Lim Leong Huat v Chip Hup Hup Kee Construction Pte Ltd

[1] This case considers the question whether, in law, a company director can be liable in conspiracy with the company of which he is the moving spirit and controlling mind.

[2] The parties in the present proceedings are:

(a) Lim Leong Huat (“Lim”) – the plaintiff (by original action) and the first defendant (by counterclaim);

(b) Tan Siew Lim (“TSL”) – the second defendant (by counterclaim) who is also Lim’s wife;

(c) Chip Hup Hup Kee Construction Pte Ltd (“CHHKC”) – the defendant (by original action) and plaintiff (by counterclaim); and

(d) Neo Kok Eng (“Neo”) – the managing director of CHHKC.

[3] Lim was the former general manager and designated executive director/projects director of CHHKC, a company in the building and construction business.

[4] According to Neo, CHHKC is a wholly-owned subsidiary of Chip Hup Holdings Pte Ltd (“CH Holdings”), a company in which he beneficially owns 100% of the issued share capital, 99.11% of which are registered in his name, the remaining 0.99% being held in trust for Neo by one Tan Yong San (“Tan”), the brother of Lim’s wife. A separate action has been commenced by Neo against Tan in Suit No 241 of 2007 (“Suit 241”) for the return of the 0.99% shares.

[5] For these proceedings, the relevant point to note is that Neo and Tan were the two named directors of CHHKC and CH Holdings, and that Lim has applied under Summons in Chambers No 107 of 2008 for an order to add Neo as the second defendant in the original action, to maintain the following allegations against Neo:

(a) that Neo had conspired with CHHKC, by lawful means or by unlawful means, to injure or cause loss and damage to Lim by depriving Lim of payment of moneys advanced by Lim to CHHKC; and

(b) that Neo had acted unlawfully and in bad faith to interfere with CHHKC’s payment obligations to Lim by inducing, procuring and/or otherwise causing CHHKC to refuse to make the aforesaid payments.

[6] Counsel for CHHKC and Neo submitted that Lim’s application to add Neo as the second defendant should be disallowed because there was no cause of action against Neo either for conspiracy or for inducing breach by CHHKC of its payment obligations. Counsel based his argument on the position taken by Tan, CHHKC’s other director, in Suit 241, that Neo:

(a) was in charge of the accounts and funds of the companies in the Chip Hup Group;

(b) controlled all the signing of cheques and the movement of funds into and out of CH Holdings and its subsidiaries; and

(c) did not account for nor give full details to Tan regarding the amount of funds and/or the reason for the movement of the funds.

As such, counsel for CHHKC and Neo contended that since any decision(s) and/or action(s) taken by CHHKC not to make payment to Lim could only have originated from Neo alone and not Tan, no question of any conspiracy between CHHKC and Neo, nor inducement by Neo vis-à-vis CHHKC, arose. This was because, at all times, the actions of CHHKC were the decisions and actions of Neo, effectively the only director and controlling mind of CHHKC.

[7] Counsel for Lim relied on the decision of Judith Prakash J in Nagase Singapore Pte Ltd v Ching Kai Huat [2008] 1 SLR 80 (“Nagase”) where it was held that, in law, there can be a conspiracy between a company and its controlling director to damage a third party by unlawful means even where the director is the company’s moving spirit.

[8] After hearing submissions from counsel for the respective parties, I ordered that Neo be added as a defendant in the original action. I now set out the reasons for my decision.

[9] The Court of Appeal in Quah Kay Tee v Ong & Co Pte Ltd [1997] 1 SLR 390 (“Quah Kay Tee”) noted (at [45]) that:

[10] In Wu Yang Construction Group Ltd v Zhejiang Jinyi Group Co, Ltd [2006] 4 SLR 451 (“Wu Yang”), Andrew Phang Boon Leong J summarised the nature and rationale underlying these two forms of conspiracy and their similarities and differences (at [75]–[79]):

[11] In Nagase ([7] supra), Prakash J summarised the elements that must be satisfied to prove both forms of conspiracy at [23]:

[12] As evident from [9]–[11] above, while a conspiracy by lawful means does not involve an unlawful act committed by the conspirators, there is the additional requirement of a “predominant purpose or intention” by all the conspirators to cause injury or damage to the plaintiff. However, both forms of conspiracy require a combination of two or more persons and more will be said about this common ingredient later in this judgment (see [29] below), after first examining Nagase.

[13] Nagase was a second judgment arising from a dispute between the parties thereto. In the action resulting in the first judgment (see Nagase Singapore Pte Ltd v Chin Kai Huat [2007] 3 SLR 265) (“the first judgment”), the plaintiff, Nagase Singapore Pte Ltd, alleged a conspiracy between the following parties to overcharge the plaintiff for warehousing services:

(a) its employees, Clement Yip and Mary Ting, (“Yip and Ting”);

(b) D Logistics, a warehousing and logistics services support company (“D Logistics”); and

(c) David Ching, the majority shareholder and director of D Logistics (“Ching”).

