Ting Sing Ning (alias Malcolm Ding) v Ting Chek Swee (alias Ting Chik Sui) and Others

• Jurisdiction: Singapore
• Judge: Chan Sek Keong CJ
• Judgment Date: 09 October 2007
• Neutral Citation: [2007] SGCA 49
• Docket Number: Civil Appeal No 125 of 2006
• Date: 09 October 2007
• Year: 2007
• Published date: 28 December 2007
• Plaintiff Counsel: Kannan Ramesh, Marina Chin, See Chern Yang and Paul Seah (Tan Kok Quan Partnership)
• Citation: [2007] SGCA 49
• Defendant Counsel: Francis Xavier, Melvin Lum and Dawn Wee (Rajah & Tann),Tang King Kai (Tang & Partners),Andy Chiok and Cleophas Pfang (Michael Khoo & Partners)
• Court: Court of Appeal (Singapore)
• Subject Matter: Companies,Fraud on minority exception,Breach of fiduciary duties,Common law derivative action,Whether director of company should be allowed to pursue common law derivative action,Derivative action,Rule in Foss v Harbottle,Whether other directors having absolute majority of votes in company,Directors,Duties

9 October 2007 Judgment reserved.

Chan Sek Keong CJ (delivering the judgment of the court):

1 In this appeal, Ting Sing Ning alias Malcolm Ding (“the appellant”) appeals against the judgment of Choo Han Teck J (“the Judge”) reported at [2007] 1 SLR 369 (“Ting Sing Ning”) that the appellant had no locus standi to proceed with the derivative action commenced on behalf of Havilland Ltd (“Havilland”) against three of its directors, namely, the first and second respondents, as well as the fifth defendant.

Background

2 Havilland is a company incorporated under the laws of Hong Kong and having its principal place of business in Singapore. The appellant, the first respondent (“Ting”), the second respondent (“Sia”) and the fifth defendant, (“Binti”) (who is not a party to this appeal) were the four directors of Havilland at all material times. The appellant holds 10% of the shares in Havilland, while Ting, Sia and Binti together hold a total of 42% of the shares in Havilland. Ting’s sister, Ting Shuk Choo, held a 10% stake in Havilland. The latter fact is of particular significance, since if there is evidence that she would have supported Ting in voting against this derivative action by the appellant, it would suffice (without more) to dispose of the present appeal. We now set out the significant events that led to the trial of the preliminary issues, before proceeding to analyse the parties’ submissions.

Chronology of significant events

3 The appellant commenced the present action in 2000 for the benefit of Havilland against Ting (Sia and Binti were added later, on 10 February 2001), claiming, inter alia:

(a) a declaration that Ting, Sia and Binti, being the directors of Havilland, were in breach of their fiduciary duties for having committed fraud against Havilland;

(b) damages to be paid to Havilland for these breaches;

(c) an account of what is due to Havilland in respect of the secret profits received by Ting, Sia and Binti;

(d) payment of the amount found to be due on the taking of the said account; and

(e) as against Merit Concord Holdings (“Merit”) (a related company, as well as the fourth defendant), the sum of $1,576,579.71, being the net amount of Havilland’s funds utilised by Ting, Sia and Binti to finance Merit.

4 On 11 July 2000, the appellant wrote to Havilland’s board of directors (“the Board”) and enquired whether the Board wished to adopt the action commenced by the appellant. Following this request, on 31 July 2000, the Board, of its own volition, wrote to all the shareholders of Havilland enclosing copies of all affidavits filed, asking for an indication of whether they were in favour of adopting the action against Ting. All the shareholders (excluding Ting and the appellant and two other shareholders, Wong Ling Ann and Ting Sing Kee (the appellant’s brother)) responded that they were against Havilland adopting the action. Sia and Binti conveyed the shareholders’ decision to the appellant on 7 August 2000. By early 2001, the appellant had changed solicitors and they made the application (which was allowed in February 2001) to include Sia and Binti as defendants to the action. Thereafter, the appellant tried to serve Binti in Indonesia but to no avail. The action was therefore in abeyance until Ting and Sia filed the present applications in 2005 (Summonses in Chambers Nos 600542 and 600543 of 2005) for the trial of the preliminary issue of whether the appellant had locus standi to bring the derivative action on behalf of Havilland.

