CASE COMMENTARY: OUE Lippo Healthcare Ltd & Anor v Crest Capital Asia Pte Ltd & others
Updated: Jul 30, 2020
OUE Lippo Healthcare Ltd (formerly known as International Healthway Corp Ltd) and another v Crest Capital Asia Pte Ltd and others  SGHC 142 (“OUE Lippo”)
It is typical for a company seeking to sue a senior employee for breach of fiduciary duties to argue that the said employee is a director, regardless of whether he or she is formally named as such on the company’s board.
Section 4 of the Companies Act (Cap 50, Rev. Ed 2006) (the “Companies Act”) reads as follows:
““director” includes any person occupying the position of director of a corporation by whatever name called and includes a person in accordance with whose directions or instructions the directors or the majority of the directors of a corporation are accustomed to act and an alternate or substitute director”
Shadow Directors & De Facto Directors
The terms commonly used to apply to “directors” who are not formally named in the company’s registry are “de facto director” and “shadow director”. There are no strict or fixed definitions for these terms. Although there was previously a statutory definition for “shadow directors” under previous versions of the Companies Act, this definition was eventually repealed.
Whether someone is a “de facto director” or “shadow director” is a question of fact. As such, while some executives may hold titles typically associated with directorship (e.g CEO, CFO), the title itself is not conclusive to a Court’s finding as to whether the said executive is a director.
OUE Lippo’s case against Fan Kow Hin
In OUE Lippo the Plaintiffs attempted to argue that the 6th Defendant, one Fan Kow Hin (“Fan”) was in breach of his fiduciary duties to the 1st Plaintiff, a Singapore incorporated company listed on the Catalist board of the SGX which at the material time was named International Healthway Corporation (“IHC”). IHC alleged that Fan:
(a) procured IHC to enter into a loan facility (known as the Standby Facility) to purchase its own shares, which was in contravention of section 76 of the Companies Act; and
(b) actively concealed the illegal nature of the Standby Facility from others at IHC, including IHC’s board.
In seeking to do so, the Plaintiffs first had to establish that Fan owed these fiduciary duties to IHC. The Plaintiffs were successful in proving that Fan owed fiduciary duties as an employee, but the Court rejected the Plaintiffs argument that Fan was a shadow director. This distinction is important to note for companies seeking to pursue legal claims against former executives not formally named as directors.
At  of OUE Lippo, the Court held that to prove shadow directorship, all that is required is evidence of a discernible pattern of compliance with the shadow director’s instructions or directions with allowances for occasional departures from this pattern for whatsoever reason. It is not necessary for the Court to find that the remaining de facto and de jure directors of the company did not exercise any discretion or judgment of their own.
The Plaintiffs argued that Fan was a shadow director of IHC based on the following:
a) There was evidence from one Tan Yang Hwee (“Tan”) (who negotiated on behalf of the “Crest Entities” with Fan and the 7th Defendant, one Aathar Ah Kong Andrew (“Aathar”), in relation to the Standby Facility) that he perceived Fan and Aathar to be the “decision makers” for IHC;
b) Fan was privy to information on IHC’s financial position and business operations beyond that normally available to a substantial shareholder, owing to his regular meetings with IHC’s director and non-executive chairman, Dr Jong Hee Sen (“Dr Jong”). This combined with the fact that Fan had control over IHC’s management, explained his willingness to provide contractual warranties relating to the operational and management aspects of IHC.
c) Aathar had, after checking with Fan, purported to give the Crest Entities a firm undertaking from IHC that all security arrangements would be promptly restored.
d) Senior members of IHCs management had simply followed up to execute and complete the legal documentation for the Standby Facility without further queries after Fan had instructed them to do so. This indicated that they were accustomed to acting on Fan’s instructions.
Court’s finding on shadow directorship
The Court held that even at their highest, these arguments did not demonstrate the existence of a pattern of conduct in which the directors of IHC, or a majority thereof, were accustomed to act on Fan’s instructions. The Court also held that there was no evidence that Fan had even issued any instructions or directions to any of the directors of IHC. The fact that Fan and Aathar held themselves as authorised deal negotiators whose negotiated terms were accepted by IHC did not suggest that IHC’s directors were accustomed to act on their instructions. In particular, the directors of IHC did not accept or approve the Standby Facility deal blindly but questioned the basis for it making their decision. As such the Court held that Fan was not a shadow director.
Court’s finding on whether Fan was a fiduciary in his position as CEO of IHC
However, Fan was also a CEO. It was in this role that the Court found that he owed fiduciary duties to IHC.
In setting out the law on when an employee is a fiduciary, the Court relied heavily on the tests set out in Clearlab SG Pte Ltd v Ting Chong Chai  1 SLR 163, which is reproduced below:
a) “The Court will only regard an employee as a fiduciary if he is placed in a position where he must act solely in the interests of his employer. A mere employment relationship does not support the existence of a fiduciary relationship. It must be shown that there are particular functions of the employee, which requires him to pursue the interests of his employer to the exclusion of other interests, including his own;
b) The conditions for the imposition of fiduciary obligations on an employee are:
i. The employee has scope for the exercise of some discretion or power.
ii. The employee can unilaterally exercise that power or discretion so as to affect the company’s legal or practical interests.
iii. The company is peculiarly vulnerable to or at the mercy of the employee holding the discretion or power
c) An employee will not owe fiduciary duties in respect of all aspects of his employment. There is no wholesale importation of every kind of fiduciary duty into each case. The fiduciary duties that arise are context dependent and must be accommodated within the terms of the employment contract without altering its intended operation. The real question is whether the employee owed specific fiduciary duties in the particular circumstances in which it is alleged that he had acted against the interests of the employer.”
The Court then proceeded to state a few broad propositions on when an employee would be considered a fiduciary, stating that:
(a) “a senior employee who is vested with broad discretionary powers of management over the company would owe fiduciary duties”
(b) “an employee who is subject to a high degree of supervision and review by a more senior employee will not be subjected to fiduciary duties”; and
(c) “in other words, fiduciary duties will only be imposed on an employee who is effectively the ‘ruler in his own domain’ and is subject to minimal levels of supervision and having a wide discretion over critical aspects of the company’s business.”
Based on the above, the Court held that the fact that Fan was Group CEO and subsequently CEO of IHC showed that he was the leader of its management and stood in a position where he had broad powers of management over IHC. He was not only part of IHC’s top management, he was its top executive. As such, the full range of fiduciary duties owed by the directors of IHC ought to be imposed on Fan. The Court also found that the imposition of fiduciary duties was not inconsistent with the terms of his service agreement with IHC.
Takeaway 1: Distinction between Court’s approach towards finding shadow directorship vs senior employee owing fiduciary duties
OUE Lippo highlights an important distinction in the Court’s analysis of (a) whether Fan was a shadow director (b) whether Fan held duties to IHC as a CEO.
Under (a), the Court’s concern was the relationship between Fan and the directors IHC and the test to be applied was whether these directors were accustomed to act on Fan’s instructions such that the Court could find that he was a shadow director.
Under (b) whether Fan held duties to IHC as CEO depended on his relationship with IHC itself, i.e whether his relationship met the requirements as set out in Clearlab.
In some cases, a senior employee or executive may owe duties as both a shadow director and a CEO (as is typical for SMEs). However, even if a Plaintiff fails to prove that a senior employee is a director, it is important to take note that given the right relationship, a senior employee may still owe fiduciary duties to the company. This of course, is preferable as the remedies for a breach of fiduciary duty are more extensive than those available to an employee simply breaching the terms of his contract or breach a duty of care and skill.
Takeaway 2: Would the Plaintiffs had better success arguing Fan was a “de facto director?”
A “de facto” director has been previously defined as one who is not formally appointed as a director but in fact acts as a director by exercising the powers and discharging the functions of a director.
Given the Court’s finding that Fan was IHC’s founder and was not only “top management” but that he was the “top executive” in IHC, it would seem that the Plaintiffs would have had a better chance in arguing that Fan was a “de facto” director instead of a “shadow director”.
That being said, in Parakou Investment Holdings Pte Ltd and another v Parakou Shipping Pte Ltd (in liquidation) and other appeals  SGCA 3 (“Parakou Investment”) the Court of Appeal affirmed the trial judge’s finding that a ‘wide mandate’ did not automatically result in employees being de facto directors. The question to be asked was if the said employees were “on the same footing as the other directors”. In Parakou Investment itself, the Court did not find the said employees to be de facto directors as “they had to be authorised by a resolution of the board of Parakou before acting”.
Given that in OUE Lippo, Fan had to obtain approval from directors of IHC to approve the Standby Facility, it would have been likely that an argument that Fan was a “de facto” director would have failed as well.
 Tan was the representative of the “Crest entities”, which comprised of fund-administration and management related entities that comprised of the 1st, 2nd, 3rd, 4th and 5th Defendants in OUE Lippo  See  of OUE Lippo  At the material time, the IHC board of directors consisted of Dr Jong, and one Dennis Siew Teng Kean and Ong Lay Khiam. See  of OUE Lippo
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