Yong Kheng Leong v Panweld Trading Pte Ltd

JurisdictionSingapore
CourtCourt of Three Judges (Singapore)
Judgment Date22 October 2012
Date22 October 2012
Docket NumberCivil Appeal No 34 of 2012

Court of Appeal

Chan Sek Keong CJ

,

Andrew Phang Boon Leong JA

and

Sundaresh Menon JA

Civil Appeal No 34 of 2012

Yong Kheng Leong and another
Plaintiff
and
Panweld Trading Pte Ltd and another
Defendant

Tang Hang Wu (TSMP Law Corporation), Singa Retnam (Aziz Tayabali & Associates) and Nirmala Ravindran (Low Yeap Toh & Goon) for the first and second appellants

Philip Jeyaretnam SC, Foo Maw Shen, Daryl Ong Hock Chye and Wong Ping Siang (Rodyk & Davidson LLP) for the first respondent

Burton Chen and Winston Yien (Tan Rajah & Cheah) for the second respondent.

Banque Nationale de Paris v Hew Keong Chan Gary [2000] 3 SLR (R) 686; [2001] 1 SLR 300 (folld)

Brownlow William Knox v Frederick Gye (1872) LR 5 HL 656 (refd)

Cia de Seguros Imperio v Heath (REBX) Ltd [2001] 1 WLR 112 (refd)

Comboni Vincenzo v Shankar's Emporium (Pte) Ltd [2007] 2 SLR (R) 1020; [2007] 2 SLR 1020 (folld)

Coulthard v Disco Mix Club Ltd [2000] 1 WLR 707 (refd)

Duomatic Ltd, Re [1969] 2 Ch 365 (refd)

George Raymond Zage III v Ho Chi Kwong [2010] 2 SLR 589 (folld)

Gwembe Valley Development Co Ltd v Koshy (No 3) [2004] 1 BCLC 131 (refd)

Halton International Inc v Guernroy Ltd [2006] EWCA Civ 801 (folld)

Isabella Taylor v Davies [1920] AC 636 (refd)

JJ Harrison (Properties) Ltd v Harrison [2002] 1 BCLC 162 (folld)

Katherine Tang Woon Kiang v Luk King Hung [1999] SGHC 229 (folld)

NV Multi Corp Bhd v Suruhanjaya Syarikat Malaysia [2010] 5 MLJ 573 (refd)

Pantone 485 Ltd, Re; Miller v Bain [2002] 1 BCLC 266 (folld)

Paragon Finance plc v D B Thakerar & Co [1999] 1 All ER 400 (folld)

Seah Ting Soon v Indonesian Tractors Co Pte Ltd [2001] 1 SLR (R) 53; [2001] 1 SLR 521 (refd)

Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 1 WLR 1555 (refd)

Smith v Clay (1767) 3 Bro CC 639 (refd)

Susilawati v American Express Bank Ltd [2009] 2 SLR (R) 737; [2009] 2 SLR 737 (refd)

Tat Seng Machine Movers Pte Ltd v Orix Leasing Singapore Ltd [2009] 4 SLR (R) 1101; [2009] 4 SLR 1101 (refd)

Tito v Waddell (No 2) [1977] Ch 106 (refd)

Tokuhon (Pte) Ltd v Seow Kang Hong [2003] 4 SLR (R) 414; [2003] 4 SLR 414 (refd)

Warman International Ltd v Dwyer (1995) 128 ALR 201 (refd)

Limitation Act (Cap 10, 1970 Rev Ed) s 6 (8)

Limitation Act (Cap 163, 1996 Rev Ed) ss 6 (7) , 22 (consd) ;ss 6 (1) (a) , 6 (1) (d) , 6 (2) , 22 (1) , 22 (1) (a) , 22 (1) (b) , 22 (2) , 32

Limitation Ordinance 1959 (No 57 of 1959) s 6 (6)

Revised Edition of the Laws Act 1966, The (Act 16 of 1966) ss 4, 7

Limitation Act 1980 (c 58) (UK) s 36 (1) (consd)

Companies—Directors—Duties—Director-shareholder placing wife on payroll of company—Wife receiving salary—Whether director-shareholder's wife was genuine employer of company—Whether payments were approved by only other shareholder—Whether director-shareholder liable for breach of fiduciary duty

Limitation of Actions—Equity and limitation of actions—Director breaching fiduciary duties—Whether claim should be characterised as one for equitable compensation instead of constructive trust—Whether doctrine of limitation by analogy applicable—Section 6 (7) Limitation Act (Cap 163, 1996 Rev Ed)

Trusts—Accessory liability—Requisite mental state—Wife receiving company funds paid in breach of husband's fiduciary duty as director—Whether wife liable for dishonest assistance and knowing receipt

Trusts—Constructive trusts—Director with power to dispose of company's property but no longer in possession of funds misappropriated from company—Whether Class 1 or Class 2 constructive trustee

The company brought a claim for breach of fiduciary duty against one of its two directors who was also its 20% shareholder (‘the 1st director-shareholder’) for placing his wife (‘the wife’) on the company's payroll and paying her salaries over 17 years even though she was never an employee. The company's claim against the wife was based on dishonest assistance and knowing receipt. As against both the 1st director-shareholder and his wife, the company sought to recover the sums wrongfully paid.

