Lim Seng Wah and another v Han Meng Siew and others

• Judge: Chua Lee Ming JC
• Judgment Date: 09 September 2016
• Neutral Citation: [2016] SGHC 177
• Citation: [2016] SGHC 177
• Court: High Court (Singapore)
• Published date: 15 September 2016
• Docket Number: Suit No 796 of 2014 and Summonses Nos 1638 and 2109 of 2016
• Plaintiff Counsel: Jimmy Yim, SC, Daniel Soo, Andrew Lee and Ben Chia (Drew & Napier LLC)
• Defendant Counsel: Lim Seng Siew (OTP Law Corporation)
• Subject Matter: Companies,Oppression,Minority shareholders,Contract,Breach
• Hearing Date: 21 December 2015,05 January 2016,06 January 2016,23 December 2015,07 January 2016,22 December 2015,08 January 2016,12 April 2016

Chua Lee Ming JC: Introduction

The first and second plaintiffs, Mr Lim Seng Wah (“Lim”) and Mr Heah Eng Lim (“Heah”), commenced this action in July 2014 against the first and second defendants, Mr Han Meng Siew (“Han”) and Mr Wang Lai Suan (“Wang”), for oppression under s 216 of the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”) and for breach of a shareholders’ agreement. Lim, Heah, Han, Wang and Mr John Koh Kay Hock (“John Koh”) were the shareholders in the third defendant, Ensure Engineering Pte Ltd (“the Company”) when this action started. As the Company is a nominal defendant, I will use the term “defendants” in this judgment to refer to Han and Wang only.

Lim and Heah tried to exit the Company by offering their shares to the other shareholders in 2013. Han, Wang and John Koh did not take up the offers. Lim and Heah then sold their shares in the Company to a third party, Mr Kwok Hong Wai (“Kwok”), in February 2014. However, Han and Wang, who were the directors of the Company, did not approve the transfers by Lim and Heah to Kwok. Unable to exit the Company and unhappy with the defendants’ conduct, Lim and Heah commenced this action in July 2014.

The case took an unexpected turn after the witnesses had given their evidence but before closing submissions. On 19 January 2016, Han and Wang entered into a Shares Sale and Purchase Deed (“the 2016 Deed”) with Kwok. Pursuant to this Deed, Han and Wang undertook to transfer the shares that Lim and Heah had sold to Kwok, by 24 January 2016; and agreed to buy the same shares from Kwok for $19.5m, subject to Kwok successfully persuading Lim and Heah to file a notice of discontinuance of the present action with each party bearing his/its own costs, by 2 February 2016.

Pursuant to the 2016 Deed, the transfers of shares by Lim and Heah to Kwok were registered on 22 January 2016.ⁱ Thereafter, Lim and Heah ceased to be shareholders in the Company, and Kwok became a shareholder in the Company. However, the purchase of Kwok’s shares by Han and Wang did not take place because Kwok failed to persuade Lim and Heah to file a notice of discontinuance of the present action.

On 6 April 2016, Kwok filed Summons No 1638 of 2016 and applied to be joined as a plaintiff in this action. Kwok sought to rely on the same claims made by Lim and Heah as well as the evidence already adduced in court.

I heard Kwok’s application together with the closing submissions for the present action on 12 April 2016. Han and Wang opposed Kwok’s application. I reserved judgment.

In the meantime, on 3 May 2016, the remaining shareholder in the Company, John Koh, decided to join the fray. He filed Summons No 2109 of 2016 in which he applied to be joined as a party to this action. I heard the application on 16 June 2016 and dismissed the application for the reasons set out later in this judgment.

Two preliminary issues need to be dealt with first: whether Lim and Heah have the requisite standing to continue with their oppression claim under s 216 of the Act (“the s 216 Claim”) since they are no longer shareholders in the Company; and whether Kwok should be joined as a plaintiff in this action.

Whether Lim and Heah have standing to continue the s 216 Claim

Only a member or holder of debentures of a company is entitled to seek relief under s 216 of the Act: Kitnasamy s/o Marudapan v Nagatheran s/o Manogar and another [2000] 1 SLR(R) 542 (“Kitnasamy”) at [25]. However, in appropriate circumstances, the respondents to a claim under s 216 may be estopped from asserting that the applicant is not a member: Kitnasamy at [26]. In the present case, it is clear that when this action was commenced, Lim and Heah had the necessary standing to bring the s 216 Claim as they were shareholders of the Company then. However, they ceased to be shareholders of the Company when the transfer of their shares to Kwok was registered on 22 January 2016.

Lim and Heah submitted that they continue to have the requisite standing to maintain the s 216 Claim and referred me to United Rural Enterprises Pty Ltd v Lopmand Pty Ltd and others (2003) 47 ACSR 514 (“Lopmand”). In that case, United Rural Enterprises Pty Ltd (“URE”) and Lopmand Pty Ltd (“Lopmand”) were shareholders of a company called Painten Holdings Pty Ltd (“Painten Holdings”). Lopmand had given a charge over its shares in Painten Holdings as security for a loan given by URE. Lopmand brought an oppression claim against URE. The court held that there was oppression by URE, but before the hearing on remedies, URE registered its equitable charge over Lopmand’s shares and became their owner. By the time the hearing on remedies was held, Lopmand was therefore no longer a shareholder. However, URE conceded that s 234 of the Corporations Act 2001 (Cth) was satisfied because Lopmand was a member of Painten Holdings at the time of filing the action and that any relevance of its having ceased to be a member subsequently lies at the level of discretion, not jurisdiction (at [25]).

Lim and Heah also referred me to Kitnasamy. In that case, the court found that although the appellant was not a registered shareholder, he had the locus standi to petition under s 216 as he had agreed to become a shareholder and was not registered as one due to the default of those responsible for the company’s administration, including the respondents. The court held that the respondents were estopped from asserting that the appellant had no locus standi.

Lopmand is not authority for the proposition that a shareholder who has ceased to be one still has the locus standi to maintain an oppression action. The point was conceded by the respondent in that case. As for Kitnasamy, the facts were very different. The applicant was for all intents and purposes a shareholder except that the company had not registered him as one. On the facts, the respondents were estopped from challenging the applicant’s locus standi. In the present case, Lim and Heah had clearly ceased to be shareholders and it has not been alleged that any estoppel arises in this case.

I agree with the statement in R Hollington QC, Hollington on Shareholders’ Rights (Sweet & Maxwell, 7th Ed, 2013) (“Hollington”) at para 9-15 that “where a registered shareholder has freely disposed of his shares … he will no longer have locus standi once he has ceased to be registered as a member”. As a matter of principle, this must be correct. After all, it is trite that the matters complained of under s 216 must affect the applicant qua shareholder and that the court’s powers under s 216(2) are to be exercised “with a view to bringing to an end or remedying the matters complained of”. With one exception, it is difficult to see how a plaintiff would still be entitled to a remedy under s 216 if he has ceased to be a shareholder. In such circumstances, it seems to me quite pointless to allow the plaintiff to carry on with the action. The one exception is where the events which caused the plaintiff to cease to be a shareholder are also the subject matter of the complaint under s 216.

In my opinion, Lim and Heah lost their locus standi to continue with the s 216 Claim when they ceased to be registered as shareholders in the Company.

Whether Kwok should be joined as a plaintiff

Kwok applied to be joined as a plaintiff under either O 15 r 6(2)(b)(i) of the Rules of Court (Cap 322, R 5, 2014 Rev Ed) (“the Rules of Court”) on the ground that his “presence before the Court is necessary to ensure that all matters in the cause or matter may be effectually and completely determined and adjudicated upon”; or O 15 r 6(2)(b)(ii) of the Rules of Court on the ground that “there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine” as between Kwok and the other parties to the matter.

Kwok sought to pursue the s 216 Claim either alone or jointly with Lim and Heah, relying on the same evidence that has already been adduced. It is therefore clear that the requirements of O 15 r 6(2)(b)(i) would be satisfied provided that Kwok is entitled to pursue the s 216 Claim.

Section 216(1) of the Act provides as follows:

Personal remedies in cases of oppression or injustice

216.— (1) Any member or holder of a debenture of a company, or, in the case of a declared company under Part IX, the Minister may apply to the Court for an order under this section on the ground – (a) that the affairs of the company are being conducted or the powers of the directors are being exercised in a manner oppressive to one or more of the members or holders of debentures including himself or in disregard of his or their interests as members, shareholders or holders of debentures of the company; or (b) that some act of the company has been done or is threatened or that some resolution of the members, holders of debentures or any class of them has been passed or is proposed which unfairly discriminates against or is otherwise prejudicial to one or more of the members or holders of debentures (including himself).

It is common ground that under s 216 only a member or a holder of a debenture of a company is entitled to seek relief (see [9] above). Kwok’s first hurdle is that he was not a member of the Company when this action was commenced. However, Kwok’s joinder as a plaintiff takes effect from the date that the amended writ is served on him and does not operate retrospectively so as to take effect at the commencement of the proceedings: Singapore Civil Procedure 2016 vol 1 (Foo Chee Hock JC gen ed) (Sweet & Maxwell, 2016) (“Singapore Civil Procedure”) at para 20/8/3. In my view, Kwok only needs to be a member or holder of a debenture of the Company as of the date that his joinder takes effect. This requirement is satisfied in this case.

Kwok’s next hurdle is that the...