Miao Weiguo v Tendcare Medical Group Holdings Pte Ltd (formerly known as Tian Jian Hua Xia Medical Group Holdings Pte Ltd) (in judicial management) and another

• Jurisdiction: Singapore
• Court: Court of Appeal (Singapore)
• Judge: Sundaresh Menon CJ
• Judgment Date: 15 December 2021
• Neutral Citation: [2021] SGCA 116
• Citation: [2021] SGCA 116
• Docket Number: Civil Appeal No 28 of 2021
• Hearing Date: 20 October 2021
• Plaintiff Counsel: Chan Chee Yin Andrew, Tiong Yung Suh Edward, Lim Dao Kai, Lee Suet Yean Cherlyn, Chee Yi Wen Serene and Chua Siu Hui Lynn (Allen & Gledhill LLP)
• Defendant Counsel: Lee Eng Beng SC, Cheng Wai Yuen Mark, Chew Xiang, Soh Yu Xian Priscilla and Lim Wee Teck Darren (Rajah & Tann Singapore LLP)
• Subject Matter: Companies,Members,Trusts,Accessory liability
• Published date: 18 December 2021

Andrew Phang Boon Leong JCA (delivering the judgment of the court): Introduction

This is an appeal against the decision of the High Court judge (“the Judge”) in Tendcare Medical Group Holdings Pte Ltd (formerly known as Tian Jian Hua Xia Medical Group Holdings Pte Ltd) (in judicial management) and another v Gong Ruizhong and others [2021] SGHC 80 (“the Judgment”), which held, inter alia, that the appellant, Mr Miao Weiguo (“Mr Miao”), was liable for a total sum of US$6m in respect of two transfers of US$2m and US$4m each, on the basis that he had dishonestly assisted Mr Gong Ruizhong (“Mr Gong”), the director of the first respondent, Tendcare Medical Group Holdings Pte Ltd (“Tendcare”), which is presently under judicial management, in breaching duties owed to Tendcare.

In addition to disputing the Judge’s factual findings centring, in the main, on the element of dishonesty in the context of the allegation of dishonest assistance, Mr Miao raised, before this court, an important legal issue which he argued ought to result in the appeal being allowed even if the Judge’s findings were upheld. This issue concerns the “no reflective loss” principle (or, for convenience, “the reflective loss principle”). More specifically, he argued that the reflective loss principle as set out in Townsing Henry George v Jenton Overseas Investment Pte Ltd (in liquidation) [2007] 2 SLR(R) 597 (“Townsing”) operated in such a manner as to bar the respondents’ claim. However, this particular conception of the reflective loss principle was – as Mr Miao rightly conceded – directly at odds with that of the majority of the UK Supreme Court (and, we might add, of the minority as well, albeit in different ways) in Marex Financial Ltd v Sevilleja (All Party Parliamentary Group on Fair Business Banking intervening) [2021] AC 39 (“Marex”). Not surprisingly, Mr Miao argued that the majority decision in Marex should not be followed.

It is apposite to note at the outset of this judgment that underlying the legal issue just set out are fundamental differences as to the approach this court should adopt in relation to the reflective loss principle. Broadly speaking, there is a tension between two possible rationales for the reflective loss principle – one being rooted in the more specific sphere of company law and the other centring around the prevention of double recovery. The majority decision in Marex is based on the former rationale (holding that where there is a diminution in the value of a shareholding or in distributions to shareholders that is merely the result of a loss suffered by the company arising from a wrong committed by the defendant, the proper plaintiff to bring a claim is the company and not the shareholder, because the law does not recognise the said diminution as loss suffered by the shareholders personally), while the minority decision is based on the latter rationale, which it then takes to the logical conclusion that the reflective loss principle does not exist as a principle of law. To pre-empt our analysis below slightly, the approach in Townsing attempted to bridge these two rationales but, as the differing approaches taken in Marex reveal, this was an attempt which we respectfully consider to be ultimately unsustainable and should no longer be followed.

In deciding which approach should be adopted, we will need to consider not only (competing) arguments of principle and policy but also the historical context from which the reflective loss principle emerged. In so far as this last-mentioned point is concerned, the reflective loss principle is of relatively recent vintage and may be traced to the decision of the English Court of Appeal in Prudential Assurance Co Ltd v Newman Industries Ltd and others (No 2) [1982] Ch 204 (“Prudential”). It is, in our view, of note even at this early juncture that the reflective loss principle first laid down in Prudential was clearly rooted in the specific sphere of company law. It is also significant that subsequent cases, including Townsing, whilst purporting to elaborate upon the reflective loss principle, introduced a new (and more general) element centring on the prevention of double recovery – thus raising the issue as to whether or not this elaboration was correct or was conflating two incommensurable elements with the result of diluting or undermining the effect, as well as purpose, of the reflective loss principle itself.

