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IN THE COURT OF APPEAL, MALAYSIA (APPELLATE JURISDICTION) CIVIL APPEAL NO: S-02(NCVC)(W)-1893-09/2018 BETWEEN ... APPELLANT AND ... RESPONDENT (HEARD TOGETHER WITH) CIVIL APPEAL NO. S-02(NCVC)(W)-2000-09/2018 BETWEEN ... APPELLANT AND ... RESPONDENT (In the matter of High Court of Sabah and Sarawak at Kota Kinabalu Civil Suit No: BKI-22NCVC-69/6-2016 (HCI) Between ... Plaintiff And ... Defendant) CORAM: DR, BADARIAH BINTI SAHAMID, JCA HARMINDAR SINGH DHALIWAL, JCA YEW JEN KIE, JCA JUDGMENT OF THE COURT [1] There are two appeals before us. They arise from the decision of the Kota Kinabalu High Court dated 24 August 2018. The plaintiff company had brought an action against one of its directors, the defendant. The plaintiff was applying for orders against the defendant to restore property or monies belonging to the company under sections 304 and 305 of the then Companies Act 1965 ("CA 1965") on account of the fraudulent conduct of the defendant in the business of the plaintiff company. At the end of the trial, partial judgment was granted against the defendant together with interest and costs. [2] Both the plaintiff and the defendant were aggrieved with the decision of the High Court below. They each filed separate appeals contending that the High Court was plainly wrong in arriving at the said decision. [3] After careful consideration of the written submissions filed by all parties and after hearing oral arguments, we unanimously allowed the appeal of the plaintiff in the High Court and dismissed the appeal by the defendant there. We now provide the reasons for so doing which will form the judgment of this Court. For convenience, the parties will be referred to as they were in the High Court or by their abbreviations. Background Facts [4] In view of the issues raised in the instant appeals, it is necessary to set out the relevant background facts. The learned Judge below has carefully set out these facts in some detail and we would restate them as follows. The plaintiff is now a company in liquidation. It was wound up in August 2011. The liquidator of the company brought this action against one of its directors, the defendant. The other director was not made a defendant as he had been earlier adjudged a bankrupt. [5] Prior to its liquidation, the company was involved in the construction business. Specifically relevant to the present appeals, it was involved in two construction projects in Sabah. The first was the construction of the Tenom Police Headquarters. It was a project awarded by the Government of Malaysia to the Koperasi Kesatuan Guru-Guru Malaysia Barat Berhad ("Koperasi"). [6] The Koperasi sub-contracted the project to the plaintiff company which in turn sub-contracted the building and civil works to one Tiong Hoo Teck under an agreement dated 12 May 2003 for the sum of RM10 million. Tiong Hoo Teck completed the works in question but he was not paid in accordance with the agreement. He obtained summary judgment against the plaintiff in Kota Kinabalu High Court Suit No. K22-194 of 2005 ("the 2005 suit") in the sum of RM2,123,056.15 together with interest of 8% per annum. The other two defendants in the said suit were its directors, i.e. Wong Chu Lai (the defendant here) and one Ho Ching Yew. The defendants there had also filed a counterclaim against the plaintiff for defective works. [7] Tiong Hoo Teck's claim in the 2005 suit was that Wong Chu Lai and Ho Ching Yew had dishonestly, fraudulently, wilfully or negligently represented that the government had not released progress payments to the plaintiff company Wong Ho Enterprise Sdn Bhd. On that basis, Tiong Hoo Teck claimed that he did not receive all the payments under the subcontract. [8] The other construction project was the Ministry of Education project to construct 14 units of teachers' quarters in Tamparuli. Tiong Hoo Teck was again appointed by the plaintiff company as the sub-contractor. The total sub-contract sum was RM2,123,086.10. Full payment was not made. Tiong Hoo Teck filed another suit, the Kota Kinabalu High Court suit K22-2-2006 ("the 2006 suit") for the balance sum of RM333,086.10. The defendants were again the plaintiff company and the same two directors. [9] Both the 2005 suit and the 2006 suit were jointly tried by Justice Stephen Chung. In respect of the 2005 suit, the learned Judge dismissed the claim against the 2nd and 3rd defendants there (Wong Chu Lai and Ho Ching Yew respectively) on the basis that there was no separate and distinct liability on the part of the defendants to pay Tiong Hoo Teck the money that was owed by Wong Ho Enterprise Sdn Bhd. The learned judge also dismissed the counterclaim of the 1st defendant there (Wong Ho Enterprise Sdn Bhd) for defective works and liquidated ascertained damages. [10] In respect of the 2006 suit, the learned Judge dismissed the claim on the main ground that there was no sub-contract agreement between Tiong Hoo Teck and Wong Ho Enterprise Sdn Bhd. The agreement was with a firm known as Wong Ho Construction Enterprise. The learned Judge also found that there was no evidence to pierce the corporate veil. Appeals against these decisions were dismissed by this Court (see Tiong Hoo Teck v Wong Ho Enterprise Sdn Bhd and Ors [2014] 4 MLJ 405). [11] Not long thereafter, the plaintiff company was wound up on 2 August 2011. The liquidator commenced the present suit in 2016 against the sole defendant claiming that the defendant had carried out the business of the plaintiff company to defraud creditors within the meaning of s. 304 of the CA 1965. The plaintiff company in liquidation claimed for the same sum of RM2,123,056.15 which was earlier granted in the summary judgment in the 2005 Suit. The company also claimed for the retention sum of RM500,000.00 which was not pursued earlier in the 2005 suit as it was not due yet since the defect liability period had not expired. Despite demands, this sum was not paid to Tiong Hoo Teck. Decision of the High Court [12] A key argument in the court below was whether the defendant had breached the provisions of s. 304 of the CA 1965 and, even if so, whether the claims filed by the liquidator were barred by the res judicata principle as Justice Stephen Chung, in the 2005 and 2006 Suits, had refused to lift the corporate veil against the directors of the company. [13] In this respect, the learned Judge in the court below came to the following conclusion (at paragraphs 51 and 52 of the Grounds of Decision): [51] The main remedy sought in the 2005 suit against the defendant was the sum of RM2,123,056.15 that was due from the company to Tiong Hoo Teck. As I noted earlier, this is the principal remedy sought in this case. The declarations sought are merely ancillary orders sought under section 304 to pin liability on the defendant. Thus, apart from the retention sum that was not due at the time of the 2005 suit, the basis of the claim against the defendant is the same. [52] As for the parties in question in this action and the 2005 suit, the liquidator who is pursuing this action was appointed after the company was wound up. It is obvious that the remedy is for the benefit of the estate of Tiong Hoo Teck that is still pursuing the fruits of judgment that had been obtained against Wong Ho Enterprise Sdn Bhd. I therefore find that the claim is clearly barred by the doctrine of res judicata. Otherwise, any litigant who fails in an action under similar circumstances would be in a position to vex the defendant twice by invoking section 304 of the Companies Act 1965 and by relying on the same material that had been used earlier. Even if the liquidator of Wong Ho Enterprise Sdn. Bhd now has additional evidence, the claim herein is a matter that clearly belonged to the earlier 2005 action and thus, the claim comes within the wider principle of res judicata." [14] In respect of the claim for the retention sum, however, the learned Judge was not persuaded by the res judicata argument. This was how he put it (at paragraph 55 of the Grounds of Decision): [55] As the retention sum was not due at the time of the 2005 suit, in my opinion, it is not a claim that belonged to the said action. Therefore, it is not barred by the doctrine of res judicata. Counsel for defendant submitted that the retention sum was struck out from the earlier claim, i.e. it was removed from the attachment to the Statement of Claim (Attachment B) and therefore the claim had been abandoned. However, I am of the view that it cannot be a claim that "belonged" to the 2005 Suit in the first place as it was not due. In the premises, the failure of Tiong Hoo Teck to pursue it earlier cannot be a bar to do so now. Therefore, the argument of counsel for the defendant that the retention sum claim is barred by the doctrine of res judicata is without merit." [15] And the learned Judge then came to the following conclusion (at paragraph 60): it is apparent from the last audited accounts that the directors had siphoned off the company's monies by giving themselves loans or advances. They had also paid out monies to related companies as stated by the PW1. The directors should have known the retention sum is akin to trust monies as it must be paid to the subcontractor at the end of the defect liability period if there were no defects. But by the time the liquidator took over the company, there was nothing much left to pay to the creditors. Thus, I find on a balance of probabilities that the business of the company had been carried on with intent to defraud its creditors." [16] As a consequence, the learned Judge dismissed the claims on the earlier sums under the 2005 Suit but allowed judgment to be entered for the plaintiff for the retention sum of RM500,000.00. The defendant was ordered to pay the said sum to the estate of Tiong Hoo Teck, together with interest and costs. Our Analysis and Findings [17] Before us, much of the same arguments were canvassed by each side to show that the learned Judge had arrived at an erroneous finding. The liquidator was, of course, aggrieved with the decision of upholding the res judicata argument. The defendant, on the other hand, was displeased with the High Court's decision to allow the claim for the retention sum. [18] In our view, the main issue for determination in the appeals was whether the reliance of the liquidator on sections 304 and 305 of the CA 1965 prevents the operation of the doctrine of res judicata. After careful consideration of the arguments put forward by both parties, we came to the conclusion that res judicata did not apply to the claims by the liquidator. We considered that the learned Judge fell into error in not allowing the liquidator's claim in full. Our reasons were as follows. [19] It may be useful to begin by looking at the statutory provisions relied upon by the liquidator to seek his remedy. First, s. 304(1) of the CA 1965 which reads as follows: