Scintronix Corp Ltd (formerly known as TTL Holdings Ltd) v Ho Kang Peng and another

• Jurisdiction: Singapore
• Judge: Quentin Loh J
• Judgment Date: 08 February 2013
• Neutral Citation: [2013] SGHC 34
• Date: 08 February 2013
• Docket Number: Suit No 207 of 2009
• Published date: 08 March 2013
• Plaintiff Counsel: Tony Yeo, Rozalynne Asmali, Fong King Man (Drew & Napier LLC)
• Hearing Date: 08 September 2011,28 September 2011,08 October 2011,31 August 2011,05 September 2011,06 September 2011,18 November 2011,13 October 2011,14 October 2011,29 September 2011,07 September 2011,27 September 2011,01 September 2011
• Defendant Counsel: Alvin Tan Kheng Ann (Wong Thomas & Leong)
• Court: High Court (Singapore)
• Subject Matter: Companies,Duties,Directors

Quentin Loh J:

These proceedings involve claims brought by the plaintiff Scintronix Corporation Ltd, which was formerly named TTL Holdings Limited, against the first defendant Ho Kang Peng (“Ho”) for breach of fiduciary, statutory and contractual duties as a director and against the second defendant Chow Weng Fook (“Chow”) for breach of his duties of fidelity and contractual duties as an employee. As matters covered by these proceedings occurred while the plaintiff was named TTL Holdings Limited, I will refer to the plaintiff as TTL.

The parties

TTL is a company listed on the mainboard of the Singapore Exchange Securities Trading Limited (“SGX”) and is involved in the plastics industry.

Ho was formerly an Executive Director of TTL and was also appointed the Chief Executive Officer (“CEO”) on 1 November 2005 and Executive Chairman of TTL on 23 November 2007. Ho resigned from his position as the CEO and Executive Chairman on 28 March 2008, but remained a non-executive director from 29 March 2008 to 23 October 2008. Ho joined one Fu Yu Manufacturing Limited (“Fu Yu”) as the CEO and an Executive Director on 31 March 2008.

Chow was formerly an Executive Director and the Executive Chairman of TTL from 24 November 2005 to 23 November 2007. After Chow stepped down from his positions as Executive Director and Executive Chairman on 23 November 2007, he remained in the employment of TTL as an Advisor from 23 November 2007 to 14 April 2008. According to Chow, he subsequently became an Advisor to Fu Yu on 3 December 2007 and the Acting General Manager of Nano Technology Manufacturing Pte Ltd (“Nano Technology”) – a Singapore based subsidiary of Fu Yu – in December 2007. Chow also claimed that he was appointed Acting General Manager (Southern China) of Fu Yu sometime in March 2008.

TTL’s pleadings

TTL’s Statement of Claim (Amendment No 2) (“Statement of Claim”) alleged that Ho owed the following duties to TTL: duties of honesty, diligence and fidelity under an express term of Ho’s employment contract with TTL; fiduciary duties as a director: to act bona fide and in good faith in the interests of TTL; to act for proper purposes; to ensure that the affairs of TTL are properly administered; and to ensure that contracts and transactions are entered into at arm’s length in fulfilment of TTL’s corporate objectives; and duties under s 157(1) of the Companies Act (Cap 50, 2006 Rev Ed) (“Companies Act”) to exercise reasonable care, to act honestly and use reasonable diligence in the discharge of the duties of his office as director; and express contractual duties under TTL’s Employee Handbook (“Employee Handbook”), viz, a duty of fidelity and a duty not to incite other employees to commit breaches of TTL’s rules and regulations.

TTL’s pleaded case was that Ho had allegedly breached the above duties by: employing Chow and one Ng Hock Ching (“Ng”) as Advisors to TTL on the same terms that they had received when they were Executive Directors, without obtaining formal approval from TTL’s board of directors (“the Board”); entering into a consulting agreement with a company incorporated in Taiwan, Bontech Enterprise Co Ltd (“Bontech”) without the formal approval of the Board, and authorising payments to Bontech although the details of Bontech’s services under the consulting agreement were unspecified; and, planning to remove and relocate employees who held key appointments at TTL to Fu Yu and/or its subsidiaries, a company which was allegedly in competition with TTL. The Statement of Claim set out a litany of claims that were not all pursued at trial. For this reason, I have relied to some extent on TTL’s written submissions to identify the relevant duties that corresponded to each particular instance of impugned conduct and have focused on these claims specifically.

In relation to Chow, TTL pleaded that Chow owed the following duties to TTL as an employee: implied duties of fidelity not to act in conflict of TTL’s interests, not to work for a competitor and not to persuade other employees to work for a competitor; an express contractual duty under the Employee Handbook not to have a second job which interferes with the efficient performance of his duties to TTL; and, express contractual duties under the Employee Handbook, viz, a duty of fidelity and a duty not to incite other employees to commit breaches of TTL’s rules and regulations. I note at the outset that TTL did not plead that Chow was in the position of a shadow director or that he owed TTL fiduciary duties by virtue of the seniority of his employment.

