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1 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 DALAM MAHKAMAH TINGGI SHAH ALAM DALAM NEGERI SELANGOR DARUL EHSAN, MALAYSIA GUAMAN SIVIL NO.BA-22NCC-76-07/2021 BETWEEN MYCREATIVE VENTURES SDN BHD (NO. SYKT: 987604-M) ...PLAINTIFF
/akn/my/judgment/high-court/2022/9ea0b780-71cd-4c57-9916-fc2e09e2d79e
High Court of Malaysia17 Jan 2022BA-22NCC-76-07/2021
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“on Share in respect of **Note : Serial number will be used to verify the originality of this document via eFILING portal 4 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 which for purposes of accounting and Companies Act, the issue price of Ringgit Malaysia One (RM1.00) per Subscription Share shall consist of One Sen (RM0.01) p”
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1 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 DALAM MAHKAMAH TINGGI SHAH ALAM DALAM NEGERI SELANGOR DARUL EHSAN, MALAYSIA GUAMAN SIVIL NO.BA-22NCC-76-07/2021 BETWEEN MYCREATIVE VENTURES SDN BHD (NO. SYKT: 987604-M) ...PLAINTIFF
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TSYAHMI GROUP SDN BHD
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TENGKU MOHAMED SYAHMI BIN TENGKU MAHMOOD
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NATALIE NAJUA BINTI ZAINAL ABIDIN (NO. KP: 860715-56-6308) …DEFENDANTS GROUNDS OF JUDGMENT Introduction [1] This is an application by the Plaintiff for a Summary Judgment under Order 14 of the Rules of Court 2012. Plaintiff seeks a Summary Judgment on its claim of RM 1,311,152.33 against Defendants for a breach of the 2 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 Shares Subscription Agreement (SSA) and Letters of Undertaking entered between the parties. [2] Plaintiff alleged that the Defendants failed to redeem the redeemable convertible cumulative preference shares (RCCPS) on the redemption date as stipulated under the SSA and hence Defendants have to pay for losses suffered by Plaintiff on the amount of the redemption sum based on Plaintiff’s subscription of the RCCPS. On the other hand, the Defendants take the position that the SSA is an equity investment and not a loan facility imposing debt on the First Defendant. [3] Based on the cause papers and after hearing the submissions of both parties, I have dismissed Plaintiff’s application for Summary Judgment (SJ) on the basis that Defendants have raised triable issues which merit a trial. Aggrieved, Plaintiff filed this appeal against the decision of the High Court. Background Facts [4] Defendants comprising the First Defendant Tsyahmi Group Sdn Bhd, a company and Second and Third Defendants, individuals who are shareholders and directors of the First Defendant, entered into a Share 3 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 Subscription Agreement dated 24.12.2014 with the Plaintiff MyCreative Venture Sdn Bhd (SSA). Share Subscription Agreement (SSA) [5] The objective of the SSA is inter alia, as stipulated in Recital D of the SSA – “RECITALS: …..
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(D) The net proceeds of the sale of the Redeemable Convertible Cumulative Preference Shares shall be utilized by the Company (D1) to finance the expansion of its business, its operating and capital expenditures, and legal fees pertaining to the Redeemable Convertible Cumulative Preference Shares”. [6] Based on the SSA, First Defendant will issue 1,000,000 redeemable convertible cumulative preference shares (RCCPS) which will be subscribed by Plaintiff at an aggregate price totaling RM 1,000,000.00. The relevant terms in the SSA are as follows:- “1.
