Raub Mining & Development Company Sdn Bhd v Dato' Sri Andrew Kam Tai Yeow (W-02(IM)(NCC)-2009-10/2017)

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… … Didengar bersama-sama dengan RAYUAN SIVIL NO: W-02(IM)(NCC)-2008-10/2017 ... PERAYU 30/12/2022 16:00:43 W-02(IM)(NCC)-2009-10/2017 Kand. 138 ... Didengar bersama-sama dengan

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... … [IN THE HIGH COURT OF MALAYA AT KUALA LUMPUR (COMMERCIAL DIVISION) SUIT NO. WA-22NCC-352-09/2017 …

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LEE SIEW KIN … DEFENDAN-DEFENDAN] CORAM: AZIZAH BINTI NAWAWI, JCA RAVINTHRAN N PARAMAGURU, JCA CHE MOHD RUZIMA BIN GHAZALI, JCA Grounds of Decision Introduction [1] There are six (6) appeals before this Court. Three (3) appeals are in relation to the striking out applications filed by the defendants that have been dismissed by the learned High Court Judge:

(i) Appeal No. 2007 – is an appeal by the 4th to the 11th defendants;

(i) Appeal 794 is an appeal by the 2nd and 3rd defendants against the fortification of damages in respect of the interlocutory injunction for RM500,000.00 instead of RM20 million as prayed for;

26.55 6th defendant 19.84 7th defendant 7.39 8th defendant 0.24 9th defendant 0.30 10th defendant (via 9th defendant)

13.36 10th defendant (via 11th defendant)

13.36 Individuals 0.25 [7] The plaintiff also contends that the 1st defendant holds the majority of shares in the 4th to the 11th defendants in the following manner: Company/Group Shareholding (%) 4th defendant 97.80 5th defendant 82.20 5 th defendant (via 9th defendant)

6.77 6th defendant 98.08 7th defendant 66.67 8th defendant 75.00 9th defendant 66.67 10th defendant (via 9th defendant)

10.00 10th defendant ( via 11th defendant)

49.05 Individuals 58.33 [8] Based on the above shareholding structure, the plaintiff contends that the 1st defendant's entire interest in the 2nd defendant amounts to approximately 87.79% of its shares, whether directly or indirectly, through the 4th to 11th defendants. [9] The plaintiff was appointed as a director of the 2nd defendant 1986. During the financial crisis in the 1980s, the plaintiff had agreed to stay on with the 1st, 2nd and 3rd defendants to rehabilitate the poor financial position of the 2nd and the 3rd defendants, on the understanding that the 1st defendant’s entire interest in the 2nd and 3rd defendants would belong to the plaintiff and would be held by or on behalf of the 1st defendant for the benefit of the plaintiff until subsequently transferred to the plaintiff (the “Underlying Agreement”). [10] The plaintiff claimed to have managed to turn the business of the 2nd and 3rd defendants around by 1997, therefore upholding his end of the bargain under the Underlying Agreement. The plaintiff did not demand for the 1st defendant to transfer his 100% interest in the 2nd defendant to him, inter alia, due to the close relationship of father-son and there were no reason for the plaintiff not to distrust his own father. [11] However, around 2010, the plaintiff claimed that the 1st defendant has failed to honour the Underlying Agreement. Eventually, as a compromise and for the sake of peace in the family, the plaintiff agreed to vary the Underlying Agreement by entering into a Shareholders Agreement with the 1st defendant. [12] The plaintiff and the 1st defendant then entered into a Shareholders Agreement dated 16 January 2017 (the “Shareholders Agreement”). The salient terms of the Shareholders’ Agreement are as follows: “(1). Fifty (50) per cent of the Father's entire interests in Raub Mining & Development Company Sdn Bhd ("RMDC") (Company No: 4708-A) - which includes the Father's entire interests in Raub Oil Mill Sdn Bhd ("ROM') (Company No: 26175-P), a wholly-owned subsidiary of RMDC belongs to the Son (the "Son's Portion');

The price of the remaining 50% shares shall be half the highest tender price obtained at the public tender. [15] From the public tender exercise, the highest tender price for the assets of the 2nd defendant was RM140 million. [16] However, the plaintiff claimed that the 2nd and 3rd defendants, under the control of the 1st defendant, then attempted to sell the assets of the 2nd defendant, despite the terms of the Shareholders Agreement. A letter of intent dated 18 July 2017 was executed and a board meeting was convened on 28 July 2017 to update the progress of the sale. [17] On 7 August 2017, the plaintiff received notices of a meeting requisitioned by the 1st defendant for the removal of the plaintiff as a director and to sell the assets of the 2nd and the 3rd defendants. The meetings were scheduled to take place on 6 September 2017. [18] The above events led to the plaintiff filing the present suit. The reliefs, inter alia, sought by the plaintiff in the Statement of Claim are:

(i) a declaration that the Shareholders Agreement dated 16 January 2017 between the plaintiff and the 1st defendant provides, inter alia, that 50% of the 1st defendant's entire interest in the 2nd defendant, belongs to the plaintiff;

(v) a declaration that the plaintiff has the right of first refusal or option, to purchase from the 1st defendant the balance 50% of the 1st defendant's entire interest in the total paid up and issued shares in the 2nd defendant, pursuant to the Shareholders Agreement;

(x) a declaration that any removal of the plaintiff as a director of the 2nd to the 11th defendants which may have been resolved and/or effected by the defendants is null and void;

(a) a piece of land with an area measuring approximately 4215.5198 acres held under H.S.(D) 10803, Lot No. PT 23120 Mukim Gali, District of Raub, Pahang;

(b) a piece of land with an area measuring approximately 4.2732 acres held under H.S.(D) 10940, Lot No. PT 22468 Mukim Gah District of Raub, Pahang;

(c) the palm oil mill located at H.S.(D) 10803, Lot No. PT 23120, Bukit Koman, Mukim Gali, 27600 Raub, Pahang. [19] The defendants then filed several applications to strike out the plaintiff’s claim and these applications have been dismissed by the learned High Court Judge. The learned Judge had also granted an interlocutory injunction, dismissed the defendants’ application to set aside the interim injunction and allowed fortification of damages in the sum of RM500,000.00 only. Hence the aggrieved parties have filed these appeals before this Court. Our Findings [20] It is trite that the court should only exercise its power to strike out a claim or defence under Order 18 rule 19 Rules of Court 2012 in cases where it is plain and obvious that the claim or defence is obviously unsustainable. Therefore, so long as the claim or defence discloses some ground of action and raises some questions fit to be tried, the claim or defence should not be struck out. Appeal No. 2008 [21] In respect of Appeal No.2008, in the High Court, the 1st defendant had applied to strike out the plaintiff’s claim on the grounds, inter alia, that the Shareholders Agreement is merely a family arrangement, lacking in intention to create a legal and binding contract and that the Shareholders Agreement is without any consideration, and is therefore void and unenforceable under section 26 of the Contracts Act 1950. [22] We are of the considered opinion and we agree with the findings of the learned Judge that there are triable issues regarding the interpretation of the Shareholders Agreement dated 16.1.2017, on the alleged breaches of the agreement, on the issue of whether there is a valid consideration and whether the said agreement is void and unenforceable pursuant to section 26 of the Contracts Act 1950. As such, Appeal No. 208 is dismissed with costs. Appeal No. 2007 and 2009 [23] Appeal No. 2007 is an appeal by the 2nd and the 3rd defendants, whilst Appeal No. 2009 is an appeal by the 4th to the 11th defendants, against the decision of the learned Judge in dismissing their applications to strike out the writ and Statement of Claim. [24] As against the 2nd and 3rd defendants, the learned Judge held that the suit against them must proceed, because even though the 2nd and 3rd defendants are “… not parties to the Shareholders Agreement, their assets, which is currently held by the 1st Defendant either directly or indirectly, is the subject matter of the Shareholders' Agreement.” [25] As against the 4th to the 11th defendants, the learned Judge dismissed the applications to strike out on the following ground: “[67] The Plaintiff is also seeking declaratory relief against the 4th to the 11th Defendants. It is not disputed that the 4th to the 11th Defendants are not parties to the Shareholder Agreement. However as evident from the result of the CCM searches (Enclosure 4 Exhibit "A-2") the 1st Defendant holds substantial shares (majority shareholder) in the 4th to the 11th Defendants which in turn holds shares in the 2nd Defendant. The Defendant's entire interests (either directly or indirectly) in the 2nd and 3rd Defendants is the subject matter of the Shareholders' Agreement. On the face of the Shareholders' Agreement as pleaded in paragraph 29 of the Statement of Claim, the 1st Defendant has agreed that 50% of his entire interest in the 2nd and 3rd Defendants belongs to the Plaintiff. While the balance 50% is subject to the Plaintiff exercising the Option as stipulated in clause 4 of the Shareholders' Agreement. Thus on the pleaded facts there is a trust created over the balance 50% of the 1st Defendant's entire interest in the 2nd and 3rd Defendants where the Defendant is holding the said 50% interests in trust for the benefit of the Plaintiff. As such, as a trustee, the 1st Defendant is obliged not to act in any manner that is prejudicial or detrimental to the Plaintiff's interests.” [26] Therefore, the learned Judge’s decision to dismiss the 2nd to the 11th defendants’ application is predicated on the fact that the 1st defendant is a majority shareholder in the 4th to the 11th defendants, which in turn own the majority of shares in the 2nd defendant. The learned Judge made this finding despite acknowledging the fact that the 2nd to the 11th defendants are not privy to the Shareholders Agreement. [27] We are of the considered opinion and we agree with the defendants/appellants that since the 2nd to the 11th defendants are not parties to the Shareholders Agreement between the plaintiff and the 1st defendant, they are therefore not bound by the said agreement because of the doctrine of privity of contract. The 2nd to the 11th defendants are an entirely distinct and separate juristic entity and personality, and were not parties to the Shareholders Agreement. [28] When the 2nd to the 11th defendants are not parties to the Shareholders Agreement, the plaintiff cannot rely on the Shareholders Agreement to enforce it on the 2nd to the 11th defendants, on the basis that the 1st defendant, being a signatory to the Shareholders Agreement, owns the majority shares in the 2nd defendant, directly and indirectly, through the 4th to the 11th defendant. The plaintiff has no privity whatsoever with the 2nd to the 11th defendants with regard to the Shareholders Agreement, with any resulting right of direct enforcement by him against them, as they owe no contractual or other obligation to him. [29] In Scruttons Ltd v. Midland Silicones Ltd [1962] AC 446, which dealt with the English position on the doctrine