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  • Writer's pictureGavin Jayapal

Backdating documents

Updated: Sep 22, 2021



Backdating of documents is a relatively common practice in commercial dealings. Does that make it legal? Consider this scenario.


Milky and Andromeda are two experienced businesspersons. Milky intends to sell her shares in GNZ11 Sdn Bhd to Andromeda for a sum of RM100,000. They meet and discuss the terms in January 2020.


Lengthy discussions take place and as is the wont of penny-pinchers, they both opt not to engage solicitors. Their discussions culminate in a Share Sale Agreement (SSA) being engrossed and executed in June 2020.


Milky backdates the SSA to 01.01.2020. She does not convey this to Andromeda and does it unilaterally. The backdating is done to avoid a debt of RM10 million that Milky has saddled GNZ11 with in March 2020 (whilst negotiations were ongoing).


Andromeda, blissfully unaware of the liability incurred as-to GNZ11, executes the SSA, with the effective date being 01.01.2020. This has effectively caused Andromeda to purchase shares in a company that is incurably indebted.


Andromeda subsequently discovers the fraud. She intends to abort the SSA and to argue that the backdating of the document has rendered the same (SSA) a nullity.


The Malaysian position


As a general rule and as with most Commonwealth jurisprudence, Malaysian law does not view the backdating of documents as illegal.


There are 2 interesting decisions by Lee Swee Seng JC (presiding JCA) that deal with this issue. Interestingly, both were delivered in quick succession.


In AWC Berhad v Point-Euro Malaysia [2012] MLJU 474, the learned Judge (JC at that time) delivered a judgment in June 2012 that reads as follows:

[53] There was yet another point raised by the learned counsel for D5. It was that the Agreement was wrongly dated and that that is an exception to section 92 of the Evidence Act 1950.I must state at the outset that again this point was not pleaded. It is true that the Agreement was dated 20 May 2008 and indeed there was a letter dated 2 June 2001 from Messrs Murad Yee Partnership to Messrs Hakem Arabi & Associates (Exhibit P 19) "enclosing four copies of the Shares Sale Agreement duly executed by our client and dated 20 May 2008. Please ensure that your client's client and the Guarantors execution are duly witnessed." It is true that all the signatories did not sign on the same date. However that does not mean that the Agreement is therefore wrongly dated. If Messrs Hakem Arabi & Associates had wanted to, they could have objected to the Agreement being dated 20 May 2008. If a date is put into an Agreement which for all intents and purposes has been agreed by all parties, then that date though earlier than the date when the last person had signed the Agreement, is still a valid date as the date merely serves to memorialise the agreement of the parties already achieved by that date. As the four copies of the Shares Sale Agreement are fair copies ready for execution there was nothing wrong to date it the date the Vendor had signed as it only served to memorialise what the Purchaser and the Guarantors had agreed and there was no evidence to suggest otherwise. By the same token parties can make an agreement take effect from an earlier date or a later date than the date of the agreement so long as no third parties or the authorities are being defrauded.
[54] In the Singapore Court of Appeal case of American Home Assurance Co v Hong Lam Marine Pte Ltd [1993] 3 SLR 682, the Court of Appeal speaking through their then Chief Justice Yong Pung How CJ said at paragraph 67 as follows:
"....In the present case, however, the purpose of the shipbuilding agreement was not to deceive the Registrar. In fact, the purpose of the agreement was perfectly legitimate and proper. The building of the vessel involved no illegality; in other words, the backdating only became illegal when it was used for an illegal purpose - to obtain registration of the vessel in Singapore, which it was not entitled to In the present case, in contrast, the respondents did not need to rely on the backdating in order to succeed in their counterclaim against the shipyard. It was not necessary for them to found their claim against the shipyard as the owners of a Singapore-registered ship, as their cause of action was based on the delay in the delivery of the vessel in breach of a specific term of the shipbuilding agreement. If they had to go behind the backdating to prove the actual date of the shipbuilding agreement in order to succeed in their claim, or if their claim was dependent on the status of the vessel as a Singapore-registered ship, the cases cited by the shipyard (viz Suntoso Jacob, Alexander v Rayson and Palaniappa Chettiar) might be relevant and applicable since the respondents would be basing their claim on a state of affairs which was obtained through a deception on the registrar…"

By token of His Lordship’s judgment, it is apparent that backdating will not be prima facie illegal, unless it’s done to further an illegal endeavour.


AWC was followed-up by FKJV v Mode Circle [2012] MLJU 751 (August 2012). Here, His Lordship held that the backdating involved was for an illegal purpose, thereby rendering the agreement null and void:

Was the Agreement entered into end of April 1998 but backdated to 1 November 1997 to defraud creditors?
Not only was the Assignment backdated, the Agreement too was backdated, a fact which Mr Yong did not disclose in his testimony during the hearing of the 1st Tranche of 3 cases involving the Shares but only admitted to in his testimony during the 2nd Tranche of cases as his own solicitor Mr Nicholas had admitted to it earlier in the trial of the 1st Tranche of cases.
Whenever a document is backdated, one must ask whether it serves merely and simply to memorialise what had been agreed upon earlier though reduced into writing later or that there is a more sinister reason behind the backdating, to if possible defraud third parties and in this case creditors of MCHPL. I am inclined to agree with Mr Ong Chee Kwan for the Defendants that where the backdating fabricates an event that never happened or where the backdating is done for the purpose of reaping an undeserved benefit at the expense of the authorities or other third parties, such backdating is improper and the backdated document is void. For example in Trengganu Forest Products Sdn Bhd v. Cosco Container Lines Company Ltd & Anor [2009] 7 CLJ 573 at 591 where a backdated bill of lading was treated as a nullity. As such any document that is backdated calls for careful curial scrutiny which is undertaken below.
In the circumstance I found that the Agreement had been backdated with the intention to defraud creditors and this with the consent and complicity of Mr Yong and its purpose being unlawful, the Agreement is null and void and unenforceable. There is coherence and consistency when the truth is told and when it is not, there will be the glaring inconsistencies that stand up like a sore thumb. Mr Yong's claims for the shares under the Agreement and his claims or that of FKJV (M) Sdn Bhd arising out of the stocks unlawfully transferred out must thus fall and fail with it.

From the above, it is apparent that backdating, when done for a nefarious purpose such as to defraud creditors, will render the document nugatory, null and void.


The effect of backdating on the veracity of a witness


Backdating may also have a deleterious effect as to the veracity of a witness. In United Logistics v Stamford College [2016] MLJU 392, Wong Kian Kheong JC (presiding HCJ) stated as follows:


K. Credibility of witnesses
[47] Firstly, this court finds as a fact that SP3 is not a credible witness for the following reasons:
(1) SP3 had given evidence that SP3 had prepared the 3 Back-dated Letters. Backdating a document is misleading, if not deceptive. SP3 as a qualified accountant should not have back-dated any document. A CFO of a group of companies which include a public listed company, should not have prepared, let alone countenance, the back-dating of any document, especially 3 letters of undertaking to repay a total sum of RM2,250,000.00;

Conclusion


Premised upon the above, the takeaway point would be that backdating, if done for an innocent purpose and serving only to memorialise what the parties had previously agreed-upon, will not serve to invalidate a document. The same will be accepted and shall be, for all intents and purposes, enforceable. This is consistent with the Court’s stance on upholding a bargain, as opposed to striking it down (Charles Grenier v Lau Wing Hong [1996] 3 MLJ 327).


However, where the backdating is carried-out for a nefarious purpose, the Courts will exercise equitable principles and shall hold that the same is invalid. The Courts will not blindly uphold a bargain that is fraudulent, no matter how silly the parties involved may have been.


Andromeda may sleep somewhat soundly, knowing that there is a strong possibility that the SSA will be rendered void.


GAVIN JAYAPAL

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