LEOW HOCK SOON & Anor v CHEW EIK KHOON & 2 Ors

Facts

Leow Hock Soon, Toh Teck Guan, Chew Eik Khoon and Phang Chu Mau took over a dormant construction company, Chartworth Enterprise Singapore Pte Ltd, in 2003, each holding 25% of the shares. Chew and Phang ran the finances; Leow and Toh supervised site work. The four friends opened a joint bank account into which they paid directors' fees and dividends, and the account was managed in practice by Phang.

In 2020 Phang moved money from the joint account into a margin trading account with IG Asia Pte Ltd, and in 2017 two cheques of $400,000 each had been drawn from the joint account to Chew and Phang. In early 2021 Leow and Toh were told little money was left and were each given $250,000. In May 2021 Leow sold his 25% stake for $2.5m after Chew produced a letter stating his wish to sell his shares and resign. Leow later found that Chew had stayed and increased his stake.

In Originating Claim No 662 of 2023, Leow and Toh sued Chew and Phang (the Defendants) and the company. Toh settled and withdrew, becoming a defence witness. Leow pursued claims in fraudulent misrepresentation, minority oppression and breach of trust, with unjust enrichment in the alternative.

Issues

1. Whether the Defendants made fraudulent misrepresentations about the company's profitability and Chew's departure that induced Leow to sell his shares
2. Whether Leow, no longer a member, had standing to bring an oppression claim under s 216 of the Companies Act
3. Whether the Defendants were liable for breach of trust for withdrawals from the joint account made without Leow's consent

Holding

Sushil Nair J allowed the claim in part. The misrepresentation and oppression claims were dismissed, but the breach of trust claim succeeded. The Defendants were held jointly and severally liable to pay Leow $787,500, being 25% of the $3.15m withdrawn for the IG Investments, and $200,000, being 25% of the $800,000 withdrawn on 7 June 2017. The declaration over the joint account generally and an account on a wilful default basis were refused, and costs submissions were directed.

Reasoning

On misrepresentation, the court found that the statements alleged were not made. Leow knew from his own involvement that the company was profitable, and he was handed the audited financial statements at the very meeting where the company was supposedly said to be unprofitable. Chew's letter spoke only of an intention to sell and resign, and Leow's daughter explained it to him before he copied it for his own notice. Even if the statements had been made, Leow did not rely on them: he knew the truth, and after discovering Chew had stayed he raised no complaint and continued social outings with Chew. He had in any case affirmed the share sale agreements by cashing the post-dated cheques, which barred rescission.

On oppression, only registered members ordinarily have standing. The narrow exception requires unconscionable conduct by the defendant that caused the claimant's loss of membership. Leow had sold his shares voluntarily, and the alleged misappropriations were not causally linked to his departure.

On breach of trust, the money in the joint account belonged equally to the four founders, and the court found they had agreed that withdrawals needed unanimous consent. There was no record of any agreement to the risky margin trading, and Phang's willingness to bear most of the losses was inconsistent with a joint venture. The 2017 cheques reimbursed the Defendants for a company loan that the company also repaid to them, a double reimbursement left unexplained. Taking Leow's share without consent was a fraudulent taking, giving rise to an institutional constructive trust over his 25% share of those withdrawals. Leow pursued a personal claim, so it did not matter whether the money still existed. The court also rejected Toh's allegations against the former solicitor and the Commissioner for Oaths, given his inconsistent evidence.

From the judgment