Golden Affinity Development Sdn. Bhd. v Es Eng Soon Holding Sdn. Bhd. & 3 Ors (WA-22NCC-210-05/2020)

ES ENG SOON HOLDING SDN. BHD.

LIM BOON KANG

LIM BOON HUNG

SEE KOK SENG (I/C NO: 730511-10-5707) …DEFENDANTS GROUNDS OF JUDGMENT 2 Introduction [1] Vide enclosures 149 and 139, the 3rd and the 4th Defendants applied for security for costs in the sum of RM 150,000.00 each against the Plaintiff pursuant to s. 580A of the Companies Act 2016 (“the Act”) and/or O. 23 r. 1 of the Rules of Court 2012. Upon considering the applications, this court allowed the said applications and ordered that the Plaintiff pay a sum of RM 60, 000.00 in enclosure 149 and a sum of RM 30, 000. 00 in enclosure 139. [2] The following are reasons for this court’s decision of the said application. Background facts [3] The Plaintiff was a registered proprietor of a piece of land held under Master Title No. Geran 54073, Lot 6, Pekan Puchong Perdana, Daerah Petaling, Negeri Selangor Darul Ehsan (“the said Land”). [4] The said Land was developed by the Plaintiff into a development project known as “i-32 Corporate Industrial Park” comprising of 32 units of three-storey semidetached industrial factories (“the Project”). The Plaintiff completed the Project and delivered vacant possession of all 32 units before it had been wound up on 30.10.2017. 3 [5] On 19.7.2018, the Court appointed Mr. Tan Wai Leng from Cheng & Co. Corporate Recovery Sdn. Bhd. as the private liquidator of the Plaintiff (“the Liquidator”). [6] The position of the Defendants is explained below: Defendants Status/Position 1st Defendant Shareholder of the Plaintiff 2nd Defendant i. Former director of the Plaintiff. Appointed on 7.7.2011 and resigned on 14.7.2017; and ii. Director and shareholder of the 1st Defendant; 3rd Defendant i. Shareholder of the 1st Defendant 4th Defendant i. Former director of the Plaintiff. Appointed on 7.7.2011 and resigned on 14.7.2017; ii. Existing shareholder of the Plaintiff [7] It is the Plaintiff’s case that subsequent to the winding up, the Liquidator received proof of debts (“the POD”) from a group of creditors who are the purchasers who had bought the said factories, premised upon their claim for compensation for Liquidated and Ascertained Damages (“LAD”) amounting to RM 6, 443, 802. 41 pursuant to late delivery of vacant possession by the Plaintiff. [8] Forensic Account Review Report dated 12.7.2019 prepared by Cheng & Co. Global Advisory Sdn. Bhd. (“the First Forensic Report”) shows that as early as 30.10.2015 the former directors of 4 the Plaintiff were in receipt and fully aware of Letter of Demand from the purchasers. [9] Nonetheless, in less than 12 months from the date of the winding up, by virtue of Directors’ and Members’ Resolution on Dividend Distribution dated 7.12.2016, the former directors of the Plaintiff declared dividends in the sum of RM 27, 000, 000. 00 to themselves without paying any LAD. [10] It is the Plaintiff’s case that the former directors and shareholders enriching themselves without paying any LAD within one year from the date of the winding up Order i.e. 30.10.2017. The Plaintiff therefore initiated a civil suit against the former directors, current directors and shareholders of the 1st Defendant in Kuala Lumpur High Court No: WA-22NCC-472-08/2019 (“Suit 472”). [11] The present suit before this Court is premised upon a Supplemental Forensic Report which was only completed on 6.5.2020 (“the Supplemental Forensic Report”) and Supplementary Liquidator Report dated 21.5.2020. It is the finding of the said Report that RM 6, 240, 000. 00 was paid to the Defendants from the Plaintiff’s cash flow therefore enriching themselves without paying the LAD. [12] The Plaintiff commenced the present suit on 29.5.2020 to claim the monies allegedly dissipated to the Defendants. 5 [13] On 24.12.2020 and 8.1.2021, enclosures 139 and 149 were filed. The applications were essentially premised on the fact that:

The inability of the Plaintiff to pay costs should the Defendants succeed in their defence;

The security for costs in the sum of RM 150, 000. 00 sought by them respectively is reasonable; and

The applications for security for costs are not oppressive against the Plaintiff. [14] In resisting the applications, the Plaintiff argued that:

There was an inordinate delay in filing the said applications;

The Plaintiff has meritorious claim and valid cause of action against the Defendants hence, the Plaintiff should not be denied access to justice;

The financial constraint faced by the Plaintiff is a result of the Defendants’ act; and

The Defendants’ applications for security for costs were unjust and oppressive in nature. Analysis [15] This court is empowered to consider security for costs by virtue of the following provisions of the law: i. S. 580A of the Act; ii. O. 23, r. 1 of the Rules of Court 2012, and 6 iii. The inherent jurisdiction of the court under O. 92 r. 4 of the Rules of Court 2012. [16] The 3rd and 4th Defendants must show that there are credible evidence that the Plaintiff would be unable to pay the Defendants costs in the event that they are successful in defending against the Plaintiff's claim herein. This would render costs to be ordered in favour of the 3rd and 4th Defendants against the Plaintiff ("Trial Costs"). See: Skrine & Co v MBF Capital Bhd & Anor (1998) 3 MLJ 649, CA; North Plaza Sdn Bhd v United Securities Sdn Bhd [2010] 1 MLJ 631, CA [17] O. 23 r. 1 of the Rules of Court 2012 reads:

Security for costs of action

Where, on the application of a defendant to an action or other proceedings in the Court, it appears to the Court-

that the plaintiff is ordinarily resident out of the jurisdiction;

that the plaintiff (not being a plaintiff who is suing in a representative capacity) is a nominal plaintiff who is suing for the benefit of some other person and that there is reason to believe that he will be unable to pay the costs of the defendant if ordered to do so; 7

subject to paragraph (2), that the plaintiff's address is not stated in the writ or originating summons or is incorrectly stated therein; or

that the plaintiff has changed his address during the course of the proceedings with a view to evading the consequences of the litigation, then, if, having regard to all the circumstances of the case, the Court thinks it just to do, it may order the plaintiff to give such security for the defendant's costs of the action or other proceedings as it thinks just. [18] The provision in O. 23 r. 1 (a) to (d) of the Rules of Court 2012 does not relate to the Plaintiff and therefore is irrelevant. However, s. 580A of the Act would require this court’s consideration. It reads as follows: "580A. Security for costs

Where a company is the plaintiff in any action or other proceedings and if it appears by a credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant if the defendant is successful in his defence, the Court may order the plaintiff to give sufficient security for all the costs and to stay all action or proceedings until the security is given.

The Court may direct the costs of any action or proceedings to be borne by the party to the action or proceedings." The exercise of discretion [19] In considering this application, it is solely an exercise of the court’s discretion. The discretion however is not one that is untrammeled. 8 This court has to exercise the said discretion judiciously. In Haidakota (M) Sdn Bhd v Tan Tiam Chai & Another Appeal [2009] 1 CLJ 699, the Court of Appeal outlined three (3) factors a court must consider when exercising its discretion to grant security for costs. They are: i. Delay in applying for security for costs is a basis to deny the application; ii. Security for costs will not be made if the order would be oppressive; and iii. In the absence of mala fide on the part of the plaintiff, security for costs should be denied. [20] Relying on Haidakota (supra) as the principle case, the Plaintiff argued that the applications should be dismissed as they met the test of why the court’s discretion should not be exercised to grant the security for costs as prayed for by the Defendants. [21] It was submitted that the applications were oppressive as the court must factor in the background of the Plaintiff. Also, if the Plaintiff is unable to make the necessary security payments, the Plaintiff would be shut out against pursuing a case against the Defendants. It was contended that the Plaintiff was not pursuing its case in bad faith against the Defendants. [22] Therefore, this court was asked to dismiss the applications. [23] The Defendants on the other hand relied on the decision of the Court of Appeal in Skrine & Co v. MBF Capital Bhd & Anor & 9 Other Appeals (supra) where in discussing the provision on security for costs under the Companies Act 1965, the court held that s. 351 of the Companies Act 1965 provides for a two-stage inquiry into whether security for costs should be awarded where the plaintiff is a company. The first step is for the court to determine whether there is credible evidence that the company will be unable to pay the defendant's costs, and the second is to ascertain whether that evidence supports the belief that the company will be unable to do so. [24] Therefore, it behoves this court to consider whether the applications by the Defendants are backed by evidence that Plaintiff is unable to pay the necessary costs should it fail in its case. [25] It is an established position in law that an impecuniosity of a plaintiff does not necessarily mean courts must automatically direct for security of costs to be paid (see Faridah Begum Bte Abdullah v Dato' Michael Chong [1995] 2 CLJ 951 and Doree Industries (M) Sdn Bhd v Sri Ram & Co [2007] 1 MLJ 722). [26] However, what is unique before this court is the admission of the Plaintiff itself that it has no funds. This can best be seen in the Affidavit in Reply of the Plaintiff where the following averments were made: “...Plaintif berada dalam likuidasi oleh itu, tidak mempunyai keupayaan kewangan (financial capacity) terhadap Jaminan Kos (sekiranya) diperintahkan diberikan)...” 10 “Memandangkan Plaintif tidak mempunyai sumber kewangan (financial resources) kerana Plaintif ialah sebuah syarikat yang telah digulungkan...” “Mahkamah sepatutnya dan adalah boleh menjalankan kuasa budi bicara Mahkamah yang Mulia ini untuk berpihakkan kepada Plaintif memandangkan bahawa sekiranya tidak, ianya adalah mustahil untuk (Plaintif) mematuhi kepada jaminan kos.” “... mempunyai pengetahuan penuh dengan menyedari bahawa Syarikat Plaintif tiada sebarang wang untuk membayar kos RM6,000.00 mahupun apa-apa Jaminan Kos tersebut kepada Defendan ke-3 dan Ke7.” [27] It is also undisputed that the Plaintiff is insolvent and is currently in liquidation. This court is persuaded by the argument by the Defendants that unless the Plaintiff possesses the financial means to pay the trial costs, the Plaintiff’s insolvency must be taken to mean that it is unable to do so. [28] On this issue, Hishamudin Mohd Yunus JCA held as follows in North Plaza Sdn Bhd v. United Securities Sdn Bhd (supra): "[28] In the instant case it is common ground that the respondent company has been wound up by the court. In Northampton Coal, Iron, and Waggon Company v. Midland Waggon Company [1878] 7 Ch. D 500 Jessel MR said (at p. 503): I should say that the fact of the Plaintiff company being in liquidation would be sufficient "reason to believe" the assets to be insufficient unless evidence to the contrary was given. 11 [29] Based on the above principle, and considering that the respondent had been wound up by the court, there is, therefore, reason then to believe that the respondent would be unable to pay the costs of the appellant if the latter were to be successful in their defence - unless evidence to the contrary is given by the respondent. The inquiry then would be: has the respondent given any evidence to the contrary? We must say that we are unable to find any credible evidence to the contrary." (Emphasis added) [29] The question is whether there is credible evidence that can suggest that the two stage test outlined in Skrine & Co v. MBF Capital Bhd (supra) have been fulfilled. To the mind of this court, the two stage test has been met. This is because not only has there been an admission by the Plaintiff that it is unable to meet any payment obligations because of its financial position, its position as an insolvent company is an undisputed fact. [30] Therefore, there is reason to believe that the Plaintiff would be unable to pay the costs of the trial if the Defendants succeed in their defence. [31] It was further demonstrated to this court that the Plaintiff’s Form 75 “The Liquidator's Account of Receipts and Payments and Statement of the Position in the Winding-Up" for the period of 19.7.2019 to 18.1.2020 initially showed a sum of RM197,311.80 in Plaintiff's accounts. This sum however was depleted due to various outgoing payments made by the Plaintiff's Liquidator. There was no evidence that these payments were approved or sanctioned by the Winding Up Court or Plaintiff's creditors. 