Townsing Henry George v Jenton Overseas Investment Pte Ltd (in liquidation)

• Jurisdiction: Singapore
• Judge: Chan Sek Keong CJ
• Judgment Date: 12 March 2007
• Neutral Citation: [2007] SGCA 13
• Docket Number: Civil Appeal No 22 of 2006
• Date: 12 March 2007
• Year: 2007
• Published date: 14 March 2007
• Plaintiff Counsel: Cavinder Bull and Chia Voon Jiet (Drew & Napier LLC)
• Citation: [2007] SGCA 13
• Defendant Counsel: Rabi Ahmad (Rabi Ahmad & Co)
• Court: Court of Appeal (Singapore)
• Subject Matter: Whether respondent company may recover such loss where argument regarding principle of reflective loss introduced by appellate court on its own initiative,Whether court should exercise equitable jurisdiction to rectify charges,Application of "actual conflict" rule,Appeals,Breach of statutory duties and fiduciary duties,Whether court should rectify charges to reflect parties' common intentions when chargee not party to proceedings,Company suffering loss as result of breach of fiduciary duties owing to it,Director making payment to chargee although charges not conferring such entitlement,Companies,Whether director's actions amounting to breach of duty to act bona fide,Director of parent and subsidiary company and also of companies with conflicting interests,Directors,Civil Procedure,Duties

12 March 2007 Judgment reserved.

Chan Sek Keong CJ (delivering the judgment of the court):

1 This is an appeal against the decision of the High Court in Jenton Overseas Investment Pte Ltd v Townsing Henry George [2006] SGHC 31 (“the first instance judgment”) which found the appellant director liable for breach of fiduciary duty to the respondent company (“Jenton”). The trial judge assessed the quantum of the appellant’s liability in the amount of NZ$2,677,303. The appellant disputes the trial judge’s findings on both liability and quantum.

2 Before we proceed to consider the legal issues in this appeal, we should make a minor correction to the amount that the appellant was ordered to pay to the respondent by the court below. It should be NZ$3.00 less, as the actual amount that the appellant paid out from Jenton’s subsidiary, for which he was found liable, was NZ$2,677,300. We will hereafter refer to this, ie, the correct amount, as “the Relevant Sum”.

Dramatis personae and background facts

3 The claim in these proceedings arose out of the unbundling of a business venture between two parties. The first party, which we will refer to as the “Newmans Group”, consists of Newmans Group Holdings Pty Ltd (“NGH”), its wholly-owned subsidiary, Jenton, and Jenton’s wholly-owned subsidiary, NQF Ltd (formerly known as Newmans Quality Foods Limited) (“NQF”). These three companies were respectively incorporated in New Zealand, Singapore and Australia. NQF was the sole operating entity in the Newmans Group. Jenton had another subsidiary known as Newmans Quality Foods (S) Pte Ltd, but this subsidiary is not involved in the present proceedings.

4 The other party to this venture was headed by a company known as Normandy Finance & Investments Ltd (“Normandy UK”), which is incorporated in the United Kingdom. It has a subsidiary called Normandy Nominees Pte Ltd (“Normandy”), and another subsidiary called Normandy Finance & Investments Asia Ltd (“NFIA”).

5 At all material times, the appellant was a director of NGH, Jenton and NQF. He was also a director of NFIA and the corporate representative of Normandy in the Newmans Group, vested with authority to attend any annual or extraordinary general meetings and vote on Normandy’s behalf as well as to conduct all general correspondences and administrative duties regarding Normandy’s affairs.[note: 1]

6 Apart from the appellant, one Wong Peng Koon (“PK Wong”) and his son, one Wong Kuan Meng (“Mark Wong”), were also directors of each of the three companies in the Newmans Group. PK Wong and Mark Wong (collectively referred to as “the Wongs”) were also shareholders of Jenton, and subsequently NGH when their shareholdings in Jenton were transferred to NGH following its incorporation as Jenton’s holding company (see further [10] below).

7 By the time these proceedings were filed, both Jenton and NQF were under liquidation. According to Jenton’s statement of affairs, its significant outstanding debts were as follows: (a) $474,548 owed to one Tay Thiam Song (“Tay”); (b) $1,138,000 owed to a company known as Chye Seng Tannery Pte Ltd (“Chye Seng”); (c) $94,500 owed to PK Wong; and (d) $2,995,597 owed to NGH.[note: 2] At the NQF level, leaving aside Normandy’s claim to be a secured creditor, Jenton was NQF’s only creditor. According to a demand that Jenton’s liquidators issued to NQF, as at 30 June 2004, NQF owed Jenton an outstanding debt of $4,542,286.[note: 3]

Normandy’s involvement in the Newmans Group

8 The entire chain of events commenced sometime in 2000, when Normandy decided to invest in the Newmans Group. At that time, the Newmans Group comprised only Jenton and NQF. Normandy initially wanted to subscribe for two million redeemable preference convertible shares (“the Convertible Shares”) in Jenton for a consideration of $2m. On 30 April 2001, Normandy, Jenton and NQF signed a “Redeemable Convertible Preference Share Subscription Agreement” (“the Convertible Share Agreement”) to give effect to this investment, whereupon the appellant was appointed as Normandy’s nominee on Jenton’s board of directors.

