The Untrustworthy Trustee

Case Commentary on Hasmah Abdul Rahman v. Kenny Chua Kien Lam [2006] 5 MLJ 236

 

 

Introduction

This decision of the Court of Appeal (“CA”) concerned an attempt to recover shares which were sold under a shroud of illegality in order to list a company on the Kuala Lumpur Stock Exchange (“KLSE”). It emphasises the position that the Courts will not assist in the enforcement of an illegal agreement.

 

 

Facts

The Respondent (Kenny Chua Kien Lam) brought an action against the Appellant (Hasmah Abdul Rahman) in the High Court of Malaya for the return of 170,000 shares (“the relevant shares”) in SBBS Consortium Berhad (“SBBS”) alleging that they belonged to him at all times, as well as the return of the bonus shares and rights issue shares that arose from the relevant shares. The crux of the Respondent’s claim was that he was the beneficial owner of the shares in SBBS and the Appellant was merely a trustee of the shares held by her in SBBS.

The Respondent was the Managing Director of SBBS. The Respondent sought the assistance of the Appellant in connection with the listing of SBBS on the KLSE.

 

The Respondent asserted in his Statement of Claim that the Appellant had expressed interest in purchasing the relevant shares in SBBS from him and that he then transferred and registered the relevant shares in the Appellant's name but no payment was made to him.

 

Subsequently, as part of the requirements for the listing of SBBS, both the Appellant and the Respondent affirmed and delivered to the Securities Commission of Malaysia ("SC") and the KLSE, similar statutory declarations in which they acknowledged that they were aware of and would comply with the Malaysian Government’s New Development Policy, including the requirement for a minimum of 30% Bumiputera equity participation in Malaysian incorporated companies. The Respondent further affirmed that he had not appointed and would not appoint a Bumiputera nominee in respect of the equity which he held in SBBS. SBBS was successfully listed on the Second Board of the KLSE.

 

The Appellant applied to strike out the Respondent’s claim. The application was allowed by the Senior Assistant Registrar, whose decision was overturned by on appeal to a Judge of the High Court of Malaya.  The Appellant appealed to the CA, which upheld the Appeal and struck out the Respondent’s suit in the High Court of Malaya.

 

 

Decision

The CA held that the issue for determination in the appeal was the legality or illegality of the trust or contract pertaining to the relevant shares.

 

The CA held that the statutory declarations affirmed by the Respondent and the Appellant contained assertions which, if juxtaposed with the Respondent's assertions in the Statement of Claim, must have been intended at the material time to mislead the SC and the KLSE to approve the flotation of SBBS on the Second Board.

 

The CA was satisfied from the evidence that the purported sale of the relevant shares by the Respondent to the Appellant amounted to nothing more that ‘a transaction which on the face of it is lawful is entered into for an unlawful purpose or to achieve an unlawful end.’ The CA concluded that deception was practised on the listing authorities which were part and parcel of the public administration in the country. The transaction was therefore tainted with illegality and was unenforceable.

 

The CA then held that the maxim ‘the loss lies where it falls’ applied and that it would not assist the Respondent to recover any of the shares in SBBS.

 

 

Commentary

Although this case does not establish any new principle of law, it is noteworthy in that, it highlights the risk of practising deception on public authorities, be they listing, licensing or other regulatory authorities. It also serves as a reminder that a litigant who seeks judicial assistance must come to the Court with clean hands, failing which the Court will not render assistance even where the counter-party's conduct lacks probity.

 

It should be noted that the Respondent has filed an appeal to the Federal Court against the decision of the CA.

 

 

Ou May Jean

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