Case Note

• Citation: (2014) 26 SAcLJ 724
• Date: 01 December 2014
• Author: TAN Ruo Yu LLB (Summa) (Singapore Management University); Advocate and Solicitor (Singapore); Associate, Rajah & Tann Singapore LLP.
• Published date: 01 December 2014

CAUSATION IN EQUITABLE COMPENSATION

Then Khek Koon v Arjun Permanand Samtani

[2014] 1 SLR 245

The brickenden Rule in singapore

The controversial rule in Brickenden V London Loan & Savings Company Of Canada [1934] 3 Dlr 465 was recently introduced into the local jurisprudence on equitable compensation for breach of fiduciary duty. In then Khek Koon V Arjun Permanand Samtani[2014] 1 SLR 245, the High Court accepted Brickenden as authority for the proposition that if a fiduciary is in one of the well-established categories of fiduciaries and has committed a culpable breach of his core duties of honesty and fidelity, he is liable to pay equitable compensation even if but-for causation cannot be proved. This note critically reviews the importation and the interpretation of the Brickenden rule by the High Court.

I. Introduction

1 The Privy Council case of Brickenden v London Loan & Savings Company of Canada1 (“Brickenden”) has long been a point of controversy in the law on equitable compensation for breach of fiduciary duty. The case is said to stand for the strict rule that an errant fiduciary who withheld material facts from his principal in a loss-making transaction cannot escape liability by arguing that his non-disclosure was irrelevant. In effect, this dispenses with the need for a causal link between the fiduciary's breach and the principal's loss. Unsurprisingly, Brickenden has been subject to considerable judicial and academic criticism in other jurisdictions.

2 Brickenden was accepted as good law in Quality Assurance Management Asia Pte Ltd v Zhang Qing2 (“QAM”) and Then Khek Koon v Arjun Permanand Samtani3 (“Then Khek Koon”), both of which were presided over by the same learned judge.4 In particular, in the later case of Then Khek Koon, Vinodh Coomaraswamy J accepted Brickenden as authority for the proposition that:5

A fiduciary who is in one of the well-established categories of fiduciaries and who commits a culpable breach of his core duties of honesty and fidelity is liable to pay equitable compensation even if the object of those duties is unable to prove but-for causation. [emphasis added]

3 Whilst Then Khek Koon has clarified some points of uncertainty in QAM concerning the application of the Brickenden rule, this note argues that the importation of the Brickenden rule should in the first place be reconsidered, having regard to the specific context in which the said rule was developed as well as the developments in other common law jurisdictions. More importantly, it is suggested that the Brickenden rule as interpreted and applied in Then Khek Koon raises theoretical and practical problems.

II. Facts and judgment

4 The material facts of Then Khek Koon can be simply stated. Both defendants were members of the sale committee (“SC”) in charge of the collective sale of a condominium (“Property”), while the plaintiffs were subsidiary proprietors of the Property who objected to the sale. Unbeknownst to other subsidiary proprietors, the defendants each purchased an additional unit in the Property before the collective sale process was formally launched through an extraordinary general meeting in April 2006.6 This came to light only during the discovery process following the plaintiffs' objection to the collective sale application before the Strata Titles Board in May 2007.7 On this newfound fact, the plaintiffs argued that the impetus for a hurried sale placed the defendants in a position of conflict,8 thereby constituting one

of several instances of bad faith on the SC's part in the collective sale process under s 84A(9)(a)(i) of the Land Titles (Strata) Act.9

5 The dispute went all the way up before the Court of Appeal. In Ng Eng Ghee v Mamata Kapildev Dave10 (“Ng Eng Ghee”), the Court of Appeal ruled in favour of the plaintiffs and set aside the collective sale order. The Court of Appeal found that, generally, a sale committee owes fiduciary duties qua agent to the subsidiary proprietors of a strata development in a collective sale.11 In this case, the SC had breached its duties as fiduciary by, inter alia, deciding to sell the property when the two defendants, being key members of the SC leading the collective sale process, acted in undisclosed potential conflicts of interest arising from their purchase of the additional units.12

6 Although the plaintiffs successfully resisted the collective sale, they failed to recover fully the substantial legal costs that were incurred in the protracted litigation. The plaintiffs therefore commenced fresh proceedings in Then Khek Koon to claim equitable compensation against the defendants, on the basis that the defendants' breach of fiduciary duty had caused the plaintiffs to oppose the collective sale which resulted in them suffering losses in the form of unrecovered legal costs.13

7 Coomaraswamy J dismissed the plaintiffs' claims. He first held that the judgment in Ng Eng Ghee was binding — the defendants owed the plaintiffs fiduciary duties14 and had breached those duties.15 The next question was whether the defendants' breach had caused the plaintiffs' losses. On this issue, Coomaraswamy J referred to his judgment in QAM, and proceeded to delineate three categories of claims based on the cases of Bristol and West Building Society v Mothew16 (“Mothew”), Brickenden and Target Holdings Ltd v Redferns17 (“Target Holdings”):18

(a) Any fiduciary's liability for breaches of his duties of skill and care and of prudence and diligence are subject to the doctrines of foreseeability, causation and remoteness: Mothew.

(b) A fiduciary who is in one of the well-established categories of fiduciaries and who commits a culpable breach of his core duties of honesty and fidelity is liable to pay equitable compensation even if the object of those duties is unable to prove but-for causation: Brickenden.

(c) A fiduciary who is in one of the well-established categories of fiduciaries and who causes loss to the trust property as a result of an innocent breach of his fiduciary duties is not liable to reconstitute the trust property unless the object of those duties is able to prove at least a but-for causal connection between the breach of fiduciary duty and the loss to the trust fund: Target Holdings.

[emphasis added]

8 The present case fell under category (c) for two reasons. First, the novel sale committee/subsidiary proprietors fiduciary relationship was not a well-established category of fiduciary relationship.19 Second, since the defendants did not actively conceal their additional purchases, they had not committed a culpable breach of core fiduciary duty.20 Accordingly, the plaintiffs were required to prove that but for the defendants' breach of fiduciary duty, their losses would not have occurred. The plaintiffs failed on this count as Coomaraswamy J found that they would have resisted the collective sale in any event.21 In any case, the plaintiffs were barred from claiming their unrecovered costs from the defendants as equitable compensation, as the Court of Appeal in Ng Eng Ghee had already decided how the plaintiffs ought to be indemnified.22

III. Comments

A. Clarification of QAM

9 The preliminary observation to be made is that Coomaraswamy J's unequivocal judgment in Then Khek Koon helps to clarify some ambiguity in the earlier case of QAM. In QAM, a company successfully claimed, inter alia, equitable compensation against an ex-employee for losses caused by his wrongful diversion of business opportunities in breach of fiduciary duty. In the course of the judgment in QAM, it was stated that where Brickenden applies, it is still necessary for the principal to prove that the fiduciary's breach is “in some way

connected to the loss, even if it was simply to set the occasion for the loss”23 [emphasis added]. Immediately thereafter, however, it was held that even if the loss would occur in the absence of the fiduciary's breach, liability would attach under the Brickenden rule.24 The issue became further clouded by suggestions elsewhere in QAM that Brickenden does not nullify the requirement of but-for causation.25 Indeed, even though Brickenden was avowedly applied “with full stringency” on the facts of QAM,26 Coomaraswamy J proceeded to undertake a close analysis to determine if the defendant had caused the plaintiff's losses on a but-for basis.27

10 In any event, the more important questions at hand are whether the Brickenden rule should, in the first place, be imported into Singapore law, and if so, whether the formulation of the Brickenden rule in Then Khek Koon is sensible. It is to these questions that this case note now turns.

B. Examining the Brickenden rule

(1) Context in Brickenden

11 To begin with, is the Brickenden rule really an inflexible principle which applies regardless of the context? The Privy Council's precise holding in Brickenden, out of which the Brickenden rule is said to arise, is as follows:28

When a party, holding a fiduciary relationship, commits a breach of his duty by non-disclosure of material facts, which his constituent is entitled to know in connection with the transaction, he cannot be heard to maintain that disclosure would not have altered the decision to proceed with the transaction, because the constituent's action would be solely determined by some other factor, such as the valuation by another party of the property proposed to be mortgaged. Once the court has determined that the non-disclosed facts were material, speculation as to what course the constituent, on disclosure, would have taken is not relevant.

12 Notwithstanding the broad phraseology used, this key passage needs to be read in the light of the specific facts in the Brickenden litigation. In the Privy Council's condensed judgment, the given facts are that the respondent finance company advanced a loan to a mortgagor on the advice of the appellant solicitor without knowing that the appellant benefited personally from the...