Sinwa SS (HK) Co Ltd v Morten Innhaug: Derivative Action & Director's Duties

In Sinwa SS (HK) Co Ltd v Morten Innhaug, the High Court of Singapore, on 2010-05-24, dismissed Sinwa SS (HK) Co Ltd's application for leave to bring a derivative action on behalf of Nordic International Limited (NIL) against Morten Innhaug for alleged breaches of his duties as a director of NIL. The court, presided over by Andrew Ang J, cited procedural errors, the availability of alternative remedies such as arbitration, and a lack of good faith on the part of Sinwa SS (HK) Co Ltd in bringing the action.

1. Case Overview

1.1 Court

High Court

1.2 Outcome

Application dismissed

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Sinwa SS (HK) sought leave for a derivative action against Innhaug for breach of director's duties. The court dismissed the application, citing procedural errors and alternative remedies.

1.7 Decision Date

2. Parties and Outcomes

Party NameRoleTypeOutcomeOutcome TypeCounsels
Morten InnhaugDefendantIndividualApplication dismissedWon
Sinwa SS (HK) Co LtdPlaintiffCorporationApplication dismissedLost

3. Judges

Judge NameTitleDelivered Judgment
Andrew AngJudgeYes

4. Counsels

Counsel NameOrganization
Joseph TanLegal Solutions LLC
Lim Pei Ling JuneTan Peng Chin LLC
Gopinath s/o B PillaiTan Peng Chin LLC

4. Facts

  1. Sinwa SS (HK) Co Ltd sought leave to bring a derivative action against Morten Innhaug on behalf of Nordic International Limited (NIL).
  2. Innhaug was a director and shareholder of NIL, which owned the vessel BGP ATLAS.
  3. Sinwa entered into a shareholders’ agreement with Innhaug, becoming equal shareholders of NIL.
  4. Sinwa alleged Innhaug breached his duties as a director of NIL in several ways.
  5. The main complaint concerned the assignment of a Time Charter from BGP to NGS, a company controlled by Innhaug.
  6. Sinwa also alleged misappropriation of funds and discrepancies in NMPL’s management of the vessel.
  7. The directors appointed by Innhaug did not support legal action against him.

5. Formal Citations

  1. Sinwa SS (HK) Co Ltd v Morten Innhaug, Originating Summons No 960 of 2009, [2010] SGHC 157

6. Timeline

DateEvent
Ship management agreement signed between NIL and NMPL
NIL bought the vessel BGP ATLAS
Sinwa stepped into the picture
Time Charter agreement signed between NIL and BGP
Time Charter between BGP and NIL began
Shareholders’ Agreement entered into between Sinwa and Morten Innhaug
Sinwa’s rights and obligations under the Shareholders’ Agreement were novated to the plaintiff
Plaintiff came to know that a sum of US$400,000 had been loaned to Haydock International Ltd
Memorandum of Agreement entered into between NMPL, BGP and TGS
Kjell Gauksheim informed the plaintiff that NMPL had taken over the seismic operation of the vessel
Plaintiff was informed of the assignment of the Time Charter
Notice of assignment was signed between BGP and NGS
Plaintiff formally issued a letter to the defendant stating its objections
Vessel was laid up at anchorage
NGS proposed a solution to NIL regarding the charter hire
Plaintiff issued a “Notice of Intention to Apply for Leave of Court” to the directors of NIL
Defendant filed affidavit
Decision Date

7. Legal Issues

  1. Breach of Director's Duties
    • Outcome: The court found that the defendant may have breached his duty as a director of NIL by refusing to support legal proceedings taken out against BGP.
    • Category: Substantive
    • Sub-Issues:
      • Conflict of interest
      • Failure to act in the best interests of the company
      • Failure to disclose interest
    • Related Cases:
      • [1982] Ch 204
  2. Derivative Action
    • Outcome: The court dismissed the application for leave to commence a derivative action due to procedural errors, the availability of alternative remedies, and a lack of good faith.
    • Category: Procedural
    • Sub-Issues:
      • Locus standi
      • Fraud on the minority exception
      • Alternative remedies
    • Related Cases:
      • [1982] Ch 204

