ELCARIM SCIENCE PTE. LTD. v ZHANG YONGTAI

Facts

Elcarim Science Pte Ltd was incorporated on 7 August 2012 by Zhang Yongtai and Dou Suoke, now its sole shareholder. Zhang ran the company as director and held all the shares, half on trust for Dou; that half was later moved to Pang Theng Kin, a fellow director, to hold for Dou. On 10 June 2015 Elcarim terminated Zhang's employment without notice, and Dou caused Zhang's own shares to be transferred to himself.

Almost six years later Elcarim sued Zhang in Suit No 118 of 2021, alleging breaches of director's duties: that he failed to obtain export permits, leading to two convictions and fines totalling $20,000 under the Strategic Goods (Control) Act; that he misused $58,288 of company money to repay his personal ANZ Bank loan; and that he put three acquaintances, including his wife, on the payroll for $86,255 though they did no work. Zhang counterclaimed against Elcarim and Dou for salary in lieu of notice, unpaid salary, $685,539 he said he had lent the company, and the loss of his shares. Dou said the transfer was made under a share pledge agreement (the SPA) dated 28 February 2015 securing a $750,000 loan to Zhang; Zhang said he never signed it and his signatures were forged. Zhang settled with Pang before trial, and neither side called Pang.

Issues

1. Whether Zhang breached his duties as director over the export permits, the ANZ loan repayments and the three employees.
2. Whether Zhang was entitled to damages for termination without notice and to unpaid salary for May and 1–10 June 2015.
3. Whether Elcarim owed Zhang the $685,539 he claimed as loans to the company.
4. Whether Zhang signed the SPA and the share transfer documents, so that Dou validly took the Shares.

Holding

The High Court allowed the claim and the counterclaim each in part. Elcarim succeeded only on the three employees and was awarded damages of $86,255 against Zhang. Zhang succeeded on wrongful termination, with damages of $11,000, and on the Shares: Dou had improperly transferred them to himself, and Zhang was awarded damages to be assessed for their loss, valued as at 10 June 2015. All other claims by both sides were dismissed, and costs were left for later hearing.

Reasoning

On the export permits, Elcarim produced no documents or direct evidence that Zhang handled the exports, and did not call Pang, whom Zhang named as responsible. On the ANZ loan, bank records showed $60,000 reaching Elcarim's account on 23 July 2013, so the loan was taken for the company's benefit. On the three employees, there were no contracts or records of any work, none testified, staff had never seen them, and Zhang's account emerged only in cross-examination; the court found they did no work and refused relief under s 391 of the Companies Act.

On termination, Zhang had signed his letter of appointment as both employee and employer, without Dou's approval, on unusually favourable terms, so it was unenforceable. As an employee he was still entitled to reasonable notice, which the court set at one month, matching the notice period in Dou's own contract. He did not prove a salary above $11,000. His claim for pay for 1–10 June 2015 failed because he admitted he had not checked whether he was paid.

The $685,539 claim failed. The figure came from unaudited accounts prepared on Zhang's instructions from an inaccurate ledger, so it was no admission by Elcarim. The court rejected Zhang's case that Dou had agreed to pay him discretionary commissions which he then lent on; the foreign currency sums passed through his account were Dou's funds for the company. Most other heads were unpleaded or unproved. Only the ANZ loan counted, leaving $1,712 after Elcarim's repayments, and that was extinguished by later payments to Zhang of $114,090.68.

On the Shares, the burden of proving forgery lay on Zhang, but the factual evidence decided the issue. The SPA was confusing and very onerous for Zhang; Dou's account of a $750,000 loan was unsupported and contradicted by his own evidence; a 2012 contract he produced late was not genuine; and his accounts of the signing kept changing. The court thought it more likely that Dou wanted to remove Zhang and devised a dispute to explain it afterwards. It drew an adverse inference from Dou's failure to call Pang. It preferred the method of Zhang's handwriting expert, though her conclusion might be overstated. Because Zhang pleaded conversion, damages rather than return of the Shares was the remedy.

From the judgment