Tan Tee Hui v De Food Creator Sdn Bhd (WA-12BNCC-16-06/2023)

1.

SOON SIEW LING (NRIC NO.: 750320-08-5940) ...APPELLANTS (COMPANY NO.: 1281501-A) …RESPONDENT (In the Sessions Court in Kuala Lumpur In the Federal Territory of Malaysia Case No.: WA-A52NCC-212-01/2019) BETWEEN (NRIC No.: 730307-10-5929) ...PLAINTIFF (Company No.: 1281501-A) ...DEFENDANT (In the Original Action) (Company No.: 1281501-A)

(NRIC No.: 730307-10-5929)

SOON SIEW LING (NRIC No.: 750320-08-5940) ...DEFENDANTS (In the Counterclaim) GROUNDS OF JUDGMENT (Enclosure 1)

The 1st Appellant/Plaintiff filed a claim against the Respondent/Defendant seeking repayment of a friendly loan and advances amounting to RM 267,921.06, which he allegedly advanced to the Respondent.

The Respondent counterclaimed against the 1st Appellant/Plaintiff and the 2nd Appellant/2nd Defendant in the counterclaim. The Respondent’s cause of action was premised on alleged breaches of fiduciary duties and breach of trust. The Respondent claimed the sum of RM 343,660.00 jointly and severally against both Appellants.

The parties are referred to as they were before the Sessions Court. All references to the 2nd Defendant relate to the counterclaim.

After a full trial, the Sessions Court dismissed the Plaintiff’s claim and allowed the counterclaim.

This appeal is directed against that decision of the Sessions Court.

After hearing the parties, I dismissed the Plaintiff’s appeal but varied the orders of the Sessions Court. I allowed the 2nd Defendant’s appeal.

The Plaintiff has filed an appeal against the dismissal of his appeal. The Defendant has filed an appeal against my decision allowing the 2nd Defendant’s appeal.

At all material times, the Plaintiff and the 2nd Defendant were Directors and Shareholders of the Defendant.

The Plaintiff pleaded that between May and October 2018, at the Defendant’s request, he advanced monies to the Defendant by way of a friendly loan. These monies were allegedly used for the payment of deposits and the rental of the Defendant’s factory, the purchase of machinery, and renovation works.

The Plaintiff further alleged that the Defendant made partial repayments totaling RM 255,660.00, leaving an outstanding balance of RM 267,921.06, which formed the subject matter of his claim.

The Defendant denied the Plaintiff’s claim and counterclaimed, seeking declaratory reliefs against both the Plaintiff and the 2nd Defendant. The Defendant alleged that both Appellants had breached their fiduciary duties and the trust reposed in them as Directors of the Defendant. The Defendant also sought the return of RM 343,660.00, allegedly wrongfully paid out.

The claim for the return of RM 343,660.00 was premised on payments made by the Defendant to the Plaintiff. It was not disputed that, while the cheques for these payments were signed by both the Plaintiff and the 2nd Defendant, the monies were received by the Plaintiff and not by the 2nd Defendant.

The Defendant contended that these payments were wrongful as they were made from monies invested by a new investor, Raymond Yong, who subsequently became a shareholder and director of the Defendant.

The Plaintiff and the 2nd Defendant each held 20% shareholding in the Defendant. In or around October 2018, the Plaintiff met Raymond Yong to discuss increasing the Defendant’s cash flow. Raymond Yong agreed to invest RM 500,000.00 in return for 40% shareholding in the Defendant and to be appointed as a Director of the Defendant.

It was not disputed that the Plaintiff and Raymond Yong agreed that the sum of RM 500,000.00 was to be used to pay the Defendant’s external creditors and not to repay the Directors of the Defendant.

The sum of RM 343,660.00 withdrawn from the Defendant was derived from the RM 500,000.00 invested by Raymond Yong. The 2nd Defendant was a co-signatory to the cheques through which these payments were made.

The Defendant alleged that the conduct of the Plaintiff and the 2nd Defendant amounted to malicious intent and conspiracy to injure the Defendant, causing harm to its financial position and reputation, and constituted breaches of fiduciary duties owed to the Defendant, as well as amount to breach of trust.

After a full trial, the Sessions Court held that the Plaintiff had failed to prove the existence of a friendly loan. The Plaintiff’s claim was dismissed. The Court found that the payments made by the Plaintiff were capital contributions or investments rather than a friendly loan.

The Sessions Court allowed the counterclaim on the basis that the payment of RM 343,660.00 was made without any mandate or resolution of the Defendant.

