Chun Cheng Fishery Enterprise Pte Ltd v Chuang Hern Hsiung and Another (Lin Chao-Feng and Another, Third Parties)

• Jurisdiction: Singapore
• Judge: Andrew Ang J
• Judgment Date: 18 August 2008
• Neutral Citation: [2008] SGHC 135
• Court: High Court (Singapore)
• Published date: 20 August 2008
• Year: 2008
• Plaintiff Counsel: Tan Cheng Han SC (Tan Cheng Han) and Lim Kim Hong (Kim & Co)
• Defendant Counsel: Molly Lim SC and Philip Lim (Wong Tan & Molly Lim LLC),Yong Kwet Leong (Yong & Partners)
• Subject Matter: Companies,Tort
• Citation: [2008] SGHC 135

18 August 2008

Andrew Ang J:

The parties

1 The plaintiff is a company incorporated in Singapore. It is in the business of importing and exporting marine products and other frozen seafood. The plaintiff is also in the business of processing, curing and preserving marine products and frozen seafood. The plaintiff has a wholly owned subsidiary, Chun Cheng USA Inc (“CCUSA”), incorporated in the United States of America which operates as the marketing arm of the plaintiff in the United States of America.

2 The plaintiff’s board of directors comprises Lin Chao Feng (“Lin”), who is the chairman and his wife, Tan Guan Ngo (“Tan”), who is the managing director. Lin and Tan together hold about 83% of the shares in the plaintiff. At the material time, as the only two directors on the board, Lin and Tan were the guarantors of all of the plaintiff’s credit facilities with the plaintiff’s eight bankers. In addition to the plaintiff in Singapore, Lin and Tan also owned other companies in Taiwan and in the British Virgin Islands, such as Chun Success International Co Ltd (“CSI”) and Asian Success International International Inc (“ASI”).

3 Chuang Hern Hsiung (“the first defendant”) was employed as the Group President/Chief Executive Officer of the plaintiff and its Taiwan counterpart, Terng Sheng International Co Ltd (“Terng Sheng”). Lin had wanted to appoint the first defendant as the managing director but he declined. He was also the President and director of CCUSA. As the plaintiff’s CEO, the first defendant gradually took over effective control of the plaintiff. Lin allowed the first defendant practically free rein in the day to day running of the plaintiff from 1999 to 2004. The first defendant was summarily dismissed on 11 July 2005.

4 Chuang Hsin-Yi (“the second defendant”) is the eldest son of the first defendant and worked at the plaintiff in the capacity of Vice-President of Development. The second defendant who was also a director of CCUSA held 10% shares in the plaintiff and was also a director of CCUSA. (How he came to be the holder of the shares is in dispute between the parties in another matter with which we are not concerned. Suffice it to say that the account of the first defendant in this action is that the shares were intended as a reward to him for his services but were registered in the second defendant’s name at the first defendant’s request.) The second defendant was initially given one month’s notice of termination on 11 July 2005. However, by a further letter dated 29 August 2005 and for reasons that will be stated later, the second defendant was informed through the plaintiff’s solicitors that his termination of employment would be treated as a summary dismissal as well. The first and second defendants (“the Defendants”), as the only directors of CCUSA, were authorised signatories of the bank accounts of CCUSA until the time of their dismissal.

The claims

5 The plaintiff claimed damages against the defendants for the alleged breach of their duties (fiduciary, contractual and/or otherwise) owed to the plaintiff through various acts and/or omissions particularised below, including those which caused the plaintiff’s bankers to suspend or reduce the credit facilities to the plaintiff thereby causing financial distress to the cash flow of the plaintiff. The plaintiff claimed that as a result of the shaken confidence amongst its bankers, the plaintiff had to incur costs of appointing a Special Accountant to allay the bankers’ fears, apart from having to engage several other professionals to sort out the problems faced. Further, the plaintiff claimed damages for the defendants’ conspiracy to injure the plaintiff and to cause loss to the plaintiff through unlawful or lawful means.

6 The defendants, maintaining that they had at all times acted in the plaintiff’s best interests, denied that they breached any of their duties to the plaintiff. It is the defendants’ case that their employment with the plaintiff was wrongfully terminated and they therefore made counterclaims against the plaintiff for wrongful termination.

7 The defendants further argued that the real conflict which led to this action was not between the defendants and the plaintiff, but between the defendants acting on the plaintiff’s behalf and Lin and Tan acting in their personal interests or in the interests of their other companies. The defendants asserted that some of the acts they had done at the plaintiff were in order to protect the plaintiff from Lin and Tan, but not to harm the plaintiff, as alleged.

8 The defendants further argued that even if the plaintiff had suffered any loss or damage, such loss or damage was not caused by them but by Lin and Tan – that it was Lin and Tan who breached their fiduciary duties to the plaintiff by acting in conflict with and against the interests of the plaintiff. As such, the defendants brought third party proceedings against Lin and Tan, praying for an order requiring both Lin and Tan to indemnify them against any of the plaintiff’s claims (should they be allowed) on the grounds, inter alia, that:

(a) the decisions taken by Chiao Tung Bank (“CTB”) to suspend the plaintiff’s credit facility, by Bank of Taiwan (“BOT”) to reduce the plaintiff’s credit facility and by United Overseas Bank (“UOB”) to hold on to two bills which the plaintiff had submitted for payment and to cap the plaintiff’s credit facility were because of Lin’s failure, refusal and or neglect to settle his own personal debts owing to other banks in Taiwan;

(b) Lin and Tan caused the plaintiff tremendous financial distress by causing or procuring the plaintiff to enter into transactions with a company in Vietnam called “Hai Vuong” without the knowledge and/or against the advice and objections of the first defendant; and

(c) board and management decisions taken by Lin and Tan were the cause of the overstock in CCUSA.

Events from October 2004

9 It is necessary to relate the key events that allegedly took place from October 2004. The plaintiff stated that from around October 2004 Lin sensed that the first defendant was deliberately refusing Lin, Tan and one Tan Lay Hoon (“Lay Hoon”) (Tan’s sister who was in charge of finance) access to information, financial reports and updates in relation to the plaintiff and had created an “insiders’ team” within the plaintiff comprising the first and second defendants and employees in the plaintiff’s marketing team, viz, Jasmine Khoo, Albert Leong, Lin Ming Chuan and Elbert Sim.

10 In November 2004, during a management meeting of the plaintiff, Lin had disapproved of the first defendant’s sales target of 8,000 metric tonnes for the year 2005. At the same time, Lin had warned the defendants against the overstocking of “mahi mahi” (a type of fish) but, as events later showed, the second defendant did not heed Lin’s instructions and that resulted in the overstocking and in the product not being sold.

11 Further, the plaintiff asserted that in early 2005, the second defendant also purchased large quantities of carbon monoxide-treated (“CO-treated”) tuna loins for CCUSA when the market was for CO-treated tuna steaks. As a result, the stock of CCUSA increased three-fold in the first quarter of 2005 as compared to the same period in 2004. Lin was informed of the high receivables owing to the plaintiff by CCUSA by Low Mui Hong (“Low”), the Senior Manager of Finance/Accounts of the plaintiff. By around March or April 2005, because of the twin problems of overstocking and high receivables in CCUSA, Lin became concerned and consulted a financial and management consultant company in Taiwan, Fourwin Co Ltd (“Fourwin”) to analyse the plaintiff’s financial status.

12 In June 2005, Low managed to obtain an offer of a temporary line of credit in the amount of US$800,000 for the plaintiff from Standard Chartered Bank (“SCB”). However, when Low communicated this to the first defendant on or about 23 June 2005, the first defendant told Low not to accept the said facility. At about the same time, while most of the marketing team which reported to the first defendant was travelling, one of his staff from the said team who was on the premises refused to cooperate to sign the Confirmation of Purchases from various fishing vessels.

13 In addition, on 1 July 2005, the first defendant refused to sign acceptance of a Development Bank of Singapore (“DBS”) offer of an increase in facilities of US$1.5m. Contrary to earlier arrangements, he also refused to allow his pre-signed remittance instruction forms (for payment to suppliers) to be used.

14 At all material times, the plaintiff had eight bankers which provided trust receipt facilities to the plaintiff totalling US$12m. They were:

(a) three Taiwanese banks, namely, BOT, CTB and Chung Hwa Bank (“CHB”);

(b) UFJ Bank Ltd (Singapore branch), a Japanese bank; and

(c) four local banks, namely, UOB, SCB, DBS and Citibank Singapore Ltd.

The plaintiff secured those trust receipt facilities with fixed deposits and personal guarantees by both Lin and Tan.

15 Lin had incurred personal indebtedness to a bank in Taiwan arising from his guaranteeing a loan by the latter to a company in Taiwan. The first defendant was the contact person vis-à-vis all the plaintiff’s bankers in Singapore, particularly the Taiwanese banks. As such, to ensure continuation of the banking facilities for the plaintiff, he would update the bankers from time to time on the status of Lin’s personal indebtedness in Taiwan. Lin’s personal indebtedness in 2002 totalled US$5m, and by May 2005 the debts had been reduced to around US$70,000. By June 2005, Lin had fully settled the same except that the information available at the Joint Credit Centre (a credit bureau in Taiwan) was only updated on 19 July 2005.

16 In early July 2005, as was usual, the plaintiff submitted documents to various bankers for approval of funds pursuant to the said trust receipt facilities. Although it normally took about one...