Dynasty Line Ltd v Sia Sukamto

JurisdictionSingapore
Judgment Date31 July 2013
Date31 July 2013
Docket NumberSuit No 256 of 2010
CourtHigh Court (Singapore)
Dynasty Line Ltd (in liquidation)
Plaintiff
and
Sia Sukamto and another
Defendant

Lai Siu Chiu J

Suit No 256 of 2010

High Court

Companies—Directors—Duties—Company directors pledging company property without benefiting company—Memorandum of association and articles of association of company permitting company to pledge assets to secure liabilities of any person, irrespective of any corporate benefit—Section 9 (1) International Business Companies Act 1984 (British Virgin Islands) allowing company to perform all acts conducive to promotion of company's objects irrespective of corporate benefit—Whether company unable to, or on verge of being unable to, pay its debts at time shares were pledged—Whether directors having duty to act in best interest of creditors—Whether directors breached fiduciary duties owed to company—International Business Companies Act 1984 (British Virgin Islands)

Contract—Breach—Settlement agreement between vendor and purchaser—Whether vendor acted in breach of settlement agreement

Equity—Defences—Acquiescence—Vendor knowing from outset that director would be pledging shares and vendor benefitted from pledge—Whether company's claim defeated by acquiescence

Equity—Defences—Laches—Events took place more than sixteen years ago—Settlement agreement between vendor and purchaser—Whether company's claim defeated by laches

Limitation of Actions—Equity and limitation of actions—Director breaching fiduciary duties—Company directors pledging company property without benefiting company—Whether director's conduct was ‘breach of trust’ for purpose of time bar exception in s 22 Limitation Act (Cap 163, 1996 Rev Ed) —Section 22 Limitation Act (Cap 163, 1996 Rev Ed)

Tort—Conspiracy—Engagement letter of liquidators contemplating commencement of actions against directors—Engagement letter providing for liquidators to receive instructions from vendor's lawyer—Liquidators engaging vendor's lawyer as their lawyer—Liquidators failing to make enquiries with directors before commencement of action—Liquidators failing to call for creditor's meeting—Liquidators failing to pay costs ordered in director's favour—Whether vendor and liquidators conspired and combined together with predominant purpose to cause loss and damage to director through pursuit of stale and baseless claims in Hong Kong and Singapore

These proceedings consisted of a claim (‘the Original Action’) and a counterclaim (‘the Counterclaim’). The Original Action involved a claim by the plaintiff, Dynasty Line Ltd, (‘Dynasty’) against Sia Sukamto (‘Sia’) and Lee Howe Yong (‘Lee’) for breaches of fiduciary duties owed to Dynasty while they were its directors. The Counterclaim involved Sia suing Low Tuck Kwong (‘Low’) for a breach of the terms of a settlement agreement, and against Dynasty, Low, William Tacon (‘Tacon’) and Lau Wu Kwai King Lauren (‘Lauren’) for, inter alia, conspiracy to injure him.

Dynasty, now in liquidation, was a company incorporated under the laws of the British Virgin Islands (‘BVI’). At all material times, Sia was the sole shareholder of Dynasty, and Sia and Lee were its directors. Dynasty served as a corporate vehicle for Sia's investments and did not have any business operations of its own. The only investment made by Sia through Dynasty was the acquisition of shares. Those shares (‘the Sale Shares’) were acquired from Low and the remaining vendors (‘the Remaining Vendors’) under seven sale and purchase agreements (‘S&P Agreements’). Although Sia only made part payment for the Sale Shares, the Vendors voluntarily transferred all their shares to Dynasty.

Dynasty then entered into several security transactions (‘Security Transactions’) with financial institutions pursuant to which the Sale Shares owned by Dynasty were pledged as security for loan facilities granted to Sia and other third parties. Sia and the other borrowers subsequently defaulted on such facilities with the result that the financial institutions exercised their right to sell the Sale Shares and applied the proceeds towards satisfaction of the debts owed by Sia and the other borrowers.

In Suit No 960 of 1998 (‘Suit 960’), Low sued Sia for the alleged unpaid balance of the purchase price (‘the Purchase Price’) of the Sale Shares due to him under the S&P Agreements, and claimed that Sia had orally guaranteed full payment of the Purchase Price. Low later settled this claim with Sia by agreement (‘the Settlement Agreement’).

In HCA 9505 of 1999 (‘HCA 9505’), Low and the Remaining Vendors commenced fresh proceedings against Dynasty in Hong Kong for the alleged unpaid balance of the Purchase Price of the Sale Shares due to them under the S&P Agreements, and obtained judgment in their favour.

