Maxz Universal Development Group Pte Ltd v Lian Hwee Choo Phebe

Lai Siu Chiu J:

[2] The plaintiff is an investment holding company with no business operations of its own. In January 2005, after encouragement from her friend Benedict Kusni (“Kusni”), Phebe Lian made a capital injection of $100,000 into the plaintiff through her corporate vehicle, Phebe Investment Pte Ltd in return for 10% of the plaintiff’s shares, thereby making her an indirect shareholder of the plaintiff.

[3] At the material time, the plaintiff was managed and controlled by one Seeto Keong (“Seeto”) and one Sebastian Wong Cheen Pong (“Sebastian”). Seeto was the plaintiff’s director and chief executive officer, while Sebastian was its financial controller. At the trial (under cross-examination), Seeto agreed that Sebastian was a de facto director of the plaintiff. Both Seeto and Kusni held shares in the plaintiff. Sebastian indirectly held shares in the plaintiff through his wife and daughter because he was facing bankruptcy proceedings (and was eventually made a bankrupt in early 2005).

[4] In early 2005, the plaintiff was given the opportunity to take over the lease of and to redevelop a hotel at 23 Beach View, Sentosa (“the Hotel”). The Hotel was, at the time, owned by Sijori Resort (Sentosa) Pte Ltd (“Sijori”) and the lessor of the land on which the Hotel stood was Sentosa Development Corporation (“SDC”). It was decided that the plaintiff’s subsidiary, Treasure Resort Pte Ltd (“Treasure Resort”), would acquire the Hotel and have it managed by the Movenpick group of hotel operators (which does not have a presence in Singapore). Even though Phebe Lian was a minority shareholder of the plaintiff, she provided substantial financial assistance for the acquisition apart from which, the plaintiff relied almost entirely on borrowed funds. The financial assistance rendered by Phebe Lian is summarised in the following three paragraphs.

[5] On 13 May 2005, Phebe Lian provided the plaintiff with an SBLC for $200,000 which the plaintiff used as collateral for a $200,000 credit facility from OCBC. The SBLC was provided by CUL and it was to be discharged in six months viz by November 2005. On 17 November 2005, through CUL, Phebe Lian also provided the plaintiff with an interest free loan of $100,000.

[6] On 11 May 2006, Phebe Lian was made a director of the plaintiff. The management of the plaintiff still remained primarily in the hands of Seeto and Sebastian although Phebe Lian now had an additional reason to assist the plaintiff. In June 2006, the plaintiff obtained an $8m loan from Moscow Narodny Bank Limited which was subsequently renamed VTB Bank Europe (“VTB”). In order to convince VTB to extend the loan, the plaintiff had to demonstrate that it had funds of its own. To that end, Seeto caused the plaintiff to borrow $1m from Sit Ley Timber Pte Ltd. The plaintiff, however, could not meet the condition of Sit Ley Timber Pte Ltd to pay $100,000 upfront as interest and the arrangement fell through. To assist the plaintiff, Phebe Lian provided the plaintiff, again through CUL, an SBLC for $1m, which enabled the plaintiff to obtain a $1m credit facility from the Overseas Chinese Banking Corporation (“OCBC”). The deadline for this SBLC to be discharged was 30 November 2006 but, at the plaintiff’s request, it was extended to 28 February 2007.

[7] Phebe Lian also stood as a guarantor for the plaintiff. In November 2006, the plaintiff obtained a loan of $5m from Maybank which was secured by (a) a joint and several guarantee for the sum by Phebe Lian and Seeto and (b) two Insurance Guarantee Bonds for an amount totalling $5m from See Hoy Chan Capital Limited (“SHC”).

