Tomolugen Holdings Ltd v Silica Investors Ltd

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 26 October 2015
• Neutral Citation: [2015] SGCA 57
• Published date: 30 October 2015
• Date: 26 October 2015
• Year: 2015
• Hearing Date: 08 April 2015
• Plaintiff Counsel: Nandakumar Renganathan, Napolean Rafflesson Koh and Denise Soh (RHTLaw Taylor Wessing LLP),Sim Kwan Kiat, Avinash Pradhan and Chong Kah Kheng (Rajah &Tann Singapore LLP),Palmer Michael Anthony and Wee Shilei (Quahe Woo & Palmer LLC)
• Citation: [2015] SGCA 57
• Defendant Counsel: Professor Lawrence Boo as amicus curiae.,Paul Ong Min-Tse and Cai Chengying (Allen & Gledhill LLP)
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeals Nos 123, 124 and 126 of 2014

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

Before us are three appeals against the decision of a High Court judge (“the Judge”) who dismissed applications to stay the court proceedings in Suit No 560 of 2013 (“the Suit”) in favour of arbitration. In the Suit, the plaintiff seeks relief under s 216 of the Companies Act (Cap 50, 2006 Rev Ed) (“the Companies Act”) for oppressive or unfairly prejudicial conduct towards it as a minority shareholder. There are altogether eight defendants. They include the company of which the plaintiff is a minority shareholder, as well as other shareholders and current or former directors of either that company or its related companies. The stay applications were made by the defendants pursuant to s 6 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the IAA”) and the court’s inherent power of case management.

These appeals raise issues concerning the arbitrability of disputes over minority oppression or unfairly prejudicial conduct, as well as the proper approach to adopt when dealing with potentially overlapping court and arbitral proceedings. They draw out a tension that will mount as commercial transactions and the disputes which they spawn grow in their sophistication and complexity. This tension is one that is likely to arise whenever disputes straddle court and arbitral proceedings, with the two sets of proceedings engaging common, although not necessarily identical, issues and parties. The tension lies in the court’s desire, on the one hand, to avoid the complications inherent in having to resolve a dispute across two different fora and, on the other hand, its recognition that it must conform to the statutory mandate laid down in s 6 of the IAA to direct that any dispute concerning a matter which is the subject of an arbitration agreement governed by the IAA is to be resolved by arbitration. Where these two considerations pull in opposite directions, the latter necessarily prevails because of the mandatory terms of s 6. The question which then arises for the court is how it can best manage the proceedings that it has control over in order to ameliorate the complications that are bound to arise by reason of the overlapping proceedings.

Factual background Overview of the material facts

The plaintiff in the Suit is Silica Investors Limited (“Silica Investors”), a minority shareholder which holds approximately 4.2% of the issued share capital of Auzminerals Resource Group Limited (“AMRG”), the eighth defendant in the Suit. AMRG is the company whose affairs Silica Investors alleges have been conducted in a manner that is oppressive or unfairly prejudicial towards it.

AMRG is a listed Singapore company that develops, explores and exploits mines in Australia. Its wholly-owned subsidiary, Solar Silicon Resources Group Pte Ltd (“SSRG”), is also involved in mine development and exploration, and owns Australian mining licences and exploration permits.

Silica Investors first acquired shares in AMRG from Lionsgate Holdings Pte Ltd (“Lionsgate”), the second defendant in the Suit. The share sale agreement between Silica Investors and Lionsgate (“the Share Sale Agreement”) contains an arbitration clause. Lionsgate currently remains a shareholder of AMRG and holds approximately 9% of its issued share capital.

Lionsgate is wholly owned by Tomolugen Holdings Limited (“Tomolugen Holdings”), the first defendant in the Suit. Tomolugen Holdings is the majority shareholder of AMRG and holds approximately 55% of its issued share capital directly. The third to seventh defendants in the Suit are shareholders and current or former directors of Lionsgate, AMRG or SSRG; together, they hold just over 3% of the issued share capital of AMRG.

Lionsgate made an application pursuant to s 6 of the IAA for a stay of the court proceedings against it in the Suit. Lionsgate said that a part of the dispute in the Suit fell within the scope of the arbitration clause in the Share Sale Agreement and the court proceedings against it in respect of that part of the dispute therefore had to be stayed in favour of arbitration; it further submitted that the remainder of the court proceedings against it should be stayed as well in the interests of appropriate case management pending the resolution of the arbitration. The other seven defendants named in the Suit (collectively, “the remaining defendants”) also filed stay applications that were contingent on the success of Lionsgate’s application. They argued that if the court proceedings between Silica Investors and Lionsgate were stayed in favour of arbitration, then the rest of the court proceedings in the Suit should also be stayed pending the resolution of that arbitration. Their stay applications were made pursuant to the court’s inherent power of case management.

The Judge dismissed all the stay applications. His decision is reported as Silica Investors Ltd v Tomolugen Holdings Ltd and others [2014] 3 SLR 815 (“the HC Judgment”). Civil Appeal No 126 of 2014 is Lionsgate’s appeal against the Judge’s decision, while Civil Appeals Nos 123 and 124 of 2014 are appeals by three of the remaining defendants. Silica Investors is the respondent in all three appeals.

In the two sections that follow, we shall set out in greater detail the Share Sale Agreement between Silica Investors and Lionsgate, as well as the allegations made in the Suit. This will provide the factual context for the analysis of the issues raised in these appeals.

The Share Sale Agreement

The Share Sale Agreement between Silica Investors and Lionsgate consists of an original agreement dated 23 June 2010, which was modified by a supplemental agreement dated 5 July 2010. At the time the Share Sale Agreement was concluded, Lionsgate was known as Tomolugen Pte Ltd. This change of name is immaterial for present purposes, and we use “Lionsgate” to refer to the entity both before and after its change of name. Silica Investors and Lionsgate were the only parties to the Share Sale Agreement. Under that agreement, Lionsgate agreed to sell Silica Investors up to 2.5m AMRG shares at a price of AU$4.00 per share. The amended completion date was 14 July 2010.

The Share Sale Agreement contained terms and warranties relating to the management of AMRG and its assets and liabilities. These included the following: Lionsgate agreed to support the passage of an AMRG board of directors’ resolution for a nominee of Silica Investors to be appointed as a director on AMRG’s board: cl 2.5(a) of the Share Sale Agreement. Lionsgate warranted that the accounts of AMRG and its related companies gave a true and fair view of the state of affairs of those companies: cl 8.2 of the first schedule to the Share Sale Agreement. Lionsgate warranted that at the completion date, AMRG and its related companies would have settled or discharged “all current liabilities, inter-company loans (in excess of S$250,000 per company) and shareholders’ advances and all obligations of AMRG [and its related companies]”: cl 8.3 of the first schedule to the Share Sale Agreement.

The Share Sale Agreement contemplated the listing of SSRG on a recognised stock exchange by a specified date. It also contained provisions for the distribution of SSRG shares in specie amongst the shareholders of AMRG should the listing of SSRG succeed, as well as exit provisions for Silica Investors in the event that the listing of SSRG failed.

In addition, the Share Sale Agreement contained an arbitration clause (viz, cl 12.3) which provided that “any dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination” was to be referred to and finally resolved by arbitration in Singapore in accordance with the Arbitration Rules of the Singapore International Arbitration Centre (“the SIAC”) for the time being in force. We shall discuss the arbitration clause and its effect in greater detail later in this judgment.

The allegations made in the Suit

Silica Investors commenced the Suit in June 2013, and its only complaint there is that AMRG’s affairs were conducted in a manner which was oppressive or unfairly prejudicial towards it as a minority shareholder of AMRG. On this basis, it seeks wide-ranging relief, including a share buy-out order and orders regulating the conduct of AMRG’s affairs; in the alternative, it seeks an order that AMRG be placed in liquidation.

Silica Investors’ complaint of oppression or unfair prejudice is supported by allegations that the Judge classified into four broad categories. We shall use these same categories in this judgment since they were adopted by the parties on appeal. The first category, we shall refer to as “the Share Issuance Allegation”. This concerned an issuance of 53,171,040 AMRG shares on 15 September 2010. The share issuance allegedly had the effect of diluting Silica Investors’ shareholding in AMRG by more than 50%; it was also purportedly done in breach of AMRG’s memorandum and articles of association. AMRG claims that it issued the shares to discharge debts which it owed for certain mining licences (“the Solar Silica Assets”) that had been transferred to SSRG. Silica Investors, on the other hand, says that those debts were fictitious, and that there was no commercial justification for the share issuance.

The second category of allegations, we shall refer to as “the Management Participation Allegation”. Silica Investors claims that there was an understanding or a legitimate expectation on its part that it would participate in the management of AMRG. In support of this allegation, Silica Investors points to cl 2.5(a) of the Share Sale Agreement, which we referred to at [11(a)] above. Silica Investors claims that it has been denied its entitlement to participate in the management of AMRG.

The third category of allegations, we shall refer to as “the Guarantees...