Long Say Ting Daniel v Merukh Nunik Elizabeth

• Jurisdiction: Singapore
• Judgment Date: 18 December 2012
• Date: 18 December 2012
• Docket Number: Originating Summons No 895 of 2011
• Court: High Court (Singapore)

Long Say Ting Daniel

Plaintiff

and

Merukh Nunik Elizabeth (personal representative of the estate of Merukh Jusuf, deceased) (Motor-Way Credit Pte Ltd, intervener)

Defendant

[2012] SGHC 250

Lee Seiu Kin J

Originating Summons No 895 of 2011

High Court

Companies—Directors—Duties—Discretion of court to grant relief—Whether director acted honestly and reasonably and ought fairly to be excused for negligence, default, breach of duty or breach of trust

Companies—Directors—Duties—Sale of company's property by director—Application for prospective relief under s 391 (2) Companies Act (Cap 50, 1994 Rev Ed)—Whether relief under s 391 (2) extended to proceedings brought by persons other than company—Section 391 (2) (Cap 50, 1994 Rev Ed)

The plaintiff, Daniel Long Say Ting (‘the plaintiff’) became the sole director of Merukh Singapore Properties Pte Ltd (‘the Company’) after the sudden demise of his co-director, one Dr Jusuf Merukh (‘the deceased’). The deceased was the sole shareholder of the Company. Shortly after the deceased's passing, the plaintiff granted options to purchase for three properties belonging to the Company (‘the Three Properties’). The estate of the deceased (‘the Estate’) then sent legal notices to the plaintiff alleging that he had granted the options to purchase without requisite authority, and in breach of his duties as a director of the Company and a trustee for the Estate. The plaintiff thus applied for prospective relief under s 391 (2) of the Companies Act (Cap 50, 2006 Rev Ed) (‘the Act’), in anticipation of potential proceedings in negligence, default, breach of duty or breach of trust brought against him by the Company or by third parties.

Held, granting the application in respect of potential claims brought by the Company, and refusing the application in respect of potential claims brought by parties other than the Company:

(1) Section 391 of the Act operated narrowly to afford relief to directors as against proceedings brought by the company only. It did not extend to affording relief as against proceedings brought by persons other than the company. This interpretation found support in the legislative history of the English and Australian equivalents of s 391 of the Act: at [36] to [38], [47] to [51] and [54].

(2) Even if there were a case for interpreting the scope of s 391 of the Act more broadly in the interest of promoting commercial risk-taking and entrepreneurial activity, the present facts were not those which justified such an indulgence, as there was negligible commercial risk-taking and entrepreneurial activity taking place at the Company: at [55] and [56].

(3) In granting the options to purchase for the Three Properties, the plaintiff had not been deceitful or unreasonable. He had not acted so egregariously as to make a grant of relief a disservice to the administration of company law. The plaintiff had acted honestly and reasonably, and having regard to all the circumstances of the case including his lack of business knowledge and experience, he ought fairly to be excused from any claim in negligence, default, breach of duty or breach of trust brought against him by the Company pertaining to the sale of the Three Properties: at [62], [63], [65], [68] and [69].

Australian Securities and Investments Commission v Edwards (No 3) [2006] NSWSC 376 (refd)

Australian Securities and Investments Commission v Healey (No 2) [2011] FCA 1003 (refd)

Australian Securities and Investments Commission v Macdonald (No 12) [2009] NSWSC 714 (refd)

Australian Securities and Investments Commission v Vines [2005] NSWSC 1349 (refd)

Bell v Lever Bros Ltd [1932] AC 161 (refd)

Brazilian Rubber Plantations and Estates Ltd, Re [1911] 1 Ch 425 (refd)

Chng Joo Tuan Neoh v Khoo Tek Keong [1932] SSLR 100 (refd)

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

Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 (refd)

Customs and Excise Commissioners v Hedon Alpha Ltd [1981] QB 818; [1981] 2 All ER 697 (not folld)

Daniels v Anderson (1995) 37 NSWLR 438 (folld)

Deputy Commissioner of Taxation v Dick [2007] NSWCA 190 (refd)

Duomatic Ltd, Re [1969] 2 Ch 365 (refd)

Edwards v AG [2004] NSWCA 272 (folld)

Ena Jainab Abdeen, deceased, Re [1930] SSLR 212 (refd)

Foss v Harbottle (1843) 2 Hare 461; 67 ER 189 (refd)

Haji Ali bin Haji Mohamed Noor, deceased, Re [1933] SSLR 253 (refd)

Hytech Builders Pte Ltd v Tan Eng Leong [1995] 1 SLR (R) 576; [1995] 2 SLR 795 (refd)

IDEAGLOBAL.COM Ltd, Re [2000] 1 SLR (R) 804; [2000] 3 SLR 100 (refd)

Lawson v Mitchell [1975] VR 579 (refd)

Stuart, Re; Smith v Stuart [1897] 2 Ch 583 (refd)

Vita Health Laboratories Pte Ltd v Pang Seng Meng [2004] 4 SLR (R) 162; [2004] 4 SLR 162 (refd)

