Scec Group (Malaysia) Sdn Bhd v Wong Siew Woon (WA-22NCC-813-11/2023)

WONG SIEW WOON

LEE POH WAH

MOU, EN-KUANG @ TIMOTHY MOU

IMPERO LAND SDN BHD (COMPANY NO.: 201901008604

IMPERO MANAGEMENT SDN BHD

(1389120P))

CHAN BAOJIE

TEH HAN CHEONG

FIRST MILESTONE SDN BHD ((COMPANY NO.: 201601007625

SAMSON LEE SANG SUNG

SOON HENG LEKTRIK SDN BHD (COMPANY NO.: 201001003645

TEE LUNG SENG

TEE CHEE BAN (NRIC NO.: 481222-10-5343) ...DEFENDANTS JUDGMENT [1] Before the court is a striking out application filed by the 4th Defendant to strike out the Plaintiff's claims which are premised on allegations of conspiracy, fraud and abuse of court process through the filing of successive judicial management applications. The dispute arises from a construction contract where the Plaintiff, after obtaining an adjudication decision in its favour, faced difficulties in enforcing the decision due to multiple judicial management applications being filed against the employer company. The key issue is whether the Plaintiff's claims against the 4th Defendant, who filed one of these judicial management applications allegedly in concert with other defendants to frustrate the Plaintiff's enforcement efforts, disclose reasonable causes of action that warrant a full trial. Background facts [2] The Plaintiff, SCEC Group (Malaysia) Sdn Bhd, is a civil engineering construction company based in Kuala Lumpur. Through a Letter of Award dated 8.3.2019, Surrealist Communities (M) Sdn Bhd (“Surrealist”), formerly known as Poly Ritz Communities (M) Sdn Bhd, appointed the Plaintiff as its main contractor for a development project in Salak S/N BRzui/nUuEirSmrrciF90w South, Kuala Lumpur. The project involved constructing three blocks of 45-48 storey apartments, including 1,120 affordable housing units and 200 apartment units, for a contract sum of RM216,070,000.00. [3] On the same date (8.3.2019), Surrealist provided a Letter of Undertaking to the Plaintiff, agreeing to appoint a representative from the Plaintiff as an authorised joint signatory together with a Surrealist representative to operate and manage the Housing Development Account (Account No: 14023010050237) maintained with Bank Islam Malaysia Berhad. [4] Subsequently, Surrealist failed to pay the Plaintiff's payment claims under the project, and the Plaintiff's services were terminated. Surrealist then appointed the 8th Defendant, First Milestone Sdn Bhd (“D8”), to continue with the project. [5] The Plaintiff initiated adjudication proceedings against Surrealist. On 21.5.2021, the Adjudicator issued a decision ordering Surrealist to pay the Plaintiff RM61,287,190.13 (excluding post-adjudication interest) (“Adjudication decision”). The Plaintiff filed an application to enforce this decision through Originating Summons No. WA-24C-113- 07/2021, while Surrealist filed an application to set it aside through Originating Summons No. WA-24C-140-08/2021. On 18.02.2022, the court allowed the enforcement application and dismissed Surrealist's set-aside application. S/N BRzui/nUuEirSmrrciF90w [6] On 29.4.2022, the Plaintiff filed garnishee proceedings against Bank Islam through Kuala Lumpur High Court Execution No. WA-37G-80-04/2022. Bank Islam opposed the proceedings, stating that the Housing Development Account had been assigned to them through a Deed of Assignment of Sales Proceeds and Specific Project Debenture both dated 4.9.2018. [7] A series of judicial management applications followed: a) On 25.10.2021, Surrealist filed the first judicial management application (WA-28JM-20-10/2021) (“First JM Application”), which was dismissed on 25.3.2022. b) On 28.3.2022, the 4th Defendant, Impero Land Sdn Bhd (“D4”), filed a second judicial management application (BA-28JM-1-03/2022) (“Second JM Application”), which was dismissed on 8.3.2023. c) On 9.3.2023, D8 filed a third judicial management application (WA-28JM-5-03/2023) (“Third JM Application”), which was withdrawn and struck out on 12.10.2023. d) On 13.10.2023, the 10th Defendant, Soon Heng Lektrik Sdn Bhd (“D10”), filed a fourth judicial management application (BA-28JM-8-10/2023) (“Fourth JM Application”). S/N BRzui/nUuEirSmrrciF90w [8] The Plaintiff commenced the present