[1999] SGCA 17

In the Court of Appeal of the Republic of Singapore

[1999] SGCA 17

CA 156/1998

Between

Wuu Khek Chiang George

… Plaintiff

And

ECRC Land Pte Ltd

… Defendant

grounds of decision

Companies — Directors

This judgment is subject to final editorial corrections approved by the court and/or redaction pursuant to the publisher’s duty in compliance with the law, for publication in LawNet and/or the Singapore Law Reports.

Wuu Khek Chiang George v ECRC Land Pte Ltd

[1999] SGCA 17

CA 156/1998
Tan Lee Meng J; L P Thean JA; Yong Pung How CJ
12 March 1999

1 LP THEAN JA

3 Background facts

5 The background facts that led to this appeal were not in dispute and may be summarised as follows. The appellant, George Wuu Khek Chiang, was the managing director and majority shareholder of the company, East Coast Recreation Centre Pte Ltd (`ECRC`). In 1980, the State granted to ECRC two leases over two plots of land, Lots 6250 and 6251, respectively of mukim 26 situate at the East Coast Parkway (collective referred to as `the Land`). The leases were each for a term of 15 years from 17 March 1980 to 17 March 1995. The Land had since been developed by ECRC into a recreation complex known as the East Coast Recreation Centre (`the Centre`) in which ECRC operated a very successful and profitable business by having portions of the Centre sublet to various parties.

17 (b). annexure 4 which was a draft deed of assignment of the two leases of the land from ECRC to the respondent (`the draft deed`).

In consideration of the sum of Dollars One Million five hundred thousand ($1,500,000.00) paid by the assignee to the assignor (the receipt whereof the assignor hereby acknowledges) the assignor hereby assigns ...

21 Events leading to the suit

23 In September 1995, Ms Yong on the direction of Mr Shum prepared the accounts for August which treated the payment of $1.5m to ECRC not as a payment for the assignment of the rights to the leases, but as a loan to the appellant. Mr Wee Choo Peng on reading the accounts wrote to Mr Wong Kok Siew, the managing director of SAFE, a memorandum dated 29 September 1995 concerning the accounts. In this memorandum, Mr Wee clarified as follows:

The three parties agreed that share capital for ECRC land to be $1.5m and GW [the appellant] need not pay for his share in ECRC Land as he has already given us the right to the title of the lease. GW accordingly incorporated the company with paid up capital of $1.5m and transferred the amount out of ECRC Land as deposit for the assignment of the lease from ECRC to ECRC Land.

At the time of acquisition of ECRC Land, the net worth of the company was $1.5m, representing the leasehold property...

Impact of Present Accounting Treatment

...

GW owes ECRC Land $1.5m as a loan to him (no mention of interest rate and repayment terms).

This is against the agreement with GW that he need not make any additional payment.

In consideration of the premises and for the consideration stated in the Agreements (receipt of which the Assignor [ECRC] here by acknowledges...

27 Proceedings below

29 About nine months later, on 9 July 1996, the respondent commenced this action against the appellant claiming, inter alia, the sum of $1.5m. In respect of this claim, it alleged that the appellant in breach of his fiduciary duty as a director of the respondent caused and procured the respondent to pay this sum to ECRC without just cause or consideration and therefore was liable to refund this amount to the respondent. This claim was allowed below. The trial judge held that there was no agreement underlying the payment of $1.5m, and that the payment was made in breach of the appellant`s fiduciary duty and was an unlawful return of capital, and that the appellant was accordingly liable to repay the sum to the respondent.

30 The appeal

32 The respondent`s claim as pleaded in the statement of claim was that by a cheque date 24 April 1995 drawn on the respondent`s account the appellant caused to paid out of the respondent`s account the sum of $1.5m to ECRC and that this payment was made `without just cause or consideration` and was made in breach of the appellant`s fiduciary duty to the respondent. The respondent had therefore been wrongfully deprived of this sum and the appellant was liable to account for this wrongful payment.

99 The first tack taken by the defendant, as shown by the first defence he filed, was that the oral agreement was an agreement between the plaintiffs and ECRC that in consideration of the assignment by ECRC to the plaintiffs of the leases, the plaintiffs were to pay $1.5m and this payment was made with the knowledge of Grande and SAFE. 100 Another version of the agreement was provided by the amendments made after the arguments on the parol evidence on the first day of the trial. In this version, there were five parties to the agreement and its purpose was, as stated in para 39 of the re-amended defence, to ensure that the Land Office would approve the assignment of the leases. Sub-para (5) of para 39 recast the purpose somewhat by stating that it was to procure Land Office approval to the assignment. This exegesis of the oral agreement ended by stating that `for convenience` the payment of $1.5m would be labelled a consideration for the assignment of the leases but that the main point of the agreement was that `by whatever means and mechanisms possible` the money was to be paid out of the plaintiffs before the joint venture was effected.

112 I have come to the conclusion that there was no oral agreement as alleged by the defendant in any of his pleadings. All that there was was an internal agreement among the negotiating parties that once the plaintiffs` capital had been increased, the money could be moved out again so that in some manner I would get back to the defendant. Though he did not agree it was an internal arrangement only, Mr Phang admitted that the effect of the agreement was to move the money out of the plaintiffs and back to the defendant. Mr Tan said that he thought that the defendant could just increase the capital and thereafter make a payment out since the plaintiff company belonged to the defendant at the time.

42 (ii). the respondent would pay ECRC a total of $7.5m, over 15 years, as consultancy fees; and

43 (iii). the respondent would take over ECRC`s outstanding liabilities arising from the $3m overdraft facility granted by The Oversea-Chinese Banking Corporation Ltd.

In consideration of the sum of Dollars One Million five hundred thousand ($1,500,000.00) paid by the Assignee to the Assignor (the receipt whereof the Assignor hereby acknowledges) ...

In consideration of the premises and for the consideration stated in the Agreements (receipt of which the Assignor hereby acknowledges) the Assignor hereby assigns ...

62 Refund of capital

64 It was argued on behalf of the respondent that if we were to allow the appeal, this would make significant inroads into the law on the reduction of capital. In our view, this argument was plainly unsustainable. The sum of $1.5m was paid to ECRC bona fide in a genuine commercial transaction. It was a proper and legitimate payment and did not amount to a return of capital. It follows that there was no question of breach of fiduciary duty on the part of the appellant.

Tan Lee Meng J
L P Thean JA
Yong Pung How CJ

Stephen C Soh (Bernard Rada & Partners) for the appellant
Chia Ho Choon and Tan Yeow Hiang (Bih Li & Lee) for the respondent