Chang Benety v Tang Kin Fei: Validation of Resolutions Passed at Inquorate Directors' Meetings

In Chang Benety and others v Tang Kin Fei and others, the Court of Appeal of Singapore heard an appeal against the High Court's decision to validate resolutions passed at several inquorate directors’ meetings of PPL Shipyard Pte Ltd. The Appellants, Chang Benety, Anthony Aurol and Douglas Tan, argued that the resolutions were invalid due to a lack of quorum and caused substantial injustice. The Respondents, Tang Kin Fei and others, contended that the irregularities were procedural and did not result in substantial injustice. The Court of Appeal allowed the appeal, finding that validating the resolutions would cause substantial injustice to the Appellants.

1. Case Overview

1.1 Court

Court of Appeal

1.2 Outcome

Appeal Allowed

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

The Court of Appeal addressed the validity of resolutions passed at inquorate directors' meetings, focusing on whether irregularities caused substantial injustice. The appeal was allowed.

1.7 Decision Date

2. Parties and Outcomes

Party NameRoleTypeOutcomeOutcome TypeCounsels
Chang BenetyAppellantIndividualAppeal AllowedWonLim Teong Jin George, Foo Say Tun
Anthony AurolAppellantIndividualAppeal AllowedWonLim Teong Jin George, Foo Say Tun
Douglas TanAppellantIndividualAppeal AllowedWonLim Teong Jin George, Foo Say Tun
Tang Kin FeiRespondentIndividualAppeal DismissedLostThio Shen Yi, Karen Teo
PPL Shipyard Pte LtdOtherCorporation

3. Judges

Judge NameTitleDelivered Judgment
Chan Sek KeongChief JusticeNo
Andrew Phang Boon LeongJustice of the Court of AppealYes
V K RajahJustice of the Court of AppealNo

4. Counsels

Counsel NameOrganization
Lim Teong Jin GeorgeWee, Tay & Lim LLP
Foo Say TunWee, Tay & Lim LLP
Thio Shen YiTSMP Law Corporation
Karen TeoTSMP Law Corporation

4. Facts

  1. The Company was incorporated in 1997 and is in the business of designing and constructing offshore drilling rigs.
  2. Prior to 2001, the majority shareholders of the Company were PPL Holdings Pte Ltd and E-Interface Holdings Ltd.
  3. In 2003, Sembcorp Marine Ltd increased its shareholding in the Company to 85%.
  4. The Appellants and Respondents are all directors of the Company.
  5. A shareholders’ agreement provided that the quorum for a director’s meeting is two, provided that at least one director from PPLH and SCM are present.
  6. SCM lodged complaints with the Company that Chang and Aurol had allegedly breached their duty to the Company.
  7. The Respondents passed resolutions at board meetings in the absence of the Appellants.

5. Formal Citations

  1. Chang Benety and others v Tang Kin Fei and others, Civil Appeal No 148 of 2010, [2011] SGCA 59
  2. Tang Kin Fei and others v Chang Benety and others, , [2011] 1 SLR 568

6. Timeline

DateEvent
PPL Shipyard Pte Ltd incorporated.
50% of the shares of the Company were sold by PPLH to Sembcorp Marine Ltd.
Shareholders’ agreement entered into between PPHL and SCM.
E-Interface became a wholly-owned subsidiary of PPLH.
SCM increased its shareholding in the Company to 85%.
Yangzijiang issued a binding letter of offer to Baker to acquire all its shares in PPLH for US$155m.
Baker disclosed the Offer to the market.
New managing director, Chief Financial Officer and Joint Secretaries appointed.
SCM lodged complaints with the Company that Chang and Aurol had allegedly breached their duty to the Company.
Board meeting held to appoint a law firm to advise the Company on the SCM complaints.
SCM commenced Suit No 351 of 2010 against PPLH and E-interface.
Board meeting held to confirm the appointment of WongPartnership.
Aurol was removed as a director of the Company.
Board meeting held to empower WongPartnership to enter an appearance on behalf of the Company.
Board meeting held to give wider authority to WongPartnership in relation to the Suit.
WongPartnership proposed their scope of appointment.
Wee, Tay & Lim confirmed that WongPartnership's scope of appointment was acceptable.
Decision Date.

