Baker, Michael A (executor of the estate of Chantal Burnison, deceased) v BCS Business Consulting Services Pte Ltd and others

• Court: International Commercial Court (Singapore)
• Judge: Quentin Loh J; Carolyn Berger IJ; Dominique Hascher IJ
• Judgment Date: 29 April 2020
• Neutral Citation: [2020] SGHC(I) 10
• Citation: [2020] SGHC(I) 10
• Published date: 05 May 2020
• Plaintiff Counsel: Cavinder Bull SC, Woo Shu Yan, Gerald Tay, Regina Lim and Sun Fangda (Drew & Napier LLC)
• Defendant Counsel: Alvin Yeo SC, Monica Chong, Vithiya Rajendra, Nurul Ayu Fajarani and Daryl Wong (WongPartnership LLP)
• Docket Number: Suit No 3 of 2018
• Hearing Date: 12 November 2019,16 November 2019,14 November 2019,06 February 2020,03 February 2020,11 November 2019,15 November 2019,13 November 2019
• Date: 29 April 2020
• Subject Matter: Trusts,Express trust,Illegality under international and foreign law,Resulting trusts,Illegality and public policy,Formation,Contract

Quentin Loh J, Carolyn Berger IJ and Dominique Hascher IJ: The parties

The plaintiff, Michael Baker (“Baker”), is the executor of the estate of Chantal Burnison (“Chantal” or “the Estate”, as the case may be), who succumbed to cancer on 2 October 2016 in Los Angeles. Baker is a practising attorney in the State of California and was a friend and confidante of Chantal. Chantal, who divorced her husband in 1993, is survived by two daughters, Heika Burnison (“Heika”) born in 1987 and Birka Burnison (“Birka”) born in 1990.

The 2nd defendant, Marcus Weber (“Weber”), is a Swiss national who operated out of Zurich until 2002 when he obtained a permit to work in Singapore. Weber became a permanent resident of Singapore in 2003.

The 1st defendant, BCS Business Consulting Services Pte Ltd (“BCS”), is a company incorporated in Singapore on 31 March 1999.¹ It was incorporated as BCS Business Commercial Services Pte Ltd with a change of name to its present name on 26 July 2002. Weber is a director and the sole shareholder of BCS. The 3rd defendant, Renslade Holdings Limited (“Renslade (HK)”) is a company incorporated in Hong Kong on 5 November 2007 and Weber is the sole shareholder of Renslade (HK). It is not disputed that Weber in effect owns and controls BCS and Renslade (HK). A reference to “the Defendants” includes a reference to Weber, BCS and/or Renslade (HK) as the context so requires.

Baker, as executor of Chantal’s estate, sues the Defendants for breach of fiduciary duties as trustees under an oral trust or oral agreement to hold and manage assets for Chantal and for breach of a loan agreement of Swiss Francs (“CHF”) 9.5 million with 3% p.a. interest (“the Loan Agreement”). Renslade (HK) is sued for dishonestly assisting BCS and Weber in their breach of fiduciary duties. The Defendants are also sued for conspiring and acting together with the intention of injuring Chantal and/or the Estate.

The background

The following background facts are not really in dispute. Insofar as they are, they constitute our findings of fact. Chantal co-invented a compound called Ethocyn in 1980. Her co-inventor, one Walter J. Kasha (“Walter”), does not feature in the evidence but nothing turns on that. The Ethocyn compound had to be manufactured or synthesized in a laboratory. It was a skin product that was said to make the skin look younger and better toned. There was a finished product sold over the counter or through other channels like television and telemarketing. The Ethocyn compound was also sold to cosmetic manufacturers who would incorporate this compound into their products.

Chantal was a gifted individual. As a chemist and scientist,² she co-invented the Ethocyn compound and co-authored a number of articles in relation to compounds and products in relation to her areas of interest and work. She was also a Member of the California State Bar from 1981 with a juris doctor degree (1981, the University of West Los Angeles) and was admitted to practice in the Supreme Court of California and the Central District Court. She was a partner in a law firm, Allison Williamson & Burnison (1981-1983) and General Corporate Counsel to a public pesticide company.³

Sometime prior to 21 May 1982, Chantal and Walter assigned their rights to the inventions and patents of Ethocyn (“the Ethocyn Rights”) to CBD Inc, a Californian company, which in turn licensed the Ethocyn Rights to CBD Pharmaceutical Corporation (which was incorporated in 1979 as Innovations International Inc and changed its name to Chantal Pharmaceutical Corporation in 1982).⁴ On 21 May 1982, CBD Pharmaceutical Corporation licensed those rights to Chantal Pharmaceutical Corporation (“Chantal Pharmaceutical”). In March 1994, Chantal Pharmaceutical licensed the Ethocyn Rights to Chantal Skin Care Corporation (“CSC”).⁵ Chantal Pharmaceutical and CSC will be collectively referred to as “the Chantal Companies” in this judgment. All the aforementioned companies are Californian corporations. For the purposes of this judgment, we find, and it is not really in dispute, that Chantal was resident in California, more particularly, in or in the vicinity of Los Angeles. However, her business encompassed at least the USA, Asia and Europe.

