Telemedia Pacific Group Ltd and another v Yuanta Asset Management International Ltd and another [2016] SGHC(I) 06

These reasons relate to the form of final orders to be made consequent upon the judgment delivered in these proceedings on 30 June 2016: see Telemedia Pacific Group Ltd and another v Yuanta Asset Management International Ltd and another [2016] SGHC(I) 03 (“the Judgment”). These reasons should be read with the Judgment. For convenience, I will adopt the abbreviations used in the Judgment.

The plaintiffs were successful in their claims for breach of contract, breach of fiduciary duties and conversion. The heads of damage in respect of those claims were agreed to be a shortfall in loan proceeds, the unauthorised sales of 101.5m NexGen shares in February and March 2011, the unauthorised sales of 60m NexGen shares in August 2011 and the unauthorised sales of 225m NexGen shares in October 2011.

The defendants have retained an expert accountant to assist them in ascertaining the profits and/or losses of the joint venture that are to be equally shared. On 7 November 2016 I indicated to the parties that the finalisation of the joint venture relationship as a whole is not part of these proceedings and I did not intend to entertain submissions in relation to that accounting exercise. However I indicated that if the parties wished to include an order in these proceedings finalising their joint venture relationship they should file a Consent Order by 21 November 2016. This did not occur. As has been the habit of these parties, they each wrote to the Court after this date seeking orders in respect of this process, albeit not orders that would finalise their relationship immediately. Although the defendants requested a further delay of 21 days in the delivery of these reasons, I am not satisfied that this is appropriate. However I will grant leave to the parties to relist the matter on seven days’ written notice for the purpose of making any Consent Orders finalising the parties’ relationship.

Quantum of damages

The first head of damage with which the parties have dealt, both in writing and orally, is the shortfall in the loan funds.

Shortfall in loan funds

The retention of the loan funds by the defendants was not in issue at trial, albeit that the entitlement to the funds was in issue. The plaintiffs claimed that an amount of S$850,475.73 had been retained while the defendants claimed that S$1,633,963.87 had been retained (see the Judgment at [418]).

During the parties’ post-Judgment communications the plaintiffs advised the defendants on 21 July 2016 that they had re-calculated the shortfall to be S$1,693,785.47. On 16 August 2016 the plaintiffs advised the defendants that “at the very least” they were entitled to S$850,475.73 for the shortfall in the loan funds. On 18 October 2016 the plaintiffs’ submissions to the Court explained the difference between these two figures as follows:

In their written submissions filed on 3 November 2016 the defendants took issue with the plaintiffs’ entitlement to any amount, submitting that the shortfall should be paid to the joint venture vehicle, AEM. The defendants also submitted that the shortfall figure should be S$1,293,710.82.

During oral submissions on 7 November 2016, the plaintiffs claimed that the findings made in the Judgment entitled them to the proceeds in respect of the shortfall. That submission cannot be sustained. These were funds that were destined for the joint venture vehicle for investment and were funds made available by EFH on the pledging of the NexGen shares less the 3% fee charged by EFH. In addition, the defendants were entitled to retain 10% of the loan funds by way of commission (see the Judgment at [425]).

The submissions and the calculation by the defendants is to be preferred. It provides for the reduction of the S$1.8m paid to the plaintiff on 29 June 2011 but brings to account the amount for the repurchase of the shares of S$1,459,710.82. Subject to what is said below in relation to interest, the defendants will be ordered to pay that amount into a joint trust account held by the solicitors for the respective parties pending the finalisation of the joint venture accounting exercise between the parties. This is necessary having regard to the fact that Crédit Agricole closed the AEM account in October 2011 (see the Judgment at [155]-[157]).

Unauthorised sales in February/March 2011

The amount claimed by the plaintiffs for the unauthorised sales of the NexGen shares in February and March 2011 is S$1,774,733.20. On 8 August 2016, the defendants notified the plaintiffs of their contention that the profits obtained from the sale and re-purchase of the 101.5m NexGen shares were made using funds from the joint venture and therefore the plaintiffs were only entitled to 50% of that alleged profit.

