Hin Leong Trading (Pte) Ltd (in liquidation) v Rajah & Tann Singapore LLP and another appeal

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 04 April 2022
• Neutral Citation: [2022] SGCA 28
• Court: Court of Appeal (Singapore)
• Hearing Date: 23 November 2021
• Docket Number: Civil Appeal Nos 202 and 203 of 2020
• Plaintiff Counsel: Christopher Anand s/o Daniel, Harjean Kaur and Yeo Yi Ling Eileen and Keith Valentine Lee Jia Jin (Advocatus Law LLP),Ong Ziying Clement, Suresh s/o Damodara, Chua Jun Yi Leonard, Ning Jie and Lim Dao Yuan Keith (Damodara Ong LLC)
• Defendant Counsel: Toby Thomas Landau QC (instructed), Liew Wey-Ren Colin (Colin Liew LLC)
• Subject Matter: Companies,Directors,Powers,Receiver and manager,Judicial management order,Civil Procedure,Pleadings,Striking out
• Published date: 08 April 2022

Judith Prakash JCA (delivering the judgment of the court): Introduction

The directors of a company instruct a law firm to act on the company’s behalf. Consequently, the law firm files an application for the company to be put under judicial management and for interim judicial managers to be appointed. The court then places the company under interim judicial management and appoints interim judicial managers. The interim judicial managers thereafter retain the legal services of the same law firm. The directors of the company object and cause an action to be commenced in the name of the company, seeking to injunct the law firm from acting for the interim judicial managers and the company. Do the directors have the legal standing to authorise such an action in the company’s name? What is the legal effect of an order placing the company under interim judicial management? Do the directors retain thereafter a common law power to commence such an action? These, in essence, are the legal issues that the present appeals raise for our determination.

We heard these appeals together with CA/CA 20/2021 and CA/CA 21/2021. Our decision on those two appeals may be found in Lim Oon Kuin and others v Rajah & Tann Singapore LLP and another appeal [2022] SGCA 29 (the “CA Joinder Judgment”). That judgment being released simultaneously with this, we adopt all terms of reference and abbreviations employed therein for this judgment as well.

The present appeals arise from the decision in Ocean Tankers (Pte) Ltd (under judicial management) v Rajah & Tann Singapore LLP and another matter [2021] SGHC 47 (the “Striking Out Judgment”). In the Striking Out Judgment, the High Court judge (the “Judge”) allowed the applications by Rajah & Tann Singapore LLP (“R&T”) for the Injunction Applications to be struck out, on the basis that Mr Lim Chee Meng (“Mr CM Lim”) and Ms Lim Huey Ching (“Ms HC Lim”) (together, “the Lims”) did not have the requisite authority to cause Hin Leong Trading (Pte) Ltd (“HLT”) and Ocean Tankers (Pte) Ltd (“OTPL”) (collectively, “the Companies”) to commence the actions as they had been divested of their managerial powers as directors of the Companies upon the appointment of the Interim Judicial Managers (“IJMs”).

Background

As the factual background is set out in depth in the CA Joinder Judgment, we shall summarise only the facts salient to the present appeals.

On 27 April 2020, the Judge placed HLT under interim judicial management and appointed the IJMs over HLT. On 12 May 2020, the Judge placed OTPL under interim judicial management and appointed the IJMs over OTPL. After their appointment, the IJMs of both the Companies retained the legal services of R&T.

At the material time, the Lims were directors of both the Companies. On 9 and 21 July 2020, the Lims caused the Injunction Applications to be commenced in the names of the Companies. The Injunction Applications were to (a) restrain R&T from advising and acting for the Companies in High Court Originating Summons No 452 of 2020 (“OS 452”) and High Court Originating Summons No 417 of 2020 (“OS 417”), which were the pending applications for judicial management orders against the Companies; and to (b) restrain R&T from advising and acting for the IJMs of the Companies, as well as for the Companies’ Judicial Managers (“JMs”) should they be appointed subsequently. On 7 August 2020, the Judge granted OS 452 and OS 417. The Companies were placed under judicial management and their respective IJMs became their JMs. The JMs of the Companies continued to retain the services of R&T.

It bears pointing out that despite the appointment of the IJMs over the Companies, neither of the Lims had sought their approval in relation to the filing of the Injunction Applications, either before or after the filing of the applications. Likewise, neither of the Lims sought the consent of the JMs to proceed with the Injunction Applications following the court order placing the Companies under judicial management. Rather, the Lims purported to act unilaterally on behalf of the Companies in filing and proceeding with the Injunction Applications. The significance of this fact shall become apparent.

