LIM Nyuk Foh (WA-22NCC-261-07/2016)

SARAWAK CONSOLIDATED INDUSTRIES BERHAD DEFENDANTS JUDGMENT Introduction [1] The plaintiff had purchased shares in the second defendant based on the representations made by the first defendant. What transpired after the purchase fell short of what has been represented. [2] The plaintiff then sought to get the first defendant to buy back the shares. He claimed that the first defendant agreed. The first defendant’s denial of this promise and refusal is the subject matter of this suit. [3] The trial concerned the first defendant only, as the plaintiff’s claim against the second defendant (‘the company’) was 2 struck out on the 12 October 2016, pursuant to an application made under O. 18 r. 19 Rules of Court 2012 (‘RC 2012’). I shall as such refer to the first defendant as the defendant only for simplicity. FACTS [4] The plaintiff claimed that the defendant had around the months of September and October 2014, offered to sell a controlling block of 20,917,485 shares in the company (‘the shares’). The shares constituted about 28% of the total shareholding in the company. [5] The offer materialised after several meetings held between the plaintiff, the defendant, and also two stockbrokers named Lo Ling (‘PW3’) and Koh Pee Sing (‘DW4’). [6] It is not disputed that the defendant had in an undated letter to the plaintiff, which the latter received on the 9 October 2014, made the offer (‘the letter of undertaking’). The letter of undertaking was titled ‘re: purchase of my controlling block of shares in scib (21m+ shares)’. [7] The defendant had in the letter of undertaking provided the following undertaking and warranties:-

That the audited accounts of the company are true and accurate as presented in the audited accounts, and that there are no material variations and litigation except as 3 mentioned and highlighted in the audited accounts for the year 2013;

(ii) That under the company’s memorandum and articles of association, eleven directors are allowed to sit on the board, of which one-third shall be independent. The defendant will allow the plaintiff to appoint three directors, inclusive of the Managing Director, nominated by the plaintiff’s group;

(iii) That Tan Sri Datuk Amar Bugo will continue to be the non-executive chairman, for as long as he maintains his shares in the company;

(iv) The plaintiff will be allowed to immediately conduct a due diligence audit of the company’s account, and complete it within thirty days; and

That the defendant’s responsibilities and warranties will be discharged once item (ii) and (iv) are completed or within thirty days, whichever is earlier. [8] The plaintiff claimed to have relied on the defendant’s representation, and bought the shares for a sum of RM29,715,984.00 in October 2014. The shares were sold at a premium, as it was a controlling stake in the company, which meant that the plaintiff would become the single largest shareholder. 4 [9] The plaintiff claimed to have bought the shares through the following nominees:-

