Sandz Solutions (Singapore) Pte Ltd and others v Strategic Worldwide Assets Ltd and others

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 21 May 2014
• Neutral Citation: [2014] SGCA 27
• Plaintiff Counsel: Low Chai Chong, Daryl Ong and Alvin Liong (Rodyk & Davidson LLP)
• Docket Number: Civil Appeal No 112 of 2013
• Date: 21 May 2014
• Hearing Date: 05 February 2014
• Subject Matter: dividends,Tort,Conspiracy,assessing veracity of witnesses' evidence,CIVIL PROCEDURE,Companies,Witnesses,Shares
• Year: 2014
• Citation: [2014] SGCA 27
• Defendant Counsel: Devinder K Rai (ACIES Law Corporation),Kelly Yap and Morgan Chng (Oon & Bazul LLP),Ronnie Tan and Rajendran Kumaresan (Central Chambers Law Corporation)
• Court: Court of Appeal (Singapore)
• Published date: 03 June 2014

V K Rajah JA (delivering the judgment of the court): Introduction

This appeal arose from Suit No 506 of 2009 (“the Present Suit”), an action commenced by the first respondent, Strategic Worldwide Assets Limited (“Strategic”), against the first appellant, Sandz Solutions (Singapore) Pte Ltd (“Sandz”), and the other three appellants, who were the shareholders and directors of Sandz at the material time. Strategic sought payment of $1m, being its purported 25% share of dividends of $4m declared by Sandz in 2007 (“the $4m Dividends”). Sandz and the other three appellants (collectively, “the Appellants”) in turn brought: third-party proceedings against two individuals related to Strategic – namely, the second respondent, Tan Choon Wee (“Mr Tan”), and the third respondent, Poon Seng Fatt (“Mr Poon”) – for a contribution and/or an indemnity; and a counterclaim against the same individuals and Strategic for conspiracy.

The High Court judge (“the Judge”) held that Strategic was entitled to succeed in its claim and dismissed the Appellants’ counterclaim and third-party action: see Strategic Worldwide Assets Ltd v Sandz Solutions (Singapore) Pte Ltd and others (Tan Choon Wee and another, third parties) [2013] 4 SLR 662 (“the Judgment”). The Appellants filed a notice of appeal in respect of the whole of the Judge’s decision, but in their submissions before us, they pursued only the Judge’s decision to allow Strategic’s claim and to dismiss their counterclaim.

Background to the dispute The parties to the dispute

The first appellant, Sandz, is a company incorporated in Singapore. It is an enterprise solutions provider, providing professional services in information technology regionally.

The second appellant, Lawrence Liaw Shoo Khen (“Mr Liaw”), is the chairman and managing director of Sandz. He founded Sandz in 1999 and built the business together with another director, Tan Jeck Min (“Mr JM Tan”), the fourth appellant. The third appellant, Koh Siang Ling Alina (“Ms Koh”), is Mr Liaw’s wife and also a director of Sandz. Mr Liaw, Mr JM Tan and Ms Koh will hereafter be referred to collectively as “the Liaw Group”.

The first respondent, Strategic, is a company incorporated in the British Virgin Islands. It was incorporated as an investment vehicle by the third respondent (and second third party in the trial below), Mr Poon, who is a businessman. He had, however, by December 2006 transferred his shares in and directorship of Strategic to one Benjamin Ng Chee Yong (“Mr Ng”), an old friend of his who was involved in property investments.

The second respondent (and first third party in the trial below), Mr Tan, is a venture capitalist and an executive director of The Lexicon Group Limited (“Lexicon”), a listed company. Lexicon was previously known as Sun Business Network Ltd (“SBN”), and this name appears in some of the material documents. The other executive director of Lexicon/SBN is Mr Ricky Ang Gee Hing (“Mr Ang”), who is also the company’s managing director.

The sale and purchase agreement between Strategic and Mr Liaw

On or about 6 February 2007, Mr Liaw was introduced to Mr Tan by a mutual acquaintance. At this meeting, Mr Liaw informed Mr Tan that he was looking for a suitable vehicle into which he could inject Sandz, and explained the intention of Sandz’s shareholders to raise working capital through either a trade sale or a public listing. Mr Liaw needed further working capital in order to expand Sandz. He had initially planned to list the company on the Malaysian Stock Exchange in 2006, but those plans failed to materialise. Mr Tan was impressed by the figures that Mr Liaw showed him – according to those figures, Sandz was making a net profit after tax of around $2m to $3m per year. Mr Tan offered to assist Mr Liaw in finding a suitable vehicle for Sandz to be injected into. As will be elaborated later, this vehicle was to be Lexicon (see below at [13]–[14]).

At that time, the Liaw Group held 75% of the shares in Sandz and the remaining 25% (“the 25% stake in Sandz”) was held by SES Systems Pte Ltd (“SES”). Mr Liaw and Mr Tan did not dispute that the idea to buy the 25% stake in Sandz and on-sell it was discussed at the meeting on 6 February 2007. However, their respective accounts of the meeting diverged in respect of whose idea it had been.

