International Connex Holdings Pte Ltd v Chan Shing On and Others

JudgeKan Ting Chiu J
Judgment Date31 December 2007
Neutral Citation[2007] SGHC 228
Docket NumberSuit No 315 of 2006
Date31 December 2007
Published date07 January 2008
Plaintiff CounselK Muralitherapany and Kenneth Ho (Joseph Tan Jude Benny)
Citation[2007] SGHC 228
Defendant CounselTan Kok Heng, Leroy Soloman and Ramesh Chandra (Tan Leroy & Chandra)
CourtHigh Court (Singapore)
Subject MatterDirectors,Companies,Director of joint-venture company also director of investing company,Failing to provide information on joint-venture company,Participating in removal of another director,Whether there was breach of duty to investing company,Joint-venture company issuing dividends and new shares,Breach of duties

31 December 2007

Kan Ting Chiu J:

1 This action arose from the antipathy between two director-shareholders of a company. One of them obtained the leave of court to commence proceedings in the name of the company against the other for breaches of directors’ duties. There are other defendants and issues in the action, but they are secondary and consequential to the issue between those two adversaries.

2 I will refer to the companies and persons involved in the dispute, and the claims.

International Connex Holdings Pte Ltd, the plaintiff

3 International Connex Holdings Pte Ltd (“ICH”) was incorporated in Singapore in 1968 under its original name International Polymers Pte Ltd. Two persons, Tan Eng Toh (“TET”) and Chen Chiang Su (“CCS”) built up the company in its early days, and they and their families effectively ran and own the company. In 1979, TET’s son Chan Shing On (“CSO”), the first defendant, and CCS’s son Tan Koh Young (“TKY”), were appointed directors of the company. TET and CCS have passed away in 2003, and TKY and CSO are the dominant members of their respective families in the company.

4 At the present time, the board of four directors of ICH is filled by the children of TET and CCS. Two directors, namely CSO and his sister Tan Suat Yanh (“TSY”), the second defendant, are the children of TET. Two other directors, TKY and his sister, are the children of CCS. TKY and CSO were more actively engaged in the company than their respective siblings. There were differences over the running of the company, as a result of which TKY stopped going to ICH’s office from 1998 except to chair meetings of the company’s board of directors, and did not play an active part in the affairs of the company. In September 2001, he even proposed to wind up the company, but that was not taken up.

5 On 24 September 2004, a resolution was passed at an Extraordinary General Meeting of ICH to remove TKY as a director of the company. TKY obtained an order of court on 9 November 2004 that the resolution was not to be acted on pending the trial of this action. On 17 May 2005, he obtained leave in OS No 1245 of 2004 to commence proceedings against the defendants in the originating summons, including CSO, Tan Suat Yanh as the Administrator of the Estate of Tan Eng Toh, Deceased, and Wealth Resources Enterprises Ltd (“WRE”).

Weifang Fuyuan Turbochargers Co Ltd (“WFT”)

6 In 1993, ICH, on the recommendation of CSO, made an investment in a joint venture in Weifang, China, to manufacture turbochargers. The resultant joint venture company was named Weifang Fuyuan Turbochargers Co Ltd.

7 The original shareholders of WFT were ICH and two Chinese entities, namely Weifang Huaxing Machinery Group Co and Dingming Investments Co Ltd, with ICH as the largest shareholder.

Tan Koh Young

8 TKY was appointed chairman of WFT. He did not play an active role in the affairs of WFT. By his own account, he had no involvement in the running of the company, while CSO was closely involved in its management.

9 WFT is a commercial success and ICH’s investment in WFT is now its most valuable asset. In 2001, there was a proposal for WFT to raise RMB 10m in capital to increase and improve its production capacity. WFT’s board held a meeting in Singapore on 17 August2001 to discuss the matter with several directors coming from China. In the course of the meeting chaired by TKY, a disagreement broke out between him and CSO, and TKY left the meeting abruptly despite pleas from the other directors to him to return. The meeting carried on in his absence, and a decision was reached that RMB10m was to be raised from the existing and new shareholders.

10 The directors of WFT held another meeting on 30 October 2001 in China to confirm the increase of capital and the issuance of new shares. TKY did not attend the meeting although he was notified. The meeting confirmed that injection of RMB 10m from CSO and TET and the staff of WFT into the company’s capital by the issuance of new shares to them. The allotment to CSO and TET was subsequently subscribed by WRE, a company controlled by CSO and his siblings.

11 The directors of WFT were unhappy with TKY as chairman, and decided to remove him from office. At a board meeting held on 12 January 2002, the directors resolved to terminate TKY’s appointment as chairman in his absence, and appointed CSO as chairman in his place.

