Kea Holdings Pte Ltd and Another v Gan Boon Hock

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 03 July 2000
• Neutral Citation: [2000] SGCA 31
• Docket Number: Civil Appeal No 206 of 1999
• Date: 03 July 2000
• Year: 2000
• Published date: 19 September 2003
• Plaintiff Counsel: Hee Theng Fong, Doris Damaris Lee and Marilyn Chia Lay Ling (Hee Theng Fong & Co)
• Citation: [2000] SGCA 31
• Defendant Counsel: Oommen Mathew (Tan Peng Chin & Partners)
• Court: Court of Appeal (Singapore)
• Subject Matter: Whether victim of tort suffers any damage,Elements of tort,s 157 (1) Companies Act (Cap 50, 1994 Rev Ed),Companies,Breach of duty to act honestly,Conflict of interests,Fraudulent misrepresentation,Misrepresentation,Whether basis of claim goes beyond ownership,Whether director under duty to direct business to company,Fraud and deceit,Duties,Holding cross-directorships,Whether director receives secret commission,Directors,Tort,Breach of fiduciary duties

: Introduction

The appeal is brought against the decision of Kan Ting Chiu J concerning certain claims against the respondent, Gan Boon Hock (`Gan`), for breach of director`s duties and fraudulent misrepresentation. The appellants, Kea Holdings Pte Ltd (`Kea Holdings`) and Kea Resources Pte Ltd (`Kea Resources`) had brought 16 claims against Gan, pertaining, inter alia, to alleged breach of fiduciary duties owed to Kea Resources by Gan during his time as a managing director of Kea Resources. Gan counterclaimed against Kea Resources for annual wage supplements, various guaranteed bonuses and CPF contributions. The trial judge allowed five of the claims, but dismissed the remainder. He awarded the appellants S$101,536, US$60,000 and Rmb660,000, plus interest on these sums and half their costs. He also allowed the counterclaim and awarded Gan S$42,166.67 and CPF contributions on this amount, plus interest and half his costs to be taxed on the Subordinate Courts scale.

Background facts

Kea Holdings are a holding company. The second appellants, Kea Resources, are a wholly-owned subsidiary of Kea Holdings, and are in the business of shipbuilding and the sale and purchase of vessels. Gan joined Kea Resources on 15 July 1993 as a general manager and subsequently became the managing director, holding this position up till 21 November 1998. While in this post, he became a shareholder and director of Sinindo Pacific Pte Ltd (`Sinindo`) together with an Indonesian businessman, Teddy Salim Liem (`Teddy Salim`).

On 12 February 1999, the appellants commenced proceedings against Gan comprising 16 claims relating to alleged breaches of fiduciary duties, breach of confidence and fraudulent misrepresentation. The trial judge decided in their favour on five claims. The appellants initially brought this appeal on seven of the claims that had been decided against them. However, the appellants subsequently proceeded on only four of the seven claims during the course of the appeal. These claims are:

(a) claim arising from purchases by Sinindo Pacific Pte Ltd (Sinindo);

(b) claim in respect of three barges `Pacific 4`, `Pacific 5` and `Pacific 7`;

(c) claim arising from the sale of the `Regal 8` to Kea Maritime; and

(d) claim arising from the sale of the `Orient VI`.

As was pointed out by the trial judge, each claim was founded on its own facts and circumstances. As such, it would be convenient to deal with each claim on its own.

The appeal

Claim arising from purchases by Sinindo Pacific Pte Ltd

Sometime in May 1995, whilst Gan was the managing director of Kea Resources, he became a majority shareholder and director of Sinindo. The other shareholder and director was one Teddy Salim Liem (`Teddy Salim`). The respondent claimed that he had disclosed his involvement in Sinindo to the appellants. However, they said that he only informed them that he was lending his name to Teddy Salim to form a company.

Between mid-1995 and mid-1996, Gan caused Sinindo to purchase five vessels from a company in China, China Jiangsu Machinery & Equipment Import & Export Corporation (`SUMEC`). The appellants claimed that, in doing that, Gan diverted business away from Kea Resources, and caused Kea Resources to suffer a loss of S$1,266,559, which represents profits they would have earned if they had sold the five vessels to Sinindo.

The trial judge held that in his capacity as director of Sinindo, Gan`s duty was to ensure that Sinindo bought the vessels from the best available source. He owed no duty to direct Sinindo`s business to Kea Resources. Kea Resources thus could not assert that, because Gan was also a director of Kea Resources, he should have placed the orders with Kea Resources. The judge therefore felt that nothing turned on the scope of Gan`s disclosure of his involvement with Sinindo to the appellants.

The trial judge further noted that Gan could not make any decisions to buy vessels for Sinindo without consulting Teddy Salim. Teddy Salim had not said in evidence that there was any agreement or understanding between him and Kea Resources that his companies would buy all their vessels from Kea Resources. There was no diversion of business from Kea Resources because there was no basis to suppose that the business would have gone to Kea Resources but for Gan`s intervention. The claim therefore failed.

