Chi Chao-Ton Tony 2. Wu Wen-Yen Wennie 3. Jeffrey Chien Chuen Chi v Repute Ventures Sdn Bhd (J-02(IM)-453-03/2018)

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Civil Appeal No. J-02(IM)-453-03/2018 1 IN THE COURT OF APPEAL, MALAYSIA AT PUTRAJAYA (APPELLATE JURISDICTION) CIVIL APPEAL NO. J-02(IM)-453-03/2018

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(ii) Spandeck Johor was to carry on the business of designing, manufacturing, marketing and installation of prefabricated construction products in Malaysia;

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(iii) Spandeck Engineering undertook to impart technical knowledge while the respondent undertook to procure a tenancy agreement from Panoramic Industrial Development Sdn Bhd (“Panoramic Industrial”) and to assist in obtaining all permits and licence necessary to carry on the pre-cast business. [3] The appellants were the directors appointed to represent Spandeck Engineering while the directors representing the respondent were Gooi Seong Chneh (“Gooi”), Lim Thai San with their alternates being Soh Chong Boon and Puen Tak Hong. [4] As per the terms of the joint venture agreement, Spandeck Johor entered into a tenancy agreement with Panoramic Industrial wherein the demised premises having the postal address of No. 35, Jalan Johar 1, Taman Perindustrian, Desa Cemerlang, Ulu Tiram, Johor was used as Spandeck Johor’s pre site yard (“the said land”). [5] Panoramic Industrial at all material times was a related company of the respondent with Gooi’s family members being the shareholder and director of these companies and the company which owns the said land. Civil Appeal No. J-02(IM)-453-03/2018 4 [6] On 10.8.1998, Spandeck Johor resolved to purchase the following machineries: Description Purchase Price

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(ii) Additional Nozzle Module (item 7) purchased to be kept in Singapore;

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(iii) Tenancy agreement for the pre site yard to be finalized;

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(iv) The hoist of the cranes has yet to be installed which had caused delay in obtaining authority from the Department of Machinery. Civil Appeal No. J-02(IM)-453-03/2018 5 [9] In 2001, a dispute arose between Spandeck Johor and Panoramic Industrial in respect of the tenancy of the land. [10] In accordance with the 8th Management Meeting and for safe keeping, the first appellant on behalf of Spandeck Johor authorized removal of 4 items for storage. The removed items were Saw Cut Machine, Nozzle Module, Top Machine and Stressing Jack. The respondent objected to the removal of these machineries. [11] In 2002, vide a Civil Suit No. 22-534-2002, Panoramic Industrial sued Spandeck Johor on the tenancy dispute (“the tenancy suit”). [12] On 25.10.2002, Spandeck Johor passed a board of directors resolution to sell the machineries but the sale was opposed by the respondents. Thus, other than the four machineries that had been removed, the balance remained on the land. [13] Whilst the tenancy suit was still on-going, on the application of the respondent, Spandeck Johor was wound up on 8.1.2008 on just and equitable grounds as it had not obtained a licence to carry on the business as envisaged under the joint venture agreement. [14] In 2010, the respondent sued the appellants and Spandeck Johor. The claim against the appellants as directors of Spandeck Johor was for compensation in the sum of RM1,795,531.45. As alluded to earlier, the claim was made pursuant to section 305(1) of the Companies Act. The basis for the claim was that the appellants did not return the machineries to the liquidator after Spandeck Johor was wound up. Civil Appeal No. J-02(IM)-453-03/2018 6 [15] On 17.6.2011, the High Court ordered that the appellants be personally liable for all the machineries and for the appellants to compensate Spandeck Johor the sum of RM1,795,531.45 being the purchase price of the machineries in 1998 (“the first decision”). Against the first decision of the High Court, the appellants appealed to this Court. [16] Pending the decision of this Court on the appeal, on 1.2.2012, the first appellant filed a proof of debt with the liquidator stating that he could not provide the value of the machineries as at the winding up order, as the machineries had depreciated. [17] On 9.12.2013, this Court allowed the appellants’ appeal against the first decision. The first decision of the High Court was set aside and while this Court found that section 305(1) of the Companies Act was applicable, the matter was remitted to the High Court for the High Court to take into account the depreciation of the machineries based on “accepted accounting principles”. The Assessment of Damages [18] On 5.12.2016, pursuant to the order of this Court dated 9.12.2013, the respondent filed the Notis Janji Temu Pentaksiran for assessment of the machineries from 10.8.1998 (the date the machineries were purchased) until 8.1.2008 (the date of the winding up of Spandeck Johor). [19] On the notice of assessment dated 5.12.2016, the learned JC found: Civil Appeal No. J-02(IM)-453-03/2018 7

