Dynasty Line Ltd (in liquidation) v Sukamto Sia and another

• Jurisdiction: Singapore
• Judge: Lai Siu Chiu SJ
• Judgment Date: 06 November 2015
• Neutral Citation: [2015] SGHC 286
• Court: High Court (Singapore)
• Docket Number: Suit No 256 of 2010
• Published date: 30 September 2016
• Year: 2015
• Hearing Date: 22 July 2015,14 August 2015,21 July 2015,23 July 2015
• Plaintiff Counsel: Philip Jeyaretnam SC (instructed) and Andrea Gan (Rodyk & Davidson LLP) Siraj Omar and Alexander Lee (Premier Law LLC)
• Defendant Counsel: Alvin Yeo SC, Joy Tan, Adeline Ong, Yin Juon Qiang (WongPartnership LLP)
• Subject Matter: Damages,Computation,Equity,Breach of fiduciary duty,Causation,Joint and several liability,Evidence,Admissibility of evidence,Foreign law,Civil Procedure,Proof of foreign law,Presumption of similarity of laws,Interest,Insolvency Law,Administration of insolvent estates
• Citation: [2015] SGHC 286

Lai Siu Chiu SJ: Introduction

Dynasty Line Ltd (“Dynasty”), a company incorporated in the British Virgin Islands (BVI), the plaintiff in this action, was the personal investment vehicle of Sukamto Sia (“Sia”). Sia is the first defendant in this action. Together with Lee Howe Yong (“Lee”) who is the second defendant in this action, Sia and Lee were the only two directors of Dynasty. Using Dynasty, Sia purchased significant quantities of shares in a company called China Development Corporation Limited (“CDC”) from several vendors (“the Vendors”). The CDC shares were fully transferred to Dynasty but Dynasty only paid a fraction of the total purchase price. Dynasty then pledged all the CDC shares to various banks as security for loans to Sia and his associates, who subsequently defaulted on the loans. As a result, the CDC shares were sold by the banks to satisfy the debts owed to them.

The Vendors sued Dynasty in Hong Kong for the unpaid balance of the purchase price of the CDC shares and succeeded. Using the judgment debt, one of the Vendors, Low Tuck Kwong (“Low”), applied for Dynasty to be wound up in the BVI.

By way of this action in Suit No 256 of 2010 (“the Suit”), the liquidators of Dynasty sued Sia and Lee for breach of fiduciary duties in pledging away the Shares without due consideration for the interests of Dynasty. The proceedings were bifurcated and the trial on liability took place first before this court. The liquidators’ claims in the Suit (and Sia’s counterclaim) were dismissed in Dynasty Line Ltd (in liquidation) v Sia Sukamto [2013] 4 SLR 253 (“the High Court judgment”). Both the liquidators and Sia appealed against the High Court judgment; Sia’s appeal was dismissed but the liquidators’ appeal was allowed. The Court of Appeal held in Dynasty Line Ltd (in liquidation) v Sukamto Sia and another [2014] 3 SLR 277 (“the CA Judgment”) that Sia and Lee were both liable for breaching their fiduciary duties. Having succeeded in establishing liability against them, the liquidators come before this court again to assess the damages due to Dynasty for the two directors’ breach of their fiduciary duties (“the Assessment Proceedings”).

The parties’ arguments raised a number of interesting issues regarding rules of causation and liability in equity, chief of which is whether a director can escape liability for a breach of fiduciary duty jointly and simultaneously committed with another director by arguing that had he not committed the breach, the other director would have carried out the wrongful act anyway.

Facts

The facts of the Suit have been sufficiently set out in the CA Judgment. I do not propose to repeat them in their entirety, but will instead highlight the salient facts that are germane to the Assessment Proceedings.

Sia was the sole shareholder of Dynasty. Lee (a Singaporean who resided in Hong Kong at the material time) was persuaded by Sia to join the latter in his business endeavours in the Chinese and Hong Kong markets. Lee became a co-director of Dynasty together with Sia.¹ In return, Sia promised Lee 20% of Dynasty’s profits.² For all intents and purposes however, Sia was the moving force behind Dynasty. Most of Dynasty’s business decisions were made by Sia alone without Lee’s involvement.

Sia was interested in purchasing a substantial portion of the shareholding in CDC, a company then listed on the Hong Kong Stock Exchange.³ Using Dynasty as the investment vehicle, he acquired 29,537,367 shares⁴ in CDC (“the Shares”) from the Vendors by way of seven separate sale and purchase agreements dated 5 February 1996. Dynasty agreed to pay HK$7.80 per share,⁵ giving rise to a total purchase price of HK$230,391,462.60.⁶ The Vendors transferred the Shares to Dynasty on or before the intended completion date of 2 May 1996 (“the Completion Date”). However, only a fraction of the purchase price was ultimately paid by Sia. The share acquisition represented 30.9% of CDC’s issued share capital.⁷

Between April 1996 and November 1997, Dynasty pledged the Shares to various financial institutions as security for loan facilities (“the Pledges”) granted not to Dynasty but to Sia and his business associates (“the Borrowers”). Lee was not a recipient of the loan facilities. Details of the Pledges are as follows:

S/N	Date	Number of shares	Name of financial institution
1	23 April 1996	12,032,302	Commerzbank (South East Asia) Limited (“Commerzbank”)
2	6 November 1996	5,600,000	Société Générale (Labuan branch)
3	29 August 1997	48,822,700	KG Investments Asia Limited
4	3 November 1997	10,702,625	Creditanstalt Bankverein

The Borrowers defaulted on the loans so the above financial institutions sold the Shares and applied the proceeds to satisfy the debts they were owed.

