Wong Lee Vui Willie v Li Qingyun and another

• Jurisdiction: Singapore
• Judge: Aedit Abdullah JC
• Judgment Date: 12 November 2015
• Neutral Citation: [2015] SGHC 297
• Plaintiff Counsel: Goh Kim Thong Andrew, Lee Jia En Gloria (Fortis Law Corporation)
• Docket Number: Originating Summons No 254 of 2015 (Summons No 2996 of 2015)
• Date: 12 November 2015
• Hearing Date: 27 July 2015
• Subject Matter: Bringing statutory derivative action,Oppression,Companies,Minority shareholders
• Published date: 18 November 2015
• Citation: [2015] SGHC 297
• Defendant Counsel: The second defendant unrepresented.,Lai Kwok Seng (Lai Mun Onn & Co)
• Court: High Court (Singapore)
• Year: 2015

Aedit Abdullah JC:

In this case, two shareholders of a company each holding equal shares, were at loggerheads. One applied to the court for leave to commence an action against the other through the company, alleging wrongdoing on the part of the other and relying on facts which, at best, only raised a suspicion of wrong doing at most. The circumstances were not such for such leave to be granted, particularly as no benefit was shown to accrue to the company if leave was given.

Background

The 2nd Defendant (“the company”) was incorporated in 2009 and it operates in the construction business. The 1st Defendant was one of its founding directors. Shortly after incorporation, the Plaintiff became a director alongside the 1st Defendant. At the material time, both the Plaintiff and the 1st Defendant were equal shareholders and were joint signatories to the company’s bank account.

The Plaintiff, who had 21 years’ worth of experience in the building and construction industry, joined the company on the basis that he was to contribute that experience to the running of its construction business. The 1st Defendant, whose experience lay primarily in ceiling and partition works, had comparatively less or little experience in building and construction and supposedly wanted to tap on the Plaintiff’s experience and skills in that area. The precise role of each person in the running of the company was in some dispute. The Plaintiff claimed that projects in the company were run separately under two separate main departments: (a) a department handling ceiling and partition works, which was under the charge of the 1st Defendant; and (b) a second department under the Plaintiff handling construction projects. The Plaintiff contended that each was responsible for the workers and management of the projects under their respective purviews. The 1st Defendant, by contrast, alleged that the Plaintiff was left to run the day to day management of the company and was hence appointed Managing Director. The 1st Defendant said his role lay primarily in the securing of financing for the company’s projects. The 1st Defendant stated that the Company’s initial specialisation was in ceiling and partition work but that it had since branched out into bidding for appointment as the main contractor for projects.

Disputes arose between the parties as to a number of matters, including the hiring of workers, the management of projects, and whether the 1st Defendant was making secret profits at the expense of the company. Eventually, the 1st Defendant was sent a letter by the solicitors for the Plaintiff in November 2014 wherein it was alleged that he had, inter alia, interfered with the management of the company. On 17 February 2015, the Plaintiff’s solicitors wrote to the company’s board of directors to inform them that the Plaintiff intended to commence a derivative action under s 216A of the Companies Act (Cap 50, 2006 Rev Ed) (I will refer to this provision as “s 216A” and the statute as “the Act”). On 23 March 2015, the Plaintiff commenced Originating Summons No 254 of 2015 (“the present application”) seeking leave to commence an action on behalf of the company against the 1st Defendant under s 216A.

The Plaintiff’s case

It was argued that the Plaintiff had locus standi to commence the application. The fact that the Plaintiff held 50% of the shares did not disbar him. Requisite notice for a meeting under the Act was also given by the Plaintiff. While there was an issue raised as to the scheduling of the meeting, that difficulty only arose because of a late request by the 1st Defendant, who had in any event informed that he did not intend to settle any dispute.

The Plaintiff argued that he was acting in good faith in making the application. Hostility between the parties, it was argued, was not indicative of lack of good faith. In support, the Plaintiff cited the decision of the Court of Appeal in Pang Yong Hock and another v PKS Contracts Services Pte Ltd [2004] 3 SLR(R) 1 (“Pang Yong Hock”) and the decision of this court in Fong Wai Lyn Carolyn v Airtrust (Singapore) Pte Ltd and another [2011] 3 SLR 980. He also submitted, citing Ang Thiam Swee v Low Hian Chor [2013] 2 SLR 340 (“Ang Thiam Swee”), that the requirement of good faith could still be satisfied even if the derivative action were taken out in furtherance of the applicant’s self-interest. He argued that what was required was proof that there was a valid basis for the claim and that the application had not been brought only for personal motives, without any possible benefit accruing to the company.

In addition, he argued that the application was prima facie in the interests of the company in the sense that the company’s claim would be legitimate and arguable. He argued that all that needed to be shown was that the contemplated claim possessed a “reasonable semblance of merit”, citing [53] of Ang Thiam Swee in support of that submission. It was also emphasised that the Court should not adjudicate on the disputed facts.

The contemplated claim was in respect of directors’ duties breached by the 1st Defendant. These arose out of a number of issues: namely, the hiring of workers by the 1st Defendant, secret profits purportedly made by him, and the mismanagement of a project at Boat Quay (the “Boat Quay Project”). The Plaintiff elaborated on the claim as follows.

The 1st Defendant was responsible for the hiring of workers from China. The Plaintiff alleged that the 1st Defendant exercised preference for these workers in terms of the payment of the salaries, pointing to the high salaries being paid to them over the market rate and the hiring of more workers than what was needed. Further, salaries were paid to workers who were not employed by the company and the 1st Defendant gave unreasonable quotations to clients to give the appearance of a demand for such workers. Though the Plaintiff could manage his own projects, including whom to hire and what salaries to pay, the work permit applications were controlled by the 1st Defendant, who kept a tight rein on hiring matters. The Plaintiff deferred to him on the payment of salaries and did not pay attention to the monthly lists of workers being paid.

There was also evidence that secret profits were made by the 1st Defendant. The Plaintiff pointed to the following: there were no arrangements for accommodation; excessive numbers of workers were recruited with no regular salaries; the workers were not seen actually working; “levies” or surcharges were imposed on the workers by the 1st Defendant; and payments to workers were also falsified (with the aim, the Plaintiff claimed, of inducing payment by the company). Furthermore, the Plaintiff averred that the 1st Defendant had also, on one occasion in 2009, informed him that he had “made some money ‘outside’”, which he wished to split with the Plaintiff. After being told that any such money should be put back into the company for its use, the 1st Defendant did so, but (without the Plaintiff’s knowledge) instructed the accounts clerk to record these entries as “directors’ loans”. This was a further reason for suspecting that the 1st Defendant had made secret profits.

The 1st Defendant took on the Boat Quay Project against the advice of the Plaintiff and other key employees of the company and eventually mismanaged it, causing the company loss. The 1st Defendant also insisted on hiring a subcontractor, T, against the advice of the Plaintiff, who had recommended that their usual reliable sub-contractor be appointed instead. T’s failure to complete the lift shaft on time delayed the completion of the project, leading to liquidated damages in the sum of $224,000 being claimed from the company. While the 1st Defendant had claimed that that the Plaintiff wanted this project, the 1st Defendant’s assertion was based on misleading evidence and was against the weight of the evidence. The Plaintiff contended that, within the company, projects handled by each department were run separately (see [3] above).

Allegations were also raised about the improper employment of persons by the company because of the 1st Defendant, including that of his daughter. Issue was taken as well with the credibility of the 1st Defendant, it being alleged that there were clear instances of the 1st Defendant doctoring documents, or making allegations in bad faith.

The Plaintiff tendered one supporting affidavit from a safety manager at the Company to rebut the 1st Defendant’s allegations about the imposition of ‘levies’ on the workers, and another affidavit from a former quantity surveyor to support the Plaintiff’s version concerning the management of the Boat Quay project.

The 1st Defendant’s case

The 1st Defendant cited Foss v Harbottle (1843) 2 Hare 462 as authority for the proposition that the proper plaintiff for any wrong done to the company was the company itself. That being the case, and following the cases, the Court should take a cautious rather than a liberal approach to granting leave under s 216A. Furthermore, the 1st Defendant argued, ss 216A and 216B of the Act could not be used to interfere with internal management decisions. Given that the present case involved a deadlock between the only two directors of the company (who are equal shareholders), the 1st Defendant submitted that it should be viewed as a matter of internal management which the court should not interfere with.

It was contended that insufficient notice was given since the only board meeting held to consider the issue of the contemplated claim was attended by the Plaintiff alone, in the absence of the 1st Defendant. This was because the Plaintiff had unilaterally rescheduled the board meeting at the last-minute, in an abuse of his power and control over the company. In the circumstances, the company could not determine whether the action should be taken up. The procedural requirement of notice not having...