General Division of the High Court · Decided 29 November 2017

Ong Bee Chew v Ong Shu Lin

[2017] SGHC 285Case no. Suit No 655 of 2011Suit No 179 of 2012

What happened, in plain English

There is no plain-English summary of this judgment yet.

Ask about this judgment

Grounds of decision

Official text from eLitigation

[1] Hocen International Pte Ltd (“Hocen”) was in the business of selling and distributing power cables. It carried on this business from the time it was incorporated in May 2005 until it went into liquidation in October 2007. Hocen has only ever had two shareholders and two directors: Ong Bee Chew and Ong Shu Lin. The two Ongs are, respectively, the plaintiff and the defendant in the two suits now before me. It does not appear that the two Ongs are related to each other.
[3] The plaintiff’s claim is that the defendant breached the statutory and fiduciary duties which he owed to Hocen by causing Hocen to make payments of about S$1.8m which were of no corporate benefit to Hocen. The plaintiff’s case is that these payments were part of the defendant’s scheme to procure business for Hocen by corruption. The plaintiff accordingly seeks to hold the defendant liable to pay damages or equitable compensation equivalent to the value of the payments.
[4] The defendant denies any breach of duty. His defence is that the payments were indeed of corporate benefit to Hocen because they led to and sustained Hocen’s substantial business selling cables. The defendant’s alternative defence is that, even if he did breach his duty to Hocen, the plaintiff always knew the purpose of the payments and is therefore obliged to contribute equally to the defendant’s liability in these suits.
[7] Both the plaintiff and the defendant have appealed against my decision in each of the two suits before me. I therefore now set out my grounds.
Background
[8] The plaintiff is an experienced businessman. He was introduced to the defendant sometime in 2004 through a business partner by the name of Andy Heng. At that time, the plaintiff and Heng were running a company unrelated to this dispute which was in the business of selling and distributing power cables for use in port cranes. Heng invited the defendant to join that company to expand its business through the defendant’s business contacts in China. With the plaintiff’s support, the defendant accepted.
Hocen is established
[9] In 2004, the relationship between the plaintiff and Andy Heng broke down. As a result, the plaintiff and the defendant decided in May 2005 to set up a new company to take over the existing business. Hocen was that company.
[10] The plaintiff and the defendant were each allocated a 50% shareholding in Hocen and were each appointed a director of Hocen. The defendant was appointed Hocen’s managing director. The parties have always been equal shareholders of Hocen and its only two directors.
[11] It is common ground that it was the defendant who ran Hocen’s day-to-day operations, and that he did so without the plaintiff’s day-to-day involvement or supervision. The actual scope of the plaintiff’s role in Hocen is, however, disputed. I examine this issue in detail at [106]–[119] below.
[12] Hocen’s cable business was, on the surface, very simple. It bought cables from an Australian company called Olex Pty Ltd (“Olex”) and sold the cables at a profit to a Chinese company known as Shanghai Zhenhua Port Machinery Co Ltd (“ZPMC”). ZPMC manufactures cranes for Chinese container ports and has need for significant quantities of cables. One of ZPMC’s major customers is Yantian International Container Terminals (“YICT”).
[13] Three of Hocen’s employees gave evidence at trial in these suits. They are Davin Chan, an administrative manager; Raymond Goh Lnai Mun, a sales manager; and Loh Siew Choong, also a sales manager. All three were employed by Hocen from August 2005, shortly after it was incorporated, until it went into liquidation in October 2007.
Hocen engages Crossbridge
[14] Soon after Hocen commenced operations, it engaged the services of a Hong Kong company called Crossbridge International Pte Ltd (“Crossbridge”). It is common ground that it was the defendant who introduced Crossbridge to Hocen.
[15] Crossbridge is owned by one Tsui Wai Mun and one Yu Kit Ching. Yu’s brother-in-law, Daniel Cheng, was also an officer of Crossbridge. He was at the same time an equipment manager with YICT. Cheng’s role in Hocen’s arrangement with Crossbridge is a matter of dispute in this case.
The Crossbridge payments
[16] Between September 2005 and October 2006, the defendant caused Hocen to issue a total of ten cash cheques and to make eight bank remittances to Crossbridge. I will refer to these transactions collectively as the Payments. The total amount debited from Hocen’s account by way of the ten cheques was S$855,225 and US$52,700. The total amount debited from Hocen’s account by way of the eight remittances was US$567,200.
[17] The defendant drew each cash cheque on Hocen’s account with the United Overseas Bank Ltd (“UOB”) and personally cashed the cheque over the counter at a UOB branch. He then physically delivered the cash to a representative of Crossbridge: either Daniel Cheng, Tsui Wai Mun or Yu Kit Ching. It is the defendant’s evidence that he delivered the cash drawn against the last two cheques to Crossbridge for onward payment to a third party who had supplied materials to Crossbridge. But there is no suggestion that the last two cash cheques are any different in kind from the first eight. I therefore treat the claim on all ten cash cheques as standing or falling together.
The Crossbridge contracts
[19] Between March 2006 and January 2007, Hocen entered into four written contracts with Crossbridge. I shall call them the “Crossbridge Contracts”. The terms of the four contracts are identical to each other in all material respects.
[20] The purpose of the Crossbridge Contracts was apparently to formalise an existing arrangement between Hocen and Crossbridge. The contracts ostensibly obliged Crossbridge to provide quality assurance and progress monitoring services (collectively, “the Services”) when cables sourced from Hocen were installed in cranes manufactured by ZPMC.
Hocen goes into liquidation
[22] It is important to point out that Hocen, though now in liquidation, is far from insolvent. After paying all of its creditors and defraying the liquidation expenses, there is in fact a substantial surplus which remains to be distributed equally to Hocen’s only two shareholders: the plaintiff and the defendant.
[23] After taking office in October 2007, the liquidators duly reviewed Hocen’s affairs and records. In the course of the review, they interviewed both the plaintiff and the defendant. In September 2009, they submitted a confidential report of their findings to the Commercial Affairs Department (“CAD”). The CAD considered the liquidators’ report and took the position that it disclosed no criminal offence. The CAD decided not to investigate any further.
[25] The essence of the liquidators’ findings in their report was that the Payments did not appear to have conferred any corporate benefit on Hocen. In particular, the liquidators found a lack of documentary evidence that Crossbridge had actually provided any of the Services. The liquidators were also unable to verify that the defendant had indeed delivered the cash withdrawn from Hocen’s account to Crossbridge, as he claimed.
