Lim Hsi-Wei Marc v Orix Capital Ltd and another and another appeal

• Jurisdiction: Singapore
• Judge: Chan Sek Keong CJ
• Judgment Date: 28 June 2010
• Neutral Citation: [2010] SGCA 24
• Plaintiff Counsel: Maniam Andre Francis SC and Koh Swee Yen (Wong Partnership LLP)
• Docket Number: Civil Appeals Nos 124 and 127 of 2009
• Date: 28 June 2010
• Hearing Date: 01 February 2010
• Subject Matter: Legal Profession,Partnership
• Published date: 08 July 2010
• Citation: [2010] SGCA 24
• Defendant Counsel: Michael Khoo Kah Lip SC, Josephine Low Mew Yin and Chiok Beng Piow (Michael Khoo & Partners),Tan Siah Yong and Ng Hui-Li Felicia (ComLaw LLC)
• Court: Court of Appeal (Singapore)
• Year: 2010

V K Rajah JA (delivering the judgment of the court): Introduction

Civil Appeal No 124 of 2009 (“CA 124”) which is brought by Lim Hsi-Wei Marc (“ML”) and Civil Appeal No 127 of 2009 (“CA 127”) which is brought by Orix Capital Limited (“Orix”) arise from the decision of a High Court judge (“the Judge”) in Orix Capital Ltd v Personal Representative(s) of the Estate of Lim Chor Pee (deceased) and others [2009] 4 SLR(R) 1062 (“the HC Judgment”).

The appeals raise knotty issues with respect to the authority of a partner or sole proprietor to bind his salaried partners, and the extent to which a retired salaried partner may continue to be held responsible for liabilities of a firm. More specifically, an issue arises as to whether a partner or sole proprietor of a law firm has the apparent authority to bind his salaried partners when he borrows a substantial amount of money not just to finance the lease of office equipment but largely for the purpose of easing the firm’s cash flow problems. In the course of determining these issues, we would also have to consider what acts are within the course of the usual business of a law firm.

The facts

Chor Pee & Partners (“CPP”) was founded in 1997 by Lim Chor Pee (“LCP”). At all material times, he practised as an advocate and solicitor under that name. He was also, until his demise in 2006, CPP’s principal decision maker – administering it with a firm hand, usually without reference to his other colleagues.

ML, LCP’s son, joined CPP as a legal assistant on its inception and continued working under that name until its dissolution following LCP’s demise. In 2001, he was elevated to the status of a “salaried partner” by a letter of appointment signed by LCP. The terms of appointment stipulated that except for the remuneration set out in a schedule attached to the letter, ML’s new status was to be “without any other participation in the profits or loss and assets and liabilities of the firm”¹ [emphasis added]. ML testified that he only handled legal work and was never involved in the administrative and financial affairs of the firm. Orix does not dispute this.

In 2003, Rebecca Marie Stephanie Tai-Yeo Hsiu Erh (“RY”) joined CPP on a special “profit sharing” basis. She did not receive a fixed salary from the firm. Instead, she received a percentage of profits on files that were: (a) handled wholly or partly by her; (b) referred by her to the firm; and/or (c) referred by the firm to her. She also contributed to the payment of the salaries of the staff that worked with her, with CPP paying the balance. She affirmed that her arrangement with CPP was akin to that of a “consultant” but at the material time, she did not have the requisite number of years of post-qualification experience required for consultant status under the professional guidelines. She, therefore, joined CPP as a nominal salaried partner instead. There was no partnership agreement entered into between RY and LCP. Instead, a document captioned “Profit Sharing Agreement Between Chor Pee & Partners (CPP) & Rebecca Tai-Yeo (“Partner”)” was e-mailed by LCP to her². The document provided that she, like ML, would be a salaried partner “without participation in the assets and liabilities”³ [emphasis added] of the firm. Unlike ML, however, RY did not remain with CPP until it was dissolved. By 18 May 2005, RY ceased to work on a profit-sharing basis and assumed the position of a senior associate of the firm. She left CPP entirely on 31 July 2005.

The Newcourt Agreement

On 1 August 2001, prior to the appointment of ML and RY as salaried partners, CPP had entered into a lease agreement (“the Newcourt Agreement”) with Newcourt Financial (Singapore) Pte Ltd (“Newcourt”) for the use of four black-and-white copiers (“the Newcourt copiers”)⁴. The terms of the Newcourt Agreement provided that CPP was to pay 60 monthly instalments of $2,955 between 1 August 2001 and 31 July 2006. The total amount due under the Newcourt Agreement was $177,300. Pursuant to Art 26 of the Newcourt Agreement, in the event of early termination, CPP would pay, inter alia, “the total amount of the rent payable under [the Newcourt Agreement] for the entire term” and a sum of $46,640 as “agreed liquidated damages”.

The Amended Newcourt Agreement

Presumably because of a default (or at least a request) by CPP, the parties amended the Newcourt Agreement by a letter dated 5 February 2004⁵. This took place after ML had been appointed a salaried partner (see [4] above), though he denied any contemporaneous knowledge of the amendment, claiming that he had only learnt of it in 2007. In consideration of a payment of $300 by CPP, Orix extended the lease to 4 February 2010 (“the Amended Newcourt Agreement”). Also, in addition to the rent of $88,650 that had already been paid under the Newcourt Agreement (ie, the original agreement) over the last 30 months, further payments were due from 5 February 2004 onwards in accordance with the following amended schedule⁶:

LEASE TERM RENTALS:

Month 01-12: S$1,800.00 monthly rental,

Month 13-24: S$2,000.00 monthly rental,

Month 25-36: S$2,200.00 monthly rental,

Month 37-48: S$2,400.00 monthly rental,

Month 49-60: S$2,600.00 monthly rental and

Month 61-72: S$2,653.76 monthly rental.

(plus any applicable taxes and duties)

The amendment to the payment schedule increased CPP’s overall liability under the Newcourt Agreement by a further $75,195.12, while reducing in the short term, the amount of rent payable monthly from $2,955 to $1,800 for the first 12 months of the amended payment schedule. Plainly, the new payment schedule was purely intended to ease CPP’s short-term cash flow, as it, at the same time, resulted in a not insignificant increase of the firm’s overall liability in the medium to long term. The Original Agreement with Orix

On the evidence, it would seem that CPP was, for several years preceding its eventual dissolution, in dire financial straits. Susanna Soh (“Soh”), the office manager of CPP, testified that “[LCP] was worried about his overheads”.⁷ There is also evidence that on at least one occasion, LCP desperately asked RY for contributions towards the salary of an employee (who was not working with or for her) because he could not afford to retain that employee without a financial contribution from RY. LCP, however, never had any candid discussions with ML and RY on the state of CPP’s financial problems. That CPP had serious cash flow difficulties is an important consideration in this matter as it helps explain why in 2004 LCP was willing to enter into the subject transaction with Orix (we will elaborate on this in the immediate paragraphs below) which was otherwise commercially insensible.

Sometime in July 2004, Dora Loh (“Loh”), a senior sales consultant of Canon Singapore Pte Ltd (“Canon”), proposed to Soh, that the four pre-existing copiers (ie, the Newcourt copiers) be replaced by two new Canon copiers (one model was to be black-and-white, and the other was to be a colour copier) (“the Canon copiers”). After ascertaining from Newcourt that CPP would have to pay a sum of $164,144.34 to prematurely terminate the Amended Newcourt Agreement, Loh secured an agreement between Canon and Orix in which the latter would essentially provide financing for the Canon copiers. This agreement had the following key features: (a) Canon would sell to Orix the Canon copiers for $231,500 (excluding Goods and Services Tax (“GST”)); and (b) in turn, Orix would lease the Canon copiers to CPP over a period of six years. To add some perspective to this transaction, it is noteworthy that the ordinary sale price of the (two) Canon copiers was just $65,025.66. This transaction would eventually result in CPP undertaking a liability to Orix which was almost four times more than the ordinary sale value of the Canon copiers. At the trial, an internal credit approval document, belatedly disclosed by Orix, revealed that the true purpose of the facility of $231,500 was twofold – to purchase the Canon copiers as well as to permit a “rollover” of $120,000 payable by CPP. The relevant portions of that document state⁸:

CREDIT PROPOSAL – LEASING	2 STARS
1 Borrower	:	Chor Pee & Partners	5%
2 Amount of Loan	:	$231,500 (eqv. of 100% of Purchase Price)	$243,075.00 (w/Gst)
3 Period of Loan	:	72 Months
4 Interest Rate	:	3.600% pa Flat Effective after commis	7.21% pa
5 Total Payable	:	$305,400
6 Monthly Installment	:	24 x $1,800
		Gst $90.00
	:	24 x $3,500
		Gst $175.00
	:	24 x $5,450 and 1 final rental of Gst $272.50	$47,400.00 Gst $2,370.00
…
11 Personal Guarantee	:	[LCP] S2088197F [ML] S1601047B [RY] S1660081D
…
16 RECOMMENDED CREDIT LINE	:	$ 250,000.00
…

1. Purpose of facility

▪ Purchase of 01 unit of iRC6800 & 1 unit of iR3320j Canon Copier for the company. ▪ There is a rollover of S$120,000 for this application.

..

3. Credit Consideration a. Background ▪ The firm was set up as a practicing legal firm in 1964 by [LCP]. ▪ Principal Activity – Legal consul and litigation. ▪ [LCP] is a well-known practicing lawyer in the legal community and has been practising since 1962. ▪ His partners in the firm are [ML] who started practising in 1993 and [RY] who has been practising since 1996.

4. Financial positions ▪ No financials were submitted. i. Security Analysis Products have short life span of probably about 5-6 years. iii. Comments ▪ The firm was set up as a practicing legal firm in 1964 by [LCP]. ▪ Principal Activity – Legal consul and litigation. ▪ [LCP] is a well-known...