Chang

- vs -

Public Prosecutor

Judgment

CT Gunn J

1. The appellant was charged for the offence of criminal breach of trust by an agent on 12 March 1981, and the charge against him was as follows:—

   That you between 29 September 1976 and 28 July 1977 at the office of Trengganu Development and Management Bhd, first Floor Sim Lim Building, No 57, Jalan Brickfields, in the Federal Territory, Kuala Lumpur, being an agent, namely the Executive Director of Finance of Trengganu Development and Management Bhd and in such capacity entrusted with certain property, to wit, the funds of the said company, committed criminal breach of trust in respect of the said funds amounting to $390,000 and that you have thereby committed an offence punishable under s 409 of the Penal Code.

2. He claimed trial to the said charge and was on 10 April 1982, convicted thereon and sentenced to imprisonment for three years by the Sessions Court at Kuala Lumpur after a trial of twenty-four days spread over a period of eight months. In order to understand the case for the prosecution and the appellant’s defence it would be useful to set out here briefly the background facts of the case.

   BACKGROUND FACTS

3. The offence of criminal breach of trust by an agent was alleged to have been committed by the appellant by what was called ‘transfers of fund’ amounting to $390,000 from a company called Trengganu Development and Management Bhd (TDMB) to another company called Klang Jaya Baru Development Bhd (KJDB). TDMB was incorporated on 1 December 1965, as a result of an agreement between the Trengganu State Economic Development Corp and a company called National Development and Finance Corp Ltd (NADEFINCO Ltd). According to the said agreement (exh D72) about 33,500 acres of State land were leased to NADEFINCO Ltd for forty-six years subject to a further renewal of another forty-six years. It was also agreed that NADEFINCO Ltd do at its own cost and expense “clear, develop and plant the said lands with oil palms” and also to incorporate a subsidiary management company, that is TDMB, to manage, maintain and upkeep the planted land as well as for harvesting, processing, marketing and sale of the oil palm produce from the said lands. The said obligations on the part of NADEFINCO Ltd would also bind its subsidiary companies.

4. By that agreement (exh D72) as well as the memorandum and articles of TDMB (exh P 12) NADEFINCO Ltd was to have majority representation on TDMB’s board of directors. Initially the financing of TDMB was arranged by NADEFINCO Ltd but due to the Malayanization policy of Government, it became difficult for the financing to be left to NADEFINCO Ltd whose directors were in Singapore. To get over that difficulty another company was incorporated in Malaysia on 7 April 1973, by the name of NADEFINCO Holdings Bhd (NADEFINCO Holdings). NADEFINCO Holdings has since its incorporation been controlled by NADEFINCO Ltd through the latter’s control of the former’s board of directors. NADEFINCO Holdings also controlled the board of directors of KJDB through a majority in the number of directors and eventually NADEFINCO Ltd has six subsidiary companies namely, Cindee Development Sdn Bhd, Syarikat Perlombongan Trengganu Selatan Sdn Bhd, Malaysia Land Investment Co, Sim Thye Development Ltd, TDMB and KJDB.

   THE PROSECUTION'S CASE AS FOUND BY THE SESSIONS COURT

5. The learned president found that during the relevant period, that is, between 29 September 1976, and 28 July 1977, the appellant was an executive director of TDMB in-charge of financial matters of that company. He was first appointed an executive director of TDMB in 1976 (exh P14A) and was responsible for the financial matters of the company, although he was not given specific powers by the board of directors. On 1 November 1976 the appellant also became a director of KJDB which had no shares in TDMB and vice-versa; but NADEFINCO Holdings of which the appellant was also one of the directors held 41 % shares in TDMB and 46% in KJDB.

