Paillart Philippe Marcel Etienne and Another v Eban Stuart Ashley and Another

• Jurisdiction: Singapore
• Judge: Andrew Ang J
• Judgment Date: 30 October 2006
• Neutral Citation: [2006] SGHC 187
• Docket Number: Suit No 491 of 2005
• Date: 30 October 2006
• Year: 2006
• Published date: 03 November 2006
• Plaintiff Counsel: Mahmood Gaznavi (Mahmood Gazvani & Partners)
• Citation: [2006] SGHC 187
• Defendant Counsel: Jonathan Yuen and Shahiran Ibrahim (Asia Law Corporation)
• Court: High Court (Singapore)
• Subject Matter: Resolutions,Defendant purporting to remove first plaintiff as director through circular resolution calling for extraordinary general meeting,Whether fact that default judgment entered against one of two defendants making declaratory order against other defendant unnecessary,First plaintiff applying for declaratory order that defendant be restrained from purporting to remove first plaintiff as director of company,Proposed resolution not circulated to first plaintiff,Courts and Jurisdiction,Removal,Defendant purporting to remove first plaintiff as director on ground of gross misconduct,Conditions for granting declaratory order,Declaratory,First plaintiff and defendant directors of company,Whether plaintiff guilty of alleged gross misconduct,Court judgments,Companies,Directors,Whether resolution valid

30 October 2006

Andrew Ang J:

1 The first plaintiff, Philippe Marcel Etienne Paillart, is the managing director of the second plaintiff, Sin Rong Investments Pte Ltd, an investment company incorporated in Singapore. The first defendant, Stuart Ashley Eban, is a director of the second defendant, Earth Science Industries Pte Ltd (“ESI”), a company incorporated in Singapore.

2 Prior to 28 April 2005, the second defendant was wholly owned by Century Trading Group (“CTG”), a company incorporated in the Territory of the British Virgin Islands. The board of directors of the second defendant comprised the first plaintiff, the first defendant and one Michael John Geraghty (“Geraghty”). The second defendant was the sole beneficial owner of the intellectual property rights relating to a machine for converting what would otherwise be waste products from oil or date palm plantations into organic fibrous material (“Palm Biomass”). However, to move the machine from the drawing board to reality, the defendants needed the help of the plaintiffs. Evidence was adduced by the plaintiffs which showed that before the plaintiffs became involved in the affairs of the second defendant, the second defendant only had a sum of $25.75 in its favour in its bank account in October 2004.

3 On 28 April 2005, the first and second plaintiffs, the first and second defendants, Geraghty and CTG entered into a written agreement (“the Agreement”) to enable the second plaintiff to financially invest and participate in the business development of the second defendant.

4 In accordance with cl 2 of the Agreement, the second plaintiff became a shareholder of 22.22% of the shares of the second defendant. On the same day, the first plaintiff was also duly voted onto the board of directors of the second defendant in accordance with cl 2(f) of the Agreement. The machine capable of performing the function described at [2] above was fabricated in April 2005 after the plaintiffs contributed nearly $800,000; the first defendant and Geraghty contributed about $4,500 each. The intellectual property rights in that machine were estimated by parties to be worth about $5m to $7m. It is undisputed that the machine was the second defendant’s only and most valuable asset.

5 The present proceedings started as a result of the first defendant attempting to remove the first plaintiff as a director of the second defendant.

6 On 27 June 2005, the first defendant purported, by a notice of that date, to call for an extraordinary general meeting (“EGM”) of the second defendant to be held on 14 July 2005 with the purpose of removing the first plaintiff from the board of the second defendant.

7 The first plaintiff protested on several grounds against the first defendant’s attempt to remove him from the board of the second defendant.

8 First, he contended that the attempt was a violation of the Agreement entered into between the first and second plaintiffs, the first and second defendants, Geraghty and CTG.

9 In cl 5(b) of the Agreement, it was provided that as long as the second plaintiff held no less than 10% of the shares in the second defendant, the first plaintiff would be entitled to be appointed a director of the second defendant.

10 Besides, the first plaintiff took the position that the calling of the EGM was procedurally irregular in that the first defendant was not entitled, of his own accord, to call for an EGM.

11 Owing to the first defendant’s refusal to call off the EGM, the first plaintiff brought this action and meanwhile was granted an interim injunction by Choo Han Teck J on 12 July 2005 pending the outcome of the plaintiffs’ application in this action for a permanent injunction, inter alia. As against the second defendant, by reason of its failure to file a defence, default judgment in this action was entered against it on 11 November 2005.

12 In this present application, the plaintiffs seek:

(a) a declaration that for as long as the second plaintiff holds at least 10% of the shares in the second defendant, the first plaintiff is entitled to be appointed a director of the second defendant;

(b) an order that the first and second defendants, whether by themselves, their officers, servants, agents, employees or any of them or otherwise, be restrained, by a permanent injunction granted, from convening, holding or otherwise allowing to be held any EGM, directors’ meeting or any meeting whatsoever or doing any acts or things whatsoever that purport to or have the effect of:

(i) removing the first plaintiff as a director of the second defendant or curtailing or diminishing his powers, rights or privileges as such director; and

(ii) appointing any person or persons as director(s) in addition to or in substitution of the first plaintiff as director of the second defendant;

(c) damages;

(d) interest; and

(e) costs.

13 In his closing submissions, the first defendant argued that given the default judgment obtained by the plaintiffs against the second defendant, the plaintiffs’ action was misconceived as they had already achieved the remedy sought. This argument ought to be rejected for the following reasons.

14 The seminal case on the necessary preconditions to the issue of a declaratory order is the Singapore Court of Appeal case of Salijah bte Ab Latef v Mohd Irwan bin Abdullah Teo [1996] 2 SLR 201 (“Salijah’s case”). The preconditions for granting declaratory relief are set out in Jeffrey Pinsler, Singapore Court Practice 2006 (LexisNexis, 2006) at para 15/16/4 as follows:

(i) the court must have the jurisdiction and power to award the remedy;

(ii) the power to make a declaratory judgment is confined to matters which are justiciable in the High Court;

(iii) as a declaration is a discretionary remedy, it must be justified by the circumstances of the case and, the court may take into account any relevant matter in determining whether it would be just to grant a declaration;

(iv) the plaintiff must have locus standi to bring the suit and, the court will not entertain a suit for a declaration unless there is a ‘real controversy’ for the court to resolve; and

(v) the court is concerned that any person whose interest might be affected by the declaration should be before the court.

(vi) Further, when a declaration is prayed for, there must be some ambiguity or uncertainty about the issue so that the court’s determination would have the effect of laying such doubts to rest.

15 The first defendant argued that there was no longer a subsisting dispute or “real controversy” for the court to resolve and the plaintiffs were hence not entitled to the declaration sought. Whether the first plaintiff is entitled to remain as a director had been settled conclusively in the first plaintiff’s favour as a result of the default judgment obtained against the second defendant on 11 November 2005.

16 In support of this argument, the first defendant relied on Salijah’s case where the court said at 213, [65] as follows:

What amounts to a contest of rights is that there must be a subsisting dispute between the parties which has not been resolved by any judgment of court. For once there has been such a judgment, or pronouncement, the controversy ends subject only to the right of an appeal.

17 I am of the view that Salijah’s case can be distinguished from the present case. In Salijah’s case, the wife had obtained a Syariah Court order for the transfer of her husband’s interest in the matrimonial property upon payment of the husband’s contributions from his Central Provident Fund on their divorce. Having failed to obtain such a transfer, however, the wife sought a declaration from the High Court that she was entitled to sole ownership of the property.

18 The trial judge dismissed her application on the basis that the matter fell outside the jurisdiction of the High Court and was covered by s 35(2)(d) of the Administration of Muslim Law Act (Cap 3, 1985 Rev Ed). This was the basis upon which the Court of Appeal affirmed the trial judge’s decision and dismissed the wife’s application for a declaration.

19 While the Court of Appeal observed obiter that even if the court had jurisdiction, no declaration could be granted as the substantive issue had already been determined by the Syariah Court and no rights remained in dispute, this was not the situation in the present case.

20 Lord Dunedin’s observations in Russian Commercial and Industrial Bank v British Bank for Foreign Trade, Limited [1921] 2 AC 438 as to the factors which may be considered by the court in determining whether the discretion of the court ought to be exercised in favour of the granting of a declaration are particularly apt here. The learned judge said, at 448, as follows:

The question must be a real and not a theoretical question; the person raising it must have a real interest to raise it; he must be able to secure a proper contradictor, that is to say, some one presently existing who has a true interest to oppose the declaration sought.

21 The first defendant chose to contest the plaintiffs’ action and it was not inconceivable that if the court found merit in the defendants’ defence, it could have given judgment in the defendants’ favour. Having chosen to defend the plaintiffs’ action, the first defendant is not entitled to now mount the argument that the plaintiffs are not entitled to the orders sought on the basis that the orders obtained would serve no purpose.

22 Although the first defendant was permitted by the court to amend his defence on the second day of trial, the first defendant did not raise in his amended defence the issue that the relief sought by the plaintiffs was no longer sustainable in the light of the default judgment obtained by the plaintiffs against the second defendant. The first defendant raised the argument that the matter before the court had ceased to have any practical effect and was res judicata when closing submissions were made.

23 If the first defendant was genuinely of the view that...