Swiss Butchery Pte Ltd v Huber Ernst and others and another suit

• Jurisdiction: Singapore
• Court: High Court (Singapore)
• Judge: Woo Bih Li J
• Judgment Date: 27 April 2010
• Neutral Citation: [2010] SGHC 129
• Citation: [2010] SGHC 129
• Defendant Counsel: Kirpal Singh (Kirpal & Associates),Muthu Arusu (Tan Rajah & Cheah),Johnny Cheo Chai Beng (Cheo Yeoh and Associates LLC )
• Published date: 04 May 2010
• Plaintiff Counsel: Hee Theng Fong, Noelle Seet, James Lim and Clare Lin (KhattarWong)
• Hearing Date: 02 February 2010,06 July 2009,15 January 2010,11 January 2010,28 January 2010,29 January 2010,18 January 2010,20 January 2010,19 February 2010,27 January 2010,26 January 2010,21 January 2010,10 July 2009,01 July 2009,13 January 2010,14 January 2010,01 February 2010,09 July 2009,08 July 2009,12 January 2010,19 January 2010,22 January 2010,03 July 2009,25 January 2010,02 July 2009,07 July 2009
• Docket Number: Suit No 245 of 2008/V consolidated with Suit No 222 of 2008/W
• Date: 27 April 2010
• Subject Matter: Companies

Woo Bih Li J: Introduction

The plaintiff Swiss Butchery Pte Ltd (“SB”) was in the business of retail and wholesale butchery and production operations. In Suit No 245 of 2008/V (“Suit No 245”), SB claims against the first defendant, Huber Ernst, and second defendant, Huber Ryan Ernst, for breach of their duties as a director and an executive of SB respectively and for the tort of conspiracy. Further, SB claims against the other four defendants for, inter alia, conspiracy and dishonest assistance. In Suit No 222 of 2008/W (“Suit No 222”), Huber Ernst claims against the other shareholders of SB for relief under s 216 of the Companies Act (Cap 50, 2006 Rev Ed) (“Companies Act”) for oppression against a minority shareholder. By an Order of Court dated 7 July 2008, both suits have been consolidated and the trial of Suit No 245 proceeded before Suit No 222.

SB made numerous allegations in Suit No 245 which centred around SB’s allegation that Huber Ernst diverted SB’s wholesale and production operations to Huber’s Pte Ltd for the benefit of Huber Ernst and his two children. There was also a claim for defamation against Huber Ernst and the sixth defendant, Thomas Norbert Kreissl, but this was withdrawn during the proceedings.¹ Further, the defendants in Suit No 222 have offered to buy out Huber Ernst’s shares in SB without admission of liability in respect of the allegations of oppression² and it became unnecessary to go into such allegations which, in any event, overlapped with the allegations in Suit No 245. I will be giving directions separately on matters pertaining to the valuation of Huber Ernst’s shares for the buy-out.

The relevant law and legal principles

Before considering the facts, I will set out the applicable legal principles pertaining to the various causes of action viz, directors’ duties, the tort of conspiracy and dishonest assistance.

The law on directors’ duties

Section 157 of the Companies Act provides for the general duties owed by a director as follows:

157—(1) A director shall at all times act honestly and use reasonable diligence in the discharge of the duties of his office.

It is trite that the courts will not interfere with a management decision which is exercised in a bona fide manner. As stated in Walter Woon on Company Law (Sweet & Maxwell Asia, Third Ed, 2005) (“Walter Woon”) at paras 8.34 and 8.35: 8.34 It is not for the court to gauge what the interests of the company are. It has been said that ‘directors must exercise their discretion bona fide in what they consider (not what a court may consider) is the interests of the company’. The courts do not sit as courts of appeal over decisions of management. As Lord Wilberforce put it in Howard Smith Ltd v Ampol Petroleum Ltd:

Their lordships accept that such a matter as the raising of finance is one of management, within the responsibility of the directors: they accept that it would be wrong for the court to substitute its opinion for that of the management, or indeed to question the correctness of the management’s decision, on such a question, if bona fide arrived at. There is no appeal on merits from management decisions to courts of law: nor will courts assume to act as a kind of supervisory board over decisions within the powers of management honestly arrived at.

8.35 This is judicial recognition of the fact that different people can have different opinions about what is good for a company and in its interests. Directors may take risks with the company’s property where they honestly believe that to do so is in the company’s interests. This is indeed the essence of entrepreneurship. Just because a director makes a wrong decision does not mean that he has breached his fiduciary duty to the company. The above dicta imply that the test is subjective and the courts will not interfere in a management decision.

