Skip to content
laws.sgby aturio
Grounds publishedDecided 27 Apr 2010
Contents

High Court

Swiss Butchery Pte Ltd v Huber Ernst and others and another suit

Feedback & support

[2010] SGHC 129Case no. Suit No 245 of 2008/V consolidated with Suit No 222 of 2008/W

What happened, in plain English

There is no plain-English summary of this judgment yet.

Ask about this judgment

Laws this judgment relies on

Grounds of decision

Official text from eLitigation

  1. Woo Bih Li J:

  2. Introduction

  3. [1] The plaintiff Swiss Butchery Pte Ltd (“SB”) was in the business of retail and wholesale butchery and production operations. In Suit No 245 of 2008/V (“Suit No 245”), SB claims against the first defendant, Huber Ernst, and second defendant, Huber Ryan Ernst, for breach of their duties as a director and an executive of SB respectively and for the tort of conspiracy. Further, SB claims against the other four defendants for, inter alia, conspiracy and dishonest assistance. In Suit No 222 of 2008/W (“Suit No 222”), Huber Ernst claims against the other shareholders of SB for relief under s 216 of the Companies Act (Cap 50, 2006 Rev Ed) (“Companies Act”) for oppression against a minority shareholder. By an Order of Court dated 7 July 2008, both suits have been consolidated and the trial of Suit No 245 proceeded before Suit No 222.

  4. [2] SB made numerous allegations in Suit No 245 which centred around SB’s allegation that Huber Ernst diverted SB’s wholesale and production operations to Huber’s Pte Ltd for the benefit of Huber Ernst and his two children. There was also a claim for defamation against Huber Ernst and the sixth defendant, Thomas Norbert Kreissl, but this was withdrawn during the proceedings. Further, the defendants in Suit No 222 have offered to buy out Huber Ernst’s shares in SB without admission of liability in respect of the allegations of oppression and it became unnecessary to go into such allegations which, in any event, overlapped with the allegations in Suit No 245. I will be giving directions separately on matters pertaining to the valuation of Huber Ernst’s shares for the buy-out.

  5. [3] Before considering the facts, I will set out the applicable legal principles pertaining to the various causes of action viz, directors’ duties, the tort of conspiracy and dishonest assistance.

  6. The law on directors’ duties

  7. [4] Section 157 of the Companies Act provides for the general duties owed by a director as follows:

  8. [5] It is trite that the courts will not interfere with a management decision which is exercised in a bona fide manner. As stated in Walter Woon on Company Law (Sweet & Maxwell Asia, Third Ed, 2005) (“Walter Woon”) at paras 8.34 and 8.35:

  9. [6] The above passage in Howard Smith Ltd v Ampol Petroleum Ltd (“Howard Smith”) quoted in Walter Woon has been accepted in Intraco Ltd v Multi-Pak Singapore Pte Ltd [1994] 3 SLR(R) 1064 (“Intraco Ltd”) at [325] where the Court of Appeal considered that the transactions entered into by the directors were based on a management decision which in retrospect, turned out to be a poor decision. As the decision was arrived at bona fide, the directors were not in breach of their fiduciary duties.

  10. [7] In the House of Lords decision of Regal Hastings Ltd v Gulliver [1967] 2 AC 134, Viscount Sankey stated at 137 thus:

  11. [8] In the same case, Lord Russell of Killowen similarly stated the strict rule of equity at 144 as follows:

  12. [9] In Phipps v Boardman [1966] 3 WLR 1009, Lord Upjohn in his dissenting judgment stated the nature of a fiduciary at 1066 thus:

  13. [10] In Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443, Roskill J held at [452]-[453] that the managing director of a company was liable for a breach of his fiduciary duties because he used information obtained while he was the company’s managing director for his own personal purposes and profit, thereby putting his personal interest in direct conflict with his pre-existing and continuing duty as managing director.

  14. [11] Similarly, in CMS Dolphin Ltd v Simonet and another [2001] 2 BCLC 704 (“CMS Dolphin”), Lawrence Collins J held at [96] that the underlying basis of the liability of a director who exploits a maturing business opportunity of the company after his resignation is that the opportunity is to be treated as if it were property of the company in relation to which the director had fiduciary duties. By seeking to exploit the opportunity after resignation he is appropriating for himself that property. The director becomes a constructive trustee of the fruits of his abuse of the company’s property, which he has acquired in circumstances where he knowingly had a conflict of interest and exploited it by resigning from the company.

  15. [12] It is thus clear that while the court will not question a management decision which was exercised in a bona fide manner, anyone who owes a fiduciary duty is not allowed to enter into transactions in which he has a personal interest conflicting with the interest of those whom he is bound to protect. More particularly, a director is not allowed to make use of information obtained while he was a director of the company in question or to exploit a maturing business opportunity of the company for his own personal purposes and profit. Any profit so obtained will be subject to a constructive trust in favour of the company.

  16. The law on conspiracy

  17. [13] As held by the Court of Appeal in Quah Kay Tee v Ong & Co Pte Ltd [1996] 3 SLR(R) 637 at [45], there are two types of tort of conspiracy – conspiracy by unlawful means and conspiracy by lawful means:

  18. [14] In Nagase Singapore Pte Ltd v Ching Kai Huat [2008] 1 SLR(R) 80 at [23], Prakash J summarised the elements that must be satisfied to prove both forms of conspiracy:

  19. [15] In Lim Leong Huat v Chip Hup Hup Kee Construction Pte Ltd [2009] 2 SLR(R) 318 (“Lim Leong Huat”), Andrew Ang J held at [34]-[35] that it is not the law that intention or purpose to cause injury or damage to the plaintiff is not relevant to a conspiracy by unlawful means. Ang J cited Kuwait Oil Tanker Co SAK v Al Bader [2000] 2 All ER (Comm) 271 where Nourse LJ pointed out that it is still necessary to establish an intention or purpose to injure, but such intention or purpose need not be predominant. In Lim Leong Huat, it was held that, where a director has acted in a bona fide manner within the scope of his authority but nevertheless causes injury or damage to a plaintiff, a claim of conspiracy against him will fail.

  20. [16] As for the definition of what constitutes “unlawful means”, the Court of Appeal in Beckkett Pte Ltd v Deutsche Bank AG and another and another appeal [2009] 3 SLR(R) 452 stated at [120] that the element of unlawfulness covers both a criminal act or means, as well as an intentional act that is tortious. The Court of Appeal cited the House of Lords decision in Revenue and Customs Commissioners v Total Network SL [2008] 1 AC 1174 where Lord Walker of Gestingthorpe said at [93]:

  21. [17] With regards to the burden of proof of establishing a claim under the tort of conspiracy, in Seagate Technology Pte Ltd and anor v Goh Han Kim [1993] 3 SLR(R) 836, Thean JA stated at [15] that a high degree of proof is needed to discharge the burden of proving an allegation of conspiracy by unlawful means. Similarly, in Wu Yang Construction Group Ltd v Zhejiang Jinyi Group Co, Ltd [2006] 4 SLR(R) 451, Phang J stated at [93] that, although the standard of proof is still the civil standard based on the balance of probabilities, the amount of proof required was higher than that required in a normal civil action.

  22. [18] In Suit No 245, SB pleaded its case based on both types of the tort of conspiracy. The case based on the tort of conspiracy by unlawful means is based on its allegation that the defendants “wrongfully and with intent to injure [SB] and/or cause loss to [SB] by unlawful means conspired and combined together to defraud [SB] and to conceal such fraud and the proceeds of such fraud from [SB].” On this ground, SB’s claim would succeed so long as the defendants intended to cause harm to it. There is no need to prove the existence of such a “predominant intention”.

  23. The law on dishonest assistance

  24. [19] The law on dishonest assistance has recently been clarified by the Court of Appeal in George Raymond Zage III and another v Ho Chi Kwong and anor [2010] SGCA 4 (“George Raymond Zage III”) where V K Rajah JA reiterated the elements of a claim in dishonest assistance at [40] thus:

  25. [20] Prior to George Raymond Zage III, it was uncertain as to whether the test for honesty in a claim under dishonest assistance is an objective test or whether it is a composite test with both an objective and subjective element (see Bansal Hermant Govindprasad and another v Central Bank of India [2003] 2 SLR(R) 33; contrast Malaysian International Trading Sdn Bhd v Interamerica Asia Pte Ltd and anor [2002] 2 SLR(R) 896). However in George Raymond Zage III, V K Rajah JA cited Barlow Clowes International Ltd (in liquidation) v Eurotrust International Ltd [2006] 1 All ER 377 (“Barlow Clowes”), where the Privy Council affirmed that the objective test of honesty laid down in Royal Brunei Airlines Sdn Bhd v Philip Tan Kok Ming [1995] 2 AC 378 was the applicable test and that the decision in Twinsectra Ltd v Yardley [2002] 2 All ER 377 did not depart from this test. It is worthwhile reiterating Lord Hoffman’s speech in Barlow Clowes (at [15]):

  26. [21] The Court of Appeal in George Raymond Zage III thus affirmed that the test for dishonest assistance is an objective test: for a defendant to be liable for dishonest assistance, he must have such knowledge of the irregular shortcomings of the transaction that ordinary honest people would consider it to be a breach of standards of honest conduct if he failed to adequately query them.

  27. The relationships among the various parties

  28. [22] It is appropriate to set out the nature of the relationships among the parties. The persons relevant to these proceedings are as follows:

  29. [23] Wang is the father of Ernst’s wife, Don Foo’s wife and Alex. Ernst is the father of Ryan and Andre. In 1994, SB was incorporated to carry on the business of wholesale and retail butchery. SB carried on its business at 30 and 32 Greenwood Avenue Singapore 289230 (“Greenwood Avenue”). Ernst, Wang and Don Foo were the first subscribers of SB, with each holding on to a $1 share. Together with Ernst’s wife, they were the first directors of SB with Ernst as the Managing Director from 1994 to 2 January 2008 when his employment was terminated. On 18 January 2008, he was removed as a director.

  30. [24] In December 2002, Don Foo resigned as a director and transferred his shares in SB to his wife in January 2003. Nevertheless, he continued to attend meetings related to SB as her proxy and at all material times, acted on her behalf in respect of SB’s affairs. In 2004, the share capital of SB was increased to $15,000, with each shareholder having 5,000 $1 shares.

  31. [25] On 5 September 2005, Wang resigned as a director of SB and transferred all the SB shares registered in his name to Alex, who was appointed as a director on or about 20 September 2006. Don Foo was later reappointed as SB’s director in December 2007.

  32. [26] At all material times, the true shareholders of SB were Ernst, Alex and Don Foo. It was clear that SB was set up pursuant to an agreement between these three persons. It is not disputed that it was agreed that Ernst was to operate the business but that he consulted with Alex and Don Foo from time to time on major matters pertaining to the business. The extent to which he consulted them and ought to have consulted them was in dispute as I shall elaborate below.

  33. [27] Ryan was appointed as SB’s Deputy Managing Director from 26 April 2005 to 30 September 2006. Although Ryan was not appointed to the board of directors of SB, it is not disputed that he was to assist Ernst and was the “No. 2” in the management of SB’s operations. Andre returned to Singapore from Australia in January 2006 after graduating from RMIT University with a Bachelor of Business with distinction in 2004. He was appointed as SB’s Sales and Marketing Executive from 1 February 2006 to 30 September 2006. As for Ernst’s wife, she was removed as a director of SB together with Ernst on 18 January 2008.

  34. [28] HB, the fourth defendant, is a sole proprietorship registered on 30 May 2007 and is wholly-owned by HPL, the fifth defendant. HB is and was at all material times in the business of retail of sale of meat. HPL was incorporated by Ryan on 17 September 2005 with a paid-up capital of $100,000 with Ryan as its Managing Director. HPL’s paid-up capital was subsequently increased to $400,000 when Andre joined HPL in 29 March 2006 as a Sales Director with a shareholding equal to Ryan’s. Like SB, HPL is in the business of wholesale and retail butchery. On 22 January 2008, Ernst joined HPL as a director after his removal from SB.

  35. [29] Thomas was SB’s Operations Manager from May 2005 to March 2008. In the same month after he left SB, he joined HPL as a General Manager. HC was registered by Ernst in September 2005.

  36. The chronology of events

  37. [30] It is important to bear in mind certain events which took place from the period of June 2005 to January 2008 (“the milestone events”) in evaluating the respective cases. The milestone events are set out as follows:

  38. (a) the rejection by Alex and Don Foo of a share issue proposal and a share purchase offer by Ernst in June and July 2005;

  39. (b) the incorporation of HPL in September 2005 by Ryan with a paid-up capital of $100,000;

  40. (c) the viewing of properties for a factory outlet by Ernst, Ryan and Andre from January to March 2006;

  41. (d) Andre joining HPL and the increase of HPL paid-up capital to $400,000 in March 2006, with 200,000 shares to Ryan and Andre each;

  42. (e) the allegation that Alex told Ernst in May or June 2006 that it was a mistake to bring Ryan and Andre into SB;

  43. (f) the purchase of a property at 161 Pandan Loop (“the Property”) in July 2006;

  44. (g) the allegation that others were misled about the relationship between SB and HPL;

  45. (h) the divestment of SB’s wholesale and production operations in March 2007 to HPL;

  46. (i) the alleged ratification by Alex and Don Foo of the divestment;

  47. (j) a Business Times article on HPL in August 2007;

  48. (k) a letter from Alex and Don Foo to Ernst after the Business Times article;

  49. (l) a talk and tour for the Swiss Association of Singapore at the Property in December 2007; and

  50. (m) the removal of Ernst as Managing Director and the removal of Ernst and Ernst’s wife as SB directors in January 2008.

  51. Rejection of share issue proposal and share purchase proposal and the incorporation of HPL

  52. [31] Prior to June 2005, Ernst would attend weekly family gatherings held on Saturday evenings with his wife at Wang’s house (“weekly gatherings”). Similarly, Don Foo, Alex and their spouses would attend the weekly gatherings. During these weekly gatherings, apart from informally discussing the general affairs of the various families and their children, Don Foo, Alex and Ernst would also informally discuss the business of SB. Ernst would inform both Alex and Don Foo on relevant matters and they would ask him any questions which they wished to know about SB. However, after June 2005, Ernst stopped attending the weekly gatherings and he had since visited Wang’s house only once during Chinese New Year in 2007 in circumstances which I shall elaborate on later.

  53. [32] The incident which sparked off a chain of events leading to these proceedings was a meeting. Ernst had met with Alex and Don Foo at Polo Club on 8 June 2005. Ryan was also in attendance. At this meeting, Ernst suggested that SB issue Ryan with 6,000 shares at a price of $14.64 per share (“Share Issue Proposal”) in order to provide Ryan with an incentive to stay on in SB with the view that he would eventually succeed Ernst. Each of the three shareholders was then holding 5,000 shares. The Share Issue Proposal, if accepted, meant that Ernst and Ryan would hold 11,000 out of 21,000 shares, ie, a majority. Ernst handed over a letter containing, inter alia, this proposal but Alex and Don Foo merely said they would consider it.

  54. [33] The Share Issue Proposal was rejected by way of a 3-page letter dated 18 June 2005 (“Letter of Rejection”) drafted by Alex and Don Foo which was handed to Ernst’s wife at one of the weekly gatherings. Apart from rejecting the Share Issue Proposal, the Letter of Rejection also stated their disapproval of the appointment of Ryan as the Deputy Managing Director of SB which was apparently done without their knowledge and his salary of $6,500. As admitted in cross-examination, Ernst was very angry with the contents of the Letter of Rejection and he stopped attending the weekly gatherings from then on.

  55. [34] There was a dispute as to whether Ernst had directly told Alex and Don Foo that he had employed Ryan for SB. I am of the view that he did not do so although they might have heard about it in the weekly gatherings but they were unaware of his actual salary.

  56. [35] On 4 July 2005, Ernst made a different proposal to purchase all the shares of the other shareholders in SB at a mutually agreeable price (“Share Purchase Proposal”) but this was rejected on 14 July 2005. Following this, on 17 September 2005, HPL was incorporated.

  57. [36] SB claimed that Ernst bore a grudge against the other shareholders for rejecting the Share Issue Proposal and the Share Purchase Proposal and thus he embarked on a series of wrongful actions which effectively transferred SB’s wholesale and production operations to HPL and hence Ryan and Andre. The first preparatory step in this plan, according to SB, was the incorporation of HPL. I would add that although SB did not list out all the preparatory steps which it was relying on in the action in the particulars of its pleadings, I do not think it was necessary to do so as long as the main thrust of its allegations had been pleaded and the defendants were not caught by surprise to the extent that they were unable to respond to the allegations.

  58. [37] Owing to the proximity in time between the rejection of the Share Issue Proposal and the Share Purchase Proposal in June and July 2005 respectively and the incorporation of HPL in September 2005, Ernst and Ryan sought to explain the circumstances surrounding HPL’s incorporation. Ernst stated in his affidavit of evidence in chief (“AEIC”) that Ryan was “crushed by this rejection and felt that he had no future in [SB]”. When Ryan told him about the incorporation of HPL, Ernst persuaded him not to leave SB and to prove his worth to the other shareholders. Ernst also stated that he had hoped to turn the other shareholders around to eventually accept his proposal for Ryan to obtain shares in SB once they see the valuable contribution that Ryan was making to SB.

  59. [38] For his part, Ryan stated that after rejection of the Share Issue Proposal and Share Purchase Proposal, he became concerned over his job in or about August 2005 and he made the decision to start his own company and incorporated HPL in September 2005. He admitted in trial that the intended business of HPL would be the production and wholesale of sausages and meat products and that HPL’s potential customers would include the then-existing customers of SB, including Shangri-la and Four Seasons, etc. However, Ryan similarly testified that Ernst persuaded him to give SB another ‘go’ in the hope that the other shareholders would come around. He then shelved his plans to run his own business. He repeatedly stated that HPL was only meant to be some sort of security and that it was dormant in September 2005.

  60. [39] However, the evidence militates against finding that Ernst had asked Ryan to give SB another ‘go’ or that Ryan agreed to do so. First, the other shareholders were very firm in their rejection of the Share Issue Proposal. In the Letter of Rejection, it was clearly stated that:

  61. [40] Similarly, in the rejection of the Share Purchase Proposal, the language used was plain:

  62. [41] Given the clear words used, it was hard to believe that Ernst had hoped to change the other shareholders’ mind to eventually accept his proposal for Ryan to be a shareholder of SB with new shares. Another important factor against such a finding is that Ernst stopped attending the weekly gatherings because he was very angry after he received the Letter of Rejection. Thereafter, there were only three or four meetings, at a coffee shop near Greenwood Avenue, where the discussions were apparently not forthcoming or pleasant. Why would Ernst who was in effect severing his ties with Alex and Don still want his son to continue working in SB? Did Ernst really hope to turn his in-laws around? I do not think so.

  63. [42] Although Ernst’s wife had testified that Ernst continued to go for the weekly gatherings after September 2005 until 2007, this evidence was roundly contradicted by all other witnesses, including Ernst himself. Taking into consideration the uncertain nature of Ernst’s wife’s evidence when answering questions during cross-examination, I attached no weight to her evidence.

  64. [43] I also did not find Ernst or Ryan to be a credible witness on material points. For example, Ernst said that he realised that arithmetically the Share Issue Proposal which he made would put him and Ryan in majority control but he also claimed that it was never his intention to have such control. Ernst and Ryan also said that Ernst only realised that they would gain majority control during a discussion with Ryan on their way to the meeting at Polo Club on 8 June 2005. In my view, the 6,000 new shares was not an arbitrary figure. It was calculated to give them majority control and Ernst knew this all along and not only when he had a discussion with Ryan on the way to the meeting.

  65. [44] Ryan suggested that the reason for trying to acquire majority control in SB was so that his efforts put into SB would not be wasted. There was some fear that Alex and Don Foo might otherwise try and sell the business to a third party as Alex had brought third parties to view Greenwood Avenue. In his AEIC, Ryan stated at para 15 the following:

  66. [45] I do not accept this reason. It would have been very difficult to sell the business without Ernst’s consent as the person running the operations and having a one-third stake in the business. Furthermore, the Articles of Association of SB provide a pre-emption right for existing shareholders in respect of shares held by the other shareholders. Article 28 of SB’s Articles of Association states:

  67. [46] If Alex and Don Foo had really intended to sell their shares in SB, Ernst would be able to exercise his pre-emption right for the shares under the Articles of Association. In my view, Ernst must have felt that he was the person mainly responsible for SB’s success. He was not content to remain as a minority shareholder. Neither was he content to let Ryan put in as much effort as he had done in SB unless his family had majority control.

  68. [47] Also, HPL’s start-up capital was $100,000. Although Ryan was registered as the sole shareholder, the $100,000 was provided by Ernst. If HPL was really intended to be a dormant company, there would have been no reason to start up with such a substantial sum of money. When cross-examined, Ryan testified that in late August 2005, he went to see SB’s company secretary, Miss Chua from Prima Management Pte Ltd, and told her that he wanted to set up his own company. She then informed him that the paid-up capital to be filled in the application form was the amount that he wanted to put into the bank. He then decided on $100,000 despite not having the sum.

  69. [48] Even then, Ryan’s evidence did not explain why he came up with a figure of $100,000 instead of a nominal figure of, say, $2. Ernst’s evidence that he gave $100,000 to Ryan even though HPL would not be operational and that it was a backup plan was unconvincing. There was no plausible reason why, Ernst, an experienced businessman, would have given his son $100,000 to be locked up in a company which was to remain dormant. This conduct is hardly consistent with the assertion by Ernst that he had managed to persuade Ryan to stay in SB and to prove his worth to the other shareholders.

  70. [49] It is not in dispute that Ernst was already involved in the manner stated above, in the incorporation of HPL in September 2005 after the earlier rejection of the Share Issue Proposal and the Share Purchase Proposal. In my view, Ernst was taking a preparatory step in a conspiracy with Ryan, a conspiracy which was eventually to involve Andre , to divert the wholesale and production operations from SB to HPL.

  71. Ernst, Ryan and Andre viewed properties

  72. [50] SB alleged that, from January to March 2006, Ernst and Ryan had visited factories for the benefit of HPL in breach of their fiduciary duties to SB. Andre had joined them for those visits after he retuned in January 2006.To establish this allegation, SB relied on certain photographs found in its computers showing them visiting factories in various locations. Ernst did not deny that they were looking at properties but he testified that they were looking at factory space for SB which was short of space at Greenwood Avenue. Ryan and Andre were then still at SB and he hoped that they could expand SB if they had stayed there. One factor which might support this position is that the photographs were found in SB’s computers which could indicate that they might have indeed been looking at factory space for SB.

  73. [51] However, this was not the end of the matter. Under cross-examination, Ernst admitted that in early 2006, there was no discussion between him, Alex and Don Foo on the possible acquisition of a factory for SB. As stated above, Ernst would discuss major matters of SB with them. Yet, he did not even inform them about the potential acquisition of a property for a factory outlet, an issue of substantial importance. In contrast, when SB opened a retail outlet in Ridgewood Condominium in 1997 or 1998, this was known to both Alex and Don Foo through discussions with Ernst. Even during the operation of the retail outlet, they had discussions at the weekly gatherings (before Ernst stopped attending) on how to improve the business at that outlet which was not doing well.

  74. [52] Also, when a representative from NTUC Fairprice Co-Operative Limited (“NTUC Fairprice”), Mr Chandra Das, approached Ernst in 2001 to ask if SB would be interested in opening an outlet in the NTUC supermarket in Parkway Parade, Ernst had discussed the proposal with Alex and Don Foo. Don Foo’s version of events after the discussion differs from Ernst’s version in that he stated that he had told Ernst to discuss further with Mr Chandra Das but Ernst did not give any further updates on the proposal. On the other hand, Ernst testified that the proposal was rejected by Alex and Don Foo. Nevertheless, the important point in my view was that a discussion indisputably took place.

  75. [53] Contrasting the approach taken by Ernst in the above two incidents with the approach taken when he viewed the various properties with Ryan and Andre from January to March 2006, I am of the view that it was unlikely that Ernst was viewing properties in early 2006 for SB. In addition, Ernst had stated that SB faced space constraint in its operation and that was the number one reason (in terms of importance) why SB ceased its wholesale operations in March 2007. According to Ernst, he only made the final decision to stop SB’s wholesale and production operations in January 2007. Space constraint must therefore have been a continuing problem at least from January 2006 to January 2007. Yet, there was no evidence that he took any further step after March 2006 to look for factory space for SB. Instead, it was Ryan who found a property for HPL around July 2006 in circumstances which I shall elaborate on.

  76. Increase of HPL’s capital from $100,000 to $400,000

  77. [54] Andre stated that he returned to Singapore in January 2006 because Ernst was not in the best of health and he wanted to learn from Ernst and Ryan who had been his “role models”. Consequently, he joined SB on 1 February 2006 as a Sales and Marketing Executive. Andre stated that when Ryan told him in March 2006 about HPL’s earlier incorporation, he saw a future in working with his brother and hence he joined HPL as a shareholder and director. He added that he felt a little unsafe about his position in SB. The paid-up capital of HPL was then increased to $400,000 on 29 March 2006 and the money was again provided by Ernst.

  78. [55] Both Ryan and Andre insisted that they had chosen $400,000 because they felt that it was the right amount as a form of security and that it was an arbitrary figure.Also, HPL was intended to remain dormant at that time. Again, just like at the incorporation stage, the substantial increase in the capital of HPL (by $300,000) begged the question as to why such a huge sum of money was needed for a dormant company.

  79. [56] In my view, the increase in HPL’s capital showed that Ernst, Ryan and Andre were preparing to use the $400,000 for HPL. This constituted the next step in the conspiracy to divert business operations of SB to HPL following the incorporation of HPL in September 2005 and the viewing of various properties from January to March 2006.

  80. [57] Although the fact that Andre joined SB could be said to be an indication that he had wanted to work in SB, the totality of evidence went against such a conclusion. More likely than not, he had joined SB with the intention of biding time; he was waiting for HPL to be fully operational. As will be seen from the subsequent paragraphs, during his time in SB, Andre established contacts with existing and potential clients of SB which proved useful for HPL later.

  81. Alex alleged to have said it was a mistake for Ryan and Andre to join SB

  82. [58] According to Ernst, Ryan and Andre, the incident which sparked Ryan’s and Andre’s departure from SB was that Alex had said in a coffee-shop meeting around May or June 2006 with Ernst and Don Foo that it was a mistake for Ernst to bring his two sons into SB. Ryan stated that Ernst told him about this and he was “deeply demoralized” and he told Ernst and Andre that he no longer felt any motivation to work at SB. As for Andre, he felt very disappointed and that was when Ryan and he decided that they had no future in SB and that it was best if they struck out on their own.

  83. [59] SB failed to call Alex as a witness to rebut the allegation of what he purportedly said. As such, I draw an adverse inference against SB under section 116(g) of the Evidence Act (Cap 97, 1997 Rev Ed). On the other hand, as Alex was alleged to have said the above in a meeting where Don Foo was present and Don Foo had denied the allegation there was some evidence to counter the allegation. However, this in itself was insufficient to overcome the adverse inference. Additional evidence would be needed to which I now turn.

  84. [60] In Ernst’s initial defence during the pleading stage, he did not make any reference to this allegation at all. Even in his amended defence, all that was stated in para 9 of his pleading was:

  85. [61] The omission to allude to the alleged statement by Alex was glaring to say the least. It was mentioned by Ernst only in his AEIC. Also, for Ryan and Andre, this allegation was included only by way of amendment to their pleadings. It was incredible that the catalyst (as alleged) for the departure of Ryan and Andre from SB and the subsequent operation of HPL would be treated with such scant attention by all three of them during the earlier stage of the proceedings.

  86. [62] In addition, the circumstances were such that it was unlikely that Alex would have said that it was a mistake for Ryan and Andre to join SB if Ernst and his family did not have majority control. As stated above, Ernst was the person in charge of SB’s operations. Having Ryan and Andre’s assistance in SB would only provide greater benefits to SB while at the same time, control in terms of shareholding would not be conceded to them. This would have been the best of both worlds for Alex and Don Foo and there would be no reason for Alex to have complained at all for the extra help except perhaps for any difference of views over the salaries of Ryan and Andre when he came to learn about the same.

  87. [63] In my view, the allegation about Alex’s statement was an afterthought in order to explain the earlier viewing of properties in January to March 2006 and to justify Ryan’s and Andre’s departure from SB on 30 September 2006 in order to concentrate on their activities in HPL.

  88. Purchase of property at 161 Pandan Loop

  89. [64] Ryan stated that, after hearing from Ernst what Alex was alleged to have said in May or June 2006, he became aware of a food factory for sale, ie, the Property. He paid a deposit of $7,250 on 15 July 2006 for the option to purchase the Property for $725,000 (“purchase price”). It was not disputed that Ryan had made the payment of the deposit for HPL’s purposes and that he was still the Deputy Managing Director of SB at that point in time. Neither was it disputed that he did not offer the opportunity to acquire the Property to SB. He had admitted that the Property was suitable for the purposes of SB and that SB was supposedly still looking for a property in July 2006. He should therefore have offered the opportunity to SB.

  90. [65] On 31 July 2006, Ernst exercised the option to purchase by making a payment of $29,000.According to Ryan, he was unable to obtain a bank loan of 80% of the purchase price from either the Development Bank of Singapore Ltd or Hong Leong Finance Limited because HPL was not in operation yet and because of his existing salary of $6,550. Hence, he asked Ernst for assistance and the latter approached Hong Leong Finance Limited which was willing to offer him a loan. However, Jurong Town Corporation (“JTC”), the landlord of the Property, informed Ernst that because the Property was a commercial property, it could not be purchased in the name of an individual. Consequently, Ernst registered a sole proprietorship, HC, and used it to apply for a loan from Hong Leong Finance Limited for 50% of the purchase price, ie, $363,000. The loan was subsequently granted on 12 September 2006 with Ryan and Andre acting as guarantors. The monthly instalments for repayment of the loan were paid by Ernst through HC.

  91. [66] As stated in the preceding paragraph, Ernst exercised the option to purchase on 31 July 2006. This goes against Ernst’s evidence in his AEIC that Ryan approached him for financial assistance only in October 2006. He stated at para 89:

  92. [67] Ernst eventually made payment for the balance of the purchase price of the Property with part-payment from the loan. He returned the deposit of $7,250 to Ryan or HPL on 23 August 2006. HC thus obtained the remaining lease of the Property. On 20 November 2007, HC entered into a tenancy agreement with HPL to lease the Property to HPL.

  93. [68] The position taken by Ryan in his AEIC and the evidence at trial in relation to the circumstances surrounding the purchase of the Property was inconsistent with that taken at the pleadings stage where it was stated at para 9(h) in his defence that:

  94. The above demonstrated a crucial inconsistency in Ryan’s position. During trial, he had accepted that when he came to know that the Property was for sale in June 2006, he had already decided to acquire the Property for HPL.

  95. Misleading others of the relationship between SB and HPL

  96. [71] Ernst in his evidence stated that in January 2007, he made a “strategic decision” that SB should focus only on its more profitable retail business and give up its wholesale and processing operations. This was implemented in March 2007 by diverting these operations to HPL. Ryan and Andre testified that they had made clear to others from the beginning that SB and HPL were separate and independent entities.

  97. [72] However, when one considers the evidence in the following part of this judgment, it is obvious that instead of making the separation clear, Ernst, Ryan and Andre had misled both employees and third parties who had dealings with SB to think that SB was related to HPL in order to facilitate the divestment of some of SB’s operations to HPL and to facilitate the start-up of HPL’s own operations.

  98. Employees of SB

  99. [73] Several employees and ex-employees of SB such as Joan Say Ju Li (“Joan Say”), Casile Joyce Marie (“Marie”), Tan Heng Hwa (“Tan HH”), Tan Ker Wee (“Tan KW”) and Yeow Jia Tian (“Yeow JT”) testified that they were under the impression that SB and HPL were related companies.

  100. [74] Joan Say was employed by SB as an administrative officer in February 2007 and left on 16 November 2007. She re-commenced employment with Swiss Butchery Food Industries Pte Ltd (“SBFI”) on 20 May 2009. Joan Say had stated in her AEIC that in March 2007, she was instructed by Ernst and Thomas to forward all faxes and phone orders meant for SB to HPL as wholesale orders would from then on be handled by HPL. She was under the impression that SB and HPL was affiliated and HPL was a subsidiary of SB as HPL was run by Ryan and Andre.

  101. [75] In cross-examination, Joan Say clarified that Andre had, with the knowledge of Ernst and Thomas, instructed her to forward these faxes. Ernst had told her that Andre would tell her what to write for the faxes. When wholesale customers like Four Seasons Hotel and Goodwood Park called to ask for a written explanation about HPL, she was told by Ernst and Thomas to inform them that all of SB’s wholesale orders had been taken over by HPL. This she did. In three of the introductory faxes, it was provided that:

  102. [76] When further elaboration was sought by customers, another set of faxes was sent to them. In two of them, it was provided that:

  103. [77] Joan Say testified that Andre was the one who called her and sent her an email with the content to write for the introductory faxes and when she showed Ernst the introductory faxes, he had waved to her and asked her to “go ahead, fax it”. Ernst had denied in cross-examination that he had seen these introductory faxes until much later. However, when informed by counsel that in his AEIC, he had alluded to this correspondence, Ernst clarified that what he meant was at the time of affirming his AEIC, he had seen those faxes. This seemed to be an attempt to dissociate himself from any knowledge of the contents of the introductory faxes before they were sent, especially when he admitted that a reader would form the impression that the modern factory under the name of HPL would be part of the SB group.

  104. [78] Joan Say also testified that the content of the faxes on elaboration came from Andre. Andre testified that he did not tell Joan Say to state that SB’s wholesale and production operations had been taken over by HPL’s factory and that he did not see the text of the faxes before they were sent out. His position was that even though he had given her instructions to send the faxes, he did not tell her to use the term “taken over” but to state that SB had “stopped” and to recommend HPL. He further testified that Joan Say sent out the faxes without his input on the full details of the faxes.

  105. [79] I find Joan Say to be the more credible of the two witnesses, ie, Joan Say and Andre. Even if I were to believe Andre, which I do not, Andre admitted that he had seen the introductory faxes about one or two weeks after they had been sent. Yet he chose not to correct the purported errors because “what was done is done”. In my view, he did not correct them because they contained what he wanted them to say.

  106. [80] As for Marie, she was employed by SB as an administrative assistant in or about May 2007 and Joan Say was her direct superior. She formed the impression that SB, HPL and HB were related companies when Joan Say told her that they were all run by the same people and the only difference was that HPL mainly dealt with wholesale business while SB did the retail business. Marie stated in her AEIC that after Joan Say left SB in or about October 2007, Thomas had told Marie to continue with the practice of forwarding fax orders sent to SB by wholesale customers to HPL and giving HPL’s contact number to phone-order customers for them to place their orders with HPL directly.

  107. [81] An important witness was Tan KW, who was employed by Swiss Butchery since October 2006 as a sales executive. Tan KW testified that during this time, Thomas had in one of the weekly staff briefings said that SB’s wholesale and meat processing operations would no longer be at Greenwood Avenue and would be moved to Pandan Loop and that two employees would be transferred to Pandan Loop, namely Mike Tan and Johnny. In a separate briefing, Thomas told them that if any customer went to SB’s shop at Greenwood Avenue to place orders around closing hours, the staff was to re-direct them to the NTUC Bukit Timah outlet (“NTUC Finest”). This evidence was corroborated by Yeow JT although he could only state that the date of the briefing was before June 2007 and he could not remember whether it was Ernst or Thomas who conducted the briefing. I note that Thomas did not deny that he had told the employees that SB would be closing its production at Greenwood Avenue (although he disputed the use of the word “transfer”) and to re-direct retail customers who went to Greenwood Avenue nearing its closing hours to the outlet at NTUC Finest. However, his position was that he had done so on the instructions of Ernst.

  108. [82] Tan KW was under the impression that SB and HPL belonged to the same company and that Mike Tan and Johnny were “still under one roof working with us together at a separate location at a new factory called Huber’s Factory.” He stated that during the relevant period of time, it was made known to the majority of the staff of SB that SB was either a sister or related company of HPL. Tan KW also testified that apart from redirecting calls from wholesale customers to HPL, there was even a telephone number with Andre’s and Ryan’s name written on a small note placed just beside the phone in SB’s retail shop. Such friendly cooperation served to reinforce to the employees that HPL was in some way related to SB.

  109. [83] Another witness called to establish that the employees’ general impression was that SB and HPL were related was Tan HH. As Tan HH is currently unemployed, he would have little or no incentive to lie. Tan HH was a Butcher Supervisor and started working for SB since March 2005. Like the above witnesses, Tan HH testified that he was under the impression that SB and HPL were related because Ernst was one of the directors of SB and HPL was operated by his sons. It can be seen that the employees (or ex-employees) were under the impression that SB and HPL were related. If the defendants had indeed been clear to the employees as to the distinction between SB and HPL, it would hardly have been likely that such a misconception would have arisen.

  110. Email with supplier for own brand name

  111. [84] Apart from the employees, the email between Ernst, Ryan and Andre and third parties revealed that they were creating the impression that SB and HPL were related. For instance, in a chain of email during the period of September 2006, it was revealed that they initially had a discussion with a supplier, Australian Lamb Company Pte Ltd (“ALC”), about having their own brand name for their products. The first meeting took place with a John Verrell way back in May 2006. On 29 September 2006, Greg Haines, another representative of ALC, sent an email to sales@swissbutchery.com addressed to Andre Huber which states as follows:

  112. [85] In Andre’s email dated on the same date, he stated thus:

  113. [87] Despite the ambiguity in SB’s own position, one thing was clear to me. Ernst was synonymous with SB. The contact with John Verrell must have arisen from business dealings with SB. John Verrell would have thought Ernst, Ryan and/or Andre was representing SB unless it was made clear to him that Ernst was representing SB while Ryan and/or Andre was representing HPL. The meeting with John Verrell was in May 2006, ie, before Ryan or Andre had even tendered their notices of resignation dated 31 July 2006 and 31 August 2006 respectively from SB. All three must have been representing SB then. Furthermore, the email from Greg Haines suggested that he was thinking of Ernst and Ryan representing the one and the same company, ie, SB. Andre’s email reply did not clarify the situation but continued with the deception. The reference to the commencement date was then referring to the commencement of HPL’s factory.

  114. Discussion with NTUC Fairprice representatives

  115. [88] Another example supporting the allegation that Ernst, Ryan and Andre had actively misled third parties in order to divert business opportunities of SB to HPL concerned the discussion between Ernst, Ryan and Andre and representatives from NTUC Fairprice, namely Lester Lee, Victor Chai and Poh Sen Kah in October 2006 regarding the opening of a butchery counter in NTUC Finest at Bukit Timah Plaza. Ernst’s version was that he had met up with the NTUC Fairprice representatives initially. He decided that SB would not be interested because SB had allegedly already rejected an NTUC proposal in 2001. He had asked the NTUC Fairprice representatives to talk to Ryan and Andre, ie, with HPL instead. At the next meeting, he was merely having coffee with the NTUC Fairprice representatives and when Ryan and Andre arrived, he left after doing the introductions. Similarly, Andre testified that Ernst merely introduced them and left. He insisted that he and Ryan had clarified that SB and HPL were separate companies.

  116. [89] However, the subsequent email which took place after the two meetings suggests otherwise. On 6 October 2006, Poh Sen Kah’s email was sent to sales@swissbutchery.com and was addressed to Ernst. The relevant content of the email is as follows:

  117. [90] As can be seen, contrary to Ernst’s assertion that he merely introduced Ryan and Andre at the second meeting and left thereafter, the email stated clearly that it was Ernst who conducted the briefing. Further, on 13 November 2006, Lester Lee, who was the Fresh Food Task Group Manager of NTUC Fairprice, also sent an email to sales@swissbutchery.com addressed to Ernst. The content of the email is as follows:

  118. [91] As can be seen, the email from NTUC Fairprice representatives were sent to sales@swissbutchery.com and addressed to Ernst. More importantly, the contents of Poh Sen Kah’s email clearly showed that Ernst was the one who had briefed them about SB moving out to a new production house under a different name “Huber company”. This went against his assertion that the NTUC Fairprice representatives were clearly told otherwise.

  119. [92] Although Andre repeatedly claimed he had stated clearly to the NTUC Fairprice representatives that SB and HPL were separate, this was not borne out by the evidence. He stated that he always corrected Lester when he called them SB even right up to the time HPL opened. Yet when given the chance to correct the misconception in writing, he did not utilise it. In Poh Sen Kah’s email, he had specifically stated that “If there is any points [sic] that I have missed out, kindly put it into this mail for everybody.” This clearly would have been an opportune moment for Ryan and Andre to clarify any error as to the relationship between HPL and SB but instead, nothing was done.

  120. [93] It is unlikely that representatives from an established commercial entity such as NTUC Fairprice would have formed the mistaken impression that SB and HPL were related to each other if it had been explained clearly (and repeatedly) to them that they were separate. More likely than not, Ernst, Ryan and Andre were using SB’s name to mislead the NTUC Fairprice’s representatives in order to obtain the contract for opening a retail counter at NTUC Finest. The contract was eventually awarded and the retail outlet was operated by HPL through HB. Although Ryan and Andre said that they did not view SB as a competitor of HPL, the fact remained that way back in October 2006, there were already negotiations with NTUC Fairprice to open the butchery counter at NTUC Finest which was undeniably a retail business. HPL was thus competing with SB.

  121. Email to potential wholesale customers

  122. [94] Another series of email also revealed that Andre had tried to create the false impression that SB and HPL were related. In November 2006, one Puja Pawa sent an email to sales@swissbutchery.com addressed to Andre concerning the purchase of “swiss butchery products” for his café and it was stated that Andre had mentioned in a previous meeting that he would only be able to supply him after October. The reply on 14 November 2006 from Andre is telling:

  123. [95] It is worth remembering that Andre had already left the services of Swiss Butchery in November 2006 but yet he was still having access to SB’s email account. The reason given was that he was trying to help his father. While I accept that he did try to help his father from time to time, he should not have been involved with SB’s operations given his intentions for HPL. He should not have been allowed continued (and sole) access to SB’s email account and even sending replies which appeared to emanate from SB. Nowhere in his email reply did he state that SB and HPL were separate. True, he stated that he could be contacted at his new email address but more importantly, he had stated that the new factory would be running under a different name and “will be handling the wholesale side of the business.” This clearly gave rise to the inference that the only change would be the name of the factory but the product would still be similar to SB’s products with a revised price list. I do not think that a reference to a different price list was enough to alert Puja Pawa that this was a completely different set-up.

  124. Correspondence with OBE Organic

  125. [96] In response to an email inquiry from Dalene Brook, a representative of another supplier, on 21 November 2006, Andre replied thus:

  126. [97] Again, there is no mention of the separation between SB and HPL. A reader would probably infer from the email that the new factory (which in this case would be HPL’s factory) would be a factory of SB and that it would be handling the wholesale side of SB’s business.

  127. Correspondence with magazine “Wine & Dine”

  128. [98] There was yet another instance where Andre had been misleading a third party about the relationship between SB and HPL. On 1 December 2006, one Jolene Limuco from a magazine publication Wine and Dine asked whether SB would be willing to assist the magazine in their January feature on food manufacturers. Again, this inquiry was sent to the same email account of SB as mentioned. In his reply on 2 December 2006, Andre stated:

  129. [99] Under cross-examination, Ernst had admitted that the word “we” in the email would appear to an ordinary reader to mean SB. Therefore, it in effect suggested that the existing production business of SB would be shifted to the new factory, ie, the Property.

  130. Supplies of Meat Products to Brewerks

  131. [100] SB also called upon Tan Leng Chuan (“Tan LC”), the executive chef of Brewerks Restaurant, Singapore, Riverside Point Branch (“Brewerks”) to give evidence. As the executive chef, he was in charge of sourcing, purchasing and ordering food supplies including fresh meats for Brewerks. He testified that Brewerks had been purchasing its meat supplies from SB since 2002. In early 2007, Andre approached him and told him that SB would be expanding its operation in the name of HPL. According to Tan LC, Andre had told him that SB and HPL were run by the same people and that in future, all orders should be placed with HPL and all invoices would be issued by HPL. Apart from this change, the arrangement for the purchase orders remained the same as when Brewerks were purchasing from SB, ie, placing orders with the same clerk and having the same delivery person, ie, Kelvin Goh. Tan LC was thus under the impression that SB and HPL were the same.

  132. [101] In cross-examination, Tan LC affirmed that Andre had told him that SB and HPL were the same company. When questioned about Brewerks renewing their purchase of meat products from SB in April 2008, Tan LC stated that Brewerks stopped its purchase from HPL because of the many occasions in end 2007/early 2008 when poor quality meat was delivered on Saturdays. He finally decided to stop purchasing from HPL after it delivered less ground beef than agreed for on one Saturday. He added that he had initially not called SB when sourcing new suppliers as he thought that they were the same. It was only when a supplier told him that SB and HPL were separate companies that he contacted SB to purchase from it again.

  133. Conclusion on this issue

  134. [102] All the above incidents showed that Ernst, Ryan and Andre intended to, and in fact, took active steps to mislead others into believing that SB and HPL were related. They did so in order to ensure that the divestment of SB’s operations would be accompanied by the divestment of SB’s business contacts for wholesale and production. Ernst suggested that since SB had ceased its wholesale and production operations, it was only in line with good customer service that SB direct its customers to alternative suppliers or even one particular supplier (in this case HPL) if SB was confident in HPL’s quality. However, the various steps undertaken by Ernst, Ryan and Andre from September 2005 to March 2007 show clearly that they were embarking on an elaborate plan to wrongfully deprive SB of some of its business operations in the first place. Also, Andre was able to familiarise himself with the nature of SB’s wholesale business and at the same time gain valuable access to SB’s wholesale customers. This facilitated the divestment of SB’s wholesale and production operations in March 2007 to HPL, to which I now turn.

  135. Divestment of SB’s wholesale and production operations in March 2007 to HPL

  136. [103] In March 2007, SB ceased its wholesale and production operations which were taken over by HPL. Ernst testified that he made the decision to cease the wholesale and production operations in January 2007 because of the following reasons which were listed in their order of priority:

  137. (a) space constraint problem at Greenwood Avenue;

  138. (b) fear of losing the Agri-Food & Veterinary Authority of Singapore licence (“the AVA licence”);

  139. (c) Ernst’s health problems;

  140. (d) continuation of SB’s business should anything happen to Ernst;

  141. (e) relative profitability of retail business and wholesale business; and

  142. (f) competition with other players in the wholesale business industry.

  143. Space Constraint Problem at Greenwood Avenue

  144. [104] With regards to the alleged problem of space constraint at Greenwood Avenue, Ernst stated in his AEIC at paras 62-63:

  145. [105] At trial Ernst stated that the most important reason for the cessation of wholesale business was the space constraint problem at Greenwood Avenue. As discussed above, although Ernst was viewing properties for a factory together with Ryan and Andre from January to March 2006, which according to them was for SB’s purposes, there was no evidence that he took any further step towards this end after March 2006. Yet, about four mouths later, in July 2006, the Property was purchased by HPL using a substantial financial contribution from Ernst. As stated above, Ryan admitted that the Property purchased by HPL was also suitable for SB which according to him, was still looking for a factory at that time.

  146. [106] Although Ryan insisted that he did not inform Ernst about the Property before he paid the deposit of $7,250 for the option to purchase the Property, I do not accept this evidence. Ernst had already provided the first $400,000 for HPL. Ryan was still under employment in SB as its Deputy Managing Director and at that time, he was staying with Ernst. Considering the amount of time they spent with each other on a daily basis and Ernst’s earlier financial support, Ryan must have consulted Ernst before the placement of the deposit. Hence, if Ernst was acting bona fide, he should have discussed with Alex and Don Foo about a possible acquisition of the Property by SB in order to deal with the alleged space constraint problem. It is not disputed that he did not do so.

  147. [107] Accordingly, I am not convinced that the alleged space constraint problem was a reason, much less the crucial reason for the cessation of SB’s wholesale and production operations in March 2007. If the problem existed, it could have been solved by SB acquiring the Property but instead, Ernst contributed financially for HPL to do so. I now turn to the other alleged reasons.

  148. Fear of losing the AVA licence for Greenwood Avenue

  149. [108] Ernst stated that the fear that the AVA would not renew SB’s licence for production at Greenwood Avenue was another important reason for the cessation of SB’s wholesale and production operations. He explained that the AVA would eventually not renew SB’s licence as SB was not supposed to get the licence for Greenwood Avenue because it was a residential area and that AVA had made an exception for them. In addition, whenever officers from AVA went to Greenwood Avenue for inspection, they would ask him when he would stop the production operations.

  150. [109] However, apart from Ernst’s assertion, there was no evidence that AVA had ever threatened not to renew SB’s licence at Greenwood Avenue. Ernst did not call upon any officer from AVA to give evidence. On the contrary, the AVA licence was renewed on 10 August 2007. Indeed it was Ernst who first wrote a letter to AVA to cancel the licence because SB had stopped the production operation. He applied for a licence from the National Environment Agency (“NEA”) instead. However, as the application was more complicated and time-consuming than expected, he had no choice but to renew the AVA licence first as SB could not operate without a licence.

  151. [110] When asked to clarify his evidence, Ernst was unable to give a convincing explanation:

  152. [111] Ryan had also admitted that the renewal of the AVA licence at Greenwood Avenue was not an issue to SB:

  153. [112] In the circumstances, I do not accept Ernst’s evidence that the fear that the AVA licence would not be renewed eventually was a reason for the cessation of SB’s production operation as well as the wholesale operation. There was no reason to stop wholesale and production operations in March 2007 when no dead-line to do so had been given by AVA. Indeed, as already mentioned, the AVA licence was in fact renewed in August 2007. In my view, Ernst had timed SB’s cessation of the wholesale and production operations to coincide with HPL’s commencement of operations. The possible non-renewal of the AVA licence was an excuse in attempting to justify the diversion of SB’s wholesale and production operations to HPL.

  154. Ernst’s health problems and the continuity of SB’s business

  155. [113] The issues of Ernst’s health problems and continuity of SB’s business should anything untoward happens to Ernst were related. Ernst stated in his AEIC that in 2002, he underwent two cancer operations and in 2007 he had another operation to have a stent inserted to clear his blocked arteries. The continuity of SB’s business as a whole would be affected if he were incapacitated by his health problems. He stated that being the “main person” together with Thomas, there was no way that SB could have operated at two different premises.

  156. [114] Whilst Ernst had correctly summarised his health condition, it was, in my view, not a genuine reason for diverting the wholesale and production operations to HPL. By so divesting, he had taken it out of the hands of Alex and Don Foo to decide on what to do if his health was really an issue to the continuity of SB’s entire operations.

  157. Relative profitability of retail business and wholesale business

  158. [115] In his AEIC, Ernst stated that SB had never seriously developed its wholesale and production operations because the profit margin for the retail operations was always higher than that for the wholesale operations. However, as provided in the report of Ernst’s expert witness, Mr Kon Yin Tong (“Mr Kon’s Report”), in 2006, the Gross Profit margin of SB’s wholesale operations was 34%. Ernst admitted that this figure was substantial. SB’s expert witness, Mr Chee Yoh Chuang, used the figures provided in Mr Kon’s Report and computed the Profit Margin after direct expenses for SB’s wholesale operations to be 19.7% which was only slightly lower than that for retail operation which had a figure of 20.9%. In addition, Ernst had admitted that the wholesale operation contributed substantially to SB’s overall revenue.

  159. [116] When faced with the various figures which undeniably showed the profitability of SB’s wholesale operations, Ernst had to state that the figures were not much of a consideration when he decided that SB should cease its wholesale operations. In my view, the issue of relative profitability between retail and wholesale operations was a red herring by Ernst.

  160. Competition with other players in the wholesale business industry

  161. [117] The point about competition was linked to the issue of relative profitability. Ernst testified that SB was the leader in the retail business of butchery in Singapore whereas in wholesale, there were more competitors. Hence when he had to decide the future of SB, he chose to focus on retail and to cease wholesale.

  162. [118] Ernst in cross-examination stated that he had difficulties in getting reliable staff to run the wholesale and production operations in SB and that was one reason for the cessation of these businesses. This seemed to be inconsistent with the position adopted in his AEIC where he appeared to consider the shortage of reliable staff only in the context of SB’s retail operation. Under further cross-examination, Ernst also admitted that given the greater number of competitors in the wholesale market, there would be many experienced staff available. Even though he tried to qualify his evidence by saying that he needed more than just good salespersons because wholesale and production operations went together, he had to eventually concede that the lack of reliable staff was not a reason for the cessation of wholesale and production operations.

  163. [119] The question of not having adequate and qualified manpower was also a reason given by Ernst regarding space constraint. His point was that there was no point in acquiring the Property for SB because SB no longer had the services of Ryan and Andre who had tendered their resignation. He gave the impression that Ryan and Andre were indispensable to the continuation of expansion of SB’s wholesale and production operations. I do not accept this suggestion. Although Ryan and Andre had helped out in SB during their local student days, their full-time employment with SB was for a short duration only. While I do not mean to trivialise their contributions, they were not as indispensable as Ernst made them out to be. Also there was no concrete evidence to show who he had sought to recruit as their replacements or that he had had difficulties with recruitment generally.

  164. Another factor

  165. [120] Apart from rejecting the reasons discussed above, I have considered another factor which showed that Ernst caused SB to cease its wholesale and production operations based not on a strategic business decision but in furtherance of his plan to wrongfully divert SB’s operations to HPL.

  166. [121] It is true that Ernst was removed as Managing Director and director in January 2008 but there was no evidence that Ernst had tried to improve on SB’s retail operations between the time of cessation of SB’s wholesale operations in March 2007 and his removal in January 2008. In fact, even back in October 2006, when the opportunity to open a retail shop in NTUC Finest arose for SB, Ernst chose to give up the opportunity and instead provided HPL with the opportunity. I will elaborate on this 2006 opportunity with NTUC Fairprice. As mentioned above, Ernst said he decided not to pursue this opportunity because in 2001, SB had rejected an earlier proposal from NTUC Fairprice to open an SB outlet in one of its supermarkets. His reason was that when he had raised the question in 2001 with Alex and Don Foo, he had been criticised for considering the opportunity as it was merely an attempt by NTUC Fairprice then to learn the business operation of SB. Don Foo’s version was that Ernst was asked to pursue the matter then but nothing further was heard from Ernst. Even if I accepted Ernst’s version, the proposal from NTUC in 2006 was in respect of its premium supermarket NTUC Finest (as compared to an ordinary NTUC Fairprice supermarket) and was made five years later. He should at least have broached the subject with Alex and Don Foo in 2006 and given them the opportunity to reject it. Instead he passed the opportunity immediately to Ryan and Andre whilst leading NTUC Fairprice to believe, at least initially, that Ryan and Andre were also representing SB.

  167. [122] In the circumstances, I do not accept that Ernst made a strategic decision in the bona fide interests of SB when he divested the wholesale and production operations to HPL. He did so in breach of his duties as a director and in conspiracy with the second to fifth defendant, using unlawful means as set out above and below to do so, with the intention to injure SB and profit HPL and his family.

  168. Alleged ratification by other shareholders

  169. [123] It is undisputed that Ernst did not have any prior discussion with Alex and Don Foo about the divestment of the wholesale and production operations of SB. Ernst claimed that after the divestment, he did tell both of them in a coffee-shop meeting and also told them that SB would be purchasing (products) from “Huber’s”, although he did not tell them that HPL was owned by Ryan and Andre. However they remained silent and Ernst took it that they had consented to his decision.

  170. [124] It was also suggested by Ernst, Ryan and Andre that the children of Alex and Don Foo would have known about Ryan’s and Andre’s business, HPL, as they were reasonably close to each other and would have told their parents about the same. Indeed, Ryan said that he was obtaining a personal loan from a bank through Mark Foo and he had to disclose his employment by HPL at the material time.

  171. [125] Don Foo’s version was that he and Alex did not hear about the divestment directly from Ernst. They learned a little about it from talk about Ryan and Andre’s business at the weekly gatherings (which Ernst had ceased to attend) and from monthly accounts which they received. The accounts showed credit sales to be declining. They suspected something was up and that was why Don Foo’s son, Mark Foo left his employment with Credit Suisse on 27 May 2007 to join Foo & Associates first with the intention of eventually joining SB.

  172. [126] I am of the view that Ernst did not directly tell Alex and Don Foo about the divestment. If he had really wanted to keep them informed, he would have discussed with them before the deed was done. Any knowledge that they acquired indirectly whether through the weekly gatherings, their children or accounts and their lack of objection thereafter do not amount to a ratification of what Ernst (and his sons) had done. The reliance by Ernst on Eng Gee Seng v Quek Choon Teck and Ors [2010] 1 SLR 241 (“Eng Gee Seng”) that inactivity or silence can amount to ratification is unjustified in the circumstances before me. As stated in [34] of Eng Gee Seng, in order for a person to be held to have ratified an unauthorised act, it is necessary that at the time of ratification, he should have full knowledge of all the material circumstances in which the act was done, unless he intended to ratify and take the risk whatever the circumstances may have been.

  173. [127] In this case, all that Alex and Don Foo had was incomplete information about the divestment of business to HPL through the “loose talk” at the weekly gatherings and the monthly statements. Although they had suspicions, this did not constitute full knowledge of the divestment. In any event, they were not inactive but making their own plans for they must have realised that Ernst could not be trusted to act in SB’s interest. In the circumstances, Eng Gee Seng is of no assistance to Ernst.

  174. Business Times article

  175. [128] In August 2007, HPL commenced operations at NTUC Finest. In a Business Times article (“the BT Article”) published on 18 August 2007, it was stated thus:

  176. [129] This BT article stated clearly that SB and HPL were separate companies unlike the other occasions which I elaborated on above. It seemed to me that the interview given for this article was calculated to give the impression that Ryan and Andre had done all that they could to disassociate themselves from SB.

  177. Letter sent after the BT article

  178. [130] After the BT Article was published, Alex and Don Foo prepared a letter dated 29 August 2007 and addressed to Ernst in which they put a disclaimer for signing the audited account of SB for the year 2006. In the letter, it was highlighted that Ernst had given unilateral approval for related party transactions and directors’ close family members appointment, salaries and bonus and that Alex and Don Foo would require further clarification on the matter.

  179. A talk and tour for the Swiss Association of Singapore

The judgment continues past this page. Read the rest at eLitigation.