Lim Teck Cheng v Wyno Marine Pte Ltd (in liquidation)

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 06 October 1999
• Neutral Citation: [1999] SGCA 74
• Docket Number: Civil Appeals Nos 52 and 56 of 1999
• Date: 06 October 1999
• Published date: 19 September 2003
• Year: 1999
• Plaintiff Counsel: Scott Thillagaratnam and S Selvam (Ramdas & Wong)
• Citation: [1999] SGCA 74
• Defendant Counsel: K Shanmugam and Ashok Kumar (Allen & Gledhill)
• Court: Court of Appeal (Singapore)
• Subject Matter: Civil Procedure,Director's personal liability for expenses,Breach of fiduciary duties,Whether liability deductable from profits accountable by director,Companies,Whether full recovery under both grounds amounts to double recovery,Whether appellant should be estopped from admitting evidence contrary to finding made in judgment -Burden of proof,Account of profits,Expenses for purchasing golf set,Directors,Taking of accounts pursuant to judgment,s 340 Companies Act (Cap 50),Whether such expenses reasonably and properly incurred,Judgments and orders

(delivering the judgment of the court): Introduction

There are before us two appeals concerning the affairs of the respondent, Wyno Marine Pte Ltd (`Wyno`), presently in liquidation. The first is CA 52/99 and concerns the terms of the judgment extracted from the decision of the trial judge in Suit 2274/93 in which, among other things, Lim Teck Cheng, the appellant, was ordered to account for the profits he made from the back-to-back sale of two vessels, WM 102 (`WM 102`) and WM 103 (`WM 103`), by Wyno to a company, Hong Lam Marine Pte Ltd (`Hong Lam`) and by the latter to Asian Eternal Shipping Pte Ltd (`AES`). Secondly, there is CA 56/99 which concerns specific issues that arose on the taking of accounts before the trial judge who adjudicated on the matters in Suit 2274/93 As both the appeals raise overlapping issues, we propose to deal with them together in this judgment.

Background

The appellant was a director and the majority shareholder of Wyno, which was in the business of ship building and repair. Wyno was ordered to be wound up compulsorily on 24 January 1992 and liquidators were appointed.

Wyno through its liquidators brought two actions against the appellant. The first was Suit 2274/93, which was brought on the basis of, inter alia, the appellant`s breach of his fiduciary duties to Wyno in respect of the sale and construction of the two vessels, WM 102 and WM 103, by causing and procuring their sales to Hong Lam at a loss and their subsequent resales by Hong Lam to AES at a profit. Wyno claimed that the appellant was liable to account for all the profits made from the resale of WM 102 and WM 103 to AES.

The second action was OS 1142/96, which was brought under s 340(1) of the Companies Act (Cap 50, 1990 Ed) for an order that the appellant be made personally liable for a sum of $1,739,324.55 on the basis that he was knowingly a party to the carrying on of the business of Wyno with an intent to defraud its creditors. This sum comprised the expenses incurred by Wyno after 31 July 1991 in the sale and construction of WM 102 and WM 103.

Wyno succeeded in both the actions. In Suit 2274/93, the trial judge found that the appellant was in breach of his fiduciary duties to Wyno by profiting from the sale and construction of WM 102 and WM 103. He accordingly granted an order in terms of certain reliefs sought. In OS 1142/96, the trial judge found that the appellant knowingly allowed Wyno to continue to incur fresh debts and liabilities after 31 July 1991 when he had full knowledge that Wyno was insolvent. The trial judge therefore granted a declaration that the appellant was personally liable for the amount representing such debts and liabilities and ordered that this amount be paid to Wyno by the appellant.

The appellant appealed against each of these judgments in CA 243/98 and 244/98 respectively. These appeals were heard on 24 February 1999 and were dismissed. At the time of the hearing of the appeals, the judgement in Suit 2274/93, however, had not been extracted. The parties could not agree on the precise terms of the judgment to be extracted, and they finally appeared before the trial judge on 17 March 1999 who then settled the terms of the judgment. For our purpose, the material term of the judgment is [para ] 2, which reads as follows:

2(a) An account be taken of the profits made by the second defendant on WM 103 on the basis that:

(i) the price which the second defendant purchased WM 103 from the plaintiffs was S$9,400,000 and S$345,749.30 for additional works; and

(ii) the price at which the second defendant resold WM 103 to Asian Eternal Shipping Pte Ltd was S$13,120,000.

(b) The profits made by the second defendant referred to in para 2(a) above being the sum of S$3,374,250.70 be paid to the plaintiffs by the first defendant subject to the deduction of legitimate expenses incurred by the second defendant being taken into account.

The taking of accounts was subsequently conducted before the same judge on 15, 16 and 19 April 1999. At that hearing, the appellant`s counsel tendered an affidavit of one David Chan, an auditor of AES, and sought to admit this in evidence. This evidence was intended to show that the final contract price for WM 103 was in fact $10,165,304 and not $13,120,000 as reflected in the judgment. The trial judge declined to admit the evidence or consider the issue, on the ground that he had earlier at the main trial of the action made a finding that the final contract price between Hong Lam and AES was $13,120,000. He held that the issue raised by the appellant was res judicata and that the only issue before him was to ascertain what legitimate expenses, if any, Hong Lam had incurred and have them deducted from the amount of secret profits which the appellant had made.

In respect of the inquiry relating to the legitimate expenses incurred by Hong Lam and/or the appellant, an affidavit was filed by one Kaka Singh, the accountant of Hong Lam, showing the lists of expenses of WM 102 and WM 103 respectively. Some of the items of the expenses were disputed by Wyno. The respective lists with the disputed items, highlighted in bold font, were as follows:

	Description	S$	S$
A	Profit as per judgement		408,509.70
B	Less:
C	NKK Certificates	360.00
D	Christening expenses	17,087.06
E	Bank charges	12,502.68
F	Other expenses captured	1,429.00
G	Financing charges	452,937.91
H	Brokerage fee	79,000.00
I	Claim for expenses based on the schedule of debts filed in OS 1142
J	Agreement between Hong Lam and AES	(150,000.00)
K	Net Profit/(Loss)		(150,786.44)

145,979.49

	Description	S$	S$
A	Profit as per judgement		3,374,250.70
B	Less:
C	NKK Certificates	360.00
D	Legal fees	7,897.60
E	Financing charges
F	Profit share with Wyno Marine	200,000.00
G	Other expenses captured
H	Claim for expenses based on schedule of debts filed in OS 1142
I	Payments or refunds to AES
J	Net Profit/(Loss)		(2,051,166.12)

572,287.56 8,666.60 1,593,205.06 3,043,000.00 The disputes centred mainly on the major items appearing on the WM 103 list. In respect of the sum of $3,043,000 in item I of that list, the trial judge rejected it on the ground that its alleged existence was contrary to his prior finding of fact that the contract price at which WM 103 was sold to AES was $13,120,000. The issue had previously been decided and was res judicata. The trial judge also rejected $149,979.49 appearing in item I on the WM 102 list and $1,593,205.06 in item H on WM 103 list, both of which the appellant claimed should be deducted as they were expenses incurred which were ordered to be paid by the appellant to Wyno in OS 1142/96. The trial judge held that the order in OS 1142/96 was made under s 340 of the Companies Act, which compelled a director to pay personally moneys which the court thinks ought not to have been paid from the assets of the company. The profits which a director is forced to disgorge for breach of his fiduciary duty forms part of the assets of the company. There was, therefore, `no basis for the overall balancing of profit and loss in respect of that director`s personal kitty`, since s 340 was punitive in nature. A director ought not to escape his liability simply because he made a secret profit sufficient to cover that penalty, since it would have been payable even if there were no secret profits.

There were two other items the trial judge disallowed. First, the amount of $572,287.56 in item E on the WM 103 list was disallowed to the extent of $237,000, as the appellant had admitted, at the main trial, that the sum was obtained by him from AES to cover financing charges but were in fact retained by him. Next, there was the amount of $8,666.60 in item G on the WM 103 list. That was disallowed to the extent of $2,395.30 which the appellant claimed was paid for purchasing a set of golf clubs as a gift for a director of AES. The trial judge held that the gift was made pursuant to a scheme to reap secret profits and in the circumstances of the case he disallowed it.

At the conclusion of the taking of accounts, a profit of $2,824,434.24 was found to have been made in respect of the sale of WM 103 by Hong Lam to AES, while a loss of $4,806.95 was found to have been incurred in respect of the sale of WM 102. The trial judge allowed the loss in WM 102 to be set off against the profit in WM 103.

The appeals

We consider first CA 52/99. The principal issue raised is whether [para ] 2 of the judgment in Suit 2274/93 accurately reflects the findings made by the trial judge in his decision. A resolution of this issue would also determine the ambit of the inquiry on the taking of account of the profits arising from the sale of WM 103.

The judgment in Suit 2274/93

The arguments of counsel for the appellant are, in substance, as follows. The remedy for a director`s breach of fiduciary duty is an account of the profits made by him, and in this connection the court must necessarily enquire whether a profit had in fact been made by the appellant and/or Hong Lam. During the hearing of CA 243/98 before this court, in which there was an appeal against, inter alia, that part of the decision granting an order in terms of certain reliefs sought in Wyno`s statement of claim, counsel for Wyno conceded that Wyno was not entitled to the sum of $3,374,250.70 as claimed, which was allowed in the judgment, and that the amount of profit from WM 103 had yet to be ascertained. Consequently, the Court of Appeal did not go into the issue of quantum or the issue whether the appellant had made a profit from the sale of WM 103 by Hong Lam to AES. Thus, it is argued that these matters are not res judicata as held by the trial judge. Following from this, he argues that [para ] 2(b)...