The Sessions Court granted, inter alia, the following reliefs: i. a declaration that the Plaintiff and the 2nd Defendant had jointly and severally breached their fiduciary duties and other obligations; ii. a declaration that the Plaintiff and the 2nd Defendant had jointly and severally breached their trust; iii. an order that the Plaintiff and the 2nd Defendant jointly and severally return RM 343,660.00 to the Defendant; and iv. an order that damages for breach of fiduciary duties and other obligations be assessed.

In order to intervene, I must be satisfied that the Sessions Court was plainly wrong. This requires a finding that the Sessions Court, having seen and heard the witnesses, made findings unsupported by the evidence, misunderstood the evidence, failed to consider relevant evidence, or reached a conclusion so perverse that no reasonable tribunal could have arrived at it (see: Gan Yook Chin (P) & Anor v Lee Ing Chin @ Lee Teck Seng & Ors [2005] 2 MLJ 1

Guided by these principles, I distilled the following issues for determination and assessed if the Sessions Court was plainly wrong: a) whether the Plaintiff granted a friendly loan to the Defendant; and; b) whether the Plaintiff and/or the 2nd Defendant breached their fiduciary duties and/or trust owed to the Defendant, and whether there was malicious intent or conspiracy to injure the Defendant. ANALYSIS I. Issue 1: Whether the Plaintiff granted a friendly loan to the

The Plaintiff was extensively cross-examined on whether the monies he advanced constituted a friendly loan or capital investment. In the course of his testimony, the Plaintiff admitted that the monies described as a loan were in fact investments or capital injected into the Defendant.

The Plaintiff further admitted that there was no documentary evidence showing that the Defendant had requested a friendly loan from him. It is opportune at this juncture to set out those parts of his testimony, which are as follows: TYC: Okay. You cakap "Actually the loan mean is our funding invest to de food n tyt". Dalam makna erti yang lain, in other words okay, ini adalah investment you. Betul? Ini adalah apa yang you invest dalam company ini. Betul? You cakap actually apa yang dicakapkan sebagai loan adalah apa yang anda invest dalam company. Betul? SP1: Saya boleh buat penjelasan tak? TYC: Cuma jawab benar tak? You cakap invest, funding invest saja SP1: Kalau menurut apa yang tertera sini, benar.

Upon further questioning, the Plaintiff agreed that the payments he made were actually his capital. TYC: Yah. Dalam makna erti yang lain in others word Ini adalah investment fund yang you inject adalah sebagai capital sebagai you and investment you. Betul aa? Okay Betul? So setuju atau tidak, Mr Raymond Yong dia bank in RM500k, dia dapat 40% share, dia jadi 40% shareholder. Okay ini yang you tadi dah jawab, apa yang you pump in ini juga merupakan capital you yang you inject into kepada company. Betul? SP1: Uh. TYC: Yang tadi you cakap yang you setuju, SP1: Cuba ringkaskan soalan tu. TYC: Tadi you cakap, you pun ada masuk duit kepada company, yang dicakapkan sebagai loan itu actually capital you, betul?

There seems to be some confusion in the mind of the Plaintiff as to whether the payments he made were actually his investment or his capital. In any event, what is clear from his evidence is that the payments he made to the Defendant were not a friendly loan, as he had pleaded.

There is also the Plaintiff’s testimony that the Defendant did not request for the advances from the Plaintiff. TYC: Okay, untuk jawapan. Saya masih dalam pernyataan saksi anda. Jawapan 3 kepada soalan 3. You cakap saya bayar certain amount atas permintaan defendan okay. Atas permintaan defendan. Saya cadangkan, tak ada apa-apa dokumen yang mencadangkan syarikat De Food ada minta you keluarkan duit. Keluarkan duit advance untuk syarikat. Benar tak? SP1: Ya Betul.

Based on these admissions, the Sessions Court correctly held that the Plaintiff failed to prove his pleaded case of a friendly loan. The evidence demonstrated that the payments were capital contributions rather than a loan.

There was also no contemporaneous documentary evidence to support the Plaintiff’s assertion that the Defendant requested or received a friendly loan.