On 5 October 2020, R&T filed the Striking Out Applications seeking to strike out the Injunction Applications in their entirety. The Lims and their father, Mr OK Lim, responded by commencing the Joinder Applications on 12 October 2020, seeking to join themselves as parties to the Injunction Applications in their personal capacities.

On 4 November 2020, the Judge heard the Applications. He dismissed the Joinder Applications but allowed the Striking Out Applications. In respect of the latter, he considered that neither Mr CM Lim nor Ms HC Lim possessed managerial powers qua directors to commence the Injunction Applications in the names of the Companies. They consequently had no standing and the Injunction Applications were taken out without due authority. In making this finding, the Judge rejected the Lims’ argument that notwithstanding the Companies having been placed under interim judicial management, the Lims continued to possess residual powers of management as directors under common law that empowered them to commence the Injunction Applications in the Companies’ names (see the Striking Out Judgment at [45]).

On 27 and 30 November 2020, the present appeals against the Judge’s decision allowing the Striking Out Applications were filed on behalf of the Companies.

Subsequently, on 5 February 2021, the JMs of HLT filed an application for HLT to be wound up. On 8 March 2021, the Judge allowed the application and placed HLT in compulsory liquidation. The JMs were also appointed as HLT’s liquidators. On 16 August 2021, OTPL was placed in compulsory liquidation, with its JMs being appointed as its liquidators. No appeal has been filed against either winding up order.

Issues in the present appeals

To determine whether the Judge erred in striking out the Injunction Applications on the basis of lack of authority, the legal issues that need to be determined as are follows: Does an interim judicial management order operate so as to divest the directors of a company of all their powers of management, including the power to commence an action in the company’s name? Even if the answer to the above is in the affirmative, what is the scope of any power that the directors retain at common law?

Our decision The law on striking out

R&T brought the Striking Out Applications under O 18 r 19(1)(a), (b) or (d), or alternatively, under O 92 r 4 of the Rules of Court (2014 Rev Ed) (“the Rules”), contending that the Injunction Applications should be struck out because: The Lims, as directors of the Companies, did not have the requisite standing, power or authority to cause the Companies to commence and proceed with the Injunction Applications; and the Injunction Applications disclosed no reasonable cause of action and/or were scandalous, frivolous or vexatious and/or were an abuse of the process of the court.

It is common ground that the Rules grant the court the power to strike out the whole or part of an originating summons. The threshold for striking out is a high one, to the extent that the claim must be “obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed” (Singapore Civil Procedure 2021 vol 1 (Cavinder Bull gen ed) (Sweet & Maxwell, 2021) (“Singapore Civil Procedure” at para 18/19/6). The principles relating to the specific grounds under O 18 r 19(1)(a), (b) and (d) are well-established: The ground under O 18 r 19(1)(a) of the Rules refers to a cause of action (or defence, as the case may be) with no chance of success, having regard only to the averments made in the pleadings (see Singapore Civil Procedure at para 18/19/10). The ground under O 18 r 19(1)(b) of the Rules captures cases that are obviously frivolous or vexatious or obviously unsustainable (Singapore Civil Procedure at para 18/19/12). The ground under O 18 r 19(1)(d) of the Rules refers to instances where the court’s machinery is used improperly or not bona fides (Gabriel Peter & Partners (suing as a firm) v Wee Chong Jin and others [1997] 3 SLR(R) 649 at [22]). There may be a significant degree of overlap between these grounds. They also largely mirror and share a consistent juridical basis with the court’s inherent jurisdiction to strike out proceedings, as contained within O 92 r 4 of the Rules (Chee Siok Chin and others v Minister for Home Affairs and another [2006] 1 SLR(R) 582 at [29] and [35]).

In this vein, it is clear that striking out is warranted when there is an absence of legal standing owing to a lack of authority because such proceedings ought not, and indeed could not validly, have been brought at all (see United Investment and Finance Ltd v Tee Chin Yong and others [1965-1967] SLR(R) 349 at [51]–[58]). Hence, the sole point of contention is simply whether the Lims were legally entitled to commence the Injunction Applications in the Companies’ names. In turn, the enquiry as to whether they had authority to commence the Injunction Applications entails ascertaining the exact scope of a director’s powers, residual or otherwise, upon the appointment of insolvency officeholders, such as provisional liquidators, interim judicial managers, liquidators, and judicial managers.

The effect of an interim judicial management order

We begin with a few observations regarding the general powers of directors. It is important in this context to bear in mind the essential features of a corporation. First, there is the separation of legal personality between the corporate body and its shareholders. This means that each company is a separate legal entity, as are its shareholders; correspondingly, the acts of the former will not be imported to the latter, as a general rule. Second, and more important for our...