Kumagai-Zenecon Construction Pte Ltd and Another v Low Hua Kin

CourtHigh Court (Singapore)
JudgeG P Selvam J
Judgment Date30 November 1999
Neutral Citation[1999] SGHC 313
Citation[1999] SGHC 313
Defendant CounselAlvin Yeo and Lawrence Tan (Wong Partnership)
Plaintiff CounselAnthony Lee and Lye Kah Cheong (Bih Li & Lee)
Published date19 September 2003
Docket NumberOriginating Summons No 62 of 1996
Date30 November 1999
Subject MatterDirectors,Restitution,Fiduciary's liability to make restitution for breach of fiduciary duty,Fiduciary duty,Fiduciary duties,Breach,Companies,When fiduciary may escape liability,Restitutio in integrum,Whether breach approximate cause of loss

: Introduction

The defendant, Low Hua Kin @ Loo Wah Kim, has two reported cases to his name: Re Kumagai-Zenecon Construction Pte Ltd; Kumagai Gumi Co Ltd v Kumagai-Zenecon Construction Pte Ltd & Ors [1994] 3 SLR 552 (Warren LH Khoo J) and Kumagai Gumi Co Ltd v Zenecon Pte Ltd & Ors [1995] 2 SLR 297 (Court of Appeal).
The latter was an appeal from the former

The facts of the case read like a scaled-down version of a Greek tragedy.
It has the essentials: the passion, the hubris, the hamartia and the nemesis. It is a complicated saga with several dimensions. Warren LH Khoo J heard it for more than three weeks and decided against Low. Low appealed to the Court of appeal. The present case is a sequel to decision of the Court of Appeal and deals with one of the several aspects.

The decision of Warren Khoo J was in OP 9/92.
It was an oppression petition under s 216 of the Companies Act (Cap 50). Low was one of seven defendants. Kumagai Gumi Co Ltd (`Kumagi-J`) a well-known Japanese construction company was the petitioner. Kumagai-J asked for the dissolution of two Singapore companies: Kumagai-Zencon Construction Pte Ltd and Kumagai Investment Pte Ltd (`Kumagai Investment`) which when incorporated was called Kumagai Property Development Pte Ltd. Warren LH Khoo J ordered both companies to be wound up. The judge further ordered Low to pay $2,982,517.17 to Kumagai Investment. On appeal the Court of Appeal upheld the winding-up orders but set aside the monetary award on the ground that it was not supported by evidence.

The Court of Appeal, nonetheless, advised the liquidators to investigate the alleged loss and then take out a misfeasance summons under s 341 of the Companies Act or proceed against Low as they thought fit.
In the event, the liquidators took out the summons before me (OS 62/96). Both companies, Kumagai Zencon and Kumagai Investments, are the plaintiffs before me. It is apt now to tease out the essential facts.

The passion

In 1972 Low was a lecturer in the University of Singapore. Later, with the consent of his employers, he became a consultant to Kumagai-J. Obviously Low must have impressed Kumagai immeasurably for in 1976 he became Kumagai-J`s fulltime employee as an adviser. This gave him opportunity to acquire an appetite for the power and pelf of the corporate world. So in 1979 his wife and one Low Woon Hock procured the incorporation of a company called Zenecon Pte Ltd (`Zenecon`). Its purpose was to do business with Kumagai-J. Kumagai-J awarded at least two contracts to Zenecon.

In 1983, Kumagai-J and Low entered into a joint venture agreement.
Pursuant to that, a joint venture company was formed, namely, Kumagai-Zenecon Construction Pte Ltd (`the JV company`). The principal object of the JV company, as one would expect, was to carry on the business of building and general construction, civil and structural engineers, and construction and management of public works. Zenecon held a majority of the shares in the joint venture company, that is 51% of 3 million shares of $1 each. Kumagai-J held the rest. The reason why Zenecon held a majority interest, apparently, was that it entitled the JV company to be classified as `local`. On that basis it would enjoy preferential treatment and receive financial assistance from Singapore government and statutory bodies. As it is usual in joint venture companies, there was a shareholders` agreement stipulating the rights and obligations of the parties. Kumagai-J was to provide technical expertise and working capital. Low and Zenecon assumed responsibility for management of the joint venture. Zenecon was to cease undertaking construction projects of its own other than those already in hand. Low was appointed the managing director of the JV company. He had three other directors on his side. Kumagai-J too had an equal number of directors. The arrangement was such that Low was in the saddle as regards the day-to-day affairs of the JV company

The hubris

One year later, Low came up with the idea of forming another company to market the housing development projects undertaken by the JV company. Kumagai-J agreed. In the result, Kumagai Property Marketing Pte Ltd was formed. For the moment I shall call it the marketing company. The original subscribers of the marketing company were Low`s wife, Teo Yit Bee (`Teo`), and one Low Woon Hock, who was also a shareholder in Zenecon. Later the JV company was allotted 9,000 shares. Low`s brother-in-law Lim Thye San was, with the approval of Kumagai-J, allotted 1,000 shares. Later, however, Low acquired the 1,000 shares from his brother-in-law. All the officers of the marketing company came from Low`s camp. He was the executive supremo of the marketing company.

