Company Law

Citation(2003) 4 SAL Ann Rev 102
Published date01 December 2003
Date01 December 2003

7.1 Kwee Seng Chio Peter v Biogenics Sdn Bhd [2003] 2 SLR 482 raises the familiar issue of nominee directors and the extent to which they are bound by the knowledge of the person who appointed them. The facts of the case are relatively straightforward. The plaintiff sought to recover a loan from the defendant company. The defendant resisted the claim and its directors said that they knew nothing of the loan.

7.2 Belinda Ang Saw Ean JC (as she then was) found that the directors were in fact aware of the loan. In any event, even if they were not so aware, the nominee directors would be imputed with the knowledge of the loan transaction that their puppet master possessed. If a person allowed himself to be a mere nominee of and acted for another person, without the exercise of his own discretion or volition, in utter disregard for his duties as a director of the company, that nominee director must be bound by the notice which the other person, for whom he acted, had of the nature of the transaction. In this case, the nominee directors acted on the instructions of one Ricky Goh and admitted that they were subject to his direction and control. There was no question that Ricky Goh had the requisite knowledge as he was the person who instituted the loan. As such, the nominee directors and the defendant could not disclaim the loan even if they had not been aware of it.

7.3 In Tokuhon (Pte) Ltd v Seow Kang Hong (No 2)[2003] 4 SLR 414, a director of the appellant company, had written to one Michael Chien (‘Chien’) who was responsible for the awarding of the distributorship to sell the ‘Tokuhon’ brand of plasters. The letters written by the director in question over the period of February to April 2000 conveyed her intention to withdraw from the appellant company and also mentioned numerous conflicts among the directors of the appellant company. All the letters were copied to the other directors.

7.4 Chien terminated the appellant company”s distributorship of Tokuhon plasters in May 2000. Chien subsequently invited the writer of the letters to be the new distributor and she was duly appointed on 29 June 2000. The appellant company instituted an action against her and another person who was also a former director of the appellant company alleging breach of

their fiduciary duties. It was alleged that her action in writing the letters was a breach of her fiduciary duty as it caused the termination of the distributorship. It was also alleged that she had breached her fiduciary duty in accepting the distributorship and that the other former director was an accessory to these breaches.

7.5 In dismissing the appeal, the Court of Appeal said that in a normal case, the actions of the writer of the letters would constitute a breach of fiduciary duty. However, this was not a normal case as all the director-shareholders in the appellant company saw themselves as free to act in their own interests. Two of the other directors representing the other two groups of shareholders within the appellant company had always divulged confidential information to Chien. This conduct was the norm set by the director-shareholders, and had been impliedly accepted by all of them. In addition, the true cause of the termination of the distributorship was a breakdown in cooperation between the director-shareholders. These problems had always been known to Chien and the letters written could not be taken to have caused the loss of the distributorship. In the present case, the appropriate way to determine whether the writer had breached any duty to the appellant company was to see whether she had obtained any unfair advantage over the other parties and she had not. As such, even if her actions were found to have constituted a breach of her fiduciary duties, relief would still have been granted to her under s 391(1) of the Companies Act (Cap 50, 1994 Rev Ed) (‘the Act’).

7.6 In De Cruz Andrea Heidi v Guangzhou Yuzhitang Health Products Co Ltd[2003] 4 SLR 682, the plaintiff brought a claim against various parties for an illness that arose as a result of her consumption of slimming pills that had been imported by the second defendant. The third defendant was a director and principal shareholder of the second defendant. Tay Yong Kwang J found that the slimming pills were the likely causative agent of the plaintiff”s liver failure. The second defendant owed a duty of care to customers like the plaintiff and this duty of care had been breached. Tay J then went on to hold that the third defendant was personally liable. While in general, directors of companies are not personally liable for the tortious acts of companies that they are directors of, directors may be so liable where they have personally authorised or directed the said tortious acts. His Honour expressed the view that the third defendant”s involvement in the negligence was not merely very great; it was total and in the circumstances, he should be personally liable.

