Raveendran Rakesh v Jason Mike Nathan and another

• Jurisdiction: Singapore
• Judge: Lim Wen Juin
• Judgment Date: 16 April 2021
• Neutral Citation: [2021] SGDC 73
• Court: District Court (Singapore)
• Docket Number: District Court Originating Summons No 107 of 2020
• Published date: 27 April 2021
• Year: 2021
• Hearing Date: 13 October 2020,11 March 2021,15 December 2020,05 April 2021
• Plaintiff Counsel: Nicholas Tang Tze Hao and Jolene Gwee Jia-Min (Farallon Law Corporation)
• Defendant Counsel: Anparasan s/o Kamachi, Ang Wei Jing, Sheryl and Ling Yuanrong (WhiteFern LLC),The second respondent unrepresented.
• Subject Matter: Companies,Statutory derivative action
• Citation: [2021] SGDC 73

District Judge Lim Wen Juin:

In this application the applicant Dr Raveendran Rakesh seeks leave under s 216A of the Companies Act (Cap 50, 2006 Rev Ed) to bring an action in the name and on behalf of the second respondent Global Care Medical Pte Ltd (“the Company”) against the first respondent Jason Mike Nathan. Given that the first respondent is to be the defendant in the Company’s intended action I shall purely for convenience refer to him as “the defendant”. The applicant and the defendant are the only directors of the Company.

The applicant classifies into three categories the claims against the defendant that he would have the Company pursue in the intended action. The first category concerns the defendant’s alleged wrongdoing against the Company. The second and third categories concern alleged wrongdoing against two other companies, which are respectively J Five Pte Ltd (“J Five”) and Epicentre Medical Pte Ltd (“Epicentre”). The applicant contends that the Company may pursue the claims under the second category because it is undisputed that J Five was the “financial arm” of the Company and this means that J Five’s money was held on trust for the benefit of the Company, or at the very least that wrongdoing against J Five would indirectly cause harm to the Company. The applicant says that the Company may also pursue a claim under the third category because the wrongdoing against Epicentre indirectly caused harm to the Company.

The applicant would have the Company pursue a total of eight claims against the defendant under these three categories. These claims arise out of the following alleged acts of the defendant. Under the category of alleged wrongdoing against the Company: Mismanaging the Company by failing to make and delaying payments to its suppliers and service providers; Misappropriating up to $148,791.87 in cash payments collected at the medical clinics operated by the Company; Misappropriating $35,000 by making unauthorised or unexplainable withdrawals from the Company’s bank account; and Improperly transferring $2,400 from the Company’s bank account to his sister. Under the category of alleged wrongdoing against J Five: Misappropriating about $37,000 by making unauthorised or unexplainable withdrawals from J Five’s bank account; Improperly transferring about $44,000 to himself from J Five’s bank account; and Failing to maintain a bank account that J Five had with Maybank for the purpose of repaying a loan from Maybank. Under the category of alleged wrongdoing against Epicentre, mismanaging Epicentre by failing to make and delaying payments to its suppliers and service providers, thereby damaging indirectly the Company’s standing with its own suppliers and service providers which it had in common with Epicentre.

For the reasons to follow I grant the applicant leave to bring an action in the name and on behalf of the Company limited to the second, third and fourth claims under the first category – that is, the claims in [3(a)(ii)], [3(a)(iii)] and [3(a)(iv)] above. I do not grant leave in relation to the remaining claims.

Factual background

The Company was in the business of operating medical clinics that offered services in the area of family medicine. It was incorporated on 24 May 2017 and was called Day & Night Family Clinic Pte Ltd before it assumed its current name on 14 July 2018. The Company was one component of a wider joint business venture between the applicant, who is a medical doctor, and the defendant, who is not – I shall for convenience refer to the applicant and the defendant collectively as “the parties”. There was a second medical doctor involved in the venture initially but he dropped out some months after the Company’s incorporation and no more mention need be made of him. At peak business activity the Company operated three clinics: in chronological order, the first at 77 Jalan Malu Malu (the “Jalan Malu Malu Clinic”) commenced operations in October 2017, the second in the Brooks II development at Springside Green (the “Brooks Clinic”) commenced operations in October 2018, and the third in the Coco Palms development at Pasir Ris Grove (the “Coco Palms Clinic”) commenced operations in February 2019.

