High Court · Decided 29 May 2010

Raffles Town Club Pte Ltd v Lim Eng Hock Peter and others (Tung Yu-Lien Margaret and others, third parties)

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[2010] SGHC 163Case no. Suit No 46 of 2006/J

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Chan Seng Onn J:
[1] The litigation plaguing Raffles Town Club Pte Ltd (“the Plaintiff”, also referred to as “RTC”) and its associated or related parties has entered yet another stage. In this particular suit, the Plaintiff is suing the Defendants, namely Peter Lim, Lawrence Ang, William Tan and Dennis Foo, for breaching their duties as directors of the Plaintiff whilst they were still directors of the Plaintiff.
[2] As the proprietor back in 1996 of the Raffles Town Club (“the Club”), the Plaintiff had allowed 18,992 individuals to be accepted as members of the Club. This later spawned much litigation and this suit is but one link in the chain of litigation that has dogged RTC. The table of contents that follows would aid in navigating through this somewhat lengthy judgment:
Dramatis Personae
[3] The Plaintiff, RTC, is the owner and operator of the Club and was initially incorporated in Singapore on 11 July 1996 as a public limited company, under the name “Raffles Town Club Limited”. The following year, on 5 November 1997, it was converted into a private exempt company and renamed Raffles Town Club Pte Ltd.
[4] Europa Holdings Pte Ltd (“EH”) is another company that was also incorporated under the laws of Singapore. It was placed under voluntary liquidation on 7 March 2002 and was subsequently wound up on 28 February 2006. Until its winding up, EH was in the food and beverage business and operated a chain of pubs and restaurants as well as a now defunct country club, the Europa Country Club & Resort (“ECCR”) (see [14] below). At all times material for the purposes of the present action, RTC and EH had the same registered shareholders and directors.
[5] Peter Lim is the 1 defendant in this suit. RTC has alleged that at all material times, and particularly between September 1996 and April 2001, Peter Lim had been, contrary to his official title as a “consultant” of RTC, a de facto and/or shadow director of both RTC and EH. The Plaintiff contends that during this period, Peter Lim was the person in accordance with whose directions or instructions the directors of RTC and EH were accustomed to act. No major decisions as regards EH and RTC were made without his consent and/or approval. RTC also alleged that at all material times, Peter Lim had been a shareholder of both EH and RTC, and his shareholdings were held on trust by the 2, 3 and 4 defendants.
[6] The 2 defendant, Lawrence Ang, was a director of RTC from 10 October 1996 to 18 May 2001 and a director of EH from 29 November 1993 to 13 May 2001. He was also a shareholder of both EH and RTC at all material times.
[7] William Tan, the 3 defendant, was a director of RTC from 18 January 1997 to 1 October 1998 and a director of EH from 27 November 1992 to 1 October 1998. He too was a shareholder of both EH and RTC at all material times.
[8] As for Dennis Foo, the 4 defendant, he was a director of RTC from 11 July 1996 to 12 September 2000 and a director of EH from 29 November 1993 to 30 April 2001. Like the other Defendants, he was also a shareholder of both EH and RTC at all material times.
[9] Margaret Tung and Lin Jian Wei, the 1 and 2 third parties in this action, are the current directors and shareholders of RTC. Margaret Tung became a shareholder of RTC on 12 May 2001 and was appointed to the board of directors of RTC on 30 April 2001. Lin Jian Wei became a shareholder of RTC on 12 May 2001 and was appointed to the board of directors of RTC on 26 June 2001. Lin Jian Wei’s wife, one Zhang Shi Qing, was a shareholder of RTC from 20 June 2001 to 16 September 2004 and a director of the company from 26 June 2001 to 16 September 2004.
Background facts
[10] RTC is no stranger to litigation. The most prominent of these is perhaps “the members’ suit” of Tan Chin Seng and others v Raffles Town Club Pte Ltd [2002] SGHC 278 (“the members’ suit”). There, disgruntled members of the Club—having discovered that the general membership of the Club was in excess of 18,000 members—sued RTC for breach of contract and misrepresentation. Rajendran J sitting in the High Court dismissed their claims, finding that there had been no actionable misrepresentation and no breach of the contract to deliver a premier club. However, the Court of Appeal in Tan Chin Seng and others v Raffles Town Club Pte Ltd [2003] 3 SLR(R) 307 (“Tan Chin Seng 2003”) partially reversed his findings. It found that RTC had breached an implied term of the contract to provide a premier club. In Raffles Town Club Pte Ltd v Tan Chin Seng & others [2005] 4 SLR(R) 351, the Court of Appeal ordered that compensation of $3,000 was payable to each plaintiff in the members’ suit. By then, the new directors of RTC were Margaret Tung and Lin Jian Wei. RTC claimed that it did not have sufficient funds to pay out the compensation to all its members and subsequently obtained approval from the Court for a Scheme of Arrangement (“the Scheme”) under s 210 of the Companies Act (Cap 50, 1994 Rev Ed) (“the Companies Act”). RTC itself is now suing Peter Lim, Lawrence Ang, William Tan and Dennis Foo for breach of trust and/or fiduciary duties owed by them to RTC between the period of 1996 and April 2001. The 2 and 3 defendants, Lawrence Ang and William Tan, have joined Margaret Tung and Lin Jian Wei as 1 and 2 third parties to the action. But there were happier times.
Early days before RTC – Europa
[11] As mentioned earlier (at [5] above), RTC alleges that Peter Lim was a shadow or de facto director at the material time even though he was listed as a “consultant” on RTC’s books. Some history is necessary to appreciate the significance of Peter Lim’s role in RTC and EH and how his sphere of influence grew.
[12] Before RTC came into being and well before Peter Lim arrived on the scene, William Tan was best of friends with one Tan Buck Chye – whom he knew from National Service. In 1987, Tan Buck Chye introduced William Tan to Lawrence Ang. Their many common interests such as visiting pubs and discos brought them close together, and at trial William Tan even testified that the three of them were in many ways closer than brothers.
[13] A pub the trio frequented was Europa Changi, which was owned by Dennis Foo. Sometime in 1990, the trio approached Dennis Foo with regard to running a pub. Eventually in July 1990 they purchased a 50% shareholding interest in Europa Changi from Dennis Foo. A second pub called Europa International Plaza was opened at International Plaza in October 1990. This was followed by a third pub, Europa East Coast, in 1991. Under Tan Buck Chye’s leadership, Europa’s business of running pubs and discos prospered. It was clear to and conceded by Lawrence Ang, William Tan and Dennis Foo that Tan Buck Chye was indeed the brains behind Europa’s successful pub business.
[14] Around 1994, EH made a maiden foray into the country club business. It was Tan Buck Chye’s idea to set up a country club, ECCR at the old Chequers Hotel premises on Thomson Road and Lawrence Ang, William Tan and Dennis Foo went along with his idea. Lawrence Ang put up about $2 to $3 million as a temporary loan for the ECCR project. Though more than 12,000 membership applications were received by ECCR, Tan Buck Chye decided to only accept around 5,000 members. The majority of the cash generated by the membership fees of ECCR were all transferred out to EH either in the form of management fees or dividends. By 1997, when the entrance fees collected by ECCR fell to a low of $1.8 million, no management fees were collected from ECCR by EH. Spurred on by the maiden success of ECCR, Tan Buck Chye decided that EH should expand further into the lucrative country club business.
The Club’s beginnings
