Tan Hup Thye v Refco (Singapore) Pte Ltd (in members' voluntary liquidation)

• Judge: Judith Prakash J
• Judgment Date: 11 May 2010
• Neutral Citation: [2010] SGHC 149
• Citation: [2010] SGHC 149
• Docket Number: Suit No 778 of 2006
• Published date: 24 May 2010
• Hearing Date: 15 April 2008,18 April 2008,16 April 2008,26 May 2009,27 May 2009,10 April 2008,14 April 2008,17 April 2008,21 May 2009,07 July 2009,11 April 2008,25 May 2009
• Plaintiff Counsel: C R Rajah SC, MK Eusuff Ali and Lavinia Rajah (Tan Rajah & Cheah)
• Date: 11 May 2010
• Defendant Counsel: William Ong, Eunice Chew and Ramesh Kumar (Allen & Gledhill LLP)
• Court: High Court (Singapore)
• Subject Matter: Duties,Companies,Directors

Judith Prakash J: Introduction

The defendant company, Refco (Singapore) Pte Ltd, was incorporated in February 1984 and went into members’ voluntary liquidation on 30 November 2006. The plaintiff, Tan Hup Thye, was an employee of the defendant from the time of its incorporation up to 4 December 2005. Starting out as an executive vice president, the plaintiff became managing director of the defendant in November 1986, a position that he held up to 4 December 2005. Thereafter, he remained a director of the defendant until the liquidation proceedings started. The defendant was part of a group of companies which I shall call “the Refco Group”. Its immediate holding company was Refco Global Holdings LLC but its ultimate shareholder was Refco Inc.

On 4 December 2005, the defendant’s business was transferred to Man Financial (Singapore) Pte Ltd (“Man (S)”) as part of a sale and transfer of some of the businesses belonging to companies in the Refco Group. Pursuant to the sale and transfer of the defendant’s business, the plaintiff was offered and accepted employment with Man (S) on 5 December 2005. This employment was, however, terminated on the same day pursuant to a termination agreement which also contained a generous termination package for the plaintiff.

The plaintiff’s claim herein is for bonus entitlements from the defendant which he alleges that he is entitled to in respect of his employment with the defendant from 1 March 2005 (the beginning of the defendant’s financial year) to 4 December 2005. The claim is for a total sum of $1,460,442.03. This sum is made up as follows: a sum of $1,412,759.00 for the seven months from 1 March 2005 to 30 September 2005; and a sum of $47,683.03 for the months of October and November 2005.

The plaintiff has put forward two bases for his claim. They are: The claim for the sum of $1,412,759 is based on the specific sum approved and declared as the plaintiff’s bonus in a Board of Directors’ resolution passed on 3 December 2005 (“the December Resolution”); and The bonus sum of $1,412,759 is also allegedly a contractual entitlement of the plaintiff. This contractual entitlement extends to the further sum of $47,683.03 for the months of October and November 2005. The plaintiff says that the bonus payable to him is from bonus accrued in the defendant’s accounts in the course of the defendant’s financial year. Allegedly, the bonus was accrued based on a bonus formula of 30% of net profits before tax adjusted for cost of capital (“the Bonus Formula”).

The defendant’s position is that the plaintiff is not entitled to the moneys he is claiming. This is on the basis that first, the plaintiff has no contractual rights to the sums he is claiming and second, that he is not entitled to claim bonuses on the basis of the December Resolution because the resolution is allegedly invalid or, alternatively, the declaration of bonuses under the December Resolution was in breach of the plaintiff’s fiduciary duties owed to the defendant. Further, the defendant is also, by way of a counterclaim, claiming damages and/or an indemnity against the plaintiff for losses arising out of the plaintiff’s breach of fiduciary duties.

Background

At all material times, the defendant was in the business of providing securities dealing services and broking services in financial futures contracts, foreign exchange and commodities.

As of August 2005, the board of directors of the defendant comprised: (a) Mr Philip Roger Bennett (“Mr Bennett”); (b) the plaintiff; (c) Mr Santo Charles Maggio (“Mr Maggio”); and (d) Mr Keith Tay Ah Kee (“Mr Tay”). Mr Maggio held the position of Chief Executive Officer of two other companies in the Refco Group while Mr Bennett was the Chairman and a director of the defendant from April 1984. Until 1998, Mr Bennett was the chief financial officer of Refco Group Ltd (another company in Refco Group) and from then, he held the post of president and chief executive officer of Refco Group Ltd. Mr Tay was an independent director who had been appointed in 1999.

In August 2005, the Refco Group was restructured and a company called Refco Inc was listed on the New York Stock Exchange. In October 2005, Refco Inc announced that it had discovered a receivable of about US$430m owing to it which Mr Bennett had not disclosed. Mr Bennett and Mr Maggio were subsequently charged in the United States for securities fraud. As a consequence of the announcement, Refco Inc’s share price fell and on 17 October 2005, Refco Inc filed for and secured bankruptcy protection in the United States.