Hocen sues the defendant
[27] In September 2011, with funding from the plaintiff, the liquidators commenced the first of the two suits now before me. Hocen was named as the plaintiff in the suit. This first suit alleges that the defendant breached his duties to Hocen by paying away the cash drawn on the ten cash cheques for no corporate benefit.
[28] In March 2012, the liquidators commenced the second of the two suits now before me. This second suit alleges that the defendant breached his duties to Hocen by causing it to make the eight bank remittances to Crossbridge for no corporate benefit.
[29] In due course, the defendant filed counterclaims in both suits, pleading that the plaintiff was liable to contribute towards any sums which the defendant may be found to be liable to pay Hocen.
[31] In April 2013, the liquidators agreed to permit the plaintiff to take over the carriage of these suits. In November 2013, with the High Court’s sanction, the liquidators caused Hocen to assign to the plaintiff its causes of action against the defendant. The plaintiff was then substituted for Hocen as the plaintiff in both suits. I examine the terms of the assignment more closely at [188]–[189] below.
Parties’ cases
[34] The plaintiff’s pleaded case is that the defendant breached his duties to Hocen by effecting payments to Crossbridge which did not confer any corporate benefit on Hocen. The plaintiff submits that Hocen derived no corporate benefit from the Payments for two reasons: (a) because Crossbridge did not, in fact, provide any of the Services to Hocen; and (b) because the defendant caused Hocen to make the Payments pursuant to a scheme to engage and fund Crossbridge to procure business for Hocen from ZPMC by corruption. The plaintiff also claims that he was not complicit in the defendant’s breaches of duty because the plaintiff had little knowledge about Hocen’s dealings with Crossbridge and trusted the defendant in that regard.
[35] The defendant, on the other hand, claims that he did not breach his duties to Hocen. He argues that Hocen derived three corporate benefits from the Payments: (a) Crossbridge did, in fact, provide the Services; (b) Crossbridge entertained individuals from ZPMC and bought them gifts to induce them not to make complaints about cables supplied by Hocen; and (c) Crossbridge also entertained individuals from YICT and bought gifts for them. The defendant also claims that, despite appearances, the Payments were paid without corrupt intent and not pursuant to a scheme to procure business for Hocen by corruption. In the alternative, the defendant argues that if he did breach his duties to Hocen, the plaintiff is equally culpable. The plaintiff knew that Hocen was making the Payments to Crossbridge and knew the purpose of the Payments. Accordingly, the defendant seeks a 50% contribution from the plaintiff in respect of any sum for which he is found liable in these suits.
Issues
[36] There are three broad issues to be decided:
(a) Did the defendant breach his duties as a director to Hocen?
(b) Did the plaintiff breach his duties as a director to Hocen?
(c) Can the defendant rely on the doctrine of ex turpi causa non oritur actio so as to defeat the claim?
[37] I address these three issues in turn.
Issue 1: The defendant’s breach of duty
[38] It is common ground that the Services, if performed, would have constituted a corporate benefit to Hocen. To decide whether the defendant breached his duty to Hocen, therefore, I must first decide whether Crossbridge performed the Services. If I find that Crossbridge did not, I then have to decide the true purpose of the Payments and whether that purpose conferred a corporate benefit on Hocen. Finally, in the light of my findings on these two issues, I must decide whether the defendant breached his duties to Hocen.
Did Crossbridge perform the Services?
[39] The ostensible purpose of the Crossbridge Contracts was to place Crossbridge under a contractual obligation to perform the Services. In broad terms, Crossbridge’s ostensible role was to ensure that ZPMC complied with Hocen’s specifications in carrying out its cable installation works. The actual scope of the Services is set out with precision in cl 2 of the Crossbridge Contracts. They include:
(a) nominating a full-time English and Chinese speaking project manager in Shanghai to perform the Services (cl 2.1);
(b) establishing a detailed “Tests and Inspection Schedule” for the entire manufacturing and assembly period, which will indicate the number and type of personnel Crossbridge shall require for each week (cl 2.2);
(c) obtaining all drawings pertaining to the electrical cable installation works that are necessary to perform the inspection (cl 2.3);
(d) sending a list of the certificates/inspection or test records to Hocen, and doing so bi-weekly (cl 2.4);
(e) notifying Hocen of any discrepancies between ZPMC’s and Crossbridge’s interpretation of the pass/fail criteria of the cable installation works (cl 2.5); and
(f) holding a monthly work progress review meeting with ZPMC and reporting to Hocen any possible delays in installation works (cl 2.6).
Plaintiff’s submissions
[40] The plaintiff advances three principal reasons in support of his case that Crossbridge did not perform the Services.
[41] First, he submits that there is no documentary evidence that Crossbridge ever performed any of the Services:
(a) The liquidators did not find any correspondence between Hocen and ZPMC showing that Crossbridge had performed the Services. While there was some correspondence between Hocen, ZPMC and Olex on damaged cables in China, that correspondence contained no mention of Crossbridge’s role in inspecting or testing these cables.
(b) The liquidators found none of the documents which Crossbridge was contractually obliged to generate and furnish to Hocen under the Crossbridge Contracts. Clause 2.3 of the Crossbridge Contracts required Crossbridge to prepare a list of certificates or test records every fortnight. Clause 2.4 required Crossbridge to establish a detailed test and inspection schedule. None of these documents were found amongst Hocen’s records.
(c) The liquidators found none of the documents which Crossbridge was likely to have generated and furnished to Hocen if it had in fact performed the Services. Clause 2.6 of the Crossbridge Contracts required Crossbridge to hold monthly work progress review meetings with ZPMC. The liquidators found no reports, updates or minutes of these meetings amongst Hocen’s records.
[42] Second, the plaintiff submits that the documentary evidence which the defendant has produced to show that Crossbridge performed the Services is flimsy. This evidence comprises a fax dated 19 September 2007 from one Huang Xing Fei, allegedly an employee of ZPMC. The plaintiff points out that this fax is of doubtful provenance because the liquidators did not find it amongst Hocen’s records. Further, the plaintiff objects to the admissibility of the fax on the basis that it is hearsay evidence: Huang did not testify at trial. Finally, even if one puts aside these points, the fax merely states that Hocen “previously engaged subcontractors at ZPMC ChangXing Base site”. It does not identify Crossbridge as one of these subcontractors.
