Jurisdiction - Singapore
Reports and Analysis
Singapore – Commercial Disputes: Developments In 2014.

24 February, 2015

 

Legal News & Analysis – Asia Pacific – Singapore  Dispute Resolution

 

A) Introduction


In 2014, a number of significant commercial disputes found their way before the Singapore Courts, resulting in a range of new developments in the field of commercial law.
In this annual round-up, we look back at some of the more significant decisions in commercial law in 2014. In particular, we look at the areas of company law, banking and insolvency, and admiralty law.


B) Company Law


(i) Teo Chong Nghee Patrick v Han Cheng Fong [2014] 3 SLR 595


Removal of director against terms of shareholders’ agreement – D.I.Y. agreement unenforceable due to numerous uncertainties


The case involved an alleged shareholders’ agreement, which set out the designations and shareholdings of the various signatories, including the Plaintiff and the Defendants. The Plaintiff was eventually removed from his position as director, and sought to establish that he had been illegitimately dismissed against the terms of the alleged shareholders’ agreement.


The document in question had been drafted without the benefit of legal advice, and the Court of Appeal was unable to sort through its flaws and omissions without substantially rewriting it. The Court found numerous inconsistencies and uncertainties in the document, and held that it was not, in fact, a legally enforceable agreement. There was no breach of legitimate expectations, nor was there any loss suffered by the Plaintiff.


This case is notable for the Court’s strong criticism of the “D.I.Y.” agreement, referring to it as “a piece of legal nonsense devoid of any legal effect”. Parties seeking to enter into a contract should thus ensure that they obtain appropriate legal guidance to construct an effective agreement, particularly for complex commercial relationships.


(ii) Ho Kang Peng v Scintronix Corp Ltd [2014] 3 SLR 329


Bribes paid by director of company – Whether bribes can be said to be in the interest of the company, or can be attributed to the company


The Defendant CEO and director of a company was found to have paid bribes to a third party to procure business for the company. He was found to be in breach of his fiduciary duties towards the company.


Interestingly, the Defendant submitted that he had acted in the interests of the company, as the business procured was for the company’s gain rather than his own. However, the Court of Appeal rejected his submission, holding that the interests of the company go beyond profit maximisation, and must include having its directors act for proper purposes and not incurring the risk of criminal liability.


The Defendant also sought to avoid liability by alleging that a number of other directors knew about the bribes as well. However, this was found to be insufficient by the Court. There was no authorisation given by the company for the issuance of the bribes, nor could the bribes be attributed to the company merely by such knowledge. 

Therefore, bribes cannot be in the best interests of a company, even if it is in pursuance of financial gain for the company. Bribes are also deemed to be unauthorised unless it can be shown that the board of directors or the shareholders had specifically agreed to such illicit payments.

(iii) TYC Investment Pte Ltd v Tay Yun Chwan Henry [2014] SGHC 192


Resolution to commence action against director at EGM – Whether shareholders have reserve powers of management to pass such resolution


Continuing on the topic of directors, this case involved a deadlocked board of directors consisting of only two directors. Certain payments could not be made by the company because all payments required both directors to consent, and one director continually refused to give approval. At an extraordinary general meeting (“EGM”), the company’s shareholders passed a resolution to retain lawyers and commence an action against the director.


The issue was whether the resolution was valid in light of the director’s power to veto any resolution approving such proceedings. The High Court held that, although the general rule is that the powers of management are vested in the directors, the shareholders have reserve powers of management which arise where the board is deadlocked or otherwise refuse to act.


However, these reserve powers will only arise in exceptional cases, and are unlikely to be recognised where the company’s constitution provides an alternative solution. Further, the reserve powers are limited in scope, and the express terms of the company’s constitution should be upheld as far as possible.


Here, it was found that the resolution was valid as it was reasonably necessary to break the deadlock in management. The company’s articles allowed the director to block the commencement of proceedings against herself, and provided no alternative solutions, thus necessitating the use of reserve powers of management.


(iv) Ng Kek Wee v Sim City Technology Ltd [2014] 4 SLR 723


Whether claim for oppression can be commenced by majority shareholder – Whether oppressive action can relate to subsidiary of company instead of company itself


S216 of the Companies Act provides a personal remedy for shareholders where the affairs of a company have been conducted in a manner oppressive to the interests of the shareholder. In this case, the Plaintiff shareholder of a company commenced an oppression action against the managing director of the company, alleging certain wrongful acts on his part. However, the claim was dismissed by the Court of Appeal.


One of the pertinent issues that arose was whether the Court could take into account alleged oppressive conducted in relation to the company’s subsidiary rather than the company itself. It was held that commercially unfair conduct in the management of a subsidiary would be relevant so long and to the extent that such conduct affected the holding company. In this case, such conduct was relevant as the holding company’s business in practical terms comprised wholly of the businesses of its subsidiaries.


Another issue was whether the Plaintiff was prevented from an oppression action by virtue of the fact that it was a majority shareholder. The Court held that a majority shareholder could ostensibly commence an oppression action unless he possessed the power to exercise self-help by taking control of the company and bringing to an end the prejudicial state of affairs. Here, the Plaintiff was entitled to take control of the company’s board and remove the director, and was thus not entitled to rely on s216.


Further, the Court observed that an oppression action was only appropriate for personal wrongs and not for corporate wrongs. As the Plaintiff’s claim was essentially based on a corporate wrong suffered by the company, the oppression action could not stand.

 

(v) Lim Ah Sia v Tiong Tuang Yeong [2014] 4 SLR 140


Claim for oppression in buyout agreement – Whether company could be treated as quasi-partnership


This case involved an oppression action relating to a company which was found to run as a quasipartnership. The company was originally incorporated with four members, including members Lim and Tiong. The other two members then left, leaving Lim and Tiong each holding 45% of the shares, and another two employees each holding 5%.


Eventually, Lim agreed to a buyout offer whereupon he would resign as director. However, Tiong and one of the employees then modified the accounting practice such that the payout would be decreased, and retired Lim as director. Lim then successfully brought a s216 oppression action against the company.


The High Court held that, notwithstanding the clear corporate structure and hierarchy, the company was a quasi-partnership at incorporation due to the relationship of mutual trust and confidence between its members. There was an understanding that the initial members had the right to participate in the business of the company and, as such, Tiong and the employee had breached the understanding by unjustifiably removing Lim from the board.
The deliberate reduction of the value of the buyout was also in breach of Lim’s legitimate expectation that past accounting practice would be adhered to. Therefore, in the face of such commercially unfair conduct, Lim’s oppression action was upheld.


(vi) Manuchar Steel Hong Kong Ltd v Star Pacific Line Pte Ltd [2014] 4 SLR 832


Separate legal identity of company and shareholders – Applicability of concept of “single economic entity” in Singapore


Related companies under the same group are often closely run, but under the laws of incorporation, they exist as separate legal entities. However, certain jurisdictions have considered a legal principle that treats some companies as having the same corporate personality on the grounds of being a “single economic entity. In this decision, the High Court considered the applicability of this principle in Singapore.


The Claimant here wanted to enforce an arbitration award against a non-party to the arbitration agreement on the basis that the non-party and the debtor were a single economic entity, as they were allegedly operationally unified and their employees were treated interchangeably. The Claimant sought pre-action discovery to prove this point, but the Court rejected the application on the grounds that the documents requested were not necessary.


Importantly, the Court rejected the applicability of the single economic entity concept in Singapore. The Court chose to uphold the basic tenet of company law that a company and its shareholders are separate legal persons. While the Court can pierce the corporate veil in certain exceptional situations, the single economic entity concept goes too far beyond this, as it is not based on any abuse or impropriety, and spreads the liability across all members of the group.


