- 原告聘请一家装修公司公司来进行装修。 双方同意装修费用为RM 85,000, 此费用将随着工作的进行程度而支付。直到2016 年 5 月 10 日，原告已向装修公司支付RM 101,000的费用。 这些款项已支付给装修公司的销售经理。
- 然而原告必须举证说明该销售经理是如何进行欺诈性交易。 It is therefore incumbent on the Plaintiff to plead the relevant facts for a case under section 540(1).
- 原告只是在声明中说明装修公司未能如期按照庭令赔偿他。All that was stated in the Statement of Claim was the failure of Inch Builders & Solutions to pay the judgment sum obtained by the Plaintiff. Apart from this assertion, the Plaintiff also alleged that notwithstanding its obligation to pay the judgment sum, the company continued its business with the knowledge that there was no prospect for the Plaintiff to receive the judgment sum.
- 原告未能符合540（1）条文的需求。Upon a perusal of the entire paragraphs therein, the pleaded facts hardly qualify as fraudulent trading envisaged by section 540(1). The allegations are too general and lacking in material particulars on fraud. The 3rd Defendant must be made aware of the alleged fraudulent act on the part of the Inch Builders and Solutions in order to defend himself.
- By way of a Notice of Application dated 4.4.2020 (enclosure 62), the 3rd Defendant applies to strike out the Plaintiff’s Statement of Claim and to have the action against him dismissed.
- On 12.1.2016, the Plaintiff engaged IT Design & Builders Sdn. Bhd. to undertake renovations to his house. Inch Builders & Solutions Sdn. Bhd. (“Inch Builders & Solutions”) was appointed Project Manager to supervise the renovations.
- IT Design & Builders Sdn. Bhd. failed to complete the renovations. The Plaintiff then decided to engage Inch Builders & Solutions instead to undertake the renovations. Both parties agreed on the renovation costs at RM 85,000. Parties also agreed that the payment for the renovation would be made as work progressed.
- Up to 10.5.2016, the Plaintiff had paid a total sum of RM 101,000 to Inch Builders & Solutions. These payments were made to the 3rd Defendant who was the marketing manager, on behalf of the company.
- However, like its predecessor, Inch Builders & Solutions failed to complete the renovation works. As a result of the failure, the Plaintiff was put to additional expense. He had to engage a new contractor to complete the outstanding renovation works, obtain further approval from the local authorities, and incurred other costs and expenses totalling RM 131,707.00.
- The Plaintiff commenced proceedings against Inch Builders & Solutions in the Shah Alam Sessions Court vide Civil Suit No: BA-A52NCVC-326-08/2017 to recover the sum of RM 131,707.00. Judgment in default of defence was obtained on 28.6.2018. The judgment sum was RM 138,696.96, inclusive of interest at 5% on RM 131,707.00 calculated from 8.8.2017 till 5.7.2018.
- The Plaintiff through his solicitors then demanded payment of the sum adjudged from all the Defendants. He received no response, hence the instant suit. The 1st and 2nd Defendants are sued in their capacity as directors of the Inch Builders & Solutions. The 3rd Defendant is sued as the marketing manager and/or director of the company.
- The Plaintiff’s suit is premised on fraudulent trading pursuant to section 540(1) of the Companies Act 2016.
The 3rd Defendant’s application
- The 3rd Defendant’s application for striking out is premised on Order 18 rule 19(1)(a), (b) and (d), and/or inherent jurisdiction of the court under Order 92 of the Rules of Court 2012. As no affidavit evidence is admissible for the ground in paragraph 19(1)(a), the affidavit in support filed by the 3rd Defendant is to be considered only for the purpose of paragraphs (b) and (d).
- The Defendant claims that the claim of the Plaintiff does not disclose a nexus with the 3rd Defendant, neither does it support a cause of action against him as he was only the marketing manager of Inch Builders & Solutions. He was not a director, as is evident from the records of the company maintained by Suruhanjaya Syarikat Malaysia. The claim against him by the Plaintiff is therefore an abuse of the court’s process.
The law on striking out
- The law on striking out of pleadings is settled. This summary power is only to be exercised in plain and obvious cases and where the claim is obviously unsustainable. This principle has been restated in many cases. (See: Bandar Builders Sdn Bhd & Ors v United Malayan Banking Corporation Bhd  3 MLJ 36; Seruan Gemilang Makmur Sdn Bhd v. Kerajaan Negeri Pahang Darul Makmur & Anor  1 CLJ 1; See Thong & Anor v Saw Beng Chong  3 MLJ 235).
- The 3rd Defendant relies inter alia, on the ground of no reasonable cause of action. To determine if the ground has merits, this court would have to peruse the Statement of Claim to see if the material facts pleaded support a factual situation the existence of which entitles the Plaintiff to obtain from the court a remedy against the 3rd Defendant. (See: Letang v Cooper  1 QB 222, Government of Malaysia v Lim Kit Siang  2 MLJ 12).
- As the 3rd Defendant has also premised his application on O. 18 r 19 (1) (b) and (d), I refer to the judgment of the Court of Appeal in Tan Wei Hong (a child suing through his guardian ad litem and next friend, Chuang Yin E) & Ors v Malaysia Airlines System Bhd & Ors  4 MLJ 540, where Justice Zawawi Salleh (JCA) said
“(h) a pleading is ‘frivolous’ or ‘vexation’ when its discloses no reasonable cause of action on its face. The Oxford English Dictionary defines ‘frivolous’ as follows: b Law. In pleading: Manifestly insufficient or futile. Black Law Dictionary, (9th Ed). (Thomson Reuters, St Paul, Minnesota, 2009), defines ‘frivolous’ as ‘lacking a legal basis or legal merit; not serious; not reasonably purposeful …’; and ‘frivolous suit’ as ‘A lawsuit having no legal basis, often filed to harass or extort money from the defendant’. Among the definitions of ‘vexatious’ and ‘vexation’ in the Oxford English Dictionary are the following:
Vexatious 1. Causing, tending or disposed to cause, vexation. c spec Of legal actions: Instituted without sufficient grounds for the purpose of causing trouble or annoyance to the defendant. And, ‘Vexation, the action of troubling or harassing by aggression or interference (sometimes spec by unjustifiable claims or legal action)’. Black Law Dictionary defines ‘vexatious suit’ as ‘a lawsuit instituted maliciously and without good grounds, meant to create trouble and expense for the party being sued’;
(i) the Oxford English Dictionary defines ‘abuse (of process)’ as (ii) wrong or improper use, misuse, misapplication, perversion; turning the wrong way, diversion to an improper use, corruption, distortion’. A pleading is an abuse of process if the litigation process is used for improper purpose; eg, where the proceedings constitute a sham; where the process of the court is not being fairly or honestly used, or is employed for some ulterior or improper purpose.
Decision of this court
- Having premised his suit on fraudulent trading under section 540(1) of the Companies Act, 2012, the pleading of the Plaintiff must support such a cause of action. However, from the Statement of Claim filed, I find the Plaintiff’s claim to be obviously unsustainable on the pleaded facts.
- The relevant section is set out below:
“540. Responsibility for fraudulent trading
(1) If in the course of the winding up of a company or in any proceedings against a company it appears that any business of the company has been carried on with intent to defraud the creditors of the company or creditors of any other person or for any fraudulent purpose, the Court on the application of the liquidator or any creditor or contributory of the company, may, if the Court thinks proper so to do, declare that any person who was knowingly a party to the carrying on of the business in that manner shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Court directs.
- Since the Plaintiff’s claim is predicated on section 540(1), the pleaded facts must firstly state how the company is said to be engaged in fraudulent trading and secondly, that the 3rd Defendant was knowingly a party to the carrying on of the business in that manner.
- All that was stated in the Statement of Claim was the failure of Inch Builders & Solutions to pay the judgment sum obtained by the Plaintiff. Apart from this assertion, the Plaintiff also alleged that notwithstanding its obligation to pay the judgment sum, the company continued its business with the knowledge that there was no prospect for the Plaintiff to receive the judgment sum.
- These facts barely meet the requirement as to particulars of pleading required in Order 18 rule 12 of the Rules of Court 2012. The Statement of Claim is bereft of any facts akin to a claim under section 540 of the Companies Act. To illustrate fraudulent trading within the meaning of section 540, reference is made to the cases cited by counsel for the Plaintiff.
- In LMW Electronics Pte Ltd v Ang Chuang Jay & Ors  1 MLJ 185, the Defendant company known as IDSM Sdn Bhd, purchased goods from the Plaintiff company in 2003 which it failed to pay. Judgment was obtained against the Defendant in 2006. The Plaintiff claimed that during the subsistence of its civil action against ISDM, the directors of ISDM had unlawfully dissipated its assets and funds of ISDM and left the Plaintiff with only a paper judgment. The Plaintiff then commenced an action to make the directors liable under section 304 (1) of the Companies Act, 1965. (the precursor to section 540). The Plaintiff supported its claim by establishing that ISDM had, as far back as 2003, downsized its operations, shifted all its physical assets to the holding company in Singapore, transferred its trade receivables to the holding company for no consideration and had written off its stocks, plant and equipment, machinery and trade receivables before ceasing operations in 2004. The learned judge found the directors liable.
- In Tradewinds Properties Sdn Bhd v Zulhkiple bin A Bakar & Ors  1 MLJ 421, the Plaintiff in a prior suit, sued the director and company A. Parties then entered into a consent judgment for a certain sum to be paid to the Plaintiff. The Defendants however defaulted in the payment. The Plaintiff then discovered that the director had incorporated a new company B, after the suit was filed and before the consent judgment was entered into. Company B was made recipient of consultancy fees that were actually payable to company A by third parties. The Plaintiff then filed the instant suit for a declaration that company A’s business was carried out with intent to defraud the Plaintiff who was a creditor, and sought to make the director liable. The Plaintiff succeeded.
- Although these cases were decided after a full trial, nonetheless the facts in those cases illustrate what is meant by fraudulent trading. It is therefore incumbent on the Plaintiff to plead the relevant facts for a case under section 540(1). The Statement of Claim however, is devoid of facts on how the business of the company had been carried on to defraud the Plaintiff as a creditor. It is not sufficient to merely make such an allegation, necessary particulars must be given to sufficiently comply with O. 18 r. 12 (1)(a) Rules of Court 2012, when fraud is pleaded. (See: Wong Yew Kwan v Wong Yu Kee & Anor  2 MLJ 672, Zung Zang Products Sdn Bhd & Ors v Kwan Chee Hang Sdn Bhd  2 MLJ 799).
- In LMW Electronics Pte Ltd (supra) Justice Vernon Ong in said, The words ‘with intent to defraud creditors… or for any fraudulent purpose’ of s 304(1) should be read disjunctively even though on the facts of the case both limbs are relevant and applicable (Siow Yoon Keong v H Rosen Engineering BV  5 AMR 735 CA). The said words has been interpreted in a number of cases to include (i) a situation where a company continues to carry on business and to incur debts at a time when there is to the knowledge of the directors no reasonable prospect of the creditors ever receiving payment of those debts (In re William C Leitch Bros Ltd  2 Ch 71); (ii) that fraud in the context of fraudulent trading constitutes ‘actual dishonesty involving, according to current notions of fair trading among commercial men, real moral blame’ (In re Patrick & Lyon Ltd  Ch 786 at p 790); (iii) where a person who takes part in the management of a company’s affairs obtains credit or further credit for the company when he knows that there is no reason for thinking that funds will become available to pay the debts when it becomes due or shortly thereafter (R v Grantham supra); (iv) where a company accepted the purchase price in advance knowing that it would not supply the goods and would not repay the advance paid (In re Gerald Cooper Chemicals Ltd supra); and (v) a person was knowingly party to the business of a company having been carried out with intent to defraud creditors if at the time when debts were incurred by the company he had no good reason for thinking that funds would be available to pay those debts when they became due or shortly thereafter and there was dishonesty involving real moral blame according to current notions of fair trading (In a Company (No 01418 of 1988)  BCLC 198).
- The Plaintiff attempted to plead some particulars of fraudulent trading in sub-paragraphs (i) to (xii) of paragraph 30 of the Statement of Claim under BUTIR-BUTIR PERDAGANGAN SECARA FRAUD (“FRAUDULENT TRADING”). As pleadings are critical in a striking out application, the relevant portions are set out below:-
i. Syarikat Inch Builders & Solutions Sdn. Bhd. (No. Syarikat: 1156184-K) tersebut telah ditubuhkan pada 20/8/2015 tidak mempunyai pengalaman dan kemahiran dalam bidang pembinaan dan pembangunan.
ii. Mengikut carian Suruhanjaya Syarikat Malaysia, Syarikat tersebut adalah di bawah arahan dan kawalan Defendan Pertama dan Defendan Kedua sebagai pengarahnya tanpa apa-apa kaitan dengan Defendan Ketiga.
iii. Mengikut carian Suruhanjaya Syarikat Malaysia, Syarikat juga, Defendan Pertama dan Defendan Kedua juga adalah pemegang- pemegang saham (shareholders) syarikat;
iv. Dalam semua urusan, Defendan Pertama dan Defendan Kedua akan menggunakan Defendan Ketiga sebagai Pengurus Pemasaran walaupun hakikat sebenarnya Defendan Ketiga adalah pengarah yang mempunyai kuasa dan mempengaruhi keputusan-keputusan ke atas syarikat tersebut tanpa pengetahuan umum;
v. Defendan Ketiga akan mengenalkan diri sebagai Pengurus Pemasaran dan mengeluarkan kad-kad perniagaan atas jawatan sebagai Pengurus Pemasaran dan bukannya pengarah;
vi. Apabila kemungkinan dan/wujudnuya liabiliti dan tanggungan di bawah undang-undang, Defendan Pertama dan Defendan Kedua akan meletakkan beban ke atas bahu Defendan Ketiga tanpa sebarang kaitan dengan mereka;
vii. Secara lazimnya, Defendan Pertama dan Defendan Kedua membenarkan Defendan Ketiga bertindak seolah-olah hanya Pengurus Pemasaran;
viii. Walaupun hanya ditubuhkan pada 2015, ketiga-tiga Defendan akan mengambil kontrak atas nama Syarikat berkaitan dengan pembinaan walaupun tidak ada kemahiran supaya liabiliti akan ditanggung oleh syarikat sahaja;
xv. Defendan Pertama dan Defendan Kedua yang pada setiap masa tahu dan patut mengetahui urusan perniagaan Inch Builders & Solutions Sdn. Bhd. (No. Syarikat: 1156184-K) yang telah dilakukan dan telah mempersetujui untuk menjalankan aktiviti perniagaan dan tidak boleh melepaskan diri daripada liabiliti;
x. Pada setiap masa material, Syarikat Inch Builders & Solutions Sdn. Bhd. tersebut tidak langsung berniat untuk membayar jumlah hutang dan/atau Penghakiman yang diperoleh terhadap Syarikat;
xi. Syarikat Inch Builders & Solutions Sdn. Bhd. itu menjalankan perniagaan dengan tujuan menipu (defraud) pemiutang- pemiutang syarikat; dan
xii. Kesemua Defendan-Defendan melalui Inch Builders & Solutions Sdn. Bhd. (No. Syarikat: 1156184-K) tersebut telah memungkiri kontrak tersebut dan menyebabkan Plaintiff menanggung kerugian tanpa niat untuk memulihkan kerugian yang ditanggung oleh Plaintiff selaras Penghakiman Ingkar tersebut.
- Upon a perusal of the entire paragraphs therein, the pleaded facts hardly qualify as fraudulent trading envisaged by section 540(1). The allegations are too general and lacking in material particulars on fraud. The 3rd Defendant must be made aware of the alleged fraudulent act on the part of the Inch Builders and Solutions in order to defend himself.
- The Plaintiff is essentially complaining that he had not been paid the judgment sum obtained against Inch Builders & Solutions. His recourse then lies in further proceedings against the company to realise the judgment sum. A cause of action on fraudulent trading against the 3rd Defendant merely on these facts is clearly untenable.
- Further, the Plaintiff’s position is that the 3rd Defendant was a director at the material time. The 3rd Defendant has adduced evidence from Suruhanjaya Syarikat Malaysia to refute this assertion. The information is contained in exhibit “DC-2” to his Affidavit in Support.
- The summary procedure of striking out is to obviate the need for a trial, thus saving the time and expense involved. Having considered the application, I find there are merits in the 3rd Defendant’s application that Statement of Claim ought to be struck on the ground that it discloses no reasonable cause of action, it is frivolous and vexatious, and it would be an abuse of the process of the court to allow the claim to proceed to trial.
- For the foregoing reasons, enclosure 62 is allowed. I also order costs of RM 3,000 to be paid to the 3rd Defendant.
Source: Lee Teck Meng v Prem Kumar a/l Ganasaratnam & Ors  MLJU 394. High Court Shah Alam. Alice Loke Yee Ching JC.
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