[8] On 14 November 2006, Treasure Resorts entered into a Novation Agreement with Sijori and a Supplemental Agreement with SDC the effect of which was to make Treasure Resorts the lessee of the land on which the Hotel stood. In the same month, Phebe Lian began making enquiries about the plaintiff’s financial status. At the time, the plaintiff had (i) an $8m loan from VTB; (ii) a $5m loan from Maybank; and (iii) a $1.2m loan from the OCBC. Despite having substantial funds, the SBLC of $200,000 issued by CUL in May 2005 was not discharged. Further, the date of repayment of Phebe Lian’s loan of $100,000 (which had been extended for 2 weeks in November 2005) had to be extended yet again and was only repaid in May 2006; the date of discharge of the $1m SBLC also had to be extended.

[9] Yet, Phebe Lian noticed that Seeto and Sebastian were driving brand new seven and five series BMW cars respectively, which they obtained in October and December 2006 from the local distributor Performance Motors Ltd, on hire purchase financing, paid by the plaintiff. In Sebastian’s case, he registered the vehicle in his daughter’s name as by 13 January 2005, he had been adjudged a bankrupt. Further, Seeto and Sebastian each acquired a condominium apartment. At that time, the plaintiff had no income and while it had funds, these were all borrowed moneys a portion of which came from Phebe Lian. Although there was also no agreement for directors to be remunerated, in the course of Seeto’s cross-examination, it was revealed that he paid himself $6,000 ‘allowance’ a month while Sebastian was paid $5,000 by the plaintiff. Not surprisingly, Phebe Lian began to harbour suspicions of the source of Seeto and Sebastian’s new found wealth and started to make enquiries. She questioned Seeto and Sebastian as to how the plaintiff’s funds were being utilised and how the plaintiff intended to repay CUL. In addition, she sought to examine the plaintiff’s accounts and to be made a co-signatory to the plaintiff’s bank accounts. Seeto and Sebastian ignored her enquiries and her requests.

[10] On 19 January 2007, CUL sought repayment of its loans. When the moneys were not repaid, Phebe Lian became more anxious and suspicious as to how the plaintiff’s finances were being managed. Phebe Lian was particularly anxious because not only was she a director of the plaintiff, she was also a joint-guarantor of the plaintiff’s $5m loan and had, through CUL, provided the plaintiff with financial assistance of a sum totalling $1.3m without security.

[11] After further fruitless attempts to obtain information from Seeto and/or Sebastian with regard to the plaintiff’s financial status, Phebe Lian sent a letter to the plaintiff’s bankers (including Maybank) dated 29 January 2007 (“the letter”) to informed the banks that she would be making an inquiry into the plaintiff’s financial affairs and that the banks should not act on the instructions of the plaintiff unless those instructions bore her authorising signature. In the letter, Phebe Lian mistakenly described herself as the “managing director” of the company. On 7 February 2007, she wrote to the banks to seek copies of the plaintiff’s bank statements and to correct her earlier mistake in the letter by clarifying that she was only a director of the plaintiff and not its managing director.

[12] On 30 January 2007, Phebe Lian’s lawyers wrote to Seeto expressing concern at the fact that she had yet to receive any of the plaintiff’s financial reports and that her repeated requests for information pertaining to the company’s finances had been refused or ignored. Phebe Lian’s lawyers demanded that the plaintiff:

Legal action was threatened if the above conditions were not satisfied within 5 days.

[13] After Phebe Lian had written to the banks and to Seeto, Seeto and Sebastian responded in several emails to try to assuage her concerns. In an email sent on 30 January 2007, Seeto expressed his hope that their business relationship will not “fall apart” and informed Phebe Lian that he had already directed Sebastian to prepare board resolutions to add her as a signatory to the plaintiff’s bank accounts. He also apologised to her and in doing so stated the following:

[14] Sebastian also wrote to Phebe Lian in an email dated 6 February 2007 stating, inter alia, that he would:

He also added that he would:

[15] Seeto’s reply to the letter of 30 January 2007 from Phebe Lian’s lawyers (quoted in [12] above), however, manifested a different attitude. He was evasive and stated that the request be redirected to the plaintiff and not to himself in his personal capacity even though the solicitors’ letter had expressly acknowledged the fact that Seeto was CEO of the plaintiff.

