02:56 PM Ben Chester Cheong (Lecturer of Law, SUSS; LLM (Cambridge), LLB (1st Class Hons) (Exeter), Advocate & Solicitor (Singapore))

    Director’s appointment clauses: The Wellness Group Pte Ltd v Paris Investment Pte Ltd and others [2018] SGCA 47



    For most mergers and acquisitions corporate lawyers, the shareholders’ agreement is an integral part of the suite of documentation required for a client’s investment into a potential target company. The shareholders’ agreement may also be accompanied by consequential amendments to the constitution of the company to reflect the parties’ agreed terms. 

    Consider the following. An investor, Z, would like to invest in a company. However, Z is not content to be just a minority shareholder. Z would like greater involvement by nominating a representative to the board of directors. In that case, Z would typically appoint a solicitor to draft a shareholders’ agreement with a director’s appointment clause entrenching Z’s right to appoint a director. All is well until one day Z becomes a major shareholder. However, the terms in the shareholders’ agreement had not been drafted to consider such a factual matrix.

    The commentary will address the Court of Appeal’s decision in The Wellness Group Pte Ltd v Paris Investment Pte Ltd and Others [2018] SGCA 47 (“Director’s Appointment Suit CA”) as well as some practical implications for corporate lawyers. It is worth noting that Director Appointment Suit CA was an appeal from the earlier High Court’s decision in [2017] SGHC 298 (“Director’s Appointment Suit HC”). The dispute in Director’s Appointment Suit HC had its roots in the earlier High Court’s case in [2016] 3 SLR 729 (“Minority Oppression Suit”).


    Brief background of the parties and the dispute:

    The Wellness Group Pte Ltd (“Wellness”) is a holding company that used to operate the TWG Tea Company Pte Ltd (“TWG Tea”) as its major subsidiary. In 2011, OSIM International Pte Ltd (“OSIM”) entered into an agreement with the then-chief executive officer of TWG Tea, Mr Manoj Mohan Murjani (“Manoj”) to acquire 35% of the shares in TWG Tea from the other two shareholders, Wellness and Paris Investment Pte Ltd (“Paris”). Wellness, TWG Tea, OSIM and Paris are parties to the shareholders’ agreement (“the Shareholders’ Agreement”).

    Clause 5 of the Shareholders’ Agreement contained a typical director’s appointment clause which stipulated the size of the board as well as the composition of the board. The board was to comprise “two persons appointed by [Paris] and [Wellness]” and “one person appointed by OSIM” provided that OSIM’s shareholding percentage did not fall below 25% (Director’s Appointment Suit CA at [4]).

    OSIM eventually became the largest shareholder in TWG Tea as a result of a number of corporate actions (see Minority Oppression Suit at [25]-[49]). Together with its acquisition of Paris, OSIM eventually controlled 69.9% of the shares in TWG Tea. Wellness’ interest in TWG Tea was reduced to 30.1% (Director’s Appointment Suit CA at [6]).

    Aggrieved, Wellness and Manoj commenced Minority Oppression Suit against OSIM, Paris and the directors of TWG Tea where a number of claims were alleged (Minority Oppression Suit at [53]-[55]). Minority Oppression Suit was dismissed by the High Court in 2016 and Wellness’ appeal was dismissed by the Court of Appeal in Civil Appeal No 64 of 2016. 


    The court in Minority Oppression Suit implied a term into the director’s appointment clause:

    Having provided a brief background to the long-standing dispute, it is now appropriate to consider the main issue which gave rise to the dispute which culminated in the 2018 Court of Appeal’s decision.

    Around October 2013, OSIM had appointed two additional directors to the board of TWG Tea. The plaintiffs alleged that this was in breach of the Shareholders’ Agreement which stipulated that the board size would not exceed three and OSIM was not entitled to appoint more than one director (Minority Oppression Suit at [118]). The judge applied the test in Sembcorp Marine v PPL Holdings Pte Ltd [2003] 4 SLR 193 at [101] and implied a term to give the contract efficacy (Minority Oppression Suit at [121]). The term to be implied was that the “majority shareholder(s) (whoever they may be) would be entitled to appoint two directors, and the minority shareholders(s) would be entitled to appoint one director so long they hold at least 25% of the shares in TWG Tea” (Minority Oppression Suit at [121]).


    Facts which gave rise to Director’s Appointment Suit HC:

    Turning to the facts of the present case, Wellness had for some time wanted to appoint a director to TWG Tea’s board. Wellness had, on a number of occasions, requested that Manoj, who had earlier stepped down, be appointed to the TWG Tea’s board. This was rejected by OSIM and Paris (Director’s Appointment Suit HC at [13]-[16]). Subsequently, Wellness proposed that Associate Professor Mak Yuen Teen (“Prof Mak”) be appointed to the board (Director’s Appointment Suit HC at [17]). Wellness wanted TWG Tea’s board to (i) authorise Prof Mak to disclose information gained in his capacity as a director of TWG Tea to Wellness and (ii) arrange for insurance cover for Prof Mak to the same extent as the other directors and if this had not been the current practice, that such insurance be procured (collectively, the “Ancillary Matters”) (Director’s Appointment Suit HC at [17]).

