Tan Swee Wan and another v Lian Tian Yong Johnny

• Jurisdiction: Singapore
• Judge: George Wei J
• Judgment Date: 28 September 2016
• Neutral Citation: [2016] SGHC 206
• Court: High Court (Singapore)
• Docket Number: Suit No 1238 of 2015 (Registrar’s Appeal No 131 of 2016)
• Year: 2016
• Published date: 04 October 2016
• Hearing Date: 21 July 2016,27 June 2016,23 August 2016
• Plaintiff Counsel: Wendell Wong, Priscylia Wu and Lim Yao Jun (Drew & Napier LLC)
• Defendant Counsel: N Sreenivasan SC, Andrew Heng and Claire Tan (Straits Law Practice LLC)
• Subject Matter: Civil Procedure,Striking out
• Citation: [2016] SGHC 206

George Wei J: Introduction

This was the Defendant’s appeal against the decision of the learned Assistant Registrar (“the AR”) dismissing his application to strike out paragraph 26(d) of the Statement of Claim (“SOC”) in Suit 1238 of 2015 (“the Suit”), pursuant to O 18 r 19 of the Rules of Court (Cap 322, R 5, 2014 Rev Ed).

On 21 July 2016, I allowed the Defendant’s appeal. The Plaintiffs have appealed my decision and I now set out my detailed reasons. These supplement the brief reasons furnished when the orders were made on 21 July 2016.

Background facts

The 1stPlaintiff, Mr Tan Swee Wan, the 2nd Plaintiff, Mr Kelvin Low Keng Siang, and the Defendant, Mr Johnny Lian Tian Yong, were business partners. On 8 August 2001, the 1st Plaintiff set up a company now known as Tecbiz Frisman Pte Ltd (“Tecbiz”), which is in the business of providing computer forensic services. The 1st Plaintiff is a director and shareholder of Tecbiz. In or about October 2001 and January 2002 respectively, the Defendant and the 2nd Plaintiff also became directors and shareholders of Tecbiz.¹

Sometime between 2006 and 2009,² the parties agreed to develop a new computer software, Solvesam, to be used to manage information technology assets and their security.

To this end, the parties set up another company, now known as SSI Holdings Pte Ltd (“SSI”), on 23 December 2010 for the purposes of developing and marketing Solvesam (“the Solvesam project”).³ Under the agreement, it appeared that the Plaintiffs would be responsible for the software development whilst the Defendant would be responsible for sourcing for prospective investors from China.⁴

The parties were all shareholders and directors of SSI. The Plaintiffs claimed that in order to raise funds for SSI and the Solvesam project, it was agreed that the Defendant was to source for funds from Chinese investors, with the ultimate aim of listing SSI on a stock exchange.⁵ Ultimately, however, the Solvesam project did not come to fruition and SSI was not listed on a stock exchange. The Plaintiffs’ basic case was that the Defendant never had any intention to bring the project to fruition.⁶

At various points between June and December 2011, the Plaintiffs resigned as directors of SSI and sold their respective shares in SSI to the Defendant for a token sum of S$1 each. In addition, the 2nd Plaintiff resigned as director and Chief Operating Officer of Tecbiz, and sold his shares in Tecbiz to the Defendant for S$100,000. The 1st Plaintiff also resigned as director and Chief Executive Officer (“CEO”) of Tecbiz, but remained a shareholder.

According to the Plaintiffs, the series of resignations and sales of shares were allegedly prompted by various breaches and/or fraudulent acts by the Defendant, causing the Plaintiffs to lose their trust and confidence in the Defendant as a business partner.⁷

The Plaintiffs’ pleaded case

On 3 December 2015, the Plaintiffs commenced the Suit against the Defendant. Broadly, the claims in the Suit related to the Defendant’s fundraising efforts for SSI. Three alternative causes of action were pleaded in the SOC.

First, the Plaintiffs claimed that the Defendant breached an oral agreement with them in respect of the Solvesam project.⁸ Second, the Plaintiffs asserted that if there was no oral agreement, the Defendant made fraudulent misrepresentations to them. Third, the Plaintiffs claimed that the Defendant breached a constructive trust.⁹ For the purposes of this appeal, the focus was on the Plaintiffs’ cause of action in fraudulent misrepresentation.

According to the Plaintiffs, the parties’ plan was to raise US$20 million in funds for SSI, with the ultimate objective of listing SSI on the NASDAQ, a stock exchange in the United States (“the US”).

It would be recalled that the Plaintiffs’ case was that the Defendant was responsible for sourcing for the funds for SSI and the Solvesam project. The Plaintiffs claimed that this eventually culminated in a subscription agreement with an investor from China on or about 24 January 2011.¹⁰

The Plaintiffs pleaded that in order to induce the Plaintiffs to enter into the subscription agreement, the Defendant made the following representations (“the Representations”)¹¹: The Defendant intended to lead the fundraising exercise in the name of SSI without any links back to Tecbiz; The funds raised under the subscription agreement had to be under the Defendant’s control, because the potential investor only trusted the Defendant; and The Defendant intended (inter alia) to procure the eventual transfer and disbursement of US$900,000 to each of the Plaintiffs and the Defendant.

