Koon Seng Construction Pte Ltd v Chenab Contractor Pte Ltd and Another

• Jurisdiction: Singapore
• Judge: Belinda Ang Saw Ean J
• Judgment Date: 16 November 2007
• Neutral Citation: [2007] SGHC 196
• Docket Number: Suit No 250 of 2005
• Date: 16 November 2007
• Published date: 21 November 2007
• Year: 2007
• Plaintiff Counsel: Ronnie Tan and Twang Kern Zern (Central Chambers Law Corporation)
• Citation: [2007] SGHC 196
• Defendant Counsel: Winston Quek (B T Tan & Co)
• Court: High Court (Singapore)
• Subject Matter: Contract,Whether claim for forfeited shares to be reverted connected with unlawful conduct,Whether agreement a sham,Whether ex turpi causa non oritur actio maxim applying,Agreement between two companies for allotment of shares,Illegality and public policy

16 November 2007 Judgment reserved.

Belinda Ang Saw Ean J:

Introduction

1 The dispute in this action arose in relation to the forfeiture of 700,000 ordinary shares of $1 each in the capital of the first defendant, Chenab Contractor Pte Ltd (“Chenab”). The forfeiture process was, according to the plaintiff, Koon Seng Construction Pte Ltd (“Koon Seng”), a plan pursued to thwart its application to wind up Chenab on just and equitable grounds (see CWU Petition No 64 of 2005). The petition has been adjourned pending the outcome of this action. On 12 April 2005, Chenab passed a resolution (“the April resolution”) forfeiting Koon Seng’s 700,000 ordinary shares in Chenab (“the Shares”) for non-payment of the call made on 26 March 2005. Koon Seng is now seeking an order declaring as invalid the forfeiture of the Shares. Besides defending the validity of the forfeiture, Chenab has filed a counterclaim against Koon Seng to recover as a debt the subscription sum of $700,000.

Background

The relationship between the parties

2 To understand this dispute, it is necessary to look at the history of the relationship between Goh Koon Suan (“GKS”), the managing director of Koon Seng, and the second defendant, Raj Dev s/o Ram Singh (“Raj”). Briefly, the relationship started off as one between an employer and employee in that Raj worked for Koon Seng since 1981. They became friends. Later on, they had a business relationship. Apparently, both GKS and Raj had collaborated in some business ventures. One such venture concerned a centre in India to train and recruit workers for the Singapore labour market. The friendly personal relationship between GKS and Raj had spanned a period of at least 23 years. Raj appeared to have prospered from this friendship. However, those close ties have now been broken. They have been replaced by the bitter dispute between the parties which has resulted in several proceedings and this is one of them.

History of the events leading up to the present proceedings

3 Chenab is in the labour supply business for port operations. Koon Seng’s business is related to the activities of the building construction industry. In 1999, Chenab was interested in securing a lucrative contract for the provision of workers for lashing/unlashing of containers including drivers for prime movers including forklift drivers at PSA Distripark and Container Logistics Department (“the PSA Contract”). Raj approached GKS with a business proposition. GKS was also interested in this lucrative labour supply contract valued at $12m. As a prerequisite of the PSA tender, Chenab needed to raise the paid up capital by $1m to $1.5m. GKS and Raj discussed the PSA tender and they apparently came to an agreement. There was no written agreement and it was not surprising, at least initially, that the parties’ respective versions of the agreement were different. As can be seen, an important feature of this case is the precise terms of the agreement to allot the Shares (“the agreement to allot”). It is noteworthy that it was from their long personal relationship that GKS and Raj came together to collaborate as business partners to secure and accomplish the PSA Contract.

4 It is common ground that Koon Seng was allotted the Shares on 15 November 1999. The Shares were registered in Koon Seng’s name. They were forfeited on 12 April 2005 for non-payment of the call made on 26 March 2005. Chenab’s issued share capital during the relevant period was reflected as $1.5m in documentation lodged by Chenab with the Registry of Companies, now known as the Accounting and Corporate Regulatory Authority (“ACRA”). It is also undisputed that on 16 September 2000, Chenab faxed to Koon Seng a printout of a Registry of Company Computer Information (Business Profile) search (“the ROC search”) showing Chenab’s paid up capital as $1.5m and Koon Seng as one of its registered shareholders with 700,000 ordinary shares.