Low later presented a petition in the Hong Kong High Court, pursuant to which Lauren and Kennic Lai Hang Hui (‘Lai’) were appointed as provisional liquidators of Dynasty (‘the Provisional Liquidators’). In HCA 2057 of 2007 (‘HCA 2057’), the Provisional Liquidators commenced proceedings on Dynasty's behalf against Sia and Lee for, inter alia,alleged breaches of fiduciary duties in relation to the Sale Shares. The Provisional Liquidators also obtained a Mareva injunction against Sia and Lee. However, the Hong Kong Court of Appeal allowed Sia's application to stay Dynasty's action on the ground that Hong Kong was not the appropriate forum.

Low filed a petition in the BVI High Court to wind up Dynasty, and Tacon and Lauren were appointed as liquidators of Dynasty (‘the Liquidators’). The Liquidators commenced the Original Action against Sia and Lee. Sia responded by filing the Counterclaim.

Held, dismissing the claim and the counterclaim:

(1) The time bar of six years under s 6 of the Limitation Act (Cap 163, 1996 Rev Ed) applied to Dynasty's claim against Sia and Lee because its claims were essentially for an account of misappropriated property founded upon allegations of breaches of fiduciary duty owed by Sia and Lee to Dynasty: at [22] .

(2) However, the exception to the six-year time bar provided by s 22 of the Limitation Act applied because Sia and Lee, as directors of Dynasty, were alleged to have breached their fiduciary duties in disposing of Dynasty's assets unlawfully: at [24] to [27] .

(3) The doctrine of laches operated as an equitable defence to a claim where there had been a substantial lapse of time coupled with circumstances where it would be practically unjust to give a remedy. Dynasty's claim was not barred by laches as it was not proven that Sia suffered significant prejudice because of the passage of time: at [37] .

(4) The settlement agreement could not have reasonably led Sia to believe that any dispute between him and the Vendors in relation to the Sale Shares had been fully and finally resolved. Low did not agree to not commence any other proceedings against Sia in connection with the facts or subject matters of Suit 960. Low merely agreed to discontinue Suit 960 while Sia agreed not to claim costs on the condition that Low was not to commence related actions: at [34] and [35] .

(5) Low's decision not to add Sia as a defendant to HCA 9505 could not reasonably have led Sia to believe that Low would not make any claim against him in relation to the Sale Shares. The claim in HCA 9505 was against Dynasty for the alleged unpaid balance of the Purchase Price of the Sale Shares. The current claim of breach of fiduciary duties arose from the Liquidators' discovery of the alleged wrongdoings of Sia and Lee. Such claims against the former directors of companies by liquidators were not uncommon. Low was entitled to obtain judgment against Dynasty for the balance of the Purchase Price before enforcing the judgment against Dynasty: at [36] .

(6) The defence of acquiescence did not apply because there was no evidence to suggest that Low knew that Dynasty was insolvent or on the verge of becoming insolvent, even if Low knew from the outset that Sia would be pledging the Sale Shares: at [38] to [39] .

(7) Since Dynasty was incorporated under the BVI International Business Companies Act 1984 (‘IBCA 1984’), the relevant law to be applied in determining the existence and scope of the directors' duties is BVI law: [46] .

(8) Under s 54 of the IBCA 1984, a director has a duty to act honestly and in good faith with a view to the best interests of the company. This involved a subjective test, ie, whether the director believed that he was acting in the best interests of the company: at [49] .

(9) Where a company became insolvent, the directors ceased to owe its duties to the shareholders. Instead, the directors had a duty to act in the best interests of the creditors: at [51] .

(10) The statutory test of solvency was that enshrined under s 116 of the BVI Companies Act 1884 (Cap 285) (‘the 1884 Act’): at [54] .

(11) Dynasty was not deemed to be insolvent at the time of the Security Transactions. There was no evidence that the three alleged letters of demands were served on Dynasty or Sia at the time of the Security Transactions. Although the S&P Agreements had contained a schedule providing for the payment of the consideration in tranches and for the delivery of the Sale Shares to be carried out on completion, against payment of the final tranche of monies, the parties agreed to a variation of this agreement. There was a collateral agreement between Low and Sia that there would be flexibility in the payment of the Purchase Price as well as to facilitate the setting-off of monies owed by Low to Sia. There was no date by which the parties had agreed to the Purchase Price being due and payable. Instead, Sia was to pay Low on an ad hoc basis. There was only a debt that was payable and due after the last of the Security Transactions, when a demand letter was sent: at [64] , [65] , --> [68] and [69] .

(12) For an issue estoppel to apply, the decision on the issue had to have been necessary for the decision of the...

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5 books & journal articles
  • Tort Law
    • Singapore
    • Singapore Academy of Law Annual Review No. 2013, December 2013
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