1. Muniandy A/L Nadasan2. Abd Nasir B Abd Ghani3. Subramaniam A/L Manickam4. Paidathalli A/L Appalasamy5. Balan@Palvannan A/L Vardharajoo6. Vijayan A/L Kannan7. Parangesan A/L Anthony Muthu8. Kalappa A/L Nokiah Naidu9. Palaniappan Ramanathan10. Thomas A/L K Maria Soosai11. Michael A/L Thomas12. Selvam A/L Marimuthu13. Sundralingam A/L Muniandy14. Palanivelo A/L Marappan15. Nadaraja A/L L. Govindrajoo16. Noor Bit Bin Ujang17. Jegadeswari Apl Arumugam18. Bhangara

  

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IN THE HIGH COURT OF MALAYA AT KUALA LUMPUR (COMMERCIAL DIVISION)

 

CIVIL SUIT NO. 22NCC-68-01/2013

 

BETWEEN

 

1. MUNIANDY A/L NADASAN

 

2. ABD NASIR B ABD GHANI

 

3. SUBRAMANIAM A/L MANICKAM

 

4. PAIDATHALLI A/L APPALASAMY

 

5. BALAN@PALVANNAN A/L VARDHARAJOO

 

6. VIJAYAN A/L KANNAN

 

7. PARANGESAN A/L ANTHONY MUTHU

 

8. KALAPPA A/L NOKIAH NAIDU

 

9. PALANIAPPAN RAMANATHAN

 

10. THOMAS A/L K MARIA SOOSAI

 

11. MICHAEL A/L THOMAS

 

12. SELVAM A/L MARIMUTHU

 

13. SUNDRALINGAM A/L MUNIANDY

 

14. PALANIVELO A/L MARAPPAN

 

15. NADARAJA A/L L. GOVINDRAJOO

 

16. NOOR BIT BIN UJANG

 

17. JEGADESWARI APL ARUMUGAM

 

18. BHANGARAN@BARGAVAN A/L MADHAVAN

 

19. SAROJAN A/P MUTHU

 

20. J VIJAYA SAROJINI A/P P JAGANATHAN

 

21. USHA DEVI A/P R VADIVELU

 

22. SUBRAMANIAM A/L NARASIMULU

 

23. MATHAVAN A/L KRISHNAN

 

24. RAJENDRAN A/L MUTHUSAMY

 

25. VIJAYAKUMAR A/L NARAYANAN

 

26. PARAMASIVAM A/L KANNIAH

 

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27. JOHN PRAKASH A/L MICHAEL

 

28. ZAINUDIN BIN YAHYA

 

29. THAILAKAVATHIE A/P KRISHNASAMY

 

30. GNANAPUTHIRAM A/P DANIEL

 

31. DEVI A/P M AMURUGAM

 

32. NORSHAM BIN ISMAIL

 

33. MAJELAN BIN MOH

 

34. VASANTHI A/P GOVINDASAMY

 

35. AMAL BINTI ALIAS

 

36. JEYANTHI A/P SELVAM

 

37. NIKMAN BIN NAWI

 

38. ARRJUNAN A/L MUNUSAMY

 

39. THANGAVELU A/L PONNUSAMI

 

40. KALAVATHY A/P VELAPPAN

 

41. ZAHARAH BINTI ABU HASSAN

 

42. GOMATHE A/P VELLACHAMI

 

43. PUSPAH A/P ARJUNA

 

44. MUNIAMAH A/P MAYANDY

 

45. SAVARIAMAH A/P MICKEL

 

46. SUBA DEVI A/P MUTHUSAMY

 

47. VIJAYAN A/L K KUNJU

 

48. SATHIAVANI A/P ABDUL MAJID

 

49. RAVENTHRANAATHAN A/L GUNASEKARAN

 

50. KAMARIAH BINTI SAMSUDIN

 

51. RAVI CHANDRAN A/L RAMAN

 

52. SUPPAMAH A/P RAMASAMY

 

53. SAMINATHAN A/L MARIMUTH

 

54. GUNASELAN A/L MOHAN

 

55. ZAITUN BINTI ARSHAD

 

56. JAJARANI A/P MURUGAIH

 

57. RATHA A/P VELLAYAN

 

58. SARASWATHY A/P MUNISAMY

 

59. RAMASAMY A/L KATAN

 

60. MINAH BINTI SALLEH

 

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61.

 

62.

 

63.

 

64.

 

65.

 

66.

 

67.

 

68.

 

69.

 

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72.

 

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80. 81. 82. 83.

 

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5.

 

6. 7.

 

SUPPAR MANIUM A/L RAMASAMY BREAMAH A/P RAMIAH RAVI A/L MUTHUSAMY MARTHA A/P A FRANCIS SUSHEELA A/P ARUNASALAM VASANTHI A/P RAMAN TAMIL SELVI A/P SUPRAMANIAM RAJENDRAN A/L RAJOO ROSLI BIN YUSOF AMBAL VANAN A/L G SARATHIE POOBALAN A/L SIVALINGAM KAMALADEVI A/P PONNUSAMY NALLIAH A/L GURURATHAM RAMESWARY A/P GOVINDASAMY NORESHAH BINTI MAAMOR KALASELVI A/P MUNIANDY WALIMAH A/P MURUGIAH YASOTHA A/P RAMATHAS ASOTHA A/P PERUMAL YASOTHA A/P ARUMUGAM KRISHNAN A/L BATUMALAI SENIAH BINTI SEMAN GANESAN A/L GOVINDASAMY

 

AND

 

DATO’ PREM KRISHNA SAHGAL

 

MAN MOHAN THAPAR

 

TINY KESANG LINGTSANG THAPAR

 

MAHESH SAHAI

 

DATO’ IZHAM BIN MAHMUD

 

DATIN ISHAH BINTI ISMAIL

 

MOHD FARMY BIN MOHD NOORDIN

 

…PLAINTIFFS

 

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8. JCT LIMITED

 

9. CNLT (FAR EAST) BERHAD (IN LIQUIDATION) … DEFENDANTS

 

JUDGMENT (SUIT AGAINST SEVENTH DEFENDANT)

 

(After trial)

 

A. Introduction

 

1. This judgment discusses, among others, the following 5 questions:

 

(1) whether the seventh defendant (7th Defendant), the Human Resources (HR) manager of the ninth defendant company (9th Defendant), had conspired with the 9th Defendant’s directors, to injure the 83 plaintiffs in this case (Plaintiffs), by unlawful or lawful means;

 

(2) whether the 7th Defendant was knowingly a party to the carrying on the business of the 9th Defendant with intent to defraud the 9th Defendant’s creditors, including the Plaintiffs, under s 304(1) of the Companies Act 1965 (CA);

 

(3) whether the 7th Defendant had dissipated the assets of the 9th Defendant, by encashing 3 cash cheques issued by the 9th Defendant (3 Cheques);

 

(4) whether the 7th Defendant as the 9th Defendant’s employee had the following duties owed to the 9th Defendant –

 

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(a) implied contractual duties of fidelity and good faith; and/or

 

(b) fiduciary duty

 

whereby the 7th Defendant should not have any business outside the 7th Defendant’s employment; and

 

(5) whether the 7th Defendant’s encashment of 3 Cheques constituted an undue preference in the 7th Defendant’s favour under s 293 CA in view of the winding up of the 9th Defendant.

 

B. This action

 

2. The Plaintiffs in this case were the employees of the 9th Defendant. The

 

Plaintiffs had filed this suit against the following parties (This Suit):

 

(1) the first defendant (1st Defendant) was at the material time the executive managing director (MD) of the 9th Defendant and was effectively in control of the 9th Defendant. The 1st Defendant is an Indian national who resides in Malaysia;

 

(2) the second to sixth defendants (2nd to 6th Defendants) were the 9th Defendant’s directors at the material time. The 2nd to 4th Defendants are Indian citizens who reside in India. The 5th and 6th Defendants are Malaysian citizens who reside in Malaysia;

 

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(3) the 7th Defendant is a Malaysian citizen who resides in Malaysia;

 

(4) the eighth defendant (8th Defendant) is a company incorporated in India and holds 15.73% shareholding in the 9th Defendant; and

 

(5) the 9th Defendant was listed on the Second Board of Bursa Malaysia (Bursa) on 17.12.1997.

 

3. In the re-amended statement of claim (RSOC), the Plaintiffs alleged,

 

among others, as follows:

 

(1) at the material time, the 9th Defendant carried out the business of manufacturing and sale of yarn. The 9th Defendant owed a total of RM2,910,201.78 to the Plaintiffs in terms of, among others, arrears of salary due to the Plaintiffs (Alleged Debt To Plaintiffs);

 

(2) This Suit was brought pursuant to s 304 CA whereby the Plaintiffs averred that the 1st to 9th Defendants (collectively referred to in this judgment as the “Defendants”) had carried on the business of the 9th Defendant with intent to defraud the creditors of the 9th Defendant. The Plaintiffs claimed that the Plaintiffs are the 9th Defendant’s creditors in view of the Alleged Debt Due To Plaintiffs. The particulars of the claim of each of the Plaintiffs were set out in the Second Schedule to the RSOC (2nd Schedule to RSOC);

 

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(3) the Plaintiffs also alleged that the Defendants has unlawfully conspired

 

with each other with the sole or pre-dominant purpose to injure the

 

Plaintiffs, by unlawful or lawful means; and

 

(4) the Plaintiffs prayed for the following relief –

 

(a) a declaration that the 9th Defendant’s business had been carried on by the Defendants with intent to defraud the 9th Defendant’s creditors, in particular the Plaintiffs, pursuant to s 304 CA;

 

(b) a declaration that the Defendants shall be jointly and/or severally liable and personally responsible, without any limitation of liability, for all the debts of the 9th Defendant;

 

(c) an order for the Defendants to jointly and/or severally pay to the Plaintiffs the outstanding debt due and owing to the Plaintiffs by the 9th Defendant as pleaded in the 2nd Schedule to RSOC;

 

(d) general damages to be assessed by this court;

 

(e) interest at the rate of 5% per annum from 16.1.2009, the date of the 9th Defendant’s winding up by the Kuala Lumpur High Court (Winding Up Order), on the sum ordered to be paid by this court until full settlement of the sum;

 

(f) costs of This Suit on a solicitor and client basis; and

 

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(g) further order and/or other relief which this court may deem fit and fair in the circumstances of this case.

 

B(1). First trial of This Suit (1st Trial)

 

4. The Plaintiffs entered a judgment in default of appearance against the 7th Defendant on 29.5.2013 (Default Judgment against 7th Defendant). Hence, the Plaintiffs proceeded with the 1st Trial against the 1st to 6th, 8th and 9th Defendants before Nallini Pathmanathan J (as she then was).

 

5. On 13.6.2014, after the 1st Trial, Nallini Pathmanathan J decided as follows in [2014] 1 LNS 640 (Decision of 1st Trial):

 

(1) the Plaintiffs were entitled to a declaration that the 9th Defendant’s business had been carried on by the 1st Defendant with intent to defraud the 9th Defendant’s creditors, including the Plaintiffs, pursuant to s 304 CA;

 

(2) the Plaintiffs are granted a declaration that the 1st Defendant is personally liable to the 9th Defendant’s employees and is hereby ordered to pay the outstanding debt due and owing to the Plaintiffs in the sum of RM2,910,201.78 (Sum) as set out in the 2nd Schedule to RSOC;

 

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(3) the Plaintiffs are granted interest at the rate of 5% per annum on the Sum from the date of judgment to the date of final settlement of the Sum, payable by the 1st Defendant;

 

(4) no declaration is granted under s 304 CA in respect of the 2nd to 6th, 8th and 9th Defendants;

 

(5) an order that all payments channelled to the 8th Defendant which amounted to fraudulent preference as stated in the Decision of 1st Trial, are hereby declared void;

 

(6) an inquiry or assessment by the 9th Defendant’s liquidator for an account of monies siphoned or channelled to the 8th Defendant by the 1st Defendant;

 

(7) an order for the repayment by the 8th Defendant of monies wrongfully channelled to or dissipated by the 1st Defendant to the 8th Defendant to be made to the 9th Defendant’s liquidator for distribution among the 9th Defendant’s body of unsecured creditors in accordance with the law; and

 

(8) costs of RM120,000 be paid by the 1st Defendant to the Plaintiffs.

 

6. The 1st and 8th Defendants had appealed to the Court of Appeal against the

 

Decision of 1st T rial. On 30.12.2015, the Court of Appeal had –

 

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(1) dismissed the 1st Defendant’s appeal with costs [Court of Appeal’s Judgment (1st Defendant)]; and

 

(2) allowed the 8th Defendant’s appeal with costs [Court of Appeal’s Judgment (8th Defendant)].

 

I will refer to the above judgments of the Court of Appeal later in this judgment.

 

B(2). Second trial of This Suit (2nd Trial)

 

7. The 7th Defendant applied to set aside the Default Judgment against 7th Defendant (7th Defendant’s Application). On 20.3.2015, the learned Senior Assistant Registrar allowed the 7th Defendant’s Application with costs and set aside the Default Judgment against 7th Defendant (SAR’s Decision).

 

8. The Plaintiffs appealed to me against the SAR’s Decision (Plaintiffs’ Appeal) under Order 56 rule 1(1) of the Rules of Court 2012 (RC). On 18.5.2015, I dismissed the Plaintiffs’ Appeal with costs. As such, the Plaintiffs proceeded before me with the 2nd Trial of This Suit only against the 7th Defendant.

 

9. In the 2nd Trial –

 

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(1) the Plaintiffs called 2 witnesses, namely –

 

(a) Mr. Michael a/l Thomas (PW1); and

 

(b) Mr. Alok Kumar Sarda (PW2); and

 

(2) the 7th Defendant testified at the 2nd Trial and did not call any other witness.

 

C. Plaintiffs’ case

 

10. I start with PW2’s evidence because such evidence will set out the circumstances regarding the 9th Defendant’s winding up. PW2 gave the following evidence, among others, in PW2’s witness statement:

 

(1) PW2 is a director in a company incorporated in Singapore, Vaaibz Pte. Ltd. (VPL);

 

(2) VPL is a trade creditor of the 9th Defendant;

 

(3) on 13.8.2007, VPL presented a winding up petition against the 9th Defendant in the Seremban High Court (1st Winding Up Petition). In the 1st Winding Up Petition, on 6.9.2007, VPL obtained on an ex parte basis the appointment of Mr. Ong Kong Lai (Mr. Ong) and Mr. Wong Cham Mew (Mr. Wong) as provisional liquidators (PLs) of the 9th Defendant (1st Order Appointing PLs);

 

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(4) on 12.9.2007 –

 

(a) the 1st Order Appointing PLs had been served on the 9th Defendant; and

 

(b) the PLs took possession of the 9th Defendant’s factory in Senawang Industrial Estate, Negeri Sembilan (Factory);

 

(5) the ex parte appointment of the PLs had been set aside on an ex parte basis by the 9th Defendant on 19.9.2007;

 

(6) on 19.10.2007, Vearrian Tanzania Ltd (VTL) presented a second winding up petition against the 9th Defendant in the Kuala Lumpur High Court (2nd Winding Up Petition). In the 2nd Winding Up Petition, VTL obtained an order from the winding up court on 23.4.2008 to appoint Mr. Ong and Mr. Wong as PLs of the 9th Defendant (2nd Order Appointing PLs);

 

(7) on 16.1.2009, a Winding Up Order of the 9th Defendant was made by the Kuala Lumpur High Court. Mr. Ong and Mr. Wong had been appointed by the High Court to be the liquidators of the 9th Defendant on 4.2.2009 (Liquidators);

 

(8) the PLs prepared the following reports in respect of the 9th Defendant

 

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(a) a preliminary report for the period from 6.9.2007 to 18.9.2007 (PLs 1st Preliminary Report); and

 

(b) a preliminary report for the period from 23.4.2008 to 21.7.2008 (PLs 2nd Preliminary Report);

 

(9) the PLs had appointed Twin Leaders Corporate Services Sdn. Bhd.

