The Rule in Turquand cannot be invoked by an outsider who has constructive knowledge of internal irregularities within a company.

[1] We heard this appeal and the arguments presented by the appellants and the respondents on 27 September 2017 and we reserved the matter to a date to be fixed. We now deliver our judgment on the same to support the orders the court makes today.

[2] This appeal touches on the question of the Rule in Turquand as it is commonly referred to in Company Law. As it is essentially a fact driven appeal, before dealing with the specific questions posed, the material facts should be dealt first. We will refer to the parties by their names as they were described in the High court.

Material Facts

Undisputed Facts

[3] The 1st plaintiff (KHH) is the owner of lands known as Lots 2929 and 2930 whereas the 2nd plaintiff (KHR) is the owner of Lot 2980. The 1st defendant at High court (Siva) was a former director of KHH and KHR, who ceased to be a director of KHH and KHR on 15 September 2008 and 19 August 2009 respectively.

[4] Siva proceeded to engage the respondent (Lee), despite ceasing to be a director of KHH, to extract earth from Lots 2929 and 2930 which commenced from May 2009. Siva and Lee thereafter entered into a Tenancy Agreement dated 8 September 2009 over Lots 2929 and 2930 whereby Lee was to extract and purchase earth from Lots 2929 and 2930 up to 2012.

[5] However in September 2010, Lee met with a director of KHH and KHR who informed Lee that Siva was never authorised to transact on the company's behalf. Despite this, Lee continued extracting earth from the lands up to December 2010. Substantial amount of earth was extracted from Lots 2929, 2930 and 2989, between May 2009 - December 2010.

Summary Of The Pleadings

The Plaintiffs' Case

[6] The plaintiffs pleaded the following in their Statement of Claim:

(a) Siva fraudulently held himself out as a Director and Manager of KHH and forged the letter dated 1 September 2009 which purported to engage Lee to extract and purchase red earth and rock materials from KHH's lands;

(b) Siva fraudulently held himself out to the Batu Pahat Land Office as an authorised officer of KHH and forged a memo for the purposes of renewing a permit for the extraction of rock materials from Lots 2929 for a period of one year commencing from 1 January 2010;

(c) From late 2009 to the end of 2010, Lee acting under the directions of Siva gained unlawful entry on the Land and extracted and removed red earth and rock materials therefrom;

(d) At all material times, Lee knew that Siva was not an authorised representative of the plaintiffs and/or chose to be oblivious to this despite clear circumstances existing that would have justified an enquiry into the same;

(e) Lee was put on notice of the illegal trespass on the plaintiffs' land and conversion of the red earth and rock material at a meeting on 2 September 2010 between the representatives of the plaintiffs and Lee; and

(f) During this period, Siva received monies from Lee as payment for the purchase of the red earth and rock materials extracted from the Land. These payments were far below the market value of materials similar to 'red earth'.

The 1st Defendant's Defence (Siva)

[7] Siva premised his defence on the following facts:

(a) Siva was a director of KHH at all material times;

(b) Siva was not aware of his purported removal as director;

(c) Any r