Bluestone Corp Pte Ltd v Phang Cher Choon and others and another suit

• Jurisdiction: Singapore
• Judge: Mavis Chionh Sze Chyi JC
• Judgment Date: 04 December 2020
• Neutral Citation: [2020] SGHC 268
• Court: High Court (Singapore)
• Hearing Date: 03 March 2020,28 February 2020,01 July 2020,05 March 2020,06 March 2020,26 February 2020,04 March 2020,09 March 2020,11 March 2020,10 March 2020,25 February 2020,27 February 2020
• Docket Number: Suit Nos 793 and 794 of 2018
• Plaintiff Counsel: Martin Francis Decruz and Alexander Loh (Shenton Law Practice LLC)
• Defendant Counsel: Gan Theng Chong and Kelley Wong Kar Ee (Lee & Lee),Sharon Chong Chin Yee, Nandhu, Nadene Law Qin Ning and Renee Sim (RHTLaw Asia LLP)
• Subject Matter: Confidence,Breach of confidence,Employment Law,Contract of service,Breach,Termination,Without notice,Equity,Defences,Acquiescence,Limitation,Fiduciary relationships,When arising,Duties,Tort,Conspiracy,Unlawful means,Passing off
• Published date: 09 December 2020

Mavis Chionh Sze Chyi JC: Introduction

The plaintiff in this case is Bluestone Corporation Pte Ltd (“Corporation”), a company incorporated in Singapore on 10 March 1999 and said to be in the business of supplying medical equipment and consumables. Its majority shareholder at all material times was (and continues to be) one Tay Chai Khiang Henry (“Henry”), who was (and continues to be) one of its directors. The first defendant, Phang Cher Choon (“Phang”), was (and continues to be) a minority shareholder in Corporation. Phang was also a director of Corporation up until 24 August 2018, when his employment was terminated. The second defendant, Bluestone Healthcare Sdn Bhd (“Healthcare”), is a company incorporated in Malaysia on 16 February 2004 and said to be in the business of dealing in all kinds of medical products. As at mid-2018 just prior to the filing of the present suit, Phang held 99% of the shares in Healthcare, with the remaining 1% being held by the other director of Healthcare, the third defendant Lim Hooi Loo (“Hooi Loo”). Hooi Loo was also employed by Corporation in its Malaysian branch office from 7 May 2003 until the latter terminated her employment on 24 August 2018.

In the present suit, Corporation alleged various breaches of fiduciary duties owed by Phang as its director. Vis-à-vis Hooi Loo, it was alleged that she had breached various terms of her contract of employment with Corporation. The breaches by Phang and Hooi Loo were said to arise primarily from the incorporation of Healthcare in Malaysia in competition with Corporation and their alleged diversion of business or business opportunities from Corporation to Healthcare. Phang, Hooi Loo and Healthcare were also alleged to have engaged in a “conspiracy to defraud” Corporation.

The trial before me was not bifurcated as to issues of liability and damage. At the conclusion of the trial, I dismissed Corporation’s claims against all three defendants. As Corporation has filed an appeal, I am setting out below the reasons for my decision. I will first summarise the case advanced by each party and the evidence adduced at trial.

Summary of Corporation’s case and the evidence led in support of its case Background

Corporation’s main witness at trial was Henry. Henry held 65% of the shares in Corporation while Phang held the remaining 35%. The company was founded by both men; and Henry testified that they were its only two executive directors. The company’s operations were split into two divisions – medical equipment and medical consumables. Henry took charge of medical equipment and Phang took charge of medical consumables. In November 2005, Henry’s parents (Tay Buan Say and Sg Wang Kim) were also appointed as directors of Corporation, although Henry claims that they were meant to be “non-executive” directors¹.

The “ground rules” agreed between Henry and Phang for the management of Corporation’s business – and the incorporation of Absolmed Sdn Bhd

According to Henry, when Corporation was set up, he and Phang agreed on a set of “ground rules” for the management of the company’s business. Henry’s version of these “grounds rules” was as follows²:

We both agreed, if there were business opportunities in the medical and healthcare industry, made available to either one of us, it would be disclosed and offered to each other. If not accepted, we would be free to pursue such interests independently. We were free to pursue our independent interests in non-related businesses.

Henry claimed that in accordance with these ground rules, when an opportunity to market and sell Sonosite machines in Malaysia came up in 2012, he had informed Phang sometime about it³. These machines were already being sold by Corporation in Singapore. Henry claimed that selling the machines in Malaysia would have required Corporation to expand its Malaysian operations by setting up a Sendirian Berhad (“Sdn Bhd”, the Malaysian equivalent of a private limited company); and that when Phang showed a lack of interest in doing so, he had “informed [Phang he] would go ahead to sell Sonosite machines in Malaysia” but that Phang had not responded. Henry then proceeded to set up a Malaysian-registered company called Absolmed Sdn Bhd (“Absolmed”), which dealt with the distributorship of Sonosite until it closed sometime in 2016 or 2017. It was not disputed that Absolmed was for all intents and purposes Henry’s own company, although he did not hold the shares in his name, nor did he have himself appointed as director.

