SPP Ltd v Chew Beng Gim and Another

• Jurisdiction: Singapore
• Judge: Chao Hick Tin J
• Judgment Date: 15 September 1993
• Neutral Citation: [1993] SGCA 66
• Docket Number: Civil Appeal No 173 of 1992
• Date: 15 September 1993
• Year: 1993
• Published date: 19 September 2003
• Plaintiff Counsel: S Menon and Chong Yee Leong (Wong Meng Meng & Pnrs)
• Citation: [1993] SGCA 66
• Defendant Counsel: Walter Woon and Sim Yong Chan (Sim Yong Chan & Co)
• Court: Court of Appeal (Singapore)
• Subject Matter: Guarantor,Guarantees and indemnities,Statement of claim,Authority of managing director of appellant company to bind company,Pleadings,Civil Procedure,Agency,Appellant company guarantor to hire-purchase agreement,Managing director allowed to run appellant company as 'one-man show',Credit and Security,Liability of appellant company to indemnify guarantors,Whether trial judge's decision based on issues not raised in statement of claim,Whether managing director authorised to bind appellant company,Competency of agents,Whether managing director had implied authority from board of directors to bind company,Whether guarantors acted under authorization of managing director of appellant company

This was an appeal against the decision of Judith Prakash JC in the third party proceedings in Suit Nos 6569 of 1985 and 6659 of 1989 in which she held that the appellants (who were the third party) were liable to indemnify the respondents (who were the defendants) against the claims brought against the latter by the plaintiffs, Hong Leong Finance Ltd (`Hong Leong`). We dismissed the appeal and now give our reasons.

The relevant facts that led to the appeal were as follows. The appellants were at all material times a public company with a group of associate and subsidiary companies both in Singapore and Malaysia. Its business was that of an investment holding company and its shares were quoted and listed on the Stock Exchange of Singapore Ltd. One Ong Tiong Soon (`Ong`), was the managing director and chief executive officer of the appellant company. The respondents were both executive directors of the appellants and they worked under Ong taking instructions from him from time to time. Ong was also a director of many of the associate and subsidiary companies of the appellants; so were the respondents. They were appointed to the boards of these companies to oversee their operations and to safeguard the appellants` interests in such companies.

In 1982, the appellants decided to expand into the timber business. In December of that year, they acquired through their wholly-owned subsidiary, SPP (M) Sdn Bhd, 45% interest in a timber company called Sejati Plywood Sdn Bhd (`Sejati`) which was formerly known as Chan Wah Lee Plywood Sdn Bhd (`Chan Wah Lee`). Sejati carried on a plywood business in Malaysia and its business consisted of peeling logs and selling green veneer to independent operators both in Singapore and Malaysia and its sales in Singapore were handled through a company, Famco (S) Pte Ltd (`Famco`). At that time, Famco and Sejati were independent companies although they had some common shareholders. In late March 1983, the appellants came up with the idea of acquiring Famco through Sejati and accordingly, in April 1983, Sejati acquired all the shares in Famco and the acquisition was completed by late April or thereabout. At about that time the respondents and Ong were appointed to the board of Famco.

Famco was used as a convenient vehicle to raise funds for the business of Sejati, as Famco had access to cheaper funds in the Singapore market. Sometime just before June 1983, the first respondent who had had previous dealings with Hong Leong, approached them to obtain hire-purchase financing for some machines in Johore. Hong Leong were told that Famco was to be the borrower and that the machines were to be sold by Chan Wah Lee to Hong Leong, who would then hire them to Famco on hire-purchase terms. The actual user would be Sejati. Hong Leong`s representatives were not told, however, that Chan Wah Lee and Sejati were in fact the same company; nor were they told of the appellants` connections with the companies, Sejati and Famco. Hong Leong agreed to provide the financing, and as security required personal guarantees from all the directors of Famco, in addition to ownership of the machines. The hire-purchase agreement was made between Hong Leong and Famco and the obligations of Famco were guaranteed by all the directors including the respondents. Later in October that year, Famco was interested in buying certain plywood machinery in Malaysia and Hong Leong agreed to finance Famco in an amount up to S$700,000. A second hire-purchase agreement was entered into between Hong Leong and Famco. Once again, the respondents and other directors of Famco gave personal guarantees to Hong Leong. In addition, Hong Leong was given a second charge over the shares in a company, in which the first respondent was a director, Feng Yuan Holdings Pte Ltd. Later (in September 1984) the charge over the shares was released and in consideration thereof the appellants provided a corporate guarantee to Hong Leong; that was in addition to the existing personal guarantees previously given by the Famco directors. The machinery remained in Malaysia and was used by Sejati. In December 1983, a third hire-purchase transaction was concluded. Hong Leong at the request of Famco bought a caterpillar wheel loader for about $60,000 and hired it to Famco on hire-purchase terms. The equipment was again for Sejati`s use, but this time the transaction was secured only by the personal guarantees of the respondents alone.

