ESPL (M) Sdn Bhd v Radio & General Engineer

8/17/2019 ESPL (M) Sdn Bhd v Radio & General Engineer

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Malayan Law Journal Unreported/2014/Volume / ESPL (M) Sdn Bhd v Radio & General Engineering SdnBhd & Ors and another suit - [2014] MLJU 1084 - 18 November 2014

[2014] MLJU 1084

ESPL (M) Sdn Bhd v Radio & General Engineering Sdn Bhd & Ors and another suit

HIGH COURT (KUALA LUMPUR)AZIZUL AZMI ADNAN JCCIVIL SUIT NOS S3-22-145 OF 2004 AND S3-22-199 OF 201418 November 2014

Malik Imtiaz Sarwar (Chan Wei June with him) (Malik Imtiaz Sarwar, Advocates & Solicitors) for theappellant.

Leonard Yeoh (Wong Weng Yew with him) (Tay & Partners) for the respondent.

Azizul Azmi Adnan JC:

JUDGMENT

INTRODUCTION

[1] Dato' Chan Tien Gee, referred to in this judgment as TG Chan, is the applicant in the proceedings beforethis court. He is also the fourth defendant in the civil suit S3-22-145-2004 (the 145 suit ) and the firstdefendant in the civil suit S3-22-199-2004 (the 199 suit ).

[2] TG Chan has applied to this court to, inter alia, set aside the judgment of the High Court dated 19September 2011 delivered by Nik Hasmat Nik Mohamad JC (as her ladyship then was), on grounds that thecourt did not have jurisdiction to grant the judgment.

SALIENT FACTS

[3] This dispute involves three suits that had been commenced in the High Court, and arose in connectionwith the construction in the late nineties of the podium block of the Suria KLCC shopping centre. The ownerand project employer had engaged Henz Construction as the main contractor for the project. HenzConstruction was an unincorporated joint venture between (among others) Harbert InternationalEstablishment Sdn. Bhd., the second defendant in the suits before this court, and Nam Fatt CorporationBerhad, the third defendant in the 145 suit. Henz Construction appointed Radio & General Engineering Sdn.Bhd. (the first defendant in the 145 suit, referred to in this judgment as R&G) as the subcontractor for themechanical and engineering works for the project. R&G in turn subcontracted Econoler Singapore Pte Ltd toundertake the air conditioning and mechanical ventilation works for the project (the ACMV works). Econolersubsequently novated this sub-subcontract to its subsidiary, ESPL (M) Sdn. Bhd. (ESPL), the plaintiff andrespondent in this action.

[4] In relation to the works undertaken by ESPL, R&G and ESPL agreed for a bank account to be opened inthe name of R&G, which account was to have been jointly operated between them. It was also agreed thatall money and payment received in respect of the ACMV works were to have been deposited into this jointlyoperated account.

The 620 Suit

[5] A dispute arose between R&G and ESPL, which resulted in the commercial suit D8-22-620-1999 (the 620suit ) having been commenced by R&G against ESPL on 3 September 1999. In this 620 suit, R&G claimeddamages against ESPL for breach of the latter's obligations under the sub-subcontract for the ACMV works


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(the ACMV Subcontract ). ESPL counterclaimed, basing its action in contract as well as in equity for breach offiduciary duties and breach of trust. (See paragraphs 57A, 57B and 65 of the defence and counterclaim,Exhibit CTG-2 of Enclosure 47, where breach of fiduciary duties and breach of trust were pleaded.)

[6] In the course of discovery between 2002 and 2004, ESPL obtained evidence that R&G had departedfrom the agreed arrangement to make payments into the jointly operated account.

[7] ESPL applied for an injunction to compel R&G to pay moneys into court or into a stakeholder account.This application was dismissed by Kang Hwee Gee J. (as his lordship then was) at first instance, but wasallowed by the Court of Appeal in a judgment that was reported ( ESPL (M) Sdn Bhd v Radio & GeneralEngineering Sdn Bhd [2004] 4 CLJ 674; [2005] 2 MLJ 422). In order to move the court to grant theinterlocutory relief that it was seeking, it was necessary for ESPL to establish that it was a beneficiary undera trust in respect of money relating the ACMV works received by R&G from Henz Construction. The Court of Appeal found not only that R&G was a trustee for ESPL in respect of the money that ought to have been paidinto the jointly operated account, but also that it had breached its duties as trustee.

[8] It will be seen later that an important issue arises out of the findings by the Court of Appeal that a trustexisted and that R&G had breached that trust. Counsel for TG Chan argued in the present case that anyfinding at an interlocutory stage was merely a provisional finding and was thus not binding on Kang J., thetrial judge hearing the 620 suit, or on Nik Hasmat J. at the subsequent trial.

[9] Kang J., in his grounds of judgment, did not make any determination on the issue of breach of trust, onthe basis that this issue was redundant by the time the trial was completed:

A number of issues were also framed for the determination of the court during case management. But they becameredundant at the end of the trial at the submission stage -- for the issues were, by the agreement of the parties, furtherreduced to the question whether the defendant had committed a breach of the contract in failing to complete the ACMVworks on time and the consequence that should flow from such breach. (Exhibit CTG-4 of Enclosure 47, at 238)

[10] Kang J. found that ESPL had breached the ACMV Subcontract but also that it had completed at least95% of the ACMV works, and was therefore entitled to be paid RM25,731,122.32. ESPL's counterclaim wasdisallowed, which was also an important point raised by Dato' Malik Imtiaz, counsel for TG Chan, on whichmore later.

