Pertiwi Suriamas Sdn Bhd v JL BOOST SDN BHD (WA-12BNCvC-105-08/2023)

JL BOOST SDN. BHD.

LOO CHAN YUE

RINA PANG MAY LI (NO. K/P: 751221-14-5228) …RESPONDEN-RESPONDEN [Dalam Mahkamah Sesyen Di Kuala Lumpur Dalam Wilayah Persekutuan Kuala Lumpur Guaman Sivil No.: WA-A52NCvC-396-05/2021 Antara Pertiwi Suriamas Sdn. Bhd. (No. Syarikat: 1204586-W) …Plaintif

JL Boost Sdn. Bhd. (No. Syarikat: 685963-W)

Loo Chan Yue (No. K/P: 700908-10-5345)

Rina Pang May Li (No. K/P: 751221-14-5228) …Defendan-Defendan] 27/05/2024 09:12:43 WA-12BNCvC-105-08/2023 Kand. 25 GROUNDS OF JUDGEMENT INTRODUCTION [1] This is an appeal against the decision of the Sessions Court that dismissed the Appellant’s claim after a full trial (SC Judgment). [2] This Court allowed the appeal in part, and ordered that the 1st Respondent to pay the sum of RM24,013.88 to the Appellant but dismissed the appeal for a declaration to lift or pierce the corporate veil of the 1st Respondent to hold the 2nd and 3rd Respondents, liable. [3] For ease of reference, the respective parties shall be referred to as the Plaintiff and Defendants as they were in the Sessions Court. BRIEF FACTS [4] The Plaintiff is a company involved in the business of supplying all types of dried foods, vegetables and fresh fruits. [5] The 1st Defendant (D1) was incorporated on 25.3.2005 previously known as Mitigation System (M) Sdn Bhd. Later the name was changed to JL Boost Sdn Bhd on 26.7.2013. The cafe business was commenced on 13.9.2015 at Solaris Mont Kiara and the 2nd outlet at Sunway Geo was commenced in April 2018. [6] The 2nd Defendant (D2) and 3rd Defendant (D3) are directors of D1. [7] The Plaintiff agreed to supply and deliver dried foods and vegetables to D1 for its daily business operation under the name of LN Fortunate Coffee and LN Fortunate Coffee-Sunway. [8] The Plaintiff granted a credit term of 30 days for D1 to pay all the dried food and vegetables supplied by the Plaintiff. This was as evidenced by the invoices issued by the Plaintiff to D1 for a period between the year 2018 – 2019. [9] At all material times, the Plaintiff sold and delivered to D1 and D1 never raised any dispute as to the quality or the amounts of the dried foods and the vegetables being supplied by the Plaintiff. D1 also never disputes the receipt and the contents of the invoices from the Plaintiff for the supply of the dried food and vegetables. [10] Upon the expiry of the credit term of 30 days of the invoices issued to D1, the Plaintiff demanded for payment of the invoices sum but D1 had failed, refused and/or neglected to make payment for the invoices issued by the Plaintiff for the supply. [11] As at 19.3.2021, there was an outstanding sum of RM24,013.88 (Outstanding Sum) which is due and payable by D1 to the Plaintiff for the supply of the dried foods and vegetables. [12] On 8.4.2021, the Plaintiff had through their solicitors, Messrs Yeoh Shim Siow & Lay Kuan, demanded from D1 for the Outstanding Sum. Yet, D1 still failed, neglected or refused to pay the Outstanding Sum of the invoices to the Plaintiff. [13] Consequently, the Plaintiff commenced the Sessions Court suit against the Defendants on the basis that D1 had breached the contract for failing to pay the Outstanding Sum. Plaintiff’s Contention [14] The Plaintiff contended that the Defendants admitted there is a debt owed to the Plaintiff. [15] The Plaintiff also contended that there is sufficient evidence to prove that D2 and D3 operate D1 with intention to defraud and the corporate veil ought to be lifted to hold D2 and D3 jointly and severally liable to pay the Outstanding Sum to the Plaintiff. The Defendant’s Contention [16] D2 and D3 contended that they are only directors of D1, thus, cannot be held liable. [17] The Defendants also contended that there is no sufficient evidence for the corporate veil to be lifted as there is no ‘impropriety’ by them. This is also supported by the fact that D2 injected/invested RM1,391,047.00 in D1. [18] Furthermore, there is no agreement between the Plaintiff and D2 and D3. In fact, D3 has resigned as the director of D1. FINDINGS AND ANALYSIS Whether D1 owes the Plaintiff, the Outstanding Sum? [19] It was indubitable that D1 owes the Outstanding Sum to the Plaintiff. This is based on the testimony of SD1 who is D2, during the trial. PP(C) So am I correct to suggest to you that you acknowledge or the first Defendant acknowledge the receive of all these invoices they have filed in this Court? You asking me or first Defendant? PP(C) The first Defendant and you. I acknowledge. … PP(C) So the statement of account from page 10 to page 12 which is one is for 9,061 for Solaris Mont Kiara Branch and other one 40,952 (sic) outstanding sum for Sunway Geo Branch, this outstanding sum remains unpaid. Yes. [20] Thus, it is clear that the Outstanding Sum is due and payable to the Plaintiff. Therefore, D1 is liable to pay the Outstanding Sum to the Plaintiff. Lifting the Corporate Veil [21] The law on lifting the corporate veil is trite (Salomon v A Salomon & Co Ltd [1896] UKHL 1, Ong Leong Chiou & Anor v Keller (M) Sdn Bhd & Ors [2021] 3 MLJ 622 (FC) and Gurbachan Singh s/o Bagawan Singh & Ors v Vellasamy s/o Pennusamy & Ors and other appeals [2015] 1 MLJ 773 (FC)). [22] In Gurbachan Singh (supra), the Federal Court held: “[96] But in the event that we should, we are of the view that it is now a settled law in Malaysia that the court would lift the corporate veil of a corporation if such corporation was set up for fraudulent purposes, or where it was established to avoid an existing obligation or even to prevent the abuse of a corporate legal personality (see: Prest v Petrodel Resources Limited and others [2013] UKSC 34). … [97] As to what constitutes fraudulent purposes it has been described as to include actual fraud or fraud in equity (see Law Kam Loy & Anor v Boltex Sdn Bhd and others). And fraud in equity occurred in ‘… cases where there are signs of separate personalities of companies being used to enable persons to evade their contractual obligations or duties, the court would disregard the notional separateness of the companies … (see Sunrise Sdn Bhd v First Profile (M) Sdn Bhd & Anor [1996] 3 MLJ 533 per Chong Siew Fai FCJ (as he then was) …””. [23] The statutory provision for lifting the corporate veil is provided under section 540 of the Companies Act 2016 (Act 777) which states- “If in the course of the winding up of a company or in any proceedings against a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the Court on the application of the liquidator or any creditor or contributory of the company, may, if it thinks proper so to do declare that any person who was knowingly a party to the carrying on of the business in that manner shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Court directs.”. [24] It is clear that the element of fraud must specifically be proven. Section 540 of Act 777 explicitly states “that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose.” which signifies that only upon proving the element of fraud, that the Court would “declare that any person who was knowingly a party to the carrying on of the business in that manner shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company”. [25] The burden of proof lies on the person who alleges fraud and in this Suit, is the plaintiff (Cyber Village Sdn Bhd v. Illustra IT (M) Sdn Bhd & Ors [2010] 2 MLRH 905and Dato' Gan Ah Tee & Anor v. Kuan Leo Choon & Ors [2012] 10 MLJ 706; [2013] 4 MLRH 368). [26] Thus, the Plaintiff needs to prove that D2 and D3 had committed fraud for section 540 of Act 777 to be applicable. [27] Apparently, section 540 of Act 777 is pari materia with section 304(1) of the repealed Companies Act 1965. The purpose of this provision is deliberated in Chin Chee Keong v. Toling Corporation (M) Sdn Bhd [2016] 4 MLRA 180, where it was held- "The primary object behind subsection 304(1) of the Companies Act 1965 was to statutorily provide for the lifting of the veil of incorporation in the specific circumstances of fraudulent trading with a view to ultimately pin personal accountability and liability on the directing minds behind such trading of the company. Subsection 304(1) affords the creditor of the company a civil remedy personally against such persons." [28] Further, Chin Chee Keong (supra) held- "The following elements have to be proven in a claim under subsection 304(1) of the CA: (i) the business of the company has been carried out "with intent to defraud creditors ... or for any fraudulent purpose"; (ii) the defendants "were knowingly a party to the carrying on of the business in that manner" within the meaning of subsection 304(1) CA; and (iii) the discovery of the fraudulent trading." [29] In this context, the Federal Court in the case of Lai Fee & Anor v. Wong Yu Vee & Ors [2023] 3 MLRA 495; [2023] 3 MLJ 503 sets out the established principles pertaining to section 540 of Act 777 - “[24] That responsibility for fraudulent trading under s 540 of the CA 2016 is the statutory exception to the corporate personality doctrine has been the subject of extensive discussion in a line of cases. Accordingly, it might be useful and desirable to set out a synopsis of the well-established principles which govern the application of this statutory exception which are: i. The words 'with intent to defraud creditors... or for any fraudulent purpose' in s 304 of the Companies Act 1965 should be read disjunctively even though on the facts of the case both limbs are relevant and applicable (Siow Yoon Keong v. H Rosen Engineering BV [2003] 2 MLRA 126; [2003] 4 MLJ 569; [2003] 4 CLJ 68; [2003] 5 AMR 735 CA); ii. In the context of carrying on business, the phrase 'with intent to defraud creditors' is in general a proper inference that the company is carrying on business with intent to defraud the creditors of the company if the company continues to carry on business to incur debts at a time when there is to the knowledge of the directors no reasonable prospect of the creditors ever receiving payment of those debts. (R v. Grantham [1984] BCLC 270). It has also been interpreted to include an intent to deprive creditors, of an economic advantage or inflict upon them some economic loss (Coleman v. The Queen [1987] 5 ACLC 766). The word 'intent' is being used in the sense that a man must be taken to intend the natural or foreseen consequences of his act (Re Cooper, (supra) at 267); iii. The word 'fraud' is also defined under s 17 of the Contracts Act

According to Sinnadurai, Law of Contract, Fourth Edition 2011 at para [5.07], fraud is defined 'to include certain acts which are committed with intent to induce another party to enter into a contract'. Section 17 sets out five types of different acts which constitute fraud. These include 'a promise made without any intention of performing it' and 'any other act fitted to deceive': s 17(c) and (d), Contracts Act 1950. iv. The words 'if... it appears' in s 304 of the Companies Act 1965 is indicative of a lower threshold in order to trigger the operation of s 304. It does not matter whether s 304 contains in it both civil and a criminal provision - the civil provision in sub-section (1) and the criminal sanction in sub-section (5) are properly carved out and they do not interfere in each other's operation (Siow Yoon Keong v. H Rosen Engineering BV [2003] 2 MLRA 126; [2003] 4 MLJ 569; [2003] 4 CLJ 68; [2003] 5 AMR 735; JCT Ltd v Muniandy Nadasan & Ors And Another Appeal [2016] 2 MLRA 562; [2016] 6 MLJ 635; [2016] 3 CLJ 692); v. The burden of proof is on the plaintiffs to establish fraudulent trading within the meaning of s 304 of the Companies Act 1965. The standard of proof in civil cases involving proof of fraud or fraudulent conduct is on the balance of probabilities (Sinnaiyah & Sons Sdn Bhd v. Damai Setia Sdn Bhd [2015] 5 MLRA 191; [2015] 5 MLJ 1; [2015] 7 CLJ 584; [2015] 5 AMR 497 FC); vi. The existence of fraud is a question of fact. It is dependent on the circumstances of each particular case. Fraud must mean actual fraud, ie, dishonesty of some sort (PJTV Denson (M) Sdn Bhd & Ors v. Roxy (Malaysia) Sdn Bhd [1980] 1 MLRA 562; [1980] 2 MLJ 136 FC); vii. In order to establish dishonesty under s 304 of the Companies Act 1965, it must be shown that firstly, what was done was dishonest according to the ordinary standard of reasonable and honest people, and secondly that the actor himself must have realised that the act was by those standards dishonest (Tradewinds, (supra)); viii. It is fraud if it is proved that there was the taking of a risk which there was no right to take which would cause detriment or prejudice to another. It need not be proved that the defendant knew at the time when debts were incurred that there was no reasonable prospect of creditors ever receiving payment of their debts. It was enough if the defendant realised at the time when the debts were incurred that there was no reason for thinking that funds would be available to pay the debt when it would become due or shortly thereafter. These words import a criterion that is partly subjective and partly objective (Regina v. Sinclair [1968] 1 WLR 1246); ix. Whether there was any intention on the part of the defendants to defraud or to carry on any fraudulent purpose is a question of fact to be inferred from the surrounding circumstances and the subsequent conduct of the defendants, especially the concealment of material facts (Rahj Kamal bin Abdullah v. PP [1998] 1 SLR 447; LMW Electronics Pte, (supra)); x. Actual knowledge was required before a person could be said to be knowingly a party to the fraudulent transaction carried out by a company within the meaning of s 304 of the Companies Act 1965 - it must be shown that the person has participated, concurred or taken some positive steps in the carrying on of the company's business in a fraudulent manner - however, it is not necessary to show proof of his having assumed a controlling or managerial role over the company's business before he could be said to be a party to the carrying on of it (Tan Hung Yeoh v. Public Prosecutor [1999] 2 SLR(R) 262 HC); xi. It is not necessary to establish a scheme to defraud to trigger the invocation of s 304 of the Companies Act 1965. The wordings of s 304 do not lend itself to be read in such a manner - a single act of doing business to defraud a creditor would be sufficient to trigger an action for compensation against the errant person in his personal capacity. A business may be found to have been carried out with intent to defraud creditors notwithstanding that only one creditor is shown to have been defrauded, and by a single transaction (Re Gerald Cooper (supra); Morphitis v. Bernasconi & Ors [2003] BCLC 53; Prem Krishna Sahgal, (supra)).”