Creanovate Pte Ltd and Another v Firstlink Energy Pte Ltd and Another Appeal

• Jurisdiction: Singapore
• Judge: Chan Sek Keong CJ
• Judgment Date: 24 September 2007
• Neutral Citation: [2007] SGCA 45
• Date: 24 September 2007
• Subject Matter: Directors of company having interest in another company,Conditions,Whether first company entitled to refund of moneys advanced to other company,Whether loan within meaning of ss 162 and 163 of Companies Act extending beyond loans in conventional sense,Directors,Duties,Contract,Companies,Whether other company's failure to fulfil conditions precedent under agreement with first company amounting to total failure of consideration,Sections 157, 162, 163 Companies Act (Cap 50, 1994 Rev Ed),Contractual terms,Whether directors breached fiduciary duties to first company and ss 162 and 163 of Companies Act by causing it to advance moneys to other company such that first company suffered loss as result
• Docket Number: Civil Appeals Nos 114 and 115 of 2006
• Published date: 01 October 2007
• Defendant Counsel: Low Chai Chong, Loh Kia Meng and Yeo Shuyuan Joanna (Rodyk & Davidson LLP)
• Court: Court of Appeal (Singapore)
• Plaintiff Counsel: Chopra Sarbjit Singh and Suja Michelle Sasidharan (Lim & Lim),Tan Teng Muan and Loh Li Qin (Mallal & Namazie)

24 September 2007

Andrew Phang Boon Leong JA (delivering the grounds of decision of the court):

Introduction

1 The respondent in both Civil Appeal No 114 of 2006 (“CA 114”) and Civil Appeal No 115 of 2006 (“CA 115”), Firstlink Energy Pte Ltd, is a wholly-owned subsidiary of Firstlink Investments Corporation Limited (“FICL”). It served as a vehicle for FICL in respect of the latter’s venture into the coal industry.

2 The first appellant in CA 114, Creanovate Pte Ltd (“Creanovate”), is a limited exempt private company incorporated in Singapore on 27 July 2004. The appellant in CA 115, Ngu Tieng Ung (“Ngu”), and the second appellant in CA 114, Tang Kok Heng (“Tang”), were former directors of the respondent. Tang was also the majority shareholder of Creanovate.

3 The respondent, an Indonesian company formed by Tang (PT Perdana Andalan Coal (“PT PAC”)) and Creanovate entered into a subscription agreement on 8 January 2005 (“the Subscription Agreement”) for the purposes of coal mining investment in Indonesia. Tang and Ngu, who had been appointed as directors of the respondent, managed the respondent’s affairs where coal-related activities were concerned. The full factual background is set out below (at [7]–[30]).

4 In the court below, the respondent succeeded in its claim against Creanovate (Suit No 521 of 2005) for the aggregate sum of $3.26m. The respondent also succeeded in its claim for another sum of $1m which had been lent to Creanovate.

5 In Suit No 523 of 2005, the court below also allowed the respondent’s claim against Ngu and Tang for the sum of $4.26m. The trial judge (“the Judge”) found Ngu and Tang liable for breach of their fiduciary duties as directors of the respondent. The Judge also held that Ngu and Tang would be liable to pay any shortfall up to the amount of $3.32m (being the aggregate sum of $4.26m less a sum of $940,000, as the Judge was of the view that the respondent had failed to adequately plead how Ngu and Tang could be liable to account for this sum when they were not on the board of the respondent at the time this sum was advanced) in the event that Creanovate did not pay the aggregate sum of $4.26m in full.

6 At the hearing before us, we dismissed both CA 114 and CA 115 with costs and the usual consequential orders. We now give our reasons for doing so.

Factual background

7 As part of FICL’s plan to enter the natural resources industry, FICL acquired a 56.22% stake in Green Salt Group Ltd (“Green Salt”), which had certain investments in salt mine operations in China sometime in November 2003. The acquisition of the stake in Green Salt entailed FICL issuing approximately 13% of its enlarged share capital to Asiacorp Development Ltd, a company in which Ngu was one of the substantial shareholders. As a result, Ngu, who was then a director of a public listed company in Malaysia, became a substantial shareholder of FICL. On 1 July 2004, Ngu was appointed to the Executive Committee of FICL. It was also around this time that Tang approached Ngu with a business proposal for coal trading.

8 On 27 July 2004, Creanovate was incorporated. Tang, as we have already noted (at [2] above), was the majority and controlling shareholder of Creanovate.

9 On 10 August 2004, Tang made a presentation to Darren Kee Chit Huei (“Kee”), the executive director of FICL at that point in time, in respect of the business proposal for coal trading. The only other director of FICL at the material time was Joe Wong Siu Kay (“Wong”).

10 Very shortly after, on 19 August 2004, the respondent, Creanovate and Tang entered into a joint venture agreement dated 19 August 2004 (“JVA”). Under the JVA, Creanovate and Tang were obligated to supply coal exclusively to the respondent and were authorised to act as the respondent’s agents/representatives in the purchase and sale of coal. The respondent was to provide financing for coal trading, whereas Creanovate and Tang were to undertake the operational aspects of the business. The trading profits were to be shared between the respondent and Creanovate in the proportions of 40% and 60% respectively. On 24 August 2004, the JVA was presented to FICL’s board of directors.

11 Under cl 3 of the JVA, the respondent was required to advance $171,000 to Creanovate to “set up basic communications, living and transport infrastructure at the stock pile site prior to the start of the business”. The respondent therefore disbursed a total of $170,000 ($30,000 on 19 August 2004, $35,000 on 27 September 2004, $15,000 on 5 October 2004 and $90,000 on 21 October 2004) to Creanovate. These moneys appear to have been lost and have since been written off entirely in FICL’s accounts for the financial year ending 31 December 2004. These advances did not form part of the respondent’s claims against Creanovate.

12 However, even before the coal trading venture under the JVA commenced, Tang, acting on behalf of Creanovate, started to request for more advances from the respondent. On 1 September 2004, Tang sought an advance of $30,000 from the respondent as he “need[ed] the money urgently to settle some urgent outstanding matters”. This sum was purportedly for coal mining.

13 On 6 September 2004, Creanovate (through Tang) wrote to the respondent, inviting the latter to participate in a coal mining investment in Indonesia by taking up a minimum 25% shareholding in Creanovate’s subsidiary. In the same letter, Tang requested an advance of $2m from the respondent to participate in a coal mining investment in Indonesia. Tang also requested $940,000 by the next day “to meet our financial obligations”. The respondent accordingly advanced $940,000 to Creanovate on 7 September 2004.

14 In the court below, an officer from the Overseas Chinese Banking Corporation (“OCBC Bank”) gave evidence for the respondent. The bank officer, Mr Andrew Lam, testified that on 7 September 2004, Tang went to OCBC Bank to encash two cheques, one for $500,000 and the other for $250,000. Upon encashment, the proceeds were used to purchase two cashier’s orders for $500,000 and $250,000 in favour of OCBC Securities Pte Ltd and UOB Kay Hian Pte Ltd, respectively. The named applicant for the cashier’s orders was Creanovate. The cashier’s orders were duly issued. However, the next day, the two cashier’s orders were re-deposited into Creanovate’s account. Immediately thereafter, Tang encashed two cheques for $550,000 and $200,000. The proceeds from the $550,000 cheque were used by Ngu to purchase a cashier’s order for $500,000 in favour of Topbound Pte Ltd, a company in which he was a controlling shareholder. The remaining moneys were pocketed in cash.

15 In the court below, the respondent contended that it was therefore self-evident that whatever might have been the explanation for re-depositing the cashier’s orders back into Creanovate’s account, there could be no doubt that the moneys received by Creanovate were never intended to be used for coal investments and had been diverted for Tang’s and Ngu’s personal use.

16 Tang and Ngu were appointed as directors of the respondent on 9 and 15 September 2004 respectively. Prior to Tang’s appointment as a director of the respondent, Kee and Wong had been the only directors. Kee’s evidence was that Tang and Ngu then took full control of the respondent’s affairs as Kee and Wong had their own respective roles in FICL’s other businesses.

17 Shortly thereafter, Creanovate asked for further advances. On 3 and 17 November 2004, the respondent advanced the sums of $500,000 and $280,000, respectively, to Creanovate. The respondent adduced evidence which showed that these two advances were also withdrawn by Tang in cash on the very day that they were credited into Creanovate’s account.

18 All these advances were made prior to the parties, ie, the respondent, Creanovate and PT PAC, entering into the Subscription Agreement on 8 January 2005. According to the respondent, the Subscription Agreement was the product of discussions between Ngu and Tang. Tang had represented that PT PAC had a 60% equity interest in PT Kencana Artha Buana (“PT KAB”), which in turn had a 72.5% equity interest in PT Senamas Energuido Mula (“PT SEM”). Tang had also represented that PT KAB and PT SEM supposedly had concessions to extract coal in southern Kalimantan.

19 Under the terms of the Subscription Agreement, the respondent was to advance a sum of $2m to Creanovate, the aggregate of $1.72m which had already been advanced being taken into account. Under cl 2(2) of the Subscription Agreement, the sums advanced to Creanovate would have to be returned if the conditions precedent as set out (ie, confirmation from a qualified authority/solicitor that PT PAC had a 60% equity interest in PT KAB, which had a 72.5% equity interest in PT SEM) were not met by 22 February 2005. Subject to the satisfaction of the conditions precedent, the respondent would subscribe for $3.5m worth of exchangeable bonds (which could be converted into a 30% equity interest in PT PAC) using the $2m advance and an additional $1.5m payable upon completion.

20 On 18 January 2005, the respondent advanced $250,000 to Creanovate. The respondent advanced another $300,000 to Creanovate on 19 January 2005, and another $280,000 on 20 January 2005. In the court below, evidence was adduced by the respondent which showed that Tang’s wife, Lim Lee Foon, received $355,000 on 19 January 2005 by encashing three separate cheques drawn on Creanovate’s bank account.

21 On 3 February 2005, the respondent advanced a further sum of $710,000 to Creanovate. This was once again withdrawn by Tang the very same day. By this time, the sums advanced by the respondent to Creanovate amounted to $3.26m, which was far in excess of the $2m contemplated under the Subscription Agreement.

22 On 21 February 2005, Ngu and Tang requested (in the respondent’s name) $1m from FICL purportedly for coal mining business in Indonesia. According to the appellants, this sum was needed to fund a...