Lee Swee Seng, JC

Prologue

Businessmen and professionals enter into a myriad of agreements in their business and professional relationships, arrangements and dealings. Some appear innocuous on the surface, perhaps deliberately couched and clothed or so carefully crafted so as to cast an appearance of compliance and correctness with the law. Once there are differences leading to disputes, parties may contend that what appears conducive and convenient for the parties at the commencement of the contract is now contaminated with illegality and condemned for being null and void and unenforceable.

Such is the scenario that has come before the court for determination.

Parties

The Plaintiff is a firm practising as consulting engineers in Australia. The Defendant is a registered engineer and a Malaysian citizen. He is the duly registered shareholder of 65,000 shares in Norman Disney & Young Sdn Bhd (NDYSB). NDYSB is a company incorporated in Malaysia under the Companies Act 1965

NDYSB was incorporated on 17.11.1987 with a paid-up capital of RM2.00. The first directors and shareholders of the company for the purposes of the arrangement that the parties had entered into were Liew Yan Sin and Hugh David Norman. Sometime in 1994, one Albert Tuba, who was the Manager for Business Development of the Australian investing partners wanted to restructure the company with local directors. The overt and obvious purpose was to “enhance the company’s ability to secure specific contracts”, to use the very words employed by the Plaintiff. See paragraph 5 of the Plaintiff’s Statement of Claim. It was decided that local partners be brought in and be made majority shareholders and so the Plaintiff invited one Mohd Zawawi Mahmud and the Defendant to join the company.

The shares proposed to be distributed were shares to be held on behalf of the Australian investors with a very small percentage to be held by the local partners. (emphasis added) The proposed share distribution was as follows:

The Defendant and Foo Jong Wee were made directors of NDYSB. The Defendant was brought in to assist in the building up of NDYSB by helping to secure specific projects because of his status as a local partner. See paragraph 8 of the Plaintiffs Statement of Claim. Later when Mohd Zawawi Mahmud resigned, the Defendant became the majority shareholders.

The Defendant gave a consistent narration of the genesis of the restructuring of NDYSB that started in 1991. The Defendant was candid in stating that the object of the restructuring was to ‘localise’ NDYSB to comply with Malaysian Law and conditions by establishing a bumiputra status company with both its control and majority shareholdings vested in the hands of bumiputras. The restructuring, according to the Defendant, would have the following features as its end result:

i.NDYSB was to be locally established with Bumiputra status;

ii.Bumiputras were to have 75% of the total shareholdings in NDYSB;

iii.The decision making of NDYSB was to be controlled by Bumiputeras;

iv.There were to be two (2) Bumiputeras directors collectively holding 75% of the total shareholdings of the Company and one (1) Malaysian Chinese director to represent the Malaysian Chinese staff; and

v.The Malaysian Chinese director was to have 25% shareholdings of NDYSB.

The Defendant avers that he only agreed to join NDYSB based on the above conditions.

Plans

A myriad of agreements were entered into to which the Defendant was a party in relation to the shares in NDYSB-all in totaling 9 and all dated 28.9.1991.

i.A sale and purchase agreement (1st sale and Purchase Agreement) between Liew Yan Sin (“LYS”) and the Defendant for the sale of 60,000 ordinary shares (“60,000”) held by LYS to the Defendant at a total purchase price of RM 748,800.00 (1st Purchase Price) which, upon completion of the sale and purchase agreement, constituted a debt owing by the Defendant to LYS and