Chen Mingxing and others v Zhang Jian and others

• Jurisdiction: Singapore
• Judge: See Kee Oon J
• Judgment Date: 05 January 2021
• Neutral Citation: [2021] SGHC 3
• Court: High Court (Singapore)
• Docket Number: Suit No 763 of 2020 (Summons No 3799 of 2020)
• Year: 2021
• Published date: 09 January 2021
• Hearing Date: 24 November 2020,11 November 2020,13 November 2020
• Plaintiff Counsel: Quek Wen Jiang, Gerard, Ramachandran Doraisamy Raghunath, Feng Zhuo and Tey Jijie, Louis (PD Legal LLC)
• Defendant Counsel: Heng Gwee Nam Henry, Loh Hui-Qi Vicki, Charmaine Elizabeth Ong Wan Qi and Charanpreet Kaur (Legal Solutions LLC)
• Subject Matter: Civil Procedure,Injunctions
• Citation: [2021] SGHC 3

See Kee Oon J: Introduction

In this summons, the plaintiffs sought an interim injunction to restrain the 1st to 5th defendants (the “defendants”) from disposing of any shares in OEL (Holdings) Limited (“OEL”) held in their names and reducing or diluting the share value pending the trial of this action or further order. This included, but was not limited to, voting in favour of any proposed share placement(s) by OEL during any extraordinary or annual general meeting. The plaintiffs claimed that they had paid a sum of $7.7 million to the 1st and 2nd defendants with the intention of investing in OEL’s shares, rather than to benefit the defendants.

After hearing the parties’ submissions, I granted the interim injunction as sought by the plaintiffs on 13 November 2020. On 16 and 17 November 2020, the defendants made a request for further arguments to be heard. I partially allowed the defendants’ request and after considering the parties’ submissions, I varied the interim injunction by limiting it to 197,545,000 of the ordinary shares in OEL which were purchased on or around 16 December 2019 by the defendants. The parties were informed of the variation order by way of a registrar’s notice dated 7 December 2020. Pursuant to a further clarificatory request, the terms of the draft Order of Court were clarified by a second registrar’s notice dated 11 December 2020.

The defendants have since filed an application for leave to appeal against my decision. I now set out my grounds of decision in full.

Background

The 1st to 3rd plaintiffs are Cambodian citizens, while the 4th and 5th plaintiffs are Chinese citizens. The plaintiffs are private investors and businessmen who work and reside in Cambodia.¹ They were looking for investment opportunities in Singapore sometime around September to October 2019.

The 1st defendant is a Chinese citizen and a Singapore permanent resident. He has been the Chairman and Executive Director of OEL since 4 May 2020.² He is the single largest shareholder in OEL, a company listed on the Catalist of the Singapore Exchange. The 2nd defendant is a Chinese citizen residing and working in Singapore. Since 20 January 2020, the 2nd defendant has been appointed the Chief Executive Officer and Executive Director of OEL.³ The 3rd defendant is a Singapore citizen and a business consultant in OEL. The 1st to 5th defendants are all shareholders in OEL. The 6th defendant, Eminence Investment Pte Ltd ("EI"), is a company incorporated in Singapore and is in the business of providing management consultancy and corporate investment services.⁴ The 1st defendant is also the Managing Director and Chief Executive Officer of EI, whilst the 2nd defendant was a former Executive Director of EI and the 3rd defendant is the Executive Director and Chief Economist of EI.⁵

Ms Wang Jue or “Jess” (“WJ”) is a Singapore citizen and a shareholder and director of Hai Sin International Pte Ltd (“HS International”).⁶ She was the plaintiffs’ contact person in Singapore and was allegedly responsible for recommending that they should purchase shares in OEL. WJ was an Executive Director of OEL from 27 February 2020 until 26 June 2020. ⁷ She continues to be a shareholder in OEL and is also involved in the management of various other business entities.

WJ and the defendants entered into a Sales and Purchase Agreement (“SPA”) with one Mr Jeffrey Hing Yih Peir (“Mr Hing”) on or around 16 December 2019 to purchase a total of 197,545,000 ordinary shares in OEL (“OEL Shares”). Under the SPA, Mr Hing disposed of his entire interest in the share capital of OEL, representing 29.56% of the issued and paid up capital of OEL.⁸ The proportions in which the OEL Shares were transferred to the 1st to 5th defendants and WJ are set out as follows:⁹

1st defendant	138,331,000 shares
2nd defendant	13,773,000 shares
3rd defendant	10,692,000 shares
4th defendant	10,692,000 shares
5th defendant	10,692,000 shares
WJ	13,365,000 shares

The OEL Shares were acquired from Mr Hing at approximately eight times their market price. It was stated in the OEL Board of Directors’ response to queries raised by the Singapore Exchange Securities Trading Limited in relation to the acquisition of the OEL Shares that the price was reached on a “willing buyer willing seller basis”, with the purchasers taking into consideration that Mr Hing would be giving up his position as the controlling shareholder of OEL.¹⁰