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(ii) that the only issue to be determined was on the depreciation value of the machineries based on “accepted standard accounting principles”, to assess the amount of compensation payable by the appellants. [20] For purposes of assessment of damages, the appellants did not tender any expert report. For the respondent, an Auditor’s Report prepared by Tan Kow Tee (PW1) was tendered wherein it was stated that there was no depreciation of the machineries as the machineries were never used in the production of goods as intended. [21] Relying wholly on the said report, the learned JC awarded the sum of RM1,795,531.45 (the exact sum ordered in the first decision) against the appellants. It was against this order of the learned JC that the appellants lodged the appeal before us. The Appeal [22] The appellants raised the following grounds of appeal:

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(ii) that the learned JC erred in relying on the respondent’s auditor’s report (“the quantum issue”). Civil Appeal No. J-02(IM)-453-03/2018 8 [23] On the issue of liability, learned counsel for the appellants argued that the order of this Court dated 9.12.2013 merely states that section 305(1) of the Companies Act applies; that the order does not expressly provide that all the appellants are liable for all the machineries claimed by the respondent and that this Court did not make an order that the appellants had unlawfully retained or removed the machines. [24] On the quantum issue, learned counsel for the appellants submitted that the learned judge erred in wholly relying on the auditor’s report. Learned counsel contended that the auditor’s report should not have been relied upon by the learned JC as PW1 had failed to exhibit Malaysian Accounting Standard Board (MASB) 14 and MASB 15, or the whole MASB which formed the basis of the auditor’s report/opinion. Learned counsel thus submitted that an adverse inference under section 114(g) of the Evidence Act 1950 ought to be invoked against the respondent. [25] In opposing the appeal, the respondent argued that this Court, by the order dated 9.12.2013 had decided on the issue of liability of the appellants under section 305(1) of the Companies Act. There being no application for leave to appeal to the Federal Court against the said order, the decision of this Court on liability is final. [26] On quantum, learned counsel for the respondent submitted that PW1, an accountant and auditor with an experience of 30 years had testified that there was no depreciation in the value of the machineries. The learned JC was therefore correct to order compensation for the value of the machineries Civil Appeal No. J-02(IM)-453-03/2018 9 at the date of the winding up order in the sum equal to the purchase price in 1998. Our Decision [27] On the issue of liability, for clarity we reproduce below the order of this Court dated 9.12.2013: “... MAKA ADALAH DENGAN INI DIPERINTAHKAN bahawa Rayuan ini dibenarkan sebahagian dimana: a) S305(1) Akta Syarikat 1965 adalah digunapakai dan kes dihantar balik ke Mahkamah Tinggi untuk ditaksirkan di mana kuantum nilai (“depreciation”) barang-barang diambil kira berdasarkan “accepted standard accounting principles” dan AKHIRNYA DIPERINTAHKAN bahawa tiada perintah untuk kos di Mahkamah Rayuan.”. [28] Although the order made no mention of the liability of the appellants to compensate for all the machineries, it is clear to us that the appeal of the appellants against the first decision was only allowed in part, i.e. only in relation to the quantum. This effectively means that the first decision of the High Court in respect of the appellants’ liability to pay pursuant to section 305(1) of the Companies Act was upheld by this Court and this was borne out by the words “S305(1) Akta Syarikat 1965 adalah digunapakai”. We further found that the order, from the words “…kes dihantar balik ke Mahkamah Tinggi untuk ditaksirkan …” is clear as to its intent i.e. that the matter be remitted to the High Court only for purposes of determining the quantum based on the “accepted standard accounting principles”. Obviously, there could not have Civil Appeal No. J-02(IM)-453-03/2018 10 been an order for quantum to be assessed if liability has yet