Re Kumagai-Zenecon Construction Pte Ltd

• Jurisdiction: Singapore
• Judgment Date: 01 July 1994
• Date: 01 July 1994
• Docket Number: Originating Petition No 9 of 1992 Companies Winding Up No 23 of 1992
• Court: High Court (Singapore)

Re Kumagai-Zenecon Construction Pte Ltd

Plaintiff

Kumagai Gumi Co Ltd

Plaintiff

and

Kumagai-Zenecon Construction Pte Ltd and others

Defendant

[1994] SGHC 292

Warren L H Khoo J

Originating Petition No 9 of 1992 and Companies Winding Up No 23 of 1992

High Court

Companies–Oppression–Minority shareholders–Minority shareholder in joint venture excluded from management and investment decisions–Whether case under s 216 Companies Act (Cap 50, 1990 Rev Ed) made out–Sections 216 and 254 Companies Act (Cap 50, 1990 Rev Ed)

Kumagai Gumi Co Ltd (“Kumagai”), a Japanese corporation, and Zenecon Pte Ltd (“Zenecon”), a company controlled by one Low, incorporated Kumagai-Zenecon Construction Pte Ltd (“the company”) in 1983. Kumagai Property Marketing Pte Ltd (“KPM”) was incorporated in November 1984 to act as the marketing arm of the company for the sale of property developed by the company. Kumagai did not have any nominee directors on the KPM board.

Between 22 June and 3 July 1989, Low bought in KPM's name three tranches of shares in Guthrie GTS Ltd, resulting in KPM holding 12.57% of Guthrie's issued share capital. Low also bought 10.5 million shares (7.9% of Guthrie's issued share capital) for his own account and became a director and subsequently chief executive officer of Guthrie. Low signed on the company's behalf a memorandum of understanding for a joint venture between Guthrie and the company, with KPM joined as a party. None of the company's Kumagai nominees knew about the share purchases or the proposed joint venture.

In 1991, Low changed KPM's name to Kumagai Investment Pte Ltd (“KI”), amended its objects clause to include a clause allowing share investment and bought two tranches of Pacific Can Investments Holdings Ltd (“Pac Can”) shares without Kumagai's knowledge. Low also procured on KI's behalf 22% of the shares in KZ Investments Pte Ltd (“KZI”), which had been incorporated by Low and his wife and was almost wholly owned by Zenecon. Finally, Low purchased shares in Aokam Tin Bhd through KZI without Kumagai's knowledge.

Kumagai petitioned for relief under s 216 of the Companies Act (Cap 50, 1990 Rev Ed) on grounds of oppression in the conduct of the affairs of the company. Kumagai also petitioned for the company to be wound up under s 254 (1) (i)of the Act by reason of the breakdown of the two shareholders' relationship.

Held, granting the petition:

(1) The share purchases and the associated changes of name and objects of the companies to enable the share purchases were clearly acts of oppression sufficient alone to found a claim for relief under s 216 of the Companies Act. The shareholders agreement and memorandum of understanding did not contemplate such investments; any change of direction required Kumagai's agreement. The transactions clearly and seriously breached the letter and spirit of the joint venture agreement between Zenecon and Kumagai. The Guthrie share purchases and the joint venture were none the less oppressive despite yielding a $6.2m profit and having been ratified subsequently by Kumagai; the ratification was essentially an acceptance of a fait accompli. The transfer of 1,000 shares in KPM to Low shortly before the Guthrie ventures was another instance of oppressive conduct. Similarly, the invalid resolutions and subsequent conduct in justifying them were part of the oppressive conduct in the transactions that these invalid documents purported to sanction: at [64], [65], [69], [76] and [88].

(2) The failure to consult and the deliberate intention to ignore Kumagai and its nominee directors added to the gravity of the oppressive acts. The investments in KZI and Pac Can were against KI's commercial interest. The inescapable inference was that they were meant to support Low's own directorial ambitions in the target companies at Kumagai's expense: at [66], [67] and [68].

(3) Low's dissatisfaction with Kumagai's behaviour was no justification for the oppressive acts committed. Given Low's conduct, Kumagai was justified in seeking tighter control over the company's management. The petitions were not motivated by Kumagai's desire to withdraw from the region. Low was accountable for the share transactions, other potentially responsible parties not having been identified. Liability did not arise from the mere fact of being a director but from positive involvement in an objectionable act: at [70] to [73].

(4) Zenecon's use of the company's vehicles, generator, crane and photocopier without its agreement or the approval of the Kumagai nominees was no different from Low's conduct in relation to the share purchases. The use of KI's money for projects which Low wanted to carry out without Kumagai's knowledge or consent was another instance of oppressive conduct: at [89], [90], [91], [92] and [97].

(5) Kumagai's allegations of misappropriation of the company's funds by Low and Zenecon had not been made out; the settled accounts were not to be re-opened because no prima facie case of fraud had been established. Nor was Zenecon's alleged attempt to exclude a Kumagai nominee oppressive conduct because Kumagai's nominee directors had been openly invited to join in the proposed directors' resolution. Finally Zenecon's nominee directors' refusal to attend board meetings was not oppressive because Kumagai and Low were interacting on equal though acrimonious terms: at [104], [106], [110] and [112].

(6) A case under s 216 of the Companies Act had been amply made out. The appropriate remedies were: that the company and KI be wound up, with the liquidators appointed as nominated by Kumagai; that Low reimburse KI for the loss of $2,982,517.17 incurred as a result of the unauthorised purchase of the Pac Can shares; that Low procure the purchase of the KZI shares from KI; that Low transfer to the company the 901 KPM shares he had held on trust for the company. Zenecon was to pay fair market rental for the misuse of the company's physical assets, and Low was to be charged for the tender deposits paid using KI funds, minus what had already been refunded: at [117] to [125].

(7) Kumagai was entitled to 60% of the costs of both petitions because some unnecessary costs had been incurred; Low was to bear 95% and Lim 5%. Since the fourth and fifth respondents had not taken part in the proceedings, they were not entitled to costs: at [127] and [128].

Chong Lee Leong Seng Co (Pte) Ltd, Re [1989] 2 SLR (R) 9; [1989] SLR 685 (refd)

Kuah Kok Kim v Chong Lee Leong Seng Co (Pte) Ltd [1991] 1 SLR (R) 795; [1991] SLR 122 (refd)

Companies Act (Cap 50, 1990 Rev Ed) ss 216, 254 (consd)

Alan Thambiayah and Goh Su Lin (Cooma Lau & Loh) for the petitioner

Johnny Cheo and Yeoh Lam Hock (Shook Lin & Bok) for the second to sixth respondents

Alvin Tan (David Lim & Pnrs) for the sixth respondent

Imran Hamid and Suresh Sachitharan (Tan Rajah & Cheah) for the provisional liquidators and for the first and seventh respondents

Andrew Ong (Drew & Napier) and Rita Chew (Chew & Chong) for the supporting creditor Zenecon Engineering Pte Ltd.

Judgment reserved.

Warren L H Khoo J

The proceedings

1 Ihave before me an originating petition presented by Kumagai Gumi Co Ltd (“Kumagai”) seeking reliefs under s 216 of the Companies Act on grounds of oppression in the conduct of the affairs of Kumagai-Zenecon Construction Pte Ltd (“the company”). I have also before me a companies winding-up petition presented by them seeking a winding up of the company on the ground that it is just and equitable to do so under s 254 (1) (i) of the Act by reason of the breakdown of the relationship between the two shareholders.

2 The reason for these duplicated proceedings lies in the decision of the High Court in Re Chong Lee Leong Seng Co (Pte) Ltd [1989] 2 SLR (R) 9, affirmed on this point by the Court of Appeal in Kuah Kok Kim v Chong Lee Leong Seng Co (Pte) Ltd [1991] 1 SLR (R) 795, to the effect that proceedings under s 216 and those under s 254 are governed by different sets of rules and that a winding-up petition is not appropriate for proceedings under s 216; such proceedings should be commenced by an originating petition.

3 There is also before me an originating summons whereby Kumagai seek a determination of the rights and obligations of the parties under a shareholders agreement and memorandum of understanding relating to the formation, control and management of the company. So as not to overburden this judgment, I shall deal with that originating summons in another judgment.

4 Subsequent to the filing of the two petitions, provisional liquidators were appointed by consent on 11 February 1992. The company has been under their control since then.

The background

5 Kumagai, a Japanese corporation, had been doing business in Singapore as building contractors. The relationship between them and Mr Low Hua Kin (“Low”), the third respondent, started in 1972, when they engaged him as a consultant and advisor by arrangement with the University of Singapore, where Low was a lecturer. In 1976, when Low resigned from the university, he was employed on salary by Kumagai as an advisor.

6 At the same time, with the approval of Kumagai, Low incorporated a company of his own, Zenecon Pte Ltd (“Zenecon”), which at all material times was under his control. He was its chairman and a director. His wife, Teo Yit Bee, the fourth respondent, and his brother, Loo Yong King, the fifth respondent, were also directors. Teo had a subscriber share, but Loo had a substantial minority share. Low had the controlling share. The sixth respondent was the company secretary.

7 On 25 April 1983, Kumagai and Zenecon entered into a shareholders agreement and memorandum of understanding to incorporate a company to engage in the business of building contractors, property developments and related business. Pursuant to this, the company was incorporated on 3 June 1983.

8 The agreement provided that Zenecon should have 51% of the...