It is not uncommon for a slew of litigation to commence when there is a breakdown of shareholder relationship and often this is done to levy commercial pressure on the shareholder vis-à-vis damages on the company that will have a direct impact on the commercial value of the shares. This then works as a bargaining chip in resolving the shareholder dispute in favour of the party that commenced such litigation.
Recourse Available To The Defendant
Where the facts support a suggestion that the plaintiff is abusing court processes for an ulterior purpose, the defendant may apply to the court to strike out the plaintiff’s statement of claim as disclosing no reasonable cause of action or as being frivolous or vexatious or as otherwise constituting an abuse of process. However, such a remedy only applies where the suit is one that is open to striking out pursuant to Order 18 rule 19 of the Rules of Court 2012.
The tort of abuse of process was recognised by the Court of Appeal in Malaysia Building Society Bhd v Tan Sri General Ungku Nazaruddin Bin Ungku Mohamed [1998] 2 MLJ 425 and Lim Chee Kuo v The Pacific Bank Bhd [2011] 5 MLJ 230.
The tort of abuse of process was also recognised as a separate and distinct tort in the following High Court cases:
(a)Malpac Capital Sdn Bhd and Yong Toi Mee & Ors (Civil Suit No WA-22NCC-326–09 of 2016)
(b)Noor Haslina bt Abdullan v Celcom Axiata Berhad (Civil Suit No 23 NCVC-56–2011)
(c)Learnergy Sdn Bhd & Anor v Abdul Jalil bin Othman [2019] 7 MLJ 348
It must be noted that the following elements are necessary for the tort of collateral abuse of process:
(a)A court action must have been initiated.
(b)The dominant purpose of the court action is to obtain a collateral advantage or for some purpose other than to obtain genuine redress which the court process offers.
(c) The defendant has suffered damage.
The Singapore Court of Appeal in Lee Tat Development Pte Ltd v Management Corporation of Grange Heights Strata Title Plan No 301 [2018] SGCA 50; [2018] 2 SLR however found that extending the tort of malicious prosecution to the civil context generally would undermine the principle of finality in the law, i.e. it would encourage unnecessary satellite litigation and drag out disputes. As such, this same consideration weighed against the recognition of the tort of abuse of process, which, like malicious prosecution, would largely be pleaded in the context of fresh litigation about prior litigation.
The Singapore Court of Appeal decided not to follow the English case of Crawford Adjusters v Sagicor General Insurance (Cayman) Ltd [2014] AC 366; [2014] 4 All ER 8;[2013] 5 LRC 741, which found that the essence of the tort is the abuse of civil proceedings for a predominant purpose other than that for which they were designed i.e. for the purpose of obtaining some wholly extraneous benefit other than the relief sought and not reasonably flowing from or connected with the relief sought.
Recently, our Court of Appeal in Conweld Engineering Sdn Bhd & Ors v Goh Swee Boh @ Goh Cheng Kin & Anor [2022] 6 MLJ 810 had the occasion to determine whether the tort of collateral abuse of process should continue to be recognised as a distinct cause of action or whether the time has come for the Malaysian courts to follow the route that was taken by the Singapore court in the Lee Tat case which resulted in the demise of the tort of collateral abuse of process in that jurisdiction.
Brief Facts Of The Conweld Engineering Case
The respondents were the minority shareholders (35% shareholding) whilst the 2nd and 3rd appellants were the majority shareholders (65% shareholding) in the first appellant (company). Owing to a breakdown in the relationship between the majority and minority shareholders, attempts were made by the minority shareholders to sell their shares in the company to the majority shareholders, but the offered sale price was not accepted by the majority.
The respondents then petitioned to wind up the company under Section 465(1)(f) and (h) of the Companies Act 2016 and obtained ex parte orders from court appointing an interim liquidator for the company and restraining the company and its bankers from dealing with the company’s monies. The 2nd and 3rd appellants were not named in the winding up petition.
Subsequently, the company had successfully applied to set aside the ex parte orders. In the process, the court struck out the winding up petition and at the hearing to assess damages, the High Court found that the company failed to prove its damages and awarded RM5,000 as nominal damages.
Premised upon the tort of abuse of process, the appellants as shareholders then sued the respondents for filing the winding up petition and obtaining ex parte orders. The appellants sought RM 267,300 as special damages (being legal costs that the 2nd and 3rd appellants allegedly incurred) as well as general, aggravated and exemplary damages to be assessed by the court.
At The High Court
Following a trial, the High Court dismissed the suit after finding that although the winding up petition was filed and ex parte orders were obtained by the respondents for the predominant purpose of pressuring the 2nd and 3rd appellants to purchase the respondents shares in the company at the price quoted by the respondents, the company did not suffer any damage as a result of those actions. The court also opined that the doctrine of res judicata applied as the company had previously been awarded nominal damages when the court struck out the winding up petition.
In respect of 2nd and 3rd appellants’ claim for legal costs, the High Court held that as the appellants were not directly sued by the respondents, they had no cause of action against the respondents for the tort of abuse of process.
At The Court of Appeal
Although the appellants’ appeal was dismissed, the following findings of the Court of Appeal are of importance:
(a)The trial judge was right to hold that the cause of action for the tort of collateral abuse of process should be recognised as a distinct and separate tort. This was particularly critical where it was not open or feasible to the defendant to apply to strike out the proceedings pursuant to the Rules of Court 2012. The courts in Malaysia should, in a fit and proper case, continue to recognise the tort of collateral abuse of process to cater for the conduct of a party which abused the court’s process for ulterior or collateral purposes rather than to seek legal remedy as provided by law.
(b Whether the winding up petition was filed for a predominant purpose or not was a question of fact for the trial judge to decide. Here, the judge had carefully and comprehensively evaluated the evidence and found that the respondents had abused the court process by filing the winding up petition when their real or predominant intention was to obtain a fair value for their shares.
(c)Despite holding that the winding up petition was filed for the predominant purpose of putting pressure on the 2nd and 3rd appellants to buy the respondents’ shares at the price they were demanding or expecting, the trial judge correctly held that the appellants had not proven their case because it was an essential element of the tort of abuse of process that the appellants must prove that the company had suffered damage as a result of the abuse of process. In this regard, the trial judge found that the appellant had not suffered any loss or damage as a result of the winding up petition.
Conclusion
Keeping in mind the Court of Appeal’s decision in the Lim Chee Kuo case, i.e. as a general rule, a litigant who is a party to civil proceedings who claims that the proceedings were an abuse of process, must take that objection in those very proceedings under Order 18 rule 19(1)(d). This is because the filing of a separate proceedings under the tort of collateral action itself may be regarded an abuse of process, which may result in the proceedings being struck out. Hence, a more prudent course of action that could be taken when faced with a litigation where the party initiating the action has an ulterior motive is to apply to strike out the suit.
Be that as it may, pursuant to the ruling in the Conweld Engineering case, it is still open for a defendant in Malaysia to consider the tort of collateral abuse of process if they can establish the elements which are necessary for the said tort.
6 October 2023