Singapore Tourism Board v Children's Media Ltd and Others

Judgment Date27 May 2008
Date27 May 2008
Docket NumberSuit No 175 of 2006
CourtHigh Court (Singapore)
Singapore Tourism Board
Children's Media Ltd and others

[2008] SGHC 77

Lai Siu Chiu J

Suit No 175 of 2006

High Court

Companies–Incorporation of companies–Lifting corporate veil–Special purpose vehicle used as conduit for payments–Corporate governance–Commingling of bank accounts–Whether corporate veil pierced–Whether company used to evade liability–Whether company used to defraud plaintiff–Whether real contractual relationship existed between defendant companies–Contract–Misrepresentation–Fraudulent–Inducement to enter contract–Inducement to enter collateral contract–Confirmation of financing arrangements–Intention to stage musical concert–Whether representation of intention without honest belief constituted fraudulent misrepresentation–Whether silence constituted fraudulent misrepresentation–Whether contract rescinded–Whether collateral contract rescinded–Evidence–Documentary evidence–Proof of contents–External auditor's testimony used to prove truth of contents of document–Failure to call as witness party who originally prepared documents–Legitimacy of expenditure–Whether expert testimony can be adduced to prove contents–Whether expert testimony reliable–Whether experts' verification process independent–Whether experts overly deferential–Whether failure to call party as witness gave rise to presumption that testimony will be unfavourable–Trusts–Quistclose trusts–Statutory body advancing money under contract in performance of statutory function–Whether entitled to recover money–Whether nature of underlying transaction relevant–Whether contractual obligations constituted purpose of advance–Whether statutory function affected purpose of advance

The plaintiff was the Singapore Tourism Board (“STB”), a statutory body with the aim, inter alia, of promoting Singapore as a travel and tourist destination. It entered into a series of agreements with the first defendant, a UK company. The second defendant was another UK company that was the shareholder of the first defendant. The third defendant was at all material times the director and chief executive officer of the first and second defendants, as well as the sole shareholder of the second defendant.

The third defendant, who claimed extensive experience in organising musical events on an immense international scale, had approached the Singapore government with a proposal to stage a musical event in Singapore known as Listen Live (“the Event”). The Event was meant to be the culmination of a 180-day worldwide campaign called the Listen Campaign (“the Campaign”); which was intended to comprise a series of activities involving well-known dignitaries, heads of state, members of royalty as well as film and music artistes to be broadcast all over the world in order to raise funds for the world's most disadvantaged children.

STB was designated as the lead agency to negotiate with the defendants. The negotiations led to STB entering into an agreement (“the First Agreement”) with the first defendant - which the third defendant said was a special purpose vehicle specially created to hold the rights to artistes, to ensure that such rights could not be exploited for events other than the Campaign.

In reality, the first defendant was merely the conduit to receive the sponsorship sums. It was made to bear all the expenses and liabilities of the second defendant as well as those of third parties, but it obtained none of the benefits for being the organiser of the Event. Instead, where liabilities were to be incurred, the contract was entered into by the first defendant, but where income was to be received, the contract was entered into by the second defendant. Between the defendants, there were no internal procedures for the control of movement of funds, their bank accounts were effectively commingled, and there was a dearth of documents in relation to bank accounts, liabilities and obligations between them. Although the defendants alleged there was a defined contractual relationship between the first and second defendants in relation to the staging of the Event, there were no written documents/agreements to support this claim.

Control of the first defendant's bank account rested in the third defendant's hands, who used it to make payments to himself, the second defendant, his friends and third parties without any measure of checks and balances. Similarly, the third defendant was essentially the controlling mind and the sole beneficiary of the profits of the second defendant, being the only person within the second defendant who decided to whom payments were to be made.

