Johnson Fluid Engineering Sdn Bhd v 1. Jambulingam a/l Sethuraman Raki (22NCVC-254-12/2013)

JAMBULINGAM A/L SETHURAMAN RAKI (NO. K/P: 510219-10-5561) (Likuidator kepada Roebuck Development Sdn Bhd

MB RESORT SDN BHD (NO. SYARIKAT: 764803-P) DEFENDAN-DEFENDAN JUDGMENT CHOO KAH SING Judicial Commissioner High Court Johor Bahru Date: 1.10.2017 Page 2 of 19 Introduction [1] This case concerns the rightful ownership of three units of apartment, namely, RG-23, R1-20 and R3-19 (hereinafter referred to as the „said properties‟), in a resort condominium development known as “Condominium La Cemara Desaru Beach Resort” (hereinafter referred to as the „said development‟). [2] The said development was developed by one Roebuck Development Sdn. Bhd. (hereinafter referred to as „Roebuck‟). There are ten blocks of condominium, six blocks were completed, and certificates of fitness were issued. Before the entire development could be completed, Roebuck was wound-up on 29.7.2004 via a company winding-up suit No. MT1-28-14-2004. The said winding-up suit was filed by one Allied Alpine (M) Sdn. Bhd. The 1st defendant was appointed as the subsequent liquidator who took over from a previous liquidator Wong Weng Foo (2nd defendant‟s witness – D2W-1) to proceed with the liquidation exercise. [3] On 2.3.2007, the 1st defendant obtained a vesting order from the High Court to deal with Roebuck‟s assets, including the said development. Based on the said vesting order, the 1st defendant was allowed to sell the said development to one Mahabuilders Sdn. Bhd. (hereinafter referred to as „Mahabuilders‟). Mahabuilders was the successful party in a sale by tender exercise to purchase the said development for a consideration sum of RM7,750,000.00. [4] The 1st defendant transferred the said development which was erected on Master title No. H.S(D) 13599, Lot No. PTD 1588, Mukim Page 3 of 19 Pantai Timur, District of Kota Tinggi, State of Johor, to MB Resort Sdn. Bhd., who is the 2nd defendant. MB Resort was a nominee of Mahabuilders. [5] The plaintiff claimed that the said properties ought not to be included in the sale of the said development to Mahabuilders or the 2nd defendant. The plaintiff averred that Roebuck had already sold the said properties to the plaintiff before Roebuck was wound-up on 29.7.2004. Therefore, the said properties could not be part of Roebuck‟s assets in the winding-up exercise. [6] The plaintiff claimed that it was the rightful owner of the said properties as opposed to the 2nd defendant‟s defence which claimed it is the rightful owner of the said properties. [7] The 2nd defendant averred that it had purchased the whole development, and the said properties formed part of the said development as well. Hence, it was the rightful owner of the said properties. [8] The plaintiff averred that the 1st defendant as the liquidator had failed to exclude the said properties from the sale of the said development to the 2nd defendant. As a result of the 1st defendant‟s negligence or omission and refusal to exclude the said properties from the said development, the plaintiff had suffered losses. [9] The parties had gone through a full trial. On 13.8.2017, this Court allowed the plaintiff‟s claim. The reasons for the decision of this Court are set down as below. Page 4 of 19 Brief Facts The Plaintiff’s Case [10] The Plaintiff averred that as early as 3.5.2003, Roebuck made an offer to the plaintiff that the said properties owned by Roebuck be used to set off its debts with the plaintiff, vis-à-vis by transferring the said properties to the plaintiff as full and final settlement of its debts owed to the plaintiff. [11] The plaintiff accepted the offer on 3.5.2003. A confirmation letter was issued by Roebuck on 6.8.2003 to the plaintiff pertaining to the set off agreement made between the parties. On 15.12.2003, following from the set off agreement and the said confirmation letter, the parties entered into three sale and purchase agreements (hereinafter referred to as the „SPAs‟) in relation to the said properties respectively. Vacant possession of the said properties were delivered to the plaintiff on 13.3.2004. [12] Several months later, on 29.7.2004, Roebuck was wound up. In the course of the liquidation exercise, the development, including the said properties, was subsequently sold and transferred to the 2nd defendant by the 1st defendant. The plaintiff averred the 1st defendant had wrongfully sold and transferred the said properties to the 2nd defendant. [13] Premised on the above facts, the plaintiff had filed this suit against