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2021 MarsdenLR 747
HIGH COURT MALAYA KUALA LUMPUR
AZHAR HARUN – Appellant
Versus
DATO MUTHUKUMAR AYARPADDE & ORS – Respondent
[Suit No: WA-22NCC-188-05-2020]
A party cannot maintain claims of breach of contract based on misrepresentations after affirming the contract despite prior knowledge of the alleged misrepresentations.
Headnote:(A) Companies Act 1965 – Section 304(1) (now s 540(1) of the Companies Act 2016) – Preliminary objection to action against non-privy defendants for breach of contract and fraudulent trading – Court held that statements made were not actionable as they were based on audited financial statements, which could not be challenged after their approval – Claim dismissed for lack of cause of action against non-privy defendants. (Paras 1-2, 9, 19-20, 88-90)
Facts of the case: The plaintiff engaged in fraudulent trading claims against non-privy defendants after being induced to join the first defendant's group based on misrepresentations of the companies' financial health, culminating in his wrongful termination.
Findings of Court: The court found that the plaintiff's claims relied on non-actionable representations based on audited financials and lacked privity of contract with the non-privy defendants.
Issues: The main issues considered were whether there was a valid cause of action against non-privy defendants, if allegations of fraudulent trading were sufficiently pleaded, and the existence of privity of contract.
Ratio Decidendi: The court concluded that the plaintiff's claim could not stand as he had affirmed the contract despite knowledge of alleged misrepresentations, leading to an estoppel against raising new claims based on misrepresentation.
Result: Application by the third to tenth defendants allowed; claims dismissed.
JUDGMENT
Introduction
[1] The plaintiff in this action filed the present suit against the defendants on 18 May 2020 premised on two causes of actions, breach of contract and fraudulent trading.
[2] The third to tenth defendants subsequently filed an application for a determination of questions and issues pursuant to O 33 r 2 Rules of 2012 ("ROC 2012") as documented in encl 28. The plaintiff raised a preliminary objection against the third to tenth defendants' application.
[3] At the conclusion of the hearing, this Court allowed the third to tenth defendants' application. This is the grounds of decision of this Court.
Background
The Plaintiff's Case
[4] The plaintiff claimed that due to his expertise as a "turnaround specialist" he was asked to join the first defendant's group of companies. The companies among others, included the third to the tenth defendants. The plaintiff contended that he was induced to join the first defendant as the chief executive officer ("CEO") upon being convinced by representations (as outlined below) which relate to the performance of the companies under the control of the first defendant. His employment contract, contained among others, a term which read "other than your key performance index (KPI) that shall be agreed upon annually, your goal is to achieve a quadrupling the total sum of the audited profit before tax (PBT) of all the companies in 2010 at the fifth year of your tenure as a group CEO" (the "target").
The Representations
[5] The representations that the plaintiff claimed to be made to him were:
The First Representation (via e-mail dated 9 September 2010):
(i) in respect of the projected Profit After Tax ("PAT") for the third defendant ("IBI SB"), the fourth defendant ("MAA SB"), the fifth defendant ("DDC SB"), Castwel Autoparts Private Limited ("Castwel"), Sathya Auto Private Limited ("Sathya") and UMW Dongshin Motech Private Limited ("UMW Dongshin") from 2010 to 2014. Castwel, Sathya and UMW Dongshin are Indian companies in which the first defendant owns substantial shareholdings and management control; and
(ii) the tabulated group profit trend, projected for the years 2010 to 2014 for all the Malaysian companies and the Indian companies 1% of the first defendant's investments in the relevant companies was worth RM5,633,045.
The Second Representation:
(iii) on or about 3 December 2010 and 4 December 2010, the plaintiff was given the statutory financial statements for 207 to 2009 for IBI SB, MAA SB and DDC SB respectively in a compact disc and in the form of photocopies, which stated inter alia the profit before tax ("PBT") and PAT. B
The Third Representation:
(iv) via email dated 17 December 2010 which enclosed "the budget" for IBI SB and DDC SB respectively for 2011;
(v) via email dated 21 December 2010 which inter alia enclosed "the detailed 2011 budget" for MAA SB; and
(vi) the plaintiff had used the projected PBT and PAT for 2011 to benchmark the performance of the companies against their competitors.
The Fourth Representation:
(vii) via e-mail dated 28 December 2010 together with attachment which inter alia stated:
(a) the PBT and PAT for IBI SB, MAA SB and DDC SB for 2008, 209 and 2010; and
(b) the comparisons between the PBT and PAT of the said companies and the PBT and PAT of their competitors for the period from 207 to 2009;
(viii) via e-mail dated 10 January 2011 at 12:27pm together with attachment entitled "five years forecast P & L for the three Malaysian companies" ie, for IBI SB, MAA SB and DDC SB, for the period from 2011 to 2015; and
(ix) Via e-mail dated 10 January 2011 at 5:57pm together with attachment entitled "five years cashflow forecast for all three companies" ie, for IBI SB, MAA SB and DDC SB, which reaffirmed the representations made through the emails dated 28 December 2010 and 10 January 2011 at 12:27pm respectively.
The Employment Contract And The Service Agreement
[6] Relying on the representations, he entered into employment contract dated 10 January
