1. ) Dato' Idrus Bin Zainol v 1. ) Intergrated Formation Sdn Bhd (dalam Penerimaan) (BA-22NCC-97-08/2021)

DATO’ IDRUS BIN ZAINOL (No. K/P: 440622-02-5077)

LIM BENG TECK (NO. K/P: 621102-10-7645) …PLAINTIFF-PLAINTIFF

INTEGRATED FORMATION SDN. BHD. (Dalam Penerimaan) (No. Syarikat: 200401014782/653285-X)

CHAN SIEW MEI (Sebagai Penerima Dan Pengurus Defendan Pertama) (No. K/P: 660710-08-5306)

BERKAT OIL PALM SDN. BHD. (No. Syarikat: 201901004829/1314156-A) … DEFENDAN-DEFENDAN GROUNDS OF JUDGEMENT

In this case the 1st and 2nd Defendants filed an application to strike out the Plaintiffs’ Writ and Amended Statement of Case dated 02.09.2021 under Order 18 rule 19(1) (a), (b) or (d) of the Rules of Court 2012 and under the inherent jurisdiction of the Court in enclosure 19 and the 3rd Defendant filed an application in enclosure 29 to strike out the Plaintiffs’ Writ and Amended Statement of Claim under Order 18 rule 19(a), (b), (c) and/or (d) and/or Order 92 rule 4 of the Rules of Court 2012. Both the applications are now collectively referred to as “the Applications”.

The Plaintiffs are the directors and shareholders of the 1st Defendant which is under receivership.

The 1st Defendant was granted banking facilities by Bank Pertanian Malaysia Berhad (Agrobank) in 2014 which was secured inter alia by debentures and charges created in favour of Agrobank as follows: a. debentures both dated 30.06.2014, creating a fixed and floating charge over all the assets of the 1st Defendant; b. charges over the 1st Defendant’s land held under Title No. PN 293511 (formerly known as HSD 6480) Lot No. 7880, Mukim of Asam Kumbang, District of Larut & Matang, State of Perak (the said Land), which were registered vide Charge Presentation No.30195/2014 and 30196/2014 on 07.07.2014.

As the 1st Defendant defaulted in the repayment of the banking facilities for the amount of RM18,000,000.00, on 09.10.2018, Agrobank appointed two Receivers and Managers (R & M) and subsequently, the 2nd Defendant was the sole R & M of the 1st Defendant till to date.

Thereafter, the 1st Defendant acting by and through the R & M (the 2nd Defendant) conducted three (3) tender exercises to sell the said Land and the plant and machinery thereon (the Land and Assets). Each of the tender exercises was advertised in at least four (4) or more newspapers, which included Berita Harian, The Edge Malaysia, The Star, Sin Chew Daily and The Borneo Post.

The first two tender exercises were not successful. The third tender exercise was carried out vide the Memorandum of Sale dated 15.07.2019. Pursuant to that, on 13.08.2019, one 5V Trading & Services (Tenderer) made an offer to purchase the said Land and Assets at a total price of RM13,000,000.00. The Tenderer’s offer was accepted by the R & M. Vide letter dated 19.12.2019, the Tenderer nominated the 3rd Defendant, Berkat Oil Palm Sdn. Bhd. to complete the purchase of the said Land and Assets and the nomination was accepted with an undertaking that the Tenderer shall complete the sale if the 3rd Defendant fails to do so.

Subsequently, on 13.01.2020, the 1st Defendant acting by and through the R & M entered into a Sale and Purchase Agreement (SPA) and Assets Sale Agreement (ASA) both dated 13.10.2020 with the 3rd Defendant for the sale of the said Land and Assets at a total price of RM13,000,000.00. Thereafter, the 3rd Defendant had paid the full purchase price and all transfer documents were duly executed, including the Discharge of Charge which had been executed by Agrobank. All documents were in order save for the registration of transfer of the said Land.

The 3rd Defendant was unable to present the transfer documents for registration at the land office due to the lodgement of a 3rd party caveat on the said Land registered under Presentation No. 3011/2021. The R & M’s solicitors were informed by the 3rd Defendant’s solicitors vide letter dated 25.3.2021 that if the transfer documents are not submitted to the land office before 02.04.2021, there would be a penalty of RM22,320.00 imposed by the land office, which the 3rd Defendant shall not be responsible because the said Land and Assets are supposed to be sold free from encumbrances.

The said private caveat was lodged by the 1st Plaintiff on 12.03.2021 in his capacity as the shareholder of the 1st Defendant. The 1st Plaintiff had affirmed in his statutory declaration filed in support of the lodgement of the private caveat, that the said private caveat was entered to protect the said Land from 3rd party claim pending a restructuring of the 1st Defendant.

Consequently, vide letter dated 26.03.2021 the R & M’s solicitors wrote to the 1st Plaintiff’s solicitors, Messrs Loi & Co, demanding for the 1st Plaintiff to remove the private caveat by 10 a.m. on 29.03.2021, failing which the R & M would be compelled to file an action in court to remove the private caveat and seek damages for all loss resulting from the wrongful entry of the private caveat. However, despite the express notice to the 1st Plaintiff, that if the transfer documents were not presented to the land office before 02.04.2021, there would be penalty charges incurred and the R & M further risks a termination of the SPA and ASA in which event, there would be substantial damages caused to the 1st Defendant, the 1st Plaintiff did not comply with the said demand.

