Tan Mei LI & 2 Lagi v Ksch Property Sdn Bhd (W-02-(NCC)(W)-1192-06/2017)

1 IN THE COURT OF APPEAL, MALAYSIA (APPELLATE JURISDICTION) CIVIL APPEAL NO: W-02-(NCC)(W)-1192-06/2017 BETWEEN

1. TAN MEI LI (I.C. NO. 670204-10-5422)

2. TAN HAN KWAN (I.C. NO. 711104-10-5829)

3. TAN CHOR ENG (I.C. NO. 330723-01-5129) … APPELLANTS AND KSCH PROPERTY SDN BHD (PREVIOUSLY KNOWN AS BLUEFIRE DEVELOPMENT SDN BHD) (COMPANY NO.: 663455-M) … RESPONDENT [In the Matter of the High Court of Malaya at Kuala Lumpur Civil No: WA-22NCC-93-03/2016 Between KSCH Property Sdn Bhd (Previously known as Bluefire Development Sdn Bhd) (Company No.: 663455-M) … Plaintiff

1. And Tan Mei Li (I.C. No. 670204-10-5422)

2. Tan Han Kwan (I.C. No. 711104-10-5829)

3. Tan Chor Eng (I.C. No. 330723-01-5129) … Defendants] 2 CORAM: UMI KALTHUM BINTI ABDUL MAJID, JCA ZALEHA BINTI YUSOF, JCA MARY LIM THIAM SUAN, JCA JUDGMENT OF THE COURT [1] Following a full trial, the respondent’s claim for inter alia declaratory orders that the appellants had made a payment of RM2 million without its authorization and/or acted contrary to the expressed mandate given by the respondent on 23.5.2005; and that the appellants had wrongfully and/or unlawfully and/or fraudulently authorized and/or caused the respondent to pay out the sum of RM2 million, was allowed. We, on our part, unanimously allowed the appeal with costs after hearing the respective parties and having carefully considered their oral and written submissions against the records of appeal. These are the reasons for our decision. Factual background [2] The respondent was incorporated on 19.8.2004. It is a property investment and development company. The 3rd appellant and his two daughters were the shareholders of the respondent. Together they held 70% of the respondent’s shares. One of the two daughters is the 1st 3 appellant. In fact, she held at one time 37% of the respondent’s shares. The 2nd appellant is a family friend; he is also a shareholder of the respondent. [3] On 23.5.2005, the respondent, then known as Bluefire Development Sdn Bhd, resolved at its Board of Directors’ meeting that it will purchase a plot of freehold land measuring approximately 3,372 square meters and situated at Lot 14 Lorong Enau, Kuala Lumpur [“the said Property”] for RM5.3 million from Dazzling Symphony Sdn Bhd. Directors’ and Members’ resolutions authorizing and/or mandating the respondent to make that purchase were duly passed. The resolutions specifically authorized and mandated the 3rd appellant to execute the relevant documents for and on behalf of the respondent and further to do all acts and deeds necessary or expedient to carry the purchase into effect with full power to assent to any conditions, modifications and variations as may be required and in the best interest of the respondent. [4] On 24.5.2005, the respondent entered into a sale and purchase agreement with Dazzling Symphony Sdn Bhd for the purchase of the said Property at RM5.3 million [SPA]. The 3rd appellant signed on behalf of the respondent and a sum of RM530,000.00 was paid as deposit for the purchase. The respondent was however, not able to raise money for the full balance purchase price. The 3rd appellant and his daughters were only able to come up with RM2.6 million. [5] This was where one Ch’ng Kong San [Ch’ng] came in. By a verbal agreement, Ch’ng is said to have agreed to assist with the balance payment of RM4.77 million as well as the stamp duty, legal fees and any 4 associated costs in relation to the development of the said Property. In exchange, he wanted 80% equity or shareholding in the respondent. [6] The appellants and the 3rd appellant’s other daughter, Tan Su Li, agreed even though they claimed that the RM4.77 million to be paid by Ch’ng supposedly did not reflect or was not directly proportionate to the 80% shareholding in the respondent. The appellants also claimed that in that verbal agreement, the parties had also agreed that the appellants and Tan Su Li’s investment in the respondent for RM2.6 million representing 35% of the purchase price of the said Property will be preserved and not diluted, and that they will not be required to inject further monies into the respondent. [7] This whole arrangement was done orally – “Verbal Agreement”. The terms and conditions of this Verbal Agreement is the subject matter of another suit brought by the appellants and Tan Su Li against Ch’ng at the High Court at Kuala Lumpur Civil Suit No: 22NCC-200-06/2014 [“Suit 200”]. Initially, Suit 200 was also initiated against the respondent but the respondent has since ceased to be a party. [8] Aside from being shareholders, the 1st and 3rd appellants were the first directors of the respondent while the 2nd appellant was director from 19.7.2005. On 16.9.2005, Ch’ng became a substantial shareholder of the respondent, after the appellants and Tan Su Li had transferred the requisite volume of their shares to him, to his wife, Teh Siew Hoe, and to one Romson Gan Kian Teck, as nominated by Ch’ng. 5 [9] On that same day, Ch’ng, his wife and one Lim Choo Kiang were also appointed directors of the respondent. The following day, the 2nd and 3rd appellants resigned as directors of the respondent. The 1st appellant, on the other hand, was retired as director by the respondent’s 9th Annual General Meeting held on 20.6.2014. [10] The 1st and 2nd appellants together with Tan Su Li continue to hold shares in the respondent. [11] Going back to the SPA, on 23.9.2005, Ch’ng paid the balance sum of RM4.77 million to Dazzling Symphony Sdn Bhd on behalf of the respondent. [12] On 30.9.2005, the law firm of Messrs. Steven Tai, Wong & Partners, solicitors representing the respondent paid an “additional sum” of RM2 million to Messrs. LH Chua, the solicitors for Dazzling Symphony Sdn Bhd. This RM2 million had earlier been paid by the respondent on 9.5.2005 to Messrs. Steven Tai, Wong & Partners. [13] The said Property was subsequently and uneventfully transferred and registered in the respondent’s name. The respondent’s claim [14] The RM2 million that was paid on 30.9.2005 lies at the heart of disputes between the parties in the present appeal. It is impugned 6 [Impugned Payment]. The respondent alleged that this payment of RM2 million was made without proper authorization and mandate, and despite there being no obligation on the part of the respondent to make this or any additional payment other than the amounts stipulated in the SPA. It was also alleged that Ch’ng had paid the RM4.77 million on behalf of the respondent to Dazzling Symphony Sdn Bhd because the respondent was said to be “impecunious at the material time”. This is how the allegations arose. [15] In 2014, the appellants and Tan Su Li commenced Suit 200 wherein it was claimed that Ch’ng is in breach of the Verbal Agreement. The case went to trial. In the course of the trial, the respondent claimed that the appellants “attempted to justify and/or legitimize the Impugned Payment [sic] in inconsistent and/or contradictory manner.” First, by claiming that it was “Agreed Agency Fees”, later as “Development Expenditure” and “Consultancy Fees”. This was said to be in “stark contrast to the purpose of the Impugned Payment as iterated by the 3rd defendant and as detailed in the audited accounts of the plaintiff as at 31.12.2005 both in terms of intention, purpose as well as the terminology used to define the Impugned Payment.” [16] The respondent then caused its solicitors to seek and obtain clarification from the appellants on the differing and contradictory reasoning behind the Impugned Payment. The appellants responded but the respondent was not satisfied with the explanation given, concluding that there was never any form of consultancy as claimed by the appellants, that the payment was not for “Agreed Agency Fees” as claimed but for some unknown ulterior purpose. The respondent then 7 concluded that the Impugned Payment ought not to have been made by the respondent at the time and that the appellants had committed the tort of deceit in causing the respondent to make the Impugned Payment illegally and/or unlawfully and/or fraudulently and/or contrary to the express mandate given by the respondent; that such payment was unwarranted. [17] The respondent further alleged that the appellants caused the respondent to make the Impugned Payment knowing or without belief in its truth or was reckless or careless to the truth that there was no contractual obligation or otherwise on the respondent’s part which necessitated or obligated the respondent to make the payment. The use of the various terminology to describe the Impugned Payment was an “attempt to mask the purpose of the Impugned Payment”; that the appellants had attempted and/or created a false impression as to the actual nature, intent and purpose of the Impugned Payment. [18] The respondent alleged that after the Impugned Payment was made, the respondent suffered impecuniosity, to a state where it was unable to pay the balance purchase consideration for the said Property and that it was only with the assistance of Ch’ng that such balance was paid. [19] The respondent sued inter alia the former directors, seeking to recover the RM2 million, together with various declaratory orders and an order for payment of exemplary damages. [20] The appellants denied the claim and inter alia pleaded that: 8 i. the purchase consideration of the said Property was RM7.3 million and not