IN THE COURT OF APPEAL OF MALAYSIA PUTRAJAYA
CIVIL APPEAL NO. N-02-377-2009
(didakwa sebagai suatu firma guaman) – APPELLANT
AD DEVELOPMENT SDN. BHD. – RESPONDENT
[In the Matter of High Court of Malaya at Seremban, In the State of Negeri Sembilan Darul Khusus Civil Suit No. 22-160-2002]
AD Development Sdn. Bhd. – Plaintiff
1. Mohd Hamdi Bin Abd Hamid
2. Syarikat Rodziah – Defendants
Abdul Wahab Patail, JCA Clement Allan Skinner, JCA Mah Weng Kwai, JHC
Date of Judgment: 25th June, 2012
GROUNDS OF JUDGMENT
 The 2nd Defendant Syarikat Rodziah (“the Appellant”) appealed against the decision of the High Court in Seremban which allowed the claim by the Plaintiff AD Development Sdn. Bhd. (“the Respondent”) for payment of the sum of RM400,000.00 with interest thereon at the rate of 8% per annum from 6.9.2002 to date of full settlement and costs.
 After hearing the submissions on behalf of the parties, we dismissed the appeal, affirmed the decision of the High Court, fixed costs in the sum of RM10,000.00 and ordered the deposit to be paid to account of costs.
 The Respondent had filed a Civil Suit 22-160-2002 against one Mohd Hamdi bin Abd Hamid (“the 1st Defendant”), an advocate and solicitor practising in the Appellant legal firm, and the Appellant, a legal firm, as the 1st and 2nd Defendants respectively.
 The case for the Appellant was that the payment was made to the 1st Defendant, not the firm although acknowledgement of payment was on the letterhead of the Appellant.
The Agreed Facts
 The Memorandum of Appeal set out the agreed facts before the High Court as follows:
(a) The 1st Defendant was an advocate and solicitor and was at all material times a partner in the Appellant legal firm and was based at the Appellant’s main office in Kota Tinggi, Johor. The 1st Defendant subsequently resigned on 1.1.2002.
(b) The 1st Defendant together with one Dato’ Asharul Abidin bin Shafie met with the Respondent in Concord Hotel, Kuala Lumpur and made several business offers (i.e. 2 subcontracts for a school IT laboratory project and a road building project) to the Respondent, whereby the 1st Defendant was to do all the legal work.
(c) The 1st Defendant prepared the draft and original copies of the relevant Agreement for both the relevant companies and
faxed the draft Agreements from the Appellant’s office at Kota Tinggi, Johor which original Agreements were then signed by the Respondent when handed personally to the Respondent by the 1st Defendant.
(d) The 1st Defendant instructed the Respondent to pay the stakeholder sums for the relevant Agreements to the 1st Defendant in the 1st Defendant’s name, to which the Respondent acceded upon the misrepresentation by the 1st Defendant that he had authority from the Appellant. The Respondent then issued 2 cheques for RM200,000-00 each to the 1st Defendant at the Concord Hotel, Kuala Lumpur.
(e) The 1st Defendant then used the Appellant’s official letterhead to confirm receipt of the stakeholder sums by the Appellant (Please see pages 322-323 and pages 469-470 of the Record of Appeal).
(f) It is agreed that the 1st Defendant had committed fraud and misrepresentation in all the above transactions without the knowledge of the Appellant despite the 1st Defendant being a
partner of the Appellant (whereby the 2 companies namely Bellgrand Sdn. Bhd. and Zabima Enterprise Sdn. Bhd. were non-existent but closely resembled actual companies being awarded with the projects, namely Bellgrand IT Sdn. Bhd. and Zabima Engineering & Construction Sdn. Bhd).