Indoor management rule

7.7 In Kwee Seng Chio Peter v Biogenics Sdn Bhd (para 7.1 supra), the defendant also contended that as there had not been a proper resolution approving the loan, the defendant was not bound.

7.8 On this issue of the absence of a proper board resolution authorising the entry into the loan agreement, Ang JC expressed the view that the rule in Turquand”s case (see The Royal British Bank v Turquand(1855) 5 El & Bl 248; 119 ER 474) had not been displaced. With respect, this seems debatable. On the facts, the plaintiff was aware of the necessity of a board resolution and had even sent a draft resolution to this effect which was never executed. Prima facie therefore, the rule in Turquand”s case should not be applicable. Nevertheless, this would not have been fatal to the plaintiff”s claim. Since the defendant had received the loan amount from the plaintiff, the absence of a proper resolution would mean that the plaintiff was entitled to recover the amount lent on the basis of a total failure of consideration. Although it was not clear in the judgment whether this was pleaded by the plaintiff, there should be no difficulty allowing the appropriate amendment to be made even at a late stage of the proceedings as the issue would be one of law and not fact.

7.9 Alternatively, and this was the ground relied on by the learned judicial commissioner in the event that she was wrong about the rule in Turquand”s case not being displaced, since the informal assent of all the directors of a company could be tantamount to a resolution of the board, and there was such informal assent in the present case, the loan agreement was binding on the defendant.

Derivative actions

7.10 In Ng Heng Liat v Kiyue Co Ltd[2003] 4 SLR 218, Kan Ting Chiu J struck out a counterclaim by the first defendants on the basis that the first defendants as minority shareholders of the second defendant, Aquagen International Pte Ltd (‘Aquagen’), were not the proper parties to bring the counterclaim on behalf of Aquagen against the directors of Aquagen for breach of fiduciary duties. His Honour said that the proper plaintiff rule in Foss v Harbottle(1843) 2 Hare 189; 67 ER 189 applied equally to counterclaims as it did to claims. It was not correct to assert that ss 216 and 216A of the Act largely abrogated the rule in Foss v Harbottle. While both sections made statutory inroads into the proper plaintiff rule, the rule was not annulled. In any event, both sections were subject to their own requirements and allowing the counterclaim to proceed in this manner would be to bypass even the statutory inroads to the rule.

Minority oppression

7.11 In Toh Kim Chan v Toh Kim Tian[2003] 1 SLR 839, the original family business that began as a partnership was subsequently converted into a company. The plaintiff contended that the first defendant, who was the person managing the firm and who later became a director of the company, had promised that the plaintiff and several others would all be made directors and equal shareholders of the company once it had stabilised. The plaintiff therefore sought, inter alia, a declaration of trust in respect of his share of the partnership and the company, and an order for an account and an inquiry into the partnership”s and the company”s finances, as well as an order compelling the purchase of his shares. The court accepted that the plaintiff had an interest in the partnership and the company although no shares in the company had been issued to him.

7.12 In so far as the claims relating to the company were concerned, Woo Bih Li JC (as he then was) expressed the view that the plaintiff”s rights as an unregistered shareholder could not be better than those of a registered shareholder. Had the plaintiff been a registered shareholder, he would not be entitled to an accounting or be entitled to be given access to accounting records and supporting documents other than the usual financial statements required by law, although it might be sensible for the first defendant to allow such access in view of the background leading to the business being transferred to the company. If the plaintiff was pursuing an action for oppression and/or unfair discrimination under s 216(1)(a) and/or s 216(1)(b) of the Act or an action to wind up the company on the ground that it was just and equitable to do so under s 254(1)(i) of the Act or under some other relevant ground, he could then apply to court for an accounting or access to accounting records and supporting documents and at that time the court would decide whether to grant his application. Woo JC said that he did not have to decide whether the plaintiff had to be a registered shareholder...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT