Tam Tak Chuen v Eden Aesthetics: Derivative Action for Breach of Director's Duties

In Tam Tak Chuen v Eden Aesthetics Private Limited, the High Court of Singapore heard an application by Dr. Tam Tak Chuen for leave to commence derivative proceedings on behalf of Eden Aesthetics Private Limited and Eden Healthcare Pte Ltd against Dr. Khairul Bin Abdul Rahman for breach of director's duties. Dr. Khairul applied to wind up the companies. The court, per Judith Prakash J, allowed Dr. Tam's application and stayed the winding up applications, finding that the requirements of Section 216A(3) of the Companies Act were met.

1. Case Overview

1.1 Court

High Court

1.2 Outcome

Dr Tam's application for leave to commence derivative proceedings on behalf of Eden Aesthetics Private Limited and Eden Healthcare Pte Ltd was allowed, and the winding up applications were stayed.

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Dr. Tam seeks derivative action against Dr. Khairul for breach of director's duties by diverting business. The court allowed the action and stayed winding-up applications.

1.7 Decision Date

2. Parties and Outcomes

Party NameRoleTypeOutcomeOutcome TypeCounsels
Tam Tak ChuenPlaintiffIndividualApplication AllowedWon
Eden Aesthetics Private LimitedDefendantCorporationNeutralNeutral
Eden Healthcare Pte LtdDefendantCorporationNeutralNeutral
Khairul Bin Abdul RahmanOtherIndividualApplication DeniedLost
KAR Pte LtdOtherCorporationApplication DeniedLost

3. Judges

Judge NameTitleDelivered Judgment
Judith PrakashJudgeYes

4. Counsels

Counsel NameOrganization
Ang Cheng HockAllen & Geldhill LLP
Tham Wei ChernAllen & Geldhill LLP
See Chern YangPremier Law LLC
Chan Kin YewPremier Law LLC

4. Facts

  1. Dr. Tam and Dr. Khairul were directors and equal shareholders of EA and EH.
  2. Dr. Khairul incorporated KAR, which provided similar medical services as EA and EH.
  3. Dr. Khairul transferred the business of Eden Family Clinic from EH and EA to KAR.
  4. KAR received $1,109,129 and $1,492,864 in revenue in 2007 and 2008 respectively.
  5. Dr. Khairul was paid $540,000 in directors’ fees in 2008.
  6. EH’s and EA’s combined revenue dropped to $71,695 in 2007 after the transfer.
  7. Dr. Tam filed an application for leave to commence derivative proceedings.

5. Formal Citations

  1. Tam Tak Chuen v Eden Aesthetics Private Limited and another, Originating Summons No 658 of 2009, [2010] SGHC 24

6. Timeline

DateEvent
Dr Tam and Dr Khairul began medical practice together in partnership under the style of “Eden Family Clinic”.
Cracks began to appear in the relationship between Dr Tam and Dr Khairul.
Dr Khairul installed a closed circuit camera in the clinic.
Dr Khairul incorporated KAR Pte Ltd.
Dr Khairul obtained evidence of Dr Tam’s activities via the closed circuit camera.
Dr Khairul confronted Dr Tam with video footage and demanded share transfers.
Dr Tam executed share transfers of his shares in EA and EH in favour of Dr Khairul.
Dr Tam made a police report against Dr Khairul.
Dr Tam informed Dr Khairul that he regarded the share transfers and his resignation as director as invalid.
Dr Khairul transferred the business of Eden Family Clinic from EH and EA to KAR.
Dr Tam commenced an action against Dr Khairul to set aside the share transfers and his removal as director.
Dr Tam obtained a court order to compel Dr Khairul to provide him with a copy of the financial documents of EA and EH.
Dr Tam filed an application for leave to commence derivative proceedings.
Dr Khairul filed CWU 111 and CWU 112 to wind up EH and EA.
The court allowed Dr Tam’s application and stayed the two winding up applications.

7. Legal Issues

  1. Breach of Director's Duties
    • Outcome: The court found that there was a prima facie case of breach of director's duties.
    • Category: Substantive
    • Sub-Issues:
      • Diversion of business
      • Conflict of interest
  2. Derivative Action
    • Outcome: The court granted leave to commence derivative proceedings.
    • Category: Procedural
    • Sub-Issues:
      • Good faith
      • Interests of the company
      • Sufficient notice
    • Related Cases:
      • [2004] 3 SLR (R) 1
      • [2008] 1 SLR (R) 197

8. Remedies Sought

  1. Leave to commence derivative proceedings
  2. Damages for losses suffered by EA and EH
  3. Account of profits made by Dr Khairul and KAR

9. Cause of Actions

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

10. Practice Areas

  • Commercial Litigation
  • Corporate Law

11. Industries

  • Healthcare

12. Cited Cases

Case NameCourtAffirmedCitationJurisdictionSignificance
Tam Tak Chuen v Khairul bin Abdul Rahman and OthersHigh CourtYes[2009] 2 SLR (R) 240SingaporeDetails the breakdown of the relationship between Dr. Tam and Dr. Khairul and the consequences of the same, which led to the application for derivative proceedings.
L & B Electric Limited v OickleNova Scotia Court of AppealYes[2006] NSCA 41CanadaCited for the principle that the burden of establishing good faith in a derivative action is satisfied by a preponderance of evidence.
Pang Yong Hock and Another v PKS Contracts Services Pte LtdCourt of AppealYes[2004] 3 SLR (R) 1SingaporeCited for guidance on how good faith is to be established in the context of Section 216A applications.
Ting Sing Ning v Ting Chek Swee and othersCourt of AppealYes[2008] 1 SLR (R) 197SingaporeCited to clarify that the availability of winding up as an alternative does not automatically preclude leave for derivative action.

13. Applicable Rules

Rule Name
No applicable rules

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
  • Good faith
  • Winding up
  • Share transfers
  • Fiduciary duty
  • Conflict of interest

15.2 Keywords

  • Derivative action
  • Director's duties
  • Companies Act
  • Winding up
  • Singapore
  • High Court

17. Areas of Law

Area NameRelevance Score
Director's Duties95
Fiduciary Duties90
Derivative Proceedings85
Company Law80
Corporate Law75
Winding Up65
Business Litigation60

16. Subjects

  • Company Law
  • Corporate Governance
  • Civil Litigation