action on 3.11.2023. On 12.3.2024, D4 filed an application to strike out the Plaintiff's claim against it. [9] The corporate structure relevant to the case shows that D4 is wholly owned by the 5th Defendant, Impero Management Sdn Bhd (“D5”), which in turn is wholly owned by the 6th Defendant, Chan Baojie (“D6”). D6 and the 7th Defendant, Teh Han Cheong (“D7”), are directors of both D4 and D5. The 1st Defendant, Wong Siew Woon (“D1”) and the 2nd Defendant, Lee Poh Wah (“D2”), were directors and shareholders of Surrealist, while the 3rd Defendant, Mou, En-Kuang @ Timothy Mou (“D3”), was its majority shareholder. The Plaintiff's case against D4 [10] The Plaintiff's case against D4 centers on allegations of conspiracy, fraud, and abuse of court process, with the ultimate aim of establishing D4's joint liability under Section 540 of the Companies Act 2016. The Plaintiff alleges that D4 participated in a coordinated scheme with other defendants to prevent the enforcement of the Adjudication Decision and block winding-up proceedings against Surrealist. S/N BRzui/nUuEirSmrrciF90w [11] The core of the Plaintiff's allegations relates to D4's filing of the Second JM Application on 28.3.2022, immediately after the First JM Application was dismissed on 25.3.2022. The Plaintiff contends that this timing was not coincidental but rather evidence of D4 receiving insider information from Surrealist through D1 to D3. According to the Plaintiff, the purpose of this strategic filing was to enable Surrealist to obtain an automatic moratorium despite the dismissal of the First JM Application. [12] The Plaintiff further alleges fraudulent conduct in the preparation of the Second JM Application. Specifically, the Plaintiff points to D4's ledger entries which recorded transactions with “Surrealist Communities (M) Sdn Bhd” from March 2019, despite the company still being known as “Poly Ritz Communities (M) Sdn Bhd” at that time (the name change only occurred on 30.1.2020). The Plaintiff argues this demonstrates manipulation of records to establish creditor status. [13] The Plaintiff emphasizes the corporate relationships between the defendants as evidence of the conspiracy. D4 is wholly owned by D5 which in turn is wholly owned by D6. Both D6 and D7 serve as directors of both D4 and D5. The Plaintiff contends these corporate links facilitated the alleged conspiracy. S/N BRzui/nUuEirSmrrciF90w [14] As relief, the Plaintiff seeks declarations that D4 is jointly liable with other defendants for Surrealist's debts and liabilities, that D4 conspired to injure the Plaintiff through unlawful means, and that D4 abused court process. The Plaintiff also seeks damages and costs. The overall thrust of the Plaintiff's case is that D4 participated in a coordinated effort to prevent the Plaintiff from enforcing its rights through systematic abuse of the judicial management process. The application in Enclosure 34 [15] D4’s application pursuant to Order 18 rule 19(1)(a), (b), (c) and/or (d) and/or Order 92 rule 4 of the Rules of Court 2012 seeks to strike out the Plaintiff's claim against D4. The specific prayers sought are: (1) that the Plaintiff's action against D4 via the Writ of Summons dated 3.11.2023 and Statement of Claim dated 3.11.2023 be struck out; (2) costs of the application to be borne by the Plaintiff; and (3) any further orders deemed fit by the court. [16] The grounds of the application as stated in the Notice of Application are: (1) the Plaintiff's claims against D4 premised on alleged fraud, conspiracy to injure by unlawful means, fraudulent trading under Section 540 of the Companies Act 2016, and abuse of court process are obviously unsustainable; (2) based on the face of the Statement of Claim alone, the Plaintiff's claim against D4 has no merits; (3) the action is frivolous, vexatious and scandalous, filed merely to embarrass or harass D4; (4) S/N BRzui/nUuEirSmrrciF90w alternatively, it is an abuse of court process to circumvent legal technicalities faced by the Plaintiff in winding up Surrealist; (5) the allegations of fraud against D4 are completely untenable and unfounded in law or fact, with no elements of dishonesty in D4's conduct; (6) the