Teo Seng Hoe (alias Tew Seng Hoe) v IDV Concepts Pte Ltd and others

• Jurisdiction: Singapore
• Judge: Belinda Ang Saw Ean J
• Judgment Date: 12 December 2013
• Neutral Citation: [2013] SGHC 269
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 471 of 2013
• Year: 2013
• Published date: 20 December 2013
• Hearing Date: 02 August 2013
• Plaintiff Counsel: Lim Ker Sheon and Cai Enhuai Amos (Characterist LLC)
• Defendant Counsel: Ang Chee Kwang Andrew and Tan JinJia, Andrea (PK Wong & Associates LLC)
• Subject Matter: Companies,Directors,Duties
• Citation: [2013] SGHC 269

Belinda Ang Saw Ean J:

The plaintiff, Teo Seng Hoe alias Tew Seng Hoe (“Teo”), in Originating Summons No 471 of 2013 (“OS 471/2013”) successfully obtained leave to commence a derivative action pursuant to s 216A of the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”) in the name and on behalf of the first defendant, IDV Concepts Pte Ltd (“IDV”), against the second to fourth defendants. The second to fourth defendants have appealed against my decision.

Facts

Teo and the second defendant, Chew Choon Kong (“Chew”), are the directors and equal shareholders of IDV, a company in the business of providing interior design and renovation services. The third defendant, Jen Cassia Lee Mei Mei (“Jen”), is Chew’s wife and a manager of IDV. She is the sole director and shareholder of the fourth defendant, IDV Concepts Asia Pte Ltd (“IDV Asia”). For convenience, the second to fourth defendants are hereafter collectively referred to as “D2 to D4”, and individually by their respective names as described.

In 1997, Teo and Chew decided to go into a business partnership as IDV Concepts. The partnership structure was changed to a limited liability company and IDV Concepts Pte Ltd was incorporated in 2001. Teo and Chew had separate and distinct roles in the business. Chew was in charge of marketing, design, sales and administration, and Teo was in charge of production and project management.

Difficulties between Teo and Chew

The relationship between Teo and Chew became strained in 2011 when each had different ideas on the business direction of IDV. Chew wanted to develop IDV as a premier design entity, boasting a one-stop in-house design, project management and production ability. Teo, on the other hand, was not keen to grow the design arm of the company. He wanted IDV to concentrate on the production side of the business. Their differences came to a head such that by August 2011, Chew and Teo announced to the staff that they would be closing down the company. However, they subsequently changed their minds about ending their business. From that point onwards, the design, marketing and project management side of the business operated out of premises located at 8 Admiralty Street and the production team remained on the premises located at 10 Admiralty Street.

For a variety of reasons, the relationship between Teo and Chew continued to deteriorate in the course of 2012. It is not necessary for the purposes of this decision to explore the problems in detail; one of them, however, was that Chew felt that Teo was not pulling his weight. For example, production works for a display in Singapore had progressed at a very slow pace and Chew was perturbed at Teo’s lack of concern over how IDV’s reputation would be affected if the project was delayed.

There was a major disagreement over a project called the RISIS project in 2013. According to Chew, the IDV production team delayed the project for five months, and as a result, IDV paid a penalty of $36,000 to the client. In addition, Teo had not paid a sub-contractor who embarrassed IDV at the project site with his threats to remove items he had installed.

According to Teo, the crunch came around February or March 2013 when Chew informed Teo that he (Chew) did not wish to continue working with Teo in IDV.¹ Chew, on the other hand, insisted that it was Teo’s announcement of his intention to retire that started the discussions to close the company.² For present purposes, it is not necessary to decide on the correct version for the upshot was a series of meetings attended by Teo, Chew and one Lim Sing Hok Mervyn (“Mervyn”), who was then a non-executive director of IDV.

At those meetings, various proposals were made by Chew to buy over Teo’s shares in IDV but no agreement was reached. Teo and Chew then considered other proposals to fairly dispose of IDV, its business and its assets, but again no agreement was reached.

Talks of liquidation

Teo and Chew explored liquidation as a possible step to terminate the business relationship, and to this end they met Don Ho & Associates on 25 March 2013 and Baker Tilly TFW LLP (“Baker Tilly”) on 3 April 2013.

At or soon after the meeting with Baker Tilly on 3 April 2013, Chew prepared a directors’ resolution dated 3 April 2013 (“the Directors’ Resolution”) which proposed:³ 1. That the winding up of the Company via a Members’ Voluntary Liquidation be hereby approved; and that with effect from Monday (08 April 2013), no new orders or related costs shall be taken into the business. 2. That Baker Tilly TFW LLP be hereby appointed as Liquidators of the Company.

