PERKASA TRADING SDN BHD, KINABALU POLY-BAG SDN BHD vs YANG KAI HSIUNG, CLEMENT LEE LEONG HON (MJLR 2009a5) Rahman Sebli,30/11/2009,SS
[K22-209-2007]
1
5
MALAYSIA
IN THE HIGH COURT IN SABAH AND SARAWAK AT KOTA KINABALU
SUIT NO.K22-209 OF 2007
BETWEEN
10
1. PERKASA TRADING SDN BHD .. 1ST PLAINTIFF
2. KINABALU POLY-BAG SDN BHD .. 2ND PLAINTIFF
AND
1. YANG KAI HSIUNG .. 1ST 15 DEFENDANT
2. CLEMENT LEE LEONG HON .. 2ND DEFENDANT
GROUNDS OF JUDGMENT
The 1st plaintiff’s action is for loss and damages resulting from the negligence of the managing director of the 2nd
20
plaintiff, namely the 1st defendant. The dispute between the parties arose from the sale and purchase of 1,617,000 ordinary shares representing 49% of the total issued and paid up shares in the 2nd plaintiff company for the purchase price of RM1,617,000.00. The 1st plaintiff’s pleaded case
25
is that it decided to purchase the shares based on the information disclosed by the 1st and 2nd defendants and contained in the 2nd plaintiff’s 2004 audited accounts and 2005 management account.
[K22-209-2007]
2
The 1st and 2nd defendants had expressly given the following warranties, amongst others, which they represented to be true and accurate pursuant to clause 6.2 of the Sale and Purchase
30
of Shares Agreement dated 2nd December 2005.
(i) “The audited accounts give a true and fair view of the assets, liabilities and commitments of the [2nd plaintiff] at the last accounting date and its losses for the financial
35
period ended on that date”;
(ii) “There is no liability to Taxation in respect of which a claim could be made against the [2nd plaintiff] and to the best of the knowledge of the [1st and 2nd defendants] and belief there were no circumstances likely to give rise to
40
such liability ( a claim meaning any notice, demand or assessment issued or action taken by the taxation authorities whereof the 2nd plaintiff is placed or sought to be placed under a liability to make payment”;
(iii) “The [2nd plaintiff] has duly made all returns and given or
45
delivered all notices, accounts and information which on or before the date hereof ought to have been made, given or delivered for the purposes of Taxation and all such returns, notices, accounts and information (and all other information supplied to the Inland Revenue
50
Department) have to the best knowledge and belief of the [1st and 2nd defendants] been correct and made on a proper basis and none of such notices, accounts or
[K22-209-2007]
3
information is disputed in any material respect by the taxation authorities and there is no fact known to any of the [1st and 2nd defendants] which might
55
be the occasion of any such dispute or of any claim for Taxation in respect of any financial period down to and including the last accounts date not provided for in its Audited Accounts.” The information provided by the 1st and 2nd
60
defendants turned out to be inaccurate as the sales tax payable to the Royal Malaysian Customs amounting to RM1,617,563.15 was not disclosed. Of this sum, RM1,558,775.23 remained outstanding as at 10th October 2007 and remains a liability to the 1st plaintiff. It is a telling
65
coincidence that the amount of sales tax payable to the Royal Malaysian Customs is almost equal to the sale price of the 2nd plaintiff’s shares. The particulars of the 1st defendant’s alleged negligence are as follows:
(i) Failure to ensure that the 2nd
70
plaintiff was properly licenced as a licenced manufacturer under the Sales Tax Act, 1972 (“the Sales Tax Act”);
(ii) Failure to produce the sales tax licence when required by the enforcement team of the Royal Malaysian Customs;
75
(iii) Failure or neglect to file returns for the sales tax on all taxable goods under the Sales Tax Act;
[K22-209-2007]
4
(iv) Failure or neglect to pay the sales tax payable by the 2nd plaintiff to the Royal Malaysian Customs as and when they fell due; or
(v) Failure or neglect to pay the sales tax and 80 penalty due and payable by the 2nd plaintiff to the Royal Malaysian Customs.
The parties have agreed that the following are the issues to be tried:
1. Whether the 1st and 2nd defendants have committed a breach of the warranties, or any of them, represented to be true and
85
accurate under clause 6.2 of the Sale and Purchase of shares Agreement dated 2nd December 2005.
2. If the answer to question 1 is in the affirmative, what damages as assessed are the 1st and 2nd defendants liable to pay the plaintiff.
90
3. Whether Messrs Alex Pang & Co, advocates and solicitors, has the authority to commence the present action on behalf of the 2nd plaintiff against the 1st defendant in his capacity as managing director of the 2nd plaintiff.
4. Whether the plaintiff, a minority shareholder of the 2nd plaintiff,
95
is entitled to continue with the claim for damages in negligence for and on behalf of itself and all other shareholders of the 2nd plaintiff against the 1st defendant in his capacity as a managing director of the 2nd plaintiff.
[K22-209-2007]
5
5. If the answer to question 4 is in the affirmative, whether the 1st defendant is liable to pay damages as assessed 100 for the claim in negligence.
6. Whether the 1st plaintiff should be ordered to render specific performance of the mutual covenant under clause 13.2 of the Sale and Purchase of Shares Agreement dated 2nd December
105
2005 as counterclaimed by the defendants.
At the conclusion of the trial I decided all the issues in favour of the 1st plaintiff and made the following orders:
(a) The 1st and 2nd defendants do indemnify the 1st plaintiff against all liabilities, losses, costs, claims, damages and penalties and
110
expenses arising out of and in relation to the sales tax in respect of the 2nd plaintiff (the 1st plaintiff’s alternative prayer as against the 1st and 2nd defendants).
(b) The 1st defendant do pay to the 1st plaintiff in its representative capacity damages in the sum of RM1,558,775.23 with interest at the rate of 8% per annum from 1st 115 January 2006 to the date of judgment and 8% from the date of judgment until the date of full payment.
(c) The counterclaim be dismissed with costs.
At the trial evidence in chief was adduced by way of witness
120
statements which was the agreed mode. For purposes of this judgment I do not propose to recount what the witnesses have said
[K22-209-2007]
6
in their witness statements and in their oral evidence save to say that I have considered them carefully having regard to the agreed issues to be tried. At the outset of his written submissions Mr.
125
Ronny Cham for the defendants contended that by not cross examining DW1 on his witness statements (“DWS1” and “DWS1A”) the 1st plaintiff must be taken to accept that what DW1 said in his statements are the truth. I have checked the record. It is not entirely correct in the first place to
130
say that there was a total failure to cross examine DW1 on his witness statements. The cross examination of DW1 shows that he was asked on Question 53 of his statement “DWS1”. Learned counsel for the defendants referred to the oft-cited case of Aik Ming (M) Sdn Bhd & Ors v Chang Ching Chuen & Ors and Another 135 Appeal [1995] 2 MLJ 770 for the proposition that failure to put a party’s case to his opponent’s material witnesses when they are under cross examination may be treated as an abandonment of the pleaded case. The testimony of a witness, whether in the form of a witness
140
statement or in the form of oral evidence (they are both evidence) must be considered in its entirety and must be tested against the rest of the evidence including his evidence under cross examination and in re-examination, if any. If the witness is not cross examined at all then of course his evidence in chief is deemed to be accepted as
145
the truth provided what he says is admissible in evidence and constitutes proof of the relevant facts in issue.
[K22-209-2007]
7
I have considered the cross examination of DW1 carefully and it is abundantly clear to me that although his attention was not drawn to the contents of his witness statements (except to question 53 of “DWS1”), DW1 was seriously and vigorously
150
challenged on all crucial issues to be tried, particularly on the question as to whether he had committed a breach of warranty. It is also clear that all essential and material case for the 1st plaintiff had been put to DW1 in cross examination. The nature of the questions asked in cross
155
examination shows a clear and categorical challenge to the testimony of DW1 that he was not guilty of negligence, either directly or indirectly. In particular DW1 was cross examined on his failure to disclose the sales tax liabilities for the 2nd plaintiff. He was also cross examined on the 2005 management accounts which also did not disclose any sales tax liabilities for the 2nd
160
plaintiff. These are matters which go to the root of the factual issues before the court. It is therefore wrong to say that 1st plaintiff had accepted what DW1 said in his witness statements or that it had abandoned its pleaded case. Aik Ming (M) Sdn Bhd & Ors must be considered in this
165
context. The fact that a witness is not cross examined on a particular point does not mean that his evidence on the point is proved. All it means is that his evidence remains unshaken and that as a general rule it is deemed to be accepted: see Wong Swee Chin v PP [1980] 1LNS
170
138; [1981] 1 MLJ 212 FC. But the Federal Court in that case explained that there are exceptions to this general rule. Raja Azlan [K22-209-2007]
8
Shah CJ (Malaya) in his judgment quoted with approval the following passage in the judgment of the Supreme Court of New Zealand in Transport Ministry v Garry [1973] 1 NZLR 120: “In Phipson on Evidence 11th edition paragraph 1544 the learned
175
authors suggest examples by way of exception to the general principle that failure to cross examine will amount to an acceptance of the witness’s testimony, viz, where ‘ .. the story is itself of an incredible or romancing character, or the abstention arises from mere motives of delicacy .. or when counsel indicates that he is merely abstaining
180
for convenience, e.g., to save time. And where several witnesses are called to the same point it is not always necessary to cross examine them all.’” The witness statements of DW1 must be tested against the rest of the evidence and the probabilities of the case. If his evidence is contradicted by other evidence or if he is found to be an untruthful
185
witness it will be wrong to accept his evidence as having been proved merely because he was not cross examined on it. In my view the general rule does not apply in such a situation. It cannot be a correct proposition of law to stay that the unchallenged evidence of an untruthful witness must be accepted in any event.
190
That will be an affront to justice. In the instant case I must say at the outset that as far as the credibility of DW1 is concerned I am unable to accept him as a witness of truth, particularly his assertion that it was the other three directors of the company including PW3 who ran and operated the 2nd
195
plaintiff. In my view this portrayal of the three directors as the persons running the show is a deliberate attempt to shift responsibility away from himself and put all the blame for the losses
[K22-209-2007]
9
that the company is now facing on the other directors. So is his assertion that he cannot be held responsible for the contents of the audited financial statements of the 2nd plaintiff on 200 the ground that he relied on the auditor and that the other directors had signed the report.
Clearly under sections 167 and 169 of the Companies Act, 1965 it was his responsibility to make sure that the financial statements were correct. It is clear to me that DW1 is a not an
205
honest witness. I do not find it safe to rely on any part of his evidence where they contradict the case for the 1st plaintiff. I find him to be annoying, evasive and had a clear tendency to embellish evidence to suit his case, although the record will not show this. He gave me the distinct impression that having wronged the 1st
210
plaintiff he had to try to convince the court that he had nothing to do with the losses and damages faced by the 1st plaintiff, in the hope that the court will believe him. A careful scrutiny of his evidence under cross examination will reveal the kind of witness DW1 is. For example, when asked if the new mandate to operate
215
the company’s account was to effectively neutralise any control the three directors of the 1st plaintiff should rightly exert over the bank account, instead of answering the question he dismissed it with “This is an uncertain question”. There is nothing uncertain about the question. It is obvious that he did not want to answer the question
220
for fear that the right answer might not be to his advantage. When asked whether it was his duty as managing director of the 2nd plaintiff to follow up on the application for licence under the Sales
[K22-209-2007]
10 Tax Act he disagreed and asserted that the licence was to be delivered to the company by the Customs Department and was quick to add “I do not know how to chase”, as if
225
it is the Customs Department’s duty to deliver the licence to him. Questioned further if he enquired from the Customs Department on the status of the application he said he did not. He was then asked if it was his duty to make sure the 2nd plaintiff possessed a
230
Manufacturer’s Licence before starting operation. His answer was “To apply a licence I did it already at November 2003.” It was a simple question which required a “yes” or “no” answer. Yet he chose to be defensive. When asked if the 2nd plaintiff would be contravening the Sales Tax Act if it manufactured the woven bags 235 without licence, his reply was: “No, I applied for the licence, if I have no licence to manufacturing the PP woven bags they will penalty me but I still can appeal.” Again, instead of answering the question with a simple “yes” or “no” answer, he tried to be clever and saw it as an opportunity to justify
240
his negligent act of not making sure that the licence was obtained before the company started manufacturing the woven bags. There are other instances of his evasiveness as a witness which I do not propose to dwell on. This is apparent from the notes of evidence. Besides, DW1 in his witness statements at “DWS1” and “DWS1A” did not specifically deny that he failed to disclose the 2nd 245 plaintiff’s liability to pay outstanding sales tax at the time of the sale
[K22-209-2007]
11
of the shares to the 1st plaintiff other than saying that the sales tax issue had been presented in the Board paper at the 13th Board of Directors meeting held on 26th September 2007. Learned counsel for the defendants submitted that 250 at all material times, all the directors of the 2nd plaintiff, three of whom represented the 1st plaintiff knew that the assessment of the sales tax by the Customs Department was challengeable and that the Board of Directors had resolved “to get legal opinion on the legality of
255
collection as the company did not receive any licence for collection of sales tax from the Customs department, as well as any defence or recourse in the current situation.” With due respect to learned counsel, this argument ignores the fact that the company had manufactured the woven bags and was
260
therefore liable to pay sales tax. Any opinion on the legality of the collection is a separate issue altogether. It will be a strange working of the law if manufacturers who comply with the law are liable to pay sales tax while those who defy the law are exempted. As opposed to DW1 I find the witnesses called by the 1st plaintiff to
265
be honest and straightforward and were forthright in their answers in cross examination. There was an occasion of course during the respective cross examinations of PW1 and PW2 that they did not answer the question asked which prompted learned counsel for the defendants to repeat the question but I do not find that to be
270
indicative of falsehood. The questions are in any event not on crucial matters which have a bearing on their credibility as
[K22-209-2007]
12
witnesses. I accept them as witnesses of truth. PW3 in particular was subjected to a lengthy cross examination covering every material aspect of his witness statement at “PWS3” but he stood his ground and was not shaken at all. Of course 275 being unshaken in cross examination is not the acid test for truth but in the case of PW3 I have no reason to doubt his truthfulness as a witness. Learned counsel for the 1st plaintiff in his written submissions dated 2nd October 2009 has lucidly dealt with all the relevant issues to be
280
tried, both in relation to the facts and the law in answer to the equally lucid and forceful written submissions of learned counsel for the defendants. In my view the facts and the issues have been dealt with in their proper perspectives and I do not propose to improve on them. I accept Dr. Fung’s submissions on all the contested issues,
285
including the issues on the counterclaim. I need only reaffirm that in respect of issue (1) of the agreed issues to be tried I am satisfied that the 1st and 2nd defendants did as a matter of fact commit a breach of the warranty in failing to disclose and in misrepresenting the true financial, taxation or liability position of the 2nd plaintiff at the time of the sale of the shares to the 1st
290
plaintiff. This is the only conclusion that can be drawn from the totality of the evidence including the documents produced during the trial. I am further satisfied that the 1st defendant had failed in his duty to ensure that he or the 2nd plaintiff was in possession of a
295
Manufacturer’s Licence issued pursuant to section 13 of the Sales Tax Act before the 2nd plaintiff started to manufacture the woven
[K22-209-2007]
13
bags. These wrongdoings have resulted in the 1st plaintiff now facing considerable loss and damage for which the 1st and 2nd defendants should be ordered to indemnify. The other issues to be tried are essentially issues
300
of law in respect of which and having regard to the evidence I entirely agree with the submissions of learned counsel for the 1st plaintiff. I am satisfied that the 1st plaintiff has proved its case against the 1st and 2nd defendants on the balance of probabilities and that the
305
defendants have failed to prove their counterclaim. Judgment should therefore be entered for the 1st plaintiff in respect of its claim and against the defendants in respect of the counterclaim.
(DATO’ ABDUL RAHMAN SEBLI)
310
Judicial Commissioner
High Court Kota Kinabalu.
Dated: 30th November 2009
For the 1st 315 Plaintiff: Dr. David Fung of Messrs Alex Pang & Co.
For the Defendants: Ronny Cham of Messrs Ronny Cham & Co.
1
5
MALAYSIA
IN THE HIGH COURT IN SABAH AND SARAWAK AT KOTA KINABALU
SUIT NO.K22-209 OF 2007
BETWEEN
10
1. PERKASA TRADING SDN BHD .. 1ST PLAINTIFF
2. KINABALU POLY-BAG SDN BHD .. 2ND PLAINTIFF
AND
1. YANG KAI HSIUNG .. 1ST 15 DEFENDANT
2. CLEMENT LEE LEONG HON .. 2ND DEFENDANT
GROUNDS OF JUDGMENT
The 1st plaintiff’s action is for loss and damages resulting from the negligence of the managing director of the 2nd
20
plaintiff, namely the 1st defendant. The dispute between the parties arose from the sale and purchase of 1,617,000 ordinary shares representing 49% of the total issued and paid up shares in the 2nd plaintiff company for the purchase price of RM1,617,000.00. The 1st plaintiff’s pleaded case
25
is that it decided to purchase the shares based on the information disclosed by the 1st and 2nd defendants and contained in the 2nd plaintiff’s 2004 audited accounts and 2005 management account.
[K22-209-2007]
2
The 1st and 2nd defendants had expressly given the following warranties, amongst others, which they represented to be true and accurate pursuant to clause 6.2 of the Sale and Purchase
30
of Shares Agreement dated 2nd December 2005.
(i) “The audited accounts give a true and fair view of the assets, liabilities and commitments of the [2nd plaintiff] at the last accounting date and its losses for the financial
35
period ended on that date”;
(ii) “There is no liability to Taxation in respect of which a claim could be made against the [2nd plaintiff] and to the best of the knowledge of the [1st and 2nd defendants] and belief there were no circumstances likely to give rise to
40
such liability ( a claim meaning any notice, demand or assessment issued or action taken by the taxation authorities whereof the 2nd plaintiff is placed or sought to be placed under a liability to make payment”;
(iii) “The [2nd plaintiff] has duly made all returns and given or
45
delivered all notices, accounts and information which on or before the date hereof ought to have been made, given or delivered for the purposes of Taxation and all such returns, notices, accounts and information (and all other information supplied to the Inland Revenue
50
Department) have to the best knowledge and belief of the [1st and 2nd defendants] been correct and made on a proper basis and none of such notices, accounts or
[K22-209-2007]
3
information is disputed in any material respect by the taxation authorities and there is no fact known to any of the [1st and 2nd defendants] which might
55
be the occasion of any such dispute or of any claim for Taxation in respect of any financial period down to and including the last accounts date not provided for in its Audited Accounts.” The information provided by the 1st and 2nd
60
defendants turned out to be inaccurate as the sales tax payable to the Royal Malaysian Customs amounting to RM1,617,563.15 was not disclosed. Of this sum, RM1,558,775.23 remained outstanding as at 10th October 2007 and remains a liability to the 1st plaintiff. It is a telling
65
coincidence that the amount of sales tax payable to the Royal Malaysian Customs is almost equal to the sale price of the 2nd plaintiff’s shares. The particulars of the 1st defendant’s alleged negligence are as follows:
(i) Failure to ensure that the 2nd
70
plaintiff was properly licenced as a licenced manufacturer under the Sales Tax Act, 1972 (“the Sales Tax Act”);
(ii) Failure to produce the sales tax licence when required by the enforcement team of the Royal Malaysian Customs;
75
(iii) Failure or neglect to file returns for the sales tax on all taxable goods under the Sales Tax Act;
[K22-209-2007]
4
(iv) Failure or neglect to pay the sales tax payable by the 2nd plaintiff to the Royal Malaysian Customs as and when they fell due; or
(v) Failure or neglect to pay the sales tax and 80 penalty due and payable by the 2nd plaintiff to the Royal Malaysian Customs.
The parties have agreed that the following are the issues to be tried:
1. Whether the 1st and 2nd defendants have committed a breach of the warranties, or any of them, represented to be true and
85
accurate under clause 6.2 of the Sale and Purchase of shares Agreement dated 2nd December 2005.
2. If the answer to question 1 is in the affirmative, what damages as assessed are the 1st and 2nd defendants liable to pay the plaintiff.
90
3. Whether Messrs Alex Pang & Co, advocates and solicitors, has the authority to commence the present action on behalf of the 2nd plaintiff against the 1st defendant in his capacity as managing director of the 2nd plaintiff.
4. Whether the plaintiff, a minority shareholder of the 2nd plaintiff,
95
is entitled to continue with the claim for damages in negligence for and on behalf of itself and all other shareholders of the 2nd plaintiff against the 1st defendant in his capacity as a managing director of the 2nd plaintiff.
[K22-209-2007]
5
5. If the answer to question 4 is in the affirmative, whether the 1st defendant is liable to pay damages as assessed 100 for the claim in negligence.
6. Whether the 1st plaintiff should be ordered to render specific performance of the mutual covenant under clause 13.2 of the Sale and Purchase of Shares Agreement dated 2nd December
105
2005 as counterclaimed by the defendants.
At the conclusion of the trial I decided all the issues in favour of the 1st plaintiff and made the following orders:
(a) The 1st and 2nd defendants do indemnify the 1st plaintiff against all liabilities, losses, costs, claims, damages and penalties and
110
expenses arising out of and in relation to the sales tax in respect of the 2nd plaintiff (the 1st plaintiff’s alternative prayer as against the 1st and 2nd defendants).
(b) The 1st defendant do pay to the 1st plaintiff in its representative capacity damages in the sum of RM1,558,775.23 with interest at the rate of 8% per annum from 1st 115 January 2006 to the date of judgment and 8% from the date of judgment until the date of full payment.
(c) The counterclaim be dismissed with costs.
At the trial evidence in chief was adduced by way of witness
120
statements which was the agreed mode. For purposes of this judgment I do not propose to recount what the witnesses have said
[K22-209-2007]
6
in their witness statements and in their oral evidence save to say that I have considered them carefully having regard to the agreed issues to be tried. At the outset of his written submissions Mr.
125
Ronny Cham for the defendants contended that by not cross examining DW1 on his witness statements (“DWS1” and “DWS1A”) the 1st plaintiff must be taken to accept that what DW1 said in his statements are the truth. I have checked the record. It is not entirely correct in the first place to
130
say that there was a total failure to cross examine DW1 on his witness statements. The cross examination of DW1 shows that he was asked on Question 53 of his statement “DWS1”. Learned counsel for the defendants referred to the oft-cited case of Aik Ming (M) Sdn Bhd & Ors v Chang Ching Chuen & Ors and Another 135 Appeal [1995] 2 MLJ 770 for the proposition that failure to put a party’s case to his opponent’s material witnesses when they are under cross examination may be treated as an abandonment of the pleaded case. The testimony of a witness, whether in the form of a witness
140
statement or in the form of oral evidence (they are both evidence) must be considered in its entirety and must be tested against the rest of the evidence including his evidence under cross examination and in re-examination, if any. If the witness is not cross examined at all then of course his evidence in chief is deemed to be accepted as
145
the truth provided what he says is admissible in evidence and constitutes proof of the relevant facts in issue.