On 6 May 1996, a class action was commenced against Chantal Pharmaceutical and Chantal by purchasers of the common stock of Chantal Pharmaceutical for allegedly issuing false statements on the financial performance of Chantal Pharmaceutical by overstating its revenues, which operated to artificially inflate the price of Chantal’s common stock. It was alleged that Chantal sold at least 300,000 of her stock for at least US$6.3 million. It is alleged that, because of these false statements, the stock rose from “$6-9/16 on July 10, 1995 to $28-1/8 on December 29, 1995” but when certain reports concerning its financial condition surfaced, the stock fell from “$19-1/8 per share to $7-5/16 per share on January 8, 1996 on a huge volume of 7.7 million shares”.⁶ The class action was brought pursuant to the Securities Exchange Act of 1934 (15 U.S.C. §§78j(b) and 78t(a)) and rules promulgated by the Securities and Exchange Commission (17 C.F.R. §240.10b-5).⁷

That class action was still pending when an involuntary Chapter 11 bankruptcy petition was filed on 17 February 1999 against Chantal Pharmaceutical. Chantal Pharmaceutical’s subsidiary, CSC, then filed for voluntary insolvency on 12 March 1999. On the same day, Chantal Pharmaceutical filed a consent to enter an order for relief and a voluntary petition in the Chapter 11 case. The order for relief was entered on 15 March 1999 and the case was thereby converted to a voluntary debtor in possession Chapter 11 case.⁸

A Creditors’ Committee was appointed by the United States Trustee for the Chantal Companies. The Creditors’ Committee retained the Kriegsman Group and an investment banker and the latter also engaged the services of one Stan Teeple (“Teeple”), a work-out consultant, in locating a potential buyer for the debtors’ rights and assets.⁹ It is not in dispute that a prospectus was prepared and sent out to about 20 prospective buyers. A draft of this prospectus was sent to Chantal and her lawyer on 19 June 1999¹⁰ which was said to be prepared by one Jerry Seelig (a Managing Director with the Kriegsman Group¹¹) based on an earlier version by Teeple. There is evidence, marked “Draft”, of a reply from Mr Esterkin, Chantal’s lawyer, noting, inter alia, that Chantal had no control over the selection of the Kriegsman Group or its activities or its gathering of information for the brochure and that she has no control over the parties to whom the brochure would be sent.¹² That letter also corrected inaccuracies and distanced Chantal from the projections made in the brochure. There may have been subsequent discussions between the parties on the terms and conditions and the sale of the Chantal Companies’ assets before the prospectus was sent out to prospective buyers identified and chosen by the Kriegsman Group and/or Teeple as parties likely to have an interest to purchase the Ethocyn Rights and assets from the Chantal Companies.

There were no bidders for the purchase of the Chantal Companies’ assets save for a New Zealand corporation, Renslade Holdings Limited (“Renslade (NZ)”). An asset purchase agreement dated 22 September 1999 (“APA”) was, subject to approval by the Bankruptcy Court, entered into between the Chantal Companies and Renslade (NZ).¹³ A Joint Motion by the Chantal Companies and the Creditors’ Committee was filed to seek approval of the sale of the Ethocyn Rights and assets, together with certain conditions, to Renslade (NZ).¹⁴ At the hearing of the Joint Motion on 19 October 1999, the Bankruptcy Court granted the order, inter alia, approving the sale as there were no over bidders.

The material terms of the APA were as follows: CBD Pharmaceutical transferred its patent rights (which expired in 2004) to the Chantal Companies; this was effected through a Patent and Licence Transfer Agreement with the Chantal Companies on 20 October 1999;¹⁵ the Chantal Companies’ assets were its intangible intellectual property rights, including the patent rights, licences, trademarks, customer lists and rights to the patented compounds that included Ethocyn and some miscellaneous inventory; these were sold and transferred to Renslade (NZ) pursuant to the order of the Bankruptcy Court for the sum of US$325,000 which was broken down into a payment of US$75,000 for the assets of the Chantal Companies and US$250,000 as an advance against the on-going royalty payments based on revenues from Renslade (NZ)’s future sales (calculated as 2% of the annual gross revenues as defined in the APA up to US$5 million; 4% of annual gross revenues in excess of US$5 million and less than US$10 million and 5% of annual gross revenues in excess of US$10 million); the transfer of the patent rights and licences to Renslade (NZ) was free and clear of all liens, encumbrances and claims; certain releases were given by the Chantal Companies for possible claims against CBD Pharmaceuticals, their agents, employees, attorneys, successors and assigns including Chantal; and as a condition of the sale, Chantal entered into a consultancy agreement with Renslade (NZ) to serve as Chairman and Chief Executive Officer on agreed terms which included a payment of US$100,000 a year for business transition services and US$50,000 a year for similar services to Renslade (NZ)’s US subsidiary, E Cosmetics (“the Consultancy Agreement”).

On 23 May 2000, Renslade Singapore Pte Ltd (subsequently re-named Renslade Holdings Pte Ltd (“Renslade (S)”)) was incorporated. The Ethocyn Rights were subsequently transferred from Renslade (NZ) to Renslade (S). When exactly this occurred is not clear. Baker deposes that it was probably sometime in 2002, between BCS’s name change on 26 July 2002 and Chantal’s email to Weber of...