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

• Jurisdiction: Singapore
• Judge: George Wei JC
• Judgment Date: 14 February 2014
• Neutral Citation: [2014] SGHC 27
• Court: High Court (Singapore)
• 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)
• Year: 2014
• Published date: 21 February 2014
• Hearing Date: 02 September 2013,11 October 2013
• Plaintiff Counsel: Daniel Chia / Kenneth Chua (Stamford Law Corporation),Manoj Pillay Sandrasegara / Joel Chng / Stephanie Yeo (WongPartnership LLP)
• Defendant Counsel: Jimmy Yim SC / Daniel Soo Ziyang / Andrew Lee / Alison Tan Ying Xiang (Drew & Napier LLC)
• Subject Matter: Civil procedure,Third Party Proceedings,Companies,Substantial Shareholders,Directors,Duties,Tort,Conspiracy
• Citation: [2014] SGHC 27

George Wei JC: Introduction

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. Suit 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. Suit 1015/2012 is brought against Linda and 15 other individuals (including corporate individuals).

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.

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

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. Suit 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 section 216A 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 and another [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.

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 Carolyn. A consent order was subsequently granted pursuant to an apparent agreement between Carolyn and Linda. After their appointment, the RMs took the view that there was evidence of 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 S 1015/2012, where it was alleged that Linda and 15 others had been in a conspiracy to divert business away from AT. A claim was also brought for breach of fiduciary duty. Linda was, therefore, the defendant in both S 477/2012 and S 1015/2012.

The modus operandi of the alleged breaches in the two Suits is similar, the main difference being that they concern different transactions. Those complained of by the RMs are mainly concerned with events occurring after the death of PF. The defence raised by Linda in both actions is similar – that she had been authorised to act as she did by PF. Different law firms have been engaged to represent AT in the two Suits.

Given the multiple actions, I set down certain terms of reference for ease of understanding. Suit 477/2012 will be referred to as “the Derivative Action” while Suit 1015/2012 will be referred to as “the RM Action”. I refer to both suits collectively as “the two Suits”. For the sake of clarity, the plaintiff in S 477/2012 will be referred to as “AT (Carolyn)”, while the plaintiff in S 1015/2012 will be referred to as “AT (RM)”. When needed, I refer to both plaintiffs collectively as “the Plaintiffs”. The position taken by AT (Carolyn) and AT (RM) in respect of the defence raised by Linda whilst similar is not identical, as will appear below.

Procedural History

In the Derivative Action, Linda applied by way of Summons No 2990 of 2013 (“SUM 2990/2013”) for leave to serve a third party notice against the Estate of PF for an indemnity (although there is also a further application to amend the notice to include a claim for contribution, as will be elaborated below). AT (Carolyn) objected to the application.

In the RM Action, Linda commenced third party proceedings against the Estate of PF on 19 April 2013. On 12 June 2013, the RMs applied by way of Summons No 2989 of 2013 (“SUM 2989/2013”) to set aside the third party proceedings.

The AR on 19 July 2013 found for AT (RM) and granted SUM 2989/2013 to set aside the third party notice. Naturally, he also refused to grant Linda leave to commence third party proceedings in the claim brought by AT (Carolyn), thereby dismissing SUM 2990/2013.

Registrar’s Appeal No 247 of 2013 (“RA 247/2013”) is the appeal by Linda in the RM Action against the decision of the AR setting aside the third party notice (I refer to this third party notice as “the Notice (RM)”). Registrar’s Appeal No 246 of 2013 (“RA 246/2013”) is the appeal by Linda in the Derivative Action against the AR’s decision not to grant leave to commence third party proceedings against the Estate of PF (I refer to this third party notice as “the Notice (DA)”). The subject matter of the two appeals is largely similar in nature – the setting aside or the granting of leave to commence third party proceedings. As mentioned above, there are also two applications to amend the third party notices – Summons No 4420 of 2013 (“SUM 4420/2013”) to amend the Notice (RM) (which has already been served), and Summons No 4419 of 2013 (“SUM 4419/2013”) to amend the Notice (DA) (which has yet to be served). Both amendments relate to the addition of a claim in contribution (apart from the existing claim in indemnity).

The two appeals (and applications) were heard before me on 2 September 2013 and 11 October 2013. At the hearing on 2 September 2013, the matters were adjourned for the parties to prepare further submissions on the following question:

Assuming that the Chairman/Director is the controlling mind, directing will and alter ego of the Company, does it follow as a matter of law that any other director who blindly follows the instructions of the alter ego director will not be in breach of her fiduciary duty or have any liability in law?

I heard further submissions from counsel on 11 October 2013.

The Estate of PF, which has its own legal representation, has not taken any part in either Suit. They have not applied to set aside the third party notices or objected to the commencement of third party proceedings. For the sake of clarity, after these appeals were heard, AT (Carolyn) applied for leave to hand over conduct of the Derivative Action to the RMs. The RMs took a neutral position in this application, and the matter came before me on 4 November 2013. At the conclusion of that hearing, judgment was reserved.

The decision below and Linda’s claim against the third party

Linda’s defence in the two Suits was based on her assertion that all the transactions complained of were in fact carried out pursuant to the oral instructions and/or “understanding” of PF. On this basis, Linda applied for leave to serve a third party notice against the Estate of PF seeking an indemnity. In the case of the RM action, Linda actually commenced third party proceedings against the Estate of PF in which she also sought an indemnity. As mentioned above, in both actions, Linda also seeks a claim in contribution from the Estate of PF pursuant to her applications to amend the third party notices. These amendments were not before the AR in the hearing below.

At the hearing on 19 July 2013, the AR (delivering oral judgment), found for AT (Carolyn) and AT (RM) on the ground that:

… it is, in my view, impossible for [Linda] to claim an indemnity or a contribution from [PF] as a matter of law. An indemnity or contribution will only arise if the court finds that [Linda] breached her fiduciary duties to AT. If she has so breached her fiduciary duties, it must also mean that the requisite knowledge to find liability must be imputed to her. This knowledge would by itself preclude [Linda] from claiming an indemnity or contribution under the law of agency.

The central point in Linda’s case is that all the “business opportunities” that she was alleged to have diverted were not in fact business opportunities for AT. In each case, it is claimed that Linda, acting on the instructions of PF, had received and disbursed funds “on behalf of [PF’s] friends and associates as a favour to them”. In relation to the transactions which were not made on the specific instructions of PF, Linda’s case is that they were made pursuant to the same “standing instructions of or understanding of” PF, who was then the controlling mind and will of AT when the instructions were given or when the understanding came about.

On this basis, Linda’s primary defence to the two Suits is that there was no breach of fiduciary or director’s duties owed by her as managing director to AT. The alleged business opportunities were not the business opportunities of AT and there could not have been a breach or conspiracy given that she was merely following the instructions of PF, who was then the majority shareholder, Chairman and controlling mind and will of AT.

Linda’s concern, however, was that the court might after the trial find that she was still liable for breach of her director’s and fiduciary duties even though she had believed that she was acting pursuant to the instructions (standing or otherwise) or...