Chong Kok Ming and another v Richinn Technology Pte Ltd and others

• Jurisdiction: Singapore
• Judge: Ang Cheng Hock J
• Judgment Date: 22 October 2020
• Neutral Citation: [2020] SGHC 224
• Court: High Court (Singapore)
• Docket Number: Suit No 1009 of 2018
• Year: 2020
• Published date: 27 October 2020
• Hearing Date: 06 March 2020,19 March 2020,13 March 2020,12 March 2020,30 June 2020,25 March 2020,05 March 2020,26 March 2020,10 March 2020,03 March 2020,27 March 2020,11 March 2020,04 March 2020,31 March 2020,18 March 2020,17 March 2020,20 March 2020,01 April 2020,02 April 2020,24 March 2020
• Plaintiff Counsel: Wong Siew Hong and Sanjay S Kumar (Eldan Law LLP)
• Defendant Counsel: Lee Mun Kong Lawrence (Aptus Law Corporation)
• Subject Matter: Companies,Winding up,Just and equitable winding up,Oppression,Buy-outs
• Citation: [2020] SGHC 224

Ang Cheng Hock J:

This case involves a private limited company and the disputes which have arisen between two groups of shareholders. One group comprises two shareholders, who together hold a minority stake in the company. The other group also comprises two shareholders, who are brothers. They hold the majority of the shares in the company. The minority shareholders have brought this application seeking to wind up the company on several grounds. One ground is that the shareholders have agreed to liquidate the company and go their separate ways, and that the majority shareholders are now reneging on that agreement. Among the other grounds relied upon, the minority shareholders also allege that the company is in truth a quasi-partnership, and that there has been a breakdown of trust and confidence between the two groups of shareholders such that it would be just and equitable to wind the company up. As is common in cases of this nature, the once close working relationship between the two groups of shareholders has now been transformed into one of acrimony and litigation, with the parties feuding with each other not only in these proceedings but also in other related suits in Singapore and Malaysia.

The parties

The first plaintiff (“Chong”) and the second plaintiff (“Tan”) are the minority shareholders in Richinn Technology Pte Ltd, the first defendant (“Richinn”). The second defendant (“Richard”) and the third defendant (“Robert”) (collectively, “the Lims”) are the majority shareholders. Chong, Tan, Richard, and Robert hold shares in the proportions of 17%, 23%, 30%, and 30% respectively.¹ As I will go on to explain, Tan and Chong worked in the laser cutting industry, while the Lims, through a group of companies, had business interests in industries ranging from silicone to stainless steel products.²

I note in addition that the first defendant, Richinn, is purely a nominal defendant in this dispute. The real dispute is between the shareholders, namely the plaintiffs and the Lims. Any references to “the defendants” in this judgment should therefore be construed as a reference to the Lims.

Background to the dispute

I begin by outlining how Chong, Tan, and the Lims came to be shareholders in Richinn.

Before 2003, Chong and Tan had been colleagues in Applied Cutting Technology Pte Ltd (“Applied Cutting”), a company which provided laser cutting services. Tan worked in sales, while Chong worked in production.³ Tan left the company in March or April 2003, with a view towards setting up his own laser cutting business. As laser cutting machines were expensive, and Tan did not have the capital, he met with several potential investors who expressed interest in his plans. According to Tan, he was approached by Robert in the first quarter of 2004 as Robert was interested in entering into a laser cutting business. I note for completeness that the Lims claim that it was Tan who had approached Robert with an offer of collaboration, though in my view nothing specifically turns on this point.

Eventually, Chong, Tan, and the Lims agreed to set up a new laser cutting business. Chong left his job at Applied Cutting to embark on this venture. The Lims injected the initial capital for the enterprise.

The plaintiffs and the Lims agreed to use an existing company for the laser cutting business. This company was the first defendant, which was then called Richinn Trading Pte Ltd, and which had previously been incorporated by the Lims in 2002. The first defendant had been used by the Lims up to that time to trade in silicone. The laser cutting business was an altogether new business for the Lims, and the first defendant’s name was changed from “Richinn Trading Pte Ltd” to its present name, Richinn Technology Pte Ltd, to reflect the new business of laser cutting services.

Tan and Chong joined Richinn in April 2004.⁴ About six months later, on 15 October 2004, Tan, Chong, and the Lims entered into a written agreement (the “Shareholders’ Agreement”) which provided, inter alia, for an increase in the paid up capital of Richinn and the sale and purchase of shares in the company such that the parties’ respective holdings were as follows:⁵ Richard Lim and/or Robert Lim: 180,000 ordinary shares (60%) Tan or his nominee Mdm Lee Lye San (Tan’s wife, “Mdm Lee”): 69,000 ordinary shares (23%) Chong: 51,000 ordinary shares (17%)

Even though it is not specifically stated in the Shareholders’ Agreement, it was agreed between the parties that the plaintiffs would be employed by Richinn to manage and run the business. The directors of the company were specifically stated as being the Lims, Tan (or his wife as nominee), and Chong.⁶ In addition, cl 4.2 of the Shareholders’ Agreement (“the Non-Competition Covenant”) stipulated that the shareholders undertook that they would not, directly or indirectly, be involved in a business in the same business as Richinn while they were still shareholders or directors of Richinn, or for a period of five years from the date of the Shareholders’ Agreement, whichever was later.

Clause 4.2 of the October 2004 Shareholders’ Agreement was later specifically extended by a written Extension Agreement dated 1 October 2013 (the “Extension Agreement”).⁷ The Extension Agreement recognised that the Shareholders’ Agreement remained in “full force and effect”,⁸ and made clear that all the Extension Agreement sought to do was to extend the shareholders’ undertaking under cl 4.2 of the Shareholders’ Agreement.⁹ Clause 2 of the Extension Agreement thus provides that each of the shareholders will not participate in a business with the same business as that of Richinn for a period of five years from the date of the Extension Agreement, or while he is still a shareholder or director of Richinn, whichever is later. I note also a separate agreement entered into in 2007 (the “Business Continuity Agreement”) to provide for continuity of business in the event of the demise of one of the four shareholders.¹⁰ The Business Continuity Agreement provided that if one of the shareholders were to pass away, the deceased shareholder’s family would be provided with a monthly stipend, and the deceased’s shares would devolve to one of the surviving shareholders, who would hold the shares on trust for the beneficiaries of the deceased shareholder.

The day-to-day business of laser cutting was run and managed by the plaintiffs. Specifically, Tan, who had previously worked in sales for Applied Cutting, was in charge of sales and business development, while Chong, who had prior experience in production, took charge of that area.¹¹ Tan and Chong were not only directors of Richinn, they also held executive positions in the company. They both drew salaries from Richinn from the end of 2005 up to the time of the dispute. Tan was managing Richinn until January 2018. Up to 2013, Chong had been involved in the day-to-day management of Richinn, but since 2014, his primary responsibility in this venture was to manage the Malaysian operations, as is described below from [12] to [14].¹²

As for the Lims, they controlled the finance and administration of the company. Specifically, they controlled all payments out, in that one of them had to countersign or give authorisation on all payments made by the company. They also held the tokens for Richinn’s electronic banking accounts, and liaised with banks for banking facilities.¹³ The Lims attended monthly management meetings to update themselves on the business and how well it was doing.

The business grew and was successful. Other corporate entities were set up in Singapore, Malaysia, and the Middle East by the shareholders of Richinn. Of note is the company incorporated in Malaysia in 2004 called CJ Stainless Steel Sdn. Bhd. (“CJSS”).¹⁴ That company was established to act as a subcontractor for Richinn and Choon Hin Stainless Steel Pte Ltd (part of the Choon Hin group of companies owned by the Lims) to take advantage of the lower production costs in Malaysia.¹⁵ CJSS was initially incorporated by seven shareholders, which then became six – the two plaintiffs, the Lims, Simon Puah Koh Choon (“Puah”), and Paul Ho Sang Bin (“Ho”) – in 2015 when one of the original shareholders left.¹⁶ Puah and Ho are the Lims’ brothers-in-law. CJSS has now been wound up pursuant to an order of the High Court of Malaya at Johor Bahru, on the application of Tan and Chong. This had been resisted by the Lims and is, as at the time of the trial, pending appeal.¹⁷

Another Malaysian company which features in these proceedings is CKM Metal Technologies Sdn Bhd (“CKMMT”).¹⁸ That company was incorporated in 2014 by Chong and his brother, who were the initial shareholders and directors of CKMMT. Tan joined CKMMT as a shareholder and director not long after. CJSS’s license only permitted 20% of its work to be Malaysian, while the other 80% had to be foreign-related (see [20] below). CKMMT’s predecessor company, CKM Stainless Steel Works, had been set up as a sole proprietorship under Chong as a “standby” in case CJSS’s Malaysian work exceeded that 20% limit. CKMMT was subsequently incorporated on 16 July 2014 to handle the bulk of CJSS’s Malaysian work, and CKM Stainless Steel Works ceased its business after CKMMT was incorporated.¹⁹

After having worked full-time at Richinn from 2004 to 2011, Chong was asked by Tan and the Lims to assist in the management of CJSS.²⁰ In 2012 and 2013, Chong worked two days a week at Richinn and spent the rest of the work week at CJSS in Malaysia. From 2014, Chong transferred to work full time at CJSS and CKMMT, where he remained up to the time of the dispute.²¹

For completeness, I should also note that, over the years, as their working relationship grew closer, Chong, Tan, and the Lims also made investments together, either directly or through various corporate vehicles. They invested in a condominium unit at Lakeside Towers in Singapore. In Malaysia, they...