RM5.3 million; ii. the additional charge of RM2 million had to be paid in cash, as imposed by Dazzling Symphony Sdn Bhd; iii. at the material time, the said Property had a valid transferable Development Order issued by Kuala Lumpur City Hall which allowed the respondent to commence construction of a 5-storey apartment with one level of basement parking lots on the said Property; iv. solicitors were involved at all stages of the purchase of the said Property; v. the appellants acted in a bona fide manner whilst being the only directors, members and directing minds of the respondent at the material time; vi. the appellants were the lawful and proper directors of the respondent at the material time; vii. such payment was at all times within the respondent’s knowledge; viii. Ch’ng and the respondent were aware at all times of the nature of the transaction, the circumstances and factual matrix regarding the RM2 million payment; ix. a valuation report for the price of the said Property had been prepared at the material time; x. the RM2 million was at all times known and approved by Ch’ng at the material time in whatever form that it had taken place; 9 xi. the RM2 million was paid in part consideration of the said Property; xii. the RM2 million was never a benefit obtained by the appellants; xiii. the respondent, its shareholders and directors were all aware of the payment of the RM2 million at the material time and had authorized and/or approved the same; xiv. the respondent has obtained a substantial gain from the SPA in that the value of the said Property has now exceeded the purchase consideration of RM7.3 million. [21] Further, the appellants claimed that Ch’ng had paid the RM4.77 million not because the respondent was impecunious but because of the terms of the Verbal Agreement. It was also alleged that the respondent’s claim is time-barred and that section 29 of the Limitation Act 1953 does not apply. Decision of the High Court [22] Four issues for determination were crystallized from the nine that were identified by the parties; namely: i. Whether the respondent’s claims were barred by limitation or by the doctrine of laches [“the limitation issue”]; ii. Whether the purchase consideration of the said Property was RM7.3 million or RM5.3 million [“the actual consideration issue”]; 10 iii. If the purchase consideration was RM5.3 million, whether the additional payment of RM2 million paid out by the appellants was properly authorized by the respondent and for a legitimate and lawful purpose [“the authorization issue”]; iv. Whether the appellants were in breach of their fiduciary duty as directors of the respondent and/or had committed fraud when they caused the respondent to make the payment of RM2 million [“the fiduciary issue”]. [23] The hearing lasted nine days with a total of seven witnesses called. The respondent called one witness while the appellants called six. [24] The respondent’s sole witness was Lee Yen Mei [PW1]. She is the non-executive director of the respondent. She maintains the records of the respondent having joined the respondent in 2005 as its Accounts Executive, and this was after Ch’ng had become the respondent’s substantial shareholder. PW1 was subsequently appointed a director of the respondent on 18.9.2009. [25] The appellants called four witnesses, namely Stephen Wong Yee On [DW1] from Messrs. Steven Tai, Wong & Partners; Chua Leong Hong [DW2] from Messrs. LH Chua; Tan Keng Heng [DW3] a valuer from Allied Property Consultant (Selangor) Sdn Bhd who testified on the value of the said Property in 2015; Long Tian Chek [DW4], another valuer but this time from Henry Butcher Malaysia Sdn Bhd who testified on the value of the said Property in 2005; besides the 2nd and 3rd appellants testifying respectively as DW5 and DW6. 11 [26] The appellants “vigorously challenged” PW1’s competency to testify on behalf of the respondent as she had no personal knowledge. The challenge was rejected by the learned Judge on the basis that she was testifying from the accounts that she had accessed to and because she was a director of the respondent. [27] The learned Judge similarly rejected the appellants’ submission that an adverse inference ought to be drawn from the respondent’s failure to call Ch’ng, as he had only become the respondent’s director and shareholder after the RM2 million had already been paid out. [28] The learned Judge found on all fronts for the respondent and gave the reliefs as sought including an order that the appellants pay aggravated damages to the respondent; such damages to be assessed by the Senior Assistant Registrar. According to the learned Judge: i. the Board of Directors’ resolution dated 23.5.2005 only approved the SPA for a consideration of RM5.3 million and not RM7.3 million; ii. the SPA itself plainly stated that the purchase price of the said Property is RM5.3 million; iii. there was no Board of Directors’ resolution or even members’ resolution approving the payment of the RM2 million in which case the appellants had acted in excess of their authority; 12 iv. as a result of this payment of RM2 million, the respondent was short of funds and could not pay the balance 90% of RM4.77 million; v. the appellants’ wrongful actions had therefore caused the respondent to be short of funds; vi. the RM2 million had been classified as “Agency” fee but the 1st and 2nd appellants as well as Tan Su Li had referred to it as “Consultancy” fee in the Suit 200 in order to “mask” the true nature of the payment; vii. there was no evidence to justify and connect the RM2 million to the SPA; viii. there was no written agreement on the RM2 million; ix. the respondent only discovered the fraud of the appellants when they testified in the Suit 200 in which case the claim was not barred by limitation or the doctrine of laches; x. the appellants had therefore acted fraudulently and in breach of their fiduciary duties when they caused the payment of the RM2 million and had wrongfully described it as “Agency” fee in the records. [29] The appellants, in particular the 3rd appellant, was found to have irrevocably undertaken, on 3.5.2005, to make the Impugned Payment to Messrs. LH Chua as “Agreed Agency Fees” upon the completion of the SPA. On 9.5.2005, the 3rd appellant, as director of the respondent, irrevocably instructed Messrs. Steven Tai, Wong & Partners to disburse the Impugned Payment that had been deposited with the solicitors to Messrs. LH Chua. 13 [30] Dissatisfied, the appellants appealed. Submissions of the respective parties [31] Before us, learned counsel for the 1st and 3rd appellants highlighted the following two points from their written submissions. [32] These appellants contended that the learned Judge had fallen into error in agreeing with the respondent because no case for fraud had actually been made out in the first place. Even if there was fraud, the appellants’ further contention was that the fraud would have been discovered with reasonable diligence at a much earlier date than claimed by the respondent in which case, the claim remained time-barred. See Court of Appeal’s decision in Lin Kai Wing & Anor v Lin Kai Lam & Ors [2016] 10 CLJ 77. [33] It was also contended that the learned Judge had failed to take into account inter alia the following: i. that at all material times, the decisions to enter into the SPA for RM5.3 million and to accommodate Dazzling Symphony Sdn Bhd’s request to pay the additional RM2 million fee were taken when the appellants’ family were the only shareholders and directors of the respondent; ii. that the learned Judge had actually accepted that the payment was at Dazzling Symphony Sdn Bhd’s request and 14 there was never any evidence that Dazzling Symphony Sdn Bhd would have agreed to proceed with the SPA if the RM2 million was not forthcoming; iii. the very fact that the payment was made to the solicitors and that a letter of undertaking to release payment on completion was required prior to the SPA being signed obviously points to the fact that Dazzling Symphony Sdn Bhd would not have signed the SPA but for the RM2 million being secured by such payment and undertaking; iv. that there was no evidence that the appellants personally gained anything from the payment; v. that on the contrary there was evidence that the appellants gave up and transferred 80% of their shares in the respondent to Ch’ng in order for Ch’ng to pay the balance 90% of the purchase price; vi. at all material times, the 1st and 3rd appellants’ family were in fact and substance the only persons liable to suffer loss by reason of the RM2 million payment; vii. the respondent never expected to have use of the RM2 million and did not suffer any “loss” as Ch’ng paid the balance purchase price and acquired 80% of the issued capital of the respondent from the 1st and 3rd appellants’ family; viii. the appellants had sought and agreed for Ch’ng to invest in the respondent and pay the balance purchase price under the SPA for the very reason that the respondent did not have sufficient funds; in which case, it is inconceivable that Ch’ng did not know that the respondent did not have funds; 15 ix. the failure to call Ch’ng attracted the invocation of adverse presumption under section 114(g) of the Evidence Act 1950; x. Ch’ng and PW1, the persons exercising management of the respondent, have had complete access to the books and accounts of the respondent from 2005; xi. audited accounts of the respondent were approved each year with no issues on the RM2 million payment until 2016 when evidence was received in Suit 200; xii. there was no evidence that the respondent had any business other than to acquire the said Property pursuant to the SPA with a view to development. Hence, the accounts and records would have been simple; xiii. it was never established in evidence what and how the difference in description of the fee was fraudulent, a breach of fiduciary duty or had caused any loss to the respondent; xiv. whatever the description, there was never an issue that the RM2 million which had been paid to the respondent’s solicitors prior to the execution of the SPA was paid to Dazzling Symphony Sdn Bhd’s solicitors on completion of the SPA. [34] Further, it was the appellants’ submission that the learned Judge had fallen into serious error in applying the strict corporate personality principles and holding that the appellants had defrauded and cheated the respondent when: 16 i. at all material times, when the alleged fraud and breach of fiduciary duty took place, the 1st and 3rd appellants’ family were the sole shareholders and directors of the respondent and hence would in effect be cheating themselves; ii. the alleged breaches of corporate procedures were not fraudulent but technical and had caused no real loss to the 1st and 3rd appellants and their family; iii. as the only shareholders and directors and had the appellants been aware of the requirements now complained of, the appellants could easily have cured any defect by calling an EGM to pass the requisite resolutions; iv. the fact of payment of the RM2 million and that the sum was no longer available was fully disclosed in the records and accounts and must have been known to Ch’ng and PW1 at all material times; v. the appellants and the respondent were fully aware that the respondent did not have sufficient available funds to meet the 90% balance purchase price and Ch’ng was invited specifically to provide the funds and to take over as 80% shareholder which he did in 2005; vi. by whatever name or description, the RM2 million was clearly a requirement of Dazzling Symphony Sdn Bhd and there was no evidence that the SPA could have proceeded based just on the RM5.3 million consideration without payment of the RM2 million; 17 vii. the evidence of the valuers was clear that the said Property has appreciated considerably in value and that the purchase consideration in the SPA was low; viii. in reality, given that the RM2 million was a sine qua non to the SPA, the decision to pay must surely have been in the interests of the respondent. [35] According to learned counsel, the learned Judge’s view that the appellants were hiding the truth from the respondent was actually an unrealistically formalistic view. This view ignored the reality that the appellants could never have hidden anything from the respondent because as the only shareholders and directors at the material time, they would in effect have only been hiding from themselves. In any case, they had nothing to hide. Up until the time Ch’ng became a shareholder and director, the commercial reality was that the appellants and the respondent “were one and the same”. [36] Learned counsel for the 1st and 3rd appellants submitted that the matter of the shortage of funds was the very reason why Ch’ng was brought in. Thus, this so-called hidden state of “impecuniosity” was quite unfounded and untrue. The fee, by whatever description, also had no impact on the respondent. It mattered not a jot whether the payment was a “Consultancy” or an “Agency” fee as it was paid with the knowledge and approval of the directors and shareholders of the respondent to Dazzling Symphony Sdn Bhd’s solicitors in conjunction with the SPA. 18 [37] Regardless the description of this payment, the appellants submitted that it was a payment which the directors made in the best interests of the respondent. And, this was said to be consistent with section 132(1) of the Companies Act 1965; see also Pioneer Haven Sdn Bhd v Ho Hup Construction Co Bhd & Anor [2012] 3 MLJ 616. [38] It was further submitted that the learned Judge had failed to ask whether refusing to “accommodate” Dazzling Symphony Sdn Bhd’s “request for the RM2 million and thereby losing the highly profitable purchase would have been a breach of fiduciary duty.” Similarly, the learned Judge failed to ask how the mere alleged wrong characterization of the RM2 million payment, even if true, was a breach of fiduciary duty which caused loss to the respondent. The learned Judge was also said to have fallen into error in failing to consider that the whole placement of the RM2 million in escrow with the solicitors and its release only on completion of the SPA showed that the payment was connected to and was a requirement for the SPA. [39] The above submissions were adopted by the 2nd appellant who added and emphasized that while the complaint of the respondent was the lack of authorization or absence of resolutions for the payment, PW1 had testified that the respondent’s claim was filed for the purpose of clarifying whether the RM2 million payment was for agency or consultancy fees because the discrepancy arose in Suit 200. Yet, PW1 had no knowledge of that suit rendering her evidence of no value. 19 [40] Further, the appellants consistently testified that the RM2 million was necessary to complete the sale and without which Dazzling Symphony Sdn Bhd would not have sold the said property; that Dazzling Symphony Sdn Bhd only wanted RM5.3 million recorded in the SPA; that the appellants had ostensible authority to commit the respondent to pay the RM2 million; and that fraud and breach of fiduciary duty were not proved. [41] These were the respondent’s responses. [42] First, the appellants’ defence runs afoul of the parole evidence rule by seeking to introduce oral evidence to contradict or vary the terms of the SPA. The documentary evidence clearly showed that the consideration was RM5.3 million and this was corroborated by the Directors’ and Members’ resolutions passed. Because of the existence of the entire agreement clause, the SPA must be construed within its four corners, literally and naturally. [43] Second, the defence that the appellants were aware and had consented to the Impugned Payment ignores the cardinal principle of company law that a company is a separate legal entity from its directors and shareholders. [44] Next, the trial Court doubted the truthfulness of the 2nd and 3rd appellants’ testimonies and the weight to be attached to their testimonies after finding “strikingly identical answers” to their evidence-in-chief. The Court made “one conclusion – that there must have been some kind of 20 deliberation or conferment between DW5 and DW6 when preparing the answers.” [45] As for the arguments on limitation and laches, learned counsel for the respondent contended that the trial judge had made findings of fact which were not only correct but being findings of fact, ought not to be disturbed on appeal. Although PW1 was aware that the book entry of the RM2 million into the financial statement as ‘development project costs in 2005’, the trial judge had accepted the respondent’s testimony that “back then was not an issue. It was only after Suit 200 was filed that raises questions in respect of the RM2 million. As such the fact that PW1 or CKS knew that the RM2 million is part of development project cost since 2005 does not at that point in time raises a cause of action against the defendants.” [46] As explained by PW1, “even though she knew from her experience that agency fees is normally between 1.5% to 2% of the SPA value whereas the RM2 million paid as alleged agency fees was about 38% of the SPA, she could not do anything at that time since the money had already been paid out. It was only during the trial of Suit 200 that the current directors of plaintiff discovered the ‘actual’ intent and purpose of the RM2 million payment made.” Thus, the discovery of the fact that the RM2 million payment was not ‘agreed agency fees’ was only in 2016, in the course of Suit 200. [47] On the matter of the valuation of the said Property, that DW4 had testified that the market value was RM8 million, the respondent submitted that the trial judge had rightly opined that if it was a “good 21 bargain” then it ought to have been brought to the respondent’s knowledge and the appropriate resolutions passed. Since no explanation was offered, the trial Court doubted that line of defence. The High Court was also not prepared to construe the resolutions as authorizing the respondent to make the Impugned Payment since the SPA only committed the respondent to RM5.3 million; that it was not in the best interest of the respondent “to pay such a huge amount to a third party without going through the proper procedure.” [48] On the breach of fiduciary duty under section 132 of the Companies Act, learned counsel for the respondent submitted that the learned Judge was of the opinion that the appellants breached that duty “when they agreed to accommodate Dazzling Symphony’s request, at the expense of the plaintiff, for the RM2 million payment without due justification and without it being duly authorized, recorded and accounted for.” As directors and members of the respondent, the appellants were taken to know and were aware of the nature of the transaction of the RM2 million payment. [49] On the question