[16] Despite this series of correspondence, Phebe Lian still did not receive any information regarding the plaintiff’s accounts. Instead, she was removed by Seeto as a director of the plaintiff at an Extra-ordinary General Meeting held on 15 March 2007, with the support of Sebastian’s daughter (who held shares in the plaintiff on his behalf) and Kusni.

[17] In the same month, Sebastian’s negotiations with Maybank’s Darren Tan to refinance its existing loans to the tune of $15m failed.

[18] In May 2007, Seeto and Sebastian transferred their shares in the plaintiff to Roscent Group Holdings (“Roscent”), a company controlled by one Tan Boon Kian (“Rodney Tan”), who eventually became the majority shareholder and a director of the plaintiff when the plaintiff could not repay his loans. In that same month, CUL commenced legal action against the plaintiff to compel the company to satisfy its obligations pursuant to the issuance of the SBLCs amounting to $1.2m. The plaintiff eventually paid CUL $1.2m and CUL discontinued its suit.

[19] On 2 August 2007, Maybank granted Treasure Resorts a loan of $26.1m to enable the latter to refinance the loans that the plaintiff had taken to fund Treasure Resorts’ acquisition of and the necessary renovation and refurbishment works for the Hotel.

[20] On 8 January 2008, Phebe Lian and Kok Lan Choo, the other minority shareholder of the plaintiff, commenced Originating Summons No 18 of 2008 (“the OS”) against the plaintiff (as a nominal defendant) and the controlling shareholders and directors of the plaintiff (which included Seeto and Rodney Tan) seeking relief under s 216 of the Companies Act (Cap 50, 2006 Rev Ed) (“the Companies Act”) for oppression. The OS was subsequently converted to Suit No 75 of 2008. On 1 August 2008, Phebe Lian and Kok Lan Choo commenced Suit No 536 of 2008 (“Suit 536”) against the plaintiff (as nominal defendant) and the other directors/shareholders including Seeto, Sebastian and Rodney Tan, for conspiracy.

[22] Not surprisingly, Phebe Lian denied the plaintiff’s allegations. In her defence (Amendment No 2), she contended that the directors of the plaintiff brought these proceedings in bad faith with a view to enabling any one or more of them to lend money to the plaintiff for the purpose of financing the proceedings and then to convert the loan to equity in the plaintiff at an undervalue. She averred that such conduct amounted to an abuse of the process of the court.

[23] From the outset, it was obvious that the plaintiff’s case was weak and its many improbable allegations and claims put forward by Seeto lent weight to Phebe Lian’s counsel’s contention that these proceedings were nothing more than a retaliatory suit brought in response to Suit 536. With regard to its claim that Phebe Lian had scuttled the refinancing deal with Maybank by sending the letter, the plaintiff’s pleaded case was that Maybank’s representative, one Francis Wong, had orally informed Sebastian that the bank would not be refinancing the plaintiff’s banking/credit facilities because of what appeared to be a brewing shareholders’ dispute. In other words, evidence of the causal link between the letter and Maybank’s decision not to refinance the plaintiff’s bank/credit facilities was reposed in Francis Wong and Sebastian. Yet, neither person was called to testify. For that reason, Phebe Lian’s counsel invited the court to draw an adverse inference against the plaintiff under s 116(g) of the Evidence Act (Cap 97, 1997 Rev Ed) for not calling Sebastian as a witness even though he was still in the plaintiff’s employment.

[24] In my view, even if no such adverse inference is drawn (although I did draw such inference), the plaintiff still could not/did not prove its case. Its claim was a non-starter because, in the absence of testimony by Francis Wong or Sebastian, there was insufficient evidence which would have enabled this court to make a finding that Phebe Lian’s actions had caused the plaintiff’s loss. On this point alone, the plaintiff’s claim pertaining to its purported loss caused by Maybank’s refusal to refinance fails in limine.

