Pharr Lapp Sdn Bhd v Posco-Malaysia Sdn Bhd (WA-24NCC-11-01/2017)

KIM JEOUNGSU DEFENDANTS JUDGMENT Introduction [1] The plaintiff’s application for discovery of documents against the first defendant was pursuant to O. 24 Rules of Court 2012 (‘RC 2012’). The documents sought, according to the plaintiff, would assist it in advancing its case for oppression against the defendants. [2] I had after considering the arguments of both parties dismissed the application. 2 Brief facts [3] The plaintiff’s suit is premised on s. 181 Companies Act 1965 for minority oppression. The plaintiff claims that the 2nd to 4th defendants as the majority shareholders, had done a series of action that constituted acts of oppression against it. The plaintiff had for instance, claimed that the 2nd to 4th defendants have conducted some inter-related party transactions that deteriorated the first defendant’s finances. [4] These allegations were of course refuted. The first defendant maintained that the transactions were done at arm’s length, and produced the ‘Transfer Pricing Analysis’ report for the financial year ending 31 December 2009 to 31 December 2013 (‘the report’). This report was done by its accounting firm, Deloitte Touche Tohmatsu Tax Services Sdn Bhd (‘Deloitte’). [5] The plaintiff had upon scrutinising the report, realised that it was not aware of some of the documents and information in it. The plaintiff also noticed that Deloitte had in the report mentioned that they were not furnished with some documents that were requested from the plaintiff. [6] It was with this knowledge that the plaintiff had sought for discovery against the first defendant under the provisions of O. 24 r. 3, 7, 8A, 12 and 16 RC 2012. The first defendant had sought for the following orders:- 3

an affidavit by the first defendant stating whether they have or had at any time the documents listed out in Annexure A to the application;

the first defendant to produce and deliver a true copy of the documents in Annexure A to the plaintiff’s solicitors;

that the first defendant continues to give discovery of the documents falling within the ambit of Annexure A until the conclusion of this suit. [7] The documents that the plaintiff sought for discovery pertained to the preparation of the report, in particular, the documents that the first defendant had provided Deloitte, and also the documents that the latter had requested for. [8] The plaintiff claimed that it only became aware of the report during the first defendant’s 17th Annual General Meeting (‘the AGM’). The plaintiff also claimed that the report and its preparation were never discussed during any of the Board of Directors meeting. [9] In justifying its application for discovery, the plaintiff contended that the report was not done in accordance with the relevant law and at arm’s length, contrary to the first defendant’s contention. 4 [10] The first defendant had exhibited the report in one of its affidavit in response to this originating summons. This was done to refute the plaintiff’s allegation that the first defendant had transacted unfavourably with the other defendants. The plaintiff also highlighted that the report was deliberated during the AGM, and that the plaintiff’s representative was present. [11] The first defendant also contended that the plaintiff’s accusation that it had been mismanaged by the second to fourth defendants was unsubstantiated, more so when it only proposed to appoint an expert to analyse the report, and reserved its rights to cross-examine the maker. The law on discovery [12] The essence of a discovery application is to enable a party to obtain documents which is not in its possession, with the main aim of alleviating any disadvantage that it may have in not possessing the documents sought. [13] To succeed, the plaintiff will need to demonstrate that the documents exist, are relevant, and that they are, or have been in the possession of the other party; Yekambaran s/o Marimuthu v Malayawata Steel Berhad [1994] 2 CLJ 581. [14] Relevancy is subjective, in that the documents sought must be relevant to the suit. The applicant may otherwise abuse them for its own agenda. 5 [15] Relevancy will also enable the court to have the relevant information, with the aim of achieving justice between the warring parties; Rotta Research Laboratorium Spa & Anor v Ho Tack Sien & Ors [2010] 10 CLJ 491. [16] The Singaporean High Court elucidated further the requirements of relevancy in Manilal & Sons Pte Ltd v Bhupendra KJ Shan (T/A JB International [1990] 2 MLJ 282. It was held that the relevancy of the documents sought would be established, if it contains information that may either advance his case, or damage his adversary’s case, or it might lead him to a train of inquiry that may result in either of these consequences. [17] The court however must be vigilant to ensure that the application is not treated as what has been described as a ‘fishing expedition’; W A Pines Pty Ltd v Bannerman [1980] 30 ALR 559. The application must not be used for the plaintiff to trawl the documents sought, with the hope of finding something relevant or useful. It cannot be an exercise that would be oppressive to the party that the discovery is sought from. The application [18] The plaintiff had referred to the report and noted the following remarks by Deloitte:- 6

The completeness and accuracy of the documents provided by the first defendant has not been independently verified;

That it was not aware of any other information that may require it to modify the contents of the report; and

The conclusion in the report may be rendered invalid if there is a change in the documents provided by the first defendant. [19] The plaintiff had serious doubts on the veracity of the report based on Deloitte’s disclaimers. The plaintiff was of the view that the documents sought for discovery would enable it and the court to determine:-

Whether Deloitte had taken all documents into consideration in preparing the report;

Whether the documents given by the first defendant to Deloitte were sufficient for the latter to make the conclusion in the report; and

