Instead of using $2 million that an investor had injected into her skincare companies as working capital, aesthetics doctor Georgia Lee turned the funds into loans and secretly profited by earning interest on them.
In a written judgment released yesterday, the High Court found that Dr Lee had put herself in a conflict of interest and breached her fiduciary duties to movie and TV producer Anita Hatta, who had invested the money in exchange for a 5 per cent stake in the companies.
However, the court dismissed Ms Hatta's claims that Dr Lee had misled her into investing the $2 million by painting a rosy picture of her skincare business, which in fact had been making losses.
Ms Hatta contended that Dr Lee claimed to have invested $14 million, that sales had exceeded $5 million, and that the companies were worth $40 million. Dr Lee denied making the representations.
Justice Valerie Thean concluded that Dr Lee had made only the misrepresentation with regard to the amount she invested.
Regardless, the judge said Ms Hatta had not relied on any of the alleged misrepresentations in making the investment, and that Ms Hatta's failure to request for financial documentation indicated that she was not concerned about the representations. Ms Hatta also did not ask any questions about the sales volume or value of the companies.
But the judge ordered Dr Lee to buy out Ms Hatta's shares at a price to be determined by an independent valuer, as Dr Lee misusing the investment amounted to commercial unfairness.
Ms Hatta, who has produced shows such as Asia's Next Top Model, filed a lawsuit in 2017 against Dr Lee, founder of aesthetics clinic TLC Lifestyle Practice, for misrepresentation and minority oppression.
She sought either a return of her investment or a buyout of her shares in three companies set up by Dr Lee to package, market and sell her line of DrGL products, namely DRGL, DRGL Spa and Ciel.
Ms Hatta's investment was carried out in a way that Dr Lee admitted was unnecessarily convoluted.
Businessman Frank Cintamani, a friend of Dr Lee, set up a company with Ms Hatta called Fide Productions, which agreed to pay the companies for the exclusive rights to produce events for the DrGL brand.
Separately, three share transfer forms were signed, stating that Ms Hatta paid a total of $3 for 5 per cent of the shares in the companies.
Ms Hatta's $2 million cheque for the investment was issued to Fide. Mr Cintamani later issued a cheque to Dr Lee from his personal account.
Without Ms Hatta's knowledge, Dr Lee loaned the $2 million to DRGL and Ciel, charging interest.
The agreements for two of the loans stated that the interest amounts were $240,000 and $100,000. Up till Jan 31, 2017, interest amounting to $90,000 and about $39,000 were paid by DRGL and Ciel respectively.
"The $2m capital ought to have been injected directly into the companies... By imposing a loan, Dr Lee placed herself in a conflict of interest and the secret profit made thereby was in breach of her fiduciary duty," said the judge.
Dr Lee had also used the companies, which were technically insolvent, to borrow money from finance companies in order to repay a $300,000 loan that TLC had extended to DRGL. Although the loan was stated to be interest-free, TLC received about $58,700 in interest payments from DRGL.
