![](https://jjnn.com.my/wp-content/uploads/2022/12/1st-Year-Gretting-2022_v2-1024x1024.jpg)
On 4 November 2022, our Nicholas Mark Pereira and Harish Nair conducted a workshop at the International School of Kuala Lumpur ("ISKL") on A Harassment-Free Workplace (Tempat Kerja Bebas Gangguan).
Nicholas and Harish began by explaining the legal principles surrounding sexual harassment and harassment generally. The participants (i.e. ISKL staff) were then taken through several case studies before they were split into breakout groups to discuss different scenarios. Each group was invited to present their views on the various scenarios presented to them. The workshop also included an explanation on the different legal recourses available to victims.
This was one of the more interactive workshops JJNN has conducted, with the participants eager to learn and share their views. JJNN would like to thank ISKL for the invitation.
Our Christopher Foo, Chong Juen Quan and Emeline Khoo succeeded today in opposing an application for leave to appeal to the Federal Court.
The Plaintiff had sought leave to appeal against a judgment of the Court of Appeal affirming a decision of the High Court which struck out the Plaintiff’s claim on the basis that he was statutorily time-barred.
The Plaintiff commenced action in the High Court against our client, a life insurance company, for Total and Permanent Disability benefits under several policies after our client had rejected his claim. The primary issue before the High Court and the Court of Appeal was when the 6-year limitation period began to run.
Both the High Court and the Court of Appeal agreed with our submissions that the Plaintiff’s cause of action accrued on the date of his submission of his claim for Total and Permanent Disability benefits to the insurer and not when the insurer rejected his claim.
The Federal Court did not see it fit to grant the Plaintiff’s application as it was of the view that the questions posed by the Plaintiff did not meet the threshold of Section 96 of the Courts of Judicature Act 1964. In the circumstances, the decision of the Court of Appeal on this issue stands.
Medical Records – Contemporaneous Evidence
When doctors and hospitals are sued in Court for negligence, factual disputes often turn on the contents of the medical records pertaining to the patient.
Medical records contain all relevant medical information pertaining to a patient, including the doctors’ and nurses’ clinical notes, laboratory and imaging reports, and consent forms. These records are considered contemporaneous evidence; they are recorded as and when events occur (or shortly thereafter) and can be considered fairly accurate when compared to a witness testifying at trial who is attempting to recall exact details of events that took place years before.
It therefore follows that when a doctor’s or nurse’s documentation in a patient’s medical records is perfunctory, incomplete, or illegible, it is much more difficult for a doctor or a hospital to successfully contest a claim and succeed in their defence at trial.
It should also be said that poor medical record keeping can also work to a claimant’s disadvantage, making it difficult for a patient to succeed in a claim for medical negligence. This would be true in cases where a patient suffers an injury which should not have occurred but is in the dark as to how the injury transpired. The patient may then be hoping for the medical records to shed light on the actual sequence of events.
The importance of good documentation and record keeping on the part of doctors was recently underscored by the Court of Appeal in Dr Premitha Damodaran v Gurisha Taranjeet Kaur & Another (to date unreported). In the High Court, Gurisha Taranjeet Kaur and Baljeet Kaur Grewal (Gurisha’s mother) brought an action against Dr Premitha Damodaran and Pantai Hospital Kuala Lumpur. Following a full trial, the Court allowed the Plaintiffs claim against Dr Premitha but dismissed the Plaintiffs’ claim against the Hospital. The Plaintiffs and Dr Premitha appealed to the Court of Appeal against the High Court’s decision.
Brief Facts Madam Baljeet gave birth to Gurisha on 14 May 2014 at Pantai Hospital Kuala Lumpur. As a result of complications during delivery, Gurisha suffered a brachial plexus injury to her left shoulder and Madam Baljeet suffered a tear to her perineum. Madam Baljeet had opted for a normal vaginal delivery. Unfortunately, during the delivery, Madam Baljeet was unable to deliver normally, and forceps were employed to deliver Gurisha. Following the use of the forceps, the umbilical cord was wound around Gurisha’s neck. After the umbilical cord was cut and separated, there was no further descent and the baby’s shoulders were stuck in a transverse lie. According to Dr Premitha, a “McRoberts manoeuvre” was initiated and Dr Premitha rotated the stuck baby using her hands and managed to deliver her. The Plaintiffs’ case was that Dr Premitha’s actions or omissions had caused the Plaintiffs’ injuries. Among the allegations against Dr Premitha was that there had been a failure to advise Madam Baljeet of the risks of a natural delivery, a failure to discuss the option of a Caesarean Section, and a failure to perform a complete and accurate McRoberts manoeuvre. | ||
Decision of the Court
In the High Court, the trial Judge accepted the Plaintiffs’ claim that Dr Premitha had not discussed, and therefore did not offer, the option of a C- Section with Madam Baljeet.
However, the Court of Appeal found that the contemporaneous documents, including the medical records pertaining to Madam Baljeet, demonstrated that Dr Premitha had in fact discussed this option with Madam Baljeet. In fact, even on the day before the delivery, Dr Premitha had noted that Madam Baljeet was “not in favour” of a C-Section and preferred a normal delivery. | ||
The Court of Appeal observed that while Dr Premitha had testified that she had not discussed the option of a C-Section with Madam Baljeet on the day of the delivery, the trial Judge had wrongly taken that to be an admission that there had been no discussion at all. On the contrary, apart from the notations in the medical records, there was evidence of text messages between Dr Premitha and Madam Baljeet in which a C-Section was discussed.
An important factor at trial was Dr Premitha’s testimony that Madam Baljeet had informed her that her first child, who had been delivered via normal vaginal delivery, had weighed 4.54 kg at birth. As Gurisha’s weight in the womb was estimated to be between 3.8 kg and 4 kg, this was a primary consideration in Dr Premitha making a professional judgment that a natural birth was possible for Gurisha.
On this point, Dr Premitha testified at trial that, had she known that Madam Baljeet’s first child’s birth weight was only 3.8 kg, she would have insisted on a C-Section and would not have recommended a vaginal delivery. On the other hand, both Madam Baljeet and her husband testified that they had not told Dr Premitha that their first child’s weight at birth was 4.54 kg; instead, they testified that they had told her that it was “approximately 4kgs”.
In her clinical notes of their 1st consultation, Dr Premitha had recorded Madam Baljeet as telling her that her first child’s weight at birth was 4.54 kg. However, the trial Judge rejected this evidence and instead accepted Madam Baljeet’s oral testimony that she had not informed Dr Premitha of this detail.
The Court of Appeal observed that apart from the record of the initial consultation, this birth weight was also recorded in the insurance form which Dr Premitha had filled out for Madam Baljeet, which had been provided to Madam Baljeet at that time. Following Gurisha’s birth, Dr Premitha had also brought up the birth weight of Madam Baljeet’s first child on 2 occasions during a grievance meeting – neither Madam Baljeet nor her husband had corrected this detail at that time. The birth weight of Madam Baljeet’s first child was also stated as 4.54 kg in a medical report prepared by Dr Premitha in December 2014. | ||
The Court of Appeal was moved to overturn the trial Judge’s finding on this issue on the strength of the “uncontested documentary evidence” that Dr Premitha had been misinformed of the birth weight of Madam Baljeet’s first child. The Court noted that the trial Judge ought to have tested the Plaintiffs’ oral testimony against the entirety of the evidence of the case:
“there is a duty on the learned trial judge to consider all these pieces of credible documentary evidence instead of accepting inherently improbable and partial oral testimony” | ||
The appellate Court went further to hold that while it is part of a doctor’s duty to take a patient’s medical history, this does not extend to explaining to the patient that providing an accurate and truthful history is important; the importance of the accuracy of the information provided to a doctor is implicit in the act of history taking itself.
