Wu Yang Construction Group Ltd v Zhejiang Jinyi Group Company, Ltd and Others

JurisdictionSingapore
CourtHigh Court (Singapore)
JudgeAndrew Phang Boon Leong J
Judgment Date11 September 2006
Neutral Citation[2006] SGHC 152
Citation[2006] SGHC 152
Plaintiff CounselHee Theng Fong and Tay Wee Chong (Hee Theng Fong & Co)
Defendant CounselFoo Maw Shen and John Wang Shing Chun (Yeo Wee Kiong Law Corporation),Cheah Kok Lim and Chong Shiao Hann (Ang & Partners)
Published date13 September 2006
Date11 September 2006
Docket NumberOriginating Summons No 343 of 2005 (Summonses in Chambers Nos 1954 and 2067 of

11 September 2006

Andrew Phang Boon Leong J:

Introduction

1 The plaintiff is a company incorporated in the People’s Republic of China (“PRC”). It claims that it is, inter alia, an equitable pledgee or transferee of 59,339,238 shares in VGO Corporation Ltd (“VGO”) from Kingsea Ltd (“Kingsea”), which is the third defendant (see also [10] below). VGO, which is the fifth defendant, is a Singapore company which is listed on the Singapore Exchange. Goh Ching Wah (“Goh”) is a director of VGO. The background to the plaintiff’s present position vis-à-vis the VGO shares just mentioned (“the shares”) is as follows. I should state at the outset that although the relevant fact situations are somewhat complex, the legal issues are straightforward. I should also mention that I am indebted to counsel for the parties for setting out these fact situations clearly and concisely – and which aided me greatly in this particular portion of the judgment.

2 The second defendant is a PRC national and is the managing director of the first defendant (also a company incorporated in the PRC). The second defendant holds 50.23% of the shares in the first defendant. He is also the sole owner and controller of Kingsea.

3 As a result of nine written agreements (“the Nine Agreements”) entered into between the plaintiff and the first as well as second defendants between June 2003 and 3 February 2005, the latter became jointly liable to the plaintiff to the tune of RMB30m. More specifically, the second defendant had agreed to pledge the shares in VGO which were registered in Kingsea’s name to the plaintiff to guarantee an instalment payment scheme under which the first defendant had promised to repay the RMB30m that it owed to the plaintiff. Indeed, by the ninth agreement, the second defendant had agreed to transfer all these shares to the plaintiff to offset the amount owed to the plaintiff. However, an attempt, in February 2005, to register the shares in the plaintiff’s name failed due to the failure to meet the requirements laid down by the Central Depository (Pte) Limited.

4 On 23 March 2005, the plaintiff applied by way of an ex parte Summons in Chambers (No 1521 of 2005) for a Mareva injunction against the second defendant and Kingsea (“the Mareva Injunction”). I granted the application. As a result, the shares referred to in [1] above were frozen.

5 On 6 April 2005, the plaintiff commenced arbitration proceedings against the first defendant (which was in fact a precondition to the grant of the Mareva Injunction). The first defendant objected to the arbitration on the ground that the Singapore International Arbitration Centre (“the SIAC”) had no jurisdiction because there had been no valid arbitration agreement between the parties in the first instance. The SIAC nevertheless proceeded to appoint an arbitrator. The arbitration proceedings, according to the plaintiff, seem to have petered out.

6 Coming now to the present proceedings, on 15 April 2005, VGO filed an application (by way of Summons in Chambers No 1954 of 2005) to vary the Mareva Injunction. On 25 April 2005, the fourth defendant, Mao Yong Hui (“Mao”), also filed a similar application (by way of Summons in Chambers No 2067 of 2005) to vary the Mareva Injunction on similar grounds. In particular, both VGO and Mao claimed that they were entitled to the shares (I will refer to both these applications as “the applications”). It should be mentioned that Mao is also a PRC national and is the executive director of Hangzhou Kingsea Food Co Ltd (“Hangzhou Kingsea”), a PRC company and a sub-subsidiary of VGO. He is also the legal representative of Hangzhou Kingsea.

7 The basis of the applications mentioned in the preceding paragraph rested on the fact that VGO had acquired from Kingsea the entire issued and paid-up capital of a British Virgin Island company, Spring Wave Ltd (“Spring Wave”). In turn, Spring Wave held the entire issued and paid-up capital of Hangzhou Kingsea. It should be mentioned (for reasons that will become clearer below) that Hangzhou Kingsea itself held 50.26% of the share capital of Heilongjiang Kingsea Wudailianchi Mineral Water (Group) Co Ltd (“Heilongjiang KSWDLC”), which is also a company incorporated in the PRC. Heilongjiang KSWDLC has (in turn) two other subsidiaries, also incorporated in the PRC. As the transaction between VGO and Kingsea which was mentioned right at the outset of this paragraph is central to the applications in the present proceedings, a brief description of it is apposite.

8 On 7 October 2002, VGO entered into a conditional sale and purchase agreement (“the Agreement”) with Kingsea. As already mentioned in the preceding paragraph, VGO acquired, as a result and from Kingsea, the entire issued and paid-up capital of Spring Wave as well as loans advanced by Kingsea to Spring Wave. The purchase consideration was initially agreed at RMB55m. However, this purchase consideration was later adjusted to RMB50.596m instead as a result of a financial audit of the Net Asset Value (“NAV”) of Spring Wave and its subsidiaries. This is an important fact because the plaintiff, as we shall see, relied heavily on it in order to establish its claim that it should prevail in the present proceedings pursuant to s 76 of the Companies Act (Cap 50, 1994 Rev Ed) (“the Act”). As also mentioned above, the result of the Agreement was that VGO held the entire issued and paid-up capital in Spring Wave.

9 The purchase consideration for the Agreement (which was to be paid by VGO to Kingsea) was to be satisfied by the allotment and issue of 123,918,506 new shares in VGO (“the New Shares”). 102,152,755 of the New Shares were in fact issued in favour of Kingsea and were registered in its name accordingly. The remaining 21,765,751 shares were issued in script form to different individuals, including Mao.

10 Between December 2002 and February 2004, VGO and Kingsea entered into three further written agreements to supplement the Agreement (“the Supplemental Agreements”). By virtue of the Supplemental Agreements, Kingsea undertook specific warranties to VGO as part of VGO’s acquisition of Spring Wave pursuant to the Agreement, as described above. As partial security for Kingsea’s performance of these specific warranties or undertakings, 81,175,347 of the 102,152,755 New Shares issued to Kingsea (see [9] above) were deposited with VGO as escrow shares. In other words, having allotted and issued 102,152,755 New Shares to Kingsea, VGO retained 81,175,347 of those shares with a power of sale reserved to the directors of VGO in the event that Kingsea breached the specific warranties. All these shares continue to be registered in the name of Kingsea. The number of escrow shares was first reduced to 44,437,379 on there being some compliance with the obligations under the undertakings. However, there was a subsequent breach of the obligations, resulting in an increase of 9,068,861 escrow shares. Subsequently, a further 5,832,998 escrow shares were again deposited with VGO. In total, therefore, Kingsea deposited 59,339,238 escrow shares with VGO (see also [1] above).

11 It should be noted at this juncture that it was under the second of the three Supplemental Agreements that the NAV of Spring Wave and its subsidiaries was reduced from RMB55m to RMB50.596m – a point already noted above (at [8]). This was due to the fact that a long term debt of RMB4,456,723 owing by Heilongjiang KSWDLC to Agang Group Co Ltd (“the Agang debt”) was, under this particular agreement, excluded from the computation of the NAV of Spring Wave and its subsidiaries. Before me, counsel for the plaintiff, Mr Hee Theng Fong, went further, and argued that the amended figure of RMB50.596m was still an overvaluation of the relevant NAV. He argued that the concession to be obtained by Heilongjiang KSWDLC to exclusively extract the natural resources of a spring in Heilongjiang Province (“the Concession”), which was valued at RMB5m under the second of the Supplemental Agreements, had not in fact been obtained and, to that extent, also reduced the NAV of Spring Wave and its subsidiaries. As I have mentioned, all this will become relevant in so far as the plaintiff’s argument based on an alleged contravention of s 76 of the Act is concerned.

12 As a result of the default by Kingsea of the undertakings under the Supplemental Agreements, VGO ultimately exercised its power of sale with regard to all the escrow shares. On or about 20 March 2005, Goh found a buyer for the shares, a Mr Lee Chin Seng (“Lee”). Goh instructed a solicitor, Rey Foo (“Foo”), to draft the agreements to sell the shares to Lee. However, that particular sale was aborted. On 22 March 2005, the shares were sold to Mao.

13 On 25 July 2005, both the applications mentioned above (at [6]) came on for hearing before me. The plaintiff suddenly raised issues relating to an alleged breach of s 76 of the Act as well as an alleged fraud and conspiracy between, inter alia, VGO and Mao. In the premises, the plaintiff argued that the defendants’ interest had to be postponed to its interest, the defendants having been guilty of inequitable conduct. Having regard, in particular, to the latter allegation (of alleged fraud and conspiracy), I directed that further affidavits be filed by the parties and I also directed that there be discovery of documents as well as a trial between the parties in order to ascertain who would be entitled to the 59,339,238 VGO shares. Deponents of the said affidavits would be subject to cross-examination at the trial itself. I also allowed the parties to call expert witnesses on PRC law to give evidence with respect to the validity (or otherwise) of the Nine Agreements under PRC law.

The legality of the Nine Agreements under PRC law

14 As already mentioned above, the parties called expert witnesses to testify as to the legality (or otherwise) of the Nine Agreements. The plaintiff argued that the Nine Agreements were consistent with PRC law,...

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