www.ipsofactoJ.com/highcourt/index.htm [2001] Part 3 Case 9 [HCM]     

 

HIGH COURT OF MALAYA

 

Industrial Concrete Products Bhd

- vs -

Concrete Engineering Products Bhd

Coram

JAMES FOONG J

5 MARCH 2001

Judgment[a]

James Foong, J

1. INTRODUCTION

  1. The disputes in this case involve boardroom intrigues, corporate takeovers and commercial wrestles between competing individuals, business rivals and market adventurers. In order to understand the claims, counter-claims and claims to counter-claims of the parties to this suit, it is necessary to begin with the chronology of events that occurred between the early part of January of 1996 till approximately September of that year to a corporation known as Concrete Engineering Products Bhd (CEPCO).

  2. CEPCO is listed on the second board of the Kuala Lumpur Stock Exchange (KLSE). Its founder and substantial shareholder was one Wong Kong Nam (Wong). He held the position of managing director in the company and was aided by a board of directors. The next most senior executive in company was one Mr. Ang Yeow Hwa (Ang). He was in charge of production. The core business of CEPCO ("core business") is, and, at all material time was, manufacturing and sales of pre-stressed spun concrete piles and poles in Malaysia. Before the episode began, CEPCO held 25% market share of this business in this country. Its closest rival was another corporation, the Industrial Concrete Products Bhd (ICP), which commanded 65% of the market share. The managing director of ICP was one Lim Yong Kiat (Lim).

  3. To control CEPCO, Wong, by himself, his family and nominees, held around 50% of the issued and paid up shares in the company. These included 19% moratorium shares possessed by a private limited company known as Progressive Metal Works Sdn Bhd (Progressive) in CEPCO.

  4. In the early part of 1996, a group of corporate takeover adventurers headed by a person known as Low Thean Hock ("Repco Low", as one of the witnesses addressed him) offered to purchase Wong's controlling interest in CEPCO. The go-in-between for this deal was a person with some experience in finance and corporate takeovers called Tay Way Bok (Tay Way Bok). The payment for Wong's block of shares, this court was told, amounted to a staggering sum of RM120 million, roughly pricing each CEPCO share at approximately RM8.

  5. To complete this deal, Repco Low and associates had to purchase from another substantial shareholder in CEPCO called Dato Fasir Samsuddin (Dato Fasir) some shares in CEPCO. By this sale, dated January 19, 1996, Dato Fasir's shareholding in CEPCO was reduced to 12.5% from approximately 20%.

  6. Once these purchases were completed, Repco Low installed one Choo Chin Thye (Choo) as his nominee in CEPCO. Choo, who had legal training (having been called to the Malayan Bar, and joined the corporate sector thereafter) was made a director of CEPCO on or about January 22, 1996 as well as a mandatory signatory to the company's banking instruments.

  7. In a board meeting of CEPCO held on February 8, 1996, and chaired by Choo, two other nominees of Repco Low: Raja Zainal Abidin and Dato Mustaffa Mohd were made directors of CEPCO. The resolution recorded of this meeting reveals: the resignation of two former directors before Raja Zainal Abidin and Dato Mustaffa Mohd were accepted; and the relinquishment by Wong of his managing directorship in CEPCO. He however remained as an ordinary director on the board together with two other directors of the former board who did not resign: Tan Sri Amar Stephen Young (Tan Sri Stephen) and Enche Hamidun Masuod (Hamidun).

  8. In March 1996, Choo, through Tay Way Bok, met up with Lim. At this meeting, Choo indicated to Lim that the group whom he represents was the majority shareholders of CEPCO. They had a corporate plan for a reverse takeover of CEPCO by the State Economic Development Corporation of Sabah (SEDC) which would inject into CEPCO a clinker plant. By this process, the core business of CEPCO would no longer fit into the corporate program and should be sold. Since ICP was in this same line of business as CEPCO, Choo proposed to ICP to acquire CEPCO's core business.

  9. Lim was interested in this business proposition. After consulting ICP's principal shareholder, negotiations with Choo began. From an initial suggestion to corporatise the core business of CEPCO with ICP taking over management of it with 40% equity participation and an option to purchase the remainder, the parties finally settled on the following: ICP would manage the production and marketing of CEPCO's core business (which was to be turned into a division of CEPCO) for a fee over a period with an option to purchase the assets and goodwill of this business at a subsequent date. The outline of this arrangement was set out in a concept paper prepared by Lim.

  10. When the agreement was reached, the parties on April 24, 1996 proceeded to M/s Adnan, Sundra & Low, a firm of advocates and solicitors experienced in company law, to formalize the transaction. Lim's concept paper was handed over to the lawyers as a basis to draft the relevant legal documents.

  11. At the invitation of Choo, on April 25, 1996 Lim with various personnel from ICP moved into the office of CEPCO in Kuala Lumpur, and within days had taken over the three factories of the company engaged in the core business located around the country. Besides acquiring the physical assets of CEPCO's core business, ICP also cancelled some purchase orders given to CEPCO and requested these customers to reissue similar orders to ICP.

  12. All these took place while Ang, the most senior executive of CEPCO, and who is now also a director of the company, was on holiday in China. Upon his return on May 3, 1996, he was shocked to learn of what had happened. To his disgust, he discovered that his office in CEPCO was intruded and files removed. Also discovered was a letter dated April 26, 1996 addressed to him and signed by Choo informing that ICP was appointed manager for production and marketing of CEPCO's core business and request co-operation be extended to ICP. Later when encountered by ICP staff at CEPCO's office premises requesting for some information, Ang was indignant towards them. By May 7, 1996 he received another letter from CEPCO's company secretary, one Ms Chui Lai Leng (Ms Chui), retrenching him as an employee of the company. Six other key staff of CEPCO met similar fate on the same day.

  13. A board of directors meeting of CEPCO was called on May 9, 1996. The attendees were: Choo (taking the chair), Raja Zanial Abidin, Dato Mustaffa Mohd, Tan Sri Stephen and Ang. In attendance, as secretary, was Ms Chui. What exactly was spoken at this meeting and the resolutions passed are hot topics of contention between the parties in this case. However all agree that the principle issue centered on the appointment of ICP to take over the management of CEPCO's core business.

