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2021 MarsdenLR 422
HIGH COURT MALAYA KUALA LUMPUR
KUMPULAN POWERNET BERHAD & ANOR – Appellant
Versus
WOO WAI MUN & ORS – Respondent
[Civil Suit No: WA-22NCC-327-07/2020]
The Court held that the discovery of documents from an auditor is necessary for a fair trial, enabling the establishment of the Plaintiffs' claims for breach of duties and financial mismanagement.
Headnote:(A) Companies Act 1965 – Companies Act 2016 – Order 24 Rules of Court 2012 – Discovery application against auditor – The Plaintiffs sought documents regarding financial mismanagement and breach of duties by directors and auditors – Court assessed relevance of documents sought under O 24 r 7A and necessity for establishing Plaintiffs’ claims – Documents were found crucial for determining misconduct and assessing damages. (Paras 18-54)
(B) Discovery – Test for discovery – The Court must ensure that the documents requested are relevant to the issues raised and in the possession of the party against whom the order is sought – The Plaintiffs met the requirements set forth in previous authorities regarding third-party discovery. (Paras 12-17)
- Case citation and parties: 2021 MarsdenLR 2396; 2021 MLRHU 2718; Kumpulan Powernet Berhad & Anor (Appellants/Plaintiffs) v. Woo Wai Mun & Ors (Respondents/Defendants); Civil Suit No: WA-22NCC-327-07/2020; Decided 06-03-2021. (!)
- Court holding: Discovery from auditor necessary for fair trial to establish claims of breach of duties and financial mismanagement. (!)
- Subject: Civil Litigation - Discovery. (!)
- Legislation: Companies Act 1965, Companies Act 2016 Ss.1965,2016; Rules of Court O 24 rr 7,7A,8. (!)
- Summary (A): Discovery against auditor for documents on financial mismanagement and breach by directors/auditors; relevance under O 24 r 7A; necessary for misconduct and damages. (!)
- Summary (B): Test for discovery: relevant to issues, in possession of third party; Plaintiffs met third-party discovery requirements. (!)
- Advocates: Petitioners - Abdul Rashid Ismail, Siti Nurani Zahidi; Respondents - Alfred Lai Choong Wui, Toh Mei Swan. (!)
- Judgment start by Liza Chan Sow Keng JC. (!)
- Application: Encl 31 for discovery against Baker Tilly under O 24 r 7A/O 92 r 4 ROC 2012. (!)
- Outcome: Allowed on 26 Jan 2021 with costs RM7,500 to Baker Tilly; prayers 1(a)(b) superfluous due to prior bank orders; full reasons provided. (!)
- 1st Plaintiff: Investment holding company under Companies Act 1965. (!)
- 2nd Plaintiff: Wholly owned subsidiary of 1st Plaintiff. (!)
- 1st Defendant: MD/shareholder of 1st Plaintiff; director of 2nd,5th,6th Defendants. (!)
- 2nd Defendant: Director of 2nd,5th,6th Defendants. (!)
- 3rd Defendant: Group accountant of 1st,2nd,5th,6th Plaintiffs/Defendants. (!)
- 4th Defendant: Sole director of 6th Defendant; director of 5th from 3 Apr 2019. (!)
- 5th/6th Defendants: Previously subsidiaries of 2nd Plaintiff (90.95%/100% shares) until 16 Dec 2018. (!)
- Plaintiffs' claims: Breach of statutory/contractual duties, trust, fraud re share sales, misuse of proceeds RM24,347,200.66 from exports using 2nd Plaintiff's licence/CO. (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!)
- Documents sought from Baker Tilly: Audited reports FYE 30 Jun 2015-2019 (or to order date); bank lists/statements, payroll, ledgers, financials, invoices/receipts/vouchers/inventory, balance sheets, audit files/notes/comms. (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!)
- Bank discovery already granted, making some items superfluous. (!)
- Baker Tilly objections summary: Audits ended pre-share sales; Plaintiffs have own docs; public availability; abuse/fishing; irrelevance; alternatives exist. (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!)
- Objections re 5th/6th docs: Seek from parties first; no relation/necessity; not in possession; work papers proprietary. (!) (!) (!) (!) (!) (!) (!)
- Further objections: Too wide/vague; non-compliance O 24 r 7A(3)(b). (!) (!) (!) (!)
- Plaintiffs' case: Met 6 requirements from authority (description, relevance, possession, necessity, no privilege, service); specific classes ok; lower relevance threshold for third parties; assumes Plaintiffs' case true; saves costs/time. (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!)
- Court elements for discovery: Document, relevant, in possession/custody/power; broad relevance to issues. (!) (!) (!) (!) (!) (!) (!) (!) (!)
- O 24 r 7A text reproduced. (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!)
- Application type: Post-commencement vs non-party. (!) (!) (!) (!) (!)
- Decision: Allowed except bank statements; reasons follow. (!)
- Documents sufficiently described (classes ok). (!) (!) (!) (!)
- Not fishing if specific. (!)
- Ho King Min distinguishable (party discovery). (!)
- Relevance: Lower threshold for third parties; likely to arise issues. (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!)
- Purposive: Saves costs/time, aids settlement/pre-trial prep; avoids subpoena issues. (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!)
- Defendants need docs too. (!) (!)
- No need to exhaust vs parties first; Bandar Utama pre-action/high threshold. (!) (!) (!) (!) (!)
- Possession likely (not denied). (!)
- Necessary under O 24 r 8: Fair disposal/saves costs; throws light on claims. (!) (!) (!) (!) (!)
- Docs enable inquiry into breaches/losses/damages proof. (!) (!) (!) (!) (!)
- Burden to prove damages/facts/quantum; need supporting docs/breakdowns. (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!)
- Aids all parties; early disclosure promotes justice/settlement. (!) (!) (!) (!) (!) (!) (!) (!) (!) (!)
- Work papers disclosable if relevant (not privileged). (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!)
- Service complied (most parties no objection; 4th/6th issues). (!)
- Conclusion: Docs relevant/possessed/necessary; not fishing; justice favors order (FYE 2015-18 Oct 2018); costs RM7,500. (!) (!) (!) (!) (!) (!)
JUDGMENT
Introduction
[1] Enclosure 31 is the Plaintiffs' application for discovery against Baker Tilly Monteiro Heng PLT ("Baker Tilly") pursuant to O 24 r 7A of the Rules of 2012 (" ROC 2012") and/or under O 92 r 4 of the 2012 and/or any other relevant rules under the 2012.
[2] On 26 January 2021, the Plaintiffs' application was allowed with costs of RM7,500.00 to Baker Tilly to comply with the order. Prayers 1 (a) and 1 (b) of encl 31 were rendered superfluous as discovery orders have been made against the banks on 14 January 2021. This judgment contains the full reasons as to why encl 31 was allowed.
Background
[3] The 1st Plaintiff is an investment holding company incorporated in Malaysia under the Companies Act 1965. The 2nd Plaintiff is a wholly owned subsidiary of the 1st Plaintiff.
[4] The 1st Defendant was at all material times the Managing Director and shareholder of the 1st Plaintiff and a director of the 2nd Plaintiff, 5th Defendant and 6th Defendant.
[5] The 2nd Defendant was at all material times a director of the 2nd Plaintiff, 5th Defendant and 6th Defendant.
[6] The 3rd Defendant was at all material times the group accountant of the 1st Plaintiff, 2nd Plaintiff, 5th Defendant and 6th Defendant.
[7] The 4th Defendant was at all material times the sole director of the 6th Defendant and a director of the 5th Defendant from 3 April 2019.
[8] The 5th Defendant was previously a subsidiary of the 2nd Plaintiff from 202 to 16 December 2018 with 90.95% of shareholding belonging to the 2nd Plaintiff whilst the 6th Defendant was previously a wholly owned subsidiary of the 2nd Plaintiff from 202 to 16 December 2018.
[9] The Plaintiffs' claim against the Defendants is premised on breach of statutory duties, breach of contractual duties, breach of trust and fraud which are summarised as follows:
(i) that the 1st and 2nd Defendants had wrongfully and/or fraudulently caused the 1st Plaintiff and/or 2nd Plaintiff to lose control and ownership of the 5th and 6th Defendants through:
(a) a Share Sell Agreement dated 17 December 2018 between the 2nd Plaintiff and 4th Defendant whereby 4,092,554 ordinary shares of the 5th Defendant representing 90.95% of the total number of shares were sold to the 4th Defendant at a nominal value of RM10.00 ("D5 Agreement").
(b) a Share Sell Agreement dated 17 December 2018 between the 2nd Plaintiff and 4th Defendant whereby 10,000 ordinary shares in the 6th Defendant representing 100% of the total number of shares were sold to the 4th Defendant at a nominal value of RM10.00 ("D6 Agreement").
(ii) the 1st to 3rd Defendants jointly or severally were in breach of their duties stipulated under the Companies Act , 2016, duties in law, equity, fiduciary and contract in the sale of the 5th and 6th Defendants' shares owned by the Plaintiffs to the 4th Defendant and/or have illegally used and benefited from the proceeds in the sum of RM24,347,200.66 of the materials exported overseas by using the Manufacturing Licence and Certificate of Origin ("CO") belonging to the 2nd Plaintiff;
(iii) There was a resolution signed on 15 January 2019 by both the 1st Defendant and 2nd Defendant as directors of the 2nd Plaintiff almost a month after the D5 and D6 Agreements. The impugned resolution authorised the sale of the shares in the 6th Defendant to one Cheong Wai Loon but the sale was made to the 4th Defendant;
(iv) Less than a month after the impugned resolution, the 1st Defendant on 12 February 2019 tendered his resignation as a director of the 2nd Plaintiff with immediate effect; followed on 1 March 2019 by the resignation of Baker Tilly as the auditors for the 2nd Plaintiff;
(v) The new management of the Plaintiffs discovered that the 2nd Plaintiff's entire shareholding in the 5th Defendant and 6th Defendant were sold to the 4th Defendant without:
(a) the prior approval of former board of directors of the 1st Plaintiff, the shareholders of the 2nd Plaintiff and the shareholders of the 1st Plaintiff as the ho