Submissions for the Appellant
 It was submitted that:
(a) given Rule 1 and definitions of client, client account and client’s money in Rule 2, and Rules 3, 6, and 7 of the Solicitors’ Account Rules 1990 PU(A) 301/1990 (“the Rules”), the Rules apply to payments made to a solicitors’ legal firm. The Rules make it clear that payments be made to the legal firm. To succeed, a claimant must show that the legal firm received the money and the moneys received were misapplied. But in this case, it is an admitted fact that the payments were made to the solicitor;
(b) Clause 1.5 of the “Perjanjian Ikatan Serahak” dated 1.11.2001 provided for the payment of RM400,000.00 as follows to the Appellant –
“a. Sejumlah RINGGIT MALAYSIA DUA RATUS RIBU (RM200,000) SAHAJA dibayar oleh pihak Penerima Hak kepada pihak Penyerah Hak melalui peguam TETUAN SYARIKAT RODZIAH iaitu peguam stakeholder kepada pihak Penyerah Hak sebaik sahaja pihak Penerima Hak memasuki dan/atau menandatangani Perjanjian Ikatan Serahak dan Perjanjian Kontrak Formal terkemudian daripada ini.
b. Bakinya sejumlah RINGGIT MALAYSIA DUA RATUS RIBU (RM200,000) akan dibayar oleh pihak Penerima Hak kepada Pihak Penyerah Hak mengikut peringkat kerja yang dipersetujui oleh kedua pihak yang terkemudian daripada ini sehinggalah penyelesaian sepenuhnya. Cara-cara pembayaran akan di tetapkan dan dipersetujui oleh kedua-dua pihak terkemudian daripada ini.”
The Respondent paid the moneys to the 1st Defendant, alleging that it did so because the 1st Defendant told them to;
(c) The High Court erred by making a serious misdirection by taking into consideration the doctrine of legitimate expectation though neither party had submitted upon it nor was it pleaded;
(d) Sections 7, 8, 10, 12 and 13 of the Partnership Act 1961 do
not apply because the Respondent admitted in the agreed facts that it was the 1st Defendant Hamdi..;
(e) Section 191 of the Contracts Act 1950 that “… but misrepresentations made, or frauds committed, by agents, in matters which do not fall within their authority, do not affect their principals”;
(f) It was an agreed fact that Bellgrand Sdn. Bhd. was a nonexistent company, and one cannot be an agent of a nonexistent company.
Issues and Findings
 We address the issue of pleading and the doctrine of legitimate expectation first. The other grounds will be dealt with together.
Pleading and Legitimate Expectation
 Submission was made as to a matter not pleaded. It is a point that must be taken in the perspective of pleadings in the adversarial system. It is elementary but is worth repeating as it forms the foundation of successful civil litigation for justice.
 Within the adversarial system, it is the parties who are the adversaries. Not the Court. The system of pleadings is a formal system that by requiring –
(a) a claimant to set out in a statement of claim the causes of action relied upon, the facts relied upon in support of the facts and the remedies sought; and
(b) a defendant to set out in the statement of defence, to set out ad seriatim the causes of action and facts relied upon that are disputed and which are not disputed, as well as defences and facts in support where applicable.
 The purpose of pleadings is not only to identify what is not disputed, but to sort out the chaff from the grain in respect of the disputed facts before a trial:
(a) Where a fact relied upon is merely disputed and is not followed up with interrogatories or discovery, the dispute is a bare denial;
(b) If disputed and the claimant is put to proof, that is notice to disclose the evidence relied upon in respect of the disputed fact, and
i) if he fails to disclose, he is deemed to have no basis for the fact asserted;
ii) if he discloses and
(1) the defendant does not dispute the evidence, the latter is deemed to accept it; or
(2) the defendant produces the evidence he relies upon for the disputed fact.
 A cause of action comprises both a question of law and question of fact, and therefore, for the same reason as for the facts relied upon, must be pleaded, so that the other party is given notice of the facts relied upon, thereby giving that party the opportunity to check and
verify those facts, and where the facts are disputed he is given notice of the evidence relied upon, and the opportunity to similarly check and verify the evidence.
