SHC”).
[13] On or about 27 December 2006, LHC wrote to MDG saying that although she had been a shareholder and director for more than a year, she had not seen any of the company’s accounts. She requested that she be given a set of MDG’s accounts for 2005 and 2006. In the same letter, LHC asked when MDG intended to repay the outstanding $300,000 “loans” owed to CUL and how the “loans” had been utilised. Likewise, she asked how the $1m “loaned” from CUL was utilised. Finally, she also proposed that the company’s cheques be signed by two joint signatories instead of the existing single signatories. She did not get a satisfactory reply and therefore instructed solicitors to make a demand on MDG on 19 January 2007 for repayment of the $300,000.
[14] On 22 January 2007, LHC wrote to the company secretary of MDG requesting for copies of all the minutes of meetings of MDG’s board of directors during the year 2006 and copies of all resolutions passed within the same period. She also asked for a copy of MDG’s accounts “passed” at the last Annual General Meeting (“AGM”). Not having received any of the documents sought, she wrote to MDG’s bankers on 29 January 2007 notifying them that with immediate effect all cheques and other correspondence with the bank had to bear her signature. (In the letters, she misdescribed herself as “Managing Director” but rectified the same by a subsequent letter of 7 February 2007.)
[15] On 15 March 2007, LHC was removed from directorship of MDG by a group of shareholders – Seeto, Gwendolyn Wong and Kusni – at an Extraordinary General Meeting (“EGM”).
[16] In May 2007, the second defendant Tan Boon Kian (“Rodney Tan”) invested in MDG through his wholly-owned British Virgin Islands corporate vehicle Roscent Group Ltd (“Roscent”) by buying all the shares belonging to Gwendolyn Wong and Seeto, ie, 678,000 (or 54%) of the shares in MDG. Rodney Tan was a wealthy individual who controlled the Cairnhill group of companies (“the Cairnhill Group”). On 1 June 2007, Rodney Tan was appointed a director of MDG. Rodney Tan advanced a number of loans to MDG totalling $1,978,468.05. He eventually entered into a convertible loan agreement (“the CLA”) with MDG on 27 July 2007 which entitled him to convert the loans into equity in MDG at par of $1 per share.
[17] Meanwhile, on 22 May 2007, CUL filed Suit No 316 of 2007 (“Suit 316/2007”) to recover the loans it had extended to MDG, although this action was later settled by Rodney Tan’s repayment of the loans on MDG’s behalf.
[18] MDG held its AGM on 24 October 2007 (“the 24 October 2007 AGM”). “Drafts” of MDG’s audited accounts for 2004, 2005 and 2006 were circulated to its shareholders before the AGM. In breach of the Companies Act, the accounts were not consolidated with TR’s accounts. The plaintiffs sent a list of questions thereon to be tabled at the AGM. At the 24 October 2007 AGM, the majority of the shareholders “approved” the accounts as well as the remuneration of the directors without answering the plaintiffs’ questions. (Parenthetically, the accounts ought to have been approved by the directors and laid before the members at the AGM.)
[19] MDG held an EGM on 13 December 2007 to consider the First Rights Issue Resolution for the issue of 6.9 million new shares at $1 per share. 1.91 million of these new shares were to be issued with a view to meeting MDG’s obligations under the CLA (“the Conversion”), while the remaining five million shares (“the Cash Call”) were for raising money to repay the Maybank loan. Despite the plaintiffs’ dissent, the First Rights Issue Resolution was passed by Roscent and Kusni, the majority shareholders at the time.
[20] On 3 January 2008, the plaintiffs filed OS 18 in which they sought to restrain MDG from proceeding with the rights issue and, in the alternative, to have the First Rights Issue Resolution declared void. The plaintiffs concurrently filed an urgent application, Summons No 58 of 2008 (“Sum 58/2008”), for an interim injunction to prevent MDG from issuing the shares. Lee Seiu Kin J heard and dismissed Sum 58/2008 on 10 January 2010. However, MDG on its part undertook to reverse the share allotment and repay the consideration if the First Rights Issue Resolution was found to be invalid. Rodney Tan undertook to indemnify the plaintiffs for their loss in the event that MDG was unable to fulfil its undertaking. Sometime that day, Rodney Tan bought all of Kusni’s shares and thereby became entitled to participate in the First Rights Issue in addition to Roscent being so entitled.
[21] On 11 January 2008, the plaintiffs, Rodney Tan and Roscent submitted their response slips to subscribe to the First Rights Issue. A directors’ meeting was convened on 14 January 2008 at the offices of MDG’s solicitors, Drew & Napier LLC (“D&N”), to consider the response slips. It was decided that the plaintiffs’ subscription response was invalid, but Roscent and Rodney Tan were to be allotted their shares as subscribed, and that the shares to which the plaintiffs would otherwise have been entitled would instead be allotted to Rodney Tan who had applied to pick up shares which other shareholders failed to subscribe for. Pursuant to the First Rights Issue, the shareholdings became as follows:
[22] The plaintiffs then took out an application on 14 February 2008 in Summons 663 of 2008 under Suit 75 to impugn the First Rights Issue Resolution by arguing, as a preliminary point, that it contravened Art 32 of MDG’s Articles of Association. On 3 April 2008, I held that the First Rights Issue Resolution did not contravene Art 32 of MDG’s Articles of Association and dismissed the plaintiffs’ application. The plaintiffs’ appeal against my decision was dismissed by the Court of Appeal on 13 January 2009 in Civil Appeal No 61 of 2008.
[23] On 25 April 2008, MDG issued another notice for an EGM to be convened to consider a resolution to raise up to $6m through the issuance of new shares (“the Second Rights Issue Resolution”). Soon after this notice was sent, MDG filed Summons No 1924 of 2008 on 29 April 2008 to seek leave for it and its directors to raise up to $6m in a share issue. On 20 May 2008, I ordered that leave be granted to MDG and its directors to issue shares in MDG to raise $6m upon undertakings by MDG and Rodney Tan similar to those made in Sum 58/2008. (Although leave was granted for MDG to raise up to $6m, its board of directors recommended an immediate capital call of $3.5m.)
[24] In May 2008, Wong Choon Hoy, one of the directors of MDG at the time, passed away. Rodney Tan approached the fourth defendant, Lim Kwee Wah (“Lim”), then an executive director of Cairnhill Group Holdings Pte Ltd (“CGH”), to take over Wong Choon Hoy’s place on the board of directors of MDG. That same month, the shares held by Roscent were transferred to the fifth defendant, Cairnhill Treasure Investment (S) Pte Ltd (“CTI”). According to Rodney Tan, this was done at the insistence of SDC which did not want a British Virgin Islands registered company to be the controlling shareholder of MDG. Rodney Tan was the majority shareholder in CTI, holding 4,964 (or 99.3%) of the total shares. Seeto held the remaining 35 shares in CTI, a 0.7% stake. The directors of CTI were Rodney Tan and his sister, Tan Poh Swan.
[25] The EGM to consider the Second Rights Issue was held on 11 June 2008 and it was attended by the proxies for the various shareholders. Unsurprisingly, the Second Rights Issue Resolution to raise $3.5m was passed by a majority of the shareholders. On 10 July 2008, CTI and Rodney Tan indicated their wish to subscribe for their full entitlement of shares. The plaintiffs’ solicitors Allen & Gledhill LLP (“A&G”) wrote to MDG on 10 July 2008 to decline the offer of 97,125 new shares for each plaintiff on the basis that, contrary to what was implicit in that offer, the plaintiffs did not only hold a diluted 2.78% of the shares in MDG each. A&G made a counter-proposal with several conditions, the effect of which was essentially the restoration of each plaintiff’s initial 18.18% shareholding in MDG. A directors’ meeting, attended by Rodney Tan, Seeto and Lim, was held on 16 July 2008 at which the plaintiffs’ counter-proposal was discussed and dismissed (with Seeto abstaining from voting). Their entitlement to the allotment of shares was offered to Rodney Tan and CTI, and Rodney Tan eventually subscribed for the shares initially offered to the plaintiffs. As a result, the shareholdings on 5 August 2008 became:
[26] Following the Second Rights Issue, MDG raised another $2.5m in March 2009 through the issuance of 2.5 million new shares in the second tranche of its effort to raise $6m in financing.
[27] MDG filed Suit No 643 of 2008 (“Suit 643”) on 11 September 2008 against LHC alleging that she had breached her director’s duty by causing Maybank’s refusal to provide MDG with refinancing. This claim was dismissed by Lai Siu Chiu J on 26 February 2010.
The pleadings
[28] The plaintiffs’ pleaded case was that:
(a) MDG’s directors and majority shareholders had generally conducted the company’s affairs under a shroud of secrecy and had denied the plaintiffs access to any meaningful information about the state of MDG’s finances, its true shareholding in TR and its assets;
(b) MDG’s directors and majority shareholders had failed to keep proper accounts and refused to provide any proper explanation as to the true value of the company at its Annual General Meeting on 24 October 2007;
(c) Seeto and Sebastian Wong had misappropriated or attempted to misappropriate funds belonging to MDG. Sebastian Wong had also asked Gary Koh to prepare fictitious invoices for the sums of $188,888 and $190,000 to be paid out to Seeto;
(d) MDG’s majority shareholders had wrongfully removed LHC as a director to prevent her from inquiring into the financial affairs of the company; and
(e) MDG’s directors and majority shareholders had acted unfairly to dilute the plaintiffs’ shareholdings in the company.
[29] The defendants denied all allegations of wrongdoing. In particular, Rodney Tan and CTI denied that they ought to be held accountable for those actions of Seeto and Sebastian Wong which had occurred before their entry into MDG in May 2007. They maintained that the plaintiffs had been given the information that they were entitled to as shareholders and that the rights issues were necessitated by the financing crisis that MDG was facing. They denied that the plaintiffs had been unfairly excluded from the allotment of shares in the First Rights Issue. Further, they pleaded that the board of directors was in no position to take up the plaintiffs’ counter-offer in the Second Rights Issue and therefore had to deny the plaintiffs the offered allotment of shares. Seeto, Sebastian Wong and Lim pleaded that they did not breach their fiduciary duties, and that the rights issues were necessary for the financing requirements of MDG. Lim pleaded that he had no knowledge of the events that happened before he joined the board of directors. Loke and Gwendolyn Wong denied that they held shares on behalf of Sebastian Wong and denied knowledge of the wrongdoing pleaded by the plaintiffs.
The evidence
[30] I set out below a summary of the testimonies of the main witnesses.
Lian Hwee Choo, Phebe
[31] According to LHC, sometime in April 2006, Seeto enlisted her assistance to find an investor for the Project. She learnt for the first time that TR (and not MDG) would be acquiring the Property. She also learnt that SDC had given TR in-principle approval to acquire the Property and some additional land for the Project. She was impressed by Seeto’s plans for the Project and delighted at the prospect of being a “part owner” of the same. According to her, the prospect became all the more exciting when she learned in the course of her search for investors that there were people willing to pay as much as $70m to take over the Project.
[32] LHC’s evidence was that when she relayed this information to Seeto, he sniggered and told her that the market was full of people looking for hotels and that the hotel would be a five-star hotel in a choice location facing the Merlion and near the Integrated Resort. He added that the buyer had not only to be immensely rich but also have the clout and talent to convince SDC to approve his involvement with “our hotel”. She took his response to mean that they were not selling as yet. It became apparent to LHC that MDG had a very valuable opportunity and that her investment was turning out to be a very promising one.
[33] LHC recounted that she agreed to be a director on 11 May 2006 upon the insistence of Seeto and Sebastian Wong, and that two weeks later she was persuaded by Seeto to procure the $1m SBLC to secure MDG’s bank borrowings from OCBC. At that time, the $100,000 “loan” made by CUL to MDG was already overdue and the $200,000 SBLC had also not been discharged.
[34] LHC further testified that on or about 9 November 2006, Seeto and Sebastian Wong showed Kusni and herself two pages of typewritten notes purporting to show that MDG had sufficient credit facilities to meet the company’s financial needs for November and December 2006 with a balance of $936,599 to spare.
[35] From the information given at the meeting, LHC figured that MDG ought to have been in a position to repay CUL the $100,000 “loan” which had been due since 16 December 2005. The $200,000 SBLC was to have been discharged by 11 November 2005 but it was not. The SBLC for $1m was to be discharged by 30 November 2006 but, as it turned out, it was not. (Subsequently, at Seeto’s request, that latter date was extended to 27 February 2007.)
[36] As a result of that meeting, LHC decided that MDG should repay the “loans” it had taken from CUL. Her suspicions were also aroused by the new BMW cars driven by Seeto and Sebastian Wong. She wrote to MDG on 27 December 2006 asking when it intended to repay her for the “loans” amounting to $300,000 it had taken and what it did with the “loans”. She proposed that there should be two joint signatories for MDG’s cheques as opposed to the existing one-signatory arrangement. Seeto replied on 12 January 2007 informing her that MDG intended to repay the $300,000 by the end of February 2007 but did not mention what MDG did with the money or whether he would add a signatory to MDG’s bank account.
[37] Through various letters in January 2007, CUL requested that MDG repay all its outstanding “loans”. On 22 January 2007, LHC wrote to MDG’s company secretary requesting copies of all minutes of meetings and directors’ resolutions for 2006, as well as its most recent financial statements. There was no response to those letters. On 29 January 2007, LHC wrote to MDG’s bankers, OCBC, MNB and Maybank informing them that she was making an inquiry into MDG’s accounts and that they should not accept any cheques, documents or correspondence from MDG that did not bear her signature. This was followed by another letter on 30 January 2007 written by LHC’s solicitors at the time, L S Tan & Co, to Seeto, in which LHC demanded that Seeto should:
(a) provide all of MDG’s financial statements for 2005 and 2006;
(b) provide a copy of all minutes and resolutions of MDG’s board of directors and shareholders in 2006;
(c) provide a copy of all of MDG’s bank statements for 2006; and
(d) add her as a joint signatory to operate MDG’s bank accounts.
LHC’s solicitors warned that legal action might be taken if LHC’s demands were not met.
