CLAAS Medical Centre Pte Ltd (formerly known as Aesthetics Associates Pte Ltd) v Ng Boon Ching

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 01 February 2010
• Neutral Citation: [2010] SGCA 3
• Date: 01 February 2010
• Docket Number: Civil Appeal No 35 of 2009
• Published date: 08 February 2010
• Plaintiff Counsel: Aqbal Singh and Josephine Chong (Unilegal LLC)
• Hearing Date: 13 August 2009
• Defendant Counsel: Rabi Ahmad s/o M Abdul Ravoof (Rabi Ahmad & Co)
• Court: Court of Appeal (Singapore)
• Subject Matter: Privity of Contract,Contract,Restraint of Trade

Chao Hick Tin JA (delivering the judgment of the court):

Dr Ng Boon Ching (“the Respondent”) is a medical practitioner of more than 25 years’ standing. CLAAS Medical Centre Pte Ltd (“the Appellant”) is a company incorporated on 12 January 2005 which was initially named Aesthetics Associates Pte Ltd. Six general medical practitioners, Dr Wong Weng Hong (“Dr Wong”), Dr Tan Eng Choon Gerard (“Dr Gerard Tan”), Dr Cindy Yang (“Dr Yang”), Dr Liew Kou Chuen (“Dr Liew”), Dr Lim Wee How (“Dr Lim”) and Dr Tan Yi Ryh (“Dr Tan”), were the original shareholders of the Appellant. Subsequently (see [6] below), the Respondent also became a shareholder in the Appellant.

The Respondent had commenced an action below to seek a refund of a total sum of $236,500 being the balance of outstanding loans owed by the Appellant to the Respondent. The Appellant admitted to this claim but sought to set off the debt against its counterclaim of $1m for breach of a restrictive covenant by the Respondent. This appeal is against that part of the decision of the trial judge (“the Judge”) where she dismissed the Appellant’s counterclaim.

Background facts

The Respondent commenced private practice as a general and family medical practitioner in April 1984 when he established his own clinic known as B C Ng Clinic & Surgery. The Respondent was trained and certified in the use of laser and intense pulsed light machines for medical treatment and surgical procedures. He had also acquired laser and intense pulsed light machines in his clinic. Many patients came to see him for medical treatment and/or surgical procedures involving the use of laser and/or intense pulsed light machines. He was so successful in this area of practice that he decided to concentrate almost entirely on “aesthetic medical practice”. He also changed the name of his practice to that of “Dr B C Ng Laser Surgery”. In 1993, he relocated his clinic from Midpoint Orchard at Orchard Road to Chinatown Point at New Bridge Road.

In 1996, the Respondent set up AHA Centre, a sole proprietorship, which was and is in the business of the import, distribution and sale of aesthetic laser and intense pulsed light machines and skin care products.

In the course of his business, the Respondent came to know Dr Lim who was then practising under the style of “Woods Medical Clinic”. In 2004, the Respondent learned from Dr Lim that a group of about six doctors (who later became the original shareholders of the Appellant – see [1] above), all of whom had no previous experience in aesthetic medicine, were keen to set up an aesthetic medicine clinic in the Orchard Road or Cairnhill area and that they were also interested in acquiring several laser and/or intense pulsed light machines for that practice.

Subsequently, the six doctors decided to interest the Respondent into entering a joint venture with them to assist them in building the aesthetic medical clinic in Cairnhill while he continued to operate his own clinic at Chinatown Point. However, this idea was later abandoned and the six doctors decided instead to focus on the acquisition of the Respondent’s clinic as well as his distributorship business, ie, the AHA Centre, (“the plan”). Towards that end, the six doctors incorporated the Appellant in January 2005. The Respondent was amenable to the plan, including becoming a shareholder in the Appellant. Thus, by 28 March 2005, the Respondent had subscribed for and was issued with 100,000 shares in the Appellant while the other six doctors held the remaining 400,000 shares. In other words, the Respondent held 20% of the shareholding in the Appellant while the six doctors collectively held 80% of the shares.

As a vehicle for the sale of his practice to the Appellant, the Respondent incorporated BCNG Holdings Pte Ltd (“BCNG Holdings”) and transferred his clinic, as well as the distributorship business under AHA Centre, to BCNG Holdings. Both parties negotiated and agreed that the value of BCNG Holdings be fixed at $3.2m.

On 6 April 2005, the Respondent, the six doctors and the Appellant duly entered into a Shareholders Agreement (“the April Agreement”) which set out the rights, duties and liabilities of all the parties relating to their participation in and the running of BCNG Holdings. In accordance with cl 2.2(b) of the April Agreement, the Respondent sold 60% of his shareholding in BCNG Holdings to the Appellant for $1.92m. As the Appellant had a paid up capital of only $500,000 and the other shareholders did not have $1.92m to pay for the Respondent’s 60% shareholding in BCNG Holdings, the Respondent agreed to arrange for a loan of $1.328m from the United Overseas Bank Ltd (“UOB”) to the Appellant so that the Appellant could raise the funds. According to cl 5.2 of the April Agreement, the Respondent would use his personal fixed deposit with UOB as the necessary collaterals to secure the loan which UOB was prepared to give to the Appellant.

By cl 8.3(a) of the April Agreement, the Appellant was given an option, within two years, to purchase the Respondent’s remaining 40% shareholding in BCNG Holdings at an agreed sale price of $1.28m. By cl 8.3(e), if the Appellant did not exercise the option, the Respondent could repurchase the Appellant’s 60% shareholding in BCNG Holdings at an agreed price of $700,000. At this point, we would note that, by these provisions, the scheme of things was to compel the Appellant to purchase the Respondent’s remaining 40% shareholding in BCNG Holdings, otherwise, the Appellant would suffer a loss of $1,220,000, ie, having paid $1.92m for the 60% shareholding in BCNG Holdings, it would, however, only get back $700,000. By cl 12.1(i), once all the shares in BCNG Holdings were held by only one shareholder, the other shareholders would cease to be bound by the restraint of trade provision in the April Agreement.

The April Agreement contained the following restraint of trade covenant in cl 11(a):

(a) All of the parties herein shall for so long as he/she remains a Shareholder and/or a Shareholder of [the Appellant] for a period of three (3) years after he/she shall cease to be a Shareholder of [BCNG Holdings] and/or of [the Appellant], whether by himself/herself and/or jointly or together with any other person(s) and/or body (ies), whether on his/her own account and/or as agent, employee and/or servant, in any capacity whatsoever, directly or indirectly, be prohibited from: - (i) being engaged and/or interested in any trade and/or business carried on within Singapore which is similar to or in competition and/or conflict (whether directly or indirectly) with the Business of [BCNG Holdings] and/or the practice of Aesthetic Medicine; (ii) employ, solicit and/or entice away and/or endeavour to employ, solicit and/or entice away any person(s) who is employed by [BCNG Holdings], and/or induce or seek to induce any such person(s) to leave his/her employment with [BCNG Holdings] for any reasons whatsoever; (iii) solicit the custom of any person and/or body who is a customer of the [BCNG Holdings] and/or divert or seek to divert any customer of the [BCNG Holdings] away from it; and/or (iv) cause and/or permit any person directly or indirectly under his/her control to do any of the foregoing acts or things.

Clause 11(c) provided that each of the six doctors, namely, Dr Lim, Dr Gerard Tan, Dr Tan, Dr Yang, Dr Liew and Dr Wong, would have to pay $700,000 by way of liquidated damages to BCNG Holdings if they breached cl 11(a). Clause 11(d) provided that the Respondent would have to pay BCNG Holdings a sum of $1m as liquidated damages for a breach of cl 11(a).

Sometime in November 2005, the Appellant exercised its right to purchase the Respondent’s remaining 40% shareholding in BCNG Holdings. Once again, as the Appellant did not have funds, the Respondent agreed to arrange for another loan of $1.28m from UOB. This second loan was again secured against the Respondent’s personal fixed deposits with UOB.

Clause 8.7 of the April Agreement had provided that upon the Appellant’s purchase of the 40% of the shares, all the existing shareholders of the Appellant would enter into and execute a Shareholder’s Agreement in the form as annexed to the April Agreement as “Appendix B”.

Therefore, a Shareholders Agreement dated 15 November 2005 (“the November Agreement”)was entered into by the Respondent and the six doctors in the terms of the said “Appendix B”. Unlike the April Agreement, the Appellant was not a party to the November Agreement. This November Agreement was intended to set out the terms and conditions under which the Respondent and the original six shareholders of the Appellant would participate in the management of the Appellant.

A restraint of trade provision similar to the one in the April Agreement was included in the November Agreement. Clause 11 of the November Agreement reads as follows:

11. NON-COMPETITION

(a) All of the parties herein shall for so long as he/she remains a Shareholder [and] for a period of three (3) years after he/she shall cease to be a Shareholder of the [Appellant], whether by himself/herself and/or jointly or together with any other person(s) and/or body (ies), whether on his/her own account and/or as agent, employee and/or servant, in any capacity whatsoever, directly or indirectly, be prohibited from: - (i) being engaged and/or interested in any trade and/or business carried on within Singapore which is similar to or in competition and/or conflict (whether directly or indirectly) with the Business of the [Appellant] and/or the practice of Aesthetic Medicine; (ii) employ, solicit and/or entice away and/or endeavour to employ, solicit and/or entice away any person(s) who is employed by the [Appellant], and/or induce or seek to induce any such person(s) to leave his/her employment with the [Appellant] for any reasons whatsoever; (iii) solicit the custom of any person and/or body who is a...