Raffles Town Club Pte Ltd v Lim Eng Hock Peter

• Jurisdiction: Singapore
• Judgment Date: 31 October 2012
• Date: 31 October 2012
• Docket Number: Civil Appeals Nos 108, 109 and 110 of 2010
• Court: Court of Appeal (Singapore)

Raffles Town Club Pte Ltd

Plaintiff

and

Lim Eng Hock Peter and others and other appeals

Defendant

[2012] SGCA 62

Chan Sek Keong CJ

,

Andrew Phang Boon Leong JA

and

Philip Pillai J

Civil Appeals Nos 108, 109 and 110 of 2010

Court of Appeal

Companies—Directors—Duties—Alleged disguised dividends—Ratification by shareholders

Tort—Conspiracy to injure—Whether dominant purpose to injure by lawful means existed

Raffles Town Club Pte Ltd (‘RTC’), which owned and operated a proprietary social club known as Raffles Town Club (‘the Club’), sued its former directors (collectively referred to as the ‘Former Directors’ but individually referred to as ‘PL’, ‘WT’, ‘LA’ and ‘DF’) alleging, inter alia,breach of director's duties. The particulars of the claims were as follows: (a) that the Former Directors had breached their duties to RTC by accepting over 19,000 membership applications to the Club such that RTC in an earlier separate proceeding had been found liable to pay damages for failing to provide a ‘premier’ and ‘exclusive’ club to the Club members; (b) that the Former Directors had siphoned off funds from RTC by causing RTC to pay excessive management fees of around $78m to a company known as Europa Holdings Pte Ltd (‘EH’) pursuant to a sham Management Agreement dated 28 September 1996 (‘the MA’); (c) that the Former Directors had wrongfully caused RTC to pay to themselves excessive directors' fees, expenses and consultancy/incentive fees amounting to about $15m; and (d) that the Former Directors had wrongfully caused RTC to transfer by way of a loan (‘the Loan’) to a subsidiary company, Raffles Town Club (International) Ltd (‘RTCI’), the sum of $33m which the Former Directors subsequently applied to earn interest for themselves (‘the Profits’). Amongst other responses, PL, LA and WT commenced third party proceedings both among the Former Directors inter se as well as against the current directors of RTC (‘MT and LJW’) seeking, inter alia, indemnity and contribution.

The High Court dismissed RTC's claims against the Former Directors, LA's, WT's and PL's claims against MT and LJW in the third party proceedings, as well as all other associated counterclaims arising from the suit. RTC, PL, WT and LA appealed by way of Civil Appeal No 108 of 2010 (‘CA 108/2010’), Civil Appeal No 109 of 2010 (‘CA 109/2010’) and Civil Appeal No 110 of 2010 (‘CA 110/2010’). In CA 109/2010 (of which RTC was the appellant), RTC sought to overturn the High Court's decision in respect of RTC's claim against the Former Directors. In CA 108/2010 (of which the appellants were LA and WT) and CA 110/2010 (of which the appellant was PL), common issues arose as to, inter alia, whether MT and LJW had committed the tort of conspiracy against the Former Directors by causing RTC to commence the suit at the High Court.

Held, dismissing CA 109/2010 and allowing CA 108/2010 and CA 110/2010 in part:

(1) The Former Directors' alleged misconduct in accepting over 19,000 members for the Club was entirely for the benefit of RTC, and was in the interests of RTC. Accordingly, the Former Directors were not in breach of their duties to RTC. In any event, RTC did not suffer any loss but benefitted from the Former Directors' conduct: at [17] and [18].

(2) As found by the High Court, the MA was not a sham, and the management fees paid pursuant to the MA were legitimate expenses. They were neither disguised loans made in contravention of s 162 of the Companies Act (Cap 50, 1994 Rev Ed) nor disguised dividends paid in contravention of s 403 of the Companies Act: at [21] to [23].

(3) As found by the High Court, the directors' and consultancy fees paid to the Former Directors were not excessive or unreasonable or that the fees amounted to an illegal taking of money out of RTC. As far as RTC and the Former Directors were concerned, RTC's interest in its assets as a separate legal entity and the Former Directors' interests in RTC's assets as shareholders were aligned. They were, in fact, the same as there was no other claim to or interest in the assets of RTC that the Former Directors as directors had to be concerned about or protect. Furthermore, the payments were approved and ratified by the Former Directors acting in their capacity as RTC's shareholders: at [27] to [29].

(4) It was not necessary to make any finding as to whether the Loan was in breach of s 162 (1) of the Companies Act since it would require the Court to determine whether or not the Former Directors had committed an offence under s 162 (4) of the Companies Act. In any case, the claim in respect of the Profits was not made on the basis that the Loan was an illegal distribution of RTC's assets (ie,a return of capital) or that it was a fraud on creditors as the Loan had been repaid. In deciding as shareholders to waive RTC's rights to recover the Profits, the Former Directors were not trustees for RTC or for one another. They were entitled to make decisions in their own selfish interests, satisfying their own particular wishes and prejudices, and without any personal obligation to consider or act in the best interests of RTC or other shareholders: at [40] to [46].

(5) It was evident that MT and LJW were using RTC as a nominee to claim against the Former Directors for alleged breaches of duties which the Former Directors as shareholders of RTC had already accepted or ratified over many years. MT and LJW clearly acted unconscionably and in bad faith in causing RTC to commence legal action against the Former Directors for no reason other than to increase the assets of RTC directly and, correspondingly, the value of their shareholdings in RTC. The action below was in substance an action by MT and LJW which has been disguised as an action by RTC, and there was no reason why the Court should allow the separate legal personality of RTC to assist MT and LJW in such a manner as to unjustly enrich them: at [56] to [60].

