Over & Over Ltd v Bonvests Holdings Ltd

JurisdictionSingapore
Judgment Date24 February 2010
Date24 February 2010
Docket NumberCivil Appeal No 141 of 2008
CourtCourt of Appeal (Singapore)
Over & Over Ltd
Plaintiff
and
Bonvests Holdings Ltd and another
Defendant

[2010] SGCA 7

Chao Hick Tin JA

,

Andrew Phang Boon Leong JA

and

V K Rajah JA

Civil Appeal No 141 of 2008

Court of Appeal

Companies–Oppression–Minority shareholders–Prejudice suffered by minority through single act and persistent course of conduct–Holistic assessment of events in assessing whether oppression made out under s 216 Companies Act (Cap 50, 2006 Rev Ed)–Different standards for oppression in context of quasi-partnerships–Issuance of shares for collateral purposes–Abuse of majority voting rights–Fairness of related party transactions that benefitted joint venture–Whether discount on minority stake required for buyout order given absence of other minority interests

Sometime in 1980, the Appellant and Unicurrent Finance Limited ( Unicurrent ) incorporated a joint venture company, Richvein Pte Ltd ( Richvein ), to develop and operate the Sheraton Towers Singapore ( the Hotel ). Unicurrent held 70% of the shares in Richvein while the Appellant held the remaining 30%. The discussions between the parties leading to the incorporation of Richvein were undocumented and largely based on trust.

Initially, the Hotel's operations proceeded smoothly and the working relationship between the parties was uneventful. In 1991, however, Henry Ngo ( HN ), whose family controlled both the Respondent and Unicurrent, purported to terminate an extant Richvein hotel management contract without consulting the Appellant. Although a compromise arrangement was eventually reached by the parties on this matter, it later transpired that other contracts for management, waste disposal and cleaning services vis-à-visthe Hotel were, at HN's behest, all not placed before Richvein's board of directors. Subsequently, the Appellant alleged that HN had taken these courses of action in order to divert Richvein's contracts to other related companies in which he held substantial interests.

In 2002, HN decided that the Respondent should acquire Unicurrent's 70% shareholding in Richvein. Two choices were presented to the Appellant: it could either consent to an outright sale by Unicurrent of its shares in Richvein to the Respondent, or the Respondent would simply buy over all of Unicurrent's shares. Confronted with this Hobson's choice, the Appellant reluctantly consented to the sale.

In 2006, following the Appellant's refusal to cooperate in taking up a certain re-financing package for an earlier loan taken out by Richvein, HN decided that a rights issue would be an appropriate mechanism to pay off that same loan. Despite objections and repeated requests from the Appellant for documents and for an analysis of the cash flow requirements of Richvein, the rights issue was hastily completed at an issue price of $0.38 per rights share, a price that would result in the maximum dilution of the Appellant's share if the Appellant does not take up the rights .

After considering the above incidents cumulatively, however, the trial judge nonetheless found that the Appellant had not made out its claim for oppressive and/or unfairly prejudicial conduct under s 216 of the Companies Act (Cap 50, 2006 Rev Ed). He held that while HN had failed to comply with the spirit of Richvein's Articles of Association by not placing the various related-party contracts before the board, this was only a technical breach and in any case the Appellant had been aware of HN's interests in the various related companies. The trial judge also reasoned that since the Appellant had negotiated for the removal of pre-emption rights in return for its consent to the sale by Unicurrent of its shares in Richvein to the Respondent, it could not later complain about the sale. Finally, he concluded that the rights issue had been decided upon because of the Appellant's own intransigence, and in any event the availability of other means of loan repayment did not necessarily make the rights issue unfair.

Held, allowing the appeal:

(1) Based on a plain reading of s 216 (1), either a course of conduct or even a single act could theoretically amount to minority oppression. The test to apply in cases of single-act injustice would be the same as the test already applied in cases of continuing conduct injustice, viz, a visible departure from the standards of fair dealing and a violation of the conditions of fair play which a shareholder is entitled to expect . Re Kong Thai Sawmill (Miri) Sdn Bhd [1978] 2 MLJ 227 endorsed: at [74] and [77].

(2) In deciding whether to grant relief under s 216, the court had to take into account both the legal rights and the legitimate expectations of members. While these legal rights and expectations were usually enshrined in the company's constitution in the majority of cases, a special class of quasi-partnership companies form an exception to this rule. Due to the peculiar vulnerability of minority shareholders in such companies premised on informal understandings and assumptions, the court should apply a stricter yardstick of scrutiny: at [78], [83] and [84].

(3) Given the brevity and informality of the parties' negotiations leading to Richvein's incorporation, as well as the existence of an understanding that there would be a mutual consultation on important decisions, Richvein had to have started life as a quasi-partnership in 1980. However, as a result of events engendered mainly by HN's later actions, a fundamental change in the character of the parties' relationship was precipitated and what began as a closely knit partnership underpinned by private share ownership was eventually replaced by a going concern that was effectively a listed subsidiary of the Respondent: at [87], [90] and [97].

(4) While HN's conduct with respect to the related party transactions did not amount to oppression per se, and appeared to have been both disclosed and with Richvein's strategic interests at heart, this did not preclude its further consideration for the purposes of assessing holistically the entire manner in which the affairs of Richvein had been conducted apropos the Appellant: at [99]- [100].

(5) Merely because a shareholder did not immediately initiate legal proceedings complaining about treatment unfairly dished out to him did not mean that he was precluded from doing so subsequently. If Unicurrent's shares were going to be transferred to the Respondent whether directly or indirectly, the fact that the Appellant did eventually settle for one of the two unhappy alternatives did not mean that it could not keep its powder keg dry. The Appellant was not precluded from subsequently asserting, correctly, that it had suffered prejudice in being locked in a new business relationship with a listed public company that bore no resemblance to the implicit understanding the parties had when Richvein was first incorporated: at [103] and [105].

(6) The issue of shares for any reason other than to raise capital - for instance, to dilute the voting power of others - amounted to a breach of fiduciary duties and also oppression if the directors representing the majority cast their votes in bad faith. Here, the entirely unnecessary haste in deciding on and muscling through the rights issue for Richvein, coupled with the complete absence of any commercial justification for the exercise, simply went to show how capricious the whole process was. It smacked of an abuse of rights and was sufficient, as a single act, to amount to oppression: at [122], [127] and [130].

(7) The rights issue and the share transfer, viewed in conjunction with the overarching background of the related party transactions, comprised clear evidence of unfairness that amounted to oppressive conduct against the Appellant. This was not a case of just a single isolated act or episode of minority oppression, but rather a deliberate course of conduct that steadily grew in brazenness with the passage of time. Nonetheless, as a quasi-partnership between the parties had existed, the rights issue alone would also have been sufficient for a finding of oppression: at [129] and [130].

(8) As the breakdown in the relationship between the parties was entirely brought about by HN's inappropriate conduct, it would have been unfair for the Appellant to sell its shares in Richvein to the Respondent at a discount on the basis of its minority stake. In this connection it was significant that there were no other minority interests involved and were the Respondent to purchase the Appellant's shareholding in Richvein, it would become the sole shareholder of a valuable asset: at [132].

Company (No 007623 of 1984) , Re a [1986] BCLC 362 (distd)

Cumana Ltd, Re [1986] BCLC 430 (folld)

Dato Ting Check Sii v Datuk Haji Mohamad Tufail bin Mahmud [2007] 7 MLJ 618 (refd)

Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (refd)

Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821 (refd)

Jermyn Street Turkish Baths Ltd, Re [1971] 1 WLR 1042; [1971] 3 All ER 184 (refd)

Kokotovich Constructions Pty Ltd v Wallington (1995) 13 ACLC 1113 (folld)

Kong Thai Sawmill (Miri) Sdn Bhd,Re [1978] 2 MLJ 227 (folld)

Lim Swee Khiang v Borden Co (Pte) Ltd [2006] 4 SLR (R) 745; [2006] 4 SLR 745 (folld)

Low Peng Boon v Low Janie [1999] 1 SLR (R) 337; [1999] 1 SLR 761 (folld)

Phoenix Office Supplies Ltd v Larvin [2003] BCC 11 (folld)

Polybuilding (S) Pte Ltd v Lim Heng Lee [2001] 2 SLR (R) 12; [2001] 3 SLR 184 (folld)

Saul D Harrison & Sons plc, Re [1995] 1 BCLC 14 (folld)

Sim Yong Kim v Evenstar Investments Pte Ltd [2006] 3 SLR (R) 827; [2006] 3 SLR 827 (folld)

Strahan v Wilcock [2006] BCC 320 (refd)

Wallington v Kokotovich Constructions Pty Ltd [1993] 11 ACLC 1207 (refd)

Companies Act (Cap 50,2006Rev Ed) s 216 (1) (consd) ;ss 216,216 (2) (d) ,254 (1) (i)

Sundaresh Menon SC, Tammy Low Wan Jun and Paul Tan Beng Hwee (Rajah & Tann LLP) for the appellant

Alvin Yeo SC, Tan Whei Mien Joy, Chang Man Phing, Bryanne...

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