Kumagai Gumi Co Ltd v Zenecon Pte Ltd and others and other appeals

• Judge: Karthigesu JA
• Judgment Date: 24 May 1995
• Neutral Citation: [1995] SGCA 52
• Citation: [1995] SGCA 52
• Defendant Counsel: Alvin Tan (David Lim & Pnrs)
• Published date: 19 September 2003
• Plaintiff Counsel: A Thambiayah and Eric Chan (Rajah & Tann),Alvin Yeo and Lawrence Tan (Wong Partnership)
• Date: 24 May 1995
• Docket Number: Civil Appeals Nos 121, 130 and 131 of 1994
• Court: Court of Appeal (Singapore)
• Subject Matter: Refusal to attend board meetings and preventing the quorum from being formed,Orders ultimately discretionary,Oppression,Loss caused to subject company by oppressor,Joint venture company,Whether court can order oppressor to pay compensation to company,Scope of relief court may grant,Whether court can order oppressor to purchase subsidiary's shares in sub-subsidiary,Destruction of company records,Whether derivative action necessary,Requisition for extraordinary general meeting to remove petitioner's nominee director,Change of name of subsidiary and alteration of the objects clause of its memorandum of association without petitioner's knowledge or approval,Purchase of shares in other companies without knowledge or approval of the other joint venture partner,Appointment of liquidators not bar to court ordering other appropriate reliefs,s 216(2) Companies Act,Companies,Whether conduct amounted to oppressive conduct,Tendering for projects against petitioner's wishes,s 216(1) Companies Act,Appointment of liquidators negating need for derivative action

Cur Adv Vult

These three appeals have been brought by various parties against the decision of Warren LH Khoo J in Originating Petition No 9/92 and Companies Winding Up Petition No 23/92. CA 131/94 has been brought by the following parties: Zenecon Pte Ltd (Zenecon), Low Hua Kin (Low), Teo Yit Bee (Teo) and Loo Yong King (Loo). Their appeal is against the whole of the decision of the learned judge in Originating Petition No 9/92. This effectively is the main appeal before us, and we shall refer to these parties collectively as `the appellants`. Zenecon and Low have also appealed against the whole of the decision of the learned judge in respect of Companies Winding Up No 23/92 by way of CA 130/94. In addition to these two appeals, Kumagai Gumi Co Ltd (Kumagai) have appealed against certain parts of the decision of the learned judge in Originating Petition No 9/92 by way of CA 121/94. We heard all the three appeals together.

The facts

Kumagai is a Japanese corporation and had been doing business in Singapore as building contractors. The relationship between Kumagai and Low started in 1972, when Low was a lecturer in what was then the University of Singapore. Kumagai, with the consent of the university, engaged Low as a consultant and advisor. In 1976, Low resigned from the university and thenceforth was employed by Kumagai as their advisor.

With the consent of Kumagai, Low incorporated Zenecon which at all material times was under his control. He was the chairman and a director of Zenecon and had the controlling shares. The other directors and shareholders include his wife, Teo, and his brother, Loo. One Lim Chong Tiong @ Jason Lim (Lim) was the company secretary of Zenecon.

In 1983, Kumagai and Low agreed to enter into a joint venture, and Low decided to use Zenecon as a party from his side to the joint venture. On 25 April 1983, a shareholder agreement and memorandum of understanding were entered into between Kumagai and Zenecon whereby they agreed to incorporate a company, Kumagai-Zenecon Construction Pte Ltd (KZ), for the purpose of engaging in the business of building contractors and property development. Under the agreement, Zenecon was to hold 51% and Kumagai 49% of the shares of KZ. As for management, the agreement provided for a board of six directors, with three directors to be nominated by each party. The quorum for a meeting of directors was to be four with two nominees from each side; decisions were to be by majority and there was no provision for a casting vote. Pursuant to the agreement, KZ was incorporated on 3 June 1983 and shares in the proportions as agreed were allotted to the parties. However, art 83 of KZ`s articles of association deviated from the agreement and provided that the quorum shall be two and that in the case of an equality of votes, the chairman shall have a casting vote. The chairman of KZ was a Kumagai nominee, but Low was the managing director. Zenecon`s other two nominee directors in KZ were initially Teo and one Low Woon Hock, the latter being an executive director. Subsequently in July 1986, Low Woon Hock resigned as a director and he was replaced by Low`s brother, Loo.

An additional director nominated by Kumagai was subsequently appointed as a result of a board meeting held on 17 February 1987. Thenceforth, Kumagai had four nominees as opposed to Zenecon`s three on the board of KZ.

Lim joined the company as an employee in 1984. He was appointed the company secretary in March 1986, as well as its general manager of finance and administration in July 1989 and its general manager of projects in July 1991.

KZ has a subsidiary initially known as Kumagai Property Marketing Pte Ltd (KPM) which later changed its name to Kumagai Investment Pte Ltd. KPM was incorporated in November 1984 with the agreement of Kumagai. Its initial purpose was to act as the marketing arm of KZ. Teo and Low Woon Hock were the subscribers, each holding one subscriber share. On 12 November 1984, KZ was allotted 9,000 shares and Lim Thye San, Low`s brother-in-law and property manager of KPM, was allotted 1,000 shares. Low was appointed the representative of KZ. All these were done with the approval of Kumagai. The directors of KPM were Low, Teo, Loo and Lim, and there was no Kumagai nominee on the board of KPM. On 16 January 1986, Low Woon Hock`s one subscriber share in KPM was transferred to Low. On 8 March 1989, Lim Thye San`s 1,000 shares were transferred to Lim who had become KPM`s property manager and these shares were later transferred by Lim to Low on 19 June 1989.

