Court of Appeal holds that company director can owe concurrent fiduciary duties to multiple principals

Introduction

In Tan Teck Kee v Ratan Kumar Rai [2022] SGCA 62 (“Tan Teck Kee”), the Court of Appeal upheld the decision by the General Division of the High Court (“General Division”) that the 2nd Defendant (“Mr Tan”) was in a fiduciary relation vis-à-vis the Plaintiff (“Mr Rai”). In doing so, the Court of Appeal held that a director of a company can owe concurrent fiduciary duties to both the principal company and a third party.

This case update discusses the Court of Appeal’s decision on the situations where such concurrent fiduciary duties may co-exist.

Brief Facts

Around 2010 or 2011, Mr Rai, the 1st Defendant (“Mr Seah”), Mr Tan, and a third party (“Mr SCH”) discussed the possibility of a joint investment in Cambodian real property. The discussions resulted in an oral agreement where Mr Rai, Mr Seah and Mr SCH agreed to pursue the joint investment to purchase plots of Cambodian land (“the Venture”). Mr Tan did not agree to participate as an investor.

Worldbridgeland (Cambodia) Co Ltd (“WBL”) was incorporated in Cambodia to be the corporate vehicle for the Venture. During the relevant period, Mr Oknha Rithy Sear and Mr Tan were the only two directors of WBL, and held 51% and 49% of WBL’s shares respectively.

On 4 February 2019, Mr Rai commenced proceedings against Mr Seah and Mr Tan for an account on the basis that a fiduciary relationship existed. The General Division agreed that Mr Seah and Mr Tan were fiduciaries vis-à-vis Mr Rai and ordered for the accounts to be made on a wilful default basis. Mr Tan appealed the General Division’s decision to the Court of Appeal, arguing inter alia that he was not in a fiduciary relationship with Mr Rai.

Arguments on Appeal

On appeal, counsel for Mr Tan emphasized that a key obligation owed by fiduciaries to their principal is their single-minded loyalty. The following two arguments were made based on this proposition:

  1. First, as Mr Tan was already a director of WBL, he would not have undertaken a duty of single-minded loyalty to Mr Rai. Hence, absent an express undertaking by Mr Tan to act with single-minded loyalty vis-à-vis Mr Rai, no fiduciary relationship could have arisen between them.
  2. Second, a director of a company cannot voluntarily undertake a role vis-à-vis third parties that can give rise to fiduciary duties.

Decision by Court of Appeal

The Court of Appeal rejected Mr Tan’s first argument, noting that it was predicated on the relevant inquiry being a wholly subjective one which is assessed from the perspective of the putative fiduciary. Instead, the Court of Appeal re-affirmed its earlier decision in Tan Yok Koon v Tan Choo Suan and another and other appeals [2017] 1 SLR 654 (“Tan Yok Koon”) that the existence of a fiduciary relationship depends on whether the putative fiduciary had voluntarily placed himself in a position such that the law can objectively impute an intention on his part to undertake fiduciary duties.

In explaining its decision, the Court of Appeal noted the position that the inquiry should be wholly subjective and assessed from the perspective of the putative fiduciary is one which is unsupported by authorities. In particular, it was noted that in common law jurisdictions (such as Australia and Canada) where the relevant test for identifying a fiduciary relationship is based on an inquiry into ‘reasonable’ or ‘legitimate’ expectations, the subjective inquiry is assessed from the perspective of the supposed principal, and not the putative fiduciary. Furthermore, while the Court of Appeal accepted academic criticisms that the approach in Tan Yok Koon is open-ended and endangers uncertainty in application, it opined that there is currently no superior option to it.

With regard to Mr Tan’s second argument, while the Court of Appeal accepted that a director of a company should not voluntarily place himself in a position that results in him being a fiduciary vis-à-vis a third party as it may potentially create a conflict of interest, it held that there is nothing preventing a director of a company from doing so. To hold otherwise would be to immunize errant directors from the consequences of their actions.

On the facts of the case, the Court of Appeal found that Mr Tan owed fiduciary obligations to Mr Rai as an ad hoc fiduciary as he possessed a high degree of control in handling the interests of the investors in the Venture, and there was little the investors could do to protect their interests.

Commentary

The Court of Appeal decision makes clear that, regardless of the factual matrix, if a putative fiduciary voluntarily placed himself in a position such that the law can objectively impute an intention on his part to undertake fiduciary duties, a fiduciary relationship will arise.

While the factual matrix of Tan Teck Kee is one where a director of a company owes fiduciary duties to both the principal company and a third party, the Court of Appeal’s decision should not be read so restrictively. Hence, as a matter of law, a company director – or more generally, a fiduciary – can owe fiduciary obligations to multiple principals. Such a fiduciary remains liable to all his principals in situations where an actual conflict of interest arises or where there is a real possibility that a conflict of interest may arise.

 

 

 

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