Tan Kang Hai(Singapore Passport No : E2639499d) … PlaintiffAndSlimming Sanctuary Sdn Bhd(Company No: 374147-U) … Defendant

  

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IN THE HIGH COURT OF MALAYA AT KUALA LUMPUR IN THE FEDERAL TERRITORY COMMERCIAL DIVISION SUIT NO: 22NCC-173-06/2015

 

BETWEEN

 

TAN KANG HAI

 

(Singapore Passport No : E2639499D) … PLAINTIFF

 

AND

 

SLIMMING SANCTUARY SDN BHD

 

(Company No: 374147-U) … DEFENDANT

 

JUDGMENT

 

(after trial)

 

A. Introduction

 

1. This case concerns whether the plaintiff (Plaintiff), a director of the defendant company (Defendant), can claim commission from the Defendant when –

 

(1) the Plaintiff had breached his director’s statutory and fiduciary duties owed to the Defendant because the commission was based on

 

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inflated cost of products sold to the Defendant by 2 companies controlled by the Defendant’s directors;

 

(2) the Plaintiff had not declared his interest in the agreement for the Defendant to pay commission to the Plaintiff (Commission Agreement) at a meeting of the Defendant’s directors as required by s 131(1) of the Companies Act 1965 (CA);

 

(3) the Commission Agreement was void under s 24(b) of the Contracts Act 1950 [CA (1950)]; and

 

(4) there is evasion of income tax on the commission received by the Plaintiff from the Defendant

 

(Illegality Issues).

 

B. Legal proceedings

 

2. The Plaintiff filed this suit against the Defendant (This Suit) and claimed

 

for the following relief against the Defendant, among others:

 

(1) an order for the Defendant to pay a sum of RM2,062,289.98 to the Plaintiff (Claimed Sum); and

 

(2) interest at the rate of 4% on the Claimed Sum from the date of filing of This Suit until judgment and further interest at the rate of 5% on

 

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the Claimed Sum from the date of judgment until the date of full settlement of the Claimed Sum.

 

3. During the pre-trial case management of This Suit, pursuant to Order 34 rule 2(2)(l) of the Rules of Court 2012 (RC), the Defendant’s solicitors had filed and served on the Plaintiff’s solicitors a list of witnesses dated 28.8.2015 (Defendant’s Witness List). The Defendant’s Witness List stated that the Defendant would call Ms. Leong Pei Yee (Ms. Leong) as a defence witness in This Suit. The importance of the Ms. Leong’s testimony in this case, will be elaborated below.

 

C. Plaintiff’s case

 

4. The Plaintiff’s witness statement stated as follows, among others:

 

(1) the Plaintiff was one of the “founding shareholders” of the Defendant together with 5 other individuals, namely –

 

(a) Mr. Jaganmohan a/l R. Gopalasamy (Mr. Jagan);

 

(b) Mr. Sadagopan a/l R. Gopalasamy (Mr. Sada);

 

(c) Mr. Peter Poh (Mr. Poh);

 

(d) Mr. Toi Chin Yam (Mr. Toi); and

 

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(e) Mr. Chua Seng Beng (Mr. Chua);

 

(2) the Defendant sells beauty care products and body care services. The Defendant has various branches in Malaysia;

 

(3) the Plaintiff “spearheaded” the Defendant’s operations until the Plaintiff was excluded from the Defendant’s operations and financial management in May 2013;

 

(4) prior to 7.4.2009, the Plaintiff held 50% shareholding in the Defendant. In order to facilitate the Defendant’s procurement of a banking facility from Malayan Banking Bhd, the Plaintiff transferred 2% of the Plaintiff’s shares in the Defendant to Mr. Jagan and Mr. Sada;

 

(5) there were various events between 2013 and 2015 which led to a breakdown in the “shareholders’ working relationship”. Since May 2013, the Plaintiff’s participation in the Defendant’s business had been “eroded” as follows –

 

(a) the Plaintiff had been removed as authorized signatory of all the bank accounts of the Defendant on 28.5.2013; and

 

(b) the Plaintiff was not given any representation on the Defendant’s board of directors (BOD) after 28.1.2015 despite the Plaintiff’s substantial shareholding in the Defendant;

 

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(6) between 2010 and 2013, the Defendant regularly purchased beauty care products through the following 2 agents of the Defendant in Singapore and Hong Kong –

 

(a) Beauty Mermaid International Ltd. (BMIL), a company in Hong Kong which is owned by Mr. Jagan. BMIL was jointly managed by Mr. Jagan and the Plaintiff; and

 

(b) Ivers International Ltd. (IIL), a company in Singapore which is also owned by Mr. Jagan. IIL is under Mr. Jagan’s “sole purview”. Mr. Jagan is the sole authorized signatory of IIL’s bank account. Ms. Leong, the Defendant’s accounts clerk, often prepared cheques from IIL to be given to the Defendant’s 3 shareholders, namely, Mr. Jagan, Mr. Sada and the Plaintiff (3 Shareholders);

 

(7) the Defendant had paid –

 

(a) to set up BMIL and IIL;

 

(b) to maintain the registered offices for BMIL and IIL; and

 

(c) for the annual license fees for BMIL and IIL;

 

(8) there was a Commission Agreement between the Defendant and the 3 Shareholders. The Commission Agreement –

 

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(a) was to “increase the profits” of the 3 Shareholders;

 

(b) was in consideration of 3 Shareholders “securing the services” of 2 overseas agents for the Defendant, namely BMIL and IIL;

 

(c) provided that the Defendant would pay commission to the 3 Shareholders in the following manner –

 

(i) the Defendant purchased products from BMIL and IIL for the Defendant’s business at “inflated amounts”;

 

(ii) the Defendant would pay these inflated sums to BMIL and IIL;

 

(iii) the Defendant would pay the commission to the 3 Shareholders through BMIL and IIL as follows –

 

(iiia) commission equivalent to 3% of the Defendant’s annual revenue would be paid by the Defendant to the Plaintiff; and

 

(iiib) when the shareholding of Mr. Jagan and Mr. Sada in the Defendant was about 10%, Mr. Jagan and Mr. Sada would each receive 0.5% commission of the Defendant’s annual

 

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revenue between 2000 and 2006. When the shareholding of Mr. Jagan and Mr. Sada in the Defendant increased to 25%, their commission increased to 1% each of the Defendant’s annual revenue; and

 

(iv) to pay commission to the 3 Shareholders, BMIL and IIL would issue cheques to the 3 Shareholders. Mr. Jagan was the signatory of the cheques issued by BMIL and IIL for the payment of the commission. Ms. Leong prepared some of IIL cheques (which had been signed by Mr. Jagan) issued to the 3 Shareholders. IIL was set up mainly to “channel” the commission to the 3 Shareholders. IIL had no business; and

 

(d) the Commission was payable on the Defendant’s revenue until 31.12.2012 and was not payable after 2012;

 

(9) Ms. Leong had been the Defendant’s accounts clerk for over 10 years. Ms. Leong kept a table of commission payable by the Defendant to the 3 Shareholders up to 2012, as evidenced by Ms. Leong’s email dated 31.3.2014 to the Plaintiff (Ms. Leong’s Email dated 31.3.2014) with 1 attachment entitled “director comm.xisx” (Ms. Leong’s Computation);

 

(10) from 2009 until 24.1.2014, the Defendant had paid commission to the Plaintiff through BMIL and IIL. The commission payment

 

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to the Plaintiff ceased after 24.1.2014. The last payment of commission amounting to RM50,000.00, was received by the Plaintiff from the Defendant on 24.1.2014 as part settlement of commission due in 2010. Between June and August 2011, the Plaintiff had received RM199,645.00 as commission from IIL (the Plaintiff subsequently gave evidence during crossexamination that the amount of commission received by the Plaintiff from the Defendant was S$199,645.00). The Plaintiff adduced 7 Standard Chartered Bank of Singapore (SCB) cheques issued by IIL to the Plaintiff (7 Cheques To Plaintiff) as follows –

 

(a) SCB cheque dated 15.6.2011 for the amount of

 

S$40,322.58;

 

(b) SCB cheque dated 18.7.2011 for the amount of

 

S$20,000.00;

 

(c) SCB cheque dated 18.7.2011 for the amount of

 

S$30,000.00;

 

(d) SCB cheque dated 20.7.2011 for the amount of S$30,321.03;

 

(e) SCB cheque dated 12.8.2011 for the amount of S$38,776.63;

 

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(f) SCB cheque dated 26.8.2011 for the amount of

 

S$40,225.26; and

 

(g) SCB cheque dated 7.11.2013 for the amount of

 

S$11,651.40.

 

The Plaintiff also adduced 2 SCB cheques, one each for Mr.

 

Jagan and Mr. Sada, as follows –

 

(i) SCB cheque dated 7.11.2013 to Mr. Sada for the amount of S$5,825.70; and

 

(ii) SCB cheque dated 7.11.2013 to Mr. Jagan for the amount of S$5,825.70 (Cheque For Mr. Jagan).

 

All the 9 SCB cheques had been signed by Mr. Jagan alone on

 

IIL’s behalf; and

 

(11) as at 24.1.2014, the Claimed Sum was due and payable to the

 

Plaintiff by the Defendant as commission for 2011 and 2012.

 

The Defendant however failed and/or refused to pay the

 

Claimed Sum to the Plaintiff. The Claimed Sum was based on

 

Ms. Leong’s Computation.

 

5. During cross-examination, the Plaintiff testified, among others, as follows:

 

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(1) the Commission Agreement was made when the Defendant was set up;

 

(2) the cost of the products sold to the Defendant might be inflated “maybe 30% to 50%” and sometimes could be about 200%. The “inflated rate” depended on the origin of the products and their original quoted price;

 

(3) the Plaintiff confirmed that he personally received 7 Cheques To Plaintiff;

 

(4) Ms. Leong’s Email dated 31.3.2013 and Ms. Leong’s Computation were sent to the Plaintiff –

 

(a) to confirm what was outstanding from the Defendant to the Plaintiff; and

 

(b) after the Plaintiff requested from Ms. Leong by way of telephone;

 

(5) the Plaintiff agreed with the Defendant’s learned counsel that details of cheques in Ms. Leong’s Computation did not match the Defendant’s General Ledger;

 

(6) the Plaintiff had no evidence that the Defendant had paid for the fees in respect of BMIL;

 

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(7) the Plaintiff agreed that the Plaintiff had not sued BMIL and IIL;

 

(8) when the Plaintiff testified about commission based on the Defendant’s annual revenue, the Plaintiff meant the Defendant’s net annual total sales for product sales and beauty treatment sales from 1 January to 31 December; and

 

(9) the Plaintiff agreed with the Defendant’s learned counsel that based on the Defendant’s General Ledger, the Defendant owed money to BMIL and IIL.

 

6. The Plaintiff clarified as follows, among others, during his reexamination:

 

(1) the Plaintiff was paid commission based on 3% of the Defendant’s annual revenue but the Defendant paid BMIL and IIL as product cost; and

 

(2) the Plaintiff had no records regarding BMIL (despite being a joint manager of BMIL with Mr. Jagan) because all records were kept by Ms. Leong.

 

7. After the Plaintiff’s testimony, the Plaintiff wished to call Ms. Leong as his witness. The Plaintiff had applied for and obtained a subpoena to compel Ms. Leong to give evidence in This Suit (Subpoena). The Plaintiff had filed 4 affidavits to show 12 attempts to serve the Subpoena on Ms.

 

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Leong but to no avail. As such, the Plaintiff was constrained to close his case after the completion of his testimony in This Suit.

 

D. Defendant’s case

 

8. Mr. Jagan was the only witness who testified for the Defendant in This Suit. According to Mr. Jagan’s witness statement, among others –

 

(1) Mr. Jagan is a director in the Defendant who oversees the marketing, finance and operations departments of the Defendant;

 

(2) the Defendant has 17 branches which is managed by a branch manager (Branch Manager). The Defendant’s headquarters in Mid Valley City (Headquarters) will assign sales targets to the Branch Managers who have autonomy in dealing with customers. The Branch Managers will requisition for beauty products and equipment from the Headquarters. Once the Headquarters has processed the requisition, the Defendant’s storage facility in Kuchai Lama Entrepreneur’s Park (Defendant’s Store) will send the requisitioned products and equipment to the requisitioning branch. The branch does not pay for the products and equipment;

 

(3) the proceeds of sales conducted at the branches are remitted to the Headquarters and are banked in daily;

 

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(4) Mr. Jagan first met the Plaintiff in 1995 or 1996 through a mutual friend, Mr. Toi. Mr. Toi is a childhood friend of Mr. Sada, Mr. Jagan’s brother. Mr. Jagan has known the Plaintiff for 19 years. According to Mr. Jagan’s recollection, the Plaintiff is a shareholder of Slimming Sanctuary Pte. Ltd. (SSPL) and Rolf Associates Pte. Ltd. (a real estate company);

 

(5) the Plaintiff together with Mr. Toi, Mr. Poh, Mr. Chua, Mr. Jagan and Mr. Sada met to discuss the setting up of the Defendant. Mr. Poh’s wife, Ms. Connie Koh (Ms. Koh), used to work for a beauty company. The Plaintiff, Mr. Poh, Mr. Chua and Ms. Koh had previously set up SSPL in Singapore. The Plaintiff voiced out that the Defendant should not be related in any way to SSPL. Ms. Koh then set up the Defendant’s operation in Kuala Lumpur and was paid a consultancy fee;

 

(6) Mr. Jagan and Mr. Sada purchased a shelf company named Sapphire Legend Sdn. Bhd. (SLSB). On 5.5.1999, SLSB changed its name to “The Slimming Sanctuary Sdn. Bhd.” and this name was subsequently changed to the present name of the Defendant on 22.9.2003;

 

(7) there were subsequent allotments of shares and various transfers of shares in the Defendant. The present shareholding in the Defendant is as follows –

 

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(a) the Plaintiff – 48%;

 

(b) SD1 – 26%; and

 

(c) Mr. Sada – 26%;

 

(8) up to 28.5.2013, there were 2 authorised signatories of the Defendant’s bank accounts, namely the Plaintiff and either Mr. Jagan or Mr. Sada. The Plaintiff was appointed a director of the Defendant on 18.11.1996 and was not re-elected as the Defendant’s director on 28.1.2015;

 

(9) based on the Defendant’s records and Mr. Jagan’s personal knowledge, the Defendant had never paid any commission on products purchased from BMIL and IIL. BMIL and IIL are not the Defendant’s agents but are the suppliers and trade creditors of the Defendant. The Defendant’s General Ledger showed BMIL and IIL as the Defendant’s trade creditors. The Defendant owes about RM2.7 million and RM1.5 million to BMIL and IIL respectively. From 2009 to 2012, the Defendant had paid RM11,370,404.55 and RM7,827,246.60 to BMIL and IIL respectively;

 

(10) Mr. Jagan was not aware of the Commission Agreement. Mr. Jagan had not received any commission from the Defendant in relation to the Defendant’s purchase of products from BMIL and

 

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IIL. Mr. Jagan had only received director’s fees and expenses from the Defendant; and

 

(11) Mr. Jagan was a signatory of IIL’s cheques because the Plaintiff “instructed” Mr. Jagan to go to Singapore to sign a document to confirm that Mr. Jagan was a signatory of IIL’s cheques. Mr. Jagan however did not have a copy of this document. Mr. Jagan did not have control over IIL and did not know the relationship between the Plaintiff and IIL.

 

9. Mr. Jagan gave the following evidence, among others, in his crossexamination:

 

(1) his brother, Mr. Sada, is a director of the Defendant and is actively involved in the management of the Defendant;

 

(2) since 28.1.2015 –

 

(a) the Plaintiff did not hold any management position in the Defendant; and

 

(b) both Mr. Jagan and Mr. Sada controlled the Defendant;

 

(3) from 2010 to 2013, the Plaintiff was in charge of the Defendant;

 

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(4) Mr. Jagan admitted signing more than 9 SCB cheques issued by IIL (the Plaintiff only adduced 9 SCB cheques issued by IIL in this case). Mr. Jagan however disagreed with the Plaintiff’s learned counsel that Mr. Jagan was the sole signatory for the 9 SCB cheques issued by IIL. Mr. Jagan also disagreed that the “Cheque For Mr. Jagan” constituted part payment of commission to Mr. Jagan by the Defendant pursuant to the Commission Agreement;

 

(5) Mr. Jagan agreed with the Plaintiff’s learned counsel that the 3 SCB cheques showed that the 3 Shareholders had received payments from IIL. Mr. Jagan however disagreed that such payments were commission payments from the Defendant through IIL;

 

(6) Mr. Jagan admitted that Ms. Leong used to work as an accounts clerk with the Defendant for more than 10 years but Ms. Leong did not turn up for work in late August or September 2015. There was no resignation letter from Ms. Leong. Mr. Jagan did not know where was Ms. Leong. Mr. Jagan was aware that initially, Ms. Leong was supposed to give evidence for the Defendant in this case;

 

(7) after the Plaintiff had filed This Suit, neither the Defendant’s BOD nor Mr. Jagan investigate the Plaintiff’s claim. Mr. Jagan testified that the Defendant has external accountants and auditors; and

 

(8) each director of the Defendant received RM84,000.00 per annum as director’s fees.

 

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10. During re-examination, Mr. Jagan explained as follows, among others:

 

(1) the Defendant’s accounts clerk, Ms. Leong had no authority to make management decisions for the Defendant. Mr. Jagan stated that there was “nothing for Ms. Leong to jeopardise the Defendant’; and

 

(2) the Plaintiff authorized Mr. Jagan to pay on behalf of ILL to Mr. Jagan and Mr. Sada.

 

E. Illegality Issues

 

11. After the Defendant had closed its case, the court gave post-trial directions for, among others, the preparation of the notes of proceedings and the filing and service of written submissions. At this juncture, I raised the Illegality Issues and invited both parties to present written submission on the Illegality Issues. This was because of the following reasons:

 

(1) although –

 

(a) the parties’ pleadings;

 

(b) the parties’ agreed “Statement Of Issues To Be Tried’ [filed by parties pursuant to Order 34 rule 2(2)(k) RC];

 

(c) the witness statements; and

 

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(d) cross-examination of the Plaintiff and Mr. Jagan by parties’ learned counsel

 

– did not refer to the Illegality Issues, the court is duty bound to take judicial cognizance of any illegality. I rely on 2 judgments of our apex courts as follows –

 

(i) in Keng Soon Finance Bhd v MK Retnam Holdings Sdn Bhd

 

[1989] 1 MLJ 457, at 461, an appeal from Malaysia, Lord Oliver delivered the following judgment of the Privy Council –

 

“It is well established as a general principle that the illegality of an agreement sued upon is a matter of which the court is obliged, once it is apprised of facts tending to support the suggestion, to take notice ex proprio motu and even though not pleaded (see eg Edler v Auerbach) for clearly, no court could knowingly be party to the enforcement of an unlawful agreement.”

 

(emphasis added).

 

It is to be noted that in Keng Soon Finance Bhd, at p. 460462, the issue of illegality regarding a possible breach of s 5(1) of the Housing Developers (Control and Licensing) Act 1966, only arose for the very first time during the hearing before the Privy Council. Despite the fact that the illegality issue was not pleaded and raised in the High Court and the then Federal Court, nevertheless the Privy Council allowed such a question to be raised and the Privy Council then remitted this issue to be

 

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considered by our Supreme Court because at the time of the decision of the Privy Council, appeals to the Privy Council for civil matters had been abolished and our Supreme Court had been inaugurated as the final court of appeal; and

 

(ii) in Lim Kar Bee v Duofortis Properties (M) Sdn Bhd [1992] 2 MLJ 281, at 286-287, a scheme had been devised by a tax consultant to evade payment of estate duty by using 2 companies and a trust deed. Peh Swee Chin SCJ delivered the Supreme Court’s judgment in Lim Kar Bee, at p. 288, 289, 290 and 291, as follows:

 

“Courts have always set their face against illegality in any contract. It is very well settled that the Courts take judicial notice of such illegality and refuse to enforce the contract, and such judicial notice may be taken at any stage, either at the Court of first instance or at the appellate stage irrespective of whether illegality is pleaded or not where the contract is ex facie illegal ”

 

(emphasis added); and

 

(2) this court has expressly invited parties’ learned counsel to submit on the Illegality Issues because the parties have a right under the second rule of natural justice to be heard before this court decides on the Illegality Issues. The following cases are pertinent –

 

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(a) in Hoecheong Products Co Ltd v Cargill Hong Kong Ltd

 

[1995] 1 WLR 404, an appeal to the Privy Council from Hong Kong, Lord Mustill delivered the following opinion, at p. 408-409 –

 

“The principles which inhibit the parties from raising new points on appeal, particularly where the facts have not been investigated at the trial, are so well established that it is unnecessary to quote from authorities such as Tasmania (Owners of) v. City of Corinth (Owners of) (1890) 15 App.Cas.

 

223, Connecticut Fire Insurance Co v Kavanagh [1892] AC 473 and Esso Petroleum Co Ltd v Southport Corporation [1956] AC 218. These principles apply equally where it is the court, rather than the parties, which seeks to introduce the new legal issue. If in the present case the matter had been ventilated in open court it would, their Lordships believe, soon have become apparent that there had been insufficient exploration of the facts at the trial to permit the application of whatever law might have emerged from an examination of the authorities. In the event, however, even this modest examination did not take place.

 

The point appears to have been an afterthought. It does, of course, happen from time to time that a court comes to learn of a statute or authority bearing importantly on an issue canvassed in argument but, through an oversight, not then brought forward. The court may wish to take the new matter into account. Before doing so it should always ensure that the parties have an opportunity to deal with it, either by restoring the appeal for further oral argument, or at least by drawing attention to the materials which have come to light and inviting written submissions upon them .”

 

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(emphasis added);

 

(b) in the House of Lords case of Hadmor Productions Ltd & Ors v Hamilton & Anor [1983] AC 191, at 233 (Hadmor Productions), Lord Diplock held as follows –

 

“Under our adversary system of procedure, for a judge to disregard the rule by which counsel are bound has the effect of depriving the parties to the action of the benefit of one of the most fundamental rules of natural justice: the right of each to be informed of any point adverse to him that is going to be relied on by the judge and to be given an opportunity of stating what his answer to it is. In the instant case counsel for Hamilton and Bould complained that Lord Denning MR had selected one speech alone to rely on out of many that had been made in the course of the passage of what was a highly controversial Bill through the two Houses of Parliament, and that if he, as counsel, had known that Lord Denning MR was going to do that not only would he have wished to criticise what Lord Wedderburn had said in his speech in the House of Lords but he would also have wished to rely on other speeches disagreeing with Lord Wedderburn if he, as counsel, had been entitled to refer to Hansard ”

 

(emphasis added); and

 

(c) the above passage of Lord Diplock in Hadmor Productions had been cited by our Court of Appeal in a judgment delivered by

 

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Abdul Malik Ishak JCA in Boustead Naval Shipyard Sdn Bhd v Dynaforce Corporation Sdn Bhd [2014] 4 AMR 317, at 329.

