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Grounds publishedDecided 31 Jul 2013
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High Court

Dynasty Line Ltd (in liquidation) v Sia Sukamto and another

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[2013] SGHC 146Case no. Suit No 256 of 2010

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  1. Lai Siu Chiu J:

  2. Introduction

  3. [1] These proceedings consist of a claim (“the Original Action”) and a counterclaim (“the Counterclaim”). The Original Action involves a claim by Dynasty Line Limited (“Dynasty”) as the plaintiff against Sukamto Sia (“Sia”) and Lee Howe Yong (“Lee”) for breaches of fiduciary duties owed to Dynasty while they were its directors. The Counterclaim involves Sia suing Low Tuck Kwong (“Low”) for an alleged breach of the terms of a settlement agreement, and against Dynasty, Low, William Tacon (“Tacon”) and Lau Wu Kwai King Lauren (“Lauren”) for, inter alia, conspiracy to injure him.

  4. [2] The expert witnesses who testified on foreign law were:

  5. (a) Simon Edward Lawrenson (“Lawrenson”) as an expert on British Virgin Island (“BVI”) law for Dynasty;

  6. (b) Ian Mann (“Mann”) as an expert on BVI law for Low;

  7. (c) Timothy Nixon Prudhoe (“Prudhoe”) as an expert on BVI law for Lee; and

  8. (d) Adrian Bell SC (“Bell”) as an expert on Hong Kong law for Low.

  9. The Background

  10. [3] Dynasty, a company now in liquidation, was incorporated under the laws of the BVI in 1994. Sia and Lee were appointed directors of Dynasty on 6 May 1996. At all material times, Sia was the sole shareholder of Dynasty although Lee was promised 20% of the profits of Dynasty without any equity contribution from him.

  11. [4] Dynasty served as a corporate vehicle for Sia’s investments. It did not have any business operations nor did it engage in any trading. The only investment made by Sia through Dynasty was the acquisition of 29,537,367 shares (“the Sale Shares”) in China Development Corporation Limited (“CDC”), a company listed on the Hong Kong Stock Exchange and which was formerly known as Sum Cheong International Limited. Those shares were acquired from Low and the following parties (the “Remaining Vendors” and collectively the “Vendors”) under seven sale and purchase agreements (the “S&P Agreements”) dated 5 February 1996:

  12. (a) Johnny Tsao Yue Hwa;

  13. (b) Yap Han Hoe;

  14. (c) Swanny Sri Sujanty Setyono;

  15. (d) Lau Kang Thow;

  16. (e) Evelyn Ong Suat Tay (“Ong”); and

  17. (f) Low Cheng Lum (“CL Low”).

  18. [5] The total purchase price of the shares was HK$230,391,463 (the “Purchase Price”). However, the total sum paid by Sia was only HK$64,459,317.16. Prior to the intended completion date on 2 May 1996, the Vendors voluntarily transferred all their shares to Dynasty between March 1996 and May 1996.

  19. [6] Between April 1996 and November 1997, Sia, on behalf of Dynasty, entered into transactions with various financial institutions (collectively the “Security Transactions”), pursuant to which the Sale Shares owned by Dynasty were pledged as security for loan facilities granted to Sia and other third parties as follows:

  20. (a) On 23 April 1996, Dynasty charged 60,161,510 CDC shares to Commerzbank (South East Asia) Limited (“Commerzbank”) as security for facilities granted to Sia (“Commerzbank Transaction”);

  21. (b) On 6 November 1996, Dynasty charged 28 million CDC shares to Societe Generale (Labuan branch) as security for facilities granted to Beswil Investment Pte Ltd, which is a company owned by Sia and Lee (“Societe Generale Transaction”);

  22. (c) On 29 August 1997, Dynasty charged 48,822,700 CDC shares to KG Investments Asia Limited (“KGL”) as security for facilities granted to Franklin Syah (“KGL Transaction”); and

  23. (d) On 3 November 1997, Dynasty charged 10,702,625 CDC shares to Creditanstalt Bankverein as security for facilities granted to Sia (“Creditanstalt Bankverein Transaction”).

  24. [7] Sia and the other two borrowers subsequently defaulted on the loan facilities whereupon the financial institutions exercised their right to sell the Sale Shares under the Security Transactions and applied the proceeds towards the satisfaction of the debts owed to the respective financial institutions by Sia and the other borrowers.

  25. [8] After the above event of default, the following actions were instituted in Singapore, BVI and Hong Kong:

  26. (a) Suit 960 of 1998 in Singapore;

  27. (b) HCA 10075 of 1998 in Hong Kong;

  28. (c) Suit 2333 of 1998 in Singapore;

  29. (d) HCA 9505 of 1999 in Hong Kong;

  30. (e) HCA 2057 of 2007 in Hong Kong;

  31. (f) HCCW 382 of 2007 in Hong Kong;

  32. (g) BVI Application No 2009/0376; and

  33. (h) the Original Action.

  34. Suit 960 of 1998

  35. [9] On 17 June 1998, Low filed Suit 960 of 1998 (“Suit 960”) against Sia seeking payment of HK$71,836,580.31, being the alleged unpaid balance of the Purchase Price of the Sale Shares due to him under the S&P Agreements. Dynasty was not a party to Suit 960. Low’s claim was that Sia had orally guaranteed full payment of the Purchase Price. Low settled this claim with Sia on 5 November 1998.

  36. HCA 10075 of 1998

  37. [10] On 19 June 1998, Sia, through Dynasty, brought an action in HCA 10075 of 1998 (“HCA 10075”) against Low and the Remaining Vendors for misrepresentation in relation to the Sale Shares. Dynasty claimed that Low and the Remaining Vendors had made various misrepresentations to Dynasty relating to the business, affairs and financial position of CDC and its subsidiaries. This action was struck out on 16 December 1998 as Dynasty lacked the funds to continue the proceedings.

  38. [11] On 22 December 1998, five of the Remaining Vendors sued Sia in Suit 2333 of 1998 (“Suit 2333”) for the alleged unpaid balance of the Purchase Price of the Sale Shares owed to them under their respective S&P Agreements. Suit 2333 was discontinued on 26 May 1999.

  39. HCA 9505 of 1999

  40. [12] On 10 June 1999, Low and the Remaining Vendors commenced fresh proceedings against Dynasty in HCA 9505 of 1999 (“HCA 9505”) for the alleged unpaid balance of the Purchase Price of the Sale Shares due to them under the S&P Agreements. The Hong Kong High Court entered judgment against Dynasty for the sum of HK$113,633,160.51, being the unpaid balance of the Purchase Price of the Sales Shares along with interest (the “HK Judgment”).

  41. HCCW 382 of 2007

  42. [13] On 23 August 2007, Low presented a petition in the Hong Kong High Court in HCCW 382 of 2007 for the appointment of provisional liquidators, pursuant to which Lauren and Kennic Lai Hang Hui (“Lai”) were appointed as joint provisional liquidators of Dynasty (the “Provisional Liquidators”).

  43. HCA 2057 of 2007

  44. [14] On 27 September 2007, the Provisional Liquidators commenced proceedings on Dynasty’s behalf against Sia and Lee in HCA 2057 of 2007 (“HCA 2057”) for, inter alia, alleged breaches of fiduciary duties in relation to the Sale Shares. The Provisional Liquidators also obtained a Mareva injunction against Sia and Lee by way of an ex parte application. The Hong Kong Court of Appeal allowed Sia’s application (in CACV 184 of 2008) to stay Dynasty’s action on the ground that Hong Kong was not the appropriate forum.

  45. [15] Dynasty’s appeal against the decision of the Hong Kong Court was dismissed (in FAMV 39 of 2009).

  46. BVI Application No 2009/0376

  47. [16] On 29 October 2009, Low filed a petition in the BVI High Court (via BVI Application No 2009/0376) to wind up Dynasty and to have liquidators appointed. On 22 December 2009, Low’s application was granted and Tacon and Lauren were appointed as joint liquidators of Dynasty (the “Liquidators”).

  48. The Original Action

  49. [17] On 14 April 2010, the Liquidators commenced the Original Action against Sia and Lee for, inter alia, alleged breaches of fiduciary duties owed to Dynasty. Sia responded by filing the Counterclaim along with his defence (see [19] below) while Lee filed defences which were similar to Sia’s.

  50. The issues before the court

  51. [18] The issues to be decided in the Original Action are as follows:

  52. (a) Are Dynasty’s claims in the Original Action time-barred (“Issue 1”)?

  53. (b) Are Dynasty’s claims in the Original Action defeated by delay, laches, and/or acquiescence (“Issue 2”)?

  54. (c) Did Sia and Lee breach any fiduciary duties owed to Dynasty (“Issue 3”)?

  55. [19] With regard to the Counterclaim, the issues are:

  56. (a) Did Low act in breach of the settlement agreement (“Issue 4”)?

  57. (b) Did Low and Lauren conspire and combine together with the predominant purpose to cause loss and damage to Sia through the pursuit of stale and baseless claims in Hong Kong (“Issue 5”)?

  58. (c) Did Low, Lauren and Tacon conspire together with the predominant purpose to cause injury to Sia through the pursuit of stale and baseless claims in Singapore (“Issue 6”)?

  59. The court’s decision

  60. Issue 1: Is Dynasty’s claims in the Original Action time-barred?

  61. Application of a time bar

  62. [20] Sia and Lee both argued that Dynasty’s claims are time-barred by reason of ss 6 and 24A of the Limitation Act (Cap 163, 1996 Rev Ed). Section 6 of the Limitation Act states:

  63. [21] Section 24A of the Limitation Act states:

  64. [22] I am of the view that s 6 applies to Dynasty’s claims against Sia and Lee. As noted by the Court of Appeal in Yong Kheng Leong and another v Panweld Trading Pte Ltd and another (“Yong Kheng Leong”) [2013] 1 SLR 173 at [69], the effect of s 6(7) is that the entire s 6 applies to all claims for equitable relief, whether these are founded upon contract, tort, a trust or other grounds in equity. Dynasty’s claims are caught by s 6(7) because its claims are essentially for an account of misappropriated property, which is an equitable relief, founded upon allegations of breaches of fiduciary duty owed by Sia and Lee to Dynasty, which are grounded in equity. Section 6(2) expressly imposes a six-year time bar on actions for an account.

  65. Exceptions to a time bar

  66. [23] Dynasty argued that even if a time bar under the Limitation Act did apply, Dynasty’s claims against Sia and Lee fell within the time bar exceptions provided by s 22 because they, as directors of Dynasty, had trustee-like responsibilities for the Sale Shares. Section 22 of the Limitation Act states:

  67. [24] The question to be answered is whether a disposal of company property in breach of fiduciary duties to the company is a “breach of trust” for the purpose of s 22 of the Limitation Act. It was recognised in Yong Kheng Leong at [36] and [44] that there are two distinct types of constructive trusts for the purposes of the applicability of limitation defences, such as those in s 22(1) of the Limitation Act. The first category (referred to as “Class 1 constructive trusts” or “Class 1 constructive trustees” when referring to the trustees) may potentially be denied any limitation defence, whereas those in the second category (referred to as “Class 2 constructive trusts” or “Class 2 constructive trustees”) generally may avail themselves of any defence of limitations. It was held in Yong Kheng Leong at [44] that a director who disposes of company property in breach of his fiduciary duties is treated as having acted in breach of trust, and more specifically, is a Class 1 constructive trustee.

  68. [25] In the present case, Sia and Lee were, as directors of Dynasty, lawfully able to deal with Dynasty’s assets in accordance with their fiduciary duties. If Sia and Lee were found to have disposed of Dynasty’s assets unlawfully in breach of their fiduciary duties to Dynasty, they will come within Class 1 constructive trustees because they would have dealt with that property in breach of the trust and confidence that had been placed on them as directors. As was held in Yong Kheng Leong at [49], the limitation regime that applies to claims against an express trustee is applicable to claims against Class 1 constructive trustees. Therefore, s 22 of the Limitation Act relating to “any fraud or fraudulent breach of trust” would be relevant in such a case.

  69. [26] Assuming that Sia and Lee are Class 1 constructive trustees (because they are found to have disposed of Dynasty’s assets unlawfully in breach of their fiduciary duties to Dynasty), s 22(2) of the Limitation Act imposes a time bar of six years for claims, unless the exceptions in s 22(1) apply. The concept of fraud in s 22(1)(a) was elaborated on in Yong Kheng Leong at [52]:

  70. [27] Thus, the meaning of “fraudulent breach of trust” in s 22(1)(a) is a broad one. If Sia and Lee, in disposing of Dynasty’s assets, are found to have breached their fiduciary duties to Dynasty because they did not act honestly and in good faith in the best interests of Dynasty, their conduct will by that very finding be considered fraudulent under s 22(1)(a).

  71. [28] Looking at the wording of s 22(1) of the Limitation Act, I am of the view that Dynasty merely has to allege a fraudulent breach of trust for the exception to apply. Therefore, no period of limitation prescribed by the Limitation Act applies to Dynasty’s action against Sia and Lee. In any case, if Sia and Lee were found to be Class 1 constructive trustees, it would necessarily follow that they were fraudulent under s 22(1)(a), and the exception would apply.

  72. Issue 2: Is Dynasty’s claims in the Original Action defeated by delay, laches, and/or acquiescence?

  73. Sia’s case

  74. [29] Sia argued that the doctrine of laches and/or acquiescence apply to disentitle Dynasty from pursuing its claims in the Original Action. Dynasty’s claims were founded on events which took place more than sixteen years ago. By entering into a settlement agreement with Sia in Suit 960, Low led Sia to believe that any dispute between him and the Vendors in relation to the Sale Shares had been fully and finally disposed off. It was therefore unconscionable for Low to initiate and maintain a lawsuit against Sia in relation to the Sale Shares through Dynasty and the Liquidators. By not adding Sia as a defendant to HCA 9505 and pursuing similar claims as in the Original Action, the Vendors led Sia to believe that they would not make any claim against Sia in relation to the Sale Shares. Sia was prejudiced as he no longer had in his possession most of the documents dating back to 1994; memories had also faded. Lastly, Low had acquiesced in the pledge of the Sale Shares because he knew from the outset that Sia would be pledging the Sale Shares and he benefitted from the pledge.

  75. Dynasty’s case

  76. [30] Dynasty contended that it could not pursue its claims against Sia and Lee earlier because Dynasty was under the effective control of Sia until the appointment of the Provisional Liquidators on 23 August 2007, after which the Provisional Liquidators and Liquidators had acted expeditiously. Moreover, any prejudice complained of by Sia and Lee was exaggerated because lawyers acting for Dynasty in HCA 9505 accepted that there was little or no documentary evidence available to support the defence. Lastly, Sia and Lee ought to be precluded from raising the equitable defence of laches and acquiescence because they have not come to court with “clean hands”, having not acted honestly in causing injury to Dynasty.

  77. [31] It should be noted at the outset that even if Dynasty’s claim is not time-barred, it can still be barred by acquiescence and laches because s 32 of the Limitation Act preserves a defendant’s right to raise such a defence: Re Estate of Tan Kow Quee [2007] 2 SLR(R) 417 at [27]-[31]. Section 32 of the Limitation Act states:

  78. [32] In essence, the doctrine of laches operates as an equitable defence to a claim where there has been a substantial lapse of time coupled with circumstances where it would be practically unjust to give a remedy. A succinct summary of the principle was given in Cytec Industries Pte Ltd v APP Chemicals International (Mau) Ltd [2009] 4 SLR(R) 769 at [46], cited with approval in eSys Technologies Pte Ltd v nTan Corporate Advisory Pte Ltd [2013] SGCA 27 at [37]-[38]:

  79. [33] As to the defence of acquiescence, I refer to Tan Yong San v Neo Kok Eng and others [2011] SGHC 30 at [112]-[114]:

  80. The present facts

  81. [34] Although there was substantial delay on the part of Low, I find that it would not be practically unjust to give a remedy if Dynasty’s claims are made out. Hence, Dynasty’s claim is not barred by laches.

  82. [36] Sia also contended that Low’s failure to add him as a defendant to HCA 9505 effectively led him to believe that Low would not make any claim against Sia in relation to the Sale Shares. I disagree. In HCA 9505, Low and the Remaining Vendors commenced proceedings against Dynasty for the alleged unpaid balance of the Purchase Price of the Sale Shares. The current claim of breach of fiduciary duties arose from the Liquidators’ discovery of the alleged wrongdoings of Sia and Lee, which flowed from Low’s enforcement of the judgment debt via winding up proceedings. Such claims of breaches of fiduciary duties against the former directors of companies by liquidators are not uncommon, and hence not unforeseeable. I find that Low was entitled to obtain judgment against Dynasty for the balance of the Purchase Price before enforcing the judgment against Dynasty. Low’s decision not to add Sia as a defendant to HCA 9505 could not reasonably have led Sia to believe that Low would not make any claim against him in relation to the Sale Shares.

  83. [37] Sia then argued that because of the long lapse of time, he is now prejudiced in his defence under the Original Action. Specifically, Sia asserted that there was a “lack of documents”, and there are “various supervening events” and “fading memories”. However, Sia did not state clearly how his defence had been seriously prejudiced because of the passage of time. I am not persuaded that Sia suffered significant prejudice.

  84. [38] Sia argued that Low knew from the outset that Sia would be pledging the Sale Shares. Moreover, Low benefited from the pledging of the Sale Shares to pay off his own liabilities to Societe Generale. The short answer is that even if I accept that Low knew before he transferred the Sale Shares to Sia, that Sia would pledge the Sale Shares, there is no evidence to suggest that Low knew that Dynasty was insolvent or on the verge of becoming insolvent.

  85. [39] As will be shown below at [80]-[84], I find that the pledging of the Sale Shares to secure borrowings of Sia was not improper per se under BVI law and under Dynasty’s Memorandum of Association and Articles of Association. The pledging of the Sale Shares would only be improper if it was in breach of the fiduciary duties owed by Sia and Lee as directors, ie, if the pledging was done when Dynasty was insolvent, or of doubtful solvency, or on the verge of insolvency (see below at [50]-[51]). The alleged wrongful act is hence the pledging of the Sale Shares when Dynasty was insolvent or on the verge of insolvency. It follows that Low had to know that Dynasty was insolvent or on the verge of insolvency, for it to be said that Low had acquiesced to the pledging of the Sale Shares.

  86. [40] Therefore, I hold that Dynasty’s claim is not barred by laches, and the defence of acquiescence does not apply.

  87. Issue 3: Did Sia and Lee breach any fiduciary duties owed to Dynasty?

  88. Dynasty’s case

  89. [41] Dynasty claimed that, by pledging the Sale Shares, Sia and Lee did not act honestly and in good faith in the best interests of Dynasty. While it is not necessary for a particular transaction to bring benefit to the company, the directors must honestly and in good faith form the view that the transaction is in the company’s best interest. If a company becomes insolvent or is near insolvency, the directors cease to owe their duties to the shareholders. Instead, they owe their duty to the creditors, being the persons who are beneficially entitled to the company’s assets. In such a situation, it was in the company’s interest to retain its assets so as to meet its liabilities.

  90. [42] A balance sheet analysis should be used to determine the solvency of Dynasty. Dynasty was insolvent because the realisable value of the Sale Shares were substantially less than the value of its debts owed to its creditors, and the Sale Shares were fully encumbered when pledged to secure borrowings of Sia and his proxies. By pledging the Sale Shares, Sia and Lee did not act honestly and in good faith in the best interest of the creditors. Therefore, Sia and Lee had breached their fiduciary duties owed to Dynasty.

  91. Sia’s and Lee’s case

  92. [43] A plain reading of Dynasty’s Memorandum of Association and Articles of Association reveals that Dynasty was permitted to pledge the Sale Shares to secure the liabilities of any person, firm or company, irrespective of any corporate benefit. The material provisions in Dynasty’s Memorandum and Articles of Association are standard provisions in BVI articles. The effect is that the interests of a BVI company are in fact synonymous with the interests of its majority shareholder. The best interests of Dynasty at the time the Sale Shares were pledged were the best interests of Sia.

  93. [44] At the time the Sale Shares were pledged, the test for solvency was enshrined in s 116 of the BVI Companies Act 1884 (Cap 285) (the “1884 Act”). Applying this test for solvency, Dynasty was not insolvent at the time the Sale Shares were pledged because there was no statutory demand served on Dynasty for the payment of a debt, there was no execution or other process issued on a judgment by any creditor remaining unsatisfied, and it was not proved to the satisfaction of the BVI Court that Dynasty was then unable to pay its debts. Moreover, Dynasty was able to obtain funding from Sia, who was financially strong, whenever required. Further, Sia had the bona fide belief that the Vendors were not entitled to payment due to the various misrepresentations made by Low and the collateral contract between Low and Sia.

  94. [45] Lee argued that even if Dynasty was insolvent at the time the Sale Shares were pledged, he did not know and had no reason to suspect that the Sale Shares were not fully paid for or that Dynasty had any creditors. In any case, the pledge documents signed by Lee were dated prior to his appointment as director of Dynasty, and there was no evidence that Lee had already been appointed at the time he signed the documents.

  95. [46] Since Dynasty was incorporated on 18January 1994 under the BVI International Business Companies Act 1984 (“IBCA 1984”), the relevant law to be applied in determining the existence and scope of the directors’ duties is BVI law: Focus Energy Ltd v Aye Aye Soe [2009] 1 SLR(R) 1086 at [31]. The legal system in the BVI is founded on the English legal system. BVI law is not only written in statutes, but also derived from the (English) common law and equitable principles. Section 11 of the West Indies Associated States Supreme Court (Virgin Islands) Act (Cap 80) provides that:

  96. [47] The doctrine of judicial precedent applies in the BVI such that the courts interpret BVI legislation in accordance with precedents of their own courts, including decisions of the Privy Council on appeal from those courts. Precedents from the courts of England and Wales and other Commonwealth jurisdictions are persuasive.

  97. [48] The starting point for determining what duties a director owes to a company is s 54 of the IBCA 1984, which states:

  98. [49] The duties enshrined in s 54 of the IBCA 1984 are not exhaustive of a director’s fiduciary duties, which include other duties such as the duty of not putting himself in a position where his duty and his interest may conflict. However, for the purposes of this present case, we are mainly concerned with the duty in s 54(1), namely, a director’s fiduciary duty to act honestly and in good faith with a view to the best interests of the company. The expert witnesses agree that this involves a subjective test and the BVI courts will consider the director’s state of mind, ie, whether the director believed that he was acting in the best interests of the company.

