Chan Siew Lee v TYC Investment Pte Ltd and others and another appeal

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 13 August 2015
• Neutral Citation: [2015] SGCA 40
• Plaintiff Counsel: Eugene Thuraisingam, Cheong Jun Ming Mervyn and Jerrie Tan Qiu Lin (Eugene Thuraisingam LLP)
• Docket Number: Civil Appeal Nos 149 and 150 of 2014
• Date: 13 August 2015
• Hearing Date: 10 March 2015,06 April 2015
• Subject Matter: Memorandum and articles of association,General meeting,Companies,Management powers,Directors
• Year: 2015
• Citation: [2015] SGCA 40
• Defendant Counsel: Chelva Retnam Rajah SC, Sayana Baratham, Chia Ru Yun Megan Joan and Tham Chang Xian (Tan Rajah & Cheah),Thio Shen Yi SC, Freddie Lim Shaochun and Rachel Tan Pei Qian (TSMP Law Corporation)
• Court: Court of Appeal (Singapore)
• Published date: 18 August 2015

Sundaresh Menon CJ (delivering the judgment of the court): Introduction

A company has two organs through which it might act: the board of directors and the shareholders in a general meeting. Where a company adopts Table A in the Fourth Schedule to the Companies Act (Cap 50, 2006 Rev Ed), the management of that company will be the preserve of the board of directors. Section 157A(1) of the Companies Act and Art 73(1) of the Table A regulations, which are identical, provide: “The business of a company shall be managed by or under the direction of the directors.” But what if it turns out for some reason that the board is unable or unwilling to act? In such circumstances, should it be implied into the company’s constitution that the management power is then reserved to the other organ, the shareholders in general meeting? Or is it the case that only the board may manage the company such that where the board does not function, the remedy, if there be one, is confined to reconstituting the board or commencing proceedings to compel the board to act?

The present case raises this conundrum. The company incorporated Art 73(1) of the Table A regulations as part of its articles of association; therefore, under the company’s constitution, the board of directors is vested with the power and the duty to manage the company. The board of directors, however, is deadlocked. But sufficient votes were garnered at a shareholders’ meeting and resolutions were passed there to address the issues on which the board was deadlocked. This was purportedly done in the exercise of a reserve management power. It then gave rise to the present dispute which centres on whether such resolutions could have been passed in the first place.

On 24 September 2013, Originating Summons 895 of 2013 (“OS 895/2013”) was filed. The plaintiffs were the company in question, TYC Investment Pte Ltd (“TYC”), and three wholly-owned subsidiaries of TYC, Lonzo Properties Pte Ltd, Bonzo Properties Pte Ltd and Amstay Properties Pte Ltd. The defendants are the two directors of the company, Dr Henry Tay Yun Chwan (“Dr Tay”) and Ms Jannie Chan Siew Lee (“Ms Chan”). The identity of the parties as plaintiffs and defendants in this instance is no indicator of which side of the dispute they are on. It will become apparent, from the facts which follow, that Dr Tay and the companies take the same legal position whereas Ms Chan is alone in taking the opposite position.

The background The parties and the three agreements

Dr Tay and Ms Chan were once husband and wife. In May 2010, they divorced. The present case arose out of their split. The parties entered into some agreements in an attempt to resolve some of the issues between them amicably. However, one clause in one of these agreements gave rise to further, perhaps, unanticipated difficulties.

That agreement is the second in a series of three agreements that were entered into by Dr Tay and Ms Chan as part of their divorce settlement. The first agreement was a Deed of Settlement between Dr Tay and Ms Chan dated 9 April 2010 (“the DOS”). By the DOS, Dr Tay and Ms Chan agreed to settle the division of their matrimonial assets as well as Ms Chan’s claim for maintenance. The second agreement was an Agreement for Amendment to the DOS and Settlement of Litigation between Dr Tay and Ms Chan dated 15 May 2012 (“the SSD”). This agreement (as its title suggests) made amendments to the DOS and stipulated matters relating to the management of TYC, which is a company holding a substantial part of the family assets. The pertinent clause, around which much of this case revolves, is cl 10 (“the Payment Clause”): 10. Payment voucher system for all future payments for TYC. Neither Dr Tay nor Ms Chan will sign a cheque on TYC’s bank accounts unless the other has signed a voucher approving.

Some background to the Payment Clause is appropriate. About two years before the filing of OS 895/2013, Ms Chan had, or so Dr Tay alleged, unilaterally made unauthorised payments out of TYC’s bank accounts. Dr Tay accordingly commenced Originating Summons No 1080 of 2011 (“OS 1080/2011”), seeking an injunction to restrain Ms Chan from making payment decisions unilaterally. However, OS 1080/2011 was discontinued in June 2012. The reason, according to counsel for the plaintiffs, was that the Payment Clause had been devised as a sufficient solution: its insertion in the SSD would ensure that future payments made by TYC would not be improper, capricious or arbitrary.

