Sunbreeze Group Investments Ltd and others v Sim Chye Hock Ron

• Jurisdiction: Singapore
• Court: Court of Three Judges (Singapore)
• Judge: Sundaresh Menon CJ,Andrew Phang Boon Leong JA,Tay Yong Kwang JA
• Judgment Date: 22 October 2018
• Neutral Citation: [2018] SGCA 64
• Citation: [2018] SGCA 64
• Defendant Counsel: Davinder Singh s/o Amar Singh SC, Lydia Ni Manchuo, Loh Yu Chin Deborah and Srruthi Ilankathir (Drew & Napier LLC)
• Date: 22 October 2018
• Published date: 15 November 2018
• Plaintiff Counsel: Yeo Khirn Hai Alvin SC, Koh Swee Yen, Sim Mei Ling, Lin Chunlong and Jasmine Low (WongPartnership LLP)
• Docket Number: Civil Appeal No 105 of 2017 and Summons No 31 of 2018
• Hearing Date: 17 August 2018
• Subject Matter: Striking out,Civil Procedure,Pleadings,Amendment,Third party proceedings

Sundaresh Menon CJ (delivering the judgment of the court): Introduction

The appellants are three of the four defendants in Suit No 17 of 2017 (“Suit 17”). They commenced a third party action against the respondent, who applied to strike out that action. The striking out application came before a High Court judge (“the Judge”), who agreed with the respondent and struck out the third party proceedings pursuant to O 18 r 19(1)(a) of the Rules of Court (Cap 322, R 5, 2014 Rev Ed) (“the Rules of Court”) on the grounds that they were redundant, disclosed no reasonable cause of action for an indemnity or contribution and were not required for the determination of common issues under O 16 r 1(1)(c) of the Rules of Court: see EQ Capital Investments Ltd v Sunbreeze Group Investments Ltd and others (Sim Chye Hock Ron, third party) [2017] SGHC 271 (“the GD”). The appellants filed the present appeal, Civil Appeal No 105 of 2017, against the Judge’s decision. They also applied directly to this court by way of Court of Appeal Summons No 31 of 2018 (“SUM 31”) for leave to amend their third party statement of claim in a further attempt to save the third party proceedings. After hearing the parties’ oral arguments, we dismissed SUM 31, but reserved our decision on the substantive appeal. In this judgment, we explain our reasons for dismissing SUM 31 as well as deliver our decision on the appeal.

Background facts

Suit 17, which has yet to be heard, is a minority oppression action brought by EQ Capital Investments Ltd (“EQ Capital”) against four defendants: (a) Sunbreeze Group Investments Ltd (“Sunbreeze”), the first appellant in this appeal; (b) Manoj Mohan Murjani (“Mr Murjani”), the second appellant; (c) his wife, Kanchan Manoj Murjani (“Mrs Murjani”), the third appellant; and (d) The Wellness Group Pte Ltd (“Wellness”). Sunbreeze and EQ Capital are shareholders of Wellness, holding 80.62% and 7.55% respectively of Wellness’ shares, with the remaining shares in Wellness being held by two private equity funds. Mr and Mrs Murjani are directors and shareholders of Sunbreeze as well as directors of Wellness. Wellness is a nominal party in Suit 17, having been joined only because the plaintiff, EQ Capital, seeks reliefs concerning it. The third party proceedings were instituted only by the first three defendants in Suit 17 (the appellants in this appeal), but not Wellness, and Wellness is not a party to this appeal.

The claims in Suit 17 are closely related to a joint venture between Wellness, OSIM International Pte Ltd (“OSIM”) and Paris Investment Pte Ltd (“Paris”). These parties are now shareholders in a joint venture company known as TWG Tea Company Pte Ltd (“TWG”). TWG was originally incorporated as a wholly-owned subsidiary of Wellness in October 2007. In 2010, Paris acquired 15.8% of the shares in TWG. In early 2011, OSIM was considering investing in TWG. OSIM’s founder, chairman and Chief Executive Officer, Ron Sim Chye Hock (“Mr Sim”), is the respondent in this appeal as well as the ultimate sole beneficial owner of EQ Capital. During the negotiations with OSIM, Mr Murjani presented Mr Sim with profit projections showing that TWG expected to achieve profit before tax and minority interests (“PBT”) of $29m for the financial year ending 31 March 2013 (“FY2013”). OSIM decided to invest in TWG. This culminated in the signing of two agreements dated 18 March 2011: a sale and purchase agreement (“the SPA”), pursuant to which OSIM purchased a 35% stake in TWG from Wellness and Paris; and a shareholders’ agreement between Wellness, OSIM, Paris and TWG (“the SHA”), under which the parties agreed to operate TWG as a joint venture and envisaged the establishment of future joint ventures between TWG and OSIM in other countries in Asia.

Following OSIM’s investment, Wellness, OSIM and Paris held TWG’s shares in the respective proportions of 54.7%, 35% and 10.3%. Clause 4.5 of the SPA (“the Profit Swing Clause”) provided for the following changes in shareholding depending on TWG’s audited PBT for FY2013: If the audited PBT was less than $17m, Wellness and Paris would transfer some of their shares in TWG (an aggregate of 1% of TWG’s shares per $1m shortfall, up to a maximum of 10%) to OSIM at a nominal price of $1. If the audited PBT exceeded $27m, OSIM would transfer some of its shares in TWG (1% of TWG’s shares per $1m excess, up to a maximum of 10%) to Wellness and Paris at a nominal price of $1.

