Tang Kin Fei and others v Chang Benety and others

• Jurisdiction: Singapore
• Judge: Woo Bih Li J
• Judgment Date: 29 September 2010
• Neutral Citation: [2010] SGHC 286
• Plaintiff Counsel: Thio Shen Yi, SC and Karen Teo (TSMP Law Corporation)
• Docket Number: Originating Summons No 590 of 2010
• Date: 29 September 2010
• Hearing Date: 11 August 2010,03 August 2010,15 July 2010
• Subject Matter: Companies,Meeting
• Published date: 01 October 2010
• Citation: [2010] SGHC 286
• Defendant Counsel: George Lim, SC and Foo Say Tun (Wee, Tay & Lim LLP)
• Court: High Court (Singapore)
• Year: 2010

Woo Bih Li J: Introduction

The plaintiffs and defendants were at all material times directors of PPL Shipyard Pte Ltd (“PPLS”) except for Anthony Sabastian Aurol (“Aurol”) who was purportedly removed as a director on 8 June 2010. The shareholders of PPLS were Sembcorp Marine Ltd (“SCM”) on the one hand and PPL Holdings Pte Ltd (“PPLH”) and E-Interface Holdings Ltd (“E-Interface”) on the other hand. E-Interface is a wholly-owned subsidiary of PPLH. The plaintiffs were nominated as directors of PPLS by SCM and the defendants were nominated as directors of PPLS by PPLH.

As a result of a dispute between the shareholders concerning the beneficial ownership of some shares in PPLS, various board resolutions were proposed at various board meetings convened by or at the instance of one or more of the SCM nominated directors. The PPLH nominated directors however declined to attend these board meetings. Under Art 98 of PPLS’articles of association, at least one PPLH nominated director must be present to constitute a quorum for a board meeting. Consequently, there was no quorum at these board meetings. Notwithstanding the absence of a quorum, the SCM nominated directors proceeded to pass resolutions at these board meetings. They then filed the present application for a declaration to validate the resolutions under s 392 of the Companies Act (Cap 50, 2006 Rev Ed). The primary reliefs sought under the application, as amended, were as follows: 1. A declaration that the resolution at the board meeting held on 11 May 2010 appointing WongPartnership to advise and act for [PPLS] is valid. 2. Further or in the alternative, a declaration that the resolution at the board meeting held on 3 June 2010 confirming the appointment of WongPartnership to advise and act for [PPLS] is valid. 3. A declaration that the resolutions at the board meeting held on 3 June 2010 that [PPLS] instruct WongPartnership to: (a) investigate the allegations made by [SCM] in a letter dated 10 May 2010 and addressed to the board of directors of [PPLS] (“Allegations”); (b) advise [PPLS] how it should respond to the Allegations; (c) provide general advice on any issue relating to the dispute between its shareholders; and (d) provide general advice on any issue relating to the continued operations of [PPLS] –

are valid.

4. A declaration that the resolution at the board meeting held on 14 June 2010 appointing WongPartnership to enter an appearance on behalf of [PPLS] and accept service on behalf of [PPLS] of any documents served in the action in Suit No 351 of 2010/H (“the Suit”) in the High Court of the Republic of Singapore is valid. 5. A declaration that the resolutions at the board meeting held on 21 June 2010 are valid namely: (a) That WongPartnership’s appointment be expanded such that they may:

i. do all such things arising from or related to the Suit to protect the interests of [PPLS]; and

ii. provide advice to [PPLS] on how it should respond to the allegations made against it in the Suit.

(b) That, as an interim measure and pending contrary suggestions from WongPartnership, the Chairman of [PPLS] or any other person nominated by the Chairman of [PPLS] is hereby authorised by [PPLS] to provide instructions to and receive advice from WongPartnership on the Suit. Douglas Tan may comment on or add to the instructions provided to WongPartnership. However, where the instructions of Douglas Tan conflict with those of the Chairman of [PPLS] or the Chairman of [PPLS’] nominee, the instructions of the Chairman of [PPLS] or the Chairman of [PPLS’] nominee will prevail.

The application was resisted by the PPLH nominated directors who were the defendants. After hearing arguments, I made no order on prayer 1. I granted an order in terms of prayers 2, 3(c) and (d), 4 and 5. I dismissed prayers 3(a) and (b). I also ordered the defendants to pay costs of $5,000 to the plaintiffs.

The defendants have appealed against my decision to grant an order in terms of prayers 2, 3(c) and (d), 4 and 5 and to order costs to be paid by them.

Background

PPLH is a wholly-owned subsidiary of Baker Technology Ltd (“Baker Tech”).

On 16 April 2010, Yangzijiang Shipbuilding (Holdings) Ltd (“Yangzijiang”) issued a binding letter of offer to Baker Tech to acquire the entire issued and paid-up share capital of PPLH. In its disclosure to the market on 17 April 2010, Yangzijiang stated that the purchase consideration was arrived at by taking into account, inter alia, a certain net book value of PPLS for the financial year 2009. The offer was accepted by Baker Tech.

Following the acceptance of the offer by Baker Tech, SCM sent a letter of complaint to the board of PPLS. The complaint alleged that two of the defendants, Aurol and Benety Chang (“Chang”) had breached their duty to PPLS by disclosing confidential information of PPLS to Yangzijiang, ie, the book value of PPLS for the financial year 2009. Aurol and Chang had access to this information from at least 31 March 2010 when all directors of PPLS were given a copy of the draft audited accounts. Such information was not supposed to be made public until PPLS’ annual returns were filed with the Accounting and Corporate Regulatory Authority (“ACRA”) on 19 April 2010.

According to Tang Kin Fei (“Tang”), the chairman of the board of directors of PPLS, the SCM complaint made serious allegations against Aurol and Chang. Yangzijiang was a potential competitor of PPLS. He thought it was in the best interest of PPLS to deal with the allegations immediately and had a discussion with the other plaintiffs thereon. Thereafter, one of them, Don Lee Fook Kang, sent an email to all directors of PPLS on 10 May 2010 to convene a board meeting at 11.00am the next day at SCM’s office to appoint a law firm to advise PPLS on the SCM complaint.

At 11.00am of 11 May 2010, Tang arrived for the board meeting. He was handed letters from Wee, Tay & Lim acting for the defendants and from Straits Law Practice acting for PPLH. The Wee, Tay & Lim letter objected to the meeting as inadequate notice was given and a list of possible lawyers had not been circulated before the board meeting. The Straits Law Practice letter stated that Aurol had not committed any breach of confidentiality and even if there was, it was de minimis. It also stated that PPLS should not expend time, effort and money on the matter. The plaintiffs waited for about 30 minutes and then proceeded with the meeting in the absence of the defendants. They resolved that WongPartnership be appointed to advise and act for PPLS in respect of the SCM complaint. This is the subject of prayer 1 of the amended application.

Subsequently, WongPartnership themselves suggested to Wee, Tay & Lim that another board meeting be convened to discuss and decide on the matter about the appointment of a law firm to advise PPLS.

Another board meeting was then convened on 3 June 2010. However, by a letter dated 31 May 2010, the defendants requested for confirmation that the 3rd June 2010 meeting would be conducted in accordance with a shareholders’ agreement dated 9 April 2001 between SCM and PPLH. In particular, the defendants wanted confirmation that the PPLH nominated directors would have three votes and the SCM nominated directors would have three votes (only). This was the initial position when the shareholders’ agreement was entered into because at that time, only three directors were to be appointed by each side. However, as a result of certain developments, the number of SCM nominated directors in PPLS had in fact increased from three to six before 31 May 2010. At the time of the increase, there was no agreement as to whether the six SCM nominated directors would be able to out-vote the three PPLH nominated directors or not. Apparently, subsequent decisions continued to be made unanimously.

The plaintiffs’ solicitors then replied on 1 June 2010 to say that under Art 98 of PPLS’ articles of association, the SCM nominated directors were not confined to only three votes. The defendants then wrote on 2 June 2010 to state that they would not attend the 3 June 2010 meeting although the plaintiffs say they did not receive this letter until after that meeting was held. At the 3 June 2010 meeting, the plaintiffs confirmed the appointment of WongPartnership as solicitors of PPLS and resolved that they be instructed to investigate the allegations made in the SCM complaint, advise PPLS how to respond to the allegations, provide general advice relating to a suit (ie, Suit 351 of 2010) between PPLS’ shareholders and provide general advice relating to the continued operations of PPLS. These are the subject of prayers 2 and 3 of the amended application.

Thereafter, the plaintiffs wrote to Aurol on 8 June 2010 requiring him to vacate his office as a director of PPLS pursuant to Art 90(g) of the articles of association. The plaintiffs were of the view that as he had admitted in a letter dated 12 May 2010 to disclosing PPLS’ 2009 financial accounts to Yangzijiang on 13 April 2010 before the accounts were filed on 19 April 2010, he had breached his duty of confidentiality.

In the meantime, Suit 351 of 2010 was commenced on 15 May 2010 by SCM against PPLH and E-Interface. The suit arose as a result of the sale by Baker Tech of its shares in PPLH to Yangzijiang. In it, SCM alleged that the sale of Baker Tech’s shares in PPLH was a breach, inter alia, of an implied term that neither party would, without offering its shares (in PPLS) to the other, act in any manner which would cause the other to end up being a “partner” with a party owned or controlled by someone else other than the principals of 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 PPLS based on a certain formula. In turn, PPLH and E-Interface...