Yeo Nai Meng v Ei-Nets Ltd and Another

• Jurisdiction: Singapore
• Judge: S Rajendran J
• Judgment Date: 09 May 2003
• Neutral Citation: [2003] SGHC 110
• Docket Number: Suits No 1279 of 2001 and 1308
• Date: 09 May 2003
• Published date: 01 October 2003
• Year: 2003
• Plaintiff Counsel: Rey Foo (K S Chia Gurdeep and Param)
• Citation: [2003] SGHC 110
• Defendant Counsel: Lim Chor Pee and Dwayne Tan (Chor Pee and Partners)
• Court: High Court (Singapore)
• Subject Matter: Tort,Qualified privilege,Whether defence of qualified privilege applied,Defamatory material circulated to company's directors and other persons,Defamation

1 Yeo Nai Meng (“Yeo”), the plaintiff in both these suits, was a shareholder and director of Plan-B Technologies Pte Ltd (“Plan-B”), a company in the business of starting and/or incubating technology-related companies. Plan-B Speed.com Pte Ltd (“Speed”) was a wholly-owned subsidiary of Plan-B with a paid-up capital of 600,000 shares of $1 each. Yeo was the Managing Director of Speed. Speed had a subsidiary called Suntze Communications Engineering Pte Ltd (“Suntze”) in which Speed held 74% of the issued and paid-up capital. The Managing Director of Suntze was one Lawrence Tan Wai Liang (“Tan”), one of its minority shareholders. I will refer to Speed and Suntze together as “the Speed Group”.

SPS Agreement

2 In late 1999, Strike Engineering Ltd (“Strike”) – a company listed on the Singapore Stock Exchange – became interested in investing in Speed. On 18 November 1999, a Sale, Purchase and Subscription Agreement (“SPS Agreement”) was entered into between Plan-B, Strike and Speed. Under the SPS Agreement, Plan-B and Strike were to end up by each owning 4.6 million shares in Speed. This was to be achieved in two stages.

3 Under the first stage, Plan-B was to transfer all its 600,000 ordinary shares in Speed to Strike for a consideration of $5 million which was to be fulfilled by Strike issuing to Plan-B on completion date 11,574,000 new ordinary shares of $0.05 each in Strike. On completion date, Strike was to subscribe for 2 million new shares at par in Speed for $2 million. Completion of the first stage was to take place within seven days of approval being obtained from the Stock Exchange for the listing of the consideration shares or approval of the SPS Agreement by the shareholders of Strike, whichever happened later.

4 Under the second stage of the of the SPS Agreement, 30 days from completion of the first stage, Plan-B was to subscribe for 2.6 million new shares in Speed for $2.6 million. 60 days from the said completion date Strike and Plan-B were to subscribe for 2 million shares each in Speed at par. The completion of the second stage was therefore dependent on when completion of the first stage was effected.

Memorandum of Understanding

5 Soon after the SPS Agreement was entered into, Strike and Plan-B (together referred to as the “Vendors”) entered into negotiations with ArmorCoat International Pte Ltd (“ArmorCoat”) and its wholly-owned subsidiary Ei-Nets.Com Ltd (“Ei-Nets”) for Strike, Plan-B and ArmorCoat to jointly seek the public listing of Ei-Nets. Towards this end, the parties, on 7 January 2000, entered into a Memorandum of Understanding (“MOU”) wherein it was envisaged that the Vendors would inject all their shares in Speed – which would be 9.2 million shares assuming the SPS Agreement was fully completed – into Ei-Nets in exchange for shares of Ei-Nets.

6 The MOU recognised that the Vendors did not as yet have the 9.2 million shares in Speed to inject into Ei-Nets. This is evident from Recital B to the MOU which stated:

Speed will have an issued and paid up share capital of $9.2 million divided into 9.2 million ordinary shares of $1 each all of which will be fully paid and will be legally and beneficially owned by the Vendors in the following proportions:

Strike – 4,600,000 shares

Plan-B – 4,600,000 shares.

[Emphasis added]

The MOU also provided in cl 1.8 that “the cash that Speed will bring to Ei-Nets will remain the property of Speed until Ei-Nets is listed on the Singapore Stock Exchange”.

SE Agreement

7 Under the MOU, the parties were to use their best endeavours to enter into a formal Share Exchange Agreement (“SE Agreement”) as soon as possible and in any event not later than 31 January 2000. This deadline proved to be too optimistic. There were many delays and, in the event, the SE Agreement was entered into only on 22 May 2000.

8 As at 22 May 2000, only the first stage of the SPS Agreement had been completed. This occurred on 9 May 2000. The fact that the Vendors still did not have 9.2 million shares in Speed was recognised in the SE Agreement by Recital B of the MOU being repeated in the SE Agreement. Clause 1.8 of the MOU referred to above was also repeated (as cl 7.6) in the SE Agreement.

9 It was stipulated in cl 2.1 of the SE Agreement that the share exchange was conditional upon:

(c) the acquisition by Strike of shares in [Speed] in the proportion set out in Recital B hereof having been completed and

(i) [Speed] having S$8.6 million cash injection in the form of equity in [Speed] and

(ii) [Speed] having Net Tangible Asset (“NTA”) value of not less than S$6 million on 15 June 2000.”

I will refer to the conditions in cl 2.1(c) of the SE Agreement as the “conditions precedent”. The date – 15 June 2000 – specified in the conditions precedent was the completion date provided for in the SE Agreement.

Completion of the SPS Agreement

10 The Vendors, by 15 June 2000, had not completed the second stage of the SPS Agreement. They were therefore not in a position to complete the SE Agreement by that date. ArmorCoat and Ei-Nets also faced difficulties in meeting the deadline of 15 June 2000. The parties therefore mutually agreed to postpone completion and, in the event, completion took place only on 19 July 2000.

11 On 28 June 2000, completion of the second stage of the SPS Agreement took place. On that day the Board of Directors of Speed approved the issue of 2 million new shares to Strike and 4.6 million new shares to Plan-B for a consideration of $6.6 million. Strike paid for the 2 million shares by way of a cheque for $2 million handed to Speed on that day. Plan-B paid for the 4.6 million shares by handing to Speed on that day two cheques (one for $2 million and the other for $675,585) and by capitalising the inter-company outstanding of $1,924,415. To effect the capitalising, inter-company loans between Suntze and Plan-B were transferred to Speed. It is the alleged improprieties in this capitalisation and the transfers of inter-company loans in connection therewith that forms the nub of the dispute in this case.

12 The three cheques were cleared by 13 July 2000. The delay in clearance, according to Yeo, was because the directors of Speed were undecided whether, in view of cl 7.6 of the SE Agreement, the proceeds of the cheques should be paid directly into a separate deposit account or whether it should go into the general account of Speed. The audited accounts of Speed treated these cheques as received by 30 June 2000.

The inter-company loans

13 Plan-B, as the holding company of Speed had, from time to time, advanced funds for the activities of Speed and its subsidiary Suntze. As such, both Speed and Suntze owed moneys to Plan-B. There was no formal agreement between Plan-B and Speed/Suntze in respect of these advances. The audited accounts of both Speed and Suntze noted that there were no fixed terms of repayment in respect of these advances.

14 In January 1999, Suntze had entered into a contract with the owners of a motor-vehicle trading centre to build, own and operate an IT and telecommunications portal related to the automotive industry (“the automotive portal”). The automotive portal was successfully built and Suntze was generating revenue therefrom.

15 In a memo to the Board of Suntze dated 29 September 1999, Tan proposed the sale of the automotive portal to Speed. The reasons given by Tan in this memo for the proposed sale were:

(a) repay all authorised loans due; and

(b) provide working capital for Suntze.

The formula for arriving at the sale price was also spelt out in the memo. It was estimated, at that time, that the sale price would be in the region of $2.5 million.

16 It is relevant to note that the memo originated from Tan who was a minority shareholder in Suntze and was not a shareholder in Speed. This indicates that the price was satisfactory to a minority shareholder and the transaction was probably on an arm’s length basis.

17 Tan’s proposal was accepted by all the directors of Suntze and the sale was effected. It is relevant to note that, except for Tan, the directors of Suntze were also the directors of Speed and Plan-B. Speed made payments to Suntze for the automotive portal and as at 30 May 2000 there remained a sum of $1,390,448 still payable by Speed to Suntze in respect of this acquisition.

18 As at 30 May 2000 the inter-company balances between Plan-B, Speed and Suntze stood as follows:

Plan-B Speed Suntze Total

Amount due from/(to) $ $ $ $

Plan-B – 850,000 1,349,524 2,199,524

Speed (850,000) – (1,390,448) (2,240,448)

Suntze (1,349,524) 1,390,448 – 40,924

(2,199,524) 2,240,448 (40,924) – .

19 Yeo held discussions with Tey Hui Choo (“Tey”), an accountant with the Speed Group, on the mechanics of injecting funds into Speed from Plan-B to complete the second stage of the SPS Agreement. Tey, in an e-mail of 23 May 2000 to Yeo, pointed that the injection could be achieved by offsetting inter-company loans and advances. She suggested that the amount of $1,074,415 owed by Suntze to Plan-B could be offset in the books of Speed against the amount of $1,390,448 that Speed owed to Suntze. She also suggested that an additional amount of $275,109 that Suntze owed Plan-B be transferred.

20 Yeo reviewed the recommendations of Tey, and approved only the transfer of the loan of $1,074,415. The final effect of the transfer/offsetting of inter-company balances were:

Plan-B Speed Suntze Total

Amount due from/(to) $ $ $ $

Plan-B – 1,924,415 275,109 2,199,524

Speed (1,924,415) – (316,033) (2,240,448)

Suntze ( 275,109) 316,033 – 40,924

(2,199,524) 2,240,448 (40,924) – .

The effect of the inter-company transfer was to reduce the amount owing by Speed to Suntze by $1,074,415 and increase the amount owing to Plan-B by the same amount. As a result only a sum of $275,109 remained in the books of Suntze as payable to Plan-B. It is obvious that these inter-company transfers did not have any effect on the NTA of Speed as the amount owing to related companies remained at...