EFT Holdings, Inc and another v Marinteknik Shipbuilders (S) Pte Ltd and others

• Jurisdiction: Singapore
• Judge: Belinda Ang Saw Ean J
• Judgment Date: 11 December 2012
• Neutral Citation: [2012] SGHC 246
• Court: High Court (Singapore)
• Hearing Date: 12 April 2012,04 April 2012,25 May 2012,03 April 2012,29 November 2012,13 April 2012,09 April 2012,02 April 2012,05 April 2012,11 April 2012,10 April 2012
• Docket Number: Suit No 571 of 2010
• Plaintiff Counsel: Hee Theng Fong, Nandakumar s/o Renganathan and Leong Fu Sheng Eugene (RHTLaw Taylor Wessing LLP)
• Defendant Counsel: Ajaib Haridass and Sivakumaran Murugaiah Balakrishnan (Haridass Ho & Partners)
• Subject Matter: Conflict of Laws,Choice of Law,Tort,Conspiracy,Unlawful Means conspiracy,Res judicata,Issue estoppel
• Published date: 04 January 2013

Belinda Ang Saw Ean J : Introduction

On 30 June 2008, the first plaintiff, EFT Holdings Inc (“P1”), a publicly trading company incorporated in the USA, and Excalibur International Marine Corporation, (“EIMC”), a Taiwanese company, executed two documents, namely, a subscription agreement (“the Subscription Agreement”) and a loan agreement (“the Loan Agreement”). Under the Subscription Agreement, P1 agreed to invest US$19.193 million by subscribing for 48.81% of the ordinary shares in EIMC. The second plaintiff, EFT Investment Co Ltd (“P2”), is a company incorporated in Taiwan to hold the new share allotments. For convenience and where relevant, P1 and P2 will be collectively referred to as “EFT”.

EIMC held a licence to operate a ferry service across the Straits of Taiwan between Taiwan and China (“the cross-strait ferry”). On 17 June 2008, EIMC entered into a memorandum of agreement with a British Virgin Islands company, Ezone Capital Limited (“Ezone”) to purchase a second-hand catamaran, known as “Nixe 2” (referred to hereafter as “the OCEAN LALA” as that was what the vessel was later renamed) for its cross-strait ferry business. EIMC paid the deposit for the purchase, but the bulk of the purchase price was from the loan provided by P1 pursuant to the Loan Agreement, which loan EIMC subsequently repaid in full with the money that it received from P1 for the new shares issued by EIMC pursuant to the Subscription Agreement. The acquisition of the new shares took place after P2 was incorporated and the new shares were registered in the name of P2.

EFT took over the management of EIMC in November 2008. It appears that EIMC’s cross-strait ferry services started in June 2009. The inaugural ferry crossing apparently attracted much media publicity as it was reportedly the first cross-strait transportation in a climate of improving economic relations between China and Taiwan. Unfortunately, after one year of operations, the OCEAN LALA, the vessel deployed for the cross-strait ferry service, sustained severe weather damage during one of the regular ferry crossings on 8 August 2010. The OCEAN LALA was taken out of service and was later declared a constructive total loss.

Against the backdrop outlined above, one finds this present action, Suit No 571 of 2010, commenced on 2 August 2010 (“the Singapore Action”) and legal actions against other parties in Taiwan.

The Singapore Action

This action in Singapore is to claim, inter alia, damages or a refund of the US$19.193 million that was invested in EIMC. EFT’s claim for unlawful means conspiracy relates to EIMC’s financial statements for the financial year ended 31 December 2007 (“the 2007 Financial Statements”), which overstated EIMC’s equity and assets. EFT’s case is that it was injured by an unlawful combination of the four defendants in the Singapore Action.¹ EFT alleges that through false documents created by the defendants, EIMC was able to increase its paid-up capital. The inflated paid-up capital misled EFT into investing in EIMC, believing that EIMC was a financially robust company with a paid-up capital of US$17 million.²

The first defendant, Marinteknik Shipbuilders (S) Pte Ltd (“Marinteknik”), is a Singapore-incorporated company which is in the business of building and repairing ships, tankers and other ocean-going vessels. The second defendant, Lim Lan Eng Priscilla (“Priscilla”) is a director of Marinteknik. For convenience, I shall refer to Marinteknik and Priscilla as “the Singapore defendants”.

The third defendant, Hsiao Zhong-Xing, also known as Steve Hsiao (“Mr Hsiao” or “D3”), was at all material times, a director of EIMC. At all material times, the Singapore defendants dealt with Mr Hsiao (D3) as the chief executive officer of EIMC, and not, as EFT has alleged, as the general manager of EIMC. The fourth defendant, Lu Tso-Chun (“Mr Lu” or “D4”), entered into two contracts with Marinteknik to purchase two newbuild catamarans (ie, Hull 189 and Hull 190) in November 2005 (“the 2005 shipbuilding contracts”). Mr Lu became a shareholder of EIMC (holding 48,750,000 shares), but it was alleged that he never paid for his shares. Sometime in July 2007, the 2005 shipbuilding contacts were novated to EIMC pursuant to a tripartite agreement that was made between Marinteknik, EIMC (represented by Mr Hsiao (D3) and Mr Lu (D4) (“the Tripartite Agreement”).

Mr Hsiao (D3) and Mr Lu (D4) did not enter an appearance to the Singapore Action, and default judgment was entered against them.

