Wee Ewe Seng Patrick John v True Yoga Pte Ltd

• Jurisdiction: Singapore
• Judge: Kannan Ramesh JAD,Aedit Abdullah J,Quentin Loh SJ
• Judgment Date: 26 July 2023
• Docket Number: Civil Appeal No 67 of 2022
• Court: High Court Appellate Division (Singapore)

Wee Ewe Seng Patrick John

and

True Yoga Pte Ltd and others

[2023] SGHC(A) 26

Kannan Ramesh JAD, Aedit Abdullah J and Quentin Loh SJ

Civil Appeal No 67 of 2022

Appellate Division of the High Court

Contract — Breach — Breach of employment contract — Whether director in breach of his contract

Equity — Fiduciary relationships — Duties — Duty of director to act in best interests of company — Whether director in breach of his duty to act in best interests of company based on his conduct in respect of related companies

Held, dismissing the appeal:

(1) The respondents had standing to bring the Claims. True Yoga had standing to bring the Contractual Claim, which was grounded in the Employment Agreement as Mr Wee was assigned duties as regards the affairs of TT and TM pursuant to cl 1.3(a) of the Employment Agreement. The respondents had standing to bring the Fiduciary Claim because they were suing for losses suffered by them as a result of a breach of fiduciary duty owed to them by Mr Wee. The loss that was sought to be recovered (ie, reputational loss) was that which had been suffered by the respondents as result of a breach of that duty. There was no question of double recovery because the losses of the respondents were distinct and separate from that of TT and TM, because the Fiduciary Claim pursued by the respondents was grounded in legal rights and liabilities separate from those owed to TT and TM: at [44] to [50].

(2) The management of the closure of TT and TM fell within the duty assigned to Mr Wee pursuant to cl 1.3(a) of the Employment Agreement. The common thread that connected the companies was the fact that they shared a common brand, the “True” brand. Being part of the same group was a consequence of the companies being part of a common brand. They shared, marketed and used that brand. It was this common thread which made it relevant, and indeed important, for True Yoga to assign duties to the Group CEO with regard to the business of TT and TM and appoint Mr Wee as their director. The common ownership and corporate linkages arising from being part of the same group only served to reinforce the fact that the group functioned as one business unit in relation to the same line of business bearing a common brand. The companies therefore remained “related and/or associated corporations” under cl 1.3(a) of the Employment Agreement post-restructuring: at [62] to [72].

(3) On the Contractual Claim, Mr Wee breached cl 1.3(a) of the Employment Agreement in the manner in which he had managed the closure of TT and TM. The line that Mr Wee drew on appeal that he managed the business of TT and TM as their “local director” instead of pursuant to a duty assigned under cl 1.3(a) of the Employment Agreement was without substance. Mr Wee was assigned the duty to manage the affairs of TT and TM. He averred in his affidavit of evidence-in-chief that he considered TT and TM to be part of the “True Group” even after the restructuring. It was also clear from the correspondence between Mr Wee and the employees that he continued to manage TT and TM even after he resigned as director. His conduct in relation to the closure of TT and TM constituted a breach of cl 1.3(a) of the Employment Agreement. Mr Wee's argument that he had intended to keep TT and TM afloat to delay the decision of whether to shutter TT and TM did not withstand scrutiny. Based on the evidence prior to and after the restructuring, Mr Wee could not have believed that TT and TM were going concerns and would survive. TT and TM were cashflow insolvent or nearly cashflow insolvent, and Mr Wee accepted that TT and TM would have had to shutter in the next few months based on the status quo as at April 2017. He had also explored various exit options and sought legal advice on matters pertaining to the winding up of TT and TM. Notwithstanding his knowledge of the bleak state of affairs, Mr Wee did not exercise his authority to stop the promotion and sale of long-term membership packages by TM in May 2017 and the sale of new term membership packages and renewal of existing membership packages by TT right up to early June 2017. He also did not take steps to adequately arrange for and maintain the arrangement with alternative service providers to take on members of TT and TM following their closure: at [53] to [57], [77] to [86] and [92].

(4) Turning to the Fiduciary Claim, each of the respondents: (a) was owed a fiduciary duty by Mr Wee as director to manage the affairs of TT and TM appropriately; and (b) suffered an independent loss as a result of the brand equity of the “True” brand being damaged by Mr Wee's conduct. It could not be said that Mr Wee had acted in good faith in the best interests of the respondents in the manner in which he handled the closure of TT and TM for the same reasons set out for the Contractual Claim: at [95] to [97].