of loss, it was submitted that the fact that the respondent was deprived of the use of the RM2 million which resulted in the respondent not being able to complete the SPA was proof of loss. Our deliberations and decision [50] After having deliberated over the submissions against the learned Judge’s reasoning and findings, and having examined the records of 22 appeal, we were unanimous in our decision that this was an appropriate case for the exercise of our appellate powers of intervention in allowing the appeal. We agreed with the appellants on both fronts; that fraud was not established; and in any case, even if there was fraud, it could have been discovered with reasonable diligence in which case, section 29 is not available and the claim remains time-barred. We also agreed with the submissions of the appellants that, with respect, the learned Judge had taken an overly rigid and quite formalistic approach. Such approach is commercially unrealistic and completely ignores the commercial realities of the situation. This will become more apparent as we examine the grounds of appeal and the reasoning of the learned Judge. [51] The respondent’s claim is entirely about the Impugned Payment of which the following are the undisputed facts. [52] The respondent wanted to purchase the said Property, owned by Dazzling Symphony Sdn Bhd. On 3.5.2005, the 3rd appellant, as director of the respondent, wrote to Messrs. LH Chua, the solicitors representing Dazzling Symphony Sdn Bhd, informing that “we irrevocably undertake to pay to you a sum of RM2,000,000 being the Agreed Agency Fee” upon completion of the Sale & Purchase Agreement.” The 3rd appellant further stated that “We will procure our Solicitors to provide the appropriate undertaking to you prior to the signing of the Sale & Purchase Agreement between the registered proprietor and ourselves.” [53] The 3rd appellant followed this up with a “Letter of Instruction” dated 9.5.2005 to the respondent’s solicitors, Messrs. Steven Tai, Wong & Partners as follows: 23 “With reference to the above and to our letter dated 3rd May 2005 addressed to Messrs. L H Chua, Advocates & Solicitors, Block D, Lot D8, 2nd Floor, KL Plaza (Box 337), No. 179, Jalan Bukit Bintang, 55100 Kuala Lumpur (“Solicitors”). We wish to confirm that the sum of Ringgit Malaysia Two Million (RM2,000,000.00) only (hereinafter referred to as the “said Sum”) has been deposited with your good self as stakeholders via RHB Bank Berhad cheque No…dated 9th May 2005 and the said Sum shall be kept in an interest bearing fixed deposit account renewable on a month to month basis. We hereby irrevocably instruct you to disburse the said Sum to the Solicitors subject always to the successful completion of the sale and purchase transaction between us and Dazzling Symphony Sdn Bhd for the parcel of property known as Lot 14, Section 88, Lorong Enau, Kuala Lumpur and held under individual issue document of title Geran 24710, Lot 14, Bandar Kuala Lumpur, Daerah Kuala Lumpur, Wilayah Persekutuan (“the said Property”). In the event of the non-completion or the termination of the said sale and purchase transaction of the said Property for any reasons whatsoever, you shall refund the said Sum in full together with the accrued interest less any outstanding fees due and owing to you. At any time prior to the completion of the sale and purchase transaction of the said Property, you may refund the said Sum to us subject always to us depositing a sum equivalent to Ringgit Malaysia Two Million (RM2,000,000.00) only with you as stakeholders together with similar irrevocable instructions in writing to disburse the same to the Solicitors.” [54] Vide similarly worded resolutions, the Members and Board of Directors consented to inter alia the purchase of the said Property at RM5.3 million; and that the 3rd appellant “be and is hereby authorized to execute the Sale and Purchase Agreement and all relevant documents relating to the above transaction for and on behalf of the Company AND THAT he is also hereby authorized to do and sign for and on behalf of the Company all acts and deeds necessary or expedient to carry the above transaction into effect with full power to assent to any conditions, 24 modifications and variations as may be required and in the best interest of the Company.” [55] The SPA was signed on 24.5.2005. Aside from specifying that the purchase consideration for the said Property was RM5.3 million, it also specified at clause 1 that the sum of RM530,000.00 [“deposit”] was paid as deposit and part payment towards the purchase price. Clause 1 further specified that RM159,000.00 of the deposit had already been paid prior to the execution of the SPA. [56] At this point, we should stress that the SPA with its details could not possibly have come about but for meetings or negotiations between the parties. By the time the resolutions were sought, those details had obviously been ironed out and it would be unrealistic to think otherwise; as was the case in our current appeal. In our view, it is not, in the least, wrong to examine the context and circumstances under which the SPA was drawn up; including the matter of the RM2 million, in order to understand the SPA. That is not prohibited under the parole evidence rule as the claim at the High Court was not about the SPA per se or even about its implementation or a complain of breach of any of its terms and conditions. It is about the RM2 million payment and the role of the SPA is only supplementary and evidentiary to support the appellants’ defence. [57] Coming back then to the particular facts in this appeal, Ch’ng became a director of the respondent on 16.9.2005. On 18.9.2005, he held 80% of the respondent’s shares which hitherto had been in the hands of the appellants and Tan Su Li. In other words, Ch’ng’s payment 25 of the balance purchase consideration of the SPA was not a simple loan but a buy-in or an investment in the respondent. [58] On 29.9.2005, the SPA was completed with the payment of the balance purchase consideration of RM4.77 million. As mentioned, the balance sum was provided by Ch’ng. [59] With the completion of the SPA and pursuant to the instructions given, the respondent’s solicitors paid the RM2 million that they were holding as stakeholders, to Dazzling Symphony Sdn Bhd’s solicitors. On 1.12.2005, the said Property was transferred and registered in the respondent’s name. [60] From the above uncontroverted facts, the Impugned Payment was paid over to the respondent’s solicitors on 9.5.2005. It was, however, only released to Dazzling Symphony Sdn Bhd’s solicitors on 29.9.2005. This, accords with the instructions given by the 3rd appellant to the solicitors of the respective parties. [61] The respondent’s action, in essence, seeks to recover the Impugned Payment because such payment was alleged to be unauthorized or was contrary to express mandate as found in the Members’ and Board of Directors’ resolutions of 23.5.2005, section 6 of the Limitation Act 1953 applies to prescribe the limitation period of six years. This period of limitation is computed from the date when the payment was actually paid, which is, on 9.5.2005. Limitation would thus have set in on 9.5.2011. As the respondent’s action was filed on 2.3.2016, it is clearly time-barred. 26 [62] Being fully aware of this legal constraint, this is where or why the respondent pitched its claim as one essentially for fraud and breach of fiduciary duty against the appellants as directors and officers of the respondent. The fraud and breach are said to have arisen: i. from the 1st and 3rd appellant’s unauthorized payment of RM2 million of the respondent’s funds in relation to the purchase of the said Property; ii. the lack of authorization is evidenced by the absence of Board of Directors’ and Members’ resolutions; iii. entering the payment of RM2 million into the records of the respondent as an “Agreed Agency” fee and into the accounts as “Development expenses” of the said Property; iv. since there were no resolutions authorizing payment and no provisions in the SPA for such payment, the respondent was not under any legal obligation nor was there any lawful purpose in making such payment; the RM2 million should never have been paid. [63] The allegation is that the payment of the RM2 million caused loss to the respondent as that amount was not available for the respondent to utilize, causing the respondent to source for funds from Ch’ng. It was only in the course of proceedings in Suit 200 that the appellants’ impropriety, fraud and breach was discovered in which case the claim was not time-barred. 27 [64] We take the view that the respondent must first prove the fraud and the breach of fiduciary duty before it may avail itself of the terms of section 29 of the Limitation Act 1953. It is not the other way around. In order to overcome the legal restraints of section 6, the respondent would have to convincingly establish its case under section 29. The respondent must prove, on a balance of probabilities, the presence of fraud before it can take advantage of the postponement of the limitation period under section 29. And, where fraud is alleged, it is to be noted that under section 29 postponement or extension of the period of limitation is only available where the action is either based upon fraud or where the right of action has been concealed by fraud. [65] Section 29 of the Limitation Act reads as follows:

29. Postponement of limitation period in case of fraud or mistake Where, in the case of any action for which a period of limitation is prescribed by this Act, either-

24. In any given circumstances, the Plaintiff pleads that there is no lawful and/or justified explanation which legitimizes the Defendants’ act of the Impugned Payment.

25. The Plaintiff only discovered the fraudulent nature of the Impugned Payment and breaches of the Defendants’ fiduciary duties in the course of the trial of Suit 200 and the correspondences with the Defendant as narrated in the paragraphs above.

26. In the circumstances, the Impugned Payment ought not to have been made by the Plaintiff at the time and the Plaintiff pleads that the Defendants had caused the Plaintiff to make the Impugned Payment illegally and/or unlawfully and/or fraudulently and/or contrary to the expressed mandate given by the Plaintiff. This is apparent or alternatively to be inferred from the following facts and matters. Particulars of fraud

26.1 As directors of the Company at the material time, the Defendants stand in a fiduciary position, whereby there is a duty placed on the Defendants to act in the best interest of the Plaintiff, however, in causing the Plaintiff to make the Impugned Payment, the Defendants had breached their fiduciary duties, more so when the Defendants’ action of causing the Plaintiff to make the Impugned Payment were unauthorized by the Plaintiff and/or contrary to the expressed mandate given by the Plaintiff.

26.2 The Defendants had knowingly or without belief in its truth or recklessly or carelessly be it true or false caused the Plaintiff to make the Impugned Payment despite knowing that there is no contractual obligation or otherwise on the part of the Plaintiff which necessitated or obligated the Plaintiff to make the payment;

26.3 The Defendants had used terminology such as agreed agency fees and/or consultancy fee and/or development expenditure in an attempt to mask the purpose of the Impugned Payment. In doing so, the Defendants attempted and/or created a false impression as to the actual nature, intent and purpose of the Impugned Payment;

26.4 The Defendants had fraudulently misrepresented the Plaintiff as to the actual purpose and/or intent of the Impugned Payment;

26.5 Alternatively, the Plaintiff pleads that the Impugned Payment was fraudulently and/or wrongfully paid out;

26.6 The Plaintiff pleads that the Defendants had committed the tort of deceit when the Impugned Payment was made; and/or 29

26.7 The Defendants had made the Impugned Payment without any authorization from the Plaintiff. [67] From the above pleadings, it would appear that the respondent’s action is premised under section 29(a) and (b); that it is based on fraud and that its cause of action had been concealed by fraud. Regardless, the limitation period runs from the discovery of the fraud or from when the fraud could have been discovered with reasonable diligence. More specifically, it would appear that the fraud was discovered in the course of the cross-examination of the 2nd appellant. The trial of Suit 200 commenced on 8.12.2015 till 10.12.2015 with further dates in May and June 2016. The 2nd appellant was cross-examined during the first tranche of the hearing dates, and the action was filed on 2.3.2016. [68] This line of evidence and submission offered by the respondent was accepted by the learned Judge. With respect, we are of the firm opinion that the learned Judge had not properly appreciated or had misapprehended the evidence presented, had misconceived the law and was plainly wrong in arriving at the decision appealed against in which case, appellate intervention is warranted. See Federal Court in Gan Yook Chin (P) & Anor v Lee Ing Chin @ Lee Teck Seng [2005] 2 MLJ 1; Dream Property Sdn Bhd v Atlas Housing Sdn Bhd [2015] 2 MLJ

441. [69] We agree with the submissions of the appellants that no fraud was proved on a balance of probabilities and that the learned Judge had erred in concluding that there was fraud. According to the learned Judge, in order to establish fraud, the respondent had to prove that there 30 was a false representation that was made either knowingly, without belief in its truth or where it was made recklessly without caring whether it was true or false, and that the appellants had gained an advantage or there was injury, loss or detriment caused to the respondent; applying Ang Hiok Seng @ Ang Yeok Seng v Yim Yut Kiu (Personal Representative of the estate of Chan Weng Sun, deceased) [1997] 2 MLJ 45, [1997] 1 CLJ 497; Puncak Alam Housing Sdn Bhd (formerly known as Bukit Cerakah Development Sdn Bhd v Menta Construction Sdn Bhd & Anor [2014] 1 MLJ 287; Victor Cham & Anor v Loh Tuan Bee [2006] 5 MLJ 359; Hock Hua Bank (Sabah) Bhd v Lam Tat Ming & Ors [1995] 4 MLJ 238. [70] From the reasoning of the learned Judge, the fraud is the very payment of the RM2 million, that there was no legal obligation on the respondent to make this payment, as seen from the SPA. The payment was also unauthorized and with no mandate. This is reflected at paragraph 75 of the judgment where the learned Judge sets out the respondent’s position, that the action was only filed in 2016 because it had only discovered that the appellants had “fraudulently caused RM2 million to be paid out of the plaintiff.” This payment was only discovered at the trial in Suit 200 as the appellants had not only fraudulently misrepresented to the respondent the actual purpose and/or intent of the payment, it had also masked the purpose of the payment by deploying different labels to describe such unauthorized payment. [71] While the learned Judge was generally right on the principles on what amounts to fraud, with respect, the same cannot be said of the application of those principles to the particular facts and circumstances 31 in the instant appeal leaving the conclusions drawn and the decision reached one which no Court similarly circumstanced, would arrive at. Such a situation calls for appellate intervention. [72] What is fraud? The Federal Court in Letchumanan Chettiar Alagappan (As executor to SL Alameloo Achi (Deceased)) & Anor v Secure Plantation Sdn Bhd [2017] 5 CLJ 418 gave the following timely reminder and opinion on this very issue: “[18] What amounts to ‘fraud’? “It is not easy to give a definition of what constitutes fraud in the extensive signification in which the term is understood by civil courts of justice. The courts have always avoided hampering themselves by defining or laying down as a general proposition what shall constitute fraud. Fraud is infinite in variety” (Reddaway v Banham [1896] AC 199, 221). The fertility of man’s invention in devising new schemes of fraud is so great, that the courts have always declined to define it, or to define undue influence, which is one of the many varieties, reserving to themselves the liberty to deal with it under whatever form it may present itself (Allcard v Skinner (1887) 36 Ch D 145, 183). Fraud, in the contemplation of a civil court of justice, may be said to include properly all acts, omissions, and concealments which involve a breach of a legal or equitable duty, trust or confidence, justly reposed, and are injurious to another, or by which an undue or unconscientious advantage is taken of another (Story, Eq Jur 187). All surprise, trick, cunning, dissembling and other unfair way that is used to cheat anyone is considered fraud (Finch 439). Fraud in all cases implies a willful act on the part of anyone, whereby another is sought to be deprived, by illegal or inequitable means, of what he is entitled to (Green v Nixon (1857) 23 Beav 530, 535); “Kerr on Fraud and Mistake” 7th edn. at p 1). “The concept of fraud is notoriously difficult to define” (Cavell and Anor v Seaton Insurance Co [2009] EWCA Civ 1363 per Longmore LJ, Mummery and Toulson LJJ in agreement). We would not hazard to define “fraud”. We would just say that 32 ‘fraud’ is a generic term which also covers all manner of cheat, deceit and dishonesty. Given its wide meaning, “an action in fraud will usually include a number of distinct causes of action …” and “claims to trace assets in equity or, perhaps, at common law” (Bullen & Leake & Jacobs Precedents of Pleadings 18th edn Vol. 2 at 57-01).” [73] In that same decision, the Federal Court however, acknowledged that in view of Order 14 r 1(2)(b) of the Rules of Court 2012 [where summary judgment cannot be sought in the case of fraud], the courts “still narrowly construe the term ‘fraud’ mentioned in r 1(2)(b) as strictly defined in Derry v Peek”, that is, in the legal technical sense as used in Derry and Others v Peek [1886-90] All ER Rep 1, as seen in the Supreme Court decision in Tan See Yin Vincent v Noone & Co [1995] 1 MLJ 705. [74] Be that as it may, the decisions in Lian Keow Sdn Bhd (In liquidation & Anor) v Overseas Credit Finance (M) Sdn Bhd & Ors [1988] 2 MLJ 449 and Pekan Nenas Industries Sdn Bhd v Chang Ching Chuen [1998] 1 MLJ 526, explained that “fraud” means “actual fraud or dishonesty of some sort, not what is called constructive or equitable fraud” and that “notice of an unregistered interest may not amount to fraud sufficient to defeat a registered proprietor’s right.” In other words, the element of dishonesty, cheating or deceit must be established. [75] Aside from that element, at all times, damage must also be established; it is never presumed; as per Lord Halsbury in Derry and Others v Peek [supra]: “fraud without damage or damage without fraud” does not give rise to such actions. 33 [76] Whether fraud exists is also a question of fact to be determined from the facts and circumstances of the particular case - see P.J.T.V. Denson (M) Sdn Bhd v Roxy (Malaysia) Sdn Bhd [1980] 2 MLJ 137; and Suratmin Othman v Yusof Omar & Ors [1988] 2 CLJ Supp 380. The standard of proof for adjudging that determination is furthermore on the balance of probabilities, as decided by the Federal Court in Sinnaiyah & Sons Sdn Bhd v Damai Setia Sdn Bhd [2015] 7 CLJ 584. [77] Applying thus these principles to the present appeal, we find that the learned Judge had plainly erred in concluding that fraud had been established; that there was dishonesty, the element of cheating or deceit practised by the appellants on the respondent such that there was loss to the respondent. On the contrary and on a balance of probabilities, none of these elements were proved. [78] First, by any measure, the alleged fraud or breach of fiduciary duty in the present appeal concerned a substantial sum of RM2 million. In the case of the respondent, it was even more so since the respondent alleged that by reason of this Impugned Payment, the respondent was rendered “impecunious” and was unable to complete the SPA and had to turn to Ch’ng for assistance after the appellants’ efforts to raise loans on their own proved unsuccessful. [79] Since PW1 had testified that she was aware of the expenditure of RM2 million as “Agreed Agency fee” from the correspondence, noting the unusually high rate for such fees, 38% of the SPA as opposed to the “normally between 1/5% to 2% of the SPA” shortly after she had 34 assumed her portfolio in charge of accounts, yet, she and the respondent, did absolutely nothing. In fact, she, and the respondent went on to treat that fee as part of “development costs”, and entered such payment into the financial statements for that year. She also categorically told the Court that that accounting entry was made because there were proper supporting documents for the RM2 million payment. [80] We find PW1 inconsistent; on the one hand she told the Court that the RM2 million payment was not an issue in 2005, but it became an issue in 2016 because the appellants described the payment not as agency but as consultancy fees. On the other hand, PW1 also told the Court that “she could not do anything at that time since the money had already been paid out.” [81] Given that the respondent had no issues with the RM2 million payment in 2005, logically and reasonably, nothing would have been required to be done. So, we unable to see why PW1 should then testify that she could not do anything at that time since the money had already been paid out. As we understand it, any action that may have been taken or contemplated then would still be the same action taken in 2016, which is to query the appellants and sue them, as they did, when the explanations were not to their satisfaction. [82] In any case, PW1 had agreed in cross-examination that the respondent was aware that the RM2 million was paid as part of the arrangements with Dazzling Symphony Sdn Bhd at the time when she first joined the respondent. The respondent’s complaint of fraud and 35 claim of knowledge of the payment only in 2016 are clearly without merit and ought to have been rejected by the learned Judge. [83] As we understand the respondent’s case, its principal complaint was the lack of authorization and mandate for the commitment and payment of the RM2 million; that such payment was without legal basis and was not in the best interest of the respondent. While the appellants admitted that there were no resolutions passed for the specific purpose of the payment of the RM2 million, the appellants had explained that they, in their respective capacities as the only directors and shareholders had knowledge and had authorized the same. They had also testified on their understanding that the terms of the resolutions being sufficient for that purpose; that the payment was requested by Dazzling Symphony Sdn Bhd; that since there was a Development Order approved by the local authority, the payment was reasonable and in the best interests of the respondent as the respondent was in property development and the SPA concerned land that the respondent wanted to develop; and acting in those same best interests, they had taken all necessary measures to ensure that the payment was only paid over to the Dazzling Symphony Sdn Bhd upon completion of the SPA. [84] Unfortunately, all this was rejected by the High Court on the basis of separate corporate entity under Salomon v Salomon & Co Ltd [1897] AC 22, without more. The learned Judge agreed and in fact made a specific finding that the payment of the RM2 million represented the loss suffered by the respondent. According to the respondent, it was left with just over RM4000.00 in its account at the material time with this payment. 36 [85] We find this line of argument troubling as the respondent’s “impecunious” state had nothing to do with the payment of the RM2 million. Given that the purchase price of the said Property was RM5.3 million, the balance due at completion of the SPA was a sum of RM4.77 million. It would appear that even if the appellants had not made the payment of RM2 million, the respondent was still unable to complete the SPA and would still have to look for alternative sources as the appellants were unsuccessful raising a loan from the banks. Consequently, we do not agree with the learned Judge that the respondent had suffered loss as a result of the RM2 million payment. Without any damage or loss, as expounded by Lord Halsbury in Derry and Others v Peek [supra], “fraud without damage or damage without fraud” does not give rise to such actions;” there is no fraud, in which case, the learned Judge ought to have dismissed the claim. [86] In any event, on closer examination of the resolutions, we agree with the appellants that it was within their mandates and authority to commit the respondent to the RM2 million. Both the Board’s and Members’ resolutions authorized in clause 2, the 3rd appellant to execute the SPA “and all relevant documents related to the above transaction for and on behalf of the Company AND THAT he is also hereby authorized to do and sign for and on behalf of the Company all acts and deeds necessary or expedient to carry the above transaction into effect with full power to assent to any conditions, modifications and variations as may be required and in the best interest of the Company.” By clause 3, the 3rd appellant and “any TWO of the Directors or any ONE of the Directors and the Secretary of the Company be and is hereby authorized to sign 37 the Sale and Purchase Agreement, the Memorandum of Transfer and any other related documents in relation thereto for and on behalf of the Company AND THAT he is also hereby authorized to do all acts and deeds necessary or expedient to carry the above transaction into effect with full power to assent to any conditions, modifications and variations as may be required and in the best interest of the Company.” [87] The appellants had testified that they were of the reasonable belief that it was in the best interest of the respondent to commit to the SPA and Dazzling Symphony Sdn Bhd’s specific requirement on the payment of the RM2 million as the said Property was worth more, especially with the Development Order issued by the local authority which order enhanced the development potential of the said Property. The testimonies of the two valuers [DW3 and DW4] called by the appellants were not properly assessed. These witnesses testified to the value of the said Property, that it was worth RM8 million in 2005 [development costs of RM7.3 million, comprising RM5.3 million + RM2 million] and worth RM39,920,00.00 million in 2014. The respondent could never have been left in any state, least of all, impecunious because the validity of the SPA was never in issue or in doubt, and, the respondent became the registered owner of the said Property upon the completion of the SPA. The respondent therefore did not suffer any loss. Without loss or damage, the action must fail. [88] Unfortunately, this was not how the issue was regarded by the learned Judge. Instead, the learned Judge felt that if the payment was indeed in the best interest of the respondent and that it was such a good deal, then the appellants ought to have procured the necessary 38 resolutions. With respect to the learned Judge, this was an overly strict emphasis on form ignoring the real factual matrix. [89] We further agree with learned counsel for the appellants that the running or management of a company’s affairs in the “fashion” not usually understood or seen, where decisions in respect of some matters complained of were taken informally is no reason to suggest anything less of such decisions. Gopal Sri Ram JCA (as he then was) in Genisys Integrated Engineers Pte Ltd v UEM Genisys Sdn Bhd & Ors [2008] 6 MLJ 237 citing Re Duomatic [1969] 2 Ch 365 opined: “…where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be.” [22] Here we have only two shareholders of UEG. Each had its representative on UEG’s board of directors. If they agree to take a given course of action without convening a formal meeting, the action taken is binding on both of them and neither can complain about it later.” [90] The notional separateness of each company from its directors and shareholders should not be conflated into abuse. In Sunrise Sdn Bhd v First Profile (M) Sdn Bhd & Anor [1997] 1 CLJ 529, the Federal Court opined that the fundamental attribute of a corporate personality is that a corporation is a legal entity distinct from its members, be they individuals or corporate bodies. However, where there are signs of separate corporate personalities being used to enable persons to evade their 39 contractual obligations or duties, the Court would disregard the notional separateness of companies. [91] In any case, having examined the terms of the resolutions, we are of the firm view that the appellants were within their mandate to commit to the payment of RM2 million as it was related to the SPA. The evidence in any event, revealed that although the resolutions were dated 23.5.2005 with the SPA inked the following day on 24.5.2005; part of the deposit had already been paid to the Dazzling Symphony Sdn Bhd prior to even the resolution being passed, without any complaint from the respondent. [92] For all these reasons, we find that there was no fraud proved by the respondent; and the learned Judge ought to have dismissed the claim for this reason alone. [93] Be that as it may, on the matter of limitation, we further find that contrary to the allegations of the respondent, the RM2 million was neither hidden nor concealed. While it may have been described by different terms, it was clearly mentioned in the respondent’s records. In the letters of 3.5.2005 and 9.5.2005, it was described respectively as “Agreed Agency Fee” and “the said Sum”; in the email sent by the respondent’s solicitors dated 28.2.2005, it was described as “Consultancy Fee”; and in the audited financial statements of the year ended 31.12.2006, as “Development expenditure”; the last being done by the respondent themselves. 40 [94] The audited reports and financial statements for the year ended 31.12.2005 and 31.12.2006 should also have been properly examined by the learned Judge. These financial statements of the respondent, tendered at trial, amply, clearly and consistently show the non-current assets of the respondent comprised “Property development costs of RM7,947,012 for 2005 and RM7,983,326 for 2006. Since the said Property was transacted for RM5.3 million, the reported amount of over RM7 million should have struck some warning bells calling for some immediate response or clarification; if indeed the respondent themselves already did not know then of the RM2 million which they themselves described as the “Impugned Payment”. Such deafening silence does not resonate well for the respondent whose principal business is property development and the said Property appears to be its only if not only substantial property. [95] Further, Note 3 to the audited statements of account for the year ended 31.12.2006 explained that “property development costs” comprised two items, namely freehold land at cost and development expenditure:

3. PROPERTY DEVELOPMENT COSTS 2006 2005 RM RM Freehold land at cost 5,300,000 5,300,000 Development expenditure 2,683,326 2,647,012 7,983,326 7,947,012 [96] For the respondent’s audited statements of account for the year ended 31.12.2005, the significant accounting policy that was adopted by 41 the respondent explained “property development costs” at note 4 as follows: “Property development costs comprise costs associated with the acquisition of land or such proportion thereof and all costs directly attributable to development activities or that can be allocated on a reasonable basis to these activities where significant development work have been undertaken. Development costs not recognized as an expense is recognized as an asset and is stated at the lower costs and net reasonable value. Where an indication of impairment exists, the carrying amount of the asset is assessed and written down immediately to its recoverable amount.” [97] Both these audited statements, for the years ended 31.12.2005 and 31.12.2006, were tabled at the relevant Annual General Meetings [AGMs]; the earlier at the Adjourned AGM held on 26.2.2007 and the latter at the AGM held on 17.5.2007. Both audited statements of accounts were carried at those AGMs. [98] All these documents and records were in the keeping of the respondent and would have been available to Ch’ng and PW1. As an accounts clerk, it would be reasonable to say that PW1 would have been in the position to pick up on these entries which the respondent now challenge as questionable and certainly, ask for explanations. In fact, the respondent entered the RM2 million upon sight of supporting documents; not as agency fees but as development expenditure. Thus, her explanations as to why nothing was done and why there was no cause for complaint then, as pointed out earlier, are wholly inconsistent 42 and ought to have been rejected in the face of the documentary evidence of the respondent’s own doing. [99] There were also the testimonies of the solicitors involved in the SPA. The respondent’s solicitors, Stephen Wong Yee On [DW1] who handled the transaction in question had testified that the terms “Agency Fee” and “Consultancy Fee” could be used interchangeably. In other words, there was nothing untoward in the deployment of these various terms. In any case, these various descriptions were there from the very outset and it was open to the respondent, with reasonable diligence to have asked for clarifications. We understand that DW1 was a solicitor familiar with such transactions as the SPA. Yet, his testimony was not evaluated, and no reason was offered by the learned Judge. [100] DW1 who handled the holding and release of the Impugned Payment further testified that the payment was only released to Dazzling Symphony Sdn Bhd after Ch’ng had paid the balance of the purchase consideration. The release was not to just anyone but to the solicitors of Dazzling Symphony Sdn Bhd who confirmed the receipt of that sum. Dazzling Symphony Sdn Bhd’s solicitors [DW2] came to testify in Court, corroborating and confirming the appellants’ defence. As alluded to at the outset, the transfer and registration of the said Property to the respondent’s name was only effected after this payment had been completed; and we understand the said Property, many times more valuable now, remains with the respondent till this date. All this confirmed the appellants’ version of the circumstances and reasons for the payment of the RM2 million, none of which, by any reason, is fraudulent. 43 [101] When the audited financial statements are read together with the correspondence sent to the respondent’s own solicitors at the material time [see above], the respondent and certainly PW1, would have been put on notice. If there was any reason to doubt the veracity or description of the payments, or simply ask why such a substantial sum was paid, alarm bells should have been set off and the respondent not only should but ought to have sought clarifications on the Impugned Payment, or at least, on the development costs, agreed agency fee, consultancy fee, development expenditure, or simply ask for an explanation. And, as testified by the appellants, they could easily and would have readily verified them. [102] These same reports declared that the principal activity of the respondent is in property development and that there was no significant change in the nature of this activity during the reported financial year. As submitted by counsel for the 1st and 3rd appellants, the respondent did not have any other business save to acquire the said Property pursuant to the SPA. Hence, the accounts and records of the respondent would have been simple. From the records filed with the Suruhanjaya Syarikat Malaysia [SSM], Ch’ng was a chartered accountant. He too, would have been more than familiar with reading the accounts. Yet, he too, did nothing. [103] In short, there was full disclosure of the payment of RM2 million and that the records were fully available at all times for inspection and any other course of action by the respondent. It is also apparent that regardless the description given to the RM2 million payment, that 44 payment remained payment to Dazzling Symphony Sdn Bhd as part of the consideration for the purchase of the said Property. That payment was required by Dazzling Symphony Sdn Bhd and it was paid through the relevant solicitors at the material time together with properly couched instructions on when and how such payment is to be released. We have also no doubt that the payment was in the best interest of the respondent for all the reasons explained by the appellants, amongst which was the existence of the Development Order and the value of the said Property. [104] We agree with the appellants that the learned Judge did not analyze or seek to explain why the various descriptions were wrong or even fraudulent. The learned Judge certainly failed to consider the documentary records of the respondent themselves. Had that been done, as the learned Judge as the trial judge was obliged to do, the learned Judge would have readily concluded that contrary to the contentions of the respondent, there was full disclosure at all material times, the records were staring in the respondent’s face, and if there were any discrepancies, the respondent should have asked for explanations, whether in 2005 or 2006. The respondent’s own failure to examine its own records and worse, to sign off the audited statements as correct and now complain, all due to its own lack of due diligence, we agree, is no reason to suggest the presence of fraud or to ask that time under the limitation laws be extended. [105] As observed by Cotton LJ in Derry v Peak [supra], taking the established facts and circumstances as discussed above, the evidence adduced were precarious and not sufficient to find or infer fraud. The 45 law is “that where a man makes a statement to be acted on by others which is false and is known by him to be false, or made by him recklessly, or without care whether it is true or false, that is without any reasonable ground for believing it to be true,” he is liable to an action for deceit. Those elements were clearly not present in the instant appeal and that ought to have been appreciated by the learned Judge. The appellants, as the only directors and shareholders at the relevant time had real and ostensible authority to commit, on the respondent’s behalf, the RM2 million required by Dazzling Symphony Sdn Bhd in order to secure the purchase of the said Property. The purchase was obviously in the best interest of the respondent, whether then or by the time of the claim was filed, considering the substantial appreciation in its value. [106] The learned Judge was obliged to subject the appellants’ case and the evidence before the Court to critical examination, especially where there is a claim of the presence of fraud, before extending the limitation period. The Court must ensure that the essential element under section 29 of the Limitation Act 1953, that the fraud could not have been discovered with reasonable diligence is in fact made out by the party seeking to extend time. Where this element is not satisfied, section 29 is not engaged and the limitation period under section 6 will apply to bar the claim. [107] This was precisely what happened in Lin Kai Wing & Anor v Lin Kai Lam & Ors [supra] where the Court of Appeal held that the trial judge must ensure that the party who is seeking to rely on section 29 of the Limitation Act 1953 is obliged to prove that he could not, without reasonable diligence, have discovered the fact that there was fraud, or 46 that there were wrongful or fraudulent payments. If that essential element is not proved, then there cannot be any reliance on section 29 and the claim is time-barred. [108] In that case, the central issue for disposal was whether a fraud had been committed on the partnership and whether the respondent’s claim was caught by limitation as the claim sought recovery of monies said to have been misappropriated from the year 1990 to 1999. The claim was filed on 8.6.2012. The Court of Appeal found that the accounts were accessible to the respondent at all material times. Instead, the respondent did nothing. Under such circumstances, the respondent was not entitled to enlargement of time under section 29. [109] Of particular importance is the requirement that for any cause of action to be sustainable in law, the respondent must establish loss or damage had been occasioned by the appellants’ act. As explained earlier, we are unable to see how the respondent has supposedly suffered loss as a consequence of such fraud or Impugned Payment. Inasmuch as the trial judge is required to evaluate the respondent’s claim against the totality of evidence led by all sides, the learned Judge must do the same in respect of the defences relied on, before coming to a decision. The best evidence rule always applies, that the persons with personal knowledge of the events should step forward and assist the Court in determining the truth of the claim and defence. The appellants being sued in their personal capacities, testified, while the respondent’s best evidence would have lain with Ch’ng who did not. Instead, PW1 testified. While she may have been competent as a witness, she was still not Ch’ng who had direct and personal knowledge of the matters 47 now complained of. We do not need to go so far as to draw any adverse inference against that failure to call him to testify, but the evidence led by the appellants were not only direct, personal and primary, they were relevant and credible as corroborated by independent witnesses in the persons of the solicitors and the valuers; and therefore ought to have been given more weight. [110] Consequently, we found that contrary to the learned Judge’s findings, there was no fraud established whether in law or on the facts, on a balance of probabilities. In any case, even if there was fraud, it could have been discovered with reasonable diligence when the new directors took over in 2005. The claim filed in 2016 was thus clearly time-barred. [111] Finally, we observed that the learned Judge had taken umbrage with the failure of the appellants to call someone from Dazzling Symphony Sdn Bhd to prove its defence. With respect, this is an erroneous finding given that DW2, the solicitors who handled the payment was in Court and he had testified with documentary evidence to support the appellants’ case. Receipts for the payment were tendered together with the correspondence sighted by the respondent, showing that the appellants’ version is genuine, credible and wholly consistent with the defence pleaded. [112] We must also record our disagreement with the learned Judge’s findings on the matter of breach of fiduciary duties; the learned Judge had found that there were such breaches when in fact there was no 48 proper evaluation carried out. Had that been conducted, the learned Judge would have certainly found no violations or breaches. [113] Section 132(1) of the Companies Act 1965 imposes a duty on the directors to act honestly and in the best interests of the company. In the Federal Court decision of Pioneer Haven Sdn Bhd v Ho Hup Construction Co Bhd & Anor [2012] 3 MLJ 616, it was explained that what and how a director is expected to abide by that duty and act in the company’s best interest “means different things, depending on the factual circumstances.” Further, the Federal Court held: “[237] What then, is the test whether there is a breach of such duty? Or putting it in another way in order for the decision of the directors to be challenged, what is the test? [238] The test is nicely condensed in Ford’s Principles of Corporations Law (para 8.060), that there will be a breach of duty if the act or decision is shown to be one which no reasonable board could consider to be within the interest of the company. [239] This test is adopted in Charterbridge Corp Ltd v Lloyds Bank Ltd [1970] Ch 62 at p 74, in that, to challenge a decision of the directors, the test is whether: …an intelligent and honest man in the position of the director of the company concerned, could in the whole of the existing circumstances have reasonably believed that the transactions were for the benefit of the company." 49 [114] The above principles were affirmed by the Federal Court in Tengku Dato’ Ibrahim Petra bin Tengku Indra Petra v Petra Perdana Sdn Bhd & Another Appeal [2018] 2 MLJ 177. [115] From the facts and for the reasons already discussed, it is quite apparent that the test expounded in Pioneer Haven [supra] have clearly not been met. There is no evidence to suggest or support any allegation that the appellants have not acted bona fide in the best interest of the respondent as a whole; that they had utilized their powers to achieve improper purposes; that there was want of care and skill in their discharge of their functions; that there was a conflict between their duties and their private interests; that their discretion was fettered. The learned Judge felt “compelled to agree with the learned counsel for the plaintiff that the defendants treated the plaintiff’s money as their money”, after considering the manner in which the appellants had conducted themselves and that the appellants/defendants were under the misguided presumption that the respondent/plaintiff and the directors were one and the same entity. [116] For the same reasons when we discussed the issue of fraud, we find that there were no breaches of any of the appellants’ fiduciary duties. On the contrary, the appellants acted at all times, in the respondent’s best interest. The relinquishing of their total of 80% equity speaks volume of the appellants’ consistent claim that they had, at all material times, acted in the best interest of the respondent; and that has been borne out by both oral and documentary evidence. 50 Conclusion [117] For all the reasons discussed, the appeal is consequently allowed with costs of RM150,000.00 to the appellants for costs here and below subject to the payment of allocatur and the decision of the High Court dated 30.5.2017 is hereby set aside. Deposit is ordered to be refunded. Dated: 16th August 2019 Signed (MARY LIM THIAM SUAN) Judge Court of Appeal Malaysia 51 Counsel/Solicitors For the 1st & 3rd appellants: Lim Kian Leong (Tan Wei Wei, Colin Liew Ket Lip, Ng Yong Yee & Lee Yoke Shan with him) Messrs Chris Lim Su Heng T109, 3rd Floor, Centrepoint (New Wing) Bandar Utama, No. 3 Lebuh Bandar Utama 47800 Petaling Jaya Selangor For the 2nd appellant: Dato’ Kirubakaran (Audrey Quah with him) Messrs Shui Tai Entrance 2, Suite 1308 13th Floor, Block A Damansara Intan No. 1, Jalan SS 20/27 47400 Petaling Jaya Selangor For the respondent: Dato’ Bastian Vendargon (Brian Foong, Andrew Fernandez and Anson Chee with him) Messrs Cheang & Ariff 39 Court @ Loke Mansion 273A Jalan Medan Tuanku 50300 Kuala Lumpur