Summit Co (S) Pte Ltd v Pacific Biosciences Pte Ltd

• Jurisdiction: Singapore
• Judge: Belinda Ang Saw Ean J
• Judgment Date: 19 October 2006
• Neutral Citation: [2006] SGHC 190
• Date: 19 October 2006
• Subject Matter: Petition to wind up company on "just and equitable" grounds by minority shareholder,Companies,Section 254(1)(i) Companies Act (Cap 50, 1994 Rev Ed),Winding up,Whether relationship between minority shareholder and majority shareholder irretrievably broken down and/or substratum of enterprise has disappeared,Whether petition functioning as means for minority shareholder to exit company at will
• Docket Number: Companies Winding Up No 34 of 2005
• Published date: 26 October 2006
• Defendant Counsel: Philip Fong and Jacelyn Chan (Harry Elias Partnership)
• Court: High Court (Singapore)
• Plaintiff Counsel: Ooi Oon Tat and Nirmala Ravindran (Low Yeap Toh & Goon)

19 October 2006 Judgment reserved.

Belinda Ang Saw Ean J:

1 This petition is presented by Summit Company (S) Pte Ltd (“Summit”) to wind up the respondent company, Pacific Biosciences Pte Ltd (“the Company”) on the ground that it is just and equitable to do so under s 254(1)(i) of the Companies Act (Cap 50, 1994 Rev Ed) (“the Act”) in that, the relationship between Summit, as the minority shareholder, and the majority shareholders, Pasture Pharma Pte Ltd (“PPPL”), has irretrievably broken down. In addition, or as an alternative, Summit says that the substratum of the enterprise has disappeared.

2 The Company disagrees that the underlying facts of the case support the bases argued for by Summit. The operations of the Company are ongoing in that it has not ceased business. Counsel for the Company, Mr Philip Fong, contends that Summit was, by this petition, seeking to exit at will from the Company and that itself is not a case for relief under s 254(1)(i) of the Act. Simply put, there is no right generally to exit at will under the provisions of that subsection. Counsel also alleges bad faith on the part of Summit. The petition was initiated to bring about an improper or collateral purpose to force the majority shareholder to buy over Summit’s shareholding on the latter’s terms. On that latter ground alone, the petition should be dismissed.

The law on just and equitable winding up

3 Before I go into background facts and the details of the petition, I should state the basic points which have to be borne in mind in exercising the jurisdiction under s 254(1)(i) of the Act. There is little dispute in the parties’ submissions as to the applicable principles of law.

4 The authorities cited by the parties serve to illustrate the application of the legal principles to the findings of fact by the court there. I need only refer to the recent decision of the Court of Appeal in Sim Yong Kim v Evenstar Investments Pte Ltd [2006] 3 SLR 827 (“Evenstar”) which approved Lord Wilberforce’s well-known exposition of the meaning of “just and equitable” in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 and concluded that the notion of fairness was the touchstone by which to decide whether the court should grant relief under s 254(1)(i) of the Act. Chan Sek Keong CJ (delivering the judgment of the Court of Appeal) stated at [31]:

We accept that the notion of unfairness lie at the heart of the “just and equitable” jurisdiction in s 254(1)(i) of the [Act] and that that section does not allow a member to “exit at will”, as is plain in its express terms. Nor does it apply to a case where the loss of trust and confidence in the other members is self-induced. It cannot be just and equitable to wind up a company just because a minority shareholder feels aggrieved or wishes to exit at will. However, unfairness can arise in different situations and from different kinds of conduct in different circumstances. Cases involving management deadlock or loss of mutual trust and confidence where the “just and equitable” jurisdiction under s 254(1)(i) has been successfully invoked can be re-characterised as cases of unfairness, whether arising from broken promises or disregard for the interests of the minority shareholder. Unfairness can also arise in the loss of substratum cases.

5 The test for unfairness is an objective one. The test was stated by Nourse J in Re R A Noble & Sons (Clothing) Ltd [1983] BCLC 273 at 290, quoting the dictum of Slade J in In re Bovey Hotel Ventures Ltd (31 July 1981) as being “whether a reasonable bystander observing the consequences of their conduct, would regard it as having unfairly prejudiced the petitioner’s interests”.

6 Notably, the facts and circumstances making it just and equitable to liquidate the company must subsist at the time the order is made. Megarry J in Re Fildes Bros Ltd [1970] 1 WLR 592 at 597 said:

[T]he question whether it is just and equitable to wind up the company is one which must be answered on the facts which exist at the time of the hearing. If on the facts existing when the petition was presented it was then just and equitable to wind up the company, but subsequently it has ceased to be so, I do not think a winding up order should be made. … No doubt if there were cogent grounds for complaint at the time when the petition was presented, but they afterwards melted away, there may be consequences in relation to costs: but a winding-up order under this head must be based on subsisting facts and not on past history.

