MCH International Pte Ltd and others v YG Group Pte Ltd and others

• Jurisdiction: Singapore
• Judge: Tan Teck Ping Karen AR
• Judgment Date: 31 May 2017
• Neutral Citation: [2017] SGHCR 8
• Court: High Court (Singapore)
• Docket Number: Suit No 107 of 2017 (Summons No1668 of 2017)
• Year: 2017
• Published date: 13 June 2017
• Hearing Date: 15 May 2017
• Plaintiff Counsel: Mr Chua Cheng Yew and Ms Sun Ran (Wong Tan & Molly Lim LLC)
• Defendant Counsel: Mr Navin Jospeh Lobo and Mr Oon Shaun Kim San (Bird & Bird ATMD LLP)
• Subject Matter: Civil Procedure,Striking Out
• Citation: [2017] SGHCR 8

Tan Teck Ping Karen AR: Introduction

The 1st defendant, YG Group Pte Ltd (“YGG”), applied to strike out parts of the statement of claim (“SOC”) under O 18 r 19 of the Rules of Court (“the Rules”). I reserved judgment and now give my decision.

Background facts

YGG is a joint venture company incorporated by the 1st plaintiff, MCH International Pte Ltd (“MCH”) and the 2nd defendant, YG Logistics Pte Ltd (“YGL”) for the purpose of acquiring logistic companies in China through Yong Gui Investment Pte Ltd (“the Target”), a holding company. MCH and YGL are the only shareholders of YGG.

The 2nd plaintiff (“Henry”) is a director of MCH and was a director of the YGG. The 3rd plaintiff is Henry’s wife.

The 3rd defendant (“Simon”) is a director of YGL and is also a director of YGG.

The Board of Directors of YGG currently consist of: The 4th defendant (“Bernard”); The 5th defendant (“Michael”); and Simon.

The claim by the 1st, 2nd and 3rd plaintiffs (collectively referred to as “the plaintiffs”) relate to, inter alia, damages and/or loss suffered due to the alleged lawful/unlawful conspiracy by the defendants with the sole or predominant intention of damaging or destroying the financial and/or business interests of the plaintiffs and breaches of a Shareholders Agreement between the MCH, YGL and YGG.

Prior to the commencement of this action, the parties were involved in the following actions: HC/S 104/2016 (“S104”) commenced by YGL against MCH, Henry and YGG for alleged breach of a Deed of Undertaking. HC/ S 337/2016 (“S337”) commenced by YGL against MCH seeking immediate payment of the loan extended for the purpose of the acquisition and against Henry and the 3rd plaintiff as guarantors under the personal guarantee.

The plaintiffs pleaded at paragraphs 80 to 85 of the Statement of Claim in this action, inter alia, that as a director of YGG, Simon had breached his fiduciary duties to YGG due to the commencement of S104 and S337 and the steps taken by YGL and/or Simon to wrest control of YGG from Henry. The plaintiffs also pleaded that, in the event the court finds that Bernard and Michael were validly appointed as directors of YGG, they too have similarly breached their fiduciary duties owed to YGG.

As a result of the alleged breach of fiduciary duties, the plaintiffs seek, inter alia, the following reliefs: Relief (f): a declaration that Bernard and Michael have breached their fiduciary duties as directors of YGG. Relief (g): a declaration that Simon has breached his fiduciary duties as a director of YGG; Relief (h): an order that the defendants account to the plaintiffs for any and all loss and damage suffered by the plaintiffs as a result of the defendants’ breaches of fiduciary duties and/or wrongful breaches, conduct, acts and/or omissions as set out in the Statement of Claim; Relief (r): if necessary, an order that MCH be granted leave to bring civil proceedings in the name and on behalf of YGG against the Simon, Bernard and Michael on such terms as the Court may direct.