 Questions of law may be raised without being pleaded so long as the facts pertinent to the question of law are before the Court. This is because lawyers are members of a profession learned in the law, the law always applies regardless whether pleaded, submitted upon or not. Indeed an order in breach of any written provision of the law is illegal and utterly void and must be set aside: see Badiaddin Mohd Mahidin & Anor v Arab Malaysian Finance Bhd T19981 2 CLJ 75 FC. A Court is, therefore, entitled to address a question of law even if not pleaded or submitted upon else the standard of justice descends.
 If all the disputed facts and evidence have been disclosed, the parties are placed upon the position with knowledge that if the matter comes to trial, there are no surprises and the Court would be seeing the same material. It provides the foundation for settlement, full and final, or in part, and the claim proceeds only on the unsettled part. Even where a claim or any part of it has to proceed, the preparation above confirms whether it can proceed directly to hearing of
submissions or what trial, if any, has to be conducted before hearing of submissions.
 The above demonstrates that it is the system of pleading discovery and interrogatories in civil procedure that ensures justice by enabling the parties to determine what evidence can, in accordance with the law, be produced and admitted before the Court for consideration. For the purposes of the consideration they may submit upon the weight to be given to the evidence in relation to a disputed fact in making a finding on that fact, and similarly upon the facts in drawing an inference or conclusion on the fact.
 The doctrine not pleaded or submitted upon, in this case, is the doctrine of legitimate expectation.
 In the grounds of judgement, the High Court held:
“Mahkamah ini berpendapat bahawa perilaku defendan pertama sedemikian dengan jelasnya menimbulkan “legitimate expectation” kepada plaintif bahawa defendan pertama sebagai rakan kongsi mempunyai kuasa penuh
untuk bertindak sepertimana yang dilakukannya di dalam
transaksi ini. Tiada keterangan dari defendan kedua yang
menyatakan sebaliknya iaitu defendan pertama tidak
mempunyai kuasa untuk bertindak seperti yang
 By no stretch of imagination is this reasoning that as to whether it was reasonable for the Respondent to believe the 1st Defendant that he had authority is the application of the doctrine of legitimate expectation which is developed in public law in judicial review, for example that it is only fair to hold that if a public authority makes a promise that is acted upon, it is unfair for the public body to go back on it. It is arguably similar to estoppel in private law. But in this case, the phrase, used within inverted commas and taking into account that the High Court referred to the absence of any evidence being adduced to prove otherwise, was clearly used in the context of reasoning whether it was reasonable for the Respondent to believe that the 1st Defendant as a partner of the Appellant had full authority as he claimed.
The Other Grounds
 It is not a ground of appeal before this Court that the issues being tried as set out in the grounds of decision of the High Court as shown below, is in error:
“Berdasarkan fakta-fakta di atas Kedua-dua telah selanjutnya memfailkan isu-isu yang harus dibicarakan seperti berikut:
Sama ada defendan kedua bertanggungan terhadap perbuatan rakan kongsinya (iaitu defendan pertama) apabila plainif (sic) membuat bayaran kepada rakan kongsi tersebut dalam nama rakan kongsi tersebut atas arahan defendan pertama, untuk tujuan dipegang sebagai pemegang amanah dan apabila penerimaan bayaran tersebut kemudiannya diakui melalui kepala surat defendan kedua oleh defendan pertama.”
 We translate it as follows:
“Whether the Appellant is liable for the acts of its partner (the 1st Defendant) when the Respondent paid to the said partner under his name and upon his instruction, for the
purpose of being held as stakeholder and receipt for which was acknowledged on the letterhead of the Appellant by the said partner.”
 We consider it trite that a partnership does not ipso facto become liable for all of the liabilities of its partner. The partnership’s liability is provided under section 7 the Partnership Act 1961 (Act 135) as follows:
(a) every partner is an agent of the firm and his other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partners, unless
i) the partner so acting has in fact no authority to act for the firm in the particular matter,
ii) the person with whom he is dealing either knows that he has no authority or does not know or believe him to be a partner.