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DEFINITIONS AND INTERPRETATION 1 Definitions …. “Issue Price/ Subscription Price” means in relation to a Subscription Share, an issue price of Ringgit Malaysia One (RM1.00) per Subscription Share in respect of 4 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 which for purposes of accounting and Companies Act, the issue price of Ringgit Malaysia One (RM1.00) per Subscription Share shall consist of One Sen (RM0.01) par value and a premium of Ninety-Nine Sen (RM0.99) per Subscription Share;”
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2.1 Subscription Shares. Subject to the terms of this Agreement: …
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(b) the Company shall allot and issue to the Subscriber, the Subscription Shares [“RCCPS”] at the Issue Price. …
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2.2 Aggregate Price. The aggregate Issue Price for the Subscription Shares shall be Ringgit Malaysia One Million (RM1,000,000.00), payable in the manner set forth herein.” …. [7]
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Consistent with the SSA, Plaintiff subscribed to the RCCPS as follows:- 1 On 1.01.2015, Plaintiff made the first subscription for a value of RM 352,000.00 (First Subscription); and 7.2 On 30.04.2015 Plaintiff made the second subscription for a value of RM 648,000.00 (Second Subscription). 5 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 [8] It is also provided in the SSA that First Defendant shall pay dividends to the Plaintiff – “5. TERMS AND CONDITIONS OF THE RCCPS …
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5.2 Payment of Dividend: The RCCPS will, from the date of issuance, accrue preferential dividends in cash at the preferential fixed cumulative dividend rate of six point five per centum (6.5%) per annum of the Issue Price (the “Preferential Dividends”) on a daily basis and shall be accumulated and payable when redeemed by the Subscriber. …
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5.3 Accrual of Dividends: The Preferential Dividends on any RCCPS shall accrue on a daily basis and calculated on the basis of actual days elapsed and a three hundred and sixty-five (365) day year throughout the period from and including the date of issuance of the RCCPS to the Redemption Date.
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5.4 Dividend Payment Dates: Dividends shall be payable in arrears but shall be accrued and are to be cumulative. The payment of the dividends will be deferred until the Redemption Date unless otherwise agreed in writing by the Subscriber.” 6 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 [9] Further, the SSA provides that within a period up to five years from the Issue Date of the First Subscription of the RCCPS i.e. 1.01.2015, First Defendant is responsible to redeem all RCCPS held by Plaintiff i.e. on 31.12.2019 (Redemption Date) at the price of the Redemption Amount. “Redemption Amount” means in respect of each RCCPS, the amount to be paid on the RCCPS when it is redeemed under Clause 5.8 of this Agreement, which shall be the aggregate of the par value of Ringgit Malaysia One Sen (RM0.01) each and the redemption premium of Ringgit Malaysia Ninety Nine Sen (RM0.99) each and the accrued dividends thereon; “Redemption Date” means within a period up to five (5) years from the Issue Date of the first subscription of the RCCPS and shall mature on the fifth (5th) anniversary of the said Issue Date or the expiry of the Relevant Period or such other period at the discretion of the Subscriber.” [10] The manner in which the RCCPS to be redeemed are – “5. TERMS AND CONDITIONS OF THE RCCPS …
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5.8. Redemption: The redemption of the RCCPS can be redeemed in the following manner:-
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(i) Mandatory Redemption 7 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 The Subscriber shall be entitled to require the redemption by the Company of all outstanding RCCPS at the Redemption Amount for each RCCPS on the Redemption Date.”;
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5.9. Redemption Procedure: Redemption of RCCPS may be made in full or in part subject to as follows:- …
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(iv) In the case of mandatory redemption, no written notice shall be required and redemption shall be held at such place and at such as may be mutually agreed by the Company and the Subscriber on the Redemption Date;
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(v) The Subscriber shall be bound to deliver up to the Company at the time and place so fixed, the relative certificates for cancellation, and the Company shall pay to them the aggregate Redemption Amount in respect of such RCCPS together with all accrued cumulative dividends in respect of such RCCPS;” [11] As stated in clause 5.9 (vi) of the SSA, any certificate from Plaintiff certifying the amount of sum payable by the First Defendant shall be conclusive except for manifest error. “(vi) A certificate by the Subscriber as to any sum payable to on redemption, and any other certificate, determination, notification, 8 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 opinion or the like of the Subscriber of any other amount payable under the Company’s Memorandum of Association and the Articles and/or this Agreement shall be conclusive save for manifest error.” [12] Clause 5.9 (vii) further provides that if the First Defendant fails and/or refuses to redeem the RCCPS on the Redemption Date, the First Defendant shall as a separate and independent obligation immediately pay an amount equal to the Redemption Amount in respect of such RCCPS together with all accrued cumulative dividends- “(vii) … Notwithstanding any other provision in the Company’s Memorandum of Association and the Articles and/or this Agreement, in the event that the Company is unable or fails to redeem any RCCPS due to any of the foregoing reasons or for any reason whatsoever, the Company shall as a separate and independent obligation immediately pay an amount equal to the Redemption Amount in respect of such RCCPS together with all accrued cumulative dividends in respect of such RCCPS which would otherwise have been payable by the Company to the Subscriber, as a debt due and owing to the Subscriber.” 9 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 [13] If the First Defendant fails, for any reason, to redeem any RCCPS when due for redemption in accordance with the Articles or the Second and Third Defendants fail to procure or guarantee the redemption of any RCCPS by the First Defendant when due for redemption in accordance with the Articles, the failure shall be deemed as events of default.
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If the Company fails, for any reason, to redeem any RCCPS when due for redemption in accordance with the Articles, or any Ordinary Shareholders fail to procure or guarantee the redemption of any RCCPS by the Company when due for redemption in accordance with the Articles. [14] In the event that the Company is unable or fails to redeem any RCCPS due to any of the foregoing reasons or for any reason whatsoever, the Company shall as a separate and independent obligation immediately pay an amount equal to the Redemption Amount in respect of such RCCPS together with all accrued cumulative dividends in respect of such RCCPS which would otherwise have been payable by the Company to the Subscriber, as a debt due and owing to the Subscriber.” Letter of Undertaking/ Subordination 10 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 [15] On 24.12.2014, the First Defendant issued a Letter of Undertaking signed by the Second and Third Defendant wherein inter alia, First Defendant irrevocably undertakes to pay any amount required to cover any cash shortfall or cost overruns. “2. In consideration of the Subscriber agreeing to subscribe the RCCPS for the sum of RM1,000,000.00 and so long as the redemption amount of the RCCPS under the Agreement remains outstanding to MYCREATIVE VENTURES SDN. BHD. (987604- M) including any unpaid preferential dividends, fees, costs, expenses and other charges related thereto (‘the Redemption Amount’) or so long as all our liabilities and shareholders’ liabilities under the Agreement remain valid and in full force, we undertake to:-
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2.3 top-up any cash shortfall or cost overruns, if any” [16] On the same day 24.12.2014, the Second and Third Defendant issued another Letter of Undertaking/Subordination signed by both of them wherein inter alia, they irrevocably undertake to pay any amount required to cover any cash shortfall or cost overruns facing the First Defendant. [17] On 11.01.2021, Plaintiff sent a Notice of Redemption to the Defendants notifying Defendants to redeem Plaintiff’s RCCPS and 11 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 informing that 30.12.2019 is the Date of Redemption and Defendants shall pay Plaintiff the Amount of Redemption RM 1,311,036.93 on 15.01.2021 at 11.00 am at Plaintiff’s office. [18] On 3.02.2021, Defendants sent a letter to Plaintiff to inform that they are unable to redeem the RCCPS or pay Plaintiff the Redemption Amount. [19] On 8.04.2021 Plaintiff’s solicitors issued a Notice of Demand to the First Defendant to demand payment of RM 1,311,036.93 for failure to redeem Plaintiff’s RCCPS, and Second and Third Defendants’ failure to procure or guarantee the redemption. Due to Defendants’ failure, Plaintiff claims that it has suffered losses. Plaintiff’s case [20] Plaintiff’s claim against Defendant is for the sum of RM1,311,152.33 based on two documents namely – i. Share Subscription Agreement dated 24.12.2014 (SSA); and ii. Irrevocable Letter of Undertaking to Channel Proceeds into Collection Account dated 24.12.2014 (Letter of Undertaking). [21] Plaintiff seeks SJ to be entered against Defendants for the Claim Sum on the following basis:- 12 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 i) Defendants have no meritorious defence against Plaintiff’s claim; ii) No issues to be tried pertaining to Plaintiff’s claim. Plaintiff’s claims are based on the agreements entered by the Defendants with Plaintiff in which Defendants have breached the agreements; iii) Defendants have made a direct admission and/or impliedly, that there is an amount indebted to the Plaintiff which is clearly shown through communications between parties and also First Defendant’s own documents; iv) Defendants have breached the SSA and/or Letter of Undertaking and/or Letter of Undertaking /Subordination entered into between parties. Defendants’ case [22] The SSA is in respect of equity investment by Plaintiff into First Defendant by way of a subscription of RCCPS issued by the First Defendant. It was not and never intended to be a form of loan facility imposing debt on First Defendant. 13 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 [23] Defendants contend that Plaintiff is not entitled to the SJ in respect of Defendants for the reasons-i) D2 and D3 have bona fide defences against Plaintiff’s claim; ii) There are issues to be tried in respect of the Plaintiff’s claim; and iii) There are other reasons for this matter to proceed to trial. Analysis and Findings of this Court [24] By virtue of National Company for Foreign Trade v Kayu Raya Sdn Bhd [1984] 2 MLJ 300, for Order 14 application, I have considered conditions to be satisfied in order for the case to be within Order 14. They are – i. The statement of claim must have been served onto the defendant ii. The defendant must have entered an appearance in the action; and iii. An affidavit in support in accordance with O.14, r.2 of the ROC must have been filed and verified the facts on which the claim is based and must state the deponent’s belief that there is no defence to the claim. [25] Upon examining the facts of the present case, this Court finds that Plaintiff has satisfied the preliminary requirements for the SJ application. 14 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 Plaintiff has established prima facie claims against the Defendants. The burden then shifts to the Defendants to raise triable issues. (see also Chempaka Finance Bhd. V Ho Lai Ying & Anor [2006] 2 MLJ 685 and Concrete Engineering Products Berhad v Greengroup Eng Sdn Bhd [2017] 1 LNS 1903). Based on the law, it is the duty of this Court to examine the matter to determine whether there are any triable issues raised by the Defendants before the case could be summarily disposed of in favour of the Plaintiff. [26] This Court also relies on the case of Hong Leong Finance Berhad v Rextex Rubber Products (M) Sdn Bhd & Anor [1996] 4 CLJ 580 which encapsulated the principle of SJ as follows:
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(1) the purpose of Order 14 Rules of the High Court is to enable the plaintiff to obtain summary judgment without trial if he can prove his claim clearly and that the defendant is unable to set up bona fide defence or raise a triable issue.
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(2) A triable issue may be established by showing that there is defence to the claim, a dispute on the facts or that a point of law requires determination. The Court’s role at the hearing of an application for summary judgment is not to delve into the merit of the issues raised by the defendant or whether the defendant is likely to succeed or fail. 15 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 [27] The issue before this Court next is whether Defendants have bona fide defences and as such, this is not a fit and proper case for a SJ to be entered against the Defendants Defendants’ defences [28] First Defendant contends that there is no default by the First Defendant in respect of the RCCPS or any redemption of the same as the RCCPS could not be redeemed at the material time. First Defendant relies on subsection 72(4) of the Companies Act 2016 (CA) which provides inter alia that preference shares shall be redeemable only if the shares are fully paid up and the redemption shall be out of (a) profits; (b) fresh issues of shares; or (c) capital of the company. [29] First Defendant also relies on a High Court case of Arah Cipta Sdn Bhd v Piala Gagasan (M) Sdn Bhd & Anor [2010] 9 CLJ 964 that involves subsection 61(3) of the Companies Act 1965 which is in pari materia with subsection 72(4) of CA where the Court concluded that redemption of redeemable shares paid with funds not out of profits was a breach of subsection 61(3) of CA 1965. The High Court held – “[97] In my judgment, s 61(3) of the Act limits the funds from which redemption may be made. In this regard, when the time comes for 16 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 redemption, the redemption monies will have to be paid either out of profits… or out of the proceeds of a fresh issue of shares made for the purposes of the redemption. If the plaintiff has no such profits available or is unable to carry through the necessary fresh issue of shares… the first defendant being the preferential shareholders would in such circumstances be entitled to have the plaintiff wound up but certainly not to cause redemption in breach of s. 61(3) of the Act, preferring themselves ahead of all other creditors of the plaintiff. … [104] The court finds that in this present action, the main issue before the court is whether the share redemption or payment paid by the plaintiff to the first defendant from 2001 to 2005 were not from its profits, is in breach of s. 61(3) of the Act.” [30] The First Defendants averred that the RCCPS could not be redeemed because at the material time when the RCCPS was due for redemption – i) First Defendant has no available profits which would otherwise have been available for distribution of dividends; ii) First Defendant did not have any proceeds of a new issue of shares made for the purpose of redemption; 17 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 i) First Defendant has no capital nor could a solvency statement be made by First Defendant’s directors in view of First Defendant’s financial circumstances. [31] First Defendant further contends that Plaintiff is made aware of the First Defendant’s financial position as they have been in discussions on the matter since October 2019. The situation was also explained in a letter dated 22.04.2021 to Plaintiff (exhibit MYCV-7), which Plaintiff never denied. Despite having full knowledge of the First Defendant’s financial position, Plaintiff proceeds with the demand for Plaintiff to redeem the RCCPS and make payment to Plaintiff. [32] On the surface of it, this Court may agree with Plaintiff’s contention that as a subscriber, Plaintiff is entitled to the payment of its RCCPS subscription when they are due for redemption. This Court could also agree that Defendants are bound by the SSA and the Letter of Undertaking to redeem the RCCPS and make payment to Plaintiff. Be that as it may, this Court acknowledges Defendants’ reasoning that they are not bound to redeem the RCCPS simply because, at the redemption time, Defendants neither have the profits nor the proceeds of fresh issues of shares. To make a cash payment to cover the shortfall as demanded by Plaintiff would commit Plaintiff in contravention of subsection 72(4) of CA. 18 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 Defendants’ letter might indicate that Defendants are aware of their obligation to redeem the RCCPS and make payment to Plaintiff. However, due to its financial constraint, Defendants have explained in their correspondences to the Plaintiff that First Defendant is not in a position to make the necessary redemption or issuance of fresh shares nor the necessary capital to cover the shortfall. Therefore, the event of default does not arise and Defendants should not be defaulted for ‘not contravening’ the CA. [33] The Defendants have also raised the issue that Plaintiff had made a representation that Defendants would not be required to execute a personal guarantee under the SSA. This was made by a Plaintiff’s representative through an email when responding to the Defendants’ query on the same that confirms payment of redemption is to be made out of profits. This brings us to the next question whether the representation by Plaintiff forms a separate collateral contract, whether the Letter of Undertaking can be construed as a personal guarantee, and henceforth, whether First Defendant is liable in respect of Plaintiff’s claim. [34] Several issues also have to be determined through oral evidence pertaining to liability or otherwise of the Second and Third Defendants, Defendants contend there is no obligation for Defendants to guarantee 19 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 the redemption of the RCCPS. The Second and Third Defendants are not indebted to Plaintiff. The word ‘guarantee’, what does it entails? Court of Appeal case Sia Siew Hong & Ors v Lim Gim Chian & Anor [1995] 3 MLJ 141 is instructive where it was held- “… in the construction of contracts, the court is not bound by the labels that parties choose to affix onto the particular document. In all such cases, the duty of the court is clear. And that duty is to construe the document as a whole and to determine from its language and any other admissible evidence its true nature and purport.”. [35] The main issue that arises is whether there is a breach of the SSA in the absence of available profits to redeem the RCCPS on the part of the Defendants given the facts, circumstances, and the law existing at the material times. [36] In response to Defendants’ defences, this Court noted that Plaintiff claims that it is entitled to the Judgment based on affidavit evidence as First Defendant’s contention that the SSA is a form of equity investment is not supported by any existing facts and contrary to documentary evidence submitted to this Court. It is clear that the First Defendant breached the SSA when it failed to make the necessary redemption of the RCCPS when its due. Furthermore, the SSA and/or Letter of Undertaking is not an attempt to go against legal requirements. The Letter of 20 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 Undertaking contains the First Defendant’s undertaking to make payment, inter alia to carry out the redemption of RCCPS, and the Letter of Undertaking/Subordination executed by the Second and Third Defendants can be construed as a personal guarantee for the shareholders to garner profits to enable redemption of the RCCPS in order for payment to be paid to the subscriber, Plaintiff. There is no misrepresentation by Plaintiff towards all Defendants. Therefore, Defendants are liable severally and jointly in respect of Plaintiff’s claim. The event of default has arisen as a result of the Defendants’ failure to redeem the RCCPS and the Redemption Amount becomes debts due and outstanding. The Redemption Amount is also conclusive by virtue of clause 5.9 of the SSA. Conclusion [37] Based on the foregoing, it is this Court’s considered view that the issues as raised by the Defendants are issues that need to be determined in a full trial with viva voce evidence. The Defendants have shown that they have merits to their defence and whether those defences are sustainable or otherwise is for the Court to assess in a full trial. 21 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 [38] A triable issue may be established by showing that there is defence to the claim, a dispute on the facts or that a point of law requires determination (see Hong Leong Finance Berhad supra). All of them are found in the present case. There are many issues raised with respect to the redemption of the RCCPS and as such, it is a clear-cut case of Order 14 judgment ought not to be entered against the Defendants. [39] As a conclusion, this Court finds that Defendants have established their case in raising triable issues that does not warrant a summary disposal of Plaintiff’s claim. Hence Plaintiff’s application for a Summary Judgment is dismissed with costs. Date: 30th September 2022 signed (ROHANA ABD MALEK) Pesuruhjaya Kehakiman Mahkamah Tinggi NCVC 2 Shah Alam 22 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 Counsels: Solicitor for the Plaintiff Tetuan Azmi & Associates Tingkat 6, Menara Keck Seng 203, Jalan Bukit Bintang 55100 Kuala Lumpur Tel: 03-21185000 Email: general@azmilaw.com Solicitor for the Defendent: Tetuan Louise Ambrose & Partners Unit A1-9-13A, Arcoris Mont Kiara No. 10 Jalan Kiara 50480 Mont Kiara Kuala Lumpur Tel: 03-64192905 Email: office@lapartners.net 23 | B A - 2 2 NCC - 7 6 - 0 7 / 2 0 2 1 Legislation Referred: Companies Act 1965, s.61(3) Companies Act 2016, s.72(4) Rules of Court 2012, Order 14 rule (1) Cases Referred: 1) National Company for Foreign Trade v Kayu Raya Sdn Bhd [1984] 2 MLJ 300 2) Chempaka Finance Bhd. V Ho Lai Ying & Anor [2006] 2 MLJ 685 3) Concrete Engineering Products Berhad v Greengroup Eng Sdn Bhd [2017] 1 LNS 1903 4) Hong Leong Finance Berhad v Rextex Rubber Products (M) Sdn Bhd & Anor [1996] 4 CLJ 580 5) Arah Cipta Sdn Bhd v Piala Gagasan (M) Sdn Bhd & Anor [2010] 9 CLJ 964 6) Hong Leong Finance Berhad supra 7) Sia Siew Hong & Ors v Lim Gim Chian & Anor [1995] 3 MLJ 141
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