Raffles Town Club Pte Ltd v Lim Eng Hock Peter and others and other appeals

• Jurisdiction: Singapore
• Judge: Chan Sek Keong CJ
• Judgment Date: 31 October 2012
• Neutral Citation: [2012] SGCA 62
• Citation: [2012] SGCA 62
• Court: Court of Appeal (Singapore)
• Published date: 08 November 2012
• Docket Number: Civil Appeals Nos 108, 109 and 110 of 2010
• Plaintiff Counsel: Ang Cheng Hock SC, William Ong, Ramesh Selvaraj, Kristy Tan and Lim Dao Kai (Allen & Gledhill LLP)
• Defendant Counsel: 1st respondent in CA110/2010),Thio Shen Yi SC, Collin Seah, Adeline Chung (TSMP Law Corporation),Alvin Yeo SC, Koh Swee Yen and Suegene Ang (WongPartnership LLP),Harry Elias SC, Michael Palmer, Andy Lem and Toh Wei Yi (Harry Elias Partnership LLP),2nd and 3rd respondents in CA109/2010,4th and 5th respondents in CA110/2010),Johnny Cheo (Cheo Yeoh & Associates LLC),4th respondent in CA109/2010),Chelva Retnam Rajah SC and Burton Chen (Tan Rajah & Cheah),2nd and 3rd respondents in CA110/2010).
• Subject Matter: Companies,Tort,Conspiracy
• Hearing Date: 26 July 2011

Chan Sek Keong CJ (delivering the judgment of the court): Introduction

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 and others (Tung Yu-Lien Margaret and others, third parties) [2010] SGHC 163 (“the Judgment”)).

Background to these proceedings

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 social club known as Raffles Town Club (“the Club”), and its subsequent travails. The Club was, from its inception, owned and operated by a company called “Raffles Town Club Limited”. The company was incorporated in Singapore on 11 July 1996 as a public limited company, but it was subsequently converted into a private exempt company and renamed “Raffles Town Club Pte Ltd” (“RTC”) on 5 November 1997. In S 46/2006, the claims brought by RTC (at the instance of its current shareholders) against its former directors were for, inter alia, breach of directors’ duties concerning their conduct vis-à-vis the members of the Club and RTC prior to 5 November 1997. At all material times, the former directors were also the shareholders of RTC.

In the course of inviting members of the public to join the Club in 1996, RTC had represented that the Club would be a “premier” and “exclusive” club. The membership drive was successful far beyond the expectations of RTC, following which the Club acquired 19,048 members, making it the largest social club in Singapore. This huge number (which for ease of reference will hereafter be referred to as “the 19,000 members”) was never disclosed to the members of the Club until litigation between the current and former shareholders of RTC in Suit No 742 of 2000 arose. The disclosure led 4,885 members of the Club to commence a class action against RTC in 2001 for damages, claiming, inter alia, that RTC was in breach of contract in failing to provide a “premier” and “exclusive” club.

The members’ class action was dismissed by the High Court (see Tan Chin Seng & Others v Raffles Town Club Pte Ltd [2002] SGHC 278). On appeal, this Court reversed the decision of the High Court and found RTC liable for damages for breach of contract (see Tan Chin Seng and others v Raffles Town Club Pte Ltd [2003] 3 SLR(R) 307). The decision entailed RTC having to pay similar compensation to other members of the Club who had not joined in the class action, but to whom similar representations had been made. Damages for the loss of amenities suffered by the members as a result of the Club having too many members were subsequently assessed at $3,000 for each member. As RTC did not have sufficient cash to pay the total damages payable to the members, the directors and shareholders proposed and eventually obtained the sanction of the court to a scheme of arrangement (“the Scheme of Arrangement”) by which those damages would be fully satisfied by partial payment of cash and consumption of food and beverage and the use of chargeable facilities provided by the Club over a specified period of time. The Scheme of Arrangement cost RTC about $53mil.

Subsequently, proceedings were brought by some former directors against the current directors of RTC seeking damages for defamation in relation to certain statements published in connection with the Scheme of Arrangement. These proceedings resulted in the current directors being found liable by this Court (see Lim Eng Hock Peter v Lin Jian Wei and another and another appeal [2010] 4 SLR 331 and Lim Eng Hock Peter v Lin Jian Wei and another and another appeal [2010] 4 SLR 357).

The material facts of the appeals before us are set out fully in the Judgment at [3]–[31]. RTC was the plaintiff while its former directors were the defendants. Peter Lim (“PL”), the 1st defendant, was sued in his capacity as a de facto director of RTC at all material times. The 2nd defendant, Lawrence Ang (“LA”) was a director of RTC from 10 October 1996 to 18 May 2001 and a director of a company known as Europa Holdings Pte Ltd (“EH”) from 29 November 1993 to 13 May 2001. William Tan (“WT”), the 3rd defendant, was a director of RTC from 18 January 1997 to 1 October 1998 and a director of EH from 27 November 1992 to 1 October 1998. Dennis Foo (“DF”), the 4th defendant, was a director of RTC from 11 July 1996 to 12 September 2000 and a director of EH from 29 November 1993 to 30 April 2001.

