Hanifah Teo & Associates V Bdo Binder &3lagi

  

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W-02-956-05/2012

 

DALAM MAHKAMAH RAYUAN MALAYSIA (BIDANGKUASA RAYUAN) RAYUAN SIVIL NO.W-02-956-05/2012 RAYUAN SIVIL NO.W-02-1039-05/2012

 

ANTARA

 

HANIFAH TEO & ASSOCIATES

 

(mendakwa sebagai firma) … PERAYU

 

DAN

 

1.BDO BINDER

 

(didakwa sebagai firma)

 

2. BDO CAPITAL CONSULTANTS SDN BHD … RESPONDEN-

 

RESPONDEN

 

DAN

 

3. CHEW CHONG EU

 

4. DATO’ ABU HANIFAH BIN NORDIN … RESPONDEN-

 

RESPONDEN/ PIHAK-PIHAK KETIGA

 

(Dalam Perkara Mengenai Mahkamah Tinggi Malaya Di Kuala Lumpur No. Guaman No: S6-22-654-2006

 

Antara

 

Hanifah Teo & Associates

 

(mendakwa sebagai firma) … Plaintif

 

Dan

 

1 .BDO Binder (didakwa sebagai firma)

 

2.BDO Capital Consultants Sdn Bhd … Defendan-Defendan

 

1 .Chew Chong Eu

 

2.Dato’ Abu Hanifah Bin Nordin

 

1

 

Pihak-Pihak

 

Ketiga]

 

W-02-956-05/2012

 

CORAM

 

CLEMENT SKINNER, JCA LIM YEE LAN, JCA ROHANA BINTI YUSUF, JCA

 

GROUNDS OF JUDGMENT

 

[1] These two appeals which were heard together arose from a suit brought by Hanifah Teo & Associates (the Appellants) a firm of accountants. At the High Court the Appellants had sued BDO Binder (a firm) and BDO Capital Consultants Sdn Bhd (“the Respondents”) for a sum of RM614,500.00 later amended to RM716,400.00.

 

[2] The basis of the Appellants’ claim was that the sum of RM614,500.00 represented the share of fees payable to the Appellant for work undertaken by the Appellant and the Respondents as Special Administrators to two Public Listed companies. By agreement, the fees were to be shared on a 70% (to Respondents) and 30% (to Appellants) basis.

 

[3] Although the Respondents acknowledged that there was such a fee sharing agreement in place, the Respondents denied any liability to pay the Appellants the sum claimed as the Respondents maintained that the sum claimed had been paid over to one Chew Chong Eu who was a partner of the Appellant firm. The Respondents maintained that such

 

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payment to Chew Chong Eu, constituted a complete discharged of the debt due to the Appellant firm. The Appellant takes a different view. The Appellant maintains that the Respondents were not so discharged when the Respondents made payment to Chew Chong Eu, as he was never at any material time a partner in the Appellant firm as he was not a “licenced auditor” and therefore could not be a partner of the Appellant firm.

 

[4] When the Appellant filed this action against the Respondents, the Respondents’ issued Third Party proceedings against Chew Chong Eu and Dato’ Abu Hanifah Bin Nordin (the Third Parties) and sought against them a full indemnity or contribution towards any sums which the Respondents may be ordered to pay the Appellant. The Respondents sought such relief against the Third Parties on the basis that the monies had been paid over to Chew Chong Eu and Dato’ Abu Hanifah as partners of the Appellant firm.

 

[5] In the Third Party proceedings, one of the defences raised by the Third Parties to the Respondents’ claim was that the Appellant had no right to bring or file the claim in the main suit in the name of Hanifah Teoh & Associates as that partnership had been dissolved on 26.10.2000 after a notice of dissolution had been issued to that effect by Dato’ Hanifah. The other defence of the Third Parties was that they had received the monies on trust for the Appellant firm pending the winding up of the affairs of the Appellant firm and the taking of accounts in respect thereof.

 

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The High Court decision

 

[6] In the main action between the Appellants and the Respondents the learned Judicial Commissioner dismissed the Appellants’ claim for the following reasons:

 

(a) that notwithstanding Chew Chong Eu was not registered as a licenced auditor with the Appellant firm and was also not referred to in official documents of the Appellant as a partner, Chew Chong Eu’s position in the Appellant firm is that of a partner as evidenced by several internal documents including the Minutes of Partners’ Meetings which showed Chew Chong Eu’s involvement as a partner and he was to receive 25% of the partnership profits;

 

(b) that the sum of RM708,000.00 was held by Chew Chong Eu on trust for the Appellant;

 

(c) that the Respondents were not liable for the said sum to the Appellant, as payment to Chew Chong Eu constituted payment to the Appellant firm;

 

(d) that the Appellants’ action should be dismissed on a further ground, as it was “defective” as the action was commenced without authority after the notice of dissolution of the Appellant firm on 26.10.2000, issued by Dato’ Hanifah.

 

The above decision in the main action gave rise to the first appeal.

 

[7] In the Third Party proceedings between the Respondents and the Third Parties, the learned Judicial Commissioner dismissed the Respondents’ claim for contribution or indemnity from the Third Parties principally on the ground that no right to contribution or indemnity from the Third Parties had arisen in view of the fact that the Respondents

 

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were not liable to the Appellants in any way. The decision in the Third Party proceedings gave rise to the second appeal before us where the Respondent is the appellant and the Third Parties are the respondents.

 

We shall consider each appeal in turn.

 

Appeal W-02-956-05/2012 (the first appeal).

 

[8] In this appeal the Appellant relied on two main grounds. First, it was the contention of the Appellants that the learned Judicial Commissioner had seriously misdirected herself when she held that the Appellants’ action was liable to be dismissed on the ground that it was “defective” as it was commenced without proper authority, the Appellant firm having been dissolved in 2000. The Appellant contended that it was not open to the learned Judicial Commissioner to decide on this point when it was not raised in the pleadings between the Appellant and the Respondents in the main action nor was it an agreed issue to be tried between them in the main action.

 

[9] We find substance in this complaint of the Appellants. It is correct that the question of dissolution of the Appellant firm was not raised in the defence of the Respondents in the main action. It was only in the Third Party proceedings between the Respondents and the Third Parties that such a point was raised. It is settled law that Third Party proceedings for contribution are regarded as independent of and separate from proceeding between a plaintiff against a defendant. See for example the Supreme Court decision in Mat Abu Bin Man v Medical Superintendent, General Hospital, Taiping, Perak & Ors [1989] 1 MLJ 226.

 

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[10] However, it is our view that the decision of the learned Judicial commissioner on this point has no effect on the outcome of the first appeal for the reasons appearing shortly.

 

[11] The Appellant contended that the second misdirection by the learned Judicial Commissioner was when she held that the payment of RM614,500.00 by the Respondents to Chew Chong Eu constituted a valid and effective discharge, in law, of the Respondents’ admitted debt due to the Appellant firm. The Appellant contends that the learned Judicial Commissioner came to the above decision on the basis that Chew Chong Eu was at all material times a partner in the Appellant firm. According to the Appellant this was an erroneous finding in law as the learned Judicial Commissioner had failed to consider that only a “partner” as recognized in law could give a proper discharge of any debt due to the Appellant firm. But according to the Appellant, under section 9(4) and (5) of the Companies Act, 1965 all partners in a firm of auditors (including the Appellant firm) are required to possess an audit licence which Chew Chong Eu had admitted at trial that he did not possess. Therefore, according to the Appellant, since Chew Chong Eu did not hold an audit licence, he was not a partner in the Appellant firm who could give a proper discharge for money paid to the firm. It was the Appellants’ case that the learned Judicial Commissioner misdirected herself, in law, when she arrived at her decision on this point without having due regard to the supervening legal requirements under section 9(4) and (5) of the Companies Act 1965 in determining whether Chew Chong Eu was a “partner” of the Appellant firm.

 

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[12] Having considered the submissions of the parties on the point, we do not agree with the Appellant. We instead concurr with the finding of the learned Judicial Commissioner that Chew Chong Eu was at all material times a partner of the Appellant firm. We say so for the following reasons.

 

[13] There was sufficient documentary as well as oral evidence led before the learned Judicial Commissioner to entitle her to arrive at her primary finding of fact that Chew Chong Eu was a partner of the Appellant firm within the meaning of section 3 of the Partnership Act 1961 and in particular that he was entitled to a share of the profits of the Appellant firm and had undertaken work as a partner in the Appellant firm and had been held out when dealing with third parties such as the Respondents, as a partner of the Appellant firm.

