Chang Sing Chung v Kim Koon and ors (MC 4 of 2020) [2022] SCSC 803 (19 September 2022)

JUDGMENT

R GOVINDEN, CJ

The Pleadings

1. The Petitioner avers in her Petition that she is an employee and a shareholder of Kim Koon & Co (Pty) Ltd a minority shareholder of the 3^rd Respondent in which she holds 10.22% of the shares. The remainder of the shares of the 3^rd Respondent are held by 1^st and 2^nd Respondent who are the registered Directors of the 3^rd Respondent. Other share are also held by the heirs Kamline Kim Koon, Shiokline Kim Koon, Towline Kim Koon, Miyive Kim Koon, Choung Yive Kim Koon, Semline KimKoon, Kamline, Sionline Kim Koon, Kamline Kim Koon and Shiokline Kim Koon.

2. The 3^rd Respondent carries on business as an importer and general merchant. The 1^st and 2^nd Respondent have for several years been deducting a sum of money from the dividends, payable to the Petitioner by the 3^rd Respondent, as school fees repayments for the education of her children in a manner which has never been formally approved or authorised by the Company at any general meeting or at all.

3. The late Mr J. R Kim Koon the founder of the 3^rd Respondent, herein after also referred to as” the founder” had always wanted his grandchildren to have a good education so he arranged payment for covering their school fees but he never associated such payments from the business of the 3^rd Respondent as being a loan to the recipients.

4. Mr Kameline Lee Kim Koon one of the former shareholders and directors of the 3^rd Respondent passed away in 2002. Following this death, the Company, under the stewardship of the 1^st Respondent, activated a loan repayment mechanism for the school fees and the Petitioner has with some shareholders been made the target of a repayment of school fees arrangement until this day.

5. The loan repayment arrangement above mentioned commenced on or about the year 2003 when the 1^st Respondent took charge as the Director of the Company. He started charging the Petitioner and two other siblings to pay back school fees despite not having a loan agreement to back up the unlawful retention and withdrawal of divided payments due to these members of the company. It only came about to the Petitioner’s attention on the 12^th October 2004 when she received a copy of the financial statement dated year end 31^ST December 2003.

6. The said 1^st Respondent has exempted one of the siblings from paying back the school fees.

7. Whenever a dividend is declared the Petitioner does not receive anything but instead the Company offsets it from the alleged school fees that it allegedly owed to the Company.

8. The Petitioner goes on to aver that this unlawful retention of funds due to her has now reached the sums set out in the attached breakdown in the schedule and that the said retention is fraudulent and without legal foundation or substance. The Schedule is as follows:

BREAKDOWN OF FUNDS RETAINED

The amounts owing to my client set out in the table below. These monies include but not limited to the following:

DATE	DETAILS	AMOUNTS OWED TO ME
18 December 2006	Compensation payment for retirement	Rs47,192.31
Year ended 31 December 2007	Dividends declared (Rs50,000)	Rs5,111
Year ended 31 December 2008	Dividends declared (Rs202,500)	Rs20,700
Year ended 31 December 2009	Dividends declared (Rs1,012,500)	Rs103,500
2012	Father’s bank account	Rs60,033.33
13 May 2016	Closure of Kiu On	Rs16,000
12 January 2017	Jersey Bank Account	USD10,950
21 February 2017	Jersey Bank Account	GBP2,770.42
3 August 2017	Jersey Bank Account	USD15,637.22
Year ended 31 December 2017	Amount credited to the alleged loan account	Rs411,763.00
12 December 2019	Marc Kim Koon Share distribution	Rs234,389.33

 

 

9. The Petitioner avers further that she has tried to resolve the matter without having to seek the legal route by amicable settlement and discussion. However, these attempts have yielded no results. She also avers that to date, she has not received any response from the Respondents regarding this matter despite having voiced her disagreement personally and through her proxies and finally by a letter of 9 October 2019. The Petitioner also avers that it was agreed, at the last AGM held on 22 December 2018, that there was no loan agreement in the first place.

10. She further avers that as a result of the unfair, oppressive and fraudulent nature of the actions of the 1^st and 2^nd Respondents jointly and severally in retaining dividends due to her and nor responding to her requests she is forced to proceed with taking legal action against the Respondents. As a result of this it is claimed that the 1^st and 2^nd Respondents have acted in breach of their duties as Directors of the 3^rd Respondent and as a result thereof she has suffered loss and damages as set out and tabulated in the attached Schedule which the Respondents are bound to make good jointly and severally.

11. Accordingly, with immediate effect she request that the alleged loan agreement for the school fees waived and nullified. Moreover, she asks that all the dividends and other funds used to set off against the school fees be refunded back to her with interest at commercial rates from the date of the first deduction from dividend payment until to date.

