Ma Wai Fong Kathryn v Trillion Investment Pte Ltd and others

• Jurisdiction: Singapore
• Judge: Valerie Thean J
• Judgment Date: 28 April 2020
• Neutral Citation: [2020] SGHC 79
• Date: 28 April 2020
• Docket Number: Originating Summons No 805 of 2019 and Summonses Nos 6097, 6098 and 6392 of 2019
• Published date: 01 May 2020
• Plaintiff Counsel: Rethnam Chandra Mohan, Chia Xin Ran Alina, On Wee Chun Derek and Stella Ng Yu Xin (Rajah & Tann Singapore LLP)
• Defendant Counsel: Nair Suresh Sukumaran and Yeo Guan Wei Joel (PK Wong & Nair LLC),Palmer Michael Anthony, Reuben Tan Wei Jer, Amanda Chen and Joel Moosa (Quahe Woo & Palmer LLC)
• Court: High Court (Singapore)
• Hearing Date: 07 February 2020,13 March 2020,25 November 2019
• Subject Matter: Rights,Members,Companies

Valerie Thean J:

In Ma Wai Fong Kathryn v Trillion Investment Pte Ltd and others and another appeal [2019] 1 SLR 1046 (“Ma Wai Fong Kathryn (CA)”), the plaintiff sought the winding up of, inter alia, Trillion Investment Pte Ltd (“Trillion”) and Double Ace Pte Ltd (“Double Ace”). On 29 January 2019, the Court of Appeal ordered that the latter, but not the former, be wound up, on the basis that Trillion has not lost its substratum as it continues to be an investment company with an asset under its management. That asset is an office unit, 3 Shenton Way #20-08, (“the Unit”), rented out to Double Ace. No rent has been collected throughout the years. In this sequel, the plaintiff sought leave under s 216A of the Companies Act (Cap 50, 2006 Rev Ed) (“Companies Act”) to commence an action on behalf of Trillion against its two directors on the basis that these directors, from June 2013, failed to collect any rent and/or failed to re-assess the rental arrangement and obtain value from the Unit.

Background

The facts relevant to Datuk Wong Tuong Kwong (“Datuk Wong”)’s extensive business empire were detailed in Ma Wai Fong Kathryn (CA). Trillion and Double Ace were part of this network of companies that spanned several jurisdictions. After Datuk Wong suffered a stroke in the 1990s,¹ the second of his three sons, Wong Kie Nai (“WKN”), ran these two companies. This arrangement continued after Datuk Wong’s death, until WKN’s death on 11 March 2013.²

After WKN’s death, the remaining directors of Trillion and Double Ace were Datuk Wong Kie Yik (“WKY”), Wong Kie Chie (“WKC”) (WKN’s older and younger brothers respectively) and Ong Kim Siong (“OKS”). WKC stepped down as a director of both companies in 2015. WKY and OKS remained the directors of Double Ace prior to its liquidation and are the present directors of Trillion (“the directors”).³ The plaintiff is WKN’s widow and the executrix of his estate. Trillion has at present three equal shareholders: WKY, WKC, and the plaintiff, as the executrix of WKN’s estate, with each party holding 50,000 shares of $1 each.⁴

The present dispute

The substantive dispute in this case centred on the collection of rental income that arose from Trillion’s rental of the Unit to Double Ace. Trillion, incorporated around 5 May 1979 in Singapore, had been acquired by WKY and his wife as an investment holding company in 1982.⁵ Around 1984, Trillion purchased the Unit for approximately $1.139 million. Its accounts record a loan from WKY of $942,065 for that purpose.⁶ Sometime in 1985, the Unit, which was and remains Trillion’s only asset, was rented out to Double Ace at $5,000 a month.⁷ Double Ace did not pay any rent. The rental income was instead reflected in Trillion’s accounts as a debt due from Double Ace. This practice, started by Datuk Wong, continued after WKN took over the management of Trillion and Double Ace.⁸ Double Ace gradually ceased trading from 2011 when WKN became ill, and it was common ground that by 2013 the company no longer traded.⁹ Notwithstanding Double Ace’s cessation of business, the directors continued the same rental arrangement. The Unit continued to be rented to Double Ace for $5,000 per month with no rent collected. On 24 June 2019, the plaintiff filed the present application, seeking leave to commence an action on behalf of Trillion premised on the directors’ failure to collect rent from 2013.

Issues in the application

Under s 216A(3) of the Companies Act, three requirements must be met in order for leave to be granted for a derivative action to commence. The provision reads: (3) No action or arbitration may be brought and no intervention in an action or arbitration may be made under subsection (2) unless the Court is satisfied that — (a) the complainant has given 14 days’ notice to the directors of the company of his intention to apply to the Court under subsection (2) if the directors of the company do not bring, diligently prosecute or defend or discontinue the action or arbitration; (b) the complainant is acting in good faith; and (c) it appears to be prima facie in the interests of the company that the action or arbitration be brought, prosecuted, defended or discontinued.

