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    09:39 PM Ben Chester Cheong (LLM (Cambridge); LLB (1st Class Hons) (Exeter); Lecturer of Law, SUSS) and Poh Chee Eng (BSc (Hons) (Essex); Dip, Law & Management, Temasek Polytechnic; JD Candidate, SUSS)

    Oppression – personal wrongs or corporate wrongs: A commentary on Ascend Field Pte Ltd and others v Tee Wee Sien and another appeal [2020] SGCA 14

        

    Introduction

    Historically, an aggrieved minority shareholder, “X”, is faced with two primary conundrum, (a) X does not have standing to sue an errant director or require the board to account as a result of the rule in Foss v Harbottle (1843) 2 Hare 461 (“Foss v Harbottle”); and (b) companies operate on the basis of majority rule (see Pearlie Koh, Company Law (LexisNexis, 2017) at para 6.5). The law has come a long way since then and now provides minority shareholder with two distinct avenues to seek redress: (a) the statutory derivative action for corporate wrongs and (b) a remedial order under s 216 of the Companies Act (Cap 50, 2006 Rev Ed) (“CA”) for personal wrongs.

    In recent times, this raises yet another Gordian knot: that sometimes s 216 CA is used to pursue what is essentially a corporate claim. This problem was first expressly raised by the Court of Appeal in Ng Kek Wee v Sim City Technology Ltd [2014] 4 SLR 723 (“Ng Kek Wee”) at [63]-[64]. Subsequently, the Court of Appeal went on to develop a framework in Ho Yew Kong v Sakae Holdings Ltd and other appeals and other matters [2018] 2 SLR 333 (“Sakae Holdings”) to ascertain if a claim pursued under s 216 CA properly involved a personal wrong, or if the claim concerned a corporate wrong and was an abuse of process that should have been pursued under s 216A instead (Sakae Holdings at [116]). The two-step framework had provided a very clear guidance to determine if a wrong should be pursued under s 216 or s 216A, especially when there was a considerable overlap. This commentary addresses a new Court of Appeal decision in this area, Ascend Field Pte Ltd and others v Tee Wee Sien and another appeal [2020] 1 SLR 771 (“Ascend Field”).

    Brief background of the parties

    It is perhaps instructive to set out the key parties in the dispute. Mr Tee is a businessman involved in property development. Mr Ching is a friend and business partner of Mr Tee, and is the Chief Executive Officer of Oxley Holdings Ltd (“OHL”) and the sole owner of Oxley Construction Pte Ltd (“OCPL”). Mr Ng and Mr Tee are first cousins (at [7]). Ms Kor, the wife of Mr Ng, had set up a sole proprietorship, Yi Fang Xiang Services (“YFX”), in late 2010, which provided cleaning services for office premises and buildings (at [6]).

    In June 2011, Mr Ng and Mr Tee set up Ascend Field Pte Ltd (“AFPL”), with an initial share capital of $100,000. Mr Ng and Mr Tee each held 50,000 shares, but Mr Ng did not contribute any capital to AFPL. Instead, Mr Ching and Mr Tee each contributed $50,000 for AFPL’s paid-up capital (at [9]). Mr Ng effectively ran AFPL from its inception, and AFPL was awarded several cleaning contracts by OHL and OCPL (at [10]).

    Prior to the formation of AFPL, YFX had nine cleaning contracts, four of which related to developments belonging to companies owned by Mr Tee and Mr Ching (at [6]).

    Facts leading up to the dispute

    In 2016, Mr Tee and Mr Ching grew concerned about Mr Ng’s management of AFPL and decided to restructure AFPL’s operations. Despite the restructuring efforts, the relationship between Mr Ng and Mr Tee broke down. Mr Ching began mediating share buyout discussions with Mr Ng on Mr Tee’s behalf in May 2016, but they did not manage to reach an agreement (at [14]-[15]).

    From April 2016 to July 2016, five cleaning contracts were diverted from AFPL to YFX (at [16]).

