Wong Kai Wah v Wong Kai Yuan: Derivative Action for Failure to Approve Audited Accounts
In Wong Kai Wah v Wong Kai Yuan, the High Court of Singapore considered an application by Wong Kai Wah for leave to bring a derivative action on behalf of Sing Huat against Wong Kai Yuan, the other director, for refusing to approve and sign the company's audited accounts. The court, presided over by Lee Kim Shin JC, granted the application, finding that the requirements under s 216A of the Companies Act were met and that it was prima facie in the interests of Sing Huat for the action to be brought. The underlying issue was the first defendant's refusal to sign Sing Huat's audited accounts, allegedly causing the company to incur additional taxes and fines.
1. Case Overview
1.1 Court
High Court1.2 Outcome
Leave granted to the Plaintiff to bring a derivative action.
1.3 Case Type
Civil
1.4 Judgment Type
Grounds of Decision
1.5 Jurisdiction
Singapore
1.6 Description
Wong Kai Wah sued Wong Kai Yuan for refusing to approve Sing Huat's audited accounts. The court granted leave for a derivative action, finding it in Sing Huat's interest.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| Wong Kai Wah | Plaintiff | Individual | Leave granted to bring a derivative action | Won | Lim Joo Toon |
| Wong Kai Yuan | Defendant | Individual | Application for leave granted against the Defendant | Lost | Lai Swee Fung |
| Sing Huat | Defendant | Corporation | Neutral | Neutral |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Lee Kim Shin | Judicial Commissioner | Yes |
4. Counsels
| Counsel Name | Organization |
|---|---|
| Lim Joo Toon | Joo Toon LLC |
| Lai Swee Fung | Unilegal LLC |
4. Facts
- The Plaintiff and the 1st Defendant are brothers and the only two directors and shareholders of Sing Huat.
- The 1st Defendant refused to sign Sing Huat's audited accounts for the financial year ended 2009.
- The 1st Defendant's refusal allegedly caused Sing Huat to incur additional taxes, fines, and potential criminal liability.
- The Plaintiff applied for leave to bring a derivative action against the 1st Defendant under s 216A of the Companies Act.
- The 1st Defendant claimed his refusal was due to concerns about the accuracy of stock accounting.
- Sing Huat received summonses from IRAS for failing to file audited accounts.
- The 1st Defendant previously filed an unsuccessful application for a derivative action against the Plaintiff.
5. Formal Citations
- Wong Kai Wah v Wong Kai Yuan and another, Originating Summons No 1132 of 2013, [2014] SGHC 147
6. Timeline
| Date | Event |
|---|---|
| Sing Huat incorporated. | |
| Wong Kai Wah appointed as director of Sing Huat. | |
| Wong Kai Yuan appointed as director of Sing Huat. | |
| Plaintiff appointed managing director of Sing Huat. | |
| Committee of Person and Estate formed for the Mother. | |
| End of financial year for Sing Huat. | |
| Sing Huat's independent auditors presented the audited accounts for FY 2009. | |
| The 1st Defendant refused to sign Sing Huat’s audited accounts for FY 2009. | |
| The Comptroller of Income Tax imposed a composition fine of $200. | |
| Three consecutive board meetings were scheduled to discuss the audited accounts. | |
| Extraordinary general meetings of the Family Companies were held. | |
| Sing Huat received a summons from IRAS. | |
| Sing Huat was required to attend court to answer a charge for failing to file the audited accounts for FY 2009. | |
| The 1st Defendant took out an application, OS 1043/2011. | |
| The fine was paid. | |
| IRAS issued a notice to each of the Family Companies. | |
| The Plaintiff’s solicitors wrote to the 1st Defendant’s solicitors to inform them of IRAS’ latest notice. | |
| Mr Lo wrote to the Plaintiff and 1st Defendant. | |
| Plaintiff’s solicitors sent a letter informing the 1st Defendant of the intention to commence a s 216A action. | |
| OS 1132 was commenced. | |
| Parties made submissions on Summons No 2442 of 2014. | |
| Decision Date |
7. Legal Issues
- Breach of Director's Duties
- Outcome: The court found that there was a legitimate, arguable complaint of breach of director's duties against the 1st Defendant.
- Category: Substantive
- Sub-Issues:
- Failure to approve audited accounts
- Refusal to sign audited accounts without reasonable cause
- Derivative Action
- Outcome: The court granted leave for the plaintiff to bring a derivative action.
