Ng Pak Mui v Desaminium Jaya Sdn Bhd (WA-22NCC-674-12/2019)

The plaintiff filed this action seeking repayment of shareholders advances she made to the defendant. The defendant in turn filed a counterclaim, and argued that a mutual understanding existed between shareholders of the repayable on demand .

After a full tria . The court found that the Mutual Understanding existed between shareholders of the defendant, and as

The defendant is a company principally involved in property holds 52% of the shares in the defendant.

The plaintiff is also a shareholder of the defendant, with 5% of the shares in the defendant. The other shareholders of the defendant include Tay Mary, who is-in-the shares in the defendant.

The plaintiff filed this action to recover she provided to the defendant, which she claimed are repayable on demand.

The defendant following the Mutual Understanding between the shareholders of the defendant, advances are not repayable on demand.

The defendant also contends that this action was filed to put undue pressure on the defendant, due to an action filed by the defendant and Tay Mary against the plaintiff and her children, Tan Ai Lin and Tan Ruy Mun, at Kuala Lumpur High Court Civil Suit No. WA-22NCvC-662- 3 declaration that the grant of probate dated 30 March 2018 and the last will Lin and Tan Ray Mun as th The court in Suit 662 found in favour of the defendant and Tay Mary, and

The defendant filed a counterclaim seeking a declaration of the existence of the Mutual Understanding, and damages arising from the filing of this action, to be assessed. C. Issues

It must first be highlighted that it is not in dispute that the plaintiff to the defendant, and that the defendant had, by a letter dated 11 October 2019, demanded repayment of her

The principal question to be determined by this court is whether the plaintiff is entitled to the repayment of the ances, upon her demand.

The court considered the following issues in the determination of this matter: a. Whether there was a contract between the plaintiff and the defendant pursuant to which it was agreed that and; 4 b. Whether the audited financial statements of the defendant demand; c. Whether the Mutual Understanding exists; and d. Whether this claim is an abuse of the process of the court. D. Issue 1: Was There A Contract Between The Plaintiff And The Defendant Upon Which It Was Agreed That Are Repayable On Demand?

The entitled to the repayment of her must necessarily arise from a contractual relationship between the plaintiff and the defendant.

In this regard, the plaintiff must prove that there is a contract between the defendant and herself, advances, and that in this contract, the parties had agreed that the advances are repayable on demand.

The court finds that the plaintiff has not shown the existence of this contract. Instead, the evidence before the court, as will be further E. Issue 2: Did The Audited Financial Statements Of The Defendant Reflect Tha Are Repayable On Demand?

I considered the audited financial statements of the defendant, to determine whether they support the argument advances are treated by the defendant as repayable on demand.

I am of the view that the audited financial statements of the Instead, the audited financial statements of the defendant since 2002 advances as having no fixed terms of repayment or are not repayable within the next 12-month period. This can be shown from the following: a. The notes in the audited financial statements of the defendant for the financial years ended 2002 to 2006, which state that shareholders advances are unsecured, interest-free and have no fixed terms of b. The notes in the audited financial statements of the defendant for the financial years ended 2007 to 2015, which state that shareholders advances are unsecured, interest-free and not repayable within the next

The treatment of the shareholders' advances in the audited financial statements between 2002 to 2015 confirms the position that had 6 always been taken by the defendant, which is that the advances are not repayable on demand.

The issue arises with the notes in the audited financial statements of the defendant between the years ended 2016 to 2018, which state that shareholders advances are-free and repayable on

In the audited financial statement of the defendant in the year ended 2019, however namely-free and not repayable within the next twelve months

based on the audited financial statements of the defendant between the years ended 2016 to 2018,

In my examination of this argument, I considered the testimony of . DW1 explained that he was involved in the financial statements of the defendant for the financial years ended 2007 to 2019.

DW1 testified that in 2016, there was a change in the applicable accounting standards from the Private Entity Reporting Standards to the Malaysian Private Entity Reporting Standards. During the transition, he had made the change in the notes of the audited financial statements for the amounts owing to shareholders and amounts owing to directors, 7 based on a template of a financial statement. However, he took the view that this change did not change the nature of the classification of liability of the shareholders' advances, which is non-current liability. As such, he did not highlight the change to the board of directors of the defendant at the material time. He was only queried by the board on this change during ended 2019.

- current liability in the accounts of the defendant. He explained this in his -

Can you please explain how shareholders advances are treated in Desaminium's accounts? Shareholders' advances are typically loans to a company. They are a form of liability. Depending on the company and the terms of repayment of these advances, it may be classified as either current liability or non-current liability in the company's accounts. In Desaminium, shareholders' advances are classified as a non-current liability.

What is the difference between current liability and non-current liability? Speaking generally, current liabilities consist of liabilities which are due to be paid or settled by the company within the period of 12 months after the reporting date of the company's accounts. Liabilities which are not due to be paid or settled by the company within that 12 months period are classified as non-current liabilities. (emphasis added) [24] DW1 also explained, in answer to question 21 of WS-DW1(A), that: , the shareholders, directors and also management are tight knit. As far as I understand it to be, the practice in Desaminium is that any requests for repayment goes through the board of directors first and Desaminium has a say on the terms of repayment. In the years which I audited for Desaminium, there was nothing which suggested to me that there would be any immediate or current liability arising from the shareholders' advances. At the risk of repetition, the shareholders' advances are classified as non-current (emphasis added) [25] As such, based on my consideration of the audited financial statements of the defendant and the testimony of DW1, which I found convincing and consistent with contemporaneous documentary evidence, I find that the audited financial statements do not reflect that advances are repayable on demand. F. Issue 3: Does The Mutual Understanding Exist? [26] I then examined the claim by the defendant on the existence of the Mutual Understanding. The defendant claimed that by the Mutual a. Are unsecured and interest-free; b. capital, business and/or operations, and as such, are tied down to the assets of the defendant; c. Would only become due and payable: i. When there are adequate and/or surplus funds in the defendant; ii. When shareholders intimated their collective wish to the board of directors that they wish to be repaid their advances; and iii. Upon a decision of the board of directors on the repayment, depending, amongst others, on the state of performance of the defendant at the material time. [27] I find that on the balance of probabilities, the Mutual Understanding did exist between the shareholders of the defendant. This finding was reached by taking into account four main considerations. [28] First, I considered that the terms of the Mutual Understanding as put forward by the defendant are advances in the audited financial statements of the defendant. [29] Second, I considered the testimony of Tan Nai Loo ), who is one of the first directors and shareholders of the defendant. DW2 provided an explanation - on

To the best of your knowledge, please describe the circumstances giving rise to the shareholders' advances furnished to the Defendant. Since its incorporation, the Board of Directors of the Defendant would from time-to-time seek funds from its shareholders and/or directors to undertake development projects and/or for the operations and working capital of the Defendant.

How were the shareholders' advances utilised by the Defendant? Shareholders' advances were used by the Defendant for, amongst others, the following purposes:-

8.1 Purchasing of lands held under HS (D) 108940, No. PT 39570 Mukim Petaling, Daerah Petaling, Negeri Selangor, HS (D) 108941, No. PT 39571 Mukim Petaling, Daerah Petaling, Negeri Selangor and HS (D) 108942, No. PT 39572 Mukim Petaling, Daerah Petaling, Negeri Selangor for development projects;

8.2 Purchasing of a building located at Taman Serdang Perdana, Seri Kembangan to set up the Defendant's office premises;

8.3 Payments of professional and consultancy fees with regard to development projects, which include fees for engaging surveyors, engineers, architects and draftsmen;

8.4 Payments to contractors with regard to development projects;

8.5 Payments of wages for office personnel; and

8.6 Other operational expenses and costs of the Defendant. In the circumstances, the shareholders' advances have either been tied down as assets of the Defendant in various forms or are utilised as the Defendant's working capital and/or for its operations. Throughout the years past, these advances are unsecured, interest-free and without a fixed term of repayment. Repayment is subject to a mutual understanding between the shareholders of the (emphasis added) [30] of the defendant tied down to the assets of the defendant or to be used for operational-current liability. [31] Third, I considered an affidavit affirmed by shareholders of the defendant, including the plaintiff, on 3 December 2002 in Kuala Lumpur Winding Up Petition No. D1-28-794-2003 . The Winding Up Proceedings were initiated against the defendant by a Oh, who held 2% of the shares of the defendant, issued a statutory notice of demand under section 218(2)(a) of the then Companies Act 1965 for repayment of his shareholders advances which he claimed amounted to RM defendant, then commenced the Winding Up Proceedings, premised on 8,000. [32] In the affidavit opposing the winding up of the defendant, the remaining shareholders of the defendant, including the plaintiff, averred that: a. Shareholders advances will only be repaid when there is a surplus fund over and above the fund required to carry on the business of the defendant; and b. The agreement between the shareholders was that shareholders advances are unsecured and interest-free, without any term or date of repayment. [33] It is clear to this court that the position taken by the plaintiff in this claim is inconsistent with the averments she made in the affidavit. [34] The gives rise to the doctrine of judicial estoppel. In Peguam Negara Malaysia v Nurul Izzah bt Anwar [2017] 4 MLJ 656, the Court of Appeal examined judicial estoppel, and held as follows: [21] In any event, in law, the doctrine of judicial estoppel will only apply to a party where the said party, the appellant in this appeal, had successfully and unequivocally persuaded the court on, or asserted, a position in the Selangor Government case so that when that had taken place, the appellant would be estopped from asserting an inconsistent position in a subsequent proceeding which in this appeal is the application for judicial review. The essential function of judicial estoppel is to prevent intentional inconsistency while the object of the rule is to protect the court from the perversion of judicial machinery. Judicial estoppel seeks to address the incongruity of allowing a party to assert a position in one court and the opposite in another tribunal (Yugraneft at para 429) (emphasis added) [35] In another Court of Appeal case, Leisure Farm Corp Sdn Bhd v Kabushiki Kaisha Ngu (formerly known as Dai-Ichi Shokai) [2017] 5 MLJ 63, it was observed that the object of judicial estoppel is to prevent a party who assumes a particular position in one litigation from taking an inconsistent position in a later litigation. [36] In the present case, the position taken by the plaintiff when she affirmed the affidavit in the Winding Up Proceedings was that shareholders advances will only be repaid when there is a surplus fund over and above the fund required to carry on the business of the defendant, and shareholders of the defendant had agreed that advances are unsecured and interest-free, without any term or date of repayment. This position is consistent with the existence of the Mutual Understanding. [37] Yet the plaintiff took a diametrically opposite position in this case, Mutual Understanding. [38] The position taken by the plaintiff and other shareholders of the defendant in the Winding Up Proceedings had resulted in the court finding in their favour. This is clear in the judgment of Vincent Ng J (as His Lordship then was) in the Winding Up Proceedings, reported at Oh Keat Seng v Desaminium Jaya Sdn Bhd [2004] 7 MLJ 325. His Lordship held as follows o and Tung are disputed and raise triable issues: [29] In light of the potent evidence adduced by the Respondent in opposing this petition, I find that the answer to this question is in the affirmative. The triable issue is whether the advances are due and repayable on demand or were they for the Respondent which were repayable at a future date contingent upon the state of performance of the Clearly, under the circumstances of this case, unless the advances constituted a genuine debt due, the petitioner is not clothed with locus standi as a creditor to file this petition. This petition is an abuse of the process of Court and accordingly Enclosure 1 was dismissed with (emphasis added) [39] Thus, guided by Nurul Izzah Anwar (supra) and Leisure Farm Corp (supra), I am of the view that judicial estoppel applies, preventing the plaintiff from abandoning her earlier position in the Winding Up Proceedings, and taking a stand in this suit that is wholly inconsistent and contradictory to her earlier position. [40] The plaintiff argued that the final finding in Oh Keat Seng (supra) is merely that there is a triable issue advances due to Oh and Tung. While I do not disagree, it is important to highlight that the following findings were also made by the learned Judge: [25] Throughout their tenure as director and managing director respectively, neither the Petitioner nor Tung ever demanded or requested the repayment of their advances. They knew that these advances would be tied down as assets in various forms. By virtue of their aforesaid earlier designation in the Respondent, it is inevitable that both the Petitioner and Tung knew that any questioning of the understanding or arrangement in respect of these advances, would in essence be questioning their very own actions. This is consistent with the Petitioner was aware that when there were surplus funds in the Respondent. Both the Petitioner and Tung did not seek the repayment of their advances until after they had resigned from the board of directors of the (emphasis added) [41] The findings of the learned Judge are that Oh and Tung: a. Never demanded or requested the repayment of their director and managing director of the defendant; b. the assets of the defendant; c. become due and payable when there were surplus funds in the defendant; and d. Knew that any questioning of the understanding or would in essence be questioning their very own actions. [42] In my view, these findings of the existence of the Mutual Understanding. [43] My fourth and final consideration is the conduct and actions of the plaintiff. I assessed whether these conduct and actions are in line with the existence of the Mutual Understanding. [44] In this regard, I note that the audited financial statements of the defendant between the financial years ended 2002 to 2019 were approved by way of , and at

I further note that the 4 on behalf. No complaints were raised by the plaintiff on the d audited financial statements, and neither did she challenge the accounting [45] It is also in evidence that the plaintiff received past repayments of advances: a. Four payments were made by the defendant to the plaintiff in 2004, as evidenced by a payment voucher dated 23 June 2004 for RM346,000, a payment voucher dated 30 June 2004 for RM346,000, a payment voucher dated 23 July 2004 for RM357,000 and a payment voucher dated 19 August 2004 for RM43,747.20. b. One payment was made by the defendant to the plaintiff in 2006, as evidenced by a payment voucher dated 26 December 2004 for RM600,000. c. One payment was made by the defendant to the plaintiff in 2019, as evidenced by a payment voucher dated 24 September 2019 for RM1,123,575.87. [46] During cross-examination, the plaintiff confirmed that she received these payments. More importantly, she confirmed that these repayments were not preceded by any written demand. [47] From the above, it is clear , namely: a. Affirming an affidavit which expressly acknowledged the existence of the Mutual Understanding; b. (some of which were signed on her audited financial statements; c. Not challenging the accounting treatment of statements of the defendant; and d. Accepting repayments of shareholders' advances by the defendant, which were not preceded by any written demand, are consistent with the existence of the Mutual Understanding. [48] From the overall conduct of the plaintiff, I am of the considered view that she is estopped from claiming that the Mutual Understanding does not exist, and that to the defendant are repayable on demand. [49] Section 115 of the Evidence Act 1950 states that: or omission intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, otherwise than but for that belief he would have acted, neither he nor his representative in interest shall be allowed in any suit or proceeding between himself and that person or his representative in interest to deny the truth [50] The doctrine of estoppel was extensively examined in Boustead Trading (1985) Sdn Bhd v Arab Malaysian Merchant Bank Bhd [1995] 3 MLJ 331. Observing the wide application of the doctrine at page 345 of the judgment, the Federal Court referred to Amalgamated Investment & Property Co Ltd (in liquidazion) v Texas Commerce International Bank Ltd [1981] 3 All ER 577: The width of the doctrine has been summed up by Lord Denning in the Amalgamated Investment case ([1982] 1 QB 84 at p 122; [1981] 3 All ER 577 at p 584; [1981] 3 WLR 565 at p 575) as follows: The doctrine of estoppel is one of the most flexible and useful in the armoury of the law. But it has become overloaded with cases. That is why I have not gone through them all in this judgment. It has evolved during the last 150 years in a sequence of separate developments: proprietary estoppel, estoppel by representation of fact, estoppel by acquiescence, and promissory estoppel. At the same time it has been sought to be limited by a series of maxims: estoppel is only a rule of evidence, estoppel cannot give rise to a cause of action, estoppel cannot do away with the need for consideration, and so forth. All these can now be seen to merge into one general principle shorn of limitations. When the parties to a transaction proceed on the basis of an underlying assumption either of fact or of law whether due to misrepresentation or mistake makes no difference on which they have conducted the dealings between them neither of them will be allowed to go back on that assumption when it would be unfair or unjust to allow him to do so. If one of them does seek to go back on it, the courts will give the other such remedy as the equity of the case demands. (Emphasis added.) (emphasis added) [51] In the present case, by her affirmation of an affidavit acknowledging the Mutual Understanding, approving the audited financial statements of the defendant and accepting repayments of shareholders' advances, which were not preceded by any written demand, the plaintiff had intentionally caused or permitted the defendant to believe that she agreed to the Mutual Understanding. She is therefore estopped from insisting that the Mutual Understanding did not exist. G. Issue 4: Is This Claim An Abuse Of The Process Of The Court? [52] The court also finds on the balance of probabilities that this action was commenced for a collateral purpose, which is to retaliate against Suit 662, filed by the defendant and Tay Mary. [53] This is in view of the fact that since the plaintiff became a shareholder of the defendant in 1999, she had never demanded the repayment of her . It was only after the commencement of Suit 662 that the advances on 11 October 2019, and thereafter filed this suit on 2 December 2019. [54] by her filing of Originating Summons No. WA-24NCC-558- 30 November 2020, approximately 11 months after this suit was filed. In OS 558, the plaintiff sought leave of court to commence a derivative action on behalf and for the benefit of the defendant against the directors of the defendant. [55] In the grounds of judgment for OS 558, reported as Ng Pak Mui v Tay Mary & Ors [2022] 11 MLJ 115, the court observed that the action i acted in breach of their statutory and fiduciary duties in, amongst others, falsely and/or wrongly reporting in the defendant s financial statements ded to be repayable on demand, are non-current liability. Ong Chee Kwan JC (as His Lordship then was) found as follows: In fact, these shareholders advances have been-term and/or non-current liability since 2002 the plaintiff did not previously raise any complaints as to the classification. More significantly, the plaintiff had affirmed a joint affidavit in the Companies Winding Up No D1-28 794 of 2003 stating to the effect that, amongst others, there was a mutual understanding between the shareholders of the company on the terms of repayment of the (emphasis added) [56] The court ultimately found that there was sufficient evidence to suggest that the proceedings against the defendant were filed with a collateral purpose, and concluded as such: [117] I agree with learned counsel for the defendants that the to put pressure on Suit 662 or to bolster the positions in the Suit 674 and/or Suit 887. [118] contention as to her honest belief and bona fide is suspect. It is my judgment that there is no such honest belief on the part of the plaintiff as this action is laced with a collateral purpose on the part of the plaintiff. (emphasis added) [57] This court takes a similar view. The plaintiff had acted in a manner consistent with the existence of the Mutual Understanding and the It was only after Suit 662 was filed that she changed her position and demanded . Such action, together with the filing of OS 558 gives rise to the irresistible conclusion that this action was filed for a collateral purpose, in retaliation against the filing of Suit 662. H. Other Issues [58] As final points, it is important to highlight two rulings made by this court. The non-admission of the expert reports [59] During trial, learned counsel for the defendant, Mr. Robert Low, objected to the admissibility of the expert reports filed by both parties, on the basis that they are not relevant to the issues to be determined by this court. stand advances are repayable on demand and ultimately whether the Mutual Understanding exists can be made through the interpretation of documents before this court. Learned c Ramachandran however argued that this court had already made a ruling on the issue of admissibility of the expert report during case management conducted via Zoom on 3 March 2022. [60] Both counsel sought a ruling from this court on the admissibility of the expert reports. After considering the submissions both Mr. Low and se management, I made the following ruling in the course of trial, on 2 June 2022: I have reviewed the recording of the case management on 3.3.2022 and what I find in the recording is that I had given a rebuttal report and a few times. And this direction was given on the basis that the expert report had been filed by the Plaintiff approximately a month prior. ed in minute 37 of the recording, that I could not in good faith make a determination on the relevance of the reports at that point. And I made that statement due to the fact that I felt that there was insufficient evidence before the Court for me to make that determination. So on this basis, I am of the view that it is open for the Defendant to invite the Court at this juncture to consider the issue of relevance of the reports. So having had the benefit of evidence before this Court thus far and the issues that have surfaced in the course of this trial, my ruling is that expert evidence is irrelevant and will not be considered. This is based on my view that the issues at hand, namely whether the alleged mutual understanding between the parties, are issues of facts and interpretation of documents which can be determined by this Court without expert evidence. Further, the issue of the alleged misclassification of the audited financial statements are also factual issues, which does not require consideration of expert evidence. I am unable to agree called as a factual witness and counsel for the Plaintiff is at liberty to cross examine him on these issues. (emphasis added) [61] With this ruling, the court did not allow the admission of the expert reports filed by the parties. I must stress again that the opinions of the experts in the respective reports centre on the questions of: a. repayable on demand; b. on demand in the audited accounts of the defendant for the financial years ended 2016 to 2018; and c. Whether the Mutual Understanding existed. [62] I took the view and maintained the same view until the end of the trial that these are questions of facts that were eventually adequately addressed by the factual testimony of DW1. The request to recall the plaintiff [63] It is also important for this court to highlight the request of learned counsel for the plaintiff, post-trial, for the plaintiff to be recalled as a witness. [64] The request arose from the discovery that records of the testimony given by the plaintiff on 31 May 2022 and 20 June 2022 were incomplete. [65] The trial was conducted via Zoom, and the Zoom recordings of the testimony were handed over by the cou solicitors on the following dates: a. was handed over on 2 June 2022, in response to a b. was handed over on 21 June 2022, the same date the [66] It was more than a year later, on 14 September 2023, that the alerted the court that the recordings were incomplete. (i.e. the 31 May 2022 and 20 June 2022 recordings) from the court. The court responded on 18 September 2023, that the recordings were no longer accessible by the court, as it had been a year since the recordings were made. [67] On the date fixed for oral submissions on 23 January 2024, the issue of the missing recording was again raised by learned counsel for the to review the submissions that had been filed, to confirm whether the gaps in the recordings would affect the substantive parts of the submissions. After directing parties to propose the next steps they intended to take to resolve this issue, the court fixed a case management on 21 February 2024. [68] for the plaintiff to be recalled. The minutes of the case management reflect

