Can a director of a holding company be held in breach of his fiduciary duties to the company if he usurps a maturing business opportunity pursued by the company through the activities of his wholly owned subsidiary? This question was answered in the affirmative by the General Division of the High Court of Singapore in OOPA Pte Ltd v Bui Sy Phong  SGHC 142 (OOPA) after considering the separate legal personality issues and the appropriate claimant rule.
The applicant is a Singaporean holding company which owns 100% of its foreign subsidiary (subsidiary). The defendant was a director of both the plaintiff and the subsidiary. At the end of November 2018, the Subsidiary started a new activity known internally as “CSB”. The project was to create a new company in Singapore (Telio) with a new foreign subsidiary to take over the CSB. While it was agreed that the shareholding of Telio would consist of three components, the proportions of these components as well as the valuation to be attributed to Telio were still the subject of ongoing discussions when the Respondent incorporated Telio and became its sole shareholder. .
Acting without the knowledge or consent of the other directors of the Plaintiff, the Defendant asked Telio to participate in a start-up acceleration program known as Surge Ventures (Surge) and signed, on behalf of de Telio, a terms sheet and a convertible note agreement with Surge. When these events came to light, the Plaintiff brought legal action alleging that the Defendant held its shares in Telio as an express and / or implied agent and / or trustee of the Plaintiff.
The right complainant
The Court first considered the Respondent’s contention that the Plaintiff was not the correct party to sue because the new business (i.e. CSB) was owned by the Subsidiary and the Plaintiff was only its shareholder. Although it was the Subsidiary which carried out the CSB, the Court admitted that the claim – as formulated – was duly brought by the Plaintiff because he was claiming what he claimed to be his asset as well as the loss directly. suffered by it. It was held that, in principle, the same person may have fiduciary obligations under different relationships or towards different principals. The same act or omission may constitute a breach of a fiduciary duty owed to more than one principal. The fact that there may have been a breach of duty to another principal does not negate or limit the rights of the first principal against the defaulting trustee. The conduct of the trustee should be measured and judged on the basis of the scope and content of his duty to the principal who operates it, which will be the subject of the next issue.
Breach of fiduciary duty
It is commonplace that the director of a company is not allowed to usurp for himself or to divert for the benefit of another person or company with whom or within which he is associated a matured business opportunity that his company pursues. actively. Applying this principle, the Court found that:
- the CSB was a maturing business opportunity as, among other things, the defendant had, on January 16, 2019, described the CSB as having been active for a month and a half and having “shown good traction in terms of revenue growth and profitability “;
- the CSB belonged to the Applicant and not to the Subsidiary. Based on his contemporary emails, the Respondent fully understood that it was the Claimant who had the right to decide whether the CSB should remain within the branch or be separated from the new entity. The plaintiff 100% owned the branch and had the final say in the affairs of the branch. Furthermore, it was significant that the plaintiff protected his position by assigning the intellectual property of the subsidiary (including those relating to the CSB) to himself. The CSB therefore belonged to the applicant; and
- the CSB was actively pursued by the plaintiff. In doing so, the Court rejected the defendant’s attempt to avoid liability, arguing that, at most, the subsidiary (and not the plaintiff) was the one suing the CSB. As the Court held, a business opportunity for the plaintiff can be realized through its subsidiary, and accepting this proposal would not confuse the plaintiff or the subsidiary, nor would it violate the doctrine of separate legal personality of companies.
For these reasons, the defendant had breached its fiduciary duties to the plaintiff.
The Court agreed with the Plaintiff that the Defendant held its shares in Telio on an express and / or institutional implied trust for the Plaintiff. As a result, the court ordered the defendant to transfer its entire stake in Telio to the plaintiff and to recognize all dividends derived from these shares.
The bottom line is that a director of a holding company can be held liable for usurping a maturing business opportunity actively pursued by the company through the activities of its wholly owned subsidiary. In this regard, the court will take a common sense approach in deciding whether the business opportunity belongs to the subsidiary or the holding company. Therefore, a defaulting trustee cannot escape liability by simply invoking the doctrine of separate legal personality and the appropriate plaintiff rule in asserting that the misused business opportunity belonged to another party.
In addition, the decision of OOPA demonstrates that an exclusive remedy can be granted for a breach of fiduciary duty, as opposed to a simple award of damages. If this is the case, the defaulting trustee may be held liable for the gains it has made as a result of its default, which often outweigh the losses incurred.
Dentons Rodyk thanks and thanks intern Tan Jing Yan for her contributions to this article.