Maniach Pte Ltd v L Capital Jones Ltd and another

• Jurisdiction: Singapore
• Judge: Vinodh Coomaraswamy J
• Judgment Date: 22 April 2016
• Neutral Citation: [2016] SGHC 65
• Plaintiff Counsel: Chew Kei-Jin, Tham Lijing, Melissa Tan and Stephanie Tan (Tan Rajah & Cheah)
• Docket Number: Suit No 182 of 2015 (Summonses Nos 998 and 1936 of 2015)
• Date: 22 April 2016
• Hearing Date: 11 March 2015,08 April 2015,31 August 2015,18 May 2015,03 September 2015,15 April 2015,02 September 2015
• Subject Matter: Arbitration,Scope,Arbitrability and Public Policy,Stay of court proceedings,Agreement
• Year: 2016
• Citation: [2016] SGHC 65
• Defendant Counsel: Koh Swee Yen, Suegene Ang, Sim Mei Ling and Jill Ann Koh Ying (WongPartnership LLP)
• Court: High Court (Singapore)
• Published date: 20 January 2017

Vinodh Coomaraswamy J: Introduction

The plaintiff and the first defendant are the only two shareholders in the second defendant.¹ In these proceedings, the plaintiff seeks relief against both defendants arising from what it says is minority oppression.² When the first defendant was allotted shares in the second defendant in 2012, all three parties to these proceedings entered into a shareholders’ agreement. That shareholders’ agreement, as restated and re-executed in 2013, regulates the shareholders’ relationship with each other and with the second defendant.³ The parties to the shareholders’ agreement also agreed to resolve by arbitration their disputes or differences arising under or in connection with it.⁴

Relying on this arbitration agreement, both defendants have applied⁵ to stay these minority oppression proceedings in favour of arbitration. They seek the stay both under s 6 of the International Arbitration Act (Cap 143A, 2002 Ed) and under the inherent jurisdiction of the court. I have refused to stay these proceedings. Both defendants have, with my leave, appealed to the Court of Appeal against my decision. I now set out my reasons.

Factual background The parties

The second defendant (“the Company”) is a company incorporated in Singapore. As I have mentioned, the Company has only two shareholders. The plaintiff (“Maniach”) holds 37% of the Company. The first defendant (“L Capital Jones”) holds the remaining 63%.⁶

The Company is the worldwide holding company for the Jones the Grocer business. That business began operations in Australia but now operates internationally.⁷ It comprises a group of companies (“the Group”) engaged in the business of: (i) operating and franchising gourmet cafes and grocery stores under the Jones the Grocer brand; (ii) distributing food and beverages to Jones the Grocer stores; (iii) distributing food and beverages to other restaurants, cafés and hotels;⁸ and (iv) franchising new cafés and stores under the Jones the Grocer brand.⁹

Maniach is a company incorporated in Singapore. It is a personal investment vehicle for Mr John Manos. Mr Manos is Maniach’s executive director and sole shareholder.¹⁰

L Capital Jones is a company incorporated in Mauritius. It is the investment vehicle of L Capital Asia LLC (“L Capital Asia”) L Capital Asia is a private equity firm.¹¹ L Capital Asia is L Capital Jones’ sole shareholder.

The structure of the Group

The Company owns the Jones the Grocer business through its wholly-owned subsidiary, Jones Group Holdings Pty Ltd (“JG Holdings”). JG Holdings is a company incorporated in Australia and has two wholly-owned subsidiaries of its own: Jones the Grocer International Pte Ltd (“JTG International”), a company incorporated in Singapore; and 3GS Holdings Pty Ltd (“3GS”), a company incorporated in Australia.

Broadly speaking, 3GS owns and operates the Group’s business within Australia while JTG International owns and operates the Group’s business in Singapore and also operates the Group’s international franchising business.¹² Thus 3GS holds four wholly-owned subsidiaries incorporated in Australia.¹³ I will refer to JG Holdings, 3GS and its four Australian subsidiaries as “the Australian companies”. JTG International operates the Group’s business in Singapore and holds the Group’s interests in companies trading under the Jones the Grocer brand in Qatar, the United Arab Emirates and the British Virgin Islands.¹⁴

I set out a diagram of the Group structure:

Maniach’s claim

I now summarise the background facts. I take the facts set out in this summary largely from Maniach’s pleadings and both parties’ affidavits filed in support of or in opposition to various interlocutory applications in this matter. In my summary, I will note and resolve a dispute of fact only if one arises on the affidavits and only if it is relevant to the applications before me. Therefore, if I incorporate in my summary any of the facts put forward by either party without comment, that should not be taken in itself as representing a finding of fact in that party’s favour.