Under the First Agreement, STB was obliged to provide a sum of money (“the sponsorship sum”). In return, the first defendant was obliged to procure the necessary artistes, broadcasters and financing (“Core Finance”) to stage the Event. If the first defendant failed to confirm that it had raised Core Finance 180 days prior to the staging of the Event, the first defendant could terminate the agreement in which event the company would be obliged to return whatever sponsorship sums STB had paid (the “refund provision”). Deadlines were provided for the fulfilment of these obligations. However, the first defendant failed to meet its deadlines, citing external events which diverted attention from its fund-raising attempts, and the Event could not be staged by the timeline contemplated in the First Agreement. STB accepted the first defendant's explanations and agreed to a variation of the contract that resulted in a new agreement (“the Second Agreement”).

Under the Second Agreement, the right to terminate was now available to both parties instead of only being available to the first defendant. It also included a reduction of the key deliverables for the confirmation of artistes and broadcasters, while the period for confirmation of Core Finance was reduced. On the last day of this new deadline, the first defendant purported to give confirmation that Core Finance had been raised. Although suspicious, STB acknowledged, without prejudice to its rights, that the first defendant had confirmed Core Finance, so as to enable the Event to proceed. However, the Event still failed to be staged by the timeline contemplated in the Second Agreement because the first defendant had failed to procure the necessary artistes and broadcasters, citing again external events for its failure to do so.

Subsequently, at a meeting held by the parties, the third defendant represented to STB that the Event could still be staged if STB agreed to a postponement. However, the third defendant insisted that STB remove the refund provision - characterising the presence of the refund provision as a “deal-breaker”. At this meeting, the defendants never raised the possibility that Core Finance could not be raised, nor did they inform STB that the Core Finance previously raised could no longer be applied towards the staging of the Event. At this point, STB was unaware that the third defendant had transferred the entire balance of the sponsorship sums from the first defendant's account to that of the second defendant's, or that instructions had already been given to stop work for the Event. Neither was STB aware that the defendants were secretly making arrangements to stage the Event in New York instead.

STB agreed to the removal of the refund provision leading to the third agreement between the parties for the postponement of the Event (“the Third Agreement”). A side letter (“the side letter”) was also signed between STB and the first defendant. Under the side letter, all prior agreements between the parties were deemed terminated; neither party had any further obligations arising from the prior agreements; and both parties waived their right to claims arising from the prior agreements.

Some months after, the third defendant claimed the first defendant was unable to confirm the Core Finance under the Third Agreement by the deadline set, and purported to terminate the same on this basis.

Held, allowing the claim and dismissing the counterclaim:

(1) No reliance was to be placed on the defendants' experts' reports because of the experts' wholly unsatisfactory form of inquiry and unacceptable degree of deference accorded by them to the defendants. The truth of the contents of the documents detailing the defendants' expenditure could not be indirectly proved through the expert testimony of an external auditor where no independent verification was conducted. Neither expert was in a position to testify that they had sighted primary documents or the actual invoices for expense items nor did they question the invoices they had seen. The experts essentially relied upon what they were told either by the second and third defendants' auditors or by the third defendant himself; self-corroboration was no verification: at [78], [80] and [84].

(2) The failure of the defendants to call the party who actually prepared the documents to the witness stand gave rise to a presumption that the party, if called, would give evidence unfavourable to the defendants: at [82].

(3) The corporate veil could be lifted where it was a façade or sham. Although the first defendant was ostensibly a separate corporate vehicle to hold the rights to artistes, it was actually used as an instrument to bear all liabilities while the sponsorship sum paid to it was siphoned off by the second and third defendants. In this capacity, the first defendant acted as a façade and/or sham to allow the third defendant to evade his legal obligations: at [110], [112] and [155].

(4) Both the Third Agreement and the side letter, which was a collateral contract to the Third Agreement, were rescinded because they were entered into on the basis of the defendants' fraudulent misrepresentations, and had caused financial detriment to STB. Fraudulent misrepresentation may be by silence or conduct. The defendants knew of and took advantage of STB's anxiety...

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