Business Law Review
May 2005
1
International Corner
New Developments in Duty of
Care: The Singapore Approach to
Negligence
in Product Liability after the Slim 10 case
Catherine Tay Swee Kian
LL B (Hons) (London), LL M (London), Barrister (England),
Advocate and Solicitor (Singapore)*
This article reviews the landmark ruling of the Singapore
Court of Appeal in the Slim 10 case, which has developed negligence in product liability. It extended the scope
of duty of care to include classes of people down the
supply /distribution chain of defective products. The
court’s lifting of the corporate veil to make a director
liable for its negligence is also discussed.
Introduction
In the landmark case of TV Media Pte Ltd v De Cruz
Andrea Heidi and Another (called the Slim 10 case),1
the Singapore Court of Appeal has importantly developed further and extended the principles of business
law in negligence for product liability, dealing also
with the lifting of the corporate veil in company law
issues, including negligence for joint tortfeasors and
the difficult causation issues and contractual law principles.
Although the celebrated English case of Donoghue v
Stevenson2 so famously established that a manufacturer
is responsible for physical injury suffered by an end
consumer as a result of a defective product even if
there was no contractual relationship between them, it
was also a case in relation to liability for defective products. Since Donoghue v Stevenson 3, there has been no
fundamental development in the English common law
dealing with defective products and product liability.
There is no reported precedent in Singapore. Interestingly, the Slim 10 case was decided purely on its own
factual matrix by Singapore courts.
However, there are two interesting Malaysian cases
on product liability relating to defective gas pipes and
gas cylinders. Two actions were jointly tried in the
first Malaysian case of Takong Tabari v Government of
Sarawak & Ors.4 The deceased (first action) and the
plaintiff (second action) were making banking transactions in the premises of Public Bank, when an explosion and fire occurred due to a gas leak from a
corroded gas pipe in the bank. It was established, on a
balance of probabilities, that the explosion and fire
were due to the ignition of an inflammable mixture of
gas and air in the premises. Gas was present in the
premises having leaked from the natural gas supply
supplied by the government through the PWD. The
High Court held that there was an obvious breach of
duty by PWD because it had taken no or insufficient
precaution to ensure that only accredited gas consumer
were connected to the supply of gas, since PWD was
duty-bound to ensure that only those who has applied
for supply of gas were supplied with gas. Further,
there were no or insufficient steps taken by PWD, and
thus the government, to ensure safety after the supply
of gas was connected to the premises. The PWD, and
thus the government, had a major role in permitting
the accident through its acts and omissions. The bank
owed a duty and should have taken all reasonable precautions to ensure the safety of its customers while in
the bank premises. Thus the bank’s omission led to
the accident. Very importantly, the High Court went
on to hold that based on the fact that gas is a dangerous article, the government and Public Bank owed a
duty of care to those in the position or class of the
deceased at the material time. A breach of that duty,
through acts and omissions led to the explosion and
fire causing injury and death. The plaintiff in the first
action succeeded in proving negligence on the part of
the government and Public Bank. Similarly, the plaintiff in the second action succeeded in establishing negligence on the part of the Public Bank.
In the second Malaysian case of Puteh bte Saad &
Ors v Petronas Dagangan Sdn Bhd 5, a fire caused the
plaintiffs’ injuries, which had occurred because of the
jet of gas that had ejected out of a gas cylinder. The
High Court held that the onus was on the defendant,
as the owner and distributor of the gas cylinder, to
prove that it was not negligent in producing and selling the gas cylinder to the plaintiffs. The defendant
was liable for negligence in distributing a defective gas
cylinder as the High Court was satisfied that there was
a defect in the valve of the gas cylinder which had prevented the regulator from being affixed securely onto
the outlet of the cylinder.
Several pertinent issues relating to business torts,
company and contract laws evolved from the Slim 10
case, in particular: (a) extending the scope of boundary
– the classes of people down the modern distribution
and supply chain who owe a duty of care to consumers
in the law of negligence for defective products; (b) the
Singapore courts preparedness now to pierce the corporate veil to make a director of the company personally liable for the negligent acts or omissions of the
company in certain rare occasions; and (c) that an
‘objective test’ be utilised when determining one of the
fundamentals required for a contractual relationship,
namely ‘intention to create legal relations’. Further,
this watershed Slim 10 decision in the law of product
liability in Singapore which is to ensure product safety
and protection, also relates to an even more important
issue of business ethics in the marketing of consumer
products, namely the ethics of misinformation in
advertising.
In this article, I will first set out the facts of the
Slim 10 case followed by a discussion on how this case
has developed the various laws relating to business,
where the issues of consumer safety and protection are
not only an ‘expectation’ in modern times but of paramount importance in the law of negligence and product liability.
Facts of the Slim 10 Case
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Business Law Review
May 2005
International Corner
The plaintiff was Andrea De Cruz, a 28 year old
artiste with MediaCorp Studios. In December 2001,
she saw TV Media’s advertisements about a slimming
drug called Slim 10. Andrea decided to buy and consume Slim 10 after seeing these advertisements which
featured a ‘before and after’ shot of MediaCorp artiste
Chen Li Ping. Andrea bought Slim 10 from Rayson
Tan, a fellow MediaCorp artiste and husband of Chen
Li Ping. Thereafter, she consumed Slim 10. About
two and a half months later, she felt lethargic and
looked as if she was suffering from jaundice. She was
immediately admitted to hospital and was confirmed
by doctors that she was suffering from drug induced
massive hepatocellular necrosis (massive liver cell
death) with impending liver failure. To save her life,
Andrea needed an immediate liver transplant.
