Kuala Excel Sdn Bhd v Chua Liang Hong (W-02(NCVC)(W)-856-04/2017)

(a) RM1.5 million would be paid on behalf of the Appellant for the outstanding maintenance charges, sinking fund, outgoings and late payment interest in respect of the Property; and

(b) the remaining RM1.2 million would be paid directly to the Appellant (“Third Party Offer”). However, the Appellant rejected the Third Party Offer. [10] On 25.5.2010, the Appellant entered into a Consent Judgment with UE in respect of the UE suit. The salient terms of the Consent Judgment are as follows: 4

(a) UE to withdraw the UE suit against the Appellant with no order as to costs and without liberty to file afresh;

(b) The SPA is rescinded and the consideration for the rescission would be RM4 million;

(c) The Property and its title are to be returned to UE free from encumbrances, and the Appellant is to surrender the original SPA on the Property to UE’s liquidator for rescission;

(d) The Appellant is to submit and file a proof of Debt (“POD”) to the liquidator upon receiving a copy of the Consent Judgment; and

(e) No order as to costs in respect of the Appellant’s Counterclaim (AR BC Vol 10/13 pg 1847-1849). [11] The Appellant’s authorized representative, Mr. Ng Leong King (“Mr. Ng”) (SP1) signed and approved the terms of the Consent Judgment before the learned High Court Judge (“Judge”) on 25.5.2010. Ms Ng Siew Hua (SP4) was present while the interpreter, Ms. Keng Siew Hong (SD1), interpreted the terms of the same to Mr. Ng before the Judge. [12] On 5.10.2011, the Appellant issued a letter to the Respondent, which was signed by all its shareholders, authorizing the Respondent to act as its solicitor and to take all necessary steps in accordance with the Consent Judgment (AR Vol 10/13 pg 1861-1863). [13] On or at about the end of December 2011, the Appellant, through Mr. Ng, returned to the Respondent a POD form duly signed by Mr. Ng himself. [14] Without the knowledge of the Appellant nor the Respondent, the Property was subsequently sold by the liquidator of UE (NOE dated 5

2.12.2016, AR Vol 5/13 pg 997). UE did not furnish any money to the Appellant. [15] Subsequently, on 2.9.2013, a new solicitor, Mr. Lim Teck John, took over from the Respondent as solicitor for the Appellant. The new solicitor, after taking over, did not take any action against the liquidator of UE in respect of the sale of the Property. The new solicitor instead filed an application to set aside the Consent Judgment, but subsequently withdrew the same. [16] According to the Respondent, Mr. Ling Teck John had testified in court that he advised the Appellant to sue the Respondent instead for negligence because “suing Paul Chua is easier than suing the liquidator” (AR Vol 4 pg 821-832) (note: Paul Chua refers to the Respondent). THE APPELLANT’S CLAIM [17] The Appellant’s claim against the Respondent is founded on the torts of misrepresentation and professional negligence. In paragraph 40 of the Statement of Claim, the Appellant claims against the Respondent as follows: “(a) damages of RM4,000,000.00 be paid to the Plaintiff;

(b) damages for misrepresentation and breach of duty as assessed by the Honourable Court be paid to the Plaintiff;

(c) Interest on the amount of damages awarded at the rate of 5% per annum from 25.5.2010 until full settlement by the Defendant, or at any rate for any period as determined by this Honourable Court, be paid to the Plaintiff;

(d) costs of this action;

(e) such further or other Order as the Honourable Court deems fit and proper.” (AR Vol 1/13 pg 124-125) 6 DECISION OF THE HIGH COURT [18] After a lengthy trial of 21 days, the High Court gave its decision on 30.3.2017 which, inter alia, stated the following: “… The Defendant has not been shown to be incompetent or glaringly wrong; as such this Court finds that the Defendant has not been shown to be negligent in that he has not breached his duty of care to the plaintiff. In conclusion, this Court finds that the Plaintiff has not proved its case against the Defendant.” Therefore, the High Court dismissed the Appellant’s claim. OUR DECISION [19] On 7.12.2017, after hearing the appeal before us, we unanimously allowed the Appellant’s appeal. GROUNDS OF DECISION [20] The main issue to be decided by the High Court is whether the Appellant has succeeded in proving its allegations of misrepresentation and professional negligence against the Respondent, in his capacity as the Appellant’s solicitor, when advising the Appellant in regard to the Consent Judgment entered into by the Appellant with UE on 25.2.2010 in respect of the UE suit. [21] To succeed in its claim, the Appellant has to establish:

(b) To exercise reasonable degree of skill and care of a competent and reasonable experienced solicitor and counsel;

(c) To protect and act in the best interest of Kuala Excel;

(d) To accurately inform and explain the exact terms of the Consent Judgment being advised upon Kuala Excel and to be entered into by Kuala Excel;

(e) To advise on the effect of the such terms of the Consent Judgment and the risks involved especially with the knowledge of UESB having been previously wound up by the Court;

(f) To advise on whether such Consent Judgment ought to be recorded given that UESB has been wound up previously;

(g) To advise Kuala Excel on the legal effect and/or effect of the winding up order against UESB via-a-vis the terms of the Consent Judgment recorded and more importantly, to advise Kuala Excel on the ability of UESB to pay the agreed consideration of RM4 million for one shop lot No. 2.25 (35-L4) at the UE3 Shopping Mall (the said Property);

(h) To advise Kuala Excel that further information on UESB’s indebtedness and financial ability to be ascertained prior to any agreement to record consent Judgment;

(i) To advise on general law in respect of UESB’s payments which are subject to priorities and pari passu payment pursuant to the provisions of the Companies Act, 1965; and

(j) To advise on the effect of executing and filing a proof of debt against a wound up company.” (AR Vol 1/13 A pg 82-83) [27] The defence is that the Respondent did not breach any duty of care which resulted in the loss of the Property and/or RM4 million. The 9 Respondent submits that the Appellant accepted the Consent Judgment, and must therefore accept “all the implications” of the Consent Judgment (see Mayban Allied Bhd v. Kenneth Godfrey Gomez & Anor & Another Appeal [2011] 5 MLJ 219 at pg 227). [28] According to the Respondent, the Appellant did not lose the Property and/or RM4 million by entering into the consent Judgment. The Appellant has not proved that by not entering into the Consent Judgment, the Appellant would have pocketed RM 4 million and/or the Property would have remained with the Appellant. The loss cannot be presumed. A causal link has to be established. [29] The Respondent submits that all matters prior to the Consent Judgment were done with the instructions of the Appellant through Mr. Ng, which included rescission and defending the UE suit. Upon having accepted and executed the Consent Judgment, the Appellant is estopped from making any claims of misrepresentation or negligence against the Respondent. The Appellant cannot be allowed to approbate and reprobate. [30] We now consider the Appellant’s allegations against the Respondent which were not dealt with at all by the Judge. The Respondent did not advise the Appellant on the legal implications of the Consent Judgment [31] The Appellant submits that the Respondent did not plead in his Defence that he has explained and interpreted the effect and legal implications of the Consent Judgment to the Appellant. 10 [32] The Respondent, upon cross-examination, confirmed that he did explain the terms of the Consent Judgment to Mr. Ng, but not in detail. [33] We note that in paragraph 15 of the Defence, the Respondent pleaded that he had: “15.1 warned the Plaintiff of the uncertainties involved in respect of the financial status of UE to pay;

15.2 advised the Plaintiff that UE would only be in the position to pay the RM4 million to the Plaintiff upon the availability of funds, and subject to the claims of other creditors;

15.3 advised the Plaintiff on the effect of such terms and the legal risks involved having regard to the status of UE having been wound up;

15.4 advised the plaintiff that the counterclaim if successful and granted would be in similar terms.” [34] In paragraphs 16.4 to 16.7, and paragraphs 17 and 18 of the Defence, the Respondent further pleaded: “16.4 the Plaintiff was advised and was aware that any payment from UE would be through distribution after filing of Proof of Debt and not direct payment of RM4 million;

16.5 the Plaintiff was advised and was aware that the distribution by UE’s liquidator would be subject to priorities and other unsecured creditors;

16.6 the Defendant enquired from UE’s solicitors about secured creditors but was told there was no secured creditors in respect of, and/or affecting the Unit. The Plaintiff was accordingly informed and advised of the same;

16.7 there was no third party present at the trial on 25.5.2010, and the Plaintiff was fully aware that any settlement would only be with UE, and UE was not in a position to purchase the Unit;”; “17. The Plaintiff was advised and consequently made aware that even if the trial had proceeded and the court subsequently allowed the Plaintiff’s counterclaim against UE, the Plaintiff would have arrived at the same outcome as the Consent Judgment; 11

The Plaintiff through Ng Leong King agreed with the terms of the Consent Judgment by signing a draft of the same.” [35] From the evidence adduced, we do not think that there is any doubt about the Appellant being made to understand the terms of the Consent Judgment through the interpreter appointed by the Appellant through the Respondent. However, the Appellant’s complaint is that the Respondent, being the Appellant’s solicitor, did not inform Mr. Ng of the risks involved by entering into the Consent Judgment with UE, which was already wound up, and whether the Appellant, as an unsecured creditor, would be guaranteed payment of the RM4 million upon filing its POD with UE’s liquidator. [36] When cross-examined, the Appellant informed the Court that he had made inquiries with one Ms Sabrina of UE who informed him that UE did not have any secured creditors. That was the only thing that the Respondent did to find out the financial position of UE before advising the Appellant on the Consent Judgment. [37] We agree with the submissions of the Appellant that the Respondent failed to take all the necessary steps to find out the financial position of UE and give advice to the Appellant on it and the risks involved, in order for the Appellant to make its decision whether to enter into the Consent Judgment. [38] The Respondent admitted that he did not verify with Ms Sabrina whether UE had any preferential creditors. Subsequent to the Consent Judgment being recorded, it turned out that the Inland Revenue Department (“LHDN”) was an existing preferential creditor. LHDN had filed a POD for RM2,455,155.92. As such, there was no balance of monies 12 left to be distributed to the classes of creditors or even the Appellant, as UE no longer has enough valuable assets and/or funds. [39] A critical step that the Respondent ought to have taken is to do a winding up search on UE, on Form 75. The Respondent again admitted under cross-examination that he had not conducted such a search or inquired on the Form 75 of UE. As submitted by the Appellant, had the Respondent done so, he would have confirmed and be able to inform the Appellant that while UE has no secured creditors, UE has liabilities of debenture holders in the sum of RM69,820,846.10 and unsecured creditors of RM40,455,315.12. [40] The Appellant informed the Court, during his cross-examination, of what he had told the Appellant before the Consent Judgment was entered: “CHUA I told him that there is no more claim against Kuala Excel with regards to the outstanding charges. Whether there’s a legal explanation or not, I don’t know your terminology, but I explained to him. I also told him they will not file again a fresh claim against Kuala Excel for the outstanding charges. Right. After he arrived at the figure of RM4 million as the acceptable, agreeable amount for the rescission of the SPA, I explained that to him, that he will get RM4 million for the rescission on the SPA. And there is this extra term that he is to surrender and deliver original SPA dated 19.10.1995 to the Liquidators of Uncang Emas. I also explained to him, as I have said earlier, this statutory necessity as a creditor, and in this case, as a Consent Judgment Creditor, to file a Proof of Debt form. And it will be attached with a sealed copy of a consent Judgment. And that there is also no Order as to cost for the Counterclaim, as much as there is no Order as to cost for the Liquidators’ claim. 13 HKL So these are all you explained? CHUA Yes” [NOE Day 14.2.2017 pg 923] (See AR Pt B Vol 6/13 pg 1161 lines 9-27) [41] It is clear that the Respondent did not explain or advise the Appellant on the legal implications of filing a POD and the legal effect of sections 291 and 292 of the Companies Act 1965, i.e. that after the filing of the POD, the Appellant would rank pari passu with other unsecured creditors. Further, the Respondent did not explain that the Appellant would rank after the preferential creditors of UE and the debenture holders, and that at the end of the day, the Appellant might get nothing, instead of the RM4 million agreed upon in the Consent Judgment. [42] We also agree with the submissions of the Appellant that the Respondent could have advised the Appellant that they had the option of withdrawing its Counterclaim and defend the main claim of UE. Under cross-examination, the Respondent admitted that he did not do so: “HKL You could have or should have written to Kuala Excel to advise that, or orally advised them they had an option either to withdraw the counterclaim and defend their main claim. You did not do so. Correct? CHUA I did not do that. No.” [NOE Day 14.2.2017 pg 972-973] (See AR Pt B Vol 6/13 pg 1211 lines 3-8) [43] In our view, had the Appellant been advised to withdraw its Counterclaim, the SPA would not have been rescinded by the Appellant. 14 Thus, the Property, which had already been paid for, would have remained with the Appellant. That being the case, there would be no way for the liquidator of UE to sell off the Property. Instead of entering into the Consent Judgment, and then filing its POD and waiting in vain for the RM4 million, the Appellant could at least have the Property less whatever it had to pay to UE for the outstanding maintenance charges. According to the evidence, as on 29.4.2010, the outstanding maintenance charges owed by the Appellant to UE was RM1.5 million. The Third Party Offer at that time was for RM2.7 million for the sale of the Property. [44] In our considered opinion, it is without doubt that the Respondent has breached his duty of care to the Appellant and such breach has caused the Appellant loss and damage. [45] Regarding the quantum of damages that can be awarded to the Appellant, we do not think that the sum of RM4 million as claimed in prayer 40(a) is a just sum. Bearing in mind that the Appellant had purchased the Property under the SPA dated 19.10.1995 for RM2,332,100.00 and the Third Party Offer of RM2.7 million on 29.4.2010 that the Appellant had rejected, we are of the view that a sum of RM2.5 million would be a just and reasonable sum to be awarded as damages to the Appellant. CONCLUSION [46] After considering the submissions of learned Counsels, and having perused the Records of Appeal, we are satisfied that there are merits in this appeal. We find that there was insufficient judicial appreciation of the facts and the law by the Judge. Clearly, there are appealable errors that warrant our appellate intervention. 15 [47] Accordingly, we allowed the appeal of the Appellant and set aside the decision and order of the High Court. We allowed prayer 40(a) of the Statement of Claim but substituted the sum claimed, i.e. RM4 million, with the sum of RM2.5 million. Prayer 40(c) is also allowed and interest at the rate of 5% per annum is to be calculated from the date of the Consent Judgment on 25.5.2010 until full settlement by the Respondent. We ordered costs of RM50,000.00 here and below to be paid by the Respondent to the Appellant, subject to payment of the allocator fee. The deposit is to be refunded to the Appellant. Sgd Dated: 6 March 2018 YEOH WEE SIAM Judge Court Of Appeal, Malaysia Putrajaya Solicitors for the Appellant Hk Ling Messr Ling & Mok Solicitors for the Respondent Ang Hean Leng Lim Bee Sie Messr Lee Hishamuddin Allen & Gledhill