As a result, on 29.03.2021, R & M filed suit No. BA-24NCvC-361- 03/2021(the R & M’s OS) in Shah Alam High Court against the 1st Plaintiff to remove the private caveat on the grounds that the 1st Plaintiff had no caveatable interest in the said Land. The 1st Plaintiff then filed an application for discovery of documents against the R & M in the R & M’s OS, which was dismissed by the court with costs of RM3,000.00. The R & M’s OS was fixed for hearing on 25.08.2021. On 24.08.2021 the 1st Plaintiff filed this suit herein. Subsequently, the 1st Plaintiff filed an application for a stay of the hearing of the R & M’s OS pending the disposal of the suit herein. On the said hearing date, the court rejected the stay application and proceeded with the hearing of the R & M’s OS. The learned High Court Judge allowed the R & M’s OS with costs of RM8,000.00 and ordered inter alia that the private caveat shall be forthwith removed and that the 1st Plaintiff shall pay the 1st Defendant damages in the sum of RM22,320.00 being the penalty charges for the late presentation of transfer documents calculated as at 02.04.2021. The 1st Plaintiff did not file an appeal against the said High Court decision.

The Plaintiffs filed this suit against the 1st and 2nd Defendants and subsequently, added the 3rd Defendant as a party. The Plaintiffs’ claims are inter alia, for a declaration that: - “a. the 2nd Defendant has breached her duties as the R & M and has committed fraudulent concealment due to the failure to invite the plaintiffs to take part in the tender exercises for the sale of the said land; b. the 2nd Defendant has failed to carry out the tender exercises in good faith and maintaining fair play; c. the 2nd Defendant has failed to secure the highest and reasonable sale price for the said land; d. the 2nd Defendant has committed equitable fraud due to the failure set out in (b) and (c) above, which led to the Plaintiffs’ losses; e. the SPA and ASA as well as any other agreements/sale of the said Land entered into by the 1st Defendant pursuant to the tender exercises are void and invalid.”

On 27.08.2021, the Plaintiffs obtained an ex parte order (enclosure 15) for an injunction to stop the sale and transfer of the said Land. The inter parte hearing is still pending and the Court had directed for the Application in enclosures 19 and 29 to be heard and disposed of first.

The principles of law on striking out of pleadings are trite and well settled. The Court’s power to strike out a claim should be exercised sparingly. The test for striking out is laid down in the case of Bandar Builder Sdn. Bhd. v United Malayan Banking Corporation Bhd. [1993] 3 MLJ 36, the Supreme Court held that this summary procedure can only be exercised when it can be clearly seen that a claim or answer is on the face of it is plain and obviously unsustainable. The Court must be satisfied that there is no reasonable cause of action or that the claims are frivolous or vexatious or that the defences raised are not arguable. This principle was re-stated in many cases (see: Seruan Gemilang Makmur Sdn Bhd v Kerajaan Negeri Pahang Darul Makmur & Anor [2016] 3 CLJ 1; Sivakumar a/l Varatharaju Naidu v Ganesan a/l Retanam [2011] 6 MLJ 70, CA).

The 1st and 2nd Defendants’ counsel submitted that the Plaintiffs’ claim was premised on their allegation for the alleged breach of duties by the 2nd Defendant as the 1st Defendant’s R & M arising from the tender exercises. The Defendants contended that the duty owed if any was only to the 1st Defendant and not to the Plaintiffs in their capacities as shareholders and directors of the 1st Defendant. The said Land and Assets in question belong to the 1st Defendant as the registered owner and not to the Plaintiffs personally. The Plaintiffs do not have interest, legal or equitable, in the assets and properties of the 1st Defendant.

The concept of a separate legal entity between the shareholders and the company is trite and is provided in section 20(a) of the Companies Act 2016 (see: Aron Salomon (Pauper) v A Salomon and Company, Limited [1897] AC 22). That being the case, the company being an independent person, the assets and properties belonging to it are its own and not of its directors and shareholders. Therefore, the Plaintiffs have no right over the said Land and Assets owned by the 1st Defendant, much less any right to sue in respect thereof. As such, the Plaintiffs here do not have any locus standi to sustain an action in their personal name for the purported injury done to the 1st Defendant. More so the Plaintiffs are seeking damages of RM35,000,000.00 to be paid to them as the directors and shareholders of the 1st Defendant.

The learned counsel for the 1st and 2nd Defendants also submitted that the decided cases point to the same position that the directors and shareholders of a company cannot sustain an action in their personal name for the company. The learned Counsel referred to the Privy Council case of Macaura v Northern Assurance Co. Ltd [1925] AC 619, Lord Buckmaster held as follows: - “Now, no shareholder has any right to any item of property owned by the company, for he has no legal or equitable interest therein” And Lord Wrenbury in Macaura (supra) went on to say that: “… The corporater even if he holds all the shares is not the corporation, and that neither he nor any creditors of the company has any property legal or equitable in the assets of the corporation.”