The search for a suitable donor failed. The policy
then was that only relatives of the patient could be
donors. Andrea’s boyfriend (now husband), Pierre
Png, was a compatible donor. The plaintiff’s family
managed to get the approval of the Singapore Ministry
of Health to give special permission for an unrelated
living donor transplant to be done. Andrea underwent
a timely adult-to-adult living donor transplant and was
saved from death. Andrea is now on lifelong medication to suppress her immune system to prevent rejection of the transplanted liver. Her physical activities,
food preferences are now restricted with the nagging
thought on whether her weakened body will succumb
to some other disease. Further, there will be risks to
her and to the foetus if she becomes pregnant. Visits
to hospitals have become a way of life for this once
vivacious young lady actress who is also now uninsurable.
The Action and Judgment in the High
Court
Andrea commenced action against the following defendants to claim damages for her pain and suffering and
for her past and future medical expenses:
1. The first defendants were the Chinese manufacturers of Slim 10, Guangzhou Yuzhitang Health
Products Co Ltd. The company was located in
China with no presence in Singapore. The action
could not be served because the Chinese process
servers could not find them in China.
2. The second defendant was Health Biz Pte Ltd, a
Singapore company, and the local importer and
wholesaler of Slim 10. They were sued for negligently importing and distributing Slim 10. They
were found liable.
3. The third defendant was Semon Liu, the founder
and president of Health Biz. He was sued in his
personal capacity for procuring, directing and
authorizing Health Biz’s negligent acts of importing and selling slim 10. He was found liable.
4. The fourth defendant was TV Media Pte Ltd,
the exclusive sole distributor of Slim 10. They
retailed Slim 10 directly and also advertised it on
television and other media. They were sued in
negligence for making untrue statements in their
advertisements (for promoting Slim 10 as being
100% herbal and safe). They were found liable.
5. The fifth defendant was Rayson Tan. He was
sued for breach of the sale of goods contract,
under section 14(2) of the Sale of Goods Act for
breach of the implied term that the goods sold
should be of satisfactory quality. The High Court
held that Rayson Tan was not liable because
there was no contract, as there was no intention
to create legal relations between Andrea and
Rayson Tan.
At the end of a 28-day trial, the High Court ordered
the following parties to pay Andrea, jointly and severally, approximately $900,000 in damages:
1. Health Biz Pte Ltd;
2. Semon Liu; and
3. TV Media Pte Ltd.
Action in the Tort of Negligence
The impact of the Slim 10 case lies in the principles
enunciated in the law of negligence, where responsibility attaches only if a duty to take care is owed.
Whether a certain class of people owed the consumer a
duty of care is determined by analogy to precedent
cases where similar duties were held to exist. But there
are no reported cases in Singapore on product liability.
Duty of Care Owed to the Consumer
The High Court was in no doubt that Health Biz as
importer and distributor owed a duty of care to customers like Andrea.
Equally, TV Media as wholesaler and sole distributor which promoted, endorsed and advertised the product owed a duty to consumers to exercise reasonable
care in its promotion, endorsement and advertisement.
What the legal duty of care translates into factually is
dependent on the circumstances of each case.
Further, Andrea did not buy Slim 10 from TV
Media or its authorised distributors. The link between
Andrea and TV Media however was the fact that
Andrea saw and was convinced by and relied upon TV
Media’s advertisements about Slim 10, as was so
intended by TV Media. The High Court decided that
this link was close enough proximate relationship
between TV Media and Andrea such that TV Media
owed her a duty to take care in ensuring that its statements were true and accurate.
The High Court ruled that both Health Biz and TV
Media could not hide behind the argument that it was
not foreseeable that Andrea would obtain Slim 10
from non-official retail sources. And they could not
defend their position by claiming a break of causation
on the ground that Andrea had no opportunity of
reading the advice to see a doctor if problems arose or
to call the hotline number for enquiries. The High
Court then went on to hold that a distributor of products, if found negligent, would not be able to avoid
liability merely on the basis of having printed such
advice or providing such hotline enquiries.
Business Law Review
May 2005
3
International Corner
Personal Liability of Directors
The High Court held that as a company director,
Semon Liu could authorise or direct a course of conduct which amounted to negligence in the circumstances. The level of his involvement had to be looked
at in determining if he authorised, directed or procured the commission of the tort. The Court was of
the view that this is a matter of degree. On the exceptional facts of the Slim 10 case, the High Court found
Semon Liu personally liable for the acts of Health Biz.
Tay Yong Kwang J stated:
‘‘In this case, there can be little doubt that Health
Biz by any other name would still be Semon Liu.
. . . [Semon Liu]’s involvement in the negligence is
not merely very great, it is total. In the very
exceptional circumstances of this case, I hold
‘Semon Liu] personally liable in negligence as well.’’
Therefore, it is submitted that whether a director can
be made personally liable depends very much on the
factual situation in the circumstances. Generally, personal liability of the negligent company’s officers is
only imposed in exceptional cases because of the need
to balance conflicting public policy considerations in
company law. As stated in the Singapore Court of
Appeal decision in Gabriel Peter & Partners v Wee
Chong Jin11:
‘‘. . . On the one hand, there is the principle that a
company is separate and distinct in law from its
shareholders and directors, and it is in the interests
of the commercial purposes served by the
incorporated enterprise that they should as a general
rule enjoy the benefit of the limited liability afforded
by incorporation. On the other hand, there is the
principle that everyone should answer for his
tortious acts. A cause of concern is that, if the
directors are made liable too easily, many
commercial decisions will be fraught with the
danger of personal liability being imposed on the
directors, who might then become over cautious in
making management decisions lest it render them
vulnerable to legal suits. This will in turn be
disadvantageous to the company commercially. On
the other side of the coin, a director of a company
should not be allowed to escape personal liability to
third parties for torts which he personally
committed by his own hand or mouth merely
because he committed the tort in the course of
carrying out his duties as a director of the
company.’’
