Kwee Lee Fung Ivon v Gordon Lim Clinic Pte Ltd and another

• Jurisdiction: Singapore
• Judge: Tan Lee Meng J
• Judgment Date: 20 March 2013
• Neutral Citation: [2013] SGHC 65
• Court: High Court (Singapore)
• Hearing Date: 26 September 2012,14 September 2012,12 November 2012
• Docket Number: Originating Summons No 654 of 2012
• Plaintiff Counsel: Christopher de Souza, Lionel Leo and Joel Chng (WongPartnership LLP)
• Defendant Counsel: Alvin Tan (Wong Thomas & Leong),and Loh Wai Mooi and Lee En En Joanna (Bih Li & Lee)
• Subject Matter: Companies,Directors,Duties
• Published date: 22 March 2013

Tan Lee Meng J:

The plaintiff, Dr Ivon Kwee Lee Fung (“Dr Kwee”), a doctor, and her former husband, Dr Gordon Lim Boon Hui (“Dr Lim”), a gynaecologist and obstetrician, are the only shareholders of Gordon Lim Clinic Pte Ltd (“the company”). Dr Kwee accused Dr Lim of breaching his fiduciary duties to the company by, inter alia, operating a rival clinic in the company’s premises without disclosing this to the company’s board of directors. She applied pursuant to s 216A of the Companies Act (Cap 50, 2006 Rev Ed) (“s 216A”) for leave to commence an action on behalf of the company against Dr Lim with respect to his alleged breach of fiduciary duties. I granted the leave sought and now give the reasons for my decision.

Background

Dr Kwee and Dr Lim were married on 3 June 1985. They have five children. Three of their children are graduates while the remaining two are undergraduates.

In 1988, the company was incorporated. It issued two shares, one each to Dr Lim and Dr Kwee. Both of them and Dr Lim’s mother, Mdm Irene Goh (“Mdm Goh”), are the company’s directors.

The company ran a medical practice called “Gordon Lim Clinic for Women” (“the clinic”) at its registered address at No 6 Napier Road #10-07 Gleneagles Medical Centre, Singapore 258499 (“the Gleneagles property”). At all material times, Dr Lim, but not Dr Kwee, practised at the clinic. The annual income of the clinic exceeded a million dollars in 2008 and 2009.

On 21 January 2010, Dr Kwee commenced divorce proceedings against Dr Lim. A few months later, Dr Lim incorporated another company, named “Gordon Lim Clinic and Surgery for Women Pte Ltd” (“the rival company”) in July 2010. He is the sole shareholder of the rival company, which, like the company, uses the Gleneagles property as its registered address. Dr Lim ceased to work under the company’s banner in order to helm the rival company’s medical practice. From 1 October 2010 onwards, the rival company took over the company’s Gleneagles property as its place of business and paid the company an allegedly low monthly rental of $8,000 for the use of the said premises.

Dr Kwee alleged that Dr Lim had breached his fiduciary duties to the company as he did not disclose his conflict of interest in relation to the rival company to the company’s board of directors. She asserted that without the knowledge of the company’s board, Dr Lim converted the company’s business from that of running a successful clinic to that of a landlord collecting a below market monthly rental. She sought the following orders: that she be granted leave to bring an action in the name and on behalf of the company against Dr Lim for breach of directors’ duties owed to the company; that she be authorised to control the conduct of the action and any execution proceedings thereafter; that she be granted access to the company’s books, records and documentation to ascertain the full nature and consequences of the breach of directors’ duties and fiduciary duties by Dr Lim, whether committed solely or in conjunction with any other person(s), for the purpose of prosecuting the company’s claim in the action; and that the company pay her costs of these proceedings to be funded out of the company’s funds on an indemnity basis.

Whether leave should be granted

Section 216A(3) of the Companies Act, which deals with applications for leave to bring an action in the name and on behalf of a company, provides as follows: (3) No action may be brought and no intervention in an action may be made under subsection (2) unless the Court is satisfied that — (a) the complainant has given 14 days’ notice to the directors of the company of his intention to apply to the Court under subsection (2) if the directors of the company do not bring, diligently prosecute or defend or discontinue the action; (b) the complainant is acting in good faith; and (c) it appears to be prima facie in the interests of the company that the action be brought, prosecuted, defended or discontinued.

Although Dr Kwee holds 50% of the company’s shares, she is entitled to rely on s 216A because she is in no position to get the company to sue Dr Lim for breach of fiduciary duties as the latter also holds 50% of the company’s shares and the company’s two other directors, Dr Lim and his mother, Mdm Ng, are directors of the rival company.

Dr Lim resisted Dr Kwee’s action on the following grounds: there was a lack of good faith on Dr Kwee’s part; it was prima facie not in the interests of the company that the action be brought against him; and there was an appropriate alternative remedy.

Whether the complainant acted in good faith

It is for Dr Kwee to establish that she acted in good faith in making the present application. It is worth noting that the rule that it is for the applicant for leave to establish the presence of good faith was recently confirmed by the Court of Appeal in Ang Thiam Swee v Low Hian Chor [2013] SGCA 11 after my decision to allow Dr Kwee’s application.

Admittedly, the relationship between Dr Kwee and Dr Lim is a hostile one. However, it is clear from the decision of the Court of Appeal in Pang Yong Hock and another v PKS Contracts Services Pte Ltd [2004] 3 SLR(R) 1 (“Pang Yong Hock”) that the presence of hostility does not, without more, mean that there is bad faith on the part of the party applying for leave to commence a derivative action. As for when the presence of hostility may justify a finding of bad faith, the Court of Appeal explained in Pang Yong Hock (at [20]) as follows:

[I]f the opposing parties are able to show that the applicant is so motivated by vendetta, perceived or real, that his judgment will be clouded by purely personal considerations, that may be sufficient for the court to find a lack of good faith on his part. An applicant’s good faith would also be in doubt if he appears set on damaging or destroying the company out of sheer spite or worse, for the benefit of a competitor. It will also raise the question whether the intended action is going to be in the interests of the company at all. To this extent, there is an interplay of the requirements in s 216A(3)(b) and (c).

Dr Kwee contended that the present proceedings had nothing to do with the animosity between her and Dr Lim and were motivated by her own financial interest and that of the company. She asserted that Dr Lim must answer to the company for wrongfully transforming it from a profitable medical practice into a rent collecting company as a result of his alleged breach of fiduciary duties. In 2009, the company’s revenue was...