Cj Polymers Sdn Bhd v 1. ) Sim Chin Hu (WA-22NCC-298-07/2020)

SIM CHIN HU

MA YEW SING

MAY POLYMERS SDN BHD (NO. SYARIKAT: 1352644-U) -DEFENDAN JUDGMENT A. Introduction [1] The plaintiff claimed the 1st defendant had breached his fiduciary duties as a director of the plaintiff, in arranging and undertaking transactions with customers, which resulted in significant losses to the plaintiff. S/N ovPz4f/x70yxJvEtFrdEiA [2] T after finding that the plaintiff had failed to prove breaches of duties by the 1st defendant. B. Background Facts [3] The plaintiff is in the business of trading and distributing general merchandise and commodities. It carries on its trading business in the import and export of polymers and textile products. [4] The 1st defendant is the general manager and director of the plaintiff who business. He was terminated on 24 December 2019 and removed as a director of the plaintiff on 5 June 2020. [5] The 2nd defendant, a sales manager of the plaintiff, exclusively reported to the 1st defendant. Both the 1st and 2nd defendants managed nd defendant resigned from the plaintiff on 18 November 2019. [6] The 2nd defendant is also a director and shareholder of the 3rd defendant. The 3rd wholesale of plastic materials in primary forms, and the export and import of agricultural machinery, equipment and supplies. [7] The plaintiff claimed that in December 2018, its managing director, Kerk discovered suspicious transactions involving the 1st defendant and its customers, ). The plaintiff claimed the 1st S/N ovPz4f/x70yxJvEtFrdEiA defendant had breached his fiduciary duties in arranging and causing the plaintiff to enter into these transactions, which caused significant losses to the plaintiff. [8] It is important to highlight that the plaintiff initially also involved a cause of action for conspiracy to injure against the 1st and 2nd defendants, in that they had acted in concert to divert business away from the plaintiff through the 3rd defendant. The plaintiff claimed damages against the defendants and sought to recover secret profits alleged to have been made. The plaintiff also sought the return of its assets which it claimed were in the possession of the 1st defendant. [9] However, one week prior to the commencement of the trial, the plaintiff: a. Withdrew its claim against the 2nd and 3rd defendants, with costs and agreed to pay costs of RM30,000; and b. Limited its claim against the 1st defendant only to breaches of duties by the 1st defendant in relation to the transactions involving Savino and Solomon. [10] Consequently, the 1st defendant also withdrew its counterclaim against the plaintiff, for amounts he claimed are due and owing by the plaintiff to him. S/N ovPz4f/x70yxJvEtFrdEiA C. Considerations [11] In view of the withdrawal of the 2nd and 3rd defendants and the narrowing of the scope of the against the 1st defendant, the only issue to be determined by this court is whether the 1st defendant had breached his duties to the plaintiff, following his roles in the transactions involving Savino and Solomon. [12] Having considered the evidence before the court, including the testimonies of witnesses, the court determined that the plaintiff had failed to prove that the 1st defendant breached his duties as a director of the plaintiff. This determination was reached by taking the following considerations into account: a. The b. knowledge of the transactions and arrangements with Savino and Solomon; and c. departure from its pleaded case [13] From the amended statement of claim dated 13 July 2020, the plaintiff pleaded that the 1st defendant had breached his fiduciary duties as a director of the plaintiff in not acting in the best interest of the plaintiff and causing substantial losses to the plaintiff, when he carried out the following: S/N ovPz4f/x70yxJvEtFrdEiA a. Between 5 August 2016 and 15 May 2018, the 1st defendant had caused the plaintiff to enter into 42 sales b. The 42 Transactions were carried out in line with the . The Credit Risk Policy contains requirements imposed by the plaintiff on transactions it entered into, to limit the risk of default on debts involving the plaintiff and its debtors. The requirements imposed by the Credit Risk Policy include credit risk screening and the issuance of insurance coverage by its trade credit insurer, Atradius c. The execution of the 42 Transactions in line with the Credit Risk Policy was intended to create a façade to establish Savino as a credible customer. In truth, Savino was used by the 1st defendant to divert goods to Solomon, since transactions with Solomon would not comply with the Credit Risk Policy, due to its poor credit rating. d. Between 14 April 2018 to 10 December 2018, the 1st defendant had fraudulently misled the plaintiff into executing another 21 sales transactions with Savino, with a value of approximately ZAR54,463,399.20, which is . The Dubious Transactions involve the diversion of goods that were supposedly shipped to Savino, to Solomon, through