    TWG Tea rejected the appointment of Prof Mak as it found the Ancillary Matters unpalatable (Director’s Appointment Suit HC at [20]). Wellness then filed an originating summons (“OS”) seeking the appointment of Prof Mak as a director of TWG Tea and for the necessary documents to be executed to give effect to his appointment (Director’s Appointment Suit HC at [21]). The High Court in Director’s Appointment Suit HC dismissed the OS to allow the respondents to reconsider Prof Mak’s appointment without the Ancillary Matters (Director’s Appointment Suit HC at [28]). Wellness appealed.


    Decision in Director’s Appointment Suit CA:

    The Court of Appeal held that the presence of the director’s appointment clause and the implied term (Minority Oppression Suit at [121]) permitted Wellness to nominate a person to be appointed as a director of TWG Tea (Director’s Appointment Suit CA at [7]).

    Once the shareholders’ agreement contained such a clause, there were only very limited situations in which the board could refuse to appoint the nominee as a director. The court cited the following scenarios: (i) a person disqualified to act as a director, (ii) a person who did not consent to act, (iii) a person “obviously unfit for office”, or (iv) the person’s appointment would be “obviously injurious to the company” (Director’s Appointment Suit CA at [33], [55] and [62]). The burden of proving any of these exceptional scenarios is on the board and not the party nominating the director (Director’s Appointment Suit CA at [33]).

    By refusing to appoint Prof Mak as a director of TWG Tea without being able to establish any of the limited situations where the board could legitimately object to the appointment of Prof Mak, the respondents had breached the implied term (Director’s Appointment Suit CA at [82]). Once a breach had been established, specific performance to require the board to appoint Prof Mak as a director was available as a remedy (Director’s Appointment Suit CA at [92]).



    This case is important for a number of reasons. As rightly pointed out by Chong JA, there “is no reported local precedent in which the court has had to decide on the precise contours of the shareholder’s right… in relation to the appointment of directors” (Director’s Appointment Suit CA at [1]). While it is trite law that shareholders’ agreements are binding amongst shareholders (as per the Court of Appeal in Golden Harvest Films Distribution (Pte) Ltd v Golden Village Multiplex Pte Ltd [2007] 1 SLR(R) 940), this case adds to our local jurisprudence on the effect of director’s appointment clauses in a shareholders’ agreement.

    Is a right to nominate the same as a right to appoint?

    The court’s detailed analysis of a director’s appointment clause is helpful. The parties in question took two diametrically opposing view on the construction of the implied term of the director’s appointment clause. Wellness argued that the implied term provided it an “unfettered and unqualified right to appoint Prof Mak” which did not require the “[b]oard’s approval or acquiescence” (Director’s Appointment Suit CA at [31]). On the other hand, the respondents argued that “the power to appoint directors is vested solely in the board by virtue of regulation 91 of [TWG Tea’s constitution].” Relying on regulation 91, the respondents argued that the implied term gave Wellness a “contractual right to nominate but not appoint Prof Mak” (Director’s Appointment Suit CA at [31]).

    In the end, the court chose to adopt a middle ground and one that crystallises the right to appoint a nominee under the shareholders’ agreement as a right to choose that individual to be appointed to the board which the board must then complete the formalities subject to a limited scope of overriding considerations (Director’s Appointment Suit CA at [45]). Effectively, the limited scope of overriding considerations are in place to ensure that the board, in its exercise of its power of appointment, will not be in breach of its fiduciary duty to TWG Tea (Director’s Appointment Suit CA at [66]).

    The practical point to be gleaned from Director’s Appointment Suit CA is that corporate lawyers should not use the term “nominate” and “appoint” disjunctively in director’s appointment clauses because it could add a layer of uncertainty notwithstanding the fact that the court did not specifically address the issue. The drafting used should be direct and instructive, and perhaps the clause that was implied into the Shareholders’ Agreement in Director’s Appointment Suit CA may be considered.

    Which prevails - the unqualified power of the board to appoint directors under the constitution or the right of the specific shareholder to nominate a director under the shareholders’ agreement?

    In Director’s Appointment Suit CA, regulation 91 of TWG Tea’s constitution appeared to be in conflict with the right of specific shareholders to appoint directors under the Shareholders’ Agreement. For ease of reference, regulation 91 of the constitution stated that “the [board] may, at any time, and from time to time, appoint any person to be a [d]irector, either to fill a casual vacancy, or by way of addition to their number” (Director’s Appointment Suit CA at [63]).

    The court’s holding is that even though the power of appointment remained with the board pursuant to regulation 91, it must be “exercised in accordance with the shareholders’ wishes”. The court held that the fact that TWG Tea was a party to the Shareholders’ Agreement bound the directors to give effect to the arrangements when exercising the power conferred on them by the constitution (Director’s Appointment Suit CA at [64]).

