DI DALAM MAHKAMAH TINGGI MALAYA DI JOHOR BAHRU
DI DALAM NEGERI JOHOR DARUL TAKZIM
GUAMAN NO. (MT-1) 22-163-1997
ANTARA
GENERAL CONTAINER SDN. BHD
PLAINTIF
DAN
1.
2.
3.
TAN CHIN WAH @ SIN YIN SAN
UNICAN INDUSTRIES SDN. BHD.
JOHOR TIN FACTORY SDN. BHD.
…DEFENDAN-DEFENDAN
DI DALAM MAHKAMAH TERBUKA
DI HADAPAN Y.A. VERNON ONG
HAKIM
GROUNDS OF JUDGMENT
The plaintiff General Containers Sdn Bhd’s (‘GC’) claim for damages
is predicated on the 1st defendant’s breach of his fiduciary duties as the
GC’s former managing director and the 2nd and 3rd defendants for
conspiring with the 1st defendant to fraudulently cause the plaintiff to suffer
losses and damages.
Plaintiff’s case
The 1st defendant Tan Chin Wah @ Sin Yin San (‘Tan’) was at all
material times GC’s managing director.
GC’s case as pleaded is
predicated upon the following assertions:
(1)
that in breach of Tan’s fiduciary duties as managing director
Tan on or about late 1988 or early 1989 conspired with others
including the 2nd defendant Unican Industries Sdn Bhd
(‘UNICAN’) and the 3rd defendant Johor Tin Factory Sdn Bhd
(‘JTF’) to fraudulently and wrongfully dispose of a
Page 1 of 18
(2)
(3)
(4)
(5)
(6)
(7)
(8)
manufacturing line comprising a complete set of machinery
known as the 300/30 7 sanitary can line and other machineries
that were leased from Malaysia Credit Finance Berhad (‘MCF’)
by GC;
that in breach of his fiduciary duties as managing director
between January 1989 till March 1989 Tan conspired with
UNICAN and JTF whereby through various devises including
the issuance of credit and debit notes and lease termination
agreements wilfully and dishonestly caused or permitted GC to
lose ownership of its vital assets and or business, in particular
relating to the 300/3007 can line to UNICAN and JTF;
that in the alternative, Tan acted in conflict of interest when (a)
he failed to consider and increase the price of the assets in the
sale of the assets, and (b) he wilfully refused or declined to
allow any adequate compensation to GC for Tan’s disposal of
the plaintiff’s assets such as the business of the sanitary can
manufacturing, goodwill and the potential of those assets for its
production of goods and services rendered to UNICAN and or
JTF and other companies;
that Tan delayed and failed to collect debts amounting to RM2
million and that Tan’s failure was part of a concerted plan to
deprive GC of cash and drive it into insolvency;
that Tan wilfully and wrongfully in furtherance with the
conspiracy with UNICAN and JTF issued invoices for the
purported reimbursement for GC of expenses incurred by it on
behalf of UNICAN and JTF thereby imposing losses on GC;
that after Tan was removed as managing director, on or about
June 1991 Tan through public statements spread malicious
rumours that GC would be closed down in 2 months with the
intent to facilitate the conspiracy perpetrated by the defendants;
on or about 19.3.1990 Tan in breach of his fiduciary duties as
managing director had wrongfully removed the MAWAG KS1
automatic slitter machine from GC’s premises to UNICAN’s
premises. UNICAN converted the MAWAG KS1 to its own use
and deprived GC of the use of the machine.
the MAWAG KS1 was damaged by UNICAN and the wrongful
removal and consequent damage to the machine was a further
part of the conspiracy designed to seriously adversely affect
GC’s business;
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(9)
at all material times UNICAN and JTF had a very close
relationship with Tan and had full knowledge of Tan’s actions.
UNICAN and JTF worked together with Tan with the intention to
cause GC to suffer losses and damages; and
(10) by reason of the defendants’ fraudulent and dishonest conduct
and actions towards GC, the defendants are deemed to be
constructive trustees for GC so that the defendants hold all
monies received from the above transactions and all earnings,
profits and gains derived there from on behalf of GC for which
they are liable to account there for.
Tan’s defence
Between 1987 and 1988, GC was having serious financial problems.
GC was unable to service the lease rental instalments and various loan
repayments. On 20.10.1988, MCF issued a Notice of Intention to repossess
threatening to repossess the leased machineries and take legal action
against GC and the guarantors, unless the overdue rentals and penalty
charges were paid. GC’s board of directors agreed on various measures to
save its financial position and to stave off liquidation or receivership. This
included trying to find a potential buyer for GC’s business or its assets
including the leased assets, negotiating to reschedule GC’s facilities and
looking for a potential new investor to inject funds into GC. In this context
Tan approached JTF in mid-1988 to enquire whether they were interested
in purchasing the leased machineries under the sanitary can line. MCF as
the owner of the leased machineries agreed to sell to UNICAN and JTF the
machines at the price equivalent to the amount owed by GC to MCF. Tan
denies that he delayed or failed to collect the RM2 million debts due to GC.
Further, there is no close relationship between Tan and UNICAN and JTF.
UNICAN and JTF’s defence
UNICAN and JTF deny conspiring with Tan so as to cause GC to lose
ownership of its vital assets and business. UNICAN and JTF contend that
they purchased the leased machineries from MCF lawfully.
The facts as disclosed in the evidence
GC is involved in the manufacturing of sanitary tin cans for the food
industry and other cans for industrial use. Tan is a shareholder of GC and
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he was also the managing director of GC from 1984 to 21.6.1991. UNICAN
and JTF are also involved in the tin can industry. In 1987 and 1988 apart
from trade creditors the main financial institution creditors of GC were MCF,
Malaysian Industrial Development Finance Berhad (‘MIDF’), Public Bank
Berhad (‘PBB’) and Arab-Malaysian Credit Finance Berhad (‘AMCFB’)
GC leased the following equipments from MCF under equipment
lease agreements made in 1985 and 1986.
Lease No.
239
Lease Amount
RM22,851.40
252
RM788,534.40
258
RM228,530.40
260
RM493,833.60
263
RM21,712.80
271
RM172,821.60
Equipment
One unit Offset Plate-maker; One unit Plate
Developing Sink; One unit Light Table; One unit
Drawer Cabinet.
One complete unit of Automatic Tinplate Seam
Welding Machine (VAA –K100).
Two units Julius Klinghammer Automatic Die-Flanging
and Bottom Seaming machine.
One unit complete fully Automatic End-line for
diameter 300 & 307 with twin type curling machine.
(‘Auto Sanitary Can Line’)
One unit Kobelec Screw Air Compressor c/with
refrigerated air dryer.
One unit MAWAG Automatic Single Roller Shears
Type ARS. (‘ARS MAWAG Slitter’)
On 27.9.1987 the board of directors of GC discussed various
measures to alleviate GC’s deteriorating financial position. The board
agreed to the disposal of the following assets to raise working capital:(i)
(ii)
(iii)
(iv)
old factory building for a minimum of RM750,000.00;
3 colour printing machine for a minimum of RM550,000.00.;
complete unit of auto sanitary can line for a minimum of
RM800,000.00; and
1 unit auto ARS Mawag Slitter for a minimum of RM100,000.00.
On 23.11.1987 Tan reported to GC’s board of directors that of the
four assets concerned, only the MAWAG ARS Slitter had been sold to JTF
for RM100,000.00. Later on 22.4.1988 GC’s board of directors resolved to
approve the sale of the 3 colour printing machine to Metro Container
Corpn, Manila for USD250,000.00. The board also resolved to approve the
sale of the sanitary and pineapple can line at a minimum price of RM1.5m
to any potential buyer; Tan was authorised to make the necessary
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arrangements for the sale. According to the minutes of GC’s board of
directors’ meeting on 17.9.1988 Tan reported, inter alia, that (i) Singapore
MCP had offered to purchase the welding and side-strap machine for
RM600,000.00, and (ii) a potential buyer offered to buy the entire sanitary
can line for RM1.1m. The board of directors resolved to dispose of a 2
colour machine for RM1.45m. The board also agreed to dispose of the
company’s new building for not less than RM2.8m.
Owing to GC’s failure to pay the overdue rentals and penalty for lease
nos. 239, 252, 258, 260, 263 and 271, MCF issued a notice of intention to
repossess on 20.10.1988. On 15.12.1988 JTF paid RM200,000.00 to
MCF.
On 9.1.1989 MCF issued a lease termination statement which
stated that the amount owing by GC as at 31.1.1989 was RM1,011,579.55.
Subsequently, by a letter dated 13.1.1989 MCF agreed to waive 50% of the
penalty interest amounting to RM110,162.35 owing by GC subject to full
payment of RM901,417.21 by 31.1.1989.
Meanwhile, on 14.1.1989 at GC’s board of directors’ meeting
authorised its company secretary Cheah Foo Seong to approach Mr. Kong
Hang Seng (PW1) for potential investors for the company. Tan reported to
the board reported that (i) JTF had paid RM200,000.00 to MCF, and (ii)
JTF was interested in purchasing the following machines:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
ARS Gauge Slitter;
Air-compressor;
Plate making machine;
Sanitary Can-Line (VAAK 100);
Side Strip;
Conveyer system;
DFS 125;
Seamer & Flanger; and
WMW End-line.
On 28.1.1989 Tan wrote to MCF informing that the payment of
RM200,0000.00 was paid on behalf of UNICAN. MCF applied the
RM200,000.00 towards part-payment of lease nos. 252, 258 and 260. On
1.2.1989 GC issued debit and credit notes relating to the sale of the leased
equipments. At an emergency shareholders’ meeting on 15.2.1989 Tan
reported that a potential investor had agreed to take over 80% control of
the company. The shareholders agreed to invite the potential investor to
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invest in the company and for the potential investor to negotiate with GC’s
trade and financial creditors.
After MCF received RM901,417.21, MCF wrote to GC on 20.1.1989
enclosing copies of statement of lease termination for JTF and UNICAN.
Meanwhile, PW1 who was the potential investor had carried out a
due diligence on GC on 9.2.1989 and 10.2.1989 (exh P7). The due
diligence was carried out by PW1’s own accounting firm HS Kong & Co.
On 30.3.1989 GC, UNICAN and JTF entered into a tenancy agreement to
rent office and factory space in GC’s premises.
Pursuant to a sale and purchase agreement dated 16.4.1989 PW1
purchased 4,493,200 ordinary shares in GC constituting 80% of GC’s
issued share capital for RM1.00. At an extraordinary general meeting of
GC convened on even date the transfer of the shares to PW1 was
approved and PW1 was appointed as a director of GC. Tan reported that
PW1 and himself went to see MIDF and that MIDF was prepared to waive
RM86,965.16 and to restructure the outstanding capital and interest in
arrears into a new loan. According to GC’s Annual Report for year ended
31.12.1989 Tan was re-appointed a Managing Director and PW1 was
appointed a Joint Managing Director on 16.4.1989.
On 19.3.1990 UNICAN removed the MAWAG KS1 machine from
GC’s premises. GC issued a delivery order to document the removal of
MAWAG KS1. Tan was removed as the managing director on 25.6.1991.
On 17.9.1991 GC took back the MAWAG KS1 machine from UNICAN’s
factory.
Findings of the Court
In the light of the issues as pleaded and the facts as disclosed in the
evidence, the Court invited the parties to submit on two principal issues,
viz., (1) Whether Tan is in breach of his fiduciary duties as a managing
director of GC? and (2) Whether Tan, UNICAN and JTF fraudulently
conspired to cause GC to suffer loss and damage through the removal and
or disposal of GC’s vital assets and through various other devices or
transactions?
Page 6 of 18
(1) Whether Tan is in breach of his fiduciary duties as a managing director
of GC?
Director’s fiduciary duties
A company is a legal entity without a life of its own. It must be
managed by at least two directors. A director is an officer of the company.
Accordingly, directors are invested with powers and duties in order that
they may manage the business of the company. In this respect the
directors may exercise all of the powers of the company as provided under
the Memorandum and Articles of Association of the company.
It is settled law that a director stands in a fiduciary position so that all
power entrusted to him must be exercised in a fiduciary capacity. This is
because a director is not merely an agent of the company; he is also a
trustee of the company’s assets. As an agent-cum-trustee a director is in a
position to exercise his power or discretion for the benefit or detriment of
the company. In essence, a director of a company is duty bound to act
honestly and use reasonable diligence in the discharge of his duties (s
132(1) Companies Act 1965). This includes the duty to act in the best
interests of the company. He must act bona fide in the interest of the
company as a whole and not for any collateral purpose. Conversely, it
cannot be gainsaid that he must not put himself in a conflict of interest
position. He must not use his powers and assets of the company for any
improper purpose. He must not obtain any secret profits out of the
corporate assets, information and opportunities. As to what constitutes the
defining characteristics of a director’s fiduciary duties, it is useful to refer to
the Federal Court’s decision in The Board of Trustees of the Sabah
Foundation & Ors v Datuk Syed Kechik bin Syed Mohamad & Anor [2008]
5 MLJ 469 (FC) where Zulkefli FCJ said at p 488:
In law the position of the fiduciary and his obligation have been succinctly
stated by Millet LJ in the English case of Bristol and West Building Society v
Mothew [1998] Ch 1 to be as follows:
A fiduciary is someone who has undertaken to act for or on behalf of another
in a particular matter in circumstances which give rise to a relationship of trust
and confidence. The distinguishing obligation of a fiduciary is the obligation
of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary.
This core liability has several facets. A fiduciary must act in good faith; he
must not make a profit out of the trust; he must not place himself in a position
where his duty and his interest may conflict; he may not act for his own
Page 7 of 18
benefit or the benefit of a third person without the informed consent of his
principal. This is not intended to be an exhaustive list; but it is sufficient to
indicate the nature of fiduciary obligation.
They are the defining
characteristics of the fiduciary.
The nature of the obligation determines the nature of the breach. The various
obligations of a fiduciary merely reflect different aspects of his core duties of
loyalty and fidelity. Breach of fiduciary obligation, therefore, connotes
disloyalty or infidelity. Mere incompetence is not enough. A servant who
loyally does his incompetent best for his master is not unfaithful and is not
guilty of a breach of fiduciary duty.
The test whether the directors have acted in breach of their fiduciary
duties is an objective one, in that, in the absence of separate consideration:
“Whether an honest and intelligent man in the position of a 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.” (see Chan & Koh on Malaysian Company Law, Principles &
Practice Second Edition at page 589 referring to the test laid down by
Pennycuick J in Chaterbridge Corp Ltd v Lloyds Bank Ltd & Anor [1970] Ch
62)
The phrase “act honestly” in s 132(1) has been defined in Marchesi
v Barnes & Keogh [1970] VR 434 as “To ‘act honestly’ refers to acting bona
fide in the interests of the company in the performance of the functions
attaching to the office of director.” In this respect the directors must
exercise their discretion bona fide in what they consider to be in the
interests of the company. It is therefore clear that the interest of the
company is the most important factor that must be considered when
directors exercise their powers. The directors are in breach of their duty to
the company if any other party’s interest is made paramount.
In this case the claim against Tan is based on his capacity as
managing director. What is the distinction between an ordinary director
and a managing director? A managing director is appointed by the board
of directors pursuant to the articles of association. He is usually delegated
with the authority to do all those things relating to the management of the
company that the board is empowered to do. In short a managing director
is delegated with the general power of management and control of the
company. In that capacity the managing director is impliedly authorised to
do all such things falling within the scope of that office. In Hely-Hutchinson
v Brayhead Limited [1967] 1 QB 549 at p 583 (CA), Lord Denning M.R. said
Page 8 of 18
that when the board of directors appoint one of their number to be
managing director they had impliedly authorise him to do all such things as
fall within the usual scope of that office. Lord Denning M.R also said:
Actual authority, express or implied, is binding as between the company and
the agent, and also as between the company and others, whether they are
within the company or outside it.
Ostensible or apparent authority is the authority of an agent as it appears to
others. If often coincides with actual authority. Thus, when the board appoint
one of their number to be managing director, they invest him not only with
implied authority, but also with ostensible authority to do all such things as fall
within the usual scope of that office. Other people who see him acting as
managing director are entitled to assume that he has the usual authority of a
managing director. But sometimes ostensible authority exceeds actual
authority. For instance, when the board appoint the managing director, they
may expressly limit his authority by saying that he is not to order goods worth
more than £500 without the sanction of the board. In that case his actual
authority is subject to the £500 limitation, but his ostensible authority includes
all the usual authority of a managing director. The company is bound by his
ostensible authority in his dealings with those who do not know of the
limitation.
It is also said that a managing director has implied authority to do
whatever is reasonably incidental to the management of the company’s
business in the ordinary way; and that his usual authority is only confined to
the commercial business of the company and does not extend outside the
scope of the business. Further, a managing director’s implied authority is
also limited to acting for the company’s purposes (see Walter Woon on
Company Law (Third Edition) citing George Whitechurch Limited v
Cavanagh [1902] AC 117 at 130 (HL) and Banque Bruxulles Lambert v
Puvaria Packaging Industries (Pte) Limited [1994] 2 SLR 35 (CA)
Singapore).
In this case the burden of proving that Tan have breached his
fiduciary duties lies on the plaintiff (s 102, Evidence Act 1950). The test as
to whether a director had acted in breach of his fiduciary duties is an
objective one in considering whether a director exercised his powers
primarily in the interests of the company (see Kawin Industrial Sdn Bhd (in
Liquidation) v Tay Tiong Soong [2009] 1 MLJ 723). The Court will proceed
to consider the evidence relating to the allegations relating to Tan’s breach
of fiduciary duties. The three pleaded allegations are as follows:
Page 9 of 18
(a) Tan acted in conflict of interest when (a) he failed to consider and
increase the price of the assets in the sale of the assets, and (b) he
wilfully refused or declined to allow any adequate compensation to GC
for Tan’s disposal of the plaintiff’s assets such as the business of the
sanitary can manufacturing, goodwill and the potential of those assets
for its production of goods and services rendered to UNICAN and or
JTF and other companies.
Learned counsel for the plaintiff submitted that Tan was not acting
honestly and in the best interests of the plaintiff as he had disposed off the
leased machineries to UNICAN without the mandate of the board and
UNICAN was controlled by his sons. Tan had misled the board into
believing that JTF was the intended purchaser when it was not. Tan also
failed to alert the board to the significant proportion of the plaintiff’s
business that was generated by the sanitary can line. Consequently, the
considerable business opportunity that the sanitary can line presented was
diverted to UNICAN. Further, Tan had stood by and connived with MCF to
breach the lease agreements which were never terminated and thereafter
proceeded to dispose the leased machineries to UNICAN at a much lower
value. It was also submitted that a resolution was required for the disposal
of the machineries (s 132E, Companies Act 1965; Mui Plaza Sdn Bhd v
Hong Leong Bank Bhd [1998] 6 MLJ 203). The collective value of the
machineries were in excess of RM1.1m and that UNICAN and JTF were
connected by virtue of s 122A of the Companies Act 1965. The directors
and shareholders of UNICAN, Tan Thai Kiat and Tan Boon Kiat are Tan’s
sons. Further, the managing director and shareholder of JTF Goh Mia
Kwong is the father of Edward Goh Swee Wang (DW3) who was a
shareholder and director of UNICAN at the material time. DW3 said that
JTF’s name was used for the purchase of the machineries. The leased
machineries are assets of the plaintiff as the equipment lease agreements
were finance leases rather than operating leases.
In the first instance, it should be noted that according to the lease
agreements the ownership of the leased machineries remained in MCF
(see clause 18). Therefore, at all material times MCF was the owner of the
leased machineries. The plaintiff’s averment that the lease agreements
were finance leases rather than operating leases is unsubstantiated and is
contrary to the plain words of the lease agreements. In the premises the
plaintiff’s assertion that the leased machineries are the assets of the
plaintiff is misconceived in law and in fact.
Page 10 of 18
Be that as it may, did Tan breach his fiduciary duties in relation to the
disposal of the leased machineries? According to the GC’s audited
accounts GC was incurring losses in 1986, 1987 and 1988. GC was under
serious financial strain and facing acute cash flow problems. GC was
having difficulties meeting its commitments to its trade creditor Perstima, its
sole tin plate supplier and to MCF, MIDF, PBB and AMFSB. In fact, on
27.9.1987, in order to alleviate GC’s deteriorating financial position GC’s
board of directors decided to dispose of the 300/307 Sanitary Can Line for
a minimum price of RM800,000.00. However, GC was unable to procure a
buyer who was willing to purchase at the minimum price of RM800,000.00.
By 22.4.1988 as GC’s situation had become so acute the board resolved to
dispose off the sanitary can line and the pineapple can line for RM1.5m to
any potential buyer. After GC defaulted in its repayments of the monthly
rental instalments under the lease agreements MCF issued the Notice of
Intention to Repossess on 20.10.1988 threatening to repossess the leased
machineries and to take legal action against GC and the guarantors.
MCF disposed off the leased machineries to UNICAN and or JTF for
the aggregate the sum of RM901,417.21. The said sum was accepted by
MCF in full settlement of all outstanding sums due and owing by GC after
allowing for RM110,162.35 being 50% of the waived penalty charges. The
plaintiff did not call any witness from MCF to adduce evidence as to
valuation of the leased machineries and the manner in which the disposal
came about. As such there is no evidence before the Court to indicate
whether the disposal price of the leased machineries were not fair or
reasonable in the circumstances. There is no doubt that as the managing
director Tan placed a role in the negotiations between MCF, UNICAN and
JTF. Tan approached JTF asking if JTF was interested in buying the
leased machineries. After Tan referred JTF to MCF, JTF and MCF
negotiated directly. The ultimate disposal of the 300/307 sanitary can line
to UNICAN was an internal arrangement between JTF and UNICAN to
which MCF acquiesced. Tan said that he had kept the board fully informed
of progress on the disposal of the leased machineries. Tan also said that
he verbally informed the board about MCF’s agreement to sell to UNICAN
and JTF. Ultimately, the transactions for the disposal of the leased
machineries were made between MCF and UNICAN and JTF.
On the totality of the evidence, the Court is not satisfied that Tan
failed to exercise his powers primarily in the interests of the company. At
the material time GC was under severe financial straits and Tan in his
Page 11 of 18
capacity as managing director was evidently trying to salvage GC to the
best of his ability. This fact is borne out in the minutes of the board during
the period from 1987 to 1989; which also shows that Tan had the support
of the board in his endeavours. In hindsight it may be opined that the
disposal of the leased machineries could have been effected on better
terms. However, there is nothing in the evidence to justify a finding that
Tan was guilty of breaching his fiduciary duties as managing director. By
reason of the foregoing, the first allegation is not proven.
(b)
Tan delayed and failed to collect debts amounting to RM2 million.
Tan’s failure was part of a concerted plan to deprive GC of cash and
drive it into insolvency
There was no evidence introduced by GC to establish this allegation.
In the circumstances, GC has failed to discharge (i) the original burden of
proof of establishing a case and (ii) the burden of introducing evidence.
Consequently, GC’s allegation is unproven.
(c)
On or about 19.3.1990 Tan in breach of his fiduciary duties as
managing director had wrongfully removed the MAWAG KS1
automatic slitter machine from GC’s premises to UNICAN’s premises.
Consequently, UNICAN converted the MAWAG KS1 to its own use
and deprived GC of the use of the machine.
PW1 testified that he and Siew Mei Kuen (PW2) discovered that the
MAWAG KS1 machine was in GC’s factory premises. Subsequently, they
learnt that the MAWAG KS1 machine was removed on 19.3.1990 and
taken to UNICAN’s premises on Tan’s instructions. Apparently, a delivery
note was issued to document the delivery of the MAWAG KS1 to UNICAN.
According to PW1, the delivery note in question was written up to look like
an invoice as it included the price, which is not usually the case. However,
no invoice was ever issued. Therefore, PW1 asserted that it was a false
transaction masquerading as a sale transaction. Further, the removal of
the MAWAG KS1 machine was detrimental to GC because it became
impractical, ineffective and inefficient in the manufacturing of sanitary cans.
GC made a police report on 15.9.1991 on this matter. Subsequently GC
obtained a court and the MAWAG KS1 machine was returned to GC.
However, the MAWAG KS1 machine had become inoperable.
Page 12 of 18
The evidence shows that pursuant to a tenancy agreement between
GC and UNICAN dated 30.2.1989 UNICAN rented factory and office space
on the ground floor of GC’s factory from January 1989 until March 1990.
The rental income received under this agreement was recorded on GC’s
audited accounts for 1989. Meanwhile, Tan, UNICAN and JTF entered into
an informal swap agreement whereby GC was allowed to continue to use
the MAWAG ARS machine in consideration of GC allowing UNICAN to use
GC’s MAWAG KS1 machine. It was also agreed that if either party
required their machine back, then each party will entitled to take back their
machines.
Tan’s evidence on this issue is plausible because
notwithstanding PW1’s bare denials, PW1 was in fact aware of this
arrangement; this is reinforced by the fact that PW2 agreed under crossexamination that UNICAN was operating in GC’s premises. Thus, when
UNICAN moved out from GC’s premises, UNICAN removed the MAWAG
KS1 machine pursuant to the swap agreement. In the circumstances, the
removal of the MAWAG KS1 machine was not something improper or
irregular. It was pursuant to the swap agreement. The removal was
documented by the delivery note which was acknowledged by UNICAN. It
is also pertinent to observe that GC continued to use the MAWAG ARS and
only returned it to JTF after judgment was obtained against GC by United
Orient Leasing in 2005.
On the totality of the evidence adduced, the Court is not satisfied that
the whole transaction was a false transaction masquerading as a sale
transaction. The evidence clearly shows that the MAWAG KS1 machine
was removed by UNICAN pursuant to the swap agreement. GC’s assertion
that UNICAN converted the MAWAG KS1 machine to its own use is also
unsubstantiated.
(2) Whether Tan, UNICAN and JTF fraudulently conspired to cause GC to
suffer loss and damage through the removal and or disposal of GC’s
vital assets and through various other devices or transactions?
Tort of conspiracy
In law the tort of conspiracy may take two forms: (1) conspiracy by
unlawful means; and (2) conspiracy by lawful means. In Quah Kay Tee v
Ong and Co Pte Ltd [1996] 3 SLR(R) 637 the Singapore Court of Appeal
elucidated at p 653 that:
Page 13 of 18
The tort of conspiracy comprises two types: conspiracy by unlawful means
and conspiracy by lawful means. A conspiracy by unlawful means is
constituted when two or more persons combine to commit an unlawful act
with the intention of injuring or damaging the plaintiff, and the act is carried
out and the intention achieved. In a conspiracy by lawful means, there need
not be an unlawful act committed by the conspirators. But there is an
additional requirement of proving a “predominant purpose” by all the
conspirators to cause injury or damage to the plaintiff, and the act is carried
out and the purpose achieved.
In short, the key ingredients of the tort of conspiracy are:
(i)
(ii)
(ii)
(iv)
an agreement between two or more persons;
to commit an act with the intention to injure or cause damage to
the plaintiff;
the act is executed and the plaintiff is injured or suffered
damage; and
if the act executed is not an unlawful act, then it must also be
shown that the intention to cause injury or damage to the
plaintiff was the predominant or main purpose.
In Quah Kay Tee, supra it was emphasized that a predominant
purpose is not the same as intention; that, where lawful means are used,
the purpose of the combination must be “spiteful and malicious” (Sorrell v
Smith [1925] AC 700 at 748) or actuated by “disinterested malevolence”
(Nann v Raimist [1931] 255 NY 307, per Cardozo CJ at 319; McKernan v
Fraser [1931] 46 CLR 343 at 398). The conspirators’ actions must therefore
serve none of their own commercial purpose; their predominant purpose
must be to do harm to the plaintiff.
Fraud – burden and standard of proof in civil proceedings
The existence of fraud is a question of fact. It is dependent upon the
circumstances of each particular case as stated by the Federal Court in
P.J.T.V. Denson (M) Sdn. Bhd. & Ors v Roxy (Malaysia) Sdn. Bhd. [1980] 2
MLJ 136. Raja Azlan Shah CJ (Malaya) (as HRH then was) said at page
138:
Whether fraud exists is a question of fact, to be decided upon the
circumstances of each particular case. Decided cases are only illustrative of
fraud. Fraud must mean “actual fraud, i.e. dishonesty of some sort” for which
the registered proprietor is a party or privy. “Fraud is the same in all courts,
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but such expressions as ‘constructive fraud’ are ... inaccurate;” but ‘“fraud’ ...
implies a wilful act, on the part of one, whereby another is sought to be
deprived, by unjustifiable means, of which he is entitled.” (per Romilly M.R. in
Green v. Nixon). Thus in Waimiha Sawmilling Co. Ltd v Waione Timber Co.
Ltd. it was said that “if the designed object of a transfer be to cheat a man of a
known existing right, that is fraudulent ...”
In this case the onus is upon GC to establish the alleged fraud (ss
102 & 103 of the Evidence Act 1950; International Times & Ors v Leong Ho
Yuen [1980] 2 MLJ 86 (FC)). The standard of proof is that of proof beyond
reasonable doubt (see Saminathan v Pappa [1981] 1 MLJ 121; M
Ratnavale v S Lourdenadin [1988] 2 MLJ 371; and Goh Hooi Yin v Lim
Teong Ghee [1990] 3 MLJ 23). Proof beyond reasonable doubt does not,
however, mean proof beyond the shadow of doubt. The degree of proof
must carry a high degree of probability so that on the evidence adduced the
court believes its existence or a prudent man considers its existence
probable in the circumstances of the particular case. If such proof extends
only to a possibility but not in the least a probability, then it falls short of
proving beyond reasonable doubt (see Saminathan v Pappa [1981] 1 MLJ
121; M Ratnavale v S Lourdenadin [1988] 2 MLJ 371; and Goh Hooi Yin v
Lim Teong Ghee [1990] 3 MLJ 23; Asean Security Paper Mills Sdn Bhd v
CGU Insurance Bhd [2007] 2 MLJ 301 (FC); Yong Tim v Hoo Kok Chong &
Anor [2005] 3 CLJ 229 (FC)). Learned counsel for GC submitted that the
standard of proof of proving fraud is only that of on balance of probabilities.
In support of his proposition, he cited Re H (minors) [1996] AC 563. Re H,
supra is, however, distinguishable on the facts and law. Re H, supra
concerned an application by the local authority for care orders of 3 young
children based on the alleged sexual abuse of the 4th eldest girl. The
House of Lords ruled that the burden of proof lay on the applicant and that
the standard of proof was that of the balance of probabilities.
As it is virtually impossible to prove fraud or conspiracy by direct
evidence, the Court will examine the evidence surrounding the
circumstances of the case to determine if the allegation has been made
out.
Learned counsel for GC submitted that the leased assets were
subject to an existing debenture with MIDF. JTF purchased the machines
but Tan had negotiated on behalf of JTF. Further, even though all the
defendants were aware of the debenture, they proceeded with the
purchase of the leased machineries with JTF providing the cover. This
illegal act is also corroborated by a letter dated 5.12.1988 (exh P13) from
MCF’s senior manager business development to MCF’s chief executive.
