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

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 09 September 2016
• Neutral Citation: [2016] SGCA 55
• Plaintiff Counsel: Philip Jeyaretnam SC and Andrea Gan (Rodyk & Davidson LLP) (instructed) and Siraj Omar and Alexander Lee (Premier Law LLC)
• Date: 09 September 2016
• Docket Number: Civil Appeals Nos 208 and 223 of 2015
• Hearing Date: 13 May 2016
• Subject Matter: Interest,Breach of fiduciary duty,Damages,Computation,Equity,Joint and several liability
• Year: 2016
• Defendant Counsel: Alvin Yeo SC, Joy Tan and Ashvin Thevar (WongPartnership LLP)
• Court: Court of Appeal (Singapore)
• Citation: [2016] SGCA 55
• Published date: 16 September 2016

Chao Hick Tin JA (delivering the judgment of the court):

These are two cross-appeals, one by the plaintiff and the other by the second defendant, against the decision of the High Court Judge (“the Judge”) in Dynasty Line Limited (in liquidation) v Sukamto Sia and another [2015] SGHC 286 (“Judgment (Assessment)”), in relation to an assessment of equitable compensation payable by the defendants to the plaintiff in respect of their breaches of fiduciary duty. Civil Appeal No 208 of 2015 (“CA 208”) is the appeal by the plaintiff against both the defendants, while Civil Appeal No 223 of 2015 (“CA 223”) is the appeal by the second defendant against the plaintiff. Both appeals raise a gamut of issues, some of which overlap.

Facts and Decision Below

We now set out the facts and the decision below, which are undisputed unless we indicate otherwise.

The parties

The plaintiff (who is the appellant in CA 208 and respondent in CA 223) is Dynasty Line Limited (“Dynasty”). It is a British Virgin Islands (“BVI”) company which was ordered on 22 December 2009 by the BVI courts to be wound up. It is the liquidators of Dynasty who are having the conduct of the present litigation.

Dynasty was the corporate vehicle for investments of its sole shareholder, Mr Sukamto Sia (“Sia”), the first defendant and the first respondent in CA 208. Sia persuaded one Mr Lee Howe Yong (“Lee”), a Singaporean who resided in Hong Kong (“HK”) at the material time, to join his ventures. In return for his agreeing to be a co-director of Dynasty, Sia promised Lee 20% of Dynasty’s profits. They were Dynasty’s only directors. Lee is the second defendant, the second respondent in CA 208, and the appellant in CA 223.

Events constituting Sia and Lee’s breach of fiduciary duty

In 1996, Sia wanted to buy shares in China Development Corporation Limited (“CDC”), a company then listed on the HK Stock Exchange. Using Dynasty as the investment vehicle, he acquired 29,537,367 shares in CDC (representing 30.9% of its issued share capital) from several vendors by way of seven distinct sale and purchase agreements dated 5 February 1996. The agreed sale price was HKD7.80 per share, amounting to a total of HKD230,391,462.60 for the purchase. The vendors transferred the CDC shares to Dynasty on or before the intended completion date of 2 May 1996. However, only HKD64,459,317.16 (or about 27.98%) of the purchase price was paid. This sum was allegedly advanced as a loan to Dynasty from Sia after the latter had taken out certain loans, to which we now turn.

Between April 1996 and November 1997, Dynasty pledged almost all of those CDC shares to various financial institutions as security for loan facilities granted not to Dynasty but to Sia and his business associates (Lee was not a recipient of the loan facilities). Four pledges were made in total; the first, to Commerzbank (South East Asia) Limited (“Commerzbank”), was executed by both Lee and Sia while the three later pledges were executed solely by Sia. It should be noted that, sometime in June 1997 (ie, between the time of second and third pledges), CDC implemented a 5:1 stock split. The details of the pledges, which have been adjusted to disregard the stock split, are as follows:

No	Date	Financial Institution	No of Shares	% of Shares
1	23 Apr 1996	Commerzbank	12,032,302	40.74%
2	6 Nov 1996	Société Générale (Labuan branch)	5,600,000	18.96%
3	29 Aug 1997	KG Investments Asia Limited	9,764,400	33.06%
4	3 Nov 1997	Creditanstalt Bankverein	2,140,525	7.25%
Total	29,537,227	100.00%

As Sia and his business associates defaulted on the loans, the financial institutions sold the pledged shares and applied the proceeds to satisfy the debts owed to them. These forced sales took place between June 1998 and February 2000. The shares pledged to Commerzbank in particular were sold in February 2000 for a total of HKD31,560,885.15, which works out to be HKD2.623 per share or, if the stock split is taken into account, HKD0.5246 per share.