Although TYC was not a party to the SSD, it was envisaged that there would be a third agreement to bind TYC to matters agreed in the SSD. Clause 15 of the SSD expressly provides that:

If within 1 month from the date of this Agreement:

(i) TYC’s shareholders unanimously approve all the matters relating TYC (on terms acceptable to Dr Tay and Ms Chan); and (ii) TYC enters into a deed of agreement with Dr Tay and Ms Chan relating to such matters (on terms agreed by Dr Tay and Ms Chan); and (iii) TYC amends its Articles (on terms agreed by Dr Tay and Ms Chan),

(“TYC Matters”) then the parties will seek Court approval by consent (“Court Approval”) of this Agreement. If the TYC Matters are not approved/done within 1 month from the date of this Agreement, this Agreement is ineffective, null and void.

All the conditions contemplated by cl 15 of the SSD were duly satisfied.

Pursuant to cl 15(ii), Dr Tay, Ms Chan and TYC entered into a deed of agreement on 11 June 2012 (“the TYC Deed”). Dr Tay and Ms Chan signed the TYC Deed on their own behalf and on TYC’s behalf as directors and, for Ms Chan, as company secretary. The effect of the TYC Deed was to confer on TYC all rights and benefits and impose on TYC all obligations, provisions, covenants and conditions “under the [DOS] as amended in accordance with the terms set out in the SSD”, as if it were a party thereto.

The TYC Deed is also reflected in TYC’s articles of association (“the TYC Articles”), Art 16 of which provides:

[TYC] may not amend, vary or waive any of its rights and/or obligations under or pursuant to the TYC Deed unless such amendment, variation or waiver has been unanimously consented to by all the shareholders of [TYC].

Ms Chan refuses to approve payments by TYC

Whereas the Payment Clause seemed to have been devised to prevent either party from making payments in their personal interest out of the company’s assets, from July 2012, Ms Chan invoked the Payment Clause to refuse to approve various other payments by TYC. Initially, the expenses which Ms Chan resisted payment of were: (a) advisory fees payable to KPMG Services Pte Ltd (“the KPMG Fees”); and (b) costs, outgoings and taxes incurred in relation to the properties at 40A Nassim Road and 40C Nassim Road (“the Nassim Road Expenses”). The former expenses were eventually paid for by Dr Tay’s own company, Amstay Pte Ltd (“Amstay”), and the latter by Dr Tay himself. Amstay and Dr Tay then sought reimbursement from TYC but this could not be effected without Ms Chan’s approval. Faced with this impasse, Dr Tay called an extraordinary general meeting (“EGM”) of TYC aimed at overcoming what he viewed to be an “administrative deadlock”.

On 4 September 2013, the EGM was convened. 18 resolutions were tabled, all of which were passed by Dr Tay and his son, Tay Wee Jin Michael, who respectively held 46% and 5% of the voting rights in TYC. Ms Chan and the couple’s daughters, Audrey Tay May Li and Tay May Yi, Sabrina, were not present at the EGM; although even if they had been, their respective voting shares of 44%, 2.5% and 2.5%, whether individually or collectively, could not have defeated the resolutions as these could be carried by a simple majority.

Resolutions numbered 4(1), 4(2), 5(1), 5(2), 6(1) and 6(2) approved the reimbursement of the Nassim Road Expenses to Dr Tay and of the KPMG Fees to Amstay Pte Ltd, and authorised Dr Tay to unilaterally sign the cheques and vouchers to effect such reimbursement. Further resolutions numbered 4(3), 5(3) and 6(3) authorised Dr Tay to take all steps and actions on TYC’s behalf, including the appointment of solicitors to act for TYC and commence court proceedings against Ms Chan, as may be necessary or desirable to secure the reimbursement of the Nassim Road Expenses and the KPMG Fees. The remaining resolutions related to an issue of Ms Chan’s failure to redeem and return TYC’s 6,534,562 shares in The Hour Glass Limited (“the Outstanding THG Shares”). These had been borrowed by Ms Chan to be pledged with a bank as security for some personal loans. The latter issue has fallen away in the course of the proceedings and is no longer relevant.

As a result of the resolutions passed at the EGM, TSMP Law Corporation (“TSMP”) was engaged by TYC. In due course, legal fees were and continue to be charged by TSMP (“the TSMP Fees”). Ms Chan refused also to approve the payment of these fees.

Moreover, subsequent to the EGM, corporate secretarial fees were charged by Express Co Registration & Management Ltd (“the Express Co Fees”). Part of the Express Co Fees was for services rendered in relation to the 4 September 2013 EGM. The rest was for services rendered in relation to subsequent EGMs held on 11 September 2013 and 4 October 2013. Ms Chan refused to approve the payment of any of the Express Co Fees.

OS 895/2013 was commenced and the prospect of litigation evidently caused Ms Chan to refuse to approve yet further payments by TYC. By 2 December 2013, when TSMP applied to amend the Originating Summons, the number of TYC’s creditors whose debts remained unpaid had grown more than tenfold and they ranged from drycleaners to the Comptroller of Income Tax. Two lists of creditors were appended to the amended Originating Summons filed on 8 January 2014: a list of “immediate creditors” and a list of “long-term recurring creditors”.

Ms Chan agrees to settle most of the payment...