NGV Tech Sdn Bhd v Network South Pacific Limited (W-02(ADM)(A)-389-03/2017)

(i) A secured creditor on the one hand; or

(i) The purchase price for these four vessels namely Vessels No. 1116, 1121, 1122 and 1182 was RM10,000,000-00 (ten million) each;

(i) The purchase price for the vessels has been fully paid by NSPL;

(a) NGV Tech generally entered into shipbuilding contracts with the express knowledge and consent of Maybank, its financier, and assigned all payments as well as rights in the vessels to it;

(b) The sale and purchase agreements with NSPL were out of the ordinary course of transactions in that it ignored wholly Maybank’s entitlements as a secured creditor as well as the fact that the vessels were constructed utilising Maybank’s financing, yet the agreements purported to hold the vessels on trust for NSPL; 9

(c) The NSPL agreements were entered into while these other sales transactions were proceeding. [31] Reverting to the chronology of events, the R & M sought therefore to sell the remaining three vessels that stood uncompleted. But on 31 March 2014, NSPL through its solicitors notified the R & M that pursuant to a consent judgment entered into between NGV and NSPL in Kuala Lumpur Civil Suit No. S-22NCVC- 62-2011. NGV Tech would pay NSPL a total sum of RM50,000,000- 00 (‘settlement sum’) in the following manner:

(i) the sum of RM9,000,000-00 on or before 20 February 2011;

(v) the sum of RM13,000,000-00 on or before 30 June 2011 [32] In the event of default the entire settlement sum becomes immediately due and payable to NSPL. Further, until the full settlement sum is repaid, NGV Tech was restrained from dealing with the five vessels. 10 [33] By reason of the terms of the consent judgment, NSPL took the stance that the R & M’s attempts to sell three out of the five vessels was in violation of the consent judgment. It also maintained that all five vessels were held by NGV Tech on trust for NSPL. [34] At around this time by reason of NGV Tech’s default, Maybank commenced action against its three guarantors, including one Dato’ Zul into whose account the payments by NSPL in respect of the five vessels was said to have been paid. Judgment was obtained against them and they have been adjudged bankrupt. [35] With respect to the consent judgment, Maybank instituted proceedings to set aside the same. It filed, through its solicitors an application to set aside or vary the consent judgment on the basis that it or at least the terms were irregular in that the judgment conferred upon NSPL an undue preference over all other creditors in insolvency. [36] This setting aside application was dismissed on a preliminary objection raised by NSPL to the effect that Maybank ought to have filed a fresh and separate action in order to set aside the consent judgment. [37] This in turn led to the present action where Maybank sought inter alia the following reliefs:

(i) to set aside or vary the consent judgment; 11

(a) The High Court had no jurisdiction to set aside the consent judgment as the case did not fall within any of the known categories set out in the Federal Court decision in Serac Asia Sdn Bhd v Sepakat Insurance Brokers Sdn Bhd [2013] 5 MLJ 1, where it was held that the court may set aside a judgment that has been vitiated by illegality, lack of jurisdiction or by breach of a substantive statutory prohibition;

(b) There was no evidence to show that the consent judgment dated 9 February 2011 was obtained as a result of a deliberate fraud perpetrated on the court or by suppression of material evidence by the defendant;

(c) There was no evidence to show that NSPL was privy to the fraud on the part of the directors of NGV Tech;

(d) The plea of a total failure of consideration was rejected because it was accepted that payment had in fact been made, but to Dato’ Zul’s account on other instructions of 13 the directors of NGV Tech, supported by a director’s resolution, and the trust deeds. To this end the learned Judge faulted the R& M of NGV Tech and Maybank for not ascertaining details of the transactions and alleged remittances directly from the directors;

(e) The plea of illegality in relation to the consent judgment was similarly rejected on the grounds that Maybank was not privy to the same, notwithstanding its debentures and charges which precluded any further dealings with the vessels without its express permission or consent;

(f) The contention that the effect of the restraining order in the consent judgment effectively amounting to a perpetual injunction by reason of NGV Tech having been wound up, was similarly rejected by the learned Judge on the grounds that it was merely a restraining order in relation to dealings with the vessels and would only remain in place until settlement of the sum owed;

(g) The effect of the consent order and the “trust” effectively according NSPL priority over and above all other unsecured creditors in insolvency was not fully considered by the learned Judge, with respect. [41] For these reasons the learned Judge concluded that the terms of the consent judgment ought not to be set aside, and accordingly the plaintiffs’ claim was dismissed. 14 The Appeal The Appellant’s Submissions [42] Before us it was contended by the appellant in summary that:

(a) Maybank is the chargee of the vessels in dispute. In this context it is submitted that there is no dispute as to the validity of the debentures which are a continuing security and by way of the floating charge, the entire undertaking of NGV Tech including all its assets, moveable and immovable, whatsoever and wheresoever, both present and future comprise security for the facilities afforded by Maybank. The debentures, including the first two were registered under section 108 of the Companies Act 1965 which had the effect of giving notice to the world, including NSPL, that the assets of NGV Tech both present and future were encumbered. As such NGV Tech could not deal with its assets without Maybank’s knowledge and consent. By virtue of the automatic crystallisation provision in the debentures, at the point in time when NGV signed the shipbuilding contract with NSPL in relation to the four vessels, 1121, 1122, 1116 and 1182, the floating charges had crystallised automatically, converting to a fixed charge. Several authorities were cited in relation to this issue. 15 By virtue of the crystallisation, NGV Tech had no authority or title to sell the vessels to NSPL without the express consent of Maybank. No such consent was sought nor given. As such the dealing with the vessels by NGV Tech to NSPL, was contended to be null and void. It was submitted that the learned Judge had failed to give any or sufficient consideration to this point.

(b) NSPL had notice of the debentures and the terms they contained, by reason of the registration of the charges. Section 108 requires the particulars of a charge to be lodged which enables any person dealing with NGV Tech to be appraised of how its assets are encumbered. Accordingly NSPL Tech knew or ought to have known of the subsistence of the debentures and their contents or effect. This is particularly so in light of the evidence of the defence witness, DW-2 who admitted that he was conversant with the banking industry and loan documentation.

(c) It therefore followed that NGV Tech’s directors could not and should not have dealt with the vessels without Maybank’s consent and knowledge. It was submitted that vide the evidence at trial through the defence witness, DW-2 it was evident that the director of NSPL sought resolutions from the company to ensure that the directors were authorised to enter into the transactions. 16 They sought protection under the indoor management rule. It was submitted that the rule was inapplicable in the instant case as NSPL had prior notice from the registration of charges that the vessels could not be dealt with by the directors.

(d) There is no proof of full payment to NGV and or Maybank by NSPL. This it is contended is evidenced by:

(i) A complete absence of any record of resolutions regarding payment directly to the director Dato’ Zul in the company secretarial books;

(e) There was no beneficial ownership or trust created in favour of NSPL by the trust deeds by reason of the crystallisation of the floating charges on or prior to the execution of the trust deeds. Reliance was also placed on the Sale of Goods Act (SOGA) 1957 to show that property in the five vessels remained with NGV Tech until full payment for the same had been made. 17

(f) The consent judgment is irregular or invalid as Maybank had never consented to the vessels which were charged to it, being sold or held on trust for NSPL. This lack of consent, it was contended, rendered the consent judgment irregular or invalid (see Khaw Poh Chhuan v Ng Gaik Peng & Ors [1996] 1 MLJ 761).

(g) Maybank also relied on Badiaddin Mohd Mahidin & Anor v Arab Malaysian Finance Bhd [1998] 2 CLJ 75 (‘Badiaddin’) and Serac Asia Sdn Bhd v Sepakat Insurance Brokers Sdn Bhd [2013] 5 MLJ 1 (‘Serac’).

(g) NSPL’s debt is an unsecured debt as to allow them ownership of the vessels would amount to an undue preference in NSPL’s favour. The Respondent’s Submissions [43] Given the background facts, any steps taken by the R & M to realise the assets of NGV Tech are subject to the rights of NSPL to the vessels. NSPL are the beneficial owners of the vessels. [44] The consent judgment of 9 February 2011 entered into between NSPL and NGV Tech in Kuala Lumpur High Court Suit No: S-22NCVC-62-2011 remains binding and has yet to be set aside. As NGV Tech was represented by lawyers it is valid and cannot be said to be irregular or invalid. 18 [45] The consent judgment requires that NGV Tech pay NSPL the sum of RM50,000,000-00 (RM 50 million) in instalments and that pending full settlement NGV Tech is restrained from dealing with or disposing or selling or charging or mortgaging the five vessels. [46] With respect to Maybank’s contentions on priority by reason of the debentures, NSPL maintains that the debentures or floating charges only crystallised on 14 March 2013. Such crystallisation occurred, it is contended, when Nordic International Ltd (‘Nordic’) presented a winding up petition against NGV Tech. [47] It was only then that Messrs Skrine vide notice dated 20 March 2013 issued a notice stating that the floating charges were crystallised into fixed charges in favour of Maybank. [48] This date was well after the trust deeds had been executed, and which had the effect of creating a trust of the vessels in favour of NSPL. [49] In short NSPL contends that the vessels were not subject to fixed charges at the point in time when the charges crystallised. Further it is contended that the vessels comprised stock in trade of NGV Tech as a consequence of which no consent from Maybank was required for their transfer or sale to NSPL. [50] By virtue of the existence of the trust, NSPL it is contended is effectively a secured creditor by reason of the vessels being held on trust for it by NGV Tech. Maybank has no interest in it. 19 [51] On the basis of these two grounds, NSPL maintains that the R & M have no rights over the subject vessels. The proposed sale is in violation of:

