Chng Kheng Chye v Kaefer Integrated Services Pte. Ltd.

Mr Chng Kheng Chye, a 20% shareholder and director of Kaefer Prostar Pte Ltd (the Company), obtained leave on appeal to bring a statutory derivative action on the Company's behalf against Kaefer Integrated Services Pte Ltd (the Defendant) in Suit No 318 of 2021. Kaefer Gmbh of Germany held the other 80% of the Company and wholly owned the Defendant. A buyout of Mr Chng's remaining shares had been contemplated under a 2016 shareholders' agreement but never happened.

The dispute concerned a subcontract signed on 1 April 2016 between PT McDermott Indonesia and the Defendant to supply insulation materials for the Yamal LNG project in Russia. It was undisputed that the subcontract was worth about S$10m, that the Company did the work, and that the profit paid to the Defendant was S$3,475,434.42. The Defendant passed S$1,931,291.95 to the Company under six documents titled management agreements and kept the rest, S$1,544,142.47. Mr Chng claimed that, under a long-standing practice, Kaefer entities that contracted for work done by the Company accounted the whole profit to it, and that the retained sum had been left with the Defendant under an oral arrangement so it could pay its liabilities while the two companies were expected to merge. The Defendant denied any such arrangement and said the management agreements fixed the Company's entitlement.

1. Whether the management agreements were binding contracts that conclusively fixed the Company's share of the profit
2. Whether the Defendant had any valid justification for retaining the disputed sum
3. Whether a payment practice and an oral loan arrangement entitled the Company to the disputed sum
4. Whether the derivative action was brought in bad faith

Despite their labels, the management agreements were not binding contracts but records of payments. Three were dated after the subcontract was completed in April 2017 with no apparent consideration; the Defendant's witness said this was due to a delay in installation, which the evidence showed was untrue. The documents mixed up profit entitlement and management fees, two invoices predated their agreements, and the Defendant's own witnesses accepted they were used to move money to the Company. In any event they did not say the sums paid were the whole entitlement.

The Defendant's other justifications, raised for the first time at trial, failed. Its witnesses conceded that the early emails recorded no profit agreement; a claimed 3% entitlement could not explain the much larger sum actually paid; there was no evidence of the claimed work by Kaefer's Australian arm; and the 15% margin was merely arithmetic, which the witness admitted was his own assumption and no agreement.

The plaintiff still had to prove his case. Earlier projects showed that profits were accounted to the Company directly or through dividends to its shareholders, and that this was also done for the other three Yamal subcontracts, which was unchallenged. Emails in September 2019, including one from the Company's general manager confirming the arrangement and a spreadsheet prepared by the Defendant's finance director calculating Mr Chng's 20% share, supported the oral arrangement. The informality was explained by the expected merger, with the Company as the group's intended profit centre. The Defendant's witnesses were evasive and inconsistent, while Mr Chng was candid.

Seeking to restore value to his shares did not make the action one for a collateral purpose, as his interest aligned with the Company's.

The High Court allowed the claim on behalf of the Company against the Defendant, finding that the Company was entitled to the disputed sum, and ordered the Defendant to pay the plaintiff's costs, to be agreed or assessed.