The above principle was adopted in the case of Law Kam Loy & Anor v Boltex Sdn Bhd & Ors [2005] 3 CLJ 355, Gopal Sri Ram JCA (as His Lordship was then) held that: “The property owned by a company belongs to it and not to its shareholders that proposition was established by the leading case of Macaura v Northern Assurance Co Ltd &

Also, in the case of Mega Forest Plantation Management Sdn. Bhd. v Pengarah Perhutanan Negeri Selangor & Ors [2021] 4 MLJ 323, Nantha Balan JCA (delivering judgment of the court) held that: “[83] The principle that shareholders have no legal interest in the assets of the company in which shares are held, is trite. In this regard it was established by the seminal case of Macaura v Northern Assurance Co Ltd & Ors [1925] AC 619; [1925] All ER 51 (HL) that shareholders have no interest in a company’s property. Lord Wrenbury’s speech at p 633 is instructive. He said that ‘the corporator even if he holds all the shares is not the corporation… neither he nor any creditor of the company has any property legal or equitable in the assets of the corporation’.” (emphasis added)

In the case of Official Receiver and Provisional Liquidator Maril-Rionebel (M) Sdn. Bhd. (formerly known as Kredin Sdn. Bhd.) v Anafartal Caddesi Sdn. Bhd. [2006] 4 MLJ 1, Abdul Malik J (as His Lordship then was) held: - “[35] … It is trite law that the company and its shareholders are separate legal entities. The sanctity of the legal personality of a limited company has always been preserved and guarded by the courts of law. To say that property belonging to a company would also vest the company shareholders and interests in the said property would be akin to driving a stake to the very heart of the doctrine of a separate legal entity which has been enshrined in our company law in respect of limited liability companies. [41] The law states that we must treat the company as a separate person from its participants. This means that: …

A company’s property is not the property of its participants. By virtue of the separate entity rule, a company may own property distinct from the property of its own members. … [43] … the interest in shares can never descend into an interest in the land held by the company in liquidation or otherwise.”

The learned counsel further contended that the shareholder can only sue “If he has a course of action independent from any that of his company may have, and further, that he must suffer a loss separate and distinct from that suffered by the company caused by the Defendant’s breach of a duty independently owed to him” (see: Koo Hock Chum & Anor v United Overseas Bank (M) Bhd. [2009] 2 CLJ 331).

The Court of Appeal in the case of Koo Hock Chum (supra) followed the principles laid down in the House of Lords case of Johnson v Gore Wood & Co (a firm) [2001] 1 ALL ER 481, which held: “(1) Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder’s shareholding where that merely reflects the loss suffered by the company. A claim will not lie by a shareholder to make good a loss which would be made good if the company’s assets were replenished through action against the party responsible for the loss, even if the company, acting through its constitutional organs, has declined or failed to make good that loss…

where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is diminution in the value of the shareholding…

where a company suffers loss caused by a breach of duty to it, and a shareholder suffers a loss separate and distinct from that suffered by the company caused by breach of a duty independently owed to the shareholder, each may sue to recover the loss caused to it by breach of the duty owed to it but neither may recover loss caused to that other by breach of the duty owed to that other…”

Therefore, the Plaintiffs, in this case, cannot sustain an action in their personal capacity for the wrong done on the 1st Defendant unless there is a separate and independent cause of action belonging to the Plaintiffs as shareholders.

The learned counsel submitted that the Plaintiffs have no reasonable cause of action against the 1st and 2nd Defendants, as the Plaintiffs have not pleaded any independent cause of action which is separate from the 1st Defendant nor have they pleaded the nature or particulars of the so-called losses suffered by them. The pleadings are formulated solely on the basis that there was a purported breach of duty by the 2nd Defendant as the R & M of the 1st Defendant. There was no loss suffered by the Plaintiffs personally which is separate and distinct from the loss suffered by the 1st Defendant (which was denied). The suit was therefore wrongly commenced in their name.

The 1st and 2nd Defendants contended that the R & M had acted in good faith at all material times. All the three (3) tender exercises were advertised in at least four (4) newspapers and the R & M had informed the Plaintiffs of the said exercises. The Plaintiffs and their alleged interested buyer(s) were at liberty to participate in the tender exercises. Further, it is not the Plaintiffs pleaded case that the Plaintiffs or any of the interested buyer(s) were prevented from participating in the tender exercises. There was also no allegation that any bidder who participated in the tender exercises was not treated fairly.

Further, it was contended that the purported offers procured by the Plaintiffs are immaterial and nothing more than a red herring. The purported offer from KLS Diversified (M) Sd. Bhd. (KLS) never materialised, whereas the purported offer from Millennium Trans Group Sdn. Bhd. (MTG) was only received by the 2nd Defendant after the 1st and 3rd Defendants had entered into the SPA and ASA. Therefore, the R & M was not in a position to accept any new offers. Moreover, the alleged offer from MTG was conditional upon inter alia the 1st Defendant paying a ‘revival cost’, whilst the R & M’s sale of the said Land and Assets have always been on and ‘as is where is basis’. The learned counsel also submitted that the valuation report cited by the Plaintiffs is irrelevant and outdated since it was prepared more than eight years ago, in March 2003, hence it does not reflect the true value of the said land.