As will be seen later, Phang denied that he was informed by Henry about his intention to set up Absolmed to sell Sonosite machines in Malaysia⁴.

Medisol Pte Ltd

In March 2006, Corporation set up a company called Medisol Pte Ltd (“Medisol”) offering tele-radiology services in Singapore. Corporation held 75% of the shares in Medisol, with the remaining shares being held by Henry’s friend, one Ernest Phua Eng Tong (“Phua”), through a company called Bridgevision Pte Ltd (“Bridgevision”)⁵. Henry claimed that Phang had refused to get involved in the operations of Medisol and that he had left Henry and Phua to manage this company.

Medisol was sold to RadLink-Asia Pte Ltd (“RadLink”) in 2017.

The Malaysian branch office

On 20 March 2000, Corporation registered a branch office in Malaysia (“the Malaysian branch office”). As Phang was a Malaysian citizen who spoke fluent Malay, it was agreed that he would oversee the Malaysian branch office⁶. For the purposes of the trial, it was not disputed that the Malaysian branch office is not a Sdn Bhd; and that not being a Sdn Bhd, it cannot accept orders directly from customers in Malaysia. However, the circumstances in which the Malaysian branch office were set up and the objective behind it were a matter of dispute as between Henry and Phang. According to Henry⁷:

The object of the Malaysian office was to explore business opportunities, market [Corporation’s] consumable products, and at the same time explore, identify and develop business opportunities in Malaysia. Enquiries from Malaysian customers through the Malaysian office would be channelled to [Corporation’s] Singapore office. The plan was to later incorporate the Malaysian office into a fully-fledged Sdn Bhd entity when [Corporation] had sufficient resources, and when [Phang] was ready.

Henry claimed that it was Phang who had always been unwilling to expand the scope of Corporation’s operations in Malaysia. Indeed, as seen earlier, he claimed it was this refusal on Phang’s part to contemplate the incorporation by Corporation of a Sdn Bhd in Malaysia which had led him to set up Absolmed on his own: his story was that when he approached Phang about the idea of incorporating a Sdn Bhd to market Sonosite machines in Malaysia, Phang had fobbed him off by saying, “… We are not ready yet. Difficult lah, difficult.”⁸

The employment of the third defendant, Hooi Loo

A few months after the Malaysian branch office was set up, Hooi Loo – a Malaysian citizen – was hired by Corporation to work in the branch office as a product specialist. Hooi Loo’s contract of employment, which Phang signed on behalf of Corporation, provided, inter alia, as follows⁹: 6. Confidentiality and restraints 6.1 During your employment, you shall not disclose at any time any unauthorized individual, any information concerning the interest or business of the company or any of its subsidiary or associated companies or any of their clients nor make or possess without prior permission, copies of documents, papers or other media on which such information is recorded. 6.2 Should you leave the employment of the company, you agree not to solicit customers, suppliers or employees of the company or any of its affiliates on behalf of yourself or any other person, partnership or corporation, or seek to hire any employee (directly or indirectly) of the company or any of its affiliates for a period of one year after the cessation of your employment. 6.3 Legal action will be taken against you should there be a breach of the confidentiality and restraints 7. Restraints on activities 7.1 You will not reveal and will not at any time (whether during your employment or after the termination of your employment for whatever reason) use your own or another advantage, or reveal to any person, for or [sic] company any of the trade secrets, business methods of information which you knew or ought reasonable [sic] to have known to be confidential concerning the business or affairs of the company so far as they will have come to your knowledge during your employment with the company 7.2 You will not be allowed to sell, service or support any of the agency product lines in Bluestone Corporation Pte Ltd or its associated companies should you leave the company. Should this term be breached, legal action will be taken against you.

…

9. Code of Conduct 9.1 As an employee of the company you are required to obey all applicable laws. You will also practice high ethical standards in your daily dealings of company affairs. The breakdown of the relationship between Henry and Phang

Henry testified that he and Phang ran their respective divisions – medical equipment (Henry) and medical consumables (Phang) – independently of each other¹⁰. Moreover, as he found Phang “a forceful personality”, he also sought to “minimise conflict” with Phang by “giv[ing] way”¹¹. Corporation’s business was doing well and turning a profit every year – until the year 2016, when the relationship between Henry and Phang started to deteriorate for several reasons¹².

Inter alia, Henry was aggrieved at Phang’s refusal to give a personal guarantee to secure certain bank facilities, and at Phang’s decision to declare bonuses for himself and his team in early 2017 before the finalisation of Corporation’s audited accounts for 2016. When he learnt that Phang had already encashed his bonus cheques,...