Later in October 2005, AlixPartners LLC was retained by Refco Inc to, inter alia, assist with the potential sale of Refco Inc’s businesses, including the defendant. AlixPartners LLC appointed KordaMentha, an Australian firm, to oversee the Refco Group of companies’ subsidiaries in Asia, including the defendant. As regards the defendant, David Winterbottom (“Mr Winterbottom), Cameron Duncan and John Mouwad were appointed by KordaMentha to oversee it.

On 16 November 2005, Robert Dangremond (“Mr Dangremond”) was appointed interim CEO of Refco Inc.

On 13 November 2005, it was agreed that Man Financial Inc would acquire the business of the Refco Group, including the defendant, pursuant to the terms of an acquisition agreement (“the Acquisition Agreement”) of that date made between Man Financial Inc as the buyer and various members of the Refco Group, including the defendant, as sellers. As regards the defendant, it was agreed that the defendant’s assets and business operations were to be taken over by Man (S) on 5 December 2005.

In the meantime, the plaintiff had informed Mr Winterbottom of his intention to make bonus payments to the defendant’s employees, at the very latest by 26 October 2005. The next month, the defendant’s board sought a legal opinion from the defendant’s lawyers, Messrs Rajah & Tann LLP (“RT”), as to whether its employees were legally entitled to be paid bonuses prior to and as part of the orderly winding down of the business of the defendant. The legal opinion was issued on 18 November 2005 and the plaintiff considered that it supported the view that the defendant was entitled to pay the staff bonuses prior to and as part of an orderly transfer of the defendant’s business to Man (S) as long as the employees satisfied the bonus criteria.

On 21 November 2005, a board meeting was held. The plaintiff attended the meeting in person and Mr Tay attended it via teleconference. Two other employees of the defendant were in attendance. At this meeting, a resolution was passed (“the November resolution”), approving the payment of bonus to the defendant’s employees totalling $6,485,094. Later that same day, the plaintiff received an e-mail from Refco Inc’s general counsel, Dennis Klejna, telling him not to make any bonus payment without the approval of the Refco Inc board. On 22 November 2005, other representatives from Refco Inc, including Mr Dangremond, told the plaintiff not to make the bonus payments.

On 3 December 2005, the defendant’s board of directors held a meeting (“the December meeting”) at which they, inter alia, passed a resolution (“the December Resolution”) approving the allocation of bonuses to individual employees as per a detailed bonus list. This list set out the amount of bonus payable to each of the defendant’s employees including the plaintiff.

On 4 December 2005, Laurence O’Connell (“Mr O’Connell”) from Man (S) informed the plaintiff that he should not communicate the November and December Board Resolutions to the employees of the defendant. The plaintiff suggested that Man (S) provide a specific assurance in its letters to the employees that Man Financial Inc would honour applicable bonus entitlements. Mr O’Connell agreed to this suggestion.

On 5 December 2005, Man (S) took over the business of the defendant and subsumed it within its own business. Pursuant to the Acquisition Agreement, a transfer agreement was entered into and the defendant’s employees were transferred to Man (S). On the same day, the employment of the plaintiff and some of the senior members of his management team was terminated by Man (S).

The issues

The main issues as framed by the plaintiff are: whether the plaintiff is entitled to his bonus payments pursuant to the December Resolution; whether, in the alternative, the plaintiff is contractually entitled to his bonus payments; and whether the plaintiff was in breach of his fiduciary duties and duties of fidelity owed to the defendant and therefore liable for payments made by the defendant pursuant to settlement agreements with its ex-employees.

Claim under the December Resolution

The plaintiff’s position is that the December Resolution approved the specific bonus payments to each of the defendant’s employees as set out in a bonus list presented to the board. The plaintiff says that notice of the December meeting was duly given to all directors and the meeting was attended by the plaintiff and Mr Tay who formed a quorum and passed the December Resolution. The December meeting was duly minuted and the minutes are evidence of what was decided at the meeting. Accordingly, the defendant has an obligation to pay the plaintiff his bonus as contained in the bonus list and approved by the board in the December Resolution.

The defendant’s position is that the plaintiff is not entitled to rely on the December Resolution because: there was no quorum at the December meeting; and the December Resolution was not in the best interests of the defendant and the plaintiff had therefore acted in breach of his fiduciary duties when he passed the December Resolution.

Section 6.0 of the minutes of the December meeting reads as follows:

6.0 DECLARATION OF BONUS David Yeow explained to the Board that there were case law precedents in the UK that bonus payment was not discretionary but was a...