In this case, Fernrite Sdn Bhd agreed to acquire certain shares from Perbadanan Nasional Bhd (“PNB”), but the price for the shares were never paid. The Court allowed PNB’s claim that the shares are in fact held in constructive trust, and that Fernrite Sdn Bhd ought not to be permitted to hold on to those shares.

The Court went further to hold that all dividends received by Fernrite Sdn Bhd must be repaid to PNB. In doing so, the Court upheld principles of equity and good conscience, and declared the dividends received by Fernrite Sdn Bhd to be unjust enrichment.

A timely case for me, as I face 2 fights of the same nature. Let’s take it on…

Kheng Hoe & Partners

Support. Simple. Solutions.

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Q: Can the stamp duty paid be refunded? Both the Stamp Office and the High Court said “No”. However, the Court of Appeal held that a proven inability to pay the balance is an inability that justifies the refund of stamp duty. Bad news is: You may have to sue in order to get your refund.

At a glance:

1. A    person    who    is unable to complete a sale and purchase transaction due to proven lack of financing falls within the purview of “inability” under s57(f)(iv) of the Stamp Act 1949
2. Accordingly, there is no conveyance on sale within the meaning of s2 of the Act.
3. Therefore, a purchaser under such a situation is entitled to a full refund of stamp duty.
4.A word of caution:
The Courts may very well decide differently if the inability to pay the balance purchase price is not proven, i.e. in cases when the purchaser willingly pulls out.

Any questions or queries? When in doubt, Ask@MyCounsel.com.my

I explored this issue in The Nut Graph article. Read the full article at the Nut Graph following this link:

http://www.thenutgraph.com/are-mps-protected-from-the-osa/

Looking forward to your comments.

Kheng Hoe & Partners

When in doubt, Ask@MyCounsel.com.my

In this case, EON Bank Bhd had granted a facility to a company, conditional upon a corporate guarantee to be furnished by KSU Holdings Bhd. KSU Holdings Bhd apparently agreed. There was even a directors’ resolution passed with respect to the corporate guarantee. Confident in the resolution and in the ongoing commercial relationship between themselves, EON Bank Bhd released the facility before the corporate guarantee was in fact signed. Thereafter, EON Bank Bhd asked KSU to furnish the corporate guarantee as promised. Guess what? KSU declined!

Of course, it was most questionable why EON Bank would have released the facility before getting the actual guarantee duly signed. But that is a regret that is water under the bridge by then. Fact is, a whole load of money has been disbursed, and no corporate guarantee is forthcoming. Hence, EON Bank sued to compel KSU to furnish the corporate guarantee as promised.

In Court, the learned judge refused to allow the application by EON Bank. Specifically, the Court held that the resolution was merely an internal document empowering the directors of the Company to furnish a corporate guarantee. Nothing in the resolution should be construed as compelling the directors so to act.

There is an inherent difficulty in the position adopted by the Court in this instance. For example, does this mean that directors, after signing the resolution, can recant their position because the resolution is merely an “empowering” document and not a “compelling” document? Such a position would allow directors to change their minds ad nauseum, and can effectively cripple a company especially in cases when disputes are starting to arise.

Of course, it could also be argued that the position adopted by the Court in this case only affects outsiders, and therefore vis-a-vis insiders, the resolution could nevertheless be construed as being compelling in nature.

Kheng Hoe & Partners

When in doubt, Ask@MyCounsel.com.my

It is fine to rely on evidence when one’s case is founded primarily on documents. However, problems arise when one’s case is founded primarily on oral testimony. In this case, the Court may have little documents to counter-check the testimony of witnesses. When that happens, how the Court perceives the truth may very well be tainted by the performance of a particular witness in the witness stand. And as any lawyer with some trial experience will testify, quality of a witness’ performance in the witness stand can turn out to be really problematic.

