Cost Engineers (SEA) Pte Ltd and another v Chan Siew Lun

• Jurisdiction: Singapore
• Judge: Steven Chong J
• Judgment Date: 19 October 2015
• Neutral Citation: [2015] SGHC 262
• Year: 2015
• Date: 19 October 2015
• Published date: 22 October 2015
• Hearing Date: 07 September 2015,28 July 2015,27 July 2015,29 July 2015
• Subject Matter: Consent judgment,Res judicata,Issue estoppel,Account of profits,Trustees,Trusts
• Plaintiff Counsel: Johnson Loo Teck Lee (Drew & Napier LLC)
• Citation: [2015] SGHC 262
• Defendant Counsel: Sarbjit Singh Chopra, Ho May Kim, and Satinder Singh (Selvam LLC)
• Court: High Court (Singapore)
• Docket Number: Suit No 99 of 2011 (Taking of Accounts No 14 of 2013)

Steven Chong J: Introduction

Four years ago, the trial of this action took place before me. It principally concerned a claim by Cost Engineers (SEA) Pte Ltd (“the 1st plaintiff”) for a declaration that the defendant held one third of the shareholding in a company, Tri-Nexus Pte Ltd (“Tri-Nexus”), on trust for it. In the course of the trial, it emerged that a key document which the defendant had relied on was tampered with. The date of a critical cheque, which was for payment of the increased share capital of Tri-Nexus, was deliberately altered to give the false impression that the increased share capital was personally funded by the two registered shareholders (the defendant and one Soh Cheow Yeng (“Soh”)), instead of having been funded by Tri-Nexus on behalf of its three shareholders (ie, the two registered shareholders and the 1st plaintiff as equitable shareholder).

Immediately following the closing submissions, the defendant, perhaps unsurprisingly, consented to judgment in which he agreed to transfer half of his shareholding in Tri-Nexus (comprising 60,000 shares) to the 1st plaintiff. The consent judgment required the defendant to, inter alia, “provide an account to the 1st Plaintiff of all dividends and profits that the 1st Plaintiff is entitled to pursuant to the shareholding equitably owned by the 1st Plaintiff prior to this order for transfer” and to pay “all sums found due from the Defendant to the 1st Plaintiff upon the taking of the account”.

Thereafter, various intervening interlocutory applications and adjournments regrettably delayed the assessment of the 1st plaintiff’s claim, and the case eventually returned back to me for the taking of the accounts (“the assessment hearing”) almost four years later. In the meantime, the dispute between the three shareholders led to investigations by the Corrupt Practices Investigation Bureau and the Inland Revenue Authority of Singapore (“IRAS”). It transpired during the trial that sham invoices were issued to facilitate the distribution of “profits” among the three shareholders. The three shareholders, ie the defendant, Soh, and the second plaintiff (“Lim”) — who is effectively the alter ego of the 1st plaintiff — have since been charged for the falsification of accounts, which is an offence punishable under s 477A of the Penal Code (Cap 224, 2008 Rev Ed). The criminal trial is still ongoing.

The assessment hearing has raised some interesting issues for determination. In response to the 1st plaintiff’s demand for an account of the dividends and profits, the defendant claims that no dividends have been declared by Tri-Nexus, and, hence, that there is nothing to account for. A forensic accountant engaged by the 1st plaintiff pored over the accounts of Tri-Nexus, and identified various payments and expenses which were not “incurred in the ordinary course of business”. The 1st plaintiff claims that these payments and expenses were wrongfully made and ought to be deemed as distributed profits of Tri-Nexus. On that premise, the 1st plaintiff seeks a share of the amounts paid out.

Is it permissible for the 1st plaintiff to claim for “dividends and profits” in this manner given that a shareholder is not entitled in law to “profits” of a company unless they are declared as dividends? Can the fact that the consent judgment provided for an account of “profits” as well as dividends confer the 1st plaintiff with a right to the profits of a company even though dividends were never formally declared? Does the consent judgment give rise to issue estoppel as regards the ambit of the expression “dividends and profits” even though no specific finding as to the meaning of this expression was made by the court? These somewhat unusual issues will be examined in the course of this judgment.

The consent judgment

The starting point for the assessment hearing is the consent judgment entered on 25 November 2011. I set out in full the terms of the consent judgment:

IT IS THIS DAY ADJUDGED AND ORDERED that:

1. The Defendant does transfer to the 1st Plaintiff 60,000 ordinary shares in Tri-Nexus Pte Ltd.

2. The Defendant does execute all documents necessary for the compliance with the above transfer, failing which the Registrar of the Supreme Court shall be empowered to sign any such documents on the Defendant’s behalf.

3. The Defendant does deliver up to the 1st Plaintiff, the complete accounting reports of Tri-Nexus Pte Ltd for the financial years from 2007 to 2010.