In the result, therefore, Low was in virtual control of three companies - that is to say Zenecon, the JV company and marketing company.
His appetite was not satiated with this position. He wanted more terrain under his control. So he made a bid for control of two other Singapore companies: Guthrie GTS Ltd (`Guthrie`) and Pac Can Investments Holdings Ltd (`Pac Can`). In June and July the marketing company, which was under Low`s effective control, acquired some 12.57% of the shares of Guthrie. At about the same time Low personally acquired 7.9% shares in Guthrie. Using the combined commanding power of the shareholding Low first became a director of Guthrie and subsequently its executive supremo.

The predominant spirit of a joint venture is that the actions of its participants must be for the advancement of the joint venture.
Further, unless otherwise agreed, a joint venture presupposes that in all important matters there will be joint consultation and decision making. This applies to a limited company as well. The Companies Act gives expression to this fundamental precept by providing for shareholders` and directors` meetings. This precept unfortunately was not at all times alive in the consciousness of Low. On a number of matters affecting the JV company and the marketing company Low acted without any prior consultation with Kumagai-J. One such act was the change of the name of the marketing company from Kumagai Property Development Pte Ltd to Kumagai Investment Pte Ltd. The new name, of course, had the attraction power of an internationally known corporation. The purchase of the Guthrie shares by the marketing company and himself was not known to Kumagai-J until well after the event. He was working on his own and for his own advancement without consulting his joint-venture partners.

The hamartia

The marketing company now called Kumagai Investment Pte Ltd (and I shall from now on call it the investment company) purchased 7,321,000 Pac Can shares in May 1991. Kumagai-J knew nothing about it until news of it appeared in the news-paper. It was only then that Kumagai-J discovered that Kumagai Investments was a new name of the marketing company. LP Thean JA delivering the judgment of the Court of Appeal said at pp 304-305:

In May 1991, Kano learnt from the newspapers that a company known as Kumagai Investment Pte Ltd had bought 7.321 million shares in Pacific Can Investments Holdings Ltd (Pac Can). Upon investigation, Kano discovered that the company was actually KPM, whose name had been changed on the authority of a special resolution passed at a general meeting of KPM held on 23 April 1991. On the authority of another resolution passed at a general meeting held on 1 July 1991, the objects clause of KPM`s memorandum of association was altered to allow investment in shares as part of its businesses. Kumagai, however, knew nothing of these changes. In August 1991, 278,000 more Pac Can shares were purchased by KPM, again without Kumagai`s knowledge.

Low admitted in his affidavits filed in OP 9/92 and also when giving evidence before Warren LH Khoo J that he as director of the marketing company made the decision to purchase the Pac Can shares.
Warren LH Khoo J found that the Pac Can share purchases were meant to support Low`s own ambitions in the board room of Pac Can.

Like Warren LH Khoo J, I am of the view that the purchase of Pac Can share was an improper act.
It was a grave error on his part. It was a hamartia as the Greek drama would call it. More importantly and relevantly it was wrong in law. To explain why I shall first state the law.

The position of a fiduciary

The standard of duty imposed by law on a fiduciary is the highest standard known to the law. It is a duty to act for someone else`s benefit by sacrificing one`s own personal interest to that of the other. If the fiduciary is not prepared to make such sacrifice he will never be able to protect and advance the interest of the other. Selfishness is the antithesis of selflessness. The office of a fiduciary is founded on selflessness. Selfishness is absolutely prohibited.

This subtle point was settled almost three centuries ago by Keech v Sandford [1726] 25 ER 273.
In that case a trustee held a leasehold for the benefit of an infant. Before the expiration of the lease the trustee applied to the lessor for a renewal for the benefit of the infant. The lessor refused. There was clear proof of the lessor`s refusal to renew for the benefit of the infant. Then the trustee got the lease made to him. The infant brought an action to have the lease assigned to him and for an account of the profits. Lord King LC gave judgment in favour of the infant. The ratio of the decision is contained in this...

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