Lim Weng Kee v Public Prosecutor

• Jurisdiction: Singapore
• Judgment Date: 27 August 2002
• Date: 27 August 2002
• Docket Number: Magistrate's Appeal No 26 of 2002
• Court: High Court (Singapore)

Lim Weng Kee

Plaintiff

and

Public Prosecutor

Defendant

[2002] SGHC 193

Yong Pung How CJ

Magistrate's Appeal No 26 of 2002

High Court

Companies–Directors–Managing directors–Principles governing breach of director's duty to exercise reasonable diligence–Whether test for criminal and civil liability similar–Whether standard of proof for criminal liability might be modified in light of individual's subjective knowledge or experience–Sections 157 (1) and 157 (3) (b) Companies Act (Cap 50, 1994 Rev Ed)–Criminal Law–Statutory Offences–Companies Act–Director of pawn shop releasing pawned items before cheque payment cleared–Whether director breached duty to exercise reasonable diligence–Section 157 (1) Companies Act (Cap 50, 1994 Rev Ed)–Criminal Procedure and Sentencing–Sentencing–Court imposing fine of $4,000 for each charge of breach of director's duty–Losses caused to shareholders substantial–Whether fines manifestly excessive–Section 157 (3) (b) Companies Act (Cap 50, 1994 Rev Ed)–Words and Phrases–“Honestly”–“Reasonable diligence”–Section 157 (1) Companies Act (Cap 50, 1994 Rev Ed)

The appellant (“Lim”) was the managing director of three pawnshops, and had been in the business for 20 years. A lady had pawned $4m worth of jewellery at the pawnshops as pledges for loans. However, the jewellery did not belong to her. When she was asked to settle the outstanding interest due to the pawnshops, she expressed her intention to redeem the jewellery and issued a cheque in favour of one of the pawnshops.

However, before the cheque had been cleared, Lim allowed her to redeem the jewellery. The cheque was later dishonoured. The pawnshops and their shareholders suffered substantial losses.

Lim was charged under s 157 (1) of the Companies Act (Cap 50, 1994 Rev Ed) for failing to use reasonable diligence as managing director of the pawnshops in the discharge of his duties. The judge found Lim had breached his duties as director, and convicted and fined him $4,000 on each of the three charges.

Lim appealed against his conviction and sentence. The issues were (a) what the test of “reasonable diligence” for criminal liability under s 157 (3) (b) was; (b) what the standard of proof under s 157 (3) (b) was; (c) whether Lim had exercised reasonable diligence; and (d) whether the fines imposed were manifestly excessive.

Held, dismissing the appeal:

(1) The civil standard of care and diligence expected of a director was objective, namely, whether he had exercised the same degree of care and diligence as a reasonable director found in his position. This standard was not fixed but a continuum depending on various factors such as the individual's role in the company, the type of decision being made, the size and the business of the company. However, unlike the traditional approach, this standard would not be lowered to accommodate any inadequacies in the individual's knowledge or experience. The standard would however be raised if he held himself out to possess or in fact possessed some special knowledge or experience: at [28].

(2) The test for criminal liability under s 157 (3) (b) was an objective one and was similar to the test for civil liability under s 157 (3) (a) for several reasons. First, “reasonable diligence” in s 157 (1) implied that a director's conduct must be measured against some objective standard of behaviour. Second, the structure of s 157 showed that Parliament did not intend different tests of diligence for civil and criminal breaches. Third, as the aim of criminal liability was to protect the public interest by deterring directors from acting negligently, the test for such liability had to be sufficiently robust: at [30], [34]to [37].

(3) While the subjective lack of experience and knowledge of the individual was irrelevant to conviction, it should be considered in sentencing: at [38].

(4) The standard of proof under s 157 (3) (b) was the criminal standard of proof beyond reasonable doubt, ie the Prosecution must prove beyond reasonable doubt that the defendant had objectively failed to use reasonable diligence in the discharge of his director's duties: at [39].

(5) Lim failed to exercise reasonable diligence. That he ran the business for 20 years qualified as “special experience” and would raise the expected standard. That he was in control of the pawnshops and voluntarily authorised the release of the items, despite knowing that the cheque had not been cleared, was something no reasonable director in his position would have done: at [40].

(6) The fines imposed were not manifestly excessive. The losses caused to the pawnshop's shareholders were substantial, which should not have happened given Lim's 20 years of experience in the business. Further, the judge had considered all the mitigating factors: at [42].

[Observation: A director's duty to act with reasonable diligence was conceptually distinct from the duty to act honestly. Both were different aspects of a director's bundle of duties although they could overlap on certain facts. “Honesty” had been interpreted to refer to the common law duty of a director to act in good faith in the company's interests: at [32].]

Australian Securities Commission v Gallagher (1993) 10 ACSR 43 (not folld)

Barings plc (No 5), Re [1999] 1 BCLC 433 (refd)

Cheam Tat Pang v PP [1996] 1 SLR (R) 161; [1996] 1 SLR 541 (refd)

City Equitable Fire Insurance Co Ltd,Re [1925] Ch 407 (refd)

Daniels v Anderson (1995) 16 ACSR 607 (folld)

D'Jan of London Ltd, Re [1994] 1 BCLC 561 (folld)

Kie Hock Shipping (1971) Pte Ltd, Re [1983-1984] SLR (R) 796; [1984-1985] SLR 544 (refd)

Lagunas Nitrate Co v Lagunas Syndicate [1899] 2 Ch 392 (not folld)

Lim Poh Eng v PP [1999] 1 SLR (R) 428; [1999] 2 SLR 116 (refd)

M'Alister (or Donoghue) (Pauper) v Stevenson [1932] AC 562 (refd)

Marchesi v Barnes [1970] VR 434 (refd)

Companies Act (Cap 50,1994 Rev Ed)ss 157 (1), 157 (3) (b) (consd);ss 157 (3) (a),157 (4)

Penal Code (Cap 224,1985 Rev Ed)s 338

Gopalan Raman (G Raman & Partners) for the appellant

Lim Yew Jin (Deputy Public Prosecutor) for the respondent.

Yong Pung How CJ

1 The appellant faced three identical charges under s 157 (1) of the Companies Act (Cap 50, 1994 Ed) (“CA”), namely, as managing director of Thai Shin Pawnshop Pte Ltd (“Thai Shin”), Thai Hong Pawnshop Pte Ltd (“Thai Hong”) and Wang Wang Pawnshop Pte Ltd (“Wang Wang”), he failed to use reasonable diligence in the discharge of the duties of his office by permitting various jewellery items pawned to the three companies as pledges for loans from the companies to be released to one Kalimahton binte Md Samuri (“Samuri”) without proper redemption and resulting in losses to the companies. The three charges were for the same offence committed at different premises, namely, at each of the three companies. The appellant was fined $4,000 on each of the charges in the District Court under s 157 (3) (b) CA.

2 The relevant subsections of s 157 CA read as follows:

1. (1) A director shall at all times act honestly and use reasonable diligence in the discharge of the duties of his office.

…

1. (3) An officer or agent who commits a breach of any of the provisions of this section shall be –

   1. (a) liable to the company for any profit made by him or for any damage suffered by the company as a result of the breach of any of those provisions; and

   2. (b) guilty of an offence and shall be liable on conviction to a fine not exceeding $5,000 or to imprisonment for a term not exceeding one year.

1. (4) This section is in addition to and not in derogation of any other written law or rule of law relating to the duty or liability of directors or officers of a company.

…

3 The appellant appealed against his conviction and sentence. I heard his appeals on 9 July 2002 and dismissed them. I now give my reasons.

Facts

4 The appellant is Lim Weng Kee, aged 62. At the date of the alleged incidents, on or around 28 October 1998, he had had 20 years of experience in running the business. He had been the managing director of Thai Shin and...