Law Chin Eng v Hiap Seng & Co: Derivative Action for Breach of Fiduciary Duty
Law Chin Eng and Lau Chin Whatt, directors/shareholders of Hiap Seng & Co Pte Ltd, applied for leave to bring a derivative action against Lau Chin Hu, Lew Kiat Beng, and Law Chin Chai, also directors/shareholders, for breach of fiduciary duties. The High Court of Singapore granted leave for some of the claims, finding that certain allegations warranted litigation in the company's interest, while others lacked substance or did not demonstrate a real loss to the company. The court determined that a winding-up was not an appropriate alternative remedy in this case.
1. Case Overview
1.1 Court
High Court1.2 Outcome
Leave granted to the plaintiffs to bring an action on behalf of the company against the proposed defendants on some complaints.
1.3 Case Type
Civil
1.4 Judgment Type
Judgment
1.5 Jurisdiction
Singapore
1.6 Description
Plaintiffs seek leave to bring a derivative action against directors for breach of fiduciary duty. The court grants leave for some claims.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| Law Chin Eng | Plaintiff | Individual | Leave granted in part | Partial | Daryl Ong Hock Chye, Chu Hua Yi |
| Lau Chin Whatt | Plaintiff | Individual | Leave granted in part | Partial | Daryl Ong Hock Chye, Chu Hua Yi |
| Hiap Seng & Co Pte Ltd | Respondent | Corporation | Neutral | Neutral | Jiang Ke Yue, Esther Yee, Foo Soon Yien, Daniel Tay |
| Lau Chin Hu | Respondent | Individual | Partial Loss | Partial | Jiang Ke Yue, Esther Yee |
| Lew Kiat Beng | Respondent | Individual | Partial Loss | Partial | Foo Soon Yien, Daniel Tay |
| Law Chin Chai | Respondent | Individual | Partial Loss | Partial | Jiang Ke Yue, Esther Yee |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Kan Ting Chiu | Judge | Yes |
4. Counsels
| Counsel Name | Organization |
|---|---|
| Daryl Ong Hock Chye | Rodyk & Davidson LLP |
| Chu Hua Yi | Rodyk & Davidson LLP |
| Foo Soon Yien | Bernard & Rada Law Corporation |
| Daniel Tay | Bernard & Rada Law Corporation |
| Jiang Ke Yue | Lee & Lee |
| Esther Yee | Lee & Lee |
4. Facts
- Plaintiffs are directors/shareholders seeking to bring action against other directors/shareholders.
- Proposed action is based on alleged breaches of fiduciary duties by the defendants.
- Allegations include fictitious transactions, unauthorized payments, and improper accounting.
- Plaintiffs claim the defendants caused the company to enter into fictitious transactions with Hawker Enterprise Ltd.
- Defendants allegedly used company funds for personal property purchases.
- The company was subject to investigation by the Inland Revenue Authority of Singapore (IRAS) and had to pay fines.
- There is a history of hostility between the plaintiffs and the proposed defendants.
5. Formal Citations
- Law Chin Eng and Another v Hiap Seng & Co Pte Ltd (Lau Chin Hu and others, applicants), OS 372/2008, [2009] SGHC 223
6. Timeline
| Date | Event |
|---|---|
| Lew Huat Leng set up a business with the name of Hiap Seng & Co | |
| Hiap Seng & Co Pte Ltd was incorporated | |
| Lau Chin Hu, Lew Kiat Beng and Law Chin Chai became directors of the company | |
| Lew Huat Leng died | |
| Lew Kiat Beng managed and ran Drilbo World Trade Sdn Bhd | |
| Fictitious trades generated between Hiap Seng & Co Pte Ltd and Drilbo World Trade Sdn Bhd | |
| Fictitious trades generated between Hiap Seng & Co Pte Ltd and Drilbo World Trade Sdn Bhd | |
| Fictitious trades generated between Hiap Seng & Co Pte Ltd and Drilbo World Trade Sdn Bhd | |
| Fictitious trades generated between Hiap Seng & Co Pte Ltd and Drilbo World Trade Sdn Bhd | |
| Fictitious trades generated between Hiap Seng & Co Pte Ltd and Drilbo World Trade Sdn Bhd | |
| Fictitious trades generated between Hiap Seng & Co Pte Ltd and Drilbo World Trade Sdn Bhd | |
| Hiap Seng & Co Pte Ltd obtained credit facilities totalling $5,400,000 from United Overseas Bank Ltd | |
| Defendants used money drawn from the OD Facility to procure payment by the Plaintiff of a sum of $4,406,589.23 to Hawker Enterprise Ltd | |
| Defendants procured the withdrawal of the sum of $487,405.99 from the Plaintiff’s account | |
| Defendants procured the withdrawal of the sum of $487,405.99 from the Plaintiff’s account | |
| The 1st and 2nd Defendants caused to be recorded in the Plaintiff’s books that each of them had lent the Plaintiff $2,000,000 purportedly to enable the Plaintiff to repay the OD Facility | |
| Fictitious trades generated between Hiap Seng & Co Pte Ltd and Drilbo World Trade Sdn Bhd | |
| Defendants procured the Plaintiff to pay the 1st Defendant and 2nd Defendant each the sum of $2,000,000, in purported repayment of the said ‘loans’ | |
| Defendants procured the Plaintiff to pay the 1st Defendant and 2nd Defendant each the sum of $2,000,000, in purported repayment of the said ‘loans’ | |
| Defendants procured the Plaintiff to pay the 1st Defendant and 2nd Defendant each the sum of $2,000,000, in purported repayment of the said ‘loans’ | |
| Defendants procured the Plaintiff to pay the 1st Defendant and 2nd Defendant each the sum of $2,000,000, in purported repayment of the said ‘loans’ | |
| Lew Kiat Beng admitted to Lau Chin Whatt that he had unilaterally withdrawn the sum of $2 million from the Plaintiff’s account for this purpose | |
| Lau Chin Whatt did not receive his share of the dividends | |
