Hector Finance Group Ltd v Chan Chew Keak: Director's Duties & Conspiracy

Hector Finance Group Limited and Huizhou Xinsheng Paper Industry Co. Limited sued Chan Chew Keak in the General Division of the High Court of Singapore for breach of director's duties and conspiracy. The plaintiffs alleged that Chan Chew Keak, as a director, caused Huizhou Xinsheng Paper Industry Co. Limited to enter into loan agreements that resulted in financial loss. Justice Vinodh Coomaraswamy found that the defendant breached his duty of diligence to the second plaintiff, but dismissed the claims for breach of fidelity and conspiracy. The court awarded damages to the second plaintiff.

1. Case Overview

1.1 Court

High Court of the Republic of Singapore

1.2 Outcome

Judgment for Plaintiff in part.

1.3 Case Type

Civil

1.4 Judgment Type

Judgment

1.5 Jurisdiction

Singapore

1.6 Description

Breach of director's duties and conspiracy claim. The court found a breach of diligence but dismissed other claims.

1.7 Decision Date

25 May 2023

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
Hector Finance Group Limited	Plaintiff	Corporation	Claim Dismissed	Dismissed	Chua Xyn Yee of Drew & Napier LLC Cavinder Bull SC of Drew & Napier LLC Lea Woon Yee of Drew & Napier LLC Daniel Cai of Drew & Napier LLC Nicholas Chng of Drew & Napier LLC
Huizhou Xinsheng Paper Industry Co. Limited	Plaintiff	Corporation	Judgment for Plaintiff	Won	Chua Xyn Yee of Drew & Napier LLC Cavinder Bull SC of Drew & Napier LLC Lea Woon Yee of Drew & Napier LLC Daniel Cai of Drew & Napier LLC Nicholas Chng of Drew & Napier LLC
Chan Chew Keak	Defendant	Individual	Judgment against Defendant	Lost	Jaikanth Shankar of Davinder Singh Chambers LLC Waverly Seong of Davinder Singh Chambers LLC Tan Ruo Yu of Davinder Singh Chambers LLC John Lo of Davinder Singh Chambers LLC Stella Ng of Davinder Singh Chambers LLC

3. Judges

Judge Name	Title	Delivered Judgment
Vinodh Coomaraswamy	Judge of the High Court	Yes

4. Counsels

Counsel Name	Organization
Chua Xyn Yee	Drew & Napier LLC
Cavinder Bull SC	Drew & Napier LLC
Lea Woon Yee	Drew & Napier LLC
Daniel Cai	Drew & Napier LLC
Nicholas Chng	Drew & Napier LLC
Jaikanth Shankar	Davinder Singh Chambers LLC
Waverly Seong	Davinder Singh Chambers LLC
Tan Ruo Yu	Davinder Singh Chambers LLC
John Lo	Davinder Singh Chambers LLC
Stella Ng	Davinder Singh Chambers LLC

4. Facts

The defendant was a director of both plaintiffs in 2019.
The defendant caused the second plaintiff to enter into two loan agreements, advancing RMB 14m to a third party.
The third party has refused to repay the advance and is uncontactable.
The first plaintiff's directors resolved that the Group should not proceed with any investment in a sheet board plant.
The defendant voted against the resolution.
The loan agreements were for land purchase at industrial park.

5. Formal Citations

Hector Finance Group Ltd and another v Chan Chew Keak, Suit No 233 of 2020, [2023] SGHC 127

6. Timeline

Date	Event
2005-05-01	Hector Finance Group Limited incorporated in the British Virgin Islands.
2018-08-01	Huizhou Xinsheng Paper Industry Co. Limited incorporated in the PRC.
2018-08-01	AMBDG incorporates Huizhou Shengjia Industry Co. Ltd.
2018-09-01	AMBDG enters into a contract with BHS Corrugated Machinery (Shanghai) Co. Ltd to purchase a corrugator.
2018-09-18	AMBDG paid RMB 9.3m to BHS as a deposit for the corrugator.
2019-01-01	Huizhou Xinsheng Paper Industry Co. Limited enters into first loan agreement with Mr. Li Yuanchang.
2019-01-01	Huizhou Xinsheng Paper Industry Co. Limited transfers RMB 10m to Mr. Li Yuanchang.
2019-01-01	AMBDG transfers RMB 30m to Huizhou Xinsheng Paper Industry Co. Limited.
2019-03-01	Huizhou Xinsheng Paper Industry Co. Limited enters into second loan agreement with Mr. Li Yuanchang.
2019-03-01	Huizhou Xinsheng Paper Industry Co. Limited transfers RMB 4m to Mr. Li Yuanchang.
2019-07-01	Hector Finance Group Limited directors resolve not to proceed with sheet board plant investment.
2019-10-01	Mr. Li Yuanchang makes two payments totalling RMB 150,000 against the interest payable under the two loan agreements.
2020-03-01	Plaintiffs commence action.
2022-07-12	Trial began.
2022-11-28	Judgment reserved.
2023-05-26	Judgment issued.

