Hup Huat Food Industries (S) Pte Ltd v Liang Chiang Heng and Others

• Jurisdiction: Singapore
• Judge: Tay Yong Kwang J
• Judgment Date: 17 October 2003
• Neutral Citation: [2003] SGHC 244
• Court: High Court (Singapore)
• Published date: 06 May 2004
• Year: 2003
• Plaintiff Counsel: Hee Theng Fong, Tay Wee Chong and Doris Damaris Lee (M/s Hee Theng Fong & Co)for the plaintiff
• Defendant Counsel: Manoj Sandrasegara, Tan Mei Yen, Yarni Loy and Sim Chong (Drew & Napier LLC),Lai Kwok Seng (M/s Lai Mun Onn & Co),Andre Maniam, Liew Yik Wee and Vanessa Lim (M/s Wong Partnership)
• Subject Matter: Companies,Directors,Duties,Whether in breach of fiduciary duties as directors for wrongfully causing closing down of plaintiff's business and wrongful diversion of business,Whether conspiracy or dishonest assistance given by other defendants.,Whether in breach of fiduciary duties as directors for paying to themselves remuneration without the approval of shareholders.,Whether misappropriated and misapplied company money.,Trade Marks and Trade Names,Infringement,Whether 'Apollo' trademark infringed by importing and selling Apollo products.,Passing off,Whether passed off such products as goods of or connected or associated with the plaintiff.
• Citation: [2003] SGHC 244

Introduction

1 The Plaintiff is a company incorporated in Singapore. It carried on the business of importing and exporting biscuits, chocolate wafers and confectionery products packaged under the trademark ‘Apollo’. The first and second defendants are brothers (‘Liang brothers’) and are the minority shareholders of the plaintiff. They were also its directors until 31 March 2002. The third defendant is the nephew of the first and second defendants and the sole proprietor of Taisan Import and Export (‘Taisan’) from 14 January 2002 to 26 March 2002. The fourth defendant is the sole proprietor of Taisan with effect from 27 March 2002 to date. The fifth defendant is a company incorporated in Singapore carrying on the business of wholesalers in confectionery products, including Apollo products.

2 The plaintiff’s claim against the first and second defendants was for breach of fiduciary duties under common law and under s 157 Companies Act for wrongfully causing the closing down of the plaintiff’s business and wrongful diversion of the business. The plaintiff claimed that the Liang brothers were in further breach of their fiduciary duties in paying to themselves remuneration without the approval of the shareholders. The plaintiff also claimed that the first defendant misappropriated and misapplied the sum of US$49,800 belonging to the plaintiff by encashing the company’s travellers’ cheques for his personal use.

3 The plaintiff’s claim against all five defendants was for conspiracy to do harm to the plaintiff by unlawful means through the diversion of the plaintiff’s business and dishonestly assisting the Liang brothers in their breach of fiduciary duties. In addition, the plaintiff claimed an amount of S$158,331.75 from the fifth defendant. This was admitted by the fifth defendant at the start of the trial and judgment was entered accordingly. The plaintiff also claimed that the fifth defendant had infringed its ‘Apollo’ trademark by importing and selling Apollo products and had passed off such products as goods of or connected or associated with the plaintiff.

The plaintiff's case

4 The plaintiff is the registered proprietor of the ‘Apollo’ trademark in Singapore. Apollo food products are manufactured in Malaysia by Apollo Food Industries (M) Sdn Bhd (‘AFI’). The same trademark is owned by Hap Huat Food Industries Sdn Bhd (‘HHM’). AFI and HHM are wholly owned subsidiaries of Apollo Food Holdings Berhad (‘AFH’), a company listed on the Kuala Lumpur Stock Exchange (‘KLSE’). The Apollo Group of companies comprises AFH, AFI and HHM.

5 The plaintiff used to manufacture Apollo products in Singapore while HHM did the same in Malaysia. In late 1989, since it was cheaper to manufacture and package the products in Malaysia, it was decided that AFI be set up to be the manufacturing and packaging arm. The plaintiff’s and HHM’s operations were therefore transferred to AFI. The plaintiff’s business after that time consisted of purchasing Apollo products from AFI, importing them into Singapore and then selling them here as well as abroad, particularly the Middle East, Indonesia and Taiwan.

6 44.4% of the plaintiff’s shares are held by the Liang brothers with the rest of the shares held by Tan Song Cheng and his son, Tan Kok Guan. Tan Kok Guan and the Liang brothers are also directors of AFI and of AFH, its holding company. Tan Song Cheng was at various times a director of AFH and its subsidiaries. He is still a director of AFI but is no longer a director of AFH or HHM. Each of them also has some small personal shareholding in AFH. 50.82% of the shares in AFH are controlled by a company called Keynote Capital Sdn Bhd which is in turn controlled by the Liang brothers with 50.29% of its shareholding while the Tans hold 49.71%.