 

(TLCS) to do a forensic investigation regarding the 9th Defendant.

 

TLCS had prepared the following reports –

 

(a) a forensic investigation preliminary report as at 21.9.2007 (TLCS’s 1st Report);

 

(b) a forensic investigative report as at 24.11.2008 (TLCS’s 2nd Report); and

 

(c) a forensic investigative report as at 27.11.2009 (TLCS’s 3rd Report);

 

(10) on 11.9.2007, the 9th Defendant issued the 3 Cheques as follows –

 

(a) Malayan Banking Bhd. (MBB) cheque no. 704992 for the sum of RM50,000.00 (1st Cheque);

 

(b) MBB cheque no. 704993 for the sum of RM50,000.00 (2nd Cheque); and

 

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(c) EON Bank Bhd. (EON) cheque no. 159282 for the sum of RM60,000.00 (3rd Cheque); and

 

(11) there were 3 payment vouchers (PV’s) of the 9th Defendant which showed that the sum totalling RM160,000 as stated in the 3 Cheques constituted advances from the 9th Defendant to the 7th Defendant.

 

11. During PW2’s cross-examination, PW2 testified, among others –

 

(1) VPL is PW2’s company which supplied raw materials to the 9th Defendant in September, 2005;

 

(2) PW2 disagreed with the 7th Defendant’s learned counsel that the 7th Defendant had no part to play in the administration of the 9th Defendant. According to the PW2, TLCS’s 1st Report showed that the 7th Defendant assisted the PLs when the PLs took possession of the 9th Defendant’s office and Factory;

 

(3) PW2 stated that PW2 was not aware that the 7th Defendant had fraudulently carried out the 9th Defendant’s business to defraud the 9th Defendant’s creditors;

 

(4) PW2’s testimony in this case is based solely on documents prepared by TLCS of which PW2 had no personal knowledge; and

 

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(5) PW2 agreed with the 7th Defendant’s learned counsel that PW2 had no personal knowledge of the withdrawal of monies belonging to the 9th Defendant.

 

12. In PW1’s witness statement (WSSP1), PW1 testified, among others, as

 

follows:

 

(1) PW1 was a “raw material clerk’ with the 9th Defendant. PW1 had worked for 7 years for the 9th Defendant;

 

(2) PW1’s scope of work was as follows –

 

(a) PW1 was in charge of receipt and storage of raw materials for the 9th Defendant;

 

(b) PW1 participated in the annual physical “stock take” by the 9th Defendant’s auditor; and

 

(c) PW1 prepared a daily stock report to Ms. Vicky, the personal secretary to the 1st Defendant, and a monthly report for reconciliation;

 

(3) in April 2007, there was very little production of yarn by the 9th Defendant due to a shortage of supply of raw materials to the 9th Defendant;

 

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(4) the 9th Defendant had deducted 7 months’ contributions for the Employees Provident Fund (EPF) from PW1’s salary but the 9th Defendant did not remit such deductions to the EPF. PW1 together with other senior employees of the 9th Defendant had lodged complaints with the EPF, Bursa and police regarding the 9th Defendant’s failure to remit EPF contributions to the EPF;

 

(5) PW1 continued to work for the 9th Defendant despite no production of yarn by the 9th Defendant because the 1st Defendant as the 9th Defendant’s MD had assured the 9th Defendant’s employees that the 9th Defendant would get a new investor and the 9th Defendant would then be able to pay the salaries of the 9th Defendant’s employees;

 

(6) PW1 was present when the 7th Defendant called for a meeting of the 9th Defendant’s board of directors (BOD) to inform the 9th Defendant’s BOD that the 9th Defendant had been served with the 1st Order Appointing PLs at approximately 9.00 to 9.15 am, 12.9.2007. PW1 was present because the 7th Defendant had asked PW1 to submit PW1’s report in respect of the raw materials to Ms. Vicky which was part of PW1’s daily routine. PW1 was outside the board room where the 9th Defendant’s BOD meeting was held. The door to the board room was opened and PW1 heard the 7th Defendant informing the 9th Defendant’s BOD meeting that the 1 st Order Appointing PLs had been received by the 7th Defendant in the morning of 12.9.2007; and

 

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(7) PW1 was told by the 9th Defendant through 3 memoranda dated 30.4.2008, 10.5.2008 and 18.5.2008 (3 Memoranda) to go on his annual leave. By a letter dated 13.6.2008, the PLs gave an extension of leave to PW1. PW1’s salary had not been paid since April 2008.

 

13. When PW1 was cross-examined, PW1 gave the following evidence,

 

among others:

 

(1) although paragraph 19.1 RSOC pleaded that the Defendants (including the 7th Defendant) were aware that the 9th Defendant had been insolvent and had ceased to be a going concern since 2003, PW1 did not know of such a fact;

 

(2) PW1 had “no idea” how the 7th Defendant had engaged in and/or carried on the 9th Defendant’s business fraudulently by misleading the 9th Defendant’s employees, creditors, investors and Bursa with irregular accounting and financial transactions as pleaded in paragraph 19.3 RSOC;

 

(3) PW1 had also “no idea” regarding the allegation in paragraph 19.4 RSOC that the Defendants (including the 7th Defendant) had siphoned and/or misappropriated assets of the 9th Defendant to the detriment of the 9th Defendant’s employees and unsecured creditors;

 

(4) PW1 did not understand the averment in paragraph 19.5 RSOC that although the 9th Defendant was insolvent, the Defendants (including

 

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the 7th Defendant) had caused the 9th Defendant to settle the 9th Defendant’s debts with preferred creditors of the 9th Defendant. PW1 further testified that generally, PW1 did not understand the RSOC;

 

(5) PW1 did not know the meaning of the word “conspiracy”

 

(6) PW1 admitted that PW1 had no evidence to prove the following allegations pleaded in RSOC –

 

(a) the 7th Defendant had engaged, carried on and/or undertaken the business of the 9th Defendant with intent to defraud the 9th Defendant’s creditors;

 

(b) the 7th Defendant had engaged, carried on and/or undertaken the business of the 9th Defendant by settling the 9th Defendant’s debts with the 9th Defendant’s preferred creditors;

 

(c) the 7th Defendant had overstated the 9th Defendant’s revenue;

 

(d) the 7th Defendant had dissipated the 9th Defendant’s assets;

 

(e) the 7th Defendant had participated in the irregularities regarding the 9th Defendant’s efforts to recover debts due to the 9th Defendant; and

 

(f) the 7th Defendant had committed criminal breach of trust (CBT);

 

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(7) PW1 stated that all the Plaintiffs were creditors of the 9th Defendant but PW1 could not show any evidence to prove such a fact when PW1 was cross-examined by the 7th Defendant’s learned counsel. PW1 also admitted that PW1 had no evidence to prove the Sum claimed in This Suit; and

 

(8) regarding 12.9.2007 –

 

(a) PW1 admitted that PW1 had no documentary proof that PW1 was present at the 9th Defendant’s office at 9 am;

 

(b) PW1 testified that PW1 was not the 9th Defendant’s director;

 

(c) PW1 disagreed with the 7th Defendant’s learned counsel that the 7th Defendant was not present at the 9th Defendant’s office;

 

(d) PW1 agreed with the 7th Defendant’s learned counsel that PW1 did not speak to the 7th Defendant;

 

(e) PW1 admitted that the 7th Defendant had nothing to do with the shortage of raw material in the 9th Defendant;

 

(f) PW1 insisted that the 7th Defendant played a part in the 9th Defendant failure to remit EPF contributions for 9th Defendant’s employees because the 7th Defendant was the 9th Defendant’s HR manager. PW1 however agreed that the 7th Defendant was not

 

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legally responsible to pay the EPF contributions for 9th Defendant’s employees. Furthermore, PW1 did not know that the 9th Defendant did not pay the 7th Defendant’s EPF contribution; and

 

(g) PW1 admitted that in WSSP1 there was a contradiction in WSSP1 in respect of when the 1st Order Appointing PLs was served on the 9th Defendant.

 

14. In PW1’s re-examination, PW1 clarified as follows, among others:

 

(1) the claim against the 7th Defendant concerned the 3 Cheques which had been encashed by the 7th Defendant;

 

(2) PW1 made a mistake in WSSP1 regarding the date when the 1st Order Appointing PLs was served on the 9th Defendant. PW1 confirmed that the 1st Order Appointing PLs was served on the 9th Defendant on 12.9.2007;

 

(3) PW1 was in the 9th Defendant’s office on 12.9.2007 to give PW1’s daily stock report to Ms. Vicky, the 1st Defendant’s secretary. That was when PW1 saw the 7th Defendant at the 9th Defendant’s office on 12.9.2007; and

 

(4) PW1 testified that PW1 had filed a proof of debt (POD) with the Liquidators regarding PW1’s salary and EPF contributions.

 

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D. 7th Defendant’s case

 

15. The 7th Defendant gave the following evidence, among others, in the 7th

 

Defendant’s witness statement (WSSD1):

 

(1) the 7th Defendant commenced work with the 9th Defendant on 2.6.1990. At the material time the 7th Defendant was the 9th Defendant’s HR manager. The 7th Defendant had never been appointed as a director of the 9th Defendant;

 

(2) the 7th Defendant knew all the Plaintiffs as the Plaintiffs were the 7th Defendant’s colleagues in the 9th Defendant;

 

(3) the 7th Defendant had “never been involved in the management’ of the 9th Defendant;

 

(4) the 7th Defendant became aware of the first appointment of the PLs when the PLs together with court officers arrived at the 9th Defendant’s premises at about 3 pm, 12.9.2007. The 1st Order Appointing PLs was set aside on 19.9.2007 and the 9th Defendant “functioned as normal’;

 

(5) the salaries of the 9th Defendant’s employees were paid in full by the 9th Defendant up to April 2008;

 

(6) the 7th Defendant denied, among others –

 

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(a) liability for the Sum;

 

(b) carrying on the 9th Defendant’s business to defraud the 9th Defendant’s creditors;

 

(c) being either a party to or being aware of the fact that on 6.6.2007, the 9th Defendant was listed under Bursa’s Practice Note 17/2005 (PN 17);

 

(d) being aware that for the 9th Defendant’s financial year ending 31.12.2006, the 9th Defendant had suffered a nett loss of RM19,016,215.00 and that the 9th Defendant’s current liabilities were RM101,414,548.00;

 

(e) being aware that on 31.5.2007, the 9th Defendant had announced the 9th Defendant’s quarterly financial report to Bursa which showed that the 9th Defendant had suffered a loss of RM4,424,000.00 for the first quarter ending 31.3.2007;

 

(f) being aware of the forensic investigation conducted by TLCS. Nor was the 7th Defendant aware of TLCS’s 1st, 2nd and 3rd Reports;

 

(g) being aware of fictitious invoices issued by the 9th Defendant in 2007;

 

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(h) being aware of irregularities arising from transactions between the 9th Defendant and MTI (Far East) Sdn. Bhd.;

 

(i) being aware of irregularities in respect of the 9th Defendant’s valuation of plant and machinery;

 

(j) being a party to any conspiracy to defraud anyone;

 

(k) being aware that the 1st to 6th Defendants had caused the 9th Defendant not to remit the Plaintiffs’ EPF contributions despite the fact that the 9th Defendant had deducted EPF contributions from the Plaintiffs’ salaries;

 

(l) the 9th Defendant had been insolvent and ceased to be a going concern since 2003;

 

(m) the 7th Defendant together with the other Defendants had siphoned and/or misappropriated the assets of the 9th Defendant; and

 

(n) the 9th Defendant had settled the 9th Defendant’s debts with preferred and/or related creditors

 

on the following grounds –

 

(i) the 7th Defendant was only an employee of the 9th Defendant;

 

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(ii) the 7th Defendant was not involved in the 9th Defendant’s management;

 

(iii) the Plaintiffs were not creditors of the 9th Defendant up to 23.4.2008 as the Plaintiffs’ salaries had been paid in full by the 9th Defendant up to April 2008; and

 

(iv) the Plaintiffs’ claim only arose in April 2008 after the 2nd Order Appointing PLs and when the Plaintiffs’ salaries had not been paid by the PLs;

 

(7) the 9th Defendant had paid yearly rental of RM144,000 to Golden

 

Privilege Sdn. Bhd. (GPSB) from 2000 to 2006 (9th Defendant’s

 

Rental Payments To GPSB) –

 

(a) the 7th Defendant was aware of the 9th Defendant’s Rental Payments to GPSB but the 7th Defendant claimed that 7th Defendant did not receive a sen of the 9th Defendant’s Rental Payments to GPSB;

 

(b) the 7th Defendant stated that the 7th Defendant was not a shareholder of GPSB. According to the 7th Defendant, GPSB was not involved in any business activity. The 7th Defendant did not receive any director’s fee or dividend from GPSB;

 

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(c) the 9th Defendant’s Rental Payments to GPSB were made because there was an arrangement between the 1st and 9th Defendants; and

 

(d) the 7th Defendant was not aware that –

 

(i) GPSB had no property to let to the 9th Defendant. The 7th Defendant was asked by the 1st Defendant to affirm a statutory declaration (SD) that GPSB had no property and such a SD was false because GPSB had 2 pieces of land (False SD Regarding GPSB’s Assets) – please see the press release dated 2.8.2011 by the Companies Commission of Malaysia (SSM), bundle CBD 6, at p. 1845 (SSM’s Press Release). However, the 7th Defendant claimed that the 7th Defendant did not know about the False SD Regarding GPSB’s Assets. The 7th Defendant was called by SSM but no action had been taken by SSM against the 7th Defendant. SSM however took action against the 1st Defendant whereby the 1st Defendant was charged in the Sessions Court and was fined RM40,000.00 (6 months’ imprisonment in default of payment of fine);

 

(ii) there was no tenancy agreement between the 9th Defendant and GPSB; and

 

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(iii) there was no resolution from the 9th Defendant’s BOD and shareholders to approve the related party transaction regarding the tenancy between the 9th Defendant and GPSB;