[38] Seeto replied to LHC directly on the same day with a conciliatory e-mail informing her that Sebastian Wong had already been instructed to add her as a joint signatory to MDG’s bank accounts. Sebastian Wong confirmed this instruction in an e-mail dated 6 February 2007. However, on 5 February 2007, Seeto took a slightly different tone and sent a letter to LHC’s solicitors, informing them that the demands contained in their letter of 30 January 2007 should have been directed to MDG or its company secretary and not to him in his personal capacity. He added that the accounts of MDG were being finalised for audit and would be presented to shareholders at the next AGM “in accordance with the statutory time frame”. (I should add that in truth, the accounts for previous years had yet to be finalised!) On 7 February 2007, LHC wrote to the banks with a request for copies of MDG’s bank account statements. On 27 February 2007, LHC received from MDG’s company secretary copies of its directors’ resolutions passed in 2006 and its financial statements for the year ending 31 December 2003. The company secretary informed LHC that this was the set of financial statements laid before the last AGM of MDG. At around this time, LHC tried to encash the post-dated cheque given to CUL by Seeto as assurance for the $1m SBLC but it was dishonoured. On 28 February 2007, Maybank provided LHC with, inter alia, copies of MDG’s bank statements for the months of November 2006, December 2006 and January 2007. Further letters sent in March 2007 by LHC’s solicitors to Seeto repeating her demands for MDG’s financial information were ignored.
[39] On 15 March 2007, Seeto and Gwendolyn Wong convened an EGM at which they passed a resolution removing LHC as a director. LHC was not given a chance to defend herself as the meeting scheduled to begin at 9.00am was over by the time she arrived at 9.05am. Despite this state of affairs, LHC instructed her solicitors to write to MDG on 16 April 2007 requesting information on the following matters that she had discovered or noticed:
(a) Her signatures on a Deed of Indemnity (in favour of SHC in consideration of their issuing the Insurance Guarantee Bonds to secure the Maybank loan) and on the directors’ resolution authorising the same were forgeries;
(b) MDG’s bank statements provided by Maybank did not explain the whereabouts of $2.5m of the Maybank loan;
(c) one Shen Yixuan (“Shen”) claimed to be entitled to a transfer of 674,800 of MDG’s shares in TR; and
(d) one Chiang Sing Jeong (“Chiang”) claimed to be entitled to 40% of the shareholding in TR.
She received no meaningful response to her requests. LHC also obtained cheque imprints that showed payments made by Seeto from MDG’s OCBC account. Amongst those were, a cash cheque for $172,656.25 dated 1 December 2006 to Tan Chin Heng, a cheque for $10,000 dated 6 December 2006 to Performance Motors, a cheque for $49,977.74 dated 9 December 2006 to Performance Premium Selection Ltd and a cheque for $10,000 dated 12 December 2006 to himself. Other cheque withdrawals were later discovered during trial.
[40] MDG finally called for an AGM on 24 October 2007. It circulated to the shareholders the audited accounts for 2004, 2005 and 2006. In particular, the audited accounts for 2005 and 2006 contained a qualification from the auditor that the “unconsolidated financial statements do not give a true and fair view of the state of affairs of [MDG]”. Prior to the AGM, LHC and Ling had written to the board of directors with a list of questions concerning, inter alia, the directors’ remuneration, moneys owed by MDG, disputes regarding MDG’s shareholding in TR and the above cheque payments that Seeto made out of MDG’s bank accounts. At the 24 October 2007 AGM, LHC met Rodney Tan for the first time. She did not know that Seeto and Gwendolyn Wong had transferred their shares to Rodney Tan and that he had been appointed a director of MDG. Ling and LHC requested Rodney Tan, the chairman of the meeting, to discuss the audited accounts. Rodney Tan refused and adjourned the meeting despite LHC’s objections. After the meeting resumed, LHC and Ling asked for information on the audited accounts; Rodney Tan’s, Seeto’s and Sebastian Wong’s interests in Roscent; and how the $1m in MDG’s OCBC account was used. According to LHC, LHC and Ling’s questions were not answered. The chairman, Rodney Tan and MDG’s solicitor Harpreet Singh, said that they would be given answers in writing, but no “meaningful response” to their queries was ever given.
[41] On 27 November 2007, LHC and Ling received a notice from MDG informing them of the proposed First Rights Issue Resolution. Their solicitors at the time, A&G, wrote to Rodney Tan, Seeto and Sebastian Wong to seek information on the proposed issuance and clarification on why it was necessary to raise capital given that MDG had obtained a “$27 million” credit facility from Maybank. D&N responded that the First Rights Issue was for two purposes: for MDG to meet its obligations to Rodney Tan under the CLA and for the repayment of the Maybank loan. LHC claimed that she was put in a difficult situation; although she was keen to maintain her level of shareholding in MDG, she feared committing money to a management that was not prepared to be financially transparent.
[42] At the EGM held on 13 December 2007, Rodney Tan explained that the Cash Call was necessitated by Maybank’s request that its $5m loan to MDG be repaid. The plaintiffs attended the EGM through their proxies, Suresh Nair from A&G on behalf of LHC and Ling on behalf of KLC. The proxies were both instructed to vote against the First Rights Issue Resolution. Despite their objections, however, the resolution was passed by the majority shareholders at the time, Roscent and Kusni. During the EGM, letters of offer which disclosed that MDG intended to issue 6.9 million shares at $1 per share were handed to all shareholders. The letters of offer further stipulated that shareholders were to subscribe for their shares by returning the attached response slip by 11 January 2008 and that payment for the newly subscribed shares was to be made by the same deadline. Although no payment method was specified in the letters, the response slip was drafted as follows:
Although this response slip contemplated the attachment of a cashier’s order, LHC explained that she did not think there was a specific time frame to make payment.
[43] After the dilution of her shareholding, LHC claimed that Rodney Tan and Seeto taunted her by asking her to lend money to MDG on the same terms as Rodney Tan had under the CLA, knowing that she would not be minded to do so in the face of their oppressive conduct. They refused to answer LHC’s solicitors’ continued requests for information on the financial affairs of the company. In particular, LHC’s solicitors sent a further letter to MDG on 10 June 2008, a day before MDG convened another EGM on 11 June 2008 to consider the Second Rights Issue Resolution. In that letter, LHC’s solicitors asked the directors for information relating to the negotiations with SDC and whether MDG’s shares were held in trust by anyone, but there was no response. Following the passage of the Second Rights Issue Resolution, LHC was offered new MDG shares based on her reduced shareholding of 2.77%. On 10 July 2008, her solicitors wrote to offer to subscribe to sufficient shares to restore her percentage shareholding to 18.18%, but that offer was rejected.
Vincent Ling Wong King
[44] Ling was an important witness because KLC’s case relied heavily on Ling’s evidence. KLC deposed that Ling handled her affairs in MDG, and that he had represented her at the various meetings. Ling deposed that he discovered an opportunity to manage and develop the Property. He gave Seeto the contact details of Lim Chong Poon of SRPL, which was the owner of the Property at the time. Ling was under the impression that the Project would be run by MDG; he did not know of TR’s existence until September 2006 when he saw a copy of an executed option to purchase the Property.
