Max-Sun Trading Ltd and another v Tang Mun Kit and another (Tan Siew Moi, third party)

• Jurisdiction: Singapore
• Judge: Judith Prakash JA
• Judgment Date: 26 September 2016
• Neutral Citation: [2016] SGHC 203
• Plaintiff Counsel: Tan Heng Thye and Rachael Williams (CSP Legal LLC)
• Docket Number: Suit No 715 of 2011
• Date: 26 September 2016
• Hearing Date: 23 March 2016,22 March 2016,18 March 2016,24 June 2016,17 March 2016,15 October 2015,14 October 2015,21 March 2016,24 March 2016
• Subject Matter: Tort,Formation,Fiduciary relationships,Equity,Conspiracy,Inducement of breach of contract,Contract
• Year: 2016
• Defendant Counsel: The defendants in person,The third party in person.
• Court: High Court (Singapore)
• Citation: [2016] SGHC 203
• Published date: 04 October 2016

Judith Prakash JA: Introduction

This is a suit brought by two associated Hong Kong-incorporated companies, Max-Sun Trading Limited (“the first plaintiff”) and E-Tex Trading Limited (“the second plaintiff”), in respect of numerous alleged breaches of obligations arising in the course of a garment manufacturing and supply arrangement involving the defendants. The first plaintiff is a fabric manufacturer. The second plaintiff is a buying house, which means it enters into contracts to supply garments to clothing companies and then sub-contracts the actual manufacturing to other companies. Mr Leonard Mok Chi Wing (“Mr Mok”) was at all times the representative and spokesperson of both plaintiffs although (either directly or through his wife) he had no more than a 30% interest in each of them. Mr Mok was also involved in the running of other associated companies (collectively, “Mr Mok’s group of companies” or “the Group”). In all this, Mr Mok supposedly answered to one Mr Wong Beng San (“Mr Wong”) of Macau, although little turned on this fact.

The defendants are Mr Tang Mun Kit (“the first defendant”), also known as Steven, and Mdm Teo Su Huang (“the second defendant”). They are married to each other and used to run their own business in the garment industry, Instinct Silkscreen Pte Ltd (“Instinct Silkscreen”), specialising in the printing of designs on garments. The other major players in this dispute are Mr Tan Siew Kah, also known as Peter (“Mr Peter Tan”), and his wife, Mdm Tan Siew Moi (“the third party”; collectively, “the Tans”). Mr Peter Tan is an undischarged bankrupt who previously ran his own garment manufacturing business, assisted by the third party. Looming large in the background, but not involved in the dispute, is the Esprit group of companies (“Esprit”), which at various points was the sole customer of the second plaintiff and a major customer of the first plaintiff, the defendants, and the Tans.

Mr Mok, the defendants, and the Tans became personally acquainted through their commercial activities in the garment industry in Singapore. The defendants describe the relationship as being that of business associates; the others describe it as one of friendship. Their dealings began around 2000 and were by all accounts mutually beneficial. In those days, the Tans’ Singapore company would take orders from Esprit’s Singapore buying house and then produce the finished garments to Esprit’s specifications using fabric manufactured by the first plaintiff and printed with designs by Instinct Silkscreen.

Subsequently, the business environment in Singapore changed and it became very difficult for garment manufacturers such as the Tans’ company to operate in Singapore. Esprit closed its buying house in Singapore. Thereafter, Mr Mok’s group of companies started supplying finished garments directly to Esprit and began looking for subcontractors to manufacture the garments.

In July 2006, Mr Mok, the first defendant, and Mr Peter Tan engaged in discussions (which I shall refer to as “the July 2006 Discussions”) regarding the setting up of a garment factory in Vietnam. The details of those discussions – in particular, the nature of Mr Mok’s and the plaintiffs’ involvement and the existence and content of the understanding which allegedly arose – are disputed. What is undisputed is that following the July 2006 Discussions, the first defendant and Mr Peter Tan made a number of trips to Vietnam to look for possible factory locations. Eventually, they decided to rent premises in Viet Huong Industrial Park located in Bing Duong Province. In order to reserve the chosen premises, the first defendant made a booking under the name of Instinct Silkscreen.

Elda Instinct Garments Pte Ltd (“Elda Singapore”) was incorporated in Singapore on 27 September 2006, with the defendants and the Tans as directors and equal shareholders, having contributed capital of US$50,000 each according to Mr Tan. The paid-up capital was registered as S$200,000. On 6 October 2006, Elda Singapore sought and obtained a loan of US$100,000 from the first plaintiff for use as working capital for the new factory (“the Working Capital Loan”). A wholly-owned subsidiary of Elda Singapore called Elda Instinct Garments Vietnam Co Ltd (“Elda Vietnam”) was then incorporated in Vietnam on 24 October 2006 for the purposes of setting up and managing the new factory. Elda Singapore and Elda Vietnam will sometimes hereafter be collectively called the Elda Companies.