Chan Shing On, the first defendant

12 His background and roles in the plaintiff and WRE have been described in the foregoing paragraphs. He was director and deputy general manager of WFT, and has been the chairman of the company since TKY’s removal.

Tan Suat Yanh, the second defendant

13 She is the sister of CSO, and daughter of TET. She became a director of ICH on 20 January 2004. TKY acknowledged that she has a smaller involvement in the matter than CSO and that most of the wrongdoings complained of took place before her appointment as director. Nevertheless, he felt that she should have taken action on his complaints, and that she should not have participated in his removal as director.

14 There is a serious problem with the proceedings against her because TKY did not obtain leave of court to sue her personally in ICH’s name. TKY had obtained leave of court to commence proceedings against her as the administrator of TET’s estate. This defect goes to the root of this action against her.

Wealth Resources Enterprises Ltd, the third defendant

15 This is the company which was allotted the new shares issued by WFT, and it is owned and controlled by CSO and his siblings.

The claims and the defences

16 The claims against the first and second defendants are for breaches of their duties as directors of ICH. The breaches pleaded relate to four matters, firstly, the dividends alleged to have been declared and paid by WFT for the financial years 2000 and 2001; secondly, the issue of the new shares by WFT; thirdly, CSO’s failure to provide ICH with information on the activities of WFT, and fourthly, CSO and TSY’s participation in the removal of TKY as a director of ICH.

17 Counsel for ICH went at some length into the principles and cases on the duties of a company director. It was submitted that a director is under a duty:

(a) to safeguard and act bona fide in the best interests of the company;

(b) to act honestly and for the proper purposes of the company in relation to its affairs;

(c) not to pursue his own interests and/or act to the detriment of the company or the interests of the company; and

(d) not to place himself in a position where his interests would conflict with his duties and the interests of the company;

and as a director is a trustee of the assets of the company, and he may not:

(e) exercise his powers for his own benefit or gain without clearly disclosing his interests to and obtaining the necessary consent from the company’s board of directors;

(f) enter into engagements in which he has, or have a personal interest conflicting, or which may conflict, with the interests of the company; or

(g) divert any business opportunity in which the company is interested away from the company to himself.

and if he breaches these duties, he is liable to account to the company for any profit he makes.

18 These are settled principles. They apply most clearly in where a person is, in his own right, a director of one company. When a director serves as a director to more than one company, or where a person is nominated by one company to serve on the board of another company, the different duties and interests that arise have to be taken into account in defining his obligations to the company.

19 In respect of the dividend payments, ICH pleaded that WFT had declared and paid dividends to its shareholders for the financial years 2000 and 2001, but ICH was not informed of the payments and did not receive them. ICH alleged that CSO had without its authority, agreed that the dividends be kept by WFT as loans, and had not informed it of the loan.

20 The defence was that although WFT declared dividends, the company was in need of funds. Its directors decided to retain the dividends as loans, and also to increase the capital of the company. It was also pleaded that CSO had informed TKY of these matters, and that TKY had not raise any objections. ICH’s reply was that TKY was not informed, and that the accounts of ICH did not reflect the loans of the dividend payments.

21 ICH also alleged that WFT’s decision to increase its capital and to issue new shares was contrary to the terms of the joint venture agreement and WFT’s articles, and that CSO had agreed to them without its knowledge or approval.

22 TKY stated in his affidavit of evidence-in-chief that he neither agreed nor disagreed with the proposal, and was of the view that no decision could be taken until a valuation report of the assets and net worth of WFT, as well as its past accounts, and the basis for the subscription of the new shares are available.

23 The defendants pleaded that WFT’s board discussed the proposal at the meeting of 17 August2001 after TKY left the meeting, and had agreed to the issuance of the new shares. At a subsequent meeting of the directors on 30 October 2001, it was resolved that a portion of the new shares was to be issued to WRE.

24 On the third head of claim, ICH alleged that CSO had failed to provide ICH with information and documents regarding WFT and ICH’s shareholding in WFT and the value thereof. The defence to that was that TKY, being the chairman and director of WFT, could have obtained information from WFT directly, but he did not do that. Nevertheless, CSO had made all reasonable efforts to inform ICH and TKY of all the ongoings of WFT. ICH in its reply stated that TKF had in 2001, 2002 and 2004 written to WFT and CSO for financial documents and information, but had not received them.

25 On the removal of TKY as a director, ICH pleaded that the removal TKY as a director of ICH by CSO and TSY was not done honestly or...

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