PL, LA, WT and DF were also shareholders of RTC and EH at all material times. For ease of reference, these individuals shall hereafter be collectively referred to as “the Former Directors”.

Margaret Tung (“MT”) and Lin Jian Wei (“LJW”), the 1st and 2nd third parties in the proceedings, are the current directors and shareholders of RTC. MT became a shareholder of RTC on 12 May 2001 and was appointed to the board of directors of RTC on 30 April 2001. LJW became a shareholder of RTC on 12 May 2001 and was appointed to the board of directors of RTC on 26 June 2001. LJW’s wife, one Zhang Shi Qing, was a shareholder of RTC from 20 June 2001 to 16 September 2004 and a director of RTC from 26 June 2001 to 16 September 2004.

RTC’s claims against the Former Directors

RTC’s claims against the Former Directors were for losses suffered by RTC or benefits acquired by the latter, by reason of the following acts allegedly committed by them: misrepresenting to the 19,000 members that the Club would be a “premier” and “exclusive” club, thereby causing RTC to be liable to pay damages amounting to $3,000 per member for such misrepresentation; causing RTC to pay management fees of $78,267,723.80 (hereafter referred to as “$78mil”) to EH pursuant to a Management Agreement dated 28 September 1996 (“the MA”); causing RTC to pay to themselves excessive directors’ fees, expenses and consultancy/incentive fees amounting to about $15mil; and causing RTC to transfer to a subsidiary company, Raffles Town Club (International) Ltd (“RTCI”), the sum of $33mil which the Former Directors applied to earn interest for themselves.

RTC claims that in causing RTC in their capacity as directors to do all of the said acts, the Former Directors were in breach of their duties as directors of RTC in the following respects: the duty to act in good faith and in the best interests of RTC; the fiduciary duty of loyalty; the duty to exercise reasonable care and skill in the discharge of their managerial functions and responsibilities; the duty to act with due care and diligence; and the duty to act honestly and use reasonable diligence in the discharge of their duties pursuant to s 157 of the Companies Act (Cap 50, 1994 Rev Ed) (“the Companies Act”).

LA and WT denied these allegations and claimed against MT and LJW by way of a third party notice for, inter alia, damages for breach of an agreement dated 6 June 2001 and a deed dated 18 February 2002 by causing and/or conspiring with RTC to commence S 46/2006 to injure them.

Similarly for PL, while denying these allegations against him, PL took out a third party notice against MT and LJW seeking, inter alia, an indemnity or contribution in the event that RTC succeeded in its claims against him, and damages for causing and/or conspiring with RTC to commence S 46/2006 to injure him.

At the end of the 87-day trial, the Judge 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 therefrom. The appeals before us, viz, 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”), are the appeals of the relevant parties against the Judge’s decisions. We shall consider each of them, starting with CA 109/2010 which is the main appeal before us.

CA 109/2010

This is RTC’s appeal against the dismissal of its claims against the Former Directors for the various breaches of directors’ duties as set out at [9]–[10] above. We will now consider RTC’s arguments and the Judge’s findings and rulings on these claims.

Were the Former Directors in breach of their duties to RTC in accepting over 19,000 applicants as members of the Club?

The alleged breaches of directors’ duties by the Former Directors under this head may be summarised as follows: that they dishonestly perpetrated a fraud on the 19,000 members by falsely representing to them that the Club would be a “premier” and “exclusive” club (when a club of such quality would not have more than 7,000 members); that, alternatively, they acted negligently in that no reasonable director would have believed that accepting more than 19,000 applicants would not cause RTC harm once the membership figures were revealed (the harm suffered being the damages which RTC would have to pay the members of the Club for failing to provide recreational and social facilities associated with an “exclusive” and “premier” club).

The Judge rejected both these allegations. In respect of the first allegation, the Judge held that the evidence did not show that the Former Directors had failed to act honestly and in good faith towards the members of the Club. In respect of the second allegation, the Judge held that it could not be said that “the reasonable man in the position of the [Former Directors] exercising due care and diligence would not have done what the [Former Directors] did” (see the Judgment at [106]).

Before us, RTC has reiterated the same allegations and arguments rejected by the Judge. We agree with the Judge’s findings on the facts and his conclusion on the law. However, in our view, there is a more direct and simpler basis for dismissing RTC’s claim and this appeal (ie, CA 109/2010). Even if RTC’s allegations were true, its claim...