Airtrust (Singapore) Pte Ltd v Kao Chai-Chau Linda

• Jurisdiction: Singapore
• Judgment Date: 14 February 2014
• Date: 14 February 2014
• Docket Number: Suit No 477 of 2012 (Summons No 4613 of 2013)
• Court: High Court (Singapore)

Airtrust (Singapore) Pte Ltd

Plaintiff

and

Kao Chai-Chau Linda

Defendant

[2014] SGHC 28

George Wei JC

Suit No 477 of 2012 (Summons No 4613 of 2013)

High Court

Civil Procedure—Judgments and orders—Consent orders—Whether contractual consent orders could be varied or set aside

Companies—Receiver and manager—Derivative action—Applicant controlling derivative action prior to appointment of receiver and manager—Receiver and manager commencing separate action involving similar issues—Whether control and conduct of derivative action should be continued by receiver and manager—Whether directions for funding of derivative action should be granted in favour of applicant

The applicant, Carolyn Fong Wai Lyn (‘Carolyn’), was a director and shareholder of Airtrust (Singapore) Pte Ltd (‘Airtrust’). After the founder of Airtrust, the late Peter Fong (‘PF’), passed away in 2008, Carolyn obtained leave to commence a derivative action against the defendant, Kao Chai-Chau Linda (‘Linda’), for alleged breaches of fiduciary duty in respect of certain transactions which took place mostly whilst PF was still the chairman of Airtrust.

Ernst & Young was later appointed receivers and managers (‘the RMs’) of Airtrust pursuant to a consent order between Carolyn and Linda. The consent order expressly stated that the prosecution of the derivative action was to remain with Carolyn.

Subsequently, the RMs took the view that there were other improper transactions that were not subject of the derivative action commenced by Carolyn. These largely concerned transactions or events occurring after the demise of PF. For this reason, the RMs commenced a separate action against Linda and 15 others for alleged conspiracy and breach of fiduciary duty.

Carolyn then took out the present application for the control and conduct of the derivative action to be continued by the RMs, and in the alternative, for directions to be granted in relation to the conduct of the derivative action, including directions for funding.

Held, dismissing the application:

(1) In general, the court retained the residual discretion to vary or set aside the terms of a contractual consent order where this was necessary to prevent injustice: at [22] .

(2) The applicant, Carolyn, had not made out a case for the consent order to be varied or set aside. The issue of costs incurred by Carolyn was not a sufficient reason for the control and conduct of the derivative action to be continued by the RMs, especially when the issue was already dealt with at the stage when leave to commence the derivative action was granted. Moreover, there was no evidence to demonstrate that Carolyn was in a financially strained position so as to affect her ability to continue the derivative action: at [26] .

(3) The dispute between the parties had been dragging on for a considerable length of time and the court was entitled to take into account the likelihood of further delays if the control and conduct of the derivative action was to be continued by the RMs: at [26] .

(4) No overall costs savings would result from the RMs taking over the control and conduct of the derivative action, given that their existing solicitors would not be able to represent them in the derivative action on the account of a potential conflict of interest: at [30] .

(5) In relation to the issue of funding, due to the lack of evidence demonstrating that Carolyn was unable to finance the derivative action, coupled with the fact that the issue of costs had already been dealt with at the stage when leave was granted, there was no reason to disturb or vary the earlier decision to reserve the issue of costs to the trial judge hearing the derivative action: at [29] .

Fong Wai Lyn Carolyn v Airtrust (Singapore) Pte Ltd [2011] 3 SLR 980 (refd)

Intercontinental Precious Metals Inc v Cooke [1994] WWR 66 (refd)

Johnson v Meyer [1987] CLD 1400 (refd)

Low Heng Leon Andy v Low Kian Beng Lawrence [2011] SGHC 184 (refd)

Wellmix Organics (International) Pte Ltd v Lau Yu Man [2006] 2 SLR (R) 117; [2006] 2 SLR 117 (refd)

Wiltopps (Asia) Ltd v Drew & Napier [1999] 1 SLR (R) 252; [2000] 3 SLR 244 (refd)

Companies Act (Cap 50, 2006 Rev Ed) ss 216 A, 216 A (5)

Rules of Court (Cap 322, R 5, 2006 Rev Ed) O 92 r 4

Daniel Chia and Kenneth Chua (Stamford Law Corporation) for the plaintiff

Jimmy Yim SC, Daniel Soo and Alison Tan (Drew & Napier LLC) for the defendant

Joel Chng (Wong Partnership LLP) watching brief for the receivers and managers.

Judgment reserved.

George Wei JC

Introduction

1 This is an application for the control and conduct of the proceedings in Suit No 477 of 2012 (‘S 477/2012’) to be transferred over and continued thereafter by the receivers and managers (‘RMs’) of the plaintiff, Airtrust(Singapore) Pte Limited (‘Airtrust’). After hearing the parties, I am dismissing this application in its entirety.

The facts

2 Airtrust was incorporated in Singapore on 13 July 1972. Its founder, the late Peter Fong (‘PF’), is the father of the applicant, Carolyn Fong Wai Lyn (‘Carolyn’), who is a director and shareholder of Airtrust. On the other hand, the defendant, Linda Kao Chai-Chau (‘Linda’), was appointed the managing director of Airtrust some time back in 1996.

3 After PF passed away on 25 April 2008, Carolyn took on a more active role in Airtrust's affairs. Upon doing so, she discovered a potential claim against Linda for breach of fiduciary duty in respect of certain transactions that had been diverted away from Airtrust. Given the fact that Carolyn was only a minority shareholder and did not have effective control over the board of Airtrust, she decided to obtain leave to institute a derivative action on behalf of the company against Linda in respect of those alleged breaches.

4 In Originating Summons No 505 of 2010 (‘OS 505/2010’), Carolyn instituted proceedings to obtain leave pursuant to s 216 A of the Companies Act (Cap 50, 2006 Rev Ed) (‘CA’). At first instance, the High Court ruled in favour of Carolyn (see Fong Wai Lyn Carolyn v Airtrust (Singapore) Pte Ltd[2011] 3 SLR 980). In the written judgment, Judith Prakash J acknowledged that there was no dispute that PF had been the controlling mind and will of Airtrust until his demise in 2008 (at [3]). At that point in time, apart from Linda who was the managing director, the board also comprised Carolyn, Evelyn Ho, Dennis Atkinson, Anthony Stiefel and Chia Quee Khee. Anthony Stiefel was said to be Carolyn's nominee whilst Evelyn Ho was said to have worked closely with Linda. After reviewing the affidavits and submissions of the parties, Prakash J found that Carolyn had a reasonable basis for a few of the complaints in relation to certain business opportunities and that there was ‘some semblance of merit’ in the potential claims against Linda (at [43]). On this basis, Carolyn was granted leave to commence derivative proceedings on behalf of Airtrust in those areas. The decision of the High Court was subsequently affirmed by the Court of Appeal. Thereafter, the derivative action of S 477/2012, which is controlled by Carolyn, was commenced against Linda. This will be referred to as the ‘Derivative Action’.

5 On 17 January 2012, Ernst & Young was appointed RMs of Airtrust pursuant to Consent Order No 203 of 2012 (‘ORC 203/2012’). Initially, Carolyn had applied for, inter alia, BDO LLP to be appointed as RMs to control and manage the affairs of Airtrust. This was opposed by Linda and in the course of the hearing before Woo Bih Li J, the parties sought an adjournment to explore the opportunity of reaching a mutual agreement on who should be appointed as RMs. This eventually culminated...