6. Sometime in early 1978 it was suspected that the funds of TDMB were being used for other companies and according to the chairman of TDMB (PW4) neither he nor the board was aware of four transactions (exhs P1A, P16, P17 and P18) by which a sum totalling $390,000 was transferred to KJDB. According to PW4 there were no resolutions for those four transactions nor were there any resolutions for the transfer of funds from other companies to TDMB and vice-versa. That witness maintained that the appellant was not given any powers to transfer or lend any money to companies which had no connection with TDMB. With those brief facts of the case for the prosecution as found by her, the learned president for the reasons stated in her judgment held that a prima facie case had been made out and called for the defence.

   THE APPELLANT'S GROUNDS OF APPEAL

   (a) Entrustment

7. It was therefore to be expected that two of the appellant’s grounds of appeals were that “the learned President erred in law and fact in holding that the prosecution had, at the close of its case discharged the burden of proof cast upon it” and “was wrong in holding that the Petitioner was entrusted with the funds of TDMB.”

8. The learned president was aware of the ingredients of the offence under s 409 of the Penal Code which the prosecution had to prove. There was evidence (exh P14A), and it was not disputed, that the appellant was an agent of TDMB. On entrustment she was aware that the word “entrusted” is not necessarily a term of law and that in its general significance, all it imports is a handing over the possession for some purpose which may not imply the conferring of any proprietary right at all (per Viscount Haldane in Lake v Simmons [1927] AC 487; 96 LJKB 621.

9. But she seemed, and this was conceded by the learned deputy, to have made her finding that there was entrustment merely on the evidence of the chairman of TDMB (PW4) who said that once the appellant was appointed as an executive director in-charge of finance, he was entrusted with the funds of TDMB. That witness also said that although the appellant was responsible for the financial matters of TDMB, he was not given specific powers by the board to lend money to other companies. On that evidence the learned president stated that she was satisfied that the ingredient regarding entrustment had been proved.

10. Counsel for the appellant contended that the learned president had abdicated her function in regard to interpretation and construction of legal documents produced in this case and only relied on the oral evidence of witnesses. He pointed out that she had completely ignored and disregarded the directors’ resolution appointing one Tan Hooi Bing (“Tan”) as the managing director of TDMB. (exh P13A). Counsel opined that that was the single most important document in the whole case which required construction as to its purport. In that resolution it was resolved by the board of directors on 3 April 1971, that Tan be appointed managing director of the company subject to the following terms and conditions namely;

    (i)

    He shall hold office as Managing Director of the Company until otherwise determined by the Board, or until he shall resign office as Managing Director, or shall cease to hold the office by virtue of Article 107 of the Company’s Articles of Association.

    (ii)

    He shall comply with and conform to any instructions or directions from time to time given by the Board of Directors, but subject thereto shall undertake the general management of the Company’s business and affairs and shall have and may exercise all or any of the powers and discretions conferred upon the Board of Directors by the Company’s Articles of Association other than the power to borrow and make calls on behalf of the Company. Provided that before deciding upon or giving instructions or directions relating to any matter of major importance in connection with the general policy or operations of the Company in relation to which no instructions or directions have been given by the Board of Directors, the Managing Director shall, whenever practicable, refer such matter to a meeting of the Board and act in accordance with any decision of the Board, but his omission so to do shall not invalidate any decision or any action taken by him.

11. Counsel therefore submitted that if the above-quoted directors’ resolution in exh P13A had been considered properly by the Sessions Court, its purpose and effect would be clear. He also referred to the following articles of association of TDMB (exh P12) and contended that they too should have been considered by that Court:—

    [92]	The business of the company shall be managed by the directors, who may exercise all such powers of the company as are not, by the provisions of the Act or by these present, required to be exercised by the company in a general meeting, and the exercise of the said powers shall be subject also to the control and regulation of any general meeting of the company but no resolution of the Company in a general meeting shall invalidate any prior act of the directors which would have been valid if such resolution had not been passed. Provided always that the directors shall not sell or dispose of the undertaking of the company without the resolution of a general meeting.
    .... [96]	The Directors may from time to time appoint one or more of their body to the office of managing director or manager for a term not exceeding five years upon such terms and at such remuneration whether by way of salary, or commission, or participation in profits, or partly in one way, and partly in another, as they may think fit, and a director so appointed shall not, while holding that office, be subject to retirement by rotation, or taken into account in determining the rotation of retirement of directors; but his appointment shall be subject to determination ipso facto if he ceases from any cause to be a director, or if the company in general meeting resolve that his tenure of the office of managing director or manager be determined.
    .... [98]	The Directors may entrust to and confer upon the Managing Director any of the powers exercisable by them upon such terms and conditions as they think fit and either collaterally with or to the exclusion of their own powers, and may from time to time revoke, withdraw, alter or vary all or any of such powers.

