Golden Harvest Films Distribution (Pte) Ltd v Golden Village Multiplex Pte Ltd

• Jurisdiction: Singapore
• Judgment Date: 21 December 2006
• Date: 21 December 2006
• Docket Number: Civil Appeal No 29 of 2006
• Court: Court of Appeal (Singapore)

Golden Harvest Films Distribution (Pte) Ltd

Plaintiff

and

Golden Village Multiplex Pte Ltd

Defendant

[2006] SGCA 44

Chan Sek Keong CJ

and

Andrew Phang Boon Leong JA

Civil Appeal No 29 of 2006

Court of Appeal

Companies–Directors–Meetings–Board of directors of joint-venture vehicle comprising two groups of three directors each–Each group nominated by different party to joint venture–One group of directors walking out of board meeting–One of remaining three directors at meeting appointing himself as chairman–Remaining three directors passing resolution–Whether appointment of chairman irregular–Whether meeting not invalidated by irregular appointment of chairman–Section 392 (2) Companies Act (Cap 50, 1994 Rev Ed)–Companies–Memorandum and articles of association–Company's articles of association silent on procedure by which to appoint chairman of board meeting–Whether clause in shareholders' agreement implemented in practice but not incorporated in company's articles of association may be used to supplement such articles of association

The respondent was a joint-venture company set up by entities belonging to two conglomerates (“Golden Harvest” and “Village Roadshow”). Each of the two conglomerates nominated three directors to the board of directors of the respondent (“the Board”), with a total of six nominated directors. If there was a deadlock in relation to any decision by the Board, the chairman would, under the articles of the respondent, have the casting vote.

A warrant to act was given by the respondent's managing director (“Tan”) to a firm of lawyers, authorising the law firm to act on its behalf in a claim involving, inter alia, the appellant (“the main action”). This warrant to act was challenged by the appellant who applied to have the main action struck out on the ground that the warrant to act was invalid. The assistant registrar hearing the striking-out application found that Tan had no authority to sign the warrant to act on behalf of the company. She allowed the respondents the opportunity to obtain a resolution of the Board to ratify this warrant to act.

At the Board meeting held, via conference call, to ratify the warrant to act, the directors nominated to the Board by Golden Harvest objected to a director nominated by Village Roadshow (“Phillipson”) being appointed as chairman of the meeting. Phillipson wanted to chair the Board meeting in accordance with what he claimed was past practice and as provided for under cl 5.1 (i) of the respondent's shareholders' agreement (“the Shareholders' Agreement”). One of the Golden Harvest-nominated directors (“PCK”) countered that they had “recently discovered” that the relevant provision in the Shareholders' Agreement giving Village the right to appoint the chairman had not been incorporated into the articles of association and that until then, it could not be given effect to. Despite the parties not being able to agree on the appointment of a chairman, Phillipson sought to proceed with the Board meeting on the basis that he was in the chair and PCK threatened to call off the Board meeting and gave notice that he was going to hang up the phone. The directors nominated by Golden Harvest ultimately walked out of the Board meeting. The remaining three directors (nominated by Village Roadshow) continued with the Board meeting and passed the resolution. The assistant registrar, agreeing with the appellant that the warrant to act had not been validly ratified, ordered the main action to be struck out. This decision was overturned on appeal to a judge in the High Court. The appellant then appealed to the Court of the Appeal against the judge's decision.

The issues before the Court of Appeal were: (a) whether the appointment of the chairman was irregular; and (b) whether, if (a) was answered in the affirmative, the Board meeting had nevertheless not been invalidated by the procedural irregularity as, pursuant to s 392 (2) of the Companies Act (Cap 50, 1994 Rev Ed) (“the Act”), such an irregularity had neither caused nor might have caused “substantial injustice that cannot be remedied by any order of the Court”.

Held, dismissing the appeal with costs:

(1) The argument that it might be possible to invoke past practice to “fill in the gaps” of the articles of association, which were silent on the procedure by which a chairman could be appointed, was available to the respondent. However, in order for past practice to apply, there had to be concrete evidence adduced. The facts canvassed by counsel in this regard, however, were insufficient and should have been canvassed in more detail in the court below: at [36]and [39].

(2) Phillipson's appointment as chairman of the Board meeting was justified under cl 5.1 (i) of the Shareholders' Agreement as a matter of contractual agreement. It was true that cl 5.1 had not yet been incorporated into the respondent's articles of association, but the clause itself was contractually binding amongst the parties in any event. Phillipson's appointment of himself as chairman of the Board meeting was thus regular. The Golden Harvest-nominated directors had, by their past conduct, recognised and given effect to their own obligations as if cl 5.1 (i) had already been incorporated into the articles of association. There was no reason why, in principle, this arrangement could not be given effect to consistently with the terms of Art 118 of the respondent's articles of association, which provided that the directors shall elect a chairman from time to time. Indeed, cl 5.1 (i) was intended by the shareholders to supplement Art 118 by providing a mechanism to avoid any potential deadlock: at [44].

(3) The conduct of the Golden Harvest-nominated directors in resiling from the contractual obligations of the shareholders they represented in the respondent, raised serious issues not only of the standard of corporate governance in a joint-venture company, but also of a possible breach of directors' duties vis-à-visthe respondent. In so far as the former was concerned, the court should not countenance such a serious breach of corporate governance. In so far as the latter was concerned, the court refrained from making a considered judgment as the respondent had commenced separate proceedings against PCK for breach of directors' duties arising from what transpired at the Board meeting: at [44].

(4) There was a nexus between the appointment of Phillipson and the passing of the resolution. However, even then, the appellant would still fail in its argument under s 392 (2) of the Act simply because if there had been substantial injustice caused, it had in fact been perpetrated in the opposite direction. The intention of the Golden Harvest directors in walking out of the Board meeting and of the appellant in bringing the present proceedings was to deprive the respondent of its opportunity to have its case heard under the main action. The respondent's perspective was also relevant in the entire process of a holistic weighing and balancing of the various interests of all the relevant parties: at [54].

[Observation: The Golden Harvest-nominated directors were wrong in walking out of the Board meeting before it could begin to conduct its business. It might even be argued that by walking out on the Board meeting, the directors concerned (as well as the appellant) would be estopped from claiming that the appointment of Phillipson as chairman was irregular and, a fortiori, that the subsequent proceedings were improper. Perhaps an argument from waiver might have been invoked by the respondent as well: at [48].]

Benfield Greig Group plc, Re [2000] 2 BCLC 488 (refd)

Catesby v Burnett [1916] 2 Ch 325 (refd)

Compaction Systems Pty Ltd, Re [1976] 2 NSWLR 477 (folld)

Cruikshank v Sutherland (1923) 92 LJ (Ch) 136 (refd)

Imperial Mercantile Credit Association (Marino's Case), In re (1867) LR 2 Ch App 596 (refd)

Mamouney v Soliman (1992) 10 ACLC 1,674 (refd)

National Dwellings Society v Sykes [1894] 3 Ch 159 (refd)

Panwah Steel Pte Ltd v Koh Brothers Building & Civil Engineering Contractor (Pte) Ltd [2006] 4 SLR (R) 571; [2006] 4 SLR 571 (refd)

Pembury Pty Ltd,Re (1991) 9 ACLC 937 (refd)

Poliwka v Heven Holdings Pty Ltd (1992) 7 ASCR 85 (refd)

Russell v Northern Bank Development Corporation Ltd [1992] 1 WLR 588 (refd)

Tett v Phoenix Property and Investment Co Ltd [1986] BCLC 149 (refd)

White (Dennis), decd, In re [2001] Ch 393 (refd)

Companies Act (Cap 50,1994 Rev Ed)s 392 (2) (consd)

Chan Kia Pheng and Koh Kang Ming Shaun (Khattar Wong) for the appellant

Ling Daw Hoang Philip (Wong Tan & Molly Lim LLC) for the respondent.

Andrew Phang Boon Leong JA

(delivering the grounds of decision of the court):

Introduction

1 The present appeal turned on rather unusual facts and raised important issues centring around the conduct of meetings of the company (here, the meeting of the board of directors) in general and the appropriate legal norms that ought to be observed in the conduct of such meetings in particular.

2 We dismissed the appeal, and now give the detailed grounds for our decision.

3 The unusual fact situation in the present proceedings occurred in the context of a joint venture (“the JV”) between parties which belonged to conglomerates that were located in Hong Kong and Australia, respectively. These will be set out in more detail in the next part of this judgment. By way of a quick preliminary sketch, however, this joint venture was to be effected through the respondent company. To this end, the two conglomerates to the JV each nominated three directors to the board of directors of the respondent (“the Board”), with a total of six nominated directors. If there was a deadlock in relation to any decision by the Board, the chairman would, under the articles of the respondent, have the casting vote.

4 In a nutshell, the present proceedings arose in the following way. A warrant to act...