[K22-209-2007]
7
I have considered the cross examination of DW1 carefully and it is abundantly clear to me that although his attention was not drawn to the contents of his witness statements (except to question 53 of “DWS1”), DW1 was seriously and vigorously
150
challenged on all crucial issues to be tried, particularly on the question as to whether he had committed a breach of warranty. It is also clear that all essential and material case for the 1st plaintiff had been put to DW1 in cross examination. The nature of the questions asked in cross
155
examination shows a clear and categorical challenge to the testimony of DW1 that he was not guilty of negligence, either directly or indirectly. In particular DW1 was cross examined on his failure to disclose the sales tax liabilities for the 2nd plaintiff. He was also cross examined on the 2005 management accounts which also did not disclose any sales tax liabilities for the 2nd
160
plaintiff. These are matters which go to the root of the factual issues before the court. It is therefore wrong to say that 1st plaintiff had accepted what DW1 said in his witness statements or that it had abandoned its pleaded case. Aik Ming (M) Sdn Bhd & Ors must be considered in this
165
context. The fact that a witness is not cross examined on a particular point does not mean that his evidence on the point is proved. All it means is that his evidence remains unshaken and that as a general rule it is deemed to be accepted: see Wong Swee Chin v PP [1980] 1LNS
170
138; [1981] 1 MLJ 212 FC. But the Federal Court in that case explained that there are exceptions to this general rule. Raja Azlan [K22-209-2007]
8
Shah CJ (Malaya) in his judgment quoted with approval the following passage in the judgment of the Supreme Court of New Zealand in Transport Ministry v Garry [1973] 1 NZLR 120: “In Phipson on Evidence 11th edition paragraph 1544 the learned
175
authors suggest examples by way of exception to the general principle that failure to cross examine will amount to an acceptance of the witness’s testimony, viz, where ‘ .. the story is itself of an incredible or romancing character, or the abstention arises from mere motives of delicacy .. or when counsel indicates that he is merely abstaining
180
for convenience, e.g., to save time. And where several witnesses are called to the same point it is not always necessary to cross examine them all.’” The witness statements of DW1 must be tested against the rest of the evidence and the probabilities of the case. If his evidence is contradicted by other evidence or if he is found to be an untruthful
185
witness it will be wrong to accept his evidence as having been proved merely because he was not cross examined on it. In my view the general rule does not apply in such a situation. It cannot be a correct proposition of law to stay that the unchallenged evidence of an untruthful witness must be accepted in any event.
190
That will be an affront to justice. In the instant case I must say at the outset that as far as the credibility of DW1 is concerned I am unable to accept him as a witness of truth, particularly his assertion that it was the other three directors of the company including PW3 who ran and operated the 2nd
195
plaintiff. In my view this portrayal of the three directors as the persons running the show is a deliberate attempt to shift responsibility away from himself and put all the blame for the losses
[K22-209-2007]
9
that the company is now facing on the other directors. So is his assertion that he cannot be held responsible for the contents of the audited financial statements of the 2nd plaintiff on 200 the ground that he relied on the auditor and that the other directors had signed the report.
Clearly under sections 167 and 169 of the Companies Act, 1965 it was his responsibility to make sure that the financial statements were correct. It is clear to me that DW1 is a not an
205
honest witness. I do not find it safe to rely on any part of his evidence where they contradict the case for the 1st plaintiff. I find him to be annoying, evasive and had a clear tendency to embellish evidence to suit his case, although the record will not show this. He gave me the distinct impression that having wronged the 1st
210
plaintiff he had to try to convince the court that he had nothing to do with the losses and damages faced by the 1st plaintiff, in the hope that the court will believe him. A careful scrutiny of his evidence under cross examination will reveal the kind of witness DW1 is. For example, when asked if the new mandate to operate
215
the company’s account was to effectively neutralise any control the three directors of the 1st plaintiff should rightly exert over the bank account, instead of answering the question he dismissed it with “This is an uncertain question”. There is nothing uncertain about the question. It is obvious that he did not want to answer the question
220
for fear that the right answer might not be to his advantage. When asked whether it was his duty as managing director of the 2nd plaintiff to follow up on the application for licence under the Sales
[K22-209-2007]
10 Tax Act he disagreed and asserted that the licence was to be delivered to the company by the Customs Department and was quick to add “I do not know how to chase”, as if
225
it is the Customs Department’s duty to deliver the licence to him. Questioned further if he enquired from the Customs Department on the status of the application he said he did not. He was then asked if it was his duty to make sure the 2nd plaintiff possessed a
230
Manufacturer’s Licence before starting operation. His answer was “To apply a licence I did it already at November 2003.” It was a simple question which required a “yes” or “no” answer. Yet he chose to be defensive. When asked if the 2nd plaintiff would be contravening the Sales Tax Act if it manufactured the woven bags 235 without licence, his reply was: “No, I applied for the licence, if I have no licence to manufacturing the PP woven bags they will penalty me but I still can appeal.” Again, instead of answering the question with a simple “yes” or “no” answer, he tried to be clever and saw it as an opportunity to justify
240
his negligent act of not making sure that the licence was obtained before the company started manufacturing the woven bags. There are other instances of his evasiveness as a witness which I do not propose to dwell on. This is apparent from the notes of evidence. Besides, DW1 in his witness statements at “DWS1” and “DWS1A” did not specifically deny that he failed to disclose the 2nd 245 plaintiff’s liability to pay outstanding sales tax at the time of the sale
[K22-209-2007]
11
of the shares to the 1st plaintiff other than saying that the sales tax issue had been presented in the Board paper at the 13th Board of Directors meeting held on 26th September 2007. Learned counsel for the defendants submitted that 250 at all material times, all the directors of the 2nd plaintiff, three of whom represented the 1st plaintiff knew that the assessment of the sales tax by the Customs Department was challengeable and that the Board of Directors had resolved “to get legal opinion on the legality of
255
collection as the company did not receive any licence for collection of sales tax from the Customs department, as well as any defence or recourse in the current situation.” With due respect to learned counsel, this argument ignores the fact that the company had manufactured the woven bags and was
260
therefore liable to pay sales tax. Any opinion on the legality of the collection is a separate issue altogether. It will be a strange working of the law if manufacturers who comply with the law are liable to pay sales tax while those who defy the law are exempted. As opposed to DW1 I find the witnesses called by the 1st plaintiff to
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be honest and straightforward and were forthright in their answers in cross examination. There was an occasion of course during the respective cross examinations of PW1 and PW2 that they did not answer the question asked which prompted learned counsel for the defendants to repeat the question but I do not find that to be
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indicative of falsehood. The questions are in any event not on crucial matters which have a bearing on their credibility as
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witnesses. I accept them as witnesses of truth. PW3 in particular was subjected to a lengthy cross examination covering every material aspect of his witness statement at “PWS3” but he stood his ground and was not shaken at all. Of course 275 being unshaken in cross examination is not the acid test for truth but in the case of PW3 I have no reason to doubt his truthfulness as a witness. Learned counsel for the 1st plaintiff in his written submissions dated 2nd October 2009 has lucidly dealt with all the relevant issues to be
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tried, both in relation to the facts and the law in answer to the equally lucid and forceful written submissions of learned counsel for the defendants. In my view the facts and the issues have been dealt with in their proper perspectives and I do not propose to improve on them. I accept Dr. Fung’s submissions on all the contested issues,
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including the issues on the counterclaim. I need only reaffirm that in respect of issue (1) of the agreed issues to be tried I am satisfied that the 1st and 2nd defendants did as a matter of fact commit a breach of the warranty in failing to disclose and in misrepresenting the true financial, taxation or liability position of the 2nd plaintiff at the time of the sale of the shares to the 1st
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plaintiff. This is the only conclusion that can be drawn from the totality of the evidence including the documents produced during the trial. I am further satisfied that the 1st defendant had failed in his duty to ensure that he or the 2nd plaintiff was in possession of a
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Manufacturer’s Licence issued pursuant to section 13 of the Sales Tax Act before the 2nd plaintiff started to manufacture the woven
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bags. These wrongdoings have resulted in the 1st plaintiff now facing considerable loss and damage for which the 1st and 2nd defendants should be ordered to indemnify. The other issues to be tried are essentially issues
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of law in respect of which and having regard to the evidence I entirely agree with the submissions of learned counsel for the 1st plaintiff. I am satisfied that the 1st plaintiff has proved its case against the 1st and 2nd defendants on the balance of probabilities and that the
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defendants have failed to prove their counterclaim. Judgment should therefore be entered for the 1st plaintiff in respect of its claim and against the defendants in respect of the counterclaim.
(DATO’ ABDUL RAHMAN SEBLI)
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Judicial Commissioner
High Court Kota Kinabalu.
Dated: 30th November 2009
For the 1st 315 Plaintiff: Dr. David Fung of Messrs Alex Pang & Co.
For the Defendants: Ronny Cham of Messrs Ronny Cham & Co.