Chow allegedly breached the above duties by: planning to relocate employees who held key appointments at TTL to Fu Yu or its subsidiaries; and having a second job which interfered with the efficient performance of his duty to TTL.

As an order for bifurcation had been made (see Scintronix Corporation Ltd (f.k.a TTL Holdings Limited) v Ho Kang Peng and another [2011] SGHC 28), the only issue before me in these proceedings was liability for breach.

Claims against Ho

TTL’s case against Ho falls into three main categories: allegations relating to Ho’s employment of Chow and Ng as Advisors to TTL; allegations relating to certain payments made pursuant to the agreement entered into with Bontech; and allegations relating to Ho’s involvement in the poaching of TTL’s employees to Fu Yu.

Preliminary issue: Was Fu Yu a competitor?

A number of the allegations above revolve around the defendants’ involvement with Fu Yu, which was purportedly a competitor of TTL. It is therefore appropriate for me to set out, as a preliminary issue, my findings on whether Fu Yu was a competitor in order to deal with the factual premise of TTL’s allegations.

The plaintiff and the defendants had two divergent views on whether Fu Yu was a competitor. TTL argued that Fu Yu was a competitor of TTL for customers, suppliers and employees. Tan Kee Liang (“Tan”), the present CEO of TTL, claimed that TTL and Fu Yu had overlapping customers such as Bosch, Flextronics, Philips and Sonim Technologies.¹ In his oral evidence, Tan stated that Fu Yu was much bigger than TTL and had a much wider range of equipment; he was of the opinion that Fu Yu was potentially capable of doing any business that TTL had the capacity and machinery to pursue.² Tan further categorised the relevant segment of TTL’s business as “consumer products” (ie, remote controls, DVD players) and “telecommunications” (ie, handphone casings).³ Fu Yu purportedly made handphones in its Dongguan factory, as well as television and DVD player parts⁴ and was involved in the same consumer and telecommunications segment of the market. TTL and Fu Yu also apparently competed for suppliers as there were only a few key suppliers in the plastics industry,⁵ and for staff that had the same sort of experience, qualifications and skill sets.⁶ Fu Yu was also identified as a competitor in TTL’s listing documents in 2001,⁷ and Ho confirmed that Fu Yu and TTL both had factories in Dongguan, Shanghai and Johor Bahru.⁸

Ho claimed that TTL and Fu Yu were not competitors in the following aspects. First, Fu Yu used much more raw material than TTL, but accounted for less than 0.1% of the available material in the market. It was therefore difficult to characterise TTL and Fu Yu as competing for the supply of such materials.⁹ Secondly, Tan’s evidence on overlapping customers was misleading as these customers were large multi-national corporations with a wide range of products and TTL and Fu Yu served different entities and were involved in different products. For example, Fu Yu was involved in Philip’s television operations and TTL was involved in producing mobile phone displays.¹⁰ Ho also stated that he was not aware that Flextronics or Borsch were major customers of TTL at the material time.¹¹ Fu Yu would seek customers who matched the category of business appropriate to their present investment and facilities, and would not pursue every possible business opportunity.¹²

I do not think that TTL has discharged the burden of proving that Fu Yu was its direct competitor. I find TTL’s assertion that both companies were in the “plastics industry” unhelpful. Unlike other specialised industries where only a limited range of products or services are offered, the label “plastics industry” is a very broad and generic description and could cover a huge range, from raw materials supplies, injection moulding, equipment or manufacturing a host of products, all the way from housing for monitors to moulding for vehicle parts to tourist souvenirs like key chains. The range of products offered and the customer bases or markets served could differ vastly within this single industry. While it is not disputed that TTL and Fu Yu were both involved in the injection moulding business, the evidence before me was vague, impressionistic and proceeded from two different starting points. Tan based his assessment on the hypothetical level (ie, that Fu Yu could potentially compete for the same business) while Ho considered competition from a factual level (ie, whether the two companies had actively sought the same types of contracts).

In the majority of cases, the issue of whether two companies are competitors is usually conceded, but in this case, this was strongly disputed by the defendants. TTL did not provide any information on what should be the appropriate yardstick for assessing competition, nor did it attempt to provide the evidence to show that TTL and Fu Yu could provide substitute products or services or instances where the companies competed for the same business from the same customers (save for a single contract involving a particular contract manufacturer, which I will consider in detail below). The question of whether there was competition cannot, of course, be answered in simple binary terms as ‘competition’ especially in an industry as wide and...