Mr Manos and his business partner founded the Jones the Grocer business in Australia in 2004.¹⁵ In 2010, Mr Manos bought out his partner and became the sole owner of the business.¹⁶

In 2012, L Capital Asia agreed to inject capital into the business in order to fund its expansion.¹⁷ The Company was incorporated in May 2012 in order to receive L Capital Asia’s investment and to be the post-investment holding company of the entire business.¹⁸

In July 2012, three parties to these proceedings as well as Mr Manos executed a shareholders’ agreement. Under that agreement, L Capital Asia made an initial investment of US$14m in the business and was allotted 53% of the Company’s shares.¹⁹ The remaining 47% of the Company was held by Maniach.²⁰

The 2012 shareholders’ agreement was restated and re-executed in 2013 (“the Agreement”).²¹ In 2013 and 2014, L Capital Asia invested an additional US$7m in the Company in three tranches. As a result of this additional investment, L Capital Jones increased its stake in the Company from 53% to 63%, with Maniach’s stake being correspondingly reduced from 47% to 37%.²²

In 2014 and 2015, the two shareholders in the Company fell out irretrievably.²³ As a result, Maniach commenced these proceedings against both L Capital Jones and the Company under s 216 of the Companies Act (Cap 50, 2006 Rev Ed). The nub of Maniach’s case on minority oppression is, as Mr Manos says in his affidavit: “[L Capital Jones] has been engaged in a carefully plotted campaign to wrongfully seize control of the Business”.²⁴

In order to understand the defendants’ case for a stay of these proceedings, it is necessary to analyse in greater detail Maniach’s minority oppression claim.

The general endorsement on Maniach’s writ seeks damages or other relief against L Capital Jones under s 216 of the Companies Act and prays specifically for an order restraining or rescinding any transfer of the Company’s shares in JG Holdings.

In its statement of claim, Maniach expands on its endorsement. It rests its minority oppression claim on three broad planks: L Capital Jones has excluded Maniach from the management of the Company and its subsidiaries, in breach of the common understanding between the Maniach and L Capital Jones;²⁵ L Capital Jones falsely claimed that the Company and JG Holdings were near insolvency and unilaterally placed them under external administration in Singapore and in Australia respectively as a pretext to transfer the Company’s only asset – its shares in JG Holdings – to a third party related to L Capital Asia for virtually no net consideration;²⁶ and L Capital Jones has abused its voting powers as the majority shareholder of the Company by exercising those powers in bad faith and for a collateral purpose.²⁷

I now elaborate on each of three planks of Maniach’s case on oppression.

Exclusion from management of the Company

The first plank of Maniach’s minority oppression claim is that L Capital Jones has acted unfairly by excluding Maniach from management of the Company and its business. Maniach’s case is that the parties intended from the outset that Maniach would play an important role in managing the Group and its business. It relies on four matters as support for this aspect of its case.²⁸ First, cl 6 of the Agreement entitles Maniach and L Capital Jones each to nominate an equal number of directors of the Company. Thus, Mr Manos (as Maniach’s nominee) has been a director of the company from its inception together with Mr Ravinder Singh Thakran and Mr Shantanu Mukerji (as L Capital Jones’ nominees). Second, there are certain reserved matters listed in Schedule 2 and Schedule 2A of the Agreement which require the consent either of Maniach or of Maniach’s nominee directors. Third, cl 6.2 of the Agreement provides that only Maniach has the right to nominate the Company’s Executive Director. Thus, on the same day in 2012 that the parties signed the original shareholders’ agreement, Maniach nominated Mr Manos to be the Group’s first Chief Executive Officer (“CEO”). Finally, also on that day, Maniach nominated Mr Manos’s wife, Ms Esther Iachelini, as the Group’s Chief Operating Officer (“COO”).

Maniach alleges that L Capital Jones has acted oppressively by excluding its nominee Mr Manos from a number of key decisions taken by the Company in 2014 and 2015. In many cases, Mr Manos complains,²⁹ L Capital Jones’ conduct is in breach of the Agreement. As examples, Maniach cites L Capital Jones’ causing³⁰ the Company to terminate Mr Manos’s employment as CEO and his wife’s employment as COO in December 2014. Not only did the termination operate in itself to exclude him from management, he was also not consulted about either termination in advance even though he was then a director of the Company. Instead, he was simply emailed a letter informing him of his termination.³¹ Mr Manos complains that his termination was effective immediately without a transition period. Moreover, the Company had no legitimate grounds to terminate his employment. His termination was in fact part of L Capital Jones’s overall plan wrongfully to seize control of the business.

Even though his employment as CEO has ceased, Mr Manos remains a director of the Company.³² But L Capital Jones has nevertheless excluded him from the management of the Group, denied him access to the financial records of the Company and the Group and acted unilaterally in managing the Company. For example, L Capital Jones did not consult Mr Manos in connection with its decision to place the Company, together with JG Holdings and JG International, under the control of external administrators.

That decision which Maniach impugns leads me to the second plank of Maniach’s minority oppression claim.

Transfer of the Company’s only asset at an undervalue

The revised financing

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