conspiracy claim is unreasonable and unsustainable as the Plaintiff fails to plead necessary facts or essential elements; (7) the law does not preclude filing fresh judicial management applications after disposal of earlier ones; (8) the fraudulent trading claim under Section 540 is irrelevant as D4 was not a director of Surrealist; and (9) the prayer to lift Surrealist's corporate veil is frivolous as Surrealist is not named as a defendant. Respective parties’ submissions [17] D4's position is that the Plaintiff's claims are unsustainable and should be struck out as they disclose no reasonable cause of action. D4 argues that being a separate legal entity from Surrealist and other defendants, it was merely exercising its legitimate rights as a creditor in filing the judicial management application. D4 maintains there is no evidence of conspiracy or fraud, and the timing of its application was justified by the need to protect its interests given the impending legal proceedings against Surrealist. It contends that the law does not preclude fresh judicial management applications after earlier ones are dismissed, and that any alleged irregularities in its ledger entries were mere data entry mistakes rather than deliberate S/N BRzui/nUuEirSmrrciF90w manipulation. D4 further argues that as it was never a director of Surrealist, the Section 540 Companies Act claim is misconceived, and the prayer to lift corporate veil must fail as Surrealist is not even a party to these proceedings. [18] The Plaintiff contends that its pleadings disclose reasonable causes of action that warrant a full trial. It argues that the separate legal entity principle does not prevent D4 from being party to a conspiracy with other defendants, and that the suspicious timing of D4's judicial management application - filed the next working day after the dismissal of the first application - coupled with irregularities in D4's accounting records showing transactions recorded under Surrealist's new name before the name change occurred, provide strong circumstantial evidence of conspiracy and fraud. The Plaintiff maintains that these factual issues, particularly regarding D4's true motivations and its relationship with other defendants, can only be properly determined through cross-examination at trial, and that the court should not strike out claims merely because they may be difficult to prove. Analysis and findings of the court No reasonable cause of action [19] The Plaintiff's claim against the D4 is premised on the cause of action of fraud, conspiracy to injure by unlawful means, and abuse of process. The Plaintiff relies on the S/N BRzui/nUuEirSmrrciF90w following facts to demonstrate that it has a reasonable cause of action against D4: (i) the timeline of the judicial management applications filed; and (ii) the admission by D8 and the 9th Defendant, Samson Lee Sang Sung (“D9”), in their Defence that the filing of the Third JM Application filed by D8 on 9.3.2023 was prompted by D1. [20] The Plaintiff submits that the timeline of the filing of the judicial management applications, whereby each application was filed on the next working day following the dismissal of the previous application, could only have been achieved with insider information provided by Surrealist through D1, D2 and D3 jointly or severally. The Plaintiff further submits that the admission by D8 and D9 that the Third JM Application was filed on the suggestion of D1 makes it highly probable that the Second JM application filed by D4 on 28.3.2023 and the Fourth JM application filed by D10 on 13.10.2023 were also filed on the instruction of D1 jointly or severally with D2 and D3. [21] D4 contends that the Plaintiff's claim does not disclose a reasonable cause of action. D4 submits that a reasonable cause of action means a cause of action with some chance of success when only the allegations in the pleadings are considered. D4 argues that the facts relied on by the Plaintiff are insufficient to satisfy the necessary elements for the causes of action pleaded. S/N BRzui/nUuEirSmrrciF90w [22] D4 further submits that the Plaintiff has no remedy under the tort of abuse of process as it was not named as a party in the judicial management proceedings until it intervened on its own accord. D4 also highlights that damage is an essential element of conspiracy to injure and the Plaintiff's pleadings do not properly plead the element of damage. [23] On the alleged admission by D8 and D9, D4 submits that the statements in D8 and D9's Defence relate only to D8, D9 and D1, with no mention of D4 or any implication that D4 conspired against the Plaintiff. D4 emphasises that it is a separate legal entity from D8 and D9, and was not a party to the Third JM Application. [24] Having carefully considered the cause papers and rival submissions, I am satisfied that the Plaintiff's claim against D4 should be struck out. My reasons are as follows. [25] First, the facts relied on by the Plaintiff, namely the filing timeline and alleged admission, are insufficient to establish the essential elements of the causes of action pleaded. It is trite that for a reasonable cause of action to exist, the claim must have some chance of success based on the allegations in the pleadings. This was made clear by the High Court in Mohamed Yusop Bin Abdul Wahab v American Express (M) Sdn Bhd [2002] 6 MLJ 507. The Plaintiff's reliance on the two facts falls short of meeting the required elements for fraud, conspiracy to injure and abuse of process. Guidance can be drawn from Malaysia Building S/N BRzui/nUuEirSmrrciF90w Society Bhd v Tan Sri General Ungku Nazaruddin Bin Ungku Mohamed [1998] 2 MLJ 425 (CA), Renault SA v Inokom Corp Sdn Bhd & Anor and other appeals [2010] 5 MLJ 394 (FC), and Revenue and Customs Comrs v Sunico A/S & Ors [2012] EWHC 4156 (English HC) on what amounts to a sustainable claim in this regard. [26] Moreover, as submitted by D4, the objective of the the Second JM Application filed by D4 on 28.3.3022 was to rehabilitate the financially distressed Surrealist and ensure its survival as a going concern. This aligns with the statutory purpose of the judicial management mechanism under sections 404 and 405 of the Companies Act 2016, which is aimed at helping financially distraught companies and reducing the number of winding up cases, as recognised in Leadmont Development Sdn Bhd v Infra Segi Sdn Bhd and another suit [2019] 8 MLJ 473 (HC). Being a creditor of Surrealist, D4 was well within its rights to apply for a judicial management order under section 405. The Plaintiff's bare assertion of fraud and conspiracy, without more, cannot be sustained. [27] Secondly, applying the Court of Appeal's decision in Conweld Engineering Sdn Bhd & Ors v Goh Swee Boh @ Goh Cheng Kin & Anor [2022] 6 MLJ 810, I find that the Plaintiff has no recourse against D4 for the tort of abuse of process, since the Plaintiff was not a named party in D4's judicial management proceedings until it intervened of its own volition. The principle enunciated in Conweld S/N BRzui/nUuEirSmrrciF90w Engineering is that a non-party to a petition cannot subsequently mount an abuse of process claim. This principle squarely applies to the present facts. [28] Thirdly, I agree with D4 that damage is an essential component of the tort of conspiracy to injure. This was made plain by the Federal Court in Renault SA v Inokom Corp. The Plaintiff's pleadings do not sufficiently particularise the damage purportedly suffered due to D4's alleged conspiracy. The failure to properly plead damage is fatal to the Plaintiff's conspiracy claim against D4. [29] I also concur with D4's submission that the D8 and D9’s alleged admission in their Defence does not implicate or support any cause of action against D4. The admission pertains only to the interaction between D1, D8 and D9 concerning D8’s Third JM Application. Crucially, there is no mention of D4's involvement. D4's Second JM Application is distinct from the Third JM Application, and D4 was never a party to those proceedings. The Plaintiff's attempt to rely on this admission underscores the dearth of basis for its claim against D4. [30] In light of the foregoing, I find that the Plaintiff has not established a reasonable cause of action against D4. The high threshold for striking out has been met in respect of the claim against D4 in limb (a) of Order 18 rule 19. S/N BRzui/nUuEirSmrrciF90w Plaintiff’s burden of proof [31] The Plaintiff contends that D5, D6 and D7 conspired with D4, D1, D2 and D3 to defraud the Plaintiff, despite D4 being a separate legal entity from D5 to D7. The Plaintiff argues that this is possible because D4 is wholly owned by D5, which in turn is wholly owned by D6. Further, D6 and D7 are directors of both D4 and D5. As such, the Plaintiff submits that D4 is controlled by D6 as the director and ultimate owner, while D7 as a director of D4 is responsible for D4's allegedly fraudulent conduct in filing the Second JM Application. [32] In response, D4 contends that the Plaintiff's submission is unfounded in law. It is trite, as held in Salomon v A Salomon & Co Ltd [1897] AC 22 (HL), that a company is a separate legal entity from its directors and shareholders. Thus, for its conspiracy claim to succeed, it is the Plaintiff who bears the burden of pleading and then proving facts to establish the conspiracy. The mere fact that D5 to D7 are shareholders and directors of D4 is insufficient, without more, to make them co-conspirators in the tort of conspiracy. [33] D4 further submits that the Plaintiff's allegation that D4's records were falsified or manipulated is an afterthought, as this was never raised in the Second JM Application proceedings. Relying on Asia Commercial Finance (M) Bhd v Kawal Teliti Sdn Bhd [1995] 3 MLJ 189 (SC), D4 argues that the Plaintiff is barred by the doctrine of issue estoppel S/N BRzui/nUuEirSmrrciF90w from raising this issue now when it failed to do so in the earlier proceedings despite having the opportunity. [34] Having considered the submissions, I agree with D4 that the Plaintiff's claim against D5 to D7 is unsustainable and ought to be struck out. The separate legal personality of a company is a foundational principle of company law, as famously espoused in Salomon v A Salomon. The mere fact that D5 to D7 are associated with D4 as shareholders and directors does not in itself make them personally liable for D4's alleged wrongs. The Plaintiff must plead and prove more to establish a conspiracy among the defendants. [35] Here, the Plaintiff's pleadings do not disclose any particulars of the alleged conspiracy beyond describing the corporate relationship between D4 and D5 to D7. There are no specific facts pleaded to show the agreement or understanding reached among the defendants to conspire to injure the Plaintiff through unlawful means. The Plaintiff cannot rely on D5 to D7's mere association with D4 to draw an inference of conspiracy without more. [36] Moreover, I find that the Plaintiff's allegation that D4's records were falsified is an afterthought that ought to have been raised in the judicial management proceedings. As explained in Asia Commercial Finance, the doctrine of issue estoppel covers issues which could and should have been raised in the earlier proceedings. The court must be vigilant in ensuring finality in litigation and not allow parties to start S/N BRzui/nUuEirSmrrciF90w fresh proceedings on issues that properly belonged to the earlier litigation. Whether trial is necessary [37] The Plaintiff opposes D4’s striking out application, contending that its claim ought to be decided at trial. Relying on the Court of Appeal decisions in Dato' Ahmad Zahid bin Hamidi v Amir Bazli bin Abdullah [2012] 6 MLJ 564 and Sivarasa Rasiah & Ors v Che Hamzah Che Ismail & Ors [2012] 1 MLJ 473, the Plaintiff submits that where there are triable issues of fact, the court should refrain from striking out and allow the matter to proceed to trial for determination upon viva voce evidence tested by cross-examination. [38] The Plaintiff argues that it is alleging fraudulent trading under Section 540 of the Companies Act 2016, and that the elements of such a claim, as laid down in Chin Chee Keong v Toling Corporation Sdn Bhd [2016] 4 MLRA 180 (CA), are issues that can only be resolved through the testimony of witnesses at trial. According to the Plaintiff, its action is not a plain and obvious case suitable for striking out. [39] Section 540(1) of the Companies Act 2016, the relevant part of the provision, reads: “Liability where proper accounts not kept

(1) 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 the Court 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. [40] In response, D4 does not dispute the general principle that a striking out application should not be turned into a trial by affidavit. However, D4 maintains that where a claim is obviously unsustainable, it ought to be struck out. D4 contends that this is such a case, as the Plaintiff has only made bare allegations without adducing any evidence to satisfy the legal tests for its causes of action. [41] Having considered the submissions and the authorities cited, I am persuaded that this is an appropriate case for striking out the claim against D4 notwithstanding the general reluctance of the courts to deprive a litigant of his day in court. While the Court of Appeal in Dato' Ahmad Zahid and Sivarasa Rasiah cautioned against striking out where there are triable factual issues, that does not mean that a plainly hopeless claim must necessarily be allowed to go to trial. S/N BRzui/nUuEirSmrrciF90w [42] Here, a close examination of the Plaintiff's pleadings reveals that it has not pleaded the essential facts to establish a reasonable cause of action against D4. The Statement of Claim contains only bare allegations of fraud, conspiracy and abuse of process without the necessary particulars to support those serious allegations. Crucially, as highlighted in D4's affidavit in reply in para 9.4, the Plaintiff has failed to adduce any evidence to satisfy the legal elements of its various causes of action. [43] Where fraud is alleged, as in this case with the fraudulent trading claim under Section 540, the Plaintiff is obliged to plead the particulars of fraud and adduce sufficient evidence to establish a prima facie case. It is not enough to simply make a bald assertion and then say the matter should go to trial. The court is entitled to scrutinise the pleadings and the evidence to determine if there is any substance to the claim before subjecting the defendant to a full trial. [44] I find that the Plaintiff's vague and unsubstantiated pleadings, devoid of particulars and unsupported by evidence, are plainly unsustainable. The mere hope that some evidence may turn up during trial to flesh out the bare allegations is not a sound basis to allow such a defective claim to proceed. Contrary to the Plaintiff's contention, this is not a case where the claim discloses some triable issue that warrants mature consideration at a full hearing. S/N BRzui/nUuEirSmrrciF90w Conclusion [45] Based on the foregoing analysis, I am satisfied that D4 has met the high threshold required for striking out under Order 18 rule 19(1)(a), (b), (c) and (d) of the Rules of Court 2012. The Plaintiff's claim against D4 discloses no reasonable cause of action, is frivolous and vexatious, and constitutes an abuse of the court process. The bare allegations of fraud, conspiracy and abuse of process, unsupported by properly pleaded particulars or evidence, cannot withstand scrutiny. While courts generally should not deprive a party of their day in court, allowing plainly unsustainable claims to proceed to trial would be contrary to the interests of justice and waste judicial resources. The filing of a judicial management application by a creditor cannot, without more, give rise to liability for conspiracy or fraud. The Plaintiff's attempt to rely on timing and corporate relationships alone, without establishing the essential elements of its causes of action, is fundamentally flawed. Accordingly, Enclosure 34 is allowed with costs of RM5,000.00 to be paid by the Plaintiff to D4. 6 January 2025 ATAN MUSTAFFA YUSSOF AHMAD Judge Kuala Lumpur High Court (Commercial Division) S/N BRzui/nUuEirSmrrciF90w Counsel: For the Plaintiff: Mah Mun Yan and Vivian Tham Onn Yee (Messrs Ricky Tan & Co.) For the 4th Defendant: S Raven with Tay Li Sheng (Messrs S Ravenesan)