Apellants Bundle of Authorities.docx

FolioAuthorities A SIM CHIO HUAT v WONG TED FUI [1983] 1 MLJ 151 B YEOW KIM PONG REALTY LTD v NG KIM PONG [1962] 1 MLJ 118 C SHARIKAT EASTERN PLASTICS INDUSTRY v SHARIKAT LAM SENG TRADING [1972] 1 MLJ 21 D WONG KUP SING v JERAM RUBBER ESTATES LTD OCJ KL E CONTRACTS ACT 1950 (ACT 136), Contracts (Amendment) ACT 1976 (A329) & Government CONTRACTS ACT 1949 F EVIDENCE ACT 1950 G TAN SWEE HOE CO LTD v ALI HUSSAIN BROS [1980] 2 MLJ 16 H INDUSTRIAL & AGRICULTURAL DISTRIBUTION SDN BHD v GOLDEN SANDS CONSTRUCTION SDN BHD [1993] 3 MLJ 433 I Solid Investments Ltd v Alcatel-Lucent (M) Sdn Bhd (previously known as Alcatel Network Systems (M) Sdn Bhd) J SABABUMI (SANDAKAN) SDN BHD v DATUK YAP PAK LEONG [1998] 3 MLJ 151 K CHING YIK DEVELOPMENT SDN BHD v SETAPAK HEIGHTS DEVELOPMENT SDN BHD[1996] 3 MLJ 675 L HWA CHEA LIN & ANOR v MALIM JAYA (MELAKA) SDN BHD [1996] 4 MLJ 544 M TUNKU NORELLA SURIANI BT TUNKU YUSOFF & ANOR V KUMPULAN SIERRAMAS (M) SDN BHD & ANOR [2011] MLJU 409 N PREMIER HOTEL SDN BHD v TANG LING SENG [1995] 4 MLJ 229 O CIMB Bank Bhd v Maybank Trustees Bhd and other appeals [2014] 3 MLJ 169 P Dato' Ariff Wan Hamzah & Ors v HwangDBS Investment Bank Bhd & Anor[2013] 1 MLJ 526 Q Hollier v Rambler Motors (AmC) Ltd [1972] 1 All ER 399 INDEX OF AUTHORITIES Page [1983] 1 MLJ 151 SIM CHIO HUAT v WONG TED FUI FC KUCHING SUFFIAN LP, LEE HUN HOE CJ (BORNEO) AND SALLEH ABAS FI FEDERAL COURT CIVIL APPEAL NO 8 OF 1981 11 May 1982, 22 October 1982 Contract — Building Contract — Time essence of contract — Provision for forfeiture — Waiver — Election to treat contract as continuing — Extra work — Delay in delivery of site — Claim for damages — Interest In this case the appellant a housing developer undertook to deliver houses to be erected by him for the respondent within six months in the case of two units of double-storey detached houses and twelve months in the case of two units of terrace houses from the date of approval of the plans. It was stipulated that time shall be of the essence of the contract. The agreement contained no provision for extension of the delivery period nor any provision as to alterations and additional works. The appellant was unable to deliver the houses in time and there was a delay in the delivery. During the course of constructing the houses at the request of the respondent the appellant carried out extra work at a total cost of $5,008.00 and also incurred certain expenses amounting to $881.00 on behalf of the respondent. The appellant sued for the price of the extra work and expenses. The respondent denied liability and counterclaimed a sum of $28,800 as liquidated damages and also general damages for the failure of the appellant to deliver the houses in accordance with the stipulated periods. The appellant's reply to the respondent's counterclaim was that the respondent was not entitled to the damages claimed because there had been a waiver and estoppel on the part of the respondent. The trial judge Seah J. allowed a sum of $4,424.00 on the appellant's claim for extra work and a further sum of $651.50 for additional expenses, making a total of $5,075.50. The learned trial judge upheld the respondent's counterclaim and assessed the liquidated damages under the contract at $28,176.00. He also allowed a further sum of $2,400.00 as general damages for the failure to construct a temporary house for the respondent to live in whilst the old house was being demolished and the new houses were being constructed. The appellant appealed against the decision of the learned trial judge on the counterclaim while the respondent cross-appealed against the decision because the trial judge had not ordered interest on the damages nor costs in favour of the respondent. Held:  (1) in this case as time was provided to be of the essence of the agreement, the stipulated periods within which the houses had to be delivered to the respondent became an essential condition of the agreement. Failure by the appellant to fulfil this condition entitled the respondent to have an option of treating the agreement either (a) as having been repudiated and dismissing the appellant or (b) as still continuing;  (2) in this case the respondent did not choose to treat the contract as having been repudiated. By allowing the delivery dates to pass by and by acquiescing in the work continuing under the agreement and indeed by ordering extra work to be done for each of the houses, for which the agreement made no provision, the respondent must be held to have waived his right to rescind the agreemend on account of repudiation and also the right to treat himself as discharged therefrom. He must be deemed to have elected the agreement as still continuing;  (3) the stipulation as to time in the agreement ceased to be of the essence of the agreement, not because of the omission by the respondent to invoke Clause 23 of the agreement, but because of his acquiescence in and allowing the work to continue under the agreement;  (4) in cases where an agreement contains no clause for extension of time for completion, the acts of prevention by the employer whether authorised by the contract or whether in breach of it or whether the prevention is a cause of part or of the whole of the delay invalidate the liquidated damages clause because by such acts time becomes at large and consequently there is no date from which damages could run and therefore no damages could be claimed;  (5) in this case the respondent could not succeed in his counterclaim for damages under Clauses 20 and 21 of the contract as he was responsible for the delay in ordering extra work and for late delivery of the site;  (6) although the respondent failed in enforcing clauses 20 and 21 because of the late delivery of the site to enable the appellant to commence construction work immediately and also by the extra work ordered by the respondent, such failure did not prevent him from claiming unliquidated damages and the learned judge was right in awarding $2,400/- as unliquidated damages against the appellant;  (7) interest is a matter of discretion for the learned trial judge and in this case there was no reason to interfere with his discretion. Cases referred to United Scientific v Burnley Council [1978] AC 904 940 and 944 Trollope and Cells Ltd v NW Hospital Board [1973] 2 All ER 260 Clydebank Engineering & Shipbuilding Co Ltd v Don Jose Ramos Yzqierdo Y Castenada & Ors [1905] AC 6 Holme v Guppy (1838) 3 M & W 387; 150 ER 1195 Thornhill v Neats (1860) 8 CB NS 831; 141 ER 1392 Russell v Sa Da Bandeira (1862) 13 CB NS 149; 143 ER 59 Westwood v Secretary of State for India (1863) 7 LT 736 Dodd v Churton [1897] I QB 562 Murdoch v Lockie (1897) 15 NZLR 296 Meyer v Gilmer (1899) 18 NZLR 129 Wells v Army & Navy Co-operative Society (1902) 86 LT 764 Perini Pacific v Greater Vancouver Sewerage (1966) 57 DLR 2d 307 Jones v St John's College, Oxford (1870) LR 6 QB 115 Tew v Newbold-on-Avon School Board (1884) 1C & E 260 Sattin v Poole (1901) Hudson's BC 4th Ed Vol 2 p 306 Yeoh Kim Pong Realty Ltd v Ng Kim Pong [1962] MLJ 118 126 1983 1 MLJ 151 at 152 FEDERAL COURT Patrick Tan for the appellant. Chew Pok Oi for the respondent. SALLEH ABAS FJ (Judgment of the Court, delivered by Leo Hun Hoe C.J. (Borneo)): In this appeal the facts are as follows: By an agreement entered on May 15, 1969 the respondent sold 89 housing lots to the appellant for a total consideration of $301,000.00 of which$133,000.00 was paid in cash and the balance of $168,000.00 was to be set off against the price of four houses which the appellant was required to build for the respondent on lots 1762, 1772, 1763 and 1771. The houses which were to be erected on lots 1762 and 1772 were two units of double-storey detached houses, whilst the houses to be built on lots 1763 and 1771 were two units of terrace houses. Under clause 8 of the agreement the appellant undertook to deliver these houses in a state of completion, within six months in the case of the two double-storey detached houses and twelve months in the case of the two units of terrace houses from the date of the approval of their plans, drawing and specification by the Kuching Rural District Council (KRDC). State of completion was defined by clause 9 to mean the issuance by KRDC of certificates of fitness for occupation in respect of these houses. Clause 24 stipulated that time wherever specified shall be of the essence of the agreement. Under clauses 20 and 21, it was agreed that if the appellant failed to deliver these houses within the agreed time, he would be liable to pay to the respondent a sum of $1,080.00 per month in respect of the double-storey detached houses and a sum of$600.00 per month in respect of the two terrace houses and this liability would continue until the houses were delivered in a state of completion, i.e. until certificates of fitness were issued. The agreement also made a provision for a forfeiture clause — clause 23 — in the following terms: "23. Notwithstanding anything herein contained to the contrary, it is hereby agreed that if the Developer [appellant] defaults in paying the full sum of $133,000/- (Dollars One hundred and thirty-three thousand only) to the Owner [respondent] within six (6) months from the date stipulated in Clause 3 (b) hereof and/or if the Developer [appellant] abandons the performance of the present Agreement or fails in execution of the construction work in the course of erection as aforesaid, then thereupon this Agreement shall ipso facto be null and void and all sums of money paid hereunder by the Developer [appellant] shall be forfeited to the Owner [respondent] and in such circumstances the Developer [appellant] shall have no claim whatsoever for the work done or for the cost of materials." (the emphasis is ours) The agreement contained no provision for the extension of the delivery period, nor any provision as to alterations and additional works. The appellant, however, was unable to deliver these four houses in time. In respect of the two double-storey detached houses on lots 1762 and 1772 the delivery dates were March 16, 1971 and April 4, 1971. The delivery date for the two terrace houses was July 9, 1971. He did not deliver these houses by their agreed delivery dates, but delivered them all only on September 9, 1972. He was thus late by 17 months and 20 days in respect of the first double-storey detached house and by 19 months and 2 days in respect of the second double-storey detached house and by 13 months and 27 days in respect of the two terrace houses. During the course of constructing these four houses at the request of the respondent the appellant carried out extra work in respect of each of them for a total cost of $5,008.00 and also incurred certain expenses amounting to $881.00 on behalf of the respondent. When sued for the price of extra work and the expenses of $881.00, the respondent denied liability and counterclaimed a sum of $28,800.00 as liquidated damages under clauses 20 and 21 of the agreement and also general damages because of the failure of the appellant to deliver the houses in accordance with the stipulated periods. The appellant's reply to the respondent's counterclaim was that the respondent was not entitled to the damages claimed because there had been a waiver and estoppel on the part of the respondent. Seah J., before whom the trial took place, allowed a sum of $4,424.00 as the appellant's claim for extra work and a further sum of $651.50 as the appellant's additional expenses incurred on behalf of the respondent, thus making a total of $5,075.50. The learned trial judge upheld the respondent's counterclaim and assessed the 1983 1 MLJ 151 at 153 liquidated damages under clauses 20 and 21 at $28,176.00. He also awarded a further sum of $2,400.00 as general damages under clause 10 of the agreement for failing to construct a temporary house under clause 10 to enable the Indeed. if such had been his case. and allowing the work to continue under the agreement. Thus the total damages awarded was $30. Forfeiture provision under clause 23: In his submission before us. By allowing the delivery dates to pass and by acquiescing in the work continuing under the agreement and indeed by ordering extra work to be done for each of these houses. What the appellant failed to do in this case is not in the execution of the construction work. The case for the appellant simply consists of waiver and estoppel as crystallised in his counsel's submission in the court below and before us. unless the parties agree that it be so. if invoked by the respondent. In our view the stipulation as to time in this agreement ceased to be of the essence of the agreement. In any case this clause. If clause 23 was invoked. Trollope and Colls v NW Hospital Board [1973] 2 All ER 260. In this case obviously he did not choose to treat the agreement as having been repudiated. of his acquiescence in." (pages 47–48 of Appeal Record) We agree with the submission in so far as the waiver of the delivery dates is concerned but we do not agree that this waiver also constitutes a waiver of his right to claim liquidated damages under clauses 20 and 21. Time being of the essence: In modern law of contract prima faciea stipulation as to time is not of the essence of a contract. page 370). counsel for the appellant said that as the respondent had not exercised his right to forfeiture under clause 23. He must be deemed to have elected the agreement as still continuing. time was no longer of the essence of the agreement. His counsel submitted that in view of the extra work for which amended plans were submitted to the KRDC for approval after the houses were completed. for which the agreement made no provision. In our view this submission is completely misconceived. but because. it had never been the case of the appellant that the delivery dates of these houses should accordingly be extended. The appellant appealed against the decision of the learned trial judge on the counterclaim whilst the respondent crossappealed against the decision because the learned trial judge ordered no interest on the sum of $30.576. the agreement having provided for no extension of time clause the case would be bound to fail. in the circumstances of this case. Case of the appellant: It must be observed here that although counsel for the appellant in the court below submitted that extra time was needed to carry out extra works. the stipulated periods within which these four houses had to be delivered to the respondent became an essential condition of the agreement. A waiver by the . would not be applicable because the appellant neither abandoned the performance of the agreement.576. the appellant must be held to have waived his right to rescind the agreement on account of repudiation and also the right to treat himself as discharged therefrom. (See 9 Halsbury'sLaws of England. as we have said earlier. (See Lord Simon of Glaisdale in United Scientific v Burnley Council [1978] AC 904 940 and 944. Failure by the appellant to fulfill this condition would entitle the respondent to have an option of treating the agreement either (a) as having been repudiated and dismissing the appellant.respondent to live in it whilst his old house was being demolished and the new houses were being constructed. the respondent must be deemed to have waived the deadline for the houses and— "it follows that he had waived clauses 20/21 of the Agreement … Having waived his right the defendant (respondent) is now estopped from claiming damages under clauses 20/21. ( Clydebank Engineering & Shipbuilding Co Ltd v Don Jose Ramos Yzquierdo Y Castaneda & Ors [1905] AC 6). nor failed in the execution of the construction work — the two conditions precedent to the application of this clause. but in meeting the delivery time set for each of the four houses. In this case as time was provided to be of the essence of the agreement. 4th ed. as he stood to lose all that he had paid for under the agreement and would also be deprived of making any claim for the work done and materials supplied. the consequence would be disastrous to the appellant. or (b) as still continuing. not because of the omission by the respondent to invoke clause 23.00.00 allowed for counterclaim nor costs in favour of the respondent. para 538. . is not a breach of contract. Liquidated damages stipulated for at a rate for each day or week of delay in completing the works must begin to run from some definite date. which is as follows: "It has been seen that. such as ordering extras. including the ordering of extras or other interference or prevention by the employer. it is equally obvious that where the reason is some act of the employer or his architect or engineer preventing completion by the due date. Question of Damages: We now come to the question whether the respondent should succeed or not in his claim for damages. In dealing with this question we can do no better than be guided by the statement of the law in Hudson's Building and Engineering Contracts. it cannot be the intention of the parties that liquidated or other damages should be calculated from that date even if the act.respondent of the delivery periods is no more than his election not to treat the agreement as having been repudiated. there is in such a case no date from which liquidated damages can run and the right to liquidated damages will have gone. and no contractual provision exists for the substitution of a new date. In the case of damages. 143 ER 59  (4) Westwood v Secretary of State for India (1863) 7 LT 736  (5) Dodd v Churton [1897] I QB 562  (6) Murdoch v Lockie (1897) 15 NZLR 296  (7) Meyer v Gilmer (1899) 18 NZLR 129  (8) Wells v Army & Navy Co-operative Society (1902) 86 LT 764  (9) Perini Pacific v Greater Vancouver Sewerage (1966) 57 DLR 2d 307 The second list of cases in which damages were allowed is:  (1) Jones v St John's College. therefore. in the rare cases where time is of the essence." … (The emphasis is ours) The learned author gives a list of cases in which the court refused damages and another fist in which it allowed them. that if the date in the contract has for some such reason ceased to be the proper date for the completion of the works. This. rather than solicitude for the contractor. 10th ed. The first list of cases in which damages were refused consists of:  (1) Holme v Guppy (1838) 3 M & W 387. He still regarded the agreement as still subsisting and in no sense could 1983 1 MLJ 151 at 154 such a contract be interpreted as indicating a waiver to claim damages. is the reason for the provision usually known as the extension of time clause. at p. for the purpose of treating the contract as repudiated. under clauses 20 and 21. 624. It follows. 141 ER 1392  (3) Russell v Sa Da Bandeira (1862) 13 CB NS 149. Oxford (1870) LR 6 QB 115  (2) Tew v Newbold-on-Avon School Board (1884) 1C & E 260 . 150 ER 1195  (2) Thornhill v Neats (1860) 8 CB NS 831. the contract time for completion may cease to be applicable for a variety of reasons. e. He said: "I needed a loan from BHC because when I wanted to sell it would be easier for me.R. Dodd v. 566: "… The principle is laid down in Comyns' Digest. In the present case. from completing the contract within the time limited. Guppy. i. Churton is definitely based on Holme v. the law applicable was stated to be that found in Comyns' Digest. and consequently they are not to forfeit anything for the delay …" Lord Esher M. who decided Holme v. he is not liable in law for that default. This extra work must at least have caused part of the delay though it might not have caused the whole delay. Guppy ( supra) and in both these cases. Condition L (6)." (page 65 of the Appeal Record) With respect we do not agree. he is not liable in law for the default (1 Roll. in Dodd v. inHolme v. we are of the opinion that clauses 20 and 21 became invalidated and that no damages should have been allowed under them. beginning with Holme . by the refusal of the other contracting party. Guppy (supra) and Lord Denning M. which was later enlarged. at p." (page 39 of the Appeal Record) What then is the principle enunciated in Dodd v. accordingly. not only did the agreement contain no extension clause it also contained no clause authorising extra work.. 1971 the respondent stopped the work on the second double storey detached house. Churton said. (3) Sattin v Poole (1901) Hudson's BC 4th Ed Vol 2 p 306 Amongst the conclusions reached by the learned author after considering these cases is that in cases where an agreement contains no clause for extension of time for completion. in Trollope and Colls ( supra) "the time becomes at large". because of the request for extra work on the other double storey detached house. Churton ( supra) which the learned trial judge held to be inapplicable to the facts of the present appeal. Churton ( supra) did not apply to the facts of this case. Delay by extra work: The learned trial judge held that the principle of Dodd v. Abr. the one built on lot 1772 after piling work had been completed and ground beams laid because he objected to the size of one of the rooms of the house.R. that. the appellant was unable to proceed with this extra work until the supervisor of Borneo Housing Corporation (BHC) approved it. Consequently there is no date from which damages could run and therefore no damages could be claimed. Further. that if the party be prevented. Condition L (6). Dig. Parke B. a well recognised rule has been established in cases of this kind. said: "… and there are clear authorities. because he said: "… the question to be decided is whether the additional works which the landowner [respondent] requested to be done would make it impossible or impracticable for the contractor [appellant] to complete the work within the stipulated time … On the basis of the evidence before the court I cannot say that these additional works requested by the defendant [respondent] would inevitably result in a delay in the plaintiff [appellant] completing all the four houses within the stipulated time. 543. Com. because there is unchallenged evidence given by the appellant that in February. BHC had an interest in the construction of these four houses because the respondent applied for housing loans from BHC in order to 1983 1 MLJ 151 at 155 finance the sale of these houses to other people. Applying the principle stated above. and. where one party to a contract is prevented from performing it by the act of the other. Condition L (6))… The plaintiffs were therefore left at large. the acts of prevention by the employer whether authorised by the contract or whether in breach of it or whether the prevention is a cause of part or of the whole of the delay invalidate the liquidated damages clause because by such acts in the words of Parke B. to the effect that. Delay in delivery of site: It is also the case of the appellant that the delay was caused by the respondent having delivered the site rather late. 1971." It is clear therefore that the principle enunciated by Dodd v. Yet the Court of Appeal affirming the decision of the county court judge did not allow the employer to claim damages in respect of the 25 weeks. The appellant dared not do piling work on the site towards the construction of this new house until the respondent had moved out of his old house 1983 1 MLJ 151 at 156 as it is too risky. Condition L (6) to extra work ordered by an employer in a building contract. Otherwise the performance becomes impossible. Thus we cannot see how the evidence on this point could be said to be unsatisfactory and devoid of any merits.R. whose testimony on this issue was not disputed. His failure to do so immediately after approval of the plans definitely hindered the completion of the house within the agreed period of six months. he cannot afterwards claim damages unless there is a time extension clause. Condition L (6) which .e. These words in our view cannot mean more than that such extra work necessarily delays the completion of the work or that it occasions its delay as used in the headnote of Dodd v. i. he is thereby disentitled to claim the penalties for non completion provided for by the contract. The respondent only did so.e. 1970). of which he was in no way to blame. The passage in which the words "impossible or impracticable" were used in the judgment of Lord Esher M. As the appellant was required under clause 7 of the agreement to carry out the work immediately and without "undue delay" after the housing plans had been approved by KRDC. The reason for that rule is that otherwise a most unreasonable burden would be imposed on the contractor. Churton( supra) the builder was late by 27 weeks of which only two weeks were attributable to the extra work ordered by the employer. Churton ( supra) and in that of Lord Denning M. The learned trial judge in reference to this submission said: "The plaintiff [appellant]. in Trollope and Colls ( supra) should not be interpreted like a statute to mean that the extra work must be of such a nature that it must delay work. Churton was not an authority for the court to fix a new completion date where the agreement makes no such provision as to extension of time. Churton such work was ordered pursuant to a clause in the contract to the effect. thus leaving little time for the appellant to complete the work. Surely this is a case in which the principle stated in Comyn's Digest. The shortening of the completion period with the consequent delay in completing the house must necessarily be due to the delay by the respondent in moving out of his old house. if the building owner has ordered extra work beyond that specified by the original contract which has necessarily increased the time requisite for finishing the work. It follows therefore that the principle derived from this case is that where an employer hinders the completion of work within time. otherwise the builder would not be excused.v. it must necessarily follow that there must be a reciprocal obligation on the part of the respondent to move out of his old house also immediately and without undue delay. i. Then this further complication arose. A delay of three months in the context of six months period of completion is too long to entitle the respondent to this claim for damages. In fact the present appeal is stronger because the extra work was not authorised by the agreement. 1971 (six months from the date of the approval of the plan by KRDC which was on September 17. did not produce any satisfactory evidence at the trial to support this contention and I rule that this defence is entirely void of merits. it is immaterial whether the hindrance is the whole cause or only part of the cause of delay. the appellant had in fact only three months to complete the construction. According to the appellant. Churtonis nothing more than the application of the principle stated in Comyns' Digest. January. according to his own evidence on December 15. Churton is applicable to the present appeal and that the damage under clauses 20 and 21 of the agreement should not be awarded. however." (page 63 of the Appeal Record) With respect we are unable to agree.R. Churton and in the judgment of Lord Pearson in Trollope and Coils when his Lordship rejected Lord Denning's judgment in the case to the effect that Dodd v. the one on lot 1762. the first double-storey detached house. Guppy. 1970 and the house was finally demolished in the following month. As the date of completion (delivery) was fixed for this double-storey detached house to be on March 16. The test which should guide us in resolving the question of extra work and delay of completion is simply this: Did the extra work delay the completion of the building and nothing more? In Dodd v. was to be built very close to the respondent's old house. in Dodd v. We think that Dodd v. whereas inDodd v. 624–628). the respondent did not agree to live in it as it was very small with hardly sufficient room to accommodate his large family and as a result he went to live with his sister at St.00 for two years at the rate of $100. Only in circumstances in which the employer or his agent is in no way to blame for the delay would the court be willing to allow damages. If the employer contributes to the delay by ordering extra work or is guilty of the delay in delivering possession of the site.00 a month for occupation of the canteen. Consequently he cannot claim the liquidated damages under the contract unless there is a provision as to the extension of time. If he treats it either expressly or by conduct as still continuing. i. (See Hudson pp.00 per month. pp. At the risk of repetition we restate the principle in that where one party to a contract is prevented from performing it by the act of the other. Yeoh Kim Pong Realty Ltd v Ng Kim Pong [1962] MLJ 118 126. p. as the respondent was responsible for the delay in ordering extra work and late delivery of the site. However. the contract exists but time ceases to be of the essence and becomes at large.became the basis of the decision in Holme v. (See Hudson. Although a hut for the purpose was built. He paid his sister $200. Guppy (supra) and Dodd v. there is no way in which the court could uphold the res 1983 1 MLJ 151 at 157 pondent's counterclaim for damages under clauses 20 and 21 of the agreement. the innocent party has the right either to rescind the contract. The learned trial judge therefore assessed the damages at $2. For the reasons given above. The position is this: If in a contract in which time is of the essence.400. on May 15. or to treat it as still subsisting.e. he is not liable in law for the default. long after the agreement in this case was entered into. It is true that the respondent's old house only related to the site of the first double-storey detached house and not to the sites of the other three houses. Hence clauses 20 and 21 cannot be enforced. Churton (supra) applies. In the circumstances of this case. at no time did the respondent give notice to the appellant. However. 633).e. we feel that the appellant should succeed in the appeal regarding damages under clauses 20 and 21. Since he did not issue the requisite notice he was not therefore entitled to the compensation. a party fails to perform it by the stipulated time. this cessation can be revived and so time can be restored to be of the essence by the innocent party serving a notice to the party in default giving a new date of completion. Section 56 of Contract Act: Counsel for the appellant submitted to us that by virtue of section 56 (3) of the Contract Act. but it must be remembered that these four houses were to be build together and with respect to the other houses. Counsel for the appellant submitted that as the money paid by the respondent was according to his sister (DW 1) meant for water and electricity . (See Hudson. 1969. 604 & 612). extra work and delay in handing over the site. the respondent was not entitled to any compensation unless he had given notice to the appellant that he intended to claim damages. 1974. even if the contract contains a time extension clause or even if an innocent party serves a notice on the party in default requiring the latter to complete the work by a certain date. The learned trial judge found that the appellant was in breach of clause 10 of the agreement because he did not build a temporary house required under this clause in order to house the respondent whilst the new houses were being constructed. Nicholas School canteen for two years. such failure does not prevent him from claiming unliquidated damages. Damages under clause 10 of the Agreement: Although the respondent failed in enforcing clauses 20 and 21 because of the delay occasioned by the late delivery of the site to enable the appellant to commence construction work immediately and also by the extra work ordered by the respondent. the rules contained in section 56 of the Contract Act are not different from the position arrived at in common law. In the present appeal. However. it is a matter of commonsense that the delay would certainly affect the work's time-table or programmes of the other three houses as well. i. damages are not as a matter of course awarded in favour of the employer. or of any other cause no damages could be claimed. whose lots were sold to the appellant. This submission is so far as it was based on the Contract Act was misconceived because the Act only applied to Sarawak from July 1. If this is done there would be a date from which liquidated damages could be calculated. 400. [1962] 1 MLJ 118 YEOW KIM PONG REALTY LTD v NG KIM PONG LORD HODSON. whether paid for water and electricity charges or even treated it as her pocket money. There was breach of the agreement and the respondent was entitled to damages. is immaterial.  (b) the appeal against unliquidated damages of $2. As we have allowed the appellant's appeal on the liquidated damages under clauses 20 and 21. we are not prepared to interfere with his discretion. The fact that the money was paid without his sister asking for it. With respect to counsel. As regards costs it is also a matter of discretion and should follow the event. Interest is always a matter of discretion of the learned trial judge. Solicitors: Yong & Co. the respondent suffered no damage at all and therefore the learned trial judge should not have awarded the sum of $2.charges and that it was paid to her gratuitously. Order accordingly. What she did with the money.  (d) the appellant is entitled to costs of the proceedings before this court. as we do not think that he was in error.400.00.  (c) the respondent's cross-appeal is also dismissed. we disagree with him. Wan Ullok & Co. We think that the appeal on this point fails. Cross-appeal: As to the cross-appeal by the respondent. the cross-appeal is only limited to the unliquidated damages of $2. does not detract from the fact that it was paid because of his sense of obligation arising out of the occupation of the school canteen. Conclusion: The order we would propose in this case is therefore as follows:  (a) the appellant's appeal against the liquidated damages under clauses 20 and 21 of the agreement is allowed. Although he gave no reason why he did not order interest on the sums awarded for the appellant's claim and the respondent's counterclaim. We think that the learned trial judge was right. we do not think that there is much substance in it.00 is dismissed. Chan. Jugah.400. and in the court below.00 as unliquidated damages against the appellant. LORD GUEST AND THE RT HON LMD DE SILVA PRIVY COUNCIL APPEAL NO 6 OF 1960 18 December 1961 . the $5. Should there be any breach of the above conditions.000 paid. and as the respondent was in breach of it.000. and 4. Held: (1) the supplementary agreement was binding on the parties and time was of the essence of this agreement. entered into an agreement with the defendant (the appellant on this appeal) for the purchase of 22 lots of land. To pay … $5. Decision of the Court of Appeal [1960] MLJ 92 reversed.000 to be paid on or before July 31.Construction must have begun on any land that was sought to be transferred. (2) there was a breach of this agreement by the respondent and appellant was entitled to rescind the contract on September 1. 1956.000 by the date specified and the appellant informed the respondent that in consequence the deposit of $15. It was one of the terms of the agreement that an initial payment of $15. 1956 and forfeited the moneys paid. The question then arose as to whether the supplementary agreement was binding on the respondent.000 should be made followed by a further sum of $24. he dismissed his action. The appellant agreed to an extension of time provided that certain conditions as laid down in a supplementary agreement were satisfied. 1956 as he did. the appellant terminated the contract by writing on September 1. This decision was reversed by the Court of Appeal. The respondent having failed to abide by this supplementary agreement. The trial Judge held that the supplementary agreement was binding on the parties. The respondent then asked for an extension of time to pay the said $24. On appeal to the Privy Council. was to be forfeited and the extension of time withdrawn.Contract — Agreement for sale of land — Payments to be mode on or before specific dates — Non-payment of — Request for extension of time — Supplementary agreement — Whether binding — Whether appellant entitled to rescind original contract — Interpretation of s56(3) of the Contracts (Malay States) Ordinance The plaintiff (the respondent on this appeal) on March 24.000 on or before December 23. 1956 and a final payment of $27.000 forthwith and the balance of $19. . Per Curiam: Sub-section (3) of section 56 of the Contracts (Malay States) Ordinance does not place a limitation upon the freedom of parties to contract when one of them has failed to perform his promise at the time agreed … All the sub-section says is that where a party accepts performance without such agreement that party may not in a subsequent action claim compensation for non performance at the time agreed unless at the time of accepting performance he has given notice of his intention to do so. QC (WW Stabb with him) for the appellant. 1956. 2. 1956. namely: 1. 3. Construction work on the above land to be commenced within one week of the date hereof.000 was forfeited and the contract was at an end. The respondent failed to pay the stipulated $24.000 on or before June 28. PRIVY COUNCIL John Foster. 124. and the balance of the purchase money in the sum of $27. 1956. 144.00) only and the Vendor agrees to transfer such lot or lots of the Property described in the said Schedule to the Purchaser or any of his nominees or assigns free from all encumbrances as the Purchaser shall elect subject to the terms and conditions as mentioned hereafter: NOW THIS AGREEMENT WITNESSETH as follows:– 1. 104. 185A/55. 158. 1956.JA Wolfe for the respondent. Upon payment of the full amount of the purchase money in the sum of $66. 162. 154. 128. 166.000. 24.00 (Dollars Sixty-six thousand only) the Vendor shall transfer to the Purchaser . 142. 3. as 1962 1 MLJ 118 at 119 part payment towards the said purchase price it is mutually agreed as follows:– 2. 168.000. 150. 156. 164.000. the Vendor shall transfer to the Purchaser or any of his nominees or assigns any one lot of the said Property described in the said Schedule provided the above-mentioned sum of $24. The following recitals and clauses of the agreement are relevant to the matters in dispute between the parties: "Whereas the Vendor has caused Building Plans prepared by Lee Eng Tong of No. 126.000. 148. Klang. Now in consideration of the above premises and in consideration of the sum of Dollars Fifteen thousand ($15. 152. under Plans Nos. 116.000.000.000. 136.00 (Dollars Twenty-four thousand only) shall be paid in full by the Purchaser to the Vendor on or before the 23rd day of June. 134.00) only paid by the Purchaser to the Vendor. 185C/55 and 185D/55 for the erection of 21 Terrace Houses on the said Property: And Whereas the Purchaser intends to erect the said 21 Terrace Houses for sale and agrees to give priority for such sale to the 36 Tenants of the Vendor of premises known as Nos. 120.00 (Dollars Twenty-seven thousand only) shall be paid in full by the Purchaser to the Vendor on or before the 23rd day of December. 185/55. As and when the Purchaser pays to the Vendor each sum of $8. 112. 140.00 (Dollars Twenty-seven thousand only) shall be paid by the Purchaser to the Vendor on or before the 23rd day of December. and the balance of the purchase money in the sum of $27. 110. 1956. 102. THERT HON LMD DE SILVA The judgment of their Lordships was delivered by This is an appeal from a judgment and decree of the Court of Appeal at Kuala Lumpur Supreme Court which reversing a judgment of the High Court entered judgment in favour of the plaintiff (the respondent on this appeal) against the defendant (the appellant on this appeal) for the return of a deposit made by the plaintiff on an agreement for the purchase by him from the defendant of 22 lots of land and for damages for the breach thereof by the defendant. 160. Sultan Street.00 (Dollars Twenty-four thousand only) on or before the 23rd day of June. 132. 122. 130. 185B/55.000. 146. 108. 106. 1956. The Purchaser shall pay to the Vendor a further portion of the purchase money in the sum of $24. 170 and 172 Meru Road. Klang (hereinafter called the Architect) which have been approved by the Town Council. 138. 114. 118. the receipt whereof the Vendor hereby acknowledges.00 (Dollars Three thousand only) forming part of the payments mentioned in Clause 2 above. Klang (hereinafter called the Tenants): And Whereas the Vendor has agreed to sell and the Purchaser has agreed to purchase the said Property for the sum of Dollars Sixty-six thousand ($66. This priority shall hold good for a period of fourteen (14) days from the date of this agreement. Construction work on the above land must be commenced within one week of the date hereof. .000 dollars by the 23rd June. 7. 9.000.00 which fell due on 23rd June. 2. 1956. 1956.000.000 dollars was forfeited and the contract.000.00 to be paid on or before the 31st July. which is in the following terms:– "With reference to your letter of the 25th June. I shall be very grateful. Within one (1) week from date hereof the Vendor shall give access to the Purchaser to the whole property described in the said Schedule so that work may be commenced on any of the said 21 building lots as the Purchaser may think fit. In the event the Purchaser fails to pay the sums of money on the respective dates aforementioned the said advance money of $15. They went on to say inter alia: "We are now instructing our Architect to proceed with the erection of the houses and you are hereby requested to return to us the building plans and specifications which we have loaned to you. any or all of the titles in respect of the said Property to the Purchaser or to any of his nominees or assigns when requested by the Purchaser. was at an end. The defendant by letter of the 25th June pointed this out and said that in consequence the deposit of 15. after which the Purchaser shall reserve his right to sell the said houses to any other prospective buyers. 10. we are prepared to permit you an extension of time within which to pay the sum of $24. when necessary." The plaintiff on the same day wrote to the defendant a letter which contained the following passages:– "I admit that it is my fault for not fulfilling my part of the agreement to pay you $24.000. To pay us a sum of $5. My future career in Klang depends solely on your sympathetic decision.00 (Dollars Fifteen thousand only) paid by the Purchaser to the Vendor shall be forfeited to the Vendor as liquidated damages and this agreement shall be treated as null and void in so far as the untransferred lot or lots in the Property are concerned. says through its managing director Yeow Kim Joe that the defendant agreed to give time but only on the conditions appearing in the document P. which is a limited liability company.00 on the following conditions:– 1.000. All constructions made on the untransferred lots shall become the property of the Vendor. 1956. 1956. Upon signing of this Agreement the Vendor shall inform all his said 36 Tenants regarding the priority given to them to purchase any of the said 21 Terrace Houses according to the normal terms and conditions of sale offered by the Purchaser.000. 1956.00 forthwith and the balance of $19. therefore if you would be good enough to grant me my request and give me a chance to make good.the balance or all of the Property as described in the said Schedule to the Purchaser or any of his nominees or assigns. as agreed therein.2 of the 7th July.00 otherwise I am afraid I shall get into serious trouble and lose my reputation as a contractor in Klang and Port Swettenham." "I humbly beg of you to grant me extension of time for one month to pay you the said $24. 6. The Vendor shall produce for the purpose of inspection." The defendant." The plaintiff failed to pay the stipulated 24. This is because I was unable to collect my money in time due to most unexpected circumstances. Ng Kim Pong. the $5.000 dollars were paid at once and a further 19.m.) Yeow Kim Joe. the action must fail on this ground alone. I.000 dollars were paid the defendant insisted on the terms as to construction work and refused to give a receipt for the money already paid until the plaintiff signed the document in the form in which it now appears (v. Yours faithfully. Therefore.00 must be made on or before the 23rd December. full payment of the balance of $27.2 represents the supplementary agreement the action is at an end because plaintiff had admitted he had done no construction work on the eight lots.000 by the 31st July and that there was then no stipulation as to construction work on the land. Yeow Kim Pong Realty Ltd. The Court of Appeal took the view that the terms of P. Managing Director. Construction must have begun on any land that is sought to be transferred. The reasons for that view need not be discussed at this stage as counsel for the plaintiff respondent did not seek to sustain the view of the Court of Appeal. acknowledge the receipt of the original copy of this letter and agree to the terms as stated.2 does represent the agreement between the parties and that plaintiff did admit that he had done no building operations on the 8 lots. Should there be any breach of the above conditions. will be forfeited and the extension of time withdrawn. Kim Joe continued that the plaintiff did not do so but sent one Quai Pin Siong (one of plaintiff's witnesses) with the money.2 were not binding on the plaintiff. if paid. that the plaintiff agreed to them and said that as he did not have the money he would come back with some and sign the document.2 were binding on the plaintiff. 24/7/56. in my view.000." 1962 1 MLJ 118 at 120 He went on to say:– "It is right for me to say at this stage that 1 find that Exhibit P. He argued that time was not of the essence of the contract in the performance of the terms . He said he could not resist the conclusion that the terms of P.2 were binding on the plaintiff or not. The plaintiff's version is that an extension was agreed to on condition that 5. The trial Judge said:– "If Exhibit P. Further. Kim Joe says he withheld a receipt until plaintiff had signed the document and that eventually plaintiff came into his office and signed the document on the 24th July. He says that after the 5. Much of the contest between the parties in the Courts in Malaya appears to have been on the question whether the terms in P. 1956. Ng Kim Pong 5 p. above). 4.00 above mentioned." Kim Joe's version of what happened is that on the 7th July the terms on which further time would be granted were explained to the plaintiff. (Sd.3.000. In consequence you are requested to vacate the land forthwith since you are now a trespasser thereon. Kuala Lumpur. The argument mentioned in the last paragraph was not raised at the trial and the defendant could not therefore have felt any necessity for placing before the Court all the material relating to attendant circumstances (for example. Their Lordships do not find it necessary to decide this question as in their opinion the material already in evidence satisfies them that time was of the essence. 37 Ceylon Lane. It is not possible that when he became a party to P. or to pay the sum due to our clients. and that all monies paid to our clients are forfeit. . It is difficult also to imagine that he could have contemplated anything but a strict observance of the condition that "construction work on the above land must be commenced within one week of the date hereof. Esq. March 1958.2 in July 1956. Further the plaintiff having made default unreservedly admitted his default and "begged" for time.2 and that therefore the defendant was not entitled on the 1st September to rescind the contract as he did by a letter in the following terms:– "Ng Kim Pong. Dear Sir.stipulated in P. These reasons suffice to convince their Lordships that time was of the essence in the performance of the agreement contained in P. he had anything other than the necessity for the strict observance of times stipulated in his mind. It is difficult to imagine that he did not contemplate having to observe faithfully any provision as to time which his request might induce. conversations) as could have helped him. Lots 382 & 403. All this suggests that the times fixed for carrying out the steps undertaken were of importance. Section 24 Town of Klang We have been instructed by our clients Messrs. he said that "On 25. We are therefore instructed to give you notice that the contract is terminated by reason of your breaches. This is to be gathered by the examination amongst other things of attendant circumstances. that no action has been taken by you to fulfil your obligations under the contract.000 dollars and that would have been the end of the matter. Building plans had already been prepared at the instance of the defendant." The question whether time is the essence of a contract is one to be determined by ascertaining the real intention of the parties.000 dollars on the 23rd June.2. (Sd. Priority for the purchase of the 21 houses was to be given to tenants of the defendant whose houses were to be demolished. referring to his failure to pay 24." He had therefore contemplated a strict observance of the times agreed on with regard to the original agreement and that view persisted in his mind up to. The question arises whether the plaintiff should be allowed to raise this point on appeal.) Shearn Delamore & Co. at any rate. Yeow Kim Pong Realty Ltd. It is evident from the agreement of the 24th of March that the purchase by the plaintiff was complementary to a plan whereby the plaintiff was to put up 21-terrace houses on the land purchased." Giving evidence in March 1958. Yours faithfully.6 defendant could have taken my 15.. our client will be happy to comply with your clients request. Condition 2 of P. Yong Kung Lin. was the full extent of the obligation of the defendant.2. With regard to the payment of 19. 1956.Their Lordships will now examine to what extent if any the plaintiff has performed or was excused from performing the conditions agreed on in P. 382—389 inclusive. in the opinion of the trial Judge with which their Lordships agree." If the plaintiff's request meant what the Court of Appeal thought it did then the defendant's resistance was well-founded and sound. Upon information that building operations have commenced upon the lots in question.2 was "construction work on the above land must be commenced within one week of the date hereof. when they said "our clients instruct us that no building operations have commenced upon the land. In a letter from the defendant's solicitors to the plaintiff of the 31st July. The Court of Appeal appears to have understood it in the same way because it says "the defendants were in default from the 28th July in refusing to transfer the eight lots upon request made to them by the plaintiff to do 1962 1 MLJ 118 at 121 so. and our client has been so notified. Please treat this letter as urgent and let us have the titles. above that in their reply of the 31st July the defendant's solicitor may have understood the word "titles" in the request "let us have the titles" as meaning transfers executed by the defendant." The learned trial Judge after a careful .000 dollars on the 31st July solicitors for the plaintiff wrote the following letter to the defendant on the 28th July. as agreed. This. The money was tendered – I mean the letter from Yong Kung Lin. by return. though in another connection. and to which your client concurred. The money was only to be transferred to me when I transferred the titles to Yong Kung Lin's clients. It appears from the letter that has been quoted. their Solicitor.000 dollars because the defendant was under no obligation to part with their titles in the expectation of receiving payment after transfer." This condition was not observed. I told defendant I had the money.000 before the 31st July. The offer was not availed of. We are therefore to request you to let us have the titles to the 8 lots Nos. so as to enable their being examined by the Solicitor for the purchasers. My proposition was that I would pay defendant when the titles were transferred to Yong Kung Lin's clients. It is to be observed that according to the plaintiff:– "I did not intend to pay with my own money." On further pressure the solicitors for defendant wrote on the 10th August that the defendant was prepared to permit inspection of the titles at any time in their offices. in the course of the day. 1956:– "Our client has now secured purchasers for 8 of these lots and the purchasers have deposited with Mr. the purchase price. Our client will thereafter be able to make payment of the balance due to you in the sum of $19. and in accordance with Paragraph 3 of our client's letter of the 27th instant addressed to your client. this fact was mentioned." It is clear that in any event the plaintiff could not have satisfied condition 1 as to payment of the 19." Solicitors for the defendant replied on the 31st July:– "Our clients instruct us that no building operations have commenced upon the land mentioned in your letter aforesaid. there can consequently be no transfer of the land as at present advised. " Their Lordships agree. It follows that the defendant was entitled to rescind the contract on the 1st September as he has done." It went on to say that in consequence the conditions in P." The learned trial Judge has held that the plaintiff committed a breach of this condition. in the events that happened. the defendants did reaffirm the contract by acceptance of the part payment of $5.2 was not binding on the plaintiff. This in their Lordships' opinion is a wrong view of sub-section (3) of section 56.consideration of the evidence held that "no genuine construction work as I think the parties understood the meaning of the term had been commenced on the land. the promisee cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed. the Vendor shall transfer to the Purchaser or any of his nominees or assigns any one lot of the said Property. The learned trial Judge held:– "In my view the negotiations in this case after the rescission were only approaches with a view to settlement and I would certainly say that nothing concrete emerged from them.000 already paid to them. so that on 25th June the defendants could have lawfully rescinded the contract once for all and forfeited the $15. Under that sub-section. and nothing more. They are of opinion that the plaintiff's action fails. It has been argued that the correspondence between the parties after the 1st September constituted a waiver of whatever rights the defendant may have had on that date.2 were contrary to law. There were negotiations between the parties but nothing that was binding came out of them because they never reached final agreement. The sub-section does not place a limitation upon the freedom of parties to contract when one of them has failed to perform his promise at the time agreed. The contract could be reaffirmed in its original or a varied form and subject to such conditions as may be agreed . and by so doing it seems to me that the case thereafter comes within the provisions of sub-section (3) of section 56 of the Contracts Ordinance (supra). formed the view that conditions 1 and 2 have been broken. Their Lordships do not feel they need pursue the matter further as they have.2 was not binding on the plaintiff.000." There is much force in the argument that condition 3 made provision that the plaintiff would not be entitled to ask for a transfer of a block under clause 3 unless he had begun construction work on it and that condition 3 did nothing more. Condition 3 provided that "construction must have begun on any land that is sought to be transferred. unless at the time of such acceptance he gives notice to the promisor of his intention to do so. 'If … the promisee accepts performance … at any time other than that agreed.00 (Dollars Three thousand only) forming part of the payments mentioned in Clause 2 above.000. Counsel for the respondent did not seek to sustain this view and for the purposes of the conclusion arrived at by their Lordships that the plaintiff's action fails nothing more need be said. The Court of Appeal said:– "I think it cannot seriously be denied that Clause 10 did make time for payment of the essence of the contract. Clause 3 of the original agreement provided:– "As and when the Purchaser pays to the Vendor each sum of $3. The Court of Appeal did not consider the matter as it had held that P. However. The Court of Appeal held that P. Their Lordships however feel that there is an error of law in the judgment of the Court of Appeal which it is desirable to correct. as stated above.' All that this sub-section gave to the defendants upon their reaffirming the contract was a right to compensation for any loss occasioned by the non-performance of the promise at the time agreed." Their Lordships are of opinion that this view is correct and should be upheld. Their Lordships are unable to find a waiver in what happened. If they wanted to make time again of the essence of the contract they should have given the defendants a notice fixing a reasonable time for the shipment and delivery of the machinery. The machinery was not so shipped but the manager of the plaintiff firm entered into negotiations with the defendants. As no such notice had been given. the action was misconceived and premature. For the reasons which they have given their Lordships will report to the Head of the Federation of Malaya as their opinion that the appeal should be allowed.upon by the parties acting with complete freedom to contract. the judgment of the Court of Appeal set aside and the judgment of the High Court restored and that the plaintiff should pay the appellant's costs in the Court of Appeal and on the appeal before the Board. it was stipulated that shipment of the said machinery should be during July 1968. Cases referred to Tan Ah Kian v Haji Hassan [1962] MLJ 400 402 (apprvd) [1963] MLJ 175 (apprvd) Webb v Hughes (1870) LR 10 Eq 281 at p 286 Wong Kup Sing v Jeram Rubber Estate Ltd [1969] 1 MLJ 245 Charles Rickards Ltd v Oppenheim [1950] 1 All ER 420 . All the sub-section says is that where a party accepts performance without such agreement that party may not in a subsequent action claim compensation for non-performance at the time agreed unless at the time of accepting performance he has given notice of his intention to do so. [1972] 1 MLJ 21 SHARIKAT EASTERN PLASTICS INDUSTRY v SHARIKAT LAM SENG TRADING OCJ KUALA LUMPUR MOHAMEDAZMI J CIVIL SUIT NO 2303 OF 1968 5 July 1971 Contract — Breach — Failure to deliver goods — Time essence of contract — Waiver — No notice giving reasonable time to complete The plaintiff firm claimed damages for breach of contract concerning delivery of certain machinery. No notice fixing a reasonable time for the shipment and delivery of the machinery was given before the plaintiffs brought the action claiming damages for breach of contract. In the written contract of sale. Held: the plaintiffs had waived the initial stipulation making time the essence of the contract. 672.  (ii) where it was not originally stated to be but has been made so by one party by giving reasonable notice to the other.  (3) whether the contract has been superceded by a new contract and the original contract has been waived and the defendants discharged from liability. and. On the first issue. a decision approved and affirmed by the Federal Court. which is equivalent to M$23. if so.  (iii) one unit of 12 Spindles Rewinding machine.58 being twenty per cent of the agreed purchase price of the said machinery at the request and on the demand of the defendants. Japan (hereinafter referred to as "the Japanese manufacturers") agreed to sell and the plaintiffs agreed to buy the said machinery at a price of £3. 1968 by which the defendants as the sole agent of Chubu Machinery & Co. What is the evidence in the present case? First. the general principles as to time being the essence of the contract have been dealt with by Gill J.  (ii) one unit Stretching machine including slitter.I.362. MOHAMEDAZMI J The plaintiff firm claim for damages for breach of contract for non-delivery of one complete set of "CHUBU" Polyethylene Stretched Tapes Making Machine comprising of the following:–  (i) one unit CS40 Extruder with TK650 Take-Up Unit. the plaintiffs paid a sum of $4.F.CIVIL SUIT DA Devadason for the plaintiffs. and  (iii) where from the nature of the contract or of its subject matter time must be taken to be of the essence of the agreement. whether the plaintiffs have suffered damage in consequence thereof. It is also not in dispute that the balance of the purchase price of $18.690. LST/ 026 dated May 17.32 was to be paid to the defendants on delivery of the said machinery. 1968 pursuant to the said contract and in consideration of the delivery of the said machinery.  (iv) one unit of "TORRI" Brand 6 Spindle Balling Machine. The main issues in this case are:–  (1) whether time is of the essence of the contract. who has failed to perform the contract with sufficient promptitude. The action is based on contract of sale No. Peter Yeoh (Chew Biman with him) for the defendants.90. The three situations in which his Lordship had considered time to be the essence of the contract are:–  (i) where the parties have expressly stipulated in the contract that it shall be so. (as he then was) in the case of Tan Ah Kian v Haji Hassan [1962] MLJ 400 402 approved and affd [1963] MLJ 175. there is the C.170. Ltd. of Osaka. On the pleadings it is not in dispute that on June 12.  (2) whether there is a breach of the contract by the defendants. contract document itself which 1972 1 MLJ 21 at 22 . Foo Ming Plastic Co. 1968." From these correspondence." The above dictum was approved by Raja Azlan Shah J. after having stipulated that shipment should be "during July 1968" and delivery in August 1968.W. said: "But if time be made of the essence of the contract. please open the L/C to-day as you promised and let me know the exact date of the machines arrived. that the said machinery was to be shipped from Japan "during July 1968". and if the time is once allowed to pass. 1968. Under such reports from them we think that if the Machines which we ordered are the same as Messrs. he may in a reasonable manner give notice to the vendor. For the determination of this issue. and that from Japan to Port Swettenham." The next relevant letter was dated September 23. in the present case. and fix a period at which the business is to be terminated. the plaintiffs allowed the time to pass and continued to negotiate. presumably irrespective of whether or not they were satisfactory. in Wong Kup Sing v Jeram Rubber Estate Ltd [1969] 1 MLJ 245 where His Lordship held that "once time for completion was allowed to pass and the parties went on negotiating time was no longer of the essence of the contract …" Similarly. in explaining why shipment should be during July 1968 when the contract was made on May 17. Foo Ming Plastic's model. Lam Seng have clearly stated to us that the same Machines which they bought from you was not given them satisfaction and they now want you to deffer shipment of our Machines. Further.. shipment would take three to four weeks. Sir R. Having found that time is the essence of the contract. In other words. the next issue to be determined by the court is whether there was a breach of contract by the defendants.W. and from the surrounding circumstances there is no evidence to suggest it was not the intention of the parties to make time of shipment "during July 1968" and time of delivery some time in August 1968 the essence of the contract. Although there is no stipulated time as to delivery in the contract itself. 1968 from the plaintiffs to the defendants as follows: "We acknowledged receipt of your letter and we confirmed we wanted the machines as Messrs.specifically provides that shipment of the said machinery should be "during July 1968". on the other hand. 1968 from the plaintiffs to the Japanese manufacturers wherein the plaintiffs asked the actual date of shipment of the machinery and other particulars relating to the machines. so that you can remodify them to your best ability. This was in answer to the query made in Exhibit B1 as to the time taken by sea from Osaka to Port Swettenham.W. 1968 – again written by the plaintiffs to the Japanese manufacturers wherein they stated as follows: "Messrs. shows he agreed that up to September 9. we will want you to ship immediately. Secondly. D. and the parties go on negotiating for completion of the purchase. namely.C. while the negotiations are going on.W. it must be borne in mind that a purchaser is not bound to wait an indefinite time. there is the admission made by D. 1968 referred to above (Exhibit C11). that may be waived by the conduct of the purchaser. 1968 written before the contract was concluded by the Japanese manufacturers in which it was stated that shipment of the machinery would take two to three weeks. the manager of the plaintiff firm. Foo Ming Plastic. This is supported by documentary evidence as contained in the agreed bundles of documents." From the above evidence. In my view. the plaintiffs allowed the time of shipment and delivery to pass because they knew that the machines which they had ordered might be defective and it was only when they sent the letter of September 23. Therefore.2 in their evidence that shipment of the machinery was supposed to be during July 1968. That accounts for the difference in time between ordering in May and shipping in July 1968. it is clear that there is an initial stipulation making time of the essence of the contract between the plaintiffs and the defendants. But. that a long time will elapse before the contract can be completed. The first relevant letter was dated August 10. 1968 negotiation was still going on between the parties and also between the plaintiffs and the Japanese manufacturers not only regarding date of shipment and delivery of the machinery but also the type or model of the machinery to be delivered. I am satisfied that there is a stipulation in the contract itself making time of the essence of the contract.2 said: "Normally it takes two to three months to assemble machines in Japan for shipping. there is the letter dated April 26. Finally. The second letter was dated September 9. and if he finds.1 and D. then time is no longer of the essence of the contract. 1968 negotiation was still going on between the parties. it is stated in Exhibit B2 that it will take two to three weeks for . it is necessary to pursue the events that took place after the contract was concluded on May 17.1. that they finally made up their mind and confirmed that they wanted the machines similar to Messrs. I find that even up to September 23. Malins V. The evidence of P. In Webb v Hughes (1870) LR 10 Eq 281 at p 286. but no time was specified within which shipment or delivery should be made.2. before taking the present action for breach of contract. there was no novation in this case. by virtue of section 114(g) of the Evidence Ordinance. I accept the plaintiffs' story that the alleged new agreement was merely a proposal by the Japanese manufacturers which was never accepted.W. In my opinion. waived the stipulation as to time. after confirming by letter dated September 23. Solicitors: DA Devadason. In the present case. in Charles Rickards.1 and P. they have. the time became at large and that thereupon the defendants' only obligation was to deliver within a reasonable time. the promisee after waiving that initial stipulation was entitled to give a reasonable notice making time of the essence of the matter.Claim dismissed.shipment from Japan to Malaysia. 1968 as the relevant date. 1968 the plaintiffs made enquiry when the machinery would be delivered.W. find that the defendants have not committed a breach of contract for non-delivery of the machinery. if the plaintiffs had wanted to make time again of the essence of the contract. for the time of shipment has plainly been exceeded. In my view. 1968 at the latest. In the absence of such a notice. I find the present action is misconceived and premature. Further. The alleged oral agreement at Metro Restaurant had been vehemently denied by P. But. By indulging in further negotiations and at the same time by pressing for time of shipment and delivery. 1968 unreasonable? I do not think it was unreasonable under the circumstances of the present case. it was unreasonable for the plaintiffs to terminate the contract and to demand damages on November 5. Taking the time of shipment at the end of July 1968. in my view. when time is no longer the essence of the contract. they should have given the defendants a notice fixing a reasonable time for the shipment and delivery of the machinery. if it were true that the plaintiffs had entered into the alleged new agreement on or about September 23. Instead. Taking September 23. I. Thus.2 that it would normally take two to three months to assemble such machines in Japan for shipment. Ikushima or his representative had been called he would have given evidence against the defendants. Ltd v Oppenheim [1950] 1 All ER 420. The stipulated time having been waived. I am satisfied from the evidence that after discovering that the terms of the Japanese offer were less favourable than those in the original contract the proposed contract was never in fact executed. to my mind. but they did not do so. There is insufficient evidence to prove that the Japanese manufacturers had agreed either verbally or in writing to take over the legal obligation of the defendant firm. the plaintiffs should have given reasonable notice to the defendants requesting delivery within a stated period. 1968 at Metro Restaurant superceding the original contract between the plaintiffs and the defendants. Exhibit C11 is insufficient to constitute the requisite notice. technically acting in breach of the contract and. On the contrary. I do not accept the evidence of the defence witnesses that the plaintiffs had entered into an oral agreement with the Japanese manufacturers some time between 23rd and 27th September. The exchange of letters between the plaintiffs and the Japanese manufacturers between October 8 and November 1. 1968 clearly indicates that there was a negotiation between them during this period for the plaintiffs to purchase the machinery direct from the Japanese manufacturers. The defendants' witnesses. Whatever might have been the period of shipment is immaterial. was the failure of the defendants to deliver the machinery by November 5. the plaintiffs appeared to have negotiated direct with the Japanese manufacturers leaving the defendants temporarily out of the picture. alleged that shipment would take three to four weeks. 1968. in fact. On this issue. 1968. In my view. The original stipulation in regard to time having been waived by the plaintiffs. and as no representative of the Japanese manufacturers had been called to give evidence. Foo Ming Plastic. On the balance of probabilities. This is unmistakably shown in the translation of Exhibit C15 dated October 30. what is a reasonable time is a question of fact to be decided on the circumstances of each case. the two or three weeks period would be up on or about August 21. In Exhibit C11 dated September 23. I would presume that if Mr. The plaintiffs could have cancelled the contract there and then when the machinery was not shipped from Japan by the end of July 1968. Chew Biman & Co . why should the plaintiffs on the same date request the defendants by letter to execute the order as contained in Exhibit C11. whether the contract was for sale of goods or for work and labour. 1968 that they wanted the type of machines as supplied to Messrs. therefore. one and a half months cannot constitute delay on the part of the defendants in the face of the 1972 1 MLJ 21 at 23 unchallenged evidence of D. the plaintiffs had not given any such notice to make time again the essence of the contract. by issuing the notice of action the plaintiffs were. however. in my view.W. 1968. In my view. In the present case. it was held that where there was an initial stipulation making time of the essence of the contract. (3) in thcircumstances the plaintiff had made out a case for specific performance ofthe contract. (2) in this case the notice of abandonment dated November 15. Cases referred to Barclay v Messenger (1874) 30 LTR 354 Kilmer v British Columbia Orchard Lands Ltd  [1913] AC 319 322 Webb v Hughes (1870) LR 10 Eq 281 286 Stickney v Keeble [1915] AC 386 423 Tilley v Thomas LR 3 Ch D 61 Ardeshir v Flora Sasson AIR 1928 PC 523 Mayson v Clouet [1924] AC 980 Howe v Smith (1884) 27 Ch D 89 In re Dagenham Thames Dock Co LR 6 Ch D 1022 Stockloser v Johnson [1914] 1 QB 476 at p 496 Steedman v Drinkle [1916] AC 276 Richards v Oppenheim [1960] 1 KB 616 at p 622 . 1967.WONG KUP SING v JERAM RUBBER ESTATES LTD OCJ KL RAJA AZLAN SHAH J CIVIL SUIT NO 68 OF 1968 21 March 1969 Contract — Agreement for sale of land — Time made essence of contract — Reasonable notice of abandonment required — Specific performance The plaintiff claimed specific performance of an agreement of sale of a rubber estate entered into between him and the defendants or in the alternative for damages or rescission of the contract. insisting that the purchase be completed on the same day. 1967. As completion was not made on that day. they wrote to the plaintiff to say that the agreement was terminated. Subsequently the plaintiff offered to complete the contract but the defendants refused. Held: (1) once the time f the essence of the contract and the defendants must give reasonable notice of their intention to abandon the contract if the balance is not paid. but at the request of the plaintiff the defendants had consented to extension of time for completion on six separate occasions. Eventually the defendants through their solicitors wrote to the plaintiffs on November 15. was not a reasonable notice and the contract had not been terminated. Under the agreement time had been made the essence of the contract. taking the view that the contract was at an end. 000 (10% of the purchase price) making a total forfeitable deposit of 20%.000 thereby making a total forfeitable deposit of $300.000 by post-dated cheques which were honoured.000. agreed to buy the said land at the price of $950. (5) The date of completion was further extended to 30th September 1967 by an exchange of letters between the plaintiff's then solicitor and the defendants' agents dated 30th August 1967 and 12th September 1967 respectively.000 on 15th November respectively.5 acres comprised in Lease of State Land No. a landed proprietor.000 on 30th September 1967. This was also by a post dated cheque of the above-stated date. The plaintiff paid the first three instalments amounting to $350. alternatively damages for breach of contract and in the further alternative rescission of the contract and payment of sums totalling $650. The balance of the purchase price was to be paid on 30th November 1966. The plaintiff as was required by clause 1 paid a sum of $95. At the request of the plaintiff the defendants consented to extension of time for completion on six separate occasions on the following terms and conditions:– (1) In consideration af a further forfeitable deposit of $95. the date of completion was extended to 31st January 1967 by an exchange of letters between the plaintiff's then solicitor and the defendants' solicitors dated 25th November 1966 and 1st December 1966 respectively. $100.. the final instalment to complete the purchase.000 the date of completion was extended to 31st March 1967 by an exchange of letters between the plaintiff's then solicitor and the defendants' agents dated 20th February 1967 and 23rd February 1967 respectively. RAJA AZLAN SHAH J The plaintiff claims specific performance of an agreement for sale of a rubber estate totalling 607. on or before the execution of the said agreement. On 13th November 1967 the plaintiff's then solicitor made proposals to the defendants' agents for extension of time up to 31st December 1967 to complete the purchase. .000 was to be paid by four instalments of $100. (3) In consideration of the payment of a further forfeitable deposit of $100.000 on the terms and conditions set forth in the agreement. By the said agreement dated 4th June 1966 the defendants. 10% of the purchase price by way of forfeitable deposit.000.000 on 13th October 1967.000 thereby making a total forfeitable deposit of $200. 1468 for Lot 2813 situate in the Mukim of Sungei Buloh in the District of Kuala Lumpur. $150. a limited liability company registered in the United Kingdom with Malayan Estate Agencies Group Limited as their agents (hereinafter referred to as the "defendants' agents") agreed to sell and the plaintiff. the date of completion was extended to 15th May 1967 by an exchange of letters between the plaintiff's then solicitor and the defendants' agents dated 31st March 1967 an 2nd May 1967 respectively.000 on 30th October 1967 and $300. (4) The date of completion was later extended to 30th June 1967 vide the defendants' agents' letter dated 26th May 1967.e. the date fixed for completion of the purchase (clause 2) and by clause 17. (6) The date of completion was finally extended to 15th November 1967 by an exchange of letters dated 30th September 1967 and 2nd October 1967 whereby the balance of the purchase price amounting to $650. We now come to the crux of the matter i.e. time wherever mentioned was expressly made of the essence of the contract.000 i. (2) In consideration of the payment of a further forfeitable deposit of $10.. DG Rawson for the defendant.1969 1 MLJ 245 at 246 CIVIL SUIT WH Sault ( Thara Singh Sidhu with him) for the plaintiff. The defendants' agents consulted their principals in the United Kingdom and on 15th November 1967 they wrote to the plaintiff's then solicitor informing him that their principals were not willing to grant the plaintiff any further extension of time and insisted that the purchase be completed by noon of that day or the agreement be terminated and his deposits forfeited. Kindly let us hear from you by return either by express letter or telephone so as to enable our client to purchase the banker's draft and hand it over to Mr." Mr.000 as the plaintiff had telephoned them asking them not to pay it into their principal's bank account as there were insufficient funds to meet it and added "It is now 12. xx xx xx xx 3. The question to be considered is.000 without prejudice. when your Mr.000 and the balance of $300.000 cheque sent with your letter of the 23rd November. Time wherever mentioned in this agreement shall be of the essence of the contract. Sault stressed that the purchaser did not require further time. The correspondence and dealings beween the parties down to and including 15th November 1967 confirm this view. being the balance of the purchase price and to return your clients' cheque of $350. was time originally of the essence of the contract? There can be no doubt that it was. On 11th December 1967 the plaintiff engaged his present solicitors who reviewed the legal position and on 23rd December 1967 they wrote to the defendants' solicitors. and nothing more. and to await instructions from London whether or not they should complete. Sault in time. We request you to produce for his inspection all the relevant title deeds and on being satisfied Mr. but 1969 1 MLJ 245 at 247 retained the sum of $300. Mr. the $300. we are now treating the agreement as terminated. On our instructions our client has not banked the $300. Barrington Baker informed him that he had instructions to accept the draft for $300. They returned the plaintiff's post-dated cheque for $300.On the same day the plaintiff's then solicitor wrote to the defendants' agents proposing a settlement of the final payment by giving the plaintiff time till 31st December 1967 on payment of the normal bank interest till that date or on the date of earlier payment and the defendants taking a mortgage of the said lands for the balance on such term and such rate of interest as shall be mutually agreed upon on the transfer of the property to the plaintiff and further drawing their attention to their letter of 4th July 1967 whereby they had agreed to offer an extension of the date of completion to 31st December 1967 provided the forfeitable deposit was in the sum of $350." But that had been waived by the conduct of the defendants. is only waiver to the extent of substituting the . It is of significance to note that the said offer was rejected by the plaintiff by their letters of 17th July 1967 and 27th July 1967.m. If I may recapitulate the words of Sir George Jessel in Barclay v Messenger(1874) 30 LTR 354 :– "It appears to me plain that a mere extension of time. The letter from the plaintiff's solicitors dated 4th January 1968 confirmed this:– "We confirm Mr.000.H. upon receiving a letter from you stating that the vendor would complete. Sault did call at the defendants' solicitors' office on 30th December 1967. 5. Time then was no longer of the essence of the contract.30 p. I do not know how it could have been more strongly expressed than this: "Clause 17." On 23rd November 1967 the defendants' solicitors by letter refunded the sum of $350. 1967. and as your client has not completed the purchase. Sault's call upon you on Saturday 30th ultimo. W.000 would be paid forthwith. inter alia:– "4. Under the circumstances we have instructed Mr. Sault to call upon you on the 29th or 30th to suit your conveniences and to tender a bankers draft for $300. Sault will deliver to you the relevant Memorandum of Transfer of the land for your clients' signature and return.000 being the total of forfeitable deposits paid." The situation on the 15th November 1967 was the defendants' solicitors considered the agreement was at an end and the discussions which took place between the parties' solicitors constituted a completely new offer to negotiate without prejudice to the defendants' rights under the terms and conditions of the original agreement.000.000 (by cheque) being part of the monies received by the defendants to account of the purchase price which is not forfeitable. The defendants' agents replied on the same day (15th November 1967).000 to be paid on or before 31st December 1967. The defendants by their indulgence in extending the date for completion on not less than six occasions have lulled the plaintiff into a sense of false security and have justified him in assuming that he would be given reasonable time to complete the contract." ln that case the purchases were obliged to pay the balance of the purchase price on 31st July in default all previous payments would be forfeited and the agreement considered null and void. It is also of significance to note that in all the six extensions negotiations were continued after the extended dates fixed for completion and this conduct on the part of the defendants justified the plaintiff in assuming that he would have some indulgence in making his payments: (Kilmer v British Columbia Orchard Lands Ltd  [1913] AC 319 322). made their stand. In my view this further confirms the plaintiff's continuous readiness and willingness to perform the contract. a waiver if the terms were complied with. In the circumstances I will order specific performance. Mr. Stickney v Keeble  [1915] AC 386 423). Another factor in his favour is that he has averred and proved a continuous readiness and willingness to perform the contract from the date of the contract to the time of hearing: (Ardeshir v Flora Sasson AIR 1928 PC 523). but after going on negotiating they should have given a reasonable notice: (Tilley v Thomas LR 3 Ch D 61).extended time for the original time. Once the time for completion was allowed to pass and the parties went on negotiating. The net result is that the contract was never terminated and it would follow that the plaintiff was not in default. Delamore & Co . then time was no longer of the essence of the contract and the defendants must give a reasonable notice of their intention to abandon the contract if the balance of the purchase money was not paid: (Webb v Hughes (1870) LR 10 Eq 281 286.000 as stipulated in the original agreement. and willing to deposit the balance of the purchase money into court on any day specified. and not an utter destruction of the essential character of the time. that is. It must be remembered that the ground upon which a court of equity enforces specific performance of a contract affecting land is that it acts upon the equities arising out of the changed position caused by the acts of the parties done in execution of the contract and not upon the contract itself. In my opinion since time was no longer of the essence. Now two days prior to 15th November 1967 the plaintiff put in new proposals to extend the date to 31st December 1967. It was submitted on their behalf that the letter of the 16th August written by the vendors to them constituted waiver.000 as compared with $95.. 1969 1 MLJ 245 at 248 Has the plaintiff made out a case for specific performance? I say he has. The purchasers neither commenced works nor paid the money. that is the forfeitable deposit made from time to time was increased to the extent of $300. Sault from the Bar did say on the date of hearing that his client was ever ready. the notice of abandonment dated 15th November 1967 was not a reasonable notice. This is confirmed by the negotiations between the parties down to and including 30th December 1967. the original date for completion. their decision would have been that time was of the essence and it would have been proper for them to give notice on the day fixed for completion that they would abandon the contract. Shearn. Sir George Jessel expressed the view that it was a qualified waiver.e. Keith Sellar & Co. If the defendants had on the very day of 30th November 1966 i. The terms of that letter were either commencing works as promised or paying the balance of the purchase money. Solicitors: Sault. Specific performance ordered. It would therefore be inequitable. in view of the dealings which had taken place between the parties. There were no doubt further negotiations after 15th November 1967 but they were entered into without prejudice to the defendants' rights under the original agreement. That was not acceptable to the defendants who on 15th November 1967 made their final stand and abandoned the contract when the plaintiff failed to pay the balance of the purchase money. In our case it was an extension of time and something more. to allow the defendants to enforce his strict legal rights against the plaintiff which he had been led to believe would not be enforced against him. or certain things at or before specified times. . (1) When a party to a contract promises to do a certain thing at or before a specified time.CONTRACTS ACT 1950 (ACT 136). unless. the contract. in case of a contract voidable on account of the promisor’s failure to perform his promise at the time agreed. if the intention of the parties was that time should be of the essence of the contract. Contracts (Amendment) ACT 1976 (A329) & Government CONTRACTS ACT 1949 Effect of failure to perform at fixed time. at the time of the acceptance. in contract in which time is essential 56. and fails to do any such thing at or before the specified time. the promisee cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed. he gives notice to the promisor of his intention to do so. becomes voidable at the option of the promisee. Effect of acceptance of performance at time other than that agreed upon (3) If. the promisee accepts performance of the promise at any time other than that agreed. or so much of it as has not been performed. (1) In any criminal or civil proceeding a document produced by a computer. . whether or not the person tendering the same is the maker of such document or statement. or a statement contained in such document. and of statements contained therein 90A.EVIDENCE ACT 1950 Admissibility of documents produced by computers. shall be admissible as evidence of any fact stated therein if the document was produced by the computer in the course of its ordinary use. Chitty on Contracts (24th edition) (paragraph 674) put it this way: "An assurance given in the course of negotiation may therefore give rise to a contractual obligation. WAN SULEIMAN & SALLEH ABAS FJJ FEDERAL COURT CIVIL APPEAL NO 169 OF 1978 11 December 1979 Landlord and Tenant — Written agreement of tenancy — Oral agreement to allow tenants to occupy premises for so long as they wished on payment of tea money — Dispute as to rent — Action by landlord for possession — Tenants entitled to stay in premises as long as they wished — Whether evidence of oral agreement can be given — Evidence Act. The device of collateral contract does not offend the extrinsic evidence rule because the oral promise is not imported into the main agreement. 91 & 92 In this case on the facts found by the learned trial judge the appellants had orally agreed to allow the respondents to occupy the premises for as long as they wished on payment of $14. 1950. Held:  (1) an oral promise. In their defence the respondents claimed that under the oral agreement they were entitled to stay in the premises as long as they wished and so long as they paid the rent regularly. 1950. A dispute arose as to payment of rent and the appellants eventually sued for vacant possession. arrears of rent. given at the time of contracting which induces a party to enter into a contract overrides any inconsistent written agreement. ss. Although it is trite law that parol evidence is not admissible to add to. Two written agreements of tenancy were later executed but they did not refer to the appellants' promise.40 per month in the light of the increase of assessment. 91 & 92 Evidence — Written agreement of tenancy — Earlier oral agreement that tenants could occupy premises for as long as they wished on payment of tea money — Whether admissible — Collateral contract — Evidence Act. 91 & 92 Contract — Written contract — Collateral oral contract — Proof of — Evidence Act. 1950. The rules of evidence. The learned trial judge dismissed the appellant's claim and ordered the appellants to register a lease in favour of the respondents for 28 years. vary or contradict a written agreement. mesne profits and damages. provided that an intention to be bound can be shown. He assessed the rent at $293.[1980] 2 MLJ 16 TAN SWEE HOE CO LTD v ALI HUSSAIN BROS FC JOHORE BAHRU RAJA AZLAN SHAH CJ (MALAYA).  (2) in this case the learned trial judge was correct in giving effect to the oral agreement and in interpreting it to give the respondents a lease of 28 years from the date of the agreement. ss.000 as tea money. a technical way of overcoming the rule is by invoking the doctrine of collateral contract or collateral warranty. Instead it constitutes a separate contract which exists side by side with the main agreement. frequently prevent such an assurance from being incorporated as part of a subsequent written agreement. ss. however. The appellants appealed and the question that arose was whether the evidence of the oral promise could be given in view of sections 91 and 92 of the Evidence Act. since . and it actually induces him to act on it by entering into the contract. in our opinion. . that isprima facie ground for inferring that the representation was intended as a warranty. both on principle and on authority. they will do so where one party refuses to enter into the contract unless the other gives him an assurance on a certain point. Suffice it that the representation was intended to be acted on and was in fact acted on. fortified this not unfamiliar doctrine. Singham & Co. that there may be a contract the consideration for which is the making of some other contract. The classic statement on collateral contract was made by Lord Moulton in Heilbut Symons & Co v Buckleton  [1913] AC 30 47." The case of City and Westminster Properties (1934) Ltd v Mudd  [1959] Ch 129 and the subsequent applications of it has. it seems to me that if a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act on it. We think Lord Denning M. is in every sense of the word a complete legal contract.extrinsic evidence is as a general rule not admissible to vary or add to the terms of a written contract.R. "It is evident. the courts have been prepared in some circumstances to treat the assurance as a separate contract. As a result. In particular. Ltd  [1965] 2 All ER 65 67 : "Looking at the cases once more. It is not necessary to speak of it as being collateral. but each has an independent existence." Appeal dismissed." In our view there is a growing body of authority which supports the proposition that a collateral agreement can exist side by side with the main agreement which it contradicts. Ltd v Harold Smith (Motors). 'If you will make such and such a contract I will give you one hundred pounds'. Solicitors: Goh Soot Hwang & Co. as we have done so often. and they do not differ in respect of their possessing to the full the character and status of a contract. summarised it in Dick Bentley Productions. It is collateral to the main contract. collateral to the main transaction. After two months. especially in cases where it 1993 3 MLJ 433 at 434 contradicts the terms of a written contract. The defendant sought to rely on an 'oral collateral warranty' given by the plaintiff to the effect that if the excavators were found to be unsuitable. on the ground that they were not suitable for the purpose for which were bought. Held. they could be returned to the plaintiff without incurring any financial liability. the breach of a collateral contract only gives rise to an action for damages and not a right to repudiate the main contract. and does not give the party the right to repudiate the contract. the defendant requested the plaintiff to take back the excavators. the breach of which only entitles the party to sue for damages. The burden of proving the existence of a collateral contract is on the party alleging its existence and the mere fact that the . granting only nominal damages to the plaintiff:  (1) Here.[1993] 3 MLJ 433 INDUSTRIAL & AGRICULTURAL DISTRIBUTION SDN BHD v GOLDEN SANDS CONSTRUCTION SDN BHD HIGH COURT (KUALA LUMPUR) VISU SINNADURAI J CIVIL SUIT NO C 2295 OF 1982 17 August 1993 Contract — Breach of contract — Unsuitability for particular purpose — Whether buyer's refusal to proceed due to misconstruction of contract or erroneous belief amounted to repudiation — Contracts Act 1950 s 40 Contract — Breach of contract — Anticipatory breach — Whether seller could treat buyer's request to take back goods sold and delivered before payments were due as anticipatory breach of contract — Sale of Goods Act 1957 s 60 Contract — Collateral warranty — Whether oral representation was a collateral warranty or collateral contract — Whether buyer could rely on oral collateral contract to terminate main contract — Whether buyer only entitled to damages for breach of oral collateral contract Contract — Damages — Measure of damages — No proof of damage — Nominal damages Evidence — Burden of proof — Oral collateral contract The defendant purchased two units of excavators from the plaintiff and used them on its worksite. and the plaintiff brought an action for damages for. the defendant was not suing for damages based on the oral statement allegedly made by the plaintiff but was seeking the right to terminate the contract. the depreciation in value of the excavators as a result of the defendant's use of the excavators during the two-month period. the term could not be interpreted to mean a collateral warranty but should be taken to mean a collateral contract. There was a dispute as to whether such a collateral condition actually existed. Similarly. inter alia. An oral collateral warranty is merely a term of a contract. Therefore.  (2) A cautious approach is adopted by the courts in recognizing the existence of a collateral contract.  (3) Moreover. If the defendant was allowed to return the excavators without incurring any financial obligation to the plaintiff.  (4) There was insufficient evidence to establish that the excavators which were supplied by the plaintiff were unsuitable for the defendant's purpose. [1976] 2 WLR 583 (refd) J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 2 All ER 930 (refd) . the main contract becomes meaningless as the defendant would no longer be under any obligation to buy the excavators under the main contract. The defendant had not established any other evidence. However. There cannot be a collateral contract without the main contract being in existence. see 3 Mallal's Digest (4th Ed) paras 833 and 834. Here.  (5) The action of the defendant when it indicated to the plaintiff that it did not wish to proceed with the purchase of the two excavators and requesting the plaintiff to take them back. see 3 Mallal's Digest (4th Ed) paras 1044-1046. see 3 Mallal's Digest (4th Ed) para 952. What in fact was supplied to him was the exact model of the excavators as ordered. the defendant may bring an action against the plaintiff for misrepresentation. The act of the defendant clearly amounted to one which the plaintiff could treat as an anticipatory breach of the contract. as often is the case in collateral contracts. that the plaintiff gave an assurance that the two excavators were capable of bearing the weight of the 1. by its very nature exists side by side with the main contract. a collateral contract. Obiter: It would have been different. It does not have the effect of substituting the main contract.8 cu yd buckets as well as the 1. Cases referred to Esso Petroleum Co Ltd v Mardon [1976] 2 All ER 5. The defendant knew the nature and capability of the excavators that were ordered by it. the court was unable to grant any damages except by way of nominal damages. In such a case. other than his own bare assertion that it was unsuitable. but such rights must be related to the rights and obligations of the parties under the main contract. 1993 3 MLJ 433 at 435 Notes For a case on collateral contracts.  (6) There was no proof of any actual depreciation of the machines and therefore. Therefore.2 cu yd buckets. A collateral contract merely confers other rights which are not incorporated in the main contract. if the defendant had alleged.defendant deemed it rightful for him to return the two excavators to the plaintiff did not establish the existence of such a collateral contract. For cases on damages. the effect of the alleged collateral contract would be to obliterate the main contract of sale or to convert it into a conditional contract. clearly went to the root of the contract of sale and amounted to a repudiation of the contract as it evinced an intention not to proceed with the contract for sale. or breach of condition or warranty under the collateral contract. For cases on anticipatory breach of contracts. any representation made by a party to the contract which has the effect of destroying the main contract. [1976] QB 801. there was clearly an agreement between the parties for the sale and purchase of the two excavators. cannot become a collateral contract. if the defendant's contention was accepted. . [1958] 3 WLR 312 (refd) Kandasami v Mohamed Mustafa [1983] 2 MLJ 85 (refd) Heilbut. Eggar & Co [1896] 2 QB 59 (refd) Hoyt's Pty Ltd v Spenser (1919) 27 CLR 133 (refd) Lysnar v National Bank of New Zealand Ltd [1935] NZLR 129 (refd) City and Westminster Properties (1934) Ltd v Mudd [1958] 2 All ER 733. [1959] Ch 129. [1957] 2 WLR 528 (folld) Luna Park (NSW) Ltd v Transways Advertising Pty Ltd (1938) 61 CLR 286 (folld) 1993 3 MLJ 433 at 437 ET Low (MP Rajah & ET Low)for the plaintiff. [1978] 3 WLR 991 (folld) Federal Commerce and Navigation Ltd v Molena Alpha Inc & Ors [1978] 3 All ER 1066. [1987] QB 301. [1980] 1 WLR 277 (refd) Charter v Sullivan [1957] 1 All ER 809. [1978] 2 WLR 515 (refd) Tan Chong & Sons Motor Co Sdn Bhd v Alan McKnight [1983] 1 MLJ 220 (refd) Tan Swee Hoe Co Ltd v Ali Hussain Bros [1980] 2 MLJ 16 (refd) Gillespie Brothers & Co v Cheney. [1953] 3 WLR 923 (folld) Commission Car Sales (Hastings) Ltd v Saul [1957] NZLR 144 (folld) Sio Koon Lin & Anor v SB Mehra [1981] 1 MLJ 225 (distd) FC Shepherd & Co Ltd v Jerrom [1986] 3 All ER 589. The plaintiff's claim is for the loss of the depreciated value of the two excavators which were recovered by the plaintiff from the defendant as a result of the repudiation of the contract by the defendant for the sale of the excavators. Gurbakhash Singh and Sheena Gurbakhash (Gurbakhash & Tan) for the defendant. [1979] AC 757. [1978] DEFAUL QB 574. VISU SINNADURAI J Facts The plaintiff's action against the defendant is for damages for breach of contract arising from the sale of two new units of excavators sold by the plaintiff to the defendant. [1954] 1 QB 292. [1978] 3 WLR 309. [1986] WLR 801 (refd) Federal Commerce and Navigation Ltd v Molena Alpha Inc & Ors [1979] 1 All ER 307. Symons & Co v Buckleton [1913] AC 30 (refd) Cullinane v British 'Rema' Manufacturing Co Ltd [1953] 2 All ER 1257.Howard Marine & Dredging Co v Ogden & Sons (Excavations) [1978] 2 All ER 1137. [1978] QB 927 (folld) Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 All ER 571. [1957] 2 QB 117. the defendant was justified in returning the excavators to the plaintiff and in refusing to pay the purchase price. the plaintiff removed the two excavators from the defendant's site on 14 November 1982.000 was given by the plaintiff to the defendant towards the cost of the price of the two units of excavators. the plaintiff had suffered loss and damage. In its statement of claim. had not disputed the fact that it had agreed to purchase the two new excavators and that the excavators were in fact delivered to the defendant as stated by the plaintiff. and on 28 September 1982. without having to pay the plaintiff any sum of money. and 1993 3 MLJ 433 at 439 (v) the quantum of damages the plaintiff is entitled to. the two excavators were not capable of bearing the weight of the 1. Both the excavators were delivered to the worksite of the defendant. (ii) whether. in its defence. model 160CK at the price of RM290. The plaintiff alleged that as a result of the failure of the defendant to pay the cost of the two new units of excavators and the rentals for the other two units of excavators. Pursuant to a letter written by the defendant to the plaintiff. if there has been a breach of the contracts. the second unit was delivered to the defendant. whereby the defendant informed the plaintiff to take the machines back from the defendant's site. if there was no evidence of the existence of such a warranty. informed the plaintiff that the new excavators were found to be unsuitable for its purpose. . (iii) whether. 1993 3 MLJ 433 at 438 The plaintiff in its statement of claim avers that by two agreements dated 23 August 1982. amongst other reasons. The defendant in his letter to the plaintiff. however. the plaintiff agreed to sell two new units of the Poclain hydraulic excavator.The plaintiff's claim against the defendant is also for the recovery of rentals for two other units of excavators. A discount of RM20. the plaintiff delivered to the defendant one unit of the excavator.000 each. the defendant requested the plaintiff to take the excavators back. The defendant alleged that acting under an oral collateral warranty given by the plaintiff to the defendant to the effect that if the defendant found the excavators delivered to it to be unsuitable. (iv) whether. the plaintiff particularizes the damage suffered as a consequence of the defendant's breach. the defendant's refusal to pay for the excavators amounted to a repudiation of the contract. the defendant could return them to the plaintiff without incurring any financial obligations. if it has been established that there was such an oral warranty. On 21 September 1982. contends that the two excavators delivered by the plaintiff were not suitable for the purpose for which they were purchased as.8cu yd buckets which had been fitted to the excavators. namely. The defence The defendant. one new unit of the 115CL Poclain excavator and one used unit of the 90CL Poclain excavator which the plaintiff alleges were rented to the defendant. The defendant. the plaintiff is entitled to receive rentals for the two other machines. The issues The issues before the court are rather straightforward and they are as follows: (i) whether the defendant has established that the plaintiff did make the oral collateral warranty as asserted to by the defendant. the witness said he was unaware of any discussion between the defendant and the sales manager of the plaintiff's company. When asked whether the excavators were fit for the purpose for which they were bought. Mr Ang had told him that if the excavators could not be fitted with 1. a bigger bucket of 1.8cu yd buckets. the plaintiff would take the excavators back. The trial proceeded as scheduled during the three days. and that at no time did the defendant inform him as to the unsuitability of the excavators.2cu yd buckets and that. Plaintiff's witnesses The plaintiff's first witness. Mr Wong then added that when the plaintiff was aware that the excavators could not take the weight of the 1. The witness said that certain after-sales services were done on these two excavators.8cu yd buckets. In September 1988. the court was informed that there had been a change of solicitors and that the plaintiff was now represented by Messrs MP Rajah & ET Low. As a result. whereas the defendant's only witness was Mr Wong Siam Shin who was then the managing director of the defendant company. It appears that because of this delay. the plaintiff only produced two witnesses and the defendant only one. Mr Wong said that the excavators could not bear the weight when the 1. Mr Wong said in his evidence. He said that the excavators were initially fitted with 1. that he negotiated the sale for the purchase of the two excavators with one Mr Ang who was then the sales manager of the plaintiff company. However. Mr Santhasekran (PW1) said that he was the workshop manager of the plaintiff's company at the material time of the sale of the excavators. He said he was not aware whether Mr Ang had given any oral warranty to the defendant. He admitted that there were a number of breakdowns of the excavators and that a special team had been assigned by the plaintiff to be located at the defendant's site to rectify any technical problems to the excavators. This witness informed the court that two work orders were issued for the sale of the excavators to the defendant.The trial The plaintiff commenced the present action against the defendant sometime in late 1982. . The plaintiff's next witness. the parties had difficulty in locating their key witnesses. The case was set down for trial on 15 February 1993.8cu yd was fitted to each of the excavators. He said there were no major defects to the excavators and that only the hydraulic oil and hose had to be replaced. His job functions were to look after the after-sales operation of the excavators sold by the plaintiff. Mr Balakrishnan was an administrative executive in the plaintiff's company at the material time. He was then the administrative and credit controller. they took the excavators back. before this court. Mr Wong said that the sales manager. The plaintiff's witnesses were Mr Santhasekran (PW1) and Mr Balakrishnan (PW2). and the trial was fixed for 20. 22 and 23 April 1993.8cu yd buckets were fitted to them. one Mr Ang. 1993 3 MLJ 433 at 440 Defendant's witness The defendant only called one witness. He merely confirmed that the sale documents and invoices were forwarded to his department for collection. the request to set down the action for trial was made only on 12 June 1987. At the trial. at the request of the defendant and after consultation with the suppliers in France. I state this background as to the chronology of events leading to this trial to explain the delay of almost ten years before this trial was heard. Mr Wong said that he ordered two excavators fitted with buckets with the capacity of 1. namely Mr Wong Siam Shin who was then the managing director of the defendant company. the senior assistant registrar of the High Court informed the parties that the action had been entered in the trial book.8cu yd and that the terms of payment were as stated in the order forms (D1 and D2). During cross-examination. the breach of which only entitles the party to sue for damages and does not give the party the right to repudiate the contract. he then said that the 1. Mr Wong said that when the excavators were first delivered. the plaintiff had delivered two other units of excavators for the use by the defendant until the new excavators were delivered. it must be emphasized that the oral collateral warranty alleged by the defendant is that the plaintiff's then sales manager. and (vi) the plaintiff did take back the two new excavators. they were. however. He said that the plaintiff took back the excavators before the due date. that though the excavators were not suitable. is not a happy one. I should. in fact. the defendant was at liberty to return them to the plaintiff without incurring any financial obligation. The defendant. Sale of the new excavators I shall first deal with the plaintiff's claim regarding the sale of the two new excavators. (v) the defendant then informed the plaintiff that the new excavators were not suitable and therefore requested the plaintiff to take them back. Undisputed evidence The evidence before the court appears to have established the following facts: (i) the defendant agreed to purchase the two excavators. perhaps point out that the use of the term 'oral collateral warranty' by the defendant.8cu yd buckets which had been ordered were fitted to the excavators some ten days after they were delivered to the defendant.2cu yd buckets and not with the 1. (iv) the defendant did use the old excavators as well as the new ones for their operations. an oral collateral warranty. During cross-examination by the plaintiff's counsel. Traditionally. in its pleadings as well as in court.8cu yd buckets which had been ordered. they were fitted with 1. one fact is clearly not disputed by both the parties: the plaintiff agreed to sell the two excavators and that the defendant agreed to purchase the two excavators. had informed the defendant that if the excavators were found to be unsuitable. as the time for payment had not been due then. Lord Denning MR in Esso Petroleum Co Ltd v Mardon 1 stated (at p 13): . He admitted. Mr Ang. What. However. it was entitled under the oral collateral warranty given by the plaintiff to return the excavators without having to pay anything for them. The plaintiff asserts that the excavators that were supplied were in accordance with the terms that were agreed upon by the parties. (i) Whether the defendant has established the existence of a oral collateralwarranty The question as to whether the defendant has established the existence of an oral collateral warranty as to the suitability of the machines is relevant in determining whether the defendant had a right to return the two machines to the plaintiff. however. alleges that the excavators were not suitable for the purpose for which the defendant had bought them and.As for the payment for the excavators. is disputed is 1993 3 MLJ 433 at 441 whether the excavators that were supplied by the plaintiff were in accordance with the specifications requested for by the defendant. (iii) before the delivery of the said excavators. is merely a term of a contract. During re-examination. Again under cross-examination. as such. Mr Wong said that he had not used the excavators since 11 October 1982. (ii) the plaintiff delivered the said excavators. Mr Wong said that he wrote the letter to the plaintiff to take the excavators back only two months after it was delivered because he had verbally told Mr Ang earlier about its unsuitability. At this juncture. In this regard. I now consider the issue as to whether there was an oral collateral warranty. Mr Wong said that no payment had been made by the defendant's company. used by the defendant at its worksite. however. In Lysnar v National Bank of New Zealand Ltd 8. I do not intend to give a full discourse on the principles governing collateral contracts. Interpretation of Contracts(1989) para 2. the term cannot be interpreted to mean a collateral warranty as stated by Lord Denning MR. This device of collateral contract does not offend the extrinsic evidence rule because the oral promise is not imported into the main agreement. but] it is a presumption only. and may contend that the written contract was not intended to include all the terms. above. except to say that a cautious approach is adopted by the courts in recognizing the existence of a collateral contract. Similarly. The objective. however. Therefore. but not contradict the main agreement: see Lewison. Lord Russell of Killowen CJ said [at p 62]: '… when the parties arrive at a definite written contract the … presumption is … that [the writing was] intended to contain all the terms of their [contract. Lord Wright. In Gillespie Brothers & Co v Cheney. and but for which the main contract would not have been made.07. the defendant is not suing for damages based on the oral statement allegedly made by the plaintiff but is seeking the right to terminate the contract. the oral representations were held not to be contractual warranties. we have had to contend with the law as laid down by the House of Lords that an innocent misrepresentation gives no right to damages. an oral assurance was held to be an enforceable contractual promise. See also the observations of Salleh Abas LP in the Federal Court decision of Tan Chong & Sons Motor Co Sdn Bhd v Alan McKnight 4. whereas in Howard Marine & Dredging Co v Ogden & Sons (Excavations) 3. It is an established principle of law that the burden of proving the existence of a collateral contract is on the party alleging its existence. overrides any inconsistent written agreement. or alternatively a collateral warranty … there have been many cases since I have sat in this court where we have readily held a representation – which induces a person to enter into a contract – to be a warranty sounding in damages. I. of using the device of the collateral contract is usually to enforce a promise made prior to the making of the main contract. It is sometimes said that a collateral contract may merely add. Raja Azlan Shah CJ (as his Majesty then was) in the leading case on collateral contracts in Malaysia. 1993 3 MLJ 433 at 442 A collateral contract is defined by 1 Chitty on Contracts(25th Ed) para 734 as follows: … the courts are prepared in some circumstance to treat a statement intended to have contractual effect as a separate contract or warranty collateral to the main transaction. and … either of the parties may allege … an antecedent express stipulation … intended to continue in force with the … written [contract] …'. See also 41 Halsbury's Law of England(4th Ed) para 681 n 7. In order to escape from that rule. especially in cases where it contradicts the terms of a written contract. In the present case. in delivering the advice of the Privy Council said: . In J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd 2. Eggar & Co 6. take the use of the term by the defendant to mean a collateral contract. therefore. Instead it constitutes a separate contract which exists side by side with the main agreement. the pleader used to allege … that the misrepresentation was fraudulent. where his Lordship highlighted the confusion caused by the loose use of the term collateral warranty and collateral contracts. given at the time of contracting which induces a party to enter into the contract. Tan Swee Hoe Co Ltd v Ali Hussain Bros5 said [at p 19]: In our view those cases are strong authority for the proposition that an oral promise.Ever since Heilbut Symons & Co v Buckleton [1913] AC 30. and the Australian case of Hoyt's Pty Ltd v Spenser 7. Symons & Co v Buckleton 11. The invoices expressly provided for the description of the goods. is no longer accepted as the general rule: see City and Westminster Properties (1934) Ltd v Mudd 9. viz 60 days' credit with payment over four monthly instalments. does not in itself establish the existence of such a collateral contract. have any legal effect so that it exists only to answer some other purpose. the defendant could return them to the plaintiff. A collateral contract. the law will give effect to that collateral agreement and deny the document whatever legal effect it might otherwise have had. Mr Ang was not called as a witness. Mr Ang. on the defendant. on appeal from Malaysia. and the mode of payment. However. The mere fact that the defendant deemed that it was rightful for him to return the two excavators to the plaintiff. the written contract to which it is collateral … Such a view. it must not vary it in the sense of being inconsistent with or contradictory of. inevitably. exists side by side with the main contract. the defendant relies on the alleged oral representation made by the plaintiff. however. In any case. is that the parties agreed that if the excavators were found unsuitable by the defendant. amounting to a collateral contract to the defendant that if the defendant found the excavators to be unsuitable. in the absence of any evidence. it seems. in the Privy Council decision of Kandasami v Mohamed Mustafa10. said [at p 88]: If parties put their names to a document. The main contract in this case is for the sale and purchase of the two excavators. there appears to be no sufficient evidence adduced by the defendant to satisfy the court as to the existence of such a collateral contract. Lord Brightman. The sales invoices clearly indicated that the two excavators were an outright sale to the defendant by the plaintiff. (But see the observation of Lord Denning MR in Howard Marine v Ogden & Sons3. The collateral contract. the existence of which as alleged by the defendant. specifically by Mr Ang. It does . as between themselves. Raja Azlan Shah CJ (as his Majesty then was) in Tan Swee Hoe 5. 1993 3 MLJ 433 at 443 Similarly. and one party represents and the other party agrees that the document shall not. add to the written contract. It should be borne in mind that no such term was incorporated into the sales invoices. of course. by its very nature. this court finds that the defendant has failed to establish the existence of any oral collateral contract. In the present case. I am unable to accept the evidence of Mr Wong alone as sufficient to establish the existence of a collateral contract. even a collateral warranty. the defendant could return them without any financial obligations to the plaintiff. was any other witness called to establish the existence of such a warranty. As it is often said. The question that needs to be addressed now is whether the defendant has adduced sufficient evidence to establish that the plaintiff made the oral statement. nor for that matter. As stated earlier. said [at p 18]: In our view there is a growing body of authority which supports the proposition that a collateral agreement can exist side by side with the main agreement which it contradicts. 'such collateral contracts must from their very nature be rare': per Lord Moulton in Heilbut. Even if I am wrong in so holding. that the plaintiff was prepared to treat the delivery of the two excavators to the defendant on a trial basis. the argument that the defendant has a right to terminate the contract by virtue of the oral collateral contract is 1993 3 MLJ 433 at 444 misconceived. The defendant has to establish sufficient evidence to show that the plaintiff and the defendant agreed to the making of a collateral contract independent of the main contract. the onus of establishing the existence of a collateral contract is. or for that matter. The only evidence is the mere assertion by the defendant that such a contract was in existence as a result of the representation made by the plaintiff's sales manager.) Therefore.Though the collateral contract must. not have the effect of substituting the main contract. They merely related to the change of the hydraulic hose and the hydraulic oil. states (at para 735): Breach of the collateral contract will give rise to an occasion for damages for its breach. as a collateral contract normally relates to a warranty and not to a fundamental term of the main contract. In such a case. If the defendant is allowed to return the excavators without incurring any financial obligation to the plaintiff. but certainly not a collateral contract. (ii) Whether the excavators were suitable for the defendant's purpose Even if the defendant could establish the existence of the oral collateral contract. the defendant may only be able to invoke the oral collateral contract. . none. In the present case. He also said that 1993 3 MLJ 433 at 445 the two excavators were serviced on a routine basis and that the breakdowns of the excavators as alleged by the defendant were not major. the main contract becomes meaningless as the defendant is no longer under any obligation to buy the excavators under the main contract. but not to a right to treat the main contract as repudiated. There cannot be a collateral contract without the main contract being in existence.2cu yd buckets. Mr Santhasekran (PW1) who was the workshop manager said in evidence that he consulted the principal manufacturer in France who had assured him that the excavators were capable of being fitted with 1. To invoke the concept of collateral contract to cover such a situation is to stretch the scope of collateral contracts beyond their legitimate limits. that the plaintiff gave an assurance that the two excavators were capable of bearing the weight of the 1. tantamounts to the cancellation of the fundamental term of the main contract. the defence must necessarily fail. in any case. quoted above. As the defendant's contention based on the collateral contract or warranty is misconceived. the defendant may bring an action against the plaintiff for misrepresentation. To say that the promise made by the plaintiff that the defendant could return the excavators. some problems were anticipated with regard to the hydraulic system of the excavators. nor did the defendant complain to him of the unsuitability of the excavators.8cu yd buckets as well as the 1. cannot become a collateral contract. Furthermore. it should be pointed out that. He also said that to his knowledge there were no major defects in the excavators. It may be anything else. as required by the defendant. He expressly denied during cross-examination that the excavators could not be fitted with 1. The witness also said that because the defendant was a potential customer which the directors of the plaintiff company intended to have more business with. the effect of the alleged collateral contract is to obliterate the main contract of sale or to convert it into a conditional contract. The plaintiff's witness. A collateral contract merely confers certain other rights which are not incorporated in the main contract. He admitted. a special after-sales service team was assigned to the defendant's worksite to ensure that good service to the defendant was provided and also to rectify immediately any mechanical problems to the excavators. if the defendant's contention is accepted. as often is the case in collateral contracts.8cu yd buckets. Any representation made by a party to the contract which has the effect of destroying the main contract.8cu yd buckets. there is clearly an agreement between the parties for the sale and purchase of the two excavators. I move on to consider whether the excavators were unsuitable. for purposes of completeness. because of the extra load factor. or breach of condition or warranty under the collateral contract. if the defendant can also establish that the excavators supplied by the plaintiff were in fact unsuitable for the defendant's purpose. however. But such rights must be related to the rights and obligations of the parties under the main contract. As Chitty on Contracts. a breach of a collateral contract only gives right to an action for damages for its breach and not a right to repudiate. It would have been different. if the defendant had alleged. However. However. by accepting the car. centred around the issue as to whether the oral collateral warranty (contract) was made by the plaintiff. In Commission Car Sales (Hastings) Ltd v Saul 13. where the warranty in question relates to performance. As Sir Evershed MR (as he then was) said in Cullinane v British 'Rema' Manufacturing Co Ltd 12 [at p 1261]: 1993 3 MLJ 433 at 446 As a matter of principle again. though probably in lesser quantity. It is not a question of peas being delivered for beans ordered. the defendant's recourse against the plaintiff. make his claim on the basis of the profit he has lost. when the plaintiff took possession of the two . The defendant knew the nature and capability of the excavators that were ordered by it. and the seller. it seems to me that a person who has obtained a machine … which was mechanically in exact accordance with the order given. clearly went to the root of the contract of sale and amounted to a repudiation of the contract as it evinced an intention not to proceed with the contract for sale. and in accordance with its own specifications. When asked during cross-examination whether he had personal knowledge of the unsuitability of the excavators. 'No. Much of the evidence given by the only witness for the defence. as pointed out earlier. he admitted that the excavators were used by the defendant for over a period of two months.2cu yd to 1.8cu yd so as to minimise the cost of the operation of his business. When asked during examination-in-chief whether the excavators that were delivered were fit for the purpose for which they were purchased. The defendant has not established any other evidence. would be for damages for breach of warranty. fitted with 1. (iii) Breach of contract by the defendant The action of the defendant when it indicated to the plaintiff that it did not wish to proceed with the purchase of the two excavators and requesting the plaintiff to take them back. claim to recover the capital cost he has incurred less anything he can obtain by disposing of the material that he got. because the excavators could not bear the weight of the 1. other than his own bare assertion that it was unsuitable. the plaintiff has the choice either to accept the repudiation or to affirm the contract: see s 40 of the Contracts Act 1950 and the cases referred to on this section in Sinnadurai. although alleging that the excavators were unsuitable. the Supreme Court of New Zealand held that the buyer who returned the car which he had promised to buy and intimated that he would not pay for it. tendered no evidence to substantiate its allegation. because the machine as delivered fell short in its performance of that which it was warranted to do. Furthermore. The defendant wanted the capacity of the buckets to be changed from the standard 1. The defendant was not supplied with an entirely different model of the excavators nor for that matter.8cu yd buckets. which would deprive the defendant of the use of the excavators for any significant period. a totally different machine which could not be used for the purpose for which it was ordered – the excavators were still capable of excavating sand. even though he maintained that he found the excavators unsuitable from the time they were fitted with the 1. may adopt one of two courses. He may. he may. … Alternatively. A claim of that kind puts the plaintiff in the same position as though he had never made the contract at all. Law of Contract in Malaysia and Singapore (2nd Ed).8cu yd buckets'. he merely said. but was unable to perform a particular function which it was warranted to perform. In considering the totality of the evidence. when he discovers its incapacity and that it is not what he wanted and is useless to him. and the excavators did not function as well as the defendant wanted them to. The defendant. he could not give a firm answer. was taken to have treated the contract as discharged by breach. In the present case. On a repudiation of the contract. had repudiated liability for its purchase.8cu yd buckets.8cu yd buckets could be fitted to the excavators. Even if the plaintiff gave an assurance that the 1. What in fact was supplied to him was the exact model of the excavators as ordered.however. I find that there is insufficient evidence to establish that the excavators which were supplied by the plaintiff were unsuitable for the defendant's purpose. this is not the situation in the present case.excavators. (iv) Measure of damages The plaintiff. it in fact accepted the defendant's repudiation of the contract. The plaintiff did not claim for the loss of profit nor for any loss resulting from a subsequent resale of the excavators to a third party. Counsel for the plaintiff urges this court to take judicial notice of the fact that any vehicle or machine depreciates in value after it had been sold to another person. when the goods were subsequently sold in the market. said (at p 1082): I have yet to learn that a party who breaks a contract can excuse himself by saying that he did it on the advice of his lawyers. the minority view of the House of Lords in Woodar Investment Development Ltd v Wimpey Construction UK Ltd 18. The conduct of the shipowners in so acting was held by the House of Lords to amount to a repudiation of the contract. The argument by the defence that the defendant could not have repudiated the contract at that stage (when they wrote the letter to the plaintiff). Of course. the plaintiff claims for the depreciated value of the excavators. then it is open to the other party to accept his repudiation and treat the contract as discharged from that time onwards. [1843-60] All ER Rep 12. the promisee may elect to treat the contract as broken by anticipation. the seller would have claimed for the difference between the market price. and the contract price. The decision of the Federal Court in Sio Koon Lin & Anor v SB Mehra 14. is such as to evince an intention no longer to be bound by his contractual obligations. or that he was under an honest misapprehension … I would go by the principle … that if the party's contract. As Mustill LJ (as he then was) said in FC Shepherd & Co Ltd v Jerrom 15. therefore. if the party evinces an intention to perform only in accordance with his construction of the 1993 3 MLJ 433 at 447 contract. as stated earlier. in a normal situation such as this. which was referred to by counsel is. No evidence was adduced to show that the excavators had depreciated in value by 20% when they were recovered from the defendant. is unacceptable as the act of the defendant clearly amounted to one which the plaintiff could treat as an anticipatory breach of the contract. is to be preferred. It should further be pointed out that a refusal by a party to proceed with the contract based upon a misconstruction of the contract or on the erroneous belief that he was justified in terminating the contract. because of their erroneous construction of the contract. In the absence of any authority to support . 41 Halsbury's Laws of England(4th Ed) para 867 andBenjamin's Sale of Goods(3rd Ed) paras 13071308. The claim is basically for depreciation loss of the two excavators. and may sue for damages without waiting for the time for performance to arrive: see Hochster v De la Tour (1853) 2 E & B 678. and many subsequent cases. see s 60 of the Malaysian Sale of Goods Act 1957 and generally. As to anticipatory breach. since on that date none of the payments were then due. where. the shipowners threatened to act in a way which was substantially inconsistent with their obligations. Such was the situation in Federal Commerce and Navigation Ltd v Molena Alpha Inc & Ors 16. has claimed for loss and damage suffered as a consequence of the defendant's breach. may amount to a repudiation of the contract. objectively considered in its impact on the other party. especially so. or disables himself from performing it. did not adduce any proof of any such loss. not only irrelevant but clearly distinguishable. However. In this regard. The plaintiff in claiming for the depreciation loss of the two excavators. In particularizing its loss. at p 600: If the promisor renounces the contract. Lord Denning MR in the Court of Appeal in Federal Commerce and Navigation Ltd v Molena Alpha Inc & Ors 17. Reported by S Radhakrishnan . As for the plaintiff's claim for transport and possession charges. as these have been substantiated by documentary evidence. loss of use of the said machines at RM15. as the plaintiff has not made out its case with regard to the rental of the two other excavators. hold that. again in the absence of any proof by the plaintiff of this loss. these stand on a different footing. grant the plaintiff any sum by way of damages. In the absence of evidence. therefore. as he would have been had the contract not been breached by the other party. and except as stated in the statement of claim. I. this court is unable to concede to the plaintiff's contention. Therefore. as far as possible. Even if the court were to concede that there was an element of depreciation of the value of the excavators. in the absence of any proof of actual loss by the plaintiff.485 being charges for repairs and services of the two excavators during the period when they were used by the defendant. the plaintiff's claim must fail. I allow RM1. the court.000 per machine. Order accordingly. this court is unable to grant any sum of money by way of damages to the plaintiff except by way of nominal damages. so much as what the defendant had gained from the breach. In such a case. I order that costs be awarded to the plaintiff. Rental of the two other machines The entire trial centered on the sale of the two excavators. therefore. the High Court of Australia in the case of Luna Park (NSW) Ltd v Transways Advertising Pty Ltd 20 also granted nominal damages.000 under this head: see Benjamin's Sale of Goods(3rd Ed) para 1313. In Charter v Sullivan19. and as such. therefore. Similarly. 1993 3 MLJ 433 at 448 Therefore. to a third party at a profit. the plaintiff would have suffered no loss. the plaintiff gave no evidence as to any rental arrangement between the plaintiff and the defendant regarding the other two excavators. As for the other claims by the plaintiff. As the plaintiff has succeeded substantially in its action against the defendant. I. to put the plaintiff in the same or similar position. in the absence of any proof to show the actual loss. as the defendant was contractually bound to pay for these items. It should be further remembered that damages are not meant to be punitive in nature but rather compensatory. subsequently. even though there was a breach of a condition of the contract. There may be a situation where the plaintiff may have sold the excavators. I also allow the claim for RM2. nominal damages were granted as the seller was unable to produce any evidence of loss of profit as a consequence of a buyer's refusal to complete the purchase.this proposition. it appears that these two machines were lent to the plaintiff for the defendant's use until the new machines arrived. cannot. important for the plaintiff to establish his loss. grant a sum of RM100 by way of nominal damages to the plaintiff. the plaintiff's claim under this head also fails. It is. the claim is dismissed. and not. that is. acting on behalf of its associated company namely. The defendant was not a contracting party to the consultancy agreements. HASHIM YUSOF. Alcatel CIT and Alcatel-Lucent Italia/Alcatel 3 MLJ 785 at 786 Italia (the 'Consultancy Agreements'). The obligation to pay the plaintiff's consultancy fees under the consultancy agreements laid with Standard. ABDULL HAMID EMBONG.Solid Investments Ltd v Alcatel-Lucent (M) Sdn Bhd (previously known as Alcatel Network Systems (M) Sdn Bhd) FEDERAL COURT (PUTRAJAYA) RAUS SHARIF PCA. The purpose of the consultancy agreements was for the plaintiff to provide consultancy services to the associated company and the defendant in securing contracts with Telekom (M) Bhd ('Telekoms') and Celcom Bhd ('Celcom'). The contracts were all entered into between the plaintiff and Standard. HASAN LAH AND JEFFREY TAN FCJJ CIVIL APPEAL NO 02(f)-61–08 OF 2012(W) 30 October 2013 Civil Procedure — Remedy of account — Action founded on contract — Fiduciary relationship — Alleged fiduciary relationship between appellant and respondent — Whether dependent on terms of contract — Whether justification for fiduciary duty to account exists — Whether fiduciary relationship can be superimposed upon contract Civil Procedure — Remedy of account — Application allowed by trial judge — Appeal against — Obligation to pay consultancy fees — Consultancy agreements — Whether appellant and respondent's contractual relationship established — Fiduciary relationship — Whether existed between appellant and respondent — Whether fiduciary duty to account arose Civil Procedure — Trial – Defence — Defendant failing to offer any evidence — Whether evidence given by plaintiff ought to be presumed to be true — Whether appellate court precluded from interfering with determination of fact by judge — Whether principle in Takako Sakao v Ng Pek Yuen & Anor applicable Companies and Corporations — Lifting of corporate veil — Remedy of account — Relationship between appellant and respondent — Whether appellant an associated company — Whether fraud proven — Whether absence of any justification to lift corporate veil Contract — Terms — Entire agreement clause — Whether agreement included an entire agreement clause — Whether entire agreement clause precluded consideration of collateral contract The appellant/plaintiff's claim was for an account from the respondent/defendant based on ten consultancy agreements entered into between the plaintiff and Alcatel Standard SA ('Standard'). . statement of accounts of all monies received by the defendant from Celcom and Telekoms. The defendant denied that it was the ultimate beneficiary of services rendered by the plaintiff. a court is to have regard to the course of dealings between the parties in addition to any express agreement between them. whether such clause on as a matter of course precluded the consideration of a collateral contract. the Court of Appeal was precluded from interfering with a determination of fact by a judge of the High Court at trial where the sole defendant had elected not to lead evidence. The case was therefore closed without the defence offering any evidence. The Court of Appeal allowed the defendant's appeal. At the close of the plaintiff's case the trial judge refused an application for adjournment by the defendant on the ground that its witness was not available. Standard and Alcatel CIT were a group enterprise rather than a separate legal entity of each company within the group included in the operation of the agreements and thus a fiduciary duty to account arose. The plaintiff thus in this suit sought from the defendant. The consultancy agreements constituted the entire agreement between the parties. inter alia. it was agreed that the defendant would notify the plaintiff of the value of all deliveries that had been made to Celcom and Telekoms. Instead. Held. The defendant also denied the existence of the alleged collateral contract.  (3) .Alcatel CIT and Alcatel Italia. (ii) whether in view of the decision of the Federal Court in Takako Sakao(f) v Ng Pek Yuen(f) & Anor [2009] 6 MLJ 751 (Takako Sakao). The plaintiff claimed that the mode and manner of payment as provided under the consultancy agreements were never followed from day one. the plaintiff was not entitled to the order of taking of account against the defendant under the common law (see paras 26–27). Furthermore the invoices for payment were not addressed to the defendant but were addressed either to Alcatel CIT or Alcatel Italia which was in accordance with the term of the consultancy agreements. This carried on until the defendant terminated the services of the plaintiff in 2009 at which point the defendant stopped rendering proper accounts and details of the deliveries to Celcom and Telekoms to enable the plaintiff to compute the payment due. after which the plaintiff would send the invoices to the defendant whereupon payment would be made by the defendant on the invoices. There must be evidence either of actual fraud or some conduct amounting to fraud in equity to justify the lifting of corporate veil (see para 46). The plaintiff alleged that based on this collateral agreement the plaintiff was paid in excess of USD 7m from the year 2000.  (2) The trial judge erred in lifting the corporate veil of the defendant to make the defendant liable to account to the plaintiff. Leave to appeal to the Federal Court was granted to the plaintiff on the following questions: (i) whether in ascertaining whether parties stand in a fiduciary relationship. The trial judge allowed the plaintiff's claim on the grounds that the defendant was an accounting party because the defendant. and (iii) where an agreement includes an 'entire agreement' 3 MLJ 785 at 787 clause. dismissing the appeal with costs:  (1) It had not been established that some payments were made by the defendant to the plaintiff for the services rendered. by way of a collateral agreement between the plaintiff and the defendant. As the plaintiff failed to establish that it was entitled to some sum from the defendant. Tuntutan perayu/plaintif adalah untuk akaun dari responden/defendan berdasarkan sepuluh perjanjian perundingan yang dimasuki antara plaintif dan Alcatel Standard SA ('Standard').  (5) The trial judge failed to evaluate the evidence relating to the alleged collateral contract and make any finding on the existence of the alleged collateral contract (see para 64). yang bertindak bagi pihak syarikat bersekutunya iaitu Alcatel CIT dan Alcatel-Lucent Italia/Alcatel Italia ('Perjanjian Perundingan'). Alcatel CIT dan Alcatel Italia. The facts of this case could be distinguished from the facts in Takako Sakao.  (7) Even if the plaintiff had succeeded in establishing the existence of the 3 MLJ 785 at 788 collateral contract. The entire agreement clause did not preclude the plaintiff from setting up the alleged collateral agreement between the plaintiff and defendant (see para 68). This is because commercial transactions often do not give rise to fiduciary duties because they do not meet the criteria for characterisation as fiduciary in nature. Even applying the flexible approach to the circumstances of the case. Under the consultancy agreements the plaintiff was required to provide consultancy services for the benefit of the defendant.  (4) The notes of proceeding showed that the defendant did take part in the trial. There was nothing to show that consideration was given by the plaintiff for the defendant to furnish the required information. The circumstances of the relationship in the instant case could not give rise to a relationship of trust and confidence (see paras 47–48). The principles in Takako Sakao did not apply under the circumstances (see paras 56–57). such contract was void for want of consideration. But that was the consideration for the consultancy agreements and not for the alleged collateral agreement and also the consultancy services were not rendered at the defendant's request (see para 71). such fiduciary relationship did not exist in the case. Perjanjian perundingan itu membentuk keseluruhan perjanjian antara pihak-pihak. Semua kontrak tersebut telah dimasuki antara plaintif dan Standard. The defendant was not a party to the consultancy agreements and as such the alleged collateral contract between the plaintiff and the defendant should be treated as a separate and distinct contract and could not fall under the scope of the consultancy agreements. Plaintif mendakwa bahawa kaedah dan cara membuat pembayaran sebagaimana yang diperuntukkan di bawah perjanjian .The business relationship between the plaintiff and the defendant did not fall under the accepted traditional categories of fiduciary relationship. Tujuan perjanjian perundingan itu adalah untuk plaintif menyediakan perkhidmatan perundingan kepada syarikat bersekutu tersebut dan defendan dalam mendapatkan kontrak dengan Telekom (M) Bhd ('Telekom') dan Celcom Bhd ('Celcom').  (6) The Court of Appeal erred in failing to appreciate that entire agreement clauses operated only as between the contracting parties. Defendan bukan pihak yang berkontrak dengan perjanjian perundingan itu. Obligasi untuk membayar yuran perundingan plaintif di bawah perjanjian perundingan itu terletak pada Standard. The trial judge refused the adjournment and the case was therefore closed without the defence offering any evidence. Plaintif mendakwa berdasarkan perjanjian kolateral ini plaintif telah dibayar lebihan USD 7 juta dari tahun 2000. mahkamah hendaklah mengambil kira pengendalian urusan antara pihak-pihak ditambah dengan apa-apa perjanjian nyata antara mereka. Diputuskan. melalui perjanjian kolateral antara plaintif dan defendan. . Defendan juga menafikan kewujudan kontrak kolateral yang dikatakan itu. Hakim perbicaraan membenarkan tuntutan plaintif atas alasan bahawa defendan merupakan sebuah pihak perakaunan kerana 3 MLJ 785 at 789 defendan. Mahkamah Rayuan membenarkan rayuan defendan. dan (iii) di mana perjanjian memasukkan fasal 'keseluruhan perjanjian'. Plaintif dengan itu dalam saman ini memohon daripada defendan. antara lain. Ini berterusan sehingga defendan menamatkan perkhidmatan plaintif pada tahun 2009 yang mana mulanya defendan berhenti memberikan akaun dan butiran penghantaran yang sepatutnya kepada Celcom dan Telekom bagi membolehkan plaintif untuk mengira pembayaran yang perlu dibayar. plaintif tidak berhak kepada perintah pengambilan akaun terhadap defendan di bawah common law (lihat perenggan 26–27). Defendan menafikan bahawa ia adalah benefisiari utama untuk perkhidmatan yang diberikan oleh plaintif. selepas itu plaintif akan menghantar invoisinvois kepada defendan yang mana pembayaran akan dibuat oleh defendan berdasarkan invois-invois itu. (ii) sama ada berdasarkan keputusan Mahkamah Persekutuan dalam kes Takako Sakao(f) v Ng Pek Yuen(f) & Anor [2009] 6 MLJ 751 (Takako Sakao). Sebaliknya. Standard dan Alcatel CIT merupakan kumpulan perusahaan dan bukan satu entiti yang sah yang berasingan bagi setiap syarikat di dalam kumpulan yang dimasukkan ke dalam operasi perjanjian dan dengan itu wujud kewajipan fidusiari kepada akaun itu. Kebenaran untuk merayu kepada Mahkamah Persekutuan telah diberikan kepada plaintif berdasarkan soalansoalan berikut: (i) sama ada dalam menentukan jika pihak-pihak mempunyai hubungan fidusiari. Tambahan pula invois untuk pembayaran itu tidak dialamatkan kepada defendan tetapi telah dialamatkan sama ada kepada Alcatel CIT atau Alcatel Italia yang menurut tempoh perjanjian perundingan itu. penyata akaun untuk semua wang yang diterima oleh defendan daripada Celcom dan Telekom. Kes itu oleh itu ditutup tanpa pembelaan yang menawarkan apa-apa keterangan. Di akhir kes plaintif hakim perbicaraan menolak permohonan penangguhan oleh defendan atas alasan bahawa saksinya tidak boleh didapati. menolak rayuan dengan kos:  (1) Tidak dibuktikan bahawa beberapa bayaran telah dibuat oleh defendan kepada plaintif bagi perkhidmatan yang diberikan.perundingan itu tidak pernah diikuti dari hari pertama. sama ada fasal tersebut sebagai perkara yang sudah tentu menghalang balasan kontrak kolateral. Mahkamah Rayuan dihalang daripada mengganggu penentuan fakta oleh hakim Mahkamah Tinggi semasa perbicaraan di mana satu-satunya defendan telah memilih untuk tidak mengemukakan keterangan. Perlu ada bukti sama ada penipuan sebenar atau beberapa perilaku yang boleh dianggap penipuan dalam ekuiti untuk mewajarkan tabir korporat disingkap (lihat perenggan 46). Memandangkan plaintif gagal membuktikan bahawa ia berhak untuk sejumlah wang tersebut daripada defendan.  (2) Hakim perbicaraan terkhilaf dalam menyingkap tabir korporat daripada defendan itu untuk menjadikan defendan bertanggungjawab menjelaskan akaun itu kepada plaintif. telah dipersetujui bahawa defendan akan memberitahu plaintif tentang nilai semua penghantaran yang telah dibuat kepada Celcom dan Telekom. see 3(1) Mallal's Digest (4th Ed. Prinsip dalam kes Takako Sakaotidak terpakai di bawah keadaan ini (lihat perenggan 56–57).  (5) Hakim perbicaraan gagal menilai keterangan berhubung kontrak kolateral yang dikatakan dan membuat apaapa penemuan berhubung kewujudan kontrak kolateral itu (lihat perenggan 64).  (6) Mahkamah Rayuan terkhilaf apabila gagal untuk memahami bahawa seluruh fasal perjanjian beroperasi hanya antara pihak yang berkontrak. Ini kerana urus niaga komersial sering tidak menimbulkan tugas fidusiari kerana tidak memenuhi kriteria untuk pencirian sebagai suatu yang bersifat fidusiari. Tiada apa-apa yang menunjukkan bahawa balasan telah diberikan oleh plaintif untuk defendan memberi maklumat yang diperlukan. 2014 Reissue) para 7451.  (7) Walaupun plaintif berjaya membuktikan kewujudan kontrak kolateral. Keadaan hubungan dalam kes ini tidak mungkin menimbulkan hubungan kepercayaan dan keyakinan (lihat perenggan 47–48). Notes For a case on action founded on contract. see 3(3) Mallal's Digest (4th Ed. Defendan bukan pihak kepada perjanjian perundingan dan oleh itu kontrak kolateral yang dikatakan antara plaintif dan defendan hendaklah dianggap sebagai kontrak yang berasingan dan berlainan dan tidak boleh terangkum di bawah skop perjanjian perundingan. Hakim perbicaraan menolak 3 MLJ 785 at 790 penangguhan dan kes oleh itu tertutup tanpa pembelaan yang menawarkan apa-apa keterangan. Tetapi itu adalah balasan bagi perjanjian perundingan dan bukan untuk perjanjian kolateral yang dikatakan itu dan juga perkhidmatan perundingan itu tidak diberikan atas permintaan defendan (lihat perenggan 71). Walaupun menggunakan pendekatan yang fleksibel kepada hal keadaan kes itu. kontrak itu tidak sah kerana ketiadaan pertimbangan. . For a case on remedy of account in general. Fakta kes ini boleh dibezakan daripada fakta-fakta dalam kes Takako Sakao. 2014 Reissue) para 7452. Perjanjian keseluruhan fasal tidak menghalang plaintif daripada membuat perjanjian kolateral yang dikatakan antara plaintif dan defendan (lihat perenggan 68). (3) Hubungan perniagaan antara plaintif dan defendan tidak termasuk di bawah kategori tradisional diterima hubungan fidusiari. 2013 Reissue) para 4647. Di bawah perjanjian perundingan plaintif itu dikehendaki untuk menyediakan perkhidmatan perundingan bagi manfaat defendan. see 2(3) Mallal's Digest (4th Ed. For a case on entire agreement clause. 2013 Reissue) para 480. see 2(3) Mallal's Digest (4th Ed.  (4) Nota prosiding menunjukkan bahawa defendan tidak mengambil bahagian dalam perbicaraan itu. hubungan fidusiari sebegini tidak wujud dalam kes itu. For a case on application allowed by trial judge. Putrajaya) Malik Imtiaz Sarwar (Renu Zechariah and SC Ho with him) (Rosley Zechariah) for the appellant Mohd Arief Emran (Elaine Yap with him) (Wong & Partners) for the respondent. in allowing the respondent's appeal against the decision of the High Court. CA (refd) Cyril Sharpe.Cases referred to Baboo Janokev Doss v Bindabun Doss [1843] Moore Ind App 175. FC (refd) English v Dedham Vale Properties Ltd [1978] 1 All ER 382. [2010] 1 CLJ 381. CA (folld) Master Strike Sdn Bhd v Sterling Height Sdn Bhd [2005] 3 MLJ 585. CA (distd) Takako Sakao (f) v Ng Pek Yuen (f) & Anor [2009] 6 MLJ 751. Re [1992] FCA 616. HL (refd) 3 MLJ 785 at 791 Hospital Products Limited v United States Surgical Corporation & Ors (1986) 156 CLR 41. FC (not folld) Tengku Abdullah Ibni Sultan Abu Bakar & Ors v Mohd Latiff bin Shah Mohd & Ors and other appeals [1996] 2 MLJ 265. Hasan Lah FCJ (delivering judgment of the court): INTRODUCTION [1] This is an appeal by the appellant against the decision of the Court of Appeal on the 27 June 2011. CA (distd) Petroleum Nasional Bhd v Kerajaan Negeri Terengganu [2004] 1 MLJ 8. Ch D (refd) Frame v Smith and Smith (1987) 42 DLR (4th) 81. HC (refd) Inntrepreneur Pub Co v East Crown Ltd [2000] 3 EGLR 31. [1997] 2 CLJ 607. SC (refd) Heilbut. Ch D (folld) John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd Matter No S309/2009 [2010] HCA 19 (refd) Law Kam Loy v Boltex Sdn Bhd [2005] MLJU 225. Symons & Co v Buckleton [1913] AC 30. [2005] 3 CLJ 355. PC (refd) Bristol and West Building Society v Mothew [1998] Ch 1. CA (folld) Legislation referred to Contract Act 1950 s 26 Appeal from: Civil Appeal No W-02 (NCVC)-764 of 2011 (Court of Appeal. Leave to appeal was granted by this court on 13 August 2012 and the questions of law framed for determination in this appeal are as follows: Question 1 . BACKGROUND FACTS [3] The facts which form the background of this appeal can be briefly set out as follows. Alcatel CIT and Alcatel Italia. [4] The plaintiff's claim was for an account from the defendant based on ten consultancy agreements entered into between the plaintiff and Alcatel Standard SA ('standard'). and 3 MLJ 785 at 793  (e) any dispute would have to be disposed of by way of arbitration in Geneva.  (c) except for the first two consultancy agreements bearing Nos 532G29049 and 532H39371 which dated back to 2000 and 2001 respectively. Alcatel CIT and Alcatel-Lucent Italia/Alcatel Italia between 27 October 2000 to 20 June 2007 ('consultancy agreements').Whether in ascertaining whether parties stand in a fiduciary relationship.  (b) the obligation to pay the plaintiff's consultancy fees under the consultancy agreements laid with standard. For convenience. parties will be referred to as the plaintiff and the defendant as in the High Court. and Question 3 Where an agreement includes an 'entire agreement' clause. acting in the name and on behalf of its associated company namely. consultancy fees payable were to be calculated based on invoices issued by Alcatel CIT/Alcatel Italia to the defendant and not based on the amount invoiced by the defendant to any of its client in Malaysia ie Telekoms or Celcom. The contracts were all entered into between the plaintiff and standard. The purpose of the consultancy agreements was for the plaintiff to provide consultancy services to the associated company and the defendant in securing contracts with Telekom (M) Bhd ('Telekoms') and Celcom Bhd ('Celcom') with regard to telecommunication network system in Malaysia. whether such clause on as a matter of course precludes the consideration of a collateral contract. the Court of Appeal is precluded from interfering with a determination of fact by a judge of the High Court at trial where the sole defendant has elected not to lead evidence. Question 2 Whether in view of the decision of this honourable court in Takako Sakao v Ng 3 MLJ 785 at 792 Pek Yuen & Anor [2010] 1 CLJ 381. [2] The appellant is the plaintiff and the respondent is the defendant.  (d) the consultancy agreements constituted the entire agreement between the parties. . [5] The common terms and features of the consultancy agreements were as follows:  (a) the defendant was not a contracting party to the consultancy agreements. a court is to have regard to the course of dealings between the parties in addition to any express agreement between them. The defendant stated that it was not a party to. together with all certified and relevant supporting documents evidencing the same and if such documents were not in the defendant's possession that the defendant be compelled to obtain copies of the same from Celcom or Telekoms or any other party in possession of the same.[6] The plaintiff claimed that the mode and manner of payment as provided under the consultancy agreements were never followed from day one. The defendant denied the existence of the alleged collateral contract. and to thereafter prepare an audit report as soon as possible. This carried on until the defendant effectively terminated the services of the plaintiff in 2009 at which point the defendant stopped rendering proper accounts. together with full details of all monies received by the defendant from Celcom and Telekoms.  (b) that the plaintiff's appointed auditor be entitled to conduct an independent audit of the said accounts and documents rendered by the defendant. Instead. The defendant said that it was involved in the invoicing process in connection with the consultancy agreements in a facilitative capacity at the request of the associated companies or Alcatel-Lucent Trade International AG. to verify the same and be allowed access to all the relevant and supporting documents inclusive of the defendant's detailed project 3 MLJ 785 at 794 account with regards to the projects in the defendant's office or at any place where such documents were maintained. be it by the defendant or any other company in the Alcatel Group. [8] The plaintiff averred that despite repeated requests by the plaintiff for an account of the deliverables the defendant refused to furnish any information. [7] The plaintiff alleged that based on this collateral agreement the plaintiff was paid in excess of USD7m from the year 2000. to comply with this order. [9] By this action the plaintiff sought the following reliefs against the defendant:  (a) a statement of account or accounts (such statement/accounts certified by the person primarily responsible for the financial management of the defendant) be ordered to be given by the defendant to the plaintiff together with copies of all documents evidencing the value of deliveries issued by the defendant to Celcom and Telekoms for the entire duration of the projects. The defendant further stated that no consideration passed from the plaintiff to the defendant in the assistance rendered under the aforesaid capacity and there was no intention between the parties to create any legal relations by virtue thereof. nor a beneficiary under the consultancy agreements. [10] In its defence the defendant denied that it was the ultimate beneficiary of services rendered by the plaintiff. details of all orders received by them from Celcom and Telekoms and the value of deliveries to Celcom and Telekoms to assist and enable the plaintiff to compute the amount due to it for work done and yet to be invoiced. in the implementation of the projects and thereafter inform the plaintiff of the manner of computation of payment after which the plaintiff would send the invoices in the format as required by the defendant to the defendant whereupon payment would be made or arranged by the defendant on the invoices. by way of a collateral agreement between the plaintiff and the defendant (by conduct and documents evidencing the same) it was agreed that the defendant would notify the plaintiff of the value of all deliveries that had been made to Celcom and Telekoms. . [11] The defendant also stated that the plaintiff's action was an abuse of process as the plaintiff had commenced arbitration proceedings against Alcatel-Lucent Trade International AG pursuant to the consultancy agreements seeking payment of alleged dues. Further the defendant averred that the plaintiff had disclosed no reasonable cause of action against the defendant. [12] At the close of the plaintiff's case the learned trial judge refused an application for adjournment by the defendant on the ground that its witness was not available. The case was therefore closed without the defence offering any evidence. DECISION OF THE HIGH COURT [13] The learned trial judge allowed the plaintiff's claim with costs. The reasons given by the learned trial judge for coming to the decision are as follows:  (a) the defendant was an accounting party because the defendant, standard and Alcatel CIT which are described as associated co in the consultancy agreements are a group enterprise rather than a separate legal entity of each company within the group included in the operation of the agreements;  (b) the contracts were for the benefit of the defendant;  (c) the fiduciary duty to account arises; and  (d) as no witnesses had been called from the defendant to testify as to its role in the consultancy agreements and its relationship with standard the court was left to draw its own inferences. 3 MLJ 785 at 795 DECISION OF THE COURT OF APPEAL [14] Dissatisfied with the decision of the learned trial judge the defendant filed an appeal against the said decision to the Court of Appeal. After hearing both parties, the Court of Appeal unanimously allowed the defendant's appeal. [15] As reflected in its judgment, the Court of Appeal allowed the defendant's appeal on the following main grounds:  (a) the learned trial judge had gone beyond the pleaded case when he decided to lift the corporate veil to find that the defendant was bound by the consultancy agreements. There was no justification to lift the corporate veil;  (b) the learned trial judge had also gone beyond the pleaded case when he made a finding that the defendant was an accounting party on the basis that there was an alleged fiduciary relationship between the plaintiff and the defendant;  (c) the entire agreement clause appearing in the consultancy agreements precluded the existence of any collateral contract between the plaintiff and the defendant;  (d) the plaintiff's claim was a misconceived action for discovery of information and documents to enable it to institute proceedings against standard, Alcatel CIT and Alcatel Italia under the consultancy agreements for consultancy fees. FIDUCIARY RELATIONSHIP [16] The learned trial judge made a finding that based on the facts and the clauses in the consultancy agreements the defendant, standard and Alcatel Italia belonged to one entity and as such there was an accounting duty on the part of the defendant to disclose the purchase orders on which the plaintiff's compensation was calculated. Hence the learned trial judge found that the fiduciary duty to account arises. [17] The plaintiff's claim was brought on the basis of a common law duty to account. This required the parties to be in a fiduciary relationship. Learned counsel for the plaintiff contended that the Court of Appeal did not consider the possibility of there being a fiduciary relationship in common law that gave rise to an accounting relationship. In support of that learned counsel for the plaintiff referred to the following passage from the judgment of the Court of Appeal: 3 MLJ 785 at 796 … it is a strong principle of law that in the context of contractual relationship, unless specifically provided for in the terms of the contract, no fiduciary relationship is owed by one party to the other … [18] It is pertinent to note that the observation by the Court of Appeal was based on a passage from the judgment of Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at p 97 of the report which reads as follows: That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction. [19] Learned counsel for the plaintiff submitted that the Court of Appeal ought to apply a more flexible approach as the learned trial judge had done to ascertain whether there existed a fiduciary relationship between the plaintiff and the defendant in the instant case. [20] We will deal with the issue of duty to account under the common law first. On the action for taking of accounts the Court of Appeal, after considering several authorities on the subject, made the following observation: 31. From the above authorities, for there to exist a complete cause of action for taking of accounts, the respondent has to plead and prove the following:  (a) the appellant (as the defendant) must be liable to pay a certain sum of monies to the respondent (as the plaintiff); and  (b) the appellant (as the defendant) is an accounting party to the respondent (as the plaintiff). [21] In Baboo Janokev Doss v Bindabun Doss [1843] Moore Ind App 175, Dr Lushington of the Privy Council at p 197 said: Again, it must be remembered that the Decree cannot stand unless it be first clearly proved that the appellants are, if anything should be found due to the respondents arising from the acts and dealings of Ramchund, liable to answer that demand; we cannot make a Decree, ordering them to account, without first determining that they are liable to pay if anything be found due. 3 MLJ 785 at 797 A Decree for an account is not, as appears to have been assumed, a mere direction to inquire and report. It proceeds, and must always proceed, upon the assumption that the party calling for it is entitled to the sum found due. It is a Decree affirming his rights, only leaving it to be inquired into, how much is due to him from the party accounting. [22] In Re Cyril Sharpe [1992] FCA 616, the Federal Court of Australia through Drummond J opined: The taking of an account is only appropriate once it has been established that the parties involved are in an accounting relationship with each other, that is, only once it has been established that one party is liable to pay to the other anything that is found, on the taking of the account, to be due to that other … [23] Under the consultancy agreements the parties liable to pay compensation to the plaintiff for the consultancy services rendered were standard, Alcatel Italia and Alcatel CIT and not the defendant. [24] The learned trial judge made a finding that there was evidence that payments to the plaintiff were paid by the defendant. The Court of Appeal, on the other hand, made a finding that no claims for payment were ever issued by the plaintiff to the defendant under any of the consultancy agreements. The plaintiff's only witness, Mr Khalifa Abdel Rahman Mohamed Khalifa ('PW1'), in his testimony, testified under examinationin-chief (pp 100 and 101 of the appeal record) as follows: After such instruction from the defendant, the plaintiff will send the invoice in the format as required by the defendant to the defendant whereupon payment will be made and/ or arranged by the defendant on the invoices. [25] However, under cross-examination he testified as follows (pp 162 and 163 of the appeal record):  Q: And I put it to you that in all of these contracts, all this consultancy contracts the payments were made by Alcatel CIT or Alcatel France or Alcatel Italia?  A :Irrelevant.  Q : No do you agree or disagree?  A : I say it is irrelevant to who pays your bill. That's my answer.  Q : No answer whether you agree or this agrees (disagree)?  A : That's my answer.  o  Court : Q : You have received payment haven't you? 3 MLJ 785 at 798 o A : Yes we have.  Q : Who do you get the payment from?  A : From any Alcatel related group or bank.  Court : Answer, payment came from Alcatel related group. [26] In our view, it had not been established from PW1's evidence that some payments were made by the defendant to the plaintiff for the services rendered. Furthermore it was clear from the evidence that the invoices for payment were not addressed to the defendant but were addressed either to Alcatel CIT or Alcatel Italia which was in accordance with the term of the consultancy agreements. [27] As the plaintiff failed to establish that it was entitled to some sum from the defendant, we agree with the Court of Appeal that the plaintiff was not entitled to the order of taking of account against the defendant under the common law. [28] We now come back to the issue of fiduciary relationship. As mentioned earlier the Court of Appeal found that there was no fiduciary relationship between the plaintiff and the defendant. In its judgment the Court of Appeal held: 25 In the present case, we find that the allegation of the existence of a contractual relationship between the appellant and the respondent and that the appellant received consideration in the form of benefit of the consultancy agreements (which was denied), do not make the appellant a fiduciary vis-a-vis the respondent. The learned Judge should not have found the existence of any fiduciary duty to account between the appellant and the respondent. By doing so, the court had interpreted the terms and conditions contrary to the express terms appearing in the consultancy agreements. [29] The class of fiduciary relationships is never closed (English v Dedham Vale Properties Ltd [1978] 1 All ER 382, per Slade J). As can be seen from the English cases, the English judges have never attempted to formulate a comprehensive definition of who is a fiduciary. Certain relationships are well known to be fiduciary. In Snell's Equity (32nd Ed) [2010] Thompson Reuters at pp 172 to 178, the learned author stated that the accepted categories in which the courts presume the existence of a fiduciary relationship are as follows:  (a) director vis-a-vis their companies;  (b) solicitor-client relationships;  (c) agent-principal relationship; and 3 MLJ 785 at 799  (d) partnerships. [30] Notwithstanding that there are authorities to say that fiduciary duties may be owed where the circumstances justify the imposition of such duties. In this connection the learned author of Snell's Equity stated at pp 175 and 176 as follows: (c) Ad hoc fiduciary relationships  (1) PRINCIPLES.'40 It is clear that it is possible for fiduciary duties to arise in commercial settings. [31] In Bristol and West Building Society v Mothew [1998] Ch 1 at p 18. The principal is entitled to the single-minded loyalty of his fiduciary. he is not subject to fiduciary obligations because he is a fiduciary. to suggest that commercial transactions stand outside the fiduciary regime. which equity will recognise. of a fiduciary relationship. growing judicial support for the view that: 'a fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. They are the defining characteristics of the fiduciary. it is because he is subject to them that he is a fiduciary. Identifying the kind of circumstances that justify the imposition of fiduciary duties is difficult because the courts have consistently declined to provide a definition.41 Agency. but it is sufficient to indicate the nature of fiduciary obligations.32 preferring to preserve flexibility in the concept. 3 MLJ 785 at 800 [32] It is to be noted that the plaintiff and the defendant were involved in commercial dealings relating to the telecommunication network system in Malaysia. A fiduciary must act in good faith. Millet LJ made the following observation on the question of who is a fiduciary: A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. he must not place himself in a position where his duty and his interest may conflict.'34 There is. As Dr Finn pointed out in his classic work Fiduciary Obligations (1977). This is not intended to be an exhaustive list.43 The reason fiduciary duties do not commonly arise in commercial settings outside the settled categories of fiduciary relationships is that it is normally inappropriate to expect a commercial party to . This core liability has several facets. he must not make a profit out of his trust. Case law shows that the courts are quite reluctant to find a fiduciary relationship between businessmen who enter into commercial dealings. which is frequently a relationship between two commercial actors. p 2.30 The categories of fiduciary relationship are not closed.31 Fiduciary duties may be owed despite the fact that the relationship does not fall within one of the settled categories of fiduciary relationships. if not superficial. often applied in a commercial setting. however. he may not act for his own benefit or the benefit of a third person without the informed consent of his principal.'39 but 'it is altogether too simplistic. and yet fiduciary duties will be owed by the agent unless they have been excluded. provided the circumstances justify the imposition of such duties. provides a clear example42: the primary source of duty between principal and agent is a matter of contract law. In Snell's Equity at pp 176 and 177 the learned author said: It has been said to be 'of the first importance not to impose fiduciary obligations on parties to a purely commercial relationship. that the fiduciary will not utilise his or her position in such a way which is adverse to the interests of the principal. or even a uniform description. Thus. it has been said that the 'fiduciary relationship is a concept in search of a principle. Numerous academic commentators have offered suggestions.36 The expectation is assessed objectively.33 but none has garnered universal support.'35 The concept encaptures a situation where one person is in a relationship with another which gives rise to a legitimate expectation. and so it is not necessary for the principal subjectively to harbor the expectation. tenant-for-life and remainderman. leaving the development of its jurisprudence to a case by case basis. Fiduciary relationships range from the trustee to the errand . McLelland J. principal and agent. The first passage is from the judgment of Gibbs CJ at p 68 of the report which reads: The authorities contain much guidance as to the duties of one who is in a fiduciary relationship with another. One of the cases referred to by the Court of Appeal was the decision of the High Court of Australia in Hospital Products Limited v United States Surgical Corporation & 3 MLJ 785 at 801 Ors (1986) 156 CLR 41. when we deal with the principles governing equitable intervention. but provide no comprehensive statement of the criteria by reference to which the existence of a fiduciary relationship may be established. English v Dedham Vale Properties Ltd [1978] 1 WLR 93. master and servant. [36] The second passage is from the judgment of Mason J at p 102: The categories of fiduciary relationships are infinitely varied and the duties of the fiduciary vary with the circumstances which generate the relationship. through Gopal Sri Ram JCA (as he then was). the difficulty is to suggest a test by which it may be determined whether a relationship. The minority (Mason and Deane JJ) took the view that the facts disclosed a fiduciary duty. The maxim: 'The categories of fiduciary relations are never closed' exemplifies the approach that a Court of Equity adopts in this sphere of human activity. The archetype of a fiduciary is of course the trustee. but broad and liberal doctrines that are aimed at achieving a just result according to the facts of a particular case. but it is recognised by the decisions of the Courts that there are other classes of persons who normally stand in a fiduciary relationship to one another — eg partners. the High Court was divided in its opinion. However. On further appeal.subordinate its own interests to those of another commercial party. found a fiduciary duty to exist on the facts as found by him. solicitor and client. Flexibility of approach is the hall-mark of equity. [34] In that case one of the main issues to be decided was whether a fiduciary relationship existed on the basis that the appellants were promoters of the Raintree Club of Kuala Lumpur. The majority (Gibbs CJ. we enter a domain comprising.44 But if that expectation is not inappropriate in the circumstances of the relationship between the parties then fiduciary duties will arise. not within one of the accepted categories. As stated by the Court of Appeal in its judgment the case concerned a distributorship agreement between the parties. Wilson and Dawson JJ) held that in the particular circumstances of the case there was no fiduciary duty. had to consider a number of decisions from other jurisdictions on the matter. therefore. in keeping with the purpose of its origin. They found liability on the footing that there had been a breach of contract. Equity has. of course. one of judicial impression dependent upon the fact pattern of a given case. For. is a fiduciary one. See. not rigid rules. His finding was affirmed by the New South Wales Court of Appeal. refrained from laying down any strict rules for determining whether a particular relationship is fiduciary in nature or gives rise to fiduciary obligations. [35] For the purpose of this appeal we find it useful to refer to two of the passages in the judgment of the High Court of Australia which were referred to by the Court of Appeal it its judgment. The primary judge. director and company. [33] In Tengku Abdullah Ibni Sultan Abu Bakar & Ors v Mohd Latiff bin Shah Mohd & Ors and other appeals [1996] 2 MLJ 265 at p 294 [1997] 2 CLJ 607 at p 636 the Court of Appeal said: The flexible approach adopted by the Courts when according recognition to a particular relationship as being fiduciary in nature is. There is no reason to suppose that these categories are closed. In order to answer that question the Court of Appeal. and for that reason we find it unnecessary to refer to all of them in this judgment. solicitor and client. with which we are entirely in agreement. New Zealand Netherlands Society 'Oranje' Inc v Kuvs [1973] 2 NZLR 163. as we have pointed out.  (2) the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary's legal or practical interest. reasonably supports the inclusion of promoters of a club within the scope of the fiduciary doctrine. [38] At p 300 (MLJ). In accordance with these comments it is now acknowledged generally that the scope of the fiduciary duty must be moulded according to the nature of the relationship and the facts of the case: Phipps v Boardman[1967] 2 AC 46. The rigorous standards appropriate to a trustee will not apply to a fiduciary who is permitted by contract to pursue his own interests in some respects. These include the relationships of spiritual adviser and penitent. he pointed out that the nature of the curial intervention which is justifiable will vary from case to case. after referring to the danger of trusting to verbal formulae. the instant case is merely an illustration of equitable protection being extended to fiduciary undertakings by analogy with well-established fiduciary relationships. The often repeated statement that the rule in Keech v Sandford [1726] 25 ER 223. is entirely in keeping with equity jurisprudence. Relationships in which a fiduciary obligation have been imposed seem to possess three general characteristics:  (1) the fiduciary has scope for the exercise of some discretion or power. in the present case the so-called rule that the fiduciary cannot allow a conflict to arise between duty and interest (Kuys) cannot be usefully applied in the absolute terms in which it has been stated. p 644 (CLJ) of the report as follows: In our judgment. in which.boy. the Court of Appeal opined at p 301 (MLJ). Thus. Canadian Aero Service Ltd v O'Mai lev [1973] 40 DLR (3d) 371. . Further. 3 MLJ 785 at 802 [37] In its judgment the Court of Appeal also referred to the judgment of Wilson J in Frame v Smith and Smith (1987) 42 DLR (4th) 81 at p 99: Yet there are common features discernible in the contexts in which fiduciary duties have been found to exist and these common features do provide a rough and ready guide to whether or not the imposition of a fiduciary obligation on a new relationship would be appropriate and consistent. the factual analysis carried out by the learned Judge. the celebrated example given by Fletcher Moulton LJ in his judgment in In re Coomber [1911] 1 Ch 723. doctor and patient. partners and joint venturers. p 643 (CLJ) of its judgment the Court of Appeal opined: A review of the authorities reveals that the characteristics referred to by Wilson J are present in the wellestablished categories of relationships in which the duty has been held to arise. And that. It is noteworthy that the fiduciary doctrine has even been extended to those in negotiation for a partnership or a joint venture.  (3) the beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power. agent and principal. company directors. The concatenation of cases in which these relationships have been dealt with may be found in any standard textbook upon the subject. [39] As regards the issue of whether the fiduciary doctrine was applicable to the promoters of proprietary clubs. applies to fiduciaries generally tends to obscure the variable nature of the duties which they owe. [42] Based on the authorities mentioned above we agree with the submission of learned counsel for the plaintiff that a fiduciary could be found on the facts rather than a contract and the court ought to apply a flexible approach in ascertaining whether a fiduciary relationship exists in a given circumstance. at pp 637 and 638 (CLJ) of the report: Whether a particular set of circumstances ought to attract a fiduciary duty is a question of judicial policy. It depends upon the standard of commercial morality that the Courts of a particular jurisdiction may choose to impose upon parties to a 3 MLJ 785 at 803 transaction.[40] It is also useful to refer to the following observation made by the Court of Appeal in the same case at p 293 (MLJ). Often. For this reason. [46] We agree with the Court of Appeal that the learned trial judge erred in lifting the corporate veil of the defendant to make the defendant liable to account to the plaintiff. Alcatel CIT and Alcatel Italia belonged to one entity. It is therefore necessary for us to determine based on the evidence adduced and the law as discussed above whether in law there existed a fiduciary relationship between the plaintiff and the defendant. In order to arrive at that decision the learned trial judge had to lift the corporate veil to find that the defendant was bound by the consultancy agreements even though the defendant was not a party to the consultancy agreements. [44] By answering the first question of law it does not dispose of the issue of whether there existed a fiduciary relationship between the plaintiff and the defendant. in particular cases. our Courts may impose a fiduciary duty in circumstances in which the Courts of another jurisdiction may decline to find the existence of such a duty. This is a necessary consequence of the policy differences of which we spoke a moment ago. [43] For the reason given our answer to the first question of law posed in this appeal has to be in the affirmative. the standards imposed may be the same as those in other jurisdictions. And. standard. the learned trial judge made a finding that the defendant. But it is open to our Courts to find the existence of a fiduciary duty in order to reflect our own standards which. as in so many other areas of the law. [45] As mentioned earlier. having regard to the cultural background and circumstances of the society in which they function. may prove to be higher than those imposed by judges in other jurisdictions. The reason given by the learned trial judge was that it was in the interest of justice to prevent associated companies of Alcatel Group including the defendant from darting in and out with the corporate labyrinth 3 MLJ 785 at 804 . the views which our Courts entertain may differ from those expressed by the Courts of other jurisdictions in respect of the circumstances in which a fiduciary duty may be declared to exist. That there may be a marked difference in judicial opinion even within the same jurisdiction when determining whether a fiduciary duty exists in a given set of circumstances is well illustrated by the decision of the High Court of Australia inHospital Products Limited v United States Surgical Corporation & Ors (1986) 156 CLR 41 … [41] We agree with the above observation. Dowsett v Reid (1912) 15 CLR 695.before the court. Para Wirra Gold & Bismuth Mining Syndicate NL v Mather [1934] 51 CLR 582. the first respondent purchased the property for RM950. We also agree with the Court of Appeal that there must be evidence either of actual fraud or some conduct amounting to fraud in equity to justify the lifting of corporate veil. This is because commercial transactions often do not give rise to fiduciary duties because they do not meet the criteria for characterization as fiduciary in nature (see John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (Matter No S309/2009] [2010] HCA 19 High Court of Australia). the appellant. [2005] 3 CLJ 355 at p 362 as follows: In my judgment. give rise to a relationship of trust and confidence. The appellant claimed that there was a mutual understanding between her and the first respondent that the building. the first respondent sold the property to the second respondent. The appellant claimed that she and the first respondent . and the first respondent were partners in the business of a restaurant. a private limited company owned by her husband. [2010] 1 CLJ 381. if not decisive. We also find it useful to refer to the judgment of the High Court of Australia in Hospital Products Limited v United States Surgical Corporation & Ors at p 69 where Gibbs CJ said: On the other hand. Even if we were to apply the flexible approach to the circumstances of the case we are of the view that such fiduciary relationship did not exist in the case. the fact that the arrangement between the parties was of a purely commercial kind and that they had dealt at arm's length and on an equal footing has consistently been regarded by this Court as important. but on a different ground. It is also my respectful view that the special circumstances to which Lord Keith referred include cases where there is either actual fraud at common law or some inequitable or unconscionable conduct amounting to fraud in equity … [47] In the instant case the business relationship between the plaintiff and the defendant did not fall under the accepted traditional categories of fiduciary relationship. A similar view was taken in Canada in Jirna Ltd v Mister Donut of Canada Ltd (1971) 22 DLR (3d) 639.610 towards the purchase. in the light of the more recent authorities such as Adams v Cape Industries Plc. [48] The circumstances of the relationship in the instant case could not. The position of the law on this subject had been clearly stated by Gopal Sri Ram JCA (as he then was) in Law Kam Loy v Boltex Sdn Bhd [2005] MLJU 225. Both the appellant and the first respondent were to contribute towards the purchase price. Later. [49] For the reasons given above we agree with the Court of Appeal's decision. It was not appropriate to expect a commercial party to subordinate its own interests to another commercial party as they had dealt with each other at arm's length and on equal footing. The appellant then commenced proceedings to enforce a trust she claimed had arisen in her favour.000 and registered it solely in her name. in our view. was to be purchased and registered in the joint names of herself and the first respondent in equal shares. However. Keith Henry & Co Ptv Ltd v Stuart Walker & Co Ptv Ltd (1958) 100 CLR 342. that the plaintiff and the defendant were not in a fiduciary relationship. in indicating that no fiduciary duty arose: see Jones v Bouffier (1911) 12 CLR 579. it is not open to the courts to disregard the corporate veil purely on the ground that it is in the interests of justice to do so. They decided to acquire the building in which their restaurant had its business. when acquired. a Japanese national. 3 MLJ 785 at 805 SECOND QUESTION — TAKAKO SAKAO V NG PEK YUEN & ANOR [50] In Takako Sakao (f) v Ng Pek Yuen (f) & Anor [2009] 6 MLJ 751. The appellant subsequently provided a sum of RM194. He however failed to direct himself in this fashion thereby occasioning a serious miscarriage of justice.were co-owners and the latter held the appellant's share under a trust. [54] Learned counsel for the plaintiff further submitted that the case for the plaintiff was also premised on there being a collateral agreement and. For the purpose of testing whether there is a case to answer. It was therefore contended by learned counsel for the plaintiff that the Court of Appeal had misdirected itself when it failed to appreciate the significance of the election on the part of the defendant. the evidence given by the appellant ought to have been presumed to be true. 3 MLJ 785 at 806 Now. Applying the principles in Takako Sakao's case. He expressed dissatisfaction with the appellant's evidence without asking himself that most vital question: does the first defendant/respondent have a case to answer? This failure on the part of the trial judge is a serious nondirection amounting to a misdirection which occasioned a miscarriage of justice. The defendant elected not to lead any evidence to rebut the case of the appellant and took the position that there was no case to answer. in allowing the appellant's appeal. [53] Learned counsel for the plaintiff submitted that based on the plaintiff's evidence the learned trial judge found it was sufficient to shift the legal burden to the defendant. [51] The Federal Court. what the trial judge did in the present case is precisely what he ought not to have done. The first respondent did not attend court nor give evidence nor take any part in the case. p 398 (CLJ) of the judgment the Federal Court opined: [4] In our judgment. who was fully conversant with the facts studiously refrained from giving evidence two consequences inevitably followed from that. Secondly. two consequences inevitably followed when the first respondent who was fully conversant with the facts studiously refrained from giving evidence. [52] At p 759 (MLJ). the court ought to have drawn an adverse inference against the first respondent on the amount of the appellant's contribution to the purchase price as well as the existence and the terms of the mutual understanding or agreement that she had with the first respondent. Learned counsel for the plaintiff submitted that it was on this basis. As Elphinstone CJ said in Wasakah Singh v Bachan Singh [1931] 1 MC 125 at p 128: If the party on whom the burden of proof lies gives or calls evidence which. the truth or falsity of the evidence is immaterial. At this stage. She had given her explanation as to the discrepancies in the figures. The judge was under a duty to accept the appellant's evidence as true in the absence of any evidence from the first respondent going the other way. in any event. In the first place. the evidence given by the appellant ought to have been presumed to be true. In other words. In these circumstances it was the duty of the judge to have accepted her evidence as true in the absence of any evidence from the first respondent going the other way. and has no power to hold that the first party has failed to prove his case merely because the judge does not believe his evidence. held inter alia that when the first respondent. the Court of Appeal did not apply the law as stated in Takako Sakao v Ng Pek Yuen & Anor. then the judge is bound to call upon the other party. Firstly. a relationship that at common law obliged the defendant to deliver an account. The learned trial judge found there was a case to answer and therefore the burden shifted to the defendant. all the evidence given must be presumed to be true. The trial judge was at that stage not concerned with his belief of the appellant's evidence. and by reference to the applicable legal principles. learned counsel for the plaintiff . is sufficient to prove his case. that the trial judge found as he did. if it is believed. And her evidence does not appear to be either inherently incredible or inherently improbable. it was agreed that the defendant would give instruction and notify the plaintiff of the value of what was supposed to be deliveries that had been made to the end customers of the defendant namely. The plaintiff's sole witness was thoroughly 3 MLJ 785 at 807 cross-examined by the defence counsel. [57] In our view the question of whether the parties were in accounting relationship involved a mixed question of fact and law. and by way of a collateral agreement (Collateral Agreement) between the plaintiff and the defendant (by conduct and documents evidencing the same) it was agreed that the defendant would notify the plaintiff of the value of all deliveries that have been made to the customers of the defendant.submitted that the Court of Appeal was constrained to conclude that there was a collateral agreement under which the defendant was obliged to deliver the account. Secondly. The trial went on and at the close of the plaintiff's case the defendant's counsel sought an adjournment to another date for the defendant's witness to attend. [56] In the instant case the notes of proceeding showed that the defendant did take part in the trial. PW1 also testified that initially the defendant only rendered a list of the purchase orders and informed the plaintiff of the amount that was due to them and requested the plaintiff to raise their invoice for payment. Celcom and Telekoms and thereafter inform and instruct the plaintiff of the figures based on the supposed value of deliveries. [55] In response to that learned counsel for the defendant submitted that the Court of Appeal was entitled to set aside the order of the High Court as the learned trial judge had decided the case based on issue that was not pleaded. [58] With regard to the issue of whether there was a collateral contract the plaintiff pleaded in para 8 of the statement of claim as follows: In line with the above consultancy agreements and to give effect to the same. In our view the facts of this case can be distinguished from the facts in Takako Sakao's case. it was submitted that as the learned trial judge did not make any finding of facts on the existence of the alleged collateral contract. be it by the defendant or any other company in the Alcatel Group involved in the transactions and the implementation of the Projects and thereafter inform the plaintiff of the manner of computation of payment to the plaintiff after which the plaintiff will send the invoice in the format as required by the defendant to the defendant whereupon payment will be made and/or arranged by the defendant on the invoices … [59] In his testimony PW1 testified that by way of a collateral agreement between the plaintiff and the defendant by conduct. The learned trial judge refused the adjournment and the case was therefore closed without the defence offering any evidence. the Court of Appeal was therefore entitled to draw inference of facts and make its own finding based on the evidence before it. practice and documents evidencing the same. it was submitted that in reversing the decision of the High Court the Court of Appeal did not interfere with the finding of facts made by the learned trial judge. In its judgment the Court of Appeal had extensively dealt with the law relating to the duty to account under the common law. The Court of Appeal therefore did not interfere with the determination of fact by the learned trial judge. The learned trial judge's decision on this issue was reversed on a point of law and as such we agree with the submission of learned counsel for the defendant that the principles in Takako Sakao's case did not apply under the circumstances. Having carefully considered the authorities on this issue the Court of Appeal came to the conclusion that on the evidence adduced by the plaintiff at the trial it was not sufficient in law to establish the case for duty to account. Thirdly. . In respect of the said two agreements above. but this information was never given by the defendant. PW1 further testified that at all times.58 towards their said 3 MLJ 785 at 808 invoices for consultancy services rendered to August 2008. The learned trial judge. 38. it was established in evidence that accounts as required were already rendered and closed vide the appellant's letter dated 23 July 2004 to the respondent. [64] We have carefully considered the judgment of the learned trial judge and we agree with learned counsel for the defendant that the learned trial judge failed to evaluate the evidence relating to the alleged collateral contract and make any finding on the existence of the alleged collateral contract. It was also established in evidence that accounts for the two agreements were already rendered and closed. The purported collateral contract is therefore void for want of consideration.219. made the following observations: 36.937. The relevant passages of the judgment of the learned trial judge are as follows: . [63] As regards the issue of the collateral contract the Court of Appeal. the plaintiff sought the accounts and breakdown from the defendant to show how they had arrived at the amount due to the plaintiff. 37. Therefore the conduct and practice relied upon by the respondent to prove the existence of the so called collateral agreement was not consistent with what the respondent set out to prove. [61] From the evidence adduced by the plaintiff. inter alia. As the statement of claim stood. found that there was fiduciary 3 MLJ 785 at 809 relationship between the plaintiff and the defendant and that the defendant was an accounting party on the ground that the defendant and the associated companies. but for the first and second consultancy agreements.[60] The plaintiff was paid the sum of USD7. For the other eight agreements the compensation was to be calculated based on the relevant invoices in a form acceptable to the associated company As mentioned earlier the obligation to pay the plaintiff in the consultancy agreements did not lie on the defendant. (seeSouth East Asia Insurance Bhd v Nasir Ibrahim [1992] 1 CLJ (Rep) 295 — Supreme Court). no consideration for the agreement was pleaded and no consideration could be discerned from the bundle of pleadings. as well as Alcatel CIT belonged to one entity and that the contracts were also for the benefit of the defendant. Even if there existed an alleged separate collateral agreement (as pleaded by the respondent) the alleged agreement did not amount to a valid contract enforceable under the law as no consideration passed from the respondent to the appellant based on the requirement of s 26 of the Contract Act 1950. There is no evidence that the appellant had provided the respondent with the value of deliveries that it had made to its customers throughout the validity period of all. the defendant only provided the plaintiff with information as to the value of deliveries that it had made to its customers only for Consultancy Agreement No 532G29049 and Consultancy Agreement No 532H39371. as mentioned earlier. [62] It is to be observed that only in the first two agreements ie No 532G29049 and No 532H39371 was it provided that the plaintiff's compensation was to be calculated based on the amount invoiced by the defendant to the client. In all the consultancy agreements between the respondents and Alcatel Standard SA. The effect of the entire agreement clause in all the consultancy agreements. ENTIRE AGREEMENT CLAUSE [66] The Court of Appeal made the following observations: 39. Applying the test of one entity as far as these companies were concerned. the benefits of the contracts were for the defendant. They did not impede a separate and distinct contract being entered into between a party and a non-party in respect of matters that fall within the scope of the primary agreement. is that the respondent (as a party to the consultancy agreements) was bound by the terms of the consultancy agreements with regard to all the matters mentioned in the said agreements.When the Agreements are looked at in totality (see Bundle B1 p 24). In support of that learned counsel cited the following cases:  (a) Inntrepreneur Pub Co v East Crown Ltd [2000] 3 EGLR 31. Therefore. it is not open for the defendant to take a simplistic approach that they are not a party to the various agreements when in fact they were all associated companies involved in the operation of the agreements. [65] For the reasons given we find it unnecessary to answer the second question posed in this appeal. [67] Learned counsel for the plaintiff submitted that the Court of Appeal had erred in failing to appreciate that such clauses were operative only as between contracting parties. Such entire agreement clause. particularly on matters relating to the terms of payments of the consultancy fees and manner in which such payments were to be made. the defendant ALCATEL STANDARD SA and ALCATELCIT are all described as Associated Company. it was open to the court to deem them as such … … Based on this approach where the court were prepared to in the interest of justice pierce the corporate veil to prevent associated companies of ALCATEL including the defendant from darting in and out within the corporate labyrinth before this court. All matters relating to the payment of consultancy fees to be paid by Alcatel Standard SA and the respondent (both are parties to the consultancy agreements) as well the manner of computation of the fees must be read within the four walls of the 3 MLJ 785 at 810 consultancy agreements themselves. … 41. See the case of Re a Company [1986] BCLC 333. it sets forth all intended rights and obligations and supersedes any and all previous agreements and understandings between the parties with respect to the subject matter hereof. and Petroleum Nasional Bhd v Kerajaan Negeri Terengganu & Another Appeal [2003] 4 CLJ 337). Further. in our judgment does not permit any term to be implied or to import any other considerations not in the contract. including any other collateral agreements with another party (not a party in the consultancy agreements). (See Court of Appeal's decisions in Master Strike Sdn Bhd v Sterling Height Sdn Bhd [2005] 2 CLJ 596. there existed what is termed as the entire agreement clause to the effect that This Agreement constitutes the entire agreement between the parties as to the subject matter hereof. and . The cases referred to by the Court of Appeal namely. on the evidence the Court of Appeal found that the informations/accounts were given by the defendant for the first two agreements only and the accounts for the two had been closed. The operation of the clause is not to render evidence of the collateral warranty inadmissible in evidence. Firstly. [71] We agree with the Court of Appeal that even if the plaintiff had succeeded in establishing the existence of the collateral contract as alleged. accordingly. there was no consideration given by the plaintiff to the defendant and as such the agreement was void. The entire agreement clause obviates the occasion for any such search. Symons & Co v Buckleton [1913] AC 30. The defendant was not a party to the consultancy agreements and as such the alleged collateral contract between the plaintiff and the defendant should be treated as a separate and distinct contract and could not fall under the scope of the consultancy agreements. Secondly. But that was the . Under s 26 of theContract Act 1950 it is provided that agreement without consideration is void unless it comes under one of the exceptions. Vol 1 paras 12–102. such contract was void for want of consideration. in the course of negotiations. in the absence of such a clause. Thirdly. (b) Heilbut. [70] The Court of Appeal gave three main grounds as to why it found that the plaintiff had failed to prove the alleged collateral agreement. [68] We agree with the submission of learned counsel for the plaintiff that the Court of Appeal erred in failing to appreciate that such clauses operated only as between the contracting parties. and the peril to the contracting parties posed by the need that may arise in its absence to conduct such a search. save in so far as they are reflected and given effect in that document. From PW1's evidence there was nothing to show that consideration was given by the plaintiff for the defendant to furnish the required information. any promises or assurances made in the course of the negotiations (which. the entire agreement clause in the consultancy agreements prevented the plaintiff and the defendant from entering into a collateral agreement. On this issue. In our view the entire agreement clause did not preclude the plaintiff from setting up the alleged collateral agreement between the plaintiff and the defendant. some (chance) remark or statement (often long-forgotten or difficult to recall or explain) upon which to found a claim. suffice for us to rely on the following observation by Lightman J in Inntrepreneur Pub Co v East Crown Ltd: The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding. We are aware that under the consultancy agreements the plaintiff was required to provide consultancy services for the benefit of the defendant. as is suggested in Chitty on Contract (28th Ed). might have effect as a collateral warranty) shall have no contractual force. such as the present. it is to denude what would otherwise constitute a collateral warranty of legal effect. 3 MLJ 785 at 811 [69] It is to be observed that the third question posed in this appeal did not say whether the collateral contract was between the contracting parties to the principal agreement or otherwise. For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere. Master Strike Sdn Bhd v Sterling Height Sdn Bhd [2005] 3 MLJ 585 and Petroleum Nasional Bhd v Kerajaan Negeri Terengganu [2004] 1 MLJ 8 dealt with issue involving the same parties to the principal agreement unlike our case. For the reason given above our answer to the third question is as follows: Such an 'entire agreement clause' does not preclude the consideration of a collateral contract made between a party and a non-party to the principal contract. and that. to the existence of a collateral warranty. Under the agreement. Gaming was prohibited by the Sabah Gaming Ordinance (Cap 50) ('the Ordinance') but the club was exempted from the provisions of the Ordinance pursuant to s 27(a). On 26 November 1987. we dismiss the appeal with costs and affirm the decision of the Court of Appeal. granted a licence to operate 3-Digit and 4-Digit lotteries. written agreement ('the agreement') was concluded between the club and the appellant. CONCLUSION [72] For the reasons given. PEH SWEE CHIN AND ZAKARIA YATIM FCJJ CIVIL APPEAL NO 02-16 OF 1996(S) 20 May 1998 Contract — Illegality — Contravention of law — Turf club granted licence to conduct betting — Turf club cannot assign or transfer rights under licence — Appellant granted exclusive rights — Whether contract amounted to do a forbidden act — Whether contract illegal — Contracts Act 1950 s 24(a) Contract — Terms — Implied terms — Inference of intention of parties to include term — The officious bystander test and the business efficacy test — Whether the parties had intended to commit to each other on a long — term basis — Whether High Court was correct in implying term The Sandakan Turf Club ('the club'). Reported by Kanesh Sundram [1998] 3 MLJ 151 SABABUMI (SANDAKAN) SDN BHD v DATUK YAP PAK LEONG FEDERAL COURT (KUALA LUMPUR) LAMIN PCA. the appellant was to buy 100 acres of land and to construct .consideration for the consultancy agreements and not for the alleged collateral agreement and also the consultancy services were not rendered at the defendant's request. formed to carry out gaming activity. the essence of the intention for both parties was for the club to grant an exclusive right to the appellant to conduct off-course and on-course betting or gaming for 20 years in consideration of payment to the club of 2% of all gross takings from such betting activities. At the time of negotiating for the agreement or signing the agreement. In January 1995. both parties would have answered 'Oh. However. the Sabah authorities cancelled the licence. In this case. The Ordinance was subsequently repealed by the Modification of Laws (Common Gaming Houses. if the officious bystander had asked the question whether such exclusive right to operate off-course and on-course betting for 20 years would continue if the licences and the exemption were issued or granted by any other laws. The appellant continued to carry on off-course betting activities after the 1995 licence was issued. The club in turn agreed to sublease the land and the racecourse to the appellant for a period of 20 years. its activities were stopped by the police. The High Court declared that the 1995 licence was within the scope of the agreement by way of an implied term. Both parties had decided to commit to each other in regard to such business on a long-term basis. the High Court was correct in implying such a term (see pp 169A. Betting and Sweepstake Duties and Racing (Totalisation Board) (Extension to the States of Sabah and Sarawak)) Order 1991 which contained a proviso that the exemption and licence granted earlier under the Ordinance remained in force. Betting. On appeal. . Lotteries. The answer to the officious bystander would also give business efficacy to the business between the parties. The appellant was to pay 2% of its gross sale takings to the club on a joint venture basis. The appellant was given the exclusive rights to conduct and manage all bettings on the races at the racecourse and to conduct and manage all 3-D and 4-D operators throughout the state of Sabah. 170H-I and 171C-E). (2) (Per Lamin PCA. which prohibited the assignment of rights. In the agreement. by granting the appellant the exclusive right to conduct the off-course and on-course betting. the Sabah authorities issued an amended licence. the illegal or prohibited act was the breach of condition 23 of the said federal licence. of course'. an agreement is illegal and unenforceable when either the consideration or the object of the agreement is to do an act forbidden by law. Therefore. 1998 3 MLJ 151 at 152 Held. Peh Swee Chin and Zakaria Yatim FCJJ) Under s 24(a) of the Contracts Act 1950. Intention is determined by the officious bystander test and the business efficacy test. The agreement assigned wholly or partly the rights of the club granted by the federal licence. On the date the licence was cancelled. As such. this court had to decide on the issues of the implied term and the illegality of the agreement. the federal Ministry of Finance issued a new licence to the club under the Pool Betting Act 1967.a racecourse on the land at its own expense. ie it would give the desired result of both parties under the agreement. The Pool Betting Act 1967 was later extended to Sabah and on 14 April 1992. The Court of Appeal reversed this decision and set aside the order of the High Court (see [1997] 1 MLJ 587). dismissing the appeal: (1) (Per Peh Swee Chin and Zakaria Yatim FCJJ) The court may infer an implied term from evidence that the parties to a contract must have intended to include it in the contract though it has not been expressly set out in the contract. The implication of the term by the judge was therefore wholly unjustified (see pp 156I and 157A-C). For cases on contravention of law. upon the issuance of the 1995 federal licence under the Pool Betting Act 1967. it remains valid only for one year as condition 1 so stipulates. Under the federal licence. Cases referred to BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 16 ALR 363 (refd) Kammins Ballrooms Co Ltd v Zenith Instruments (Torquay) Ltd [1970] 2 All ER 871 (refd) Liverpool City Council v Irwin & Anor [1977] AC 239 (refd) Lo Su Tsoon Timber Depot v Southern Estate Sdn Bhd [1971] 2 MLJ 161 (refd) Luxor Eastbourne) Ltd & Ors v Cooper [1941] AC 108 (refd) Moorcock. Some of the conditions were absent in both the original and the amended licences.the agreement amounted to a contract to do an act forbidden or prohibited by s 21 of the Pool Betting Act 1967. 1994 Reissue) 2218-2241. I and 177E-G). Notes For cases on implied terms. see 3 Mallal's Digest (4th Ed. Therefore. This contradicted s 24(a) of the Contracts Act 1950 and the agreement was therefore illegal and void (see pp 176E. the appellant had the exclusive rights to conduct and manage all bettings. see 3 Mallal's Digest (4th Ed. the Federal Minister's powers under the federal licence were beyond the contemplation of 1998 3 MLJ 151 at 153 parties to the 1987 agreement. 1994 Reissue) paras 1749-1757. The (1889) 14 P 64 (refd) Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 (refd) Reigate v Union Manufacturing Co (Ramsbottom) & Anor [1918] 1 KB 592 (refd) St John Shipping Corp v Joseph Rank Ltd [1957] 1 QB 267 (refd) Sundang Timber Co Sdn Bhd v Kinabatangan Development Co Sdn Bhd [1977] 2 MLJ 200 (refd) . is the Minister who approves the appointment of any agent whereas under the 1987 agreement. (3) (Per Lamin PCA. dissenting on the issue of implied term) There were material differences between the conditions of the original licence and the amended licence issued by the state authority and those contained in the federal licence of 1995. Further. the previous two licences had no time limit. Betting. Cecil Abraham (Colin Lau and Dhinesh Bhaskaran with him) (Colin Lau & Co) for the respondent. Lotteries. The High Court below at Kota Kinabalu decided in favour of the appellants who brought this action as plaintiffs before the said court by way of an originating summons. I entirely agree with him as to the result in that we uphold the order of the Court of Appeal and that the appeal is therefore dismissed. . Kuala Lumpur) Tommy Thomas (CL Wong and Roderic Fernandez with him) (Shelley Yap Leong Tseu Chong Chia & Co) for the appellant. LAMIN PCA I have had the privilege of reading the draft judgment of my brother judge Peh Swee Chin FCJ and with respect. Betting and Sweepstake Duties and Racing (Totalisation Board) Extension to the States of Sabah and Sarawak)) Order 1991 para 12 Pool Betting Act 1967 ss 5 21 Rules of the Federal Court 1995 r 108(1) Sale of Goods Act 1957 Societies Act 1966 Appeal from Civil Appeal No S-02-275 of 1995 (Court of Appeal.Vita Food Products Inc v Unus Shipping Co Ltd (In liquidation) [1939] AC 277 (refd) Yap Nyo Nyok v Bath Pharmacy Sdn Bhd [1993] 2 MLJ 250 (refd) Legislation referred to Contracts Act 1950 ss 24 Evidence Act 1950 s 92(e) Gaming Ordinance 1930 [Sabah] s 27(a) Malaysia Act 1963 1998 3 MLJ 151 at 156 Modification of Laws (Common Gaming Houses. conditions 9. the Court of Appeal did not agree with the finding of the High Court and after dealing extensively with the legal principles relating to implied terms. 25 and 26 read: 9 The licensee shall produce a list and details of agents that are appointed by him for the Minister's approval. the Federal Minister's powers under the federal licence are beyond the contemplation of parties to the 1987 agreement. 1998 3 MLJ 151 at 157 As observed by the Court of Appeal. on whichever principles relating to implied terms as discussed by the Court of Appeal. 26 The Minister can at any time cancel this licence without giving any reason. it is the Minister who approves the appointment of any agent. the company (the appellants) has the exclusive rights to conduct and manage all bettings. the club was to carry on with the on-course and off-course betting 'a sort of old wine in new bottle' and so the decision of the High Court should be upheld. However. He said that with the issuance of the federal licence of 1995. adopting the objective test suggested by Lord Radcliffe in [Davis . the order of the High Court cannot be upheld. The previous two licences had no time limit. some of them were absent in both the original and the amended licences. For my part. If I may mention very briefly only on certain aspects of the arguments regarding the said issue. The agents whose appointment has not or was not approved by the Minister cannot operate. Clearly. In other words. In this regard. it came to the conclusion that the 1987 agreement could not further subsist and be enforceable. Further upon the issuance of the 1995 federal licence under the Pool Betting Act 1967. The High Court declared that the federal licence of January 1995 was within the scope of the 1987 agreement. 25 The Minister can at any time add. vary or cancel any condition or restriction that is stated in this licence. Conditions 9. I therefore agree with the finding of the Court of Appeal on this issue. For example. with respect. therefore. an issue not canvassed before the High Court but taken for the first time before it (see [1997] 1 MLJ 587). 25 and 26 of the federal licence are not found in both the original and the amended licence. On the issue of implied term.The facts of the case have been gone into in some length by the Court of Appeal in its judgment and to some extent by my brother judge Peh Swee Chin FCJ and so I do not propose to repeat them unless when I find it necessary to do so. my brother judge Peh Swee Chin FCJ found himself at variance with the Court of Appeal. it remains valid only for one year as condition No 1 so stipulates. the 1987 agreement remained valid and enforceable even in the face of the terms of the said federal licence on the ground that the terms of the licence could be implied into the agreement. The Court of Appeal also struck down the said agreement on the ground of illegality. Again under the federal licence. I need only quote the words of the Court of Appeal appearing at p 613A-C: We are entirely satisfied. Under the 1987 agreement. There were some material differences between the conditions of the original licence and the amended licence both issued by the state authority on the one hand and on the other those contained in the federal licence of 1995. the agreement. We think. If we may recall. the Court of Appeal found that the circumstances of this case had attracted s 24 of the Contracts Act 1950. 1998 3 MLJ 151 at 158 To him the prohibited or the forbidden act is 'the breach of condition 23 of the aforesaid federal licence issued under the said statute for the following reasons'. that the farthest thing operating upon the minds of the present litigants. Normally in a similar situation. having regard to all the facts and circumstances in existence at the time when they made it. as far as the Court of Appeal is concerned. As I have indicated earlier that this appeal is to be dismissed and it is so dismissed with costs here and in the Court of Appeal. would defeat the Act. But in view of the fact that the issue of illegality was brought up by . if countenanced. I am also of the view that this has the effect of directly offending s 24(a) of theContracts Act 1950. The appointment of agents to operate those bettings shall only be made by the company (cl 17 of the agreement). the cancellation of the original or the amended licence issued under the Ordinance and the issuance of the 1995 licence containing all those far reaching conditions to which we have already referred. My brother judge Peh Swee Chin FCJ says this: It is illegal and unenforceable under s 24(a) aforesaid because it is a contract involving consent of both contracting parties to do the very act prohibited or forbidden by statute. it says: So too. It matters not whether one applies the officious bystander test or that propounded by Lord Simon of Glaisdale in [BP Refinery (Westernport) Pty Ltd v Hastings Shire Council  (1977) 16 ALR 363 ]. they made their bargain. As the licence was granted under s 5 of the Pool Betting Act 1967. the respondents should get their costs before the High Court as well. is founded under s 24(b). My brother judge Peh Swee Chin FCJ said that it 'would be impossible to say that the obtaining of such exclusive right to operate the off-course and on-course betting is not an assignment wholly or partly of such rights granted to the said turf club by the said federal licence'. illegal and void. At p 621H-I. condition 23 prohibits the assignment or the transfer of rights. in the present case. the breach has taken place in that the agreement has purportedly assigned wholly or partly of the rights of the said turf club granted by the federal licence. By virtue of cl 3(b) of the agreement. a breach of any of its conditions would be an offence and punishable under s 21 of the said Act. The agreement therefore falls squarely within s 24(b) of the Contracts Act 1950 and is. by reason thereof. On the issue of illegality. however s 24(a) is more appropriate. We agree. The illegality.Contractors Ltd v Fareham UDC [1956] AC 696 ]. was the repeal of the Ordinance and its replacement by the Act. These are the only conclusions that may be drawn when the agreement is construed as a whole. In the result. company (the appellants) is granted 'exclusive rights to conduct and manage' both the on-course and off-course bettings. In the present case. The result is the same. The agreement is therefore illegal and void as it violates condition 23 of the federal licence. The implication of the term by the judge was wholly unjustified. etc as provided in the licence. Nor can they be said to have had within their contemplation. is within the scope of the agreement between the plaintiff and the defendant dated 26 November 1987 ('the 1987 agreement'). (f) an injunction to restrain the defendant whether by itself or through its officers. The matter originated in the High Court at Kota Kinabalu.the respondents for the first time before the Court of Appeal and not at first instance and carried on before us. . each party shall pay their own costs in respect of proceedings before the High Court. (d) an account of the gross sale takings derived from all the 4-D operations and bettings undertaken by the defendant or its agents in breach 1998 3 MLJ 151 at 159 of the 1987 agreement and for payment of 98% of the said gross sale takings to the plaintiff. and any renewals thereof. agents. PEH SWEE CHIN FCJ : This appeal raises two interesting but complicated questions of law. where the appellant before us filed an originating summons. save and except through the plaintiff. (e) an injunction to restrain the defendant whether by itself or through its officers. servants. from appointing any agents in respect of 3-D and 4-D operations in the state of Sabah pursuant to the said licence dated January 1995 granted to the defendant under the Pool Betting Act 1967 or any renewals thereof. and any renewals thereto. (g) damages. The deposit for the purpose of this appeal shall be paid out to account of taxed costs. servants. or any renewals thereof. and/or the plaintiff's right to conduct and manage the same. illegality of contract. nominees or otherwise howsoever interfering in any way with the plaintiff's conduct and management of all 3-D and 4-D operations in Sabah pursuant to the said licence dated January 1995 issued to the defendant under the Pool Betting Act 1967. one relating to the implied terms of a contract and the other. (c) a declaration that the plaintiff has the exclusive right to appoint all 3-D and 4-D operations agents in the state of Sabah on behalf of the defendant. agents or nominees or otherwise howsoever. (b) a declaration that the plaintiff has the exclusive right to conduct and manage all 3-Digit ('3-D') and 4-Digit ('4-D') operations in and throughout the state of Sabah pursuant to and in accordance with the said licence dated January 1995 issued to the defendant under the Pool Betting Act 1967. claiming as follows: (a) a declaration that the licence dated January 1995 issued by the relevant authority to the defendant under the Pool Betting Act 1967. 17 and 28 of Act 384 and the conditions and prohibitions which is fixed in this licence. hereinafter known as 'the Minister'. Sabah for the purposes of collecting. [Dated 17 February 1995] The licence mentioned in para (a) above which was issued in January 1995 was of course in Bahasa Malaysia but an English translation of it was referred to and accepted by both parties as being a correct translation which is set out below and this licence is henceforth referred to as 'the said federal licence'. operating or developing pool betting that is pool betting Empat Nombor (4D) forecast governed by ss 10. 4 The licensee shall pay a licence fee in accordance with the rate fixed under the Pool Betting (Licence Fee) Rules 1995. hereinafter known as 'the licensee'. . Sabah and it cannot be changed without the approval of the Minister. 16. that displays and shows the type of business. North Road. 2 The premises of the licensee is at the Sandakan Turf club. Lot No 3. Sandakan. whose registered office is at 1st Floor.00/4/3/3-1 JD 1(4) Licence Payment: RM250. 1998 3 MLJ 151 at 160 3 The licensee must display a distinct notice board at a conspicuous place in the premises.(h) interest. Block A. Gelanggang Lumba Kuda. Sandakan. CONDITIONS AND RESTRICTIONS 1 This licence is valid for the period of one (1) calendar year starting from 1 January 1995 and shall be in force in Sabah only. Bandar Tong Huat. as specified by the second paragraph of this licence. hereinafter known as 'Act 384' to the Sandakan Turf Club. Jalan Sibuga. (i) costs. and (j) such further or other orders and relief as this honourable court deems just and proper. Treasury: KK/BP(J)/8.000 Pool Betting Act 1967 LICENCE (SECTION 5) This licence is issued by the Finance Minister. under s 5 Pool Betting Act 1967. in accordance with the rate that is determined by the Minister from time to time. 12 The licensee shall maintain and prepare an updated registration book that contains a list of agents and one registration book that contains a list of workers including his agent's workers in accordance with the details fixed by the Minister from time to time.000) in the form of treasury bills or government securities that are approved as guarantee for monies won. 11 The licensee shall ensure that his agents abide by all conditions and prohibitions that is fixed by the Minister from time to time.000.5%. 7 The licensee shall produce. The type of pool betting and variations where a scheme has not or was not approved by the Minister cannot be promoted or organized by the licensee. 15 The licensee cannot carry out any business or other activities except in relation to the abovesaid pool betting at the premises that is specified in para 2 of this licence.000) at all times.000. for the Minister's approval. 14 The licensee cannot carry out any financial dealings relating to the abovesaid pool betting save in the premises in para 2 of this licence. 8 The Minister has the right to determine the amount and time for having the draw from time to time depending on the type of pool betting scheme that has been approved. 6 The licensee shall pay gambling tax of 7% and pool betting monies of 11. 16 The licensee can only sell the abovesaid pool betting tickets in Sabah only. The licensee must complete a letter of irrevocable power of attorney to the Minister which gives the Minister absolute discretion to sell or dispose other treasury bills or government securities that are approved without referring to the licensee and also to use the proceeds to pay monies that are won which the licensee has failed to pay due to some dispute or other reasons. 9 The licensee shall produce a list and details of agents that are appointed by him for the Minister's approval. the scheme for every type of pool betting and variations that is promoted and organized by him. 13 The licensee cannot allow any person. company. . The agents whose appointment has not or was not approved by the Minister cannot operate. Any amount that is used by the Minister must be compensated by the licensee immediately so that the deposited amount remains at Ringgit Malaysia one million (RM1. 10 The licensee shall only allow his agents to carry out their operations from 10am to 7pm only. other than payments of taxes on income.5 The licensee shall deposit with the government a sum of Ringgit Malaysia one million (RM1. development and others as required by the relevant laws. other than his workers or his agent's workers to carry out any businesses relating to the abovesaid pool betting. 21 The licensee shall give. vary or cancel any condition or restriction that is stated in this licence. Any money that is not claimed. any statement or information that is required by my officer from the Malaysian Treasury as stated in a written notice that is issued by the said officer. 24 Any public officer that is properly appointed by the Minister. Finance Minister . whether wholly or part of. Administration Division On behalf and in the name of. 20 The licensee shall allow any public officer that is given the proper power by the Minister to inspect any accounts or balance sheets of the licensee or his agents. any rights. as provided in the relevant pool betting scheme. 18 All tickets that are sold to the public shall contain the following words — 'GAMBLING IS ILLEGAL IN ISLAM' and 'ALL PRIZES ARE FULLY GUARANTEED'. Made in Kuala Lumpur on … January 1995 Signed (Yusof bin Salleh) Secretary. has the right to attend and take part in any meeting or dealings relating to the abovesaid pool betting that is promoted or organized by the licensee or his management body. duties or obligations that is provided in this licence. 26 The Minister can at any time cancel this licence without giving any reason. within the specific time fixed.1998 3 MLJ 151 at 161 17 The licensee is fully responsible for the payment of monies that were won and not his agents. shall be put into the government's revenue. 23 The licensee cannot assign or transfer. 19 The licensee is also governed by the Unclaimed Moneys Act 1965. 22 Membership of licensees or its management bodies cannot be changed or replaced without the consent of the Minister. 25 The Minister can at any time add. AND WHEREAS the club has also been granted the necessary licence to promote and organize public lotteries (including sweepstakes 3-D and 4-D) in any part of Sabah under the Gaming Ordinance (Sabah Cap 50) (hereinafter referred to as 'the said licence'). also referred to in para a) above. a limited company incorporated under the Companies 1998 3 MLJ 151 at 162 Act 1965 (hereinafer called 'the company' which expression shall include its successors and assigns) of the other partWHEREAS the club intends to acquire a piece of land in the district of Sandakan for the setting up of a racecourse with racing and betting facilities. AND WHEREAS the club has been granted exemption from the provision of the Gaming Ordinance (Sabah Cap 50) by the relevant authority in respect of any totalisator or pari-mutual to be promoted or operated by it on the proposed racecourse (hereinafter referred to as 'the said exemption'). a society duly registered under the Societies Act (hereinafter called 'the club' which expression shall include its successors and assigns) of the one part. AND WHEREAS the parties hereto have agreed to co-operate in the construction of the racecourse and the management of racing facilities in Sandakan and the setting up of the betting facilities in accordance with the terms and conditions hereinafter provided. Jalan Penampang. Malaysia. and SABABUMI (SANDAKAN) SDN BHD of Lot 8. it is set out below in full for ease of reference as follows and is also referred to hereafter as 'the said agreement': THIS AGREEMENT is made this 26 November 1987 BETWEEN KELAB LUMBA KUDA SANDAKAN (SANDAKAN TURF CLUB) PO Box 519. 7km. in the state of Sabah.The agreement dated 26 November 1987. . PO Box 13803. has been at the heart of this case with its construction or interpretation being highly controversial. NOW THIS AGREEMENT WITNESSETH as follows: 1998 3 MLJ 151 at 163 1 In consideration of the terms and conditions hereinafter contained. the parties hereto hereby agree to co-operate with each other in the construction of a racecourse and the management of racing facilities in Sandakan and the setting up of betting facilities. 1st Floor. 88844 Kota Kinabalu. 90007 Sandakan in the state of Sabah. 1998 3 MLJ 151 at 164 2 The company hereby undertakes with the club as follows: (a) To acquire for the club 100 acres of land from the Sandakan Municipal Council or state government situated at a prime and freely accessible location in Sandakan (hereinafter referred to as 'the said land') and to arrange for its proper survey and to pay all survey fees and incidental costs. Towering Industrial Centre. Malaysia. charitable educational and benevolent purposes.land costs or premium. and to pay all costs and expenses related thereto. The company and its agents and . as may be permitted under the licence granted to the club. grow and produce suitable animal feeds. (d) The club shall undertake public relations. natural wear and tear being excepted. (f) To pay to the club as its share of the revenue in the joint venture herein 2% of the gross sale takings derived from all bettings on the races. structures and fixtures thereon. promote the breeding of ponies and horses. (c) To set up the betting machines at the racecourse and also betting facilities off course. 4 Upon the expiration of the twenty (20) years sublease under cl 3(a) aforesaid the company shall deliver up vacant possession of the said land and the racecourse and all buildings. (d) To manage and maintain in good conditions the racecourse and all buildings. (e) To operate and manage all pony and thoroughbred horse racing on the racecourse in accordance with the rules of racing of the club or as may be adopted or approved by the club from time to time. create racing interests and do all things to support the pony and horse racing industry. playing fields and arenas for the members of the club and the general public and give donations to patriotic. together with all on-course and off-course betting machines. (b) To construct on the said land a racecourse of a standard approved by the relevant authorities. and provide sporting activities. 3 The club hereby undertakes with the company as follows: (a) To grant to the company the exclusive rights to run all poly and thoroughbred horse racings on the said racecourse. 3-D and 4-D operations and other bettings undertaken by the company or its authorized agents. (c) To sublease the said land to the company for a term of twenty (20) years commencing from the date of completion of the racecourse thereon. structures and fixtures thereon and all betting machines and facilities related thereto. and other facilities and amenities which are necessary for the conduct of pony and thoroughbred horse racing. on the races. and in accordance with such plans and specifications which may be approved by the local authority or the Ministry concerned. reasonably good repairs and conditions. and to pay all costs and expenses related thereto. and all other amenities and facilities forming part of the racecourse and racing and betting operations. (b) To grant to the company the exclusive rights to conduct and manage all bettings on the races at the racecourse and to conduct and manage all 3-D and 4-D operations related to such races throughout the state of Sabah. study tours. at the nominal annual rent of Ringgit Malaysia one only (RM1) for the purposes set out in paras (a) and (b) aforesaid. and to employ and pay personnels engaged in these activities. and complete with grandstand. and costs of issue and registration of the title deed for the said land in the name of the club or its trustees. its agents and employees shall at all times comply with the laws for the time being in force in Sabah. the company. 6 The club shall co-operate closely with the company in the acquisition of the said land. then this agreement shall be determined forthwith. If this event happens after the company has been in operation of the . 9 In carrying out all 3-D. and the terms and conditions set out in the licence granted to the club and with all orders and directions which may be issued by the licensing authority or the police from time to time. 10 The company shall keep proper and up to date accounts of all betting operations and shall make them available for inspection by the club or its officials or agents at all times. all payments thereafter shall be in accordance with cl 7 aforesaid. 7 Subject to the provisions of cl 8 herein the 2% gross sale takings payable by the company to the club under cl 2(f) aforesaid shall be paid weekly and the payment date shall be the first business day one week after the close of the previous week's account. with a grace period of not more than seven (7) days. The company shall have no claim whatsoever against the club for capital outlays expended by the company on the racecourse and the betting facilities. 4-D and other betting operations connected with the racecourse. and sign all documents and forms which may be necessary. without any claim whatsoever against the club for loss and damages suffered or for capital outlays expended by the company on the racecourse and the betting facilities. provided that all expenses and fees related thereto shall be borne by the company. If the company defaults again after the grace period then the payment date shall be extended for not more than one (1) month subject to the payment of interest on the amount due and payable at the rate of 1% per month with daily rests. 8 The company may defer payment of the aforesaid 2% gross sale takings during the first three months of operation and commence actual payment after the third month.employees shall also cease all 3-D. 4-D and other betting operations whether on-course or off-course. provided that the said 2% sale taking for the first year shall be fully paid before the end of the year. 2(b) and 2(c) shall maintain constant consultations with the club in order to ensure that all constructions and installations are acceptable to all parties concerned. 5 The company in carrying out its undertakings under cl 2(a). 11 (i) If the said exemption granted to the club under the Gaming Ordinance is cancelled by the authority concerned due to no fault of either the club or the company. In the event of any defaultor offence being committed the company shall pay and settle all fines and penalties which may be imposed and indemnity and keep indemnified the club its officials and members against the same. If the company defaults again after the one (1) month extension then the club shall be entitled to give a three (3) month notice in writing to the company and determine this agreement and upon such termination the company shall comply with all the terms as provided in cl 4 aforesaid as if the twenty (20) years sublease has duly expired. The company shall appoint as its auditors the firm of Yap Lean & Co. Certified Accountants of Kota Kinabalu. together with all on-course and offcourse betting machines. and all other amenities and facilities forming part of the racecourse and racing and betting facilities shall revert back to the club as is sole properties and the company shall have no claim whatsoever against the club for capital outlays expended by the company on racecourse and the betting facilities. this agreement shall still subsist and be valid and binding upon the parties in so far as the same relates to the operation and management of the ponies and thoroughbred horses racing on the racecourse provided however that in such event the company shall compensate the club an amount equivalent to the prevailing market value of the buildings. 13 (i) If the said exemption is cancelled because of the fault of the company. If this event happens after the company has been in operation of the racecourse and betting facilities for less than ten (10) years then the parties shall negotiate for the take over to the said land and the racecourse and all betting facilities with the view of fair compensation to the company or the loss of the capital outlay. structures and fixtures thereon. then this agreement shall still subsist and be valid and binding upon the parties in so far as the same relates to the operation 1998 3 MLJ 151 at 165 management of the ponies and thoroughbred horses racing on the racecourse provided however that in such event the club shall compensate the company for the loss of capital outlays expended on the racecourse and betting facilities. together with all on-course and off-course betting machines and all other amenities and facilities forming part of the racecourse and racing and betting facilities shall revert back to the club as its sole properties. if the said licence issued to the club under the Gaming Ordinance is cancelled by the parties concerned due to no fault of either club or the company. together with all on-course . 12 (i) If the said exemption is cancelled because of the fault of the club.racecourse and betting facilities for ten (10) years or more. (ii) If only the said licence is cancelled because of the fault of the club. the said land and together with the racecourse and all buildings structures and fixture thereon. (ii) If only the said licence is cancelled because of the fault of the company. then this agreement shall be determined forthwith and upon such determination the said land together with the racecourse and all building. then this agreement shall be determined forthwith and upon such determination the club shall compensate the company for the loss of capital outlays expended in the racecourse and betting facilities. (ii) However. If negotiations should break down then this matter shall be submitted to arbitration in accordance with the laws for the time being in force in Sabah. structures and fixtures on the racecourse. in such event the company shall still be entitled to operate and manage the ponies and thoroughbred horses racing on the racecourse as permitted under the said exemption and in accordance with the terms and conditions of this agreement which are applicable thereto. and to indemnify and keep indemnified the clubs its officials and members against the same. The company shall take out such public liability insurance as may be suitable. and to indemnify and keep indemnified the club its officials and members against the same. 21 In the event of any dispute arising out of the construction or operation of this agreement the parties hereto shall endeavour to negotiate a settlement initially and if a settlement cannot be reached the dispute shall be submitted to arbitration in accordance with the laws for the time being in force in Sabah. 4-D and the other betting operations agents whether on-course or off-course. and indemnity and keep indemnified the club. IN WITNESS WHEREOF the parties hereto have hereunto set their hands the day and year first . the licence holder. with no voting power. 14 Officials of the club shall attend and supervise at all race meetings conducted or managed by the company and such club officials shall be paid such allowance by the company as may be agreed upon from time to time. any loan obtained for the development shall be the sole liability company of the company. Such valuation shall be based upon a valuation carried out by a chartered valuer to be agreed by the parties hereto. The appointment letter for each agent shall be signed by the company which shall be entitled to hold such deposit which may be made by the agents. 16 A representative of the club shall be appointed a director to sit at the board of directors of the company. shall be appointed by the company on behalf of the club. 1998 3 MLJ 151 at 166 20 This agreement shall commence on the date of its execution and the company shall enter into such agreement which may be necessary to secure the said land for the club within seven (7) years thereafter. 17 All the 3-D. 4-D or other betting operations.and off-course betting machines and all other amenitiese and a facilities forming part of the racecourse and racing and betting facilities. its officials and members against the same. 19 The company shall not involve the club in any financial liability whatsoever while in the development of the racecourse or in the subsequent management to the racecourse and racing and betting operations. and to be solely liable for all losses arising out of such 3-D. 15 The company shall be solely liable for all claims for losses and damages which may be made by members of the public arising out of the race meetings conducted or managed by the company. 18 The company shall at all times pay all government duty and gaming tax which may be imposed or assessed by the authorities concerned on the racing and betting operations. and shall complete the construction of the racecourse and other racing and betting facilities within two (2) years after the approval of all development plans by the local authority or Ministry concerned. On 14 April 1992. the said Gaming Ordinance of Sabah was repealed and all federal statutes dealing with gaming or betting or racing mentioned in the Order applied to Sabah.above written. the said operator would be given the exclusive right to operate and manage all the gaming facilities for the Sandakan Turf Club. the respective Ordinances shall continue to be in full force and effect. On the heels of this new licence ie on 15 April 1992. The gaming that was subsequently carried on or operated was in pursuance of a licence issued by the Sabah government under Sabah's own Gaming Ordinance of 1930. The cost. Betting. and also by way of the granting of certain exemptions from the provisions of the Gaming Ordinance in favour of the said turf club on or shortly after 14 February 1984 in respect of 'on-course' betting (by way of the said exemption) which comprised pari-mutual and totalisator betting. For these purposes only. The said turf club was also permitted by the government to carry on off-course betting by means of the licence mentioned just now comprising public lotteries. is varied. under the said Gaming Ordinance of Sabah cancelled the licence dated 14 April 1984 in respect of the off-course betting and issued a new licence which apparently differed from the cancelled licence with a new condition which said: This licence shall be personal to the licensee or shall not be transferred in any manner whatsoever. can be said to be fairly enormous but the duration of the exclusive right would be for about 20 years. hereafter called 'the said turf club'. Betting and Sweepstake Duties and Racing (Totalisation Board) (Extension to the States of Sabah and Sarawak)) Order 1991' came into force for the state of Sabah by virtue of which. and shall continue in force until it expires. Business was however carried on as usual between the said turf club and the said operator and I have ascertained from both parties that the said condition of the new licence dated 14 April 1992 about the personal nature of the licence did not affect such business in any way or in such a way as . Lotteries. permit or licence issued or granted under the Gaming Ordinance Sabah or the Gambling Ordinance. the government of Sabah. 'Modification of Laws (Common Gaming Houses. including 3-Digit and 4-Digit draws. The said Gaming Ordinance is hereafter called 'the said Gaming Ordinance of Sabah'. amended or revoked under the said laws. a fairly long-term project as contemplated by both parties as shown in the clauses of the said agreement. shall continue to remain in full force and effect under the respective Ordinances under which it was made. said to be about RM18m. Sarawak on or before the commencement of this Order. It will have been noticed that the appellant ('the said operator') was to build the racecourse and its buildings at its cost practically from scratch by acquiring or buying the necessary land and in consideration therefor. This Order of 1991 was made possible by certain provisions of the Malaysia Act 1963. The new licence dated 14 April 1992 issued under the Gaming Ordinance of Sabah was saved by para 12 of the 1998 3 MLJ 151 at 167 said Order of 1991 (hereafter called 'the said Order of 1991') which read as follows: Provided that any exemption. and 4 that the Kelab Lumba Kuda Sandakan (Sandakan Turf Club) do pay Sababumi (Sandakan) Sdn Bhd costs of this action to be taxed. the said federal licence as set out above was issued to cover all the gambling activities of the said turf club.00/4/3/3-1 JD 1(4) issued by the federal Minister of Finance of the government of Malaysia to the Kelab Lumba Kuda Sandakan (Sandakan Turf Club) under the Pool Betting Act 1967 and any renewals thereof is within the scope of the agreement between the Kelab Lumba Kuda Sandakan (Sandakan Turf Club) and Sababumi (Sandakan) Sdn Bhd dated 26 November 1987. After a hearing on merits. informing the said turf club that its gaming activities should cease by 31 December 1994 and thereafter they were to be carried on under a federal licence. yet unsealed but apparently acceptable to both parties. 3 that the Kelab Lumba Kuda Sandakan (Sandakan Turf Club) do pay Sababumi (Sandakan) Sdn Bhd damages to be assessed by the High Court.to give rise to any controversial claim as contended in the proceedings between the two parties. The federal Ministry of Finance. . I have mentioned all this to show the preparedness of both parties to commit themselves to the said agreement for the purpose of dealing with the question of implied terms later. differences between the parties arose leading to the said originating summons being filed as set out earlier. Relations nonetheless between the parties came to a head when the federal government decided to implement the federal statutes in Sabah as extended by the said Order of 1991 when the federal Ministry of Finance wrote to the said turf club on 12 December 1994. Kota Kinabalu in respect of the said breach. After the said federal licence was issued. is set out below: UPON THE APPLICATION of the plaintiff abovenamed AND UPON READlNG the originating summons dated 17 February 1995 and the affidavit of Tuan Foo Fat affirmed on 17 February 1995 and the affidavit in opposition of Datuk Yap Pak Leong affirmed on 8 March 1995 and the affidavit in reply of Tuan Foo Fat affirmed on 28 March 1995 and all filed herein AND UPON READING Roderic Fernandez Esq of counsel for the plaintiff and Valentine Willie Esq of counsel for the defendant IT IS DECLARED AND ORDERED as follows: 1 that the licence dated January 1995 being the reference KK/BP(J)8. the High Court gave judgment for the said operator and a copy of the order of High Court dated 15 April 1995. Tripartite meeting and correspondence ensued and in January 1995. 1998 3 MLJ 151 at 168 2 that the Kelab Lumba Kuda Sandakan (Sandakan Turf Club) was and still is in breach of the provisions of the said agreement which confer exclusive right to Sababumi (Sandakan) Sdn Bhd to conduct and manage all 3-Digit (3-D) and 4-Digit (4-D) operations in and throughout the state of Sabah. the said turf club and the said operator began a flurry of activities among themselves in regard to such a federal licence. The High Court agreed with the said operator in implying the term but the Court of Appeal agreed with the said turf club and reversed the decision of the High Court on this point. and I will not repeat in extenso what they have said except to refer to said parts of the facts as and when necessary. framed the questions or issues which ought to be heard as follows: (3) questions or issues which ought to be heard in the appeal shall be: (i) whether the Court of Appeal was correct in law and on the evidence in holding that the High Court was wrong in implying a term in the 1987 agreement in the manner it did. (iii) if the 1987 agreement was so tainted with illegality. The said operator submitted that such an implied term applied and the said turf club submitted to the contrary. (ii) whether the Court of Appeal was correct in law and on the evidence in holding (if it did) that the 1987 agreement was tainted with illegality by reason of breaches of the Gaming Ordinance of Sabah. the appeal was allowed. 1998 3 MLJ 151 at 169 Implied terms are of three types. I will give my own view too on the law of implied terms. The background of this case has been described at length by the judges of both the High Court and the Court of Appeal. hence the further appeal before us by the said operator (see [1997] 1 MLJ 587). The implied term contended for in this appeal belongs to this type and much more about this later. The Federal Court on 14 December 1996. . With regard to the first question set out above. in granting leave to appeal. The first and most important type is an implied term which the court infers from evidence that the parties to a contract must have intended to include it in the contract though it has not been expressly set out in the contact. which may be summarized as that so long as the said turf club was allowed or licenced under whatever laws to conduct off-course and on-course betting. what were its consequences in civil law generally and on the 1987 agreement particularly? (4) The costs of this motion shall be costs in the cause. The issues were identified and accepted by both parties as the crucial issues and after hearing arguments on such issues. Now it is for us in the Federal Court to decide this question of implied term. the said operator could continue to have the exclusive right to conduct and manage such off-course and on-course betting for the periods as provided in the said agreement.Dated 15 April 1995 The said turf club appealed to the Court of Appeal. the Pool Betting Act 1967 or otherwise. GIVEN under my hand and the seal of the court this 14 November 1996. it will be remembered that the High Court by its order had declared that the said federal licence issued in 1995 was within the scope of the said agreement made in 1987 by way of an implied term. Thus. simply means the desired result of the business in question. and again it is not dependent on a court's inference explained above but by virtue of such a custom or usage from the market or trade. Thus. that such a term to be implied by a court is 'something so obvious that it goes without saying. there are two tests to fix the parties with such an intention. of course". Interestingly. they would testily suppress his with a common "Oh. ie that the parties must have intended to include such an implied term in the contract. '… it can be predicated that "It goes without saying". and not to act against the employer's interest. so that if. while the parties were making their bargain. Thus. such implied terms come from decided cases exclusively. I mean that a large number of specific implied terms have been held in to arise from previous decided cases on certain specific facts. s 92(e) the Evidence Act 1950seems to be custom-made to provide logistical support for this particular type of implied term.The second type of implied term is one by operation of law.' The second test is that the implied term should be of a kind that will give business efficacy to the transaction of the contract of both parties. Such ratio decidendi in respect of such decided implied terms are normally adopted by courts in subsequent cases on similar facts as a matter of course without the necessity of any court to decide afresh whether it ought to draw the inference as explained above. in Shirlaw's case. an officious bystander were to suggest some express provision for it in the agreement. in a contract of employment. as stated by MacKinnon LJ in Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 at p 227. 1998 3 MLJ 151 at 170 Shirlaw who was appointed the managing director by the defendant company for 10 years. it is not necessary to discuss it further except to emphasize that such an implied term of this particular type may sometimes be excluded by parties by an agreement to the contrary and more importantly. The test was described by Lord Wright in Luxor (Eastbourne) Ltd & Ors v Cooper [1941] AC 108 at p 137. Many of such decided and specific implied terms have been incorporated into statutes such as the Sale of Goods Act 1957 and others. . and not based on the inference just explained. The third kind of an implied term is one that is implied by custom or usage of any market or trade which is reasonable. Reverting to the first type of implied term which is dependent on a court drawing an inference as explained above. Business efficacy in my opinion. It will be remembered that s 92(e) aforesaid is one of the exceptions to the rule against evidence to contradict or vary any terms of a written contract. there is an implied term that the employee will serve his employer faithfully. that in regard to an implied term. The first test is a subjective test. some term not expressed but necessary to give the transaction such business efficacy as the parties must have intended'. it is not dependent on the court having to draw an inference explained above. sued for and obtained damages for breach of agreement. It was held that it was an implied term that the defendant company would not alter its articles of association to create a right for itself to remove the plaintiff before the 10 year term expired. and again there is another implied term that the employer will provide a safe system of work. The implied term inferred by the court there was to let both parties achieve the desired result that the post of the managing director would continue to be available for 10 years to Shirlaw as both parties must have intended it at the time when making the agreement. By operation of law. don't talk rubbish'.The testy answer to the question of the officious bystander of 'Oh. so that the element of 'business efficacy is inseparable'. The contribution of the said turf club comprised the licence and exemption from the provisions of the said Gaming Ordinance of Sabah obtained by or granted to the said turf club respectively. at its cost to buy or acquire 100 acres of land to build a racecourse. in view of the circumstances pointed out above. and to manage and operate such gaming activities. Such being the case. construct buildings for the purpose. In doing so. 1998 3 MLJ 151 at 171 There can be no doubt that both parties had decided to commit to each other in regard to such business on a long-term basis. If the implied term was not necessary to give business efficacy. Both tests in my opinion must be satisfied before a court infers an implied term. Thus. it was not surprising that learned counsel for the said operator was referring to the business of the parties as a joint venture. it is too clear'. In view of which has been stated. this matter is not likely at all to go elsewhere from this court. the intention of both parties from the contract in question ought to be ascertained. so and so will happen. as after all. Chong Siew Fai J (as he then was) in Yap Nyo Nyok v Bath Pharmacy Sdn Bhd  [1993] 2 MLJ 250 held that both tests must be satisfied. Closer to home. would have been a testy answer of 'Oh. apparently 20 years as the land to be acquired or bought at a presumably enormous cost in Kota Kinabalu was to be transferred to the name of the said turf club virtually gratis which would then execute a lease to the said operator for 20 years also virtually gratis at an annual rent of RM1. Lord Simon of Glaisdale inBP Refinery (Westernport) Pty Ltd v Hastings Shire Council  (1977) 16 ALR 363 described both tests as conditions the compliance of which the court must be satisfied. as long as the parties and their counsel and the courts below are apprised of detailed facts. in addition to what I may describe as other requirements. The two tests referred to earlier are to enable the court to decide as to whether it should or should not infer that the implied term contended for is a term which parties to a contract must have intended to include in the contract. of course' spoken of by Mackinnon LJ was described equally elaborately by Scrutton LJ in Reigate v Union Manufacturing Co (Ramsbottom) Ltd & Anor [1918] 1 KB 592 at p 605 as '… of course. Lord Wilberforce in Liverpool City Council v Irwin & Anor  [1977] AC 239 at p 254 spoke of an implied term as a matter of necessity. if the officious bystander had asked the question whether such . at the time of negotiating for the said agreement or signing the said agreement. the answer to the officious bystander. Thus. of existing law. we did not trouble to say that. The essence of the intention for both parties in the said agreement is for the said turf club to grant an exclusive right to the said operator to conduct off-course and on-course betting or gaming for 20 years in consideration of payment to the said turf club of 2% of all gross takings from such betting activities (not 2% of gross profit or net profit after tax) by the said operator. and in further consideration of the promise by the said operator. I will not set out the evidence below in detail except to refer to such parts of it as and when necessary. exclusive right to operate off-course and on-course betting for 20 years would continue if the licences and the said exemption were issued or granted by any other laws. The mention by the Court of Appeal of express provisions in the said agreement for cancellation of licence in the above passage seems to suggest. Reigate's case and BP Refinery's case. to both the parties. The fact that an event has occurred for which the parties made no provision in the agreement is not a valid reason in law for the court to interfere and imply a term into their contract. of course'. the answer to the officious bystander would give business efficacy to the said business between the parties in view of what has been stated above. stating what appears to be the gist of its reasoning in its judgment at p 612C-E: In our judgment. with great respect. I will now examine . held that the High Court was wrong in implying such an implied term. that such express provisions already cover the present situation in this appeal. ie it would give. the parties here have spelt out their rights and obligations very clearly and made provisions for certain contingencies. it will necessarily militate against the inclusion of such an implied term contended for. Let it be remembered that the most careful of men sometimes may overlook something that should have been very obvious. it could very well be also such a factual situation that will prompt one party to the contract to contend for such an implied term whereupon the court would have to decide whether it should imply such a term by employing the two 1998 3 MLJ 151 at 172 tests which will have to be satisfied to determine the contention. Further. (See cl 11 of the agreement.) This is precisely what the law forbids. the desired result of both parties under the said agreement so that the said business could carry on on that contemplated long-term basis at virtually no cost to the said turf club but at tremendous cost to the said operator. ie the issuance of the said federal licence in place of the earlier licence issued under the said Gaming Ordinance of Sabah which must have been cancelled by the federal government to make way for the said federal licence. On the contrary. however. Yet the judge acted to provide for an event which the parties were content to leave untouched because they had specifically made provisions for cancellation of the licence if another contingency arose. Therefore. ie by any law other than the said Gaming Ordinance of Sabah. is not a valid reason for a court to interfere with and imply a term into this agreement. if I may conjecture. The court below. this is a case where each party was 'prepared to take his chance in relation to an eventuality for which no provision is made'. in other words. after setting out the cases on the point of implied term including Shirlaw's case. In the words of Mason J in [Codelfa Construction Pty Ltd v State Rail Authority of New South Wales  (1982) 149 CLR 337 ]. the learned judge adopted a wholly erroneous approach to the case. both parties would have answered 'Oh. It is true that an event which has occurred for which the parties made no provisions in an agreement containing nonetheless careful and detailed obligations set out therein. This is not a case where detailed terms were omitted. Thus. and (c) cancellation of the same because of the fault of the said operator. cancellation of the exemption by the government or authority. through no fault of either the said turf club or the said operator. viz Everise Ventures Sdn Bhd to operate gaming activities as previously operated by the said operator until the said agreement was terminated by the said turf club. the express provisions for cancellation of licence also do not cover the situation arising from this appeal as explained above and are thus immaterial for the purpose of considering the question of the implied term. What the Minister of Finance wanted was for the said turf club to carry on the on-course and offcourse betting under the said federal licence — a sort of old wine in new bottle. In other words. either through the fault of the said operator. 1998 3 MLJ 151 at 173 On the point of implied term. It may not be out of place at this juncture to deal with a preliminary objection of learned counsel for respondent to the effect that certain issues or grounds raised in the memorandum of appeal. The matter concerning the said Everise Ventures Sdn Bhd was in evidence before the High Court which the Court of Appeal. and not to stop or disallow such betting. ie the situation envisaged in the said agreement as contained in those express provisions for cancellation of licence has not occurred. outside the scope of the questions or issues in respect of which leave to appeal was granted by the Federal Court. or the fault of the said turf club. (b) cancellation of the same because of the fault of the said turf club. Therefore. the Court of Appeal. cancellation of the licence in connection with the express provisions for the cancellation of licence in the said agreement can only mean the decision of the government or the licensing authority not to allow to go on with the off-course and on-course betting which has been going on hitherto. Parties were told then that . this is the ordinary meaning of the word 'cancellation'. The situation described in the immediately preceding paragraph. if not substantially similar rights' given to a third party. with respect. the same word refers to a decision not to allow to carry on on-course and off-course betting which the parties had agreed or arranged to do or to be done earlier. This is of course not the end of this case as the point of illegality remains to be considered. The real nature of the transaction is that both parties had agreed or arranged for the conduct of off-course and on-course betting. These two grounds or subsidiary grounds refer to an 'identical. Such provisions in the said agreement provide for: (a) cancellation of the licence and for that matter. The word 'cancellation' referred to above refers to a decision by the licensing authority not to allow to go on to do something which the parties concerned have earlier agreed or arranged to do or to be done. in my view. by the said grounds (1)(d) and 2(h) was said to be wrong in failing to consider. look at the real nature of the transaction rather than the form of the transaction unless prevented to do so by judicial precedent or any statutory provision. has gone wrong and the decision on the same point by the High Court should be upheld. Thus. viz ground (1)(d) and ground (2)(h) of the said memorandum.this suggestion. Courts often and generally. or through no fault of either the said turf club or the said operator. these express provisions could not any way be inconsistent with or inhibitory against the implied term contended for. the decision on the preliminary objection would be reserved till the delivery of the judgment of the court on this appeal. In other words. it would appear that no dispute or claim had arisen which would require this court's adjudication. only the issues or questions thus framed would be heard or entertained. the question of lack of bona fide on the part of the said turf club. The approach I would adopt when it is disputed whether any stated ground in the said memorandum of appeal is outside or not the scope of issues that the Federal Court framed in granting leave is whether such ground is. I now give my decision on it. It would be therefore academic for this court to determine whether the said agreement had become illegal and unenforceable against the said turf club in respect of the amendment to the licence issued . The condition. a condition which provided that '… licence shall be personal to the licensee and shall not be transferable in any manner whatsoever'. respect of the business between the parties for the period after the date of 14 April 1992 aforesaid up to the issue of the federal licence in January 1995. the licence issued pursuant to the said Gaming Ordinance of Sabah contained no restriction at all as regards its assignment or even transfer. does not become less than an illegality when the perpetrator commits another illegality. An illegality. From my inquiry of both learned counsel. The question of bona fide for setting up such a plea cannot arise. a modicum of relevant issues or facts would have to be set out. prima facie. When the said agreement was made on 26 November 1987. arising from that other illegality is not a point which the court would have to consider in this appeal. inter alia. did not preclude the parties to the said agreement from carrying on the business like before when there was no such condition. in the event that had happened. A defendant. 1998 3 MLJ 151 at 174 Dealing with the point of illegality. or even if he has masterminded it. apart from the said exemption granted to the said turf club from the compliance of certain provisions of the said Gaming Ordinance of Sabah. this discretionary power given statutorily must be given effect to. the argument of the parties and the reasoning of the court below in regard thereto. The matter of another similar agreement or arrangements between the said turf club and Everise Sdn Bhd though seemingly relevant factually. If it is not. viz implied terms and illegality of contract. The issues or questions for which leave to appeal was granted by Federal Court have been set out earlier. if established. necessary to enable the court to decide the said issue with precision. does not however satisfy this test. like the said turf club in the originating summons filed in the High Court. the ground is thus outside the scope. Further. Under r 108(1)(c) of the Rules of the Federal Court 1995. the Federal Court may determine or frame the questions or issue which ought to be heard in the appeal. in relation to off-course and on-course betting. in my view. is always entitled to defend an action by setting up the plea of illegality of contract even though he participated in it. I therefore would uphold the preliminary objection and the court would therefore strike out ground (1)(d) and ground (2)(h) from the memorandum of appeal herein. There was a change on 14 April 1992 and the said licence was amended to include. The Pool Betting Act 1967 is hereafter called 'the said statute'. but in our Contracts Act 1950. covering both the on-course and off-course betting of the said turf club. states that: 'The licensee can not assign or transfer whether wholly or part of any rights. which also refers to . I refer to s 24 of the Contracts Act 1950. In each of the above cases. if permitted. Every agreement of which the object or consideration is unlawful is void. (b) it is of such a nature that. I believe both learned counsel seemed to assure me in effect or to the effect that the validity of the said federal licence was never in doubt and it was not an issue with all parties concerned and their concern was the enforceability or otherwise of the said agreement due to alleged illegality. or opposed to public policy. and what not The consideration or object of an agreement is lawful. The said federal licence was issued under the Pool Betting Act 1967 with the licence thus issued. Under condition 23 of the said federal licence. (c) it is fraudulent.under the said Gaming Ordinance of Sabah. same contracts are covered by s 24(a) and (b). the consideration or object of an agreement is said to be unlawful. 1998 3 MLJ 151 at 175 (d) it involves or implies injury to the person or property of another. I now turn my attention to some of the principles of illegality for the purpose of this appeal which I will now discuss and in the light of such discussion. At common law. duties or obligations that are provided in the licence'. Section 24 appears to me to have been drafted after some fine tuning of the common law on which it is based. or (e) the court regards it as immoral. For reasons which will be apparent later. I will make my own decision on the factual mould before the court. The condition is significant. it would defeat any law. ie under two separate subsections so that s 24. contracts fitting in with the said s 24(a) and (b) for contravening any law would be illegal for being against public policy. as a matter of common ground before us. I turn my mind therefore to the said federal licence. unless — (a) it is forbidden by a law. the source of Malaysian law on illegality of contract: What considerations and objects are lawful. In connection with the common ground aforesaid. if the latter should win the bet. (e) may be revoked by the Minister during the currency of the licence without assigning any reason. deals with other contracts against public policy such as. (2) The Minister may refuse to issue or renew a licence to any person without assigning any reason and his decision shall be final. It would be necessary to set out s 5 and s 21 of the said statute which all parties have heavily relied on. They are set out below: 5 (1) Unless there is established a Board under section 6. (b) sells or offers for sale. as we know. whereby he agrees to pay the other party to the said bet. (c) shall be valid for one calendar year only and may be renewed from year to year from the date of expiration of the licence. about public policy being the basis for the non-enforceability of contracts rendered illegal by statutes. coupon. (b) shall be subject to the payment of such fee for its issue or renewal as may he prescribed. contracts in restraint of trade and contracts other than in these two groups. the Minister may issue a licence to a person for the collection. (d) shall be subject to such conditions or restrictions as the Minister may impose from time to time or during the currency of the licence. card or thing entitling or purporting to entitle the purchaser or holder thereof to any interest in the result of the working of the totalisator on any presribed event. operation or promotion of pool betting. Please see in this connection Lord Wright's observation in Vita Food Products Inc v Unus Shipping Co Ltd (In liquidation)  [1939] AC 277. (3) A licence issued under subsection (1) — (a) shall be in such form as the Minister may think fit. a sum of money the amount of which is dependent upon the result of the working of the totalisator on the said event. any ticket. 21 (1) Any person who — (a) makes or enters into a bet upon the result of a prescribed event.public policy elsewhere in the section. contracts which interfere with administration of justice. or 1998 3 MLJ 151 at 176 (c) makes any contract or bargain of any kind to pay or receive money upon any event determined . or who purchases from any person referred to in paragraph (a). under s 24(a) aforesaid. The attributive words of 'forbidden. a contract may be illegal by common law or by statute. I will further discuss my view.or to be determined or to be determined by the result of the working of the totalisator on any prescribed event. the failure to bear in mind this fine distinction has given rise to some difficulties. which says in a nutshell that a contract to do an act illegal by statute or prohibited or forbidden by statute is unenforceable and illegal. This difference is real. In my view. in either case the contract is unenforceable. Which then is the illegal act or forbidden act (if any) under the said statute that the said agreement is or could be said to be an agreement to do? One can almost immediately pin-point from the facts and learned counsel's arguments the forbidden act or the illegal or prohibited act — it is the breach of a condition 23 of the said federal licence issued under the said statute for the following reasons. the licence issued under section 5 or an approved scheme. an agreement is illegal and unenforceable when either the consideration or the object of the agreement is to do an act forbidden by law. and 'law' means common law or any statute. one must find out first if the statute prohibits or forbids the act which the parties have contracted to do by the contract in question. and this bears repeating. (2) Subsection (1) shall not apply to the licensee or the Board or any officer. Thus. in my view. illegal and prohibited' all mean the same thing. the said turf club says it is but the said operator takes the opposite view. To decide if s 24(a) makes a contract illegal and unenforceable in connection with a statute. It is very important to remember that it is distinguishable from another aspect or question as to whether a statute prohibits any contract. shall be guilty of an offence and shall be liable on conviction to imprisonment for a term not exceeding one year or a fine not exceeding one thousand ringgit or to both. and not whether the statute prohibits the contract or the making of the contract in question by the parties. agent or employee of the licensee or the Board while engaged in the lawful conduct of any totalisator for pool betting or of pool betting as such in accordance with this Act. 1998 3 MLJ 151 at 177 Now the said federal licence must have been issued under s 5 of the said statute which authorizes the Minister (of Finance) to issue it. It is illegal and unenforceable under s 24(a) aforesaid because it is a contract involving consent of both contracting parties to do the very act prohibited or forbidden by statute. What has been in serious dispute is whether the said agreement is illegal and unenforceable. subject to such conditions or restrictions the Minister may . though very subtle. Thus. At common law. is the culled essence of some part of the common law on illegality of contract. It is to be borne in mind that s 24(a) of the Contracts Act 1950 involves the consideration and/or object of a contract being forbidden by law. This position obtains as well when the terms of the contract amount inevitably to the same situation. an agreement to commit an offence as set out in the Penal Code is the simplest of examples of an agreement to do an act prohibited by statute. being mere variations of one another. and this. see Sundang Timber Co Sdn Bhd v Kinabatangan Development Co Sdn Bhd  [1977] 2 MLJ 200 and Lo Su Tsoon Timber Depot v Southern Estate Sdn Bhd [1971] 2 MLJ 161. and just to name two cases in the Federal Court. It would be quite impossible to say that the obtaining of such exclusive right to operate the off-course and on-course betting is not an assignment wholly or partly of such rights granted to the said turf club by the said federal licence. Where any contract is not a contract or does not amount inevitably to a contract to do an act forbidden by a statute. including condition 23 of the said federal licence is the forbidden act under the said statute. To determine this distinguishable question. Such being the case. the rule of purposive approach as . s 21 of the said statute provides for the betting activities which. then. the number of authorities is legion. Thus. what in practice often triggers off the distinguishable question is. there is no need to go into the question (hereafter called 'the distinguishable question') of whether the said agreement is a contract prohibited impliedly by the said statute — on the distinguishable question. Out of deference to so many arguments advanced. his agent or employee if they conduct such betting activities lawfully in accordance with the provisions of the said licence.impose. of course. the conditions of the licence. Now. with other rules. they. or any of them commit an offence under the said s 21. is common ground. a punishable offence under s 21 as stated just now. allow me to make just a few observations as follows on that distinguishable question. cover the off-course and on-course betting in the said agreement and it also provides for the offences for said activities unless covered by a licence issued under s 5 of the said statute. I come to the conclusion that the said agreement is a contract or amounts inevitably to a contract to do an act forbidden or prohibited by s 21 under the said statute. It has been submitted that the breach of condition 23 has occurred because the said agreement purportedly assigned wholly or partly the rights of the said turf club granted by the federal licence. as a major rule of interpretation. It provides further the said offences shall not apply to a licensee. On what amounts to assignment of the rights of a licence. among other things. when one of the contracting parties has contravened some statutory requirement in the performance of the contract and one of the parties in court this time defends the action against him by raising this point of contravention of that statutory 1998 3 MLJ 151 at 178 requirement. If they do not so conduct such betting activities. a breach of any condition. The act forbidden or prohibited by the said statute or made illegal by the said statute is therefore not conducting the off-course betting and on-course betting in accordance with the provisions of the said federal licence and the word 'provisions' of the licence means. it then becomes a matter of trying to discover the intention of the legislature by the interpretation of the statute. all the parties concerned have concentrated so much of their energies. Thus. It will be remembered that the said operator was granted the exclusive right to conduct the offcourse and on-course betting by the said operator authorized under the said federal licence which was granted to the said turf club. almost always by employing. if a contract is deliberately made to do a prohibited act. They are: . it does not matter whether or not it prohibits a contract. but you are not concerned at all with the intent of the parties. 1998 3 MLJ 151 at 179 ZAKARIA YATIM FCJ There are two issues for the decision of this court. In the former class you have only to look and see what acts the statute prohibits. the civil remedies or civil consequences following from the aforesaid contravention of some statutory requirement (ie from the commission of some statutory offence) are very far removed from the mind of any legal draftsman who often must have been very much preoccupied with drafting the statutory requirements and offences of the statute or who could have considered such civil remedies or consequences as being outside the perimeter of his task.explained and adopted by Lord Diplock in Kammins Ballrooms Co Ltd v Zenith Instruments (Torquay) Ltd [1970] 2 All ER 871. Delvin J said at p 283 in this connection: The first is that a contract which is entered into with the object of committing an illegal act is unenforceable. By such civil consequences or civil remedies. Incidentally. if unilateral. it is unenforceable at the suit of the party who is proved to have it. that contract is unenforceable. there is no need to discover the particular legislative intention at all. whether the contract is impliedly prohibited thereby. This principle is not involved here. and. if the parties enter into a prohibited contract. to break the law. I will end my reasoning by citing the leading case of St John Shipping Corp v Joseph Rank Ltd  [1957] 1 QB 267 concerning the distinction between a contract to do an illegal act (ie s 24(a) of the Contracts Act 1950) on the one hand. The appellant do further pay costs in the Court of Appeal. and a contract which does not do so but which or the making of which is expressly and impliedly prohibited by a statute. To revert to implied prohibition. but what contracts it prohibits. you have to consider not what acts the statute prohibits. the distinction I sought to emphasize earlier. which all sought to find out the intention of statutes in order to find out whether a contract was impliedly prohibited. I mean. I need not set out those numerous cases. except one case to be mentioned below later. with the sum deposited in court to be paid out to account of taxed costs. A significant distinction between the two classes is this. … The second principle is that the court will not enforce a contract which is expressly or impliedly prohibited by statute. for the purpose of this appeal. if the statute prohibits the contract. though for somewhat different reasons and would further dismiss the appeal with costs. uphold the order of the Court of Appeal made herein. I. at the time the contract was made. but each party herein is to bear its own costs in the High Court when the appellant herein succeeded but was therefore removed from its judgment seat by a new but permissible point of illegality on appeal to the Court of Appeal. if the intent is mutual the contract is not enforceable at all. it is unenforceable whether the parties meant to break the law or not. The application of this principle depends upon proof of the intent. If the contract is of this class it does not matter what the intent of the parties is. therefore. that contract will be unenforceable In the latter class. when a contract is expressly prohibited and this is not so often enacted. the Sandakan Turf Club ('the club') was registered under the Societies Act 1966. Sababumi continued to carry on off-course betting activities after the 1995 licence was issued. I propose to refer briefly to the facts. Betting. Lotteries. Sababumi was to pay 2% of its gross sale takings to the club on a joint venture basis. But its activities were stopped by the police. Sababumi was given the exclusive rights to conduct and manage all bettings on the races at the racecourse and to conduct and manage all 1998 3 MLJ 151 at 180 3-D and 4-D operators throughout the state of Sabah. On 14 April 1992. the Sabah authorities cancelled the licence issued on 14 February 1984. Clause 11(i) states that if 'the said exemption granted to . the club was exempted from the provisions of the Ordinance pursuant to s 27(a). the Ordinance was repealed by the Modification of Laws (Common Gaming Houses. (ii) if the 1987 Agreement was so tainted with illegality. Sababumi (Sandakan) Sdn Bhd ('Sababumi'). Sababumi applied to the High Court in Kota Kinabalu for declaratory reliefs.(1) (i) whether the Court of Appeal was correct in law and on the evidence in holding that the High Court was wrong in implying a term in the 1987 agreement in the manner it did. Sababumi now appeals to this court. The club in turn agreed to sublease the land and the racecourse to Sababumi for a period of 20 years. the Sabah authorities issued an amended licence. On 14 February 1984. On the same date. The Court of Appeal allowed the appeal and set aside the order of the High Court (see [1997] 1 MLJ 587). On 26 November 1987. what were its consequences in civil law generally and on the 1987 agreement particularly? Before considering these issues. Pool Betting Act 1967 or otherwise. Under cl 2 of the agreement. The land was to be registered in the name of the club. gaming was prohibited by the Sabah Gaming Ordinance (Cap 50). In January 1995. It claimed that the 1995 licence was within the scope of the agreement. The Order however contained a proviso that the exemption and licence granted earlier under the Ordinance remained in force. Sababumi was to buy 100 acres of land and to construct a racecourse on the land at its own expense. It was formed to carry out gaming activity. In considering the appeal. On 21 September 1989. The full text of the agreement has been reproduced in the judgment of the Court of Appeal and in the judgment of my learned brother Peh Swee Chin FCJ. On the date the licence was cancelled. Betting and Sweepstake Duties and Racing (Totalisator Board) (Extension to the States of Sabah and Sarawak)) Order 1991. the club was granted a licence to operate 3-Digit and 4-Digit lotteries. On 15 April 1992. The High Court gave judgment for Sababumi. On 25 November 1983. The club appealed to the Court of Appeal. (2)(ii) whether the Court of Appeal was correct in law and on the evidence in holding (if it did) that the 1987 agreement was tainted with illegality by reason of breaches of the Gaming Ordinance of Sabah. At that time. the Pool Betting Act 1967 was extended to Sabah. the federal Ministry of Finance issued a new licence to the club under the Pool Betting Act 1967. a written agreement was concluded between the club and the appellant. I shall first refer to the agreement. But I prefer to adopt the test laid down in The Moorcock (1889) 14 P 64. or to emancipate one side from all the chances of failure.' they would both have replied. Category 1 comprises those relationships in which the court more readily implies a term in the contract when there is evinced a contrary intention. The category test may be applied to determine an implied term. that is.) In Shirlaw's case. of implied warranties or covenants in law. Scrutton LJ said at p 605: The first thing is to see what the parties have expressed in the contract. 'Of course.) In Reigate's case. In The Moorcock. viz category 1 and category 2. Reigate v Union Manufacturing Co (Ramsbottom) Ltd  [1918] 1 KB 592. Bowen LJ said at p 68: … and I believe if one were to take all the cases. the company shall still be entitled to operate … horse racing … in accordance with the terms and conditions of this agreement'. what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men. it will be found that in all of them the law is raising an implication from the presumed intention of the parties with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have. it is too clear'. In business transactions such as this. The test to be applied when implying a term in the relationships within category 1 is necessity. then the agreement shall be determined forthwith. it ought not to imply a term which the parties themselves have not expressed. ie where no special relationship such as those recognized by the law exists.the club under the Gaming Ordinance is cancelled by the authority … due to no fault of either the club or the company. (Emphasis added. MacKinnon LJ said at pp 227-228: 1998 3 MLJ 151 at 181 . but to make each party promise in law as much. we did not trouble to say that. Unless the court comes to some such conclusion as that. at all events. (Emphasis added. A term can only be implied if it is necessary in the business sense to give efficacy to the contract. it must have been in the contemplation of both parties that he should be responsible for in respect of those perils or chances. and they are many. Clause 11(ii) states that if the 'licence issued to the club under the Gaming Ordinance is cancelled by the parties concerned due to no fault of either the club or the company. so and so will happen. 'What will happen in such a case. not to impose on one side all the perils of the transaction. and then an implied term is not to be added because the court thinks it would have been reasonable to have inserted it in the contract. The Court of Appeal said that there are two categories of cases when determining whether a term ought to be implied in a contract. and Shirlaw v Southern Foundries (1926) Ltd  [1939] 2 KB 206. I shall now consider the issue of implied term. Category 2 consists of cases not falling within category 1. if it is such a term that it can confidently be said that if at the time the contract was being negotiated someone had said to the parties. For my part, I think that there is a test that may be at least as useful as such generalities. If I may quote from an essay which I wrote some years ago, I then said: 'Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common "Oh, of course!".' At least it is true, I think, that, if a term were never implied by a judge unless it could pass that test, he could not be held to be wrong. Applying that in this case, I ask myself what would have happened if, when this contract had been drafted and was awaiting signature, a third party reading the draft had said: 'Would it not be well to put in a provision that the company shall not exercise or create any right to remove Mr Shirlaw from his directorship, and he have no right to resign his directorship?' I am satisfied that they would both have assented to this as implied already, and agreed to its expression for greater certainty. Mr Shirlaw would certainly have said: 'Of course that is implied. If I am to be bound by this agreement, including the barring of my activities under cll 11 and 12 when I cease to be managing director, obviously the company must not have, or create, the power to remove me at any moment from the board and so disqualify me from that post' and the company, which must be presumed to have been then desirous of binding him to serve them as managing director for 10 years, would, I think, with equal alacrity have said: 'Of course that is implied. If you were tempted by some offer elsewhere, it would be monstrous for you to be able to resign your directorship and, by so disqualifying yourself from being managing director, put an end to this agreement'. (Emphasis added.) From the passages quoted above, there are two elements to be satisfied, namely, the business efficacy of the transaction, and the officious bystander test. I shall deal with the first element. The last recital to the agreement states that both parties to the agreement agreed to co-operate in the construction of a racecourse and the management facilities. The agreement was for a period of 20 years. I agree with Mr T Thomas, counsel for Sababumi, that the agreement was a co-operation agreement between two commercial bodies for a period of 20 years. Under the agreement, Sababumi was to acquire 100 acres of land and to construct on the land a racecourse. All costs and expenses were to be borne by Sababumi. Sababumi would pay the club 2% of the gross sale takings derived from all bettings. The business of operating all bettings on the races at the racecourse and all 3-D and 4-D is described in the agreement as a joint venture business. Clause 2(f) states: To pay to the club as its share of the revenue in the joint venture herein 2% of the gross sale takings derived from all bettings on the races, 3-D and 4-D operations and other bettings undertaken by the company or its authorized agents, on the races. (Emphasis added.) In my view, when the parties were negotiating the agreement, they intended to give the joint venture agreement business efficacy for a period of 20 years. 1998 3 MLJ 151 at 182 The second element is the officious bystander test. When the agreement was being negotiated, the officious bystander would ask the following question: Betting and lotteries are Federal matters under item 4 of the Ninth Schedule of the Federal Constitution. What will happen if the Sabah Gaming Ordinance is repealed by a Federal Order and the Pool Betting Act 1967 extended to Sabah? The parties who had the benefit of the advice of their lawyers would have answered 'Of course we know that. We have made some provisions in cl 11 with regard to the cancellation of the licence in different situations. We anticipate the changes in the law and there is no need to make any express provision in the agreement'. In my opinion, both elements have been satisfied. The Court of Appeal has erred on the issue of implied terms. I agree with my learned brother Peh Swee Chin FCJ that the decision of the High Court in implying a term in the agreement should be upheld. With regard to the issue of illegality, I agree with the learned President of the Court of Appeal and my learned brother Peh Swee Chin FCJ that the agreement violates condition 23 of the licence issued by the Ministry of Finance in January 1995. Condition 23 prohibits the assignment or the transfer of rights. Under the agreement, the club had assigned to Sababumi all rights to manage all bettings on the races on the racecourse and to operate all 3-D and 4-D lotteries. A breach of condition 23 is an offence punishable under s 21 of the Pool Betting Act 1967. This is contrary to s 24(a) of theContracts Act 1950 and the agreement is therefore illegal and void. For the reasons stated above, I dismiss the appeal with costs here and in the Court of Appeal. Each party shall bear its own costs in the High Court. Appeal dismissed. Reported by David Lai [1996] 3 MLJ 675 CHING YIK DEVELOPMENT SDN BHD v SETAPAK HEIGHTS DEVELOPMENT SDN BHD COURT OF APPEAL (KUALA LUMPUR) GOPAL SRI RAM, NH CHAN AND AHMAD FAIRUZ JJCA CIVIL APPEAL NO W-02-262-94 9 December 1995 Contract — Breach — Fundamental breach — Sale and purchase of land — Balance of purchase price not paid on the ground that respondent failed to deliver executed memorandum of transfer — Whether payment of purchase price in sale of land was a fundamental term — Whether delivery of executed memorandum of transfer was a fundamental term — Whether party who terminates a contract upon breach of non-fundamental term is himself guilty of breach — Remedies for breach of fundamental term and subsidiary term In October 1991, the respondent – an owner of a certain piece of property ('the property') – entered into an agreement with the appellant for the sale and purchase of the property at a purchase price of RM4,990,000 ('the first agreement'). Clause 5 of the first agreement required the respondent to deliver up duly executed memorandum of transfer to the appellant's solicitors to be held by them pending the conclusion of the sale. The appellant paid the respondent a sum of RM250,000 as a deposit and entered a private caveat against the property. In December 1991, the parties entered into a second agreement which stipulated for an increase in the purchase price of RM3m. In October 1992, the appellant sent a cheque in the sum of RM4,740,000 in purported payment of the balance of the purchase price. However, the cheque was dishonoured because the payment on the cheque was stopped by the appellant on the ground that the respondent had failed to comply with cl 5 of the first agreement. In July 1993, the appellant commenced proceedings against the respondent for specific performance. The respondent applied to strike out the action under O 18 r 19 of the Rules of the High Court 1980. The judicial commissioner granted the respondent's application and ordered the appellant's action to be struck out. The appellant appealed. Counsel for the appellant submitted that the judicial commissioner had erred in holding that the appellant was without a cause of action. He argued that the respondent had breached its obligation to deliver the memorandum of transfer in accordance with the provisions of cl 5 of the first agreement and that the appellant was therefore entitled to withhold the payment of the balance of the purchase price. Held, dismissing the appeal:  (1) In every contract, be it for the sale of land or any other commodity, there are some terms that are of fundamental importance and others of less or minor importance. Where the term that has been flouted is fundamental to the contract, the innocent party is 1996 3 MLJ 675 at 676 entitled to treat himself as being discharged from further obligations under it. But where the obligation that has been breached is only subsidiary or minor in nature, the innocent party may not treat himself as being free of his obligations under the contract, although he may sue and recover damages for the non-performance of the subsidiary term (see p 681G-H).  (2) A party who terminates a contract or treats it as having come to an end in reliance upon [1996] 4 MLJ 544 HWA CHEA LIN & ANOR v MALIM JAYA (MELAKA) SDN BHD HIGH COURT (MELAKA) SURIYADI J CIVIL SUIT NO 22-49-1988 19 January 1996 Contract — Sale and purchase of land — Fundamental breach of contract — Building was delivered with serious defects — Whether breach went to root of contract — Whether implied warranty existed that house was to be built in an efficient and workmanlike manner — Whether defect liability period clause excludes fundamental breach Contract — Rescission — Sale and purchase of land — Whether rescission valid — Whether unilateral act of plaintiffs to terminate contract sufficient and in accordance with requirements of the law — Whether plaintiffs acquiesced to contract — Whether defendant rebuilding the house without plaintiffs' consent supported rescission On 11 September 1984, the plaintiffs entered into an agreement with the developer ('the defendant') for the purchase of a single-storey terrace house ('the building') for the purchase price of RM62,950. A notice dated 3 June 1986 was sent to the plaintiffs by the defendant to take delivery of vacant possession of the building. In 1987, the plaintiffs orally complained to the defendant regarding the defects found in the building. Remedial works were done but in an unsatisfactory manner. Upon further complaint by the plaintiffs, further remedial works were carried out in 1988. The plaintiffs were still dissatisfied with the repairs and complained vide a letter dated 4 April 1988. On 28 May 1988, the plaintiffs through their solicitors sent a letter rescinding the agreement. On 18 November 1988, the plaintiffs filed the present action. The plaintiffs alleged there was a fundamental breach of the agreement as the house they received on 3 June 1986 was 1996 4 MLJ 544 at 545 not what they had bargained for and therefore the rescission was correct in law. They prayed for the refund of all the monies already paid together with interest and certain other reliefs. The defendant argued that they had carried out the construction of the building in a manner as specified in the second schedule to the agreement and that the plaintiffs had acquiesced to the contract. Aside from that, there was no evidence to suggest that the requirements of s�40 of the Contracts Act 1950 ('the Act') had been fulfilled and the defendant claimed that the rescission was bad and that the contract was still good. The court had to consider whether (a) the defective liability period clause, which was only valid for a year, was relevant in this case; (b) whether a fundamental breach existed to justify rescission by the plaintiffs; and (c) whether the letter of rescission dated 28 May 1988 constituted a good rescission. Held, allowing the plaintiffs' claim and ordering a refund of the purchase price paid:  (1) From the evidence adduced, a fundamental breach had occurred as the building that was delivered to the plaintiffs in 1986 was not what they had bargained for. The evidence adduced clearly showed that the said building when delivered to the plaintiffs was in a terrible shape that required massive remedial works and eventually had to be rebuilt. Since what was delivered was not what had [ Editorial Note: The defendant has applied for leave to appeal to the Court of Appeal. The subsequent activity of the defendant in rebuilding the houses including the said building without securing any prior permission from the plaintiffs supported the plaintiff's assertion (see pp 554I. 555A-B. the defect liability period clause merely laid down the responsibility of the vendor over minor defects within one year of the delivery of vacant possession. the unilateral act of the plaintiffs to terminate the agreement was sufficient and in accordance with the requirements of the law. For a case on recession of building contract.  (3) After considering all the evidence and the subsequent actions of the defendant. Hancock & Ors v Brazier (BW) (Anerley) Ltd [1966] 2 All ER 901. Clause 7 clearly provided that time shall be of the essence of the agreement (see p 555B-C). see 3 Mallal's Digest (4th Ed. The defect liability period provision was silent as to the ousting of fundamental breaches. an effective rescission had been proved by the plaintiffs and the defendant had also accepted the repudiation of the contract.] Notes For cases on breach of building contract. it was not relevant here (see p 553C-D). In any event. Cases referred to Choo Yin Loo v Visuvalingam Pillay [1930] 7 FMSLR 135 Chua Ngah Chin v Ng Kie En [1986] 1 MLJ 267 Chye Fook & Anor v Teh Teng Seng Realty Sdn Bhd [1989] 1 MLJ 308 George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 1 All ER 108 Hancock & Ors v Brazier (BW) (Anerley) Ltd [1966] 2 All ER 901 Harbutts 'Plasticine' Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447 Miller v Cannon Hill Estates Ltd [1931] 2 KB 113 Sim Chio Huat v Wong Ted Fui [1983] 1 MLJ 151 Suisse Atlantique Societe D'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 . Therefore. In a contract with builders for the purchase of a house to be erected there is an implied warranty by the vendors that the house would be built in an efficient and workmanlike manner.been agreed upon.  (4) The consequential effect of delivering a defective house unfit for human habitation and unsafe was that the defendant had also breached cl 7 of the agreement.  (2) On a plain interpretation. and with proper materials and fit for habitation (see p 552B-H. the breach was a breach that went to the root of the contract. Sim Chio Huat v Wong Ted Fui [1983] 1 MLJ 151 distinguished). Miller v Cannon Hill Estates Ltd [1931] 2 KB 113and Teh Khem On & Anor v Yeoh & Wu Development Sdn Bhd & Ors [1995] 2 MLJ 663 followed). 1994 Reissue) para 2020. 1994 Reissue) paras 1252-1268. see 3 Mallal's Digest (4th Ed. the plaintiffs entered into an agreement with the developer (the 'defendant') for the purchase of a single-storey terrace house identified as No 126. and was assured that further repairs would be carried out after the Chinese New Year in 1988.terrace house in a good and workmanlike manner and in accordance with the specifications described in the second schedule to the said agreement. therefore. District of Melaka Tengah. there was no evidence of the requirements of s 40 of the Contracts Act 1950 ('the Act') being fulfilled. H D'Cruz (Nik Hussain & Partners) for the defendant. the said building was to be completed by the vendor and vacant possession delivered to the purchasers within 24 calendar months from the date of the agreement. On 28 May 1988. The purchase price was RM62. Mukim Bacang. 75250 Melaka ('the said building') on Lot PT No 1279. . orally complained to the defendant as to the defects found in the building. Aside from that. On 18 November 1988. Jalan Zahir 18. amongst them an engineer who visited the site in 1988 who later prepared the relevant report in September 1988 and an architect. The plaintiffs undeterred further complained to one Mr Ng. it was adduced that the plaintiffs subsequently employed certain experts.950 only. the plaintiffs through their solicitors sent P1. the plaintiffs filed this action. 1996 4 MLJ 544 at 548 SURIYADI J On 11 September 1984. Melaka. The defendant kept their words but the plaintiffs were still dissatisfied with the repairs done. The plaintiffs. Taman Malim Jaya. Under cl 18 (B1-11). The defendant later served a notice dated 3 June 1986 (B79) to the plaintiffs to take delivery of vacant possession even though the supposed delivery date was 7 September 1986. Jalan Malim. The plaintiffs.Teh Khem On & Anor v Yeoh & Wu Development Sdn Bhd & Ors [1995] 2 MLJ 663 UGS Finance Ltd v National Mortgage Bank of Greece and National Bank of Greece [1964] 1 Lloyd's Rep 446 Legislation referred to Contracts Act 1950 ss 40 47 Housing Developers (Control and Licensing) Act 1966 Lai Kuan Jean (KS Das & Co) for the plaintiffs. who was the manager of the defendant. HS (M) 1015/82. Unhappy with the situation. prayed for the refund of all the monies already paid inclusive of interest and certain other reliefs. sometime in 1987. The defendant in the statement of defence asserted that at all material times the defendant had carried out the construction of the said single. Evidentially it is not disputed that the defendant literally tore down four rows of houses including the said building sometime in February 1990 and completed the rebuilding at the end of 1991. ie a letter rescinding the contract. Remedial works were done in the same year albeit unsatisfactorily. The plaintiffs alleged in para 7 of the statement of claim that there was a fundamental breach of the agreement as the house they received on 3 June 1986 was not what they had bargained for and therefore the rescission was correct in law. The defendant also alleged that the plaintiffs could not have rescinded the agreement as they had acquiesced to the contract. From the evidence. the first plaintiff complained vide letter dated 4 April 1988 (B83). sinking and other defects in the house. sinking and other major structural defects alleged by the plaintiffs were beyond the control of the defendant as the defects complained of were entirely that of the act of nature but no evidence was adduced to support this contention. The pictures spoke for themselves. PW1 in his evidence admitted that on 3 June 1986 he received B79. The substantial differential settlement on the land led to the cracks and tear of the building. Besides highlighting the serious defects. they confirmed the subsequent actions of the defendant 1996 4 MLJ 544 at 550 . Bitter with the situation. In para 5 of the amended statement of defence and counterclaim. PW3 a neighbour of the plaintiffs who was in the same predicament as the plaintiffs and PW4 an engineer. the defendant had averred that the massive cracks. In fact. a qualified engineer on instruction of PW1. an architect by profession who investigated into the condition of the said building. evinced that he saw first hand on 9 August 1988 that the ground on which the building was built had sunk at different parts. Aside from recording his extreme dissatisfaction in the manner in which the house was constructed. inspected the said building on 31 January 1988. Aside from the evidence adduced from these witnesses. he ventilated his fears of his personal safety. hence causing him not to be able to occupy the house.namely that the defendant had refused or was incapable of fulfilling the contract. He did not take the keys as the house was in an unsatisfactory state. He also gave evidence that a few years later the said building was literally torn down and rebuilt. The remedial works were completed in 1987 but were still not up to the mark and PW1 lodged a similar complaint. the defendant had persisted 1996 4 MLJ 544 at 549 on the defence that the rescission was bad and that the contract was still good. PW4. who is the neighbour of PW1. His house is immediately to the right of PW1's house as one faces away from the row of buildings. namely PW1 the first plaintiff himself. The cement content was low and piling had not been properly carried out. PW3. He moved in into his unit in September 1987 but moved out in February 1990 when the house was dismantled. photographs were tendered which lucidly highlighted the poor condition of the relevant building. He confirmed that the plaintiffs' house too was rebuilt and completed at the end of 1991. Repairs were again undertaken after the Chinese New Year in 1988 but with the same negative results. He concluded that the construction was no longer safe for habitation and therefore required a major repair to be undertaken. was one of the purchasers of the lot of houses built by the defendant. PW2 an architect. PW1 also said before his lawyer's rescission letter was forwarded to the defendant he did request from Mr Ng a new house as a replacement. foundation faults. He similarly concluded that overall the workmanship was poor and the house was unsafe to stay in. He asserted that the defects were major defects involving the structure and foundation of the building. a notice requesting him to take vacant possession. He too found many sink holes when the repairmen hacked the concrete leaving a void wherever the earth had subsided. he found that the ground floor slabs had not followed the British Code of Practice emulated by the Malaysian practices as the ground floor slab was a mere 11 2 in and not 4in. To support the plaintiffs' case four witnesses were called. In fact. He subsequently informed Mr Ng of the state of the house and he in return promised that remedial works would be done later. he voiced out his unhappiness vide a letter dated 4 April 1988 (B83) which contained among others his complaints regarding cracks. PW2. To fully understand the plaintiffs' stance perhaps it would be better if I discuss the expression of 'fundamental breach of contract' briefly. not merely to claim damages. 1 Chitty on Contracts(24th Ed) at p 367 elucidated: The expression 'fundamental breach of contract' is used in two quite different senses. and (3) whether there was a good rescission when the plaintiffs through his lawyer sent the letter of rescission on 28 May 1988 (P1). the plaintiffs could not now invoke cl 23. however. In one sense. (2) whether there was a fundamental breach which justified a rescission on the part of the plaintiff. The plaintiffs have asserted that they had rescinded the contract on the solitary ground of fundamental breach on the part of the defendant. To have a better understanding of the above problems and before disseminating in detail the legal intricacies involved. see alsoChua Ngah Chin v Ng Kie En [1986] 1 MLJ 267). the House of Lords held that even though there was a breach that went to the root of the contract but as they had affirmed the contract 'they cannot escape from the consequences of the demurrage clause.after 1990 when the defendant literally tore down and rebuilt the building. would be: (1) whether cl 23 which provided for a defect liability period is relevant in this case. perhaps it would not be inappropriate to touch briefly on the contention of the defence. In Suisse Atlantique Societe D'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361. Therefore. The defendant in their submission admitted of the literal rebuilding but justified the necessity of the dismantling of the walls and the roof in order to redress the foundation and the structure of the building. Pearson LJ on this point in UGS Finance Ltd v National Mortgage Bank Of Greece and National Bank of Greece [1964] 1 Lloyd's Rep 446 at p 450 had this to say: As to the question of 'fundamental breach. This clause provided a mere one year for the defect liability period. it denotes a breach by one party which is sufficiently serious to entitle the other party. fundamental breach expresses a supposed principle of law that there are certain breaches of contract which are so totally destructive of the obligations of the party in default that liability for such a breach cannot be limited or excluded by means of an exemption clause. they can show that it has no application to the events of this case' (per Lord Upjohn). If the innocent party had elected to treat the breach as discharging himself from further performance of the contract 'the whole contract has ceased to exist including the exclusion clause. inter alia. unless as a matter of construction. Further. the plaintiffs could not have rescinded the contract as there was no evidence that the defendant had refused or was unable to perform the contract what with the conduct and attitude of the plaintiffs before or after 28 May 1988 showing acquiescence to contract. if the innocent party had elected to affirm the contract he would thus be bound by the terms of the contract including the exemption clause. The relevant questions begging to be considered by the court. The defendant submitted that since vacant possession had taken place on 3 June 1986 and a year had passed.' I think there is a rule of construction that normally an exception or exclusion clause or similar provision in a contract should be construed as not applying to a situation . but to elect to treat himself as discharged from further performance under the contract … In another sense. and I do not see how that 1996 4 MLJ 544 at 551 clause can be used to exclude action for loss which was suffered by the innocent party after it has ceased to exist …' (per Lord Reid at p 398B. On the contrary. Since what was delivered was not what had been agreed upon surely the breach was a breach that went to the root of the contract. From the evidence adduced. the court in Harbutts 'Plasticine' Ltd v Wayne Tank and Pump Co Ltd [1970] 1 QB 447 affirmed that where a fundamental breach occurred and further performance of the contract was impossible and the plaintiff had no option but to treat the contract as at an end.created by a fundamental breach of the contract … This is … a rule of construction based on the presumed intention of the contracting parties … This rule of construction is not new in principle but it has become prominent in recent years in consequence of the tendency to have standard forms of contract containing exception clauses drawn in extravagantly wide terms. the vendor agreed to sell the plaintiffs a single-storey terrace house with the details provided in the second and third schedules. (Henceforth. the terminology of fundamental breach. The relevant provision which is now enshrined in s 40 of the Act reads: When a party to a contract has refused to perform. I shall maintain the terminology of 1996 4 MLJ 544 at 552 'fundamental breach' since I am fully satisfied that the provision of s 40 is the direct descendant of the common law concept. his promise in its entirety. in its continuance. which would produce absurd results if applied literally. the defendant was precluded from relying on the exemption clause limiting his liability. the promisee may put an end to the contract. In George Mitchell v Finney Lock Seeds [1983] 1 All ER 108. The court may find the decisive element either in the importance that the parties . the court too was of the view that exclusion clauses which purported to exclude all liability were to be construed more narrowly than those which sought to limit liability. unless he has signified. I must conclude that a fundamental breach had occurred as the building that was delivered to them in 1986 was not what they had bargained for (see Pollock & Mulla on Indian Contract and Specific Relief Actsat p 397). namely that the offending party had refused to perform or disabled himself from performing his promise.) Further. though not in exact term terms has become a creature of statute (see Choo Yin Loo v Visuvalingam Pillay (1930) 7 FMSLR 135). For the innocent party to rescind. then. (The relevant contract as indicated by para 3 of the statement of claim comes under the Housing Developers (Control and Licensing) Act 1966. or disabled himself from performing. which is a concept of the common law. Now is the right time to decide whether a fundamental breach or a non-performance of the contract as envisaged by s 40 of the Act had occurred which entitled the plaintiffs to rescind. I also find solace in the writings of Cheshire and Fifoot's Law of Contract(8th Ed) at p 566 which reads: Of what nature. On perusal of the sale and purchase agreement dated 11 September 1984 (B1-B11). In another landmark case but many years earlier. by words or conduct his acquiescence. two situations must prevail.) The defendant's counsel had consistently argued that there was absolutely no evidence that the defendant had refused or had disabled itself from performing its promise. In Malaysia. even if the court is satisfied that a fundamental breach had occurred the further question to be answered is whether the plaintiffs had elected to discharge the contract or had acquiesced to the contract. This point will be discussed in detail later. must a breach be before it is to be called 'fundamental?' There are two alternative tests that may provide the answer. the defendant was not only willing but was in the process of fulfilling its obligation as provided by s 47 of the Act. The evidence adduced during the hearing clearly showed that the said building when delivered to the plaintiffs was in a terrible shape that required massive remedial works and eventually had to be rebuilt. The defendant further submitted that the plaintiffs by conduct or words had acquiesced in the continuance of the agreement. In the words of Bowen LJ: 'There is no way of deciding that question except by looking at the contract in the light of the surrounding circumstances. the purchaser shall be entitled to recover from the vendor the costs of making good the same and the purchaser may deduct such costs from any sum which has been held by the vendor's solicitor as stakeholder for the vendor. the parties must be taken to have regarded the promise which has been violated as of major or of minor importance. Hancock & Ors v Brazier (BW) (Anerley) Ltd [1966] 2 All ER 901). and with proper materials and fit for habitation (see Miller v Cannon Hill Estates Ltd[1931] 2 KB 113. namely whether on a proper construction of cl 23 this defect liability period clause did exclude a fundamental breach. Having perused this clause on a plain interpretation. Case law too has clearly come to the forefront to affirm that in a contract with builders for the purchase of a house to be erected there is an implied warranty by the vendors that the house would be built in an efficient and workmanlike manner. and then making up one's mind whether the intention of the parties. it merely laid down the responsibility of the vendor over minor defects within one year of the delivery of vacant possession and of his subsequent liability were there to be discovered new ones. Definitely this defect liability period provision is silent as to the ousting of fundamental breaches.would seem to have attached to the term which has been broken or to the seriousness of the consequences that have in fact resulted from the breach. will best be carried out by treating the promise as a warranty sounding only in damages. or as a condition precedent by the failure to perform which the other party is relieved of his liability. on its true construction the limitation clause did not exempt the defendants from liability because there was nothing in it which protected them from the consequences of their own negligence and (per Oliver LJ) because what was delivered was wholly different in kind from that which the plaintiffs had ordered. To use the words under para 3 of the headnote in George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd[1983] 1 All ER 108: Those breaches could not have occurred without negligence on the part of the defendants. the governing principle is that everything depends upon the construction of the contract in question. Clause 23 reads: (23) Any defect. shrinkage or other faults in the building which shall become apparent within a period of 12 calendar months after the date of delivery 1996 4 MLJ 544 at 553 of vacant possession to the purchaser and which are due to defective workmanship or materials or the said building not having been constructed in accordance with the said specifications and plans as approved by the appropriate authority (amended or unamended as the case may be) shall be repaired and made good by the vendor at his own cost and expense within one month of its having received written notice thereof from the purchaser and if the said defects. as gathered from the instrument itself. The court has to decide whether. . Accordingly (Lord Denning MR dissenting). I now come to another related issue. Teh Khem On & Anor v Yeoh & Wu Development Sdn Bhd & Ors [1995] 2 MLJ 663. We have already suggested that the former is the happier approach to the matter … According to this test. shrinkage or other faults in the said building have not been made good by the vendor. at the time when the contract was made.' Since the plaintiffs did not get delivery of a house in the accepted sense clearly a fundamental breach had occurred. The fact that the defendant, sometime in 1990, rebuilt the building lends credence to the court's findings that what was delivered to the plaintiffs in 1986 was not the unit of property agreed and expected by the latter. Had the building been built in line with all the required specifications and in accordance with all legal requirements surely the building would not have been torn down and rebuilt. The next relevant point that is to be considered is whether after having realized that a fundamental breach had occurred whether the plaintiffs had acquiesced to the continuance of the contract or had elected to rescind it. If the rescission was good in law then they had extricated themselves from the agreement consequenting in the termination of the contract. Several events were highlighted by the defendant to prop up the argument that the plaintiffs had acquiesced in the continuance of the contract, viz: (i) the charge and loan documents executed in 1986 (B12-24); (ii) legal fees paid in August/September 1986 (B28); (iii) after having taken vacant possession in June 1986 the plaintiff had visited one Mr Ng, a representative of the defendant's company, requesting that remedial works be carried out. In fact, in 1987, PW1 again asked for a second remedial works be carried out. He was promised that further remedial works would be carried out after the 1988 Chinese New Year; (iv) the employment of an architect in April 1988; (v) the preliminary reports prepared by PW4 in September 1988 and photos taken in April 1988; 1996 4 MLJ 544 at 554 (vi) photographs taken in February, June and December 1990 (B111-134); (vii) a loan taken by the plaintiffs from 7 October 1986 all the way up to 13 October 1993; (viii) payments of quit rents from 1987 to 1991 (B29/B31); (ix) assessments paid by the plaintiffs from July 1988 until January 1992 (B32/B34); and (x) PW1's continual reference to the house as his house and his acceptance of the house as his. The sum total of these factors, the defendant submitted, would lead to the irresistible conclusion that the plaintiffs wanted the defendant to rectify the defects as indicated by their conduct especially the continued monitoring of the repairs, visits to the scene, taking of photographs and employing of experts. The defendant's counsel submitted that surely, all these factors support the contention that the plaintiffs had acquiesced to the continuance of this contract. If the court were to agree with the issue of the acquiescence, the dicta of Salleh Abbas FJ (as he then was) in Sim Chio Huat v Wong Ted Fui [1983] 1 MLJ 151 would be relevant especially at p 153 para G-H left which reads: By allowing the delivery dates to pass and by acquiescing in the work continuing under the agreement and indeed by ordering extra work to be done for each of these houses, for which the agreement made no provision, the appellant must be held to have waived his right to rescind the agreement on account of repudiation and also the right to treat himself as discharged therefrom. He must be deemed to have elected the agreement as still continuing. It would appear in the current case, which is at variance with Sim Chio Huat,that the plaintiffs had elected to treat themselves as discharged from further performance of the contract as they had sent a letter of rescission on 28 May 1988. The plaintiffs, on the other hand, were not reluctant to admit that they had acquiesced up to 28 May 1988 but not thereafter. Post 28 May 1988, the plaintiffs showed no further interest in the said building. The fact that the plaintiffs did not join the other seven purchasers to demand that the developers carry out remedial works held testimony to his lack of interest. It was not disputed that the plaintiffs had not occupied nor taken the keys to the house. The subsequent photographs taken in 1990 were merely to support the legal action when this present suit was filed on 18 November 1988. The plaintiffs' counsel too gave reasonable answers as to why payments had to be continued whether in the form of quit rents, assessments or the monthly instalments as these were legal and contractual payments to third parties. Aside from these factors which were justified by the plaintiffs, the court was affected by these nagging questions namely: (i) did the defendant accept the rescission? and (ii) if the rescission was not accepted why did the defendant rebuild the relevant premises without obtaining prior permission from the plaintiffs? After considering all the evidence and the subsequent actions of the defendant, I was satisfied that an effective rescission had been proved by the plaintiffs and that the defendant had also accepted the repudiation of 1996 4 MLJ 544 at 555 the contract. Notwithstanding this factor of acceptance by the defendant, I was satisfied too that the unilateral act of the plaintiffs to terminate the agreement was sufficient and in accordance with the requirements of the law. The subsequent activity of the defendant to literally rebuild the four rows of houses including the said building without securing any prior permission from the plaintiffs merely supported the correctness of the plaintiffs' assertion. The consequential effect of delivering a defective house unfit for human habitation and unsafe, the defendant thus too, had breached cl 7 of the agreement. Clause 7 clearly provided that 'time shall be the essence of the contract' in relation to all the provisions of the agreement. Perhaps it is quite timely to refer to the case of Chye Fook & Anor v Teh Teng Seng Realty Sdn Bhd [1989] 1 MLJ 308 at p 309 para C-D as regards damages where Abdul Malek J (as he then was) said: Now, it is pertinent to examine the law on this point. In Mayson v Clouet & Anor [1924] AC 980, Lord Dunedin had said 'the law is quite plain. If one party to a contract commits a breach then if that breach is something that goes to the root of the contract, the other party has his option. He may still treat the contract as existing and sue for specific performance; or he may elect to hold the contract as at an end, that is, no longer binding on him – while retaining the right to sue for damages in respect of the breach committed.' As it was in this case, the plaintiffs did not treat the contract as subsisting entitling him the right to sue for damages in respect of the breach but to completely repudiate the contract. For some reason or other, the plaintiffs did not succeed in proving certain relevant claims such as the differences in expenses for buying a new house. On the other hand, I was satisfied that the plaintiffs did prove to the satisfaction of the court the following prayers which had to be refunded by the defendant, viz: (1) the purchase price of RM62,950 as illustrated in the sales and purchase agreement (B1-B11) paid through a RM50,000 loan and the balance from his own savings (B50); (2) interest on loan at 10% (B14); (3) expenses incurred for processing fee (B36); (4) stamp duties at RM630 (B28); (5) relevant assessments (B32-B34); (6) all quit rents (B29-B31); (7) proven costs of RM300 to experts (B35); and (8) legal fees RM1,276 (B28). For this action, I ordered cost against the defendant. The counterclaim of the defendant was dismissed. Application allowed. Reported by CK Ong [2011] MLJU 409 TUNKU NORELLA SURIANI BT TUNKU YUSOFF & ANOR V KUMPULAN SIERRAMAS (M) SDN BHD & ANOR HIGH COURT (KUALA LUMPUR) ROSILAH YOP, JC GUAMAN NO S6-22-979-2006 18 April 2011 S. Sekhar (Joel Lim with him) (Sekhar & Suaran) bagi pihak Plaintif-Plaintif Abdullah Omar (Hisham Sobri & Kadir) bagi pihak Defendan Pertama Gunaseelan (Gunaseelan & Associates) bagi pihak Defendan Kedua ROSILAH YOP JC 1. Brief Facts: [1] The Plaintiffs are at all material times, house owners and/or residents at Jalan Keruing Kipas, Sierramas West, Sungai Bulbh, Selangor. The 1st Defendant is the Developer of the said Sierramas West residential estate. The 2nd Defendant is the house owner at Lot 136, Jalan Keruing Kipas, Sierramas West. The Plaintiffs' homes are in close proximity to the 2nd Defendant whereby 1st and 2nd Plaintiffs are his immediate neighbours at Lots 135 and 137 respectively. They have entered into Deeds of Mutual Covenants, P1 (DMC) with the 1st Defendant by reason of the fact that it was condition to the sale and purchase of their houses in Sierramas West. The DMC provides for, amongst others the purchaser acknowledges the intention of the 1st Defendant of developing Sierramas West into a well-planned, regulated and exclusive residential estate with recreational facilities/amenities embracing a new community style living in harmony with the existing natural landscape and environment. The Sierramas West Property Development and Construction Guidelines (Construction/Property Development Guidelines) which are annexed to the DMC as the Second Schedule are intended to, among others, ensure that any buildings constructed pay due respect to both their neighbours and the surrounding open spaces in the interest of a harmonious community. DMC was drafted by the 1st Defendant. The 1st Defendant acts as the custodian and enforcer of the terms therein. The Plaintiffs complained about the 2nd Defendant breaches to the 1st Defendant but the 1st Defendant refused to act on the complaints. 2. Issues To Be Tried : The Issues to Be Tried in respect of the Claim are as follows: (a) Between Plaintiffs and the 1st Defendant: 12.6. samada Defendan 2 telah melakukan tort perbuatan-perbuatan kacau ganggu persendirian dan mengganggu kenikmatan secara aman hak-hak berkaitan hartanah PlaintifPlaintif.3.16.2." Alleged contravention of the DMC and/or Guideline by the 1st Defendant: The 1st Defendant had failed.12. 16.2. 16. o (v) Samada Plaintif-Plaintif adalah berhak kepada relif-relif yang dipohon terhadap Defendan 2. .5.o (i) whether the 1st Defendant has the responsibility or duty of care in tort against the Plaintiffs to ensure that the terms of DMC and / or the Guidelines are complied with by all house owner in Sierramas West. 16.  (b) The Agreed Issues To Be Tried Between Plaintiffs and the 2nd Defendant: o (i) "Samada Defendan 2 telah melakukan perkara-perkara yang diplidkan oleh Plaintif di dalam perengganperenggan 12. 16.16. 12.16. o (ii) whether the 1st Defendant have full discretion in enforcing the terms of the DMC and / or the Guidelines on all house owner in Sierramas West. Alleged acts or conduct in contravention of the DMC and/or Guideline by the 2nd Defendant. 16.  (i) had conducted noxious activities on his property. 12. 16. including but not limited to.5.1.12. undertaking regular and frequent open burning of offering.11.4. 1 iaiah 'ya\ samada Defendan 2 telah melanggar terma-terma Suratikatan Waad-Waad Bersama dah Garis Panduan Pembangunan dan Pembinaan Hartanah Sierramas West dan samada terma-terma Suratikatan Waad-Waad Bersama dan Garis Panduan Pembangunan dan Pembinaan Hartanah Sierramas West boleh dikuatkuasakan terhadap Defendan 2.9. 12.14 dan16.8.10. 1 iaiah 'ya'. refused and/or neglected to take any or any appropriate action in respect of the various complaints against the 2nd Defendant. o (iv) Sekiranya jawapan kepada isu no.3.2006. o (iii) Sekiranya jawapan kepada no. 16.15 Pernyataan Tuntutan bertarikh 27. 16. di dalam Pernyataan Tuntutannya. 1 ialah 'ya>' samada kelakuan Defendan 2 adalah tidak konsisten dengan pembangunan Sierramas West sebagai gaya hidup kediaman komuniti secara harmoni. 16. o (ii) Sekiranya jawapan kepada isu no.13.09.7. 16.4. times and particulars of this burning when all the while these particulars were within the full knowledge of the 2nd Defendant. (ii) had let and/or permitted noise or sound of cracking of the whip. On certain occasions the burning was from a drum which was placed out in the open area under his porch whereby paper were thrown in. PW2 testified that ashes landed in her kitchen. i. The Plaintiffs' witness were cross-examined about dates. DW2. PW3 and PW4. on the 1st and 15th of every Chinese calendar month for offering. 5. her porch and even on her cars. Evidence and Findings : The Plaintiffs gave evidence through PW1. Whether the 2nd Defendant had conducted noxious activities on his property. including but not limited to. the 2nd Defendant admitted during cross examination that he burns paper in a bin twice a month. including the Plaintiffs herein. This fact is a matter within the specific knowledge of the 2nd Defendant. resulting in smoke and ashes blown to neighbouring lots. of which is similar to that of letting off fire crackers. Further. PW3 and PW4. PW2. I find as a fact that the 2nd Defendant had admitted burning papers on the 1st and 15th of every Chinese calendar month. undertaking regular and frequent open burning of offering PW1 testified that the 2nd Defendant practiced open burning at his house which caused unpleasant and noxious smells of smoke which also caused ashes to be blown to neighbouring houses. and/or  (v) had constructed a prayer altar in an obtrusive location. The 2nd Defendant agreed in cross-examination that smokes and ashes did escape from the burning bin and fall about 2 to 3 meters away from the bin. The evidence for the Plaintiffs on the material issues as adduced by its witnesses was clear and generally not challenged in cross examination.He did not go to any of the Plaintiffs' lots to see if ashes have been blown to their lawn. The Defendants on the other hand gave evidence through DW1.  (iii) appeared to have allowed his premised to be used for purpose other than for single family residential purpose. DW3 and DW4.  (iv) allowed number of vehicles to be parked at or around the Common facility Area in such a manner as to impede or obstruct the free movement of vehicles of some of the house owners and/or residents. . Therefore the facts that he practiced open burning of offering were proven. This evidence of PW1 was corroborated by the evidence of PW2. I will scrutinize the evidence against the 2nd Defendant first. He also admitted that after the burning he covered the bin and went back into his house. which are on the 1st and 15th of every Chinese calendar month in a year. . as I have said. It has been said that an actionable nuisance is incapable of exact definition. and it is the same in all three classes of private nuisance. Canary Wharf Ltd [1997] 2 All ER 426." Clause 3. said at p. after stating at p.. nor shall anything be done thereon which is or may become an annoyance or nuisance to the other purchasers. There is no difference of principle.. then he may be barred from raising it in argument It is quite wrong to think that this rule is confined to the trial of criminal causes. But the essence of private nuisance is easy enough to identify. Chang Ching Chuen & Ors & Another Case [1995] 3 CLJ 639 at p.1(e) of DMC and thus.1(e) of DMC reads as follows: No noxious. There may be no diminution in the market value. namely interference with land or the enjoyment of land. where Lord Lloyd of Berwick.. it is the Plaintiffs' testimonies that are more probable.. The effect of smoke from a neighbouring factory is to reduce the value of the land. offensive or illegal activities shall be carried on upon the said property.It is quite wrong to think that this rule is confined to the trial of criminal cases. It applies with equal force in the trial of civil causes as well. (2) nuisance by direct physical injury to a neighbour's land. In the case of nuisances within class (1) or (2) the measure of damages is. and (3) nuisance by interference with a neighbour's quiet enjoyment of his land. the diminution in the value of the land. It is essential that a party's case be expressly put to his opponent's material witness when they are under cross examination. then the reduction in amenity value is the same whether the land is occupied by the family man or the bachelor. 441 c-d that private nuisances are of the following three kinds. namely: (1) nuisance by encroachment on a neighbour's land. Periasamy [1996] 4 CLJ 545. A failure in this respect may be treated as an abandonment of the pleaded case. It was never put to the Plaintiffs' witness that they may have seen wrongly or ashes from other sources or that they are not telling the truth. The Court of Appeal case of Sivalingam v. It is clear from the evidence adduced that the 2nd Defendant had failed to comply with Clause 3. Exactly the same should be true of nuisances within class (3).. The Court of Appeal case of Aik Ming (M) Sdn Bhd & Ors v. A failure in this respect may be treated as an abandonment of the pleaded case and if a party in the absence of valid reasons refrain from doing so. [1995] 3 MLJ 395 where the Court held that "It is essential that a party's case be expressly put to his opponent's material witness when they are under cross-examination. 658 had this to say: . Whether the 2nd Defendant practiced of open burning at his house which caused unpleasant and noxious smells of smoke which escaped and caused ashes to be blown to neighbouring houses is a private nuisance? The tort of private nuisance was considered in the case Hunter v. 442: 10 . committed breach of contract by the Defendant 2. On a balance of probabilities. It applies with equal force in the trial of civil cases. The Plaintiffs' witnesses were not examined on the above material evidence and as such I would have to accept their evidence as truthful evidence. But there will certainly be loss of amenity value so long as the nuisance lasts. If that be the right approach.Therefore the eye witness testimony of the Plaintiffs' witness is more credible as she had personally witnessed the said ashes in her compound.. . of which is similar to that of letting off firecrackers.2 had let and/or permitted noise or sound of cracking of the whip.1(a) of DMC which provides that uthe said property shall be used for single family residential purposes only. Clause 3. the 2nd Defendant in his evidence said that occasionally his parents will come and stayed with him. The 2nd Defendant appeared to have allowed his premised to be used for purpose other than for single family residential purpose. Thus. PW2. Further. " Apart from the fact that the Plaintiffs failed to prove this allegation.1(a) of DMC because the 1st Defendant had explained that. of which is similar to that of letting off fire crackers : The Plaintiffs had pleaded at Para 12.2 in the Statement of Claim as follows: "12. The clause only prohibits noise or sound from the letting off of fire crackers. It cannot be denied that this interference with the Plaintiffs' quiet enjoyment of their land and inevitably reduces the amenity value of their land.The Court of Appeal in the case of Arab Malaysian Finance Bhd v.. The 2nd Defendant had let and/or permitted noise or sound of cracking of the whip. According to the Clause 3.1(e) of DMC and also committed the tort of private nuisance. the most pertinent issue that has to be considered is that the Statement of Claim pleads that "the 2nd Defendant appeared to have allowed his premised to be used for purpose other than for single family ..." The Plaintiffs' witness testified that they had all heard loud sound akin to fire crackers. Applying the law to the facts of this case. There is no provision against noises "akin to firecrackers". The Plaintiffs rely on Clause 3. This does not mean that the 2nd Defendant has contravened Clause 3. No evidence was led by the Plaintiffs to show that the 2nd Defendant had been letting off firecrackers. These had caused interference with a neighbours' quiet enjoyment of their land. that Clause 3.2 The Purchaser shall not permit any noise or sound from the letting off of fire crackers.1(a) was meant specifically for permanent residence. iii.2 states as follows: Clause 3. singing. ii.. Steven Phoa Cheng Loon & Ors (2003) 1 ML J 567) had accepted the illustration of "smoke from a neighbouring factory" to amount to such a nuisance. I conclude that the emission of smoke and/or noxious substances via the 2nd Defendant open burning falls within the said illustration and amounts to a private nuisance.2 of the DMC is very specific. As such the 2nd Defendant has breached Clause 3. The open burning as conducted by the 2nd Defendant falls within nuisance by interference with a neighbour's quiet enjoyment of his land.. talking. this item of claim remains unproven.. PW3 and PW4 testified that there were smokes and ashes with unpleasant and noxious smells escaped and caused ashes to be blown to the Plaintiffs' houses especially PW1 and PW2 house. There was no direct and credible evidence from the Plaintiffs' witnesses to establish that the 2nd Defendant had used his premise for purposes other than for single family residential purpose. PW1.. iv. the Plaintiffs has failed to prove on the balance of probabilities that the 2nd Defendant had allowed vehicle to be parked indiscriminately and thereby obstruction or impending the free flow of traffic. this complaint has to be dismissed. who is the Senior Project Manager of the 1st Defendant testified that the 2nd Defendant has a further 5 maters of garden available from the altar to his house. The first being. Based on the above evidence. the 2nd Defendant did not breach clause 3. DW3. The Plaintiffs must prove both elements. Clause 7. who is the Legal and Administration of the 1st Defendant. All the Plaintiffs' witness could not gave the particulars or the vehicle number that was alleged to be parked at the Common Facility Area. P3C and P34 proved this.5 (k) of the Sierramas West Property Development & Construction Guidelines attached in Schedule 2 of DMC states that: "prayer altars are to be set back a discreet distance from the property line and placed in an unobtrusive locations". PW2 and PW4 in cross-examination admitted that there are security personnel who would ask for cars to be removed if they are parked indiscriminately. v. Clause 7. [7] Further. admitted that pre-fabricated prayer altar did not breach the DMC.1(a) of DMC.5 (k) states that: "Prayer altars are to be set back a discreet distance from the property line and placed in an unconstructive location". The 2nd Defendant allowed number of vehicles to be parked at or around the Common facility Area in such a manner as to impede or obstruct the free movement of vehicles of some of the house owners and/or residents.12 meters away from the front of the 2nd Defendant property line and only 2." The claim cannot be based on a mere conjecture. All the Plaintiffs' witnesses testified that they encountered obstruction of free flow of vehicle by visitors parked at the 2nd Defendant house. The altar was placed in front of the 2nd Defendant house. This clause was in because the 1st Defendant had encountered numerous problems with same altar issues in Sierramas East. the altar must be constructed and secondly the altar must be in an obstructive location. The 1st Defendant did not specify what type of altar would infringe . were fresh terms unilaterally imposed by the 1st Defendant.residential purpose. including the Plaintiffs herein. [7] The 2nd Defendant submitted that there are two elements to this complaint. DW2. In cross examination PW1 testified that she did not witness the incident. it was submitted that Section 5 of the National Land Code 1965 applies in this situation. It is undisputed facts that the altar was situated a mere 1. Chan Yow Choy. whose DMC did not contain the same clause. The 2nd Defendant himself. P3B. Had constructed prayer altar in an obtrusive location. DW1 and DW3 testified that the 2nd Defendant had space at the back of his house on a lower ground level. There is no distinction made between prayer altars that are constructed or installed.235 meters from the Plaintiff 1 house. On those reasons above. P3A. during cross examination had admitted that the altar was in a place where everyone can see. [1985] 1 CLJ 174. given the plain and ordinary meaning of the words.1 of the DMC clearly states that compliance with the Sierramas West Property Development & Construction in Schedule 2 is mandatory. in the interest of harmonious community. where it was held that in a clear and unambiguous document the court should not go beyond any written terms. It could not however override the legitimate and reasonable construction and/or installation of structures for the purpose of religious worship within the compound of the purchasers. Further. Clause 7..! showing caution and good judgment in what one does. unobtrusive. therefore he is contractually bound by the terms of DMC. extend water filters. [1979] 1 LNS 119.. The Oxford Reference Dictionary defines the word "discreet" as follows:". . In the circumstances. I agree with the submission for the Plaintiffs that the altar. So it must apply to all altars. cloths lives. and the Supreme Court case of Koh Siak Poh v Perkayuan OKS Sdn Bhd [1986] 1 MLJ 238. The 1st Defendant had failed.1 states as follows: "The Purchaser acknowledges and confirm that he has read.5 (k) of the Sierramas West Property Development & Construction Guidelines.. It is trite law that documents must be construed within its four corners. it was the evidence of the 1st Defendant that the intention of the Sierramas West Property Development and Construction Guidelines among others is to ensure that any buildings constructed pay due respect to both their neighbours and the surrounding open spaces. sola water heater. During the cross-examination. The question here is whether it is in a discreet distance from the property line and whether it is an obtrusive location to place the altar as where it is now. Section 5 of the National Land Code 1965 has no application in this action." "Unobtrusive" is defined in Oxford Reference Dictionary as follows: ". the 2nd Defendant admitted that the altar was in a place where anyone can see. There is no distinction between constructed and installed to be made for payer altar." The 2nd Defendant had entered a binding contract with the Plaintiffs. being a mere 1. fully understood and will comply with the Construction / Property Development Guidelines which is annexed as the Second Schedule. refused and/or neglect to take any or any appropriate action in respect of the various complaints against the 2nd Defendant. All these are not constructed but installed. Clause 12.5 (k) of the Construction/Property Development Guidelines.. not giving away secrets.5(k) when drafting the DMC. Clause 12. 2.12 meters away from the property line and 2 meters away from the 1st Plaintiff house is in a discreet distance from the property line and in an obtrusive position constituting a breach of Clause 7. Further. This is the decision of the Federal Court in Tindok Besar Estate Sdn Bhd v TinjarCo [1979] 2 MLJ 229. vi. air-conditioner units.clause 7. It is obligatory for him to adhere to the DMC.not making oneself or itself noticed". ground lathing fixtures and garden sheds. It was admitted in the Defence of the 1st Defendant that each Plaintiff had separately entered into a common Deed of Mutual Covenants (DMC) with the 1st Defendant. [1985] CLJ (Rep) 506. It is clear from the evidence adduced that the 2nd Defendant had failed to comply with Clause 7.5(a) to (j) deals with rubbish bin. In not tendering the said report. Albert Lim and Mr. InBreen v Amalgamated Engineering Union & Ors. This investigation was partial. The 1st Defendant sought to unilaterally impose fresh terms into the DMC as stated in D9. Clause 7. When discretion is conferred on someone in a special position or authority. DW2 admitted in crossexamination that these were fresh terms. than it may be placed anywhere on the property. the 1st Defendant was given power to enter onto any property to rectify the defaults. the 1st Defendant has the right to enforce the DMC.The DMC was imposed on all Purchasers inclusive of all Plaintiffs. The 1st Defendant based their decision not to enforce the terms of the DMC against the 2nd Defendant on the investigation report by Mr. as they only listened to the 2nd Defendant side of facts. The 1st Defendant did not even produce the report as evidence in court. [1971] WLR CA. Furthermore. the 1st Defendant had withheld evidence and as such.5(k) of the Construction/Property Guidelines makes absolutely no mention about such absurdities. Albert Lim and Mr.  (b) declaratory relief. Khusyairi. per Lord Denning M. Most of the complaints are the Plaintiffs in this suit.5 DMC.R stated: . Mr. Clause 22.  (c) recovery damages and shall be entitled to seek such relief concurrently". The inference here is that if the report was tendered. that discretion must be exercised fairly and honestly in the interest of all residents at Sierramas West. It was admitted by DW1 in cross-examination that it was a condition precedent that the Plaintiffs signed the DMC before purchasing their houses. The evidence of DW1 was corroborated by DW2 that they are under a duty to make due inquiring when they received complaints. The 1st Defendant is the enforcer of DMC. adverse inference under Section 114(g) Evidence Act 1950 ought to be raised against the 1st Defendant. These fresh terms suggested that if the altar is pre-fabricated. placed within the confines of the property. Pursuant to Clause 22. They failed to interview the complainants themselves. installed as opposed to constructed. Mr. DW2. It was imposed because it was a condition precedent to any Sale and Purchase Agreement entered into by them. pursuant to Clause 22. Ramesh admitted that during their investigation.5 DMC reads as follows: "The vendor may take whatever action it considers appropriate to seek relief in respect of any breach by the purchaser of this Deed including but not limited to : (a) injunctive relief.7 DMC. readymade. the evidence would favour the Plaintiffs. Khusyairi only interviewed the 2nd Defendant. 2 of DMC to exclude all liability against them. Such a clause contravenes Section 29 of the Contracts Act 1950 and thus it is illegal." In Re SQ Wong Holdings (Pte) Ltd. The 1st Defendant seeks to invoke Clause 25. honest and reasonable manner. The 1st Defendant also trying to invoke Clause 26. To protect him from liability for negligence. V Tang Ling Seng [1995] 1LNS 166 states that: General words of exclusion would not ordinarily protect a contracting party from liability for negligence. [1987] 2 MLJ 298. Clearly. that the 2nd Defendant did not breach the DMC.2 DMC is only applicable to clause 25. usually either by referring expressly to negligence or by using some such expression as 'however caused'. clause 25.1 DMC does not make any express and clear reference to acts of negligence.1 and 25. but this discretion must be exercised fairly and honestly in the interest of the company."If the rules set up a domestic body and give it discretion. the exemption clause did not clearly or specifically exempt liability for negligence. These clauses do not absolve the 1st Defendant of liability for negligence and are inapplicable when considering negligence simply because they do not specifically exclude liability for negligence. but the 1st Defendant also found wrongly and without due enquiry. 192 where it states at page 208 as follows: ". It is clear that Clause 25. it is to be implied that the discretion must be exercised fairly. It is clear that the 1st Defendant did not exercise its discretion in a fair and reasonable manner. It is trite law that any attempt to exclude liability for acts negligence must be expressly and clearly worded. It is trite law that any attempt to exclude liability for acts of negligence must be expressly and clearly worded. In the case of Canada Steamship Lines Ld v. held that: "In law. which was negligence on their part when they decided that the 2nd Defendant did not breach the DMC. the directors have discretion whether or not to recommend a dividend. Even though its functions are not judicial or quasi judicial but only administrative. Furthermore.. Bhd." The evidence shows that the 1st Defendant did not exercise its discretion in a fair. Here..1 DMC which states as follows: .1 DMC cannot be read to exempt any liability from negligent acts.2 of the DMC to nullify the Plaintiffs' rights to a cause of action. the exercise of discretion is only with regards to enforcement and not discretion with regards to any finding of facts made by the 1st Defendant. the words used must be sufficiently clear. It is well settled that a clause of this nature is not to be construed as extending to protect the person in whose favour it is made from the consequences of the negligence of his own servants unless there is express language to that effect or unless the clause can have no operation except as applied to such a case. even on the preference shares.C." [12] This position was accepted in the case Premier Hotel Sdn. The Plaintiffs complaint against the 1st Defendant were not only did the 1st Defendant refused to enforce the DMC against the 2nd Defendant. still it must act fairly and should it not do so the courts can review its decision. The King [1952] A. Clause 25. Any attempt to exclude liability for acts of negligence must be expressly and clearly worded.1 of DMC does not expressly exclude liability for negligence or for breach as a duty of care by the 1st Defendant or for refusal to enforce the terms therein. Conclusion : It is not disputed that Plaintiffs and Defendants are bound by Deeds of Mutual Covenants and Sierramas West Property Development and Construction Guidelines. . Clause 25..shall be bound by this clause and shall be deemed to have automatically waived any and all rights."." (emphasis added). demands and causes of action against the Vendor arising from or connected with any matter for which the liability Of the Vendor has been disclaimed this Clause.. claims. the trial judge had not acted upon any wrong principle of law. the exemption clause did not clearly or specifically exempt liability for negligence.  (4) The appellant. 1995 4 MLJ 229 at 230 . The appellant's Hotel Regulation contained the following exemption clause: 'The Hotel will not assume responsibility for valuables or money lost from the room. It was only in a rare case that an appellate court would be justified in coming to a different conclusion from the trial judge on the question of credibility.' The sessions court judge held that the respondent's room key had been handed over to persons unknown and that the loss suffered by the respondent was a result of the negligence of the appellant's employees.[1995] 4 MLJ 229 PREMIER HOTEL SDN BHD v TANG LING SENG HIGH COURT (KUCHING) ELIZABETH CHAPMAN JC CIVIL APPEAL NO KG 3-1994(III) 29 July 1995 Contract — Exemption clause — Loss of valuables from hotel room — Hotel receptionist parted with room key of guest to unknown person — Whether exemption clause in hotel regulation excluded hotel from liability The respondent stayed at a hotel owned by the appellant. the words used must be sufficiently clear. His evidence was that he had always left his key at the reception and would collect it himself. Upon his return. The appellant relied on the exemption clause as a defence.  (5) As for the award of damages.  (3) Here. was plainly negligent in failing to look after the respondent's room key and the receptionist had negligently parted with the key. dismissing the appeal:  (1) The question for determination by the sessions court judge was essentially one of fact and he had the advantage of seeing and hearing the witnesses. The respondent did not instruct any one to collect his room key. Held. To protect him from liability for negligence. He went out one afternoon and left his room key with the hotel receptionist.  (2) General words of exclusion would not ordinarily protect a contracting party from liability for negligence. The respondent sued the appellant for negligence. The receptionist gave the key to an unknown person who said that some of the respondent's workers had come to collect his key. usually either by referring expressly to negligence or by using some such expression as 'however caused'. The appellant appealed. the respondent found that his personal belongings in his room were missing. by its servants. Cuma dalam satu kes yang luar biasa mahkamah rayuan boleh disokong dalam membuat kesimpulan yang berlainan daripada hakim perbicaraan atas soalan kebolehpercayaan. Peraturan hotel perayu mengandungi fasal pengecualian berikut: 'The Hotel will not assume responsibility for valuables or money lost from the room. hakim perbicaraan tidak bertindak atas prinsip undang-undang yang salah. Beliau keluar satu tengah hari dan meninggalkan kunci biliknya dengan penyambut tetamu hotel itu. biasanya dengan merujuk secara nyata kepada kecuaian atau dengan menggunakan ungkapan seperti 'however caused'. Perayu membuat rayuan. 1994 Reissue) paras 1549-1559. melalui pekerja-pekerjanya. 1995 4 MLJ 229 at 231 . jelasnya cuai kerana gagal menjaga kunci bilik penentang dan penyambut tetamu itu telah dengan cuai menyerahkan kunci itu. Penentang membawa tindakan terhadap perayu untuk kecuaian.  (4) Perayu. penentang mendapati bahawa barangan kepunyaannya di dalam bilik itu sudah hilang. Diputuskan. Keterangannya adalah beliau selalu meninggalkan kunci biliknya di meja sambut tetamu dan akan mengutipnya sendiri.' Hakim mahkamah sesyen memutuskan bahawa kunci bilik penentang telah diserahkan kepada orang yang tidak dikenali dan bahawa kehilangan yang dialami oleh penentang adalah keputusan kecuaian pekerjapekerja perayu. Perayu bergantung kepada fasal pengecualian itu sebagai pembelaan.  (5) Berkenaan dengan award ganti rugi pula. Penyambut tetamu itu telah memberikan kunci itu kepada seorang yang tidak dikenali yang mengatakan bahawa pekerja penentang telah datang untuk mengutip kunci itu. see 3 Mallal's Digest (4th Ed. menolak rayuan itu:  (1) Soalan untuk diputuskan oleh hakim mahkamah sesyen pada dasarnya adalah satu soalan fakta dan beliau mempunyai kelebihan melihat dan mendengar saksi-saksi. Untuk melindungi dirinya dari tanggungan untuk kecuaian. Notes For cases on exemption clauses. fasal pengecualian tidak mengecualikan dengan jelas atau spesifik tanggungan untuk kecuaian. Penentang tidak menyuruh sesiapa mengutip kunci bilik itu. Apabila beliau balik. perkataanperkataan yang digunakan mestilah cukup jelas.Bahasa Malaysia summary Penentang telah menginap di sebuah hotel kepunyaan perayu.  (2) Perkataan-perkataan pengecualian yang am biasanya tidak akan melindung satu pihak yang membuat kontrak dari tanggungan untuk kecuaian.  (3) Di sini. From the evidence adduced in the court below it is clear that there was no forced entry into the respondent's hotel room. The said clause reads: . The sessions court judge who had the advantage of seeing and hearing the witnesses found that the respondent's room key had been handed over to person(s) unknown and that the loss suffered by the respondent was a result of the appellant's employees' negligence in handing the room key to person(s) unknown. A police report was lodged. to testify. The sessions court judge did not deem it fit to draw an adverse inference under s 114(g) of the Evidence Act 1950 against the respondent. He then went up to his room with a friend and he found his room key in the room but his brief case together with his personal effects and his passport.000 were missing. It is only in a rare case that an appellate court lacking the advantage of seeing and hearing the witnesses 1995 4 MLJ 229 at 232 would be justified in coming to a different conclusion from the trial judge on the question of credibility. he had placed the key under the care and custody of the appellant's servants. some of his workers had come to collect his key. ELIZABETH CHAPMAN JC This is an appeal against the decision of the learned sessions court judge in holding Premier Hotel Sdn Bhd negligent for the loss of the respondent's valuables and personal effects from the hotel room during the respondent's stay in the said hotel. It is noted that the respondent was not cross-examined on this by counsel for the appellant. who did not call his two friends who were with him at the material time. He was told by the hotel receptionist that the key to his room had been taken by somebody. The respondent had gone out with his friends one afternoon and on his return to the hotel he went to the receptionist to get his key to the hotel room. birth certificate. identity card. travellers cheques and Hong Kong dollars amounting to $40.Legislation referred to Evidence Act 1950 s 114(g) Fabian Lim (Fabian AH Lim Advocate) for the appellant. He was satisfied with the respondent's evidence and he gave no weight to the evidence of DW2. the respondent's trip to Hong Kong had to be cancelled because of the loss of his passport. The respondent told the receptionist he had no workers in Sibu and further that he did not instruct anyone to collect his room key. The crux of the matter here is whether the exemption clause in the Hotel Regulation (exh D1) would operate to exempt the hotel from liability for valuables or money lost from the hotel room. the assistant manager of the hotel. The question for determination by the sessions court judge was essentially one of fact and I see no valid reason to disturb this finding of fact of the trial judge who had taken proper advantage of his having seen and heard the witnesses and had arrived at such finding based on the material evidence before him. The respondent then went to the receptionist to ask why his key had been given to somebody else and according to the latter. Lau Mei Ling (Sim & Lee Advocates) for the respondent. The respondent's story is that he had always left his key at the reception and would collect it himself. Reported by Gary Kwan . The appellant. The basic rule of construction in respect of exclusion clauses is that it requires clear words to exclude a liability which would otherwise arise. Thus. to be taxed. and at para 373: Construction against exclusion of liability for negligence. was plainly negligent in failing to look after the room key of the respondent and the person in charge of the counter at the material time had negligently parted with the key. As for the award of damages in this case I see no valid reason to interfere with it as I find that the trial judge had not acted upon any wrong principle of law. this is known as the contra proferentem rule. unless agreed. Where a contracting party may be subject to liability for negligence and to a stricter form of liability the position is that general words of exclusion will not ordinarily protect him from liability for negligence. usually either by referring expressly to negligence or by using some such expression as 'however caused'. but will prima facie be construed so as to protect him from that stricter form of liability. In my considered opinion exh D1 did not clearly and specifically exempt liability for negligence. any ambiguity is to be construed against the party putting forward the clause for his protection.The Hotel will not assume responsibility for valuables or money lost from the room. This basic rule has been qualified and extended as follows: (1) general words of exclusion will not usually be construed so as to cover serious or 'fundamental' breaches going to the root of the contract. (2) general words of exclusion may be construed as having no application to liability for negligence. by its servants. the appeal is dismissed with costs. For the reasons given above. To protect him from liability for negligence the words must be sufficiently clear. Appeal dismissed. 9 Halsbury's Laws of England para 370 states: Necessity for clear words: the contra proferentem rule. inter alia. In short. Having control over the accounts. instead of opening new SD accounts. who in return for investing in the bonds were to be repaid on the maturity date.[2014] 3 MLJ 169 CIMB Bank Bhd v Maybank Trustees Bhd and other appeals FEDERAL COURT (PUTRAJAYA) ARIFIN ZAKARIA CHIEF JUSTICE. Under the scheme. SURIYADI AND AHMAD MAAROP FCJJ CIVIL APPEAL NOS 02(f)-27–04 OF 2012(W). was. Pesaka used its existing conventional accounts as the designated accounts and MTB was not made sole signatory to these accounts. except KAF and MTB. which Pesaka was required to open at recognised financial institutions. The bondholders then entered a consent judgment against all the defendants. the accounts were not ring-fenced when the bonds were issued. the bonds were first issued to a primary subscriber. As it turned out. the bondholders chose not to execute the consent judgment. The scheme involved the issuance of public Islamic bonds worth RM140m to a primary subscriber with Pesaka's government contracts charged as security. In order to ensure that the financial interest of the bondholders was secured. The High . The bond funds paid by the bondholders were to be deposited into Shariah designated accounts ('SD accounts'). Pesaka utilised the monies in the designated accounts for its own purposes and failed to redeem the bonds and repay the bondholders on the maturity date. MTB was appointed as the sole trustee to manage and control the SD accounts ie the SD accounts were to be completely ring fenced. KAF. who was to advise Pesaka on how to go about obtaining a loan in a bond market. However. facility agent and issuing agent for the issuance of the bonds. Aggrieved the bondholders commenced an action in the High Court against 12 defendants. Pesaka appointed KAF Investment Bank ('KAF') as the lead arranger. 02(f)-28–04 OF 2012(W). Instead they proceeded to trial against KAF and MTB. Under the terms of subscription and facility agreement. it proposed a financing scheme to finance the contracts. KAF assisted in the preparation of a document called the information memorandum ('IM') that provided information about the bonds to potential investors. 02(f)-29–04 OF 2012(W). In the IM. tasked with the duty to prepare all the required documentation to obtain the necessary approval from the Securities Commission. ABDULL HAMID EMBONG. who in turn sold the same to the bondholders. RAUS SHARIF PCA. Under the trust deed. 02(f)-30–04 OF 2012(W) AND 02(f)-33–04 OF 2012(W) 10 February 2014 Contract — Breach — Terms — Whether lead arranger for issuance of bonds was in breach of terms — Information memorandum ('IM') — IM contained important notice by lead arranger excluding its liability — Whether lead arranger entitled to exclude liability arising from IM through notice — Condition precedent — Whether lead arranger had acted in breach of condition precedent by not ensuring accounts were ringfenced prior to issuance of bonds — Loss — Whether most proximate cause of the loss was issuance of the bonds without the ring fencing in place — Liability — Apportionment of — Whether courts below had erred in apportioning liability between lead arranger and trustee on 50:50 basis — Whether trustee was wholly liable for loss — Interest — Whether bondholders were entitled to pre-judgment interest — Indemnity — Claim for — Whether trustee should be indemnified in full by issuer of bonds — Whether directors of issuing company should be liable as constructive trustees Tort — Negligence — Duty of care — Whether trustee was grossly negligent When Pesaka Astana (M) Sdn Bhd ('Pesaka') was awarded three government contacts. KAF included an important notice to exclude any liability arising from any claim that may arise from the IM. Pesaka entered into a trust deed with Maybank Trustees Bhd ('MTB'). Both the High Court and the Court of Appeal fell into serious error when they held that on the facts. which were jointly heard. KAF was justified in being satisfied that the SD accounts had been opened and that MTB had been made the sole signatory to these accounts ie that the accounts had been ring-fenced. Thus. It was not contrary to law or business practice to do so. KAF as lead arranger was entitled to exclude liability arising from the IM through the important notice. but it failed to take the necessary action to ring fence the account before the issuance of the bonds or immediately after the bonds were issued. it was common ground that the bondholders were sophisticated investors and experienced financial institutions with vast experience in the capital market and not ordinary investors. From the evidence adduced. 77 & 81). KAF was fully satisfied that all the conditions precedent had been complied with and was not acting in breach (see paras 75. as the lead arranger. Based on the cases cited it was clear that it was open to KAF. MTB filed a Notice of Contribution and a counterclaim against Pesaka and the directors of Pesaka claiming.  (3) Based on the evidence. and not that of the lead arranger and was therefore Pesaka's document. In any case. MTB had wide powers and rights under the trust deed and the power of attorney. Further. Held:  (1) The first issue to be considered was whether KAF was entitled to include the important notice in the IM and if so whether this notice operated as a disclaimer to negate KAF's duty of care.Court found for the bondholders against MTB and KAF for breach of contract and negligence. who had misappropriated the funds. In addition. 46. MTB. which was strictly between the issuer and MTB. to include the important notice as a disclaimer in the IM. the IM contained information belonging to the issuer. the Court of Appeal had placed a much higher burden on KAF than what was required under the issue documents. In the present case. the directors of Pesaka and CIMB have been granted leave to proceed with the instant five appeals. there existed a duty of care owed by KAF to the bondholders despite the presence of the important notice in the IM. the most proximate cause of the loss was the failure on the . the Court of Appeal affirmed the findings of the High Court but re-apportioned liability between KAF and MTB on a 50:50 basis. namely the letter from Pesaka and the transactional letter. On appeal. 50 & 52). MTB also filed a counterclaim against CIMB. an indemnity in full. The Court of Appeal granted MTB an indemnity of 2/3 of the sum claimed as against Pesaka and its directors. It therefore followed that KAF could not be held liable for any information found in the IM (see paras 32. in the light of the accounts held by Pesaka maintained by CIMB.  (2) The second issue to be considered with regard to liability was whether KAF had acted in breach of the condition precedent that required the SD accounts to be ring-fenced prior to the issuance of the bonds. the cause of loss was directly attributable to Pesaka. Thus. KAF was not a party to the trust deed. By holding that KAF had a duty to independently verify that the SD accounts were ring-fenced. They were thus expected to act on independent and professional advice from their own sources in the light of the disclaimer as contained in the IM. Pesaka. 44. inter alia. it could be reasonably concluded that when the bonds were issued. The trial judge also denied KAF any indemnity against Pesaka and apportioned liability between KAF and MTB on a 60:40 basis. Pesaka. KAF. The Court of Appeal erred in holding that the most proximate cause of the loss was the issuance of the bonds by KAF without the ring fencing in place. MTB was totally liable (see paras 148 & 150). CIMB was not liable for the monies in the two accounts that were in its management. However. willful breach or fraudulent actions'. the court should consider the express agreement of the bondholders in the trust deed. MTB was only liable to RM107m and not the full amount of RM149.  (4) As a result.  (7) Although cl 14. this meant that Pesaka would stand to gain at least 1/3 of its ill-gotten gains. . which sum represented the redemption value of the bonds.315.000 (see para 95). which was not the case.  (6) The Court of Appeal had erred in allowing pre-judgment interest. the Court of Appeal found MTB to be guilty of gross negligence and only ordered Pesaka to indemnify MTB up to two-thirds of the sum claimed. the two directors should fully indemnify MTB for the loss (see paras 128–129 & 131). As such. Thus. In the circumstances this court had to intervene by imputing a constructive trust upon the two directors for their role in misapplying the trust monies. In deciding the question of interest. As such. which the High Court had correctly refused. If MTB was to be held liable for the full amount of Pesaka's indebtedness. as the total sum of monies that was received and dissipated by Pesaka did not exceed RM107m. It would not be equitable for Pesaka who had received the ill gotten gains to be put in a position where it could retain those gains or any part of it. MTB was 100% liable to the bondholders and its appeal against the order of the Court of Appeal in apportioning liability between MTB and KAF at 50:50 had to be dismissed (see para 91). With Pesaka having admitted full responsibility to the bondholders via the consent judgment. the judgment should not be entered for the sum of RM149. CIMB was only complying with instructions given by the banker-customer relationship and could not be construed as being dishonest in the ordinary standards of reasonable and honest people.part of MTB to ring fence the SD accounts or alternatively to stop Pesaka from operating them. MTB was wholly to blame for the loss and not KAF (see paras 82.000. willful default. In this case.1 of the trust deed clearly provided that MTB would be indemnified 'save and except for its gross negligence. MTB should be indemnified in full (see paras 108 & 112). Accordingly. 84 & 87).  (8) The directors of Pesaka had acted dishonestly when they misapplied the proceeds of the trust monies. it would amount to treating MTB as if it was either the primary debtor or guarantor to the bonds issue. The corporate veil could not be the directors' defence from MTB's claim for indemnity. cl 39 of the trust deed had provided that no interest should be payable (see para 101). This is especially so since the bondholders had not taken any steps to enforce the consent judgment entered between Pesaka and the bondholders and instead focused their attention on MTB on the basis that the latter was in the position to satisfy the bondholders' claim.  (9) From the totality of the evidence.  (5) However.315. KAF telah membantu dalam penyedian dokumen dipanggil memorandum maklumat ('MM') yang menyediakan maklumat tentang bon-bon kepada bakal pelabur-pelabur. Dalam apa keadaan. Pemegangpemegang bon yang terkilan itu telah memulakan tindakan di Mahkamah Tinggi terhadap 12 defendandefendan. MTB telah dilantik sebagai pemegang amanah tunggal untuk mengurus dan mengawal akaun-akaun SD iaitu akaunakaun SD hendaklah dilindungi sepenuhnya. Mahkamah Rayuan memberikan MTB ganti rugi sejumlah 2/3 daripada yang dituntut terhadap Pesaka dan pengarah-pengarahnya. Di bawah terma-terma perjanjian langganan dan kemudahan. KAF. telah. Pesaka telah menggunakan akaun-akaun konvensional sedia adanya sebagai akaun-akaun yang ditetapkan dan MTB tidak dijadikan penandatangan tunggal kepada akaun-akaun tersebut. MTB dan Pesaka. Diputuskan:  (1) Isu pertama untuk diambil kira adalah sama ada KAF berhak memasukkan notis penting dalam MM dan jika begitu sama ada notis ini berfungsi sebagai penafian untuk menyangkal kewajipan berjaga-jaga KAF. Pesaka telah melantik KAF Investment Bank ('KAF') sebagai pengatur utama. MTB telah memfailkan notis sumbangan dan tuntutan balas terhadap CIMB. sebagai pengatur utama. yang didengar bersama. MM itu mengandungi . Pesaka telah memasuki surat ikatan amanah dengan Maybank Trustees Bhd ('MTB'). Dalam MM itu. KAF. akaun-akaun tersebut tidak dilindungi apabila bon-bon itu diterbitkan. Pemegang-pemegang bon tersebut kemudian telah memasuki penghakiman persetujuan terhadap kesemua defendan. Pesaka yang mempunyai kawalan ke atas akaun-akaun tersebut telah menggunakan wang dalam akaun-akaun yang ditetapkan bagi tujuannya sendiri dan telah gagal menebus bon-bon tersebut dan membayar balik pemegang-pemegang bon itu pada tarikh matang. yang mana sebagai pulangan kerana melabur dalam bon-bon itu hendaklah dibayar semula pada tarikh matang. ejen kemudahan dan ejen penerbitan untuk terbitan bon-bon tersebut. Wang bon-bon itu yang dibayar oleh pemegang-pemegang bon hendaklah didepositkan ke dalam akaun-akaun Syariah yang ditetapkan ('akaun-akaun SD'). Hakim perbicaraan juga menafikan KAF apa-apa ganti rugi terhadap Pesaka dan memperuntukkan liabiliti antara KAF dan MTB berasaskan 60:40. Berdasarkan kes-kes yang dipetik ia adalah jelas bahawa ia adalah terbuka untuk KAF. tanpa membuka akaun-akaun SD baru. Walau bagaimanapun. Di bawah skim itu. yang sepatutnya memberi nasihat Pesaka tentang cara memperolehi pinjaman dalam pasaran bon. Bagi tujuan memastikan kepentingan kewangan pemegang-pemegang bon terjamin. untuk memasukkan notis penting sebagai penafian dalam MM itu. ia mencadangkan skim pembiayaan untuk membiayai kontrak-kontrak tersebut. Atas rayuan. yang kemudian telah menjual yang sama kepada pemegang-pemegang bon. yang perlu dibuka oleh Pesaka di institusi kewangan yang diiktiraf. kecuali KAF dan MTB.Apabila Pesaka Astana (M) Sdn Bhd ('Pesaka') diawardkan tiga kontrak kerajaan. Di bawah surat ikatan amanah itu. pengarah-pengarah Pesaka dan CIMB telah diberikan kebenaran untuk memulakan lima rayuan ini. bon-bon tersebut pertama kali diterbitkan untuk pelanggan utama. pemegang-pemegang bon memilih untuk tidak melaksanakan penghakiman persetujuan itu. ditugaskan dengan kewajipan untuk menyediakan semua dokumentasi yang dikehendaki bagi memperoleh kelulusan yang diperlukan daripada Suruhanjaya Sekuriti. Namun begitu. Pendek kata. berdasarkan akaun-akaun yang dipegang oleh Pesaka yang diselenggarakan oleh CIMB. antara lain. KAF memasukkan notis penting untuk mengecualikan apa-apa liaibiliti yang timbul daripada apa-apa tuntutan yang mungkin timbul daripada MM itu. Mahkamah Rayuan mengesahkan penemuan-penemuan Mahkamah Tinggi tetapi telah memperuntukkan semula liabiliti antara KAF dan MTB berasaskan 50:50. Skim itu melibatkan penerbitan bon-bon Islam awam bernilai RM140 juta kepada pelanggan utama yang mana kontrak-kontrak kerajaan Pesaka telah dicagarkan sebagai jaminan. Sebaliknya mereka telah memulakan perbicaraan terhadap KAF dan MTB. Ia tidak bertentangan dengan undang-undang atau amalan perniagaan untuk berbuat demikian. Mahkamah Tinggi mendapati berpihak untuk pemegang-pemegang bon terhadap MTB dan KAF kerana pelanggaran kontrak dan kecuaian. KAF mempunyai justifikasi untuk berpuas hati bahawa akaun-akaun SD telah dibuka dan bahawa MTB telah dijadikan penandatangan tunggal kepada akaun-akaun tersebut iaitu bahawa akaun-akaun itu telah dilindungi. ia sama seperti menganggap MTB sebagai penghutang atau penjamin utama kepada . Jika MTB dipertanggungjawabkan untuk kesemua jumlah keberhutangan Pesaka. 77 & 81). 84 & 87). yang mana adalah hanya antara penerbit dan MTB. Mereka dengan itu dijangka untuk bertindak berdasarkan nasihat bebas dan profesional daripada sumber mereka sendiri berdasarkan penafian sebagaimana terkandung dalam MM tersebut. KAF berpuas hati sepenuhnya bahawa semua prasyarat telah dipatuhi dan ia tidak bertindak dalam pelanggaran (lihat perenggan 75. KAF sebagai pengatur utama berhak mengecualikan liabiliti yang timbul daripada MM itu melalui notis penting tersebut. ia boleh disimpulkan secara munasabah bahawa apabila bon-bon itu diterbitkan. KAF bukan pihak kepada Surat Ikatan Amanah. Oleh itu. penghakiman tidak patut dimasukkan untuk jumlah RM149. MTB harus dipersalahkan sepenuhnya untuk kehilangan itu dan bukan KAF (lihat perenggan 82.315. Dengan memutuskan bahawa KAF mempunyai kewajipan untuk mengesahkan secara berasingan bahawa akaunakaun SD itu dilindungi.  (2) Isu kedua untuk dipertimbangkan berkenaan liabiliti adalah sama ada KAF telah bertindak melanggar prasyarat yang menghendaki akaun-akaun SD dilindungi sebelum terbitan bon-bon itu. oleh kerana jumlah keseluruhan wang yang diterima dan dilesapkan oleh Pesaka tidak melebihi RM107 juta. MTB mempunyai kuasa dan hak yang luas di bawah Surat Ikatan Amanah dan Surat Kuasa Wakil. Oleh itu. 46 50 & 52). Berdasarkan keterangan yang dikemukakan. terdapat kewajipan berjaga-jaga oleh KAF kepada pemegang-pemegang bon meskipun terdapat notis penting itu dalam MM tersebut. Selanjutnya.000. MTB adalah 100% bertanggungjawab terhadap pemegang-pemegang bon itu dan rayuannya terhadap perintah Mahkamah Rayuan dalam membahagikan liabiliti antara MTB dan KAF pada 50:50 hendaklah ditolak (lihat perenggan 91). Pesaka. sebab kehilangan adalah berpunca secara langsung daripada Pesaka. tetapi ia gagal untuk mengambil tindakan sewajarnya untuk melindungi akaun itu sebelum terbitan bon-bon tersebut atau dengan segera selepas bon-bon tersebut diterbitkan.  (3) Berdasarkan keterangan. adalah alasan yang sama bahawa pemegang-pemegang bon itu adalah pelabur-pelabur canggih dan institusi-institusi kewangan berpengalaman dengan pengalaman luas dalam pasaran modal dan bukan pelabur-pelabur biasa. Oleh demikian seterusnya bahawa KAF tidak boleh dipertanggungjawabkan untuk apa-apa maklumat yang didapati dalam MM tersebut (lihat perenggan 32. terutamanya surat daripada Pesaka dan surat transaksi. sebab paling hampir untuk kehilangan itu adalah kegagalan di pihak MTB untuk melindungi akaun-akaun SD atau secara alternatif untuk menghentikan Pesaka daripada melaksanakannya.  (5) Walau bagaimanapun. yang telah menyalahgunakan wang tersebut. Mahkamah Rayuan telah meletakkan beban yang lebih berat ke atas KAF daripada apa yang dikehendaki di bawah dokumen-dokumen terbitan itu. Oleh itu. Dalam kes ini.  (4) Akibatnya. iaitu jumlah yang menunjukkan nilai penebusan bon-bon itu. Kedua-dua Mahkamah Tinggi dan Mahkamah Rayuan terkhilaf apabila memutuskan bahawa berdasarkan fakta. 44.maklumat yang dimiliki penerbit. Mahkamah Rayuan terkhilaf kerana memutuskan bahawa sebab paling hampir untuk kehilangan itu adalah terbitan bon-bon itu oleh KAF tanpa terdapat perlindungan. dan bukan pengatur utama dan oleh itu adalah dokumen Pesaka. willful default. Notes For cases on duty of care. willful breach or fraudulent actions'.terbitan bon-bon itu.  (8) Pengarah-pengarah Pesaka telah bertindak secara tidak jujur apabila mereka menyalahgunakan hasil wang amanah itu. Dalam kes ini. Walau bagaimanapun. MTB patut diberi ganti rugi sepenuhnya (lihat perenggan 108 & 112). MTB hanya bertanggungjawab untuk RM107 juta dan bukan jumlah keseluruhan RM149. yang mana bukan begitu. Mahkamah Rayuan mendapati MTB bersalah kerana kecuaian melampau dan hanya memerintahkan Pesaka untuk mengganti rugi MTB sehingga 2/3 daripada jumlah yang dituntut. 2013 Reissue) paras 1248–1334. CIMB tidak bertanggungjawab untuk wang dalam dua akaun di bawah pengurusannya. For cases on terms. CIMB hanya mematuhi arahan yang diberikan melalui hubungan pihak bank-pelanggan dan tidak boleh ditafsirkan sebagai tidak jujur dalam piawai biasa seorang yang munasabah dan jujur. Adalah tidak adil untuk Pesaka yang telah menerima keuntungan haram diletakkan dalam kedudukan di mana ia boleh menyimpan keuntungan tersebut atau sebahagian daripadanya. Dalam keadaan itu mahkamah perlu campur tangan dengan mengandaikan amanah konstruktif ke atas dua pengarah yang berperanan dalam menyalahgunakan wang amanah itu.000 (lihat perenggan 95). Oleh itu. Oleh demikian.  (6) Mahkamah Rayuan terkhilaf kerana membenarkan faedah pra penghakiman.1 surat ikatan amanah jelas memperuntukkan bahawa MTB boleh diganti rugi 'save and except for its gross negligence. Lebih-lebih lagi kerana pemegang-pemegang bon tidak mengambil apa-apa langkah untuk menguatkuasakan penghakiman persetujuan yang dimasuki antara Pesaka dan pemegang-pemegang bon dan sebaliknya memberi fokus perhatian mereka kepada MTB atas dasar bahawa MTB berada dalam kedudukan untuk memuaskan tuntutan pemegang-pemegang bon itu.315. MTB adalah bertanggungjawab sepenuhnya (lihat perenggan 148 & 150). ini bermaksud bahawa Pesaka akan memperoleh sekurang-kurangnya 1/3 daripada keuntungan haram yang diperolehnya. Berdasarkan Pesaka yang telah mengakui tanggungjawab sepenuhnya terhadap pemegang-pemegang bon melalui penghakiman persetujuan. HL (refd) Bank Islam Malaysia Bhd v Lim Kok Hoe & Anor and other appeals [2009] 6 MLJ 839.  (9) Berdasarkan keseluruhan keterangan. Oleh itu. Tudung korporat tidak boleh menjadi pembelaan pengarah-pengarah itu berdasarkan tuntutan MTB untuk ganti rugi. yang mana telah ditolak sewajarnya oleh Mahkamah Tinggi. see 12(1) Mallal's Digest (4th Ed. fasal 39 kepada surat ikatan amanah itu memperuntukkan bahawa tiada faedah patut dibayar (lihat perenggan 101). Cases referred to Antaios Cia Naviera SA v Salen Rederierna AB. The Antaios [1985] AC 191. CA (refd) . see 3(2) Mallal's Digest (4th Ed. mahkamah mengambil kira perjanjian nyata pemegang-pemegang bon dalam surat ikatan amanah itu. Dalam memutuskan persoalan tentang faedah. dua pengarah itu patut memberi ganti rugi sepenuhnya kepada MTB untuk kehilangan tersebut (lihat perenggan 128–129 & 131). 2013 Reissue) paras 3451–3454.  (7) Walaupun fasal 14. Re v National Westminster Bank Ltd and others [1992] 4 All ER 308. CA (refd) Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland plc [2010] EWHC 1392 (Comm). [2011] 4 AMR 677. CA (refd) Lipkin Gorman (a firm) v Karpnale Ltd and another [1992] 4 All ER 331. Ch D (refd) Royal Brunei Airlines Sdn Bhd v Tan [1995] 3 All ER 97. Duke of Manchester. CA (refd) IFE Fund SA v Goldman Sachs International [2007] EWCA Civ 811. [2010] 1 CLJ 381. CA (refd) JP Morgan Chase Bank v Springwell Navigation Corp [2008] EWHC 1186 (Comm). QBD (refd) Takako Sakao (f) v Ng Pek Yuen (f) & Anor (No 2) [2010] 2 MLJ 181. CA (refd) Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] 2 All ER 92. QBD (refd) Rowlandson and others v National Westminster Bank Ltd [1978] 3 All ER 370. CA (refd) Karak Rubber Co Ltd v Burden and others (No 2) [1972] 1 All ER 1210. QBD (refd) Montagu's Settlement Trusts. (refd) Caparo Industries plc v Dickman and others [1990] 2 AC 605. HL (refd) Fernrite Sdn Bhd v Perbadanan Nasional Bhd [2012] 1 MLJ 1. Ch D (refd) Belmont Finance Corpn Ltd v Williams Furniture Ltd [1979] 1 All ER 118.Barnes v Addy (1874) LR 9 Ch App 244. CA (refd) Datuk M Kayveas v See Hong Chen & Sons Sdn Bhd & Ors [2013] 5 CLJ 949. FC (refd) Go Dante Yap v Bank Austria Creditanstalt AG [2010] 4 SLR 916. Ch D (refd) Standard Chartered Bank v Ceylon Petroleum Corporation [2011] EWHC 1785 (Comm). HC (refd) HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6. HL (refd) Hassan bin Kadir & Ors v Mohamed Moidu bin Mohamad & Anor [2011] 4 MLJ 190. HL (refd) Carl-Zeiss-Stiftung v Herbert Smith & Co (a firm) and another (No 2) [1969] 2 All ER 367. [2012] 5 MLRA 421. Ch D (refd) Karsales (Harrow) Ltd v Wallis [1956] 1 WLR 936. FC (refd) . Paragon Finance plc v Thimbleby & Co (a firm) [1999] 1 All ER 400. CA (refd) Brown v Innovatorone plc [2012] EWHC 1321. Ch D (refd) Paragon Finance plc v Thakerar & Co. FC (refd) Dubai Aluminium Co Ltd v Salaam [2003] 1 All ER 97. QBD (refd) JP Morgan Chase Bank v Springwell Navigation Corp [2010] EWCA Civ 1221. PC (refd) Selangor United Rubber Estates v Cradock (a bankrupt) and Others (No 3) [1968] 2 All ER 1073. Tommy Thomas (Alan Adrian Gomez and Nur Ashikin bt Abdul Rahim with him) (Tommy Thomas) in Civil Appeal No 02(f)-29–04 of 2012(W) for the first to tenth respondents. Tan Ch'eng Leong and Gopal Sreenevasan with him) (Sreenevasan Young) in Civil Appeal No 02(f)-29–04/ of 2012(W) for the 12th respondent. . Mohamed Zaini Mazlan. QBD (refd) Twinsectra Ltd v Yardley and others [2002] 2 All ER 377. HL (refd) Titan Steel Wheels Ltd v Royal Bank of Scotland plc [2010] EWHC 211 (Comm).Target Holdings Ltd v Redferns (a firm) [1995] 3 All ER 785. Tommy Thomas (Alan Adrian Gomez and Nur Ashikin bt Abdul Rahim with him) (Tommy Thomas) in Civil Appeal No 02(f)-30–04 of 2012(W) for the first to tenth respondents. Robert Lazar (Mark Lau. HL (folld) Legislation referred to Central Bank of Malaysia Act 2009 ss 56. Cecil Abraham (Rishwant Singh. Tan Ch'eng Leong and Gopal Sreenevasan with him) (Sreenevasan Young) in Civil Appeal No 02(f)-27–04 of 2012(W) for the respondent. [1996] AC 421. Malik Imtiaz Sarwar (Jenine Gill Sia. Siew Mun Lee and Zhen Yeap with him) (Sia Siew Mun & Co) in Civil Appeal No 02(f)-33–04 of 2012(W) for the appellant. Tan Ch'eng Leong and Gopal Sreenevasan with him) (Sreenevasan Young) in Civil Appeal No 02(f)-30–04 of 2012(W) for the appellant. Tan Ch'eng Leong and Gopal Sreenevasan with him) (Sreenevasan Young) in Civil Appeal No 02(f)-28–04 of 2012(W) for the respondent. 56(1)(a). 57 Civil Law Act 1956 s 11 Contracts Act 1950 ss 17. 18 Rules of the High Court 1980 O 42 r 12 Securities Commission Act 1993 ss 38(4). Siew Mun Lee and Zhen Yeap with him) (Sia Siew Mun & Co) in Civil Appeal No 02(f)-29–04 of 2012(W) for the 11th respondent. Robert Lazar (Mark Lau. Mawar Ahmad Fadzil and Amrit Gill with him) (Zaini Mazlan) in Civil Appeal No 02(f)-29–04 of 2012(W) for the appellant. 65 Tommy Thomas (Alan Adrian Gomez and Nur Ashikin bt Abdul Rahim with him) (Tommy Thomas) in Civil Appeal No 02(f)-27–04 of 2012(W) for the appellant. Malik Imtiaz Sarwar (Jenine Gill Sia. Wong Kian Kheong (Karen Lee Foong Voon and Geraldine Oh Kah Yan with him) (Wong Kian Kheong) in Civil Appeal No 02(f)-28–04 of 2012(W) for the appellant. Robert Lazar (Mark Lau. Robert Lazar (Mark Lau. Mohamed Zaini Mazlan. Lee Zhen Yeap (Sia Siew Mun & Co) in Civil Appeal No 02(f)-30–04 of 2012(W) for the 12th to 20th respondents. we will first deal with the third appeal. Arifin Zakaria Chief Justice: INTRODUCTION [1] There are five appeals before this court and they are:  (a) Civil Appeal No 02(f)-27–04 of 2012 (W) with CIMB Bank Bhd as the appellant and Maybank Trustees Bhd as the respondent. and  (e) Civil Appeal No 02(f)-33–04 of 2012 (W) with Pesaka Astana (M) Sdn Bhd and eight others as the appellants and Maybank Trustees Bhd and another as the respondents. Robert Lazar (Mark Lau. Wong Kian Kheong (Karen Lee Foong Voon and Geraldine Oh Kah Yan with him) (Wong Kian Kheong) in Civil Appeal No 02(f)-30–04 of 2012(W) for the 21st respondent.Cecil Abraham (Rishwant Singh. lead arranger. Mawar Ahmad Fadzil and Amrit Gill with him) (Zaini Mazlan) in Civil Appeal No 02(f)-30–04 of 2012(W) for the 11th respondent. Mohamed Zaini Mazlan.  (c) Civil Appeal No 02(f)-29–04 of 2012(W) with KAF Investment Bank Bhd as the appellant and MIDF Amanah Investment Bank Bhd and 11 others as the respondents. Cecil Abraham (Rishwant Singh. facility agent and issue agent with respect to matters contained in an information memorandum? .  (d) Civil Appeal No 02(f)-30–04 of 2012(W) with Maybank Trustees Bhd as the appellant and MIDF Amanah Investment Bank Bhd and 20 others as the respondents. Mawar Ahmad Fadzil and Amrit Gill with him) (Zaini Mazlan) in Civil Appeal No 02(f)-33–04 of 2012(W) for the second respondent. [2] This court had on 5 April 2012 granted leave to appeal to KAF Investment Bank Bhd ('KAF') on the following questions of law:  (a) What liability in law is assumed by an issuer. For convenience.  (b) Civil Appeal No 02(f)-28–04 of 2012(W) with Datin Murnina bt Dato' Hj Sujak as the appellant and Maybank Trustees Bhd as the respondent. Tan Ch'eng Leong and Gopal Sreenevasan with him) (Sreenevasan Young) in Civil Appeal No 02(f)-33–04 of 2012(W) for the first respondent. and in light of the express contractual obligations. duties and liabilities either by way of or under an information memorandum?  (d) Whether and to what extend is the lead arranger allowed to: o (i) Place experienced and sophisticated investors on notice as to the extend to which such investors are entitled to rely on information contained in an information memorandum? and o (ii) Limit any liability arising from any party reading and relying on the information memorandum?  (e) Is an information memorandum an agreement within the meaning of s 65 of the Securities Commission Act 1993. determine or ascertain Islamic law for the purpose of Islamic financial business within the meaning of ss 56and 57 of the Central Bank of Malaysia Act 2009? . with the benefit of independent and professional advice. to the exclusion of the Shariah Advisory Council. allowed to expressly apportion their obligations. in what circumstances will a court of law countenance or permit that party to retain the benefit of that fraud?  (g) Where parties to a contract provide that a party will indemnify the other in full for any and all expense. who are parties to the information memorandum and how does the doctrine of privity of contract apply?  (f) Where a party has benefitted in pecuniary form from its fraudulent actions. loss. duties and liabilities either by way of contract or under an information memorandum?  (c) Whether and to what extend are sophisticated investors. damage or liability arising out of the second party carrying out its duties under the contract in question: o (i) Whether a court of law can interfere with the agreed contractual indemnity and order that only a partial indemnity be given?. (b) To whom do the lead arranger. and if so. tort and/or statute. facility agent and issue agent owe duties in contract. and o (ii) What circumstances will justify a court making such an order in law?  (h) Whether and to what extend can a court of law. issue agent and facility agent. tort or under statute to the trustee. Pesaka and the primary subscriber ('Kenanga'). but we will answer them in so far as they are relevant to the appeal before us. can a statement of intent as to an event that is to take place in the future constitute a misrepresentation under the law (including s 18 of the Contracts Act 1950)?  (l) Whether the Court of Appeal was correct as a matter of fact and law in holding that the Securities Commission must approve an information memorandum bearing in mind s 38(4) Securities Commission Act 1993 and if so. Pesaka proposed a financing scheme through the issuance of public Islamic bonds worth RM140m ('the bonds'). [5] Pesaka then set up a Due Diligence Working Group ('the DDWG'). can a Court of Appeal intervene and set aside that part of the High Court decision? If the answer to this question is yes. BRIEF FACTS [4] Pesaka Astana (M) Sdn Bhd ('Pesaka') had obtained three government contracts. then to what extend. does the doctrine of res judicata apply?  (j) On the issue of liability for the default of the issuer in repaying the bonds: o (i) In light of the fact that the lead arranger. Pesaka appointed KAF as the lead arranger. This is contained in the subscription and facility agreement ('the SFA') entered into between KAF. in the absence of an appeal from that decision by an affected party. The IM was put together based on the information presented by Pesaka to the DDWG. or (2) what was the real effective cause of the causa causans of the loss?  (k) In a contractual context. in law. The DDWG gathered all information required for the bonds scheme to formulate the information memorandum ('the IM'). whether any party who wishes to issue an information memorandum is obliged to obtain prior approval of the Securities Commission? [3] We do not propose to answer the questions of law posed individually. . if any. can the lead arranger. issue agent and facility agent owe no duties in contract. facility agent and issue agent for the issuance of the bonds. o (ii) What is the test for the apportionment of liability where more than one party is found liable and what part does a party's knowledge in respect of the default play in the apportionment of liability? and o (iii) Is the question to be asked whether (1) what is the proximate cause of the loss. (i) Where a trial court makes a finding that there is no misrepresentation on a particular state of facts. be held to be contributorily liable with the trustee for the default in the repayment of the bonds. amounting to RM109m. under the control of Pesaka. Rafie mentioned that the funds had been fully utilised to support Pesaka's overseas operation and overheads. Pesaka's contracts with the government will be charged as security.  (c) The bondholders asked the trustee as to how that could have happened and the trustee reported that KAF had disbursed the bonds proceeds before the signatory was changed. MTB arranged an informal meeting for Pesaka to table a debt repayment proposal. In other words. [12] Having control over the accounts. [9] Pesaka appointed MTB as the sole trustee to manage and control the designated accounts. [10] As it turned out. [13] On 25 October 2005. upon Pesaka's request. revealed during the 25 October 2005 meeting:  (a) Dato' Mohamad Rafie bin Sain ('Rafie') reported that he would like to come clean with the bondholders and disclosed that Pesaka had actually received the monies. sometime between June and August 2004. The bonds funds paid by the bondholders were deposited into the designated accounts. the bonds were first issued to Kenanga as the primary subscriber. However. This was done under the trust deed entered into between MTB and Pesaka. Pesaka utilised the monies in the designated accounts for its own purposes and failed to redeem the bonds and repay the bondholders on the maturity date. [7] To ensure the financial interest of the bondholders are secured. The proceeds of these contracts were to be paid into Pesaka's accounts which were to have Maybank Trustees Berhad ('MTB') as trustee and sole signatory. instead of opening up new Shariah designated accounts. where all the proceeds from the government contracts due to Pesaka will be deposited in Shariah designated accounts. Thus. Kenanga then on sold the same to the plaintiffs (the bondholders). The security for the bonds exercise was the contracts which Pesaka had signed with Bomba and the Ministry of Defence ('MINDEF'). the bonds scheme was structured with MTB as the trustee. [11] Under the scheme.[6] Under the bonds scheme. [8] The designated accounts will be under the sole control of the trustee. the bondholders will be repaid on the maturity date. the DDWG agreed to use the existing conventional accounts belonging to Pesaka as the designated accounts and to convert them by making MTB as the sole signatory. The following details were.  (d) The bondholders then turn to KAF with the question as to how KAF could have disbursed the funds when the documents stated that the trustee should have been the sole signatory prior to the disbursement . the designated accounts will be completely ring fenced. Pesaka was still the signatory and had complete control over these accounts. The bondholders will provide funds to Pesaka to finance the contracts. Pesaka's existing accounts were used as the designated accounts.  (b) In response to queries from the bondholders as to where the monies were. inter alia. In return. No one can use the monies in these accounts except the trustee of the accounts and in the manner and for the purpose as specified in the trust deed. these designated accounts were not fully converted as MTB was not made the sole signatory to these accounts. [17] The learned judge dismissed the claim in para 14 (d) and (e) and no appeal was brought by the bondholders against the dismissal.529. there were misrepresentations in the IM. the bondholders however chose not to execute the consent judgment against Pesaka or had the damages assessed as against Rafie and the Amdac Group. and  (e) that BOMBA had not agreed to compensate Pesaka on its foreign exchange losses and therefore. Rafie ('the fourth defendant') and the Amdac Group (the sixth to 12th defendants) for the full sum of claim ('the consent judgment').  (g) Pesaka then requested for indulgence until mid December to come up with a repayment proposal. the bondholders proceeded to trial against KAF and MTB. . [15] The bondholders then entered a consent judgment against Pesaka ('the first defendant'). (e) Farid Mohd Yusof reported that KAF had acted on the advice of Messrs Abu Talib Shahrom & Zahari ('the transactional solicitor').  (f) Miss Kim Lim of the transactional solicitor explained that the condition precedent only required Pesaka to confirm that it had opened the designated accounts and that the board had passed a resolution to change the signatories.  (d) that the foreign exchange claim was not RM31.  (c) that the government contracts proceeds were never deposited into the revenue accounts under MTB's control. HIGH COURT [14] Aggrieved. [16] Having entered consent judgment for the full sum of the claim against Pesaka.338. The bondholders' claims against KAF in the High Court were fivefold. Instead. the bondholders then commenced action in the High Court against 12 separate defendants which includes KAF.  (b) that the bonds proceeds were not deposited into the disbursement account under MTB's control. The bondholders then withdrew their action against Datin Murnina bt Dato' Haji Sujak ('the fifth defendant') (Murnina). It does not mention the need for KAF to get confirmation that the changes had been effected. namely:  (a) that the three trustee accounts which formed part of the designated accounts were not Shariah compliant. The bondholders were the parties who purchased the bonds in the secondary market from Kenanga. This duty of care. marketing the securities to potential investors. liaising with local rating agency. .[18] The High Court allowed the bondholders' claim in para. it was also KAF's duty to verify the information that was given by Pesaka against the original documents.  (b) organising the formation of DDWG. It is also tasked with the duty to make submission of the proposal to the Securities Commission ('SC'). As lead arranger in a securitisation transaction. as the regulatory body. [22] KAF is also responsible for:  (a) organising and identifying the apportionment of relevant advisers/parties (if applicable) in relation to the private debt securities/Islamic securities for and on behalf of the issuer.300. therefore. monitoring the compliance of the conditions precedent prior to issuance and supervising the documentation of the Islamic securities to the financial close. KAF'S LIABILITY UNDER THE IM [21] KAF is defined in the IM as the lead arranger. the bondholders suffered damages. [24] The learned judge also found that it was KAF's duty as lead arranger. arose out of the proximity of the relationship between KAF and the bondholders which made it foreseeable that the bondholders would rely on the IM which KAF had played a substantial role in putting together. COURT OF APPEAL [20] On appeal. (a). assisting in the preparation of IM. KAF is to advise the issuer on how to go about obtaining a loan in a bond market. It should be noted however that the DDWG was set up by Pesaka. The learned judge. held that KAF owed a duty of care to the bondholders to ensure that the contents of the IM or otherwise known as the prospectus under the Securities Commission Act 1993 ('the SCA') was neither false nor misleading. [25] The learned judge held that KAF was liable in negligence in failing to verify the content of the IM. and to prepare all the required documentation in order to obtain the necessary approval from the SC. and  (c) participating as a member of DDWG. (b) and (c). The Court of Appeal further granted KAF an indemnity of 2/3 of the sum of RM149. The High Court found for the bondholders against MTB and KAF for breach of contract and negligence. as a result of which. [19] The learned judge denied KAF any indemnity against Pesaka and apportioned liability between KAF and MTB on 60:40 basis. HIGH COURT [23] The High Court held that KAF as lead arranger owed a duty of care to the bondholders. according to the High Court. not only to put together the information contained in the IM and to make submission to the SC for approval.000 as against Pesaka. the Court of Appeal affirmed the findings of the High Court but re-apportioned liability between KAF and MTB on 50:50 basis. Therefore. [28] With respect. whereas the said section merely requires a person issuing the IM.2 (b) of the SFA further provides that the facility agent shall not be liable for any failure of any other party to this agreement. The learned judge made no reference to any agreement or any statutory provision requiring KAF to verify the information contained in the IM. the learned judge failed to consider the effect of the important notice in the IM. Clause 14. We do not know how and on what basis this duty to verify arose. clearly acknowledged that the IM was prepared by KAF based on information provided by Pesaka. we agree with learned counsel for KAF that the learned judge erred in saying that the IM had to be submitted to SC for its approval under s 38(4) of the SCA. it is clear that the IM is not a document which requires approval of the SC. in the IM. Therefore.2 (a) of the SFA clearly stipulates that KAF shall not assume or be deemed to have assumed any obligation to or fiduciary relationship with the primary subscriber other than those for which specific provision is made by this agreement or any obligation to or fiduciary relationship with the issuer. the letter from Pesaka dated 15 March 2004. or the trustee to duly and punctually perform any of their respective obligations under the issue documents. As for the second ground. COURT OF APPEAL [31] In affirming the decision of the High Court. Therefore. In fact. the Court of Appeal fell into error in saying that the IM needs the approval of the SC. [32] Like the High Court. the Court of Appeal construed the word 'agreement' in s 65 of the SCA to include the IM and accordingly the disclaimer is void as it contravenes the said provision. to deposit a copy of the IM within seven days after it is first issued. [27] He further contended that in coming to her decision. in that case the House of Lord was concerned with charter party which had an arbitration clause and in particular with the construction of cl 5 of the charter party.[26] Learned counsel for KAF in his submission contended that the High Court judge in coming to her decision failed to take into consideration the fact that the IM is not KAF's document. but that of Pesaka. KAF should not be held liable for the information contained in the IM. THIS COURT [33] The Court of Appeal relied on the case of Antaios Cia Naviera SA v Salen Rederierna AB. For instance. . [29] The learned judge further imposed a duty on KAF to verify the information contained in the IM against original documents. As we stated earlier. namely:  (a) there was no approval from the SC for the important notice. that is not the case. the Court of Appeal went on to hold that the important notice had no legal effect for two reasons. The Antaios [1985] AC 191 in extending the meaning of the word 'agreement' to include the IM but as rightly pointed out by learned counsel for KAF. [30] The finding by the High Court in fact appears to go against the duties and obligations of KAF as spelt out in the SFA. cl 14. and  (b) KAF could not contract out its statutory duties or liabilities as it contravenes s 65 of the SCA. REPRESENTATIVES OR PROFESSIONAL ADVISERS (COLLECTIVELY. the principle of construction as expounded by Lord Diplock in that case is relevant to the construction of commercial contract and is not applicable to the interpretation of statute. BY RECEIVING THIS INFORMATION MEMORANDUM THE RECIPIENT ACKNOWLEDGES THAT IT WILL BE SOLELY RESPONSIBLE FOR MAKING ITS OWN INVESTIGATIONS. 57 or 58 or for loss or damage under section 153. AND SHOULD NOT BE CONSIDERED AS A RECOMMENDATION BY KAF TO PARTICIPATE IN THE FINANCING FACILITIES. [35] The important notice in the present case reads: THIS INFORMATION MEMORANDUM IS NOT INTENDED BY KAF TO PROVIDE THE SOLE BASIS OF ANY CREDIT OR OTHER EVALUATION. FURTHER. The IM was not part of the issue documents which requires the approval of the SC. EMPLOYEES. EXPRESS OR IMPLIED. KAF HAS NEITHER INDEPENDENTLY VERIFIED THE CONTENTS NOR VERIFIED THAT ALL INFORMATION MATERIAL FOR AN EVALUATION OF THE FINANCING FACILITIES OR ABOUT PASB HAS BEEN INCLUDED. INCLUDING THE COSTS AND EXPENSES INCURRED. KAF is free to include the important notice in the IM to exclude any liability arising from any claim that may arise from the IM. NO REPRESENTATION OR WARRANTY. An agreement is void in so far as it purports to exclude or restrict the liability of a person for contravention of section 55. It had been issued by KAF on behalf of Pesaka to provide information to potential investors. We agree with learned counsel for KAF that the word 'agreement' in s 65 of the SCA must be given its ordinary meaning. VALIDITY. AND FORMING ITS OWN VIEWS AS TO THE CONDITION AND PROSPECTS OF PASB AND THE ACCURACY AND COMPLETENESS OF THE STATEMENTS CONTAINED IN THIS INFORMATION MEMORANDUM. OFFICERS. KAF AND PASB. ALL INFORMATION AND PROJECTIONS CONTAINED IN THIS INFORMATION MEMORANDUM HAVE BEEN SUPPLIED BYPASB AS A MERE GUIDE ONLY AND DO NOT PURPORT TO CONTAIN ALL THE INFORMATION THAT AN INTERESTED PARTY MAY REQUIRE. AND THEIR OFFICERS OR EMPLOYEES DO NOT REPRESENT OR WARRANT THAT ANY INFORMATION CONTAINED HEREIN WILL REMAIN UNCHANGED FROM THE DATE OF THIS INFORMATION MEMORANDUM. THE 'PARTIES') SHALL BE LIABLE FOR ANY CONSEQUENCES AS A RESULT OF THE RELIANCE ON ANY INFORMATION OR DATA IN THIS INFORMATION MEMORANDUM. EACH PARTICIPANT IS URGED TO MAKE ITS OWN ASSESSMENT OF THE RELEVANCE AND ADEQUACY OF THE INFORMATION CONTAINED IN THIS INFORMATION MEMORANDUM AND TO MAKE SUCH INDEPENDENT INVESTIGATION AS IT DEEMS NECESSARY FOR THE PURPOSE OF SUCH DETERMINATION. IS MADE BY KAF WITH RESPECT TO THE AUTHENTICITY. ACCURACY OR COMPLETENESS OF SUCH INFORMATION AND DATA AS CONTAINED IN THIS INFORMATION MEMORANDUM. NEITHER KAF NOR ANY OF ITS DIRECTORS. . therefore. [34] Section 65 of the SCA provides as follows: 65 Agreements to exclude or restrict liability void. The IM on the face of it is not a contractual document.strictly. which would mean some kind of contract between two or more parties. we hold that the IM is not an agreement falling within s 65 of the SCA. For those reasons. ORIGIN. which was distributed on or about 30 March 2000 to possible participants. THERE CAN BE NO ASSURANCE THAT SUCH STATEMENTS. under cover of which the SIM was provided to IFE and all possible participants.  (e) Before the trial.  (c) GSI created a Syndication Information Memorandum ('SIM'). GSI was also the arranger for the syndication of an intermediate tier of credit provided to Autodis for its purchase of shares in Finelist. It was held that the disclaimer was sufficient to negate the duty of care. . It is also common practice for a lead arranger to insert the notice of disclaimer. including IFE.  (b) Additionally. That notice contains standard terms under which arrangers and underwriters in the world of syndicated finance provide SIMs. ESTIMATES AND PROJECTIONS OR THAT ANY FORECAST WILL BE ACHIEVED.THIS INFORMATION MEMORANDUM INCLUDES CERTAIN STATEMENTS. IFE amended its pleading and included an additional claim for breach of duty of care. THE FORECAST AND ACTUAL RESULTS MAY VARY. NO REPRESENTATIONS ARE OR WILL BE MADE BY KAF OR PASB AS TO THE ACCURACY OR COMPLETENESS OF SUCH STATEMENTS. ESTIMATES AND PROJECTIONS PROVIDED BY PASB WITH RESPECT TO ITS ANTICIPATED FUTURE PERFORMANCE. [36] The IM is widely used in other jurisdictions and it is generally accepted that the IM is merely to provide the potential investors with the necessary overview of the product before deciding whether to participate in bonds issue or otherwise. CONCERNING ANTICIPATED RESULTS AND SUBJECT TO SIGNIFICANT BUSINESS. SUCH STATEMENTS. ESTIMATES AND PROJECTIONS WILL BE REALISED.  (d) IFE decided to invest in the security and subsequently brought an action against GSI. [38] In its defence. ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES. ACCORDINGLY. AND THOSE VARIATIONS MAY BE MATERIAL. The material facts in that case may be summarised as follows:  (a) Goldman Sachs International ('GSI') was the underwriter of credit facilities made available to Autodis. [37] In the case of IFE Fund SA v Goldman Sachs International [2007] EWCA Civ 811. which GSI had obtained from Arthur Anderson prior to 30 May 2000. subjet to certain standard wording. alleging misrepresentation on the basis that GSI had failed to reveal further information regarding Finelist. it was held that a notice of disclaimer by an arranger absolves the arranger from the obligation to verify the accuracy of the facts contained in the information memorandum. MANY OF WHICH ARE OR MAY BE BEYOND THE CONTROL OF PASB. THE CONTENTS OF THIS INFORMATION MEMORANDUM ARE STRICTLY PRIVATE AND CONFIDENTIAL AND MUST NOT BE REPRODUCED OR CIRCULATED IN WHOLE OR IN PART OR USED FOR ANY PURPOSE OTHER THAN THAT FOR WHICH IT IS INTENDED. GSI also relied on the terms of the 'important notice'. a UK listed company. Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland plc [2010] EWHC 1392 (Comm). the learned judge stated: The Information Memorandum [65] At the beginning of the Information Memorandum ('IM') there was what was headed an 'Important Notice' which stated amongst other things: '… This Information Memorandum (the 'Memorandum') has been prepared from Information supplied by the Company [EEL being defined as the Company].[39] The claim by IFE was dismissed by the High Court. The Court of Appeal affirmed the decision of the High Court. Each potential participant should determine its interest in participating in the Facility based upon investigations and analysis as it deems necessary for such purpose. since IFE and GSI were parties to the contract under which GSI sold bonds to IFE. Titan Steel Wheels Ltd v Royal Bank of Scotland Plc [2010] EWHC 211 (Comm). After all. no duty of care will be owed. JP Morgan Chase Bank v Springwell Navigation Corp [2010] EWCA Civ 1221. the relationship between GSI either as arranger or as vendor would not be one of them. Standard Chartered Bank v Ceylon Petroleum Corporation [2011] EWHC 1785 (Comm). the effect of important notice was considered by the court. provide a remedy. warranty or undertaking (express or implied) is made. completeness or reasonableness of this Memorandum or any further information. Although there might be cases where the law would impose a duty by virtue of a particular state of facts despite an attempt not 'to assume responsibility'. and no responsibility is accepted as to the adequacy. it cannot be denied that the bondholders in the present case are sophisticated investors and experienced financial institutions. (See JP Morgan Chase Bank v Springwell Navigation Corp [2008] EWHC 1186 (Comm). At para 65. … The foundation for liability for negligent misstatements demonstrates that where the terms on which someone is prepared to give advice or make a statement negatives any assumption of responsibility. if there was a misrepresentation it would be one to which the Misrepresentation Act 1967 would apply. I entirely agree with the judge on this aspect. and Go Dante Yap v Bank Austria Creditanstalt AG [2010] 4 SLR 916) [42] In Raiffeisen. Second. important notice cannot just be brushed aside. It has to be given effect. [41] IFE Fund SA has been followed in a number of other cases. . for any reason. No representation. there could as I see it be no room for IFE being able to succeed on some other case of negligent misstatement. Therefore. They have vast experience in bonds and are expected to act on independent and professional advice from their own sources in respect of the contractual obligations in the light of the disclaimer as contained in the important notice. [40] It would appear that important notice is a common practice not only in this country but also in more established capital markets. The contents of this Memorandum have not been independently verified. Waller LJ in dismissing the appeal by IFE made the following observation: 28. Brown v Innovatorone plc [2012] EWHC 1321 (Comm). If that Act does not. accuracy. This Memorandum is being provided for information purposes only and is not intended to provide the basis of any credit decision or other evaluation and should not be considered as a recommendation that any recipient of this Memorandum should participate in the Facility. notice or other document at any time supplied in connection with the Facility. with respect. Whereas. The reasons given by the High Court read: I am not going into the background of what I understand of the reasons leading to Pesaka looking for the bonds. there existed a duty of care owed by KAF to the bondholders despite the presence of the important notice in the IM. In that case. It is not contrary to law or business practice to do so. [46] On close scrutiny of the judgment of the High Court and the Court of Appeal. the Court of Appeal held that the IM is an 'agreement' within s 65 of . failed to consider the impact of the important notice or disclaimer. the Borrower or any other person now or at any time during the life of the Facility or (except as specifically provided in the Facility Agreement) to provide any recipient or participant in the Facility with any information relating to the Company. That such is the extend of that liability was reaffirmed in Target Holdings Ltd v Redferns (a firm) and anor [1996] AC 421 … [47] Both courts made no reference to the contractual documents as contained in the issue documents. even if RBS had subsequently given advice to Titan. both the High Court and the Court of Appeal in finding that there existed a duty of care by KAF. The stable door was invitingly not shut. prospects. held: Fraudulent misappropriation of trust property was the immediate cause of the loss of the revenue. The High Court made no reference at all to the important notice. It was held in Raiffeisen that as the IM is only a summary. where the degree of duty of care is higher than the present case. In the present case. it can be drawn from the authorities cited above. the High Court held that there was no such duty of care. the issuer who was looking for cheaper financing because the Islamic bonds were understood to offer that advantage and so that it could meet existing obligation under the existing contracts with Bomba and MINDEF and that the bondholders would be paid them monies when the bonds matured. This is a case concerning trust. This Memorandum is being made available to potential participants on the strict understanding that it is confidential. status or affairs of the Company.No undertaking is given to assess or keep under review the business. financial condition. I find on the law that KAF as a lead arranger owes a duty of care to the bondholders Plaintiffs because its responsibility fundamentally was to structure the bonds and to meet the object of its client. [43] Similarly in Titan Steel Wheels Limited. it cannot therefore be assumed that the IM contained everything that anyone might think relevant (even on credit issue). [45] Since we have held that the important notice is not rendered null and void by s 65 of the SCA. one of the issues was whether Royal Bank of Scotland ('RBS') was entitled to rely on contractual terms pertaining to its exclusion of liability or not. the Borrower or otherwise. creditworthiness. we are of the view that both fell into serious error when they held that on the facts. the IM is Pesaka's document. What is more glaring. [44] Therefore. Recipients shall not be entitled to use any of the information contained in this Memorandum other than for the purpose of deciding whether or not to participate in the Facility. those who had the duty to shut that door would have to restore the total loss. hence it must be given full effect and force. While the Court of Appeal at para 20. The Court of Appeal referred to Target Holdings Ltd v Redferns (a firm) [1996] AC 421 in support of its finding. it is open to the lead arranger to include the important notice as a disclaimer in the IM. But it was dereliction of duty and or negligence that allowed that to happen. This is so because the IM contains information belonging to the issuer and not that of lead arranger. Recipients are reminded that this Memorandum is subject to the confidentiality undertaking signed by them. They are no ordinary investors. She concluded by saying that the bond salesman in the financial world are no different to any salesman in ordinary life. The four accounts were:  (a) Disbursement Account (the DA). [49] Another important consideration in this connection is whether or not the bondholders are persons with sufficient experience or sophistication. simply ruled that there existed a duty of care on the principles of 'foreseeability'. [52] For the reasons stated above. [48] It is also worth noting that both the High Court and the Court of Appeal. who made recommendations and gave advice to financially sophisticated investors did not assume responsibility to the investor as to bring into play the full range of obligations of an investment adviser or an asset manager. we are of the opinion that KAF as lead arranger is entitled to exclude liability arising from the IM through the important notice. the recipient acknowledges that it will be solely responsible for making its own investigations. This went against the principles in IFE Fund SA and Raiffeisen cited above. This undoubtedly shifted the burden of verifying the content of the IM on the potential investors rather than KAF. and forming its own views as to the condition and prospects of [Pesaka] and the accuracy and completeness of the statements contained in this Information Memorandum. including the costs and expenses incurred. it is common ground that the bondholders are sophisticated investors with vast experience in the capital market. Gloster J held that a trader employed by an investment bank. if so. without considering the special facts and circumstances of the case. CONDITION PRECEDENT 11 [53] Under the scheme of the bonds issue. It follows therefore that KAF could not be held liable for any information found in the IM. we set aside the findings made by the High Court and the Court of Appeal that KAF is liable for damages suffered by the bondholders consequent upon their reliance on the IM. In applying those general phrases. it is important to bear in mind the warning given by Lord Roskill in Caparo Industries plc v Dickman [1990] 2 AC 605 where he said: But … such phrases are not precise definitions. [51] The important notice in the present case clearly states: … by receiving this Information Memorandum. This is borne out in JP Morgan Chase Bank.  (b) . [50] In the present case. 'neighborhood' and 'fairness'. The duty of care owed by them is lower than that of investment advisors or an asset manager. what is the scope and extent of that duty. Accordingly. In JP Morgan Chase Bank. At best they are but labels or phrases descriptive of the very different factual situations which can exist in particular cases and which must be carefully examined in each case before it can be pragmatically determined whether a duty of care exists and. 'proximity'. Pesaka was required to open four Shariah compliant designated accounts at recognised financial institutions.theSCA and for that reason the important notice was held to be void. 1 of the SFA. Pesaka was still the signatory to these accounts. [57] Under the scheme.  (c) Revenue Account (the RA). This is commonly referred to as 'ring fencing' which was described as being the fundamental basis upon which the bonds exercise was premised. The DA. [54] The OA was intended to receive the balance funds available upon full redemption of the bonds which will be used to finance the working capital of Pesaka. [56] The 'ring fencing' works on the basis that the receipt of the existing contract would be paid into the RA and the FSRA to which the trustee would be the authorised signatory. [59] It is not in dispute that there was no Shariah compliant designated accounts opened by Pesaka. MTB was appointed to be the trustee to the bonds issue. One of the conditions precedent is CP11. upon Pesaka's request. In short. [61] It was contended on behalf of bondholders and MTB that KAF had acted in breach of CP11 by issuing the bonds on 1 April 2004 without ensuring that ring fencing was in place. and  (d) Operating Account (the OA). the FSRA and the RA were intended to be used for the purpose of receiving the bonds proceeds and also to receive the proceeds from the existing contracts which were to form the corpus of the funds to repay the bondholders. KAF's obligation in relation to the designated accounts is set out in schedule A to the SFA which contains the conditions precedent to the bonds issue. It was their contention that under . having complete control over the accounts. [60] The issue before the court is whether KAF had complied with CP11 before the issuance of the bonds. the DDWG agreed to use the existing conventional accounts belonging to Pesaka as the designated accounts and to convert them by making MTB as the sole signatory. which reads: 11. [55] A trustee would be appointed and be the signatory to all the designated accounts except the OA. The appointment of MTB as trustee to these designated accounts was to safeguard the interest of the bondholders and to provide integrity to the repayment scheme. the accounts were not ring fenced when the bonds were issued.1 Condition Precedent The obligation of the Issuer to issue the ABBA Bonds and the agreement of the Primary Subscriber to accept and receive the ABBA Bonds under this Agreement shall be expressly subject to this condition that the Lead Arranger has received the documents and or evidence listed in Schedule A in each case in form and content satisfactory to the Lead Arranger and Primary Subscriber. these designated accounts were not fully converted because MTB was not made the sole signatory to these accounts. In other words. Confirmation by the Issuer to the Lead Arranger that it has opened the Designated Accounts and mandates (in form and content acceptable to the Lead Arranger) in respect of the Designated Accounts.Finance Service Reserve Account (the FSRA). However. which reads: 3. The OA was intended to be operated and managed solely by the Issuer. Instead. [58] CP11 must be read together with cl 3. the Court of Appeal held that before KAF could issue the bonds. The accounts into which revenue would be deposited must be in operation and in the sole control of MTB before bonds could be issued. In its judgment. those accounts must be Shariah compliant. the transactional solicitor had through its letters to KAF dated 25 March 2004 and 29 March 2004 confirmed that all the conditions precedent had been met.3 of the trust deed provides: 7.' . [66] We think it is relevant to consider the circumstances which led to KAF being satisfied that CP11 had been complied with. KAF as lead arranger. what is critical is the absence of ring fencing in respect of the designated accounts which was the proximate cause of the loss. She held that it is 'the responsibility of KAF to see that the condition precedent was fulfilled in real term and not in executrix stage alone. Having said that.CP11. Furthermore. But even so. the execution of the trust deed on 19 March 2004 in which MTB was appointed as the trustee.' She expressed the view that KAF's duty was to ensure that the ring fencing feature of the designated accounts must exist in reality and these features are to endure till the maturity of the bonds. The stable door must be first closed. it held that 'KAF had to be absolutely sure that the required designated accounts with MTB in sole control were in place before the issuance of bonds. it was argued on behalf of KAF that KAF had fully complied with CP11 prior to the issuance of the bonds on the basis that Pesaka had by four letters dated 15 March 2004 confirmed that Pesaka had opened designated accounts to be managed and operated by MTB. [67] The powers and duties of MTB as trustee may be gathered from the following clauses of the trust deed. Confirmation by Pesaka was no proof that the required designated accounts with the mandates had actually been opened. KAF had first to be satisfied that the designated accounts had been 'ring fenced' prior to the issuance of the bonds. She concluded that the ring fencing was in fact not in place and therefore KAF was in breach of its duty under CPU.3 Entitlement: The Issuer agrees and covenants that the Trustee is entitled to take such action and to exercise all rights and remedies and discretion pursuant to the terms of this Deed and the other Issue Documents together with such powers as are reasonably incidental thereto. therefore. KAF had to be satisfied that CP11 had been complied with.' THIS COURT [65] Shariah compliant was not an issue before us. As it would appear from submissions of parties. KAF and the transactional solicitor. COURT OF APPEAL [64] In affirming the findings of the High Court. In order to do so. For this. facility agent and issue agent. Only such accounts could be designated accounts. we have to consider the various correspondences between Pesaka. had to independently verify that they were all in place. the issue before us is whether the High Court and the Court of Appeal were right in their decision in holding that KAF had acted in breach of CP11 in issuing the bonds. Clause 7. HIGH COURT [63] The learned judge disagreed that KAF's responsibility ended by receiving the confirmation alone. [62] In reply. More importantly. each with full power of substitution and each with full power to act alone. a power of attorney was executed on 19 March 2004 by Pesaka in favour of MTB.  (c) Revenue Account. all other Designated Accounts shall be operated solely by the Trustee. [68] It would appear that it is the duty of Pesaka to open the designated accounts and the designated accounts shall be operated solely by MTB as the trustee. The Operating Account shall be operated solely by the Issuer.3 of the trust deed. DESIGNATED ACCOUNTS 8. to be its attorney and in its name and on its behalf to execute and as its act and deed or otherwise to do all such . APPOINTMENT The Issuer hereby by way of security appoints the Trustee or any authorized officer of the Trustee or any Insolvency Official. [71] Clause 2 of the power of attorney grants upon the trustee such broad powers and rights to do any act or take any action on behalf of Pesaka. [69] Clause 12.And cl 8 of the trust deed provides: 8. It reads: 12.3 Power of Attorney The Issuer hereby irrevocably APPOINTS the Trustee or such other person or persons as the Trustee may designate as its attorney or attorneys and in the name of the Issuer in the name of the attorney or attorneys and on its behalf to do all such acts and execute in its name or otherwise all such documents and instruments as may be deemed necessary or expedient by the Trustee to protect or otherwise perfect the interest of the Trustee and/or the ABBA Bondholders under this Deed or which may be required for the full exercise of all or any of the powers and rights conferred on the Trustee under this Deed …' [70] Pursuant to cl 12.3 of the trust deed provides for the appointment of MTB as the attorney of Pesaka. and  (d) Operating Account.  (b) Finance Service Reserve Account. Other than the Operating Account.1 Designated Accounts: The Issuer shall open (where applicable) and maintain the following Islamic based income bearing accounts with a Commercial Bank acceptable to the Trustee:  (a) Disbursement Account. The said cl 2 reads as follows: 2. [74] Under CP11. [73] On 25 March 2004. IS IT KAF'S DUTY TO INDEPENDENTLY VERIFY THAT THE DESIGNATED ACCOUNTS WERE IN FACT RING FENCED? [76] The Court of Appeal in its judgment stated that it was KAF's duty. The Court of Appeal further held that the confirmation by Pesaka was no proof that the required designated accounts with the necessary mandates had actually been opened. necessary or desirable in or for any of the purposes of the Security Documents. instrument or act which may in the opinion of such attorney be required or deemed proper. and generally in its name and on its behalf to exercise all or any of the powers vested in the Trustee.assurances. to independently verify that the designated accounts had been opened with MTB in sole control prior to the issuance of the bonds. [72] On 24 March 2004. [77] With respect. to take any action or institute any proceedings which the Trustee may deem to be necessary or advisable and to execute any documents and do anything necessary or desirable under any of the Security Documents and with full power to delegate any of the powers hereby conferred upon it. acts or things which the Issuer ought to do under the covenants and obligations contained in the Security Documents.  (b) to file any claim. assignment. the designated accounts had been ring fenced. KAF had no knowledge that the designated accounts had not been opened what more ring fenced. the transactional solicitor deposited the trust deed and the power of attorney with the registry of the Kuala Lumpur High Court. KAF's duty as the lead arranger is merely to ensure that Pesaka had opened the designated accounts and that the mandates in form and content are acceptable to KAF. or any authorized officer of the Trustee or any Insolvency Official and (without prejudice to the generality of the foregoing):  (a) to execute. we think that the Court of Appeal had placed a much higher burden on KAF than what is required under the issue documents. all conditions precedent as set out in schedule A of the SFA had been fulfilled by Pesaka. In other words. it is incorrect to say that the accounts are yet to be opened or at the executrix stage as stated by the learned judge. seal and deliver and otherwise perfect any deed. . KAF is only required to obtain the confirmation and the mandates from Pesaka that the designated accounts had been opened. we think it is justified for KAF to be satisfied that the designated accounts had been opened and the MTB had been made the sole signatory to the designated accounts. The letters from Pesaka dated 15 March 2004 relating to the designated accounts clearly stated that Pesaka had opened the designated accounts to be managed and operated by MTB. There is no such contractual duty in the issue documents for KAF to independently verify that MTB had been made the sole signatory to the designated accounts. This was followed by a letter dated 29 March 2004 from the transactional solicitor to KAF confirming that Pesaka had fulfilled conditions precedent 7 and 9 of schedule A to the SFA. Under the SFA. facility agent and issue agent. transfer. the transactional solicitor forwarded a letter to KAF confirming that other than conditions precedent numbered 7 and 9. as lead arranger. [75] In view of the above. agreement. Judging from Pesaka's letters. assurance. CAUSE OF LOSS [82] The next issue to be considered is the cause of loss. There is no reason for MTB not to take immediate action to ring fence the designated accounts prior to the issuance or immediately after the bonds were issued. the cause of loss is directly attributable to Pesaka. Pesaka had utilised the monies for its own purposes in breach of the terms and conditions as contained in the issue documents. [86] The Court of Appeal in its judgment correctly noted that MTB was notified of the bonds issue which was originally on 26 March 2004 (then rescheduled to 1 April 2004) but MTB took no assertive step to control those conventional accounts before the issuance of the bonds. it is our view that the most proximate cause of the loss was the failure on the part of MTB to ring fence the designated accounts or alternatively to stop Pesaka from operating the . More importantly. [85] Alternatively. [79] It should be pointed out that MTB did commence a separate action against the transactional solicitor in the High Court. including CP11. we hold that it is not unreasonable for KAF to act on the advice of the transactional solicitor. [80] Therefore. The facts revealed that instead of using the monies to repay the bondholders. It is strictly between the issuer and MTB. Hence. MTB failed in its action. From the evidence. For this reason. who had misappropriated the fund. The Court of Appeal so held on the ground that had KAF not issued those bonds on 1 April 2004. it can reasonably be concluded that when the bonds were issued on 1 April 2004. there would not have been any loss even if the ring fencing was not in place. the transactional solicitor was appointed by Pesaka's board of directors' resolution dated 15 January 2004. we find that KAF had not acted in breach of CP11 when KAF issued the bonds on 1 April 2004. [87] Premised on the above. KAF was not relying on the confirmation by Pesaka alone. As we have said earlier in this judgment. MTB had wide powers and rights under the trust deed and the power of attorney to take the necessary action to ring fence the account prior to the issuance of the bonds. [84] The Court of Appeal was of the opinion that it was the duty of KAF to put MTB on board as trustee of the designated accounts prior to the issuance of the bonds. MTB then appealed to the Court of Appeal but later withdrew. MTB could have exercised its powers and rights under the power of attorney to stop the withdrawal from the designated accounts by Pesaka after the bonds were issued. KAF is not a party to the trust deed. [83] The Court of Appeal held that the most proximate cause of the loss was the issuance of the bonds by KAF on 1 April 2004 without the ring fencing in place. The Court of Appeal further stated that MTB could have informed KAF that the designated accounts were yet to be ring fenced but MTB did not do so. the Court of Appeal held that MTB was equally accountable for the loss. With respect. In the present case MTB chose to do nothing.