Mah Seong Huak v Gan Wee Peng (BA-22NCC-193-10/2024)

The Plaintiff claims that the share sale agreement had terminated because a condition precedent was not met and that the Defendant had also breached its terms. He is therefore applying for an interlocutory injunction to preserve the Shares and its value pending the trial. Background Facts [3] EVD Land together with EV Dynamic Sdn Bhd and EVD Engineering Sdn Bhd were all subsidiary companies of the holding company, EVD Berhad. The Plaintiff, Defendant and Zitan Capital Sdn Bhd were shareholders in what may be called the EVD Group.

Before the events that led to the dispute and this suit, the Plaintiff and Defendant were both directors and shareholders of various entities in the EVD Group. The Shares, for example, represented 43% of the share capital of EVD Land.

Following a shareholder dispute and the filing of an oppression claim by the Defendant in Shah Alam High Court Originating Summons No: BA- 24NCC-17-02/2024, the parties entered into a settlement agreement. As part of that settlement, the parties entered into the following agreements:

Share Sale Agreement dated 6-3-2024 (“SSA”) by which Plaintiff (as vendor) would sell the Shares to the Defendant for RM10 million.

Share Sale Agreements dated 6-3-2024 by which the Defendant (as vendor) would sell his ordinary and redeemable preference shares in EVD Berhad to Wong Sak Kuan and Yau Ming Teck for a total sum of RM10,001,185.05.

Share Sale Agreement dated 6-3-2024 by which the Defendant (as vendor) would sell his shares in Zitan Capital Sdn Bhd to Wong Sak Kuan in exchange for the shares held by Zitan Capital Sdn Bhd in EVD Land. The parties pre-signed various resolutions, letters of resignation and form of transfer of securities as deliverables in the above transactions. [6] The effect of the above transactions is that the Plaintiff would exit EVD Land, and the Defendant would exit EVD Berhad and Zitan Capital Sdn Bhd and cease to be a director of EV Dynamic Sdn Bhd. In effect, there would be a parting of ways between the Plaintiff and Defendant. Analysis and Finding [7] The interlocutory injunctions sought by the Plaintiff are essentially to restrain the Defendant from transferring the Shares or passing any resolutions to dilute the shareholding represented by the Shares or transfer, encumber or otherwise deal with three properties in Shah Alam, Subang Jaya and South Yarra, Australia belonging to the EVD Land (“Properties”). [8] In considering whether to grant the interlocutory injunctions, the American Cyanamid test (American Cyanamid Co v. Ethicon Ltd [1975] AC 396) and the guidelines in the case of Keet Gerald Francis Noel John v Mohd Noor bin Abdullah & Ors [1995] 1 MLJ 193 applies:

There must be a serious question to be tried;

Damages would not be an adequate final remedy; and

The interim relief is justified on the balance of convenience. The parties submitted on the above. The Defendant additionally argued that not all necessary parties are before the Court and that the Court should not assist the Plaintiff with equitable relief because of his unclean hands. Serious issues to be tried a) Non-fulfilment of Conditions Precedent [9] In respect of this claim, the facts are as follows. [10] EV Dynamic Sdn Bhd has banking facilities with CIMB Islamic Bank Berhad (“CIMB”) secured by a charge over two of the Properties in Malaysia. It was a condition precedent of the SSA that all 3 Properties be discharged within six months of the date of the SSA (“CP”). This CP is found in Schedule 1 Clause 3 of the SSA worded as such: “The discharge of charges by CIMB Bank Berhad on the Properties which are charged to secure various banking facilities provided by CIMB Bank Berhad to EV Dynamic Sdn Bhd.” [11] RM10 million consideration for the EVD Land shares under the SSA was payable to the Plaintiff in four tranches. The 1st tranche payment of RM2,121,614.17 was received by the Plaintiff on 22-4-2024 through the common solicitors of the parties, and as agreed, RM300,000.00 was retained for Real Property Gains Tax. That left RM1,821,614.17 free in the Plaintiff’s hands. [12] The Plaintiff did not apply the RM1,821,614.17 towards discharge of the charges over the Properties despite the following reminder by the common solicitors of the parties on 18-4-2024 on receipt of the funds: [13] Between April and August 2024, there is a gap in the facts. By letter dated 5-9-2024, CIMB informed the parties that the discharge of the charges over the Properties is “subject to settlement of all arrears and placement of Fixed Deposit (FD) of RM2,000,000.00 under EVD Land Sdn Bhd.” [14] The respective contentions of the parties are thus as follows:

Plaintiff : The RM1,821,614.17 was insufficient to discharge the charge over the Properties as CIMB required the RM2 million pledge from EVD Land, and as both parties are equally liable to fulfill the CP, the SSA automatically terminated when the CP was not fulfilled in time.