In Vietnam, each company is apparently required to have a legal representative, a person who, as the title suggests, has certain important rights and powers to represent the company in official matters. The legal representative holds the company seal, which is necessary for many official acts of the company, including obtaining the certificates of origin without which goods cannot be exported out of Vietnam. In addition, the charter of Elda Vietnam (which is akin to the memorandum and articles of association of a Singapore company) provides for two other officers, the authorised representative of Elda Singapore (as the owner of Elda Vietnam) and the general director. The general director had control over the day-to-day operations of the company, but the authorised representative had ultimate control over its management. On Elda Vietnam’s Investment Certificate issued by the Bing Duong Industrial Zone Authority (“BDIZA”), the first defendant was stated to be Elda Vietnam’s legal representative and general director. He was also the authorised representative of Elda Singapore. There was no objection to him holding these three positions at the time. The defendants and the Tans served as Elda Vietnam’s de facto members’ council, which is akin to a board of directors. The first defendant and Mr Peter Tan oversaw the preparatory work for the venture, including the official approvals, physical construction of the premises, and the recruitment and training of workers for the factory.

The intended mode of business in Vietnam was that the second plaintiff was to be the supplier to Esprit. Having obtained orders from Esprit, it would then subcontract the supply of garments to Elda Singapore. In turn, Elda Singapore would farm out the actual manufacturing work to Elda Vietnam. However, it would obtain the material and accessories for the Esprit garments from the second plaintiff.

On 8 May 2007, the second plaintiff and Elda Singapore entered into a contract setting out the general conditions of purchase and delivery (“the General Conditions”) which would apply to all the orders subsequently placed by the second plaintiff. The General Conditions included clauses providing that “[t]he business relationship between the [second plaintiff] and [Elda Singapore] exists solely in the individual purchase agreements” and that there was “no obligation on the [second plaintiff]’s part to continue to purchase from [Elda Singapore]”. Elda Singapore was also restrained from dealing directly or indirectly with the Buyers (defined as Esprit de Corps (Far East) Limited and Esprit Macao Commercial Offshore Limited) for a period of two years from the date of the second plaintiff placing its last order with Elda Singapore. However, there was no other restriction in the General Conditions on the Elda Companies manufacturing garments for parties other than the second plaintiff. Beginning in July 2007, a number of orders were placed by the second plaintiff and successfully fulfilled by Elda Vietnam. Payment for the second plaintiff’s orders when fulfilled by Elda Vietnam was made by the second plaintiff to Elda Singapore, while setting off the cost of materials and accessories supplied. Elda Singapore in turn provided funds to Elda Vietnam. Elda Vietnam had no other source of funds.

Unfortunately, relations between the defendants and the Tans soon soured, largely due to conflict between the first defendant and Mr Peter Tan. Disputes arose over the first defendant’s alleged failure to keep proper accounts in respect of money that Elda Singapore sent to him in Vietnam to pay for expenses incurred in the establishment of the factory and also over the manner in which the Tans kept the accounts for Elda Singapore. The first defendant also alleged that Mr Peter Tan had failed to seek the approval of the defendants before procuring from the first plaintiff a second loan to Elda Singapore amounting to US$116,780, this time for the purchase of sewing machines (“the Machinery Loan”), in December 2006. The first defendant and Mr Peter Tan increasingly came to consider each other to be mismanaging the affairs of Elda Vietnam, and would from time to time communicate their grievances to Mr Mok, who made some attempts to intercede. In September 2007, Mr Mok, who had formed the view that he would rather deal with Mr Peter Tan as the head of Elda Vietnam, persuaded the first defendant to agree to appoint Mr Peter Tan as the legal representative and general director of Elda Vietnam and the authorised representative of Elda Singapore (“the Appointment Agreement”). A resolution to that effect was passed on 1 October 2007 (“the October 2007 Resolution”). The first defendant then filed the necessary paperwork with BDIZA to appoint Mr Peter Tan as the legal representative and general director of Elda Vietnam, but, unknown to the others, he chose to retain his own position as authorised representative of Elda Singapore. BDIZA duly issued an amended investment certificate stating that Mr Peter Tan was the legal representative of Elda Vietnam.

By mid-2008, Elda Vietnam’s design printing department and garment manufacturing department were effectively being run as two separate fiefdoms, albeit working on the same orders and in the same premises. Each department was separately funded and even hired its own security guards. The two departments were physically separated by a wall within the factory and the defendants and the...