7 Finally, a shareholder who tries to wind up the company under s 254(1)(i) in order to bypass the more appropriate and moderate remedies under s 216 of the Act is at risk of having his petition being struck out (per Chan CJ in Evenstar at [39]). If the company is a going concern in that it has not ceased trading, the court may look to see if there is a motive behind the petition to wind up the company. Tang Choon Keng Realty (Pte) Ltd v Tang Wee Cheng [1992] 2 SLR 1114 at 1142, [60] states:

There is no reason to believe that where a company is a ‘going concern’, an aggrieved minority member would want to wind up the company if the real relief he seeks can be satisfied without a winding up. In other words, unless motivated by spite, he will not ask for a winding-up order except as a last resort …

Events leading to the filing of the petition

8 With these principles in mind, I turn to what is said in the petition, affidavits filed by the respective parties and their oral testimonies tested in cross-examination. I should clarify as I have referred to counsel by name in this judgment that Mr Ooi Oon Tat appeared before me as Summit’s counsel and the closing submissions were later filed by Ms Nirmala Ravindran on behalf of Summit.

9 Summit is a company, which until June 2004 provided, inter alia, warehousing and logistics services to the Company. Its holding company is US Summit Corporation (“USSC”), a corporation organised under the laws of the Panama and with offices in New York, USA. It is a family business run by one CC Wang and, amongst others, his son, Kenneth Wang (“Ken”). PPPL is a company involved in the sale and marketing of pharmaceutical products from overseas suppliers to the Asia-Pacific region. PPPL’s director and shareholder is Soong Chin Kum Jonathan Lloyd (“Lloyd”). Summit and PPPL entered into commercial discussions that resulted in a broad agreement contained in or evidenced by a memorandum of understanding signed on 2 March 2000 (“the MOU”). The main objects of the MOU can be summarised as follows:

(a) The shareholding between PPPL and Summit shall be 75% and 25% respectively (cl 1.1).

(b) The objectives of the Company are to acquire new products as distributor for new principals and market existing ones (cl 2.1).

(c) The warehousing and distribution (ie, logistics and accounts receivable) services would be provided by Summit (cl 2.2).

(d) The day-to-day management of the Company would be the responsibility of PPPL (cl 4.1).

(e) Summit has a right to constant business review meetings to update each other or discuss new business strategies as well as the right to review the business and financial performance of the Company via regular management meetings (cl 4.2 and 4.3).

(f) The auditors of either party can inspect the accounting and other records of the Company (cl 4.4).

(g) The MOU can be terminated with one month’s notice (cl 5.1).

10 The Company was incorporated on 11 May 2000. It was set up as a “total solution” company, providing sales, marketing as well as logistics and warehousing services. PPPL was to provide the sales and marketing services in relation to pharmaceutical products as well as to generate business opportunities. Summit was to provide warehousing and distribution services (as defined in cl 2.2 of the MOU) for the pharmaceutical products. Summit acquired 25% of the Company’s issued share capital of 180,000 shares with PPPL acquiring the remaining 75% shareholding. In addition, Summit paid $64,250 to PPPL being 25% of PPPL’s previous investments in various existing product lines as PPPL was to transfer these existing product lines to the Company for the latter to manage. The board of the Company consisted of two directors, namely, Lloyd and Summit’s nominee, Ong Lam Huat (“Ong”), who was stationed in Malaysia on account of his responsibilities in Summit Malaysia Sdn Bhd. The MOU supposedly set out the principles and strategies in broad terms as the express intention was for the details of the association to be agreed in a formal joint-venture agreement. Significantly, no joint-venture agreement was drawn up and executed. The Company was managed based on the MOU and the affairs of the company were regulated by the terms of association contained in the articles of association, which were binding on the shareholders. However, the articles of association were not exhibited in any of the affidavits filed in these proceedings. The provision of warehousing and distribution services was detailed in a Distribution Agreement dated 1 January 2001. It was renewed on the same terms on 1 January 2003.

11 On 30 March 2004, Summit wrote to Lloyd giving the Company six months’ notice to terminate Summit’s Distribution Agreement dated 1 January 2003 on account of the restructuring of Summit’s business. This came about as a result of the decision of USSC to cease its logistics business. At the hearing, Summit pointed out that it had a right under the Distribution Agreement to terminate the arrangement. It was not as if it had invoked any right under the MOU. Lloyd had no forewarning of this decision. This termination led to the Company entering into an alternative warehousing and distribution arrangement with Diethelm Singapore Pte Ltd on or around 7 June 2004.

12 At around this time, CC Wang was suffering from health problems. He had left the restructuring of USSC’s businesses around the world to his son, Ken, who is also a director of...