12. It was the contention of counsel that the said directors’ resolution appointing Tan as managing director considered in the light of the above-quoted articles of association meant that the board of TDMB had delegated all its powers, except the power to borrow and to make calls, to Tan, the managing director.

13. It was also pointed out by counsel that the learned president, in finding that the ingredient of entrustment has been proved, had not considered the evidence of one of the prosecution witnesses called Chung Shui Tett (PW9), who was a very senior legal practitioner. That prosecution witness told the Court that the said resolution (exh P13A) of which he was one of the signatories gave the managing director of TDMB extensive powers, with the exception of the powers to borrow and make calls. Under the powers given by that resolution, the managing director did not have to refer any transaction which he has undertaken involving the lending of a large amount of money. Although such transaction was of major importance, it was not imperative that he has to refer the matter to the board. It was up to his discretion and if he considered it impracticable to refer to the board before deciding or taking action in any matter, he need not refer to the board even if it was a matter of major importance. That same witness was also referred to the above-quoted articles of association and agreed that the board of directors could under article 98 entrust all the powers to the managing director except the powers which are exercisable by the directors in a general meeting.

14. Counsel then referred to the Indian case of Indra Narayan v The State AIR 1963 Cal 64 in which it was held that the director of a company is a trustee in respect of those funds of the company which are under his control. Where the control over the funds of a company is vested in the board of directors, but in fact it is the chairman of the board of directors who exercises effective control over the funds, in such a case, it is the chairman and not the board of directors, who will be in the position of a trustee, and if he deals with the funds in a manner which is beyond his powers, he will be guilty of the offence of criminal breach of trust. The Indian Court in that case relied on Re Lands Allotment Co [1894] 1 Ch 616 where Lindley J said:

    Although directors are not properly speaking trustees, yet they have always been considered and treated as trustees of money which comes to their hands or which is actually under their control; and ever since joint stock companies were invented directors have been held liable to make good moneys which they have misapplied upon the same footing as if they were trustees .....

15. Counsel then pointed out that the appellant was subordinate to the managing director and was subject to his instructions. If he acted according to any directions of the managing director, he could not be said to have had the power to act independently. Counsel also pointed that the appointment of the appellant as an executive director in-charge of financial affairs did not contain any mention of control over funds being taken away from the managing director. It was therefore the contention of counsel that if there were any doubt on the construction of the effect of the directors’ resolutions appointing the managing director as well as the appellant, then they should be resolved in favour of the appellant. In short it was the contention of appellant’s counsel that if the learned president had not relied merely on the assertion of the chairman (PW4) but had considered or appreciated the effect of the directors’ resolutions as well as the oral evidence of the other prosecution witnesses she would not have erred in holding that the appellant was entrusted with the funds of TDMB.

16. The contention of the learned deputy was that although the President of the Sessions Court seemed to have relied on the evidence of PW4 only, her finding of entrustment was arrived at in the context of the directors’ resolution of 12 August 1976, appointing the appellant, “an executive director of the company to look after its financial affairs as from 1 April 1976, and that he be paid a salary of $1,000 per month effective from that date” (exh P14A). He pointed out that it was the appellant who had authorised the four transfers in question (exhs P16, 17, 18 and 1A) and was also one of the signatories of the cheques issued in respect of those payments (exhs P16B, 17B, 18B and P1C). The learned deputy contended further that the failure of the President of the Sessions Court to consider exh P13A when she decided on the issue of entrustment was not fatal as the powers of the appellant and the managing director were, he submitted, coexisting. He also contended that although the managing director had the overall general power of management of the company by virtue of exh P13A, the appellant had the power of looking after its financial affairs which would necessarily entail the dominion and control over its funds.