 

F. Submission of parties

 

12. The Plaintiff’s learned counsel had contended as follows, among others, in

 

support of This Suit:

 

(1) the Defendant had paid to set up and maintain the registered offices and annual license fees for BMIL and IIL;

 

(2) IIL is under the sole purview of Mr. Jagan as Mr. Jagan is the sole authorized signatory for IIL’s bank account. Mr. Jagan had signed more than 9 SCB cheques to pay the commission due to the 3 Shareholders from the Defendant;

 

(3) Ms. Leong’s Computation had kept a table of commission payable to the 3 Shareholders up to 2012;

 

(4) Mr. Jagan and Mr. Sada had also received commission from the Defendant through IIL;

 

(5) there was no need for the Plaintiff to declare the Plaintiff’s interest in the Commission Agreement in the Defendant’s meeting of directors under s 131(1) CA because the 3 Shareholders were the only directors of the Defendant. The Plaintiff relied on the Court of

 

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Appeal’s judgment in Genisys Intergrated Engineers Pte Ltd v UEM Genisys Sdn Bhd & Ors [2008] MLJU 418;

 

(6) there was no breach of fiduciary duty because the inflation of the product cost which allowed the payment of commission to the 3 Shareholders, had been carried out with the 11 full knowledge” of the 3 Shareholders. The 3 Shareholders had not suffered any loss due to the payment of commission. On the contrary, the 3 Shareholders had benefitted. The Plaintiff had cited the Federal Court case of Gurbachan Singh s/o Bagawan Singh & Ors v Vellasamy s/o Pennusamy & Ors and other appeals [2015] 1 MLJ 773; and

 

(7) an adverse inference under s 114(g) of the Evidence Act 1950 (EA) should be drawn against the Defendant for not calling Ms. Leong to testify in this case. Reliance had been placed by the Plaintiff on the Supreme Court’s decision in Munusamy v Public Prosecutor [1987] 1 MLJ 492.

 

13. In resisting This Suit, the Defendant’s learned counsel advanced the following contentions, among others:

 

(1) there was no evidence to prove the Commission Agreement because –

 

(a) there was no evidence that BMIL and IIL had a surplus of funds to pay commission to the 3 Shareholders; and

 

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(b) the Defendant in fact owed money to BMIL and IIL;

 

(2) there was a “clear contradiction” between the Plaintiff’s testimony and the Plaintiff’s pleaded case in his Amended Statement of Claim (ASOC) regarding the calculation of the amount of commission payable to the Plaintiff. In the ASOC, “product cost and commission were “identical’. However, during crossexamination, the Plaintiff insisted that “product cost’ was different from commission;

 

(3) the Plaintiff’s own evidence during cross-examination contradicted an item in the Claimed Sum as specified in Annexure A to ASOC (regarding the first payment of commission amounting to RM14,000 on 10.8.2011);

 

(4) the payments received by the Plaintiff by way of 7 Cheques To Plaintiff were not reflected in Annexure A to ASOC;

 

(5) the Plaintiff had failed to adduce evidence to prove receipt of commission as pleaded in Annexure A to ASOC;

 

(6) no evidence had been adduced by the Plaintiff in respect of the Defendant’s annual revenue for 2009 to 2012 as stated in Annexure A to ASOC;

 

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(7) there was no evidence that Mr. Jagan owned or controlled BMIL and IIL. The Plaintiff had not even conducted a search on BMIL and IIL with the appropriate authority in Hong Kong and Singapore;

 

(8) the Plaintiff had affirmed 4 statutory declarations (SD’s) under s 169(16) CA (as the director primarily responsible for the financial management of the Defendant) on 2.12.2009, 8.12.2010, 13.12.2011 and 5.12.2012, to confirm that the Defendant’s financial statements for the financial years ending 30.6.2009, 30.6.2010, 30.6.2011 and 30.6.2012 (Defendant’s 4 Financial Statements), were, to the best of the Plaintiff’s knowledge and belief, correct. In the Defendant’s 4 Financial Statements, the Plaintiff confirmed that the Defendant did not owe any commission to the Plaintiff;

 

(9) based on the above submission, the Plaintiff was not a reliable witness;

 

(10) the Defendant’s general ledger provided that BMIL and IIL were trade creditors of the Defendant and were not the Defendant’s agents;

 

(11) there was no evidence that the Defendant was aware that products had been purchased from BMIL and IIL at inflated cost; and

 

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(12) the Plaintiff as the Defendant’s director was prohibited from receiving commission from the Defendant. Accordingly, the Commission Agreement was “repugnant’ to s 24(d) and/or (e) CA (1950) and would amount to an offence under s 131(1) CA. Even if it was assumed that the Commission Agreement existed, the Commission Agreement could not be enforced. The Defendant relied on the following cases –

 

(a) the Court of Appeal case of Tengku Abdullah ibni Sultan Abu Bakar & Ors v Mohd Latiff bin Shah Mohd & Ors and other appeals [1996] 2 MLJ 265; and

 

(b) the Federal Court’s judgment in Tan Chee Hoe & Sons Sdn Bhd v Code Focus Sdn Bhd [2014] 3 CLJ 141.

 

G. Admissibility of evidence

 

14. The Defendant’s learned counsel had marked the following documents as Part C (Part C Documents):

 

(1) “ID1’’, accounts prepared by Ms. Leong (ID1);

 

(2) “ID2”, Ms. Leong’s Email dated 31.3.2012 with Ms. Leong’s Computation (ID2);

 

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(3) “ID3”, Ms. Leong’s summary of commission payable to the 3 Shareholders (ID3); and

 

(4) “ID4”, SCB’s bank statements of IIL (ID4).

 

15. According to Order 34 rule 2(2)(e)(ii) RC, when a party marks a document as a Part C Document, this means that the party disputes the authenticity and contents of the document.

 

G(1). Admissibility of SCB’s bank statements

 

16. Section 133(1) of the Financial Services Act 2013 (FSA) provides for banking secrecy of documents and information relating to the affairs or account of any customer of a “financial institution”. Sections 131 and 133 FSA are placed in Division 4 (entitled “Information and secrecy’) of Part 8 FSA. Section 131 FSA states that for the purposes of Division 4 of Part 8 FSA, “financial institution” refers to, among others, a “licensed bank’. Section 2(1) FSA defines a “licensed bank” as a person licensed under s 10 FSA to carry on banking business.

 

17. ID4 were documents generated by SCB (Singaporean bank). As such, SCB was not a “licensed bank’ and “financial institution” for the purposes of banking secrecy under s 131 read with s 133(1) FSA. Nonetheless, I reject ID4 as evidence in this case on the ground that ID4 constitutes documentary hearsay evidence because the Plaintiff has failed to call the maker of ID4 – please see the judgment of Abdul Hamid Mohamad FCJ (as he then was) in the Federal Court case of Capital Insurance Bhd v

 

27

 

Cheong Heng Loong Goldsmiths (KL) Sdn Bhd [2005] 4 CLJ 1, at 20,

 

21-25 and 28.

 

G(2). Admissibility of documents prepared by Ms. Leong

 

18. As Ms. Leong could not be called as a witness by the Plaintiff, the contents of ID1 and ID3 constituted documentary hearsay evidence which could not be considered by this court – Capital Insurance Bhd.

 

G(3). Admissibility of Ms. Leong’s Email dated 31.3.2014 and Ms. Leong’s Computation

 

19. The fact that Ms. Leong could not be called by the Plaintiff as a witness, in my view, did not bar the admissibility of Ms. Leong’s Email dated 31.3.2012 and Ms. Leong’s Computation. This is due to the following reasons:

 

(1) the Plaintiff had given oral evidence that the Plaintiff had received Ms. Leong’s Email dated 31.3.2012 and Ms. Leong’s Computation (an attachment to Ms. Leong’s Email dated 31.3.2012). Emails are sent and received through computers. Section 3 EA has defined a “computer’ very widely;

 

(2) by reason of s 90A(1) EA, “a document produced by a computer, or a statement contained in such document, shall be admissible as evidence of any fact stated therein if the document was produced by

 

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the computer in the course of its ordinary use, whether or not the person tendering the same is the maker of such document or statement’. Section 90A(5) EA has provided that a “document shall be deemed to have been produced by a computer whether it was produced by it directly or by means of any appropriate equipment, and whether or not there was any direct or indirect human intervention”. According to s 90A(6) EA, a “document produced by a computer, or a statement contained in such document, shall be admissible in evidence whether or not it was produced by the computer after the commencement of the criminal or civil proceeding or after the commencement of any investigation or inquiry in relation to the criminal or civil proceeding or such investigation or inquiry, and any document so produced by a computer shall be deemed to be produced by the computer in the course of its ordinary use”; and

 

(3) s 90C EA provides, among others, that s 90A EA “shall prevail and have full force and effect notwithstanding anything inconsistent therewith, or contrary thereto, contained in” –

 

(a) EA;

 

(b) the Bankers’ Books (Evidence) Act 1949; and

 

(c) “any provision of any written law relating to certification, production or extraction of documents or in any rule of law or practice relating to production, admission, or proof, of evidence in any criminal or civil proceeding”.

 

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It is clear that ss 90A(1), (5), (6) and 90C provides a statutory exception to the documentary hearsay rule – please see KTL Sdn Bhd & Anor v Leong Oow Lai and other appeals [2014] MLJU 1405; [2014] AMEJ 1458; [2014] 1 LNS 427, at paragraph 34(a).

 

20. Based on ss 90A(1), (5), (6) and 90C EA, I admit ID2 as evidence in This Suit and marked it as exhibit P2.

 

H. Credibility of witnesses

 

21. I find as a fact that the Plaintiff is a credible witness. This is because the Plaintiff’s oral evidence is corroborated by the following evidence:

 

(1) Mr. Jagan’s evidence during cross-examination that he was an authorized signatory of IIL’s bank account at SCB. Such evidence of Mr. Jagan’s conduct is highly relevant under s 8(2) EA – please see Chang Min Tat FJ’s judgment in the Federal Court case of Tindok Besar Estate Sdn Bhd v Tinjar Co [1979] 2 MLJ 229, at 234. It is to be emphasized that IIL has an account with a bank in Singapore, namely SCB. It is inconceivable for any reasonable person to travel to Singapore and sign bank documents evidencing that he or she is an authorized signatory of a company’s bank account unless he or she controls or at least, has an interest in that company;

 

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(2) Mr. Jagan admitted during cross-examination that he alone had signed more than 9 SCB cheques on behalf of IIL. The Cheque For Mr. Jagan had been signed by no person other than Mr. Jagan himself. The Cheque For Mr. Jagan was highly significant as it showed that Mr. Jagan had also been paid by IIL in the same manner as IIL had paid the Plaintiff and Mr. Sada. In other words, the Cheque For Mr. Jagan proved the financial motive under s 8(1) EA for Mr. Jagan to be involved in IIL;

 

(3) Ms. Leong’s Email dated 31.3.2014 and Ms. Leong’s Computation corroborated the Plaintiff’s evidence in This Suit. Mr. Jagan admitted during cross-examination that Ms. Leong had worked as an accounts clerk with the Defendant for more than 10 years. It is clear that Ms. Leong is not any mere employee of the Defendant. Furthermore, there was no reason for Ms. Leong to fabricate evidence, such as Ms. Leong’s Email dated 31.3.2014 and Ms. Leong’s Computation, to the detriment of her own employer, namely the Defendant; and

 

(4) in the Court of Appeal case of Guan Teik Sdn Bhd v Hj Mohd Noor Hj Yakob & Ors [2000] 4 CLJ 324, at 330, Siti Norma Yaakob JCA (as she then was) explained the importance of contemporaneous documents. Based on Guan Teik Sdn Bhd, the contemporaneous documentary evidence in the form of the 9 SCB cheques, Ms. Leong’s Email dated 31.3.2014 and Ms. Leong’s Computation clearly support the Plaintiff’s case in This Suit.

 

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22. I have not overlooked the fact that the Plaintiff’s 4 SD’s, the Defendant’s 4 Financial Statements and the Defendant’s general ledger, do not show any commission due from the Defendant to the Plaintiff. This is because I make a finding of fact that the Plaintiff had concealed the Commission Agreement (Plaintiff’s Concealment). The Plaintiff’s Concealment was due to –

 

(1) the breaches of the Plaintiff’s statutory and fiduciary duties owed to the Defendant;

 

(2) the Plaintiff’s failure to declare his interest in the Commission Agreement in a meeting of the Defendant’s directors as required by s 131(1) CA; and/or

 

(3) there was evasion of income tax on the commission received by the Plaintiff from the Defendant.

 

I will elaborate on the effect of the Plaintiff’s Concealment later in this judgment.

 

23. The discrepancies between the Plaintiff’s testimony and the ASOC, in my view, are not sufficiently material to affect adversely the Plaintiff’s credibility in This Suit.

 

24. I find as a fact that Mr. Jagan lacks credibility for the following reasons:

 

(1) Mr. Jagan’s oral evidence was contrary to his own conduct in –

 

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(a) agreeing to be an authorized signatory of IIL’s bank account at SCB; and

 

(b) signing more than 9 SCB cheques for IIL;

 

(2) Mr. Jagan admitted during cross-examination that both Mr. Jagan and Mr. Sada now control the Defendant. The Plaintiff had been removed as an authorized signatory of the Defendant’s bank account (on 28.5.2013) and the Plaintiff had also ceased to be a director of the Defendant (since 28.1.2015). It is therefore clear that Mr. Jagan knew the importance of an authorized signatory of a company’s bank account and how to remove such a signatory. In other words, if Mr. Jagan did not control IIL or had no interest in IIL, Mr. Jagan could have and should have –

 

(a) informed IIL to remove Mr. Jagan as an authorized signatory of IIL’s bank account with SCB;

 

(b) demanded or taken legal action against IIL and/or the Plaintiff so as to remove Mr. Jagan as an authorized signatory of IIL’s bank account with SCB; and/or

 

(c) informed the Monetary Authority of Singapore (the regulatory authority in Singapore on banking matters) that Mr. Jagan had no interest in IIL and should not be an authorized signatory of IIL’s bank account with SCB.

 

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The fact that Mr. Jagan did not take any of the above action, clearly showed that Mr. Jagan had control and/or interest in IIL; and

 

(3) Mr. Jagan’s oral testimony was contrary to contemporaneous documentary evidence as follows –

 

(a) 9 SCB cheques signed by Mr. Jagan himself; and

 

(b) Ms. Leong’s Email dated 31.3.2014 and Ms. Leong’s Computation.

 

I. Plaintiff had proven his case

 

25. It is not disputed that the Plaintiff has the legal burden under ss 101(1), (2) and 102 EA to prove on a balance of probabilities the following matters:

 

(1) the existence of the Commission Agreement;

 

(2) the Defendant had breached the Commission Agreement;

 

(3) the Plaintiff had suffered loss due to the Defendant’s breach of the Commission Agreement which amounted to the Claimed Sum; and

 

(4) the Claimed Sum was not too remote and could be recovered in law under s 74(1) and (2) CA (1950).

 

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I(1). Plaintiff had proven existence of Commission Agreement

 

26. I find as a fact that the Plaintiff had proven the existence of the Commission

 

Agreement on a balance of probabilities because –

 

(1) the existence of the Commission Agreement was evidenced by contemporaneous documentary evidence as follows –

 

(a) 9 SCB cheques signed by Mr. Jagan; and

 

(b) Ms. Leong’s Email dated 31.3.2014 and Ms. Leong’s Computation;

 

(2) BMIL and IIL were not mere trade creditors of the Defendant but were the Defendant’s agents which were controlled at the material time by the 3 Shareholders. This was because –

 

(a) Mr. Jagan is an authorized signatory of IIL’s bank account with SCB;

 

(b) the 9 SCB cheques had been issued by IIL to the 3 Shareholders;

 

(c) according to Mr. Jagan’s witness statement, the Defendant owed about RM2.7 million and RM1.5 million to BMIL and IIL respectively. There was no evidence that BMIL and IIL had issued

 

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any demand, let alone institute legal action, to recover such huge debts from the Defendant. Such a fact corroborated the Plaintiff’s testimony that BMIL and IIL were indeed the Defendant’s agents; and

 

(d) the Defendant owed about RM1.5 million to IIL. If IIL was not the Defendant’s agent, it was inconceivable for IIL to issue 9 SCB cheques to pay the 3 Shareholders;

 

(3) as explained in the above Part H, this court finds the Plaintiff to be a credible witness whereas Mr. Jagan is not; and

 

(4) an adverse inference should be made under s 114(g) EA against the Defendant for not calling Ms. Leong as a witness to explain, if not rebut, Ms. Leong’s Email dated 31.3.2014 and Ms. Leong’s Computation. Although the Plaintiff alone bears the legal burden under ss 101(1), (2) and 102 EA to prove This Suit, nonetheless, in civil cases (not criminal matters), the court has a discretion to draw an adverse inference under s 114(g) EA against the Defendant for the Defendant’s failure to call a material witness. In the following appellate cases, the courts drew an adverse inference against the defendants –

 

(a) 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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(b) 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

 

(c) 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 the Supreme Court’s judgment delivered by Mohd. Azmi SCJ in Munusamy v Public Prosecutor [1987] 1 MLJ 492, at 494, it was decided that the court may exercise its discretion to draw an adverse inference under s 114(g) EA against a party who has suppressed material evidence. I exercise my discretion under s 114(g) EA to make an adverse inference against the Defendant for suppressing Ms. Leong’s material evidence in This Suit. Such an exercise of discretion is premised on the following evidence and reasons –

 

(i) as explained above, Ms. Leong’s Email dated 31.3.2014 and Ms. Leong’s Computation were clearly material to This Suit;

 

(ii) Ms. Leong also prepared ID1 and ID3. If Ms. Leong had given evidence in this case, ID1 and ID3 would have been admitted by the Plaintiff as documentary evidence to the Defendant’s detriment;

 

(iii) the Plaintiff had disclosed Ms. Leong’s Email dated 31.3.2014, Ms. Leong’s Computation, ID1 and ID3 in the bundle of

 

37

 

documents to be used in This Suit [as required by Order 34 rule 2(2)(c) RC]. As such, the Defendant had actual prior notice of the importance of Ms. Leong’s evidence before the commencement of this trial;

 

(iv) Mr. Jagan had admitted that Ms. Leong had worked as an accounts clerk for the Defendant for more than 10 years. Significantly, Ms. Leong had worked as the Defendant’s accounts clerk during the time period for which the Plaintiff was now claiming commission in This Suit;

 

(v) the Defendant’s Witness List had listed Ms. Leong as a witness for the Defendant. Generally, a party’s solicitor will only list a witness to testify on behalf of that party if the party’s solicitor has interviewed the witness, especially when the witness has been employed by that party for more than 10 years. No evidence had been adduced by the Defendant that the Defendant’s solicitors had failed to interview Ms. Leong in this case;

 

(vi) except for Mr. Jagan’s bare assertion that Ms. Leong did not turn up for work in late August or September 2015 (before the commencement of the trial in this case on 23.10.2015), the Defendant had not adduced any evidence to explain credibly why the Defendant could not call Ms. Leong to testify in This Suit. There was no –

 

• resignation letter from Ms. Leong;

 

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• evidence of any effort on the part of the Defendant to trace

 

and ascertain the whereabouts of Ms. Leong;

 

• letter from the Defendant as Ms. Leong’s employer to give

 

notice to Ms. Leong that Ms. Leong’s failure to turn up for work, amounted to a serious breach of Ms. Leong’s employment contract which warranted her dismissal as an employee of the Defendant;

 

• letter from the Defendant to dismiss Ms. Leong as the

 

Defendant’s employee for not turning up for work; and

 

• letter from the Defendant as Ms. Leong’s employer to the

 

Employees Provident Fund (EPF) and Social Security Organisation (SOCSO) to inform EPF and SOCSO that Ms. Leong had been dismissed as the Defendant’s employee and henceforth, the Defendant would not pay contributions for Ms. Leong to EPF and SOCSO;

 

(vii) the Defendant did not adduce any evidence on who had been appointed by the Defendant to take over Ms. Leong’s duties (Ms. Leong’s Replacement). The Defendant could have easily instructed Ms. Leong’s Replacement to verify the contents of Ms. Leong’s Email dated 31.3.2014, Ms. Leong’s Computation, ID1 and ID3. If the contents of Ms. Leong’s Email dated 31.3.2014, Ms. Leong’s Computation, ID1 and ID3 were favourable to the Defendant as verified by Ms. Leong’s Replacement in This Suit, the Defendant could have easily called Ms. Leong’s Replacement to rebut the contents of Ms. Leong’s Email dated 31.3.2014, Ms. Leong’s Computation, ID1 and ID3;

 

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(viii) Mr. Jagan had given evidence that the Defendant has external accountants and auditors. There was no reason why the Defendant could not have instructed its external accountants or auditors to verify the contents of Ms. Leong’s Email dated 31.3.2014, Ms. Leong’s Computation, ID1 and ID3; and

 

(ix) based on the above reasons, Ms. Leong’s sudden “disappearance” could not be co-incidental and the Defendant had indeed suppressed material evidence of Ms. Leong in this case.

 

I(2). Proof of Defendant’s breach of Commission Agreement and Plaintiff’s loss

 

27. As explained above, there was proof of the existence of the Commission Agreement. Hence, the Claimed Sum was due and payable to the Plaintiff by the Defendant pursuant to the Commission Agreement. Upon the Defendant’s failure to pay the Claimed Sum to the Plaintiff, the Defendant had thereby breached the Commission Agreement.

 

28. The Plaintiff bears the legal onus to prove the Claimed Sum under either one or both the limbs of s 74(1) CA (1950) – please see Mohd. Dzaiddin SCJ’s (as he then was) judgment in the Supreme Court case of Malaysian Rubber Development Corp Bhd v Glove Seal Sdn Bhd [1994] 3 MLJ 569, at 575 and 576.

 

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29. I am of the view that the Claimed Sum was not too remote and could be recovered by the Plaintiff (subject to the discussion below on the Illegality Issues) as –

 

(1) the Claimed Sum naturally arose in the usual course of things within the meaning of the first limb of s 74(1) CA (1950); and/or

 

(2) both the Plaintiff and the Defendant knew that the Claimed Sum was “likely to result from the breach” of the Commission Agreement as understood in the second limb of s 74(1) CA (1950).