HDM Capital Sdn Bhd 12,500,000 shares

Kenanga Investments Bank Bhd 5,771,100 shares

Am Investment Bank Bhd 3,646,385 shares [10] As mentioned earlier, one of the undertaking and warranty set out in the letter of undertaking was for the plaintiff to appoint three directors, inclusive of the Managing Director, in the company. This did not materialise, as the company’s board of directors did not approve it. At that point in time, the defendant was no longer a shareholder or a member of the company’s board of directors. [11] The plaintiff then sought to have the defendant buy back the shares. Several meetings and negotiations were held, which the plaintiff claimed culminated into an alleged verbal offer made by the defendant to buy back the shares. The plaintiff claimed that the defendant had also agreed to compensate the plaintiff for the costs and expenses that he had incurred. This agreement, according to the plaintiff, was made verbally at a meeting between the plaintiff and the defendant at the Kuala Lumpur Hilton Hotel on the 18 December 2014. [12] It is the plaintiff’s case that the defendant had in breach of this oral agreement, failed to fulfil his promise. With this suit, the plaintiff seeks to compel the defendant to buy back the shares at the price that he had paid for, and to compensate 5 him. The number of shares however has been reduced to 20,294,485 as the plaintiff had since then disposed of 623,000 units for RM515,172.70 on 27 November 2015. [13] The defendant claimed that he only owned 15,944,700 share of the company, and that he had sold them through the open market via Bursa Malaysia, and that he did not know who had purchased them. The defendant had assumed that the plaintiff bought them. [14] The defendant denied having made any promises or representations to the plaintiff. Although the defendant acknowledged that he had met with the plaintiff to discuss buying back the shares, he had nevertheless only intimated his willingness to consider, but stopped short of agreeing to buy them back. ISSUES [15] The defendant’s solicitors had in their written submissions set out their own issues as follows:- 1st issue (part 1): who owns the approximately 3.6 million SCIB shares – the plaintiff, Am Investment or Bertam Development Sdn Bhd?; and 1st issue (part 2): who owns the remaining approximately 17.2 million SCIB shares – the plaintiff, HDM or Kenanga? 6 2nd issue: did the parties enter into a binding oral agreement on 18.12.2014 as claimed by the plaintiff and denied by the 1st defendant? 3rd issue: Proof of the plaintiff’s holding cost of the shares. [16] The plaintiff’s solicitors however had confined their written submissions based on the issues that were set out in the statement of ‘Issues to be tried’ dated 8 December 2016, which were prepared as directed during case management, and subsequently agreed by both parties. [17] Parties should confine their submissions based on the agreed issues to be tried, and not draft their own issues, for this will otherwise defeat the purpose of case management under O. 34 Rules of Court 2012. [18] The plaintiff’s solicitors had also submitted that the first issue set out by the defendant’s solicitors, was not the defendant’s pleaded defence. I agree. [19] The defendant had in paragraph 3 of his Amended Statement of Defence pleaded:- “The 1st defendant assume the Plaintiff purchased the said Shares by the 1st Defendant is not able to confirm this as the said Shares were sold through brokers.” 7 [20] Making an assumption is quite distinct from denying. The defendant could not at this stage attempt to camouflage an assumption into a denial. Furthermore, the defendant had under paragraph 8.1 of his Amended Statement of Defence, claimed not to have any knowledge of the plaintiff’s contention under paragraph 8 of the statement of claim, in that he had bought the shares through some nominees. [21] The defendant should not detract from the agreed issues to be tried and nor can he put forward a defence which is not pleaded; Ketua Pengarah Jabatan Kerja Raya v Strongkota Development Sdn Bhd and another appeal [2016] 6 MLJ 512 (CA). The appellate court had in the same case, held that deciding on unpleaded issues would transgressed the maxim audi alteram partem, and referred to its decision in Pembinaan SPK Sdn Bhd v Jalinan Waja Sdn Bhd [2014] 2 MLJ 322 (CA). The appellate court cited the following passages enunciated in the latter case:- A decision based on an unpleaded case will as a rule occasion a failure of natural justice and will be liable to be set aside on appeal. It denies the litigant the right to present his case fully before the judge on the unpleaded issue before the decision is made by the court. A corollary to this principle is the following: it is not the duty of the court to make a case for a party when that party does not raise, or wish to raise, a point in the litigation. Janagi v Ong Boon Kiat [1971] 2 MLJ 196, states the position very clearly thus: 8 A judgment should be based upon the issues which arise in this suit. If such a judgment does not dispose of the questions as presented by the parties it renders itself liable not only to grave criticism but also to a miscarriage of justice. It becomes worse and is unsustainable if it goes outside the issues. Such a judgment cannot be said to be in accordance with the law and the rules of procedure.” [22] I am such constrained to only refer to the agreed issues to be tried. The defendant would nevertheless not be at a disadvantage, as I am mindful of the fact that the plaintiff still bears the burden of proving the fact that he had bought the shares. FINDINGS [23] I shall set out my findings based on the ‘Agreed issues to be tried’ dated 8 December 2016 which shall be addressed in turn.