(i) NSPL’s rights as the beneficial owner of those vessels; and

(a) Is there a valid trust created in favour of NSPL which overrides or takes in priority to the debenture/s created by NGV Tech in favour of Maybank in respect of the five vessels comprising the subject matter of this dispute?

(b) What is the effect of the consent judgment entered into between NGV Tech and NSPL dated 9 February 2011? Is it void or irregular? Issue (a): Is there a valid trust created in favour of NSPL which overrides or takes in priority to the debenture/s created by NGV Tech in favour of Maybank in respect of the five vessels comprising the subject matter of this dispute? [56] There are several legal issues that need to be addressed in arriving at an answer to the question above, namely:

(i) The nature of the security created by a floating charge in a debenture;

(i) The nature of the security created by a floating charge in a debenture [57] It is not in dispute that NGV Tech created inter alia fixed and floating charges over all its assets in favour of Maybank as security for the numerous credit facilities afforded to it by Maybank. These facilities were made available, as stated earlier, to enable NGV Tech to carry out its ship building business and for general working capital. These facilities were utilised to the maximum but there was a failure to repay the same. [58] The debentures created in favour of Maybank were dated as follows:

(a) by way of a first fixed charge:-

(i) all the freehold or leasehold property of the Borrower both present and future including….. all plant, machinery, motor vehicles, computers and other equipment of the Borrower both present and future…….

(b) by way of a first floating charge, the undertaking of the Borrower and all its other moveable and immovable property, other assets, all book debts and proceeds of book debts and other debts, revenues, claims and rights whatsoever and wheresoever; both present and future (including bank deposits and credit balances and all things in action due or owing or which may become due or owing to or purchased or otherwise acquired by the Borrower.” (emphasis added) [61] It is apparent from the foregoing that the floating charge encompasses, inter alia, the undertaking of the borrower meaning the entire business concern or enterprise of NGV Tech, which would include its stock in trade and all its assets, moveable or immovable. However it does not stop there, it also includes all rights both present and future, meaning NGV Tech’s rights in the vessels it constructs in the course of its business. 23 [62] It follows that the five vessels comprising the subject matter of the floating charge are also encompassed as they comprise assets of NGV Tech, although not subsisting as at the creation of the 1st debenture. The 2nd debenture is dated June 2010 at or around the same time that the sale and purchase agreements and trust deeds with NSPL were executed. [63] These floating charges comprising a part of the debenture which was registered under section 108 comprise notice to the world at large (see CIMB Bank Berhad v. ZAQ Construction Sdn Bhd [2013] 1 LNS 230 (‘ZAQ Construction’) where I stated “The effect of registration under section 108 of the Companies Act 1965 is to notify the world at large of the existence of the Plaintiff's security….”). [64] In any event Clause 1.2 of the debenture of 24 January 2008 makes it clear that the assets encompassed by the floating charge comprise a part of the charged assets: “Charged Property the property, assets and rights for the time being comprised in or subject to the charges contained in clause 3.1 of this Debenture; and references to the Charged Property include references to any part of it…” [65] As the five vessels comprised part of the Charged Property under that debenture, NGV Tech had no right to deal with or dispose of the five vessels without the knowledge and express consent of Maybank. To this end, clauses 5 and 8.1 of the debenture are relevant: 24 “5. Restriction against other charges The Borrower hereby declares and undertakes that there is no Encumbrance upon any of the Charged Property secured by this Debenture having priority to or ranking pari passu with this Debenture and:-