 

J. Plaintiff’s breach of statutory and fiduciary duties owed to Defendant

 

30. According to a copy of the search of the Defendant’s records with Suruhanjaya Syarikat Malaysia, for the financial year ending 30.6.2014, the Defendant had incurred a “loss after tax” of RM780,996.00 (Defendant’s Loss).

 

31. The Plaintiff had testified during cross-examination that the cost of the products sold by BMIL and IIL to the Defendant might be inflated “maybe 30% to 50%’’ and sometimes could be about 200%, depending on the origin of the products and their original quoted price. The Plaintiff further gave evidence in cross-examination that the Plaintiff had received S$199,645.00 as commission from the Defendant. The irresistible inference to be drawn by this court is that the Commission Agreement had indeed contributed to the Defendant’s Loss.

 

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32. As a director of the Defendant, the Plaintiff owed the following statutory duties to the Defendant:

 

(1) under s 132(1) CA, the Plaintiff “shall at all times exercise his powers for a proper purpose and in good faith in the best interest of the company’. In Pioneer Haven Sdn Bhd v Ho Hup Construction Co Bhd & Anor and other appeals [2012] 3 MLJ 616, at paragraphs 233-235 and 237-240, Zainun Ali JCA (as she then was) delivered the following judgment of the Court of Appeal –

 

“Duty to act in good faith and in the best interest to the company

 

[233] The prior provision of s 132(1) requires a director to act honestly. The current s 132(1) of the Act, requires a director to act in good faith in the best interest of the company. It is accepted that for all intents and purposes, the scope of the directors’ duties to act honestly under the old s 132(1) and the new s 132(1) are the same. Thus the old case laws relating to the duty to act honestly continues to be relevant (see Cheam Tat Pang v Public Prosecutor [1996] 1 SLR 541).

 

[234] It is also recognised that the duty to act in the best interest of the company means different things, depending on the factual circumstances.

 

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[235] Consequentially, depending on the type of dispute or issue, the directors must place a higher priority on the interest of the persons who are truly affected.

 

[237] What then, is the test whether there is breach of such duty? Or putting it in another way in order for the decision of the directors to be challenged, what is the test?

 

[238] The test is nicely condensed in Ford’s Principles of Corporations Law (para 8.060), that there will be a breach of duty if the act or decision is shown to be one which no reasonable board could consider to be within the interest of the company.

 

[239] This test is adopted in Charterbridge Cornp Ltd v Lloyds Bank Ltd [1970] Ch 62 at p 74, in that, to challenge a decision of the directors, the test is whether:

 

… an intelligent and honest man in the position of the director of the company concerned, could in the whole of the existing circumstances have reasonably believed that the transactions were for the benefit of the company.

 

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[240] The above principle is often referred to as the ‘Charterbridge Principle’.”

 

(emphasis added); and

 

(2) according to s 132(2)(c) CA, without the consent or ratification of a general meeting of the Defendant, the Plaintiff “shall not’ use his position as the Defendant’s director “to gain directly or indirectly, a benefit’ for the Plaintiff or cause detriment to the Defendant.

 

33. I find as fact that the Plaintiff had breached the following statutory duties owed by the Plaintiff to the Defendant:

 

(1) based on the Charterbridge Principle (affirmed in Pioneer Haven), the Plaintiff had failed to exercise his powers as the Defendant’s director under s 132(1) CA for a proper purpose and in good faith in the best interest of the company. This is because considering –

 

(a) the inflated cost of products purchased by the Defendant from BMIL and IIL of “maybe 30% to 50%”; and

 

(b) the Defendant’s Loss

 

– an intelligent and honest man in the Plaintiff’s position as the Defendant’s director, could not have reasonably believed that the Commission Agreement was for the benefit of the Defendant; and/or

 

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(2) the Plaintiff had breached s 132(2)(c) CA because –

 

(a) the Plaintiff had not obtained the consent or ratification of the Commission Agreement in the Defendant’s general meeting of shareholders; and

 

(b) the Plaintiff had therefore used his position as the Defendant’s director to –

 

(i) gain, directly or indirectly, a benefit for the Plaintiff amounting to S$199,645.00; and/or

 

(ii) cause detriment to the Defendant in the form of the Defendant’s Loss.

 

34. It is to be noted that breaches of s 132(1) and (2)(c) CA have the following consequences:

 

(1) the Plaintiff is liable for any –

 

(a) profit made by the Plaintiff; or

 

(b) any damage suffered by the Defendant

 

– as a result of the Plaintiff’s breaches of s 132(1) and (2)(c) CA; and

 

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(2) the Plaintiff may have committed an offence under s 132(3) CA for which the Plaintiff is liable to imprisonment up to 5 years and/or a fine up to RM30,000.00.

 

35. Section 132(5) CA provides that the statutory duties imposed on a company’s directors, are in addition to and do not derogate from any rule of law relating to the duty and liability of a company’s directors. It is indisputable that a company’s director is a fiduciary of the company. In addition to the above statutory duties, the Plaintiff owes a fiduciary duty as the Defendant’s director not to make any personal profit from the Plaintiff’s position as a director of the Defendant – please see the Federal Court’s judgment delivered by Richard Malanjum CJ (Sabah & Sarawak) in the Federal Court case of Gurbachan Singh, at paragraph 69. I make a finding of fact that the Plaintiff had breached his fiduciary duty to the Defendant by making a personal profit of S$199,645.00 from his position as a director of the Defendant.

 

36. Generally, when a company’s director breaches his or her fiduciary duties owed to the company in respect of a contract concluded between the director and the company, case law will consider the contract to be voidable, not void, at the company’s option. However, in the Singapore High Court case of Goh Kim Hai Edward v Pacific Can Investment Holdings Ltd [1996] 2 SLR 109, Judith Prakash J had dismissed a claim for damages by a company director for the company’s alleged breach of an employment contract (which had been renewed in breach of the director’s

 

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fiduciary duties). Judith Prakash J decided as follows in Goh Kim Hai Edward:

 

“Procurement of the extension of the contract

 

The basis of this defence is that the plaintiff and Mr Pang acted in breach of their fiduciary duties in December 1991 and in January 1992 in procuring the issue of the renewal letter. As directors of the defendants, they were under a duty to act bona fide in what they considered was in the interests of the company and not for any collateral purpose. …

 

Despite Mr Pang’s want of authority, he and the plaintiff went ahead with the issue and the acceptance of the renewal letter, probably in the hope that it would be accepted by the board as another fait accompli. In my opinion, neither Mr Pang nor the plaintiff acted bona fide in the interests of the company because they were considering the plaintiff’s interests first and the company’s second.

 

The defendants contended that even if Mr Pang did not conspire with the plaintiff and believed it to be in the company’s interest to have the plaintiff as its chief executive officer, nevertheless, he was in breach of his own fiduciary duty to the defendants if the main purpose of his action was to secure a renewal for the plaintiff. I agree. The purpose of a director’s action must be to benefit the company and not any particular individual. If the action does benefit both the company and an individual, the action is not a breach of duty as long as the considerations which led to its enactment were chiefly considerations of the interests of the company. If, however, the main consideration is benefiting the individual, then the action is taken for an improper

 

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purpose. There is nothing in the plaintiff’s evidence to show that Mr Pang’s main motivation was the interests of the company. Rather the evidence both in the documents and from the testimony has established, on the balance of probabilities, that Mr Pang acted as he did to aid and protect the plaintiff, his good friend. Thus, even if he did believe that it was in the defendants’ interest that the plaintiff retain his position, he acted in breach of fiduciary duty in procuring the renewal of the plaintiff’s contract.

 

In the result, I find that the defendants have made out their third defence. They were fully entitled to dismiss the plaintiff since both he and Mr Pang had been in breach of their duties to the company. This action therefore fails. ”

 

(emphasis added).

 

37. I am of the view that Goh Kim Hai Edward should apply in this case because the Plaintiff had breached his fiduciary duty owed to the Defendant (not to profit from the Plaintiff’s position as the Defendant’s director). In this case, the Commission Agreement could not be rescinded by the Defendant within a reasonable time due to the Plaintiff’s Concealment. Accordingly, This Suit is dismissed based on the Plaintiff’s breach of fiduciary duty owed to the Defendant.

 

K. Plaintiff’s breach of s 131(1) CA

 

38. Section 131 CA provides as follows:

 

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131. Disclosure of interests in contracts, property, offices, etc.

 

(1) Subject to this section every director of a company who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the company shall, as soon as practicable after the relevant facts have come to his knowledge, declare the nature of his interest at a meeting of the directors of the company.

 

(2) The requirements of subsection (1) shall not apply in any case where the interest of the director consists only of being a member or creditor of a corporation which is interested in a contract or proposed contract with the first-mentioned company if the interest of the director may properly be regarded as not being a material interest.

 

(3) A director of a company shall not be deemed to be interested or to have been at any time interested in any contract or proposed contract by reason only –

 

(a) in a case where the contract or proposed contract relates to any loan to the company – that he has guaranteed or joined in guaranteeing the repayment of the loan or any part of the loan; or

 

(b) in a case where the contract or proposed contract has been or will be made with or for the benefit of or on behalf of a corporation which by virtue of section 6 is deemed to be related to the company-that he is a director of that corporation, and this subsection shall have effect not only for the purposes of this Act

 

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but also for the purposes of any other law, but shall not affect the operation of any provision in the articles of the company.

 

(4) For the purposes of subsection (1), a general notice given to the directors of a company by a director to the effect that he is an officer or member of a specified corporation or a member of a specified firm and is to be regarded as interested in any contract which may, after the date of the notice, be made with that corporation or firm shall be deemed to be a sufficient declaration of interest in relation to any contract so made if it specifies the nature and extent of his interest in the specified corporation or firm and his interest is not different in nature or greater in extent than the nature and extent so specified in the general notice at the time any contract is so made, but no such notice shall be of effect unless either it is given at a meeting of the directors or the director takes reasonable steps to ensure that it is brought up and read at the next meeting of the directors after it is given.

 

(5) Every director of a company who holds any office or possesses any property whereby whether directly or indirectly duties or interests might be created in conflict with his duties or interests as director shall declare at a meeting of the directors of the company the fact and the nature, character and extent of the conflict.

 

(6) The declaration shall be made at the first meeting of the directors held –

 

(a) after he becomes a director; or

 

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(b) (if already a director) after he commenced to hold the office or to possess the property, as the case requires.

 

(7) The secretary of the company shall record every declaration under this section in the minutes of the meeting at which it was made.

 

(7A) For the purpose of this section, an interest of the spouse of a director of a company (not being herself or himself a director of the company) and an interest of a child, including adopted child or stepchild, of a director of the company (not being himself or herself a director of the company) in the shares or debenture of the company, shall be treated as an interest in the contract and proposed contract.

 

(7B) Where a contract or proposed contract is entered into in contravention of this section, the contract or proposed contract shall be voidable at the instance of the company except if it is in favour of any person dealing with the company for any valuable consideration and without any actual notice of the contravention.

 

(8) Except as provided in subsection (3) this section shall be in addition to and not in derogation of the operation of any rule of law or any provision in the articles restricting a director from having any interest in contracts with the company or from holding offices or possessing properties involving duties or interests in conflict with his duties or interests as a director.

