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[2000] Part 2 Case 14 [HCM] |
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www.ipsofactoJ.com/highcourt/index.htm
[2000] Part 2 Case 14 [HCM] |
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HIGH COURT OF MALAYA |
Repco Holdings Sdn Bhd
- vs -
Pengurusan Danaharta Nasional Bhd
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Coram ABDUL WAHAB PATAIL J |
29 DECEMBER 1999 |
Judgment
Abdul
Wahab Patail J
The
plaintiffs have filed a writ against the first defendant
("Danaharta") and the second and third defendants ("the
SA") appointed by Danaharta pursuant to s 24 of the Pengurusan
Danaharta Nasional Berhad Act 1998 ("the Danaharta Act") claiming
that the said appointment is void and invalid. The plaintiffs are now
applying for an injunction (Encl. 4) to restrain the SA from acting as such
upon the basis of the claim that the appointment of the SA is invalid.
In applications of this nature it is important for the court to refrain from making a decision that in effect determines the issues finally. The danger lies from making such decisions when not all of the facts relevant to the issue are properly put and tested before the court and a finding is made thereon. The Federal Court in Alor Janggus v Sey Hoe SB [1995] AMR 549 set out the perspective in approaching interlocutory injunctions clearly as follows:
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At an interlocutory proceeding for an injunction the court is not called upon nor is it desirable for the court to decide finally on the rights of the parties but the court must be satisfied that there is a serious issue to be tried. |
A
summary of the inquiry to be made in hearing an application for an
interlocutory injunction has been summarised in Keet Gerald Francis Noel
John v Mohd Noor Abdullah [1995] 1 AMR 373, at pp 390-391, CA: an
injunction should undertake an inquiry along the following lines:
He
must ask himself whether the totality of the facts presented before him
discloses a bona fide serious issue to be tried. He must, when
considering this question, bear in mind that the pleadings and evidence
are incomplete at that stage. Above all, he must refrain from making any
determination on the merits of the claim or any defence to it. It is
sufficient if he identifies with precision the issues raised on the
joinder and decides whether these are serious enough to merit a trial.
If he finds, upon a consideration of all the relevant material before
him, including submissions of counsel, that no serious question is
disclosed, that is an end of the matter and the relief is refused. On
the other hand if he does find that there are serious questions to be
tried, he should move on to the next step of his inquiry;
Having found that an issue has been disclosed that requires further investigation, he must consider where the justice of the case lies. In making his assessment, he must take into account all relevant matters, including the practical realities of the case before him. He must weigh the harm that the injunction would produce by its grant against the harm that would result from its refusal. He is entitled to take into account, inter alia, the relative financial standing of the litigants before him.
If after weighing all matters, he comes to the conclusion that the plaintiff would suffer greater injustice if relief is withheld, then he would be entitled to grant the injunction especially if he is satisfied that the plaintiff is in a financial position to meet his undertaking in damages. Similarly, if he concludes that the defendant would suffer the greater injustice by the grant of an injunction, he would be entitled to refuse relief.
Of
course, cases may arise where the injustice to the plaintiff is so
manifest that the Judge would be entitled to dispense with the usual
undertaking as to damages (see Cheng Hang Guan v Perumahan
Farlim (Penang) Sdn Bhd [1988] 3 MLJ 90). Apart from such
cases, the Judge is entitled to take into account the plaintiffs ability
to meet his undertaking in damages should the suit fail, and, in
appropriate cases, may require the plaintiff to secure his undertaking,
for example, by providing a bank guarantee; and
The Judge must have in the forefront of his mind that the remedy that he is asked to administer is discretionary, intended to produce a just result for the period between the date of the application and the trial proper and intended to maintain the status quo, an expression explained by Lord Diplock in Garden Cottage Foods Ltd v Milk Marketing Board [1984] AG 130; [1983] 2 All ER 770; [1983] 3 WLR 143 and applied in Cheng Hang Guan. It is a judicial discretion capable of correction on appeal.
Accordingly,
the Judge would be entitled to take into account all discretionary
considerations, such as delay in the making of the application or any
adequate alternative remedy that would satisfy the plaintiffs equity,
such as an award of monetary compensation in the event that he succeeds
in establishing his claim at the trial. Any question going to the public
interest may, and in appropriate cases should, be taken into account. A
Judge should briefly set out in his judgment the several factors that
weighed in his mind when arriving at his conclusion.
Thus
it must be shown that there are serious issues to be tried and thereafter
the adequacy of damages and balance of convenience will be addressed. I
proceed to the major parts of the issues raised by the parties. There are
five main grounds raised.
That
on the true construction of the Danaharta Act, there are statutory
pre-conditions which must be met before Danaharta is able to exercise
its powers to appoint the SA. If the pre-conditions are not met,
Danaharta would have exceeded its jurisdiction in making the
appointment. The effect of an act made in excess of jurisdiction is that
it is void and of no effect whatsoever: Wade, Administrative Law; Badiaddin
Mohd Mahidin v Arab Malaysian Finance Bhd [1998] 1 AMR 909 (p 925 per
Azmi FCJ).
That
the appointment was made in bad faith and is therefore bad. The exercise
of a statutory power for collateral purposes is an act of bad faith and
is invalid: Halsbury Vol 1(1) paragraph 74.