(a) the Borrower shall not during the subsistence of this Debenture without the consent in writing of MBB execute any form of Encumbrance in respect of any of the Charged property…”

(a) not to create or permit to exist upon or affect any of the Charged Property any Encumbrance which ranks or may come to rank in priority to or pari passu with the floating charge contained in clause 3.1(b) or, except with the prior written consent of MBB, any Encumbrance which will rank after the charges contained in this Debenture;

(b) not to transfer, assign, charge, sell, lend or otherwise dispose of any of the Charged Property and (in particular) not to exercise any statutory or other powers of making leases or of ………………………………without the prior written consent of MBB.” [66] It is readily apparent that these express provisions and covenants precluded NGV Tech from creating any form of dealing or encumbrance in respect of, inter alia, any of the vessels it constructed in the course of carrying out its business, save and except with the express consent of Maybank. [67] The fact of these express provisions against encumbrances being made in respect of the charged assets of NGV Tech, both present and future is made known to the world at large by reason of its registration under section 108 of the Companies Act 1965. It 25 follows from this that NSPL i.e. its directors knew or ought to have known or are deemed to know of the effect of these charges in respect of any dealings they might undertake with NGV Tech. They are deemed to know, by reason of such registration, that the stock in trade and the future assets of NGV Tech such as the five vessels comprise a part of the charged property of NGV Tech in favour of Maybank. Therefore any property in such assets only becomes available well after the rights of Maybank as the primary financier are satisfied fully. Automatic Crystallisation Clause [68] Arguably, the most important clause in the debenture which is of relevance to this case is clause 4.3, which provides: “If the Borrower charges, pledges or otherwise encumbers in favour of any third party, whether by way of a fixed or floating security any of the Charged Property or attempts to do so without the prior written consent of MBB or if any person attempts to levy any distress execution sequestration or other attempts or other process against any of the Charged Property or if any floating charge whether created before or after the date hereof, shall crystallise over any of the Charged Property the floating charges hereunder shall automatically without notice operate as fixed charges instantly when such event occurs.” In this context “encumbrance” is defined in the debenture as: “….any mortgage, pledge, lien, charge (whether fixed or floating) assignment, hypothecation, deposit, sale with right of retention, or other security interest of any kind (including without prejudice any title retention, assignment or transfer by way of security, sale and lease-back 26 and/or sale and repurchase on credit terms) or any other arrangement having substantially the same economic and legal effect as any of the foregoing.” [69] It is clear that the sale and purchase arrangement as well as the trust deed would fall squarely within the definition of encumbrance. [70] When read in conjunction with clause 4.3, namely the automatic crystallisation clause, it follows that:

(a) The payments were made to Dato’ Zul, more specifically into his account, and not to NGV Tech. This is a most unusual way of making payment by a purchaser when the vendor is NGV Tech and not the director personally;

(b) No evidence was adduced by NSPL to substantiate such payments to Dato’ Zul purportedly on behalf of NGV Tech. [85] It was at all material times NSPL’s case that it made the payments directly to Dato’ Zul rather than to NGV Tech. This is an express assertion by NSPL in support of its contention that full payment for the vessels was made, thereby comprising the basis for a claim of beneficial ownership and thereby the existence of a trust. In short, the fact of payment of consideration for those vessels to Dato’ Zul rather than to NGV Tech, the vendor, comprises a central pillar of NSPL’s case that it enjoys a trust over the subject vessels as well as priority over Maybank’s interest. [86] It is trite that he who asserts must prove. Moreover the fact of payment to Dato’ Zul is a matter falling squarely within the knowledge of NSPL and Dato’ Zul. At trial therefore, it was incumbent upon NSPL rather than NGV Tech to adduce evidence to support its contention of full payment of the purchase price for the subject vessels (see sections 101,102, 103 and 106 of the 32 Evidence Act 1950). (See also NGV Tech Sdn Bhd v Ramsstech Ltd & Ors [2015] MLJU 671). [87] In this context, the learned Judge was, with respect wrong in holding that it was incumbent upon NGV Tech through its R & M to obtain proof that Dato’ Zul had in fact received the monies that NSPL claimed it had paid into his account. The learned Judge erred in reversing the onus of proof of payment which at all times lay solely with NSPL. In point of fact an adverse inference ought to have been drawn against NSPL rather than NGV Tech, as it was incumbent upon NSPL to call Dato’ Zul to prove payment in full to NGV Tech through him, more particularly through the alleged deposit of monies in his account. [88] In the absence of such proof of full payment for the vessels by NSPL, it is not possible to conclude that beneficial interest in the vessels lies, or even lay with NSPL. If beneficial interest is not vested in NSPL, no trust can subsist in its favour. [89] The learned Judge in the court below, with respect, failed to accord any consideration whatsoever to this crucial factor. [90] In all these circumstances it does not appear tenable that NSPL was entitled to the vessels, and certainly not in priority to a secured creditor who enjoyed a fixed charge over the subject vessels at the time NGV Tech sought to sell the same to NSPL. 33 [91] In short two salient factors to preclude NSPL from maintaining that it is entitled to the subject vessels in priority over Maybank, namely:

(a) Look of evidence of full payment for the subject vessels. As a consequence no trust can arise or subsist whereby NGV Tech merely holds those vessels for and on behalf of NSPL;

(b) The fact of the automatic crystallisation of Maybank’s floating charge prior to, or just before the execution of the sale and purchase agreements and trust deeds. This means that there could be no valid sale or disposal by NGV Tech, by reason of the existence of the secured or fixed charge subsisting over the assets including the subject vessels. [92] The only proof of payment tendered by NSPL is the debit advice showing payments made to Dato’ Zul. Such payments were only effected on 29 October 2009, some three days after the execution of the trust deed and sale and purchase agreements. However the automatic crystallisation clause would have taken effect immediately prior to the execution of these agreements and trust deeds on 26 October 2009. Therefore there is no question of any trust subsisting at the point in time when the floating charge was converted to a fixed charge on or before 26 October 2009. This is true of the Batch 1 vessels. [93] With respect to the Batch 2 vessels the floating charges would have crystallised as of 22 February 2010, again when NSPL and 34 NGV Tech sought to deal with the same without the prior consent of Maybank. [94] Moreover no proof of payment in respect of this batch of three vessels was tendered, thereby further negating the existence of any trust. [95] NSPL sought to rebut this contention by relying on a purported set-off using the two vessels namely 1121 and 1122 from the Batch 1 vessels as a means of acquiring the batch 2 vessels. This again is because the Batch 1 vessels were similarly part of a first fixed charge by virtue of the automatic crystallisation clause in favour of Maybank, as a consequence of which no question of a set-off could arise in favour of NSPL. [96] In the absence of proof of payment of the full purchase price for the subject vessels, and consequently the absence of beneficial interest and thereby the subsistence of any trust in favour of NSPL, the relevant basis for ascertaining title or ownership to the subject vessels must turn on the shipbuilding contracts. [97] In this context it is relevant that the shipbuilding contracts provide that NGV Tech remains the owner of the vessels until the same are delivered to, and accepted by NSPL. This is borne out by clause 10.1 of the shipbuilding contract between NGV Tech and NSPL: “The VESSEL under construction and any part thereof, other than equipment or materials supplied by the BUYER, shall be at the 35 BUILDER’S risk until the same is delivered to and accepted by the BUYER….” [98] As proof of payment was not made out on a balance of probabilities from the evidence on record, it would follow that NGV Tech continued to be the owner of the vessels until they were delivered to NSPL upon full payment. Further the fact of property passing only upon delivery and acceptance of the vessels is apparent from the execution of a Protocol of Delivery and Acceptance in respect of the five vessels. This is borne out by clause 12.1 of the shipbuilding contract dated 26 October 2009: “….Upon delivery to and acceptance by the BUYER, a Protocol of Delivery and Acceptance shall be signed, in a form to be mutually agreed by the parties hereto.” [99] Therefore property in the vessels would only pass upon delivery and acceptance as outlined in the Protocol. Until then property in the subject vessels remained with NGV Tech. By virtue of the floating charge, Maybank enjoyed a charge over this property, which converted into a fixed charge upon automatic crystallisation. [100] Section 19 of the SOGA 1957 provides that property only passes when parties intend for it to pass or according to the terms of the agreement between them. It expressly states that property in the goods is only transferred to the buyer at such time as the parties to the contract intend it to be transferred. To ascertain the intention of the parties, regard is to be had to the terms of the contract, the conduct of the parties and the circumstances of the case. 36 [101] Section 25 provides that notwithstanding delivery of the goods to the buyer the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled. In short in the absence of payment for the vessels ownership of the same remains with NGV Tech. [102] When the factual matrix of this case is considered in the light of the totality of the evidence, it is apparent that the parties intended for ownership to be transferred to NSPL only upon full payment of the purchase price, delivery and acceptance of the Protocol of Delivery and Acceptance. As full payment, delivery and acceptance under the Protocol have not been established, it cannot be said that property in the goods transferred to NSPL at any time. The Consent Judgment [103] The consent judgment of 9 February 2011 provides, as stated earlier for the payment of a settlement sum to NSPL, failing which NGV Tech is prohibited from dealing with the subject vessels until full and final settlement. [104] To that extent, the consent judgment is divisible in two parts:

(i) The payment of a sum of money namely RM50,000,000- 00 in instalments;

(a) The trust could not come into being, as the potential subject matter of any such envisaged trust comprised a part of the charged assets of NGV Tech. The five subject vessels were part of the charged assets comprising the subject matter of the floating charge in the debenture. More pertinently these vessels were “caught” or 39 “encompassed” by a fixed charge by reason of the triggering and conversion of the floating charge immediately prior to, or upon execution of the sale and purchase agreements, as well as the trust deeds on 26 October 2009 between NSPL and NGV Tech. As the vessels were effectively caught within this fixed charge, no trust could come into being, as the subject matter was not available for the creation of such a trust. Subject matter is an essential component of a trust. If such assets are already the subject of a charge, they cannot then comprise a part of a trust;

(b) There is insufficient proof of payment of the full purchase sum for the five vessels, which is an essential element to establish beneficial ownership of the same. In the absence of proof of beneficial ownership, these vessels cannot comprise the basis for the creation of a trust;

(c) NGV Tech was not in a position to create a trust in favour of NSPL in view of the existence of the debentures in favour of Maybank. [113] It therefore follows, in our view, that no trust was actually created in favour of NSPL in respect of the vessels comprising the subject matter of this dispute. [114] If no such trust subsists, then it follows that the restraining order stipulated in the consent order can have no effect, because NSPL is not entitled to have those vessels carved out of the assets 40 of NGV Tech in its favour, in priority to both secured and unsecured creditors. Put another way, to give effect to such a prohibitory or restraining order in relation to the vessels, which in actuality comprises a part of the charged assets, is to transgress section 191 and 292 of the Companies Act 1965. [115] Taken in totality therefore, the consent judgment as a whole appears to contravene the express statutory provisions of the Companies Act 1965. That is its ultimate effect. If in point of fact, a genuine trust subsisted prior to the creation of the debentures in favour of Maybank, then it might well have been possible to give effect to such a trust. However, as is apparent from the chronology of events relating to this case, the vessels comprised at all material times a part of the charged assets of NGV Tech, which NGV Tech had no authority to deal with, or dispose of, without the express consent of Maybank. The stronger point perhaps, is the fact of the automatic crystallisation clause being triggered, and the conversion of the floating charge to a fixed charge specifically encompassing the subject vessels. This displaces the possibility of a creation of a trust in favour of NSPL such that it acquires priority in respect of the subject vessels. Can the Consent Judgment be Impeached or set aside? [116] This then brings us to the question of whether the consent judgment, which was entered into in the High Court, can be impeached by another High Court of concurrent jurisdiction. The principal authority on this issue is Badiaddin Mohd Mahidin & 41 Anor v Arab Malaysian Finance Bhd [1998] 2 CLJ 75 (‘Badiaddin’) where it was stated as follows: “…It is of course settled law as laid down by the Federal Court in Hock Hua Bank case that one High Court cannot set aside a final order regularly obtained from another High Court of concurrent jurisdiction. But one special exception to this rule (which was not in issue and therefore not discussed in Hock Hua Bank) is where the final judgment of the High Court could be proved to be null and void on ground of illegality or lack of jurisdiction so as to bring the aggrieved party within the principle laid down by a number of authorities culminating in the Privy Council case of Isaacs v Robertson [1985] AC 97 where Lord Diplock while rejecting the legal aspect of of voidness and voidability in the orders made by a court of unlimited jurisdiction, upheld the existence of a category of orders of the court ‘… which a person affected by the order is entitled to apply to have set aside ex debito justitiae in the exercise of the inherent jurisdiction of the court, without his needing to have recourse to the rules that deal expressly with proceedings to set aside orders for irregularity, and give to the judge a discretion as to the order he will make’…………..” [117] Azmi SCJ then went on to explain that the type of defects which attract this rule are not finite. In other words each case is to be examined to ascertain whether it seriously warrants the invoking of the inherent jurisdiction of the courts. Such jurisdiction is not to be invoked lightly and only in rare cases. [118] Abdoolcader J (as he then was) explained this rule regarding nullity in Eu Finance Berhad v Lim Yoke Foo [1982] 2 MLJ 37 @ 39 (‘Eu Finance’): 42 “The general rule is that where an order is a nullity, an appeal is somewhat useless as despite any decision on appeal, such an order can be successfully attacked in collateral proceedings; it can be disregarded and impeached in any proceedings, before any court or tribunal and whenever it is relied upon - in other words, it is subject to collateral attack. In collateral proceedings the court may declare an act that purports to bind to be non-existent. In Harkness v Bell’s Asbestos and Engineering Ltd [1967] 2 QB 729,736 Lord Diplock LJ (now a Law Lord) said (at p 736) that ‘it has been long laid down that where an order is a nullity the person whom the order purports to affect has the option of either ignoring it or of going to the court and asking for it to be set aside’. This passage was cited with approval and reproduced in Badiaddin. However the Supreme Court warned that: “…apart from breach of rules of natural justice, in any attempt to widen the door of the inherent and discretionary jurisdiction of the Superior Courts to set aside an order of court ex debito justitiae to a category of cases involving orders which contravened “any written law”, the contravention should be one which defies a substantive statutory prohibition so as to render the defective order null and void on ground of illegality or lack of jurisdiction.” [119] Applying the foregoing criteria to the current factual matrix, it is evident that the consent order of 9 February 2011 is in contravention of a substantive statutory prohibition, namely section 191 of the Companies Act 1965 or section 292 of the Companies Act 1965 or both. This is primarily because no trust subsists, nor was created by the trust deeds dated 26 October 2009 between NGV Tech and NSPL. 43 [120] If not set aside the consent judgment has the effect of according priority over all secured and unsecured creditors, and that too in the absence of a valid trust created or arising prior to the security enjoyed by Maybank in the form of the registered debentures, more particularly the first debenture. [121] For these reasons the learned Judge erred in failing to recognise that there was in point of fact a breach of substantive statutory provisions that justified a setting aside of the consent judgment. [122] It might be argued that this is a consent judgment, which differs from other orders of court. However such a contention fails to recognise that where the substance of the order is a nullity, the fact that the parties agreed to enter into it, cannot detract from such nullity and the consequences of nullity, namely that the consent judgment is null and void. Was there any basis for a finding of constructive fraud? [123] From the salient background facts and the evidence led at trial, the following matters arise for consideration:

(a) In order to finance its shipbuilding business, NGV Tech had given Maybank security in the form of, inter alia, debentures over its entire undertaking, stock in trade and assets, whether present or future and both tangible and intangible; 44

(b) These debentures were duly registered as required by the law, and the requisite forms detailing the nature of the security, were available upon a routine search being undertaken at the CCM. To that extent it comprised notice to the world at large. Such registration is crucial as it affords subsequent third parties intent on dealing with NGV Tech, full disclosure in relation to the financial status of the company;

(c) Notwithstanding the subsistence of these debentures, NGV Tech chose to enter into shipbuilding agreements and trust deeds with NSPL. The directors of NGV Tech displayed dishonest conduct because Dato’ Zul and another director, Jamal were the ones who executed the debentures and signed the sale and purchase agreements and the trust deeds of 26 October 2009 with NSPL. They well knew that they could not dispose of or deal with the charged assets without the consent of Maybank;

(d) Similarly the directors of NSPL had or are effectively affixed with notice of the existence of the debentures in favour of Maybank. Notwithstanding this they chose to deal with NGV Tech to the exclusion of Maybank and its prior secured interest. That too in relation to assets which comprised a part of the charged assets under the relevant debenture; 45

(e) Their less than bona fide conduct is, inter alia, evidenced by the lack of a due diligence exercise being conducted prior to NSPL embarking on a venture involving the expenditure of RM40 million;

(f) They also agreed to make payment to a director personally, namely Dato’ Zul despite the vendor being totally separate from its directors. Their contention that they simply did so because they were asked to and that this request was allegedly supported by a company resolution does not absolve them from the negative inference that no reasonable businessman would agree to make payment into the personal account of a director of a company when the vendor is the company itself and, as a separate entity, has its own separate account;