 

Penalty: Imprisonment for seven years or one hundred and fifty thousand ringgit, or both .”

 

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(emphasis added).

 

39. The Plaintiff’s learned counsel had relied on the Court of Appeal’s judgment in Genisys Intergrated Engineers Pte Ltd. This Court of Appeal’s decision has been reversed by the Federal Court in UEM Group Bhd v Genisys Intergrated Engineers Pte Ltd & Anor [2010] 9 CLJ 785. In UEM Group Bhd, the Federal Court did not discuss s 131(1) CA.

 

40. The first question concerning the application of s 131(1) CA in this case is as follows – in view of the fact that Mr. Jagan and Mr. Sada (the Defendant’s directors other than the Plaintiff), were parties to the Commission Agreement and knew about the Commission Agreement, was the Plaintiff still mandatorily required under s 131(1) CA to declare the Plaintiff’s interest in the Commission Agreement in a meeting of the Defendant’s directors?

 

41. The following cases have seemingly decided that s 131(1) CA may not be mandatory when all the other directors of the company have actual knowledge of the contract entered between the company and the director in question:

 

(1) in the High Court case of Tneu Beh v Tanjong Kelapa Sawit Sdn

 

Bhd & Ors [1995] 1 CLJ 741, at 750, Siti Norma Yaakob J (as she then was) held as follows:

 

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“It is Tneu Beh’s contention that the transfer of the shares is defective as s. 131 of the Companies Act 1965 (the Act) has been contravened. This section deals with the disclosure by a director of any interests the director has in any contract with the company.

 

The allegation here is that Boon Seng signed D3 as a director of Tanjong and assuming that the resolution was meant for him, he should have disclosed his interest at a board meeting of Tanjong.

 

This was not done and, as such, he had committed an offence under s. 131 of the Act.

 

D3 does not identify the purchaser of the shares and in all probability, the 4 brothers had not considered that one of them would be the purchaser of the shares. In any event, D3 was signed by all the 4 directors of Tanjong and assuming that D3 was intended for Boon Seng, all 4 directors would then have been aware of Boon Seng’s interest.

 

The duty to disclose under s. 131 of the Act is to make all the directors aware of the interests which one or more directors may have in a contract entered into with the company. Under the circumstances of this case, I do not consider that s. 131 has been contravened as all the directors were aware of Boon Seng’s interest when they executed D3 ”

 

(emphasis added);

 

(2) in Tan Bok Seong @ Tan Leong Tian v Sin Bee Seng & Co (Port Weld) Sdn Bhd & Ors [1995] 4 CLJ 975, at ,807 Abdul Malik Ishak J (as he then was) gave the following judgment in the High Court –

 

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“On the available evidence before me, it is my judgment that there was de facto declaration by the plaintiff of his interest in the company for the following reasons:

 

(1) At the material time there were three directors of the company viz, the plaintiff, the second defendant and the third defendant. They were no strangers to one another. The company was, so to speak, a family business. Only the plaintiff and his elder brother viz, the second defendant were the signatories to the agreement and these two directors could constitute a meeting. An irresistible inference can be deduced that the plaintiff had declared his interest to the second defendant when they both met and discussed about the agreement. The plaintiff paid RM60,000 to the second defendant who admitted receiving the same and such payment is supported by the receipt that was issued on 5 August 1983 (see p. 51 of “AB 2 “). By simple deduction if the second defendant knew about the agreement the first defendant (the company) should likewise be said to have the necessary knowledge of that agreement.

 

(2) In the absence of any specific or prescribed form of declaration of interest, the negotiations between the plaintiff and the second defendant which culminated in the signing of the agreement should reasonably be construed as sufficient declaration of the plaintiff’s interest in the agreement.

 

(3) The company must have notice, whether actual or constructive, of the plaintiff’s interest in the agreement when

 

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that agreement was finally signed by the two directors viz, the plaintiff and the second defendant ”

 

(emphasis added);

 

(3) Woolworths Ltd v Kelly (1991) 4 ACSR 431 is a decision of the New South Wales Court of Appeal on s 123 of the then Companies Act 1961 of New South Wales [CA 1961 (NSW)]. Section 123 CA 1961 (NSW) is substantially similar to our s 131 CA. It was decided in Woolworths Ltd as follows –

 

(a) Samuels JA [who was in the majority with Mahoney JA regarding the interpretation of s 123 CA 1961 (NWS)] held, at p. 438, 439, 443 and 444 –

 

“For the reasons given by Mahoney JA the respondent owed a fiduciary duty to the company to avoid placing himself in a position of actual or possible conflict between his duty to the company and his own interests. …

 

… However, for the reasons given by Mahoney JA, the respondent was prima facie in breach of his duty, because, as chairman, (and, indeed I would have been inclined to take the same view had he been only a director), he proposed the mode of payment for his consultancy services, which the board adopted, in doing so was plainly, to my mind, in the position of conflict with which this doctrine of the law is intended to eliminate. .

 

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It is true, of course, that s 123 does not merely provide for disclosure but requires the interested director to “declare the nature of his interest”; and, as I have pointed out, subs (7) provides that the secretary of the company “shall record every declaration under this section in the minutes of the meeting at which it was made.” However, notwithstanding that this language contemplates some formality, I do not think it has the effect of requiring disclosure of facts to those who are plainly wholly aware of them. …

 

However, it simply seems to me that in the present case, where no declaration or statement by the respondent to his fellow directors could possibly have given them any information about his interest in the pension scheme which they did not already have, it cannot be plausibly be suggested that s 123 remains unsatisfied or that the evil which is intended to eradicate remained active and malign and, in consequence, that the respondent was liable to the criminal sanction for which s 123 provides.

 

In my opinion, the operation of equitable principles and thus s 123 of the Act did not require in this case any formal declaration of interest. …”

 

(emphasis added);

 

(b) Mahoney JA (as he then was) decided as follows, at p. 446, 447, 448 and 453-454 –

 

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… It is sufficient to conclude that there was a conflict between his duty and his interest. …

 

The transaction was therefore voidable at the option of the company. …

 

In such a case as this, a director may avoid the consequences of his fiduciary obligations and so derive a benefit from his dealing with the company in two ways: by obtaining the fully informed consent or approval of the company to what is proposed or has been done; or by such means as are provided in this regard by the company’s constitutive documents, in this case, the articles of association.

 

The submission made was that there had been, in this case, nothing constituting a declaration of the nature of Sir Theo Kelly’s interest and that that that caused the transaction, the varied pension scheme, to be void or voidable under the general law, because of non-compliance with the statute, … The argument conceded that, when the proposals for the present transaction were brought before the board, it was plain that Sir Theo Kelly was interested in it. But, it was suggested, there had been nothing done which constituted a declaration, that a formal declaration was necessary, and that accordingly the section was not complied with.

 

It is, of course, clear that, as the section provides, the director’s obligation is to “declare” and whether what happened here constituted a declaration within the statute.

 

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Section 123 and similar sections are not to be read down.

 

They are directed to the protection of the assets of a company in circumstances where the control of them is given to those who may have little or no proprietary interest in them. And such sections deal not only with substance but also with the form in which the interests of those in question are to be declared and recorded. But s 123(1) does not require that, for its compliance, there must be an act which is in form: “I hereby declare …”. The dictionary meaning of the term includes: “to make clear or plain; to make known; to state in detail …”. That, in my opinion, accords with the intention of the provision. The section requires more than the declaration of the existence of the interest: it requires that the nature of it be declared: see, eg Costa Rica Railway Co Ltd v Forwood [1901] 1 Ch 764; Gray v New Augarita Porcupine Mines Ltd [1952] 3 DLR 1, at 14, per Lord Radcliffe. Provided that what is done at the relevant meeting involves, as in this case, the making known of the existence of that interest and the nature of it, in such a form that it may be recorded, the section is, in this regard, satisfied. …

 

The details of the original pension scheme had been before the board. … Whatever be the degree of particularity of disclosure required by the section, it was in my opinion complied with in this case.”

 

(emphasis added); and

 

(c) Kirby P (as he then was) dissented on the interpretation of s 123 CA 1961 (NSW) as follows, at p. 433-434 and 435-436 –

 

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“No other construction of the section as incorporated by art 72, would achieve the plain purpose of Parliament which was to defend the integrity of the government of companies, protect the interests of shareholders and deprive selfinterested transactions of effect unless they complied with the formalities provided. …

 

The minutes of the company contain no record by the company secretary or otherwise of any declaration made under the section by the respondent in respect of any of the resolutions establishing the scheme or the variations to it. There was no such declaration at the meeting of the board of directors on 26 February 1975. There was no such declaration at the meeting of 11 July 1979. As previously noted, there was no record at all of the suggested approval of the increase of $8666 at the meeting of the board of about 1 February 1979. Thus, the records of the board contain no reference at all to such a declaration by the respondent and no minute of that declaration by the company secretary.

 

It was argued that no such “formal” declaration was required by the terms of the Act, the provisions of the articles or the general law governing the fiduciary duty of a director to the shareholders. It was said that it was abundantly clear to the directors that the respondent had a personal interest in the transactions establishing and varying commitments to pay a pension to him. In such circumstances the “charade” (as it was put) of a formal declaration should not be required. It was sufficient that the relevant facts

 

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were placed before the board, minuted and that the director concerned did not vote.

 

The rationale of formality in the declaration

 

With respect to this view, which is favoured by the other members of the court, I cannot agree. Those who have the privilege of making decisions affecting the rights of others must comply with codes of conduct which are protective of those others. Such codes of conduct put a brake upon the pursuit of self-interest which the temporary possession of power may stimulate. …

 

Such are the temptations to abuse or misuse of responsible office to personal advantage that the courts have adopted, properly in my view, stringent standards in order to uphold the manifest integrity and propriety of office holders. …

 

Support for formality in the terms of the statute

 

These arguments of policy find reflection in the language of s 123 of the Act. The obligation is to “declare” “the nature” of the director’s interests. It is to do so whether the director is interested “directly or indirectly” in the contract or proposed contract. The urgency of the obligation is reflected by the duty to make the declaration “as soon as practicable after the relevant facts have come to his knowledge”. This requires a definition of “the relevant facts”. It is those “relevant facts” which will help to define the “nature” of the interest which must be “declared”. The word “declare” of itself imports a

 

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formal statement. In that sense, the word is stronger than “state” or “indicate” or “mention”. In the hierarchy of formal statements, a declaration stands high: cf Imperial Mercantile Credit Association (Liquidators) v J Coleman (1873) LR 6 HL 189 at 205.

 

But there is another clue within the language of the section. It is presented by the duty of the secretary of the company under s 123(7) of the Act to “record every declaration under this section”. The secretary must do so in the minutes of the meeting at which the declaration was made. This underlines the formality of the procedure envisaged by Parliament. It indicates a parliamentary purpose attaching importance to the declaration and providing, in every case, a record of it so that later disputes can be set at rest by reference to the minutes where the fact, and short terms of the declaration, will be recorded by the company secretary.

 

I do not regard these procedures as a charade. Nor do I consider them unduly burdensome or a legalistic concentration on form rather than substance. To the contrary, they go to the very substance of the integrity of corporate life which is so vital to the economic well being of the country. … There are many occasions in life where decisions out of the ordinary are taken. It is not atypical of our society to accompany such decisions by a degree of formality which calls the attention of all participants to their importance. The formality need not be exaggerated. Observance of its obligations need not be prolonged. I believe that formality was required of a declaration of

 

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interest in this case. I see no reason why a lesser standard should be adopted in private corporations than is insisted upon in statutory corporations. I believe that the approach which I favour is consistent with that which has been adopted in England, doubtless influenced by the same reasons of policy for requiring a high level of manifest integrity on the part of directors: see Guinness plc v Saunders [1988] 1 WLR 863 at 868 (CA).