I therefore find no basis to disturb the Sessions Court’s finding on this issue. The Plaintiff’s appeal against the dismissal of his claim is dismissed, and the decision of the Sessions Court is affirmed in this regard. DEFENDANT’S COUNTERCLAIM AGAINST THE PLAINTIFF AND

Having dismissed the Plaintiff’s claim, the Sessions Court held that the Plaintiff withdrew RM 343,660.00 from the Defendant without the approval of the board of directors and without the knowledge of Raymond Yong, at a time when the monies were intended to be used to pay external creditors. The Sessions Court found that this amounted to serious breaches of fiduciary duty, malicious intent, and conspiracy to injure on the part of both the Plaintiff and the 2nd Defendant.

It was also contended that there was no board resolution approving any payments made to the Plaintiff.

However, it is equally clear from the evidence that there were no board resolutions approving payments made by the Defendant to third parties generally, and that payments were routinely processed through payment vouchers prepared by the accounts department and signed by any two authorised directors.

Evidence further showed that the 2nd Defendant was not involved in the discussions concerning the investment terms agreed between the Plaintiff and Raymond Yong, which were conducted in a WhatsApp group chat that excluded her.

The payments withdrawn from the Defendant’s account were received by the Plaintiff and not by the 2nd Defendant. The 2nd Defendant’s evidence was that, upon payment being received by the Plaintiff, her obligation to repay RM 88,000.00 advanced by the Plaintiff for her shares in the Defendant was extinguished. I will allude to this issue concerning the sum of RM 88,000.00 in the later part of this judgment. II. Issue 2: Breach of fiduciary duties and/or trust

I consider this issue separately in relation to the Plaintiff and the 2nd Defendant.

The starting point is Section 213(1) of the Companies Act 2016, which requires a director to exercise his powers for a proper purpose and in good faith in the best interests of the company. This is how the provision reads: A director of a company shall at all times exercise his powers in accordance with this Act, for a proper purpose and in good faith in the best interest of the company.

A director owes fiduciary duties to act bona fide in the interests of the company and not to place himself in a position of conflict. In Ng Pak Cheong v Global Insurance Co Sdn Bhd [1995] 1 MLJ 64, Dzaiddin FCJ, sitting as a High Court Judge, held as follows: “In law, … directors of the defendant owe a fiduciary duty to the defendant and its shareholders and they are expected to exercise their powers and discretions for the benefit of the company at all times. In Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134n; [1942] 1 All ER 378, Viscount Sankey stated ([1967] 2 AC 134n at p 137G; [1942] 1 All ER 378 at p 381) that: The general rule of equity is that no one who had duties of a fiduciary nature to perform is allowed to enter into engagements in which he has or can have a personal interest conflicting with the interests of those whom he is bound to protect. In Australian Growth Resources Corp Pty Ltd v Van Reesema

13 ACLR 261, it was observed (at p 268): The relationship of a director to the company is fiduciary in character. The primary consequence of this principle is that a director is bound to exercise the powers and discretions conferred upon him bona fide in the interests of and for the benefit of the company as a whole: The exercise of a fiduciary power for a purpose beyond the legitimate scope of the power is invalid. The validity of the exercise of the powers of a director therefore depends upon the purpose of the exercise being for the benefit of the company as a whole. On the law of directors who appropriate for themselves the business or property of the company, the Privy Council in Cook v Deeks [1916] 1 AC 554, per Lord Buckmaster LC (at p 563), observed as follows: But, on the other hand, men who assume the complete control of a company's business must remember that they are not at liberty to sacrifice the interests which they are bound to protect, and, while ostensibly acting for the company, divert in their own favour business which should properly belong to the company they represent. His Lordship further added (at p 564): In the same way, if directors have acquired for themselves property or rights which they must be regarded as holding on behalf of the company, a resolution that the rights of the company should be disregarded in the matter would amount to forfeiting the interest and property of the minority of shareholders in favour of the majority, and that by the votes of those who are interested in securing the property for themselves. Such use of voting power has never been sanctioned by the courts … Therefore, applying the above principles to the facts of this case, I am of the view that the deceased was in breach of his fiduciary duties as a director of the defendant whereby, with the connivance of the Ng family directors and the Siang Yong directors, he used the said agreement as a scheme or device to appropriate the assets of the defendant company to himself and for his own benefit.”

On the facts, the Plaintiff was fully aware that the RM 500,000.00 invested by Raymond Yong was to be used to pay external creditors and not to repay or benefit the directors. This was evident from the terms discussed and agreed between the Plaintiff and Raymond Yong.

By applying these invested monies to pay himself, the Plaintiff subordinated the Defendant’s interests to his own personal interests. This constituted a clear breach of fiduciary duty and a breach of trust owed to the Defendant.

However, on the evidence before the Court, I am not satisfied that a separate case of malicious intent has been made out against the Plaintiff. There is nothing pleaded in the counterclaim to show the Plaintiff’s malicious intent with regard to the withdrawal of the money from the Defendant’s accounts. The particulars of the plea relating to malicious intent are severely lacking.

Likewise, no evidence was led as to what were the losses suffered by the Defendant on account of the breaches he had committed. A party seeking assessment of damages ought to show that there is a factual basis for an assessment to be conducted. As no such basis has been shown, there was no reason to order an assessment of damages against the Plaintiff. Against the 2nd Defendant

The evidence showed that the 2nd Defendant signed the cheques in the ordinary course of her duties as a director, in the same manner as other payments previously made by the Defendant.

The 2nd Defendant was not involved in the discussions on the investment terms between the Plaintiff and Raymond Yong and was unaware of the specific restrictions on the use of the invested monies. This aspect of her testimony was not challenged.

There was no evidence that the 2nd Defendant conspired with the Plaintiff.

The elements required to prove conspiracy have been set out in Renault SA v Inokom Corp Sdn Bhd & Anor [2010] 5 MLJ 394 (CA). The elements are: i. an agreement between two or more persons; ii. an agreement for the purpose of injuring the Defendant; iii. the acts done in execution of that agreement resulted in damage to the Defendant; and iv. Damage is an essential element and where damage is not pleaded the statement of claim may be struck out

The above elements were not proven against the 2nd Defendant.

Mere co-signing of cheques, without knowledge of any improper purpose or intent to injure the Defendant, is insufficient to establish conspiracy or breach of fiduciary duty. Evidence led at the trial court showed that all cheques to be signed were accompanied by payment vouchers. These were prepared by the accounts department. The 2nd Defendant is the Director of the Defendant in charge of Human Resources, not Finance. Her signature on the cheques was required as a co-signatory and the cheques were signed based on the payment vouchers prepared by the accounts department. Therefore, the necessary intent on her part to commit the torts attributable to her in the claim has not been established through evidence before the trial court.

Further, the Defendant failed to adduce evidence of actual loss attributable to the conduct of the 2nd Defendant. The order for assessment of damages against her was therefore plainly wrong.

As regards the sum of RM 88,000.00, the evidence showed that each director was required to contribute RM 138,000.00 for their respective shareholding in the Defendant. The 2nd Defendant had paid RM 50,000.00. The balance of RM 88,000.00 to make up the sum of RM 138,000.00 was advanced to her by the Plaintiff and was reflected in the Directors’ accounts as a debit to the Plaintiff and a credit to the 2nd Defendant. This constituted full payment of the 2nd Defendant’s investment and did not involve a withdrawal of company funds by her.

On a balance of probabilities, the case against the 2nd Defendant on all allegations in the counterclaim remains unproven.

In light of the above, I make the following orders: i. The appeal by the Plaintiff against the dismissal of his claim by the Sessions Court is dismissed with costs. ii. The appeal by the Plaintiff against the judgment on the counterclaim is allowed in part and varied as follows: a) A declaration is granted that the Plaintiff breached his fiduciary duties and committed a breach of trust. b) The Plaintiff shall pay RM 343,660.00 to the Defendant. c) The Plaintiff shall pay interest at the rate of 5% per annum on RM 343,660.00 from the date of the writ until full settlement. d) The Plaintiff shall pay costs of RM 7,000.00 to the Defendant for this appeal. iii. The appeal by the 2nd Defendant is allowed. The decision of the Sessions Court against the 2nd Defendant is set aside, and the counterclaim against her is dismissed with costs. Dated the 16th day of December 2025 -sgd- ……………………………………………………………………… MUHAMMAD ADAM @ EDWARD BIN ABDULLAH Judicial Commissioner High Court (Commercial Division NCC 4) High Court of Kuala Lumpur In the Federal Territory, Malaysia Counsel for the Plaintiffs/Appellants : Vincent Lim together with Emily Wong Messr. Tetuan SL Lim & Lui Counsel for the Defendant/Respondent : Tan Yee Chian Messr. KS Chew & Associates

Gan Yook Chin (P) & Anor v Lee Ing Chin @ Lee Teck Seng & Ors [2005] 2 MLJ 1 (FC)

Ng Pak Cheong v Global Insurance Co Sdn Bhd [1995] 1 MLJ 64 3. Renault SA v Inokom Corp Sdn Bhd & Anor [2010] 5 MLJ 394 (CA)

Section 213(1) of the Companies Act 2016