Lim Chee Twang v Chan Shuk Kuen, Helina

• Jurisdiction: Singapore
• Judgment Date: 18 December 2009
• Date: 18 December 2009
• Docket Number: Suit No 731 of 2008 (Summons No 4652 of 2009)
• Court: High Court (Singapore)

Lim Chee Twang

Plaintiff

and

Chan Shuk Kuen Helina and others

Defendant

[2009] SGHC 282

Quentin Loh JC

Suit No 731 of 2008 (Summons No 4652 of 2009)

High Court

Companies–Oppression–Minority shareholders–Group of companies being treated as a whole by majority shareholder–Whether there was oppression of minority shareholder for purposes of s 216 Companies Act (Cap 50, 2006 Rev Ed)–Section 216 Companies Act (Cap 50, 2006 Rev Ed)

Companies–Oppression–Minority shareholders–Minority shareholder alleging oppression–Majority shareholder offering to buy out minority shareholder–Whether present action was abuse of process in light of buy-out offer

Companies–Oppression–Minority shareholders–Minority shareholder alleging oppression in respect of a group of companies, including foreign incorporated companies–Whether s 216 Companies Act (Cap 50, 2006 Rev Ed) applied to foreign companies–Whether acts committed in relation to foreign companies may be considered in assessing oppression of local companies–Section 216 Companies Act (Cap 50, 2006 Rev Ed)

Companies–Oppression–Minority shareholders–Minority shareholder alleging oppression in respect of a group of companies, including foreign incorporated companies–Whether court may order majority shareholder to buy out shares of foreign companies belonging to minority shareholder–Terms of buy-out

The majority shareholder, the first defendant, and the minority shareholder, the plaintiff, owned shares in five different companies, as follows. The majority shareholder held 60% and the minority shareholder held 40% of the shares in iPreciation Fine Arts Pte Ltd ( Fine Arts ), iPreciation Ltd ( BVI ) and iPreciation (HK) Limited ( HK Ltd ). The majority shareholder held 95% and the minority shareholder 5% of the shares in iPreciation Contemporary Pte Ltd ( Contemporary ) but the majority shareholder conceded that the minority shareholder was entitled to a 40% shareholding. The majority shareholder held 99.9% and the minority shareholder 0.01% of the shares in iPreciation Pte Ltd ( IPL ). All of the companies were incorporated in Singapore, save for BVI and HK Ltd which were incorporated in the British Virgin Islands and Hong Kong respectively.

From 1999 to 2003, the two shareholders carried out artwork business through IPL. In 2003, Fine Arts was established, followed by BVI and HK Ltd in 2005. Finally, in 2007, Contemporary was set up. All of these companies were used to further the artwork business that the shareholders engaged in. The business affairs of these companies were not kept entirely distinct from one another and the majority shareholder had absolute discretion to manage the companies as she deemed fit. By April 2008, the relationship between the two shareholders broke down.

In October 2008, the minority shareholder brought the present suit, seeking relief under s 216 of the Companies Act (Cap 50, 2006 Rev Ed) ( the Act ). He alleged that there was an agreement that all the companies would be owned by the majority shareholder and the minority shareholder in the proportion 60:40 and that the companies had the character of a quasi-partnership which entitled the minority shareholder to certain expectations. In addition, the minority shareholder also alleged that the majority shareholder committed several acts of oppression against the minority shareholder, including misappropriation of funds, failure to pay dividends, misuse of the iPreciation' name and invoicing by IPL of the other companies for agency fees and commission. Accordingly, the minority shareholder sought orders relating to an account of the inter-company invoicing, the attribution of profits and expenses amongst the companies, the validity of charging commissions by one company to the other companies, accounting practices of the companies, director's loans, unilateral and unauthorised withdrawals of sums of money by the majority shareholder, the unauthorised use of the name iPreciation to set up other companies, the true worth of these companies and their ability to pay dividends. There was also a prayer that the minority shareholder be bought out at a fair price by the majority shareholder.

Held, allowing the application in part:

(1) The minority shareholder failed to establish any agreement or understanding that the shareholding in the companies was to be divided in the proportion 60:40. The majority shareholder made gifts of the 40% shareholding in HK Ltd and Contemporary to the minority shareholder but she was also clearly keeping IPL, iPreciation Consultants ( Consultants ), a sole proprietorship of the majority shareholder, and iPreciation Consultants (Hong Kong) ( Consultants HK ), another sole proprietorship of the majority shareholder, for herself: at [60] and [78].

(2) There was no understanding of a quasi-partnership between the majority shareholder and the minority shareholder in IPL, Consultants and Consultants HK. Accordingly, the minority shareholder did not have any legitimate expectations in relation to their management, employment, accommodation or access to information and documents relating to the foreign entities. Neither was there any quasi-partnership between the parties as shareholders in Fine Arts, BVI, HK Ltd or Contemporary. The minority shareholder was entitled to access to information and documents relating to the foregoing entities in his capacity as director and shareholder of the same. The minority shareholder did not have a legitimate expectation or right to continued employment by Fine Art and he was lawfully terminated as an employee of Fine Arts: at [41] and [79].

(3) Section 216 of the Act did not apply to foreign companies: at [81].

(4) The conduct and affairs of BVI and HK Ltd may be taken into account in assessing whether s 216 was made out in respect of the local companies. In the present case, there were only two shareholders and directors in all the companies; their shareholding was in the same proportion. The business was a very special kind of business and not a common commercial activity. The books and papers of Fine Arts, Contemporary and BVI were kept in the Fine Arts office. The employees, until more recent times, were all employed by Fine Arts and in Singapore. The two directors and shareholders reside in Singapore, hold their meetings for Fine Arts, Contemporary, BVI, HK Ltd and IPL and make their decisions in Singapore. More accurately, until they fell out, the majority shareholder made all the important decisions and the minority shareholder went along. The business address of BVI was the service provider in Hong Kong, not the British Virgin Islands. No meetings were held in the British Virgin Islands nor was there a place of business there: at [97] to [100] and [125] to [128].

(5) The minority shareholder was not entitled to participation in the management of the companies, employment by the companies and accommodation and had therefore not made out any case on oppressive conduct under s 216. He similarly failed on his complaint with regard to the use of the iPreciation name. The minority shareholder was entitled to information and documentation relating to Fine Arts, Contemporary, BVI and HK Ltd as a director of the companies. He was also entitled to such information that was made available to shareholders of a company. In so far as he had been denied such documents and information leading up to the trial, his complaints of oppressive conduct had been made out. The back charging of the commission invoicing to 2005 was oppressive conduct under s 216. The backdating of consignment agreements to January 2008 signed in 2009 without the minority shareholder's knowledge was also oppressive conduct: at [124].

(6) Even though the majority shareholder had offered to buy out the minority shareholder, the continuance of the present action was not an abuse of process as the offer, reasonable as it was, did not cover all the entities and did not address some of the contested issues. However, the buy-out offer might be a relevant factor in the award of costs: at [129]- [132].

(7) On the basis that the parties were before the court in personam, the court had the power to order a buy-out on terms that the court thought fair. Without making any order in relation to the foreign companies, BVI and HK Ltd, the court was of the view that it could order the parties in their capacities as shareholders to make documents and records in the foreign companies available. As such, it was ordered that the parties ensure that all relevant books, ledgers, documents and financial records of all the companies, including the foreign companies, were made available for the purposes of valuing the buy-out in the Singapore companies. In addition, the court was of the opinion that it had the power to order the majority shareholder to buy out the shares of the minority shareholder in BVI and HK Ltd: at [135] and [138] to [141].

(8) It was ordered that the majority shareholder buy out the minority shareholder's 40% shareholding in Fine Arts, Contemporary, BVI and HK Ltd at a fair value. The valuation would be discounted to reflect a minority shareholding and the shares should be valued as of 9 October 2008, the date the writ was filed: at [142].

[Observation: The categories of cases where the corporate veil would be pierced were not closed but the courts should be slow to create new ones. Furthermore, the line of thinking that a court should be able to pierce the corporate veil where the justice of the case demanded it should not be followed. It was inherently vague to be a concept of much guidance and would be akin to equity being measured by the length of the Lord Chancellor's foot: at [96].]

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