KHK Advertising Sdn Bhd v Siera Management Sdn Bhd (W-02(NCVC)(W)-1441-08/2014)

(a) that the law was set in motion against him on a criminal charge;

(b) that the prosecution was determined in his favour;

(c) that it was without reasonable and proper cause; and

(d) that it was malicious. 6 [25] It was also opined by Lord Steyn in the aforesaid case that the tort of malicious prosecution is not generally available in civil proceedings and has only been extended to certain specific instances in the civil context, most notably the malicious prosecution of a winding-up order or a petition in bankruptcy. (see also Johnson v Emerson and Sparrow (1891) LR6 Ex 329 and The Quartz Hill (supra). [26] It was the defendant’s submission that each and every element must be proven before a case of malicious prosecution can be successfully established. (see Chao Yan San v Yuen Ten Soo [2000] 3AMR 3057). [27] The defendant raised 4 grounds of appeal. Essentially, it was alleged that the learned Judge erred in finding that:

(i) the said winding-up order terminated in the plaintiff’s favour; (1st ground)

(i) the said winding-up order terminated in the plaintiff’s favour (1st ground) The learned judge failed to appreciate that each and every stay of the said winding-up order, viz:- 7

(a) the temporary stay of the said winding-up order for a period of one (1) year obtained by the plaintiff on or around 24.10.2011 (para 5 of the amended statement of claim); and/or

(b) the temporary stay of the said winding-up order obtained by the plaintiff on or around 21.11.2012, and/or

(c) the permanent stay of the said winding-up order obtained by the plaintiff on or around 2.5.2013; did not amount to a termination in favour of the plaintiff.

(i) the 1st ground On this ground the plaintiff contended that the effect of the temporary stay of one year obtained by the plaintiff on 24.11.2011 and subsequently the permanent stay order on 2.5.2013, was to terminate the winding-up proceedings in favour of the plaintiff. Reliance for this proposition can be found in the following excerpt from Chan & Koh’s Company Law (pg. 9049/4):- 9 “The effect of an order to stay proceedings under the winding-up order altogether after winding-up order has been made is a total discontinuance or termination of the winding-up proceedings.” Learned counsel for the plaintiff also relied on the case of Vijayalakshmi Devi d/o Nadchatiram v Jegadevan s/o Nadchatiram & Ors [1995] 1 MLJ 830, where the Court of Appeal expressed a similar view to the following effect: “A winding-up order could not be discharged or rescinded after it had been made. The only remedy is to apply for a stay of proceedings under the winding-up order. The effect of an order to stay proceedings under the winding-up order altogether after a winding-up order had been made is a total discontinuance or termination of the winding-up proceedings.”

(a) the defendant proceeded to obtain the winding-up order on 14.7.2015 despite the same debt being compromised on 29.6.2011;

(b) by obtaining the winding-up order it is clear that the defendant had an indirect motive to pressure or force the plaintiff to pay the debt by way of a lump sum payment; and

(c) if the defendant was bona fide in its action, it would have instructed its solicitors to withdraw the petition upon the debt being compromised on 29.6.2011. Our Findings [42] As pointed out by learned counsel for the plaintiff and as observed by Lord Steyn in Gregory (supra) under English law the tort of malicious prosecution is not, at present generally available in respect of civil proceedings, it being primarily utilized against criminal proceedings. It was only admitted in a civil context in a few special cases, in particular for abuse of legal process and the malicious presentation of a winding-up order or petition in bankruptcy. 15 [43] In view of the limited and narrow scope in which a tort of malicious prosecution can be brought in a civil proceeding, the burden placed on the plaintiff is a fairly onerous one. The court when hearing a claim for malicious prosecution has to weigh carefully the interest of the plaintiff on the one hand and the defendant’s right to institute proceedings on the other. [44] As stated in Clerk and Lindsell on Torts, 18th Ed. at paras 16-01:- “in relation to malicious prosecution the interests of the claimant must be weighed against the defendant’s right to institute proceedings if he does so with the honest intention of protecting his own, or the public interest, or if the circumstances are such that whatever the defendant’s own motives there are good grounds for instituting a prosecution.” [45] The principles set out in Gregory (see para 24 above) and Clerk and Lindsell (supra) were applied by our courts in Semesta Insurance Underwriting Agency Sdn. Bhd. (supra) v Koperasi Insurance (M) Sdn Bhd [2011] 3 MLJ 379 where Ramly J (as he then was) held that:- “To be actionable as a tort the action taken by the defendant must have been without reasonable and probable cause, must have been instituted or carried on maliciously and have been terminated in the plaintiff’s favour. The plaintiff must also prove damage” [46] His Lordship went on to hold that in the present case, Semesta must prove the following ingredients in order to establish its claim for malicious prosecution on MCIS: 16 “(a) the session court action and the winding up proceedings against Semesta has commenced and terminated in favour of Semesta;

(b) there is malice on part of MCIS in instituting those action/proceedings;

(c) there is an absence of reasonable and probable cause; and

(d) Semesta as the plaintiff must have suffered damage.” [47] In the present case, the learned judge in her grounds of judgment concurred with the aforesaid proposition of law when she held that the elements laid down in Semesta (above) were “requisite elements to be proved by a plaintiff alleging malicious prosecution.” [48] A similar view was held by Richard Malanjum J (as he then was) in the earlier case of Chao Yan San v Yuen Ten Soo [2000] 3 AMR 3057, where he held that in order to succeed in an action for malicious prosecution each ingredient must be proved and “not by inference of the others or any of them upon proof of one ingredient.” His Lordship relied on Thompson LP’s pronouncement in Rawther v Abd Kareem [1966] 2 MLJ 2011 where the latter enunciated that in an action for malicious persecution “the plaintiff must prove at least five things and unless he does so he cannot succeed. He must prove that the defendant set the criminal law in motion against him. He must prove that the criminal proceedings against him terminated in his favour, that the defendant had no “reasonable and probable cause” for setting the law in motion against him and that the plaintiff was actuated by malice in the sense that he had a 17 motive other than only to carry the law into effect. And for historical reasons (the action was originally in case) he must prove damage.” [49] In the present case, learned counsel for the defendant contended that the learned judge came to an erroneous conclusion when she found that the plaintiff had successfully proven the tort of malicious prosecution when 4 crucial elements of the tort (as set out in para 46 above) had not been made out (see Gregory, Semesta and Chao Yan San (supra)). [50] These 4 elements constitute the four grounds of appeal of the defendant which we will address below.

(i) The said winding-up order terminated in the plaintiff’s favour (1st ground)_______________________________________________ Essentially the plaintiff’s argument was that the effect of the temporary order obtained by the plaintiff on 24.11.2011 and the permanent stay obtained subsequently on 2.5.2013 was to terminate the winding-up proceedings in favour of the plaintiff. [50.1] The learned judge concurred with the plaintiff’s submission and held that “the winding-up proceeding did in fact terminate in favour of the plaintiff as the effect of an order to stay proceedings under the winding-up order altogether after a winding-up order has been made is a total discontinuance or termination of the winding-up proceedings…” [50.2] Her Ladyship relied on the following authorities to support her finding:- 18

(a) the Court of Appeal decision in American International Assurance Bhd v Coordinate Services Design Sdn. Bhd. [2012] 1 MLJ 369;

(b) Chan & Koh’s Company Law (supra); and

(c) the Court of Appeal decision in Vijayalakshmi Devi (supra). [50.3] Having considered both the plaintiff’s and defendant’s submission on this issue, we were of the view that the learned judge misdirected herself in law when she made the above finding. [50.4] To reiterate, to sustain a claim for malicious prosecution it is imperative that a plaintiff prove that there was termination of proceedings in favour of the plaintiff (see Semesta (supra)). As explained by the English Court of Appeal in Bynoe v Governor And Company Of The Bank Of England And Williams [1902] 1 KB 467, this ingredient is necessary so that the court hearing the malicious prosecution is not converted into an appellate court of the previous proceedings. [51] In the words of Collins MR: “There is, however, one broad principle lying at the root of the whole matter, to which we drew attention during the argument – namely, that, as long as a conviction stands, “no one against whom it is producible shall be permitted to aver against it”… in a modern case, Basebe v. Matthews…Byles J. said: I think we should be disturbing foundations if we were to admit that there is any doubt that the criminal proceeding must be determined in favour of the accused before he can maintain an action for a malicious prosecution. If this were not so, almost every case would have to be tried over again upon its merits…This doctrine is as old as the case of Vanderberg v. Blake (2) 19 … Montague Smith J. was of the same opinion, and cited the judgment in the case of Castrique v. Behrens (3) in which Crompton J. said: “There is no doubt, on principle, and on the authorities, that an action lies for maliciously and without reasonable and probable cause setting the law of this country in motion to the damage of the plaintiff, though not for a mere conspiracy to do so without actual legal damage… But in such an action it is essential to shew that the proceeding alleged to be instituted maliciously and without probable cause has terminated in favour of the plaintiff, if from its nature it be capable of such a termination. The reason seems to be that, if in the proceeding complained of the decision was against the plaintiff, and was still unreversed, it would not be consistent with the principle (1) on which law is administered for another Court, not being a Court of appeal, to hold that the decision was come to without reasonable and probable cause.” (emphasis added) [52] In other words, to extrapolate from the above pronouncement, where there is a decision of the court, the decision needs to be reversed in favour of the party who alleges malicious prosecution before that party can say that the proceedings terminated in his favour. [53] In the present case, where a winding-up order has been made against the company (the plaintiff) the only way it can be said that proceedings have terminated in favour of the plaintiff is if the winding-up order was reversed in favour of the plaintiff. [54] To contend otherwise would mean that a malicious prosecution claim tantamounts to an informal appeal against a winding-up order. 20 [55] The scheme of the Act itself allows an aggrieved party to appeal against a winding-up order under s. 253 of the said Act. (see American International Assurance Bhd v Coordinate Services L Design Sdn. Bhd. [2012] 1 MLJ 369, CA and Malaysian Alliance Bhd v Comsa Properties Sdn. Bhd. & Another Appeal [2011] 7 CLJ 942). [56] It was not in evidence before the High Court nor was it established that the winding-up order was reversed upon appeal in favour of the defendant. [57] In this regard the learned High Court Judge clearly erred when she concluded that proceedings had terminated in the plaintiff’s favour merely because a permanent stay results in a discontinuance of the winding-up proceedings. [58] With respect, her Ladyship was misconceived when she relied on the case of American International Assurance (supra) to support her conclusion. That case did not rule that a permanent stay determines the winding-up proceedings in favour of the defendant as that was not the issue before the court. [59] The actual issue before the court was the effect of a stay of proceedings and the validity of any agreement entered into by the company following the winding-up order made by the court. [60] The Court of Appeal in the aforesaid case held that “a stay order takes effect from the date of the pronouncement of the order and not backdated to the date of the winding-up order. A stay order does not wipe the winding-up order out of existence but would only be operative from the 21 date of the granting of the stay order. Therefore the question of validating all dealings and agreements entered into after the date of the winding-up until the date of the stay order ….. does not arise at all.” [61] The Court of Appeal in effect ruled that a winding-up order operates prospectively and not retrospectively. In other words “a stay does not have retrospective effect to annul the effective operation of the winding-up order during the period prior to the stay”. As a stay does not have retrospective effect in that it does not reverse or annul the operation of a winding-up order against the plaintiff from the date the winding-up order was made a stay is not therefore a termination (of proceedings) in favour of the plaintiff. [62] We concur with learned counsel for the defendant that as the plaintiff has not shown that a termination has occurred in its favour, the claim for malicious prosecution against the defendant cannot be sustained.

28.1.2011. However, on 14.7.2011 the defendant instead of withdrawing the petition proceeded to obtain the order notwithstanding the fact that on 29.6.2011, the Sessions Court had already issued its order for instalments by one of the contributors pursuant to the JDS filed by the defendant.” [65] The learned judge considered the date the winding-up order was granted, as the material date to assess because, notwithstanding the fact that the Sessions Court had on 29.6.2011 issued its order for payment by instalments by one of the plaintiff’s contributories, the defendant nevertheless proceeded to obtain the winding-up order on 14.7.2011. In other words by 29.6.2011, the debt was compromised and the defendant had no longer any reasonable cause for proceeding to obtain the winding-up order on 14.7.2011 (see para 19 of the grounds of judgment). [66] Her Ladyship relied on the case of Tims v John Lewis (supra) in support of her finding. [67] On this issue we agreed with learned counsel for the defendant that the learned judge erred in holding that 14.7.2011 is the material date for assessment. As explained by the learned authors in Clerk and Lindsell on Torts (supra) “An action lies in respect of the injury to reputation caused by maliciously and unreasonably commencing liquidation proceedings against a company or bankruptcy proceedings against an individual.” (paras 16-43). (emphasis added) [68] An action for malicious prosecution therefore lies in respect of the malicious presentation of the winding-up presentation of the winding-up 23 petition. Lord Steyn’s judgment in Gregory (supra) explains the rationale behind the tort action against the malicious presentation of winding-up petitions and demonstrates why the material date of assessment is not the date of the winding-up order. At page 566 of the report Lord Steyn observed as follows:- “In Quartz Hill Consolidated Gold Mining Co v Eyre Brett LJ (at 684) justified the rationale of this special case on the ground that the defendant is ‘injured before he can shew that the accusation made against him is false; he is injured in his fair name, even though he does not suffer a pecuniary loss’. He drew a contrast (at 684-685): ‘It is not like an action charging a merchant with fraud, where the evil done by bringing the action is remedied at the same time that the mischief is published, namely, at trial.’” [69] As apparent from the above observation the justification for the tort of malicious prosecution is based on a company maliciously and without reasonable cause being said to be unable to pay his debts before being able to show that the accusation against him is false. [70] In this regard the reliance placed by the learned judge on the case of Tims v John Lewis (supra) to support her finding that the material date (of assessment) is the date the order of winding-up was granted is, with due respect, erroneous as Tims concerns a claim for criminal malicious prosecution arising from the (allegedly) wrongful imprisonment of the plaintiffs in respect of a charge which was subsequently withdrawn. The case before us relates to the malicious prosecution of a winding-up petition. 24 Similarly with the case of Govindji (supra) which was referred to by learned counsel for the plaintiff in his submission. It concerns a claim for criminal malicious prosecution. [71] It is important to bear in mind that as confirmed by the case of Gregory (supra) the tort of malicious prosecution was only extended to the civil context in special cases. The House of Lords in Gregory stressed that it was undesirable and unnecessary to extend the established circumstances of malicious prosecution as any apparent injustice arising from any unwarranted civil proceeding are either already sufficiently protected under other torts or capable of being addressed by any necessary and desirable extensions of the torts. [72] Consequently we concur with defendant’s learned counsel’s submission that the tort action lies in the malicious prosecution of a winding-up petition i.e. in the initiation of winding-up proceedings against a company. It should not be extended to the grant of a winding-up order as was done by the learned judge in this case. 3rd ground [73] Following from the above the material date to assess whether there was reasonable and probable cause is the date when proceedings were initiated on 28.1.2011 and not the date of the winding-up order. In this regard the learned judge at para 19 of her grounds of judgment found that the defendant was justified in initiating the winding-up proceedings. In view of that the defendant had reasonable and probable cause to 25 commence proceedings and the plaintiff’s claim therefore cannot be sustained. [74] Even if it can be argued that the material date for assessment of malice and / or want of reasonable cause is 14.7.2011, i.e. the date of the winding-up order, we agreed with learned counsel for the defendant that the winding-up order was obtained with reasonable cause. [75] The absence or lack of reasonable and probable cause must be proven independent of the other ingredients. It cannot be inferred from the absence of malice. (see Glinski v McIver [1962] AC 726). [76] As to what amounts to reasonable and probable cause, the case of Hicks v Faulker [1878] 8 QBD 167 defines it as follows: “I should define reasonable and probable cause to be, an honest belief in the guilt of the accused based upon a full conviction, founded upon reasonable grounds, of the existence of a state of circumstances, which, assuming them to be true, would reasonably lead any ordinarily prudent and cautious man, placed in the position of the accuser, to the conclusion that the person charged was probably guilty of the crime imputed.” Rawther v Abdul Kareem (supra) cited with approval the above dicta. [77] In her judgment the learned judge held that there was no reasonable cause for the defendant to proceed to obtain the winding-up order on 14.7.2011. In her Ladyship’s view due to the JDS Order “from 29.6.2011, 26 the plaintiff was innocent as the debt had been compromised and was only due 30.8.2011.” (para 20 of the grounds of judgment). [78] The learned judge’s reasoning is, with respect flawed as her Ladyship failed to appreciate the nature and rationale of such winding-up proceedings. [79] Firstly, Section 218 of the Companies Act 1965 provides the circumstances under which a compulsory winding-up order may be ordered by the court:- “Section 218. Circumstances in which company may be wound up by Court

(e) the company is unable to pay its debts” (emphasis added) It is also expressly provided under Section 218(2) that: “A company shall be deemed to be unable to pay its debts if – (a) a creditor by assignment or otherwise to whom the company is indebted in a sum exceeding five hundred ringgit then due has served on the company by leaving at the registered office a demand under his hand or under the hand of his agent thereunto lawfully authorized requiring the company to pay the sum so due, and the company has for three weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor.” 27 [80] The winding-up petition was lodged in respect of the plaintiff’s inability to pay its debts following a lack of response to the defendant’s s. 218 Notice. Assessing whether there was a lack of reasonable and probable cause whether on 14.7.2011 or any material assessment date before, must therefore be grounded (bearing the guidance of Hicks v Faulker (supra) in mind) on whether the defendant could not reasonably be said to believe that the plaintiff was unable to pay its debts and to move the court to compulsorily wind the plaintiff up. [81] Whether the instalment payments ordered under the JDS Order had yet to commence at the date of the winding-up order is not a relevant consideration in this case. This is because the crux of whether the court will make an order to compulsorily wind up a company would necessarily depend on whether the company was unable to pay its debts. [82] In this regard it was reasonable for the defendant to have moved the court to do so on 14.7.2011 for the following reasons:

(i) The notes of the JDS proceedings indicated that the plaintiff did not possess funds to cover its debts. (see RR, Jil. 1, pgs. 91-92).