Maxz Universal Development Group Pte Ltd v Lian Hwee Choo Phebe

• Jurisdiction: Singapore
• Judge: Lai Siu Chiu J
• Judgment Date: 26 February 2010
• Neutral Citation: [2010] SGHC 64
• Court: High Court (Singapore)
• Hearing Date: 24 November 2009,23 November 2009,01 December 2009,25 November 2009,30 November 2009,26 November 2009
• Docket Number: Suit No 643 of 2008/M
• Plaintiff Counsel: Edmund Kronenburg, Charmaine Cheong and Lye Hui Xian (Braddell Brothers)
• Subject Matter: Companies,Civil Procedure,Costs
• Published date: 11 May 2010

Lai Siu Chiu J: Introduction

This suit was a culmination of one of several disputes involving Maxz Universal Development Group Pte Ltd (“the plaintiff”) and its shareholders and directors. In these proceedings, the plaintiff is suing Lian Hwee Choo Phebe (“Phebe Lian”), its shareholder and former director, for breach of director’s duties. The plaintiff alleged that Phebe Lian had sent a letter to Malayan Banking Berhad (“Maybank”) prompting Maybank to refrain from refinancing the plaintiff’s banking/credit facilities, thereby causing loss to the plaintiff. The plaintiff also accused Phebe Lian of acting in conflict of interest by causing her company, Corporate United Limited (“CUL”), to extend a $1m Standby Letter of Credit (“SBLC”) in favour of the plaintiff at a cost of $53,664. The plaintiff sought substantial damages ($15,666,372.76) from Phebe Lian in the alternative damages to be assessed.

The Facts

The plaintiff is an investment holding company with no business operations of its own. In January 2005, after encouragement from her friend Benedict Kusni (“Kusni”), Phebe Lian made a capital injection of $100,000 into the plaintiff through her corporate vehicle, Phebe Investment Pte Ltd in return for 10% of the plaintiff’s shares, thereby making her an indirect shareholder of the plaintiff.

At the material time, the plaintiff was managed and controlled by one Seeto Keong (“Seeto”) and one Sebastian Wong Cheen Pong (“Sebastian”). Seeto was the plaintiff’s director and chief executive officer, while Sebastian was its financial controller. At the trial (under cross-examination), Seeto agreed that Sebastian was a de facto director of the plaintiff. Both Seeto and Kusni held shares in the plaintiff. Sebastian indirectly held shares in the plaintiff through his wife and daughter because he was facing bankruptcy proceedings (and was eventually made a bankrupt in early 2005).

In early 2005, the plaintiff was given the opportunity to take over the lease of and to redevelop a hotel at 23 Beach View, Sentosa (“the Hotel”). The Hotel was, at the time, owned by Sijori Resort (Sentosa) Pte Ltd (“Sijori”) and the lessor of the land on which the Hotel stood was Sentosa Development Corporation (“SDC”). It was decided that the plaintiff’s subsidiary, Treasure Resort Pte Ltd (“Treasure Resort”), would acquire the Hotel and have it managed by the Movenpick group of hotel operators (which does not have a presence in Singapore). Even though Phebe Lian was a minority shareholder of the plaintiff, she provided substantial financial assistance for the acquisition apart from which, the plaintiff relied almost entirely on borrowed funds. The financial assistance rendered by Phebe Lian is summarised in the following three paragraphs.

On 13 May 2005, Phebe Lian provided the plaintiff with an SBLC for $200,000 which the plaintiff used as collateral for a $200,000 credit facility from OCBC. The SBLC was provided by CUL and it was to be discharged in six months viz by November 2005. On 17 November 2005, through CUL, Phebe Lian also provided the plaintiff with an interest free loan of $100,000.

On 11 May 2006, Phebe Lian was made a director of the plaintiff. The management of the plaintiff still remained primarily in the hands of Seeto and Sebastian although Phebe Lian now had an additional reason to assist the plaintiff. In June 2006, the plaintiff obtained an $8m loan from Moscow Narodny Bank Limited which was subsequently renamed VTB Bank Europe (“VTB”). In order to convince VTB to extend the loan, the plaintiff had to demonstrate that it had funds of its own. To that end, Seeto caused the plaintiff to borrow $1m from Sit Ley Timber Pte Ltd. The plaintiff, however, could not meet the condition of Sit Ley Timber Pte Ltd to pay $100,000 upfront as interest and the arrangement fell through. To assist the plaintiff, Phebe Lian provided the plaintiff, again through CUL, an SBLC for $1m, which enabled the plaintiff to obtain a $1m credit facility from the Overseas Chinese Banking Corporation (“OCBC”). The deadline for this SBLC to be discharged was 30 November 2006 but, at the plaintiff’s request, it was extended to 28 February 2007.

Phebe Lian also stood as a guarantor for the plaintiff. In November 2006, the plaintiff obtained a loan of $5m from Maybank which was secured by (a) a joint and several guarantee for the sum by Phebe Lian and Seeto and (b) two Insurance Guarantee Bonds for an amount totalling $5m from See Hoy Chan Capital Limited (“SHC”).

On 14 November 2006, Treasure Resorts entered into a Novation Agreement with Sijori and a Supplemental Agreement with SDC the effect of which was to make Treasure Resorts the lessee of the land on which the Hotel stood. In the same month, Phebe Lian began making enquiries about the plaintiff’s financial status. At the time, the plaintiff had (i) an $8m loan from VTB; (ii) a $5m loan from Maybank; and (iii) a $1.2m loan from the OCBC. Despite having substantial funds, the SBLC of $200,000 issued by CUL in May 2005 was not discharged. Further, the date of repayment of Phebe Lian’s loan of $100,000 (which had been extended for 2 weeks in November 2005) had to be extended yet again and was only repaid in May 2006; the date of discharge of the $1m SBLC also had to be extended.

Yet, Phebe Lian noticed that Seeto and Sebastian were driving brand new seven and five series BMW cars respectively, which they obtained in October and December 2006 from the local distributor Performance Motors Ltd, on hire purchase financing, paid by the plaintiff. In Sebastian’s case, he registered the vehicle in his daughter’s name as by 13 January 2005, he had been adjudged a bankrupt. Further, Seeto and Sebastian each acquired a condominium apartment. At that time, the plaintiff had no income and while it had funds, these were all borrowed moneys a portion of which came from Phebe Lian. Although there was also no agreement for directors to be remunerated, in the course of Seeto’s cross-examination, it was revealed that he paid himself $6,000 ‘allowance’ a month while Sebastian was paid $5,000 by the plaintiff. Not surprisingly, Phebe Lian began to harbour suspicions of the source of Seeto and Sebastian’s new found wealth and started to make enquiries. She questioned Seeto and Sebastian as to how the plaintiff’s funds were being utilised and how the plaintiff intended to repay CUL. In addition, she sought to examine the plaintiff’s accounts and to be made a co-signatory to the plaintiff’s bank accounts. Seeto and Sebastian ignored her enquiries and her requests.

On 19 January 2007, CUL sought repayment of its loans. When the moneys were not repaid, Phebe Lian became more anxious and suspicious as to how the plaintiff’s finances were being managed. Phebe Lian was particularly anxious because not only was she a director of the plaintiff, she was also a joint-guarantor of the plaintiff’s $5m loan and had, through CUL, provided the plaintiff with financial assistance of a sum totalling $1.3m without security.

After further fruitless attempts to obtain information from Seeto and/or Sebastian with regard to the plaintiff’s financial status, Phebe Lian sent a letter to the plaintiff’s bankers (including Maybank) dated 29 January 2007 (“the letter”) to informed the banks that she would be making an inquiry into the plaintiff’s financial affairs and that the banks should not act on the instructions of the plaintiff unless those instructions bore her authorising signature. In the letter, Phebe Lian mistakenly described herself as the “managing director” of the company. On 7 February 2007, she wrote to the banks to seek copies of the plaintiff’s bank statements and to correct her earlier mistake in the letter by clarifying that she was only a director of the plaintiff and not its managing director.

On 30 January 2007, Phebe Lian’s lawyers wrote to Seeto expressing concern at the fact that she had yet to receive any of the plaintiff’s financial reports and that her repeated requests for information pertaining to the company’s finances had been refused or ignored. Phebe Lian’s lawyers demanded that the plaintiff: 1) furnish [Phebe Lian] with [the plaintiff’s] financial accounts for the years 2005 and 2006; 2) furnish [Phebe Lian] with a copy of all the minutes and resolutions passed by the Board of Directors and shareholders in the year 2006; 3) furnish [Phebe Lian] with a copy of [the plaintiff’s] bank statements for the year 2006; and 4) cause to be passed, the necessary directors’ resolution to remove sole signatories to [the plaintiff’s] bank accounts and to authorise [the plaintiff’s] bank accounts to be operated only by joint signatories, one of whom shall be [Phebe Lian]. Legal action was threatened if the above conditions were not satisfied within 5 days.

After Phebe Lian had written to the banks and to Seeto, Seeto and Sebastian responded in several emails to try to assuage her concerns. In an email sent on 30 January 2007, Seeto expressed his hope that their business relationship will not “fall apart” and informed Phebe Lian that he had already directed Sebastian to prepare board resolutions to add her as a signatory to the plaintiff’s bank accounts. He also apologised to her and in doing so stated the following:

Finally, i offer my apology to you if i had probably cause you to feel uneasy in anyway. I maintain my statement that you are the director of [the plaintiff] i respected and will still be.

Sebastian also wrote to Phebe Lian in an email dated 6 February 2007 stating, inter alia, that he would:

…change bank signatories for VTB Bank Europe plc (formerly known as Moscow Narodny Bank) and Maybank to jointly between you and Seeto Keong instead of singly any one and to add your signatory to OCBC to be signed between yourself, Seeto Keong or Sebastian, any two.

He also added that he would:

… improve corporate governance by setting up an Executive...