Court of Appeal · Decided 24 February 2010

Over & Over Ltd v Bonvests Holdings Ltd and another

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[2010] SGCA 7Case no. Civil Appeal No 141 of 2008

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Laws this judgment relies on

Companies Act 1967

Grounds of decision

Official text from eLitigation

V K Rajah JA (delivering the judgment of the court):
[1] This is an appeal against the decision of the High Court given in Over & Over Ltd v Bonvests Holdings Ltd and another [2009] 2 SLR(R) 111 (“the GD”). The subject matter of the dispute involves the alleged oppression of a minority shareholder, Over & Over Ltd (“O&O”), by Bonvests Holdings Ltd (“Bonvests”) in relation to their joint venture company, Richvein Pte Ltd (“Richvein”).
Facts
[2] Richvein was incorporated as a joint-venture company on 20 August 1980, with Unicurrent Finance Limited (“Unicurrent”) as its majority shareholder and O&O as its minority shareholder. Unicurrent held 70% of the shares in Richvein, while O&O held the remaining 30%. After its incorporation, Richvein purchased land at Scotts Road and developed on it a hotel called the Sheraton Towers Singapore (“the Hotel”). The construction of the Hotel was completed in December 1985 and the Hotel continues to operate successfully at the same premises to date. It remains Richvein’s sole business venture.
[3] O&O, a company incorporated in Hong Kong, is controlled by the Lauw family. Lauw Siang Liong (“LSL”) and John Loh (“JL”) are O&O’s shareholders and directors. Unicurrent and Bonvests are controlled by the Sianandar family, in particular by Henry Ngo (“HN”). When queried by this Court in the course of this appeal, counsel for the respondent, Mr Alvin Yeo SC (“Mr Yeo”), accepted that that about 60% of Bonvests is currently owned by HN and his family members, that is to say, the Sianandar family.
Overview
[4] Sometime in 1979, the Sianandar family committed themselves to the purchase of a piece of land along Scotts Road to develop the Hotel. To spread the commercial risks, they sought a partner for the venture. A mutual friend introduced LSL to Ditju Sianandar (“DS”), the elder brother of HN. Having ascertained LSL’s interest in co-investing, DS left it to HN to continue the discussions. The two brothers were then Unicurrent’s only shareholders, with 99% of the shares held by HN and the remaining 1% by DS. Unfortunately, both LSL and DS were unable to assist the trial court in reconstructing the basis of their original discussions. At [7] of the GD, the trial judge (“the Judge”) found that LSL had a “failing memory” and DS’s evidence was “shaky and unreliable”. As they were the key individuals who had made the first contact between the two families on the nature and objectives of this joint venture their evidence was important. Ultimately, the Judge had little alternative but to deduce from the partisan evidence of HN and JL the history between the parties.
[5] In the broadest of strokes, it can be said that the parties contemplated that Richvein was to be incorporated as the joint-venture vehicle between the Lauws’ O&O and the Sianandars’ Unicurrent, both of which were privately held family entities. It was only much later that the shareholding held by Unicurrent was transferred to Bonvests, a listed public company (see below at [15] to [16]).
[6] The discussions between HN and the Lauw family leading to the incorporation of Richvein were informal and plainly based on mutual trust. No documentary records of the various discussions between the parties were maintained. Further, despite the substantial investment being made by both parties, their understanding was not embodied in any shareholders’ agreement or in Richvein’s memorandum and articles of association.
[8] The joint venture investment eventually required a huge financial commitment from both parties. Richvein presently has a paid-up share capital of more than $157m, all of which has been fully funded by the parties in proportion to their shareholdings. According to O&O, as at December 2002, it alone had loaned, interest-free, approximately $37.8m to Richvein. These shareholder loans had by then already been in existence for more than a decade.
[9] Strict proportionate numerical accounting in corporate decision making aside, it had also been agreed from the outset that the Sianandar family would consult the Lauw family on any important decisions relating to the operations and management of Richvein (“the Important Decision Term”). This was notwithstanding the fact that the Lauw family was in the minority, both in terms of shareholding and representation on Richvein’s board of directors.
[10] The Hotel was duly constructed and operated by Richvein. Initially, the Hotel’s operations proceeded smoothly and the working relationship between the parties was uneventful. Whenever any important issue affecting the operations or management of Richvein arose, HN would consult with the Lauw family before making any decision. This accorded with the Important Decision Term. In July 1991, however, HN unilaterally terminated an extant hotel management contract with ITT Sheraton Singapore Pte Ltd (“ITT Sheraton”) without consulting the Lauw family. O&O alleged that he did this in order to divert the hotel management contract to another company in which he held a substantial interest; namely, Henrick International Hotels & Resorts Pte Ltd (“HIHR”).
[11] HN responded by explaining that HIHR had the necessary expertise to manage the hotel. He stated that it was not feasible to have Richvein manage the Hotel itself by employing the necessary people because Richvein had already undertaken to provide compensation packages that specified stock participation for two key employees in HIHR. Under Richvein’s original plan, 25% of the shares in HIHR would be held by the two employees, with Bonvests holding the remaining 75% of HIHR’s shares.
[12] Eventually, the impasse between the parties was resolved by having Richvein incorporate a subsidiary, Henrick Singapore (“HS”), to manage the Hotel. Richvein would hold 75% of the shares in HS, and the remaining 25% would be held by the two key employees. With this compromise in place, the changes in oversight of the Hotel’s operations were implemented. However, it appears from the testimony of the parties that the previously warm relationship between the parties had distinctly cooled as a result of this run-in. Indeed, following the incorporation of HS, the friendship that had been enjoyed between the Sianandar and Lauw families gradually segued into what one might mildly term as neutrality. Communications between the parties over the next decade were brief and limited to formal business issues, usually tabled at board meetings.
[14] Notwithstanding O&O’s objections, HN caused a hotel management contract between Richvein and HIHR to be entered into in December 2005. This was signed by HN on HIHR’s behalf and by Long Sie Fong (a director of Richvein nominated by Bonvests) on Richvein’s behalf. Even after it was finalised, the contract was not placed before Richvein’s board of directors for ratification. Two subsequent contracts between Richvein and companies which HN had interests in, one for waste disposal services and another for cleaning services, were also not placed before or approved by Richvein’s board of directors. Neither was O&O consulted about them before they were entered into. O&O alleges that as a result of these unratified contracts the Important Decision Term had once again been unheeded.
[15] At around the same time in 2002, HN determined that it would be preferable that his public-listed company, Bonvests, acquire Unicurrent’s 70% shareholding in Richvein. This arrangement would effectively unlock the value of the Sianandar’s family interest in Richvein as the value of their disposable share interests in Bonvests would increase commensurately once the acquisition was completed. However, as an outright sale by Unicurrent of its shares in Richvein to a third party was prohibited by Richvein’s Articles of Association, O&O’s consent was required. HN, therefore, proceeded to enter into discussions with JL on the possibility of arranging such a sale, warning JL at the same time that if O&O did not consent to Unicurrent’s sale of its shares in Richvein to Bonvests, this would make little difference as Bonvests could simply employ the “back-door approach” of buying over all of Unicurrent’s shares.
[16] Confronted by the harsh reality that HN could effectively do as he pleased on this issue without O&O’s consent, JL reluctantly consented to the sale. However, he tried to salvage something from the situation by seeking the removal of Article 30 of Richvein’s Articles of Association, which vests a right of pre-emption in either party (“Article 30”). The removal of Article 30 meant that, if they wanted to, the shareholders could transfer their shares to any third party notwithstanding that the transferee was not an existing member of Richvein.
[17] Matters finally came to a head between the two families in 2006. In September 2006, HN received from the Development Bank of Singapore Limited (“DBS”) an offer to refinance an outstanding Richvein loan for $25m. The loan was due for repayment by November 2007. JL refused to agree to the proposed refinancing package, stating that he was unhappy about having to extend his personal guarantee whereas HN was not required to do so as the Sianandar’s family interests in Richvein was now held through Bonvests.
[18] On learning of JL’s stance, HN immediately decided that a rights issue would be an appropriate mechanism to pay off the loan. Despite objections and repeated requests from JL for documents and for an analysis of the cash flow requirements of Richvein – in order to determine whether a rights issue could be properly justified – the rights issue was hastily completed by HN by the end of October 2006, at an issue price of $0.38 per rights share. An internal memorandum that surfaced in the course of the trial from Kwa Bing Seng (“KBS”), the financial controller of Richvein, to HN indicates that $0.3728 was the price that would “result in the maximum dilution of [O&O]’s share if it does not take up the rights” [emphasis added], see below at [47]. That same memorandum also indicated that the audited net asset per Richvein share adjusted for revaluation of land and building as of December 2005 was $1.0622.
[19] Not long after this, O&O initiated this claim for relief against oppressive and/or unfairly prejudicial conduct under s 216 of the Companies Act (Cap 50, 2006 Rev Ed) (“the Companies Act”) in 2007. Broadly speaking, O&O alleges that the respondent’s conduct disclosed three obvious episodes of oppressive conduct. We shall now set out these alleged instances of oppression in greater detail, starting first with the contracts Richvein entered into with the various companies in which HN and/or Bonvests held an interest.
The Related Party Transactions
[20] These contracts were (collectively, the “Related Party Transactions”):
(a) a contract dated 11 May 2006 with Colex Holdings Ltd (“Colex Holdings”) for waste disposal services (the “Colex Contract”);
(b) a contract dated 28 July 2006 with Integrated Property Management Pte Ltd (“IPM”) for cleaning services (the “IPM Contract”); and
(c) a contract dated 12 December 2005 with HIHR for hotel management services (the “HIHR Contract”).
[21] It is common ground that Bonvests and/or HN had substantial shareholdings in Colex Holdings, IPM and HIHR. Between 1984 and 1992, HN gave notices to Richvein’s directors stating his interest in these three related companies. Richvein’s audited accounts also listed significant transactions with related parties, although no specific names were disclosed.
[22] Both the Colex Contract and the IPM Contract were in fact renewals of contracts that had been entered into almost a decade ago. Richvein had entered into a contract with Colex (Singapore) Pte Ltd (“Colex (Singapore)”, the precursor to Colex Holdings) from as early as 1997. Between 1997 and 2006, Richvein entered into several renewal contracts with Colex (Singapore) and Colex Holdings for waste disposal services. Colex (Singapore), now known as Colex Holdings, became a listed company in 1999.
[23] Richvein entered into a contract with IPM for two years in 1998. This contract was primarily for the maintenance of common areas and car park and for carpet cleaning. In both 2000 and 2002, Richvein entered into two-year renewal contracts with IPM. In 2004, 2005 and 2006, Richvein again contracted with IPM for daily and periodic cleaning services, but this time for a term of one year each.
[25] Subsequently, a 5% interest in HIHR was promised to the Lauw family if they gave their consent to HN in relation to the proposed grant of the hotel management contract to HIHR. Nonetheless, in a second letter dated 1 August 1991, JL raised further queries. JL took issue with the fact that despite feasibility studies to form HIHR having allegedly been carried out some 19 months before, O&O was only informed of HN’s intention to sign a new management contract with HIHR only recently.
[27] A week later, on 8 August 1991, JL sent a third letter to HN, even before receiving any response from HN to his second letter. In this third letter, JL did not mince his words:
JL then reiterated his proposal that Richvein take over the management of the Hotel by employing the same people whose expertise HN had claimed to be justified in engaging HIHR.
[28] On 2 September 1991, Richvein responded to JL, saying that it was not possible for Richvein to manage the Hotel itself by employing the necessary “key staff of proven expertise” because it would have to provide compensation packages that included stock participation for at least two of these key employees. Under Richvein’s original plan, 25% of the shares in HIHR would be held by the two employees, Carl Kono and William Hau. Bonvests would hold the remaining 75% of HIHR’s shares.
[29] The impasse was finally resolved at a board meeting held on 23 September 1991 by having Richvein – and not HIHR – incorporate HS. HS was to be 75% held by Richvein and 25% held by Carl Kono and William Hau. Accordingly, Richvein would enter into a management contract with HS and HS would subcontract with HIHR to provide hotel management services (the “three-tier arrangement”). From O&O’s point of view, this compromise was preferable to Richvein’s earlier proposal that HIHR incorporate HS as a subsidiary and for O&O to subscribe for shares therein, since that course of action would leave the Sianandar family with the ability to maintain and exercise full control over HIHR and, indirectly, HS via its established 60% shareholding in Bonvests.
[30] In 2002, the two key employees left HS. HN then decided that the reasons for setting up both HS and the three-tier arrangement were no longer applicable, and accordingly informed JL that Richvein intended to terminate the contract with HS. HN further informed JL that Bonvests (which was going to take over Unicurrent’s shareholding in Richvein) would instead provide administrative support to Richvein, and that HIHR would take over the provision of the management services for the Hotel. However, O&O rejected this proposed arrangement in a letter dated 26 April 2002.
[31] It bears mention that while JL was informed of the administrative service contract agreement with Bonvests on 26 March 2002, Richvein had in fact already executed the agreement a week before on 18 March 2002. HN and another director nominated by the majority also signed a Richvein board resolution dated 18 March 2002, which was then sent to JL on 26 March 2002, requesting that JL sign it as if the decision had already been made. The following exchange that took place when HN was cross-examined is illuminating:
[33] On 6 February 2003, JL’s solicitors wrote to say that he was not agreeable to the proposed liquidation of HS. The stated reason for this objection was the same as that given earlier in 1991: that O&O would have no direct or indirect interest in or control of HIHR, which was wholly-owned by Bonvests. Notwithstanding JL’s objections, however, HN and KBS signed a board resolution to terminate the management agreement with HS on 8 December 2005. Subsequently on 12 December 2005, HIHR entered into a contract for hotel management services with Richvein; namely, the HIHR Contract.
