Chong Chin Fook v Solomon Alliance: Derivative Action, Director Conflict of Interest
In Chong Chin Fook v Solomon Alliance Management Pte Ltd, the Court of Appeal of Singapore heard an appeal against the High Court's decision to deny the appellant, Chong Chin Fook, leave under Section 216A of the Companies Act to control proceedings on behalf of Solomon Alliance Management Pte Ltd. The court allowed the appeal, finding conflicts of interest among the company's directors. The case involved a breach of contract claim and a defamation counterclaim.
1. Case Overview
1.1 Court
Court of Appeal1.2 Outcome
Appeal Allowed
1.3 Case Type
Civil
1.4 Judgment Type
Grounds of Decision
1.5 Jurisdiction
Singapore
1.6 Description
Appeal regarding derivative action under s 216A of the Companies Act. The court allowed the appeal, citing conflicts of interest among directors.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| CHONG CHIN FOOK (ZHANG ZHENFU) | Appellant, Respondent | Individual | Appeal Allowed | Won | Josephine Chong, Kelvin Lee, Esther Yeo, Samantha Ong |
| SOLOMON ALLIANCE MANAGEMENT PTE LTD (formerly known as SOLOMON ASSET MANAGEMENT PTE LTD) | Respondent, Defendant | Corporation | Appeal Lost | Lost | Koh Choon Guan Daniel, Wong Hui Yi Genevieve |
| LIM PEI LING JUNE | Respondent, Applicant, Defendant | Individual | Appeal Lost | Lost | Choo Zheng Xi, Jason Lee |
| GOH YAM SIM | Respondent, Defendant | Individual | Appeal Lost | Lost | Choo Zheng Xi, Jason Lee |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Andrew Phang Boon Leong | Judge of Appeal | Yes |
| Judith Prakash | Judge of Appeal | No |
| Tay Yong Kwang | Judge of Appeal | No |
4. Counsels
| Counsel Name | Organization |
|---|---|
| Josephine Chong | Josephine Chong LLC |
| Kelvin Lee | WNLEX LLC |
| Esther Yeo | WNLEX LLC |
| Samantha Ong | WNLEX LLC |
| Koh Choon Guan Daniel | Eldan Law LLP |
| Wong Hui Yi Genevieve | Eldan Law LLP |
| Choo Zheng Xi | Peter Low LLC |
| Jason Lee | Peter Low LLC |
4. Facts
- Appellant sought leave under s 216A to control Suit 215 on behalf of Solomon Alliance Management Pte Ltd.
- Appellant suspected Pang and HC of diverting business from the Company.
- Pang allegedly recommended Dolphin Products for Megatr8 instead of the Company.
- JL, a director, was Pang’s niece, and her husband defended Pang in Suit 215.
- Goh, another director, was the Head of Administration for Ritz, a company in which HC had an interest.
- The Appellant was solely in control of the Company when Suit 215 was commenced.
5. Formal Citations
- Chong Chin Fook v Solomon Alliance Management Pte Ltd and others, Civil Appeal No 11 of 2016, [2017] SGCA 5
6. Timeline
| Date | Event |
|---|---|
| Pang appointed a sales agent of the Company pursuant to an IC Agreement. | |
| The Company entered into an Independent Sales and Marketing Agreement with Shenton Wealth Holdings Pte Ltd. | |
| Meeting between Appellant, HC, and Pang. | |
| Appellant sent an email to all shareholders setting out the main points agreed at the meeting. | |
| The Company’s former solicitors sent a letter of demand to Pang alleging that Pang had breached the IC Agreement. | |
| Shareholders called for an Extraordinary General Meeting to be held on 10 March 2015. | |
| Appellant replied with instructions to commence an action. | |
| The Appellant, through the Company, suspended Pang for breaches of the IC Agreement. | |
| The Company commenced Suit 215 of 2015 against Pang for breaches of the IC Agreement. | |
| The Appellant sent a notice with the Company’s letterhead to all of the Company’s clients informing them of Pang’s suspension. | |
| The Appellant was removed as the sole director at the EGM. | |
| Pang filed his defence and counterclaim in Suit 215. | |
| Pang applied to strike out the Company’s statement of claim in Suit 215. | |
| The Appellant commenced Suit 1023 of 2015 for minority oppression against the other shareholders of the Company. | |
| The Judge rendered his decision. | |
| JL resigned as a director. | |
| The Company successfully resisted Pang’s striking out application. | |
| The hearing of the appeal commenced. | |
| Further hearing was fixed. | |
| Judgment Date |
7. Legal Issues
- Derivative Action
- Outcome: The court allowed the appeal and granted the Appellant conditional leave under s 216A to control the conduct of Suit 215 on behalf of the company.
- Category: Procedural
- Sub-Issues:
- Good faith of applicant
- Interests of the company
- Diligent prosecution of action
- Conflict of Interest
- Outcome: The court found that there were grave conflicts of interest on the part of the directors of the company.
- Category: Substantive
8. Remedies Sought
- Leave to bring an action in the name and on behalf of the company
- Damages
9. Cause of Actions
- Breach of Contract
- Defamation
10. Practice Areas
- Commercial Litigation
11. Industries
- No industries specified
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Chong Chin Fook v Solomon Alliance Management Pte Ltd and others | High Court | Yes | [2016] 2 SLR 622 | Singapore | The appeal was against the decision of this case. |
| 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 questionable motivations of the applicant per se might not amount to bad faith. |
| Ang Thiam Swee v Low Hian Chor | Court of Appeal | Yes | [2013] 2 SLR 340 | Singapore | Cited for the requirement of good faith in an application brought under s 216A. |
| Porter v Anytime Custom Mechanical Ltd | N/A | Yes | [2014] AJ No 350 | N/A | Cited in support of the approach that the court had to consider not only whether it was prima facie in the interests of the Company that the action be prosecuted but also whether the Appellant was the proper party to represent the Company’s interest. |
| Transmetro Corp Ltd v Kol Tov Pty Ltd | N/A | Yes | [2009] NSWSC 350 | N/A | Cited in support of the approach that the court had to consider not only whether it was prima facie in the interests of the Company that the action be prosecuted but also whether the Appellant was the proper party to represent the Company’s interest. |
| McEvoy v Caplan | N/A | Yes | [2010] NSWCA 115 | N/A | Cited in support of the approach that the court had to consider not only whether it was prima facie in the interests of the Company that the action be prosecuted but also whether the Appellant was the proper party to represent the Company’s interest. |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Companies Act (Cap. 50) | Singapore |
| Companies Act (Cap 50, 2006 Rev Ed) s 216A | Singapore |
| Companies Act s 216A(5) | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Derivative action
- Conflict of interest
- Diligent prosecution
- Good faith
- Independent Contractor Agreement
- Minority oppression
15.2 Keywords
- Derivative action
- Companies Act
- Conflict of interest
- Singapore
- Company Law
16. Subjects
- Company Law
- Civil Procedure
- Derivative Action
17. Areas of Law
- Company Law
- Civil Procedure