Chua Teck Chew Robert v Goh Eng Wah

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 25 August 2009
• Neutral Citation: [2009] SGCA 40
• Docket Number: Civil Appeals Nos 192 of 2008/L
• Date: 25 August 2009
• Year: 2009
• Published date: 31 August 2009
• Plaintiff Counsel: Hri Kumar Nair SC and Benedict Teo (instructed) and Cheo Chai Beng Johnny (Cheo Yeoh & Associates LLC),Thio Ying Ying and Tan Yeow Hiang (Kelvin Chia Partnership)
• Citation: [2009] SGCA 40
• Defendant Counsel: Anna Oei Ai Hoea and Chen Weiling (Tan Oei & Oei LLC)
• Court: Court of Appeal (Singapore)
• Subject Matter: Whether Sanderson order appropriate,Costs,Unsuccessful defendant shifting blame to successful defendants,Whether claimant had acted with reasonable diligence within s 29 Limitation Act (Cap 163, 1996 Rev Ed),Whether limitation period ought to be extended under s 29 Limitation Act (Cap 163, 1996 Rev Ed),Extension of limitation period,Limitation of Actions,Whether there was deliberate and fraudulent concealment of claimant's right,Civil Procedure

25 August 2009

Chao Hick Tin JA (delivering the grounds of decision of the court):

Introduction

1 These cross-appeals were filed by Goh Eng Wah (“Goh”) and Robert Chua Teck Chew (“Robert Chua”) (the plaintiff and the 3rd defendant respectively in Suit No. 742 of 2005/L below (“the Suit”) against the decision of the trial judge (“the Judge”) in Goh Eng Wah v Daikin Industries Ltd and others [2008] SGHC 190 (“GD”). In the Suit, Goh claimed against Robert Chua and four other parties in contract for the shortfall in profit due to him as a shareholder of Daikin Airconditioning (Singapore) Pte Ltd (the 2^nd defendant in the Suit, formerly known as A.C.E. Daikin (Singapore) Pte Ltd) (“Daikin Singapore”). Goh succeeded in his claim against Robert Chua but failed in his claims against the other defendants. Robert Chua appealed in Civil Appeal No 192 of 2008 (“CA 192”) against the Judge’s decision to hold him liable for the short-payment made to Goh, while Goh appealed in Civil Appeal No 197 of 2008 (“CA 197”) against the Judge’s dismissal of his claim against Daikin Industries Limited (“Daikin Japan”) (the 1st defendant in the Suit) and her refusal to order Robert Chua to pay the costs of the other successful defendants.

2 At the conclusion of the hearing of the appeals, we partially allowed the appeal in CA 192 to the extent that we held that limitation applied to Goh’s claim and capped it at $332,334 plus interest at 6% reckoned from the dates the various sums were due to Goh. We also partially allowed the appeal in CA 197 by ordering that Robert Chua should bear half the costs of the first and second defendants (i.e. Daikin Japan and Daikin Singapore respectively) for the trial below. We now give the reasons for our decisions.

Background

The Parties

3 Goh and Robert Chua’s father, Chua Joon Nam (“CJN”), were good friends. In 1968, Goh, CJN and Robert Chua founded Daikin Singapore. They were its initial subscribers and directors. Goh was named the Chairman, CJN the Managing-Director and Robert Chua, the Executive Director. Goh’s role was essentially that of a financier. He left the running of Daikin Singapore’s day to day affairs to CJN and Robert Chua. In 1972, Daikin Japan appointed Daikin Singapore as its sole distributor in Singapore.

The facts leading up to the creation of an Incentive Scheme agreement between the parties

4 The incentive scheme agreement (“Incentive Scheme”) which was the subject of the dispute between the parties was, in a sense, precipitated by Daikin Singapore’s ill-fortunes. In 1972, one Cheng Eng Kuan (“Cheng”) was persuaded by CJN to subscribe for 250,000 shares in Daikin Singapore. As a result, Cheng held 50% of Daikin Singapore’s shares. Cheng’s involvement saw Daikin Singapore invest in the manufacturing of window air-conditioners in Indonesia. Cheng later transferred his shares in Daikin Singapore to his brother Chong Kam Sai (“Chong”). The Indonesian business failed. This unsuccessful investment, coupled with the oil crisis of the 1970s, caused Daikin Singapore to incur substantial losses.

5 In April 1976, help came in the form of Daikin Japan’s subscription of 135,000 shares in Daikin Singapore at $1 per share. This capital injection provided the latter with the needed funds and also aligned the interests of Daikin Japan with Daikin Singapore. Unfortunately, Daikin Singapore’s fortunes did not turn around and it continued to suffer losses. In May 1979, to aid Daikin Singapore, Goh infused more capital into the company by causing one of his companies, Kin Wah Co (Pte) Ltd, to subscribe for 375,000 shares in Daikin Singapore at $1 per share. In August 1980, Daikin Japan also subscribed for a further 340,000 shares at the same price. Despite these capital infusions, Daikin Singapore continued to perform dismally.

6 In 1981, Daikin Singapore decided to change its business by focusing on the supply of air-conditioners to the Singapore market following the Government’s decision to accelerate its public housing program. To obtain fresh capital, Daikin Japan was invited to become the majority shareholder by taking up 800,000 new shares. Daikin Japan accepted the invitation. Besides the injection of fresh capital, it was also envisaged that Daikin Japan, on becoming the majority shareholder, could provide financial support as well as liberal trade credit terms. In April that same year, Chong sold his 250,000 shares in Daikin Singapore to one Sim Boon Woo (“Sim”) who was CJN’s friend.

