Wee Ewe Seng Patrick John v True Yoga Pte Ltd and others

• Jurisdiction: Singapore
• Judge: Kannan Ramesh JAD
• Judgment Date: 26 July 2023
• Neutral Citation: [2023] SGHC(A) 26
• Court: High Court Appellate Division (Singapore)
• Docket Number: Civil Appeal No 67 of 2022
• Hearing Date: 10 February 2023
• Citation: [2023] SGHC(A) 26
• Year: 2023
• Plaintiff Counsel: Rai Vijay Kumar, Joavan Christopher Pereira and Jasleen Kaur (Arbiters Inc Law Corporation)
• Defendant Counsel: Tan Zhengxian Jordan and Leong Hoi Seng Victor (Audent Chambers LLC) (instructed), and Angela Phoon Yan Ling (Oon & Bazul LLP) (instructing)
• Subject Matter: Contract,Breach,Breach of employment contract,Equity,Fiduciary relationships,Duties,Duty of director to act in the best interests of the company
• Published date: 29 July 2023

Kannan Ramesh JAD (delivering the judgment of the court):

This appeal concerns the conduct of a director, who also held the position of the Chief Executive Officer, in relation to two related companies. The central issue in this case is whether such conduct constituted breach of duty as the Chief Executive Officer under his contract of employment and fiduciary duty as a director. Having reviewed the parties’ written and oral submissions, we dismiss the appeal.

Facts The parties

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 (“True Fitness (STC)”) and True Fitness Pte Ltd (“True Fitness”), which are 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 were in turn members therein up until a restructuring exercise in May 2017 (see [12] and [13] below). The relevant entities in the CJ Group’s organisational structure prior to the restructuring exercise was as follows: Figure 1 The relevant entities in the CJ Group pre-restructuring

Mr Wee was the founder and ultimate shareholder of the companies in 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.

Background to the dispute

Mr Wee was also the Group Chief Executive Officer (the “Group CEO”) of the CJ Group. 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 CEO for a term of five years from 13 March 2008 (see cll 1.1 and 10). Although the plain wording of the Employment Agreement referred to Mr Wee as being “[employed] with the Company [defined earlier in the Employment Agreement as “CJ Group Pte Ltd”]”, the parties are on common ground that the counterparty to the Employment Agreement was True Yoga. Consistent with that, on 31 March 2008, True Yoga issued a letter “to confirm that the terms of [Mr Wee’s] employment as [Group CEO] with True Yoga Pte Ltd (‘the Company’) [wa]s as per the terms set out in the [Employment Agreement]”.

Significantly, notwithstanding the Employment Agreement carrying the title “Appointment as Group Chief Executive Officer” and describing Mr Wee’s appointment as Group CEO, the parties disagree on the breadth of Mr Wee’s contractual obligations, in particular, whether his duties under the Employment Agreement extended to TT and TM and if so, to what extent. The dispute turns on cl 1.3(a) of the Employment Agreement which states as follows: 1.3 During your employment with the Company, you must: (a) faithfully and diligently perform such duties as may from time to time be assigned to you by the Company, whether those duties relate to the business of the Company or to the business of its related or associated corporations (together with the Company and the Holding Company, the ‘Group Companies’ or the ‘Group’) and you shall accept such offices in any Group Company as the Company may require;

[emphasis in original in bold; emphasis added in italics]

Mr Wee contends that his contractual obligation was limited to the affairs of True Yoga. He was not assigned any duties as regards the affairs of TT and TM, pursuant to cl 1.3(a). On the other hand, the respondents contend that Mr Wee’s obligation extended to the affairs of TT and TM as he was assigned the duty to manage TT and TM’s business and was consequently appointed a director of both companies, pursuant to cl 1.3(a) of the Employment Agreement. This is one of the principal issues in the present appeal and raises several sub-issues which are: (a) whether Mr Wee was assigned the duty to manage TT and TM pursuant to which he was appointed a director of the companies, as provided in cl 1.3(a) (see [52]–[60] below); (b) whether such duty included the duty to manage the closure of TT and TM (see [61]–[72] below); and (c) whether Mr Wee’s conduct in relation to the closure of TT and TM was in breach of cl 1.3(a) (see [73]–[92] below).

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.

Events leading up to the restructuring

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. By an email dated 24 November 2016, the respondents’ then-Chief Financial Officer (“CFO”) Mr Alvin Chen (“Mr Chen”) provided Mr Wee with a bleak assessment of TT. He described the company as a resource-draining “black hole”. This prompted Mr Wee to enter 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 these circumstances relates to the claims that have been brought against him. We discuss this in further detail below (see [74]–[92]).

The restructuring and the constitution of a new group

Against this backdrop, a sale and purchase agreement dated 6 May 2017 (the “SPA”) (see [11] below) was entered into for the acquisition of the respondents and True Yoga Holdings Ltd, and the “True” brand by Tongfang Kontafarma Holdings Limited (“Tongfang”). As provided for in cl 8.1(a) of the SPA, a restructuring of the CJ Group took place on 19 May 2017. This formed part of the conditions precedent to the completion of the acquisition. As a result, shares in the respondents held, directly or indirectly, by the CJ Group were transferred to a new holding company, True Fitness Holdings (Singapore) Pte Ltd, which was in turn under a new ultimate holding company, TFKT True Holdings (“TFKT”).

The SPA was between Active Gains Universal Ltd (“AGUL”), Fester Global Limited (BVI) (“Fester”), Tongfang and Mr Wee. Pursuant to cll 2 and 3 of the SPA, AGUL sold 51% of TFKT’s shareholding to Fester. Further, Active Yield Investment Limited (“AYIL”) sold 29% of TFKT’s shareholding in True Yoga Cayman to Fester. Mr Wee was the ultimate beneficial owner of both AGUL and AYIL, and Fester was wholly owned by Tongfang. Thus, Mr Wee was the effective vendor and Tongfang the effective buyer. The total consideration payable to AGUL and AYIL (and therefore Mr Wee) was US$36.72m. Following the fulfilment of the conditions precedent pursuant to cl 8.1 of the SPA, the acquisition was completed on 29 May 2017.

As a result of the acquisition, the respondents came under the control of a new majority owner, Tongfang, which held a 54% stake indirectly through Fester and TFKT. Fester was a wholly owned subsidiary of Tongfang and in turn, owned 54% of TFKT. Mr Wee held the other 46% stake in TFKT through AGUL, which was wholly owned by Ashmore Global Limited (in which Mr Wee held a 100% stake). Following the restructuring, the organisational structures of the CJ Group and the new group under Tongfang as the majority shareholder are set out below. Figure 2 The new group post-restructuring Figure 3 The CJ Group post-restructuring

It would be evident from the above that the restructuring did not involve the transfer of shares in TM or TT to Tongfang. Post-restructuring, TM and TT remained with the CJ Group, which remained wholly owned by WCJ Holdings Ltd.

Post-restructuring

Notably, post-restructuring, Mr Wee did not enter into a new employment contract with True Yoga or for that matter TFKT, the new holding company, to reflect the fact that True Yoga became part of a new group. He assumed the role of the Group CEO of the newly constituted group. However, he remained employed under the Employment Agreement. On 3 May 2017, prior to the SPA, Mr Xing Hu (“Mr Hu”), a representative from Anchor Capital, who was involved in the negotiations on the SPA, wrote an email titled “Executive Team Pay Allocation” to Mr Wee and Ms Catherine Si Tou (“Ms Si Tou”), a director of TFKT. In the email, Mr Hu stated that Mr Wee was “willing to cut 2/3 of [his] existing USD 1.14million annual salary to USD 380,000 … USD$ Patrick 200k Singapore, 180k TW [ie, Taiwan]”. If this were true, Mr Wee’s monthly salary would be reduced from $120,000 to about $22,500 per month. Whether Mr Wee agreed to a reduction in salary as set out in this email is a point of contention in the present appeal. Mr Wee held the position as Group CEO until his employment was terminated pursuant to a letter dated 9 May 2018 from TSMP Law Corporation (“TSMP”) issued on behalf of True Yoga (see [20] below).

A shareholders’ agreement (the “SHA”) between Fester, AGUL and TFKT was executed on 29 May 2017. Mr Wee was not a party to the SHA, but nothing turns on this. Clause 4.11 of the SHA stated as follows:

The Shareholders further agree to maintain the stability of the key management team of the Company for so long as Patrick John Wee Ewe Seng shall be the chief executive officer of the...