Top Banner

Click here to load reader

[2010] 2 SLR 0776

Apr 08, 2016




[2010] 2 SLR 0776


    Over & Over Ltd v

    Bonvests Holdings Ltd and another

    [2010] SGCA 7

    Court of Appeal Civil Appeal No 141 of 2008Chao Hick Tin JA, Andrew Phang Boon Leong JA and V K Rajah JA27 July 2009; 24 February 2010

    Companies Oppression Minority shareholders Prejudice suffered by minoritythrough single act and persistent course of conduct Holistic assessment of events inassessing whether oppression made out under s 216 Companies Act (Cap 50,2006 Rev Ed) Different standards for oppression in context of quasi-partnerships Issuance of shares for collateral purposes Abuse of majority voting rights Fairness of related party transactions that benefitted joint venture Whetherdiscount on minority stake required for buyout order given absence of other minorityinterests


    Sometime in 1980, the Appellant and Unicurrent Finance Limited(Unicurrent) incorporated a joint venture company, Richvein Pte Ltd(Richvein), to develop and operate the Sheraton Towers Singapore (theHotel). Unicurrent held 70% of the shares in Richvein while the Appellant heldthe remaining 30%. The discussions between the parties leading to theincorporation of Richvein were undocumented and largely based on trust.

    Initially, the Hotels operations proceeded smoothly and the workingrelationship between the parties was uneventful. In 1991, however, Henry Ngo(HN), whose family controlled both the Respondent and Unicurrent,purported to terminate an extant Richvein hotel management contract withoutconsulting the Appellant. Although a compromise arrangement was eventuallyreached by the parties on this matter, it later transpired that other contracts formanagement, waste disposal and cleaning services vis--vis the Hotel were, atHNs behest, all not placed before Richveins board of directors. Subsequently,the Appellant alleged that HN had taken these courses of action in order todivert Richveins contracts to other related companies in which he heldsubstantial interests.

    In 2002, HN decided that the Respondent should acquire Unicurrents 70%shareholding in Richvein. Two choices were presented to the Appellant: it couldeither consent to an outright sale by Unicurrent of its shares in Richvein to theRespondent, or the Respondent would simply buy over all of Unicurrentsshares. Confronted with this Hobsons choice, the Appellant reluctantlyconsented to the sale.

    In 2006, following the Appellants refusal to cooperate in taking up a certain re-financing package for an earlier loan taken out by Richvein, HN decided that arights issue would be an appropriate mechanism to pay off that same loan.Despite objections and repeated requests from the Appellant for documents and

    [2010] 2 SLR Part Page 776 Monday, May 17, 2010 2:34 PM

  • [2010] 2SLR Over & Over Ltd v Bonvests Holdings Ltd 777

    for an analysis of the cash flow requirements of Richvein, the rights issue washastily completed at an issue price of $0.38 per rights share, a price that wouldresult in the maximum dilution of the Appellants share if the Appellant doesnot take up the rights.

    After considering the above incidents cumulatively, however, the trial judgenonetheless found that the Appellant had not made out its claim for oppressiveand/or unfairly prejudicial conduct under s 216 of the Companies Act (Cap 50,2006 Rev Ed). He held that while HN had failed to comply with the spirit ofRichveins Articles of Association by not placing the various related-partycontracts before the board, this was only a technical breach and in any case theAppellant had been aware of HNs interests in the various related companies.The trial judge also reasoned that since the Appellant had negotiated for theremoval of pre-emption rights in return for its consent to the sale by Unicurrentof its shares in Richvein to the Respondent, it could not later complain about thesale. Finally, he concluded that the rights issue had been decided upon becauseof the Appellants own intransigence, and in any event the availability of othermeans of loan repayment did not necessarily make the rights issue unfair.

    Held, allowing the appeal:

    (1) Based on a plain reading of s 216(1), either a course of conduct or even asingle act could theoretically amount to minority oppression. The test to applyin cases of single-act injustice would be the same as the test already applied incases of continuing conduct injustice, viz, a visible departure from thestandards of fair dealing and a violation of the conditions of fair play which ashareholder is entitled to expect. Re Kong Thai Sawmill (Miri) Sdn Bhd [1978] 2MLJ 227 endorsed: at [74] and [77].

    (2) In deciding whether to grant relief under s 216, the court had to take intoaccount both the legal rights and the legitimate expectations of members. Whilethese legal rights and expectations were usually enshrined in the companysconstitution in the majority of cases, a special class of quasi-partnershipcompanies form an exception to this rule. Due to the peculiar vulnerability ofminority shareholders in such companies premised on informal understandingsand assumptions, the court should apply a stricter yardstick of scrutiny: at [78],[83] and [84].

    (3) Given the brevity and informality of the parties negotiations leading toRichveins incorporation, as well as the existence of an understanding that therewould be a mutual consultation on important decisions, Richvein had to havestarted life as a quasi-partnership in 1980. However, as a result of eventsengendered mainly by HNs later actions, a fundamental change in the characterof the parties relationship was precipitated and what began as a closely knitpartnership underpinned by private share ownership was eventually replaced bya going concern that was effectively a listed subsidiary of the Respondent:at [87], [90] and [97].

    (4) While HNs conduct with respect to the related party transactions did notamount to oppression per se, and appeared to have been both disclosed and withRichveins strategic interests at heart, this did not preclude its furtherconsideration for the purposes of assessing holistically the entire manner in

    [2010] 2 SLR Part Page 777 Monday, May 17, 2010 2:34 PM


    which the affairs of Richvein had been conducted apropos the Appellant:at [99][100].

    (5) Merely because a shareholder did not immediately initiate legalproceedings complaining about treatment unfairly dished out to him did notmean that he was precluded from doing so subsequently. If Unicurrents shareswere going to be transferred to the Respondent whether directly or indirectly,the fact that the Appellant did eventually settle for one of the two unhappyalternatives did not mean that it could not keep its powder keg dry. TheAppellant was not precluded from subsequently asserting, correctly, that it hadsuffered prejudice in being locked in a new business relationship with a listedpublic company that bore no resemblance to the implicit understanding theparties had when Richvein was first incorporated: at [103] and [105].

    (6) The issue of shares for any reason other than to raise capital for instance,to dilute the voting power of others amounted to a breach of fiduciary dutiesand also oppression if the directors representing the majority cast their votes inbad faith. Here, the entirely unnecessary haste in deciding on and musclingthrough the rights issue for Richvein, coupled with the complete absence of anycommercial justification for the exercise, simply went to show how capriciousthe whole process was. It smacked of an abuse of rights and was sufficient, as asingle act, to amount to oppression: at [122], [127] and [130].

    (7) The rights issue and the share transfer, viewed in conjunction with theoverarching background of the related party transactions, comprised clearevidence of unfairness that amounted to oppressive conduct against theAppellant. This was not a case of just a single isolated act or episode of minorityoppression, but rather a deliberate course of conduct that steadily grew inbrazenness with the passage of time. Nonetheless, as a quasi-partnershipbetween the parties had existed, the rights issue alone would also have beensufficient for a finding of oppression: at [129] and [130].

    (8) As the breakdown in the relationship between the parties was entirelybrought about by HNs inappropriate conduct, it would have been unfair for theAppellant to sell its shares in Richvein to the Respondent at a discount on thebasis of its minority stake. In this connection it was significant that there were noother minority interests involved and were the Respondent to purchase theAppellants shareholding in Richvein, it would become the sole shareholder of avaluable asset: at [132].

    Case(s) referred toCompany (No 007623 of 1984), Re a [1986] BCLC 362 (distd)Cumana Ltd, Re [1986] BCLC 430 (folld)Dato Ting Check Sii v Datuk Haji Mohamad Tufail bin Mahmud [2007] 7 MLJ

    618 (refd)Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (refd)Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821 (refd)Jermyn Street Turkish Baths Ltd, Re [1971] 1 WLR 1042; [1971] 3 All ER 184

    (refd)Kokotovich Constructions Pty Ltd v Wallington (1995) 13 ACLC 1113 (folld)Kong Thai Sawmill (Miri) Sdn Bhd, Re [1978] 2 MLJ 227 (folld)

    [2010] 2 SLR Part Page 778 Monday, May 17, 2010 2:34 PM

  • [2010] 2SLR Over & Over Ltd v Bonvests Holdings Ltd 779

    Lim Swee Khiang v Borden Co (Pte) Ltd [2006] 4 SLR(R) 745; [2006] 4 SLR 745 (folld)

    Low Peng Boon v Low Janie [1999] 1 SLR(R) 337; [1999] 1 SLR 761 (folld)Phoenix Office Supplies Ltd v Larvin [2003] BCC 11 (folld)Polybuilding (S) Pte Ltd v Lim Heng Lee [2001] 2 SLR(R) 12; [2001] 3 SLR 184

    (folld)Saul D Harrison & Sons plc, Re [1995] 1