Airtrust (Singapore) Pte Ltd v Kao Chai-Chau Linda

• Judgment Date: 14 February 2014
• Date: 14 February 2014
• Docket Number: Suit No 477 of 2012 (Registrar's Appeal No 246 of 2013; Summons No 4420 of 2013) and Suit No 1015 of 2012 (Registrar's Appeal No 247 of 2013; Summons No 4419 of 2013)
• Court: High Court (Singapore)

Airtrust (Singapore) Pte Ltd

Plaintiff

and

Kao Chai-Chau Linda and another suit

Defendant

[2014] SGHC 27

George Wei JC

Suit No 477 of 2012 (Registrar's Appeal No 246 of 2013; Summons No 4420 of 2013) and Suit No 1015 of 2012 (Registrar's Appeal No 247 of 2013; Summons No 4419 of 2013)

High Court

Civil Procedure—Third party proceedings—Third party proceedings similar to defence—Whether third party proceedings redundant—Rules of Court (Cap 322, R 5, 2006 Rev Ed) O 16

Companies—Directors—Appellant allegedly in breach of fiduciary duties—Appellant allegedly following instructions of majority shareholder—Whether indemnity or contribution could be sought where acts involved illegality—Whether appellant any basis for seeking contribution or indemnity against estate of majority shareholder—Civil Law Act (Cap 43, 1999 Rev Ed)

The appellant, Linda, was appointed as managing director of Airtrust (Singapore) Pte Ltd (‘AT’) sometime in 1996 by its majority shareholder and then chairman, Peter Fong (‘PF’). After PF passed away, Carolyn, PF's daughter, obtained leave to commence a derivative action against the appellant (Suit No 477 of 2012 (‘S 477/2012’)) for breaches of fiduciary duty in respect of certain transactions which mostly took place whilst PF was still alive and chairman of AT.

Ernst & Young was later appointed receivers and managers (‘RMs’) of AT. The RMs took the view that there were other diversions made by Linda and others to the detriment of AT. These largely concern transactions or events occurring after the death of PF. For this reason, the RMs commenced Suit No 1015 of 2012 (‘S 1015/2012’), where it was alleged that Linda and 15 others had been in a conspiracy to divert business away from AT.

In S 477/2012, Linda applied for leave to serve a third party notice against the estate of PF (‘the Estate of PF’) for an indemnity. In S 1015/2012, Linda commenced third party proceedings against the Estate of PF. The RMs then applied to set aside the third party proceedings. Both applications came before the assistant registrar, who on 19 July 2013 declined leave to serve the third party notice in S 477/2012 and struck out the third party proceedings under S 1015/2012.

The appellant then appealed, and also took out two summonses to amend the third party notices to include claims for contribution.

Held, allowing the appeal and granting the summonses:

(1) The key question was whether Linda had a basis for seeking an indemnity or contribution against the Estate of PF which could survive a finding of liability against her in the main actions. This depended on whether an indemnity or contribution could be sought even when some illegality was involved, whether there was any basis for a claim for contribution or indemnity, and whether there was any overlap with Linda's defence in the main actions: at [24] .

(2) The right to contribution relied on was not derived from common law but from statute, namely, s 15 (1) of the Civil Law Act (Cap 43, 1999 Rev Ed) (‘CLA’). A claim for contribution under ss 15 and 16 of the CLA was not affected by any illegality (tortious or criminal) tainting the transactions or events. A right to seek contribution was provided for in all cases against a person who was liable in respect of the same damage - whether that liability was joint or otherwise. It also did not matter whether the basis of that liability for the same damage was in tort, breach of contract, breach of trust or otherwise: at [33] and [39] .

(3) The key question was whether the third party claim by Linda against the Estate of PF was redundant - was there any basis upon which Linda might fail in her defence in the main action brought by AT and yet, on the same facts, yet still succeed in her claim for contribution from the Estate of PF? If Linda was found liable in the main actions, this would be on the basis that she had breached her director's and fiduciary duties in carrying out the transactions. This could be because consent from PF was insufficient, as a matter of law, to absolve Linda from performing her independent duties owed to AT. If so, Linda would have some grounds for seeking contribution from the Estate of PF, as PF would also owe fiduciary duties to AT. The possibility remained where both Linda and PF had breached their fiduciary duties, and in that scenario, contribution might be relevant: at [49] and [52] .

(4) In the event PF was found to be the controlling mind of AT, it did not follow that, as a matter of law, PF was free to do whatever he wished with AT's assets and business. For example, where the company was a victim of a conspiracy of its directors and sued the directors in respect of breach of duties, the company did not become a co-conspirator with its directors merely because its directors were the conspirators. Therefore, given that Linda, as the managing director, owed an independent fiduciary duty to AT, the court might find that even if PF gave her instructions (as chairman and major shareholder), that she could not (as a matter of law) act on those instructions without breaching her duties: at [54] and [56] .

(5) Even though a director could avoid liability for breach of fiduciary duty by making a full disclosure to the company, PF and Linda collectively only held 17.2% of the shares at the date of PF's death. Whilst some transactions had occurred before PF's demise, it did not appear that PF and Linda had owned all the shares in AT at the relevant times: at [58] .

(6) There was a close connection between the main action against Linda in the two Suits and her claim for contribution from the Estate of PF such that the third party proceedings should be allowed so that the issues could be properly ventilated in the interest of all concerned: at [60] .

AG's Reference (No 2 of 1982) [1984] QB 624 (refd)

Belmont Finance Corp Ltd v Williams Furniture Ltd [1979] Ch 250 (refd)

Burrows v Rhodes [1899] 1 QB 816 (refd)

Fong Wai Lyn Carolyn v Airtrust (Singapore) Pte Ltd [2011] 3 SLR 980 (refd)

K v P [1993] Ch 140 (refd)

Lim Leong Huat v Chip Hup Hup Kee Construction Pte Ltd [2009] 2 SLR (R) 318; [2009] 2 SLR 318 (refd)

Nganthavee Teriya v Ang Yee Lim Lawrence [2003] 2 SLR (R) 361; [2003] 2 SLR 361 (folld)

W & M Roith Ltd, Re [1967] 1 WLR 432 (refd)

Westcoast Transmission Co v Interprovincial Steel & Pipe Corp (1985) Carswell BC 48 (refd)

Yemen Salt Mining Corp v Rhodes-Vaughan Steel Ltd (1976) Carswell BC 141 (refd)

Yong Kheng Leong v Panweld Trading Pte Ltd [2013] 1 SLR 173 (refd)

Civil Law Act (Cap 43, 1994 Rev Ed) s 11, 11 (2)

Civil Law Act (Cap 43, 1999 Rev Ed) ss 15, 15 (1) , 16, 16 (2) , 19 (2) , 19 (6)

Companies Act (Cap 50, 2006 Rev Ed) s 216 A

Penal Code (Cap 224, 2008 Rev Ed)

Rules of Court (Cap 322, R 5, 2006 Rev Ed) O 16 r 1 (1) , O 16 r 4 (3) , O 16 r 6, O 18 r 19

Civil Liability (Contribution) Act 1978 (c 47) (UK) ss 1 (1) , 2 (2) , 6 (1) , 7 (3)

Law Reform (Married Women and Tortfeasors) Act 1935 (c 30) (UK) s 6

Daniel Chia and Kenneth Chua (Stamford Law Corporation) for the plaintiff in Suit 477/2012

Manoj Pillay Sandrasegara, Joel Chng and Stephanie Yeo (Wong Partnership LLP) for the plaintiff in Suit 1015/2012

Jimmy Yim SC, Daniel Soo Ziyang, Andrew Lee and Alison Tan Ying Xiang (Drew & Napier LLC) for the defendant in Suit 477/2012 and first defendant in Suit 1015/2012.

Judgment reserved.

George Wei JC

Introduction

1 There are two appeals and two applications before the court. The two appeals are against the decision of the learned Assistant Registrar Paul Chan (‘the AR’) concerning the defendant's commencement of third party proceedings. The proceedings arise out of two separate but related actions brought by Airtrust (Singapore) Pte Ltd (‘AT’). The first, Suit No 477 of 2012 (‘S 477/2012’), is brought by AT against Linda Kao Chai-Chau (‘Linda’), who was formerly the managing director of AT from 1996 up to 2012. S 477/2012 is a derivative action brought by Carolyn Fong (‘Carolyn’), a shareholder of AT. The second, Suit No 1015 of 2012 (‘S 1015/2012’), is brought by the receivers and managers (‘RMs’) of AT. S 1015/2012 is brought against Linda and 15 other individuals (including corporate individuals).

2 The key legal issue in this case is whether illegality precludes a claim for indemnity or contribution against a joint tortfeasor. Addressing this issue requires a proper understanding of the development of the law pertaining to joint tortfeasorship and the applicability of case authorities which I will discuss in some detail in this judgment.

3 After hearing the parties, I am allowing the appeals for the commencement of third party proceedings. Consequently, the two applications to amend the third party notices are also allowed.

The facts

4 Linda was appointed as managing director of AT some time in 1996 by its majority shareholder and then chairman, Peter Fong (‘PF’). PF passed away on 25 April 2008. S 477/2012 is a claim against Linda for breach of fiduciary duty in respect of certain transactions which mostly took place whilst PF was still alive and chairman of AT. After PF's death, Carolyn obtained leave to institute a derivative action on behalf of AT against Linda in respect of these alleged breaches. In granting leave under s 216 A of the Companies Act (Cap 50, 2006 Rev Ed) (‘CA’), the High Court in Originating Summons No 505 of 2010, found that PF was the controlling mind and will of AT at the material times (see Fong Wai Lyn Carolyn v Airtrust (Singapore) Pte Ltd[2011] 3 SLR 980). The decision of the High Court to grant leave was subsequently affirmed by the Court of Appeal. The essence of the defence raised by Linda in S 477/2012 was that the transactions complained of were carried out in accordance with the instructions of PF.

5 After S 477/2012 was commenced, Ernst & Young was appointed RMs of AT on 17 January 2012. The appointment was made pursuant to an application by...