Panatron Pte Ltd and Another v Lee Cheow Lee and Another

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 04 July 2001
• Neutral Citation: [2001] SGCA 49
• Docket Number: Civil Appeal No 147 of 2000
• Date: 04 July 2001
• Year: 2001
• Published date: 05 November 2003
• Plaintiff Counsel: Anand K Thiagarajan and Ramesh Appoo (Anand T & Co)
• Citation: [2001] SGCA 49
• Defendant Counsel: Gan Kam Yuin (Bih Li & Lee)
• Court: Court of Appeal (Singapore)
• Subject Matter: Misrepresentation,Fraud and deceit,Elements of tort,Whether failure to act cautiously and to take steps to verify truth of representations a defence,Tort

JUDGMENT:

Cur Adv Vult

The facts

1. The first appellant, Panatron Pte Ltd (‘Panatron’), is a company engaged, inter alia, in the business of dealing in automatic condensor cleaning system for air conditioning chillers. The second appellant, Phua Mong Seng (‘Phua’) was its founder and is the president or managing director of the company.

2. The first respondent, Lee Cheow Lee (‘Lee’), is a certified public accountant by profession. Prior to the events that gave rise to the present dispute, he worked as a consultant in a company called Enterprise Promotion Centre Pte Ltd, which helped clients in their businesses. In May or June 1996, discussions took place between Phua and Lee, and arising from these discussions, Lee joined Panatron on 30 January 1997 and was employed as the senior vice president in charge of corporate affairs and also carrying out the duties as a financial controller. He also agreed to subscribe for 200,000 shares in Panatron at a total price of $200,000. Some eight months later, on 20 August 1997, he resigned from Panatron and left the employment immediately. As of that date, he had paid Panatron only $189,000 for the shares.

3. The second respondent, Yin Chin Wah Peter (‘Yin’), was in the employ of Panatron for about two years. He joined the company on 31 May 1995 as the vice president on international marketing and was also the general manager of one of Panatron’s subsidiaries, BTE Asia Pte Ltd, which dealt with the supply of a system, known as the Ball Technic system, which is involved in the heat exchange tube cleaning process in the air conditioning industry. He was also a shareholder of Panatron. On or soon after he joined the company, he agreed to subscribe for 300,000 shares of $1 each in Panatron. He had fully paid for all the shares he agreed to subscribe.

4. Prior to his joining Panatron, Yin had known Phua for sometime. They had both worked in a subsidiary of the Singapore Technologies group, where Yin was Phua’s subordinate. Later, Yin left the company, and worked for Shell Asia Pacific Pte Ltd in Singapore, which distributed in the region, amongst other things, products manufactured by a firm, Chemtour of Queensland, Australia. Chemtour is owned by an Australian company, in which one Eral Dettrick (‘Dettrick’) and his wife hold all the shares. Effectively, Chemtour is run and managed by Dettrick.

5. While he was working in Shell Asia Pacific Pte Ltd, Yin came to be acquainted with Dettrick and developed a good business rapport with him. Later, after he had joined Panatron, Yin introduced Dettrick to Phua, and was instrumental in the negotiations between Phua and Dettrick for a licence to manufacture Chemtour’s product in Singapore. Following the negotiations, a licence agreement was made on 22 September 1995 between Chemtour and Panatron, whereby Chemtour granted to Panatron the exclusive licence to use a technology to manufacture and sell, within the prescribed territories, certain waterproofing membranes and protective coatings in paints. After the execution of the licence agreement, Panatron purchased the necessary equipment and renovated its factory and started production in January 1996.

6. Panatron’s business relationship with Chemtour was shortlived. Panatron repeatedly fell into arrears with the royalty payments under the licence agreement and various problems seemed to emerge in the company. On 22 July 1997, Chemtour gave a formal notice to Panatron pointing out the breaches of the agreement and stating its intention to terminate the agreement. This was followed by the letter of 11 August 1997 from Chemtour’s solicitor stating that the licence agreement would terminate on 23 August 1997, unless in the meanwhile Panatron paid up all the arrears of royalties. No payment, however, was made by Panatron, and the agreement was accordingly terminated on 23 August 1997.

7. Prior to that, on 20 August 1997, Lee gave notice of resignation from Panatron, and left the company immediately. Two days later, Yin gave notice of resignation and served out his notice and left the company on 22 September 1997.

8. Soon after the termination of the licence agreement, Dettrick formed a company in Singapore called Chemind Construction Products Pte Ltd, to take over the supply of the products, which were previously supplied by Panatron, to the various customers in Singapore, and both Lee and Yin had some involvement in that company. Presumably, because of these activities on the part of Dettrick, Lee and Yin, Panatron commenced an action against Lee, Chemind Construction Products Pte Ltd, Yin and Dettrick claiming damages for conspiracy on their part to injure Panatron and also claiming against Lee and Yin damages for breach of contract and breach of fiduciary duties. The claims were resisted. In the same action, both Lee and Yin in turn counterclaimed against Panatron and Phua for damages for fraudulent representations made to them inducing them to invest in Panatron and also for the balance of the unpaid remunerations due to them respectively.

9. The action was tried before Lai Kew Chai J. He dismissed the claim of Panatron for conspiracy and allowed the counterclaims of Lee and Yin for damages for fraudulent representations. Against his decision two appeals were brought. The first appeal, Civil Appeal No 146 of 2000, was brought by Panatron alone, and it was an appeal against that part of the decision of Lai J dismissing Panatron’s claim for damages for conspiracy on the part of Lee, Yin and Dettrick. We heard the appeal, and at the conclusion we dismissed it with costs. The second appeal is the one now under consideration and is an appeal by Panatron and Phua against that part of Lai J’s decision allowing Lee’s and Yin’s counterclaims for damages for fraudulent representations said to have been made to them inducing them to subscribe for the shares in Panatron.

The representations

10. We turn first to the representations said to have been made by Phua to Lee and Yin respectively. Lee alleged that the following representations had been made to him by Phua which induced him to subscribe for shares in Panatron:

a. That Panatron and its subsidiaries were more profitable than they actually were.

b. That the other directors and shareholders might object to Lee paying for the shares at a premium of only 35%, unless he accepted the offer immediately.

c. That one Ivan Koo had already invested $200,000 in Panatron, bringing Panatron’s issued capital to $2,000,000.

d. That Phua himself had invested more than $500,000 in the capital of Panatron.

11. Lee said that all these representations were false. Panatron and the subsidiaries were not actually profitable; they were in fact making losses. The net returns on Panatron’s investments in Chemind Pte Ltd (one of Panatron’s subsidiaries) were negative. There was no basis for Phua’s assertion that the other directors would object to Lee subscribing for shares at a premium of 35%, when in fact all the other shareholders were subscribing for shares at the same price. In particular, Ivan Koo was subscribing for shares in Panatron at that price, and Ivan Koo did not actually subscribe for any shares in Panatron until after Lee had subscribed for the shares. It was also completely untrue that Phua had invested $500,000 in Panatron. He had invested only a sum of $270,000.

12. Yin said that Phua had made the following representations to him and induced him to subscribe shares in Panatron:

a. That Panatron and its subsidiaries were more profitable than they actually were.

b. That Panatron already had 120 customers and orders for more than 400 Ball Technic Systems.

c. That Panatron had purchased over 60% of the shares in Sinnet Resources Pte Ltd.

d. That the Ball Technic business was more productive and profitable than it actually was.

e. That Phua himself had invested more than $400,000 in the capital of Panatron.

Similarly, Yin said that all these representations were false. He discovered that Panatron and its subsidiaries were not profitable; they were making losses. Panatron did not have 120 customers for the Ball...