YGG seeks an order that paragraphs 80 to 85 and reliefs (f), (g), (h) and (r) be struck out as the plaintiffs have no legal capacity or right to bring an action for any alleged breach of fiduciary duties by the current directors of YGG (namely, Simon, Bernard and Michael). It was submitted that the proper plaintiff to seek redress for any alleged breach of fiduciary duties is YGG.

The proper plaintiff rule

It is trite law that it is the company who is the proper party to sue the wrongdoer in respect of any breach of fiduciary duty owed to the company: the proper plaintiff rule in Foss v Harbottle (1843) 2 Hare 461 (“Foss v Harbottle”).

YGG argued that the said paragraphs and reliefs should be struck off because: The plaintiffs have no legal capacity or right to bring an action for any alleged breach of fiduciary duties by the current directors of YGG (i.e. Simon, Bernard and Michael) as the proper plaintiff in such claims is YGG. Insofar as the claims in the said paragraphs and relief sought in (f), (g) and (h) of the Statement of Claim are brought by MCH for and on behalf of YGG by a statutory derivative action, leave has not been obtained by MCH and such leave is required before a statutory derivative action may be brought against Simon, Bernard and Michael. Further, even if the plaintiffs have validly commence a statutory derivative action under s 216A Companies Act, any and all loss and damage suffered are payable to YGG, instead of the plaintiffs as sought in relief (h) of the Statement of Claim.

The plaintiffs do not dispute the proper plaintiff rule. However, they submit that the said paragraphs and reliefs should not be struck off because: If necessary, the plaintiffs seek leave from the trial judge in this action for leave to commence a statutory derivative action under s 216A of the Companies Act if the court finds the notice requirement under s 216A of the Companies Act has not been met; Even if the trial judge does not grant leave for a statutory derivative action under s 216A of the Companies Act to be commenced by the plaintiffs, the plaintiffs could still maintain a common law derivative action against Simon, Bernard and Michael; and The said paragraphs may give rise to a claim for relief under s 216 of the Companies Act.

I will examine each of the arguments raised by the plaintiffs in turn.

Statutory Derivative action under s 216A of the Companies Act

The relevant portions of s 216A of the Companies Act states:

216A. Derivative or representative actions

…

(2) Subject to subsection (3), a complainant may apply to the Court for leave to bring an action or arbitration in the name and on behalf of the company or intervene in an action or arbitration to which the company is a party for the purpose of prosecuting, defending or discontinuing the action or arbitration on behalf of the company. (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 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 interest of the company that the action or arbitration be brought, prosecuted, defended or discontinued. (4) Where a complainant on an application can establish to the satisfaction of the Court that it is not expedient to give notice as required in subsection (3) (a), the Court may make such interim order as it thinks fit pending the complainant giving notice as required.

It is clear from s216A of the Companies Act that the plaintiffs have to obtain leave to court prior to the commencement of a statutory derivative action.

In the present case, the plaintiffs have not served notice on the board of YGG as required under s 216A(3)(a) of the Companies Act nor have they obtained leave under s216A of the Companies Act to commence the statutory derivative proceeding against Simon, Bernard and Michael prior to the commencement of this action. The plaintiffs argued that it would be impracticable to serve such a notice as they take the position that the appointment of Bernard and Michael as directors of YGG is wrongful and invalid. The notice, if served, would be an implicit recognition of the “rogue board”. Further, they say that after this action was served on YGG, no steps were taken by the “rogue board” to commence any action against Simon, Bernard and Michael. Therefore, the plaintiffs submit that, if necessary, the trial judge in this action should grant leave for the derivative action even though the requisite notice requirement has not been met.

YGG’s position is that leave to commence a derivative action has to be obtained prior to the commencement of this action. Since no such leave has been obtained, the plaintiffs do not have locus standi to commence a derivative action on behalf of the YGG against Simon, Bernard and Michael.

The notice requirement under s 216A Companies Act was examined by Judith Prakash J (as she then was) (“Prakash J”)...