7 The Liang brothers were therefore effectively in control of the Malaysian companies while the Tans were in control of the plaintiff in Singapore. The first defendant is the managing director and chairman of the board of directors of AFI and of AFH. The second defendant is an executive director of AFI and of AFH and is in charge of both local and export sales.

8 Until 2002, AFI was the manufacturer and sole supplier of Apollo products to the plaintiff. The plaintiff would make its orders for such goods by way of purchase orders which would contain its address, telephone number, fax number and authorised signature. The products would usually be delivered to the plaintiff’s premises in Singapore where they would then be loaded into containers for export.

9 Two issues were of relevance to the plaintiff’s claims against all the defendants. They were:

(1) whether the plaintiff’s shareholders at the plaintiff’s Annual General Meeting (‘AGM’) held on 7 January 2002 resolved that the company’s business be closed down; and

(2) whether the plaintiff had an exclusive distributorship agreement with AFI for the distribution of Apollo products in Singapore or exported through Singapore.

10 At the said AGM of 7 January 2002, attended by the Tans, the Liang brothers and the company secretary (not an employee of the plaintiff), various resolutions were passed. One of these was that the audited accounts for the financial year ending on 31 December 2000 be approved. In those accounts, the directors’ remuneration was stated as $50,660. The first defendant was then the managing director.

11 After that AGM, the company secretary recorded the following in his draft minutes of meeting under the caption ‘Other Business’:

‘The Managing Director informed the Meeting that the Company would closed down the export business together with the packing production until such time that the closing stocks had been used up. He also proposed to let other dealers to handle the local business of the Company.

All the Shareholders present agreed to the proposal without any objection.

The meeting then terminated with a vote of thanks to the Chairman.’

12 On 9 January 2002, the Liang brothers began retrenching all the plaintiff’s staff except for the accounts clerk, Ling Sway Hwa. Their last day of service was said to be 28 February 2002. Three of them were re-employed on that date on a temporary basis. In January 2002, the plaintiff’s business was reduced by 45% compared to the previous month. In February 2002, the third defendant, using the name Taisan, imported Apollo products from AFI and exported them directly to the Middle East customers. At the same time, the Liang brothers, through the fourth defendant, arranged for the plaintiff’s staff to load Apollo products into containers for Taisan in front of the fifth defendant’s premises. The fifth defendant not only consented to that but provided a forklift and warehousing space for Taisan as well. This was reported by private investigators engaged by the plaintiff to conduct surveillance on the defendants. The fourth defendant, still an employee of the plaintiff then, worked for Taisan at night at home and delivered Taisan’s purchase orders to the second defendant’s residence.

13 On 1 February 2002, the second defendant issued the first purchase orders for Taisan to AFI. These handwritten purchase orders had no address, no telephone or fax number and no authorised signature. The address used on AFI’s invoices to Taisan was that of a company called Hiang Li Engineering Pte Ltd. On that day, after receiving the draft minutes of the AGM, Tan Song Cheng wrote to the company secretary to state that he was not agreeable to the inclusion of the section under ‘Other Business’ because the issue was not included in the agenda for the AGM and was not put to a vote. He asserted that such an issue should be the subject of a special resolution at an Extraordinary General Meeting (‘EGM’), the convening of which would require the board of directors’ prior approval and the issuance of a proper notice with an agenda. As far as Tan Song Cheng was concerned, the issue was only mentioned by the first defendant angrily at the end of the AGM and was discussed by the Liang brothers between themselves. There was, in his view, no reason why a company making S$1.7 million annual profits should be closed down.

14 On 6 February 2002, the first defendant drew on the plaintiff’s account an amount of US$49,800 and purchased 49 American Express (‘Amex’) travellers’ cheques. 44 of these were encashed by him, 18 of which were encashed in the casino on board a Star Cruise ship on 30 and 31 August and on 1 September 2002. The remaining five travellers’ cheques were still in his possession.

15 On 21 February 2002, Tan Song Cheng wrote two letters to the company secretary. The first was to ask that an EGM be convened. The second was to remind the company secretary to reply to his earlier letter of 1 February 2002. Both of these letters were copied to the Liang brothers by fax and by registered post.

16 On 15 March 2002, the EGM was held and Tan Kok Guan was appointed a director while Tan Song Cheng, his father, was appointed Executive Chairman and Finance Director. The Liang brothers tendered their resignation as directors, which was to take effect from 1 April 2002.

17 By March 2002, the plaintiff’s export business had completely ceased. However, AFI continued to supply Apollo products to the order of the plaintiff until September 2002.

18 On 22 March 2002, Tan Song Cheng instructed his then solicitors to write to the Liang brothers to inform them that their resignation was not accepted as the company’s affairs, which had been under their management, had not been properly resolved. Tan Song Cheng wanted various corporate matters taken care of by the Liang brothers before he would consider accepting their resignation. In particular, he wanted them to resolve the following:

‘(d) disposal of all remaining stocks of the Company;

(e) resolution and/or termination of the lease of the Company’s office and store premises at Hup Huat Food Industrial Building;

(f) termination of employment of existing employees of the Company...