Whether the 1st defendant was the owner of 20,917,485 shares in the company representing approximately 28.43% of the total issued and paid up capital of the company [24] Only 4,972,785 (‘the disputed shares’) out of the 20,917,485 shares is in issue. The defendant had in the fifth paragraph of his Amended Statement of Defence, pleaded that he owned 15,944,700 shares in the company. The defendant 9 had in his witness statement stated that the disputed shares belong to his associates. [25] I find it odd that the defendant had only chose to deny owning the disputed shares solely on the basis that it was not in his name, as some of the other shares sold by him were not in his name either. Out of 15,944,700 shares, only 1,823,985 were under his name. The remainder were under the names of companies, which were Hydrostar Sdn Bhd (12,235,000 shares), Dawla Sdn Bhd (750,000 shares) and Oricon Sdn Bhd (135,715 shares). [26] The defendant had under cross-examination admitted that these companies were under his control, and that he had ownership of the shares. He had also admitted that the sale of the disputed shares were arranged by him. The following transcript of the cross is pertinent:- No, listen to my question. If you don’t mind listen to it again, as far as you are concerned, alright, you had ownership of the shares that are listed under Hydrostar, Dawla Capital Sdn Bhd and Oricon Sdn Bhd because of your connections with the people inside the companies that is the shareholders or the directors in these companies, Correct? Zainal: Family relationship. Alright. 10 YA: Would it be better to ask it this way? Irrespective of the names registered on the shares, are you the beneficial owner of these shares? Zainal: Yes. [27] Furthermore, it is not disputed that the defendant had issued the letter of undertaking. In that letter, the plaintiff had clearly offered to sell 21+ million shares. The title of the letter was:- re: purchase of my controlling block of shares in scib (21m+ shares). [28] The shares offered for sale were quite clearly inclusive of the disputed shares, as to exclude it would mean that less than 21+ million shares were sold, contrary to what was stated in the letter of undertaking. The defendant had also under cross-examination, agreed when suggested by learned counsel for the plaintiff, that he was negotiating to sell “20 odd million shares” in the company that belonged to him:- Before I go there. Datuk Zainal, before this transaction took place in October 2014, you were in negotiation with the plaintiff to sell 20 odd million shares in SCIB which you said belonged to you to the Plaintiff. Correct? Zainal: The, ok, correct. 11 [29] I therefore find that the defendant was the owner of 20,917,485 shares in the company.

Whether the 1st defendant, by an undated letter offered to the plaintiff to purchase the said shares on the express terms that the plaintiff will be allowed to appoint 3 directors including the position of Managing Director of Sarawak Consolidated Industries Berhad [30] As stated earlier, the defendant has not denied issuing the letter of undertaking. Therefore, the answer to this issue lies in the letter of undertaking itself. [31] Under paragraph (2), the relevant undertaking and warranty were worded as follows:- “I therefore will allow you to appoint 3 directors including the MD position) to be nominated by your group.” [32] The defendant had also under cross-examination agreed that he had given this undertaking and warranty:- In fact, Datuk Zainal, you had undertaken and warranted to the plaintiff that you will get him on the board. Not only get him on the board buy you will allow him to appoint a Managing Director and two other directors within 30 days after you gave him the letter. Isn’t that right? 12 Zainal: Correct. [33] The answer to this issue is therefore affirmative.

Whether during meetings held at the Kuala Lumpur Hilton, the 1st defendant had agreed to re-purchase the shares held by the plaintiff in Sarawak Consolidated Industries Berhad

Whether the 1st defendant had agreed to compensate the plaintiff for all costs and expenses incurred, namely all costs incurred by the plaintiff as result of holding the shares in Sarawak Consolidated Industries Berhad [34] I concur with the plaintiff’s solicitors’ submission, that issues no. (3) and (4) can be addressed and decided together, as they are closely related. I would also add that these are the main issues and is the crux of the plaintiff’s case. [35] Unlike the earlier offer made through the letter of undertaking, the alleged agreement which was said to have been made during the meeting held between the plaintiff and the defendant at the Kuala Lumpur Hilton on the 18 December 2014, was verbal. A contract can of course be based on an oral agreement; Achi a/p Suppiah v Devamurthy a/l Suppiah [2010] 8 MLJ 189. [36] The fact is that the plaintiff did not get the bargain that he was promised when he bought the shares. The defendant 13 too was aware of this. The crucial issue now is whether the defendant then promised to buy back the shares from the defendant and compensate him. [37] As the defendant has denied agreeing to purchase back the shares from the plaintiff at the meeting, the plaintiff had sought to rely on the messages that were exchanged between him and the defendant, through a text messaging application called ‘Whatsapp’, to lend credence to his contention. ‘Whatsapp’ is an application that amongst others, allow text messages to be sent from one mobile phone to another using the internet. [38] It is permissible to take into consideration events and background leading to the alleged formation of a contract. In Cipta Cermat Sdn Bhd v Perbandaran Kemajuan Negeri Kedah [2007] 2 MLJ 746, it was held:- “It is a guideline to contractual interpretation that a court is not confined to look only at the formal contract. It is entitled to take into account the circumstances surrounding the making of the contract, including the factual matrix that forms the background to the contract (see Keng Huat Film Co Sdn Bhd v Makhanial (Properties) Pte Ltd [1984] 1 MLJ 243). Essentially the approach is objective. The court is not concerned with the subjective intention of the parties. It is their imputed intention that is relevant”. 14 [39] Communications between parties for instance, can be taken into consideration objectively for the court to deduce whether parties had intended to create a legal relation; see Teras Kimia Sdn Bhd v Kerajaan Malaysia [2014] 7 MLJ 584. [40] The plaintiff had extracted the Whatsapp messages between him and the mobile phone number 021-8099999. The plaintiff claimed that the latter number belonged to the defendant. [41] The defendant had during the course of cross-examination, admitted that the phone number 012-8099999 is his number. This number had also appeared in the Whatsapp messages under the defendant’s name. [42] More crucially, the defendant also agreed to the suggestion made by the learned counsel for the plaintiff, that the Whatsapp messages produced by the plaintiff from 21 April 2015 to 31 May 2016, were messages exchanged between him and the plaintiff:- Mr. Alex: I am asking you a question, messages between you and the plaintiff, between 21st Aril 2015 until 31st May 2016 correct? Yes. Mr. Alex: So, this would be your messages exchanged between you and the plaintiff, between 21st April 2015 and 31st May 2016, correct? 15 Yes. [43] The Whatsapp messages between the plaintiff and defendant indicated that there was a discussion and agreement for the defendant to buy back the shares from the plaintiff at the price that they were sold to the plaintiff. [44] Furthermore, the defendant had through the incessant cross-examination of the learned counsel for the plaintiff made some revealing admissions. For instance, the defendant admitted that a company called Zecon would buy back the shares from the plaintiff, and not him personally. He also revealed that he was a director and shareholder of Zecon, and that he was also a shareholder of Dawla Capital, which was the substantial shareholder of Zecon. More importantly he admitted that he controlled Zecon. This was what he said under cross:- Mr. Alex: Through you and Dawla Capital, you are controlling Zecon, correct? Yes. Of course, there’s a board, you know. [45] That was Zecon. The defendant had also mentioned another company called Sibu Pelita to buy back the shares from the plaintiff. Irrespective of whether it was through Zecon or Sibu Pelita, the defendant agreed to some suggestions put forward by the learned counsel for the plaintiff, that he had promised to buy back the shares from the plaintiff:- 16

Never mind, but before that, the important part is, your are saying you will buy, how you buy it, whether you get a loan or not that’s different issue, Datuk Zainal? Zainal: Correct.

(ii) ADS: The bank giving approval is something else, but it is premised, your bank approval is premised on you wanting to buy back and promised him to buy back the shares, correct? Yes.

(iii) ADS: Now, Datuk Zainal, what appears from all these whatsapp messages to me is simply this, your messages, you have not once in your whatsapp messages to the plaintiff, ever deny that you promised him that you will buy back the shares, you have never denied that? Correct. You never denied that, correct? Yes. 17 In fact, your whatsapp messages in April 2014, confirms that you are going to buy back at cost and interest correct? Correct. [46] Other than the whatsapp messages, there is of course the plaintiff’s contention that the defendant had verbally agreed to buy back his shares when they met at the Kuala Lumpur Hilton on the 18 December 2014. The defendant had denied this. It therefore comes to an evaluation of whose version is more likely to be the truth. [47] I have carefully observed both the plaintiff and the defendant during the course of the trial. I find the defendant to be very evasive when answering some questions under cross-examination, which is in direct contrast to the plaintiff, who was resolute in the witness stand. The defendant’s demeanour was unimpressive. [48] Demeanour is the behaviour and the personality of a person. In the context of a trial, the demeanour of a person is his behaviour when taking questions in the witness stand. For example, the way a witness shifts in his seat or avoiding eye contact or pretending not to understand the question are examples of demeanours that entitles the trial judge to cast an adverse inference against him. 18 [49] However, just because a witness exhibited a negative demeanour when answering one question does not mean that his whole credibility should be tainted. One untruthful answer does not connote that he had lied throughout his testimony. A trial judge should make notes of which instance a witness had demonstrated a behaviour that calls into question his response. [50] It is not a contest of which witness performed better in any trial. Witnesses who stammer and speak softly for example, are not necessarily inferior to witnesses who speaks boldly and appeared confident. There are of course witnesses who could act well and able to conceal lies through their appearances. It is for the trial judge to form a subjective view of how he perceived the witness, for only he has the audio-visual advantage. Only the trial judge is able to use his senses to gauge the demeanour of a witness. [51] I am therefore more inclined to accept the plaintiff’s testimony as opposed to the defendant. I noted that the defendant had on many occasions evaded in giving answers to straight forward questions, pretended not to understand the questions and shifted nervously in his seat when confronted with cold hard facts by the plaintiff’s learned counsel. I am of course not wholly relying on the defendant’s demeanour alone, as I have also taken into consideration other factors, such as the whatsapp messages. 19 [52] It is my finding that on a balance of probabilities, the defendant had at the material time, agreed to buy back the shares from the plaintiff, and compensate him for the losses that he had suffered.

Whether the 1st defendant had breached the agreement to re-purchase the said shares by failing, neglecting and/or refusing to complete the re-purchase of the shares in Sarawak Consolidated Industries Berhad [53] As I have made findings in favour of the plaintiff in respect of issues no (3) and (4), it follows that the answer to issue no.

has to be affirmative. It undeniable that the defendant has breached the agreement which is the essence of this suit by the plaintiff. [54] In fact, the defendant had brazenly admitted during cross that his refusal to buy back the shares were due to the fact that the percentage of the shares would have been diluted to a rights issue exercise carried out by the company. The transcript of the relevant part of the cross-examination is as follows:- …Sorry, before we move on, you were concerned at that time, while we are talking about this messages in April 2015, you were concerned at that point in time, Datuk Zainal, because you (were) afraid that Tan Sri Hamid Bugo would have dilute 20 the percentage in the company through rights issue, isn’t it right? Zainal: Rights and accusation, yes. So, if that corporate exercise go through, if you buy back the shares then the percentage will be reduced, isn’t that right? Zainal: Correct. So, that’s why you afraid of that, correct? Zainal: Yes. …… So, the only reason why you don’t want to buy back the shares now is rights issue that taken place, and your shareholding percentage could have been diluted? Zainal: That’s one of the reason. The appointment of other directors as well, remember in the previous documents that show that the appointment of a few guys. 21 CONCLUSION [55] In summary, it is my finding, that the shares were owned by the defendant, and that he had expressly undertook to the plaintiff that the latter would be allowed to appoint three directors into the company, including the Managing Director. Premised on the undertakings and warranty, the plaintiff proceeded to buy the shares. [56] The defendant did not fulfil his part of the bargain, as the defendant was not able to appoint the three directors inclusive of the managing director. Post event, the defendant then agreed to buy back the shares and to compensate the plaintiff’s costs. The defendant breached this agreement when he failed to buy back the shares and compensate the plaintiff. [57] I therefore allow the reliefs sought by the plaintiff under paragraph 20(1) and (2) of the Amended Statement of Claim, save that under:- sub-paragraph (1)

the word ‘1st‘ is deleted, and

the word 2nd defendant is replaced with Sarawak Consolidated Industries Berhad. sub-paragraph (2)

the word ‘1st’ is deleted, 22

the period of 14 days under prayer 20(2), is replaced with 30 days; and

the word ‘2nd defendant’ is replaced with Sarawak Consolidated Industries Berhad. [58] The relief sought under prayer 20(3) is denied, as Sarawak Consolidated Industries Berhad, which was formerly the 2nd defendant in this suit, is no longer a party. [59] Prayer paragraph 20(4) is also allowed save that:-

the word ‘1st’ is deleted,

the word 2nd defendant is replaced with Sarawak Consolidated Industries Berhad. [60] As for costs, I hereby order that the defendant pay costs of RM50,000 to the plaintiff subject to allocatur. Dated: 29 June 2018. -sgd- (Mohamed Zaini Mazlan) Judge Kuala Lumpur High Court (Commercial Division) Counsel for the plaintiff Alex De Silva & Ashokvijay J. Sanghrajka [Messrs Leela A. Sanghrajka & Associates] 23 Counsel for the defendant Ahmad Moosdeen &Goh Keng Tat [Messrs Goh Keng Tat& Co]