Strategic Worldwide Assets Ltd v Sandz Solutions (Singapore) Pte Ltd and others (Tan Choon Wee and another, third parties)

• Jurisdiction: Singapore
• Judge: Judith Prakash J
• Judgment Date: 26 August 2013
• Neutral Citation: [2013] SGHC 162
• Court: High Court (Singapore)
• Docket Number: Suit No 506 of 2009
• Year: 2013
• Published date: 09 September 2013
• Hearing Date: 07 May 2012,10 May 2012,04 May 2012,03 May 2012,17 May 2012,08 May 2012,11 May 2012,09 May 2012,02 May 2012,16 May 2012
• Plaintiff Counsel: Devinder Rai (ACIES Law Corporation)
• Defendant Counsel: Low Chai Chong, Daryl Ong and Benjamin Yam (Rodyk & Davidson LLP)
• Citation: [2013] SGHC 162

Judith Prakash J:

The plaintiff’s claim in these proceedings was, ostensibly, a simple one by a shareholder for payment of dividends. The claim was, however, made not only against the company concerned but also against three other persons who were shareholders of the company at the material time. The defendants then brought third party proceedings against two individuals for contribution and/or indemnity and a counterclaim against the same individuals and the plaintiff itself for conspiracy.

The entities involved in the action are as follows: Strategic Worldwide Assets Limited (“Strategic”), a company incorporated in the British Virgin Islands, the plaintiff; Benjamin Ng Chee Yong (“Mr Ng”), a businessman and property agent, the sole shareholder and director of the plaintiff; Sandz Solutions (Singapore) Pte Ltd (“Sandz”), a company incorporated in Singapore, the first defendant; Lawrence Liaw Shoo Khen (“Mr Liaw”), the founding director and majority shareholder (66% of the shares) of Sandz and its moving spirit, the second defendant; Koh Siang Ling Alina (“Ms Koh”), Mr Liaw’s wife, a director and minority shareholder (6% of the shares) of Sandz, the third defendant; Tan Jeck Min (“JM Tan”), a director and minority shareholder (3% of the shares) of Sandz, the fourth defendant; Tan Choon Wee (“Mr Tan”), a venture capitalist and an executive director of a listed company, The Lexicon Group Limited (“Lexicon”), the first third party; and John Poon Seng Fatt (“Mr Poon”), a businessman and good friend of Mr Tan, the second third party. Strategic, Mr Tan and Mr Poon are also the defendants to the counterclaim brought by Sandz, Mr Liaw, Ms Koh and JM Tan. I shall refer to Mr Liaw, Ms Koh and JM Tan collectively as “the Liaw Group”.

The outline of the dispute is as follows. In 2007, Sandz paid out dividends of $4m. These dividends were paid to the Liaw Group. In 2009, Strategic started this action against Sandz and the Liaw Group in order to recover 25% of those dividends on the basis that it was a 25% shareholder of Sandz at the material time. The defendants put forward a four-pronged defence relying, inter alia, on representations allegedly made that the Liaw Group could keep the dividends for themselves. Details of the defence are in [33] below. The defendants claimed an indemnity from the third parties in the event that they were found liable to the plaintiff and also counterclaimed for damages for conspiracy.

Background

In January 2007, Mr Liaw was the managing director and chairman of Sandz. He had set up Sandz in 1999 and together with JM Tan had built it up into a regional enterprise solutions provider which provided professional services in information technology. By 2007, Sandz had a paid up capital of $3m comprising 3 million ordinary shares. Together, the Liaw Group held 75% of the paid up capital. The remaining 25% (“the SES stake”) was held by SES Systems Pte Ltd (“SES”) which had invested $2m in Sandz in 2004.

Mr Liaw wanted to expand Sandz and needed further working capital in order to do so. In 2006, he made plans to list the company on the Malaysian Stock Exchange but these plans did not materialise. He continued to look for a listed company which could act as a vehicle to raise working capital for Sandz. In early 2007, SES appointed an accountant’s firm, KPMG, to explore the possibility of a trade sale of its stake.

On or about 19 January 2007, Mr Liaw was introduced to Mr Tan by a mutual acquaintance. Mr Liaw informed Mr Tan that he was looking for a suitable vehicle into which he could inject Sandz. He explained the nature of the company’s businesses and the shareholders’ intention to raise working capital through either a trade sale or a public listing. He showed Mr Tan figures indicating that Sandz had been making a net profit after tax of around $2m to $3m per year.

Mr Tan told Mr Liaw that he could provide assistance in finding a suitable vehicle for Sandz to be injected into. He was quite impressed with Mr Liaw’s figures. At the time, Mr Tan thought that Lexicon (then known as Sun Business Network Ltd and referred to as “SBN” in the parties’ correspondence) could be the possible vehicle but he did not mention it to Mr Liaw as he wanted to discuss the proposition with the managing director of Lexicon, Ricky Ang Gee Hing (“Mr Ang”), before doing so. In the course of the meeting, Mr Liaw showed Mr Tan preliminary proposals which had been prepared by KPMG in connection with a possible trade sale and Mr Tan said that he believed he could procure better terms than KPMG could.