 

[14] With regard to the Appellants’ contentions based on section 9(4) and (5) of the Companies Act 1965, in our judgment the prohibition contained in section 9(4) against a firm being appointed as auditors of a company or to preparing any report to be prepared by approved company auditors unless all the partners of the firm possess an audit licence is a prohibition directed at what type of accounting firms may be appointed or act as company auditors. The section does not seek to forbid, prohibit or regulate who may or may not be a partner in an accounting firm. As such the provisions in section 9(4) and (5) were not, in our view, supervening or overriding provisions of law in determining who may be a partner in an accounting firm. We accordingly find that the learned Judicial Commissioner did not misdirect herself in arriving at the primary finding which she did.

 

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[15] We also find that the evidence shows that while the Appellant as an accounting firm, had undertaken audit work for companies, the Appellant also undertook other non audit work such as insolvency and corporate finance work. In this case the particular work which the Appellant firm had undertaken to earn the fees in dispute was as Special Administrators for Danaharta in respect of two public companies. There was no evidence that Chew Chong Eu in undertaking the Special Administrators work was involved in any sort of audit work for the Appellant firm. There being no statutory prohibition against Chew Chong Eu or the Appellant firm undertaking Special Administrators work, the principles stated in the case of Menaka v Lum Kum Chum [1977] 1 MLJ 91(PC) relied on by the Appellant, does not apply to the facts here.

 

[16] It is our further view that even if it can be shown that the Appellant firm had breached section 9(4) of the Companies Act, such breach would not have the effect of nullifying or rendering as invalid in law the partnership formed in the Appellant firm for the following reasons: (a) the sanction for a breach of the section is found in sub-section (5) itself which states that each partner of the firm shall be guilty of an offence which under section 369(2) of the Companies Act is limited to a fine; (b) the provisions of section 9(4) and (5) not being directed at regulating the composition of an accounting firm or imposing any prohibition as to who may or may not be partners thereof, any breach of the section would not render the partnership itself as unlawful or illegal, since the business operations of the Appellant firm or partnership were not in themselves of an illegal nature (see the Privy Council decion in Sterios Thomopulos & Anor v John Mandilas [1948] AC 12). Put in another way, while a

 

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breach of section 9(4) might invite the sanction of a fine, the business operations of the firm or partnership remains unaffected nor of an illegal nature so that as between themselves and in dealing with third parties the partners continue to remain responsible and liable.

 

[17] Before concluding on this apart of the appeal, it was also a complaint of the Appellant that the learned Judicial Commissioner had not in her judgment addressed Agreed Issues No. 4 and 5 in the main case. These 2 issues related to the question whether the 1st and 2nd Respondents were jointly and severally liable to the Appellants for the debt allegedly due to the Appellant firm. Consequent on our findings above, Issue No. 4 and 5 did not require to be considered by the learned Judicial Commissioner.

 

[18] We accordingly find no valid reasons to interfere with the decision of the learned Judicial Commissioner in the first appeal which we affirm. Even though the learned Judicial Commissioner should not have decided on the “dissolution” point in the main action, such error did not have a bearing on her other findings on the “partnership” point. We award costs of RM15,000.00 to the Respondents.

 

Appeal W-02-1039-05/2012 (the second appeal) relating to the Third Party proceedings.

 

[19] The Respondents’ claim against the 1st and 2nd Third Party was for contribution or to indemnify the Respondents against any liability to the Appellant.

 

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[20] It must follow from our earlier findings in the main action, that since there is no liability established against the Respondents, their right to contribution from or to be indemnified by the Third Parties does not arise. The learned Judicial Commissioner was therefore right in dismissing the Respondents’ claim against the Third Parties.

 

[21] We therefore find no valid reason to interfere with the decision of the learned Judicial Commissioner in the Third Party proceedings, which we affirm. We dismiss the Respondents’ appeal with costs of RM2,500.00 to each of the Third Parties.

 

sgd

 

DATUK CLEMENT SKINNER Judge

 

Court of Appeal Malaysia

 

Dated: 1st March 2013 PARTIES:

 

For Appellants:

 

For Respondents:

 

For Third Parties:

 

Mr Ramesh Abraham Mr Lau Ko Luen Messrs Shook Lin & Bok Advocates & Solicitors Kuala Lumpur

 

Mr Chan Kah Meng Ms Veronica Ong Messrs Lim Kian Leong & Co Advocates & Solicitors Kuala Lumpur

 

Mr Alvin Tang Ms Kelly Khoo

 

Messrs Ranjit Ooi & Robert Low Advocates & Solicitors Kuala Lumpur

 

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