Vita Health Laboratories Pte Ltd and Others v Pang Seng Meng

• Jurisdiction: Singapore
• Judge: V K Rajah JC
• Judgment Date: 29 July 2004
• Neutral Citation: [2004] SGHC 158
• Docket Number: Suit No 640 of 2002
• Date: 29 July 2004
• Year: 2004
• Published date: 06 August 2004
• Plaintiff Counsel: Cavinder Bull, Kelvin Tan and Johanna Tan (Drew and Napier LLC)
• Citation: [2004] SGHC 158
• Defendant Counsel: Alvin Tan Kheng Ann (Wong, Thomas and Leong)
• Court: High Court (Singapore)
• Subject Matter: Defendant warranting that non-existent trade debts in financial statements were good debts,Damages,Duties,Companies,Contract,Defendant receiving bonus shares pursuant to share sale agreement,Whether plaintiff could claim damages in lieu of rescission,Misrepresentation,Whether amounting to breach of fiduciary duties,Directors,Share sale agreement,Measure of damages,Plaintiff induced to enter into agreement by defendant's misrepresentation of receivables purportedly due from third parties,Section 2(2) Misrepresentation Act (Cap 390, 1994 Rev Ed),Defendant allegedly orchestrating fictitious sales with overseas entities and making payments without proper authorisation and making excessive stock purchases,Breach,Whether defendant liable for debts warranted,Whether defendant entitled to retain bonus shares,Quantification of losses where defendant involved in fraudulent misrepresentation

29 July 2004 Judgment reserved.

V K Rajah JC:

Introduction

1 The Vita Health brand has made a name for itself in Singapore, Malaysia and the region. In 2002, it was accorded the status of SuperBrand by the Singapore chapter of the SuperBrands Council, an independent authority on branding.

2 The brand began with modest origins in Singapore. It was conceived by the defendant’s late father in the ‘70s. He figured among the pioneers of the pharmaceutical retail business in Singapore. Through the years, the Vita Health group of companies (“VHGC”) has built a network of regional distributors for its pharmaceutical products, largely manufactured in Australia. The products include traditional nutritional products, vitamin preparations and health supplements.

3 Under the stewardship of the defendant’s late father, VHGC enjoyed a steady growth in business. In the ‘80s the seeds of a regional business were first planted. The business began to flourish in the ‘90s when the defendant took over the reins, successfully guiding VHGC through a spurt of remarkable growth. Popularity of Vita products soared in Singapore and Malaysia, and substantial sales were also apparently being made to consumers both in Indonesia and the Philippines. The defendant was ambitious. These were heady times. A shoestring and somewhat pedestrian family operation had evolved into a regional business all because of his vision, efforts and drive to expand VHGC’s business horizons. He harboured visions of building a pan-Asian business anchored in Singapore. To do this, he would first have to attract investors to inject substantial capital into the family business. Investors had to be persuaded not only that VHGC was a viable and attractive business prospect offering attractive returns but that it had, in addition, the potential to secure a future stock exchange listing. This, the defendant successfully accomplished. Not only did he attract substantial and reputable investors, he also managed to have the VHGC business listed on the Australian Stock Exchange by means of a reverse takeover in 2000.

4 Financial success however, came with a price. Accountability became the order of the day and cosy family arrangements could no longer be sustained. Business plans had to be tested. Accounts had to be verified. Receivables had to be collected. Management was closely scrutinised. The relationship between the defendant and outside investors went from strained to tense and finally, to acrimonious. In March 2002, the defendant was “persuaded” to step down from all management positions in VHGC. Allegations of impropriety were levelled against him in quick succession. Shortly thereafter, proceedings were commenced against him by VHGC in Singapore and Malaysia. His substantial shareholdings in the fourth plaintiff, worth millions of dollars, have now been “locked out”; effectively frozen. An accountant appointed by the plaintiffs concluded there had been serious accounting manipulation, asserting that the defendant had misled outside investors. These charges are at the heart of these proceedings, which have stretched over eight weeks of hearings.

The parties

5 The first plaintiff, Vita Health Laboratories Pte Ltd (“VHLS”), is incorporated in Singapore and carries on the business of import, export, and distribution of medicinal and pharmaceutical products; primarily those bearing the Vita brand. The second plaintiff, Vita Health Laboratories (Hong Kong) Ltd (“VHLHK”), is a company incorporated in Hong Kong. From time to time, for tax reasons, it is used as a vehicle by VHGC to transact business. The third plaintiff, Vita Corporation Pte Ltd (“VCL”), is incorporated in Singapore and wholly owns the first and second plaintiffs. VCL is in turn, currently wholly owned by the fourth plaintiffs, Vita Life Sciences Limited (“VLS”), a public company incorporated in Australia which had been listed on the Australian Stock Exchange (“ASX”) until 30 June 2003. Certain issues arising from the imposition of a “holding lock” on the defendant’s shares in VLS resulted in a decision by the ASX to delist VLS thereafter.

