Ho Kang Peng v Scintronix Corporation Ltd

• Jurisdiction: Singapore
• Judgment Date: 30 April 2014
• Date: 30 April 2014
• Docket Number: Civil Appeal No 24 of 2013
• Court: Court of Appeal (Singapore)

Ho Kang Peng

Plaintiff

and

Scintronix Corp Ltd (formerly known as TTL Holdings Ltd)

Defendant

[2014] SGCA 22

Sundaresh Menon CJ

,

Chao Hick Tin JA

and

V K Rajah JA

Civil Appeal No 24 of 2013

Court of Appeal

Companies—Directors—Duties—Director entering into sham contract for provision of fictitious services and authorising payments to third party in order to procure business for company—Whether director was in breach of his fiduciary duties by entering into sham contract for provision of fictitious services and authorising payments pursuant to contract—Whether company was precluded from claiming against director because it authorised acts of director or because it was equally at fault for those acts

This appeal arises from the decision of the High Court in Suit No 207 of 2009 (‘the Suit’). The appellant, Ho Kang Peng (‘the Appellant’), was the former chief executive officer (‘CEO’) and director of the respondent, TTL Holdings Limited (‘the Company’). In the Suit, the Company claimed, inter alia, that the Appellant had breached his fiduciary duties owed to the Company by wrongfully authorising payments to a Taiwanese company known as Bontech Enterprise Co Ltd (‘Bontech’) pursuant to a supposed consulting agreement between the Company and Bontech for unspecified services (‘the Bontech Agreement’).

The Company made eight payments totalling S$169,644.97 to Bontech purportedly under the Bontech Agreement (‘the Payments’) even though it was undisputed between the parties that no consultancy services were actually carried out by Bontech.

The Payments were handed over to one of the Company's directors based in Shanghai, one Oh Chye Huat who then passed the Payments over to an individual in Shanghai known only as ‘Mr Lee’. In exchange for receiving the Payments, Mr Lee undertook to procure business worth RMB 4 m monthly or RMB 50 m annually from a major client of the Company known as Pioneer Technology (Shanghai) Co Ltd (‘Pioneer’), a company incorporated in China.

The trial judge (‘the Judge’) found that the Bontech Agreement was fictitious as no consultancy services were in fact provided, and it was therefore incumbent on the Appellant to show that the Payments were made for some alternative purpose which was in the Company's interests. The Appellant's defence was that the Bontech Agreement and the Payments were meant to procure the Pioneer business, but the Judge held that this was not borne out on the evidence. Accordingly the Judge found the Appellant liable for breach of his fiduciary duties.

Dissatisfied, the Appellant appealed against the Judge's decision. The Appellant argued that the evidence showed that the purpose of the Bontech Agreement and the Payments was to procure the Pioneer Business, that this was done in the interests of the Company, and that the Company was precluded from claiming against him because his acts were authorised by the Company or because the principle of ex turpi causa non oritur actio was engaged.

Held, dismissing the appeal:

(1) There was sufficient evidence to show that the Payments were just a continuation of a previous arrangement to procure the Pioneer business for the Company. The Payments were effectively bribes, the purpose of which was to procure the Pioneer business: at [32] to [34] .

(2) A director who created a sham contract and made unauthorised and irregular payments out of the company's funds for the purpose of securing business for the company could not be said to be acting bona fide in the interests of the company. The ‘interests of the company’ was not just profit maximisation, and certainly not profit maximisation by any means. A director who caused a company to make payments which were in effect gratuities and thereby running the unjustified risk of subjecting the company to possible criminal liability was not acting in the company's interests: at [40] .

(3) The company (comprising its shareholders) had an interest in having its directors act within their powers and for proper purposes, and in obtaining full disclosure from its directors and not be deceived by them: at [40] .

(4) The Appellant not only facilitated the payment of gratuities, but his actions involved concealment and deception through a sham agreement and acting without proper authorisation. The irregular acts and the deception perpetrated on the shareholders of a publicly-listed company could not be regarded as having been in the Company's interests no matter how profitable the yields were: at [41] .

(5) The Appellant failed to exercise reasonable care in carrying out his duties. His wrongdoing was not merely an error of judgment, but rather the failure to exercise any judgment at all. He continued a highly irregular and improper practice which he understood to have been initiated by the previous management under a different form without so much as inquiring why it was made, whether it would implicate the Company, and whether proper sanction had been obtained: at [40] .

(6) The Appellant also had a duty to use reasonable diligence in the discharge of his director's duties. He was not inexperienced in the running of companies, having been the director of at least ten other Singapore-incorporated companies, as well as being the CEO and executive director of the Company. The Appellant could not deflect his duty to exercise reasonable diligence by arguing that he was simply following what was told to him by subordinate officers of the Company to be an established practice, especially in relation to payments of the kind such as in the present case which were prima facie improper and illegal: at [42] to [44] .

(7) A company, unlike an individual, had no mind or body of its own, and could only act through natural persons. Decisions on the company's behalf could be taken by its primary decision-making bodies (such as the board of directors or the members in general meeting), or by officers, agents or employees of the company. Only human agents, either collectively or individually, would have a mind and, in turn, knowledge and/or intention: at [47] .

(8) Rules of attribution served to determine when and which natural person's acts and thoughts were to be treated as the company's own. There were three distinct rules of attribution. First, the primary rules of attribution found in the company's constitution or in general company law, which vested certain powers in bodies such as the board of directors or the shareholders acting as a whole. Secondly, general rules of attribution comprising the principles of agency which allowed for liability in contract for the acts done by other persons within their actual or ostensible scope of authority, and vicarious liability in tort. Thirdly, special rules of attribution fashioned by the court in situations where a rule of law, either expressly or by implication, excluded the attribution on the basis of the general principles of agency or vicarious liability: at [47] and [48] .

(9) A special rule of attribution was context-specific and the content of any such rule should be determined based on the language and purpose of the substantive law upon which potential liability was to be established: at [67] .

(10) In determining whether there had been authorisation of an act of a director by the company, the primary rules of attribution ought to apply: at [51] .

(11) Both a decision of a majority of directors at a board meeting and an informal decision taken by all of the directors of a company were attributable to the company and would be binding on the company. It was not disputed that there was never any formal board approval of the Bontech Agreement and the Payments, and on the evidence, Chow was the only director of the Company at the time who might have known about the Bontech Agreement and the Payments: at [52] and [54] .

(12) Where a director of a company sought to rely on the principle of ex turpi causa non oritur actio by arguing that the company was equally at fault such that it should be precluded in its claims against the director for wrongdoing, the general rules of attribution are not applicable: at [66] .

(13) In the present case, the primary rules of attribution did not apply such that the knowledge of Ng, Chow, and the Appellant could be attributed to the Company for the purposes of raising the ex turpi causa defence: at [66] .

(14) A distinction had to be drawn between a situation where knowledge was attributed to the company from its directors for the purpose of a third party victim's claim against the company itself and a situation where the company, as the victim, brought an action against its directors for breach of duty. In the latter situation, no special rule of attribution would apply such that the company could be said to know or have committed the wrongful acts for the purpose of the errant director establishing an ex turpi causa defence: at [68] to [71] .

[Observation: The term ‘directing mind and will’ of the company was a description of the person identified as the one whose knowledge and acts were to be attributed to the company under the rules of attribution, and was not a rule of attribution in itself: at [49] and [50] .]

Bamford v Bamford [1970] Ch 212 (folld)

Bank of Credit and Commerce International SA (No 15) , Re;Morris v Bank of India [2005] 2 BCLC 328 (folld)

Belmont Finance Corp Ltd v Williams Furniture Ltd [1979] Ch 250 (refd)

Bilta (UK) Ltd v Nazir (No 2) [2014] Ch 52 (folld)

Charterbridge Corp Ltd v Lloyds Bank Ltd [1970] Ch 62 (folld)

Cheam Tat Pang v PP [1996] 1 SLR (R) 161; [1996] 1 SLR 541 (folld)

Dolphina, The [2012] 1 SLR 992 (refd)

Holman v Johnson (1775) 1 Cowp 341; 98 ER 1120 (refd)

Intraco Ltd v Multi-Pak Singapore Pte Ltd [1994] 3 SLR (R) 1064; [1995] 1 SLR 313 (folld)

Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705 (refd)

Lim Weng Kee v PP [2002] 2 SLR (R) 848; [2002] 4 SLR 327 (folld)

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