Re Winpac Paper Products Pte Ltd

• Jurisdiction: Singapore
• Judge: Goh Joon Seng J
• Judgment Date: 08 March 2000
• Neutral Citation: [2000] SGHC 33
• Docket Number: Originating Summons No 1090 of
• Date: 08 March 2000
• Published date: 19 September 2003
• Year: 2000
• Plaintiff Counsel: Michael Low Wan Kwong (JS Yeh & Co)
• Citation: [2000] SGHC 33
• Defendant Counsel: Chng Bee Peng (Colin Ng & Partners) on watching brief,Lek Siang Pheng (Helen Yeo & Partners)
• Court: High Court (Singapore)
• Subject Matter: Directors,Companies,Whether in interests of company that action be brought,Rights,Members,Director bringing action in name of company,Right of derivative action,s 216A Companies Act (Cap 50),Whether director acting in good faith

: This was an application by the plaintiff made under s 216A of the Companies Act (Cap 50) for leave to bring actions in the name of the third defendant against various parties. I dismissed the application. The plaintiff has appealed to the Court of Appeal. I now give my reasons. [The appeal was withdrawn - Ed. ]

The background

The plaintiff, first and second defendants are directors of the third defendant. The first defendant is the managing director. One Foo Sea Keng is an alternate director for the second defendant.

The third defendant is a wholly-owned subsidiary of Everbright Global Investments Pte Ltd (`Everbright`). Everbright is currently in a members` voluntary liquidation. The liquidator is Ong Yew Huat of Ernst & Young. The issued share capital of Everbright is $11,860,000 at $1 per share. Of the total issued shares of Everbright, the plaintiff holds 4,628,000 shares or 39. 02%. The first defendant holds 2,109,000 or 17. 78% and the second defendant holds 1,186,000 or 10%. They were also directors of Everbright, the first defendant being the managing director.

The third defendant`s business was mainly in cartons, papers merchanting and letting of industrial premises. It owns a commercial building at 156, Gul Circle, Singapore (`the Gul Circle property`) under a lease from the Jurong Town Corporation (`JTC`).

To facilitate the liquidation of Everbright, the third defendant would have to cease business. Accordingly, members of Everbright convened an extraordinary general meeting on 14 November 1997 and agreed that the plaintiff through his nominee company, Focus Industries Pte Ltd (`Focus Industries`), would take over the carton stocks of the third defendant. The first defendant through his nominee company Winpac Paper Pte Ltd (`Winpac Paper`) would take over the paper stocks of the third defendant. It was also agreed that out of the third defendant`s banking facilities of $16m, $7m would be transferred to Winpac Paper. The Gul Circle property was to be sold. After the sale, the third defendant would also go into voluntary liquidation. To date, Gul Circle property has not been sold because of lack of an acceptable offer.

These proceedings

On 17 July 1999, the plaintiff commenced these proceedings against the first and second defendant. On 2 September 1999, the third defendant was joined as a party. By this originating summons, the plaintiff applied for leave to commence proceedings in the name of the third defendant against:

(i) ABCPacking&CarriageCo PteLtd(`ABC`) for the sum of $13,500 for rental arrears;

(ii) New Horizon Logistics Pte Ltd (`New Horizon`) for damages for breach of a lorry sale;

(iii) New Horizon Logistics Pte Ltd for $130,818. 86 under a Logistics Service Agreement;

(iv) Winpac Paper for an estimated sum of $1,216,847. 90 being price for assets taken over; and

(v) first and second defendant for breach of directors` duties.

The law

This application was made under s 216A of the Companies Act. The relevant provisions are ss 216(2) and (3). They read:

(2) Subject to subsection (3), a complainant may apply to the Court for leave to bring an action in the name and on behalf of the company or intervene in an action to which the company is a party for the purpose of prosecuting, defending or discontinuing the action on behalf of the company.

(3) No action may be brought and no intervention in an action may be made under subsection (2) unless the Court is satisfied that -

(a) the complainant has given 14 days` notice to the directors of the company of his intention to apply to the Court under subsection (2) if the directors of the company do not bring, diligently prosecute or defend or discontinue the action;

(b) the complainant is acting in good faith; and

(c) it appears to be prima facie in the interests of the company that the action be brought, prosecuted, defended or discontinued.

It was not disputed that the plaintiff had served the requisite 14 days` notices under s 216(3)(a). The only question before me was whether the plaintiff had satisfied ss 216(3)(b) and (c).

In matters of management, the attitude of the court is that expressed by Lord Wilberforce in Howard Smith Ltd v Ampol Petroleum Ltd & Ors [1974] AC 821 at 832:

Their Lordships accept that such a matter as the raising of finance is one of management, within the responsibility of the directors: they accept that it would be wrong for the court to substitute its opinion for that of the management, or indeed to question the correctness of the management`s decision, on such a question, if bona fide arrived at. There is no appeal on merits from management decisions to courts of law: nor will courts of law assume to act as a kind of supervisory board over decisions within the powers of management honestly arrived at.

The dicta of Lai Kew Chai J in Teo Gek Luang v Ng Ai Tiong & Ors [1999] 1 SLR 434 at p 438 [para ] 14 is to the same effect:

... Management decisions should generally be left to the Board of Directors. Members generally cannot sue in the name of his company. A minority shareholder could attempt to abuse the new procedure, which would be as undesirable as the tyranny of the majority directors who unreasonably refuse to act. The Canadian appellate court, however, at the same page went on to say that `[b]efore granting leave, the court should be satisfied that there is a reasonable basis for the complaint and that the action sought to be instituted is a legitimate or arguable one. ` I agreed with this latter formulation and adopted that approach. The same principle was put in another way by O`leary J in Re Marc-Jay Investments [1974] 5 QR (2d) 235, where at p 237 the judge said: `I believe it is my function to deny the application if it appears that the intended action is frivolous or vexatious or is bound to be unsuccessful. `

My decision on the reliefs sought

The claim against ABC

ABC was the tenant of the third defendant. It occupied part of the Gul Circle property on a two-year tenancy ending 31 May 1998 at amonthly rent of $5,000. According to the plaintiff, there was an agreement between ABC and the third defendant to revise the monthly rent to $7,500. This agreement, if any, was in a letter of 3 July 1997 in which ABC requested that the revised rent should...