[14] The plaintiff, who had engaged D Logistics to provide warehousing services to it from 1999, claimed that Yip and Ting had conspired with Ching to enter into agreements for the provision of such services by D Logistics at inflated rates. Both forms of conspiracy were alleged by the plaintiff.

[15] With respect to Yip and Ting, the court found in the first judgment that the evidence failed to support any claim that Yip and Ting had conspired with Ching and D Logistics to overcharge the plaintiff.

[16] With respect to D Logistics and Ching however, the court found that D Logistics had indeed overcharged the plaintiff and that Ching must have known of this overcharging and was privy to it. Although the plaintiff had, in its statement of claim, pleaded in the alternative that all the defendants (or any two or more together) had conspired to injure the plaintiff, the plaintiff did not, in its submissions, address specifically the issue whether Ching and D Logistics could, on their own, irrespective of any participation by Yip and Ting, be considered, in law, to be co-conspirators. Accordingly, the court asked for further submissions on this issue, identical to the one in these proceedings, and gave its second judgment subsequently in Nagase.

[17] After hearing full submissions on this issue and following an extensive review of the authorities, the court in Nagase held (at [22]):

[18] In Nagase, Prakash J relied extensively on the Court of Appeal decision in Chew Kong Huat v Ricwil (Singapore) Pte Ltd [2000] 1 SLR 385 (“the Ricwil case”) and the decision of the Irish Supreme Court in Taylor v Smyth [1991] 1 IR 142 (“Taylor”).

[19] In Taylor (a case pertaining to an allegation of conspiracy by unlawful means), where the exact same issue was expressly considered by the court, McCarthy J, delivering the judgment of the Irish Supreme Court stated that there was no reason in principle (at 166):

[20] The rationale underlying the Irish Supreme Court’s position was stated by McCarthy J in the following terms (at 165):

[21] As can be seen from the foregoing paragraph, the Irish Supreme Court in Taylor had cited the case of Belmont Finance (No 1) v Williams Furniture [1979] Ch 250 (“Belmont Finance (No 1)”) in support of its proposition that there can be a conspiracy between a company and its controlling director to damage a third party by unlawful means even where the director is the company’s moving spirit.

[22] While I respectfully agree with the decision reached in Nagase, I would like to add some further observations. Belmont Finance (No 1) makes it clear that an important threshold question is whether the company is a victim of the alleged conspiracy. As noted in Walter Woon on Company Law (Tan Cheng Han SC gen ed) (Sweet & Maxwell, 3rd Ed, 2005) (“Walter Woon”) at p 121, [3.106]:

[23] In other words, where the company is a victim of an alleged conspiracy of its directors and sues its directors for breach of duties, the company does not become a co-conspirator with its directors just because its directors are the conspirators: see also Clerk & Lindsell on Torts (Sweet & Maxwell, 19th Ed, 2006) (“Clerk & Lindsell”) at [25–119]. The rationale underlying such an interpretation is that it prevents the company’s errant directors from otherwise escaping liability by contending that, as co-conspirator, the plaintiff tortfeasor company cannot sue the errant tortfeasor directors for damages resulting from the directors’ conspiracy.

[24] However, the position is different where the company and its directors are in an established arrangement which benefits the company, to the detriment of third parties. In this case, the company is no longer a victim of an alleged conspiracy of its directors. Instead, the third party is the victim of the alleged conspiracy between the company and its directors. Taking a leaf from the reasoning of McCarthy J in Taylor, I can see no reason why the assets of a limited company and/or that of its errant director, even where such a director is the controlling mind of the company, should not be liable to answer for conspiracy where either or both of their assets have been augmented as a result of the action alleged to constitute the conspiracy.

[25] In Nagase, Prakash J had (at [10]), noted that the Australian case of O’Brien v Dawson (1942) 66 CLR 18 had set out the traditional conceptual objection to treating a company and its directors as separate individuals for the purpose of a conspiracy:

[26] However, Prakash J did note (at [11]) that our Court of Appeal had “implicitly rejected the validity of this conceptual objection” in the Ricwil case ([18] supra). She went on to note further (at [21]):

[27] I respectfully agree with Prakash J’s reading of the Ricwil case. I am further of the opinion that the reply to this conceptual objection can be expressly found in Catherine Lee v Lee’s Air Farming Ltd (1960) 3 WLR 758 (“Lee’s Air Farming”), a decision of the Privy Council on appeal from the New Zealand Court of Appeal, which affirmed Salomon v A. Salomon & Co Ltd [1896] AC 22 (“Salomon’s case”), the locus classicus establishing the separate legal personality of a company.

[28] In Lee’s Air Farming, the appellant’s husband, Lee, had formed the respondent company for the purpose of carrying on the business of aerial top dressing. He held 2,999 of the shares of the company. The remaining one share was held by a solicitor. Lee was appointed the governing director and had full control of the company. He was also employed as chief pilot on an annual salary. While piloting an aircraft in the course of his work, Lee was unfortunately killed in an accident. The issue before the court was whether Lee was an employee of the company for the purposes of compensation under the New Zealand Workers Compensation Act, 1922. Lee was the controlling shareholder and governing director of the company and in such capacity had the duty to give orders. The New Zealand Court of Appeal was of the view that Lee could not also be an employee, who had the duty to receive and obey orders as this would mean in effect that he was both employer and worker. In the view of the New Zealand court, the two offices were clearly incompatible as there could exist no power of control and therefore the relationship of master-servant was not created. The Privy Council disagreed. In affirming the doctrine of separate legal personality established in Salomon’s case, the Privy Council said at 765:

The Privy Council continued (at 767):

[29] The conclusion derived from both Salomon’s case and Lee’s Air Farming is that even where a business is managed solely by one person, that one person and the company are, in law, nevertheless separate legal entities. This separation is an incident of the incorporation of the company, even if one person is the controlling mind of the company. If the company and its controlling mind could enter into a contract of service, as in Lee’s Air Farming, there is no reason, on principle, why there cannot be a combination of the company and its controlling mind and an understanding or agreement between them to constitute a conspiracy.

[30] I noted (at [12] above) that a combination of two or more persons is a common ingredient in both forms of conspiracy. Because a person and the company are, in law, separate legal entities, there is no barrier, in law, precluding a combination between the director and the company, even where that director is the controlling mind of the company. Taylor was cited by the learned editors of Street on Torts (Oxford University Press, 12th Ed, 2007) (“Street on Torts”) at p 359 to support the proposition that directors and their company may conspire together since the company is a separate legal entity. One would have expected some comments from the learned editors of Street on Torts if there was indeed a conceptual objection precluding such a combination between the controlling director and the company.

[31] At [10] of Nagase, Prakash J had distinguished Woo Bih Li’s decision in Chong Hon Kuan Ivan v Levy Maurice (No 2) [2004] 4 SLR 801 (“Chong Hon Kuan”) because:

[32] I agree with Prakash J that Chong Hon Kuan did not expressly consider the issue at hand. But, I am of the opinion that Chong Hon Kuan is nevertheless implicitly relevant to the issue of whether a single director could be in conspiracy with the company he directed.

[33] Chong Hon Kuan had applied the English case of Said v Butt [1920] 3 KB 497 (“Said v Butt”). Adopting the relevant portion of the headnotes from Chong Hon Kuan, it was held:

[34] As noted above (at [12]), while a conspiracy by lawful means does not involve an unlawful act committed by the conspirators, there is the additional requirement of a “predominant purpose or intention” by all the conspirators to cause injury or damage to the plaintiff. However, this does not mean that intention or purpose is not relevant to a conspiracy by unlawful means. As Nourse LJ stated in Kuwait Oil Tanker Co SAK v Al Bader [2000] 2 All ER (Comm) 271 (at [118]):

[35] Hence, intention or purpose, which relates to the parties’ states of mind with regard to the injury, is relevant to both forms of conspiracy, though the degree of this “intention” or “purpose” is different in each form. Against this backdrop, Chong Hon Kuan can be said to have reduced the proposition in Said v Butt to the following – a claim of conspiracy against an individual director must fail where the director is acting bona fide and within the scope of his authority. Whether the director has acted in a bona fide manner within the scope of his authority must be relevant in evaluating whether such director had the requisite “intention” or “purpose” to injure the plaintiff. Where a director acts bona fide within the scope of his authority but nevertheless causes damage or injury to a plaintiff, it cannot easily be said (with a view to establishing a claim in conspiracy) that he had the requisite intention or purpose to injure or damage the plaintiff. Simply put, why should a director acting bona fide within his authority, and without more, be liable in conspiracy with the company? As Gene Kwek Jin Hee and Kumaralingam Amirthalingam opined in “Tort Law” (2007) 8 SAL Ann Rev 410 at p 415, [22.22]:

[36] There is one further point to note. Both parties are effectively relying on the separate legal personality doctrine (“the doctrine”) to further their respective cases. Lim’s position is that the applicability of the doctrine means that there can be a combination between the company and its controlling director, since they are two separate legal entities. Neo’s position, in effect, is that the sanctity of the doctrine should be respected – because the company and the director are separate legal entities, the sins of the company should not be visited on the director. But, this latter argument presupposes that what the director did was purely bona fide within the scope of his authority. I can see no reason why the doctrine should apply to confer immunity on a controlling director from conspiracy with the company, if that director has failed to act bona fide within the scope of his authority but instead had an intention to injure in an arrangement benefiting both company and individual to the detriment of third parties.

[37] I should add that I have made no finding that CHHKC and Neo are liable in conspiracy as this is a matter to be left to the trial judge. Rather, I have merely decided that, on principle, a cause of action in conspiracy against both CHHKC and Neo is available to Lim.

[38] For the foregoing reasons, I allowed Lim’s application to add Neo as a defendant to the original action.