Yong Kheng Leong and another v Panweld Trading Pte Ltd and another

• Court: Court of Appeal (Singapore)
• Judge: Chan Sek Keong CJ
• Judgment Date: 22 October 2012
• Neutral Citation: [2012] SGCA 59
• Citation: [2012] SGCA 59
• Docket Number: Civil Appeal No 34 of 2012
• Hearing Date: 14 August 2012
• Plaintiff Counsel: Tang Hang Wu (TSMP Law Corporation), Singa Retnam (Aziz Tayabali & Associates) and Nirmala Ravindran (Low Yeap Toh & Goon)
• Defendant Counsel: Philip Jeyaretnam SC, Foo Maw Shen, Daryl Ong Hock Chye and Wong Ping Siang (Rodyk & Davidson LLP),Burton Chen and Winston Yien (Tan Rajah & Cheah)
• Subject Matter: Trusts,Constructive Trusts,Limitation of Actions,Equity and Limitation of Actions
• Published date: 06 November 2012

Sundaresh Menon JA (delivering the judgment of the court):

The 1st Respondent, Panweld Trading Pte Ltd (“Panweld”), is a private company limited by shares. It was incorporated in Singapore in 1985. The proceedings out of which this appeal arises concerned a claim brought by Panweld against one of its directors, the 1st Appellant, Mr Yong Kheng Leong (“Mr Yong”). It was alleged, and found by the Judge below, that Mr Yong had mismanaged the company and misappropriated some of its funds by making unauthorised payments to his wife, Mdm Lim Ai Cheng (“Mdm Lim”) who is the 2nd Appellant. Mr Yong holds 20 percent of Panweld’s shares. The only other director is Mr Loh Yong Lim (“Mr Loh”) and he is the 2nd Respondent in this appeal. Mr Loh was also Panweld’s only other shareholder at the material time and owned the remaining 80 percent of its shares. Mr Yong and Mr Loh had known and worked with each other for a long time. Mr Yong had been the director in charge of the day-to-day business of running Panweld since its incorporation.

The factual background

In March 2009, Mr Yong informed Mr Loh that Panweld needed a bank loan to secure a performance bond for a potential project as it lacked the funds to do so on its own. This surprised Mr Loh who had been under the impression that Panweld was financially healthy. He therefore engaged the firm of certified public accountants, BDO LLP (“BDO”), to undertake a forensic examination of Panweld’s accounts. These investigations revealed several alleged financial misdeeds by Mr Yong, including that his wife, Mdm Lim, had been on Panweld’s payroll and received a salary from Panweld. This had evidently been going on for 17 years from 1992 to 2009 even though, as far as Mr Loh was concerned, she was not and had never been an employee of Panweld.

Panweld’s pleaded case

Panweld’s case was therefore pleaded on this basis: that Mdm Lim was never a genuine employee of Panweld and further there had never been any agreement on Mr Loh’s part for Mdm Lim to receive any salary. Mdm Lim only came to receive these payments as a result of Mr Yong’s sustained breach of the fiduciary duties he owed to Panweld as a director and his abuse of this position throughout the period in question. On this basis, Panweld contended that Mr Yong was liable to it as a constructive trustee of the sums that had been misappropriated. As regards Mdm Lim, Panweld claimed that she should be held liable on the basis of her knowing receipt of these tainted funds and/or the dishonest assistance she rendered to her husband in carrying out his scheme.

Because of the long duration over which the alleged breaches had occurred, the question of limitation arose and on this, Panweld took the position that its claim against Mr Yong for breach of his fiduciary duties fell within the ambit of s 22(1) of the Limitation Act (Cap 163, 1996 Rev Ed) (which will be referred to as “the Limitation Act”) and hence was not time-barred. The same argument was made in relation to the claim against Mdm Lim.

Mr Yong’s and Mdm Lim’s pleaded case

The pleaded case of Mr Yong and Mdm Lim evolved during the proceedings, and it is necessary to unpack this systematically to better understand what had transpired below. When the Defence was first filed on 11 March 2010, Mr Yong claimed that it was Mr Loh who had first placed his wife (“Mrs Loh”) and his mistress (“Sook Min”) on the payroll in March 1995, even though neither of them had ever been employees of Panweld in any meaningful sense. According to Mr Yong, he expressed concern over this and in response, Mr Loh suggested that Mdm Lim, as well, could be placed on Panweld’s payroll. It was implicit in this first version of the Defence that there had been an agreement between Mr Yong and Mr Loh that Mrs Loh, Sook Min and Mdm Lim would each be paid a salary by Panweld even though they were not in fact its employees and would not be required or expected to render it any services.

Panweld filed its Reply denying the alleged agreement between Mr Yong and Mr Loh. It highlighted that Mrs Loh and Sook Min were placed on the payroll in 1995, well after Mdm Lim had started receiving salary payments in 1992. The Defence was then amended on 13 April 2011. The new case advanced on Mr Yong’s behalf was that Mdm Lim was genuinely employed as a marketing executive on a part-time basis from 1992 to 1994 and thereafter, from 1995 on a full-time basis.