12. She finally request that this court orders the Respondents to jointly and severally:-

1. Regularise all the matters set out in the Petition at the expense of the Respondents and a refund of all the funds deducted from the dividends due;

 

2. Cancel all reference to any alleged loan agreement in the records and books of the 3^rd Respondent as a result of the regularisation above and to enter correct records of the dividends due to the Petitioner;

 

3. To pay damages to the Petitioner in the capital sum of Rs 200,000;

 

4. To pay the Petitioner all the above with interest at commercial rates continuing until full payment of all sums claimed with effect from the date of the first deductions made from the due dividends;

 

5. To pay the costs of this suit.

 

13. The Petition is supported by the affidavit of the Petitioner.

14. In their answer to the Petition, the Respondents do not dispute the different shareholdings of the parties in the Respondent Company.

15. The 3^rd Respondent goes on to admit that the 1^st and 2^nd Respondents have been, for several years, deducting a sum of money from dividends payable to the Petitioner as school fees repayments for the education of their children. However, they aver that it was approved to deduct a sum of money from the dividend payable to shareholders who were lent money to pay for the education of their children.

16. The Respondents refute the averments in the Petition regarding the altruistic intention of the late Mr J. R . Lee Kim Koon towards his grandchildren. They aver instead, that whether or not the late Mr. J. R. Lee Kim Koon wanted his grandchildren to have a good education, the use of company assets cannot be used for payment of private purposes.

17. Regarding the alleged change of circumstances following the death of Mr Kameline Lee Kim Koon, the activation of the loan repayment mechanism for the school fees and the targeting of the Petitioner and other shareholders, the Respondents aver that that the Petitioner and three other shareholders were not ‘made the target’ but they were asked to reimburse the money used to send their children overseas. They aver further that it was discussed at the Annual General Meeting on the 3^rd August 2022 that the auditors would revert on the authority given by the late J. R. Lee Kim Koon as to the charging of school fees to current accounts.

18. The Respondents deny the averments that the 1^st Respondent took charge of the affairs of the Company and started to charge the Petitioner and two other siblings to pay the school fees back despite having no loan agreements and the fact that she came to know his intention but on the 12^th October 2004. Moreover, and due to the close relationship of the parties, the agreements to be in writing are exempted. The 1^st Respondent was notified that school fees are not an allowable expense and he sought to rectify this. It is his contention that upon receiving such advice, he proceeded to act in the best interest of the company.

19. The Respondents aver that contrary to the Petitioner’s averments, all the siblings have paid back the 3^rd Respondent all the monies used to pay for the education of their children.

20. The Respondents agree that whenever a dividend is declared, the Petitioner does not receive anything. According to them, this because the Petitioner has refused to pay the money used to pay for the education of her children for the Company to offset the dividend to complete paying he school fees that she owes the 3^rd Respondent.

21. The Respondents dispute the content of the Petitioner’s attached breakdown. According to them the Jersey Bank Account on 12 January 2017 of US$10, 950, 21 February 2017 of £2,770.42 and 3 August 2017 of US$15,637.22 – the total amount when converted to Seychelles is equivalent to SCR 411,763. According to them the amount in the schedule in the table ‘year ended 31 December 2017’ is not a separate amount and is not any monies owed to the Petitioner. They aver that the 3^rd Respondent through its Directors are rectifying the situation where monies were illegally removed as the Petitioner refused to return the money.

22. The Respondents deny that the Petitioner has attempted to resolve the matter amicably and that no responses have been received in respect of her queries. In answer they aver that their legal counsel have sought to explain the matter to the Petitioner as to the reason why the amount was being deducted.

23. The Respondents deny any illegality, fraud and oppression on their part. They aver that the action of the 1^st and 2^nd Respondents do not constitute fraud as their action had no intention to deceive nor was there a material factor present consisting of contrivances, false allegations or the withholding of information.

24. The 1^st and 2^nd Respondents deny breaching their Director’s duties and aver that the 1^st Respondent as Managing Director was acting the best interest of the 3^rd Respondent and was abiding to the memorandum and articles of association.

25. The Respondents finally deny the prayers of the Petition. Instead, they aver that the Petitioner received funds from the 3^rd Respondent and that she should refund the amount owed.

The law

26. This Petition is filed under the provisions of Section 201 of the Companies Act 1972, Section 201 (1) and (2) are as follows;

Protection of minority shareholders

201. (1) Any shareholder of a company who complains that the affairs of the company are being conducted in a manner which is oppressive or .unfairly prejudicial to some part of the share holders (including himself) or, in a case falling within section 190(3), the Registrar, may make an application by way of petition to the court for an order under this section.

(2) If on the hearing of the application the court is satisfied either:

(a) that the applicant, either alone or together with other shareholders, has been treated oppressively in one or more respects over a period of time, or that action has been taken by the persons who are or were in control of the affairs of the company, being action which was known by them to be likely to prejudice unfairly the interests of the applicant, either alone or together with other shareholders; or

(b) the persons who are or were in control of the affairs of the company have been guilty of serious misconduct or breaches of duty which has or have prejudicially affected the interests of the applicant, either alone or together with other shareholders;

the court may, with a view to bringing to an end or remedying the matters complained of, make such order as it thinks fit, whether for regulating the conduct of the company's affairs in future, or for the purchase of the shares of any shareholders of the company by other shareholders of the company or for the acquisition of any such shares by the company and, in the case of such an acquisition by the company, for the reduction accordingly of the company's capital, or otherwise.