In their written submissions of 3 November 2016 the defendants relied upon the following passage of the Judgment, at [403]:

The defendants claim that the damages in respect of the sale of the NexGen shares in February and March should be S$871,521.94. That calculation is based on the sale proceeds of S$4,893,310.62 less the purchase price of S$3,150,266.75 rendering an overall profit of S$1,743,043.87 with 50% of the profits of S$871,521.94 being the plaintiffs’ entitlement.

In their oral submissions, the plaintiffs accepted that the defendants were entitled to 50% of the proceeds of 30m NexGen shares which was equivalent to S$225,000. This should be deducted from S$1,774,733.20, the amount calculated by the plaintiffs.

Accordingly, subject to what is said below in relation to interest, the defendants will be ordered to pay the plaintiffs an amount of S$1,549,733.20.

Unauthorised sales in August 2011

The plaintiffs claim an amount of S$1,383,509. The defendants do not take any real objection to that figure. Subject to what is said below in relation to interest, the defendants will be ordered to pay the plaintiffs an amount of S$1,383,509 for the unauthorised sales of the 60m NexGen shares in August 2011.

Unauthorised sales in October 2011

The plaintiffs claim an amount of S$2,171,250 for the unauthorised sales of 225m NexGen shares in October 2011.

The defendants in their written submissions pointed out that damages should be calculated as at the time of the sales in the eight tranches which occurred at different prices throughout the period amounting to a total of S$1,992,341.50.

The issue here is whether damages should be assessed at the date of the conversion, ie, the time of unauthorised transfer of the shares to Yuanta as the plaintiffs claim, or the dates of the actual sales as the defendants claim.

I am satisfied that the plaintiffs are entitled to the amount they claim as at the date of the conversion. Accordingly, subject to what is said below in relation to interest, the defendants will be ordered to pay the plaintiffs S$2,171,250.

Punitive damages

The plaintiffs contend that the defendants’ overall conduct in “brazenly carrying out the unauthorised share sales, exacerbated by their dishonest communications” with the plaintiffs about the location of the shares is sufficiently outrageous and reprehensible to call for the imposition of punitive damages.

In this regard the plaintiffs relied upon the following findings in the Judgment:

(a) At [262]:

(b) At [263]:

(c) At [276]:

(d) At [278]:

The parties relied upon Airtrust (Hong Kong) Ltd v PH Hydraulics & Engineering Pte Ltd [2016] 1 SLR 1060 (“Airtrust”) in support of their respective contentions regarding punitive damages. I note that an appeal against the High Court’s decision on punitive damages in Airtrust was heard recently and the matter is pending the Court of Appeal’s determination. That was a case in which the plaintiff agreed to purchase from the defendant a reel drive unit (“RDU”) pursuant to a Sale and Purchase Agreement (“the Agreement”). The defendant was aware at the time of entry into the Agreement that the plaintiff purchased the RDU specifically for lease to a third party for the laying of undersea cables in the Bass Strait for a Nexus Energy project.

Approximately one month after the entry into the Agreement the parties agreed that certification of the RDU would be conducted by a company known as ABSG Consulting Inc (“ABSG”). ABSG subsequently issued certificates for the design reviews of the RDU that it carried out as well as the manufacturing processes and the factory acceptance test. However ABSG did not provide a full certification for the RDU. The RDU suffered a major failure of one of the gear box assemblies in the course of laying a second reel and thereafter the hydraulic drive motor and gear assembly on one of the towers of the RDU came off from its mounting and collapsed.

The plaintiff sued the defendant for breach of contract as a result of the failure of the RDU. One of the issues for determination was whether the RDU met the relevant industry standards and certifications that were stipulated in the Agreement. Another issue was whether the defendant’s liability was excluded under a clause of the Agreement. There was no issue between the parties at trial that the exclusion would not apply if fraud on the part of the defendant was established. An issue for determination in this regard was whether the defendant had obtained the certification fraudulently. Another issue was whether in the circumstances the plaintiff could, as a matter of law, and should be awarded punitive damages for the breach of contract.