The defendant is the Company’s most substantial shareholder, holding 46.1% of its issued shares, with the applicant not far behind on 44.1%. The remaining 9.8% of the Company’s shares is held by Epicentre, which was itself another component of the parties’ joint venture. The parties broadly agreed that the defendant would take charge of the Company’s general business operations, including its finances, management and administration, while the applicant would oversee the medical aspects of the business. The defendant however says that in reality there would be some degree of overlap in their roles and duties. Besides performing his executive duties the applicant also worked full-time as a general practitioner at the Jalan Malu Malu Clinic.

There is no doubt that the affairs of the Company were significantly intermingled with those of J Five, which had been incorporated on 14 January 2016. As with the Company the parties are the only two directors of J Five, but in J Five’s case the defendant is the sole shareholder. As alluded to earlier J Five was in some sense the “financial arm” of the Company. Prior to March 2018 the Company did not have any bank account of its own and parties agreed to use J Five’s bank account with DBS Bank Ltd (“DBS”) for making and receiving payments in connection with the Company’s business. For instance, the parties’ initial contributions of capital to the joint venture were paid into this account, and payments to suppliers of goods and services to the Company were made from the account. Eventually the Company opened three bank accounts with DBS at various times, one for each of its clinics. But even after it had done so the parties continued to use J Five and its DBS account for the Company’s purposes. All NETS payments made at the Jalan Malu Malu Clinic were received in J Five’s account, and the parties continued to use the funds in that account for some payments to the Company’s suppliers. Whenever the parties managed to attract investment in their joint venture from individuals or to obtain loans from banks or finance companies, the sums so invested or lent were paid into J Five’s account and J Five was the party to the investment or loan agreements. J Five was also the party to the tenancy agreement in respect of the Brooks Clinic even though the Company was the named tenant of the Jalan Malu Malu Clinic and the Coco Palms Clinic.

In addition to the Company and J Five, the parties’ joint venture encompassed two more companies, namely Epicentre and Afford Medical Pte Ltd, which were incorporated on 20 December 2018 and 2 July 2019 respectively. The parties are the only directors and shareholders of these two companies with the defendant holding a majority 51% stake in each company to the applicant’s 49%. The parties’ thinking was that these two companies would operate medical clinics like the Company, but do so according to a lower-cost business model. To this end the parties had Epicentre enter into three tenancy agreements around August and September 2019 with the intention of establishing clinics at Jurong East Street 31, Ang Mo Kio Avenue 10 and Kian Teck Avenue, but only the first of these (the “Jurong Clinic”) ever came to fruition, commencing operations in October 2019. As for Afford Medical Pte Ltd, it never undertook any substantial business activity and so I need not say anything more about it.

After the parties’ joint venture had gone on for over two years it began to unravel towards the end of 2019. On 5 December 2019 the defendant travelled to Myanmar for business. The parties adopt divergent positions as to whether they were seeking to expand the territorial reach of their joint venture: the applicant says that any business transacted in Myanmar was entirely the defendant’s own, but the defendant says that it was the parties’ common aim to enter the Myanmar healthcare market. At any rate what is not controversial is that the defendant was detained on arrival by the authorities in Myanmar and was not released until 24 January 2020, and even then he was unable to return to Singapore until 12 March 2020. According to the defendant he had been framed by a Myanmar business partner. The applicant says that with the defendant uncontactable in detention he was compelled in the middle of December 2019 to take over the roles and duties in the parties’ joint venture in Singapore that had hitherto been the defendant’s, and in so doing had occasion to scrutinise for the first time various documents and records of the joint venture, whereupon he discovered evidence of the defendant’s misfeasance. On 21 January 2020 the applicant filed a police report alleging that the defendant had misappropriated more than $200,000 from the Company and J Five.

The parties had agreed in November 2019 to close the Brooks Clinic permanently due to poor business performance. Having filed the police report on 21 January 2020 the applicant took steps in the months that followed to shut down the other medical clinics of the parties’ joint venture except for the Jalan Malu Malu Clinic. He negotiated premature termination of tenancy agreements and cancelled contracts for utilities, telephone, Internet and other services in respect of the Coco Palms Clinic operated by the Company and the Jurong Clinic operated by Epicentre, as well as Epicentre’s two intended clinics that had not yet commenced operations. During this period the applicant and the defendant hardly communicated with each other. Each of them alleges that this was so despite their own readiness to reach out to the other to discuss the various issues surrounding their joint venture, and blames the other’s reticence for the lack of meaningful exchange...