[43] Third, the plaintiff submits that the defendant’s oral evidence should not be believed because it is inconsistent and constantly evolving. The plaintiff suggests that the defendant does not himself believe that Crossbridge ever performed any of the Services. The thrust of the defendant’s evidence, as presented in his affidavit of evidence-in-chief (“AEIC”), is that Hocen engaged Crossbridge to procure business from ZPMC, not to perform the Services for Hocen. It was only under cross-examination that the defendant attempted to support a case based on ZPMC’s actually performing the Services by alleging – for the first time – that he had personally witnessed Crossbridge inspecting the installation of Olex cables at the ZPMC site. Unsurprisingly, the plaintiff submits that the defendant’s oral evidence is an afterthought and should not be believed. In any event, even if the defendant’s claim to have visited the ZPMC site “a couple of times” is true, this does not address Crossbridge’s failure to prepare and furnish documentation to Hocen as stipulated in the Crossbridge Contracts. It is also unbelievable, says the plaintiff, for the defendant to claim that this documentation was unnecessary or that he could not obtain it as he was shorthanded. The defendant’s own position is that Crossbridge was engaged to inspect Olex cables and ensure that ZPMC properly installed the cables to protect Hocen against possible claims by ZPMC. On this hypothesis, it is likely that the defendant would have ensured that Hocen was actually protected by insisting that Crossbridge prepare and furnish the stipulated documentation, for Hocen to have available in case ZPMC ever made a claim against Hocen arising from the installation work. The complete absence of any of the stipulated documentation amongst Hocen’s records means that it is more likely that Crossbridge never performed any of the Services.
Defendant’s submissions
[44] The defendant, in turn, has four principal submissions. First, he submits that the lack of documentation does not mean that Crossbridge did not perform the Services. He claims that counterparts in China do not place much emphasis on ensuring that documentation is complete and up to date. He did nevertheless satisfy himself, by visiting the ZPMC site, that Crossbridge had performed the Services. The reason that both he and the plaintiff did not ask Crossbridge for any reports is because they were satisfied that everything was running smoothly.
[45] Second, the defendant argues that the fax dated 19 September 2007 from Huang Xing Fei (see [42] above) is credible proof that Crossbridge was one of the subcontractors whom Hocen engaged to inspect the installation of the cables which Hocen supplied to ZPMC. The defendant submits that the liquidators saw an email between the defendant and Huang in which the defendant had asked Huang to confirm the presence of Hocen’s subcontractors at ZPMC’s site. Little weight should therefore be given to the fact that Hocen’s liquidators did not find the fax, which contained words to similar effect, in Hocen’s records.
[46] Third, the defendant relies on a photograph said to be of one Joe Liang at the ZPMC site as evidence that Crossbridge did indeed monitor the installation of cables at the ZPMC site. Liang is the person who signed the Crossbridge Contracts on behalf of Crossbridge, and he was at the ZPMC site as a “site manager” for Crossbridge. The photograph shows a person said to be Liang stripping cables in the presence of a ZPMC worker. According to the defendant, at the time the photograph was taken, ZPMC had complained that water had seeped into a cable which had been installed. Olex required the cable to be stripped and tested, which was what Liang was doing.
[47] Fourth, the defendant contends that there are at least two individuals who can give independent evidence about Crossbridge’s work at the ZPMC site. The first is Loh Siew Choong, a former employee of Hocen. Loh used to visit the site frequently from 2005 to 2007. The defendant called Loh as a witness. Loh’s evidence is that he saw Daniel Cheng and his staff at the ZPMC site and that they acknowledged each other. The second person is one Zhang Yixiao, a former employee of ZPMC. Zhang filed an affidavit on the defendant’s behalf opposing the liquidators’ application in May 2012 for the defendant to account for the Payments (see [30] above). The defendant now relies on the fact that in that affidavit, Zhang stated that he had heard about Crossbridge from a colleague in ZPMC. The liquidators in May 2008 corresponded with Zhang over Hocen’s debt to ZPMC. The defendant points out that, at that juncture, neither the liquidators nor the plaintiff expressed any doubt to Zhang about the existence of Crossbridge or that it had performed the Services.
Analysis and decision
[48] In my judgment, the plaintiff has proved, on the balance of probabilities, that Crossbridge did not perform the Services. I come to this conclusion for the following reasons.
[49] First, it there is no documentary evidence that Crossbridge performed the Services. One of the liquidators gave evidence at trial that the liquidators did not find any documentation in Hocen’s records to suggest that Crossbridge had actually performed the Services. The liquidator’s evidence was not challenged. The liquidator is an officer of the court. Neither party has suggested that he has acted without impartiality or independence, whether in giving evidence at trial or in his investigation of Hocen’s affairs. I accept his evidence. It is important also to note that the defendant does not suggest that Crossbridge did, in fact, generate and furnish to Hocen the documentation which it was obliged to generate under the Crossbridge Contracts or that it was likely to generate in the course of performing the Services, but that the documentation is, for whatever reason, no longer amongst Hocen’s documents or otherwise unavailable.
[50] Second, I am not persuaded by the defendant’s explanation for the lack of documentation. His answer that Hocen was “very shorthanded” and that “the Chinese … are not so good [at] paperwork at that point of time” is not credible. It is understandable that a small company like Crossbridge may, for various reasons, fail to document thoroughly the services which it performs for a customer. But the complete lack of even the simplest form of direct or even indirect documentation in this case strongly suggests that Crossbridge never performed any of the Services at all. At the very least, as the plaintiff argues, the fact that Crossbridge failed to generate the documentation which the Crossbridge Contracts expressly obliged it to generate as part of the Services necessarily means that Crossbridge did not perform the Services in full. Furthermore, one would think that Hocen would consider it important to generate and retain some sort of documentation, however incomplete or indirect, to protect itself against claims by ZPMC. That was, after all, Hocen’s ostensible purpose in engaging Crossbridge to provide the Services.
[51] Third, I agree with the plaintiff that Huang Xing Fei’s fax is inadmissible hearsay. Huang did not testify at trial to prove the fax and to be cross-examined on its contents. Even then, it is not clear that his direct evidence would have addressed the hearsay objection. There is no evidence that the contents of Huang’s fax – tendered to prove that Crossbridge in fact performed the Services – was within Huang’s personal knowledge.
[52] Even if the fax were admissible, it would carry little evidential weight. Although it refers to “subcontractors”, there is no mention that Crossbridge was one of the subcontractors. Even if I were to assume that Huang was referring to Crossbridge, the statement that Hocen “engaged” Crossbridge to provide quality assurance services is merely evidence that Hocen entered into the Crossbridge Contracts. That is an undisputed and indisputable fact. The point in dispute is whether Crossbridge actually performed the Services. That is not a fact which Huang’s statement asserts. Even if I were to read Huang’s statement as confirming that Crossbridge actually did perform the Services, the statement does not assert – and therefore cannot prove – that Crossbridge performed the Services in accordance with the Crossbridge Contracts so as to have earned the Payments.
[53] Fourth, I attach little weight to the photograph allegedly showing Joe Liang stripping cables on site. There is no independent evidence that the person in the photograph is in fact Joe Liang. There is also nothing in the photograph to suggest that it was taken at the ZPMC site. And even if it was, it would at best be evidence that on one specific occasion, one representative of Crossbridge was on site to remedy one specific issue with the cables. It hardly supports the claim that Crossbridge performed the Services in accordance with the Crossbridge Contracts so as to have earned the Payments.
[54] Fifth, I do not accept the defendant’s evidence that he “personally witnessed” Crossbridge inspecting the installation of cables at the ZPMC site. The defendant did not make this allegation at any time when the liquidators interviewed him. Nor did he make this allegation in any of his affidavits in this litigation. During cross-examination, the defendant claimed that “Crossbridge has a few letters to Hocen saying that I have been to the site to accept the work done”. But no letter of this nature has been adduced in evidence. I therefore accept the plaintiff’s submission that this aspect of the defendant’s evidence is not credible and is a mere afterthought. In any event, the defendant’s evidence is merely that he was at the site “a couple of times” or “a few times” because he had a “busy schedule”. Taking the defendant at his word, then, he is hardly in a position to testify generally that Crossbridge performed the Services in accordance with the Crossbridge Contracts so as to have earned the Payments.
[55] Finally, Loh Siew Choong’s and Zhang Yixiao’s evidence, in my view, does not assist the defendant’s case at all. Loh’s evidence is that he told the liquidators that he ran into Daniel Cheng once at ZPMC’s canteen on ChangXing Island. Although Loh recalls being told that Cheng was “from Crossbridge”, he did not know that Cheng also worked for YICT. Accordingly, the fact that Cheng was spotted on the island by someone other than the defendant hardly corroborates the defendant’s oral evidence that Crossbridge performed the Services: Cheng could have been there not for Crossbridge but for YICT. And even if he had been there for Crossbridge, that in itself says nothing about whether Crossbridge performed the Services in accordance with the Crossbridge Contracts so as to have earned the Payments. Loh’s ignorance about Crossbridge’s operations is underscored by his evidence that he knew nothing about the people associated with Crossbridge, including Joe Liang.
[56] As regards Zhang, his evidence does not show that Crossbridge performed the Services. While he claims to have heard of Crossbridge, he also says that he “did not have direct contact and/or communication with Crossbridge”. He therefore has no personal knowledge about Crossbridge’s activities. Importantly, Zhang does not assert that Crossbridge was Hocen’s subcontractor or that it was engaged in performing services for Hocen in connection with Hocen’s business with ZPMC. Accordingly, I give his evidence no weight.
Burden of proof
[57] I close with an observation on the burden of proof. The observation is necessitated by the defendant’s submission that the plaintiff has failed to discharge his burden of proving his case on this point because he has adduced no evidence that Crossbridge did not perform the Services. The suggestion is that the plaintiff is attempting to shirk the legal burden of proving his case by relying on an absence of evidence that Crossbridge performed the Services. I do not accept that suggestion. Instead, I find that the plaintiff has produced evidence which is not inherently incredible – for example, in the form of the liquidator’s evidence that no documentation was found in Hocen’s records suggesting that Crossbridge had performed the Services – which suffices to raise an inference that Crossbridge did not in fact perform the Services. The evidential burden of rebutting that allegation thus falls properly upon the defendant. For the reasons I have given, the defendant has failed to produce weighty or even credible evidence to the contrary. The distinction between the legal and evidential burdens of proof are well-established and are explained fully in the Court of Appeal’s decision in Britestone Pte Ltd v Smith & Associates [2007] 4 SLR(R) 855 at [57]–[60]. The plaintiff has correctly cited that case on this point. I need not repeat the applicable principles here.
[58] For the reasons above, I find that Crossbridge did not perform the Services. Accordingly, compensating Crossbridge for the Services cannot have been the defendant’s true purpose in causing Hocen to make the Payments.
What was the true purpose of the Payments?
[59] I turn now to examine the defendant’s true purpose for causing Hocen to make the Payments to Crossbridge. As will be seen, there is a substantial degree of common ground between the parties on this issue. Their differences are in the final analysis inconsequential and do not change the fact that, in my judgment, the defendant caused Hocen to make the Payments pursuant to a scheme to engage and fund Crossbridge to procure business for Hocen from ZPMC by corruption. I begin with the plaintiff’s submissions.
Plaintiff’s submissions
[60] The plaintiff’s submissions on the true purpose of the Payments may be understood in three parts. First, the plaintiff contends that on the defendant’s own evidence, Crossbridge’s main purpose was to procure business for Hocen from ZPMC: see [43] above. According to the defendant, Crossbridge was the “middleman between Hocen and ZPMC”, and its role was to help Hocen “break into the Chinese market”. The defendant also told the liquidators that Crossbridge was appointed to “help in the marketing of [Hocen’s] products”. In both instances, the defendant made minimal reference to performing the Services being Crossbridge’s role. This in turn meant that the Services, including providing inspection reports and certifications, were “meaningless”, in the defendant’s own words.