The Court in Airtrust was satisfied that the plaintiff had established that the defendant had fraudulently modelled some of the critical structural connections of the RDU and fraudulently stipulated the reason for the absence of certain aspects in the design so as to deliberately and dishonestly mislead the certifier into giving certification for the structural design of the RDU. The Court was also satisfied that the defendant had misled the plaintiff into believing that it had obtained full certification when it knew it had not. In those circumstances, the defendant was not able to rely upon any exclusion of liability clause in the Agreement.

After referring to the decision of the Supreme Court of Canada in Whiten v Pilot Insurance Company [2002] 1 SCR 595 at 645, the Court in Airtrust observed that the fundamental purpose of punitive damages is retribution, deterrence and denunciation (at [261]). The Court (at [264]) also referred to MFM Restaurants Pte Ltd and another v Fish & Co Restaurants Pte Ltd and another appeal [2011] 1 SLR 150 (“MFM Restaurants”) in which the Court of Appeal (at [52]) referred to this area of the law being in a “state of flux”. However the Court in Airtrust concluded (at [264]) that unless there was a Court of Appeal decision ruling out the availability of punitive damages for breach of contract, it was inclined to hold that it had power in “an exceptional case” to award punitive damages for breach of contract when a defendant’s conduct had been “so highly reprehensible, shocking or outrageous” that the Court finds it necessary to condemn and deter such conduct by the imposition of punitive damages.

In Airtrust, the Court awarded punitive damages because the defendant had behaved fraudulently in misleading a building certification agency by intentionally submitting building models that misrepresented the reality and misleading the plaintiff into believing that full certification had been obtained when it had not. The Court decided that it was an “exceptional case” and that the defendant’s overall conduct was sufficiently outrageous and reprehensible to justify such an award.

In the present case, the defendants did not contend that the Court does not have power to award punitive damages in such circumstances. Rather, it was submitted that the circumstances of this case do not warrant the imposition of punitive damages. In this case, there was no claim of fraud. Although the plaintiffs sought to introduce such a claim on the first day of the trial it was disallowed (see the Judgment at [163]). The defendants claimed an entitlement to sell the NexGen shares pursuant to the Agreements between the parties. That issue was decided against the defendants.

It is the case that adverse credibility findings were made against the defendant (see the Judgment at [254]-[259], [262]-[263], [276], [289], [306], [366] and [395]-[396]). However there were also adverse credit findings made against the plaintiff (see the Judgment at [326], [337] and [345]). Deficiencies were found in both the plaintiff’s evidence and the defendant’s evidence (see the Judgment at [276] and [360]).

There is a difference between conduct that is high-handed in respect of which there is no possible explanation other than flagrant and reprehensible disregard for another party’s rights, and conduct pursued on the basis of a claimed right caused by alleged misconduct of that other party. It is this latter conduct that the defendant pursued although he was clearly secretive and dishonest about what he was actually doing at the time. His claims of such an entitlement were pursued in the proceedings but were rejected.

It is not necessary in the circumstances of the conclusions that I have reached to analyse the nature of the power to award punitive damages. I have decided that even assuming there is the existence of such a power, this is not a case in which such damages should be awarded. It is not an exceptional case of high-handed and reprehensible conduct that requires punishment. These parties were in a relationship that was fraught with difficulties, and each had competing claims on the other over a series of transactions that were worth millions of dollars with what could only be described as very loose checks and balances. These parties were not candid with each other. The complexities of their rather short and fraught relationship had been exposed in the Judgment and it is not necessary to repeat them here. The damages to be awarded will, in my view, be ample compensation for the plaintiffs in the circumstances of this case.

Interest

The next issue relates to the plaintiffs’ claim for interest on the award of damages. The plaintiffs contend that in so far as the damages are awarded for breach of fiduciary duty, they are entitled to compound interest on each amount at the rate of 5.33% per annum for the period of five years.

In support of this contention the plaintiffs relied on the following passage of Lord Denning MR’s judgment in Wallersteiner v Moir (No 2) [1975] 1 QB 373 at 388:

The plaintiffs also relied on the following passage of Deutsche Bank AG v Chang Tse Wen [2013] 1 SLR 1310 (“Deutsche Bank”) at [152]:

There is no issue that the Singapore International Commercial Court (“SICC”) has the power to award compound interest in an appropriate or “deserving” case. The issue between the parties is whether such an award is appropriate in the circumstances of this case.

The plaintiffs submitted that the defendants have had the full benefit of the misappropriated or misapplied funds and/or the secret profits for five years. The plaintiffs emphasised that the defendants have, by their own admission, applied the funds from the unauthorised sales for purposes that were unrelated to the joint venture. The plaintiffs also emphasised that the defendants concealed the misapplication of the sale proceeds from them, which was made worse by the fact that the plaintiffs placed a great deal of trust in the defendants and were entitled to expect the defendants would act in the best interests of the joint venture (see the Judgment at [225]). The plaintiffs submitted that in those circumstances, compound interest would be the only way in which the plaintiffs would be properly compensated. Alternatively, the plaintiffs claim simple interest at 5.33% for five years.

The defendants contend that in accordance with Deutsche Bank, compound interest is only awarded as damages where it would justly compensate the person for the loss suffered. The defendants emphasised that in Deutsche Bank, the Court held that parties claiming compound interest have the burden of proving that they have suffered losses for which an award of compound interest would be appropriate. Although in that case the plaintiff claimed that but for the defendant’s breaches, the plaintiff would have applied the cash towards investments in safer interest bearing deposits, the evidence did not establish what the plaintiff would have done with the funds and the Court was left to speculate. In those circumstances, the application for compound interest was refused and an award of simple interest was made.

In the present case, the evidence upon which the plaintiffs relied in support of their claim for compound interest went more to establishing the nature of the defendants’ conduct that might ground a claim for punitive damages, rather than establishing what the plaintiffs would have done with the moneys that were paid away to third parties. The plaintiffs did not lead evidence to establish what they would have done with the funds received from the unauthorised sales. One alternative may have been re-investment in the joint venture before the end of 2011. However, what might have happened thereafter is left only to speculation. In these circumstances, I am not satisfied that this case is deserving of an award of compound interest. I am satisfied that it is appropriate to make an award of simple interest.

There is a further issue of the timeframe during which such interest should be awarded. The plaintiffs contend that interest should be awarded for a period of five years from the dates of the breaches. The defendants claim that the appropriate timeframe should be calculated from the date that the plaintiffs commenced the proceedings, which would result in a period of two years. The defendants relied upon the decision in Robertson Quay Investment Pte Ltd v Steen Consultants Pte Ltd and another [2008] 2 SLR(R) 623 where the Court of Appeal held that the commencement date for the calculation of interest should begin from the date of the Writ in circumstances where there was an inordinate delay by the plaintiffs in commencing the proceedings. The defendants submitted that in the present case the plaintiffs had been content to sit on their claim for nearly three years before taking any action. The defendants also submitted that the plaintiffs have offered no reasonable explanation for the delay before commencing the proceedings.

The plaintiffs commenced proceedings against Crédit Agricole and it was not until towards the end of those proceedings that they commenced the present proceedings. It is true that the trial judge in the Earlier Proceedings referred to the plaintiffs’ failure to bring proceedings against the defendants as “bizarre” (see the Judgment at [391]). However, it was not until the hearing in the Earlier Proceedings that the plaintiffs were made aware of all or some of the arrangements between the defendants and EFH. The defendants were certainly not forthcoming in relation to the whereabouts of the NexGen shares that had been transferred to Yuanta and it took the plaintiffs’ legal representatives considerable forensic skills to uncover the true position. I am not satisfied that the delay in bringing the proceedings is a matter warranting denial of the claims of interest from the date of the breaches.

The plaintiffs are entitled to simple interest on the damages in accordance with the formula S$[principal sum] x (0.0533 x 5) = interest payable.

The damages payable into the joint account in respect of the shortfall of the loan funds is S$1,459,710.82. Interest on that amount according to this formula is S$389,012.93. Therefore, the defendants are to pay a total of S$1,848,723.75 into the joint account referred to earlier.

The damages payable by the defendants to the plaintiffs in respect of the unauthorised sales amount to S$5,104,492.20. Interest on that amount for the five year period according to the abovementioned formula will be S$1,360,347.17. Therefore, the defendants are to pay damages to the plaintiffs in the amount of S$6,464,839.37.

Costs

Percentage of costs

The plaintiffs submitted that the majority of their claims were allowed and to the extent that they were disallowed, it was primarily on the basis of contractual interpretation (see the Judgment at [379]-[380]), lack of pleading (see the Judgment at [452]) and expert opinion (see the Judgment at [512]-[518]). It was submitted that this did not substantially add to the work that would otherwise have been required for the purposes of establishing the facts in support of the claims that were allowed.

The plaintiffs submitted that this case raised novel issues concerning the nature of non-recourse loan agreements. The defendants contended that the case was determined purely on a matter of construction of the Agreements and did not involve any novel concepts. On balance, I agree with the defendants’ submissions. It was ultimately a matter of construing the Agreements between the parties to determine whether the defendants had no entitlement to deal with any of the shares as claimed by the plaintiffs, or the defendants’ discretion to sell the shares was unfettered as they claimed. The position, as construed, was that the defendants could deal with the shares but only those that had been pledged against a loan that had been provided (see the Judgment at [214]).

The plaintiffs also submitted that the case raised complex, analytical and evidential issues because of the nature of the transactions and the agreements between the parties on the one hand and between the defendants and EFH on the other. Although the defendants submitted that this was not so, I agree with the plaintiffs’ submissions that there were quite some complex analytical and evidentiary matters that needed to be addressed. The management of the trial was very efficient and all counsel brought discipline to the way they approached the proceedings. Although the case took only seven days, there was extensive material and evidence covered in that period. The detailed written submissions and the Judgment evidence the fact of such extensive material and evidence.

The defendants submitted that there was no material reference in the Judgment to the agreements between the defendants and EFH and they disputed that the back-to-back nature of the transactions could have given rise to complex, analytical and evidential issues. It is not accurate to claim that there was no material reference to the agreements between the defendants and EFH in the Judgment. There was material reference to the arrangements between Yuanta and EFH and also to the agreements (see for instance the Judgment at [28]-[42]; [374]-[377]). As I have said, there were complex, analytical and evidentiary issues to be determined.

There is no doubt that the plaintiffs were put to additional expense in tracing the transactions that were contained in Exhibit P6. It was unsatisfactory that the plaintiffs had to expend additional time and effort in trying to find out where the NexGen shares might have been (see the Judgment at [420]-[421] and [482]). The plaintiffs were successful in establishing breaches of fiduciary duty, breaches of contract and conversion by the defendants. However, the plaintiffs’ remedies were limited because of the construction of the Agreements, pursuant to which damages were to be awarded only for those shares that had not been pledged against any particular loan.

The Portfolio Claim was an aspect of the plaintiffs’ claim for damages in consequence of the defendants’ breaches. The parties relied upon their respective experts in this regard. Ultimately, there was very little that divided the expert opinions. They agreed that the disposals of shares by the defendants had an impact on the share price and the difference between them was the degree of that impact (see the Judgment at [454]). Ultimately the plaintiff was not successful in this aspect of its damages claim.

The conspiracy claim was also unsuccessful. However, having regard to the way in which the conspiracy claim was pleaded and run, there was little extra time taken in the trial in respect of this aspect of the matter.

I do not regard the defendants’ assessment of a reduction of 90% as fair or just. The plaintiffs were successful in establishing the breaches to which reference has been made. The unsuccessful claims, but for the Portfolio Claim, did not add a great deal of time to the trial, albeit that the SPA claim involved quite a deal of evidence by the defendants. Against that, the defendants were unsuccessful in their Counterclaim.