17. He then referred to the Indian case of Shivanarayan v State of Maharashtra AIR 1980 SC 439, 440 in which it was held that a director is not only an agent but is in the position of trustee. A director being a trustee of the assets which has come into his hands, has dominion and control over the same. In that case the property in question, being an actionable claim against one Gopaldas, was entrusted to the managing director with complete dominion over the right to recover the same under the articles of the company and as such it was held that he was capable of commiting dishonest misappropriation or conversion of that actionable claim, and a finding of the trial judge on the point of entrustment was upheld and confirmed. The prosecution’s contention on this issue was therefore that exh P13A appointing Tan the managing director did not preclude the appellant from having control and management over the funds of TDMB.

18. Directors of companies are trustees of the powers committed to them, as for instance, the power of approving transfer of shares, of allotting shares, of employing the funds of the company, of making calls or receiving payment in advance of calls, or forfeiting shares, and as trustees they may be rendered liable for their misuse (See Buckley on the Companies Acts and cases collected there). On the question of whether directors are trustees of the funds of their companies, it will be appropriate here to refer to the following dictum of Ungoed Thomas J in the recent English case of Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 2 All ER 1073.

    The first question of law that arises is how far directors are trustees of their companies’ funds ..... On occasion directors have been said to be trustees and on occasion not to be trustees. Like so many interminable arguments in philosophy, economics and everyday life, its resolution depends largely upon definition of terms, in this case of ‘trustees’ and then on the ambit of its proper application to directors. Directors are clearly not trustees identically with trustees of a will or marriage settlement. In particular, so far as at present relevant, they have business to conduct and business functions to perform in a business manner, which are not normally at any rate associated with trustees of a will or marriage settlement. All their duties, powers and functions qua directors are fiduciary for and on behalf of the company. So property in their hands or under their control is theirs for the company, i.e. for the company’s purposes in accordance with their duties, powers and functions. However much the company’s purposes and the directors’ duties, powers and functions may differ from the purposes of a strict settlement and the duties, powers and functions of its trustees, the directors and such trustees have this indisputably in common — that the property in their hands or under their control must be applied for the specified purposes of the company or the settlement; and to apply it otherwise is to misapply it in breach of the obligation to apply it to those purposes for the company or the settlement beneficiaries. So, even though the scope and operation of such obligation differs in the case of directors and strict settlement trustees, the nature of the obligation with regard to property in their hands or under their control is identical, namely, to apply it to specified purposes for others beneficially. This is to hold it on trust for the company or the settlement beneficiaries as the case may be. That is what holding it on trust means. That is why a misapplication of it is equally in each case a breach of trust. This is just not treating as a breach of trust something which is not a breach of trust. No ground has been suggested for, treating it as a breach of trust except that it is a breach of trust ....  So, in my view, in general as in this case, a credit in a company’s bank account which the directors are authorised to operate are moneys of the company under the control of those directors and are held by them on trust for the company in accordance with its purposes ....

19. However the issue of whether there was entrustment in this case was, in my opinion, not free from difficulties. In my judgment when TDMB was incorporated and the directors appointed to its board in 1965 the board of directors must be considered to have been entrusted with the powers as well as the funds of the company. But the question which the court in this case had to and should have considered was the effect of the directors’ resolution appointing Tan the managing director of TDMB on 3 April 1971. It was clear from the said resolution that the board of directors had in 1971 given to Tan all the powers and discretions conferred upon the board of directors by the company’s articles of association other than the power to borrow and make calls on behalf of it. It would therefore appear from that resolution considered together with the articles of association that the board of TDMB had delegated and entrusted to Tan all its powers except the power to borrow and make calls, but including the power to manage the funds of the company. The court should have also considered the evidence of the other prosecution witness (PW9) who gave evidence regarding the extensive powers given to Tan.

20. If both the documentary and oral evidence in this case had been carefully considered, the learned president would have come to the conclusion that the appellant, even after he was appointed an executive director in-charge of financial affairs five years after Tan, that is in the year 1976, was not in the position to manage the funds of TDMB without the overall control of Tan and was therefore in the circumstances of this case not entrusted with or had complete dominion over its funds. I also agreed with the learned counsel for the appellant that even if there were any doubts on the construction of the directors’ resolutions (exhs P13A and P14A) such doubts in their construction should have been resolved in favour of the appellant.

    (b) Dishonest intention

21. The other important grounds of appeal were that “the learned president erred in not having directed her mind to or considered adequately the issues involved for determining whether the petitioner had in fact or in law committed an act of misappropriation” and “was wrong in holding that petitioner had acted dishonestly in authorising the four payments forming the subject matter of the charge.” 

22. The learned president found that there was evidence adduced by the prosecution to show that a total sum of $390,000 had been “withdrawn” from the account of TDMB. (exhs P1D, P16C, P17C, P18E) by means of four cheques (exhs P1A, P16B, P17B, P18B). She was satisfied that there was dishonest intention on the part of the appellant because those so-called withdrawals or transfers were made without the approval of the board of TDMB and that they were never referred to the board. Because the appellant was also a director of NADEFINCO Holdings, which held 46% of the capital of KJDB, she found that the appellant was therefore indirectly through his 10% share in NADEFINCO Holdings, holding 4.6% shares of KJDB and that he therefore stood to gain from those transfers of funds. Finally the learned president considered that although there was no real loss in the present case because the four transfers to KJDB were subsequently assumed by NADEFINCO Holdings yet she held that there was misappropriation because the appellant had no authority to transfer the funds and had caused TDMB to suffer wrongful loss.

23. Counsel for the appellant submitted that the president had misdirected herself for various reasons. First, because the transactions involving the four payments from the account of TDMB to the account of KJDB should be considered and examined in the context of all the surrounding circumstances bearing in mind the relevant previous conduct and practices of that company. Counsel said that it was an over-simplification and unrealistic for the president to have considered that TDMB and KJDB had no connection because both companies are within the NADEFINCO group. He pointed out that in company law, the Court will, in the interest of justice, lift the veil of incorporation and treat a group of companies as a single entity though stricto sensu they are separate legal entities. (Hotel Jayapuri Bhd v National Union of Hotel, Bar and Restaurant Workers  [1980] 1 MLJ 109). Counsel then referred to the evidence of a prosecution witness Chang Ming Huang (PW7), who was also a director of TDMB, and to various extracts in the ledger of TDMB (exh D48). That witness said that transfers of funds by the companies within the NADEFINCO group had been going on for a long time. Counsel also referred to the evidence of another prosecution witness Ho Hee Fong (PW11), an accountant of KJDB, who confirmed that money had been lent to his company by TDMB in the past, and the fact of similar payments even before the appellant became a director was also acknowledged by the investigating officer (PW14) and the director Chang Ming Huang (PW7) also confirmed that all those previous transfers by the companies in the NADEFINCO group were on the instructions of the common managing director Tan who was at the relevant time the managing director of TDMB and KJDB. Even PW7 himself had been authorised to make similar transfers on the instructions of Tan. Counsel pointed out that the four payments authorised by the appellant were in no way different from the other “transfers of funds” or “payments of account” authorised by PW7. In fact according to the evidence of PW11, Tan who was the managing director of both TDMB and KJDB, was informed of the financial position of KJDB immediately before each of the four payments concerned were made to it from TDMB. Counsel contended that the transfers forming the subject matter of the charge looked at in the context of the entries in the account books were nothing more than advances by TDMB to KJDB and that the learned president had misdirected herself when she held that those payments were withdrawals from the funds of TDMB.

24. The practice of charging interest of 1% per month for borrowings by companies within the NADEFINCO group was also referred to by counsel for the appellant. He referred to the evidence of another prosecution witness Tan Kim Chew (PW10), the accounts clerk and bookkeeper of TDMB, as well as to the evidence of the said Ho Hee Fong (PW11), the accountant of KJDB, both of whom told the court that in fact interest of 1% per month was charged by TDMB and paid to it by KJDB for the four sums advanced to it. Proper accounts were also kept of all transfers of funds including the four payments in question and even the chairman of TDMB himself (PW4) confirmed that the accounts of all the companies in the NADEFINCO Group were audited annually and the auditors’ reports including those of TDMB were tabled before the various boards. Those reports would have been considered by the directors before they were taken into the annual general meetings for approval.

25. As regards the learned president’s finding that the appellant stood to gain wrongfully, counsel submitted that there had been a serious misdirection because the absurdity of the reasoning in terms of dollars and cents was obvious bearing in mind that KJDB had to pay TDMB interest at the rate of 1% per month on the $390,000. Counsel said that although the learned president found that the appellant was indirectly holding through his 10% share in NADEFINCO Holdings 4.6% shares of KJDB, she had ignored the fact that the appellant’s 10% shareholding in NADEFINCO Holdings would equally entitle him to 4.1 % indirect interest in TDMB, even disregarding his direct shareholdings therein. In short, counsel for the appellant contended that the learned president never dealt with any of the above issues in her judgment and on that ground alone the president had misdirected herself on the facts and her findings could not be supported by the evidence. He submitted that as the four payments in question were no more than advances or loans in the ordinary course of commercial dealings between TDMB and KJDB which were companies in the NADEFINCO Group and that there were similar dealings involving TDMB and the other companies of that Group since 1973 even before the appellant was appointed a director must negative any dishonest intention on his part and the defence should not have been called.

26. The learned deputy in reply referred to the following passage on the lifting of the corporate veil in Professor Gower’s Modern Co Law (4th Ed) at Page 138:—

    .... those who have chosen the benefits of incorporation must bear the corresponding burdens, so that if the veil is to be lifted at all that should only be done in the interests of third parties who would otherwise suffer as a result of that choice ....  The most that can be said is that the court’s policy is to lift the veil if they think that justice demands it and they are not constrained by contrary binding authority.

27. He contended that TDMB and KJDB were not connected except for a common managing director and some common directors though it was claimed that they are companies in the same group. In any case the transfers of funds were not, he submitted, by any stretch of imagination in the interests of third parties, for example creditors of TDMB, so as to entitle the court to lift the veil. He contended that TDMB and KJDB were entirely separate entities with different shareholders and justice did not demand the lifting of the corporate veil and to treat them as subsidiary companies of one entity. As regards the previous practice of the transfers of funds among companies within the NADEFINCO Group, he stated that the appellant was not authorised by Tan to effect the four transfers in question, and contended that the appellant was attempting to put the blame on Tan merely to exculpate himself and that although Tan might be aware of those transfers it did not absolve the appellant of criminal liability. He also contended that there was no reason why the board of directors should not have been informed by the appellant himself although it was the duty of Tan as managing director to have done so. In effect it was his contention that the appellant had intended to cause wrongful loss to TDMB and wrongful gain to KJDB thus making the transfers dishonest within the meaning of s 405 of the Penal Code and that there was therefore a prima facie case against him.

28. I did not think that the facts of this case would justify the court in lifting the corporate veil because the evidence did not show that the two companies, especially TDMB, were wholly-owned subsidiaries of or that 90% of their shares were held by either NADEFINCO Ltd or NADEFINCO Holdings. But in view of the evidence adduced in this case the learned president should have considered the following provisions of s 5(1)(a) and 6(c) of the Companies Act, 1965 (Revised in 1973):—

    5.

