Dato’ Koh Boon Thye v Practiclear Sdn Bhd (B52NCC-202-11/2017)

On 12 February 2018, the court on the application of the plaintiff (in his notice of application dated 7 December 2018) granted the plaintiff summary judgment under Order 14 Rules of Court 2012 in respect of the plaintiff‟s claim against the defendant.

Dissatisfied with the decision of the court, the defendant appealed to the High Court. 2

Below are my grounds for allowing the plaintiff summary judgment in respect of the plaintiff‟s claim against the defendant.

The plaintiff‟s claim against the defendant, as can be gleaned from the statement of claim is one for the recovery of the balance purchase price for the sale by the plaintiff, as vendor, to the defendant (as purchaser) of the plaintiff‟s 207,994 shares in the company known as Enabling Asia Tech Sdn Bhd (“the company”).

The Share Sale Agreement in question is dated 8 August 2017 (“the SSA”).

The salient terms of the SSA are as follows: i) the price per share of the company is RM4.90, thus aggregating RM1,019,176.60 as the sale and purchase consideration; ii) the sale and purchase consideration is to be paid by the defendant in two (2) tranches: (a) RM509,585.30 equivalent to 50% of the sale and purchase consideration (“the first instalment”) is to be paid on the execution of the SSA; and (b) the balance 50% amounting to RM509,585.30 is to be paid one

month from the date of payment of the first instalment; 3 iii) the SSA was executed on 8 August 2017, the first instalment was paid thus completion of the SSA took place; iv) the 2nd instalment, being the balance sale and purchase consideration was to be paid on 8 September 2017; v) it is also a term and condition of the SSA that late payment interest of 10% per annum, calculated on a daily basis, is payable in the event of default

The defendant defaulted in payment of the balance purchase price which was due on 8 September 2017. It is to be noted that on 18 September 2017, the defendant through its solicitors requested for an extension of one (1) month to effect payment of the balance purchase price.

Thus, the plaintiff commenced legal action against the defendant to recover the balance purchase price of RM509,585.30, late payment interest and costs. Preceding the commencement of legal action, the plaintiff‟s solicitors made a demand on the defendant (through the defendant‟s solicitors) for payment. Threshold requirements for summary judgment

I have considered the plaintiff‟s notice of application for summary judgment and the affidavit in support. The preliminary requirements for purposes of an application under Order 14, as enunciated in the Federal 4 Court decision of Cempaka Finance Berhad v Ho Lai Ying & Anor [2007] 1 AMR 525 are satisfied.

Thus being the finding, the burden in now shifts to the defendant to satisfy the court why summary judgment should not be entered against the defendant. Defendant’s grounds for resisting summary judgment application

The main plank in the defendant‟s effort to oppose the plaintiff‟s summary judgment is an opinion by the company‟s auditor in the company‟s report and financial statements for the year ended 31 December

The auditor‟s opinion is at Note 17, thus its reference as Auditor‟s Note 17.

The Auditor‟s Note 17 said this:

Going Concern Basis The financial statements have been prepared on a going concern basis which assumes that the Group and the Company have neither the intention nor the necessity to liquidate or to curtail significantly the scale of its operations even though the Group and the Company have capital deficiencies of RM23,224,194 (2015: RM20,886,783) and RM21,296,257 (2015: RM9,971,373) respectively. This indicates that a material uncertainty exists that may cause significant doubt on the Group‟s and the Company‟s ability to continue as going concerns. 5 The Directors are of the opinion that the going concern basis is still appropriate for the preparation of the financial statements on the grounds that the Directors undertake to provide continuing financial support to the Group and the Company and that profitable operations are attainable in the foreseeable future. The financial statements do not include any adjustment that would result if financial support given by the Directors is withdrawn and future profitable operations are not attainable (hereinafter referred to as the

The defendant‟s argument is that the plaintiff is obliged under clause 4.4 of the SSA to disclose Auditor‟s Note 17 to the defendant. It is alleged that such disclosure was not made by the plaintiff.

On the evidence as adduced by the parties in the affidavits exchanged, it is apparent that the defendant came to know of the Auditor‟s Note 17 when the defendant received via email dated 15 August 2017, a copy of the company‟s report and financial statements for 31 December 2016.

A perusal of this email also indicates that the plaintiff was sent the company‟s said financial statements via this email. Construction of clause 4.4 of the SSA 6

In dealing with the defendant‟s submission, the court: first task is to ascertain the meaning of clause 4.4 of the SSA. In other words, it is a mere matter of construction.

I accept the proposition that the construction of a contract is a question of law ( see Mulpha Pacific Sdn Bhd v Paramount Corporation Berhad [2003] 6 AMRT 22).

Further, as decided by the Court of Appeal in NVJ Menon v The Great Eastern Life Assurance Co. Ltd [2004] 4 AMR 164, the construction of a contract is a question of law for determination by the court and not by witnesses through their oral evidence. Thus, it is not necessary to have a trial for oral evidence to be given as to the meaning and effect of the said clause 4.4.

With much deference, this court adopts the statement of law by Raja Azlan Shah J. (as High Highness then was) in the ESSO Standard Malaysia Bhd v Southern Cross Airways (Malaysia) Bhd [1972] 1 MLJ 168 that “if one simply has a short matter of construction with a few documents, the court, on summary application, should decide what in its judgment is the true construction”.

Thus it befalls upon this court to construe section 4.4.

The defendant asserts that the Auditor‟s Note 17 might be material to the Sale Shares. 7

The plaintiff‟s contention is that the event or circumstance which might be material to the Sale Shares are those touching on the transferability of the Sale Shares, such as encumbrances like charges or liens.