Indemnity costs

The plaintiffs also referred to the “immense difficulty” and significant expense to which they were put by the defendants’ persistent non-disclosures of critical information and documents. The plaintiffs had to issue subpoenas which ultimately produced the taped phone conversations between the defendant and Mr Goh. This was over a suggestion by the defendants that there were no such conversations because those parties allegedly communicated by private mobile phone. The plaintiffs submitted that the defendants sought to prevent them from accessing the information and bank documents on the “spurious cover of bank secrecy”. It was submitted that had the defendants co-operated to provide disclosure, or to procure disclosure by Crédit Agricole, there would have been no need for the subpoenas and orders for Crédit Agricole to produce the relevant documents.

The plaintiffs also emphasised the defendants’ conduct of the trial, in particular, their refusal to disclose key documents which necessitated a large amount of correspondence and specific discovery requests. The plaintiffs also emphasised the urgent work created by the last-minute introduction of Mr Goh as a witness. There is no doubt that the late application for leave to call Mr Goh caused additional work for the plaintiffs well after the timeframe within which the evidence in the proceedings had been scheduled for completion.

The plaintiffs also submitted that the extent and nature of the defendants’ breaches of contract and fiduciary duties were exacerbated by the positions which the defendants persistently maintained during the trial. Particular emphasis was placed on the claims by the defendants that they had sold the 60m and 225m NexGen shares with authority when they had plainly carried out those sales in secret. There is of course a difference between selling the shares with notice on the basis that it was thought the sales were authorised, and selling them on the same basis secretly. The latter process may of course undermine the claim that it was thought the sales were authorised. However, in this case the defendants put forward a not unarguable (but ultimately unsuccessful) claim that they were entitled to deal with the shares.

The plaintiffs submitted that the taped conversations obtained from Crédit Agricole also showed that the transfer of 225m NexGen shares from TPG’s account to Yuanta’s subsidiary account (the Fullerton account) in October 2011 was planned and deliberate and certainly not in accordance with any of the excuses subsequently given to the plaintiffs or to the Court.

The defendants also submitted that although the Counterclaim was dismissed, there was no finding that it was brought in bad faith or for improper purposes or that the defendants had acted in bad faith in the conduct of the proceedings. This was so notwithstanding that there were findings that the defendant had breached his contractual obligations of good faith (see the Judgment at [395]-[396]). It was submitted that the plaintiffs had put forward a case of fraud at the trial of the action despite not pleading it. It was submitted that the plaintiffs refused to withdraw their claim on fraud despite repeated reminders from the Court that it was not pleaded.

Alternative claim

The plaintiffs also sought an account in respect of the proceeds from the unauthorised sales that were diverted by the defendant to third parties. This is an alternative claim made by the plaintiffs if the defendants failed to pay the judgment debts. It is appropriate to grant leave to the plaintiffs to relist the matter in respect of this application and, if necessary, give notice to the parties into whose hands the plaintiffs seek to trace the funds.

Orders

I make the following orders:

(a) The defendants are to pay S$1,848,723.75 into a joint trust account held by the solicitors for the respective parties pending the finalisation of the joint venture accounting exercise between the parties.

(b) The defendants are to pay the plaintiffs S$6,464,839.37 in respect of the unauthorised sales.

(c) The defendants are to pay 75% of the plaintiffs’ costs of the proceedings (excluding any costs incurred by the plaintiffs in respect of the Portfolio Claim). The defendants are to pay 10% of those costs on an indemnity basis.

(d) The plaintiffs are to pay the defendants’ costs of retaining their expert in respect of the Portfolio Claim and the defendants’ costs incurred in defending the Portfolio Claim.

(e) Leave is granted to the plaintiffs to relist the matter in respect of any application for an account.

(f) Leave is granted to the parties to relist the matter on seven days’ written notice for the purpose of making any Consent Orders finalising the parties’ relationship.