  99. [50] A director owes his duties to the company as a whole and not to individual shareholders: Percival v Wright [1902] 2 Ch 421. As confirmed by Mann, the interests of a BVI company were in fact synonymous with the interest of its majority or sole shareholder.

  100. [51] However, where a company becomes insolvent, the directors cease to owe its duties to the shareholders. Instead, the directors have a duty to act in the best interests of the creditors, being the persons who are beneficially entitled to the company’s assets: Liquidator of West Mercia Safetywear Ltd v Dodd & Anor (1988) 4 BCC 30; and see Harney Westwood & Riegels, British Virgin Islands Commercial Law (Colin Riegels and Ian Mann gen ed) (Sweet & Maxwell, 2012) (“British Virgin Islands Commercial Law”) at para 7.009. There are even suggestions that directors may owe duties to act in the best interests of the creditors when their company is near insolvency or of doubtful solvency (British Virgin Islands Commercial Law at para 7.009). Indeed, the English High Court in Colin Gwyer & Associates Ltd and another v London Wharf (Limehouse) Ltd and others Eaton Bray Ltd and another v Palmer and others [2002] All ER (D) 226 held at [74] that the directors owe its duty to act in the best interests of the creditors not only when a company is insolvent, but when the company is of doubtful solvency or on the verge of insolvency:

  101. The applicable test for insolvency

  102. [52] At the time of the Security Transactions, the BVI Insolvency Act 2003 had not come into force. Accordingly, Prudhoe opined that the statutory test of solvency was that enshrined in s 116 of the 1884 Act. For easy reference, sections 115 and 116 of the 1884 Act are set out here:

  103. [53] Put simply, a company will be shown to be deemed to be unable to pay its debts if it is shown that:

  104. (a) a statutory demand had been served on the company for the payment of a debt in excess of $240 and that the debt remained unpaid for three weeks (s 116(a)); or

  105. (b) any execution or other process issued on a judgment by any creditor remains unsatisfied in whole or part (s 116(b)); or

  106. (c) it was proved to the satisfaction of the court that the company was then unable to pay its debts (s 116(c)).

  107. [54] Having considered arguments from both sides, I agree with Prudhoe that the test for solvency is that provided by s 116 of the 1884 Act. The test in s 116 has to be read together with s 115(d), which sets out one of the grounds for winding up of a company, namely, whenever the company is unable to pay its debts. Section 116 then provides a test for determining when this ground is satisfied. Because of this, Dynasty had argued that s 116 provides the test for determining when a company may be deemed to be insolvent for the purpose of winding up of companies, in contradistinction to the purpose of determining when the directors owe its duties to act in the best interests of the creditors instead of the shareholders. I see no reason to make such a distinction. In the absence of any contrary authorities from the BVI providing alternative tests for determining solvency, it is my view that the same test applies for determining when a company may be deemed to be insolvent for the purpose of winding up, and for determining when the directors have a duty to act in the best interests of the creditors.

  108. [55] After all, insolvency denotes a situation where creditors of a company have the right to wind up the company and appoint a liquidator. Under the 1884 Act, the right of a creditor to wind up the company arises when any of the situations in s 115 subsists. Specifically, s 115(d) provides that the creditors have the right to wind up a company whenever the company is unable to pay its debts. Accordingly, for the purpose of the insolvency regime governed by the 1884 Act, the company’s inability to pay its debts is synonymous with the company’s insolvency. Therefore, the test for solvency, whether for the purposes of winding up a company or for the purpose of determining when the directors have a duty to act in the best interests of the creditors instead of the shareholders, is that provided by s 116 of the 1884 Act.

  109. [56] I accept Prudhoe’s evidence that the applicable test of insolvency does not look to the future in terms of either the ability to pay or debts falling due for payment. The court only looks at a snapshot in time to decide whether the debts can be paid off at the time of someone suggesting an insolvent situation. In other words, the relevant test is a snapshot variant of the cash-flow solvency test. I therefore reject Dynasty’s argument that the balance sheet test for insolvency should apply.

  110. [57] Dynasty had sought to rely on Re Cheyne Finanace pc (in receivership) (No 2) [2007] EWHC 2402 (Ch) (“Cheyne Finance”) for the proposition that in considering whether the company is unable to pay its debts, the test included considering whether a company would be unable to pay its creditors in the future. A company would be considered insolvent in such a case, even if at the time of someone suggesting an insolvent situation, it was able to meet its current obligations.

  111. [58] I accept Lee’s submission that Dynasty’s reliance on Cheyne Finance is misplaced. Cheyne Finance was decided under s 123(1)(e) of the UK Insolvency Act 1986, which deems a company to be insolvent “if it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due”. The phrase “as they fall due” is absent from s 116(c) of the 1884 Act, and was only introduced in the BVI Insolvency Act 2003. As stated by Prudhoe, “as they fall due” is a future anticipated event. Therefore, Cheyne Finance has no application to the insolvency regime we are concerned with.

  112. [59] For completeness, I should mention that the test for insolvency in the BVI has changed pursuant to the passing into law of the Insolvency Act, 2003. British Virgin Islands Commercial Law provides at para 7.006 that:

  113. [60] On s 116(c), Sia argued that for Dynasty to establish that it was insolvent at the time the Sale Shares were pledged, it had to be proven to the satisfaction of the BVI Court that Dynasty was then unable to pay its debts. Since there was no claim filed before the BVI Court at the time the Sale Shares were pledged wherein it was established to the satisfaction of the BVI Court that Dynasty was at that time unable to pay its debts, Dynasty had not proven that it was insolvent at the time the Sale Shares were pledged.

  114. [61] I disagree with Sia’s interpretation of s 116(c). As stated by Prudhoe in his expert opinion (at para 75), whether Dynasty could have paid its debts is a question of fact. This question of fact will be answered by this court, and the burden is on Dynasty to prove that Dynasty was in fact unable to pay its debts at the material time. Sia’s suggested interpretation is untenable because it flies in the face of the whole enterprise of applying foreign law for dispute resolution in appropriate cases.

  115. Was Dynasty insolvent at the time of the Security Transactions?

  116. [62] The question then is whether Dynasty was unable to, or on the verge of being unable to, pay its debts at the time the Sale Shares were pledged.

  117. Letters of demand

  118. [63] Lauren testified (as the provisional liquidator) that she did not see any demands or claims for payment by Low or the other vendors in 1996 and 1997.

  119. [64] Low tendered two copies of letters dated 26 May 1997 and 21 August 1997 which CL Low had purportedly sent to Dynasty demanding payment of the sum of HK$62,400 alleged to be then due and owing to CL Low. Those letters had not previously been disclosed in the discovery process. However, there was no evidence that proved that those letters were at any time served on Dynasty or Sia. The following extract of Low’s evidence in cross-examination is pertinent:

  120. [65] Low also asserted that he had sent a handwritten letter in Chinese dated 6 November 1997 to Sia demanding payment or settlement of the balance sum of the Purchase Price of the Sale Shares. Again, there was no evidence that such a letter had been sent.

  121. [66] The evidence was that in a letter of demand dated 23 May 1998, the Vendors, through their then Singapore lawyers Khattar Wong & Partners, demanded payment of the alleged balance of HK$166,042,909 of the Purchase Price. This demand letter was only sent six months after the last of the Security Transactions in November 1997. Hence, it did not fulfil the requirements under s 116 for Dynasty to be deemed to be unable to pay its debts.

  122. Ability of Dynasty to pay its debts

  123. [67] Although the S&P Agreements had contained a schedule providing for the payment of the consideration in tranches and for the delivery of the Sale Shares to be carried out on completion, against payment of the final tranche of monies, the parties agreed to a variation of this agreement. The parties agreed that the Sale Shares would be delivered, prior to completion, without the need for the full consideration to be paid. The Sale Shares were so delivered between 7 March 1996 and 27 May 1996.