When a trial proceeds relying mainly on oral testimony, the whole case will then boil down to the judge saying “I believe this witness” or “I do not find this witness to be believable”. Once a judge makes up his/her mind, then cases like these are very difficult to appeal. This is because an appellate court will be very hesitant to disturb the findings of the judge due to the “audio visual advantage” the judge had in assessing the demeanour of the witness.

Hence, in UEM GROUP BHD v. GENISYS INTEGRATED ENGINEERS PTE LTD & ANOR, the Federal Court refused to disturb the findings of the trial judge who held a particular main witness to be “not a witness of truth”. Whether he was in fact a witness of truth would be a matter that goes to the grave with him, but the judge’s particular finding in this case effectively swayed his decision in favour of one party over another.

So, in short, it is dangerous to rely on oral testimony primarily when coming before the Courts. Businesses should make it a point to keep documentary records along the way of discussions, meetings, conclusions, agreements, etc. These records do not need to be complicated. A simple email to say “Hi, we spoke. As agreed, we do X, Y and Z by next week” may be sufficient. If businesses have a habit of following up every meeting with such a simple e-mail, there would be no need to rely on oral evidence alone. Instead, there would be a substantial amount of correspondence to back up any claim made.

You may be surprised how a few minutes spent in documenting meetings and discussions may turn out to be very fruitful at the end of the day.

Kheng Hoe & Partners

When in doubt, Ask@MyCounsel.com.my

When Mr Beadle tried to leave the country, he was prevented from doing so because the IRB had issued a certificate to the effect. Further, his passport was detained by the authorities.

Dissatisfied, Mr Beadle sued and in the court of first instance, the court awarded him damages to the sum of RM3 million. The authorities appealed the decision.

In the Court of Appeal, the Court held that tax liability is always personal in nature, and cannot be construed as a liability of the company. Notwithstanding the fact that the company had deducted the tax portion, nevertheless the individual concerned would remain liable to the authorities.

As such, it was rightful for the authorities to issue the relevant certificate preventing Mr Beadle from leaving the country, and detaining his passport in the meantime. As the exercise was lawful, the tax authorities cannot be ordered to pay damages to Mr Beadle for the incident.

This case should serve as a reminder to both expats and locals alike to ensure that their tax liabilities are properly cleared, especially when they are leaving employment with a particular company. This is to prevent any embarrassing and inconvenient situations of having one’s passport detained at immigration when trying to leave the country.

As has been proven true all over the world, death and taxes are two unfortunate realities for which man has yet to find reprieve.

Sure, there is a tremendous backlog and a settlement, if reached, may be a good conclusion. However, a settlement that is rushed through may leave many issues unresolved, and the litigants dissatisfied that they have not been adequately heard. I propose that instead of “forcing” a settlement through the mediation process, the Courts can instead rely on one oft-overlooked provision to promote ADR, and definitely to promote resolution of disputes outside the Court room.

The provision I speak of is sec 24A of the Courts of Judicature Act, 1964. Under this section, the Court may (except in criminal cases) refer any question arising in a Court or matter to a special referee for decision. This specifically involves cases where either: (a) the parties consent to the appointment of a special referee; or (b) the matter involves extensive examination of documents or scientific or local investigations which cannot be conveniently conducted by the Courts; or (c) where the matter involves wholly or partially the examination of accounts.

The three categories are broad enough to allow the Courts to exercise its discretion in a significant number of complex cases, including cases of construction law which our firm undertakes regularly. These cases oftentimes involve voluminous documents which may be better suited for a special referee from the construction industry to adjudicate.

Furthermore, the costs of the special referee would have to be borne by the parties themselves in accordance with the directions of Court. Hence, this provision is most useful and can be an important statutory tool for the judges to employ in their unenviable task of fighting the backlog.

At the very least, litigants won’t be subjected to relentless calls (and sometimes veiled threats) for settlement, and judges need not be frustrated with a seemingly never-ending battle.

The company upon discovering the fraud sued the Bank for recovery of the same. The Bank raised a few pertinent points in its own defence:

1. The company was negligent and/or contributorily negligent for failing to check its bank statements which have been faithfully sent to the company on a monthly basis. If it had done so, it would have discovered the fraud starting from September 1996, and there would not have been a loss of the quantum claimed.

2. The Bank had contacted a clerk in the company to verify the cheques and never once did the company advise the Bank that the cheques are to be declined.

Unfortunately for the Bank, the Court rejected its arguments and held instead in favour of the company. The Court’s rationale were as follows:

1. There is no duty for the customer to examine his pass-book and bank statements. Hence, the company cannot be faulted for failure on its part to do so.

2. It is not reasonable for the Bank to get verification from a low level office staff with no say in the handling of the company’s money. The Bank should have attempted to contact the managing director, or the accountant of the company in lieu of the managing director.

3. The Bank has failed to exercise reasonable care and skill to detect the materially altered cheques, more so when some of the alterations were quite apparent to the naked eye.

4. The inefficiencies of the company’s accounts department is an internal weakness of the company, but does not have any bearing on the bank’s primary duty to ensure that the cheques are made out to the right persons.

Of course, if the cheques were materially altered in such a way as to be quite apparent to the bare eyes, then the Bank could be said to be rightfully faulted. However, even under such a circumstance, surely a company which failed to detect the fraud and failed to check its bank statements from September 1996 until January 1998 ought to at least be held partially responsible.

The Court in this case seemed to have placed an unreasonably high burden on the Bank, and failed to at least allocate some partial responsibility to the Company. Such a decision would merely encourage continued irresponsibility on the part of inefficient companies not to take a keen and diligent interest in its own affairs. After all, the Bank is there to ensure the cheques are properly drawn up and paid out.

I hope the Bank would appeal this decision, so that at the very least, partial responsibility can be imposed on the company concerned.

For queries and comments, e-mail us at ask@mycounsel.com.my.

In Tai Seng Glass Sdn Bhd v Jasa Kita Warehousing Service Sdn Bhd, Tai Seng Glass entrusted 48 cases of safety glass to Jasa Kita to be kept in its bonded warehouse. Subsequently 11 cases were removed in good order and condition. When Tai Seng Glass sought to remove the balance, it was found that the balance products have been damaged due to exposure to water.

Tai Seng Glass refused to pay the warehouse costs, and instead sued for damages. On the other hand, Jasa Kita counter-claimed for warehousing costs unpaid.

In the High Court, the learned Judge held in favour of Jasa Kita and dismissed Tai Seng Glass’ claim, in addition to ordering Tai Seng Glass to pay the unpaid warehousing costs. Dissatisfied with the decision, Tai Seng Glass appealed.

The Court of Appeal held:

1. As a bailee, the warehouseman has a duty to care for the goods entrusted to its care with the same amount of prudence that the warehouseman would care for its own goods of the same value. This was an obligation imposed under section 104 of the Contracts Act, 1950.

2. The obligation to prove that sufficient care has been taken lies on the warehouseman. It is for the warehouseman to show that it has not failed to discharge its duty to care for the goods entrusted.

3. Once the goods are found to be damaged, then the bailor no longer need to pay for warehousing costs because the bailment contract has become voidable at the option of the bailor.

4. It would have been prudent for the warehouseman to enquire about the nature and value of the goods entrusted to its care. Hence, it is no defence to assert that it has no knowledge of the nature of goods or value of the same.

The Court of Appeal’s decisions make commercial sense, and seems in line with the clear provisions of the Contracts Act. Now, how did the High Court in the first instance rule against the bailor? That would be the multi-million dollar question to be resolved, how decisions can sometimes be made in the Courts of law which goes against the sense of justice, fair-play or commercial viability. The person who stumbles upon the solution to this question would have found a most valuable “Secret” indeed.

For comments and queries, e-mail us at ask@mycounsel.com.my.