It was further pleaded that the Plaintiffs relied on the truth of the Representations, that the Representations were false, and that they were fraudulently made. As a result, the Plaintiffs alleged that they had suffered loss. The 1st Plaintiff claimed US$700,000 (as US$200,000 had already been paid to the 1st Plaintiff by the Defendant) and the 2nd Plaintiff claimed the full US$900,000 against the Defendant, as damages in lieu of rescission.¹²

In connection with the claim that the pleaded Representations were false and fraudulently made, the Plaintiffs, in paragraph 26 of the SOC, set out a list of particulars in a number of sub-paragraphs. These included paragraph 26(d) which was the key sub-paragraph in dispute in this case.

Paragraph 26(d) alleged that the Defendant had been “perpetrating a scam and never intended to carry out any of the Representations” made to the Plaintiffs. It went on to detail the Defendant’s fundraising methodology in a separate company incorporated in the US, Techmedia Advertising Inc (“TECM”), in which the Defendant was director, CEO and chairman.

TECM was apparently a “development project” undertaken by the Defendant, and was on 17 February 2009 listed on the “US Over the Counter Bulletin Board”. I pause here to stress that there was no assertion or suggestion that the Plaintiffs were involved in any way with the TECM development project.

In order to raise funds for TECM, the board of directors, including the Defendant, resolved to offer private placement shares to private individuals from September 2008, enlisting the help of one Lim Tow Kwong (“Raymond”). Further, the Defendant had himself, between April and July 2009, offered to persons agreements to subscribe for securities in TECM. To entice investors, the Defendant claimed that TECM was due to be listed on the NASDAQ.

Both Raymond and the Defendant raised a substantial amount of money from the sale of securities to investors. Investors with US-dollar accounts remitted their investment money directly to a trust account set up on behalf of TECM. Investors who did not have a US-dollar account would pass their investment money directly to the Defendant, who would purportedly transfer the money to the trust account.

As it turned out, TECM failed to be listed on the NASDAQ, but was instead downgraded to a smaller and illiquid exchange due to a failure to file accounts. On 4 May 2011, a police report was lodged against Raymond. The investigations also involved the Defendant. Ultimately, on 31 March 2014, the Defendant was charged with, pleaded guilty to and convicted of an offence under s 82(1) of the Securities and Futures Act (Cap 289, 2006 Rev Ed) for carrying on a business in the dealing of securities without a valid capital markets services license from the Monetary Authority of Singapore. He was fined $150,000, in default of which he was to serve a sentence of 15 months’ imprisonment.

According to the Plaintiffs, the statements in paragraph 26(d) were taken from the Agreed Statement of Facts (“ASOF”) in the criminal charge faced by the Defendant.

The Defendant’s pleaded case and the application to strike out

In the Defence and Counterclaim, the Defendant denied the claims, and reserved the right to apply to strike out. According to the Defendant, the Plaintiffs had presented a business proposal for the Solvesam project to the Defendant in 2009. However, from February 2011, the Defendant discovered that the Plaintiffs had exaggerated and misrepresented the uniqueness and functionality of Solvesam and its business prospects. It was collectively decided by the parties that the Solvesam project would be discontinued. The Plaintiffs’ subsequent resignation as directors and sale of shares was done amicably.¹³

Further, the Defendant asserted that in or about March 2011, he had extended two personal loans to the 1st Plaintiff, totalling S$400,000, when the 1st Plaintiff was short on cash to pay for renovation works on his house. The Defendant thus counterclaimed for payment of the S$400,000 from the 1st Plaintiff.¹⁴

On 4 February 2016, the Defendant filed Summons No 575 of 2016, applying to strike out paragraph 26(d) of the SOC as well as the reference to that paragraph at paragraph 27 of the SOC, pursuant to O 18 r 19(1) of the Rules of Court.

The AR’s decision below

On 23 March 2016, the AR dismissed the Defendant’s application, stating that this was not a plain and obvious case for striking out. First, she reasoned that the proceedings in the Suit were in the early stages, and that the Plaintiffs might eventually wish to lead evidence or make submissions at trial in relation the Defendant’s capacity for certain acts. To strike out paragraph 26(d) would be to unduly restrict the Plaintiffs’ latitude in bringing relevant evidence before the court at trial.

Second, she stated that paragraph 26(d) was relatively contained, as they appeared to be “straightforward matters of fact” more or less taken from the ASOF, which the Defendant had agreed to on a prior occasion. There was thus unlikely to be a serious dispute on these matters and the trial would not be delayed.

Third, she did not consider paragraph 26(d) scandalous, frivolous or vexatious as it was not plainly irrelevant to the...