Petroships Investment Pte Ltd v Wealthplus Pte Ltd and others

• Jurisdiction: Singapore
• Judge: Vinodh Coomaraswamy J
• Judgment Date: 29 May 2015
• Neutral Citation: [2015] SGHC 145
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 766 of 2012
• Published date: 25 March 2016
• Year: 2015
• Hearing Date: 04 March 2014,05 March 2014,03 July 2014
• Plaintiff Counsel: Tan Kok Peng and Ho Mingjie Kevin (Braddell Brothers LLP)
• Defendant Counsel: Prakash P Mulani (M & A Law Corporation),Chandra Mohan Rethnam and Khelvin Xu Cunhan (Rajah & Tann Singapore LLP)
• Subject Matter: Companies,Members,Derivative action
• Citation: [2015] SGHC 145

Vinodh Coomaraswamy J: Introduction

Petroships Investment Pte Ltd (“Petroships”) is a minority shareholder of Wealthplus Pte Ltd (“Wealthplus”). By this application, Petroships seeks the court’s leave under s 216A of the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”) to commence a statutory derivative action against two groups of defendants. The first group comprises Wealthplus’ ultimate holding company and its related companies. The second group comprises the two current directors of Wealthplus, both of whom are the appointees of its ultimate holding company. The objective of Petroships’ derivative action is to recover: (i) various sums of money which Wealthplus or its subsidiaries have transferred to its ultimate holding company and its related companies; and (ii) compensation from both of Wealthplus’ directors for alleged breaches of their duties as its directors.

Each side in due course sought¹ and secured orders under Order 38 r 2(2) and Order 28 r 4(3) and 4(4) of the Rules of Court (Cap 322, R 5, 2006 Rev Ed) permitting them to cross-examine the deponents of the other side’s affidavits.

Having read the deponents’ affidavits, having seen them cross-examined and having considered both sides’ submissions, I have dismissed Petroships’ application with costs. I find that Petroships, in seeking leave to bring the derivative action, is not acting in good faith within the meaning of s 216A because its purpose in doing so is to advance its own private interests rather than those of Wealthplus as a company. That finding, in itself, makes it unnecessary for me to go on to consider whether bringing the derivative action appears to be prima facie in the interests of Wealthplus. However, it does not appear to me that Petroships satisfies that test either, even if I were to assume that Petroships’ derivative action is legitimate and arguable. Wealthplus is now in members’ voluntary liquidation. All of the powers of its directors, including the power to cause Wealthplus to pursue Petroships’ derivative action, are now vested in its liquidators. The liquidators’ exercise of their powers is subject to the control and supervision of the court. That, in my view, takes this case outside the rationale of s 216A.

Petroships has appealed against my decision. I therefore now set out my grounds.

The background The parties

Petroships holds 10% of Wealthplus, who is the first respondent. When Petroships filed this application, it named Wealthplus as the sole respondent. Wealthplus has since been joined by two other respondents, both of whom became respondents on their own application.²

The second respondent is Koh Brothers Group Limited (“KBGL”). KBGL is a listed company in the construction business. It is Wealthplus’ ultimate holding company, controlling the 90% of Wealthplus which Petroships does not control. Unlike Petroships, KBGL does not itself own shares in Wealthplus. Instead, KBGL exercises its control of Wealthplus through a chain of holding companies.

The third respondent is Megacity Investment Pte Ltd (“Megacity”). Megacity is a shareholder of Wealthplus and is a wholly-owned subsidiary of Koh Brothers Building & Civil Engineering Contractor (Pte) Ltd (“KBCE”). KBCE is a wholly-owned subsidiary of Construction Consortium Pte Ltd (“CCPL”). CCPL is a wholly-owned subsidiary of KBGL.³

Megacity initially held 90% of the shares in Wealthplus. In 2011, Megacity transferred 41% of the shares in Wealthplus to KBCE. The result is that today, Wealthplus has 3 shareholders: Megacity holding 49% of Wealthplus, KBCE holding 41% and Petroships holding 10%. The transfer of shares in 2011 did not affect KBGL’s position as Wealthplus’ ultimate holding company.

The companies that Petroships seeks leave to bring a derivative action against are KBGL, CCPL, KBCE and Megacity, as well as other unnamed companies related to KBGL. Neither KBCE nor CCPL are parties to this application.

The directors of Wealthplus that Petroships seeks leave to bring a derivative action against are Koh Teak Huat and Koh Keng Siang. Both men are affiliated with KBGL and its group of companies. In addition to being directors of Wealthplus, they are concurrently directors of Megacity and also of other companies in the KBGL group. Both men are also related to the founder of the KBGL group, Koh Tiat Meng. Koh Teak Huat is Koh Tiat Meng’s brother.⁴ Koh Keng Siang is Koh Tiat Meng’s son.⁵

The opposition to these proceedings comes only from KBGL and Megacity. As I have mentioned, Wealthplus is now in members’ voluntary liquidation. Its liquidators have committed Wealthplus to a neutral position in these proceedings. I shall explain later in my judgment the circumstances in which Wealthplus was put into liquidation and the consequences of its liquidation.