[11] ESPL did not appeal against the decision of Kang J. in the 620 suit.

145 Suit

[12] The 145 suit was commenced by ESPL against R&G, Harbert International Establishment Sdn. Bhd.,Nam Fatt Corporation Berhad and TG Chan on 6 February 2004. In this suit, ESPL alleged that R&G hadbreached its fiduciary duties in respect of the operation of the jointly operated account, and was thereforeliable to account to ESPL for the sums received from Henz Corporation in respect of the ACMV works. Theremaining defendants were alleged to have dishonestly assisted R&G.

[13] ESPL's claims against Harbert International Establishment Sdn. Bhd. and Nam Fatt Corporation Berhadwere struck out on 1 September 2009.

199 Suit

[14] ESPL commenced the 199 suit on 17 February 2004 against TG Chan and Harbert InternationalEstablishment Sdn. Bhd. The cause of action in this suit was inducement of a breach of contract.

[15] The 145 and 199 suits were consolidated, and were heard by Nik Hasmat J.

[16] In the course of submissions, it was argued by counsel for TG Chan that the decision of Kang J. in the620 suit had finally and conclusively determined the dispute between ESPL and R&G, and therefore res judicata ought to apply, preventing ESPL from succeeding in its claim against the remaining defendants.

The Decision in the Cons ol idated Suits


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[17] In both the 145 suit and the 199 suit, Nik Hasmat J. found in favour of ESPL, the reasons for whichdecision are set out in her grounds of judgment dated 19 September 2011.

[18] The issue of res judicata was not specifically dealt with in the grounds of her judgment, although giventhe decision that was arrived at by her ladyship, it is clear that she did not consider the plaintiff beingprevented from relief, whether on grounds of res judicata or otherwise.

Appeals

[19] TG Chan appealed against the decision of the High Court in the consolidated suits, which appeal wasdismissed by the Court of Appeal on 8 January 2013. No written grounds are available to this court in respectof the decision of the Court of Appeal.

[20] TG Chan then applied for leave to appeal to the Federal Court. Leave was refused on 2 September2013.

[21] TG Chan further sought to review the decision of the Federal Court in refusing to grant leave to appeal,but this too was dismissed by the Federal Court on 27 November 2013.

The Current Act ion

[22] TG Chan has now applied to this court to set aside the decision of Nik Hasmat J. on grounds that theHigh Court was functus officio when it entered judgment on 19 September 2009, as the dispute between theparties had been conclusively determined in the earlier 620 suit. Accordingly, the applicant contended, theHigh Court was not seised of the jurisdiction or authority to order judgment and that the subsequentbankruptcy proceedings against TG Chan and orders made pursuant to such proceedings were null andvoid.

[23] The issues arising from this application are considered in the following paragraphs.

ISSUES AND ANALYSES

The Jur isd ic t ion of th is Court

[24] A threshold issue for consideration is whether this court has the requisite jurisdiction to hear the

application. The application was made pursuant to the inherent jurisdiction of this court under Order 92 rule 4of the Rules of Court 2012.

[25] The Federal Court in Serac Asia Sdn Bhd v Sepakat Insurance Brokers Sdn Bhd [2013] 5 MLJ 1; [2013]6 CLJ 673 affirmed the principle that the High Court may only set aside a final judgment or order obtainedfrom another High Court in the exceptional case where the judgment was made "in defiance of a substantivestatutory provision which renders it null and void on grounds of illegality or lack of jurisdiction" (ibid atparagraph 31 of the judgment).

[26] The learned counsel for the applicant argued that the judgment of Nik Hasmat J. should be set aside ongrounds that the decision of Kang J. in the 690 suit had finally determined the issue of breach of trust andbreach of fiduciary duties, and therefore the High Court was functus officio and the principle of res judicata would apply, with the attendant result that when Nik Hasmat J. delivered the judgment in the 145 and 199suits, she was not in possession of the requisite jurisdiction to do so. Counsel further argued that, because of

this lack of jurisdiction, it is now open to this court to set aside such judgment.[27] A question that arose was whether the decision of a court of concurrent jurisdiction may only be setaside by this court where such decision was made in contravention of a statutory provision. I requestedfurther submissions on this point of law, and am grateful to counsels for their further and well-reasonedsubmissions.

[28] The learned counsel for the applicant argued that the Federal Court in Serac did not intend to limit thecategories of cases in which a judgment could be set aside ex debito justitiae. Accordingly and byimplication, the proposition put forward by Dato' Malik was that there need not be a contravention of statutebefore the High Court may exercise its inherent jurisdiction to set aside its prior decision. He cited as support


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for this proposition the following passage from the judgment of Mohd Azmi FCJ in Badiaddin bin MohdMahidin v Arab Malaysian Finance Berhad [1998] 1 MLJ 393; [1998] 2 CLJ 75 :

It is of course settled law as laid down by the Federal Court in Hock Hua Bank's case that one High Court cannot setaside a final order regularly obtained from another High Court of concurrent jurisdiction. But one special exception to

this rule (which was not in issue and therefore not discussed in Hock Hua Bank) is where the final judgment of the HighCourt could be proved to be null and void on ground of illegality or lack of jurisdiction so as to bring the aggrieved partywithin the principle laid down by a number of authorities culminating in the Privy Council case of Isaacs v Robertson [1985] AC 97 where Lord Diplock while rejecting the legal aspect of voidness and voidability in the orders made by acourt of unlimited jurisdiction, upheld the existence of a category of orders of the court '... which a person affected bythe order is entitled to apply to have set aside ex debito justitiae in the exercise of the inherent jurisdiction of the court,without his needing to have recourse to the rules that deal expressly with proceedings to set aside orders forirregularity, and give to the judge a discretion as to the order he will make'.

The Privy Council through Lord Diplock also emphasized that the courts in England have not closed the door as to thetype of defects in the final judgment of the court that can be brought into the category that attracts ex debito justitiae theright to have it set aside without going into the appeal procedure, 'save that specifically it includes orders that havebeen obtained in breach of rules of natural justice'.

[29] The decision of the Judicial Committee of the Privy Council in Isaacs v Robertson [1985] AC 97 wascited in the speeches of both Mohd Azmi FCJ and Gopal Sri Ram JCA (as his lordship then was), sitting in

the Federal Court. In this case, Lord Diplock stated:

Their Lordships would, however, take this opportunity to point out that in relation to orders of a court of unlimited jurisdiction it is misleading to seek to draw distinctions between orders that are "void" in the sense that they can beignored with impunity by those persons to whom they are addressed, and orders that are "voidable" and may beenforced unless and until they are set aside. Dicta that refer to the possibility of there being such a distinction betweenorders to which the descriptions "void" and "voidable" respectively have been applied can be found in the opinionsgiven by the Judicial Committee of the Privy Council in the appeals Marsh v Marsh [1945] AC 271 284, and MacFoy vUnited Africa Co Ltd [1962] AC 152 160; but in neither of those appeals nor in any other case to which counsel hasbeen able to refer their Lordships has any order of a court of unlimited jurisdiction been held to fall into a category ofcourt orders that can simply be ignored because they are void ipso facto without there being any need for proceedingsto have them set aside. The cases that are referred to in these dicta do not support the proposition that there is anycategory of orders of a court of unlimited jurisdiction of this kind, what they do support is the quite different propositionthat there is a category of orders of such a court which a person affected by the order is entitled to apply to have setaside ex debito justitiae in the exercise of the inherent jurisdiction of the court without his needing to have recourse to

the rules that deal expressly with proceedings to set aside orders for irregularity and give to the judge a discretion as tothe order he will make. The judges in the cases that have drawn the distinction between the two types of orders havecautiously refrained from seeking to lay down a comprehensive definition of defects that bring an order into thecategory that attracts ex debito justitiae the right to have it set aside, save that specifically it includes orders that havebeen obtained in breach of rules of natural justice.

[30] The Federal Court in Serac had occasion to re-examine the ratio in Badiaddin. This is what the FederalCourt had to say in Serac :

[31] It is settled law that the High Court cannot set aside a final judgment/order regularly obtained from another HighCourt unless the judgment was made in defiance of a substantive statutory prohibition which renders it null and void onthe grounds of illegality or lack of jurisdiction. Only in that exceptional case can a defective judgment be struck out exdebito justitiae. It is thus only in this situation that a High Court may exercise its inherent jurisdiction to strike out aregularly obtained judgment of another court of concurrent jurisdiction, (see: Badiaddin's case)

[32] The Court of Appeal in Selvam Holding said that besides the situation above, Badiaddin seemingly had "extendedthe scope and extent of the inherent and discretionary jurisdiction of a court" to set aside an order "where in exceptionalcases, the justice of the case requires the court to intervene and correct an earlier order that contains a serious defectand there is a need to have it set aside".

[33] We have carefully re-examined Badiaddin and could not find anywhere in its ratio to say that the court's inherent jurisdiction has an extended scope to correct an earlier regular judgment or order in exceptional circumstances otherthan where the judgment had been granted in contravention of a statute.

[31] Abdull Hamid Embong FCJ, after considering the speeches of all three judges inBadiaddin, concludedas follows:


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[35] We are thus in agreement with the appellant's stand that an earlier judgment can only be impeached when it isprohibited by statute; and that Badiaddin to us merely reaffirmed that rule and does not extend the inherent jurisdictionof the court to correct a perfected order or judgment beyond any statutory prohibition. This established rule wasexplained in Tenaga Nasional which we had earlier adverted to. In our view, that part of the holding of the Court of

Appeal in Selvam Holdings should not be interpreted as giving the courts a broad power to set aside a previous

perfected orders under the guise of "exceptional cases". We think that the Badiaddin 's phrase "to intervene and correcta serious defect in the order" should be read in the context of where an order was obtained in a manner whichcontravened a statute, resulting in that order being il legal or made outside the jurisdiction of the court. It is in thisrespect that the court's inherent jurisdiction may be exercised, to strike out an earlier order, ex debitojustitiae andwithout the need for file afresh suit.

[32] I agree with the submission of the counsel for the applicant, that the Federal Court in Serac did notintend to limit the categories of cases in which a judgment may be set aside ex debito justitiae to only thoseinvolving a contravention of written law. The position is neatly summarised in the following passage from thedecision of the Court of Appeal in Hew Hooi Chun v KL Teksi Radio Bhd [2011] 3 MLJ 754; [2010] 4 CLJ657, a decision that was recently cited with approval by the Federal Court (See CIMB Investment BankBerhad v Metroplex Holdings Sdn Bhd Rayuan Sivil No 02(i)-03-01/2013(W) (4 November 2014):

[17] In Badiaddin, the Federal Court settled that there is inherent and discretionary jurisdiction to set aside exdebitojustitiae an order of court regularly obtained where there has been a breach of the rules of natural justicefollowing the Privy Council case of Isaacs v Robertson [1985] AC 97. However, the Federal Court cautioned "that inany attempt to widen the door of the inherent and discretionary jurisdiction of the superior courts to set aside an orderof court ex debito justitiae to a category of cases involving orders which contravened 'any written law', the contraventionshould be one which defies a substantive statutory prohibition so as to render the defective order null and void onground of illegality or lack of jurisdiction".

[18] The contravention must be one which defies a substantive statutory prohibition so as to render the defective ordernull and void on ground of illegality or lack of jurisdiction (in MacOuire (Malaysia) Sdn Bhd v HSBC Bank Malaysia Bhd& Anor and Another Appeal [2007] 6 CLJ 176, Selvam Holdings (Malaysia) Sdn Bhd v Grant Kenyon & Eckhardt SdnBhd; BSN Commercial Bank Malaysia & Ors (Intervenors) [2003] 1 CLJ 465 HC, and Yee Seng Plantations Sdn Bhd vKerajaan Negeri Terengganu & Ors [2000] 3 CLJ 666, the Court of Appeal applied Badiaddin per Mohd Azmi). InBadiaddin, the contravention defied a substantive statutory prohibition contained in the Malay Reservations Enactment.In Meenakshi Naidoo v Subramaniya Sastri LR 14 1A 160 (cited by Gopal Sri Ram JCA, as he then was, in Badiaddin),the High Court at Madras purported to entertain an appeal which was not appealable. And in Chief Kofi Forfie v BarimaKwabena Seifah [1958] AC 59; [1958] 1 All ER 289 (also cited by Gopai Sri Ram JCA, as he then was, in Badiaddin),

the judgment was delivered when the presiding judge of the Chief Commissioner's Court had no power to exercise judicial functions. There must be "a breach of the rules of natural justice or a contravention of a statute which is a sinequa non to invoke the very limited jurisdiction of a court to have its orders declared as void" ( Annie Quah Lay Nah vSyed Jafer Properties Sdn Bhd & Ors And Another Appeal [2007] 1 CLJ 1 per Gopal Sri Ram JCA). The order must betainted by "fraud or some other vitiating element and not a judgment that was merely irregular in the sense that it is oneobtained in breach of a rule of court or of practice (Chong Keat Realty Sdn Bhd v Ban Hin Lee Bank Bhd [2003] 3 CLJ532 per Gopal Sri Ram JCA).

[33] It is clear from the passages cited above that the circumstances under which a prior judgment or ordermay be set aside ex debito justitiae include where the judgment or order in question had contravened asubstantive statutory provision, where the order was tainted with fraud or where there was a breach of therules of natural justice. Although these categories are not closed, it is also clear that lack of jurisdiction doesnot of itself form the grounds for which a judgment or order may be set aside. A close analysis of the judgment in Serac will reveal that lack of jurisdiction is not a ground on which a judgment may be impeached

but rather is one of the reasons why a judgment or order made in contravention of a statutory provisionwould be null and void.

[34] The next issue for consideration is the question whether a judgment made in respect of an issue thathas been finally determined in a prior decision of the court could be said to be in contravention of statute andtherefore liable to be set aside. If res judicata is not a principle of law found in a substantive statutoryprovision of our laws, then the applicant may not avail itself of the authority of the decided cases discussed inthe preceding paragraphs, and will have to persuade this court that lack of jurisdiction should form aseparate category of circumstances under which a prior order may be set aside, in addition to thosesummarised by the Court of Appeal in Hew Hooi Chun.


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Res judicata as wri tten law

[35] This issue has been considered by the Federal Court in Manoharan a/l Malayalam v Menteri DalamNegeri, Malaysia & Anor [2009] 2 MLJ 660; [2009] 2 CLJ 839 :

Res Judicata is defined in Black's Law Dictionary, 7th edn as follows:

[literally in Latin 'a thing adjudicated] 1. An issue that has been definitively settled by judicial decision.2. An affirmative defence barring parties from litigating a second lawful lawsuit on the same claim, orany other claim arising from the same transactions and that could have been -- but was not raised inthe first suit. The three essential elements are (1) an earlier decision on the issue (2) a final judgmenton the merits, and (3) the involvement of the same parties, or parties in privity with the original parties.Restatement (Second) of Judgments ss. 17, 24 (1982) - Also termed res adjudicata, claim preclusion.Cf. COLLATERAL ESTOPPEL.

