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2021 MarsdenLR 2690
HIGH COURT MALAYA PULAU PINANG
KHAW SOK HEAH – Appellant
Versus
QM MACHINERY SDN BHD & ORS – Respondent
[Civil Suit No: PA-22NCVC-157-06-2019]
The court held that fiduciary duties of directors ceased upon completion of a share sale, rendering related claims legally unsustainable.
Headnote:(A) Rules of 2012 – O 18 r 19(1) – Writ of summons and claim – Application to strike out plaintiff's statement of claim allowed on grounds of unsustainability – The plaintiff claimed RM650,000.00 for breach of fiduciary duty regarding sale of shares, yet the arrangement excluded fiduciary ties following payment. (Paras 1-15)
(B) Contract law – Sale and Purchase agreement clearly delineated responsibilities post-transaction – Directors had no fiduciary duty post-sale to the plaintiff. (Paras 9-12)
Facts of the case: Plaintiff claimed unsatisfied shares sale proceeds from the 2nd defendant and deceased amidst a sale with JI Integrated, whose payment conditions ended fiduciary affiliations.
Findings of Court: Claim against directors was unsustainable based on clear contractual obligations established in the sale and purchase agreement, unequivocally affirming the separate legal identity of the company.
Issues: The core issue was whether fiduciary duties persisted post-sale under the explicit terms of the sale agreement, given the payment receipt by the 1st defendant.
Ratio Decidendi: The court held that fiduciary responsibilities ceased for the directors upon the completion of the sale, rendering any claims against them legally untenable.
Result: Application to strike out was allowed.
JUDGMENT
Introduction
[1] This is an application by the 2nd and 3rd defendants to strike out the plaintiff's writ of summons and statement of claim dated 27 June 2019 (enclosure 36). The application was made pursuant to O 18 r 19(1)(a) or (b) or (c) or (d) of the Rules of 2012 and/or the inherent jurisdiction of the Court. On 23 September 2021, I allowed the application with costs.
[2] This judgment contains the reasons for my decision.
Background Facts
[3] The plaintiff, 2nd defendant and Lee Kok Lee, since deceased, were three of the four shareholders of the 1st defendant each holding 250,000, 100,000 and 100,000 shares respectively. The 3rd defendant is the estate of Lee Kok Lee while the fourth shareholder was Tee Siew Hiang who held RM50,000 shares. The 2nd defendant and the deceased were directors of the 1st defendant from 29 August 201 until 19 September 2017.
[4] On 4 September 2017 all four shareholders ("the vendors") entered into a sale and purchase agreement with Jl Integrated (M) Sdn Bhd ("JI Integrated") to sell their entire equity in the 1st defendant at RM2.60 a share totalling RM1.3 million ("the agreement"). The agreement stated that the date of completion is the date of full payment of the purchase price and JI Integrated is deemed the rightful owner of the company notwithstanding pending transfer of the shares. The directors of the 1st defendant are to resign on the same day. The undisputed evidence exhibited shows that the amount of RM1.3 million being the purchase price for the said shares were paid at 10.20 am on 19 September 2017 into a bank account of the 1st defendant by way of a transfer and that the directors resigned on the same day.
[5] The plaintiff averred that while the shareholders as vendors had caused to be transferred their respective shares in the name of JI Integrated she however did not receive her share of the sale amounting to RM650.000.00.
[6] The plaintiff's case is premised on breach of fiduciary duty on account of the 2nd defendant and the deceased being the directors of the company and being in charge of the management and finance of the 1st defendant at the material time failed to pay her the amount of the sale of her shares.
[7] The plaintiff said that on 5 June 2018 she wrote to Messrs WS Shang & Associates who were the solicitors who prepared and attested the agreement for the sale and purchase of the shares demanding the return of her share of the money from the 2nd defendant and the deceased. Messrs WS Shang & Associates in a letter dated 7 June 2018 denied all knowledge of the said transfer of shares and said that they were merely hired to prepare the agreement. The solicitors however said and attached a draft settlement agreement of a debt of RM782.000.00 that was to be paid by the 2nd defendant for purchasing shares in Infitect Machinery Sdn Bhd.
[8] The plaintiff also claims from all three defendants a sum owed to her by the 1st defendant amounting to RM132.000.00 made up of allowances and a loan to the 1st defendant.
Analysis And Decision
[9] The monies amounting to RM650,000.00 is claimed due to the plaintiff pursuant to a sale of her shares to a third party, JI Integrated, which it appears has purchased all the shares in the 1st defendant. The sale was made at the same time by all shareholders as vendors, in their respective personal capacities, with Jl Integrated. Thus, the agreement was a contract of sale purely between the shareholders and Jl Integrated. The only thing connecting the 1st defendant is that the purchase price was paid into the bank account of the 1st defendant.
[10] The sale and purchase agreement was very explicit:
(i) Clause 4.1 of the agreement stated that the date of completion is the date of full payment of the purchase price and Jl Integrated is deemed the rightful owner of the company notwithstanding pending transfer of the shares.
(ii) Clause 4.2 stated that on that date the vendors shall be excluded from the business and/or m