[45] On 11 January 2008, at about 5pm in the evening, Ling went down to MDG’s office and submitted the plaintiffs’ response slips on their behalf. Both LHC and KLC indicated that they wished to subscribe to their full entitlement to the new shares, ie, 1,254,546 shares each. No cashier’s order was attached to either response slip. Instead, the plaintiffs stated in their response slips that they would provide a cashier’s order for the requisite amount within 14 days from that date.
Seeto Keong and Sebastian Wong Cheen Pong
[46] Seeto was involved in MDG from the start, although he withdrew somewhat from the day to day management after selling his stake to Rodney Tan. He portrayed LHC as a manipulative woman who tried to scupper the company’s financing efforts when it became clear that the value of the Property had appreciated significantly after the Sentosa Integrated Resort was announced. Seeto claimed that he initially thought LHC was part of the wealthy Lien family. He further claimed that he did not know that CUL was owned and controlled by LHC, and that the CUL loan was arranged by Kusni. According to him, he was responsible for meeting with SRPL to arrange the deal to acquire the Property. A subsidiary company, TR, was set up for the Project. TR was originally incorporated by Chiang but 100,000 shares were allotted to MDG. Seeto, Sebastian Wong and Chiang approached Shen and one Tan Eck Hong who agreed to finance the purchase of the Property from SRPL.
[47] Sebastian Wong and Seeto engaged in meetings with SDC’s representatives regarding TR’s redevelopment plans for the Property. Approval for TR to buy and redevelop the Property was given in May 2006. In November 2006, MDG drew down on its $2.5m facility with Maybank to pay SDC as well as to disburse money into MDG’s OCBC and Maybank current accounts. The Deed of Novation and Supplemental Agreement with SDC and SRPL were signed on 14 November 2006. However, Seeto continued to meet with potential investors throughout this period as MDG/TR still faced a funding shortfall for repayment obligations under the various loans and also under the Deed of Novation and Supplemental Agreement. MDG/TR also required money for renovations and refurbishment of the Project. Seeto obtained an additional $2.5m in credit facilities from Maybank (this formed the Maybank loan together with the first tranche of $2.5m) secured by the SHC Insurance Guarantee Bonds and a personal guarantee from him and LHC.
[48] Seeto, however, claimed that LHC attempted to create a divide between himself and Sebastian Wong through false representations and that she also jeopardised the company’s fund-raising activities by sending letters to Maybank, VTB Bank and OCBC. For those reasons, Seeto requisitioned an EGM on 15 March 2007. At the EGM, Seeto gave the shareholders a detailed brief of MDG’s financial position then and its projected cash flow analysis for 2007 to 2009. LHC and Ling did not arrive in time for the EGM. The resolution to remove LHC as a director was passed and she was replaced by Chen Siok Chan. LHC lodged a police report against Seeto and Sebastian Wong, prompting the Commercial Affairs Department (“CAD”) to commence investigations but nothing further came of it. Shortly after this EGM, Seeto and Gwendolyn Wong sold their shares in MDG to Rodney Tan in May 2007. From that point on, Rodney Tan became the controlling director of MDG.
[49] Both Seeto and Sebastian Wong denied misappropriating MDG’s funds. They gave the following explanations in their affidavits of evidence-in-chief:
(a) $18,992.84 was cashed out and deposited to MDG’s account to meet a shortfall in its payment to VTB Bank;
(b) $8,100 was payment of outstanding staff salaries;
(c) the cash cheques for the sums of $10,000 and $49,977.74 were part repayments of loans that Seeto had extended to MDG; $10,000 was part repayment of a loan advanced by Seeto to MDG;
(d) $172,656.25 was paid to one Tan Chin Heng for his brokerage and service fees;
(e) $5,000 was paid to Tan Eck Hong; and
(f) $378,000 was in repayment of an initial loan of $250,000 from one Wong Nam Sin.
Rodney Tan
[50] Rodney Tan denied knowledge of what had happened in MDG prior to his initial involvement in the company in May 2007. He accused the plaintiffs of seeking to take full benefit from his injection of funds without giving any of the requisite financial support MDG sought from its shareholders. According to him, the Project was in a crisis when he was approached to invest in MDG and required “tens of millions” in fresh capital. MDG/TR had not commenced any construction or refurbishment work on the Project in breach of its contractual obligations to SDC, and was in critical financial difficulty. Around April to May 2007, MDG ran into problems servicing its loans. It did not have the funds to repay a loan of $500,000 it took from Shen to secure the SHC Insurance Guarantee Bonds; the default in payment could have adversely affected its shareholding in TR. MDG had also defaulted on a scheduled instalment payment of $83,000 to VTB Bank and had no means of meeting future payments. At the same time, CUL had served a statutory demand for repayment to MDG.
[51] Seeto had initially approached Rodney Tan for financing help in March and August 2005 without success. It was only in May 2007 that Rodney Tan’s corporate vehicle Roscent agreed to acquire 678,000 shares (or 54.54%) of the total shareholding in MDG from Seeto and Gwendolyn Wong, after Rodney Tan’s solicitors, Stamford Law Corporation, had conducted the customary due diligence checks. In exchange, Seeto acquired 18,544 (or 30%) of the total shareholding in Roscent. However, Seeto’s shareholding was eventually reduced to 1% after he failed to subscribe for shares in Roscent during its subsequent rights issues. The rest of the shares were held by Rodney Tan, who was Roscent’s only director.
[52] Rodney Tan explained that he would not have taken the risk of investing in the Project if he had not been given a majority stake. After his entry, he extended a series of loans from May 2007 to August 2007, viz:
(a) $83,792.83 on 28 May 2007, for the payment of arrears due to VTB Bank;
(b) $29,000 on 1 June 2007, for payment to VTB Bank;
(c) $82,832.81 on 27 June 2007, for payment to VTB Bank;
(d) $500,000 on 28 June 2007, for payment to Shen Yixuan;
(e) $82,842.41 on 27 July 2007, for payment to VTB Bank; and
(f) $1.2m to CUL on 3 August 2007 to settle Suit 316/2007.
On 27 July 2007, MDG entered into the CLA with Rodney Tan, which entitled him to convert the advances made, amounting to $1,978,468.05, into shares in MDG for $1 per share. Rodney Tan also gave evidence that SDC’s solicitors had threatened to take legal action against TR because it was substantially behind the construction schedule agreed to under the Building Agreement and the Supplemental Agreement. The Project was originally due to obtain its Temporary Occupation Permit on 30 June 2008 but Rodney Tan obtained an extension of time to 1 January 2010 after negotiations with SDC.
[53] Rodney Tan procured a $105.3m facility from Maybank secured by a mortgage over the Property. In exchange for SDC’s approval of this mortgage, Rodney Tan agreed to:
(a) transfer the shares in MDG held by Roscent to CTI;
(b) not to recognise any trust of MDG shares; and
(c) not to sell his majority stake in MDG for a five year period.
In spite of the $105.3m in financing, MDG still faced a shortfall of $40m. Against this backdrop, MDG had to repay the Maybank loan as well as the advances amounting to $1.9m made by him. Further, Rodney Tan asserted that it was important that the Maybank loan be repaid on time to inspire confidence in MDG/TR’s financial capabilities. This would have made it easier to approach Maybank for further financing in the future. Maybank had informed Rodney Tan that the provision of the $105.3m facility would be endangered if MDG failed to repay the $5m loan. In addition, Rodney Tan acted as guarantor to a credit facility worth $26.1m, extended by Maybank to TR (“the TR Facility”) arranged on 2 August 2007, of which $5m was earmarked to pay off the Maybank loan on behalf of MDG. However, Rodney Tan gave instructions to Maybank to make payment for the Maybank loan on behalf of MDG from his personal line of credit on 19 November 2007 (and in the process reduced the TR Facility by $5m). The transaction was carried out “shortly before 26 December 2007”, after the EGM held for the passing of the First Rights Issue Resolution. Rodney Tan testified that it was only fair for MDG to repay him the sum he had advanced.
