Tow Kong Liang & 9 Ors. v Fbo Land (Setapak) Sdn. Bhd. (W-02-1226-06/2012)

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ARULANANDA K. MANICKAM

EMINENT PACIFIC SDN. BHD. …APPELLANTS AND FBO LAND (SETAPAK) SDN. BHD. …RESPONDENT [In the matter of the High Court in Malaya at Kuala Lumpur Civil Suit No. S – 21 – 46 - 2006 BETWEEN FBO LAND (SETAPAK) SDN. BHD. …PLAINTIFF AND 2

STANDARD CHARTERED BANK MALAYSIA BERHAD …DEFENDANTS] CORAM: MOHD HISHAMUDIN BIN MOHD YUNUS, JCA ROHANA BINTI YUSUF, JCA UMI KALTHUM BINTI ABDUL MAJID, JCA 3 GROUNDS OF JUDGMENT A.

This was an appeal against the decision of the learned Judicial Commissioner (“JC”) (as she then was) in allowing the Plaintiff’s/Respondent’s claim against the 1st to the 10th Defendants/ 1st to the 10th Appellants, with costs to be taxed. The learned JC had also dismissed the Plaintiff’s/Respondent’s claim against the 11th Defendant with costs to be taxed.

The Plaintiff’s/Respondent’s claim against the 1st to the 10th Defendants/1st to the 10th Appellants was premised on a tort of conspiracy to defraud the Plaintiff/Respondent of its 9 shop houses by way of fraudulent transfers to the 7th to 10th Defendants/7th to 10th Appellants.

In the High Court, there were, other than the 1st to the 10th Defendants, the 11th to the 14th Defendants. The Plaintiff/Respondent did not cross appeal against the decision of the learned JC in respect of the 11th Defendant. The 12th to the 14th Defendants did not participate in the trial. As such, our decision pertains only to the 1st to the 10th Defendants. Where necessary, we have also made reference to the 11th Defendant.

On appeal, we had unanimously allowed the appeal by the 1st to the 10th Defendants/1st to the 10th Appellants and set aside the decision of the learned JC. 4

For the purpose of this appeal, the parties shall be referred to as they were at the High Court. B.

The Plaintiff was a wholly owned subsidiary of Austral Amalgamated Berhad (“Austral”). Special Administrators were appointed for Austral pursuant to the Pengurusan Danaharta Nasional Berhad Act 1998 on 9.9.1999 and subsequently for the Plaintiff on 6.7.2000. The appointment ended on 9.9.2003.

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The Plaintiff was the developer of a project known as Taman Danau Kota, a mixed commercial and residential development situated on land known as H.S. (D) 61770 Lot P.T. No. 1120 in the Mukim of Setapak, District of Kuala Lumpur (“Project Land”) and the Plaintiff was the registered owner of the Project Land.

The Project Land was sub-divided into separate parcels. The individual sub-divided titles that are relevant to the present suit are as follows:

9.1 P.N. 29757, Lot 27827 (“Lot 83”);

9.2 P.N. 29762, Lot 27832 (“Lot 78”); 5

9.3 P.N. 29681, Lot 27751 (“Lot 6”);

9.4 P.N. 29682, Lot 27752 (“Lot 7”);

9.5 P.N. 29750, Lot 27820 (“Lot 73”);

9.6 P.N. 29751, Lot 27821 (“Lot 74”);

9.7 P.N. 29753, Lot 27823 (“Lot 76”);

9.8 P.N. 29714, Lot 27784 (“Lot 55”); and

9.9 P.N. 29755, Lot No. 27825 (“Lot 85”). (Collectively referred to as “the Properties”.)

The 1st to the 6th Defendants were alleged to be the officers and/or employees of the Plaintiff and the 7th to the 11th Defendants were purportedly companies associated and/or controlled by the 1st to the 6th Defendants.

The Plaintiff alleged that the 1st to the 6th Defendants were trustees of and/or fiduciaries in respect of the Plaintiff by reason of their positions in the Plaintiff and as such, the 1st to the 6th Defendants owed obligations as trustees and/or fiduciaries in respect of the assets of the Plaintiff.

The Plaintiff contended that sometime between June 1995 until March 2005, the 1st to 6th Defendants and the 8th and 10th Defendants together with some or all of the other individuals conspired with the predominant purpose to injure the Plaintiff by cheating and defrauding the Plaintiff of the Properties. The 7th, 9th and 11th Defendants joined the said conspiracy upon their respective incorporation. 6

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The Plaintiff contended that in causing or procuring the transfer of the Properties to the 7th to 10th Defendants, each of the 1st to the 6th Defendants had acted mala fide and against the interest of the Plaintiff, had acted for improper purposes in relation to the affairs of the Plaintiff and were in breach of trust and/or in breach of their respective obligations as trustees in respect of the assets of the Plaintiff, that is, the Properties.

The 1st to the 6th Defendants’ defence was that the Properties were purchased by the 7th to 10th Defendants by way of a set off or a contra against the monies owed by Austral to the 1st Defendant and one Lai Weng Kong (deceased).

The 1st Defendant contended that from 1993 to 1998, the 1st Defendant and Lai Weng Kong had periodically advanced monies to Austral in the sum approximately RM 10,000,000.00. The monies advanced was utilised by Austral as working capital for the Plaintiff’s company’s project as the Plaintiff’s company paid up capital was inadequate. 7 C.

After a full trial, the learned JC had allowed the Plaintiff’s claim against the 1st to the 10th Defendants and had, inter alia, made the following orders:

17.1 the action of the Plaintiff against the 1st to 10th Defendants was allowed with costs to be taxed;

17.2 the Plaintiff’s action against the 11th Defendant be dismissed with costs and the costs to be taxed;

17.3 the loss and damage suffered by the Plaintiff and payable by the 1st to 10th Defendants be assessed;

17.4 the loss and damage suffered by the 11th Defendant as a consequence of the caveat be assessed;

17.5 the Plaintiff’s rights, titles and interests in the Properties were not affected by the transfer of the same into the names of the 7th to 10th Defendants; and 17.6 the said transfers of the Properties to the 7th to 10th Defendants were void ab initio and the Plaintiff is the registered owner and not bound by any sales and purchase agreements entered into between the Plaintiff and the 7th to 10th Defendants respectively and the 7th to 10th Defendants are constructive trustees of the Plaintiff in respect of the Properties transferred into their names; 8

The learned JC, in her findings, stated that there was no evidence adduced before the High Court to show there were advances and/or monies lent to Austral by the 1st Defendant and Lai Weng Kong.

The learned JC had also made a finding that there was some inconsistencies and contradiction in the 1st Defendant’s evidence. The 1st Defendant did not have any knowledge on the management of the account of the company and he was not able to explain why the alleged advances given to Austral was not reflected in the Austral Yearly Report 1993 and as such, no weight could be given to his evidence.

The learned JC was of the opinion that the 1st to 6th Defendants were bound by their fiduciary duties and should not have been involved with any transaction or contract with a company of which they were a director of. The learned JC observed that contra transactions were not in the ordinary course of business and therefore it required circular resolution to be passed.

The learned JC drew an adverse inference against the Defendants for their failure to call the Special Administrators to give evidence in relation to the circular resolution.

The learned JC had also made a finding that the 1st to the 6th Defendants had conspired to injure the Plaintiff because it was their intention to get the 9 lots of land free through the 7th to 10th Defendants, as nominee of Mr. Lai Weng Kong and the 1st Defendant. 9 THE APPEAL Conspiracy to defraud the Plaintiff of its Properties 23. In order to establish the tort of conspiracy, the following elements have to be established by the Plaintiff:

23.1 a combination of two or more persons and an agreement between and amongst them to do certain acts;

23.2 if the conspiracy involves lawful acts, then the predominant purpose of the conspirators must be to cause damage or injury to the plaintiff, but if the conspiracy involves unlawful means, then such predominant intention is not required;

23.3 the acts must be performed in furtherance of the agreement; and 23.4 damage must be suffered by the plaintiff. See Lonrho plc v Fayed and Others [1992] 1 A.C. 448, H.L.; Kuwait Oil Tanker Co. SAK v AI Bader [2000] 2 All E.R. Comm 27, C.A.; Nagase Singapore Pte. Ltd. v Ching Kai Huat [2008] 1 SLR 80, H.C.

In this appeal, the Plaintiff’s pleaded case against the Defendants was premised on the allegation that the Defendants had conspired with the predominant purpose to injure the Plaintiff by cheating and defrauding the Plaintiff of the Properties.

It is trite law that he burden of proving a claim of conspiracy to defraud the Plaintiff against the Defendants remained at all times on the 10 Plaintiff. The law at the material time (the suit was filed on 3.3.2006 and decided on 30.4.2012 and we heard the appeal on 1.4.2015 and delivered the decision on 15.5.2015) required a higher degree of standard of proof of beyond a reasonable doubt for civil proceedings involving allegation of fraud and not on a balance of probabilities. See Asean Securities Paper Mills Sdn Bhd v CGU Insurance Bhd. [2007] 2 MLJ 301, F.C., which followed the earlier Federal Court decision in Yong Tim v Hoo Kok Chong and Anor [2005] 3 CLJ 229. We are aware of the current law on the burden of proof for fraud in civil claim has changed to balance of probabilities pursuant to the Federal Court decision of Sinnaiyah & Sons Sdn Bhd v Damai Setia Sdn. Bhd. [2015] 7 CLJ 584; but that decision was delivered on 10.8.2015, that is, after our decision in this appeal. Since that Federal Court decision applies “to future cases and should not be utilised to set aside or review past decisions involving fraud in civil claims” (see paragraph 54 of the said decision) our decision in this appeal on the said burden of proof stands unchanged.

On the issue of the burden of proof, we were of the view that the learned JC had shifted the burden of proof to the Defendants to disprove conspiracy when she drew an adverse inference against the Defendants for failing to call the Special Administrators to give evidence.

We were of the view that the learned JC ought to have considered in favour of the Defendants given the fact that the Special Administrators 11 were in total control of Austral between 1999 and 2003. The 1st to 6th Defendants then no longer had any authority or power over the Plaintiff after 9.9.1999 when the Special Administrators assumed control of the Plaintiff.

The burden of proof was on the Plaintiff to call the Special Administrators to give evidence, not the Defendants. This was due to the fact that it was the Plaintiff’s contention that the Special Administrators did not give the present management of the Plaintiff the relevant documents and records of the company. We were of the view that the learned JC should not have drawn adverse inference against the Defendants for failing to call the Special Administrators as witnesses.

Any doubt as to the lack of documentary evidence and the non-attendance of the Special Administrators should not have been attributed to the Defendants because the Defendants were not in the position to procure documents that were supposed to be in the safe custody of the Plaintiff. The 1st to 6th Defendants had handed over all accounting books and records in order and duly audited when they left the organisation in January 2003. The Special Administrators took custody of all the minute and resolution books upon their appointment in 9.9.1999. As such, we were of the view that the Defendants ought not to be blamed for any incompleteness in respect of the record of Austral. In the circumstances, the learned JC had erred when she drew an adverse inference against the 12 Defendants for failure to secure the attendance of the Special Administrators to give evidence. Having shifted the burden of proof to the Defendants, the learned JC’s finding in relation to the claim of conspiracy to defraud was untenable.

We further found that the Plaintiff had failed to establish the elements required to sustain a claim for conspiracy. The learned JC, on page 10 of her grounds of judgment, stated that- “Adalah dipersetujui di dalam fakta-fakta yang dipersetujui bahawa Defendan Pertama hingga Defendan Keenam memegang jawatan seperti yang diplidkan di dalam Perenggan 4 (a) hingga (f) di dalam Penyata Tuntutan Plaintif. Mereka mempunyai tugas fidusiari terhadap Plaintif.” Paragraph 4(a) to (f) of the Plaintiff’s Re-Amended Statement of Claim states generally as follows:

(a) the 1st Defendant was until 10.1.2003 the Executive Director of Austral and the Group Managing Director of Austral’s group of companies and also a substantial shareholder of Austral;

(b) the 2nd Defendant was until 10.1.2003 the group financial controller of Austral and its group companies;

(c) the 3rd Defendant was until 10.1.2003 the group company secretary of Austral and its group companies;

(d) the 4th Defendant was until sometime in 2003 the senior sales executive of Broadland Construction Sdn. Bhd., a subsidiary of Austral; 13

(e) the 5th Defendant was until 10.1.2003 the assistant manager in charge of accounts with the said Broadland Construction Sdn. Bhd;

(f) the 6th Defendant was until 10.1.2003 an Executive Director of the Plaintiff and the Chief Operating Officer of Austral and its group of companies. It is important to note that the 2nd to 6th Defendants were employees of Austral, the Plaintiff or Broadland Constructions Sdn. Bhd. They were not shareholders of either one of the companies and the 2nd to 6th Defendants were also not shareholders of the 7th to 10th Defendants. And yet the learned JC, at page 25 of her grounds of judgment stated that- “Defendan Pertama hingga Defendan Keenam tidak boleh terlibat secara langsung atau tidak langsung dengan apa-apa urusan atau memasuki dalam apa-apa kontrak dengan syarikat yang mereka menjadi Pengarah.” In making this finding, the learned JC had not only contradicted herself but had more seriously misdirected herself on the facts and the issue at hand.

The learned JC had also erred in finding that the 2nd to 5th Defendants, as employees, owed the same duty to the Plaintiff as that of the directors of the company.

Thus, we were of the view that there could not have been a combination of two or more persons and an agreement between and amongst them to do certain acts when the only person that was left was 14 the 1st Defendant. The 1st Defendant, in our view, did not act with the predominant intention of injuring the Plaintiff as he was merely signing the resolution to cause the advances to be repaid back to him and to the late Mr. Lim Weng Kong. To this end we accepted the Defendants’ submissions that the Special Administrators were aware that there were indeed monies owed by Austral and the Plaintiff to the 1st Defendant and Mr. Lai Weng Kong, and that they (the Special Administrators) had approved the contra transactions based on the following considerations:

32.1 the Special Administrators were in possession of all the documents in relation to the Properties in questioned and later handed over the same to the present management of the Plaintiff in 2003;

32.2 the Special Administrators did not make any adverse recommendations against the Defendants during their tenure;

32.3 the Special Administrators had given their approval for the Annual Report for years 30.6.1999 to 30.6.2002, to be signed off without any qualifications; and 32.4 the Special Administrators took no action against the then management of Austral or the Plaintiff. Therefore, we were of the view that the Plaintiff had failed to prove the 1st to 6th Defendants had acted in common intention to defraud the Plaintiff of the Properties. 15

The learned JC had also erred in applying the burden of proof on the balance of probabilities when she should have applied the burden of proof beyond reasonable doubt in deciding that the Defendants were liable for the conspiracy to commit fraud on the Plaintiff. Knowing Receipt 34. After careful perusal of the Plaintiff’s Re-Amended Statement of Claim, we were of the view that the Plaintiff had failed to clearly plead the cause of action of knowing receipt by the 7th to the 10th Defendants of the Properties. At best, the Plaintiff, at paragraph 14 of the Re-Amended Statement of Claim only pleaded as follows: “14. The 7th to the 10th Defendants having knowingly received the said Properties, each of them became constructive trustee of the respective Properties transferred in their favour.” The learned JC had quoted Lord Millet, at page 194, of the case of Twinsectra Ltd v Yardley and Ors [2002] 2 AC 164, H.L., as stating the principle of liability for “knowing receipt” as follows: “105 Liability for “knowing receipt” is receipt based. It does not depend on fault. The cause of action is restitutionary and is available only where the defendant received or applied the money in breach of trust for his own use and benefit: see Agip (Africa) Ltd v Jackson [1990] Ch 265, 291-292; Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, 386. There is no basis for requiring actual knowledge of the breach of trust, let alone dishonesty, as a 16 condition of liability. Constructive notice is sufficient, and may not even be necessary…” [Emphasis added.]

