Yeoh Seng Keong v Bircher Asia Pacific Sdn Bhd (M-02(NCVC)(W)-466-03/2017)

Page 1 of 14 IN THE COURT OF APPEAL OF MALAYSIA AT PUTRAJAYA CIVIL APPEAL NO: M-02(NCVC)(W)-466-03/2017 BETWEEN YEOH SENG KEONG … APPELLANT AND BIRCHER ASIA PACIFIC SDN BHD … RESPONDENT [IN THE HIGH COURT AT MALACCA CIVIL SUIT NO. 22NCVC-35-07/2015 BETWEEN BIRCHER ASIA PACIFIC SDN BHD … PLAINTIFF (No. Syarikat : 260319-T) AND

1. YEOH SENG KEONG … 1ST DEFENDANT (No. K/P : 761212-07-5415)

2. ENTDESCKEN SDN BHD … 2ND DEFENDANT] (No. Syarikat : 1014893-P) (Decided by Yang Arif Vazeer Alam Bin Mydin Meera of the High Court in Malacca, on the 8th day of February 2017 which allowed the Plaintiff's claim against Defendants for RM346,479.60 with cost of RM50,000.00) CORAM IDRUS HARUN, JCA SURAYA OTHMAN, JCA STEPHEN CHUNG HIAN GUAN, JCA Page 2 of 14 JUDGMENT OF THE COURT BACKGROUND OF THE CASE [1] In this appeal we shall refer to the Appellant and Respondent as the 1st Defendant and Plaintiff respectively as they were referred to in the High Court suit. In the suit the Plaintiff contended that the 1st Defendant was the alter ego and controlling mind of the 2nd Defendant with his wife Lim Ai Theng (PW13) and his brother-in-law Lim Kok Ming (PW14) being the two shareholders and directors as his nominees in the 2nd Defendant. The Plaintiff claimed for a declaratory order and for damages against the Defendants. [2] The Plaintiff had contended as follows:

(ii) in January 2013 the 1st Defendant bought a Galaxy Note II smart phone which was wrongly charged to the Plaintiff;

(iii) in March 2013 the 1st Defendant disposed and delivered the Plaintiff's products to the 2nd Defendant, addressed to himself;

(iv) the 1st Defendant fraudulently disposed of the Plaintiff's company vehicle to himself for a purchase price of RM160,000.00 by way of a directors’ resolution with the signature of one of the directors being forged;

(vi) Procon Electronic's webpage, a supplier of products similar to that of the Plaintiff, listed the 2nd Defendant and later McGrada Industry, newly established by the 1st Defendant, as its distributors;

(vii) the 1st Defendant had committed misconducts whilst employed by the Plaintiff;

(viii) the 1st Defendant had committed acts of sabotage and or conspiracy against the Plaintiff;

(ix) the 1st Defendant had wrongfully used trade secrets and confidential information of the Plaintiff; and

268. [18] On 10.9.2008 he was appointed a director of the Plaintiff. The record of his appointment as a director had been filed with the Companies Commission of Malaysia (CCM). PW10 was also appointed a director. Daniel Thomas Nef was only appointed a director on 23.11.2012. It should be noted that this was after the 2nd Defendant was incorporated on 27.8.2012 and not long before the employment of the 1st Defendant was terminated vide a letter dated 21.5.2013. These facts were not in dispute. [19] The trial judge had referred to s.4 of the CA. The 1st Defendant’s appointment as a director of the Plaintiff came within the definition of s.4 notwithstanding his submission that he was a mere nominee director. [20] The Appeal Record established that the 1st Defendant had received remuneration as a director of the Plaintiff. He had signed the Plaintiff’s annual financial statements, statutory directors’ reports and the directors’ resolutions. He had acted as a director and had performed his duties as a director of the Plaintiff. It was never suggested that he was reluctant or never agreed to be appointed to act as such. These contradicted his submission that he was a mere nominee. Page 9 of 14 [21] Under s.132 of the CA, a director shall at all times exercise his power for a proper purpose and in good faith in the best interest of the company, with reasonable care, skill and diligence and the knowledge, skill and experience which may be reasonably expected of a director having the same responsibilities. Therefore the trial judge was correct in finding that the 1st Defendant being a director of the Plaintiff owed a fiduciary duty and must act in the best interest of the company: see Boardman and another v Phipps (1967) 2 AC 46; Gurbachan Singh s/o Bagawan Singh & Ors v Vellasamy s/o Pennusamy & Ors (On Their Behalf And For The 213 Sub-Purchasers Of Plots Of Land Known As PN35553, Lot 9108, Mukim Hutan Melintang, Hilir Perak) And Other Appeals [2015] 1 MLJ 773. [22] Was there any breach of his duties? The 1st Defendant testified that he was not a shareholder or director of the 2nd Defendant and did not partake in the business activities even after his departure from the Plaintiff. He said the 2nd Defendant was a family business owned and set up by his wife and her brother. It was submitted that there was no wrong committed in their setting up their family business, there was no requirement for him to make disclosure about his wife’s business and he was not contractually bound to the Plaintiff regarding issues surrounding the 2nd Defendant. It was submitted that the overwhelming evidence clearly showed that he was incapable of directing and controlling the establishment of the 2nd Defendant. It was submitted that the Plaintiff’s contention on the lifting of the corporate veil was not the pleaded case of the Plaintiff but that the trial judge had failed to address this point in his judgment. Page 10 of 14 [23] Reading the judgment, the trial judge did not refer to nor rely on the law to pierce the corporate veil in his ruling that the Plaintiff had established that the 1st Defendant had breached his fiduciary duties. The issue of lifting the corporate veil was not pleaded and was not an issue for trial. Therefore it was not necessary for the trial judge to deal with it or to address it in his judgment. There was no merit on this submission. [24] As stated above, the record showed that the 2nd Defendant was incorporated on 27.8.2012 with the 1st Defendant’s wife (PW13) and his brother-in-law (PW14) as the two shareholders and directors. The 1st Defendant’s employment was terminated vide a letter dated 13.5.2013. As stated, the 2nd Defendant did not contest the suit but PW13 was called to testify by the Plaintiff. She testified that she was solely responsible for the incorporation of the 2nd Defendant and the nature of its business. She said its initial business was in food trading and toilet hygiene system but the business was a failure and her part-time worker by the name of Shaun Lee told her there were people looking for sensor goods but that business was also a failure. [25] Looking at the time-line, the 2nd Defendant was a new company and in business for only about nine months. She did not fully explain her role in managing the company, in ordering and selling the goods initially in food and toilet hygiene system and then sensor goods, how did she find the suppliers and the buyers, how much business, or the revenue, the costs, the profits and loss and so on. However, in her evidence, she depended on her part-time worker Shaun Lee to manage the business and had no personal knowledge in running the business. If that was the case, she did not explain why she and her brother had set up the business in the first place. This contradicted her earlier testimony that she was Page 11 of 14 solely responsible for setting up the company and its nature of business. The trial judge was correct to rule that the evidence of PW13 regarding the incorporation of the 2nd Defendant and its management and operations was incredible and there was no reason to interfere with his ruling. PW14 gave similar evidence. [26] Although it was submitted that it was Shaun Lee who had introduced his wife to the business of sensors the Plaintiff failed to call him and an adverse inference must be drawn against the Plaintiff. It was apparent that the 1st Defendant and his wife had tried to push the blame to Shaun Lee. The name of Shaun Lee was raised by his wife to try to explain why they switched from food and toilet hygiene system to sensors. [27] On record, she did not do a good job of it and she admitted she did not know how to manage the business and she left the entire business to Shaun Lee who sometime showed her some documents regarding the business. Based on the appeal record she did not produce any such documents. She did not produce any document such as a letter of employment, identity card or receipt for payment of wages or commissions to establish that Shaun Lee was her part-time worker who managed the business of the 2nd Defendant. It was correct for the trial judge to say that PW13 was not able to provide any shred of documentary evidence as to the existence of Shaun Lee. She did not explain how Shaun Lee obtained the product specifications, pricing list, names of the suppliers and buyers of the Plaintiff bearing in mind Shaun Lee was not an employee of the Plaintiff and had no access to the information unless she gave the information to him and she was given the information by the 1st Defendant. Page 12 of 14 [28] She was also unable to explain the letter dated 30.7.2015 (exhibit P30) from the 2nd Defendant refuting the allegation of the Plaintiff that the 1st Defendant was the alter ego of the 2nd Defendant. Both she and PW14 conceded that they did not write nor sign that letter. It was not suggested that it was Shaun Lee who wrote and signed the letter. Therefore it was correct for the trial judge to point to the fact that it was the 1st Defendant who wrote and signed that letter. [29] Based on the evidence adduced against him, the 1st Defendant failed to clear a lot of doubts on the involvement of Shaun Lee and his involvement in the business of the 2nd Defendant, in particular that the 1st Defendant was the alter ego of the 2nd Defendant. If Shaun Lee existed or was managing the business and that the 1st Defendant was not involved in the 2nd Defendant, the 1st Defendant chose not to call him to rebut the allegations made by the Plaintiff against him. That would have cleared the doubts about his involvement in the 2nd Defendant. There was no reason to interfere with the findings of the trial judge that the 1st Defendant had breached his duties to the Plaintiff. [30] In respect of the signature of Daniel Nef, purportedly forged, although PW12 (document examiner) could not conclude that it was the 1st Defendant who had forged the signature of Daniel Nef, PW12 was of the opinion, however, that it was probably not signed by Daniel Nef. This meant that someone did. PW10 had testified that the 1st Defendant instructed her to forge the signature of Daniel Nef. The 1st Defendant submitted that PW10 was not an independent witness and not a credible witness. The trial judge had directed himself to the evidence and accepted her testimony as credible. The trail judge had the advantage of Page 13 of 14 having seen and heard her in giving her testimony and there was no reason for us to disturb his finding on credibility. [31] On the damages awarded, reading the memorandum of appeal and the submission of the 1st Defendant, the 1st Defendant did not take issues with the sum of RM10,313.05 and RM10,997.97 being retrenchment payments to PW8 and PW10 respectively or the sum of RM39,018.08 being the difference in the value of the Mercedes vehicle or the sum of RM2,679.00 being the costs of products bought by the 1st Defendant using the funds of the Plaintiff but for his own use. [32] However the 1st Defendant contended that the trial judge had erred and misdirected himself when he awarded general damages for the sum of RM283,485.52 to the Plantiff when during trial there was not an iota of evidence from any of the Plantiff’s witnesses that the Plaintiff had suffered losses in the sum of RM283,485.52. It was submitted that the trial judge had erred when he proceeded to award RM283,485.52 based on the comparison of the gross profit margin between the Plaintiff and the 2nd Defendant when there was not an iota of evidence from the Plaintiff’s witnesses to explain the said comparison. [33] The sum of RM283,485.52 as assessed by the trial judge was in respect of general damages for breach of duties of fiduciary and fidelity. It has been held that a fiduciary is liable to account for profits made in breach of that duty. The trial judge did not err in referring to the profits made by the 2nd Defendant arising from the breach and assessed that as the damages payable to the Plaintiff. Page 14 of 14 [34] We have read the appeal record and the grounds of judgment. We find that there was no appealable error in the findings of facts and law of the trial judge and there was no reason to interfere with his decision. The appeal is dismissed and the judgment of the trial judge is affirmed. The 1st Defendant shall pay costs of RM15,000.00 to the Plaintiff/Respondent subject to allocatur. The deposit to be refunded to the 1st Defendant. Dated: 19th July 2018 Signed STEPHEN CHUNG HIAN GUAN (delivering judgment of the court) Court of Appeal Judge Putrajaya Counsel For Appellant : J. Sudmesh with Charlotte Williams Messrs. Jeeva Partnership For Respondent : Desmond Ho with T. H. Lim Messrs. Desmond Ho & Associates