High Court · Decided 29 May 2015

Petroships Investment Pte Ltd v Wealthplus Pte Ltd and others

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[2015] SGHC 145Case no. Originating Summons No 766 of 2012

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Companies Act 1967

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Vinodh Coomaraswamy J:
Introduction
[1] Petroships Investment Pte Ltd (“Petroships”) is a minority shareholder of Wealthplus Pte Ltd (“Wealthplus”). By this application, Petroships seeks the court’s leave under s 216A of the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”) to commence a statutory derivative action against two groups of defendants. The first group comprises Wealthplus’ ultimate holding company and its related companies. The second group comprises the two current directors of Wealthplus, both of whom are the appointees of its ultimate holding company. The objective of Petroships’ derivative action is to recover: (i) various sums of money which Wealthplus or its subsidiaries have transferred to its ultimate holding company and its related companies; and (ii) compensation from both of Wealthplus’ directors for alleged breaches of their duties as its directors.
[2] Each side in due course sought and secured orders under Order 38 r 2(2) and Order 28 r 4(3) and 4(4) of the Rules of Court (Cap 322, R 5, 2006 Rev Ed) permitting them to cross-examine the deponents of the other side’s affidavits.
[4] Petroships has appealed against my decision. I therefore now set out my grounds.
The background
The parties
[5] Petroships holds 10% of Wealthplus, who is the first respondent. When Petroships filed this application, it named Wealthplus as the sole respondent. Wealthplus has since been joined by two other respondents, both of whom became respondents on their own application.
[6] The second respondent is Koh Brothers Group Limited (“KBGL”). KBGL is a listed company in the construction business. It is Wealthplus’ ultimate holding company, controlling the 90% of Wealthplus which Petroships does not control. Unlike Petroships, KBGL does not itself own shares in Wealthplus. Instead, KBGL exercises its control of Wealthplus through a chain of holding companies.
[7] The third respondent is Megacity Investment Pte Ltd (“Megacity”). Megacity is a shareholder of Wealthplus and is a wholly-owned subsidiary of Koh Brothers Building & Civil Engineering Contractor (Pte) Ltd (“KBCE”). KBCE is a wholly-owned subsidiary of Construction Consortium Pte Ltd (“CCPL”). CCPL is a wholly-owned subsidiary of KBGL.
[8] Megacity initially held 90% of the shares in Wealthplus. In 2011, Megacity transferred 41% of the shares in Wealthplus to KBCE. The result is that today, Wealthplus has 3 shareholders: Megacity holding 49% of Wealthplus, KBCE holding 41% and Petroships holding 10%. The transfer of shares in 2011 did not affect KBGL’s position as Wealthplus’ ultimate holding company.
[9] The companies that Petroships seeks leave to bring a derivative action against are KBGL, CCPL, KBCE and Megacity, as well as other unnamed companies related to KBGL. Neither KBCE nor CCPL are parties to this application.
[10] The directors of Wealthplus that Petroships seeks leave to bring a derivative action against are Koh Teak Huat and Koh Keng Siang. Both men are affiliated with KBGL and its group of companies. In addition to being directors of Wealthplus, they are concurrently directors of Megacity and also of other companies in the KBGL group. Both men are also related to the founder of the KBGL group, Koh Tiat Meng. Koh Teak Huat is Koh Tiat Meng’s brother. Koh Keng Siang is Koh Tiat Meng’s son.
[11] The opposition to these proceedings comes only from KBGL and Megacity. As I have mentioned, Wealthplus is now in members’ voluntary liquidation. Its liquidators have committed Wealthplus to a neutral position in these proceedings. I shall explain later in my judgment the circumstances in which Wealthplus was put into liquidation and the consequences of its liquidation.
The joint investment
[12] The derivative action that Petroships seeks leave to commence has its roots in the KBGL group’s project to exploit the rights to develop five plots of land in Shantou, China. Shantou is the ancestral home of many in Singapore’s Teochew community. Koh Tiat Meng is a member of that community. So too is Alan Chan, the man who controls Wealthplus.
[13] KBGL obtained the land use rights to these five plots of land in Shantou in 1997. The land-use rights were then held by KBCE as KBGL’s vehicle.
[14] Early in 1998, Alan Chan accepted Koh Tiat Meng’s invitation to invest in a project to exploit these rights. Wealthplus was the investment vehicle for this project. KBGL held its investment in Wealthplus through the chain of intermediate holding companies I have described at [7] above. Alan Chan held his investment in Wealthplus through Petroships.
[16] In July 1998, Megacity and Petroships made their appointments to the board of Petroships. Megacity appointed Koh Teak Huat and Koh Keng Siang as directors of Wealthplus. They have both served as directors of Wealthplus without interruption to this day. Petroships appointed Alan Chan as a director of Wealthplus. He served as a director of Wealthplus from July 1998 until his resignation in September 2009.
[17] In 2006, Megacity proposed that Wealthplus sell the land-use rights rather than exploit those rights itself. Petroships had no objections. Wealthplus held these rights through three wholly-owned subsidiaries in Singapore who, in turn, owned the three wholly-owned subsidiaries in China in whom the land-use rights were vested. In August 2007, Wealthplus caused the three subsidiaries in China to be sold together with their land-use rights. As a result, Wealthplus’ subsidiaries in Singapore collectively received $19.4m, being the proceeds of sale.
[18] Starting in 2008, Petroships began to agitate for its share of the profits of the investment, as well as to recover its capital and to secure repayment of its $1.1m loan to Wealthplus (see [15] above). This led to three consequences. First, Alan Chan resigned as a director of Wealthplus in September 2009. Second, Petroships scrutinised Wealthplus’ accounts and queried certain aspects of Wealthplus’ accounts at its annual general meetings (“AGMs”) held in 2009, 2010 and 2011. Finally, Petroships commenced four unsuccessful suits in a series against Megacity, Wealthplus and KBGL (in various combinations).
[19] It is necessary to describe the latter two consequences in more detail.
Four actions interleaved with three AGMs
Petroships’ first action
[20] Petroships commenced the first of its four actions in March 2009. A law firm known as Chung Ting Fai & Co (“CTF”) acted for Petroships. Megacity was the sole defendant to the first action. Petroships claimed that Megacity had failed to pay Petroships its share of the profits from the investment (amounting to $117,728) and had failed to repay Petroships’ loan of $1.1m.
[21] Petroships’ first action was struck out in August 2009. It was found to disclose no reasonable cause of action; to be scandalous, frivolous or vexatious; or both. Petroships consented to the striking out.
[22] This result is not surprising. The first action was wholly misconceived. Megacity had in fact undertaken no obligation to Petroships to account to Petroships for its share of the profits from its investment in Wealthplus. And Petroships’ loan of $1.1m had been advanced to Wealthplus, not to Megacity. Megacity had never undertaken any direct responsibility to Petroships for this liability, whether by way of guarantee or otherwise.
Wealthplus’ 2009 AGM
[23] In November 2009, Wealthplus held its AGM for that year. At that AGM, the directors laid the company’s accounts for 2008 before the members.
[24] Alan Chan was by that time no longer a director of Wealthplus. He attended the 2009 AGM as Petroships’ representative and raised two queries on the 2008 accounts. The first query was about a provision of $647,090 charged as an allowance for impairment of non-trade receivables. The directors explained that the company had relied on objective evidence of the impairment before making the allowance. The second query was about an expense of $439,631 classified as director’s remuneration. Alan Chan pointed out that no director of Wealthplus had ever received remuneration in past years. The directors explained that the remuneration was paid to Koh Teak Huat for his services to Wealthplus and, in particular, for his contributions in disposing of the land-use rights.
Petroships second action
[25] Petroships commenced the second of its four actions in January 2010. Once again CTF acted for Petroships. This time, Petroships named both Wealthplus and Megacity as defendants. Petroships now claimed that Wealthplus had failed to repay Petroships’ loan of $1.1m and that Megacity had failed to procure Wealthplus’ repayment of that loan. Petroships claimed, further, that Wealthplus’ delay in repaying the loan had oppressed Petroships as a minority shareholder and/or amounted to acting in disregard of its interests as a shareholder. Petroships alleged also that both Wealthplus and Megacity had acted in an unfairly discriminatory way towards Petroships as a shareholder of Wealthplus. On that factual basis, Petroships sought an order that Megacity procure Wealthplus to repay the $1.1m loan; alternatively an order that Wealthplus be wound up and ordered to repay the loan of $1.1m to Petroships.
