Woodcliff Assets Ltd v Reflexology and Holistic Health Academy Pte Ltd and others

• Jurisdiction: Singapore
• Judge: Yeong Zee Kin SAR
• Judgment Date: 25 October 2010
• Neutral Citation: [2010] SGHC 315
• Court: High Court (Singapore)
• Hearing Date: 22 October 2010
• Docket Number: Suit No. 147 of 2009 (Summons No. 2646 & 3323 of 2010)
• Plaintiff Counsel: Melvin See with Ms Ng Hui Min (Rodyk & Davidson LLP)
• Defendant Counsel: Harish Kumar with Ms Sheila Ng (Rajah & Tann LLP)
• Subject Matter: Civil Procedure
• Published date: 26 October 2010

Yeong Zee Kin SAR: Introduction

This is the Plaintiff’s application to amend its statement of claim in order to add a cause of action for minority oppression and an additional relief that the second to fourth Defendants be ordered to buy him out of the company, ie the first Defendant. The Defendants objected to the application for amendment and, in turn, applied to strike out the Plaintiff’s statement of claim on the grounds of, inter alia, abuse of process.

Summary of facts

The present suit is a consolidation of multiple winding up actions which were commenced in 2008 against three companies – namely, Reflexology and Holistic Health Academy Pte Ltd, My Foot International Pte Ltd and My Foot Reflexology Pte Ltd – that are part of the My Foot group of companies (“My Foot Group”; the My Foot Group comprises of the following additional companies: The Relax Room Pte Ltd, My Summer Day Spa Pte Ltd and Career Design Hub Pte Ltd.) These were initially winding up applications commenced by originating summons, but were converted to and ordered to continue as writ actions in January 2009; the separate writ actions were eventually consolidated in the present suit.

Without delving too deeply into the factual matrix of this matter, I summarise the key facts which are relevant to my decision in these applications. The Plaintiffs bought into the My Foot Group in 2005, after a period of due diligence spanning five months and having had full access to the books of the My Foot Group. Between 2005 and 2007, the Defendants – who are the majority shareholders of the My Foot Group – allege that the Plaintiff’s financial backers made several attempts to engineer a sale of the My Foot Group. Sometime in the middle of 2007, the Defendants decided to grow the business instead of making attempts to sell. This is alleged to have marked the turning point in the relationship.

Arising from this change of heart on the part of the majority shareholders, the Plaintiffs are alleged to have embarked on a course that led to the present set of suits. In January 2008, the Plaintiffs exercised their right – which hitherto they had waived – to appoint a nominee director, Mr Raymond Wong, to the board of directors of the companies in the My Foot Group. Wong started to look through the books of the My Foot Group with the assistance of his accountants: the Defendants suspected that Wong was on a fishing expedition to try and find something to use against them. The Defendants allege that it was during this period that the Plaintiffs made their initial attempt to seek a buyout from them.

During June and July 2008, the Plaintiffs made allegations to the effect that the corporate and franchise structure of the My Foot Group went against the spirit of the Skills Development Fund (“SDF”) scheme which the Workforce Development Authority made available. In gist, the Plaintiffs allege that the My Foot Group was structured such that Reflexology and Holistic Health Academy provided training to the rest of the companies in the group. In so doing, the Academy would benefit from the fees and the rest of the companies in the group would apply for subsidies from the SDF. Overlaid on top of this arrangement are franchise arrangements and inter-company loans which the Plaintiffs allege were not strictly enforced, in that franchise fees and loan repayments were waived. The Plaintiffs assert that this complex structure amounted to an artificial business model which was not sustainable without the availability of SDF subsidies. The Plaintiffs also allege that some of the persons trained by the Academy were not “true” employees of the My Foot Group, in that they were not bona fide employees.

In June 2008, the Plaintiffs commenced winding up proceedings against three of the companies in the My Foot Group — but not the rest — on two main grounds: the complete loss of the substratum or original purpose of the business and loss of trust and confidence between the Plaintiffs and the majority shareholders. The Plaintiffs relied on the following: (a) The affairs of these companies are being conducted in a manner contrary to the spirit and objectives of the SDF scheme; (b) Tax evasion by reclassifying loans extended by the My Foot Group to directors as shareholder loans; (c) Dilution of the Plaintiffs’ shareholding by a rights issue that was priced below net tangible asset value; and (d) Failure to recall outstanding loans.

It needs also be noted that subsequent to the commencement of winding up proceedings, the My Foot Group of companies have commenced suits to recover loans made to the Plaintiff; a suit against Wong for breaches of director’s duties; and the Plaintiffs have also sued the majority shareholders and the CEO of the My Foot Group for misrepresentation, leading to its investment into the group.

Whether minority oppression and winding up causes of action may be contained in a single writ of summons

More than two years after the winding up actions have been commenced, the Plaintiffs seek to amend the converted winding up actions by inserting a minority oppression action and a relief for a court-mandated buyout. The Defendants have responded with an application to strike out the entire set of winding up actions as an abuse of process. Having considered the arguments of counsel for both Plaintiff and Defendants, I am dismissing both applications. My reasons, in brief, are as follows.

The first issue is whether — as argued by the Defendants — the Plaintiff’s proposed amendment is one that is precluded by law. If not, are there any reasons why the proposed amendment should nevertheless not be allowed?

The Defendants object to the proposed amendment on the following main grounds. First, that the nature and character of the causes of action for winding up and for minority oppression are so different that, as a matter of law, they cannot be brought together in a single writ of summons. Their submissions are that the operative sections in the Companies Act provide for separate regimes: Part X for companies winding up and section 216 for minority oppression. Further, the Defendants submit that a winding up action is governed by the Companies (Winding Up) Rules while an oppression action is governed by the Rules of Court.

I do not think that it is impossible that a writ of summons may contain both causes of action where there is unity of procedural regime. In this case, the winding up actions, although commenced as originating summons under the Companies (Winding Up) Rules, have been converted to writ actions under Order 88, rule 2(5) of the Rules of Court. I have held previously in Woodcliff Assets Ltd v Reflexology and Holistic Health Academy and Others [2009] SGHC 162, at [28]–[30], that the Rules of Court applies post-conversion. However, this does not mean that the Companies (Winding Up) Rules cease to apply completely: for example, the majority of the Companies (Winding Up) Rules that deal with the procedures post winding up order will apply during the liquidation process. In my view, the Companies (Winding Up) Rules will continue to apply insofar as they are not...