TWG’s audited PBT for FY2013 turned out to be about $5.5m. On 9 April 2013, OSIM invoked the Profit Swing Clause and acquired 10% of the total shares in TWG from Wellness and Paris for a nominal consideration of $1 to each of them. TWG’s shareholding after this transaction (“the Profit Swing Transaction”) was as follows: Wellness (46.3%), OSIM (45%) and Paris (8.7%). On 18 October 2013, OSIM purchased all the shares in Paris, thereby acquiring a majority of TWG’s shares. OSIM also appointed two persons as directors of TWG, thereby acquiring control of TWG’s board.

In November 2013, TWG proposed a rights issue (“the Rights Issue”) to raise capital. This was approved by Paris and OSIM. Wellness did not subscribe for the Rights Issue. On 18 January 2014, OSIM and Paris together subscribed for the entire 77,000 shares available under the Rights Issue, as a result of which their combined shareholding in TWG became 69.9% (58.6% to OSIM and 11.3% to Paris), while Wellness’ shareholding was further diluted to 30.1%.

In February 2014, Wellness and Mr Murjani commenced Suit No 187 of 2014 (“Suit 187”) against OSIM, Paris and the directors of TWG (including Mr Sim) for minority oppression, conspiracy to injure and breach of contract. They sought to set aside the Profit Swing Transaction and the Rights Issue. Suit 187 was dismissed by the High Court: see The Wellness Group Pte Ltd and another v OSIM International Ltd and others and another suit [2016] 3 SLR 729 (“Wellness v OSIM”). That decision was upheld in Civil Appeal No 64 of 2016 (“CA 64”), and costs orders were made against Wellness in respect of both the appeal and Suit 187.

On 10 January 2017, EQ Capital filed Suit 17. Its claims are fivefold: First, Mr and Mrs Murjani caused Wellness to breach its obligations under the SHA, its Memorandum and Articles of Association and the Companies Act (Cap 50, 2006 Rev Ed) (“the Companies Act”) by causing Wellness not to convene any Annual General Meeting (“AGM”); not to file any annual returns with the Registrar of Companies; and not to prepare, file and provide EQ Capital with Wellness’ audited accounts from the financial year ending 31 March 2011 (“FY2011”) to date. Consequently, EQ Capital has been and continues to be deprived of its right to attend and participate in AGMs and to review the audited accounts of Wellness. We refer to this as “the AGM/Accounts Claim”. Second, Mr Murjani caused Wellness’ shareholding in TWG to be diluted as a result of the Profit Swing Transaction. The Profit Swing Clause was based on the profit projections which Mr Murjani had presented to OSIM (see [3] above), and which he knew to be unreliable or unsupported. The dilution of Wellness’ shareholding in TWG as a result of the Profit Swing Transaction in turn damaged EQ Capital’s interest in TWG as a shareholder of Wellness. We refer to this as “the Profit Swing Claim”. Third, Mr and Mrs Murjani caused Wellness’ shareholding in TWG to be further diluted by failing to cause Wellness to subscribe for the Rights Issue. We refer to this as “the Rights Issue Claim”. Fourth, Mr and Mrs Murjani failed to protect Wellness’ interests by failing to cause Wellness to appoint a director to TWG’s board after Mr Murjani resigned from the board on 28 September 2012. We refer to this as “the Appointment Claim”. (In this regard, we should point out that one of the High Court’s findings in Suit 187, which was undisturbed in CA 64, was that the following term should be implied into the SHA: “the majority shareholder(s) (whoever they may be) would be entitled to appoint two directors, and the minority shareholder(s) would be entitled to appoint one director so long as they hold at least 25% of the shares in TWG” (see Wellness v OSIM at [121]). Since Wellness held 30.1% of the shares in TWG at the time the decision in CA 64 was rendered, it was entitled to appoint one director to TWG’s board. In October 2016, Wellness sought to appoint Mr Murjani as a director of TWG, but this was rejected by TWG, OSIM and Paris. Subsequently, in February 2017, Wellness sought to have another person, Associate Professor Mak Yuen Teen (“Associate Professor Mak”), appointed as a director of TWG, but this was rejected by TWG as well. Wellness then applied to the court for an order that Associate Professor Mak be appointed to TWG’s board. Its application was dismissed at first instance (see The Wellness Group Pte Ltd v TWG Tea Co Pte Ltd and others [2017] SGHC 298), but it was allowed on appeal (see The Wellness Group Pte Ltd v Paris Investment Pte Ltd and others [2018] SGCA 47).) Fifth, Mr and/or Mrs Murjani caused Wellness to commence Suit 187 and CA 64 even though they knew and/or ought to have known that the proceedings were without merit, and/or were reckless as to whether Wellness had good grounds for bringing Suit 187, thereby exposing Wellness to the costs orders made against it in Suit 187 and CA 64. Mr and/or Mrs Murjani also caused Wellness to obtain loans amounting to $3.1m from Sunbreeze in order to foot Wellness’ legal fees. We refer to this as “the Costs Claim”.

On the basis of these claims, EQ Capital seeks the following reliefs: an order that Mr and Mrs Murjani compensate and pay Wellness the loss in value which Wellness suffered by reason of the dilution of its shareholding in TWG; an order that Sunbreeze and/or Mr Murjani and/or Mrs Murjani repay Wellness to the extent that Wellness’ funds were used to pay the costs and disbursements ordered...