This action continues against the Singapore defendants, Marinteknik and Priscilla, for conspiracy to injure by unlawful means. At a pre-trial conference on 19 January 2012, by consent, an order for a split trial on the issues of liability and quantum was recorded by SAR Cornie Ng.

The Singapore defendants have rejected the conspiracy charge by denying any participation in any unlawful means conspiracy to injure EFT. The Singapore defendants have also denied any involvement in and responsibility for the misrepresentations made by EIMC and its directors, Mr Jen-Ho Chiao (“Mr Chiao”) and Mr Hsiao to P1 and its representative, Mr Jack Jie Qin (“Mr Qin”), in June 2008. They put EFT to strict proof that the documents identified in [23] below were shown to Mr Qin in June 2008. The Singapore defendants’ pleaded case is that the 2005 shipbuilding contracts, the Tripartite Agreement, the two Transfer Affidavits dated 24 April 2007, two Lloyd’s Register Certificates (both dated 25 August 2006) and the two reports issued by Ritchie & Bisset (Far East) Pte Ltd (both dated 12 December 2006) were for Hulls 189 and 190, and they related to a completely different transaction from the 2008 transaction involving EFT’s equity investment in EIMC for the purchase of OCEAN LALA. The Singapore defendants explain that at all material times, EIMC had a licence to operate a cross-strait ferry service between China and Taiwan, and its interest in Hulls 189 and 190 was for its cross-strait ferry business. Due to EIMC’s protracted and unsuccessful attempts to obtain bank financing to buy Hulls 189 and 190, the 2005 shipbuilding contracts were eventually rescinded in 2007. EFT came into the picture almost a year later and the equity investment in question was for the purchase of OCEAN LALA. The Singapore defendants’ case is that there were no continuing representations in the subject documents for Hulls 189 and 190 which had become outdated and spent by the time of EFT’s equity investment in October 2008.

Finally, the Singapore defendants contend that EFT is estopped on the basis of res judicata (specifically issue estoppel) from pursuing a claim arising from the Subscription Agreement as it involves the status of the shares issued to Mr Lu (D4), which matter has already been adjudicated by the Taichung District Court.

The Taiwanese proceedings

There were four Taiwanese proceedings resulting in four judgments.

P2 tried to get Mr Chiao and EIMC’s auditor³, Ms Zhang Hui-Ying (“Ms Zhang”) prosecuted but failed. EIMC then filed a criminal complaint in the Taiwan Shihlin District Criminal Court to appeal against the decision of the Prosecutor’s Office not to prosecute Mr Chiao and Ms Zhang for capital forgery. The Taiwan Shihlin District Criminal Court rejected EIMC’s application. It is common ground that the criminal ruling of the Taiwan Shihlin District Criminal Court may not be appealed.

The judgment of the Shihlin District Court dated 11 February 2011 is for the civil suit brought by P2 against Mr Chiao, Ms Zhang, Mr Hsiao (D3) and Mr Lu (D4). Like in the Singapore Action, Mr Hsiao and Mr Lu did not participate in the civil action. However, the 11 February 2011 judgment of the Shihlin District Court dismissed P2’s claims against: (a) Mr Chiao for false paid-up capital; and (b) Ms Zhang for issuing false reports. Of relevance is the Shihlin District Court’s holding that Mr Chiao did not know that Mr Lu had not made any capital contribution for his shares. As such, Mr Chiao did not have any intention to deceive P2 into investing in EIMC. The Shihlin District Court held that it was the previous chairman and board of EIMC who had authorised the share issue to Mr Lu. The Singapore defendants’ expert witness, Mr Joseph Chang (“Mr Chang”), testified that the 11 February 2011 judgment was binding on Mr Chiao, Ms Zhang, Mr Hsiao and Mr Lu (and not simply Mr Chiao and Ms Zhang, as EFT averred). Mr Chang also confirmed the ruling that EFT was adamant on investing in EIMC, and EFT’s adamance had nothing to do with the defendants in that case.⁴

EFT claimed that this 11 February 2011 judgment was under appeal to the Taiwan High Court and that the Taiwan High Court had handed down its decision. Mr Chang was not aware that an appeal was lodged.⁵ Counsel for EFT, Mr Hee Teng Fong (Mr Hee), tried to introduce during Day 9 of the trial the judgment of the Taiwan High Court ordering a retrial in the Shihlin District Court – however no admissible evidence in support of the High Court’s decision and the re-trial were introduced. The Taiwan High Court’s decision and the transcripts of the re-trial were not disclosed nor translated into English. Counsel for the Singapore defendants, Mr Ajaib Haridass (“Mr Haridass) objected to EFT’s non-compliance with Order 92 rule 1 of the Rules of Court, Cap 322. R5, 2006 Rev Ed) (“the ROC”), EFT’s failure to give discovery and the late production of un-translated copies of the Taiwan High Court judgment and the transcripts of the re-trial.⁶

The third judgment is that of the Taiwan High Court dismissing Mr Chiao’s claim against EIMC for wrongful dismissal, which decision was upheld by the Taiwan High Court on 6 July 2011.⁷ The High Court held that the shareholder resolutions by which Mr Chiao was dismissed were valid. It is common ground that the decision of the Taiwan High Court has been upheld by the Taiwan Supreme Court, and that...