As is immediately apparent, the legal issue facing this court raises fundamental questions. It might therefore conduce towards clarity if we state our conclusion right at the outset.

In summary, we are of the view that the reflective loss principle is one that relates to the specific sphere of company law and we therefore endorse the majority decision in Marex. To the extent that it is undergirded by principle, inasmuch as it has a specific purpose and rationale, the reflective loss principle is one that ought to be retained and we therefore do not agree with the minority decision in Marex. It follows that the approach in Townsing (which was, in fact, rendered by way of obiter dicta) is no longer the law in Singapore. In our respectful view, the court in Townsing, inadvertently perhaps, conflated a specific principle of company law with the general principle proscribing double recovery – resulting in the dilution or undermining of what was an otherwise clear and specific rule that had a clear and coherent rationale in the context of company law.

We would also observe that our endorsement of the majority decision in Marex by no means ignores the general principle against double recovery. Indeed, as we shall elaborate upon below, courts in every jurisdiction would probably have legal mechanisms that would prevent double recovery. This proscription is in essence a clear and commonsensical principle that is rooted in fairness and that would be apparent to even a layperson. It is also important to note that the general principle against double recovery operates not only in relation to company law but also across the entire spectrum of the law in general. We note further that it is impossible, given the myriad of possible factual matrices that can give rise to double recovery, to set out a general normative principle that would enable courts to prevent double recovery. It is very much an exercise that takes place on a descriptive and factual basis. Looked at in this light, it is not surprising that the minority decision in Marex, being based on the principle against double recovery, endorsed the same generally and, to this end, dispensed with the specific reflective loss principle. From one perspective, it was correct that the minority in Marex did not (as was the case in Townsing) incorrectly conflate the general principle against double recovery with the specific reflective loss principle under company law. That having been said, it was respectfully a step backward to have dispensed with the reflective loss principle that serves a clear purpose and function. This may well be, again respectfully, a situation where the legal baby was inadvertently thrown out together with the bathwater. Indeed, we will elaborate upon this weakness in the minority decision in Marex below.

As we shall also elaborate upon below, there may be residuary situations where the operation of the reflective loss principle might appear to unjustly bar a shareholder from his or her claim. However, the force of this argument depends significantly on whether one adopts a purely private law perspective, which (broadly put) calls for a remedy for every wrong done and loss caused to private property, or a company law perspective, which recognises that company law may have something to say about the scope of recoverable loss for reasons specific to this area of law. In any event, whilst some injustice (at least when seen from a purely private law perspective) may be occasioned, there nevertheless remain legal mechanisms that would still afford a remedy (albeit by perhaps less convenient means) to an innocent party. In this last-mentioned regard, effectively deconstructing an otherwise coherent and specific principle of company law (here, the reflective loss principle) in order to address such residuary situations would be a clear example of the old adage of “hard cases making bad law”. And this would be particularly inadvisable in light of the fact that (as we have just noted) the shareholder is not, in any event, without a possible remedy in law.

I would add that I was in fact on the coram of Townsing. However, as I observed in a concurring judgment in Iskandar bin Rahmat v Law Society of Singapore [2021] 1 SLR 874 (at [96]):

On a more general level, it might also be usefully observed that the law is seldom static and develops over time. Hence, what appears to be the settled position with respect to a particular legal issue at a previous point in time might change (and even radically at that) as, inter alia, new arguments not hitherto considered are proffered and considered by later courts (as is consistent with the very nature of an adversarial system such as ours). This is not only a natural process but is also desirable from the perspective of both logic and principle. Indeed, it is emblematic of the development of not only the principles of common law and equity but also of (as is the case here) the interpretation of statutory provision(s) as well. And this is all to the good as judicial humility as well as a concomitant openness to new arguments are true hallmarks of the judicial function which views the attainment of substantive and procedural justice as well as fairness as its overarching and, indeed, ultimate mission with respect to every case that arises for decision. It is in the spirit of such an approach that I now consider the issue before this court afresh in light of legal arguments that were not before this court in both the previous cases.

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