Defendant : The settlement was structured to leave EVD Land and its assets free and unencumbered with the Defendant and so it is the Plaintiff who breached the SSA by failing to apply the RM1,821,614.17 towards discharging the Properties since the Defendant has no say in EV Dynamic Sdn Bhd. [15] There is no evidence what sums are in arrears or what sums are sufficient to fully settle the facility owed to CIMB by EV Dynamics Sdn Bhd. The sufficiency of RM1,821,614.17 is disputed, but it appears from CIMB’s letter that there are arrears and a full discharge of the facility was not contemplated, hence the need for a fixed deposit pledge by EVD Land. The question of whose obligation it is to satisfy the CP was unanswered. b) Pre-mature Share Transfer [16] In respect of this alleged breach of the SSA, it is not in dispute that the Defendant had effected the Shares transfer and resignation by the Plaintiff on 12-3-2024. The respective contentions of the parties are as follows:

Plaintiff: Clause 5.3 of the SSA stipulates that the pre-signed documents should only have been released on completion date (which is defined as 30 days from unconditional date or fulfilment of all conditions precedent) and after confirmation of receipt of the 1st tranche payment.

Defendant: The Plaintiff was aware that the share transfer and resignation were intended to take effect immediately on 6-3- 2024 as per the pre-signed letters of resignation and resolutions, despite the terms of the SSA. [17] Based on the competing contentions of the parties on the cause or matters in dispute in this action as summarized above, this Court finds that there are serious issues to be tried. [18] For completeness, the Defendant also argued under this section that the interlocutory injunction should be refused because there is no issue to be tried as it relates to the principal prayers in the Statement of Claim since EVD Land and Too Tian Jen (the other director, “Too”) have not been made a party to this action. [19] Relying on Awesome Broadcasting Sdn Bhd v MYTV Broadcasting Sdn Bhd [2024] MLJU 938 the Defendant submitted that the failure to add a necessary party as a defendant means there is no serious issue to be tried. [20] The prayers referred to are the declaratory prayers that the SSA is terminated, that the transfer of the Plaintiff’s shares and his resignation as a director are invalid, that Too’s appointment is invalid and that all resolutions passed by the shareholders since 12-3-2024 are invalid. [21] I am not persuaded by the characterization of the above prayers (other than the one affecting the removal of Too) as necessitating the joinder of additional parties in the main action. The final reliefs sought relate principally to the transfer of the Shares from the Defendant to the Plaintiff on account of the alleged automatic termination and/or breach of the SSA. These are personal between the parties to the SSA. [22] However, I will say more about this point later on. Adequacy of Damages [23] The Defendant next submitted that damages are an adequate remedy in this case because:

The Plaintiff has no special affiliation to the Shares as the vendor willing to sell the Shares for RM10 million; and