[25] I note that in his Affidavit of Evidence-in-Chief (“AEIC”), Seeto had deposed that Maybank’s representative had orally informed Sebastian and him of the reasons for Maybank’s decision. Seeto’s evidence was an untruth. This was not the plaintiff’s pleaded case (which was limited to the plea that Maybank’s representative had informed Sebastian). In my view, this was an afterthought included by Seeto in his AEIC to bolster the plaintiff’s flimsy claim. Indeed, this was one of many instances where Seeto economised on the truth in the course of the trial. Under rigorous cross-examination, Seeto finally conceded that there had been no letter of offer or even a verbal offer in December 2006 from Maybank, to refinance the plaintiff’s banking/credit facilities. Simply put, if there was no evidence of an offer to refinance, there was nothing to scuttle. In this regard, it may be possible in a case with more evidence, for a director to be found to be in breach of his duties by acting in a way so as to jeopardize an inchoate deal, but it will not be possible to make this finding here where the evidence of any such deal was lacking and where there was nothing to show any causal link between the acts of the director and the failure of the deal to materialise.

[26] Further, in my view, not only did Phebe Lian not breach her director’s duties, she had acted consistently within her duties and responsibilities as a director by sending the letter to the banks. Phebe Lian had written to the banks because she was concerned with the financial status of the plaintiff. Seeto and Sebastian were stonewalling her inquiries by ignoring her repeated requests for information (see [9] above). In the circumstances, it was not only reasonable for Phebe Lian to write to the banks but quite proper for her to do so as a director, to try to uncover any financial irregularities given the suspicious circumstances (set out at [9] above).

[27] Counsel for the plaintiff sought to make much of the fact that Phebe Lian had wrongly identified herself as the “managing director” of the plaintiff in the letter. I accept Phebe Lian’s explanation that this was an innocent mistake and note that her explanation was supported by her subsequent letter of 7 February 2009 to the banks in which she clarified that she was merely a director of the plaintiff.

[28] It is to be noted that on 2 August 2007, Maybank had gone ahead to provide a $26.1m loan to Treasure Resorts, the plaintiff’s subsidiary (see [19] above). If indeed the letter had so shaken the faith of Maybank in the creditworthiness of the plaintiff, it is highly unlikely that Maybank would have extended a massive loan of $26.1m to its subsidiary. This was yet another reason why I find the plaintiff’s claim to be unmeritorious.

[30] The plaintiff’s counsel focussed his energy in the course of the seven-day trial on the claim for $53,664 paid to CUL in return for the $1m SBLC. Ordinarily, this would have been surprising given the fact that this claim formed an insignificant percentage of the total claim for damages of over $15m. However it was not, given the frivolity of the plaintiff’s primary claim.

[32] When asked if he was curious as to why CUL was rendering assistance to the plaintiff, Seeto claimed that he had thought that CUL “was a really friendly party”. This answer was unconvincing if not totally incredible. Seeto could not have been so naïve. The only reason why CUL was willing to render financial assistance to the plaintiff, to the extent of making an unsecured interest-free loan of $100,000, was due to the fact that Phebe Lian was the owner of CUL. Phebe Lian caused CUL to help the plaintiff because she was a director and shareholder of the plaintiff and Seeto and Sebastian well knew this fact.

[33] In fact, it was precisely because Seeto and Sebastian were aware that Phebe Lian owned CUL that they had approached her on 2 December 2005 at her home in Telok Kurau to seek her help in getting CUL to extend the date of repayment of the $100,000 loan for two months. Phebe Lian had tendered in evidence a letter which Sebastian had prepared and which he and Seeto had brought to Phebe Lian’s home for her to sign on that occasion. The letter reads:

[34] It was subsequently discovered that such a letter was not required for an extension of the loan because CUL’s account with American Express Bank Ltd (“AMEX”) was an overdraft account and there was no time limit for the loan to be repaid. Nonetheless, this letter demonstrated that Seeto and Sebastian knew that Phebe Lian (referred to as “Jennifer” which was her alternative name) was in control of CUL. Seeto had raised the lame excuse that in his view, Phebe Lian was merely a “link person to CUL” and that he did not know who owned CUL. Again, I reject his explanation. I find that Seeto and Sebastian knew that Phebe Lian was the owner of CUL and that this was why they had approached her to write to AMEX to extend the $100,000 loan.

