Chan Tong Fan v Sloane Court Hotel Pte Ltd (Chiam Toon Tau and another, non-parties)

• Jurisdiction: Singapore
• Judge: Judith Prakash J
• Judgment Date: 27 September 2013
• Neutral Citation: [2013] SGHC 193
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 935 of 2012
• Year: 2013
• Published date: 11 October 2013
• Hearing Date: 28 February 2013,27 February 2013,23 April 2013
• Plaintiff Counsel: Gregory Vijayendran, Rachel Chow and Benjamin Smith (Rajah & Tann LLP)
• Defendant Counsel: Kong Man Er (Drew & Napier LLC),Nish Shetty and Jared Chen (Cavenagh Law LLP)
• Subject Matter: Companies,Directors,Duties
• Citation: [2013] SGHC 193

Judith Prakash J: Introduction

This application came before me as one of a pair of matters involving essentially the same parties. The relief sought in both applications was the same, viz, that the plaintiffs be allowed to commence derivative actions in the names of the defendant companies against the directors of the same for breach of various duties. There was only one plaintiff in this application but in the other application, he was joined as a plaintiff by his wife and daughter.

The company involved in this application is Sloane Court Hotel Pte Ltd (“SCH”) and the company involved in the other application, Originating Summons No 933 of 2012 (“OS 933/2012”), is Chiam Heng Luan Realty Pte Ltd (“CHLR”). On 23 April 2013, I dismissed the plaintiff’s application herein. On the same day, I allowed the application in OS 933/2012 but only in respect of one proposed cause of action, dismissing the prayers of the plaintiffs there to be allowed to pursue other proposed claims. The plaintiff is dissatisfied with the outcome in this application and has appealed. These are my grounds for the decision regarding SCH.

The background

The background to the application is set out in more detail in my grounds of decision in OS 933/2012. Suffice it to say here that the plaintiff in this action is the second child of Mr Chiam Heng Luan (“HL Chiam”) and Mdm Lim Wee Leng (“Mdm Lim”) who in 1971 set up both CHLR and SCH to take over their family business of the Sloane Court Hotel (“the hotel”) which was being carried on at 17 Balmoral Road (“the Balmoral Property”). When the companies were incorporated, the ownership of the Balmoral Property was transferred to CHLR whilst the business of the hotel went to SCH. SCH then became the tenant of CHLR. Currently, the main business of SCH is to operate the hotel and a restaurant on the Balmoral Property.

SCH has a paid up capital of $270,002 comprising 270,002 ordinary shares of $1.00 each. In October 2012, when this action was commenced, the shareholders were the plaintiff, all his siblings and the estates of their parents. The plaintiff held 15.56% of the shares. Three of the plaintiff’s siblings were directors of SCH and together they held 37.42% of the shares.

When SCH was incorporated, HL Chiam and his wife were the sole directors and shareholders. In 1988, Ms Chiam Ai Thong (“Ai Thong”) and Mr Chiam Toon Chew (“Toon Chew”) were made directors of the company by HL Chiam and in 1989, another sibling, Mr Chiam Toon Tau (“Toon Tau”) was also appointed a director. These three persons are still directors of SCH and they were named as the prospective defendants to the action which the plaintiff sought leave to begin.

The application

Prayer 1 of the originating summons (“OS”) herein prayed that the plaintiff be granted leave to bring an action in the name and on behalf of SCH against Toon Tau, Ai Thong and Toon Chew (referred to collectively as “the Directors”) for breaches of directors’ duties to SCH in the manner itemised in Appendix 1 of the OS. To summarise Appendix 1, it stated that the breaches of duty related to: manifestly excessive remuneration paid by SCH to the Directors without the necessary approvals being obtained for such remuneration as required under Art 63 of SCH’s articles and s 169 of the Companies Act (Cap 50, 1999 Rev Ed) (“the Act”) and this included the sums of $221,189 paid to the Directors for the financial year 2009 and $142,849 paid to them for the financial year 2008; unexplained failure to obtain optimal usage of the Balmoral Property and its own property TS26 Lot 99899P, formerly known as 17D and 17E Balmoral Road (“the SCH land”); unaccounted/unexplained/undisclosed payments made by SCH in respect of purported “Renovation” expenses incurred; unaccounted/unexplained/undisclosed self-dealing in the use by Toon Chew of the property owned by SCH at 16 Balmoral Road, #04-06, Balmoral Condominium (“the Unit”) as his personal residence from 1992 to 1994; unaccounted/unexplained failure to use the Unit for SCH’s commercial benefit by allowing Ms Chiam Ai Cheng (“Ai Cheng”), a shareholder of SCH, to occupy the Unit as her personal residence from 1993 or 1994 to 1995 and thereafter leaving the Unit vacant until late 1999; and unaccounted/unexplained failure to take action to arrest the accrual of unrealised exchange losses incurred on SCH’s overseas investments.

In the course of the proceedings, I asked Mr Gregory Vijayendran, counsel for the plaintiff, to provide me with a proposed statement of claim. He duly submitted a document entitled “Points of Claim” containing details of the action which the plaintiff proposed that SCH should bring against the Directors. I will refer to the Points of Claim in the course of these grounds because I was guided by it in ascertaining the exact nature of the plaintiff’s complaints and whether the same amounted to legitimate and arguable causes of action against the Directors. I should point out here that the plaintiff dropped the allegations relating to the alleged wrongful use of the Unit (set out in [6(d)] and [6(e)] above) from the Points of Claim.

The plaintiff here made general complaints that were similar to those made by the plaintiffs in OS 933/2012. For instance, he complained that the Directors had deliberately withheld information regarding SCH, including the accounts of the company, and failed to call for regular Annual General Meetings (“AGM”). The Directors’ response in this case was similar to that in OS 933/2012. They contended that AGMs had been called regularly but that formal notices had not been sent out. Instead, shareholders had been notified by informal methods such as the telephone and email correspondence. They also averred that the plaintiff had attended many meetings and had full access to the accounts. I do not think it is necessary in these grounds to go into detail about the various points of view. The flavour of the same can be obtained from my grounds in OS 933/2012.

This application was filed on 1 October 2010. On 15 October 2012, Ai Thong and Toon Tau (“the interveners”) applied for leave to intervene in these proceedings so as to enable them to file affidavits and appear at the hearing of the application. Their application was granted.

The Extraordinary General Meeting (“EOGM”)

On 7 November 2012, a Notice of EOGM of SCH was sent out to all its shareholders. The agenda for the meeting was to consider and pass, if thought fit, ordinary resolutions which would ratify the actions of the Directors and absolve them from any breaches of duty they had committed in relation to the subject matter of the plaintiff’s complaints. The EOGM was duly held on 23 November 2012 and was attended by all living shareholders including the plaintiff.

The resolutions put before the meeting dealt with whether it would be in the interests of SCH for the company to bring an action against the Directors for the matters alleged in Appendix 1 of the OS. The motions were debated and generally the plaintiff was the only shareholder who spoke out against the same. The resolutions that it would not be in SCH’s interests to take such action were then passed by a majority of the shareholders. The plaintiff was the only shareholder who voted against them. His sister, Ms Chiam Ai Fong, abstained from voting on resolution 1 (relating to the remuneration of the Directors) and resolution 4 (relating to renovation expenses). She voted in favour of all the other resolutions. Details of the resolutions tabled and passed at the EOGM can be found in Appendix 1 to these grounds (the appendix is taken from the submissions made on behalf of the interveners).

The 2012 AGM for SCH was held on 12 December 2012. A further resolution relating to the OS was tabled at this AGM. It read:

That it be resolved that the shareholders of [SCH] waive and/or ratify any and all alleged breaches of directors’ duties by the Directors of [SCH] and/or release the Directors of [SCH] from any liability arising from any or all alleged breaches of directors’ duties as alleged at paragraphs (a) to (f) of Appendix 1 of Originating Summons No. 935 of 2012/X.

The above resolution was passed at the meeting. The plaintiff voted against it and Ms Chiam Ai Fong abstained but all other shareholders present at the meeting (including the Directors) voted in favour of the resolution. The law

The plaintiff’s application was made under the provisions of s 216A of the Act. This section has been considered in many local cases and I do not think it is necessary for me to give a long account of the law. Suffice it to say that, in order to obtain permission to commence a statutory derivative action, a complainant must establish the following: that he has given 14 days’ notice to the directors of the company of his intention to apply to the court under s 216A(2) of the Act for leave to bring an action in the name and on behalf of the company; that he is acting in good faith; and that it appears to be prima facie in the interests of the company that the action be brought. It was common ground that the plaintiff had complied with condition (a) above. It was the other two conditions that were in dispute during the hearing of the application.

In considering whether a complainant has satisfied the conditions above, the following principles apply: The complainant has the two-fold burden of proving that: (i) there is a reasonable basis for his complaint and a legitimate or arguable action against the proposed defendants; and (ii) it is in the interests of the company for the proposed action to be pursued. This is not an easy burden for the complainant to fulfil. The court will be slow in granting leave when there is any doubt that the complainant has satisfied his initial burden. Even where the complainant has satisfied this burden, he must show that his action is brought in good faith. It is his burden to...