Hytech Builders Pte Ltd v Tan Eng Leong and Another

• Jurisdiction: Singapore
• Judgment Date: 25 March 1995
• Date: 25 March 1995
• Docket Number: Suit No 532 of 1992
• Court: High Court (Singapore)

Hytech Builders Pte Ltd

Plaintiff

and

Tan Eng Leong and another

Defendant

[1995] SGHC 85

Warren L H Khoo J

Suit No 532 of 1992

High Court

Companies–Directors–Duties–Breach of fiduciary duties–Diversion of business opportunity–Company not in position to take advantage of opportunity–Whether fiduciary duties breached–Companies–Directors–Duties–Breach of fiduciary duties–Whether s 391 Companies Act (Cap 50, 1994 Rev Ed) applicable where company did not incur any loss–Discretion of court to excuse breach of duty–Relevant considerations–Section 391 Companies Act (Cap 50, 1994 Rev Ed)

The plaintiff Hytech was a company constituted for the purpose of entering into a joint venture with two Belgian companies to undertake contracts with the Mass Rapid Transit Corp of Singapore. Hytech owned 50% of the shares in the joint venture, which was called Sinbelco Construction Pte Ltd (“Sinbelco”). The first defendant Tan was the chairman of both the plaintiff and Sinbelco until his removal in November 1991. The second defendant Evergreat was controlled by Tan, who owned 50% of the shares in Evergreat. Tan's daughter and son-in-law were the registered holders of the remaining shares.

In early 1991, a Taiwanese construction company by the name of Kung Sing Engineering Corp (“Kung Sing”) approached the plaintiff with the view of partnering the plaintiff to tender for the construction of a station and two line sections (“Contract 220”) in Taipei. The plaintiff was however not qualified and it was suggested that Sinbelco's name be used instead, as the latter was able to meet the tender's requirements. It was the plaintiff's case that Sinbelco was to be used as a front and that the real beneficiary of any resulting contract was to be the plaintiff. The minutes of a board meeting of the plaintiff also revealed that the first defendant was appointed to be the project director representing the plaintiff in respect of Contract 220. Subsequent to this, the first defendant tendered for the contract using Evergreat's name instead of Sinbelco's. The plaintiff then brought about this action seeking declarations that the defendants were trustees for the plaintiff in respect of any profits from Contract 220 and for an account of such profits.

Held, allowing the claims:

(1) The first defendant clearly stood in a fiduciary position vis-à-vis the plaintiff. A director was not permitted to divert a business opportunity intended for the company to himself. The fact that the company might not be in a position to take advantage of that opportunity did not make it any less a diversion if the director took that opportunity for himself. Hence, without deciding that the plaintiff was not qualified for Contract 220, the first defendant must nonetheless account to the plaintiff for the profits made or to be made from the contract: at [59].

(2) On the face of it, s 391 of the Companies Act (Cap 50, 1994 Rev Ed) appeared to be more applicable to a case where the misfeasance had resulted in a loss to the company. It seemed far-fetched and unreal to speak of exoneration when the result of it would be to let the offending director keep gains which should not have gone to him in the first place: at [62].

(3) A paramount consideration in the exercise of the court's discretion under s 391 was whether the person who sought the court's indulgence had acted honestly and in good faith. On the facts, the first defendant's conduct was characterised by a degree of surreptitiousness which was quite incompatible with honesty. There was therefore no doubt that he was in no position to ask the court to exercise its discretion under s 391 in his favour even if that section in principle applied: at [63] and [68].

(4) The first defendant's knowledge might be imputed to Evergreat. Since the benefits of and arising from Contract 220 belonged beneficially to the plaintiff, Evergreat was in the position of a constructive trustee in respect of those benefits vis-à-vis the plaintiff, and all appropriate remedies in equity in respect of those benefits, including an account for the profits received or receivable from the contract, were available to the plaintiff against Evergreat: at [69].

Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443; [1972] 2 All ER 162 (folld)

Keech v Sanford (1726) Sel Cas T King 61; 25 ER 223 (folld)

Companies Act (Cap 50,1994 Rev Ed)s 391 (consd)

Chia Quee Khee and Alan Wong (William Lai & Alan Wong) for the plaintiff

Cheong Yuen Hee and Cheong Aik Chye (Judy Loke & Cheong) for the defendants.

Judgment reserved.

Warren L H Khoo J

1 By this action, the plaintiffs claim, in gist, declarations that the defendants are trustees for the plaintiffs in respect of and are accountable for profits made or to be made from a contract (“Contract 220”) for the construction of a part of a mass rapid transit system in Taipei, and an account of such profits.