    (1)

    For the purposes of this Act, a corporation shall, subject to sub-s (3), be deemed to be a subsidiary of another corporation, if — (a) that other corporation — (i) controls the composition of the board of directors of the first-mentioned corporation; .....

    6.	Where a corporation — .... (c) is a subsidiary of the holding company of another corporation, that first-mentioned corporation and that other corporation shall for the purposes of this Act be deemed to be related to each other.

29. There was evidence in this case that five of the nine directors of TDMB were the nominees of NADEFINCO Holdings or NADEFINCO Ltd, and there was also evidence that four of the seven directors of KJDB were nominated by NADEFINCO Holdings. If the learned president had considered that evidence in the light of the above-quoted provisions of the Companies Act, 1968, she would not have concluded that those two companies had no, connection but would have found that they were related to each other within the meaning of s 6 of the said Act. As such, she should have considered those four transfers referred to in the charge as well as all similar transfers since the year 1973 between the various subsidiary or related companies of NADEFINCO Ltd of which there was evidence galore in the ledger of TDMB exh (D 48) which was produced before the court. She would have found that all those transfers or payments made even before the appellant was appointed a director in 1976 were made either with the knowledge of or on the directions of Tan, and should have drawn the inference favourable to the appellant and concluded that he could not have effected those four transfers in question without the approval or knowledge of Tan.

30. On the question of whether there was any dishonest intention, I can do no better than follow the Federal Court in Navaratnam v Public Prosecutor  [1973] 1 MLJ 154 and quote here this passage from the judgment of Fazl Ali J in Harakrishna Mahatab v Emperor AIR 1930 Patna 209:—

    I must point out that the essential thing to be proved in case of criminal breach of trust is whether the accused was actuated by dishonest intention or not. As the question of intention is not a matter of direct proof, the Courts have from time to time laid down certain broad tests which would generally afford useful guidance in deciding whether in a particular case the accused had or had no mens rea for the crime. So in cases of criminal breach of trust the failure to account for the money proved to have been received by the accused or giving a false account of its use is generally considered to be a strong circumstance against the accused.

31. In this case I think a simple question could have been asked and that was whether one would have any dishonest intention of committing criminal breach of trust if the so-called withdrawals or transfers of funds were properly accounted for and recorded in the books of accounts of the companies concerned? If the learned president has asked herself that question and considered all the evidence, adduced both oral and documentary, in this case, she would have come to the conclusion that there was no dishonest intention on the part of the appellant to cause either wrongful loss to TDMB or wrongful gain to KJDB and should not have called for the defence.

    (c) The defence

32. Although the defence should not have been called, yet having called the defence the learned president should have given due consideration to it and in particular to the evidence of the appellant (DW1). The president noted that the appellant in his defence had said that he was appointed executive director in-charge of financial affairs since April 1976 but was directly responsible to the managing director Tan who had been given very wide powers by the board in 1971 (exh P13A) including the powers to transfer the funds of the company. However, he admitted that he was not given the authority to transfer funds by the board but maintained that he did so on the request of the managing director.

33. The president held that the defence had not raised any reasonable doubts because, in her opinion, since the appellant knew that he had no power to transfer the funds, he should have reported the four payments to the board. She also considered that the fact that the appellant was following the past practice of making similar advances was no defence as the transfer of funds, even to associated companies, was “a matter of major importance” which should have been referred to the board because, as pointed out earlier, she considered that KJDB and TDMB had no direct connection. Finally, she concluded that by what she called “clever accounting system” that is, the device of the assignment of the debts to NADEFINCO Holdings, the four payments or transfers were concealed from the board of TDMB.

34. The learned president did not consider fully the evidence of the defence, especially that of Datuk Abdul Razak Yusoff (DW2), a chartered accountant and a partner of Razak & Co whose firm of certified public accountants had been auditing the accounts of TDMB, KJDB and NADEFINCO Holdings.

    Briefly that witness said

    • that the four payments in question constituted loans from TDMB to KJDB at 1% interest per month;

    • they had been properly accounted for in the books of the two companies which had been audited;

    • it was normal for companies within the NADEFINCO Group to borrow from each other; 

    • those borrowings would be settled according to a procedure of assignment involving NADEFINCO Holdings; and

    • that repayment of any nett balance due to TDMB would be paid by NADEFINCO Holdings.

35. DW2 also told the court that he had consulted the managing director Tan about the four payments in question and had been assured by him that they were in order before the audit reports were finalised. In fact the 1% per month interest paid by KJDB on those four payments in question was higher than the rate of interest charged by commercial banks during the relevant period, which according to two other defence witnesses from the former Bank De L’Indochine and the United Asian Bank (DW3 & DW4) was 10.25% per annum. DW2 also confirmed that TDMB and KJDB were what accountants call “associated companies”. Learned counsel for the appellant pointed out that DW2 was not shaken in cross-examination and that in the absence of any contradiction by any other expert witness, weight must therefore be given to the evidence of DW2.

36. In any case the confirmation to DW2 by Tan that the four payments were in order should have raised a reasonable doubt which together with evidence of past practice in the companies of the group must negative dishonest intention on the part of the appellant. Counsel also pointed out that there was no suggestion made to DW2 during his cross-examination about those payments being concealed from the board of TDMB through what the president had concluded to be a “clever accounting system”. In fact the form of settlement adopted and the reason for adopting it were explained to the court and there was nothing sinister in it. In short, it was the submission of counsel for the appellant that the president in considering the evidence of the defence had misdirected herself. The learned deputy conceded that the president had not given sufficient reasons for concluding that the defence had not raised a reasonable doubt in the truth of the prosecution’s case but contended that she had not on the whole misdirected herself and that even if there were misdirections the appellate court should not disturb her findings of fact.

    (d) Decision on appeal

37. I allowed the appeal and set aside the conviction and sentence after studying the appeal records as well as hearing both counsel for the appellant and the learned deputy. I was satisfied that the president’s approach to the determination of issues involved was wrong. In the first place, she should have come to the conclusion that there was no prima facie case and should not have called for the defence. But having called for the defence, she should have given sufficient consideration to the evidence given by the appellant and his witnesses. I was not unmindful that whilst an appellate court could only read the appeal records without hearing the evidence and seeing the witnesses, but in this case having perused the appeal records and having heard and considered the submissions of counsel for the appellant and the respondent, I was satisfied that not only there was no prima facie case proved against the appellant but also that the evidence adduced by the defence had created a reasonable doubt whether or not the appellant had committed the offence of criminal breach of trust by an agent as alleged by the prosecution. Therefore, without disregarding the judgment appealed from and having given due consideration and due weight to the findings of fact of the lower court, I considered that the conviction should be set aside not only because it was against the weight of the evidence but also because the learned president had failed to consider all the evidence that was before her and in that sense had also failed to consider fully the defence evidence. (See Mohamed Shariff v Public Prosecutor  [1964] MLJ 64 ).

Cases

Lake v Simmons [1927] AC 487; 96 LJKB 621; Indra Narayan v The State AIR [1963] Cal 64; Re Lands Allotment Co [1894] 1 Ch 616; Shivanarayan v State of Maharashtra AIR 1980 SC 439; Selangor United Rubber Estates Ltd v Cradock [1968] 2 All ER 1073; Hotel Jayapuri Bhd v National Union of Hotel Bar and Restaurant Workers [1980] 1 MLJ 109; Navaratnam v Public Prosecutor [1973] 1 MLJ 154; Harakrishna Mahatab v Emperor AIR [1930] Patna 209; Mohamed Shariff v Public Prosecutor [1964] MLJ 64

Legislations

Penal Code: s.409

Authors and other references

Buckley on the Companies Acts

Professor Gower’s Modern Co Law (4th Ed)

Representation

G Sri Ram (Raja Abdul Aziz Addruse with him) for the appellant.

Nik Abdul Rahman Nik Mat (DPP) for the respondent.