On 10 June 1999, the Vendors commenced proceedings in Hong Kong against Dynasty in HCA 9505 of 1999 for the unpaid balance of the purchase price. Dynasty filed a counterclaim, alleging that Low made various misrepresentations to Sia about CDC. On 6 April 2001, the Hong Kong High Court allowed the Vendors’ claim and dismissed Dynasty’s counterclaim (“the HK Judgment”). Judgment in the sum of HK$254,480,424.88 was awarded against Dynasty, of which HK$166,042,936.79⁸ represented the unpaid balance of the purchase price and HK$88,437,488.09⁹ represented pre-judgment interest.

Low commenced liquidation proceedings against Dynasty first in Hong Kong on 27 June 2007. The proceedings were stayed on the ground of forum non conveniens on Sia’s application. On 29 October 2009, Low applied to the BVI courts for Dynasty to be wound up and succeeded on 22 December 2009. William Tacon and Lauren were appointed as joint liquidators of Dynasty (“the Liquidators”).

The Liquidators brought the Suit against Sia and Lee for breaches of fiduciary duties under BVI law as directors of Dynasty. They ultimately succeeded before the Court of Appeal. Germane to the Assessment Proceedings are the following findings made in the CA Judgment: At the time the Pledges were entered into, there were ample grounds for the directors of Dynasty to have concerns that Dynasty would be in a position approaching insolvency if it went ahead with those transactions. Dynasty had significant liabilities at the time the Pledges were entered into. Dynasty had no other means of meeting those liabilities as the Shares were its only asset. By pledging away its sole asset, Dynasty essentially imperilled its ability to satisfy its liabilities. In pledging away the Shares, Sia disregarded the interest of Dynasty’s creditors and was therefore in breach of his fiduciary duty as director of Dynasty (at [36] and [39]–[41]). Lee was also in breach of his fiduciary duty as director of Dynasty. It was incumbent upon Lee to know what the assets and liabilities of Dynasty were. Lee must have been aware of the nature of the pledge granted to Commerzbank (“Commerzbank Pledge”) since he signed the documents relating to the pledge. He must at least at that point have made the necessary inquiries as a director of Dynasty. Had he done so, he would have known that Dynasty was pledging a significant portion of the Shares as security for a loan facility to Sia (at [46]–[48]). However, Lee’s liability was only limited to the Commerzbank Pledge as his signature was not found on the subsequent three pledges. There was also no evidence that Lee knew about those pledges (at [49]).

In the Assessment Proceedings, Dynasty requested for damages against Sia and Lee to be assessed.

Parties’ arguments

Sia did not appear at the trial to defend the Assessment Proceedings; only Lee did.

Dynasty’s arguments

Dynasty’s case against Lee can be summarised as follows: Lee is precluded from re-opening the issue of causation. The Court of Appeal has already determined that Lee’s breach caused Dynasty’s loss. Even if the causation issue has not already been determined, the “but-for” test would be satisfied. Lee bears the burden of proving but for the breach, Dynasty would still have suffered the loss and Lee failed to discharge that burden. The loss suffered by Dynasty should be measured with reference to the share price of HK$5.40 per share. Underlying this valuation is the assumption that but for the pledging away of the Commerzbank shares, Dynasty would have sold that quantity of shares on or around the date of the Commerzbank Pledge and would have used the proceeds of the sale to satisfy the balance payment of the sale and purchase of the Shares. Pre-liquidation interest on the damages should be awarded. Dynasty agrees that the six-year cap applies to the award of pre-judgment interest. The Hong Kong pre-judgment interest rate should apply. Post-judgment interest rates should be awarded. The Hong Kong pre-judgment interest rate should apply. Dynasty’s overall debt owed to the Vendors in liquidation is computed by adding the HK Judgment Sum of HK$254,480,424.88 and the six years’ pre-liquidation interest sum of HK$138,030,956.35 to the post-liquidation interest sum of HK$114,007,230.35, giving a total sum of HK$506,518,611.58 (“Dynasty’s Total Loss”). Dynasty computes the loss resulting from the Commerzbank pledge by multiplying the percentage of the HK Judgment Sum caused by the Commerzbank Pledge (ie, 39.13%) by Dynasty’s Total Loss, giving a sum of HK$198,200,732.71. Sia and Lee should be made jointly and severally liable for the loss occasioned by the Commerzbank Pledge. As Sia did not appear to defend the Assessment Proceedings, Dynasty can claim HK$198,200,732.71 from Lee, leaving him to sue Sia for contribution/indemnity.

Lee’s arguments

Lee’s case against Dynasty is as follows: Causation is not made out on two levels. But for Lee’s signing of the Commerzbank Pledge, Sia would still have gone ahead with pledging away the Commerzbank Shares. In any case,...