ECRC Land Pte Ltd v Ho Wing on Christopher and Others

• Jurisdiction: Singapore
• Judgment Date: 27 November 2003
• Date: 27 November 2003
• Docket Number: Suit No 1210 of 2001
• Court: High Court (Singapore)

ECRC Land Pte Ltd (in liquidation)

Plaintiff

and

Ho Wing On Christopher and others

Defendant

[2003] SGHC 298

Tay Yong Kwang J

Suit No 1210 of 2001

High Court

Companies–Directors–Duties–Whether transactions entered into with various third parties had valid commercial justification–Insolvency Law–Avoidance of transactions–Unfair preferences–Whether payment of operating charges by joint venture company amounted to unfair preference–Sections 99, 100 Bankruptcy Act (Cap 20, 2000 Rev Ed)

The plaintiff was incorporated in 1994 as the vehicle for an intended joint venture to redevelop the East Coast Recreation Centre (“the centre”) into an amusement theme park (“ATP”). One of the joint venture parties was Grande Leisure Management Pte Ltd, which, together with the fifth to tenth defendants, was part of the Grande group of companies (“Grande”). The first to fourth defendants were variously directors of the plaintiff and the fifth to tenth defendants at the material times.

The plaintiff took over management of the centre in 1995. The plaintiff's day-to-day management was left to Grande. The joint venture encountered various difficulties, and the plaintiff was eventually ordered to be wound up in 1999.

The plaintiff's claims against the defendants were based on fraud, breaches of fiduciary duty, constructive trust and conspiracy. It was alleged that Grande treated the plaintiff as if it were one of its subsidiaries.

Held, dismissing the claims except against the fifth and sixth defendants for the period between 1 January 1995 and 31 March 1995:

(1) The plaintiff argued that the terms of the tenancy agreements between the plaintiff and the seventh and the eighth defendants suggested that renovation costs would be borne by the tenants. However, the bulk of the works undertaken was infrastructural. Grande had also overlooked the parties' informal arrangements for bearing those costs by using standard form tenancy agreements: at [29] to [30].

(2) Indulgences regarding rent, rent-free period and rent rebate were granted to the ninth and tenth defendants for operating at the centre because the plaintiff wanted to keep it alive: at [32]and [34].

(3) The court did not accept the plaintiff's allegation that it was wrongfully made to bear operating expenses charged by the fifth and sixth defendants. The interest charges levied by the sixth to eighth defendants were justifiable since they related to the plaintiff's necessary expenses. The plaintiff was correctly charged for the fees of Fleishman-Hillard and half the fees of an employee of Sega Enterprises Ltd. The services paid for had everything to do with the centre: at [35], [43] to [46].

(4) The fifth and sixth defendants were to repay operating expenses charged for the first three months of 1995, since Grande only took charge of the centre in April 1995: at [43] and [51].

(5) Payments made to the sixth defendant in respect of operating charges from 28 March 1997 did not amount to unfair preferences: at [47] to [48].

(6) There was no dishonesty nor were there unreasonable actions on the part of the first to fourth defendants. There was no unjust enrichment, conversion or conspiracy in respect of the other defendants: at [50].

[Observation: The court should be slow to interfere with commercial decisions taken by directors. It should not, with the advantage of hindsight, substitute its own decisions in place of those made by directors in the honest and reasonable belief that they were for the best interests of the company: at [49].]

Fairways Magazines Ltd, Re; Fairbairn v Hartigan [1993] BCLC 643 (folld)

Intraco Ltd v Multi-Pak Singapore Pte Ltd [1994] 3 SLR (R) 1064; [1995] 1 SLR 313 (folld)

Libra Industries Pte Ltd, Re [1999] 3 SLR (R) 205; [2000] 1 SLR 84 (folld)

Bankruptcy Act (Cap 20, 2000 Rev Ed) ss 99, 100 (consd)

Companies Act (Cap 50, 1994 Rev Ed) s 329 (1)

Companies (Application of Bankruptcy Act Provisions) Regulations (Cap 50, Rg 3)

Stephen Soh (Arthur Loke Bernard Rada & Lee) for plaintiff

Francis Xavier and Lai Yew Fei (Rajah & Tann) for the defendants.

Tay Yong Kwang J

1 The plaintiff is in liquidation, having been ordered to be wound up in 1999. In this action, the plaintiff's claims against the defendants were based on fraud, breaches of fiduciary duty, constructive trust and conspiracy. They comprised the following heads of claim:

(a) alleged wrongful drawdown or use of the plaintiff's banking facilities for interior renovation and/or fitting out works of others;

(b) alleged wrongful charges borne by the plaintiff for miscellaneous expenses including interest expenses, consultancy fees, operating/administrative expenses; and

(c) alleged wrongful transactions relating to the plaintiff's business operations and/or tenancies.

The plaintiff's evidence was adduced mainly through the liquidator.

2 The action concerned the East Coast Recreation Centre located at 1000 East Coast Parkway, Singapore. It involved a joint venture agreement entered into in April 1995 (with the formal agreement signed on 15 June 1995) between George Wuu Khek Chiang, SAFE Enterprises Pte Ltd (“SAFE”) and Grande Leisure Management Pte Ltd (“GLM”).

3 George Wuu was the managing director and controlling shareholder of East Coast Recreation Centre Pte Ltd (“ECRC”), the company which used to hold the state lease over the land at 1000 East Coast Parkway. SAFE was part of the Singapore Technologies group of companies. GLM and the fifth to tenth defendants were part of the Grande group of companies.

4 The first to fourth defendants were variously directors of the plaintiff and the fifth to tenth defendants at the material times. The legally-trained third defendant was also the plaintiff's and the fifth to tenth defendants' company secretary. The first defendant was the one ultimately in control where the defendants were concerned. The third and the fourth defendants, although not appointed directors of the plaintiff, were alleged to be liable as de facto or as shadow directors of the plaintiff.

5 The plaintiff was incorporated in late 1994 as the vehicle for the intended joint venture with GLM and SAFE owning 51% of its shares and George Wuu holding the remaining 49%. The purpose of the joint venture was to acquire the land in issue and the East Coast Recreation Centre built on it from ECRC and to re-develop it into a world-class, high-tech, family-oriented amusement theme park (“ATP”). The ATP was to be the first to be constructed in Asia outside Japan and the centre was to undergo re-development akin to the USA's Disney Land.

6 GLM and SAFE had initially wanted to hold a 51% stake in the plaintiff through the fifth defendant which was equally owned by them. A sale and purchase agreement to effect this was thus signed between George Wuu and the fifth defendant in March 1995. However the Land Office disapproved of this joint venture structure in April 1995. The share structure in the plaintiff was eventually changed to GLM holding 25.5%, SAFE holding 25.5% and George Wuu holding 49%. This arrangement was effected by two sale and purchase agreements both dated 15 June 1995 between George Wuu and GLM and between George Wuu and SAFE in respect of the shares in the plaintiff. The earlier sale and purchase agreement was thus superseded by the latter two. By a shareholders' agreement also dated 15 June 1995, the joint venture parties agreed that all decisions of the shareholders would be made by a simple majority in votes.

7 The result was that George Wuu remained the largest single shareholder in the plaintiff. The management of the plaintiff vested in GLM and SAFE. Each joint venture...