In or around early May 2020, the plaintiffs were allegedly concerned about the 1st and 2nd defendants’ disproportionately high salaries. They also found out that OEL had entered into a loan agreement which was secured by, among other things, a first legal mortgage over OEL’s leasehold property at 8 Aljunied Avenue 3, Singapore 389933 (the “Property”). Thus, the plaintiffs instructed WJ to request the defendants to execute a share pledge in respect of the OEL Shares in favour of the plaintiffs. This request was rejected. The plaintiffs further began to harbour doubts over the 1st defendant’s qualifications and capabilities. The plaintiffs eventually proceeded to issue letters of demand including two on 15 July 2020 and 4 August 2020 seeking, inter alia, the return of the OEL Shares.¹¹ The plaintiffs also claimed for the return of monies totalling $1,656,110.72 comprising $1,190,000 which was allegedly used by the 1st defendant to provide a director’s loan to OEL and the balance surplus monies. On 18 August 2020, a day before the underlying suit (Suit 763 of 2020) was commenced on 19 August 2020, OEL made an announcement that it had entered into an agreement for the placement of ordinary shares in OEL with 16 subscribers on 17 August 2020 (the “August placement”). The 3rd defendant was one of the subscribers.¹²

The focus of the injunction application was on the OEL Shares. The plaintiffs claimed that the defendants held the OEL Shares for them on trust, or that they had been unjustly enriched. In the present summons, the plaintiffs therefore sought an interim injunction to restrain the defendants from disposing of any shares in OEL held in their names and reducing or diluting the share value pending the trial of this action or further order.

The parties’ pleaded cases

WJ played a pivotal role in the arrangements for both the plaintiffs and the defendants. Both the pleaded cases of the plaintiffs and the defendants in the underlying suit relied heavily on what WJ had purportedly informed them of.

The plaintiffs pleaded, inter alia, that there was a presumed resulting trust whereby the defendants held the OEL Shares on trust for the plaintiffs, or alternatively that the Shares were held on remedial constructive trust for them. As a further alternative, the plaintiffs pleaded that the defendants had been unjustly enriched with the monies spent on purchasing the OEL Shares.

According to the plaintiffs, they had paid $7.7 million pursuant to an agreed investment plan involving, inter alia, the purchase of the OEL Shares for $6,043,889.28 by the defendants and WJ, and the shares would be held on trust for the plaintiffs. The plaintiffs entered into this arrangement because they did not have CDP accounts and would require the OEL Shares to be held on trust for them until they could set up such accounts.¹³ The plaintiffs would pay a further $1,656,110.72 to the 1st and 2nd defendants for use as cashflow for the benefit of the plaintiffs and/or OEL, subject to the plaintiffs’ instructions and consent. As part of the plan, WJ, together with the 1st and 2nd defendants, would be appointed to OEL’s key management positions and the plaintiffs themselves would be employed by OEL and/or its subsidiaries to assist with the development of the businesses of OEL and/or its subsidiaries. WJ had communicated the plan to the plaintiffs in late November 2019 and informed them that this was the 1st and 2nd defendants’ proposal. The plaintiffs agreed to the proposal.

The defendants maintained that they had no knowledge of any alleged communications between the plaintiffs and WJ. They contended instead that WJ had coordinated and structured all arrangements with the plaintiffs. The 1st defendant had agreed in October 2019 for WJ to procure investors (ie, the plaintiffs) who were looking to invest for residency in Singapore to invest $7.7 million with her or her companies through “Investment Contracts”. In turn, through her companies or otherwise, WJ would lend the $7.7 million to EI (the “Loan Agreement”). The loan would be repaid after four years and WJ would be paid a commission or return on investment of $1 million. The OEL Shares were procured as investments by the defendants and WJ in their own personal capacities.¹⁴ In particular, EI had provided loans to the 1st to 3rd defendants for their personal investments, and EI had paid for shares in OEL which were given to the 4th and 5th defendants as well as WJ for their contributions in the acquisition of the OEL Shares.¹⁵

Issues before the court

The criteria for the grant of an interlocutory injunction were not in dispute. The key questions were therefore whether there was a serious issue to be tried and whether the balance of convenience favoured the grant of the injunction sought (American Cyanamid Co v Ethicon Ltd [1975] 1 AC 396).

Serious issue to be tried Parties’ submissions

The plaintiffs submitted that there was a serious issue to be tried as to whether the 1st to 5th defendants held the OEL Shares on resulting trust for the plaintiffs. First, there was evidence that the plaintiffs had transferred $7.7 million to EI’s bank account, which was used by the defendants to purchase the OEL Shares. Second, the defendants knew that the monies used for the purchase of the OEL Shares came from the plaintiffs and that the plaintiffs had transferred these monies with no intention to benefit the defendants.¹⁶

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