[15] On or about 27 March 1996, EH tendered a $100 million bid for a piece of land released by the Urban Redevelopment Authority of Singapore (“URA”) for the purpose of building a private recreation club (“the RTC Project”) which later turned out to be the Club. EH won the tender but it emerged that the second highest bid for the land parcel was a distant $46.6 million. The perception that followed was that EH had bid too much for the land. Lawrence Ang, Tan Buck Chye, Dennis Foo and William Tan became concerned over whether they could raise the necessary financing to proceed with the RTC Project. On 27 March 1996, Tan Buck Chye, William Tan and Lawrence Ang discussed their options late into the night at Tan Buck Chye’s house. Tan Buck Chye explained that he was still confident of the viability and profitability of the RTC Project and the possibility of bringing in an investor to assist with the financing was mooted. The discussions ended the following morning at 5 am.
Entry of Peter Lim
[16] Tan Buck Chye eventually suggested approaching Peter Lim who was then known as the “Remisier King” in social circles. Tan Buck Chye informed Lawrence Ang and William Tan that he had met Peter Lim at a social function sometime at the end of 1995. He was clearly enamoured by Peter Lim’s reputation. Lawrence Ang’s evidence in this regard was as follows:
Tan Buck Chye’s alleged remarks proved to be prescient in more ways than one.
[17] In June 1996, Peter Lim made his first investment in the RTC project, channelling the funds through Lawrence Ang. This gave him a 20% beneficial shareholding in the RTC project. Then, sometime in June 1996, Tan Buck Chye suggested that Peter Lim’s participation be enlarged: from Peter Lim’s 20% stake in the RTC project to 20% of EH, thereby including all of EH’s businesses as well as the RTC project. Lawrence Ang and William Tan had reservations about inviting Peter Lim to participate in EH given that they had, at that time, only known him for less than two months. However, Tan Buck Chye managed to convince them to allow Peter Lim’s participation in EH. In return for his 20% stake in EH, Peter Lim would have to pay $15 million (in addition to a $5 million investor’s capital).
[18] By 11 July 1996, Raffles Town Club Limited was incorporated to own the Club. Raffles Town Club Limited was incorporated with two issued shares registered in the names of Tan Buck Chye and Dennis Foo. Tan Buck Chye and Dennis Foo subsequently transferred their shares in Raffles Town Club Limited to EH. On 24 December 1996, the shares of Raffles Town Club Limited were transferred by EH to Erasmia Pte Ltd (“Erasmia”). Lawrence Ang, William Tan and Dennis Foo were the shareholders of Erasmia at the material time. On 20 August 1997, Erasmia was renamed “RTC Holdings Pte Ltd”. Following the conversion of Raffles Town Club Limited to RTC (a private exempt company) in November 1997, the shares in RTC, which were then held by RTC Holdings Pte Ltd, were transferred to Lawrence Ang, William Tan and Dennis Foo in the same proportion as their shareholding in EH.
Peter Lim versus Tan Buck Chye
[19] Cracks started appearing in the relationship between Peter Lim and Tan Buck Chye. According to Lawrence Ang, the relationship between Peter Lim and Tan Buck Chye started to sour between August 1996 and October 1996. It will be recalled that Peter Lim had previously bought into a 20% stake in EH priced at $20m. This had been based on Tan Buck Chye’s valuation of $100m for EH. However, sometime in August 1996, Peter Lim started complaining that pub closures (such as one Xanadu disco) and restricted hours did not make EH worth $100 million any longer and he contended that Tan Buck Chye’s valuation was wrong and that he had overpaid for his stake in EH. Peter Lim’s own valuation of EH was only $60m. Tan Buck Chye argued that Peter Lim had invested at a $100m valuation and should stick by his bargain. Arguments ensued over the value of the Europa Group. By September 1996, Peter Lim was urging all of them to quickly launch the Club. Peter Lim was heavily involved in the discussions leading up to the membership launch of the Club. While Tan Buck Chye was producing internal papers showing a pre-launch plan of up to 8,000 members, Peter Lim was telling Lawrence Ang, William Tan and Dennis Foo that RTC needed upwards of 10,000 applicants – otherwise the entire RTC project should be abandoned.
[20] Then, in October1996, the staff of EH were informed that Tan Buck Chye—previously the Chief Executive Officer of EH—would be in charge of only corporate and strategy planning. To put it crudely, a power struggle had materialised. It appeared that both Peter Lim and Tan Buck Chye were each trying to win Lawrence Ang and William Tan over to their side. As for Dennis Foo, it was clear on the evidence that he had always been partial towards Peter Lim. From mid-October 1996 to 30 November 1996, the Club conducted, with much success, the priority membership launch. Around 24,000 applications were received of which around 18,992 applications were accepted. It was also during this period that Peter Lim convinced Lawrence Ang, William Tan and Dennis Foo that EH needed to carry out a rights issue to beef up its balance sheet and to improve its chances of a possible future listing. He even promised to arrange the financing for them to take up their rights issue shares. However, he was clear that he would not help Tan Buck Chye or his wife, Teriya. By this time, Peter Lim and Tan Buck Chye were hardly on speaking terms with each other. Eventually, a meeting to approve the rights issue was called with a day’s notice, and subsequently Tan Buck Chye did not take up his rights issue shares; nor did his wife. As a result, their stake in EH was halved.
[21] In the end, on 16 April 1997, Tan Buck Chye and Teriya sold their shares in EH for $7 million and their shares in RTC (or more accurately, Erasmia, which held 100% of RTC then) for $1 million. They probably did not realise how many members the Club had by that time accepted at $28,000 per member and how much entrance fees had been received by that time and was still coming in.
[22] While appearances suggested that it was Lawrence Ang who had purchased all of Tan Buck Chye’s and his wife’s shares, in reality, almost half of these shares were held for Peter Lim’s benefit. This was admitted by Lawrence Ang during cross-examination by RTC’s counsel, Mr Ang Cheng Hock SC:
[23] Lawrence Ang conceded that he had effectively assisted Peter Lim in hiding the latter’s assets from Peter Lim’s ex-wife; Peter Lim had been undergoing divorce proceedings with his wife (now ex-wife) at the material time, and had informed Lawrence Ang and the rest that it was not convenient for him to join the company in his own name:
Thus, on paper, Lawrence Ang held nearly 80% of the shares in Erasmia/Raffles Town Club Limited and EH because of the EH rights issue and the purchase of Tan Buck Chye’s and Teriya’s shares. However, the actual beneficial shareholding in EH and Erasmia/Raffles Town Club Limited after Tan Buck Chye’s departure was roughly in the proportion of 40:40:10:10, being Peter Lim’s, Lawrence Ang’s, William Tan’s and Dennis Foo’s shares respectively.
Subsequent events
[24] On 19 June 1997, two days after Tan Buck Chye and Teriya had sold their shares in Erasmia/Raffles Town Club Limited and EH, RTC decided that EH would be paid a marketing commission of 10% for each member’s entrance fee of $28,000. As mentioned above (at [23]), the respective shareholdings of Lawrence Ang, Peter Lim, William Tan and Dennis Foo after Tan Buck Chye and Teriya sold their shares stood at approximately 40:40:10:10. Peter Lim was now a shareholder in RTC and EH and was also appointed a “consultant”. At his behest, certain key individuals were appointed to RTC as managers, accountants, and directors. Prior to this, sometime in November 1996, one Chan Lay Hoon had been appointed upon Peter Lim’s directions, to be RTC’s financial controller. She would oversee the running of the accounts department of RTC and was also in charge of supervising the administrative and membership departments. On 1 July 1998, she was appointed to the Board of Directors of EH and RTC and also further appointed as one of two cheque signatories (alongside Lawrence Ang) for RTC and EH on 28 September 1998. This too was presumably on Peter Lim’s instructions.