 

The failure to comply with the formal procedure which I would hold to be required was not excused by art 72 of the articles of association of the company. …”

 

(emphasis added); and

 

(4) s 317 of the Companies Act 1985 of the United Kingdom [CA 1985 (UK)] is similar but not identical to our s 131 CA. In Lee Panavision Ltd v Lee Lighting Ltd [1992] 2 BCLC 22, at 28 and 32-33, Dillon LJ (as he then was) held as follows in the English Court of Appeal –

 

“The judge gave two reasons for refusing Panavision interlocutory relief.

 

It is not in doubt that to succeed in this appeal Panavision has to overcome both reasons, at least to the extent of raising in respect of each an arguable case fit to go to trial.

 

The judge’s first reason was that the second management agreement was voidable at the instance of Lee Lighting because at the board meeting of 13 December 1990 there had not been

 

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adequate disclosure by the four directors of their interests as required by s 317 of the Companies Act 1985 and art 85 of the 1985 Table A which is incorporated in the articles of association of Lee Lighting. The judge relied in particular on non-disclosure in respect of their interests as a result of the indemnities to be offered by Panavision. I have considerable reservations over the judge’s reasons on this and for the present leave this issue aside.

 

Finally, I would add a few words on the first issue which the judge decided against Panavision – the question of directors’ declaration of interests. …

 

Apart from the evidence of the transatlantic phone call between Mr Sibley and Mr Marcketta, (which the judge dismissed with the comment, ‘Mr Marcketta knew that there was some talk of it but very little specific detail of his knowledge emerges’) there was no evidence at all that any of the directors had been told before the second management agreement was executed that the indemnities would or might be offered. In my judgment the judge was not entitled, on an interlocutory application without cross-examination, to draw the inference that he did, that the directors had known of a possible interest before the agreement was made and had failed to declare it to the board. Still less was he entitled on the facts to find, on mere inference of the directors’ knowledge, that the absence of proper disclosure and declarations of interest was so clear that it did not even raise an arguable case fit to go to trial.

 

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Apart from that, however, if the judge was entitled to make the findings of non-disclosure and non-declaration of interests that he did, the position is that each of the directors has failed to disclose formally at the board meeting an interest common to all the directors and, ex hypothesi, already known to all the directors. I would hesitate to hold that such apparently technical nondeclaration of an interest in breach of s 317 has the inevitable result, as to which the court has no discretion, that the second management agreement is fundamentally flawed and must be set aside if Lee Lighting chooses to ask sufficiently promptly that it be set aside ”

 

(emphasis added).

 

42. I am of the respectful view that even if all the directors of a company (other than the director who has entered into a contract with the company) know about the contract in question, s 131(1) CA is nevertheless mandatory. This opinion is based on the following reasons:

 

(1) Parliament has employed the mandatory term “shall’ in s 131(1) CA;

 

(2) s 131(1) CA has expressly provided that sub-section (1) of s 131 CA [Sub-section (1)] is subject to s 131 CA. For example, s 131(2), (3)(a) and (b) CA have explicitly provided certain circumstances wherein Sub-section (1) does not apply. It is therefore clear that if s 131 CA does not exempt the operation of Sub-section (1), Sub-section (1) “shair apply. Section 131 CA does not provide that Sub-section (1) does not apply if all the other company directors who are not interested in the contract in question, know about the contract;

 

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(3) the mandatory effect of Sub-section (1) is supported by the mandatory provisions in s 131(5), (6) and (7) CA; and

 

(4) the following cases have decided on the mandatory effect of Subsection (1) –

 

(a) in Beh Chun Chuan v Paloh Medical Centre Sdn Bhd & Ors

 

[1999] 7 CLJ 1, at 18 and 19, Kang Hwee Gee J (as he then was) decided as follows in the High Court:

 

“The company was amply justified, in my view, to remove the petitioner and his nominee as director. The disclosure of interest was crucial in this case because the company itself had its own pharmacy and medical laboratory within the premises of the hospital. The existence or any other pharmacy or medical laboratory in the hospital would therefore bring them into competition with the hospital’s own pharmacy which was in operation in the hospital. In fact the petitioner was obliged under cl. 9.3(h) of the shareholders’ agreement itself to seek the approval of the other directors which he had failed to do. Further such a declaration is mandatory under s. 131(l) of the Companies Act 1965 which also made it an offence for failure to declare. …

 

It was also submitted in the alternative that the interest of the petitioner in the two companies had been known to the company all along when the hospital began operation and that since the company had chosen not to act on it earlier it

 

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was therefore estopped to raise it later as a ground to remove a petitioner and his nominee. I could find no such evidence that the company had any knowledge of the petitioner’s interest. In any case I fall to see how an estoppel could operate in the light of the strict requirement of s. 131 of the Act which requires that the interest be declared “at a meeting of the directors of the company””

 

(emphasis added);

 

(b) our s 131 CA is similar to s 156 of the Companies Act of Singapore [CA (Singapore)]. In Yeoh Geok Seng v Public Prosecutor [2000] 1 SLR 195, Yong Pung How CJ delivered the following judgment of the Singapore High Court in respect of s 156 CA (Singapore), at paragraphs 11, 13, 14, 19 and 32-34 –

 

“11 The crux of the appellant’s case was that an interest which arose merely from a directorship in another company was insufficient to impose a duty of disclosure on a director of a company if he did not have any personal interest which conflicted with the interests of either company. The appellant contended that, apart from being the managing director of MFED, he did not have any personal interest in the contract between MFED and XMS to build TWCC.

 

13 I had the opportunity of perusing the authorities cited by the appellant. In my opinion, those cases,

 

including Boardman v Phipps [1966] 3 All ER 721, might be

 

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useful in determining the scope of fiduciary duties of company directors at common law. However, we were concerned here with the interpretation of a statutory provision, namely, s 156(5) of the Act, and none of the authorities cited by the appellant was helpful in this respect. Other authorities cited by the appellant, including Gray v New Augarita Porcupine Mines Ltd [1962] 3 DLR 1 and State of South Australia & Anor v Marcus Clark 14 ACLC 1,019, involved a director’s duty of disclosure but had nothing to do with s 156(5). The cases of London and Mashonaland Exploration Co Ltd v New Mashonaland Exploration (supra) and Berlei Hestia (NZ) Ltd v Fernyhough (supra) were not relevant either. Even if a director does not breach his fiduciary duty to his company by being the director of another company, it does not mean that he would never have to disclose the fact of his other directorship to his company.

 

14 I could not accept the appellant’s contention that a director has a duty of disclosure under s 156(5) of the Act only if he has a personal interest that conflicts with his duty to his company. In my mind, the wording of s 156(5) is clear and wide enough to impose a duty of disclosure on a director who holds a directorship in another company, even if he does not have a personal interest, as long as there is a potential conflict of duty arising from his office as a director in both companies. Section 156(5) does not require the director to have a personal interest that in fact gives rise to a conflict. …

 

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19 … Section 156(1) is worded widely and applies to any

 

situation in which the director is ‘directly or indirectly interested’ in a contract, not just when he has a personal interest in it.

 

32 I recognised that the effect of a wide interpretation of the provisions of s 156 of the Act will mean that even an innocent failure to disclose with no proven loss to the relevant company can bring about the conviction of the director involved. This is a harsh reality but the fact remains that directors are under an onerous duty by virtue of their positions as fiduciaries entrusted with the responsibilities of managing their companies’ businesses and making corporate decisions for the benefit of their companies. If a person undertakes such duties and responsibilities as a company director, he should also be responsible for familiarising himself with the various rules of disclosure and other statutory duties under the Act.

 

33 In this respect, the following statement by Wallace P in Castlereagh Motels Ltd v Davies-Roe (1966) 67 State Reports (NSW) 279 at 284 is enlightening:

 

The general intendment of the provisions is to assist in ensuring proper administration of the affairs of the company by preventing a director abusing his knowledge and powers for his own benefit and being put in a position where his duty may conflict with his interests and severe penalties are imposed for breaches of the

 

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provisions. It is not the prevention of financial loss to the company which appears to be the main or direct object of the provisions, but the ensuring that companies are benefited by the proper and devoted discharge by directors of their fiduciary duties.

 

The above statement concerned s 123 of the New South Wales Companies Act 1961 and s 129 of the New South Wales Companies Act 1936, which are in pari materia with s 156 of our Companies Act.

 

34 Section 156 of the Act exists for the benefit and protection of the company so that its board of directors may make informed decisions in the light of declarations of interest by individual directors. A wide interpretation of s 156 is therefore necessary to give effect to its purpose .”

 

(emphasis added); and

 

(c) the dissenting judgment of Kirby P in Woolworths Ltd.

 

43. In Tneu Beh and Tan Bok Seong, the company directors in question did not breach any fiduciary duty owed by them to the companies.

 

44. I must highlight the fact that there was disclosure of the contract in question in Woolworths Ltd and hence, the majority decision of the New South

 

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Wales Court of Appeal had decided that there was compliance with s 123(1) CA 1961 (NSW) in that case.

 

45. The dicta by Dhillon LJ in Lee Panavision, was purely obiter.

 

46. Based on the above reasons, despite the fact that Mr. Jagan and Mr. Sada were parties to the Commission Agreement, I am of the respectful view that the Plaintiff was mandatorily required by s 131(1) CA to declare the Commission Agreement at a meeting of the Defendant’s directors. Accordingly, the Plaintiff had contravened s 131(1) CA. Section 131(8) CA provides that any breach of s 131(1) CA constitutes an offence for which the Plaintiff is liable to imprisonment up to 7 years and/or a fine up to RM150,000.00 [which is heavier than the penalties provided in s 132(3) CA for breaches of s 132(1) and (2)(c) CA].

 

47. The next question to be determined is whether the Commission Agreement would be affected by the Plaintiff’s breach of s 131(1) CA. Sub-section (7A) of s 131 CA [Sub-section (7A)] has been specifically introduced by Companies (Amendment) Act 2007 (Act A1299) (with effect from 15.8.2007). In the event of a breach of s 131(1) CA, Sub-section (7A) has expressly provided that the Commission Agreement “shall be voidable” at the option of the Defendant. In my opinion, Act A1299 gave effect to the following judgment in Tan Bok Seong, at p. 805-806:

 

“Next, it was argued that there was a breach of s. 131 subsection (1) and subsection (5) of the Companies Act 1965 and the contravention of

 

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these provisions would render the agreement void under s. 24 of the Contracts Act 1950. …

 

To my mind, it is manifestly clear, that in enacting s. 131 subsections

 

(1) and (5) of the Companies Act 1965, Parliament had intended for criminal sanctions to be levied against the directors without providing civil remedies thereunder. This meant that the common law remedy would be available to the company. Under the common law, the contract would be voidable at the option of the company. I venture to say that the contract would stand even under the following conditions:

 

(1) where it is not possible to restore the asset or cash passed under the contract to the company;

 

(2) where the company has been indemnified against any loss; and

 

(3) where a third party has acquired rights for value without notice of the prohibited contract and thereby suffer by the avoidance.

 

The question to ask here is this: Has the company rescinded that agreement within a reasonable time? If not then the agreement will stand. …”

 

(emphasis added).

