Ayaz Ahmed and others v Mustaq Ahmad (alias Mushtaq Ahmad s/o Mustafa) and others

• Jurisdiction: Singapore
• Judge: Scott Tan AR
• Judgment Date: 04 July 2018
• Neutral Citation: [2018] SGHCR 10
• Court: High Court (Singapore)
• Docket Number: Suit No 1158 of 2017 (Summons No 1582 of 2018)
• Published date: 11 July 2018
• Year: 2018
• Hearing Date: 27 June 2018,01 June 2018
• Plaintiff Counsel: Davinder Singh SC, Sngeeta Rai, and Teo Li Fang (Drew & Napier LLC) (instructed),and Darshan Singh Purain, Avtar Ranee Kaur Purain, and Avinash Singh Purain (Darshan & Teo LLP)
• Defendant Counsel: Lee Eng Beng SC, Hamidul Haq, Yuen Djia Chiang Jonathan, Gan Eng Tong, Istyana Putri Ibrahim, Chiang Hai Qiang Jason Gabriel, Chia Ming Yee Doreen, and Wong Shi Yun (Rajah & Tann Singapore LLP)
• Subject Matter: Civil Procedure,Striking Out,Parties,Locus standi
• Citation: [2018] SGHCR 10

Scott Tan AR: Introduction

This is the 1st to 5th Defendants’ (collectively, the “Defendants”) application to strike out the Plaintiffs’ statement of claim (“SOC”). It arises out of an action in oppression brought by the Plaintiffs under s 216 of the Companies Act (Cap 50, 2005 Rev Ed) (“CA”)) on behalf of the estate of the late Mr Mustafa s/o Majid Khan (the “Mustafa Estate”), in relation to the affairs of the 6th Defendant, Mohamed Mustafa & Samsuddin Co. Pte Ltd (“MMSCPL”). The 1st to 5th Plaintiffs are the five younger children of the late Mr Mustafa while the 6th Plaintiff is his widow. The 1st Defendant is the eldest son of the late Mr Mustafa, the managing director of MMSCPL, and the sole administrator and trustee of the Mustafa Estate. The 2nd to 5th Defendants are the other directors of MMSCPL and they are, respectively, the 1st Defendant’s wife, his two children, and his brother-in-law.

The Defendants’ application is founded on three grounds: First, they submit that the Plaintiffs do not have standing to commence this action, as they are merely the beneficiaries and not the personal representatives of the Mustafa Estate. While they accept that beneficiaries may, in special circumstances, take proceedings on behalf of an unadministered estate (see the decision of the Court of Appeal in Wong Moy (administratrix of the estate of Theng Chee Khim, deceased) v Soo Ah Choy [1996] 3 SLR(R) 27 (“Wong Moy”)), they contend that the so-called “Wong Moy exception” does not apply here, as it only permits a beneficiary to “institute proceedings (on behalf of the estate) to recover assets (as opposed to pursuing a cause of action simplicitor [sic]) of an unadministered estate” [emphasis in original].¹ Second, and in the alternative, they submit that the complaints which form the subject matter of the present suit are essentially corporate wrongs, and cannot be vindicated in an action for oppression. Thirdly, and further in the alternative, they submit that some of the claims in the present suit should be struck out as they are plainly and obviously unsustainable.

The Plaintiffs argue that the Wong Moy exception is not limited in the way that the Defendants contend. They submit that where it applies, the beneficiaries “stand in the shoes of the executor and administrator and are entitled to pursue all causes of action and remedies which would otherwise be available to the executor or administrator”, including an action in oppression.² They reject the contention that their claims are legally unsustainable and argue that their arguments are not only meritorious but also capable of forming the subject matter of an action in oppression.³

As this application raised a novel issue concerning the scope of the Wong Moy exception, I reserved judgment to consider it carefully. I now give my decision, beginning first with a summary of the facts.

Background

Mr Mustafa was born in India, and he first married in 1945.⁴ In 1951, he had a son, the 1st Defendant, by his first wife. His first wife passed away in 1956 or 1957 (the precise date is a matter of dispute),⁵ and he then married the 6th Plaintiff, with whom he had five children – the 1st to 5th Plaintiffs.

From the 1950s to 1980s, Mr Mustafa divided his time between Singapore, where he ran a business with Mr Shamsuddin s/o Mokhtar Ahmad, who was a cousin of his first wife, and India, where he lived with his family.⁶ After the death of his first wife, the 1st Defendant (who was five at the time) moved to Singapore where he was cared for by Mr Mustafa and Mr Shamsuddin. From the time he was 12, the 1st Defendant helped Mr Mustafa and Mr Shamsuddin with their business while running his own business on the side.⁷ On 11 July 1973, Mr Mustafa and Mr Shamsuddin registered a partnership under the style of Mohamed Mustafa & Samsuddin Company (“MMSC”). The 1st Defendant was made a partner of MMSC on 12 September 1973.⁸

On 21 February 1989, MMSCPL was incorporated and the business of MMSC was transferred to MMSCPL. The circumstances under which MMSCPL was incorporated are heavily disputed, but only a brief summary is necessary for the purposes of this judgment. In broad terms: The Plaintiffs’ position is that Mr Mustafa, Mr Shamsuddin, and the 1st Defendant were partners in the true sense and in 1989, they decided to convert MMSC into a company that each would hold shares in. To this end, Mr Mustafa and Mr Shamsuddin (the 1st Defendant was away in India at the time of MMSCPL’s incorporation) executed the Memorandum of Association and Articles of Association of MMSCPL (“MMSCPL Constitution”) to govern their commercial relationship. Article 7 of the MMSCPL states, among other things, that unless otherwise provided by special resolution, all unissued shares must first be offered for subscription to all shareholders in proportion to their existing shareholding before being issued.⁹ Their position is that Mr Mustafa had intended that his shares in MMSCPL would be divided equally between the Plaintiffs and the 1st Defendant upon his death.¹⁰ The Defendants’ position, by contrast, is that the business relationship between the three men was governed by a common understanding (referred to as the “1973 Common Understanding”) that the business of both MMSC belonged to the 1st Defendant solely and that the decision to convert it into a company was one which he alone took.¹¹ They plead that the 1st Defendant is in truth the “absolute and sole owner of all the shares in [MMSCPL]” and that Mr Mustafa had only been given shares in MMSCPL "out of respect and goodwill" while Mr Shamsuddin was made a shareholder as the 1st Defendant was away in India at the time MMSCPL was incorporated and it was his understanding that the law required each company to have at least two shareholders and directors.¹²

Mr Mustafa and Mr Shamsuddin were the founding directors of MMSCPL and they each subscribed to one share. Shortly after MMSCPL was incorporated, the 1st Defendant returned to Singapore, whereupon he was appointed a director of MMSCPL. In April 1989, the 1st Defendant, Mr Mustafa, and Mr Shamsuddin subscribed to 1m shares in MMSCPL in the ratio of 51:30:19.¹³ From that point onwards, the 1st Defendant became the majority shareholder in MMSCPL and the day-to-day management of the company was left to him as Mr Mustafa (who was already 71 in 1989) was frail and spent most of his time in India.¹⁴ Since then, MMSCPL has grown into a substantial business interest that owns, among other things, Mustafa Centre at Serangoon Road, a popular shopping centre and well-known local landmark.¹⁵

On 17 July 2001, Mr Mustafa passed away without leaving a will, leaving the Plaintiffs and the 1st Defendant as the beneficiaries of his estate. Subsequently, the 1st Defendant obtained the Plaintiffs’ signatures on a power of attorney which he used, in November 2003, to apply for a grant of letters of administration over the Mustafa Estate.¹⁶ Since then, the 1st defendant has been the sole administrator and trustee of the Mustafa Estate.¹⁷

Between the time of Mr Mustafa’s passing in July 2001 and 2014, MMCPL did not declare any dividends.¹⁸ In or around 2013, the 1st Plaintiff began making inquiries of the status of the Mustafa Estate, but apparently to no avail, as the 1st Defendant did not provide the requested information.¹⁹ Disputes soon arose between the parties in relation to the administration of the Mustafa Estate. After several attempts at reaching a settlement, the Plaintiffs instituted High Court Suit No 1158 of 2017 (the present suit) and High Court Family Suit No 9 of 2017 on 8 December 2017.²⁰ As noted in the introduction, the former is an action in oppression commenced “on behalf of the Mustafa Estate”, in which the Plaintiffs claim that the affairs of MMSCPL have been conducted in a manner which is oppressive to the Mustafa Estate’s interests as a minority shareholder.²¹ The latter is a probate action commenced against the 1st Defendant only in which the Plaintiffs claim that the 1st Defendant has breached his duties as administrator and seek, among other things, to have the letters of administration granted to him revoked.²²

The pleadings

The principal complaints which form the basis of the plaintiffs’ action in oppression may be summarised as follows:²³ First, they plead that on 5 January 1995 and 11 December 2001, the 1st Defendant, acting in concert with some or all of the other Defendants, wrongfully caused MMSCPL to issue a total of 5,040,000 shares to himself at a price of S$1 per share. They plead that these allotments, which I shall refer to as the “1995 Share Allotment” and the “2001 Share Allotment” respectively, resulted in the dilution of the Mustafa Estate’s shareholding in MMSCPL, and were (i) made at an undervalue; (ii) done without first obtaining the necessary shareholders’ resolutions; and (iii) not needed in the commercial interests of MMSCPL and were purely for the Defendants’ own benefit.²⁴ Second, they plead that the Defendants misappropriated the funds and assets of MMSCPL in three ways:²⁵ Between 2000 and 2015, the Defendants caused MMSCPL to extend multiple unsecured and interest free loans, many of which had no fixed terms of repayment and all of which were not in the interests of MMSCPL, to themselves.²⁶ Between 2004 and 2005, the 1st Defendant “concocted sham transactions backed by sham invoices” to create the false impression that MMSCPL was indebted to B.I. Distributors Pte Ltd, a company wholly owned by himself and the 2nd Defendant, in order to siphon funds out of MMSCPL for his personal use.²⁷ Over the years, the 1st Defendant caused MMSCPL to overstate the salaries of its employees in its applications for their work passes. They plead that the difference between the “declared salaries” and the actual salaries of the workers was collected from the workers each month and passed to the 1st Defendant, who kept them for...