(g) The subsequent entry into a consent order purportedly on the grounds that the option to repurchase had been exercised and NGV Tech now owed them RM50 million also warrants deeper consideration, as there is no tangible evidence that the options had in fact been exercised. Moreover the net effect of the consent order was to accord NSPL priority over all other creditors, contrary to insolvency principles; [124] In all these circumstances the correct inference to be drawn is that both NGV Tech and NSPL displayed wilful blindness to the secured interests of other creditors including Maybank in 46 orchestrating and executing the series of documents namely the sale and purchase agreements and the trust deeds, culminating in the consent order. [125] Such wilful blindness coupled with the conduct of the directors of both these entities inescapably point to dishonest conduct comprising the basis for a finding of constructive fraud. The learned Judge however failed to consider or appreciate the entirety of the evidence and instead found that there was simply no evidence of fraud. In so holding the learned judge to our minds, erred. How Did the Learned Judge Err? [126] The learned Judge erred, to our minds in the following matters:

(a) The learned Judge, by focussing solely on the legal issue of whether a consent judgment could be set aside, failed to give any consideration to the background factual matrix and to apply the laws of insolvency on the particular facts of dispute before Her Ladyship;

(b) Her Ladyship failed to recognise that Maybank is and was at all times the chargee pursuant to registered debentures which comprise notice to the world at large of the security interest enjoyed by Maybank in relation to NGV Tech’s assets; 47

(c) The learned Judge failed to give any or adequate consideration to the effects of section 108 as well as Forms 34 and 40 which gave clear indication to any prospective purchaser, i.e. NSPL, of the prior secured interest of Maybank over the charged assets, including the subject vessels;

(d) The learned Judge failed to consider that in light of the vessels being charged assets, which NSPL had, or ought to have had notice of, NGV Tech was not entitled to deal with, or dispose of or create trusts in respect of the same;

(e) The learned Judge erred in concluding that beneficial ownership of the subject vessels vested with NSPL by reason only of debit advice documentation produced by the latter;

(f) The learned Judge erred in reversing the onus of proof of payment in full, to support the creation or subsistence of a trust. In this regard the learned Judge held that the onus was on NGV Tech in receivership to produce evidence that Dato’ Zul had not received payment for the subject vessels;

(g) The learned Judge failed to appreciate that payment directly to Dato’ Zul and not to NGV Tech did not amount to full consideration warranting a transfer of beneficial ownership; 48

(h) The learned Judge failed to appreciate or consider why parties accepted a transaction where payments were not made to the vendor, NGV Tech but to a director of the vendor, and to his personal account. Such a request did or ought to have put NSPL on notice that something was amiss;

(i) The learned Judge failed to take into consideration salient evidence which disclosed that Dato’ Zul and another director by the name of Jamal were the ones who signed the debentures as well as the shipbuilding contracts of 26 October 2009 and the trust deeds bearing the same date. As such they well knew that no disposal of the charged assets could be undertaken without the express consent of Maybank. Nonetheless they proceeded to do so. Such dishonest conduct, or wilful blindness at best, points to constructive fraud, a matter which the learned Judge dismissed out of hand;

(j) When considered with the registration of the charges, the failure by NSPL to undertake any due diligence, the payment of the purchase price purportedly to Dato’ Zul directly rather than to the vendor, NGV Tech, it is evident that the learned Judge failed to consider or appreciate that the conduct of the parties collectively was sufficient to amount to constructive fraud; 49

(k) The learned Judge failed to consider or appreciate the purpose and effect of an automatic crystallisation clause and its consequences on any attempt to create a trust as was sought to be done vide the trust deeds executed between NGV Tech and NSPL on 26 September 2009;

(l) The learned Judge failed to consider that payment was purportedly only effected on 29 September 2009 when the floating charge over the charged assets of NGV Tech had crystallised and converted into a fixed charge, encompassing the subject vessels;

(m) If Her Ladyship had done so she would not, and could not have come to the conclusion that NSPL was entitled to the subject vessels or to full payment for the same as per the terms of the consent judgment;

(n) The learned Judge erred when she failed to consider that the consent order could not have the effect of overriding or supplanting the substantive provisions of the Companies Act 1965, more particularly sections 191 and 292 of the same;

(o) The learned Judge failed to apply the rule in Badiaddin and Eu Finance as she ought to have done. This amounted to an error of law. 50 [127] We are therefore satisfied that appellate intervention is warranted in this appeal. We therefore allow the appeal by the appellants, set aside the order of the High Court and enter judgment for the appellants/plaintiffs on terms as set out in the Statement of Claim. For clarity, we enter judgment in the following terms: