Stone Master Corporation Berhad v Dato' Koh Mui Tee dan 3 yang Lain (WA-22NCC-232-06/2017)

DATO‟ KOH MUI TEE

2.

3.

STARFIELD CAPITAL SDN BHD DEFENDANTS JUDGMENT Introduction [1] The first and second defendants („the applicants‟), have sought to stay this suit pending the disposal of the Kuala Lumpur High Court Suit No. WA-22NCC-335-09/2016 („the applicants‟ application‟). The latter is a suit by the Securities Commission Malaysia („SC‟) against the third defendant here. [2] I had dismissed the application for the reasons set out in this judgment. 2 Brief facts [3] The premise of the applicants‟ application is the Securities Commission Malaysia suit against the third defendant in the Kuala Lumpur High Court Suit No. WA-22NCC-335-09/2016 („the SC suit‟). It would be necessary to briefly set out the background that led to the SC suit and this suit. I will for this purpose, elicit them from the statement of claim filed in both suits. [4] The third defendant owns 99% of the fourth defendant‟s shares and is claimed to be the mind behind it. She is also the director. [5] The plaintiff entered into twenty-three „Exclusive Agency Agreements‟ with twenty-three companies based in China in early 2016. Under the agency agreements, the plaintiff was obliged to pay what has been described as „Initial Agency Fees‟ totalling RM3.05 billion to these twenty-three companies. [6] The plaintiff however needed to pay a non-refundable deposit of RM11.59 million, and that the balance RM3.04 billion „Initial Agency Fee‟ is to be paid within seven days from the dates of the agency agreements, or pursuant to any extension of time given. The deposit and „Initial Agency Fee‟ however, was to be paid to twenty-three wholly owned subsidiaries of the China companies that are incorporated in 3 Malaysia. The fourth defendant was alleged to have loaned the plaintiff RM18 million to enable the latter to pay the „Initial Agency Fee‟ („the Starfield loan‟). [7] Before the 7 days was up, the fourth defendant entered into a settlement agreement with the plaintiff for the RM18 million loan. Under this settlement agreement, the plaintiff was to allot and issue ordinary shares to the twenty-three subsidiary companies in Malaysia. [8] In the SC suit, it was alleged that the initial RM11.54 of the RM11.59 initial non-refundable deposit paid by the plaintiff to the twenty-three subsidiary companies were traced to the third defendant. It was also alleged that the third defendant was the sole signatory to the twenty-three subsidiary companies‟ bank accounts, and that she had subsequently transferred the funds to her personal account. [9] The SC alleged that the third defendant had breached s. 179, s. 317A and s. 370 of the Capital Markets and Services Act 2007 („CMSA 2007‟) in respect of the Starfield loan. In essence, the SC claims that the third defendant had defrauded the plaintiff in creating this fictitious loan for her self-interest and obtaining secret profits out of it. [10] The SC claims for amongst others, a declaration that the third defendant had breached 179, s. 317A and s. 370 CMSA 2007, restitution to those adversely affected by her actions, 4 payment of RM11.54 million to it and that the sum be held in trust for the plaintiff. [11] As for this suit, the plaintiff is seeking to set aside the consent judgment entered between it and the fourth defendant on the 30 May 2017 in the KLHC Suit No. WA- 22NCC-195-05/2017 („the Starfield suit‟). In that suit, the fourth defendant as the plaintiff, had made a claim for the Starfield loan. The consent judgment was for a sum of RM18 million in favour of the fourth defendant. [12] The plaintiff claimed that the consent judgment was entered when the applicants, who were two of the three directors of the plaintiff then, were in control of the plaintiff. [13] The plaintiff alleged that there were material and serious discrepancies committed by them. For example, it was claimed that no meetings were held by the board of directors to consider and decide on the appropriate course of action for the Starfield suit. [14] The plaintiff also alleged that the applicants were in cohorts with the third defendant, as they knew that the Starfield loan was a sham transaction designed to benefit the third defendant, at the expense of the plaintiff. The plaintiff also claimed that the applicants had acted hastily in instructing the plaintiff‟s then solicitors, to enter into the consent judgment on the 30 May 2017. Apparently, an Extraordinary General Meeting had been called, where the primary agenda 5 was to remove the applicants as the plaintiff‟s directors. The plaintiff claimed that the applicants had moved with unduly haste knowing that their removal as directors was due to happen. [15] Incidentally, the Starfield suit was filed on the 26 May 2017. An application for a mareva injunction was also immediately filed on a certificate of urgency and heard on the 30 May

The plaintiff claimed that the applicants had on their own accord appointed solicitors to act for the plaintiff, and then instructed them to enter into a consent judgment with Starfield. [16] The plaintiff contended that the Starfield suit and the consent judgment entered was designed to cloth the Starfield loan with legitimacy, and that it was also done to frustrate the SC suit. In essence, it was alleged that the first, second, third and fourth defendants had conspired against the plaintiff. [17] Through this suit, the plaintiff is seeking to set aside the consent judgment, and in the alternative, for the applicants to jointly and severely indemnify the plaintiff for RM18 million, and that they be ordered to pay the sum to the fourth defendant. Issues [18] There is only significant issue here, namely, whether there are special circumstances to warrant a stay of this suit pending the determination of the SC suit. 6 [19] Both parties are in agreement that the applicants would need to demonstrate special circumstances in order to warrant a stay. This is of course in consonant with decided authorities; see for instance All Persons in Occupation of the House and the Wooden Stores Erected on a Portion of Land Held Under Grant No. 26977 for Lot 4271 in the Township of Johor Bahru, Johor v Punca Klasik Sdn Bhd [1996] 4 MLJ 533 (HC). [20] In exercising my discretion as to whether to grant a stay of proceedings, I must take heed of the need to ensure that the outcome would be fair to both parties and that it would be just and reasonable to do so. Abdul Malik Ishak J (later JCA) in MCAT GEN Sdn Bhd v Celcom (Malaysia) Bhd (Part 2) [2007] 8 MLJ 107 held:- “The law relating to the granting of a stay of proceedings is settled. The court must exercise its discretion as to what is the fairest mode, after taking into consideration all the relevant matters, which exists between the parties. Put differently, the court may exercise ifs discretion whenever it is just and reasonable to do so, so as to ensure that justice is done to both the parties. It is entirely an exercise of discretion, pure and simple. These principles of law are reflected in Halsbury‟s Laws of England (fourth Ed. Reissue vol 37) at p 290 at para 926: 7 In general, A stay of proceedings arises under an order of the court which puts a stop or „stay‟ on the further conduct of the proceedings in that court at the stage which they have then reaches, so that the parties are precluded thereafter from taking any further step in the proceedings, The object of the order is to avoid the trial or hearing of the claim taking place, where the court thinks it is just and convenient to make the order, to prevent undue prejudice being occasioned to the opposite party or to prevent the abuse of process.” (p111) [21] The thrust of the applicants‟ application is as follows:-

The duplicity of decisions which could result in contradictory decisions in the SC suit and this suit, and

That they would be prejudiced and suffer injustice in this suit. [22] The applicants contended that the facts pleaded in the SC suit and this suit are essentially the same, in particular to the alleged fraudulent and fictitious Starfield loan. In particular, the applicants assert that the plaintiff had pleaded the facts relied by the SC in the SC suit as the background to its case. [23] They also contended that the majority of the documents that the plaintiff will seek to rely in this suit, are the cause papers and affidavit evidences filed by the SC in the SC suit, and 8 that this is evidence that this suit is grounded upon the fraud sought to be established by the SC in the latter‟s suit. [24] In gist, the applicants surmised that the allegations of fraud pertaining to the Starfield loan should be decided in the SC suit first before this court makes a finding whether the defendants in this suit were guilty of collusion to injure the plaintiff. Findings [25] I had carefully perused the pleadings in the SC suit and this suit. The plaintiff had no doubt referred to the facts set out by the SC in the SC suit, in particular the facts pertaining to the Starfield loan. The plaintiff had alleged that the Starfield loan was a sham transaction, similar to the allegations levelled by SC against the third defendant in the SC suit. [26] However, this is where the similarity stops. Unlike the SC suit, where a declaration is amongst others sought to declare the Starfield loan and its related transactions sham, the plaintiff here is not seeking for the same relief. In this suit, the plaintiff is merely seeking to set aside the consent judgment, and in the alternative for the applicants to indemnify it to the tune of RM18 million. [27] Although the plaintiff had set out the background leading to the Starfield loan, that is not the primary issue for determination in this suit. In fact, I do not need to look any 9 further than the issues that the parties have drafted and agreed for trial. This suit has actually been set down for trial on 7, 8, 13 and 24 March 2018, when the applicants‟ application was heard and decided on the 23 February 2018. The items set out in the “Issue to be tried” dated 12 February 2018 are set out in verbatim:-

Whether D1 and/or D2 have the authority to enter and/or cause the Plaintiff to enter into the consent judgment dated 30.5.2017 with D4 (“Impugned Consent Judgment”).

Whether D1 and/or D2 have breached their fiduciary duty and duty of care and/or abused their power in causing he (sic) Plaintiff to enter into the Impugned Consent Judgment.

Whether the Impugned Consent Judgment is valid.

Whether the entering into the Impugned Consent Judgment is an abuse of the Honourable Court‟s process by the Defendants.

Whether there is fraud and/or conspiracy amongst the Defendants in causing and/or result in the Plaintiff entering into the Impugned Consent Judgment. [28] It is evident from the „Issues to be tried‟ itself that the legitimacy of the Starfield loan and its related transactions is 10 not an issue to be determined by this court. The primary issue would be the acts of the applicants that led to the consent judgment being entered. [29] The Starfield loan and its related transactions are significantly issues that are pertinent in the SC suit. I accept that the plaintiff has made references to the Starfield loan and its related transactions but what has been pleaded as facts would not necessarily be an issue to be deliberated. The issues in the “Issues to be tried‟ should be the main focus. [30] I therefore find that there is no inherent danger of there being a duplicity of action or „duplicity of decisions‟ as contended by the applicants. I am at this stage certain that there are none. [31] There are certain other factors that weighed against the applicants‟ application. Firstly, it is obvious that the applicants and the fourth defendant are not parties to the SC suit. Secondly, the cause of action in the SC suit and this suit are rather distinctive. The SC suit is premised on what has been alleged as breaches under the CMSA 2017, where else in this suit it is only for the setting aside of the consent judgment. Thirdly, the plaintiff‟s main grievance is levelled against the applicants here. It is the conduct and acts committed or not committed by the applicants that is the focus as opposed to the SC suit, where the only focus is on the third defendant. 11 [32] I also find that it would not be just and fair for this suit to be held back pending the outcome of the SC suit. The plaintiff is faced with a RM18 million judgment. Conversely, the fourth defendant has a RM18 million judgment to realise. It is only just that this suit proceed to its conclusion to enable the parties to come to a closure. Conclusion [33] It is patent that the applicants have failed to make out any special circumstances to justify their application. I had therefore dismissed the applicant‟s application with costs of RM2,000 subject to allocatur. Dated: 3 April 2018. (Mohamed Zaini Mazlan) Judge Kuala Lumpur High Court (Commercial Division) Counsel for the plaintiff Wong Mun Hoe and Long Chay Jo [Messrs Munhoe & Amar] Counsel for the first and second defendants Yao Kim Hock and Chan Yee Hang [Messrs Koh& Associates]