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www.ipsofactoJ.com/archive/index.htm [1997] Part 3 Case 6 [CAM] |
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Judgment
Mahadev Shankar JCA
(delivering judgment of the court)
Before the appeal proper was heard, respondents’ counsel sought to put in new evidence. The application so dismally failed to meet the test in Ladd v Marshall [1954] 3 All ER 745 that we dismissed it with costs. (See Lam Soon Cannery Co v Hooper & Co [1965] 2 MLJ 148.) We do not think the factual basis of that application merits any judicial analysis.
The appeal proper is against an order directing the removal of a caveat filed by the appellant. This dispute between the parties is but another chapter in the litigation between members of the Nadchatiram family which has infested our courts.
The caveat was lodged by the appellant on 26 January 1994 against four titles for the land comprised therein in the town of Seremban (‘the said titles’). The ground stated was that the registered owner of the said land was a constructive trustee of the said lands for Nadchatiram Realities (1960) Sdn Bhd (in liquidation) of which the appellant is a contributory and further that the appellant had been given leave of the court to commence an action against the registered owners for a transfer of the said land by the registered owners to the company.
In 1992, the appellant had commenced misfeasance proceedings against Jegadevan Nadchatiram (‘Jega’) under Seremban High Court Originating Summons No 23–246–92 (‘the misfeasance proceedings’). These proceedings were commenced under s 305 of the Companies Act 1965. The subject matter of the exercise was the assets of Nadchatiram Realities (1960) Sdn Bhd (‘the company’). From the beginning of 1975 till the company was ordered to be wound up on 5 September 1989, Jega was a director of the company. In the statement of claim dated 24 December 1992, the appellant made very serious allegations against Jega. In effect, he was accused of fraudulent conduct by way of breach of trust in the manner he dealt with and disposal of much of the company’s assets. We are now here concerned only with the said four titles, and do not propose to talk about the other accusations. The first respondent Danapakia Devi (‘Dana’) was at all material times the secretary of the company with a liability for the company’s assets which was co-extensive with that of Jega.
In para 7(a) of the statement of claim, the appellant pleaded:
Whilst the defendant was one of the directors of the said company, the defendant as a director committed by making, authorizing, sanctioning or participating the following acts of misfeasance and/or breach of trust and/or duty in relation to the company:
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On 5 January 1993, Jega filed a statement of defence in which he responded:
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7. |
Save that the defendant was one of the directors of the company, the rest of the allegations contained in para 7 are denied.
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The misfeasance proceedings are yet to be heard. Full discovery has not yet been given by the defendant. As the appeal records show, the appellant’s attempts to get the misfeasance proceedings to trial have been resisted by Jega at every turn. Besides, the liquidator’s involvement in the company required the appellant to get the liquidator’s concurrence to whatever actions she contemplated involving the company. We do not need to get into all this now. Suffice to say that on 24 January 1994, the appellant obtained an order in Companies Winding-up No 42–2–88 that she be permitted to add the name of the company as a co-plaintiff in the misfeasance proceedings and to take such steps as she may be advised for the recovery of the company’s properties Jega had improperly dealt with or disposed. The said caveat was only lodged against the said four titles after order was made and in furtherance of it.
Jega and Dana filed a motion (No 24–149–95) on 1 April 1995 requiring the appellant to show cause why the caveat should be removed.
Contentious affidavits were filed. There was no cross-examination. What was in issue was whether Jega and Dana had utilized the funds of the company to acquire Grant 10799 for Lot 2901 which subsequently were sub-divided into the four titles.
Paragraph 7 of the appellant’s affidavit, affirmed on 20 April 1995, to show cause why the caveats should remain, reads:
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7.1 |
On 18 March 1975, the plaintiffs as officers of Nadchatiram Realities (1960) Sdn Bhd (in liquidation) executed a memorandum of charge in favour of Central Malaysian Finance Bhd for the loan of RM350,000 on the security of the land of the said company held under HS (D) 3933 in the mukim of Rasah. A copy of the charge executed by the plaintiffs is now produced, annexed hereto and marked as ‘exh V4’. |
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7.2 |
By the said charge, the plaintiffs as officers of the company acknowledged receipt of the sum of RM350,000 upon execution of the said charge. In this connection, I crave leave to refer to the charge. |
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7.3 |
The said charge was discharged on 25 September 1980, vide discharge of charge presentation No 6959–80. I crave leave to refer to the endorsement on the charge. |
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7.4 |
I now produce and annex hereto and marked as exh V5 photocopied copies of the certified copies of the audited balance sheet and profit and loss account of Nadchatiram Realities (1960) Sdn Bhd submitted by the plaintiffs for the years 1974, 1975, 1977, 1978 and 1979 to the Registrar of Companies. I am advised by my solicitors and verily believe that the same balance sheets and profit and loss accounts were also submitted to the Inland Revenue Department. |
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75. |
The plaintiffs did not submit the balance sheet and profit and loss account after 1979. |
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7.6 |
From the accounts, the plaintiffs had concealed to the accountant the above-mentioned charge transaction executed by the plaintiffs on 18 March 1975 whereby a loan of RM350,000 was obtained. One of the allegations of fraud in the misfeasance action is that the plaintiffs had committed fraud by deceiving the accountant. I am advised by my solicitors and verily believe that should the loan secured from the said charge was for the use of the company, the aforesaid loan would have been reflected in the accounts of the company. |
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7.7 |
Further, the evidence establishing the plaintiffs’ misfeasance, breach of trust, unlawful transfer of properties, misappropriation and conversion of monies would be produced by calling the liquidator of Nadchatiram Realities (1960) Sdn Bhd (in liquidation) and other witnesses to testify at the trial of the misfeasance action, vide Seremban High Court Originating Summons No 24–346–92. Upon winding-up of the company, the liquidator would take control of the company and would also take possession and custody of all documents of the company including bank statements and other necessary documents. By the order of the High Court, Seremban dated 24 January 1994 made in the winding-up proceedings, vide Seremban High Court Company (Winding-up) No 28–2–88, the liquidator is to retain and preserve all documents now in the custody of the liquidator pending the final disposal of the misfeasance action and the Seremban High Court Civil Suit No 22–95–93. A copy of the order is now produced, annexed hereto and marked ‘V6’. |
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7.8 |
Having regard to the fact that the misfeasance action brought by me as a contributory of the company and the documents of the company are not in my custody, I am unable to produce at this stage, copies of the bank statements and other documents as these documents by law are with the liquidator. Having regard to the order of the court dated 24 January 1994 marked as exh V6 above, the only way I could establish the plaintiffs’ misfeasance is by calling witnesses to testify and produce documents at the trial of the misfeasance action. |
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7.9 |
I am advised by my solicitors and verily believe that having regard to the peculiar nature of the misfeasance claim, vide Seremban High Court Originating Summons No 24–346–92, which misfeasance action is yet to be heard, any issue or part the issue arising thereon should not be heard and decided in this action. If the court was to do so, I would not only be denied a fair trial as at this state I am unable to produce documents other than by calling witnesses but also greatly prejudiced, particularly by the plaintiffs’ contention in para 16 of the joint-affidavit of the plaintiffs affirmed on 1 April 1995 that they have not committed misfeasance or fraud as alleged in the misfeasance action, vide Originating Summons No 24–346–92. |
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7.10 |
The plaintiffs are constructive trustees as the said lands were purchased out of the loan of RM350,000 granted by the Central Malaysian Finance Bhd upon the security. |
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7.11 |
The plaintiffs had also committed other several acts of misfeasance, particulars of which are set out in details in the misfeasance action. The plaintiffs by the said misfeasance action had virtually treated the company as their own and transferred funds from the company to the second plaintiff. |
In their reply, affidavit affirmed on 4 May 1995, Jega and Dana stated as follows:
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13. |
Paragraph 7.1 of the defendant’s affidavit is admitted. The plaintiffs deny para 7.2 and will contend that the said charge was a third party charge and the loan pursuant to the charge was released to the borrower, namely Mohd Nor So’od. A copy of the relevant charge together with the annexure thereto (loan agreement) is produced herein and marked as ‘exh DJ5’. This loan was taken for a joint venture project, i.e. replanting the company’s 200 acres of oil palm and to plant cash crops on a profit sharing basis with the company. A copy of the joint venture agreement dated 10 February 1975 between the company and the said Mohd Nor So’od is produced herein as exhibit marked ‘DJ6’. The document produced herein and marked as ‘exh DJ7’ contains photocopies of the official receipts issued by the Central Malaysian Finance Bhd to the said Mohd Nor So’od acknowledging the receipts of the repayment of the loan. |
We agree with the appellant’s counsel that these two averments are contradictory. In the defence, Jega was saying he took the money and spent it in the business of the company. In his affidavit, he is saying the money was given to Mohd Nor So’od which flatly contradicts the defence. The key issue here is that no documents had been produced by Jega and Dana to show what was done with the RM350,000. Mdm Saraswathy Devi was counsel for Jega and Dana. When the trial judge asked her in the court below for proof of payment to Mr. Mohd Nor, she admitted there was none.
The relevant portion of the trial court record reads:
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Plaintiff's counsel |
The company’s property ‘Rasah Land’ was charged to Central Malaysian Finance on 18 March 1975 for a loan of RM350,000. This is a three party charge in favour Mr. Mohd Nor. The RM350,000 was paid to Mr. Mohd Nor pursuant to a joint-venture agreement. See ‘DJ6’ in encl 9. |
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Court |
Where is the proof of payment of RM350,000 to Mohd Nor? |
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Answer |
No proof of payment but it is presumed that RM350,000 was paid to Mr. Mohd Nor because he repaid various sums of money to Central Malaysia Finance. See exh DH-7 in annexure 9. This is a three party charge in favour of Mr. Mohd Noor who has to repay the loan @ RM3,791.66 pm. See annexure to charge of Rasah property, i.e. ‘DJ-5’ of annexure 9. The RM350,000 from the charge of Rasah land was not used by the plaintiff to buy the F & N property. |
This is but a bare assertion. The relevant evidence was peculiarly within the knowledge of Jega and Dana and they could have been a lot more forthcoming.
Jega as a director, and Dana as secretary of the company and trustees of its assets, had a very heavy onus upon them to show what was done with the company’s money. In Peninsular & Oriental Steam Navigation Co v Johnson (1938) 60 CLR 189 at p 218, Latham CJ said:
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But in the exercise of his powers he is a trustee for the company and is in a fiduciary relation to the company ( Imperial Mercantile Credit Association v Coleman (1973) LR 6 HL at p 204). If in fact he does have control of property of the company, he is a trustee of that property and must account to the company for it ( Flitcroft’s Case (1882) 21 Ch D 519). When an account is claimed, each case must be considered in relation to all its circumstances: ‘it would be endless to point out all the several avenues in human affairs, and in this commercial age, which lead to or end in accounts’. (Blackstone’s Commentaries, Book III, chap 27 p 437). This statement is even more applicable in the 20th century than in the 18th century. Any person who, as agent or manager or director, has in fact the disposition or control of the moneys or other property of another person is a person who may be ordered to bring in an account. |
The appellant’s contention was that the RM350,000 obtained by Jega from Central Malaysian Finance (‘CMF’) around or after 21 March 1975 was used to buy Grant 10799 for Lot 2901. In para 7.11, the appellant had also made a general allegation that Jega and Dana had treated the company’s funds as their own. Putting aside Jega’s failure to show this charge and the loan obtained in the company’s audited accounts and the contradiction as to whether he received this money (as stated in his defence) or Mr. Mohd Nor got it from CMF on a third party charge, the fact remains that Jega and Dana have produced no concrete evidence whatsoever to show:
who received this money;
what was done with it; and
where they got the money to pay for the first two instalments and redeem the charge.
Jega’s case is that he bought Lot 2901 with his own money and a loan from Great Eastern Life (‘Great Eastern’). His counsel submits that the chronological sequence conclusively proves that the CMF monies could not have been used to buy Lot 201. This evidence is as follows:
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6 Feb 1975 |
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Jega and Dana enter into written agreement with Fraser & Neave (M) Sdn Bhd (‘F & N’) to buy Lot 2901. Purchase price RM345,384 payable RM86,346 on execution and RM86,346 on or before 6 March 1975 with the balance of RM172,692 payable on or before 6 May 1975. (But no direct evidence as to where Jega and Dana got the money to pay the first and second instalments). |
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6 Mar 1975 |
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First instalment due for RM86,346. |
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18 Mar 1975 |
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Jega and Dana execute charge for Lot 3682 to CMF for RM350,000. |
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21 Mar 1975 |
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Charge presented to land office for registration. (No documentation as to when RM350,000 received and to whom paid.) |
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6 May 1975 |
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Final payment of RM172,692 due. |
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27 May 1975 |
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Great Eastern releases RM175,000 to Allen & Gledhill (see letter 9 June 1975). |
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2 Jul 1975 |
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Jega and Dana execute charge in favour of Great Eastern for Lot 2901 for RM175,000. But the loan agreement annexed to the charge states that the interest of the loan was to commence from 27 May 1975. |
The memorials made by the land office on the document of title are shown in second appeal record at p 545. The registration of the transfer of Lot 2901 and the charge by Jega and Dana to Great Eastern Life was purportedly registered on 21 July 1975 but this was cancelled. The transfer and charge was subsequently registered on 3 September 1975. Counsel for the respondents was unable to explain the significance of these entries to us.