7. Legal Issues

  1. Validity of Resolutions Passed at Inquorate Directors' Meetings
    • Outcome: The Court of Appeal held that validating the resolutions would cause substantial injustice to the Appellants and allowed the appeal.
    • Category: Substantive
    • Sub-Issues:
      • Breach of Shareholders' Agreement
      • Breach of Company's Articles of Association
      • Substantial Injustice
  2. Procedural vs. Substantive Irregularity
    • Outcome: The Court held that the lack of quorum was a procedural irregularity but that it could lead to substantial injustice.
    • Category: Procedural
    • Sub-Issues:
      • Lack of Quorum
      • Failure to Adjourn Meeting

8. Remedies Sought

  1. Declaration that the resolutions passed at the board meetings are invalid.

9. Cause of Actions

  • Breach of Shareholders' Agreement
  • Breach of Company's Articles of Association

10. Practice Areas

  • Commercial Litigation

11. Industries

  • Construction
  • Shipping

12. Cited Cases

Case NameCourtAffirmedCitationJurisdictionSignificance
Tang Kin Fei and others v Chang Benety and othersHigh CourtYes[2011] 1 SLR 568SingaporeThe decision from which this appeal arose.
The Oriental Insurance Co Ltd v Reliance National Asia Re Pte LtdCourt of AppealYes[2008] 3 SLR(R) 121SingaporeCited for the holistic approach to be taken when considering procedural irregularities.
Thio Keng Poon v Thio Syn Pyn and others and another appealCourt of AppealYes[2010] 3 SLR 143SingaporeCited for the principle that some irregularities, while meeting the description in s 392(1), are nonetheless characterised as substantive breaches.
Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty LtdNew South Wales Supreme CourtYes[2005] NSWSCC 1005AustraliaCited for principles in addressing the question of whether a particular irregularity is procedural or substantive.
Sum Hong Kum v Li Pin Furniture Industries Pte LtdHigh CourtYes[1996] 1 SLR(R) 529SingaporeCited as an example where the Singapore courts have regarded a lack of quorum as a procedural irregularity.
Kwa Ban Cheong v Kuan Boon Sek and othersHigh CourtYes[2003] 3 SLR(R) 644SingaporeCited as an example where the Singapore courts have regarded a lack of quorum as a procedural irregularity.
Re Pembury Pty LtdUnspecifiedYes(1991) 4 ACSR 759AustraliaCited as an example where Australian courts have regarded a lack of quorum as a procedural irregularity.
Whitehouse v Capital Radio Network Pty LtdSupreme Court of TasmaniaYes[2004] TASSC 12AustraliaCited as an example where Australian courts have regarded a lack of quorum as a procedural irregularity.
Golden Harvest Films Distribution (Pte) Ltd v Golden Village Multiplex Pte LtdCourt of AppealYes[2007] 1 SLR(R) 940SingaporeCited for the principle that the determination of substantial injustice under s 392 involved “a holistic weighing and balancing of the various interests of all the relevant parties”.
Re Goodwealth Trading Pte LtdCourt of AppealYes[1990] 2 SLR(R) 691SingaporeCited for the principle that lack of quorum caused substantial injustice as it resulted in disputed decisions being taken by one of only two shareholder groups in a company to the exclusion and possible disadvantage of the other shareholder.
Mamouney v SolimanUnspecifiedYes(1992) 9 ASCR 63AustraliaCited for the principle that there must be a direct link between the procedural irregularity in question and the injustice suffered.
Bell Resources Ltd v Turnbridge Pty Ltd (No 2)UnspecifiedYes(1988) 13 ACLR 762AustraliaCited for the principle that the injustice must be of a “substantial” nature.
Poliwka v Heven Holdings Pty LtdUnspecifiedYes(1992) 7 ACSR 85AustraliaCited for the principle that the aggrieved party must show that there may or could have been a different result, if not for the occurrence of the procedural irregularity.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute NameJurisdiction
Companies Act (Cap 50, 2006 Rev Ed)Singapore
Companies Act (Cap 50, 2006 Rev Ed) s 392Singapore

15. Key Terms and Keywords

15.1 Key Terms

  • Inquorate Directors' Meetings
  • Quorum
  • Shareholders' Agreement
  • Articles of Association
  • Procedural Irregularity
  • Substantial Injustice
  • Deadlock Rights
  • SCM Complaints
  • WongPartnership Appointment

15.2 Keywords

  • Company Law
  • Directors' Meetings
  • Quorum
  • Shareholders' Agreement
  • Procedural Irregularity
  • Substantial Injustice

16. Subjects

  • Company Law
  • Corporate Governance
  • Shareholder Rights

17. Areas of Law

  • Company Law
  • Civil Procedure