Sim Yong Kim v Evenstar Investments Pte Ltd

• Jurisdiction: Singapore
• Judge: Andrew Ang J
• Judgment Date: 18 July 2006
• Neutral Citation: [2006] SGCA 23
• Docket Number: Civil Appeal No 121 of 2005
• Date: 18 July 2006
• Published date: 21 July 2006
• Year: 2006
• Plaintiff Counsel: N Sreenivasan and Valerie Ang (Straits Law Practice LLC)
• Citation: [2006] SGCA 23
• Defendant Counsel: Jimmy Yim SC and Kelvin Tan Teck San (Drew & Napier LLC)
• Court: Court of Appeal (Singapore)
• Subject Matter: Whether just and equitable to wind up company,Nature of court's power to make orders in connection with order for winding up on just and equitable grounds,Companies,Whether majority shareholder breaching assurance to allow minority shareholder to exit company at any time,Application by minority shareholder to wind up company on just and equitable grounds,Section 254(1)(i) Companies Act (Cap 50, 1994 Rev Ed),Sections 254(1)(i), 257(1) Companies Act (Cap 50, 1994 Rev Ed),Whether company being run contrary to original objects,Winding up,Whether loss of mutual trust and confidence between company's shareholders existing

18 July 2006 Judgment reserved.

Chan Sek Keong CJ (delivering the judgment of the court):

1 This is an appeal by Sim Yong Kim (“the petitioner”), against the decision of Justice Tay Yong Kwang (“Tay J”) in Companies Winding Up No 111 of 2005 dismissing the appellant’s petition (“the petition”) to wind up the respondent, Evenstar Investments Pte Ltd (“Evenstar”), on the “just and equitable” ground under s 254(1)(i) of the Companies Act (Cap 50, 1994 Rev Ed) (“the CA”).

The background facts

2 In 2002, the petitioner, then aged 40, and his older brother Sim Yong Teng (“Mike”), aged 58, were the only shareholders, since 1987, in a company called Sinwa Ship Supply Private Limited (“Sinwa SS”). Their father had started the business in the 1960s, and it had been run as a family company ever since. In 2002, a company called Sinwa KS Limited, now known as Sinwa Limited (“Sinwa”), was incorporated to acquire the entire share capital of Sinwa SS and another company called KS Seafirst Marine Services Private Limited, which was owned by KS Tech Limited (“KS Tech”) (now known as KS Energy Services Limited (“KS Energy”)). The intention was for the brothers to acquire shares in Sinwa in exchange for their shares in Sinwa SS so that Sinwa could be used as a vehicle to list the two businesses.

3 Prior to the listing of Sinwa, Mike had suggested to the petitioner that they pool their Sinwa shares in Evenstar, a dormant company which was incorporated in 1999. Following the injection of the Sinwa shares into Evenstar, Mike and the petitioner became Evenstar’s only directors and shareholders, holding respectively 86.5% and 13.5% of its issued share capital, which reflected their former shareholdings in Sinwa SS. Subsequently, Evenstar transferred a parcel of Sinwa shares to KS Tech in exchange for KS Tech shares. After the share swap and Sinwa’s listing on the Singapore Exchange Limited (“the SGX”), Evenstar held 54.9% of Sinwa’s shares, with 47.5% and 7.4% representing Mike’s and the petitioner’s contributions respectively. The shareholdings in Sinwa and KS Energy (the former KS Tech) continue to form the bulk of Evenstar’s assets. Both brothers remained the only directors of Evenstar until February 2005, when Mike’s son and daughter were also appointed directors. The brothers also held management positions in Sinwa, with Mike being the chief executive officer and the petitioner holding office as an executive director.

4 Before Tay J, the petitioner’s case, as set out in the petition and his two affidavits, was as follows:

(a) Prior to the listing of Sinwa, Mike told the petitioner that “it would be in their interest to pool their shares in [Sinwa] together to be held by a separate holding company”. Mike further assured the petitioner that should he “want to pull out [his] shares from the Company”, Mike would buy him out, ie, that the petitioner would “give Mike the first right of refusal”.

(b) Evenstar was in substance a partnership between the two brothers, formed for the sole purpose of holding their Sinwa shares as a nominee for them. It was only some time after their shares were pooled that the petitioner found out that Mike had been using Evenstar to invest in other assets contrary to their original plan.

(c) Mike now wanted to “control Evenstar and the Sinwa shares … with [the petitioner] having no say and no benefit”. In 2005, Mike had added his son and daughter as directors of Evenstar. Furthermore, Mike had also attempted to transfer some of his shares in the company to his two children to enable him to hold shareholders’ meetings without the petitioner being present, thereby rendering the petitioner “powerless” in Evenstar. The petitioner had opposed this attempt successfully.

(d) Through the years, various problems made it increasingly difficult for the petitioner to work in Sinwa, and thus impossible for him to continue his partnership with Mike. These problems were as follows: (i) Sinwa had become a “Tan family company”, in which one Bettina Tan and her siblings were “running the show”, rather than a “Sim family company”. One example of this concerned how Bettina’s sister had accepted the resignation of one of the petitioner’s employees without his consent. (ii) After the petitioner informed Mike of his desire to exit Evenstar, Mike had intentionally harassed the petitioner by requiring that he be stationed in the office at all times during office hours and by making him deliver a Powerpoint presentation at extremely short notice. The petitioner felt that it was absurd to require that he be in the office from nine to five since the nature of his job involved him leaving the office to meet customers and going to the shipyards.

5 Conversely, Evenstar’s case as set out in Mike’s two affidavits, filed by him as the managing director of Evenstar, was as follows:

(a) Evenstar was not formed with the sole objective of holding the brothers’ shares in Sinwa. Evenstar was intended to serve as an investment holding company, not only for Sinwa shares, but additionally for other shares and business ventures. The retention of Evenstar’s profits for reinvestment was consistent with its objective as an investment holding company. The petitioner, as a director and shareholder of Evenstar, had himself agreed to the retention of profits for further investments. In addition, he had approved payments for these investments out of Evenstar’s funds.

(b) Mike needed to get his son and daughter involved in the running of Evenstar as the petitioner had lost interest in the company and Mike, who already had substantial responsibilities as chief executive officer of Sinwa, needed help. The petitioner had blocked the purported transfer of shares to Mike’s children even though he obviously had little interest in Evenstar by then.

(c) It was untrue that Sinwa was no longer a “Sim family company” as Mike was still its managing director. The petitioner’s role as an executive director in Sinwa was insignificant as he had no executive functions. The petitioner’s appointment was a mistake as he was unable to manage or command the respect of the staff working under him.

6 After the dismissal of the petition, the petitioner’s employment with Sinwa Singapore Private Limited, a subsidiary of Sinwa, was terminated. In Summons No 1460 of 2006, this court granted both parties leave by consent to adduce further evidence regarding the basis of the termination. Mike, in his affidavit, averred that the petitioner’s termination was a result of his own deteriorating work attitude and continued absence from the office, and that the board had made the decision to terminate the petitioner independently, at a meeting which Mike was absent from. The petitioner, however, produced a document showing that some five days before the incident, Mike had offered, as part of his proposal to purchase the petitioner’s shares, to extend the petitioner’s service contract on better terms. This purportedly cast doubt on Mike’s credibility in claiming that the petitioner was “such a useless employee who he had to get rid of”.

Trial without cross-examination

7 Before the hearing of the petition, the petitioner applied for an order that all deponents be cross-examined on their affidavit evidence. Tay J disallowed the application. As a result, Tay J, in hearing the case, had to determine the facts of the case on the basis of the materials before him and counsel’s submissions, but without the benefit of hearing oral evidence.

8 Tay J, after considering the affidavit evidence and hearing counsel, dismissed the petition on the following findings:

(a) Evenstar’s memorandum of association contained very broad objects that included investing in practically any lawful business in Singapore and abroad.

(b) The petitioner had voluntarily chosen to take a back seat in the management of Sinwa by reason of his poor health. His complaints appeared to be more the result of his inability to cope rather than the deliberate actions of the people working in Sinwa.

(c) Even if Mike had assured the petitioner from the inception of Evenstar that he would buy over the petitioner’s shares, if necessary, this was no more than a “first right of refusal”. Mike had not broken his promise as the brothers could not agree on the terms or the mechanism for a buyout.

9 With respect to the law, Tay J observed at the outset that the petitioner was not seeking relief from oppression under s 216 of the CA. He held that on the facts, there was no deadlock in the management of Evenstar and its business was thriving. Thus, authorities such as Chua Kien How v Goodwealth Trading Pte Ltd [1992] 2 SLR 296 (“Goodwealth”) (a management deadlock case) and Re Iniaga Building Supplies (S) Pte Ltd [1994] 3 SLR 359 (“Re Iniaga”) (a case involving alleged exclusion from management) were not relevant to this case. His Honour also held that the principle approved in the “oppression” cases, such as O’Neill v Phillips [1999] 1 WLR 1092 (“O’Neill”) and Quek Hong Yap v Quek Bee Leng [2005] SGHC 111 (“Quek Hong Yap”), that a shareholder has no right to exit at will from a company having the character of a quasi-partnership, unless there is a specific provision allowing him to exit, was applicable to cases involving “just and equitable” winding up. Having regard to all the circumstances of the case, Tay J found that the petitioner was merely attempting to exit Evenstar at will. He accordingly dismissed the petition.

The appeal

10 The petitioner’s case on appeal may be summarised as follows:

(a) Tay J erred in not allowing cross-examination as the material facts were disputed by the brothers.

(b) The brothers’ original object in pooling the Sinwa shares in Evenstar was to control Sinwa. The petitioner was assured by Mike that he would be able to exit Evenstar which was only holding the Sinwa shares as a nominee for them.

(c) Mike had been using the assets of Evenstar to make other investments contrary to the...