2 The plaintiffs are a company constituted in 1982 by five Singapore construction companies for the purpose of going into a joint venture with two Belgian companies to undertake contracts with the Mass Rapid Transit Corp (“MRTC”) of Singapore. The local companies did not have such experience, and it was no doubt the policy of the Government to encourage such joint ventures so that the local companies could acquire such experience.

3 The shares in the plaintiffs are owned by the five Singapore companies. The five directors of the plaintiffs, who each controls one of the five companies, also hold shares in the plaintiffs in their personal names. Mr Tan, no doubt venerated for his age (he was born in 1924) and position in the local building industry, was made the chairman of the plaintiffs, as well as being a director.

4 Mr Ng Cheng Huat was the secretary and general manager of the plaintiffs. Mr Yan Kum Seng was their senior manager. He was subordinate to Mr Ng. Neither Mr Ng nor Mr Yan was a director or shareholder. However, Mr Ng has, since December 1992, held 8.2% of the shares in the plaintiffs.

5 The second defendant, Evergreat, is one of the constituent companies of the plaintiffs. It is controlled by Mr Tan. He owns 50% of the shares in Evergreat; his daughter and son-in-law are the registered holders of the remainder. All three are directors of Evergreat, but there is no doubt that Mr Tan's is the controlling hand.

6 The company which was the vehicle for the joint venture between the plaintiffs and the two Belgian companies is called Sinbelco Construction Pte Ltd. It was incorporated in June 1983. The plaintiffs own 50% of the shares in Sinbelco, and the two Belgian entities, Compagnie Francois d'Enterprises (“CFE”) and SA Franki, own the remaining 50% equally between themselves. The plaintiffs and Sinbelco share offices at Bukit Merah Central. Mr Tan was chairman of Sinbelco as well as chairman of the plaintiffs until he was removed as a director of the plaintiffs on 15 November 1991 as a result of the events that gave rise to the disputes in this suit.

Background

7 The authorities in Taipei, the Department of Rapid Transit Systems (“Dorts”), were building a mass rapid transit system for the Taipei metropolitan area. Like Singapore's MRTC, Dorts were looking for the injection of foreign expertise and experience. In early 1991, Kung Sing Engineering Corp (“Kung Sing”), a Taiwanese construction company who were interested in tendering for the Dorts' contracts, requested a Malaysian national, Mr Seok Chow Chin (“Mr Seok”), to look for foreign contractors with the relevant experience to collaborate with them for that purpose. Mr Seok enlisted the help of Mr Leong Siem Chong. Mr Leong met Mr Chin Foo Yun, a director of the plaintiffs, at the Tanah Merah Country Club in Singapore one day and told him about the Taiwanese projects. Mr Chin suggested that Mr Leong contact Mr Ng about this matter.

Meeting of 19 April at plaintiffs' office

8 Mr Leong initially contacted Mr Ng by telephone and subsequently met him on 19 April 1991 at the plaintiffs' office. Mr Leong brought Mr Seok along and the three of them discussed the details of Contract 220. This contract was for the construction of a station and two line sections. It was worth about NT$3bn, equivalent then to about S$194.58m. This is the contract that eventually gave rise to the disputes in this suit

9 Mr Ng was informed of the qualifications required by Dorts for Contract 220. Firstly, the foreign contractor or a shareholder of the foreign contractor must have an “open cut” experience in a single mass rapid transit project to the value of NT$1bn (S$64.861m) or more. Secondly, that foreign contractor or its shareholder must have done at least one civil engineering or building contract to the value of NT$2bn (S$129.72m) or more.

10 At that meeting, the common assumption of all those involved was that the plaintiffs were not qualified to collaborate with Kung Sing in the plaintiffs' own name. The ground for this assumption was that although the plaintiffs had the relevant experience in “open cut” work and in civil engineering, they had not done contracts to the values required. However, Mr Ng told Mr Leong and Mr Seok that Sinbelco (with the experience of the Belgian partners) would be able to meet the requirements. He suggested that Sinbelco's name be used for the purpose. The important matter of the remuneration of the Singapore participating contractor was discussed, and it was agreed that it should be 1% of the contract sum.

11 It is in dispute whether Contract 206A (which required previous viaduct experience among other things) was discussed at this meeting in addition to Contract 220. I do not think anything turns on it. Mr Seok's evidence is that he had authority only to discuss this Contract 220. It is also disputed whether Mr Ng was speaking on behalf of Sinbelco or the plaintiffs, although it must be pointed out that the minutes of the meeting clearly shows Mr Ng as...