Tong Tien See Construction Pte Ltd (in liquidation) v Tong Tien See and Others

• Jurisdiction: Singapore
• Judge: Tay Yong Kwang JC
• Judgment Date: 31 December 2001
• Neutral Citation: [2001] SGHC 381
• Docket Number: Suit No 824 of 2000
• Date: 31 December 2001
• Year: 2001
• Published date: 19 September 2003
• Plaintiff Counsel: Belinda Ang SC, Foo Maw Shen, Keoy Soo Khim and Deborah Koh (Ang & Partners)
• Citation: [2001] SGHC 381
• Defendant Counsel: Chee Wai Pong (Ng Ong & Chee),Tan Cheng Kiong and Bernard Chao (Chung Tan & Partners),BM Singh and Chan Jin Han (Engelin Teh & Partners) and YR Jumabhoy
• Court: High Court (Singapore)
• Subject Matter: Trusts,Companies,Constructive trusts,Liability of 'shadow director' for breach of fiduciary duties,When shareholders' interest not to take precedence,When it has to be disgorged,Directors,Fiduciary duties,Establishing person as shadow director,Whether salary to be disgorged,Insolvency Law,Whether proof that creditor's debt unpaid amounts to inability to pay debts,Breach,s 254 (2) (c) Companies Act (Cap 50, 1994ed),Winding up,Whether D2 a shadow director,Personal liability for breach of director's duties,Liability of company directors as constructive trustees for company's loss or damage,ss 4(1), 340(1) & 340(5) Companies Act (Cap 50, 1994 Ed),Members

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Background

The plaintiff company was a Grade G8 construction company in Singapore before it was ordered to be wound up on 26 May 2000 on the ground of insolvency. It was unable to pay debts amounting to $53.3m. This action was commenced by its liquidator, Yin Kum Choy, on 7 October 2000, followed by a Mareva injunction shortly thereafter. The defendants were either former directors and/or shareholders, affiliated companies or relatives of the key person in these proceedings, Tong Tien See (the first defendant). The claims against the defendants were under various heads - breach of duties as directors, conspiracy to injure by unlawful means, breach of trust, knowing assistance in the breaches and conspiracy and/or knowing receipt of moneys resulting from such breaches and conspiracy - in aggregate amounting to $53.3m. The plaintiff company also claimed a declaration that the property known as 755 Upper East Coast Road was disposed of by the second and the third defendants to the thirteenth defendant (husband of the third defendant) in breach of s 73B of the Conveyancing and Law of Property Act (Cap 61, 1994 Ed) and sought a rescission of the sale and purchase agreement in respect of that property.

When the trial commenced, the first and third defendants had been adjudicated bankrupt (on 23 February 2001) and the action against them was stayed automatically under s 76(1)(c)(ii) of the Bankruptcy Act. Towards the conclusion of the trial, upon the plaintiff company`s application, the action against both of them was ordered to proceed. The first defendant had been a key witness at the trial and was present practically throughout the proceedings. The third defendant had filed her affidavit of evidence-in-chief and the indications were that she was going to testify at the trial. However, in the course of the trial, it emerged that she was not going to return from Australia to testify here and her affidavit of evidence-in-chief was therefore not admitted in evidence. It was clear that the third defendant was in constant contact with the first defendant and/or the second defendant (her parents) throughout the trial.

The relationship of the various Tong family defendants can be described quickly by reference to the following diagram annexed to the amended statement of claim:

Please refer to the hard or pdf file for the diagram in this page.

The sixth and seventh defendants were Singapore companies affiliated to the plaintiff company. The eighth defendant, an Australian company, was also affiliated to the plaintiff company. In late 1999/early 2000, the first, second and third defendants left to settle in Australia after making arrangements to sell away their residential properties and their cars and to ship their belongings to their new home. They were joined by the tenth defendant.

On 2 March 2000, the plaintiff company was placed under interim judicial management. On 25 April 2000, Yin Kum Choy was appointed its provisional liquidator. He was confirmed as the liquidator on 26 May 2000 upon the winding-up order being made.

The liquidator`s first interim report dated 6 October 2000 showed that the plaintiff company had been insolvent since financial year 1 May 1995 to 30 April 1996. However, the directors and shareholders held the plaintiff company out as a solvent G8 (the highest grading) construction company at the material times, thereby allowing the plaintiff company to carry on business, take on new projects and sink further into debt. Accounting entries were falsified using the sixth defendant, an affiliated company, as one of the instruments of falsification. Losses were transferred from the plaintiff company to the sixth defendant by the raising of sham bills in respect of accounts payable and project/administration overheads. Bills were in turn raised by the sixth defendant (purportedly the plaintiff company`s sub-contractor and whose sole client was the plaintiff company) to the plaintiff company, thereby allowing large amounts of money to be transferred periodically from the plaintiff company to the sixth defendant between 1 May 1995 and 30 April 2000. Accounting information was also misleading in that the plaintiff company deliberately deferred recognising its losses of $3.4m in financial year ending 30 April 1995 so as not to fall below the minimum requirement of $5m net capital worth, a criterion of the Building and Construction Authority for G8 grading. The grading was reviewed every three years.

The sixth defendant was totally dependent on the plaintiff company for financial support and had no infrastructure or manpower of its own. It was also insolvent. All indebtedness of the sixth and seventh defendants to the plaintiff company was on no fixed repayment terms, was interest-free and unsecured.

The plaintiff company and its affiliates were treated by the first and second defendants as their and the family`s personal assets. The plaintiff company`s money was used by them for purchasing and building residential properties registered in personal names. Such money was also used by them to earn interest for themselves in interest-bearing deposits. In the words of Mr BM Singh in an email, they `used the company as a ATM`.

It was conceded that the plaintiff company`s losses were transferred to the sixth defendant through the raising of some $25m worth of bills to the sixth defendant. It was also conceded that the transactions between the two companies leading to the sixth defendant billing the plaintiff company were not arm`s length transactions but it was denied that those transactions and billings were sham ones.

Defendants

FIRST DEFENDANT

The first defendant, 71 years of age, the patriarch of the Tong family, used to reside at 2 Kew Drive. He left for Australia in early 2000 and returned here for the trial. He came from China around 1948. In 1957, he married the second defendant. The ninth defendant was born in 1958, the third defendant in 1964 and the twin sisters (the tenth and eleventh defendants) in 1968. He worked hard and in 1973, registered a construction firm, employing the fifth defendant soon thereafter as the sole employee.

He had basic education in Chinese and was practically illiterate in English. He said he had no idea about accounts. He was a hot-tempered, traditional Chinese businessman who ruled his family with a strong arm. All properties bought or registered in the names of the family members were regarded by the first defendant as belonging to himself. He appointed and removed directors of his companies as he pleased and changed the shareholdings of his daughters depending on whether he was pleased or angry with any of them.

As his construction business grew and flourished, the firm was incorporated as a private limited company in 1985 with the first defendant as managing director and majority shareholder. The company had many public sector construction projects. The fourth defendant (his brother-in-law) joined his business in 1984 as a foreman and, after a short period of absence, rejoined it in 1987. In 1992, the fourth defendant was made a director of the plaintiff company. He became the deputy managing director in 1995/1996 as the Tong family wanted to `give him face`.

The first defendant bought properties and a plot of land formerly known as 4 Kew Drive on which he constructed four houses - 4 and 4A Kew Drive and 755 and 757 Upper East Coast Road. He also bought holiday homes in Perth and in Sydney and developed a penchant for golf and fine wine, which he kept in a wine cellar in his former home at 2 Kew Drive and in 755 Upper East Coast Road (the home of the third defendant and her husband, the thirteenth defendant). The plaintiff company held annual golf tournaments. The first defendant also commissioned and affixed wine labels bearing the plaintiff company`s name on bottles of wine as gifts for his business associates.

He claimed that he was in semi-retirement since 1995 and had left the running of the company to the fourth defendant. However, the evidence showed quite clearly that he was still the final decision-maker in all things pertaining to the companies - from tenders to negotiations with sub-contractors and award of sub-contracts. He was also actively monitoring the progress at the various worksites, travelling about in a vehicle driven by his wife.

SECOND DEFENDANT

The second defendant, 61 years of age, was an intelligent, astute and capable wife, mother and businesswoman. She received formal education in Chinese up to Secondary 4 level, quite a rarity in the days of old for a girl. She controlled the companies` finances, invested in shares and in foreign currencies. She was trusted completely by the first defendant and was practically her husband`s alter ego save for his hot temper. Only she and the first defendant were authorised to be sole signatories in respect of the bank accounts. Although she was the managing director in the sixth defendant only, the second defendant received monthly remuneration from both the plaintiff company and the sixth defendant. She transferred progress payments from the HDB in respect of the construction projects to personal accounts to earn interest instead of depositing the large amounts into the plaintiff company`s account which, she said, earned no interest. She transferred the principal amounts back to the plaintiff company subsequently, retained the interest and paid income tax on the same. Over the years, the principal amounts involved added up cumulatively to $194m.

The second defendant, together with the third, fourth and fifth defendants, exercised functions in the plaintiff company like an executive committee. They discussed when to pay, whom to pay first and how much to pay. When they were not able to resolve a particular matter, they would refer it to `the boss`, the first defendant. The second defendant also used money transferred from the plaintiff company to the sixth defendant to pay the...