EQ Capital Investments Ltd v Sunbreeze Group Investments Ltd and others (Sim Chye Hock Ron, third party)

JudgeChua Lee Ming J
Judgment Date02 November 2017
Neutral Citation[2017] SGHC 271
Citation[2017] SGHC 271
CourtHigh Court (Singapore)
Published date15 November 2018
Docket NumberSuit No 17 of 2017 (Summons No 1356 of 2017)
Plaintiff CounselYeo Khirn Hai Alvin, SC, Koh Swee Yen, Lin Chunlong, Mak Shin Yi (Wong Partnership LLP)
Defendant CounselDavinder Singh s/o Amar Singh, SC, Jaikanth Shankar, Tan Ruo Yu and Charlene Wong Su-Yi (Drew & Napier LLC)
Subject MatterCivil procedure,Third party proceedings,Striking out
Hearing Date05 May 2017
Chua Lee Ming J: Introduction

The plaintiff, EQ Capital Investments Ltd (“EQ Capital”), commenced this action against the 1st to 3rd defendants for minority oppression in relation to the affairs of the 4th defendant, The Wellness Group Pte Ltd (“Wellness”). The 1st to 3rd defendants in turn commenced third party proceedings against Mr Ron Sim Chye Hock (“Ron Sim”) for an indemnity or contribution (“the third party claim”).

I granted Ron Sim’s application to strike out the third party claim against him, pursuant to O 18 r 19(1)(a) of the Rules of Court (Cap 322, R 5, 2014 Rev Ed) (“the Rules”), on the ground that the third party statement of claim did not disclose a reasonable cause of action. The 1st to 3rd defendants have appealed against my decision.

Background

At all material times, the 1st defendant, Sunbreeze Group Investments Limited (“Sunbreeze”), was the majority shareholder of Wellness, with a shareholding of 80.62%. EQ Capital held 7.55%. The remaining 11.83% was held by two private equity funds.

At all material times, the 2nd defendant, Mr Manoj Mohan Murjani (“Manoj”), and his wife, the 3rd defendant, Ms Kanchan Manoj Murjani (“Kanchan”), were directors of Wellness and shareholders and directors of Sunbreeze. Manoj was also the chief executive officer (“CEO”) of Sunbreeze.

Wellness was established for the purposes of wholesale and/or retail of lifestyle and/or wellness related products. In October 2007, TWG Tea Company Pte Ltd (“TWG Tea”) took over Wellness’ tea division. In October 2010, EQ Capital acquired a 7.55% stake in Wellness. EQ Capital is an investment holding company and Ron Sim was at all material times its ultimate sole beneficial owner.

In early 2011, Manoj (on behalf of TWG Tea) started discussions with Ron Sim in relation to an investment by OSIM International Ltd (“OSIM”) into TWG Tea (“the OSIM Negotiations”). The shareholders of TWG Tea then were Wellness and Paris Investment Pte Ltd (“Paris”). OSIM was then a public company that was listed on the Singapore Stock Exchange and Ron Sim was the CEO, a director and the Chairman of OSIM. During the OSIM Negotiations, Manoj presented profit projections which showed that TWG Tea would achieve profit before tax and minority interests (“PBT”) of $29m for the financial year ending 31 March 2013 (“FY2013”).

On 18 March 2011, OSIM, Wellness and Paris signed a Sale and Purchase Agreement (“the SPA”) and Wellness, OSIM, Paris and TWG Tea signed a Shareholders’ Agreement (“the SHA”). Pursuant to the SPA, OSIM became a 35% shareholder of TWG Tea; the other two shareholders were Paris (10.3%) and Wellness (54.7%).

The SHA envisaged that joint ventures between TWG Tea and OSIM would be set up in China, Hong Kong, Taiwan and South Korea. It was contemplated that OSIM would hold 60% and TWG Tea would hold 40% of the shares in each joint venture. On 1 June 2011, OSIM and TWG Tea incorporated the first joint venture, OSIM-TWG Tea (North Asia) Pte Ltd (“the JV Co”). OSIM held 60% and TWG Tea held 40% of the shares in the JV Co.

Subsequently, a disagreement arose between Manoj and Ron Sim over the price that TWG Tea was to charge the JV Co for its products (“the Transfer Pricing Issue”). Manoj wanted to charge the JV Co the same price that TWG Tea charged its franchisees (“the Franchise Price”) whereas Ron Sim’s position was that the JV Co should be charged at cost since TWG Tea held a 40% stake in the JV Co. Eventually, the TWG Tea board agreed on a transfer price of cost plus a mark-up of 20%.

Soon after the JV Co opened its store in Hong Kong, Ron Sim discovered that TWG Tea did not have all the necessary trade mark registrations to open stores in North Asia, including Hong Kong.

In July 2011, Manoj said that he wanted to update the profit projections. A revised set of TWG Tea projections which was prepared in October 2011 showed that TWG Tea’s projected PBT for FY2013 would only be around $11m.

In December 2011, Ron Sim called for a TWG Tea board meeting to review the suitability of Manoj continuing as CEO and if thought appropriate to remove him as CEO. Manoj was then the CEO and a director of TWG Tea. For various reasons, the board meeting was not held although Manoj and Ron Sim had email exchanges on the matter.

On 14 August 2012, Manoj resigned as CEO of TWG Tea with effect from 15 September 2012. On 28 September 2012, Manoj also resigned as a director of TWG Tea. Wellness had a right under the SHA to representation on the board of TWG Tea. However, Wellness did not appoint anyone else to replace Manoj on the board of TWG Tea until October 2016 when it nominated Manoj. Manoj’s nomination as director was not accepted by OSIM, Paris and the TWG Tea board.

Clause 4.5 of the SPA (“the Profit Swing Clause”) provided for the combined shareholding of Wellness and Paris to be diluted (by up to 10% of TWG Tea shares) in favour of OSIM if TWG Tea’s audited PBT for FY2013 fell below $17m, or for the shareholding of OSIM to be diluted (by up to 10% of TWG Tea shares) in favour of Wellness and Paris if the audited PBT for FY 2013 exceeded $27m.

TWG Tea’s audited PBT for FY2013, which was signed off by its auditors on 11 June 2013, was just above $5m. Pursuant to the Profit Swing Clause, the combined shareholding of Wellness and Paris in TWG Tea was diluted by 10% in favour of OSIM (“the Profit Swing Clause Transaction”). The result was that OSIM’s shareholding increased to 45% while Wellness’ shareholding decreased from 54.7% to 46.3%.

On 18 October 2013, OSIM purchased all the shares in Paris. The shareholding structure of TWG Tea then became as follows: OSIM and Paris (53.7%) and Wellness (46.3%).

In November 2013, TWG Tea proposed a rights issue to raise capital (“the Rights Issue”). Wellness did not subscribe to the Rights Issue. Consequently, OSIM and Paris together subscribed for the entire Rights Issue and the combined shareholding of OSIM and Paris in TWG Tea increased to from 53.7% to 69.9% while Wellness’ shareholding was diluted from 46.3% to 30.1%.

Suit 187 of 2014

In February 2014, Wellness and Manoj commenced Suit 187 of 2014 against OSIM, Paris and the directors of TWG Tea (“S187/2014”). Wellness’ claim was for minority oppression, conspiracy to injure and breach of contract whilst Manoj’s claim was for conspiracy to injure. Wellness and Manoj alleged as follows: That OSIM, Ron Sim and two other directors of TWG Tea, ie, Khor Peng Soon (“Peng Soon”) and Lee Hwai Kiat (“Peter Lee”), acted to damage the profitability of TWG Tea by, among other things, acting in concert to procure TWG Tea to supply products to the JV Co at a price lower than that allegedly agreed. That OSIM, Ron Sim and the directors of OSIM, Paris and TWG Tea acted wrongfully to enable OSIM to take control of TWG Tea through the following acts, among others: OSIM’s exercise of its rights under the Profit Swing Clause to obtain an additional 10% of TWG Tea shares from Wellness and Paris; Ron Sim’s actions to remove Manoj as CEO of TWG Tea; Ron Sim’s proposal and OSIM’s and Paris’ approval of the TWG Tea Rights Issue, which was, inter alia, not for commercial reasons and intended to dilute Wellness’ shareholding.

On 22 April 2016, I dismissed the claims in S187/2014 – see The Wellness Group Pte Ltd and another v OSIM International Ltd and others [2016] 3 SLR 729. Among other things, I found as follows: Ron Sim’s negotiations over the Transfer Pricing Issue were for commercial reasons and not aimed at damaging TWG Tea’s profits. OSIM, Ron Sim, Peng Soon and Peter Lee did not act to damage the profitability of TWG Tea. OSIM did not cause TWG Tea’s failure to meet the performance target in the Profit Swing Clause and OSIM was entitled to exercise its rights under that clause. OSIM and Ron Sim encountered several issues which caused concerns about the future of TWG Tea and Manoj’s management of the same. Ron Sim had genuine and reasonable grounds for wanting to remove Manoj as CEO. The Rights Issue was undertaken bona fide and for good commercial reasons.

Wellness’ appeal in CA/CA 64 of 2016 (“CA64/2016”) was dismissed by the Court of Appeal on 25 October 2016.

The present action and the third party claim

On 10 January 2017, EQ Capital filed the present action, claiming minority oppression. On 6 February 2017, Sunbreeze, Manoj and Kanchan issued a third party notice against Ron Sim, claiming to be indemnified against any liability in respect of EQ Capital’s claim, or contribution. For ease of reference, I shall refer to Sunbreeze, Manoj and Kanchan, together, as “the 3 Defendants”. The fourth defendant, Wellness, is a nominal defendant.

On 24 March 2017, Ron Sim applied to strike out the third party notice and statement of claim. On 5 May 2017, I granted Ron Sim’s application.

EQ Capital’s claim

EQ Capital’s claim for minority oppression was based on the following matters: Manoj and Kanchan caused Wellness not to convene any annual general meeting (“AGM”), file annual returns and prepare, file and provide EQ Capital with the audited accounts of Wellness for FY2011 to date. Consequently, EQ Capital has been and continues to be deprived of its rights to attend and participate at AGMs and to review the audited accounts of Wellness.1 Manoj brought about the dilution of Wellness’ shareholding in TWG Tea caused by OSIM’s exercise of the Profit Swing Clause because the Profit Swing Clause was based on the projections which Manoj presented to OSIM in the course of the OSIM Negotiations; and Manoj knew that the projections were unreliable and/or not supported by TWG Tea’s numbers and/or based on junk numbers. The dilution of Wellness’ shareholding in TWG Tea correspondingly resulted in a dilution of EQ Capital’s interest in TWG Tea.2 Manoj and Kanchan caused Wellness’ interest in TWG Tea to be further diluted by failing to take steps to cause Wellness to subscribe to...

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1 cases
  • Sunbreeze Group Investments Ltd and others v Sim Chye Hock Ron
    • Singapore
    • Court of Appeal (Singapore)
    • 22 Octubre 2018
    ...of the Rules of Court: see EQ Capital Investments Ltd v Sunbreeze Group Investments Ltd and others (Sim Chye Hock Ron, third party) [2017] SGHC 271 (“the GD”). The appellants filed the present appeal, Civil Appeal No 105 of 2017, against the Judge’s decision. They also applied directly to t......

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