On appeal, the appellants` main contention was that Gan had accepted a secret commission from SUMEC in return for his procuring Sinindo to purchase the vessels from SUMEC. The appellants tendered evidence purportedly relating to Gan`s receipt of the commission on the purchase of one of these vessels, `SP 2705`, by Sinindo. By doing this, the appellants said that he had placed his own interests above that of Kea Resources and had breached his fiduciary duties to Kea Resources.

Although the issue of the secret commission was not pleaded originally by the appellants, the argument was raised in the court below. In particular, the appellants tendered certain documents which formed the chief evidence in support of this allegation. The first document was a credit advice from the National Commercial Bank Ltd, Hong Kong, to Fuchuen Machinery & Equipment (`Fuchuen`) stating that the sum of US$780,303.40 had been remitted to Fuchuen`s account from DBS Finance Ltd, who are Sinindo`s bankers. On this document was a handwritten note stating the name of the vessel, the price of the vessel (US$606,000) and that US$173,303.40 had been credited into Gan`s account (A/c No 163118). The other relevant documents were a letter written in Chinese and its accompanying English translation certifying that, after that sum was remitted to their account, Fuchuen remitted the amount of US$173,303.40 to the respondent`s Citibank account No 163118. Gan, however, denied that the sum of US$173,303.40 had been deposited into his account, though he admitted that he had a Citibank account bearing the number 163118. When asked if he knew why Fuchuen would write the letter if no money had been remitted to him, he said he did not know. Gan refused to give discovery of his Citibank account on the basis that some of the assets in the account belonged to his relatives.

The trial judge did not make any finding as to whether Gan had indeed received the sum of US$173,303.40. Instead, as stated above, the decision was based on two reasons. First, that Gan had no duty to direct Sinindo`s business to Kea Resources and secondly, the fact that there was no diversion of business in this case as it had not been shown that Gan`s intervention had led to the series of events.

Now, the documents purportedly evidencing the fact that Gan had received a secret commission from SUMEC for procuring Sinindo to purchase the vessels, in particular, `SP 2705`, from SUMEC, were made by Fuchuen. The appellants explained that this was due to the fact that Fuchuen was the provider of letter of credit facilities for buyer companies like SUMEC. However, it was clear that the maker of these documents was not called upon by the appellants to give evidence. Instead, the appellants produced a witness, one Mr Yu Tian Lu, who was the manager of Zhejiang Machinery & Equipment Import & Export Corporation (ZMEC), as the representative of Fuchuen. He claimed to be authorised to give evidence on Fuchuen`s behalf by virtue of a letter from Fuchuen authorising him to be their witness.

In the circumstances, the documents purporting to evidence the payment of the secret commission by SUMEC to Gan amount to hearsay and are inadmissible as evidence. Counsel for the appellants pointed out to us that the authenticity of the documents had been admitted by Gan. However, such an agreement does not mean that Gan could not dispute the truth of the statements. It is this aspect of the documents that the hearsay principles apply to. The information in the documents were assertions of the fact that Gan had received a secret commission for the sale of `SP 2705`. In our view, this is a case where it would be highly unsafe to rely on the contents of these documents to prove the facts contained therein as the maker was not present in court. Counsel for Gan had no opportunity to cross-examine the maker and test the veracity of the assertions in the documents.

The presence of Mr Yu Tian Lu as Fuchuen`s representative and the fact that he may have had authorisation from Fuchuen to give evidence could not detract from the fact that the statements were hearsay. In any event, he did not claim to have any first-hand knowledge of the transaction between SUMEC, Fuchuen and Gan and said that he personally had nothing to do with Fuchuen himself. Furthermore, he did not even give any evidence, as the representative of Fuchuen, that Fuchuen had paid the secret commission to Gan. We also noted that apart from the letter of authorisation, there was apparently no other evidence that Mr Yu was indeed authorised to give evidence on behalf of Fuchuen. Quite apart from those concerns, no one from SUMEC was called to give evidence on the payment of the secret commission as well. That would have been the clearest evidence that Gan had indeed entered into such a transaction. Instead, the only reference to these documents was made by Mr Goh Siew Hua, the Group Accountant of Kea Holdings. However, he clearly had no first-hand or personal knowledge of whether the secret commission was in fact paid to Gan.

As for Gan`s refusal under cross-examination to produce details of his Citibank account into which the secret commission had purportedly been paid, we did not think that his behaviour was sufficient for the court to draw an adverse inference that he had indeed received the money. He consistently denied having received the secret commission and said that he did not know why Fuchuen would have written the letter certifying that they had paid the sum of US$173,303.40 to him. While it may have been the case that producing the details would have put...