After giving much thought to the above opposing considerations, the High Court concluded that the principles enunciated in C Evans & Sons Ltd v Spritebrand
Ltd 12 represent the position as to the liability of directors for a tort committed by the company. The Court
went on to state:
‘‘. . . It is an established principle of law that a
director can, in certain circumstances, be liable for a
tort committed by the company if he directed or
procured the commission thereof. . . . If a particular
tort is one which requires the satisfaction of the
proof of mens rea before personal liability can be
founded, then the state of mind of the director when
he authorised, directed or procured the act will be
relevant . . . Where a director was to be fixed with
liability as a principal, the agency of the company
must be established substantively and cannot be
inferred from the holding of director’s office and the
control of the shares alone because any other
conclusion would have nullified the purpose for
which creation of limited companies was authorised
by law.’’
Applying Gabriel Peter & Partners v Wee Chong Jin, 5
the High Court held that Semon Liu was personally
liable because his involvement in Health Biz’s negligence was ‘total’ and not merely great.
The High Court noted that the words ‘‘authorise,
direct and procure’ are more appropriate for torts of
commission and negligence is both a tort of commission and of omission. So a director could at least
authorise or direct a course of conduct which amounts
to negligence in the circumstances.
Standard of Care
Once a duty of care is proven, the standard required to
discharge that duty of care is determined by what is
‘reasonable’ in the circumstances.
(i) Due Diligence
The High Court decided that Health Biz’s duty of care
did not extend to conducting a ‘due diligence’ check
on the manufacturer. It was sufficient that the importer knew who the manufacturer was, where it was
located and whether it was properly licensed to produce the goods. The High Court, however, ruled that
Health Biz was in breach of duty of care for failing to
keep proper records of consignments of pills and to do
proper batch tests. It was not sufficient for Health Biz
to merely commission tests and then leave it to the
Health Sciences Authority (HSA) to inform Health
Biz if poisons and synthetic substances were shown.
Health Biz was required to submit a declaration of the
absence of poisons and synthetic substances in the product which it failed to do.
The High Court decided that TV Media was negligent in placing blind faith in everything Semon Liu
said. Without verification, TV Media started accepting
Slim 10 packs for sale and proclaimed to consumers
that Slim 10 was 100% herbal and was safe for consumption. It could not excuse its lack of diligence and
care by pleading that the wording of its advertisements
was vetted and approved by HSA.
(ii) Compliance with Statutory Regulations
Statutory requirements differ for the various classes of
persons. The legislation to comply with in this case
was the Medicines Act and its subsidiary legislation.
Causation
An important element in the tort of negligence is causation. Liability attaches only when a manufacturer,
importer of distributor breaches his standard of care,
if it can be established that the breach caused the consumer’s injury. In the present case, the High Court
held that the defendants’ breaches of duty of care
caused the toxic Slim 10 to reach Andrea and that
Andrea’s consumption of this Slim 10 caused her liver
failure. The High Court had the benefit of hearing
expert witnesses from both sides. N-nitrosofenflura-
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Business Law Review
May 2005
International Corner
mine, found in the samples of Slim 10, belongs to a
family of compounds known as nitrosamines which are
generally accepted as being hepatotoxic. Animal studies conducted by the Japanese Ministry of Health
confirmed the harmful effects of this synthesised compound on the liver. Dr David Joyce, an expert witness,
was of the opinion that this new compound was deliberately synthesised by unscrupulous manufacturers to
circumvent the ban on fenfluramine. Another expert
witness, Dr KC Tan, testified his concern about the
effects of this new compound when combined with the
cocktail of substances found in Slim 10. Dr KC Tan
opined that Andrea probably suffered an idiosyncratic
drug reaction. The High Court Judge also noted the
coroner in Mrs Raja’s case where he had accepted the
expert opinion that the deceased’s liver failure was
related to this new compound in the Slim 10 pills
which she had consumed. The High Court decided
that Slim 10 had caused Andrea’s liver failure stating
that:
‘‘The totality of the circumstantial evidence pointed
to Slim 10 as having been the causative agent of
(Andrea’s) liver failure. All the other possibilities
were highly improbable.’’
The High Court rejected Health Biz’ argument that
even if batch testing were done, ‘‘the tests would not
have revealed the presence of N-nitrosofenfluramine,
which was unknown to even chemists’’. While this
might be the case, the tests would have also revealed
the presence of other banned substances and accordingly there would not have been any supply or sale.
In dealing with the question on whether there was a
break in the chain of causation when Andrea obtained
the Slim 10 pills from non-official retail sources, the
High Court stated:
‘‘Were the slimming pills taken by her Slim 10?
They came through an unbroken chain from the
importer (Health Biz) to (Rayson Tan) to (Andrea).
. . . no one was in any doubt that the only slimming
pills imported by (Health Biz) were those meant to
be marketed as Slim 10. . . . They were also
informed that (Health Biz) was conducting product
testing with the artistes by giving them pills in their
original packaging without any brand or name to
identify them. They knew and assented to (Semon
Liu) supplying unmarked Slim 10 to (Rayson Tan)
even if they did not know the exact quantity was. I
have no doubt that what (Andrea) obtained and
consumed was indeed Slim 10.’’
Action in Contract
Andrea’s case against Rayson Tan was in contract.
Noting that one of the fundamentals required for a
contract is the element of ‘intention to create legal
relations’ on the part of the parties, the High Court
held that on the evidence before it, there was no intention by the parties to create legal relations. The Court
accordingly dismissed Andrea’s case by stating:
‘‘This incident was a friend doing a favour for
another. This did not mean that oral contracts could
never be made in social surroundings. Each case had
to be looked at individually. Even if (Rayson Tan)
had made a secret profit or commission from
(Andrea), that did not elevate the favour into a
commercial transaction. . .I find it extremely . . .
difficult to find that a contract was formed. The
incident had all the trappings of a friend doing a
favour for another by getting something for her.’’
The Court of Appeal Ruling
Both TV Media and Semon Liu appealed to the Court
of Appeal against the decision of the High Court.
Health Biz did not appeal. The Court of Appeal had
to deal with two issues, namely, the liability of TV
Media and Semon Liu and their quantum of damages
payable by them.
TV Media – Duty of Care
The Court of Appeal upheld the High Court’s finding
that TV Media was negligent in representing in its
advertisements that Slim 10 was safe and effective.
The Court of Appeal had followed and applied the
three criteria for the imposition of a duty of care summarised by Lord Bridge of Harwich in Caparo Industries Plc v Dickman.14
(a) Foreseeability of damage
The Court of Appeal was satisfied that the test of foreseeability was met in that TV Media knew that
unmarked packages of Slim 10 were being distributed
to MediaCorp artistes (including Andrea) for product
testing. TV Media could have foreseen that Andrea
would take Slim 10 without the benefit of written precautions or dosage instructions since it knew that
Rayson was distributing Slim 10 to his colleagues in
unmarked packaging.
(b) Proximity
On the notion of proximity of relationship between the
parties, TV Media averred that it should not owe a
duty to Andrea since she was not in the class of people
who relied15 on TV Media’s advertisements and
bought pills from an authorised retailer and it also
sought to rely on Lord Reid’s judgment in Hedley
Byrne & Co Ltd v Heller & Partners Ltd,16 which
said:
‘‘It would be one thing to say that the speaker owes
a duty to a limited class, but it would be going very
far to say that he owes a duty to every ultimate
‘consumer’ who acts on those words to his
detriment’ the Court of Appeal could not agree.’’
The Singapore Court of Appeal could not agree that
TV Media could rely on this statement to eschew its
duty to the consumers of Slim 10 pills. The Court distinguished the fact that Hedley Byrne17 dealt specifically with a situation where the only damage suffered
was pure economic loss through reliance on a negligent
misstatement. Interestingly, the Courts repeatedly distinguished economic loss claims from physical damage
claims, so as to take a more restrictive approach to the
imposition of a duty of care in economic loss cases.
However, the present case is a case of physical
Business Law Review
May 2005
5
International Corner
damage, with tortious liability to the world at large for
physical damage due to defectively manufactured articles, which can be traced back to the seminal case of
Donoghue v Stevenson.18 It’s ratio decidendi has since
been extended to apply to negligent distributors of
goods. It is established law that a distributor or wholesaler may be in a proximate enough relationship to the
consumer so as to owe him a duty of care to check the
safety of what he distributes as seen in Watson v Buckley, Osborne, Garrett & Co, Ltd.19 The Court of
Appeal noted that the distributor or wholesaler who is
under a duty to take reasonable steps to deal with
reputable suppliers is implicit in Watson v Buckley,20
where the court stressed the incautiousness of the distributor in buying its product from an unknown supplier, which is exactly the situation in the present case.
The Court of Appeal then held that TV Media, as a
distributor and wholesaler of a product, was in a sufficiently proximate relationship to Andrea to owe her a
duty of care, in that she would not have relied on
assurances of safety from Semon Liu, Health Biz or
the Chinese manufacturer because Andrea did not
know them or have any inkling as to their reliability or
credibility.
Fair, Just and Reasonable
On the third criterion, the Court of Appeal felt that it
was fair, just and reasonable to impose a duty of care
on TV Media. The Court of Appeal could not agree
with TV Media’s argument that this will open the
floodgates of litigation to anyone who might have
bought the pills from an illegitimate source, since it
failed to see how Rayson could be considered as an
‘illegitimate source’, when TV Media had approved of
Rayson’s help to promote the pills amongst his friends
and colleagues.
Having determined that all three Caparo criteria
were satisfied, the Court of Appeal ruled that by
virtue of its public representations on Slim 10’s safety,
TV Media had placed itself in a proximate relationship
to buyers of slim 10. It is submitted that as a distributor and wholesaler, TV Media falls within the class of
people who did accordingly owe Andrea a duty of care
in its promotion, endorsement and advertisement of
Slim 10.
TV Media – Breach of Duty of Care
In ruling that TV Media had breached its duty of
care, the Honourable Chief Justice Yong Pung How
said:
‘‘TV media knew that Semon Liu had no experience
in the medical or pharmaceutical industry and that
this was his first foray into Chinese proprietary
medicine. TV Media did not conduct any
independent checks on Semon Liu or on Health
Biz. . .TV Media omitted to conduct any
independent checks on the Chinese manufacturer.
. . . Before distributing Slim 10 in Singapore, TV
Media did not consult any expert herbalists or any
legal experts. . .We do not think that a reasonable
distributor would have been so slipshod in its
approach to marketing a new drug. . .On the
contrary, a reasonable distributor would at least
have taken steps to deal with a reputable supplier
and, if it knew that the importer had no experience
with such products, would have done more to
ensure the safety of the product. As in Watson v
Buckley 21, we cannot accept that it is a tenable
defence for TV Media to assert that it had placed
reliance on another party in the chain of distribution
if it had neglected its own duties.’’