(3) Without prejudice to the generality of its powers under the last foregoing subsection, the court may order that:

(a) an action or other proceeding shall be brought in the company's name and conducted by any person (including the Registrar) appointed by the court;

(b) a director, managing director or other officer or an auditor of the company shall be removed from any office, appointment or employment held by him under the company or its holding company or subsidiary, and that some other person nominated or approved by the court shall be appointed to any such office, appointment or employment in his place;

(c) any person shall be appointed to be a director or managing director of the company or of its holding company or subsidiary on such terms and condition as the court thinks fit;

(d) a dividend shall be paid by the company to shareholders or any class of shareholders of the company or by a subsidiary of the company to the company;

(e) any person shall pay damages or compensation to the company or to the applicant for any loss suffered in consequence of that person's misconduct or breach of duty.

 

Admitted facts

27. I expressed my appreciation for the conduct of this civil case by way of admitted facts which had been worked out by the parties and presented to the court this has clearly narrowed down the issue for determination. The joint statement of admitted facts which were produced by the parties and have been admitted in evidence. It is as follows;

Agreed Facts

1. The Company (3rd Respondent) was incorporated in 1959, carries out the business as Importers and General Merchant.

 

2. The shareholders in the company are:

1. Heirs of Kamline Lee Kim Koon

2. Heirs of Shiookline Lee Kim Koon

3. Miyive Lee Kim Koon

4. Manyive Lee Kim Koon

5. Filine Lee Kim Koon

6. Niatline Lee Kim Koon

7. Sionline Lee Kim Koon

8. Semline Lee Kim Koon

9. Choung Yive Lee Kim Koon

10. Pit Kim Lee Kim Koon (Wife of Kamline)

11. Ah Yen Lee Kim Koon (Wife of Shiookline)

 

3. The Directors at that time were:

1. JR Lee Kim Koon

2. Kamline Lee Kim Koon

3. Shiookline Lee Kim Koon

4. Filine Lee Kim Koon

5. Niatline Lee Kim Koon

 

4. Directors who managed the company have changed over time, and it is significant that measures taken which are subject of this suit were executed after the passing of the principal founders JR Lee Kim Koon and Kamline Lee Kim Koon.

 

5. The main issues are whether the school fees money from JR Lee Kim Koon given to the Petitioner as a family support (gift) should be repaid and whether each and every dividend and payment unlawfully withheld from the Petitioner (totaling SCR 905,958.20) are owed by the Company to the Petitioner. This is disputed by the Respondents and allege that the school expenses were a loan. Petitioner also wants the court to look at all moneys coming from JR Lee Kim Koon to be put into the pot for consideration including all gifts, donations and financial assistance to all children and grandchildren without exception.

 

6. The Petitioner alleges that in 1981, JR Lee Kim Koon (the founder of the 3rd Respondent) wanted to support his grandchildren financially as he always wanted his grandchildren to have a good education. JR Lee Kim Koon financed many things for his family including the education abroad of various grandchildren. The school fees were paid to the respective families from around September 1981 to 1994.

 

7. The grandchildren who benefitted were:

 

1. Norbert, Jennifer and Doreen Chan Sing Chung, 3 children of Manyive Chan Sing Chung

2. Frankie and Cynthia Tsang Wing, 2 children of Miyive Tsang Wing

3. Shirley, John and Sandy Lee Kim Koon 3 children of Shiookline Lee Kim Koon

4. Allen and Vincent Lee Kim Koon, the 2 adopted children of Kamline Lee Kim Koon

 

8. JR Lee Kim Koon also assisted others in his family including his children as per the attached schedule over a period of over 30 years during approximately the late 1960s to 1994 using funds from various sources but mainly from the Company to finance several contributions he made for his children and others. None of these funds have been repaid or returned to JR Lee Kim Koon personally or to the company account.

 

9. JR Lee Kim Koon managed the company from its incorporation and was assisted by other directors and non-directors later on. It was JR Lee Kim Koon who had authority to manage and run the company and was the sole signatory for cheques.

 

 

10. At the time of the death of JR Lee Kim Koon, Kamline Lee Kim Koon took over to manage the company from 1995-2002. In 2002, Kamline Lee Kim Koon passed away and the 1st Respondent took over managing the company until present.

 

11. It was on the 8th August 2002, the 1st Respondent was made aware by the 3rd Respondent’s auditor, Mr Richardson through a letter, that “school fees have always been charged to the directors/family current accounts. It has been like that since 1981. The accounts were approved by Tai Tai (Kamline Lee Kim Koon), your father and yourself (1^st Respondent).”

 

12. Mr Richardson states in the letter: “school fees is not an allowable expense for tax purposes and is not in our view, an expense which should be borne by the company”.

 

13. Mr Richardson has made no statement about any other funds credited to the company account or of any loan agreements or who was liable to repay these sums allegedly taken from the company by JR Lee Kim Koon including funds used to pay for his own children’s purchase of property or education.

 

14. It is upon learning about this, that the 1st Respondent started regularizing this matter. This was discussed at the Annual General Meeting held on 12 July 2003 (Exhibit 7) where “the question of debt balances on current accounts arising though charges of school fees and other items were discussed. It was agreed to give some thought to regularizing the situation.”

 

15. The Petitioner enquires whether the regularization should have been applied to the directors accounts rather than to the shareholders?

 

16. The 1979 financial statements shows the various credit balances of the shareholders and directors.

 

Name	Amount/Balance at 31.12.1979
Shiookline Lee Kim Koon	SCR 277,769
Niatline Lee Kim Koon	SCR 267,734
Filine Lee Kim Koon	SCR 193,676
Kamline Lee Kim Koon	SCR 438,264
Chung Yive Kim Koon	SCR 153, 016
Manyive Kim Koon	SCR 265, 784
Miyive Kim Koon	SCR 282,563
Marc Kim Koon	SCR 244,240
Sionline Kim Koon	SCR 149,253
Semline Kim Koon	SCR 30,329

 

Page 9 of the 2001 Financial Statement shows those who had credit balance:

 

Name	Amount/Balance at 31.12.2001
Shiookline Kim Koon	SCR 137,287.00
Niatline Kim Koon	SCR 643, 871.00
Filine Kim Koon	SCR 593, 460.00

 

 

Debtors

Balance at 31.12.2001

 

The heirs of Kamline Lee Kim Koon: in the sum of SCR 229, 152

 

Miyive Lee Kim Koon- SCR 360, 126

 

Manyive Lee Kim Koon- SCR 758,204

 

The Credit balance for the other shareholders for 31.12.2001

 

Chung Yive Lee Kim Koon	SCR 360, 829
Marc Lee Kim Koon	SCR 533,662
Sionline Lee Kim Koon	SCR 141,848
Semline Lee Kim Koon	SCR 316,903

 

 

17. It was in 2006, four years after the 1st Respondent claims to have detected the issue of school payments which happened more than 12 years ago i.e. between 1981 to 1994, that he created the loan repayment mechanism despite the school fees money being a gift and the expiration of the option for a legal claim by the Respondents.

 

18. Petitioner objected to this loan repayment mechanism because JR Lee Kim Koon as promised, provided payment of school fees to her as a gift and therefore she should not refund any money. 1st Respondent responded that the money used was a loan as company funds should not be used for private purposes. 1st Respondent in unable to present a loan agreement. The 1st Respondent further responded that he was acting in the best interest of the company. Since then, Petitioner has constantly addressed this issue and has been continuously ignored to this day whilst 1st Respondent retained all payments whether associated with the finances of the company or not and dividends legally due to her in her capacity as a shareholder of the company/companies without her consent and against her objections.

 

 

 

Name of shareholder:	Manyive	Heirs of Kamline	Miyive	Heirs of Shiookline
2006	SCR 47,192 ­*payment withheld from Petitioner	-	-	-
Year: 2007	SCR 5,111 * payment/dividends withheld from Petitioner	SCR 5,111	SCR 5,111
Year: 2008	SCR 18,400 * payment/dividends withheld from Petitioner	SCR 18,400	SCR 18,400
2009	SCR 62,501 * payment/dividends withheld from Petitioner	SCR 103,500	SCR 103,500
2010	SCR 12,000 * added as a debt to the Petitioner
2011	SCR 12,000 * added as a debt to the Petitioner	-	SCR 233,115
2012	SCR 48,033 * payment/dividends withheld from Petitioner	SCR 16,726
2013
2014
2015
2016
2017
2018	SCR 411,763 *payment withheld from Petitioner
2019

 

Queries to the 1^st Respondent regarding the above table and respective financial statements:

 

19. Year 2008 where it is stated SCR18,400, dividends were declared (SCR 202,500). There are 225 shares in total and Manyive has 23 shares. Therefore, the correct amount owed to the Petitioner should be SCR 202,500/225 = SCR 900 per share x 23 = SCR 20,700.00

 

20. In year 2009 where it is stated Rs62,501, dividends were declared. The other two shareholders who has the same number of shares as the Petitioner received Rs103,500.00. Therefore, the correct amount owed to the Petitioner should be Rs103,500.00.

 

21. The Petitioner alleges that the FS shows that SCR12,000.00 was charged to the alleged school fees loan in 2010 and 2011, respectively. The Respondents have deducted this sum as contribution for meals. The Petitioner confirmed that she has already paid for meal contributions up till 2014 when the meals stopped. This should be rectified by the Respondents.

 

22. What was the SCR 48,033.00 that was deducted in 2012? The Petitioner requests that Respondents clarify this by providing further details and source of this amount.