Bearing this in mind, the Court of Appeal held that the law “cannot impose a burden on an attending physician to inform or warn the patient to give accurate answers to the questions posed during history taking, or for that matter to ensure that the patient’s answers are accurate and truthful.”. The Court also held that the duty to take a proper history cannot be expanded to require a doctor to reach out to a patient’s previous doctors to verify the history taken.
Given the above, the Court of Appeal was of the view that Dr Premitha had not breached her duty to advise Madam Baljeet of the risks of a natural delivery in the particular circumstances of this case. If she had not been misinformed of the birth weight of the first child, the advice given to Madam Baljeet would have been different.
With regard to the Plaintiff’s allegation that Dr Premitha had failed to utilise the “McRoberts manoeuvre” to help Gurisha’s shoulders to move through so that she could be delivered without injury, the Court of Appeal again turned to Dr Premitha’s documentation in the medical records.
In the High Court, the trial Judge found that that the McRoberts manoeuvre had not been carried out, based on the testimony of a nurse involved in the delivery. This was despite the contemporaneous notation by Dr Premitha that the manoeuvre was in fact carried out as well as her oral testimony at the trial, where she explained how the manoeuvre was carried out in this case.
The Court of Appeal noted that the trial Judge had accepted the nurse’s testimony even though the nurse appeared confused when testifying at the trial. The appellate Court was of the view that the trial Judge should not have placed too much emphasis on the nurse’s evidence without considering the totality of the evidence before the Court, especially given the contemporaneous evidence found in the medical records.
Take-home Points
Disclaimer: The information contained herein is for general information and does not constitute legal advice rendered by the Firm. The Firm will not accept liability for any loss or damage in connection with the use of information contained in this article.
Feel free to consult us should you require any legal consultation.
On 23 February 2024, the Federal Court delivered a landmark ruling, holding a private hospital (“Hospital”) jointly liable with a Consultant Anaesthesiologist, for negligence in the treatment of a patient who suffered from permanent mental and physical disabilities as a result of cerebral hypoxia in 2010 (“Patient”).
Leave to appeal to the Federal Court had been granted in respect of 7 questions of law. Apart from the 1 question of law which was in relation to the calculation of damages, the rest of the questions related to whether a private hospital may be liable for the negligence of a medical practitioner who was an independent contractor under a contract for services (as asserted by the private hospital).
In a 4-1 majority decision, the Federal Court held that the Hospital was “liable personally” for the negligence of the anaesthesiologist, rejecting the Hospital’s defence that it was not liable for the negligence of the doctors who treated the Patient on account that they were independent contractors under their contracts for services with the Hospital (and not employees of the Hospital).
The majority judgment and dissenting judgment are discussed below.
Background Facts
On 10.3.2010, the Patient underwent a tonsillectomy, palatal stiffening and endoscopic sinus surgery at a different private hospital (“First Hospital”).
The Patient suffered bleeding in the throat 12 days later. He sought treatment at the Hospital’s accident and emergency department.
At the Hospital’s accident and emergency department, the Patient was examined by a medical officer who referred the Patient to a consultant ear, nose and throat surgeon (“Consultant ENT”). The Consultant ENT recommended the Patient undergo surgery under general anaesthesia. As is usual, a Consultant Anaesthesiologist was also to attend the Patient during the surgery.
Before the surgery, the Patient started vomiting copious amounts of blood. There was profuse bleeding when he was in the airlock area outside the operating theatre. Despite efforts by the doctors, the Patient collapsed, and emergency resuscitation had to be carried out. The intended surgery was eventually performed.
Unfortunately, due to the events before the surgery, the Patient suffered hypoxic brain damage.
Post-surgery, the Patient was admitted to the intensive care unit of the Hospital for continued post-surgical care and management. On 28.3.2010, the Patient was transferred to the First Hospital at the family’s request.
At the High Court and Court of Appeal
The Patient’s wife brought an action on behalf of her husband against the Consultant ENT, the Consultant Anaesthesiologist and the Hospital for negligence, and breach of duties under the Private Healthcare Facilities and Services Act 1998 (“PHFSA”).
Against the Hospital in particular, it was contended that the Hospital was vicariously liable for the negligence of both its consultants and was directly in breach of its non-delegable duty to the Patient.
It was the Hospital’s contention that it was not liable given that (1) both the doctors in question were independent contractors under their contracts for services and (2) its responsibilities and functions merely involved ensuring the provision of facilities, medical equipment and nursing staff.
At the High Court, the trial judge dismissed the claim against the Consultant ENT and the Hospital. However, the High Court found that there was a delay of about 25 minutes on the Consultant Anaesthesiologist’s part in securing the Patient’s airway (during the time the Patient was bleeding profusely) – leading the Patient to suffer severe brain damage. The Consultant Anaesthesiologist was therefore held liable and was ordered to pay damages in the sum of RM1.9 million.
The Patient (through his wife) appealed to the Court of Appeal against the dismissal of the claims against the Consultant ENT and the Hospital as well as to increase the quantum of damages awarded by the High Court. On the other hand, the Consultant Anaesthesiologist appealed against the decision finding her liable.
The Court of Appeal dismissed the appeal against the Hospital whereas the appeal in respect of quantum was allowed in part, increasing the damages awarded against the Consultant Anaesthesiologist. The appellant withdrew the appeal against the Consultant ENT. At the same time, the Consultant Anaesthesiologist’s appeal was dismissed. In other words, the Court of Appeal maintained the High Court’s decision that only the Consultant Anaesthesiologist was liable, whilst increasing the damages awarded against her.
Majority Decision at the Federal Court
The Patient applied for, and was granted, leave to appeal to the Federal Court in respect of the Hospital’s liability. The crux of the appellant’s appeal at the Federal Court was whether the Hospital owed a non-delegable duty of care to the Patient (and if it did, whether that duty was breached).
Justice Mary Lim, delivering the majority judgment, considered the principle of a non-delegable duty as expounded in the United Kingdom Supreme Court’s decision in Woodland v Swimming Teachers Association & Others [2014] AC 537.
In establishing the imposition of a non-delegable duty of care, the Federal Court had no hesitation in finding that the 5 defining features of the duty, as identified in Woodland, were satisfied.
When considering the intent of the PHFSA in determining the issue of a non-delegable duty of care, the Federal Court held that:
Notably, the Federal Court pointed out that patients seeking treatment and care from private hospitals “should never have to concern themselves with issues of responsibility and separate accountability, as negligence and mishaps would be furthest from their minds”.
For the reasons stated above, the Federal Court concluded that (1) the Hospital’s reliance on the status of the Consultant Anaesthesiologist as an independent contractor was unsustainable and ought to have been rejected by the lower courts and (2) the Hospital had assumed a non-delegable duty of care to the Patient and was therefore liable for the injury suffered by the Patient.
In respect of other aspects of the judgment, the Federal Court:
Minority Decision at the Federal Court
The dissenting judgment was delivered by Justice Zabariah Mohd Yusof. Her Ladyship among others, held that:
Moving Forward
Just a few years before this decision, the Federal Court in Dr Kok Choong Seng & Anor v Soo Cheng Lin & Another Appeal [2018] 1 MLJ 685; 10 CLJ 529; [2017] 6 MLRA 36, had accepted the considerations set out in Woodland as to when a non-delegable duty would be imposed. However, the Federal Court in that case declined to say whether private hospitals in Malaysia would always be taken to have a non-delegable duty with respect to patients walking through their doors or that such a duty did not apply to private hospitals in Malaysia. Instead, the Federal Court in 2017 held that each case ought to be analysed and decided on its own particular facts.
