Back in October 2021, TLC successfully defended our client in a case heard in the High Court involving allegations of conspiracy and complex arguments of constructive trusts and elaborate circumstances involving shadow / de facto directors, fiduciary duties and authority of directors who held multiple positions in different companies. After the final issues of costs had been decided recently in 2022, we take a look back at the interesting aspects of the case.
This case revolved around a Sand Machine that had much difficulty producing sand – due to this, there was a decision made by the directors to sell and scrap the machine and close the Company (the 1st Plaintiff).
Pursuant to this decision, our client had used his contacts to obtain a better price than the existing offer on the table, but unbeknownst to him, another director (the 2nd Plaintiff) was searching for and had allegedly found a 3rd party investor to invest in the Sand Machine for a sand production joint venture business. Our client thus sold the Sand Machine to his contact but as it turned out, this particular contact was a friend of supposed prospective 3rd party investor who took the opportunity to obtain the Sand Machine at scrap price without having make a significant investment that the 2nd Plaintiff was proposing to him. This is how the 3rd party investor became the 1st Defendant.
This all culminated in a series of events where the 2nd Plaintiff was chasing the 1st Defendant to respond to his joint venture investment proposal, only to find the 1st Defendant dismantling the very same Sand Machine that was supposed to be part of the joint venture. Upon seeing this, and seeing our client facilitating the dismantling of the Sand Machine, which he had simply sold for scrap in line with the Company’s decision, the 2nd Plaintiff (our client’s fellow director who had not informed him about any search for any investor) accused our client of conspiring with the 1st Defendant. Our client thus became the 2nd Defendant.
Our client, coincidentally caught in the middle of what appeared to be multiple parties fighting over a defunct Sand Machine, had unfortunately had to defend against multiple claims against him for conspiracy, breach of confidentiality and breach of fiduciary duty, even though all he was doing was selling the Sand Machine that could not produce sand for scrap.
After a 7 day trial and hundreds of pages of submissions filed by parties, the Honourable Andre Maniam JC ultimately dismissed every single one of the Plaintiffs claims and found entirely in our client’s favour. Whilst the Plaintiffs had attempted to bring in extensive evidence, what tipped the balance was the simple but truthful perspective of our client and how he had acted reasonably in the circumstances.
One of the most intriguing and hotly contested points was that of authority, where the Plaintiffs claimed that a diametric situation had arisen where one director (2nd Plaintiff) had acted in one way, while another director (our client) had acted in another way, creating two separate and inconsistent results at the same time.
The Plaintiffs argument was that our client did not have authority to act in the way he did because it would clash with the actions of the other director. During trial, the Judge posed to our client a specific hypothetical where 2 directors sold the exact same good to 2 different buyers and whether that would pose a real problem to the company. Our client answered truthfully that it would indeed cause a lot of problems to the company. Our argument was that questions of authority should not be viewed from the results and on hindsight, and if the company did not have a clear approval systems and communication channels to prevent such a clash, then directors cannot be blamed. The issue would then lie with the Company, and the problems arising also belong to the Company.
The Court agreed with our arguments and JC Maniam specifically recognised that the nature of the circumstances, after all the spilt ink and grandiloquence, was simply 2 directors acting at cross-purposes which could happen to anyone and any company. This situation did not necessary imply malice or a breach of duty. This is an important finding because it clearly places the burden on the Company to set out proper systems and procedures and / or delimit the parameters of its directors, and it allows directors to act honestly and freely within said parameters without fear. At the end of the day, each Company gets to choose the system that works best for it, and by that same token, also lives and dies by the same.
An interesting learning point is that this case is a prime example of why being the loudest in the room actually makes you the weakest. Lawyers (including us) routinely struggle with this all the time, where we try to throw the kitchen sink and cram in as many arguments as possible, and try to make numerous assertions and arguments to the Court. Quite ironically, it is often the party that does not speak the most, or has the shortest but also most succinct of submissions that reveals whose case is actually stronger. The Judge in this case had left it to parties to determine if they would like to file reply submissions. Strategically, our team had made the call that reply submissions were not needed while the other parties proceeded filed their reply submissions – this was because while there were numerous issues that were disputed, the legal core of the action remained the same. Thus, what resulted was that the reply submissions mired the facts in even more controversy and in our view resulted in even greatly lack of clarity, while the core of our submissions remained resolute. Ultimately, amidst all the arguments made, our submissions was consistently referenced and adopted by the Judge in his grounds of decision – in that sense, it could be said that if one truly believes in the correctness of one’s submissions, then it should be left to stand the test of challenge, even with no reply.
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