Chia Kok Kee v HX Investment Pte Ltd (So Lai Har (alias Chia Choon), third party in issue) (Tan Wah, third party in counterclaim)

• Jurisdiction: Singapore
• Judge: Lai Siu Chiu J
• Judgment Date: 28 September 2007
• Neutral Citation: [2007] SGHC 164
• Court: High Court (Singapore)
• Published date: 11 January 2008
• Year: 2007
• Plaintiff Counsel: Chua Teck Leong, Thean Chow Leong, Low Wai Cheong (Chris Chong & CT Ho Partnership)
• Defendant Counsel: Wong Seow Pin (SP Wong & Co)
• Subject Matter: Contract,Contractual terms,Dispute over dividend payouts and expenses claimed by plaintiff,What were the precise terms of the oral agreement via conduct of parties,Whether company intended to be incorporated as commercial vehicle to hold investment on trust for investors
• Citation: [2007] SGHC 164

28 September 2007 Judgment reserved.

Lai Siu Chiu J

Introduction

1 In early 1995, the plaintiff Chia Kok Kee was looking for potential co-investors in a 50-year joint-venture in a hydro-electric power plant in Dujiangyan, Sichuan Province, in the People’s Republic of China (“PRC”). Eventually, one Madam Tan Wah (“TW”), who is the Third Party in the Counterclaim, agreed to invest in the joint-venture (“the joint-venture”). Four Chinese counterparts were also involved in the joint-venture and they were:

(i) China Sichuan Dujiangyan Electric Power Joint Stock Company Limited (subsequently reconstituted as Chengdu Power Bureau Dujiangyan Electric Power Company) (“CSEP”);

(ii) China Sichuan Machinery and Equipment Import & Export Corp (“SCMEC”);

(iii) China Sichuan Machinery Equipment Weida Branch Company (“Weida”); and

(iv) Shenzhen Bao Ye Trading Corporation (“Bao Ye”).

The formal joint-venture contract was signed by the above mentioned Chinese parties and the plaintiff on 15 May 1995 and a Chinese company, Sichuan New Dujiang Electrical Power Co. Ltd (“SND”) was incorporated as the investment vehicle to acquire and hold the joint-venture. The plaintiff signed the contract using the name “HX Investment Pte Ltd” which name was assumed by the defendant when it was subsequently incorporated.

2 The defendant, HX Investment Pte Ltd (“HX”) was incorporated on 14 June 1995 for the purpose of investing in the joint-venture. The directors and shareholders of HX were TW and the plaintiff’s mother So Lai Har (“SLH”) who is the Third Party in issue. HX only had an initial paid-up capital of $2.00 and TW and SLH held one ordinary share each. The paid-up capital was eventually increased to $100,000 with TW and SLH holding 60,000 shares and 40,000 shares respectively. It was decided that HX would invest a total amount of RMB 6,225,369 (“the Investment”) which was equivalent to 25% of the share capital in SND. According to the joint-venture contract, HX was guaranteed a 20% annual return on the Investment by CSEP for the first four years (which amounted to RMB 312, 768.44) after the joint-venture establishing SND came into effect on 31 July 1995 and 18% annual return on the Investment for the remaining term of the joint venture up to 31 July 2045, which amounted to RMB 281,491.60 (“the profit guarantee clause”). The returns on the Investment were to be paid out as dividend (“the dividends”).

The facts

3 The plaintiff and TW had agreed to invest in the joint-venture pursuant to an oral agreement entered into sometime in early May 1995 (“the oral agreement”). It is common ground that the parties had entered into the oral agreement but the terms thereof were hotly disputed. For ease of reference later, the parties’ differing versions of the terms of the oral agreement are now set out. The plaintiff deposed (in his affidavit of evidence in chief [“AEIC”]): [note: 1]

i. TW, SLH and myself would jointly invest RMB 6,255,369 into Sino-foreign joint-venture company, eventually named Sichuan New Dujiang Electrical Power Co Ltd (“SND”), to be formed to purchase the Qian Jia Wan Power Station (the “Investment”) in the following manner:

a. I would invest approximately RMB 1,876,610.70 (which was equivalent to approximately 30% of the Investment);

b. SLH would invest the sum of S$100,000 (which was equivalent to approximately 10% of the Investment;

c. TW would invest the balance 60% of the Investment amounting to approximately RMB 3,753,221.40.

ii. For my efforts in securing the joint-venture, and for arranging the formal joint venture contract to be signed by a company to be incorporated to hold the parties’ interests (eventually the Defendant) instead of King’s Huaxin, TW agreed to reward me by allocating 10% from her 60% share in the Investment to me as a bonus (the “10% bonus”). In fact, it was TW who raised the issue about rewarding me for my efforts in securing the Investment and I indicated the figure of 10% and she readily agreed to this during the discussion.

iii. A facilitation fee (“facilitation fee”) equivalent to 10% of the gross dividends was also agreed to be paid to Zheng and Oh for their efforts in facilitating the investment.

iv. The facilitation fee would be deducted from the gross dividends before the balance proceeds were distributed equally between TW on the one part and SLH and myself on the other part.

