Chang Benety and others v Tang Kin Fei and others

• Jurisdiction: Singapore
• Judge: Chan Sek Keong CJ
• Judgment Date: 04 November 2011
• Neutral Citation: [2011] SGCA 59
• Court: Court of Appeal (Singapore)
• Hearing Date: 01 March 2011
• Docket Number: Civil Appeal No 148 of 2010
• Plaintiff Counsel: Lim Teong Jin George SC and Foo Say Tun (Wee, Tay & Lim LLP)
• Defendant Counsel: Thio Shen Yi SC and Karen Teo (TSMP Law Corporation)
• Subject Matter: Companies
• Published date: 28 November 2011

Andrew Phang Boon Leong JA (delivering the grounds of decision of the court):

This is an appeal against the decision of the trial judge (“the Judge”) in Tang Kin Fei and others v Chang Benety and others [2011] 1 SLR 568 (“the Judgment”), where the Judge validated certain resolutions passed at several inquorate directors’ meetings of a company, PPL Shipyard Pte Ltd (“the Company”), under s 392 of the Companies Act (Cap 50, 2006 Rev Ed). We allowed the appeal and now give the detailed grounds for our decision.

Facts Parties to the dispute

The Company was incorporated in 1997 and is in the business of designing and constructing offshore drilling rigs. According to the Appellants, its business was largely built up by the efforts of first Appellant, Benety Chang (“Chang”) as well as and the second Appellant, Anthony Aurol (“Aurol”).

Prior to 2001, the majority shareholders of the Company were PPL Holdings Pte Ltd (“PPLH”), a wholly-owned subsidiary of Baker Technology Ltd (“Baker”), a public listed company which held 97% of the shares. The remaining 3% of the shares in the Company were held by E-Interface Holdings Ltd (“E-Interface”).

On 29 March 2001, 50% of the shares of the Company were sold by PPLH to Sembcorp Marine Ltd (“SCM”).

On 13 November 2001, E-Interface became a wholly-owned subsidiary of PPLH.

In 2003, SCM increased its shareholding in the Company to 85%. As the majority shareholder, SCM nominated six of the nine directors of the Company.

The Appellants and Respondents are all directors of the Company. The three Appellants were PPLH’s nominees while the six Respondents were SCM’s nominees. Two of the Appellants, Chang and Aurol, are also directors of PPLH.

Aurol was removed as a director of the Company on 8 June 2010 on the ground that he had allegedly passed on the Company’s confidential information to Yangzijiang Shipbuilding (Holdings) Ltd (“Yangzijiang”), a company which subsequently took over Baker. The other two Appellants, Chang and Douglas Tan, are still directors of the Company.

Background

For a better picture of the dispute between the parties, reference must first be made to the shareholders’ agreement entered into between PPHL and SCM on 9 April 2001 (“the Shareholders’ Agreement”)¹. It provided for the appointment of six directors, with PPLH and SCM appointing three directors each. Clause 5.3 of this agreement² provided that the quorum for a director’s meeting is two, provided that at least one director from PPLH and SCM are present. Following the Shareholder’s Agreement, Art 98 of the Company’s articles of association³ was amended to take into account the agreed arrangement that for there to be a quorum, at least one director from each side must be present at a meeting of the board of directors.

The arrangements in the Shareholders’ Agreement and articles of association regarding the quorum for a meeting of the board of directors were not changed after SCM became the majority shareholder of the Company by amassing 85% of the Company’s shares in 2003, although (as already noted) the number of directors was increased to nine, with six appointed by SCM.

The chain of events leading to the passing of the resolutions in dispute began on 16 April 2010, when Yangzijiang issued a binding letter of offer to Baker to acquire all its shares in PPLH for US$155m (“the Offer”). A term of the Offer was that Chang and Aurol were to give undertakings to Yangzijiang that they would not voluntarily resign from their executive positions with the Company for a period of two years with effect from 1 January 2011.

On 17 April 2010, Baker disclosed the Offer to the market, and stated that the consideration for the purchase was arrived at by taking into account, inter alia, a certain net book value of the Company for the financial year 2009. Subsequently, Baker accepted the offer.

PPLH argued that SCM wanted to scuttle the deal for the sale of its shares to Yangzijiang. SCM tendered a cheque for $59,433,522 as payment for the 15% shareholding of PPLH in the Company but PPLH rebuffed this attempt to purchase its stake in the Company.

The SCM-appointed directors took steps to strengthen their control of the Company. At a scheduled meeting of the board of directors on 28 April 2010, which was attended by the Appellants, the Respondents introduced matters not specifically stated on the agenda and proceeded to appoint a new managing director to replace Douglas Tan, a new Chief Financial Officer and Joint Secretaries, all of whom were nominated by SCM. Despite the Appellants’ objections to these appointments, which were not within the ambit of the present appeal, the appointments were approved by six votes to three.

On 10 May 2010, SCM lodged complaints (“the SCM complaints”) with the Company that Chang and Aurol had allegedly breached their duty to the Company by disclosing confidential information to Yangzijiang about its book value for the financial year 2009 six days before the said accounts were lodged with the Accounting and Corporate Regulatory Authority. In view of these allegations, the chairman of the board of directors, Tang Kin Fei (“Tang”), thought it was in the Company’s best interests to deal with the allegations immediately. As a result, Don Lee Fook Kang, a SCM-nominated director, e-mailed all the directors on 10 May 2010 to convene a board meeting on 11 May 2010 (“the 11 May meeting”) for the purpose of appointing a law firm to advise the Company on the SCM complaints.

The Appellants did not attend the 11 May meeting. Tang received a letter from Wee, Tay & Lim, acting for the Appellants, objecting to the meeting as inadequate notice was given and a list of possible lawyers who could be appointed to advise the company was not circulated before the meeting. He also received a letter from Straits Law Practice, acting for PPLH, stating that Aurol had not committed any breach of confidentiality, and even if there was such a breach, it was de minimis. The Respondents nevertheless proceeded with the meeting and resolved to appoint WongPartnership to advise and act for the Company in respect of the SCM complaint.

On 15 May 2010, SCM commenced Suit No 351 of 2010 against PPLH and E-interface (“the Suit”). In the Suit, SCM sought, inter alia, a declaration that when it became the owner of 85% of the issued and paid up capital of the Company on 9 July 2003, the provisions of the shareholders’ agreement and the Company’s articles of association, that were premised on an equal partnership with PPLH and E-Interface, ceased to apply. SCM also alleged that the sale of Baker’s shares in PPLH was a breach of an implied term that neither party would, without offering its shares in the Company to the other, act in a manner which would cause the other to end up being a “partner” of a party owned or controlled by someone else other than the parties to the shareholders’ agreement. SCM claimed various reliefs, including a right to acquire the remaining shares held by PPLH and E-Interface in the Company. PPLH and E-Interface counterclaimed against SCM for, inter alia, injunctive relief against the removal the Appellants as directors.

Subsequently, WongPartnership, on their own initiative, suggested to Wee, Tay & Lim that another board meeting be convened to discuss their appointment. On 27 May 2010, the Respondents called for another Board meeting to be convened on 3 June 2010 (“the 3 June Meeting”). On 31 May 2010, the Appellants sought confirmation that the meeting would be conducted in accordance with the terms of the Shareholders’ Agreement and that each side’s directors would therefore have three votes regardless of the number of directors present. The Respondents’ solicitors replied on 1 June 2010 to the effect that Art 98 of the Company’s articles of association did not restrict the six SCM-nominated directors from casting more than three votes. On 2 June 2010, the Appellants replied that they would not attend the 3 June Meeting. The Respondents proceeded with the 3 June Meeting in the Appellant’s absence and passed the following resolutions: confirming the appointment of WongPartnership to act for and advise the Company; instructing WongPartnership to investigate the allegations raised in the 10 May letter and advise the Company on its response to the allegations; and instructing WongPartnership to provide general advice relating to the Suit and the continued operations of the Company.

Notwithstanding the resolutions passed at the 3 June Meeting, the Respondents thought it prudent to hold yet another directors’ meeting to expressly appoint WongPartnership to represent the Company in the Suit. On 10 June 2010, notice was given that yet another board meeting would be held on 14 June 2010 (“the 14 June 2010 meeting”). Wee, Tay & Lim proposed a circular board resolution to limit WongPartnership’s authority in respect of the Suit but the Respondents preferred to give WongPartnership wider authority in the resolution.

As there was no agreement, the Respondents passed a resolution at the 14 June 2010 meeting in the Appellant’s absence to empower WongPartnership to enter an appearance on behalf of the Company and to accept all documents served in the Suit on the Company’s behalf.

The Appellants called for a meeting of the board of directors on 21 June 2010 (“the 21 June 2010 meeting”). The agenda included giving wider authority to WongPartnership in relation to the Suit and giving the chairman or any other person nominated by him the authority to give instructions to WongPartnership in relation to the Suit as well as to receive advice from that law firm.

On 18 June 2010, Straits Law Practice, acting for PPLH, sent a telefax to the Respondents’ solicitors stating that they had no issue with WongPartnership advising and representing the Company in the suit. They suggested that instructions to WongPartnership should be on the basis...