to be determined or established. [29] Premised on the above, we were not able to agree with the appellants on the issue of liability and we found no error of law or fact in the findings of the learned JC when he stated that: “[41] … pada pandangan saya, Mahkamah Rayuan telah menghantar kes ini semula ke Mahkamah Tinggi, bagi tujuan terhad untuk mentaksirkan jumlah pampasan yang perlu dibayar oleh Defendan Pertama, Kedua dan Ketiga kepada syarikat Defendan Keempat dengan mengambilkira persoalan sama ada terdapat “susut nilai” (depreciation) atas peralatan-peralatan dan mesin-mesin syarikat Defendan Keempat dan sekiranya ada berapakah peratusan “susut nilai” tersebut yang perlu diambilkira, berdasarkan prinsip perakaunan yang diterimapakai. [42] Oleh yang demikian, .… saya berpendapat Hakim Mahkamah Tinggi telahpun membuat dapatan dan keputusan mengenai isu liabiliti dan dapatan ini telah disahkan oleh Mahkamah Rayuan. Oleh itu, bukanlah tugas saya dalam perbicaraan di dalam Notis Janji Temu Pentaksiran ini untuk mengganggu atau mengkaji semula dapatan fakta mengenai liabiliti yang telah dibuat oleh Mahkamah Tinggi dan yang telah disahkan oleh Mahkamah Rayuan.”. [30] We therefore found the first ground of appeal bereft of any merit. [31] On quantum, having considered the report tendered by PW1 and the submissions advanced by both parties, we agreed with the appellants that the learned JC erred in wholly relying on the said report. Civil Appeal No. J-02(IM)-453-03/2018 11 [32] In the proceedings for assessment of damages, PW1, whose duty was to establish whether there was any depreciation of the machineries and the value of the depreciation, had affirmed an affidavit on his conclusions. PW1 had also testified orally and he was cross-examined by learned counsel for the appellants. [33] In his report, affidavit and witness statement, PW1 unequivocally stated that based on accepted standard accounting principles, there was no depreciation of the machineries as the machineries were never utilized for production at all by the company. [34] In so concluding, PW1 had relied on MASB 14 and MASB 15. We noted that in paragraphs 1-21 of his report, PW1 was merely restating the background facts and the earlier decision of the court in relation to the dispute between the parties, as per the information given to him by the respondent. The pertinent findings of PW1 are found in paragraphs 22 and 23 wherein he stated the following: “22. Accounting Standard By Malaysian Accounting Standard Board (MASB) In Malaysia, the Malaysian Accounting Standard Board (MASB) is the authority that issues all accounting standards pertaining to the operation of accounts. Depreciation accounting is covered by MASB 14 and MASB 15, issued by MASB. The relevant portion of MASB 14 that is applicable to the case is reproduced herewith as follows: Civil Appeal No. J-02(IM)-453-03/2018 12 “Depreciable assets are defined as assets which:

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(1) The One Additional Nozzle Module costing RM349,195-05 (item 7) has never been delivered to the Company and it is our opinion that the question of depreciation does not arise.

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(2) The other machineries (items (1) to (6) totaling RM1,446,336-40 have not been utilized in the production of goods as intended and would not be considered as depreciable assets under the definition of MASB 14. It is our opinion that they should not be depreciated.”. [36] As submitted by the appellants, PW1 did not exhibit MASB 14 or MASB 15 which he relied on in his report. The full text of MASB 14 and MASB 15 were however produced by the appellants and we found that PW1 had only considered a small part of MASB 14. In particular, PW1 had only considered paragraph 4(a), (b) and (c) on the definition of depreciable assets. [37] Paragraph 4 of MASB 14 which provides for definitions reads: “4. The following terms are used in this Standard with the meanings specified: …. Civil Appeal No. J-02(IM)-453-03/2018 13 Depreciation is the allocation of the depreciable amount of an asset over its estimated useful life. Depreciation for the accounting period is charged to net profit or loss for the period either directly or indirectly. Depreciable assets are assets which: