Roziah Binti Ismail v 1. Johany Bin Jaafar (WA–22NCC–333–09/2016)

ABU TALIB BIN ABDUL RAHMAN DEFENDANTS JUDGMENT Introduction [1] The plaintiff’s claim is not complex. It is over the purchase of shares done through an agreement with the 1st defendant. The shares were never transferred to the plaintiff shares and had subsequently changed hands with the 2nd and 3rd defendants being the ultimate beneficiaries. [2] The plaintiff now seeks for either the shares that he purchased for or damages. I had at the conclusion of the trial, allowed the plaintiff’s claim against the 1st defendant only and had dismissed his claim against the 2nd and 3rd defendants. 2 [3] Only the 1st defendant had since appealed against the decision. This primary focus of this judgment will be on the plaintiff’s claim against the 1st defendant. Facts [4] The plaintiff and the 1st defendant (DW1) had entered into a share sale agreement dated 29 April 2014 (‘the share sale agreement’). It was for the sale of the 1st defendant’s 6,000,000 shares in Efogen Sdn Bhd (‘Efogen’) to the plaintiff, for the sum of RM3,000,000 (‘the shares’). [5] The plaintiff is the wife of Mr. Nahar Noordin (‘PW2’). PW2 was authorised by the plaintiff to handle all the negotiations and transactions. [6] Under clause 2 of the share sale agreement, the 1st defendant was to pay PW2 back RM1,600,000, which was part of a previous loan taken by the 1st defendant from the latter. The 1st defendant had in the past taken loans from PW2, which were all documented. This meant that RM1,400,000 was paid out to the 1st defendant. [7] The 1st defendant had pursuant to the share sale agreement, forwarded the share certificates and signed transfer forms to a firm of solicitors called Messrs Affendi Zahari as stakeholders. The shares were never transferred, for the 1st 3 defendant had subsequently cancelled the share certificates and procured new share certificates as replacement. [8] Unknown to the plaintiff and PW2, the 1st defendant hadentered into a share sale agreement dated 14.5.2014 with Tan Sri Abdul Rashid Abdul Manaf (‘Tan Sri Abdul Rashid’). This was for the purchase of the latter’s 12,000,000 shares in Efogen. The 1st defendant hadalso simultaneously entered into a share acquisition agreement dated 14.5.2014, to sell 4,000,000 out of his 8,000,000 Efogen shares to PDZ Holdings Berhad. [9] During this time, the 1st defendant had written five letters dated 2 June 2014, 29 June 2014, 20 July 2014, 29 September 2014 and 29 November 2014 seeking for an extension of time for the shares to be transferred to the plaintiff’s name. [10] The 1st defendant then entered into a Facility Agreement dated 1 July 2014 with the 2nd defendant, for a short-term financing facility of RM17,000,000 (‘facility agreement’). This facility agreement was to partly finance the 1st defendant’s purchase of Tan Sri Abdul Rashid’s 12,000,000 Efogen shares. Pursuant to the facility agreement, the 1st defendant pledged the 12,000,000 Efogen shares that he proposed to purchase from Tan Sri Abdul Rashid, and 4,000,000 of his own Efogen shares to the 2nd defendant. This was done through two memorandums of charge. 4 [11] The 1st defendant defaulted on the facility agreement. The 2nd defendant then terminated the facility agreement and took steps to sell the shares that were pledged as collateral to the 3rd defendant. [12] The 2nd and the 3rd defendants subsequently entered into a share sale agreement dated 30 December 2015 for the sale of 100% of Efogen shares amounting to 20,000,000, which was inclusive of the shares. [13] The 1st defendant contended that the share sale agreement was in fact a collateral for the loan of RM1,400,000 from PW2 to the 1st defendant, where theshares were pledged as security. The 1st defendant also alleged that there was an oral agreement reached in April 2014 between him and PW2, where it was allegedly agreed that the 1st defendant would be charged interest of 4.5% per month on the loan, and that the loan shall only be paid when PW2 makes a demand for the repayment, which is not earlier than 1 year after the loan was disbursed. [14] The 1st defendant alleged that the plaintiff had only paid RM1,400,000.00 pursuant to the terms of the agreement, and that this supports his contention, that the agreement was actually a loan agreement in disguise. [15] The 1st defendant contended that this agreement was designed to circumvent the Money Lenders Act 1951 and is therefore void and illegal. 5 [16] The 2nd and 3rd defendants’ defence in gist is this: that they had no knowledge of the plaintiff’s claim on the disputed shares at the material time and questions the plaintiff’s claim on the shares. They also contended that the agreements that they had entered into were bona fide transactions. [17] The plaintiff now seeks for the following reliefs:-

a declaration that the defendants are holding the disputed shares in trust for the plaintiff,

an order for specific performance for the defendants to transfer back the disputed shares to her, and

in the alternative, for the sum of RM10,500,000.00, being the value of the disputed shares to be paid to her. [18] I will for convenience and clarity approach the plaintiff’s case against the respective defendants in sequence. A. Plaintiff and the 1st defendant Issues [19] (1) Whether the agreement was in reality a loan agreement, designed to circumvent the Money Lenders Act 1951, and is therefore void and illegal. 6

Whether the 1st defendant had acted fraudulently by:-

Cancelling and failing to transfer the disputed shares pursuant to the share sale agreement; and

(ii) Issuing new Efogen share certificates and pledging them to the 2nd defendant for the facility agreement. Findings [20] It was undisputed that PW2 had in the past, provided loans to the 1st defendant. It was also undisputed that both parties had entered into written agreements in respect of these loans. There were four written agreements in total, dated 13 January 2011, 10 October 2011, and two dated 8 October 2013 respectively. This goes to show that PW2 and the 1st defendant had no issues entering into a written agreement for a loan. None of them were verbal. [21] PW1 could have easily entered into a similar loan agreement with the 1st defendant if this was indeed the case. There was no need to disguise a loan agreement into a share sale agreement. In fact, the 1st defendant had in these previous agreements, pledged some Efogen shares as collateral. In the share sale agreement, it was clearly stated that the agreement was for the purchase of the Efogen shares i.e. the shares. [22] The 1st defendant’s contention that the agreement was a loan agreement for RM1,400,000 as he was only paid that sum and 7 not RM3,000,000 is untenable. Clause 2.1(b) of the share sale agreement clearly stipulated that the sum of RM1,600,000 was to be paid to PW2, for the settlement of a pending loan. [23] Parties are bound by the terms set out in a written agreement, save for the exceptions provided by the law. The 1st defendant had not come within any of these exceptions. The fact that the 1st defendant had written to PW2 six times requesting for an extension of time to fulfil clause 7 of the share sale agreement, goes to show that the 1st defendant was aware, and knew of his obligations to transfer the disputed shares to the plaintiff. [24] The 1st defendant was aware of the salient terms of the share sale agreement. Furthermore, he was also represented by a firm of solicitors. These facts were elicited during cross-examination as follows:- Mr. Choo: But you sign with specific terms with knowing what you were bound by? Yes, correct. Mr. Choo: You know you bound by the terms in the contract? Ya, correct. Mr. Choo: And you know that you have no other evidence to show otherwise that you bound by the contract, you bound by the contract, you know that right, do you agree? Ya. 8 Mr. Choo: Look at clause 2.1 at page 110, enclosure 34, page 112 enclosure 34. Do you agree En. Johany, you confirmed you had a lawyer represented you, you had legal representation. And these clauses are done with proper legal counsel to you, legal advise to you, and you agreed to this, and it was carried out., You agree or not? Yes, correct. [25] The 1st defendant is in law and in fact, bound by the terms and conditions of the share sale agreement. It is therefore the court’s finding, that the agreement was a legitimate agreement for the sale of the disputed shares, and not a loan agreement designed to circumvent the Money Lenders Act 1951. [26] As for the issue of fraud, the fact was that the 1st defendant had treated the share sale agreement as unenforceable for being allegedly in breach of the Money Lending Act, and then proceeding to pledge the shares to the 2nd defendant, goes to show his state of mind, in that he never intended to honour the share sale agreement. [27] If the share sale agreement was actually a loan agreement as contended by the 1st defendant, why then did he proceed to cancel and replace the shares’ certificate, and then proceed to pledge them with the 2nd defendant, when he had agreed to pledge the disputed shares as a security for the alleged loan? 9 [28] The fact shows that the 1st defendant had written five letters dated 2 June 2014, 29 June 2014, 20 July 2014, 29 September 2014 and 29 November 2014 to PW2, requesting for an extension of time to comply with clause 7 of the agreement. Unknown to PW2, the 1st defendant had quietly entered into the facility agreement with the 2nd defendant and had pledged the shares as collateral. [29] The 1st defendant had clearly deceived PW2. As highlighted by the 2nd defendant’s solicitors in their written submissions, the new certificates were issued on the 2 May 2014. This was less than a week after the share sale agreement was entered into. [30] It is the court’s finding that the 1st defendant had committed fraud on the plaintiff on a balance of probabilities as proclaimed by the Federal Court in Letchumanan Chettiar Alagappan & Anor v Secure Plantation Sdn Bhd [2017] 3 MLRA 501. B. Plaintiff and the 2nd and 3rd defendants Issues [31] (1) Whether the 2nd defendant had knowledge of the share sale agreement and the plaintiff’s claim on the shares when the facility agreement and memorandum of charge agreements were executed. 10

Whether the disposal of the disputed shares by the 2nd defendant to the 3rd defendant was a bona fide transaction.

What are the remedies to the plaintiff if it is found that the 2nd defendant had knowledge of the plaintiff’s claim on the disputed shares.

Whether the 3rd defendant is liable to resolve and settle the plaintiff’s claim on the deputed shares. [32] The 1st defendant had under the terms of the facility agreement, represented that he was the sole and legal owner of the shares pledged, and that they were free from encumbrances. The 2nd defendant contended that they had no knowledge of the share sale agreement between the plaintiff and the 1st defendant when they entered into the agreements with the 1st defendant. In gist, they claim not to have any knowledge of the plaintiff’s claim on the disputed shares at the material time. [33] The 2nd defendant claimed that they only came to know of the plaintiff’s claim on the disputed shares in a meeting held on the 16 July 2015, where PW2 informed Dato’ Razali Rahim (‘DW3’) of his claim on the disputed shares. At this point in time, the 2nd defendant had already taken steps to exercise its rights on the pledged shares pursuant to the 1st defendant’s default on the facility agreement. 11 [34] The 2nd defendant was never given any ample evidence by the plaintiff, to lend credence to his claim over the disputed shares. In meetings held between PW2 and the 2nd defendant, including its lawyers, no documentary evidence was given to substantiate his claim over the disputed shares. PW2 in fact had refused to allow the 2nd defendant to peruse and make copies of the share sale agreement, and any other relevant documents. [35] The plaintiff had also not taken any legal steps, such as obtaining an injunction to stake his claim over the disputed shares. The 2nd defendant could not be faulted for not taking the plaintiff’s claim at face value. In fact, when the 1st defendant was confronted by the 2nd defendant over the plaintiff’s claim, he had represented that the arrangement between him and the plaintiff was merely a loan agreement. The 2nd defendant therefore could not be faulted for disregarding the plaintiff’s claim over the disputed shares. [36] The 2nd defendant had also conducted a due diligence on the shares pledged. They had also relied on the 1st defendant’s representations. They had in gist taken all necessary steps. [37] I accept and preferred the evidence of DW3, in that he had merely offered to help PW2, and had never given any representations to recognise the plaintiff’s claim on the disputed shares. The minutes of the 2nd defendant’s board of directors’ meetings also supports the 2nd defendant’s stance 12 that they own the disputed shares, and that they did not recognise the plaintiff’s claim on them. [38] The 3rd defendant too had made the necessary enquiries prior to entering into its agreement with the 2nd defendant. He had after all paid the full purchase price for the shares free from encumbrance, as set out in the agreement concerned. His transaction was bona fide. [39] The only party guilty of shenanigans was the 1st defendant. It is the court’s finding that the 2nd and 3rd defendants were bona fide parties in its transaction concerning the disputed shares. Conclusion [40] I therefore find that the plaintiff has failed to prove his claim against the 2nd and 3rd defendants and dismissed it. As such, the plaintiff’s claim for an order of specific performance for the shares to be returned to him must fail. [41] The upshot is that the plaintiff is only entitled to claim for damages against the 1st defendant. I am however disinclined to allow the plaintiff’s alternative claim of RM10,500,000 being the alleged value of the 6,000,000 Efogen shares. This is because the plaintiff has not led any credible evidence to substantiate the amount sought. 13 [42] It is insufficient for the plaintiff to merely throw a figure for damages for he bears the onus of proving the quantum; Guan Soon Tin Mining Co v Wong Fook Kum [1969] 1 MLJ 99 [43] I therefore order that the 1st defendant is to pay damages to be assessed to the plaintiff, with interest of 5% per annum on the damages awarded from the date of the filing of the writ of summons until full settlement. [44] As for the issue of costs, the 1st defendant is to pay costs of RM60,000 to the plaintiff subject to allocatur. The plaintiff is ordered to pay costs of RM20,000 to the 2nd and 3rd defendant severally subject to allocatur. Dated: 6 June 2018 -sgd- (Mohamed Zaini Mazlan) Judge Kuala Lumpur High Court (Commercial Division) Counsel for the plaintiff Michael Choo & Melissa Chua [Messrs N.K Tan & Rahim] Counsel for the 1stdefendant Atan Mustaffa Yussof Ahmad [Messrs Ainul Azam & Co] 14 Counsel for the 2nddefendant K. Kirubakaran & Vernon Samuels [Messrs Shui-Tai] Counsel for the 3rddefendant Khalid Bin Yusoff, Mohd Faiz Iskandar Bin Hamzah & Ahmad Khir [Messrs Abu Talib Shahrom]