Chin Cheen Foh & 4 Lg v Saujana Resort (M) Berhad (WA-24NCC-299-06/2018)

CHIN CHEEN FOH (NRIC No.: 580619-07-5529)

CHIN KON MENG (NRIC No.: 530922-10-5465)

LEE POI KEONG (NRIC No.: 560710-10-6201)

WON YAN KHEONG (NRIC No.: 580318-08-5045)

NG HOE (NRIC No.: 570706-10-6347) … PLAINTIFFS AND SAUJANA RESORT (M) BERHAD (Company No.: 97069-H) … DEFENDANT 2

This is an application by the Plaintiffs who are shareholders of the Defendant for various orders and declarations as regards the status of the Saujana Golf & Country Club (“the Club”) as an interest scheme. I have partially allowed the application. These are the full reasons for my decision.

The Defendant is a public company incorporated in Malaysia on 2.2.1983. The issued and paid-up share capital of the Defendant consists of 15,300 Class A shares and 3,800 Class B shares.

Class A shares and Class B shares rank pari passu in all respects except that:

A Class B share (but not a Class A share) entitles the holder to membership of the Club owned by the Defendant, subject to compliance with such rules and regulations for the Club as may be from time to time laid down by the Directors of the Defendant (“Club Rules”); and 3

(ii) In the event the Defendant is wound up, the holders of the 3,800 Class B shares are entitled to the repayment of capital in priority to the holders of the 15,300 Class A shares.

Under Article 85(1) of the Constitution of the Defendant (“Articles of Association”) the holders of Class A shares are entitled to appoint 6 directors of the Defendant and to remove and replace the same or to fill in any casual vacancies while the Class B shares are entitled to elect 2 directors of the Defendant. At this time, there are 4 Class A shares appointed directors and 2 Class B shares appointed directors.

Following the incorporation of the Defendant in 1983:

the promoters of the Defendant invested RM37,000,000 into the Defendant, which the Defendant utilized to acquire 140 hectares of freehold agricultural land in the Mukim of Damansara, near what was then the Subang International Airport, for the development of two 18-hole golf courses, a clubhouse and a hotel (“Saujana Resort Project”). In January 1984, the Defendant commenced the construction works for the Saujana Resort Project. 4

in around April and May 1985 the Defendant made restricted offers, by invitation only, to selected members of the public in both Malaysia and Singapore to subscribe for and/or purchase 1,000 Class B Shares pursuant to Prospectuses dated 2.4.1985 and 8.5.1985 respectively (“Prospectuses”).

The purpose of the offers made in the Prospectuses were:

to provide selected members of the public with an opportunity to participate in the equity of the Defendant, which was intended to be a profit-making enterprise, as well as entitling its Class B Shareholders or their nominees to be members of the Club;

to raise additional funds, estimated to amount to approximately RM34.5 million, to finance in part the development costs of projects being undertaken by the Defendant, including the Saujana Resort Project; and

to pay for the acquisition of an additional 20 hectares of land. 5

In 1985, when the offer to the public was made, the Interest Schemes Act 2016 was not enacted and not in operation. The Defendant contends that the restricted offer to selected members of the public to subscribe for and/or purchase the Class B Shares was made pursuant to the Prospectuses in compliance with the relevant provisions of the Companies Act 1965 then in force.

The changes in the issued and paid up share capital of the Defendant since its incorporation are as follows: Date of allotment/ subdivision No. of the Company’s Shares allotted/ subdivided (non-cumulative) Par Value (RM) Consideration Total issued and fully paid-up share capital (cumulative)

2.2.83 2.9.83 12.9.83 19.1.84 27.1.84 29.2.84 22.2.90 2 147 63 588 252 1,048 6,300 10,000 10,000 10,000 10,000 10,000 10,000 2,500 Cash Cash Cash Cash Cash Cash Sub-division of one class A share of each to four class A shares of each 20,000 1,490,000 2,120,000 8,000,000 10,520,000 21,000,000 21,000,000 6 Date of allotment/ subdivision No. of the Company’s Shares allotted/ subdivided (non-cumulative) Par Value (RM) Consideration Total issued and fully paid-up share capital (cumulative)

22.2.90 Class B

31.3.84

8.6.85

22.2.90 6,900 1,600 700 1,500 2,500 10,000 10,000 2,500 Sub-divisions and conversion of one class B share of each to one class B shares of each and three class A shares of each Bonus issue by capitalization of capital reserves Cash by way of public issue at an issue price of RM50,000 per class B share Capitalization of loan and advances from Peremba Berhad 38,250,000 16,000,000 23,000,000 26,750,000 7 Date of allotment/ subdivision No. of the Company’s Shares allotted/ subdivided (non-cumulative) Par Value (RM) Consideration Total issued and fully paid-up share capital (cumulative)

22.2.90 - - Sub-division and conversion (in relation to 2,300 Class B Shares only) of one Class B share of each to one class B share of each and three class A shares of each 9,500,000

Since the issue of the Class B Shares to the selected members of the public in 1985 pursuant to the Prospectus, there has been no further public issue of any Class B Shares.

