Ng Kek Wee v Sim City Technology Ltd

• Judge: Sundaresh Menon CJ
• Judgment Date: 09 September 2014
• Neutral Citation: [2014] SGCA 47
• Subject Matter: Oppression,Companies
• Docket Number: Civil Appeal No 156 of 2013
• Hearing Date: 27 May 2014
• Published date: 12 September 2014
• Court: Court of Three Judges (Singapore)
• Plaintiff Counsel: Mr Lim Chee San (TanLim Partnership)
• Defendant Counsel: and David Chan and Tan Su Hui (Shook Lin & Bok LLP)

Chao Hick Tin JA (delivering the judgment of the court):

Sim City Technology Ltd (“the Respondent”), a shareholder of Singalab International Pte Ltd (“Singalab International”), commenced Suit No 680 of 2009 (“the Suit”) against one Mr Ng Kek Wee (“the Appellant”), who was both a shareholder and the managing director of Singalab International. The Respondent sought personal remedies under s 216 of the Companies Act (Cap 50, 2006 Rev Ed) (“the Companies Act”) on the grounds that the Appellant had conducted the affairs of Singalab International and its subsidiaries in a manner that was commercially unfair to it.

In Sim City Technology Ltd v Ng Kek Wee and others [2013] SGHC 216 (“the Judgment”), the High Court Judge (“the Judge”) allowed the Respondent’s claim and among other things ordered that the Appellant buy out the Respondent’s shares in the Company. The Appellant appeals against the Judge’s decision on the grounds that the Respondent had not properly pleaded its claim under s 216 of the Companies Act, and that the Judge had erred in finding that there was commercial unfairness on the facts of the case.

For the reasons that follow, we allow the appeal and set aside the orders made by the Judge.

The Appellant also argued that the wrongs alleged by the Respondent were not wrongs suffered by the Respondent in its personal capacity as a member of Singalab International, and that the Respondent ought not to be entitled to use s 216 of the Companies Act to circumvent the proper plaintiff rule and the reflective loss principle. As will be apparent, we do not think that the determination of this point is necessary to the disposal of the appeal but as the jurisprudence in this area of law is somewhat involved we take the opportunity to clarify the issue.

Background to the dispute

The full background to the dispute is set out in the Judgment. Only the facts pertinent to the present appeal will be repeated here.

The joint venture and formation of Singalab International

In 2003, the Appellant was the managing director and one of several shareholders of a company known as Beans Fusion Pte Ltd (“Beans Fusion”). Beans Fusion was in the business of providing software and consultancy services in Asia and had four subsidiaries:1Record of Appeal (“ROA”) Vol III (A) at p 221. Singalab Pte Ltd (“SPL”); Beans Factory Hong Kong Co Limited (“Beans HK”); Beans Factory Pte Ltd (“Beans Factory”), which owned the licensing rights to “Beans Kernl”, a programming tool (“the Licensing Rights”); and Beans Factory Co Ltd (Beijing) (“Beans China”).

The Appellant had plans for the expansion of the business and to that end, in 2003, he asked Mr Lim Kok Eng (“Mr Lim KE”), the Managing Director of the Respondent, if he was interested in co-investing in the Beans Fusion business.2Respondent’s Supplemental Core Bundle Vol I (“1RSCB”) at p 19. Mr Lim KE said he was keen. Accordingly, their joint venture was structured in this way. First, in early 2004, the Appellant conducted a management buyout of Beans Fusion and thereby became its sole shareholder. Next, on 31 August 2004, Singalab International was incorporated as the parties’ joint venture vehicle, along with two other investors as minority shareholders.31RSCB at p 61. The shareholding of Singalab International was as follows:

	Shareholder	Shareholding (%)
1	Respondent	53.625
2	Appellant	15
3	Accord Perfect Investment Corporation (“Accord Investment”)	6.375
4	Atomic International Ltd (“Atomic International”)	25

According to the Respondent, Atomic International was actually the nominee of the Appellant. This was disputed by the Appellant.

The Respondent averred that there was an understanding between these shareholders encapsulated in a Joint Venture Arrangement (“the JVA”), which was for Singalab International to purchase Beans Fusion’s subsidiaries, and with the aid of new investment to expand their businesses with the ultimate goal of selling off or listing the company. It was also agreed that the shareholders would have a personal interest in the shares of each of Singalab International’s subsidiary companies in the proportion set out at [7] above.4ROA Vol III (A) at p 16, para 20.15. Pursuant to the JVA, an executive committee (“the Exco”) was formed in or around October 2004 consisting of the Appellant, two of the Respondent’s representatives namely Mr Lim KE and one Mr Ng Han Kim (“Mr Ng HK”), as well as a representative of Accord Investment, Mr Huang Jun Dar (“Mr Huang”).5ROA Vol III (A) at p 17, para 21.4 and ROA Vol III (B) at pp 79 – 84.