6 The defendant graduated from the University of Singapore with a degree in social sciences in 1980. He joined his father in the family pharmaceutical business thereupon and was actively involved in the growth, management and development of the “Vita” pharmaceutical business.

Factual matrix

7 It is undisputed that the defendant was at all material times, and certainly from 1997 to 2000, the operating and controlling mind of VHGC. There is, however, some discord between the parties as to the extent of his knowledge and control from 2001 until his retirement from all management posts in VHGC in March 2002.

8 In late 1997, the defendant successfully persuaded Deutsche Morgan Grenfell Private Equity Fund Asia Limited (“DMG”) to make an investment in VCL. In mid-1998, Nomura Regionalization Venture Fund Ltd (“Nomura”) also made a substantial investment in VCL. The investment agreements entered into with these investors made it mandatory for the defendant to procure a listing of VHGC on a stock exchange by the end of 1999, failing which the defendant and his siblings, Pang Seng Hock (“Seng Hock”) and Pang Mui Hwa would be obliged to redeem DMG’s and Nomura’s shares in VCL for approximately $8.3m or alternatively, dispose of VHGC.

9 In early 1999, serious discussions commenced between VLS and the defendant, in connection with VLS’s proposed takeover of VHGC. VLS was then known as Macarthur National Limited. The successful outcome of these discussions was of crucial importance to the defendant. At that juncture, prospects for VHGC’s listing on the Singapore bourse were rather remote. The timelines imposed by DMG and Nomura were about to expire. The discussions contemplated a back door listing of VHGC on the Australian Stock Exchange. VLS’s financial advisors noted in the course of their due diligence review, that VHGC had substantial stale receivables from sales to Indonesian and Philippines based entities. After lengthy discussions, VLS entered into a share sale agreement with the defendant and his family-owned entity on 29 October 1999. All their shares in VCL were sold to VLS in consideration for the allotment of a commensurately valued amount of shares in VLS. This share sale was completed on 3 February 2000. The defendant became the largest single shareholder of VLS, which shareholding continues to this day to have a substantial value. The defendant was also appointed managing director of VLS on 28 February 2000.

10 The defendant now had to fulfil substantial duties and discharge several responsibilities in various roles, managing different aspects of VHGC’s several businesses. He travelled frequently and was unable to attend to VHGC’s traditional pharmaceutical business with the same earlier devotion and attention. With his acquiescence, a new managing director, Lam Pin Kee (“Lam”) was appointed to oversee VHLS’s operations. The defendant, however, continued to play an important role in the operations of these companies and it would not be overstating the position to say that he continued to have effective overall operational control of VHGC’s pharmaceutical business though he was now heavily dependent on others. In particular, he had a close relationship with Tang Oyi Chuen (“Tang”), the finance director of VHGC prior to the takeover. Until his departure in 2001, Tang continued to work closely with the defendant. This was an important relationship, which allowed the defendant to enjoy both front office and back office control of VHGC.

11 Towards the end of 2001, Vanda Gould (“Vanda”) who was concurrently the chairman of VLS as well as one of its substantial shareholders, began to take issue with the defendant about the operation and performance of VHGC which he was unhappy with. Financial expectations were not being met. Irregular accounting issues surfaced. The Pang family and staff loyal to them continued to maintain a tight grip over VHGC’s operations. Differences between Vanda and the defendant emerged. The dissent initially pertained to the involvement of the defendant’s brother, Seng Hock’s role in VHGC. It later conflagrated into a confrontation at a VLS board meeting on 26 February 2002 leading to the defendant’s complete retirement from VHGC’s management. These differences then crystallised into a very personal and acrimonious joust for the hearts and minds of the VLS board and its shareholders. Vanda prevailed and the present proceedings were initiated.

12 Upon commencement of the present proceedings, the plaintiffs appointed a special accountant, Don Ho (“Ho”), to inquire into VHGC’s operations and the defendant’s complicity in certain apparent irregularities. On completing an inquiry stretching over several months, Ho opined that the defendant had committed serious improprieties, particularly in relation to VHGC’s regional businesses in Indonesia, Philippines and Taiwan. In addition, Ho asserted in his report that the plaintiffs could maintain a montage of variegated claims against the defendant for various alleged fiduciary and contractual breaches. The plaintiffs have since made a stream of substantial amendments reflecting Ho’s somewhat fluid findings. It would be fair to say that the plaintiffs initially took a blunderbuss approach in attempting to lay at the defendant’s door every conceivable irregularity both real and imaginary. However, after a change of solicitors on 26 June 2003, the plaintiffs’ various claims assumed a more coherent, measured and rational structure and tone. The present solicitors explain that the numerous amendments were necessitated by the painstaking ongoing task of reconstructing the financial records of VHGC.

13 It will be convenient to deal with each of the existing claims separately. Prior to this it might be helpful to first briefly set out the applicable principles of law in dealing with the...