It was not disputed that the monies had been paid to the wife, though the 1st director-shareholder and his wife took the position that the wife was a genuine employee of the company and that the payments were made with the express approval of the only other director-shareholder of the company (‘the 2nd director-shareholder’). The 1st director-shareholder and his wife initiated a third party claim against the 2nd director-shareholder on the basis that the 1st director-shareholder should be entitled to an indemnity or contribution from the 2nd director-shareholder to the extent that the payments had been made with the 2nd director-shareholder's approval. At the close of trial, it was accepted on behalf of the 1st director-shareholder and his wife that the claim against the 1st director-shareholder would not be time-barred if made out. It was, however, contended that the claim against the wife would not come within the ambit of s 22 (1) of the Limitation Act (Cap 163, 1996 Rev Ed) (‘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.

The Judge found that: (a)the wife was never a genuine employee of the company; and (b)there was no express agreement between the two director-shareholders for the wife to be put on the company's payroll. Accordingly, the 1st director-shareholder had breached his fiduciary duty to the company. The Judge agreed that the claim against him fell within s 22 (1) of the Limitation Act and was thus not subject to any limitation period.

As for the wife, the Judge found that she knew the funds in question had been paid to her in breach of her husband's fiduciary duty. She was therefore held liable for the dishonest assistance she gave to her husband, as well as her knowing receipt of the proceeds of his unlawful actions. As the six-year limitation defence under s 6 (7) of the Limitation Act applied, the amount recoverable against her was confined to the funds wrongfully paid out in the six years immediately preceding the action.

As for the third party claim, the Judge found that it was wholly misconceived and dismissed it. If the 2nd director-shareholder had agreed to the salary payments, then the 1st director-shareholder would not be liable in the first place. On the other hand, if the 2nd director-shareholder had never agreed to the payments, there would then be no basis to seek any recourse against him.

The 1st director-shareholder and his wife filed the present appeal. It was argued, inter alia, that: (a) the Judge erred in failing to find that the 2nd director-shareholder had at least impliedly assented to the payments to the wife by virtue of his knowledge of the relevant facts; (b) notwithstanding the concession below, the Judge erred in finding that the limitation period did not apply to the claim against the 1st director-shareholder, because the company's claim should properly have been characterised as one for equitable compensation (instead of a constructive trust), to which the doctrine of limitation by analogy should have applied so as to impose a six-year time bar on the claim; (c) the Judge erred in finding that the wife was liable on the basis of knowing receipt and/or dishonest assistance; and (d) the Judge erred in dismissing the third party claim against the 2nd director-shareholder.

Held, dismissing the appeal:

(1) Even if the 2nd director-shareholder had some knowledge as to the payments, there was no basis (at least on the evidence that was led below) to find such an agreement or common understanding as could found a claim to any relief. The Judge's decision that the payments authorised by the 1st director-shareholder in favour of his wife were made in breach of his fiduciary duties as a director of the company was thus upheld: at [26] to [29].

(2) The new case advanced that the 1st director-shareholder should be allowed to rely on the limitation defence was untenable based on the findings of fact that appear to have been made by the Judge that this was a defalcation by a director who was using his wife as his proxy. In any event, if that were not the case, the company would be prejudiced if the 1st director-shareholder was allowed to pursue the new case on appeal. The Judge's finding that the 1st director-shareholder should be made liable for the full measure of the misappropriated sums was thus upheld: at [32] to [34].

(3) As the wife knew that she was not a genuine employee of the company, she therefore either knew, or wilfully avoided knowing, that the only reason the payments were made into her bank account was because her husband was channelling funds from the company to her in breach of his fiduciary duty. This was not a one-off transaction such that it might be said the wife had just been careless or was misled as to the reason she was paid. On the contrary, the wife received substantial salary payments, filed returns, and paid income tax on the same, for an extended period of 17 years, knowing all the while that she was not a genuine employee of the company. Significantly, she stood to gain, and did in fact gain, substantial benefits from the arrangement. The Judge's finding of liability on the part of the wife was thus upheld: at [82].

(4) The Judge was correct in dismissing the third party claim because if the 2nd director-shareholder had agreed to the salary payments, then the 1st director-shareholder would not be liable in the first place. On the other hand, if the 2nd director-shareholder had not agreed to this, then there would be no basis for seeking any indemnity or contribution from him: at [84].

[Observation: The alternative formulation of equitable compensation was inappropriate in the present scenario. There could well have been an additional admissible claim for equitable compensation. But equitable compensation was a claim for...

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