Nanyang Law LLC v Alphomega Research Group Ltd

Leo Zhen Wei Lionel AR:

(a) Summons No 3314 of 2010 was taken out by the 5th defendant in the counterclaim, Ms Yeoh Lay Cheng (“Yeoh”), and the security requested was for the sum of $80,000 up until parties exchange their Affidavits of Evidence-in-Chief (“AEICs”).

(b) Summons No 3525 of 2010 was taken out by the 4th defendant in the counterclaim, Mr Heng Jee Kian (“Heng”), and the security requested was for the sum of $100,000 up until parties exchange their AEICs.

(c) Summons No 5783 of 2010 was taken out by the 1st and 2nd defendants in the counterclaim, Nanyang Law LLC (“Nanyang Law”) and Mr Ng Kim Tean (“Ng”) respectively, and the security requested was for the sum of $80,000 up to the Summons for Directions stage of the proceedings.

[4] Alphomega failed to enter an appearance and Nanyang Law obtained a judgment in default of appearance (“the default judgment”). However, Alphomega subsequently succeeded in setting aside the default judgment on the basis that it had, prima facie, a right of set-off (see Nanyang Law LLC v Alphomega Research Group Ltd [2010] 3 SLR 914 at [23] to [25]).

[5] Alphomega takes the position that the present action is a sequel to the shareholders’ dispute which culminated in a minority oppression action brought by a minority shareholder, Dr Tan Choon Yong (“Dr Tan”). Dr Tan had been the CEO and director of Alphomega until he was removed during a board meeting by the majority shareholders. The majority shareholders were the 3rd defendant in the counterclaim, Mr Goh Jon Keat (“Goh”), and Heng’s wife, Ms Tan Hui Kiang (“Ms Tan”). In Tan Choon Yong v Goh Jon Keat and Ors [2009] 3 SLR(R) 840 (“Tan Choon Yong”), Tan Lee Meng J (“Tan J”) found in favour of Dr Tan.

[6] Relying on Tan J’s decision and findings in Tan Choon Yong, Alphomega counterclaimed against Nanyang Law, Ng (as Nanyang Law’s Chairman), and the previous board of directors which included Yeoh and Heng (as a “shadow director”). The causes of action against them were for, inter alia, breaches of the duty to act in the best interest of Alphomega, and conspiracy to misuse Alphomega’s resources to oppress Dr Tan’s rights as a minority shareholder.

[7] Section 388(1) of the Act provides that:

Although Ang J’s observations were made in the context of a consideration of whether the application for security would stifle the plaintiff’s claim (and this relates to the exercise of the discretion to order security, and not whether the discretion is invoked in the first place), it is clear that the approach taken was that of assessing the merits and circumstances of each application for security independently of other similar applications for security against the same plaintiff.

(a) First, the court should consider the plaintiff’s assets and liabilities to ascertain whether there would be sufficient assets, after paying off liabilities, to satisfy a costs order in favour of the defendant (see Frantonios at [34]). As observed in Ho Pak Kim Realty Co Pte Ltd v Revitech Pte Ltd [2008] SGHC 230 (“Ho Pak Kim”) at [8], the most obvious way for the court to gain insight into such matters is through an examination of the plaintiff’s audited accounts. Accordingly, as held in Ho Pak Kim at [12], the failure to file audited accounts for an extended period of time can be circumstantial evidence of a plaintiff’s inability to pay costs although this failure would not ordinarily, in itself, be sufficient to satisfy the condition in s 388(1). Apart from audited accounts, bank statements are important as they shed light on the plaintiff’s cash position. Similarly, documents evidencing ownership of other assets that could be used to satisfy a cost order in the defendant’s favour would be relevant. Liabilities would include monies that the plaintiff will have to pay towards the fulfilment of contracts, loan agreements, and judgments. Furthermore, as discussed above at [13], potential streams of income and potential liabilities can be taken into account, although care must be taken not to place undue weight on such matters.

