Michelin-awarded Zion Road prawn noodle hawker sued by childhood friend of 30 years after S$350k business fails

[The_King]

After entering into a restaurant business venture with his childhood friend of 30 years, a popular prawn noodle hawker, Don Tan had high hopes and invested S$350,000.

But when the business failed to endure the Covid-19 pandemic and closed down, he took his friend to court to get back  S$300,000 — claiming it was a "personal loan".

 

 

Childhood friends

 

According to a judgment dated Feb. 6, 2024, Tan and prawn noodle hawker Teo Aik Hua were childhood friends of 30 years and grew up together in their Bukit Timah kampung.

While Tan climbed the corporate ladder and became the director and former CEO of a heavy machinery company, Teo — who dropped out of primary school at Primary 3 and did not speak English —  became a hawker at 16.

Since then, Teo dabbled in various dishes such as chicken rice and duck rice.

Around 2003, he developed a prawn noodle recipe that became his signature dish.

In 2018, Teo's prawn noodle stall "Fresh Taste Big Prawn Noodle" received the Michelin Bib Gourmand accolade.

At the time of the suit, Teo was running a hawker stall located at Zion Riverside Food Centre called "Zion Road Big Prawn Noodles".

 

Turned business partners

 

After the stall's success, Teo was approached by multiple parties for "business opportunities", including an investor from China who reportedly offered him S$500,000 for his recipe.

Teo said during the trial that he turned the investors down as he did not feel comfortable working with strangers and was also worried that he might be taken advantage of due to his limited education.

At the time, Tan was a regular customer who occasionally helped out.

Teo said Tan broached the idea of opening a restaurant, claiming it would "increase the value of his branding and recipe".

After some time, in June 2020, when Teo found out that Zion Riverside Food Centre would undergo renovations from November 2020 to April 2021, he decided to venture into the restaurant business.

Teo asked Tan if he was interested in partnering up, and he agreed.

On Nov. 30, 2020, the pair incorporated a company to run the restaurant Zhi Wei Xian @ Zion Road Big Prawn Noodle, which opened in January 2021.

 

Did not profit

 

The start-up cost was estimated to be S$250,000.

Prior to the incorporation, Tan and Teo had agreed to split the shares of the business equally. Teo roped in his fiancée, Lisa Lin, and agreed to split his own shares with her.

The trio agreed that Tan would fund the venture as a "loan" while Teo and Lin would be responsible for running the restaurant.

Tan was supposed to recover his loan from any profits from the business, while any excess profits would be distributed between the partners — meaning Tan would get 50 per cent.

Despite Teo's best efforts, which garnered positive reviews from food blogs, the restaurant suffered financial losses due to the Covid-19 pandemic dining restrictions and continually failed to make a profit.

Between December 2020 and September 2021, Tan forked out a total of S$350,000 for the business.

This included an initial loan of S$250,000 in varying instalments and — as the business continually ran out of money — a second loan of S$50,000 and a third loan of S$50,000.

 

Filed a lawsuit

 

Despite the funds, the company failed to break even.

As the men's relationship soured, the parties met again to discuss a further injection of funds on Sep. 21, 2021, but Tan refused to invest further.

The restaurant closed on Oct. 1, 2021.

Tan tried to recover his investment of S$350,000 from Teo and Lin. Before suing Teo for the money, in April 2022, he withdrew the remaining balance in the company’s bank account, totalling $36,500.

 

Claimed the investment was a "personal loan"

 

Tan claimed that the S$350,000 he invested in the business was merely a "personal loan" to Teo but had been deposited into the company's bank account as it was "practical and convenient" and that "one place made it easier" for him to "keep track of his transfers".

For the first loan of S$250,000, he claimed that Teo had agreed to return S$62,500 to him should the business fail, and he was entitled to the full repayment of S$100,000 for the remaining two loans.

Teo refuted Tan's claim, arguing that Tan was the restaurant's financer, while Teo and Lin's roles were in the branding and day-to-day operations.

Teo said the fund transfers to the company were all characterised by terms such as "capital contribution", "director loan", and "shareholder loan".

Teo also claimed that Tan had also, in various correspondences, alluded to the company owing him money.

 

Judge's decision

 

The judge dismissed Tan's claim, saying that Tan could not prove that the loans were made to Teo.

He found that the loans were made to the company through "debt financing". If the restaurant succeeds, the loans would be repaid by profits, and he stood to "reap further profits" as a 50 per cent shareholder.

He said Tan "relied on nothing more than a bare assertion", and it was "curious" that the assertions were "not backed by any documentary proof".

Furthermore, the judge pointed out the evidence that Tan's "words and conduct throughout the entire episode stood at odds with his allegation".

The judge felt that Tan had entered the venture with "buoyant spirits", confident that the restaurant, backed by a chef with Michelin Bib Gourmand, would attract the same following as the original hawker stall.

"His predictions, however, did not come to fruition," the judge said. "The restaurant failed to escape the scourge of the Covid-19 pandemic, which continued to linger and surge in the ensuing months."

The judge believed Tan could not recover his losses from "the little funds left" in the company's account and turned to Teo and Lin for repayment — but his claim was unsubstantiated and contradicted by evidence.

[XianGe]

Loan should be done with IOU. No document= no proof of loan