Ang Thiam Swee v Low Hian Chor

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 31 January 2013
• Neutral Citation: [2013] SGCA 11
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeal No 123 of 2011, Summons No 1423 of 2012 and Summons No 2120 of 2012
• Year: 2013
• Published date: 04 February 2013
• Hearing Date: 21 May 2012
• Plaintiff Counsel: Tan Yew Cheng (Leong Partnership)
• Defendant Counsel: Foo Soon Yien and Diana Seah Kanglin (Bernard & Rada Law Corporation)
• Subject Matter: COMPANIES,Oppression,Minority shareholders
• Citation: [2013] SGCA 11

V K Rajah JA (delivering the judgment of the court): Introduction

This appeal arises from a dispute between two residual minority shareholders over the purported misappropriation of company funds. The appellant, Mr Ang Thiam Swee (“Ang”), started his career as a mechanical worker at the age of 17. He met the respondent, Mr Low Hian Chor (“Low”), in the 1970s, while they were operating metal fabrication machines at two previous companies. At the latter of these two companies, Soon Seng Engineering Pte Ltd, they became acquainted with Mr Alfred Gan. In time, Mr Alfred Gan then introduced them to his brother, Mr Gan Oh Boon (“Gan”), and proposed that the three of them start a company to fabricate steel parts for pressure vessels and other industrial uses.¹ Gan proposed that Ang and Low would provide their expertise in operating the company’s machines and meeting the technical requirements of customers, while he would take care of the business side of the company. Alfred Gan would, in turn, help to bring in business through his own company. Neither Ang nor Low was asked to provide funds to set up this business. Ang and Low accepted this arrangement in exchange for a 10% shareholding each, and all three (ie, Ang, Low and Gan) were to be appointed as directors.

The company, Steel Forming & Rolling Specialists Pte Ltd (“the Company”), was incorporated in February 1984 with three initial subscribers holding one ordinary share of S$1 each.² By April 1989, the shareholding in the Company had crystallised into the following proportions – Ang and Low each held 10% of the Company’s shares and Gan held the rest of the shares as the majority shareholder. The parties are agreed that Gan managed the Company’s finances as if they were his own, and never held any meetings to discuss his financial decisions.³ In effect, while the business was nominally a company, it was, as a matter of fact, run as a sole proprietorship by Gan.

Initially, Ang’s role was to operate the flanging machine which manufactured the steel disc ends. He also drew up all the quotations for the purchasers of these products. Subsequently, he focused on meeting customers to bring in business and supervising the fabrication process in the Company’s workshop.⁴ Low started as the Company’s welder and set up the main machines used for the fabrication of its steel products. By the time of these proceedings, he was solely in charge of the Company’s manufacturing operations and also trained workers to handle the fabrication machines.

The history of the dispute

On 27 October 2009, Gan was convicted of making fraudulent tax claims on alleged expenses of the Company amounting to S$1,620,000, and sentenced to imprisonment for two weeks. He was also statutorily disqualified from his directorship of the Company under s 154 of the Companies Act (Cap 50, 2006 Rev Ed) (“the Companies Act”).⁵ The Company was charged together with Gan and incurred a penalty of S$988,933.58, to be paid in monthly instalments of S$65,928.90.⁶

After these events, the Company’s board of directors (which then comprised just Ang and Low) engaged Stone Forest Corporate Advisory Pte Ltd (“Stone Forest”) to check the Company’s accounts. Stone Forest’s investigations revealed that Gan had taken loans amounting to S$1,747,776.30 from the Company, and had in total misappropriated sums of up to S$5,383,560.⁷ Bankruptcy proceedings⁸ were initiated by the Company against Gan on 16 December 2009. In February 2010, Gan attempted to convene an extraordinary general meeting (“EOGM”) to remove Low as a director and invalidate the Company’s appointment of lawyers to pursue the bankruptcy proceedings against him (Gan). However, the articles of association of the Company required a quorum of two members to be present in person. Ang elected to side with Low and declined Gan’s request to attend the meeting. Gan’s attempt to stifle the proceedings against him failed. Eventually, he was declared a bankrupt on 6 May 2010.⁹

On 15 July 2011, Low filed Originating Summons No 591 of 2011 (“the Application”) seeking leave under s 216A of the Companies Act to commence an action in the name of the Company against Ang for breach of director’s duties.¹⁰ Low’s position in the proceedings below was that Stone Forest’s report dated 14 October 2010 (which was one of four reports produced by Stone Forest in respect of the Company’s accounts) also revealed that Ang had, as a co-signatory of the Company’s account with DBS Bank Ltd (“DBS”), similarly misappropriated the Company’s funds.

The decision below

The learned judge below (“the Judge”) allowed the Application, being satisfied that all three limbs of s 216A of the Companies Act had been met. However, the Judge did not allude to any particular reasons for his conclusion, apart from finding that “prima facie ... there was a significant amount of monies that had been misappropriated from the [Company], and ... Ang had committed multiple serious breaches of his duties as a director” (see Low Hian Chor v Steel Forming & Rolling Specialists Pte Ltd and another [2012] SGHC 10 (“the Judgment”) at [7]). It is also noteworthy that Low was not granted leave to commence a statutory derivative action in relation to instalment payments on Ang’s car and director’s fees of S$30,000, as both of these had also been available to the other directors of the Company. Leave to bring a statutory derivative action in respect of one very substantial head of claim amounting to S$1,719,200.40 was also rejected as that sum had been paid out to suppliers pursuant to invoices which had been duly issued. The final result of the Judge’s decision was that Low had leave to bring a statutory derivative action against Ang on four of the original seven heads of claim pertaining to payments made by the Company to Ang, irregular payments of incentives and secret commissions, as well as a lump sum transfer of S$200,000 into a joint account with Ang’s name.

The current claims

Before this court, each party, in addition to the appeal proper, also took out an application for leave to adduce further evidence. In Summons No 1423 of 2012 (“SUM 1423/2012”), Ang sought leave to adduce copies of general ledger records and cash disbursement journals showing 19 payments by the Company to Low between 2002 and 2008, as well as payment vouchers to the Company’s bookkeeper, Rafidah binte Jumati (“Rafidah”), as “payment of incentive”¹¹ [emphasis in original omitted]. Low’s application (viz, Summons No 2120 of 2012 (“SUM 2120/2012”)) pertained to the admission of cheque images for 19 of the 24 transactions in dispute. This being an interlocutory appeal, we saw no difficulty in allowing both applications as the evidence in question was material.

Section 216A of the Companies Act

The relevant portions of s 216A of the Companies Act are as follows: (2) Subject to subsection (3), a complainant may apply to the Court for leave to bring an action in the name and on behalf of the company or intervene in an action to which the company is a party for the purpose of prosecuting, defending or discontinuing the action on behalf of the company. (3) No action may be brought and no intervention in an action may be made under subsection (2) unless the Court is satisfied that — (a) the complainant has given 14 days’ notice to the directors of the company of his intention to apply to the Court under subsection (2) if the directors of the company do not bring, diligently prosecute or defend or discontinue the action; (b) the complainant is acting in good faith; and (c) it appears to be prima facie in the interests of the company that the action be brought, prosecuted, defended or discontinued.

Section 216A is modelled on s 239 of the Canada Business Corporations Act (RSC 1985, c C-44), and is also in pari materia with s 236 and s 237 of the Australian Corporations Act 2001 (Cth). It will therefore be useful to consider the jurisprudence emanating from these two jurisdictions in determining how our local provision should be applied.

We should add that there is no dispute as to Low having fulfilled the procedural requirement of 14 days’ notice under s 216A(3)(a).¹²

The requirement of good faith in a statutory derivative action

The issue of good faith in the context of a statutory derivative action is often obtruded by the qualification that this issue is a matter for the court to determine on the particular facts of each case. Because of the susceptibility of “good faith” to casuistic assessment, a conceptual framework is needed to guide the court’s exercise of its discretion. In Pang Yong Hock and another v PKS Contracts Services Pte Ltd [2004] 3 SLR(R) 1 (“Pang Yong Hock”), this court began the process by directing at [20] that:

The best way of demonstrating good faith is to show a legitimate claim which the directors are unreasonably reluctant to pursue with the appropriate vigour or at all. Naturally, the parties opposing a s 216A application will seek to show that the application is motivated by an ulterior purpose, such as dislike, ill-feeling or other personal reasons, rather than by the applicant’s concern for the company. Hostility between the factions involved is bound to be present in most of such applications. It is therefore generally insufficient evidence of lack of good faith on the part of the applicant. However, if the opposing parties are able to show that the applicant is so motivated by vendetta, perceived or real, that his judgment will be clouded by purely personal considerations that may be sufficient for the court to find a lack of good faith on his part. An applicant’s good faith would also be in doubt if he appears set on damaging or destroying the company out of sheer spite or worse, for the benefit of a competitor. It will also raise the question whether the intended action is going to be in the interests of the company at all. To this extent, there is an...