 

(8) regarding the 3 Cheques –

 

(a) the 7th Defendant alleged that on or about 15.9.2006, the 7th Defendant paid a sum of RM79,200.00 to the Immigration Department at the request of the 9th Defendant in respect of levies for the 9th Defendant’s foreign workers. On 15.9.2006, the 7th Defendant withdrew cash amounting to RM79,200.00 from the 7th Defendant’s bank account and used this sum to apply for a bank draft from RHB Bank Bhd. (RHB) for that amount to be paid to the Immigration Department. The 7th Defendant adduced a “Remittance Application” form of RHB regarding the application for a bank draft from RHB for the amount of RM79,200.00 (RHB’s Remittance Application);

 

(b) on 12.10.2006, the 7th Defendant advanced RM82,000 to the 9th Defendant by paying such a sum directly into the 9th Defendant’s bank account in MBB. The 7th Defendant relied on 2 MBB’s deposit slips dated 12.10.2006 which showed cash deposits of RM70,000 and RM12,000 deposited into the 9th Defendant’s bank account in MBB on 12.10.2006 (2 MBB’s Deposit Slips);

 

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(c) the 7th Defendant averred that the 7th Defendant had advanced a total sum of RM161,200.00 to the 9th Defendant [Alleged Loan of RM161,200 (from 7th Defendant to 9th Defendant)];

 

(d) the 7th Defendant received the 3 Cheques on 11.9.2007 as a repayment of the Alleged Loan of RM161,200 (from 7th Defendant to 9th Defendant). The 7th Defendant was not aware who were the signatories of the 3 Cheques;

 

(e) the 7th Defendant had encashed the 3 Cheques on 12.9.2007 and at the time of encashment of the 3 Cheques, the 7th Defendant was not aware of the 1st Order Appointing PLs. The 7th Defendant claimed that the 7th Defendant only became aware of the 1st Order Appointing PLs after –

 

(i) the 7th Defendant had encashed the 3 Cheques; and

 

(ii) the 7th Defendant had returned to the 9th Defendant’s premises “shortly after 3.00 pm” on 12.9.2007. The 7th Defendant alleged that the PLs only entered the 9th Defendant’s premises at about 3.00 pm, 12.9.2007; and

 

(f) a police report had been made against the 7th Defendant in respect of the 3 Cheques. The 7th Defendant had given an explanation to the police and no action had been taken against the 7th Defendant; and

 

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(9) the 7th Defendant gave evidence that like the Plaintiffs, the 7th Defendant did not receive any salary from the 9th Defendant.

 

16. During cross-examination, the 7th Defendant testified, among others, as

 

follows:

 

(1) the 7th Defendant did not know that the PLs came to the 9th Defendant’s premises in the morning of 12.9.2007. According to the 7th Defendant, the 7th Defendant only came to the 9th Defendant’s premises after 3 pm, 12.9.2007;

 

(2) the 7th Defendant stated that most of the 7th Defendant’s job concerned work outside the 9th Defendant’s premises. After performing the 7th Defendant’s job, the 7th Defendant would go to the bank;

 

(3) for the 3 Cheques –

 

(a) the 7th Defendant went to MBB and EON in the morning of

 

12.9.2007 to encash the 3 Cheques. However, when the Plaintiffs’ learned counsel showed to the 7th Defendant, EON’s “Debit Advice” dated 12.9.2007 from (EON’s Debit Advice dated 12.9.2007) which stated that the sum stated in the 3rd Cheque had been debited from the 9th Defendant’s account with EON at 3.37 pm, 12.9.2007, the 7th Defendant agreed that the 7th Defendant had presented the 3rd Cheque in the evening of 12.9.2007! The 7th

 

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Defendant however subsequently disagreed that 7th Defendant was not in EON in the morning of 12.9.2007;

 

(b) MBB and EON are near to each other and are within walking distance. MBB and EON are approximately 4 kilometres from the Factory;

 

(c) the 7th Defendant disagreed with the Plaintiffs’ learned counsel that the 7th Defendant encashed the 3 Cheques despite knowing the appointment of the PLs; and

 

(d) the 7th Defendant was aware at the time of encashment of the 3 Cheques that the 7th Defendant should not encash the 3 Cheques if PLs had been appointed over the 9th Defendant;

 

(4) the 7th Defendant was not aware that despite the setting aside of the

 

1st Order Appointing PLs, any money could only be taken out from the

 

9th Defendant with the leave of the winding up court;

 

(5) regarding the Alleged Loan of RM161,200 (from 7th Defendant to 9th

 

Defendant) –

 

(a) the 7th Defendant admitted that the 7th Defendant had not adduced any document to show that the amount of RM79,200 came from the 7th Defendant. In fact, the Plaintiffs’ learned counsel showed to the 7th Defendant the PLs 1st Preliminary

 

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Report, which stated that as at 31.7.2007, the 9th Defendant’s records only showed the 1st Defendant who had advanced a sum of RM587,380.00 to the 9th Defendant. Surprisingly, the 7th Defendant agreed with the 9th Defendant’s records as stated in the PLs 1st Preliminary Report;

 

(b) the 7th Defendant disagreed with the Plaintiffs’ learned counsel that the Alleged Loan of RM161,200 (from 7th Defendant to 9th Defendant) would have been recorded in the 9th Defendant’s records. The 7th Defendant further testified that if the Alleged Loan of RM161,200 (from 7th Defendant to 9th Defendant) was not recorded in the 9th Defendant’s records, the 7th Defendant was not worried that the 9th Defendant would not repay the Alleged Loan of RM161,200 (from 7th Defendant to 9th Defendant). There was also no possibility of the 7th Defendant forgetting about the Alleged Loan of RM161,200 (from 7th Defendant to 9th Defendant) because the 7th Defendant had a record of the 7th Defendant’s advances to the 9th Defendant (Alleged Record) and the 7th Defendant had furnished a copy of the Alleged Record to the 9th Defendant; and

 

(c) the 7th Defendant agreed with the Plaintiffs’ learned counsel that if it was true that there was –

 

(i) the Alleged Loan of RM161,200 (from 7th Defendant to 9th Defendant); and

 

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(ii) re-payment of the Alleged Loan of RM161,200 (from 7th Defendant to 9th Defendant) by way of the 3 Cheques

 

– the 9th Defendant still owed RM1,200.00 to the 7th Defendant (Alleged Outstanding Sum of RM1,200). Despite the fact that the 7th Defendant was aware the 9th Defendant was a public listed company at the material time, the 7th Defendant testified that the 7th Defendant was not aware that any advance to a public listed company should be reflected in the public listed company’s financial records and reports. The 7th Defendant confirmed that the 7th Defendant did not file a suit against the 9th Defendant to recover the Alleged Outstanding Sum of RM1,200; and

 

(6) the 7th Defendant informed this court that the 7th Defendant’s first drawn salary in 1990 was RM2,500 per month. The 7th Defendant’s last drawn salary was RM6,800 per month. When the Plaintiffs’ learned counsel put to the 7th Defendant that based on the 7th Defendant’s salary, the Alleged Loan of RM161,200 (from 7th Defendant to 9th Defendant) could not be true, the 7th Defendant explained that the 7th Defendant had a business outside the 9th Defendant whereby the 7th Defendant obtained more than RM15,000 a month (7th Defendant’s Alleged Outside Business).

 

17. The 7th Defendant clarified, among others, as follows in his re-examination:

 

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(1) the 7th Defendant did not file a suit against the 9th Defendant to recover the Alleged Outstanding Sum of RM1,200 because the 7th Defendant was busy running his business in Alor Star;

 

(2) the 7th Defendant claimed that for the last 15 years, the 9th Defendant would advance money to the 7th Defendant for expenses incurred by the 7th Defendant for foreign workers and “everything”. The 7th Defendant would provide receipts for the 9th Defendant to “contra”. Sometimes, the 9th Defendant would ask the 7th Defendant for money and the 7th Defendant would do so;

 

(3) the 7th Defendant had no idea why the 9th Defendant’s records did not state that the 7th Defendant was a creditor of the 9th Defendant; and

 

(4) the 7th Defendant testified that the 7th Defendant could not adduce documentary evidence to prove the source of the Alleged Loan of RM161,200 (from 7th Defendant to 9th Defendant) because –

 

(a) the Alleged Loan of RM161,200 (from 7th Defendant to 9th Defendant) happened a long time ago, more than 10 years ago; and

 

(b) the 7th Defendant went to his bank, CIMB Bank Bhd. (CIMB) but CIMB did not have records because “it happened a long time ago”.

 

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E. Whether Defendants (including 7th Defendant) had conspired to injure Plaintiffs

 

18. My understanding of case law is that there are 2 kinds of tort of conspiracy to injure, namely –

 

(1) tort of conspiracy to injure by unlawful means; and

 

(2) tort of conspiracy to injure by lawful means.

 

I refer to the English Court of Appeal’s judgment delivered by Nourse LJ (as he then was) in Kuwait Oil Tanker Co SAK & Anor v Al Bader & Ors

 

[2000] 2 All ER (Comm) 271, at paragraphs 107-108 (Kuwait Oil Tanker Co), as follows:

 

107. It is common ground that there are two types of actionable conspiracy, conspiracy to injure by lawful means and conspiracy to injure by unlawful means. The first is sometimes described simply as a conspiracy to injure and the second as a conspiracy to use unlawful means (see eg Clerk and Lindsell on Torts (17th edn, 1995) pp 1267-1268, paras 23-76). In our view they are both conspiracies to injure and their ingredients are the same, with one crucial difference. In both cases there must be conspiracy to injure the claimant, but in the first case (in which the means employed would otherwise be lawful) the predominant purpose of the conspiracy must be to injure the claimant whereas in the second case, although the defendant must intend to injure the claimant, injury to the claimant need not be his predominant purpose.

 

108. We shall treat them as different torts, although, as it seems to us, they are better regarded as species of the same tort. It

 

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matters not. For present purposes we would define them as follows. (1) A conspiracy to injure by lawful means is actionable where the claimant proves that he has suffered loss or damage as a result of action taken pursuant to a combination or agreement between the defendant and another person or persons to injure him, where the predominant purpose of the defendant is to injure the claimant. (2) A conspiracy to injure by unlawful means is actionable where the claimant proves that he has suffered loss or damage as a result of unlawful action taken pursuant to a combination or agreement between the defendant and another person or persons to injure him by unlawful means, whether or not it is the predominant purpose of the defendant to do so. We shall call them a ‘lawful means conspiracy’ and an ‘unlawful means conspiracy’ respectively .”

 

(emphasis added).

 

19. The above 2 kinds of tort of conspiracy to injure as explained in Kuwait Oil Tanker Co had been followed by Nallini Pathmanathan J (as she then was) in the High Court case of Deepak Jaikishan a/l Jaikishhan Rewachand & Anor v Intrared Sdn Bhd & Anor [2013] 7 MLJ 437, at paragraph 100.

 

20. There are 2 Court of Appeal judgments regarding the tort of conspiracy to injure by unlawful means, namely –

 

(1) in Renault SA v Inokom Corp Sdn Bhd & other appeals [2010] 5 MLJ 394, at paragraphs 30-34, KN Segara JCA decided as follows –

 

“[30] Tan Chong asserts, that based on the statement of claim, there is only one allegation made against Tan Chong – it is in

 

34

 

relation to the Kangoo project. Inokom and Quasar allege in the pleadings that Renault and Tan Chong had conspired with each other by unlawful means to injure Inokom and Quasar so as to deprive them the opportunity of developing the Kangoo project. The unlawful means used was allegedly a false and fraudulent representation on the part of Renault as to how much Inokom and Quasar ought to invest in order to develop the Kangoo project. …

 

[31] Tan Chong maintains that there is no cause of action in the tort of conspiracy to injure and, that on the undisputed facts and on the facts as pleaded, the claim against Tan Chong is devoid of any substance, equivocal, lacking in precision, inconsistent and improbable in itself. We are unanimous and agree that this is a fit and proper case for the writ and statement of claim to be struck off as against Tan Chong.

 

[32] In regard to the tort of conspiracy, the following need to be satisfied at this interlocutory stage:

 

(a) an agreement between two or more persons (that is an agreement between Tan Chong and others);

 

(b) an agreement for the purpose of injuring Inokom and Quasar;

 

(c) that acts done in execution of that agreement resulted in damage to Inokom and Quasar;

 

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(d) damage is an essential element and where damage is not pleaded the statement of claim may be struck out.

 

(see Yap JH v Tan Sri Loh Boon Siew & Ors [1991] 4 CLJ (Rep) 243).

 

[33] It is clear that the very first element to be shown must be an agreement between two or more persons for the purpose of injuring Inokom and Quasar. ‘Agreement’ is not limited to a signed and sealed agreement but any informal agreement, including a combination of efforts of the alleged co-conspirators. After that, it has to be shown or at least alleged that acts were done in execution of that agreement which resulted in damage to Inokom and Quasar. In this case, the acts done would have to be unlawful, namely, the alleged false representation made by Renault to Inokom and Quasar as to the level of investment Inokom and Quasar wiil have to make for the Kangoo project.

 

[34] It is trite law that the agreement to injure must come first (in other words the agreement should have crystallised), before the alleged unlawful acts are done in execution or pursuant to the agreement ”

 

(emphasis added); and

 

(2) Low Hop Bing JCA held as follows in SCK Group Bhd & Anor v Sunny Liew Siew Pang & Anor [2011] 4 MLJ 393, at paragraphs 13 and 14 –

 

36

 

“[13] The plaintiffs, who desire the court to give judgment as

 

to the legal right or liability, dependent on the existence of facts which he asserts in relation to the tort of conspiracy to defraud the plaintiffs, bear the burden of proving their case. …

 

[14] The tort of conspiracy is not constituted by the conspiratorial agreement alone. For conspiracy to take place, there must also be an unlawful object, or, if not in itself unlawful, it must be brought about by unlawful means: see Davies v Thomas [1920] 2 Ch 189 per Warrington LJ, and Seah Siang Mong v Ong Ban Chai & Another Case [1998] 1 CLJ Supp 295 (HC) per Ghazali J (now FCJ). There must be a co-existence of an agreement with an overt act causing damage to the plaintiffs. Hence, this tort is complete only if the agreement is carried into effect, thereby causing damage to the plaintiffs. In order to succeed in a claim based on the tort of conspiracy, the plaintiffs must establish:

 

(a) an agreement between two or more persons;

 

(b) for the purpose of injuring the plaintiff; and

 

(c) acts done in the execution of that agreement resulted in damage to the plaintiff: Marrinan v Vibart [1962] 1 All ER 869 at p 871 per Salmon J; and Halsbury’s Laws of England (4th Ed) Vol 45 at p 271, as applied by Ghazali J (now FCJ) in Seah Siang Mong.’

 

(emphasis added).

 

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21. Based on my understanding of the above cases –

 

(1) the 3 elements of the tort of conspiracy to injure by unlawful means (3 Elements), are as follows:

 

(a) there must be proof of –

 

(i) an agreement; and/or

 

(ii) a combination of efforts

 

of the conspirators to injure the plaintiff. Such an agreement or combination may be –

 

(ai) formal or informal; or

 

(aii) in writing or by word of mouth;

 

(b) there are acts committed to execute the agreement or combination to injure the plaintiff; and

 

(c) the plaintiff has suffered damage due to acts done in execution of the agreement or combination to injure the plaintiff; and

 

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(2) the tort of conspiracy to injure by lawful means has the 3 Elements and a fourth ingredient, namely there is a pre-dominant purpose or intention of the conspirators to injure the plaintiff.

 

22. The RSOC had pleaded that the Defendants (including the 7th Defendant) had conspired, by unlawful or lawful means, to injure the Plaintiffs.

 

23. It is clear that the Plaintiffs have the legal burden under s 101(1), (2) and 102 of the Evidence Act 1950 (EA) to prove the tort of conspiracy to injure, either by unlawful or lawful means, against the Defendants (including the 7th Defendant). In Sinnaiyah & Sons Sdn Bhd v Damai Setia Sdn Bhd [2015] 5 AMR 497, at paragraphs 48-53 (Sinnaiyah & Sons), the Federal Court in a judgment delivered by Richard Malanjum CJ (Sabah & Sarawak) held that an allegation of fraud, even if such an allegation concerns “criminal fraud”, need only be proven on a balance of probabilities and not beyond all reasonable doubt. Accordingly, based on Sinnaiyah & Sons, the Plaintiffs are only required to discharge the legal burden to prove that the Defendants (including the 7th Defendant) have committed the tort of conspiracy to defraud the Plaintiffs (tort of conspiracy to injure by illegal means) on a balance of probabilities.

 

24. Based on the evidence of PW1 and PW2 –

 

(1) there is no evidence on a balance of probabilities to prove that the Defendants (including the 7th Defendant) have committed the tort of

 

39

 

conspiracy to defraud the Plaintiffs because there is no evidence regarding –

 

(a) the existence of any agreement and/or a combination of efforts on the part of the Defendants (including the 7th Defendant) to defraud the Plaintiffs. Nor is there any evidence to prove any agreement and/or a combination of efforts on the part of the Defendants (including the 7th Defendant) to injure the Plaintiffs; and/or

 

(b) any act committed by the Defendants (including the 7th Defendant) to execute the agreement or combination to defraud or to injure the Plaintiffs; and

 

(2) as regards the tort of conspiracy to injure the Plaintiffs by lawful means, the absence of the above 2 elements, in themselves, will mean that such a claim must fail. Furthermore, there is no proof on a balance of probabilities that the Defendants (including the 7th Defendant) have a pre-dominant purpose or intention to injure the Plaintiffs.

 

F. Whether 7th Defendant was knowingly a party to carry on 9th Defendant’s business with intent to defraud 9th Defendant’s creditors

 

25. Section 304 CA provides as follows:

 

“Responsibility for fraudulent trading

 

40

 

304(1) If in the course of the winding up of a company or in any proceedings against a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the Court on the application of the liquidator or any creditor or contributory of the company, may, if it thinks proper so to do declare that any person who was knowingly a party to the carrying on of the business in that manner shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Court directs.

 

(2) Where a person has been convicted of an offence under subsection 303(3) in relation to the contracting of such a debt as is referred to in that section the Court, on the application of the liquidator or any creditor or contributory of the company, may, if it thinks proper so to do, declare that the person shall be personally responsible without any limitation of liability for the payment of the whole or any part of that debt.

 

(3) When the Court makes any declaration pursuant to subsection (1) or (2), it may give such further directions as it thinks proper for the purpose of giving effect to that declaration, and in particular may make provision for making the liability of any person under the declaration a charge on any debt or obligation due from the company to him, or on any charge or any interest in any charge on any assets of the company held by or vested in him or any corporation or person on his behalf, or any person claiming as assignee from or through the person liable or any corporation or person acting on his behalf, and may from time to time make such

 

41

 

further order as is necessary for the purpose of enforcing any charge imposed under this subsection.

 

(4) For the purpose of subsection (3) “assignee” includes any person to whom or in whose favour by the directions of the person liable the debt, obligation, or charge was created, issued or transferred or the interest created, but does not include an assignee for valuable consideration, not including consideration by way of marriage, given in good faith and without notice of any of the matters on the ground of which the declaration is made.

 

(5) Where any business of a company is carried on with the intent or for the purpose mentioned in subsection (1) every person who was knowingly a party to the carrying on of the business with that intent or purpose shall be guilty of an offence against this Act.

 

Penalty: Imprisonment for three years or ten thousand ringgit.

 

(6) This section shall have effect notwithstanding that the person concerned is criminally liable apart from this section in respect of the matters on the ground of which the declaration is made.

 

(7) On the hearing of an application under subsection (1) or (2) the liquidator may himself give evidence or call witnesses.”

 

(emphasis added).

 

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26. The RSOC had averred that the Defendants (including the 7th Defendant) had carried on the 9th Defendant’s business under s 304(1) CA with intent to defraud the Plaintiffs who were the 9th Defendant’s creditors.

 

27. My understanding on s 304(1) CA as interpreted by the relevant cases, is as follows:

 

(1) the following 3 categories of persons may apply under s 304(1) CA –

 

(a) the company’s liquidator;

 

(b) the company’s creditor; and/or

 

(c) the contributory of the company;

 

(2) proceedings under s 304(1) CA [Section 304(1) CA Proceedings] may be commenced against a company –

 

(a) in the course of the winding up of the company; and/or

 

(b) by way of a suit;

 

(3) there is evidence that the company’s business has been carried on -(a) with intent to defraud the company’s creditors;

 

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(b) with intent to defraud the creditors of any other person; or

 

(c) for any fraudulent purpose.

 

In this judgment, I will describe the 3 above circumstances as the “3 Limbs of Fraudulent Trading”. It is to be noted that the shoulder note to s 304 CA states “Responsibility for fraudulent trading”.

 

I refer to the following cases which have construed the 3 Limbs of Fraudulent Trading –

 

(i) in Siow Yoon Keong v H Rosen Engineering BV [2003] 4 MLJ 569, at 580, Abdul Hamid Mohamad JCA (as he then was) delivered the following judgment of the Court of Appeal –

 

“Next we come to the phrase ‘with intend to defraud creditors … or for any fraudulent purpose’. First, we would like to note that the phrase should be read disjunctively even though on the facts of the case both limbs are relevant and applicable.”

 

(emphasis added).

 

Based on Siow Yoon Keong, I am of the view that the 3 Limbs of Fraudulent Trading should be construed disjunctively;

 

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(ii) in the 1st Trial, Nallini Pathmanathan J (as she then was), at paragraphs 36-42, followed Lord Hoffmann’s judgment in the Hong Kong Court of Final Appeal (Hong Kong’s apex court) in Aktieselskabet Dansk Skibsfinansiering v Brothers & Ors [2001] 2 BCLC 324, at 330-331, 331-332, 333 and 334 (Aktieselskabet), as follows –

 

“6. Dishonesty in fraudulent trading

 

The next point is that the judge misunderstood the notion of fraud in s 275(1) of the Companies Ordinance (Cap 32). This reads as follows:

 

‘If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the court, on the application of the Official Receiver, or the liquidator or any creditor or contributory of the company, may, if it thinks proper so to do, declare that any persons who were knowingly parties to the carrying on of the business in manner aforesaid, shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the court may direct.’

 

It is well established that the section requires proof that someone carried on the business of the company with a fraudulent intent and that the other directors sought to be held liable were knowingly party to his fraud. The judge dealt with and rejected a submission that the question of whether the business was being carried on with intent to defraud was an ‘objective’ matter. He held, correctly, that the question of whether the person carrying on the business was fraudulent was subjective in the sense that he personally must have been dishonest. He said at para 5.1.16:

 

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‘Fraudulent intent must be established subjectively after a careful examination of all the evidence. Even in what appear to be water-tight cases, fraud may not be found—simply an unjustified albeit honest —chasing of the rainbow”.’

 

and at para 5.1.24:

 

‘It is not, I think, necessary to dwell overlong on dishonesty or to conduct a lengthy analysis of the many cases to which I was referred. There is really no dispute about the law. The further a person departs from objective standards of honesty, the more likely it becomes that he is dishonest.’

 

Both of these statements seem to me impeccable and merely form a background to what the parties and the judge agreed was the critical issue, namely whether the directors honestly believed that sufficient support from WM would be forthcoming.

 

The criticism of the judge’s understanding of the law is based upon his citation of the Australian case of Hardie v Hanson (1960) 105 CLR 451, from which the phrase about ‘chasing the rainbow’ was derived. This was a case in which the judge had held a director of a company carrying on a retailing business liable because, according to the decree, he had caused the company to continue to trade and incur liabilities ‘without any reasonable prospect of being able to pay or provide payment therefor’. The High Court of Australia said that this was not enough. The question was not whether there was a reasonable prospect of payment but whether the director was personally dishonest. Dixon CJ said (at 461) that although he had ‘struggled on with the business after a time when in fairness to others and in wisdom’ he should have wound it up, he had not been shown to be fraudulent. Kitto J said (at 464) that ‘although he was clearly unjustified in his chasing of the rainbow’ he was not shown to have had any intent other than to try to carry the business through its difficulties. Menzies J said (at 467) that:

 

46

 

even if the chances of payment of all creditors in full were so remote that it belonged to the realms of hope rather than belief, it seems to me that the fault, grievous though it may be, falls short of fraud unless it is coupled with something else, such as misrepresentation of the position or an intention to use goods purchased on credit for the purposes of dishonest gain, which gives it a fraudulent character.’

 

The Australian judge whose decision was reversed by the High Court had applied a dictum of Maugham J in Re William C Leitch Brothers Ltd [1932] 2 Ch 71 at 77:

 

‘In my opinion I must hold with regard to the meaning of the phrase carrying on business ‘with intent to defraud creditors’ that, if a company continues to carry on business and to incur debts at a time when there is to the knowledge of the directors no reasonable prospect of the creditors ever receiving payment of those debts, it is, in general, a proper inference that the company is carrying on business with intent to defraud.’

 

The High Court did not think that this was a very helpful generalisation. I am bound to say that I agree. The question of whether a person carrying on the business was dishonest must depend, as Barnett J said, upon an assessment of all the facts. In cases in which fraud is inferred, there is almost always, as Menzies J said, ‘something else’: a

 

misrepresentation to creditors of the company’s position or their prospects of payment or a dishonest intent to gain some personal advantage.

 

Whether the directors have been dishonest is a question of fact in each case. Whatever the validity of Maugham J’s generalisation that directors who carry on business when they know there is no prospect of the creditors ever receiving payment have an intent to defraud, he certainly did not mean that they could never have such an intent in any other circumstances.

 

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Finally, Mr Purle submitted that Barnett J simply took too relaxed a view of the concept of honesty.

 

So, Mr Purle says, it is not enough that the directors were acting honestly according to their own lights. They should have acted according to the objective standard of what an honest person would have done in the circumstances. He said that, by this standard, the judge’s other findings showed that they had lamentably failed. Le Pichon J, in her dissenting judgment, took much the same view. She cited a remark of Maugham J in Re Patrick and Lyon Ltd [1933] 1 Ch 786 at 790 to the effect that dishonesty was something which ‘according to current notions of fair trading among commercial men, [involves] real moral blame.’ That is, of course, true, but it seems to me that Le Pichon J may have transposed the dictum into a proposition that conduct which involved real moral blame amounted to dishonesty for the purposes of s 275.

 

While I quite accept that a defendant cannot be allowed to shelter behind some private standard of honesty not shared by the community, I think that there is a danger in expressing that proposition by invoking the concept of the hypothetical decent honest man. The danger is that because decent honest people also tend to behave reasonably, considerately and so forth, there may be a temptation to treat shortcomings in these respects as a failure to comply with the necessary objective standard. It seems to me much safer, at least in the context of an allegation of fraud, to concentrate upon the actual defendants and simply ask whether they have been dishonest. Judges or juries seldom have any conceptual difficulty in knowing what is meant by dishonesty .”

 

(emphasis added).

 

Section 275(1) of the Companies Ordinance of Hong Kong is substantially similar to our s 304(1) CA. The Decision of 1st Trial

 

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has been affirmed in the Court of Appeal’s Judgment (1st Defendant) given by Abang Iskandar bin Abang Hashim JCA;

 

(iii) according to the Court of Appeal’s Judgment (1st Defendant) –

 

(iiia) the Court of Appeal’s Judgment (1st Defendant) had followed Siow Yoon Keong, Sinnaiyah & Sons and Aktieselskabet; and

 

(iiib) to prove the 3 Limbs of Fraudulent Trading, there need not be evidence of a scheme to defraud the company’s creditors. A single act of doing the company’s business to defraud the company’s creditors, is sufficient in itself to trigger the application of s 304(1) CA [please see paragraph 42 of the Court of Appeal’s Judgment (1st Defendant)]; and

 

(iv) the Plaintiffs need only prove one or more of the 3 Limbs of Fraudulent Trading on a balance of probabilities – please see the Federal Court’s judgment in Sinnaiyah & Sons and the Court of Appeal’s Judgment (1st Defendant)];

 

(4) the defendant is knowingly a party to the carrying on of the company’s business which constitutes any one or more of the 3 Limbs of Fraudulent Trading; and

 

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(5) the court hearing the Section 304(1) CA Proceedings has a discretion to declare any person (not necessarily a director, employee or shareholder of the company) who is knowingly a party to any one or more of the 3 Limbs of Fraudulent Trading, to be personally liable without limitation of liability for any debt or liability of the company. Section 304(1) CA is a statutory exception to the limited liability of a company as embodied in s 16(5) CA.

 

28. In Siow Yoon Keong, at p. 578, Abdul Hamid Mohamad JCA (as he then was) held as follows:

 

“We are of the view that the issue is the interpretation of s 304(1) and whether the facts of this case fall within the meaning of that subsection.

 

It does not matter whether the relationship between Rosen and Ventura is one of principal and agent or otherwise. It does not matter whether the section carries both civil and criminal liabilities. It does not matter whether there are other remedies. The question is whether on the facts, the case falls within the ambit of s 304(1) or not and whether this is a fit and proper case for the learned Judicial Commissioner (as he then was) to make the declaration that he did.’

 

(emphasis added).

 

It is clear from Siow Yoon Keong that s 304(1) CA is a civil remedy which is independent of –

 

(a) all other civil relief; and

 

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(b) criminal sanction provided in s 304(5) CA or any other law [please see s 304(6) CA].