(b) Second, the court should consider whether the plaintiff is a going concern, or a mere “shell”. If the plaintiff is a mere “shell”, there would be a distinct possibility that the plaintiff would be wound up should the defendant succeed at trial since there would be little point for the plaintiff to pay costs when it is not going to carry on business. In such a situation, the defendant would be left with an unfulfilled costs order, which is precisely what s 388(1) of the Act seeks to guard against. Conversely, a plaintiff that is a going concern is less likely to institute a frivolous claim as the potential for adverse costs order and possible damage to reputation would have to be weighed against the chances of the claim actually succeeding.

[16] However, a plaintiff’s failure to file audited accounts must be seen in light of all the relevant circumstances. Alphomega appeared to have been an inactive company after Tan J ruled in favour of Dr Tan in his minority oppression action on 30 April 2009 (see Tan Choon Yong). The new management, led by Dr Tan, only stepped back into the picture in September 2009, and a new Board of Directors was appointed in November 2009. Counsel for Alphomega submitted that the old management had left the accounts in a state of mess, and that this accounted for the difficulty in reconstructing the accounts. He submitted that the reconstruction of accounts was further delayed because of the need to resuscitate Alphomega as well as the efforts taken to defend against various claims by Nanyang Law and other creditors. The new management had initially attempted to get the original auditors to reconstruct the accounts, but subsequently new auditors had to be appointed on 30 July 2010.

[19] Without the benefit of audited accounts, I turn to a consideration of the assets and liabilities identified by parties in their submissions. The assets that Alphomega could point to in the present case are as follows:

(a) The sum of $1,152,370.06 in its bank account with UOB (accurate as at 31 October 2010).

(b) The sum of $126,244.65 garnished from its bank accounts with UBS AG and OCBC in respect of Nanyang Law’s claim.

(c) The sum of $250,000 deposited in its client’s account with Drew & Napier LLC (“Drew & Napier”) that is being held by Drew & Napier as stakeholder in respect of Nanyang Law’s claim.

The liabilities that Alphomega has incurred or will incur after 31 October 2010 which the defendants to the counterclaimed identified are as follows:

(a) The sum of $250,000 was paid to Lim Hwee Hai on 18 November 2010.

(b) On 8 November 2010, Alphomega entered into two investment agreements with a Cambodian company to invest $200,000 and $300,000 (“the investment agreements”).

[20] In addition, multiple lawsuits had been filed against Alphomega, and judgments had been awarded against Alphomega:

(a) The sum of $47,708.20 was awarded against Alphomega in respect of a suit filed by KPMG.

(b) The sum of $15,236.72 was awarded against Alphomega in respect of a suit filed by Orix Capital Ltd (“Orix”).

(c) The sum of $19,995.00 was awarded against Alphomega in respect of a suit filed by Hitachi Capital Singapore Pte Ltd (“Hitachi”).

(d) Suit No 35 of 2009 was filed by Habib Ali for the sum of $750,000. This action has been settled, but the terms of the settlement are confidential.

[24] Taking into account the $250,000 paid to Lim Hwee Hai and the $500,000 invested under the two investment agreements, the balance remaining in Alphomega’s UOB bank account is likely to be approximately $402,370.06. This sum would be far in excess of the security requested by Heng ($100,000) and Yeoh ($80,000).

[25] I am cognizant of the fact that $82,939.92 would have been due under the judgments obtained by KPMG, Orix and Hitachi. Habib Ali’s claim for $750,000 has also been settled, and a settlement sum would have to be paid, although the exact figure of this sum was not disclosed due to the confidentiality of the settlement agreement. In my view, the sum of $82,939.92 due under the judgments obtained by KPMG, Orix and Hitachi should not be taken into account because the acting General Manager of Alphomega has stated on affidavit that this sum has been settled, and the defendants in the counterclaim have not adduced any evidence to the contrary. However, the fact that a settlement sum would have to be paid to Habib Ali should be taken into account although the weight given to this is reduced because the settlement sum is unlikely to have been for the full $750,000 claimed and there is no evidence that Alphomega has not been able to meet whatever payments are due to Habib Ali (whether such payments are for a lump sum or by instalments).