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2023 MarsdenLR 973
HIGH COURT MALAYA KUALA LUMPUR
WRP ASIA PACIFIC SDN BHD – Appellant
Versus
LEE SON HONG & ORS – Respondent
[Civil Suit No: WA-22NCC-391-08/2020]
Directors must act in good faith and in the best interests of the company; breaches of fiduciary duties lead to personal liability for losses incurred.
Headnote:(A) Companies Act 2016 - Sections 213(1), 213(2), 221(1), and 218(1) - Breach of fiduciary duties by directors - The plaintiff alleged that directors caused the company to enter into transactions resulting in RM13,100,000 loss due to inflated prices and lack of supplied equipment - The court found that directors failed to act in good faith and in the best interest of the company, breaching their duties and making secret profits. (Paras 1-48)
(B) Burden of Proof - The party seeking judgment bears the burden of proof and must establish a prima facie case; failure to do so results in dismissal of the claim. (Paras 14-16)
(C) No Profit Rule - Directors cannot profit from their position without the informed consent of the company, and any secret profits must be accounted for to the company. (Paras 25-28)
(D) Business Judgment Rule - Directors' decisions are not to be questioned if made in good faith for proper purposes unless they are shown to be unreasonable. (Paras 28-30)
Facts of the case:
The plaintiff, a glove manufacturing company, sued its directors for breaching fiduciary duties by causing the company to pay inflated prices for equipment through a related company, Equatorion, resulting in significant financial loss. The directors did not testify during the trial.
Findings of Court:
The court found that the directors breached their duties, leading to a loss of RM13,100,000 and additional finance charges, thus ruling in favor of the plaintiff.
Issues: The key issues included whether the directors breached their duties and whether the plaintiff suffered losses due to these breaches.
Ratio Decidendi: The court concluded that the directors acted disloyally and failed to uphold their fiduciary duties, resulting in significant financial losses for the plaintiff.
Result: Judgment for the plaintiff, with the directors ordered to pay RM13,100,000 and finance charges of RM2,532,608.04, along with interest and costs.
| Table of Content |
|---|
| 1. filing of action and claims against directors. (Para 1 , 2 , 3 , 4) |
| 2. background of the plaintiff and defendants. (Para 5 , 6 , 7 , 8 , 9) |
| 3. defendants' denial and implications of their non-testimony. (Para 10 , 11) |
| 4. legal issues to be determined. (Para 12 , 13) |
| 5. burden of proof in civil cases. (Para 14 , 15 , 16) |
| 6. director's fiduciary duties and obligations. (Para 18 , 19 , 20 , 21 , 22) |
| 7. legal provisions on directors' conflicts of interest. (Para 23 , 24) |
| 8. no-profit rule for fiduciaries. (Para 25 , 26) |
| 9. business judgment rule for directors. (Para 27 , 28) |
| 10. judicial review of directors' decisions. (Para 29 , 30 , 31 , 32) |
| 11. court's findings on breach of fiduciary duties. (Para 33 , 34 , 35 , 36 , 37 , 38 , 39 , 40 , 41 , 42) |
| 12. compensation for breach of fiduciary duties. (Para 43 , 44) |
| 13. judgment and orders granted to the plaintiff. (Para 45 , 46 , 47) |
Introduction
[1] This action was filed on 19 August 2020 against the 1st Defendant ("D1"), 2nd Defendant ("D2") and three other Defendants inter alia, for breach of fiduciary duties, conspiracy to injure the Plaintiff by unlawful means and dishonest assistance.
[2] The Plaintiff has discontinued the action against KSG Engineering Sdn Bhd ("KSG") the 3rd Defendant, the 4th Defendant and the 5th Defendant (D5). Consequently, the Statement of Claim ("SOC") was amended to drop the claims of conspiracy to injure the Plaintiff by unlawful means and dishonest assistance.
[3] The Plaintiff seeks inter alia the following relief against D1 and D2:
3.1 A declaration that D1 and/or D2 breached their fiduciary duties as directors of the Plaintiff;
3.2 A declaration that D1 and D2 are jointly and severally liable to make payment and/or account for the sum of RM13,100,000.00;
3.3 An order that D1 and/or D2 pay the sum of RM13,100,000.00 to the Plaintiff;
3.4 Damages, interest and costs.
[4] During trial lasting 7 non-consecutive days, the Plaintiff called 10 witnesses to give evidence in support of its claim. Both D1 and D2 did not testify nor called any witness.
Background Facts
[5] The Plaintiff, is a company incorporated in Malaysia carrying on business in manufacturing and marketing of disposable medical, industrial and other specialty gloves, urological catheters and other related products and services.
[6] D1 and D2 are husband and wife. Both D1 and D2 were at all material times directors and shareholders of the Plaintiff. Together, they had majority control of the Plaintiff's Board of Directors. D1 was the Managing Director ("MD") and the Chief Executive Officer ("CEO") of the Plaintiff and was responsible for the day-to-day management of the Plaintiff's business operations.
[7] Equatorion Sdn Bhd ("Equatorion") is a company related to D1 and D2. D2 is a major shareholder of Equatorion, controlling 66.7% of its shareholding. D1 and/or D2 were also former directors and/or shareholders of Advanced Healthcare Products Sdn Bhd ("AHP"), Advanced Medical Products Sdn Bhd ("AMP"), Asia Cosmopolitan Sdn Bhd ("Asia Cosmopolitan") and Grand Ten Holdings Sdn Bhd ("GTH").
[8] KSG is a company incorporated in Malaysia, involved in engineering works, producing and assembling of glove machines and supplies of glove machinery parts.
[9] The Plaintiff alleged that:
9.1 D1 and D2 had caused the Plaintiff to enter into several transactions and/or agreements with KSG to supply glove dipping lines 9, 10, 11 and 12 ("the factory lines") to the Plaintiff's Factory 3, fraudulently priced at RM8,196,000.00 for each line which included the price of the auxiliary equipment of the factory lines without intention that the auxiliary equipment will be supplied, installed and commissioned by KSG. Each factory line was priced at RM4,000,000.00 extra;
9.2 D1 and D2 caused the Plaintiff and its financiers Maybank Berhad, Tokyo Century Capital (Malaysia) Sdn Bhd and Pac Lease Berhad to pay KSG a total sum of RM32,784,000.00 for the factory lines. KSG then channelled a sum RM13,100,000.00