Petroships’ third action
[27] Petroships commenced the third of its four actions in October 2010. Once again CTF acted for Petroships. The third action was commenced just over a month after the second action had been struck out. The third action was identical to the second action. The statements of claim in the two actions were exactly the same. Wealthplus and Megacity were again the defendants.
[28] Petroships’ third action was struck out in May 2011. The third action was found to be scandalous, frivolous or vexatious; otherwise an abuse of the process of the Court; or both.
[29] This is not surprising. Petroships was trying illegitimately to revive the second action, without explaining, excusing or remedying its breach of the peremptory order in that action.
Wealthplus’ 2010 AGM
[30] Wealthplus held its 2010 AGM in October 2010, the day after Petroships commenced its third action. At this meeting, the directors laid before the members Wealthplus’ accounts for 2009.
[31] Alan Chan attended the 2010 AGM as Petroships’ representative. He queried the administrative expenses of $351,155 incurred by Wealthplus in 2009, pointing out that it and its subsidiaries had been dormant that year. The directors gave a breakdown of these expenses. The expenses included legal fees, auditors’ fees for the Wealthplus group (including its six subsidiaries) directors’ remuneration of $120,000 and commissions paid.
[32] Alan Chan next queried the directors’ remuneration of $120,000, describing it as excessive. The directors explained that Wealthplus had remunerated Koh Teak Huat in 2009 because he had handled and liaised with the local Chinese authorities relating to the affairs of two of Wealthplus’ subsidiaries in China.
Petroships raises the four transactions in correspondence
[33] In August 2011, Braddell Brothers LLP wrote to Koh Tiat Meng. They did so on behalf of Alan Chan personally. The letter conveyed Alan Chan’s queries on four transactions in the accounts of Wealthplus together with his invitation to Koh Tiat Meng “to sort out these strange transactions”.
[34] The four transactions that Alan Chan queried through Braddell Brothers LLP were:
(a) transfers of sums totalling $14.9m from Wealthplus to various companies within the KBGL group which appeared unrelated to Wealthplus’ investment in China;
(b) a write-off of $135,005 owed to Wealthplus in 2008 described only as “bad debts”;
(c) a provision for impairment of $651,658 in 2009 for non-trade related debts; and
(d) director’s fees totalling $559,631 paid in 2008 and 2009 (see [24] and [32] above).
These four transactions are also the subject-matter of Petroships’ derivative action.
[35] Koh Tiat Meng did not respond to this letter. The response came instead from Rajah & Tann LLP (“R&T”) representing Wealthplus. Wealthplus took the position that it was more appropriate for Wealthplus (rather than Koh Tiat Meng) to deal with Alan Chan’s queries about the four transactions. Wealthplus also told Alan Chan that its directors would be pleased to answer his queries at its AGM then fixed for October 2011.
[36] Petroships did not send a representative to attend Wealthplus’ AGM in October 2011. Instead, Petroships instructed Braddell Brothers LLP to write to KBGL on its behalf. In that letter, Petroships (instead of Alan Chan) now put queries to KBGL (instead of Koh Tiat Meng). But the queries were about the same four transactions. Petroships demanded that KBGL give a full and proper account of the affairs of Wealthplus within seven days – including an explanation and account of the four transactions – failing which Petroships intended to commence proceedings against KBGL.
[37] KBGL did not respond to this letter. The response again came from R&T representing Wealthplus. Wealthplus took the position that it was more appropriate for Wealthplus (rather than KBGL) to deal with Petroships’ queries about the four transactions. Wealthplus also told Petroships that its directors would be pleased to answer its queries at the 2011 AGM, by then rescheduled to November 2011.
Wealthplus’ 2011 AGM
[38] Wealthplus’ 2011 AGM was duly held in November 2011. Petroships attended by proxy. The proxy asked for an explanation of the four transactions. Wealthplus’ directors gave the following explanation:
[39] At the same AGM, the directors informed the shareholders that a general meeting would be convened shortly to pass the necessary resolutions to put Wealthplus into members’ voluntary liquidation.
Petroships’ fourth action
[40] Petroships commenced its fourth and final action in November 2011, three days after Wealthplus’ 2011 AGM. This time Braddell Brothers LLP, and not CTF, acted for Petroships. I shall therefore refer to the first three actions collectively as “the CTF actions”.
[41] Petroships named KBGL as the only defendant to the fourth action. Petroships alleged that KBGL was liable to Petroships on three grounds: (i) Megacity had entered into the written joint venture agreement with Petroships as KBGL’s agent; (ii) KBGL and Petroships were parties to a broader agreement, partly written and partly oral, in connection with Petroships’ investment in Wealthplus; and (iii) KBGL was a fiduciary for Petroships arising from their joint venture through Wealthplus.
[42] On that basis, Petroships alleged: (i) that KBGL had wrongfully caused Wealthplus to enter into various transactions (including but not limited to the four transactions set out at [34] above) which appeared to be solely in the interests of KBGL and not in the interests of Wealthplus; (ii) that KGBL had failed to repay the loan of $1.1m which Petroships had extended to Wealthplus and had failed to distribute to Petroships its share of the profits realised by Wealthplus; and (iii) that KBGL was liable to account to Petroships for its share of Wealthplus’ profits.
[43] Petroships’ case in the fourth action was that it had a contractual relationship with KBGL in relation to its investment in Wealthplus. That was contrary to the clear import of the written joint venture agreement entered into in 1998 between Megacity and Petroships. It was also contrary to the position which Petroships had taken and maintained in the CTF actions.
[44] Petroships’ fourth action was struck out in March 2012. The court held that Petroships had failed to adduce any evidence at all to show that Petroships had entered into a contractual relationship with KBGL (as opposed to Megacity) when Petroships invested in Wealthplus. It was therefore held that the fourth action, while perhaps not strictly speaking an abuse of process, was clearly frivolous and vexatious.
[45] Petroships appealed this decision to a judge in chambers. Its appeal was dismissed in May 2012.
Petroships applies for leave to bring a derivative action
Petroships serves notice under s 216A
[46] The following month, in June 2012, Petroships initiated the procedure under s 216A which has led to this application. Braddell Brothers LLP served notice on Wealthplus’ directors on behalf of Petroships expressly pursuant to s 216A(3)(a). The notice: (i) set out the four transactions (see [34] above); (ii) noted that Wealthplus had in correspondence promised Petroships that the directors would give a full explanation of those transactions at the 2011 AGM; (iii) set out the directors’ explanations (see [38] above); and (iv) rejected their explanations as mere assertions and insufficient. The notice concluded by inviting the directors within fourteen days either to furnish a full explanation of the four transactions or to cause Wealthplus to commence action: (i) against the directors who procured or authorised the four transactions for breach of their duties as directors; and (ii) against the relevant KBGL group companies to recover the money which Wealthplus had transferred to them.
[47] R&T responded to Petroships in July 2012 on behalf of Wealthplus’ directors. Their position was as follows: (i) the directors had given sufficient explanations for each transaction at the 2011 AGM and at previous AGMs; (ii) Alan Chan had been a director of Wealthplus from July 1998 until September 2009 with full access to Wealthplus’ accounts and financial statements and had signed directors’ resolutions approving Wealthplus’ audited accounts for each year from 1998 to 2007; (iii) Petroships was not acting bona fide within the meaning of s 216A because it had commenced multiple suits against various parties arising from the joint venture agreement between Megacity and Petroships; and (iv) the directors would, as foreshadowed at the 2011 AGM, convene a general meeting in due course to place Wealthplus in members’ voluntary liquidation.
Petroships commences proceedings under s 216A
[48] Wealthplus’ directors having refused to act on the s 216A notice, Petroships filed this application in August 2012.
[49] In this application, Petroships seeks five substantive heads of relief:
(a) Leave to bring a derivative action against Koh Teak Huat and Koh Keng Siang for breaches of their duties as directors to Wealthplus;
(b) Leave to bring a derivative action against Megacity, KBCE, KBGL and related companies to recover various sums that Wealthplus or its subsidiaries have transferred to them;
(c) An order that Petroships have the conduct of the derivative actions, and of any execution proceedings thereafter;
(d) An order that Wealthplus allow Petroships to have access to all documents and accounts relating to Wealthplus and its subsidiaries for the financial years 1997 to 2011; and
(e) An order that Wealthplus pay all costs incurred by Petroships in pursuing the derivative actions.
[50] Although the relief prayed for in the originating summons does not give details of the subject-matter of the derivative action, Alan Chan’s affidavit in support of the originating summons makes clear that the subject-matter comprises the four transactions listed at [34] above. These four transactions were also the subject-matter of Petroships’ representative’s queries at the 2011 AGM and were expressly pleaded in its fourth action.
Wealthplus goes into members’ voluntary liquidation
[51] The directors of Wealthplus convened an extraordinary general meeting of its members to be held in August 2012 to pass a special resolution to put Wealthplus in members’ voluntary liquidation. Petroships applied in advance of the meeting for an injunction to prevent it being held but withdrew the application before it could be heard on the merits. The meeting went ahead.
[52] Petroships appointed a proxy to attend the meeting. She opposed the resolution on the grounds that Wealthplus should not go into liquidation until its directors had explained the four transactions fully, with supporting documentation. The directors took the position that Petroships was at liberty to take up the four transactions with the liquidators once appointed. The special resolution was put to a vote. Not surprisingly, it passed comfortably. Yin Kum Choy and RS Ramasamy of Adept Public Accounting Corporation were appointed Wealthplus’ liquidators.
[53] Two days after the meeting, Petroships sought an injunction to restrain Wealthplus from acting on the resolution; alternatively an injunction to restrain the liquidators from doing anything which would materially affect this application or the derivative action it contemplates. No such injunctions were ever granted, although it is not entirely clear why.
Petroships pursues the four transactions with the liquidators
[54] In October 2012, Braddell Brothers LLP wrote on behalf of Petroships to the liquidators. Petroships drew the liquidators’ attention to this application. It informed the liquidators of its view: (i) that the directors of Wealthplus had failed adequately to explain the four transactions; and (ii) that Wealthplus had a claim arising from the four transactions against Koh Teak Huat, Koh Keng Siang, KBGL and its related companies. Petroships asked the liquidators whether they accepted the directors’ explanations and, if not, whether they would be taking any action to vindicate Wealthplus’ rights.
[56] Not surprisingly, the shareholders could not arrive at any consensus on the liquidators’ proposals. In January 2013, therefore, the liquidators applied to the High Court for directions “that the Liquidators take steps to review, enquire into and/or investigate into the affairs of the Company, in particular, in respect of the matters raised by Petroships”.
[57] While the liquidators’ application for directions was waiting to be heard, Megacity and KBCE requisitioned in June 2013 an extraordinary general meeting of Wealthplus’ members to be held in August 2013 to consider a resolution to remove the liquidators from office. The liquidators’ application for directions was adjourned pending the meeting. The liquidators accepted the inevitable and tendered their resignations before the meeting.
[58] The meeting nevertheless went ahead in August 2013. It resolved to accept the liquidators’ resignations and to appoint new liquidators in their place: Sim Guan Seng, Khor Boon Hong and Goh Yeow Kiang Victor of Baker Tilly TFW LLP. Petroships voted against both resolutions at this general meeting but was easily outvoted. These are the liquidators who remain in office today.
[59] Petroships tried to query the new liquidators on the four transactions at the meeting but was told to take their queries up with their liquidators outside the meeting in correspondence. Petroships did so. The new liquidators indicated that they did not intend to take over the previous liquidators’ application for directions to investigate the four transactions. That application was accordingly withdrawn when it came up for hearing in October 2013.
The new liquidators’ position
[60] The current liquidators’ position is that this application arises from a dispute between the shareholders of Wealthplus. They do not consider themselves in a position to take an active part in this application, having no personal knowledge of the four transactions or of the broader background. It is for that reason that they have committed Wealthplus to a neutral stance on this application.
[61] Given the liquidators’ position, and in order to ensure that this application is opposed, KBGL and Megacity applied successfully to be added as respondents. In September 2013, they became the second and third respondents respectively. In the absence of any opposition from Wealthplus, it is KBGL and Megacity who have borne the entire burden of opposing Petroships’ application.
The issues
[62] In order to enliven my power to grant it leave under s 216A, Petroships must satisfy three statutory tests. These tests are set out in s 216A(3):
[63] It is common ground that Petroships has satisfied s 216A(3)(a). The only issues I have to deal with, therefore, are:
(a) whether Petroships is acting in good faith within the meaning of s 216A(3)(b); and
(b) whether it appears to be prima facie in the interests of Wealthplus, within the meaning of s 216A(3)(c), that Petroships brings the derivative action.
I take these two tests in turn. I consider first whether Petroships is acting in good faith within the meaning of s 216A(3)(b).
Is Petroships acting in good faith?
[64] Petroships does not begin its submissions by addressing its good faith. Instead, it begins its submissions by focusing on the merits of its derivative action and by pointing out that all that Petroships is trying to do is to help Wealthplus recover its assets. Petroships invites the court to infer that it is acting in good faith primarily from the fact that the derivative action has merit.
[65] It is therefore necessary to say some words about the burden of proof on the issue of good faith.
The burden is on Petroships to demonstrate its good faith
The allocation of the legal and evidential burdens
[66] The burden of proof on the issue of good faith under s 216A(3)(b) lies on the applicant: Ang Thiam Swee v Low Hian Chor [2013] 2 SLR 340 (“Ang Thiam Swee”) at [23]. There is no presumption that an applicant under s 216A is acting in good faith which the respondent must then rebut (cf Agus Irawan v Toh Teck Cheng [2002] 1 SLR(R) 471 (“Agus Irawan”) at [9]).
[67] The burden of proof referred to in Ang Thiam Swee is the legal burden. The applicant therefore bears the burden, after all the evidence is in, of satisfying the court on the balance of probabilities that it is acting in good faith. Wigmore calls this the risk of non-persuasion. Even if the applicant goes far enough to leave the court in perfect equipoise on the issue of good faith, the applicant has failed to persuade the court and therefore loses on that issue.
[68] The legal burden on any issue normally carries with it the evidential burden on that issue also. That is the case with the test of good faith under s 216A(3)(b). The applicant therefore also bears the evidential burden on this issue. This is what Wigmore calls the duty of producing evidence. The applicant has a duty to produce evidence to establish its own good faith. Indeed, the applicant bears both the legal and the evidential burden not just on s 216A(3)(b) but also on s 216A(3)(a) and s 216A(3)(c).
[69] In a trial, the consequence of failing to discharge an evidential burden is brought home to a plaintiff on a submission of no case to answer. An application under s 216A is not an action and is not determined at trial. It is an application and is determined summarily. There is, therefore, no opportunity for a respondent to make a submission of no case to answer. That is so even where, as here, the deponents on both sides are cross-examined on their affidavits. That procedural device does not, in itself, turn an application into an action. It is nevertheless useful to bear in mind for the analysis which follows that the applicant under s 216A not only bears the legal burden but also the evidential burden.
An applicant’s approach to good faith
[70] A litigant who bears an evidential burden on a particular fact can meet that burden in one of two ways: (i) by producing direct evidence of that fact; or (ii) by producing or pointing to evidence of circumstances from which the court can infer the existence of that fact. Good faith is a subjective state of mind. Like any state of mind, it is therefore incapable of proof by direct evidence other than self-serving assertions. A bald assertion by an applicant that it is acting in good faith will meet an evidential burden only in the most technical of senses, and will only rarely suffice to discharge a legal burden of proof: Ang Thiam Siew at [19].
