Case Summaries

Douglas Foo Peow Yong v ERC Prime II Pte Ltd and another appeal and other matters [2018] SGCA 67

SUPREME COURT OF SINGAPORE

24 October 2018

Case summary

Douglas Foo Peow Yong v ERC Prime II Pte Ltd and another appeal and other matters [2018] SGCA 67
Civil Appeal Nos 196 of 2017 and 55 of 2018 and Summonses No 39, 83, 86 and 91 of 2018

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Decision of the Court of Appeal (delivered by Sundaresh Menon CJ):

Outcome: CoA allowed the winding up of ERC Prime II Pte Ltd and Gryphon Real Estate Investment Corporation Pte Ltd on the basis that the applicants had justifiably lost confidence in the management of these companies.

The material facts

1 Sometime in 2009 or 2010, Ong Siew Kwee (“Andy Ong”) and Douglas Foo Peow Yong (“Foo”) entered into two joint ventures, namely the Big Hotel project and the Bugis Cube project.

2 In respect of the Big Hotel project, ERC Unicampus Pte Ltd (“ERCU”) was incorporated to acquire and hold the project. ERC Prime II Pte Ltd (“ERCP II”), through which Foo made his investment in the project, was a shareholder of ERCU whose other shareholders were special purpose vehicles set up by Andy Ong and his associates. In November 2010, ERCU exercised the option to purchase the Big Hotel property for $103m, and subsequently in November 2015 sold the property for $203m. By the time of the application below, most of the investment returns had been distributed to ERCP II and in turn to ERCP II’s shareholders, except for certain disputed sums. As of 13 April 2017, ERCP II’s directors were Ong Han Boon (“Ong HB”) and Stephen Tan Fei Wen (“Stephen Tan”). Foo held 19.8% of ERCP II’s issued share capital.

3 In respect of the Bugis Cube project, Griffin Real Estate Investment Holdings Pte Ltd (“GREIH”) was incorporated to acquire and hold the project. At all material times, GREIH had two shareholders: Sakae Holdings Ltd and Gryphon Real Estate Investment Corporation Pte Ltd (“GREIC”). In March 2010, GREIH purchased the Bugis Cube property for around $46m. In 2012, GREIH sold all of the units in five out of six floors of the property for $142.8m. However, GREIH had not yet distributed to its shareholders the proceeds from the partial sale of the property. The sixth floor of the property, valued at $15m, also remained unsold. As of 13 April 2017, GREIC’s directors were Ong HB and Stephen Tan. Yap Chew Loong (“Yap”) held around 3.19% of GREIC’s issued share capital.

4 In Sakae Holdings Ltd v Gryphon Real Estate Investment Corp Pte Ltd and others (Foo Peow Yong Douglas, third party) and another suit [2017] SGHC 73 (“Sakae (HC)”), the High Court found that Andy Ong and Ong HB had, as directors of GREIH, engaged in oppressive conduct against Sakae. Consequently, GREIH was ordered to be wound up. This was upheld by the Court of Appeal in Ho Yew Kong v Sakae Holdings Ltd and other appeals and other matters [2018] 2 SLR 333 (“Sakae (CA)”). Accordingly, GREIH was presently in the control of court appointed liquidators.

5 It also transpired that Ong HB, who sat on the boards of both GREIC and ERCP II until August 2018, had been disqualified from holding any directorship since 13 March 2017. Ong HB claimed that he had only found out about his disqualification on or about 1 August 2018. A few days before the appeal hearing, Chia Puay Khiang (“Chia”) was appointed a co director of both ERCP II and GREIC by directors’ resolutions to which Stephen Tan was the sole signatory.

6 In Civil Appeal No 196 of 2017 (“CA 196”), Foo appealed against the decision of the High Court to refuse an application to wind up ERCP II. In the appeal, Foo argued that ERCP II should be wound up under s 254(1)( f) of the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”) on the basis of directorial misfeasance, and/or under s 254(1)(i) on just and equitable grounds.

7 In Civil Appeal No 55 of 2018 (“CA 55”), Yap appealed against the decision of the High Court to refuse an application to wind up GREIC. Yap argued on appeal that GREIC should be wound up under s 254(1)(i) of the Act as the purpose for the incorporation of the company had been fulfilled, and/or that he had justifiably lost confidence in the management of GREIC.

8 Several applications were also filed by the parties for the admission of additional evidence in the appeals. This included, amongst other things, evidence relating to criminal charges brought against Andy Ong and Ong HB in August 2018.

Decision on appeal

9 CA 196 and CA 55 were both allowed on the basis that the applicants had respectively established a justifiable loss of confidence in the management of ERCP II and GREIC. Applications to admit additional evidence in the appeals were dismissed save in relation to the criminal charges brought against Andy Ong and Ong HB in August 2018, and to Chia’s appointment and role in the companies.

Reasons for the judgment

10 As a matter of law, it was undisputed that one situation in which the just and equitable ground for the winding up of a company contained in s 254(1)(i) of the Act would be satisfied was “where minority members have been oppressed or treated unfairly by controlling members and have justifiably lost confidence in the management of the company” (at [ 48]). Further, as a general rule, allegations made to ground a claim of loss of confidence must be proved before an order to wind up under s 254(1)(i) of the Act would be made (at [ 49]).

11 In relation to ERCP II, at least one of the allegations relating to Ong HB’s conduct in his capacity as a director of the company had been established (at [50]). This allegation concerned a share option purportedly granted by ERCU to ERC Holdings, pursuant to which a significant number of shares was in fact issued by ERCU to ERC Holdings. This necessarily and substantially diluted ERCP II’s shareholding in ERCU. Events surrounding this share option betrayed a serious and obvious lack of probity on the part of Ong HB in his conduct as a director of ERCP II (at [ 51]). Such lack of probity sufficed to justify Foo’s loss of confidence in Ong HB’s management of ERCP II (at [54]).

12 Foo could not rely on the findings against Andy Ong and Ong HB in Sakae (HC) and Sakae (CA) as it was inappropriate to rely on the alleged propensity of a director to act in a given way based on how he had acted in another situation, in the context of CA 196 which involved a different set of companies and a different business venture as that implicated in the two judgments (at [55]).

13 There was no merit to ERCP II’s argument that the allegations made against Andy Ong and Ong HB were res judicata. The two decisions concerned involved different inquiries (at [56]).

14 Loss of confidence in Ong HB’s conduct as ERCP II’s director remained relevant even though Stephen Tan and Chia had taken over as the directors of ERCP II. Both Stephen Tan and Chia were closely associated with Ong HB and Andy Ong. Moreover, the absence of a disclosure or disclaimer of Chia’s association with Ong HB in her affidavit announcing her appointment as a co-director of ERCP II was deeply troubling (at [57]). The circumstances under which Stephen Tan purported to appoint Chia as a co-director of ERCP II also buttressed the finding that there was a justifiable loss of confidence on Foo’s part in the present directors of ERCP II (at [58]).

15 There was no reason to exercise the court’s discretion to decline to wind up ERCP II. Amongst other things, the High Court omitted to consider the prejudice that a delay in the independent investigation of ERCP II’s past affairs might have on any potential claim against its previous management for breach of fiduciary duty and/or other causes of action, especially in the light of the possible operation of the time bar (at [ 61]).

16 In relation to GREIC, there had been a justifiable loss of confidence on Yap’s part in the management of GREIC by its directors (at [ 64]). GREIC incurred loans from another company related to Andy Ong in order to pay for a co-defendant’s legal costs incurred in connection with the disputes in Sakae (HC) and Sakae (CA) , even though there was no apparent basis for GREIC to have made such payment (at [65] and [67]). GREIC’s directors also caused GREIC to refrain from collecting on an uncontroversial debt due from GREIH to GREIC, which was clearly prejudicial to the interests of GREIC’s shareholders (at [69]).

17 Furthermore, the adverse findings against Ong HB in Sakae (HC) and Sakae (CA) should be recognised as one reason for the loss of confidence in the directors of GREIC, even though the two judgments related, strictly speaking, to GREIH. This was because there was a sufficient nexus between GREIC and the serious and fundamental deficiencies identified in Sakae (HC) and Sakae (CA) in relation to the conduct of Andy Ong and Ong HB in their capacity as directors of GREIH (at [70] and [71]).

18 For analogous reasons, the criminal charges brought against Andy Ong and Ong HB in August 2018 in relation to their conduct vis-à-vis GREIH were also relevant to the question of loss of confidence, and in fact contributed to a justifiable loss of confidence in the management of GREIC by Andy Ong, Ong HB, and their associates (at [72]).

19 There was no reason to decline an order for the winding up of GREIC on discretionary grounds. In fact, two points lean strongly in favour of a winding up order. First, more than half of the shareholders of GREIC in number and in shareholding appeared to support the winding up application. Second, given that the court in Sakae (CA) upheld the High Court’s decision to wind up GREIH largely on the basis of misdeeds by Andy Ong and Ong HB in relation to that company, it was not proper that the same individuals whose conduct vis-à-vis GREIH was being scrutinised be allowed to influence the liquidators of GREIH through their proxies appointed as directors of GREIC (at [76]).

This summary is provided to assist in the understanding of the Court’s grounds of decision. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s grounds of decision.

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