the issuance of unauthorised release orders. S/N ovPz4f/x70yxJvEtFrdEiA e. Savino has disputed the Dubious Transactions, and refused to pay the outstanding amounts due under the Dubious Transactions. This severely impacted the financial position of the plaintiff. f. Kerk and Ainsley were unaware of the Dubious Transactions, as these transactions were handled solely by the 1st defendant. [14] The plaintiff claimed losses and damages arising from the Dubious Transactions, from the 1st defendant. [15] The amended statement of claim is very specific. The plai st defendant had breached his fiduciary duties arises explicitly from the 1st as set out above namely, that he had caused the plaintiff to enter into the 42 Transactions with Savino as a façade to establish Savino as a credible customer of the plaintiff. He then misled the plaintiff into executing the Dubious Transactions, in which Savino was used by the 1st defendant to divert goods to Solomon. Savino denied the Dubious Transactions and refused to make payments on these transactions, leading to losses to the plaintiff. [16] It is important to highlight that the plaintiff acknowledged that the 42 Transactions were carried out in line with the Credit Risk Policy, and that the 42 Transactions were completed and fully settled by Savino. [17] However, in the course of the trial, I observed that the plaintiff departed from this pleaded case. S/N ovPz4f/x70yxJvEtFrdEiA [18] The case put forward by the plaintiff during the trial is that the 1st defendant caused the plaintiff to trade with Savino and Solomon in breach of the Credit Risk Policy, as the 1st defendant had caused the assigned credit limit for Savino to be vastly exceeded, when there was no justification to do so. The plaintiff s case is that consistently been on the rise since it exceeded its credit limit in June 2017, and as such, it did not make business sense to continue dealing with Savino. [19] Transactions (which commenced in August 2016) and the Dubious Transactions (which commenced in April 2018) (collectively, the Credit Risk Policy, payment patterns and [20] This is a clear departure from the , which is that the 42 Transactions were carried out in line with the Credit Risk Policy, and were validly completed and fully settled by Savino. In the plaintiff pleaded case, the 42 Transactions were valid, but was used as a façade to establish Savino as a credible customer, and to mislead the plaintiff into executing the Dubious Transactions. [21] The new assertions raised by the plaintiff during the trial are inconsistent and in conflict with its pleaded case. On the one hand, the plaintiff pleaded that the 42 Transactions are in line with the Credit Risk Policy, but then completely abandoned this position during the trial, to put forward a case that the 42 Transactions are in breach of the Credit Risk Policy. S/N ovPz4f/x70yxJvEtFrdEiA [22] I am of the view that the position taken by the plaintiff during the trial cannot be allowed to form the basis of the allegation of breach of fiduciary duties against the 1st defendant in this action, as they were not pleaded in the amended statement of claim. In this regard, I find the complete departure from its pleaded case to be fatal to its claim. [23] Notwithstanding this finding, I have also taken two other considerations into account, that have led me to the conclusion that the plaintiff had failed to prove its claim. of the Transactions [24] The second consideration I had taken into account in reaching a determination of this matter is that the plaintiff did not call any witness who had personal knowledge of the Transactions. In particular, the plaintiff did not call Kerk and Ainsley, who were directly involved in the management and operation of the plaintiff at the material time. [25] Instead, the plaintiff called two witnesses who did not have any personal knowledge of or direct involvement in the Transactions. [26] The only factual witness called by the plaintiff is its senior financial 2022, after this suit was filed. She confirmed that her involvement in this suit is limited to compiling documents and forwarding them to the expert appointed by the plaintiff, BDO Governance Advisory S/N ovPz4f/x70yxJvEtFrdEiA [27] The second witness is an expert witness, Sanjay Sidhu of BDO It became clear in the course of cross-examination however, that in the preparation of the expert report, PW1 was not given access to anyone who had personal knowledge of the Transactions. [28] As such, the plaintiff has not adduced any factual evidence of any witness with personal knowledge of the Transactions. In my view, the with personal knowledge of the Transactions gives rise to an adverse inference against the plaintiff, under section 114(g) of the Evidence Act 1950. [29] Section 114(g) provides as follows: The court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct, and public and private business, in their relation to the facts of the particular ILLUSTRATIONS The court may presume:-

that evidence which could be and is not produced would if produced be unfavourable to the person who withholds it S/N ovPz4f/x70yxJvEtFrdEiA (emphasis added) [30] The implications of the failure to call a material witness were examined by the Federal Court in Takako Sakao (f) v Ng Pek Yuen (f) & Anor [2009] 6 MLJ 751: [4] In our judgment, two consequences inevitably followed when the first respondent who was fully conversant with the facts studiously refrained from giving evidence. In the first place, the evidence given by the appellant ought to have been presumed to be true [5] The second consequence is that the court ought to have drawn an adverse inference against the first respondent on the amount of the appellant's contribution to the purchase price as well as the existence and the terms of the mutual understanding or agreement that she had with the first respondent. Where, as here, the first respondent being a party to the action provides no reasons as to why she did not care to give evidence the court will normally draw an adverse inference (emphasis added) [31] In the present matter, the case the plaintiff attempted to put forth during the trial is that the 1st defendant had breached his fiduciary duties by causing the plaintiff to trade with Savino and Solomon, despite being aware since June 2017 of Savino s poor historical payment patterns. S/N ovPz4f/x70yxJvEtFrdEiA [32] I must highlight that documentary evidence before the court shows that the plaintiff through Kerk as the managing director, was aware of and approved the Transactions. If the plaintiff wished to challenge this evidence, Kerk should have been called as a witness. The plaintiff failed to call Kerk (or anyone with personal knowledge of the Transactions as witnesses), and following this failure, the court presumed that their testimonies would be unfavourable to the plaintiff. The failure is damaging Transactions [33] Third, I considered that the evidence before this court shows that the plaintiff and Kerk specifically, were aware of the Transactions. [34] During the 1st defendant background leading to the Transactions. The 1st defendant testified that: a. In 2014 and 2015, the plaintiff had carried out direct business transactions on the supply and distribution of polymer products with Solomon. However, payment from Solomon was delayed, prompting the re-evaluation of the b. business with Solomon, and in South Africa generally. Thus, an arrangement with Savino and Solomon was proposed, as Solomon wanted to continue with the purchase of polymer products from the plaintiff. S/N ovPz4f/x70yxJvEtFrdEiA c. Savino had a good credit rating, and the plaintiff would be able to obtain credit insurance coverage for the trade from the Atradius. It was proposed that payments were made by Savino to the plaintiff, once Solomon paid Savino. d. The 1st defendant and Kerk travelled to South Africa in June 2016, and met with representatives of Savino and Solomon, to finalise and confirm the structure and business arrangement with Savino and Solomon. e. Upon his return from South Africa, the 1st defendant implemented this new arrangement. He created a standard operating procedure for dealings and shipments to South Africa under this arrangement, in which the supporting documents would include a release order, and the authorised signatories for the release orders. The standard operating procedure is part of the p records, and all staff involved in export sales to South Africa knew the nature, processes and structure of the Transactions. This new structure and business arrangement were also approved by Kerk and the plaintiff. f. On 15 July 2016, Erica Chuo business support issued an email to the representatives of Savino and Solomon, informing them of the standard operating procedure. S/N ovPz4f/x70yxJvEtFrdEiA [35] The documents before the court also showed that the Transactions were carried out in accordance with the agreed arrangement with Savino and Solomon and in line with the Credit Risk Policy. The process involves: a. The issuance of an order confirmation by Solomon. I note that the order confirmations issued in the form of emails, Solomon Da b. The sales contract by the plaintiff. The PA Form is approved by both the 1st defendant and Kerk. The order confirmation email which provides that cargo will be released to Solomon is attached to the PA Form. c. The issuance of an excess approval application form A is in line with the Credit Risk Policy, as the credit limit assigned to Savino had been exceeded. I note that in respect of the Dubious Transactions, all 21 transactions involved the issuance of the EAA Forms signed by the 1st defendant and Kerk, save for one transaction in which the EAA Form was signed by Ainsley. [36] Thus, from both documentary evidence before the court and the 1st it is clear that the plaintiff was aware of the business arrangement involving Savino and Solomon. It is also clear that the structure of the Transactions was agreed by Savino, Solomon and the plaintiff, represented by the 1st defendant and Kerk. S/N ovPz4f/x70yxJvEtFrdEiA [37] T Transactions. However, neither Kerk nor Ainsley testified on behalf of the plaintiff to support this case. As highlighted above, the failure of the plaintiff to call Kerk, Ainsley or any other individual with personal knowledge of the Transactions gives rise to an inference that the testimonies of these witnesses will be adverse against the plaintiff. [38] I must also highlight that it became increasingly clear in the course of the cross-examination of PW1, that PW1 was not fully informed by the plaintiff of the structure and process involving the Transactions, when he prepared the expert report. He acknowledged that he was not made aware of the email dated 15 July 2016 from Erica Chou containing the standard operating procedure for transactions and arrangements with Savino and Solomon. Once PW1 was taken through the evidence as a whole by learned counsel for the 1st defendant, he agreed that Kerk and Ainsley were aware of the Transactions, and that the Transactions and their related documents were not concealed from the plaintiff. [39] The plaintiff relied on the 15 July 2016 email from Erica Chou to argue that Kerk and Ainsley were not aware of the transactions, as the email was not copied to them. I accepted the 1st defendant s testimony that the email was not copied to Kerk and Ainsley as they were not involved in the operational aspects of the Transactions. Further, notwithstanding Kerk and Ainsley not being copied in the email, overwhelming documentary evidence, and specifically, the approval of the PA Form and the EAA by the 1st defendant, Kerk and Ainsley, can only lead to the irresistible conclusion that Kerk and Ainsley were aware of the Transactions. S/N ovPz4f/x70yxJvEtFrdEiA [40] Thus, there is sufficient evidence to prove that the structure and process of the Transactions were known and agreed to by the plaintiff, including Kerk who was one of the two directors of the plaintiff at the material time. Kerk himself approved documents that allowed the Transactions to be carried through. Yet, this action to recover losses and damages arising from the Dubious Transactions was only filed against the 1st defendant, the other director of the plaintiff. It is also notable that this action was filed while Kerk was in control of the plaintiff. [41] As such, with Kerk also being aware of and approving the Transactions, it follows that the 1st in the Transactions as the only other director of the plaintiff, cannot give rise to a breach of fiduciary duties on the part of the 1st defendant. [42] Instead, I find that on the balance of probabilities, the Transactions were carried out with the knowledge of both the directors of the plaintiff in good faith with the aim of making profit and for commercial gains for the plaintiff. [43] In this regard, section 214(1) of the Companies Act 2016 is of relevance. Section 214(1) provides that: A director who makes a business judgment is deemed to meet the requirements of the duty under subsection 213(2) and the equivalent duties under the common law and in equity if the director

makes the business judgment for a proper purpose and in good faith; S/N ovPz4f/x70yxJvEtFrdEiA

does not have a material personal interest in the subject matter of the business judgment;

is informed about the subject matter of the business judgment to the extent the director reasonably believes to be appropriate under the circumstances; and

reasonably believes that the business judgment is in the best interest of the company. (emphasis added) [44] Section 213(2) requires a director to exercise reasonable care, skill and diligence, with: the knowledge, skill and experience which may reasonably be expected of a director having the same responsibilities; and

any additional knowledge, skill and experience which the director in fact has. [45] I find the evidence before the court is insufficient to indicate that in making the business judgment to continue to trade with Savino and Solomon, and in arranging the Transactions, the 1st defendant had not acted for a proper purpose and in good faith. There is also no evidence to show that he had any personal interest in the Transactions. S/N ovPz4f/x70yxJvEtFrdEiA [46] As such, following Pioneer Haven Sdn Bhd v Ho Hup Construction Co Bhd & Anor and other appeals [2012] 3 MLJ 616, the court should not undertake an exercise of assessing the merits of the business judgment and the commercial risk made by the directors of the plaintiff. The question of whether the Transactions were worth the business risk taken must be left to the discretion and decision of the directors of the plaintiff, including the 1st defendant, who have expertise, skill and experience in managing the business affairs of the plaintiff. [47] As a final point, I will address the that the 1st defendant personal email account (petchip@gmail.com) instead of his official email address assigned by the plaintiff (simon@cjploymers.com), for communications involving the Dubious Transactions raises concerns on the possibility of private dealings or undisclosed profits between the 1st defendant and Savino or Solomon. [48] I find this allegation to be unsubstantiated for two reasons. First, the 1st and his email address assigned by the plaintiff. This negates the argument that the use of this gmail account raises the possibility of private dealings, as the gmail account is used in a transparent manner and is displayed on his business card. Second, the practice of both Kerk and the 1st defendant is to use their gmail accounts in their dealings involving the plaintiff. This is evident siness card, which contains his gmail account address only Both Kerk and the 1st defendant use their gmail accounts in dealing with the employees, suppliers and customers of the plaintiff. S/N ovPz4f/x70yxJvEtFrdEiA [49] Taking into account the totality of the evidence as set out, the court finds that the plaintiff has failed to establish that the 1st defendant had breached his fiduciary duties to the plaintiff in arranging and carrying out the Transactions. D.

[50] In summary, with the findings that: a. T case put forth during the trial is inconsistent with its pleaded position in the amended statement of claim; b. Documentary evidence before the court shows that the Transactions are within the knowledge of the plaintiff, Kerk and Ainsley; and c. T Kerk and Ainsley and other persons who have direct knowledge of the Transactions to challenge the evidence before the court and confirm their version of events gives rise to an adverse inference against the plaintiff, the only conclusion that could follow is st defendant had breached his fiduciary duties to the plaintiff has not been proven. therefore dismissed. [51] After hearing submissions on the issue of costs, the court ordered the following costs to be paid by the plaintiff to the 1st defendant: S/N ovPz4f/x70yxJvEtFrdEiA a. Costs thrown away of RM60,00 arising from the plaintiff s abandonment of part of its claim against the 1st defendant, in the eve of trial; b. Costs related to the plaintiff s application for a mareva injunction, amounting to RM30,000 for proceedings at the High Court and RM40,000 for proceedings at the Court of Appeal; and c. Costs of RM100,00 for the dismissal of this action. Dated 30 August 2024 ADLIN ABDUL MAJID Judge High Court of Malaya Commercial Division (NCC6) Kuala Lumpur Counsel: Plaintiff : Alvin Oh (together with Sew Chang Peng) of Messrs. Sia Siew Mun & Co 1st defendant : Brendan Navin Siva (together with Aida Haryani Salamon) of Messrs. Brendan Siva S/N ovPz4f/x70yxJvEtFrdEiA