[78] Further. we are of the opinion that the Court of Appeal had misinterpreted CP11 and did not give sufficient weight to the fact that the transactional solicitor had certified the fulfillment of CP11 in their written opinion to KAF. had been complied with. In the circumstances. As a matter of fact. [81] For the above reasons. we are of the view that the Court of Appeal erred in coming to its finding because it is not supported by the issue documents. However. It is a fact found by the courts below that MTB was duly notified of the proposed date of issuance of the bonds by KAF. KAF was fully satisfied that all the conditions precedent in schedule A of the SFA. or is the beneficiary entitled to be indemnified in full? PRE JUDGMENT INTEREST  (i) Whether the power of the court to award pre-judgment interest can be exercised in regard of an express provision in the trust deed?  (ii) Whether in an action brought on a breach of obligation on an Islamic financing transaction whether the interest or compensation can be awarded by a court?  (iii) Whether compensation for loss on a pre-judgment basis can be qualified in the absence of clear evidence on the date to be sanctioned by the Syariah Advisory Council? PESAKA'S INDEMNITY Can a party ('the first party') who is adjudged to be liable on the basis that they acted fraudulently and who received the full benefit of their illegal act be permitted to retain some measure of their ill-gotten gains on the basis that the party to indemnify ('the second party') was negligent and whose negligence facilitated the wrongdoing by the first party? [90] In respect of MTB's appeal the main issues that call for determination may be summarised as follows:  (a) The liability of MTB in relation to its roles in the bond issue. MTB is wholly to blame for the loss and not KAF. CONCLUSION [88] In the result. or only to the extent of what the bondholder would have received had the trustee not been negligent?  (ii) In assessing the measure of damages a trustee is adjudged to be liable for by reason of the trustee's negligence. whether account has to be taken of what the beneficiary would have received had the breach not been committed. MTB could have done that by using its powers and rights as vested upon it by the trust deed and the Power of Attorney. the appeal by KAF is allowed with costs. both here and in the courts below and the orders of the High Court and the Court of Appeal are set aside.designated accounts. In our view.  (b) . [89] This court had also granted leave to appeal to MTB on the following questions of law: QUANTUM  (i) Is a trustee who has been adjudged to be negligent liable to compensate a bondholder in full for the face value period of the bond. Written law was not any different. As a result. MTB could have done that by using its powers and rights as vested upon them by the trust deed and the power of attorney.300. which was the total face value of the bonds. Hence. The truth was that the Fire and Rescue Department merely acknowledged a foreign exchange loss claim for an unspecified amount (see 3118AR). the most proximate cause of the loss was the failure on the part of MTB to ring fence the designated accounts or alternatively to stop Pesaka from operating the designated accounts.The quantum recoverable by the bondholders against MTB. the appeal by MTB against the order of Court of Appeal in apportioning liability between MTB and KAF at 50:50 has to be dismissed with costs. there were false and or misleading statements in the IM. The note at the bottom of 2562AR which read 'Bomba vide [3118AR] has agreed to compensate [Pesaka] on losses arising out of foreign exchange differences. which was the acid test on the truth of the statements in 2562AR.529.  (c) The bondholders' entitlement to pre-judgment interest. Section 57 (deleted by Act 1305) of the SC Act 1993 provided that 'a person who acquires. The decision was upheld by the Court of Appeal but the final order of the Court of Appeal was for the sum of RM149. as the contracts had already been partly paid at the time of issuance of the IM.338 had been approved. The High Court had found that MTB and KAF were liable for the full sum of RM149. However. As said. on its contracts with [Pesaka] (ie contracts number (ii) and (Hi) in the table above)' was entirely economical with the true. To reiterate.000 which the issuer ('Pesaka') would have to pay to the bondholders. The IM stated the contact sum was RM150. In our judgment.000. MTB is 100% liable to the bondholders. The IM also imparted that a foreign exchange loss claim for RM31. but failed to disclose that the revenue that would be received would be substantially less than the contract sum. Common law provided that bondholders would be indemnified for their total loss. we cannot find any reason why the Court of Appeal had ordered this sum of RM149. [93] The reasons given by the Court of Appeal in upholding the decision of the High Court are as follows: [30] The actual loss occasioned by the absence of 'ring fencing' was RM107m. subscribes for or purchases securities and suffers loss or damage as a result of any statement: or information contained in a prospectus (the definition of which included the IM) that is false or misleading. MTB is wholly to blame for the loss and not KAF. on perusing the records and the Court of Appeal's judgment. QUANTUM RECOVERABLE BY THE BONDHOLDERS AGAINST MTB [92] Having found that MTB is wholly liable we must now ascertain whether MTB is liable for the full amount of RM149. Those statements on the revenue at 2562AR could not have been true. . as the total revenue actually deposited after the issuance of bonds. or any statement or information contained in a prospectus from which there is a material omission.000.  (d) The liability of Pesaka and the extent of indemnity recoverable by MTB.000 instead.315. LIABILITY [91] As held earlier in this judgment MTB is wholly to blame for the loss suffered by the bondholders. which was the total revenue that was deposited into Pesaka's conventional accounts at the CIMB Cosway Branch.315.200. may recover that amount of loss or damage from' 'the issuer … a principal advisor …'. was only RM107m and not RM180m.613. It was argued that any assessment of MTB's liability should be based on that RM107m.300. a passive breach of trust. we are of the view that judgment should not and cannot be entered for the sum of RM149. [95] We have deliberated on this issue. and the shortfall would have to be covered by Pesaka. learned counsel for MTB submitted that any liability attaching on MTB must be limited only to the amount that went into the RA from the existing contracts. learned counsel referred us to the case of Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] 2 All ER 92 wherein Justice Brightman had summarised the relevant principles on the measure of damages payable by a trustee to a beneficiary/estate for breaches of trust as follows:  (a) the obligation of a defaulting trustee is to effect restitution to the trust estate. Clearly therefore. to hold MTB .  (d) the trustee's obligation is to restore to the trust estate the assets of which he (the trustee) has deprived it. Learned counsel for the bondholders conversely submitted that MTB has to compensate the bondholders 'in full for the face value of the bond' as it represented the latter's true loss. viz an omission by a trustee to do something which as a prudent trustee he ought to have done. the fact that only RM107m was lost would not assuage the liability of KAF or of MTB. KAF and MTB.315. On the contrary we are inclined to agree with learned counsel for MTB. On the evidence. a roving commission.That clearly evinced that the statements at 2562AR were false and misleading. as rightfully pointed out by learned counsel for MTB the sum of RM149.000 would include a sum of RM31. as it had nothing to do with the evaluation of the foreign exchange claim. we find that there is no serious dispute as to the total sum of monies that was received and dissipated by Pesaka from the RA which did not exceed RM107m. and  (e) in the case of a wilful default by a trustee. the default continues because it has not been made good.529.  (b) until restitution has been made. which sum represents the redemption value of the bonds.000 against MTB in favour of the bondholders. and with respect we are unable to agree with the bondholders' contention on this point. Secondly.315. First. This was even acknowledged by the Court of Appeal which clearly stated that 'the actual loss occasioned by the absence of 'ring fencing' was RM107m'. that is. [94] Before us. a sum which was never approved and never meant to be received by Pesaka for which MTB can never be held liable for. MTB would only have had RM107m to redeem the bonds. that is. Learned counsel submitted that the Court of Appeal in our instant case had applied similar principles which were relied upon by the House of Lords in Target Holdings Ltd v Redferns (a firm) [1995] 3 All ER 785 and rightfully held that MTB 'who had the duty to shut the door' would have to restore the total loss suffered by the bondholders. Had 'ring fencing' been in place. As an authority for this proposition.  (c) the obligation of a trustee who is held liable for breach of trust is fundamentally different from a contractual or tortious wrongdoer. Thus.338 which was stated to be the value of a foreign exchange loss claim. the court is entitled to order an account. And the amount that came into the RA did not exceed RM107m. The Court of Appeal granted the bondholders penalty charges at the rate of 3% on the judgment sum from 30 September 2005 to the date of the judgment.315. And although it was argued by the Plaintiffs that their right of action did not arise from the trust deed but founded under Section 11 of Civil Law Act as well as Order 42 Rule 12 of the Rules of High Court.4 of the SF agreement. We make an order that MTB is liable only to RM107m and not the full amount of RM149. this part of MTB's appeal is allowed with costs. [99] The Court of Appeal decided otherwise. This rate however is only to be allowed for actual loss.315.702AR) and cl 4. our answers to the two questions posed on quantum would be that MTB is not liable to compensate the bondholders in full for the face value of the bond.2005 as proposed by the Plaintiffs because this is only allowed on the judgment sum and the sum only becomes the judgment sum as of to date. [96] Thus. we are of the view that MTB should only be liable for RM107m and not the full amount of RM149. So I shall order the rate of 8% to run from today till the date of realization. However. Accordingly.1998 had nevertheless resolved that the High Court may impose penalty charges at the rate of 8% per annum on the judgment sums. the Syariah Advisory Council of Bank Negara Malaysia at its fourth meeting which was held on 14.000 as ordered by the High Court. [98] The High Court in rejecting the bondholders' claim for pre-judgment interest gave the following reasons: I have carefully considered the language in clause 39 and I find that it is not so much a matter of Syariah principles for the fact of this case but that the parties have simply agreed not to impose interest.2. PRE-JUDGMENT INTEREST [97] The High Court had rejected the bondholders' claim for pre-judgment interest.4 of the trust deed (2591AR) identically provided 'In the event of overdue payment of any amounts due under the ABBA Bonds Issuance Facility. it cannot be denied that the fundamental arrangement between the parties emanate from the issue documents of which the trust deed is part of. against which the bondholders cross-appealed. (2. The Court of Appeal gave the following reasons: [39] The learned judge refused pre-judgment interests to the bondholders.8. I shall order interest at the rate of 8% not from the date of 1. Pre-judgment interests might not be appropriate in Islamic finance business. the Trustee or any ABBA Bondholder to pay interest (by whatever name called) on any amount due or payable to other parties to this Deed or to receive any interest on any amount due or payable to the Issuer. the Trustee or any ABBA Bondholder or to do anything that is contrary to the teachings of Islam. But compensation. Instead MTB was the trustee who failed to ring fence the sum of RM107m that came into the RA. Accordingly. It is pertinent to note that in actual fact MTB was neither the primary debtor nor a guarantor to the bonds issue.000.liable for the full amount of Pesaka's indebtedness would amount to treating MTB as if it was either the primary debtor or guarantor. could it not have been awarded? Both cl 9. The amount that came to the RA does not exceed RM107m. it is hereby agreed and declared that nothing in this Deed shall oblige the Issuer. It meets the ruling or resolution of the Syariah Advisory Council of Bank Negara. the issuer shall pay to the Primary Subscriber and or ABBA Bondholders . The rejection was based on cl 39 of the trust deed which reads as follows: NO PAYMENT OF INTEREST For the avoidance of doubt and notwithstanding any other provision to the contrary herein contained. Under the circumstances. (See Bank Islam Malaysia Bhd v Lim Kok Hoe & Anor and other appeals [2009] 6 MLJ 839. the Shariah Advisory resolved 'that the court may impose late payment penalty charges on judgment debts as decided by the court (compensation) mechanisms'. fell immediately due. Only the promised payments of RM2.000 (see 2666AR) towards secondary bonds were paid on time. But when default was declared on 30 September 2005. However.4 Compensation: In the event of overdue payments of any amounts due under the ABBA Bonds. .) It is unfortunate that the Court of Appeal appears to have overlooked cl 39 of the trust deed but instead erroneously chose to rely on cl 4. protect and uphold the sanctity of the contract entered between the parties'. the court must consider the express agreement of the bondholders in the trust deed. The SF agreement and trust deed provided that compensation on the overdue sum of RM149. We are of the view that the Court of Appeal had erred in allowing pre-judgment interest. [101] We are inclined to agree with learned counsel for MTB on this point.4 of the trust deed provides for the issuer to pay pre-judgment compensation. the fact that the issuer had agreed to pay 'compensation on such overdue amounts' cannot be applied to MTB in light of cl 39. and here it would include the plaintiffs as bondholders. we wish to point out that cl 4.4 of the trust deed which reads: 4. The trust deed is a contract and 'the court has a duty to defend. [100] Learned counsel for MTB argued that the Court of Appeal erred in its findings. s 56(1)(a) of the Central Bank of Malaysia Act 2009 provided that 'where the proceedings relating to Islamic financial business before any court or arbitrator any question arises concerning a Shariah matter. on such overdue amounts at the rate and in the manner prescribed by the Shariah Advisory Council of the Securities Commission or such other relevant regulatory authority from time to time'. The bondholders who were denied the use of their money for the period 30 September 2005 to the date of judgment (not awarded by the court below — see 72AR) had suffered an actual loss which should have been compensated. had agreed that no interest would be payable. It was submitted that the parties to the trust deed.000 and RM5. the Issuer shall pay to the ABBA Bondholders compensation on such overdue amounts at the rate and manner prescribed by the Shariah Advisory Council of the Securities Commission or such other relevant regulatory authority from time to time. The Council also resolved that the court may impose penalty charges for the actual loss (ta'widh). all promised payments towards primary or other secondary bonds. As its 50th meeting on 26 May 2005. There was no evidence of 'the rate and in the manner as prescribed by the Shariah Advisory Council of the Securities Council'. we unanimously allow the cross-appeal by the bondholders and order KAF and MTB to pay to the bondholders the penalty charges at the rate of 3% on the judgment sum from 30 September 2005 to the date of judgment. which the Council agreed to adopt the 'annual average for overnight weighted rate' of Islamic money market of the preceding rate as a reference point. It is our view that in deciding the question of interest. the trust deed as specified under cl 39 clearly provides that no interest shall be payable. It was further submitted that the seeking of interest on the principal amount from the date of default that is 30 September 2005 until judgment and thereafter is a pure and simple interest or riba which the Shariah does not permit.000 would be payable to the bondholders 'at the rate and in the manner as prescribed by the Shariah Advisory Council of the Securities Commission or such other relevant regulatory authority from time to time'.300. on the premise that the parties had agreed that no interest will be payable. as the case maybe shall take into consideration any published rulings of the Shariah Advisory Council or refer such question to the Shariah Advisory Council for its ruling'. As we all know in this case.565. the issuer is Pesaka and not MTB. In this case. Thus. [102] First. which the High Court had correctly refused. which then totaled RM149.000. the court or the arbitrator.950. For those reasons.compensation. and the costs of the latter appeal.300. It gave the following reasons: [48] Negligence of KAF and MTB was held by the learned judge to have disentitled them to any indemnity from Pesaka. These Defendants cannot now to me be blamed for having relied on the experts and the professionals whom they have engaged and paid for their opinion. the claim for indemnity against these Defendants must fail. And our answers to the three questions on pre-judgment interest are in the negative. Bolam and Gillespie. And another factor that has weighed in my mind is the fact that BDO Binder. The order of the High Court in rejecting the bondholders' claim for pre-judgment interest is reinstated. on account of the respective riders in cl 13. there was no evidence adduced of the applicable rate as prescribed by the Shariah Advisory Council of the SC.1 of the trust deed (in the case of MTB). [104] The Court of Appeal was of a different view on this point. It had prepared the necessary resolutions for the change of mandates. could an exemption clause avail to the party guilty of a wilful breach which goes to the root of the contract? In Karsales (Harrow) Ltd v Wallis [1956] 1 WLR 936. The counter-claim is therefore dismissed with costs. it was held by Lord Denning that . The proceeds of the bonds and the monies were released into the accounts upon confirmation by the third party that the CPs had being fulfilled. authorizations and signatories to these accounts. Alarm bells went off at the various stages but were either not heard or ignored by Mayban Trustees. the manner in which Mayban Trustees managed the accounts when they became aware of withdrawals to me is more consistent with daily routine banking practices rather than managing these accounts as a trustee of the bond issue and where the accounts in question are these securitized monies. advice and directions. As I had said earlier. But there was a total failure by the learned judge to enquire if those riders applied in the first. we are of the view that the order of the Court of Appeal on this issue must be set aside. The High Court judge ruled as follows: In my judgment. MTB'S CLAIM FOR INDEMNITY FROM PESAKA [103] The High Court had dismissed MTB's claim for an indemnity against Pesaka. its companies and its businesses and lands ultimately acquired were for and on behalf of Pesaka. I agree that Mayban Trustees has not shown that degree of skill. Thus. chartered accountants reported that the bond proceeds and the contract proceeds had been duly accounted for and that these monies were actually in fact used for the ordinary cause of business of Pesaka. [49] In the first place. the accountability of these Defendants for their acts despite the role of the other Defendants. In these circumstances.Secondly. Finally. I agree with the submissions of learned counsel for Pesaka that a paid trustee is expected to exercise a higher standard of diligence and knowledge than an unpaid trustee. prudence care and diligence consistent with the position held at the material time. We allow MTB's appeal on this part of the judgment with costs. I agree with the authorities that have been cited. the consent judgments which have been entered into by these Defendants with the Plaintiff represent in my mind.1 of the SF agreement (in the case of KAF) and cl 14. Another factor to be taken into account is the fact that Pesaka had informed and had procured KAF's consent as well as the DDWG on the use of the existing accounts as designated accounts. Mayban Trustees have not displayed the standard of diligence and knowledge not only of a professional specialist trustee in the bond market but one who is paid. The Court of Appeal allowed MTB's appeal on the issue of indemnity but only awarded a limited indemnity. wilful breach or fraudulent actions. the Court of Appeal referred to the case of Karsales (Harrow) Ltd v Wallis [1956] 1 WLR 936 to the effect that no exemption clause however widely drafted. see Hotel Anika Sdn Bhd v Majlis Daerah Kluang Utara [2007] 1 MLJ 248). could avail the party guilty of a breach which goes to the root of the contract:  Notwithstanding earlier cases which might suggest the contrary. [107] Premised on the above.no exemption clause however widely drafted. the Court of Appeal was of the view that there was a total failure on the part of the High Court to enquire into the exemption appearing at cl. powers or discretions vested in it or him pursuant to this Deed and the other Issue Documents to which it is a party and against all actions.' [106] In interpreting the above indemnity clause. In Hong Realty (Pte) Ltd v Chua Keng Mong [1994] 3 SLR 819 825. it is now settled that exempting clauses of this kind. (1853) 10 ER 551. on its true construction. The Court of Appeal held that the issue must be resolved by the proper construction of the said exclusion clauses. costs. They do not avail him when he is guilty of a breach which goes to the root of the contract. . only avail the party when he is carrying but his contract in its essential respects.14. Anderson v Fitzgerald (1853) 4 HLC 484.1 of the trust deed which reads: 14. charges and expenses incurred by it or him in relation to this Deed and the other Issue Documents to which it is a party or to the preparation and execution or purported execution thereof or to the carrying out of the trusts of this Deed or the exercise of any trusts. claims and demands in respect of any matter or thing done or omitted in anyway relating to this Deed in priority to any payments to the ABBA Bondholders and the Trustee may retain and pay out of any moneys in its hands arising from this Deed all sums necessary to effect such indemnity and also the remuneration of the Trustee as hereinbefore provided. wilful default. extends to cover the obligations or liability which it sought to exclude or restrict (Chitty. This aspect of the submissions is better highlighted by quoting the exact words employed by learned counsel in the written submission which state: The question is in all cases whether the clause. The law is that 'no exemption clause can protect a person from liability for his own fraud [Chitty meant fraud within the context of section 17 of our Contracts Act 1950] or require the other party to assume what he knows to be false. para 14-024). and Guardian Assurance Co Ltd v Condogianis (1919) 26 CLR 231. This according to learned counsel is evident from a line of cases in Malaysia. proceedings. Karthigesu JA said:  It is trite law that exemption clauses must be construed strictly and this mean that their application must be restricted to the particular circumstances the parties had in mind at the time they entered into the contract. [105] Basically. learned counsel for MTB submitted that the Court of Appeal had held correctly that at the end of the day it is a matter of construction of the clause in question. no matter how widely they are expressed. agent or other person appointed by the Trustee under the provisions of this Deed shall be entitled to be indemnified by the Issuer in respect of all liabilities. save and except for its gross negligence. could avail the party guilty of a breach which goes to the root of the contract.1 Indemnity: The Trustee and every other attorney. costs. He is not allowed to use them as a cover for misconduct of indifference or to enable him to turn a blind eye to his obligations. wilful breach or fraudulent actions'. the Court of Appeal having held that Pesaka should not benefit from its own fraud went on to make a finding that since MTB was guilty of gross negligence Pesaka was only ordered to indemnify MTB 2/3 of RM149. As such. on its true construction. The House of Lords had the occasion to consider the issue of contribution in the context of the situation where one party still retained a portion of the ill-gotten gains and whether they ought to contribute to the extent of a full contribution in the case ofDubai Aluminium Co Ltd v Salaam [2003] 1 All ER 97. As stated earlier. had suffered loss to the tune of USD50m and the parties who received those monies were Mr Salaam and Mr Al Tajir. wilful default. Learned counsel forcefully argued that any other construction would mean that Pesaka could break every covenant with impunity. As such we are inclined to agree with learned counsel for MTB on this point that cl 14. For the forgoing reason it was submitted that the Court of Appeal was clearly wrong when it concluded that the indemnity provisions applied and that Pesaka was disqualified from relying on the exclusion clauses and MTB was entitled to be indemnified. willful breach or fraudulent actions'. [113] It was submitted before us that the Court of Appeal did not appreciate the effect of their decision in only granting a limited indemnity in that the real fraudsters ie Pesaka will stand to gain at least 1/3 of their ill-gotten gains. wilful breach or fraudulent actions'. [112] The next issue is whether MTB should be indemnified in full by Pesaka.300. wilful breach or fraudulent actions by MTB. Amhurst. learned counsel submitted that the exemption clause must be strictly construed. We agree it would not be just and equitable for Pesaka who had received the ill-gotten gains to be put in a position where it can retain those gains or any part of it. Pesaka's stance on this point is that the indemnity provisions did not apply. Clause 14. Dubai Aluminum. wilful default. [110] Learned counsel for Pesaka took a diametrically opposing view on this point in that MTB's reliance on the indemnity clause was misconceived as they were liable for having acted in breach of duties owed to the bondholders.000 together with penalty charges at the rate of 3% on the said sum from 30 September 2005 to the date of judgment at the rate of 4% at the date of judgment till the date of satisfaction. Those were the particular circumstances that the parties had in mind at the time when they entered into the trust deed.1 of the trust deed. The reasoning behind this. As such the High Court had erred in denying MTB's claim for indemnity against Pesaka.[108] Learned counsel for MTB advanced his arguments to the effect that cl 14. Dubai Aluminum had also sued a firm of solicitors. Lord Nicholls of Birkenhead dealt with the issue as follows: . we are of the view that the Court of Appeal was correct in reversing the High Court decision on the issue of indemnity. Amhurst settled the claim and then brought contribution proceedings against Mr Salaam and Mr Al Tajir. willful default. according to the Court of Appeal was that a full indemnity would mean that MTB was blameless. could not reasonably have been intended to apply even when fraud by Pesaka had intervened to alter the circumstances in which those exemption clauses would ordinarily apply. [111] Having taken into account all that has been said on both sides pertaining to the issue at hand. [114] In that case.1 of the trust deed provided that MTB would be indemnified 'save and except for its gross negligence. who acted in the fraudulent transactions except that Amhurst were not recipients of the monies. It is clear in this case the High Court did not make a finding that MTB was guilty of 'gross negligence. [109] MTB's stance on this point is that the exemption clauses discussed in the preceding paragraphs could not avail to Pesaka as a defence.1 of the trust deed clearly provides that MTB would be indemnified 'save and except for its gross negligence. meaning that it must be restricted to those particular circumstances of gross negligence. wilful default. The firm should not be out of pocket so long as Mr. The object of contribution proceedings under the 1978 Act is to ensure that each party responsible for the damage makes an appropriate contribution to the cost of compensating the plaintiff. Al Tajir had still not disgorged their full receipts from the fraud. The court will do so. the Amhurst firm ought not to be left out of pocket in respect of its $10m settlement payment. The burden of liability is being re-distributed. But. regardless of where that cost has fallen in the first instance. two parties are equally responsible and are ordered to contribute equally. remain in possession of substantial amounts of misappropriated money even after the plaintiff's claims have been met. Sumption submitted. in K v P (J. 54 Rix J considered this was obvious. I agree with them. … 59 This suggests that a just and equitable distribution of the burden of liability calls for a substantial measure of equality between the three of them. 53 In the present case a just and equitable distribution of the financial burden requires the court to take into account the net contributions each party made to the cost of compensating Dubai Aluminum. Salaam and Mr. 2(1) of the 1978 Act the court is required to assess the amount of contribution recoverable from a person which is just and equitable 'having regard to the extent of that person's responsibility for the damage'. [115] Similarly in the present case it is obviously not just and equitable to allow Pesaka to keep the ill-gotten gains or any part of it. a contribution order will not properly reflect the parties' relative responsibilities if. the court will have regard to this fact when directing contribution between the two solvent defendants. and notable. even though insolvency has nothing to do with responsibility. 'responsibility' does not embrace receipts. Unlike Mr. Salaam and Mr. Under s. 2 QB 475 at 481 per Lord Denning MR. 'Responsibility' includes both blameworthiness and causative potency. If equality of burden is the goal. Salaam and Mr. However elastically interpreted. As Mr. Al Tajir submitted that this approach is impermissible. Al Tajir are still net recipients to the extent of over $20m. neither the Amhurst firm nor Mr Amhurst received any money from the fraud. This is especially so when the bondholders have not taken any step to enforce the consent judgment entered between Pesaka and the bondholders and instead focus their attention to MTB on . Salaam and Mr. It is based on a misconception of the essential nature of contribution proceedings. For example. if one of three defendants equally responsible is insolvent. An instance of this everyday situation can be found in Fisher v C H T Ltd (No 2) [1166] 1 All ER at 90–91. of necessity. 51 Mr. feature of this case is the extent to which some parties to the fraud. So did Ferris J. The court needs to have regard to the known or likely financial consequences of orders already made and to the likely financial consequences of any contribution order the court may make. the extent to which it is just and equitable to re-distribute this financial burden cannot be decided without seeing where the burden already lies. [1993] Ch 140 at 149.50 The other major factor which weighed with the judge when deciding to direct that the Amhurst firm should be entitled to an indemnity was that Mr. but not others. 52 I cannot accept this submission. Salaam and Mr. Taken together Mr. third party) [1993] 1 All ER 521 at 529. but the proceeds have all ended up in the hands of one of them so that he is left with a large undisgorged balance whereas the other is out of pocket. Al Tajir. In this regard an unusual. for instance. Al Tajir retain a surplus in hand. Regard should be had to the amounts payable by each party under the compromises and to the amounts of Dubai Aluminum's money each still has in hand. The judge considered (at 475) it would not be just and equitable to require one party to contribute in a way which would leave another party in possession of his spoils. [123] After a full trial. Thus. Rafie. judgment was given in favour of the bondholders against the remaining defendants whereby:  (a) The bondholders' claim against MTB and KAF was allowed on the apportionment of 60:40 respectively. Murnina and the Amdac Group is on the basis that they are constructive trustees over the monies in the RA and which they had dominion over by virtue of being the directors or chief executive officer and signatories to the bank accounts. among others a declaration as well as judgment to the effect that MTB is entitled to be indemnified in full by them for any judgment that may be entered in favour of the bondholders or any one of them against MTB.  (b) Rafie and the Amdac Group agreed to pay to the bondholders general damages to be assessed together with interests thereon at the aforesaid and period. HIGH COURT [122] On 7 July 2008. [119] MTB had filed for a notice of contribution dated 3 June 2009 and further re-re amended defence and counterclaim on 15 September 2009. a consent judgment was recorded between the bondholders and the defendants (Pesaka. by allowing indemnity in full.  (b) .315. [116] We would therefore answer the question on Pesaka's indemnity in the negative. Rafie. [117] We now deal with the appeal by Murnina against MTB for the order of indemnity obtained by MTB against her in the Court of Appeal. and  (c) the bondholders withdraw their action against Murnina. Pesaka will be called to meet its obligation in full. against Pesaka.000 together with interest at the rate of 8% per annum from 1 October 2005 to date of satisfaction. In the result. Murnina and the Amdac Group claiming for.000 was accordingly entered. Murnina and the Amdac Group) whereby it was agreed that:  (a) judgment be entered against Pesaka in the sum of RM149. inter alia. Judgment in the sum of RM149. [118] The background facts need to be restated although some had been mentioned earlier in our judgment.the basis that MTB is in the position to satisfy the bondholders' claim. we allow MTB's cross-appeal with costs and order full indemnity against Pesaka. Rafie. [120] MTB's claim for indemnity against Pesaka. [121] MTB also claimed that a constructive trust is imposed on them by reason of their knowledge that the monies in the RA were trust monies and that they knew that the monies were being misapplied or were reckless as to their application.315. It's not an uncommon feature today that many now choose to work from home without the benefit of office space. that these defendants cannot now to me be blamed for having relied on the experts and the professionals whom they have engaged and paid for their opinion. that Pesaka prepared the necessary resolutions for the change of mandate. Datin Murnina remains liable even if she chose not to know or if she allowed herself to be used by Dato' Rafie regardless of her personal reasons as to me she has chosen to enter into the realm of the corporate world and engage with the public especially in matters concerning raising public funds through this bond issue. its companies and its businesses and lands ultimately acquired were for and on behalf of Pesaka … that Pesaka had informed and procured KAF's consent for the use of the existing accounts as designated accounts. Murnina and the Amdac Group against the High Court's refusal to grant MTB's claim for an indemnity or contribution from the directors of Pesaka and the Amdac Group. Gilford Motor's case to find that the directing mind and controlling minds behind Pesaka and the Amdac Group of companies is the Defendants.1) of the trust deed disallowed an indemnity claim where there was gross negligence on the part of MTB (64AR) … that the bond proceeds and said revenue were in fact used for the ordinary course of business of Pesaka. authorisations and signatories to those accounts. According to the Court of Appeal. I in fact first of all agree that this is an appropriate case for the lifting of the veil of incorporation as the evidence indicates that all the activities of Pesaka as well as the 6-12 Defendants were directed for the benefit of Dato' Rafie who together with her wife own (90%) of Pesaka. Rafie and the Amdac Group) absolving her obligation to pay in view of MTB's negligence in not showing 'a degree of skill. It would be disastrous if directors such as Datin Murnina would be absolved from accountability for the reasons that she has proffered. prudence.The High Court however dismissed MTB's claim for indemnity against Murnina (and against Pesaka. the trial judge found as follows: … MTB was negligent … that clauses 28. Datin Murnina may say that the shares were held by her on trust for husband and that he does not seem to have considered her as joint owner but merely as holding the properties on his behalf. THE COURT OF APPEAL [124] An appeal was filed by MTB against Rafie. In my view. . with regard to the role and liability of Murnina. I agree with Mayban Trustees' proposition that the impression given of them being in control.  (c) Nevertheless. that the proceeds of the bonds and monies were released into the accounts upon confirmation by the third party that the CPs had been fulfilled. the High Court held as follows: These are my findings.2 and (14. I'm not going to set out. these 2 Defendants being in control of Pesaka and its group of companies is consistent with the fact that Dato' Rafie himself had given evidence that he considered Pesaka his personal property and he exercised actual control over them including the monies and the accounts though they were carried out by other personnel in his companies. Here monies moved in and out of the accounts and she signed for such movements and was the recipient of these monies insofar as these investment and shares were in her name. I agree that on the findings revolved around the reasoning in Wallersteiner v Moir. without attending meetings and without even email particularly in this 21st century. Therefore I find that she knowingly received proceeds of the trust money and for these reasons she has rightly been brought in. care and diligence' as a paid trustee. the accountability of these defendants for their acts despite the role of the other defendants. advice and directions … that the consent judgment which have been entered into by these Defendants with the plaintiffs represent in my mind. On that. Rafie and Murnina had fraudulently transferred the revenue to Murnina and the Amdac Group who had no right whatsoever to that revenue or to retain or use the same for whatever reason or purpose. through their alter ego. it was all so evident that Rafie and Murnina absolutely ruled the roost. in every sense of the word. that is. … [69] Be that as it may. in breach of every covenant that they. and so was right up to her neck in complicity in the loss of the revenue. The trust deeds dated 9 June 1997 (8133AR) and 11 June 2003 (8134AR) also confirmed that Murnina held all her shares in Pesaka upon trust for Rafie. that he and Murnina owned nearly 90% of Pesaka (1730AR) and that he regarded Pesaka as his personal property (1730AR) and or as his family company (1731 AR). Rafie. could not play humble housewife to feign ignorance. Given that state of the pleadings. that the corporate veil should be lifted. Murnina testified that all her shares in the Amdac Group were held upon trust for Pesaka (1382AR) and or Rafie (1407AR). That was evident from the pleadings alone.[125] In respect of the issue of lifting the corporate veil. Rafie and Murnina were the principals behind Pesaka and the Amdac Group. [71] It could not be any clearer. we are nonetheless of the unanimous view. management and business of Pesaka and the Amdac Group and came to this opinion: [66] There was no appeal by Pesaka. The directing minds of Pesaka and the Amdac Group were Rafie and Murnina who had absolute control of those companies at all material times. The veil of corporation must be ignored in the face of . Rafie and the Amdac Group pleaded that 'the shares of the Amdac companies although in the names of Rafie and Murnina. Pesaka. All notional separateness could be disregarded ( Sunrise Sdn Bhd v First Profile (M) Sdn Bhd & Anor [1996] 3 MLJ 533). Murnina. But on the basis of high authority. plain and simple. [70] The evidence was no different. And with their absolute control of Pesaka and the Amdac Group. Rafie and the Amdac Group pleaded (i) that all major decisions of Pesaka were taken by Rafie (183AR). who had signed the security documents and the instructions to the CIMB Cosway Branch to transfer the revenue to herself and to the Amdac Group. Murnina. Rafie testified that whatever belonged to him belonged to Pesaka {1730AR). with their dominion through Pesaka over the revenue. And Murnina pleaded that all her shares in Pesaka were held upon trust for Rafie (207AR) and that all her shares in the Amdac Group were held upon trust for Pesaka (207AR read together with 152AR). had entered into with KAF and MTB. after all consideration of the facts and circumstances. Rafie. had fraudulently misappropriated and converted the revenue that belonged to the bondholders. First. Mr Wong Kian Keong for Murnina nonetheless submitted that there was no case for the lifting of the corporate veil. and that Murnina who was a bare trustee for Rafie or Pesaka owned nothing in her own right. held upon trust for Pesaka and the Amdac companies were treated as part of the Pesaka Group of Companies' (183AR). That was fraud. and that her 87% of the issued capital of Pesaka was held upon trust for Rafie (1398AR). Murnina and the Amdac Group were indistinguishable as separate economic units. or the Amdac Group to challenge the lifting the corporate veil or to contest those findings of fact (see above) that led the learned judge to lift the corporate veil. Pesaka. the Court of Appeal discussed the position and the extent of Murnina's involvement in the operation. were at all material times. The indisputable truth was that Rafie and Murnina. the original defendants admitted that Rafie owned both Pesaka and the Amdac Group through Pesaka. it would seem that no credence should be given to that submission. we are at one with the learned judge. (ii) that the only directors of the Amdac Group of Companies was Rafie and Murnina and Murnina practically owned the entire equity of the Amdac Group of Companies (save for the eight Defendant — Amdac Capital) (183AR read together with 152AR). that her Bukit Jelutong lands were held upon trust for Pesaka (1407AR). in violation of the security documents. this court must intervene by imputing a constructive trust upon Murnina (as well as Rafie) for her role in misapplying the trust monies. The documentary evidence clearly demonstrated that Murnina's knowledge of the bonds issue was far more extensive than what she sought to portray. The common pattern was that the assets would ultimately be in the names of either Rafie or Murnina. and the bondholders (see Re Darby ex parte Brougham [1911] 1 KB 95). [129] In the circumstances. In short. Murnina and the Amdac Group. Justice positively demanded that Rafie. Pesaka included. Murnina is now appealing the Court of Appeal's decision in ruling that the corporate veil of Pesaka be lifted in allowing MTB's indemnity claim against her together with Rafie and the Amdac Group. 'Honest people do not knowingly take others' property or participate in a transaction he knows involves a misapplication of trust assets or in such a case deliberately close his eyes or ears. MTB. despite her counsel's plea that she merely played the role of homemaker and dutiful housewife. then Rafie and Murnina and the Amdac Group would make off with the revenue. We agree with MTB's position that the various entities. Lord Nicholls in that case said. . Equity therefore demands that Murnina (and Rafie) must not be allowed to keep those monies and in the process unjustly enrich herself (see Fernrite Sdn Bhd v Perbadanan Nasional Bhd [2012] 1 MLJ 1. or not ask questions. [128] We are also in agreement with MTB's stand that Murnina was guilty of having been in 'knowingly receipt' of the revenue from the background facts as adverted to earlier. The trial court in fact made such a finding and this we affirm. Murnina had in our view acted dishonestly when she misapplied the proceeds of the trust monies. If not.this unashamed fraud on KAF. Constructive trust is 'a trust which is imposed by equity in order to satisfy the demands of justice and good conscience. THIS COURT [126] Before us. at trial. were a mere facade to perpetrate the acts. she had the knowledge that she was used by Rafie to move out the monies from the trust accounts. She conceded that she made it a point to read the documents she signed. She executed various resolutions in relation to the bonds issue including all resolutions pertaining to the opening of the designated accounts. The court should pull aside the corporate veil and treat Pesaka and the Amdac as being their creatures. for whose doings they (Rafie and Murnina) should be responsible (see Wallersteiner v Moir. Murnina allowed herself to be used by Rafie in carrying out the design to move monies out of the trust account as well as to be recipient of those monies on those assets which are in her name. [2012] 5 MLRA 421). be a defence for Murnina from the claim for indemnity by MTB. There was only justification to pierce the corporate veil. and the Amdac Group be ordered to indemnify MTB (see Jones and another v Lipman and another [1962] 1 All ER 442 … see also Gilford Motor Co v Home [1933] CH 935). The corporate veil cannot. Moir v Wallersteiner & Ors [1974] 3 All ER 217). to ascertain the actual ownership of assets (Aspatra Sdn Bhd & Ors v Bank Bumiputra Malaysia Bhd & Anor [1988] 2 MLJ 97. [2011] 4 AMR 677). in our view. This simply means that she had not acted as an honest person would in the circumstances (see Royal Brunei Airlines Sdn Bhd v Tan [1995] 3 All ER 97 which describes such act as a 'conscious impropriety'). The Court of Appeal and the High Court were therefore not wrong in lifting the corporate veil and in finding her liable. to enable creditors to reach the assets of Rafie. lest he learn something he would rather not know'. She had participated in committing the breaches of duty by Pesaka and Rafie and must be held liable. Rafie and Murnina and the Amdac Group should not be allowed to claim limited liability through the corporate shield. Murnina. Rafie had admitted that the funds of the issuer were utilised to invest in the Amdac Group in various investments both locally and abroad. [127] Learned counsel for MTB submitted that. Murnina thus cannot escape liability by playing blind and pleading ignorance. without reference to any express or presumed intention of the parties' (per Arifin Zakaria Chief Justice in Hassan bin Kadir & Ors v Mohamed Moidu bin Mohamad & Anor [2011] 4 MLJ 190. the opening of the designated accounts were required to be undertaken. [134] Pursuant to the IM document. whether the Court of Appeal was nevertheless right in law in holding CIMB liable as a constructive trustee? [133] Even though the antecedents of this appeal have been adequately provided for under KAF's appeal. an account meant to receive payments from government contracts. This was an existing conventional account in the name of Pesaka. Terminal 3.90 was deposited into the FSRA held at CIMB (formerly BCB).405. additional details will be supplied in order to have better comprehension of the matter under discussion. The admission by Pesaka. that practically all the monies had been withdrawn from those two accounts. . CIVIL APPEAL NO 02(f)-27–04 OF 2012(W) — APPEAL NO (i) (CIMB'S APPEAL) [132] CIMB is appealing against the order of the Court of Appeal to indemnify MTB to the extent of 1/3 of the total liability that MTB would have to bear. MTB in its counter-claim alleged that this pre-existing escrow account. Despite the want of ring-fencing. such transaction must have taken place in the course of a normal banking practice.90 (FSRA and escrow deposits). RM8. that is after deduction of the sum to be indemnified by Pesaka.500. Subang Branch. was converted into the RA.059. For purposes of this appeal the following two questions will be answered:  (a) Having regard to the long established mandate rule for corporate customers under the law and practice of banker/customer. [135] As there was no evidence adduced to show that there was anything untoward as regards the act of depositing the monies into those two accounts. amongst others. whether the Court of Appeal acted correctly in holding that CIMB was liable as a constructive trustee to a third party viz Mayban Trustees for monies held in an account operated at its Cosway branch at all material times by the customer of the said account. A further sum of RM45.[130] As regards Murnina's counsel's submission that MTB has no legal standing to pursue this action since the bondholders had entered a consent judgment with Murnina (and Rafie and the Amdac Group) and withdrawn the suit against her. [131] With Pesaka having admitted full responsibility to the bondholders via the consent judgment.905. it would be a travesty of justice that it be allowed to keep a portion of the ill-gotten gains and accordingly we order that Murnina too (and Rafie who together with Murnina owned 90% of Pesaka) must fully indemnify MTB for the loss. We therefore dismiss her appeal with costs. The order on indemnity by the Court of Appeal is to that extent set aside. part of which were utilised for overseas investments or advanced to its related companies. The aggregate sum. when the need arises. we hold that there is no merit in this submission in view of our earlier findings. Murnina and the Amdac Group. Likewise this was also a conventional account in the name of Pesaka and under its control. and left the bondholders high and dry. On the other hand the same cannot be said of the disposals of the monies from those two accounts. collected from the bondholders and deposited under the two CIMB accounts amounted to RM53. Pesaka through its duly authorised signatories?  (b) Not having found CIMB liable under either the 'knowing receipt' or 'knowing assistance' category.000 was deposited into the pre-existing escrow account in CIMB at the Cosway branch. viz.059. Rafie. MTB had filed a counter claim pursuant to its duties under the trust deed against CIMB. and with equity fastened upon his conscience. despite the two accounts being under the management of CI MB. Yet as clearly seen. in circumstances where the trustee acquires property for the benefit of the beneficiary. and being conventional accounts. [142] A perusal of the submission of MTB pointed to its heavy reliance on the 'knowing assistance' proposition regarding the liability of CIMB. but at the same time running a banking business. The Court of Appeal in reversing the High Court held that CIMB owed a duty of care as a constructive trustee to MTB. the signatories were still Rafie and Murnina.[136] In this case. Thus. So. and thus beneficially entitled to the monies in the accounts. If he does. an essential ingredient when intending to establish a breach of constructive trust. As reflected in paras 62. Releasing the monies would cause CIMB to suffer equally as any bondholder whilst any refusal to act on the instruction of Pesaka as a customer would entail a breach of the banker-customer relationship between them. justified its decision by concluding that there was failure by MTB to establish dishonesty on the part of CIMB. Not only was it a bondholder. he cannot transfer any interest to himself let alone a third party. [140] Factually CIMB was in a peculiar position in that it was in a 'conflict of interest' position. amongst others: A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another. The High Court held that not only was there no duty owed to MTB but a bankercustomer relationship existed between CIMB and the original signatories. (See also Takako Sakao (f) v Ng Pek Yuen (f) & Anor (No 2) [2010] 2 MLJ 181. The trial judge found that CIMB had not acted dishonestly and thereupon dismissed MTB's counterclaim. [2010] 1 CLJ 381). Paragon Finance plc v Thimbleby & Co (a firm) [1999] 1 All ER 400 the court had summed it up succinctly when it held. 63 and 64 of the counter claim MTB alleged that CIMB owed a duty of care to it. did CIMB owe a duty to anyone regarding the two accounts except to Pesaka? It was indisputable that those accounts were under the control of Pesaka. namely Rafie and Murnina. where is the evidence to indicate even a trace of dishonesty? [141] The High Court when rejecting the counterclaim. expounded amongst others. [139] The logical sequential question to be resolved is. pleading negligence and breach of duty as a constructive trustee. The Court of Appeal however took a different view and held that CIMB did owe a duty as a constructive trustee to MTB and accordingly entered judgment against CIMB. in light of the accounts held by Pesaka being maintained by CIMB. never for a moment did it take advantage of its position and recover its losses. Karak Rubber Co Ltd v Burden and others (No 2) [1972] 1 All ER 1210 and Rowlandson and others v National Westminster Bank Ltd [1978] 3 All ER . Being bereft of any beneficial interest. by Selangor United Rubber Estates v Cradock (a bankrupt) and Others (No 3) [1968] 2 All ER 1073. then a constructive trust comes into existence. hence this appeal. and making it unconscionable for him to assert his own beneficial interest in the property and deny the beneficial interest of another. Instead the transfers to the other accounts as instructed by Pesaka were approved. [138] In Datuk M Kayveas v See Hong Chen & Sons Sdn Bhd & Ors [2013] 5 CLJ 949 this court opined: …it may be construed that a constructive trust arises by operation of law irrespective of the intention of the parties. the question is did CIMB commit any breach of constructive trust for those acts of disposals from the CIMB accounts? [137] In Paragon Finance plc v Thakerar & Co. Sims handed over the monies to Leach who then paid it out on Yardley's instructions. at the end of the day found Tan. with Sims now assuming the principal liability over the loan. Unfortunately delays happened and an alternative source had to be found. In those cases dishonesty was not a relevant ingredient to found liability against a constructive trustee under the 'knowing assistance' proposition. when it introduced the two-fold tests of an objective and subjective test. The trial Judge found Leach not dishonest. The proceeds were then deposited into a current account which was also the common account to defray some of BLT's expenses eg salary and overdrafts. [145] The above principle was extended by Twinsectra Ltd v Yardley and others [2002] 2 All ER 377 (HL). Lord Hutton. [146] In a gist. liable. as Sims owed Yardley monies. or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees. The Privy Council when discussing the fault based liability opined: Given then. However Yardley and Sims proceeded with Twinsectra's loan. acted for Yardley in a purchase of a piece of property. This agreement between them was not known to Leach and Twinsectra except for a proposed draft of the undertaking seen by the former. on an objective test. The Court of Appeal disagreed and overturned that decision. Later Barclays' loan came through thus dispensing with the need of Twinsectra's loan. Lord Hoffman at p 382 in this case opined: I do not think that it is fairly open to your Lordships to take this view of the law without departing from the principles laid down by the Privy Council in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378. Royal Brunei contracted an agency agreement with Borneo Leisure Travel Sdn Bhd ('BLT').370. this approach was a major shift as propounded by Barnes v Addy (1874) LR 9 Ch App 244. The Privy Council when discussing whether the breach of trust must be a dishonest and fraudulent breach of trust committed by the trustee. Leach who was a solicitor. the next step is to seek to identify the touchstone of liability. wherein it was to sell tickets for the Royal Brunei. [144] Then came the case of Royal Brunei Airlines which especially clarified the principles relating to dishonest assistance.' [143] A rethinking was detected in Carl-Zeiss-Stiftung v Herbert Smith & Co (a firm) and another (No 2) [1969] 2 All ER 367 (CA) when it opined that an element of dishonesty or of consciously acting improperly was required to be established before a trustee could be said to have breached a trust (see also Belmont Finance Corpn Ltd v Williams Furniture Ltd [1979] 1 All ER 118. The House of Lords agreed with the trial judge and allowed Leach's appeal. that in some circumstances a third party may be liable directly to a beneficiary. BLT was to hand over the proceeds of the tickets to Royal Brunei within 30 days. In this case. 'agents receive and become chargeable with some part of the trust property. Duke of Manchester v National Westminster Bank Ltd and others [1992] 4 All ER 308. I consider that those principles require more . When Yardiey defaulted and Sims went bankrupt Twinsectra sued Leach for dishonest assistance of the breach of trust occasioned by Sims. Leach refused but was agreed upon by another solicitor ie Sims. In this case. Financing was needed and Barclays Bank agreed to finance the purchase. in that the concept of subjective dishonesty became a requirement in a breach of trust situation. a new test was introduced by Twinsectra. which demanded that. Twinsectra agreed to finance but subject to Leach giving an undertaking guaranteeing payment. Lipkin Gorman (a firm) v Karpnale Ltd and another [1992] 4 All ER 331). For the reasons given by my noble and learned friend. The respondent (Tan) was the managing director and the principal shareholder of BLT. Later BLT went into insolvency and Royal Brunei took action against Tan for knowingly assisting in breaching a trust. Re Montagu's Settlement Trusts. but given also that the liability is not so strict that there would be liability even when the third party was wholly unaware of the existence of the trust. By common accord dishonesty fulfils this role. MTB claimed that a constructive trust was imposed because they had knowledge that the monies in the RA were trust monies and that they knew that the monies were being misapplied or that they were reckless as to their application. consciousness that one is transgressing ordinary standards of honest behaviour. [149] As opposed to CIMB's position MTB's stand is as follows. to make a finding of dishonesty which the judge who saw and heard Mr Leach did not. And this we have done when discussing KAF's appeal. The counter claim by MTB against CIMB is dismissed with costs. In light of the peculiar position of CIMB. Rafie. [148] Having scrutinised the evidence. had behaved 'like a mannequin'.than knowledge of the facts which make the conduct wrongful. RAFIE AND THE AMDAC GROUP'S APPEAL) [152] This brings us to the appeal filed by Pesaka. I will term this 'the combined test'. when its appointment as trustees went as far back as July 2003. it is our view that CIMB could not be construed as being dishonest in the ordinary standards of reasonable and honest people. there is a standard which combines an objective test and a subjective test. that is to say. our answer to the two questions are in the negative. . They require a dishonest state of mind. To use the words of the learned judge. [151] Thus. The appeal is allowed with costs and the order of the Court of Appeal set aside. I also agree with Lord Hutton that the judge correctly applied this test and that the Court of Appeal was not entitled. Rafie. We found MTB liable for failing to ring fence the designated accounts. we are satisfied that what was adduced before the court was merely evidence pointing to CIMB complying with the instructions given by the banker-customer relationship. on the basis of the written transcript. [150] From the totality of the evidence we therefore hold that CIMB was not liable for the monies disposed on the instruction of Pesaka from the designated account and instead hold MTB totally liable. [147] Lord Hutton at p 384 had added: Thirdly. No further discussion therefore is needed here on the finding of MTB's liability except to say that with the authority it held MTB could have taken up many peremptory actions. [154] MTB's claim for indemnity against Pesaka. with itself knowing. This finding and conclusion therefore would be in line with the combined tests of an objective and subjective test as propounded by Twinsectra. [153] MTB had filed counterclaim against Pesaka. Whether this position is acceptable or otherwise requires a scrutiny of the facts and background of this case. CIVIL APPEAL NO 02(f)-33–04 OF 2012(W) — APPEAL NO (v) (PESAKA. MTB instead of being proactive. based on the subjective dishonest test. MTB had been unprofessional and indifferent when it failed to take action despite being aware of the inaction of Pesaka. Instead it did practically nothing. Murnina and the Amdac Group is on the basis that they are constructive trustees over the monies in the RA. and which requires that before there can be a finding of dishonesty it must be established that the defendant's conduct was dishonest by the ordinary standards of reasonable and honest people and that he himself realised that by those standards his conduct was dishonest. Murnina and the Amdac Group claiming for a declaration as well as judgment to the effect that MTB is entitled to be indemnified in full by them for any judgment which may be entered against MTB in favour of the bondholders or any one of them. that what it did was dishonest when transferring the monies to other accounts. and with no cogent evidence having been adduced to say otherwise. It argued that as all the pre-conditions of the designated accounts had not been complied with it could not move in and administer the accounts. Rafie and the Amdac Group. [159] In considering the liability of Pesaka to MTB. Murnina and the Amdac Group. and as such it erred in concluding that Pesaka was disqualified from relying on the exclusion clause.000 together with penalty charges at the nominal rate of 3% on 2/3 of RM149.000 together with all penalty charges. [156] The Court of Appeal allowed MTB's appeal and made the following orders:  (a) KAF and MTB should jointly bear 1/3 of the total loss of RM149. Murnina and the Amdac Group to pay MTB. which disentitled it to any indemnity under cl 14.000 from the date of judgment to date of satisfaction.300. the Court of Appeal in effect rewrote the provision. It was submitted that an indemnity clause in business contracts did not have to satisfy the test of reasonableness as required for indemnity provisions in a consumer contract. learned counsel for Pesaka contended that the Court of Appeal clearly erred in holding that the indemnity provision under cl 14.300.  (b) Pesaka to pay KAF and MTB the sum of 2/3 of RM149. [158] In respect of liability of Pesaka for MTB's claim for indemnity. care and diligence consistent with the position held at the material time'.1 of the trust deed applied and that Pesaka could not rely on the exclusion in cl 14.1 which according to learned counsel was clear. For the same reasons in Murnina's appeal. It was further contended that while the High Court had applied the indemnity provision as written and agreed to by the parties.  (c) Pesaka to pay KAF and MTB the costs of their appeals. Murnina and the Amdac Group to pay the costs of MTB's appeal against them.000 from 30 September 2005 to the date of judgment. It was also submitted that there was no basis for a finding of fraud by the Court of Appeal.1. and penalty charges at the rate of 4% on half of 2/3 of RM149. For reasons which we will set out shortly we are unable to agree with the aforesaid submissions. the sum of 2/3 of RM149. and penalty charges at the rate of 4% on 2/3 of RM149.300. the learned trial judge found that this was an appropriate case for lifting the corporate veil. we would also dismiss the appeal by Rafie and the Amdac Group with costs and therefore we hold that they are fully liable to MTB. prudence. However she dismissed MTB's claim for reasons as set out in the relevant passages in her judgment.300. unambiguous and unequivocal in its meaning.300. and  (e) Rafie. The main reason appears to be her finding that MTB 'has not shown that degree of skill.  (d) Rafie.300.300.000 from the date of judgment to the date of satisfaction.000 from 30 September 2005 to the date of judgment. Rafie. She found that Rafie was the directing mind behind Pesaka and the Amdac Group.[155] The High Court dismissed MTB's indemnity claim against Pesaka. [157] We have dealt with the appeal by Murnina.000 together with penalty charges at the nominal rate of 3% on half of 2/3 of RM149. . that whether an exclusion clause was applicable when there was a fundamental breach was one of the true construction of the contract. However. Speaking for myself I am conscious of imperfection of terminology. that is to say. only avail the party when he is carrying his contract in its essential respects. and must not offend against the equitable rule against penalties. [50] But such a doctrine of fundamental breach as a rule of law was disapproved by the House of Lords in Suisse Atlantique Societe d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361. or deliberate action or otherwise. could an exemption clause avail to the party guilty of a wilful breach which goes to the root of the contract? In Karsales (Harrow) Ltd v Wallis [1956] 1 WLR 936. Summarising the more recent development of the jurisprudence on the application of an exemption clause from leading authorities the Court of Appeal said: [49] In the first place. Since the obligations implied by law in a commercial . Their Lordships wire uncompromisingly clear: Much has been written about the Suisse Atlantique case. by anticipatory breaches. by breaches of conditions or of various term negligent. Each speech has been subjected to various degrees of analysis and criticism. an exclusion clause is one which excludes or modifies general secondary or anticipatory secondary. But I do not think that I should be conducing to the clarity of the law by adding to what was already too ample a discussion a further analysis which in turn would have to be interpreted. much of it constructive. who held. They do not avail him when he is guilty of a breach which goes to the root of the contract. My Lords. the doctrine of fundamental breach continued to be used until it was again disapproved by the House of Lords in Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 (see Contract Law in Malaysia by Cheong Mei Fong.[160] The Court of Appeal found that there was a total failure on the part of the learned trial judge to enquire if the exemptions in cl 14. that would otherwise arise under the contract by implication of law. it was held by Lord Denning that no exemption clause however widely drafted. it is now settled that exempting clauses of this kind. On that.1 applied. who held that whether an exclusion clause was applicable when there was a fundamental breach was one of the true construction of the contract. Since the presumption is that the parties by entering into the contract intended to accept the implied obligations exclusion clauses are to be construed strictly and the degree of strictness appropriate to be applied to their construction may properly depend upon the extent to which they involve departure from the implied obligations. But there are ample resources in the normal rules of contract law for dealing with these without the superimposition of a judicially invented rule of law: Per Lord Wilberforce. He is not allowed to use them as a cover for misconduct of indifference or to enable him to turn a blind eye to his obligations. at p 203). it must not impose upon the breaker of a primary obligation a general secondary obligation to pay to the other party a sum of money that is manifestly intended to be in excess of the amount which would fully compensate the other party for the loss sustained by him in consequence of the breach of the primary obligation. albeit obiter. Parties are free to agree to whatever exclusion or modification of all types of obligations as they please within the limits that the agreement must retain the legal characteristics of a contract. and to what extent an exclusion clause is to be applied to a fundamental breach. accepted or not. or a breach of a fundamental term. though sometimes in good company. I have no second thoughts as to the main proposition that the question whether. no matter how widely they are expressed. Many difficult questions arise and will continue to arise in the infinitely varied situations in which contracts come to be breached — by repudiatory breaches. is a matter of construction of the contract. or indeed to any breach of contract. could avail the party guilty of a breach which goes to the root of the contract:  Notwithstanding earlier cases which might suggest the contrary. loss.1 (as well as cl 13. by judicial consensus over the years or by Parliament in passing a statute.1 of the trust deed provided that MTB would be indemnified 'save and except for its gross negligence. para 14-136). It is. however unreasonable the court itself may think it is.1 of the SFA in their application to KAF) the Court of Appeal found that the exemption clause did not apply for the following reasons: [55] Clause 13. have been regarded as obligations which a reasonable businessman would realise that he was accepting when he entered into a contract of a particular kind. On any view of the matter the respondent and the appellants could not have intended that the exemption clauses in the contract of bailment would apply when some act had intervened to alter the circumstances in. or liability referred to herein arising from the gross negligence or wilful misconduct or fraud or wilful default by the Facility Agent'. [162] Turning to the exemption clause under cl 14. [1994] Karthigesu JA said:  It is trite law that exemption clauses must be construed strictly and this mean that their application must be restricted to the particular circumstances the parties had in mind at the time they entered into the contract. wilful breach or fraudulent actions'. which the exemption clauses would ordinarily apply.. But this does not entitle the court to reject the exclusion clause. wilful default. [54] In Hong Realty (Pte) Ltd v Chua Keng Mona [1994] 3 SLR 819. is a relevant consideration in deciding what meaning the words were intended by the parties to bear. wilful misconduct or fraud or wilful default by KAF or MTB. … The law is that 'no exemption clause can protect a person from liability for his own fraud [Chitty] meant the fraud within the context of section 17 of our Contracts Act 1950 or require the other party to assume what he knows to be false. (Emphasis added.) [161] The Court of Appeal opined (and in our view rightly) that the upholding or otherwise of the exemption clause agreed to by the parties depended upon the proper construction of that clause which must be construed strictly stating that: [53] … what was agreed must be resolved by the proper construction of the said exclusion clauses (for the general principles of construction of contract.contract are those which. if the words are clear and fairly susceptible of one meaning only: per Lord Diplock. damage. Those were the particular circumstances that the parties had in mind at the time when they entered into the SF agreement or trust deed. clear that any such exclusion would have to be expressed in clear and unmistakable terms on the face of the contract so as to leave the other party in no doubt that fraud was covered' (Chitty. 825. Both exemption clauses must be strictly construed to mean that . the court's view of the reasonableness of any departure from the implied obligations which would be involved in construing the express words of an exclusion clause in one sense that they are capable of bearing rather than another. but yet both exemption clauses excluded indemnity where loss was occasioned by gross negligence.. based on public policy.1 of the SF agreement provided that KAF would be indemnified 'save that the Issuer shall not be liable to the Facility Agent for any expenses. there is any rule of law. Although differently worded. But it is uncertain whether. however. which would prevent the exclusion by a principal of liability for fraud on the part of his agent acting as such. (1853) 10 ER 551. see Hotel Anika Sdn Bhd v Majlis Daerah Kluang Utara [2007] 1 MLJ 248) which must be construed strictly contra proferentem (Anderson v Fitzgerald (1853) 4 HLC 484 . Clause 14. Guardian Assurance Co Ltd v Condogianis (1919) 26 CLR 231). then it should have been expressed in clear and unmistakable terms on the face of the SF agreement and trust deed so as to leave KAF or MTB in no doubt that fraud by Pesaka was covered. but the revenue was only deposited into the revenue/proceeds account at the CIMB Cosway branch. In the meantime. on its true construction. at p 1). the revenue that belonged to the bondholders. Between July 2004 and September 2005. If that had been intended. Such clauses must be construed strictly and if ambiguous the narrower meaning will be taken. Suffice it to say that those exemption clauses could not avail to Pesaka as a defence. wilful misconduct or fraud or wilful default by KAF and or MTB. could KAF or MTB have intended that the exemption clauses would apply even when some act had intervened to alter the circumstances in which those exemptions clauses would ordinarily apply? Could KAF or MTB have intended that the exemption would apply even when there was fraud by Pesaka? But it should not seem that KAF or MTB could have intended so. by inequitable means. absent such an assumption they will not deal' (HIH Casualty and General Insurance Ltd & Ors v Chase Manhattan Bank & Ors [2003] 2 Lloyd's Rep 61 68 per Lord Bingham). And that absurd result could never be right. Any other construction would mean that Pesaka could break every covenant with impunity. And sad to say.) [164] On the finding of fraud against Pesaka. In that state. notwithstanding that the revenue had been assigned and was no longer its property. Or it may appear that the terms of the clause are so wide that they cannot be applied literally: that may be because this would lead to an absurdity or because it would defeat the main object of the contract or perhaps for other reasons.1 of the trust deed. in Suisse Atlantique Lord Reid said: As a matter of construction it may appear that the terms of the exclusion clause are not wide enough to cover the kind of breach which has been committed. could not reasonably have been intended to apply even when fraud by Pesaka had intervened to alter the circumstances in which those exemption clauses would ordinarily apply. not even after all revenue had been deposited into Pesaka's aforesaid account.) [163] We find no reason to disagree with the aforesaid conclusion of the Court of Appeal.1 of the SF Agreement and cl 14. Still 'ring fencing' was not in place. When revenue was deposited into the aforesaid conventional account. the Court of Appeal was right in concluding that Pesaka fraudulently misappropriated and converted the monies which belonged to the bondholders in breach of the security documents. But both exemption clauses did not provide for the circumstance of fraud by Pesaka (fraud by Pesaka was by its wilful act that deprived. it should have dawned upon KAF and or MTB that the security of the bondholders had been totally breached. Pesaka fraudulently withdrew all revenue that had been deposited into its . we are of the view that on the evidence. That revenue belonged to bondholders. Clause 13. So. As a matter of sad fact. Indeed. Since honesty was assumed. as contacting 'parties … assume the honesty and good faith of the other. MTB had no control whatsoever of all revenue deposited into the aforesaid conventional account after the issuance of the bonds. it could not have been contemplated by KAF or MTB that the exemption clauses applied even when there was fraud by Pesaka. KAF and or MTB could not have intended that the exemption clauses would apply even when fraud by Pesaka had intervened to alter the circumstances in which those exemption clauses would ordinarily apply. That revenue in that aforesaid conventional account was not controlled by MTB. Pesaka had a number of conventional accounts. revenue flowed into Pesaka's conventional account at the CIMB Coswav branch.their application must be restricted to those particular circumstances of gross negligence. The signatory or signatories to all conventional accounts were vet the nominee/s of Pesaka. (Emphasis added. see Kerr on the Law of Fraud and Mistake (7th Ed). Pesaka controlled it. so it proved to be that Pesaka could indeed withdraw all revenue. Pesaka could withdraw the revenue at will. Summing up the material events relating to the fraudulent misappropriation of the bond proceeds by Pesaka the Court of Appeal said: [18] 'Ring fencing' was not even there after the bonds had been issued and after the bonds proceeds had been fully disbursed. (Emphasis added. 169). the Court of Appeal's order on the indemnity by Pesaka is varied to that extent. as Lord Justice Rix observed more than once in his judgment (pars 160. for reasons which we have set out earlier in this judgment. Parties entering into a commercial contract will no doubt recognize and accept the risk of errors and omissions in the preceding negotiations. fraud is a thing apart. Pesaka had made off with the revenue. all revenue in that conventional account was transferred to other accounts. This is not a mere slogan. On the extent of the indemnity. . Rafie and the Amdac Group are dismissed with costs. But each party will assume the honesty and good faith of the other.1 as a defence. [165] In the circumstances we agree with the Court of Appeal that Pesaka cannot rely on the exemption clause under cl 14. we order full indemnity against Pesaka. Once fraud is proved. [167] In the result the appeal by Pesaka. contracts and all transactions whatsoever': Lazarus Estates Ltd v Beasley [1956] 1 QB 702 at p 712. it is no excuse for Pesaka by its fraudulent misappropriation. Pesaka must indemnify MTB. It reflects an old legal rule that fraud unravels all: fraus omnia corrumpit. despite Pesaka's prior notices to the CIMB Coswav and Subang branches that Pesaka had assigned and charged all rights and title in and to all said conventional accounts to MTB (see 3727 and 3729AR). 'it vitiates judgments. Hence. there was nothing left in the till for the redemption of bonds. per Lord Justice Denning. [166] We also agree with the Court of Appeal that notwithstanding MTB's breach of duty or negligence. On Pesaka's instructions. Pesaka cannot benefit from its own fraud. As such. to deprive the bondholders of the monies. even negligent errors and omissions. Not surprisingly. and quite without payment.conventional account at the CIMB Coswav branch. It also reflects the practical basis of commercial intercourse. Bond holders were left high and dry. absent such an assumption they would not deal. In HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6 Lord Bingham said: For. was the daughter of the first plaintiff while the third and fourth plaintiffs. The first defendant.[2013] 1 MLJ 526 Dato' Ariff Wan Hamzah & Ors v HwangDBS Investment Bank Bhd & Anor HIGH COURT (KUALA LUMPUR) NALLINI PATHMANATHAN J CIVIL SUIT NO D-22–640 OF 2009 27 November 2012 Tort — Negligence — Negligent misrepresentations and misstatements — Investment of shares on representations based on representations and statements — Loss of earnings and interest — Whether representations faulty. which the second defendant had breached. . premised on tort of negligent misstatement on the ground that its statements for the relevant financial years as well as the prospective forecast in the Prospectus were reported favourably when they were actually inaccurate. inaccurate and misleading and that they suffered losses and damages as the value of the Litespeed shares plunged soon after Hamimie. In opposing the plaintiffs' claims. inaccurate and misleading — Whether there was deliberate omission of salient financial information — Duty of care owing — Losses and damages — Whether proven — Whether there was cause of action The plaintiffs claimed against the defendants for negligent misrepresentation as well as negligent misstatement. to ensure that all information in the Prospectus was accurate up until the date of their subscription of shares in Litespeed. Ibrahim and Mokhtar purchased the shares allotted to them under the placement exercise. that they made no misleading statements or false representations as alleged. Further or alternatively. A duty of care was owed. Dr Syed Ibrahim ('Ibrahim') and Mokhtar Ahmad ('Mokhtar') were business associates or partners of the first plaintiff. Wan Hamimie bt Wan Ariff ('Hamimie'). the defendants maintained. which the first defendant failed to do. The second plaintiff. inter alia. The plaintiffs claimed a sum of RM6. and that they had cautioned all investors in the Prospectus that there were no guarantees concerning Litespeed's share prices and investors were advised to be careful about the inherent risks of such an investment. the plaintiffs contended that the defendants each owed them separate duties of care. The second defendant argued that the plaintiffs were not entitled to rely on any of the statements made by it in the Prospectus and therefore owed no duty of care to the plaintiffs. to these plaintiffs to ensure that the financial statements set out in the Prospectus were accurate and fair. owed a duty to investors such as the plaintiffs.909.940 together with loss of earnings and interest which they claimed to have lost as a result of investing in the purchase of placement shares in a company called Litespeed Education Technologies Bhd ('Litespeed'). based on the misrepresentations of the two defendants. it was contended. who was Litespeed's auditor and reporting accountant. false and misleading. It was alleged that the defendants' representations were false. they owed no duty to the purchasing plaintiffs as contended and 1 MLJ 526 at 527 therefore cannot be responsible for any losses suffered by the purchasing plaintiffs. The plaintiffs' claim against the second defendant. an agent of Litespeed responsible for statements in the Prospectus. The net effect of these clauses was to exempt or exclude the first defendant from liability (see para 74).  (4) It was evident that the plaintiffs' complaint was that the assumptions 1 MLJ 526 at 528 pertaining to the financial forecast were wholly unrealistic. As they owed no such duty of care to prospective purchasers including the plaintiffs. The plaintiffs were bound to act on their own initiative and with the requisite professional advice independently obtained in determining whether or not to invest in the Litespeed placement shares. The first defendant had no duty of care to ascertain and verify the financial performance for the first and second quarters of 2005–2006 and report on the same as was alleged by the plaintiff. A general reliance was insufficient. No attempt was made to verify the matters set out in the assumptions (see para 107). namely ascribing blame or liability to the first defendant for the investors' decision to invest in the Litespeed shares. were not highlighted. dismissing the claim with costs:  (1) The plaintiff's cause of action which premised on negligent misrepresentation by the first defendant failed.  (5) The first defendant played a lesser role in relation to the profit forecast for 2006 than the reporting accountants and was absolved of any issues of negligent misstatement or misrepresentation or omission.Held. By executing the letters of offer. As there was no further duty on their part to investigate and verify financial performance beyond. there could be no liability under this head against the first defendant (see para 92). The limitation or exclusion clause was worded specifically to meet a situation such as has arisen here. That has not been made out in the instant case which is another reason why the plaintiffs' claim against the second defendant in this regard fails (see para 105). it could not be concluded that they breached a duty of care. the plaintiffs accepted these clauses as part of the binding contract for the purchase of the placement shares and the effect of these clauses ought to be given full effect. Given their lack of knowledge at the material time it cannot be said that there was any negligent misstatement on their part. particularly the second to fourth plaintiffs did not rely in a specific way upon any of the information set out in the Prospectus. or assumptions made on contingent bases.  (3) The plaintiffs. Such clauses cannot simply be ignored. As stated before and borne out by the verification notes the scope of the first defendant's duty was to verify the . No proper qualifications were made or highlighted. The plaintiffs were bound to show that the information issued by the accountants worked so as to exert a specific influence on their minds and as a consequence of which they were induced to purchase the shares. This was not a general exclusion or widely worded limitation of liability clause. misleading to prospective purchasers such as the plaintiffs. when risks of non-performance of various contracts.  (2) The first defendant did not omit or deliberately withhold salient financial information as alleged by the plaintiffs. and as a consequence. CA (refd) Peekay Intermark Ltd & Anor v Australia and New Zealand Banking Group Ltd [2006] 2 Lloyd's Rep 511. HL (refd) TS Lim (James Khong with him) (James Khong) for the plaintiff. CA (refd) Caparo Industries plc v Dickman [1990] 2 AC 605. underwriting and placement fees. details of the public issue. HL (refd) James McNaughton Paper Group Ltd v Hicks Anderson & Co [1991] 2 WLR 641. CA (refd) Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. The plaintiffs failed to establish that the second to fourth plaintiffs actually suffered such losses as it was not evident in the first place that they had paid for those shares. restructuring and listing exercise. and the procedure for application and acceptance (see paras 143–144). CA (refd) White v Jones [1995] 2 AC 207. It was also not clear on the evidence. Yoong Sin Min (Samuel Tan with him) (Shook Lin & Bok) for the first defendant. HL (refd) Electra Private Equity Partners v KPMG Peat Marwick and others [2001] 1 BCLC 589. CA (refd) Orient Centre Investments and another v Societe Generale [2007] 3 SLR 566. Kelvin Seet (Vendee Chai with him) (Cheang & Ariff) for the second defendant. Cases referred to Amal Bakti Sdn Bhd & Ors v Affin Merchant Bank (M) Bhd [2012] 5 MLJ 61.  (6) The plaintiffs were not entitled to any losses or damages as claimed as they have not established their case against the defendant. CA (distd) Malaysian Newsprint Industries Sdn Bhd v Perdana Cigna Insurance Bhd & Ors [2008] 2 MLJ 256. CA (refd) Scott Group v McFarlane [1978] 1 NZLR 553. brokerage. CA (distd) 1 MLJ 526 at 531 Boyd Knight v Purdue [1999] 2 NZLR 279.issue price. CA (refd) Canavan v Wright [1957] NZLR 790. CA (refd) Malaysian International Merchant Bankers Bhd v Lembaga Bersekutu Pemegang Amanah Pengajian Tinggi Islam Malaysia [2001] 1 MLJ 375. Nallini Pathmanathan J INTRODUCTION . apart from a bare statement to that effect that the first plaintiff paid for the shares (see para 191(a) & (c)). which duty the second defendant failed to comply with or abide by.940 together with loss of earnings and interest which they claim to have lost as a consequence of investing in the purchase of placement shares in a company called Litespeed Education Technologies Bhd ('Litespeed') now known as Eduspec Holdings Bhd. inaccurate and misleading. It is further contended that the first defendant was under statutory duty to issue a supplementary prospectus in the event there was a significant changein any matter disclosed in the prospectus. They contend that they relied on the representations of both 1 MLJ 526 at 532 defendants. inter alia. Wan Hamimie bt Wan Ariff ('Hamimie'). is the daughter of Dato' Ariff Wan Hamzah. The third and fourth plaintiffs. or if there was a material misstatement or misleading statement or material omission. Again. In essence the plaintiffs contend that they were induced to enter into the said purchases of shares in Litespeed based on the misrepresentations of the two defendants. [6] A duty of care was owed. in the prospectus.909. that:  (a) they made no misleading statements or false representations as alleged. it was contended. the plaintiffs' grievance stems from its statements for the relevant financial years as well as the prospective forecast which were. [5] With respect to the second defendant who were Litespeed's auditors and reporting accountants. the first plaintiff ('Dato' Ariff'). [2] The plaintiffs are individuals who are related in the following manner. to these plaintiffs to ensure that the financial statements set out in the rospectus were accurate and fair. false and misleading. managing underwriter. to ensure that all information contained in the prospectus was accurate up until the date of their subscription of shares in Litespeed. As a consequence they maintain that they have suffered loss and damage as the value of the Litespeed shares plunged soon after Hamimie. reported favourably. The first defendant. it is contended the first defendant failed to ensure that the material information in the prospectus was accurate and reliable and additionally failed to update or ensure that the information in the prospectus was up to date until the date of subscription of the shares by the plaintiffs. Dr Syed Ibrahim ('Ibrahim') and Mokhtar Ahmad ('Mokhtar') are Dato' Ariff's business associates or partners. In reliance on the stated financial figures the plaintiffs maintain that the representation in the prospectus was that Litespeed was financially sound. [4] Further or alternatively the plaintiffs contend that the defendants each owed them separate duties of care.  (b) . Ibrahim and Mokhtar purchased the shares allotted to them under the placement exercise. In breach of such duty. sponsor and placement agent was responsible for statements in the prospectus. as Litespeed's advisor. Their claim against the second defendant is premised in tort for negligent misstatement. subsequent to the subscription. [7] The defendants vigorously dispute the foregoing maintaining. Hamimie. [3] The plaintiffs claim a sum of RM6.[1] The plaintiffs' claim against the defendants here is premised on negligent misrepresentation as well as negligent misstatement. and owed a duty to investors such as the plaintiffs. The second plaintiff. Ibrahim and Mokhtar complain that those financial statements were inaccurate. which representations subsequently proved to be false. 500. [12] On 20 July 2005 Bursa Malaysia gave its approval to Litespeed for the proposed listing on MESDAQ.234. [10] Litespeed was incorporated by Litespeed Education Pte Ltd. Subsequently it was licensed as an investment bank in January 2007. It could. is involved in propogataing education and learning technology. MESDAQ which has now been replaced by the ACE Market. act as advisor in corporate matters at the time. as it name suggests. THE FACTUAL BACKGROUND [8] The background facts are set out comprehensively in the submissions of all the parties as well as the evidence adduced during the course of trial. [11] HwangDBS Investment Bank Bhd ('D1') was appointed by Litespeed to assist with its prospective listing as well as to be it's placement agent for a portion of Litespeed's shares to be subscribed to by propsective shareholders. D1 was known as Hwang-DBS Securities Bhd and was a stockbroking company as well as a universal broker.they owed no duty to the purchasing plaintiffs as contended and therefore cannot be responsible for any losses suffered by the purchasing plaintiffs.000 new ordinary shares at an issue price of 47 sen per share. The shares comprised:  (a) 4. [13] D1 assisted Litespeed in preparing Litespeed's prospectus dated 27 October 2005 ('the prospectus') for its shares issue in conjunction with the 1 MLJ 526 at 534 listing of 32. [9] In or around 2005. a Singapore company that decided to incorporate it and list it on MESDAQ. . Litespeed was approved by the Securities Commission for public listing on the Malaysian Exchange of Securities Dealing and Automated Quotation ('MESDAQ'). I adopt in part some of the submissions of learned counsel for the parties below: Between 2003–2005. Litespeed is a company that. and did. was then a market where public quoted shares of technology based companies with scant financial track records were listed and traded. and  (d) the second defendant maintains that the plaintiffs were not entitled to rely on any of the statements made by it in the reporting accountants' report contained in the prospectus and therefore owed no duty of care to the plaintiffs. employees and business associates of Litespeed.000 shares available to directors.  (c) they cautioned all investors in the prospectus that there were no 1 MLJ 526 at 533 guarantees concerning Litespeed's share prices and investors were advised to be careful about the inherent risks of such an investment. by reason of several prior transactions involving Dato' Ariff and companies he is connected to. These representations included references. one Pok Vik Sent and other officers of Litespeed met with Nik Haniff Kamal who in turn arranged for Ms Ong and the Litespeed team of officers to meet up with Dato' Ariff. acted in the capacity of an advisor at all times. At trial however. the second plaintiff was present for part of the meeting. of the financial performance of Litespeed. she personally briefed Dato' Ariff and Hamimie that Litespeed was a good prospect for investment. She denies that she made any of the several representations in respect of Litespeed. [18] A presentation was duly made by D1 on 3 October 2005. that it was expected to earn a profit after tax of not less than RM7. if any risk in the investment. [16] Ms Ong on the other hand.257. that she is now alleged to have made. Ms Ong further disputes that she exerted any influence whatsoever on Dato' Ariff or any of the other plaintiffs. naturally. maintaining in turn that all representations pertaining to Litespeed were made by a director of Litespeed during the course of the one presentation that was made to Dato' Ariff as a prospective purchaser. Dato' Ariff further testified in the course of his testimony that Ms Ong made several specific and express representations pertaining to the advantages of purchasing Litespeed shares by way of a private placement.000 shares available for the Malaysian public. alleged that Dato' Ariff had several meetings with Ms Ong where she had made representations and presentations in respect of the Litespeed shares. he understood from Ms Ong that the shares of . seeking to have Litespeed's officers make a presentation to potential investors for the MESDAQ listing. This issue of fact is.5m during its first year of listing thereby yielding an average earning per share of not less than RM0. Ms Ong was clear that the entire presentation was made by the Litespeed directors and not herself. She maintained that she did not make any representations. According to Dato' Ariff. through Dato' Ariff maintain that at the meeting with Ms Ong on 3 October 2005. in their statement of claim. [17] It is not however in dispute that Ms Ong together with Litespeed's director at that time. 1 MLJ 526 at 535 THE MEETING DATED 3 OCTOBER 2005 [19] Ms Ong herself maintained that the Litespeed directors had made one if not two presentations to Dato' Ariff. and  (c) 23. [15] The plaintiffs maintain that Ms Ong. (b) 5. [20] Hamimie Ariff. [14] D1 also assisted Litespeed to procure investors for the placement shares. DW3 ('Ms Ong') contacted one Encik Nik Haniff Kamal sometime in 2005 on behalf of Litespeed. according to him. strongly denies making any such representations to Dato' Ariff. [21] The plaintiffs. its profit forecast and its price. Dato'Ariff could only recall one meeting with Ms Ong and the Litespeed officers on 3 October 2005.291. that Litespeed had earned a profit after tax of RM6. This was part of the exercise to secure investors for the placement shares.07 per share.000 shares available by way of private placement ('placement shares'). that it was financially sound and that there was little. in dispute. To this end. one of D1's officers by the name of Ms Ong Hui Hui. The plaintiffs.000. All queries with regards to the company were also directed to the Litespeed director and his team. At that time Ms Ong was a director of corporate finance in D1.000 for the financial year ending 30 April 2005. she was not in a position to over sell or make any representations to the effect that potential investors would be guaranteed or assured of profits. and . she explained that at roadshows and presentations it was not the function of D1 to explain the investment prospects of the IPO and soon to be listed companies. 1 MLJ 526 at 536 THE INFORMATION MEMORANDUM DATED 12 AUGUST 2005 [24] It is not in dispute that at the meeting on 3 October 2005. Neither was its profitability guaranteed. She further testified that Dato' Ariff. Litespeed. In the course of cross. [25] The information memorandum gives information about the soon to be listed company.  (c) the recipient was to be solely responsible for his investment decision and was advised to seek independent financial. amongst others. inter alia:  (a) D1 made no recommendation to the recipient to undertake the proposed investment.Litespeed would appreciate in value. She further stated that all details of the business and future plans of Litespeed were dealt with by the director of Litespeed. In the course of her testimony Ms Ong testified that she was present on behalf of D1 to field questions on the listing. She reiterated that she made no representations of any kind that Litespeed would be a good investment. as a 'savvy businessman' would be well aware of the inherent risks involved in investing in MESDAQ companies. legal or other such professional advice when making its own independent assessment of. D1 would not. The prospectus was only made available on 27 October 2005. express or implied as to the adequacy. because this task was always undertaken by the directors and officers of the company.47 per share was fair and reasonable.  (d) D1 and its representatives make no representation or warranty. This is because the prospectus had not been completed. [22] Dato' Ariff's testimony is diametrically opposed to that of Ms Ong herself who testified on behalf D1. she insisted. make any recommendations at all but would leave this to the company. which listed small capital tech companies with a limited or no financial track record. She stated that she was fully aware that as a company listed on MESDAQ. accuracy or completeness of the information contained in the information memorandum and expressly disclaims any liability (whether in contract or tort) for any information in the said document. credit-worthiness and prospects of Litespeed and the extent of the risk involved. A perusal of the same discloses the following salient points: The recipient agrees and undertakes to be bound by the following terms and conditions. As such it was put to the prospective investors that the issue price of RM0. the financial position.  (b) D1 did not assume any obligation to provide any recipient with any additional information or to update or revise any information should it prove to be incorrect or misleading. [23] Ms Ong remained consistent in her testimony. Ms Ong provided Dato' Ariff with an information memorandum dated 12 August 2005.examination. according to her. In this respect Litespeed makes no representation or warrant as to the accuracy of the achievement of such statements. [27] It is also not disputed that Dato' Ariff did not subscribe for any of Litespeed's shares. none of the prospective purchasers. (e) the Information may contain statements of anticipated future performance of Litespeed which reflect assumptions made by Litespeed and D1. THE KEY STATEMENTS IN THE PROSPECTUS [33] The plaintiffs highlight the following key passages from the prospectus:  (a) the E-learning division of the Litespeed Group formed the dominant business focus and revenue stream for the group.000 new ordinary shares of ten sen each at an issue price of 47 sen per share. Ms Ong denies any meetings subsequent to 3 October 2005 to specifically hand over the prospectus to Dato' Ariff. save for Hamimie met up with Ms Ong or the director and representatives of Litespeed prior to their 1 MLJ 526 at 537 subscription for an allotment of placement shares. and of the divisions' customers. THE PROSPECTUS DATED 27 OCTOBER 2005 [29] In the interim on 27 October 2005 the prospectus for Litespeed was issued in conjunction with its listing of 32. At this stage.291. . subsequent to 3 October 2005. In other words. the prospectus dated 27 October 2005 was not ready and was not therefore made available to any of the plaintiffs. iRead International Pte Ltd ('iRead') was the largest. their position is that the prospectus was made available to the plaintiffs together with the applications for subscription to the placement shares. [30] Dato' Ariff testified that there was more than one meeting with Ms Ong and that he was given the prospectus at one of these meetings. made known to D1 by Dato' Ariff. [32] It is therefore in dispute whether the prospectus was in fact specifically made available to Dato' Ariff between 3 October 2005 and 14 November 2005. namely Hamimie.  (b) Litespeed earned a profit after tax of RM6.000 for the financial year ended 30 April 2005 which represented a more than 100% jump in its profits from the previous year. [28] After this meeting. [26] Dato' Ariff admitted that this information memorandum was given to him at the time of the presentation. subsequent to 3 October 2005. D1 was informed that the second to fourth plaintiffs. Neither was the identity of the prospective purchasers.500. Ibrahim and Mokhtar. As such issuance was well after the meeting on 3 October 2005. Ibrahim and Mokhtar were interested in investing in Litespeed. [31] In so far as D1 is concerned. Ms Ong testified that Nik Haniff Kamal and his officers contacted her and submitted the second to fourth plaintiffs' names. no prospectus was handed over to Dato' Ariff at the said meeting. In the course of cross-examination however he could not recall or estimate a date when such a meeting took place. ie Hamimie. companies listed on the MESDAQ market are subject to different quantitative and qualitative requirements. And: Characteristics of the MESDAQ market of Bursa Malaysia Securities Berhad — Investors should be aware that the MESDAQ market of Bursa Securities is a distinct market from the main and second board of Bursa Securities in many respects. THE RISKS AND CAUTIONS HIGHLIGHTED IN THE PROSPECTUS [35] The defendants highlight the following clauses which they maintain highlighted the inherent risk in choosing to invest in these shares. In particular. which have been primarily designed to accommodate high-growth and/or technology companies. (c) Litespeed recorded such a significant increase due to 'economies of scale' 1 MLJ 526 at 538 with a 'higher revenue contribution from the E-learning division which has a higher profit margin in comparison to the education services divison'. These express terms specified that any investment in the shares of Litespeed would not result in guaranteed returns and potential subscribers were put on notice of the risks involved in investing in such shares and were advised to obtain professional advice before investing. As they were bidding for more contracts than that included in the forecasts. The directors of Litespeed would otherwise have had to provide a reason as to why no profit was forecast or disclosed. DW1 that the profit forecast had been included to ensure transparency. [34] The plaintiffs highlight the fact that a profit forecast was not mandatory for the purposes of the listing. while accepting that the profit forecast is not mandatory maintained through its head of corporate finance. they felt secure in disclosing the same. whilst potential investment returns may be relatively high.1. 1 MLJ 526 at 539 Companies that are listed on the MESDAQ market may not have an operating history or any profit track record prior to listing. bank manager. investors who are in any doubt as to the action to be taken should consult their stockbroker. solicitor. The assumptions underpinning the forecast were also provided. companies listed on the MESDAQ market may be of higher investment risk. [37] And under the heading 'Investment Considerations and Risk Factors' at para 3. save that Litespeed or D1 would have to issue a negative statement in the prospectus on the exclusion of the profit forecast. [36] For example the risks inherent in purchasing shares in a new MESDAQ company were highlighted in the prospectus in bold capital letters at the beginning: Investors should rely on their own evaluation to assess the merits and risks of the investment. D1 on the other hand. and  (d) the prospectus contained a profit forecast which projected a profit after tax of RM7.511m for the financial year ending 30 April 2006.1 of the prospectus it is stated that: . As such. accountant or other professional adviser immediately. In considering the investment. the availability of human resources to meet market demand.000 shares (b) Ibrahim 5.000 and RM2. Hamimie.000.940.1 and 2.1. the subscribers had represented. the ability of the Group to secure new contracts from their clients. … THE LETTERS OF OFFER DATED 11 NOVEMBER 2005 [38] In or around early November 2005. D1 issued letters of offer dated 11 November 2005 ('the offer letters') inviting the second to fourth plaintiffs to subscribe for some of the placement shares on the specified terms. the offers to subscribe for the placement shares had to be accepted by 14 November 2005. Attached to each offer letter was an acceptance form together with the prospectus.4(a) of the offer letters specifies that: … by offering you the Placement Shares.907m.000. Subsequently they were informed that they had been successful in purchasing the following number of placement shares which were allotted to them: (a) Hamimie 4. Hwang-DBS is not making any recommendation to you nor advising you regarding the suitability or merits of any transaction you may enter into in connection with the Pre-listing Placement or otherwise … [41] According to the prospectus and letters of offer.209. 1 MLJ 526 at 540 ACCEPTANCE FORMS DATED 14 NOVEMBER 2005 [42] Accordingly. [40] And para 3. the ability of the LET Group to control unforeseen costs.000 shares [43] These shares were duly paid for vide three cheques issued by one Wangco Incorporated Sdn Bhd to D1 in the sums of RM2. amongst others.LET Group has been profitable for the last three (3) financial years ended 30 April 2005 although it had in its initial years suffered some losses. unforeseen changes to the Group's operating expenses.000 shares (c) Mokhtar 5. LISTING OF LITESPEED SHARES ON MESDAQ [44] One week after payment of the subscription price on the closing date of 14 November 2005. RM2.702. These may include. The three offer letters issued to the three plaintiffs are identical in terms of their content.2 of the offer letters expressly provided that in accepting the offer of the placement shares. ie on 21 November 2005. . Ibrahim and Mokhtar duly signed the acceptance forms and submitted executed placement application forms also dated 14 November 2005 for the subscription of the number of placement shares specified. warranted and undertaken to have made their own 'independent investigations in evaluating the merits and risks of acquiring the Placement Shares without reliance on any representation made by Hwang-DBS as Placement Agent or on any of its representatives or agents'. There is no assurance that the LET Group will be profitable in future years.000.350. The Group's revenue and operating results are difficult to forecast and could be adversely affected by many factors. on 14 November 2005. [39] Paragraphs 2.350. Litespeed released its unaudited financial results for the quarter ended 31 July 2005 which recorded a loss of RM1. 907m) at the time of the meeting on 3 October 2005.870m.511m in the prospectus.000 iRead failed to pay the balance sum owing which led to legal proceedings being filed in Singapore and a judgment being entered against iRead on 15 October 2007. THE PLAINTIFFS' GRIEVANCES Omission or non-disclosure of the financial performance of Litespeed for the quarter ended 31 July 2005 recording a loss of RM1. This therefore reflected a 231% deviation from the projected profit.907m [48] The plaintiffs complain that the defendants would have. it is contended. [51] Litespeed was then trying to recover monies due from iRead and had in May 2006 agreed on a revised payment schedule. This disclosure it is contended was wholly inaccurate. This is because as of October and November 2005. D1 and D2 have effectively misstated the financial position of Litespeed in the prospectus. yet they were not appraised or advised of the same. [52] Due to the omission of this salient information the reported audited profits for the year ended 2005. [47] Litespeed's annual report for the following year. particularly by the time the prospectus was made available on 27 October 2005. or ought to 1 MLJ 526 at 541 have been aware of the poor financial results for Litespeed for the quarter ended 31 July 2005 (ie the loss of RM1.770. [49] They go further to complain that by failing to make such disclosure. was misleading. The plaintiffs contend that D1 and D2 would. Deviation between the profit forecast in the prospectus and the actual financial performance of Litespeed for the financial year 2006 [50] The plaintiffs also complain of a further negligent misstatement. The prospectus disclosed that Litespeed had a substantial contract worth RM3. This they maintain could have been achieved by producing a supplementary statement to the prospectus. or ought to have been appraised of this fact and should have disclosed the same.[45] The Litespeed shares were then listed on MESDAQ on 24 November 2005. as well as the profit forecast for Litespeed contained in the prospectus. The prospectus with the omission of this information therefore presented a misleadingly optimistic picture of . [46] On 30 December 2005 Litespeed announced its financial results for the second quarter ending on 31 October 2005 which disclosed a significant net loss. This was to be contrasted with the forecast financial performance which was stated to be RM7. which showed a loss.000 with iRead International Pte Ltd (as alluded to earlier). iRead was already in default of its payment obligations as specified in an appendix to the contract which sets out the scheduled dates and quantum of payments due. 2006 disclosed a significantly worse financial performance as it reported an audited loss after tax of RM9. therefore amounted to a failure to disclose material information which in turn amounted to negligent misstatement. The failure to include the quarterly accounts for the quarter ending July 2005. Save for a sum of RM20. In other words the plaintiffs contend that there was a duty on the parts of D1 and D2 to ensure that all information pertaining to the financial position of Litespeed was accurate and current. [56] The voluminous documents at trial were largely Part B documents. and accordingly there was no substance to them. but which were already in default at the time of the issuance of the prospectus. On this basis the plaintiff makes claim against the two defendants who were Litespeed's advisors. namely the cost of purchasing the subject shares. ISSUES . namely Valention Phua Cheng Lai. in respect of the losses they claim to have suffered. Counsel were at liberty 1 MLJ 526 at 543 at all times to object to such documents as they saw fit. D1 and D2 knew or ought to have known and disclosed to all relevant persons the facts that:  (a) the unaudited financial performance of Litespeed for the quarter ended 31 July 2005 disclosed a significant loss. such an optimistic profit forecast would not have been specified in the prospectus. although Dato' Ariff was the primary witness. and  (c) further with respect to the profit forecast. DW3. The four plaintiffs each testified at trial. and its advisors. DW2 and Ms Ong Hui Hui. In short the plaintiffs contend that if in fact the defendants had taken into account these prevailing factors.Litespeed's financial performance when its Litespeed itself. Mr Chan Voon Jhin. Accordingly exhibits were not marked singly. namely Ms Soon Dee Hwee. 1 MLJ 526 at 542  (b) the future financial forecast which was premised on the contract secured with iRead was contingent in turn upon prompt payment by iRead of scheduled payments due from it in several instalments. the former representative of D1 who is alleged to have made the relevant 'representations' to Dato' Ariff. the Vice-President. such as the forecast on the LET Group. TRIAL [53] The trial of this matter took place over a period of two days on 21–22 May 2012. [55] D2 called one witness. the plaintiffs contend that the substantive deviation between the profit forecast and the actual performance arose because with respect to several items in the prospectus. The plaintiffs maintain that the major revenue assumptions in the profit forecast were 'plucked out of thin air' as opposed to being founded on sound bases. the profit forecasts were unduly unrealistic and failed to take into account salient factors and conditions prevailing at the material time. [54] D1 called three witnesses. Corporate Finance Department of D1. meaning that the maker was dispensed with while the contents remained in dispute. the senior manager incharge of the reporting accountants report at material time. the iRead contract and the discontinuance of the Malaysian Ministry of Education's Teachers Portal discontinuance. They presented the entirety of the plaintiffs' case. which inclusion gave rise to a negligent misstatement. were negligent and/or in breach of its statutory duty in allowing or permitting or approving the positive financial forecast to be inserted in the prospectus. resulting in losses. inaccurate and/or misleading. or in breach of its statutory duty. inaccurate and/or misleading.  (b) whether D1.  (d) whether D2. inaccurate and/or misleading. namely that Litespeed was financially sound and a good investment prospect. the omission of which gave rise to a negligent misstatement. Whether D1 through Ms Ong Hui Hui was negligent (at common law). when as a matter of fact. which inclusion gave rise to a negligent misstatement. untrue. namely that 1 MLJ 526 at 544 Litespeed was a good investment prospect. and caused the plaintiffs to invest in the same. and  (e) whether D1 as Litespeed's listing advisor and placement agent was negligent and/or in breach of its statutory duty in permitting the inclusion of the positive financial forecast for 2006 in the prospectus. untrue. D1 knew or ought to have known that the factual premise/consideration on which the forecast was based had altered or deteriorated materially as a consequence of which the forecast was inaccurate and/or misleading. resulting in losses. was negligent and/or in breach of its statutory duty in failing to disclose Litespeed's quarterly accounts for the period ending July 2005. when as a matter of fact. as Litespeed's listing advisor (for the MESDAQ board) as well as its placement agent. untrue. such representations were false. This caused the plaintiffs to suffer loss. in making representations to the plaintiffs to the effect that Litespeed was a sound financial investment which was expected to yield a substantive profit in the future. Each of these matters will be considered in turn. and caused the plaintiffs to invest in the same. or in breach of its statutory duty. namely that Litespeed was a good investment prospect. namely that Litespeed was financially sound and a good investment prospect.[57] The salient matters that arise for consideration are as follows:  (a) whether D1 through Ms Ong Hui Hui was negligent (at common law). in making representations to the plaintiffs to the effect that Litespeed was a sound financial investment . when as a matter of fact. such representations were false. D1 knew or ought to have known that the factual premise/consideration on which the forecast was based had altered or deteriorated materially as a consequence of which the forecast was inaccurate and/or misleading. the omission of which gave rise to a negligent misstatement. when in fact such representations were false. when as a matter of fact.  (c) whether D2. This caused the plaintiffs to suffer loss. as Litespeed's auditors and reporting accountants were negligent and/or in breach of its statutory duty in failing to disclose Litespeed's quarterly accounts for the period ending July 2005. and as a consequence of which the plaintiffs have suffered loss. as Litespeed's auditors and reporting accountants. In short the plaintiffs claim against D1 is premised on negligent misrepresentation. when in fact such representations were false.8m to Borcos to facilitate the same. [60] Ms Ong Hui Hui disputed this contention maintaining that contrary to what Dato' Ariff stated. By reason of these matters Dato' Ariff maintained that Ms Ong Hui Hui. particularly one Encik Nik Haniff Kamal. Here too. 1 MLJ 526 at 545 [59] Dato' Ariff testified that D1 'advised and brokered' these various corporate transactions largely through Ms Ong Hui Hui. and as a consequence of which the plaintiffs have suffered loss [58] The plaintiffs contend that D1. In this context Dato' Ariff testified that in or around September 2003. the holding company of Borcos. in effect took on the role of financial advisor to himself and by extension to his family and conglomerate of companies in which he had an interest. D1 advised and brokered the acquisition of NST Logistics Sdn Bhd by Syarikat Borcos Shipping Sdn Bhd and further advised and arranged for the said loan of RM38. namely:  (a) the RM38. By DBS Bank Ltd (Labuan). direct or indirect.  (d) the issuance of a USD37m standby letter of credit to Wangco Incorporated Inc. D1 acted as advisers.  (b) Dato' Ariff further testified that between July to December 2004. on behalf of D1. Dato' Ariff testified that in or around July 2005. untrue. D1 advised and arranged an issuance of RM85m private debt securities to AWH Equity Holdings Sdn Bhd. D1 advised and arranged for this loan.which was expected to yield a substantive profit in the future. she had met Dato' Ariff on a few occasions but did not know him well. . She maintained that she generally dealt with the personnel in his office. was effectively Dato' Ariff's and his family's financial advisor by reference to several corporate loans and transactions. the loan was procured through the advice and arrangement of D1.8m loan to Borcos Shipping Sdn Bhd by DBS Bank Ltd. inaccurate and/or misleading.  (c) between October 2003 to November 2005. applying to the Securities Commission and other related services. D1 advised and arranged for a loan of RM46m to Wangco Incorporated Sdn Bhd from EON Bank. underwriters and placement agents where their services included the preparation of the prospectus.  (e) In or around July 2005. and  (f) a USD6m term loan from DBS Bank to Globrant. D1 provided corporate and financial advisory services in the proposed initial public listing of Borcos and NST Logistics Sdn Bhd through a special purpose vehicle known as Borcos Bhd. In this transaction. Dato' Ariff testified that in or about December 2005. through Ms Ong Hui Hui. DW3. The prospectus was only available in late October. it is evident that their versions are diametrically opposite. D1 was known as Hwang-DBS Securities Bhd and was a stockbroking company as well as a universal broker. Ms Ong maintained that at the material time Hwang DBS Securities Bhd was neither the advisor nor arranger for items (a) and (d)–(f) above. [67] It would therefore appear to this court that the role played by Ms Ong Hui Hui was not that of corporate adviser but more in the capacity of a placement agent who arranged for Litespeed's directors to make the requisite presentations to enable prospective investors to determine whether or not they were interested in investing in the company. [64] Ms Ong also stated that Hwang DBS Securities Bhd through its officers had dealt directly with Nik Haniff Kamal and others rather than Dato' Ariff. namely item (b) above. This mean the types of services and products it could offer. making it extremely difficult for the court to conclude on the truth of either 1 MLJ 526 at 546 version conclusively. ie after 27 October 2005. placement agent and managing underwriter for Borcos Shipping and as adviser for the proposed acquisition of NST Logistics. This is particularly so because the evidence pertaining to the nature of their relationship is almost entirely oral and premised on the individual's impression of the nature of the same. However D1 was only licensed as an investment bank in January 2007. [66] However a consideration of the extent of the role played by D1's predecessor. However. It could act as an advisor in corporate matters. in the course of cross-examination of Dato' Ariff it transpired that it was not in fact D1's predecessor itself that was an advisor. With respect to all the other transactions. She maintained that they were not the main advisors. The representations relied upon by the plaintiffs through Dato' Ariff are taken directly from the prospectus. Hwang DBS Securities Bhd had only dealt with one transaction for Borcos Shipping as set out in item (c) above and as a secondary advisor in the AWH Equity transaction. Similarly she with respect to the AWH Equity Holdings Sdn Bhd transaction she accepted that Hwang DBS Securities Bhd acted as the co-financial adviser and co-arranger together with Mulpha Capital Markets Sdn Bhd for the exercise. This came through Nik Haniff Kamal. the evidence points to the fact that representations in the form suggested by the plaintiffs in fact transpired at the meeting on 3 October 2005 when a presentation on Litespeed was made by its directors. particularly with respect to the grant of loans was limited. [62] She accepted that Hwang DBS Securities Bhd did act as the adviser. [65] Having considered the competing testimonies of Dato' Ariff and Ms Ong Hui Hui. While she may well have been optimistic about the performance of Litespeed. At that meeting such representations were evident in the information memorandum and the briefing by Litespeed's director. In other words the preponderance of evidence suggests that the 'representations' which . it does not appear from a consideration of the totality of the evidence that:  (a) representations in the form of the detailed account suggested by the plaintiffs through Dato' Ariff were in fact made by Ms Ong Hui Hui. [63] In summary therefore.[61] She went on to testify that between 2003–2005. She described Dato' Ariff as a 'savvy' businessman and denied that she was his private and 'trusted personal advisor'. Hwang DBS Securities Bhd in the series of transactions set out above discloses clearly that the latter played little or no role in most of the transactions apart from the two set out in items (b) and (c) above. Ms Ong testified that D1's predecessor. She did not therefore hear Ms Ong Hui Hui make the representations that Dato' Ariff ascribes to her. and denies handing over the prospectus to him personally. [70] Whether or not the several other elements of this cause of action in negligent misstatement are made out is irrelevant in view of my finding based on a consideration of the oral testimony of Dato' Ariff and Ms Ong Hui Hui to the effect that the plaintiffs have failed to establish that Ms Ong Hui Hui did in fact make the . [68] I have therefore concluded that Ms Ong and therefore D1 did not act as Dato' Ariff's or the plaintiffs' corporate adviser in respect of the Litespeed shares. This is because as a matter of fact it has not been established by the plaintiff on a balance of probability that Ms Ong Hui Hui on behalf of D1 did in fact make the representations ascribed to her. D1's function appears to be limited to the role of assisting in the listing and in securing purchasers for the placement shares. immediately before they subscribed to the shares. she was not present throughout the presentation. This is clear from the information memorandum which specifically states as set out earlier the advice that prospective purchasers were investing at essentially their own risk. She did not meet or deal with the Ibrahim and Mokhtar at all. She testified that although she attended the meeting on 3 October 2005. namely to offer placement shares for Litespeed. Ms Ong too maintains that she did not speak to Hamimie on that occasion or at any other time. [69] It follows from the foregoing that if D1 through Ms Ong Hui Hui did not act as a corporate advisor.the plaintiffs allege were made by D1 were in fact made by Litespeed's directors both orally and in the form of the information memorandum. Again on a preponderance of evidence it is not clear that they therefore relied on the contents of the prospectus to make a decision to invest in Litespeed. It is equally if not more probable that the representations referred to were in fact made orally by Litespeed's directors and by way of statements in the information memorandum. Neither did Ms Ong Hui Hui take on the role of a general corporate advisor in relation to this transaction. Such a role did not envisage or entail D1 through its representatives making binding representations to prospective purchasers.  (b) it is not clear that a copy of the prospectus dated 27 October 2005 was handed over by Ms Ong Hui Hui to Dato' Ariff after the meeting on 3 October 2005 and before the issuance of the offer letters on 11 November 2005 which had annexed to them a copy of the prospectus. that the cause of action premised on negligent misrepresentation fails. Rather it would appear that premised on the oral representations made at the meeting on 1 MLJ 526 at 547 3 October 2005 as well as the information contained in the information memorandum Dato' Ariff determined that Litespeed was a good prospective investment. It would in fact appear that the prospectus was made available to the plaintiffs when the offer letters were dispatched to them on 11 November 2005. I so conclude because Dato' Ariff is unable to state approximately when such a meeting took place and because Ms Ong consistently maintained that she did not meet Dato' Ariff after the 3 October meeting. The other plaintiffs do not appear to have relied on these representations but relied on Dato' Ariff to decide the matter for them. not D1. Hamimie does not assist in this matter. The statements in the information memorandum emanate from Litespeed's directors. and  (c) the evidence of the second plaintiff. nor make the representations she is alleged to have made. It is in this latter capacity that D1 arranged for meetings with Dato' Ariff. Hwang-DBS is not making any recommendation to you nor advising you regarding the suitability or merits of any transaction you may enter into in connection with the Pre-listing Placement or otherwise. This is not a general exclusion or widely worded limitation of liability clause. The net effect of these clauses is to exempt or exclude D1 from liability even if Ms Ong had in fact made the representations which are now ascribed to her by the plaintiffs. …' [74] It follows from the foregoing express exclusion or limitation that D1 made it expressly clear that the plaintiffs were bound to act on their own initiative and with the requisite professional advice independently obtained in determining whether or not to invest in the Litespeed placement shares. the witness for D1 explained that D1's duties included collating the information provided by . DW1.representations ascribed to her. Ms Soon Dwee Hee. the omission of which gave rise to a negligent misstatement namely that Litespeed was financially sound and a good investment prospect. As such the effect of these clauses ought to be given full effect. Hamimie stated that she read the prospectus. [72] Even if I am incorrect in so concluding on a consideration of the totality of the oral testimony presented at trial. inaccurate and/or misleading and caused the plaintiffs to invest in the same. when as a matter of fact such representations were false. namely ascribing blame or liability to D1 for the investors' decision to invest in the Litespeed shares. Secondarily. They conceded that they never met far less relied on any statements oral or written from D1. 1 MLJ 526 at 549 Whether D1. it must be pointed out that the second to fourth plaintiffs. resulting in losses [76] D1 was appointed as an advisor to Litespeed to assist it in its submissions to the authorities for approvals for the MESDAQ listing and in assisting Litespeed in preparing the prospectus. [73] Further on in the offer letters it is also stated that: 'by offering you the Placement Shares. Only the second plaintiff. stating that 'my father informed that according to Ong Hui Hui Litespeed was a good investment and financially sound'. vide their pleadings and testimony made it clear that the alleged representations were only made to the Dato' Ariff. [75] Therefore the plaintiffs' cause of action premised on negligent misrepresentation by D1 through Ms Ong Hui Hui fails. However she relied on the advice of Dato' Ariff. In the instant case the limitation or exclusion clause is worded specifically to meet a situation such as has arisen here. as Litespeed's listing advisor (for the MESDAQ board) as well as its placement agent. was negligent and/or in breach of its statutory duty in failing to disclose Litespeed's quarterly accounts for the period ending July 2005. The plaintiffs by executing the letters of offer accepted these clauses as part of the binding contract for the purchase of the placement shares. untrue. 1 MLJ 526 at 548 [71] In this context. it is evident from a perusal of the information memorandum and more significantly the letter of offer that the plaintiffs understood and undertook that they had made their own 'independent investigations in evaluating the merits and risks of acquiring the placement shares without reliance on any representation made by Hwang-DBS as placement agent or on any of its representatives or agents'. there is insufficient evidence to establish that the plaintiffs relied on such alleged representations to make the decision to purchase or invest in Litespeed shares. The element of reliance and inducement are therefore absent. Accordingly there is no basis to conclude that the second to fourth plaintiffs received or acted upon or were induced by the alleged representations made by Ong Hui Hui. In these circumstances such clauses cannot simply be ignored. Litespeed's financial year would end on 30 April 2006. [80] As the first quarter for the following year ended on 31 July 2005. However DW1 maintained that Litespeed was still compiling the information at that stage and that it was not available yet. As of these dates the plaintiffs had already purchased their shares. DW1 disagreed. while Bursa Malaysia approved Litespeed's share listing on the MESDAQ market which was to take place on 24 November 2005. which was the date up to which the prospectus furnished the audited accounts.291m. [84] It was further put to DW1 that D1 had failed to verify whether there were any changes to Litespeed's affairs after 30 April 2005. [77] D1 was tasked with ensuring compliance with regulatory guidelines and to seek the relevant authorities approval for the prospectus which was given. Ernst & Young as well as by Litespeed's directors for incorporation in the prospectus. [83] It was also suggested to her that D1 had deliberately delayed presenting or making known the results until the closing date was crossed and the shares were subscribed for by the plaintiffs. [78] The plaintiffs' complaint is that D1 failed to ensure that the prospectus disclosed the losses for the first quarter of Litespeed's financial year ending 31 July 2005. it's financial year end would be 30 April 2005. up to and until 30 April 2005. 1 MLJ 526 at 550 [81] Litespeed had to announce its results for the first quarter of the following year.Litespeed's auditors and reporting accountants. It was put to her in the course of cross-examination that D1 was in fact aware of the financial results of the company for both the first and second quarters. The complaint is that this quarter's results. ie for the quarter ended 31 July 2005 and 31 October 2005 prior to the issuance of the prospectus on 27 October 2005. In this context it is relevant that the Litespeed financial year end is on 30 April. She also disagreed that the prospectus essentially documented a 'sales pitch'. just before Litespeed's listing on 24 November 2005. For the year 2005– 2006. It did not purport to report financial performance beyond that date. the plaintiffs complain that these accounts ought to have been included to give a more accurate and realistic picture of the company's performance. [79] The prospectus states that the reporting accountant's report was based on the proforma consolidated income statement of the Litespeed group of companies. DW1 disagreed maintaining that a due diligence had been conducted. DW1 denied this. As such for the year 2004–2005. The profit after tax for the year ended 30 April 2005 was RM6. As such the first quarter for this year would be from 1 May 2005–30 July 2005. Litespeed so complied by announcing the first quarter's results ending 31 July 2005 on 21 November 2005. The prospectus was therefore issued on 27 October 2005 to prospective shareholders. The Securities Commission approved the terms of the prospectus on 13 October 2005. not only Litespeed Education Technologies Bhd. ie as of 27 October 2005. Ms Soon testified that D1 was only made aware of the first quarter results between 18 and 21 November 2005.5 sen. The prospectus however is dated 27 October 2005. This translated to a loss per share of 3. The unaudited quarterly report for the first quarter reported a net loss for the period of RM1. It was suggested that D1 had failed to check or ascertain whether this information pertaining to Litespeed's financial results for the first quarter was in fact available prior to issuance of the prospectus. . [82] DW1.907m. namely for the first quarter of 2005–2006 was not disclosed. namely for the quarter ending 31 July 2005 at least two market days before Litespeed's listing on 24 November 2005 in compliance with regulatory requirements. it would not have been possible for D1 to know or announce or disclose these profits prior to the listing. which ended on 31 October 2005. days prior to the listing on 24 November 2005. D1 in this same report was tasked with verifying. given the uncertainty D1 took the view that there was no requirement to issue a supplementary prospectus. [86] DW1 also explained that as the quarter ending 31 July 2005 was the first quarter it was not possible to gauge with any degree of certainty whether or not the performance of the company would be good or adverse for the entire year as they were only appraised of the first quarter's results. and I accept her evidence.[85] Considering the totality of DW1's evidence it appears that D1 was only appraised of the financial performance of Litespeed for its first financial quarter for the year 2005–2006. For 1 MLJ 526 at 551 this reason. and  (b) whether D1 deliberately withheld or suppressed information pertaining to the poor financial performance of Litespeed in order to boost or augment or induce prospective buyers to invest in these shares. DW1 insisted.3m for the second quarter of the year 2005–2006. Given the lengthy disparity between the announcement of the second quarter results in December and the listing well before that in November 2005.  (c) . [87] The plaintiffs also complain of losses of RM2. Again D1 through DW1 testified. inter alia:  (a) the issue price. it would appear from the verification report which sets out the varied duties of the professional advisers for the listing of Litespeed on the MESDAQ board that matters pertaining to financial matters particularly income statements. As the prospectus was dated 27 October 2005 it would not have been possible to include these results given that D1 had no knowledge of these financial figures. that D1 only knew about the results when Litespeed's directors made them available in or around 18 November 2005.  (b) details of the public issue and basis of arriving at the issue price. that D1 was only appraised of these second quarter results ending on 31 October 2005 after the listing on 24 November 2005. and I accept her testimony. She pointed out that often the more profitable quarters are the third and fourth quarters. Litespeed in fact announced its second quarterly report on 31 December 2005. ending on 31 July 2005 on 18 November 2005. well after the issuance of the prospectus. [88] The primary issue that falls for consideration here is whether:  (a) D1 was under a duty to ascertain or verify the financial performance beyond 30 April 2005 for the purposes of the prospectus. These results were duly announced on 21 November 2005. despite being aware of its poor financial performance. balance sheets and financial statements lay primarily with Litespeed itself as well as D2. [89] With respect to D1's duties. Ernst & Young.  (b) this is particularly so. namely for the financial year 2004–2005:  (a) as such it cannot be concluded that D1 had a duty to ascertain and then disclose financial accounts for a period beyond that specified in the prospectus when such verification fell to be conducted by D2 and Litespeed itself. As such if D1 was . underwriting and placement fees. D1 had no duty. given the scope of its works. In other words. This has not been successfully challenged. As D1 did not know of these results at the time of issuance of the prospectus on 27 October 2005 or soon thereafter. It would amount to an unfair extension of D1's duties to conclude that it owed a duty to the prospective purchasers to exert the initiative to ascertain financial performance beyond the period specified in the prospectus.  (d) restructuring and listing exercise. by which time the plaintiffs had already subscribed for the shares and listing was due in a matter of days on 24 November 2005.  (e) declarations of no conflict by advisors. well after the listing. It follows from the foregoing that D1's scope of duties did not entail a verification of the accounts. ascertain and verify accounts for Litespeed for the first and second quarters of the financial year 2005–2006. and  (f) procedure for application and acceptance [90] The foregoing is not in dispute. to initiate. and  (c) there is insufficient evidential basis for this court to conclude that D1 deliberately withheld or suppressed information pertaining to the losses relating to these two quarters with the specific purpose of promoting sales of the placement shares. in the later quarters. given that D1 was not appraised of the first quarter profits showing a loss of RM1. particularly not unaudited financial performance records for the first two quarters of the year 2005–2006.brokerage. In any event I also accept DW1's evidence that the first quarter results in themselves at that stage could not indicate with any degree of precision how the company would fare throughout the course of the year. The evidence in fact discloses that D1 was only appraised of the first quarter results days before listing (by which time the plaintiffs had already subscribed) and of the second quarter results in December 2005. particularly given that payments tended to come in. ie the third and fourth quarters. The prospectus was stated to cover financial performance until 1 MLJ 526 at 552 30 April 2005 only. As of the date when D1 was appraised of the first quarter results in November 2005 it was too late to provide further disclosure. it was not possible for D1 to provide further disclosure or produce a supplementary prospectus before 18 November 2005.907m until 18 or 21 November 2005. D1 had no duty of care to ascertain and verify the financial performance for the first and second quarters of 2005–2006 and report on the same as is now alleged by the plaintiff. In other words. given the scope of duties of D1 as outlined above. untrue. As they owed no such duty of care to prospective purchasers including the plaintiffs. when as a matter of fact.not aware of these results. as Litespeed's auditors and reporting accountants were negligent and/or in breach of its statutory duty in failing to disclose Litespeed's quarterly accounts for the period ending July 2005. and 1 MLJ 526 at 554 . It is necessary to first consider the context and scope of the reporting accountants' report. It also prepared a letter on the consolidated profit forecast of the group and a reporting accountant's report for inclusion in the prospectus. Whether D2. As there was no further duty on their part to investigate and verify financial performance beyond 30 April 2005. D2 prepared a report on the proforma consolidated balance sheets of Litespeed as well as the Litespeed Education group of companies. as the party directly responsible for an assessment of financial perforamance. [92] Given my findings above. It is only if D1 had knowledge of these results that it could so withhold or suppress such information. it cannot be said that it withheld or suppressed such information. resulting in losses [93] As the reporting accountant. there can be no liability under this head against D1. it follows that D1 did not omit or deliberately withhold salient financial information as alleged by the plaintiffs.  (c) the auditors'. ln the said letter D2 specifies that:  (a) their duties pertain to reporting on the pro forma consolidated balance sheets as set out in the prospectus which have been prepared for illustrative purposes only. and which envisaged that D2 and Litespeed would verify financial performance. ie D2's responsibility was to form an opinion. D1 was entitled to rely on D2's confirmation of the same. and caused the plaintiffs to invest in the same. [91] Further.5 million new Litespeed shares at an issue price of 0. namely that Litespeed was financially sound and a good investment prospect. to provide information as to how the balance sheet of the Litespeed Group of companies as at 30 April 2005 might be affected by the public issue of 32. the omission of which gave rise to a negligent misstatement. inaccurate and/or misleading. This is set out in D2's report/letter to the directors of Litespeed dated 14 October 2005. it cannot be concluded on that basis that they breached a duty of care.47 sen payable upon the listing of the company on the MESDAQ market. Their work comprised primarily of comparing unadjusted financial information with the original work considering adjustments and discussing the balance sheets with officers of Litespeed. Given their 1 MLJ 526 at 553 lack of knowledge at the material time it cannot be said that there was any negligent misstatement on their part. such representations were false. as set out in the Guidelines and to report its opinion to Litespeed.  (b) the preparation of the pro forma consolidated balance sheets in accordance with the guidelines issued by the Securities Commission prospectus Guidelines was the sole responsibility of the directors. it was then announced on 30 December 2005. the company has uh …  Q: No my question to you is. More significantly they had no duty to independently examine the underlying financial information. [95] The plaintiffs' grievance in respect of this issue is that D2 was negligent in failing to disclose the first quarterly reports for the year 2005–2006 ending 31 July 2005. did you ask for them?  A: Ask from them from which period to which period. the audited balance sheet and accounts for the period ended 30 April 2005. took about four months to come out correct?  A:  Q: Yes My question to you is that these results would have been available before the prospectus was issued. So it came out within two months. let's go back to page 325. isn't that correct?  A: It was never made available to us.  Q: . Now.  Q: You never asked for them?  A: The company has. yet failed to disclose the same in the prospectus dated 27 October 2005. DW4 ('DW4') was as follows:  Q: If you look at page 340. [96] The evidence at trial in the course of the cross-examination of D2's witness. These results of the quarter ended 31 July 2005. The first issue that therefore requires consideration is whether D2 was in fact aware or had knowledge of those accounts for the term ended 31 July 2005. (d) D2 specified that their work involved no independent examination of any of the underlying financial information other than a review of the audited financial statements of the group which included the audited balance sheet as of 30 April 2005 only. one Valentino Phua Cheng Lai. the quarter ended 31 Oct 2005. [94] It is evident from a perusal of the scope of D2's work that it was limited to forming an opinion after discussion with the relevant officers of Litespeed.  A: As far as the company is concerned. did you ask for the results at any time up to the date of the prospectus?  A: Up to the date of our auditor's report.  Q: What was the date of the accountant's report?  A: The date of the accountant's report is I think October. .  Q: You never got them?  A: We only got. uh … the results of the company …  Q: No.  A: Agree in what way.  Q: What you got.For this quarter after the end of the quarter 31 July 2005. I can't remember. 1 MLJ 526 at 555  Q: That the company had poor results for the first quarter ended 31 July 2005. would you agree with me that you never revealed the poor results on 31 July 2005?  A: I don't get your question. yes. you did not reveal that's my question to you. Do you agree with me? Do you agree with me or not.  Q:  A: Yes The date of the accounts is 1st of August.  A: We did not query because.  A: After.  Q: You did not receive it. do you agree with me or not?  A: As far as uh …  Q: No. .  A: We did not receive it.  Q: You did not query it. they have certain amount of time to come out with a set of financial statements.  Q: So you did not insist for the purposes of the prospectus?  A: I can't remember that.  A: Yes we would have asked. Q: So you did not ask for anything after 1st of August. they.  Q: You would have asked or you should have asked?  A: I … I would have asked.  Q: Alright I put it to you. Would you agree with me that you should have asked for the accounts after the 1st of August up until the date of your prospectus. you should have asked. yes.  Q: Now when you say you were referred to the first quarterly and second quarterly result of 2005. which was announced on 21 November 2005 and 30 December 200. When you say that the company had a certain amount of time to come up with the publication of the first and second quarter results.  Q: To your recollection.  A: That's correct.  Q: Right when were you made known of this unaudited document? After the date of your accountant's report or before?  A: It's actually after the date of the accountants report. how many months? 1 MLJ 526 at 556  A: Uh …  Q: You can extend?  A: For a listed company I know it's two months.  Q: How many?  A: Two months after the first quarter. I don't know how much time exactly was that. Both sets were unaudited.  A: I think it's based on Bursa's listing requirement.… [97] In the course of re-examination these issues were clarified further:  Q: Valentino let's take your last few questions first. . That is the date of announcement of their unaudited results. it is difficult to conclude that D2 is culpable in terms of negligent misstatement. Therefore D2 cannot be said to have failed to disclose or suppressed material information within its knowledge. They were not given the results for the first quarter despite DW4 having testified that they asked for the same. (D2 in fact issued its report on the accounts as of 1 August 2005). The statement issued by D2 was at the material time accurate to the best of its knowledge and efforts to ascertain the financial status of the company. Q: After 14th October 2005  A: That's correct … [98] It is therefore not in dispute that the directors as a matter of fact only made available the first quarterly results ending 31 July 2005. There was no question of suppression or a failure to disclose or even a failure to ask for results after 31 July 2005. there was no such requirement. although DW2 had indicated that D1 had possibly received the same on 18 November 2005. 1 MLJ 526 at 557 [101] However it is contended by the plaintiff that in its report D2 has stated as a matter of fact that it was not aware of a change in the circumstances pertaining to the financial position of the Litespeed Group when it issued its report dated 1 August 2005. it is evident from the evidence I have set out above that D2 was not appraised of these results until well after the issuance of the prospectus dated 27 October 2005. [99] Therefore it follows from a consideration of these dates alone that as the prospectus is dated 27 October 2005. then it follows that D2 could not disclose the same. The plaintiffs contend that D2 owed a duty of care to prospective purchasers relying on the prospectus to have asked for the first quarterly accounts and to have reported the same. [102] While a direct comparison on hindsight of the figures for the first quarter ended 31 July 2005 does indeed disclose a loss. In determining whether such a duty of care does in fact subsist. Accordingly the results for 31 October 2005 were made available before 31 December 2005. The plaintiffs complain that given the losses incurred as of 31 July 2005 this is a clear misstatement. The position altered upon listing when it became incumbent upon the listed company to make disclosure of its audited financial performance within two months of the close of a quarter. If D2 had no knowledge of the accounts of the first quarter ending 31 July 2005 as of October 2005. it did so with all the information within its possession. And as such the question of suppressing or failing to disclose the same does not arise. The directors simply did not make the information available despite request. . some four months later. D2 had no knowledge of the first quarter unaudited accounts as of the date of the issuance of the prospectus on 27 October 2005. the scope of works undertaken by D2 becomes relevant. For the July quarter however. As such when D2 made its statement as of 1 August 2005. Such a duty did not extend to periods beyond that date. hence the delay by the directors in announcing the same. The situation was compounded by the fact that there was no requirement for Litespeed. to make disclosure of its accounts within any specific period. In all these circumstances. which was then not listed. on 21 November 2005. [100] However the matter does not end there. A perusal of the same as set out above discloses that D2 was only under a duty to form an opinion on the audited accounts of Litespeed up to and until 30 April 2005. While the court found that there existed a sufficient proximity between the auditors and potential investors which placed a duty on the auditors to be careful in their issuance of certificates. There must have been a reliance on the basic features of the financial statements. he or she relied in a general way upon the statutory scheme. However they are not called upon to make any comment on the state of the company's affairs. That has not been made out in the instant case which is another reason why the plaintiffs' claim against D2 in this regard fails.[103] The case of Boyd Knight v Purdue [1999] 2 NZLR 278 determined by the Court of Appeal in New Zealand is instructive. As stated above a general reliance is insufficient. 1 MLJ 526 at 559 . [105] However the parallel to be drawn here is that the plaintiffs.15m dollars. The report therefore has no context for anyone who has not read the accounts. In the instant case no question of an error arises. the court found that there was no liability on the part of the auditors because it was insufficient to create liability that an investor had relied in a general way on the 1 MLJ 526 at 558 existence of the prospectus and the regulations. in a vacuum. particularly the second to fourth plaintiffs did not rely in a specific way upon any of the information set out in the prospectus. without troubling to look at the accounts. The true and fair view may be one of the prosperity or poverty. that in so certifying the accounts the auditors cannot be taken to have accepted an obligation to an investor who has not read and relied upon them. as it were. and that the amounts stated in the statements had been correctly taken from audited financial statements. The record shown by the financiai statement speaks for itself. The plaintiffs are bound to show that the information issued by the accountants worked so as to exert a specific influence on their minds and as a consequence of which they were induced to purchase the shares. Reliance. In that case there was a careless error. cannot be asserted. it seems to me. They undertake no duty to assess for would-be investors whether it is creditworthy. The claim related to one particular prospectus which contained a report by the auditors which stated that the financial statements in the prospectus gave a true and fair view of the state of affairs and changes in financial position of the issuer and guaranteeing subsidiaries. it is almost meaningless unless read in conjunction with the figures in the accounts. Without such a reading the report telis the reader nothing except that the company has a set of accounts which comply with the regulations and present a true and fair view. whose business consisted of the borrowing of money from the public and on-lending it at a margin. It was held that the investor had to prove that he or she paid attention to the content of the financial statements and noted these basic features. not to give advice. It must follow. As a result of some fraudulent activity and fictitious loan accounts the shareholders' funds were in fact overstated by 1. In that case a firm of auditors provided a report for a failed finance company. Their duty is to inform. and a consequential duty of care. From time to time the finance company issued prospectuses. It is not enough for the investor to say that. making an assumption that an investment is sound or the issuer creditworthy because there was a trustee playing a supervisory role in connection with the prospectus and an auditor had furnished the report required by the regulations. In so far as such a report refers to a true and fair view. [104] The court went on to conclude that it would be placing an undue burden on the auditor to hold them accountable for the accuracy of figures which were not relied upon by the plaintiff investors. The court held as follows: … When auditors furnish a report for inclusion in a prospectus they express an opinion about the financial statements of the company which they have audited: they confirm the accuracy of those statements in the sense of that word used above. There must first have been a specific influence of the financial statements on the mind of the investor. 770.000 from a contract between Litespeed and iRead International Pte Ltd ('iRead').Whether D2.291. save for a deposit of RM500. their report presented the historical financial information of the group on a pro forma . the projection was RM2. This ought to have been highlighted by the auditors. as Litespeed's auditors and reporting accountants. meaning that the target was missed which in turn demonstrates. it is evident that the plaintiffs' complaint is that the assumptions pertaining to the financial forecast were wholly unrealistic. according to the plaintiffs that it was wholly unrealistic. for the reasons stated below:  (a) such forecast profit after tax included revenue amounting to RM3.  (b) with regard to the Catch Them Young campaign. [107] From the foregoing.000 the balance of the said sum of RM3. This caused the plaintiffs to suffer loss [106] The plaintiffs claim that D2 in reporting or confirming that Litespeed had earned a profit after tax of RM6. when risks of non performance of various contracts.7m would be generated. there was no highlighting of the fact that withdrawals from many schoois had already been anticipated due to the shortening of the school week from 5 1/2 days to five days in August 2004.000 for the year ended 30 April 2005. were not highlighted. and  (d) the forecast for the Teachers' Portal Project failed to highlight the fact that it was about to lapse and come up for renewal or discontinuance. Instead the forecast was that RM4. misleading to prospective purchasers such as the plaintiffs. it is contended. when as a matter of fact D1 knew or ought to have known that the factual premise/consideration on which the forecast was based had altered or deteriorated materially as a consequence of which the forecast was inaccurate and/or misleading. when as a matter of fact. which inclusion gave rise to a negligent misstatement namely that Litespeed was a good investment prospect.770. known as specific assumptions. had no substance behind them. were culpable of misrepresentation or negligent misstatement because there was a deviation of some 231% between the forecast financial performance and actual performance which the plaintiffs attribute to the fact that the major revenue assumptions. In reality the project which was supposed to be up for renewal tender in 2005 was discontinued resulting in no revenue whatsoever being generated. The reporting accountant's scope of duties [108] D2 in response to the foregoing points to its scope of duties as set out above and maintains that as reporting accountant.000 was never paid by iRead to Litespeed. or assumptions made on contingent bases. was made to verify the matters set out in the assumptions.  (c) with respect to the forecast for some of the projects in the year 2006. No proper qualifications were 1 MLJ 526 at 560 made or highlighted.49m. and as a consequence.5m while the deviation was RM2. were negligent and/or in breach of its statutory duty in allowing or permitting or approving the positive financial forecast to be inserted in the prospectus. No attempt. There were no audited financial statements made available to the reporting accountants for the period subsequent to 30 April 2005. the forecast are dependent on the achievability of the Specific Assumptions as set out below. [112] In this context it is relevant that it was emphasised by D2 at several points including the foregoing paragraphs that:  (a) the makers of the financial forecast for the group for the financial year ending April 2006 was the directors of the Litespeed Group and not D2. and for these reasons. Forecast of results will be materially affected by economic.6 of the prospectus. In relation to these specific assumptions. such information is generally future oriented and therefore uncertain. [109] Further the historical financial information was based on the audited financial statements of the group for the period financial year ending 30 April 2005.511. which includes significant assumptions about future events and outlook that may not necessarily occur. the actual results may vary considerably from the forecast. In particular. forecast of consolidated profit after taxation are substantially dependent on the achievability of the Specific Assumptions as set out in Section 10. D2 maintains that it was not within its scope of work to carry out an independent examination of any of the underlying historical financial information. actual results are likely to be different from the forecast since anticipated events frequently do not occur as expected and the variations could be material. [110] D2 further highlights that it did not give any opinion on the achievability of the profit forecast which in any event was prepared by the directors. That responsibility remained with the directors. On the contrary. the preamble to the same sounded the following cautionary note: 1 MLJ 526 at 561 The profit forecast for the financial year ending 2006 have been prepared based on a set of assumptions made by the directors. D2 points to the caution it had sounded about the uncertainty of the profit forecast provided by the directors. Thus. which states as follows: The Directors of LET forecast the consolidated profit after taxation for the financial year ending 30 April 2006 will be as follows Profit after taxation 7.) The specific assumptions [111] As set out above it is expressly stipulated that the forecast of consolidated profit is substantially dependent on the achievability of the specific assumptions. In particular. D2 did not assume responsibility for the actual quantum of profit forecast. other circumstances and should the actual events differ from those specific assumptions. not D2.000 A forecast in this context. means prospective financial information prepared on the basis of assumption as to future events which management expects to take place and the actions which management expect to take as of the date the information is prepared (beset-estimate assumptions). While information may be available to support the assumptions on which the forecast are based.basis and for illustrative purposes only.  (b) . (Emphasis added. It was cautioned that a variation of those assumptions brought about by economic or other circumstances could result in a considerable variation from the financial forecast of RM7. They also cautioned that the factual basis for the specific assumptions was 'future-oriented and therefore uncertain. the future plans and strategies to be adopted by the LET Group and after taking into consideration the estimated level of gearing. liquidity and working capital requirements of the Group.000 for the year ending April 2006.the 'accuracy' or 'reliability of the financial forecast was dependent upon the reasonableness or veracity of the specific assumptions which had been detailed specifically. From that document it appears that the role of D2 was to:  (a) review the forecast of the consolidated profit after tax of the Litespeed group for the year ended April 2006 in accordance with the professional standards in Malaysia applicable to the review of forecast. what then did D2 actually do with regards to the financial forecast? What was its role? This is answered by a perusal of the 1 MLJ 526 at 562 'Reporting Accountants Report on Profit Forecast' dated 14 October 2005 addressed to the directors of Litespeed.' Accordingly a substantive variation from the forecast was 'likely to be different'. [113] That the directors assumed full responsibility for the veracity of the matters forming the basis for the specific assumptions is expressly stipulated at para 10. [114] It does not follow therefore that D2 had assumed or undertaken responsibility for the veracity of these bases forming the basis of the assumptions. and  (c) D2 again reiterated that the directors of the group were solely responsible for the preparation of the profit forecast and the assumptions. What was the reporting accountant's role in relation to the financial forecast? [115] This begs the question.7 of the prospectus: The Directors of LET have reviewed and analysed the reasonableness of the bases and assumptions stated therein after due and careful inquiry in arriving at the consolidated profit forecast of the LET Group for the FYE 30 April 2006. In other words D2 cautioned of the real possibility of a substantive deviation which in fact is precisely what occurred. [116] Having set out the scope of their duty and the limitations to be expected in respect of any financial forecast. whether the forecast was presented on a basis consistent with the accounting policies adopted by the group. The Directors of LET are of the opinion that the consolidated profit forecast is fair and reasonable in light of the future prospectus of the LET Group. D2 concluded as follows by way of a limited opinion: . and  (c) responsibility for the accuracy and reasonableness of the specific assumptions lay with the directors.511.  (b) the review was undertaken with a view to tendering an opinion as to whether such forecast was properly prepared on the basis of the specific assumptions. the forecast of consolidated profit after taxation. the plaintiff complains that the profit after tax of the group was misleading because it took wholly into account revenue amounting to RM3.000 on or by 10 October 2005. An examination of the specific assumptions [119] I have set out above the specific grievances raised by the plaintiff in relation to the deviation in the profit forecast based on the variation which occurred in relation to the specific assumptions. Delivery of the various modules comprising a part of the contract were to be delivered in stages to iRead in accordance with Appendix A to the First iRead contract. Litespeed was engaged to develop. supply. [121] In this context therefore the issue of whether as a matter of fact the revenue of RM3. the third instalment of RM600. and  (b) secondly. in our opinion.000 by way of deposit. This meant that D2 reviewed the forecast in terms of calculations. . ie for the period relevant for the purposes of the prospectus and D2's opinion as reporting accountant. the sixty of RM800.000. the next RM300. premised on the basis of the assumptions made by the directors.000 by 10 February 2006 and the final instalment of RM1. the fourth instalment of RM770.000 by 10 December 2005. [117] The financial forecast and the reporting accountant's opinion above were included in the prospectus. as well as whether such recognition of the revenue was correct. For the financial year ended 30 April 2005.100. test and commission a diagnostic assessment system as well as some E-learning modules and products for a total contract sum of RM3. D2 opined that the calculations for the financial forecast was made or presented in compliance with accounting policies normally adopted by the group.000 was payable on or by 10 April 2005.770. utilising the assumptions made by the directors. It is evident from a perusal of the same that D2's function was to review and ascertain that:  (a) the forecast had been 'properly compiled' in so far as the calculations were concerned. so far as the calculations are concerned.000 was recognised as revenue to Litespeed which comprised a part of the profit after tax of the group for the period needs to be considered.000 on or by 10 June 2005. The iREAD contract [120] The grievance with regards to the iRead contract is two-fold. when this sum was never paid in full save for a sum of RM500. have been properly compiled on the basis of the assumptions made by the directors and are presented on a basis consistent with the accounting policies normally adopted by the Group.Subject to the matters stated in the preceding paragraphs.770. Under the payment schedule. It is not in dispute that under the First iRead Contract. [118] It cannot therefore be said that D2 was responsible for holding out or verifying the accuracy of the factual matrix underlying the specific 1 MLJ 526 at 563 assumptions. RM200. install. Those matters were entirely within the purview of the directors as was made known and clear to any prospective reader of the prospectus interested in investing in Litespeed. and found the same to be adequate.770.000 earned from a contract between Litespeed and iRead International Pte Ltd. accuracy or probability of the assumptions themselves. D2 did not assess or review the veracity.000 on 10 April 2008. D2's witness. Modules worth the entire contract had been supplied. hence the invoice. other than increases relating to contributions from equity participants'. Standard 9 on Revenue. [123] This begs the question how or why the said contract sum of RM3.  (c) the amount of revenue can be measured reliably. On the same day. [126] With respect to the sale of goods.770. [124] DW4. an accountant further explained that the recognition of the revenue amounting to RM3. D2 stated: (m) Revenue recognition  (ii) Rendering of services Revenue from provision of services are recognised upon rendering of services. As such.  (d) .770. Litespeed issued an invoice for the total contract sum to iRead. As of 25 January 2005 therefore Litespeed had complied with all its obligations for delivery under the First contract. [125] The relevant portion of MASB 9 at para 8 defines revenue as 'the gross inflow of economic benefits during the period arising in the course of the ordinary activities of the enterprise when those inflows result in increases in equity. save for the deposit.  (iii) Sale of goods Revenue is recognised upon the transfer of significant risk and rewards of ownership of the goods to the customer which generally coincides with delivery and acceptance of the goods sold. DW4 explained that the total contract sum of RM3.  (b) the enterprise retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold. Litespeed supplied all the deliveries under the contract to iRead.000 under the First iRead contract was in compliance with the applicable accounting standard on revenue recognition in the Malaysian Accounting standards Board. Under its general accounting policies on revenue recognition. para 15 of MASB 9 stipulates: Revenue from the sale of goods should be recognised when all the following conditions have been satisfied:  (a) the enterprise has transferred to the buyer the significant risks and rewards of ownership of the goods.000 was recognised as revenue prior to its actual receipt.000 was recognised and treated as revenue of Litespeed.770. This was 1 MLJ 526 at 564 utilised in the financial forecast which the plaintiff contends is misleading and erroneous because this money was not actually received by Litespeed.[122] Pursuant to the First iRead contract. [128] In so far as the provision of maintenance and technical support for a period of 12 months was concerned. or collected by Litespeed that it can be recognised as revenue. yes or no?   Court:- . my question. I accept that D2 acted in accordance with established and approved Malaysian Accounting practices and therefore ought not to be faulted for such recognition of revenue. did …  A: No. [130] Further and in any event. which is what D2 accepted. It would appear that they were fully entitled to recognise the revenue because the said sum of RM3.000 was payable by iRead to Litespeed. when PW1 was cross-examined:  Q: Did the 2nd Defendant in his report tell you that this 3. It therefore accorded a revenue recognition for a period of approximately four months technical support while the balance was treated as deferred revenue. and  (e) the costs incurred or to be incurred in respect of the transaction can be measured reliably. no. D2 acted in accordance with accounting standards by according recognition to revenue by reference to the stage of completion of the transaction at the balance sheet date.77 million had already been collected by the Company?  A: That's the impression …  Q: No. Such services had commenced on 25 January 2005. as had the invoice it followed that the significant risks and rewards of ownership of the modules under the contract had been transferred to iRead. that's what …  Q: So your answer is. which was 30 April 2005. actual payment or collection is not a precondition for recognising revenue. in accordance with accepted accounting standards therefore be recognised for the financial year ending 30 April 2005. The revenue could. no but between the lines. D2 maintains that it had never made any representation that all the revenue recognised had already been collected. They cannot be faulted for doing so.it is probable that the economic benefits associated with the transaction will flow to the enterprise.770. 1 MLJ 526 at 565 [127] As all the deliverables the First iRead contract had been delivered to iRead by Litespeed. [129] The plaintiffs maintain that the recognition of revenue above is flawed as it is only when a sum is paid to. However as shown above under the Malaysian Accounting Standards Board 9. It is separate and different from the first iRead contract.77m had not been collected in full. payment under the first two schedules of payment as set out above had already been paid. Accounting treatment for a doubtful debt is to provide for it as an expense. then the uncollectable sum would be regarded as a doubtful debt. [133] DW4 further explained that if subsequent to such recognition of revenue it came about that there was uncertainty arising about the collectability of the quantum already recognised. Accordingly in compliance with accounting standards. the assumption was made that the revenue would come in as contracted.Let's take the question. totalling RM500. This is accepted accounting practice as recognised by para 19 of MASB. In this context para 19 of MASB provides: … However when an uncertainty arises about the collectability of an amount already included in revenue.000. The second iREAD contract [136] This issue is relevant to the issue of the deviation in the profit forecast. after recognition of revenue. all these. been collected by the Company>  Court:- Had been collected and your answer.77 miliion …?  Q: … was actually kept. [134] It would appear that there has been compliance with the Malaysian Accounting Standards Board in the treatment of that portion of the First iRead contract monies that could not be recovered. Did DW tell you that the 3. It's a good debt. good customer. The next or third instalment was due in October 2005. Therefore it cannot be said that D2 acted negligently or made a negligent misstatement or gave misleading information in the prospectus by treating the revenue due from iRead as recognised revenue. rather than as an adjustment of the amount of revenue originally recognised. However he was of the view that as the revenue had been recognised there was no question or suspicion of default. Dato'?  A: No. The issue an adjustment of the recognised revenue to 'correct' the initial recognition does not arise. the uncollectable amount or the amount in respect of which recovery has ceased to be probable is recognised as an expense. It doesn't say that. the payments were rescheduled and when iRead failed to honour the rescheduled payments due. As a . full provision was made for the balance sum due and owing as a doubtful debt. but … but the impression is that it's collectable. which was the following financial year. [135] Subsequently the year that followed when it became evident that iRead was having difficulty. the best customer. The second iRead contract was to be concluded in the financial year ending 30 April 2006. 1 MLJ 526 at 566 [131] It follows from the foregoing that the PW1 was aware that the entire sum of RM3. [132] As a matter of fact when the D2 provided its report for the financial year ended 30 April 2005 on 1 August 2005. The words and 1 MLJ 526 at 568 clauses.3m. of which the second iRead contract comprised one risk factor. Therefore D2 cannot be held liable for the same. Litespeed disclosed that the significant deviation in the group's financial forecast was largely attributable to the group's inability to achieve E-learning contracts which were required to sustain its costs of sales and operating expenses. It is evident that the group's inability to achieve the E-learning contracts can hardly be attributed to D2. so closely set out next to the actual financial forecast. The feasibility and viability of the second iRead contract was not a factual premise that D2 as reporting accountants were bound to opine upon as being a certainty or otherwise. [137] The second iRead contract was supposed to follow on from the first but did not. Their duty was to review the mode of calculation of the profit forecast and to ascertain that it was premised on matters compliant with established practice. in respect of the financial year ending 30 April 2005. It was anticipated to be procured for the year 2006 and to bring in a revenue of RM3. cannot simply be ignored or treated as 'puff'. More importantly. and which are directly relevant to the same. . as a matter of fact be completely or partially successful or otherwise. whether the projected incomes would in fact materialise the following year. [139] The foresee ability of the success or otherwise of the targets set for the procurement of E-learning contracts lies with the directors in any event as was clearly spelt out by D2 in its report and in the course of the prospectus.3m for this second iRead contract had been simply 'plucked out of the air by the directors'. Those express statements seeking to limit the scope of their work.1 MLJ 526 at 567 matter of fact this second iRead contract was a specific assumption underlying the profit forecast prepared by the directors. They were under no duty to assess or foretell whether the various contracts and projected income bringing projects would. on 1 August 2005 have foretold with any degree of certainty or at all. In their report for the financial year ending 30 April 2006. and sounding a cautionary note. and which warns purchasers to be aware of the real danger of a significant variation. D2 was moreover not in a position to verify or foretell the outcome or success of such proposed contracts. It would appear that they did so. It was put to DW4 by learned counsel for the plaintiff that the anticipated revenue of RM3. which DW4 denied. But they could not. The E-learning contracts [138] The profit forecast was also premised on a specific assumption that Litespeed's E-learning contracts would be fully achieved. It would have required an ability to foretell for the reporting accountant to have stated in its report in the prospectus that the group would fail to achieve most of its E-learning contracts. as well as the reminder to obtain independent advice together have to be given real consideration. Hence the cautionary paragraphs throughout the prospectus to prospective purchasers warning them of the possibility of significant variations in the projected profits based on the real possibility of significant variation in the specific assumptions. These bases were put forward by the directors not D2. Neither was D2 tasked to do so. It appears clear to this court that the primary reason for the significant deviation in the profit forecast was the variability of the factual premises comprising the basis for the forecast. The scope of D2's function in relation to the forecast has been set out above. that is not the function of the reporting accountant and to extend D2's duty to that extent would be unjustifiable. [140] To my mind the net effect of these multitude of clauses is to expressly limit the duty of care of both D1 and D2 to the actual scope of their work in relation to the statements in the prospectus. recorded a loss of RM1. [144] As stated before and borne out by the verification notes the scope of D1's duty was to verify the issue price. It follows that as there is no duty of care owed by D2 to readers of the prospectus or prospective purchasers to assess or guarantee the achievability of the projects set out in the specific assumptions forming the basis for the profit forecast. restructuring and listing exercise. More significantly that is not the scope of D2's duty. [146] The plaintiffs' point to the fact that Litespeed's unaudited financial results for the first quarter of the financial year 2005–2006. ie 30 April 2005 and the date of the prospectus. ie 27 October 2005. the same reasoning comes through. D1 knew or ought to have known that the factual premise/consideration on which the forecast was based had altered or deteriorated materiallv as a conseguence of which the forecast was inaccurate and/or misleading. THE PLAINTIFFS' GRIEVANCE [145] However the plaintiffs' grievance is that the financial information that D1 had relied on was to be procured only from the accounts for the period ending 30 April 2005. This caused the plaintiffs to suffer loss [143] D1 plays an even lesser role in relation to the profit forecast for 2006 than the reporting accountants. The losses suffered by the plaintiffs ought not. D2 could not possibly be expected to foretell that the Malaysian Ministry of Education would decide not to renew the project in 2005. ie the quarter ending 31 July 2005. underwriting and placement fees. nor could D2 be expected to foretell or anticipate such a reduction in either the number of school days or its effect on the programme.907m. which inclusion gave rise to a negligent misstatement namely that Litespeed was a good investment prospect. Therefore only 67% of the anticipated revenue was collected. when as a matter of fact. whom I have determined above are absolved of any issue of negligent misstatement or misrepresentation or omission. 1 MLJ 526 at 569 Whether D1 as Litespeed's listing advisor and placement agent was negligent and/or in breach of its statutory duty in permitting the inclusion of the positive financial forecast for 2006 in the prospectus. As no such duty subsists. They question why D1 (and D2) failed to inquire or ascertain Litespeed's performance after 30 April 2005 and prior to the issuance of the prospectus as this would have accorded a more up to date or accurate picture of the group's financial performance. It is not in dispute that the explanation for the failure of the Catch Them Young Programme was the change in the school week in Singapore from 5 1/2 days to five days per week in August 2004. therefore. In other words it is no part of D2's scope of work and thereby duty to assess the achievability of the Teacher's Portal Project in 2005. . with no provision for any update on the status of Litespeed or the group between that date. brokerage. As a consequence more than an expected number of schools decided to withdraw from the programme for the years 2005–2006. D2 cannot be faulted for the failure of the programme. It is apparent that it was no part of D2's duty to. there can be no breach.[141] With respect to the Catch Them Young programme and the Malaysian Ministry of Education Teacher's Portal Project in 2005. to be attributed to D2. and the procedure for application and acceptance. [142] And similarly with the Teacher's Portal Project in 2005. which in turn would enable prospective investors to determine more accurately whether or not to invest in Litespeed. details of the public issue. duly acknowledged that they were purchasing the same without reliance on any representations of D1. it was nonetheless prepared to issue a profit forecast for the following year. [152] The various cautionary statements issued have to be accorded due recognition. [151] On the contrary the evidence at trial disclosed clearly that throughout the prospectus numerous cautionary warnings were sounded to prospective investors. (see Peekay Intermark Ltd & Anor v Australia and New Zealand Banking Group Ltd [2006] 2 Lloyd's Rep 511 at p 512 which was adopted by the Singapore Court of Appeal in Orient Centre Investments and another v Societe Generale [2007] 3 SLR 566 at pp 568 and 586). D1'S RESPONSE [149] The profit forecasts were premised. the evidence discloses that D1 only became aware of these first quarter results in November 2005. This is particularly so given MESDAQ which is known to be a volatile market with considerable risk. after the listing of the Litespeed shares. D1 was not involved in assessing or commenting on the financial forecast. [153] In Malaysian Newsprint Industries Sdn Bhd v Perdana Cigna Insurance Bhd & Ors [2008] 2 MLJ 256 the Court of Appeal held that 'to deny the legitimacy and effectiveness of an exclusion clause for which . 2006. Accordingly the plaintiff could not assert that it was 1 MLJ 526 at 571 induced to inter into the contract by the defendant bank. D1's duty of care in relation to its duties pertaining to the contents of the prospectus does not extend to an assurance that the profit forecast is certain or accurate. 1 MLJ 526 at 570 [148] Moving on to the profit forecast. D1 was not directly involved. as stated above. In the instant case in like manner. as has been stated repeatedly. the second to fourth plaintiffs. by accepting and signing the acceptance forms for the private placement shares. the plaintiff was aware of the nature of the investment. only D2 provided a limited opinion relating to the calculation and assessment method in relation to whether the financial information provided in the prospectus complied with Malaysian accounting standards. the English Court of Appeal held that by signing the form acknowledging the investment risks and returning it to the bank. In so far as the financial forecast was concerned.[147] However as discussed earlier. In other words. the plaintiffs say that while D1 was not prepared to make enquiries about the current financial status of the company after 30 April 2005. However even if it is considered that D1 had an overriding duty to ensure that the information in the prospectus was not misleading this obligation was met because the accuracy or otherwise of the financial forecast is not the responsibility of D1. Given that such a profit forecast is not mandatory it is contended that this is clear evidence of a misstatement by D1 which was made with a view to inducing prospective purchasers to invest. Only D2 provided a limited opinion as has been considered at length above. I have also considered the issue of whether D1 owed a duty to the prospective purchasers to make inquiries about the period subsequent to 30 April 2005 and concluded otherwise based primarily on the scope of works undertaken by them. Moreover as has been highlighted previously the prospectus itself states that the directors accept full responsibility for the forecast. [150] Further. on the information given by the directors and in respect of which D1 has no liability. the financial forecast was based on calculations (which were reviewed by D2) and the specific assumptions which were made by the directors. As such it does not appear that the accuracy or otherwise of the financial forecast can be attributed as a responsibility of D1. In Peekay's case. There is no necessity for a repetition of those facts again here. In the absence of a profit forecast. The exclusion clause was clear and the words used were easily definable. with no absurdity.it was designed. this information was not made known to D1. This is particularly so given the clear limiting and warning clauses which preceded and were set out subsequent to the forecast. 1 MLJ 526 at 572 Therefore it cannot be concluded that D1 had a duty to enquire or ascertain the status of repayment under that contract. However DW1 explained that the financial forecast was included as the directors had determined that for purposes of transparency it was preferable to include the profit forecast. . then grievances or protests ought to have been made clear at that stage. inconsistency or repugnancy when arriving at a straightforward interpretation'.  (b) specifically in respect of the First iRead contract and its defaulting in the repayment of scheduled payments. D1 cannot be faulted for permitting or agreeing to the inclusion of the profit forecast. None of the shareholders including the second to fourth plaintiffs queried or complained about the losses incurred then. However neither D1 nor D2 could be responsible for the Specific Assumptions and to that extent they took pains to set out at several places in the prospectus that there was a real possibility of significant deviation in the forecast. If indeed the second to fourth plaintiffs had been misled by the prospectus as now comprises the substratum of their case. THE AGM OF 31 OCTOBER 2006 [156] At Litespeed's Annual General Meeting held on 31 October 2006 the agenda included a resolution for the audited accounts for the year ending 30 April 2006 to be passed. Litespeed would have had to provide a reason as to why no profit forecast was being disclosed. THE SPECIFIC ASSUMPTIONS [155] I have considered each of the specific assumptions underlying the financial forecast in some detail in relation to D2. the directors were in fact bidding for more contracts than that disclosed in the forecast. DW1 explained that at the time of the inclusion of the forecast. Accordingly the audited accounts were unanimously approved. there was no issue with including the proposed forecast. [154] The plaintiffs' did establish through DW1 that the inclusion of a financial forecast was not mandatory. and  (c) neither can D1 be faulted for the failure of the group to secure or procure the E-learning contract targets it had set for itself as a target and which comprised the basis for the financial forecast. Being financial information in any event the primary responsibility for the same lay with D2 to the limited extent of its role. In any event D2 was available to give a limited opinion to ensure that prospective purchasers who read the prospectus would know that the calculations were in order and that the forecast had been premised on the utilisation of financial information which was in conformity with Malaysian accounting standards. This was primarily the responsibility of the directors of Litespeed. would render it meaningless. An explanation was provided for the deviation in the profit forecast. Suffice to say that there is no evidence or basis to warrant a finding or inference that:  (a) D1 was responsible for the veracity of the factual premises underlying the financial projections for 2006. 3rd and 4th Plaintiffs made substantial investments in the said Company for themselves as well as for the benefit of Dato' Ariff [159] In response D1 stated at paras 12–13 of its defence: With regard to paragraph 14 of the Statement of Claim.[157] Ultimately it appears to this court that D1 owed no duty to any prospective purchaser to assure them that the profit forecast was accurate or that a profit within that range could be anticipated. the 2nd. In other words they were not nominees for him. I am however not able to conclude with any degree of certainty that this was in fact an attempt by the plaintiffs to 'circumvent' any earlier stance they had taken. The 1st Defendant shall refer to the terms of the said letters of 11 November 2005 to show that the 2nd to 4th Plaintiffs decision to subscribe for the shares were made independently and without reliance on any representation by the 1st Defendant or its agents. It is not in fact clear from the plaintiffs' original pleading in what manner Dato' Ariff stood to benefit from the purchase of the Litespeed shares. 13. [161] D1 submits that this constitutes a significant departure from the pleadings and is in effect an attempt to circumvent their initial stance that the shares had been purchased for Dato' Ariff's benefit or that they were his nominees. D1 and D2 advised prospective purchasers of the risks involved sufficiently. On the contrary. The offer to purchase was accepted on 14 November 2005 and the shares were listed on 24 November 2005. a matter which fell squarely within the purview of the directors. were not being acquired as a nominee of another person or persons. Certainly no assurance or guarantees were set forth in the prospectus or information memorandum. prospective purchasers were warned about the uncertainty and variation of the specific assumptions which would result in deviation. made their respective Letters of Offer all dated 14 November 2005 at their own discretion to purchase the shares of Litespeed. It was expressly affirmed in the Application Forms for the Placement Shares signed by each of the 2nd. [162] I accept that there has been some deviation from the original pleadings. the 2nd to 4th Plaintiffs. 3rd and 4th Plaintiffs that the Placement Shares applied for. RELIANCE ON THE CONTENTS OF THE PROSPECTUS . Prospective purchasers were also cautioned about the volatility of the market and advised to procure independent advice. [160] At trial however. The 1st Defendant denies the 2nd to 4th Plaintiffs were nominees of the 1st Plaintiff. The second to fourth plaintiffs testified and confirmed that they had accepted the subject shares as a 'gift' from Dato' Ariff. It is pertinent that in the instant case the deviation arose not as a consequence of erroneous or inaccurate information put forward by D1 and D2 but because of the uncertainty of the factors relied upon to derive the forecast. Paragraph 14 of the statement of claim reads as follows: 1 MLJ 526 at 573 Acting on the faith of the representations and/or inducements. Dato' Ariff maintained that he purchased the Litespeed shares as a gift for the second to fourth plaintiffs and that they were not investing for him. on their volition and in accepting the terms and conditions as set out in the 1st Defendant's letters of 11 November 2005. THE PLAINTIFFS' PLEADED CASE [158] Learned counsel for D1 points to a marked deviation in the case pleaded by the plaintiffs and the case subsequently led at trial. There is insufficient evidence before the court for it to conclude that Dato' Ariff controlled Wangco or to lift the corporate veil and attribute that payment to Dato' Ariff as he sought to contend at trial. given their scope of duty. In other words it is incumbent upon the plaintiffs to establish that the second to fourth plaintiffs relied upon the representations made by Ms Ong Hui Hui. Dato' Ariff also read the prospectus. it is incumbent upon the complainant to establish that he relied upon that specific misrepresentation or negligent misstatement as a crucial element in the cause of action. Here that element is absent which is another reason why I am unable to conclude that liability lies with D1 and D2. if at all in the manner contended. THE FIRST PLAINTIFF'S LOCUS STANDI [165] It is evident from a consideration of the evidence that oral representations were alleged to have been made. Moreover they did not. The plaintiffs however contend that the 1 MLJ 526 at 574 representations were made by D1 and D2 to Dato' Ariff. Neither did Dato' Ariff pay for the said shares. such as they were. to Dato' Ariff. In these circumstances it was held that a duty of care existed vis a vis the plaintiffs. [167] Given these factors it is difficult to ascertain the basis for Dato' Ariff's claim as a plaintiff in this suit. proposed beneficiaries under a will sued the solicitors who had been instructed to prepare a new will which would have benefitted the plaintiffs. [164] It appears to this court that to establish negligent misrepresentation or negligent misstatement. in order to succeed in establishing liability under this cause of action. Ultimately the evidence shows that only D2 in fact relied on what her father. As such the elements of reliance and inducement are not established as having directly affected the second to fourth plaintiffs. The testator died. to disclose or comment on financial information beyond the date stipulated in the prospectus. induced only Dato' Ariff and not the other plaintiffs. LIABILITY OF D1 AND D2 [168] Having considered the totality of the evidence it appears to this court that the plaintiffs have failed to establish their causes of action against both D1 1 MLJ 526 at 575 and D2. the plaintiffs relied on several cases to substantiate their claim. The third and fourth plaintiffs did not rely on anything. However it is not in dispute that Dato' Ariff himself did not subscribe for the Litespeed shares. as a matter of fact have this knowledge and choose to suppress it in an effort to . thus establishing liability. Dato' Ariff said. Dato'Ariff as the first plaintiff who did not purchase any of the Litespeed shares is not therefore entitled to any of the relief sought as he lacks locus standi. the second to fourth plaintiffs acknowledged or accepted the stipulation that they were purchasing the shares for themselves and not as nominees for any other party. [166] Finally in the letters of acceptance. [169] In the instant case however I have concluded that D1 and D2's duty of care did not extend to giving guarantees about the accuracy of the financial forecast. The shares were subscribed for through a company known as Wangco. In the course of their submissions. Neither did they owe a duty of care.[163] The evidence at trial disclosed that representations in the prospectus. None of the essential elements of the causes of action are relevant to Dato' Ariff as he was not an investor nor even a prospective purchaser. and that these representations were communicated by Dato' Ariff to the other plaintiffs. In White v Jones [1995] 2 AC 207. or to have read and been induced directly by the written representations in the prospectus. but which the solicitors neglected to do. such being more than sufficient to warn a prudent investor of the risks that were being undertaken by investing on a MESDAQ share counter. Their duty did not extend to ascertaining or verifying further information beyond the date for which they had contracted to undertake their work. These accounts showed a significant profit before tax and net assets. the instant case does not attribute any error in the computation or treatment of the accounts. a restructuring scheme which was based on a new company acquiring a business from another company under an agreement and the new company issued shares to new investors. The bank made public announcements and issued a prospectus stating that the listing vehicle would be injected with Milan Auto (M) Sdn Bhd's core business of marketing and distributing Alfa Romeo vehicles in Malaysia. which related to a striking out application. mainly due to bad debts. The scheme involved the participation of another company. a company had engaged KPMG to conduct a due diligence on a company called Cambridge. warning or cautionary notes were sounded. who were the appellants in the case before the Court of Appeal. Milan Auto (M) Sdn Bhd which held the franchise to import and distribute Alfa Romeo vehicles in Malaysia pursuant to a sales concession agreement it had with the Italian manufacturer. Here the complaint pertains to the accuracy of a financial forecast in respect of which the defendants owe no duty of care. It might have been different if salient financial information had been made known to them or they were duty bound to check information which they failed to do. Cambridge's audited accounts and SKC's unqualified report on them for the year to the end of February 1992. as advisor. Electra then invested in Cambridge by purchasing loan stock. On the contrary. where a clear non-disclosure or suppression was evident on the facts. [171] That is immediately distinguishable from the instant case where a full trial has proceeded and having exhaustively examined the facts. SKC concurred in Cambridge producing to Electra before the investment. The English Court of Appeal held that the High Court had erred in striking out Electra's claim because the judge erred in attempting to determine the central duty of care issue on the evidence before him without regard to what other evidence might emerge when discovery had been given and the issues of fact had been tested in oral evidence and by cross-examination. Electra sued SKC and KPMG. it appears to this court that no duty of care arises in the circumstances of the this case. In such an instance. and in respect of which no assurances were given. were unaware that the sales concession agreement between MASB and the Italian manufacturer not only expressly prohibited MASB from entering into the business transfer and vehicle supply agreements with . there is no question of inaccurate information or accounts having been put forth or assessed by D2. [170] In Electra Private Equity Partners v KPMG Peat Marwick and others [2001] 1 BCLC 589. it was proposing to invest in. the findings might well be different.mislead prospective purchasers. The bank had acted as merchant bank and adviser in a scheme to restructure a public listed company. [173] In Amal Bakti Sdn Bhd v Affin Merchant Bank (M) Bhd [2012] 5 MLJ 61 the Merchant Bank in this case undertook. This was to be achieved by the listing vehicle acquiring the total share capital of an entity named Milan Auto Corp Sdn Bhd ('MAC') with whom Milan Auto (M) Sdn Bhd would execute a business transfer agreement and a vehicle supply agreement. Electra lost its entire investment. Cambridge's unaudited accounts for the 15 months to the end of May 1992 showed a significant loss. Cambridge's auditors were one SKC which was part of the KPMG international group. or even if there was a clear error in dealing with given information. SKC applied to strike out Electra's claim. 1 MLJ 526 at 576 [172] Further and in any event. But in the instant case there was no such evidence and the instant case is therefore distinguishable on the facts. In other words. [174] Unfortunately however the investors. Exclusion clauses and disclaimers were present throughout the prospectus. marked in parts in bold. [175] In these circumstances the Court of Appeal held that the merchant bank was negligent by reason of its failure to ascertain by reasonable enquiry that MAC would not possess the new core business. The entire exercise was a 'non-starter' from the outset rendering the listing vehicle's shares worthless. This case too is distinguishable on the following grounds as set out by learned counsel for D1. It obtained a court order to the effect that all contracts pertaining to the sale and offer for sale of the listing vehicle shares were ab initio null and void. [177] Additionally in the instant case. [178] In the case of Malaysian International Merchant Bankers Bhd v Lembaga Bersekutu Pemegang Amanah Pengajian Tinggi Islam Malaysia [2001] 1 MLJ 375. In MIMB however the representative had twisted and made a false representation of the facts. It was further found that the steps taken by the bank in purported discharge of its duty of care fell far short of that expected of a licensed merchant banker. who in turn set out the basis or assumptions on which such a forecast was made. Upon the Securities Commission discovering that the agreement had been terminated. Transactions of the nature concluded between the investors and MASB were provided for in the documents authored by the bank. but that the sales agreement itself had been mutually terminated by the parties. In Amal Bakti the scheme was dependent wholly on the core business to be acquired. This is not attributable to D1. Any prospective purchaser including the plaintiffs were sufficiently warned of the nature of the risk they were undertaking and that the profit forecast in itself was dependent upon a series of variables which D1 could not guarantee. Any purported reliance by investors too had to be qualified by the various disclaimers set out throughout the prospectus. [176] Learned counsel for D1 sought to distinguish the foregoing case from the present case and I accept her reasoning on this point. Statements pertaining to the forecast emanated from the directors. The bank could not delegate its duties under the Securities Commission Act and related legislation to third parties. The investors here were expressly told that there was a real and significant possibility that the forecast would vary quite considerably from the projected one. the effect of the numerous disclaimers and cautionary notes cannot be ignored entirely. whose reasoning I adopt:  (a) D1 made no representations in the instant case. The representation was that the directors would guarantee payment of dividend for three years at a rate of 24%. but with a profit forecast which by its very nature is not a verifiable fact. The bank ought to have been aware of that the announcements and statements it authored would reach investors and be relied upon by them. a merchant bank's representative was found to have made representations to the investor and these representations were found to be false. depending on the outcome of the variables. This is quite different from the instant case which deals not with a fact per se. It 1 MLJ 526 at 577 was found that the bank owed a duty of care to the investors.MAC. The Court of Appeal held that the fact of the acquisition was a material fact that the bank could very easily have verified. it revoked its approval of the restructuring scheme and the listing.  (b) . By reason of the prohibitory clause and the termination of the sales agreement MASB was never capable of injecting the new core business into MAC. as the counterparty could have been contacted. Given this clear and express disclaimer it cannot be said that D1 acted negligently or in breach of its duty of care. the English Court of Appeal holding that there was not such a relationship of proximity between the plaintiffs and defendants as to establish a duty of care. [181] A restrictive approach was therefore adopted to any extension of the scope of the duty of care beyond the person directly intended by the maker of the statement to act upon it. In these circumstances the defendant could clearly be expected. that the defendants had misrepresented matters to the plaintiff and were in breach of a duty of care they owed to the plaintiffs in respect of the accounts and the answer. inter alia. knew that the advice or information would be communicated to him directly or indirectly and knew that it was very likely that the plaintiff would rely on that advice or information in deciding whether or not to engage in the transaction in contemplation. Reference was made to the speech of Lord Bridge in the Caparo case in which he summed up the authorities in the United Kingdom in relation to this branch of the law (which differs from other Commonwealth jurisdictions): The salient feature of all these cases is that the defendant giving advice or information was fully aware of the nature of the transaction which the plaintiff had in contemplation. [180] In the discussion on the law relating to negligent misstatement giving rise to economic loss the English Court of Appeal in the foregoing case considered a large spectrum of cases from Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 onwards and culminating in Caparo Industries Plc v Dickman [1990] 2 AC 605. . The defendants submitted what they termed as 'final accounts' and showed a net loss and in response to a specific question put by the plaintiff stated that the group were breaking even or doing marginally worse. So also the plaintiff. On appeal however the decision was reversed. On the plaintiffs' claim for negligence against the defendants for loss and damage suffered as a result of the take-over the judge gave judgment for the plaintiff stating. subject always to the effect of any disclaimer of responsibility specifically to anticipate that the plaintiff would rely on the advice or information given by the defendant for the very purpose for which he did in the event rely on it. The plaintiff asked the defendants. The plaintiff proceeded with the take-over and discovered a number of errors in the accounts. subject again to the effect of any disclaimer. In that case negotiations were taking place for the take-over of a group of companies by the plaintiff. [179] And in the case of James McNaughton Paper Group Ltd v Hicks Anderson & Co [1991] 2 WLR 641 the Court of Appeal in England reversed the decision of the High Court where the latter had found that the defendant accountants were in breach of a duty of care they owed to the plaintiffs to ensure that the accounts were accurate. and  (c) the instant case involves MESDAQ shares which are recognised as being volatile and high-risk. would in that situation 1 MLJ 526 at 579 reasonably suppose that he was entitled to rely on the advice or information communicated to him for the very purpose for which he required it. In deciding whether a duty of care exists in any particular case it is necessary to take all the circumstances into account. their accountants to prepare accounts for the group of companies which comprised the subject matter of the take-over.there were no disclaimers in the MIMB case whereas there are numerous 1 MLJ 526 at 578 disclaimers in the present case which deal specifically with the issues now comprising the subject matter of complaint of the plaintiffs. I find as a matter of fact that D1 did not know that the factual 1 MLJ 526 at 580 premise on which the forecast was based had altered or deteriorated at the time when it was issued on 27 October 2005. LOSS AND DAMAGE [184] For purposes of completion I consider this issue. who in turn maintains that he relied on the prospectus. Secondly it was made clear that the forecast was premised on assumptions the certainty of which could not be guaranteed. thereby giving rise to a negligent misstatement. and  (c) in the instant case the element of 'reliance' on the prospectus has not been made out as the plaintiffs who invested in the subject shares did not read the prospectus. which in any event. to amount to reliance on actual representations made in the prospectus.  (b) there was numerous disclaimers of responsibility and cautions sounded to prospective investors to procure independent advice before undertaking investment. as the merchant banker and underwriter in preparing the prospectus would have been aware that potential investors. For example it was evident that matters pertaining to the profit forecast emanated from the directors and not from D1 (or D2) directly. although it is evident from my foregoing conclusions that. including the plaintiffs would rely on the information in the prospectus in determining whether or not to make an investment. does not arise. as it was entitled to rely on the information given to it by the directors at the material time. This is insufficient. However it is clear from the foregoing passage that effect has to be given to any disclaimer of responsibility. A duty of care cannot exist in respect of such information which in itself is uncertain or incapable of being ascertained accurately. . Further D1 owed no duty to ascertain or make further enquiries about the validity of the profit forecast as of 27 October 2005. more particularly the profit forecast. as no liability accrues to D1 and D2 in respect of negligent misstatement or misrepresentation. Instead.[182] Applying the foregoing to the instant case it is apparent that D1. Therefore the information comprising the crux of the complaint in this matter was not of a factual nature which was well within the knowledge of D1. it appears to this court that the plaintiffs have not succeeded in establishing that D1 was negligent in including the positive financial forecast for 2006 in the prospectus. They merely relied on advice given by Dato' Ariff. to my mind. clearly had the effect of tempering any possible representation made by the forecast. it was a prospective assumption. thereby inducing the remaining plaintiffs to invest in these shares. Moreover the fact that they had provided numerous disclaimers which had the effect of sufficiently warning potential investors to make their own independent inquiries prior to investment. which by its very nature is speculative and does not fall within the purview of factual information nor advice. emanated from the directors. [183] For these reasons. A perusal of the prospectus in this case makes it clear that:  (a) the nature of the information in the prospectus was clearly described such that its limitations were made very clear. the issue of damages flowing from such alleged negligence. As such D1 cannot be said to have issued a statement which it knew was inaccurate and misleading. However for the quarter ended 31 October 2005. The plaintiffs therefore claim the entirety of the monies paid by way of subscription for their investment in Litespeed. and  (c) they also point to the fact that the value of the Litespeed shares at the time when the claim was filed. the normal measure of damages is the difference between the price paid and the fair value at the time of purchase: Canavan v Wright [1957] NZLR 790. Chapter 39.  (b) payment for the shares was not made by the plaintiffs but by a company known as Wangco which Dato' Arfff claims to own. They have not sold their shares. namely the sum of RM6. was adversely affected by the plaintiffs' own actions in filing a winding up petition on 11 June 2007 vide Kuala Lumpur High Court Petition No D1–28–384 of 2007. the loss per share was 2. As such the defendants maintain that the plaintiffs have not shown that they have themselves suffered loss in terms of monies paid out for the subscription of the subject Litespeed shares. The same complaints as arose in the current suit were the subject matter of the petition. The plaintiff then sought damages the measure of which was the difference between the amount by which the investor was out of pocket and the value of the investment.[185] The plaintiff submits that the appropriate measure of damages to be imposed against the defendants is as set out in the New Zealand case of Scott Group v McFarlane [1978] 1 NZLR 553 at p 585. In such a case. The profit forecast represented that the earnings per share would be 5. McGregor on Damages (13th Ed). [189] The defendants dispute this contention:  (a) they point out that the plaintiff is bound to prove its loss and damage and cannot throw the matter to the court for the court to decide.93 sen and 5.31 sen for the year to date. With the presentation of the petition it was difficult for Litespeed to continue business or procure new contracts as its financial operations were adversely affected. the court in Scott's case drew a parallel with an action in tort for deceit leading to a contract of purchase.940. They have not proven the loss they allegedly suffered. [186] In relying on this formula. . which in any event broke the chain of causation thereby precluding the plaintiffs from recovering the sum sought (even if they managed to establish liability). the aforesaid loss completely extinguishes the quantum paid to subscribe for the shares in the 1 MLJ 526 at 581 first place. In this context they state that as the plaintiffs are still shareholders of Litespeed their claim for such damages is untenable as they are still holding on to those shares. As such they cannot claim that they have suffered losses. the plaintiffs here submit that the reported earnings per shares for Litespeed for the year ended 30 April 2005 was 11. That case concerned the takeover of a company at a value based on the accountant's report which was erroneous as certain assets had been overstated. D1 contends that the filing of this petition constituted a novus actus interveniens. [188] Given the extent of the plaintiffs' collective investment.909.93 sen per share. [187] Applying the foregoing formula to the instant case.4 sen. This is not in dispute. it was said. It therefore stands dismissed with the costs of this action to be borne by the plaintiffs. Claim dismissed with costs.000. Issue estoppel arises to preclude the plaintiffs from relitigating the same issues. namely the difference between the actual price paid for the shares and a fair assessment of their value at the material time might have been available. which were identical to those matters raised here. It is not unreasonable to assume that the settlement related to the matters raised in the petition which are raised again here.  (b) if liability had indeed been established. and  (d) the filing of the winding up petition is relevant as it appears that identical matters were raised and then dealt with as settled with an exchange of a not insignificant sum of money. apart from a bare statement to that effect that Dato' Ariff paid for the shares. The quantum of costs to be awarded will be determined by this court after hearing arguments. Reported by Ibnu Aswan . having received monies in settlement of the petition. the normal measure of damages as set out in Scott v McFarlane relying on the measure of damages in the tort 1 MLJ 526 at 582 of deceit. this does not resolve the issue completely.[190] Subsequently on 19 March 2009. [192] For the foregoing reasons it appears to this court that the plaintiffs' claim fails. This again throws doubt on the basis and quantum of the plaintiffs' claim. The evidence discloses that the monies emanated from Wangco and there is insufficient evidence before the court for it to conclude that Wangco is synonymous with Dato' Ariff such that the corporate veil should be lifted.  (c) however in the instant case the plaintiffs failed to establish that the second to fourth plaintiffs actually suffered such loss as it is not evident in the first place that they had paid for those shares. and more significantly making claim under the same causes of action. The plaintiffs maintain that this sum represented legal costs. While the plaintiffs maintain that the said sum was purely for costs. It is also not clear on the evidence. It was withdrawn for a settlement sum of RM400. the petition was withdrawn with no liberty to file afresh. [191] Having considered the entirety of the submissions it appears to this court that:  (a) the plaintiffs are not entitled to any loss or damages as claimed as they have not established their case against both the defendants. while the defendants maintain that the said sum represented a full and final settlement of all issues raised in the petition. Owner requesting garage to repair car .Exception clause .Contract of bailment . 19 NOVEMBER 1971 Contract .[1972] 1 All ER 399 [1972] 1 All ER 399 Hollier v Rambler Motors (AmC) Ltd COURT OF APPEAL.All England Law Reports/1972/Volume 1 /Hollier v Rambler Motors (AmC) Ltd .Oral contract between garage and car owner .Course of dealing . CIVIL DIVISION SALMON AND STAMP LJJ AND LATEY J 18.Conditions .Incorporation in contract . Clause stating that garage not responsible for damage caused by fire to customers' cars on premises . to have a form.Garage as bailees only liable for damage caused by negligence . The plaintiff agreed. Underneath the customer's signature was the following clause: 'The Company is not responsible for damage caused by fire to customer's cars on the premises.Exception clause .Bailee's liability for negligence .Manager of garage instructing owner to bring car to garage so that defects could be attended to Garage's normal practice to supply 'invoice' form to be signed by customer . signed by the customer. although on this occasion the plaintiff had not signed their 'invoice' form. on three or four occasions during those five years he had had the repairs or service carried out by the defendants. Held . Those were the only terms of the agreement. The manager told the plaintiff that he was unable to do anything immediately but that if the plaintiff had his car towed to the defendants' garage they would attend to the defects in due course. Contract ..Contract between car owner and garage for repair of car . The plaintiff's car having developed an oil leak. In an action by the plaintiff claiming damages for negligence.Clause not sufficiently clear to exclude liability for negligence .Form including clause stating garage not responsible for damage caused by fire to customer's cars on premises .Car owner having signed 'invoice' on at least two occasions .' The plaintiff had signed this form on at least two previous occasions when the defendants had carried out repairs to his car.Car owner having had car repaired at garage on four occasions in previous five years . described as an 'invoice'. Although the plaintiff had frequently bought spare parts for his car from the defendants during the previous five years. However. It was the defendants' practice when doing repairs or servicing a car. but not when merely [1972] 1 All ER 399 at 400 supplying spare parts.Whether exception clause incorporated in oral contract by reason of previous course of dealing. when he wanted a car repaired or serviced as a rule he sent it elsewhere.Exclusion of liability Need for clear terms .Bailment .The defendants were liable to the plaintiff for their negligence because-- . the defendants contended that.Clause merely a statement in nature of a warning that garage would not be liable for fire caused otherwise than by their negligence. the clause thereon had been incorporated in the oral contract between the parties by a course of dealing and that its effect was to exclude their liability for negligently causing a fire while the plaintiff's car was in their care. he telephoned the manager of the defendants' garage and told him that he wanted some repair work done to it. The form contained a description of the work to be carried out and the price for doing it. While the car was in the garage a fire broke out as a result of the defendants' negligence which caused substantial damage to the plaintiff's car. Per Salmon LJ. see 3 Digest (Repl) 76-79. 286. although as bailees the defendants could only be liable in negligence. on the footing that a course of dealing had been established and the clause consequently incorporated in the contract. 3 Digest (Repl) 102. the words used were susceptible to a construction which would regard them as a mere statement in the nature of a warning that if a fire did occur at the garage which damaged the car and it was not caused by the negligence of the garage then the owner of the garage was not responsible (see p 404 f and g. see 2 Halsbury's Laws (3rd Edn) 114-116. dictum of Lord Devlin in McCutcheon v David MacBrayne Ltd [1964] 1 All ER at 437 disapproved. In order to establish that a term has been implied into a contract by a course of dealing. it is not essential to show that the party charged had actual and not merely constructive knowledge of the term and with such actual knowledge had in fact assented to it (see p 403 g and p 404 d. Notes For conditions in contracts of bailment limiting liability. p 408 g to j and p 409 d to f. Cases referred to in judgments Alderslade v Hendon Laundry Ltd [1945] 1 All ER 244. para 225. dictum of Denning LJ in Olley v Marlborough Court Ltd [1949] 1 All ER at 134 applied. [1945] KB 189. post). if they were seeking to exclude liability for negligence they ought clearly to have conveyed that it was liability for negligence which was being excluded. para 147.(i) three or four transactions in the course of five years were not sufficient to establish a course of dealing. McCutcheon v David MacBrayne Ltd [1964] 1 All ER 430 applied. the words of the clause were not sufficiently plain to exclude liability for negligence. For the incorporation of terms in a contract. 154-164. the clause on the 'invoice' form could not therefore have been incorporated in the oral contract made between the parties (see p 402 h. 114 LJKB 196. (ii) alternatively. . post). p 408 f and p 409 b. dicta of Scrutton LJ in Rutter v Palmer [1922] All ER Rep at 370 and of Lord Greene MR in Alderslade v Hendon Laundry Ltd [1945] 1 All ER at 245 explained. Turner v Civil Service Supply Association Ltd [1926] 1 KB 50 and Fagan v Green and Edwards Ltd [1926] All ER Rep 266 overruled. 172 LT 153. p 404 c. p 407 e. post). Henry Kendall & Sons (a firm) v William Lillico & Sons Ltd [1968] 2 All ER 444 distinguished. see 8 Halsbury's Laws (3rd Edn) 74. and for cases on the subject. p 406 g and j. [1904-07] All ER Rep 227. S L Tuckey for the defendants. 29 Digest (Repl) 16. 134 LT 191. . Price & Co v Union Lighterage Co [1904] 1 KB 412. 95 LJKB 111. [1922] All ER Rep 367. 8 Digest (Repl) 5. McCutcheon v David MacBrayne Ltd [1964] 1 All ER 430. 91 LJKB 657. Digest (Cont Vol B) 71. 134 LT 189. 781b. Rambler Motors (AMC) Ltd. 8 Digest (Repl) 5. [1968] 3 WLR 110. 159. Turner v Civil Service Supply Association Ltd [1926] 1 KB 50. claiming damages for negligence. [1964] 1 WLR 125. Rutter v Palmer [1922] 2 KB 87. 3 Digest (Repl) 78. against a decision of his Honour Judge Sir Shirley Worthington-Evans QC at Brentford County Court on 15 June 1971 in an action brought by the plaintiff against the defendants. The facts are set out in the judgment of Salmon LJ. [1972] 1 All ER 399 at 401 Olley v Marlborough Court Ltd [1949] 1 All ER 127. 186. [1949] 1 KB 532. Appeal This was an appeal by the plaintiff. 89 LT 731. Walter William Frederick Hollier. 8 Digest (Repl) 46. 277. Digest (Cont Vol C) 853. [1969] 2 AC 31. 5. 254b. [1949] LJR 360. Kendall (Henry) & Sons (a firm) v William Lillico & Sons Ltd [1968] 2 All ER 444. R L Johnson for the plaintiff. 127 LT 419. 63 LJKB 222. 95 LJKB 363. 6.Fagan v Green and Edwards Ltd [1926] 1 KB 102. [1925] All ER Rep 266. The plaintiff agreed. At the trial. While it was at the garage a fire broke out as a result of which substantial damage was done to the car. Rambler Motors (AMC) Ltd. In the middle of March 1970 he telephoned the defendants. and accordingly they are in breach of their duty as bailees of the plaintiff's property. There would. but if the plaintiff would have it towed or sent in on a conveyor the defendants would attend to the defects and put them in order. expressed over the telephone. SALMON LJ. They rely. but that it had been proved affirmatively that they had been negligent. . The defendants argue that this clause was incorporated into the oral contract by a course of dealing between them and the plaintiff. as they did in the court below. the chief issue of fact which was fought--and it was fought very hard--was whether or not the defendants had discharged the onus of proof (which would rest on them as bailees) of having taken reasonable care of the plaintiff's property. however. The following judgments were delivered. The plaintiff bought a secondhand Rambler car early in 1970. I am satisfied that the electric wiring of their premises was faulty in design and was not properly inspected or maintained. Those were the only terms of the agreement. The plaintiff had his motor car conveyed to the defendants' garage towards the end of March. The learned county court judge. obviously be an implied term that the defendants would carry out the repairs and look after his car with reasonable skill and care. however. said: 'I have no hesitation in finding that the defendants failed to show that they had taken reasonable care of the plaintiff's property. on a clause which they contend excludes their liability for negligently causing a fire while the plaintiff's motor car was in their care. The manager said that the defendants could not do anything about it for the moment. The defendants do not challenge this finding. in the course of a lucid and admirable judgment.' It is to be observed that not only did he decide that the defendants had not discharged the onus of proof resting on them. I understand that that is a make of car which is manufactured by the American Motor Corpn. and there would also be an implied term that the plaintiff would pay a fair and reasonable price for the repairs. The plaintiff brought an action against the defendants claiming that the fire and the ensuing damage had been caused by the defendants' negligence.19 November 1971. spoke to the manager and told him that he wanted some repair work done to the car as it had developed an oil leak. The plaintiff had had Rambler cars for some five years. at any rate. but it describes the work which is to be carried out and gives the price for carrying out the work. on the authority of Turner v Civil Service Supply Association Ltd. with carbons in between. that such a term was to be implied into the contract. I need not read the form. The plaintiff now appeals from the decision of the learned county court judge on those points. The plaintiff did . in detail. but three or four times during those five years he had had the repair or service carried out by the defendants. As a rule. one was on 15 April 1967. At the bottom of the form appear the words: 'I hereby authorise the above repairs to be executed and agree to pay cash for same upon delivery of car to me. not quite two months before the date of the telephone conversation at which the oral contract relating to the present case was made. sign the form on two of those occasions. which is before us. when he wanted the car to be repaired or serviced. Customer's signature. This form that the plaintiff signed has three copies underneath it. he was bound to hold that that clause had the meaning for which the defendants contended. he sent it elsewhere. The plaintiff had during the five years preceding March 1970 on many occasions bought spare parts from the defendants. Then immediately underneath the signature appear the words: 'The Company is not responsible for damage caused by fire to customer's cars on the premises. but he did. did it have the effect for which the defendants were contending? The learned county court judge was persuaded by counsel for the defendants (in an argument which I am sure was as persuasive and skilful as that which he has addressed to this court). Customer's cars are driven by staff at owner's risk. and the learned county court judge found that. The three copies underneath the form are retained by the defendants.The points of law to be decided by the learned county court judge were: Was the clause on which the defendants were relying to be implied into the contract? [1972] 1 All ER 399 at 402 And if so.' And the customer normally signed the form. and the other hurriedly in the rain on 3 February 1970. The top copy is handed to the customer after the work has been done and paid for.' It is not clear whether on each of the three or four occasions when the plaintiff had work carried out he signed the form to which I have referred. It was the defendants' practice when they were doing repairs or servicing a motor car-but not when they were merely supplying spare parts--to have a form which is described as an 'invoice' signed by the customer. I will deal first of all with the point whether the clause relied on by the defendants can properly be implied into this oral contract by reason of the course of dealing between the parties. not quite one dealing a year--from which it is to be implied that what he called 'the condition' at the bottom of the contract should be imported into the oral agreement made in the middle of March 1970. That was a case in which some feeding-stuff was sold by some merchants to a farmer. or perhaps the next day. namely. The course of dealing had been that the feeding-stuff was ordered orally by the buyer and the order was accepted orally by the suppliers. Then on the day of the oral contract. The feeding-stuff was found to be defective. and the buyer had never raised any protest or said anything which would have led the sellers to assume that the buyer was doing anything other than accepting the terms of the contract which appeared on the sold note. he had not actually read the condition and knew nothing about it. The House of Lords decided that the fact that the buyer had not read the condition on the sold notes. for my part. In that case. and there was a long [1972] 1 All ER 399 at 403 list of many parties brought in right down the chain. One of the terms appearing on the sold note was that the buyer under the contract took the responsibility for any latent defects. although this practice had been going on all that time.not read the forms on any occasion when he signed them. It was argued that. but there was nothing to have prevented him from doing so. It is to be observed that in that case there had been three or four dealings each month between the parties during the previous three years. the condition could not be implied into the contract in question. year in and year out for three years. having had every opportunity of doing so. having had no intimation from the buyer that he took any objection to the condition. Counsel for the defendants says that there was a course of dealing which constituted the three or four occasions over five years--that is. I do not know of any other case in which it has been decided or even argued that a term could be implied into an oral contract on the strength of a course of dealing (if it can be so called) which consisted at the most of three or four transactions over a period of five years. with a sold note in the usual form sent on after the contract had been made. I am bound to say that. therefore. and the buyer had received well over 100 sold notes containing the condition to which I have referred. did not avail him. We have been referred to Henry Kendall & Sons (a firm) v William Lillico & Sons Ltd. although it had been made in exactly the same way as all the other contracts. they in their turn brought in their suppliers. . sold notes had been sent on to the buyer. Three or four times each month. on an average. The farmer sued the merchants. orally. the suppliers sent on to the buyer a sold note. As between two of these suppliers a point arose whether a term that the buyer under the contract took the responsibility for any latent defects was a term which had been imported into the contract in question by reason of the course of dealing between those parties. would have had good cause to assume that the buyer was agreeing to the condition. The merchants brought in as third party the persons from whom they had purchased the feeding-stuff. because any reasonable seller in circumstances such as those. Lord Guest and Lord Pearce. and with such actual knowledge has in fact assented to it. The seller could not be expected to know that the buyer had not troubled to acquaint himself with what was written in the form that had been sent to him so often. who took the car to be shipped on the occasion in question. and sometimes he had not. which taken literally would mean that no term can be implied into a contract by a course of dealing unless it can be shown that the party charged has actual and not only constructive knowledge of the term.That case is obviously very different from the present case. as I have already indicated. year in and year out during the previous three years. The buyer in that case sought to rely on McCutcheon v David MacBrayne Ltd . but only one amongst many. through negligence. the ship sank and the car was [1972] 1 All ER 399 at 404 lost. when the so-called course of dealing consisted only of three or four transactions in the course of five years. Lord Devlin said that this was a critical factor. had himself consigned goods of various kinds on a number of previous occasions. the purser. of the facts to be taken into account in considering whether there had been a course of dealing from which a term was to be implied into the contract was whether the consignor actually knew what were the terms written on the back of the risk note. He relied on that authority chiefly for a passage in the speech of Lord Devlin ([1964] 1 All ER at 437. that there was no previous course of dealing from which the term of exclusion could be implied into the contract which had been made on behalf of the appellant by his brother-in-law. The fact that the buyer had not read the term is beside the point. He said that sometimes he had signed a note. unknown to him. would have convinced any ordinary seller that the buyer was agreeing to the terms in question. Apparently. The House of Lords held. The risk note made it plain that the respondents were accepting the goods on their ship on the condition that they would not be responsible for any damage by negligence that the goods might suffer during the course of the voyage. still less would it be possible to do so in this case. As I read the speeches of Lord Reid. On one occasion he sent his own car. That seems to be a typical case where a consistent course of dealing between the parties makes it imperative for the court to read into the contract the condition for which the sellers were contending. The appellant had personally consigned goods on four previous occasions. in transactions exactly the same as the transaction then in question. On three of them he was acting on behalf of his employer. by mistake. In that case the appellant had asked his brother-in-law to have a car shipped from the Isle of Islay to the mainland. on the other occasion he sent his own car. [1964] 1 WLR at 134). Even on the assumption that Lord Devlin's dictum went further than was necessary for the decision in that . which was also a decision of the House of Lords. He said that on the occasion in question no risk note was put before him. or failed to do. The appellant's brother-in-law. In that case. McCutcheon v David MacBrayne Ltd is an example of a case in which dealings between the parties prior to the contract in question cannot be relied on to import a term into the relevant contract. and each time he signed what was called a 'risk note'. Everything that the buyer had done. had taken the car on board without asking him to sign the risk note. It seems to me that if it was impossible to rely on a course of dealing in McCutcheon v David MacBrayne Ltd. one. After all. tradesmen. had they been incorporated in the contract. and might even put many off. the liability of the defendant apart from the exempting words must be ascertained. tradesman or merchant. might suffer by the negligence of that person. if I may be permitted to say so. He does not say that 'if the only liability of the party pleading the exemption is a liability for negligence. The speeches of the other members of the House and the decision itself in McCutcheon's case make it plain that the clause on which the defendants seek to rely cannot in law be imported into the oral contract they made in March 1970. The easiest way of doing that. of course. the customer. but in case I am wrong on the view that I have formed. the clause will more readily operate to exempt him'. It is well settled that a clause excluding liability for negligence should make its meaning plain on its face to any ordinarily literate and sensible person. would have excluded the defendants' liability to compensate the plaintiff for damage to the plaintiff's car by a fire which had been caused by the defendants' own negligence. to put it higher than that 'if the only liability of the party pleading the exemption is a liability for negligence. [1922] All ER Rep 367 at 370): 'For the present purposes a rougher test will serve. [1972] 1 All ER 399 at 405 Scrutton LJ was far too great a lawyer. there are many cases in the books dealing with exemption clauses. the clause will more readily operate to exempt him'. will not be responsible for any damage caused by his own negligence. and was wrong--which I think is the effect of Henry Kendall & Sons (a firm) v William Lillico & Sons Ltd--I do not see how that can help the defendants here. but in order for the clause to be effective the language should be so plain that it clearly bears that meaning. that the course of dealing did not import the so-called exclusion clause. literate and sensible person that the garage in that case was inserting a clause in . and had far too much robust common sense. without any hesitation I may say. I do not think that defendants should be allowed to shelter behind language which might lull the customer into a false sense of security by letting him think--unless perhaps he happens to be a lawyer--that he would have redress against the person with whom he was dealing for any damage which he.case. In construing an exemption clause certain general rules may be applied: First the defendant is not exempted from liability for the negligence of his servants unless adequate words are used. The principles are stated by Scrutton LJ with his usual clarity in Rutter v Palmer ([1922] 2 KB 87 at 92. I am not saying that an exclusion clause cannot be effective to exclude negligence unless it does so expressly. I think I should deal with the point as to whether or not the words on the bottom of the form. That really disposes of this appeal. the exemption clause would have conveyed to any ordinary. and if the only liability of the party pleading the exemption is a liability for negligence. as the case may be. secondly. is to state expressly that the garage. garage proprietors and the like are a little shy of writing in an exclusion clause quite so bluntly as that. although the word 'negligence' was never used in the exemption clause. and in every case it comes down to a question of construing the alleged exemption clause which is then before the court. Clearly it would not tend to attract customers. then the particular clause in question must be considered. the clause will necessarily exempt him'. No doubt merchants. It seems to me that in Rutter v Palmer . post offices. In an action by the plaintiff against the defendants for damages. the defendants relied on the following condition to limit their liability: 'The maximum amount allowed for lost or damaged articles is 20 times the charge made for laundering. ' Any ordinary man knows that when a car is damaged it is not infrequently damaged because the driver has driven it negligently. and. this was a case where negligence was not expressly excluded. if the goods were lost or damaged in the course of being washed through the negligence of the laundry.the contract which excluded their liability for the negligence of their drivers. factories. and the goods (in that case handkerchiefs) might have been stolen by thieves. the clause must be construed as extending to that head of damage. That of course is possible. the meaning for which the defendant was there contending was the obvious meaning of the clause. reading that clause must have appreciated that almost always when goods are lost or damaged it is because of the laundry's negligence. this clause could apply only to limit the liability of the laundry. obvious that when a laundry loses or damages goods it is almost invariably because there has been some neglect or default on the part of the laundry. I suppose. on the construction of the clause in question. The question was: what do the words mean? I have no doubt that they would mean to the ordinary housewife who was sending her washing to the laundry that. that if he sends it to a garage and a driver in the employ of the garage takes the car on the road for some purpose in connection with the work which the customer has entrusted the garage to do.' Again. It is said that thieves break in and steal. I think that the ordinary sensible housewife. The clause being considered in that case--and it was without doubt incorporated in the contract--was: 'Customers' cars are driven by your staff at customers' sole risk . The next case to which I wish to refer is the well-known case of Alderslade v Hendon Laundry Ltd. I say that for this reason.' . I think. and he contends that Lord Greene MR was in fact making a considerable extension to the law as laid down by Scrutton LJ in Rutter v Palmer. He also knows. For this proposition he relies on the following passage in Lord Greene MR's judgment ([1945] 1 All ER at 245. but I should hardly think that a laundry would be a great allurement to burglars. It is. That is a typical case where. It follows that no sensible man could have thought that the words in that case had any meaning except that the garage would not be liable for the negligence of their own drivers. In that case articles were sent by the plaintiff to the defendants' laundry to be washed. the laundry would not be liable for more than 20 times the charge made for the laundering.. because if it were not so construed it would lack subject-matter. offices and homes likely to contain money and articles far more attractive to burglars. and they were lost. jewellers. therefore. But counsel for the defendants has drawn our attention to the words used by Lord Greene MR in delivering the leading judgment in this court. when they were in fault or negligent. [1945] KB at 192): [1972] 1 All ER 399 at 406 'The effect of those authorities can I think be stated as follows: where the head of damage in respect of which limitation of liability is sought to be imposed by such a clause is one which rests on negligence and nothing else. or indeed anyone else who sends washing to the laundry. the garage could not conceivably be liable for the car being damaged in an accident unless the driver was at fault. It is a little far-fetched to think of burglars breaking into a laundry to steal the washing when there are banks.. and it is not caused by the negligence of the garage owner. Others might be more cautious and say. we are not here construing a statute.If one takes that word 'must' au pied de la lettre that passage does support counsel for the defendants' contention. That is the crucial difference. would you suppose that the garage would be liable?'. they ought to have done so in far plainer language than the language here used. I can quite understand that the ordinary man or woman would consider that. in the one case. He said ([1945] 1 All ER at 247. I should be surprised if many of them did not answer. any ordinary man or woman reading the conditions would have known that all that was being excluded was the negligence of the laundry. between this case and Alderslade v Hendon Laundry Ltd and Rutter v Palmer. which must be assumed to be the cause of these handkerchiefs having disappeared. quite wrongly. in the end you are driven back to construing the clause in question to see what it means.' And clearly it did. to my mind. Fires can occur from a large variety of causes. In my judgment these principles lead to a very different result in the present case.' What would that mean to any ordinary literate and sensible car owner? I do not suppose that any such. and there is a fire. I think that this clause does avail to protect the proprietor of the laundry in respect of liability for negligence. who gave the other judgment in this court. [1945] KB at 195): 'Applying that principle to the facts of this case. 'I do not know. it would make the law entirely artificial by ignoring that rules of construction are merely our guides and not our masters. what they are telling me is that if there is a fire due to any cause other than their own negligence they are not responsible for it'. But here I think the ordinary man or woman would be equally surprised and horrified to learn that if the garage was so negligent that a fire was caused which damaged their car. [1972] 1 All ER 399 at 407 . relied on the rule or principle which he said was very admirably stated by Scrutton LJ in Rutter v Palmer. or. Applying the principles laid down by Scrutton LJ. indeed. and that is by no means the most frequent cause. 'Of course they are liable if there is a fire'. the words of the condition would be understood as being meant to be a warning to the customer that if a fire does occur at the garage which damages the car. the mere fact that there was a fire would not make the garage liable. for the reasons that I have already given. If it were so extended. I do not think that Lord Greene MR was intending to extend the law in the sense for which counsel for the defendants contends. has an intimate or. any knowledge of the liability of bailees in law. In those two cases. they lead to the result at which the court arrived at in Alderslade v Hendon Laundry Ltd. only one of which is negligence on the part of the occupier of the premises. if the defendants were seeking to exclude their responsibility for a fire caused by their own negligence. The ordinary man would I think say to himself: 'Well. However. 'Well. I had better ask my solicitor'. then the garage owner is not responsible for damage. The words are: 'The Company is not responsible for damage caused by fire to customer's cars on the premises. in the other. I suppose they may well be liable'. and the garage. It is to be observed that MacKinnon LJ. unless he is a trained lawyer. but a passage in an unreserved judgment of the Master of the Rolls. who was clearly intending no more than to restate the effect of the authorities as they then stood. because of these words. If you asked the ordinary man or woman: 'Supposing you send your car to the garage to be repaired. they would be without remedy because of the words in the condition. To my mind. In my view. There is another case which I think throws some light on the problem before us, and that is Olley v Marlborough Court Ltd. In that case there was a notice in the bedroom of a private residential hotel to this effect: 'The proprietors will not hold themselves responsible for articles lost or stolen unless handed to the manageress for safe custody.' Owing to the negligence of the hotel, a thief managed to get into a room, which had been taken by the plaintiff, and stole a quantity of articles. The plaintiff brought an action against the proprietors of the hotel, and succeeded in this court. In that case there was a question whether the notice to which I have referred formed part of the contract between the plaintiff and the hotel proprietors; and there was also some question whether the hotel was an inn, in which case they would have been to some extent insurers of the goods, and another question whether the hotel was only a private hotel. This court considered the case on the basis that the notice did form part of the contract between the parties, and that the hotel was a private hotel, and came to the conclusion, as I have already indicated, that the plaintiff was entitled to recover. Denning LJ said ([1949] 1 All ER at 134, [1949] 1 KB at 550): 'Ample content can be given to the notice by construing it as a warning that the hotel proprietor is not liable, in the absence of negligence. As such it serves a useful purpose. It is a warning to the guest that he must do his part to take care of his things himself, and, if need be, insure them. It is unnecessary to go further and to construe the notice as a contractual exemption of the defendants from their common law liability for negligence.' Similarly, I think, in this case the words at the bottom of this form can be given ample content by construing them as a warning in the sense that I have already indicated. It seems plain that if the notice in the bedroom of the hotel had read as follows: 'Proprietors will not hold themselves responsible for articles lost or stolen, nor for the damage or destruction of articles caused by fire', and then there had been a full stop, and the notice went on to say that to avoid articles being lost or stolen they should be handed to the manageress for safe custody, for the reasons which this court gave it would have come to the conclusion that the notice would not have excluded the hotel proprietors from liability for the loss of articles by a fire caused by their own negligence. We have been referred to the case on which the learned county court judge relied and by which he was bound, namely, the decision of Sankey J in Turner v Civil Service Supply Association Ltd . In that case the defendants were furniture removers and warehousemen, and they entered into a contract to remove the plaintiff's furniture from London to Hailsham. The contract was made subject to various conditions. The plaintiff's goods were loaded on to the defendants' motor lorry, and in the course of transfer a fire caused by the negligence of the defendants' servants destroyed the bulk of the goods and damaged the remainder. Sankey J held, as he said with some hesitation and reluctance, that cl 11 in the contract did exempt the defendants from liability. That clause read: 'The contractors are not responsible for loss or damage caused by fire, aircraft or bombardment to property in transit, in storage, or in process of being packed ... ' Sankey J thought that, since the defendants could not be responsible for damage by fire, save fire caused by negligence, the clause to which I have referred must necessarily be taken to exclude their liability for negligence. I am afraid I cannot agree with that decision. It is fair to say, reading that judgment, that the correct arguments do not appear to have been addressed to the court. I think that in that [1972] 1 All ER 399 at 408 case the defendants were in an even weaker position than the defendants are here. Clause 11 was manifestly dealing with matters which had nothing to do with negligence: 'The contractors are not responsible for loss or damage caused by fire, aircraft or bombardment to property in transit ... ' It is difficult to see how the contractors could have been liable for any damage by aircraft or bombardment. It is hardly to be supposed that they would have negligently manipulated an aircraft over one of their own lorries, or bombarded it. It seems to me manifest that that clause was merely a warning to the customer that the contractors were not responsible for damage by fire, aircraft or bombardment, so that he could insure the goods against those risks. That case does not decide anything except what the learned judge conceived to be the true construction of the clause there in question. In my judgment, his decision was wrong. I consider also, for much the same reasons, that the decision in Fagan v Green and Edwards Ltd, following Turner v Civil Service Supply Association Ltd , was wrong. There have been many cases, to which I do not think it is necessary to refer, in which these exclusion clauses have been construed in relation to the liability of common carriers. I do not think those cases have any application to the present case. Some of them may appear not to be very satisfactory, but they can be reconsidered should the occasion arise. It does not arise in this case. For these reasons, I have come to the conclusion that, although this was a most careful and in many ways an excellent judgment, the decision was wrong: first, on the point whether or not the term relied on by the defendants was imported into the contract by a course of dealing; and secondly, on the construction of the clause, although on this point the learned county court judge was bound by the decision of Sankey J to reach the conclusion at which he arrived. For these reasons, I would allow the appeal. Before parting with this case, I should like to say how much we are indebted to learned counsel on both sides for their most interesting and able arguments. STAMP LJ. I agree, for the reasons given by Salmon LJ, that the course of dealings between parties described by Salmon LJ was not such that the terms of earlier contracts can properly be imported into the oral contract here in question. On the question of construction, I reach the same conclusion as Salmon LJ, but by, I think, a slightly different route. As I understand the law, it is settled that where in a contract such as this you find a provision excluding liability capable of two constructions, one of which will make it applicable where there is no negligence by the defendant, and the other will make it applicable where there is negligence by the defendant, it requires special words or special circumstances to make the clause exclude liability in case of negligence: see, for example, Price & Co v Union Lighterage Co. Similarly, I would hold that where the words relied on by the defendant are susceptible either to a construction under which they become a statement of fact in the nature of a warning or to a construction which will exempt the defendant from liability for negligence, the former construction is to be preferred. The words here, 'The Company is not responsible for damage caused by fire to customer's cars on the premises', are, in my judgment, certainly susceptible to a construction which would regard them as a mere statement in the nature of a warning, and reinforced by the principle that I have stated, I would hold that that is how they ought to be construed in this case. If this be correct, I do not find it necessary to consider the cases which have been decided on the footing that the clause under consideration was a term of the contract excluding some liability; for on the view that I have formed, the clause on its true construction is not a clause of that nature. [1972] 1 All ER 399 at 409 For those reasons, I would agree with the conclusion of Salmon LJ. I also agree, for the reasons which he has given, that the decisions in Turner v Civil Service Supply Association Ltd and Fagan v Green & Edwards Ltd cannot be regarded as reliable authorities. I, too, would allow the appeal. LATEY J. As regards the first ground of appeal, namely, that the learned county court judge was wrong in holding that these printed words were imported as a term into the oral agreement by a course of dealing, I agree that the learned judge, while his findings of primary fact on the evidence were impeccable, did reach a mistaken conclusion. As I so wholly agree with the reasons stated by Salmon and Stamp LJJ, there is no need to repeat them. As regards the second ground of appeal, the main stream of the law, the basic principle, as I understand it, is that if A enters into a contract with B and wants to include in it a term exempting himself from liability for his own negligence, to be effective that term must sufficiently clearly convey that it is liability for negligence which is being excluded. It has been argued during this appeal that where A cannot be liable otherwise than in negligence, no such sufficiently clear words are required. In my opinion, that is not the law. In each case one has to look at the words which are claimed to exempt. When in fact A can be liable in negligence only, the law, I believe, is that that fact, to employ Scrutton LJ's words in Rutter v Palmer ([1922] 2 KB 87 at 92, [1922] All ER Rep 367 at 370), 'will more readily operate to exempt him'. But the law goes no further than that. In saying that, I want to add that I wholly and emphatically agree with what Salmon LJ has said in his judgment when dealing with Rutter v Palmer and Alderslade v Hendon Laundry Ltd; when referring to the passage in Lord Greene MR's judgment in the latter case; and with what he has said about Turner v Civil Service Supply Association Ltd and Fagan v Green & Edwards Ltd. In the sense I have mentioned and to that limited extent, in this case the defendants are entitled to pray in aid that as bailees they could only be liable in negligence and, therefore, that the court should more readily read these words as sufficient words of exemption. I approach the words in question with that in mind and, doing so, to my mind these words would not convey to many intelligent laymen that the garage is saying: 'If your car is damaged by fire we shall not be liable, and this is so even though it is due to our own fault that the fire happens.' In my opinion, other and plainer words are required. I, therefore, agree that on both grounds this appeal should be allowed. Appeal allowed. Solicitors: Herbert Smith & Co (for the plaintiff); Linklaters & Paines (for the defendants). Mary Rose Plummer Barrister. 229 . Documents Similar To Apellants Bundle of Authorities.docxSkip carouselcarousel previouscarousel nextBreach of ContractAbelardo Lim v CAAugust 2013 Philippine Supreme Court Decisions on CommercialjbhgAvant Assessment, LLC, A.S.B.C.A. (2016)MacAndrews & Forbes v. Donald G. DrapkinMissouri & Ark. Co. v. Sebastian County, 249 U.S. 170 (1919)Ideamax Memorandum of AgreementThomas H. Noble v. Corporacion Insular De Seguros, Thomas H. 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