  14. According to Choo, at this meeting, the board of CEPCO ratified his decision to appoint ICP to be the manager of production and sales of CEPCO's core business. Tan Sri Stephen and Ang strenuously deny this. They argue that no resolution was ever passed to approve this appointment. They stressed that the management agreement containing the terms and condition of ICP's appointment was not even adduced to the board members at this meeting for consideration. Under such circumstance, they claim that the board could never have ratified the act of Choo to appoint ICP as manager. Further, they stressed that the board had even agreed to meet again in two weeks time to discuss a draft management agreement which Choo undertook to tender.

  15. According to Tan Sri Stephen, the fixing of the next board meeting in two weeks time was to accommodate his presence since he was going abroad soon after the meeting of May 9, 1996. Thus, no ratification of Choo's acts and authorisation of him to sign any agreement with ICP could have occurred. Choo however denies these claims. Though admitting that the management agreement was not tendered at this meeting such agreement was only a formality since the board had at this meeting sanctioned his act. To corroborate, Choo points out another resolution passed at this meeting which approved ICP's representatives to be signatories of CEPCO's cheques. He explains that if the appointment of ICP as manager of CEPCO's core business was not approved at this meeting how could the board pass the motion allowing representatives of ICP to sign CEPCO's cheques.

  16. Because of this conflict, it is necessary to disclose in detail what transpired after May 9, 1996 relating to the minutes of the board meeting. Ms Chui, the company secretary testified that after this meeting she prepared a draft minutes of the meeting. This was handed over to Choo who made extensive amendments thereto by deleting substantial recordings of Tan Sri Stephen's and Ang's protests over ICP's appointment as manager of CEPCO's core business. When Tan Sri Stephen secured a copy of this amended signed minutes approved by Choo at the end of May 1996 he was dissatisfied. Immediately he wrote various letters to Ms Chui complaining of its inaccuracies. Ms Chui forwarded these letters to Choo but received no instructions to reply to them.

  17. On May 23, 1996 a board meeting of CEPCO was called. Those present were: Choo, Dato Mustaffa, and Hamidun. In attendance was Ms Chui. At this meeting, relevant to the issues of this case, the following resolutions were passed: the minutes of the board meeting of May 9, 1996 was confirmed; the resignations of Wong and Ang as directors of the company were accepted.

  18. While ICP was in control of the management of CEPCO's core business, ICP on June 3, 1996 wrote to the Federation of Malaysian Manufacturers Concrete Products Group (FMMCPIG), an association of concrete products producers, tendering CEPCO's resignation from this organization.

  19. Then by the early part of June 1996 when the legal documentation pursuant to the instructions given to M/s Adnan, Sundra & Low was ready they were handed over to Choo. It consisted: a management agreement (management agreement); a call and put options (call and put options); and a sale and purchase agreement for the assets and goodwill of CEPCO's core business (S & P agreement). On June 5, 1996 without reference or approval to the board of CEPCO, Choo executed the management agreement for and on behalf of CEPCO. Lim signed for ICP. When this was completed, a press release was forwarded to the local dailies which published such news in their mediums on June 8, 1996 stating that ICP had taken over the management of CEPCO's core business.

  20. As the management agreement is the principal item of contention, it is essential to disclose and elaborate some of the terms and conditions contained therein.

  21. On the same date as the management agreement was signed, Choo for and on behalf of CEPCO executed two other documents:

    One is a letter of intent (letter of intent) to ICP declaring that:

    it is our intention to dispose of all our assets pertaining to the manufacturing of spun concrete piles and poles to you, at a firm price of the net book value of the assets plus a premium of RM1,439,421.56 subject to agreements of terms, a draft of which is annexed hereto.

    We also agree that we shall not make any offer to any third party to purchase the said assets until we have made an offer to you and the same is not accepted by you or the terms thereof are not agreed between ourselves.

    The other is an implementation letter (letter of implementation) by CEPCO to ICP which declares that pending the approval of the management agreement by MITI, CEPCO allows ICP to manage the core business of CEPCO on terms set out therein.

  22. Soon after the execution of these documents, on June 15, 1996, the accounts manager of ICP, one Adrian Leong, visited the office of MITI. He had an interview with one Md Roslina, the Assistant Director in the Shares & Corporate Unit of MITI. He inquired on the procedure to apply for MITI's consent for the management agreement. In reply Md Roslina told him that such consent was not necessary.

  23. When the outcome of this interview was reported to Lim, a letter dated June 25, 1996 by CEPCO and signed by Choo was sent to MITI. It informed the addressee of the management agreement and declares that there is no change in the equity structure of the companies involved in this exercise. It concludes by expressing a hope that MITI has no objection to the arrangement of the parties in the agreement.

    MITI replied to CEPCO on July 5, 1996. It acknowledged what was stated in CEPCO's letter of June 25, 1996.

  24. While all these were going on, Repco Low and associates were unloading their CEPCO shareholdings in the open market. Picking up some of these was Dato Fasir, either in his own name or through nominees.

  25. Then on July 2, 1996 Dato Fasir decided to purchase from Repco Low and associates the latters' shareholdings in Progressive. To refresh, Progressive was the holding company of Wong that held moratorium shares in CEPCO. Wong sold it to Repco Low and associates in the early part of January 1966. As at July 2, 1996, Progressive held 9.33% shares in CEPCO.

  26. When this purchase, by way of various sale and purchase agreements, was formalized Choo was present. He handed over to Dato Fasir a circular resolution of CEPCO dated June 5, 1996. On it Choo, Raja Zainal Abidin and Dato Mustaffa had placed their signatures, indicating their approval of its contents. The other two directors, Tan Sri Stephen and Hamidun, whose names also appear on this resolution, had not signed. But written on top of Tan Sri Stephen's name is the word "overseas", indicating that he was abroad during this period (a fact denied by Tan Sri Stephen who insists that he was in the country on the date this resolution is dated). Choo requested Dato Fasir to get Hamidun to execute this circular resolution. The importance of this document is in its contents which states:

    MANAGEMENT AGREEMENT WITH ICP

    That approval be and is hereby given to the Company to enter into a management agreement with Industrial Concrete Products Bhd ("ICP") to appoint ICP as manager of the Company's product division for the manufacture, production and marketing of pre-stress spun concrete piles and poles upon the terms and conditions as set out in the said management agreement.

    That authority be and is hereby given to Mr. Choo Chin Thye to execute the said management agreement on behalf of the Company.

  27. Certain faction has seized upon this document to argue that if Choo's action in appointing ICP to be manager of CEPCO's core business had been ratified by the board of CEPCO on May 9, 1996 why was there a necessity for this resolution? In any event, this request was not obliged to since Hamidun refused to sign.

  28. With the purchase of Progressive's shares, Dr Fasir "discovered" that he had become the controlling shareholder of CEPCO. A board meeting of CEPCO was immediately called on July 8, 1996 and the following resolutions were recorded as passed: The resignations of Choo, Raja Zainal Abidin and Dato Mustaffa as directors of CEPCO are accepted. Two nominees of Dato Fasir's: Che Mohd Adib and Dennis Xavier are appointed to the board. A joint company secretary is added. Tan Sri Stephen's version of what transpired at the board meeting held on May 9, 1996 through his various letters of complaint to the company secretary and/or Choo are accepted as the correct version of the proceedings of that day.

  29. In the next few days a flurry of activities occurred.

  30. On July 9, 1996, Hamidun taking the lead role in CEPCO wrote a letter, for and on behalf of CEPCO, to MITI announcing that the management agreement between ICP and CEPCO was done without the approval of the board of CEPCO. He requested MITI to delay the application for approval of this agreement between the parties until the board of CEPCO has examined this matter in detail.

  31. Orders were then given to the staff of CEPCO to prohibit the representatives of ICP from entering the premises of CEPCO to carry out their management duties.

  32. ICP retaliated to all these with two letters. The first was to CEPCO. It refers to the proposed sale of CEPCO's assets mentioned in the letter of intent of which ICP now desires to purchase by entering into a sale and purchase agreement on the terms as proposed in the draft sale and purchase agreement attached to the letter of intent.

  33. The next was to the directors of CEPCO. It reveals the interview Adrian Leong had with Md Roslina who advised that MITI's approval of the management agreement was not necessary. It then declares that:

    Since MITI has now replied to CEPCO's letter on July 5, 1996 by noting the signing of the management agreement, the said agreement is now unconditional ... We shall do our best in carrying out our duties and responsibilities in accordance with the terms of the management agreement and look forward to a happy working relationship for the next six (6) years.

  34. Concerned over this, Dato Fasir and Hamidun went to see Md Roslina at MITI. Md Roslina in her testimony recalled that this group claimed that they were cheated and that the management agreement "does not benefit them". After consulting her superior, Md Roslina wrote to CEPCO on July 26, 1996. This letter highlights condition "j" in CEPCO's manufacturing licence. It then claims MITI's earlier letter to CEPCO dated July 5, 1996 is not an approval, and permission from MITI on the agreement can only be considered after CEPCO has submitted a detail application with directors' resolution on this matter.

  35. In the subsequent days that followed, solicitors' letters from CEPCO and ICP traded accusations and denials of their respective clients. Legal actions were then commenced.

  36. With this summary of the occurrences, I shall now set out the claims of each party.

    2. THE ACTIONS

    The plaintiff's claims

  37. The plaintiff in this action is ICP and the defendant is CEPCO. ICP is claiming from CEPCO the following:

    1. A declaration that the management agreement is valid and in full force and effect.

    2. Specific performance of this management agreement.

    3. Damages in lieu of and in addition to specific performance.

    4. An injunction against CEPCO from interfering or obstructing ICP from carrying out the work as specified in the management agreement.

    5. Alternatively damages for breach of contract by CEPCO.

    The defendant's (CEPCO's) defence and counter-claims

  38. CEPCO's defence to ICP's claim is as follows:

  39. CEPCO then counter-claimed against ICP. Besides, it also brought in two other defendants: Choo (second defendant to the defendant's counter-claim) and Lim (third defendant to the defendant's counter-claim).

    Response to CEPCO's counter-claims

  40. ICP's defences to this counter-claim by CEPCO are:

    1. The management agreement is valid and effective.

    2. Choo had actual or ostensible authority to executed the management agreement.

    3. In the alternative, CEPCO had acquiesced the acts and conduct of Choo and is thereby estopped from making this claim.

  41. Choo's defence is that he had the authority to enter into the management agreement and, prior to that, the management arrangements with ICP, both of which for and on behalf of CEPCO.

  42. Lim's defence is  that he is not a constructive trustee nor an accessory to Choo's breach of fiduciary duty to CEPCO.

  43. The second defendant to the counter-claim in the original action (Choo) counter-claims against six defendants

  44. Choo counter-claims against six persons. They are

    The third to the sixth of these are members of the present board of CEPCO. Choo claims that they are Dato Fasir's nominees. And being the single largest substantial shareholder of CEPCO, Dato Fasir is also the controlling mind and deeds of CEPCO. By CEPCO making a counter-claim in the original suit against Choo, when Dato Fasir had at all material times knowledge of the existence of the management agreement and agreed to Choo proceeding with it, Dato Fasir had conspired with those mentioned above to bring a false claim against Choo. For this, Choo is seeking from this court:

    1. damages for actionable abuse of process;

    2. damages for conspiracy to injure.

    3. DETERMINATION OF THE ISSUE OF LIABILITY FIRST

  45. Due to the magnitude of damages involved and the time consumed to adduce evidence on it, by consent of all parties, this court shall proceed to decide on the issue of liability first. Assessment of damages if any and against whom shall follow after liability is determined.

    (A) Dispute Between ICP & CEPCO

  46. With the numerous claims and counter-claims of the parties, it is necessary that this court be focused on the disputes between the parties and approach them in the sequence of their priority in filing.