12 [32] Due to these payments, it was brought to the attention of this court that the balance left was only RM5,261.38. It was highlighted it is insufficient to even pay the unpaid costs already awarded. [33] It is therefore clear in the mind of this court that the Defendants had a legitimate concern of the ability of the Plaintiff to make payment for costs if the Plaintiff is unable to prove its claim against the Defendants. S. 580A of the Act was meant to address the scenario of this current applications. Merits [34] It is trite that merits of the Plaintiff's case are irrelevant to the Defendants’ application for security for costs. In Raju Rajaram Pillai v MMC Power Sdn Bhd & Anor [2000] 4 CLJ 189 HC, it was held as follows: “There was no necessity at all at this juncture to go into a minute and in depth detail of the merits of the case. In evaluating the prospects of success of either party, the court must shy away from a very detailed evaluation of the merits of the case.” (See also KD Resources Sdn Bhd v Ng Boon Jieh & Son Realty Sdn Bhd & Anor [2003] 1 CLJ 333) [35] Similarly, in Faridah Begum Bte Abdullah (supra), the court stated as follows: “Next, I have been asked to consider the merits of the case. In evaluating the merits, the Court is always careful to avoid any 13 attempt at a detailed investigation into the merits of the case. As stated by Sir Nicolas Browne-Wilkinson V-C in Porzelack KG v. Porzelack (UK) Ltd. [1987] 1 All ER 1074 at p. 1077: This is the second occasion recently on which have had a major hearing on security for costs and in which the parties have sought to investigate in considerable detail the likelihood or otherwise of success in the action. I do not think that is a right course to adopt on an application for security for costs. The decision is necessarily made at an interlocutory stage on inadequate material and without any hearing of the evidence. A detailed examination of the possibilities of success or failure merely blows the case up into a large interlocutory hearing involving great expenditure of both money and time." (Emphasis added) (See also Customer Loyalty Solutions Sdn Bhd v Advance Information Marketing Berhad & Anor [2017] 1 LNS 1894) Delay [36] There is also no delay in the Defendants making the application which would result in any prejudice to the Plaintiff. There was after all, an application by the 3rd and 4th Defendants to strike out the claim but it was dismissed by this court. As such, it was only logical that the 3rd and 4th Defendants had to await for the striking out applications first before embarking in this current application. 14 The applications not oppressive [37] This court is persuaded by the Defendants’ argument that should they succeed in dismissing the claim of the Plaintiff, the oppression would instead be on the Defendants if the Plaintiff fails to meet the costs of the Defendants. Quantum [38] In Adarsh Pandit v Viking Engineering Sdn Bhd [1996] MLJU 594, Zainun Ali (as she then was, now Federal Court Judge) held that the amount of security for costs that ought to be granted is 25% of the sum claimed by the plaintiff. This formula was subsequently followed by the High Court in the case of Raju Rajaram Pillai (supra). [39] While the amount sought by the Defendants in enclosure 139 and 149 were for RM150,000.00, this court felt that such a sum would be excessive. This court therefore ordered a sum of RM 30, 000. 00 to be paid under enclosure 139. This is because, this court had earlier granted security for costs in the sum of RM60,000 in suit 472 to See Kok Seng who was then the 3rd Defendant. This court however, orders RM 60, 000. 00 under enclosure 149. Conclusion [40] Having considered the evidence afforded to this court in the affidavits and the pleadings of the parties, this court is of the view that the Defendants have established that the applications are meritorious. 15 [41] The applications in enclosure 139 and 149 are therefore allowed. This court ordered the Plaintiff to pay the sum of RM 30, 000. 00 and RM 60, 000. 00 respectively being security for costs and they are to be deposited into court within 21 days from the date of the order. (AHMAD FAIRUZ BIN ZAINOL ABIDIN) Judge High Court of Malaya Kuala Lumpur Dated: 7th May 2021 16 Counsels James Ee Kah Fuk together with him Emily Lew for the Plaintiff Messrs K.F. Ee & Co. 12, Pusat Perdagangan Kuchai Jalan 1/127, Off Jalan Kuchai Lama 58200 Kuala Lumpur Datuk Wong Ren Yen together with him Goh Keng Wern and Foong Kar Yee for the 1st & 2nd Defendants Messrs Dennis Nik & Wong 68-1, Jalan Telawi Bangsar Baru 59100 Kuala Lumpur Leong Kwong Wah for the 3rd Defendant Messrs Leong Kwong Wah 48-1, Jalan Telawi Bangsar Baru 59100 Kuala Lumpur Lovery Leong for the 4th Defendant Messrs Peter Ling & Co. B-3A-01, Gateway Corporate Suites Gateway Kiaramas No. 1, Jalan Desa Kiara 50480 Kuala Lumpur