 

48. As explained above, the Commission Agreement could not be rescinded by the Defendant within a reasonable time due to the Plaintiff’s Concealment. Accordingly, the Commission Agreement could not be invalidated under Sub-section (7A).

 

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L. Tax evasion by Plaintiff

 

49. Sections 4(c), 114(1)(a), (f), 140(1)(a) to (d), (2), (6)(a), (c) and (8) of the Income Tax Act 1967 (ITA) are relevant and are reproduced below:

 

“4 Classes of income on which tax is chargeable

 

Subject to this Act, the income upon which tax is chargeable under this Act is income in respect of –

 

(c) dividends, …

 

114 Wilful evasion

 

(1) Any person who wilfully and with intent to evade or assist any

 

other person to evade tax –

 

(a) omits from a return made under this Act any income which should be included;

 

…; or

 

(f) makes use or authorizes the use of any fraud, art or contrivance,

 

shall be guilty of an offence and shall, on conviction, be liable to a fine of not less than one thousand ringgit and not more than twenty thousand ringgit or to imprisonment for a term not exceeding three years or to both, and shall pay a special penalty of treble the amount of tax which has been undercharged in consequence of the offence or which would have been undercharged if the offence had not been detected.

 

140 Power to disregard certain transactions

 

(1) The [Director General of Inland Revenue (DGIR)], where he

 

has reason to believe that any transaction has the direct or indirect effect of –

 

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(a) altering the incidence of tax which is payable or suffered by or which would otherwise have been payable or suffered by any person;

 

(b) relieving any person from any liability which has arisen or which would otherwise have arisen to pay tax or to make a return;

 

(c) evading or avoiding any duty or liability which is imposed or would otherwise have been imposed on any person by [ITA]; or

 

(d) hindering or preventing the operation of [ITA] in any respect,

 

may, without prejudice to such validity as it may have in any other respect or for any other purpose, disregard or vary the transaction and make such adjustments as he thinks fit with a view to counteracting the whole or any part of any such direct or indirect effect of the transaction.

 

(2) In exercising his powers under this section, the [DGIR] may –

 

(a) treat any gross income from any source of any person either as the gross income and source of any other person or, where the gross income is that of a controlled company, as having been distributed to any member (within the meaning of subsection 139(7)) of that company;

 

(b) make such computation or recomputation of any gross income, adjusted income or adjusted loss, statutory income, aggregate income, total income or chargeable income of any person or persons as may be necessary to revise any person’s liability to tax or impose any

 

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liability to tax on any person in accordance with his exercise of those powers; and

 

(6) Transactions –

 

(a) between persons one of whom has control over the other;

 

(b) between individuals who are relatives of each other; or

 

(c) between persons both of whom are controlled by some other person,

 

shall be deemed to be transactions of the kind to which subsection (1) applies if in the opinion of the [DGiR] those transactions have not been made on terms which might fairly be expected to have been made by independent persons engaged in the same or similar activities dealing with one another at arm’s length.

 

(8) In this section –

 

“transaction” means any trust, grant, covenant, agreement, arrangement or other disposition or transaction made or entered into orally or in writing (whether before or after the commencement of [ITA]), and includes a transaction entered into by two or more persons with another person or persons

 

(emphasis added).

 

50. I am of the following view regarding the Commission Agreement and the payment of commission to the 3 Shareholders in this case:

 

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(1) the Plaintiff had testified that the Defendant’s payment of commission to the 3 Shareholders was to “increase the profits” of the 3 Shareholders. Such a payment should have been made by way of the Defendant’s declaration of dividend for the 3 Shareholders. If the Defendant had declared any dividend for the 3 Shareholders, such dividends would have been taxable under s 4(c) ITA. It is therefore clear that the 3 Shareholders had evaded income tax in respect of dividends distributed by the Defendant to the 3 Shareholders under the guise of “commission”;

 

(2) 2 foreign companies, namely BMIL and IIL, had been used by the 3 Shareholders as a conduit for the Defendant to pay the commission to the 3 Shareholders. Section 140(1)(a) to (d), (2)(a) and (b) ITA empower the DGIR to disregard or vary certain transactions which, among others, evade income tax. In fact, s 140(8) ITA provides a wide definition of “transaction” to include an oral Commission Agreement (as in this case). Section 140(6) ITA states that certain transactions shall be deemed to be transactions of the kind to which s 140(1) ITA applies if the DGIR is of the opinion that those transactions have not been made at arm’s length;

 

(3) s 24 CA (1950) provides as follows –

 

“What considerations and objects are lawful, and what not

 

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24. The consideration or object of an agreement is lawful, unless

 

(a) it is forbidden by a law;

 

(b) it is of such a nature that, if permitted, it would defeat any law;

 

(c) it is fraudulent;

 

(d) it involves or implies injury to the person or property of another; or

 

(e) the court regards it as immoral, or opposed to public policy.

 

In each of the above cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void .”

 

(emphasis added).

 

The Supreme Court has decided as follows in Lim Kar Bee, at p. 289, 290 and 291 –

 

“While the words ‘tax evasion’ no doubt suggest illegality, the words ‘tax avoidance’ do not necessarily indicate an unassailable hallmark of legitimacy as seemingly contended by the prospective transferee. PW1 and PW5 openly used the expression of tax avoidance as if by its recitation, the scheme in question would be or become legitimate thereby ipso facto. The expression could have been possibly derived

 

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from a dictum of Lord Tomlin in Commissioners of Inland Revenue v Duke of Westminster at p 19 that ‘every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Act is less than it otherwise would be’. Such genial spirit can be contrasted with the rather critical attitude of Viscount Simon LC in Latilla v Inland Revenue Commissioners who at p 381 described such kindred ingenuity as a ‘not commendable exercise of ingenuity’.

 

Section 24 [CA (1950)]provides as follows: …

 

There seems to be some difficulty in drawing the line between the dictum of Lord Tomlin and that of Viscount Simon LC but in our view, the real test seems to be, in any given transaction, whether the primary purpose of the transaction is to avoid tax; if it is, it is an illegal purpose, ie of such a nature that, if permitted, it would defeat the tax law in question, coming under sub-s (b) of s 24 [CA (1950)].

 

In our opinion, the primary purpose of the scheme was to avoid paying estate duty, especially bearing in mind that the said land would practically remain with members of the immediate family of the landowner in the sense that the children and wife of the landowner would control exclusively the holding company without their having paid one cent towards the purchase price of the said land. The scheme was therefore illegal.

 

We therefore hold that the agreement of sale and purchase of the said land dated 1 April 1985 and the subsequent trust deed dated 26 April 1986 are unenforceable ”

 

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(emphasis added).

 

As decided by the Supreme Court in Lim Kar Bee, if the primary purpose of a contract is to avoid tax, such a contract has an illegal purpose and is of such a nature that, if permitted, it would defeat the tax law in question [within the meaning of s 24(b) CA (1950)]. I am of the view that the primary purpose of the Commission Agreement was for the 3 Shareholders to avoid payment of income tax by way of payments of commission from BMIL and IIL. Accordingly, I hold that the Commission Agreement had an illegal purpose and was of such a nature that, if permitted, it would defeat ITA. Consequently, I have no hesitation to apply s 24(b) CA (1950) to invalidate the Commission Agreement as being null and void; and

 

(4) tax evasion is a criminal offence under s 114(1)(a) and (f) ITA. It is to be noted that a tax evasion offence under s 114 ITA is a “serious offence” under s 3(1)(a) read with the Second Schedule (2nd Schedule) to the Anti-Money Laundering and Anti-Terrorism Financing Act 2001 (AMLATFA). It is to be noted that the inclusion of s 114 ITA into the 2nd Schedule was done by the Anti-Money Laundering and Anti-Terrorism Financing (Amendment of Second Schedule) Order 2010 [P.U. (A) 343/2010] with effect from 8.10.2010. The wide powers of freezing, seizure and forfeiture under AMLATFA are available in respect of a tax evasion offence.

 

L(1). Can Plaintiff rely on s 66 CA (1950)?

 

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51. Section 66 CA (1950) provides as follows:

 

“Obligation of person who has received advantage under void agreement, or contract that becomes void

 

66. When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under the agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it ”

 

(emphasis added).

 

52. Despite a contract being rendered void under s 24(b) CA (1950), the court has a discretion to order restitution or compensation of any “advantage” received under the void contract – please see Ramly Ali FCJ’s judgment in the Federal Court case of Tan Chee Hoe & Sons Sdn Bhd v Code Focus Sdn Bhd [2014] 3 CLJ 141, at 165 and 170-172.

 

53. In this case, I am not able to exercise my discretion to order any restitution or compensation for the Plaintiff under s 66 CA (1950). My reasons are as follows –

 

(1) the Defendant had not received any advantage from the Commission Agreement. On the contrary, the Defendant’s Loss had been incurred. There is therefore no room to apply s 66 CA (1950) in this case;

 

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(2) in KTL Sdn Bhd, at paragraphs 76-80 and 89-90, I have held that based on public policy considerations, the court cannot countenance tax evasion by any party and the court should allow the loss to lie where it falls. There was no appeal to the Court of Appeal against the decision in KTL Sdn Bhd; and

 

(3) in this case, the Plaintiff had breached –

 

(a) statutory duties under s 132(1) and (2)(c) CA which are owed by the Plaintiff to the Defendant;

 

(b) his fiduciary duty not to make any personal profit from his position as a director of the Defendant; and

 

(c) s 131(1) CA (Plaintiff’s Breaches).

 

In addition to the Plaintiff’s Breaches, the Defendant could not rescind the Commission Agreement due to the Plaintiff’s Concealment. The Plaintiff in this case is clearly in pari delicto and is thus barred by the doctrine of ex turpi causa non oritur actio from seeking any relief from this court. In the Federal Court case of Singma Sawmill Co Sdn Bhd v Asian Holdings (Industrialised Buildings) Sdn Bhd [1980] 1 MLJ 21, at 25, Raja Azlan Shah Ag CJ (Malaya) (as His Majesty then was) decided as follows –

 

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… Now, in the cases to which we have referred, there was an intention to use the subject-matter of the agreement for an unlawful purpose, and also an intention to make use of the lease or agreement for an unlawful purpose. The principles applicable to both cases are the same. In such cases any party to the agreement who has the unlawful intention is precluded from suing upon it. Ex turpis causa non oritur actio. The action does not lie; not for the sake of the defendant but because the court will not lend its assistance to such a plaintiff.

 

(emphasis added).

 

L(2). No order as to costs

 

54. In view of the Plaintiff’s evasion of income tax, Plaintiff’s Breaches and Plaintiff’s Concealment, this court should not make any order as to costs in This Suit. I rely on the judgment of Rajah J in the Singapore High Court case of Cheng Mun Siah v Tan Nam Sui [1980] 2 MLJ 269, at 269, as follows:

 

“There will be no order as to costs since both parties have offended against the law.”

 

(emphasis added).

 

M. Court’s decision

 

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55. Based on the above reasons, this court is constrained to dismiss This Suit with no order as to costs.

 

WONG KIAN KHEONG

 

Judicial Commissioner High Court (Commercial Division) Kuala Lumpur

 

DATE: 31 MAY 2016

 

Counsel for Plaintiff: Ms. Michele Kaur (Messrs Sun & Michele)

 

Counsel for Defendant: Mr. Gary Yap (Messrs Adnan Sundra & Low)

 

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