Heap Huat Rubber v Kong Choot: Shadow Directors & Fiduciary Duty

The Court of Appeal of Singapore heard an appeal by Heap Huat Rubber Company Sdn Bhd, HHR Properties Sdn Bhd, HHR Trading Sdn Bhd, and HHR Construction and Supply Sdn Bhd against Kong Choot Sian, Kong Siew Seng, and Ng Phuay Khoon, concerning alleged breaches of fiduciary duties. The claims involved selling land at an undervalue, unauthorized payments to Panfield, and excessive remuneration to directors. The court allowed the appeal in part, ordering refunds of certain payments and bonuses.

1. Case Overview

1.1 Court

Court of Appeal

1.2 Outcome

Appeal allowed in part.

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Appeal regarding breach of fiduciary duties by directors concerning undervalue land sales and excessive remuneration. Appeal allowed in part.

1.7 Decision Date

29 March 2004

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
Heap Huat Rubber Company Sdn Bhd	Appellant	Corporation	Appeal allowed in part	Partial	Philip Jeyaretnam of Rodyk and Davidson Jean Lim of Rodyk and Davidson
HHR Properties Sdn Bhd	Appellant	Corporation	Appeal allowed in part	Partial	Philip Jeyaretnam of Rodyk and Davidson Jean Lim of Rodyk and Davidson
HHR Trading Sdn Bhd	Appellant	Corporation	Appeal allowed in part	Partial	Philip Jeyaretnam of Rodyk and Davidson Jean Lim of Rodyk and Davidson
HHR Construction and Supply Sdn Bhd	Appellant	Corporation	Appeal allowed in part	Partial	Philip Jeyaretnam of Rodyk and Davidson Jean Lim of Rodyk and Davidson
Kong Choot Sian	Respondent	Individual	Appeal allowed in part	Partial
Kong Siew Seng	Respondent	Individual	Appeal allowed in part	Partial
Ng Phuay Khoon	Respondent	Individual	Appeal allowed in part	Partial

3. Judges

Judge Name	Title	Delivered Judgment
Chao Hick Tin	Justice of the Court of Appeal	No
Lai Kew Chai	Judge	Yes
Yong Pung How	Chief Justice	No

4. Counsels

Counsel Name	Organization
Philip Jeyaretnam	Rodyk and Davidson
Jean Lim	Rodyk and Davidson

4. Facts

HHR owned property in Singapore and Malaysia.
Ng became bankrupt in 1988.
The Tebrau land was sold to Timepac Industries Sdn Bhd for RM6.8m.
The Pulai land was sold to Panfield Sdn Bhd for RM13.2m.
HHR agreed to reimburse RM3.2m to Panfield.
Kong's family lost majority control of HHR in 1999.
The judge found that Kong was a “shadow director”.

5. Formal Citations

Heap Huat Rubber Company Sdn Bhd and Others v Kong Choot Sian and Others, CA 64/2003/R, [2004] SGCA 12

6. Timeline

Date	Event
1960-01-01	HHR was incorporated in Malaysia.
1987-01-01	Kong Choot Sian became a director of HHR.
1988-01-01	Ng Quee Lam became bankrupt.
1988-10-21	Kong Choot Sian ceased to be a director of HHR.
1992-09-17	Shares held by the Official Assignee of the estate of Ng Eng Kiat were transferred.
1995-01-01	The Tebrau land was sold to Timepac Industries Sdn Bhd for RM6.8m and the Pulai land was sold to Panfield Sdn Bhd for RM13.2m.
1995-12-28	Sale and purchase agreements executed for the sale of each parcel of land.
1996-03-01	Supplementary agreement where HHR agreed to reimburse RM3.2m to Panfield.
1997-01-14	Settlement sum of $34m agreed upon between UOB and Panfield.
1997-09-16	Annual general meetings of HHR held.
1998-01-01	Proceeds from the two sales were transferred to HHR Properties, HHR Trading and HHR Construction.
1998-01-01	HHR Properties, HHR Trading and HHR Construction were incorporated.
1998-05-01	Board resolution authorising Kong’s appointment as company consultant at a monthly salary of RM9,000 per month.
1998-10-27	Annual general meetings of HHR held.
1999-01-01	The Official Assignee of Ng Eng Kiat recovered the NEK shares.
1999-11-01	Siew's contract with HHR provided for his appointment as “Executive Director” for a period of three years.
1999-12-01	Shareholders’ resolutions for all three companies dated which authorise the employment of Phuay and Siew on such “terms and conditions [as] deemed fit by the Directors”.
1999-12-15	Siew entered into written agreements with each of HHR Properties, HHR Trading and HHR Construction for the payment of a monthly fee for a period of three years with effect from 1 November 1999.
2001-01-01	New directors were appointed and the present action was instituted by them, in the name of the HHR companies.
2004-03-30	Judgment reserved.

7. Legal Issues

Breach of Fiduciary Duty
- Outcome: The court found partial breaches of fiduciary duty regarding unauthorized payments.
- Category: Substantive
- Sub-Issues:
  - Failure to act in the best interests of the company
  - Failure to obtain proper valuation
  - Failure to seek shareholder approval
Directors' Remuneration
- Outcome: The court clarified the distinction between ordinary and special remuneration and the need for shareholder approval.
- Category: Substantive
- Sub-Issues:
  - Distinction between ordinary and special remuneration
  - Requirement for shareholder approval
Sale of Land at Undervalue
- Outcome: The court found that the HHR companies had not proved that the Johor land had been sold at an undervalue.
- Category: Substantive
- Sub-Issues:
  - Inadequate valuation
  - Failure to account for encumbrances
Shadow Director
- Outcome: The court determined that Kong was a shadow director but that did not mean he had to comply with Art 73.
- Category: Substantive

8. Remedies Sought

Damages for breach of fiduciary duty
Recovery of unauthorized payments

9. Cause of Actions

Breach of Fiduciary Duty
Breach of Duty of Care

10. Practice Areas

Commercial Litigation

11. Industries

Real Estate

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
Intraco Ltd v Multi-Pak Singapore Pte Ltd	Court of Appeal	Yes	[1995] 1 SLR 313	Singapore	Cited for the test of whether directors acted in the interests of the company.
Guinness plc v Saunders	N/A	Yes	[1990] 2 AC 663	England and Wales	Cited for the principle that a director is not entitled to remuneration except in accordance with the company’s articles of association.
Re Hydrodam (Corby) Ltd	N/A	No	[1994] 2 BCLC 180	England and Wales	Cited for the requirements to establish that a defendant is a shadow director of a company.
Chan Choon Ming v Low Poh Choon	N/A	No	[1994] MLJU 351	Malaysia	Cited regarding the validity of a written board resolution.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute Name	Jurisdiction
Singapore Companies Act (Cap 50, 1994 Rev Ed) s 4	Singapore

15. Key Terms and Keywords

15.1 Key Terms

Shadow director
Fiduciary duty
Directors' remuneration
Ordinary remuneration
Special remuneration
Valuation report
UOB caveats
Settlement sum
Shareholders' resolution

15.2 Keywords

director
fiduciary duty
remuneration
shadow director
land sale
company law

17. Areas of Law

Area Name	Relevance Score
Company Law	90
Fiduciary Duties	90
Director's Duties	90
Shadow directors	70
Breach of Duty of Care	50
Evidence	30
Contract Law	30

16. Subjects

Corporate Governance
Directors' Duties
Company Law