  124. [68] I agree with Sia that there was a collateral agreement between Low and himself that save for the payment of the 1% of the Purchase Price to the other Vendors, the subsequent payments would be made to Low or his nominees, and the other Vendors would look solely to Low for their respective shares of the balance of the Purchase Price. Accordingly, Sia made payments totalling HK$64,348,525.81 to Low between 2 February 1996 and 11 November 1997. I accept Sia’s evidence that the payments did not follow the schedule in the S&P Agreements as Low and Sia intended for flexibility in the payment of the Purchase Price of the Sale Shares as well as to facilitate the setting-off of monies owed by Low to Sia. The fact that there were no documents evincing demands for the balance of the Purchase Price at the time the Security Transactions were entered into is consistent with the existence of this collateral agreement. Therefore, I find that there was no debt due and payable at the time the Security Transactions were entered into because there was flexibility in the payment dates. Hence, Dynasty was not then insolvent.

  125. [69] I also find that Dynasty was neither on the verge of insolvency, nor was its solvency doubtful. Because the collateral agreement provided for flexibility in the payment of the Purchase Price, I find that there was no date by which the parties had agreed to the Purchase Price being due and payable. Instead, Sia was to pay Low on an ad hoc basis. Although the Vendors’ lawyers Khattar Wong & Partners sent a letter of demand dated 23 May 1998 for the alleged balance of HK$166,042,909, that was more than 6 months after the last of the Security Transactions on 3 November 1997. Since there was no debt that was payable and due before 23 May 1998, I find that Dynasty was not on the verge of being unable to pay its debts at the time of the Security Transactions.

  126. [70] There is however the question of issue estoppel that should be addressed here. It is arguable that Sia is estopped from arguing that there was a collateral agreement between himself and Low because the court in HCA 9505 had found that there was no such collateral agreement. At [2] of the judgment in HCA 9505, it was held that:

  127. [71] In the amended Defence and Counterclaim of Dynasty in HCA 9505, the collateral agreement was described at para 6(4) as follows:

  128. [72] It should be noted that the collateral agreement pleaded in HCA 9505 was a narrow one, namely, that the alleged balance of the Purchase Price was to be paid to Low instead of the Remaining Vendors. I have found that the collateral agreement is wider in that it provided for flexibility in the payment of the Purchase Price, and that Sia was to pay Low on an ad hoc basis.

  129. [73] In my view, Sia is not estopped from arguing that there was a collateral agreement between himself and Low. First, the court in HCA 9505 did not decide whether there was a collateral agreement. The court merely noted that Dynasty’s case on the collateral agreement “collapsed” and it was not a “live issue” for the court to decide because of Dynasty’s election not to call Sia to give evidence and not to cross-examine Low. In effect, the court did not decide on whether there was a collateral agreement because Dynasty had in substance abandoned such a claim.

  130. [74] Second, the finding of whether there existed such a collateral agreement was not necessary for the decision in HCA 9505. I refer to Halsbury’s Laws of Singapore vol 6(2) (LexisNexis, 2009) where Professor Yeo Tiong Min stated at para 75.199:

  131. [75] I agree with the learned author that for an issue estoppel to apply, the decision on the issue must have been necessary for the decision of the foreign court. In HCA 9505, the decision that Dynasty’s case of a collateral agreement “collapsed” was not necessary to the judgment. In that case, the Vendors commenced proceedings against Dynasty for the alleged unpaid balance of the Purchase Price of the Sale Shares, and the court ruled in favour of the Vendors. The finding of whether there existed such a collateral agreement, as pleaded by Sia in that case (see [71] above), was not necessary for the decision in favour of the Vendors because Dynasty and Sia did not pay the alleged balance of the Purchase Price to either Low or the Remanding Vendors. The fact remained that the alleged balance of the Purchase Price was not paid. It was not a case where Sia had paid the alleged balance of the Purchase Price to Low and the Remaining Vendors were claiming against Sia because they did not receive any payment from Low. Therefore, it was not necessary to the decision to determine whether there was indeed such a collateral agreement for the alleged balance of the Purchase Price to be paid only to Low and not to the Remaining Vendors.

  132. [76] Third, the injustice of not allowing the issue to be relitigated outweighs the hardship of Low in having to relitigate the point. I refer in this regard to Arul Chandran v Chew Chin Aik Victor JP [2000] SGHC 111 at [289]-[290] where the judge held:

  133. [77] In HCA 9505, Dynasty elected not to cross-examine Low or call Sia to give evidence. In effect, Dynasty had abandoned its claim in that suit that there was in fact a collateral agreement – the issue was never tried.

  134. Did Sia and Lee breach their fiduciary duty to Dynasty?

  135. [78] Given the above findings that Dynasty was neither insolvent, nor on the verge of being insolvent, nor was its solvency doubtful at the time of the Security Transactions, Sia and Lee, as directors of Dynasty, owed their duties to the shareholders and not the creditors of Dynasty.

  136. [79] As was stated earlier at [3], Sia was the sole shareholder of Dynasty and Dynasty served as a corporate vehicle for his investments; it did not have any business operations or engage in any trading. Accordingly, the interests of Dynasty were those of Sia.

  137. [80] Section 9(1) of the IBCA 1984 expressly allowed a company under its jurisdiction to perform all acts and engage in all activities necessary or conducive to the conduct, promotion or attainment of the objects or purposes of the company irrespective of corporate benefit:

  138. [81] Dynasty’s objects in its Memorandum of Association included the undertaking of liabilities of any person, the provision of credit to any person, and the securing of liabilities of any person without Dynasty receiving any consideration or advantage. The relevant object clauses in Dynasty’s Memorandum of Association are as follows:

  139. [82] Article 98 of Dynasty’s Articles of Association authorises directors of Dynasty to charge its assets to secure any debt of any third party:

  140. [83] Although seemingly surprising, the above provisions are standard provisions in BVI articles, which may account for the widespread and universal use of BVI companies as corporate investment vehicles or holding companies.

  141. [84] In the circumstances, I find that the pledging of the Sale Shares to secure borrowings of Sia was not improper and was done in the interests of Dynasty. Accordingly, Sia and Lee had acted honestly and in good faith with a view to the best interests of the company and had not breached any fiduciary duties as directors of Dynasty. Given this finding, Dynasty fails in its claim against Lee for breach of his duty to exercise reasonable skill, care and diligence to supervise the activities of Sia.

  142. Issue 4: Did Low act in breach of the settlement agreement?

  143. [85] The terms of the settlement agreement, as set out in the letter dated 5 November 1998 from Lee & Lee, Sia’s former solicitors, to Khattar Wong & Partners, Low’s former solicitors (“Lee & Lee’s letter”), are as follows:

  144. Sia’s case

  145. [86] Sia had argued that Low was/is the controlling mind and alter ego of Dynasty because the Sale Shares were owned by Low while the Remaining Vendors were his nominees. All the lawsuits filed in relation to the Sale Shares were initiated on behalf of Low and funded by him; the Remaining Vendors had no real interest in the outcome of any of the lawsuits.

  146. [87] The express words of Lee & Lee’s letter in [85] show that Low agreed not to commence “any other proceedings” in connection with or in relation to the “facts and/or subject matters” of Suit 960. The statement of claim filed in Suit 960 included the sale of the Sale Shares by the Remaining Vendors. Given that Low was at all material times the true owner of the Sale Shares, it must have been intended and understood by both Low and Sia that the settlement constituted a full and final settlement of all claims in relation to all the Sale Shares.

  147. [88] Accordingly, Low acted in breach of the settlement agreement when he procured five of the Remaining Vendors to institute Suit 2333. Similarly, he acted in breach of the settlement agreement when he procured Dynasty to commence HCA 2057 of 2007 and the Original Action.

  148. Low’s case

  149. [89] Low argued that he was/is not the controlling mind and alter ego of Dynasty because there was no evidence that he had any influence over the Liquidators’ decision-making. Moreover, it was not improper for creditors to fund litigation of a company to recover assets of the company. It was also not improper for David Chu (“Chu”) to act as solicitor for both Low (as the petitioning creditor) and the Liquidators at the same time. There was no evidence that Chu communicated instructions of Low to Lauren or Tacon. The Liquidators’ conduct did not show that they were not acting independently.

  150. [90] HCA 2057 of 2007 and the Original Action did not fall within the scope of the settlement agreement. Suit 960 related to the sale and transfer of the Sale Shares from Low to Dynasty and an alleged oral representation from Sia to Low that Sia would stand as a guarantor for Dynasty’s debts; the subject matter was Sia’s liability to Low as a guarantor for Dynasty’s liabilities in respect of the balance of the Purchase Price. HCA 2057 of 2007 and the Original Action on the other hand related to the manner in which Sia and Lee dealt with the Sale Shares after the sale and delivery of those shares, and the subject matter was the liability of Sia and Lee to account to Dynasty for breaches of fiduciary duties owed to Dynasty as directors.

  151. Construction of Lee & Lee’s letter

  152. [92] I refer to the relevant principles on contractual principles stated by the Court of Appeal in Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR(R) 1029 at [131]:

  153. My decision

  154. [93] I find that Low did not agree to “not commence or continue with any other proceedings in connection with or in relation to the facts and/or subject matters of [Suit 960]”. I now set out my reasons.

  155. [95] Sia argued that he and Low intended to settle all claims they may have had against one another in relation to the Sale Shares. Hence, this was a broader agreement than what the express words reveal. In particular, Sia’s position was that he was induced to enter into the S&P Agreements on Dynasty’s behalf and to acquire the Sale Shares at a significant premium based on various representations made by Low. The representations which turned out to be false included:

  156. (a) that the Sale Shares were owned and/or controlled by Low and that Low had other friends who could be persuaded to sell their shares in CDC to Sia;

  157. (b) that Sia could gain immediate control of CDC upon Dynasty’s acquisition of all the Sale Shares;

  158. (c) that CDC was well-managed, financially sound and profitable; and

  159. (a) that CDC was prepared for and would be listed on the Singapore Stock Exchange.

  160. [97] It is more likely than not that Low had merely agreed to discontinue Suit 960 (Term 1), which dealt with Sia’s liability to Low as a guarantor for Dynasty’s liabilities in respect of the balance Purchase Price. Low may well have decided that it was easier to claim the balance of the Purchase Price by claiming an account based on Sia’s and Lee’s alleged breach of fiduciary duties in pledging the Sale Shares, than to claim against Sia based on Sia’s alleged oral representation as to the guarantee.

  161. [98] Sia argued that Low had conceded in cross-examination that he had settled his claims with Sia and he was not entitled to pursue any claims against Sia. Sia relied on the following extracts from Low’s evidence during cross-examination:

  162. [99] I do not accept that Low had made such a concession. At best, Low’s answer was ambiguous. Sia’s reliance on it was misplaced. Further, Low’s answer was consistent with his position that he had merely agreed to discontinue Suit 960 which only dealt with Sia’s liability to Low as a guarantor for Dynasty’s liabilities in respect of the balance Purchase Price; Low did not agree not to commence any proceedings which related to the unpaid balance of the Purchase Price, such as the alleged breach of fiduciary duties by Sia and Lee in pledging the Sale Shares (which was the subject matter of HCA 2057 of 2007 and the Original Action).

  163. [100] The above finding is sufficient to dispose of this issue. However, for completeness, I will address Sia’s other arguments.

  164. Was Low the controlling mind and alter ego of Dynasty?

  165. [101] Sia sought a declaration that Low was the alter ego of Dynasty in commencing and directing the Original Action. Sia also sought an injunction to restrain Dynasty, Low, Tacon and Lauren from pursuing any claims against Sia in relation to the Sale Shares. Since Suit 2057 and the Original Action are actions by Dynasty and not Low, Sia has to establish that Low is the controlling mind and alter ego of Dynasty for the injunction to apply to Dynasty. On the other hand, if Sia’s interpretation of the settlement agreement is adopted, Sia only has to show that Low applied to wind up Dynasty and procured the Liquidators and Provisional Liquidators to commence HCA 2057 of 2007 and the Original Action, in order to show that Low acted in breach of the settlement agreement. In such a case, Sia need not show that Low was the controlling mind and alter ego of Dynasty to prove that Low had breached the settlement agreement.

  166. [102] In arguing that Low was the alter ego of Dynasty, Sia essentially requested for the corporate veil of Dynasty to be lifted to unveil Low as the true controller of Dynasty. Since Dynasty was incorporated under the IBCA 1984, the relevant law to be applied in relation to the issue of separate legal personality as a consequence of incorporation should be BVI law. Foreign law has to be proved as a fact. In this regard both parties had not proven BVI law. As stated above at [46], the legal system in the BVI is founded on the English legal system and BIV law is derived from the English common law, upon which much of Singapore’s company law is based. Therefore, I find that it is not unjust to apply the presumption of similarity of laws. I refer to D'Oz International Pte Ltd v PSB Corp Pte Ltd and another appeal [2010] 3 SLR 267 at [25]:

  167. [103] As a starting point, it is well established that a company has a legal personality of its own apart from the persons who comprise it: Aron Salomon (Pauper) v A Salomon and Company, Limited [1897] AC 22. In limited circumstances, courts have ignored this separation and lifted the corporate veil. I refer to Walter Woon on Company Law (Tan Cheng Han, SC gen ed) (Sweet & Maxwell, 2009) (“Walter Woon on Company Law”) at paras 2.50 – 2.51 for a concise summary:

  168. [104] One instance where the courts have lifted the corporate veil is where the separate personality of a company has been used to enable a person to evade an existing contractual duty. I refer to the helpful summary provided by Walter Woon on Company Law at para 2.60:

  169. [105] In Win Line (UK) Ltd v Masterpart (Singapore) Pte Ltd and another [1999] 2 SLR(R) 24 at [38]-[39], it was held that the courts would pierce the corporate veil where it was merely a device, facade or sham. In this connection, a sham referred to acts done or executed by parties to the sham that were intended by them to give to third parties the appearance of creating between the participating parties legal rights and obligations which were different from the actual rights and obligations which the participating parties intended to create.

  170. My decision

  171. [106] I had found above at [93] that Low did not agree to “not commence or continue with any other proceedings in connection with or in relation to the facts and/or subject matters of [Suit 960]”. Assuming that Low did agree to “not commence or continue with any other proceedings in connection with or in relation to the facts and/or subject matters of [Suit 960]”, Low would have a contractual obligation not to apply to wind up Dynasty and procure the Liquidators and Provisional Liquidators to commence HCA 2057 of 2007 and the Original Action. If Low had control over the Provisional Liquidators and Liquidators, he would be using the separate personality of Dynasty to evade his existing contractual duty. In such a case, the corporate veil of Dynasty will be lifted to reveal Low as the true controller of Dynasty. Therefore, the key enquiry is whether Low has control over the Provisional Liquidators and Liquidators such that he is the controlling mind and alter ego of Dynasty. This enquiry is closely tied to Sia’s counterclaim on conspiracy, namely, that Low, Lauren and Tacon had combined and conspired together to institute claims against him. Hence, it would be neater to subsume this enquiry under my analysis of Sia’s Counterclaim.