 The work conducted by the 1st Defendant to prepare the agreement is an act for carrying on in the usual way business of the kind carried on by the firm of which he is a member. There is no
evidence that it is not so. It therefore binds the firm and his partners. The Appellant firm is thus liable, unless it can show that the 1st Defendant in fact had no such authority and the Respondent either knows that he has no authority or does not know or believe him to be a partner.
 Clause 1.5 of the “Perjanjian Ikatan Serahak” prepared by the 1st Defendant, shows the payments made were intended to be paid into the Appellant firm to be held as stakeholder. That the payment was intended to be received by the Appellant firm is reinforced by the admitted fact that acknowledgement of receipt was issued by the 1st Defendant on the letterhead of the Appellant firm. The facts corroborate the Respondent that he acted in the belief the 1st Defendant was a partner and has no reason to believe to the contrary or that the 1st Defendant had no authority.
 Following the terms of the “Perjanjian Ikatan Serahak” the payments would be made to the Appellant firm. According to the Respondent he was asked by the 1st Defendant to pay to him in his name. Even though the payments were paid to the 1st Defendant in his name, that it was intended by the Respondent to be paid into the
Appellant firm is supported by the fact the 1st Defendant found it necessary to issue an acknowledgement on the Appellant firm’s letterhead.
 The act of the 1st Defendant not to pay the payments into the Appellant firm is a wrongful act. Though the act of the 1st Defendant is wrongful, the Appellant firm remains liable under section 12 of Act 135. It provides:
“12. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm or with the authority of his co-partners, loss or injury is caused to any person not being a partner in the firm, or any penalty is incurred, the firm is liable therefor to the same extent as the partner so acting or omitting to act.”
 The Rules relate to the handling of client’s funds by solicitors. Nothing in the Rules absolves solicitors from liability for mishandling of funds and restrict liability only to funds received into accounts under the Rules. Thus, the submission that the moneys were not received by the Appellant firm but by the 1st Defendant and that this is admitted, is no defence.
 It was submitted that by virtue of Section 191 of the Contracts Act 1950 (Act 136) that misrepresentations made, or frauds committed, by agents, in matters which do not fall within their authority, do not affect their principals, the Appellant firm is not liable for the fraud of the 1st Defendant.
 Section 191 of Act 136 provides:
“191. Misrepresentations made, or frauds committed, by agents acting in the course of their business for their principals, have the same effect on agreements made by such agents as if such misrepresentations or frauds had been made or committed by the principals; but misrepresentations made, or frauds committed, by agents, in matters which do not fall within their authority, do not affect their principals.”
 The exclusion for liability afforded to principals for frauds by their agents by section 191 of Act 136 applies to frauds in matters which do not fall within their authority, and not to all and any fraud by an agent. Since the receipt of the payments under clause 1.5 are intended to be paid into the Appellant firm and the drawing up of the “Perjanjian Ikatan Serahak” is part of the ordinary work of a legal firm, the submission on section 191 holds no merit.
 It was submitted that it is trite that one cannot become an agent of a non-existent company.
 The High Court grounds of judgement dealt with all of the above, and we find no error on the part of the High Court as to warrant
(DATUK ABDUL WAHAB BIN PATAIL) Judge
Court of Appeal, Malaysia Putrajaya
Dated: 17th September 2014
For the Appellant: Mr. Bastian Vendargon, Mr. P.K. Nathan, Mr. T. Gunaseelan, and Mr. Gene Anand Vendargon Messrs P.K. Nathan & Co No. 17A, Jalan Kuning Dua Taman Pelangi 80400 JOHOR BAHRU
For the Respondent: Mr. Shamsol Zakri Zakaria, Senior Federal
Counsel (in liquidation)
Jabatan Peguam Negara Putrajaya