(6) In so far as MT and LJW as the current sole shareholders and directors of RTC had made use of RTC by causing it to commence the present action against the Former Directors, they had committed an actionable conspiracy in tort against the Former Directors with a predominant purpose to cause financial harm to the Former Directors: at [61] to [68].

Angas Law Services Pty Ltd v Carabelas (2005) 226 CLR 507 (refd)

Aveling Barford Ltd v Perion Ltd [1989] BCLC 626 (refd)

Barclays Bank plc v British & Commonwealth Holdings plc [1995] BCC 19 (refd)

Beckkett Pte Ltd v Deutsche Bank AG [2009] 3 SLR (R) 452; [2009] 3 SLR 452 (refd)

Chew Kong Huat v Ricwil (Singapore) Pte Ltd [1999] 3 SLR (R) 1167; [2000] 1 SLR 385 (refd)

Duomatic Ltd, Re [1969] 2 Ch 365 (refd)

Kinsela v Russell Kinsela Pty Ltd (1986) 4 NSWLR 722 (refd)

Lim Eng Hock Peter v Lin Jian Wei [2010] 4 SLR 331 (refd)

Lim Eng Hock Peter v Lin Jian Wei [2010] 4 SLR 357 (refd)

Lim Koei Ing v Pan Asia Shipyard and Engineering Co Pte Ltd [1995] 1 SLR (R) 15; [1995] 1 SLR 499 (refd)

Macleod v R (2003) 214 CLR 230 (refd)

Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd [1983] Ch 258 (refd)

OBG Ltd v Allan [2008] 1 AC 1 (refd)

Pender v Lushington (1877) 6 Ch D 70 (refd)

Peters' American Delicacy Co Ltd v Heath (1939) 61 CLR 457 (refd)

Progress Property Co Ltd v Moorgarth Group Ltd [2010] 1 BCLC 1, CA (Eng) (refd)

Progress Property Co Ltd v Moorgarth Group Ltd [2011] 1 WLR 1; [2010] UKSC 55, SC (Eng) (refd)

Quah Kay Tee v Ong and Co Pte Ltd [1996] 3 SLR (R) 637; [1997] 1 SLR 390 (refd)

Raffles Town Club Pte Ltd v Lim Eng Hock Peter [2010] SGHC 163 (refd)

Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 (refd)

Revenue and Customs Commissioners v Total Network SL [2008] 1 AC 1174 (refd)

Ridge Securities Ltd v IRC [1964] 1 WLR 479 (refd)

Rolled Steel Products (Holdings) Ltd v British Steel Corp [1986] Ch 246 (refd)

Snook v London and West Riding Investments Ltd [1967] 2 QB 786 (refd)

Street v Mountford [1985] AC 809 (refd)

Tan Chin Seng v Raffles Town Club Pte Ltd [2003] 3 SLR (R) 307; [2003] 3 SLR 307 (refd)

Tan Chin Seng v Raffles Town Club Pte Ltd [2002] SGHC 278 (refd)

Yong Kheng Leong v Panweld Trading Pte Ltd [2013] 1 SLR 173 (refd)

Companies Act (Cap 50, 1994 Rev Ed) ss 157, 162, 162 (1) , 162 (4) , 162 (5) , 163, 163 (4) , 172 (1) , 403, 403 (1)

Limitation Act (Cap 163, 1996 Rev Ed) ss 22 (1) , 22 (1) (b) , 22 A (3)

Ang Cheng Hock SC, William Ong, Ramesh Selvaraj, Kristy Tan and Lim Dao Kai (Allen & Gledhill LLP) for RTC (appellant in CA 109/2010 and first respondent in CA 110/2010)

Thio Shen Yi SC, Collin Seah, Adeline Chung (TSMP Law Corporation) for PL (thirdrespondent in CA 108/2010 and first respondent in CA 109/2010)

Alvin Yeo SC, Koh Swee Yen and Suegene Ang (Wong Partnership LLP) for PL (appellant in CA 110/2010)

Harry Elias SC, Michael Palmer, Andy Lem and Toh Wei Yi (Harry Elias Partnership LLP) for LA and WT (first and second appellants in CA 108/2010; second and third respondents in CA 109/2010; and fourth and fifth respondents in CA 110/2010)

Johnny Cheo (Cheo Yeoh & Associates LLC) for DF (fourth respondent in CA 108/2010 and fourth respondent in CA 109/2010)

Chelva Retnam Rajah SC and Burton Chen (Tan Rajah & Cheah) for MT and LJW (first and second respondents in CA 108/2010 and second and third respondents in CA 110/2010).

Judgment reserved.

Chan Sek Keong CJ

(delivering the judgment of the court):

Introduction

1 These three appeals arose from the decision of a High Court judge (‘the Judge’) dismissing all the claims, counterclaims and third party claims in Suit No 46 of 2006 (‘S 46/2006’) (see Raffles Town Club Pte Ltd v Lim Eng Hock Peter [2010] SGHC 163 (‘the Judgment’)).

Background to these proceedings

2 These proceedings are the latest and, it is to be hoped, the last instalment of litigation between the various parties involved in the formation of a proprietary...