[71] For all practical purposes, therefore, meeting the evidential burden on the issue of good faith requires the applicant to produce or point to evidence from which its good faith can be inferred. This is an important point. Ang Thiam Swee establishes (at [29]) that the subjective test of good faith under s 216A(3)(b) must be kept analytically distinct from the objective test of whether it appears to be prima facie in the company’s interests to bring the derivative action under s 216A(3)(c). However, that case also establishes in the same paragraph that there is a legitimate – though, of course, never inevitable – inferential pathway from a finding that the objective test in s 216A(3)(c) is satisfied to a finding that the subjective test in s 216A(3)(b) is also satisfied. In framing its submissions as it has, Petroships prays in aid, entirely legitimately, this inferential pathway. (There is also a possible inferential pathway in reverse: from the subjective to the objective. But that inference is ordinarily so slight as to be of no practical significance.)
[72] Ang Thiam Swee therefore accepts that the inquiry into an applicant’s good faith can overlap with the inquiry into whether the derivative action appears to be prima facie in the interests of the company. That is because the latter test, if satisfied, is often a circumstance from which the former can be inferred. Note that it is the inquiries which overlap. The concepts themselves and the statutory tests employing them are distinct.
[73] It is because the inquiries overlap that a court is entitled – but not of course bound – to infer that an applicant is acting in good faith if it finds that the applicant’s derivative action is “a legitimate claim which the directors are unreasonably reluctant to pursue with the appropriate vigour or at all”: see Pang Yong Hock and another v PKS Contracts Services Pte Ltd [2004] 3 SLR(R) 1 (“Pang Yong Hock”) at [20]. By the same token, a court is entitled – though again not bound – to infer that an applicant lacks good faith if it finds the derivative action to be frivolous or vexatious: Ang Thiam Swee at [55].
[74] The result of all of this is that an applicant who meet its evidential burden on the “prima facie interests of the company” test in s 216A(3)(c) also meets in a practical sense, albeit incidentally, its evidential burden on the “good faith” test in s 216A(3)(b).
A respondent’s approach to good faith
[75] A respondent can approach the issue of good faith in one of three ways. First, it can decline to put the applicant’s good faith in issue. Alternatively, it can simply challenge the applicant’s good faith without more. Finally, it can adduce or point to evidence which it says shows affirmatively that the applicant is not acting in good faith.
[76] A respondent who adopts the first approach effectively concedes the issue of good faith. The result is that the court need not deal with that issue separately, save perhaps to note the de facto concession and make a formal finding that s 216A(3)(b) is satisfied.
[77] A respondent who adopts the second approach runs the very real risk of losing on the issue of good faith. If the court finds that the applicant satisfies s 216A(3)(c), the court is very likely from that finding to go on to draw the entirely legitimate inference that the applicant also satisfies s 216A(3)(b).
[78] The result is that the respondent does bear, in a practical sense, a burden on the issue of good faith, but it is only a tactical burden or the burden on the application. A challenge to an applicant’s good faith which is to carry any realistic prospect of success must adduce or point to evidence capable of suggesting that the applicant is not acting in good faith. Perhaps this is all that Choo Han Teck JC (as he then was) meant in Agus Irawan when he said (at [9]):
[79] Where a respondent meets its tactical burden, the applicant can no longer simply point to the merits of the derivative action and invite the court to draw an inference of good faith from that fact alone. An applicant who does no more than that will fail to discharge its legal burden of proof on the issue of good faith. If the court find that the applicant lacks good faith, its application will fail, no matter how strong the merits of the derivative action are.
The respondents attack Petroships’ good faith
[80] The respondents in this case meet their tactical burden by advancing four principal grounds which they say demonstrate that Petroships is not acting in good faith:
(a) Petroships’ derivative action is an abuse of process in light of its four actions I have described.
(b) Petroships has been guilty of unreasonable delay in commencing these proceedings.
(c) Alan Chan has displayed a lack of honesty in this application.
(d) Alan Chan participated in some of the very transactions which Petroships now alleges were wrongs done to Wealthplus.
[81] I begin my analysis of these four grounds by summarising the principles underlying the test of good faith in s 216A(3)(b).
What is “good faith” under s 216A?
[82] The leading case on the test of good faith under s 216A(3)(b) is the Court of Appeal’s decision in Ang Thiam Swee. From that case, I derive the following four principles:
(a) The test of good faith always considers two interrelated, but non-exhaustive, factors:
(i) whether the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success (at [29]); and
(ii) whether the applicant is seeking to bring the derivative action for such a collateral purpose as would amount to an abuse of process: at [27].
(b) On the second of these factors, the focus is on the applicant’s purpose in bringing the proposed derivative action rather than its motive in doing so: at [13] and [16]. Thus, an applicant may nevertheless be acting in good faith even if it is motivated by hostility, personal animosity or malice or even by self-interest in maximising the value of its shares so long as its purpose is to advance the interests of the company as a whole: at [16].
(c) Even if the applicant has a collateral purpose, it will nevertheless act in good faith if that “collateral purpose [is] sufficiently consistent with the purpose of ‘doing justice to a company’”. Such a collateral purpose does not render its action an abuse of s 216A or of the company: at [31].
(d) But an applicant whose judgment has been clouded by purely personal considerations (at [13]) or who is abusing s 216A, and by extension also the company, as a vehicle to advance its own aims and interests (at [31]) will not be acting in good faith. Examples are an applicant whose collateral purpose in bringing the derivative action is to pursue a private vendetta or to damage or destroy the company out of sheer spite or to benefit a competitor: at [29].
The two non-exhaustive factors which appear in the first proposition above are drawn from the decision of Palmer J in Swansson v R A Pratt Properties Pty Ltd (2002) 42 ACSR 313 at [36] (“Swansson”). For that reason, I will refer to them as “Swansson factors”.
[83] I turn now to consider the four principal grounds on which the respondents rely to submit that Petroships is not acting in good faith.
The four actions
[84] The respondents’ first ground is that Petroships’ derivative action would be an abuse of the process of the court in light of its four actions, all of which have failed.
[85] A summary of the respondents’ submissions is as follows. The derivative action arises out of identical facts and depends on the same evidence as Petroships’ fourth action. The derivative action is therefore an abuse of the process of the court in the sense that it would either: (i) involve the process of the court being used for some ulterior or improper purpose or in an improper way rather than being used fairly or honestly; or (ii) because the derivative action would be the fifth in a string of multiple or successive proceedings which cause or are likely to cause the respondents improper vexation or oppression. This submission relies on the second and fourth category of abuse of the process of the court identified in Chee Siok Chin and others v Minister for Home Affairs and another [2006] 1 SLR(R) 582 at [34].
[86] In the alternative, the respondents submit that the extended doctrine of res judicata renders the derivative action an abuse of process. Petroships could have raised the subject-matter of the derivative action in the CTF actions but failed to do so. Although the set of defendants to the derivative action will not be identical to the defendants whom Petroships sued in the four actions, the respondents submit that the extended doctrine of res judicata does not require identity of parties.
[87] In response, Petroships makes three broad points about its four actions. First, the four actions were between different parties, raised different causes of action and were on different subject-matter. Second, the four actions are incapable of giving rise to an issue estoppel because they were all struck out without the merits being considered. Finally, the court ought not to draw any inferences about Petroships’ good faith from the CTF actions because CTF commenced the CTF actions without Petroships’ authority.
Derivative action would not be an abuse of the process of the court
[88] I accept Petroships’ submission that the derivative action would not be an abuse of the process of the court under the procedural law. None of Petroships’ four previous actions was brought to enforce a right vested in Wealthplus. None of those actions asserted a cause of action founded upon recovering money which Wealthplus had paid to related companies and upon recovering compensation from the directors of Wealthplus for breach of their duties as directors.