[35] As for the $1m SBLC, after the plaintiff had agreed to pay the sum of $53,664 to CUL on 9 November 2006, Seeto had attended an informal meeting with Phebe Lian, Kusni and Sebastian. At that meeting, Sebastian produced two typewritten notes to explain the cash flow situation of the plaintiff for November and December 2006. The note for November 2006 recorded, inter alia, a sum of $53,664 to be paid as “Interest for $1 million (Jennifer)”. In my view, this note, along with the evidence considered above (at [31] to [33]) demonstrated that the other directors of the plaintiff were aware all along that Phebe Lian was the owner of CUL and that they had in fact sought assistance from her to cause CUL to provide financial aid to the plaintiff.

[36] In my view, the fact that the directors of the plaintiff knew of Phebe Lian’s interest in CUL absolved her of any liability for conflict of interest pertaining to CUL’s receipt of the $53,664 in return for providing the $1m SBLC. Where the directors of a company know of another director’s interest in a particular transaction, the failure of that director to make a formal disclosure to the other directors does not make the director liable for breach of his fiduciary duties.

[37] The above proposition is supported by the Australian case of Woolworths Ltd v Kelly (1991) 4 ACSR 431 (“Woolworths”) where the respondent, Kelly, was the chairman of the board of directors of a public company. In February 1975, the board agreed to establish a pension scheme under which Kelly would be entitled to $26,000 per annum. In 1979, the board decided to increase the annual entitlement by $8,666 per annum to reflect the fact that Kelly was owed $60,000 by the company for his provision of consultancy services. There was a change in the board of the company and the new board resolved that payments to Kelly should be substantially reduced. Kelly sued the company to enforce his contractual right to receive his pension at the original rate. Kelly succeeded at first instance; and on appeal, the company argued that Kelly had failed to make a formal disclosure of his interest in the contract as required by s 123 of the Australian Companies Act 1961 (which is in pari materia to s 156 of the Companies Act). The Court of Appeal of New South Wales held, by a majority, that no disclosure was necessary where the nature of the interest was known to the other directors. Likewise, in Lee Panavision Ltd v Lee Lightning Ltd [1992] BCLC 22 (“Lee Panavision”), Dillon LJ (with whom the other members of the English Court of Appeal agreed), doubted whether the non-disclosure of an interest common to all the directors and ex hypothesi known to all of them would be a breach of the English equivalent of s 156(1) of the Companies Act.

[38] The plaintiff had cited the decision in Dayco Products Singapore Pte Ltd (in liquidation) v Ong Cheng Aik [2004] 4SLR(R) 318, in which the court (at [18]) regarded as unsustainable in law the proposition that informal disclosure or knowledge is sufficient to satisfy the disclosure requirements under s 156(1) of the Companies Act. However, that was not a case where there was in fact informal disclosure to the board of directors of the errant director’s interest in certain transactions. Further, no reference was made in that case to the decisions in Woolworths and Lee Panavision which I find persuasive. In this regard I agree with the view expressed in Walter Woon on Company Law (Singapore: Sweet & Maxwell, 3 Ed., 2005) at pp 287-288 and Halsbury’s Laws of Singapore vol 6 (Singapore: Butterworths Asia, 2000) at para 70.247 that there is no reason why the position in Woolworths and Lee Panavision should not hold good in Singapore.

[39] Accordingly, I find that Phebe Lian was not in breach of her director’s duties by causing CUL to extend the $1m SBLC in favour of the plaintiff in return for the $53,664. I should add that I found the position taken by Seeto on the stand to be reprehensible – he and Sebastian had sought the help of Phebe Lian (having done so several times previously) and had offered the payment of $53,664 to CUL in return for the $1m SBLC which the plaintiff desperately needed. Yet Seeto subsequently took the position that the defendant had acted in conflict of interest. That, in my view, was an extraordinary act of ingratitude; it was a proverbial case of a dog that bit the hand that fed it. Both Seeto and Sebastian (even before his bankruptcy) were men of straw. Had Maybank called upon the joint and several guarantees furnished by Seeto and Phebe Lian for its loan of $5m, Maybank would in all probabilities have pursued Phebe Lian for its claim as Seeto’s guarantee was unlikely to be worth the paper it was written on.

[40] What this court found to be even more galling was the fact that Seeto and the plaintiff’s other directors sued Phebe Lian here over payment of a mere $53,664 for a loan from CUL of $1m that was not repaid for more than a year. As a percentage of $1m, $53,664 was equivalent to 5%. Yet, they were prepared to and did use, the plaintiff’s borrowed funds to pay one Wong Nam Sing interest amounting to $128,000 or 51% for a four week loan of $250,000 which, calculated over twelve months, equated to a staggering interest rate of 612% per annum. In addition, Seeto admitted that during the hearing of Suit 536 before another court, he revealed that he and Sebastian had taken a loan of $1.9m for the plaintiff from Rodney Tan in or about May 2007, for which they agreed to pay Rodney Tan 5% interest per annum.

Lai Siu Chiu J:

[44] The plaintiff and its three directors were present in court via their counsel. The three directors who were represented were Rodney Tan, Seeto and Lim while Sebastian appeared in person.

[45] The court was informed by counsel for Phebe Lian, Mr Srinivasan, that Justice Andrew Ang (“Ang J”) had on 1 February 2010 delivered oral judgment in Suit 536 in favour of Phebe Lian and her co-plaintiff Kok Lan Choo (‘Kok”). Ang J found that Rodney Tan, Seeto, Lim, Sebastian together with the fifth defendant in the suit, Cairnhill Treasure Investment (S) Pte Ltd (“Cairnhill Treasure”) (a company which belongs to Rodney Tan) had conducted the affairs of the plaintiff (the first defendant in Suit 536) in a manner oppressive to Phebe Lian and Kok.

[47] This court was further informed that Ang J after delivery of his oral judgment in Suit 536 had, in a subsequent hearing in March 2010, informed parties that the valuation date for the buy-out of the shares of Phebe Lian and Kok would either be December 2007 or 1 February 2010.

[53] Third, the directors of the plaintiff had sought and obtained legal advice not from one but two law firms that the plaintiff had a valid claim against Phebe Lian before commencement of this suit (see In re Land and Property Trust Co plc No.2 [1993] BCC 462).

[54] Counsel pointed out that the plaintiff was practically insolvent before Rodney Tan came into the picture in or about May/June 2007 and injected $26m-$28m (which sum was disputed by Phebe Lian’s counsel) into the plaintiff to recapitalise the company. None of the other shareholders contributed funds to the company.

[58] The arguments raised by counsel (Mr Kumar) on behalf of Lim echoed those put forward for Rodney Tan and Seeto. It is therefore unnecessary to repeat them save for one new submission – counsel pointed out that Lim was neither a shareholder of the plaintiff nor of its subsidiary Treasure Resort; he was only a director and was never involved in this suit.

[59] Counsel for Phebe Lian took umbrage with the claim by his counsel in [54] that Rodney Tan was a white knight who had injected millions into the plaintiff and turned it around from an insolvent to a solvent company. Mr Srinivasan pointed out that there was no evidence in this suit or in Suit 536 of such huge injections of capital. He refuted the argument that Phebe Lian could have/should have sued the directors personally in conspiracy by pointing out that the company as the plaintiff was controlled by its directors who initiated this action. It was the company that could sue the directors but would not for obvious reasons.