Also in February 2007, Mr Liaw met Mr Poon for the first time. Mr Poon had been roped in by Mr Tan as the third-party investor to put up the purchase price of $2.5m for the 25% stake in Sandz. Mr Poon was an old friend of Mr Tan, and their companies (Value Capital Asset Management Ltd and China Enersave Holdings respectively) had previously had business dealings with one another. The plan was to on-sell the 25% stake in Sandz to Lexicon for a profit. According to Mr Poon, he subsequently became worried that his involvement in the transaction might result in a possible conflict of interest. He thus approached Mr Ng to see if the latter would like to participate in his stead. Eventually, it was agreed that Strategic, of which Mr Ng was by then the sole director and shareholder, would be the third-party investor, and that Mr Poon would “assist”¹ in finalising the transaction.

With Mr Ng’s authority, Mr Poon instructed ACIES Law Corporation to draft an agreement for the sale and purchase of the 25% stake in Sandz between Mr Liaw and Strategic at the price of $2.5m (“the Strategic SPA”). Mr Tan sent a draft of the Strategic SPA to Mr Liaw on 27 February 2007. The Strategic SPA was undated, but it appeared that the parties were ad idem that it was eventually signed on or about 15 March 2007 by Mr Liaw and Mr Poon (acting as the authorised signatory of Strategic).

On 12 March 2007, Mr Liaw made an offer to SES to purchase the 25% stake in Sandz for $2.5m. SES eventually agreed to part with that 25% stake for $2.7m. Thus, on 16 March 2007, Mr Liaw entered into an agreement with SES to purchase the 25% stake in Sandz for $2.7m. On 26 March 2007, Strategic’s lawyers remitted $2.5m to Mr Liaw’s bank account and the remaining $200,000 was paid by Mr Liaw. On 9 April 2007, SES transferred the shares which comprised the 25% stake in Sandz to Mr Liaw; those shares were then registered in Mr Liaw’s name. Subsequently, Mr Liaw transferred the 25% stake in Sandz to Strategic, and on 20 April 2007, Strategic became the registered shareholder of the shares which comprised that 25% stake. According to Mr Liaw, he transferred the 25% stake in Sandz to Strategic:²

… on the understanding that Strategic would owe me $200,000 and that:– a. Strategic’s only interest was to flip the 25% stake [in Sandz] for a quick profit in view of the intended acquisition by Lexicon; b. Strategic would not be involved in or interfere whatsoever in any of the affairs or management or business of [Sandz] as this was solely an opportunity for Mr Tan and his close friends/business associates to benefit and earn a quick profit; and c. Accordingly, Strategic would not have any claim or interest in or against [Sandz], its profits, or cash or any money thereof including any entitlement to dividends.

[emphasis added]

The above criteria (“the Representations”) – in particular, criterion (c) (referred to hereafter as “Representation C” where appropriate to the context) – lie at the heart of the dispute between the parties. The Sandz-Lexicon deal and the declaration of the $4m Dividends

This part of the narration of facts relates to the events leading up to and surrounding Sandz’s declaration of the $4m Dividends. It should be noted from the outset that the accounts given by Mr Tan and Mr Liaw differed.

Throughout February and March 2007, Mr Tan and Mr Liaw had further discussions pertaining to the terms of the transaction between Sandz and the proposed vehicle, Lexicon. Mr Liaw maintained that he informed Mr Tan of his requirements for the transaction, which were as follows: Mr Liaw was to be released from the personal guarantees which he had given to banks in order to support credit facilities for Sandz; there would be an injection of $5m in cash to provide additional working capital for Sandz; and control and management of Sandz would remain with Mr Liaw.

Mr Liaw met Mr Ang, the managing director (and the other executive director) of Lexicon, for the first time on 6 March 2007. Thereafter, Mr Ang, Mr Tan and Mr Liaw had several discussions about the deal between Sandz and Lexicon (“the Sandz-Lexicon deal”). According to Mr Liaw, he was repeatedly given assurances by the other two men that they had no interest in interfering with his running of Sandz and that Lexicon would be his listed company.

During these discussions, the term sheet for the Sandz-Lexicon deal underwent several changes. In particular, Mr Ang had a change of heart about the proposed cash injection of $5m into Sandz by Lexicon. He proposed instead that Mr Liaw and Lexicon each make a loan of $2.5m to Sandz. Eventually, on 8 May 2007, Mr Liaw (on behalf of Sandz’s shareholders) and Mr Ang (on behalf of Lexicon) signed the finalised term sheet, which provided that: Lexicon would purchase all the issued shares in Sandz for $36m, of which $12m would be payable in cash in four quarterly instalments, with the remaining $24m to be paid in the form of Lexicon shares (then priced at $0.06 per share), which were to be allotted in stages; and Lexicon and Mr Liaw would each make a loan of $2.5m to Sandz to provide it with working capital. Pursuant to this, Lexicon, Mr Liaw and Sandz entered into a loan and guarantee agreement (“the Loan and Guarantee Agreement”) on 22 May 2007.

At this point, the parties’ accounts diverged considerably. According to Mr Liaw, he was not keen on assuming additional personal liability and was unhappy about Lexicon backtracking on its initial agreement to provide the entire $5m capital injection into Sandz, so much so that he considered pulling...