7 On 15 July 1981, an Extraordinary General Meeting was held in which Daikin Singapore’s shareholders voted to increase the company’s share capital. The existing shareholders were offered shares (800,000 in total) pro rata to their existing shareholdings. The shareholders (save for Daikin Japan), by agreement, declined to take up any of these shares. While the evidence on this was not consistent, the Judge found that there was such an understanding among the other shareholders not to take up their entitlement. Viewing the entire circumstances then, we thought the Judge was justified in making that finding. Daikin Japan accordingly acquired all 800,000 shares. Following this change, the shareholding structure in Daikin Singapore became as follows:

	Before Daikin Japan acquired majority stake			After Daikin Japan acquired majority stake
	Shareholder	Number of; shares	% shareholding	Number of; shares	% shareholding
CJN and; affiliates	CJN	255,000	15.9375	255,000	10.625
	Chuas Investment Pte Ltd	95,000	5.9375	95,000	3.96
	Robert Chua	15,000	0.9375	15,000	0.625
	Chua Teck Meng	15,000	0.9375	15,000	0.625
Goh and; affiliates	Goh	90,000	5.625	90,000	3.75
	Eng Wah Theatres; Organisation Pte Ltd	30,000	1.875	30,000	1.25
	Kin Wah Co (Pte) Ltd	375,000	23.4375	375,000	15.625
	Sim Boon Woo	250,000	15.625	250,000	10.42
	Daikin Japan	475,000	29.6875	1,275,000	53.125

8 After Daikin Japan’s subscription of the additional 800,000 shares, the shareholding of CJN and his affiliates was (in round numbers) reduced from 24% to 16% and that for Goh and his affiliates, from 31% to 21%. Daikin Japan, with a 53% stake, had thus assumed majority control. It then appointed nominees as Managing Director (“the nominee MD”) and sales Director (“the nominee Sales Director”). The nominee MD was made a mandatory cheque signatory to Daikin Singapore’s cheques. Daikin Japan also took over the responsibility of procuring financing for Daikin Singapore. However, CJN and his two sons, Robert Chua and Chua Teck Meng (the 4th defendant in the Suit), continued to manage Daikin Singapore. It was clear to us that the reason (as stated above at [6]) why the other shareholders of Daikin Singapore wanted Daikin Japan to be its majority shareholder was so that Daikin Japan would give Daikin Singapore more financial and technical support and liberal trade terms, which were needed badly to turn the latter around.

The Incentive Scheme

9 On the very same day of the Extraordinary General Meeting, (i.e. 15 July 1981), Daikin Japan entered into a Memorandum with CJN (“the Memorandum”). The object of the Memorandum was to motivate and encourage local shareholder directors and officers and staff of Daikin Singapore to give of their best, and it was subsequently varied by an undated variation recorded on the same document. The Memorandum formed the basis of the dispute between the parties. In the court below, the Judge seemed to think that the incentive set out in the Memorandum was a part of the understanding reached in relation to Daikin Japan becoming the majority shareholder of Daikin Singapore.

10 Under clause 1 of the Memorandum, 15 percent of Daikin Singapore’s net profits before tax (“net profits”) were to be allocated to its local directors as remuneration and this included bonuses to the company’s main officers and qualified staff. The allocation was to be decided by CJN. The undated variation changed this so that 5 percent each was to be allocated to Goh and CJN. CJN was to decide the allocation of the remaining 5 percent amongst the other 3 local directors and selected staff.

11 Clause 2 of the Memorandum limited the allocation to S$1 million net profits. It stipulated that for net profits in excess of S$1 million, the parties would negotiate on the allocation. Pursuant to clause 2, Goh, in his capacity as Chairman, wrote to a Mr. T. Morimoto (“Morimoto”) who was a director of Daikin Japan to negotiate for the allocation of net profits in excess of S$1 million. In a letter dated 16 September 1983, which Goh signed, he proposed that net profits in excess of S$1 million be allocated as follows:

(a) Next S$2 million net profits – 12.5%; and

(b) Over S$3 million net profits – 10%.

12 Morimoto replied in a letter dated 14 November 1983 and proposed that the applicable percentage in respect of the portion of the net profits in excess of $1 million would be 7.5%. Subsequently, the profits were distributed in accordance with Morimoto’s counter-offer.

Subsequent changes to the shareholding and management of Daikin Singapore

13 In October 1983, Sim sold his shares in Daikin Singapore to Chuas Investment Private Limited. With this sale, the shares in Daikin Singapore were thus held by Daikin Japan, Goh, CJN and their affiliates.

14 In 1987, Daikin Japan wanted greater management involvement in Daikin Singapore and caused some Board changes to be made. Goh resigned as Chairman and became the Vice-Chairman, while CJN instead became the Executive Chairman. Goh’s son, Goh Keng Soon, who was a director since 1979, resigned. The Board was enlarged to nine directors with five nominated by Daikin Japan. Of these five, two were executive directors, i.e., the nominee MD and the nominee Sales Director.

15 CJN passed away on 17 September 1989. Thereafter, Robert Chua assumed the role of Chairman in place of CJN while Chua Teck Meng continued as executive...