Disqualification of an independent director on the ground of failure to exercise reasonable diligence in the discharge of his duties

Ong Chow Hong (alias Ong Chaw Ping) v Public Prosecutor and another appeal [2011] SGHC 93

Introduction

The appellant Ong Chow Hong ("the Appellant"), a non-executive Chairman and an independent director of a listed company Airocean, was charged and convicted under section 157(1) of the Companies Act ("the Act") of failing to exercise reasonable diligence in the discharge of the duties of his office. The District Court in PP v Ong Chow Hong [2009] SGDC 387 imposed a fine of $4,000 (in default 4 weeks imprisonment) and disqualified under section 154(2) of the Act from acting as a director of a company or of a foreign company and from taking part, whether directly or indirectly, in the management of such a company or foreign company for a period of 1 year.

On appeal to the High Court, in Ong Chow Hong (alias Ong Chaw Ping) v Public Prosecutor and another appeal [2011] SGHC 93, per VK Rajah JA, the disqualification penalty was increased to 2 years upon a finding that the Appellant committed a serious lapse in the discharge of his responsibilities as such director.

Background Facts

On 6 September 2005, Airocean's CEO Thomas Tay ("Tay") was picked up by officers from the Corrupt Practices Investigation Bureau ("CPIB") for questioning upon allegations of corruption involving Airocean and 2 other companies in the air cargo industry. Upon CPIB's instructions, Tay gave instructions to his office staff to prepare certain documents concerning the corruption allegations. Tay was detained for 36 hours and while he was released on 7 September 2005, and his passport was impounded.

The other directors of Airocean convened an urgent board meeting to discuss the company's course of action given the CPIB matter. Peter Madhavan, a lawyer, was an independent director of Airocean and was present during the board meeting on 8 September 2005.

The High Court noted that the minutes of the meeting showed that the board of Airocean was informed of the following:

on 6 September 2005 at about 7.00am, CPIB officers had called upon Thomas Tay to assist the CPIB in an ongoing invesgation; CPIB had requested for and obtained from Airocean all e-mails of Thomas Tay from 1 January 2005 to 6 September 2005; Thomas Tay had asked for certain documents relating to the corruption allegations; Thomas Tay's passport was impounded by CPIB; Thomas Tay was questioned for 36 hours by CPIB; Thomas Tay was questioned on whether he had offered any gratification to the staff of some...