- Category: Procedural
- Sub-Issues:
- Good faith of plaintiff
- Interests of the company
8. Remedies Sought
- Leave to bring a derivative action
- Control of the conduct of the derivative action
- Costs incurred by the Plaintiff in connection with the derivative action
9. Cause of Actions
- Breach of Director's Duties
10. Practice Areas
- Commercial Litigation
11. Industries
- Wholesale Trade
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Teo Gek Luang v Ng Ai Tiong and others | High Court | Yes | [1998] 2 SLR(R) 426 | Singapore | Cited for the principle that the underlying complaint for which a derivative action is sought must have a reasonable basis and be legitimate or arguable. |
| Agus Irawan v Toh Teck Chye and others | High Court | Yes | [2002] 1 SLR(R) 471 | Singapore | Cited for the principle that the underlying claim must have a reasonable semblance of merit for a derivative action to be allowed. |
| Pang Yong Hock and another v PKS Contracts Services Pte Ltd | Court of Appeal | Yes | [2004] 3 SLR(R) 1 | Singapore | Cited for the principle that a plaintiff with a legitimate case may still be found lacking in good faith if motivated by vendetta. |
| Ang Thiam Swee v Low Hian Chor | Court of Appeal | Yes | [2013] 2 SLR 340 | Singapore | Cited for the principle that to satisfy the requirement of good faith, the plaintiff must honestly or reasonably believe that there is a good cause of action. |
| Urs Meisterhans v GIP Pte Ltd | High Court | Yes | [2011] 1 SLR 552 | Singapore | Cited to illustrate that a plaintiff who has demonstrated a desire to undermine, injure or damage the company is unlikely to be viewed as coming to court in good faith. |
| Swansson v RA Pratt Properties Pty Ltd | New South Wales Supreme Court | Yes | [2002] NSWSC 583 | Australia | Cited for the principle that personal animosity or even malice per se do not preclude a plaintiff from seeking to commence a s 216A action. |
| Dowling v Colonial Mutual Life Assurance Society | High Court of Australia | Yes | (1915) 20 CLR 509 | Australia | Cited for the principle that it is not the law that only a plaintiff who feels goodwill towards the defendant is entitled to sue. |
| Talisman Technologies Inc v Queensland Electronic Switching Pty Limited | Queensland Supreme Court | Yes | [2001] QSC 324 | Australia | Cited for the principle that reservations over the Plaintiff’s motivation are likely to be heightened if the s 216A action is clearly not in the interests of Sing Huat. |
| Charlton v Baber and others | Supreme Court of New South Wales | Yes | (2003) 47 ACSR 31 | Australia | Cited for the principle that where the company is insolvent or close to being insolvent, the issue of the best interests of the company involves deciding whether the claim would be in the interests of the creditors. |
| Promaco Conventions Pty Ltd and others v Dedline Printing Pty Ltd and another | Federal Court of Australia | Yes | [2007] FCA 586 | Australia | Cited for the principle that where the company is insolvent or close to being insolvent, the issue of the best interests of the company involves deciding whether the claim would be in the interests of the creditors. |
| Lee Seng Eder v Wee Kim Chwee and others | High Court | Yes | [2014] 2 SLR 56 | Singapore | Cited for the principle that it was not in the interest of the defendant company there to expend considerable sums of money to proceed with a s 216A action when it was facing imminent liquidation. |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Companies Act (Cap 50, 2006 Rev Ed) | Singapore |
| s 216A of the Companies Act | Singapore |
| s 216A(3) of the Companies Act | Singapore |
| ss 201(5) of the Companies Act | Singapore |
| ss 201(15) of the Companies Act | Singapore |
| s 62(1) of the Income Tax Act (Cap 134, 2014 Rev Ed) | Singapore |
| s 197(1) of the Companies Act | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Derivative action
- Audited accounts
- Director's duties
- Good faith
- Interests of the company
- Companies Act
- Deadlocked company
- IRAS
- ACRA
- Stock audit
15.2 Keywords
- Derivative action
- Director's duties
- Audited accounts
- Companies Act
- Singapore
- Wong Kai Wah
- Wong Kai Yuan
- Sing Huat
16. Subjects
- Company Law
- Directors' Duties
- Civil Procedure
17. Areas of Law
- Company Law
- Civil Procedure
- Directors' Duties
- Derivative Action