Phang found liable but already a bankrupt

By Hafiz Yatim

Datin Paduka O C Phang has been the only person found responsible for the mega cost overrun in the 2006 Port Klang Free Zone (PKFZ) project, whose initial estimated cost of nearly RM2 billion finally ballooned to RM7.85 billion.

The conclusion, however, did not stem from a criminal suit, but a civil suit filed by the Port Klang Authority (PKA) against its former general manager. Even so, the court’s finding of liability in 2018 has proved scant consolation as Phang was declared a bankrupt a year later, court documents uncovered last week show.

Court documents show a bankruptcy petition was filed by 23 former directors of PKA in September 2019 after Phang failed to pay them RM80,000 in costs as ordered by the court after her attempt to make them jointly liable was thrown out by the judge.

In 2018, the Shah Alam High Court found Phang responsible for 11 of 15 purported breaches of duty alleged by PKA. Subsequently, it directed her to pay PKA damages assessed at RM2.644 billion plus nearly RM210,000 in costs — sums PKA is unlikely to receive given that she has been declared a bankrupt.

Phang filed an appeal to the Appeals Court against the High Court’s decision, but as she was already adjudged a bankrupt, in January 2020, the director-general of the Insolvency Department filed to withdraw her appeal, which resulted in the upholding of the High Court’s decision .

Initially, Phang had faced criminal charges. In 2009, she was charged at the Klang Sessions Court with three counts of criminal breach of trust committed between Oct 1, 2004 and May 9, 2006 involving RM254.85 million, entrusted to her as PKA general manager.

But the charges were withdrawn in November 2016, following the Attorney-General’s Chambers’ acceptance of her representation to withdraw the charges. Subsequently the Sessions Court granted her an acquittal.

A month later, in December 2016, PKA instituted a civil suit against her. After two years, the High Court found Phang, who had served as the authority’s general manager for 11 years (September 1997 to June 2008), liable for 11 breaches.

15 breaches listed in suit

PKA counsel Datuk Lim Chee Wee said as general manager, Phang was bound by the Statutory Bodies (Discipline and Surcharge) Act 2000 and the PKA Financial Rules, as well as Treasury Department circulars and guidelines which, among other things, stipulated that she must act honestly, in good faith and exercise her powers for PKA’s benefit and interest.

Lim, who appeared with Khoo Guan Huat, pointed out that Phang should not put herself in any situation of conflict of interest, or act for her own benefit or that of a third party.

The 15 purported breaches included non-compliance with Treasury guidelines and failure to ensure that material terms to safeguard PKA’s interests were included in eight key agreements.

Other breaches included:

•     Failure to ensure the independent appointment of a quantity surveyor for the PKFZ project,

•    Failure to not refer key agreements to the PKA board members for deliberation and approval,

•    Not adhering to conditions of self-financing, and

•    Failing to act in PKA’s interests on the issue of deferred payments versus government-guaranteed bonds, resulting in a loss of RM532 million to PKA.

In addition, Phang was alleged to have failed to act in PKA’s interests in that the authority had overpaid Kuala Dimensi Sdn Bhd (KDSB) for land acquired (RM25 psf plus interest). She had also failed to ensure that PKA was not overcharged interest by KDSB (simple interest versus compound interest), as well as failed to conduct open and competitive tenders and entered into a contract of no commercial value and incurring an additional liability of RM49.367 million.

Under her watch, PKA signed eight agreements with KDSB, which was the owner of the 1,000-acre land as well as the key contractor for the PKFZ project, which began in 2002 under then Prime Minister Tun Dr Mahathir Mohamad and continued under his successor Tun Abdullah Ahmad Badawi.

In his opening statement, PKA’s lawyer Lim said: “However, Phang had failed to refer any of the key agreements to the PKA board members for their deliberation and approval, prior to their execution. In her defence, she says she had the approval of the PM.”

Phang acted before obtaining cabinet approval

The PKA chairman at that time, Datuk Lee Hwa Beng, told the court of how Phang had disregarded the board of directors and agreed to purchase the land from KDSB even before the cabinet gave its approval.

Phang informed PKA management on Oct 10, 2002 that the land purchase was still awaiting the Ministry of Transport’s (MoT) decision. However, on Nov 6, she issued a letter of offer from PKA to KDSB to purchase the site.

The cabinet only approved the purchase two weeks later after Dr Mahathir gave the green light.

There was yet another breach of fiduciary duty in 2006, Lim contended, when Phang agreed to increase the interest charged on additional development work, which included improving the construction of the PKFZ junction, as well as electrical infrastructure and a hotel, totalling RM726.49 million.

Again, she bypassed the board, going directly to then Transport Minister Datuk Seri (now Tan Sri) Chan Kong Choy.

Former PKA chairman Lee told the court, “Phang has breached her statutory duty as PKA GM, resulting in the increase in interest charged from 5% to 7.5% calculated on a yearly basis, which involved additional interest of RM49.367 million incurred, without first presenting [the matter] to PKA members for consideration. This resulted in PKA bearing the additional liability.”

Lee also contended that in a letter dated Feb 24, 2006, Phang had sought Chan’s instructions over KDSB’s request for the additional works. In her letter, she told Chan that the PKA board viewed KDSB’s request to be reasonable when in fact the board had not been consulted.

“On March 28, 2006, Chan had to write a letter to Abdullah requesting the PM’s approval to increase the interest chargeable by KDSB from 5% to 7.5%. The next day, the PM consented to the Transport Ministry’s proposal and PKA was informed of the PM’s approval.”

Cross-examined by Phang’s counsel Matthew Thomas Philip, Lee agreed that decisions related to the PKFZ project were made by the MoT and Ministry of Finance (MoF), and that KDSB had made the initial offer to MoT and not to PKA.

In his summation, Philip argued that his client had no case to answer as PKA had failed to call vital witnesses, including Datuk Yap Pian Hon and Tan Sri Ting Chew Peh — both former chairmen of PKA.

Court rejects ‘no case to answer’ argument

Justice Gunalan, now a Court of Appeal judge, rejected the defence’s contention.

He said it was not for the court to make a specific finding of breaches of duty by Phang and that it would suffice if a prima facie case had been made out on the alleged breaches.

He added that the crux of PKA’s case remained unrebutted in view of Phang’s failure to call important witnesses, such as the transport minister, to prove that she was merely acting on the instructions of MoT or MoF, or the PM, in executing her duties and the various agreements, without referring to the board.

Gunalan said Phang owed her duty to PKA, a statutory body, as its general manager, and as such, could not bypass the board and rely solely on sanctions from MoT, MoF and the PM to enter into the agreements, which were binding on PKA.

“It is erroneous for Phang to contend that the treasury guidelines were not binding or applicable to her or that she had not known of the same. Phang cannot in principle rely solely on the protection of the MoT for her actions,” Gunalan said in finding that she had breached her duties as PKA general manager by entering into agreements without first consulting the board.

Some segments contend that Phang was made a scapegoat in the scandal, and following the judgment, she attempted to make the PKA directors also liable. But the judge dismissed her suit and ordered her to pay costs of RM80,000 to them.

The directors filed a notice of bankruptcy against her following her failure to pay.

PKFZ after 15 years

By Syahirah Syed Jaafar

Port Klang Free Zone (PKFZ) is currently undergoing a redevelopment of its 1,000-acre industrial and commercial facilities as Port Klang Authority (PKA) — the statutory corporation established to manage Port Klang — seeks to repay over the next 29 years, a RM3.8 billion loan extended by the government for the development of the zone.

Former transport minister Anthony Loke announced a transformation master plan in October 2019 aimed at fully utilising PKFZ’s 380ha (950-acre) industrial zone and transforming its 20ha commercial components.

PKA said as at Oct 31, 2019, the occupancy rate at PKFZ was 97.8% for the open land and 80.7% for the light industrial units.

PKFZ is in its 16th year of operations, and last year, its new chairman, Datuk Lawrence Low, alluded to short- and long-term plans, including future expansion and development.

PKFZ is currently the world’s 12th busiest port in terms of throughput volume

“There is still a lot of room to grow despite the almost full utilisation of the land. We have a strategic location and are very competitive,” news reports quoted him as saying last year.

Low was appointed in May 2020 on a two-year contract until 2022, replacing Chan Leng Wai, who stepped down from the post in April of the same year.

Low said he would apply his 20 years of experience in government and business and leverage his network to bring investments and businesses from abroad, especially in the logistics industry.

Situated in Port Klang, PKFZ is regarded as Malaysia’s first integrated free zone, providing facilities for international cargo distribution and consolidation.

It has been designed to promote entreport trade and manufacturing industries involved in producing goods primarily for export. Gazetted as a free zone, PKFZ incorporates both commercial and manufacturing activities that are further supported by quality and value-added services, its website states.

It also offers consolidated facilities where factories and logistics firms can be located in the same zone to allow for easier co-ordination and smoother supply chain management.

The zone is currently ranked 12th on the world's busiest ports list in terms of throughput volume.

PKA said Port Klang recorded a decrease in container handling of 2.5% to 13.2 million twenty-foot equivalent units (TEUs) last year, compared with 13.5 million TEUs in 2019.

The decline, it said, was due to the impact of the Covid-19 pandemic, as trade demand was weak due to the implementation of the Movement Control Order and the closure of national borders.

This was despite import container throughput recording a growth of 0.4% or 2.55 million TEUs in 2020, compared with 2.54 million TEUs in 2019.

Total export container handling grew 3.2% or 2.56 million TEUs last year, compared with 2.48 million TEUs in 2019.

In terms of transshipment volume, Port Klang handled 8.11 million TEUs last year, down 5% from 8.54 million TEUs in 2019.

PKA chairman Datuk Chong Sin Woon said following the expected economic growth driven by continued export activity and increased momentum in consumption and investment, PKA is targeting Port Klang to handle 13.5 million TEUs this year, with a potential increase of 2.3% in total container handling.