5 I pause here to refer to Mr Ronnie Tan’s submissions of 27 October 2007 which he as counsel made on behalf of Koon Seng. Counsel said that a copy of the Return of Allotment of shares was faxed to Koon Seng on 16 September 2000. That statement is not borne out by the evidence. According to Raj, the purpose of faxing the ROC search was to inform Koon Seng that the Shares were registered in its name.[note: 1] GKS in his affidavit of evidence-in-chief identified the two documents that were faxed to him; he did not say when they were transmitted. The documents in question were identified as the ROC search and a copy of the Chenab’s Annual Return for the financial year ended 31 December 1999 which was lodged at the Registry of Companies on 17 April 2002 (“the Annual Return”). At page 32 of GKS’s affidavit of evidence-in-chief is the second page of Form 24 (Return of Allotment of Shares). Page 1 of Form 24, which usually contains information on the amount paid or due and payable on each share, was not exhibited. In any case, the date and time of the fax transmission appearing at page 32 of the affidavit of evidence-in-chief is 28 March 2005 and not 16 September 2000. The transmission date as shown on the ROC search is 16 September 2000. I hasten to add that at the trial, no reference at all was made to the Return of Allotment which had to be lodged with the Registry of Companies within 14 days of allotment (see s 63(1) of Companies Act (Cap 50, Rev Ed 2006). I should explain that since there are no material changes to the sections relevant to this case, I have for convenience referred to the latest revised edition of the Companies Act.

6 Returning to my narration of the shareholding in Chenab, Raj was the majority shareholder with 799,999 ordinary shares. One share was held in the name of Jagip Kaur d/o Dhian Singh (“Jagip Kaur”). Similarly, the Annual Return reflected the paid up capital of Chenab as $1.5m. It also stated that the total amount of unpaid calls was zero. Those statements were consistent with an earlier statement in the same document where $1.5m was stated to be the total amount of calls received including payments on application and allotment. Moreover, the entries in respect of Chenab’s issued share capital in its audited accounts for the financial years 1999, 2000 and 2001 described the share capital of $1.5m as allotted and fully paid for cash at par. The audited balance sheets as at 31 December 1999, 2000 and 2001 respectively described the Shares as allotted and fully paid up. The paid up share capital was stated to be $1.5m.

7 Chenab was successful in the tender and the PSA Contract was duly awarded to Chenab. Disputes have arisen between the parties in connection with the moneys from the PSA Contract. There were allegations of unauthorised payments by Koon Seng to itself during the period 2000 to 2004. Those unauthorised payments, amounting to over $3.2m, were withdrawn from the account with the United Overseas Bank. GKS was the sole signatory of that bank account specifically designated for the PSA Contract (“the UOB account”). There were also counter allegations that moneys from the PSA Contract were not deposited into the UOB account as they were diverted elsewhere. The dissent led to the closure of the UOB account by the defendants who then transferred the bank balance to a new account established by Chenab with Citibank. In the result, Suit No 111 of 2005 was filed on 16 February 2005 by Koon Seng against the defendants.

8 On 26 March 2005, the directors of Chenab sent Koon Seng a notice demanding payment of $700,000 for the Shares. Koon Seng was advised that if the sum was not paid within two weeks, then the procedures and remedies provided in the Articles of Association of Chenab would take place. On 28 March 2005, Koon Seng, as shareholder, petitioned to wind up Chenab on just and equitable grounds (see CWU Petition No 64 of 2005). On 5 April 2005, Suit No 111 of 2005 was ordered to be stayed pending the determination of the winding up petition. On 12 April 2005, the directors of Chenab passed a resolution to forfeit the Shares for non-payment. As stated, the petition to wind up Chenab has also been adjourned pending the outcome of this action.

The proceedings

9 The progress of the proceedings before me turned out to be rather long-drawn, primarily due to the piecemeal evidence that came before the court which eventually showed a different picture from the one each party had chosen to present to the court. For reasons which I shall explain later, the outcome of this action was independent of either version of the facts presented by the parties. This is not controversial since the court is not bound to confine its decision to the version advanced by the parties if, as was the case here, the evidence or the reading of it showed otherwise. For expediency, the proceedings may be divided into three distinct periods of time: (a) the first period covers the trial and closing submissions (“Phase 1”); (b) the second period relates to the audited accounts of Chenab (“Phase 2”); and (c) the third period relates to the appropriate order that I should make in the event either version of the facts is rejected (“Phase 3”).

Phase 1: The trial

10 The trial of the action was listed for hearing on three intermittent occasions spanning the period from May 2006 to April 2007. The case as presented is straightforward. Notably it was, to begin with, premised on the common ground that Koon Seng was a shareholder of Chenab in the years prior to the forfeiture of the Shares. But as it turned out in the end, the aforementioned common premise was simply a convenient tale to adopt for the reasons which I shall address in due course. At Phase 1, the contemporaneous documentary evidence touching on the company’s issued share capital of $1.5m during the relevant period was accepted by the parties and, hence, was unchallenged.

The competing arguments

(1) Koon Seng’s case

11 Koon Seng’s case is set out in the Statement of Claim (Amendment No 3). In...