The joint investment

The derivative action that Petroships seeks leave to commence has its roots in the KBGL group’s project to exploit the rights to develop five plots of land in Shantou, China. Shantou is the ancestral home of many in Singapore’s Teochew community. Koh Tiat Meng is a member of that community. So too is Alan Chan, the man who controls Wealthplus.

KBGL obtained the land use rights⁶ to these five plots of land in Shantou in 1997. The land-use rights were then held by KBCE as KBGL’s vehicle.

Early in 1998, Alan Chan accepted Koh Tiat Meng’s invitation to invest in a project to exploit these rights. Wealthplus was the investment vehicle for this project. KBGL held its investment in Wealthplus through the chain of intermediate holding companies I have described at [7] above. Alan Chan held his investment in Wealthplus through Petroships.

In June 1998, Petroships and Megacity signed a joint venture agreement setting out the terms of their joint investment in Wealthplus.⁷ The agreement stipulated that the time horizon of the investment should be 10 years or the completion of the project in Shantou, whichever was later. It provided that Wealthplus’ paid up capital would be $1m, with Megacity contributing 90% and Petroships contributing 10%. Each shareholder was to be allotted shares in Wealthplus in proportion, obviously, to its capital contribution. The shareholders agreed that Wealthplus would reimburse KBCE for the cost of the land-use rights up to the amount of $27.7m in three tranches over five years. The shareholders agreed also that they would finance the first tranche of this reimbursement by a $11m loan to Wealthplus, extended by each shareholder in proportion to its shareholding.⁸ Petroships in due course extended a shareholder’s loan of $1.1m to Wealthplus.

In July 1998, Megacity and Petroships made their appointments to the board of Petroships. Megacity appointed Koh Teak Huat and Koh Keng Siang as directors of Wealthplus. They have both served as directors of Wealthplus without interruption to this day. Petroships appointed Alan Chan as a director of Wealthplus.⁹ He served as a director of Wealthplus from July 1998 until his resignation in September 2009.

In 2006, Megacity proposed that Wealthplus sell the land-use rights rather than exploit those rights itself. Petroships had no objections.¹⁰ Wealthplus held these rights through three wholly-owned subsidiaries in Singapore who, in turn, owned the three wholly-owned subsidiaries in China in whom the land-use rights were vested. In August 2007, Wealthplus caused the three subsidiaries in China to be sold together with their land-use rights. As a result, Wealthplus’ subsidiaries in Singapore collectively received $19.4m, being the proceeds of sale.¹¹

Starting in 2008, Petroships began to agitate for its share of the profits of the investment, as well as to recover its capital and to secure repayment of its $1.1m loan to Wealthplus (see [15] above). This led to three consequences. First, Alan Chan resigned as a director of Wealthplus in September 2009. Second, Petroships scrutinised Wealthplus’ accounts and queried certain aspects of Wealthplus’ accounts at its annual general meetings (“AGMs”) held in 2009, 2010 and 2011. Finally, Petroships commenced four unsuccessful suits in a series against Megacity, Wealthplus and KBGL (in various combinations).

It is necessary to describe the latter two consequences in more detail.

Four actions interleaved with three AGMs Petroships’ first action

Petroships commenced the first of its four actions in March 2009. A law firm known as Chung Ting Fai & Co (“CTF”) acted for Petroships. Megacity was the sole defendant to the first action. Petroships claimed that Megacity had failed to pay Petroships its share of the profits from the investment (amounting to $117,728) and had failed to repay Petroships’ loan of $1.1m.¹²

Petroships’ first action was struck out in August 2009. It was found to disclose no reasonable cause of action; to be scandalous, frivolous or vexatious; or both.¹³ Petroships consented to the striking out.

This result is not surprising. The first action was wholly misconceived. Megacity had in fact undertaken no obligation to Petroships to account to Petroships for its share of the profits from its investment in Wealthplus. And Petroships’ loan of $1.1m had been advanced to Wealthplus, not to Megacity. Megacity had never undertaken any direct responsibility to Petroships for this liability, whether by way of guarantee or otherwise.

Wealthplus’ 2009 AGM

In November 2009, Wealthplus held its AGM for that year. At that AGM, the directors laid the company’s accounts for 2008 before the members.

Alan Chan was by that time no longer a director of Wealthplus. He attended the 2009 AGM as Petroships’ representative and raised two queries on the 2008 accounts. The first query was about a provision of $647,090 charged as an allowance for impairment of non-trade receivables. The directors explained that the company had relied on objective evidence of the impairment before making the allowance. The second query was...