[34] It is common ground that the HIHR Contract was not placed before Richvein’s board of directors, and hence had not been approved by the board. This was also true for the Colex Contract and the IPM Contract. HN in cross-examination accepted the following:
Accordingly, all three Related Party Contracts were entered into prima facie in breach of Article 92 of Richvein’s Articles of Association, which expressly prohibits a director from voting in respect of any contract or arrangement in which he has an interest (“Article 92”). By participating in the decision-making process vis-à-vis the Related Party Contracts as an interested party, HN had effectively bypassed the terms of Article 92.
The Share Transfer
[35] In 2003, HN wanted his public-listed company, Bonvests, to purchase Unicurrent’s 70% shareholding in Richvein, ostensibly as part of an “internal group restructuring” exercise. However, as earlier discussed at [16] above, an outright sale by Unicurrent of its shares in Richvein was prohibited by Article 30.
[36] The first reference on record of this proposed sale was made at a Richvein AGM on 29 May 2002 as part of the discussion of the item “Any Other Business”. No prior notice had been given of this proposed sale, even though the sale would be deemed to be “special business” under Article 63 of Richvein’s Articles of Association. By virtue of Article 59 of the same Articles of Association, HN was obliged to give at least 14 days’ notice of the proposed sale. HN accepted under cross-examination that he deliberately chose not to inform the Lauw family of the proposed sale, ostensibly to prevent the transaction from being “leaked out in the public”.
[37] At the AGM on 29 May 2002, HN attempted to pass a resolution to the effect that:
This was despite the fact that Mr Melvin Lee, O&O’s representative at the meeting, did not have an opportunity to discuss the sale of Unicurrent’s shares in Richvein with his principals, JL and LSL.
[38] Subsequently, implicitly recognising that the regularity of this board resolution was questionable, HN attempted to persuade the Lauw family to consent to the Share Transfer. However, even while doing so he maintained that informing the Lauw family of the intended sale of Unicurrent’s shareholding was ultimately only a matter of “courtesy”. In the same breath, HN informed JL bluntly that if the latter refused to permit the Share Transfer, he would arrange for Bonvests to buy up all the shares in Unicurrent, thus effectively achieving the same result by circumventing the spirit of the pre-emption rights that O&O had pursuant to Article 30 (“the back-door approach”).
[39] Bonvests also offered to purchase JL’s shareholding, although the value that JL would have received – approximately $12.7m – was considered by O&O to be “derisory”, and was far short of the investment that O&O had already made in Richvein (in the region of $37m). HN conceded during cross-examination that Bonvests’ offer was “not a good deal”.
[40] In letters dated 17 September 2002 and 20 September 2002 to JL’s solicitors, HN repeated his determination to proceed with the back-door approach, stating that “[t]he waiver of the transfer is merely a cordiality and there is no real need to await your clients to revert on it”. This interpretation of events has since been confirmed as HN, in the course of cross-examination, conceded that he was simply “determined to get Bonvests as a shareholder of Richvein, whether directly or through Unicurrent”.
[41] Eventually, JL reluctantly consented to the Share Transfer as he realised that HN would proceed with it in one form or another despite his objections. In an attempt to salvage something from this difficult situation, JL sought the removal of Article 30, so that thereafter any shareholder could transfer its shares to any party notwithstanding that the transferee might not be an existing member of Richvein. Accordingly, this amendment was passed at an EGM on 8 November 2002. The Share Transfer to Bonvests was subsequently completed on or around 23 September 2003. In return for 62.7m new shares, Unicurrent sold its 70% stake in Richvein to Bonvests. At $0.39 per Bonvests share, the deal valued Unicurrent’s 70% stake in Richvein at merely $24.4m. Through this arrangement, the Sianandars’ stake in Bonvests increased from 29.97% to 43.22% cent overnight. Indisputably, Bonvests (and the Sianandar family) benefited from this arrangement. In a circular to its shareholders, Bonvests claimed to have greater synergies with this new asset in its portfolio of investments.
[42] The execution of the Share Transfer also meant that it would now be easier for the Sianandar family to realise or monetise its investment in Richvein (by selling or pledging its enlarged holding in Bonvests). On the other hand, the Lauws’ minority stake remained locked in Richvein.
The rights issue
[43] On 25 November 2002, Richvein obtained a banking facility agreement for up to $63m from DBS (“the 2002 Loan”). O&O and JL executed corporate and personal guarantees respectively for 30% of the loan facilities granted by DBS. Unicurrent and HN also executed corporate and personal guarantees respectively in relation to 70% of Richvein’s loan facilities. The loan tenure was five years from the drawdown date and in any case was to be fully repaid by 26 November 2007.
[44] In 2003, after Bonvests acquired Unicurrent’s 70% stake in Richvein, HN prevailed upon DBS to release him as a personal guarantor. This was done without informing JL. When JL later ascertained what had transpired and requested a similar release from his obligations as a personal guarantor, HN was neither helpful nor sympathetic. Under cross-examination, HN conceded that he was aware of JL’s displeasure at having to remain as a personal guarantor but maintained that he was not obliged to assist JL on this issue.
[45] On 16 September 2006, HN obtained a fresh bank proposal for a refinancing package for the 2002 Loan. The proposed refinancing package, with revised limits of $31m, required JL – but not HN – to provide his personal guarantee once again. On this occasion, JL refused to do so, on the basis that the collateral (the Hotel was worth some $191m in October 2006) was more than sufficient security for the 2002 Loan. The refinancing package was eventually not accepted.
[46] In the course of the High Court proceedings it was revealed that KBS did speak with a DBS officer regarding the requirement for JL’s personal guarantee. In a note to HN dated 26 September 2006, KBS reported that JL’s personal guarantee was not mandatory but DBS would have to revert on whether the interest rate would be revised in the circumstances.
[47] As it turned out, however, there was no follow-up with DBS or JL on this matter by HN. Instead, KBS and HN with unseemly alacrity immediately began evaluating the feasibility of a rights issue to raise funds to pay off the 2002 Loan. In a memorandum dated 2 October 2006, KBS recommended that the prospective new rights shares be priced at a level “that will result in the maximum dilution of [O&O]’s share if it does not take up the rights” [emphasis added]. He stated:
[48] On 4 October 2006, HN took steps to convene a Richvein board meeting that would authorise the holding of an EGM to pass a proposed rights issue (the “Rights Issue EGM”). JL sought an adjournment of this board meeting on the basis that he needed more time to appraise the financial and operational performance of Richvein, and thus the appropriateness of any rights issue. JL also sought Richvein’s latest management report which would disclose its year-to-date performance and the necessary information to conduct a cash flow analysis of Richvein. Both these requests were summarily rejected by HN.