The learned counsel for the 3rd Defendant submitted that the 3rd Defendant was only added after the Plaintiffs had obtained the ex parte injunction order on 27.08.2021. The 3rd Defendant contended that the entire sale and purchase of the said Land and Assets had been completed and the 3rd Defendant had paid the full purchase price and the only remaining action is the registration of the said Land which is now being obstructed by the ex parte injunction obtained by the Plaintiffs. It was further contended that the 3rd Defendant is the beneficial owner of the said Land and Assets with rights in rem over the said Land by being a bona fide purchaser for valuable consideration. The 3rd Defendant enjoys the rights and benefits of a registered owner as decided in the case of Wan Noor Kamariah Wan Jafaar v Aritah Realty Sdn. Bhd. & Ors And Other Appeals [2021] 8 CLJ 693, the Court of Appeal held: “[24] In Tan Ong Ban v Teoh Kim Heng [2016] 3 CLJ 193; [2016] 3 MLJ 23, the Federal Court held: “The principle of beneficial ownership differentiate between the rights of a purchaser of a property who has fully settled the purchase price with one who has not. This principle clothes a purchaser who has settled the full purchase price with a distinct privilege equivalent to a legal owner, although he or she has yet to be registered as the proprietor of the property.” [25] We agree with the appellants’ submission. The principle of beneficial ownership applies to the appellants after they have executed the sale and purchase agreement and paid the full purchase price to Aritah Realty. This is an equitable principle aimed to protect innocent purchasers like the appellants who had fulfilled their obligations under the contract. As the beneficial owners, the appellants enjoy the benefits of being the owner of the units even though they have yet to become the registered owner.” (emphasis added)

The learned counsel submitted that the Amended Statement of Claim dated 02.09.2021 did not plead any cause of action against the 3rd Defendant but in so far as the prayer in paragraph 26(e) is concerned it would have an impact on the 3rd Defendant.

The learned counsel for the 3rd Defendant agreed with the submission by the learned counsel for the 1st and 2nd Defendants that the Plaintiffs have no locus standi to bring this action. The 3rd Defendant contended that the Plaintiffs being only the directors and shareholders of the 1st Defendant were never the owners of the Land and Assets and hence have no right in rem over the Land. Hence, the Plaintiffs have no cause of action in rem against the 3rd Defendant. The Plaintiffs would therefore have no right to prevent the presentation of the transfer documents.

The learned counsel for the Plaintiffs submitted that it is common industry knowledge that some receivers and managers would after taking control of the company in receivership collude with 3rd parties and sell off the company’s assets to a 3rd party at an undervalued price. Unfortunately, the 1st Defendant and the Plaintiffs are victims of such a situation.

The 1st Defendant’s palm oil refinery (the said Land and Assets) has a market value of RM60 million and the forced sale value is RM48 million. The 1st Defendant had failed to repay a debenture loan from Agrobank at an approximate amount of RM18 million. The Plaintiffs alleged that the R & M had colluded with the 3rd Defendant by attempting to sell off the said Land and Assets at a grossly undervalued price of RM13 million and it was done so unilaterally by the R & M.

The Plaintiffs submitted that they possess the locus standi to initiate this action against all the Defendants when the R & M had committed misfeasance and breach of trust and duty against the 1st Defendant and the Plaintiffs by entering into the SPA, attempting to sell off the said Land and Assets at a grossly undervalued price of RM13 million and this was done so by keeping the Plaintiffs in the dark.

The Plaintiffs contended that the R & M was appointed in early 2018. In July 2018, a potential buyer, of the said Land and Assets, KLS, offered the R & M to purchase the Land and Assets at a price of RM45 million. The out-front payment conditional upon the signing of the SPA was RM11.25 million. The current deal between the 1st Defendant and 3rd Defendant was much lesser and it would not relieve the 1st Defendant’s position in debt against Agrobank when the outstanding loan is RM18 million. Therefore, the Plaintiffs are questioning the R & M’s reasoning for accepting a much lesser deal.

About the purported tender that was carried out from 15.07.2019 to 13.08.2019, the Plaintiffs were not invited to take part in this tender process. This was so bearing that the R & M having the knowledge that Plaintiffs could procure buyer(s) that would match the market value of the said Land and Assets. The KLS’s offer was brought by the 1st Plaintiff to the attention of the R & M, but the R & M did not accept the offer from KLS. All the while from 2019 to 2021, the R & M had remained silent and kept the Plaintiffs in the dark.

On 30.12.2021, the 1st Plaintiff procured another potential buyer to purchase the said Land and Assets, MTG offering at RM50 million, however, the 1st Plaintiffs were informed by a 3rd party that a SPA had been entered between the 1st and the 3rd Defendants for the sale of the Land and Assets. Therefore, this offer too could not materialise though it was a much better offer. The learned counsel for the Plaintiffs referred to the case of Emas Kiara Sdn. Bhd. v Michael Joseph Monteiro & Ors; Farcoll Estate Sdn. Bhd. & Ors (Interveners) [2018] 8 CLJ 17, which decided that the R & M when holding any tender has an implied duty to conduct the tender process in good faith. In this case, the Plaintiffs alleged that was not done so.

