Koon Seng v Chenab: Illegality & Public Policy in Share Allotment Dispute

In Koon Seng Construction Pte Ltd v Chenab Contractor Pte Ltd, the Singapore High Court addressed a dispute over the forfeiture of 700,000 shares held by Koon Seng in Chenab. Koon Seng sought a declaration that the forfeiture was invalid, while Chenab counterclaimed for the subscription sum of $700,000. The court, after reviewing the evidence, found that the share allotment agreement was a sham intended to mislead PSA. Consequently, the court dismissed both the claim and the counterclaim, invoking the principle of ex turpi causa non oritur actio.

1. Case Overview

1.1 Court

High Court

1.2 Outcome

Action dismissed; counterclaim dismissed.

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Koon Seng Construction sues Chenab Contractor over forfeited shares. The court examines the legality of the share allotment agreement.

1.7 Decision Date

15 November 2007

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
Koon Seng Construction Pte Ltd	Plaintiff	Corporation	Claim Dismissed	Lost	Twang Kern Zern of Central Chambers Law Corporation Ronnie Tan of Central Chambers Law Corporation
Chenab Contractor Pte Ltd	Defendant	Corporation	Counterclaim Dismissed	Lost	Winston Quek of B T Tan & Co
Raj Dev s/o Ram Singh	Defendant	Individual	Counterclaim Dismissed	Lost	Winston Quek of B T Tan & Co

3. Judges

Judge Name	Title	Delivered Judgment
Belinda Ang Saw Ean	Judge	Yes

4. Counsels

Counsel Name	Organization
Twang Kern Zern	Central Chambers Law Corporation
Ronnie Tan	Central Chambers Law Corporation
Winston Quek	B T Tan & Co

4. Facts

Koon Seng and Raj had a long-standing business relationship.
Chenab needed to raise its paid-up capital to $1.5m to qualify for the PSA tender.
Koon Seng was allotted 700,000 shares in Chenab on 15 November 1999.
Chenab's issued share capital was reflected as $1.5m in documentation lodged with ACRA.
Chenab sent Koon Seng a notice demanding payment of $700,000 for the Shares on 26 March 2005.
Koon Seng petitioned to wind up Chenab on just and equitable grounds on 28 March 2005.
Chenab passed a resolution to forfeit the Shares for non-payment on 12 April 2005.

5. Formal Citations

Koon Seng Construction Pte Ltd v Chenab Contractor Pte Ltd and Another, Suit 250/2005, [2007] SGHC 196

6. Timeline

Date	Event
1999-01-01	Chenab was interested in securing a lucrative contract for the provision of workers for lashing/unlashing of containers including drivers for prime movers including forklift drivers at PSA Distripark and Container Logistics Department
1999-11-15	Koon Seng was allotted the Shares.
2000-09-16	Chenab faxed to Koon Seng a printout of a Registry of Company Computer Information (Business Profile) search showing Chenab’s paid up capital as $1.5m and Koon Seng as one of its registered shareholders with 700,000 ordinary shares.
2005-02-16	Suit No 111 of 2005 was filed by Koon Seng against the defendants.
2005-03-26	The directors of Chenab sent Koon Seng a notice demanding payment of $700,000 for the Shares.
2005-03-28	Koon Seng, as shareholder, petitioned to wind up Chenab on just and equitable grounds.
2005-04-05	Suit No 111 of 2005 was ordered to be stayed pending the determination of the winding up petition.
2005-04-12	The directors of Chenab passed a resolution to forfeit the Shares for non-payment.
2007-11-16	Judgment reserved.

7. Legal Issues

Validity of Share Forfeiture
- Outcome: The court found the share forfeiture invalid due to the illegal nature of the share allotment agreement.
- Category: Substantive
Illegality of Share Allotment Agreement
- Outcome: The court held that the share allotment agreement was a sham and illegal as it was intended to mislead PSA.
- Category: Substantive
Application of Ex Turpi Causa Non Oritur Actio
- Outcome: The court applied the ex turpi causa principle, refusing to assist either party due to their involvement in the illegal scheme.
- Category: Substantive

8. Remedies Sought

Declaration that the forfeiture of shares is invalid
Reinstatement of Koon Seng as shareholder
Damages
Counterclaim for payment of $700,000 with interest

9. Cause of Actions

Breach of Contract
Declaration of Invalidity of Share Forfeiture

10. Practice Areas

Commercial Litigation

11. Industries

Construction
Labour Supply

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
Wills v Jimah Rubber Estate Ltd	N/A	Yes	[1911] 12 SLR 112	Singapore	Distinguished on the facts regarding share certificate estoppel.
Clunis v Camden and Islington Health Authority	N/A	Yes	[1998] 2 WLR 902	England and Wales	Cited for the principle that the court will not aid a litigant who relies on his own criminal or immoral act.
Holman v Johnson	N/A	Yes	[1775] 1 Cowp. 341	England and Wales	Cited for the classic statement of the ex turpi causa principle.
Beresford v Royal Insurance Co Ltd	N/A	Yes	[1938] AC 586	England and Wales	Cited as a leading case on the principle that no court would assist a criminal to derive benefit from his crime.
Saunders v Edwards	N/A	Yes	[1987] 1 WLR 1116	England and Wales	Cited for the pragmatic approach to the application of the ex turpi principle.
North-Western Salt Company v Electrolytic Alkali Company Ltd	N/A	Yes	[1914] AC 461	England and Wales	Cited for the four propositions regarding illegality in contracts.
Edler v Auerbach	N/A	Yes	[1950] 1 KB 359	England and Wales	Authority cited by Mr Quek regarding the four propositions regarding illegality in contracts.
Lewis & Queen v NM Ball & Sons	N/A	Yes	(1957) 48 Cal. 2d 141	California	Cited for the principle that the court may raise the issue of illegality of its own motion.
Stone & Rolls Ltd (in Liquidation) v Moore Stephens (A Firm) and another	N/A	Yes	[2007] EWHC 1826	England and Wales	Cited for the circumstances in which the court of its own motion will apply the ex turpi principle.
Lane v Holloway	N/A	Yes	[1968] 1 QB 379	England and Wales	Cited in relation to the causal connection with the conduct.
Tinsley v Milligan	N/A	Yes	[1994] 1 AC 340	England and Wales	Cited for the principle that a party cannot rely on his own illegality in order to prove his equitable right.
Timothy Hewison v Meridian Shipping and Another	N/A	Yes	[2002] EWCA Civ 1821	England and Wales	Put forward a broad test for the ex turpi principle to apply, namely whether is the claim or the relevant part of it based substantially (and not therefore collaterally or insignificantly) on an unlawful act.
Siow Soon Kim and others v Lim Eng Beng @ Lim Jia Le	Court of Appeal	Yes	[2004] SGCA 4	Singapore	Cited for the relevance of the intention of the parties whenever the question of illegality arises.
Suntoso Jacob v Kang Miao Ming	N/A	Yes	[1986] SLR 59	Singapore	Cited for the relevance of the intention of the parties whenever the question of illegality arises.
Snook v London & West Riding Investments Ltd	N/A	Yes	[1967] 2 QB 786	England and Wales	Cited for the definition of a sham transaction.
TKM (Singapore) Pte Ltd v Export Credit Insurance Corporation of Singapore Ltd	N/A	Yes	[1993] 1 SLR 1041	Singapore	Cited for the test to ascertain whether the documents represent the true relationship between the parties.
Yorkshire Wagon Co v Maclure	N/A	Yes	(1881) 19 Ch D 478	England and Wales	Cited for the test to ascertain whether the documents represent the true relationship between the parties.
Brown Jenkinson & Co Ltd v Percy Dalton (London) Ltd	N/A	Yes	[1957] 2 QB 621	England and Wales	Cited for the principle that an agreement made with the object of deceiving a third party is illegal.
Hodgson v Temple	N/A	Yes	(1813) 5 Taunt 180	England and Wales	Cited for the principle that it is necessary that the vendor should be a participant in the illegal transaction; mere knowledge was not sufficient.
Young v Queensland Trustees Ltd	N/A	Yes	[1956] 99 CLR 560	Australia	Cited for the principle that in the case involving a loan and where the issue is whether there has been repayment, the onus rests upon the defendant to prove that the debt was repaid

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute Name	Jurisdiction
Companies Act (Cap 50, Rev Ed 2006)	Singapore
Companies Act s 63(1)	Singapore
Companies Act ss 199	Singapore
Companies Act s 401	Singapore
Companies Act s 76	Singapore

15. Key Terms and Keywords

15.1 Key Terms

Share forfeiture
Share allotment
Paid-up capital
PSA Contract
Ex turpi causa non oritur actio
Sham transaction
Financial assistance
Directors' resolution
Audited accounts
ACRA
Illegality
Public policy

15.2 Keywords

share forfeiture
illegality
public policy
sham transaction
companies act
construction
labour supply

17. Areas of Law

Area Name	Relevance Score
Company Law	80
Contract Law	75
Illegality and public policy	70
Sham Transaction	65
Commercial Disputes	60
Fraud and Deceit	50
Winding Up	40

16. Subjects

Company Law
Contract Law
Share Allotment
Illegality
Public Policy