Following the issue of the Class B Shares to the offerees who accepted the offers made pursuant to the Prospectuses, nobody has become a Class B Shareholder other than pursuant to a transfer of Class B Shares from an existing Class B Shareholder – normally, pursuant to a private sale in the secondary market – or private 8 transmission and not from any new issue of any Class B Shares by the Defendant.

The Club commenced operations 1986 and since that time has been owned and operated by the Defendant. This is not disputed.

Ordinary membership of the Club is exclusively derived from ownership of a Class B share. Whether a Class B shareholder exercises such right is a matter solely at the discretion of the Class B shareholders themselves. In fact, as at 31.12.2017, Class B shareholders in respect of 1,578 out of the 3,800 Class B shares have chosen not to exercise such right, and they simply hold their Class B shares.

A member is entitled to utilize the facilities of the Club, subject to compliance with the Club Rules as might, from time to time, be laid down by the Directors of the Defendant. A member is not required to make any investment or pay any membership fee to join the Club. The monthly subscription fee and other Club charges are deployed for the day-to-day running costs and operations costs of the Club, and are not an investment to acquire any interest or right in respect of property used or employed in common with any other interest or right whatsoever. 9

Funds for major capital investments were raised through or by the Defendant through bank borrowings, or thus far, through advances from its ultimate holding company.

The Plaintiffs have been members of the Club for almost 20 years and have filed the Originating Summons herein seeking inter alia the following orders and declarations:

A declaration that the issuance or offer to the public by the Defendant of its Class B shares with the attached right to membership of the Club constitutes a scheme within the meaning of sections 2 and 4 of the Interest Schemes Act 2016 (“the Act”); and

(ii) A declaration that the Plaintiffs and/or all Class B shareholders of the Defendant are interest holders in the Scheme pursuant to section 2 of the Act.

(iii) An order that the Defendant apply/or take all necessary steps to apply for the said registration of the Scheme with 10 the Registrar as defined in section 2 of the Act, within 14 days of the Order of Court herein;

(iv) An order that the Defendant within the same period appoint a trustee to act for the Class B shareholders, in compliance with section 22 of the Act;

A declaration that the Defendant’s increase of the monthly subscription for membership of the Club from RM250.00 to RM500.00 in September 2017 was in breach of the Act and is accordingly null and void.

The Act provides, amongst others:

Section 2 provides: “interest” means any interest or right to participate whether enforceable or not and whether actual, prospective or contingent whether in Malaysia or elsewhere: 11

in any investment scheme;

in any time-sharing scheme; or

in any recreational membership scheme, Whether or not the interest or right is evidenced by a formal document or relates to a physical asset, but does not include-

any shares in or debenture of a corporation; ... “interest holder” means a person who participates in a scheme; “scheme”, in relation to an interest, includes any contract, arrangement, undertaking, enterprise, programmes or plans of actions relating to an investment scheme, a time-sharing scheme or a recreational membership scheme;”

Section 4 provides: “(1) A scheme shall be either-

an investment scheme;

a recreational membership scheme;

a time-sharing scheme; or

a combination of such schemes. 12

A scheme is an investment scheme if the interest holder does not have day-to-day control over the operation of the scheme, whether or not the interest holder has the right to be consulted or to give direction and that-

the interest holder contributes money or money’s worth as consideration to acquire a right or interest to profits, assets or realization of any financial or business undertaking of the scheme, whether the right or interest are actual, prospective or contingent and are enforceable or not; and

the contribution by the interest holder is pooled or used in common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property for which the interest holder is led to expect profits, rent or interest from the efforts of the promoter of the enterprise or a third party.

A scheme is a recreational membership scheme if-

in substance and irrespective of the form, the scheme involves the investment of money in or under such circumstances that an interest holder acquires or may 13 acquire an interest or right in respect of property which under or in accordance with the terms of investment will or may, at the option of the investor, be used or employed in common with any other interest or right in respect of property acquired in or under like circumstances and includes an entitlement to a right to use or enjoy any sport, recreational, holiday or other related facilities for a consideration; and

the scheme is to operate for a duration of not less than twelve months whether or not on a recurring basis.

A scheme is a time-sharing scheme if-

an interest holder is or may become entitled to use, occupy or possess for two or more periods during the period for which the scheme, whether in Malaysia or elsewhere is to operate, property to which the scheme relates; and

the scheme is to operate for a period of not less than three years.”

The Defendant submits that: 14

“Scheme” under the Act is in relation to an “interest” as defined in section 2(1) of the Act; and

“Interest” as defined in section 2(1) of the Act does not include any shares in or debentures of a corporation; therefore, the Act does not apply to the Defendant nor the Club.

