Sum Hong Kum v Li Pin Furniture Industries Pte Ltd

• Jurisdiction: Singapore
• Judge: Warren Khoo L H J
• Judgment Date: 22 March 1996
• Neutral Citation: [1996] SGHC 48
• Date: 22 March 1996
• Subject Matter: Articles of association favouring particular director,Meetings,Articles as a whole to be restrictively construed against that director,Relevant considerations,Members,Whether procedural irregularity vitiated proceedings,Validity,Companies,Whether requisite quorum achieved
• Docket Number: Originating Summons No 467 of 1995
• Published date: 19 September 2003
• Defendant Counsel: Winston Low and Justin Phua (Winston Low & Pnrs)
• Court: High Court (Singapore)
• Plaintiff Counsel: Howard Cashin and Lim Khoon (Lim Hua Yong & Co)

By this originating summons, as amended by order on 11 September 1995, the plaintiff seeks declarations that certain directors` meetings and general meetings of the defendant company were invalid. He also seeks consequential reliefs. The case turns largely on a proper construction of certain provisions of the company`s memorandum and articles of association.

The company was incorporated in 1988 to take over an existing partnership business of manufacture and sale of furniture. There were three partners in that business, ie Lam Soo, Tan Choon Hua, and the plaintiff. It started in 1980. The partners all had equal shares. Tan Choon Hua had extensive experience in the furniture business and had extensive contacts. He took charge of the finances and marketing. Lam Soo was in charge of production while the plaintiff was in charge of delivery of the finished products.

When the company was incorporated, the areas of responsibility of these gentlemen remained largely as they had been before. The concept of equality among the three remained. They were each allotted an equal number of ordinary shares. They were all directors. They drew the same salary. They each had a Mercedes car. However, the articles of association accorded and accord Mr Tan a pre-eminent position in certain respects. For example, in addition to the ordinary shares allotted to him, the articles provide for the allotment of the only one governing share to him. It is also provided that the governing share carries 25% voting power at all general meetings of the company. It is also provided that as the holder of the governing share, Mr Tan has the power to appoint three governing directors. He himself is to be a governing director and he is not subject to retirement by rotation. The articles were not as well drafted as they might have been, and there are ambiguities and problems of interpretation inherent in many of the provisions. I shall have to deal with some of these problems of interpretation in due course.

The relationship between the plaintiff and the other two shareholders, which had been good, began to go downhill in 1991. There were various incidents the rights and wrongs of which it is not necessary for me to go into. In December 1994, Tan told the plaintiff that the company had suffered a loss of $1.6m. The plaintiff was unable to accept what Mr Tan told him or the explanation given. His suspicion increased when Tan offered to buy out his shares in the company.

The meetings of 11 March 1995

It was in this atmosphere of mistrust that three separate meetings purported to be held on 11 March 1995, all at the same venue, the registered office of the company. Firstly, before the annual general meeting, there was a meeting described as a board of directors` meeting at which Tan announced that he had in accordance with art 67A(a) of the company`s articles appointed two persons as governing directors. The minutes show the plaintiff as being present at this meeting. Secondly, there was an annual general meeting, which followed. One of the items on the agenda, of which the plaintiff had had advance notice, was the removal of himself as a director. According to the minutes of this meeting, when the attendance sheet was presented to him for his signature, he refused to sign. He left the meeting before it got down to business. In his absence, a resolution was passed that the plaintiff `retires in accordance with the company`s articles of association and that the vacancy arising therefrom not be filled.`

Thirdly, following the purported general meeting, there was a directors` meeting at which in the absence of the plaintiff it was resolved that the plaintiff cease to be paid any remuneration and that his privileges in respect of his Mercedes Benz car be withdrawn from him.

The plaintiff challenges the validity of all these three meetings. Before I deal with the matter, I have to deal with a preliminary point raised by him. The plaintiff says in his affidavit that when he subscribed to the memorandum and articles of association, he did not understand their contents or meaning; in particular, he was not aware of the special preferential provisions in regard to Tan, such as the allotment to Tan of the governing share and the special voting power attached to it. The point was not strongly pressed. I did not think it could be. I took the view that this contention was not open to plaintiff when he sought at the same time to rely on the articles to impugn the validity of the meetings. I decided that the memorandum and articles of association had to be taken as they were, warts and all.

Directors` meeting before the annual general meeting

As stated above, the purported directors` meeting convened before the annual general meeting was for Tan to announce the appointment by him of two persons, Tham Chong Choy and Tan Chung Luang, as governing directors. Article 67A provides that the holder of the governing `shares` (sic) shall have power from time to time and at any time to appoint any three persons to be directors of the company, the persons so appointed being referred to as `governing directors`.

I take it that the reference to `governing shares` in the plural is just a typographical error, since there is provision in the memorandum for the issue of only one governing share. Tan as holder of the governing share is empowered by article 67A to make such appointments without reference to anyone. It was not necessary for a directors` meeting to be held in order for him to announce his appointment. To the extent that it might be necessary to do so, he could have announced the appointment in any other way. In so far as the directors` meeting was convened for the purpose solely of making this announcement, it was an unnecessary meeting. Since no decision was made by the meeting, I do not think it necessary to make any determination as to its validity.

The annual general meeting

As stated above, the plaintiff left the meeting before it proceeded to business.

Article 51 of the articles provides as follows:

No business at an annual general meeting shall be transacted unless a quorum is present. Save as in these articles otherwise provided, three members present in person or by proxy shall be a quorum. Such quorum shall include member [sic] holding the governing shares [sic].

In regard to the words `Save as in these articles otherwise provided`, my attention has not been directed to any other provisions in the articles concerning the subject of quorum. I proceed on the basis that there are no such provisions in the articles on the subject that require consideration.

This article no doubt means what it says, that is that no business can be validly transacted at a general meeting without all three shareholders being present. The reason is not far to seek. The articles give special preferences to Tan, and the requirement of all three shareholders being present appears to have been a device to provide some sort of counterbalance against that. Article 51 is in the nature of a deadlock provision which one often finds in articles of small companies which are essentially quasi-partnerships where it is intended that all shareholders have a say in the affairs of the company and each shall have a sort of veto. A shareholder who does not wish to have any business transacted can simply abstain from attending a meeting. This was the defensive strategy, as Yong Pung How J (as he then was) called it, which was adopted by one of the shareholders in Re Goodwealth Trading Pte Ltd [1991] 2 MLJ 314 . There is nothing wrong about it. It is what the parties by contract have agreed. The result of such a deadlock is the winding-up of the company. There is nothing wrong with that, too, for the same reason.

This view of the intention of art 51 is strengthened when one takes into account the provisions in what is now s 179 and in art 47 of Table A for a quorum of two members at...