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    07:53 PM Jonathan Muk Chen Yeen (Justices' Law Clerk, Supreme Court of Singapore)

    Case Comment on M+W Singapore Pte Ltd v Leow Tet Sin and another [2015] SGHC 10

        

    Introduction

    In M+W Singapore Pte Ltd v Leow Tet Sin and another [2015] SGHC 10 (“M+W”), the High Court found the defendants liable for dishonest assistance and inducement of breach of contract against the plaintiff. 

    The facts 

    M+W Singapore Pte Ltd (“the plaintiff”) was a construction company employed by Jurong Data Centre Development Pte Ltd (“JDD”) to design and build a data centre (“the Data Centre”). Subsequently, JDD started defaulting on its payments and JDD’s parent company (“Japan Land”) embarked on a search for investors to assist JDD with the financing of the Data Centre’s construction. Eventually, an interested investor (“the Investor”) expressed interest in the Data Centre and negotiations ensued while construction of the Data Centre continued. Pursuant to the plaintiff’s insistence, JDD granted a debenture under which JDD agreed that “Monetary Claims” would be charged to the plaintiff via a first fixed charge (“the Debenture”). It required depositing of the Monetary Claims into a designated claims account (“the Claims Account”). In a previous action (reported at [2011] 3 SLR 337 (“OS 389”)), the High Court had held that this arrangement constituted a charge over all of JDD’s fixed and floating assets. 

    As things turned out, the Inland Revenue Authority of Singapore (“IRAS”) gave JDD a Goods and Services Tax refund (“the GST Refund”) of $6,456,230.09 and this amount was paid into JDD’s DBS bank account (“the DBS Account”) (which was different from the existing Claims Account). The negotiations between the Investor and Japan Land fell through and as JDD owed the plaintiff a huge sum of money by then, receivers and managers, as well as provisional liquidators, were appointed for JDD. The Data Centre was sold for $145m but this was insufficient to settle the debt owed to the plaintiff. The receivers and managers also found a balance of only $1,107,816.58 in the DBS Account. The rest of the GST refund were paid to third parties which had performed various services to support the Data Centre.

    In OS 389, it was held that the GST Refund fell within the definition of Monetary Claims and had to be deposited into the Claims Account. However, JDD had not done so. In depositing the GST Refund into the DBS Account instead, JDD was in breach of the terms of the Debenture and thus held the money on constructive trust for the plaintiff. 

    The present action followed OS 389 and here, the plaintiff sued the first and second defendants (“the defendants”), who were the only directors of JDD and the joint signatories of its bank accounts, for authorising the said payments. The plaintiff’s claim against the defendants was based on three grounds: (1) for dishonestly assisting JDD’s breach of trust; (2) for inducing JDD’s breach of contractual obligation owed to the plaintiff; and (3) for fraudulent trading. The court held that they were liable for the first two claims and in this article, only the first two will be relevant. 

    Issue 1: Dishonest assistance

    In Royal Brunei Airlines v Tan [1995] 2 AC 378 the Privy Council held that “[a] liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation” (392). This article will focus on the element of dishonesty, specifically the level and type of knowledge required for one to be regarded as dishonest. 

    Judith Prakash J first held that a person must have had knowledge of a transaction’s irregular shortcomings such that ordinary honest people would consider it to be a breach of honest conduct if he failed to enquire about them: George Raymond Zage III and another v Ho Chi Kwong and another [2010] 2 SLR 589 at [22]. In this regard, a two-stage analysis was employed: (a) what did the person know of the transaction; and (b) did participation in the transaction with that knowledge offend ordinary standards ([41]–[42]). 

    First, Prakash J held that the first defendant was liable as he was an experienced accountant and knew that the Debenture created a fixed and floating charge over all of JDD’s present and future assets in the plaintiff’s favour. This was evidenced by him briefing the Japan Land board on the key terms of the documents and while he said that he had read the draft of the Debenture only very briefly, he had admitted that when he signed the Debenture, he understood that a fixed and floating charge would be created over the Monetary Claims, which comprised of JDD’s present and future assets ([51]–[55]).

    With respect to the second defendant, Prakash J held that the following facts were indicative that he had knowledge that the terms of the Debenture would be breached if the expenses were paid out to the third parties: (a) he had attended the meeting where the plaintiff had demanded security so that work on the Data Centre would continue; (b) while he could not confirm that he understood the Debenture’s terms, he admitted that he would have read it; (c) the other security documents indicated that JDD had acknowledged and agreed that the Debenture’s bizfiling had been lawfully and properly carried out and that it was kept at JDD’s registered premises being open for any creditor or member to inspect; and (d) since he was fully aware that the Debenture was valid, he had a duty to acquaint himself with and understand its terms by seeking legal advice if necessary. 

    Prakash J thus concluded that the defendants must have at least suspected that the GST Refund was not for their free use. It was further held that ordinary people would have considered it to be a breach of honest conduct if they failed to make further queries before disposing of the funds. The defendants were liable for dishonest assistance ([61]).

