Starfield Capital Sdn Bhd v Stone Master Corporation Berhad (WA–22NCC–195–05/2017)

The defendant had sought to stay the execution of the consent judgment entered in this suit on the 30 May 2017, pending the disposal of another suit that it had filed (Kuala Lumpur High Court suit no. WA-22NCC-232-06/2017) to set aside the consent judgment (‘suit 232’).

I had allowed the defendant’s application, and set out the grounds for my decision. 2 Brief facts

This was one of the many suits that were filed sometime this year pertaining to the defendant company. Suffice for me to state that the suits were in gist pertaining to the fight to gain control of the defendant company.

In this suit, the plaintiff’s claim was premised on two loan agreements between it and the defendant. The first loan was for RM2,500,000.00, and the second one for RM15,500,000.00. The signatories for the both agreements were Datin Chan Chui Mei (‘Datin Chan’) for the plaintiff, and Dato’ Eii Ching Siew @ Yii Ching Siew (‘Dato Eii’) for the defendant.

Both parties subsequently entered into a settlement agreement, where the defendant acknowledged owing the plaintiff RM18,000,000.00, and that it agreed to pay through an issuance of 45,000,000 ordinary shares worth RM0.25 each at the value of RM0.40 per share in the defendant company. This was however subject to the approval of the defendant’s shareholders. The defendant failed to obtain its shareholders approval within the stipulated time. This led to the plaintiff filing this suit, to claim for the sum of RM18,000,000.00 from the defendant.

The plaintiff had also filed an application for a mareva injunction against the defendant on the 29 May 2017, which was three days after it had filed the writ of summons and 3 statement of claim. Based on the certificate of urgency, the application was fixed for hearing the very next day on the 30 May 2017. The application had apparently been served on the defendant, as its counsel was present on the hearing date. Counsel for both parties then informed the court that they have reached a settlement based on the draft consent judgment presented to the court. Consent judgment was then recorded based on the terms of the draft consent judgment. It was at that point in time, quite a quick disposal of a suit, as it had taken merely 5 days to conclude.

It would be necessary to briefly outline the events leading to the defendant’s application.

Prior to 30 May 2017, the defendant’s board of directors comprised of three individuals, namely Dato Lee Fong Yin @ Lee Vun Ya, Dato’ Koh Mui Tee (‘Dato’ Koh’) and Datuk Lee Hwa Chong (‘Datuk Lee’). An extraordinary general meeting was held on the 30 May 2017 (‘the EGM’), whereDato’ Koh and Datuk Lee were removed as directors by a majority vote of 91.48%. Seven new directors were appointed to the board.

The defendant claimed that the former directors who were subsequently removed at the EGM were the ones who had appointed the previous solicitors. It was also alleged that 4 they were the ones responsible in instructing the previous solicitors to enter into the consent judgment.

One of the many suits filed in relation to the defendant was presided by Justice Lau Bee Lan, who on the 28 June 2017, declared among others, that any meetings held by the defendant from its Annual General Meeting on 30 March 2017 without the presence of Dato’ Eii were invalid, null and void. The defendant therefore contends that any acts done by the defendant when Dato’ Koh and Datuk Lee were in control were invalid, null and void, including the appointment of the solicitors for this suit and the subsequent entering of the consent judgment.

The defendant claimed that the loan agreements were a sham. The loans were taken up to pay the agency fees amounting to RM3.05 billion to twenty three companies incorporated in the Republic of China. The defendant had apparently entered into twenty-three exclusive agency agreements with these twenty-three Chinese companies. Now the terms and mechanism of these agency agreements are not entirely crucial for the purposes of this application, save that the fee payable to these twenty three Chinese companies were to be paid to twenty three of their wholly owned subsidiaries incorporated in Malaysia (‘twenty three local beneficiaries’).

One of the former director, namely Dato’ Koh, had entered into twenty three settlement agreements with the twenty 5 three local beneficiaries, where it was agreed that the defendant would allot and issue ordinary shares of the defendant. Incidentally, these settlement agreements with the local beneficiaries were also entered on the same day as the settlement agreement with the plaintiff here in respect of the RM18,000,000.00loans.

