Significance: Singapore Court of Appeal settles previously muddied law on causation principles for equitable compensation in breach of fiduciary cases.
Prior to this decision, there have been 3 different approaches for causation as regards breach of fiduciary duties adopted by the courts in the common law jurisdictions, including in UK, Australia and the Singapore High Court.
In Singapore, there were 3 competing approaches of causation as applied to breach of fiduciary duties:[1] the Brickenden rule,[2] which requires the plaintiff only to adduce some evidence to connect the breach with the loss before the evidential burden is shifted to the defendant to show a lack of but-for causation; the Winsta rule,[3] which applies but-for causation to every such case; and the middle ground sought by the Then Khek Koon[4] approach, which was based on QAM[5] and refined in Beyonics,[6] and which applies different causation rules depending on the type of breach.
In this milestone decision, a five-person coram in the Court of Appeal laid down the following principles and approach to equitable compensation for non-custodial breaches of fiduciary duty (at [254]):
a) In a claim for a non-custodial breach of the duty of no-conflict or no-profit or the duty to act in good faith, the plaintiff-principal must establish that the fiduciary breached the duty and establish the loss sustained.
b) If the plaintiff-principal is able to meet the requirements of (a), a rebuttable presumption that the fiduciary’s breach caused the loss arises. The legal burden is on the wrongdoing fiduciary to rebut the presumption, to prove that the principal would have suffered the loss in spite of the breach.
c) Where the fiduciary is able to show that the loss would have been sustained in spite of the breach, no equitable compensation can be claimed in respect of that loss.
d) Where the fiduciary is unable to show that the loss would have been sustained in spite of the breach, the upper limit of equitable compensation is to be assessed by reference to the position the principal would have been in had there been no breach.
The Court opines that this approach is based on authority, policy and practicality. As a matter of policy, the wrongdoing fiduciary and the innocent principal is not one where both occupy equal footing, but rather one of dependence by the principal on the fiduciary. The principal relies on the fiduciary to act in his or her best interests, and is especially vulnerable to the fiduciary’s breach of duty. In attempting to ensure that fiduciaries do not abuse the power given to them, and also to ensure that fiduciaries are not tempted or distracted from acting in the best interests of their principals, fiduciary law has always embodied elements of deterrence and prophylaxis at [244]-[247].
As a matter of practicality, burden-shifting is to be preferred because it will often be the case that the fiduciary is in a better position to know how the loss was caused (or not caused): at [248].
As regards the type or categories of fiduciary duties this approach applies to:
i. It applies regardless of whether the fiduciary falls within so-called well-established categories of relationships fiduciary relationship: at [250];
ii. It applies regardless of whether the breach was ‘culpable’ or not: at [251]-[252];
iii. It applies only to breaches of ‘core’ fiduciary duties, i.e. no-profit, no-conflict rules and breach of the duty to act in good faith: at [253].
Read the Supreme Court case summary here; and judgment here.
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[1] Aljunied-Hougang Town Council and another v Lim Swee Lian Sylvia and other and another suit [2019] SGHC 241 , per Kannan Ramesh J, at [589]-[595].
[2] Brickenden v London Loan & Savings Company of Canada [1934] 3 DLR 465 (“Brickenden”).
[3] Winsta Holding Pte Ltd and another v Sim Poh Ping and others [2018] SGHC 239, per Chua Lee Ming J (“Winsta”).
[4] Then Khek Koon and another v Arjun Permanand Samtani and another and other suits [2014] 1 SLR 245 (HC), per Vinodh Coomaraswamy J (“Then Khek Koon”).
[5] Quality Assurance Management Asia Pte Ltd v Zhang Qing and others [2013] 3 SLR 631 (HC), per Vinodh Coomaraswamy J (“QAM”).
[6] Beyonics Technology Ltd and another v Goh Chan Peng and others [2016] 4 SLR 472 (HC), per Hoo Sheau Peng JC (as she then was) (“Beyonics”).