Recently, the Court of Appeal in Ong Kwee Lee v Able Perfect Sdn Bhd, examined the question whether one could claim to be the beneficial owner of shares purchased but not fully paid? The Court of Appeal found in favour of the said party pursuant to a trust deed created between Ong Kwee Lee and Able Perfect Sdn Bhd, the registered owner of the shares.
In early 2016, two business partners, Ng and Ong, agreed to acquire 500,000 shares in Sekoplas Industries Sdn Bhd (Sekoplas), where each of them will purchase the shares in equal shares i.e. 250,000 shares each. The purchase price of the shares was RM18,750,000, with Ng and Ong bearing RM9,375,000 each.
However, Ong could not afford his portion of the purchase price and could only pay a sum of RM500,000. Ng agreed to acquire all 500,000 shares including paying the remaining purchase price via his company, Able Perfect Sdn Bhd (Able Perfect). Further, Able Perfect had also took out a term loan and provided a third-party charge to finance the purchase of shares.
On the day of completion of acquisition of shares (all of which were registered in the name of Able Perfect), Able Perfect and Ong executed a trust deed (Trust Deed), which provided, amongst others:
(a) Able Perfect was the registered owner of 500,000 ordinary shares in Sekoplas.
(b) Able Perfect acknowledged that the 500,000 shares were acquired jointly with Ong in equal share. 250,000 shares beneficially belong to Ong and Able Perfect shall hold the 250,000 shares and all the rights, title and benefits thereto on trust for Ong.
(c) Able Perfect declared and confirmed that as from the date Able Perfect acquire the 250,000 shares, it has been holding and shall continue to hold the shares with all rights, title and benefits thereto as trustee, not for its own benefits, but upon trust for the sole and absolute benefit of Ong.
(d) Ong undertook to bear the acquisition price and all ancillary costs thereof in equal share with Able Perfect;.
(e) Able Perfect shall cause the 250,000 shares be transferred to Ong and/or his nominee, subject to full settlement of all liabilities attributable to the 250,000 shares.
At all material times, there were dividends declared on the 500,000 shares in Sekoplas.
Some 3 years later in 2019, Able Perfect began demanding the balance acquisition price from Ong. However, Ong took the position that he has been the beneficial owner of the 250,000 shares from the date of the Trust Deed and dividends declared on the shares are also dividends held on trust for Ong. As such, Ong contended that the dividends ought to be offset towards the acquisition price.
In response, Able Perfect’s position was that Ong has not paid his shares in full and was not entitled to the 250,000 shares as a beneficial owner. Accordingly, Ong was also not entitled to the dividends. Further, Able Perfect contended that there was no agreement to repay the acquisition price by way of an offset.
Before The High Court
The High Court rejected Ong’s case. In short, it was held that Ong cannot be considered beneficial owner of the 250,000 shares on the date of the Trust Deed as he has not paid them in full. In other words, the High Court’s construction of the Trust Deed was that the ownership to the shares depends on full settlement of the acquisition price by Ong. Accordingly, Ong was also not entitled to dividend declared on the shares.
The High Court ordered Ong to pay the balance of the acquisition price.
Dissatisfied, Ong appealed to the Court of Appeal.
Before The Court of Appeal
The Court of Appeal reversed the decision of the High Court, holding that the trust created between Able Perfect and Ong was a private express trust. To this end, it was held that the 3 conditions in respect of creation of an express trust were present i.e. (i) certainty of intention, (ii) certainty of subject matter and (iii) certainty of object/beneficiary.
In this regard, it was held that the High Court erroneously applied the test of implied trust by considering that Ong had not fully paid his portion of the acquisition price. In essence, the Court of Appeal held that Ong’s beneficial ownership over the 250,000 shares arose from the execution of the Trust Deed by virtue of the express trust created by the parties.
Accordingly, the Court of Appeal held that the dividends declared based on the shares were also held by Able Perfect on behalf of Ong. By this virtue, it was held that the dividends could be offset against the acquisition price as requested by Ong. Meanwhile, the Court of Appeal also held that the balance outstanding acquisition price was due upon demand by Able Perfect and must be repaid immediately. Ong cannot contend that it was payable by using future dividends.
Commentary
The factual matrix in Ong Kwee Lee is distinct from those pertaining to a sale and purchase of property where there was no effective transfer of legal ownership of a property at the time when a purchase pays the purchase price inf full. Ultimately, the presence of the Trust Deed is crucial in the creation of an express trust in Ong Kwee Lee.
One pertinent point to note is that, in order to rely on the express trust pursuant to the Trust Deed, Able Perfect must have owned the shares in issue at the time of execution of the instrument creating the express trust, otherwise, it would amount to an incompletely constituted trust. In Yeong Ah Chee v Lee Chong Hai & Anor And Other
Appeals [1994] 2 MLJ 614, the Supreme Court held that “it is a settled rule of equity that a court of equity would not render assistance to a volunteer in the case of an incompletely constituted trust”. An example of an incompletely constituted trust “is one in which the trust property has not been finally and completely vested in the trustee”.
20 January 2025