Loh Sze Ti Terence Peter v Gay Choon Ing

• Jurisdiction: Singapore
• Judge: Belinda Ang Saw Ean J
• Judgment Date: 28 February 2008
• Neutral Citation: [2008] SGHC 31
• Plaintiff Counsel: Manjit Singh and Sree Govind Menon (Manjit Govind & Partners)
• Published date: 04 March 2008
• Court: High Court (Singapore)
• Defendant Counsel: Tan Teng Muan (Counsel) (Mallal & Namazie) and Sarbjit Singh (Lim & Lim)
• Subject Matter: Trusts

28 February 2008

Belinda Ang Saw Ean J:

1 The dispute with which this litigation is concerned is over the beneficial ownership of 1.55m ordinary shares of $1 each in the capital of a company called Gay Lip Seng & Sons (Pte) Ltd (“the Company”). The Company owns and operates a hotel known as Tai Hoe Hotel (“the hotel”).

2 According to the plaintiff, Terence Loh Sze Ti (“Loh”), he invested money in the Company for the redevelopment of the hotel, and the Company in turn issued 1.55m ordinary shares (“the Shares”) which the defendant, Gay Choon Ing (“Gay”), held on trust for Loh’s benefit pursuant to a Trust Deed dated 3 January 1994. In his defence, Gay adopted a very different stance. He denies any beneficial ownership arrangement and maintains that the Shares were acquired by him with money loaned to him by Loh. Sadly, the bitterness which has arisen between two erstwhile trusted friends is reflected not only in the events leading to execution of the Points of Agreement on 27 October 2004 (“the POA”), but also in this litigation where serious allegations have been made by Loh against Gay, including allegations of fraud. That latter complaint was prompted by what was perceived by Loh as a breach or breaches of trust by Gay in relation to the Shares. In the present proceedings, Loh seeks, inter alia, an order to rescind the POA on grounds of fraud or misrepresentation. It was argued that the POA should be rescinded for breach of fiduciary duty by reason of non-disclosure of material information (which I shall refer to below), and also by virtue of the fact that the POA was a transaction entered into between a trustee and a beneficiary. Alternatively, or in any event, there is, inter alia, a claim for an account of the profits and gains received by Gay from the Shares during his trusteeship.

The History of Events leading to the present proceedings

The relationship between the parties

3 I start with a brief outline of the relationship between the parties. It was because of this relationship that Loh became involved in the Company. Loh is a businessman. At all material times, Loh was the managing director and a shareholder of a Kenyan company called ASP Company Limited (“ASP”). Loh and Gay met in the early 1970’s when they both served in the Singapore Armed Forces. Subsequently, Gay went to work in ASP. In 1981, Gay was stationed in Nairobi and he worked there until he resigned from ASP in 2004. By all counts, Gay has done well for himself with his limited formal education - he stopped schooling after obtaining his O-level certificate. Gay joined ASP as general manager and was later made a director.

4 Loh was Gay’s immediate boss. The two men got on well and developed a close and friendly relationship. A level of trust also developed between the two. Counsel for Gay, Mr T M Tan, described Gay as “dependable, stoic and loyal”. Loh, on the other hand was described as “a brilliant entrepreneur”. Mr Tan also described them as a “formidable” team in East Africa. Loh, who has a law degree and is also a qualified chartered accountant, was looked upon by Gay and his family members with a high level of respect. He was their confidant and a role model to Gay’s children. Gay acknowledged his gratitude to Loh for his generosity in financing his children’s education in Australia. The friendly personal relationship between Loh and Gay had spanned decades. Those close ties have now been broken. They have been replaced by the bitter dispute between the parties which has resulted in the present litigation where Gay stands accused of cheating Loh of his alleged investment in the Company.

The Shares and the POA

5 The central issues in this case arise in this way. Gay is a shareholder of the Company. Before 1993, Gay held one of ten ordinary shares of $1 each in the equity of the Company. The hotel was a family business started by Gay’s father. At that time, the other shareholders of the Company were Gay’s father and brothers. Gay’s father died in 1989 and his shareholding was subsequently transferred by his estate to Gay’s mother in 1995.

6 In 1993, there were plans to redevelop the hotel. It was then a 2-storey pre-war hotel with 12 rooms. The redevelopment costs were estimated at $5.5m. As part of the redevelopment plans, the Company increased its authorised capital to $5.5m in 1993. There was also a revaluation of the hotel’s property to $3m to more accurately reflect the equity of the existing ten shareholders. The difference between the authorised share capital and the revaluation (the surplus arising from revaluation was to be captialised through the issuance of bonus shares) came from new equity of $2.5m which Gay had undertaken to raise. The redevelopment was also financed by a bank loan as in fact happened. The redeveloped hotel with six storeys and 70 rooms was reopened in November 1995.

7 Specifically, pursuant to an Extraordinary General Meeting (“EGM”) held on 13 December 1993 (“the 1993 EGM”), the members approved the revaluation of the hotel’s property at $3m. The revaluation surplus of $2,999,990 was credited to the Company’s capital reserve account. In same EGM, it was resolved to capitalise the revaluation surplus of $2,999,990 to satisfy an allotment of 2,999,990 ordinary shares of $1 each in value (“the bonus shares”). The bonus shares were to be distributed “amongst the persons who were registered as holders of the issued share capital of the Company at the closing of the Register on 13 December 1993”.[note: 1] The cut off date was part of the plan to more accurately reflect the equity of the existing ten shareholders. Plainly, the intention was to exclude the holder of the new 2.5m shares from the bonus issue. The Company agreed to issue 2.5m partly paid ordinary shares of $1 each upon receipt of $600,000 from Gay who had undertaken to raise and inject $2.5m for the redevelopment. As for the Shares in question, two share certificates nos. 11 and 12 were duly issued in Gay’s name on 28 December 1993. Each certificate was for 775,000 shares and it stated that $0.24 was paid for each share. As in fact happened, the bonus issue was delayed until 1995.

8 It is common ground that the money for the Shares came from Loh. In dispute was the amount of money Gay had actually received for the Shares. The purpose of the payment was also in dispute. According to Gay, he only received $1.4m and not $1.55m as claimed by Loh. Furthermore, Loh claims that this money was his investment in the Company and that Gay held the Shares on trust for him. In contrast, Gay maintains that the money was a loan made to him in order for him to redevelop the hotel owned by the family company. Whatever the purpose may have been (and this bears upon the central dispute of the case) both Loh and Gay entered into a Trust Deed on 3 January 1994. Suffice it to say that it is Gay’s defence that security for the loan was achieved by the declaration of trust contained in the Trust Deed. Gay said he left for Kenya soon after signing the Trust Deed, and he was not given a copy of it until sometime in November 2004. Apart from his annual home leave, Gay was away from Singapore for most of the time until 2004. Seemingly, the Trust Deed was retained by Peter Chua, a solicitor, who prepared the documentation.

9 Some ten years later, Gay informed Loh in August 2003 or thereabouts that he wished to retire from his employment with ASP; this intention was repeated in August 2004. From email correspondence between Loh and Gay, at least in August 2004, Loh knew of Gay’s intention to retire but he saw it as abandonment. The parties disagreed on the severance payments allegedly due to Gay which culminated in a letter of demand sent by Gay’s Nairobi lawyers to ASP on 25 October 2004.

10 The next day, on 26 October 2004, Loh in his capacity as managing director of ASP wrote to Gay as follows:[note: 2]

Further to our meeting today, we thank you for accepting that it was your decision to leave and bearing in mind the financial position of the company, you have accepted to leave on 31 October 2004 after your notice period without claims on the company whatsoever.

In turn, the company acknowledges that it has no claims against you whatsoever.

…

Please sign a copy of this letter as your acknowledgement and acceptance.

11 On 27 October 2004, Gay signed the letter as directed to signify his acceptance of the terms. The very same day, Loh and Gay signed the POA, which is set out in full:[note: 3]

Points of Agreement

Mr Gay Choon Ing is holding in trust 27.5% (equivalent to SGD1,400,000/-) of the share capital in Gay Lip Seng & Sons (Pte) Ltd, in trust for Mr Terence Loh Sze Ti, representing the actual payment made by Mr Terence Loh for this investment. The Trust Document is held by Mr Peter Chua of Peter Chua & Partners.

Mr Gay Choon Ing and Mr Terence Loh Sze Ti have agreed that Mr Terence Loh will sell to Mr Gay Choon Ing the entire 27.5% held in trust for SGD1,500,000/-, made up of SGD1,400,000/- original investment plus SGGD100,000/- dividends not received. This amount is payable, SGD500,000/- on 15 November 2004, SGD500,000/- on 15 November 2005 and SGD500,000/- on 15 November 2006

On completion of payment of the purchase price, the Trust Document will be surrendered to Mr Gay Choon Ing by Mr Peter Chua as stakeholder.

While payment is being made, Mr Peter Chua will hold the Trust Document on behalf of both parties as stakeholder and Mr Gay Choon Ing will be entitled to vote the entire 27.5% share as he wishes at any AGM or EGM or shareholders’ meeting as long as it is not adverse to Mr Terence Loh’s interest.

If payment is not received within fourteen days of due date, interest will accrue at 3% above the Citibank base rate until such time as payment is received and Mr Terence Loh will be entitled to vote the 27.5% share interest at any AGM, EGM or shareholders’ meeting.

12 It is common ground that the total sum of $1.5m under the POA was paid...