The Defence was revised again on 26 May 2011. This time, Mr Yong alleged that Mrs Loh and Sook Min had been employed to reduce the taxes payable by Panweld; and that Mdm Lim’s salary from 1992 to 1994, when she was allegedly genuinely employed by Panweld albeit on a part-time basis, had been paid out of Mr Yong’s bonuses and unused annual leave pay. Further, it was asserted that during the course of her full-time employment from 1995 to 2009, her salary consisted of three components: (a) a fixed salary of $1,125; (b) the transfer of Mr Yong’s car allowance of $1,000; and (c) the balance which came from Mr Yong’s annual increments and/or bonuses. Mr Yong alleged that the fixed salary component of $1,125 was 25% of the total amount paid to Mrs Loh and Sook Min in respect of their salaries and this reflected the shareholding proportion as between Mr Yong and Mr Loh. There is an element of the Defence being tailored here and even then it is not coherent: in effect Mr Yong was asserting that even though Mdm Lim was gainfully employed by Panweld, she received an amount for her work that bore no relation to the value or amount of the work she did but rather bore the same proportion paid to Mr Loh’s wife and his mistress that Mr Yong’s shareholding bore to Mr Loh’s; and everything else she received was actually money that was due to Mr Yong in respect of his car allowance and other benefits.

When the case was presented in the court below, the primary contention for the Defence remained that Mdm Lim was at all material times a genuine employee of Panweld, be it part-time or full-time; and in the alternative, if she was found not to be a genuine employee of Panweld, then the payments had been made with the express approval of Mr Loh in his capacity as a shareholder of Panweld. As such, by the operation of the principle in Re Duomatic Ltd [1969] 2 Ch 365 (“Duomatic”), Mr Loh (as the only other shareholder of Panweld) having agreed to this state of affairs, there was no basis for finding an actionable breach by Mr Yong of his fiduciary duties. As to the question of limitation periods, Mr Singa Retnam (“Mr Retnam”), who appeared below for Mr Yong and Mdm Lim, accepted at the close of the trial on 9 February 2012 that if the claim against Mr Yong was made out, it would not be time-barred. Mr Retnam, however, contended that the claim against Mdm Lim, even if it were made out, would not come within the ambit of s 22(1) of the Limitation Act and would at least, in part, be time-barred pursuant to ss 6(1)(a), 6(1)(d) and 6(2) of that statute.

Mr Yong and Mdm Lim also initiated a third party claim against Mr Loh on the basis that if Mr Yong was found liable to Panweld for the salary payments made to Mdm Lim, he should be entitled to an indemnity or contribution from Mr Loh to the extent these had been made with the latter’s approval.

Mr Loh’s pleaded case

Mr Loh’s position was that the third party claim against him was misconceived in that, if he had approved the salary payments to Mdm Lim, that would then constitute a complete defence to Panweld’s claims and Mr Yong would not be liable in the first place. According to Mr Loh, there was simply no situation in which Mr Yong could be found liable if he made out his claim that he had acted with Mr Loh’s approval and so the third party claim, which rested on the proof of such approval, was wholly without merit. There was also a subsidiary point that the payments had been received by Mr Yong and/or Mdm Lim for their sole benefit and that Mr Loh had not derived any benefit from them.

The decision below

The Judge below found in Panweld’s favour and his decision is reported in Panweld Trading Pte Ltd v Yong Kheng Leong and others (Loh Yong Lim, third party) [2012] 2 SLR 672 (“the Judgment”).

The Judge found as a fact that Mdm Lim was never a genuine employee of Panweld. The Judge further found that there was no express agreement between Mr Yong and Mr Loh for Mdm Lim to be put on Panweld’s payroll. Accordingly, Mr Yong was found to be in breach of his fiduciary duty to Panweld. As for Mdm Lim, the Judge found that she knew the funds in question had been paid to her in breach of Mr Yong’s fiduciary duty to Panweld and was therefore liable for the dishonest assistance she gave to Mr Yong, as well as her knowing receipt of the proceeds of his unlawful actions.

On the question of limitations, the Judge accepted Mr Retnam’s concession that Panweld’s claim against Mr Yong fell within s 22(1) of the Limitation Act and therefore that the claim was not subject to any limitation period. The Judge accordingly held that Mr Yong was a constructive trustee of the full amount of the monies that had been misapplied, which the Judge found to be $873,959.20. As for Mdm Lim’s liability, the Judge found that the six-year limitation defence under s 6(7) of the Limitation Act applied. Thus, the amount recoverable against her was confined to the funds wrongfully paid out in the six years immediately preceding the commencement of the action (ie, $338,410 which was the total sum paid out from 2004 to 2009).

As for the third party claim against Mr Loh, the Judge found that it was wholly misconceived and dismissed it. If Mr Loh had agreed to the salary payments, then Mr Yong would not be liable in the first place. On the other hand, if Mr Loh had never agreed to these payments, there would then be no basis to seek any recourse against Mr Loh for an indemnity or a contribution.

Matters raised in this appeal...