Whether all the related parties’ transactions were indeed carried out at arm’s length. [20] The plaintiff refuted the first defendant’s allegation that it was embarking on a ‘fishing expedition’ as it had identified the documents for discovery. The plaintiff also put the first 7 defendant to task for claiming that it did not have the documents sought for, as it was the one that communicated and liaised with Deloitte in the preparation of the report Findings [21] The discretion whether to grant discovery rests with the court. This was held by the Court of Appeal in Ong Boon Hua & Anor v Menteri Hal Ehwal Dalam Negeri, Malaysia & Ors [2008] 3 MLJ 625 (CA). [22] The focus of the plaintiff’s ire, at least in respect of this application, seems to be on Deloitte. It is patent that the plaintiff had grave reservations over Deloitte’s preparation of the report and its conclusion. This is not odd, as the report concluded that the related parties’ transactions were done legitimately. This was the opposite of what the plaintiff has alleged. It was after all, one of its grievances against the plaintiff, if not the main. [23] The plaintiff had in its affidavit in support stated the following:-

Notwithstanding the above, I am further advised by the Plaintiff’s solicitors and verily believe that the documents set out in Annexure A of the Notice of Application is vital and the documents ought to be used to determine and/or ascertain on whether the transfer pricing analysis was properly carried out and/or carried out in accordance with the prescribed law. (emphasis added) 8 [24] It was obvious that the plaintiff had no inkling of what it was really looking for, and was merely casting the net wide with the hope that it could come out with something to challenge Deloitte’s findings. [25] The plaintiff had also failed to identify the details in the report that it had issues with. It was also clear that the whole exercise was primarily aimed at attacking Deloitte’s credibility. The following excerpts in the plaintiff’s affidavit in reply demonstrated just that:-

9.1 Close scrutiny is needed in order to assess whether Deloitte has taken all necessary and relevant steps in preparing the Transfer Pricing Report. That being said, the only way which would allow the Plaintiff to ascertain whether Deloitte has taken all necessary steps and consider all the relevant documents is by furnishing the Plaintiff with a copy of all the documents stated in Annexure A…..

11.1 The Plaintiff needs a copy of all the documents in order to ascertain whether the contents of the Transfer Pricing Report have been accurately and/or correctly stated.

11.2 In any event, the Plaintiff reserves its right to appoint an independent auditor to carry out a transfer pricing analysis in order to determine the veracity and completeness of the contents of the Transfer Pricing Report. 9 [26] These averments clearly show that the discovery application was merely an attempt to trawl for materials. The most apparent one however were at paragraphs 11.3 and 12.2:-

11.3 Likewise, the credibility of the maker can only be ascertained after perusing the documents stated in Annexure A. There will be no basis for the Plaintiff to have made an allegation to allege that the maker is not credible without scrutinising the documents furnished to Deloitte.

12.2 Further and at the risk of repetition, I state that albeit having a copy of the Transfer Pricing Report upon the Plaintiff’s request; however the Plaintiff could not ascertain whether the Transfer Pricing Report has been done in accordance with the governing law without the documents which Deloitte relied to (sic). [27] Deloitte is obviously not a party to this suit. The plaintiff had merely relied on the Deloitte’s disclaimers in the report to suggest that the report was questionable. [28] I took judicial notice that it is not uncommon for auditors to put disclaimers in its report. It is in fact a norm among auditors, and even solicitors and other professionals to have disclaimers in their reports. That however does not suggest that the report is incomplete. If an auditor is not satisfied with 10 the materials provided, it could always refuse to complete the report. Any professional would have done the same. [29] It was held succinctly in Re State of Norway’s Application [1989] 1 All ER 661, that an application for discovery is regarded as a fishing expedition, if it is intended to look for new allegations. [30] The plaintiff has not adduced any credible evidence to question the report, and was merely speculating. In WA Pines Pty Ltd v Bannerman (supra), this attempt has also been categorised as a fishing exercise:- “Some assistance was sought to be derived from cases where discovery had been given to a party before he was required to give particulars of his claim; cases such as Ross v Blake’s Motors [1951] 1 All ER 689, but in cases of that kind there is either an anterior relationship between the parties which entitles one to obtain information from the other, or sufficient is shown to ground a suspicion that the party applying for discovery has a good case proof of which is likely to be aided by discovery. This is not such a case. This is a case where a bare allegation is made by para 6 of the statement of claim and, the paragraph being denied, the applicant seeks to interrogate the Chairman and ransack his documents in the hope of making a case. That is mere fishing.” (emphasis added) 11 [31] The plaintiff could not seek to merely trawl for evidence by casting the net over a wide-open area. It needs to be specific, and could not hope to conduct what would amount to a ransacking exercise with the hope of discovering something useful. The discovery must be purposeful, which was not the case here. [32] The plaintiff had every opportunity to scrutinise the report and sought answers to any concern that it may had during the AGM. It is far too late in the day for the plaintiff to now seek to do something that it could have and should have done. Conclusion [33] I am resolute that the plaintiff’s application is unmeritorious. The plaintiff application is dismissed with costs of RM5,000. Dated: 3 October 2018. -sgd- (Mohamed Zaini Mazlan) Judge High Court of Malaya (Commercial Division) Kuala Lumpur Counsel for the plaintiff Loh Mei Ching and Ong Kai Rou [Messrs Mah-Kamariyah & Philip Koh] Counsel for the first defendant Eddie Chuah Seong Eng [Messrs Wong & Partners]