4 On the other hand, TW’s version (according to her “AEIC”) was[note: 2]:

[The] essential terms were: 1^st, the proportion of share is 60:40 between me and him; and 2^nd, a new Singapore company will be set up to invest in China. In addition, I agreed to lend the plaintiff a sum of S$100,000 to help him make up his capital investment for his 40% share.

5 It was accepted that a new company, i.e. HX was to be set up for the Investment. Although the plaintiff wanted to use his existing company, King’s Huaxin Pte Ltd, TW insisted that a new company be set up to invest in China. However, there was no discussion about the business structure of this new company. TW disputed the plaintiff’s case that there was a common understanding between the parties that:

the Defendant… incorporated to hold the Investment would merely be a commercial vehicle or a nominee for the parties, each of TW, SLH and myself were free to deal with our part of the Investment without having to limit ourselves to dealing with the same through the Defendant;… each of TW, SLH and myself referred to the Investment as our personal investment and have never considered the existence of the Defendant as a separate party holding the Investment in our own right.[note: 3]

TW also disputed the plaintiff’s claim that the 10% bonus and the 10% facilitation fee formed part of the oral agreement. She asserted that only the parties’ percentage shareholding in the Investment had been discussed. She countered that it was the plaintiff who suggested that he wanted a 40% share in the Investment. The plaintiff then asked TW for a loan of $100,000 (“the loan”) so that he could make his 40% financial contribution to the Investment. The plaintiff did not deny that the loan was given to him and both sides agreed that the plaintiff has since repaid the loan.

6 In late June 1995, funds were remitted to SCMEC from the account of HX with the Bank of China (Katong Branch) (“the BOC Singapore account”). The breakdown of the funds remitted was as follows:

(i) S$640,000 came from TW which amount approximated 60% of the Investment;

(ii) S$100,000 came from the plaintiff (lent by TW); and

(iii) S$100,000 came from SLH, which amount approximated 10% of the Investment.

The $840,000 remittance was roughly equivalent to RMB 4,896,000.03. Additional funds were remitted by the plaintiff from his Malaysian and Hong Kong bank accounts to SCMEC directly. His total financial contribution (including TW’s loan) amounted to 30% of the Investment. The total remittance to SCMEC was RMB 6,255,368.88 which was slightly above the sum of RMB 6,225,061.00 required for the Investment. The funds remitted were later recorded as part of the registered capital of SND in the name of HX.

7 Based on these capital contributions, the plaintiff contended that there were three investors in the Investment: TW, SLH and himself. Thus, HX was holding the Investment for the parties in the proportions of 60:10:30, 60% being the entitlement of TW, 10% being that of SLH and the remaining 30% being the plaintiff’s share. According to the plaintiff’s version of the oral agreement, TW would give him 10% as a bonus from her own 60% stake, thus altering the aforesaid ratios to 50:10:40 respectively. TW however contended that the only investors were the plaintiff and herself. Since the plaintiff nominated SLH to be his director and shareholder in HX, the shareholding of the company was to be in the ratio of 60:40 in favour of TW and the plaintiff respectively with SLH holding the plaintiff’s share. TW was adamant in her insistence that there was no discussion of any 10% bonus being allegedly payable to the plaintiff by herself or 10% facilitation fee being payable to one Zheng Rong Guang (“Zheng”) who had introduced the plaintiff to the investment potential of the hydro-electric power plant or to one Oh Lian Keng (“Oh”) who (according to the plaintiff) had provided legal and consultancy services for the joint venture and helped to draft the joint-venture agreement.

The dividends

8 Between 12 October 1995 and 20 November 2003, a total of 33 quarterly dividend payouts were paid out by SND to HX. The dividend payouts were described in great detail in the plaintiff’s affidavit-of-evidence-in-chief (“AEIC”) at [64] to [232]. However, TW questioned the accuracy of his account and her computation (RMB9,789,652.24) of the dividends received by HX differed from the plaintiff’s figure (RMB 9,784,957).

9 According to the plaintiff, the first dividend payout was received around 12 October 1995. It was listed in SND’s dividend payout records as the payout for the 3^rd quarter of 1995.[note: 4]SND’s records revealed that there was a second dividend payout for the 4^th quarter of 1995. However, according to the plaintiff, this second dividend payout was accounted for under the 1^st quarter of 1996 in his record, which was subsequently given to TW. This led TW to accuse the plaintiff of retaining for himself the entire first dividend payout. A comparison of the plaintiff’s account of the dividend payouts (in his AEIC) with SND’s dividend payout records showed that all 33 dividend payouts were received by the plaintiff. The plaintiff testified that the mismatch between his and the records of SND was merely with regards to terminology. This was further explained in his AEIC where he said that TW had suggested that the parties take turns to receive the dividend payouts instead of dividing each dividend payout equally between them. In accordance with this understanding, the plaintiff kept the second dividend payout for himself (and...