Lai Shit Har and Another v Lau Yu Man
| Judge | Chan Sek Keong CJ |
| Judgment Date | 28 July 2008 |
| Neutral Citation | [2008] SGCA 33 |
| Court | Court of Three Judges (Singapore) |
| Published date | 30 July 2008 |
| Subject Matter | Application brought long after ground for winding up came into existence,Whether winding-up application an abuse of process,Winding up,Applicant for winding up being sued by company for breach of director's duties,Companies,Duty of judge in evaluating merits of winding-up application |
| Citation | [2008] SGCA 33 |
| Plaintiff Counsel | Tan Bar Tien and Winston Quek Seng Soon (B T Tan & Company) |
| Defendant Counsel | Philip Jeyaretnam SC, Ajinderpal Singh, Elizabeth Yeo and Zhulkarnain Abdul Rahim (Rodyk & Davidson LLP) |
| Year | 2008 |
| 28 July 2008 |
|
Introduction
1 This is an appeal against the decision of the High Court judge (“the Judge”) in Lau Yu Man v Wellmix Organics (International) Pte Ltd
2 Having carefully considered the submissions of both parties and reviewed the evidence before us, we allowed the appeal. We now give the detailed grounds for our decision.
Background facts
3 The appellants comprise Mdm Lai Shit Har, an 85-year-old lady who is the majority shareholder of the Company, as well as Wong Yiat Hong (“Wong”), her son and the general manager of the Company.
4 The respondent, Lau Yu Man, is a director and minority shareholder of the Company. The respondent also has a variety of business interests abroad, including a group of companies bearing the “Wellmix” name based in Hong Kong (“the Wellmix Group”). The parent company of the Wellmix Group is Cheer Union Development Ltd (“CUDL”), in which the respondent is the chairman of the board of directors. It is an assumed fact in these proceedings that the respondent controls the Wellmix Group and CUDL.
5 The Company was incorporated on 15 October 1998 to distribute fertiliser procured from the Wellmix Group. It is not disputed that the respondent invested $100,000 in the Company in exchange for a 10% shareholding in the Company. In addition, the appellants were obliged to arrange for the injection of a further $500,000 as additional capital for the Company. However, whether or not they did so is in issue.
6 Sadly, less than two years after the Company was incorporated, an intractable dispute emerged between the respondent and Wong as to whether the Company’s distributorship included the exclusive right to distribute Wellmix fertilisers in Malaysia. From that point on, the parties’ relationship entered into a downward spiral and soon irretrievably broke down. Litigation ensued.
Events leading to the winding-up application
7 In 2000, the Company initiated proceedings in Suit No 600041 of 2000 against CUDL, alleging the supply of defective goods, as well as a breach of contract arising from the award of the Malaysian distributorship of Wellmix fertilisers to a company known as MATTRA. Although there was a proposed compromise in that action, where CUDL was to pay the Company $20,000 in consideration of the Company removing the word “Wellmix” from its name as well as relieving the respondent of his directorship in the Company, the compromise was never implemented. Nevertheless, the Company discontinued Suit No 600041 of 2000 on 11 May 2000.
8 On 26 May 2001, the Company filed Suit No 642 of 2001 (“the Suit”), claiming approximately $12.8m in damages and losses for the respondent’s alleged breach of his duties as a director of the Company. The Company alleged that the respondent had breached his fiduciary duties by poaching clients of the Company, including MATTRA, for the benefit of CUDL or the Wellmix Group. The respondent robustly denied this and contended that he had been induced to become a director of the Company because of misrepresentations made by Wong.
9 The Suit has been ongoing since 26 May 2001. Delays occurred early on, with the respondent only entering an appearance more than a year after setting aside an interlocutory judgment in default of appearance obtained by the Company. The Company, in turn, only filed its summons for directions more than a year after the defence was filed, perhaps because of a change of solicitors. Although the trial was eventually scheduled to commence on 30 August 2004, the hearing was delayed and rescheduled to 4 July 2005 because the Company required more time to file and exchange affidavits of evidence-in-chief as well as to amend its statement of claim. Further interlocutory applications caused the trial date to be vacated once again and finally, on 15 June 2006, the trial was fixed for hearing on 21 August 2006. However, yet again the hearing of the trial did not materialise. On 31 July 2006, shortly before the trial was to commence, the respondent filed an application for security of costs, further discovery and the production of proof that the Company had authority to commence the Suit. An assistant registrar heard the application on 10 August 2006. He stayed the action pending production by the Company of ratification of the action. The Company appealed against this order on 23 August 2006. In response, only three days later, on 26 August 2006, the respondent applied to wind up the Company.
The Judge’s first decision
10 Upon hearing the winding-up application on 5 February 2007, the Judge found that the Company had suspended its business since 2001 and that it was being kept alive purely to sustain the action against the respondent – indeed, this claim was the Company’s only asset (see the first GD at [11]). The Judge also unhappily noted that the Company was in “disarray” and “not operated as a company” (ibid); it had additionally failed to maintain proper audited accounts in compliance with the Companies Act and the Companies Regulations since inception.
11 Nevertheless, invoking his generous discretion pursuant to s 254(1)(c) of the Companies Act, the Judge considered that winding up the Company would “suppress a claim by an impecunious plaintiff (the Company … )” (ibid). In the words of the Judge (at [10]):
[The Company] is hampered by a lack of resources as [the respondent] was the main financier and, combined with the long interlocutory battles that have dragged the case over five years, the Company has reached breaking point in terms of its ability to continue the suit. [emphasis added]
12 In order to assuage the Judge’s concerns about the suppression of the appellant’s claims, counsel for the respondent gave an undertaking that the respondent would only seek from the liquidator prospective costs if the liquidator decided to proceed with the suit. This undertaking was reiterated when we heard the present appeal.
13 Faced with the conflicting interests of the respondent as a contributor who wanted the Company to be put into the hands of an independent liquidator so that he could discover how his $100,000 had been utilised and whether the further $500,000 had been injected into the Company on the one hand, and of Mdm Lai as a main shareholder who desired the Company to carry on business on the other, the Judge concluded that this was a “difficult case” (at [12]). Ultimately, he accepted the suggestion of counsel for the Company and directed that the Company take steps to file its audited accounts to rectify its previous breaches and comply with the Companies Act and the Companies Regulations within four months (ending 5 June 2007). He adjourned the application and gave liberty to the respondent to apply for a winding-up order after 5 June 2007 if the Company failed to comply by that date.
The Judge’s second decision
14 The Company failed to file its audited accounts. On 6 June 2007, counsel for the respondent requested the Registry to...
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