[54] At 9.30pm on 11 January 2008, Rodney Tan submitted the response slips for his own subscription of 627,272 new shares in MDG and Roscent’s subscription for 3,763,636 new shares respectively in the First Rights Issue. Roscent requested MDG to set off the amount due for its new shares against the money MDG owed to Rodney Tan. Rodney Tan also requested that MDG set off the amount due for his new shares against the money owed by MDG to it. He claimed Seeto and Wong Choon Hoy met on 14 January 2008 to consider the response slips and they resolved that the plaintiffs’ subscription was invalid because they had failed to make payment by 11 January 2008 in accordance with the terms of offer set out. According to him, he did not take part in the voting on the directors’ resolution of 14 January 2008.
[55] Rodney Tan denied that he had run MDG under a shroud of complete secrecy. He claimed that many of the letters sent by the plaintiffs involved matters that were not within his personal knowledge. It was also apparent from those letters that the plaintiffs had embarked on a campaign to bombard MDG with all manner of requests for information. According to Rodney Tan, at the 24 October 2007 AGM, the plaintiffs were briefed on the status of the various law suits involving MDG and he also gave the plaintiffs a tour of the existing 64 rooms in the Project to show them the refurbishment work carried out. Notwithstanding the plaintiffs’ behaviour, MDG, through its solicitors, did its best to provide the plaintiffs with information. For example, D&N wrote to A&G (LHC’s solicitors) on 1 February 2008 with the audited accounts of TR attached, although it stated that LHC was not entitled to the other information sought.
Tan Chin Ren
[56] Tan Chin Ren gave evidence on why MDG’s audited accounts for the financial year ended 31 December 2005 were qualified. He was an accountant with Tan, Chan & Partners, which had been appointed by MDG to prepare its audited accounts. Tan Chin Ren’s team of accountants discovered that MDG had a subsidiary company, TR, which did not have any business operations in 2005. Under the Companies Act, TR was required to prepare consolidated accounts for the holding company MDG. However, Sebastian Wong, on behalf of MDG, instructed Tan Chin Ren to prepare only one set of accounts (that were to be qualified) instead of consolidated accounts. Under cross-examination, Tan Chin Ren admitted that the accounts should have been consolidated.
[57] Tan Chin Ren also prepared a due diligence report for Rodney Tan prior to his purchase of shares in MDG in May 2007. Although there was no specific mention of the large amounts of cash cheque withdrawals, Tan Chin Ren included information on the company’s financial situation and significantly highlighted to Rodney Tan that, inter alia, a sum of $60,000 had been paid to Sebastian Wong as “administrative expenses” which required explanation.
The law
[58] Section 216 of the Companies Act provides minority members of a company relief against majority conduct oppressive to their interests. The provision states:
The provision gives the court broad and flexible powers in deciding whether to provide relief. The Court of Appeal recently observed in Over & Over Ltd v Bonvests Holdings Ltd [2010] 2 SLR 776 (“Over & Over – CA”) at [70] that the common thread underpinning the four limbs of s 216 is some element of unfairness.
[59] Not every dispute between shareholders gives rise to a right to relief under s 216. In particular, it is not the role of the court to act as arbiter 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]). Minority shareholders generally participate in a commercial enterprise in the knowledge that they will be subject to majority rule, although this does not give the majority carte blanche to do whatever they like (Lim Swee Khiang v Borden Co (Pte) Ltd [2006] 4 SLR(R) 745 (“Borden”) at [80]–[82]). A “visible departure from the standards of fair dealing and a violation of the conditions of fair play which a shareholder is entitled to expect” would attract the court’s intervention to grant relief against oppression (Elder v Elder & Watson Ltd 1952 SC 49, cited in Re Kong Thai Sawmill (Miri) Sdn Bhd [1978] 2 MLJ 227 at 229 and Borden at [80]).
[60] Beyond rights established by the Companies Act and under general law, shareholders’ rights are ordinarily encapsulated in their shareholders’ agreements and the company’s memorandum and articles. However, not every breach of directors’ duties or the terms of shareholders’ agreements amounts to oppressive conduct (Kumagai Gumi Co Ltd v Zenecon Pte Ltd [1995] 2 SLR(R) 304 at [38]). The court should also consider whether the breach was deliberate, whether the breach was significant and whether any detriment was caused (Ng Sing King v PSA International Pte Ltd [2005] 2 SLR(R) 56 (“Ng Sing King”) at [95]). In the same vein, breaches of the Companies Act would attract separate sanctions, and would not necessarily be labelled as oppression of the minority unless something more was shown. For instance, the Court of Appeal held in Thio Keng Poon v Thio Syn Pyn [2010] SGCA 16 (unreported) that a resolution removing a minority shareholder from directorship was void because of the substantial injustice caused by the board of directors’ failure to give due notice. Nevertheless, the minority shareholder’s alternative claim for minority oppression was dismissed because there was no understanding that he would not be removed as director.
[61] On the other hand, oppressive conduct need not be conduct in breach of the company’s articles or the shareholders’ agreement. The Court of Appeal espoused in Over & Over – CA (in the context of discussion on quasi-partnerships) at [85] that:
I do not think that the Court of Appeal’s comments were meant to apply narrowly to situations where quasi-partnerships can be found. It seems to me that courts should always take into consideration all the circumstances surrounding the parties’ relationships and any understanding or expectations between them.
[62] There is no general expectation that the shareholding of a company will remain constant, and the dilution of a minority shareholder is not in itself oppressive conduct. For instance, Hoffmann J in Re a Company (No 007623 of 1986) [1986] BCLC 362 at 366 observed that a minority shareholder who was impecunious or who did not wish to protect his shareholding could sell out if the company held a rights issue to raise funds. Conversely, in Re Cumana Ltd [1986] BCLC 430, a rights issue conducted with the purpose of diluting an impecunious shareholder was found to be unfairly prejudicial because the dilution attempt was in breach of the informal understanding between the parties that there would be no such attempt. Likewise, the Court of Appeal in Over & Over – CA ([58] supra) observed at [122] that a collateral purpose behind a rights issue could amount to oppression of the minority:
[63] In Lim Cheng Huat Raymond v Teoh Siang Teik [1996] 3 SLR(R) 371, the Court of Appeal reversed the trial judge’s finding that a minority shareholder and director had been oppressed by the majority’s denial of information and documents because there was insufficient evidence to support the allegation. However, the Court of Appeal made no comment on the correctness of the trial judge’s approach in relying on denial of information and documents as a basis for finding minority oppression. In Ng Sing King ([61] supra), the minority shareholders (holding directorships) alleged that they had been excluded from negotiations to form an alliance with a rival company and that information about the negotiations were wrongfully concealed from them. MPH Rubin J held that the concealment of information was wrongful only if the minority shareholders had a legitimate expectation of receiving such information and the information had been hidden with an improper purpose (at [102]). On the facts, there was nothing to suggest that the minority shareholders, who had detailed their rights extensively in the shareholder agreements, had a legitimate expectation to such information, nor was there proof of an improper collateral motive.
[64] The outcome would be otherwise if there was an understanding between the shareholders that they were entitled to a reasonable flow of management information concerning the company. In Re Regional Airports [1999] 2 BCLC 30, the court found, based on prior drafts of the shareholders’ agreement, that the shareholders had a common assumption that (at 80):
The court in that case concluded that the minority shareholders had been unfairly prejudiced based on the majority shareholders’ failure to comply with that legitimate expectation, as well as on other instances of unfair conduct.
This court’s findings
Credibility of witnesses
[65] Before dealing with the issues, I should state that I generally found Seeto, Sebastian Wong and Rodney Tan to lack credibility. They were evasive during cross-examination and took inconsistent positions. When Sebastian Wong was asked if he was the beneficial owner of MDG shares, he refused to answer counsel’s questions straight on. He likewise refused to reveal his intention for giving half the money he received from MDG to Seeto. Rodney Tan prevaricated many times during cross-examination and concealed the fact that he was paid interest under the CLA. He hesitated and tried to avoid answering even simple questions, eg, as to the identity of the bankers for his companies. He first claimed that the directors were concerned that the banks might recall loans when he sought to justify spending some $60,000 in entertaining bankers over a two-month period in April and May 2009. However, when he was asked to explain why the entertainment expenses incurred by CGH were reimbursed by TR, he changed tack and said that the bankers from a certain local bank (“Bank A”) whom he had entertained were in fact keen to take over TR’s loan portfolio from Maybank. Further, he repeatedly attempted to distance himself totally from the conduct of Seeto and Sebastian Wong. As a result of the due diligence conducted by Tan Chin Ren for him, he must have been aware of Seeto’s and Sebastian Wong’s dishonest dealings vis-a-vis MDG. For example, Tan Chin Ren had highlighted to him the unexplained “administrative expenses” drawn out by Sebastian Wong. Similarly, the report called for verification of the minutes of meetings by directors and shareholders to approve the director’s fees paid out to Seeto. Yet, according to Tan Chin Ren, there was no such verification even as at the 24 October 2007 AGM. Instead, Rodney Tan retained Seeto and Sebastian Wong’s services and rewarded them for it. Seeto continued to draw his allowance and Sebastian Wong’s allowance was even increased to $13,000. It was not surprising that they would have done his bidding. Seeto was, however, the worst of the lot. He persisted in avoiding giving answers to questions as to his withdrawals of the company’s funds and invented fanciful explanations for what clearly constituted misconduct. His evidence that he had given the shareholders detailed financial information during the EGM held on 15 March 2007 was directly contradicted by Sebastian Wong who revealed that the company’s accounts had not been prepared then, thereby (unwittingly) exposing Seeto’s lie.
[66] On the other hand, although LHC was somewhat difficult, prevaricated at times and probably understood English better than she cared to admit, I believed her testimony on essential points. She was consistent in her recollection of how she had been taken advantage of by the defendants and their abuse of their position as the controlling faction within MDG. The defendants attempted to smear the credibility of Gary Koh (see [74] below), pointing to the fact that he had a personal vendetta against Rodney Tan, Seeto and Sebastian Wong. However, his version of the events was either corroborated or was objectively more believable than the explanation spun by the defendants.
Preliminary findings
[67] First of all, I did not think that the plaintiffs were tardy in seeking relief or that they lacked good faith in bringing the present complaints. LHC and KLC, through Ling, had sent letters requesting an explanation of MDG’s affairs several times, and LHC was forced into approaching Maybank directly to obtain information about MDG. The plaintiffs had sought to block both the First and Second Rights Issues, albeit unsuccessfully. Those actions could not have indicated of acquiescence to the defendants’ conduct.
[68] Second, I found that Sebastian Wong was a de facto director and the beneficial owner of the shares held in Loke’s and Gwendolyn Wong’s names. Both Loke and Gwendolyn Wong confirmed that they held shares that Seeto had promised Sebastian Wong (although they maintained that the shares would only change hands upon the conclusion of the TR deal). Under cross-examination, Sebastian Wong acknowledged that the TR deal was as good as concluded but maintained that the shares still belonged to Seeto. This, however, was contradicted by the evidence of Seeto who testified that he was no longer the beneficial owner of the shares. On the totality of the evidence, I found that Sebastian Wong was the beneficial owner of the shares that were held by Loke and then by Gwendolyn Wong before they were sold to Roscent.
[69] Further, both Loke and Gwendolyn Wong testified that, at all times, they took instructions from Sebastian Wong and had no contact with Seeto. Gwendolyn Wong’s vote to expel LHC from the board of directors was therefore on Sebastian Wong’s directions. Moreover, it was not disputed that Sebastian Wong was in charge of all MDG’s financial affairs, including the decision not to consolidate MDG’s accounts with TR’s accounts. Thus, it was fairly obvious to me that Sebastian Wong was a de facto director of MDG who controlled the company together with Seeto in the period prior to Rodney Tan’s investment in May 2007.
[70] Following from this conclusion, Gwendolyn Wong and Loke were marginal actors in the events that transpired. They had merely held shares and acted on the instructions of Sebastian Wong. The plaintiffs’ original case against them was premised on their involvement in an alleged conspiracy. Given that the plaintiffs subsequently abandoned that cause of action, I did not think the evidence supported the plaintiffs’ claim that they had engaged in conduct that was oppressive towards the plaintiffs, even though Gwendolyn Wong had voted against the plaintiffs on the instructions of Sebastian Wong.
Whether Seeto and Sebastian Wong had misappropriated MDG’s funds
[71] The plaintiffs argued that Seeto and Sebastian Wong misused their access to MDG’s main operating bank account with OCBC to help themselves to MDG’s funds, although the dearth of information provided to the plaintiffs prior to trial meant that the extent of their actions could not be detailed. According to the plaintiffs, much of the information only surfaced belatedly during the trial pursuant to further discovery. Therefore the defendants’ objections that the plaintiffs had failed to plead specific instances of misappropriation rang hollow in the light of their feet-dragging in providing discovery. Based on facts belatedly discovered, the plaintiffs pointed to several unusual cash cheque withdrawals which they alleged were a misappropriation of the company’s funds. I shall go into each in turn.
[72] The plaintiffs argued that they had asked Seeto, Sebastian Wong and Rodney Tan about the sums paid out to Tan Chin Heng in their letter sent on 22 October 2007, two days before the 24 October 2007 AGM. However, no proper response was given. Seeto and Sebastian Wong then took the position that Tan Chin Heng was paid for his services in procuring the SHC Insurance Guarantee Bonds. Unfortunately, Tan Chin Heng’s testimony was not before the court. Neither side took it upon themselves to call him as a witness. However, the burden of proving misappropriation lay with the plaintiffs. It was not sufficient to show that MDG and its directors had refused to answer their questions pertaining to those payments. I did not think they had discharged that burden from the lack of evidence before me.
[73] The plaintiffs’ other complaint related to two cheques made out by Seeto from MDG’s OCBC account for $10,000 to Performance Motors and another for $49,977.74 to Performance Premium Selection Ltd. Both were for the purchase of two BMW cars for Seeto and Sebastian Wong respectively, who submitted that these payments were in reality “part repayments” to Seeto for loans that Seeto had extended to MDG previously. There was, however, no documentation of the loans beyond the MDG ledger entries and no explanation as to the circumstances giving rise to the loan. Moreover, I disbelieved the testimony of Sebastian Wong and Seeto. Given Seeto’s personal financial situation, I thought it was unlikely that he could have advanced such sums of money to MDG. There were no details as to when and for what purpose this loan was given. More significantly, I did not think that Seeto would contribute to the purchase of Sebastian Wong’s new car. It seemed to me that Seeto and Sebastian Wong had simply rewarded themselves from the coffers of MDG after it had obtained a hefty new loan from Maybank.
[74] I accepted Gary Koh’s evidence that Sebastian Wong and Seeto asked him to raise three fictitious invoices. The first invoice from Gary Koh for $50,000 was supposedly for “concept drawing”. Seeto, in his affidavit of evidence-in-chief, stated that the $50,000 paid out in a cash cheque was actually a referral fee made to Gary Koh for his aid in procuring finance from Tan Eck Hong. He later added that another reason for the payment was the design services provided by Gary Koh. However, Gary Koh testified that although he did some design work for the company, there was never a sum of $50,000 owed to him. It soon became clear from the cheque imprint that it was actually made out to Seeto. Seeto maintained that the payment was to Gary Koh. I found this difficult to believe. There was no reason to conceal this referral fee behind a claim for “concept drawing”. Seeto admitted to taking the payments for the other two invoices for $190,000 and $188,888 respectively. He claimed that they were to repay loans from Wong Nam Sin and Tan Eck Hong that he had obtained on behalf of MDG in order to draw down on its credit facility with MNB. Again, I saw no reason for his taking such a circuitous route to secure financing for MDG. I had serious doubts that Seeto’s actions were really for the benefit of the company. I disagreed with Seeto’s argument that the plaintiffs had the burden of calling Tan Eck Hong to testify. The plaintiffs had shown that Seeto was the recipient of the money withdrawn under false pretenses from MDG. It was then for Seeto to show how this money was in repayment of a loan extended to MDG from Tan Eck Hong, contrary to the documentary trail that Seeto and Sebastian Wong themselves had created.
[75] What was also clear to me was that Seeto and Sebastian Wong had failed to keep proper accounts during the time they were in control of MDG. While I agreed with the plaintiffs that there was no satisfactory explanation given by Seeto or Sebastian Wong concerning the large sums withdrawn through cash cheques from MDG, I did not think that was sufficient in itself to establish oppression. The plaintiffs succeeded only in showing that there were some unexplained withdrawals, namely, the payments to Performance Motors and the fictitious invoices. However, that was not oppression per se. It was for the company to take action against Seeto and Sebastian Wong for their misconduct, and the plaintiffs to take out a derivative action if the company was not minded to do so.
The related party transactions and Rodney Tan’s remuneration
[76] The plaintiffs sought to impugn the transactions TR entered into with companies related to Rodney Tan, namely, Glo-Fabrics House Pte Ltd (“Glo”), CGH and CHI, as well as the remuneration paid to Rodney Tan. Glo was a company operated by Rodney Tan’s wife, Poh Ban Leng, while CGH and CHI were part of the Cairnhill Group controlled by Rodney Tan. Essentially, the plaintiffs’ case was that Rodney Tan had abused his control of TR/MDG to withdraw large sums of money and caused TR/MDG to incur unnecessary debt. However, while there were several discrepancies in the manner in which the transactions were conducted, I did not think that the plaintiffs proved their case that those transactions were prejudicial to their interests or the interests of the company.
[77] First, Rodney Tan’s failure to make formal disclosure to the board that he was interested in those transactions was not, in my view, indicative of an intention to do wrong because it was common knowledge that he was the person controlling the Cairnhill Group. Second, there was no evidence, nor did the plaintiffs argue, that those related or associated companies failed to provide the services contracted for, or that they were overpaid for their services. Given that there is no general bar against related party transactions, the plaintiffs had to show more than just the relationship between Rodney Tan and the companies involved. They had to explain how the procurement of contracts was unjustified or in some way prejudicial to their interests. Rodney Tan had without doubt played some part in TR/MDG’s decision to hire companies related to him, but all that the plaintiffs did was to show that payments were made very quickly after invoices were issued. The plaintiffs made submissions on the large sums of money paid out but they did not show that those payments were inordinately large. There was no comparison drawn between the price that TR paid for the services against the market price. Without the evidence, I could not make a finding that those payments were excessive.
[78] With respect to Rodney Tan’s remuneration, all that the plaintiffs could show was that Rodney Tan had been paid $15,000 a month by TR since he became a director and the majority shareholder through Roscent. There was nothing further to show how that was excessive remuneration. No doubt the remuneration paid to a director and majority shareholder was relevant to any allegation of minority oppression since this was a common method of realising gains from a company without dividends, but there was no evidence to suggest that Rodney Tan was overpaid. Thus, I did not regard the related party transactions or the remuneration paid to Rodney Tan as indicators of oppressive conduct.
[79] However, I did notice discrepancies in the evidence of the defendants’ witnesses. For instance, there were false representations made by Alex Low Chee Kin who, under cross-examination, revealed that a document that he exhibited as an “invoice” was in fact a “quotation”, contradicting his initial testimony that TR/MDG had not paid Glo promptly. It was also curious that $450,062 was paid out to CGH on 4 January 2008, in the midst of MDG’s ostensible attempt to secure fresh funds to repay the Maybank loan. Further, as I alluded to earlier, Rodney Tan did not give a satisfactory explanation as to why his company CGH was entitled to be reimbursed by TR for its entertainment expenses. Those were apparently incurred in entertaining several bankers from Bank A whom he claimed were keen on taking over TR’s loan portfolio from Maybank. However, that explanation appeared to contradict his testimony of the previous day that the directors were very concerned that the banks might recall loans. I was not satisfied with his explanation. There was no evidence that Bank A did lend any money to TR. Neither was his explanation corroborated. A director who wears more than one hat, has to be scrupulously careful not to burden one company over which he has control with expenses incurred for the benefit of another in which he is also interested.
Whether the plaintiffs were unfairly denied access to information
[80] The plaintiffs’ main grievance may be summed up simply: they were kept in the dark by the directors and majority shareholders of MDG about the financial affairs of the company. There were two threads to this grievance. First, the affairs of MDG were generally conducted under a shroud of secrecy that concealed any meaningful information about the state of MDG’s finances, its true shareholding in TR and its assets. Related to this was the second element that the directors had failed to keep proper accounts and refused to provide a proper explanation even up to the 24 October 2007 AGM. I will deal with the latter issue first.
The failure to keep proper accounts
[81] It was not seriously disputed that the accounts of MDG from 2004 to 2006 were in disarray. Seeto claimed that he ought not to be held to strict accounting standards because he was not trained in accounting practices and procedures. Sebastian Wong argued that MDG was under-staffed and unable to spare the time and resources to maintain proper records. Both, essentially, sought to characterise the various departures from proper accounting as innocent and inadvertent. However, that was not borne out by an examination of the various errors.
[82] First, the cash flow record of the company was unusual given its lack of business operations. The general ledger for MDG produced just before the trial began revealed that large sums of money had been withdrawn through cash cheques: $325,663.09 in 2005, $486,404.68 in 2006 and $779,781.91 in 2007. Confronted with these statements, Tan Chin Ren agreed that it was unusual for the company to issue cash cheques for such large amounts in 2005:
However, the entries did not specify the purpose behind the withdrawals. Whilst there was no concrete evidence that those cash withdrawals were for improper purposes, the egregious lack of record keeping for such large withdrawals lent itself to suspicion to say the least.
[83] Another false entry was the deliberate misclassification of $720,000 paid by Tan Eck Hong to purchase 60,000 of MDG’s shares in TR as a “loan”. This was not an innocent error. Under cross-examination, Tan Chin Ren agreed that this was an incorrect entry and that, crucially, it was an irregular transaction. He testified that he had asked for an explanation from Sebastian Wong who said that the company was taking a loan from Tan Eck Hong for the existing shareholders to purchase shares in MDG:
From this evidence, it could be seen quite clearly that Sebastian Wong’s conduct went beyond mere negligence; he had hidden the true nature of Tan Eck Hong’s payment as a loan and told Tan Chin Ren that it was for the shareholders to purchase shares in MDG. (That itself would have been a breach of s 76(1) of the Companies Act, which prohibits the granting of financial assistance by a company for the purpose of acquiring its own shares.)
[84] Moreover, there was an active concealment of the remuneration paid to Sebastian Wong and Seeto. Seeto drew directors’ fees amounting to $28,000 for 2004, $108,000 for 2005 and $106,000 for 2006, but it was only during the 24 October 2007 AGM that MDG’s shareholders were asked to approve his remuneration. Sebastian Wong affirmed in his affidavit of 8 June 2009 that he did not receive regular income from MDG but this was exposed as a lie when MDG’s general ledger was produced during trial. In fact, he had drawn an allowance that was classified as an “administrative expense” for consultant’s fees in the accounts. This was clearly deceitful and there must have been a deliberate decision to characterise what was clearly his income misleadingly as an administrative expense. Tan Chin Ren confirmed that he knew and was suspicious of those payments when he gave the following evidence:
[85] From the above evidence, it could be seen that Sebastian Wong’s actions constituted deliberate concealment of the truth. His false characterisation of Tan Eck Hong’s money for the purchase of shares in TR as purely a loan was anything but innocent. Similarly, there was no basis for him to classify Seeto’s and his remuneration as an “administrative expense”. This was not an error born out of carelessness. Although Sebastian Wong was the primary person in charge of the accounts, Seeto was principally responsible for the decision to conceal the information contained therein from LHC.
The concealment of information from LHC
[86] The threshold question is this: what was the scope of the plaintiffs’ right to information concerning MDG? Walter Woon on Company Law (Sweet & Maxwell, Rev 3rd Ed, 2009) (“Walter Woon”) at para 5.25 states that a member of a company has a statutory right under the Companies Act to inspect the following registers:
(a) register of members (s 192(2));
(b) register of directors, secretaries, managers and auditors (s 173(5));
(c) register of directors’ shareholdings (s 164(8));
(d) register of substantial shareholders (s 88(2));
(e) register of debenture holders (s 93(3); and
(f) register of charges (s 138(3).
Paul L David on Gower and Davies’ Principles of Modern Company Law (Sweet & Maxwell, 7th Ed, 2003) at p 537:
[87] Apart from the annual audited accounts and accompanying reports, a member has no access to the accounting records of the company. The annual audited accounts and accompanying reports are the primary means by which the directors of a company account for their stewardship (see Walter Woon at para 10.53). Hence, the requirement that the accounts present a true and fair view of the company’s financial affairs.
[88] The Australian position in general is that since there is no express statutory provision allowing shareholders access to the company’s financial records, shareholders will not have the right to inspect financial records unless it has been expressly provided for in the articles of association of the company; this is the position in Re Dernacourt Investments Pty Ltd (1990) 20 NSWLR 588 and Burn v The London and South Wales Coal Co [1890] 7 TLR 118. However, an old decision in Edman v Ross (1922) 22 SR (NSW) 351 suggests (at 358) that shareholders may be allowed access if “sufficient cause” can be shown that the documents to be inspected are necessary with reference to a specific dispute:
[89] The above proposition has support in a more recent House of Lords decision. Lord Diplock made further clarifications on this point in Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627 at 634:

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Lian Hwee Choo Phebe and another v Maxz Universal Development Group Pte Ltd and others and another suit

Laws this judgment relies on

Grounds of decision

Introduction

Background

The pleadings

The evidence

Lian Hwee Choo, Phebe

Vincent Ling Wong King

Seeto Keong and Sebastian Wong Cheen Pong

Rodney Tan

Tan Chin Ren

The law

This court’s findings

Credibility of witnesses

Preliminary findings

Whether Seeto and Sebastian Wong had misappropriated MDG’s funds

The related party transactions and Rodney Tan’s remuneration

Whether the plaintiffs were unfairly denied access to information

The failure to keep proper accounts

The concealment of information from LHC