At this point, the parties’ accounts diverged slightly. Mr Liaw said that during the meeting, they discussed the issue of how to handle the SES stake. According to him, Mr Tan said that if he could find Mr Liaw a suitable listed vehicle, he would require Mr Liaw to buy out the SES stake and then sell it to Mr Tan’s partners at cost so that they could make a profit from a subsequent on-sale to the proposed investment vehicle into which Sandz was to be injected. Mr Liaw remarked that this would be discussed with SES directly but Mr Tan indicated that he did not wish to deal with SES himself and that Mr Liaw should do so.

Mr Tan’s account is that it was Mr Liaw who told him that Mr Liaw did not want SES to know he was looking for the best deal for himself and that his preference was to sell Sandz to a listed company rather than to effect a trade sale. Contrary to what Mr Liaw had alleged, it was Mr Liaw who suggested that SES be bought out before any deal was to take place because he felt that SES’ involvement would slow down considerably the pace at which the deal was completed. Mr Liaw asked if Mr Tan could find a willing investor to buy out the SES stake and Mr Tan indicated that he had contacts who were private equity investors who might be willing to help out as long as they received suitable incentives. Mr Tan suggested that Mr Liaw approach SES to sell their stake to him since he had a relationship with SES. In the meantime, Mr Tan would sound out possible investors. The idea was that the investors would provide Mr Liaw with funds to buy out the SES stake which would thereafter be transferred to the investors.

On 6 February 2007, Mr Liaw sent Mr Tan the group financial report of Sandz. Mr Tan was encouraged by the figures and replied that he had instructed his lawyer to draft a subscription agreement with the aim of drawing funds by the end of February 2007.

During the next few weeks, further discussions took place between Mr Tan and Mr Liaw regarding the terms of the transaction with the proposed vehicle. Mr Liaw informed Mr Tan of his requirements for the transaction. These included the following: Mr Liaw was to be released from his personal guarantees given to the banks 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 him. According to Mr Liaw, Mr Tan agreed to those requirements. Mr Liaw asserted that he trusted Mr Tan completely because he seemed to be a genuine man and was a churchgoing person who had been actively involved in church activities for many years. Moreover, he had been introduced to Mr Liaw by a long-time business associate.

In the meantime, Mr Tan had spoken with Mr Ang of Lexicon about Sandz and had been given the go ahead to try and effect the transaction. At some point (he believed it was before 2 February 2007) Mr Tan told Mr Liaw that the listed vehicle was Lexicon.

Strategic came into the picture in February 2007. It had been incorporated as an investment vehicle by Mr Poon. Mr Poon was an old friend of Mr Tan and they frequently did business together. They also shared office premises in UIC Building. Mr Poon had another old friend, Mr Ng, who was involved in property investments. According to company records produced in 2009, in December 2006, Mr Poon had transferred his shares and directorship in Strategic to Mr Ng.

In early 2007, Mr Tan told Mr Poon that Mr Poon could buy shares in Sandz and then sell them at a profit to Lexicon. He explained that Mr Liaw wanted to facilitate SES’s exit from Sandz so that the sale to Lexicon could go through smoothly. The idea was for Mr Liaw to buy the SES stake but since he did not have enough funds to do so, he needed a third-party investor who could provide $2.5m as the purchase price. Mr Poon was interested and in February 2007, he met Mr Liaw for the first time. According to Mr Poon, there were no negotiations during this meeting and all that they talked about was when Mr Liaw would need the money and to whom it was to be remitted. According to Mr Poon, whilst he met Mr Liaw again two or three times after the first meeting, the subsequent meetings were purely social in nature and no business was discussed.

Mr Poon asserted that after his first meeting with Mr Liaw, he decided that he should not purchase the SES stake as he was involved in another transaction involving Lexicon which could cause him to be in a conflict of interest. Therefore, he asked Mr Ng if the latter would like to participate in the Sandz deal in his stead. Mr Ng agreed but asked Mr Poon to help him do what was necessary to complete the transaction as Mr Ng had no experience in private equity investments. It was agreed that Strategic would be the investment vehicle and that Mr Poon would assist it in finalising the transaction.

With Mr Ng’s authority, Mr Poon instructed lawyers to draft an agreement for the sale and purchase of the SES stake between Mr Liaw and Strategic (“the Strategic SPA”). This draft was sent to Mr Liaw by Mr Tan on 27 February 2007.

Mr Liaw asserted that at all material times, there was no doubt in his mind that Mr Tan and his friends wanted to profit from the SES stake. On 6 March 2007, he sent Mr Tan an email in which he mentioned “For...