8. Remedies Sought

  1. Leave to bring a derivative action
  2. Damages for breach of duty

9. Cause of Actions

  • Breach of Director's Duties
  • Breach of Fiduciary Duty

10. Practice Areas

  • Commercial Litigation
  • Corporate Law

11. Industries

  • Maritime
  • Shipping
  • Oil and Gas

12. Cited Cases

Case NameCourtAffirmedCitationJurisdictionSignificance
Prudential Assurance Co Ltd v Newman Industries Ltd (No 2)English Court of AppealYes[1982] Ch 204England and WalesCited for the principle that a minority shareholder may bring an action on behalf of a company against the majority shareholder when fraud has been committed and the majority shareholder is in control of the company.
Ting Sing Ning v Ting Chek SweeCourt of AppealYes[2008] 1 SLR(R) 197SingaporeCited to support the point that the plaintiff was unable to avail itself of the remedy provided in s 216A of the Companies Act because NIL was a company incorporated in the British Virgin Islands.
Abdul Rahim bin Aki v Krubong Industrial Park (Melaka) Sdn BhdMalaysian Court of AppealYes[1995] 3 MLJ 417MalaysiaCited for the proper procedure to start a derivative action.
Agus Irawan v Toh Teck ChyeHigh CourtYes[2002] 1 SLR(R) 471SingaporeCited for the principle that the court need not and ought not be drawn into an adjudication on the disputed facts at the stage of ascertaining whether to grant leave for an action to be brought.
Pang Yong Hock v PKS Contracts Services Pte LtdCourt of AppealYes[2004] 3 SLR(R) 1SingaporeCited for approving the approach in Agus Irawan.
Re Marc-Jay Investments Inc and LevyN/AYes(1975) 5 OR (2d) 235CanadaCited for the principle that the application ought to be denied if it appears that the intended action is frivolous or vexatious or is bound to be unsuccessful.
Teo Gek Luang v Ng Ai TiongHigh CourtYes[1998] 2 SLR(R) 426SingaporeCited for the principle that the application ought to be denied if it appears that the intended action is frivolous or vexatious or is bound to be unsuccessful.
Furs Limited v TomkiesAustralian High CourtYes(1935) 35 CLR 583AustraliaCited for the rationale behind the “no profit” rule.
Aberdeen Rail Co v Blaikie BrothersN/AYes[1843–60] All ER 249N/ACited for the principle that a director is under an obligation not to place himself in a position where the interests of the company whom he is bound to protect comes into conflict with either his personal interest or the interest of a third party for whom he acts.
Prudential Assurance Co Ltd v Newman Industries Ltd (No 2)High CourtYes[1981] Ch 257England and WalesCited for Vinelott J's approach to understanding the term “fraud”.
Burland v EarlePrivy CouncilYes[1902] AC 83United KingdomCited for the principle that a case of dishonesty or cheating by a director would qualify as an unratifiable wrong.
Estmanco (Kilner House) Ltd v Greater London CouncilN/AYes[1982] 1 WLR 2England and WalesCited for the principle that the ambit of unratifiable wrongs also extends beyond dishonesty and cheating.
Re Tri-Circle Investment Pte LtdHigh CourtYes[1993] 1 SLR(R) 441SingaporeCited for the principle that it is not the role of the courts to act as arbiters of management decisions by the directors unless there is evidence of their voting power being exercised for an improper purpose or in bad faith.
Barrett v DuckettEnglish Court of AppealYes[1995] BCC 243England and WalesCited for the approach that the crucial question is not whether the defendant had the requisite shareholding but whether the defendant was able to prevent an action from being brought against him.
Portfolios of Distinction Ltd v LairdEnglish High CourtYes[2005] BCC 216England and WalesCited for the principle that if an applicant failed to satisfy either condition, the court should generally not exercise its discretion to grant leave to start a derivative action, even if the fraud on the minority exception was made out.
Ferguson v WallbridgePrivy CouncilYes[1935] 3 DLR 66United KingdomCited for the principle that the necessity of a derivative action must be established before such an action should be allowed to be brought before the courts.
Nurcombe v NurcombeN/AYes(1984) 1 BCC 99,269England and WalesCited for the principle that whoever comes forward to start the proceedings must be doing so for the benefit of the company and not for some other purpose.

13. Applicable Rules

Rule Name
Rules of Court (Cap 322, R5, 2006 Rev Ed)

14. Applicable Statutes

Statute NameJurisdiction
Companies Act (Cap 50, 2006 Rev Ed)Singapore

15. Key Terms and Keywords

15.1 Key Terms

  • Derivative action
  • Director's duties
  • Fraud on the minority
  • Time Charter
  • Shareholders’ Agreement
  • Assignment
  • Locus standi
  • NIL
  • BGP
  • NGS
  • NMPL

15.2 Keywords

  • Derivative action
  • Director's duties
  • Minority shareholder
  • Company law
  • Singapore
  • High Court
  • Foss v Harbottle
  • Fraud on the minority exception

17. Areas of Law

Area NameRelevance Score
Derivative action85
Fiduciary Duties80
Shareholder Disputes75
Company Law75
Corporate Law70
Minority Shareholder Rights70
Corporate Litigation65
Commercial Disputes60
Contract Law50
Arbitration30
Shipping Law25

16. Subjects

  • Company Law
  • Corporate Governance
  • Civil Litigation