Case Summaries

Sim Poh Ping v Winsta Holding Pte Ltd and another and other appeals [2020] SGCA 35

SUPREME COURT OF SINGAPORE

9 April 2020

Case summary

Sim Poh Ping v Winsta Holding Pte Ltd and another and other appeals
[2020] SGCA 35
Civil Appeals Nos 218, 219 and 220 of 2018

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Decision of the Court of Appeal (delivered by Judge of Appeal Justice Andrew Phang Boon Leong):

Outcome: CoA sets out the law on equitable compensation for non-custodial breaches of fiduciary duty, and allows appeal in part in relation to equitable compensation for breaches of the no-profit and no-conflict rules

Pertinent and significant points of the judgment

  • The judgment sets out the law on equitable compensation for non-custodial breaches of fiduciary duty.

1 Civil Appeals Nos 218 of 2018 (“CA 218”), 219 of 2018 (“CA 219”) and 220 of 2018 (“CA 220”) were appeals against the decision of the High Court in Winsta Holding Pte Ltd and another v Sim Poh Ping and others [2018] SGHC 239.

Background to the appeal

2 In the High Court, the plaintiffs, Winsta Holding Pte Ltd (“Winsta Holding”) and M Development Ltd (collectively referred to as the Winsta Companies), brought claims against the directors of Winsta Holding and its subsidiaries for, inter alia, breaches of fiduciary duty. The plaintiffs claimed that the directors, Mr Sim Poh Ping (“Mr Sim”), Ms Sim Pei Yee (“Ms Lynn Sim”) and Ms Sim Pei San (“Ms Joyce Sim”) (collectively referred to as the Sims), breached the no-conflict rule and no-profit rule. The allegations concerned wrongful diversions of business opportunities away from Winsta Holding and its subsidiaries, and interested party transactions entered into by the directors. The plaintiffs sought equitable compensation for their losses.

The material facts

3 Winsta Holding was the holding company in a group of companies (“the Winsta Group”) which were in the hostel and serviced apartments business. Winsta Holding’s wholly owned subsidiaries (“the Winsta Subsidiaries”) were Evan Hostel Pte Ltd (“Evan Hostel”), Carlisle Hostel Management Pte Ltd (“Carlisle Hostel”), Katong Hostel Pte Ltd (“Katong Hostel”), Pearl Hill Hostel Pte Ltd (“Pearl Hill Hostel”), Queensway Student Hostel Pte Ltd (“Queensway Hostel”), The Hill Lodge @ Mount Vernon Pte Ltd (“Hill Lodge”), and Global Residence Pte Ltd (“Global Residence”).

4 Mr Sim was the managing director of Winsta Holding until 22 May 2015, a director of Winsta Holding, and a director of each of the Winsta Subsidiaries. Ms Lynn Sim was the director of M Development Ltd until 28 April 2015, and a director of Winsta Holding and each of the Winsta Subsidiaries. Ms Joyce Sim was a director of Winsta Holding and each of the Winsta Subsidiaries. The Sims, in particular Mr Sim, were the original driving force behind the Winsta Subsidiaries and the creation of the Winsta Group.

5 M Development Ltd bought 51% of the shares of Winsta Holding in January 2010. As stipulated under the terms of the purchase of the shares in Winsta Holding, the Sims continued to manage Winsta Holding and its subsidiaries. Mr Sim was in charge of charting the overall direction of the Winsta Group and handling key contracts with governmental authorities whilst Ms Lynn Sim and Ms Joyce Sim (“the Sim sisters”) were the directors in charge of the day-to-day operations.

6 The profits of the Winsta Subsidiaries declined between 2010 and 2012. In 2013, the Winsta Group registered a loss of $8.5m. Further losses were projected for 2014. In July 2014, M Development Ltd appointed additional directors to the board of Winsta Holding.

7 Winsta Holding and M Development Ltd began to suspect very significant interested party transactions in the Winsta Group after the additional directors were appointed to the board of Winsta Holding. KordaMentha Pte Ltd (“KordaMentha”), a company specialising in forensic accounting, review and investigation services was engaged. In May 2015, shortly after KordaMentha produced its draft Preliminary Findings, the suit in the High Court was commenced.

8 In June 2015, Winsta Holding appointed The Uncharted Co (“TUC”) to provide management services to its businesses. TUC stated that the Winsta Group was expected to face a shortfall of about $11.2m in December 2015. The Winsta Subsidiaries were placed under creditors’ voluntary liquidation between 3 and 4 August 2015. The decisions were made by the directors nominated by M Development Ltd. The Winsta Companies alleged that the liquidations were due to the subsidiaries having been run to the ground by the Sims’ fraudulent and/or wrongful conduct.

9 The Winsta Companies pursued eight discrete categories of claims in the High Court. The judge in the High Court (“the Judge”) held as follows with respect to each category:

a) The Sims had breached their fiduciary duties to Global Residence by diverting an opportunity to operate serviced apartments at a property called Illuminaire to their own vehicle, Overseas Students Placement Centre Pte Ltd (“OSPC”).

b) The Sims had breached their fiduciary duties by diverting an opportunity to provide serviced apartments at Scotts Square to their own vehicle ATAS Residence Pte Ltd (“ATAS”), which competed with the business of Global Residence.

c) The Sims had breached the no-conflict rule by subletting the blocks of buildings at Hill Lodge and Evan Hostel to their own vehicles Uni-House Pte Ltd (“Uni-House”) and Unihouse @ Evans Pte Ltd (“Unihouse@Evans”) respectively. The leasing of the buildings involved interested party transactions. But the Judge disagreed with the Winsta Companies that the homestay business run by Uni-House and Unihouse@Evans was in competition with the hostel business of Hill Lodge and Evan Hostel. Thus, the Judge found no diversion of opportunity.

d) The Sims had breached the no-conflict rule and breached their duty to act in the best interests of Winsta Holding by misusing Winsta Group’s resources to run Jiu Mao Jiu Hotpot Pte Ltd (“JMJ Hotpot”). They also breached the no-profit rule by taking on the business of housing a group of Mongolian students in the summer of 2014. This opportunity came to them because of their positions as directors of Winsta Holding and Katong Hostel. The Sims housed the students at Devonshire, a property owned by Ms Joyce Sim’s husband, and the monies were paid to JMJ Hotpot instead of to the Winsta Group.

e) The Sims had breached the no-profit rule and the no-conflict rule with respect to an interested party transaction concerning ICS Catering Pte Ltd (“ICS Catering”). The Sims had procured a contract for their vehicle, ICS Catering, to provide catering services to the Winsta Group. The Sim sisters had received personal benefits in the form of monthly fees from ICS Catering, and no disclosure of their interests had been made to Winsta Holding.

f) The Sims had breached the no-conflict rule in respect of the interested party transaction concerning I-Masters Air-Conditional Pte Ltd (“I-Masters”). The Sims had awarded the air-conditioning and general contracting and maintenance work for Winsta Group to I-Masters, in which they held an interest.

g) Mr Dave Kong, Mr Shawn Tan and Ms Connie Ng had dishonestly assisted in the breaches of fiduciary duty.

h) OSPC had dishonestly assisted in the diversion of the Illuminaire opportunity. JMJ Hotpot was also liable for dishonest assistance as its account was used to receive payment for housing the Mongolian students in 2014.

10 OSPC, ATAS, Uni-House, Unihouse@Evans, JMJ Hotpot, ICS Catering, I-Masters, being the corporate vehicles used by the Sims to commit their breaches of fiduciary duties, were also named as defendants in the suit in the High Court. They will be collectively referred to as the Corporate Defendants.

11 The Judge held that the principal squarely bore the legal burden of proof to show that his loss was causally linked to the fiduciary’s breach of duty, and the evidential burden was similarly placed on the principal to adduce evidence of loss that was causally linked to the breach.

12 Applying this test to the breaches, the Judge found that the defendants were not liable for the post-liquidation loss of profits, because there was a commercial reason for the shortfall of funds underpinning the decision to liquidate the Winsta Subsidiaries. The liquidation was not caused by the breaches of fiduciary duty. Turning to the pre-liquidation losses, the Judge found “but for” causation to be established in respect of the losses concerning the diversion of the Illuminaire and Scotts Square opportunities. As for the rest of the breaches of fiduciary duty, the Winsta Companies had not proved that they had suffered any loss; thus, only a nominal amount of equitable compensation was awarded for those breaches.

Decision on appeal in CA 218

13 CA 218 was Mr Sim’s appeal against liability for breach of fiduciary duty to the Winsta Group. He argued that he had no knowledge that his daughters were engaged in breaches of their fiduciary duties. He also argued that he had no personal interest in any of the Corporate Defendants, except OSPC. Alternatively, he appealed against the quantum of equitable compensation in relation to the diversion of the Illuminaire and Scotts Square opportunities, and the quantum of costs he should pay. This appeal was dismissed: at [59] and [316].

14 The Court held that the Judge was entitled to draw the inferences that Mr Sim must have known of his daughters’ breaches of fiduciary duty, and must have agreed to their actions. Mr Sim failed to show that the High Court’s findings and inferences were against the weight of the evidence: at [61][64].

15 The Court held that the Judge was right to infer that Mr Sim likely had personal interests in the Corporate Defendants. Mr Sim was a shareholder in Winsta Holding and its managing director; it was reasonable to infer that he would not have wanted or allowed the benefits he derived from that interest to be damaged, unless he was obtaining a benefit or advantage from having the opportunities diverted elsewhere. Further, given the close-knit relations between Mr Sim and his daughters, and his daughters’ interests in and control of the Corporate Defendants, it was open to the Judge to infer that Mr Sim was probably benefiting in some way from the Corporate Defendants taking advantage of the business activities instead of leaving these opportunities to the Winsta Group: at [67].

16 Moreover, a breach of fiduciary duty can occur where the fiduciary prefers a third party’s interests over those of its principals. The no-conflict rule is fundamentally concerned with securing the utmost protection of the beneficiary. It is wholly unsurprising that the rule does not depend on whether the preferred interests are those of the fiduciary or those of a third party. Thus, the Judge’s finding could also be justified on the basis that Mr Sim had breached the no-conflict rule in preferring the interests of a third party when he had come to know of his daughters’ actions but took no action to stop them: at [68] and [71].

17 With regard to the quantum of equitable compensation payable in relation to the diversion of the Illuminaire and Scotts Square opportunities, the Court found no reason to interfere with the Judge’s findings. The evidence given by the expert appointed by the Winsta Companies was not obviously lacking in defensibility. None of the defendants in the High Court had engaged an expert to value the compensation payable. Where a court was confronted with expert evidence that was unopposed and was not obviously lacking in defensibility, it should not reject it or seek to rely on drawing its own inferences: at [76][78].

18 The Court disagreed with Mr Sim’s argument that indemnity costs should be ordered against the Winsta Companies. The argument was hopeless in the light of the affirmation of the Judge that Mr Sim was liable for breaches of fiduciary duty: at [80].

Decision on appeal in CA 219

19 CA 219 was the Sim sisters’ appeal against the quantum of equitable compensation in relation to the diversion of the Illuminaire and Scotts Square opportunities, and the quantum of costs they should pay. The appeal was dismissed: at [297] and [316].

20 On the quantum of equitable compensation, the Sims sisters argued that the Judge had erred in failing to take into account taxes in assessing the amount of equitable compensation. The Winsta Companies objected to the Sim sisters raising this new argument on appeal: the Sim sisters ought to have obtained leave to do so but they did not, and have thus failed to comply with O 57 r 9A(4) of the Rules of Court (Cap 322, R 5, 2014 Rev Ed). The Court agreed with the Winsta Companies. The Court held that whether a party would be granted leave to pursue a new point on appeal would involve consideration of various factors, including whether further submissions, evidence or findings would have been necessitated had the new point been raised below. In the present case, expert evidence as to the post-tax profit margin would have been necessary to support the Sims sisters’ argument. Such expert evidence was not adduced by the Sim sisters. In any case, there were no grounds for appellate intervention in relation to the quantification of equitable compensation: at [300][304].

21 The Court also found no reason to disturb the Judge’s decision on costs, bearing in mind that costs were in the discretion of the trial judge and an appellate court would rarely intervene: at [311].

Decision on appeal in CA 220

22 CA 220 was the Winsta Companies’ appeal. They argued that the causation test applied by the Judge was wrong, and that causation was established in respect of all the breaches of fiduciary duty. This appeal was allowed in part: at [84] and [316].

23 The Court disagreed with the Judge’s causation test. It held that the approach to equitable compensation for non-custodial breaches of fiduciary duty was as follows (at [254]):

a) In a claim for a non-custodial breach of the duty of no-conflict or no-profit or the duty to act in good faith, the plaintiff-principal must establish that the fiduciary breached the duty and establish the loss sustained.

b) If the plaintiff-principal is able to meet the requirements of (a), a rebuttable presumption that the fiduciary’s breach caused the loss arises. The legal burden is on the wrongdoing fiduciary to rebut the presumption, to prove that the principal would have suffered the loss in spite of the breach.

c) Where the fiduciary is able to show that the loss would have been sustained in spite of the breach, no equitable compensation can be claimed in respect of that loss.

d) Where the fiduciary is unable to show that the loss would have been sustained in spite of the breach, the upper limit of equitable compensation is to be assessed by reference to the position the principal would have been in had there been no breach.

24 Applying the test to the post-liquidation losses, the Court held that given that the Winsta Companies were able to show breaches of the core fiduciary duties of no-conflict and no-profit on the part of the respondents and were able to show that post-liquidation losses were sustained, the burden of proof shifted to the respondents to show that the losses would have been sustained even if they had not breached their core fiduciary duties. Nevertheless, the Winsta Companies were unable to succeed in their appeal, in relation to the post-liquidation losses because the Judge’s findings afforded ample ground for the respondents to rebut the presumption of a causative link between the breaches and these losses. The Judge had made a positive finding of fact that the Winsta Subsidiaries had to be liquidated for commercial reasons. The Winsta Group would have been in its financial predicament even if the Sims had not breached their duties: at [259] and [263].

25 Turning to pre-liquidation losses, in relation to the subletting of the blocks of buildings at Hill Lodge and Evan Hostel to Uni-House and Unihouse@Evans, the Court agreed with the Winsta Companies that the homestay business run by Uni-House and Unihouse@Evans was not so different from the hostel business that the Winsta Group was already familiar with. The Winsta Group itself was looking to expand into the homestay business and had the means to do so. Thus, the Sim sisters had diverted the opportunities away from the Winsta Group, breaching the no-profit and the no-conflict rule. The burden of proof shifted to the Sim sisters to disprove causation of loss, and they were unable to do so: at [273], [274], [277] and [278].

26 The Court also agreed with the Winsta Companies that the Sim sisters had diverted the opportunity to run the cafeteria at Hill Lodge from the Winsta Group to ICS Catering. The burden shifted to the respondents to prove that the Winsta Companies would have suffered the loss anyway – in this case, that the Winsta Group could not have taken up the opportunity to operate the catering business anyway. The respondents were unable to discharge this burden: at [283] and [285].

27 In relation to the housing of the Mongolian students in the summer of 2014, the Court found that the loss claimed had not been established. The Winsta Group could not have taken advantage of this opportunity through its various subsidiaries. No evidence had been cited by the Winsta Companies to show what alternative accommodation would have been rented, and the price at which it would have been rented, so as to establish the loss that the Winsta Group had suffered: at [289], [290] and [292].

28 In relation to the interested party transaction between I-Masters and the Winsta Group, the Court found that no loss was established: at [296].

29 Because the claims for equitable compensation in relation to the housing of the Mongolian students, the interested party transaction involving I-Masters, and the post-liquidation losses were rejected, the appeal was allowed only in part.

 

This summary is provided to assist in the understanding of the Court’s judgment. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s judgment.

 

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