Syawal Enterprises Sdn Bhd

- vs -

Dayadiri Sdn Bhd

Judgment

VC George J

1. The writ herein was caused to be issued on 19 August 1985 at the instance of Messrs Chooi & Co, advocates and solicitors of Kuala Lumpur, holding themselves out as solicitors of the plaintiffs.

2. Judgment in default of defence was entered against the defendant. An attempt to have that default judgment set aside failed. However by an order of the court made on 6 January 1987, stay of execution of the judgment was given on terms to enable the issue of whether or not the judgment had thereafter been satisfied to be tried. The defendant was in that same order of 6 January 1987 given leave to apply to add Jamaludin Awalludin as a co-plaintiff.

3. On 22 January 1987 the defendant took out the summons-in-chambers (encl.33) in the court file seeking various orders and in particular by prayer 4 sought to have the writ set aside or struck off pursuant to O 18 r 19 and/ or under the inherent jurisdiction of the court. In the meantime, on 21 January 1987, Jamaluddin was duly added as a plaintiff and is referred to hereafter as the second plaintiff.

4. The application was at the court’s instance adjourned to and was heard in open court. It was supported by the affidavit of Zaimah Mahiadin (encl.32), a director of the defendant company, and by the affidavit of the second plaintiff (encl.31).

5. Counsel for the defendant with the court’s consent dealt with and submitted only on the said prayer 4 and restricted his submission in respect thereof to only one ground which was that at all relevant times Messrs Chooi & Co had no proper authority to cause the writ to issue on behalf of the first plaintiff.

6. In para 15 of the affidavit (encl.32), Zaimah says:

   I am advised and verily believe that this action should not have been commenced against the defendant as in the first place, the plaintiff’s solicitors did not have the authority to commence this action on behalf of the plaintiff, which is a corporate entity and without the authority of the board of directors.

7. The second plaintiff in his affidavit (encl.31) says, inter alia, that he is the chairman and managing director of the first plaintiff and that he had not been aware of the institution of the suit until 14 February 1986 when at the office of Messrs Chooi & Co he learnt of this. He claims in paras 11 and 12 of his affidavit:

   I also informed the plaintiffs solicitors that as they had commenced this action on the instructions of the minority shareholders/directors, then the plaintiffs solicitors should withdraw this action matter. I wish to categorically state that at all material times either in the past or in the present, the minority shareholders had no authority to institute this legal action against the defendant and neither did any solicitors have any instruction to commence any action against the defendant.

8. The lack of authority of the solicitors to act can be challenged at any stage of the proceedings — see Simmons v Liberal Opinion Ltd [1911] 1 KB 966 followed in Re LY Swee & Co Ltd [1968] 2 MLJ 104 at p 107 and in Chin Kok Kwong Const Sdn Bhd v Sunrise Towers Sdn Bhd [1986] 2 MLJ 41 at p 42. The challenge having been made the burden of proving that the suit had been instituted with proper authority rests on the plaintiff company. See United Investment & Finance Ltd v Tee Chin Yong [1967] 1 MLJ 41 at p 35.

9. Mr. Yeoh Chong Keng, the partner in Messrs Chooi & Co, solicitors for the plaintiff who had the conduct of the matter by his affidavit (encl (83) in the court file explained how Messrs Chooi & Co came to be instructed to cause the writ to issue. At para 4 of the affidavit he says:

   I wish to state that my firm was retained to act in this suit for the first plaintiff by Soo Seng Chuan. I was and still am counsel who was briefed. I still take instructions from Soo Seng Chuan in relation to the conduct of this case.

10. A former shareholder of the first plaintiff sets out in paras 2 and 3 of her affidavit (encl.82) in the court file what she appeared to consider was the basis on which Soo Seng Chuan purported to authoritatively instruct solicitors on behalf of the plaintiff:

    2.	I was formerly a shareholder of the plaintiff. In this capacity I was the nominee of Soo Seng Chuan, who is my brother-in law. I know as a fact that all the shares held by the other shareholders in the plaintiff were subscribed by Soo Seng Chuan including those which were then held by the second plaintiff. Likewise all the appointments to the board were on the instructions of Soo Seng Chuan.
    3.	Soo Seng Chuan manages the business of the first plaintiff and the other directors are aware of this fact because he is the one that funds the operation of the business.

    Soo Seng Chuan confirms the position by his affidavit (encl (84) which makes interesting reading - paras 3 to 9 are reproduced here:

    3.	I am to state that I am the registered and beneficial owner of 65,000 shares out of 200,001 shares in the first plaintiff. The balance of the shares are registered in the names of:— (a) Samsudin Mustapa — 122,501 shares (b) Basri Ab Talib — 12,500 shares However, both Samsudin Mustapa and Basri Ab Talib hold the said shares as my nominees and on trust for me. The share certificates in the first plaintiff are now produced and shown to me marked as exh ‘SSC-8’.
    4.	Prior to the said shares being registered in the names of Samsudin bin Mustapa (Samsudin) and Basri Ab Talib (Basri), the said shares were held by the second plaintiff. The second plaintiff was divested of the said shares as follows: (a) 25 August 1986 — 25,000 shares were transferred to Samsudin (12,500) and Basri (12,500) (b) 27 January 1987 — 110,001 shares were transferred to Samsudin. I was able to effect the transfer of the said shares because the second plaintiff held the said shares as a nominee and trustee for me.
    5.	I incorporated the first plaintiff with the object of supplying food and ration to the various ministries in the government of Malaysia and for the sake of business and economic expediency I recruited amongst others, the second plaintiff as a shareholder and director in the first plaintiff.
    6.	From the outset, the second plaintiff agreed to be my nominee on the board of directors and as a shareholder in the first plaintiff in return for monetary compensation otherwise I would not have subscribed to the shares in his name nor caused his appointment as a director.
    7.	Even though I caused the appointment of the second plaintiff to the post of chairman cum managing director of the first plaintiff after the death of his father, it was largely ceremonial for the purpose of business efficiency and expediency bearing in mind the nature of the first plaintiff’s business.
    8.	I was and still am the main driving force of the first plaintiff. I retained control and authority over the affairs of the first plaintiff and never at any time then or now divested myself of them. I managed the affairs of the first plaintiff although I had not been appointed as such because of my position as owner and/or beneficial owner of all the shares in the first plaintiff. All the directors including the second plaintiff were my nominees and they acted only on my instructions. In this context, I had full control of the first plaintiff. 9 Needless to say, it was also in this context that I retained Messrs Chooi & Co to act in this suit for the first plaintiff.

11. In plain words and without the use of euphemisms the incorporation of the first plaintiff company with the majority of the shares shown to be held by Malays was obviously to misrepresent to various government agencies that the first plaintiff is what is described as a Bumiputra company. There is evidence in the affidavits filed that many and substantial contracts with government agencies had been won by the company no doubt holding itself out as a Bumiputra company which suggests to me that the planned misrepresentations had in fact been perpetuated from time to time and may even have been fraudulent misrepresentations.

12. It seems to be that if there is any truth in what is alleged by Soo Seng Chuan in those paragraphs of his affidavit that I have just read the second plaintiff and Samsudin and Basri referred to were all participis criminis as it were in the misrepresentations. And the partners to this planned abuse of the Companies Act 1965 and of government policies having fallen out among themselves now seek the aid of the court to resolve their differences. I think that doing so is an abuse of the process. And if indeed the whole suit including the intended counterclaim are abuses of the process they and each of them, and all the petitions and pleas of each of the parties made thereunder should not be given any countenance by the court. They should not be entertained.

13. However at this stage I do not intend to pronounce on that aspect of the matter. The parties should be heard on it and perhaps the court should be assisted by amicus curiae before any ruling is made on the right of the parties herein to have their problems adjudicated by a court of law. Perhaps the parties hereto should be required to show cause why the court should not strike out the claim and the counterclaim.

14. Now having camouflaged the whole operation by the incorporation of the plaintiff company with the substantial portion if not all of the issued shares which Soo Seng Chuan says he owns beneficially issued in the name of Malays and having appointed a board consisting of Malay directors to use the language used by Soo in his affidavit ‘for ceremonial purposes only’, Soo thinks he is entitled to manage the affairs of the first plaintiff. He says as much in para 8 of his affidavit which has been reproduced here above.

15. However the application of the law and practice pertaining to companies on the facts of this case suggest otherwise. The articles of association of the first plaintiff provide by art 73 that the business of the company shall be managed by the directors. Delegation of the powers of the directors may be made by power of attorney (see art 76) or to a committee duly appointed (see art 86). The directors may appoint a managing director. His powers as such managing director will be limited to the powers specifically conferred on him (see art 93). The position is identical to that referred to in United Investment & Finance Ltd v Tee Chin Yong [1967] 1 MLJ 41 at p 35.

16. It seems obvious that in respect of Soo Seng Chuan none of the said articles or any other articles of association of the company had been invoked to give him any of the powers he claims to have or have reserved to himself as alleged beneficial owner of all the shares. The rights or lack of rights of a beneficial owner of shares registered in the name of somebody else was considered by SC Peh J in Sundram Properties Sdn Bhd v Cyril Wettasinghe [1987] 1 CLJ 213 where at p 217 he reiterated:

    .... that a beneficiary of share in a company, registered in the name of another person as trustee, has no rights in such company and any relations which the trustee has with the beneficiary are matters with which such company has nothing whatsoever to do.

    There has been a failure to prove that Soo Seng Chuan had the authority to instruct solicitors to institute the suit. The effect is to make the proceedings a nullity in the sense that the action has not been properly constituted. See Danish Mercantile Co Ltd v Beaumont [1951] 1 Ch 680 at p 687.

17. That same case is also authority for the proposition that the act of the solicitors causing the writ to issue without proper authority can be ratified by the plaintiff company. Ratification however must be effected within a reasonable time — see Bowstead on Agency (14th Ed), r 2(c) at p 51.

18. In the instant case, the challenge to the authority of the solicitors to cause the writ to issue in the name of the plaintiff was made by the summons (encl (33) which is dated 22 January 1988. What is held out to be ratification is the resolution of the board of directors and of the shareholders of the company on 21 March 1988 and 21 September 1989 respectively, over a year and over two years respectively from the date of the challenge to the authority of the solicitors and well over three years and four years respectively from the date of the unauthorised issue of the writ. It seems to me that the company has failed the reasonable time test. Worse, the status and shareholding of the individuals held out as board directors and shareholders of the plaintiff company when the said resolutions were passed are the subject of a challenge in Kuala Lumpur High Court Civil Suit No 22–32–87, some of the cause papers of which have been exhibited in encl (80) herein.

19. In the face of that unresolved challenge, I fail to see how the court can accept that there has been due ratification. The writ has to be and is struck off. It follows that all orders made under or pursuant to the writ and pursuant to applications thereunder have to be and are set aside. I will hear arguments in respect of costs on a date to be fixed by the senior assistant registrar.

Cases

Simmons v Liberal Opinion Ltd [1911] 1 KB 966; Re LY Swee & Co Ltd [1968] 2 MLJ 104; Chin Kok Kwong Const Sdn Bhd v Sunrise Towers Sdn Bhd [1986] 2 MLJ 41; United Investment & Finance Ltd v Tee Chin Yong [1967] 1 MLJ 31; Sundram Properties Sdn Bhd v Cyril Wettasinghe [1987] 1 CLJ 213; Danish Mercantile Co Ltd v Beaumont [1951] 1 Ch 680

Authors and other references

Bowstead on Agency (14th Ed)

Representations

CK Yeoh for the plaintiffs.

S Kanawagi for the defendant.

Notes:-

This decision is also reported at [1990] 3 MLJ 239