The Plaintiff contended that, in allegedly causing or procuring the transfer of the Properties to the 7th to 10th Defendants, each of the 1st to 6th Defendants had acted mala fide and against the interest of the Plaintiff. In addition to that, the 1st to the 6th Defendants were also in breach of trust of their respective obligations as trustee and/or fiduciary in respect of the Plaintiff’s Properties. However, the Plaintiff had not particularised how the 1st to 6th Defendants had benefitted from the alleged breach of trust and alleged fraudulent transactions.

We found that none of the 2nd to the 6th Defendants had received the Properties either directly or indirectly and none of them received any benefit in respect of the contra transactions. In order for the 2nd to the 6th Defendants to be held liable to account for the contra transactions as constructive trustees, the Plaintiff would have to establish that the 2nd to the 6th Defendants had either knowingly received the trust property/Properties or dishonestly assisted in the alleged breach of trust. We found that not only had the Plaintiff failed to establish that but also the Plaintiff had failed to particularise it in its pleadings.

In order for the 7th to the 10th Defendants to be liable for the commission of knowing receipt, they would have had to receive these Properties as trust properties, which in this appeal, we found they had not. 17 As such, the liability of knowing receipt was not applicable to facts of this case. In this context, we found the learned JC had, in order to find the 7th to the 10th Defendants liable, seriously misdirected herself when she made a finding of fact that the 7th to the 10th Defendants were nominees of the 1st Defendant and the deceased Lai Weng Kong when this fact was not even pleaded. The learned JC went on to conclude erroneously, without more, that the effect of being nominees of the 1st Defendant and the deceased Lai Weng Kong was that the 7th to the 10th Defendants had confirmed all the acts done by the 1st to the 6th Defendants. This is what the learned JC stated at page 44 of her grounds of judgment- “Defendan Ketujuh hingga Kesepuluh adalah nominee kepada Defendan Pertama dan En. Lai. Kesannya adalah sama antara Defendan Ketujuh hingga Kesepuluh dan Defendan Pertama dan Encik Lai bahawa mereka telah mengesahkan kepada semua yang dibuat oleh Defendan Pertama hingga Keenam.”

We also found that the learned JC had failed to appreciate that there was no evidence to suggest that the 2nd to the 6th Defendants had gained any profit whatsoever from these contra transactions or that they had in one way or another unjustly enriched themselves. The 1st Defendant on the other hand was merely being repaid for monies advanced by himself and the late Mr. Lai Weng Kong to Austral. 18

Based on the aforesaid reasons, we found that the Plaintiff had failed to establish a beyond reasonable doubt case against the 1st to the 10th Defendants that the said Defendants had committed the tort of conspiracy to defraud the Plaintiff of its Properties.

In addition to that, we found that the Plaintiff had failed to clearly plead the cause of action of knowing receipt; in any event we found there was no evidence of the commission of this cause of action.

Accordingly, we unanimously allowed the appeal with costs of RM 30,000.00. Costs in the High Court were to be taxed in favour of the 1st to the 10th Defendants/1st to the 10th Appellants. The Order of the High Court was set aside and the deposit was refunded to the Defendants. Sgd. (UMI KALTHUM BINTI ABDUL MAJID) Judge Court of Appeal Malaysia Putrajaya Dated: 12 March 2018 19 Counsel/Solicitors For the Appellant s : Robert Lazar together with T.T, Toi and Aarthi Jeyarajah from Messrs. Shearn Delamore & Co. For the Respondent : Loh Siew Cheang, Cindy Goh Joo Seong together with Heidi Lim Ai Yuen from Messrs. Cheang & Ariff.