Ang Thiam Swee v Low Hian Chor

CourtCourt of Appeal (Singapore)
Judgment Date31 January 2013
Docket NumberCivil Appeal No 123 of 2011 and Summonses Nos 1423 and 2120of2012
Date31 January 2013
Ang Thiam Swee
Plaintiff
and
Low Hian Chor
Defendant

Chao Hick Tin JA

,

Andrew Phang Boon Leong JA

and

V K Rajah JA

Civil Appeal No 123 of 2011 and Summonses Nos 1423 and 2120of2012

Court of Appeal

Companies—Oppression—Minority shareholders—Bringing statutory derivative action for collateral personal purpose—Whether proposed action was prima facie in interests of company—Section 216 A (3) (c)Companies Act (Cap 50, 2006 Rev Ed)

Companies—Oppression—Minority shareholders—Bringing statutory derivative action for private motives—Whether these private motives amounted to collateral personal purpose—Whether court could presume that applicant was acting in good faith—Whether court should consider legal merits of application—Section 216 A (3) (b) Companies Act (Cap 50, 2006 Rev Ed)

Companies—Oppression—Minority shareholders—Minority shareholder bringing statutory derivative action against another minority shareholder over purported misappropriation of company funds—Whether applicant was acting in good faith—Whether application was prima facie in interests of company—Section 216 A Companies Act (Cap 50, 2006 Rev Ed)

The appellant and respondent started a company to fabricate steel parts for pressure vessels and other industrial uses (‘the Company’) along with another shareholder, one Mr Gan Oh Boon (‘Gan’). The appellant and respondent held 10% of the Company's shares each and Gan held the remainder as the majority shareholder. On 27 October 2009, Gan was convicted of making fraudulent claims on alleged Company expenses and was statutorily disqualified from his directorship of the Company under s154 of the Companies Act (Cap 50, 2006 Rev Ed) (‘the Companies Act’). Bankruptcy proceedings were initiated by the Company against Gan on 16 December 2009, during which time the appellant had sided with the respondent to prevent Gan from convening an extraordinary general meeting. Gan was declared a bankrupt on 6 May 2010. On 15 July 2011, the respondent filed Originating Summons No 591 of 2011 seeking leave under s 216 A of the Companies Act to commence an action in the name of the Company against the appellant for breach of director's duties, alleging that the appellant had misappropriated Company funds in concert with Gan. This application was allowed by the High Court.

Held, allowing the appeal:

(1) The susceptibility of ‘good faith’ to casuistic assessment necessitated a conceptual framework to guide the court's exercise of its discretion under s 216 A (3) (b). Following Pang Yong Hock v PKS Contracts Services Pte Ltd[2004] 3 SLR (R) 1 at [20] ,the court ought to assess the motivations of the applicant in order to determine whether he was acting in good faith. However, the questionable motivations of the applicant per se might not amount to bad faith; instead, bad faith might be established where these questionable motivations constituted a personal purpose which indicated that the company's interests would not be served: at [12] to [16] .

(2) Contrary to dicta in Agus Irawan v Toh Teck Chye[2002] 1 SLR (R) 471, the court was not entitled to assume that every party with a reasonable and legitimate claim was acting in good faith. Such a broad proposition found no support from Canadian or Australian case law, which was consistent in placing the onus of establishing good faith on the applicant. The clear language of s 216 A and Parliament's evident concerns with the potential abuse of this provision also militated against any presumption of good faith in favour of the applicant: at [19] to [23] .

(3) The Canadian courts have typically looked to the applicant's honest belief in the merits of the proposed statutory derivative action as a strong indicator of good faith. In Australia, the test of good faith also centred on whether the applicant was seeking to bring the derivative suit for such a collateral purpose as would amount to an abuse of process. This test resonated as abuse of process was one of the grounds for striking out an action under O18 r19 of the Rules of Court (Cap 322, R5, 2006 Rev Ed). Given that the statutory derivative action under s 216 A of the Companies Act also related to a similar exercise wherein the court had to evaluate bona fides on the basis of affidavit evidence, the ‘abuse of process’ test provided a useful standard by which to decide whether the applicant's collateral purpose amounted to bad faith. The onus was upon the applicant to demonstrate that he was or might be genuinely aggrieved and that his collateral purpose was sufficiently consistent with the purpose of doing justice to a company so that he was not abusing the statute and, by extension, also the company as a vehicle for his own aims and interests: at [25] , [27] , [30] and [31] .

(4) The evidence suggested that the respondent had several motives in seeking leave to commence a statutory derivative action. The overriding impression was that the respondent felt he either had been or would have been wronged, and was using the statutory derivative action not as a means of pursuing the interests of the Company, but to secure and/or advance his own interests within the Company: at [32] and [42] .