of privity, Lord Reid said (at pp. 472-473): “In considering the various arguments for the appellants, I think it is necessary to have in mind certain established principles of the English law of contract. Although I may regret it, I find it impossible to deny the existence of the general rule that a stranger to a contract cannot in a question with either of the contracting parties take advantage of provisions of the contract, even where it is clear from the contract that some provision in it was intended to benefit him. That rule appears to have been crystallised a century ago in Tweddle v. Atkinson ((1861) 1 B & S 393) and finally established in this House in Dunlop Pneumatic Tyre Co Ltd v. Selfridge & Co Ltd ([1915] AC 847).” (emphasis added) [30] In Kepong Prospecting Ltd & Ors v. Schmidt [1967] 1 LNS 67; [1968] 1 MLJ 170, the Privy Council held that the doctrine of privity applies in Malaysia. In delivering the judgment of the Board, Lord Wilberforce said (at p. 174): “It is true that section 2(d) of the Contracts (Malay States) Ordinance gives a wider definition of "consideration" than that which applies in England particularly in that it enables consideration to move from another person than the promisee, but the appellant was unable to show how this affected the law as to enforcement of contracts by third parties, and it was not possible to point to any other provision having this effect. On the contrary paragraphs (a), (b), (c) and (e) support the English conception of a contract as an agreement on which only the parties to it can sue. (emphasis added) [31] In Boustead Naval Shipyard Sdn Bhd v. Dynaforce Corp Sdn Bhd [2015] 1 MLJ 284; [2014] 5 CLJ 533, this Court held as follows: “[63] The law is clear. A person who is not a party to a contract has no right to sue on a contract (see Kepong Prospecting Ltd & Ors v. Schmidt [1967] 1 LNS 67; [1968] 1 MLJ 170, PC; [1967] 2 PCC 465, PC; and s. 2(d) of the Contracts Act 1950; Oversea Chinese Banking Corporation Ltd v. Woo Hing Brothers (M) Sdn Bhd [1992] 2 CLJ 1050; [1992] 2 MLJ 86, HC; and Badiaddin Mohd Mohidin & Anor v. Arab Malaysian Finance Bhd [1998] 2 CLJ 75; [1998] 1 MLJ 393, FC).” (emphasis added) [32] Added to that, we also find that the 4th to the 11th defendants’ shareholding in the 2nd defendant belonged to them and not the 1st defendant. A company is a separate entity distinct from its shareholders and therefore the property owned by the company belongs to it and not to its shareholders. The shareholders have no legal nor equitable rights in the assets of the company. [33] In Dato' Dr. Haji Mohamed Haniffa Bin Haji Abdullah & Ors v. Koperasi Doktor Malaysia Bhd & Ors [2008] 3 CLJ 323; [2008] 3 MLJ 530, this Court held as follows at paragraph 9 of the judgment: "... This cardinal principle of company law was established in Salomon v. Salomon & Co Ltd [1897] AC 22 and exemplified in Macaura v. Northern Assurance Co Ltd & Ors [1925] AC 619, where Lord Buckmaster said: 'Now, no shareholder has any right to any item of property owned by the company, for he has no legal or equitable interest therein. He is entitled to a share in the profits while the company continues to carry on business and a share in the distribution of the surplus assets when the company is wound up." (emphasis added) [34] In North Plaza Sdn Bhd v United Securities Sdn Bhd [2010] 1 MLJ 631, at paragraph 22, this Court held as follows: “The property owned by a company belongs to it and not to its shareholders. The shareholders have no right to any property owned by the company but are only entitled to share dividends while the company continues and a share in the distributions of the surplus in the event the company is wound up (Law Kam Loy & Anor v. Boltex Sdn Bhd & Ors [2005] 3 CLJ 355 following the established principle in Macaura v. Northern Assurance Co Ltd [1925] AC 619).” (emphasis added) [34] The above principles have been reaffirmed by this Court in Mega Forest Plantation Management Sdn Bhd v. Pengarah Perhutanan Negeri Selangor & Ors [2021] 7 CLJ 561 “[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 [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. [84] For completeness, we think that it is also relevant to refer to Pioneer Haven Sdn Bhd v. Ho Hup Construction Company Bhd & Anor And Other Appeals [2012] 5 CLJ 169; [2012] 3 MLJ 616 CA, where the Court of Appeal (per Zainun Ali JCA as she then was) enunciated: [146] It is of course trite that the cornerstone of company law is that a company is a separate legal entity from its shareholders. As such, a shareholder cannot claim any right to any asset of the company, for it has no legal or equitable interest therein. (See Law Kam Loy & Anor v. Boltex Sdn Bhd & Ors [2005] 3 CLJ 355). (emphasis added) [85] As such, as a matter of law, the appellant as the majority shareholder of MNSB has no legal right to the assets of MNSB. Thus, whether the assets are in the form of the Sentang trees or other vegetation which had been planted on the sub-leased land, or whether the asset is in the form of a chose in action, the right to sue for the asset lies with MNSB. This appear to be the real intent and grievance of the appellant.” (emphasis added) [36] In view of the fundamental principle that a company is a separate entity distinct from its shareholders, and that the property owned by a company belongs to it and not its shareholders, we find that the learned Judge has erred in law when she failed to give effect to the said principle. [37] The 4th to the 11th defendants' shareholdings in the 2nd defendant belong to them and not to the 1st defendant. As such, we agree with the defendants that since the 1st defendant has no ownership rights in those shares, he therefore has no rights to enter into an agreement dealing with the transfer of those shares. Consequently, we find that the plaintiff cannot sue the 4th to the 11th defendants for the purpose of enforcing the terms of the Shareholding Agreement between the plaintiff and the 1st defendant against them. [38] It is also the submission of the plaintiff that the 1st defendant holds the shares in the 2nd defendant, whether directly or indirectly through the 4th to the 11th defendants, in trust for him, based on the Shareholders Agreement. However, the plaintiff has failed to show if the Memorandum of Articles of the 2nd to 11th defendants allow the recognition of trusts. Even if the same is allowed by the Articles, the same must be read with section 110(4) of the Companies Act 2016, which reads:

Limitation of liability of trustee, etc., registered as owner of shares …

(i) an injunction against the defendants restraining them from holding and / or convening the meeting of shareholders of the 2nd to 6th and the 11th defendants on 6th September 2017;

(v) an injunction against the defendants from disposing, pledging, dealing in any manner whatsoever, all or any assets of the 2nd defendant and/or the 3rd defendant, in particular, all the shares in the 3rd defendant and/or the related assets. [44] This Court in Keet Gerald Francis Noel John v. Mohd Noor @ Harun Abdullah & Ors [1995] 1 CLJ 293; [1995] 1 MLJ 193, had summarised the correct approach to be adopted in hearing an application for an interlocutory injunction. In summary, the court must apply the following principles:

(i) whether there is a bona fide serious question to be tried;

Scruttons Ltd v. Midland Silicones Ltd [1962] AC 446

Kepong Prospecting Ltd & Ors v. Schmidt [1967] 1 LNS 67; [1968]

Boustead Naval Shipyard Sdn Bhd v. Dynaforce Corp Sdn Bhd [2015] 1 MLJ 284; [2014] 5 CLJ 533

Dato' Dr. Haji Mohamed Haniffa Bin Haji Abdullah & Ors v. Koperasi Doktor Malaysia Bhd & Ors [2008] 3 CLJ 323; [2008] 3

North Plaza Sdn Bhd v United Securities Sdn Bhd [2010] 1 MLJ 631

Mega Forest Plantation Management Sdn Bhd v. Pengarah Perhutanan Negeri Selangor & Ors [2021] 7 CLJ 561

Yeng Hing Enterprise Sdn Bhd v. Liow Su Fah [1979] 1 LNS 130; [1979] 2 MLJ 240

Re Perkins, ex parte Mexican Santa Barbara Mining Co [1890] 24 QBD 613 at 616

Keet Gerald Francis Noel John v. Mohd Noor @ Harun Abdullah & Ors [1995] 1 CLJ 293; [1995] 1 MLJ 193