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2024 MarsdenLR 96
COURT OF APPEAL PUTRAJAYA
DESACORP SDN BHD – Appellant
Versus
WONG HOU LIANQ & ORS AND ANOTHER APPEAL – Respondent
[Civil Appeal Nos: Q-02(NCVC)-1799-11-2020 & Q-02(NCVC)(W)-1800-10-2021]
Directors' non-disclosure of interests under s 131 of the Companies Act 1965 does not automatically breach s 132; agreements can be ratified despite such breaches.
Headnote:(A) Companies Act 1965 – Sections 131 and 132 – Breach of fiduciary duties – Directors failed to disclose interests in contracts, leading to conflict of interest – Agreements ratified despite non-disclosure – No breach of fiduciary duties under s 132 found – Appeals dismissed with costs. (Paras 19, 37, 110)
(B) Ratification and Estoppel – Desacorp's failure to void agreements after knowledge of interests led to ratification – Estoppel prevents challenging validity of agreements. (Paras 21.1, 67)
Facts of the case: Aspire and Demeter filed claims against Desacorp for recovery of payments due under terminated agreements, which were signed by directors with undisclosed interests. Desacorp counterclaimed for breach of fiduciary duties.
Findings of Court: The court found that while there was a breach of s 131, it did not automatically lead to a breach of s 132. The agreements were ratified and Desacorp was estopped from challenging their validity.
Issues: The main issues were whether the directors breached their fiduciary duties and the validity of the agreements.
Ratio Decidendi: The court ruled that non-disclosure under s 131 does not automatically constitute a breach of s 132, and that the agreements were ratified due to Desacorp's inaction.
Result: Appeals dismissed with costs.
JUDGMENT
Introduction
[1] In the High Court (HC), Aspire Summit Sdn Bhd (Aspire) filed a claim against Desacorp Sdn Bhd (Desacorp). Desacorp filed a counterclaim against Aspire, Wong Hou Liang (Neil), and Kathryn Ma (Kathryn), as representatives of the estate of Wong Kie Nie (WKN).
[2] Another company, Demeter Resources Sdn Bhd (Demeter) also filed a claim against Desacorp, who similarly filed a counterclaim against Neil and Kathryn.
[3] The HC claims were consolidated and heard together. The claims of Aspire and Demeter were allowed while the counterclaims of Desacorp were dismissed, leading to the appeals before us.
[4] Appeal 1799 is Desacorp's appeal against Aspire and its counterclaim. Appeal 1800 is Desacorp's appeal against Demeter and also its counterclaim. Both appeals were, likewise, consolidated and heard together.
[5] All references to encls are to Appeal 1799, unless otherwise indicated.
Parties
[6] Desacorp is a wholly owned subsidiary of WTK Realty since December 2009. WTK Realty is a company owned and controlled by members of the Wong family.
[7] At the material time, the Directors of Desacorp were WKN, Neil, Mimi Wong (Mimi), Wong Kie Yik (WKY), who is WKN's brother, and his son Patrick Wong (Patrick). The late WKN's family comprised of his wife, Kathryn, and two children, Neil and Mimi.
[8] The Directors of Aspire are Neil and Kathryn and they each hold 50% of the shares.
[9] The Directors of Demeter are Neil and Kathryn. Neil holds 80% of the shares with Kathryn holding the balance 20% shares.
[10] The shareholding and Directorship of the three companies are as shown below:
Background
[11] On or around February 2012, it is alleged that Neil took over the management of Desacorp without the prior consent/approval of the Board of Directors.
[12] On 10 April 2012, an agreement was entered into between Desacorp and Aspire (encl 87/45-68, the Aspire Agreement). Aspire was appointed as the contractor to develop two parcels of Desacorp's land (the land) as an oil palm plantation. The Aspire Agreement was signed by Neil on behalf of Desacorp and Kathryn on behalf of Aspire. On 6 August 2013, Aspire issued a letter to terminate the Aspire Agreement.
[13] On 31 July 2012, an agreement was entered into between Desacorp and Demeter (encl 87/69-80, the Demeter Agreement). Demeter was appointed as a consultant to provide consultancy management services and harvesting operations for the land. The Demeter Agreement was signed by Mimi and WKN on behalf of Desacorp and Neil and Kathryn on behalf of Demeter. On 7 August 2013, the Demeter Agreement was terminated by Demeter.
[14] Aspire and Demeter then filed their HC claims for a declaration that the two Agreements entered into were terminated, the recovery of monies for work performed pursuant to the two Agreements, and alternatively, quantum meruit pursuant to s 71 of the Contracts Act 1950. Aspire's claim is for RM3,212,071,88 with interest, while that of Demeter's is RM3,036,494.87 with interest.
[15] Desacorp disputed the claims and counterclaimed for a declaration that the Aspire and Demeter Agreements were entered in breach of ss 131(1), (5), (7A) and 132(1) and (1A) of the CA 1965, and an order that the Agreements be rescinded and/or declared null and void.
[16] Desacorp further counterclaimed against Neil and Kathryn (as WKN's representatives) for breach of fiduciary duties and statutory duties as Directors of Desacorp and for a full account of all benefits, income, and profits in connection with the action and breach of fiduciary duties.
[17] WKN passed away on 11 March 2013.
Decision Of The HC
[18] The grounds of the HCJ (GOJ) are found in encl 105/24-59.
[19] The HCJ found that Neil and WKN had breached their statutory duties by failing to disclose their interest to the Board of Desacorp with regard to the Aspire and Demeter Agreements prior to their execution (para 48). In para 47, it was stated that the duty to declare an interest in a meeting of the Board of Directors