9 At the time the Convertible Share Agreement was signed, Jenton’s existing creditors already included Tay and Chye Seng, who had respectively extended loans to Jenton in the amounts of $400,000 and $1m. Whilst Tay’s loan was unsecured, the loan extended by Chye Seng was secured by a personal guarantee from PK Wong and one Nicholas Chia.

10 After Normandy paid Jenton $2m for the Convertible Shares but before their issue, it transpired that the financial statements of the Newmans Group contained various inaccuracies. As a result, Normandy decided to restructure its investment in the Newmans Group to assume the form of debt instead of equity by subscribing to convertible loan notes that were to be issued by NGH, a new company incorporated in Australia. NGH then became Jenton’s holding company by acquiring all of Jenton’s existing shares from its shareholders in exchange for an equal number of shares in NGH.

11 Normandy’s purchase of these loan notes was implemented by way of a “Series 1 Notes Subscription Agreement” signed on 8 July 2002 (“the First Loan Agreement”) by NGH, Jenton and Normandy. The First Loan Agreement dealt mainly with two matters. First, it terminated the Convertible Share Agreement, and extinguished Jenton’s liability to refund Normandy its $2m subscription fee in exchange for an undertaking by NGH to repay this sum. In return for NGH’s assumption of Jenton’s liability to repay Normandy, Jenton agreed to execute a debenture by way of a fixed and floating charge over all its assets to secure its debts to NGH, which included, inter alia, this $2m. Second, the First Loan Agreement provided that NGH was to issue $2m worth of redeemable convertible loan notes (“the Series 1 Notes”) to Normandy. The consideration due from Normandy for these Notes would be set off against NGH’s existing $2m debt to Normandy which it had taken over from Jenton. Each Series 1 Note bore interest at an annual rate and was redeemable by Normandy four years after its date of issue.

12 Normandy’s investment in the Newmans Group did not stop at its purchase of the Series 1 Notes. Later that same month (July 2002), NGH decided to raise additional capital through a second notes issue by way of a “Series 2 Notes Subscription Agreement” (“the Second Loan Agreement”). The subscribers to the Second Loan Agreement included Normandy, PK Wong and some other members of his family. A total of $1m was raised by way of this second tranche of convertible loan notes (“the Series 2 Notes”), of which $431,844 represented the notes for which Normandy had subscribed.

The security furnished for Normandy’s loan

13 Various securities were then issued by the Newmans Group to secure its debts to the relevant parties. The securities can generally be divided into three categories: (a) those relating to the Series 1 Notes; (b) those relating to the Series 2 Notes; and (c) those relating to Jenton’s debt to NGH.

The Series 1 Notes securities

14 Under Condition 4.3 of the terms and conditions to the Series 1 Notes (“Condition 4.3”), NGH agreed “to execute security and such other documentation as required … in order to ensure that a second ranking Charge over the assets of the Newmans Group Companies is effective in New Zealand, Singapore and Australia” [emphasis added]. The term “Newmans Group” was in turn defined to include NGH, Jenton and NQF. The intended security over the assets of the Newmans Group was expressed as being “second ranking” and subject to prior encumbrances in favour of ASB Bank Limited (“ASB Bank”). ASB Bank’s priority over these charges has no material significance for the purposes of the present proceedings.

15 Pursuant to Condition 4.3, NGH, Jenton and NQF each executed a deed of charge in Normandy’s favour (referred to herein as “the NGH Charge”, “the Jenton Charge” and “the NQF Charge” respectively). Each of these charges was expressed as being subject to a prior encumbrance in favour of ASB Bank. Clause 1.1(c)(i) of each of these charges provided that the charge in question secured, inter alia, the repayment of “any money which is now owing or hereafter becomes owing under the terms of the [First Loan] Agreement between the Mortgagor and [Normandy]” [emphasis added]. The term “the Mortgagor” was respectively defined in the NGH, Jenton and NQF Charges as referring to NGH, Jenton and NQF respectively.

The Series 2 Notes securities

16 In addition to the security regarding the Series 1 Notes, a charge was also executed by NQF securing its assets in favour of all holders of the Series 2 Notes including Normandy (“the Series 2 Charge”). The terms of the Series 2 Notes and the Series 2 Charge were expressed in materially the same manner as the equivalent documentation for the Series 1 Notes, save that the security for the Series 2 Notes was expressed as a third, instead of second, ranking charge subject to prior encumbrances in favour of both ASB Bank and Normandy. In particular, Condition 4.3 (see above at [14]) and cl 1.1(c)(i) (see above at [15]) respectively appeared, mutatis mutandis, as terms in the Series 2 Notes and the Series 2 Charge.

NGH’s security over Jenton’s assets

17 Apart from the various securities executed in Normandy’s favour, Jenton also executed a deed of debenture in NGH’s favour on 9 July 2002 (“the Jenton Debenture”). This Debenture was expressed as giving NGH a “first fixed charge [over] … the fixed property and assets” of Jenton as well as “a first floating charge [over] … the whole of the undertaking and all other property assets and rights” of Jenton. The moneys secured under the Jenton Debenture included the $2m liability that NGH had assumed for Jenton vis-à-vis Normandy’s initial payment of $2m to Jenton under the Convertible Share Agreement.

18 Whilst the NGH, Jenton, NQF and Series 2 Charges were all duly registered under the respective laws of incorporation...