4. The Defendant does provide an account to the 1st Plaintiff of all dividends and profits that the 1st Plaintiff is entitled to pursuant to the shareholding equitably owned by the 1st Plaintiff prior to this order for transfer.

5. The Defendant does pay to the 1st Plaintiff all sums found due from the Defendant to the 1st Plaintiff upon the taking of the account under (4) above.

6. The Defendant does pay to the 1st Plaintiff interest on any sums ordered to be paid by the Defendant to the 1st Plaintiff.

7. The Defendant does pay to the 1st Plaintiff the costs of this action to be taxed if not agreed.

[emphasis added]

There is no dispute regarding the order to transfer the 60,000 ordinary Tri-Nexus shares. The 60,000 shares which were held on trust by the defendant have since been duly transferred to the 1st plaintiff. What divides the parties, however, is the import of paragraphs four and five of the consent judgment. Specifically, the crux of the disagreement between the parties concerns the meaning of the clause “dividends and profits that the 1st Plaintiff is entitled to pursuant to the shareholding equitably owned by the 1st Plaintiff”. The 1st plaintiff claims half of all the payments made by Tri-Nexus to the defendant in the financial years (“FY”) 2008 to 2011 (“the relevant period”) as its rightful share of the "dividends and profits" owed under the consent judgment.

The defendant’s case

It is helpful to first set out the defendant’s case, because the 1st plaintiff’s case is perhaps better understood as a response to the position the defendant is taking. The defendant submits that he has completely satisfied the consent judgment by transferring the 60,000 Tri-Nexus shares to the 1st plaintiff and by providing the accounting reports of Tri-Nexus. No dividends were declared by Tri-Nexus during the relevant period so the defendant did not receive any dividends pursuant to his shareholding of the 1st plaintiff’s 60,000 Tri-Nexus shares. Therefore, there are neither any “dividends or profits” for the defendant to account for (under para 4 of the consent judgment) nor are there sums due from the defendant to the 1st plaintiff (under para 5 of the consent judgment).

The 1st plaintiff’s case

The 1st plaintiff does not dispute the fact that no dividends were declared by Tri-Nexus during the material period. However, it asserts that the defendant is not merely required to account for the dividends officially declared by Tri-Nexus and received by the shareholders, but also unofficial payouts. According to the 1st plaintiff’s case, the obligation to “provide an account…of all dividends and profits that the 1st Plaintiff is entitled to pursuant to [its equitable shareholding]” includes an obligation to provide an account of all “payouts” which the defendant had received as unofficial distributions of profits to shareholders. In support of its case, the 1st plaintiff argues that the defendant is precluded, under the doctrine of issue estoppel, from arguing the contrary because the consent judgment had already decided that the expression “dividends and profits” referred to, or at least included, “unofficial payouts”. Further, counsel for the 1st plaintiff, Mr Johnson Loo submits that even if estoppel does not strictly arise to bar the defendant’s present position, the 1st plaintiff is nevertheless justified in interpreting the consent judgment in this manner under the principles of contractual interpretation.

As for the exact sum the consent judgment requires the defendant to account for, the 1st plaintiff’s position has shifted in the course of the assessment hearing. In his opening statement, Mr Loo, submitted that a sum of $1,745,539.06 was due from the defendant to the 1st plaintiff pursuant to the consent judgment. It is interesting to note how this sum was derived. As mentioned, the 1st plaintiff engaged a forensic accountant, Mr Aw Eng Hai (“the plaintiff’s expert”), to pore through the accounting documents of Tri-Nexus to identify payments or expenses that were not incurred “in the ordinary course of business”.

These are the payments and/or expenses which the plaintiff’s expert considers not to have been incurred in the ordinary course of business: $2,177,000 to PDP International and PDP Technology Pte Ltd (collectively, “PDP”) pursuant to invoices rendered by PDP; $323,000 to a Hong Kong company, Emerald; $3,721 in travel expenses pursuant to invoices issued by Misa Travel Pte Ltd for air tickets for one Mr Cheng Sim Hup, one Mr Chung Teong Meng and the defendant; $360,590 to Trefoil Engineering Pte Ltd (“Trefoil”); $2,996 and $1,200 for the renovation of properties owned by one Mark Roach and one Peter Vincent respectively; $211,000 to M/s Leo Fernando for the defendant’s and Soh’s legal fees in relation to the trial on liability in the present action, as well as the criminal investigations against them; $1,706,000 to the defendant and Soh as directors’ fees; $480,000 to the defendant as director’s salary; $65,000 to the defendant as director’s bonus; $72,000 as salary to one Chan Siok Fung (“Chan”), Tri-Nexus’ finance manager and the defendant’s sister; $123,206.19 to the defendant, Soh and/or Chan as reimbursements for non-work related expenses. This amounts to a total of $5,525,713.19.

Mr Loo submitted that the defendant and/or Soh have siphoned profits out of Tri-Nexus via these wrongful payments and expenses, artificially...