In support of its assertions, the plaintiff relies on the following matters: i) the SSA is a short form sale and purchase agreement devoid of any provision as to the company‟s assets, financial condition or profitability; ii) the evidence that the defendant did not require any indemnity from the plaintiff in the SSA; iii) the provision in clause 5.3 of the SSA which identifies the default of the plaintiff/vendor as one which results in the Sale Shares not being registered in the name of the purchaser or its nominee

Having considered the rival contentions of the parties and having read the SSA in its totality, I am of the view that clause 4.4 is not applicable with regard to the allegation of non-disclosure of the Auditor‟s Note 17. I say this for the following reasons: i) Clause 4.4 is contained in the provision dealing with completion date. The completion date is when the first instalment is paid. That took place on 8 August 2017. The company‟s said 8 financial statements and a fortiori Auditor‟s Note 17 was sent to the plaintiff on 15 August 2017, that is after the completion date; ii) Auditor‟s Note 17 is not an event or circumstances material to the Sale Shares in that in the SSA there are absent any covenants or undertakings or warranties and representations as to the financial position or health of the company. Further the price of RM4.90 per share of the company, as agreed in the SSA was arrived at on the basis of a willing buyer and willing seller. The evidence disclosed in the affidavits shown negotiations for a year for the sale and purchase of the company‟s shares. Conduct of defendant after knowledge of Auditor’s Note 17

It is the plaintiff‟s contention that the defendant‟s use of the Auditor‟s Note 17 is tainted by mala fides and the result of an after thought.

I have examined the affidavit evidence on this aspect of the case. Indeed the defendant has failed to give any explanation as to the defendant‟s conduct, post-knowledge of the Auditor‟s Note 17.

The conduct of the defendant to be dealt with under this point are as follows: 9 i) after receipt of the Auditor‟s Note 17, there was exchange of correspondence by email between the plaintiff‟s and defendant‟s solicitors. However, and crucially not a word is said of the Auditor‟s Note 17; ii) there is evidence that post 15 August 2017, the defendant through its solicitors sought an extension of time of one (1) month to pay the balance purchase price; iii) on 23 October 2017, the defendant stamped and registered the transfer of the Sale Share into the name of the defendant; iv) another window of opportunity for the defendant to ventilate its grievance as to the Auditor‟s Note 17, was when the plaintiff‟s solicitors made a demand for payment (on 25 October 2017) before action. Yet, there was no response whatsoever as to the defendant‟s complaint revolving around the Auditor‟s Note 17; v) the first time Auditor‟s Note 17 was raised was in the defendant‟s first affidavit (affirmed on 26 December 2017) to oppose the plaintiff‟s summary judgment application.

In this connection, I am mindful of the case law that a defendant‟s failure to reply to a demand made by a plaintiff for payment of a debt, would support a summary judgment application against such a defendant (see Multi Square Sdn Bhd v Lee Chee Meng [2015] 3 AMR 383 and the 10 authorities cited therein, in particular the Court of Appeal judgment in David Wong Hon Leong v Noorazman bin Adnan [1996] 1 AMR 7).

In deciding on the point concerning Auditor‟s Note 17, and the absence of any warranties or other conditions as to the assets, liabilities and profits of the company, I have also considered the evidence that the defendant‟s solicitors had knowledge, prior to the execution of the SSA, of the financial position of the company. There is unrebutted evidence that the defendant‟s solicitors were furnished with the company‟s report and financial statements for the years ended 31 December 2011, 31 December 2012, 31 December 2013 and 31 December 2014. And by referring to the Court of Appeal decision in Public Bank Bhd v T Sivam [2017] 2 MLJ 489 such knowledge of the solicitor is attributed to the defendant, as its client.

Relying on Auditor‟s Note 17, the defendant has questioned the value of the shares of the company, which the defendant bought from the plaintiff.

This is a rather cynical attitude considering the following matters: i) the defendant had prior to the SSA agreed to subscribe for shares in the company at RM6.00 a price and had thus paid RM12,000,000.00 for a subscription of 2,000,000 shares; and ii) by 23 October 2017, the defendant had been registered as owner of the shares agreed to be sold by the plaintiff to the defendant. 11

Such action by the defendant is tantamount to obtaining ownership of the Sale Shares, and then seek to re-negotiate its sale price.

In arriving at the decision to grant the plaintiff summary judgment against the defendant, I have applied the test stated in the case of Bank Negara Malaysia v Mohd Ismail & Ors [1992] 1 MLJ 400 which decided that: Under an O 14 application, the duty of a judge does not end as soon as a fact is asserted by one party, and denied or disputed by the other in an affidavit. Where such assertion, denial or dispute is equivocal, or lacking in precision or is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable in itself, then the judge has a duty to reject such assertion or denial, thereby rendering the issue not triable. In our opinion, unless this principle is adhered to, a judge is in no position to exercise his discretion judicially in an O 14 application. Thus apart from identifying the issues of fact or law, the Court must go one step further and determine whether they are triable. Where the issue raised is solely a question of the law without reference to any facts or where the facts are clear and undisputed, the Court should exercise its duty under O 14. If the legal point is understood and the Court is satisfied that it is unarguable, the Court is not prevented from granting a summary judgment merely because „the question of law is at first blush of some complexity and therefore takes a little longer to understand (see Cow v Casey and European Asian Bank AG v Punjab & Sind Bank at p 516) 12

Thus, based on the reasons stated above, the court granted summary judgment to be entered against the defendant with costs.

Costs is fixed at the amount of RM2500.00 payable to the plaintiff. Dated this 7th day of May, 2018. -sgd- (ISHAK BIN BAKRI) Judge Sessions Court Shah Alam Selangor 13 Solicitors B E The (The & Associates) for the plaintiff Ong Kang Nyong (Tiong & Woon) for the defendant