The decision of the majority of the Federal Court in the most recent case seems to suggest that private hospitals in Malaysia will almost always be found to have a non-delegable duty to patients being treated by doctors working in the private hospitals (the question of whether or not the doctors are in fact independent contractors is a whole other can of worms). This would impose a fairly onerous obligation on hospitals to ensure that reasonable care is taken of its patients. In this regard, we would say that there probably is merit to the contention advanced by the Hospital that it had no control over how the Consultant Anaesthesiologist carried out her treatment of the Patient.
It remains to be seen whether there will be changes to the manner in which claims of negligence are defended in court by hospitals and doctors. It may be that, at the close of trials, hospitals and doctors will move the Court to make orders as to the apportionment of liability between them (in the event both parties are found liable), to avoid any dispute over who is to pay damages awarded by the Court. There may also be changes to the contractual arrangements made between the consultants and the hospitals respectively, particularly in respect to any indemnity provisions.
On the other hand, this decision may appear to be favourable to claimants seeking relief from the Court as it addresses the disparities in the imposition of liability between doctors as well as hospitals and provides a more accurate reflection of the realities patients may face when seeking treatment and care at healthcare facilities.
Author: Maxine Lim
In December 2020, the Federal Court in the case of Wiramuda (M) Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri held that Section 4C of the Income Tax Act 1967 (“ITA”) was unconstitutional as it contravened Article 13(2) of the Federal Constitution (“Constitution”). The Federal Court’s written Grounds of Judgment (dated 31 May 2023) was recently published.
Section 4C of the ITA provides as follows:
Gains or profits from a business arising from stock in trade parted with by any element of compulsion
4C. For the purpose of paragraph 4(a), gains or profits from a business shall include an amount receivable arising from stock in trade parted with by any element of compulsion including on requisition or compulsory acquisition or in a similar manner.
Article 13(2) of the Constitution provides as follows:
No law shall provide for the compulsory acquisition or use of property without adequate compensation.
The facts of the case are straightforward.
The taxpayer owned 4 parcels of land (“Lands”).
The Lands were compulsorily acquired by the Selangor State Government for the SUKE Highway project. The taxpayer received compensation amounting to RM 202,552,569.50 for the compulsory acquisition (“Compensation”).
The Inland Revenue Board (“IRB”) took the view that the Compensation was subject to tax under Sections 4C and 24(1)(aa) of the ITA. Based on this, the IRB imposed tax amounting to RM 52,966,517.27 on the taxpayer.
The taxpayer challenged the IRB’s assessment by filing an application for judicial review at the High Court. The taxpayer was unsuccessful at the High Court.
The taxpayer appealed to the Court of Appeal but was unsuccessful again.
Finally, the taxpayer appealed against the Court’ of Appeal’s decision to the Federal Court.
The Federal Court decided that Section 4C of the ITA contravened Article 13(2) of the Constitution as it deprived the taxpayer of adequate compensation granted in accordance with the Land Acquisition Act 1960 (“LAA”).
In this regard, the Federal Court held that:
The Federal Court concluded that Section 4C of the ITA is unconstitutional and liable to be struck down.
As Section 4C of the ITA has been held to be unconstitutional, the IRB will not be able to rely on this provision anymore to impose income tax on compensation received by landowners from any compulsory acquisition. This is clear.
What may not be so clear at this point (as the Federal Court did not specifically deal with this) is what happens to taxes collected by the IRB using Section 4C of the ITA before the Federal Court’s decision. Some taxpayers would have paid such taxes without mounting any challenge in court. Some challenged them, also on the basis that Section 4C of the ITA is unconstitutional, but were unsuccessful. Can these taxpayers claim a refund now that the Federal Court has struck down Section 4C of the ITA? Is the Federal Court’s decision retrospective in effect or does it only apply going forward?
The general rule is that all court judgments (including any declaration of unconstitutionality) are retrospective in effect. However, in appropriate cases, the Court may decide to not give retrospective effect to its decision; this is called “prospective overruling”.
One example of our courts employing the doctrine of prospective overruling is the case of Aminah Ahmad v The Government of Malaysia & Anor, where the Court of Appeal held that the declarations granted in that case that certain provisions of the Pensions Adjustment Act 1980 are unconstitutional, are only to take effect prospectively from the date of decision.
As the Federal Court did not expressly invoke the doctrine of prospective overruling, it is therefore arguable that the decision in Wiramuda ought to have retrospective effect and therefore, taxpayers who previously paid taxes pursuant to Section 4C of the ITA ought to be entitled to a refund. Now that the Federal Court’s written Grounds of Judgment have been published, it will be interesting to see how many taxpayers will seek a refund. Some may even seek a refund together with interest but that would perhaps be a topic to be explored in another article…
Author: Nicholas Mark Pereira
On 18 January 2023, the Court of Appeal upheld the High Court’s decision allowing a takaful operator’s claim against loss adjusters appointed by the operator for breach of contract. The loss adjusters contended that the takaful operator could not recover damages for breach of contract because it was bound by the illegal acts of its own employee. JJNN acted for the takaful operator.
The arguments at the High Court and the Court of Appeal centered on whether the illegal “contract” between the takaful operator’s employee and the loss adjusters’ employee had “tainted” the contract between the insurer and the loss adjuster with illegality, resulting in the contract being illegal, void, and unenforceable. In this regard, the concepts of vicarious liability, illegality, attribution, and agency were canvassed before the Court.
After a full trial, the High Court allowed the takaful operator’s claim, holding that the contract between the takaful operator and the loss adjuster was legal, valid, and enforceable. The Court of Appeal affirmed the decision of the High Court.
Factual Background
The takaful operator had issued 12 takaful certificates to 12 different participants, providing cover for loss or damage to property as a result of fire. Following the issuance of the certificates:
(1) Fire loss or damage claims were submitted to the takaful operator in respect of all 12 certificates.
(2) The takaful operator appointed the loss adjusters to investigate each of these claims.
(3) The loss adjusters purportedly carried out the investigations and submitted the report of these investigations to the takaful operator.
(4) On the basis of these reports, the takaful operator paid out over RM1.3 million to the 12 participants.
It was subsequently discovered that that the investigation reports submitted to the takaful operator were all fakes and forgeries in that, (1) most of the premises at which the fires allegedly occurred did not even exist and (2) where the premises did exist, there had not been any fires. It later became clear that there had been a “rogue” employee working for the takaful operator and another “rogue” working for the loss adjusters. The fraudulent scheme had been worked out between these 2 individuals, who subsequently disappeared.
The takaful operator brought an action against the loss adjuster for breach of contract, on the basis that it had paid over RM1.3 million based on the fictitious investigation reports submitted to it by the loss adjusters. The loss adjusters brought third party proceedings against the 12 participants for being part of the fraudulent scheme.
High Court
At the trial, the loss adjusters contended that the claim should not be allowed because the contract between takaful operator and the loss adjuster was tainted by illegality. The loss adjuster also contended that the takaful operator ought to be “vicariously liable” for the its employee’s conduct.
The High Court disagreed with the loss adjuster’s contentions and found that the contract was legal and enforceable.
In arriving at this decision, the High Court observed that the doctrine of vicarious liability was irrelevant as there had been no tortious claim brought by the loss adjusters against the takaful operator’s employee. The Court observed that, if the loss adjusters was contending that its contract with the takaful operator was illegal because of the actions of the takaful operator’s employee, the appropriate principle to consider was the doctrine of attribution.
Under the principle of attribution, the loss adjusters would not be held responsible for the takaful operator’s losses if they were caused by takaful operator’s employee if that employee's conduct could be “attributed” to the takaful operator.
In allowing the takaful operator’s claim, the High Court applied the House of Lord’s decision in Rolls & Stone Ltd (In Liquidation) v Stephen Moores (a firm). In that case, the Court had employed the concept of the “directing mind” of a company, finding that the fraudulent conduct of a director could be treated as the conduct of the company or to be attributed to the company if the individual was the “directing mind” of the company.
Applying this principle, the High Court found that the employee’s actions could not be attributed to the takaful operator as the employee was not the “directing mind” of the takaful operator.
The Court also considered attribution from a principal-agent point of view but was of the view that an agent who acts against its principal’s interests cannot be said to be acting within his authority. The Court also held that an agent’s knowledge should not be attributed to his principal where the knowledge relates to the agent’s own breach of duty to his principal.
Finally, the High Court noted that the “very thing” argument also applied to the present case: illegality should not be raised to defeat a claim where the damage was caused by fraud which was the “very thing” the defendant was appointed to investigate in the first place.
In allowing the takaful operator’s claim against the loss adjusters, the Court also allowed the loss adjusters’ 3rd party claims against the 12 participants, who had participated (no pun intended) in the fraudulent scheme.
Court of Appeal
On appeal, the loss adjusters held steadfast to their position that the takaful operator ought to have been found vicariously liable for its employee’s actions.
The loss adjusters also contended that the High Court had erred in relying on Stones & Rolls Ltd, which has been criticised in more recent decisions by the Supreme Court of the United Kingdom. The loss adjusters asserted that the UK Supreme Court’s judgment in Singularis Holdings Ltd (in liquidation) v Dajwa Capital Markets Europe Ltd was now the prevailing law on the concept of attribution.
On the point of vicarious liability, the Court of Appeal affirmed the High Court’s finding that vicarious liability could not be used as a defence in the manner advanced by the loss adjusters (i.e., as a defence to a breach of contract, in the absence of any claim against a principal tortfeasor)
On the issue of illegality and attribution, on the takaful operator’s behalf, we argued that the that the High Court would not have reached a different conclusion even if it had applied the Singularis instead of Stones & Rolls.
In Singularis, the plaintiff company brought an action against an investment bank for making payments from moneys held to its account to 3rd parties. These payments were made on the instructions of a director and the sole shareholder of the plaintiff. The claim brought against the investment bank was for breach of its “Quincecare” duty of care (an implied term of a contract between a bank and its customer that the bank would use reasonable skill and care in executing customer orders).
The issue in Singularis Holdings Ltd was whether such a claim would be defeated if the instructions were given by the company’s director and sole shareholder who was the “dominant influence over the affairs of the company”. The UK Supreme Court was not inclined to apply the “controlling mind” or “dominant influence” test used in Stones & Rolls. Instead, the Court employed a “context and purpose” approach to attribution.
In applying this approach, the UK Supreme Court declined to attribute the fraudulent acts of the company’s director and sole shareholder to the plaintiff company. The Supreme Court held that:
“The context of this case is the breach by the company's investment bank and broker of its Quincecare duty of care towards the company. The purpose of that duty is to protect the company against just the sort of misappropriation of its funds as took place here. By definition, this is done by a trusted agent of the company who is authorised to withdraw its money from the account. To attribute the fraud of that person to the company would be, as the judge put it, to 'denude the duty of any value in cases where it is most needed' (para [184]). If the appellant's argument were to be accepted in a case such as this, there would in reality be no Quincecare duty of care or its breach would cease to have consequences. This would be a retrograde step.”
Similarly, we argued that the “context” in the present case was the breach by the loss adjusters of its contractual duty towards the takaful operator. The “purpose” of that duty was to protect the takaful operator against incorrectly paying out on claims, which was the very thing that took place. Therefore, to attribute the employee’s fraud to the takaful operator would be to denude the loss adjusters’ duty of any value in cases where it is most needed. Therefore, the employee’s fraudulent actions ought not to be attributed to the takaful operator.
After hearing lengthy submissions from both parties, the Court of Appeal dismissed the appeal and upheld the decision of the High Court. In delivering its decision, the appellate Court did not provide its views on the doctrines of illegality and attribution. As of the publication of this article, the grounds of judgment are unavailable. Without the benefit of written grounds, it will be interesting to see how the doctrine of attribution (in the context of an “illegality” defence) will be treated and applied by the Courts moving forward, particularly with regard to the UK Supreme Court’s approach in Singularis.
Authors: Harish Nair and Casper Tey
Insurable interest is one of the most fundamental concepts in insurance law and is not without its share of criticism and discombobulation. For the uninitiated, in the realm of life insurance, insurable interest in simple terms (if there is such a thing) is the interest one person has in another person’s life in that it would prejudice that first person financially or emotionally if that other person were to come to harm or death. Cue the discombobulation.
On the surface, the concept of insurable interest can appear to be straightforward although there are pundits who would disagree. Malaysian legislation does not definitively define the term “insurable interest”, but the Financial Services Act 2013 (and the Insurance Act 1996 and the Insurance Act 1963 before that) does enumerate the categories of persons in whose lives one is deemed to have insurable interest. The focus of discussion in this article, however, relates to the timing requirement of insurable interest.
Before delving into the Malaysian position, the origins of the concept, i.e., the English law on insurance, ought to be considered briefly to shed some light on the importance of insurable interest. In the nascent years of English insurance, anyone could effect insurance on anything or anyone. With no parameters or safeguards of any sort, it is not difficult to see how this form of insurance can be abused. One could effect insurance on the life of a debilitated stranger and claim monetary benefit upon the demise of said stranger and, in the early days of insurance, this sort of practice mutated insurance contracts into gambling or wagering contracts. One bets with an insurer on the chances of an event occurring (e.g., death of a stranger) and then later claims the amount wagered upon occurrence of said event; in some cases, said event would even be deliberately brought about for financial gain.
English legislators, in an endeavour to curb such depravity, introduced the concept of insurable interest in the Life Assurance Act 1774 (“LAA 1774”). The LAA 1774 provided that the person benefitting from an insurance must have insurable interest in the life or event insured and, if insurable interest is absent, the insurance is void. Additionally, the insured can recover no more under an insurance policy than the value of the insurable interest.
This meant that A, for example, who intends to effect insurance on the life of B, must have insurable interest in B’s life, otherwise the insurance would be void; also, the amount of moneys payable to A under the insurance must be no more than the value of A’s interest in B’s life.
However, the LAA 1774 stopped short of prescribing how long the insurable interest had to last or whether the insurable interest had to subsist after insurance had been effected. There was room for interpretation and some English Courts took the position that all that was required was for insurable interest to exist at the point the insurance was effected so that A could still go on to receive the insurance proceeds upon B’s demise despite A no longer having any insurable interest in B’s life at any time after the inception of the insurance.
Two prominent cases in which the English Courts tussled with whether this ought to be the case are Godsall v Boldero (1807) 9 East 72 and Dalby v India and London Line Assurance [1843-60] All ER Rep 1040.
In the case of Godsall v Boldero, a creditor effected insurance on the life of his debtor for the amount of the debt. After the debtor died, his executors settled the entire debt. Nevertheless, the creditor made a claim for moneys under the insurance. The insurer denied the creditor’s claim, reasoning that there was no more debt (i.e. no prejudice against the creditor and in essence, no insurable interest). The Court found in favour of the insurer and ruled that the insurance was substantially a contract of indemnity insuring against the loss of the debt. The Courts in Godsall v Boldero concluded that insurable interest should exist at time of the insured event and that the insurance was a contract of indemnity.
This decision was overruled by the Court in Dalby v India and London Line Assurance. In the case of Dalby, an insurance policy was effected on the life of the Duke of Cambridge with insurance company Anchor Life Assurance Co which subsequently applied for reinsurance with the defendant reinsurers for said insurance policy. Sometime before the Duke died, the insurance policy effected on his life was cancelled. Anchor Life, however, continued to pay premium for the reinsurance and went on to make a claim for the reinsured sum from the defendant when the Duke eventually died. The defendant rejected the claim on the basis of the absence of insurable interest at the time of death; sure enough, Anchor Life itself did not pay anything upon the death of the Duke as there was no insurance. Despite this, the Court found in favour of Anchor Life, stating that:
This decision is not without its critics and one could offer several reasons for this. After cancellation of the policy on the Duke’s life, Anchor Life stopped receiving premium and was no longer bearing the risk of insuring the Duke. How the Court could think it correct that Anchor Life should be paid the reinsurance moneys when the very basis of the reinsurance had ceased (or, in other words, Anchor Life no longer had any insurable interest) simply because Anchor Life had continued to pay premium is anyone’s guess. Some critics even take the view that this decision in fact legitimizes the wagering and gambling the law had sought to curb.
Nevertheless, this progress of insurable interest in English law has been reflected in Malaysian legislation as well; first in the Insurance Act 1963, then in the Insurance Act 1996 and, finally and currently, in the Financial Services Act 2013.
Section 40 of the Insurance Act 1963 most closely mirrored the position in the LAA 1774 and the position taken in Dalby. Section 40 provided that a life policy shall be void unless the person effecting the policy has an insurable interest in the life of the insured at the time the insurance is effected, and the moneys to be paid under the policy shall not exceed the amount of insurable interest at the time the insurance is effected.
This section was later amended and rephrased in the Insurance Act 1996 and renumbered as section 152. The effect of the amendment was that, not only was there a requirement that insurable interest must exist at the time the insurance was effected, but the policy moneys payable upon the insured event, or where the policy moneys were payable in instalments, the discounted value of all future instalments under the life policy, could not exceed the amount of insurable interest at the time of such insured event. For illustration’s sake, using the A & B scenario used earlier, if after A effects a policy on B’s life, A loses its insurable interest in B’s life or has a diminished insurable interest in B’s life, A would not receive anything or receive an amount not more than that diminished interest in B’s life respectively when B dies.
The section 152 provision on insurable interest, with reference to policy moneys payable in instalments specifically, made sense especially for the creditor-debtor category of insurances. A creditor has insurable interest in the life of its debtor; the debtor owes the creditor money and therefore the debtor’s being alive and able to pay the debt is in the interest of the creditor. A creditor can then effect a life insurance policy on the life of the debtor and the amount can be ascertained as well – the insured sum would be the sum the debtor owes the creditor.
Say, for example, the debtor owed the creditor RM12,000 and an arrangement is made whereby the debtor pays RM1,000 each month to the creditor. The creditor effects insurance on the debtor’s life with the total sum insured of RM12,000 and, in sync with the creditor and debtor’s payment arrangement, the sum insured of RM12,000 decreases by RM1,000 every month in correspondence with the decreasing value of the debtor’s debt. However, during the 7th month, the debtor manages to pay off the entire debt and then dies in the 8th month. The fact is, with the debt fully settled, there is no more money due to the creditor and therefore no more insurable interest, but based on the agreement between creditor and insurer, RM5,000 is the sum insured in the 8th month.
Under section 40 of the Insurance Act 1963, the creditor would be entitled to be paid the sum of RM5,000 because it does not matter that there was no insurable interest at the point of death of the debtor; the insurance policy was valid because there was insurable interest at the inception of the policy and therefore the insurer would simply pay the sum insured. Therein lies the disconnect – the creditor, although effecting the insurance to safeguard his interest in the debt of RM12,000 in the first place, stands to receive a windfall of RM5,000 having already been paid the entire debt in the 7th month.
However, under section 152 of the Insurance Act 1996, the moneys payable under the policy must not exceed the amount of insurable interest at the time the insured event occurs; the insurable interest at the point of death of the debtor in the 8th month being 0, the moneys payable not exceeding the amount of insurable interest at that point would also be 0.
Against the backgrounds of moral hazard considerations and general public policy frowning on wagering, one would have thought of section 152 as being a statutory override to the principles laid down in Dalby and that insurers would have legislative support for not paying out at all or in full to a creditor policy owner whenever the value of the insurable interest was extinguished or lessened as at the point of death of a debtor life assured. Oddly enough, particularly in regard to Mortgage Reducing or Decreasing Term Assurance, Malaysian insurers have been known to want to pay in full, i.e., the sum assured as at the point of death, despite the debt having been settled in full or reduced due to pre-payment of instalments. Perhaps because of the one-time payment of premium for the entire term of cover right at the commencement of cover, Malaysian insurers have adopted the stance that, the risk having been paid for in full in advance, they should honour what they agreed to pay when the agreement was first entered into.
There have, of course, been issues as to who the proceeds ought to be paid to; the creditor policy owner, not being owed any more debt by the deceased debtor life assured, and not wanting to be accused of unjust enrichment, declines acceptance of the moneys by proclaiming it no longer has any interest in the insurance; due to the privity of contract rule, payment to the estate of the deceased is also not possible as the insurer would not receive a valid discharge in law thereby. However. these issues can provide fodder for a separate article altogether; in any event, they purport to have been dealt with by the Financial Services Act 2013.
Cue the Financial Services Act 2013 and a reversion to the Insurance Act 1963: paragraph 3(1) of Schedule 8 to this Act repeats the requirement for insurable interest at the time the insurance is effected but makes no mention whatsoever as to whether insurable interest needs to subsist at the time of the event giving rise to a claim. The natural inference from the omission is that Dalby should apply so that it does not matter whether there is still insurable interest at the point of occurrence of the insured event. Whether this has been done to accord with what insurers were already practising despite section 152 of the 1996 Act is not something the legislators will readily admit to.
Spousal insurable interest is also affected by when insurable interest is required. Similar to the English position, in Malaysia, one is deemed to have insurable interest in the life of his or her spouse. But suppose one effects insurance on the life of his or her spouse and later divorces said spouse. Insurable interest no longer exists and suppose also that the marriage breaks down to a point that the person who effected the policy is convinced that it is only logical to do away with the former spouse. And suppose also that murder is arranged and cannot be traced back to the policy owner because, under public policy, one is not able to benefit from one’s own wrongdoing, especially that of the illegal and bloody kind. Under the current law, in this scenario, it would appear that the person who effected the policy would stand to receive the moneys payable under the insurance.
This is not to say that the law as it is currently is an incentive for former spouses with violent, vengeful intentions to carry out the deed, or that insurable interest alone is an effective deterrent against murder. Rather, the point of this discussion is really whether any policy owner should benefit from the death of an individual they no longer have any insurable interest in.
The overriding concern in the two scenarios mentioned, creditor-debtor and spouses, is moral hazard – where insurable interest has ceased, should a creditor be allowed to make a profit and should an individual be allowed to benefit monetarily from the death of a former spouse?
On the one hand, there is the argument that life insurance is not indemnity insurance and that the value of a human life or the benefit derived from human relationships cannot be quantified or limited, but what if creditor-debtor insurances, despite being effected on the life of a debtor, worked on an indemnity basis? After all, the purpose of the insurance on the debtor’s life is to ensure that the creditor is not left with an unpaid debt in case the debtor dies before settling the debt. Further, in this scenario, the amount of insurable interest is quantifiable and capable of being proven to a tee.
To take it a step further, one could also argue radically that life insurance should, perhaps, be contracts of indemnity. It is conceded that there cannot be a limit on the value of the insurable interest one places on their spouse, but when the insurable interest ceases to exist, when the policy owner is deemed to not suffer prejudice, emotional, monetary or otherwise, upon the death of that former spouse, it could be argued that the policy owner should not stand to benefit from said death.
Any concerns of premiums paid continuously since the inception of the policy with an expectation to receive the sum insured upon occurrence of insured event can be addressed by making it compulsory for policy owners to notify insurers of a divorce or other change in insurable interest. Alternatively, insurers could automatically be notified by the relevant authorities upon finalisation of the divorce, then premiums would no longer be collected and the policy should terminate immediately due to lack of insurable interest.
Certain insurers are not perturbed by this lack of requirement of insurable interest at the time of payout; having calculated and accepted the risk of insuring the life assured, insurers are generally ready to make that payout and their priority would be to do so correctly in accordance with the law. On the flipside, there are creditors, mostly institutional and for accounting reasons perhaps, that do not accept the surplus moneys payable under policies where debts have been settled, even when the insurer insists on paying. Therefore, it would be worthwhile for a change to legislation insofar as when insurable interest is required is concerned if it will mean a leaner, more efficient system of insurance. If nothing else, an ex-spouse bent on a quick kill for profit may rethink his or her strategy if there is nothing to be got from murder most foul.
Authors: Christopher Foo and Jessie Lim
We are incredibly excited and honoured to announce that JJNN has been nominated as a finalist in the "Rising Law Firm of the Year" category at the upcoming Asian Legal Business (ALB) Malaysia Law Awards 2023.
As we passed the 1 year mark only a couple of months ago, this recognition is especially rewarding to us. We would be remiss not to record our thanks to all members of our JJNN family for their hard work and perseverance in helping us and for continuing to strive for excellence in all that we do. We also thank our clients and friends for their continuing support and trust.
On 22nd December 2022, the High Court struck out a class action suit seeking more than RM300 million against our client, a professional trustee company. Our Christopher Foo and Harish Nair acted for the client.
In 2010, a group of investors (including the plaintiffs in the suit under discussion) invested and took part in an oil palm plantation scheme set up and operated by a management company. Our client was appointed as the trustee of the scheme under a trust deed entered into between our client, the management company, and each investor of the scheme.
The scheme had been established, and subsequently opened for public subscription, under Division 5 of the Companies Act 1965. Upon the Act being repealed, the scheme then fell to be governed under the Interest Scheme Act 2016. Under the scheme, a certain number of “plots” were created and offered to the public for purchase. The scheme was planned to last for up to 23 years, with 2 phases envisaged. Under the trust deed, the management company was required to “repurchase” the plots during the second phase of the scheme if requests were made by the investors. Investors were also entitled to a return on their investment in the form of receipt of “net yield” from the oil palm plantation.
Around 2016, the scheme met various challenges, including an unexpectedly high volume of requests for repurchase of plots by investors. A meeting of the investors was then held pursuant to the provisions of the trust deed. A resolution was put forward to close the scheme with immediate effect, which was passed by a vast majority of the investors present and voting at the meeting.
Following this, a group of investors brought a representative action by way of an originating summons against the management company. This group of investors were asking the Court to order the management company to pay all monies due on the “net yield” and to repurchase all the plots in the second phase of the scheme. In this representative action, the investors heavily contended that the scheme was a “ponzi scheme” because the scheme was set up in such a way that investors could not request that the management company “repurchase” the plots in the first phase of the scheme (the first 6 years). Therefore, the investors contended that the scheme allowed the management company to swindle the investors during the first 6 years (i.e., the first phase) and subsequently close the scheme as soon as the scheme entered the second phase. The investors claimed that the provision in the trust deed that allowed the management company to call for a meeting of the investors to close the scheme was a convenient “exit clause”.
At the same time, the management company filed their own originating summons seeking to wind up the Scheme in light of the resolution passed at the investors’ meeting.
Both summonses were heard together by the High Court. The High Court found that the resolution passed (to close the scheme) at the investors’ meeting was null and void. The scheme was ordered to be wound up. In arriving at its decision, the High Court found that the investors’ contention that the scheme was a “ponzi scheme” was baseless and unsubstantiated.
On appeal, the Court of Appeal found that the resolution passed at the Growers’ Meeting was valid and the Scheme was wound up thereafter. The High Court’s order was varied accordingly (i.e. the remainder of the decision of the High Court was affirmed). The Court of Appeal did not disturb the High Court’s finding that the scheme was not a “ponzi scheme”.
In 2022, the plaintiff, by way of a second representative action, filed a suit against our client, the trustee company. The plaintiff contended that the trustee knew or ought to have known that the scheme was a scam. The plaintiff’s reason for this was that the management company was able to invoke the so called “exit clause” under the trust deed to close the scheme when the scheme entered its 2nd phase. The plaintiff further contended that, by failing to warn the investors or to safeguard the investors’ interests, the trustee had breached its duties to the investors. The plaintiff also contended that the trustee had acted in conflict of interest and in concerted fraud with the management company to defraud the investors.
At the hearing, on behalf of our client, we contended that the principle of res judicata and issue estoppel barred the plaintiff from reventilating the issues which were raised or ought to have been raised in the previous suit against the management company (i.e. Round 1). Essentially, the thrust of the plaintiff’s case was the contention that the scheme was a “scam” and that the trustee had been in cahoots with the management company in an attempt to defraud the investors - the contention that the scheme was a scam had been considered and dismissed by the High Court in the previous suit. While there was a difference of semantics, i.e. the use of the word scam in Round 2 and “ponzi scheme” in Round 1, the plaintiff’s claim was still barred by the principles of res judicata and issue estoppel - simply utilising new nomenclature should not defeat these established principles. The principle of res judicata, and issue estoppel in particular, seeks to prevent there being different findings made by the Courts on the same issue, coming out of different suits or actions. In this case, if the scheme was found to be a scam, it would result in there being two contradicting decisions of the High Court – with the Court finding, during Round 1, that the scheme was not a “ponzi scheme”.
The plaintiff contended that the principle of res judicata did not apply on the basis that the trustee was not a party to previous suit. Further, the plaintiff argued that the causes of action in the present suit were different from the cause of action in the previous suit. In response, on behalf of the trust company, we argued that, regardless of the fact that the trustee was not a party to the previous summons and that the causes of action were different, issue estoppel would still apply to bar the plaintiff. In fact, there is a litany of prior decisions of the High Court in support of this point.
The High Court held in our client’s favour and struck out the plaintiff’s claim. The High Court agreed with our submissions that:
The plaintiff has filed an appeal to the Court of Appeal against the High Court’s decision.
Authors: Harish Nair and Casper Tey
On 16.02.2023, our Tai Wei Jeat and Maxine Lim successfully resisted an application by a creditor to set aside an order sanctioning a scheme of arrangement under Section 366 of the Companies Act 2016 (“Sanction Order”).
At the hearing, the arguments centered around whether the High Court had jurisdiction to set aside the Sanction Order that it had previously granted. The parties were in agreement that there appeared to be no reported decisions by the Malaysian Courts specifically dealing with this issue. Further, there is no express provision in the Companies Act 2016 dealing with the Court’s jurisdiction to set aside a sanction order.
On behalf of our client, we contended that there was no reason why the general principle enunciated by the Federal Court in Badiaddin Bin Mohd Mahidin & Anor v Arab Malaysian Finance Bhd [1998] 1 MLJ 393 as well as Hock Hua Bank Bhd v Sahari bin Murid [1981] 1 MLJ 143, (i.e. a court may only vary or set aside a judgment and/or order regularly obtained in limited circumstances), should not apply to a sanction order pertaining to a scheme of arrangement. The position of the law in the United Kingdom, Australia and Singapore was also canvassed during the hearing.
After hearing submissions from counsel for both parties, the Court agreed with our contention that it lacked jurisdiction to set aside the Sanction Order. The Court accordingly dismissed the creditors’ application.
Setting Aside Adjudication Decisions under CIPAA: Growing Judicial Trends
Since its introduction in 2014, the Construction Industry Payment and Adjudication Act 2012 (‘CIPAA’) and its effects have been widely felt throughout the construction industry. In its attempt to address the cash flow problems that had long pervaded the industry, CIPAA’s applicability to all construction contracts also increased the palette of tools available to contractors seeking to recoup finances.
Under CIPAA, disputes may be adjudicated summarily, and the resulting adjudication decision will become binding and enforceable on the parties. Section 15 of CIPAA provides that an aggrieved party may apply to the High Court to set aside an adjudication decision on certain grounds, with one such ground being a denial of natural justice. A section 15 setting aside application premised on a denial of natural justice may succeed before a court where the grievances indicate that the adjudicator had conflicts of interest (rule against bias) and/or that the adjudicator did not hear both sides of the dispute (the right to a fair hearing).
The High Court recently issued several decisions expanding upon what may amount to an adjudicator not hearing both sides of the dispute, undoubtedly issued in response to the spate of claims attempting to set aside adjudication decisions on such grounds. Two High Court decisions best shed such insight into this growing judicial thinking.
(1) China Construction Yangtze River (M) Sdn Bhd v Gold Mart Sdn Bhd [2022] MLJU 1789
Consequent to an adjudication under CIPAA, the Defendant was ordered to pay RM1,354,435.39 to the Plaintiff (‘the Decision’). Despite the Decision being in their favour, the Plaintiff applied to set aside the Decision.
In court, the Plaintiff confined its claim to a denial of natural justice on the part of the adjudicator. The Plaintiff contended that the adjudicator failed to consider two arguments advanced by the Plaintiff that would have otherwise increased the amount payable to the Plaintiff.
Firstly, the Plaintiff argued that the adjudicator failed to consider the issue of the Plaintiff’s lawful suspension of the Project works, which affected the sum of liquidated damages in the Decision (‘the Lawful Suspension Issue’). Secondly, the Plaintiff contended that the adjudicator did not consider the issue of the ‘wider scheme’ agreed between parties to waive the renewal of the performance bond which would have affected the Defendant’s right of set-off (‘the Wider Scheme’).
The Lawful Suspension Issue
The Plaintiff contended that the Defendant’s failure to promptly pay the Plaintiff in accordance with the contract caused the Plaintiff to exercise its right to suspend the Project under the Contract.
Shortly after the imposition of the Movement Control Order in 2020, the Defendant denied being indebted to the Plaintiff as claimed. Instead, the Defendant asserted that it had overpaid the Plaintiff after taking into account the deduction of liquidated damages among other things. The Plaintiff continued suspending the Project works, leading to the Defendant determining the employment of the Plaintiff under the Contract.
The Plaintiff contended that, at the point of the Defendant’s determination, the adjudicator wrongly assessed the set-off of RM49,230,000 for liquidated damages deductible as the adjudicator did not consider the Plaintiff’s entitlement to an extension of time due to the lawful suspension of the Project owing to the imposition of MCO.
The Wider Scheme
The Plaintiff contended that the adjudicator also allowed the set-off/retention of the sum equal to the performance bond without considering the ‘wider scheme’ agreed to by both parties that obviated a further requirement of providing a performance bond by the Plaintiff.
The High Court’s Decision: the Lawful Suspension Issue
The High Court relied on the dicta in ACFM Engineering & Construction Sdn Bhd v Esstar Vision Sdn Bhd [2016], where the Court of Appeal observed that the fact that the appellant did not complain that the adjudicator had got the disputes on a wrong footing or that the adjudicator premised his decision on the wrong issues pointed towards the fact that the appellant’s complaint related to the merits of the adjudicator’s decision. The Court of Appeal held that section 15 of CIPAA does not provide for a court to review the merits of a decision or decide the facts of the matter. Instead, the court should look only at the manner at which the adjudicator conducted the hearing for errors of law of procedural fairness.
In deciding the Lawful Suspension issue, the High Court found that the adjudicator had not stated anywhere in the Decision that he would not consider the issues advanced by the Plaintiff. Rather, the High Court observed that the adjudicator made note of the Plaintiff’s expert evidence as adduced at the adjudication:
‘… I find that the adjudicator stated as follows in paragraph (31) of his Decision in respect of the first of two issues raised here by the Plaintiff:
“… I note that Mr Powell was of the view that no EOT is due in relation to the MCO and CMCO, but I take a different view”.’
As such, the High Court held that the adjudicator had indeed considered the Lawful Suspension issue, and had come to a decision after considering the competing expert evidence. The High Court remarked that even if there was an error on the computation of extension of time, this would go to the merits of the Decision.
The High Court’s Decision: the Wider Scheme
The High Court disagreed with the Plaintiff’s contention that the adjudicator had failed to consider the Wider Scheme issue. Instead, the Court held that the adjudicator had in fact considered this issue in the Decision but found that it was inconclusive as to whether a definitive agreement had been reached:
‘… I find that the adjudicator stated as follows in paragraph (47) of the Decision:
“… I am of the view that any arrangement reached… would have been part of a wider scheme which contemplated inter alia the completion of at least part of the Contract Works and which wider scheme has been superseded by events… I make no findings as to whether such wider scheme was ever agreed between the parties”.’
As such, the Wider Scheme was merely “peripheral and not material to justify a denial of natural justice even if the same has not been considered by the adjudicator as so contended by the Plaintiff”.
(2) PBJV Group Sdn Bhd v Enquest Petroleum Production Malaysia Ltd [2022]
Consequent to a letter of award followed by a formal PM-MCM contract (collectively ‘the Contract’), Enquest appointed PBJV as its contractor to execute the provision of maintenance, construction and modification works (‘the Works’).
Upon carrying out each portion of the Works as instructed, PBJV would submit tax invoices to Enquest. A total of 365 tax invoices were submitted by PBJV, with 307 approved and paid by Enquest. PBJV subsequently issued a notice of demobilisation of the Contract and a payment claim to Enquest pursuant to CIPAA for underpayment/non-payment of the 57 tax invoices of work done totalling to RM73,570,587.19.
The adjudicator ordered Enquest to pay PBJV a sum of RM71,567,429.55 together with interests and costs (‘the Decision’). Enquest did not make payment of this sum, and PBJV sought recourse by filing court proceedings whilst Enquest filed an application to set aside the Decision (‘the Setting Aside Application’).
Enquest contended that there had been a denial of natural justice and advanced three lines of argument. Firstly, the adjudicator failed to consider any of the clauses cited and relied upon by Enquest in its adjudication response and thus failed to appreciate the true effect and nature of the Contract when rendering the Decision. Secondly, the adjudicator adopted a ‘broad-brush’ approach without considering the specific arguments advanced by Enquest on each head of PBJV’s claims. Finally, the adjudicator failed to seek clarification notwithstanding an acknowledgement that there were discrepancies in PBJV’s supporting documents.
The High Court’s Decision
The High Court observed that section 15 of CIPAA was not meant as an appeal on the merits of an adjudication decision and referred to ACFM Engineering and Construction Sdn Bhd v Esstar Vision Sdn Bhd [2016], where it was held that natural justice ‘is nothing more than what we call the concept of ‘procedural fairness’’. Reference was also made to Ireka Engineering and Construction v PWC Corporation Sdn Bhd [2019], where the Court of Appeal held that there are two limbs to the rules of natural justice: (1) a man should not be the judge in his own cause; and (2) a judge must hear both sides of the dispute. In that vein, the court placed weight on the fact that the aggrieved party made no complaints that they were prevented from tendering evidence or from making certain submissions during the adjudication proceedings.
The High Court observed that the adjudicator had appropriately reviewed the adjudication claim and reply and had appropriately distilled the principal eight issues that required his decision. The High Court stressed that ‘the Decision must be read and understood contextually’ and by doing so there was ‘nothing seen the Decision that the Adjudicator has expressly excluded any argument put forth by the parties.’.
The High Court held that the Decision ‘need not be scrutinized with a fine-tooth comb addressing each and every argument raised by the parties’ and more particularly, an ‘absence of the adjudicator addressing each and every argument raised by the parties do[es] not mean that the Decision is unreasoned’.
Most notably, the High Court judge opined that adjudication decisions ‘must have reasons which on practical terms are often the winning party’s argument’ and although ideal, the ‘adjudication decision need not however have reasons that address the converse which on practical terms are the losing party’s position’.
In view of the above, the High Court held that the adjudicator had sufficiently set out his reasons to substantiate his findings when the Decision was read as a whole. The Court also held that Enquest’s complaint that the adjudicator did not seek clarification from the parties did not merit court intervention, as it was the adjudicator’s ‘prerogative to attach the appropriate weight to the evidence accordingly’.
Take-Home Points
The two High Court decisions above demonstrate that the courts lean towards the position that an adjudicator is only deemed to have not heard both sides of the adjudication dispute where the adjudicator makes express statements that they would not consider and decide issues advanced by either party.
The converse implication is that a court is more willing to find an adjudicator as having considered an argument even if an adjudicator merely refers to the argument in passing, or even only to the aggrieved party’s expert evidence, as was the case in China Construction Yangtze River v Gold Mart Sdn Bhd [2022]. Additionally, an adjudicator making ‘broad brush’ considerations without particularization or specification of ‘each and every argument raised’ does not equate to a breach of natural justice, as demonstrated in PBJV Group Sdn Bhd v Enquest Petroleum Production Malaysia [2022]. Notably, a court will train their attention towards the adjudicator’s reasoning in their rendered decision and will accept an adjudicator’s reasoning that are adoptions of the successful party’s position.
It may therefore be taken that, when dealing with an allegation by an aggrieved party of there being a denial of natural justice, the courts start from the position that the adjudicator has more likely than not accorded procedural fairness to the parties. Parties considering mounting a section 15 setting aside claim premised on the adjudicator not hearing both sides, i.e., a denial of natural justice, will require a compound of express facts other than just the sole contention that there was an absence of points in the adjudication decision addressing each and every argument.
For queries, please contact any of the following persons:
The JJNN team of Christopher Foo, Juen Chong and Emeline Khoo recently succeeded in a claim for a life insurance company client who brought an action in Court against its ex-agent and former agency manager for a refund of commissions and bonuses paid on 2 policies which were cancelled.
The KL High Court rejected the defence that cancellation of insurance policies could only be done during the statutory cooling-off period of 15 days.
The defence contention that the right to clawback did not survive the termination of the agency agreement was similarly rejected as the agreement in question had been drafted sufficiently widely to provide for survival.
A counter-claim by the defendants for loss of income allegedly suffered as a result of having been blacklisted with LIAM because of the moneys owing by them to our insurance company client was dismissed.
The new section 106A of the Income Tax Act (“ITA”) came into operation on 1 January 2022. Section 106A of the ITA is reproduced in full at the end of this article.
Much has been said about the new section 106A of the ITA and there appears to be an impression that the enactment of the section will mean that the Inland Revenue Board (“IRB”) will have unlimited access to taxpayers’ bank accounts.
This, however, is not the case. It is clear from subsection 106A(1) of the ITA that the IRB’s power to require a taxpayer’s bank account information to be furnished is not unlimited – it can only be exercised in limited circumstances, namely where:
(i) civil proceedings have been instituted against the taxpayer under section 106 of the ITA (i.e. where a civil suit has been initiated against the taxpayer to recover taxes that remain unpaid); and
(ii) a judgment has been obtained against that taxpayer (i.e. the court has decided that the taxpayer must pay the taxes).
It is also clear from subsection 106A(1) of the ITA that the IRB’s power under section 106A of the ITA is only “for the purpose of making an application to court for a garnishee order”. This means that this power can only be exercised for the purpose of enforcing a judgment (via a garnishee order) obtained against the taxpayer for the payment of taxes and not for any other purpose. In essence, a garnishee order is a court order requiring a third party who owes money to the judgment debtor to pay the money to the judgment creditor instead. As example of this is as follows:
ABC Sdn Bhd (“ABC”) sued DEF Sdn Bhd (“DEF”) for RM 1 million and was successful in court. GHI Sdn Bhd (“GHI”) owes DEF RM 2 million. ABC can apply for a garnishee order from the court requiring GHI to pay RM 1 Million instead of DEF
There are therefore inherent safeguards for taxpayers set out in section 106A of the ITA itself. In fact, the IRB issue a media statement on 18 December 2021 titled “AKSES KE AKAUN BANK PEMBAYAR CUKAI ADA BATASNYA” (“ACCESS TO TAXPAYERS’ BANK ACCOUNTS HAS ITS LIMITS”) which reiterates that the IRB’s power under section 106A of the ITA can only be exercised in limited circumstances, namely for cases where the court has made a garnishee order.
That being said, it is understandable that some remain sceptical about this enlargement to the IRB’s already wide powers under the ITA. As Uncle Ben said, “with great power, comes great responsibility”. One question in some taxpayers’ minds is whether the bank account information obtained by the IRB for the purpose of garnishee proceedings could then be used as a basis for a new audit or investigation on the taxpayer on other issues.
Taxpayers have in the past successfully challenged the IRB’s use of their powers. 2 recent cases come to mind:
For now, it remains to be seen how this new power will be used by the IRB. Taxpayers can however rest assured that protection can be sought from our courts where there is any abuse or improper use of power.
Disclaimer: The information contained herein is for general information and does not constitute legal advice rendered by the Firm. The Firm will not accept liability for any loss or damage in connection with the use of information contained in this article.
Feel free to consult us should you require any legal consultation.
Section 106A of the ITA - Power to call for bank account information for purpose of making garnishee order application
Juen, Jeat, Nic & Nair celebrates 2 significant milestones today. Firstly, we congratulate our Managing Partner, Christopher Foo, on completing 41 years in legal practice yesterday. As he begins his 42nd year at the Bar today, showing no signs of slowing down, we salute his tenacity and perseverance and look forward to his continued leadership of the firm.
Secondly, we are happy to announce that Emeline Khoo has joined us as Juen, Jeat, Nic & Nair's first ever associate. Emeline's experience in practice ranges from employment and industrial relations matters to corporate investigations into fraudulent practices and regulatory non-compliance. She has also acted in shipping related matters as well as in various civil disputes.
We look forward to celebrating more milestones as we continue to grow as a firm.
© Juen, Jeat, Nic & Nair, 2022
Powered by Gin+ Tonic
Office
B-7-5, 7th Floor Corporate Suites
Gateway Kiaramas
1 Jalan Desa Kiara
50480 Kuala Lumpur
Phone
+603 6413 6218
Email
general@jjnn.com.my
Follow Us
© Juen, Jeat, Nic & Nair, 2022
Powered by Gin+ Tonic