7. Legal Issues

Breach of Duty of Diligence
- Outcome: The court found that the defendant breached his duty of diligence to the second plaintiff by causing it to enter into loan agreements without reasonable protection for its interests.
- Category: Substantive
- Sub-Issues:
  - Failure to exercise reasonable care
  - Inadequate protection of company interests
Breach of Duty of Fidelity
- Outcome: The court found that the defendant did not breach his duty of fidelity to either plaintiff.
- Category: Substantive
- Sub-Issues:
  - Misappropriation of funds
  - Conflict of interest
Conspiracy
- Outcome: The court dismissed the plaintiffs' claim of conspiracy.
- Category: Substantive
- Sub-Issues:
  - Unlawful means
  - Lawful means
  - Intention to cause damage
Causation of Loss
- Outcome: The court found that the defendant's breach of duty of diligence caused the second plaintiff to suffer a loss of RMB 14 million.
- Category: Substantive
- Sub-Issues:
  - Direct cause
  - Mitigation of loss

8. Remedies Sought

Monetary Damages
Account of Profits
Investigation Expenses

9. Cause of Actions

Breach of Duty of Fidelity
Breach of Duty of Diligence
Conspiracy

10. Practice Areas

Commercial Litigation

11. Industries

Finance
Paper Industry
Packaging

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
Sim Poh Ping v Winsta Holding Pte Ltd	Court of Appeal	Yes	[2020] 1 SLR 1199	Singapore	Cited for the principle that a company suing a director for a non-custodial breach of fiduciary duty must show that the breach caused the company loss.
Miao Weiguo v Tendcare Medical Group Holdings Pte Ltd	Court of Appeal	Yes	[2022] 1 SLR 884	Singapore	Cited for the reflective loss principle, stating that a loss arising from a wrong done to a company is suffered only by the company, not its shareholders.
Goh Chan Peng v Beyonics Technology Ltd	Court of Appeal	Yes	[2017] 2 SLR 592	Singapore	Cited for the principle that a holding company cannot recover loss suffered by a subsidiary simply because it can direct and control the subsidiary's cash and profits.
Toh Eng Tiah v Jiang Angelina	Court of Appeal	Yes	[2021] 1 SLR 1176	Singapore	Cited for the definition of a sham contract as one that appears to create legal rights but is executed without any intention of doing so.
Sudha Natrajan v The Bank of East Asia Ltd	Court of Appeal	Yes	[2017] 1 SLR 141	Singapore	Cited for the principles governing the drawing of adverse inferences under section 116(g) of the Evidence Act.
Raffles Town Club Pte Ltd v Lim Eng Hock Peter	High Court	Yes	[2010] SGHC 163	Singapore	Cited for the definition of a de facto director as someone who undertakes functions that can only be discharged by a director.
Evotech (Asia) Pte Ltd v Koh Tat Lee	High Court	Yes	[2018] SGHC 252	Singapore	Cited for the definition of a de facto director as someone who undertakes functions that can only be discharged by a director.
EFT Holdings, Inc v Marinteknik Shipbuilders (S) Pte Ltd	Court of Appeal	Yes	[2014] 1 SLR 860	Singapore	Cited for the elements required to establish liability for an unlawful means conspiracy.
Quah Kay Tee v Ong and Co Pte Ltd	Court of Appeal	Yes	[1996] 3 SLR(R) 637	Singapore	Cited for the elements required to establish liability for a lawful means conspiracy.
Tuitiongenius Pte Ltd v Toh Yew Keat	Court of Appeal	Yes	[2021] 1 SLR 231	Singapore	Cited for the principle that a party cannot rely on an affidavit of evidence in chief as a backdoor pleading.
Crest Capital Asia Pte Ltd v OUE Lippo Healthcare Ltd	Court of Appeal	Yes	[2021] 1 SLR 1337	Singapore	Cited for the definition of special damage as a type of loss which the law will not presume is the natural or probable consequence of a defendant’s wrongful act.
The “Shravan”	Court of Appeal	Yes	[1999] 2 SLR(R) 713	Singapore	Cited for the definition of special damage as a type of loss which the law will not presume is the natural or probable consequence of a defendant’s wrongful act.

13. Applicable Rules

Rule Name
Rules of Court
O 38 r 18(2) of the Rules of Court

14. Applicable Statutes

Statute Name	Jurisdiction
BVI Business Companies Act 2004	British Virgin Islands
Section 122 of the BVI Business Companies Act 2004	British Virgin Islands
Sections 120 to 125 of the BVI Business Companies Act 2004	British Virgin Islands
Company Law of the People’s Republic of China	China
Article 147 of the Company Law of the People’s Republic of China	China
Article 148 of the PRC Company Law	China
Article 149 of the PRC Company Law	China
Companies Act 1967	Singapore
Section 4 of the Companies Act 1967	Singapore
Evidence Act	Singapore
Section 116(g) of the Evidence Act	Singapore

15. Key Terms and Keywords

15.1 Key Terms

Duty of Fidelity
Duty of Diligence
Sheet Board Plant
Loan Agreements
Minority Oppression
Interpersonal Working Dynamic
Interested Party
Business Judgment Rule
Standard Operating Procedure

15.2 Keywords

Director
Duties
Conspiracy
Fidelity
Diligence
Loan
Shareholder
Loss
Damages

17. Areas of Law

Area Name	Relevance Score
Fiduciary Duties	85
Corporate Law	75
Company Law	70
Conspiracy by Unlawful Means	65
Fraud and Deceit	60
Torts	55
Business Litigation	50
Damages	45
Commercial Disputes	40
Civil Procedure	30

16. Subjects

Company Law
Directors' Duties
Tort
Conspiracy