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www.ipsofactoJ.com/appeal/index.htm [2008] Part 2 Case 15 [FCM] |
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Judgment
Abdul Hamid Mohamad CJ
Simpang Empat Plantation Sdn Bhd ("Simpang Empat") the respondent herein was the registered owner of the land in question. In 1990 it obtained a loan from the fourth appellant ("MBf Finance Bhd") for RM2.5 million. The loan was secured by a debenture and a charge under the National Land Code ("NLC"). In May 1992, MBf Finance Bhd recalled the loan and appointed the first three appellants as receivers and managers of Simpang Empat pursuant to the debenture. Simpang Empat then filed a writ against the first four appellants i.e., MBf Finance Bhd and the receivers and managers claiming that the receivers had no power of sale over the said plantation. Simpang Empat also asked for an injunction to be granted against the receivers to restrain them from proceeding with the sale of the said plantation. This suit is Kuala Lumpur High Court Civil Suit No. D4-22-1289-92. Subsequently, Simpang Empat filed an ex parte application in the same civil suit to restrain the receivers and managers from entering into any sale, disposal or other forms of conveyance whatsoever in respect of the said land. At the hearing of the application inter partes, learned counsel for the receivers and managers raised a preliminary objection that the directors of Simpang Empat had no right to bring the action in the name of the company because it was under receivership. He argued that the proper persons who had the power to bring the action were the receivers and managers. The learned High Court judge, Dr. Zakaria M. Yatim (as he then was) agreed with the submission and ruled that the directors had no power to institute the action because the receivers and managers were already appointed.
However, in his written judgment given subsequently, the learned judge was of the view that he was wrong in holding that the receivers had the power to sell the property.
However, on appeal to the then Supreme Court in Supreme Court Civil Appeal No. 02-45-94, the court which by then had been renamed "Federal Court" upheld the High Court judge's ruling on the said preliminary objection and dismissed the appeal. The Federal Court gave the following reasons, which is quoted in full:
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After considering submissions by both Counsel and the facts and circumstances of the case, we are of the unanimous view that the appeal be dismissed with costs to the respondents to be taxed if not agreed. Deposit to account of costs. The appointment of receivers pursuant to a debenture does not, in itself, prevent the directors of the company creating the debenture from pursuing a right of action. The directors can pursue if in doing so, it would be in the interest of the company and would not impinge prejudicially upon the position of the debenture holders by threatening or imperilling the assets which are subject of the charge. Much depends on the facts and circumstances of each case. In the present case, it has not, in our view, been shown that the action would benefit the company thereby justifying the action. Also, the directors had not given indemnity for costs. The appeal is dismissed. That case will be referred to as "Simpang Empat No. 1. |
In 1996, Simpang Empat filed an Originating Summons at the High Court at Ipoh vide Originating Summons No. 25-54-1996. Besides the four defendants in Simpang Empat No. 1, (i.e., MBf Finance Bhd and the receivers and managers), Simpang Empat added two new defendants as the 5th and the 6th defendants (appellants 5th and 6th herein). The 5th appellant was the purchaser of the said land at a price of RM4.8 million. The 6th appellant was the registered proprietor of the land from 29 September 1994. This case is referred to as "Simpang Empat No. 2." In Simpang Empat No. 2, Simpang Empat prays for the following orders:
that the transfer of the property known as PN 35553, Lot No. 9108, Mukim Hutan Melintang, District of Hilir Perak, Perak ("the said land") to the 6th appellant be declared null and void and of no effect due to non compliance of the provisions under s. 340(2)(b) and/or s. 340(4)(b) of the National Land Code 1965;
that the registrar of title be directed to revoke the endorsement of registration on the documents of title regarding the transfer of the said land to the 6th appellant.
that the 4th appellant (MBf Finance Bhd) be ordered to refund the redemption sum which was received from the charge vide presentation No. 9755/91, Vol. 3912, Folio 18 to the 6th appellant;
that the 6th appellant be ordered to return the document of title relating to the said land to the 4th appellant in exchange with the redemption money as stated in para. (iii) above; and
that the registrar of title be directed to reinstate the endorsement of registration relating to Presentation No. 9755/91, Vol. 3912, Folio 18 and cancel the discharge of charge.
The same preliminary objection that was raised in Simpang Empat No. 1 was again raised in Simpang Empat No. 2. The learned High Court judge who heard Simpang Empat No. 2 was Abdull Hamid Embong J (as he then was). He clearly stated in his grounds of judgment that he had ruled against Simpang Empat's "proposition that the preliminary objection could be taken up simultaneously with arguments on the merits of this application". The learned judge also ruled that if the appellants succeeded on the preliminary objection, the hearing on merits of the application would not be necessary. The learned judge further stated:
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Furthermore, the plaintiff (Simpang Empat - added) had earlier agreed to have the preliminary objection heard first, and separately of the merits. They cannot now retract from that stand. |
So, the point that should be made at this stage is that, the merits of the case had not been heard by the learned High Court judge.
The learned judge held:
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It cannot be doubted that this application, in substance, is to challenge the powers of the receivers to deal under receivership with the landed assets of the plaintiff company (although in the prayer of this Originating Summons, the relief sought is for a declaration that the transfer of the plaintiff's land to the sixth defendant pursuant to the sale by the receivers, is null and void). Put another way, the plaintiff herein (Simpang Empat - added) clearly intends to interfere with the basic functions of the receivers, a function duly exercised pursuant to their power to sell under clause 23 of the debenture. This is clearly in contravention of one of the conditions set under Newhart Developments, and it is my finding that the directors purporting to exercise their residual powers, cannot disrupt the receivers' function. As earlier stated, although differently worded, this application is in essence seeking for the same relief as the declaration sought for in Simpang Empat No. 1, i.e., that the receivers and managers do not enjoy any power of sale on the plaintiff's (Simpang Empat's - added) land. It is my view that the matter had been put to rest by the Federal Court No. 1. I cannot, with respect, agree with Mr. Sabapathy's suggestion that this Court should exercise caution in interpreting the Federal Court's decision since it had not given full grounds for its decision. The reason given by the Federal Court, although not lengthy nor rhetorical, is clear, i.e., that the directors, under the circumstances found under Simpang Empat No. 1, no longer possess the power to institute the action, since it could not be shown that such an action would benefit the company. Those circumstances, in my view, have not changed under this application in spite of Mr. Sabapathy's attempt to convince me that there was at least one material difference in that an offer for costs was made in this application to meet the indemnity qualification. However, this offer was made not by the directors personally as I feel they should, but by counsel. It was also rejected by the defendants (the Appellants herein - added) as being inadequate and qualified and I agree. As such, I find that the offer to be a non offer and thus, the company's assets remain endangered by this application. Having considered submissions and the circumstances surrounding this application I am in agreement with defence counsels' stand that this court is bound by the Federal Court's decision. This preliminary objection is therefore upheld and the originating summons be struck out with costs. |
The matter went on appeal to the Court of Appeal vide Civil Appeal No. A-02-139-1997. The Court of Appeal allowed the appeal, set aside the order of the High Court and remitted the case to the High Court for the court to hear and dispose of the matter.
This court, on 5 July 2006 granted leave to the appellants to appeal to this court on the following questions:
In view of the decision of the House of Lords in Johnson v Gore Wood & Co (a firm) [2001] All ER 481 (Johnson v Gore Wood), to what extent the doctrine of res judicata stated therein is applicable in Malaysian Law?
Whether the Court of Appeal ought to have applied the Federal Court decision in Melantrans Sdn Bhd v Carah Enterprise Sdn Bhd [2003] 2 CLJ 86 in the appeal before it in view of the similar factual matrix in Melantrans and the appeal before the Court of Appeal?
Could s. 192(2) of the Companies Act 1965 be relied upon in the present matter to set aside the sale of the subject land by the receivers and managers?
Now, going back to the judgment of the Court of Appeal. Let me try to summarise the main points of the judgment as far as I can understand it.
It started off by saying that one of the main, if not the only, issue in Simpang Empat No. 1 was whether the respondents' directors could bring an action in the name of the company against the appellants. However, in Simpang Empat No. 1, this court did not decide on what the Court of Appeal called the "incidental question" which was whether receivers and managers had power to sell the said property pursuant to the debenture. That issue, i.e., the incidental question was decided by this court in Kimlin Housing Development Sdn Bhd v Bank Bumiputra (Malaysia) Bhd [1997] 3 CLJ 274 about two months after Simpang Empat No. 2 was decided by the High Court (Abdull Hamid Embong J) and about three weeks after the learned judge gave his written judgment. Kimlin (supra) decided that a chargor of land could not by a contract - and a debenture is a contract - exclude the operation of ss. 254 to 265 of the National Land Code ("NLC"). The Court of Appeal then said:
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There can be little or no doubt that if Kimlin had been decided before the Federal Court handed down its decision in the appeal in respect of the first suit, it would not - indeed it could not - have held that any judgment in favour of the instant appellant in the first suit would not have benefited it. This is because if there was no power in the receivers and managers (the instant 1st to 3rd respondents) (in the Court of Appeal - added) to sell the land in question, the purported sale would have been set aside thereby reverting the land to the appellant (Simpang Empat - added). So too, had the learned judge heard the application to strike out the amended summons in the present instance after Kimlin, he would have refused the application. Again, because, as a matter of precedent, Kimlin, as a later decision, had the effect of overreaching the decision in the first suit. |
The Court of Appeal then went on to cite at great length passages from the judgment of the Court of Appeal in Chee Pok Choy v Scotch Leasing Sdn Bhd [2001] 2 CLJ 321. The court then posed the question:
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So the question that is to be asked here is this: if the second suit is permitted to proceed will it favour an abuse of process? In my judgment it will not. Indeed, I am satisfied that abuse of process would be favoured rather than prevented by refusing the appellant permission to reopen the issue. |
Applying Kimlin (supra) and M&J Frozen Food Sdn Bhd v Siland Sdn Bhd [1994] 2 CLJ 14, the court concluded:
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It follows as a matter of essential justice that the issues should be re-opened because persons who are not in law entitled to have property must be made to return it. |
The Court of Appeal then dealt with the argument of learned counsel for MBf Finance Bhd that, if the second suit was allowed to proceed, it would interfere with the powers of the receivers and managers. In dismissing the argument, the court referred to a passage in Tan Ah Teck v Coffral (M) Sdn Bhd [1991] 3 CLJ 2227; [1991] 4 CLJ (Rep) 63, s. 192(2) of the Companies Act 1965, Re B Johnson & Co. (Builders) Ltd [1955] 1 Ch D 634, Roberto Building Material Ptd Ltd v Oversea - Chinese Banking Corp. (No. 2) [2003] 3 SLR 217, K. Balasubramaniam v Mbf Finance Bhd [2005] 1 CLJ 793, Willis v Willis [1941] 1 LNS 117; [1941] MLJ 169, s. 305(1) of the Companies Act 1965 and Cavendish Bentinck v Fenn [1987] 12 App Cas 652.
Then, returning to the instant appeal, the court held that "it cannot by any stretch of imagination be said that penalizing the receivers and managers for doing an act, namely selling and transferring the subject land, they were not entitled in law to do is hardly an interference with their function. So, there is really no interference at all. It is only a question of making the wrongdoers accountable. All that is quite in order." The court further held that there was "no question of imperilling the appellant's (Simpang Empat's - added) assets here. Quite the opposite". This is because: "If the appellant's (Simpang Empat's - added) summons proceeds to trial and terminates in the appellant's (Simpang Empat's - added) favour, then the subject land returns to the appellant (Simpang Empat - added). There is a benefit to the appellant (Simpang Empat - added) and no peril to the asset." The court then concluded:
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Taking a step back once again and viewing the facts of this case in its totality, it is clear that the justice of the case lies in permitting the summons to proceed and to have the issues reopened. |
It appears to me that the effect of the reasoning of the Court of Appeal is this: where the Federal Court decides in a subsequent case on a point of law (in this case, Kimlin (supra)) a case decided earlier by the Federal Court (in this case, Simpang Empat No. l (supra)) may be reopened on grounds of justice. To justify it, the Court of Appeal purported to rely on the doctrine of res judicata in a wider sense.
To my mind, in determining whether res judicata applies or not, two questions must be answered. First, what was the issue decided in Simpang Empat No. 1 and what is the issue raised in the preliminary objection in Simpang Empat No. 2? Secondly, what is the relevance of Kimlin (supra)?
On the first question, it has been shown that in Simpang Empat No. 1 the preliminary objection raised was that the directors had no locus to bring the action in the name of the company because the receivers and managers had been appointed. That too was what the judgment of this court was about. This court had said very clearly that, first, the appointment of receivers and managers pursuant to a debenture does not, in itself, prevent the directors of the company creating the debenture from pursuing a right of action.
Secondly, the directors may do so if it would be in the interest of the company and would not impinge prejudicially upon the position of the debenture holders by threatening or imperilling the assets which are the subject of the charge. That depends on the facts and circumstance of each case.
Thirdly, having laid down the principle, it considered the facts and circumstances of the case before it, then. The court then concluded that it had not been shown that the action of the directors would benefit the company and was therefore justified. Furthermore, the directors had not given the indemnity for costs.
So, the decision of this court then was based on the facts and circumstances of the case before the court then and relevant for the determination of the issue raised in the preliminary objection. It was not a "final judgment" after a full trial of the suit that would close any attempt to re-litigate. All that the court said was that based on the facts and circumstance then before the court the directors had not shown that they had satisfied the requirements laid down by the court. The action was dismissed on the issue of locus standi alone, even then not because there was an absolute prohibition on the directors from bringing an action, but because they, then, did not satisfy the conditions to justify them to do so.
That being so, in my view, there is nothing to prevent the directors from bringing another action. Whether they would succeed or not depends on whether, now, they could satisfy those conditions.
That is what we should be looking at. Has there been shown now (in Simpang Empat No. 2) that the directors had satisfied those conditions?
First, let us look at the High Court judgment (Abdull Hamid Embong J's judgment).
It must first be noted from the judgment that, even when the learned judge was repeating the arguments of the learned counsel for Simpang Empat, hardly any new facts were mentioned except that an offer for costs was made in the Simpang Empat No. 2 to meet the indemnity requirement. The learned counsel, from the judgment, appears to be merely rearguing the same issue. The learned judge concluded that the circumstances had not changed in spite of Mr. Sabapathy's attempt to convince him that there was at least one material difference in that an offer for costs was made in Simpang Empat No. 2 to meet the indemnity qualification. However, for the reasons given by him which were reproduced earlier, he held that the offer was a non offer and thus the company's assets remained endangered.
In other words, the learned judge did consider whether there were new circumstances that would justify the directors' decision to re-litigate and found that there was none. So, he allowed the preliminary objection.
Let us now look at the judgment of the Court of Appeal. The Court of Appeal made no mention whatsoever of the finding of the High Court judge that the circumstances had not changed at all. Instead, the Court of Appeal relied on Kimlin (supra) and in effect, held that because of the decision of this court in Kimlin (supra), all the requirements had been satisfied. In so doing, it purported to rely on the so-called doctrine of res judicata in the wider sense.
What did Kimlin (supra) decide? It decided that a chargor of land could not by a contract - and a debenture is a contract - exclude the operation of ss. 254 to 265 of the NLC. Was that the issue in both the preliminary objections? Of course it was not, because, at the time this court decided Simpang Empat No. 1 and also when Abdull Hamid Embong J decided the preliminary objection in Simpang Empat No. 2, Kimlin (supra) had not been decided yet. Simpang Empat could not use it as a ground in their application as the law as laid down in Kimlin (supra) was not in existence yet. That is why the ground given in prayer 1 of the Originating Summons (Simpang Empat No. 2) only resorted to the provisions of s. 340(2)(b) and/or s. 340(4)(b) besides the allegation that the transfer was undertaken in contravention of the express restriction that the land in question [translation] "may not be transferred, charged or pledged or sold except with the written consent of the Perak State Chief Minister."
Of course, s. 340(2)(b) NLC relied on by Simpang Empat includes "insufficient or void instrument". And, if the receivers and managers have no power to sell without resorting to the provisions of the NLC, according to Kimlin (supra), the transfer would be void.
So, does Kimlin (supra) have an effect on the preliminary objection? First, in my view, Kimlin (supra) cannot retrospectively affect the decision of this court in Simpang Empat No. 1. The reasons are, first, Kimlin (supra) is a later decision in a completely different case on a matter which was not an issue in the preliminary objection in Simpang Empat No. 1. It was never an issue in Simpang Empat No. 1 whether a chargee could sell the charged land without resorting to the NLC. Secondly, even if it was an issue and this court had decided differently in Simpang Empat No. 1, a subsequent decision in Kimlin (supra) by this court would not have the effect of reopening the judgment in Simpang Empat No. 1. Simpang Empat No. 1 had been decided. The decision is final. The matter is closed.
But, as I have pointed out, if the effect of Kimlin (supra) is to render the sale void, then it may be argued that the registration was effected with an "insufficient or void instrument". (I say "if" because the issue would be an issue to be decided by the High Court if Simpang Empat No. 2 is allowed to proceed and I do not think that I should prejudge the issue and bind the High Court before it has even heard the case). If that is the effect of Kimlin (supra), then it cannot be said that it would not be in the interest of the company for the directors to institute Simpang Empat No. 2. Neither could it be said that it would "impinge prejudicially upon the position of the debenture holders by threatening or imperilling the assets which are the subject of the charge". The Court of Appeal is right on those findings.
But does Kimlin (supra) have an effect on Simpang Empat No. 2? The High Court judge could not be faulted for not considering Kimlin (supra) because Kimlin (supra) had not been decided when the learned judge decided on the preliminary objection. However, by the time the Court of Appeal heard the appeal, Kimlin's (supra) decision was already there. It is therefore quite right for the Court of Appeal to take it into consideration. But it should be only for the purpose of deciding the preliminary objection. The final decision on the effect must be left open for the High Court hearing the originating summons (Simpang Empat No. 2) to decide. The court then might also have to consider the effect of Melantrans Sdn Bhd v Carah Enterprise Sdn Bhd [2003] 2 CLJ 86.
In my view, there is, at least, an arguable case now that the sale may be void (this is a matter that should be decided by the High Court at the hearing of the originating summons). So, it follows that for the purpose of deciding the preliminary objection, the requirement of the law has been satisfied for the directors to bring the action in Simpang Empat No. 2.
It is clear in my mind that I am not applying Kimlin (supra) retrospectively. It would be retrospective if it were applied to reopen Simpang Empat No. 1. But Simpang Empat No. 2 is a new action. Simpang Empat No.1 does not prevent Simpang Empat No. 2 from being filed, because Simpang Empat No. 1 was decided purely on the issue of locus standi of the directors, not on the merits, based on the circumstances then.
Regarding the questions posed to this court, the first question arose from the fact that the Court of Appeal had relied on the doctrine of res judicata in a wider sense to arrive at its conclusion. However, as I am of the view that in Simpang Empat No. 2 we are not reopening Simpang Empat No. 1 as it is a fresh action which is not prevented from being brought by Simpang Empat No. 1 since Simpang Empat No. 1 was decided only on the issue of locus standi, it was completely unnecessary for the Court of Appeal to rely on the doctrine of res judicata in the wider sense at all. In the circumstances, I would prefer not to answer Question No. 1 at all.
On question No. 2, as that issue might be an issue in this case in the High Court, I do not think it should be answered yet.
Question No. 3 too need not be answered as it is quite irrelevant to this decision.
In conclusion, I would dismiss the appeal. The order made by the Court of Appeal is hereby affirmed. As regards costs of this appeal, since the respondent's success is not due to their effort in bringing new evidence that there had been a change of circumstances in their favour (indeed they had failed in the High Court) but due to a subsequent intervening event, i.e., the judgment of this court in Kimlin (supra), I would order that only half costs be paid by the appellants to the respondent.
My brothers Augustine Paul and Abdul Aziz Mohamad FCJJ have read this judgment and agree with it.
Cases
Cavendish Bentinck v Fenn [1987] 12 App Cas 652
Chee Pok Choy v Scotch Leasing Sdn Bhd [2001] 2 CLJ 321 CA
Johnson v Gore Wood & Co (a Firm) [2001] All ER 481
K Balasubramaniam (Likuidator Bagi Kosmopolitan Credit & Leasing Sdn Bhd) v MBf Finance Bhd [2005] 1 CLJ 793 FC
Kimlin Housing Development Sdn Bhd v Bank Bumiputra (Malaysia) Bhd [1997] 3 CLJ 274 SC
M&J Frozen Food Sdn Bhd v Siland Sdn Bhd [1994] 2 CLJ 14 SC
Melantrans Sdn Bhd v Carah Enterprise Sdn Bhd [2003] 2 CLJ 86 FC
Re B Johnson & Co (Builders) Ltd [1955] 1 Ch D 634
Roberto Building Material Ptd Ltd v Oversea - Chinese Banking Corp (No 2) [2003] 3 SLR 217
Tan Ah Teck v Coffral (M) Sdn Bhd [1991] 3 CLJ 2227; [1991] 4 CLJ (Rep) 63 HC
Willis v Willis [1941] 1 LNS 117; [1941] MLJ 169
Legislations
Companies Act 1965: s.192, s.305
National Land Code: s.254, s.255, s.256, s.257, s.258, s.259, s.260, s.261, s.262, s.263, s.264, s.265, s.340
Representations
K.K. Leong & Mohamed Khairil Abidin with him (M/s Kean Chye & Sivalingam) for the appellant I, II & III
Mohd Ariff Yusof & Abdullah Abd Rahman with him (M/s Cheang & Ariff) for the appellant IV
Gurbachan Singh Bagawan Singh (M/s Bachan & Kartar) for the appellant V & VI
L Sabapathy & G.B. Wong & S Bhuvaneswary with him (M/s Logan Sabapathy & Co) for the respondent.
Notes:-
All translations from malay texts to english texts are not a part of the original decision.
This decision is also reported at [2008] 5 AMR 289 & [2008] 5 CLJ 305.
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