[25] While it had been agreed in June 1997 that a marketing commission of 10% would be paid to EH (see [24] above), the Defendants eventually decided sometime in October 1997 that the commission payable to EH would be increased to 15% per membership entrance fee. The four Defendants subsequently entered into a written Management Agreement (“Management Agreement”) with EH for its marketing services in relation to the hugely successful priority membership launch of the Club. The Management Agreement was backdated to 28 September 1996.
[26] In March 2000, the Club opened its doors to members. For the first three to six months after the Club opened, it suffered from overcrowding and the staff struggled to cope with the many members and the members’ families attending at the Club’s premises. However, the usage level declined subsequently and became manageable after this initial overcrowding as testified by one Moh Siang King. Moh Siang King was the finance manager of RTC at the material time, and as a witness in the trial of this action, I found her to be non-partisan and reliable and her evidence, credible.
[27] In June 2000, Peter Lim finally settled the division of his matrimonial assets with his wife. He then started asking for his 40% stake in EH and RTC in August 2000, which apparently had not been disclosed at the matrimonial proceedings. Specifically, he asked Lawrence Ang to cause RTC and EH to issue 40% of their shares to him and 10.1% shares to Dennis Foo. This was when Lawrence Ang realised that Peter Lim wanted control of both EH and RTC. Peter Lim’s demands did not accord with the collective arrangement they had in place since Tan Buck Chye’s departure in 1997, namely, that Lawrence Ang and William Tan would own slightly more than 50% of EH and RTC. Acceding to Peter Lim’s demands would give Peter Lim and Dennis Foo majority ownership and control of EH and RTC.
Souring of the relationship between Lawrence Ang and Peter Lim
[28] Towards the end of August 2000, a board meeting was held where legal documents were placed before Lawrence Ang. He was told to execute the documents immediately to grant an option to Peter Lim to officially take up a shareholding of 40% in RTC and EH. However, having witnessed how Peter Lim had got rid of Tan Buck Chye and Teriya from EH and RTC, and forced the removal in late 1998 of William Tan as a director of EH and RTC over a trivial dispute between William Tan and Chan Lay Hoon, Lawrence Ang understandably demurred and said that he wanted to seek legal advice. This angered Peter Lim who allegedly threatened to destroy the Club. Nevertheless, Lawrence Ang subsequently obtained legal advice and decided that he had to take control of the board, which was at that time populated with Peter Lim’s nominees. Lawrence Ang then moved to call an Extraordinary General Meeting (“EGM”) to sack Peter Lim’s nominees from the board. Peter Lim immediately responded with an application for an injunction and sued Lawrence Ang and William Tan for majority control and ownership of EH and RTC. As expected, Dennis Foo took Peter Lim’s side in this dispute.
[29] These legal manoeuvres culminated in a trial, Suit No 742 of 2000 (“S 742/2000”) which took place in March 2001. It was in the course of this trial that it was revealed to the public for the first time that RTC had taken in 19,048 members, making it the largest social club in Singapore by far. The members felt they had been deceived and were furious, and this eventually translated into the members’ suit (see [10] above). For ease of reference, the 19,048 members will be referred to as “the 19,000 members”.
[30] In April 2001, Peter Lim, Lawrence Ang, Dennis Foo and William Tan settled their claims vis-à-vis one another. Peter Lim and Dennis Foo sold their approximately 50% stake in RTC and EH to Lawrence Ang and William Tan; Margaret Tung and Lin Jian Wei then acquired their stake in RTC and EH from Lawrence Ang and William Tan. Meanwhile, the members’ suit was brewing and commenced by November 2001. I have alluded to Rajendran J’s findings in the said suit above, at [10]. On appeal, the Court of Appeal found in the members’ favour and subsequently ruled in the assessment of damages hearing that RTC would have to pay $3,000 to each of the 4,885 plaintiffs in the members’ suit for breaching an implied term in the contract to provide a premier club. As mentioned earlier (at [10] above), the Scheme was subsequently entered into by RTC and all its members wherein RTC was going to compensate all its members almost $53m in total at $3,000 per member (to be paid either in vouchers, part cash/part vouchers or by way of reduction of the prevailing transfer fee).
[31] The present suit has now been instituted against the Defendants for breaching their duties as directors of RTC during the period of 1996 to 2000. The material facts concern the various acts of the Defendants during that period.
The Plaintiff’s claim
[32] The Plaintiff alleges that the four Defendants had each breached their:
by devising a scheme the purpose and effect of which was to enable them to “siphon substantial sums of money from RTC for their own benefit.” This alleged scheme is quite elaborate as seen below.
Acceptance of the 19,000 members
Circumventing s 162 and s 403 of the Companies Act
[34] Another prong in the Plaintiff’s claim is its contention that the Defendants had each wrongfully authorised, sanctioned, claimed and paid themselves substantial and unreasonable sums in the form of directors’ remuneration, expenses and consultancy fees which were neither reasonable nor justified nor in the interests of RTC.
The Management Fees
[35] This second part of the scheme allegedly involved the Defendants’ attempts to circumvent ss 162 and 403 of the Companies Act in order to obtain a substantial portion of the monies received by the Plaintiff by way of membership fees for their personal benefit. To this end, the Plaintiff alleges that the Defendants caused RTC to enter into a “sham” Management Agreement with EH (see [25] above) under which RTC undertook to pay 15% of the prevailing membership fee per accepted member to EH as commission. The Management Agreement was backdated to 28 September 1996. In total, $78,267,723.80 (“$78m”) was paid to EH by RTC between 11 May 1997 and mid August 1999 as management fees pursuant to the Management Agreement. The Plaintiff contends that EH never provided the Plaintiff with any of the services enumerated in the Management Agreement. Rather, it avers, it had been RTC, not EH which undertook the work pertaining to the membership launches. Further, the Plaintiff claims that if there had been any work done or services provided by EH pertaining to the management, sales, marketing and/or promotional services provided to RTC, they were de minimis and nowhere sufficient to justify the level of fees paid by RTC to EH. The Management Agreement was thus a “sham” and, according to the Plaintiff, the $78m was actually received by the four Defendants as “directors’ loans” and/or “advances on dividends”.
Directors’ remuneration
[36] As for the directors’ remuneration, RTC contends that some $13,142,088.00 (“the $13m”) had been paid to the Defendants as “purported remuneration”. The Plaintiff claims that the $78m of management fees and the $13m of purported directors’ remuneration “amounted in substance” to an unauthorised return of RTC’s capital to its shareholders and that these payments were simply “dressed up payment of dividends out of capital” under circumstances where RTC could not lawfully pay dividends as it had no profits by accounting standards. Under s 403 of the Companies Act, dividends may only be payable “out of profits”.
Conspiracy
