Illogical for SRC's former board to keep mum for fear of being fired: Lawyer

Summary

• Najib’s lawyer argues that it is illogical for SRC International’s former board of directors to stay silent on the company’s financial matters for fear that they might be fired.

• Farhan tells the court that the ex-PM never had absolute power over the board, and board members should similarly be held accountable if Najib is found liable.

• However, a former board member’s lawyer argues that non-executive directors are not obligated to be hands-on in a company’s affairs.

It is illogical for the former board of directors of SRC International to keep mum about the company’s financial matters over the imagined fear that they might be fired, said Najib Abdul Razak’s defence counsel, Farhan Shafee.

Farhan (above) further added that such fear could not be used as a duress to prevent the board from investigating further into loans and investment matters, instead of solely relying on representations made by Nik Faisal Ariff Kamil, who was SRC’s former chief executive officer and is still at large.

“If this proposition - that the board of directors are only following orders - is accepted by the court, then what message does that send towards corporate governance?

“(Is it that) directors of government-linked companies (GLC) are allowed to just sit back, despite having concerns and being obligated to a particular company and (to just blindly) follow directions?

“That cannot be good governance. The court has to draw the line in this case, in also sending a message as far as precedent, that such an excuse cannot stand in corporate governance in Malaysia,” he submitted before High Court judge Ahmad Fairoz Zainal Abidin today.

Farhan also submitted that Najib had never had absolute power over the board, as he had always allowed the directors to make independent decisions in all matters and that the company’s financial matters, including loans and investments, are within the board’s jurisdiction.

He added that the court should hold the board accountable as well if it finds Najib liable in the US$1.18 billion suit filed against the former prime minister and Nik Faisal.

He was replying to submissions by lawyer Chong Yik Loong, who represented board member Shahrol Azral Ibrahim Halmi, who was called in as a third party in the suit.

Earlier, Chong submitted that the third parties were the company’s non-executive directors and that they were neither obligated to be hands-on with the company’s affairs, nor to go above and beyond in verifying or investigating what was communicated to them by the company’s management.

“The business of corporations can’t go on if directors can’t trust the management to carry out its duty. If the board did not know of the fraud, could the board be blamed?

“We admit (that) there was an oversight by the board, but the roles and duties of the directors do not coexist. Not everyone is in charge of the company’s financial matters.”

Court reserves judgment

Fairuz, after hearing submissions from all parties in the suit, reserved his judgment. 

“Thank you for your submissions. I need some time (to peruse the matters) as I have monkeys on my back now,” the judge said.

The court will notify a decision date to the relevant parties in the near future.

SRC filed the suit in 2021, seeking the court to declare Najib and Nik Faisal liable for fraudulent breaches of duties and trust.

The court had allowed Najib to admit other former board members as third parties to the suit, namely Shahrol, Ismee Ismail, Suboh Yassin, Azhar Osman Khairuddin, and Rashidi Che Omar.

The suit also concerned an RM4 billion loan from the Retirement Fund Inc (KWAP) to SRC in 2011 and 2012.

SRC sought US$1.18 billion in compensation from the defendants, with the said amount being the money lost in proposed investments. Alternatively, SRC seeks compensation for the loss of use of the said sum, to be determined by the court.

The company also sought damages for breach of statutory, fiduciary, and common law duties that the defendants owed to SRC, breach of trust, and damages for conspiracy, as well as general, exemplary, and aggravated damages, including five percent per annum.

Costs and other relief deemed fit by the court were also sought.

SRC had also specifically demanded that Najib compensate US$120 million for knowingly receiving wrongful property from various intermediaries, as well as damages for tort of misfeasance and damages for abuse of power.

The 72-year-old former Pekan MP is serving six years’ jail following his conviction for criminal breach of trust, money laundering, and abuse of power involving RM42 million of SRC funds.

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