Tokuhon (Pte) Ltd v Seow Kang Hong and Others (No 2)

• Jurisdiction: Singapore
• Judgment Date: 07 October 2003
• Date: 07 October 2003
• Docket Number: Civil Appeal No 133 of 2002
• Court: Court of Appeal (Singapore)

Tokuhon (Pte) Ltd

Plaintiff

and

Seow Kang Hong and others

Defendant

[2003] SGCA 39

Yong Pung How CJ

,

Chao Hick Tin JA

and

Kan Ting Chiu J

Civil Appeal No 133 of 2002

Court of Appeal

Companies–Directors–Duties–Breach of duties–Relief under Companies Act (Cap 50, 1994 Rev Ed) s 391 (1)–Companies–Directors–Duties–Breach of fiduciary duties–Director sending letters to business associate–Letters detailing internal conflicts among management–Other directors in habit of disclosing such information to said associate–Whether sending of letters constituted breach of fiduciary duties–Companies–Directors–Duties–Cessation of directorship–Scope of duty still owed to company–Company's distributorship terminated and subsequently awarded to ex-director–Whether ex-director in breach of any duty–Correct test to determine whether duty breached

The appellant company Tokuhon (Pte) Ltd (“TPL”) instituted an action against the first two respondents (“Seow” and “Mrs Seow” respectively), who were their former directors, for breach of directors' duties. The third respondent (“Gamma”) was a company incorporated by the first two respondents.

TPL was the sole distributor of the “Tokuhon” brand of plasters from Japan. It had three groups of shareholders. The two respondents comprised one group. The other two shareholders were two family-owned companies, Nan Tat & Co (“Nan Tat”) and Weng Seng Heng Medical Hall (“WSH”). Nan Tat was represented on the board of directors by one Dr Chang Jin Aye (“Dr Chang”), while WSH was represented by Ng Choon Heng (“Ng”). Both Nan Tat and WSH sold “Tokuhon” plasters which they bought from TPL.

The director-shareholders did not have a cordial working relationship. From February to April 2000, Mrs Seow sent three letters to one Michael Chien (“Chien”), who was responsible for the awarding of the “Tokuhon” distributorship. The letters conveyed her intention to withdraw from TPL and also mentioned numerous conflicts among the three directors. All the letters were copied to the other directors.

Chien terminated TPL's distributorship in May 2000. Seow and Mrs Seow resigned their directorships in June 2000. Chien subsequently invited Mrs Seow to be the new distributor for “Tokuhon” and she was appointed the new distributor on 29 June 2000. Gamma was used by her as the vehicle to hold the distributorship.

TPL instituted an action against Seow and Mrs Seow, alleging breach of their directors' duties. It was alleged that Mrs Seow's action in writing the letters was a breach of fiduciary duty as it caused the termination of the action in writing the distributorship. It was also alleged that Mrs Seow had breached her fiduciary duties in accepting the distributorship. TPL further claimed that Seow and Gamma were accessories to these breaches. The action was dismissed in the High Court and TPL appealed.

Held, dismissing the appeal:

(1) All the director-shareholders in TPL clearly saw themselves as free to act in their own interests. Both Dr Chang and Ng had always divulged confidential information to Chien. This conduct was the norm set by the director-shareholders, and had been impliedly accepted by all of them. In the light of these exceptional circumstances, Mrs Seow's action did not constitute a breach, although it would have been considered one in normal cases: at [38] to [41].

(2) In any case, the true cause of the termination of the distributorship was a breakdown in cooperation between the three director-shareholders. The problems between the partners had always been known to Chien, and Mrs Seow's letters could not be taken to have caused the loss of the distributorship: at [46] and [47].

(3) A director's duties to the company did not necessarily end with his cessation of directorship. However, the factual matrix of the present case differed materially from the authorities relied on by TPL. Neither was there any confidential information relied on unfairly by Mrs Seow to gain the distributorship: at [51] to [52] and [54].

(4) In the present case, the appropriate way to determine whether Mrs Seow had breached any duty to TPL by accepting the distributorship should be to see whether she had obtained any unfair advantage vis-à-vis the other partners. There was none discernible here: at [56].

(5) Even if Mrs Seow's actions were found to constitute a breach of her fiduciary duties and to have caused loss to the company, relief would still have been granted to her under s 391 (1) of the Companies Act (Cap 50): at [59].

Canadian Aero Service Ltd v O'Malley (1974) DLR (3d) 371 (refd)

IDC v Cooley [1972] 2 All ER 162 (refd)

Island Export Finance Ltd v Umunna [1986] BCLC 460 (refd)

Personal Automation Mart Pte Ltd v Tan Swe Sang [2000] SGHC 55 (folld)

Companies Act (Cap 50, 1994 Rev Ed) s 391 (1) (consd);s 157

Roderick E Martin (Martin & Partners) for the appellant

Indranee Rajah SC, Sham Sabnani and Justin Yip (Drew & Napier) for the respondents.

Chao Hick Tin JA

(delivering the judgment of the court):

1 This appeal is against the dismissal by MPH Rubin J of an action instituted by the appellant company, Tokuhon (Pte) Ltd (“TPL”), against the first two respondents who were the directors of TPL, and who are also husband and wife, for breach of fiduciary duties. These two respondents will hereinafter be referred to as “Seow” and “Mrs Seow” respectively.

2 There is also a third respondent to this appeal, Gamma 2000 (S) Pte Ltd (“Gamma”). Its role was purely accessory and this will be apparent later.

The background

3 As the issues raised relate largely to facts, there is a need for us to go into some detail. Before 1962, the Tokuhon medicated plasters (“the products”) were concurrently imported into Singapore by three family business entities, namely, Nan Tat & Co (owned by the Chang family), Continental Trading Co (then owned by the Thong family and later the Seow family) and Weng Seng Heng Medical Hall (owned by the Ooi or Ng family). Hereinafter these three business entities will be referred to as the three “entities”, “families” or “partners” as may be appropriate.

4 The Japanese manufacturer of the products, Tokuhon Corporation (“TC”), felt that the then arrangement for the importation of the plasters through the three entities was not desirable. Following its suggestion, in February 1962, the three families incorporated the appellant, TPL, with Nan Tat owning 35,000 of its shares, Continental 35,000 shares and Weng Seng Heng 30,000 shares. It was agreed that each family would have one representative on the board of directors of the company. The first board consisted of Chang Chiow Hee from Nan Tat, Thong Giok from Continental and Ooi Choon Sian from Weng Seng Heng.

5 As at the date immediately prior to the dispute giving rise to the action, representing Nan Tat on the board was Dr Chang Jin Aye (“Dr Chang”), representing Continental were Seow and Mrs Seow and representing Weng Seng Heng was Ooi Choon Sian, with Ng Choon Heng (“Ng”) as his alternate.

6 Following its incorporation, TPL was appointed by TC as the sole distributor of the products in Singapore, Malaysia and Brunei. But as far as the actual distribution of the products on the ground was concerned, it was, as before, marketed and sold by the three entities independently, although TPL also did some direct sales of its own. Each of the partners would buy the products from TPL at a price slightly higher than cost and would sell them to their respective retailers/consumers at a mark-up. In 1987, Continental ceased to carry on business, and TPL took over those retailers with whom Continental had had dealings.

7 During the early stages, this working arrangement posed no problems as there was rapport between the patriachs of the three families. However, much later, in the nineties, problems began to surface, with complaints of various sorts being levelled by one partner against another or others, eg allegations that Nan Tat and Weng Seng Heng were always late in settling their outstandings to TPL; Nan Tat publishing printed materials which stated that it was the sole distributor of the products; a partner selling a competing brand of medicated plasters of German origin; and the dumping by Weng Seng Heng of Tokuhon plasters it imported into Malaysia onto the Singapore market.

8 In 1994, TC appointed China Merchants Import & Exports Co Ltd (“China Merchants”) of Hong Kong as its agents with the authority to appoint authorised distributors of the products in, inter alia, Singapore, Malaysia and Brunei. China Merchants is...