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Edward Goh (DW3) testified that UNICAN paid RM463,000.00 for the
machines and that JTF’s name was merely used for the transactions. Goh
Mia Kwong (DW8) testified that JTF never paid for the purchase of the
machines and that the machines were delivered to UNICAN. Therefore,
although the debit note was issued to JTF, the machineries were moved to
UNICAN. It was also contended that UNICAN and JTF did not produce any
documentary evidence to show that their board had authorised the
purchase of the machineries. Therefore, there was an agreement between
Tan and the managing directors of UNICAN and JTF to acquire the
machineries unlawfully. The defendants knew or ought to have known that
the machineries were in operation at all material times and that it was
generating substantial revenue and profits for GC. Further, UNICAN was
incorporated for the purpose of diverting the machineries and business
from GC.
Was there any ulterior motive on Tan’s part in approaching JTFB for
the sale of the leased machineries? Tan’s explanation is that he sourced
potential buyers from the same industry as it would increase the chances of
getting a better price for the leased machines. The leased machineries are
specialised machineries which would be useful and valuable to companies
in a similar industry. It would not be of similar value to potential buyers in
different industries. In any event, after Tan introduced JTF to MCF, Tan
was no longer in the picture when the deal was concluded between MCF
and JTF. Further, as the leased machineries belonged to MCF, neither GC
nor Tan were in a position to dictate to MCF on the disposal. At any rate,
how UNICAN ultimately procured the leased machineries was a private
arrangement between JTF, UNICAN and MCF. The disposal of the leased
machineries in 1989 eventually benefited GC. After incurring losses for
three straight years from 1985 to 1988, GC recorded profits from 1989 to
1991.
GC’s contention that the leased machineries were subject to the
debenture in favour of MIDF is misconceived. As the property in leased
machineries remained with MCF, the leased machineries did not come
under the debenture. As such, the consent of MIDF was not required for
the disposal, though GC contended that MIDF should be notified of the
disposals.
The fact that there was no notification by GC did not
necessarily imply that the disposal was in any manner unlawful or
improper. On the contrary, it was incumbent upon GC to notify MIDF, of
which there is no evidence to show that GC did.
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Learned counsel for Tan submitted that PW1 was well aware of the
disposal of the leased machineries when he took over controlling interest in
GC on 16.4.1989. PW1 is a chartered accountant with wide experience in
investment and corporate finance. Through his own accounting firm H S
Kong & Co, PW1 conducted a special audit and investigation of GC prior to
acquiring the shares. PW1 had full access to GC’s books, records,
accounts, minutes and other documents. PW1’s financial analysis of GC
dated 15.3.1989 did not give any sales estimates for the sanitary can line
from 1989 onwards; further it only included the growth potential for the
general can line and the processing of can components. PW1 also said
that he only became aware of the sale of the 300/307 sanitary can line
somewhere after April 1990; this statement is contradicted by PW1’s own
notes of a meeting on 9.2.1989. PW1’s testimony is also compromised by
his police report which said that he was informed of the disposal of the
machineries almost immediately after he signed the sale and purchase
agreement. In fact, the audited accounts for 1989 clearly showed that
there were no more leasing creditors. Since the disposal of the leased
machineries were fully recorded in GC’s books and records and PW1
conducted a due diligence on GC, PW1’s assertion that he was kept in the
dark is implausible.
On the totality of the evidence, the Court is not satisfied that the three
key ingredients have been proven. There is no evidence to justify a finding
that there was a agreement between Tan, UNICAN and JTF to commit an
act with the intention to injure or cause damage to GC. Further, the
allegation that GC suffered damage due to the actions is contradicted by
the fact that GC recovered after 1989 and recorded profits for three
consecutive years. In law mere suspicion or perceived irregularity or
impropriety is in itself insufficient to justify an adverse finding. The Court
must decide on the facts as disclosed in the evidence. In this case GC
failed to satisfy the burden of introducing evidence to establish its
allegations.
For the foregoing reasons GC’s claim is dismissed with costs to be
taxed unless otherwise agreed.
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(VERNON ONG)
JUDGE
HIGH COURT MALAYA
JOHOR BAHRU
DATED:
29TH OCTOBER 2010
COUNSEL
Domnic Selvam Gnanapragasam and Arokiasamy Gnanapragasam - Tetuan Rajandran
Domnic & Co., No. 50, Medan Istana, Bandar Ipoh Raya, 30000 Ipoh, Perak - for Plaintiff.
Eileen Othman, Ooi Ai Yen dan Vince Chong (pdk) - Tetuan Benjamin Dawson, B-12-4, Level
12, Unit 4, Megan Avenue II, 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur – for First
Defendant.
Tamil Chelevan and Aaron Tam (pdk) - Tetuan C.S. Tam & Co., Room 502, 5th Floor, Wisma
Daiman, 64, Jalan Sulam, Taman Sentosa, 80150 Johor Bahru – for Second and Third
Defendant.
VO-j-22-163-1997/mj
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