Frantonios Marine Services Pte Ltd and Another v Kay Swee Tuan

[2] Two main reasons were advanced by the 1 plaintiff at the appeal:

[3] The 1 plaintiff was a company incorporated in Singapore in 1982. Its main business was the provision of marine services, particularly, tank cleaning services for crude oil tankers, ship supply and repair work. The 2 plaintiff was a director and shareholder of the 1 plaintiff together with Tan Keng Chye and Tan Keng Chuan (“K.C. Tan”). K.C. Tan is the husband of the 2 plaintiff.

[4] In September 2000, the 1 plaintiff was granted a long term loan of S$1,800,000 and trade finance facilities of US$500,000 (referred to collectively as “banking facilities”) by Chang Hwa Commercial Bank Ltd. These banking facilities were secured by a legal mortgage over a property at 1A Bright Hill Crescent Singapore belonging to the 2 plaintiff and K.C. Tan, as well as a joint and several guarantee signed by the 2 plaintiff, K.C. Tan and Tan Wee Lin (the son of the 2 plaintiff and K.C. Tan).

[5] The defendant, an advocate and solicitor practising in Singapore, was a director of Marine and Environmental Services Pte Ltd (“MES”), a company engaged in, inter alia, the business of tank cleaning. Enrique Tan was a shareholder and also a director of MES. The defendant and a company belonging to Enrique Tan had beneficial interests in Kotor Bina Sdn Bhd (“Kotor”), a company incorporated in Malaysia engaged in the business of waste and sludge disposal.

[6] In early 2001, the defendant together with one Enrique Tan proposed to K.C. Tan, the then managing director of the 1 plaintiff, that they work together. The defendant also proposed that the two companies set up a cleaning base in Johore, Malaysia. K.C. Tan told the defendant to obtain the necessary approval from the Malaysian authorities first.

[7] When the defendant called K.C. Tan in April 2001 to enquire how he was doing, K.C. Tan told her that he was experiencing business difficulties. The defendant then offered financial assistance, which K.C. accepted. A loan of $60,000 was given to the 1 plaintiff, which was used to pay the arrears of Central Provident Fund contributions of the 1 plaintiff’s employees as well as wages and payments due to its workers and contractors. When the 1 plaintiff secured two tank cleaning jobs in June or July 2001 and needed some working capital, K.C. Tan requested for a further loan of $120,000, which was given to the 1 plaintiff.

[8] When the defendant requested K.C. Tan for the repayment of the total loan of $180,000, K.C. Tan asked for more time. Eventually the defendant and Enrique Tan met with K.C. Tan and the 2 plaintiff. According to the plaintiffs, it was agreed that a sum of interest of $80,000 would be charged and further that K.C. Tan was to work with them by sending all the 1 plaintiff’s vessels to their sludge plant in Malaysia. An acknowledgement of loan dated 26 February 2002 for a purported sum of $260,000 to be repaid within 6 months was signed by K.C. Tan and the 2 plaintiff. When the purported loan was not repaid, judgment in default was obtained against them on 25 September 2002.

[9] The 2 plaintiff averred that K.C. Tan and the 2 plaintiff subsequently met the defendant and Enrique Tan. The parties agreed to work together in that the defendant and Enrique Tan would finance all of the 1 plaintiff’s operations through MES and the 1 plaintiff would send all their vessels to the sludge plant in Malaysia. In return, Enrique Tan agreed not to enforce the judgment debt of $260,000, which would be repaid when the 1 plaintiff’s business and income improved.

[10] The defendant told K.C. Tan to hand over letters or other documents relating to claims against the plaintiffs and himself from their creditors for her to take care of. She would assume control of the finances and bank accounts of the 1 plaintiff but K.C. Tan could continue to run its business. K.C. Tan agreed to the arrangement as he felt he had no choice in view of the judgement debt against him and the 2 plaintiff. In June 2003, the defendant became the sole signatory of the 1 plaintiff’s bank accounts.

[11] After the defendant took over the management and control of the 1 plaintiff’s finances and bank accounts, K.C. Tan continued to canvass for business which began to improve.

[12] In early 2004, when K.C. Tan and the 2 plaintiff received claims from UOB Ltd as well as the 1 plaintiff’s contractors, they requested the defendant to make the necessary payments as she had full control of the 1 plaintiff’s bank accounts. The plaintiffs alleged that the defendant failed to do so and informed K.C. Tan that the payments from the 1 plaintiff’s customers had not been received yet. The defendant similarly refused to effect payments to Chang Hwa Bank as well as to other creditors of the 1 plaintiff. Consequently, their property at 1A Bright Hill Crescent Singapore was re-possessed and sold off by Chang Hwa Bank in 2005. The Pandan Loop office which belonged to the 1 plaintiff was also re-possessed by its mortgagees, UOB Ltd, in October 2004 and sold off, leaving an outstanding sum of $183,005.19 still due and owing to UOB Ltd as at 1 August 2005.

[13] In May 2004, K.C. Tan was made a bankrupt arising from a sum of about $13,000 due to one Gopi Bala.

[14] In October and November 2004, the defendant closed the 1 plaintiff’s accounts with RHB Bank Berhad and Standard Chartered Bank.

[15] The plaintiffs claimed that the defendant wrongfully withdrew a total sum of $2,526,546.77 between 1 January 2004 and 31 October 2004 from the 1 plaintiff’s bank account with RHB Bank Berhad. In addition, the defendant also wrongfully withdrew a total sum of S$438,606.95 from the 1 plaintiff’s bank account with Standard Chartered Bank between 1 June 2004 and 24 November 2004.

[17] The plaintiffs further alleged that in consequence of (a) the defendant’s mismanagement of the 1 plaintiff; (b) her misappropriation of the 1 plaintiff’s monies; and (c) her negligence as a solicitor, the 1 plaintiff had to cease operations and suffered loss and damage, which the plaintiffs particularised at paragraphs 26 and 27 of their statement of claim. By depleting the 1 plaintiff’s finances, the defendant had allegedly caused loss, expenses and damage arising from, inter alia, the forced sale by the banks of the mortgaged properties owned by the plaintiffs in order to discharge the outstanding secured loans made by the banks to the 1 plaintiff.

[18] The plaintiffs further claimed against the defendant for an account of all monies withdrawn from the 1 plaintiff’s bank accounts and an order to pay the 1 plaintiff all monies due and payable to the 1 plaintiff as monies had and received by the defendant or, in the alternative, damages for conversion.

[19] Although not pleaded, counsel for the plaintiffs submitted that the defendant had also acted in breach of her fiduciary duties by acting as the plaintiffs’ solicitor whilst having an interest in the 1 plaintiff and in the companies in which the 1 plaintiff was having business dealings with. The defendant was therefore liable for damages and loss occasioned by her breach of fiduciary duty.

[20] The defendant averred in her defence that a friendly interest free loan of $260,000 was given by Enrique Tan to the 2 plaintiff and K.C. Tan at their request. It was to be repaid within 3 months from 26 February 2002. After the 4 cheques of S$65,000 issued by K.C. Tan for the repayment of the loan were dishonoured upon presentation for payment, Enrique Tan instructed the defendant, in her capacity as his solicitor, to file a claim. Judgment in default of appearance for S$260,000 was obtained against the 2 plaintiff and K.C. Tan.

[21] At the request of the 2 plaintiff and K.C. Tan, and upon K.C. Tan’s proposal that the 1 plaintiff would engage the waste disposal services of Kotor, Enrique Tan agreed not to enforce the judgment for the time being. When the 1 plaintiff still did not engage the services of Kotor by 25 January 2003, Enrique Tan instructed the defendant to request K.C. Tan to make monthly payments of the said judgment debt owing to Enrique Tan in the sum of $30,000 per month.

[22] In April 2003, K.C. Tan requested for more time to repay but Enrique Tan refused to accede to his request. K.C. Tan then approached the defendant, in her capacity as director of MES, to propose that the 1 plaintiff collaborate with MES in exchange for further extension of time to repay the debt. Specifically, the 1 plaintiff would procure and handle the tank cleaning jobs but MES would manage the jobs. The profits would be shared between the 1 plaintiff and MES. K.C. Tan said that he would repay the debt from the 1 plaintiff’s share of the profits from the collaboration. MES and Enrique Tan agreed to the arrangement.

[23] In May 2003, the defendant alleged that it was further agreed orally between the 1 plaintiff and MES (“Agreement”) that:

[24] On 30 May 2003, the 1 plaintiff’s board of directors, consisting of K.C. Tan and the 2 plaintiff, passed resolutions for, inter alia, an account to be opened with RHB Bank Berhad (“RHB”) and the appointment of the defendant, in her capacity as director of MES, as the sole signatory of the RHB account, which was subsequently opened on 4 June 2003. On 11 November 2003, the 1 plaintiff’s board of directors consisting of the 2 plaintiff, K.C. Tan and Tan Wee Lin, passed resolutions to appoint the defendant, in her capacity as director of MES, as adviser to the 1 plaintiff; confer authority on the defendant to negotiate with Chang Hwa Bank on behalf of the 1 plaintiff regarding additional banking facilities; and to appoint the defendant again as the sole signatory. On 12 November 2003, Chang Hwa Bank granted trade finance facilities up to S$300,000 to the 1 plaintiff. From January 2004, the defendant in her capacity as director of MES, became the sole signatory of the 1 plaintiff’s Chang Hwa Bank account. Similarly, the 1 plaintiff’s board of directors also passed resolutions authorising a factoring account and a receivables purchase facility to be established with Standard Chartered Bank Ltd (“SCB”) for the purpose of receiving deposits of receivables and with the defendant as the sole signatory of this account. The SCB account was opened on 25 May 2004.

[25] As agreed between the 1 plaintiff (represented by K.C. Tan) and MES (represented by the defendant), the defendant in her capacity as director of MES, kept all the cheques, bank statements, payment vouchers and all documents relating to the RHB account and the SCB account from the date the said accounts were opened.

[26] In accordance with the Agreement, the defendant paid monies to the creditors of the 1 plaintiff, either through K.C. Tan or to the creditors directly, when there were profits due to the 1 plaintiff. The defendant averred that all the monies in the RHB and SCB accounts were legitimately withdrawn for the purpose of paying the expenses of the tank cleaning jobs under the Agreement and/or repaying MES for advances made to the 1 plaintiff to finance the tank cleaning jobs and to comply with the terms of the Agreement. The defendant denied that she was in breach of her duty and responsibilities as solicitor for the plaintiffs in respect of the claim for payments made by Chang Hwa Bank. She further denied that she had mismanaged or misappropriated the 1 plaintiff’s monies. The defendant averred that she, in her capacity as director of MES, was managing the 1 plaintiff’s bank accounts pursuant to the Agreement and had acted in accordance with the Agreement at all material times. Accordingly, the defendant disputed that the plaintiffs were entitled to any of the reliefs claimed.

[28] Section 388 of the Companies Act (Cap 50, 2006 Rev Ed) provides as follows:

[29] The Court of Appeal in Creative Elegance (M) Sdn Bhd v Puay Kim Seng & Anor [1999] 1 SLR 600 (“Creative Elegance”) at [13] said that:

[39] In my judgment, the fact that the plaintiffs themselves believed that they had a bona fide claim must be a given. If they did not believe that they had a bona fide claim, then they should not even bring the suit at all if the allegations against the defendant were simply trumped up and the claims were entirely fictitious or frivolous.

[40] Based on the fact that the defendant did have sole control of the bank accounts of the 1 plaintiff for a certain period of time and the fact that the plaintiffs had procured an expert report of Eltici Financial Advisory Services Pte Ltd dated 15 November 2007 (“Eltici’s Report”) to show that there was prima facie evidence of major discrepancies in the defendant’s accounting of the funds in the defendant’s control, which included, inter alia, unaccounted withdrawals, amounts withdrawn exceeding that acknowledged by the payee and cash payments made which were unrelated to the 1 plaintiff’s business, I was prepared to accept the position that the plaintiffs’ claim was not a trumped up claim. It had some basis and was therefore bona fide.

[41] However, whether or not the plaintiffs’ claim would have a reasonably good chance of succeeding was quite a different matter.

[42] In the present case, the defendant disputed that she had misappropriated the monies as alleged by the 1 plaintiff. She explained why she did not misappropriate the monies. She engaged the services of M/s Tan Cheng Lin & Co to prepare an expert report dated 22 January 2008 in reply to the Eltici’s Report. The defendant’s expert addressed the various comments and conclusions in the Eltici’s Report and showed why those comments and conclusions were unwarranted and/or incorrect.

[43] In my view, the facts were highly contentious. Without a trial, it would be difficult to ascertain the truth of the allegations and counter allegations (many of which were oral in nature) and the veracity of the expert reports, and to determine what if any amounts had been unlawfully withdrawn or misappropriated by the defendant as alleged. I was not able to determine one way or another, or even form any preliminary views on who had the better prospect of success or what were the prospects of success (or for that matter, what were the reasonable prospects of success) of either party based on the limited materials before me.

[48] In my view, it would be most appropriate for the trial judge to decide on the merits of this case. The facts were fairly complex and forensic accounting and tracing of the withdrawal transactions would likely be involved. The purpose of each of the withdrawals from the 1 plaintiff’s bank accounts by the defendant would have to be scrutinised. Not all the relevant evidence was before me, and the credibility of some factual matters could not be assessed based on the affidavits and expert reports alone. The possible criminal nature of the alleged misappropriation would also call for a more careful examination of the evidence and the circumstances surrounding each transaction at the trial. In particular, the flow of the money withdrawn from the 1 plaintiff’s bank accounts must be traced from the bank statements, invoices, receipts and other documents evidencing the legitimate or illegitimate purpose of each disputed withdrawal to the final beneficial recipient of each sum of money withdrawn. The court would need to closely examine why the beneficial recipient was given the money. No doubt it would be a very tedious process if the real nature of each withdrawal transaction was to be ascertained.

[51] Purchas LJ in Trident International Freight Services v Manchester Ship Canal Co (1990) BCLC 263 also pointed out that:

[56] As Megarry VC had said in Pearson & Anor v Naydler & Ors [1977] 3 All ER 531 (“Pearson”):

[59] Although ECRC Land is in respect of a company in liquidation, nevertheless the above general observations of the Court of Appeal in my view remain appropriate and relevant to impecunious corporations, which are not in liquidation but whose litigation is being financed by interested third parties, whoever they may be. Those observations are consonant with and do reflect the policy considerations which parliament has seen fit to embed within s 388.

[62] Norse LJ in Trident indicated that he preferred the minority view of Cairns LJ in Sir Lindsay Parkinson & Co Ltd v Triplan Ltd [1973] 2 All ER 273:

[66] As observed by Lord Justice Potter at [33] in Kufaan Publishing Limited v Al-Warrak Publishing Limited (2000) WL 491488: