W&P Piling Pte Ltd ((in Liquidation)) v Chew Yin What and Others

Judgment Date31 July 2007
Date31 July 2007
Docket NumberSuit No 162 of 2006
CourtHigh Court (Singapore)
W&P Piling Pte Ltd (in liquidation)
Plaintiff
and
Chew Yin What and others
Defendant

[2007] SGHC 124

Lai Siu Chiu J

Suit No 162 of 2006

High Court

Companies–Directors–Duties–Breach of statutory duties and fiduciary duties–Transferring of assets to parent company–Failure to account to company for sale proceeds arising from transferring of assets–Whether directors' actions amounting to breaches of duty to act honestly as well as duty to act bona fide–Section 157 (1) Companies Act (Cap 50, 1994 Rev Ed)–Companies–Directors–Duties–Whether fiduciary duties owed by nominee director different from that of other directors–Whether fact that company is under scheme of arrangement has any relevance vis-à-vis directors' duties–Defence of acting reasonably and honestly–Sections 157 (1), 391 (1) Companies Act (Cap 50, 1994 Rev Ed)

The plaintiff was placed under a scheme of arrangement (“the Scheme”) wherein it agreed to pay its creditors in cash by four instalments an aggregate of $0.40 for every $1.00. It defaulted on its second instalment and the creditors' claims became repayable in full. The Scheme was terminated and a winding-up petition was filed against it by a judgment creditor. By an order of court, the plaintiff was ordered to be wound up and a liquidator was appointed.

The plaintiff's immediate holding company was Wee Poh Construction Co Pte Ltd (“Wee Poh”) and the latter's parent company was Wee Poh Holdings Ltd. The three defendants were directors of the plaintiff, the first and second defendants were directors of Wee Poh, and the first defendant was the managing director of Wee Poh Holdings Ltd.

The plaintiff purchased five pieces of machinery, of which four were acquired through hire purchase. These five machines were subsequently sold to Wee Poh, which on-sold them to third parties. No valuation of any of the machines was done prior to their disposal and no tenders were called to ascertain whether higher sale prices could had been achieved. The plaintiff also did not receive any payment from the sales.

The liquidator commenced a suit alleging that the defendants had: (a) breached their fiduciary duties to the plaintiff; and (b) placed themselves in a position where their interests conflicted with the interests of the plaintiff when they sold the five machines and failed to account for the sale proceeds. The third defendant also instituted third-party proceedings against the first and second defendants pursuant to O 16 of the Rules of Court.

Held, allowing the claim:

(1) All three defendants had breached their fiduciary duties as directors of the plaintiff at law and their statutory duties under s 157 (1) of the Companies Act (Cap 50, 1994 Rev Ed) (“the Act”): at [64].

(2) At the time of the transfer of the five machines to Wee Poh, the plaintiff was insolvent by virtue of the Scheme. As such, the interests of the plaintiff's creditors became dominant: at [72] and [73].

(3) Neither the first nor the second defendants could take advantage of s 391 (1) of the Act as their actions were not honest and/or reasonable and they had not made bona fide commercial decisions: at [77] and [78].

(4) The law made no distinction between fiduciary duties owed by different categories of directors - all directors owed the same duties to a company: at [80].

(5) It was no defence to a claim under s 157 of the Act for the third defendant to say that he had left it to the Scheme's administrator or other professionals to resolve the plaintiff's financial problems. The Scheme had no relevance to his fiduciary duties: at [83].

(6) As the third defendant was less blameworthy than the first and second defendants, he was entitled to a 75% contribution from them pursuant to his third-party notice, when he had paid the plaintiff's claim and costs: at [84].

Dominion International Group plc (No 2), Re [1996] 1 BCLC 572 (refd)

Globalink Telecommunications Ltd v Wilmbury Ltd [2003] 1 BCLC 145 (folld)

Golden Village Multiplex Pte Ltd v Phoon Chiong Kit [2006] 2 SLR (R) 307; [2006] 2 SLR 307 (refd)

Kea Holdings Pte Ltd v Gan Boon Hock [2000] 2 SLR (R) 333; [2000] 3 SLR 129 (refd)

Kwee Seng Chio Peter v Biogenics Sdn Bhd [2003] 2 SLR (R) 482; [2003] 2 SLR 482 (refd)

Tong Tien See Construction Pte Ltd v Tong Tien See [2001] 3 SLR (R) 887; [2002] 3 SLR 76 (folld)

Townsing Henry George v Jenton Overseas Investment Pte Ltd [2007] 2 SLR (R) 597; [2007] 2 SLR 597 (folld)

Vita Health Laboratories Pte Ltd v Pang Seng Meng [2004] 4 SLR (R) 162; [2004] 4 SLR 162 (folld)

W&P Piling Pte Ltd, Liquidator of v Chew Yin What [2004] 3 SLR (R) 164; [2004] 3 SLR 164 (refd)

West Mercia Safetywear Ltd v Dodd [1988] BCLC 250 (refd)

Companies Act (Cap 50, 1994 Rev Ed)ss 157 (1),391 (1) (consd);ss 157,210,227,285,340 (1)

Rules of Court (Cap 322, R 5,2006 Rev Ed)O 16

Jeya Putra and Magdalene Chew (AsiaLegal LLC) for the plaintiff

Leslie Phua and Louis Lim (William Poh & Louis Lim) for the first and second defendants

Tan Cheow Hin (CH & Partners) for the third defendant.

