Lim Kok Wah & Ors v Lim Boh Yong & Ors  SGHC 211
The case of Lim Kok Wah & Ors v Lim Boh Yong & Ors involved allegations of minority oppression arising from dealings in companies that the plaintiffs claimed were quasi-partnerships. The plaintiffs also claimed to have a legitimate expectation of participation in the management of the companies. On a consideration of the facts, the Singapore High Court found that the allegations were not established and accordingly dismissed the claims.
This case revolved around a struggle for control of two companies Siem Seng Hing & Company (Pte) Limited (“SSH”) and Kenson Enterprises (Pte) Ltd (“Kenson”). SSH had been set up by the patriarch of the Lim family, Lim Khai Huat (“LKH”) to carry on the business of selling and supplying building materials. Kenson was subsequently set up by LKH to be in effect the family holding company. The Lim family consisted of two branches, comprised of the children of the two wives of LKH. LKH had died in 2001, and cracks in the relationship between the two branches began to form about a decade after.
The claim by the plaintiffs based on minority oppression under section 216 of the Companies Act found its catalyst in an AGM of SSH held on 20 September 2012 where two sons of LKH, the third and fourth plaintiffs, were not re-elected and were removed as directors of SSH.
The plaintiffs in the case were the four sons of the first wife, and the defendants were the two sons of the second wife. After the death of LKH, Lim Kok Wah (“LKW”), the first plaintiff, and Lim Boh Yong (“LBY”), the first defendant, took the lead in managing SSH. As for Kenson, Lim Kok Leong (“LKL”), the second defendant, was appointed the managing director of Kenson.
By way of background, LKH had died intestate. It was by reason of his intestacy that his wives and daughters came to hold shares in SHH. For a time, the plaintiffs’ shareholding majority in SHH was threatened as a decisive bloc of shares was held by their sister, Lim Mui Kwee (“LMK”), who had voted against the re-election of the third and fourth plaintiffs in the AGM of SSH held on 20 September 2012. LMK’s shares were eventually transferred over to LKH’s first wife on 18 October 2012 and the plaintiffs’ branch once again became the majority shareholders of SHH.
The plaintiffs had argued that both SSH and Kenson were quasi-partnerships and furthermore that, as LKH’s sons, they each had a legitimate expectation of participation in the management of SSH and Kenson.
The court held that neither SSH nor Kenson was a quasi-partnership. The facts showed that LKH had run both companies as an autocratic patriarch. LKH had decided whom to appoint as a director and when they should cease to be a director. Between each son and LKH, there was never any expectation or any basis for any expectation that each son would be involved in managing SSH or even that each son would be entitled to hold the office of director. In the case of Kenon, during LKH’s lifetime, LKL was the only son of LKH who was involved in managing the business of Kenson, and LKH and the other members were content to leave Kenson to be managed by LKL.
With regard to legitimate expectations, the court held that there was no implied or informal understanding between LKH’s sons that each son was entitled to participate in the management of the business of SSH or Kenson. It could not be shown conclusively that LKH had communicated to all parties his intentions for them to remain involved in the companies. Even if LKH had such intentions, the court noted that it did not necessarily follow that all the parties shared it. The understanding has to be one that was shared by all the sons and not one that was imposed upon them.
The court observed that the plaintiffs’ case in this respect was weakened by the fact that only a few of LKH’s sons were actively involved in managing each company. They had been appointed to and removed from the boards of SSH and Kenson at different times.
It was shown that some of LKH’s other sons managed SSH’s subsidiaries. The court further added that participation in the management or in the business of a subsidiary is distinct from the right to participate in the management or business of the parent and cannot in itself give rise to an expectation of such a right.
The court went on to consider whether specific acts of oppression alleged against the defendants were indeed commercially unfair.
In this regard, the court looked at the plaintiffs’ complaints that it was unfair that LKL and LBY did not consult them before making important business decisions. The court held that the plaintiffs have not shown why LBY, who after all is the managing director of SSH, must consult the plaintiffs before making business decisions which he had viewed as commercially sound. Furthermore, the evidence showed that LBY included LKW as representative of the plaintiffs’ branch of the family in decision making, and in most instances, the board of SSH was informed and had ratified the acts of LBY and LKW. In the case of Kenson, as LKL was the only one actively involved in running Kenson, the court noted that LKL could not be faulted for making decisions for the company as its managing director without consulting the plaintiffs.
Excessive director fees and inadequate dividends
The plaintiffs had argued that LKL and LBY acted unfairly in paying themselves excessive directors’ fees whilst declaring inadequate dividends over a period of about 10 years following LKH’s death.
The court noted that first, it was the plaintiffs who had controlled the board of directors of both SSH and Kenson at the material times and they could have passed the necessary resolutions should they have wished to do so. Second, the court accepted the defendants’ submission that the additional directors’ fees which LKL and LBY had received were not without reasonable justification. It was the policy in all SHH group companies for each company’s managing director to be awarded 10% of the net profit for that year if the company earned a profit to incentivise the managing director and this was not disputed by the plaintiffs. Third, the evidence showed that the plaintiffs did not object to directors’ fees paid to LKL and LBY even though they controlled the board and could have voted it down at any time. The court was of the view that if the plaintiffs chose, for whatever reason, to remain silent for the past decade, the court should be slow to find oppression.
Although SHH and Kenson were “family companies” in the broad sense that all its members who are natural persons are members of a family, this did not mean that they were quasi-partnerships. This case also illustrates that legitimate expectations of involvement in management require clear understanding vis-à-vis all parties involved and cannot be unilaterally be imposed by one or some of the parties. Furthermore, in this case, the plaintiffs, for the most part, had control of the board and had the majority shareholding, and remained silent in terms of fees and dividends since the passing of LKH. The facts did not suggest a scenario of minority oppression.