Even if the Plaintiff is entitled to the return of the Shares, his remedy lies in damages only and the value of the Shares can be assessed. [24] The contention that the Plaintiff has no special affiliation to the Shares is not a matter that can be determined on the affidavit evidence, as it is apparent that the sale of the Shares emanated from a negotiated settlement of an oppression claim, and the terms of that part of the settlement were expressly set out in the SSA. There is no reason to believe that the Plaintiff was willing to part with the Shares on any other terms. [25] The Plaintiff submitted that he will have lost a pre-existing proprietary right as a shareholder if the interlocutory injunction is not granted and he is later found to be entitled to the return of the Shares, being the subject matter in dispute. Further, the Plaintiff claims a constructive trust may be imposed on a shareholder to whom transfer passed if beneficial interest did not pass as with the Shares in this case. The Defendant has not fully tendered payment for the Shares and it is alleged that the Defendant’s conduct of pre-maturely transferring the Shares in the circumstances, indicated that he would default. [26] This Court can say nothing at this stage about the motivations of the parties in this dispute, whether the Defendant intended to make good the RM10 million and whether the Plaintiff really wants to return to a minority shareholder position in EVD Land. For the present purposes, there is doubt as to the adequacy of damages if the interlocutory injunction is not granted as it is premature to conclude that specific relief or restitutio in integrum would not be appropriate after the merits are fully ventilated. [27] For the above reason, this Court also finds that damages are not an adequate remedy to preclude the grant of the interlocutory injunction over the Shares. Balance of Convenience [28] As noted, the Plaintiff is also seeking interlocutory injunctions to preserve the value of the Shares. According to him, the value of the Shares will be at risk if the Defendant is allowed to issue new capital to dilute the shareholding represented by the Shares or deal with the Properties which are the sole assets and revenue source for EVD Land. [29] It is a trite principle that the Court will not act in vain. Thus if the balance of convenience lies in preserving ownership of the Shares as the subject matter of the dispute, that interlocutory injunction will be rendered meaningless if the Defendant or EVD Land through the agency of the Defendant, is at liberty to take steps to diminish the value of the Shares in the meantime. [30] However, it cannot be overlooked that the interlocutory injunctions do effectively restrain EVD Land from issuing share capital for funding and from fully utilising the Properties as it sees fit, although the injunctions are worded as restraints against the Defendant as a shareholder. While the final relief do not concern EVD Land directly, it is conceivable that the interim restraints may adversely affect and directly interfere in its internal management as a non-party. [31] In Low Kian Hoew v Lu Zhijun & Ors [2020] MLJU 2187 cited by the Defendant, the High Court dismissed an interlocutory injunction and held: “[74] With due respect, the Plaintiff cannot bring court proceedings to stop or challenge any disposal of assets of a company as Courts will not interfere with the internal management of a company and it is for the shareholders to decide unless the decision is lacking in good faith or for a collateral purpose - Extreme System Sdn Bhd v Ho Hup Construction Company Bhd & Ors [2010] MLJU 487.” But there, the Plaintiff’s claim was for the relief of rescission, refund of monies paid, special and other damages. Since the interlocutory injunction was merely ancillary to the pre-existing cause of action, the Court found that he had no business to seek to injunct disposal of any shares and/or all assets from the company. The facts are different here since the Plaintiff is seeking the return of the Shares. [32] This Court must consider where the justice of the case lies. In making this assessment, I must weigh the harm that the injunction would produce by its grant against the harm that would result from its refusal. The objective is to produce a just result for the period between the date of the application and the trial proper. [33] If damages would not provide an adequate remedy the court should consider whether if the Plaintiff fails, the Defendant would be adequately compensated under the Plaintiff's undertaking in damages. As an entity separate from its shareholders, it would be unjust if EVD Land should have no recourse since it is not a party to this action and no undertaking is given by the Plaintiff for its damages, if any. Further, it is a well-established principle of company law that a shareholder cannot claim reflective losses that he suffered if the loss is actually suffered by the company. [34] To balance that possible injustice to EVD Land if the interlocutory injunctions are allowed as prayed for, the Plaintiff ought to give the usual undertaking as to damages and a further undertaking from the Plaintiff to also abide by any order the Court may make as to damages suffered by EVD Land in case the Court should hereafter be of the opinion that EVD Land shall have sustained any by reason of this order, which the Plaintiff ought to pay. [35] To conclude, this Court also finds that the balance of convenience favours granting the interlocutory injunctions sought, but subject to the further undertaking that the Plaintiff is ordered to give as above. EVD Land would in the ordinary course, need to intervene in these proceedings to enforce the undertaking as necessary. Other considerations [36] The Defendant urged the Court to consider that the Plaintiff has come to court with unclean hands and should not be aided by the Court in exercise of its equitable jurisdiction. Principally this relates to the question of the Plaintiff’s breach in failing to apply the RM1,821,614.17 to discharge the Properties and whether the Plaintiff is relying on its own breach in terminating the SSA. [37] The Defendant relies on Tahan Steel Corp Sdn Bhd v Bank Islam Malaysia Bhd [2004] 6 MLJ 1. The High Court held that since injunctions are a discretionary remedy, the plaintiff must come to this court with clean hands and when there is a pre-existing breach on the part of the plaintiff, the court will not come to the aid of the plaintiff. [38] Other arguments were raised which I do not think are decisive of the issues in dispute and as the Plaintiff did not move the Court for an ex-parte injunction:

the Plaintiff’s non-disclosure of facts concerning the related transactions and the fact that the Defendant has accordingly surrendered all his shares in EVD Berhad on 6-3-2024; and

the Plaintiff’s alleged awareness and feigned surprise that the Shares had been transferred, his effective and voluntary exit from EVD Land and disregard of the company’s affairs since 6-3-2024. [39] As indicated, issues surrounding the non-fulfilment of the CP and the pre-mature transfer of the Shares in this case are matters to be tried and I have refrained from making any findings on these issues at this stage. Conclusions [40] Subject to the Plaintiff’s usual undertaking as to damages, and the Plaintiff’s further undertaking as hereby ordered in these terms: “to also abide by any order the Court may make as to damages suffered by EVD Land in case the Court should hereafter be of the opinion that EVD Land shall have sustained any by reason of this order, which the plaintiff ought to pay” I allow prayers (1), (2), (3) – limited to “menggadaikan dan memindahmilik” and (4) with costs in the cause. I will also order that parties have liberty to apply between now and the final determination of this matter at trial. Bertarikh : 12 Februari 2025 SGD ELAINE YAP CHIN GAIK PESURUHJAYA KEHAKIMAN MAHKAMAH TINGGI MALAYA SHAH ALAM Peguam Untuk Plaintif : Ng Ju Lee (with Lim Seow Fei), Messrs SF Lim Untuk Defendan : Foo Joon Liang (with Wong Yan Zhang), Messrs Gan Partnership