 

23. Please note that the following amounts are missing from the above table and the respective financial statements:

1. 2012 Father's (JR Lee Kim Koon) credit balance SCR 60,033.33 - (This was confirmed by Elizabeth Lee Kim Koon (1^st Respondent’s wife) and 1st Respondent);

2. 13 May 2016 Closure of Kiu On SCR 16,000.00 - (This was confirmed by Chung Yive Lee Kim Koon (Jeanette), a shareholder of the 3^rd Respondent, Elizabeth Lee Kim Koon and 1st Respondent); and

3. 12 December 2019 - Marc Lee Kim Koon Share Rs234,389.33

 

24. The Petitioner avers it is unlawful to withhold payments and dividends rightfully due to her; Respondents alleges these were Company funds and the other shareholders paid back their loans. Respondents cannot provide agreements, receipts or any other proof to support their claims. This is disputed by Petitioner who claims one of the siblings, Shiookline Lee Kim Koon has been exempted from paying. The Respondents state that no sibling has been exempted. Shiookline Lee Kim Koon had a credit balance which was used to offset the payment of the school fees. Disputed by Petitioner with proof emanating from 1st Respondent’s admission to Lisa Chan Sing Chung (daughter of the Petitioner) (exhibit 21) and Ah Yen aka Marie-Rose Lee Kim Koon (Shiookline’s widow) admitted to the Petitioner that they did not pay back the school fees.

 

25. FS 2017 and 2018, (see below table for a simplified summary) conclusion is Respondent stated Shiookline has repaid fully and has a credit balance of SCR 84,844. It is very hard to believe that SCR 52,443 was the amount that needed to be repaid for school fees? That is GBP 2550 (current exchange rate) for the school fees of 3 children from 1981 to 1994.

 

Shiookline KK and Heirs of Shiookline KK

Year	Amount in credit (SCR)
31 Dec 1979	277,769
31 Dec 2001	137,287
31 Dec 2002	137,287
31 Dec 2003	137,287
31 Dec 2004	137,287
31 Dec 2005	137,287
31 Dec 2006	0 (137,287 was deducted from Shiookline’s account and put in Heirs Shiookline KK)
31 Dec 2007	137,287 – 50,043
31 Dec 2008	87,244 – 2,400
31 Dec 2009	84,844
31 Dec 2010	84,844
31 Dec 2011	84,844
31 Dec 2012	84,844
31 Dec 2015	84,844
31 Dec 2016	84,844
31 Dec 2017	84,844
31 Dec 2018	84,844

 

 

26. After years of unsuccessful approaches by Petitioner, Respondents ignored her request and continue to retain payments and dividends rightfully due to her. They are applying a right of set-off to withhold the payments and dividends.

 

27. Petitioner alleges the school fees J R Lee Kim Koon paid for her children was an unconditional gift; she accepted in good faith with no obligation to repay. Accordingly, there is no agreement or debt between Petitioner and Respondents and so the right of setoff does not arise. The Respondents have stated that in such family matters, there will be no such loan agreement. Petitioner is very concerned about such a statement from the Respondents as directors of a company that “family matters” do not require a contract, since it highly represents their ongoing business practice and conduct and it may be a reason why the Respondents are unresponsive to repeated questions about observations made on the 2017 and 2018 financial statements (exhibit 41).

 

28. Petitioner brings this action on the basis the actions of Respondents or some of the Respondents are unfair oppressive and fraudulent in nature and amounts to a breach of directors’ duties against the shareholders of 3rd Respondent and requests for SCR 905,958.20 that the respondents have retained so far to be paid to her.

 

29. Petitioner also claims SCR 200,000 for damages and costs of this suit. In addition, Petitioner requests for interests at commercial rates for each withheld dividends and other amounts since their respective effective date stipulated in the table below until the full payment of the same have been paid to her.

 

Effective Date	Details	Amounts owed (SCR)
18 Dec 2006	Compensation payment for retirement	54,461.54
Year ended 31 Dec 2007	Dividends declared (SCR 50,000)	5,111.00
Year ended 31 Dec 2008	Dividends declared (SCR 202,500)	20,700.00
Year ended 31 Dec 2009	Dividends declared (SCR 1,012,500)	103,500.00
2012	Father’s credit balance	60,033.33
13 May 2016	Closure of KiuOn	16,000.00
12 Jan 2017	Amount credited to the alleged loan account (financial statement for year ended 31 December 2017)	411,763.00
12 Dec 2019	Marc Lee Kim Koon Share distribution	234,389.33
Total :		905,958.20

 

 

30. Respondents dispute they have breached their duties as directors and 1st Respondent says he has acted in the best interests of the Company as Managing director (a post that does not exist under the Companies Act 1972) and does not owe Petitioner any money since this claim relates to monies due to 3rd Respondent which was given by way of loan in the first place.

 

Analysis and determination

28. The court’s decision would be based on the facts as admitted by the parties before the court and nothing else. In a bid to assist the court to address the issues arising and in contention between the parties, the Petitioner and the Respondents have filed a list of issues left for determination by the court. I have scrutinised the said list and I find that indeed they properly and appropriately deal with the issues that is now left for the court determination and therefore they shall be the questions that I should seek to answer in resolving this case. The answer to these questions would ultimately answer the legal question paused by the Petition, namely whether the Petitioner being a shareholder of the 3^rd Respondent has established that the affairs of the 3^rd Respondent was conducted in a manner which is oppressive or unfairly prejudicial to some part of its shareholders. The factual issues are as follows:

1. Was JR Lee Kim Koon (grandfather), the founder of the 3^rd Respondent (Kim Koon Company) from 1959 to 1995, correct to use funds belonging to 3^rd Respondent for education for several of his children and grandchildren?