Accordingly, the Court of Appeal upheld the High
Court’s finding and found TV Media liable as it failed
to ensure that tests were conducted on the pills to
determine their safety and instead advertised blithely
that the pills were safe for consumption.22 In particular, TV Media neglected to follow up on Health Biz’s
undertaking to HSA to conduct tests for poisons and
synthetic substances on each consignment of Slim 10
and even blindly trusted Semon Liu to keep his word
with the result that subsequent batches of Slim 10
were not even tested, let alone HSA-approved. Since
Semon Liu had been supplying Slim 10 to Rayson for
distribution to MediaCorp artistes with TV Media’s
approval, the Court of Appeal was clear that TV
Media supported the Slim 10 distribution to consumers at all material times, even though none of these
consignments of Slim 10 was tested for safety. This
sounded the death knell for TV Media’s argument that
it had only distributed HSA-approved pills whilst
Health Biz and Rayson sold ‘pirated’ pills. The Court
said that:
‘‘it could not excuse its lack of diligence and care by
plaintively pleading that the wording of its
advertisements was vetted and approved by the
HSA and that it was the responsibility of the
distributor to make sure that what it represented to
the public was true and plainly, it was not’’.
It was also clear from TV Media’s internal e-mails
that the company had evinced a callous disregard for
consumer safety. The court noted that these e-mails
were telling evidence of TV Media strong doubts
about Slim 10’s safety.
As a matter of public policy, the Court of Appeal
noted that it is not reasonable to expect a government
agency to carry out in-depth testing of each product
submitted to it. Rather given the large profits TV
Media hoped to rake in from sales of Slim 10, the
Court of Appeal deemed it not too onerous for TV
Media to have sought professional advice on tests
report on Slim 10 pills. Further the issue of HSA’s
liability is academic as it was not party to the proceedings below. Consequently, TV Media was not entitled
to place such unquestioning reliance on HSA’s
approval of Slim 10 and was accordingly in breach of
its duty of care to ensure its safety.
TV Media – Causation
The Court of Appeal was convinced that the pills distributed by TV Media, Health Biz and Rayson had all
came from the same batches and that TV Media was
equally implicated in the sale of different batches of
Slim 10. The Court of Appeal held that TV Media’s
breach of its duty of care had caused Andrea’s liver
failure. Her omission to seek medical aid was not so
wholly unreasonable as to constitute a novus actus
interveniens which would obliterate TV Media’s
wrongdoing. The Court of Appeal viewed that circum-
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Business Law Review
May 2005
International Corner
stantial evidence is sufficient to connect a product to
damage or injury in the absence of any other explanation.
The Court of Appeal also ruled that since TV
Media did not plead the defence of contributory negligence below, the Court was not entitled to make a
finding of contributory negligence.23
In analysing the issue of medical causation, the
Court of Appeal’s approach was to evaluate conflicting
expert evidence to examine the scientific grounds and
bases on which the experts relied and to determine the
soundness of their opinions in the light of the facts.24
The Court of Appeal then concluded that all the evidence, including the temporal relationship between
Slim 10 and Andrea’s liver failure, pointed to Slim 10
as the cause of Andrea’s liver failure.
Semon Liu’s Liability – Health Biz’ Corporate
Veil Lifted
The main bone of contention for Semon Liu’s appeal
to the Court of Appeal was that the High Court’s finding amounted to an indictment on all small or oneman firms where the directors are often dominant and
linked to the firm’s operations. In dismissing Semon
Liu’s appeal, Yong CJ acknowledged the doctrine of
separate legal entity and the fact that the ‘commission
of a tort by a company does not automatically prove
that the directors who manage its affairs are also guilty
of tort’.25 However, the Court of Appeal found that
the evidence pointed to Semon Liu’s ‘overwhelming
personal involvement in the importation of Slim 10’.
Yong CJ said:
‘‘. . . it is patently clear to us that Semon Liu, and
Semon Liu alone, had absolute control of Health
Biz. . . Semon Liu was the person directing its
negligent acts or omissions. We find no reason to
overturn the judge’s finding that nothing was done
without Semon Liu’s knowledge, and that Semon
Liu’s involvement in the negligence of Health Biz
was not merely very great, but total . . .’’
The totality of the evidence indicated that Semon
Liu was clearly the controlling mind and spirit of
Health Biz that led to the Court of Appeal’s inescapable conclusion that Semon Liu was the only person
in the position to direct, authorize and /or procure
Health Biz’s negligent acts or omissions. The Court of
Appeal had found sufficient reason to lift Health Biz’s
corporate veil and find Semon Liu personally liable for
authorizing, directing and/or procuring Health Biz’s
negligent acts, even though Andrea’s statement of
claim did not plead that the corporate veil be lifted.
Interestingly, the Court of Appeal viewed that
Andrea’s claim against Semon Liu for authorising,
directing and /or procuring Health Biz’s negligence
was essentially a claim asking the court to lift Health
Biz’s corporate veil. The court said:
‘‘after all, a court can only find a director personally
liable for authorizing, directing or procuring the
company’s tort if it has first lifted the company’s
corporate veil which otherwise protects a director
from being found liable.’’
The issue of a director’s personal liability for his
company’s torts does involve the consideration of very
difficult policy questions. Although there is a commer-
cial interest in allowing companies to enjoy the benefits
of limited liability offered by incorporation together
with the principle of separate corporate personality as
established by the English case of Salomon v Salomon,
26
directors of companies should not be allowed to
escape personal liability to third parties for torts that
they personally committed merely because they committed the torts in the course of carrying out their
duties as directors of the company. Weighing these
considerations in the balance to determine whether a
director is personally liable for a tort committed by his
company will depend on the factual situation in the
circumstances. The Court of Appeal had looked at the
level of Semon Liu’s involvement in the company to
determine the extent to which he was the company’s
alter ego. 27
It is submitted that there were exceptional circumstances which warranted the Court lifting Health Biz’s
corporate veil to fix Semon Liu with personal liability.
Semon Liu’s liability was thus founded on the very
exceptional circumstances of the case. The Court of
Appeal’s view was that it was unlikely that dismissal of
his appeal would open the floodgates of litigation.
Further, the Court of Appeal held that the phrase
‘direct, procure and/or authorise’ was not confined to a
situation where the wrong could be isolated as a positive, clear, deliberate act, but might apply equally to a
negligent course of omissions. This Court said28:
‘‘Should it come down to an issue of semantics, a
tort of omission can equally well be phrased as a
tort of commission. For instance, Health Biz’s
failure to conduct tests on each batch of Slim 10 can
be restated as a positive act of negligently selling
untested pills. Its failure to ensure that only yellowpowdered Slim 10 was sold was also a positive act of
selling the contaminated brown-powdered Slim 10.’’
The Court of Appeal then went on to hold that a
director may be liable for a company’s negligent acts
of commission as well as its negligent acts of omission,
with no distinction between the two of them. It is
clear that there can be tortious liability for both omissions and commissions. The classic definition of negligence as formulated in Blyth v The company of
Proprietors of the Birmingham Waterworks Co 29 and
cited by the House of lords in British Railways Board
v Herrington 30 is:
‘‘the omission to do something which a reasonable
man, guided upon those considerations which
ordinarily regulate the conduct if human affairs,
would do, or doing something which a prudent and
reasonable man would not do.’’
Further, Lord Atkin’s judgment in Donoghue v Stevenson31 said that ‘‘you must take reasonable care to avoid
acts or omissions which you can reasonably foresee
would be likely to injure your neighbour’’. In view of
the above, it is irrelevant that Semon Liu stands
accused of having directed, procured or authorised a
negligent course of omissions rather than a single positive act.
Semon Liu – Causation
The Court of Appeal held that Semon Liu’s acts did
lead to Andrea’s liver failure. If Health Biz had sought
professional help in interpreting the test reports on
Business Law Review
May 2005
7
International Corner
Slim 10, the pills would not have been sold, and
Andrea would not have consumed them or suffered
liver failure.
Although Semon Liu raised various policy arguments such as the ‘open hunting season on small companies’32 in his appeal against liability, the Court of
Appeal was not so persuaded and stressed that Semon
Liu’s liability was founded on the very exceptional circumstances of the case. It is unlikely that this particular concatenation of circumstances will arise in many
future cases which could open the floodgates of litigation.
Quantum of Damages
The Court of Appeal’s landmark decision sets the
benchmark for future cases in respect of damages. As
joint tortfeasors, both TV Media and Liu were partially successful in their appeal against the quantum of
damages awarded. The Court of Appeal reduced the
amount of damages awarded for pain and suffering
from $250,000 to $150,000 as it found the amount
awarded by the High Court in Dr Khoo James v Gunapathy d/o Muniandy33 to be a useful reference point for
the present purposes. The multiplier for calculating
Andrea’s future medical expenses was reduced from 34
years to 17 years, in relation to future medical
expenses and the contingencies that might happen in
life.
Implications and Significance of the Slim
10 Saga
This landmark ruling from Singapore’s highest court
will no doubt have far reaching impact in the conduct
of consumer relations and especially in establishing liability in unsafe products. The impact and significance
of the Slim 10 case is on the established principles in
the law of negligence and product liability. Amidst the
media hype and celebrity talks, important principles of
law on defective product liability in Singapore have
evolved from this watershed Slim 10 case which finally
settled the classes of people down the modern supply/
distribution chain who would be held to owe a duty of
care to the consumer.
The High Court judgment sets out useful guidance
on the categories or classes of persons who do owe a
duty of care to ultimate consumers, thereby extending
the traditional boundaries of the scope for the duty of
care owed to consumers, since the celebrated case of
Donoghue v Stevenson. 34 Apart from the obvious
implications for the manufacturer, the Slim 10 case
has created wider implications for the liability of
designers, assemblers of finished articles, importers,
distributors, wholesalers, dealers, retailers, installers,
repairers or for any party down the modern supply
chain of defective products.
It now remains to be seen whether Rayson Tan,
who is also down the supply chain of a defective product, would have been liable in the tort of negligence?
Would he be in those classes of people down the
supply/distribution chain of a defective product to owe
such a duty of care to Andrea? It is submitted that
this is possibly so, with the impact of the Slim 10 case
and also noting the words of Lord Atkin in Donoughue
v Stevenson35:
‘‘A manufacturer of products, which he sells in such
a form as to show that he intends them to reach the
ultimate consumer in the form which they left him,
with no reasonable possibility of intermediate
examination, and with the knowledge that the
absence of reasonable care in the preparation or
putting up of the products will result in an injury to
the consumer’s life or property, owes a duty to the
consumer to take reasonable care.’’
However, in the Slim 10 case, any issue on Rayson
Tan’s liability in negligence for Andrea’ liver failure
would have been academic as it was never pleaded in
Andrea’s statement of claim. Although at common law,
sales and contracts to sell are governed by the timehonoured principle of caveat emptor, the seller should
be truthful in his advertising or in packaging and
should not deceive or deliberately give misinformation
to the consumer which upholds the business ethics of
withholding information. Good laws stem from ethics.
Deception or concealing information is harmful which
can result in physical, financial or social harm to
others. This can be accompanied with trust being lessened in the deceiver. Who is the defendant under
negligence? From the Court of Appeal’s ruling in the
Slim 10 case, it is now clearly established that an
importer, supplier, distributor or wholesaler owes a
duty to the end consumer to take reasonable care in
ensuring the safety of its products, with any breaches
carrying consequences.
The final word by the Singapore Court of Appeal
has now made it clear that importers, distributors and
wholesalers may be held liable to the ultimate consumer if they fail to exercise reasonable care. The exercise of reasonable care would involve steps such as
dealing with a reputable and competent supplier or if
the supplier or importer has no experience in selling
or supplying the product, comprehensive measures
should be taken to ensure product safety.
Further to the recently enacted Consumer Protection (Fair Trading) Act 38 in Singapore, the Slim 10
case is undeniably an important development in consumer protection in Singapore and its decision is clearly
a victory for consumers. Consumer protection has
been taken to yet another higher level in Singapore
with this case bringing greater awareness to consumers
on product safety in the area of the law of negligence
for defective products. Vulnerable ultimate consumers
of defective products will now have legal resources in
establishing a civil course of action against irresponsible parties, even if they hide behind the corporate veil.
The Slim 10 case is also significant in that it highlighted the rare occasions 39 on which the courts are
prepared to pierce the corporate veil and find a director of the company personally liable for the negligent
and tortious acts of the company, despite a company
being a separate legal entity as established in the English case of Salomon v Salomon.40
Conclusion
8
Business Law Review
May 2005
International Corner
Although it is acknowledged that pursuing an action in
negligence against any manufacturer or distributor of
defective products is always a difficult and daunting
task, there are considerable evidential difficulties the
consumer faces in establishing the requisite degree of
fault. A manufacturer’s or distributor’s duty to exercise care does not extend to cover unforeseeable
defects or risks which are undiscoverable given the
present state of technology – the familiar ‘development
risks defence’. Apart from civil claims in tort and contract, there are strict liability statutory offences under
the Medicines (Licensing, Standard Provisions and
Fees) Regulations.41 As a result of the investigations
conducted by the HSA, Health Biz was charged with
eight counts of failing to comply with one of the standard provisions in its licence, namely, that it is not to
sell or supply any medicinal product without a declaration that the product is free from poisons (eg fenfluramine) and any synthetic active substances.42 From the
consumer’s viewpoint, an important shortcoming of
criminal prosecution is that no compensation is given
for the injuries or even death that a consumer has suffered from the defective product.
It is submitted that the modern negligence liability
is very flexible and can be adjusted to new situations
giving rise to a duty of care in response to changing
social values and policies. It is observed that although
the duty of care has thus been extended from time to
time the courts are still careful as can be seen in the
Privy Council case of the China and South Sea Bank
Ltd v Tan Soon Gin43 and the Singapore case of RSP
Architects Planners & Engineers (Raglan Squire &
Partners FE) v Mangament Corporation Strata Title
Plan No. 1075 & Anor44.
Perhaps an enactment of new product liability legislation in Singapore for which strict civil liability (similar in lines to those adopted in the United Kingdom45
and Australia46) should be imposed on those people in
the supply/distribution chain of a defective product, is
to be much desired. It might prevent another Slim 10
episode from happening as the strict liability regime
surely raises standards among manufacturers, distributors, suppliers and any persons down the supply chain
of a defective product, besides offering the consumer a
faster, less burdensome and more effective remedy
against them. Ironically, even China (the country from
which the defective Slim 10 pills originated) has a product Quality Law, article 29 of which expressly states
that a producer shall be liable for compensation if his
defective product causes damage to ‘human life’, with
a defence where the ‘science and technology at the
time the product was put in circulation’ was at a level
incapable of detecting the defect.
* Associate Professor in Business Law at the
National University of Singapore, Department
of Business Policy, NUS Business School.
The author is a member of the Institutional Review
Board / Ethics Committee of the National Healthcare
Group Domain Specific Review Board which is tasked to
review scientific and ethical aspects of research protocols.
She is a member of the Institutional Review Board of
SingHealth Polyclinics. She lectures biomedical ethics
and medical law in the Faculty of Dentistry at the
National University of Singapore. She had supervised on
bioethics and medical law in a special study module in the
Faculty of Medicine at the National University of Singapore. Her research interests include clinical and
research ethics, medical and biotechnology laws. She is an
author of 28 law books. She would like to thank Dr
Myint Soe, Ph D, (Camb), Barrister (UK), for his
valuable comments on a draft of this article.
1
[2004] 3 SLR 543 and [2003] 4 SLR 682 [High Court
decision].
2
[1932] AC 562.
3
. Ibid.
4
[1996] 5 MLJ 435.
5
[2000] MLJU 674.
6
(1932) 12 P 2nd 409.
7
[1951] 2 All ER 14. Also see Lambert v Lewis [1980] 1 All ER
978.
8
[1964] AC 465.
9
See Richardson v Silvester (1893) LR 9 QB 34.
10
(1852) 6 NY 397.
11
[1998] 1 SLR 374.
12
(1985) BCLC 105.
13
Ibid.
14
[1990] 2 AC 605.
