AAY and others v AAZ

• Jurisdiction: Singapore
• Judge: Chan Seng Onn J
• Judgment Date: 15 June 2009
• Neutral Citation: [2009] SGHC 142
• Docket Number: Suit [Y]
• Date: 15 June 2009
• Year: 2009
• Published date: 13 December 2010
• Plaintiff Counsel: Davinder Singh SC, Darius Bragassam and Bhavish Advani (Drew & Napier LLC), Chia Chor Leong (Citilegal LLC)
• Citation: [2009] SGHC 142
• Defendant Counsel: Michael Hwang SC and Katie Chung (Michael Hwang), Christopher Anand Daniel and Wong Yoke Cheng Leona (Allen & Gledhill LLP)
• Court: High Court (Singapore)
• Subject Matter: Arbitration

15 June 2009 Judgment reserved.

Chan Seng Onn J:

Introduction

1 The defendant is a company incorporated in New Jersey, USA, with its principal place of business in Milpitas, California, USA. The first plaintiff joined the defendant’s branch in Singapore, BBZ, around 1981 as a sales and service engineer. The second plaintiff joined BBZ around 1982, and the third plaintiff joined BBZ around 1985 as a financial controller. Subsequently, BBZ was incorporated and became known as CCZ, a wholly owned subsidiary of the defendant until 12 October 1992, and now known as DDZ. The first plaintiff became the managing director and an executive director of CCZ, the second plaintiff became the marketing manager and the third plaintiff remained as the financial controller. CCZ was in the business of marketing, distributing, producing and servicing equipment, including automated industrial cleaning systems and test equipment. Its business was divided into a third-party distributorship division and a production and Z division, to market and distribute products manufactured by third-party manufacturers and the defendant (as well as its related companies) respectively.

2 In late August 1992, XZ, the defendant’s president, chief executive officer and representative in this suit, received an anonymous letter dated 22 August 1992 about an alleged scheme by the plaintiffs to destroy CCZ by diverting sales from CCZ to a new company set up by them for this purpose, EEZ. Acting upon the anonymous letter of 22 August 1992, XZ immediately sent CCZ’s auditors to the premises of CCZ, without prior notice to any of the plaintiffs, to collect documents for immediate inspection to ascertain the truth of the allegations in the letter. No wrongdoings were uncovered from this inspection.

3 Upon further investigation, XZ discovered that the company EEZ had changed its name to FFZ. When XZ confronted the first plaintiff with the allegations in the anonymous letter, the first plaintiff denied any involvement in FFZ. XZ did not pursue the matter.

4 In September-October 1992, the plaintiffs suddenly resigned from their positions in CCZ. 19 employees from the third-party distributorship division of CCZ resigned en masse without prior notice. This prompted XZ to fly to Singapore on 2 October 1992, upon which he discovered that the third-party distributorship division of CCZ was without a single employee. XZ then decided to sell CCZ’s third-party distributorship division to the first and second plaintiffs, faxing them an offer in the morning of 7 October 1992, and faxing the first plaintiff a second offer that same afternoon. On 8 October 1992, XZ and the first and second plaintiffs recorded their agreement in a document titled “Heads of Agreement” by which the defendant agreed to sell to the first and second plaintiffs all its shares in the capital of CCZ and the first and second plaintiffs paid US$1m to GGZ as part payment of the purchase price. The defendant and the first two plaintiffs subsequently entered into a Sale and Purchase Agreement dated 12 October 1992 (the “SPA”). Under the SPA, the defendant agreed to sell the third-party distributorship division to the first and second plaintiffs by way of 1 million issued and fully paid-up ordinary shares in CCZ; the production and Z division of CCZ was to be transferred to the defendant and continued under a separate company owned by the defendant. The sale and purchase of the third-party distributorship division was completed on 4 November 1992 and the first and second plaintiffs transferred the business of the production and Z division to the defendant thereafter. Clause 18 of the SPA provided for any dispute arising out of or in connection with the SPA to be referred to and finally resolved by arbitration before an arbitrator whose decision would be final and binding on the parties.

5 Shortly after the SPA was signed, all the plaintiffs re-joined CCZ. The defendant, believing itself to be a victim of the plaintiffs’ conspiracy to depress the net asset value of CCZ, started civil proceedings in the USA in July 1993 against the first and second plaintiffs and other parties, alleging inter alia fraud, conspiracy, negligent misrepresentation, conversion and federal securities fraud. A US District Court dismissed these proceedings on the grounds of forum non conveniens in December 1993and the motion for re-consideration was dismissed by a US Court of Appeal.

The 1994 Arbitration

6 The defendant then commenced arbitration proceedings in Singapore against the first and second plaintiffs on 29 August 1994 by issuing a notice of arbitration and nominating YZ of GGZ as the sole arbitrator. YZ accepted the appointment on 1 September 1994. However, the defendant then decided not to proceed with the arbitration because, inter alia, GGZ had been involved in the sale of the shares in CCZ; the arbitration clause in the Sale and Purchase Agreement would not encompass all the claims and remedies sought by the defendant; the third plaintiff was not a party to the Sale and Purchase Agreement and would thus not have been bound by the arbitration clause; and there was in the defendant’s estimation insufficient evidence at that time to prove the defendant’s suspicions as to the plaintiffs’ wrongful behaviour.

Suit [X] and the 1998 Arbitration

7 In late February 1997, XZ received a second anonymous letter dated 16 February 1997 which supported his suspicions that the plaintiffs had committed various fraudulent acts in depressing the net asset value of CCZ. The letter also referred to one UZ who allegedly had information about the manner in which the plaintiffs had committed these fraudulent acts.

8 Having executed a deed of indemnity in favour of UZ in exchange for her testimony against the plaintiffs, the defendant thus commenced court proceedings against the plaintiffs, issuing a Writ of Summons on 10 October 1998 in Suit [X] against all the plaintiffs for fraudulent misrepresentation and conspiracy, and against the first plaintiff for breach of fiduciary duties owed to the defendant as sole shareholder of CCZ.

9 On 11 November 1998, the plaintiffs applied for an order that Suit [X] be dismissed or stayed pending the 1994 Arbitration. Following negotiations, the defendant offered to agree to the reference to arbitration provided the third plaintiff, a non-party to the arbitration clause, agreed to be made a party to such arbitration. The parties agreed by Consent Order dated 23 February 1999 (the “Consent Order”) to refer the entire dispute to arbitration (the “1998 Arbitration”). Order 1 of the Consent Order provided that:

The whole of this action in Suit [X], and all of the issues and claims comprised or embraced in the Statement of Claim filed herein on the 10^th day of October 1998, shall be referred to and be tried before an arbitrator in Singapore under the International Arbitration Act (Cap. 143A), and shall be determined and finally resolved by arbitration before such arbitrator under the said Act.

10 The parties also agreed that the 1994 Arbitration would be abandoned and that there would be no further proceedings in the US against the third plaintiff. A tribunal was constituted and TZ was appointed the sole arbitrator in the 1998 Arbitration. It is pertinent to note here that there was no express provision in the Consent Order concerning confidentiality in the arbitration.

11 On 30 June 2005, the tribunal issued its partial award on liability, finding the plaintiffs liable for fraudulent misrepresentation and conspiracy. The first plaintiff was also found liable for breach of fiduciary duties owed to the defendant as the sole shareholder of CCZ. Damages were to be assessed at a later date in the second phase of the arbitration.

12 On 19 August 2005, the plaintiffs took out an originating summons (“the OM”), against the defendant and the tribunal to set aside the partial award on the ground of apparent bias based on the manner in which the partial award was drafted and the tribunal’s conduct during the evidentiary hearing of the liability phase of the arbitration. The hearing took place in open court before Justice V K Rajah in October 2005, and the parties were directed to furnish written submissions. In December 2005 Rajah J dismissed the plaintiffs’ challenge with costs. The plaintiffs did not appeal against Rajah J’s decision, and no written grounds of decision were delivered.

Sequence of events following the OM

13 The arbitration proceedings thus continued. By way of letter dated 13 February 2006, the defendant applied for specific discovery of the audited accounts of CCZ for the past 14 years from 4 November 1992. The tribunal allowed the discovery application on 9 May 2006, ordering the plaintiffs to furnish copies of its audited accounts for the period 2 November 1992 to 31 March 2006. On 19 June 2006, the plaintiffs provided copies of CCZ’s audited accounts for 13 consecutive financial years from 1993 to 2005, the unaudited profit and loss account for 9 months ending 31 March 2006 and the unaudited balance sheet as at 31 March 2006.

14 On 8 August 2006, the defendant made a report to the Commercial Affairs Department of the Republic of Singapore Police Force (the “CAD”), providing in the course of the following week these documents:

(a) contact details of one [S];

(b) polygraph examination documents relating to a polygraph examination that XZ had undergone;

(c) the anonymous letters dated 22 August 1992 and 16 February 1997;

(d) a copy of the partial award issued by the tribunal on 30 June 2005; and

(e) a document obtained in discovery, being page 13 of the audited accounts of CCZ as of 30 June 1993 obtained by the defendant as a result of an order for disclosure issued by the tribunal on 9 May 2006.

15 On 11 August 2006, the defendant informed the first plaintiff in a letter dated 10 August 2006 that it had lodged a complaint against the plaintiffs with the CAD based on the...