Mona Computer Systems (S) Pte Ltd v Chandran Meenakumari and another

• Jurisdiction: Singapore
• Judge: Belinda Ang Saw Ean J
• Judgment Date: 16 September 2010
• Neutral Citation: [2010] SGHC 275
• Citation: [2010] SGHC 275
• Docket Number: Suit No 265 of 2009
• Date: 16 September 2010
• Hearing Date: 30 April 2010,20 January 2010,19 January 2010
• Plaintiff Counsel: R Kalamohan (Kalamohan & Co)
• Year: 2010
• Defendant Counsel: Cheong Yuen Hee (instructed counsel) (Y H Cheong) and Cheong Aik Chye (A C Cheong & Co)
• Court: High Court (Singapore)
• Published date: 21 September 2010

Belinda Ang Saw Ean J: Introduction

The plaintiff, Mona Computer Systems (S) Pte Ltd, commenced this action against the first and the second defendants for alleged breaches of various duties to the plaintiff. It is said that the first defendant, Chandran Meenakumari (hereafter referred to as “D1”), committed a serious breach of her fiduciary duty as director by forming a new company to compete with the plaintiff. In the case of the second defendant, Singaravelu Murugan, (hereafter referred to as “D2”), it is said that he committed breaches of duty as a shadow director and/or as an officer of the plaintiff by diverting from the plaintiff to a newly formed company business opportunities that were available to him by reason of his position of fiduciary and employment with the plaintiff. In addition, the plaintiff also claims against D2 for the return of commissions received by D2 since June 2006.¹ In this action, D2 has filed his counterclaim for a sum of $114,660.50 being balance commissions allegedly due to him up to September 2010.

Background facts

The plaintiff was incorporated in Singapore on 13 May 1997 by one Chandran Dharani (“Dharani”) who was, at all material times, the majority shareholder and the managing director. His mother, Chandran Leelavathi (“Leelavathi”), held one share. The directors of the plaintiff are Dharani’s family members. His mother was appointed director on 22 September 1998. His wife, Isaac Rathi (“Rathi”), was made a director on 18 December 2001 soon after her marriage to Dharani. D1 was appointed director on 6 October 2003. There is apparently a fifth director, one Dr K G Suresh (Dr Suresh) who resides in India. The ACRA company search results of the plaintiff showed that he was a director of the plaintiff in year 2001 and year 2008. In year 2009, his name was no longer reflected in the ACRA search results. More importantly, the parties did not mention Dr Suresh at all in their pleadings, evidence or submissions. I will, therefore, proceed on the basis that Dr Suresh is not material to this case.

D2 is Dharani’s brother-in-law by marriage to his sister, D1. Basically, Dharani was to D1 and D2, the owner of the plaintiff, a small company comprising family members.

The plaintiff is in the business of software and IT consultancy and development. However, it is not disputed that the plaintiff’s principal activity is to provide software engineers to its clients who are typically the third party end users. The contractual relationship between the plaintiff and the client (ie, third party end user), essentially requires the plaintiff to provide IT personnel like software engineers to the client who will be responsible for the day-to-day instructions relating to the services required. The client will pay the plaintiff for the IT personnel provided to it. As between the plaintiff and the IT personnel, the latter are recorded as the plaintiff’s employees, and they are provided to the third party end user for its IT needs or requirements. Most of the IT personnel are Indian and Philippine nationals. I am told that these employees sign contracts with the plaintiff, and they are paid monthly and deductions are made from their salaries for various expenses. The plaintiff’s clients include the Housing Development Board (“HDB”) and Central Provident Fund Board (“CPF Board”).

On 2 September 2000, Dharani employed D1’s husband (viz, D2) as its Systems Manager. It is common ground that there was no written employment contract between the plaintiff and D2. As with a company as small as the plaintiff and given the nature of its principal business as a provider of IT personnel to clients, it is not surprising to find that D2 was the sole full time employee tasked with the day-to-day business operations of the plaintiff. D2 managed the plaintiff’s contracts with third party end users as well as the contracts between the IT personnel and the plaintiff. D2 soon became Dharani’s right hand man. Even so, Dharani did not make D2 a director. Instead and as mentioned, he appointed D1 a director of the company on 6 October 2003. The plaintiff did well and on 11 October 2005, became an ISO 9001:2001 certified company.