the defendants seeking for the return of the said properties or in the alternative for the defendants to pay damages to the plaintiff. Page 5 of 19 The 1st Defendant’s Defence [14] In gist, the 1st defendant‟s defence was that he had acted within what the law required of him to do as a liquidator in a liquidation exercise. He discovered the plaintiff‟s interest only when he sought to obtain the consent to transfer from the various parties who had lodged a private caveat on the master title sometime in the middle of year 2012. [15] The 1st defendant averred that the plaintiff had failed or neglected and due to its own recklessness did not produce sufficient documents to him to state its interest in the said properties during the liquidation exercise. The 1st defendant also averred that the plaintiff had sat on its rights all this time and failed to keep itself updated as to the development of the Roebuck‟s status. [16] The 1st defendant further averred that the plaintiff contacted the 1st defendant only in 2012 after a lapse of 8 years since the SPAs which were dated 15.12.2003. [17] The 1st defendant contended, although it was not pleaded, that the SPAs dated 15.12.2003 were caught under s.293 of the then Companies Act 1965 read together with s.53(1) of the Bankruptcy Act 1967 which render the sale transactions between the plaintiff and Roebuck as void. The 2nd Defendant’s Defence [18] In pith, the 2nd defendant‟s defence was that it was a bona fide purchaser of the said development, and therefore, the 2nd defendant was entitled to retain the said properties. The 2nd defendant relied on s.293 Page 6 of 19 of the then Companies Act 1965 as its defence, therefore, the plaintiff could not have good title of the said properties. [19] The 2nd defendant contended that the sale between the 1st defendant, acting as the liquidator of Roebuck, and the 2nd defendant was sanctioned and approved by the High Court order dated 15.8.2006 read together with the vesting order dated 2.3.2007. As such, this Court has no jurisdiction to vary or set aside another High Court order with concurrent jurisdiction. The plaintiff has to first set aside the vesting order before bringing this action, otherwise, the plaintiff‟s claim is premature, the 2nd defendant argued. The Finding of this Court [20] The parties have filed a common „Issues to be Tried‟ (marked as „J‟), and there are in total 19 paragraphs in the said document. In substance, the 19 paragraphs could be surmised into 3 main issues. Firstly, whether the 1st defendant was negligent in carrying out the liquidation exercise. Secondly, whether the sale transaction between the plaintiff and Roebuck was caught within the ambit of s. 293 of the Companies Act 1965. Thirdly, whether the 2nd defendant was a bona fide purchaser. The parties‟ written submissions have in fact centred on these three main issues. Hence, this Court will address these issues below. First Issue: Whether the 1st defendant was negligent in carrying out the liquidation exercise Page 7 of 19 [21] The 1st defendant came on board in the liquidation exercise via a High Court Order dated 15.8.2006 (in the winding up suit). Based on the said Court Order, the 1st defendant was supposed to obtain all the Roebuck‟s documents and/or records from the previous liquidator Wong Weng Foo. However, the 1st defendant did not take further steps to retrieve the documents and/or records from the previous liquidator when the previous liquidator did not respond to his request. The 1st defendant‟s justification for not pursuing further to retrieve the documents from the previous liquidator was that he did not have enough funds for taking up a legal action against the previous liquidator to compel him to produce the documents/records of Roebuck. The 1st defendant felt that it was more urgent and important to liquidate/realize the available assets at hand at that time. [22] With regard to the question asked by the plaintiff‟s counsel in relation to why he did not take any legal action against the ex-directors of the Roebuck for the failure to file any Statement of Affairs of the company, the 1st defendant gave a similar answer as in the preceding paragraph. [23] In the 1st defendant‟s counsel‟s written submission, the learned counsel did not address this first issue. [24] It is the considered view of this Court that the 1st defendant could not rely on the excuse that there was insufficient funding to pursue a legal action against the previous liquidator or the ex-directors of Roebuck, therefore, he did not take any further steps to retrieve the records/documents from the previous liquidator or ex-directors. This Court is of the view that it is the duty of a liquidator to comply with an Page 8 of 19 order of the Court in that the liquidator must exhaust all avenues to obtain all records/documents which are related to the company concerned so as to understand the actual position and the financial standing of the company. [25] A liquidator could not abrogate his legal duty by relying on the excuse that the financial strength of the company concerned was poor. The company concerned would not have been in the status of liquidation if it financial strength was not poor. [26] This Court noted that in this same liquidation exercise, the 1st defendant had also taken a similar approach or attitude towards retrieving other documents besides those documents which are related to this case. With regard to other documents/records, the 1st defendant has also been sued for his negligence, omission or failure to take further steps to retrieve the same. Roebuck and the 2nd defendant were sued by one Oh Kang Kuang (and another) in suit 22NCVC-89-05/2014 in the High Court of Johor Bahru (citation [2016] MLRHU 1) („the earlier case‟). The claim in that is based on similar facts and similar issues as in this present case. The only difference is that of the subject properties. [27] With regard to the findings of that High Court in relation to the negligence, omission or failure to take action by the 1st defendant, the learned trial judge has this to say in his judgment: “Having examined the evidence adduced, I am of the considered view that Mr. Jambulingam (SD4), the liquidator, has failed to take reasonable steps to retrieve the documents and records especially with Page 9 of 19 regards to the sale of the properties by the 1st Defendant [Roebuck] from either the ex-directors of the 1st Defendant or the liquidators for the following reasons: i) No diligent and reasonable efforts were made by SD4 in retrieving the documents and records of sale from either the previous liquidator or the ex-directors of the 1st Defendant. By writing once and waiting for a response is obviously not a sufficient effort in retrieving the documents and records. He should have waited and made a few more attempts before deciding to go for the verification exercise. ii) When there was no response from the ex-director Mr. Ong Cheng Hoe of the 1st Defendant, DW4 should have made attempts to contact the other directors of the 1st Defendant which he failed to do. Nevertheless, SD4 then assumed that the ex-directors were not going to be cooperative. With respect, I find that such an assumption is totally without basis. iii) …. I find that such an excuse is not acceptable at all. The only reason I could find for SD4 not taking such steps is because he preferred to choose an easy way out in carrying out his duties as a liquidator.” Page 10 of 19 [28] After considering the evidence in this present case, this Court has come to the same conclusion as the learned trial judge in the earlier case that the approach taken by the 1st defendant in carrying out the liquidation exercise of Roebuck was incompetent and negligent. The 1st defendant had failed to exercise due care to ensure all documents/records are retrieved before seeking for a verification order from the court. [29] The 1st defendant told this Court that it is uncertain whether an action against the ex-directors of Roebuck would have yielded a positive result. This Court could not accept this explanation for his inaction, because being a liquidator, he could not make a conjecture of the outcome and decide to abandon his duties and responsibilities and take an easy way out. His duties and responsibilities were to take all necessary and reasonable steps provided under the law to carry out his appointed task. The learned counsel for the plaintiff submitted that the 1st defendant could have relied on ss. 234(3), 236(2)(a), 237(1), 252 and 300 of the Companies Act 1965 to assist him to retrieve the necessary documents/records of Roebuck. This Court accepts the learned counsel for the plaintiff‟s submission on this point. [30] Based on the above findings, this Court is satisfied that the 1st defendant, as the liquidator of the liquidation exercise, failed to carry out his duties and responsibility in a professional manner. Second Issue: Whether the sale transaction between the plaintiff and Roebuck was caught within the ambit of s. 293 of the then Companies Act 1965 Page 11 of 19 [31] Section 293 of the Companies Act 1965 states as follows:

Any transfer, mortgage, delivery of goods, payment, execution or other act relating to property made or done by or against a company which, had it been made or done by or against an individual, would in his bankruptcy under the law of bankruptcy be void or voidable shall, in the event of the company being wound up, be void or voidable in like manner.

For the purposes of this section the date which corresponds with the date of presentation of the bankruptcy petition in the case of an individual shall be-

in the case of a winding up by the Court-

the date of the presentation of the petition; or

(ii) where before the presentation of the petition a resolution has been passed by the company for voluntary winding up the date upon which the resolution to wind up the company voluntarily, is passed, whichever is the earlier; and

(b)in the case of a voluntary winding up the date upon which the winding up is deemed by this Act to have commenced.

Any transfer or assignment by a company of all its property to trustees for the benefit of all its creditors shall be void. [32] The legal proposition of s.293 has been lucidly explained in the decision of the Federal Court in Sime Diamond Leasing (M) Sdn. Bhd. Page 12 of 19 v JB Precision Moulding Industries Sdn. Bhd. [1998] 4 CLJ 557, p. 568, wherein it states as follows: “We must now turn to consider s.293 of the Companies Act. The law relating to fraudulent preferences is set out in s. 53 of the Bankruptcy Act, which is made applicable to companies by s.293 of the Companies Act, and is designed to preserve the sanctity of the pari pasu principle by which creditors in a winding-up share rateably in the assets available for distribution. As in bankruptcy cases, a creditor of a company is not entitled to a set-off against his obligation to repay the preference. (See, In re A Debtor [1927] 1 Ch. 410; Calzaturificio Zeneth Pty Ltd (In Liquidation) v N.S.W. Leather and Trading Co. Ltd [1970] VR 605). We note, in passing, that in Lian Keow Sdn. Bhd. v Overseas Credit Finance (M) Sdn. Bhd. [1988] 2 MLJ 449 Seah SCJ, speaking in the Supreme Court, held that the rules of bankruptcy as to fraudulent preferences are applied to the winding up of companies. To take the matter further, it is clear law that the court has no power to make an order setting aside payments and transfers made in the run-up to bankruptcy in favour of a particular creditor which were Page 13 of 19 designed to prefer him over other creditors unless the following five conditions are satisfied:

that the transaction in question took place within six months prior to the commencement of winding up;

that it satisfied the description of one of the types of transaction mentioned in s.53(1) of Bankruptcy Act;

that it took place at a time when the company was insolvent;

that the person in whose favour the transaction was effected stood in the relation of creditor to the company; and

the effect of the transaction was to confer on that person a preference, priority or advantage over other creditors in the winding up. The onus was, of course upon the Liquidator to satisfy all the five requirements aforesaid. …. The principle of central importance underlying s.293(1) of the Act is that where a debtor company, has at a relevant time, given a preference to any person, the liquidator may apply to the court for an order under the section setting aside the preference.” Page 14 of 19 [33] The Federal Court in Sime Diamond Leasing (M) Sdn. Bhd. has categorically listed down the conditions for s. 293 to apply. [34] In this instant case, not an iota of evidence was adduced in the defendants‟ case to establish that at the time of the set off agreement was reached, i.e. on 3.5.2003, or at the time the SPAs were entered into on 15.12.2003 Roebuck was insolvent. Neither did the defendants establish in evidence that the set off agreement or the entering of the SPAs was to confer on the plaintiff a preference, priority or advantage over other creditors in the winding up of Roebuck. In the absence of these two conditions, the defendants‟ argument on undue preference must fail. [35] In addition to the above finding, this Court is of the considered view that the defendants could not rely on this principle of undue preference as their defence. Firstly, for the 1st defendant, the 1st defendant did not file any counter-claim relying on the principle of undue influence to seek a declaration to set aside the transaction of the said properties. [36] Secondly, undue preference was not pleaded at the first place in the 1st defendant‟s statement of claim. Although the 1st defendant‟s counsel attempted to amend its statement of defence at the eleventh hour, it could not improve the 1st defendant‟s case. Based on the available evidence before this Court, the 1st defendant did not retrieve all the documents/records of Roebuck that present the true financial position of Roebuck. Hence, the 1st defendant could not establish that Roebuck was insolvent at the material time of the transaction between the plaintiff and Roebuck. Page 15 of 19 [37] Thirdly, for the 2nd defendant, although the 2nd defendant has pleaded undue preference in its defence, unfortunately, only a liquidator could apply to the Court to set aside a transaction which falls within s.293 (see JCT Ltd v Muniandy a/l Nadasan & Ors [2016] 6 MLJ 621). Lastly, the 2nd defendant failed to specifically plead relevant facts in its defence which could show there was undue preference. [38] Based on the above findings, this Court is of the considered view that s.293 of the Companies Act 1965 is not applicable in this given set of evidence and facts. Third Issue: Whether the 2nd defendant was a bona fide purchaser [39] It is questionable that the 2nd defendant was a bona fide purchaser for one main reason. The vesting order dated 2.3.2007, paragraph (b) does not contain any reference to the 2nd defendant. Paragraph (b) states as follows: “That the Liquidator shall be allowed to sell the immovable property of the Respondent’s company with the power to transfer the immovable property to Mahabuilders Sdn Bhd (Co. No. 101505-A) of Nos. & 55, Jalan Baiduri 1, Taman Tasek, Johor Bahru 80200 Johor the successful bidder/tenderer of the sale by tender (hereinafter referred to “as the Purchaser”) wherein the description of the property are as follows:- ” Page 16 of 19 [40] There was no court order to allow the 1st defendant to sell and transfer the said development, including the said properties, to the 2nd defendant. Although the defendants submitted that the 2nd defendant was the nominee of Mahabuilders, it was incumbent upon the liquidator to apply to the court to allow Mahabuilders to appoint its nominee to be named as the purchaser. [41] Further, this Court finds the reduction of sale price by RM800,000.00 was not sanctioned by any court order. The discount given by the 1st defendant to the 2nd defendant is questionable. [42] Based on the above reasons, this Court is of the considered view that the 2nd defendant could not establish it was a bona fide purchaser. Other Issues [43] After having examined the oral and documentary evidence adduced by the plaintiff, this Court is satisfied that the plaintiff has proved it had obtained good title to the said properties. Based on the earlier findings in relation to the issue of undue preference, it is not relevant for this Court to determine when the agreement of set off was entered into, i.e. whether at the time the plaintiff accepted the offer made by Roebuck on 3.5.2003 or upon the execution of the SPAs on 15.12.2003. In either event, the defendants have failed to establish the transaction was done in preference of the plaintiff over other creditors (if any) and that Roebuck was insolvent at the material time. Page 17 of 19 Conclusion [44] This Court after having found the plaintiff had obtained good title of the said properties, and that the 1st defendant was negligent in carrying out his duties and responsibilities as the liquidator, therefore, holds the rights and ownership of the said properties did not pass on to the 1st defendant as the liquidator in the said vesting order dated 2.3.2007. Since the 1st defendant and/or Roebuck has no good title of the said properties, a fortiori, the 2nd defendant could not have good title as well. [45] Notwithstanding the finding that the transaction between the 1st defendant and 2nd defendant was not sanctioned by the court, this Court is not ready to vitiate the entire vesting order after having considered the plaintiff‟s intention and the interests of other parties who were not involved in this suit but in one way or the other affected by the vesting order dated 2.3.2007. If this Court vitiates the vesting order, the repercussion would be severe in that many parties‟ interests will be affected and worse is that the whole revival of the development would be affected. [46] Based on the above reasoning, this Court ordered the declarations as prayed as follows:

suatu declarasi bahawa plaintif adalah pemilik benefisial unit-unit yang dikenali sebagai RG-23, R1-20 dan R3-19, Condominium La Cemara Desaru Beach Resort yang dipegang dibawah hakmilik induk yang dikenali sebagai HS(D) 13599, Lot No. PTD 1588 Mukim Pantai Timur, Daerah Kota Tinggi, Johor (nnit-unit tersebut);

(ii) suatu deklarasi bahawa hak in rem plaintif keatas unit-unit tersebut adalah terpelihara walaupun terdapatnya Perintah-Perintah bertarikh 15.8.2006 dan 2.3.2007 di Mahkamah Tinggi Johor Baharu MT1-28-14-2004; dan

(iii) suatu perintah bahawa unit-unit RG-23, R1-20 dan R3-19 dikecualikan daripada jualan hartanah oleh Defendan Pertama kepada Defendan Kedua dan milikan kosong diberikan kepada plaintif. [47] This Court also ordered the defendants to pay costs of RM10,000.00 each to the plaintiff. -Signed- ………………………………………… (CHOO KAH SING) Judicial Commissioner High Court, Johor Bahru Page 19 of 19 Counsel for the Plaintiff: M. Menon Messrs. Jaffar & Menon Counsel for the 1st Defendant : Malcolm Fernandez (Mark Cheng with him) Messrs. C. Sukumaran & Co. Counsel for the 2nd Defendant : WJ Chen Messrs. WJ Chen & Company