Until clarification at the trial in the pending civil suit, the inference is open that the payments due on the sale and purchase agreement for Lot 2901 were not made on the dates stated in the agreement but at other times. Allen & Gledhill were acting for the vendors and for Great Eastern. Jega and Dana entered into negotiations to raise money at or about the same time they charged the company’s land to CMF for RM350,000. Whether any part of this money was used to put through the purchase of Lot 2901 in the meantime is an open question. It is to be noted that the sale and purchase agreement with F & N provided for forfeiture and time was of the essence of the contract. But the sale was not concluded on 6 May 1975 but on 3 September 1975. So the dates in the sale and purchase agreement seem to be very flexible. Even the intermediate use of the company’s funds to buy time while the charge to grant Great Eastern was being put through would be enough to ground the cause of action.
In the absence of conclusive proof from Jega and Dana on how they got the money to pay for the first two instalments for Lot 2901 and what they did with the CMF monies whilst they were having obvious problems in paying the balance due to F & N, it must be held that Jega and Dana have not given a proper account. Paragraph 7.11 of the appellant’s affidavit was a very wide allegation which was not confined to the CMF monies and therefore, caught the first two instalments as well. Any secret advantage made by trustees out of the use of trust funds must accrue to the beneficiary, i.e. the company. No receipts were produced from Mr. Mohd Nor.
In Permanent Trustee Australia Ltd v Shand (1992) 27 NSWLR 426 at p 429, Young J said:
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It is now clear that this means that the court may extend a caveat not only where it sees that the caveator has established a prima facie case that it has an interest in the land, but also where the court considers that the caveator may well show such a case after it has had the opportunity of discovery and inspection and interrogatories, particularly where the caveator’s position will be irretrievable after the registration of a competing deal: see Penny Nominees Pty Ltd v Fountain (Young J, 2 May 1989, unreported) and Rutledge v Jaluit Pty Ltd (Hodgson J, 31 October 1991, unreported). |
The only issue with which a court is concerned in deciding whether a caveat should remain is whether there is a serious issue to be tried. It should not go further and with finality decide the issues in the civil suit which are pending trial. (See Kumpulan Sua Betong Sdn Bhd v Dataran Segar Sdn Bhd [1992] 1 MLJ 263 at pp 267, 270 and 272. See also Kho Ah Soon v Duniaga Sdn Bhd [1996] 1 AMR 977 at p 980.)
And again in Shardy v Tkacz [1991] 1 NZLR 310 at p 313, Hardie Boys J said:
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The same is true of the circumstances surrounding the signing of the documents and the obvious changes of date. These are all matters appropriate for the substantive hearing and quite unsuitable for resolution at this interlocutory stage. There is plainly sufficient evidentiary material to sustain the order that the caveat not lapse, at least in the face of a mortgage which is no more than a device to test the issue. |
And again in Shardy v Tkacz [1991] 1 NZLR 310 at p 313, Hardie Boys J said:
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The same is true of the circumstances surrounding the signing of the documents and the obvious changes of date. These are all matters appropriate for the substantive hearing and quite unsuitable for resolution at this interlocutory stage. There is plainly sufficient evidentiary material to sustain the order that the caveat not lapse, at least in the face of a mortgage which is no more than a device to test the issue. |
On the kind of material before him, it was not really open to the judge to come to findings of fact. He misdirected himself by holding on no evidence at all that the appellant had failed to prove her case when all that was required was to show that there was a serious question to be tried.
We therefore allowed this appeal and ordered that the originating summons filed in the court below be dismissed and the caveat filed be restored. The respondents must pay the appellant her costs here and in the court below. The appellant’s deposit shall be refunded to her.
Cases
Kho Ah Soon v Duniaga Sdn Bhd [1996] 1 AMR 977
Kumpulan Sua Betong Sdn Bhd v Dataran Segar Sdn Bhd [1992] 1 MLJ 263
Ladd v Marshall [1954] 3 All ER 745
Lam Soon Cannery Co v Hooper & Co [1965] 2 MLJ 148
Peninsular & Oriental Steam Navigation Co v Johnson (1938) 60 CLR 189
Permanent Trustee Australia Ltd v Shand (1992) 27 NSWLR 426
Shardy v Tkacz [1991] 1 NZLR 310
Legislations
Companies Act 1965: s. 305
Representations
RR Sethu (Satharuban Sivasubramaniam with him) (Satha & Co) for the appellant.
Christopher Fernando (Haresh Mahadevan with him) (Aris Rizal Christopher Fernando & Co) for the respondent.
Notes:-
This decision is also reported at [1998] 2 MLJ 589.
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