Ma Wai Fong Kathryn v Trillion Investment Pte Ltd

• Jurisdiction: Singapore
• Judge: Valerie Thean J
• Judgment Date: 18 April 2018
• Court: High Court (Singapore)
• Docket Number: Companies Windings Up Nos 163 to 165 of 2017
• Date: 18 April 2018

Ma Wai Fong Kathryn

and

Trillion Investment Pte Ltd and other matters

[2018] SGHC 88

Valerie Thean J

Companies Windings Up Nos 163 to 165 of 2017

High Court

Companies — Winding up — Just and equitable ground — Exit mechanisms — Articles of companies allowing shareholders to exit under certain conditions — Other shareholder offering to purchase plaintiff's shares at fair value — Whether unfairness negated by exit mechanisms and offer to purchase

Companies — Winding up — Just and equitable ground — Loss of relationship of trust and confidence — Shareholder acquiring shares as executrix of estate after death of husband — Shareholder seeking to wind up companies on just and equitable ground — Whether relationship of trust and confidence existed between shareholder and other shareholders

Companies — Winding up — Just and equitable ground — Loss of substratum — Whether shareholder who did not join companies on understanding that they would continue pursuing certain goals could complain

Companies — Winding up — Just and equitable ground — Mismanagement — Lack of probity — Whether directors of companies lacked probity

Held, dismissing the applications:

(1) Unfairness formed the foundation of the court's exercise of its just and equitable jurisdiction to wind up a company; a company could not be wound up just because a minority shareholder felt aggrieved or wished to exit at will. The concept of “just and equitable” was a dynamic one, which should not be circumscribed in scope by reference to case law. However, fundamental to the court's exercise of its broad discretion was caution, because the court's order would allow the applicant to be released from his obligation to comply with the framework provided by a company's memorandum and articles: at [13], [23] and [24].

(2) The superimposition of equitable considerations typically required one of the following elements: (a) an association formed or continued on the basis of a personal relationship, involving mutual confidence; (b) an agreement, or understanding, that all, or some of the shareholders should participate in the conduct of the business; and (c) restriction upon the transfer of the members' interest in the company. In this context, parallels could be drawn with the law of partnership. Thus, references to “quasi-partnerships” could be found in cases where the court's just and equitable jurisdiction was invoked: at [22].

(3) A quasi-partnership could be wound up on the just and equitable ground if the relationship of trust and confidence between its shareholders had broken down. On the other hand, the death of a shareholder in a quasi-partnership did not automatically justify winding up the company. Further, rights under a quasi-partnership were, generally, not transmissible and would not continue to bind the remaining quasi-partners after a partner's death, unless this was expressly provided for in the company's constitution: at [26] and [29].

(4) The Companies were not quasi-partnerships. The relationship of trust and confidence existed only between the three Wong brothers when WKN managed the Companies. As Ms Ma had not participated in the management of these Companies from their inception, the relationship did not extend to Ms Ma's family. It was therefore irrelevant that there was no longer any trust and confidence between the extended families. In this context, findings of the Malaysian courts as to the relationship between the families were irrelevant because those findings did not relate to the Companies at hand: at [27] and [32] to [34].

(5) In the light of the finding that there was no quasi-partnership between Ms Ma or her children and the other brothers in respect of the Companies, it would follow that she did not have a right to participate in their management; nor was it reasonable for her to ask to be made a director. Further, absent a quasi-partnership, familial acrimony was not a sufficient premise for the court's intervention: at [35] and [36].

(6) While carrying on business in a fraudulent manner might found good ground for intervention, shareholders who relied on this ground had to prove a lack of probity in the directors' conduct; mere suspicion or assertion of impropriety would not pass muster: at [37].

(7) On the evidence, there were no grounds to suspect any lack of probity on the part of the directors of the Companies: at [52].

(8) A quasi-partnership could also be wound up on the just and equitable ground if there had been a loss of substratum. In such cases, the unfairness arose not from the loss of substratum per se, but from a majority using its legal powers to maintain the association in circumstances to which the minority could reasonably say it did not agree. Crucially, a member could rely on this ground only if he had joined the company on the understanding that it would continue pursuing certain goals: at [53] and [55].

(9) It could not be said that Ms Ma's participation in the Companies was predicated on the assumption that they would be conducting a specific business. She was merely the executrix of WKN's will and in this context, tasked only with transferring ownership of the shares to the trust company specified in the will. Thus, the Companies would not be wound up on this ground: at [56].

(10) Even where unfairness could be established, exit mechanisms were relevant in assessing whether the court should intervene. In this exercise, the focus was on the terms of the separation, such as who should buy out whom, and the terms of the buy-out. Exceptions arose where the shareholder had a legitimate expectation to have his shares valued in another way than that provided, where impropriety had affected the value of the shares, or where the method of valuation provided was arbitrary. Where no attempt had been made to invoke the share buy-out mechanism in the company's articles, unfairness was unlikely to be established: at [59].

(11) The articles of Double Ace and Faxlink allowed a member to exit under certain conditions, with the price of the shares to be resolved by the auditor of the company. Ms Ma's contentions that the mismanagement of the Companies made a fair valuation impossible was not sustainable. Further, while Trillion's articles did not provide a specific exit procedure for shareholders who sought to be bought out, WKY's offer to purchase Ms Ma's shares in the Companies at fair value would negate any finding of unfairness: at [60], [61] and [63].

(12) In view of the above findings, it was not necessary to decide whether, if the test for winding up were satisfied, it would be more equitable to order that the shares of Ms Ma be bought out under s 254(2A) of the Companies Act: at [65].

Case(s) referred to

Cheung Shu Chuen v Lee Der Industrial Co [2009] HKCU 478 (refd)

Chow Kwok Chuen v Chow Kwok Chi [2008] 4 SLR(R) 362; [2008] 4 SLR 362 (distd)

Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (folld)

Lin Choo Mee v Tat Leong Development (Pte) Ltd [2015] SGHC 99 (distd)

Loch v John Blackwood Ltd [1924] AC 783 (folld)

O'Neill v Phillips [1999] 1 WLR 1092 (folld)

Perennial (Capitol) Pte Ltd v Capitol Investment Holdings Pte Ltd [2018] 1 SLR 763 (refd)

Sim Yong Kim v Evenstar Investments Pte Ltd [2006] 3 SLR(R) 827; [2006] 3 SLR 827 (folld)

Summit Co (S) Pte Ltd v Pacific Biosciences Pte Ltd [2007] 1 SLR(R) 46; [2007] 1 SLR 46 (folld)

Ting Shwu Ping v Scanone Pte Ltd [2017] 1 SLR 95 (folld)

Facts

The plaintiff, Kathryn Ma Wai Fong (“Ms Ma”), was a shareholder of the three defendant companies (“the Companies”): Trillion Investment Pte Ltd (“Trillion”), Double Ace Trading Company Pte Ltd (“Double Ace”) and Faxlink Trading Pte Ltd (“Faxlink”). Ms Ma acquired the shares in these Companies in 2014 after the passing of her husband, Wong Kie Nai (“WKN”), in her capacity as the executrix of his estate. Prior to his death, WKN managed the Companies with his brothers, Wong Kie Yik (“WKY”) and Wong Kie Chie (“WKC”).

In 2017, Ms Ma applied to wind up each of the Companies. She justified her application on the basis that the breakdown in the relationship between her family on the one hand and WKY's and WKC's families on the other made it unfair to “trap” her in the Companies, that the Companies had been mismanaged, and that there was a loss of substratum of the Companies as the Companies had abandoned the businesses that each had been set up or acquired to do.

The issues were (a) whether the requisite unfairness was established, such that it was just and equitable for the court to intervene; (b) whether, if unfairness was established, such unfairness could be nullified by the presence of exit mechanisms in the articles of association (“Articles”) of Double Ace and Faxlink or, in the case of Trillion, WKY's offer to purchase Ms Ma's shares at fair value; and (c) whether, even if the test for winding up were satisfied, it would be more equitable to order that the shares of Ms Ma be bought out under s 254(2A) of the Companies Act (Cap 50, 2006 Rev Ed) (“Companies Act”).

Legislation referred to

Companies Act (Cap 50, 2006 Rev Ed) ss 254(1)(i), 254(2A)

Evidence Act (Cap 97, 1997 Rev Ed) ss 42, 43, 44, 45

Seah Yong Quan Terence, Ong Huijun, ChristineandDenise Chong (Virtus Law LLP) for the plaintiff;

Palmer Michael Anthony and Jaime Lye (Quahe Woo & Palmer LLC) for the contributories.

18 April 2018

Valerie Thean J:

Introduction

1 The plaintiff, Ms Kathryn Ma Wai Fong, is a shareholder of the three defendant companies (“the Companies”). She acquired the shares in these Companies in 2014...