Goh Eng Wah v Daikin Industries Ltd and Others

• Jurisdiction: Singapore
• Judge: Lai Siu Chiu J
• Judgment Date: 31 October 2008
• Neutral Citation: [2008] SGHC 190
• Citation: [2008] SGHC 190
• Court: High Court (Singapore)
• Published date: 11 November 2008
• Plaintiff Counsel: Davinder Singh SC, Hri Kumar SC, Shobna Chandran (instructed) and Johnny Cheo Chai Beng (Cheo Yeoh & Associates LLC)
• Defendant Counsel: Anna Oei and Chen Wei Ling (Tan, Oei & Oei LLC),Sean Lim Thian Siong (Hin Tat Augustine & Partners),Thio Ying Ying and Tan Yeow Hiang (Kelvin Chia Partnership)
• Subject Matter: Contract

31 October 2008 Judgment reserved.

Lai Siu Chiu J:

Introduction

1 This claim centres on an agreement for payment (“the Incentive Scheme”), the rights it conferred as well as the obligations it imposed on the parties to this suit. However, as with most agreements, the documents did not tell the full story and the court had to sift through the evidence to determine who the true parties to the Incentive Scheme were, what was intended by them and whether there were subsequent variations to the documented terms. The claim by Goh Eng Wah (“the plaintiff”) against five parties is for an alleged shortfall in the payments due to him under the Incentive Scheme.

2 The plaintiff had originally commenced proceedings in Suit No 60 of 2004 against Daikin Industries Limited and Daikin Airconditioning (Singapore) Pte Ltd (“the first and second defendants” respectively) over the same subject matter. However, that suit was discontinued by the plaintiff on 16 September 2005 following the trial judge’s observation on the first day of hearing that Robert Chua Teck Chew (“the third defendant”) had not been called as a witness or been made a party to the proceedings, despite his central role in the allocation of payments under the Incentive Scheme.

3 The present suit was commenced with not only the addition of the third defendant, but also Chua Teck Meng and Chua Tiak Seng Charlie (“the fourth and fifth defendants” respectively). The third, fourth and fifth defendants are siblings (in descending order of seniority) and are the sons of Chua Joon Nam (“CJN”) who passed away in 1989. (Hereinafter the third, fourth and fifth defendants will be referred to collectively as “the Chua brothers”.)

Factual Background

4 The plaintiff is an elderly businessman who is not conversant in English. His first and main business was/is in cinemas, which he started in the 1950s. He also had interests in other businesses such as property investment under the name of Tai Hong Realty (“Tai Hong”). The plaintiff’s main business is now Eng Wah Organization Ltd which public company is listed on the Stock Exchange of Singapore. However, it is his daughter Goh Min Yen (“Min Yen”), not the plaintiff, who is the managing-director of the listed entity. Min Yen is also the plaintiff’s alternate director in the second defendant.

5 The first defendant is a Japanese company that manufactured and still manufactures the “Daikin” brand of air-conditioning units. The first defendant appointed the second defendant as its sole distributor in 1972.

6 The second defendant is a Singapore company that was established in 1968 as a partnership, between CJN and the plaintiff, to carry on the business of distributing and installing air-conditioning units, including those bearing the Daikin brand. CJN was a trusted friend of the plaintiff and they had known each other for some 10 years prior to the setting up of the second defendant together.

7 The Chua brothers all eventually became shareholders and executive directors of the second defendant – the third defendant from inception, the fourth defendant became a shareholder in 1972 and assumed the role of Executive Director in September 1974 while the fifth defendant was deemed a shareholder after his father’s death (as a beneficiary of CJN’s estate) and became an executive Director in July 1990.

History of the second defendant

8 When the second defendant was first set up in 1968, the plaintiff was named Chairman, CJN was the Managing-Director, and the third defendant was an Executive Director. These three were the initial subscribers and directors of the second defendant. However, the persons who ran the affairs of the second defendant were CJN and the third defendant.

9 The plaintiff was never actively involved in the management of the second defendant. Although he would receive updates from his friend (CJN) during their lunch meetings and either personally attended or sent a proxy to attend the Annual General Meetings (“AGMs”) of the second defendant, the plaintiff’s role was essentially that of a financier. He invested in the second defendant in his own name as well as, in later years, through his corporate vehicles Eng Wah Theatres Organization Pte Ltd (which became Eng Wah Organization Ltd in 1994 [“Eng Wah”]) and Kin Wah Co (Pte) Ltd (“Kin Wah”). The plaintiff also provided short term loans to the second defendant and stood as personal guarantor for the second defendant’s bank loans. Additionally, the plaintiff was a major customer of the second defendant and procured contracts for the second defendant to install air-conditioners in his Eng Wah chain of cinemas in Singapore and Malaysia.

10 In 1972, CJN was introduced to one Cheng Eng Kuan (“Cheng”), a banker from Hong Kong, and persuaded Cheng to invest in the second defendant. Cheng subscribed for 250,000 shares in the second defendant and became its largest single shareholder holding 50% of the shares. Cheng later prompted the second defendant to invest in the manufacture of window air-conditioners in Indonesia before transferring his shares to his brother Chong Kam Sai (“Chong”), who was a non-executive director in the second defendant from 1 February 1975 to 10 December 1975. Chong managed the second defendant’s business in Indonesia. Unfortunately, the business failed and had to be sold off to an Indonesian party.

11 The failure of the Indonesian venture together with the oil crisis of the 1970s caused the second defendant to suffer substantial losses. It was around April 1976, that the first defendant took up 135,000 shares of $1.00 a share in the second defendant, providing much needed funds to the second defendant. In addition, the first defendant’s shareholding in the second defendant ensured that the first defendant had an interest in the success of the second defendant. The investment made it more unlikely that the first defendant would terminate the sole distributorship of the second defendant or increase the cost of Daikin air-conditioners that it supplied to the second defendant.

12 After the first defendant’s acquisition of shares in the second defendant, CJN and his associates (hereinafter collectively referred to as “the Chua Group”) held 42.92% of the shares in the second defendant, the plaintiff and his associates (hereinafter collectively referred to as “the Goh Group”) held 13.56%, Chong held 28.25% and the first defendant held 15.25%. The chart below shows the shareholding structure:

Shareholder	Number of shares	% shareholding
Chua Joon Nam	255,000	28.81
Chuas Investment Private Limited	95,000	10.73
Third defendant	15,000	1.69
Fourth defendant	15,000	1.69
Plaintiff	90,000	10.17
Eng Wah Theatres Organization Pte Ltd	30,000	3.39
Chong Kam Sai	250,000	28.25
First defendant	135,000	15.25

13 Unfortunately, the second defendant continued to suffer losses and in May 1979, the plaintiff injected another $375,000 into the second defendant (via Kin Wah) by subscribing for 375,000 shares of $1.00 each. The first defendant also provided $340,000 in August 1980 in exchange for 340,000 shares. After this share subscription exercise, the Goh Group became the largest shareholder in the second defendant. However, despite the capital infusions, the second defendant’s net liability was $523,000 in early 1981 and its contracting business continued to incur losses. In April 1981, Chong sold his 250,000 shares in the second defendant to Sim Boon Woo (“Sim”), a friend of CJN.

First defendant acquiring majority stake in the second defendant

14 In 1981, the second defendant decided to move away from its contracting business and to focus on the distribution and marketing of air-conditioning units in line with Singapore’s accelerated public housing program. Once again, the second defendant required substantial fresh capital. In view of this, the first defendant was invited to become the majority shareholder of the second defendant because it could provide financial support as well as liberal trade credit terms. The first defendant took up the invitation, whereupon the second defendant issued 800,000 new shares that were taken up by the first defendant, when the other shareholders by agreement declined to take up any. Thereafter, the shareholding in the second defendant was as follows:

Shareholder	Number of shares	% shareholding
Chua Joon Nam	255,000	10.625
Chuas Investment Private Limited	95,000	3.96
Third defendant	15,000	0.625
Fourth defendant	15,000	0.625
Plaintiff	90,000	3.75
Eng Wah Theatres Organization Pte Ltd	30,000	1.25
Kin Wah Co (Pte) Ltd	375,000	15.625
Sim Boon Woo	250,000	10.42
First defendant	1,275,000	53.125

15 After the first defendant had assumed majority control of the second defendant, it appointed nominees as Managing Director (“the nominee MD”) and sales Director (“the nominee Sales Director”). The nominee MD was made a mandatory cheque signatory to the second defendant’s cheques, including the payments under the subsequently agreed Incentive Scheme. The first defendant also took over the primary responsibility of procuring financing for the second defendant, especially in respect of the import of air-conditioning units from Japan. However, CJN with the third and the fourth defendants continued to manage the second defendant.

The Incentive Scheme

16 At the same time that the first defendant took up a majority stake, it also entered into a Memorandum dated 15 July 1981 (“the Memorandum”) signed by the first defendant’s representative and CJN. The Memorandum was subsequently varied by an undated variation recorded on the same document. As this document lay at the heart of the parties’ dispute on the Incentive Scheme, it is necessary to set out its...