(5) At the liability stage of the proceedings, it sufficed to demonstrate that there had been some loss occasioned by the breach. True Yoga demonstrated that it suffered loss as a result of the breach of cl 1.3(a) of the Employment Contract and the respondents demonstrated their loss as a result of the breach of the fiduciary duties owed to them by Mr Wee. The loss was in the form of financial loss arising from damage to the brand equity of the “True” brand as evidenced by the decrease of $4.7m in revenue of the “True” entities in Singapore between July to December 2017: at [98] to [101].

(6) The judge was correct in finding that the Employment Agreement was varied such that Mr Wee's salary was reduced from $120,000 to $22,500 per month. There was an e-mail sent by Mr Xing Hu (“Mr Hu”) to Mr Wee which indicated that an agreement had been reached between Mr Wee and True Yoga that he would accept lower remuneration from May 2017. He had also signed an audit confirmation form confirming that his salary slip in 2017 was accurate. It was clear that Mr Hu purported to act on behalf of True Yoga by revising Mr Wee's salary downwards. Even if he was not authorised to act, True Yoga accepted and ratified his acts by paying the reduced salary from 1 June 2017 and sending an audit confirmation slip requesting confirmation from Mr Wee that his salary was $22,500: at [106] to [108] and [110].

(7) As cl 1.3(a) of the Employment Agreement had been breached, the termination of Mr Wee's employment was with cause under cl 11 of the Employment Agreement: at [113].

Case(s) referred to

Extrasure Travel Insurances Ltd v Scattergood [2003] 1 BCLC 598 (refd)

Fu Loong Lithographer Pte Ltd v Mok Wing Chong [2018] 4 SLR 645 (distd)

Goh Chan Peng v Beyonics Technology Ltd [2017] 2 SLR 592 (distd)

Ho Kang Peng v Scintronix Corp Ltd [2014] 3 SLR 329 (folld)

Miao Weiguo v Tendcare Medical Group Holdings Pte Ltd [2022] 1 SLR 884 (folld)

OOPA Pte Ltd v Bui Sy Phong [2022] 4 SLR 537 (refd)

Regentcrest plc v Cohen [2001] BCLC 80 (refd)

Tan Woo Thian v PricewaterhouseCoopers Advisory Services Pte Ltd [2021] 1 SLR 1166 (folld)

Facts

This appeal concerned the conduct of a director, who also held the position of the chief executive officer, in relation to two related companies. The central inquiry was whether the director's conduct in respect of the related companies constituted breach of duty as the chief executive officer under his contract of employment and breach of fiduciary duty as director.

The appellant, Mr Patrick John Wee Ewe Seng (“Mr Wee”), was until 30 July 2021, a director of the respondents, True Yoga Pte Ltd (“True Yoga”), True Fitness (STC) Pte Ltd and True Fitness Pte Ltd, which were Singapore-incorporated companies. Until end-May 2017, Mr Wee was also a director of True Group (Thailand) (“TT”) and True Group (Malaysia) (“TM”), which were companies incorporated in Thailand and Malaysia respectively. The respondents, TT and TM were subsidiaries of CJ Group Pte Ltd (the “CJ Group”), and remained as members of the CJ Group up until a restructuring exercise in May 2017. Mr Wee was the founder and ultimate shareholder of the CJ Group. He indirectly owned a stake in the respondents (annotated collectively as “TS”), TT and TM through his 82.3% interest in the ultimate holding company, WCJ Holdings Ltd. The CJ Group, through the respondents, TT and TM operated, inter alia, fitness centres and gymnasiums under the “True” brand.

By a contract of employment dated 19 March 2008 (the “Employment Agreement”) issued on the letterhead of the CJ Group, Mr Wee was appointed the group chief executive officer (“Group CEO”) of the CJ Group for a term of five years from 13 March 2008. Under the Employment Agreement, Mr Wee's gross salary and guaranteed bonus was initially collectively $1,120,000 (or $93,333.33 per month). With effect from 1 June 2012, Mr Wee's monthly salary was increased to $120,000 (an increase of $26,666.68). On 1 February 2013, Mr Wee was offered an extension of the initial five-year term under the Employment Agreement which he accepted, as a result of which his employment was extended to 12 March 2018. Parties disputed whether this salary was reduced to $22,500 per month in May 2017.

Between late 2016 and early 2017, TT and TM started experiencing serious cash flow issues to the extent that the question arose as to whether their businesses were sustainable. Mr Wee entered into negotiations in February and March 2017 with Jatomi Fitness Group and Evolution Wellness for the collective sale of the business of TT and TM, in particular the management of the gymnasiums operated by these companies. However, the negotiations proved unsuccessful. By April 2017, the situation had reached a point where Mr Wee was compelled to seek legal advice on the ramifications of TT and TM commencing insolvency proceedings. Mr Wee's conduct in the lead-up to the closure of TT and TM was alleged to be a breach of cl 1.3(a) of the Employment Agreement (the “Contractual Claim”) and his fiduciary duty as director of the...