 

2. If the money expended in paragraph 1 was meant to be a gift for the beneficiaries of the above gift/donations, should this money or any part of it be repayable to the 3rd Respondent, if so by whom?

 

 

3. Should the money expended in paragraph 1 be reimbursed to 3rd Respondent, if so by whom?

 

4. If there was an obligation to repay the money expended in paragraph 1 by any of the beneficiaries, is the claim maintainable in favor of the 3^rd Respondent?

 

5. On which legal basis did the 1^st Respondent create a school fee loan repayment mechanism for the Petitioner setting them off from dividends and payments due to shareholders?

 

6. What part of the Companies Act or any Seychelles law entitled the 1^st Respondent to justify the above-mentioned measures in paragraph 5?

 

7. If the court decides that the withheld dividends and payments are to be reimbursed to the Petitioner, what remedy is the Petitioner entitled to?

 

 

 

29. The Respondents submitted that the 3rd Respondent was incorporated in 1959 and deemed incorporated under the Companies Act 1972. That it carries business as importers and General Merchants. The learned Counsel for the Petitioner submitted that the Respondent was incorporated without Articles of Association, the Company and that therefore it stands to be governed by the Articles of Association in Part ii of the First Schedule to the Act of the Act. These submission are not contested in this case. The court therefore finds that the scheduled Article of Association is the Constitution of the 3^rd Respondent in accordance with the provisions of Section 8 of the Companies Act which reads as follows;

8 Statutory regulations

If a company is incorporated without articles being registered, or if articles are registered but do not exclude the regulations set out in Part II of the First Schedule to this Ordinance, or in the case of a proprietary company, in Part IV of the said Schedule, those regulations shall, insofar as the registered articles do not exclude or modify them or make express provision for the same matter, be the regulations of the company in the same manner and to the same extent as if they were contained in duly registered articles.

 

30. In the Articles of Association of the 3^rd Respondent Clause 50 relating to powers and duties of Directors and clause 74 and 75 have special importance given the facts of this case. They read as follows;

 

“50. The business of the company shall be managed by the directors, who may pay all expenses incurred in promoting and registering the company, and may exercise all such powers of the company as are not, by the Ordinance or by these regulations, required to be exercised by the company in general meeting, subject, nevertheless, to any of these regulations, to the provisions of the Ordinance and to such directions, being not inconsistent with the aforesaid regulations or provisions, as may be given by the company in general meeting; but no direction given by the company in general meeting shall invalidate any prior act of the directors which would have been valid if that direction had not been given.

 

74. Subject to the provisions of the Ordinance, the directors may from time to time appoint one or more of their body to the office of managing director for such period and on such terms as they think fit, and, subject to the terms of any agreement entered into in any particular case, may revoke such appointment. A managing director whose appointment is approved by a general meeting passed not later than six months after his appointment shall not, whilst holding that office, be subject to retirement by rotation or be taken into account in determining the rotation of retirement of directors, but his appointment shall be automatically determined if he ceases from any cause to be a director.

 

75. The directors may entrust to and confer upon a managing director any of the powers exercisable by them upon such terms and conditions and with such restrictions as they may think fit, and may from time to time revoke, withdraw, alter or vary all or any of such powers.”

 

 

31. It is not part of the case of either parties that the founder of the 3^rd Respondent abused his powers of Directorship of the Company. In fact both parties are in agreement that the founder acted benevolently, in good faith and at all material times in the best interest of the Company and in accordance with the Companies Memorandum of Association.

 

32. JR Lee Kim Koon was the founder of the 3^rd Respondent and Director who managed the day to day affairs of the 3^rd Respondent during his life time. The overall sense of control over the affairs of the Company before his death is an accepted fact in this case and both parties have admitted that JR Lee Kim Koon managed the company from its incorporation and was assisted by other directors and non-directors later on. It was JR Lee Kim Koon who had the full authority to manage and run the company and was the sole signatory for cheques.

 

 

33. As per the facts of this case the grandchildren who benefited from the financial assistance their grandfather benefitted included Norbert, Jennifer and Doreen Chan Sing Chung, three children of Manyive Chan Sing Chung, the Petitioner. The rest of the beneficiaries are the children of three siblings Miyive Tsang Wing, Shiookline Lee Kim Koon and Kamline Lee Kim Koon. It is also accepted that JR Lee Kim Koon also assisted others in his family including his children for over a period of over 30 years during approximately the late 1960s to 1994 using funds from various sources but mainly from the Company to finance several contributions he made for his children and others. None of these funds have been repaid or returned to JR Lee Kim Koon personally or to the company account.