    The court also relied on the prevalence of agreement clause (Director’s Appointment Suit CA at [39]) as well as the recitals in in the Shareholders’ Agreement (Director’s Appointment Suit CA at [70]) to arrive at that conclusion.

    This is a very helpful pronouncement by the Court of Appeal. For corporate lawyers drafting shareholders’ agreement, it should be noted that the standard provision in the constitution recognising the absolute power of the board to appoint any person to be a director may be qualified by the provisions in the shareholders’ agreement. Hence, it adds some certainty in practical terms to the enforceability of a director’s appointment clause in a shareholders’ agreement notwithstanding conflicting provisions in the constitution. 

    Furthermore, courts do take into consideration what is written in the recitals and preambles to infer what the parties actually intended. This should be a tacit reminder for the recitals to be drafted accurately so as to avoid the risk that it may be construed in another way if there is a subsequent dispute. 

    Can the party nominating a director impose conditions for the board to follow?

    It would appear that the proposed appointment of directors pursuant to a director’s appointment clause should not be fettered with conditions, such as the Ancillary Matters. The Court of Appeal did not have the opportunity to consider this issue (Director’s Appointment Suit CA at [80]-[82]) as the parties did not raise it during the Court of Appeal’s hearing.

    It is necessary to delve deeper into the Ancillary Matters to understand whether such requests have any basis in law. It has been affirmed in Oversea-Chinese Banking Corp Ltd and another v Justlogin Pte Ltd and another [2004] 2 SLR(R) 675 at [31] that a nominee director “may take into account the interest of his appointer” provided that “such interest does not conflict with the interests of the company”. However, this is a fine line and professional directors will want to avoid conflict of interest allegations by utilising the mechanism provided in section 158 Companies Act (Cap 50, Rev Ed 2006) (“Companies Act”) which allows the board to authorise such disclosure of information. As for the practice of procuring insurance for its directors to protect them from liability in the course of carrying out their duties as directors, section 172A Companies Act permits this practice.

    Considering that the Ancillary Matters that Wellness laid down as conditions were not contrary to law as explained above, it would appear that TWG Tea’s board could have easily acquiesced to it. However, in practice, a hostile board will not accede to even the simplest of requests from a minority shareholder unless expressly required to do so. Granted, it may be that when the shareholders’ agreement was drafted, such a fallout giving rise to potential issues such as this was not contemplated by the parties. The practical advice would be to include such conditions as part of the director’s appointment clause in the shareholders’ agreement if the nominating shareholder would like it to be a binding condition among the parties.


    How does one establish that a director’s appointment clause had been breached and what are the available remedies?

    The court took a very clear approach in establishing that a director’s appointment clause had been breached (Director’s Appointment Suit CA at [83]). It would thus appear that if the board kept on postponing the appointment of a nominated person and kept requesting for additional information to justify the suitability of that director (i.e. a protracted inquiry process to assess suitability), then the director’s appointment clause would have been breached. It may even be possible to infer that this would be judged objectively.

    Once the breach had been established, the court can order specific performance to enforce the director’s appointment clause and require the board to appoint a particular choice of director (Director’s Appointment Suit CA at [91]). It is a moot point as to why damages were not awarded since the respondents had made it very difficult for Wellness to appoint its choice of director and Wellness had been unrepresented on the board for some time. There was also considerable delay in having Prof Mak appointed. However, it is opined that the case will set a clear precedent that boards should not refuse the appointment of nominated directors. In short, the board must give effect to the nominated choice of director in accordance with the director’s appointment clause.

    This limited scope of exceptions which the court recognised in which the board may refuse to appoint the nominated choice of director will also lend some ammunition to litigation lawyers. It is envisaged that this issue, should it arise on a specific factual matrix, will be fought among other issues such as minority oppression allegations. It may well be the case that damages will be sought depending on the delay, though Wellness did not seek damages as a relief in Director’s Appointment Suit CA.



    The present Court of Appeal’s decision in Director’s Appointment Suit CA is to be lauded for its clarity in crystallising the issues coherently and would definitely be a much-cited company law case for both lawyers and students alike in the foreseeable future. In summary, parties can be assured that the director’s appointment clause in a shareholders’ agreement will in all probability be enforced unless limited exceptions apply. These limited exceptions are not made out easily in order to preserve the sanctity of the shareholders’ agreement.

    For the corporate lawyer, the key takeaway is for drafting to be precise; and to also consider the various factual scenarios that may arise in the future. Granted, it may be difficult for one to be crystal ball gazing and effectively provide for every situation. But the hallmark of an astute corporate lawyer is to pre-empt and draft these clauses to capture both present and future commercial realities. 

    * This blog entry may be cited as Ben Chester Cheong, “Director’s appointment clauses: The Wellness Group Pte Ltd v Paris Investment Pte Ltd and others [2018] SGCA 47” (13 January 2019) (

    ** A PDF verison of this entry may be downloaded here

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