| Ohm Pacific Sdn Bhd v Ng Hwee Cheng Doreen [1994] 2 SLR 576; [1994] SGCA 85 |
| CA 23/1993 | |
| 30 May 1994 | |
| Court of Appeal | |
| Karthigesu JA, L P Thean JA, Yong Pung How CJ | |
| Sri Ram and K Parasoram (Param & Pnrs) for the appellants, C Arul and Ng Poh Liang (C Arul & Pnrs) for the respondent |
Judgment
[Please note that this case has not been edited in accordance with the current Singapore Law Reports house style.] Judgment reserved. LP Thean JA (delivering the judgment of the court): The background 1 The appellants, OHM Pacific Sdn Bhd, are a company incorporated in Malaysia for the purpose of a joint venture between one Halim bin Mohammad (‘Halim’) and one Bernt Forsell (‘Forsell’) to purchase and operate a vessel ‘Peony’ (‘the vessel’). Halim and his friends held 51% of the shares of the appellant company. Under an agreement dated 18 May 1984 the appellants agreed to purchase the vessel from the Hong Kong sellers and paid to them a deposit amounting to 10% of the purchase price. However, the appellants were unable to raise the balance of the purchase price in time to complete the purchase. Bridging finance was therefore arranged and was provided by Pacific Navigation Pte Ltd (‘Pacific Navigation’), a company incorporated in Singapore in which Forsell and his wife, the respondent, were directors and shareholders. Because the finance was provided by Pacific Navigation, the vessel was, upon completion of the purchase, registered in the name of that company in Singapore. As part of the arrangement between the appellants and Pacific Navigation relating to the bridging finance, three documents were executed by or on behalf of the appellants on or about 18 October 1984, namely: (i) a management agreement appointing Pacific Navigation as the sole managing agents of the vessel, (ii) a charterparty of the vessel to Australasia Bulk Shipping Pte Ltd, and (iii) a power of attorney appointing the respondent as the attorney of the appellants. In addition, there was a trust deed executed by Halim in favour of Forsell in respect of 1% of the shares in the appellant company. The appellants finally managed to obtain a loan from a bank in December 1984, and the loan was secured by a mortgage of the vessel coupled with corporate guarantees of Pacific Navigation and OHM Maritime Sdn Bhd, a company belonging to Halim’s family. On 12 April 1985, the vessel, which had changed the name to Ohm Mariana, was permanently registered in Malaysia in the name of the appellants. 2 After the completion of the purchase of the vessel, Pacific Navigation operated the vessel as agents for the appellants and this continued until February 1985 when the operation changed hands. Subsequently, differences arose between the appellants and Pacific Navigation and on 19 September 1985 Pacific Navigation instituted an admiralty action in rem against the vessel claiming a sum exceeding S$300,000 in respect of disbursements made by them as agents for the appellants on account of the vessel and claiming also agency and other fees and commission. The action was heard in the High Court and later came on appeal before this court and judgment was given on 31 May 1993: see ‘The Ohm Mariana’ ex ‘Peony’; Pacific Navigation Co Pte Ltd v Owners of and All Other Persons Interested in the Ship or Vessel Ohm Mariana ex ‘Peony’. 3 The present suit was brought against the respondent soon after the commencement of the admiralty action in rem and relates closely to the three documents executed by the appellants, which were prepared by the respondent’s firm, Ng & Co. The appellants in the statement of claim, as subsequently amended, averred that the respondent, being their solicitor, failed to disclose to them her interests in Pacific Navigation, and that the respondent failed to discharge her duty as their attorney to prevent the arrest of the vessel or to ensure that the power of attorney was properly executed. The judgment 4 The action was heard before Kan Ting Chiu JC who found that there was a contract of retainer between the appellants and the respondent. However, the learned trial judge held that the respondent’s failure to disclose her interest in Pacific Navigation was ‘not an actionable wrong in the circumstances’ as it did not cause any loss or injury to the appellants. It was further held that the power of attorney had not been created for the benefit of the appellants and therefore the respondent, being a gratuitous attorney, was not obliged to act under the power for the appellants’ benefit. In any event, even if the respondent was obliged to take action, she was not obliged to provide the funds, which the appellants admittedly did not have, for securing the release of the vessel. It was also held that the respondent’s failure and/or inability to act did not cause any loss to the appellants as the latter were not prevented from entering into negotiations for the release of the vessel and the failure of those negotiations had nothing to do with the respondent. 5 At the hearing, the appellants through Halim alleged that the respondent had tampered with the management agreement by substituting certain pages thereof with pages fabricated by her. The learned trial judge, however, held that the court was unable to make a determination of that issue as it had not been pleaded. An application for leave to make the necessary amendments to the statement of claim at a very late stage of the hearing was refused. Application for leave to amend 6 Before we consider the substantive issues in this appeal, we should dispose of first a procedural point: the question of the application for leave to amend the statement of claim which was refused by the trial judge. Order 18 r 7 of the Rules of the Supreme Court requires every pleading to contain all the material facts but not the evidence by which those facts are to be proved. Central to the appellants’ case is the fact that the respondent preferred her own interests to that of the appellants. If the allegation of fabrication is but evidence of the respondent preferring her own interests, it follows that it was unnecessary to plead fabrication in the statement of claim. Indeed counsel for the appellants said in his closing submission before the trial judge that the alleged tampering was evidential backing for the appellants’ allegation that the respondent was preferring her own interests to that of the appellants. On the other hand, counsel have proceeded, both here and below, on the basis that it was a material fact which ought to have been pleaded. In our opinion, the allegation of fabrication of the management agreement was a material fact which ought to have been pleaded. What the appellants in fact alleged was that the respondent, in order to support the admiralty action in rem and arrest of the vessel, deliberately substituted certain pages of the management agreement (after it was executed by Halim) with pages fabricated by her. Implicit in such allegation is an element of fraud on the part of the respondent. In the premises, the sole question is whether the learned trial judge erred in law in refusing to give leave to the appellants to amend their statement of claim. In this regard the learned trial judge’s reasoning was this: I refused the application. The proposed amendment sought to introduce new and serious charges of fraud against the defendant. The plaintiffs were aware of the documents well before the hearing commenced. They had alleged tampering in Pacific Navigation’s admiralty suit which was heard earlier. The basis for the proposed amendments came up by that time. The pleadings should be amended then, and the documents could have been sent for examination and the document examiner’s reports could be obtained. The fact that the documents were sent for examination during the hearing reflected delay in the application to amend and did not justify it. In refusing the application, I took into account: (a) The proposed amendments were not amendments to clarify the issues in dispute, but were amendments to (b) The sheer length of delay of the application — it was made on 4 February 1993, after the first instance (c) That an amendment will not be allowed at a hearing which introduces a charge of fraud — Behn v Bloom 7 The events surrounding the application for leave to amend should be clearly borne in mind. The appellants pleaded in para 2D of the statement of claim as to the appointment of Pacific Navigation under a management agreement which was alleged to be undated but signed on or about 18 October 1984. In para 5 of the defence the respondent disputed the allegation that the said agreement was undated, averring that it was dated 14 November 1984. The appellants specifically joined issue with the respondent regarding the latter’s contention by para 1D of the reply. On 12 June 1992, before the trial began, the appellants amended their reply by inserting ‘Particulars of Findings of Facts’ after para 1D of the reply, where they pleaded that ‘the first four pages of the management agreement relied on by Pacific Navigation were fabricated and substituted in place of the first four pages of the agreement signed by Mr Halim and it was done either for the purpose of effecting the arrest of the ship or sustaining the arrest.’ There the appellants purported to rely on the findings of fact made by the High Court in the related admiralty suit. That amendment, however, was struck out by the learned trial judge at the commencement of the trial on 3 August 1992. The application for leave to amend the statement of claim was not made until 4 February 1993 during the closing submission of counsel for the respondent. 8 The allegation of fabrication had already surfaced during the hearing of the related admiralty action in respect of which the first instance judgment was given on 11 March 1992. It was already open then for the appellants to apply for leave to amend the pleadings. Instead, the appellants waited for more than a year before they finally decided to make the necessary application. It was not made before the trial. The case was part-heard from 3 to 6 August 1992. It resumed on 2 February 1993 and concluded on the third day. The appellants only made the application on the very last day during the closing submission of counsel for the respondent. It is true that counsel started on submission before the close of evidence and the application was, strictly speaking, made before the close of evidence. But the only remaining witness was the document examiner. All material facts relating to the alleged fabrication were available to the appellants at the time of the hearing of the related admiralty suit. The allegation did not arise during the course of trial in the court below. In our judgment, the learned trial judge was right in refusing the application for leave to amend the statement of claim. We now turn to consider the substantive aspects of the appeal. Power of attorney 9 The sole issue here is whether the respondent as the attorney of the appellants had failed to discharge her duty to prevent the arrest of the vessel. It was submitted by counsel for the appellants that the power of attorney given to the respondent was to ensure that the vessel was fully and properly employed and efficiently operated to meet her financial obligations to pay the monthly instalments of the loan. If the vessel was arrested by a third party it was the responsibility of the respondent to raise funds to obtain her release. The respondent as the attorney was under a legal duty to prevent the arrest by Pacific Navigation and upon her arrest to procure and obtain her release. This issue turns substantially on the question whether the power of attorney was gratuitous. It is clear that if the power of attorney was gratuitous then the attorney was under no duty to act. The donee of a power of attorney is not in the position of a trustee. If no consideration moves from the donor to the donee of such a power, the latter is not obliged to exercise the power. The appellants’ argument that cl 6 imposes a duty on the donee to act is unsustainable. Clause 6 reads as follows: To give or procure such bail or undertakings or guarantees in lieu of bail and generally to take such steps as the Attorney may think proper in order to preserve the ship from or to obtain her release from arrest or detention. 10 The clause is merely one of many clauses which set out the content and scope of the donee’s power. It does not in any way, nor can it, impose any duty on the donee. 11 Counsel for the appellants also argued that the power of attorney was created for the benefit of the appellants. On the evidence, however, it was granted for the benefit of Pacific Navigation; it was granted as part of the security arrangement to protect Pacific Navigation’s interests. It is not disputed that the appellants had received consideration for granting the power of attorney. The consideration was the loan granted to them by Pacific Navigation. This does not, however, make the power of attorney any less gratuitous as neither Pacific Navigation nor the respondent was to receive any remuneration under it. In the premises, the respondent was not duty-bound to act under the power of attorney to further the interests of the appellants. 12 As the learned trial judge held, this matter can be taken further against the appellants. The learned trial judge said: The matter can be taken further. Even if the defendant was obliged to take action, she cannot prevent the arrest and her duty did not extend to providing the funds or means to secure the vessel’s release herself. The plaintiffs admitted that they did not have the ability to do that themselves. It was idle for them to expect the defendant to do so. 13 We are in entire agreement with the learned trial judge. At any rate, the operation of the vessel had changed hands in February 1985 or thereabout. Thereafter, Pacific Navigation ceased to operate the vessel as agents for the appellants. At the time of arrest the vessel was not operated by Pacific Navigation but by the appellants or their agents. 14 We are therefore of the opinion that the appellants’ claim in relation to the power of attorney is unfounded. In our judgment, the crux of this appeal lies in the question whether the respondent can be made liable for any breach of her retainer, to which we will now turn. Breach of contract of retainer 15 The learned trial judge found that the respondent had acted as the solicitor of the appellants in the preparation of the three documents relating to arrangement made between the appellants and Pacific Navigation for the bridging loan. The learned trial judge held that although there was no clear evidence as to the existence of a contract of retainer, he found that the respondent had acted for the appellants in those transactions. In coming to his conclusion, he took into account two facts. First, there was a letter sent by the respondent’s firm to the appellants in which the respondent’s firm indicated its willingness to act in accordance with the appellants’ direction in relation to the bill of sale and deletion certificate. Secondly, an adverse inference was drawn against the respondent for failing to call a material witness whose evidence might have shown that those documents were prepared by the respondent’s firm on behalf of the appellants as well as Pacific Navigation. In our judgment, the trial judge was entitled to come to the conclusion that there was a retainer contract. Before us, the respondent has not challenged this finding. 16 Having found that there was a contract of retainer, the learned trial judge nevertheless held that on the facts before him there had been no breach of the retainer on the part of the respondent. It was contended on behalf of the appellants that there was a lack of judicial appreciation of the cause of action in this case and that the trial judge erred in requiring proof of misconduct and/or negligence before allowing the cause of action to succeed. On this point, the trial judge said: The plaintiffs did not plead that there was any negligence or misconduct on the part of the defendant as their solicitor because of her interest in Pacific Navigation, or that they had suffered any loss as a result of that. The defendant did not act for Pacific Navigation in the arrest of the vessel, which the Court of Appeal had ruled was proper. I therefore found that although the defendant should have disclosed that she was a director and shareholder of Pacific Navigation, her failure to do that did not cause any loss or injury and was not an actionable wrong in the circumstances. 17 The learned trial judge merely addressed the point that neither misconduct or negligence nor resulting loss from such misconduct or negligence was pleaded by the appellants. It seems to us that he did not at all mean that either misconduct or negligence is required before there can be said to have been a breach of the contract of retainer. In fact he referred to the fact that the respondent did not act in the admiralty suit brought against the ship Ohm Mariana, thereby indicating that the respondent did not act in conflict with the appellants’ interest and therefore the loss occasioned by the arrest could not be said to have been caused by any breach of the retainer. The essence of his determination is simply this: there was no misconduct or negligence; the respondent did not act for Pacific Navigation in the arrest of the ship, and any loss occasioned by the arrest was not caused by the respondent in her capacity as the appellants’ solicitor in the transactions which took place nearly a year ago. In the premises, the appellants’ argument of a lack of judicial appreciation of the appellants’ cause of action is unsustainable. Breach of fiduciary duty 18 We now turn to the last issue raised before us: whether there was a breach of duty on the part of the respondent as solicitor for the appellants in relation to the preparation of the three documents and in particular the management agreement. The respondent was obviously acting for Pacific Navigation. In acting for the appellants in relation to the transactions the respondent was clearly in a situation where her duty to the appellants was in conflict with her duty to Pacific Navigation. Furthermore, she was a director and shareholder of Pacific Navigation and her husband, Forsell, probably managed that company. Clearly in that case her duty to the appellants as her clients was in conflict with her own personal interests in Pacific Navigation. It was submitted on behalf of the appellants that, first, the respondent was in a fiduciary position vis-a-vis the appellants and as such was obliged to disclose to the appellants her interest in Pacific Navigation and her acting for that company, and further the respondent was under an obligation to advise them to take independent advice. This submission, in our opinion, is well founded. 19 There are two important aspects of the respondent’s obligation in this case: first, there was a conflict of her duty to the appellants as her clients with her personal interest in Pacific Navigation and secondly, there was also a conflict of her duty to the appellants with her duty to Pacific Navigation who were also her clients. The law expounded in the authorities is quite clear and places on a solicitor in such case the duty to inform his client of such conflicts and advise him to seek independent advice. In this connection, it is instructive to refer to Farrington v Rowe McBride & Partners, a decision of the New Zealand Court of Appeal. In that case, the plaintiff sought investment advice from the defendant firm of solicitors on a sum of $60,000 awarded to the plaintiff in a personal injury action in which the defendants acted as the plaintiff’s solicitors. Acting upon their advice the plaintiff invested in a company which belonged to a larger group of companies for which the defendant firm had been acting as solicitors in various matters. As a result, the plaintiff invested a sum of $30,000 and lost $25,000 when the companies went into receivership. The plaintiff then brought an action against the defendant for breach of their fiduciary obligation as the defendant had not made known to the plaintiff their involvement with the group of companies in question. We quote in extenso the following passage from the judgment of Richardson J at p 89: The general principles are well settled. A solicitor has a fiduciary duty in equity to his client. The relationship between solicitor and client carries with it obligations on the solicitor’s part to act with absolute fairness and openness towards his client. Like any other agent, but to a higher degree because of his position as an officer of the court and the privileges which the law attaches to legal professional confidence, he is bound to observe the utmost good faith towards his client (Rakusen v Ellis, Munday & Clarke There are two aspects or elements of that paramount obligation which are relevant in this case: (1) the question of conflict between a solicitor’s duty to his client and his personal interest; and (2) the question of conflict between his separate duty to each client when he attempts to serve two masters at the same time in the same transaction. The classic statement of the first rule is that of Lord Herschell in Bray v Ford ‘It is an inflexible rule of a Court of Equity that a person in a fiduciary position, such as the respondent’s, is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict.’ And as Lord Upjohn observed in Phipps v Boardman ‘It does not appear to me that this rule is, as has been said, founded upon principles of morality. I regard it rather as based on the consideration that, human nature being what it is, there is danger, in such circumstances, of the person holding a fiduciary position being swayed by interest rather than by duty, and thus prejudicing those whom he was bound to protect. It has, therefore, been deemed expedient to lay down this positive rule.’ It follows that a solicitor must not without the informed consent of his client stand to make any profit or receive any benefit other than his professional remuneration from the transaction which he is retained to carry through. It is no defence that his interest is indirect — as where the transaction is between his client and a company in which he or a member of his family has a significant shareholding or where he otherwise has an indirect financial interest in the transaction. But whether present or prospective, there must be a potential benefit to the solicitor of pecuniary consequence or perhaps personal advantage in or through the transaction in which his advice is engaged. 20 Having dealt with that aspect of a conflict of a solicitor’s duty to his client with his personal interest, Richardson J went to expound the law on the other situation where a solicitor finds himself acting for two clients with opposing interests. He said, at p 90: A solicitor’s loyalty to his client must be undivided. He cannot properly discharge his duties to one whose interests are in opposition to those of another client. If there is a conflict in his responsibilities to one or both he must ensure that he fully discloses the material facts to both clients and obtains their informed consent to his so action: ‘No agent who has accepted an employment from one principal can in law accept an engagement inconsistent with his duty to the first principal from a second principal, unless he makes the fullest disclosure to each principal of his interest, and obtains the consent of each principal to the double employment’ (Fullwood v Hurley And there will be some circumstances in which it is impossible, notwithstanding such disclosure, for any solicitor to act fairly and adequately for both. But the acceptance of multiple engagements is not necessarily fatal. There may be an identity of interests or the separate clients may have unrelated interests. In some circumstances, they may even be able and prepared to look after their own interests. Such cases seem straightforward so long as it is apparent that there is no actual conflict between duties owed in each relationship. However, the difficulty lies in determining in particular cases that there is no such conflict and the courts have often warned of the risks involved where the solicitor acts for both parties in a conveyancing transaction ... 21 Reverting to the instant case, there was no evidence that the respondent had disclosed to the appellants (i) her interests in Pacific Navigation and (ii) her acting for Pacific Navigation in the relevant transactions and had advised the appellants to seek independent advice. The learned trial judge made the following finding: I also found that the defendant had not informed the plaintiffs that she was a director or shareholder of Pacific Navigation. She had a duty to do that. The fact that the information was available from the Registry of Companies did not relieve her of the duty. However, although the plaintiffs were right in saying that the defendant had failed to disclose her status as a director and shareholder of Pacific Navigation, that did not dispose of the matter. They knew that she was Mr Bernt Forsell’s wife and he was involved in Pacific Navigation. Furthermore, their case was that the defendant told them that the money lent to complete the purchase of the vessel came from her, although the loan was made in the name of Pacific Navigation. From their evidence, the plaintiffs believed at the time the loan from Pacific Navigation was made that the defendant was sufficiently involved in Pacific Navigation to use her own funds for the loans made in the company’s name. Nevertheless, they retained their faith in her, and did not get separate legal advice. On this evidence, it was reasonable to infer that the plaintiffs would not obtain separate legal representation even if the defendant told them that she was a director and shareholder of Pacific Navigation. Indeed, Mr Halim did not say that the plaintiffs would not instruct the defendant to act for them if they knew she was a director and shareholder of Pacific Navigation. 22 In our judgment, the fact that the appellants had knowledge of the respondent’s interests in Pacific Navigation and of her acting also for that company did not amount to informed consent from the appellants which was required if the respondent were to be absolved from her fiduciary duty in the given circumstances. It certainly did not absolve the respondent from explaining to the appellants her dual responsibilities in those transactions and how the appellants would or might be prejudiced by also engaging her as their solicitor. Even if the respondent had obtained the informed consent of the appellants, she would still be liable to the appellants if she had not discharged her duty to the appellants because of her interest in Pacific Navigation and her conflicting duty to Pacific Navigation. The respondent should not have accepted the appellants’ reposal of trust in her when she knew full well that she was not in a position wholeheartedly to protect the interests of the appellants. 23 We have no doubt that the respondent was in breach of fiduciary duty to the appellants in acting for them in relation to the relevant transactions. However, the loss which the appellants claimed did not flow from such a breach and there was in this case no causal link between the breach of duty on the part of the respondent and the loss alleged to have been suffered by the appellants; such loss was not caused by the respondent’s breach of duty but by the operation of the vessel and the failure of the appellants to pay the amount claimed by Pacific Navigation for the operation of the vessel on behalf of the appellants. 24 The appellants claimed damages in respect of two types of losses: first, the expenses incurred in defending the related admiralty suit, and secondly, loss of earnings as a result of the arrest of the vessel. Counsel for the appellants argued that but for a retrospective clause in the management agreement the arrest would not have been possible. The retrospective clause reads: 8 This agreement shall be retrospective and shall take effect from the date the commencement of negotiation for 25 Counsel for the appellants further submitted that without the retrospective clause it would not have been possible to make the arrest. We do not agree. We need only to refer briefly to the judgment of this Court in The Ohm Mariana at p 705 where the court said: The statement of claim subsequently filed by the appellants clearly showed that the claim was made by the appellants for various disbursements made by the appellants as managing agents of the respondents on account of the vessel and short particulars were given. As we have said earlier, the respondents in their defence admitted that the appellants as managing agents had ‘expended sums of money and made advances of disbursements on account of the vessel.’ It seems to us that purely on the basis of the pleadings, there was no question that the claim came squarely within para (o) of s 3(1) of the Act. 26 Thus, the claim of Pacific Navigation was not founded on that retrospective clause; the claim was for agency fee and costs and expenses for operating the vessel that had not been paid. On the basis of their claim they were entitled to invoke the admiralty jurisdiction in rem and to arrest the vessel. In our opinion, therefore, the expenses incurred in defending the admiralty action and the loss of earnings ensuing from the arrest were not caused by the retrospective clause in the management agreement. 27 Counsel for the appellants submitted that as they have established a breach of duty on the part of the respondent the burden shifts to her to prove that the loss sustained by the appellants was not caused by such a breach. In support, he relied on Dato’ Seri Abu Ba Chi v Malayan United Finance & Anor, at p 409 and Farrington v Rowe McBride & Partners at p 559. Neither of these authorities really goes that far and supports counsel’s argument. In our judgment, it is necessary for the appellants to prove a causal connection between the breach of duty and the alleged loss. No principle could be extracted from the cases that once a breach of duty was shown the burden fell on the respondent as a defaulting fiduciary to show that the loss did not result from her breach: see Re Miller’s Deed Trusts. At any rate, the evidence clearly showed that the loss alleged to have been sustained by the appellants was not caused or in any way contributed to by the respondent’s breach of duty to the appellants. 28 In the result, the appeal is dismissed with costs. The deposit in court as security for costs is to be paid to the respondent or her solicitor to account of costs. Appeal dismissed. Reported by James Chee Hau Tan
add a new issue for the first time. Lord Griffith’s comments in Ketteman v Hansel Properties Ltd [1987] AC
189 at 220D on the different treatments to be given to such amendments to a defence apply with equal force
to amendments to a statement of claim.
judgment in the admiralty suit was delivered on 11 March 1992 and after the hearing of the present action
commenced on 3 August 1992. As stated in para 20/5–8/11 of the Supreme Court Practice 1993, ‘the
Court should not readily allow at the trial an amendment, the necessity for which was abundantly apparent
months ago, and then not asked for’.
the purchase of the ship between the registered owners as buyers and Limerick Shipping Ltd, as sellers/their
mortgagees/representatives/ agents.