Re Tri-Circle Investment Pte Ltd

• Jurisdiction: Singapore
• Judge: Judith Prakash JC
• Judgment Date: 16 March 1993
• Neutral Citation: [1993] SGHC 59
• Docket Number: Originating Petition No 38 of 1992
• Date: 16 March 1993
• Published date: 19 September 2003
• Year: 1993
• Plaintiff Counsel: Wong Kah Chiew (Harpal Wong & M Seow)
• Citation: [1993] SGHC 59
• Defendant Counsel: Cynthia Chan with Khor Thiam Beng (Khor Thiam Beng & Partners)
• Court: High Court (Singapore)
• Subject Matter: Directors,Removal of dissident directors,Removal,Oppression,Companies,Whether case of oppression made out,s 216(1)(a) Companies Act (Cap 50, 1990 Ed),Disregard of minority interests,Majority persisting with action in face of objections from minority

Cur Adv Vult

The six petitioners herein (five individuals and one company) collectively hold 25.97% of the issued shares in the capital of Tri-Circle Investment Pte Ltd (which I shall hereinafter refer to either as `the company` or `the respondents`). They petition is for relief under s 216 of the Companies Act (Cap 50, 1990 Ed) (`the Act`). More specifically they want the company to be ordered to purchase from them all their shares in the company at a price to be assessed by a firm of accountants appointed by the court or, in the alternative, the company to be wound up. The petition is founded on a course of conduct which they allege demonstrates that in the words of s 216(1)(a): `the affairs of the company are being conducted ... in a manner oppressive to one or more of [its] members ... or in disregard of his or their interests as members ... of the company`.

Oppression and disregard of shareholders` interests

Before turning to the facts, it is helpful to consider the law on oppression and disregard of the minority`s interests as covered by s 216. That section has no English or Australian duplicate though there are equivalent provisions for the protection of minority shareholders. The only statutory provision which is practically in pari materia with s 216 is s 181 of the Malaysian Companies Act 1965.

For present purposes it is, I think, sufficient to refer to only a few of the authorities though both counsel were generous in their citation of helpful cases. First, the Privy Council`s decision in Re Kong Thai Sawmill (Miri) Sdn Bhd ,1 the seminal decision on the meaning and extent of s 216 (in its Malaysian incarnation). The main principles are set out in the following passages from the judgment of Lord Wilberforce:

... for the case to be brought within s 181(1)(a) [identical to our s 216(1)(a)] at all, the complaint must identify and prove `oppression` or `disregard`. The mere fact that one or more of those managing the company possess a majority of the voting power and, in reliance upon that power, make policy or executive decisions, with which the complainant does not agree, is not enough. Those who take interest in companies limited by shares have to accept majority rule. It is only when majority rule passes over into rule oppressive of the minority, or in disregard of their interests, that the section can be invoked. As said in a decision upon the United Kingdom section there must be a visible departure from the standards of fair dealing and a violation of the conditions of fair play which a shareholder is entitled to expect before a case of oppression can be made ( Elder v Elder & Watson Ltd [1952] SC 49): their Lordships would place the emphasis on `visible`. And similarly `disregard` involves something more than a failure to take account of the minority`s interest: there must be awareness of that interest and an evident decision to override it or brush it aside or to set at naught the proper company procedure (per Lord Clyde in Thompson v Drysdale [1925] SC 311). Neither `oppression` nor `disregard` need be shown by a use of the majority`s voting power to vote down the minority: either may be demonstrated by a course of conduct which in some identifiable respect, or at an identifiable point in time, can be held to have crossed the line.

... What is attacked by sub-s (1)(a) is not particular acts but the manner in which the affairs of the company are being conducted or the powers of the directors exercised. And this may be held to be `oppressive` or `in disregard` even though a particular objectionable act may have been remedied. A last minute correction by the majority may well leave open a finding that, as shown by its conduct over a period, a firm tendency or propensity still exists at the time of the proceedings to oppress the minority or to disregard its interests so calling for a remedy under the section.

It is clear from other cases (see, for example, Elder v Elder & Watson Ltd [1952] SC 49 ) that mere domestic disputes between directors or members or lack of confidence between one section of members and another section in matters of policy or administration is not sufficient to constitute oppression. This is so even if the minority are consistently out-voted on the business affairs of the company. Mere resentment on the part of the minority at being so out-voted cannot justify a petition for s 216 relief. For, as Lord Wilberforce expressed it in Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821[1974] 1 All ER 1126[1974] 2 WLR 689 there is no appeal on merits from management decisions to courts of law. The courts do not act as a supervisory board over decisions within the directors` powers of management and honestly arrived at. This statement was echoed by the High Court of Australia when the learned judges said in Harlowe`s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL [1968] 121 CLR 483 at p 493:

Directors in whom are vested the right and duty of deciding where the company`s interests lie and how they are to be served may be concerned with a wide range of practical considerations, and their judgment if exercised in good faith and not for irrelevant purposes, is not open for review in the courts.

Finally, in considering this petition I have found useful the observations of Willmer LJ in the 1958 English case Re HR Harmer Ltd .5 Having stated that the question which arises in a case of oppression is a pure question of fact to be determined in accordance with the circumstances of the particular case, his Lordship made two comments on the correct way to approach such question of fact. First he said that it is quite impossible to lay down, a priori, certain categories of conduct which in all circumstances either are or are not capable in law of amounting to conduct which is oppressive within the meaning of the legislation and thus each case has to be examined in the light of its own particular facts and in the light of the personality of the individual persons concerned. Secondly, according to Willmer LJ, a judge considering such a matter must be careful to study the course of conduct complained of as a whole.

Background

In 1982 a group of merchants dealing in the import and export of aquarium fish decided to set up an investment company for the purpose of investing in and carrying out various types of businesses both connected and unconnected with their main trade. The company was incorporated in June 1982 to fulfil this ambition. The first petitioner, Mr Fong Ching Loon, and the second petitioner, Mr Tsia Hah Tong, who were members of the original group of incorporators thereupon became directors of the company and held their posts until January 1992. In fact at all material times up to 30 January 1992, the first petitioner was the managing director of the company.

The company`s first subsidiary was Flying Freight Agency (S) Pte Ltd (`Flying Freight`) which also came into existence in June 1982. It is a wholly owned subsidiary of the company and it arranges the export of aquarium fish by air. The incorporators of the company naturally made use of Flying Freight`s services in connection with their individual businesses and this helped ensure that from the time of incorporation Flying Freight was profitable. The success of Flying Freight spurred the board of directors (`the board`) on and in November 1983 the company became a majority shareholder (it now holds 67% of the issued share capital) in a corporation called Avi-Tech Electronics (S) Pte Ltd (`Avi-Tech`). Avi-Tech deals in the assembly and manufacture of computer parts. During the first two years of Avi-Tech`s operation, losses were incurred. Subsequently the company began to recoup its losses and substantial profits have been made by Avi-Tech in recent years.

Buoyed by the success of Avi-Tech and Flying Freight, the company in 1989 decided to venture into a new field. Investigations were made into the viability of setting up a fast food bakery business. The company commenced negotiations with a corporation called Croissants De France (Pacific) (`the franchiser`) for a franchise to operate a fast food boulangerie business in Singapore along the lines of Delifrance. The negotiations went well and the board was convinced that the business was viable and Singapore would become the South East Asia regional centre for the business.

Accordingly on 18 December 1989 a company called Croissants De France (S) Pte Ltd (`CDF`) was incorporated. It was the establishment of CDF which initiated the chain of events that culminated in the presentation of this petition.

Events leading up to the petition

Prior to CDF`s incorporation, at the annual general meeting of the company held on 23 November 1989, the chairman of the company, Mr Tan Bok Yang, informed the shareholders of the company`s plan to go into the food and beverage business. He told them that the initial investment required was estimated at $2m and that eventually the capital would have to be increased to $5m. At that stage, it was proposed that CDF would be 50% owned by the company and the remaining 50% of its equity would be offered to the individual shareholders of the company. Subsequently the board decided that instead of an initial allotment of two million shares there would be two allotments of one million shares each with the company taking up 60% of the first allotment and offering the remaining 40% to the shareholders of the company.

Even before CDF`s incorporation various steps had been taken for the purposes of the intended business. On 16 December 1989 two franchise agreements were signed as it had been decided that initially two bakery outlets would be opened. It was also envisaged that a factory should be established to manufacture the products for sale at the outlets. Thereafter efforts to commence operation went into full swing: equipment was ordered and leases were entered into for a factory and two shop units, and staff...