BIT Baltic Investment & Trading Pte Ltd (in compulsory liquidation) v Wee See Boon

• Jurisdiction: Singapore
• Judge: Judith Prakash JCA
• Judgment Date: 26 May 2023
• Neutral Citation: [2023] SGCA 17
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeal No 26 of 2022
• Hearing Date: 16 January 2023
• Citation: [2023] SGCA 17
• Year: 2023
• Plaintiff Counsel: Ponnampalam Sivakumar and Phang Shi Ting (BR Law Corporation)
• Defendant Counsel: Sim Chong (instructed) (Sim Chong LLC),Lai Kwok Seng (Lai Mun Onn & Co)
• Subject Matter: Companies,Directors,Duties
• Published date: 08 June 2023

Judith Prakash JCA (delivering the judgment of the court):

This is an appeal arising from the decision made by a High Court judge (“the Judge”) in HC/OS 667/2021 (“OS 667”). The appellant is BIT Baltic Investment & Trading Pte Ltd (in compulsory liquidation) (“BIT Baltic”). The respondent is Mr Wee See Boon (“Mr Wee”), a director of BIT Baltic prior to its liquidation.

In OS 667, BIT Baltic sought damages against Mr Wee in respect of alleged breaches of his fiduciary duties and duties of care, skill and diligence. BIT Baltic claimed that these breaches arose from unfair preference payments that it was caused to make between 12 December 2018 and 27 December 2018 to two companies (“the Payments”) amounting to US$1,472,500 (“the Principal Sum”) when Mr Wee was one of its directors. While the Payments were refunded before OS 667 was heard, BIT Baltic continued with the application seeking additional damages from Mr Wee in the form of: (a) loss of interest on the Principal Sum; (b) the costs of the liquidator, and (c) the costs of the petitioning creditor. In the proceedings below, the Judge dismissed BIT Baltic’s claims in their entirety on the basis that Mr Wee was not aware of the Payments at the time they were made and had nothing to do with making them. The Judge’s reasons are set out in BIT Baltic Investment & Trading Pte Ltd (in compulsory liquidation) v Wee See Boon [2022] SGHC 110 (“the Judgment”).

Having considered the evidence and parties’ submissions, we allow BIT Baltic’s appeal. In our judgment, when Mr Wee became aware of the Payments, and in particular because they were related party transactions, he had a duty to examine them and ascertain whether, in the light of BIT Baltic’s financial position at the time of payment, it had been permissible for the Payments to have been made. If he had done so, it would have been clear to him that the Payments constituted unfair preferences and he would then have had a duty to alert the other directors and try to recover the Payments. In omitting to look into the propriety of the Payments, Mr Wee breached the duties of care, skill and diligence that he owed to BIT Baltic. As regards the damages sought by BIT Baltic, we allow these in part as more fully explained below.

We now set out the reasons for our decision.

Facts The parties connected to the dispute

Prior to its liquidation, BIT Baltic was a company that was in the business of chartering and managing ships, tankers and vessels. On 19 June 2020, pursuant to a winding up petition filed by one of its creditors, OIG Giant I Pte Ltd (“OIG”) in April 2020, BIT Baltic was wound up by an Order of Court and Mr Mick Aw Cheok Huat (“the Liquidator”) appointed its liquidator. The amount owing to OIG was S$1,805,568.10.

The directors of BIT Baltic from the time of its incorporation on 8 April 2011 until their respective resignations on 26 March 2020 were: Mr Wee, the respondent in this appeal; Mr Peter Christian Harren (“Mr Harren”), a German national with a Singapore residence and BIT Baltic’s managing director; and Dr Martin Harren (“Dr Harren”), a German national. All three directors were authorised signatories of BIT Baltic’s DBS bank accounts.

Three other corporate entities feature in this appeal: The first is BIT Baltic’s former immediate holding company, Harren & Partner Singapore Holding Pte Ltd (“HPSH”). Mr Wee was one of the authorised signatories for HPSH’s bank account. The second is BIT Baltic’s former ultimate holding company, HPS International Holding GmbH (“HPS”). Dr Harren was a director of HPS at the material time. The third is HARPA Services & Support GmbH & Co. KG (“HARPA”), a German company in the business of providing support services to ship owners and charterers of vessels. Dr Harren was also a director of HARPA at the material time.

Background to the dispute

As mentioned above, the present dispute concerns a series of payments that BIT Baltic made between 12 December 2018 and 27 December 2018 to HARPA and HPS. The Payments were made for services furnished by HARPA and HPS to BIT Baltic between March 2014 and September 2016. Specifically, HARPA provided BIT Baltic with vessel accounting, bookkeeping and IT services for the vessel “Blue Giant” while HPS provided controlling and financial services to BIT Baltic for “Blue Giant” until its redelivery by BIT Baltic to its registered owners. We shall refer to these services collectively as “the Services”. Before October 2018, the amounts due to HARPA and HPS for the Services had not been documented or invoiced and were not reflected in BIT Baltic’s accounts.

Notwithstanding that (a) HARPA’s and HPS’ provision of the Services concluded in 2016, and (b) BIT Baltic had stopped generating revenue as of December 2017, BIT Baltic entered into agreements for the Services with HARPA (“the HARPA Agreement”) and HPS (“the HPS Agreement”) on 1 October 2018. The HARPA Agreement provided that BIT Baltic was to pay HARPA a monthly fee of US$25,500 a month for its services, while the HPS Agreement provided that BIT Baltic was to pay HPS a monthly fee of US$22,000 for its services. The HARPA Agreement and the HPS Agreement were signed by Mr Wee, on behalf of BIT Baltic, and by Dr Harren, on behalf of HARPA and HPS respectively.

Once the contracts had been executed, HARPA and HPS issued invoices under the HARPA Agreement and HPS Agreement to BIT Baltic. The invoices were issued between 30 November 2018 and 19 December 2018, with each invoice falling due on the same date that it was issued. The total amounts due to HARPA and HPS under the invoices were US$790,500 and US$682,000, respectively. The invoices were settled between 12 and 27 December 2018, as mentioned earlier (at [8]). The money used to settle the invoices came almost completely from the proceeds of loan repayments made to BIT Baltic by HPSH between 12 December 2018 and 27 December 2018. As each repayment instalment was received by BIT Baltic it was almost immediately used to pay HPS and HARPA for the Services. The total amount paid out was US$1,472,500.

Following the winding up of BIT Baltic in June 2020, the Liquidator took control of its books and investigated its affairs. On 5 July 2021 BIT Baltic commenced OS 667 against Mr Wee for damages in respect of alleged breaches of his director’s duties in relation to the Payments. BIT Baltic claimed that Mr Wee breached these duties by failing to determine whether it was permissible for BIT Baltic to make the Payments in preference to BIT Baltic’s other creditors when BIT Baltic was insolvent, or when the Payments would have resulted in BIT Baltic becoming insolvent. BIT Baltic thus sought an assessment of damages as against Mr Wee for “all loss and damage suffered”.

On 24 August 2021, Mr Wee applied for OS 667 to be converted into a writ. BIT Baltic objected to the application and the learned Assistant Registrar subsequently dismissed it on the basis that there was no substantial dispute of fact that would be better determined through a writ action. Mr Wee did not appeal against this decision. Although Mr Wee had submitted that OS 667 should have been converted to a writ because of the availability of processes such as discovery and cross examination of witnesses such as Dr Harren and Mr Harren, he did not thereafter apply for these procedures even though it was open for him to do so (see for example, O 24 r 1(1) and O 28 r 4(4) of the Rules of Court 2014).

On 23 December 2021, two months before the hearing of OS 667, HPS and HARPA repaid the Principal Sum in full to BIT Baltic. Nonetheless, BIT Baltic continued its action against Mr Wee and sought the recovery of additional damages (“the Additional Damages”) in the form of: interest for the loss of use on the Principal Sum from December 2018 to 22 December 2021 at 5.33% per annum amounting to US$256,026.41 (“the Interest Claim”); costs incurred by the Liquidator in reviewing BIT Baltic’s financial affairs amounting to S$130,400 (“the Liquidator’s Costs Claim”); and costs incurred by OIG in investigating and commencing the winding up proceeding against BIT Baltic amounting to S$45,381.30 (“the OIG Costs Claim”).

In response, Mr Wee denied that he had breached his fiduciary duties. He maintained that he had acted in good faith in the conduct of BIT Baltic’s affairs. He described himself as “a nominee director of [BIT Baltic], and a person of limited means”. In the alternative, Mr Wee submitted that even if he were found to have breached his duties, the principle of restitution ought to apply to the Interest Claim. As such, the applicable rate of interest should only be the then-prevailing fixed deposit interest rate to which BIT Baltic would have been entitled – that of 0.8% per annum. Mr Wee also submitted that BIT Baltic would have been wound up in any case due to business failure and that the Liquidator’s Costs Claim and the OIG Costs Claim would have been incurred in any event.

The decision below

On 13 May 2022, the Judge dismissed OS 667. First, she found that the Payments were unfair preference payments to HARPA and HPS and that BIT Baltic had either been insolvent at the time of the Payments or had been made insolvent by them. In relation to Mr Wee, however, she concluded that BIT Baltic had failed to prove that Mr Wee was “aware or should have been aware” of the Payments. In the Judge’s view, it was reasonable for Mr Wee to have been unaware of the Payments. She observed that Mr Wee was the sole local director of BIT Baltic and that it was Mr Harren and Dr Harren “who had full management and conduct of [BIT Baltic’s] business operations and financial matters”. She thus concluded that Mr Wee’s primary responsibilities were “limited to that of doing the necessary paperwork with auditors, relevant agencies, and dealing with regulatory authorities in Singapore”. Citing Prima Bulkship Pte Ltd (in creditor’s voluntary...