Kwee Seng Chio Peter v Biogenics Sdn Bhd

• Jurisdiction: Singapore
• Judge: Belinda Ang Saw Ean JC
• Judgment Date: 11 December 2002
• Neutral Citation: [2002] SGHC 298
• Docket Number: Suit No 1079 of 2001
• Date: 11 December 2002
• Year: 2002
• Published date: 19 September 2003
• Plaintiff Counsel: R Chandra Mohan and Edric Pan (Rajah & Tann)
• Citation: [2002] SGHC 298
• Defendant Counsel: Danny Chua and Tan Hui Tsing (Joseph Tan Jude Benny)
• Court: High Court (Singapore)
• Subject Matter: Formalities,Contract,Whether board of directors' informal acquiescence sufficient to vest authority in director to accept loan agreement on behalf of company,Existence of agreement,Whether loan agreement binding on defendant company,Directors,Whether parties aware of loan agreement,Companies,Powers,Director authorised to sign loan document in absence of formal resolution,Nominee director bound by knowledge of person for whom he acts

Judgment

GROUNDS OF DECISION

1. This was an action by the Plaintiff, Peter Kwee Seng Chio ("Kwee") against the Defendants, Biogenics Sdn Bhd ("Biogenics") claiming the return of RM7 million remitted in three tranches pursuant to a Loan Agreement dated 16 August 2000. At the conclusion of a three-day trial on 15^th, 16^th and 18^th October 2002, I gave short reasons and allowed the Plaintiff’s claim together with contractual interest and costs. The Defendants have on 15 November 2002 appealed against my decision. I now set out my reasons in full.

2. It is the Plaintiff’s case that the terms of the loan are found in a Loan Agreement dated 16 August 2000. The Defendants defaulted on the loan and hence this action.

Early Negotiations

3. It is necessary to mention in some detail the central role played by Ricky Goh ("Goh") a former director of Grandlink Group Pte Ltd (now in liquidation) and the background dealings between Goh and Kwee. Goh is now a bankrupt.

4. At all material times, Goh was a director with a substantial interest in Seng Hup Corporation Berhad ("Seng Hup"), a public company incorporated in Malaysia. Seng Hup ran into serious financial difficulties and on 9 September 1999 was placed under Special Administrators appointed pursuant to the Pengurusan Danaharta Nasional Berhad Act 1998. Consequently, Seng Hup’s listing on the Kuala Lumpur Stock Exchange was suspended. Goh as "promoter" emerged with a rescue plan or scheme to save and restructure Seng Hup. As a "promoter", Goh was required to pay the Special Administrators a deposit of RM2 million as a commitment to the scheme.

5. Under this restructuring scheme, Goh was to "inject" an income-generating property into Seng Hup to make it commercially viable and with a view to re-listing the company on the Kuala Lumpur Stock Exchange. The target acquisition was the Standard Chartered Bank Building at no. 2 Jalan Ampang, 50450, Kuala Lumpur. It was said that Goh was able to secure the purchase of the Standard Chartered Building ("the building") at a favorable price and then lease back the building to the bank after completion of the sale and purchase. Seng Hup would issue fresh shares to the Defendants in exchange for the building. With the completion of the restructuring, Seng Hup shares were expected to be re-listed and rise substantially in value.

6. In the restructuring exercise, Goh was assisted by one Law Lee See ("Law"). Law was the managing director of Seng Hup. Biogenics, a shelf company incorporated in Malaysia on 15 May 2000 was used by Goh as the vehicle for the sole purpose of acquiring and holding the building. In July 2000, Goh appointed Ang Bee Kiong ("Ang") and Liow Seng Kee ("Liow") as his nominee directors and shareholders. They were the first directors of Biogenics and each held one share, there being only two shares allotted at that time. Both Ang and Liow were long-time employees who had worked for Goh in his restaurant as kitchen help and cashier respectively. Both admitted that Biogenics was one of the many companies controlled by Goh. Both also admitted that they were his nominees and as such, were subject to the direction and control of Goh. At all material times, Ang and Liow were also the nominee directors and shareholders of Sentowana Sdn Bhd.

7. In or about April 2000, Goh was introduced to Kwee by a long-time business associate Andrew Quek ("Quek"). Goh invited Kwee to participate in the Seng Hup restructuring scheme. A sum of RM7 million was required for the down payment of the purchase, expenses for securing the purchase and security deposit of RM2 million to the Special Administrators. Kwee met Law on several occasions in the course of negotiations for the loan and thereafter in connection with the purchase of the building. The building was purchased for RM42 million. Quek who also testified that Law attended several meetings leading to the conclusion of the loan corroborated Kwee’s evidence.

8. Kwee agreed to lend Biogenics the RM7 million. The principal sum together with interest thereon at 3% above the prime lending rate of one of the then top four local banks in Singapore was to be repaid by 30 March 2001. For providing the loan, Kwee would receive a 20% interest in Biogenics. The remaining 80% stake would be distributed amongst Goh (60%), Quek (10%) and Law (10%). Quek explained that 10% would be earmarked for Law for his efforts in arranging and coordinating the purchase of the building and in the management of the building. Quek would get 10% for his role as the middleman who brought the parties together.

9. As security for the loan and 20% stake in Biogenics, it was agreed with Goh that Kwee would retain (i) all the original share certificates of the Defendants and share transfer forms (Form 32A) executed in escrow; (ii) directors’ resolutions for the appointment of additional directors and approval for transfer of shares also executed in escrow and (iii) undated letters of resignation from the two nominee directors. The loan was also separately secured by a personal guarantee from Goh and Quek. On instructions of Kwee, Lim Lian Kee ("Lim") of M/s Chong, Chia & Lim prepared the necessary documentation.

The Defendants’ witness - Knowledge of the loan

10. The Defendants called Law, Ang and Liow to testify on behalf of the Defendants. All testified that they knew nothing about Kwee’s loan to Biogenics. Having seen and heard the three of them in the witness box, I found them to be unsatisfactory and unreliable witnesses. There were times when their oral evidence contradicted their written statements and with each other. Ang’s testimony also contradicted his affidavit filed in Order 14 proceedings.

11. Overall, the objective facts in evidence discredit their testimony. The contemporaneous documents showed that Law gave instructions to Kwee to remit RM7 million in three tranches between August and October 2000. There were two receipts issued to Kwee that plainly acknowledged the money as a loan to Biogenics. The receipts were prepared on the instructions of Law and signed by Ang. Sentowana Sdn Bhd issued two other receipts and they acknowledged that the money remitted by Kwee was "for the account of Biogenics". The fifth receipt is for the RM2 million security deposit for the restructuring scheme. In addition to receipts, there were exchanges of correspondence that described the loan of RM7 million as between Kwee and Biogenics.

12. The provision of security in the factual matrix was consistent with the structure of the entire transaction where the Defendants’ obligations as borrowers were separately secured by individuals. Ang and Liow admitted to signing the blank transfer forms, which together with the share certificates were handed to Law. It was Law who couriered the share certificates and duly signed blank transfer forms to the Plaintiff as security for the loan. Kwee still has in his hands the two share certificates pledged to him as security. Goh and Quek furnished additional security in the form of a personal guarantee for the loan.

13. Looking from their point of view, Law, Ang and Liow at best misunderstood the situation. The other probability is that they manufactured their recollections. Given the combined vested interest in disclaiming the loan, the latter conclusion is in my view the more likely. Liow in his oral testimony said that Goh who is a bankrupt "is on the run". He and Ang no longer regarded themselves as Goh’s nominee. After Goh’s disappearance, the directors appointed Law to handle the affairs of the company. When queried, " to whom does the company now belong to?" Ang replied: "the three directors", meaning himself, Liow and Saari bin Lajim who is...