 

34. Being such an altruistic grandfather, I find that there was nothing wrong for him to decide to fund his grandchildren’s education. Having taken that decision, he could have sourced the funds either from his personal account or from the account of the 3^rd Defendant provided that he did so in accordance with the Memorandum of Association and the provisions of the Companies Act aforementioned. There is no suggestion that the founder unlawfully exercised his powers as Director of the 3^rd Respondent or that there were challenges or contest by other Directors or shareholders of the 3^rd Respondent during the period that the funding took place by way of disbursement of funds belonging to the 3^rd Respondent.

 

35. In fact the facts shows that on the 8^th August 2002, the 1^st Respondent was made aware by the 3rd Respondent’s auditor, Mr Richardson through a letter that “school fees have always been charged to the directors/family current accounts. It has been like that since 1981. The accounts were approved by Tai Tai (Kamline Lee Kim Koon), your father and yourself (1^st Respondent).” In the view of this court this means that the 1^st Respondent, as Director, had actually given his approval in resolutions in accordance with the law the distribution of the funds in accordance with the will of the founder. There were no contest of the merits of the distributions.

 

36. The contest came much later and ex post facto the initial disbursement of the fees. Mr Richardson in his letter stated: “school fees is not an allowable expense for tax purposes and is not in our view, an expense which should be borne by the company”. It is upon learning about this, that the 1^st Respondent started “regularizing” this matter. This was then discussed at the Annual General Meeting held on 12 July 2003 (Exhibit 7) where “the question of debt balances on current accounts arising though charges of school fees” and other items were discussed. It was agreed to “give some thought to regularizing the situation.”

 

37. To this court, the view of auditor is but an opinion of an auditor, acting as such and it carries little legal significance. The fact that the school fees are not allowable expenses could not have prevented or prohibited the 3^rd Respondent from lawfully paying the school fees, if all the legal prerequisite for the decisions to be effected were present. Which was the case here. Business tax is calculated on the basis of the taxpayer’s taxable income. The taxable income is calculated by deducting allowable business expenses for the income year from the total assessable income for that year. It is in this context that the auditor’s advice arises and should be taken. He was performing what his professional duty called for and advising the 3^rd Respondent that they could lessen the tax burden by stopping the payment as it was not allowable business expense. In other words he was simply giving a tax avoidance advice rather than an advice on the lawfulness of past transactions.

 

38. The next and most decisive question in this case is in what form did the education funding took. The Petitioner says that they were by way of a gifts and the Respondents argue to the contrary, and state that they were by way of loans. The court therefore needs to make a finding of fact and categorise what kind of contract was formed between the Petitioner and the 3^Rd Respondent as a result of the actions of the founder. Needless to say, this categorisation would obviously carry huge significant on the outcome of this case, for if they were gifts there would be no obligation for repayment and setting off of the payments against payments of dividends. If they were loans, the obligation for repayments will arise and the setting offs will be justified.

 

39. The legal regimes of our law relating to gifts and loans are contained in both the previous and current Civil Code of Seychelles. The new civil code came into operation on the 1^st of July 2020. This case was registered in January 2020 and the facts arising in it arose before the enactment of the new Code accordingly by virtue of the provisions of Section 31 (1) (a) and (b) of the Interpretation and General Provisions Act 1976 the provisions of the previous Code will apply. Notwithstanding this, I also note that former provisions are not dissimilar from the current ones.

 

40. The following are Articles of the Civil Code that have their application in this case. First, it is the applicability of Article 894 which states that:

Article 894

A gift inter vivos is an act whereby the donor irrevocably divests himself of the ownership of the thing in favour of a donee who accepts it.

 

41. The preceding Article 893 is also pertinent to draw in on, and it states that:

Article 893

A person may not make a disposition of property gratuitously otherwise than by a gift inter vivos or by will, and in the forms hereinafter established.

 

 

42. There is also Article 931 (1) and Article 932, which provide that:

Article 931

1. All documents creating a gift inter vivos shall be drawn up by notaries in the ordinary form of contracts; they shall keep the original, under penalty of nullity. This rule is of public policy and may not be excluded by the agreement of the parties.

Article 932

A gift inter vivos shall not be binding upon the donor and shall have no effect until accepted in express terms.

 

The acceptance may be made in the lifetime of the donor by a subsequent authentic document an original copy of which shall be kept by the notary; but the gift shall only have effect with regard to the donor as from the day that he receives notice of the document of acceptance.

 

 

 

43. In addition to the above, I find it important to draw on the following articles from the Civil Code:

Article 938

A gift duly accepted shall be perfect by the mere consent of the parties; and the ownership of things given shall be transferred to the donee without any delivery being required.

Article 953

A gift inter vivos may only be revoked by reason of the failure to fulfil the conditions subject to which it was made, by reason of ingratitude, or by reason of the subsequent birth of children.