[89] Instead, each of the four actions was founded upon a cause of action, however misconceived, which was said to be vested in Petroships. That cause of action was principally in contract and ultimately connected to its 1998 joint venture agreement with Megacity. All four of the actions sought to recover Petroships’ loan of $1.1m extended to Wealthplus. The first and fourth actions sought in addition to recover Petroships’ 10% share of the profits of the investment in Wealthplus. All four of the actions were therefore directed towards vindicating Petroships’ rights, and not Wealthplus’ rights. It is, of course, only Wealthplus’ rights which the derivative action seeks to vindicate.
[90] It is true that Petroships’ fourth action pleaded the very same four transactions which are to form the subject-matter of the derivative action. But the fourth action was brought by Petroships against KBGL, not by Wealthplus against KBGL. And Petroships’ cause of action against KBGL was for breach of a contract said to be between KBGL and Petroships and for breach of fiduciary duties said to be owed by KBGL to Petroships. Those causes of action have nothing to do with any duties owed to Wealthplus. In any event, Petroships did not in the fourth action seek against KBGL any substantive relief arising from those four transactions. It pleaded the four transactions as part of its case that the effect of those four transactions must be taken into account when determining the value of Petroships’ 10% share of the profits of its investment in Wealthplus. The only substantive relief Petroships sought in the fourth action related to its own rights arising from its own cause of action asserted against KBGL.
[91] I also do not accept the respondent’s argument that the derivative action would be an abuse of the process under the doctrine in Henderson v Henderson. The doctrine in Henderson v Henderson is indeed an aspect of the doctrine of abuse of process under the procedural law, but it is one which does not depend wholly and exclusively on the subjective intent of the party invoking the court’s process. That subjective intent is of the essence in applying the test in s 216A(3)(b). If the doctrine in Henderson v Henderson is relevant at all, it would be relevant to a finding on s 216A(3)(c) and only inferentially from there to a finding on s 216A(3)(b).
[92] Petroships’ submission on this point can be tested in this way. If, in June 2012, the directors of Wealthplus had responded to Petroships’ notice under s 216A(3)(a) by commencing action as Petroships suggested against KBGL and its related companies and against Wealthplus’ directors, could those defendants have relied on Petroships’ four actions to strike out Wealthplus’ hypothetical action on the grounds that it was an abuse of process? The answer is clearly no, for the reasons set out at [88]–[90]. The answer cannot be any different if Wealthplus’ action is brought, not by the directors committing the company to litigation pursuant to their powers under its articles of association, but by an applicant committing the company to litigation pursuant to the leave of the court under s 216A. A company bringing a derivative action enjoys no substantive or procedural advantages and suffers no substantive or procedural disadvantages than a company litigating in the ordinary way at the initiation of and under the supervision of its directors.
Drawing inferences from the four actions
[93] My finding that Petroships’ four actions do not render its derivative action an abuse of the process of the court is not, however, the end of the matter. The respondents in cross-examining Alan Chan put it to him that the derivative action, even if it is not an abuse of the process of the court under the procedural law, is not brought in good faith because it is an attempt to circumvent the striking out of Petroships’ four actions against KBGL.
[94] The respondents first put it to Alan Chan that his fourth action was an attempt to circumvent the striking out of the CTF actions. His response was to disclaim responsibility for the CTF actions:
I explain at [106]–[113] below why I reject Alan Chan’s attempts to distance himself and Petroships from the CTF actions.
[95] The respondents then put to Alan Chan during cross-examination that this application under s 216A is nothing but an attempt to circumvent the striking out of Petroships’ fourth action. His response was not particularly edifying:
[96] I find that the circumstances in which Petroships chose to commence its four actions coupled with Alan Chan’s evidence in cross-examination warrant the inference that Petroships has an illegitimate collateral purpose in seeking leave to bring the derivative action. That collateral purpose is to pursue its private interests against KBGL and its related companies by a derivative action in Wealthplus’ name. That, to my mind suffices to establish that Petroships is not acting in good faith.
(a) What did Petroships do with what it knew?
[97] I first look at what Petroships knew, when it knew it and what it did with that knowledge. On 17 November 2009, Alan Chan attended Wealthplus’ 2009 AGM and queried two figures in Wealthplus’ 2008 accounts: (i) the allowance for impairment of non-trade receivables amounting to $647,090; and (ii) director’s remuneration of $439,631. The first figure of $647,090 is part of the accumulated allowance for impairment amounting to $652,161 in Wealthplus’ 2009 accounts. This is the basis of Petroships’ claim in the derivative action in respect of a “provision for impairment of $651,658 in 2009 arising out of non-trade related debts”. The second figure of $439,631 is part of the sum of $559,631, the total amount of director’s remuneration paid by Wealthplus in 2008 and 2009. This is the basis of Petroships’ claim in the derivative action in respect of “payment of director’s fees to the Directors in 2008 and 2009 amounting to $559,631”.
[98] By the time of the 2009 AGM, therefore, Petroships knew of two of the four transactions which Petroships now says amount to wrongs against Wealthplus and which are the subject-matter of its derivative action. Armed with that knowledge, Petroships’ immediate response was not to initiate the procedure under s 216A in order to right wrongs done to Wealthplus. Instead, it acted on this knowledge by commencing its second and third actions against Megacity to seek a remedy for itself. Those identical actions, both of which were struck out, claimed that Megacity had failed to procure Wealthplus’ repayment of Petroships’ loan of $1.1m and had oppressed Petroships, acted in disregard of Petroships’ interests or had acted in an unfairly discriminatory way towards Petroships (see [25] to [29] above).
[99] At the latest by August 2011 (see [33]–[34] above), Petroships knew of all four of the transactions which it now says amount to wrongs against Wealthplus and which are the subject-matter of its derivative action. Armed with that knowledge, Petroships took three steps. First, it questioned these four transactions at Wealthplus’ AGM held in November 2011. Second, three days after that AGM, it commenced its fourth action, once again seeking a remedy for itself but this time from KBGL. Third, and only finally, Petroships initiated the procedure under s 216A in June 2012.
[100] This sequence of events from 2009 to 2012 indicates the priority which Petroships itself attached to securing a remedy for itself as compared to securing a remedy for Wealthplus. A minority shareholder who genuinely sought to right wrongs done to Wealthplus would have initiated the procedure under s 216A immediately upon discovering the wrongs or, at the latest, immediately after the company’s directors had failed to offer a satisfactory explanation for those wrongs. That would have been in 2009 in respect of at least some of the alleged wrongs and in 2011 in respect of all of the alleged wrongs. Instead, Petroships first spent three years and commenced four actions to seek a remedy for itself. It is particularly telling that Petroships’ first instinct when it had knowledge of all four transactions in 2011 was to use that knowledge as ammunition for its own claim for a remedy against KBGL. Its current characterisation of those four transactions as serious wrongs done to Wealthplus therefore rings somewhat hollow. It is only when this fourth and final attempt failed that Petroships proceeded under s 216A ostensibly to seek a remedy for Wealthplus.
[101] From this sequence of events, I find the inference irresistible that Petroships’ real purpose in seeking leave to bring the derivative action is not to right alleged wrongs done to Wealthplus but to right alleged wrongs done to Petroships. Its real purpose is to pursue by the only means which remains available to it its overriding objective of recovering for Petroships against KBGL or its related companies its $1.1m loan to Wealthplus and a share of the profits of its investment in Wealthplus. That to my mind, is a collateral purpose which defeats Petroships’ good faith.
(b) Alan Chan’s evidence about the four actions
[102] The inference I draw is supported by Alan Chan’s evidence in cross-examination on the circumstances surrounding Petroships’ four actions.
[103] First, Alan Chan accepted in cross-examination that he instructed CTF in 2009 to approach KBGL about “certain things” which he had to pursue with KBGL and to seek repayment from KBGL of the $1.1m loan which Petroships had extended to Wealthplus in 1998. These “certain things” included part of the subject-matter of Petroships’ derivative action. Alan Chan explained that he had instructed CTF to “go after” KBGL for repayment because that was the “headquarters” or the “fountain head” of the corporate group and Wealthplus and Megacity were just “paper companies”. His instructions also contemplated CTF commencing, if necessary, an action against KBGL to recover Petroships’ loan to Wealthplus:
[104] Second, Alan Chan confirmed in cross-examination that even though Petroships had knowledge in 2011 of all four transactions, it did not then proceed under s 216A because he “did not need the money so urgently”. For that reason, he testified, he was prepared to pursue Petroships’ fourth action seeking to recover the $1.1m loan and a share of Wealthplus’ profits from KBGL first, and to defer seeking leave to pursue in Wealthplus’ name the four transactions which he accepted would restore value to Wealthplus.
[105] Both aspects of Alan Chan’s cross-examination reinforce my view that Petroships seeks leave to bring the derivative action because it is the only remaining avenue by which it can proceed against KBGL or its related companies to achieve the objective of Petroships’ four failed actions.
The CTF actions were not unauthorised
[106] Petroships argues that no inferences ought to be drawn against Petroships arising from the CTF actions because CTF commenced them without Petroships’ authority. Petroships has made this argument once before: it raised the same point to oppose the striking out application in the fourth action. The court nevertheless struck out the fourth action, holding Petroships’ “assertion that its previous solicitors acted without authority … to be an afterthought”. I agree.
[107] I find that the first action is attributable to Petroships. Alan Chan took the following position on the CTF actions as a whole in an affidavit filed in the fourth action:
[108] Alan Chan accepts in this passage that he had, before the first action was commenced, instructed CTF on behalf of Petroships to pursue a claim to recover Petroships’ $1.1m loan and its share of the profits of the investment in Wealthplus, and to commence action to achieve that purpose if necessary. The only deviation from his instructions that he now complains about is that CTF commenced the first action against Megacity, and not against KBGL. That does not undermine the inference I draw from his evidence: that Petroships’ true purpose in these proceedings is to pursue by the only remaining means available a claim for Petroships against KBGL. If anything, this evidence supports that inference.
[109] I find that the second action too is attributable to Petroships. Alan Chan was aware of the second action. He affirmed a discovery affidavit filed on behalf of Petroships in that action. For the reasons set out below at [117]–[127], I reject Alan Chan’s evidence that he signed the discovery affidavit not knowing that it was a discovery affidavit.
[110] I find that Alan Chan expressly or impliedly held his son, Tony Chan, out as having authority to instruct solicitors on behalf of Petroships in relation to the CTF actions. Alan Chan does not dispute that his son, Tony Chan, instructed CTF in respect of the CTF actions and approved all documents filed in them. What Alan Chan denies is telling CTF that Tony Chan had Petroships’ authority to instruct CTF. That may be technically true. But Tony Chan was never a director, a shareholder or a manager of Petroships. I find it impossible to believe that a solicitor would take instructions from Tony Chan in connection with three actions commenced over a period of two years on behalf of Petroships unless Petroships, at the very least implicitly, held Tony Chan out as authorised to instruct the solicitor on its behalf. I also find it impossible to believe that Tony Chan, a person who had no business connection whatsoever with Petroships, would take it entirely upon himself as a meddler to instruct solicitors on Petroships’ behalf in three actions over a period of two years. I am driven to the conclusion that Alan Chan – the 90% owner of Petroships, one of its two directors and the father of Tony Chan – clothed Tony Chan with ostensible authority to instruct CTF on behalf of Petroships in connection with the CTF actions.
[112] Petroships relies on the fact that it sued CTF in 2012 for the loss and damage caused by CTF commencing the CTF actions, allegedly without authority. It is true that that action was brought and was settled with CTF paying compensation to Petroships. However, without evidence from CTF setting out the reason for the settlement, I am not able to draw any inference from this evidence which assists Petroships and which can outweigh the inferences I have drawn against Petroships for the reasons set out above.
The four actions are capable of sustaining inferences
[113] Petroships argues also that I should not draw any inferences from the fact that it brought four actions and failed in all of them because each of the actions was struck out without a consideration of the merits. That is not to the point. I rely on the four actions to draw the inference that Petroships is seeking to bring the derivative action for a collateral purpose unrelated to doing justice to Wealthplus and unrelated to righting a wrong which Wealthplus has suffered. I do not rely on the four actions for any finding of abuse of process, issue estoppel or res judicata in relation to the derivative action. It is sufficient to find, as I have found, that the four actions are attributable to Petroships. The reasonable inferences to be drawn from Petroships’ four actions coupled with Alan Chan’s own testimony about the purpose of those actions more than suffices for my finding that Petroships lacks good faith in seeking leave to bring the derivative action.
Petroships’ unreasonable delay
[114] The second ground that the respondents rely on to submit that Petroships is not acting in good faith is Petroships’ unreasonable delay in commencing these proceedings.
[115] The delay between Petroships discovering the four transactions which form the subject-matter of the derivative action and initiating the procedure under s 216A is significant in assessing Petroships’ good faith, but not simply because it is delay or because it is unreasonably long delay. Its significance lies in the underlying reason for the delay. The delay arose because, on each occasion when it had a choice, Petroships chose to pursue a remedy for alleged wrongs which it claimed to have suffered itself, until June 2012.
[116] I have already explained at [93]–[113] above, and need not repeat, the basis on which I have found that Petroships’ purpose in seeking to bring the derivative action is to use it as an extension of its four failed attempts to extract through Wealthplus a remedy for Petroships for wrongs allegedly done to Petroships by KBGL and its related companies and not to seek a remedy for Wealthplus for wrongs allegedly done to Wealthplus.
Alan Chan's lack of honesty
[117] The third ground that KBGL relies on is that Alan Chan has displayed a lack of honesty in this application and that that lack of honesty is attributable to Petroships and shows that it is not acting in good faith. I accept this submission. I found Alan Chan to be an evasive and untruthful witness. The most egregious example was his attempt to deny knowledge of the second action. I now detail that attempt.
[118] In his affidavit filed in the fourth action to resist KBGL’s application to strike it out, Alan Chan’s evidence about the CTF actions was as follows:
[119] Alan Chan’s evidence that it was a “complete surprise” to learn CTF commenced three separate actions in Petroships’ name is a lie, at the very least in respect of the first and the second actions. I have summarised Alan Chan’s evidence about the first action at [103] above.
[120] As for the second action, Alan Chan affirmed a discovery affidavit, ie an affidavit verifying a list of documents, which CTF filed on behalf of Petroships in that very action. He was therefore, contrary to his assertion, very much aware of it.
[121] Alan Chan attempts to explain in his affidavits and in cross-examination how he came to affirm this discovery affidavit. His explanations are disingenuous and serve only to compound his lie. His earliest explanation of how he came to affirm this discovery affidavit is found in his affidavit filed in the fourth action on 21 March 2012. He acknowledges there that he signed the discovery affidavit in the second action but asserts that he thought it was to be filed in the first action. Alan Chan’s exact words are as follows:
The reference to the “Shareholder Loan Claim” is, in effect, a reference to the first action. That is the only action that Alan Chan accepts he gave CTF instructions to commence, although his evidence is that his instructions were to commence action against KBGL and not against Megacity.
[122] The same explanation is repeated twice more: by Alan Chan in his affidavit filed on 7 May 2012 and by Petroships’ counsel at the hearing of the appeal against the striking out order on 10 May 2012. Alan Chan’s explanation that he believed the discovery affidavit was for an action to recover the $1.1m loan, rather than for the second action, is in itself somewhat puzzling. The relief sought in the second action, it will be recalled, included an order that Megacity procure Wealthplus to repay the $1.1m loan; alternatively an order that Wealthplus be wound up and ordered to repay the $1.1m loan.