Res Judicata has been used in this section as a general term referring to all newways in which one judgment will have a binding effect on another. That usage is anddoubtless will continue to be common, but it lumps under a single name two quitedifferent effects of judgments. The first is the effect of foreclosing any litigation ofmatters that never been litigated, because of the determination that they should havebeen advanced in an earlier suit. The second is the effect of foreclosing relitigation of

matters that have once been litigated and decided. The first of these, preclusion ofmatters that were never litigated, had gone under the name, "true res judicata " or thenames "merger" and "bar", The second doctrine, preclusion of matters that haveonce been decided, has usually been called "collateral estoppel" Professor AlanVestal has long argued for the use of the names "claim preclusion" and "issuepreclusion" for these two doctrines [Vestal, Rationale of Preclusion, 9 St. Louis U U29 (1964)], and this usage is increasingly employed by the Courts as it is byRestatement Second of Judgment". Charles Alan Wright, Law of Federal Courts s.100A, at 722-23 (5th ed. 1994).

George Spencer Bower and Sir Alexander Kingcome Turner in their book "The Doctrine of Res Judicata" 2nd edn at p.1 defined res judicata, inter alia, as follows:

21. In English jurisprudence a res judicata, that is to say a final judicial decision pronounced by a

judicial tribunal having competent jurisdiction over the cause or matter in litigation, and over theparties thereto, disposes once and for all of the matters decided, so that they cannot afterwards beraised for re-litigation between the same parties or their privies.

The common law doctrine of res judicata has been incorporated into the statute law in Malaysia ascan be found in s 25(2) of the Courts of Judicature Act 1964 ("CIA") which confers additionalpowers to the High Court as set out in item 11 of the schedule to the CJA as follows:

11. Power to dismiss or stay proceedings where the matter in question is res judicatabetween the parties, or by reason of multiplicity of proceedings in any Court or Courtsthe proceedings ought not to be continued.

[36] Based on the authority of Manoharan a/l Malayalam v Menteri Dalam Negeri, Malaysia & Anor , I accept

as correct the submission of Dato' Malik Imtiaz that the principle of res judicata has been received intostatute law by virtue of section 25(2) of the Courts of Judicature Act 1964, read together with item 11 ofthe Schedule to that Act. Accordingly, a judgment or order made in respect of an issue that is res judicata between the parties would be in contravention of a substantive provision of written law, and therefore wouldbe liable to be set aside ex debito justitus by this court. I examine in paragraphs 41 et seq. the question ofwhether there was a final determination in the 620 suit on the issue of breach of trust and breach of fiduciaryduty.

Is the Appl icant him sel f barred b y Res Jud icata?


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[37] Before I examine the decision in the 620 suit, I would like to address the argument put forward bycounsel for ESPL, which was that TG Chan ought to be barred by the doctrine of res judicata fromchallenging the decision of Nik Hasmat J. in the 145 and 199 suits, as TG Chan had already exhausted hisavenues of appeal to the Court of Appeal and the Federal Court.

[38] Although the applicant had raised res judicata in his defence of the consolidated suits, Nik Hasmat J. did

not specifically rule on this issue in the grounds of her judgment. Given the decision that was arrived at byher ladyship, it can be surmised that she did not consider ESPL as being prevented from relief on grounds ofres judicata.

[39] It was further submitted by Dato' Malik that the issue of lack of jurisdiction was not argued before theCourt of Appeal, and was only raised at the review application before the Federal Court. Dato' Malik furtherargued, on the authority of Datuk Syed Kechik Syed Mohamed & Anor v The Board of Trustees of the SabahFoundation & Ors [1991] 1 MLJ 257; [1991] 1 CLJ 325, that the fact that the Federal Court refused leave toappeal does not mean that it affirmed the decision of the Court of Appeal.

[40] In my view, the critical issue for consideration is whether the High Court in the consolidated suits hadthe requisite jurisdiction to hear the issues before it. If this court finds that there was no jurisdiction, then thesubsequent proceedings before the Court of Appeal and the Federal Court would be irrelevant, as neitherappellate court could confer jurisdiction where there was none. In order to ascertain whether the High Court

had jurisdiction, we consider in the following paragraphs whether the doctrine of res judicataought to haveapplied in connection with the findings in the 620 suit.

Determination by the High Cou rt in the 620 Suit

[41] The liability of TG Chan in the 145 suit for having assisted R&G in its breach of trust and breach offiduciary obligations was predicated on R&G having been found to have breached its fiduciary duties owed toESPL or committed a breach of trust. It follows therefore that, if R&G is not liable for breach of trust or breachof fiduciary duties, no liability will lie against TG Chan in the 145 suit.

[42] The applicant's position was that the judgment in the 620 suit, having been perfected, meant that theHigh Court was functus officio. The learned counsel argued that, because Kang J. had disallowed thecounterclaim of ESPL in the 620 suit, this necessarily meant that there had been no breach of trust orfiduciary duties as claimed in the counterclaim. As the issue of breach of trust has been conclusively

determined in the 620 suit, Dato' Malik Imtiaz argued that Nik Hasmat J. was wrong to have found that R&Gbreached trust and fiduciary obligations owed to ESPL. The principle of res judicata would apply, contendedcounsel, which meant that the High Court no longer had jurisdiction to grant the order that it did in relation tothe 145 suit.

[43] In my view, the fact that Kang J. disallowed the counterclaim does not inexorably lead to the conclusionthat he had had made a definitive finding that there was no breach of trust or fiduciary duties. His grounds of judgment stated that a number of the issues identified at the case management stage for determinationduring trial had become redundant at the submission stage. Kang J. found R&G liable to ESPL for more thanRM25 million due under the contract pursuant to the doctrine of substantial performance, taking into accountthe finding of fact that ESPL had completed 95% of its contractual obligations under the ACMV Subcontract.This liability of R&G to pay under contract would have existed independently of any trust. Paragraph 6 of thegrounds of judgment set out the computation of the amount awarded under the contract. I am of the viewthat, even if Kang J. had found a trust to have existed, the remedies granted by Kang J. would have been

substantially similar as those actually awarded under contract (save and except that ESPL would have alsobeen able to avail itself to the equitable doctrine of tracing, thereby ring-fencing the assets of the trust fromthe claims of the creditors of R&G in the event of its winding-up or liquidation).

[44] Therefore, the dismissal of the counterclaim by Kang J. was not because he had found that no trustexisted as contended by the applicant, but because the issues to be tried were reframed in a manner thatmade it unnecessary for his lordship to come to a judicial determination on the issue of trust in order todispense a just resolution to the dispute.

[45] That this was the case can be seen from, and is supported by, the reported decision of the Court of Appeal in hearing the interlocutory appeal by ESPL from the decision of Kang J. in refusing to grant the


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mandatory injunction for moneys to be paid into court or to a stakeholder. We now turn to the decision of theCourt of Appeal.

The Court of Ap peal Judgm ent in the 620 Suit

[46] In hearing the interlocutory appeal, the Court of Appeal found that not only was there was a breach of

that trust (see paragraph 54(b), post ).

[47] The learned counsel for the applicant rightfully pointed out to this court that any finding made at aninterlocutory stage of proceedings is merely a provisional finding and that at the main trial, the judge is free tocome to a conclusion that may be diametrically opposed to the finding made at the interlocutory stage (seefor example Hock Hua Bank (Sabah) Bhd v Yong Liuk Thin & Ors [1995] 2 MLJ 213; [1995] 2 CLJ 900).

[48] There is no doubt that this correctly represents the general position in law. However, the key question iswhether, in all cases, the findings of a court at the interlocutory stage must necessarily be merely provisionalfindings. Allied to this question is whether, once Kang J. disallowed the counterclaim, the finding by the Courtof Appeal thus fell away and would no longer operate to bind the parties.

[49] In my view, the answer to the first question must be no, as the issue of whether the finding during theinterlocutory stage was definitive finding must depend on what the judge in question had intended. It is

conceivable that a judge may have examined the circumstances surrounding an issue raised during aninterlocutory stage in sufficient detail so as to make a definitive finding, whether of fact or law.

[50] It is true that, in the vast majority of cases, findings at the interlocutory stage of proceedings are merelyprovisional findings, and therefore subject to review in the course of and after the main trial. Nonetheless, toexclude even the possibility of a definitive finding being made at an interlocutory stage is, to my mind, toosweeping a proposition of law for this court to accept.

[51] Whether or not an interlocutory finding was intended to be a definitive finding would be ascertained froma proper construction of the judgment or order in question. That a finding at the interlocutory stage will havebeen made based on mere affidavit evidence is no bar to the court concluding that the finding is definitive.This is a matter of judicial discretion, taking into account the protean circumstances of the cases before a judge. The point may also be validly made that an issue before a judge may be so clear cut that it would notbe inappropriate to come to a definitive finding of fact or law without having to hear viva voce evidence.

[52] I now examine the decision of the Court of Appeal, with the object of ascertaining whether the findings ofthe existence and breach of trust were intended to have been definitive, and accordingly binding on theparties to the 620 suit.

[53] To recap, ESPL, the defendant in the 620 suit, moved the High Court for a mandatory injunctionrequiring R&G to pay monies held by it into a stakeholder account. Kang J. refused the application ongrounds that the amount was unascertained or unascertainable because of the set-off claimed by R&G.

[54] The following observations may be made of the judgment of Gopal Sri Ram JCA:

(a) The learned judge stated, in the first paragraph of the judgment that "the facts so far as thisappeal is concerned are not in dispute". This was an important observation by the judge, as itestablished that there was no specific finding of fact by the Court of Appeal that drove oraffected the decision of the court. The application was determined purely on points of law, and

accordingly viva voce evidence adduced at the main trial would not have operated to controvertthe facts deposed at the interlocutory hearing, given that such facts were undisputed.(b) The Court of Appeal found that all the elements necessary to constitute a trust were extant:

Having established that there was an intention here to create a trust, it is now necessary to see if theother two requirements, namely, certainty of subject matter and of objects are present on the facts.Unless all three certainties are present there cannot be a trust. See, Knight v Knight [1840] 49 ER 68.

So far as certainty of objects is concerned, there is no difficulty whatsoever here. The documentsmake it clear that it is the defendant who is the nominated beneficiary. As for certainty ofsubject-matter, again there is no difficulty. The trust attaches to all sums receivable by the plaintifffrom Henz. These monies are payable by the plaintiff into Account No. 1. The corpus is therefore


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sufficiently certain. See, Hunter v Moss [1994] 1 WLR 452. As for the extent of the defendant'sbeneficial interest, this too is sufficiently certain in the sense that the defendant is entitled to its shareof the monies in Account No. 1 after any set-off claimed by the plaintiff is adjudicated upon in theusual way through arbitration. The fact that the plaintiff alleges that it is entitled to a set-off does notabsolve it of its duty to pay into Account No. 1 all the monies received from Henz. In our judgment, theact of the plaintiff in diverting these monies away from Account No. 1 amounts to a serious breach oftrust.

To summarise the points made thus far, the defendant has established the existence of a trust andtherefore a proprietary right to the monies receivable by the plaintiff from Henz. ( ibid at 690e et seq (CLJ), 434G et seq (MLJ))

(c) The same passage cited above also established that there was a breach of that trust.(d) The learned judge considered the applicable principles in the grant of mandatory and

prohibitory injunctions and quoted at length from the decision of Hoffmann J. in Films RoverInternational Ltd and Ors v Cannon Film Sales Ltd [1986] All ER 772, which established thetest for granting interlocutory injunctions. I risk offence by stating the obvious: the Court of Appeal clearly and very patently appreciated the generally impermanent nature of interlocutoryinjunctions.

(e) The learned judge cited with approval his decision in Keet Gerald v Mohd Noor bin Abdullah &Ors [1995] 1 MLJ 193; [1995] 1 CLJ 293, which sets out the steps to be taken by a judge in

considering an interlocutory injunction. In particular, the learned judge reminded himself that a judge in determining whether the facts before him disclosed a bona fide serious issue to betried, must:

... bear in mind that the pleadings and evidence are incomplete at that stage. Above all, he mustrefrain from making any determination on the merits of the claim or any defence to it. (ibid at 694h(CLJ), 438E (MLJ))

(f) Despite this, his lordship nonetheless acknowledged that he had ventured beyond theboundaries of his own prescription in Keet Gerald , and into the merits of the case, and providedhis justification for so doing:

It may appear from this judgment that the Keet Gerald line has been crossed by entering into the

merits of the case to some extent. That is quite true. But there are good reasons for this.

We are here dealing with a mandatory injunction in terms in which it gives to the defendant at theinterlocutory stage, the whole of the relief it claims under its counterclaim. So, once the mandatoryinjunction is granted, there is really no need for a trial on the issue of a trust. Keet Gerald was a casewhere the grant or refusal of an injunction at the interlocutory stage did not put an end to the action.The present is quite the opposite case. Hence, following Cayne v Global Natural Resources Plc [1984]1 All ER 245 and NWL Ltd v Woods [1979] 3 All ER 614, it has become necessary to place a higherthreshold in the defendant's path by requiring it to prove a case on merits before deciding whether theorders asked for should be granted.

To sum up, it is our respectful opinion that the defendant has established a trust in its favour in whichthe plaintiff had constituted itself as trustee. ( ibid at 697g et seq (CLJ), 441A et seq (MLJ))

(g) The passages cited in the preceding subparagraph is of crucial importance because itdistinguishes Keet Gerald on the basis that the mandatory injunction granted by the Court of Appeal in favour of ESPL would grant the whole of the relief sought by ESPL in its counterclaimand would, as a consequence, put an end to the main action. This passage also determinedthat there was no further need for a trial on the issue of trust, on the basis that -- in my view --the Court of Appeal considered the issues relating to the existence and breach of trust ashaving been finally determined.

[55] Having carefully considered the judgment of the Court of Appeal and for the reasons set out in thepreceding subparagraphs, I find that this was one the rare and perhaps exceptional case where the court --an appellate one in this instance -- considered its finding made at an interlocutory stage of proceedings asbeing a definitive finding.


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[56] I now return to the second question posed at paragraph 48 ante: whether the fact that Kang J. haddisallowed the counterclaim meant that the findings by the Court of Appeal thus fell away and would nolonger operate to bind the parties.

[57] In my view, the grounds of judgment of Kang J., where he stated that a number of issues that had beenframed for determination at trial had become redundant at the submissions stage, must be read in the light of

the imperative from the Court of Appeal that no trial was necessary on the issue of trust. As a consequence,the finding of the existence of a trust and the breach of that trust by the Court of Appeal survives thedetermination of the dispute by Kang J. and remains binding on R&G and ESPL, as parties to the 620 suits.That the counterclaim was disallowed does not cause the Court of Appeal's findings to fall away, as therewas no finding to the contrary in Kang J.'s grounds of judgment, perhaps unsurprisingly so, given thedirection of the appellate court on the issue of trust.

Judgm ent of the High Court in the Consol idated Sui ts

[58] We now turn to the decision of Nik Hasmat J. It is the view of this court that her ladyship was correct tohave formed the view that the issue of trust was fully determined by the Court of Appeal and binding on R&Gand ESPL. At paragraphs 3 and 4 of her ladyship's judgment ([2011] 1 LNS 1760) she stated as follows:

[T]he Court of Appeal on 9 September 2004 in Civil Appeal No. N-02-206-2002 had allowed the Plaintiff's appeal tocompel R&G to pay to the Plaintiff monies received in respect of payment for the mechanical works from Henz which inaccordance with clause 27.1 of the subcontract was to be held as a trust fund for the benefit of the Plaintiff. The Courtof Appeal further held R&G as trustee for monies received from Henz for the Plaintiff's mechanical works, hadbreached their fiduciary duties and trust that was owed to the Plaintiff in the diversion of the aforesaid monies intoR&G's own account. The said trust monies, payable to parties joint bank account was supposed to be payment for thePlaintiff's portion of the mechanical works for the project but had been unilaterally and surreptitiously diverted intoR&G's own account with the knowledge, consent and authorisation of the Plaintiff. It is clear that R&G had clearlybreached the mode of payment that was agreed by both parties which require payment for the mechanical works bepaid into the parties joint bank account and not into R&G exclusive account. It was clear to the court that despite theagreed payment arrangement of the parties, R&G without the Plaintiff's knowledge and consent had unlawfully divertedpayments received from Henz for Plaintiff's mechanical works into their account.

Consequent to the Court of Appeal decision, and pending the outcome of Suit 620, the High Court in an order dated24.11.2004 had further ordered R&G to pay the sum of RM19,312,836.48 into the court or into parties' joint account.Therefore, as the issue of R&G's liability to the Plaintiff in respect of payment for the mechanical works and the issue offiduciary duties that was owed by R&G to the Plaintiff had been fully determined, both the Count of Appeal and High

Court's findings prevail, and is clearly binding on R&G and the Plaintiff in this suit.

[59] The fact that Kang J. did not specifically deal with the issue of trust in the 620 suit is of no consequence,as there were definitive findings by the Court of Appeal on the existence of a trust and a breach of that trust. Accordingly and as a consequence, this court further finds that no issue of res judicata arises in respect ofthe decision by Nik Hasmat J. in respect of the causes of action in the 145 suit, on the basis that there wasno finding by Kang J. that a trust did not exist.

The Cause of Actio n in the 199 Suit

[60] Even if I am wrong in my findings thus far in this case, I am of the view that the application shouldnonetheless be dismissed on grounds that the cause of action in the 199 suit and the findings of Nik HasmatJ. in respect thereof are unaffected by the doctrine of res judicata.

[61] The cause of action in the 199 suit was for inducing a breach of contract. No finding of breach of trust orbreach of fiduciary duties needs to be made in order to sustain a claim for inducing a breach of contract. It isclear from the judgment of Nik Hasmat J. that the learned judge had found TG Chan liable for having inducedthe breach by R&G of its contractual obligation to pay the proceeds received in respect of the ACMV worksinto the jointly operated bank account. The following is the pertinent extract from her grounds of judgment of23 December 2011:

Based on the oral testimony of Plaintiff's witness, the documentary evidence and written submission from counsels forboth parties, the court is satisfied that on a balance of probabilities, the Plaintiff had successfully proved plaintiff'scause of action against the 1st Defendant and 4th Defendant as per paragraph 55 of suit 145 and, as against 1st


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Defendant as per paragraph 39 of suit 199 of Plaintiff's amended statement of claim is allowed with costs. [Emphasisadded]

[62] The finding of liability on the cause of action in the 199 suit is independent of any finding of liability forbreach of trust or fiduciary duties on the part of R&G. Accordingly, even if the postulations by the counsel for

the applicant were correct in that:

(a) the Court of Appeal findings were merely provisional findings that ceased to have effect uponthe disallowance of the counterclaim in the 620 suit;

(b) Kang J. had finally determined the issue of trust in so disallowing the counterclaim;(c) the doctrine of res judicata prevented a finding of liability on the part of R&G in the 145 suit for

breach of trust and fiduciary duties; and(d) TG Chan cannot be made liable for having knowingly assisted the breach of trust by R&G when

no such breach existed,

TG Chan would nonetheless still be liable in the 199 suit for having induced the breach by R&G of itscontractual obligations owed to ESPL under the ACMV Subcontract.

SUMMARY OF FINDINGS

[63] The following summarises the findings of this court:

(a) as a general principle, a judgment or order made in respect of an issue that is res judicata between the parties would be in contravention of a substantive provision of written law by virtueof the operation of section 25(2) of the Courts of Judicature Act 1964, read together with item11 of the Schedule to that Act, and therefore such a judgment or order may be set aside exdebito justitiae;

(b) the findings of the existence of a trust and the breach of that trust by the Court of Appeal weredefinitive findings and remain binding on R&G and ESPL, as parties to the 620 suit;

(c) the disallowance of the counterclaim by Kang J. did not have the effect of vitiating the findingsby the Court of Appeal;

(d) accordingly, the High Court was not functus officio upon the perfection of the judgment of KangJ. in as far as the issue of breach of trust and breach of fiduciary duties were concerned;

(e) the decision of Nik Hasmat J. in respect of the claims in the 145 suit should not therefore be setaside for want of jurisdiction;

(f) in any event, and independently of the findings of this court summarised in the precedingsubparagraphs, TG Chan would nonetheless still be liable in the 199 suit for having induced thebreach by R&G of its contractual obligations owed to ESPL under the ACMV Subcontract.

DECISION

[64] For the reasons set out above, the application by TG Chan is dismissed with costs of RM25,000 to beborne by the applicant.

ESPL (M) Sdn Bhd v Radio & General Engineer

Documents

Transcript of ESPL (M) Sdn Bhd v Radio & General Engineer