Litigation history Vendors sue Dynasty for balance of purchase price in HK

On 10 June 1999, the vendors commenced proceedings against Dynasty in HK for the unpaid balance of the purchase price. Dynasty countersued, alleging that one of the vendors, Low Tuck Kwong (“Low”), made misrepresentations to Sia about CDC. On 6 April 2001, the HK High Court allowed the vendors’ claim and dismissed Dynasty’s counterclaim. Judgment was awarded against Dynasty as follows:

No	Component	Sum (HKD)
1	Unpaid balance of purchase price	166,042,936.79
2	Pre-judgment interest	88,437,488.09
Total	254,480,424.88

Creditors apply to wind up Dynasty in HK & BVI

On 27 June 2007, Low commenced liquidation proceedings against Dynasty in HK, but these were stayed on 14 September 2009, upon Sia’s application, on the ground of forum non conveniens.

On 29 October 2009, Low commenced liquidation proceedings in BVI. He succeeded; on 22 December 2009, Dynasty was ordered to be wound up. William Tacon and Lau Wu Kwai King Lauren were appointed as liquidators.

Liquidators sue Lee & Sia for breach of fiduciary duty in Singapore

On 14 April 2010, the liquidators sued Sia and Lee in Singapore for breaches of fiduciary duty under BVI law as Dynasty’s directors. Dynasty says that the loss suffered was as follows (and that Lee and Sia should be jointly and severally liable for the loss attributable to the Commerzbank pledge):

No	Component	HKD	HKD
1.	HK Judgment Sum, comprising: – Balance of purchase price – Pre-judgment interest	166,042,936.79 88,437,488.09	254,480,424.88
2.	6 years’ (post-judgment) pre-liquidation interest	138,030,956.35
3.	(Post-judgment) post-liquidation interest	114,007,230.35
Total loss	506,518,611.58
– Attributable to Commerzbank pledge (39.13%)	198,200,732.71

The decisions in the Singapore courts Liability

The action was bifurcated. The issue of liability was tried before the Judge and her decision was reported as Dynasty Line Ltd (in liquidation) v Sia Sukamto and another [2013] 4 SLR 253 (“Judgment (Liability) (HC)”). Cross-appeals were brought against that decision to the Court of Appeal. Dynasty prevailed before the Court of Appeal (in Civil Appeal No 105 of 2013). For completeness, we should add that Sia’s counterclaims (ie, against Low for an alleged breach of the terms of a settlement agreement, and against Dynasty, Low and the liquidators for conspiracy to injure) failed before both the High Court and the Court of Appeal. The Court of Appeal decision was reported as Dynasty Line Ltd (in liquidation) v Sia Sukamto and another and another appeal [2014] 3 SLR 277 (“Judgment (Liability) (CA)”).

The important findings for present purposes are as follows: At the material time, there were ample grounds for Dynasty’s directors to think that Dynasty would be approaching insolvency if it made the pledges. Dynasty had had significant liabilities which could be met only by the CDC shares, its only asset. By pledging the shares, Dynasty essentially imperilled its ability to meet its liabilities (Judgment (Liability) (CA) at [36]). Sia breached his fiduciary duties as director. By pledging the shares, he disregarded the interests of Dynasty’s creditors (whose interests, under BVI law, had come to the fore in the light of mounting concerns over Dynasty’s financial health) (Judgment (Liability) (CA) at [34]–[35] and [39]–[41]). Lee breached his fiduciary duties as director. It was incumbent on him to know Dynasty’s assets and liabilities. He must have been aware of the nature of the Commerzbank pledge since he signed the documents relating thereto. At that time, he should at least have made the necessary inquiries; 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 (Judgment (Liability) (CA) at [46]–[48]). However, his liability was limited only to the Commerzbank pledge as his signature was not found on the three later pledges and there was no evidence that he knew about them (Judgment (Liability) (CA) at [49]).

Accordingly, the Court of Appeal ordered damages to be assessed by a High Court Judge (Judgment (Liability) (CA) at [72]). In this regard, it seems to us that “damages” is strictly speaking mere shorthand for equitable compensation, which is awarded for a breach of fiduciary duty, and we will hereinafter be using these two terms interchangeably.

Assessment of damages

The issue of assessment of damages was heard by the Judge in Assessment of Damages No 23 of 2015. Her decision and written grounds (in the Judgment (Assessment)) were released on 6 November 2015 and the decision on costs was made on 18 November 2015. The present appeals relate to both those decisions.

The Judge held that Lee and Sia were jointly and severally liable for the loss in respect of the Commerzbank pledge, assessed at HKD6,569,636.89. Since Sia was absent from the assessment proceedings, Lee would be entitled to seek contribution or indemnity from Sia once Dynasty’s claim has been satisfied. Additionally, Sia was also liable for the loss in respect of the three other pledges, assessed at HKD35,558,427.45. Pre-liquidation interest (accruing post-HK judgment) of 5% per annum for four years was claimable, while post-liquidation interest was claimable only if Dynasty had a surplus of assets after paying the claims of all its creditors (Judgment (Assessment) at [32] and [72]). The findings of the Judge relating to the merits included the following: Lee and Sia were jointly and severally liable for the Commerzbank pledge since both signed off on the Commerzbank pledge. Their joint participation fell...