Equity and Trust

Citation(2003) 4 SAL Ann Rev 225
Date01 December 2003
Published date01 December 2003
AuthorTAN SOOK YEE BA, LLB (Dublin); Barrister (Middle Temple), Advocate and Solicitor (Singapore), Professor, Faculty of Law, National University of Singapore KELVIN LOW FATT KIN LLB (National University of Singapore), BCL (Oxford), Advocate and Solicitor (Singapore), Assistant Professor, Faculty of Law, National University of Singapore
Directors” duties and corporate opportunities

12.1 Tokuhon (Pte) Ltd v Seow Kang Hong (No 2) [2003] 4 SLR 414 presents a rather interesting and unusual set of facts. The defendants, Dr Seow Kang Hong and his wife Mdm Wong Kah Joo (Mrs Seow), were directors of the plaintiff company, Tokuhon (Pte) Ltd, at all relevant times. The other directors of Tokuhon (Pte) Ltd at the relevant time were Dr Chang Jin Aye and Ooi Choon Sian, with Ng Choon Heng as the latter”s alternate. The three directors and two alternates (Mrs Seow was Dr Seow”s alternate) represented three factions of shareholders. The Seows represented Continental Trading Co, Dr Chang represented Nan Tat & Co, and Ooi and Ng represented Weng Seng Heng Medical Hall.

12.2 Prior to the setting up of Tokuhon (Pte) Ltd, the three factions of shareholders separately and concurrently imported into Singapore Tokuhon medical plasters. The Japanese manufacturers, Tokuhon Corporation, were not content with this position and upon its suggestion, the three families incorporated Tokuhon (Pte) Ltd in February 1962, each holding a substantial portion of its shares and each having one representative on its board of directors. Despite the incorporation of Tokuhon (Pte) Ltd, however, actual distribution of the plasters on the ground did not change, with each faction purchasing the plasters from Tokuhon (Pte) Ltd and reselling them independently. Problems began to surface in the nineties when each faction began to accuse the others of various wrongdoings. Eventually, when Tokuhon Corporation”s representatives discovered the true extent of the internal disputes within Tokuhon (Pte) Ltd, it terminated the distributorship. Thereafter, Dr Seow failed to get re-elected to the board and Mrs Seow tendered her resignation. After that, Dr Chang and Ng sought to obtain the distributorship for Nan Tat and Weng Seng Heng jointly but Tokuhon Corporation”s representative instead invited Mrs Seow to Japan and

appointed the Seows, through their new company, Gamma 2000 (S) Pte Ltd (‘Gamma’), as the new distributor.

12.3 At trial, Tokuhon (Pte) Ltd sought damages for the loss of the distributorship which it alleged was caused by Mrs Seow”s disclosure of confidential information to Tokuhon Corporation”s representative, allowing the latter to realise the true extent of the internal dispute. It also sought an account of the profits made by Gamma from the new distributorship although this claim was apparently dropped on appeal.

12.4 So far as the claim for damages was concerned, the Court of Appeal concluded that Mrs Seow had not acted in breach of her fiduciary duty in revealing confidential information about the extent of the dispute between the three factions of shareholders. The court observed that, ordinarily, her conduct in communicating with Tokuhon Corporation”s representative would amount to such a breach. However, the fact that there were conflicts among the three factions was always known to Tokuhon Corporation and Dr Chang and Ng had themselves likewise brought the internal problems of Tokuhon (Pte) Ltd to the attention of Tokuhon Corporation, regarding its representative as a referee of sorts. Seeing that the three factions regarded such conduct as acceptable as a norm of their relationship, and in light of the fact that none of the three factions viewed Tokuhon (Pte) Ltd as having a separate independent interest, the court affirmed the trial judge”s decision that there had been no breach by Mrs Seow in divulging confidential information.

12.5 It further observed that even if there had been a breach committed by Mrs Seow, it was not the true cause of the loss of the distributorship, the true cause being the inability of the three factions to work out their differences after a considerable time.

12.6 Curiously, even though the court observed that the claim for an account of profits was not pursued on appeal, it nevertheless considered the question of whether or not the Seows had breached any fiduciary duty to Tokuhon (Pte) Ltd in accepting the new distributorship through Gamma. Although the court accepted that a director”s duties to the company do not end with his ceasing to hold the position, the court concluded that there could be no breach of fiduciary duties as the various factions had always been trying to obtain the distributorship for themselves and had always regarded their own interest as paramount, treating Tokuhon (Pte) Ltd as a mere vehicle of convenience. Accordingly, the Court of Appeal did not regard ‘the interest of the company’ as an appropriate test to be applied in the circumstances. It was more realistic, according to the court, to see if the Seows had obtained any unfair advantage vis-à-vis the other two factions.