Companies within a group may sometimes have some overlap in management or operational unity. However, this in itself is not enough to make them one legal entity. Parties are entitled to structure their companies so as to best manage liability, and unless there is some abuse of the separate legal personality, the Courts are unlikely to interfere with such structuring.

 

C) Bankruptcy & Insolvency


(i) Beluga Chartering GmbH (in liquidation) v Beluga Projects (Singapore) Pte Ltd (in liquidation) [2014] 2 SLR 815


Winding up of foreign company – Whether assets in Singapore can be preserved for payment of local debts


Under s377(3)(c) of the Companies Act, the Singapore liquidator of an insolvent foreign company is obliged to recover assets in Singapore and satisfy any liabilities incurred here before remitting the remainder to the foreign liquidator. In this decision, the Court of Appeal clarified the scope of this ringfencing provision.


The Appellant was an insolvent German company (acting through its liquidators) which held certain assets in Singapore, and also had Singapore creditors with outstanding Singapore judgments against the Appellant. The Appellant applied to Court to ascertain if it was entitled to remit the Singapore assets to the seat of the principal liquidation in Germany, to be dealt with according to German insolvency law, or whether they should be applied to meet the Appellant’s liabilities in Singapore first.


The Court held that the Singapore assets should be remitted to the German liquidator, notwithstanding the outstanding judgment debts in Singapore. The Court held that the ring-fencing provision does not apply to all foreign companies, as to do so would create an overreaching territorial effect. Rather, it would only apply where the foreign company has registered or is liable to register in Singapore under s368(1) of the Companies Act as it intends to establish a place of business or commence carrying on business in Singapore. Since the Appellant was not based in and did not carry on business in Singapore, it fell outside of the ring-fencing provision.


Further, the Court of Appeal made a number of important observations on the extent of assistance a Singapore court may provide to a foreign liquidation proceeding. On the position of a foreign liquidator where local liquidation proceedings are not started, the Court of Appeal remarked that such foreign liquidator will be recognised as the representative of a company for the purpose of getting in and realizing the company’s worldwide assets. Additionally, where a foreign winding up order has been made, and there are no local winding up proceedings, the Court retains the inherent discretion to stay creditors’ execution proceedings in local courts.


(ii) Tang Yong Kiat Rickie v Sinesinga Sdn Bhd [2014] SGHCR 06


Concurrent bankruptcy proceedings across separate jurisdictions – Whether Singapore proceedings should be stayed


Following up on the topic of cross-border insolvency, this case involved concurrent bankruptcy proceedings in Singapore and Malaysia, where bankruptcy orders against the Plaintiff had first been obtained in Malaysia and then in Singapore. The Plaintiff sought to annul the Singapore bankruptcy order, submitting that the Defendants had not obtained leave from the Malaysian Courts to commence proceedings against the Plaintiff in Singapore, and that distribution ought to take place in Malaysia under Malaysian bankruptcy law.


The High Court upheld the Singapore bankruptcy order, finding that it was not unjust in the circumstances for the Plaintiff to be subjected to bankruptcy in both jurisdictions. Leave from the Malaysian Courts was not required as the Singapore proceedings were not an abuse of process, and there were benefits to having concurrent proceedings and an increased pool of assets. The Plaintiff also failed to show that distribution ought to take place in Malaysia as, although the majority of creditors were resident in Malaysia, there were also Singapore-based creditors, and the Plaintiff had no assets in Malaysia. Both bankruptcy regimes had successfully co-existed for a substantial period of time, and there was no reason to annul the Singapore bankruptcy order.

 

With cross-border bankruptcy proceedings being relatively common, this judgment provides some much needed insight into the interaction of the different bankruptcy regimes. In particular, it clarifies the application of certain provisions in the Bankruptcy Act governing the co-existence of Singaporean and Malaysian bankruptcy proceedings.


(iii) Mohd Zain bin Abdullah v Chimbusco International Petroleum (Singapore) Pte Ltd [2014] 2 SLR 446


Application for stay of bankruptcy proceedings – Standard of proof to be met and discretion of Court to order conditional stay


Bankruptcy and insolvency proceedings involve a balance of interests. On one hand, the Court seeks to ensure the claimant promptly obtains the fullest measure of his rights. On the other hand, the defendant must be afforded the right to defend himself. In this case, the Court of Appeal laid out the approach it would take to balance these concerns when dealing with applications for a stay of such proceedings.


The Appellants were guarantors of a debt owed to the Respondent. When insolvency proceedings were initiated against the Appellants, they sought to dispute the validity of the guarantees and the underlying debt. However, the High Court found their defence to be shadowy, and ordered only a conditional stay of bankruptcy proceedings, under which the Appellants had to provide full security for the sums claimed against them.


The Appellants failed to provide the security and were adjudicated to be bankrupt. Upon appeal to the Court of Appeal, the High Court’s decision was upheld. The applicable standard for stays of bankruptcy proceedings was held to be similar to that of resisting summary judgments – that is, the debtor need only raise triable issues. Further, the Court is entitled to impose any conditions it deems fit upon granting a stay of bankruptcy proceedings where the case advanced by the debtor is shadowy, taking into account competing concerns in imposing conditions, such as the pecuniary interests of the creditor, the size of the debt, the acknowledgement of triable issues, and the degree of shadowiness.


On the facts, the Court of Appeal found that the Appellants’ case was indeed shadowy. As such, the High Court was correct to impose a conditional stay of bankruptcy proceedings.


(iv) Interocean Holdings Group (BVI) Ltd v Zi-Techasia (Singapore) Pte Ltd (in liquidation) [2014] 2 SLR 485


Application for winding up of company to be stayed altogether – Considerations behind and effect of stay of winding up


The members of the Defendant company had resolved at an EGM to put the Defendant into voluntary winding up. However, they subsequently changed their minds and wanted to have the business reinstated. They thus applied to Court for an order that the winding up of the Defendant be stayed altogether. The High Court in this case had to consider whether it could order such a stay, as well as the effects of a stay.


The Court held that it possessed the power to order a stay of winding up proceedings altogether, and that this power was entirely discretionary. If the creditors, liquidators, and members of the company had consented to the stay, the Court would not stand in their way without good reason. In this case, all the relevant parties had no objection, and the stay was thus allowed.


The effect of the stay, whether for a voluntary or court-ordered winding up, was that the company would be put back in its former state. The duties of the liquidators would end, and the powers of the directors which were held in abeyance would continue. However, the stay would only take effect from the date of pronouncement.


(v) BNY Corporate Trustee Services Ltd v Celestial Nutrifoods Ltd [2014]4 SLR 331


Power to order production of documents in liquidation – Scope of power and grounds of opposition


When a company is in liquidation, s285 of the Companies Act allows the Court to order any relevant person to give information or produce documents relating to the company. Here, the High Court had to consider when such an order should be granted, as well as the scope of the grounds of opposition to an application for production.


The liquidator of a company sought access to documents from the company’s auditors, including their working papers and other primary documents. The auditors resisted the application on a number of grounds, calling into question the motivations of the liquidator, as well as alleging oppression. However, the High Court allowed the liquidator’s application, ordering the auditors to produce the requested documents.


The Courts have adopted an expansive approach towards s285, allowing its invocation where it would benefit the company. However, the purpose of the application and the oppression and inconvenience it causes must be balanced; s285 should not be used where the information can be otherwise obtained.


In this case, the Court rejected the auditors’ grounds of opposition:
(i) The auditors had not shown any lack of objectivity on the part of the liquidator.
(ii) Even though the working papers contained proprietary information, the application was not oppressive as the documents contained relevant information.


(iii) The Court was unconvinced by the suggestion that producing the primary records would breach the auditor’s civil confidentiality obligations, as well as certain criminal provisions on confidentiality and state secrets in the People’s Republic of China.


D) Admiralty & Shipping


(i) Abani Trading Pte Ltd v BNP Paribas [2014] 3 SLR 909


Payment under letter of credit – Whether bank has duty to examine documents or make further investigations


Letters of credit are a common financial instrument, particularly in the shipping industry. While they provide greater security and efficiency of payment, a certain level of risk is transferred to the issuing bank. In this case, the High Court considered the duties of a bank with respect to the examination of documents before paying under a letter of credit.
In this shipping transaction, a letter of credit was issued by the Defendant bank on the instructions of the Plaintiff. The Defendant eventually made payment upon the receipt of the necessary documents, including a bill of lading. However, the Plaintiff alleged that the bill of lading was not properly issued, and that the Defendant had breached its duty to by failing to exercise sufficient care in examining the relevant documentation.


The Court held that a letter of credit is an autonomous contract, and a bank is obliged to make payment once the document presented conform with the requirements of the credit, even if any breach of the underlying agreement is alleged. Banks are thus confined to dealing with the documents presented to them, and do not have to take into account matters or circumstances that are extraneous to the documents. Banks are generally not required to make further investigations into any allegations made.

 

Here, the bill of lading had been duly signed by a third party as agent for the carrier. Although the Plaintiff alleged that the third party was not actually the agent, the bill of lading was on its face a conforming document, and the Defendant was not required to check the veracity of its representations. Therefore, the Defendant had not breached its duty or the terms of the letter of credit.

 

(ii) Paragon Shipping Pte Ltd v Freight Connect (S) Pte Ltd [2014] 4 SLR 547


Apportionment of liability for delay in loading vessel – Distinguishing between berth charter and port charter


In this case, one of the issues the High Court had to consider was when a Notice of Readiness (“NOR”) can be given in order to be valid, which in turn rested on whether the fixture in question was a berth charter or a port charter.


The parties had entered into a fixture whereby the Plaintiff would transport cargo from Nanwei to Singapore. The first fixture failed due to anticipatory breach, and the parties then entered into a second fixture through email and oral negotiations. However, when the vessel reached Nanwei and tendered its NOR, it lost its berth booking as the Defendant had not supplied certain documents to the port authorities. Thus, one of the issues was which party was liable for the detention charges.


In reaching a decision, the Court explained the difference between a berth charter and a port charter. A berth charter is one that requires a vessel to proceed to a named berth or one that contains an express right for the charterers to nominate a berth. A port charter is one that requires the vessel to proceed for loading to a named port, but not to some particular berth.


Here, the second fixture was found to be a port charter as an email between the parties listed the ports of loading and discharge as Nanwei and Singapore respectively, and because the Defendant had agreed to the Plaintiff’s query if it could “proceed to bring the vessel to Nanwei port”, suggesting that the contractual destination was Nanwei port and not a named berth thereat. Therefore, the Plaintiff was entitled to tender the NOR on the date it arrived at Nanwei port, and liability for delay in loading the vessel shifted to the Defendant from then on. In any event, the Defendant would have been liable for the detention charges as it had failed to secure the documents for the cargo which would have allowed the vessel to obtain a berth.


E) Miscellaneous


(i) Alliance Concrete Singapore Pte Ltd v Sato Kogyo (S) Pte Ltd [2014] 3 SLR 857


Indonesian sand ban – Frustration of contract – Repudiatory breach of contract

 

The Indonesian sand ban of 2007 led to a great deal of upheaval in many construction and supply agreements, particularly in Singapore, where the active construction industry relied almost entirely on Indonesia as its source of sand. This Court of Appeal decision is the latest in a long line of resulting cases.