(5) A fuller inquiry into the respondent's motives raised genuine concerns about whether the application was an abuse of process. Quite apart from any animus between the parties, the respondent plainly stood to gain, at no personal cost, if the Company brought proceedings against the appellant. When annealed with the elements of disgruntlement, spite, and self-preservation, the prospect of pure personal gain sharpened the edge of the respondent's motivations, and raised serious questions about his good faith. It was also telling that the respondent had not managed to secure the support of the Official Assignee of Gan's shares for the proceedings. Given the absence of any clear coincidence between the Company's interests and the respondent's apparent collateral personal purpose, the application appeared to be a cynical attempt to load the scales against another minority shareholder on the pretence of doing justice to the Company, and failed at the very first hurdle of . It was also abundantly clear on the totality of the evidence that the respondent did not have an honest belief in the merits of the proposed statutory derivative action: at [43] to [52] .

(6) To satisfy the requirement of s 216 A (3) (c) of the Companies Act that the proposed statutory derivative action was ‘prima facie in the interests of the company’, the applicant must convince the court that the company's claim would be legitimate and arguable. The same considerations which militated against the good faith of the respondent also undermined the legitimacy of his application. The court may also go further to examine whether it would be in the practical and commercial interests of the company for the action to be brought. In this case it was difficult to see what practical gain the Company could obtain if the application was allowed to proceed. The silence of the Official Assignee suggested that the application was outside of the Company's interest. The Company also appeared to be coping well and the accounting reports disclosed did not raise any red flags. It was therefore not in the prima facie interests of the Company for the application to proceed: at [53] and [55] to [57] .

[Observation: Local case law had gradually incepted objective considerations of legal merits into s 216 A (3) (b) of the Companies Act. This development detracted from both the language and the substance of the provision. While the applicant's good faith and the merits of his application need not be unconnected, they were not necessarily connected. The conceptual integrity of the good faith requirement demanded that any considerations of legal merits under this head had to be yoked to the intents and purposes of the applicant who was seeking to initiate a statutory derivative action, ie,to an assessment of whether the applicant honestly or reasonably believed that there was a good cause of action: at [29] .

As a matter of pleading, considerations of objective legal merit might be more appropriately dealt with under s 216 A (3) (c), as there would be a natural affinity between the interests of the company in prosecuting a statutory derivative action and the legal merits of that action, in that it could not conceivably be prima facie within the interests of the company to bring an action which was wholly without any legitimate or arguable basis: at [58] .]

Agus Irawan v Toh Teck Chye [2002] 1 SLR (R) 471; [2002] 2 SLR 198 (not folld)

Discovery Enterprises Inc v Ebco Industries Ltd [1997] BCTC LEXIS 5338 (folld)

Fong Wai Lyn Carolyn v Airtrust (Singapore) Pte Ltd [2011] 3 SLR 980 (not folld)

Gabriel Peter & Partners v Wee Chong Jin [1997] 3 SLR (R) 649; [1998] 1 SLR 374 (refd)

L&B Electric Ltd v Oickle [2006] NSCA 41 (refd)

Lonrho plc v Fayed (No 5) [1993] 1 WLR 1489 (refd)

Pang Yong Hock v PKS Contracts Services Pte Ltd [2004] 3 SLR (R) 1; [2004] 3 SLR 1 (refd)

Poondy Radhakrishnan v Sivapiragasam s/o Veerasingam [2009] SGHC 228 (refd)

Primex Investments Ltd v Northwest Sports Enterprises Ltd and 453333 BC Ltd [1996] 4 WWR 54 (folld)

Richardson Greenshields of Canada Ltd v Kalmacoff et al (1995) 22 OR (3d) 577 (refd)

South Johnstone Mill Ltd (ACN101 695 575) v Dennis and Scales (ACN004 044 987) (2008) 64 ACSR 447 (folld)

Swansson v RAPratt Properties Pty Ltd (2002) 42 ACSR 313 (folld)

Tam Tak Chuen v Eden Aesthetics Pte Ltd [2010] 2 SLR 667 (folld)

Teo Gek Luang v Ng Ai Tiong [1998] 2 SLR (R) 426; [1999] 1 SLR 434 (not folld)

Tremblett v SCB Fisheries Ltd (1993) 116 Nfld & PEIR 139 (folld)

Urs Meisterhans v GIP Pte Ltd [2011] 1 SLR 552 (folld)

Companies Act (Cap 50, 2006 Rev Ed) ss 216 A (3) (b) , 216A (3) (c) (consd) ;ss154, 216A, 216A (3) (a)

Rules of Court (Cap 322, R 5, 2006 Rev Ed) O18 r19

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