Case Summaries

Ong Heng Chuan v Ong Teck Chuan and others [2021] SCGA 46

SUPREME COURT OF SINGAPORE

5 May 2021

Case summary

Ong Heng Chuan v Ong Teck Chuan and others [2021] SCGA 46
Civil Appeal No 29 of 2020

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Decision of the Court of Appeal (delivered by Woo Bih Li JAD):

Outcome: The Court of Appeal upholds the High Court’s decision to dismiss the appellant’s claim of minority oppression under s 216 of the Companies Act (Cap 50, 2006 Rev Ed) (the “Act”) against the first and second respondents.

Pertinent and significant points of the judgment

  • In an oppression action under s 216 of the Act, it is necessary for the plaintiff to demonstrate that the wrong occasioned to him is a wrong occasioned to him in his personal capacity as a minority shareholder as opposed to a wrong occasioned to the company.
  • It is clear that a corporate wrong may, in some instances, also amount to a personal wrong capable of vindication under s 216 of the Act simply because the breadth of commercial unfairness also appears to encompass “wrongs done to the company”. But asserting a purely corporate wrong is in and of itself insufficient, and inappropriate, to bring a claim within the strictures of s 216 of the Act. It is incumbent on the claimant to go a step further, and to show how such a breach is also a wrong suffered by him qua shareholder.

Background

1 The appellant (“OHC”) and the first to third respondents (respectively, “OTC”, “OBC” and “OSA”) are siblings and shareholders of the fourth respondent, Tong Guan Food Products Pte Ltd (“the Company”). On 23 November 2017, OHC commenced an action against OTC and OBC for minority oppression under s 216 of the Act. It is undisputed that OHC had no complaint against OSA and added her as a defendant to the action only because of her shareholding in the Company.

2 OHC’s claim of oppression centered around three broad categories of acts: (a) the sale and diversion of the “Tong Garden” and “NOI” trademarks (collectively, the “Trademarks”) from the Company and its subsidiaries and associated companies (collectively, the “Tong Garden Group”) (the “Trademarks Sale”); (b) a series of actions that the parties had referred to as part of a broader restructuring exercise of the Tong Garden Group (the “Restructuring”); and (c) the disposal of the Tong Garden Group’s business in Thailand to OTC’s companies (the “Thai Entities Sale”). These acts, OHC pleaded, breached his “legitimate expectations” as to how the Company should be run based on his strict legal rights; such rights being based on or derived from OTC’s and OBC’s directors’ duties owed to the Company. To remedy the alleged oppressive conduct, OHC sought an order for the buy-out of his minority stake in the Company or, in the alternative, an order for OTC to transfer to him a number of shares, to be determined, in companies owned and/or controlled by OTC, for the nominal purchase consideration of $1.

3 As part of the Trademarks Sale, the Tong Garden Group entered into an agreement dated 13 March 2000 (“the 2000 Villawood Agreement”) to sell the Trademarks, together with the goodwill of the business relating to the goods in respect of which the trademarks were registered, to Villawood Holdings Ltd (“Villawood”), a company owned and controlled by OBC and his wife. On 9 November 2015, Villawood transferred the trademarks to Tong Garden Food (Singapore) Pte Ltd (“TGFS”). On 8 April 2016, TGFS transferred the trademarks to OTG Enterprise Pte Ltd, a company wholly owned by OTC.

4 The Restructuring referred to a series of actions and disposal of assets, which took place in the course of 2008 to 2010. On 15 March 2008, OBC and OTC entered into an agreement for OTC to purchase from OHC for the price of $7m, (a) all of OBC’s shares in the Tong Garden Group, (b) all of the debts owed to OBC by the Tong Garden Group and (c) the trademark “Tong Garden” owned by Villawood (“the March 2008 Agreement”). On 14 August 2009, companies controlled by OTC entered into distributorship agreements with companies which were part of the Tong Garden Group (collectively, “the 2009 Distributorship Agreements”).

5 The Thai Entities Sale was carried out by way of a sale and purchase agreement dated 4 January 2001 between OTC and the Company (“the 2001 Thai SPA”), in which OTC contracted to purchase from the Company, “the whole of the undertaking of Tong Guan in the Territory, the goodwill and all other assets whatsoever and wheresoever situated of Tong Guan in the Territory”. The “Territory” was defined as “Thailand, Laos, Cambodia, Vietnam and Burma (Myanmar)”. On 20 July 2009, the Company and OTC entered into an agreement to vary the 2001 Thai SPA (“the 2009 Variation Agreement”), providing for, inter alia, the completion date of the 2001 Thai SPA to be varied to 28 July 2009. On the same day, the Company and OTC entered into a deed of waiver (“the 2009 Deed of Waiver”), wherein the Company waived unconditionally its inter-company claims against Tong Garden Co Ltd (“Tong Garden (T)”), a company which was part of the Tong Garden Group and was incorporated in Thailand.

6 On 31 January 2020, the High Court Judge (the “Judge”) dismissed OHC’s claim and subsequently issued her grounds of decision. Dissatisfied, the appellant appealed against the Judge’s decision.

 

The Court of Appeal’s decision

7 In an oppression action under s 216 of the Act, it is necessary for the plaintiff to demonstrate that the wrong occasioned to him is a wrong occasioned to him in his personal capacity as a minority shareholder as opposed to a wrong occasioned to the company. It is clear that a corporate wrong may in some instances, also amount to a personal wrong capable of vindication under s 216 of the Act simply because the breadth of commercial unfairness also appears to encompass “wrongs done to the company”. These are prima facie corporate wrongs that are appropriately dealt with either through a direct action brought by the company, or in more exceptional circumstances, through the statutory derivative action mechanism provided under s 216A of the Act. But asserting a purely corporate wrong is in and of itself insufficient, and inappropriate, to bring a claim within the strictures of s 216 of the Act. It is incumbent on the claimant to go a step further, and to show how such a breach is also a wrong suffered by him qua shareholder (at [31] to [33]).

The Trademarks Sale

8 There was evidence which suggested that the 2000 Villawood Agreement was not entirely above board and was actually factually probative of OHC’s allegation that a trust arrangement existed. Notwithstanding the fact that the Trademarks had been assigned to Villawood on 13 March 2000 pursuant to the 2000 Villawood Agreement, OTC still entered into the 2001 Thai SPA with the Company on 4 January 2001, which suggested that OTC (and OBC as well) knew that the Company continued to own the Trademarks, post the 2000 Villawood Agreement. OHC’s explanation that the Company was still granting a licence to use the Trademarks in the Territory after it had sold them to Villawood because the Trademarks Sale only concerned the sale of the Tong Garden Group’s “Tong Garden” and “NOI” trademarks in Singapore and Malaysia and did not cover other territories was not convincing. Furthermore, OTC had given a different explanation which was that the legal title to the Trademarks had not yet been transferred to Villawood.

9 In view of the parlous financial state that the Company was in around 2008, there was scant commercial sense in OTC undertaking to pay off the debts owed by the Tong Garden Group to OTC and the discrepancy in price between the $7m offered to OBC under the March 2008 Agreement and the $50,000 offered by OTC to OHC for the latter’s 520,000 shares in the Company raised the suspicion that there was more value to the Company and/or the Trademarks than OTC and OBC had suggested and that the sale of the Trademarks was not entirely above board (at [43] to [52]).

10 Nevertheless, even assuming that there existed some basis for the allegation that there was an undisclosed arrangement, whether by agreement or understanding, that the Trademarks were to be placed out of the reach of creditors and were supposed to be held for the benefit of the Tong Garden Group, this did not ultimately support OHC’s claim of minority oppression. This could be analysed on two levels. On one level, if the alleged agreement was characterised as an agreement between shareholders of the Company inter se, OTC’s and OBC’s failure to return the Trademarks to the Company and/or to continue to make the Trademarks available for the Tong Garden Group would be a breach of the separate agreement vis-à-vis the shareholders simpliciter and would be a wrong committed against OHC himself; an oppression action under s 216 of the Act would have no role to play in such a scenario. On another level, if the agreement was characterised as one between the shareholders of the Company and the Company itself, this assumed that OTC’s and OBC’s decision to renege on the agreement was a breach of an agreement with the Company and had caused loss to the Company. Even if this constituted a breach of OTC’s and OBC’s directors’ duties owed to the Company because it diminished the value of the Company’s assets, this would be a corporate wrong, which is per se insufficient to ground a claim for oppression. OHC failed to show how this was a real injury suffered by him as shareholder that is distinct from and not merely incidental to the injury which the company suffers that an action under s 216 of the Act is aimed at vindicating (at [53] to [55]).

The Restructuring

11 There was no reason to disturb the Judge’s findings that the Company was in a parlous financial position in 2008. OHC’s argument that the sale of a factory was a panacea that enabled the Company to overcome its financial woes and pay off its debts as it fell due was speculative and unsupported by the evidence (at [57] to [60]).

12 In so far as the parties referred to the March 2008 Agreement as part of the Restructuring, this could not be characterised as an oppressive action targeted at OHC as it was a private agreement entered into between OTC and OBC and did not per se purport to alter any of the Company’s legal rights and obligations (at [62]).

13 OHC’s allegation that no general meeting was called pursuant to s 160 of the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”) mandating that proposals to dispose of the whole of substantially the whole of the company’s undertaking be approved by the company in general meeting was not pleaded as a ground of oppression. In any case, OHC did not particularise which transactions ought to have been approved under s 160 of the Act and did not demonstrate how such assets represented the “whole or substantially the whole of the company’s undertaking” within the meaning of s 160 of the Act. None of the alleged disposals highlighted in OHC’s case were adequate to constitute minority oppression (at [64] to [72]).

The Thai Entities Sale

14 The 2001 Thai SPA was neither repudiated nor abandoned such that the 2009 Variation Agreement could be said to have represented a deliberate, calculated and commercially unfair circumvention of an agreement that had otherwise already been brought to an end. OHC had not pleaded either of these two grounds in his Statement of Claim. In any case, the evidence did not support either of OHC’s allegations of repudiation and/or abandonment: (a) OHC had failed to demonstrate factual acceptance of repudiation, even assuming that there was a repudiatory breach by OTC of the 2001 Thai SPA; and (b) it was clear that there was no mutual abandonment of the 2001 Thai SPA as OTC had been acting on the basis that he owned and operated the Thai subsidiaries pursuant to the 2001 Thai SPA (at [74] to [77]).

15 The Thai subsidiaries were not sold at an undervalue. First, the purchase price of the Thai subsidiaries under the 2001 Thai SPA was contractually provided to be based on its Net Tangible Assets as of 31 December 2000. OHC had himself signed the 2001 Thai SPA on behalf of the Company, in his capacity as director of the Company. Second, OHC’s attempt to claim that the purchase price should not have been confined to the assets of Tong Garden (T) was contrary to his closing submissions below and ought not to be entitled to do so on appeal  (at [78] to [81]).

16 If the sole rationale for the waiver was that the inter-company debt was time-barred, that would not be a sufficient reason to enter into the 2009 Deed of Waiver. Even if the debt were time-barred, that was not the point. It was supposed to be taken into account for the purpose of valuation. However, OHC was unable to further affirmatively demonstrate the existence of a net balance of debt in favour of the Tong Garden Group, and if so, the quantum of such debt that was waived. Ultimately, if the Company should not have entered into the 2009 Deed of Waiver, this was a wrong committed against the Company. It was not a personal wrong against OHC (at [83] to [88]).

The remedies sought

17 By the time OHC had commenced the present action for oppression, there was no continuing state of oppression and OHC’s application was therefore not to put an end to any oppressive conducts. By the time OHC had commenced his oppression action, close to a decade had elapsed since the acts cited in support of his claim had occurred (at [89] to [90]).

18 In so far as OHC’s first head of relief sought was for OTC and/or OBC to purchase his shares in the Company, they had made several offers to him previously but OHC did not pursue these offers in any meaningful way. While it was true that some of the matters OHC complained of would have to be resolved to determine the parameters of any valuation, OHC neither sought to define the parameters of a valuation nor to make any counter proposal. This was anathema to what he claimed was his genuine desire to have his shares in the Company bought out by OTC and/or OHC. OHC was more preoccupied with instituting litigation and in the circumstances, the Court would not have granted OHC that relief (at [91] to [92]).

19 In so far as OHC’s alternative head of relief was an order to acquire a number of shares in entities controlled by OTC, the present action was a thinly-veiled attempt to take advantage of the efforts put in by OTC in respect of the Thai subsidiaries. Furthermore, this alternative head of relief was inconsistent with any concern of OHC about the oppressive conduct of OTC. He was seeking a corporate marriage and not a corporate divorce and this relief suggested a lack of bona fides in his present action (at [93]).

 

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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