| Defendants caused the Plaintiff to file the annual returns for year 2002 without having laid the accounts therein before the Plaintiff and the full board of directors at the Annual General Meeting | |
| Property was transferred into the name of Winstant & Co Pte Ltd | |
| Lau Chin Whatt received his share of the dividends | |
| Lau Chin Whatt conducted inspection of accounts | |
| Lew Kiat Beng verbally admitted to Lau Chin Whatt that he knew about Ms Stella Tai’s forging of Lau Chin Whatt’s signature | |
| Lew Kiat Beng forged Lau Chin Whatt’s signature on some of the Plaintiff’s corporate resolutions and documents | |
| The 1st and 2nd Defendants ignored repeated demands to produce the accounts of the Plaintiff company and its statutory records for inspection by Lau Chin Whatt until sometime in September 2005 after he threatened to take legal action | |
| Lau Chin Whatt conducted inspection of accounts | |
| Lew Kiat Beng verbally informed Lau Chin Whatt that the transaction with Hawker was used for accounting purposes as a form of tax avoidance | |
| Lau Chin Whatt confronted the 2nd Defendant with respect to the fictitious trades between the Plaintiff and Drilbo | |
| Lau Chin Whatt confronted all the Defendants with respect to the fictitious trades between the Plaintiff and Drilbo | |
| Defendants admitted that Drilbo was intended to be used “as a decoy” | |
| The 1st Defendant verbally admitted that the Plaintiff’s accounts were not properly audited as the Defendants wanted to evade tax | |
| The 1st Defendant verbally admitted that the Plaintiff’s accounts were not properly audited as the Defendants wanted to evade tax | |
| Defendants caused the Plaintiff to file the annual returns for year 2002 without having laid the accounts therein before the Plaintiff and the full board of directors at the Annual General Meeting | |
| The 2nd Defendant admitted that Hawker was a fictitious entity invented for the purposes of tax evasion in a letter | |
| The 1st and 2nd Defendants had consistently failed to notify Law Chin Eng and Lau Chin Whatt of several board or shareholders’ meetings of the Plaintiff company | |
| Lew Kiat Beng gave notice for the directors of the company to resolve that the company be wound up voluntarily | |
| Suit No 839 of 2006 was taken out by the same plaintiffs | |
| Property was sold to one HSBC Institutional Trust Services (Singapore) Limited at the price of $18,008,800 | |
| Plaintiffs are applying for leave under s 216A of the Companies Act | |
| Judgment reserved |
7. Legal Issues
- Breach of Fiduciary Duty
- Outcome: Leave granted in part to pursue claims of breach of fiduciary duty.
- Category: Substantive
- Sub-Issues:
- Fictitious transactions
- Unauthorized payments
- Improper accounting
- Derivative Action
- Outcome: Leave granted in part, as the court found that some claims were in the interests of the company.
- Category: Procedural
- Sub-Issues:
- Good faith
- Interests of the company
- Alternative remedy
8. Remedies Sought
- Leave to bring a derivative action
9. Cause of Actions
- Breach of Fiduciary Duty
10. Practice Areas
- Commercial Litigation
- Corporate Law
11. Industries
- No industries specified
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Pang Yong Hock v PKS Contracts Services Pte Ltd | Court of Appeal | Yes | [2004] 3 SLR 1 | Singapore | Cited for the principles governing applications under Section 216A of the Companies Act, including good faith and the interests of the company. |
| Teo Gek Luang v Ng Ai Tiong | High Court | Yes | [1999] 1 SLR 434 | Singapore | Cited for the principle that the court at the leave stage is not called upon to adjudicate on disputes of facts and inferences. |
| Agus Irawan v Toh Teck Chye | High Court | Yes | [2002] 2 SLR 198 | Singapore | Cited for the principle that the burden to prove lack of good faith lies on the party opposing the Section 216A application. |
| Foss v Harbottle | N/A | Yes | (1843) 2 Hare 461; 67 ER 189 | N/A | Cited for the 'proper claimant rule', stating that the company, not the shareholders, is the proper plaintiff for wrongs done to the company. |
| Barrett v Duckett | English Court of Appeal | Yes | [1995] 1 BCLC 243 | England | Cited for the principle that a derivative action should not proceed if another adequate remedy is available, such as winding up the company. |
| Intercontinental Precious Metals Inc. v Cooke | British Columbia Supreme Court | Yes | [1994] 4 WWR 66 | Canada | Cited for the principle that a shareholder battle does not lead to the inference that an application is motivated by bad faith. |
| Primex Investments Ltd v Northwest Sports Enterprises Ltd | British Columbia Supreme Court | Yes | [1996] 4 WWR 54 | Canada | Cited for the principle that an applicant’s self-interest did not mean that his application was made in bad faith. |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Companies Act (Cap 50, 2006 Rev Ed) s 216A | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Derivative action
- Fiduciary duty
- Good faith
- Interests of the company
- Fictitious transactions
- Unauthorized payments
- Companies Act
- Section 216A
15.2 Keywords
- derivative action
- fiduciary duty
- companies act
- singapore
- corporate law
16. Subjects
- Companies Law
- Corporate Governance
- Civil Procedure
17. Areas of Law
- Companies Law
- Civil Procedure