[49] The board meeting was held on 11 October 2006 and it was resolved (with JL dissenting) that the Rights Issue EGM would be convened on 26 October 2006. On 12 October 2006, O&O wrote to Richvein to ask for, inter alia, Richvein’s profit and loss statements, but Richvein replied stating that the information could be gleaned from the audited accounts and monthly management reports that O&O had. O&O subsequently made two further requests for the profit and loss statements, but these too were not acceded to by Richvein. We note that HN acknowledged during cross-examination that the audited accounts and monthly management reports provided to O&O did not contain the relevant information that would assist in performing a cash flow analysis of Richvein. Pertinently, Bonvests also acknowledged in the course of arguments in this appeal that Richvein itself had not conducted any cash flow analysis or projections before the Rights Issue was decided on.
[50] On 26 October 2006, the day of the Rights Issue EGM itself, O&O unsuccessfully requested yet again that the Rights Issue EGM be postponed. The proposed resolution for the rights issue was accordingly passed at the Rights Issue EGM at $0.38 per rights share (the “Rights Issue”) even though JL dissented. It bears mention that no response was ever given to any of his requests or queries.
[51] Pursuant to the Rights Issue, provisional allotment letters were issued. The final date of acceptance was 3 November 2006. O&O assumed that payment was to be made by a local cheque and requested instead to make payment by telegraphic transfer (on 27 October 2006 and 30 October 2006) as it did not have a Singapore bank account from which a cheque could be issued. Both these requests were denied without HN or KBS ever deigning to give any explanation.
[52] JL later requested for more time to pay as some of the family’s funds were kept in Indonesia and certain banks and businesses in Indonesia were closed for public holidays during that time. This request, too, was curtly rejected. Despite this, O&O somehow managed to accept its provisional allotment on 3 November 2006 with the requisite cheque payment drawn on a bank in Singapore.
The oral agreement
[53] O&O commenced the action in the court below seeking relief under s 216 of the Companies Act. It alleged that the Related Party Transactions, the Share Transfer and the Rights Issue, whether taken alone or cumulatively, were oppressive and/or unfairly prejudicial.
[54] O&O further argued that Richvein was a quasi-partnership by virtue of an alleged oral agreement (the “Oral Agreement”) entered into by O&O and Unicurrent in or around 1979. The Oral Agreement was allegedly the culmination of various discussions between the two families, the primary (and disputed) terms of which were laid out by O&O as follows:
(a) the Lauw family was to be consulted on all important decisions and would be informed of the development and performance of Richvein’s business (the “Important Decision Term”);
(b) Richvein would eventually be listed on The Stock Exchange of Singapore through an initial public offering (the “Listing Term”); and
(c) if either party wished to sell its shares, it would have to offer the shares to the other party first. In order to realise their investment, both parties envisaged the possibility of a mutual exit strategy by selling their respective shares individually after the successful public listing of Richvein’s shares or by selling their stakes together to interested buyers (the “Exit Term”).
[55] According to O&O, as Richvein was a quasi-partnership by reason of the Oral Agreement, it was entitled to expect from Bonvests a “high standard of corporate governance” (Lim Swee Khiang and another v Borden Co (Pte) Ltd and others [2006] 4 SLR(R) 745 at [83] (“Borden”)). O&O also contended that by being the majority party in a quasi-partnership arrangement, Bonvests should “take a broader and more generous view of their obligations” (Sim Yong Kim v Evenstar Investments Pte Ltd [2006] 3 SLR(R) 827 (“Evenstar”) at [45]) to O&O, the minority faction.
The decision below
[56] The Judge was of the view that the common thread between the four alternative limbs of relief under s 216 of the Companies Act was some element of unfairness that would justify the invocation of the court’s jurisdiction. Additionally, the Judge held that while prejudice was an important factor in the overall assessment of an action under s 216, it was not an essential requirement.
[57] While O&O might have viewed the alternative of the back-door approach as a threat, the Judge thought that it had to take a stand nonetheless. It was not disputed that O&O had negotiated for the removal of the pre-emption rights which Bonvests agreed to and subsequently implemented. Having consented to the Share Transfer and obtained the removal of the pre-emption rights for its benefit, it was not open to O&O to later complain about the Share Transfer or how the Share Transfer made it less likely for Richvein to be listed.
[58] HN and Bonvests had not, in the Judge’s view, acted unfairly in respect of the Rights Issue. HN could not be faulted for looking into the question of refinancing the 2002 Loan one year before it was due for payment. The availability of other means of repayment did not make the Rights Issue unfair. The Rights Issue had been decided upon because of JL’s own intransigence. There was no suggestion by O&O that the price of $0.38 per share was unjustifiable. O&O had Richvein’s audited accounts and monthly management accounts and JL was unable to elaborate more specifically as to what kind of additional information he had been seeking. Further, the Judge held that the one month taken to conduct the Rights Issue (and the eight days given to subscribe for the rights shares) was not unduly short, since O&O had been given adequate notice of the Rights Issue EGM, JL’s dissent notwithstanding.
[59] The Judge acknowledged that HN could have given instructions to accept payment by telegraphic transfer or to extend the time for subscription but accepted that the background circumstances must have been frustrating for him. In any case, although O&O did not have a bank account in Singapore, it managed to subscribe for its portion of the rights shares on time. In so far as O&O said it did not have available funds in Singapore to subscribe and needed more time, it had already known for some time before the Rights Issue EGM that HN was pushing ahead with the Rights Issue. Accordingly, the Judge held that there had been no prejudice to O&O.
[61] Even considering the Share Transfer, the Rights Issue and the Related Party Transactions cumulatively, the Judge found that there had been no unfairness visited upon O&O for the purposes of s 216 of the Companies Act.
[62] With respect to the Oral Agreement, the Judge found that O&O had failed to establish the existence of the Listing Term and the Exit Term. He also held that whilst there might have been an understanding as between the parties with respect to important decisions concerning Richvein (the Important Decision Term), such an understanding was of an informal nature at best. Accordingly, the Judge held that it was unnecessary for him to find whether there existed a quasi-partnership between O&O and Bonvests with respect to Richvein.
This appeal
[63] On appeal, O&O contends that the Judge had erred in studying the facts as three distinct and separate episodes. According to counsel for O&O, Mr Sundaresh Menon SC (“Mr Menon”), it was not seeking to reverse the individual transactions complained of. Rather, its central complaint was that the manner in which these transactions were carried out manifested a rapidly deteriorating relationship in which Bonvests’ response to every request by O&O was driven by indifference at best, and malice at worst. From O&O’s perspective, this decaying relationship was one that required relief from the court, given the propensity of the majority shareholder to abuse its power in oppressing the minority.
[64] Mr Menon also argued that the Judge had made a mistake by failing to consider whether Richvein was a quasi-partnership. It was O&O’s case on appeal that “the failure to make a finding on this issue led to several other errors”, including the dismissal of the Important Decision Term and the fact that the Rights Issue was, inter alia, also a violation of legitimate expectations between the parties.
[65] It was further submitted by Mr Menon that quite apart from the question of the mistrust that had taken root as a result of HN’s dictatorial governance, characterised by the oppressive conduct of Richvein’s affairs, s 216 relief was nonetheless appropriate given that Bonvests had chosen to issue new shares for an improper purpose, viz. the dilution of O&O’s shareholding in Richvein.
[66] In response, Mr Yeo’s arguments centred on the contention that O&O’s case on appeal had departed very starkly from its pleaded case. From Bonvests’ point of view, O&O’s pleaded case had been premised solely on the Oral Agreement and Bonvests’ resulting breaches of the Exit Term, Listing Term and the Important Decision Term. By seeking to rely on a sweeping assertion that there was an agreement of co-participation between the parties, Mr Yeo contended that O&O was fielding arguments on appeal that were entirely different from those that had been canvassed before the Judge.
[67] It is appropriate for us to note at this juncture that while the evidence before us on appeal remains as it was in the court below, all the material findings of fact by the Judge came by way of deduction or inference. As such, this court is not constrained from reviewing his findings.
The law on minority oppression
[68] The Judge has helpfully summarised the law on this area (at [51]–[76] of the GD). We see no point in rehearsing his overview and shall therefore confine ourselves to a brief outline of the principles immediately relevant to this appeal.
“Single act” and “continuing conduct” oppression
[69] Section 216(1) of the Companies Act provides the following:
[70] As pointed out by the Judge at [52] of the GD, s 216 appears to provide four alternative limbs under which relief may be granted – oppression, disregard of a member’s interest, unfair discrimination or otherwise prejudicial conduct. These four limbs are not to be read disjunctively. The common thread underpinning the entire section is the element of unfairness. The instructive observations of Buckley LJ in the English Court of Appeal decision in Re Jermyn Street Turkish Baths Ltd [1971] 3 All ER 184 at 199 are apt for the purposes of this appeal:
[71] In her book Minority Shareholders’ Rights and Remedies (LexisNexis, 2nd Ed, 2007), Margaret Chew rightly points out that (at pp 120–121):
[72] Here, we must pause to say that we also agree with the Judge’s conclusion at [76] of the GD that:
[73] Breaking down s 216(1) into its constituent parts, it is obvious that it provides for minority protection where:
(a) the company’s affairs are conducted or the directors’ powers are exercised
(i) in an oppressive manner to the member; or
(ii) in disregard of the member’s interests;
(b) or an act is done or threatened or a members’ resolution is passed or proposed which:
(i) unfairly discriminates against one or more members; or
(ii) is otherwise prejudicial to one or more members.
[74] Based on a plain reading of s 216(1) itself, therefore, it appears that either a course of conduct or even a single act could theoretically amount to oppression. It has been noted, however, that the majority of the cases that have been decided by the courts pertain to minority complaints under limb (a) above, viz, oppression manifesting itself in the extended abuse in the conduct of the company’s affairs (see Victor Yeo and Joyce Lee, Commercial Applications of Company Law in Singapore (CCH Asia Pte Ltd, 3rd Ed, 2008) at p 282. Nonetheless, the following passage from Minority Shareholders’ Rights and Remedies correctly encapsulates the position on what might be said to single distinct acts of unfair behaviour (at pp 228–229):
[75] In the case of Re Cumana Ltd [1986] BCLC 430, the majority shareholder, Bolton, prevailed upon the company to undertake a rights issue. Bolton knew that Lewis, the minority shareholder, was unlikely to take up his proportion of new shares since he was unemployed and financially challenged. The effect of the proposed rights issue, should Lewis have been unable to take up the shares, would have been to reduce Lewis’ minority holding from one-third to less than 1%. Lewis brought an action under the precursor to s 459 of the UK Companies Act 1985 asserting, inter alia, that the rights issue was unfairly prejudicial to him. The judge at first instance inferred that the proposed rights issue was part of a scheme to reduce Lewis’s shareholding in the company and held that it was unfairly prejudicial to Lewis’s interests. This was affirmed by the English Court of Appeal.
[76] This is not to say that every issue of shares with knowledge that a minority shareholder may not take up the issue due to impecuniosity may amount to a case of oppression or unfair prejudice (a fortiori the case here for O&O, which was perfectly capable of subscribing to the rights issue). In Re a Company (No 007623 of 1984) [1986] BCLC 362, Hoffmann J dismissed, inter alia, the minority shareholder’s assertion that a rights issue he was not able to take up was unfairly prejudicial conduct on the part of the majority shareholders. With his customary acuity, he pointed out the following (at 366–367):
In Minority Shareholders’ Rights and Remedies, Margaret Chew suggests at p 199 that:
In Re Cumana Ltd, however, the facts had a distinctive feature: there had been an informal understanding amounting to a legitimate expectation that the proportion of shareholdings would remain immutable, to reflect the distribution of the company’s commercial profit. As we shall see shortly in the next sub-section, it was O&O’s case below that there had been a similar informal understanding between O&O and Bonvests.
[77] With respect to the four limbs of injustice to minorities countenanced in s 216 – (a) oppression, (b) disregard of a member’s interest constituting “continuing conduct” injustice, (c) unfair discrimination and (d) prejudice falling under the purview of “single act” injustice – the Judge’s conclusion (at [68] of the GD) that “there is no meaningful distinction between all four limbs” is broadly correct. Accepting that “the common thread [under s 216] is some element of unfairness which would justify the invocation of the court’s jurisdiction under s 216” means that the appropriate “test” to apply in cases of “single-act” injustice would accordingly be the same as the test already applied in cases of “continuing conduct” injustice, viz, “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”: Re Kong Thai Sawmill (Miri) Sdn Bhd [1978] 2 MLJ 227 (“Re Kong Thai Sawmill”), cited with approval in Low Peng Boon v Low Janie and others and other appeals [1999] 1 SLR(R) 337 (“Low Peng Boon”) at [43].
Quasi-partnerships
[78] Distinctly, another principle that should be remembered (given our present facts) is that courts, in deciding whether to grant relief under s 216 of the Companies Act, must take into account both the legal rights and the legitimate expectations of members. While these legal rights and expectations are usually enshrined in the company’s constitution in the majority of cases, a special class of quasi-partnership companies form an exception to this rule.
[79] In Ebrahimi v Westbourne Galleries Ltd and Others [1973] AC 360 (“Ebrahimi”), a case dealing with the court’s jurisdiction to wind up companies on “just and equitable grounds”, the House of Lords recognised that shareholders may have enforceable expectations which do not emanate from any articles of association and which are not necessarily submerged in the company’s structure. Lord Wilberforce said, at 379:
[80] Although Ebrahimi was decided in the context of the “just and equitable” jurisdiction of the court under the winding up provisions of the UK Companies Act, there is little doubt that under both English and Singapore law, the doctrine of quasi-partnerships is equally applicable to cases involving minority oppression. Chan Sek Keong CJ in Borden emphatically pointed out at [80] and [83] that:
[81] “Commercial fairness”, therefore, is the touchstone by which the court determines whether to grant relief under s 216 of the Companies Act. This standard must be the same as that laid out in Re Kong Thai Sawmill at [77] above. However, whether the majority’s conduct may be characterised as unfair is, to be sure, a multifaceted inquiry. Chan CJ additionally observed in Evenstar, at [31]:
[82] While the language of the above excerpt refers to s 254(1)(i) specifically, Chan CJ took pains to clarify the applicability of the fairness concept to s 216, at [37]:
[83] In the context of quasi-partnerships, therefore, the courts have consistently applied a stricter yardstick of scrutiny because of the peculiar vulnerability of minority shareholders in such companies. First, those who enter into a corporate structure often do not always spell out their rights and obligations in their entirety, in part because they are unable to anticipate all the eventualities that may arise, but also because it would be disproportionately expensive and time-consuming to do so even if they could. Naturally, this problem is particularly acute in respect of those who set up business with others essentially on the basis of mutual trust and confidence – they would have operated on the belief that the majority would take their interests into account and that any such problems would be readily and civilly ironed out. Ironically, often these understandings are not documented, let alone spelt out in legal terms, as it might be perceived that the very documentation of the understanding might betray a lack of trust. This might seem naïve but unfortunately this behaviour is not infrequent, even today, in commercial dealings; relationships thin in words but thick in trust underpinned by the implicit belief that each will do right by the other without the need to spell out in embarrassing detail what is expected or needed. Second, the reality of the nature of a closed company makes it susceptible to exploitative conduct by the majority simply because the minority has no obvious legal remedies spelt out in the memorandum and articles of association. At the risk of stating the obvious, it bears mention that minority shares in private companies are often difficult to dispose of, and even if there was a market for them they would often have to be sold at a substantial discount.
[84] Consistent with the above concerns, it is well-established that informal understandings and assumptions may be taken into account in determining whether the minority has been unfairly treated. Hoffman LJ insightfully summed up the position in Re Saul D Harrison & Sons plc [1995] 1 BCLC 14 (“Harrison”) when he stated, at 19–20:
[85] The inquiry as to the equities of the situation ultimately calls for a textured approach, rather than a technical one that is concerned only with the strict rights of parties. Thus, a majority shareholder may be within his strict legal rights but the manner in which he exploits his legal rights may call for the court’s intervention. In particular, it is trite law that conduct can be unfair without even being unlawful. On the other hand, there appears to be something to be said against the post-hoc judicial imposition of a quasi-partnership where the parties concerned are savvy, experienced investors – like JL and HN here – who have chosen the vehicle of a joint-venture company for a specific and capital-intensive purpose, see eg, the recent Malaysian case of Dato Ting Check Sii v Datuk Haji Mohamad Tufail bin Mahmud & Anor [2007] 7 MLJ 618 (“Ting Check Sii”) at [15]. In cases of this nature, the facts must clearly point towards an understanding that the parties would have to jointly make important decisions and that the substratum of trust had broken down because of the defendant’s unfair conduct.
Analysis
Was Richvein conceived as a quasi-partnership?
[86] First, we ought to dispose of a side issue. We readily agree with the Judge’s finding at [85] of the GD that O&O had failed to establish the existence of the Listing Term and the Exit Term. There was nothing on the evidence which pointed to any concrete basis for these two alleged terms in the Oral Agreement. O&O were obviously tilting at windmills in order to prop up their legal position. We need say no more.
[87] On the other hand, we entertain serious reservations about the Judge’s consideration of the relevance and significance of the Important Decision Term. At [85] of the GD the Judge states:
This was, with respect, a curious finding. What more could be required of the Important Decision Term, as alleged by O&O, than precisely an understanding of an “informal nature” with respect to important decisions? An understanding of a “formal nature”, necessarily, would mean that there would be precise contractual terms; and had that been the case, this would have been a straightforward matter making it quite unnecessary for any inquiry into the existence and characteristics of “quasi-partnerships”. If the Judge, on the other hand, meant that because the understanding was of an informal nature it did not merit legal protection, we must respectfully disagree. The real issue he ought to have addressed was whether there was any understanding and if so, its precise purport. It is not necessary that the understanding be legally enforceable. What is crucial, we reiterate, is the kernel of the understanding. In this regard, Bonvests’ argument at [66] appears to be misguided; by virtue of having pleaded the existence of the Important Decision Term, the “agreement of co-participation between the parties” had effectively already been pleaded by O&O. The Judge had, in our view, erred in adopting Bonvests’ position, and in focusing on the legal formalities of the understanding rather than on its substance and objectives. We now turn to examine the substance of the understanding.
[88] It appears quite plain to us that the circumstances under which Richvein was incorporated suggest that it was founded upon a relationship of mutual trust and confidence between the Lauw and Sianandar families. For instance, in a letter from JL to HN dated 7 October 2006 addressing JL’s reluctance to provide a personal guarantee for the refinancing package, JL stated the following:
Such an “understanding” would be consistent with a finding of Richvein being a quasi-partnership company, at least during the formative years of its inception. In this respect the relationship between the Lauws and the Sianandars bears more than a passing semblance to that which existed in the Australian case of Wallington v Kokotovich Constructions Pty Ltd [1993] 11 ACLC 1207 (“Kokotovich”) where the court found a “moral partnership” between Mrs Wallington and Mr Kokotovich. Prior to the breakdown of friendly relations in Kokotovich, Mrs Wallington and Mr Kokotovich had enjoyed an “intimate … relationship” that led to “both an emotional and a business association” vis-à-vis their jointly held company. The nature of the joint shareholding between the two parties was, however, unclear. While Mr Kokotovich thought that Mrs Wallington only held shares “so as to satisfy legal requirements”, Mrs Wallington herself laboured under no such impression. In the event, when Mr Kokotovich issued additional shares to himself and members of his family, Young J held that the objective of the share issue was to reduce Mrs Wallington’s ownership interest in the company and that this was oppressive. On appeal, the Supreme Court of New South Wales affirmed Young J’s decision, stating the following (Kokotovich Constructions Pty Ltd & Ors v Wallington (1995) 13 ACLC 1113 at p 1126):
[89] As in the case in Kokotovich, it is striking how much trust the Lauws and Sianandars reposed, in the course of the negotiations over the joint venture, on mutual good faith. HN himself acknowledged that although there were a number of meetings between members of the two families to discuss the terms of the proposed joint venture, none of the terms agreed upon during the discussions were reduced to writing. He testified as follows:
[90] The brevity and informality of the parties’ negotiations is highly significant, given the large financial commitment involved in the joint venture. LSL, DS and HN owned several other companies at the time and could properly be considered experienced investors and businessmen. This failure to record essential terms of their agreement in writing can only be rationalised and explained on the basis that the Lauw and Sianandar families had consciously chosen to enter into a relationship implicitly based on mutual trust and good faith with respect to the conduct of the affairs of Richvein in the future. Indeed, apart from a bare statement by HN that “LSL, JL, DS and I were not close friends … [t]he investment was for business purposes and our relationship was purely commercial”, it should be noted that the basis of JL’s letter excerpted at [88] above was never expressly denied or refuted by HN. This was despite it being HN who had “demand[ed] that [JL] let [him] know in writing what Bonvests and/or [HN] had done to cause [JL] to be so unhappy with [them]”. In this connection, the observations of Lady Justice Arden in the recent English case of Strahan v Wilcock [2006] BCC 320 (“Strahan”) at [19] and [23] are pertinent:
[91] It was unsurprising, therefore, that HN had no alternative but to accept during cross-examination that a number of oral agreements on highly significant issues were reached during these preliminary discussions. These issues included the representation of the Lauw and Sianandar families on Richvein’s board of directors, the funding of the building project, the apportionment of profits and losses as well as the management and operations of Richvein. Taken together, these agreements exhibited a fundamental understanding between the two families as to the manner in which the business of Richvein would be conducted, an understanding not unlike that which prevailed in Harrison at [84] above.
[92] HN further acknowledged in the course of cross-examination that there had been an obligation to consult the Lauw family on important financial and operational matters. Indeed, the following excerpt was probably the basis upon which the Judge concluded at [85] of the GD that there was indeed “some understanding as between the parties with respect to important decisions”. It will be helpful if we make reference to HN’s responses when cross-examined on this issue:
In Strahan, the English Court of Appeal similarly regarded Mr Strahan’s “participat[ion] in management decisions of the company” as indicative that his relationship with the only other shareholder, Mr Wilcock, “was more a ‘quasi-partnership’ relationship than a [mere] relationship between a majority shareholder and a company executive” holding a minority share in the company (at [23]).
[93] We are, however, unimpressed by Mr Menon’s submissions that the existence of “restricted exit options” indicates a greater likelihood of Richvein being ab initio a quasi-partnership. Pre-emption rights with respect to share transfers, like those enshrined in Article 30 of Richvein’s Articles of Association, are a common feature of many modern company articles and/or shareholder agreements, and on their own do not carry much weight in establishing the existence of any quasi-partnership. Article 30 provides:
[94] The relative ubiquity and uniformity of pre-emption clauses in present day company articles militate against any argument that special consideration must be given to such “transformational” provisions. Indeed, pace O&O’s position that “a restriction on the free transfer of the company’s shares” is indicative of a quasi-partnership, Tan Cheng Han SC (gen ed), Walter Woon on Company Law (Sweet & Maxwell Asia, 3rd Ed, 2005) states at para 11.111 that,
To say, therefore, as O&O does that “a restriction on the free transfer of the company’s shares” is indicative of a quasi-partnership is surely to wag the dog with its tail.
[95] In any case, as has already been mentioned, on 23 September 2002 O&O’s solicitors wrote to HN, seeking the amendment of Article 30 such that all pre-emption rights would be removed. It was therefore O&O that had wanted and effectively procured the removal of Article 30. Given this, it is difficult to see how O&O also then goes on to say that “[t]he fact that Article 30 was subsequently amended as a result of certain actions pursued by [HN] in relation to the Share Transfer … does not detract from the original founding intention behind the joint venture.” It appears to us that the existence and subsequent removal of Article 30 is no more than a legal red herring that adds little in any effort to characterise the true relationship of the parties. Article 30 was not intentionally inserted to signify the special relationship between the parties. Likewise, its removal must also be understood contextually. It was prompted by a move from HN to include a new entity, a publicly listed entity, into the original relationship which was strictly between two families. JL had asked for its removal to achieve theoretical parity with HN, who had made it clear that one way or another the shares would be transferred to Bonvests. We use the term “theoretical parity” because the Lauw family’s minority interest could not in reality be transferred to a third party without a very substantial discount. HN was clearly cognisant of this: when asked if he would purchase O&O’s shares in Richvein, he made a paltry offer of $12.7m (see above at [39]).
[96] The originally warm relations between the Lauw and Sianandar families became at best “neutral” – to borrow the term employed by counsel during the course of the appeal – between 1991 (the year in which the difficulty with respect to HIHR arose) and 2002 (the year in which HN transferred Unicurrent’s shares in Richvein to Bonvests and attempted to liquidate HS to pave the way for a direct contract with HIHR). Indeed, we can trace the pathology of the breakdown from the increasingly terse and confrontational correspondence exchanged by the parties over the years. From the tenor of the personal letters JL wrote in August 1991 just as the first strains in the relationship appeared (see above at [27]), to O&O’s solicitors’ letters stating its dissatisfaction with the proposed liquidation of HS in February 2003, it is obvious that the relationship had gradually eroded then corroded and eventually unravelled irretrievably.
[97] Given the above and in particular the existence of the Important Decision Term, we accept that Richvein must have started life as a quasi-partnership in 1980, an “association founded and intended to be continued on the basis of a personal relationship of mutual trust and confidence” (Phoenix Office Supplies Ltd v Larvin [2003] BCC 11 (“Larvin”) at [39]). In Larvin, the English Court of Appeal held that the existence of a common understanding between the only three shareholders of a company indicated the presence of a de facto quasi-partnership. In the course of its judgment, the Court of Appeal stated as follows at [40]:
The situation in Larvin, therefore, was not very different in substance from the one established on the evidence here. The fact that the relationship between the Lauw and Sianandar families began to deteriorate sometime after 1991 did not change the character of the original relationship. Accordingly, as a result of events engendered mainly by HN’s actions, there was almost certainly a rapidly decaying relationship between the parties from September 2003 onwards. This relationship was to be characterised by curt and eventually confrontational communications about a going concern that had effectively become a listed subsidiary of Bonvests, which in fact owned 70% of Richvein. This was in stark contrast to what the parties must have originally envisaged and how the venture had initially started off: a closely knit relationship underpinned by the private ownership of the shares in Richvein. This fundamental change in the character of the relationship was solely precipitated by HN when he sought to maximise the benefit that the Sianandar family could realise from its investment in Richvein by transferring the Unicurrent shareholdings in Richvein to Bonvests, a publicly held entity.
Did the Related Party Transactions constitute oppression?
[99] In any case, the decision to contract directly with HIHR appeared ultimately to have been a business decision taken with the strategic interests of Richvein in mind though of course it also appears that Bonvests had benefited from this exercise. In this respect, we are minded to agree with the findings of the Judge summarised at [60] above. However, in assessing this issue in isolation, the Judge did not go on to also consider whether HN’s conduct on this issue manifested a proclivity by HN to abuse his majority rights at the expense of O&O whenever there was a collision of interests.
[100] Accordingly, while we do not find that a case of oppression made out on this aspect of O&O’s claim, this does not mean that the lack of prejudice precludes further consideration of HN’s earlier conduct when it comes to assessing holistically the entire manner in which the affairs of Richvein have been conducted apropos O&O to date of which the Related Party Transactions would form a part (see below from [128] onwards).
Did the Share Transfer constitute oppression?
[101] At [87]–[89] of the GD, the Judge found that the Share Transfer to be insufficient to constitute oppression:
[102] With respect, we again have some difficulty with the Judge’s views on this issue. One has to first appreciate how O&O found itself embroiled in an impossible situation where it “had to take a position” and why this was done. HN had forced JL into this invidious position. It was plain to us that O&O was stuck between a rock and a hard place. JL was only too painfully aware that HN could have forced the Share Transfer either through a direct sale of Unicurrent’s shares in Richvein to Bonvests, or via the back-door approach, with Bonvests acquiring Unicurrent. It is therefore puzzling why the Judge reasoned that O&O “could have asserted that [the back-door approach] was a breach of the spirit or substance of the Exit Term but it did not do so” (at [87] of the GD). The Exit Term, as the Judge had earlier rightly found, was an after thought contrived for the purposes of these proceedings so it should come as no surprise that this was not raised. It is not disputed that O&O was unhappy about the Hobson’s choice it had to make. Asserting that the back-door approach was a breach of the spirit or substance of any other understanding was certainly one way in which it could have made its unhappiness known. This would have meant litigation, at an earlier juncture, as it was also clear that HN was going to be unyielding in his desire to transfer the shareholding. Another option was simply for O&O to let HN know that it was unhappy. This O&O did in ample measure, as evidenced by HN’s frustrated correspondences to LSL and O&O’s solicitors in June and September 2002.
[103] The point is simply that even though O&O eventually did settle for one of the two unhappy alternatives, this did not mean that it could not keep its powder keg dry. Merely because a shareholder does not immediately initiate legal proceedings complaining about treatment unfairly dished out to him does not mean that he is always precluded from doing so subsequently, see eg, Low Peng Boon at [30]–[31]. Obviously, if Unicurrent’s shares in Richvein were going to be transferred whether directly or indirectly, thus already defeating the spirit if not the letter of Article 30, it would have made no sense for JL not to similarly excuse himself from that restraint so as to minimise the prejudice that he would have suffered as a result of the Share Transfer. This, however, did not mean that the Lauw family was a willing participant; nor does it preclude the Lauw family from now asserting that it has suffered prejudice in being locked in a new business relationship with a listed public company that bears no resemblance to the implicit understanding the families had when Richvein was incorporated in 1980.
[104] While it is true that the Sianandar family also effectively controlled Bonvests, it cannot be gainsaid that the change in shareholdings precipitated a radical alteration of the parties’ existing relationship. Besides the obvious breakdown in trust, Bonvests – as a publicly listed company with distinct legal obligations to not just the Sianandar family but to its own distinct minority shareholders – was a radically different entity and legal proposition from the privately held Unicurrent. The joint venture, we reiterate, was conceived as a closed, two-family partnership, and this was the relationship that underpinned all dealings between the parties until then. In many ways, this resembles the “loss of substratum” that Margaret Chew refers to in Minority Shareholders’ Rights and Remedies at p 205:
[105] All things considered, we are of the view that HN’s conduct with respect to the Share Transfer (and when seen as a whole) did amount to oppression pursuant to s 216. The change in character of Richvein as a company, from a private one to a semi-public one, was a profound one that manifestly and irretrievably altered the easy and informal relationship the parties had until HN drove a coach and fours through it. We do not agree with the Judge that O&O, which had merely attempted to salvage some theoretical benefit from the high handed behaviour of HN, cannot now complain about it; see above at [103].
Did the Rights Issue constitute oppression?
[106] The Judge also found that the Rights Issue had not resulted in any prejudice to O&O, and that in the circumstances both HN and Bonvests had not acted unfairly. An issue that took centre-stage among the Judge’s considerations was the fact that JL had himself “torpedoed” the refinancing package (at [103]–[104] of the GD):
[107] We again cannot agree with the Judge’s conclusion on this point. If Richvein had even mildly exerted itself it seems to us that the requirement for JL’s personal guarantee would have been readily dispensed with – indeed, as has already been noted at [45] above, this was almost a certainty given the enormous size of the collateral for the 2002 Loan. This was simply a matter of commercial parity, and HN as a seasoned businessperson must have known that it was unlikely that DBS would stand in the way if it had been pressed in any way. After all, the Hotel would have been more than ample security for the outstanding loan facility. It is again striking that HN did not even begin to try and persuade DBS to offer the same package (without JL’s guarantee) or seek alternative funding before rushing headlong into the rights issue without so much as even considering the need for a proper cash flow study, see above from [44] to [50].
[108] The Judge then went on to examine the proportionality of the Rights Issue as a response to O&O’s intransigence with respect to the refinancing package (at [107]–[108] of the GD):
[109] We do not think that the question of “whether the Rights Issue in the circumstances was unfair” was the only one the Judge ought to have posed. If there had been other means to pay back the 2002 Loan, or no loan was even required in the first place, then plainly the Rights Issue was entirely unnecessary and simply a device to hit back at O&O and dilute the Lauws’ stake in Richvein. The Judge ought to have considered whether HN had acted reasonably contextually instead of readily exonerating him for acting out of “frustration”. In the context of the Important Decision Term, HN had, at the very least, an obligation to seek an appropriate solution to this “difficulty”, even if JL was unreasonable, instead of acting precipitously. What makes HN’s conduct even more difficult to rationalise or excuse is that there was absolutely no time pressure to resolve this issue urgently: see below at [117]–[122]. It is trite that a director, especially one representing the majority’s interests, cannot in law exercise a fiduciary duty qua director simply to settle personal scores.

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Over & Over Ltd v Bonvests Holdings Ltd and another

Laws this judgment relies on

Grounds of decision

Facts

Overview

The Related Party Transactions

The Share Transfer

The rights issue

The oral agreement

The decision below

This appeal

The law on minority oppression

Quasi-partnerships

Analysis

Was Richvein conceived as a quasi-partnership?

Did the Related Party Transactions constitute oppression?

Did the Share Transfer constitute oppression?

Did the Rights Issue constitute oppression?