The above passage in Howard Smith Ltd v Ampol Petroleum Ltd (“Howard Smith”) quoted in Walter Woon has been accepted in Intraco Ltd v Multi-Pak Singapore Pte Ltd [1994] 3 SLR(R) 1064 (“Intraco Ltd”) at [325] where the Court of Appeal considered that the transactions entered into by the directors were based on a management decision which in retrospect, turned out to be a poor decision. As the decision was arrived at bona fide, the directors were not in breach of their fiduciary duties.

In the House of Lords decision of Regal Hastings Ltd v Gulliver [1967] 2 AC 134, Viscount Sankey stated at 137 thus:

… The general rule of equity is that no one who has duties of a fiduciary nature to perform is allowed to enter into engagements in which he has or can have a personal interest conflicting with the interests of those whom he is bound to protect. If he holds any property so acquired as trustee, he is bound to account for it to his cesti que trust. The earlier cases are concerned with trusts of specific property: Keech v Sandford per Lord King LC. The rule, however, applies to agents, as, for example, solicitors and directors, when acting in a fiduciary capacity. …

In the same case, Lord Russell of Killowen similarly stated the strict rule of equity at 144 as follows:

The rule of equity which insists on those, who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fides; or upon such questions or considerations as whether the profit would or should otherwise have gone to the plaintiff, or whether the profiteer was under a duty to obtain the source of the profit for the plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances, been made. The profiteer, however honest and well-intentioned, cannot escape the risk of being called upon to account.

In Phipps v Boardman [1966] 3 WLR 1009, Lord Upjohn in his dissenting judgment stated the nature of a fiduciary at 1066 thus:

Rules of equity have to be applied to such a great diversity of circumstances that they can be stated only in the most general terms and applied with particular attention to the exact circumstances of each case. The relevant rule for the decision of this case is the fundamental rule of equity that a person in a fiduciary capacity must not make a profit out of his trust which is part of the wider rule that a trustee must not place himself in a position where his duty and his interest may conflict. …[emphasis added]

In Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443, Roskill J held at [452]-[453] that the managing director of a company was liable for a breach of his fiduciary duties because he used information obtained while he was the company’s managing director for his own personal purposes and profit, thereby putting his personal interest in direct conflict with his pre-existing and continuing duty as managing director.

Similarly, in CMS Dolphin Ltd v Simonet and another [2001] 2 BCLC 704 (“CMS Dolphin”), Lawrence Collins J held at [96] that the underlying basis of the liability of a director who exploits a maturing business opportunity of the company after his resignation is that the opportunity is to be treated as if it were property of the company in relation to which the director had fiduciary duties. By seeking to exploit the opportunity after resignation he is appropriating for himself that property. The director becomes a constructive trustee of the fruits of his abuse of the company’s property, which he has acquired in circumstances where he knowingly had a conflict of interest and exploited it by resigning from the company.

It is thus clear that while the court will not question a management decision which was exercised in a bona fide manner, anyone who owes a fiduciary duty is not allowed to enter into transactions in which he has a personal interest conflicting with the interest of those whom he is bound to protect. More particularly, a director is not allowed to make use of information obtained while he was a director of the company in question or to exploit a maturing business opportunity of the company for his own personal purposes and profit. Any profit so obtained will be subject to a constructive trust in favour of the company.

The law on conspiracy

As held by the Court of Appeal in Quah Kay Tee v Ong & Co Pte Ltd [1996] 3 SLR(R) 637 at [45], there are two types of tort of conspiracy – conspiracy by unlawful means and conspiracy by lawful means:

The tort of conspiracy comprises two types: conspiracy by unlawful means and conspiracy by lawful means. A conspiracy by unlawful means is constituted when two or more persons combine to commit an unlawful act with the intention of injuring or damaging the plaintiff, and the act is carried out and the intention achieved. In a conspiracy by lawful means, there need not be an unlawful act committed by the conspirators. But there is the additional requirement of proving a “predominant purpose” by all the conspirators to cause injury or damage to the plaintiff, and the act is carried out and the purpose achieved.

In Nagase Singapore Pte Ltd v Ching Kai Huat [2008] 1 SLR(R) 80 at [23], Prakash J summarised the elements that must be satisfied to prove both forms of conspiracy:

In order for the claim of conspiracy to succeed, the elements that have to be satisfied are the following:

(a) a combination of two or more persons and an agreement between them and amongst them to do certain acts; (b) if the conspiracy involves lawful acts, then the predominant purpose of the conspirators must be to cause damage or injury to the plaintiff but if the conspiracy involves unlawful means, then such predominant intention is not required; (c) the acts must actually be performed in furtherance of the agreement; and (d) ...