  47. The first is the contest between ICP and CEPCO. According to the submissions of ICP and CEPCO, the issues involving them are:

        (1) Did Choo have authority to execute the management agreement?

  48. A third party (often referred to as the contractor) dealing with an agent can hold the principal of the agent liable for the acts of the agent with the third party if the third party can establish:

    1. the agent had actual authority from the principal to act on his behalf;

    2. or that the agent had apparent or ostensible authority to do so - see Halsbury's Laws of England, 4th Edn, Vol I, p 2, paragraph 135.

  49. "Actual authority" is described by Lord Diplock in Freeman & Lockyer v Buckhurst Park Properties (Mongol) Ltd [1964] 1 All ER 630 at p 644 as:

    a legal relationship between the principal and agent created by consensual agreement to which they alone are the parties. Its scope is to be ascertained applying ordinary principles of construction of the contracts, including any proper implications from the express words used, the usage of trade, or the course of business between the parties. To this agreement the contractor is a stranger; he may be totally ignorant of the existence of any authority on the part of the agent. Nevertheless, if the agent does enter into a contract pursuant to the "actual" authority, it does create contractual rights and liabilities between the principal and the contractor ...

    (this principle is adopted by the Federal Court in Chew Hock San v Connaught Housing Development Sdn Bhd [1985] 1 MLJ 350).

  50. Mason CJ in the Australian case of Northside Development Pty Ltd v Registrar-General 93 ALR 385 at p 402 adds to this with:

    Such 'actual' authority may be conferred by the constitution itself, as, for example, in the case of a company, upon the board of directors, or it may be conferred by those who under the constitution have the powers of management upon some other person whom the constitution permits them to delegate authority to make representation of this kind.

  51. Article 116 of the articles of association of CEPCO specifies that "The business of the Company shall be managed by the Directors". By this, it must be considered to mean the board of directors of CEPCO and not a single director. The rational of this approach can be seen from the judgment of Justice Judith Prakash J in SAL Industrial Leasing Ltd v Hydtrolmech Automation Services Pte Ltd [1998] 1 SLR 702:

    In the absence of different provisions in a company's memorandum or articles of association, in general its directors can only exercise powers collectively or collegiately by resolving at the properly convened meetings of the board of directors that act shall be done in the company's name. They are not like partners, who have authority to represent the firm individually and to enter into transactions on its behalf for the purpose of carrying on its business in the usual way without the concurrence of their fellow partners ... By the general law directors can act on behalf of the company at board meetings at which their collective decisions are expressed by resolutions. They have no powers to act individually as agents for the company. This applies equally to the chairman of the board of directors who is distinguished from other directors only by the fact that he presides at the board meetings.

  52. Choo was only an ordinary director of CEPCO. He had not been appointed by the board to any special position nor did the board pass any resolution prior to May 9, 1996 to clothe him with any special powers to enter into any arrangement with ICP to take over management of CEPCO's core business. What he did before this date was entirely his own. Without any mandate from the board, and when the board, which has the right under Article 116 of the article of association of CEPCO to manage the affairs of the company, had not given him any special powers, then Choo did not have actual authority to enter into the management arrangement with ICP.

  53. But then ICP argues that according to Choo's testimony Choo has stated that the board of CEPCO had ratified his acts at its meeting on May 9, 1996. Not only this, Choo has proceeded to claim that the board had even authorised him to finalise the management arrangement. These, ICP maintains, are evidence of authorities conferred on Choo by CEPCO's board to execute the management agreement. CEPCO of course challenges these assertions. In order to verify such claims, an examination of what transpired at the board meeting on May 9, 1996 is necessary.

  54. From the oral testimonies adduced by the parties concerned there is a dispute as to what actually took place at the meeting of May 9, 1996. Tan Sri Stephen and Ang, who were at that meeting, deny the assertions of Choo. Ms Chui, not wanting to get involved, decided to take a neutral stand, claiming to a substantial part that, she "could not remember". Faced with such a conflict of oral testimonies one of the means adopted to determine its accuracy is by referring to and relying on contemporaneous acts and deeds of witnesses to draw reasonable inferences. This approach is adopted by Justice Chang Min Tat in Tindok Besar Estate Sdn Bhd v Tinjar Co [1979] 2 MLJ 229 when he said:

    For myself, I would with respect feel somewhat safer to refer to and rely on the acts and deeds of a witness which are contemporaneous with the event and draw the reasonable inferences from them than to believe his subsequent recollection or version of it, particularly he is a witness with a purpose of his own to serve and if it did not account for the statements in his document and writings. Judicial reception of evidence requires that the oral evidence be critically tested against the whole of the other evidence and the circumstances of the case. Plausibility should never be mistaken for veracity...

  55. In this case such an approach is attractive since soon after the board meeting of May 9, 1996 there were various acts carried out by the parties concerned. Ms Chui had prepared, as she habitually did for all previous board meetings when she was the company secretary, a draft minutes of the meeting. It recorded a detail account of what took place at the meeting particularly the protestations by Tan Sri Stephen and Ang. Choo erased all these in his signed copy of the minutes. But soon after this meeting Tan Sri Stephen, even without having sight of the minutes signed by Choo, wrote to Ms Chui to remind her to insert his protest in the minutes. Then after Tan Sri Stephen obtained a copy of Choo's watered down executed minutes he wrote to Ms Chui on two occasions to demand that the records be put right. These letters were shown to Choo who gave no instruction for a formal reply except to say that he would speak to Tan Sri Stephen to resolve this matter.

  56. Tan Sri Stephen has denied having received any verbal explanation from Choo. By these revelations, I find that the version as contained in Tan Sri Stephen's letters is more probable. His letters are contemporaneous documents to the events and they correspond in material particulars to Ms Chui's draft. Considering the fact that Tan Sri Stephen was an independent director nominated to the board to safeguard the interest of the minority shareholders of CEPCO I find him to be more truthful than Choo who has his own agenda.

