A team comprising Adrian Tan, Ong Pei Ching and Joel Goh from TSMP represented a client in a dispute in November 2018. The Court just issued its decision, which was reported in The Straits Times (Singapore Law Watch link). A summary of the case is produced below.
The founders and former directors of HealthSTATS International Pte Ltd (“Healthstats”), a medical device company, sued two directors of Healthstats. They accused the two directors of trying to pass the trade secrets of Healthstats to a third party. They sought leave to commence a statutory derivative action against the two directors, sought leave to access Healthstats’s premises and records to obtain documents relating to the third party, and sought an interim injunction against all dealings between Healthstats and the third party.
We successfully acted for the 2nd Defendant, Mr Lian Chin Chiang, in resisting the Plaintiffs’ application. We explained to the Court that there was no evidence that the two directors were trying to pass Healthstats’s trade secrets to a third party. Indeed, as directors nominated by the majority shareholder of Healthstats, it did not make sense for them to deprive Healthstats of its main asset. When we explained that the interim injunction sought by the Plaintiffs was flawed as a matter of law, the Plaintiffs withdrew its application for the interim injunction.
The Plaintiffs, Dr Ting Choon Meng and Mr Chua Ngak Hwee, were the founders and former directors of Healthstats. The Defendants, Mr Lian Chin Chiang and Mr Chang Hon Yee, were directors appointed by the majority shareholder of Healthstats. Dr Ting and Mr Chua alleged that Mr Lian and Mr Chang breached their fiduciary duties to Healthstats.
Dr Ting and Mr Chua alleged that Mr Lian and Mr Chang were collaborating with an Australian company, Planet Innovation Pty Ltd (“PI”), to pass Healthstats’s trade secrets to PI. They accused Mr Lian and Mr Chang of removing them as directors of Healthstats for this purpose.
Healthstats, Mr Lian, and Mr Chang resisted the Plaintiffs’ application. The Plaintiffs’ application was not brought in good faith. They were not suing in Healthstats’s best interests. Instead, they had a personal vendetta. They wanted to retaliate against their removal as directors of Healthstats and try to wrest back control over the company. In executing this personal vendetta, they were willing to even harm Healthstats.
Judicial Commissioner Ang Cheng Hock (“JC Ang”) dismissed the Plaintiffs’ application entirely.
JC Ang held that the Plaintiffs failed on both limbs of the requirement of good faith under Section 216A of the CA. First, there was no merit to the application as the Plaintiffs did not have the honest or reasonable belief that they had a good cause of action for the company to prosecute. Second, they were bringing the derivative action for a collateral purpose. JC Ang found that the Plaintiff’s actions were so clouded with personal considerations as to amount to a lack of good faith for the purposes of Section 216A of the CA.
JC Ang observed that the Plaintiffs displayed a lack of candour and honesty. They claimed that they were kept in the dark from Healthstats’s negotiations with PI. But they were consistently copied in those negotiations and even participated in them. Indeed, they even had access to all the outgoing emails of the company even long after they were removed from the Company. JC Ang also found that the Plaintiffs did not have any evidence for the many allegations which they made. For example, they accused Mr Lian and Mr Chang of failing to protect Healthstats’s trade secrets, but they could not produce evidence of this failure. JC Ang found that the Plaintiffs’ allegations were purely speculative.
In sum, JC Ang found that the Plaintiffs did not have an arguable or even plausible case. In fact, there had been many opportunities for the Plaintiffs to clarify any suspicions they had. Representatives of PI repeatedly reached out to the Plaintiffs to explain and clear up any misunderstanding. But the Plaintiffs refused any such attempt.
The Court’s decision reaffirms the requirements for an application under Section 216A of the CA – the application must display good faith and that the application is prima facie in the interests of the company. These requirements thus remain important safeguards that prevent the abuse of S 216A by aggrieved parties who only wish to serve their own agendas.
The underlying purpose of Section 216A of the CA is to do justice to the company. It must not to be used as a weapon by “loud but unreasonable dissidents attempting to drive the corporate vehicle from the back seat”, thereby hampering management decisions.