Counsel for the plaintiff requested for the plaintiff to be recalled for re-examination, to complete the records of trial on 31 May and 20 June 2022 that are missing.

a. Submissions had been filed by parties on 20 October 2023 and 12 January 2024, notwithstanding that the parties were aware of the missing records. During the filing of submissions, the plaintiff did not raise any concern on the missing records affecting the submissions. The plaintiff had written to the court on 18 December 2023, informing the court that the missing records are not able to be created. Even at this point, the effect on the submissions was not highlighted. b. On 23 January 2024, the date fixed for oral submissions, the issue of the missing records was again raised. The court directed parties to review the submissions filed, and confirm whether the gap in the recording affects the submissions. c. Until now, counsel for the plaintiff has not shown how the missing records affect the request to recall the witness for re-examination merely arises from the fact that cross-examination of the plaintiff had been completed, and the plaintiff should therefore be re-examined to complete the records.

Taking these considerations into account, and specifically because there is nothing before the court to show how the missing records affect the substance of the submissions, the court finds the recall of the plaintiff to be unnecessary. (emphasis added) [69] For the reasons set out in the minutes, the request to recall the plaintiff was not allowed by the court. [70] I considered the recall of the plaintiff as a witness to be unnecessary and would be prejudicial to both parties, because by the time the recall was requested for (in January 2024), it was almost two years after her testimony (in May and June 2022). This long gap raises doubts in my mind as to whether her testimony would still be valuable. Recalling the plaintiff would also result in prejudice to the defendant, as final submissions had been filed. As I had highlighted above, learned counsel for the plaintiff also failed to show how the missing recordings affected the final submissions. [71] It is important for the court to stress that the events that transpired show how important it is for solicitors to act expeditiously and efficiently, to ensure that trial records are compiled without undue delay. The delay of more than 15 months in alerting the court of the missing recordings is in my view, unacceptable. I. Decision [72] From the totality of the evidence before the court, the court finds that the plaintiff has failed to prove her claim is therefore dismissed. The court further finds that the defendant has proven the counterclaim. Prayer 23 in the defence and counterclaim dated 31 January 2020 is allowed. [73] After hearing submissions of counsel on costs, the court orders costs of RM350,000 to be paid by the plaintiff to the defendant. The costs awarded took into account the costs incurred by the defendant for the expert report filed, which was later ruled to be inadmissible. More importantly, the costs are also in line with the finding that this claim was filed for a collateral purpose. Dated 12 August 2024 ADLIN ABDUL MAJID Judge High Court of Malaya Commercial Division (NCC6) Kuala Lumpur Counsel: Plaintiff : Prem Ramachandran (together with Puvvana Muthuvelu of Messrs. Kumar Partnership Defendant : Robert Low (together with James Khong, Ryan Ng Chin Wern and Kok Hao Ying)