  57. From the accepted version of what took place at this board meeting there is no dispute that Choo by this time had disclosed to the board that he had agreed to allow ICP to manage the core business of CEPCO. But this does not mean that the board had ratified his acts and agreed to the management agreement. It was agreed at the board meeting on May 9, 1996 that a draft management agreement must be forwarded to the board for consideration before approval. With this as the pre-condition how could the board sanction Choo's previous acts and authorize him to execute the management agreement. This pre-condition will also destroy his insistence that the tendering of the management agreement to the board after it was signed a mere formality. Such perception of Choo is entirely without logic and goes against the very essence of the demand by the board to have sight of this document for perusal, consideration and deliberation before approval.

  58. Choo also relied heavily on the resolution passed on the same day, May 9, 1996, allowing ICP's representatives to be signatories on CEPCO's cheques as an indication that the board had ratified his prior actions and granted him authority to sign the management agreement. On this resolution, Ang has vehemently denied that this item was ever brought up. Tan Sri Stephen seems to indicate that he was hoodwinked into passing such a resolution and if he knew that these signatories were that of ICP's officials he would certainly had objected. I believe Tan Sri Stephen. It would be ludicrous and contrary to Tan Sri Stephen's demand for disclosure of the terms of the management agreement before approval by the board and yet agreeing indirectly to allow management to take place first.

  59. Reference is also made by Choo to say that the minutes of the meeting of May 9, 1996 was affirmed at the next board meeting of CEPCO held on the May 23, 1996. But with the revelation above, the minutes tendered to this board for confirmation was laced with inaccuracies. Besides no notice was ever sent to Tan Sri Stephen informing him of this gathering. He was in the country at this material time. Under these circumstances, I find the confirmation at this meeting of the previous minutes does not support any proposition that relevant approval and sanction was granted to Choo by the board to do what he did.

  60. By my reasoning above, I find that the board had not ratified Choo's acts and did not delegate any authority to Choo to execute the management agreement. Therefore Choo had no actual authority to do what he did.

        (2) Did Choo have apparent or ostensible authority to do so?

  61. Having decided that he had no actual authority, I shall now examine whether he had. apparent or ostensible authority.

  62. Lord Diplock defines apparent or ostensible authority in the same case of Freeman & Lockyer v Buckhurst Park Properties (Mongol) Ltd (supra) as:

    a legal relationship between the principal and the contractor created by representation, made by the principal to the contractor, intended to be and in fact acted on by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the 'apparent' authority, so as to render the principal liable to perform any of the obligations imposed upon him by such contract. To the relationship so created, the agent is a stranger. He need not be (although he generally is) aware of the existence of the representation. The representation, when acted upon by the contractor by entering into the contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract. It is irrelevant whether the agent had actual authority to enter into the contract ...

  63. Lord Peason in the same case (Freeman & Lockyer v Buckhust Park Properties (Mangal) Ltd) then speaks of an implied authority which can be characterised as an apparent or ostensible authority in this manner:

    The expression 'ostensible authority' and 'holding out' are somewhat vague. The basis for them, when the situation is analysed, is an estoppel by representation. The agent professes to act on behalf of the company, and he thereby impliedly represents and warrants that he has authority from the company to do so. In this case the defendant company has known of and acquiesced in the agent professing to act on its behalf and thereby impliedly representing that he has the company's authority to do so. The company is considered to have made the representation, or caused it to be made, or at any rate to be responsible for it. Accordingly, as against the other contracting party, who has altered his position in reliance on the representation, the company is estopped from denying the truth of the representation.

    The identification of the persons whose knowledge and acquiescence constitute knowledge and acquiescence by the company depends on the facts of the particular case.

  64. For a contractor to enforce against the principal a contract claiming the agent had apparent or ostensible authority (including implied) to do so on his behalf Lord Diplock in Freeman set out four conditions to be fulfilled. These test had been accepted as law by Malaysian courts in the case of Woodland Development Sdn Bhd v Chartered Bank, PJT & Densun (M) Sdn Bhd (Third Party) [1986] 1 MLJ 84 at p 89. These are:

    (1)

    that a representation that the agent had the authority to enter on behalf of the company into a contract of the kind sought to be enforced was made to the contractor:

    (2)

    that such representation was made by a person or persons who had 'actual' authority to manage the business of the company either generally or in respect of those matters to which the contract relates;

    (3)

    that he (the contractor) was induced by such representation to enter into the contract, that is, that he in fact relied on it; and

    (4)

    that under its memorandum or articles of association the company was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contact of that kind to the agent.

  65. I shall now apply the facts of this case to this test.

  66. The representation, that Choo had authority to enter into the management agreement, in this case comes mainly from the acts and deeds of Choo himself. He had represented to ICP that he has mandate to represent CEPCO on this matter. Besides this, the acts and deeds of CEPCO's staff and the board itself also contributed to such representation. The following are instances in support:

  67. Choo was appointed to the board of directors of CEPCO in the early part of 1996. As revealed, he was not conferred with any exclusive powers. He was only an ordinary director of the company. However, giving the impression that he represents the controlling shareholders of the CEPCO, the staff and the directors of the company were in deference to him. They referred to him for major decisions relating to the company's affairs. This included Ang, the then most senior executive of the company as well as a director. Besides being a mandatory signatory of the company's cheques, Choo also chaired all the board meetings of this period. These, in my opinion, made him a de facto executive chairman of CEPCO.

  68. Then on April 25, 1996, after agreeing to the terms as set out in Lim's concept paper and giving instructions to the lawyers to prepare the necessary legal documents, Choo accompanied ICP's representatives into CEPCO's headquarters in Kuala Lumpur and allowed ICP to take over the running of CEPCO's core business. Contemporaneous with this act was a letter of instructions by Choo to Ang requiring Ang and all the staff of CEPCO to render full cooperation to ICP to carry out its management activities in CEPCO. This was complied with as reflected by the ability of ICP to carry out their management exercise without any resistance from directors, staff or shareholders of CEPCO.