Sometime in August 1984 or thereabout, differences arose between Ong and one TK Lim who was effectively the majority shareholder of the appellant company. On 14 November 1984, Ong and the respondents were dismissed by the appellants, and, in the same month, Famco defaulted in making payments under the three hire-purchase agreements. Hong Leong instituted the following actions, namely:

(i) Suit No 6568 of 1985 claiming the sum of $189,621.62 plus interest under the hire-purchase transaction made in October 1983;

(ii) Suit No 6569 of 1985 claiming the sum of $22,700.74 and other sums plus interest under the hire-purchase transaction made in December 1983, and

(iii) Suit No 6659 of 1985 claiming the sum of $72,427.11 plus interest under the hire-purchase transaction made in June 1983.

In all the three suits, Famco and the respective guarantors including the respondents were joined as defendants. In respect of Suit Nos 6569 and 6659 of 1983, the respondents took out third party proceedings against the appellants, seeking in each case an indemnity against the claim of Hong Leong. By the time the suits came on for hearing, Hong Leong had obtained judgment in default against Famco and several of the guarantors. The respondents, who were defendants in all the three suits, and the appellants who were one of the defendants in Suit No 6568 of 1985, resisted the claims. All the three actions were consolidated by an order of court made on 14 February 1989 and were tried together before Judith Prakash JC. At the conclusion of the trial, in a reserved judgment, reported in [1993] 1 SLR 348 , she held that, first, on the main actions the appellants and the respondents were liable to Hong Leong under the respective guarantees, and, secondly, on the third party proceedings (in Suit Nos 6569 of 1985 and 6659 of 1985), the respondents were entitled to be indemnified by the appellants in respect of the guarantees which they (the respondents) had executed in favour of Hong Leong. There was no appeal against her decision on the main actions, but the appellants appealed against her decision on the third party proceedings.

Before we turn to the issues before us, it is convenient at this stage to set out the main facts found by the learned judicial commissioner, on the basis of which she held that the appellants were liable to indemnify the respondents. She found that both the respondents joined the board of directors of Famco at the request of the appellants in the person of Ong; that Famco was utilized as a convenient borrowing entity for the purpose of enabling Sejati to have access to cheaper funds in the Singapore market; that each of the three hire-purchase transactions which Famco concluded with Hong Leong was in respect of machines which were already being used by Sejati or which Sejati required in order to expand its business, and that the three transactions had benefitted Sejati and thus its shareholders but not Famco. It was apparent from the evidence that the respondents were considered by the appellants as the latter`s representatives on the board of Famco. Neither of the respondents had at any time any interest in the shares of Famco, Sejati or the appellant company. In relation to the organization of the appellant company, the learned judicial commissioner found that until August 1984, Ong was the `moving spirit` of the appellants and ran the appellants and its group; that the management was carried out in a very informal way and there was rarely any formal board meeting and decisions were taken at informal discussions between Ong and the executive directors, and that where consent of the other members of the board was required, Ong was the one who liaised with the non-executive directors and obtained their consent.

As regards the circumstances in which the respondents gave the guarantees to the plaintiffs, the learned judicial commissioner`s finding was as follows, at p 365:

When Chew [the first respondent] was informed by the plaintiffs [Hong Leong] that they required personal guarantees from Famco`s directors in respect of the June transaction, both he and Cheng [the

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