[61] Second, the plaintiff argues that the Payments were intended specifically for Crossbridge to pay on as bribes. Again, the plaintiff relies to a large degree on the defendant’s own evidence for this contention. The defendant said in his affidavit filed to oppose the liquidators’ application for an account in May 2012 (see [30] above) that because Hocen’s directors were not prepared themselves to pay any “bribes or kick-backs”, he and the plaintiff appointed Crossbridge as a “middle man” to do so. During cross-examination, the defendant admitted that Crossbridge was paid by Hocen to “entertain the ZPMC people at site” and to “buy them gifts” such as “mobile phones”. Crossbridge did this, in the defendant’s own words, “to make the site people happy” as and when they had complaints about Hocen’s cables. Accordingly, says the plaintiff, the Payments were used to fund corrupt inducements to the recipients, and were therefore bribes.
Defendant’s submissions
[63] The defendant does not deny that Crossbridge’s purpose was to procure business for Hocen from ZPMC. His case is that Crossbridge was engaged to perform an inseparable “package” of services. One component of that package was to perform the Services. The other component was to procure business for Hocen by marketing its Olex cables in China. Thus, having accepted that Crossbridge did not provide any reports or certifications to Hocen as it was obliged to by the Crossbridge Contracts, the defendant is eager to show that Crossbridge was nevertheless “resourceful in providing other ‘value added services’”. These other services included, among other things, “[e]ntertaining the [YICT] and ZPMC staff to maintain good relations so that they would not complain or create trouble.” Accordingly, the defendant appears not to dispute the substance of the plaintiff’s first submission on the purpose of the Payments (see [60] above) and the facts underlying the plaintiff’s second submission on the issue (see [61] above).
Analysis and decision
[65] In my judgment, the plaintiff has proved on the balance of probabilities that the defendant made the Payments pursuant to a scheme to engage and fund Crossbridge to procure business for Hocen from ZPMC by corruption.
[66] I begin by noting that I am making findings about the true nature of the Payments in the context of determining whether a director has breached his duty to the company. In that context, there is no technical definition of corruption is which is applicable. There is such a definition in the penal legislation which criminalises corruption. That definition contains the mental and physical elements which a prosecutor must prove to secure a conviction for corruption. But the broad question in this part of my analysis is whether the defendant breached his duty to Hocen as a director and not whether he is guilty of the crime of corruption. A director may breach his duties as a director by giving a corrupt payment as defined in the criminal law. But that is not the only way in which he may breach that duty. In any event, much will depend on the circumstances. Therefore, it would be inappropriate for me to suggest or to adopt a comprehensive legal definition of what corruption is for the purposes of determining whether a director is in breach of duty.
[67] In this connection, the plaintiff refers me to Black’s Law Dictionary (10th Ed, 2014), which defines a bribe as a “reward, gift or favour given or promised with a view to pervert the judgment of or influence the action of a person in a position of trust”. I respectfully adopt that as a working definition for present purposes.
[68] I now turn to explain why I have found that the defendant caused Hocen to make the Payments pursuant to a scheme to engage and fund Crossbridge to procure business for Hocen from ZPMC by corruption.
[69] First, the defendant himself accepts that the Payments went towards entertaining and buying gifts for the representatives of ZPMC and YICT. He said that these “kickbacks” (to use his own word) helped to “make the site people happy” and to ensure that they did not complain about the quality of the Olex cables. The defendant sought to explain that Crossbridge’s use of the Payments in this way did not amount to corruption because no actual money was paid to ZPMC’s representatives. That is, however, a distinction without a difference. The entertainment, gifts and favours which Crossbridge extended to the representatives of ZPMC amount to corruption because they were given for the purpose of influencing the decisions which the recipients made on behalf of ZPMC.
[70] Second, I accept that Daniel Cheng used his position and influence in YICT to cause YICT, as the end user, to specify Olex cables over rival manufacturers’ cables in its contracts with ZPMC with the expectation that ZPMC would source the Olex cables through Hocen. Although the evidence which the plaintiff has presented as the foundation for this inference is circumstantial in nature, it is nevertheless compelling in effect when viewed in the round. Much of this evidence, again, comes from the defendant’s own mouth. Its key strands are as follows:
(a) Daniel Cheng was in a position to influence YICT for Hocen’s benefit. As a representative of Crossbridge, who had been engaged and funded by Hocen to procure business, Cheng was alive to Hocen’s business interests. At the same time, he was also an equipment manager with YICT, according to the defendant. As Cheng was, in the defendant’s own words, “wearing two hats”, he was especially well-placed to pursue Hocen’s interests from within YICT, who had decisive influence on whether ZPMC would need to purchase Olex cables from Hocen.
(b) In that connection, Hocen had a strong need to exert this influence over YICT. ZPMC stated in a letter to the defendant “[t]he fact that OLEX cables are expensive, we would only agree to purchase it if the customers would strongly insist to have OLEX cables in their cranes.” What made YICT “strongly insist” on the use of Olex cables, then? The answer is Crossbridge, as the defendant explains in his submissions:
(c) In fact, Crossbridge did influence YICT through Daniel Cheng. The defendant himself has described Cheng as “the link between [YICT] and Crossbridge”. More specifically, the defendant did not deny that Cheng had a role in causing YICT to specify Olex cables in its dealings with ZPMC; in fact, he implicitly accepted that Cheng had such a role, as can be seen in the following exchange in cross-examination:
(d) ZPMC and YICT both behaved as if they had been bribed by behaving in a manner which was ostensibly against their own interests and in favour of Hocen. The defendant’s own evidence is that Crossbridge persuaded ZPMC to forgo valid legal claims against Hocen for late delivery and defective goods. One example took place in September 2007, when Crossbridge convinced ZPMC not to press Hocen for damages for defective delivery of a reeling cable. The defendant also testified that Daniel Cheng was able to persuade YICT to accept cables which had presented problems caused by twisting at their core.
[71] I therefore reject the defendant’s submission that the plaintiff’s contentions as to Daniel Cheng’s role procuring business for Hocen by corruption at YICT are mere speculation. I am satisfied on the balance of probabilities that Cheng exercised improper influence over YICT, through bribes such as entertainment and gifts, to cause YICT to specify Olex cables in its contracts with ZPMC. And funding these inducements to YICT was at least part of the defendant’s purpose in making the Payments to Crossbridge.
[72] Third, the defendant’s argument that he had no corrupt intent in making the Payments misses the point. What matters is whether he intended the Payments to be used to influence decision-makers in a position of trust at ZPMC and YICT. And that was indeed the defendant’s intention. It is his own case that the Payments went towards entertaining ZPMC officers and buying them gifts so that they would, among other things, not pursue valid claims against Hocen for defective cables or poor installation. While he seems to deny that Daniel Cheng played a crucial role in bribing YICT officers, he does not deny that the only way YICT would insist on Olex cables was if it had been persuaded to do so, and that Crossbridge was paid to do the persuasion (see [70(b)] above).
[73] For these reasons, I accept the plaintiff’s case that the defendant made the Payments pursuant to a scheme to engage and fund Crossbridge to procure business for Hocen from ZPMC by corruption.
Did the defendant breach his duty to Hocen?
[74] I turn now to whether, in the light of these facts, the defendant breached his duty to Hocen as a director. In my view, he did. I begin with the applicable principles.
Applicable principles
[75] Section 157(1) of the Act imposes upon every director of every company two distinct statutory obligations in discharging the duties of his office: (a) at all times to act honestly; and (b) at all times to use reasonable diligence. These distinct obligations are based respectively on a director’s fiduciary duty under the general law to act bona fide in the interests of the company and on his common law duty to exercise reasonable care and diligence: Hans Tjio, Pearlie Koh and Lee Pey Woan, Corporate Law (Academy Publishing 2015) (“Corporate Law”) at paras 09.020 and 09.028. The plaintiff’s pleaded case rests on both obligations. I must therefore consider whether the defendant, as a director of Hocen, failed to act bona fide in Hocen’s interests by causing Hocen to make the Payments to Crossbridge, or whether he failed to exercise reasonable care and diligence in doing so.
[76] I begin by considering the first of these distinct obligations.
[77] To determine civil liability for breach of the duty to act bona fide in the interests of a company, the court will assess the intention of a director on a subjective and an objective basis: Goh Chan Peng and others v Beyonics Technology Ltd and another and another appeal [2017] SGCA 40 (“Goh Chan Peng”) at [35]–[36]. At the subjective level, the court must consider whether the director acted bona fide in what he believed (and not what the court believes) to have been in the interests of the company (at [35]). At the objective level, the court has to assess whether an intelligent and honest man in the position of the director could, in the whole of the existing circumstances, have reasonably believed that acting in that way would be for the benefit of the company (at [36]). Where a director’s act is not objectively in the company’s interests, the court may draw the inference that the subjective element is also not satisfied (at [36]).
[78] Having framed the analysis as incorporating a discrete subjective element, the Court of Appeal in Goh Chan Peng then endorses the observation in Walter Woon on Company Law (Tan Cheng Han gen ed) (Sweet & Maxwell, Revised 3rd Ed, 2009) that the courts in practice often apply a more objective test (at [36]). In this connection, I add that Goh Chan Peng may be read in two ways. First, it may be read as relying on the objective assessment of a director’s intention purely as an evidential basis upon which to draw an inference as to his subjective intention. To the extent that this is true, Goh Chan Pheng departs from the Court of Appeal’s earlier approach in Ho Kang Peng v Scintronix Corp Ltd [2014] 3 SLR 329 (“Ho Kang Peng”). That case has been regarded in a leading local text as laying down a purely objective approach to determining a civil breach of the duty to act bona fide in the interests of a company: Corporate Law at paras 09.022–09.023. The second way in which Goh Chan Pheng may read is that it lays down a substantive objective component, consonant with Ho Kang Peng. Goh Chan Pheng was not available at the time the parties made their closing submissions. In fairness to the parties, therefore, I shall read Goh Chan Pheng as being consistent with Ho Kang Peng.
[79] Also relevant to the present case is the idea that a director who creates a sham contract and who causes the company to participate in corruption cannot be said to be acting bona fide in the interests of the company even if his subjective intent is to maximise the company’s profits. This proposition forms the ratio of Ho Kang Peng. That is a case on which the plaintiff relies heavily. The basis of the proposition appears to be twofold, according to Ho Kang Peng at [40]. First, it is not in the interests of a company to maximise profits by any means. It is in the interests of a company, which ultimately comprises its shareholders (at least, while it is solvent), “to have its directors act within their powers and for proper purposes, to obtain full disclosure from its directors, and not to be deceived by its directors”. Second, a director who causes a company to participate in corruption runs the risk of exposing the company to criminal liability, a risk which can never be justified as being in the company’s interests. The same would, of course, be true of a director who causes a company to make a payment to an intermediary, intending the intermediary to make the corrupt payments in place of the company.
[80] I make two conceptual observations about the principle in Ho Kang Peng. First, it seems to me that for the principle in Ho Kang Peng to have any teeth, the test for determining whether a director is in breach of his duty to act bona fide in the interests of the company must necessarily incorporate a discrete objective element. That is because the principle in Ho Kang Peng, by definition, circumscribes the interests of a company and the justifiability of the risks which it may take in purely objective terms: terms which may be entirely at variance with a director’s subjective intentions. Thus, in Ho Kang Peng, the Court of Appeal accepted (at [37]) that the director in question, subjectively speaking, had the financial benefit of the company in mind and did not act to further his own interests: see also Corporate Law at para 09.022. The Court nevertheless went on to observe that, objectively speaking, the director acted against the company’s interests by causing it to participate in a corrupt scheme because his act exposed the company to potential criminal proceedings (at [40]).
[81] By finding that the director in Ho Kang Peng had breached his duty to act bona fide in the company’s interests solely by virtue of the objective result of his actions and not his subjective intention in acting as he did, the Court of Appeal effectively exercised a supervisory jurisdiction over directors by drawing a consequentialist line in the sand. A director who crosses that line will be held to have breached his duty to the company and will be held responsible for the result or potential result of his acts without regard to his subjective intention. The consequentialism behind the rule in Ho Kang Peng is unmistakeable: directors cannot be allowed, by crossing that line, to put at risk the wider interests which all stakeholders have in the company. In that case, the director was held to have crossed the line by exposing the company to criminal liability when he acted to maximise the company’s profits by participating in a corrupt scheme.
[82] This leads to my second observation, which is that the objective approach seems quite unexceptional in a case like Ho Kang Peng but can seem anomalous in a case like the present. The company in Ho Kang Peng was a large public listed company (see Ho Kang Peng at [41] and [70]). As such, it had widely-held shares, a broad base of diverse stakeholders and well-developed governance structures going far beyond the minimum required the Act. The director in Ho Kang Peng undermined all those underlying interests when he breached his duty. Hocen, on the other hand, is a small, closely-held private company. It has never had more than four employees. Its internal governance is no more than the bare minimum required by the Act. It has a complete coincidence of identity and interests between the directors, the shareholders and the company. That was the case throughout its life, and even now when it is in liquidation. Creditors’ interests have not intruded because it is solvent. In that sense, the plaintiff and the defendant are the company. I shall refer to such a company as a “one-man company”. I use that term to mean a company, whether solvent or insolvent, which is under the de facto ownership and control either of a single person or of a group of persons who are acting entirely in concert, all of whom I shall refer to as “director-shareholders”.
[85] Second, it is preferable for company law to take a single approach to all companies, whether large or small and whether widely or closely held. Just as all directors are subject to the same fiduciary, common law and statutory duties regardless of the size and nature of their companies, so too all directors must be subject to the same objective approach regardless. Making an exception to the objective approach for companies like Hocen would have to rest upon difficult distinctions of fact around the constitution and composition of a given company. These distinctions would have either have to be fixed a priori by drawing bright lines, which are always essentially arbitrary, or would have to be resolved after the fact by judge-made law on a case by case basis. Either approach runs the risk of introducing uncertainty and possible incoherence into the law.
[86] The upshot is that there is good reason for the part-subjective and part-objective approach to breach of duty in Ho Kang Peng to prevail even in the case of a solvent one-man company like Hocen.
Analysis and decision
[87] I turn now to apply these principles to the facts of the present case.
[88] I begin by finding that, in causing Hocen to make the Payments, the defendant’s subjective intent was to confer an economic benefit on Hocen and not on himself. In a very broad sense, of course, it is true that the defendant’s ultimate objective in making the Payments was to derive a personal economic benefit by way of the fees he would earn as a director of Hocen and the dividends he would receive as a shareholder of Hocen. But, on the assumption I have set out at [18] above, his intention at all times was that those benefits should not accrue to him directly but only indirectly through the medium of the company. That would mean that he intended those benefits be equally available to all stakeholders in accordance with Hocen’s corporate constitution and the Act. And indeed both the plaintiff and the defendant did earn substantial director’s fees and dividends from Hocen so long as its business with ZPMC continued. There is therefore no reason for me to doubt that, as a question of fact, the defendant subjectively intended the Payments to result in an economic benefit for Hocen rather than for himself.
[89] The next point I make is that, in a purely factual sense, the Payments indeed resulted in a significant economic benefit for Hocen. The defendant engaged and paid Crossbridge to procure business for Hocen from ZPMC. The defendant told the liquidators in clear terms that “the tie up with Crossbridge brought us more sales because of their connection (guanxi) as they have high level contacts with ZPMC”. The effectiveness of Crossbridge is borne out by the figures. Hocen achieved the remarkable feat of booking almost S$23.7m in revenue and earning over S$4.7m in profit in just two and a half years of operations, achieving a profit margin of just under 20%. Further, it managed to do all of this with no sales staff at all in China and only three sales staff in Singapore. Virtually 100% of this business came from just one customer: ZPMC.
[90] However, I agree with the plaintiff that, on the authority of Ho Kang Peng, the defendant breached his duty to act bona fide in the interests of Hocen when he secured this economic benefit for Hocen through corruption. Now, it is true that in this case, unlike Ho Kang Peng, the defendant did not deceive the company in securing the benefit. For reasons I will come to, I find that the plaintiff knew and understood how Hocen intended to and managed to attract this staggering volume of extraordinarily profitable business from ZPMC in such a short time. The sham Crossbridge Contracts and the Payments were therefore tacitly but unanimously approved by both organs of the company: the shareholders and the directors. In that sense also, the defendant did not act dishonestly, at least not as against the plaintiff or Hocen. Nevertheless, a number of factors lead me to conclude that the court’s supervisory jurisdiction over directors is engaged in this case so as to render the defendant’s conduct a breach of his duty to Hocen.
[91] The first factor is my finding that the defendant made the Payments pursuant to a scheme to engage and fund Crossbridge to procure business for Hocen from ZPMC by corruption. In the words of the Court of Appeal in Ho Kang Peng (at [40]), the defendant by making the Payments created an “unjustified risk of subjecting [Hocen] to criminal liability”. That risk is objectively contrary to Hocen’s interests. The defendant personally created that risk by initiating and making the Payments.
[92] The second factor is my finding that the Crossbridge Contracts were sham contracts. As I have found (see [48]–[56] above), Crossbridge did not perform the Services for Hocen as stipulated in the Crossbridge Contracts. Crossbridge’s true role was to procure business for Hocen from ZPMC by corruption. But the truth is nowhere reflected in any agreement between Hocen and Crossbridge, and certainly not in the Crossbridge Contracts. I find that Hocen and Crossbridge intended the Crossbridge Contracts from the very outset to be nothing more than a plausible legal pretext for the corrupt scheme. They entered into the contracts with absolutely no intention whatsoever that Crossbridge should ever perform the stipulated Services. The result is that the Crossbridge Contracts were a sham. They were not unlike the sham consulting agreement which the director in Ho Kang Peng executed on behalf of his company as a plausible legal pretext for the corruption in that case. That was one reason the Court of Appeal found that the director had breached his duty to act honestly under s 157 of the Act: Ho Kang Peng at [41]. Similarly, the fact that the Crossbridge Contracts were a sham taints indelibly the defendant’s conduct in causing Hocen to make the Payments, ostensibly pursuant to those contracts.
[93] A third factor is that the defendant deliberately structured the corrupt scheme to create a defence of plausible deniability. He needed this defence not as against the plaintiff, who for reasons I will explain knew the truth from the outset, but as against external parties such as Hocen’s auditor, a liquidator who might take over control of the company and criminal investigators such as the CAD who might investigate the Payments. The defendant’s own evidence is that he interposed Crossbridge in Hocen’s dealings with ZPMC because he wanted an intermediary to do what he euphemistically calls the “leg work” and what I would call the dirty work:
This indicates, at the very least, that the defendant interposed Crossbridge specifically to remove Hocen by one step from future gratifications to ZPMC. Further, the defendant made the majority of the Payments in cash delivered directly to Crossbridge. That was no doubt to make it harder for anyone with an interest to trace the flow of funds and the purpose of the Payments. All of this was a deliberate attempt to engage plausible deniability and to misdirect investigation of the Payments by external parties.
[95] All of this also points to the defendant having breached his duty to exercise reasonable care and diligence rather than complying with it. It is apposite to note here that the Court of Appeal’s analysis in Ho Kang Peng found that the director’s act in causing the company to enter into a sham contract as a pretext for making corrupt payments was a breach not only of his fiduciary duty, but also of his duty to exercise reasonable diligence and to exercise reasonable care and skill: see Ho Kang Peng at [40], [42] and [44].
[96] Accordingly, the plaintiff has succeeded in proving his pleaded case. The defendant is in breach of duty to Hocen. That suffices to dispose of the defendant’s primary case in defence.
Issue 2: The plaintiff’s breach of duty
[97] I turn now to consider the defendant’s alternative case in defence. That case is that the plaintiff knew and approved of the defendant’s scheme to engage and fund Crossbridge to procure business for Hocen from ZPMC by corruption and is therefore liable to make a contribution of 50% to the defendant in respect of his liability. I begin with the defendant’s submissions.
Knowledge of Hocen’s transactions with Crossbridge
Defendant’s submissions
[98] The defendant’s case on the plaintiff’s knowledge of Hocen’s transactions with Crossbridge is this: the plaintiff knew the true purpose of involving Crossbridge in the parties’ planned business even before Hocen was incorporated. After Hocen was incorporated, the plaintiff was an equal participant in all of Hocen’s major decisions, particularly those involving Hocen’s business and finances. The plaintiff approved all 18 of the Payments and countersigned the relevant cheques or remittance instructions together with the defendant. He did so with knowledge of Crossbridge’s role and the purpose of the payments. The defendant relies on three broad strands of evidence to show that the plaintiff had the necessary knowledge.
[100] Second, the defendant points to the fact that the plaintiff knew that Hocen’s auditor had asked Hocen to confirm that the amounts that Hocen was paying to Crossbridge were genuinely for cable installation services. The auditor’s request was communicated to Hocen by a letter dated 28 July 2006 which was addressed to the plaintiff and the defendant. The defendant initially prepared a draft response stating that Crossbridge’s “value-added services … enables us to win projects”. This draft response was never sent. Hocen’s actual response to the auditor, sent on 20 September 2006, deleted any mention of Crossbridge enabling Hocen to win projects. The defendant says that it was the plaintiff who refused to approve the letter until those words were deleted and the he did so because he was worried that those words could be read as an implicit admission that Hocen was involved in corruption.
[101] Third, the defendant points out that the plaintiff was a co-signatory of each of the cash cheques and of each of the telegraphic transfer application forms for the Payments. The defendant’s point is that the plaintiff knew the purpose of these transactions. The defendant relies on the plaintiff’s own evidence that he is a careful businessman who approved each Payment only after sighting the relevant underlying documentation, after being satisfied of the purpose of the payment and after ascertaining that the sum to be paid was in fact due and payable. The defendant highlights two payments totalling over S$520,000 which were made within three weeks in December 2006. The plaintiff’s evidence is that he did not believe this to be a large sum and did not ask why it had to be paid. The defendant asks me to reject this evidence, pointing to the plaintiff’s own evidence about the care he takes in approving payments.
Plaintiff’s submissions

The judgment continues past this page. Read the rest at eLitigation.

Ong Bee Chew v Ong Shu Lin

Grounds of decision

Background

Hocen is established

Hocen engages Crossbridge

The Crossbridge payments

The Crossbridge contracts

Hocen goes into liquidation

Hocen sues the defendant

Parties’ cases

Issues

(a) Did the defendant breach his duties as a director to Hocen?

(b) Did the plaintiff breach his duties as a director to Hocen?

(c) Can the defendant rely on the doctrine of ex turpi causa non oritur actio so as to defeat the claim?

Issue 1: The defendant’s breach of duty

Did Crossbridge perform the Services?

Plaintiff’s submissions

Defendant’s submissions

Analysis and decision

Burden of proof

What was the true purpose of the Payments?

Plaintiff’s submissions

Defendant’s submissions

Analysis and decision

Did the defendant breach his duty to Hocen?

Applicable principles

Analysis and decision

Issue 2: The plaintiff’s breach of duty

Knowledge of Hocen’s transactions with Crossbridge

Defendant’s submissions

Plaintiff’s submissions