Dharani passed away suddenly on 10 November 2006. It was undisputed that Rathi became the majority shareholder of the plaintiff through her husband’s estate. As owner of the business, Rathi said she knew she had to play a more active role in the plaintiff and she started going to the office on 21 November 2006. She also formally took over as the managing director of the plaintiff. However, as she herself admits, she was not familiar with the business operations of the plaintiff and was dependent on D2’s experience and knowledge. To all intents and purposes, after Dharini’s demise, D2 saw Rathi as the “boss” of the plaintiff.²

The defendants’ activities whilst still director and in employment of the plaintiff

D1 and D2 formed a new company, MN Computer Systems (S) Pte Ltd (“MN Computer”) on 22 November 2007. D1 and D2 are directors and each hold 50% of the shares of MN Computer. D1 is also the company secretary of MN Computer. The principal business of MN Computer is said to be the same as the plaintiff’s. At that time of the incorporation of MN Computer, D1 was still a director of the plaintiff, and D2 was still its employee. MN Computer operates a new business from rented premises situated in the same commercial building as the plaintiff. D2 explained that MN Computer was a shell company until end June/July 2008 when it hired its first employee and obtained its first business.³

D2 resigned as Systems Manager from the plaintiff on 20 February 2009 after a serious quarrel with Rathi. He admits that whilst employed by the plaintiff, he secured contracts to provide IT personnel to third party end users for their needs or requirements. The third party end users in question were clients of the plaintiff, and they are:⁴ (a) Bossard Pte Ltd (b) Wincor Nixdorf Pte Ltd (c) Jurong Town Corporation; (d) Singapore Press Holdings Ltd (e) Housing & Development Board (“HDB”) (f) DHL Supplychain Singapore Pte Ltd One other addition to this list is the CPF Board. During cross-examination, D2 admitted that in January 2009, he submitted a bid to the CPF Board to provide IT personnel to the latter as third party end user.

The plaintiff’s claims

At trial, counsel for the plaintiff, Mr R Kalamohan (“Mr Kalamohan”), confirmed that the water downed pleaded case against D2, which he repeated in his closing submissions, is confined to claims for breaches of duties in relation to diverting business away from the plaintiff to MN Computer and wrongful competition with the plaintiff, and for the return of unauthorised commissions.⁵

The plaintiff’s pleaded case against D1 is particularly limited. Paragraph 4 of the Statement of Claim contains the plea that D1 as director of the plaintiff owes the company various duties. The pleaded duties are as follows: To act honestly and use reasonable diligence in the discharge of her duties. Not to make improper use of information acquired by reason of her office to gain directly or indirectly an advantage for herself or another or to cause detriment to the company. To act in the company’s best interest at all times. To avoid conflict of interest with the company at all times. To declare at a meeting of the directors of the company the fact and the nature, character and extent of the conflict where D1 holds any office creating duties or interests that may come into conflict directly or indirectly with the duties created in relation to the plaintiff.

D1’s breach as particularised in paragraph 40 of the Statement of Claim is limited to the incorporation of MN Computer, a competing company, without the knowledge of the plaintiff. Other than the complaint of incorporating a rival company, no other particulars of breach(es) of duties listed in (a) to (e) above have been given in the pleadings. This is not surprising as the plaintiff acknowledges and accepts that D1 was simply a director in name; that she had no role at all in the management and business of the plaintiff. It is not the plaintiff’s case that D1 had been very lax about the affairs of the plaintiff. It is quite self-evident that the complaints in the present action are directed at D2. For this reason, I propose to deal in detail with the claims against D2 before returning to the claim against D1.

The plaintiff is alleging that D2 was a shadow director which D2 denies but he admits that, at all material times, he was an officer of the company and owed the following duties: To act honestly and use reasonable diligence in the discharge of his duties. Not to make improper use of information acquired by reason of his office to gain directly or indirectly an advantage for himself or another or to cause detriment to the company. To act in the company’s best interest at all times. To avoid conflict of interest with the company at all times.

In that regard, counsel for the defendants, Mr Cheong Yuen Hee (“Mr Cheong”) (instructed by M/s AC Cheong & Co) in paragraph 40 of his closing submissions candidly said:

The 2nd Defendant openly admits having secured the contracts set out in Exhibit D-1 whilst he was still an officer of the [plaintiff] he would be liable to account to the [plaintiff] unless as he alleges and testified that the [plaintiff](through PW1) agreed to it.

I make two observations in respect of Mr Cheong’s submissions. First, I take Mr Cheong’s reference to an obligation to account as acceptance, inferentially, that by reason of the seniority of D2’s employment or by virtue of his senior position he owed the plaintiff a fiduciary duty. This concession is right. The clearest indication as to whether or not an employee was also a fiduciary is to be found in University of Nottingham v Fishel [2000] IRLR 471 approved by Moses LJ in ...