[37] According to the Plaintiff, in toto, this implementation of the said scheme had involved conduct which caused injury to RTC wrongfully, negligently and/or intentionally – inasmuch as RTC was deprived of its property and of its ability to meet its obligations to members of the Club and rendered liable to the latter for breach of contract. The breach of duties owed by the Defendants to the Plaintiff and the circumvention of the provisions in ss 162 and 403 of the Companies Act meant that the Defendants were liable to RTC in conspiracy and in breach of s 157 of the Companies Act.
The use of $33m
[38] The Plaintiff also pleads that, between February 1997 and April 1997, the Defendants had, in breach of their fiduciary duties, in breach of trust and without proper regard for RTC’s interests, caused a sum of $33m to be transferred from its accounts to an offshore banking account in the name of Raffles Town Club (International) Ltd (“RTCI”). It contends that the Defendant had applied these monies as if they were loans to the Defendants for their own purposes and benefit. Overall, the Plaintiff claims that there had been a breach of duty and misapplication of RTC’s property pursuant to a conspiracy. The Plaintiff avers that the $33m was a disguised directors’ loan in breach of s 162 of the Companies Act. Further, the Plaintiff was deprived of the use of these monies for its benefit. Hence, the Defendants’ conduct constituted a misfeasance and misapplication of RTC’s funds in breach of trust and their fiduciary duties towards RTC.
[39] Pursuant to the above allegations raised against the Defendants, the Plaintiff is claiming:
In addition, the Plaintiff remarked that it would give each of the Defendants credit for what would have constituted reasonable directors’ remuneration and expenses for the period May 1997 to August 2000.
[40] Before I delve into an analysis of the issues enumerated in the Plaintiff’s claim as set out above, it is necessary for me to examine the veracity of the Plaintiff’s allegation that the 1 Defendant, Peter Lim, had been either a shadow or a de facto director of RTC. The result of accepting the Plaintiff’s submission is that Peter Lim would have the ordinary duties of a director imposed upon him. I therefore deal with this preliminary matter in the following section.
The law on shadow and de facto directors
[41] The distinction between a “shadow” and “de facto” director is not always an easy one to draw and the two terms have sometimes been used interchangeably. In a way, both these terms have often been used with ill-deserved confidence, as if it is apparent from their labels what they mean. In the following section I will attempt to demystify the law in this area.
Shadow directors
[42] It is interesting to note that while the current version of the Companies Act (Cap 50, 2006 Rev Ed) (“the 2006 Act”) contains no definition of “shadow director” or “de facto” director, its predecessor, the Companies Act (Cap 50, 1994 Rev Ed) (“the 1994 Act”) had in s 149(8) drawn a distinction between a “director” and a “shadow director”:
Meanwhile, s 4 of the 1994 Act which defined “director” provided that:
[43] In its October 2002 report, the Company Legislation and Regulatory Framework Committee recommended the repeal of the separate definitions of “director” and “shadow director”, pointedly remarking that (see Company Legislation and Regulatory Framework Committee Report (October 2002), Chapter Three – Corporate Governance, at para 2.1.2):
[44] Simply put, the Committee was of the view that the definition of “director” in s 4(1) of the 1994 Act already encompassed that of a “shadow” director. As is plain from the wording of the respective provisions which both contain the phrase “in accordance with whose directions or instructions the directors of a corporation are accustomed to act”, it is hard to resist the logic of this view and it was given judicial credence in Heap Huat Rubber Company Sdn Bhd and Others v Kong Choot Sian and Others [2004] SGCA 12 (“Heap Huat Rubber Company”) where the Court of Appeal remarked that (at [66]):
[45] Unsurprisingly, the 2006 Act has dispensed with the distinction between a “director” and “shadow director” and has simply retained the following definition in s 4(1):
It can thus be safely said that a “shadow director” is one “in accordance with whose instructions and directions the directors are accustomed to act”. By “accustomed”, this means that there must be a “pattern of behaviour” (per Lord Millet J in Re Hydrodam (Corby) Ltd [1994] BCC 161 (“Re Hydrodam”) at 163) on the part of the rest of the directors in complying with the shadow director’s directions or instructions. In her article, Pearlie Koh, “Shadow Director, Shadow Director, Who Art Thou?” (1994) 14 C&SLJ 340 (“Pearlie Koh”), the learned author has observed that the word “accustomed” (at p 343):
I concur with her views. For the directors of a corporation to be “accustomed to act” in accordance to the alleged shadow director’s directions and instructions, a discernable pattern of compliance with the shadow director’s instructions or directions would suffice. Even though there may be occasional departure from this pattern for whatever reason, the essence of shadow directorship may still remain intact. Ultimately, it is a question of fact to be determined by the court having regard to all the facts and circumstances in each case.
[46] I should add that in Re Hydrodam, apart from requiring that there be a “pattern of behaviour” in complying with the alleged shadow director’s directions or instructions, Millet J had also stated that the board of directors would not have “exercise[ed] any discretion or judgment of its own, but acted in accordance with the directions of others.” This formulation imposes an additional element into the definition which as Associate Professor Pearlie Koh has noted, is “unnecessary” (Pearlie Koh, [45] supra, at p 344). Indeed, I find that the introduction of an element of “manipulation” or “puppeteering” into the definition generates more confusion. The rationale for the concept of a “shadow director” was, in all likelihood, to circumvent the difficulty of imputing directorship to an individual who had not put himself out as a director of the company and had not acted as if he was on equal standing with the de jure directors, yet exerted real influence on the corporate decisions of the company. To call such an individual a “director” would create a schism in one’s ordinary understanding of a “director” since, in most cases, such an individual would have taken the greatest caution not to come across as being on par with the de jure directors and would not be perceived as a director at all – whether de jure or de facto. Yet, as someone who was directing the directors in important corporate decisions, the definition of a director had to be extended so that the law could hold him responsible for his actions. This is where the concept of a “shadow director” is helpful.
[47] Consequently, if a board of directors exercising independent judgment finds itself consistently complying with the alleged shadow director’s instructions or directions, such an individual is as much a shadow director as one whose instructions or directions are consistently complied with by a board which does not exercise independent judgment but simply abides by or follows those instructions or directions. This might be counter-intuitive since the term “shadow director” has over time, acquired a pejorative meaning – with phrases such as “lurking in the shadows”, “puppet master”, “cat’s paw” tacked to it. However, it must be borne in mind that incorporating such additional requirements into the definition would defeat the rationale of the “shadow director definition” (which is an extended definition of “director”) as “it would be all too easy for the [board of] directors to recite that, having considered the ‘advice’ of the alleged shadow director, they had on their judgment decided to follow that advice” (N R Campbell, “Liability as a Shadow Director” [1994] JBL 609 at 613). Indeed, the raison d’être of this concept is to ensure that those who are responsible for the important corporate decisions of a company are held to task regardless of what they are called and their motives or manner in making such corporate decisions.