In Thein Hong Teck & Ors v Mohd Afrizan Bin Husain and Anor [2011] MLJU 944, the Federal Court held at para 31: “...We are of the view that that s. 314(1) of the Act is clear and unambiguous. As such it must be given its literal interpretation. Under the circumstances it is not the function of the Court to re-write the statute in a way in which it considers reasonable. In other words, the High Court was not entitled to read words into that provision. Where the words of the statute are plain and unambiguous, the Court ought to give effect to its plain meaning (see Duport Steel Ltd v Sirs [1980] 1 W.L.R. 142; MBF Holdings Bhd v Emtex Corporation

When the statutory words are plain and unambiguous, it is not for anyone to invent fancied ambiguities and add words to the statute or read words into it which are not there (see Malaysian Bar v Dato’ 15 Kanagalingam Venuppila [2004] 4 CLJ 194; Wong Pot Heng v Zainal Abidin Putih [1990] 2 MLJ 410).

Applying the words and phrases of a statute in their ordinary meaning has been said to be the first and most elementary rule of construction and the second is said to be to construe the phrases and sentences according to the rules of grammar (see Chin Choy & Ors v Collector of Stamp Duties [1979] 1 MLJ 69 FC at 70; Hong Leong Bank Bhd v Khairulnizam Jamaludin [2016] 7 CLJ 335 FC at para 29).

The Defendant submits that based on the plain and unambiguous provisions of the Act, and even assuming that the Act has retrospective effect – there is neither “scheme” nor “interest” as:

Ordinary membership of the Club is exclusively derived from ownership of a Class B Share and not by way of any other investment or scheme. This is an exercise of a right attached to a Class B Share that is intrinsic to and not detachable from that Class B Share;

“Interest” as defined in Section 2 of the Act does not include any shares in or debenture of a corporation; 16

the Plaintiffs are holders of Class B Shares, and became members of the Club through their entitlement as holders of

the right to become an ordinary member of the Club is intrinsic to the rights and privileges of a Class B Shareholder, and not any contract, arrangement, undertaking, enterprise, programmes or plans of actions relating to any investment scheme or a recreational membership scheme or any scheme under the Act;

the only issuance or offer to the public by the Company was for purchase of its Class B shares in 1985, and not for Club memberships or any “interest” as defined under the Act. All transactions of Class B Shares since 1985, have been made pursuant to private sale and purchase transactions of Class B Shares, to which the Defendant is not a party;

whether a Class B Shareholder exercises such right is a matter solely at the discretion of the Class B Shareholder themselves. In fact, as at 31.12.2017, 1,578 out of the 3,800 17 Class B Shares have chosen not to exercise such right, and they simply hold their Class B Shares;

a member is not required to make any investment or pay any membership fee to join the Club. The monthly subscription fee and other Club charges are deployed for the day-to-day running costs and operations costs of the Club, and are not an investment to acquire any interest or right in respect of property used or employed in common with any other interest or right whatsoever;

other than administrative charges and a deposit (which is refundable as security for monthly subscription and expenses), there is no sum of monies required to be paid to become a member of the Club or for the membership of the Club, as it is already a right of a Class B Shareholder; and

funds for major capital investments were raised through or by the Defendant through bank borrowings or advances from its ultimate holding company. 18

The Plaintiffs on the other hand, submit that on the undisputed facts, there exists a “recreational membership scheme” within the meaning of section 4(3) of the Act.

Rule 3.0 of the Club Rules itself state that the objects of the Club are to: “provide, equip, maintain and manage two (2) eighteen (18)-hole golf courses and a clubhouse, with facilities for swimming, tennis, squash, and such other forms of sporting, social and recreational activities, as the Board may from time to time decide”. and Rule 4.1 further states: “Each member of the Club shall, subject to the Rules for the time being in force, be entitled to use and enjoy, in common with other Members of the Club, the facilities provided by the Club”.

It appears from the above that the right to membership in the Club is “an entitlement to a right to use or enjoy any sport, recreational, holiday or other related facilities for a consideration” which is to be “used or employed in common with any other interest or right in respect of 19 property”, within the meaning of Section 4(3) of the Interest Schemes Act, 2016.

The Plaintiffs submit that the undisputed facts satisfy the existence of a “recreational membership scheme” within the meaning of Section 4(3) of the Act:

Class B shareholders have acquired from the Defendant a contractual right to membership of the Club;

(ii) membership of the Club entitles the use and enjoyment (in common with other members and nominees of Class B Shareholders) of the facilities provided by the Club;

(iii) in exchange, the Class B shareholders have paid:

for their Class B shares;

transfer fees;

refundable deposit for membership in the Club; and

pay monthly subscriptions to the Club; 20

(iv) the facilities of the Club are of a sport, recreational and holiday nature; and

the Class B shareholders have the contractual right to membership of the Club for so long as they hold such shares.

As for the exclusion of shares in a corporation from the definition of “interest”, the Plaintiff submit that it is the interest in a share of a corporation that is excluded from constituting an interest under the Interest Schemes Act, 2016, and not the form from which the right to membership arises. Accordingly, Section 2 does not exclude the Plaintiffs and Class B Shareholders’ interest in their contractual right to membership of the Club, via their ownership of a Class B share and the terms stipulated in the Defendant’s Articles of Association.

That the form is irrelevant is confirmed by Section 4(3)(a), which states that, if the requirements previously discussed are met, a scheme is a recreational membership scheme, if it is so “in substance and irrespective of the form”. 21

This wide approach as to its form is also found in the definition of “interest” under Section 2: “...Whether or not the interest or right is evidenced by a formal document or relates to physical assets...”

That “interest” relates to the benefit, not the form, has been observed by the Federal Court in NV Multi Corp & Ors v Suruhanjaya Syarikat Malaysia [2010] 5 MLJ 573, where James Foong FCJ held, in interpreting the meaning of ‘interest’ within Section 84(1) of the old Companies Act, 1965: “[92]...Firstly, the word ‘interest’ must be interpreted as defined in s 84(1) of the Act. No new elements should be added to what is stated in this provision. Secondly, the profit element cannot be totally excluded from this limb. It is, but one of the factors necessary to justify the fulfilment of this limb. Aside from ‘profits’ under this limb there are also ‘rent’ or ‘interest’ from the efforts of the promoters of the enterprise of a third party. In the factual matrix of this case, I would consider the purchasers were led to an ‘interest’ from the efforts of the promoters of the enterprise. ‘Interest’ in this case would be the benefits derived by the purchasers in securing the burial plots or storage spaces for the urns and the continuous maintenance of these together and other facilities 22 provided in the parks. With this element of ‘interest’ present, the plaintiffs’ objection to the inclusion of this limb of s 84(1) of the Act to their project must fail”.

It therefore cannot be the case, the Plaintiffs submit, that what is essentially in substance a scheme is excluded from the Interest Schemes Act, 2016 merely because the contract is in the form of a share. Such a reading is not only illogical, but is against the intention of Parliament. Any corporation offering a scheme to the public would otherwise be able to evade the safeguards of the Interest Schemes Act, 2016 by making the conduit to participation a share.

That the Interest Scheme Act, 2016, and its previous form in the Companies Act, 1965 is designed to protect the investing public in schemes of whatever form, were stressed by both the Federal Court and Court of Appeal in the NV Multi Corp case.

At the Federal Court, James Foong FCJ held: “[77] Except for one Malaysian authority; Ratus Mesra Sdn Bhd v Shaikh Osman Majid & Ors [1999] 3 MLJ 529; [1999] 8 CLJ 499, which is a libel action making some reference to s 84 of the Act in passing and of very little assistance to this case, there is a virtually no common law authority in this 23 country on this important question of law that attempts to protect the public against possible losses in a free market enterprise. ...”

At the Court of Appeal, Abdul Hamid Embong JCA, having scrutinized the equivalent Australian Companies Act, stressed as follows: “THE NEED FOR THIS ‘BLUE SKY’ LAW [37] Division 5 of Part IV of the Act is enacted with the underlying purpose of protection of the public at large of their interest in such a scheme as this one provided by the respondents. Section 84 indeed casts a wide net. When the State of Kansas first enacted its maiden securities registration law in 1911, it was announced that ‘The state was the hunting ground of promoters of fraudulent enterprises ... so barefaced ... that it was stated they would sell building lots in the blue sky’. (extract from Your Dictionary.com). This gave birth to legislations now commonly known as ‘blue-sky’ laws, such as the one found in Division 5 of or Act. [38] His Honour Murphy J, commenting on such laws in his judgment in Australian Softwood made the following remark: Legislatures here and overseas have made increasingly stringent ‘blue sky’ laws to protect prospective investors in such schemes (see 24 Securities and Exchange Commission v W J Howey Co [1946] 328 US 293; Radiate Forestry Development Co Pty Ltd v Evans [1977] 3 ACLR

In response, promoters design increasingly more sophisticated schemes in attempts to circumvent the laws.

We find in our s 84 and the overall design in Division 5 of the Act a specific provision to protect the general public from such schemes or business enterprise innocuously design to avoid compliance with the requirements of Division 5 of Part IV of the Act.

Without complying with the requirements set out in Division 5 means no proper monitoring and as such crucial information are withheld from the general public. The identity and terms of appointment of the trustees of the continuity fund are unknown. Their powers to invest the monies in that fund are unknown. Who monitors their performance is unknown. The details on 25 the expenditure and accounts of that fund are unknown. The details of arrangement of the respondents in the event of their winding up are also not known. In short, a total lack of transparency, crucial for the protection of the public as envisaged under the said Division 5. These concern to which we are sensitive, were expressed by the appellant, as the regulator under the Act.