  172. [107] It suffices to state that I find that Low, Lauren and Tacon did not combine and conspire together to institute claims against Sia. Accordingly, Low had/has no control over the Provisional Liquidators and Liquidators, and he is not the controlling mind and alter ego of Dynasty (see [113]–[120 ] and [150]–[151 ] below).

  173. [108] For completeness, I shall now deal with Sia’s argument relating to the issue of whether Low is the alter ego of Dynasty in commencing and directing the Original Action.

  174. [109] Sia argued that the Sale Shares were owned or controlled by Low with the Remaining Vendors being his nominees who did not have any real or beneficial interest in the Sale Shares. I agree. Quite a number of the Remaining Vendors in [4] are related to Sia. Ong was Low’s personal assistant while CL Low is Low’s elder brother and Lau Kang Thow is Low’s uncle. The fact that the cheques Sia gave to Low in favour of CL Low and Lau Kang Thow for the initial 1% purchase price of the Sale Shares were never presented for payment despite there being sufficient funds suggests that Low did not hand the cheques over to the two vendors because they were not the true owners of the Sale Shares. In fact, Johnny Tsao had expressly declared that he held the Sale Shares on behalf of Low. Lastly, the Remaining Vendors lack any interest in the Sale Shares because Low admitted to paying off all the Remaining Vendors for the Sale Shares and was entitled to keep whatever monies recovered from Sia.

  175. [110] It was not disputed that Low applied for the winding up of Dynasty, the appointment of the liquidators, and was the main financier of Dynasty’s liquidation. Such actions were those a creditor in Low’s position would have taken. However, they are not sufficient to show that Low was the controller of Dynasty.

  176. Issue 5: Did Low and Lau conspire together with the predominant purpose to cause loss and damage to Sia through the pursuit of stale and baseless claims in Hong Kong?

  177. [111] Sia’s claim against Low and Lauren was founded on the tort of conspiracy by lawful means. The elements of the tort are:

  178. (a) a combination of two or more persons and an agreement amongst them to do certain acts;

  179. (b) the predominant purpose of the conspirators to cause damage or injury to the plaintiff;

  180. (c) acts performed in furtherance of the agreement; and

  181. (d) damage suffered by the plaintiff (see Nagase Singapore Pte Ltd v Ching Kai Huat and others [2008] 1 SLR(R) 80 at [23]).

  182. [112] As to the “predominant purpose” of a conspiracy, two points are worth mentioning. First, the focus of the enquiry is the intention of the alleged conspirators, not the natural or resulting consequence of their act: Crofter Hand Woven Harris Tweed Company, Limited, and others v Veitch and another [1942] AC 435 at 445. Hence, the knowledge of the alleged conspirators that the injury will be caused per se does not suffice to establish a predominant intention to cause injury: Beckkett Pte Ltd v Deutsche Bank AG and another [2008] 2 SLR(R) 189 at [116]. Second, where the alleged conspirators’ actions serve their own commercial purpose, the infliction of loss on the plaintiff will not be the predominant purpose: Quah Kay Tee v Ong and Co Pte Ltd [1996] 3 SLR(R) 637 at [50].

  183. Was there a conspiracy or agreement between Low and Lau?

  184. [113] Essentially, Sia had argued that there was an agreement between Low and Lauren with regard to the commencement and conduct of HCA 2057 of 2007.

  185. The Engagement Letter

  186. [114] Sia referred to an engagement letter of 7 May 2007 (“the Engagement Letter”) by which Low and Chu engaged Lauren and Lai as Provisional Liquidators in Hong Kong. Sia argued that the Engagement Letter was evidence of the agreement with regard to the commencement and conduct of HCA 2057 of 2007. Specifically, Sia contended that a paragraph in the Engagement Letter showed that Low’s principal aim in presenting the winding up petition was to commence proceedings against Sia through Dynasty. Lauren agreed to render services to achieve this principal aim by accepting instructions from Low through Chu, who was Low’s solicitor. The relevant paragraph of the Engagement Letter states:

  187. [115] The Engagement Letter expressly provides that Lauren was to receive instructions from Chu:

  188. [116] In my view, Sia’s argument of the existence of such an agreement is unpersuasive. It should be noted that the scope of services contemplated under the Engagement Letter were as follows:

  189. [117] All the Provisional Liquidators had agreed to was to review the relevant documents and seek legal advice on the merits of commencing proceedings against Sia and Lee. Nowhere in the Engagement Letter was it unequivocally stated that the Provisional Liquidators had agreed to commence proceedings against Sia and Lee. Sia’s reliance on what seems to be a general paragraph setting out the context of the case under the “Background” section of the letter is misplaced.

  190. [118] Sia relied on the provision in the Engagement Letter, which provides that Lauren was to receive instructions from Chu, to suggest that Low was the actual decision-maker behind the commencement and conduct of HCA 2057 of 2007. In my view, the reliance is again misplaced. It should be noted that the Engagement Letter was executed on 7 May 2007, prior to the appointment of the Provisional Liquidators in Hong Kong. At that time, Chu was indeed acting for Low. That was why Low authorised Chu to be his point of contact with the Provisional Liquidators. However, subsequent to their appointment as Provisional Liquidators, Lauren and Lai engaged Chu as their solicitor. At this point in time, Chu had ceased to act for Low, as seen from the fact that Low was represented by a different solicitor from a different firm in his petition to wind-up Dynasty and his application to appoint the Provisional Liquidators. Both Lauren and Low testified that following Chu’s appointment as the Provisional Liquidators’ solicitor, Chu ceased acting for Low.

  191. No direct evidence of instructions from Low

  192. [119] It should be noted that there is no direct evidence showing that Low actually gave Lauren instructions whether directly or indirectly regarding the commencement and conduct of HCA 2057 of 2007. Lauren testified that the Provisional Liquidators commenced HCA 2057 of 2007 based on their own professional judgment with the benefit of independent legal advice. Lauren categorically denied to have done so simply on Low’s direction.

  193. [120] Therefore, I find that there was no agreement between Low and Lauren with regard to the commencement and conduct of HCA 2057 of 2007.

  194. Was the predominant purpose of the agreement to cause damage or injury to Sia?

  195. [121] Sia raised two main arguments to show that the predominant purpose of the agreement to commence and conduct HCA 2057 of 2007 was to cause him damage or injury:

  196. (a) There was no legitimate commercial benefit for Dynasty to pursue the claims in HCA 2057 of 2007 because the claims were obviously time-barred, barred by laches and acquiescence, and wholly devoid of any basis in law or fact.

  197. (b) The manner in which Lauren conducted her role as the Provisional Liquidator showed such a predominant purpose to cause damage or injury to Sia:

  198. (i) Lauren deliberately engaged Chu, who was the alter ego and representative of Low in HCA 2057 of 2007, as the solicitor for Dynasty in its claims against Sia;

  199. (ii) Lauren failed to obtain appropriate independent legal advice prior to instituting claims against Sia;

  200. (iii) Lauren applied for a Mareva injunction for an inflated amount against Sia when she had no basis or justification for doing so;

  201. (iv) Lauren failed to make any enquiries with Sia and the other creditors;

  202. (v) Lauren commenced proceedings against Sia and Lee barely over a month after her appointment and without having had sufficient time to conduct a proper review and investigation into the affairs of Dynasty;

  203. (vi) Lauren refused to effect payment of costs ordered in favour of Sia in HCA 2057 of 2007 until compelled by an order of this court to do so; and

  204. (vii) Lauren permitted Chu to file an affidavit scandalising the Singapore judicial system to resist the stay applications filed by Sia and Lee and to avoid litigating against them in Singapore.

  205. [122] The short answer to Sia’s arguments is that the claims in the Original Action are not time-barred or barred by laches and acquiescence or wholly devoid of any basis in law or fact. I have ruled (at [28]) that the Original Action is not time-barred and not bared by laches and acquiescence (see above at [40]). Although I found at [84] that Sia and Lee did not breach their fiduciary duties in entering into the Security Transactions, the issue was by no means clear cut and the claim is not wholly devoid of any basis in law or fact. I accept Lauren’s evidence that it seemed clear to the Provisional Liquidators that Sia and Low had breached their fiduciary duties on the face of it, without understanding the flexibility BVI law afforded directors. I note that in dismissing Sia and Lee’s application to stay proceedings before the High Court of Hong Kong, Justice Carlson found that Dynasty had “at the very least, been able to make out a good arguable case based on the way the matter is pleaded in the statement of claim”. The Court of Appeal of Hong Kong did not disagree with Justice Carlson’s observation, when it allowed Sia’s appeal on the basis that Hong Kong was not the appropriate forum. Therefore, even if there was an agreement between Low and Lauren with regard to the commencement and conduct of HCA 2057 of 2007, their predominant motive was to serve their own commercial purpose of recovering losses which they thought Dynasty and Low were entitled to from what appeared to be breaches of fiduciary duties, so as to maximize the assets available for distribution. Such a claim was not wholly devoid of any basis. Accordingly, the predominant purpose was not to cause damage or injury to Sia.

  206. [123] However, for completeness, I shall examine the other arguments raised by Sia.

  207. Engagement of Chu as solicitor for Dynasty

  208. [124] Sia argued that instead of exercising independent and impartial judgment in the exercise of her duties as a liquidator, the engagement of Chu as solicitor for Dynasty showed that Lauren allowed herself to be a hired hand for Low in the commencement and conduct of HCA 2057 of 2007. Chu represented Low as early as 1999 in HCA 9505 and in 2007 when he acted for Low in issuing a statutory demand against Dynasty and negotiating the engagement of the Provisional Liquidators. Sia also argued that since a solicitor is the alter ego of his client, Lauren had in effect appointed Low to advise her on the claims when she appointed Chu as the solicitor of Dynasty. As confirmed by Mann, this situation was compounded by the fact that Chu was also the party engaging Lauren and the person authorised to instruct Lauren, as evidenced by the Engagement Letter.

  209. [125] Both Lauren and Low testified that following Chu’s appointment as the Provisional Liquidators’ solicitor, Chu ceased acting for Low. At the outset, I note that such an arrangement, where lawyers who had previously represented the petitioning creditor then represents the liquidator, is not uncommon in Hong Kong. I accept Bell’s evidence that such an arrangement is not improper in Hong Kong if there is no conflict of interests. I accept that the engagement of Chu as the Provisional Liquidators’ solicitor was reasonable because Chu had intimate knowledge of the relevant facts given his previous involvement in HCA 9505. There was a need for the Provisional Liquidators to act quickly to preserve Dynasty’s assets, and Lauren found Chu to be a competent lawyer, having previously worked with him in other cases. I accept that any conflict of interests in the appointment of Chu was not insurmountable because the interests of the liquidators and Low were aligned. The first phase in liquidation is the asset gathering phase where the liquidator sets out to recover the assets of the company in liquidation, while the second phase concerns the calling of proofs of debt from the creditors, adjudicating the claims, and distributing the assets that have been recovered to the various creditors.

  210. [126] I find that the second phase in liquidation has not commenced as the liquidators are only looking to gather the assets of Dynasty, by seeking an account from Sia and Lee for allegedly entering into the Security Transactions wrongfully. I accept Mann’s evidence that at the first phase in liquidation, the interests of the creditors and the liquidators are aligned. Therefore, I find that the appointment of Chu as the liquidators’ lawyer was not improper and it did not compromise Lauren’s duty to act independently and impartially, provided that Chu had ceased acting for Low since the date of his appointment.

  211. [127] Sia argued that the fact that detailed updates which included legal submissions and authorities were provided by Chu to Low’s personal assistant, and the fact that Chu flew to Singapore to attend the trial of Suit 703 (where Low sued Sia for defamation) suggested that Chu continued to act for Low after becoming the solicitors of the Provisional Liquidators. I do not believe it is improper for Low as a funding creditor, to receive updates on the steps being taken by the Liquidators. Furthermore, the correspondence did not suggest that Chu had received any instructions from Low’s personal assistant. However, I do note that the updates were very detailed as it contained legal submission and authorities, in contradistinction to merely periodic updates on the legal fees incurred. Moreover, Low was invited to contact Chu if he wished to discuss the preparation of the written submission.

  212. [128] Although Low testified that he did not know why Chu attended the trial of Suit 703, I do not believe him as Chu had represented Low on matters which involved Sia previously. Be that as it may, it should be noted that it is not inconceivable that Chu was present at the trial as solicitor for the Liquidators to listen to Sia’s evidence, as Sia is a defendant in the Original Action commenced by the liquidators through Dynasty. On a balance of probabilities, I find that it has not been established that Chu was still acting for Low after Chu’s appointment as the Provisional Liquidators’ solicitor.

  213. [129] Lastly, I note that Lauren did not decide to commence and conduct HCA 2057 of 2007 solely on Chu’s advice. Rather, it was based on the advice of her counsel Thomas Au.

  214. [130] Therefore, I find that Sia has failed to establish that the engagement of Chu as solicitor for Dynasty shows that Lauren allowed herself to be a hired hand for Low in the commencement and conduct of HCA 2057 of 2007.

  215. [131] Sia argued that the fact that Lauren failed to obtain appropriate independent legal advice before commencing HCA 2057 of 2007 (even though it is an express term of the Engagement Letter) shows a dereliction of her duty as Provisional Liquidator and a predominant purpose to institute claims against Sia to cause injury and loss to him. The issues that required evidence on BVI law included whether Dynasty’s Memorandum of Association and Articles of Association permitted Sia to enter into the Security Transactions. Mann agreed that it would have been prudent for a provisional liquidator to obtain advice on BVI law on such matters in writing. Had Lauren had obtained such legal advice, she would have realised that the alleged breaches of fiduciary duties were without merit. Chu would not be qualified to advise Lauren on BVI law.

  216. [132] I find that Lauren did obtain independent legal advice, although not on BVI law. I accept that she discussed with Chu, her solicitor, and obtained written advice on 3 September 2007, before commencing HCA 2057 of 2007. As I have noted at [125], following Chu’s appointment as the Provisional Liquidators’ solicitor, Chu ceased acting for Low, and in any case, the interests of the liquidators and Low were aligned at the first phase in the liquidation. Accordingly, advice from Chu constituted independent legal advice.

  217. [133] In any case, even if the independence of Chu is impugned, I accept that Lauren had commenced the action because she held the belief that Dynasty appeared to have a clear claim against Sia and Lee for breach of fiduciary duties. Under cross-examination, her evidence was as follows:

  218. [134] Lauren relied on the HK Judgment to come to her view that there was a basis for the claim. As stated above at [122], I accepted Lauren’s evidence that it could seem clear to the Provisional Liquidators that Sia and Low had breached their fiduciary duties on the face of it, without understanding the flexibility BVI law afforded directors. Therefore, even if Lauren failed to obtain appropriate independent legal advice before commencing HCA 2057 of 2007, that does not show a predominant purpose of instituting claims against Sia to cause him injury and loss.

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