. [30] This Court is also guided by the case of Ong Leong Chiou & Anor v Keller (M) Sdn Bhd & Ors [2021] 3 MLJ 622, where the Federal Court held that to disregard the corporate veil, there must have been action amounting to fraud, or an existing liability or obligation that a person would have deliberately evaded using the company. [31] This Court is not convinced with the Plaintiff’s contention that the act of the Defendants for not filing the financial report for the years of 2016 – 2018, constitutes the act of defrauding the creditors. Filing of the financial report to the Companies Commission of Malaysia is a statutory obligation and is not an act of fraud. It is not a concealment of a material fact that denotes impropriety. Likewise, the delay of payment is not sufficient evidence to indicate mala fide with intention to deceive. [32] Additionally, the fact that D2 has injected/invested the sum of RM1,391,047 in D1 shows that D2 and D3 had never any intention to defraud the Plaintiff. It is rather unusual for D2 to put in a huge sum of money in D1 with intend to defraud the Plaintiff. [33] Furthermore, this Court is not convinced that D1 had defraud the Plaintiff based on the fact that in terms of D1’s business operations, the two outlets had ceased operations only in 2022 and not earlier. [34] These occurrences are insufficient evidence to show that D1 was established with the purpose to conceal the true facts behind the facade of the company. There is also insufficient evidence to prove that D1 has intentionally defraud the Plaintiff to avoid its payment’s obligation that could warrant this Court to allow the lifting of the corporate veil on the grounds that D1 had carried out its business ‘with an intend to defraud its creditors for any fraudulent purpose’. [35] Accordingly, the Plaintiff failed to prove that D2 and D3 had fraudulently concealing the financial status of D1 when dealing with the Plaintiff (Tenaga Nasional Berhad v Irham Niaga Sdn Bhd & Anor [2015] MLJU 2165). [36] Consequently, on balance of probabilities, it is this Court considered view that there is no special circumstance to allow the lifting or piercing of the corporate veil. The Plaintiff has failed to prove that D2 and D3 had committed fraud or that there was any intention to evade the legal liability of D1. CONCLUSION [37] Finally, as provided under Order 55 of the Rules of Court 2012, this Court upon assessing and weighing all the evidence and laws in its entirety, and for all the reasons aforesaid, decided that the appeal is allowed in part. Thus, it is ordered that D1 to pay the Outstanding Sum to the Plaintiff and the application for the declaration to lift or pierce the corporate veil of D1 to hold D2 and D3 as liable is dismissed. (YA DR. SUZANA BINTI MUHAMAD SAID) JUDICIAL COMMISSIONER OF THE HIGH COURT NCVC 1 Kuala Lumpur Court. Dated: 23 May 2024 COUNSELS For the Appellant Messrs. Yeoh Shim Siow & Lay Kuan A-35-3A & A-35-05 Menara UOA Bangsar No.5, Jalan Bangsar Utama 1 59000 Kuala Lumpur For the Respondents Messrs. Raja Eleena Siew Ang & Associates Suite 06-8, Level 6 Wisma UOA Damansara II No.6, Changkat Semantan