According to Teo, Chew tried to pressure him into signing the Directors’ Resolution immediately. He managed to seek legal advice on the matter from his solicitors, M/s Characterist LLC, who wrote to Chew on 4 April 2013 seeking clarification of the terms of engagement of Baker Tilly, and other proposals in respect of “resolving the Company in a way beneficial to both parties”.⁴

Chew disagreed with Teo’s version of events. He explained that Teo had already agreed at the meeting with Baker Tilly to appoint the latter as IDV’s liquidators. Moreover, on 5 April 2013, Teo signed and returned the Directors’ Resolution to Chew. According to Chew, on 10 April 2013, Teo went to IDV’s offices to sign a letter (dated 8 April 2013) appointing Baker Tilly as IDV’s liquidators (“the April letter”).⁵ Teo also ostensibly signed a cheque dated 5 April 2013 in favour of Baker Tilly. Teo vehemently disputed Chew’s assertions, claiming that his signature on the April letter was a forgery,⁶ and that he had not signed any cheque on 10 April 2013.⁷

According to Chew, in anticipation of the liquidator’s appointment, arrangements were made for directors’ fees to be paid to Teo and Chew. Even though Teo’s fee entitlement was less than that of Chew, Jen gave instructions for Teo and Chew’s fee entitlements to be combined and then divided in half, so as to avoid further disagreement. Consequently, Teo and Chew each received $131,633.64.

The fourth defendant comes into the picture

On 10 April 2013, Teo received an e-mail from one of IDV’s employees. The signature block of this e-mail reads “IDV Concepts Asia Pte Ltd” [emphasis added]. This was the name of IDV Asia. Upon inquiring further, Teo discovered that IDV Asia had been incorporated on 1 April 2013, with Jen as its sole shareholder and director.

Jen said that IDV Asia was incorporated “in view of the agreement to liquidate [IDV] …”, that IDV Asia only commenced business after Teo had signed the Directors’ Resolution, that marketing efforts for IDV Asia began only on 9 April 2013, and that IDV Asia’s bank accounts only became active on 10 April 2013. On 11 April 2013, Chew sent an e-mail explaining to potential clients of IDV Asia that IDV Asia would be in charge of all new projects while IDV would remain to complete all ongoing jobs.

Teo disagreed with Jen’s explanations. He maintained that Chew and Jen had been plotting to take over the identity, business, assets and goodwill of IDV to IDV Asia. Upon discovery of their misconduct, Teo’s solicitors sent a letter to Chew and Jen on 15 April 2013 to cease and desist in their wrongful acts. Teo complained that Chew (as director) and Jen (as manager) breached their respective duties to IDV in various ways: Jen incorporated IDV Asia with Chew’s assistance, and the similarity of IDV Asia’s name with that of IDV was intentional. Between 10 and 11 April 2013, Chew and/or Jen instructed IDV’s office staff to change the signature block of their e-mails from that of IDV to that of IDV Asia, whilst retaining the slogans used by and were identified with IDV. Contracts and business opportunities that were initially negotiated by IDV were passed to IDV Asia as the contracting party. Chew and Jen copied IDV’s website in its entirety for IDV Asia’s website, and this copying constituted a passing off and misrepresentation of IDV’s prior portfolio of work as that of IDV Asia. Chew and Jen illegally took over IDV’s office premises for the exclusive use of IDV Asia, and IDV continued to pay for rental and utilities. IDV Asia also took over IDV’s computers, servers, customer and pricing data, contracts, negotiations, proposals and all other confidential information, and IDV Asia’s staff were permitted to have full access to the same. Chew and/or Jen solicited the office staff of IDV to transfer their employment from IDV to IDV Asia.

Teo also alleged that IDV Asia had engaged in the following wrongful conduct contrary to the interests of IDV: passing off the name and goodwill of IDV; infringement of copyright and passing off in relation to IDV’s slogans and goodwill; using IDV’s office premises and office equipment without approval or authorisation; and accessing IDV’s confidential information without approval or authorisation.

Attempts to settle the matter amicably failed. Thereafter, Teo sent IDV and Chew the 14-day notice required under s 216A(3) of the Act (“the May Notice”) on 10 May 2013. After expiry of the May Notice, Teo filed the present application (ie, OS 471/2013) on 27 May 2013. It should be noted that in the interim period, Chew filed an application vide Companies Winding Up No 78 of 2013 (“CWU 78/2013”) on 21 May 2013 to wind up IDV on just and equitable grounds.

The issues

The criteria for determining an application under s 216A of the Act are as follows: that the requisite 14 days’ notice was given (“Issue 1”); that it is prima facie in IDV’s interests that the action be brought (“Issue 2”) and; that the member was acting in good faith (“Issue 3”).

It was not seriously disputed that Issue 1 only concerns the proposed claim against IDV Asia. The main debate in the present case concerned Issues 2 and 3.

Issue 1: Was the statutory notice given to IDV Asia?

Counsel for D2 to D4, Mr Andrew Ang (“Mr Ang”), argued that the May...