    Issue 2: Inducing breach of contract

    For the second claim, Prakash J held that the defendants must intend to interfere knowingly with the plaintiff’s contractual rights and the enquiry is an objective one. As they had dishonestly assisted JDD to breach a trust, it followed that the defendants had induced the breach of the Debenture’s terms intentionally when they used the GST Refund to pay the expenses to the third parties ([90] and [92]).

    On the rule in Said v Butt [1920] 3 KB 497 (“Said v Butt”) which stated that agents acting bona fide in the circumstances and within the scope of their authority are not liable for inducing breach of contract, Prakash J found that while the defendants tried their best to keep JDD running so as to facilitate negotiations with the Investor, they could not be said to be bona fide in acting in JDD’s interests since they knew that JDD would breach the Debenture as a result of their actions. Hence, they were not covered under the Said v Butt rule ([93] and [97]).

    Comments

    First, would dishonest assistance or inducing breach of contract be easier to prove given that concurrent liablity under both is possible? It is suggested that the former appears to be easier to establish based on the ingredients that need to be made out. While the former is focused on dishonesty, the latter is focused on intention and knowledge. It is submitted that dishonesty is easier to prove than intention plus knowledge. Although fraud, which requires a high standard of proof, amounts to dishonesty, dishonesty is wider than fraud. Dishonestly requires only that the defendant has knowledge of such facts that would arouse the suspicion of ordinary honest people. On the other hand, the tort of inducing a breach of contract requires at least a blatant disregard of the complained conduct such that an intention to procure a breach of contract could be attributable to him (Gary Chan and Lee Pey Woan, The Law of Torts in Singapore (Academy Publishing, 2011) at para 15.011). 

    Secondly, in Zim Integrated Shipping Services Ltd and others v Dafni Ignal and others [2010] 2 SLR 426 (“Zim Integrated”), Lai Siu Chiu J discussed (at [18]–[27]) the tort of inducing breach of contract and the tort of inducing breach of fiduciary duties and other obligations (which does not appear to preclude the inducement of a breach of trust duties). It is timely to inquire whether there is still any meaningful difference between the two given that M+W found that the defendants had induced a breach of contract by virtue of their inducing a breach of trust between the plaintiff and JDD. Lee Eng Beng, “A Perspective on the Economic Torts” [1996] SJLS 482 (at 499) comments that the concept of intereference in the tort (of inducing breach of contract) is possibly sufficiently wide enough to encompass all forms of knowing implication in a breach of trust or fiduciary duty given that they are merely species of obligations. In any case, Lai J declined to expand the law of tort to recognise the inducement of breach of fiduciary duty and other non-contractual obligations as the facts of Zim Integrated did not warrant so. Similarly, the proposition that the inducement of breach of contract has extended to the inducement of breach of fiduciary duty was rejected by the Court of Appeal in Canadian Pacific (Bermuda) Ltd v Nederkoorn Pte Ltd [1999] 1 SLR(R) 628 (at [46]).

    In so far as the act of inducing a breach of fiduciary duties and other obligations also amounts to a breach of contract and/or dishonest assistance, it is suggested that there is no real need to recognise the separate tort of inducing breach of fiduciary duties and other obligations. It is pertinent however to remember that contractual obligations, fiduciary duties and trust obligations are distinct concepts at law and while they might overlap sometimes (for example, the breach of trust by a trustee is also a breach of fiduciary duty), they do not always do so. In the absence of such overlap, the tort of inducing breach of fiduciary and other obligations could therefore still have a meaningful role as the primary breach under that tort is distinct from the primary breach in the tort of inducing breach of contract. 

    The available remedies for the tort of inducing breach of contract vis-à-vis the tort of inducing breach of fiduciary duties and other obligations and vis-à-vis dishonest assistance must also be considered – due to their different origins at either common law or in equity, the range of remedies that might be available for breaches of equitable obligations are conceptually different from that avaiable for breaches of common law obligations. The possible difference was highlighted in Zim Integrated (at [24]). Questions further arise where an inducement of a breach of contract is also an inducement of a breach of fiduciary duty arising apart from the contract. In the former, can third parties avail themselves of contractual provisions which purport to exclude their liability for loss and alternatively if the case against were pleaded on the basis of inducing a breach of fiduciary duty instead, would such clauses not apply? These are worthwhile questions to consider moving forward.

    Conclusion

    The facts of M+W can be described as regrettable if one views the case from the perspective of the defendants – they were not malicious as their primary objective was to strive as much as possible to get the Investor on board and genuinely thought that this was in JDD’s best interests. However their liability for dishonest assistance and inducement of contractual breach was founded on the fact that they had knowingly and intentionally disregarded the consequences of authorising the payments – JDD would be in breach of trust if they did so. In this note, one sees that it is possible for concurrent liability for dishonest assistance and inducing breach of contract to be found and practically, the former might be easier proved than the latter. 

    * This blog entry may be cited as Jonathan Muk Chen Yeen, "Case Comment on M+W Singapore Pte Ltd v Leow Tet Sin and another [2015] SGHC 10", Singapore Law Blog (17 February 2015) (http://www.singaporelawblog.sg/blog/article/85)

    ** The opinions contained in the commentary reflect the author’s own views and are not to be understood as reflecting the views of the author’s employer.

    *** A PDF version of this entry may be downloaded here

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