12.7 The Court of Appeal further observed that, in the circumstances, even if there had been a breach of duty, it would have allowed relief under s 391 of the Companies Act (Cap 50, 1994 Rev Ed).

12.8 In light of the unusual facts of the case, the robust approach of the court in effectively regarding the true principals in any alleged fiduciary relationship as the shareholders can readily be appreciated, though this is an issue of company law rather than the law of equity. Once the court”s approach in ascertaining the respective shareholders as the true principal in any plausible fiduciary relationship is accepted, there is no doubt that its conclusion that there had been no breach of fiduciary duty is entirely accurate since there was a complete absence of trust and confidence between the various factions. In the circumstances, it would be absurd to suggest that any of the directors had undertaken to act on behalf of the other competing factions. This does not, of course, discount the possibility that they may be regarded, by accepting directorship, as having undertaken to act on behalf of Tokuhon (Pte) Ltd. In light of the court”s decision to treat the various factions as the effective principals in any possible fiduciary relationship, this is irrelevant but the same facts could take on an entirely different complexion if Tokuhon (Pte) Ltd were insolvent as creditors” interests would intrude and the dispute cannot be resolved by disregarding Tokuhon (Pte) Ltd”s separate legal personality.

Undue influence

12.9 Standard Chartered Bank v Uniden Systems (S) Pte Ltd [2003] 2 SLR 385 represents another case in what appears to be an everlasting saga of undue influence cases concerning guarantors. The plaintiff, Standard Chartered Bank, had extended trade financing facilities to the first defendant, Uniden Systems (S) Pte Ltd (‘Uniden’), which were guaranteed by Uniden”s managing director, Tan, and his wife, Choo, who was also a director of Uniden. Before the commencement of the trial, Uniden was put into winding up and Tan was adjudged a bankrupt. The case therefore focused on the liability of Choo as guarantor. Predictably, her defence was based on Tan”s undue influence over her and Standard Chartered”s notice of the same.

12.10 The issues therefore resolved themselves neatly into whether or not undue influence was established and whether or not, if established, Standard Chartered was affected by notice of the undue influence. On the first issue of undue influence, the court felt that the case raised the question of whether presumed undue influence was established rather than whether or not there was actual undue influence on the court”s assessment of the facts. In so dismissing actual undue influence, the court noted that the evidence adduced by Standard Chartered”s representatives was that ‘there was no perceived

intimidation or overbearing or bullying conduct on Tan”s part, whenever they saw him with Choo’. The case also failed on the basis of presumed undue influence as a result of a number of findings made by the court. First, the court found that Choo would still have agreed to the guarantee even if she had fully appreciated the risks of the transaction as a result of independent advice. Secondly, Choo shared equally in the fruits of Tan”s success in managing Uniden, even though her directorship was merely titular and she had made no contributions to its business. In this respect, the court referred to Lord Nicholls of Birkenhead”s comment in Royal Bank of Scotland plc v Etridge (No 2)[2002] 2 AC 773 at [28] that to suggest that a wife”s signing of a guarantee in favour of her husband”s business was a transaction manifestly to her disadvantage would be ‘to take an unrealistically blinkered view of such a transaction’. Thirdly, Choo”s will was not ‘overborne’ because her acceptance of Tan”s dominance (admitted by Tan at trial despite their separation) was a result of her upbringing and personality.

12.11 Finally, the court held that even if it was wrong in its finding that Tan had not exercised any undue influence on Choo, Standard Chartered”s claim on the guarantee would still succeed because it had no notice of this influence because its officers did not notice any unusual conduct between Tan and Choo. As there was nothing out of the ordinary in the couple”s relationship to warrant Standard Chartered conducting further investigations, the bank”s conduct could not be impugned.

12.12 The references by the court to an ‘overborne’ will and evidence of intimidation, overbearing or bullying conduct seem out of place in the context of an allegation of undue influence, such references being more germane to an allegation of duress at common law. Undue influence in equity is more subtle and reaches beyond such blatant forms of coercions to other unacceptable forms of persuasion. Hence, the absence of evidence of intimidation is typically irrelevant, although undue influence did historically address such conduct when duress at common law was less well developed. Nevertheless, the court”s conclusion is likely justifiable on the basis that although Choo had reposed trust and confidence in Tan, the latter had not abused that...

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