  69. Not long thereafter, Choo signed several letters of dismissal of CEPCO's key staff at the instigation of ICP. Ang also received his letter of dismissal as an employee of CEPCO; a letter signed by Ms Chui on the instruction of Choo. After the board meeting of May 9, 1996 more display of authority by Choo was seen. Choo was able to secure ICP's personnel to be signatories to CEPCO's cheques. To achieve this, approval of the board of CEPCO must have been obtained, reflecting that the board had consented to Choo's action in allowing ICP to manage CEPCO's core business.

  70. With these illustrations, I am of the view that condition 1 of the test is complied with.

  71. As regards to the second condition, that of the representation was made by a person or persons who had actual authority, it must emanate from the board for, as discussed earlier, only the board had actual authority to enter into the management agreement. So did the board of CEPCO make such representation? My answer to this: Yes. The instances are elaborated under the representation made by Choo that he had authority to enter on behalf of CEPCO the management agreement where references of the board's actions and deeds imply that such representation by the board was made. There is no necessity to repeat them.

  72. Relating to the third condition, I find this fulfilled since Lim, representing ICP, has affirmed that ICP had relied on the representation mentioned to enter into the management agreement.

  73. As for the fourth condition, I have to deal with Mr. Cecil Abraham's (leading counsel for CEPCO) contention that Article 116 of the articles of association of CEPCO does not even allow the board of directors of CEPCO to effect the management agreement. This, he stresses, read in conjunction with s 132C of the Companies Act prohibits disposal of a substantial portion of the company's assets without members' approval at a general meeting of the company. He insists that the management agreement taken together with "other documents" amounts to a disposal CEPCO's assets and undertaking of this degree. These "other documents" referred to by him are:

    The last item has been described but the first two require some elaboration.

  74. Subsequent to Choo and Lim agreeing to the concept paper, the lawyers initially prepared a sale and purchase agreement where CEPCO will sell its core business and assets to ICP. Choo signed this agreement for and on behalf of CEPCO, and Lim represented ICP. According to Lim, this memorandum of agreement was rescinded by the parties when it was discovered that the time for completion of this sale was too soon to enable Repco Low and his associates to inject the alternative clinker plant business into CEPCO. Without the replacement of a core business within a certain time frame (six months) CEPCO may be de-listed by the local stock exchange. The put and call options though prepared by the lawyers at the time of the management agreement was not, according to Lim, executed by the parties who, instead, elected to make use of the letter of intent for this exercise.

  75. After careful consideration, I am not convinced by this proposition. The reasons are as follows:

  76. With the board possessed of authority to enter into the management agreement without contravening the memorandum and articles of association as well as the law, condition 4 of the test is complied with.

  77. Having fulfilled all the four conditions set out in the test, I have to return a finding that Choo had apparent or ostensible (including implied) authority from CEPCO to enter into the management agreement.

  78. Refusing to concede, Mr. Cecil Abraham attempts to convince me in his submission that such apparent or ostensible authority would not apply if ICP had knowledge that Choo had no authority to enter into the management agreement. This knowledge includes failure to inquire. In support he relied on the exceptions to the Turquand's rule, a legal concept accepted in our Malaysian Court through the Federal Court judgment of Pekan Nenas Industries Sdn Bhd v Chang Ching Chuan [1998] 1 AMR 169.

  79. The Turquand's rule B derived from the judgment in Royal British Bank v Turquand (1856) 119 ER 474. It provides protection to outsiders dealing with a company in good faith to assume that the acts of the company relied on were properly done within its constitution and its powers; thus the outsider is not bound to inquire whether acts of internal management have been regular. As Justice Edgar Joseph Jr in the Federal Court decision of Pekan Nenas Industries Sdn Bhd v Chang Ching Chuen [1998] 1 AMR 169 explains, this rule "promotes business convenience". However this principle is not without exceptions. It cannot be invoked by an outsider who knows or ought to know that there is an irregularity - see the judgment in Pekan Nenas case.

  80. After careful perusal of the cases cited on this point, I find that counsel for CEPCO may have missed out a vital part of the Turquand's rule. At p 207 of the citation in Pekan Nenas Justice Edgar Joseph Jr has this to remind:

    We hardly add that the rule in Turquand's case is designed to protect not the company itself, but the person dealing with the company. It follows that there is no reason why persons, including outsiders, who entered into transactions with a company, and who are sued should not invoke the benefit of the Rule, as a defence.

    But in this case ICP has not relied on the Turquand's rule as a defence. CEPCO desires to make use of it to defeat ICP's claim. The law does not permit this.

        (3) Does the management agreement require the approval of the members of CEPCO at a general meeting?

  81. On the next question of whether the management agreement requires the approval of members of CEPCO at a general meeting as set out ins 132C of the Companies Act I have answered. There is no necessity to repeat except to record that it is in the negative.

        (4) Did CEPCO acquiesce to Choo's acts and conducts?

  82. Having decided that Choo displayed apparent or ostensible authority to enter into the management agreement there is no necessity for this court to proceed to analyse whether CEPCO had acquiesced to Choo's acts and conduct which estopped CEPCO from denying that Choo had no authority to do so. To a degree this matter has already been discussed under the issue of apparent or ostensible authority.

        (5) Did ICP trespass on CEPCO's properties when ICP moved into the premises of CEPCO and took over the management of CEPCO's core business?

  83. Once this court finds that Choo had authority to enter into the management agreement for the purpose of attaching liability to the principal for acts of his agent, as acknowledged by Mr. Cecil Abraham, the issue relating to trespass by ICP on CEPCO's properties would be a non-issue. With this, I find that ICP was not a trespasser on CEPCO's properties.

        (6) Did ICP conspire with Lim and Choo to defraud CEPCO resulting in ICP being a constructive trustee of CEPCO for all the profits and benefits of CEPCO's core business during the period when ICP was its manager?

  84. To decide on this, one must consider the legal position of Choo and Lim. As this would be dealt with later, I will attend to this issue at same time when the position of Choo and Lim is discussed.

        (7) Is the management agreement a conditional agreement?

  85. The next question for this court to decide concerns the terms of the management agreement. Clause 2 therein is straightforward and unambiguous. It expressly specifies that this agreement "is conditional upon the approval of the Ministry of International Trade and Industry ("MITI") being obtained for the provision of the management services by ICP to CEPCO on terms and conditions acceptable to the parties hereto within a period of twelve (12) months from the date hereof.

        (8) Has the condition being fulfilled?

  86. CEPCO contend that this condition has not received the approval of MITI till today. Thus by effluxion of time (12 months from date of agreement to obtain such approval) this management agreement is terminated in accordance to Clause 2.2 and has become "null and void and of no effect".

  87. ICP however retaliates by referring to the oral conversation Md Roslina had with Adrian Leong on June 15, 1996 where the former informed the latter that such management arrangement between the parties, where no equity alterations are involved, approval from MITI is not required. In fact Md Roslina confirms this in her oral testimony before this court. She also states that it was MITI's style in replying to any application which is not necessary with just an acknowledgement in the form of MITI's letter dated July 5, 1996. Relying on this, ICP argues that since there is no necessity for such approval both ICP and CEPCO must be under a mistaken apprehension in making the management agreement,conditiona1 upon such approval. When this occurred, the management agreement became unconditional and consequently unenforceable against CEPCO.

  88. Alternatively, if approval is required, MITI's letter of acknowledgement dated July 5, 1996 must be considered as an approval. In a further alternative, Mr. Siew, leading counsel for ICP, submits that if there is no approval given by MITI, the management agreement still subsists. It is not effected by the effluxion of time because CEPCO had wrongfully terminated it by wilfully refusing to proceed with the supply of information and materials requested by MITI in MITI's letter dated July 12, 1996.

  89. In the course of argument great stress was laid on condition "j" in the manufacturing license is issued by MITI to CEPCO where MITI's approval is required for certain changes in CEPCO's activities. Both parties have sought to persuade me to use either the Bahasa Malaysia or English version of the license depending on which version is advantageous to them. If the English text is to be considered then a change of management in CEPCO may require the approval of MITI. The Bahasa Malaysia account seems to indicate otherwise.

  90. After careful consideration, I am of the following views:

  91. By the reasons aforesaid, I find that since MITI's approval has not been obtained the condition precedent of the management agreement is not fulfilled to give effect to the contract. And by effluxion of time, this agreement has lapsed.

    (B) Dispute Between CEPCO & Choo

  92. In the dispute between CEPCO and Choo three issues require consideration.

    I shall deal with the first two questions. The third, I shall leave it for consideration after I have dealt with the differences between CEPCO and Lim.

        (1) Breach of fiduciary duty

  93. The first issue arose out of CEPCO's allegation that Choo by his acts and deeds, while acting as a director of CEPCO, in securing ICP's management of CEPCO's core business had committed a breach of fiduciary duty to CEPCO. To decide whether Choo has breached his fiduciary duty the following factors need to be considered.

  94. Firstly, it must be accepted that the primary duty of a director is his allegiance to the company except, if he is a nominated director and where there is no conflict of interest, then he may take into account the interest of his principal - see the case of Kumagai Gumi Co Ltd v Zenecon Pte Ltd [1995] 2 SLR 297.

  95. Towards this, "a director shall at all times act honestly and use reasonable diligence in the discharge of his duty of his office" and this is "in addition to and not in derogation of any other written law or rule of law relating to duty or liability of directors or officers of a company. " - Section 132 of the Companies Act.

  96. Regarding the extent of the meaning of "honesty" the case of Multi-Pak Singapore Pte Ltd v Intraco Ltd [1994] 2 SLR 282 explains that this does not mean that the director had acted fraudulently; it means that he must act bona fide in the interest of the company and that in exercising his discretion, the director should act only to promote and advance the interest of the company.

  97. Elaborating on this, Cohen J of the New South Wales Supreme Court in the case of Blackwell v Moray (1991) 5 ACSR 255, expresses that:

    A mere general sense of honesty of purpose is not in my view sufficient to satisfy the requirements that a director act bona fide for the benefit of the company. It requires at least a consideration of the views or of relevant material in order that he may act in a bona fide way. The abandonment of any proper consideration of relevant facts, the admitted failure to exercise an independent discretion and the mere doing of what was thought that the majority shareholder wanted cannot in these circumstances have amounted to the bona fide exercise of discretion required of a director.

  98. Justice Judith Prakash in Singapore High Court case of Rajabali Jumabhoy v Ameerali R Jumabhoy [1997] 3 SLR 802 at p 847, followed this up with:

    the abandonment of any proper relevant consideration of relevant facts; the fact of being rushed into a meeting; ignorance and the lack of detail explanation of the implication of the issues under consideration; failure to exercise an independent discretion and the mere doing of what was thought a third party wanted cannot amount to the bona fide exercise of a director's discretion.

  99. Having set out the factors, I shall proceed to analyse the facts.

  100. Choo declared that he was appointed to the board of CEPCO as a nominee of Repco Low and his associates. This group, he says, were the controlling shareholders of CEPCO at that material time. Though he may command sufficient votes at board meetings of the company to influence any decision favourable to his principal to achieve their objectives, but his primary duty required under the law must still be to act bona fide in the interest of CEPCO. It is only when there is no conflict of interest he may consider the interest of his principal. Here without the consent of the board, Choo commenced negotiations with ICP. Besides, he even agreed to the terms in the concept paper of Lim, which allows ICP to initially manage the core business of CEPCO and then to subsequently purchase the entire set up.

  101. On his own, Choo then proceeded to instruct lawyers to prepare the legal documentation to this effect. While this was still under preparation, he allowed ICP to enter CEPCO's core business premises and take over total control of CEPCO's principle trade. Then without allowing the board of CEPCO to have sight of the management agreement, despite his undertaking to do so at the next meeting, he arbitrarily signed this agreement with ICP. Together with this agreement he also executed, without the board's express approval, the letter of intent and implementation letter. Following this, he applied to MITI for consent to the management agreement. Are all these done bona fide in the interest of the CEPCO?