Lai Siu Chiu J

1 At the conclusion of the trial, I awarded interlocutory judgment on the claim of the plaintiff, W&P Piling Pte Ltd, against Chew Yin What, Lee Kok Swee and Yeung Chun Keung, who are the first, second and third defendants respectively. I further directed the Registrar to assess damages due to the plaintiff with the costs of such assessment to be reserved to the Registrar. Finally, I directed that in the event the third defendant paid the plaintiff's claim and costs when the amounts were assessed, the third defendant was at liberty to look to the other two defendants for 75% contribution of both sums, pursuant to the third defendant's notice claiming contribution from them.

2 As the third and first defendants have filed notices of appeal in Civil Appeals Nos 44 of 2007 and 45 of 2007 respectively against my judgment, I shall now set out my grounds.

The facts

3 The plaintiff was incorporated on 9 May 1996 and was in the business of mixed construction activities and roofing as well as piling works. The company was ordered to be wound up by an order of court dated 16 May 2003 in Companies Winding Up No 30 of 2003 (“the Winding-up Petition”) and Don Ho Mun-Tuke (“Don Ho”) was appointed the liquidator. This suit was commenced by Don Ho on the plaintiff's behalf.

4 The first defendant was a director from 9 May 1996 to 12 April 2003, the second defendant was a director from 2 August 1996 to 12 April 2003, while the third defendant was a director from 27 May 1996 to 12 April 2003, of the plaintiff. At the material time the first and second defendants were also directors of the plaintiff's immediate holding company, viz, Wee Poh Construction Co Pte Ltd (“Wee Poh”). I should add that the second defendant is the first defendant's brother-in-law by reason of being married to the first defendant's younger sister. The parent company of Wee Poh is Wee Poh Holdings Ltd (“the holding company”) which is listed on the Stock Exchange of Singapore. The first defendant was also the executive or managing director of the holding company at the material time. In his written testimony, the first defendant deposed that he was a representative of Wee Poh on the plaintiff's board of directors.

5 The plaintiff had two other directors besides the defendants at the time of its incorporation, viz, Chow Soong Cheng (“Chow”) and Wong Tuck Wai (“Wong”). Chow and Wong managed the company until their resignations. Chow left the plaintiff's services on 28 February 2002. The first defendant deposed (in his affidavit of evidence-in-chief) that he took over the management of the plaintiff with the assistance of the second and third defendants after Chow and Wong left.

6 The plaintiff required various types of machinery for its activities in the construction industry. It therefore purchased, inter alia, the following five pieces of equipment at various times:

Date

Seller

Particulars of machine

Cost excluding goods and services tax (“GST”)

27 November 1997

THL Foundation

IMT AF 18 hydraulic Equipment Pte Ltd (“the first machine”)

$740.000

31 March 1997

THL Foundation

AF22 IMT hydraulic drilling rig (“the second machine”)

$860,000

7 April 2000

THL Foundation

IMT AF-180 hydraulic drilling rig (“the third machine”)

$774,000

11 April 2000

THL Foundation

AF 220 hydraulic drilling rig (“the fourth machine”)

$955,000

7 July 2000

Attas Machinery

R518 hydraulic rig with Kelly bar (“the fifth machine”)

$750,000

(Hereinafter, all the machines will be referred to collectively as “the five machines”.)

7 The first machine was leased back from HSBC Capital (Asia) Pte Ltd (“HSBC”) under a hire purchase agreement dated 5 December 1997. The third, fourth and fifth machines were leased back from Caterpillar Credit Services Asia Pte Ltd (“Caterpillar”) under hire purchase agreements dated 30 June 2000, 25 October 2000 and 7 July 2000 respectively. The third, fourth and fifth machines were purchased for use by the plaintiff for the Changi Terminal 3 project which commenced sometime in 2000 but which the plaintiff did not complete.

8 In January 2002, the plaintiff was placed under a scheme of arrangement (“the Scheme”) pursuant to s 227 of the Companies Act (Cap 50, 1994 Rev Ed) (“the Act”) in Originating Summons (“OS”) No 7 of 2001 wherein it agreed to pay its creditors in cash by four instalments an aggregate of $0.40 for every $1.00. The plaintiff defaulted in payment of the second instalment due on 26 October 2002 with the result that the creditors' claims became repayable in full. The Scheme was terminated and was followed by the filing of the Winding-up Petition against the plaintiff on 27 January 2003 by a judgment creditor, Will Marketing Pte Ltd (for an outstanding judgment debt of $15,906.51). I should add that in OS No 1759 of 2003...

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