5 On 30 December 2005, the court in a pre-trial conference gave directions for the filing of affidavits in respect of the respondents’ application for trial of the preliminary issue. Pursuant to these directions, the appellant, in January 2006, filed an expert affidavit by Don Ho, detailing 11 instances of “fraud and/or alleged wrong-doing” by Ting, Sia and Binti in relation to Havilland. Following this, on 7 February 2006, six shareholders requisitioned an extraordinary general meeting (“EGM”) to consider whether the shareholders should oppose the commencement and continuation of this action. The EGM was held on 13 March 2006. The meeting was attended by all the shareholders (either personally or through proxies), except for the appellant and his brother. At the meeting, the proposed resolution (against continuing the action) was discussed at some length after the shareholders received advice from a lawyer who attended the meeting. The shareholders (excluding the respondents who abstained from voting) unanimously voted against the continuation of the action after expressing their unhappiness over: (a) the fact that the appellant commenced the present action without consulting them; (b) the appellant had not attended the EGM to explain his stance and persuade the shareholders to vote in his favour, and (c) the lack of diligence in proceeding with the action, since it was initiated in 2000. Subsequently, on 7 April 2006 and 10 April 2006 respectively, Ting and Sia filed affidavits, essentially detailing the events that transpired at the EGM on 13 March 2006, leading to the decision of the shareholders not to adopt the action by the appellant. On 2 June 2006 and 9 June 2006, the other shareholders filed affidavits (in support of Ting and Sia) to affirm their continued opposition to the commencement and continuation of the action. The preliminary issue was heard by the Judge on 26 July 2006 and 27 July 2006.

Issues before the Judge

6 The preliminary issues before the Judge were as follows:

(a) whether the appellant had established a prima facie case that Havilland was entitled to the relief claimed (“Issue A”);

(b) whether the appellant could show that he was qualified to bring an action under the “fraud on the minority” exception to the rule in Foss v Harbottle (1843) 2 Hare 461; 67 ER 189 (“Issue B”); and

(c) whether the “justice of the case” exception to the rule in Foss v Harbottle should apply (“Issue C”).

The Judge’s decision

7 At the hearing before the Judge, the respondents did not engage the appellants in dispute on Issue A. Hence, the Judge focused his attention on Issues B and C. In relation to Issue B, the appellant argued that the combined shareholdings of Ting, Sia, Binti and Ting’s sister constituted an absolute controlling block (of 52%) for the purpose of establishing the “fraud on the minority” exception to the rule in Foss v Harbottle. However, the Judge rejected this argument on the ground that the 10% shareholding held by Ting’s sister should not be added to the block of 42% shares held by Ting, Sia and Binti, and that therefore the shareholdings of Ting, Sia and Binti did not constitute a controlling block. The Judge was not satisfied as to why the 10% shareholding of Ting’s sister should be added to Ting’s shareholding as counsel had not advanced any reason that would explain why Ting’s sister would likely vote for Ting’s group.

8 The Judge, after acknowledging that the 42% shareholding of the parties might only indicate ostensible control, proceeded to “discern the true seat of power” in Havilland (see Ting Sing Ning ([1] supra) at [4]). The appellant’s argument in this respect was based primarily on the fact that the other shareholders in Havilland, who had voted to not pursue the action, also held shares in Merit (“the cross-shareholdings”), the related company to which Havilland allegedly made unauthorised payouts. Although the Judge recognised this as a legitimate concern of the appellant, the Judge declined to accept the appellant’s arguments in the light of his failure to attend the general meeting and put the issue before the independent shareholders.

9 Having also found against the appellant on this issue, the Judge went on to consider Issue C, with particular reference to case law from Australia and Malaysia. He made some pertinent and illuminating observations on the “justice of the case” exception as encapsulating fairness but ultimately expressed his reluctance to decide which party was more deserving of “justice” in this case. Accordingly, without approving or disapproving the “justice of the case” exception, he held that it was not applicable in this case as the appellant had “put the matter out of the shareholders’ consideration” by not attending the EGM (Ting Sing Ning at [6]). He also held that this exception was not helpful to the appellant in any event. This left only Issue B for consideration, and in that respect, the Judge held that the appellant had not discharged his obligations at law to satisfy the court that, prima facie, Ting, Sia and Binti had unduly influenced the majority shareholders into deciding not to take action through Havilland.

Issues on appeal

10 In this appeal, the respondents have not challenged the Judge’s finding that they had accepted that the evidence of the appellant’s forensic expert had taken “the [appellant’s] case past the prima facie threshold” (Ting Sing Ning at [3]). Hence, we need only consider Issues B and C. In regard to Issue C, although the parties have addressed us on the existence and applicability (on the facts) of the “justice of the case” exception, the main focus of the appellant’s case, as set out in his skeletal arguments and in oral argument was Issue B, the “fraud on the minority” issue, and, in particular, whether on the evidence the respondents could be considered to have an absolute majority of the votes or were “in the seat of power” in Havilland. For this reason, we do not propose to consider whether the “justice of the case” exception is applicable under Singapore law. Accordingly we proceed to consider Issue B, ie, whether the appellant could establish, on a prima facie basis, that he came within a recognised exception to the rule in Foss v Harbottle ([6] supra), ie, the “fraud on the minority” exception.

Preliminary point: Payments to Henley

11 In this appeal, the allegations of wrongdoing made against the respondents related to payments by Havilland to...