The learned counsel further submitted that it can be observed from the case of Tanjung Rhu Land Sdn. Bhd. (Receivers and Managers Appointed) & Ors v Kauthar Venture Capital Sdn. Bhd. [2021] MLJU 964 and the case of Lim Eng Chuan Sdn. Bhd. v United Malayan Banking Corp & Anor [2011] 1 MLJ, it is a practice to show good faith that R & M in holding any tender of sale would at least invite the directors and shareholders of the company in question to participate in the biddings. The learned counsel submitted that this resonates well with the equitable principle of fair play, by giving the directors and shareholders of the company [in receivership] a chance of taking part in the process, to procure buyers with the best price for the asset of the company of which they owe a fiduciary duty to or possesses a monetary interest therein.

It was alleged that in this case, the said opportunities were denied and therefore the act of concealing the tender exercise, thereby denying the Plaintiffs’ chance to remedy the 1st Defendant’s position in receivership as an act of bad faith.

The R & M had failed to obtain the best reasonable price. The learned counsel referred to the case of Ambank (M) Bhd. v Jayabalan Ramachandran [2013] 2 CLJ 776 that decided the R & M has a duty to obtain the best reasonable price when dispensing or disposing of the company’s assets. In this case, the R & M had not done so. The Plaintiffs contended that from 2013 to 2018 (the KLS offer) and 2021 (Millennium’s offer), the said Land and Assets were able to fetch a buying price between RM45 million and RM60 million. The Plaintiffs contended that the R & M did not give any rational explanation for accepting a much lower tender price which does not make financial sense when the R & M was fully aware of the price the Land and Assets would catch.

The Plaintiffs contended that in accepting a bid of a grossly undervalued price of RM13 million for the sale of the Land and Assets, the R & M had breached its duty to obtain the best possible price, thereby causing injury to the Plaintiffs’ financial interests in the 1st Defendant, at the same time acting against the 1st Defendant and Agrobank’s interest.

Subsequently, vide letter dated 05.03.2021, the Plaintiffs through its solicitors wrote to the R & M’s solicitors requesting to inspect the documents pertaining to the tender process. However, the request was rejected by the R & M. The R & M’s act of refusing the directors’ absolute power of inspection under section 245 (8) of the Companies Act 2016 was suspicious as to whether the tender exercise had been carried out fairly and in good faith and whether the said Land and Assets had been sold off at the best possible value. Unless there was something that the R & M was concealing due to fraud or collusion, the R & M had no reason to reject the request. The learned counsel submitted that the standard conduct by the R & M in a tender process which qualifies as good faith was to have a valuation report as explained in the case Azrahi Hotels Sdn. Bhd. & Anor v Tee Guan Pian & Anor [2017] 1 LNS 803. In this case, the R & M had refused and failed to produce the valuation report, which the R & M relied upon in conducting the said tender.

Therefore, the failure and refusal of the R & M to produce the documents on the tender process suggest that the R & M was concealing some wrongdoings. The Plaintiffs submitted that the tender process was not conducted in good faith, nor a reasonable manner. This shall be construed together with the fact that the R & M had failed to obtain the best possible price for the sale of the Land and Assets.

Hence, there is a serious issue with the rationale of the R & M’s action. The Plaintiffs as shareholders hold financial interests in the 1st Defendant. The Plaintiffs further contended that the 1st Defendant was in the hands and control of the wrongdoer, the R & M, therefore the Plaintiffs are empowered by the principles laid in the case of Newhart Developments Ltd v Co-operative Commercial Bank Ltd [1978] Q.B. 814 (Newhart) and Edwards and Another v Halliwell and Ors [1950] AER 1064 (Edwards). The principles in these cases grant the Plaintiffs the locus as the directors and shareholders of the 1st Defendant to act against parties related to the wrongdoing. Newhart’s principles were adopted and applied in the case of Simpang Empat Plantation Sdn. Bhd. v Ali Bin Tan Sri Abdul Kadir & Ors [2006] 1 MLJ 193, and Edwards’ case was adopted and applied in the case of Tan Guan Eng & Anor v Ng Kweng Hee & Ors [1992] 1 MLJ 487.

In Newhart it was decided when a company is under receivership and if a wrong was inflicted on the company, the directors of the company will have locus standi to commence an action if three conditions are satisfied: “(a) if the directors’ action did not interfere with the receivers and managers’ function in getting in the plaintiffs’ assets or prejudicially affect the third defendant as debenture holder by imperilling the assets;

if the directors’ actions did not in any way threaten the interests of the third defendant as debenture holder; and

if the directors have provided an indemnity for the plaintiffs against any possible liability to costs.”

The learned counsel contended that there must be an exception to the doctrine of separate legal entities as the company cannot by itself act to protect its interest to correct a wrong inflicted upon itself, therefore the courts recognised the director’s locus when the three conditions laid in Newhart’s case are satisfied. The learned counsel stated that the Plaintiffs had fulfilled the three conditions stated above, hence, the Plaintiffs have the locus to commence this action to protect the 1st Defendant and the shareholders’ interest.

The Plaintiffs want to settle at a much better deal than what the 3rd Defendant had offered. The Plaintiffs had pleaded to invalidate the SPA, if there is a better price offered it would be in the best interest of the 1st Defendant.

The Plaintiffs have a cause of action against the 3rd Defendant as the 3rd Defendant was involved in equitable fraud. The learned counsel referred to the case of IB Capital Sdn. Bhd. v Ivory Indah Sdn. Bhd. & Anor [2021] MLRAU 148 which held that equitable fraud may exist when there is a use of power to procure a bargain or gift resulting in disadvantage to the other party or agreements which are bona fide between the parties but in fraud of third persons. It was submitted that the entering of the SPA between the 1st Defendant and 3rd Defendant amounted to equitable fraud, as it had caused substantial financial losses to the 1st Defendant, the Plaintiffs who have a financial interest in the 1st Defendant and the debenture holder (Agrobank) whose unsettled debenture of RM18,000,000.00 unable to be fully realised, and had injured their respective interests.

The Plaintiffs contended this is not an ordinary case that can be struck off because there is no locus, in this case, the company cannot act for itself and it is under the control of the R & M. The R & M in this case firstly had deliberately disregarded to exercise its duty to obtain the best reasonable price which resulted in the SPA entered at a grossly undervalued price for the sale of the Land and Assets and secondly the denial of the Plaintiffs’ rights to participate in the tender process and thirdly the denial of the Plaintiffs’ statutory rights of inspection of the said tender documents. These circumstances clearly show there is a serious question to be answered by the R & M as this is an equitable fraud.

The Plaintiffs further contended that all the above undoubtedly show that R & M had committed misfeasance, breached its duty and was unconscionable and as a result, the Plaintiffs could not carry out their fiduciary duties to act in the best interest of the 1st Defendant when the Plaintiffs could not participate in the said tender exercise to procure and secure a bidder to purchase the Land and Assets of the 1st Defendant at its true value. Thus, the SPA entered with the 3rd Defendant ought to be invalidated under section 24(c) of the Contracts Act 1950. This is also in line with section 393(3) of the Companies Act 2016 which grants the Court powers of providing redress to the injured party in cases whereby R & M had committed misfeasance.

In Edwards’ case it was decided that when a company is in the hand of the wrongdoer and when the personal rights of the shareholders are impeded, when the justice of the case if so required, and if there is a special majority, shareholders as the members of the company can be empowered with locus to initiate an action against the wrongdoer, in this case, the R & M to be accountable. FINDINGS OF THE COURT a. The Plaintiffs have no locus standi to bring this action against the 1st and 2nd Defendants. Based on the facts pleaded in the Amended Statement of Claim, the alleged wrong or injury is done to the 1st Defendant’s, a company and not to the Plaintiffs, who are the shareholders and directors of the 1st Defendant company; b. The Plaintiffs’ claims against the 1st and 2nd Defendants herein discloses no reasonable cause of action against the 1st and 2nd Defendants, is scandalous, frivolous or vexatious, or otherwise an abuse of the process of the Court.

The 3rd Defendant’s grounds for striking out the Plaintiffs’ claim at enclosure 29 are as follows: - a. the Plaintiffs have no locus standi to bring this suit against the 3rd Defendant; b. the Plaintiffs have no cause of action in rem over the Land that has been sold to the 3rd Defendant; c. the Plaintiffs did not plead any cause of action entitling them to sue the 3rd Defendant; d. the Plaintiffs’ claim against the 3rd Defendant is frivolous, vexatious and is an abuse of court process; e. the Plaintiffs’ claim against the 3rd Defendant is obviously unsustainable.

This Court finds that the dispute, in this case, is straightforward. It is undisputed that the Plaintiffs are the directors and shareholders of the 1st Defendant which is under receivership and this suit was filed in their personal names for the purported wrongdoings of the 2nd Defendant, the R & M appointed for the 1st Defendant. The Plaintiffs’ complaints are against the 2nd Defendant for the alleged act of misfeasance and breach of trust and duties as the R & M.

Applying the principles set out in the cases cited with regards to the principles in striking out, upon analyzing the pleadings and affidavit evidence filed herein, I find that the Plaintiff’s case is plain and obviously unsustainable against all the Defendants for the following reasons: - a. In this case, the evidence shows that the 1st Defendant is the registered owner of the said Land and Assets in question. It is settled and trite law, a company is a completely separate and distinct entity from its directors and shareholders. A company is “an independent person with its rights and liabilities appropriate to itself” [see: Aron Salomon (Pauper) v A Salomon and Company, Limited (supra)]. The concept of the separate legal entity of a company is long established and this principle is followed by a plethora of cases in our Courts. b. The company has its own assets and liabilities which belong to the company, and the company can sue and be sued in its own name distinct from its shareholders. In Johnson v Gore Wood & Co (supra) the House of Lords held: - “A company is a legal entity separate and distinct from its shareholders. It has its own assets and liabilities and its own creditors. The company’s property belongs to the company and not to its shareholders. If the company has a cause of action, this is a legal chose in action which represents part of its assets. Accordingly, where a company suffers loss as a result of an actionable wrong done to it, the cause of action is vested in the company and the company alone can sue. No action lies at the suit of a shareholder suing as such, though exceptionally he may be permitted to bring a derivative action in right of the company and recover damages on its behalf…” c. I agree that the Plaintiffs have no locus standi to initiate this action. It is undisputed that the Plaintiffs are not the registered owners of the said Land and Assets and therefore the Plaintiffs as the directors and shareholders of the 1st Defendant do not have any interest legal or equitable in the 1st Defendant’s property and assets. The Land and Assets in question solely belong to the 1st Defendant, and it is only the 1st Defendant that has the locus to commence an action against the R & M for any wrongdoings (if any). The Plaintiffs cannot bring an action in their personal capacity to enforce the 1st Defendant’s rights (see: Macaura v Northen Assurance Co Ltd (supra); Law Kam Loy & Anor v Boltex Sdn. Bhd. & Ors (supra); Mega Forest Plantation Management Sdn. Bhd. v Pengarah Perhutanan Negeri Selangor & Ors (supra)). d. Perusal of the Amended Statement of Claim filed by the Plaintiffs, I find that the Plaintiffs’ claims are crafted solely on the basis that there was a purported breach of duty by the 2nd Defendant as the R & M of the 1st Defendant. The Plaintiffs have not shown that they have a cause of action separate and independent from the 1st Defendant’s and neither was there any evidence that the Plaintiffs have suffered any loss personally which is separate and distinct from the alleged loss suffered by the 1st Defendant (see: Koo Hock Chum & Anor v United Overseas Bank (supra)). Thus, the Plaintiffs as the shareholders of the 1st Defendant cannot bring an action to recover damages merely because the 1st Defendant is said to have suffered losses (see: Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] 1 All ER 354 which was referred to in the case of Pioneer Haven Sdn. Bhd. v Ho Hup Construction Co Bhd & Anor and other appeals [2012] 3 MLJ 616). e. I further refer to the case of Pioneer Haven Sdn. Bhd. v Ho Hup Construction Co Bhd & Anor and other appeals (supra) the Court of Appeal held: - “[160] Thus the question is: who is the proper the plaintiff in a corporate action? [163] … where wrongs were done to the company, in general, the cause of action belonged to the company (i.e Bukit Jalil, in this case) and an individual member (such us Ho Hup), has no standing to enforce it… [165] Flowing from this, a member may not sue to enforce a company’s rights (see: Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] 1 All ER 354, for only the company can do so. The rationale is, of course, to prevent a multiplicity of suits brought on by members on behalf of the company. In any case, a company is a separate entity from its members and because of this, a member may not sue to enforce a company’s rights. However, a member can do so if it is a wrong not to the company but an injury to a member personally. Say for example, if the member’s rights are infringed, the member may sue for a personal remedy. An example would be where the company is threatening to breach or actually breaches a contract with a member. It would apply where a member is complaining of a tort committed against him by the company.” f. The learned counsel for the Plaintiffs submitted that the 1st Defendant was in the hands of the wrongdoer, the R & M, therefore the Plaintiffs are empowered with the locus premised on the principles laid in the case of Newhart and Edwards (supra). The learned counsel submitted that the principles in these cases grant the Plaintiffs the locus as the directors and shareholders of the 1st Defendant to act against parties related to the wrongdoing. I have considered the arguments and I find that the said cases are not applicable in the case before this Court. I find in Newhart, Simpang Empat Plantation Sdn. Bhd. (supra) and Score Option Sdn. Bhd. & Anor v Duar Tuan Kiat & Ors [2012] 7 MLJ 768, rightly so the directors and shareholders could bring an action for the wrongdoings of the receivers because the actions were brought by the directors on behalf of the respective companies. The directors had commenced the action in the name of the company in receivership and not in the name of its directors and shareholders personally, unlike in the case before this Court, the Plaintiffs had commenced the action in their personal names and the company was named as the 1st Defendant. Over and above that the Plaintiffs had also sought for the damages of RM35,000,000.00 to be paid to the Plaintiffs personally. g.

O18 r12 RC where the 4th Defendant is required to plead the particulars of fraud which will include forgery.

The case of G. Narayanan a/l N. Gopala Panikker v Sadacharamani a/l Govindasamy [2006] MLJU 475, a case relied on by the 4th defendant himself, where His Lordship Azmel Bin Hj Maamor J stated- “To begin with, nowhere in the statement of defence did the Defendant contend that his signature had been forged. It is trite a party must confine its case to its pleadings. Since the Defendant did not plead to forgery in his statement of defence he is estopped from raising such line of defence at the subsequent hearing. In other words such line of defence has to be specifically pleaded.” (emphasis added) (see also Lee Kim Luang v Lee Shiah Yee [1988] 1 MLJ 193 (HC) at p. 197 H-I left column)

The case of Loh Chew Yin v Lye Chai Foong & Anor [2003] MLJU 243 at p.9 where His Lordship Low Hop Bing J (as he then was) opined- “In this regard, I am of the view that while as a matter of course summary judgement under O.26A shall not be entered in favour of a plaintiff whose claim is based on an allegation of fraud, it does not necessarily follow, just like day following night, that a plaintiff’s application for summary judgment shall likewise be dismissed the moment a defendant raises and allegation of fraud. In such an instance it is the duty of the court hearing such an application to consider and determine whether the defendant’s allegation of fraud constitutes a bona fide triable issue: see Wong Nget Thau & Anor v Tay Choo Foo [1994] 3 MLJ 723; Bank Negara Malaysia v Mohd Ismail & Ors [1992] 1 MLJ 400 SC.” (emphasis added) l. The Federal Court in the case of Zung Zang Wood Products Sdn. Bhd. & Ors v Kwan Chee Hang Sdn Bhd & Ors [2014] 2 MLJ 799, decided- “In relation to pleadings in general, the rules of court require a pleading of fraud to contain particulars of the fraud on which the party pleading relies (see O. 18 r. 12(1)(a) of the Rules of the High Court 1980, now Rules of Court 2012). When fraud is alleged it must be specifically pleaded. The mere allegation of fraud without showing facts to support it is not a matter to which the court will pay serious attention (Wallingford v. Mutual Society and Official Liquidator (1880) 5 App Cas 685 at p 697. The party need not use the word ‘fraud’ if he pleads, in unambiguous language, acts which amount in law to fraud (Myddleton v. Lord Kenyon (1794) 2 Ves 391 at p 412). Whenever fraud or misrepresentation is alleged in a pleading, or any affidavit, full particulars of the alleged fraud or misrepresentation must be given’ (Spencer Bower, Turner and Handley, Actionable Misrepresentation, (4th Ed), at pp 384- 385).” (emphasis added) m. Upon perusal of the Plaintiffs’ Amended Statement of Claim, I am of the view that the Plaintiffs’ have not pleaded any cause of action against the 3rd Defendant except to annul the SPA entered by the 1st and 3rd Defendants. When there is no reasonable cause of action enforceable against the 3rd Defendant, such proceedings instituted against it are vexatious and frivolous and an abuse of the process of the Court and obviously unsustainable (see: Yeng Hing Enterprise Sdn. Bhd. v Liow Su Fah [1979] 2 MLJ 240). n. Further, due to lack of locus standi, I find the Plaintiffs do not have rights in rem over the said Land and Assets of the 1st Defendant and therefore they do not have the right to declare the sale and purchase agreement entered into by the 1st and the 3rd Defendants as null and void and invalid and subsequently to prevent the presentation of the transfer documents.

In any case, based on the decided cases and the long-established doctrine of separate legal entities, all the grievances put forward by the Plaintiffs against the 2nd Defendant about the breach of duty, misfeasance, fraud, equitable fraud, conspiracy, collusion are not sustainable in their personal capacity as the directors and shareholders of the 1st Defendant because these are the cause of actions that belong to the company and not the shareholders individually. The Plaintiffs had not shown that they have personally suffered any loss due to the alleged misconducts of the 2nd Defendant. Hence, I find that the Plaintiffs’ claim is obviously unsustainable and is not likely to succeed. I refer to the case of Tanjung Rhu Land Sdn. Bhd. & Ors v Kaunthar Venture Capital Sdn. Bhd. (supra), whereby it was held: “[52] Even if one assumes for argument’s sake, there was misfeasance on the part of the R & M, the Defendant’s complaints pertain to wrongs done to the 1st and 2nd Plaintiffs and not to the Defendant personally. Where wrongs are done to the company, in general, the cause of action belongs to the company (in this case, the 1st and 2nd Plaintiff) and an individual member of the company such as the Defendant, has no standing to enforce it. This principle embodies the “proper plaintiff rule”, as propounded in Foss v Harbottle (1843) 2 Hare 461 (vice-Chancellor’s Court, England); that the proper plaintiff in a suit for the enforcement of a corporate right, is the company itself. A member may not sue to enforce a company’s rights (see Prudential Assurance Co. Ltd v Newman Industries Ltd (No.2 ) [1989] 1 ALL E.R.387), For only the company can do so. Needless to say, a company is a separate entity from its members and because of this, a member may not sue to enforce a company’s rights.” (emphasis added)

For the reasons stated above I find that the Plaintiffs’ claim discloses no reasonable cause of action against the 1st, 2nd and 3rd Defendants and it is frivolous and vexatious and an abuse of the process of the Court.

For the foregoing reasons, I ordered that the 1st and 2nd Defendants’ Application in enclosure 19 and the 3rd Defendant’s Application in enclosure 29 be allowed and the Plaintiffs’ claim was struck off against the 1st, 2nd and 3rd Defendants with costs of RM10,000 to the 1st and 2nd Defendants and RM10,000 to the 3rd Defendant. Dated: 20th day of June 2022 -sgd-JAMHIRAH ALI JUDICIAL COMMISSIONER High Court of Malaya at Shah Alam (NCVC 1) To the parties’ solicitors: For the Plaintiff : Kenny Yong (Messrs Loi & Co.) For the 1st & 2nd Defendants: Claudia Cheah & Ng Kar Man (Messrs Skrine) For the 3rd Defendant : Richard Kok & Erin Lim (Messrs Richard Kok)