That
in making the appointment, Danaharta took into consideration irrelevant
considerations, and is therefore an error of law: Syarikat Kenderaan
Melayu, Kelantan Bhd v Transport Workers Union [1995] 2 AMR 1601. It
is considered to be an act in excess of jurisdiction and a nullity.
That
appointment provisions under the Danaharta Act are unconstitutional and
therefore the appointment of the SA is entirely void and a nullity.
That
the SA ought to be disqualified from acting as such.
The plaintiffs have also sought to argue in the alternative: the case of the plaintiffs or any one or more of them is so clear that as an exception to American Cyanamid Co v Ethicon Ltd [1975] 1 All ER 504, an injunction ought to be granted without even looking at the balance of convenience: Callings Hui Sdn Bhd v Natvest Sdn Bhd [1988] 3 MLJ 234. It was held where the plaintiffs' case is so overwhelming, an injunction would be granted without looking at the balance of convenience. The principle in Callings Hui Sdn Bhd v Natvest Sdn Bhd is consistent with the principle expressed in Alor Janggus v Sey Hoe SB and Keet Gerald Francis Noel John v Mohd Noor Abdullah that there must be a serious issue.
The
term 'a serious issue' does not refer to the magnitude of the claim
involved, but to the strength of the case. An application for interlocutory
injunction must show sufficient evidence to demonstrate that the issues that
it has raised in its suit are serious, in the sense that the issues warrant
serious consideration because there is substantial evidence. If it is unable
to do so, then an interlocutory injunction would not be considered. If it
able to do so, then the court would go on to consider the questions of
adequacy of damages, and if damages would be inadequate, then only to
consider where the balance of convenience would lie. Where the applicant is
able to show that its evidence is so clear and overwhelming, and in effect
shows that it has a plain and obvious case in its claim, then in such a case
damages and balance of convenience are of no relevance and an interlocutory
injunction would be granted.
The plaintiffs argue they have an overwhelming case. Their starting point is the argument:
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That
the statutory pre-condition in s 24 of the Danaharta Act that the
plaintiffs must be "affected persons" within s 21 of the
Danaharta Act has not been met. That with respect to Everise Ventures, the statutory pre-condition in s 24 of the Danaharta Act that Everise Ventures must be insolvent has not been met. |
Section 24 of the Danaharta Act provides:
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24. |
(1) |
Subject to section 25, the Corporation may recommend to the Oversight Committee the appointment of a Special Administrator of an affected person, if the Corporation is satisfied that the affected person - |
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(a) |
is unable or likely to be unable to pay its debts; or |
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(b) |
is unable or likely to be unable to fulfill its obligations to its creditors. |
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(2) |
The Corporation may, with the written approval of the Oversight Committee, appoint the Special Administrator. |
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An affected person is defined in s 21 as follows:
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21. |
In
this Part, unless the context otherwise requires - "affected person" means - |
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(a) |
any company owing a duty or obligation under a credit facility to the Corporation or any subsidiary of the Corporation, whether present or future, or whether vested or contingent; or |
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(b) |
a subsidiary of the company referred to in paragraph (a) who has provided security for the performance of or discharge of the duty or obligation of the company; or |
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(c) |
a subsidiary of the company referred to in paragraph (a) whose share capital has been charged, pledged or mortgaged by the company to secure the performance of or discharge of the duty or obligation of the company. |
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Sime
Bank and Sime Merchant had granted various loans to some of the plaintiffs.
Shares of some of the plaintiffs were pledged as securities for the loans.
These loans were acquired by Danaharta. Thus the plaintiffs now owe their
obligations to Danaharta. On the basis that the plaintiffs were borrowers
and a subsidiary company whose shares were pledged for loan now taken over
by Danaharta, the latter had acted to appoint special administrators.
The plaintiffs argue the words:
'... the appointment of special administrators with powers to administer and manage persons whose assets or liabilities have been so acquired' in the long title,
'... [SA] may be appointed expeditiously to administer and manage persons whose assets or liabilities have been so acquired.' in the third preamble,
explanations in Hansard that Danaharta is for the specific purpose of acquiring non performing loans from financial institutions, that it should have the ability to manage and settle the assets and liabilities so acquired..., that duties of the Special Administrators [SA] are limited to the proposing of schemes for the acquisition, recovery and reselling of the loan and the assets involved, and every asset acquisition is negotiated between the bank or financial institution and Danaharta and 'The position of the borrower is thereby unaltered.'
mean
that the SA ought to be appointed over the banks and not the borrowers.
Hansard
and the long title in an Act was previously only resorted to only where
there is ambiguity in the main Act: see Re Tan Boon Liat [1976] 2 MLJ
83, Re The Application of Tan Boon Liat [1977] 2 MLJ 18; Chor
Phaik Har v Farlim Properties Sdn Bhd [1994] 3 AMR 2103. It was
submitted that with The Interpretation (Amendment) Act 1997 effective July
24, 1997 that it is clear from s 15 that the long title and the preamble
form part of the Act, and according to s 17A, an interpretation which would
promote the purpose and object of the Act must be given effect to. Relying
upon MBf Holdings Bhd v Emtex Corporation Bhd [1986] 1 MLJ 477 where
Seah SCJ in his dissenting judgment said that the preamble provides an
extremely good indication of the purpose of the Act in question, it was
argued that special administrators could be appointed only over banks and
financial institutions, and the position of borrowers from the banks and
financial institutions remain unaltered.
In Wyre Forest District Council v Secretary of State for the Environment [1990] 1 All ER 780, 785, a case in the House of Lords, it was said that if Parliament has defined the terms in an enactment, then in the absence of a clear indication to the contrary, it must be taken that it intends those definitions to govern. Section 21 is a specific interpretation clause for the specific purpose of Part VI of the Danaharta Act relating to the management of assets and liabilities. Such an interpretation clause is of greater specificity than a clause that applies generally to the whole of the Danaharta Act.
Clearly notwithstanding the general terms in the long title and the preamble, Parliament intended the term 'affected persons' to have the specific meanings given to it in s 21 for the specific purpose of Part VI of the Danaharta Act. The words of the Danaharta Act in s 21 are clear and unambiguous, and it is not for judges to invent fancied ambiguities: Duport Steels v Sirs [1980] 1 All ER 529, 541 per Lord Diplock.
It would be incumbent upon the plaintiffs who contend that 'affected persons' should have a different meaning to show that the context requires a different meaning: Knightsbridge Estates Trust Ltd v Byrne [1940] AC 613. The plaintiffs have not been able to show why the term 'affected persons' in s 24, and which section is in Part VI of the Danaharta Act for which the s 21 definition is intended, requires a different meaning. In Stock v Frank Jones (Tipton) Ltd [1978] 1 All ER 948, 954; it was said:
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... dislike of the effect of a statute has never been an accepted reason for departing from its plain language. Holt CJ said nearly three centuries ago: 'An Act of Parliament can do no wrong, though it may do several things that look pretty odd' (City of London v Wood (1701) 12 Mod Rep 669 at p 687). Accordingly, even if one regarded the policy implicit in [the Act concerned] as open to criticism, [if] the statutory language is clear beyond doubt... [it] must prevail. |
The words and meaning of s 21 defining who the affected persons are is clear. The uncertainty, if at all, actually comes from the explanations in Hansard. The long title and the preamble referred to persons whose assets and liabilities have been acquired. Loans given out by the banks and financial institutions are assets, and not liabilities. What is the purpose of appointing a special administrator over the banks and financial institutions after their non performing loans are taken over by Danaharta? There is no reason to do so. The phrase assets and liabilities become more consistent in meaning when applied to the assets and liabilities of borrowers, when their borrowings from the banks and financial institutions are taken over by Danaharta.
While
the long title and the preamble form part of the Danaharta Act, there is
nothing to say that the rest of the provisions of the Danaharta Act must be
read subject to the preamble and long title; or that the purpose or object
of the Danaharta Act as described in Hansard, or the long title and preamble
if interpreted to mean banks and financial institutions, will be any less
promoted or achieved by applying the clear and literal meaning to s 21 to
include appointment of special administrators over companies falling within
the description of s 24.
As
alluded to earlier above, there is little or no purpose to appoint a special
administrator over a bank or financial institution after the non performing
loan is bought over by Danaharta. But appointing a special administrator
over the borrower and other assets within the meaning of s 21 could serve to
put its house in the best light possible on a transparent and accountable
basis, and to make it possible to recover the non performing loan, be it by
the operation until, and disposal of the asset, at an opportune time and in
better circumstances as intended by the Danaharta Act.
On
the face of it, the plaintiffs, being borrowers with loans outstanding to
Danaharta, and companies whose shares have been charged as security for such
loans, clearly fall within the meaning of s 21.
Concern
was expressed that the defendants are seeking to dispose of the shares in
Everise Ventures. I do not think this is a valid concern on that ground per
se. That those shares have been charged to Sime Bank is not disputed.
That Danaharta has bought over the loan account from Sime Bank is also not
disputed. The sale of the shares to realize the loan facility is a
contractual right granted by the plaintiffs when the shares of Everise
Ventures were charged for the facility. Irrespective of the Danaharta Act,
Danaharta has the rights of a lender. The established principles of American
Cyanamid in respect of interlocutory injunctions would apply: see Esso
Petroleum Malaysia Inc v Kago Petroleum Sdn Bhd [1995] 1 AMR 189.
The argument that the preconditions to the appointment contained in s 25 that the appointment would serve the public interest have not been met takes little heed that the public interest is not the only precondition by the use of the word 'or' in s 25:
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25. |
The Corporation may recommend the appointment of a Special Administrator under section 23 or 24 if the Corporation is satisfied that it would serve public interest to do so or one or both of the following purposes could be achieved: |
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(a) |
the survival of the affected person and the whole or any parts of its assets as a going concern; |
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(b) |
a more advantageous realisation of the affected person's assets would be achieved than on a winding up. |
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There
are in fact three possible basis, and the worst case, depending on who is
looking at it, is the third basis. I would also reject this argument.
Another
argument raised was that there was no Oversight Committee approval as
required under s 24(2). The Oversight Committee approval would appear from a
reading of the Danaharta Act to be an independent safeguard against an
overzealous Danaharta management. The Oversight Committee is an independent
committee, but is within Danaharta. On the day before the hearing, an
affidavit was filed exhibiting a copy of the Oversight Committees approval
on April 6, 1999. It is clear then that approval has been given by the
Oversight Committee. I would reject this argument also.
Section
24(1) provides further that if the Corporation is satisfied that the
affected person is unable or likely to be unable to pay its debts or
fulfil its obligations to its creditors, the Corporation may recommend to
the Oversight Committee the appointment of a special administrator.
It
was argued for the plaintiff, that Everise Ventures Sdn Bhd (Everise
Ventures), as at March 31, 1999 and shortly before the appointment of the
special administrators, was solvent as it had a surplus of assets over
liabilities, current assets over current liabilities, and there are no loans
or borrowings by Everise Ventures from Danaharta. In view of s 21 (c), that
there are no loans or borrowings by Everise Ventures from Danaharta, does
not exclude Everise Ventures from the application of the Danaharta Act.
The
solvency of Everise Ventures is disputed by the Special Administrators who
say that Everise Ventures is insolvent. The SA referred to a balance sheet
as at June 30, 1999 showing that there is a deficit of current assets over
current liabilities. It is argued for Everise Ventures that because total
assets exceed total liabilities, the plaintiff is not insolvent.
The
issue then is whether a deficit of current assets over current liabilities
means that Everise Ventures is unable or likely to be unable to pay
its debts or fulfil its obligations to its creditors. The phrase is not
defined in the Danaharta Act.
It
is clear enough that, in terms of assets and liabilities, a company is
insolvent if its overall liabilities exceed overall assets: see for example Mohd
Sari Hj Nuar v ldris Hydraulic (M) Sdn Bhd [1997] 5 MLJ 377, 378. It is
equally clear that the mere fact current liabilities exceed current assets
does not mean the company is insolvent, at least in the short term (see Re
Great Eastern Hotel (Pte) Ltd [1989] 1 MLJ 161). It was argued on the
basis of similar wording in the Companies Act and following Malayan Plant
Pte Ltd v Moscow Narodny Bank Ltd [1980] 2 MLJ 53; Lian Keow Sdn Bhd v Overseas Credit Finance (M) Sdn Bhd [1988] 2 MLJ 449; Re
Great Eastern Hotel Pte Ltd [1989] 1 MLJ 89, the phrase "unable to
or likely to be unable to pay..." must be given the meaning of
inability to pay current debts and not future debts.
Section 218 of the Companies Act provides as follows:
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218. |
Circumstances in which company may be wound-up by Court |
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(1) |
The Court may order the winding-up if- |
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.... |
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(e) |
the company is unable to pay its debts; |
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Definition of inability to pay debt. |
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A company shall be deemed to be unable to pay its debts if- |
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a creditor by assignment or otherwise to whom the company is indebted in a sum exceeding five hundred ringgit then due has served on the company by leaving at the registered office a demand under his hand or under the hand of his agent thereunto lawfully authorized requiring the company to pay the sum so due, and the company has for three weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor; |
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.... |
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(c) |
it is proved to the satisfaction of the Court that the company is unable to pay its debts; and in determining whether a company is unable to pay its debts the Court shall take into account the contingent and prospective liabilities of the company. |
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Unlike
the Danaharta Act, the Companies Act uses the term 'unable to pay its debts'
only, and s 218(2)(c) was included to enlarge the meaning of 'unable to pay
its debts' to include future incapacity. It did so by requiring the court to
take into account the contingent and prospective liabilities of the company,
in other words, future debts. But it does not follow that because there is
no similar provision in the Danaharta Act to s 218(2)(c), s 24(1) of the
Danaharta Act does not apply to future debts, because s 24(1) has the
further words 'or likely to be unable...'
As to likely to be unable to... ' the plaintiffs referred to Re Primlaks (UK) Ltd [1989] BCLC 734 where it was held:
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So, the phrase 'likely to be unable to meet its debts' means whether a company currently unable to pay its debts as they fall due will probably be unable to pay them in the future: .. |
In
my opinion it is wrong to interpret Re Primlaks (UK.) Ltd as
restricting the meaning of likely to be unable to...' only to such a
likelihood arising from a present inability to pay. That case was referring
to the specific instance under the Companies Act. Ordinarily, likelihood of
inability to pay may arise from a number of circumstances and not
necessarily from a present inability to pay only. If it is to be so
restricted, there would be no purpose in adding the words 'likely to be
unable to pay' because the company would already have been a company who is
unable to pay its debts. I would therefore dismiss that argument.
The
plaintiffs have sought to argue that because the special administrators
could only point to a deficit or current assets over current liabilities,
the plaintiffs are not necessarily unable to pay their debts. Even if the
argument is accepted, it ignores
that
s 24(1) refers not only to 'unable to pay' but also to 'likely to be
unable to pay', and
a
company whose current liabilities exceed current assets is very likely
to be unable to pay its debts as they fall due.
This
would appear to describe the current position of the plaintiffs. It is clear
there are non performing loans outstanding. The plaintiffs have not been
able to settle the loan, otherwise there would not have been a non
performing loan and this entire matter would not have arisen.
To
summarise, even if it is accepted that a company with current liabilities
exceeding current assets is not necessarily a company unable to pay its
debts, such a company is clearly likely to be unable to pay its debts, and
although whether the plaintiffs are insolvent or otherwise is disputed, the
circumstances tend to show there is some substance to the assertions of the
special administrators. The audited financial report of the plaintiffs'
group and of Everise Ventures showed:
the
group had an accumulated loss of RM54.16 million, deficit of assets over
liabilities of RM35.45 million and negative cash flow of RM17.16
million; and
the
Everise Ventures had a deficit of current assets over liabilities of
RM14.6 million.
There
is no evidence that the assets are worth much more if revalued. Assertions
to that end, is therefore speculative, especially in the light of the
current economic situation.
It must also be noted that unlike the language of s 218 of the Companies Act
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(1) |
The court may order the winding-up if- |
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.... |
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(e) |
the company is unable to pay its debts, s 24(1) uses the words 'if the Corporation is satisfied that the affected person - |
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is unable or likely to be unable to pay... . |
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Satisfaction
in this context introduces a subjective element into the question of whether
the affected person is unable or likely to be unable to pay it debts or
fulfil its obligations. Where Parliament by clear and unambiguous words
empowers the Corporation to exercise a subjective element in the evaluation,
as compared to the purely objective basis ins 218 of the Companies Act, the
courts would be reluctant to interfere except upon evidence is plainly wrong
to be satisfied, or that there has been an abuse of the exercise of the
discretion. Now, while collateral motives have been alleged, the affidavit
evidence has failed to demonstrate any such abuse.
In
their reply the plaintiffs said that Everise Ventures is being acquired by
Repco and will form part of the group, when certain sums due to minority
shareholders could be taken out of current liabilities and Everise Ventures
would have a surplus of total assets over liabilities even if the holding
company's debt has to be considered irrecoverable. These arguments are
irrelevant since these actions have not eventuated at the time Danaharta was
satisfied Everise Ventures was likely to be unable to pay its debts and took
action under the Danaharta Act.
I
conclude in respect of Everise Ventures, that as a company whose shares had
been pledged, it is an affected person within the meaning of s 21(c) of the
Danaharta Act, and although it is disputed as to whether it is 'unable or
likely to be unable to pay...', it is clear that the assertion that it is
insolvent or at least likely to be unable to pay, is not clearly or entirely
to be without basis. In the circumstances Danaharta cannot be said to have
no basis to be satisfied that Everise Ventures was at least likely to be
unable to pay its debts.
In
arguing the solvency of the other plaintiffs, it was argued that Sime Bank
had misappropriated RM 164 million from the third plaintiff, Everise
Capital, which could have been used to service the loans of the plaintiffs.
This argument is related to the issue whether the claim by the plaintiffs
has been disclosed to Danaharta. The amount in fact outstanding is
questioned, as is the basis of valuation of assets for current value, and
the answers in submissions have been unable to make the matters clear. The
plaintiffs have also filed suit against Sime Bank. But the fact suits have
been filed is not by itself proof that a court could be satisfied with to
show that the plaintiffs are able to pay its debts: Re
Sanpete Builders (S) Pte Ltd [1989] 1 MLJ 393. Even if it is true a sum
of RM164 million has been misappropriated by Sime Bank, the fact remains
that the plaintiffs are without the said sum, and without the RM164 million,
the plaintiffs are unable or at least likely to be unable to pay its debts.
The
plaintiffs object to the appointment of the special administrators on the
grounds that they are from Price Waterhouse Coopers, created as a result of
a merger between Coopers & Lybrand and Price Waterhouse, and Price
Waterhouse were the auditors of the plaintiffs who signed off on the
accounts on November 20, 1997. Thus a two year guideline applicable to
receivers has been infringed. While there may be features of the functions
of a special administrator that is similar to receivers, they are not
receivers. There is no such restriction in relation to special
administrators in s 51 of the Danaharta Act which deals with the
qualifications and disqualification of special administrators.
The
plaintiffs have also failed to show how the alleged conflict occurs. There
is no suggestion that the second and third defendants had personally been
the auditors for the plaintiffs. Price Waterhouse was the auditor of the
first - fourth plaintiffs for the financial years ending June 1996 and June
1997 - Price Waterhouse as such was no longer the auditor of the plaintiffs
after that. The matters at issue in this case arose after that period. Price
Waterhouse is therefore not disqualified under s 51(3)(d) of the Danaharta
Act. Coopers & Lybrand were the reporting accountants with regard to a
consolidated profit forecast prepared for the first plaintiff and submitted
to the Kuala Lumpur Stock Exchange. The function of the reporting
accountants were to review the forecast and to report whether the forecast
accords with the basis and assumptions of the directors of the first
plaintiff, who remain responsible for those basis and assumptions.
It
was alleged that the acts of the defendants were likely to cause damage. It
was not disputed the second and third defendants are partners of Price
Waterhouse-Coopers, a firm of recognised standing internationally. There is
no evidence the directors of the plaintiffs possess special skills not
possessed by the special administrators, to operate the companies and to
deal with their current financial problems. In this regard it is pertinent
to note that to a substantial extent the loan problems stem from a loan of
RM260 million by the third plaintiff who had a paid-up capital of RM7.5
million, to engage in share trading activities, and incurring a loss of
RM70.68 million. Other than the displacement of the boards of directors of
the plaintiffs, their management and other staff had been retained. There
was no evidence of any damage and on the other hand the SA have established
that they have managed the companies reasonably within recognised business
principles. There is no basis in the circumstances to support the suggestion
that the acts of the defendants are likely to cause damage.
Some attention ought to be given to s 22(4) which provides:
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(4) |
The decision of the Oversight Committee shall be final and binding and shall not be reviewed, quashed, appealed against or set aside by the Court. |
The
appointment of the second and third defendants having been approved by the
Oversight Committee, s 22(4) renders the appointment final and cannot be
reviewed, quashed, appealed against or set aside by the court. To grant an
injunction in the circumstances would be contrary to the spirit and intent
of Parliament in enacting s 22(4). I would also reject this ground.
There
were submissions objecting to alleged statements by the SA that the
plaintiff's must take a 'hit'. Whilst the sound of the word appears ominous,
the fact remains that shareholders stand behind secured and unsecured
creditors in priority. That may result in shareholders getting less than
their investment.
It
was also submitted that the appointment of the special administrators was
made in bad faith and a collateral purpose, and that there was a private
motive. The allegation here is that Danaharta found it had made a mistake
when acquiring the loans from Sime Bank when it overlooked the plaintiffs'
claim against Sime Bank and Sime Securities of which it had notice since
September 1998. It was alleged that there was refusal to provide the
documents supporting the vesting certificates when asked for, and there was
backdating of vesting certificates. The allegations were denied. In the face
of denials and absence of any evidence, it cannot be given much weight at
this stage.
It is important to appreciate that these arguments are made on affidavit evidence only. In Hock Hua Bank (Sabah) Bhd v Yong Liuk Thin [1995] 2 AMR 1332 (CA) Gopal Sri Ram JCA held -
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Whenever a court is required to judicially appreciate affidavit evidence, it is a necessary adjunct of that function to ascertain whether allegations made are inherently improbable or inherently incredible or patently inconsistent with contemporaneous documents. Whether such an analysis ought to be undertaken depends upon the jurisdiction the court is exercising and, more importantly, upon the particular facts of a case. |
Nevertheless I am also mindful of the decision in Eng Mee Yong v V Letchumanan [1979] 2 MLJ 212 (PC) where it was held as to affidavit evidence:
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Although in the normal way it is not appropriate for a Judge to attempt to resolve conflicts of evidence on affidavit, this does not mean that he is bound to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be. In making such order on the application as he 'may think just' the Judge is vested with a discretion which he must exercise judicially. It is for him to determine in the first instance whether statements contained in affidavits that are relied upon as raising a conflict of evidence upon a relevant fact have sufficient prima facie plausibility to merit further investigation as to their truth. |
The
defendants have denied the allegations. In addition, the first defendant is
an institution created to deal with a major crisis in a professional manner
subject to various controls in the Danaharta Act. The second and third
defendants are professionals. The suggestion that they acted in bad faith,
even possibly fraudulently would require very strong evidence. Given the
nature of allegations of bad faith, collateral purpose and private motive,
affidavit evidence is an inadequate basis for any clear finding. Where it is
disputed, oral evidence would be necessary before a finding is made thereon.
The affidavits and documents produced and the submissions made in this
application has not convinced me that bad faith is sufficiently clear as to
be a serious issue in considering this application.
On
the basis of the evidence placed before the court in this application the
injunctions as applied for are unwarranted, and if granted on such basis
would defeat the very purpose for which the Danaharta Act was passed.
It
was argued that there are constitutional issues with regard to various
provisions of the Danaharta Act:
the
acquisition by the Corporation, the subsequent vesting under s 14 free
of any claim and the method of appointment of the Special Administrator
(SA) contravenes Article 5(1) and 8(1) of the Federal Constitution.
the
vesting provisions, in particular s 14(3) and s 14(6) and the
consequences flowing therefrom amount to an unlawful deprivation of
property contrary to Article 13 (1) of the Federal Constitution and a
compulsory acquisition or use of property without adequate compensation
contrary to Article 13(2) of the Federal Constitution.
Article 5(1) of the Federal Constitution provides:
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No person shall be deprived of his life or personal property save in accordance with law. |
The
Article is of no assistance to the plaintiffs because there is no suggestion
that the Danaharta Act has not been passed regularly by Parliament. All acts
of Parliament are deemed to have been performed regularly unless shown to be
otherwise. The Danaharta Act having been passed regularly, it is law. Only
acts not according to law would breach Article 5(1). This is inherent in the
principle, for example, that an act in excess of jurisdiction or the law is
void and of no effect. Furthermore fundamental rights enshrined in the
Federal Constitution applies only to natural persons, not artificial persons
such as companies: Kesultanan Pahang v Sathask Realty Sdn Bhd [1998]
2 AMR 1561.
Article 8(1) of the Federal Constitution provides:
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All persons are equal before the law and are entitled to equal protection of the law. |
It was submitted that ss 13, 14, 24, 31 and 33 of the Danaharta Act, dealing with issuance and effect of vesting certificates, disclosure of claims, mechanism of appointment of special administrators, powers of special administrators and cessation of functions of the board of directors of affected persons are manifestly unjust. It was argued it is only the seller of the asset who is required to disclose claims, and it may not be in their interest to disclose claims by third parties as they will get less if the claims are disclosed, yet these third parties would be shut out of their rights against Danaharta because their claims have not been disclosed.
Furthermore, the special administrators are appointed over affected persons, displacing their boards of directors without having been heard, rendering the fundamental rights of the plaintiffs illusory. It was argued the legislation is arbitrary and unfair (Tan Teck Seng v Suruhanjaya Perkhidmatan Pendidikan [1996] 2 AMR 1617; Dewan Undangan Negri Kelantan v Nordin Saleh [1992] 1 MLJ 697; Sugumar Balakrishnan v Pengarah Imigresen Negeri Sabah [1998] 3 AMR 2373). It was submitted that the appointment of the special administrators deprived the affected person, which is a company, of the custody or control of its assets and essentially deprives the company of its livelihood, for which no adequate compensation has been given, and contrary to Article 13 which provides:
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(1) |
No person shall be deprived of property save in accordance with law; |
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(2) |
No law shall provide for the compulsory acquisition or use of property without adequate compensation. |
The
submission that third parties would be shut out of their rights if the
sellers of the loans do not declare the interest of such third parties
ignores s 15(1) of the Danaharta Act which preserves the right to be
compensated.
In rejecting the defendants' application to strike the plaintiffs' suit on the grounds that it frivolous and vexatious, I had said:
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Thirdly, the plaintiffs have questioned whether these provisions breached their constitutional rights under Articles 5 and 13 of the Federal Constitution. Consideration may have to be given as to whether such questions ought to be referred to the Federal Court by way of case stated under s 84 of the Courts of Judicature Act 1964. Certainly the length and scope of submissions underlines that there are questions of fact that need to be tried, and legal issues that require careful consideration and cannot be summarily dismissed under Order 18 r 19. |
Whether
or not there are serious questions on constitutionality and properly arising
in this suit will depend on the evidence produced. Then only would it be
necessary to consider whether to refer the questions under s 84 of the
Courts of Judicature Act 1964. The rejection of the Order 18 r 19 of the
Rules of the High Court 1980 is on the ground that the arguments are not
frivolous and vexatious. That is not to say that all of the issues raised
are considered serious issues. The question in that application was whether
the plaintiffs' suit was a case where the justice of the defendants' case
was plain and obvious, or that the proceeding by the plaintiffs was an
improper use of the court's machinery. In this application I have to
consider first whether there are serious issues.
The
pivotal parts of the plaintiffs' arguments are whether disclosure of the
claims by the plaintiff has been made and whether the plaintiffs are not
'unable or likely to be unable to pay its debts...'. lf disclosure has been
made, and the plaintiffs are solvent, these arguments are not relevant.
Whether or not disclosure had been made, and whether or not Danaharta is
acting regardless of any disclosure is a matter in dispute. As is the
question whether the plaintiffs are solvent. Until the facts are established
by evidence, it would be premature for the court to make pronouncements on
whether those provisions of the Danaharta Act are unconstitutional. The
evidence produced as to the facts is unclear and is at best equivocal. A
mere likelihood that the relevant provisions of the Danaharta Act is
unconstitutional cannot be serious issues for the purpose of consideration
of an interlocutory injunction.
The
issue is whether with regards to the disputed facts, the plaintiffs have
advanced sufficient evidence to show they are serious issues.
It
is obvious then from the foregoing that the plaintiffs, including Everise
Ventures, clearly do not have such an overwhelming case as to attract the Cayne
v Global Natural Resources plc [1984] 1 All ER 225 as applied in Callings
Hui Sdn Bhd v Natvest Sdn Bhd for an interlocutory injunction to be
granted outright without consideration of adequacy of damages and the
balance of convenience.
In
addition, the injunctions applied for amounts to substantially the entire
relief. The plaintiffs have failed to show it has a clear case for the
reliefs, or a high degree of assurance that the injunction if granted, would
be rightly granted: see Locabail International Finance Ltd v Agroexport
[1986] 1 WLR 657.
It
is also obvious from the foregoing that there are issues of fact such as
whether the claims of the plaintiffs had been disclosed, the actual
financial position of the plaintiffs leading to whether the plaintiffs were
unable or likely to be unable to pay its debts, that the actions of
Danaharta, including the appointments of the second and third defendants
were made in excess of jurisdiction and / or in bad faith, that cannot be
resolved on the basis of the affidavit evidence before me, but can only be
dealt with finally in a full trial.
However
even accepting that these issues of fact are serious issues, the nature of
the plaintiffs' interest is essentially financial where damages will be an
adequate remedy. The plaintiffs are a business group. There is nothing to
say that the investments are of any special or sentimental value that cannot
be compensated by damages. Danaharta, set up by the Government of Malaysia,
is in a better position than many financial institutions to meet any damages
ordered. Since the plaintiffs can be adequately compensated in damages,
there is little basis for an interlocutory injunction.
Even if the balance of convenience has to be considered, the appointment of the special administrators who are professionals, and reporting to an institution with specialised expertise such as Danaharta, could only contribute positively to the plaintiff companies. The fact of this suit itself would put the defendants on notice in the interim period so as to be doubly cautious in their actions. On the other hand if the interlocutory injunction is granted as to the appointment of special administrators would leave Danaharta to proceed with commencing the usual recovery proceedings including winding-up.
I am of the view that the plaintiffs' position will not be adversely affected even if they succeed in the main suit. Danaharta would have no difficulty meeting any damages that might accrue. On the other hand the interests of Danaharta could be severely and irreparably prejudiced if this injunction is granted, and the plaintiffs fail in the main suit. There is no evidence advanced that the plaintiffs have the necessary financial wherewithal to carry on the operations of the plaintiff companies for any period of time if this application is granted.
Of
the two deponents, Low Thiam Hock and Choo Chin Thye, actively involved in
this suit against Danaharta, only Choo Chin Thye has directly offered to
give an undertaking. Low Thiam Hock has remained silent on the issue
himself. Neither offered any information as to their financial resources. If
the undertakings were offered as directors for the companies, that is of
questionable value since the companies themselves are in default. In the
circumstances it is impossible to estimate and ascribe any value to the
offer of undertaking.
On balance it would be more convenient to refuse the injunction. An order for an early hearing would adequately accommodate the concerns by the plaintiffs.
Cases
Alor Janggus v Sey Hoe SB @ www.ipsofactoJ.com/appeal/index.htm [2000]
Part 1 Case 5 [CA]; [1995] AMR 549; American Cyanamid Co v Ethicon Ltd [1975] 1
All ER 504; Great Eastern Hotel (Pte) Ltd, Re [1989] I MLJ 161; Keet Gerald
Francis Noel John v Mohd Noor Abdullah [1995] 1 AMR 373; Kesultanan Pahang v
Sathask Realty Sdn Bhd [1998] 2 AMR 1561; Lian Keow Sdn Bhd (ln Liquidation) v
Overseas Credit Finance (M) Sdn Bhd [1988] 2
MLJ 449; Malayan Plant Pte Ltd v Moscow Narodny Bank Ltd [1980] 2 MLJ 53;
MBf Holdings Bhd v Emtex Corporation Bhd [1986] 1 MLJ 477; Stock v Frank Jones
(Tipton) Ltd [1978] 1 All ER 948;
Application of Tan Boon Liat, Re The [1977] 2 MLJ 18; Badiaddin Mohd Mahidin
v Arab Malaysian Finance Bhd [1998] 1 AMR 909; Cayne v Global Natural Resources
plc [1984] 1 All ER 225; Cheng Hang Guan v Perumahan Farlim (Penang)
Sdn Bhd [1988] 3 MLJ 90; Chor Phaik Har v Farlim Properties Sdn Bhd
[1994] 3 AMR 2103; Callings Hui Sdn Bhd v Natvest Sdn Bhd [1988] 3 MLJ 234;
Datuk Mohd Sari v ldris Hydraulic (M) Sdn Bhd [1997] 5 MLJ 377;
Dewan Undangan Negri Kelantan v Nordin Saleh [1992] 1 MLJ 697;
Duport Steels v Sirs [1980] 1 All ER 529; Eng Mee Yong v V Letchumanan
[1979] 2 MLJ 212 (PC); Esso Petroleum Malaysia Inc v Kago Petroleum Sdn Bhd
[1995] 1 AMR 189; Garden Cottage Foods Ltd v Milk Marketing Board [1984] AG 130;
[1983] 2 All ER 770; [1983] 3 WLR 143; Hock Hua Bank (Sabah) Bhd v Yong Liuk
Thin [1995] 2 AMR 1332 (CA); Knightsbridge Estates Trust Ltd v Byrne
[1940] AC 613; Locabail International Finance Ltd v Agroexport [1986] 1 WLR 657;
Primlaks (UK) Ltd, Re [1989] BCLC 734 (considered); Sanpete Builders (S) Pte
Ltd, Re [1989] 1 MLJ 393; Sugumar Balakrishnan v Pengarah Imigresen Negeri Sabah [1998] 3 AMR 2373; Syarikat Kenderaan Melaya,
Kelantan Bhd v Transport Workers Union [1995] 2 AMR 1601; Tan Boon Liat, Re
[1976] 2 MLJ 83; Tan Teck Seng v Suruhanjaya Perkhidmatan
Pendidikan [1996] 2 AMR 1617; Wyre Forest District Council v
Secretary of State for the Environment [1990] 1 All ER 780
Legislations
Companies
Act 1965: s. 218(2)(c)
Courts
of Judicature Act 1964: s. 84
Federal
Constitution: Art. 5(1), Art. 8(1), Art. 13(1), (2)
Interpretation
(Amendment) Act 1997: s. 15, s. 17A
Pengurusan
Danaharta Nasional Berhad Act 1998: s. 13, s. 14(3), (6), s. 15(1), s. 21, s. 22(4),
s. 24(1), s.
31, s. 33, s. 51(3)(d), Part VI
Rules
of the High Court 1980: Ord. 18 r 19
Authors
and other references
Halsbury's
Law of England, Vol 1(1)
Wade,
Administrative Law
Representation
S
Suhendran, N Navaratnam, Ranjit Singh and HL Ooi (Ranjit Ooi and Robert Low) for
Plaintiffs
T
Thomas, C Gomez and Celine Celladuray (Skrine & Co) for First Defendant
L
Rasaratnam and B Siva (Lee Hishamuddin) for Second and Third Defendants
Notes:-
This decision is also reported at [2000] 2 AMR 1495
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