[123] Be that as it may, Alan Chan gave a completely different explanation of how he came to sign the discovery affidavit in his cross-examination before me. He at first denied having signed a discovery affidavit in the second action at all. He said that he had instead signed a “routine document”, the signature page of which was later appended to the discovery affidavit. To give a full appreciation of Alan Chan’s incredible evidence, I have found it necessary to set out an unfortunately lengthy extract from the transcript at [126] below.
[124] To set the context for the extract, counsel for the respondents has just referred Alan Chan to a copy of the discovery affidavit at page 400 to 402 of the respondents’ core bundle. Page 400 is the pro forma cover page setting out the title of the action, identifying the document as an “Affidavit Verifying List of Documents” and stating the name of the firm filing the document. Page 401 is the first page of the body of the affidavit containing again the title of the action, Alan Chan’s name as the deponent together with his personal particulars and paragraphs 1 to 4 of a pro forma discovery affidavit. Page 402 is the final page of the affidavit. It contains the last two paragraphs of a pro forma discovery affidavit together with the jurat, the signature of the deponent and the signature and seal of the commissioner for oaths. Page 402 gives no indication who the parties to the action are. The title of the action which appears on both pages 400 and 401, on the other hand, show clearly that the defendants are Wealthplus and Megacity. This is a significant point. The distinction between the first action and the second action lies in the identity of the defendants. Megacity was the only defendant in the first action. Both Megacity and Wealthplus were defendants to the second action. Alan Chan shows, in the extract at [126], his determination to deny any knowledge of the parties to the action in which he affirmed his discovery affidavit.
[125] In the extract at [126] below, Alan Chan confirms two things unequivocally. First, he confirms that the signature opposite the jurat on the last page of the discovery affidavit is his. Second, he confirms that when he put his signature on that page, it was attached to “something routine”, and definitely not to a discovery affidavit. That contradicts directly his evidence, set out at [121] above: that he had indeed signed a discovery affidavit, but believed it was for the first action.
[126] I now set out the extract from Alan Chan’s cross-examination:
[127] Alan Chan was then confronted with his earlier explanation that he had indeed signed the discovery affidavit but had mistakenly believed it was for the first action. He immediately resiled from the second of the two points I set out at [125] above. He asserted instead that the “something routine” he had referred to earlier was in fact the “same thing” as the discovery affidavit:
[128] I am thoroughly unimpressed by Alan Chan’s disingenuous evidence. That, coupled with my other findings, undermines fatally Petroships’ assertion that it is acting in good faith.
Alan Chan was a director of Wealthplus from 1998 to 2009
[129] The fourth ground that KBGL relies on to submit that Petroships is not acting in good faith is that Alan Chan was a director of Wealthplus at the time of the bulk of the very transactions which he now alleges were wrongs against Wealthplus and which he wants to pursue in the derivative action on behalf of Wealthplus.
[130] As I have mentioned, Alan Chan was a director of Wealthplus from July 1998 up until September 2009, when he tendered his resignation. As a director, he approved Wealthplus’ accounts up to the 2007 accounts.
[131] The first claim Petroships wishes to pursue in the derivative action is a claim to recover the transfers between 2003 and 2009 to group companies of sums totalling $14.95m. This amount is the total reflected in Wealthplus’ 2009 accounts as receivables due to Wealthplus from KBGL, KBCE, Megacity, other related companies and third parties as at 31 December 2009. I leave aside for the moment the fact that these “transfers” are in fact receivables (ie debts due to Wealthplus and therefore assets of Wealthplus) rather than outright transfers of money from Wealthplus without any obligation to repay them. I leave aside also that there is absolutely no evidence that these assets are irrecoverable and that there is, on the contrary, evidence that they have been in large part recovered.
[132] The sum of $14.95m is the figure reflected in Wealthplus’ accounts as at 31 December 2009, and therefore must arise from events before 31 December 2009. Further, Petroships’ own computation of these “transfers” shows that their total value at the end of 2008, Alan Chan’s last full year as a director, stood at $18.65m, or $3.7m more than their value at the end of 2009. An analysis of the figures for 2009 shows that the absolute outflow of funds in that year was only about $474,000. Even if it is assumed that all of that outflow took place after Alan Chan resigned as a director in September 2009, that still means that 96.8% of the $14.95m that Petroships seeks leave to recover for Wealthplus was transferred while Alan Chan was a director of Wealthplus.
[133] The second claim in the derivative action relates to a write-off of $135,005. This is reflected in Wealthplus’ 2008 accounts as “[b]ad debts written off”. This means that the write-off took place on or before 31 December 2008, while Alan Chan was still a director of Wealthplus.
[134] The third claim is payment of director’s fees amounting to $559,631. This figure is the sum of $439,631 and $120,000 accounted for in Wealthplus’ 2008 and 2009 accounts respectively as “Directors’ remuneration”. The bulk of these director’s fees were paid in 2008, while Alan Chan was still a director.
[135] The fourth claim is a provision for impairment of $651,658. This is reflected in Wealthplus’ 2009 accounts as an allowance for the impairment of non-trade receivables due from third parties, and is in fact accounted for in the first claim.
[136] Alan Chan was a director of Wealthplus when the bulk of these alleged wrongs were done to Wealthplus. He knew about some of these alleged wrongs while he was still a director. If these alleged wrongs are indeed wrongs, it is curious that he waited to do anything about them until he had resigned as a director. The inference, once again, is that these allegations are made and pursued now through an application under s 216A for Petroships’ own purposes and not to right wrongs done to Wealthplus.
[137] It is also significant that Petroships seeks leave to bring a derivative action against Koh Teak Huat and Koh Keng Siang but not against Alan Chan. From 1998 until he resigned in 2009, Alan Chan owed the same directors’ duties to Wealthplus as Koh Teak Huat and Koh Keng Siang did. In cross-examination, Alan Chan tried to downplay his role by asserting that he merely “assisted as a director ... just in name, not in fact” and describing himself as a “sleeping” director. He said further: “I left things to the other directors. I ... wasn’t really functioning as a director. I just sat on the board in good faith”. None of that detracts from Alan Chan’s duties as a director. If Petroships’ position is (as it must be) that Wealthplus has a legitimate and arguable claim against Koh Teak Huat and Koh Keng Siang arising from these four transactions for breach of their directors’ duties owed to Wealthplus, then it is equally legitimate and arguable that Wealthplus has a claim also against Alan Chan for breach of his directors’ duties, at the very least arising from his abdication of those duties in connection with these four transactions.
[138] The fact that Petroships does not propose to sue Alan Chan for breach of his directors’ duties is yet further evidence that Petroships’ purpose in seeking leave to bring the derivative action has to do with Petroships’ own purposes, collateral to and unrelated to doing justice to Wealthplus by righting wrongs done to it.
[139] In Barrett v Duckett & Others [1995] BCC 362, all three of a company’s directors were implicated in a wrongful diversion of the company’s moneys. A shareholder brought a common law derivative action to recover compensation for the diversion, but sued only two of the company’s directors. The director whom the plaintiff declined to sue was her own daughter. The two directors which the plaintiff did sue were the plaintiff's former son-in-law and his new wife. The former son-in-law brought in the daughter as a third party to the derivative action. The plaintiff then joined the daughter as a defendant. But she did not serve the order for joinder on her daughter or amend her pleadings to make any claim against her daughter.
[140] The English Court of Appeal held that the plaintiff’s failure to name her daughter as a defendant and to proceed against her daughter in the same way as she had against the other two directors was evidence from which an ulterior purpose could be inferred. That ulterior purpose was sufficient in itself to make the plaintiff an inappropriate person to bring the common law derivative action, even though the derivative action clearly had merit. The derivative action was therefore struck out. Peter Gibson LJ said (at 372) that the plaintiff’s reluctance to proceed against her daughter showed that “personal rather than financial considerations would appear to be impelling [the plaintiff] to pursue this action”. He added (at 372):

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Petroships Investment Pte Ltd v Wealthplus Pte Ltd and others

Laws this judgment relies on

Grounds of decision

Introduction

The background

The parties

The joint investment

Four actions interleaved with three AGMs

Petroships’ first action

Wealthplus’ 2009 AGM

Petroships second action

Petroships’ third action

Wealthplus’ 2010 AGM

Petroships raises the four transactions in correspondence

Wealthplus’ 2011 AGM

Petroships’ fourth action

Petroships applies for leave to bring a derivative action

Petroships serves notice under s 216A

Petroships commences proceedings under s 216A

Wealthplus goes into members’ voluntary liquidation

Petroships pursues the four transactions with the liquidators

The new liquidators’ position

The issues

Is Petroships acting in good faith?

The burden is on Petroships to demonstrate its good faith

The allocation of the legal and evidential burdens

An applicant’s approach to good faith

A respondent’s approach to good faith

The respondents attack Petroships’ good faith

What is “good faith” under s 216A?

The four actions

Derivative action would not be an abuse of the process of the court

Drawing inferences from the four actions

(a) What did Petroships do with what it knew?

(b) Alan Chan’s evidence about the four actions

The CTF actions were not unauthorised

The four actions are capable of sustaining inferences

Petroships’ unreasonable delay

Alan Chan's lack of honesty

Alan Chan was a director of Wealthplus from 1998 to 2009