 

44. On the other hand the loan which is claimed to exist by the Respondents in this case is a simple loan falling under Article 1895 and subsequent Articles of the Code. Article 1895 provides that:

1. The obligation which arises from a loan of money shall always be of the numerical sum referred to in the contract.

If there is an increase or a decrease in the value of his money before the time of payment, the debtor shall restore the numerical sum lent, and shall only restore that sum in money which is legal tender at the moment of payment.

 

2. This obligation shall not be construed as preventing the parties from agreeing to a readjustment of their monetary obligations by reference to some recognised index.

 

 

45. Similar to a gift inter vivos, there is no legal obligation as to the form of a loan agreement and the proof of both of those specific contracts would therefore be subject to the general law of evidence.

 

46. It is trite law that one who avers must prove his or her assertion. The court cannot conjure up figures from a few facts averred in a plaint and admitted by claimants and Respondents in court. The court relies on evidence and not averments to settle claims and in this case the evidence comes in the forms of the affidavits of the parties and the admitted facts which comes in the form of an aveu judiciare. The legal burden remains with the claimant throughout the trial to prove his case; on the party who affirms and not the party who denies it. However, this burden of proof may shift. The Roman maxim actor incumbit probatio or “he who avers must prove” applies. Similarly, article 1315 of the Seychelles Civil Code categorically states that “A person who demands the performance of an obligation shall be bound to prove it.” Accordingly, the Petitioner ought to prove the existence of a gift as she avers, and the Respondents to prove the existence of the loans as they aver.

 

47. A loan is when money is given to another party in exchange for repayment of the loan principal amount, plus interest. Hence, one main characteristic is the repayment of the loan amount. It was in 2006, four years after the 1st Respondent claims to have detected the issue of school payments which happened more than 12 years below, between 1981 to 1994, that he created the loan repayment mechanism despite the school fees money being a gift and the expiration of the option for a legal claim by the Respondents. The facts of this case shows that throughout the 12 years when the disbursement of the funds were made, there were no repayments of the funds either by the Petitioner or any of the siblings. From 1994 until the 1^st Respondent took the decision to effect the loan mechanism, not a single amount was repaid after he took over the management of the company. Mr Richardson the auditor could not show any repayment in his 2002 Report.

 

48. Another fact in this case is the lack of proof of any loan agreement or any other written documentation that would have at least amount to a beginning of proof in writing that the loan as it is being asserted existed .The loan appears to have been created ex post facto by the 1^st Respondent in a cost saving effort after the demised of the founder and upon being advised by the auditor. He may have done this in good faith and in the best interest of the 3^rd Respondent. However the facts remain that his decision cannot have retrospective effect on the decision of the founder and the 3^rd Respondent.

 

49. The Respondents argues that the lack of documentation regarding the loan agreement is due to the moral impossibility as a result of the close family ties, which creates a legal exception to the necessity for proof of the agreements or written proof of the agreement. Having gone over the facts of this case the court will not agree to this submission as I find that the lack of proof of the existence of the loan document in this case is not caused by the familiarity of the individuals concern but arises as a result of the total inexistence of such agreement whether in written or oral forms. There were no meetings of mind in that regard.

 

50. On the other hand, all indications is that what took place here is a gift inter vivos. The court finds that the facts of the case clearly revealed that there was an act whereby the donor, being the 3^rd Respondent, irrevocably divests itself of the ownership of the funds consisting of monies in favour of the donees, which included the Petitioner, who accepted it. This took place as a result of the benevolent nature and intent of the founder. This amounts to unconditional gifts for which there arose no obligation to repay and for which the right to set off does not arise as claimed and carried out by the 1^st and 2^nd Respondents.

 

51. This finding effectively determines all the list of issues left for the determination of this court.

 

52. As a result, this court finds that that 1^st and 2^nd Respondent have acted in a manner which is oppressive and unfairly prejudicial to some shareholders including the Petitioner. Indeed, the Petitioner has been treated oppressively since 2004 by being made to pay off a loan which never existed. I am further satisfied that the 1^st and 2^nd Respondents were aware that this seriously prejudiced the interests of the Petitioner and other shareholders. To this end, damage has been caused to the Petitioner, and the 1^st and 2^nd Respondent are personally liable.

53. Accordingly the court makes the following orders;

    1. 1. 1. The 3^rd Respondent shall cancel all reference to any alleged loan agreements in the records and books of the 3^rd Respondent in regards to school fees paid to the Petitioner and that of other shareholders in the period of September 1981 to 1994 by the 3^rd Respondent;

          2. The 3^rd Respondent shall refund to the Petitioner the total sum of dividends that has been withheld and set off against the school fees gift of the Petitioner and that of any other shareholders. The sum withheld for the Petitioner amounts to SCR 905,958.20;

          3. The 1^stand 2^nd Respondent shall jointly and severally pay to the Petitioner the sum of SCR 200,000.

          4. The above refunds of the dividend shall be effected with interest at commercial rates continuing until full payment of all sums claimed with effect from the date of the first deductions made from the due dividends.

          5. The Petitioner shall be entitled to cost of these proceedings.

 

Made at Ile du Port on this ……………….. day of ………………. 2022.

R. J. Govinden

Chief Justice