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

• Jurisdiction: Singapore
• Judge: George Wei JC
• Judgment Date: 14 February 2014
• Neutral Citation: [2014] SGHC 28
• Court: High Court (Singapore)
• Docket Number: Suit No 477 of 2012 (Summons No 4613 of 2013)
• Published date: 21 February 2014
• Year: 2014
• Hearing Date: 04 November 2013
• Plaintiff Counsel: Daniel Chia and Kenneth Chua (Stamford Law Corporation)
• Defendant Counsel: Jimmy Yim SC, Daniel Soo and Alison Tan (Drew & Napier LLC),Joel Chng (WongPartnership LLP) watching brief
• Subject Matter: Civil Procedure,Judgments and Orders,Consent Orders,Companies,Receiver and Manager,Derivative Action
• Citation: [2014] SGHC 28

George Wei JC: Introduction

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

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.

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.

In Originating Summons No 505 of 2010 (“OS 505/2010”), Carolyn instituted proceedings to obtain leave pursuant to s 216A 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 and another [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”.

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 in ORC 203/2012, in which both parties agreed to the appointment of Ernst & Young as the RMs of Airtrust. It bears noting at this juncture that para 3 of ORC 203/2012 stated clearly that:

The prosecution of the matters for which leave has been granted by the High Court and the Court of Appeal in OS 505/2010 to the 1st Defendant shall remain with the 1st Defendant …

Subsequent to their appointment, the RMs took the view that there was evidence of other diversions of business that were not the subject of the Derivative Action controlled by Carolyn. These transactions were said to have occurred mainly after the death of PF. As a result, the RMs commenced Suit No 1015 of 2012 (“S 1015/2012”) against Linda and 15 others for alleged conspiracy and breach of fiduciary duty. This will be referred to as the “RM Action”.

In both the Derivative Action and the RM Action, the modus operandi of the alleged breaches is similar. However, the identified transactions in each suit were different. Nonetheless, the defence run by Linda in both suits is similar — that her actions were undertaken on the directions and with the consent of PF both before and after his demise in 2008. It bears noting that different law firms have been engaged to represent Airtrust in these two actions.

In relation to the RM Action, Linda commenced third party proceedings against the estate of PF on 19 April 2013. In response, the RMs made an application to set aside the third party proceedings. After the hearing on 19 July 2013, the learned Assistant Registrar held that Linda was not allowed to bring third party proceedings against the estate of PF in both the Derivative Action and the RM Action. Linda appealed against the decision of the Assistant Registrar and the appeals were heard before me on 2 September 2013 and 11 October 2013. I have allowed Linda’s appeals and the reasons for my decision have been set out in a separate judgment.

The current application

Shortly after the appeals in respect of the third party proceedings were heard, Carolyn took out the current application and this was heard on 4 November 2013. The principal prayer sought by Carolyn was for the control and conduct of the Derivative Action to be continued by the RMs. The alternative prayer was for directions to be given in relation to the conduct of the Derivative Action, in light of the commencement of the RM Action. This includes directions as to representation and funding.

In the written submissions tendered by Carolyn, a few points were raised in favour of transferring the control and conduct of the Derivative Action to the RMs. At the outset, it was argued that both the Derivative Action and the RM Action ran parallel to each other and that both actions have been directed to be heard back to back before the same judge. Apart from that, it was also argued that the modus operandi and allegations raised in both actions were identical, save that the specific transactions to which they relate to were different. As mentioned above, the defence raised by Linda in respect of both claims is also similar — that she had acted with the consent and under the directions of the late PF, who was then the Chairman and majority shareholder of Airtrust.

Furthermore, Carolyn also advanced arguments in respect of the disadvantages involved with engaging two sets of solicitors for similar proceedings concerning the rights of the same company. First, she raised the danger of a disconnect developing between the different parties prosecuting claims on behalf of Airtrust, such that it would be better for one party, that is, the RMs, to have conduct of both the Derivative Action and the RM Action. In this vein, Carolyn highlighted the conflicting positions adopted by both parties vis-à-vis PF’s status as an alter ego of Airtrust — in the RM Action, it was denied that PF was the alter ego of Airtrust, whereas this point was simply not admitted in the Derivative Action such that Linda is put to strict proof thereof. Nonetheless, it appears, in both the Derivative Action and the third party proceedings, that PF was at least the controlling mind of Airtrust up until his demise in 2008.

Moreover, Carolyn contended that the need to obtain the consent of the RMs in respect of access to the documents of Airtrust has increased the costs and burden on her. Furthermore, Carolyn argued that she has been personally prejudiced in that she “is effectively expending monies (which are substantial) to prosecute the [c]ompany’s claim”. In this respect, it has been further contended that Carolyn has been forced to bear the costs of conducting the Derivative Action without a guaranteed indemnity from Airtrust, even though she only has a 6.2% shareholding in Airtrust and therefore “stands to gain very little personally from even a successful disposal of the matter”. To this end, Carolyn alleges that Linda’s strategy has been to expand the dispute and drive up costs.

Furthermore, Carolyn has also pointed to the change in the dynamics of Airtrust in support of her current application. Previously, when Carolyn sought leave to bring the Derivative Action, there was no other representative who was willing or able to prosecute claims on behalf of Airtrust against Linda. This can be contrasted with the present situation where the RMs have been appointed to manage the affairs of Airtrust and to this end, they have taken an independent view that there is evidence in support of other claims for conspiracy and breach of fiduciary duty. Thus, Carolyn contended that it was patently unfair and unjust that she should singlehandedly shoulder the burden when there exists a more economical alternative of letting the RMs conduct the Derivative Action. In this regard, Carolyn has also submitted that Linda will not suffer any prejudice if control of the Derivative Action is handed over to the RMs. On the contrary, she has argued that Linda would benefit from greater clarity and potential costs savings in the event that the RMs control both the Derivative Action and the RM Action.

The issues

Essentially, the application raises the following core issues: whether control and conduct of the Derivative Action should be transferred to the RMs; and whether directions for the funding of the Derivative Action should be granted in view of the commencement of the RM Action.

Issue 1: Control and Conduct of the Derivative Action

At the outset, whilst it is acknowledged that the burden of carrying on the Derivative Action does indeed lie solely on Carolyn’s shoulders, this court is bound to comment that...