    Mr Tee commenced an action on 12 July 2016 alleging that, amongst other claims, Mr Ng’s conduct in diverting AFPL’s contracts, employees and resources to YFX constituted oppression under s 216 CA. Mr Tee also pleaded that there was a conspiracy by unlawful means by Mr Ng, YFX and Ms Kor against him and/or AFPL in respect of the diversion of AFPL’s contracts, employees and resources to YFX (at [17]-[18]).

    High Court’s Decision

    The High Court found that Mr Ng wrongly diverted five of AFPL’s contracts to YFX and ordered the defendants to account for the profits derived from the five diverted contracts. The High Court found that there was a reciprocal arrangement between AFPL and YFX in the diversion of employees to assist each other, and ordered an account of the benefit derived by YFX from its uncompensated use of AFPL’s employees. The High Court also ordered an inquiry into the extent of YFX’s use of AFPL’s resources. The High Court dismissed Mr Tee’s other claims, and ordered AFPL to be wound up (at [21]).

    Mr Tee succeeded in his claim of conspiracy by unlawful means only in respect of the five contracts found to be wrongfully diverted to YFX. The High Court held that the diversion of AFPL’s employees and resources to YFX did not amount to a conspiracy by unlawful means as there had been a reciprocal arrangement between AFPL and YFX to make mutual use of their employees and resources (at [22]).

    Court of Appeal’s Decision

     

    The Court of Appeal found that there was an informal understanding between Mr Tee and Mr Ng that YFX was to be closed after AFPL was incorporated, up until April 2015 when Mr Tee found out about Ms Kor’s continued ownership of YFX and agreed to it (at [58]). The court also found that from May 2015 onwards, Mr Tee’s modified legitimate expectation was that YFX would continue to be in operation, but Mr Ng would not be in a position of conflict of interest (at [54]).

    The Court of Appeal allowed Mr Tee’s claim for oppression in respect of contracts entered into by YFX after AFPL’s incorporation until April 2015 (at [58]). The Court of Appeal also allowed Mr Tee’s claim in respect of two cleaning contracts that Mr Ng diverted from AFPL to YFX (at [65]). The Court of Appeal also affirmed the High Court’s ruling that the five contracts diverted from AFPL to YFX from April 2016 to July 2016 were oppressive to Mr Tee (at [69]).

    The Court of Appeal also upheld the High Court’s ruling for an inquiry into the extent of the use of AFPL’s resources by YFX (at [79]). The Court of Appeal disagreed with the High Court that the service fee payment by AFPL to YFX was reasonable, and instead held that it was for AFPL’s liquidators to look into whether the fees paid exceeded market value and if so, it would be oppressive to Mr Tee (at [82]).

    The Court of Appeal allowed Mr Tee’s appeal and held that Mr Ng’s removal of Mr Tee as a bank signatory in June 2016 was oppressive as it was a breach of the system of internal controls that Mr Ng had agreed to implement as part of AFPL’s restructuring efforts (at [92]).

    The Court of Appeal upheld the order to wind up AFPL (at [115]).

    The Court of Appeal overturned the High Court’s finding that there was unlawful means conspiracy as the proper plaintiff should have been AFPL and not Mr Tee, and there was no way Mr Ng and Ms Kor could have conspired with YFX, as YFX is not a legal person (at [112]-[113]).

    Commentary

    The Court of Appeal in Ascend Field at [28] reaffirmed the test for an oppression action under s 216 CA in Over & Over Ltd v Bonvests Holdings Ltd and another [2010] 2 SLR 776 (“Over & Over”) at [77], i.e. there are four limbs under a s 216 CA action, namely: (a) oppression; (b) disregard of a shareholder’s interests; (c) unfair discrimination; and (d) prejudice, and the common element supporting the four limbs is commercial unfairness, which is found when there has been “a visible departure from the standards of fair dealing … which a shareholder is entitled to expect”. The Court of Appeal in Ascend Field at [29] also reaffirmed the principle in Sakae Holdings at [172] that in assessing whether there was commercial unfairness, the court will look at the understanding between the shareholders of a company, in both formal agreements and in informal understandings.

     

    Judicial trends

    While AFPL was a quasi-partnership in Ascend Field, it should also be noted that there is an encouraging shift in judicial trend to suggest that the courts do take a holistic approach in determining whether there is oppression and it is not just confined to a need to establish mutual trust and confidence among the shareholders. For instance, in Thio Syn Kym Wendy and others v Thio Syn Pyn and others and other appeals [2018] 2 SLR 788 (“Thio Syn Kym”), the Court of Appeal appeared to have extended the oppression remedy to beyond quasi-partnerships, particularly to autocratic patriarchal companies. Hence, “even if the parties did not expressly set out their legitimate expectations, there might still be unwritten expectations that the family shareholders in management could not expend corporate resources for personal reasons to punish other family members and that any benefits previously agreed upon between family members should not be arbitrarily reduced or removed” (Thio Syn Kym at [28]). This decision may be contrasted with Lim Kok Wah and others v Lim Boh Yong and others and other matters (“Lim Kok Wah”) [2015] 5 SLR 307 where the High Court was less inclined to find that a legitimate expectation existed in an autocratic patriarchal company. There is an encouraging shift in judicial attitude to recognise that oppression can take many forms, and not necessarily in the traditional quasi-partnership companies. Had the Court of Appeal’s decision of Thio Syn Kym existed then, it may be speculated that the outcome in Lim Kok Wah might have been different. 

    What is the usual remedy?

    An analysis of recent oppression cases have demonstrated that a buyout order seems to be the usual remedy ordered by a court if oppression is established (see for instance, Thio Syn Kym; Senda International Capital Ltd v Kiri Industries Ltd and others [2020] SGCA(I) 1; Lim Anthony v Gao Wenxi and another [2020] SGHC 67; and Leong Chee Kin (on behalf of himself and as a minority shareholder of Ideal Design Studio Pte Ltd) v Ideal Design Studio Pte Ltd and others [2018] 4 SLR 331). There seems to be two recent instances where a winding up was ordered under s 216 CA, namely in Ascend Field and Ng Kian Huan Edmund v Suying Metropolitan Studio Pte Ltd and others [2019] SGHC 56 (“Suying HC”). However, Suying HC does not provide any precedential value because the winding up order in that case was subsequently overturned on appeal in Suying Design Pte Ltd v Ng Kian Huan Edmund and other appeals [2020] SGCA 46 (“Suying CA”). The Court of Appeal in Suying CA had set aside the oppression ruling, and therefore, there was no legal basis for the winding up order. However, it may be noted that there is a common thread running through Ascend Field and Suying HC. In these two instances where a winding-up was ordered, it appeared that the defendants owned other businesses in the same industry as the said company involved in these oppression suits. It may be observed that there could be little merit in having the defendants buyout the plaintiff’s shares, only for the defendants to eventually liquidate the company.

    Distinction between corporate wrongs and personal wrongs

    The Court of Appeal in Ascend Field at [35] also reiterated the proposition in Sakae Holdings at [88] that s 216 CA is a relief for personal wrongs done to a shareholder, and the appropriate action for corporate wrongs done to the company is a statutory derivative action under s 216A CA. In Ng Kek Wee at [61], the Court of Appeal held that under the proper plaintiff rule in Foss v Harbottle, the proper plaintiff for a corporate wrong is the company itself. The Court of Appeal in Ng Kek Wee at [63]-[65] went on to state that while it is common for personal wrongs to concurrently be corporate wrongs as well, permitting s 216 CA to be used to “vindicate essentially corporate wrongs” should not be permitted, because it would then render s 216A CA redundant, and would also be an “abuse of process as it would be an improper circumvention of the proper plaintiff” rule. The Court of Appeal in Sakae Holdings at [116] had also set out an analytical framework to ascertain whether a claim under s 216 CA is proper, or if it is an abuse of process, by looking at the injury suffered and the remedy sought.

    The distinction between personal wrongs and corporate wrongs may be gleaned from the factual matrices in Ng Kek Wee and Sakae Holdings. In Ng Kek Wee, the respondent’s claim was that the appellant (i) illegally transferred shares of the company to himself and another party, (ii) mismanaged the company’s accounts and moneys, and (iii) diverted the company’s business, assets and talents to the appellant’s own company (Ng Kek Wee at [71]). In Sakae Holdings, the defendants similarly misappropriated from the company without Sakae’s knowledge (Sakae Holdings at [126]). However, the two cases had different outcomes; while the respondent in Ng Kek Wee failed in his claim under s 216 CA because the respondent as majority shareholder was able to take control of the company (Ng Kek Wee at [55]), Sakae succeeded in its claim in Sakae Holdings (see Sakae Holdings at [124], [125] and [128], for instance).

    Although the Court of Appeal in Ng Kek Wee had to set aside the High Court’s finding that there was oppression because the respondent had the power to remove the appellant as a director, and was therefore not entitled to seek relief under s 216 CA, the Court of Appeal also observed that the loss suffered by the respondent was merely reflective of the loss suffered by the company, and the remedy sought by the respondent in Ng Kek Wee was the restitution of the amounts siphoned off by the appellant, which could have been achieved through a statutory derivative action under s 216A CA (Ng Kek Wee at [71]). In contrast, while the wrongs complained of in Sakae Holdings were corporate wrongs, the Court of Appeal found that there was a separate and distinct personal wrong against Sakae for the breach of Sakae’s legitimate expectation of trust in the defendant’s management of the company (Sakae Holdings at [127]). The remedy sought by Sakae was either a buyout or winding up of the company, which was only available in an action under s 216 CA (Sakae Holdings at [117]).

    The Ascend Field case has much similarities with Sakae Holdings, in that there was a legitimate expectation as to how the defendant would manage the company, and there was a breach of that legitimate expectation (Ascend Field at [41], [49], [54], [58], [65] and [69]). The remedy sought by the plaintiff in Ascend Field was a winding up order or a buyout, which were remedies only available under s 216 CA (Ascend Field at [39]). It can therefore be noted that the outcome of the three Court of Appeal decisions, i.e. Ng Kek Wee, Sakae Holdings and Ascend Field are consistent with the analytical framework set out in Sakae Holdings at [116].

    Another interesting observation in Ascend Field at [108]-[109], is where the Court of Appeal commented that the parties did not make any submissions for the court to re-evaluate the established principle that aggrieved shareholders were not permitted to ask for orders directly against third parties who might have received moneys from the company pursuant to the directors’ breaches (see the High Court’s judgment 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). If the Court of Appeal were to allow restitution orders in favour of a company in an oppression action under s 216 CA in a future case, it would enable the aggrieved shareholder to benefit from a fairer exit value. Based on a plain reading of s 216(2) CA, that the court may “make such order as it thinks fit” to remedy the matters complained of, it appears that one interpretation is that there is nothing to prevent the court from making an order directly against third parties. This would also obliviate the need for an aggrieved shareholder to commence a separate action to recover moneys from third parties, potentially resulting in a more streamlined proceedings for the aggrieved shareholder.

    Conclusion

    The decision by the Court of Appeal in Ascend Field is to be lauded for its clarity in reiterating the Court of Appeal’s previous decisions on the need to distinguish between personal and corporate claims in both Ng Kek Wee and Sakae Holdings. The decision in Ascend Field at [38] demonstrates how the two-step framework of injury and remedy expounded by the Court of Appeal in Sakae Holdings at [116] can be successfully applied in order to ascertain if a claim pursued under s 216 CA properly involved a personal wrong, or if the claim concerned a corporate wrong and was an abuse of process that should have been pursued under s 216A CA. The Court of Appeal in Ascend Field has also attempted to consolidate the patchwork quilt of legal principles in this area. It is suggested that the decision in Ascend Field would eventually become the leading case on the oppression remedy under s 216 CA for students, lawyers and academics in Singapore. For the legal practitioner, the key takeaway from Ascend Field is to draw a clear distinction while framing a case between the personal wrongs claimed and the corporate wrongs committed, using the analytical framework set out in Sakae Holdings at [116], lest one becomes censured by the court for an abuse of process.

    * This blog entry may be cited as Ben Chester Cheong and Poh Chee Eng, “Oppression – personal wrongs or corporate wrongs: A commentary on Ascend Field Pte Ltd and others v Tee Wee Sien and another appeal [2020] SGCA 14” (6 July 2020) (http://www.singaporelawblog.sg/blog/article/246)

    ** A PDF copy of this entry may be downloaded here

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