It was Dato’ Koh who was responsible for these settlement agreements. The solicitors who acted for the defendant was a firm called Messrs Koh & Associates, which apparently was Dato’ Koh’s own firm. The firm had also charged a hefty fee of RM1,285,000.00.

There were many more allegations made by the defendant, but suffice to state that the defendants alleged that the loan agreements between the defendant and plaintiff were fraudulent transactions. Apparently, the sole signatory of the bank accounts for the twenty-three local beneficiaries was Datin Chan.

Datin Chan’s activities caught the attention of the Securities Commission (‘SC’), which subsequently resulted in the SC commencing a suit against her for alleged breaches under s. 179, 317A and 370 of the Capital Markets and Services Act

The suit pertained to the loan agreements between the defendant and plaintiff that were mentioned earlier. The SC managed to obtain a mareva injunction against Datin Chan in October 2016. 6 [16] The defendant contends that the consent judgment was part of a web of conspiracy and fraud between the former directors, Datin Chan and the plaintiff, with the intention of injuring the defendant for their benefit. The defendant also alleged that the former directors had clearly flouted their fiduciary duties, and did not act in the best interest of the defendant. [17] The defendant has also been classified as a PN17 company, and given up to December 2017 to regularise its affairs. It contends that the impact on the defendant would be irreversible, if a stay is not granted, as it will derail its regularisation plan. This is due to the fact that it would need to cough up the judgment sum, which would cripple its plans to put the company back into the black. [18] The defendant in urging this court to stay the execution of judgment, stated that there is a need for the court in suit 232 to make a finding on the following issues:-

Whether the loans taken by the defendant from the plaintiff were fraudulent transactions;

Whether the plaintiff was attempting to circumvent the SC’s action against Datin Chan;

Whether the consent judgment was a collateral attack on the mareva injunction granted in the SC suit; 7

Whether the consent judgment was an attempt to cloak the loan transactions into a genuine transaction for Datin Chan’s benefit; and

Whether the plaintiff had abused the court’s process to perpetuate fraud. [19] The defendant also contended that suit 232 and the mareva injunction obtained by SC would be rendered academic and superfluous respectively, if a stay was not granted. The plaintiff’s response [20] The deponent for the plaintiff’s affidavit was Datin Chan. She alleged that the EGM and its results were manipulated. She also contended that the consent judgment was regularly entered into, and that it was made pursuant to instructions given by those in control of the defendant at the material time. [21] The plaintiff also refuted the defendant’s allegation pertaining to the loan agreements between the defendant and the plaintiff, and highlighted that the defendant’s directors’ report had acknowledged the loan agreements. [22] As for the SC’s suit against her, Datin Chan contended that it was taken out of context, and that the allegations made were irrelevant. She also pointed out that mareva injunction was merely an interim order, and that there should not be a 8 presumption of guilt until the suit has reached its conclusion. Further, she highlighted the fact that the SC’s suit was against her personally, and not against the plaintiff, and that it should not cast any aspersion on the plaintiff. [23] The defendant in reply stated that Datin Chan owns 99% of the shares in the plaintiff and is also a director. The defendant takes the view that Datin Chan is the alter ego of the plaintiff, as it is a dormant company. [24] In respect of Justice Lau Bee Lan’s decision, she contended that the aggrieved party has filed an appeal. On this point, the defendant had in its affidavit in reply stated that it had questioned the authority of the solicitors who had filed the notice of appeal on its behalf, as it had not instructed any firm to do so. The defendant had as such warned the firm not to take any further action without a proper authorisation from the defendant. Findings [25] The first issue raised by the plaintiff is the authority of the defendant’s current solicitors, Messrs Munhoe & Mark, to act for the defendant. I noted that this objection was not raised in any of the plaintiff’s affidavit. In fact, the plaintiff’s counsel had never once raised or made known an intention to raise this objection during any of the case managements for this application. On this point alone, I find that they should be 9 precluded from now raising this issue. I will nevertheless for completeness address the objection. [26] It was submitted that the defendant’s current solicitors, had never filed a notice of change of solicitors to put on record that they have taken over conduct from the previous solicitors. The Court of Appeal’s decision in Lagenda Kencana Sdn Bhd v Peter’s Holdings Sdn Bhd [2012] 4 MLJ 855was relied on. [27] Briefly, in that case, the appellant who was the plaintiff in the High Court suit, had applied to set aside the consent order that was entered in the High Court. The firm that initially acted for the appellant had been dissolved. One of the lawyer then joined another firm, which then proceeded to act for the appellant without the appellant’s knowledge. This new firm then proceeded to withdraw the appellant’s suit during trial with the respondent’s consent. This was done without the appellant’s knowledge or authorisation. [28] The appellant’s application to set aside the consent order was dismissed by the High Court, and hence its appeal. The Court of Appeal noted that the new firm did not file a notice of change of solicitors. The appellate court in allowing the appellant’s appeal, held that the requirement to file a notice of change of solicitors as provided for under O. 64 r. 1 of the then Rules of High Court 1980 is a mandatory rule. The non-filing of the notice of change was not a mere irregularity, and that its non-compliance had occasioned a substantial 10 miscarriage of justice on the appellant. The Court of Appeal further held that the new firm has no locus standi to act for the appellant, and that the appellant had suffered a grave injustice when the consent order was entered without its knowledge or authorisation. [29] I am of the view that the facts of the Lagenda Kencana case (supra) can be distinguished. In that case the appellant was aggrieved, as it had no knowledge of the new firm acting for it. More importantly, the appellant had never given any instructions to the new firm to withdraw its suit through a consent order. The pertinent point to note in the Lagenda Kencanacase is that the appellate court held that the new firm had no locus standi by virtue of the fact that the appellant had not instructed it. The fact that it had not filed the notice of change of solicitors supports this fact. The pertinent point is the authority to act. The primary question is whether the solicitors have been duly authorised by their client to act. [30] In this case, there is no issue of Messrs Munhoe & Mark’s authority to act for the defendant. Conversely, it was the previous solicitors authority to act for the defendant that was questioned. Zakaria Sam JC (as he then was) in Jutamark Sendirian Berhad v Ironwood Shipyard Sdn Bhd [2001] MLJU 447 held: “The rationale behind the filing of the notice of change or appointment of solicitors is to identify the counsels (sic) on 11 record and their address of service. The filing of the notice is important to avoid any confusion as to who actually is acting for a party. This is the spirit of O. 64 RHC”. I therefore find that the plaintiff’s objection is without merits. [31] The second point raised by the plaintiff is two prong. The plaintiff referred to O. 55 r. 16 Rules of Court 2016 and s. Court of Judicature Act 1964, and contended that an appeal shall not operate as a stay of execution. The second point raised is on the issue of whether the court is functus officio after the consent judgment has been recorded. The Federal Court’s decision in Badiaddin Bin Mohd Mahidin v Arab-Malaysian Finance Bhd [1998] 1 MLJ 393 was referred to in support of this proposition. In referring to the Badiaddin case, it was strenuously emphasized that this court is functus officio, as there was no application to set aside the judgment in this court. [32] The proposition that the court is functus officio would only apply in relation to the court where the consent judgment was entered. It is settled law that the court where the judgment or order was pronounced is functus officio, save for instances under the slip rule of the Rules of Court 2016, or a default judgment. [33] With respect, I am also of the view that the plaintiff had taken an oversimplified and selective reading of the Badiaddin case (supra).The apex court in Badiaddin also referred to its 12 own decision in Hock Hua Bank v Sahari bin Murid [1981] 1 MLJ 143, where it was held that a separate suit must be filed to set aside a judgment, if the party seeking to set it aside alleges that it was obtained by fraud, or where further evidence could not be adduced in the original suit. Now this was in the context of judgment. In the context of consent judgment, the Federal Court held that where the aggrieved party sought to prove that there were grounds that could vitiate such free consent, a fresh suit must then be taken up to set aside the judgment. One of the ground is fraud. I set out the relevant passage in the judgment by Peh Swee Chin FCJ to illuminate this point:- “The grounds referred to for setting aside a consent order of a judgment by consent are grounds which basically relate to consensus ad idem or the free consent of parties to a binding agreement or contract. It is elementary that if it is proved that there are grounds which vitiate such free consent, the agreement is not binding. Now a consent order or a judgment by consent us undoubtedly based on an agreement of both parties where consent to the agreement must or should have been free in the first place. If the agreement upon which a consent order or judgment by consent is based is vitiated by any ground recognised in equity as vitiating such free consent, such as fraud, mistake, total failure of consideration (see Huddersfield Banking Co Ltd v Henry Lister & Sons [1895] 2 Ch 273 and the cases cited therein), then such a perfected order or judgment by consent could be set aside in a fresh action filed for the 13 purpose. Grounds which would vitiate such free consent should also include misrepresentation, coercion, an undue influence and other grounds in equity” [p 418-419] (emphasis added). [34] Here, the defendant has clearly sought to establish fraud on the part of the plaintiff in entering into the consent judgment. The plaintiff nevertheless contended that the defendant had failed to substantiate its allegation of fraud in respect of the loan, and maintained that it was a bona fide transaction. This response is bereft of merits. The plaintiff will only need to prove its case in suit 232 at trial. It is not for this court to make a determination on contentious facts adduced through affidavit evidence; Seruan Gemilang Makmur Sdn Bhd v Kerajaan Negeri Pahang Darul Makmur [2016] 3 CLJ 1 (FC). [35] It is trite that an applicant seeking to stay the execution of a judgment can only succeed, if it can demonstrate special circumstances; Kosma Palm Oil Mill Sdn Bhd v Koperasi Serbausaha Makmur Bhd [2004 ] 1 MLJ 257 (FC). What amounts to special circumstances must be looked at on a case-to-case basis. [36] The defendant contended that there are special circumstances to support its case for a stay, in that the plaintiff has perpetuated fraud through the consent judgment by colluding with the former directors who acted without authority. 14 [37] In Citibank N.A v Mrs N.D Chandrasegaran Nee Nirmala Devi a/p P. Ratnadurai [2007] 8 MLJ 149, the plaintiff had sought to stay the execution of the order for sale of her property, pending the determination of her impeachment proceedings of all order judgments or decrees granted by the High Court. The plaintiff alleged that the power of attorney that the defendant had given to her attorney was fraudulent. Abdul Malik Ishak J (as he then was), in granting the stay, held that the plaintiff would suffer irreparable damage which could not be compensated with costs, and that the impeachment proceedings would be rendered nugatory, if a stay is not granted. His lordship held that if proceedings were allowed to continue, there is a real danger of the alleged fraud being perpetuated against the court and the plaintiff, and that that these are special circumstances which warranted a stay. [38] The grounds put forward in the Citibank case are quite similar to the one here. I too find that the grounds put forward by the defendant are special circumstances that warrant a stay of execution of the judgment. The allegations of fraud are serious and demands further deliberation and determination in suit 232. Suffice to add that suit 232 would be rendered nugatory if a stay is not granted. 15 Conclusion [39] For the reasons that I have set out, it is my finding that the defendant has adduced sufficient grounds for a stay. I have as such allowed the defendant’s application with costs of RM5,000 subject to allocatur. Dated: 16 November 2017. -sgd- (Mohamed Zaini Mazlan) Judge Kuala Lumpur High Court (Commercial Division) Counsel for the plaintiff Adrian Silvarajoo and Haselyn Binti Mohd Ali [Messrs Ramli Yusuff & Co] Counsel for the defendant Wong Mun Hoe and Long Chay Jo [Messrs Mun Hoe & Mar]