In giving a wide and liberal construction to the word ‘interest’ as defined under s 84(1) of the Act, we would adopt without more, this approach and reasoning of Macrossan J in the case of R v Commons, who said: There is no warrant for reading those words down on the assumption that some limited scope is intended, or upon the basis that the legislature could surely not have intended to catch and proscribe such and such a transaction. The validity of this observation ... Young CJ in Wade v A Home Away Pty Ltd [1981] VR 475 at pp 476-477. At p 477, Young CJ stated: The definition is indeed so wide that it is fruitless to attempt to describe in language other than that of the definition itself the schemes or class of schemes that fall within it. The second observation I would make is that it can be misleading to endeavour to form an accurate impression of the full scope of the intended statutory coverage by looking to single-mindedly at the precise details of the particular schemes 26 which the limited number of court decisions to date have indicated are caught. While analogy can be illuminating, there is the danger that the decisions which are, after all, mere examples, can induce the observer to believe that they define the limits of the scope of the definition. While certain points of principles may emerge from the decisions upon particular schemes, it is the broad words of the statute which must be returned to and, with respect, it is the delimitation of the correct approach which has been settled in Wade v A Home Away Pty Ltd and, authoritatively for us, in Australian Softwood Forests Pty Ltd which is of the greatest utility, together with the pronouncements of principle in the latter case”.

The Plaintiffs also submitted that whilst Parliament has excluded shares and debentures from the statutory definition of ‘interest’, it is significant to note that Parliament also recognises that an interest in a scheme may take the form of a share, and where it does, such shares are treated differently:

Section 363 of the Companies Act 1965 on the “Restriction of offering shares, debentures, etc. For subscription or purchase’ stipulates, inter alia: 27 “(3) A person shall not make an offer to the public or to any member of the public (not being a person whose ordinary business it is to buy or sell shares, whether as principal or agent) of any shares for purchase.

Subsection (3) shall not apply-

...

...

...

where the offer (to buy or sell shares) relates to –

an interest to which Division 5 of Part IV applies and is accompanied by a statement in writing as required by that Division; or

(ii) ...

to any advice as to the price at which a management company is prepared to buy or sell any interest to which Division 5 of Part IV applies given or sent by the management company to any person to whom the management company has given or sent a statement in writing relating to that interest which complies with that Division within the period of six months immediately preceding the giving or sending of the advice”. 28

(ii) Section 596(5) and (6)(d) and (e) of the Companies Act, 2016 similarly prohibits the making of an offer to purchase any shares to the public or to any member of the public, but excludes certain categories of shares, including where it relates to an interest to which the Interest Schemes Act, 2016 applies: “(5) A person shall not make an offer to purchase any shares to the public or to any member of the public who is not a person whose ordinary business is to buy or sell shares, whether as principal or agent

Subsection (5) shall not apply –

...

...

...

where the offer (to purchase any shares) relates to an interest to which the Interest Schemes Act 2016 applies and is accompanied with a statement in writing as required by that Act;

... 29

to any advice as to the price at which a management company is prepared to buy or sell any interest to which the Interest Schemes Act 2016 applies, given or sent by the management company to any person to whom the management company has given or sent a statement in writing relating to that interest which complies with the Interest Schemes Act 2016 within the period of six months immediately preceding the giving or sending of the advice”. Similar provision can be found at section 374 of the Australian Companies Act, 1961. Hence, where an interest in a scheme is represented by a share in a company, that share is treated differently by Parliament. Restrictions on the sale of shares to the public or any member of the public, apply differently when such shares “relates to an interest to which the Interest Schemes Act 2016 applies”. Ultimately, it is the substance, and not the form of the share, that is looked at and considered.

From the Plaintiff’s submissions, it appears that there can be interests to which the Act applies which can take the form of shares. A wide meaning should be attached to the word “interest”. The Court 30 should consider the substance and not just the form. In Suruhanjaya Syarikat Malaysia v NV Multi Corp Bhd & Ors [2008] MLJ 61, Abdul Hamid Embong JCA (as His Lordship then was) in delivering the Judgment of the Court of Appeal held, inter alia: “[13] In our view a wide meaning should be attached to the key word ‘interest’ rather than a restrictive interpretation as adopted by the learned judge. Our view is supported by a number of decisions from Australia discussing how the definition of the word ‘interest’ found in s 76(1) of the Australian Companies Act (in pari material with our s 84(1)) should be approached”.

On appeal, the Federal Court concurred. James Foong FCJ held: “[78] It is common ground that the word ‘interest’ in s 84(1) of the Act be given a wide meaning. The rationale is found in the judgment of Mason J in the Australian case of Australian Softwood Forest Pte Ltd & Ors v Attorney-General (NSW); Ex rel Corporate Affairs Commission (1981) 36 ALR 257: That a very wide meaning should be given to ‘interest’ is attested by the exclusion from the statutory definition of shares and debentures (para (d)), interests in life insurance policies (para (e) and, subject to some qualification, interests in partnership agreements (para (f)). The presence of the power to exempt by regulation other rights or interests from the definition (para (g)) is also of telling significance”. 31

I agree with the Plaintiff’s submission that the Class B share in the Defendant relates to an interest to which the Act applies, as is plainly evident from the Defendant’s advertisement for participation as a member in the Club. In fact, apart from the exclusion of a share from the definition of “interest” under the Act, it would have been plain that the Defendant was carrying on a recreational membership scheme in allowing the Club members to enjoy the Club facilities. Since I am persuaded that the definition of “interest” could include a share where it relates to a scheme under the Act, I would incline in favour of the Plaintiffs.

The Defendant has advertised for membership on the Club’s website and the PDF document attached thereto: “Membership to Saujana Golf & Country Club (SGCC) is through the purchase of a Class B share in the company. The par value of each Class B share is RM2,500/- and the current market price for each Class B share is in the range of RM50,000-RM60,000 (inclusive of a share transfer fee of RM10,000). 32 A Class B share shall entitle the holder thereof to a membership of SGCC subject to compliance with such rules and regulations as may, from time to time, be laid down by the Directors of Saujana Resort (M) Berhad. Where the holder of a Class B is a corporation, such Member shall be entitled to nominate and individual to be a member of the Club. The Membership to SGCC can be purchased from existing shareholders who are willing to sell their Class B shares in the open market on a willing seller-willing buyer basis. For more information and assistance, please contact Pn Rozidah (Idah) at Tel: 03-7846 1466 during normal office hours from Mon – Fri: 9.00 am to 5.00 pm”.

Class B shares continued to be traded in the open market, whether by individuals, or corporate entities related to the Defendant. This can be seen from the Club’s own newsletter dated July 2018, welcoming new members to the Club.

It is submitted and I agree that the above evidence in respect of the manner in which prospective members are directed to purchase Class B shares, and the transfer of Class B shares from companies related to the Defendant, goes towards proving that: 33

the Defendant did, amongst others:

Offer to the public the purchase of; and/or

Invite the public to purchase, the membership of the Club through the purchase of the Class B shares in the open market from existing shareholders, and to assist and facilitate such sale and purchase;

(ii) The Defendant did issue advertisements, amongst others:

Inviting the public to become members of the Club through the purchase of the Class B shares; and

Containing information calculated to lead directly and/or indirectly the public to purchase the membership of the Club through the purchase of the Class B shares; 34

(iii) The Defendant did advise and/or procure members of the public to become a member of the Club through the purchase of the Class B shares; without the scheme being registered and authorized under the Act.

“Advertisement” is defined widely in section 2 of the Act to mean: “the disseminating or conveying of information, invitation or solicitation by any means or in any form including oral and written communication by means of print, electronic and any other media,”

The Defendant has submitted that even if the offer of its Class B shares to members of the public constitutes a scheme within the meaning of sections 2 and 4 of the Act, there is no requirement for registration. It is not compulsory. What is provided is that no person shall:

Issue or cause to be issued any advertisement inviting any person to become participants in a scheme, or offering any person to become participants in a scheme, or containing 35 information calculated to lead directly or indirectly any person to become participants in a scheme, or containing an offer to become participants in a scheme; or

Advise or procure any person to become or offer any person to become a participant in a scheme. (see section 3(2) of the Act). unless registered under the Act.

The Defendant submitted that if it had breached section 3(2) of the Act, that is for the Registrar to take action against it and the court has no jurisdiction to order it to be registered. One day prior to the last hearing date on or around 13.9.2018, the Defendant filed an affidavit stating that it had disabled its website and one assumes that the website has been disabled permanently although that is not stated by the Defendant. Accordingly, the Defendant submitted that it is no longer in contravention of clause 3(2) of the Act now, if it ever was.

Section 72 of the Act provides for the Registrar to terminate an unregistered scheme. It provides inter alia thus: 36 “(1) The Registrar shall have the power to terminate an unregistered scheme and may make one or more of the following:

direct any person to compensate any person who have purchased any interest in the scheme;

restrain any person from carrying on any of the following activities:

promote any interest in the scheme to the public ;

(ii) deal or generate interest in its products or offering of products;

(iii) print, publish or distribute or cause to be printed, published or distributed , written materials promoting interest in the schemes;

(iv) make any recommendation, or offer advice, whether orally or in writing, to any person in relation to a product or a decision by a person regarding whether or not to invest in a product;

induce, solicit, collect or receive money from a person in relation to the scheme; or

give any other direction as the Registrar thinks fit.