  102. I do not believe so. As disclosed from the unchallenged evidence of Tan Sri Stephen, the core business of CEPCO was running very well. It was making a profit with secured future contracts for its goods. There is no evidence that it was suffering cash flow problems to warrant a necessity for the injection of working capital from an external source. In fact as disclosed by Dato Fasir, CEPCO was flush with funds by a recent rights issue exercise. As for the management know how, though Wong had resigned as the managing director, there was still Ang, who was already in the management of the company's core business. Under these comfortable circumstances why was there a necessity to call in ICP in such haste to manage and then sell off the entire core venture of the company?

  103. Towards these, Choo offered the following explanation. Firstly, he said that this scheme fitted into Repco Low's and associates' corporate plan which was to replace the core business of CEPCO with the clinker plant from Sabah. This plan he said, was made known to the members of the board. But I find no evidence that it was made formally and neither did the board ever adopt it. Further, I cannot comprehend how this plan could have benefited CEPCO.

  104. From the brief description of how it works this exercise amounts to a reverse takeover by the purported owner of the clinker plant of CEPCO. In simple terms, this means the sale of a listing vehicle, which normally, in our market condition, brings enormous immediate benefit to the controlling shareholders since such sale attracts substantial premiums. Though other shareholders may tag along by usually a general offer but for investors who based their investment on the strength of the original business of the company they will lose the benefit of an investment in a kind of business they have faith in. In any event such a program must have the approval of a general meeting, which was never held. But Choo had already taken steps to implement it. Is this not a case of impetuosity and abandonment of proper consideration of relevant facts?

  105. By the lack of precise and detailed framework of the corporate plan and the non-disclosure of detailed efforts to introduce this reverse takeover exercise, I am suspicious whether this plan was just a set-up invented by Choo's principal, with Choo having full knowledge and participating in it, to stimulate market interest in CEPCO's shares to give sufficient leverage to manipulate for enormous financial gains. This can be seen by the substantial rise in the price of CEPCO's shares during this period, the fizzling out of this reverse takeover proposal and the disposal of Repco Low's and associate's controlling interest immediately before such plan could see the light of day. I believe that once they reaped their benefit they just left the scene leaving others to pick up the carcasses. But while in control of CEPCO, Choo proceeded to run the entire company as if he owned it with total disregard for the board and all other shareholders except for the group he represented. This is certainly in conflict with his duty to the company and that of the interest of his principal.

  106. Choo's next explanation is that he needed ICP to manage CEPCO's core business urgently because of Ang's threat to resign from the company and encouraging other key personnel to do likewise after Ang and Wong's management buy out was rejected by Choo in preference of ICP's proposal. This he said would cripple CEPCO's core business.

  107. I find flaws in this argument. Firstly, there was never any proper evaluation of ICP's proposal and that of Ang/Wong's management buy out. Though Choo claimed that he had obtained Tay Way Bok's view which favoured ICP's proposal, I do not believe that this broker had sufficient skill and knowledge to evaluate the two offers. Secondly, even if Ang had threatened to resign and Wong was medically unfit to help out there was no justification in inviting ICP to take over management without the board's approval and without the management agreement signed. At worst, the production and sale of the CEPCO's core business products may be delayed and held up but this would be temporary. The company would not collapse. During this brief period, proper evaluation of ICP's proposal as well as other remedies may be considered to over come such crises. There was just no necessity for such haste to welcome CEPCO's archival.

  108. Choo has argued that the board of CEPCO had ratified his action at its meeting on May 9, 1996. But as I have ruled in the earlier part of this judgment no such approval was ever given.

  109. From the above, I find that Choo had not acted bona fide in the interest of CEPCO and neither did he promote and advance CEPCO's interest nor consider the relevant facts before committing the acts as alleged. His entire action throughout this period as a director was solely towards the benefit and interest of the group that nominated him to the board. Such interest not only conflicted with those of CEPCO but also was disastrous to CEPCO. Its assets nearly stripped and its core business was on the verge of being annexed by its main competitor. For this, Choo is guilty of CEPCO's accusation of being in breach of his fiduciary duty.

        (2) Is Choo, as trustee, liable to account to CEPCO for all benefits and profits derived from his breach of his fiduciary duty?

  110. Having breached his fiduciary duty to CEPCO the next question is whether Choo is liable as a trustee of CEPCO account to CEPCO for all benefits and profits derived from this breach? A limited company is not a trustee of its own funds and assets; it is its beneficial owner. But its directors, in consequence of their fiduciary character of their duties of the company, are treated as if they are the trustees of the funds and assets of the company since these are under their control. If the directors breached their duties, like dealing with the funds and assets in a manner which is beyond their power, then as to that dealing, they are treated as having committed a breach of trust and have to account to the company for it - see the judgment of Kay LJ in Re Land Allotment Co [1894] 1 Ch 616 and cited in Belmont Finance v William Furniture (No 2) [1980] 1 All ER 393 at p 405.

  111. In this case Choo had acted beyond his power as a director of CEPCO in dealing with the company's assets and thus has committed a breach of trust to CEPCO. For this he is liable to account to CEPCO of all benefits and profits derived from this breach.

    (C) Dispute Between CEPCO & LIM

  112. CEPCO's claim against Lim involves two causes of actions:

        (1) As constructive trustee

  113. In CEPCO's counter-claim against Lim and ICP it is pleaded that these two parties, as constructive trustees, assisted and/or facilitated and/or participated in Choo's breach of fiduciary duty to CEPCO. To attribute liability to both these defendants, CEPCO claims that Lim and ICP (through Lim as managing director of ICP) had actual and constructive knowledge of Choo's breach. This knowledge extends to wilfully shutting one's eye to the obvious and/or refusal to draw the obvious inferences or make the obvious inquires. For these, both Lim and ICP have to account to CEPCO for the benefits and profits derived from Choo's breach of his duty.

            (a) The law

  114. This claim for breach of constructive trusteeship has its origins from the much-quoted dictum of Lord Selboume LC in the case of Barnes v Andy (1874) LR 9 Ch App 244 which declares:

    That responsibility (of a trustee) may no doubt be extended in equity to