Australian Property Group Pte Ltd v H.A. & Chung Partnership and others

• Jurisdiction: Singapore
• Judge: Judith Prakash J
• Judgment Date: 29 May 2015
• Neutral Citation: [2015] SGHC 147
• Court: High Court (Singapore)
• Docket Number: Suit No 517 of 2011
• Published date: 09 June 2015
• Year: 2015
• Hearing Date: 07 October 2014,10 May 2013,09 October 2014,10 February 2015,14 May 2013,13 May 2013,08 May 2013,09 May 2013
• Plaintiff Counsel: Adrian Tan, Yeoh Jean Wern (Stamford Law Corporation)
• Defendant Counsel: Troy Yeo (Chye Legal Practice)
• Citation: [2015] SGHC 147

Judith Prakash J:Introduction

The plaintiff company, Australian Property Group Pte Ltd (“APG” or “the company”), was incorporated on 9 February 2009. On 21 March 2011, APG was placed under judicial management. This action was started by the judicial manager in July 2011 to recover moneys allegedly wrongfully paid to the defendants. The first defendant, a law firm, settled the claim against it but the second and third defendants, former directors and shareholders of APG, contested the action. This judgment concerns the claims against the second and third defendants only and any reference to “defendants” generally should be taken as a reference to the second and third defendants only.

Background of the plaintiff and defendants

The defendants are Sean Colville Niven (“Mr Niven”) and Wang Zijian who is also known as “James Wang” (“Mr Wang”).

APG was in the business of marketing and selling Australian real estate on behalf of Australian property developers. Typically, the property marketed would be land and premises with the premises being or about to be constructed. APG’s revenue was the commission paid by the property developers, whilst its expenses were related to rent, staff costs and costs incurred in marketing the real estate. The commission earned typically consisted of two components:a commission upon the buyer signing the unconditional sale contract with the developer, with a 5% to 10% deposit to secure the property (“Front End Commission”); anda commission upon completion of the sale and purchase (“Back End Commission”).The Front End Commission was typically less than the Back End Commission. The Front End Commission was meant to cover APG’s operational costs in marketing the properties, while the Back End Commission was mainly profit for APG. A considerable period of time might elapse between the receipt of the Front End Commission and that of the Back End Commission as the completion of the sale and purchase did not take place until construction of the premises concerned had been finished.

Mr Niven has been involved in the business of marketing and selling Australian properties since 1989. He has much experience in dealing with the Australian property market and many connections with property developers there. Prior to December 2008, Mr Niven and Mr Wang worked together in a company called JL Property Group Pte Ltd (“JL Property”) which was also in the business of selling property in Australia.

In December 2008, the defendants decided to start their own company to sell Australian properties. They resigned from JL Property and approached one Goh Cheng Liang (“Mr Goh”), the god-father of Mr Wang, for a loan of $900,000 in order to obtain start-up capital for the new venture. As a condition of making the loan, Mr Goh insisted that his nominees become directors and shareholders of APG.

On incorporation, APG had the following directors and shareholders:Mr Niven (360,000 ordinary shares);Mr Wang (160,000 ordinary shares);Gan Siong Teck (“Mr Gan”) (40,000 ordinary shares);Hou Junyu (“Mr Hou”) (200,000 ordinary shares); andLee Jer Ren (“Mr Lee”) (40,000 ordinary shares).It is pertinent to note that although the shares were issued as fully paid-up, in fact they had not been paid for.

APG received the loan of $900,000 pursuant to a loan agreement dated 11 March 2009 with Mr Goh. Mr Gan, Mr Hou and Mr Lee acted as non-executive directors of APG (“collectively the NEDs”) to protect Mr Goh’s interests while the defendants controlled the day-to-day operations of APG.

On 15 May 2009, one Lim Kay-Lin Kathlene (“Ms Lim”) joined APG as its general manager. Ms Lim had come to know Mr Niven and Mr Wang while they were still working for JL Property as she had purchased Australian properties through that company.

After Ms Lim joined APG, the roles of the three principal employees were as follows:Mr Niven was responsible for securing the rights to market various properties from Australian property developers as well as to manage the finances of APG;Mr Wang was APG’s sales manager; andMs Lim was in charge of APG’s overall operations and of the sales team.

In November 2009, APG borrowed money from an Australian company, Ubertas Funds Management Pty Ltd (“Ubertas”), and used it to repay Mr Goh’s loan. On 7 November 2009, the NEDs resigned and their shares in APG were subsequently transferred to Mr Niven. On 8 December 2009, Ms Lim was appointed as a director of APG. In January 2010, she became a shareholder of the company when she purchased 240,000 shares from Mr Niven for $160,000.

APG’s financial difficulties

In early 2010, APG faced financial difficulties. APG was unable to pay its rent, its advertising agencies or its staff salaries. APG’s accounts were in a mess. APG engaged Firstwaters Consultants Pte Ltd (“Firstwaters”) to reconstruct APG’s accounts from 2009 and to maintain APG’s day-to-day accounting. APG had engaged John Kennedy Stuart (“Mr Stuart”), a chartered accountant, to provide tax services and advice to APG’s clients. Subsequently, Ms Lim also asked Mr Stuart to investigate and report on APG’s financial situation. On 2 July 2010, Mr Stuart advised the directors of APG that, in his view, APG was technically insolvent.

Following discussions on the company’s financial situation, Mr Niven, Mr Wang, Ms Lim and APG executed an agreement dated 6 September 2010 (“the September Agreement”). Under the September Agreement, Ms Lim agreed to capitalise the amount of $175,000 owed by APG to her and inject a sum of $150,000 into the company. In exchange, she would receive 325,000 new shares in APG. Further, Mr Niven acknowledged that he owed the company $300,450.37 and it was agreed that the company would write-off 40% of this amount with Mr Niven paying the balance $180,270.22 in two instalments: 50% was to be repaid by 31 December 2011 and the remaining 50% by 31 December 2012. The September Agreement also provided for the payment of the unpaid share capital. In this respect, the parties agreed that Mr Niven was liable for $560,000, Mr Wang was liable for $160,000 and Ms Lim for $80,000. By cl 1.3, it was provided that the shareholders had to repay the company 10% of the outstanding capital each year for ten years.

On 6 October 2010, by a written directors’ resolution signed by Mr Niven and Ms Lim, the company resolved that the appointment of Ferrier Hodgson Pte Ltd (“FH”) to conduct a review of the company’s accounts be approved. On 11 October 2010, FH sent the board its draft summary of findings from its preliminary review of its financial books and records. This review indicated that many of the company’s payments, including to Mr Niven and Mr Wang, were not supported by vouchers, there was no clear indication of employees’ and directors’ benefits and entitlements and various professional fees had been paid without indicating any relevance to APG. Several payments had been made to Mr Niven in Australia by internet withdrawals and there had also been payments to an Australian company called “Australian Property Group (Vic) Pty Ltd”. There were no documents to support these Australian transactions. Further, APG had paid for the personal expenses of Mr Niven.

After receipt of the draft report, the three directors began discussions on parting ways. These resulted in a handwritten document which was signed by Mr Niven, Mr Wang and Ms Lim on 13 October 2010. This document will be referred to as the “October Agreement”. The defendants rely on the provisions of the October Agreement as part of their defence to this case but APG contends, for various reasons, that the October Agreement is not valid and binding.

The October Agreement provided that Mr Niven and Mr Wang would resign as directors that very day and transfer all their shares, except for 10% in Mr Wang’s hands, to Ms Lim. Ms Lim agreed to pay Mr Niven’s outstanding expenses and commission in instalments. It was further agreed that Mr Niven and Mr Wang would have no liability to APG “from a compliance perspective upon settlement” and that they “will owe nothing to the company upon settlement, excluding any personal tax liabilities”.

On 1 March 2011, Ms Lim applied to place APG under judicial management. Her application was granted on 21 March 2011 and Timothy James Reid (“Mr Reid”) of FH was appointed judicial manager of APG. After his appointment, Mr Reid discovered that the defendants had not paid APG for their shares albeit these had been issued to them as fully paid up shares. He therefore called on them for payment. He also came across many payments made to Mr Niven after the company’s incorporation which he considered to be unjustifiable due to a lack of documentary support.

The claim and the counterclaims

APG claims against the defendants that:they, jointly and severally, give an account of the payments made by APG to them;they, jointly and severally, pay APG the sum of $1,559,980.97, being moneys paid by APG for Mr Niven’s personal use;they, jointly and severally, pay APG the sum of A$184,266.68, being moneys paid by APG for Mr Niven’s personal use;Mr Wang pay APG the sum of $160,000, being the unpaid capital due from him;they, jointly and severally, pay APG damages to be assessed.It can be seen from the above that although both defendants are asked to give an account of payments made to them, the payments which APG is unhappy about are payments made to Mr Niven alone. Further, the sum of $1,559,980.97 which is the amount allegedly paid to Mr Niven for his personal use includes the sum of $640,000 which is actually unpaid share capital.

The defendants do not appear to deny that APG’s funds were used for Mr Niven’s personal benefit. Their stand is that such use was authorised. In particular, the defendants plead that:Cheque payments made from the time APG was incorporated until 7 November 2009 were authorised, approved or otherwise...