Wuu Khek Chiang George v ECRC Land Pte Ltd

JurisdictionSingapore
JudgeKarthigesu JA
Judgment Date07 May 1999
Neutral Citation[1999] SGCA 34
Date07 May 1999
Subject MatterAccounts,Companies,On whom does onus lie to establish right to inspection exercised for improper purpose,Director's right to inspect accounting and financial reports Whether director has right to inspect accounting and financial reports,Abuse of right to the company's detriment,Whether necessary to impose undertaking before granting such right
Docket NumberCivil Appeal No 156 of 1998,Civil Appeal No 201 of 1998
Published date19 September 2003
Defendant CounselRespondents unrepresented
CourtCourt of Appeal (Singapore)
Plaintiff CounselStephen C Soh (Bernard, Rada & Partners)
Judgment:

LP THEAN JA

(delivering the grounds of judgment of the court): The appellant is a director of the respondent company and sought to inspect its accounting and other financial records. The respondent refused him such inspection. In consequence, on 11 June 1998 he took out an application under s 199 of the Companies Act (Cap 50, 1994 Ed) (`the Companies Act`) for an order requiring the respondent to produce for inspection by him all its accounting and other financial records. The application was resisted and was heard before a judge in chambers who dismissed the application. The appellant appealed against the learned judge`s decision. We allowed the appeal and now give our reasons.

2. Background facts

We begin with the background facts. Some of the material facts have been set out in our judgment in CA 156 of 1998 [reported at [1999] 2 SLR 166] and may be briefly stated here as follows. The appellant is the managing director and majority shareholder of a company, East Coast Recreation Centre Pte Ltd (`ECRC`). The company held a leasehold interest in two plots of State land situate at 1000 East Coast Parkway (`the land`) which had been developed into a recreation complex known as East Coast Recreation Centre (`the Centre`). The operation of the Centre was a success and the land became a valuable asset. The lease was for a term of 15 years and expired in March 1995; but prior to its expiry, the Land Office had indicated to ECRC that the lease would be renewed for a further term of 15 years. The lease was eventually renewed.

3.Meanwhile, the appellant entered into negotiation with two companies, Grande Leisure Management Pte Ltd (`Grande`) and SAFE Enterprises Ltd (`SAFE`), with a view to forming a joint venture with them to take over the lease (when it was renewed) and redevelop the land. In anticipation of an agreement to be concluded with Grande and SAFE, the appellant caused to be incorporated on 17 December 1994 the respondent company with an authorised capital of $100,000 divided into 100,000 shares of $1 each. The appellant and his brother, Wuu Khek Ming, were the first directors and shareholders, each subscribing for one share. It was envisaged at that time that the respondent would be the joint venture vehicle and that the lease would be renewed directly in the name of the respondent, thus easing ECRC out of the operation of the Centre.

4.By March 1995, the main terms of the joint venture were agreed upon. The respondent was to pay ECRC an annual consultancy fee of $500,000 for 15 years, and the Centre would be managed jointly by the consortium consisting of Grande and SAFE. On 16 or 17 March 1995, the appellant and a company, E-Zone Leisure Pte Ltd (`E-Zone`), which was a joint venture company of Grande and SAFE, entered into an agreement (`the March agreement`) whereby it was agreed (a) that the lease of the land would be renewed in the name of the respondent; (b) that the appellant would sell 51% of the shares in the respondent to E-Zone for $5m; and (c) that the appellant would increase the respondent`s paid-up capital from $2 to $1.5m. Pursuant to the agreement, 10% of the sale price of the shares amounting to $500,000 was paid to the appellant as a deposit. A further term, which was never documented, was that the respondent would assume the liability for the $3m overdraft facilities which ECRC then maintained with Oversea-Chinese Banking Corporation Ltd (`OCBC`) for the operation of the Centre.

5.Following the execution of the agreement on 22 March 1995, one Lawrence Phang who was then in the employ of Grande was appointed a director of the respondent. He was placed in charge of the operations of the Centre and the redevelopment of the land. On 1 April 1995, ECRC transferred the entire operations and administration of the Centre to the respondent. Thenceforth, the physical operations were run by Grande, mainly in the person of Phang, while the financial side of the operations was looked after by SAFE. Grande also took over the responsibility of maintaining the books and records of the respondent as well as the work of the company secretary.

6.However, in the meantime, the Land Office, by a letter dated 7 April 1995, informed the appellant that it could not accede to the request for the lease to be renewed in the name of the respondent, as the latter was a different legal entity from ECRC. Accordingly, the terms agreed upon in the March agreement could not be implemented. Upon representations made by the appellant, the Land Office agreed to an assignment of the lease by ECRC to the respondent but on condition that the current directors of ECRC would hold the majority shares in the respondent. In order to comply with this condition, the deal was restructured so that the appellant would hold 49% while Grande and SAFE would each hold 25.5% of the shares in the respondent.

7.On 21 April 1995, the respondent by an ordinary resolution increased its authorised capital to $1.5m by the creation of an additional 1,400,000 shares of $1 each and authorised the directors to allot and issue 1,499,998 shares. Following that, a further of 1,499,998 shares were allotted and issued to the appellant on 24 April 1995 and the appellant issued a cheque for the sum of $1,499,998 in favour of the respondent in payment for the shares. On the same day, the respondent paid to ECRC the sum of $1.5m for the assignment of the lease and the payment was made by way of a cheque jointly signed by the appellant and Phang as the authorised signatories of the respondent. This payment later gave rise to a dispute between the parties which formed the subject matter of a claim by the respondent against the appellant in Suit No 1240 of 1996.

8.On 15 June 1995, fresh joint venture documents were executed by the parties: they comprised, inter alia, two sale and purchase agreements for the sale and purchase of the shares in the respondent, both in identical terms, one made between the appellant and Grande and the other between the appellant and SAFE, and each was for the acquisition from the appellant of 25.5% of the shares in the respondent. At the same time, the parties executed a shareholders` agreement made between the appellant, Grande and SAFE. At or about the same time, a consultancy agreement was made between the respondent and ECRC, under which the respondent agreed to pay ECRC an annual consultancy fee of $500,000 for a period of 15 years in consideration of consultancy services to be rendered by ECRC in respect of the lease of the land. Although not expressly provided for in any documents signed by the parties, the respondent also took over ECRC`s liability in respect of $3m overdraft facilities maintained with OCBC. Under the terms of the sale and purchase agreements, the March agreement was rescinded.

9.On 17 August 1995, the Land Office gave written approval for the renewal of the lease in the name of ECRC, and following that on 18 October 1995, ECRC executed a deed of assignment of the lease in favour of the respondent.

10.Problems soon arose in the operation of the joint venture. Among them was the accounting treatment of the $1.5m payment made by the respondent to ECRC. The management of Grande, which had taken over control of the respondent`s accounts, did not agree to the basis on which the payment was made, and the respondent`s new financial controller was instructed to treat the sum as a receivable due from the appellant. The appellant did not accept this. Subsequently, in an attempt to recover the money, the respondent stopped payment of the consultancy fee due to ECRC. There was also a dispute centred on the transfer of the lease to the respondent. The new lease was issued to ECRC by the State in December 1995. It appeared that the land had been brought under the Land Titles Act (Cap 157) and a certificate of title was issued to ECRC on or about 10 February 1996. However, ECRC did not inform the respondent of this, and refused to execute an instrument of transfer of the leasehold interest of the land to the respondent when asked to do so.

11.On 16 May 1996, the appellant wrote to the Commissioner of Lands informing the Commissioner about the differences which had arisen between the parties to the joint venture such that it was becoming increasingly clear that it would be best to `abort the joint venture`. He also told the Commissioner that the respondent had committed serious breaches of the lease (such as carrying out renovations without the prior consent of the relevant authorities, allowing new outlets to be established without approval from the authorities and erecting billboards) and urged the Commissioner to revoke his previous consent given for the assignment of the lease. A copy of the letter was not forwarded to the respondent or the other shareholders; however, the respondent came to know of it from a copy of the Commissioner`s reply which was extended to the respondent`s solicitors. The respondent was also informed by the Commissioner that he was withdrawing his earlier consent for the mortgage of the land to OCBC to secure the credit facilities. The respondent took the view that in writing the letter to the Commissioner of Lands the appellant committed a breach of his fiduciary duty as a director.

12.All these disputes resulted in two High Court actions. On 21 March 1996, ECRC commenced an action against the respondent in Suit No 546 of 1996 claiming the sum of $548,333.34 being the instalments of the consultancy fee due but not paid covering the period from October 1995 to February 1996. Initially, the respondent`s defence to the claim did not refer to the $1.5m payment but instead relied on other matters in dispute between the parties. It was only on 23 May 1996 that the respondent amended its defence by alleging, inter alia, that the sum of $1.5m was paid to ECRC without just cause and consideration and in breach of the appellant`s fiduciary duty, and counterclaimed...

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1 books & journal articles
  • CORPORATE GOVERNANCE AND INDEPENDENT DIRECTORS
    • Singapore
    • Singapore Academy of Law Journal No. 2003, December 2003
    • 1 December 2003
    ...auditor during his inspection shall not be disclosed by him except to that director”; see also Wuu Khek Chiang George v ECRC Land Pte Ltd[1999] 3 SLR 65. 21 See e.g., s. 459 of the English Companies Act 1985, and s. 216 of the Singapore Companies Act. 22 English Companies Act 1985, s. 461(1......

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