[48] The test is, thus, simple: is there sufficient evidence showing that the directors of a corporation are accustomed to act on the directions or instructions of that person? If yes, then the status of a shadow director may be imputed to him. Whether the board has exercised its decision independently or otherwise is irrelevant and has to be so: otherwise, the rationale underpinning the “shadow director” concept would be subverted. It follows, therefore, that the shadow director is not necessarily a sinister puppeteer who is manipulating the board from the wings of a stage as our imaginations would have us believe. Indeed, the “shadow director” epithet is sometimes exaggerated as Morritt LJ observed in Secretary of State for Trade and Industry v Deverell and another [2001] Ch 340 (at 354-355):
Morritt LJ’s remarks resonate with my earlier expressed view at [45] above.
[49] Before I conclude this section on the concept of the shadow director, I must address the implications of a finding that a person is a shadow director. By virtue of s 4(1) of the 2006 Act, a shadow director would be considered a director and thereby, in my judgment, have the ordinary duties of a director imposed on him. This is unlike the case in the UK where its company legislation (including the UK Companies Act 2006) does not equate a shadow director with a “director” for all statutory purposes. For instance, in Ultraframe (UK) Ltd v Fielding [2006] FSR 17, Lewison J found that the mere fact that a person fell within the statutory definition of “shadow director” was not enough to impose upon him the same fiduciary duties as are owed by a de jure or de facto director, though the learned judge accepted that in a particular factual matrix a shadow director’s actions may extend beyond the exertion of indirect influence and thereby subject him to certain fiduciary duties.
De facto directors
[50] So much for shadow directors. As for the term “de facto” directors, there does not appear to be any local judicial pronouncement on its exact meaning. Perhaps it is clear enough from the description “de facto” that a de facto director is one who is not formally appointed as a director but in fact acts as a director by exercising the powers and discharging the functions of a director. He is therefore in substance a director. Whether a person is to be regarded as a “de facto” director because he has acted as a director though not formally appointed is, as such, very much a question of fact; and, in any case, previous case law has relied on Millet J’s formulation in Re Hydrodam where the learned judge defined a de facto director as (at 163):
[51] I note, however, that the Australian courts have not applied Millet J’s requirement that the alleged de facto director himself must claim to be a director. In Mistmorn Pty Ltd (in liq) and Hugh Jenner Wily v Michael Yasseen 33 ATR 332 (FCA) (“Mistmorn”), the respondent, Mr Yasseen, had described himself as a “consultant” of Mistmorn Pty Ltd and testified that he had not intended to be a director and had never claimed to be one. Nonetheless, the Federal Court of Australia found that he had been a de facto director, as he (at 341):
[52] In another Australian case, Deputy Commissioner of Taxation v Austin 39 ATR 485 (FCA) (“Austin”), the court observed that even though the respondent had never believed that “in law, he was … acting as a director”, it found on the evidence before it that the respondent was nonetheless a de facto director. It is interesting to note that at the time Austin and Mistmorn were decided, s 60(1) of Australia’s Corporations Act 1989 (“the 1989 Act”) had defined “directors” as including a reference to:
[53] As can be seen, the wording of ss 60(1)(a) and (b) of the 1989 Act are substantially similar to s 4(1) of the 1994 Act and the 2006 Act. Since Austin and Mistmorn, there has been some tweaking of the definition of “director” in Australian legislation. Sections 60(1)(a) and (b) of the 1989 Act have reappeared as s 9 of the Corporations Act 2001 (“the 2001 Act”) which is currently in force in Australia:
[54] Quite plainly, the essence of ss 60(1)(a) and (b) of the 1989 Act is retained in s 9 of the 2001 Act notwithstanding the substitution of the word “directions” with “wishes”. The similarity in wording and essence of these provisions with s 4(1) of the 1994 Act and 2006 Act is hard to miss. In Martin Markovic, “When are you a director when you’re not a director? The law of de facto directors” (2007) 25 C&SLJ 101, the learned author pointed out that though the words “shadow” and “de facto” directors are not mentioned in the Australian statutory definition, it is “widely accepted” that the definition in s 9 includes them both. He observes that the words in s 9(b)(ii) that “the directors of the company are accustomed to act in accordance with the person’s instructions or wishes” has “attracted the label ‘shadow directors’”, whilst s 9(b)(i) “act in the position of a director” has “attracted the label ‘de facto director’”. By parity of reasoning, it can be said that our s 4(1) which speaks of a person “occupying the position of director of a corporation by whatever name” alludes to a de facto director and the phrase “in accordance with whose directions or instructions the directors of a corporation are accustomed to act” alludes to “shadow directors”.
[55] In summary, it is not required that a de facto director intends to be a director or has claimed to be a director. Lending force to the Australian approach is the fact that recent English authorities have since tinkered a little with Millet J’s definition. In Re Kaytech International plc [1999] BCC 390 (“Re Kaytech”), the English Court of Appeal endorsed the remarks of Jacob J in Secretary of State for Trade and Industry v Tjolle [1998] BCC 282 (“Re Tjolle”) where in declining to formulate a single test for de facto directorship, Jacob J had opined (at 290):
[56] Robert Walker LJ, delivering the judgment in Re Kaytech remarked (at 402):
His Lordship also pointed out that:
[57] Robert Walker LJ observations are instructive. Indeed, it must be right that both shadow and de facto directors must have exercised “real influence” in the corporate governance of the company, otherwise it would not make sense to impute directorship and its attendant duties to such individuals.
[58] In Gemma Ltd v Davies [2008] BCC 812 (“Gemma”), Jonathan Gaunt QC (sitting as a deputy judge of the High Court) eloquently expressed the principles, rather than an iron-clad test, in inquiring whether there had been de facto directorship. Drawing together the various threads of analysis found in the various cases cited to him by counsel including Re Hydrodam (as well as Re Richborough Furniture Ltd [1996] BCC 155, Re Tjolle, Secretary of State for Trade and Industry v Jones [1999] BCC 336, Re Kaytech, Secretary of State for Trade and Industry v Hollier [2007] BCC 11 and Secretary of State for Trade and Industry v Aviss [2007] BCC 288 (“Re Mea Corp”)) the judge observed at [40]:
[59] These are well-reasoned and sound guidelines which I find most salutary in clarifying the current legal position. Instead of pointing to specific acts as indicia of de facto directorship, one must look at the aggregate of the acts of the controller in question. As can be seen, the English courts do not regard the “holding out” of a person as a director per se as being conclusive of his status as a director or otherwise (unlike Millet J’s formulation). As Jonathan Gaunt QC remarked at [42] (citing Lewison J in Re Mea Corp Ltd at [82]), “what is important is not what he called himself, but what he did”.
[60] In Gemma ([58] supra), Jonathan Gaunt QC found that while there had been slight evidence of the defendant being held out as a director, the defendant really had no “real influence” on the corporate decision making process, being compliant and even subservient towards her husband (who was a director in the company) in major corporate decisions.
[61] Though it may be argued that England, unlike Australia, does not have a statutory definition of “de facto directorship”, it is readily apparent from Jonathan Gaunt QC’s judgment that the subjective intentions of the controller are of peripheral, if any significance. Indeed, the test is an objective one: what matters is what he did, not what he called himself.
Summing up
[62] To put it simply, de facto directors are those who “act as directors” and shadow directors are those who “in effect, command the directors how to act”. Control over the company’s affairs may be exercised directly by those who perform that role (de facto or de jure director) or indirectly by controlling those who are nominally in charge (shadow director) (per Chesterman J in Emanuel Management Pty Ltd v Fosters Brewing Group Ltd [2003] QSC 205). While section 4(1) of the 2006 Act provides for both these scenarios, as a practice note, it would be profitable for lawyers to rely on the definitions as set out in s 4(1) of the 2006 Act, instead of inventive but indeterminate interpretations of “shadow directors” and “de facto directors”.
[63] With this legal quagmire out of the way, I now turn to the Plaintiff’s allegation that Peter Lim was a de facto or shadow director of RTC and EH.
The Plaintiff’s claim that Peter Lim was a shadow or de facto director
[64] To enumerate all the facts that the Plaintiff has relied on to prove its claim that Peter Lim was either a shadow or de facto director would add unnecessary length to this judgment. I thus highlight below the salient facts relied upon by the Plaintiff instead of reproducing in their entirety the evidence on this issue:
(a) Peter Lim had admitted under cross-examination that he was present at formal and informal meetings at which the other Defendants would be present and where matters in relation to RTC and EH would be discussed. Minutes of various such meetings disclosed at trial reflected Peter Lim as one of the attendees. Chan Lay Hoon testified that where Peter Lim was listed as being in attendance in the minutes of such meetings, it would generally mean that Peter Lim had been present at and involved in the meetings;
(b) Peter Lim had conceded that in many areas of key decision making in RTC and EH, the rest of the Defendants would defer to him. During the time of Peter Lim’s involvement with RTC and EH, appointments of several key individuals in EH and RTC were made at his behest. On Peter Lim’s own evidence, these appointments were key management decisions;
(c) Chan Lay Hoon’s evidence was that whatever Peter Lim recommended would be implemented. For example, Peter Lim procured RTC to change its company auditors from Thong & Lim to HT Khoo & Co, which was a firm of auditors that Peter Lim was accustomed to using. Chan Lay Hoon confirmed that all the directors of RTC were accustomed to taking directions from Peter Lim on many areas in relation to RTC and EH such as finance, management and operations;
(d) Peter Lim admitted that he had pressed for the membership launch of the Club to take place in late 1996 because cash flow was needed for RTC and RTC did as told;
(e) Peter Lim admitted putting in place a system and arranging for Chan Lay Hoon to administer and process the membership applications. He had further arranged for the membership operations to be housed at one of his offices at Circular Road;
(f) Chan Lay Hoon testified that the acceptance of about 19,000 founder members by the Club was a major decision which required Peter Lim’s consent. She also mentioned that the payment of the 15% commission to EH per membership entrance fee was another major decision which required Peter Lim’s consent;
(g) Peter Lim had conceded that he had a “dominant position” in RTC and EH; and
(h) Third parties had regarded Peter Lim as a director of RTC and even addressed him as such.
[65] From the above, it is plain that Peter Lim was no ordinary “consultant”. He had played an active and influential role in the major corporate decisions of RTC and the other directors had often deferred to him. On cross-examination, Peter Lim revealed:
[66] Peter Lim’s case however is that the rest of the directors did exercise independent judgment when he made recommendations to them, and if they had agreed to his suggestions or taken up his advice, it was because this was good for the company and not because they were borne out of compulsion. But this is not borne out in Dennis Foo’s evidence in cross-examination:
[67] Lawrence Ang, William Tan, Dennis Foo and Chan Lay Hoon all agreed that Peter Lim had a say in the major decisions of RTC and that they had often deferred to his decisions. When Chan Lay Hoon was cross-examined on the scope of Peter Lim’s appointment as a consultant, the following transpired:
[68] Based on the objective evidence before me, the inexorable conclusion is that Peter Lim was highly influential and had been the dominant influence in many major corporate decisions of RTC. In fact, he had admitted that important decisions were undertaken by him and this is buttressed by his remark in his 1 affidavit in S 742/2000 (at para 74), that:
[69] On the facts, therefore, it is clear to me that Peter Lim had been a de facto director of RTC. He was in direct control of the affairs of the company; and his presence at meetings, both formal and informal, militate strongly in favour of a finding of de facto directorship. Peter Lim had not attempted to indirectly control RTC through the rest of the Defendants. Rather, he had unabashedly exerted direct control over RTC’s corporate decisions without apology. This was not the job of a consultant. Whilst the fact that third parties regarded him as a director of RTC is irrelevant to my analysis, it may be viewed as reinforcing the notion that Peter Lim was indeed “occupying the position of director of a corporation” (see s 4(1) of 2006 Act), albeit as a “consultant”. Nonetheless, he would be caught by s 4(1) as the provision makes it clear that the label attached to the controller is irrelevant. Consequently, Peter Lim as a de facto director of RTC will be subject to the duties ordinarily imposed on directors.
Analysis of the Plaintiff’s claim
[70] I will now deal with the issues as outlined at [33]-[38] above in seriatim.
Acceptance of the 19,000 members
[71] To recapitulate, the promotional materials had stated that RTC would deliver an exclusive club with first class facilities “without peer in terms of size, facilities and opulence”. The Plaintiff argues that by late 1996 or early 1997 at the latest, the Defendants and/or each of them knew and/or ought to have known that the maximum number of initial members for an exclusive premier club on the site with the intended facilities was about 7,000 members. Any more would result in serious overcrowding and the Club would cease to be exclusive or premier. It alleges that the Defendants had connived to mislead the public as to the Club’s premier and exclusive status and had also deliberately concealed the true membership figures from its members. This, the Plaintiff alleges, amounted to the commission of a “fraud” upon the applicants.
[72] In support of the above allegations, the Plaintiff cited three interviews given by Dennis Foo to the press in November 1996 and April 1997. In the first two interviews, he had stated that he “hoped” to rope in 5,000-6,000 members. As for the last, he had been quoted as stating that the Club had over 4,500 members from the two membership drives when the total membership figure was already well known to the Defendants. Furthermore, the Club’s March 1997 newsletter (signed off by Dennis Foo) stated that the Club would be taking in members periodically bearing in mind that there was an optimal membership level based on the size of the Club’s facilities.
[73] It was also highlighted by the Plaintiff that the Defendants had testified at trial that RTC had been converted into a private exempt company to keep the membership size of the Club confidential. Even the staff at RTC, the Plaintiff submitted, were led to believe that the total membership of the Club had been between 5,000-6,000 members: an internal information fact sheet that had purportedly been circulated among the RTC staff expressly stated that the total membership of the Club was approximately 7,000. Referring to discussions amongst the Defendants in acquiring additional premises or facilities, the Plaintiff averred that this surely meant that the Defendants knew that the Club’s facilities could not cope with 19,000 members. All these actions, the Plaintiff alleges, were inconsistent with the Defendants’ claims that they had acted honestly and in good faith towards RTC.
[74] The Defendants’ collective response was that they had acted in the best interests of the Club. They asserted that had they taken in 5,000 to 6,000 members at the entrance fee of $28,000, the Club would have been unable to survive. Though it was conceded that there had been instances of “active concealment” of the membership figures after the launch, they contended that this was done after the Defendants became aware of the 19,000 membership size, not before, as alleged by the Plaintiff.
Were the representations fraudulent and/or in bad faith?
[76] On a balance of probabilities, I find that Dennis Foo was indeed unaware of the actual number of members that had been accepted at the material time. Hence, it cannot be said that his representations had been fraudulent or made in bad faith. However, taking the Plaintiff’s case at its highest and assuming that Dennis Foo did have the requisite knowledge during the relevant periods, my finding would be the same.
[77] Indeed, while Dennis Foo’s supposed representations in the press and newsletter plausibly created an impression that the Club would be taking in around 5,000 to 6,000 members, it must be noted that in these representations, RTC did not, whether through the Defendants or Dennis Foo himself, lie to the public as to the actual membership size. Nor did it represent that it would take in only up to 5,000 to 6,000 members. It is pertinent to refer to the actual press interviews that the Plaintiff cited. The first interview appeared in the Business Times on 15 November 1996. The journalist had simply written in the second paragraph of the interview that:
[78] The second interview was published on 17 November 1996 in the Straits Times:
[80] As such, I would be slow to find that, as the Plaintiff has claimed, Dennis Foo’s statements, made on behalf of the Defendants or otherwise, were calculated to and did in fact deceive the public. The interviews say little; further, it has not been proven that as a result of these interviews, members of the public had been deceived and therefore applied for membership. Indeed, for an act of misrepresentation to be actionable, it must be shown that it had induced a party to enter into a contract (see [83] below).
[81] I come now to the third interview dated 19-20 April 1997 in the Business Times which reported that:
[82] According to the Plaintiff, this was designed to “perpetuate the misleading impression that the membership was limited and exclusive” despite the fact that by this time the 19,000 members had already been accepted. Dennis Foo’s evidence is that he did not recall granting such an interview, nor did he recall making such a statement or seeing the facsimile of 25 November 1997 to RTC (which enclosed the aforesaid interview). I make no finding on this. But assuming that Dennis Foo was well aware of the acceptance of 19,000 members, I do not see how it negates the truth of the representation that the “club [now] has more than 4,500 members”. 19,000 is indeed more than 4,500 and Dennis Foo, assuming that he knew about the 19,000 members, was not bound to disclose how much more than 4,500 the actual figure was. While he may have been economical with the truth, it would be a stretch to decry his statements as being fraudulent or having been made in bad faith. In any event, those members who had applied for membership and had been accepted by RTC as members would have applied for membership before this third interview was published in the Business Times in April 1997 – further launches for ordinary memberships at $40,000 that took place in March and July 1997 only saw a further 83 applications being accepted on top of the 18,992 applications that had been accepted from the priority membership launch. Hence, even if there had been a misrepresentation in the aforesaid interview, it could not be relied upon by members who had been accepted before April 1997 and this alleged misrepresentation would not be actionable. As for members who had applied after all the three interviews cited above had been published, it has not been shown that they had relied on Dennis Foo’s statements or that they had been defrauded.
[83] At [20] of Tan Chin Seng 2003, the Court of Appeal cited from p 237 of Anson's Law of Contract (OUP, 28th Ed, 2002):
The Court of Appeal further observed that (at [21]):
[84] Suffice to say, I do not find that there had been any promise made by Dennis Foo and/or the Defendants that only 5,000 to 6,000 members would be accepted by RTC and even if there had been such a promise, it has not been shown that members had relied on such a promise to their detriment. Neither has it been shown that such a promise (if it existed) formed part of the contract between RTC and the members. While it is indeed the case that there had been a breach of the implied term that RTC would deliver a premier club, it must be recognised that there was no specific promise to accept only 5,000 to 6,000 members; neither can one conceivably imply into the contract between RTC and its members that there had been such an implied term. There was nothing in what Dennis Foo said that was tantamount to a misrepresentation or a fraudulent statement. People were attracted to the Club because they believed (and rightly so) that it would be exclusive and premier, not because they thought it would have 5,000 to 6,000 members. I would thus roundly reject the Plaintiff’s claim that the Defendants “never had the intention to fulfil RTC’s promise to the public and/or potential members that RTC would deliver a premier and exclusive club” and that “alternatively, when the Defendants caused RTC to accept 18,992 applications as members of the Club, they did not have the intention to fulfil RTC’s promise that RTC would deliver a premier and exclusive club.” The Plaintiff’s analysis is parochial as it is unduly fixated upon the number of members as determining the exclusivity of the Club.
Was the desire to maximise the number of applications not bona fide?
[85] The Plaintiff submits that the Defendants had wanted potential applicants to believe that they would form part of an exclusive group of up to 7,000 members belonging to an exclusive and premier club so as to maximize the number of applications for memberships received. First, there is nothing objectionable in wanting to maximize the number of applications. Most if not all clubs would be desirous of this. It must be borne in mind that the Club was, and still is, a proprietary Club, not a member’s Club. As a business, its objective would be to maximize revenue and profits. In J F Josling and Lionel Alexander, Law of Clubs (Oyez Longman, 5 Ed, 1984), it is stated (at p 10):
[86] Secondly, whilst the Defendants plausibly wanted to maximize the number of applications, they did have a selection process such that not all and sundry who applied obtained membership. If their sole purpose had been to defraud the members there would have been no need for such a selection process. They could have simply accepted all 24,000 applicants as members and gained an additional $140,000,000 in entrance fees.
[87] Thirdly, simply because the Defendants allowed the Plaintiff to accept the 19,000 members did not mean that they had not acted bona fide. A small membership size per se does not denote exclusivity. Conversely, a large membership size does not mean a club is not exclusive. At trial, it was revealed that RTC had rejected applicants who were above a certain age because it was believed that such applicants would have a decreasing earning capacity in the future. This is in a sense, an instance of exclusivity. Dictionaries have defined the term to mean admitting only members of a socially restricted or very carefully selected group. Exclusivity must thus be referable to some criteria. It cannot be based on membership size alone. It is not a game of numbers. Hence a club may have few members but that may not mean that it is exclusive in the ordinary sense of the word – it might just be unpopular. Conversely, if the membership size of a club were to stand at say 25,000 members comprising of only millionaires from all over the world including Singapore, does it necessarily mean that it cannot be deemed “exclusive” simply because the membership size is larger than that of other clubs in Singapore (be they proprietary in nature or otherwise)? This cannot be so. As the Court of Appeal observed in Tan Chin Seng 2003 (at [38]):
Further, the Court of Appeal remarked (at [50]):
[88] The Court of Appeal had found in Tan Chin Seng 2003 that RTC had breached an implied term of providing a premier club (see Tan Chin Seng 2003, at [37]) because of the overcrowding that had occurred, resulting in the limited access to the facilities and hence a loss of that “premier” feel. One may argue that the overcrowding had resulted really from a lack of facilities rather than the acceptance of the 19,000 members and hence the acceptance of the 19,000 members did not constitute a breach but such reasoning, I acknowledge, may be quite artificial. Nonetheless, it must be borne in mind that it was the overcrowding that had led to the loss of a “premier” feel. In any case, this issue of accepting the 19,000 members had already been disposed of in Tan Chin Seng 2003 and should not be invoked in this suit for the reasons in the following section.
Number of applications to be accepted was a commercial decision
[89] As I have mentioned above, it must be borne in mind that the overcrowding was the crux of the members’ suit, not the acceptance of the 19,000 members. Indeed, it is highly doubtful that the applicants had paid for membership on the premise that the total membership size would be 5,000 to 7,000 members. Rather, it was the promise of exclusivity and premier status that drew them to become members of the Club and the inquiry should not be unduly fixated on figures. What should be the threshold for a Club to, on one hand, maximise the number of applications and on the other, ensure that it is “exclusive”? There is no formula for determining which figure would strike the best compromise. Simply because the decision to accept the 19,000 members later proved to be, arguably, imprudent (in that there was overcrowding during the initial few months immediately following the opening of the Club) does not automatically mean that the Defendants had been fraudulent or negligent.
[90] Eventually, determining how many members to accept was a commercial decision. The Defendants assert that it was in the best interests of the Club that they took in the 19,000 members and that the Club would not have survived had it not accepted this number of applications. The Plaintiff highlights that the Court of Appeal in Tan Chin Seng 2003 at [21]) because of the overcrowding that had occurred, resulting in the limited access to the facilities and hence a loss of that “premier” feel. One may argue that the overcrowding had resulted really from a lack of facilities rather than the acceptance of the 19,000 members and hence the acceptance of the 19,000 members did not constitute a breach but such reasoning, I acknowledge, may be quite artificial. Nonetheless, it must be borne in mind that it was the overcrowding that had led to the loss of a “premier” feel. In any case, this issue of accepting the 19,000 members had already been disposed of in Tan Chin Seng 2003 and should not be invoked in this suit for the reasons in the following section.
Number of applications to be accepted was a commercial decision
[89] As I have mentioned above, it must be borne in mind that the overcrowding was the crux of the members’ suit, not the acceptance of the 19,000 members. Indeed, it is highly doubtful that the applicants had paid for membership on the premise that the total membership size would be 5,000 to 7,000 members. Rather, it was the promise of exclusivity and premier status that drew them to become members of the Club and the inquiry should not be unduly fixated on figures. What should be the threshold for a Club to, on one hand, maximise the number of applications and on the other, ensure that it is “exclusive”? There is no formula for determining which figure would strike the best compromise. Simply because the decision to accept the 19,000 members later proved to be, arguably, imprudent (in that there was overcrowding during the initial few months immediately following the opening of the Club) does not automatically mean that the Defendants had been fraudulent or negligent.
[90] Eventually, determining how many members to accept was a commercial decision. The Defendants assert that it was in the best interests of the Club that they took in the 19,000 members and that the Club would not have survived had it not accepted this number of applications. The Plaintiff highlights that the Court of Appeal in Tan Chin Seng 2003 at [21] had rejected this argument as being “strange” and “astonishing”. However, read in its context, the Court’s remarks there were in response to the Court’s view that RTC was attempting to ignore its contractual obligation to provide a premier club and to maintain it as such. It stated that “if the Club had made a wrong bargain or calculation, it had only itself to blame and it should not be allowed to shift its responsibilities”. The passage should not be read as dismissing the merits of the Defendants’ own belief that the 19,000 members were needed for the Club to survive.
[92] First, it is not disputed that the projected cash flows had been prepared by Tan Buck Chye. However, there was no evidence that the Defendants had been of the view that a membership size of upwards of 8,000 would require additional facilities to prevent overcrowding, an inference the Plaintiff appears to have drawn from Tan Buck Chye’s projections. According to the projected cash flows, 8,000 members were sufficient for RTC to make a profit of $15.7m. Yet, Peter Lim was of the view that a minimum, critical mass of 10,000 members was required to break even. Lawrence Ang himself was of the view that the minimum membership size would be 12,000 to 13,000. Lawrence Ang’s evidence was that Tan Buck Chye had also suggested at their meetings that 20,000 members would not be a problem for RTC and that Tan Buck Chye himself had contemplated that the Club would be very crowded in the first three to six months regardless of the membership intake. In any case, it is clear to me that there was no consensus amongst the Defendants that (a) they would take in only 8,000 members; and (b) an intake of 8,000 members and above would give rise to overcrowding.

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Raffles Town Club Pte Ltd v Lim Eng Hock Peter and others (Tung Yu-Lien Margaret and others, third parties)

Laws this judgment relies on

Grounds of decision

Dramatis Personae

Background facts

Early days before RTC – Europa

The Club’s beginnings

Entry of Peter Lim

Peter Lim versus Tan Buck Chye

Subsequent events

Souring of the relationship between Lawrence Ang and Peter Lim

The Plaintiff’s claim

Acceptance of the 19,000 members

Circumventing s 162 and s 403 of the Companies Act

The Management Fees

Directors’ remuneration

Conspiracy

The use of $33m

The law on shadow and de facto directors

Shadow directors

De facto directors

Summing up

The Plaintiff’s claim that Peter Lim was a shadow or de facto director

Analysis of the Plaintiff’s claim

Acceptance of the 19,000 members

Were the representations fraudulent and/or in bad faith?

Was the desire to maximise the number of applications not bona fide?

Number of applications to be accepted was a commercial decision

Number of applications to be accepted was a commercial decision