Between 22 June and 3 July 1989, KPM bought three tranches of shares in Guthrie GTS Ltd (Guthrie). By these purchases, KPM acquired some 12.57% of the shares capital of Guthrie. At about the same time in July, Low also bought for his own account 10.5 million shares in Guthrie, representing 7.9%. Hence, together with the shares held by KPM, he was in a position to command a voting power supported by over 20% of the issued shares of Guthrie. We will refer to the transactions involving Guthrie shares as `the Guthrie share transactions`. The financing of the purchase of Guthrie shares was arranged by Low himself against his own guarantee. On 5 July 1989, Low became a director of Guthrie and subsequently its chief executive officer. At the same time he brought KZ into business relationship with Guthrie. On 6 July, Low signed on behalf of KZ a memorandum of understanding for a joint venture between Guthrie and KZ. KPM was also joined as a party, Lim signing on its behalf. The authority for entering into the joint venture was in the form of a resolution dated 6 July 1989 signed only by the three Zenecon nominee directors. The purchase of the Guthrie shares and the signing of the memorandum of understanding for the joint venture were carried out by Low without any prior consultation with Kumagai. With the alleged exception of one M Otsuka (Otsuka), who was the general manager of the overseas division of Kumagai reporting directly to the president of Kumagai and a nominee director of Kumagai on the board of KZ, nobody in Kumagai knew anything about the Guthrie share purchases or the proposed joint venture with Guthrie. They learnt about them only from the newspapers.

As a result, between 14 and 20 July 1989, Low attended meetings with the staff of Kumagai in Tokyo. No conclusion was reached at that time. Machida, the chairman of Kumagai, took the unusual course of writing directly to Guthrie telling the latter that the joint venture had yet to be approved by the board of KZ. At a further meeting on 19 and 20 August 1989, an agreement was reached in the form of signed minutes. The agreement provided, inter alia, that the proposed joint venture between KZ and Guthrie should be carried out. In order to procure financial facilities for the joint venture, it was agreed that Kumagai would take up 9.244 million redeemable preference shares of $1 each in the capital of KZ. The redemption was to be made from the operating profits of KZ. It was agreed that Low would have N Kano (Kano) as his deputy and an executive director of KZ. It was also agreed that the business performance of KZ would be reviewed after three years and if Low`s performance was found by Kumagai to be unsatisfactory, Low would have to relinquish his management post. Kano was duly appointed director of KZ on 3 November 1989.

Kumagai did not subscribe to the 9.244 million redeemable preference shares. Instead, they provided KZ with a $9m guarantee for banking facilities totalling $15m which KZ obtained from The Development Bank of Singapore Ltd.

The joint venture agreement with Guthrie was signed on 14 March 1990. However, within three months, Low told Kano that the Guthrie shares held by KPM should be sold quickly as the price was going to drop. Kano later discovered from newspaper reports that Low had sold most of KPM`s shares in Guthrie between 29 June and 3 August 1990. The sale of these shares resulted in a huge profit of $6.2m to KPM. Without the voting power, Low failed to get re-elected to the Guthrie board and also ceased to be the chief executive officer.

On 12 and 13 September 1990, Low met again with Kumagai officials in Tokyo. There were discussions about what to do with the profit earned from the sale of the Guthrie shares and about the winding up KPM. Kumagai wanted the profits to be distributed so as to help KZ to discharge its liabilities and thereafter KPM to be wound up. Low, however, did not agree, and in consequence no agreement was reached between Low and Kumagai at that time.

The Guthrie joint venture undertook three projects. In December 1990, without Low`s influence on its board, Guthrie terminated the joint venture with KZ, except as to existing projects. In June 1991, KZ bought out Guthrie`s interests in the outstanding projects for $300,000.

In early 1991, Kano told Low not to tender for any new projects. Low nevertheless submitted tenders on behalf of KZ. Tender deposits amounting to $100,400 were paid. Of this amount, $250 was not refundable, $45,000 was refunded to KPM as at 31 December 1991, and $55,150 was billed by KPM to the company on 30 December 1991.

In May 1991, Kano learnt from the newspapers that a company known as Kumagai Investment Pte Ltd had bought 7.321 million shares in Pacific Can Investments Holdings Ltd (Pac Can). Upon investigation, Kano discovered that the company was actually KPM, whose name had been changed on the authority of a special resolution passed at a general meeting of KPM held on 23 April 1991. On the authority of another resolution passed at a general meeting held on 1 July 1991, the objects clause of KPM`s memorandum of association was altered to allow investment in shares as part of its businesses. Kumagai, however, knew nothing of these changes. In August 1991, 278,000 more Pac Can shares were purchased by KPM, again without Kumagai`s knowledge. We will refer to the transactions involving Pac Can shares as `the...