On 31 December 2004 and 13 May 2005, Beans Fusion sold all its shares in Beans HK and SPL to Singalab International for a total consideration of S$630,000.61RSCB at pp 63 – 70. Beans HK and SPL thus became wholly owned subsidiaries of Singalab International. Subsequently, Beans Factory assigned the Licensing Rights to SPL.7ROA Vol III (B) at pp 101 – 105.

The management of Singalab International and its subsidiaries

The Appellant was appointed Group Chief Executive Officer, Chief Technical Officer and Managing Director of Singalab International and was put in charge of running its various businesses. Mr Ng HK was also appointed as a director of Singalab International from 1 September 2004 to 30 June 2005.8ROA Vol III (A) at p 18, para 21.8.

The Appellant was the Chairman of Beans HK from 2004 until its sale on 14 April 2008.

The Appellant was appointed Managing Director of SPL on 1 November 2002 and remained so even after Singalab International had acquired the shares of SPL. Mr Ng HK and Mr Huang were initially also directors of SPL but resigned in May and June 2005. In or around 28th October 2005, one Mr Chan Mun Kong (“Mr Chan”) was appointed as a director of SPL.

Incorporation of Beans Malaysia and other related companies

In June 2006, one Mr Lim Beng Cheang (“Mr Lim BC”) was instructed by the Respondent to assist the Appellant to expand Singalab International’s business to Malaysia.

According to the Respondent, Beans Factory Solutions Sdn Bhd (“Beans Malaysia”) was incorporated as a subsidiary of Singalab International.9SCB Vol I at pp 74 – 75. Formally, however, Mr Lim BC held one of the two subscriber shares in Beans Malaysia and the Appellant held the other share; both of them were also the signatories of the bank account of Beans Malaysia. Mr Lim BC and his sister, together with the Appellant, were appointed as directors of Beans Malaysia. According to Mr Lim BC, the Appellant made all the executive decisions for Beans Malaysia.

The Respondent also alleged that, pursuant to the JVA, the Appellant had incorporated other entities in China and Taiwan (henceforth known as “Beans China” and “Beans Taiwan”). The Respondent claimed that although the Appellant was formally the sole shareholder and managing director of these companies, he was holding his shares in the two companies on trust for Singalab International and that those companies were in fact its subsidiaries (see above at [8]).10ROA Vol III (A) at pp 18–19, paras 21.9 and 21.11.

Events leading to the commencement of the Suit

In February 2009, the Respondent discovered that Beans Malaysia could not pay its staff their salaries. It further discovered that from August 2006 to February 2009 the Appellant had authorised the withdrawal of over RM1.4m in cash from Beans Malaysia, purportedly in order to pay invoices issued by SPL in respect of labour and skills supplied by SPL for Beans Malaysia’s projects in Malaysia (“the Malaysian Cash Withdrawals”).111RSCB at pp 76 – 139. However, SPL’s invoices were not reflected in SPL’s accounts,121RSCB at pp 140 – 141. and the Malaysian Cash Withdrawals were also unaccounted for in the management accounts of SPL.131RSCB at pp 147 – 148.

The Respondent made frequent and repeated offers to assist the Appellant in drawing up and auditing SPL’s accounts. Finally, on 18 May 2009, the Appellant agreed to meet representatives of the Respondent.14ROA Vol III (A) at p 60, para 34.2. At this meeting, the representatives of the Respondent learnt that the Appellant was holding all the issued share capital of SPL following a transfer of SPL’s shares from Singalab International to the Appellant on 28 July 2006 (“the SPL Transfer”).15ROA Vol III (F) at p 7. After this meeting, the Respondent made further inquiries and discovered that the Appellant had, on or about 14 April 2008, caused Singalab International’s interest in Beans HK to be transferred to one Fong Ho Wan (“the Beans HK Transfer”), which interest was subsequently on-sold by Fong Ho Wan to a third party.161RSCB at pp 154 – 161.

According to the Appellant, both the SPL Transfer and the Beans HK Transfer (collectively “the Transfers”) had been authorised at a meeting of the shareholders of Singalab International on 12 June 2006 (“the 12 June 2006 Meeting”).17ROA Vol III (J) at p 295, para 9. The Appellant alleged that Singalab International’s entire holding of SPL shares had been transferred to him as security pursuant to a shareholders’ agreement that he would obtain bank loans in the name of SPL and put up a personal guarantee for those loans.18Ibid at para 11 The Appellant also alleged that the Beans HK Transfer had taken place as Beans HK had been running at a loss.19Ibid at para 6 The Respondent and Accord Investment disputed the Appellant’s version of events. They claimed that the 12 June 2006 Meeting never took place and that they never agreed to the Transfers.

On 20 May 2009, the Appellant sent a letter of apology to the Respondent’s representatives. He made certain admissions of fault and offered to purchase the Respondent’s shares in Singalab International for US$420,000.201RSCB at pp 162 – 163. The Respondent did not agree to the offer. Instead, it sought to review Singalab International’s and...