The Registrar may apply to the Court for an order to nullify any contract made as a result of any offer of interest in an unregistered scheme and such other consequential order as the Court thinks fit.” 37

I agree that the consequence of an interest scheme being unregistered is to be dealt with by the Registrar and that the Court has no power to order the Defendant to be registered. The registration of the Defendant would:

Require the incorporation of a “management company” (s. of the Act);

Involve the appointment of directors, secretary and auditor of the management company (s 9(2)(b) of the Act);

Involve the appointment of a trustee (s. 9(2)(d), s. 22 and s. 23 of the Act);

Involve the preparation of trust deed and contractual terms (s 9(3), s. 21 of the Act); and

Involve the approval of appointment of the trustee (s. 19 of the Act). 38

It is settled law that the Court will not make orders requiring continuous supervision of actions of the parties and if such orders will affect other members. (Lembaga Pembangunan Langkawi v Smart Unity Sdn Bhd [2017] 7 CLJ 450 at para 70)

Accordingly, I would not compel the Defendant to be registered. At this juncture, there is no evidence that the Defendant is advertising or advising anyone to become a member of the Club and at this juncture, there is no contravention of the Act on the part of the Defendant.

I would also not grant Prayer (1) of the Originating Summons which seeks a declaration that the issuance of offer to the public by the Defendant of its Class B shares with the attached rights to membership of the Club constitutes a scheme within the meaning of sections 2 and 4 of the Act. This is because the offer to the public took place in 1985 prior to the coming into force of the Act. It therefore cannot be caught within the ambit of the Act which is not stated to have retrospective effect.

Accordingly, I would only grant prayer (2) of the Originating Summons and declare that the Plaintiffs and all Class B shareholders of 39 the Defendant are interest holders in the scheme pursuant to section 2 of the Act unless the Defendant succeeds in its other defences to the Originating Summons.

I will next deal with the submission on estoppel and delay raised by the Defendant. The Defendant asserts that the Plaintiff is estopped from filing this Originating Summons, and that there has been inordinate delay, applying the maxim vigilantibus, non dormientibus jura subveniunt: the law assists those that are vigilant with their rights, and not those that sleep thereupon.

In the case of Faber Merlin [1985] 2 MLJ 380, the then Supreme Court referred to and adopted the following passage from ‘The Declaratory Judgment by I. Zamir (1962)’: “The equitable origin, however, has left its mark on the remedy. This is especially evident in its discretionary nature. This discretion is employed ... primarily to do justice in the particular case before the Court ... In another action, this court held that the plaintiff had waived his right to take the proceedings and, further assumed that the claim might also be dismissed on the ground of undue delay”. 40

The Malaysian law on declaratory judgments have since evolved from Faber Merlin. In the more recent case of Wieland Electrim GMBH v Industrial Automation (M) [2014] 10 MLJ 445, the High Court, in deciding upon the Plaintiff’s prayer for declaratory orders, held: “[61] In any event, the first defendant relied on the case of Faber Merlin (M) Sdn Bhd & Ors v Lye Thai Sang & Anor Tan Kim Chua Realty Sdn Bhd v Lye Thai Sang & Anor [1985] 2 MLJ 380 which is a case on the exercise of discretion. ... [62] Further, we are dealing with a statutory right pursuant to Act 175, and the plaintiff is merely seeking an enforcement of their statutory rights. Justice Ramly Ali in Regent Pumps Pty Ltd’s case held that mere delay after knowledge of infringement does not deprive the applicants of their statutory rights or appropriate remedies. His Lordship also referred to the case of Viday Dyes Syndicate Ltd v Levinstein (1912) 29 RPC 245 where it was held in a patent case that mere delay in enforcing rights did not affect the legal position. [63] The first defendant made reference to declaration being a discretion of the court and quoted the authoritative text of Zamir on ‘The Declaratory Judgment’. ... 41 [64] In the present case, as the plaintiff has made a case under s 45(1) of Act 175, then the declarations and the orders that they are seeking must be allowed”.

In Fisher v Brooker and another [2009] 4 All ER 789, a case in respect of copyright, the then House of Lords rejected the argument of laches: “[79] The argument based on laches faces two problems. The first is that, as pointed out by David Richards J, laches only can bar equitable relief, and a declaration as to the existence of a long term property right, recognized as such by statute, is not equitable relief. It is arguable that a declaration should be refused on the ground of laches if it was sought solely for the purpose of seeking an injunction or other purely equitable relief. However, as already mentioned, the argument does not apply in this case. Secondly, in order to defeat Mr Fisher’s claims on the ground of laches, the respondents must demonstrate some ‘acts’ during the course of the delay period which result in a ‘balance of justice’ justifying the refusal of the relief to which Mr Fisher would otherwise be entitled. For reasons already discussed, the respondents are unable to do that. They cannot show any prejudice resulting from the delay, and even if they could have done so, they have no answer to the judge’s finding at [2007] FSR 225 at [81], that the benefit they obtained from the delay would outweigh any such prejudice”. 42

In addition to the principles stated in Fisher v Brooker, reliance was placed by the Plaintiffs on the Malaysian Supreme Court’s decision in Alor Janggus Soon Seng Trading & Ors v Sey Hoe & Ors [1995] 1 MLJ 241, a case deciding an interlocutory application for an injunction, where it was held: “...We would first deal with the question of delay. As with all equitable reliefs, delay is a relevant factor in interlocutory proceedings for injunctive relief. An important maxim in regard to delay is that equity aids the vigilant and not those who sleep on their rights; ‘vigilantibus, non dormientibus, jura subeniunt’.... Salmon LJ in Allen v Sir Alfred McAlpine & Sons Ltd [1968] 2 QB 229; [1968] 1 All ER 543; [1968] 2 WLR 366 set out three factors which are relevant in considering whether delay should be allowed as a ground to refuse an interlocutory injunction. ... Salmon LJ said: ... In order for such an application to succeed, the defendant must show:

that there has been inordinate delay. It would be highly undesirable and indeed impossible to attempt to lay down a tariff – so many years or more on one side of the line and a lesser period on the other. What is or is not inordinate delay must depend upon the facts of each particular case. These 43 vary infinitely from case to case, but inordinate delay should not be too difficult to recognize when it occurs.

that this inordinate is inexcusable. As a rule, until a credible excuse is made out, the natural inference would be that it is inexcusable.

that the defendants are likely to be seriously prejudiced by the delay. This may be prejudice at the trial of the issue between themselves and the plaintiff, or between each other, or between themselves and the third parties. In addition to any inference that may properly be drawn from the delay itself, prejudice can sometime be directly proved. As a rule, the longer the delay, the greater the likelihood of serious prejudice at the trial. It must be also emphasized here what is important to consider is not so much the length of the delay but whether the delay has in some ways made it unjust to grant the injunction claimed. ... And further: “...In considering the lapse of time, delay commences to run from the discovery of the circumstances giving title to the relief. See Carter v Trevelyan 11 C L & F 714 and Salisbury v Metropolitan Railway Co (1870) 22 LT 839. Another authority on this point is the case of Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218. Lord Blackburn on the question on the delay had this to say at p 1279: 44 ...And a court of equity requires that those who come to it to ask its active interposition to give them relief, should use due diligence, after there has been such notice or knowledge as to make it inequitable to lie by. And any change which occurs in the position of the parties or the state of the property after such notice or knowledge should tell much more against the party in mora, than a similar change before he was in mora should do.

The Plaintiffs say that they only became aware of the non-compliance of the Act on the part of the Defendant at the Town Hall meeting between the Class B shareholders and the Defendant’s Chairman on 27.9.2017. That was when the Plaintiffs discovered that the Defendant was not registered as a scheme under the Act. Accordingly, the Plaintiffs argue that there has been no inordinate delay.

I disagree with the Plaintiffs. They could have found out long ago (they have been members of the Club for almost 20 years) whether the Defendant was registered as a scheme or not and there was an inordinate delay on their part in filing the proceedings herein. However, there has been no prejudice suffered by the Defendant as a consequence of the delay and the Defendants have not adduced any 45 evidence of prejudice. Accordingly, the Defendant would not have succeeded on the ground of delay and estoppel due to delay.

The Defendant also submits that the application herein is made in bad faith. It says that the only reason the Plaintiffs have filed the proceedings is because they wish to avoid paying the increased monthly subscription that had recently been imposed on the club members. They have no concern for the wishes of the majority of the shareholders including the other Class B shareholders who are not parties to the proceedings and the Class A shareholders. This tantamount to the minority oppressing the majority shareholders.

If the Class B shareholders’ right to participate and enjoy the facilities of the Club does constitute an interest in a recreational membership scheme within the meaning of the Act, then the Plaintiffs have a right to bring these proceedings and I cannot say that they are actuated by bad faith. It is not unreasonable for them to want some restraint being imposed on the directors’ right to increase monthly subscriptions, similar to the case of the other clubs which have been registered as schemes under the Act. Incidentally, I note that the Registrar on its website has designated the Defendant as an “unregistered interest scheme”. In other words, the Registrar has also 46 taken the view that the Defendant comes within the definition of an “interest scheme” under the Act.

In conclusion, I only grant an order in terms of prayer (ii) of the Originating Summons. There will be no order as to costs. Wong Chee Lin Judicial Commissioner Kuala Lumpur High Court Dated: 4th October 2018 47 Solicitors For The Plaintiff Alan Adrian Gomez & Mervyn Lai Messrs Tommy Thomas Advocates & Solicitors No. 101, Jalan Ara Bangsar Baru, Bangsar 59100 Kuala Lumpur Tel: 03-2287 3540 Fax: 03-2284 8892 Solicitors For The Defendant Datuk D.P. Naban, Bahari Yeow & Lim Zhi Jian Messrs Lee Hishammuddin Allen & Gledhill Advocates & Solicitors Level 6, Menara 1 Dutamas Solaris Dutamas No. 1, Jalan Dutamas 1 50480 Kuala Lumpur