The case involved a series of contracts for the supply of ready-mixed concrete (“RMC”) which was interrupted by the Indonesian sand ban. The contracts eventually fell through, with both Supplier and Contractor commencing legal claims against the other. The Supplier sought to establish that the sand ban caused the contracts to be discharged by frustration, while the Contractor argued that the Supplier was in repudiatory breach of the agreements.

 

The Court of Appeal held in favour of the Supplier, finding that the sand ban did frustrate the contracts, as it was an unforeseen supervening event that left the parties without a viable alternative for sand. Further, both parties contemplated that Indonesian sand would be used for the RMC, resulting in a radical change in the obligation once the sand ban occured.


The Court also held that that the Contractor had failed to prove that the Supplier was in repudiatory breach of the contracts. Although the Supplier had attempted to obtain a higher price for the RMC, and eventually ceased the supply of RMC, the Court viewed it more as part of negotiations towards a definitive resolution rather than an intention to repudiate.

 
(ii) Giant Light Metal Technology (Kunshan) Co Ltd v Aksa Far East Pte Ltd [2014] 2 SLR 545


Enforcement of foreign judgments – Recognition and enforceability of judgment from PRC court


In this case, the Singapore High Court has issued a landmark judgment in what is believed to be the first instance of enforcement of a judgment from the People’s Republic of China (“PRC”). This decision provides some guidance on the issue of enforcement of foreign judgments, as well as the implications of participation in legal proceedings in the PRC and PRC awards.


The Plaintiff had obtained an award from the Suzhou Intermediate Court (“PRC Court”)against the Defendant for, inter alia, recovery of the purchase price paid by the Plaintiff to the Defendant (the “PRC Judgment”). The Plaintiff then sought to enforce this award in Singapore.


The Singapore High Court recognised that the case raised novel issues as to the enforcement of foreign judgments, but eventually held in favour of the Plaintiff. The Court found that the PRC Judgment was capable of both recognition and enforcement in Singapore. The PRC judgment was capable of recognition as (i) it was final and conclusive; (ii) the PRC Court had international jurisdiction over the Defendant; and (iii) there was no defence to the recognition of the judgment. It was also enforceable as it contained an obligation for the payment of a fixed sum of money.


(iii) Public Prosecutor v Hergobind s/o Arjandas Goklani [2014] SGDC 398


Dishonest receipt of stolen property – Degree of knowledge required for offence


Singaporeans have been hit by an increasing number of scams where they are convinced by third parties to help process and transfer stolen funds. Importantly, criminal liability may be incurred even if they did not know that the funds were stolen; all that is required is a reason to believe so. In this case, the Court examined the degree of knowledge necessary for the commission of this offence.


The Defendant had helped to transfer funds through his account for a woman he had met in an online chat room. The funds later turned out to have been stolen from an American account. The Defendant was thus charged with the dishonest receipt of stolen property, as well as removal of the property from the jurisdiction.


The Court acquitted the Defendant of all charges against him. On an assessment of the evidence, the Court found it more likely that he believed the legitimacy of Rose’s requests and did not have reason to believe that he was dealing with stolen property. Although the Prosecution alleged that the Defendant had ignored the red flags in the transaction, the Court found that the Defendant was genuinely infatuated with Rose, and was at most guilty of being careless in not noticing the alleged red flags.

 

Importantly, the Court clarified that the offence required the establishment of a “reason to believe” that the property was stolen. While actual certainty of mind is not required, it is not enough to have a mere suspicion or to be careless in enquiry.

 

Rajah & Tann

 

For further information, please contact:

 

Andre Yeap, Partner, Rajah & Tann
[email protected]


Kwan Kiat Sim, Partner, Rajah & Tann 
[email protected]


Kendall Tan, Partner, Rajah & Tann
[email protected]


Francis Xavier SC, Partner, Rajah & Tann
[email protected]


Mark Cheng, Partner, Rajah & Tann
[email protected]


Ian Teo, Partner, Rajah & Tann
[email protected]

 

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