15
See Sutherland Shire Council v Heyman (1985) 157 CLR 424
at 498 where the notion of proximity has been described as
including ‘‘reliance by one party upon such care being taken
where the other party ought to have known of such reliance’’.
16
[1964] AC 465.
17
Ibid.
18
Ibid. The ratio decidendi of Donoghue v Stevenson is confined
to the liability of a manufacturer of goods towards ultimate
consumers.
19
[1940] 1 All ER 174.
20
Ibid.
21
Ibid.
22
Similarly in Leitz v The Saskatoon Drug and Stationery Co
Ltd (1980) 5 WWL 673; 112 DLR (3d) 106, the court found the
distributor liable for falsely advertising that the sunglasses it
distributed were impact resistant. The distributor had never
conducted any tests on the sunglasses to determine if they were
really impact resistant, and worsened this by devising a tag
containing untrue information to entice consumers to buy
sunglasses.
23
See Rajendran a/l Palany v Dril-Quip Asia Pacific Pte Ltd
[2001] 3 SLR 274.
24
See Singapore Finance Ltd v Lim Kah Ngam (S’pore) Pte Ltd
[1984-85] SLR 381. See also Tengku Jonaris Badlishah v PP
[1999] 2 SLR 260.
25
See the two following cases cited by Semon for his contention
that his involvement in the Slim 10 saga was only a ‘miniscule
part of a vast and complex constellation of interacting causative
factors’. In Fairline Shipping Corp v Adamson [1975] QB 180
the English Court of Appeal held that however small the
company, and however powerful the director’s control over its
affairs, the director should not automatically be identified with
his company for the purpose of the law of tort. Also see British
Thomson-Houston Co Ltd v Sterling Accessories, Ltd [1924] 2 Ch
33 for the proposition that where a director is to be fixed with
liability as principal, his agency of the company must be
established substantively and cannot be inferred from his
holding of director’s office and his control of the company
shares alone.
26
[1897] AC 22. In an extension of the principle of separate
corporate personality, the courts have held that proof of the
commission of a tort by a company does not automatically prove
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May 2005
9
International Corner
that the directors who manage its affairs are also guilty of tort.
See Rainham Chemical Works, Ltd v Belvedere Fish Guano Co
Ltd [1921] 2 AC 465 and Gabriel Peter & Partners v Wee Chong
Jin [1998] 1 SLR 374. But there is an exception to this principle
that where directors order an act by the company which
amounts to a tort by the company, they may be liable as joint
tortfeasors on the basis that they have ‘procured or directed’ the
wrong to be done. See Performing Right Society, Ltd v Ciryl
Theatrical Syndicate, Ltd [1924] 1 KB 1.
27
See Gabriel Peter & Partners v Wee Chong Jin [1998] 1 SLR
374.
28
See also Denning LJ obiter dicta in Hawkins v Coulsdon and
Purley Urban District Council [1954] 1 QB 319 at 333, that ‘‘I
would suggest that there is no longer any valid distinction to be
drawn between acts of commission and acts of omission. It
always was an illogical distinction. Many acts of commission can
be regarded as acts of omission and vice versa. It all depends on
how you look at it.’’
29
(1856) 11 Exch 781; 156 ER 1047.
30
[1972] AC 877.
31
Ibid.
32
Semon Liu argued in his appeal that making him personally
liable will be tantamount to ruling that in virtually all situations,
a dominant director will be made liable or impugned by virtue
of having been linked to some of the company’s acts and
omissions.
33
[2002] 2 SLR 414. See also Tan Hun Hoe v Harte Denis
Matthew [2001] 2 SLR 317 which the Court of Appeal
considered helpful in assessing what an appropriate quantum of
damages was.
34
Ibid.
.35
Ibid.
36
(1916) 217 NY 382 where Justice Cardozo said that ‘‘the
defendant was not absolved from a duty of inspection because it
bought the wheels from a reputable manufacturer. It was not
merely a dealer in automobiles. It was responsible for the
finished product.’ See also Taylor v Rover Co Ltd [1966] 2 All
ER 181.
37
Ibid.
38
The Act came into force in March 2004.
39
It is a question of degree and is entirely dependent on the
facts of each case. A company director may be held personally
liable for a company’s negligent acts if his involvement in the
acts is ‘overwhelming or total’.
40
Ibid.
41
See Cap 176, Reg 6, 2000 Rev Ed.
42
Keith Norman, a scientific officer in the Australian Federal
police force analysed samples of Slim 10 in July/August 2002,
testified that all three samples of Slim 10 given to him for
analysis contained brown powder, which indicated that Health
Biz had breached its undertaking to HSA to import and sell
only capsules which contained yellow power. In turn, TV Media
accepted the consignments for sale without checking that Health
Biz had complied with its undertakings to HSA. Further, TV
Media pleaded guilty to 20 charges of conducting wholesale
distribution of Slim 10 without a wholesale dealer’s licence.
43
[1990] 1 AC 536.
44
[1999] 2 SLR 449.
45
See s 2(a) the English Consumer Protection Act 1987 which
complied with the EU’s Directive on Liability for Defective
Products 1985, and provides that the producer, importer and
supplier shall be liable for the damage caused to any person by a
defect in a product. Such strict liability arises once the product
is deemed ‘defective’ and there is no need to establish a duty of
care on the part of the producer, importer or supplier, neither is
a pre-existing contractual relationship with them required.
46
See Part VA of the Australian Trade Practices Act 1974
which also provides for a strict liability regime. Ss 75AD and
75AE allow any person who suffers damage from a defective
product to recover compensation from the supplier of the
defective product without need to prove negligence or breach of
contract.