W&P Piling Pte Ltd v Chew Yin What [2007] 4 SLR (R) 218; [2007] 4 SLR 218 (refd)

Central Provident Fund Act (Cap 36, 2001 Rev Ed) s 7 (1)

Companies Act 1967 (Act 42 of 1967) s 354

Companies Act (Cap 50, 2006 Rev Ed) s 391 (consd) ;ss 160, 172, 391 (2) , 391 (3)

Employment Act (Cap 91, 2009 Rev Ed)

Trustees Act (Cap 337, 2005 Rev Ed) s 60

Betting and Gaming Duties Act 1972 (c 25) (UK) s 2 (2)

Companies Act 1907 (c 50) (UK) s 32

Companies (Consolidation) Act 1908 (c 69) (UK) s 279

Companies Act 1929 (c 23) (UK) ss 152, 372

Companies Act 1948 (c 38) (UK) ss 448, 448 (1)

Companies Act 1981 (Cth) ss 237, 535

Companies Act 2006 (c 46) (UK) ss 232, 1157

Corporations Act 2001 (Cth) s 1318

Judicial Trustees Act 1896 (c 35) (UK) s 3 (1) (a)

Trustees Act 1925 (c 19) (UK) s 61

Carolyn Tan and Au Thye Chuen (Tan & Au LLP) for the plaintiff

Teh Ee Von (Infinitus Law Corporation) for the defendant

Sharma and James Selvaraj (Tan Lee & Partners) for the interveners.

Lee Seiu Kin J

1 This is an application by the plaintiff, Daniel Long Say Ting (‘the plaintiff’), for prospective relief under s 391 (2) of the Companies Act (Cap 50, 2006 Rev Ed) (‘the Act’). The plaintiff is the sole director of the company, Merukh Singapore Properties Pte Ltd (‘the Company’). The defendant, Nunik Elizabeth Merukh (‘the defendant’), is the daughter of the company's sole shareholder, Dr Jusuf Merukh, deceased (‘the deceased’), and defends in her capacity as the personal representative of her father's estate (‘the Estate’). After hearing counsel for both sides, I granted the application in respect of the plaintiff's potential liability to the Company. However, I was not prepared to extend prospective relief as against any action brought by the defendant. In my view, s 391 of the Act is intended to operate within the context of the company's relationship with its directors, officers and those employed as auditors and experts, and hence does not apply where proceedings are brought by persons other than the company. Furthermore, even if the plain words of s 391 do not preclude the granting of relief as against claims brought by third parties, this was not a case which warranted the court's exercise of that limited discretion. I set out below my grounds of decision.

The facts

2 The deceased and plaintiff were the two directors of the Company and, after the deceased's sudden demise on 22 June 2011, the plaintiff was the sole director. The plaintiff's application arose out of three property sales which he conducted on behalf of the Company in his capacity as director. The three properties are (collectively referred to as ‘the Three Properties’):

(a) Blk 72 Bayshore Road, #29-16 Costa Del Sol, Singapore 469988 (‘the Bayshore property’);

(b) 10 Kitchener Link, #13-18 City Square Residences, Singapore 207225 (‘the Kitchener property’); and

(c) 87 Bukit Drive, #06-18 The Raintree, Singapore 587847 (‘the Raintree’).

3 Options to purchase the Three Properties were granted in quick succession - on 5, 6 and 9 September respectively. Shortly after the grants, the Estate issued two legal notices dated 19 and 26 September 2011 (‘the legal notices’) directing the plaintiff to cancel the options or, should the options have already been exercised, to deposit the sale proceeds into the defendant's bank account. Legal action for embezzlement of the Three Properties and/or the sale proceeds thereof was threatened. Later, the Estate decided not to rescind the sales upon advice that this would cause them more loss. The defendant then argued on affidavit that the legal notices were simply intended to ‘ask for clarification’ with regard to the sales, and not to commence legal action against the plaintiff. It was averred that the plaintiff had been unco-operative after the sales, turning down the defendant's e-mail request dated 29 September 2011 for a meeting to discuss the sale of the Three Properties, and refusing to sign a circular resolution to appoint the defendant to the Company's board of directors.

4 Meanwhile, the threats of criminal and civil action contained in the legal notices led the plaintiff to apply for prospective relief under s 391 (2) of the Act. He argued that he had granted the options to purchase for the Three Properties in order to avert potential recovery action and forced sales by the mortgagee bank, United Overseas Bank (‘UOB’), which would have resulted in significant losses to the Company.

5 The defendant responded with two sets of objections. The preliminary objection was that an application for relief under s 391 of the Act was not available for proceedings brought by persons other than the Company. It was argued that any threat of legal proceedings contained in the legal notices emanated from the heirs and not from the Company, and thus fell outside the ambit of s 391. The secondary objection was that even if s 391 was available to the plaintiff as against actions brought by persons other than the Company, the court ought not to exercise its relieving discretion in the plaintiff's favour. The defendant listed a number of arguments in support of this position:

(a) First, the...