 

29. In this case –

 

(1) there is no doubt that the Plaintiffs are the 9th Defendant’s creditors -The Decision of 1st Trial as affirmed in paragraph 37 of the Court of Appeal’s Judgment (1st Defendant). As such, I have no hesitation to reject the 7th Defendant’s contention that only the Liquidators and not the Plaintiffs, have the locus standi to file a Section 304(1) CA Proceedings against the 7th Defendant;

 

(2) This Suit is a Section 304(1) CA Proceedings; and

 

(3) the Court of Appeal’s Judgment (1st Defendant) affirmed the Decision of 1st Trial that there was sufficient evidence to prove the 1st Defendant’s dishonesty and intention to defraud the 9th Defendant’s creditors as early as 2006, if not 2004, when the 1st Defendant told the 2nd Defendant that it was the 1st Defendant’s intention to make it appear that the 9th Defendant was seen as a going concern to the 9th Defendant’s creditors when in fact the 9th Defendant was not [please see paragraphs 36, 41, 45 and 49 of the Court of Appeal’s Judgment (1st Defendant)]. In fact, the Court of Appeal’s Judgment (1st Defendant) in paragraph 60, had affirmed the Decision of 1st Trial that the 1st Defendant had dissipated the 9th Defendant’s assets when the 1st Defendant had caused the 9th Defendant to issue the 3 Cheques on

 

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11.9.2007 after the appointment of PLs and the 3 Cheques were encashed on 12.9.2007, resulting in a further channelling of the 9th Defendant’s funds in the sum of RM160,000-00 to the 7th Defendant.

 

30. Notwithstanding the above paragraph 29, I am not satisfied that the Plaintiffs have proven on a balance of probabilities that the 7th Defendant was knowingly a party to the carrying on of the 9th Defendant’s business which constituted one or more of the 3 Limbs of Fraudulent Trading. Firstly, there was no evidence that the 7th Defendant was involved in the carrying on of the 9th Defendant’s business. The 7th Defendant did not deal with any of the 9th Defendant’s customers, creditors, suppliers and bankers. This is understandable because the 7th Defendant was not a director of the 9th Defendant’s BOD and was only the 9th Defendant’s HR manager.

 

31. In the Plaintiffs’ written submission, the Plaintiffs’ learned counsel contended that the 7th Defendant had issued the 3 Memoranda to the 9th Defendants’ employees which stated that the Factory would be closed for specified periods of time and the 9th Defendants’ employees would be paid their salaries in full during those periods. According to the Plaintiffs, the 3 Memoranda deceived the Plaintiffs and the 7th Defendant should be liable to the Plaintiffs under s 304(1) CA. With respect, I am not able to accept this submission. The 3 Memoranda did not pertain to any dealing between the 9th Defendant and the 9th Defendant’s creditors. More importantly, the 3 Memoranda had been issued by the 7th Defendant after the PLs had taken possession of the Factory pursuant to the 2nd Order Appointing PLs on 23.4.2008. If the 3 Memoranda were false and/or misleading, the PLs

 

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would have taken action against the 7th Defendant but no such action had been instituted by the PLs.

 

32. For reasons which I will explain later in this judgment, in respect of the encashment of the 3 Cheques, the 7th Defendant had acted dishonestly vis-à-vis the 7th Defendant’s employer, namely the 9th Defendant. However, the 7th Defendant did not act dishonestly in respect of the 3 Cheques, vis-à-vis the 9th Defendant’s creditors so as to attract the application of s 304(1) CA. In the circumstances, I am constrained to dismiss the Plaintiff’s claim against the 7th Defendant based on s 304(1) CA.

 

G. Whether 7th Defendant had unlawfully dissipated 9th Defendant’s assets by encashing 3 Cheques (Dissipation Issue)

 

G(1). Whether Plaintiffs could raise Dissipation Issue at 2nd Trial

 

33. Sub-paragraph 16.21(iii) RSOC had clearly pleaded, among others, that the encashment of the 3 Cheques constituted possible CBT. Subparagraph 6.5 of the Plaintiffs’ Reply to the 7th Defendant’s Defence (Plaintiffs’ Reply), expressly alleged that the 7th Defendant had siphoned the total sum of the 3 Cheques, namely RM160,000 (RM160,000 Sum). In view of such pleadings by the Plaintiffs, I am unable to accede to the 7th Defendant’s contention that the Plaintiffs have failed to plead the Dissipation Issue.

 

34. The Plaintiffs and the 7th Defendant had agreed to certain issues to be tried in the 2nd Trial (Agreed Issues To Be Tried). Order 34 rule 2(2)(k) RC

 

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provides for the court to direct at pre-trial case management for parties to file issues to be tried. The Agreed Issues To Be Tried, in the second issue, posed the question to this court on whether the RM160,000 Sum had been siphoned out from the 9th Defendant by the 7th Defendant and if so, whether the 7th Defendant should be personally liable for the RM160,000 Sum. Accordingly, the 7th Defendant is estopped by the Agreed Issues To Be Tried from asserting that the Plaintiffs are barred from raising the Dissipation Issue in the 2nd Trial.

 

G(2). Credibility of PW1 and 7th Defendant

 

35. There is a conflict between the oral evidence of PW1 and the 7th Defendant in respect of what had happened on 12.9.2007. Hence, I will now decide which witness is credible and whether his testimony should be given weight and preference.

 

36. I find that PW1 is a credible witness. This is because PW1’s oral evidence that there is very little production of yarn by the 9th Defendant in April 2007, has been corroborated by the following undisputed evidence:

 

(1) for the 9th Defendant’s financial year ending 31.12.2006, the 9th Defendant had suffered a nett loss of RM19,016,215.00 and that the 9th Defendant’s current liabilities were RM101,414,548.00;

 

(2) on 31.5.2007, the 9th Defendant had announced the 9th Defendant’s quarterly financial report to Bursa which showed that the 9th Defendant

 

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had suffered a loss of RM4,424,000.00 for the first quarter ending 31.3.2007; and

 

(3) on 6.6.2007, the 9th Defendant was listed under PN 17.

 

37. I do not find the 7th Defendant to be a truthful witness. My reasons are as follows:

 

(1) the Alleged Loan of RM161,200 (from 7th Defendant to 9th Defendant) had been credibly rebutted by contemporaneous documentary evidence in the form of the 3 PV’s of the 9th Defendant which clearly stated the 3 Cheques were advances from the 9th Defendant to the 7th Defendant. The particulars of the 3 Cheques, namely the cheque numbers and their amounts, had been expressly stated in the 3 PV’s. The 7th Defendant did not allege that the 3 PV’s had been forged or fabricated against the 7th Defendant. If the 3 PV’s had been forged or fabricated against the 7th Defendant, the 7th Defendant would have lodged a police report in respect of the 3 PV’s, especially when the 7th Defendant is legally represented and had the benefit of legal advice.

 

I rely on Siti Norma Yaakob JCA’s (as she then was) judgment in the Court of Appeal case of Guan Teik Sdn Bhd v Hj Mohd Noor Hj Yakob & Ors [2000] 4 CLJ 324, at 330, as follows –

 

“In cases where conflicting evidence are presented before a court, it is the duty of the court not only to weigh such evidence on a balance of probabilities but it is also encumbent [sic] upon the

 

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court to look at all the surrounding factors and to weigh and evaluate contemporaneous documents that may tend to establish the truth or otherwise of a given fact. In this instance the learned trial judge discredited the evidence of the appellant, accepted the evidence of the respondents wholeheartedly and disregarded the contemporaneous documents totally. We say that he had erred as he had failed to direct his mind as to the probative effect of the contemporaneous documents. He should, after accepting the respondents’ evidence, weighed it against the contemporaneous documents and evaluate whether such documents support the respondents’ oral testimony. We say that this evaluation exercise is most crucial for it must be remembered that the respondents were testifying to events that happened eighteen years ago whilst the contemporaneous documents speak of matters then existing at the time such documents, were issued .”

 

(emphasis added).

 

Based on Guan Teik Sdn Bhd, I attach great weight to the 3 PV’s;

 

(2) I cannot give any credence to the 7th Defendant’s oral evidence that the 7th Defendant has encashed the 3 Cheques in the morning of

 

12.9.2007. This is because the EON’s Debit Advice dated 12.9.2007 has clearly stated that the subject matter of the 3rd Cheque has been debited from the 9th Defendant’s bank account with EON at 3.37 pm,

 

12.9.2007. Once again, based on Guan Teik Sdn Bhd, I should give preference to the contemporaneous documentary evidence in the form of the EON’s Debit Advice dated 12.9.2007. More importantly, the EON’s Debit Advice dated 12.9.2007 is a piece of independent evidence;

 

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(3) the conduct of the parties is relevant under s 8(2) of the Evidence Act 1950 (EA). In Tindok Besar Estate Sdn Bhd v Tinjar Co [1979] 2 MLJ 229, at 234, Chang Min Tat FJ delivered the following judgment in the Federal Court –

 

“For myself, I would with respect feel somewhat safer to refer to and rely on the acts and deeds of a witness which are contemporaneous with the event and to draw the reasonable inferences from them than to believe his subsequent recollection or version of it, particularly if he is a witness with a purpose of his own to serve and if it did not account for the statements in his documents and writings .”

 

(emphasis added).

 

The 7th Defendant’s conduct at the material time is inconsistent with the 7th Defendant’s averment regarding the Alleged Loan of RM161,200 (from 7th Defendant to 9th Defendant). If the Alleged Loan of RM161,200 (from 7th Defendant to 9th Defendant) were true –

 

(a) when the 7th Defendant knew about the appointment of the PLs or when the 7th Defendant returned to the 9th Defendant’s Factory on

 

12.9.2007 (after the PLs had taken possession of the Factory), the 7th Defendant should have informed the PLs about the Alleged Loan of RM161,200 (from 7th Defendant to 9th Defendant). The 7th Defendant had not only failed to inform the PLs regarding the Alleged Loan of RM161,200 (from 7th Defendant to 9th Defendant)

 

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but the 7th Defendant had even “disappeared” after the 7th Defendant’s encashment of the 3 Cheques;

 

(b) the 7th Defendant would be reasonably expected to demand for the 9th Defendant to repay the Alleged Outstanding Sum of RM1,200. No such demand had ever been made by the 7th Defendant. In view of the 9th Defendant’s winding up, the 7th Defendant should have filed a POD with the Liquidators regarding the Alleged Outstanding Sum of RM1,200; and

 

(c) the 7th Defendant claimed that the 9th Defendant had not paid the 7th Defendant’s salary and EPF contributions (7th Defendant’s Salary and EPF Contribution Claim) (just like what had happened between the 9th Defendant and the Plaintiffs). However, the 7th Defendant did not demand or file a POD with the Liquidators in respect of the 7th Defendant’s Salary and EPF Contribution Claim. Such a conduct by the 7th Defendant supports the inference that the 3 Cheques actually constitute a preferential payment by the 9th Defendant to the 7th Defendant to satisfy the 7th Defendant’s Salary and EPF Contribution Claim. I will discuss subsequently in this judgment regarding the 7th Defendant’s encashment of the 3 Cheques as an undue preference under s 293 CA;

 

(4) in WSSD1, the 7th Defendant testified that the 7th Defendant had been asked by the 1st Defendant to affirm the False SD Regarding GPSB’s

 

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Assets. The 7th Defendant claimed that the 7th Defendant did not know that such a SD was false. WSSD1 did not however disclose that the 7th Defendant was a director of GPSB at the material time.

 

I cannot accept that any reasonable director of a company can affirm a SD regarding the company’s assets without knowing the truth or otherwise of the contents of the SD. If a company director does not actually know about the company’s assets, the director should not have affirmed any SD regarding the company’s assets According to s 3 of the Statutory Declarations Act 1960 (SDA), a SD made under the SDA shall be deemed to be a declaration referred to in ss 199 and 200 of the Penal Code (PC). If a person affirms a SD which is false, and which he or she either knows or believes to be false or does not believe to be true, touching any point material to the object for which the SD is made or used, he or she shall be punished in the same manner as if he or she has given false evidence (as provided in s 193 PC). Sections 193 and 199 PC provide as follows –

 

“Punishment for false evidence

 

193 Whoever intentionally gives false evidence in any stage of a judicial proceeding, or fabricates false evidence for the purpose of being used in any stage of a judicial proceeding, shall be punished with imprisonment for a term which may extend to seven years, and shall also be liable to fine; and

 

whoever intentionally gives or fabricates false evidence in any other case, shall be punished with imprisonment

 

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for a term which may extend to three years, and shall also be liable to fine.

 

False statement made in any declaration which is by law receivable as evidence

 

199 Whoever, in any declaration made or subscribed by him, which declaration any Court, or any public servant or other person, is bound or authorised by law to receive as evidence of any fact, makes any statement which is false, and which he either knows or believes to be false or does not believe to be true, touching any point material to the object for which the declaration is made or used, shall be punished in the same manner as if he gave false evidence.”

 

(emphasis added).

 

Even if the 7th Defendant has not been prosecuted in respect of the False SD Regarding GPSB’s Assets, the mere fact that the 7th Defendant as GPSB’s director has affirmed the False SD Regarding GPSB’s Assets without knowing as a fact whether GPSB actually owns assets, greatly undermines the 7th Defendant’s credibility;

 

(5) the 7th Defendant’s claim that the 7th Defendant had advanced money to the 9th Defendant for 15 years, was not borne out by the financial records and reports of the 9th Defendant. It is to be noted that the 9th Defendant is a public listed company which is subject to a stringent

 

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financial reporting regime imposed by the Securities Commission and Bursa;

 

(6) s 114(g) EA provides as follows –

 

114. The court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct, and public and private business, in their relation to the facts of the particular case.

 

ILLUSTRATIONS

 

The court may presume –

 

(g) that evidence which could be and is not produced would if produced be unfavourable to the person who withholds it; …”

 

(emphasis added).

 

An adverse inference under s 114(g) EA should be drawn against the 7th Defendant for not adducing the following documentary evidence to prove that the 7th Defendant had the financial means to make the Alleged Loan of RM161,200 (from 7th Defendant to 9th Defendant) –

 

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(a) documents regarding the 7th Defendant’s income from the 7th Defendant’s Alleged Outside Business, such as the annual declarations of the 7th Defendant’s income to the Director General of Inland Revenue (DGIR) and the DGIR’s annual assessments of the 7th Defendant’s income tax;

 

(b) the 7th Defendant’s bank statements from CIMB to show that the 7th Defendant had the necessary funds to advance to the 9th Defendant. I find it difficult to believe that CIMB did not have records of the 7th Defendant’s own bank account. If this is the case, the 7th Defendant would have complained to Bank Negara Malaysia regarding CIMB’s negligence in not keeping proper records of the 7th Defendant’s bank account, especially when the 7th Defendant had the benefit of legal advice in this case; and

 

(c) the Alleged Record was never produced by the 7th Defendant. There had been pre-trial case management before the 2nd Trial and yet, the 7th Defendant did not serve the Alleged Record on the Plaintiffs’ solicitors under Order 34 rule 2(2)(c) RC so that the Alleged Record could form part of the common bundle of documents to be used at the 2nd Trial. Order 34 rule 2(2)(c) RC provides as follows –

 

“2(2) At a pre-trial case management, the Court may consider any matter including the possibility of settlement of all or any of the issues in the action or proceedings and

 

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require the parties to furnish the Court with such information as it thinks fit, and the appropriate orders and directions that should be made to secure the just, expeditious and economical disposal of the action or proceedings, including –

 

(c) the period within which the parties are to file a bundle of all documents that will be relied on or referred to in the course of the trial by any party, including documents referred to in the witness statement of a witness; …”

 

(emphasis added).

 

I am mindful that the Plaintiffs solely bear the legal burden under ss 101(1), (2) and 102 EA to prove that the 7th Defendant has dishonestly dissipated the 9th Defendant’s assets by encashing the 3 Cheques. The 7th Defendant has no legal onus to prove his defence. Nonetheless, in civil cases (not criminal matters), the court has a discretion to draw an adverse inference under s 114(g) EA against the 7th Defendant for the 7th Defendant’s failure to adduce relevant documentary evidence as explained above. I rely on the following appellate cases:

 

(i) the Supreme Court’s judgment given by Hashim Yeop Sani CJ (Malaya) in Guthrie Sdn Bhd v Trans-Malaysian Leasing Corp

 

Bhd [1991] 1 MLJ 33, at 34-35;

 

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(ii) Haidar JCA’s (as he then was) judgment in the Court of Appeal case of Chan Yoke Lain v Pacific & Orient Insurance Co Sdn

 

Bhd [1999] 1 MLJ 303, at 308-309; and

 

(iii) Gopal Sri Ram’s (as he then was) decision in the Court of Appeal in Subry bin Hamid v Husaini bin Tan Sri Ikhwan [2006] 5 AMR 644, at 652-653.

 

In view of the aforesaid reasons, this court is constrained to hold that the 7th Defendant has suppressed the above documentary evidence as explained by the Supreme Court’s judgment given by Mohd. Azmi SCJ in Munusamy v Public Prosecutor [1987] 1 MLJ 492, at 493494; and

 

(7) the 7th Defendant had not adduced any documentary evidence to prove –

 

(a) the 7th Defendant’s Alleged Outside Business whereby the 7th Defendant had allegedly earned more than RM15,000 a month. I will discuss later regarding the legality of the 7th Defendant’s Alleged Outside Business; and

 

(b) the 7th Defendant was actually running a business in Alor Star and that was why that the 7th Defendant could not institute an action against the 9th Defendant to recover the Alleged Outstanding Sum of RM1,200.

 

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In view of the 7th Defendant’s failure to produce the above documentary evidence to substantiate the above allegations, an adverse inference under s 114 (g) EA is thus made against the 7th Defendant in respect of the above documentary evidence.

 

G(3). 7th Defendant had dishonestly dissipated 9th Defendant’s assets

 

by encashing 3 Cheques

 

38. Based on Sinnaiyah & Sons, the Plaintiffs need only prove on a balance of probabilities that the 7th Defendant has dishonestly misappropriated the 9th Defendant’s funds by encashing the 3 Cheques.

 

39. As explained in the above Part G(2), I have found as a fact that PW1 is creditworthy while the 7th Defendant is economical with the truth. As such, I have no hesitation to accept PW1’s testimony that approximately 9.00 to 9.15 am on 12.9.2007, PW1 has heard the 7th Defendant informing the 9th Defendant’s BOD that the 9th Defendant has been served with the 1st Order Appointing PLs. Once the 7th Defendant had actual knowledge of the appointment of the PLs in the morning of 12.9.2007, the 7th Defendant should not have encashed the 3 Cheques in the evening of the same day. During cross-examination, the 7th Defendant had admitted that if the 7th Defendant was aware of the appointment of the PLs, the 7th Defendant should not have encashed the 3 Cheques.

 

40. I am satisfied on a balance of probabilities that in view of the 7th Defendant’s actual knowledge of the appointment of the PLs in the morning

 

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of 12.9.2007, by encashing the 3 Cheques in the evening of the very same day, the 7th Defendant had acted dishonestly. Such a finding of fact regarding the 7th Defendant’s dishonesty in encashing the 3 Cheques is also supported by the following circumstantial evidence:

 

(1) after encashing the 3 Cheques, the 7th Defendant returned to the 9th Defendant’s office and knew about the appointment of the PLs and yet, the 7th Defendant did not inform the PLs about the 3 Cheques and the 7th Defendant’s encashment of the 3 Cheques. The 7th Defendant’s concealment of these material facts from the PLs, clearly evidenced the 7th Defendant’s dishonest intention in this case;

 

(2) as explained above, the 3 Cheques were actually a preferential payment by the 9th Defendant for the 7th Defendant’s Salary and EPF Contribution. As such, there was motive under s 8(1) EA for the 7th Defendant’s dishonest encashment of the 3 Cheques;

 

(3) the 7th Defendant had worked with the 9th Defendant since 2.6.1990. It is inconceivable for a HR manager such as the 7th Defendant not to have actual knowledge of the 9th Defendant’s PN 17 status on

 

6.6.2007. Furthermore, according to PW1, as early as April 2007, there was very little production of yarn by the Factory. Any reasonable HR manager in the 7th Defendant’s position would have known as late as 6.6.2007 (if not earlier in April 2007) that the 9th Defendant was financially distressed and any cash cheque, let alone 3 cash cheques,

 

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issued by the 9th Defendant would be an attempt to dissipate unlawfully the 9th Defendant’s assets;

 

(4) the 3 Cheques had been issued on 11.9.2007 by the 9th Defendant. The 7th Defendant encashed the 3 Cheques the very next day on

 

12.9.2007 after the PLs had taken possession of the Factory. Such an unholy haste, could not be co-incidental and evidenced the 7th Defendant’s dishonest intention to dissipate the 9th Defendant’s assets;

 

(5) there was no reason for the 9th Defendant to issue not one but three cash cheques to the 7th Defendant. If the Alleged Loan of RM161,200 (from 7th Defendant to 9th Defendant) was genuine and if the 9th Defendant truly intended to pay the Alleged Loan of RM161,200 (from 7th Defendant to 9th Defendant), it would be sufficient for the 9th Defendant to issue only one crossed cheque in the name of the 7th Defendant. The fact that 3 cash Cheques were issued to the 7th Defendant, clearly showed that both the 7th and 9th Defendants had the dishonest intention to conceal the true nature of the payments made by way of the 3 Cheques, namely the 9th Defendant had actually made a preferential payment to the 7th Defendant for the 7th Defendant’s Salary and EPF Contribution; and

 

(6) for reasons to be given later in this judgment, the 7th Defendant had breached his employee’s implied contractual duty of good faith and

 

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fidelity owed to the 9th Defendant by having the 7th Defendant’s Alleged Outside Business.

 

41. In the above Part G(2), I have given reasons for rejecting the Alleged Loan of RM161,200 (from 7th Defendant to 9th Defendant). Accordingly, there is no justification for the 7th Defendant to encash the 3 Cheque and by encashing the 3 Cheques, the 7th Defendant had dishonestly misappropriated the 9th Defendant’s funds under s 403 PC. I reproduce s 403 PC as follows:

 

“Dishonest misappropriation of property

 

403 Whoever dishonestly misappropriates or converts to his own use, or causes any other person to dispose of, any property, shall be punished with imprisonment for a term which shall not be less than six months and not more than five years and with whipping and shall also be liable to fine ”

 

(emphasis added).

 

42. I am aware that the 1st Order Appointing PLs has been set aside on

 

19.9.2007. As early as the 1st Order Appointing PLs, PLs had been appointed to safeguard the assets of the 9th Defendant from being dissipated. Hence, the significance of the 7th Defendant’s actual knowledge of when the PLs had taken possession of the 9th Defendant’s Factory. The setting aside of the 1st Order Appointing PLs, in my view, does not detract from the dishonest dissipation of the 9th Defendant’s funds by way of the 7th

 

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Defendant’s encashment of the 3 Cheques. I will discuss subsequently in this judgment, the effect of the setting aside of the 1st Order Appointing PLs and the Winding Up Order made in the 2nd Winding Up Petition.

 

43. In view of the 7th Defendant’s dishonest misappropriation of the RM160,000.00 Sum by encashing the 3 Cheques, the 7th Defendant is legally bound to make restitution of the RM160,000 Sum to the 9th Defendant. This is understandable as the RM160,000 Sum belongs to the 9th Defendant and not to the Plaintiffs. There is another reason why the RM160,000 Sum cannot be paid by the 7th Defendant to the Plaintiffs. This is because if the RM160,000 Sum is paid to the Plaintiffs, such a payment constitutes an undue preference in the Plaintiffs’ favour under s 293 CA.

 

G(4). Did 7th Defendant breach fiduciary and/or contractual duties in respect of 7th Defendant’s Alleged Outside Business?

 

44. In respect of the 7th Defendant’s Alleged Outside Business, I will first discuss whether the 7th Defendant as an employee of the 9th Defendant owes duties of good faith and fidelity to the 9th Defendant under the 7th Defendant’s employment contract. The following cases from Singapore have clearly held that the 7th Defendant as the 9th Defendant’s HR manager owes an implied contractual duty of good faith and fidelity to the 9th Defendant:

 

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(1) in Asiawerks Global Investment Group Pte Ltd v Ismail bin Syed Ahmad & Anor [2004] 1 SLR 234, at paragraph 61, Tay Yong Kwang J held as follows in the Singapore High Court –

 

“61 There can be no denying that all employees are expected to serve their employers diligently, honestly and loyally. What this duty translates into factually depends on the circumstances such as the nature of the work. Employees should not be engaged in other business or employment during their working hours without the approval of their employers. They should certainly not be diverting business opportunities that they got wind of only because of their employment status and during the subsistence of the employment, whether or not such information amounted to confidential information within the meaning of the law ”

 

(emphasis added); and

 

(2) Andrew Phang Boon Leong JA delivered the following judgment of the Singapore Court of Appeal in Man Financial (S) Pte Ltd (formerly known as ED & F Man International (S) Pte Ltd) v Wong Bark Chuan David [2008] 5 SLR 663, at paragraph 193 –

 

“ The implied duty of good faith and fidelity owed by an employee to an employer at common law

 

193 It is trite law that there is an implied term in the employer’s favour that the employee will serve the employer with good

 

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faith and fidelity, and that he or she (the employee) will also use reasonable care and skill in the performance of his or her duties pursuant to the employment contract (see the oft-cited English decisions of Robb v Green [1895] 2 QB 315 and Hivac Limited v Park Royal Scientific Instruments Limited [1946] Ch 169; reference may also be made, in the local context, to the Singapore High Court decision of Asiawerks Global Investment Group Pte Ltd v Ismail bin Syed Ahmad [2004] 1 SLR 234 at [61])’’

 

(emphasis added).

 

45. The 7th Defendant’s employment contract with the 9th Defendant (7th Defendant’s Employment Contract) had not been adduced at the 2nd Trial. Nonetheless, as explained by the above cases, the 7th Defendant owed implied duties of good faith and fidelity to the 9th Defendant as the 9th Defendant’s employee, not to conduct the 7th Defendant’s Alleged Outside Business. This is especially so when the 7th Defendant claimed to have earned more than RM15,000 a month from the 7th Defendant’s Alleged Outside Business when the 7th Defendant only earned RM6,800 per month as a full-time HR manager for the 9th Defendant. Furthermore, the 9th Defendant is a public listed company and the 9th Defendant’s shareholders would not have been pleased to find out that the 9th Defendant’s full-time employees have “outside business” which pays more than double the monthly salaries of the 9th Defendant’s employees. This explains my reluctance to accept as true the 7th Defendant’s Alleged Outside Business.

 

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46. I will now discuss whether the 7th Defendant as an employee of the 9th Defendant owes fiduciary duties to the 9th Defendant. The following cases are relevant:

 

(1) Lord Woolf MR decided as follows in the English Court of Appeal case of Attorney General v Blake (Jonathan Cape Ltd, third party)

 

[1998] 2 WLR 805, at 814 –

 

“ There is more than one category of fiduciary relationship, and the different categories possess different characteristics and attract different kinds of fiduciary obligation. The most important of these is the relationship of trust and confidence, which arises whenever one party undertakes to act in the interests of another or places himself in a position where he is obliged to act in the interests of another. The relationship between employer and employee is of this character .”

 

(emphasis added); and

 

(2) in Smile Inc Dental Surgeons Pte Ltd v Lui Andrew Stewart [2012] 4 SLR 308, at paragraphs 49-55 (Smile Inc Dental Surgeons), Andrew Phang Boon Leong JA decided as follows in the Singapore Court of Appeal:

 

“The implied term of the duty of good faith and fidelity

 

49 we made clear in Man Financial (at [193]):

 

It is trite law that there is an implied term in the employer’s favour that the employee will serve the employer with good faith and fidelity, and that he or she

 

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(the employee) will also use reasonable care and skill in the performance of his or her duties pursuant to the employment contract. [emphasis in original]

 

50 Whilst this proposition of law is an ostensibly simple one, there appeared, unfortunately, to have been some blurring of the lines between the duty of good faith and fidelity on the one hand and a fiduciary duty on the other, which was noted in the court below (see the Judgment, especially at [226]). In our view, there is indeed a distinction between the two duties – a distinction to which our attention now turns.

 

The distinction between a fiduciary duty and the duty of good faith and fidelity

 

51 It is clear that both the duty of good faith and fidelity and fiduciary duty may arise from the same employer-employee relationship. However, it must be borne in mind that the bases of these duties are entirely different.

 

52 In the English High Court decision of Nottingham University v Fishel [2000] IRLR 471 (“Nottingham University”), for example, the defendant was a clinical embryologist employed by the plaintiff as an academic staff member, as well as a scientific director of the latter’s in vitro fertilisation unit. The defendant did outside work without consent from the plaintiff and the plaintiff sued for an account of profits based on breach of the alleged fiduciary duty owed by the defendant. Elias J made the following pertinent observations (at [86]-[97]):

 

86 [T]here has been a tendency to describe someone as a fiduciary simply as a means of enabling the courts to impose the equitable remedies …

 

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87 It is important to recognise that the mere fact that Dr Fishel is an employee does not mean that he owes the range of fiduciary duties referred to above. It is true that in Blake Lord Woolf… said that the employer – employee relationship is a fiduciary one. But plainly the court was not thereby intending to indicate that the whole range of fiduciary obligations was engaged in every employment relationship. This would be revolutionary indeed, transforming the contract of employment beyond all recognition and transmuting contractual duties into fiduciary ones. In my opinion, the court was merely indicating that circumstances may arise in the context of an employment relationship, or arising out of it, which, when they occur, will place the employee in the position of a fiduciary.

 

90 [T]he essence of the employment relationship is not typically fiduciary at all. Its purpose is not to place the employee in a position where he is obliged to pursue his employer’s interests at the expense of his own. The relationship is a contractual one and the powers imposed on the employee are conferred by the employer himself. The employee’s freedom of action is regulated by the contract, the scope of his powers is determined by the terms (express or implied) of the contract, and as a consequence the employer can exercise (or at least he can place himself in a position where he has the opportunity to exercise) considerable control over the employee’s decision-making powers.

 

91 This is not to say that fiduciary duties cannot arise out of the employment relationship itself. But they arise not as a result of the mere fact that there is an employment relationship. Rather they result

 

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from the fact that within a particular contractual relationship there are specific contractual obligations which the employee has undertaken which have placed him in a situation where equity imposes these rigorous duties in addition to the contractual obligations. Where this occurs, the scope of the fiduciary obligations both arises out of, and is circumscribed by, the contractual terms; it is circumscribed because equity cannot alter the terms of the contract validly undertaken.

 

92 The problem of identifying the scope of any fiduciary duties arising out of the relationship is particularly acute in the case of employees. This is because of the use of potentially ambiguous terminology in describing an employee’s obligations, which use may prove a trap for the unwary. There are many cases which have recognised the existence of the employee’s duty of good faith, or loyalty, or the mutual duty of trust and confidence – concepts which tend to shade into one another.

 

96 Accordingly, in analysing the employment cases in this field, care must be taken not automatically to equate the duties of good faith and loyalty, or trust and confidence, with fiduciary obligations. Very often in such cases the court has simply been concerned with the question whether the employee’s conduct has been such as to justify summary dismissal, and there has been no need to decide whether the duties infringed, properly analysed, are contractual or fiduciary obligations. As a consequence, the two are sometimes wrongly treated as identical…

 

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97 Accordingly, in determining whether a fiduciary relationship arises in the context of an employment relationship, it is necessary to identify with care the particular duties undertaken by the employee, and to ask whether in all the circumstances he has placed himself in a position where he must act solely in the interests of his employer. It is only once those duties have been identified that it is possible to determine whether any fiduciary duty has been breached…

 

53 In that case, Elias J held that in so far as the defendant’s own work outside was concerned, he could not have been considered a fiduciary even though his position was akin to that of a senior employee with the title of director. Similarly, in Nagase Singapore Pte Ltd v Ching Kai Huat [2007] 3 SLR(R) 265, the Singapore High Court found that the employees concerned did not owe a special duty of “single minded or exclusive loyalty” to the employers even though they “were members of the middle management of the plaintiff” and they had “authority to negotiate contracts on behalf of the company or to authorise the payment of invoices” (at [29]). In the Court of Appeal of British Columbia decision of Mitchell v Paxton Forest Products

 

Inc [2002] BCCA 532, a sales manager whose responsibilities included developing and maintaining the defendant’s customer base, marketing its products, setting prices, negotiating terms of sale and dealing with defendant’s suppliers was not considered a fiduciary. Newbury JA stated (at [6]):

 

I would tend, if pressed, to say Mr. Mitchell was not “senior management”, since he was not entrusted with powers and influence which could materially affect the company’s interests. He had managerial responsibilities with regard to sales, but could not approve a purchase over $1,000, had only one clerk reporting to him and could not hire or fire employees.

 

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54 This is in contradistinction to the oft-cited Canadian Supreme Court decision of Canadian Aero Service Ltd v O’Malley (1973) 40 DLR (3rd) 371, where a president and executive vice-president of a company were held to be fiduciaries of the company. Laskin J stated (at 381):

 

They were “top management” and not mere employees whose duty to their employer, unless enlarged by contract, consisted only of respect for trade secrets and for confidentiality of customer lists. Theirs was a larger, more exacting duty which, unless modified by statute or by contract (and there is nothing of this sort here), was similar to that owed to a corporate employer of its directors.

 

55 Applying the principles set out above to the present appeal in general and to the context of the Employment Contract between the Appellant and Respondent in particular, the Respondent was not in a position where he owed fiduciary duties to the Appellant. He was merely an associate dental surgeon who had not been entrusted with the authority to make any management decisions for the Appellant. Neither was he permitted to make corporate decisions binding the Appellant, unlike the cases in which “senior management” was involved. On the contrary, under the terms of the Employment Contract, the Respondent was obliged to “work at any of the Practices operated by Smile Inc. Dental Surgeons Pte. Ltd. at the instructions of the Directors” and the Respondent also undertook that he “shall be responsible and take instructions from the Directors and shall carry out duties as may be assigned to him”.

 

(emphasis added).

 

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47. Based on Smile Inc Dental Surgeons, Nottingham University, Nagase Singapore Pte Ltd and Canadian Aero Service Ltd, an employee owes fiduciary duties to his or her employer in the following circumstances:

 

(1) when the employment contract imposes specific contractual obligations on the employee which place the employee in a situation where Equity imposes fiduciary duties on the employee;

 

(2) when the employee owes a special duty of “single minded or exclusive loyalty’ to the employer; and/or

 

(3) when the employee is in the “top management’ of the employer with duties similar to those owed by company directors.

 

I must add that the above circumstances where an employee owes fiduciary duties to his or her employer, are not exhaustive. The following considerations are relevant in ascertaining whether an employee owes fiduciary duties to his or her employer:

 

(a) the position of the employee in the organisation, structure and hierarchy of the employer, namely how senior is the employee; and

 

(b) the nature and extent of the duties, functions and responsibilities of the employee.

 

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48. I am of the view that the 7th Defendant owes no fiduciary duty to the 9th

 

Defendant because –

 

(1) the 7th Defendant was not in the “top management’ of the 9th Defendant. Nor was the 7th Defendant a senior employee of the 9th Defendant. This was due to the fact that the 7th Defendant was only the 9th Defendant’s HR manager; and

 

(2) the 7th Defendant was not involved in the management and running of the 9th Defendant. Considering the nature and extent of the duties, functions and responsibilities of the 7th Defendant as the HR manager for the 9th Defendant –

 

(a) there was no specific contractual obligation on the 7th Defendant which placed the 7th Defendant in a situation where Equity would impose fiduciary duties on the 7th Defendant;

 

(b) the 7th Defendant did not owe a special duty of “single minded or exclusive loyalty” to the 9th Defendant; and

 

(c) the 7th Defendant did not owe any duty to the 9th Defendant which was similar to those owed by the 9th Defendant’s directors.

 

H. Effect of Winding Up Order

 

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H(1). Can Plaintiffs rely on ss 223 and 293 CA (Effect of Winding Up Issue)?

 

49. The Plaintiffs have relied on ss 223 and 293 CA which provide as follows:

 

“Avoidance of dispositions of property, etc

 

223 Any disposition of the property of the company including things in action and any transfer of shares or alteration in the status of the members of the company made after the commencement of the winding up by the Court shall unless the Court otherwise orders be void.

 

Undue preference

 

(1) Any transfer, mortgage, delivery of goods, payment, execution or other act relating to property made or done by or against a company which, had it been made or done by or against an individual, would in his bankruptcy under the law of bankruptcy be void or voidable shall, in the event of the company being wound up, be void or voidable in like manner.

 

(2) For the purposes of this section the date which corresponds with the date of presentation of the bankruptcy petition in the case of an individual shall be –

 

(a) in the case of a winding up by the Court –

 

(i) the date of the presentation of the petition; or

 

(ii) where before the presentation of the petition a resolution has been passed by the company for voluntary winding up the date upon which the resolution to wind up the company voluntarily, is passed,

 

whichever is the earlier; and

 

(b) in the case of a voluntary winding up the date upon which the winding up is deemed by this Act to have commenced.

 

(3) Any transfer or assignment by a company of all its property to trustees for the benefit of all its creditors shall be void.”

 

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(emphasis added).

 

50. Section 293(1) and (2) CA refer to the Bankruptcy Act 1967 (BA). In the context of s 292 CA, s 53 BA is pertinent and reads as follows:

 

“Avoidance of preference in certain cases

 

53(1) Every conveyance or transfer of property or charge thereon made,

 

every payment made, every obligation incurred and every judicial proceeding taken or suffered by any person unable to pay his debts, as they become due, from his own money in favour of any creditor or any person in trust for any creditor shall be deemed to have given such creditor a preference over other creditors if the person making, taking, paying or suffering the same is adjudged bankrupt on a bankruptcy petition presented within six months after the date of making, taking, paying or suffering the same and every such act shall be deemed fraudulent and void as against the Director General of Insolvency.

 

(2) This section shall not affect the rights of any person making title in good faith and for valuable consideration through or under a creditor of the bankrupt.

 

(3) For the purposes of this section “creditor” includes a surety or guarantor for the debt due to that creditor.”

 

(emphasis added).

 

51. The 7th Defendant’s learned counsel had contended that the Plaintiffs had failed to plead the Effect of Winding Up Issue. With respect, I am not able to agree because paragraphs 16.5, 16.9 to 16.12, 16.21 (i) to (iv) and 17 RSOC have pleaded in great detail the Effect of Winding Up Issue. As explained above, sub-paragraph 16.21(iii) RSOC had pleaded, among others, that the encashment of the 3 Cheques constituted possible CBT.

 

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Paragraphs 4, 6 and 6.1 to 6.6 of the Plaintiffs’ Reply have alluded in detail to the Effect of Winding Up Issue. Under Order 18 rule 11 RC, a party may raise any point of law in his or her pleading. It is not mandatory under Order 18 RC for the Plaintiffs to plead specifically ss 223 and 293 CA. In the Agreed Issues To Be Tried, the following questions had been agreed by the Plaintiffs and the 7th Defendant to be decided at the 2nd Trial:

 

(1) whether the issue of the 3 Cheques amounted to a breach of the 1st Order Appointing PLs although such an order had been subsequently set aside; and

 

(2) whether the RM160,000 Sum was available for payment to the Plaintiffs.

 

52. In the Court of Appeal’s Judgment (8th Defendant), David Wong Dak Wah JCA set aside the Decision of 1st Trial only against the 8th Defendant on the following grounds:

 

(1) the Plaintiffs had not pleaded the matters which the High Court had ordered against the 8th Defendant; and

 

(2) the Liquidators should have taken action against the 8th Defendant.

 

53. As the Plaintiffs have sufficiently pleaded the Effect of Winding Up Issue in the RSOC and the Plaintiffs’ Reply, the 7th Defendant cannot rely on the Court of Appeal’s Judgment (8th Defendant).

 

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54. I am of the respectful view that ss 223 and 293 CA have effect by operation of law. As such, even if there is no suit or application by the liquidator to invalidate a particular transaction, if that transaction is void under ss 223 and 293 CA or for that matter, under any provision of written law, the transaction nevertheless remains void. Furthermore, Parliament has not required in ss 223 and 293 CA, either expressly or by necessary implication, that any transaction can only be invalidated by an action or application by the liquidator. In contra-distinction to ss 223 and 293 CA, s 304(1) CA expressly requires a Section 304(1) Proceeding to be filed by the liquidator, the company’s creditor or contributory [please see the above sub-paragraph 27(1)].

 

H(2). Plaintiffs cannot rely on 1st Winding Up Petition

 

55. The Winding Up Order had been made in the 2nd Winding Up Petition. As such, the Plaintiffs cannot rely on the 1st Winding Up Petition. As explained above, the 1st Order Appointing PLs had been set aside. For reasons expressed above, the 1st Order Appointing PLs is relevant to show the need to preserve the 9th Defendant’s assets for the benefit of the 9th Defendant’s unsecured creditors in the winding up of the 9th Defendant.

 

H(3). 7th Defendant’s encashment of 3 Cheques is not caught by s 223

 

CA

 

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56. Upon the making of the Winding Up Order, s 219(2) CA deems that the Winding Up Order shall commence on 19.10.2007, the date of the presentation of the 2nd Winding Up Petition – please see Siti Norma Yaakob JCA’s (as she then was) judgment in the Court of Appeal case of Kredin Sdn Bhd v Development & Commercial Bank Bhd [1995] 3 MLJ 304, at 307.

 

57. The 7th Defendant encashed the 3 Cheques on 12.9.2007, before the date of presentation of the 2nd Winding Up Petition (19.10.2007). As such, s 223 CA cannot apply to the RM160,000 Sum.

 

H(4). 7th Defendant’s encashment of 3 Cheques constituted an undue

 

preference in the 7th Defendant’s favour

 

58. I rely on the following cases regarding the application of s 293 CA:

 

(1) in Lian Keow Sdn Bhd (In liquidation) & Anor v Overseas Credit Finance (M) Sdn Bhd & Ors [1988] 2 MLJ 449, at 452,

 

453 and 455 (Lian Keow Sdn Bhd), Seah SCJ delivered the following judgment of the Supreme Court –

 

“In my opinion, section 53 [BA] is imported into a winding up proceeding of a company by section 293(1) [CA] …

 

In short, the rules of bankruptcy as to fraudulent preference are applied to the winding up of the company by the court by section 293(1) [CA].

 

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I think it appropriate at this stage to refer to what Bacon V.C. said about this subject. Speaking of section 164 of the English Companies Act 1862 which is the forerunner of section 320 of the English Companies Act 1948 (ours is section 293 [CA]) in the case of Willmott v London Celluloid Co (1886) 31 Ch D 425 Bacon V.C. said (atp. 434):

 

“The 164th section, however, relates only to a case similar in all respects to that which would arise in bankruptcy, and the very words of the 164th section put this beyond the possibility of doubt. This Act of Parliament, dealing as it does with an insolvent company, that is, a bankrupt company, and making provision for the benefit of the creditors, of the shareholders, and of all other persons interested, declares by the 164th section that a fraudulent preference shall be set aside and held to be void for the benefit of the creditors -that is, the creditors in the winding up. No other persons have any right to raise the question of fraudulent preference…”

 

Earlier on, Bacon V.C. observed that:

 

“In bankruptcy, and only in bankruptcy as far as I know, the doctrine of fraudulent preference found a place in the jurisprudence of this country. A winding up is, in point of fact, a bankruptcy, and the doctrine is also applicable to a winding

 

In short, section 53(1) renders void as against the Official Assignee a transfer of property, by a person who is unable to pay his debts as they become due from his own money, in favour of a creditor as this transfer shall be deemed as giving that creditor a fraudulent preference over the other creditors if that person is adjudged a bankrupt within six months after the making of the transfers. …

 

As regards the phrase “every transfer of property made by any person” used in section 53(1), I think these words “any person” ought to be given a liberal interpretation. In my opinion, the transfer of the property may be signed by the bankrupt as well as by his trustee or agent on his behalf provided always that the beneficial interest in the

 

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property is vested in the bankrupt at the material time. Otherwise, the bankrupt could easily defeat the just claims of the Official Assignee by registering his property in the name of a third party. …

 

In Re Chong Khian (Bankrupt) Kuching High Court No K45 of 1978 I held that the date of making of the fraudulent preference in favour of a creditor over other creditors under section 53(1) [BA] means the date of the registration of the said transfer at the Land Registry office. It is correct to point out that I was construing a provision of the Sarawak Land Code in that case. However, since the Sarawak Land Code and the [NLC] are substantially based on the Torrens system of Australia, I would adopt the same construction in construing the [NLC] in Peninsular Malaysia. Applying this rule of interpretation, it followed that all the three transfers of the first, second and third portions of the estate to the first respondent were made in November 1978. In other words, transfer of landed property was made when registered under the [NLC] and not when it was executed by the parties. …

 

In my opinion, the expression “within six months after the date of making (the transfers)” in section 53(1) is capable of being construed to mean: (a) before the expiration of six months after the date of making the transfers or (b) during the period of six months after the date of making the transfers.

