Can a director of a holding company be held in breach of his fiduciary duties owed to the company if he usurps a maturing business opportunity pursued by the company through the activities of its wholly-owned subsidiary? This question was answered in the affirmative by the General Division of the Singapore High Court in OOPA Pte Ltd v Bui Sy Phong  SGHC 142 (OOPA) after considering the issues of separate legal personality and the proper plaintiff rule.
The Plaintiff is a Singapore holding company that wholly owns its foreign subsidiary (Subsidiary). The Defendant was a director of both the Plaintiff and Subsidiary. In late November 2018, the Subsidiary began to undertake a new business known internally as the “CSB”. The plan was to set up 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 comprise three components, the proportions of those components as well as the valuation to be ascribed to Telio were still the subject of ongoing discussions when the Defendant incorporated Telio and became its sole shareholder.
Acting without the knowledge or consent of the Plaintiff’s other directors, the Defendant applied for Telio to enter an accelerator program for start-ups known as Surge Ventures (Surge) and signed, on Telio’s behalf, a term sheet and a convertible note agreement with Surge. When these events came to light, the Plaintiff brought an action in Court alleging that the Defendant held his shares in Telio as agent and/or express and/or constructive trustee for the Plaintiff.
The proper plaintiff
The Court first dealt with the Defendant’s assertion that the Plaintiff was the wrong party to bring a claim because the new business (i.e. CSB) belonged to the Subsidiary and the Plaintiff was merely its shareholder. Although it was the Subsidiary that carried out the CSB, the Court accepted that the claim – as framed – was properly brought by the Plaintiff because it claimed in respect of what it asserted to be its asset and also the loss directly suffered by it. It was held that, as a matter of general principle, a single individual may owe fiduciary duties under different relationships or to different principals. The same act or omission may constitute a breach of fiduciary duty to more than one principal. That there may have been a breach of duty to another principal does not negate or limit the first principal’s rights against the defaulting fiduciary. The fiduciary’s conduct will have to be measured and judged in terms of the scope and content of his duty to the principal that is bringing suit against him, which formed the subject of the next issue.
Breach of fiduciary duty
It is trite that the director of a company is disqualified from usurping for himself or diverting to another person or company with whom or within which he is associated a maturing business opportunity which his company is actively pursuing. Applying this principle, the Court found that:
- the CSB was a maturing business opportunity because, among other things, the Defendant had, on 16 January 2019, described the CSB as having been active for the past one and a half months and having “shown good traction in terms of revenue growth and profitability”;
- the CSB belonged to the Plaintiff and not the Subsidiary. Based on his contemporaneous emails, the Defendant fully understood that it was the Plaintiff which was entitled to decide whether the CSB should remain within the Subsidiary or be spun off into the new entity. The Plaintiff wholly owned the Subsidiary and had the final say in the Subsidiary’s business. Further, it was significant that the Plaintiff had protected its position by an assignment of the Subsidiary’s intellectual property (including those relating to the CSB) to itself. The CSB therefore belonged to the Plaintiff; and
- the CSB was actively pursued by the Plaintiff. In doing so, the Court rejected the Defendant’s attempt to avoid liability by arguing that, at most, the Subsidiary (and not the Plaintiff) was the one pursuing the CSB. As held by the Court, a business opportunity of the Plaintiff may be carried out through its Subsidiary, and accepting this proposition would not conflate the Plaintiff or Subsidiary, or flout the doctrine of separate legal personality of companies.
For these reasons, the Defendant had breached his fiduciary duties owed to the Plaintiff.
The Court agreed with the Plaintiff that the Defendant held his shares in Telio on an express and/or institutional constructive trust for the Plaintiff. Accordingly, the Court ordered the Defendant to transfer his entire shareholding in Telio to the Plaintiff and to account for any dividends derived from those shares.
The key takeaway 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 commonsensical approach in deciding whether the business opportunity belongs to the subsidiary or the holding company. Accordingly, a defaulting fiduciary cannot escape liability by simply invoking the doctrine of separate legal personality and the proper plaintiff rule by asserting that the business opportunity usurped belonged to a different party.
Further, the decision of OOPA demonstrates that a proprietary remedy may be granted in respect of the fiduciary’s breach of duty, as opposed to a mere award of damages. If so, the defaulting fiduciary may be made accountable for the gains made by him flowing from his breach, which often outweigh any losses incurred.
Dentons Rodyk thanks and acknowledges intern Tan Jing Yan for her contributions to this article.