SIC College of Business and Technology Pte Ltd v Yeo Poh Siah and others

Edmund Leow JC:

[2] The plaintiff was a company in the private education industry. At the material time, the first three defendants were its employees; the first defendant was also a director. The first three defendants were also directors of the fourth defendant, which was a company that had contracted to operate the plaintiff’s business under licensing arrangements.

[3] While the main claim was stayed and dismissed without being heard, a flavour of the allegations brought by the plaintiff provides helpful context. A significant aspect of the main claim was that the first defendant had concealed his interest in the fourth defendant from the plaintiff, which he owed duties to. The plaintiff alleged that the first three defendants were parties to a scheme to enrich the fourth defendant at the plaintiff’s expense. In particular, it alleged that the first defendant had made a series of unauthorised and fictitious payments from the plaintiff to the fourth defendant. The alleged instances of misappropriation – between 30 October 2009 and 21 October 2010 – were cloaked as outsourcing fees, consultancy fees and repayments of advances. The plaintiff contended, inter alia, that the first defendant had breached his fiduciary duties. The defendants responded in their defence that they were allowed to remove monies under the various licensing arrangements.

[4] The defendants also launched a counter-claim, alleging that at all material times, the first defendant had been making advances to the plaintiff on a running account basis to supplement the cash flow of the plaintiff. By running account, the first defendant meant an “ongoing account” of deposits and withdrawals between himself and the plaintiff. The relevant period for this running account was between 30 October 2009 and 8 October 2010. This substantially overlapped with the time period of the alleged misappropriation in [3] above. The first defendant alleged a total of 18 transactions during this period, being 13 advances received by the plaintiff and five repayments from the plaintiff. As of 8 October 2010, there was allegedly an outstanding balance in favour of the first defendant for a sum of $244,844.

[5] The plaintiff’s pleaded defence to the counter-claim was that the plaintiff had no need and/or reason to receive any cash advances from the first defendant as it had its own finances to support itself. It also asserted that the first defendant had never made any advances to the plaintiff but instead, used the plaintiff’s accounting books to create fictitious entries.

[9] The 18 transactions in the running account that allegedly showed a balance of $244,844 owing to the first defendant came from the plaintiff’s own general ledger, under a section titled “Advancement from Ken Yeo” (as the first defendant is known). A two-page copy of the ledger was exhibited in support of the 18 transactions. The purported entries on the ledger are partially reproduced, with serial numbers added and the bank account number redacted:

[10] The first defendant explained how he came into possession of the ledger, which had been printed out from the plaintiff’s accounting software in the plaintiff’s office on 7 January 2011. The ledger was printed out in anticipation of disputes arising from the licensing arrangements to operate the plaintiff’s business. The second defendant had kept the print-out and provided it to the first defendant for the purpose of filing his affidavit. The first defendant testified that the records were reliable as they had been printed out from the system. He claimed that he had authorised the 18 transactions by signing on the plaintiff’s vouchers, although he admitted that he did not have the vouchers as he had not photocopied them.

[11] However, there were bank statements from the first defendant and fourth defendant – which the first defendant controlled – that corresponded with the dates of most of the advances to the plaintiff. The fourth defendant was known as Harbridge Holdings Pte Ltd and later on, as Lincoln Collegiate of Business & Technology Pte Ltd. The first defendant exhibited statements that reflected transfers from his bank account for the 13 and 14 transactions. In particular, the 13 transaction, for a sum of $30,000, was specifically stated to be a transfer to the plaintiff’s bank account. The first defendant also exhibited statements that reflected cash withdrawals from the fourth defendant’s bank account for the fifth, sixth, seventh, eighth, 11 and 17 transactions. Therefore, the bank statements of the first and fourth defendants indicated that eight of the 13 purported advances had occurred. In fact, one advance of $12,000 – the seventh transaction – on 4 June 2010 was further supported by the plaintiff’s own bank statement, which reflected a deposit for the same amount on that date.

[12] There were no bank statements to substantiate the second, third, ninth and tenth transactions. For the first transaction, the first defendant explained that that was not linked to a particular advance as it represented the balance that had been carried over from the previous accounting year ending March 2010. The first defendant submitted that the $75,000 was a consolidated figure recorded as at 1 April 2010. This was the date when the new accounting year began. While there were no bank statements to corroborate the first transaction, the defendants exhibited a copy of the plaintiff’s audited financial statements for the year ending 31 March 2010. The auditor had given an unqualified opinion. On 10 September 2010, Mr Chettiar and Ms Majella had signed off on these statements in their capacity as directors of the plaintiff.

[13] Further, I found that the advances were substantiated by the plaintiff’s own witness, Mr Supramaniam s/o Nasaiah (“Mr Supramaniam”). He had reproduced the portion of the plaintiff’s general ledger titled “Advancement from Ken Yeo” by typing out the entries that he had retrieved from the plaintiff’s accounting software system. Mr Supramaniam’s document substantiated the ledger provided by the first defendant, although his document reflected three additional transactions that had taken place before the start of the new accounting year on 1 April 2010:

[14] I accepted the first defendant’s submission that Mr Supramaniam’s document not only corroborated the first defendant’s print-out of the plaintiff’s ledger; it also provided additional supporting information to explain the consolidated figure of $75,000 owing to the first defendant as at 1 April 2010: the figure was the balance of the transactions on 30 October 2009 and 10 February 2010 (see [13] above). Further, the plaintiff’s bank statements did reflect a cheque deposit of $100,000 on 30 October 2009 and a cash withdrawal of $25,000 on 10 February 2010.

[15] I find that the plaintiff failed to adduce any credible evidence to rebut the first defendant’s counter-claim. The plaintiff raised a litany of arguments, but many departed from its pleadings on the counter-claim (see [5] above) and required me to make findings of facts-in-issue in the main claim.

[16] For example, the plaintiff asserted an entitlement to set off a series of unauthorised payments against the first defendant’s counter-claim. It alleged that these unauthorised payments, which included several of the 18 transactions, had been wrongfully made to the first and/or fourth defendant. It also contended that the first defendant owed the plaintiff $623,122.78 based on “reconciled ‘running accounts’”. But all these alleged instances of misappropriation – and any attendant breaches of good faith or director’s duties – necessarily pertained to the main claim, which the plaintiff was not allowed to prove. As such, all these arguments could gain no traction.

[18] I considered the plaintiff’s main arguments insofar as they were relevant to defending the counter-claim. The plaintiff submitted that while the first defendant pleaded that he had been making advances to supplement the plaintiff’s cash flow, his affidavit of evidence-in-chief stated that he had been making the advances from either his own bank account or through the fourth defendant. Therefore, the first defendant was not entitled to the advances that he made through the fourth defendant as “these were not pleaded”. This argument was without merit. The first defendant’s affidavit had maintained his pleaded position that he was the party who had made the advances, albeit he had made a number of the advances through the fourth defendant. To put it another way, the fourth defendant had made advances to the plaintiff on the first defendant’s behalf.

[19] The plaintiff also submitted that it had no need for the advances as it had sufficient finances to support itself. This was a pleaded position that it sought to cross-examine the first defendant on during the trial. However, the question of whether the plaintiff had sufficient finances did not necessarily mean that no advances had been made to the plaintiff to supplement its cash flow or under the licensing arrangements. In any case, it appeared that the plaintiff might have, at certain points in time, required advances to smoothen its cash flow. The plaintiff’s balance in its bank account on 30 June 2010 was $93,819.11, while the balance on 31 December 2010 was $64,700.75. I agreed with the first defendant that the balance would have been “significantly lower” if not for the first defendant’s advances, which by way of example, included a net advance of approximately $64,000 in September 2010.

[20] The plaintiff also argued that the ledger should be excluded from consideration. It stated that the ledger was hearsay and provided by the second defendant, who did not give evidence at trial. However, s 32(1)(b) of the Evidence Act (Cap 97, 1997 Rev Ed) (“the Act”), provides that statements that are made in the course of trade, business, profession or other occupation are admissible. Further, s 34 of the Act provides that entries in account books that are regularly kept in the course of business are relevant whenever they refer to a matter into which the court has to inquire, although these statements cannot lead to a finding of liability on their own. To me, the real issue was whether the ledger yielded unreliable information, unreliability being a danger of admitting hearsay evidence. If so, I might have relied on s 32(3) of the Act to exclude the ledger in the interests of justice. But I disagreed with the plaintiff that the ledger was completely unreliable. Among other things, the plaintiff had complained that the first defendant had only provided an “unsigned/unverified 2-page partial printout of an alleged 193-page general ledger”. However, the first defendant would only be expected to produce the pages that substantiated his counter-claim. The plaintiff could have produced the other pages if it had wanted to do so. Further, even if the first defendant was not the actual person who had made the entries, he was the supplier of the information on the transactions, which were substantiated by the bank statements that were produced.

[21] The question of the first defendant’s authority to make payments from the plaintiff implicated the main claim and was in any event, not pleaded for the counter-claim. As for the first defendant’s authority to extend advances to the plaintiff, whether from his own bank account or through the fourth defendant, I accepted his submission that the advances were made under the auspices of the licensing arrangements under which the fourth defendant and SIC College Pte Ltd (another company controlled by the first defendant) were required to manage the plaintiff’s business. The plaintiff had also submitted that the first defendant was not entitled to claim for the advances that had been made by the fourth defendant, but this did not further its defence. Leaving aside the lack of dispute over the control that the first defendant exercised over the fourth defendant, there was no dispute between the defendants that the first defendant was entitled to the repayment of the advances from the fourth defendants.

[23] In the circumstances, I decided to allow the counter-claim. However, I excluded four transactions – the second, third, ninth and tenth transactions – in the ledger as they appeared to be entirely uncorroborated (see [12] above). After deducting these transactions, I allowed the counter-claims in the sum of $218,000.