 

I would prefer construction (a) which would have the effect of preventing any mischief which a bankrupt might be thinking of doing between the period of the presentation of the bankruptcy petition and the making of the adjudication order by the court.

 

I agree with the contention of learned counsel for the second appellant that the words “in favour of any creditor” means “in favour of any person claiming to be a creditor”.”

 

(emphasis added);

 

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(2) in Sime Diamond Leasing (M) Sdn Bhd v JB Precision Moulding Industries Sdn Bhd (In liquidation) [1998] 4 MLJ 569, at 579 (Sime Diamond Leasing), Edgar Joseph Jr FCJ gave the following judgment of the Federal Court:

 

“To take the matter further, it is clear law that the Court has no power to make an order setting aside payments and transfers made in the run-up to bankruptcy in favour of a particular creditor which were designed to prefer him over other creditors unless the following five conditions are satisfied:

 

(1) that the transaction in question took place within six months prior to the commencement of winding up;

 

(2) that it satisfies the description of one of the types of transaction mentioned in s 53(1) [BA];

 

(3) that it took place at a time when the company was insolvent;

 

(4) that the person in whose favour the transaction was effected stood in the relation of creditor to the Company; and

 

(5) the effect of the transaction was to confer on that person a preference, priority or advantage over other creditors in the winding up.

 

The object of the rules of bankruptcy as to fraudulent preferences is to prevent a creditor from obtaining for himself an unfair advantage at the expense of other creditors by concluding

 

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a transaction with the company during what has been called the twilight period which precedes winding up.”

 

(emphasis added); and

 

(3) Menzies J in the High Court of Australia held as follows in Commercial Banking Co of Sydney Ltd v George Hudsons Pty Ltd (in liquidation) [1973] 2 ALR 1, at 5 –

 

“It is a deeply rooted principle of company law that, when liquidation has commenced, one creditor should not be assisted by the Court to improve its position vis-a-vis other creditors.”

 

(emphasis added).

 

The High Court of Australia is the apex court in that country.

 

59. I am of the view that the 7th Defendant’s encashment of the 3 Cheques constitutes an undue preference in the 7th Defendant’s favour under s 293(1) and (2)(a)(i) CA read with s 53(1) BA. This decision is premised on the following reasons:

 

(1) the 2nd Winding Up Petition had been presented on 19.10.2007. According to ss 219(2), 293(1) and (2)(a)(i) CA read with s 53(1) BA as interpreted in Sime Diamond Leasing, the six-month period for the

 

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application of the undue preference rule, would commence from

 

19.4.2007. As the 7th Defendant encashed the 3 Cheques on

 

12.9.2007, the 7th Defendant’s encashment of the 3 Cheques would be caught by the undue preference rule;

 

(2) the 3 Cheques fall within the term “payment in s 293(1) CA;

 

(3) as explained above, the 7th Defendant’s encashment of the 3 Cheques took place at a time when the 9th Defendant was insolvent;

 

(4) the 7th Defendant was a creditor of the 9th Defendant in view of the 7th Defendant’s Salary and EPF Contribution Claim;

 

(5) the 7th Defendant’s encashment of the 3 Cheques would confer on the 7th Defendant a preference, priority or advantage over all other unsecured creditors of the 9th Defendant in the 9th Defendant’s winding up (including the Plaintiffs); and

 

(6) for reasons elaborated in the above Parts G2 and G3, the 7th Defendant had dishonestly dissipated the 9th Defendant’s funds and could not therefore rely on the “bona fide purchaser for valuable consideration” exception in s 53(2) BA. In any event, I find as a fact that for reasons explained in the above Parts G2 and G3 that the 7th Defendant has failed to discharge the legal onus under s 106 EA to prove on a balance of probabilities that the 7th Defendant has acted in

 

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good faith in respect of the 7th Defendant’s encashment of the 3 Cheques. Section 106 EA provides as follows –

 

“ When any fact is especially within the knowledge of any person, the burden of proving that fact is upon him.”

 

(emphasis added).

 

The following appellate cases have held that a party claiming to be a bona fide purchaser for valuable consideration, has the legal burden to prove such a claim –

 

(a) the judgment of Suffian FJ (as he then was) in the Federal Court case of Ong Chat Pang & Anor v Valliappa Chettiar [1971] 1 MLJ 224, at 227; and

 

(b) Zaki Azmi CJ’s judgment in the Federal Court in Tan Ying Hong v Tan Sian San & Ors [2010] 2 CLJ 269, at 280; and

 

(c) the judgment of Raus Sharif JCA (as he then was) in the Court of Appeal case of Au Meng Nam & Anor v Ung Yak Chew & Ors

 

[2007] 4 CLJ 526, at 554-555.

 

I. Can court order 7th Defendant to return RM160,000 Sum to Liquidators?

 

60. As the 3 Cheques constitutes an undue preference in the 7th Defendant’s favour under s 293(1) and (2)(a)(i) CA read with s 53(1) BA, the 7th Defendant is legally bound to return the RM160,000 Sum to the

 

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Liquidators. As explained in the above paragraph 43, the RM160,000 Sum cannot be returned by the 7th Defendant to the Plaintiffs as this will contravene the undue preference rule.

 

61. The 7th Defendant’s learned counsel had submitted that the RSOC did not contain a prayer for the 7th Defendant to pay the RM160,000 Sum to the Liquidators. With respect, I am not able to accede to this contention because prayer no. 8 RSOC has prayed for “Further Order and/or other relief which this Honourable Court may deem fit and fair in the circumstances of this case” (General Prayer For Relief). The following appellate cases have held that the court may resort to the General Prayer For Relief:

 

(1) in Lim Eng Kay v Jaafar Mohamed Said [1982] CLJ (Rep) 190, at 198, Salleh Abas FJ (as he then was) decided as follows in the Federal Court –

 

“From these two paragraphs of the statement of claim it is obvious that the respondent’s solicitors treated the claim for loss of earnings as falling into two categories – (a) pre-trial loss, which they described it as ‘loss of earnings” and (b) future loss of earnings, which they referred to as “prospective loss of earnings.” But instead of pleading the pre-trial loss of earnings or “loss of earnings” as they described it as an item under special damages, they erroneously pleaded it as an item under general damages. This is purely a technical mistake, which in our view did not in any way affect the substance or prejudice the appellant – see O. 2 (Effect of Non-Compliance) of the Rules of the

 

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High Court 1980. We cannot see how the respondent should be deprived of his right by a purely technical error on the part of his solicitors, who were not up-to-date with this aspect of legal technicalities. In any case prayer (e) in para. (7), —Any other relief which this Honourable Court deem fit to grant” must not be treated as a mere ornament to pleadings devoid of any meaning. We think that this prayer and the prayer for —loss of earning” in para. 5(a) should entitle the Court to make such an assessment .”

 

(emphasis added);

 

(2) in the Court of Appeal case of Tan Tek Seng @ Tan Chee Meng v Suruhanjaya Perkhidmatan Pendidikan & Anor [1996] 2 CLJ 771, at 814-815, Gopal Sri Ram JCA (as he then was) held as follows –

 

“In his statement of claim, the appellant has also prayed for —further or other relief as this Honorable Court thinks fit”. In Lim Eng Kay v. Jaafar bin Mohamed Said [1982] 2 MLJ 156, 160, a prayer in a statement of claim read —Any other relief which this Honourable Court deem fit to grant”. Salleh Abas FJ (as he then was) said that this prayer —must not be treated as a mere ornament to pleadings devoid of any meaning”.

 

I am of the view that the same may be said of the like prayer in the present case. This Court should, in my judgement, award the appellant such relief as is appropriate in the circumstances of the case. In arriving at this conclusion, I have not overlooked the decision in Mokhtar v. Arumugam [1959] MLJ 232 (CA), where the

 

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following statement of principle from the judgement of Fry J in Cargill v. Bower 10 Ch. D 502, 508 was applied:

 

You cannot, under a general prayer for further relief, obtain any relief inconsistent with that relief which is expressly asked for.

 

As it happens, there is, in the present case, no inconsistency between the relief which I propose to award to the appellant and the other relief he has expressly claimed .”

 

(emphasis added); and

 

(3) Zainun Ali JCA (as she then was) gave the following majority judgment in the Court of Appeal in Pentadbir Tanah Daerah Pontian & Ors v Ossons Ventures Sdn Bhd [2009] 6 CLJ 713, at 723-724 –

 

“[28] Though the prayers in the statement of claim did not specifically pray for the declaration as made by the High Court, the High Court had power to make the declaration because O. 14A r. 2 empowers the court to “make such order or judgment as it thinks just” upon determination of the question of construction of a document arising in the cause or matter. The order which may be made under O. 14A is not restricted to the prayers in the statement of claim.

 

[29] Further, in fairness to the respondent, prayer (18) in the statement of claim did contain a general prayer which had been upheld by the Federal Court to be effective in allowing

 

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courts to make such order as may be necessary to serve the ends of justice. Prayer (18) reads: Lain-lain perintah yang difikirkan suai manfaat oleh mahkamah yang mulia ini.

 

[30] In Lim Eng Kay v. Jaafar Mohamed Said [1982] 2 CLJ 298; [1982] CLJ (Rep) 190, the plaintiff there had failed to plead pretrial loss of earnings as special damages, However, the Federal Court held that the prayer for such “other relief which the court deems fit to grant” was sufficient to enable the court to make an award of loss of earnings to the plaintiff. …

 

[31] The declaration made by the High Court pursuant to O. 14A was not out of the blue. As pointed out above, the salient facts relating to the declaration were pleaded in paras 5, 20,

 

30 and 31 of the statement of claim. It was not something that took the appellants by surprise .”

 

(emphasis added).

 

62. Based on the above cases, it is just and proper for this court to order the 7th Defendant to return the RM160,000 Sum to the Liquidators pursuant to the General Prayer For Relief. If otherwise, the undue preference rule will be rendered nugatory in this case. Worse still, the 7th Defendant will be unjustly enriched by the RM160,000 Sum. As explained above, the RSOC and the Plaintiffs’ Reply have pleaded in great detail on the Effect of Winding Up Issue. As such, the 7th Defendant cannot claim to be caught by surprise by the Plaintiffs’ prayer for the 7th Defendant to pay the RM160,000 Sum to the Liquidators. I do not find that an order for the 7th

 

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Defendant to return the RM160,000 Sum to the Liquidators, to be inconsistent with the other prayers in the RSOC.

 

J. Interest, pre-judgment and post-judgment, should be awarded against 7th Defendant

 

63. Section 11 of the Civil Law Act 1956 (CLA) and Order 42 rule 12 RC provide as follows:

 

“Power of Courts to award interest on debts and damages 11. In any proceedings tried in any Court for the recovery of any

 

debt or damages, the Court may, if it thinks fit, order that there shall be included in the sum for which judgment is given interest as such rate as it thinks fit on the whole or any part of the debt or damages for the whole or any part of the period between the date when the cause of action arose and the date of the judgment:

 

Provided that nothing in this section –

 

(a) shall authorize the giving of interest upon interest;

 

(b) shall apply in relation to any debt upon which interest is payable as of right whether by virtue of any agreement or otherwise; or

 

(c) shall affect the damages recoverable for the dishonour of a bill of exchange.

 

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Interest on judgment debts

 

Order 42 rule 12 Subject to rule 12A, except when it has been

 

otherwise agreed between the parties, every judgment debt shall carry interest at such rate as the Chief Justice may from time to time determine or at such other rate not exceeding the rate aforesaid as the Court determines, such interest to be calculated from the date of judgment until the judgment is satisfied .”

 

(emphasis added).

 

64. In Lim Eng Kay, at p. 200-202, the Federal Court awarded pre-judgment interest as follows:

 

“The ordering of interest to be included in a sum awarded for damages is a judicial discretion. Section 11 of the Civil Law Act 1956 (Malaysia Act 67) gives a fairly wide discretion to the Court to order interest on a sum adjudged by the Court in cases where a claimant succeeds in proceedings for the recovery of debts or damages. The English equivalent to our s. 11 of the Civil Law Act 1956 was s. 3(1) of the Law Reform (Miscellaneous Provisions) Act 1934. But this section was repealed and replaced by s. 22 of the Administration of Justice Act 1969 which came into effect on 1 January 1970. The change in the law simply means that the Court in England is now obliged, instead of being at its discretion, to award interest; but the principles as to how and in what manner interest is awarded remain the same (per Lord Denning MR in Jefford v. Gee [1970] 1 All ER 1202). Thus although in England interest is compulsory but because the principles by which the Court awards interest are not changed the result is very much the same as before and therefore similar to the position obtaining in our law. Prior to the passing of the Law Reform (Miscellaneous Provisions) Act 1934, under common law the Court had always had discretion to award interest as a compensation for a party who has been deprived of the use of

 

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its money to which it is legally entitled. The enactment of the judicial discretion by the statute simply gives statutory effect thereto, one of which is that it is not necessary for a plaintiff to claim interest in his pleadings as the Court can award interest without any claim being made in the pleadings. (Riches v. Westminster Bank Ltd. [1943] 2 All ER 725).”

 

(emphasis added).

 

65. In view of the 7th Defendant’s dishonest dissipation of the RM160,000 Sum,

 

I exercise my discretion –

 

(1) under s 11 CLA to award pre-judgment interest at the rate of 5% per annum on the RM160,000 Sum from 12.9.2007 (the date of the 7th Defendant’s encashment of the 3 Cheques) until 7.12.2015, the date of the oral decision for the 2nd Trial; and

 

(2) to award post-judgment interest pursuant to Order 42 rule 12 RC at the rate of 5% per annum on the RM160,000 Sum from 7.12.2015 until the date of full payment of the RM160,000 Sum.

 

K. Court’s order

 

66. Premised on the above reasons, this court makes the following orders:

 

(1) the 7th Defendant shall return the RM160,000 Sum to the Liquidators;

 

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(2) the 7th Defendant shall pay to the Liquidators interest at the rate of 5% per annum on the RM160,000 Sum from 12.9.2007 until the date of full payment of the RM160,000 Sum; and

 

(3) costs of the 2nd Trial shall be paid by the 7th Defendant to the Plaintiffs

 

t.t.

 

WONG KIAN KHEONG

 

DATE: 30 MARCH 2016 Judicial Commissioner High Court (Commercial Division) Kuala Lumpur

 

Counsel for the Plaintiffs: Mr. Eric Tan Choon Heong & Ms. Emily Wong Li Yan (Messrs. Ong Kok Bin & Co.)

 

Counsel for the 7th Defendant: Mr. Rajindar Singh s/o Kaher Singh & Mr. Clinton Nicholas Gomez (Messrs. Rajindar Singh Veriah & Co.)

 

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