In this case, the requisite notice under s 216A(3)(a) has been furnished. The defendants disputed only the second and third conditions. The applicable legal standards are as follows.

Good faith

As the applicant for leave, the plaintiff bore the burden of proving that she was acting in good faith: Ang Thiam Swee v Low Hian Chor [2013] 2 SLR 340 (“Ang Thiam Swee”) at [23]. There are essentially two main facets to good faith. First, the applicant must honestly or reasonably believe that the company has a good cause of action: Jian Li Investments Holding Pte Ltd and others v Healthstats International Pte Ltd and others [2019] 4 SLR 825 (“Jian Li Investments”) at [42]. The focus here is on the honest or reasonable belief, not the objective merits of the claim: Jian Li Investments at [43]. Second, the applicant must not be acting for a collateral purpose, or if there is a collateral purpose, the action must still be consistent with the company’s best interests: Jian Li Investments at [44]; Ang Thiam Swee at [31]. The inquiry may also go beyond these two facets to incorporate findings arising from the applicant’s conduct during proceedings. A failure to be fully candid, for example, would point to a lack of good faith: Jian Li Investments at [48], citing Agus Irawan v Toh Teck Chye and others [2002] 1 SLR(R) 471.

Prima facie in the interests of the company

In order to establish that the derivative action is prima facie in the interests of the company, the applicant bore the burden of showing that the action was “legitimate and arguable”: Ang Thiam Swee at [53]. The claim must have a reasonable semblance of merit, not one which is frivolous, vexatious or bound to be unsuccessful: see Jian Li Investments at [49]. The expected benefit to the company must be real to justify the costs and effort of pursuing the action when the company itself had not proceeded with it. Therefore, the applicant must not only identify causes of action, she must also show that the company has sustained or may sustain real loss or damage as a result of the alleged failures and that there is some prospect of obtaining relief or redress through the proposed action: Law Chin Eng and another v Hiap Seng & Co Pte Ltd (Lau Chin Hu and others, applicants) [2009] SGHC 223 at [25].

The threshold is a low one and the court should only exclude the most “obviously unmeritorious claims”: Jian Li Investments at [50], citing Ang Thiam Swee at [55]. At the same time, there is a need to ensure that the threshold is not so low that the derivative action will impede and interfere with the administration of the company: Pang Yong Hock and another v PKS Contracts Services Pte Ltd [2004] 3 SLR(R) 1 (“Pang Yong Hock”) at [19]. In this regard, apart from the merits of the claim, the court must also ultimately consider whether it is in the company’s interests for the action to be brought: Jian Li Investments at [54]. Within that inquiry, the court may take into account the character of the company, the availability of alternative remedies, the ability of the defendant to satisfy the claim, the costs and benefits of the proposed action and the effect of the litigation on the conduct of the company’s business among other considerations: Jian Li Investments at [54] citing Wong Lee Vui Willie v Li Qingyun [2016] 1 SLR 696 (“Willie Wong”) at [50] and Petroships Investment Pte Ltd v Wealthplus Pte Ltd and others [2015] SGHC 145 at [153].

Decision

The focus of the second issue, that the proposed action is prima facie in the interests of the company, is an objective assessment of the legal merits of the claim (see Ang Thiam Swee at [58]). That of the first issue, good faith, is the applicant’s honest or reasonable belief in the merits of the claim: Jian Li Investments at [43]. The two issues are related. The strength of the claim is relevant under both heads. An applicant would have difficulty proving an honest or reasonable belief in the merits of the claim if the claim is frivolous (Ang Thiam Swee at [55]) while an applicant would likely (but not necessarily) satisfy that requirement more easily by showing that the claim is meritorious (see Ang Thiam Swee at [29]; Pang Yong Hock at [20]). Further, as the Court of Appeal noted in Pang Yong Hock at [20], “[t]he best way of demonstrating good faith is to show a legitimate claim which the directors are unreasonably reluctant to pursue with the appropriate vigour or at all.”

For the above reason, I considered the requirement that the action be prima facie in the interests of the company first. In the present case, I found the claim to be a legitimate one. Because there was merit in the claim, I also found that the plaintiff was able to satisfy the requirement that she possessed a reasonable and honest belief in its merit. In this context, I took into account the family history of acrimony, which was not determinative of the issue. The various parties at hand were burdened with collateral interests in the positions that they took, but the plaintiff’s interests were aligned with those of the company, whereas the directors’ were not. I held therefore that the plaintiff was acting in good faith in her pursuit of the action. I detail below, the arguments dealing with each limb in turn.

Prima facie in the interests of the company

In brief, the defendants argued that the claim was not legitimate for the following reasons: The directors had simply carried on an existing practice that WKN also adopted when he ran the company. In this context they contended that the Court of Appeal’s decision in Ma Wai Fong Kathryn (CA) ([1] supra) precluded the claim from being brought. The rental ought to be sought, in the first instance, from Double Ace in its...