IN THE HIGH COURT IN KUALA LUMPUR COMMERCIAL TRIAL NO. D3-22-494-2004
DANAHARTA MANAGER SDN BHD … PLAINTIFF
1. KHAIROL ANUAR BIN AMRAN (I/C No.: A0543453)
2. DATUK NOR AZAH BINTI AWIN (I/C No.: 531220-05-5058)
3. NAA HOLDINGS SDN BHD . DEFENDANT
(Company No.: 203937-P)
BEFORE THE HONOURABLE JUDICIAL COMMISSIONER Y.A. DR. HAJI HAMID SULTAN BIN ABU BACKER
IN OPEN COURT
This is my judgment in respect of the plaintiff’s claim in respect of margin facility granted to the 1st defendant by Sime Securities Sdn. Bhd (Sime Sec). The 1st defendant did not enter appearance. The 2nd and 3rd defendant who are purportedly sued as principal and/or ultimate purchaser or beneficiary, for the outstanding balance of more than 11 million ringgit with interest etc are represented by solicitors.
1. At the commencement of the hearing, parties have agreed that the case can be heard by way of: (i) witness statement for examination in chief; (ii) preliminary cross-examination witness statement, with full liberty to further cross-examine orally (for purposes of cross-examination); (iii) preliminary re-examination statement with full liberty to further reexamination if there is further oral examination. The court is extremely grateful to the parties for agreeing to such a mode as the preliminary cross-examination witness statement will save much of the court’s time to deal with peripheral matters and for all practical purposes, preliminary cross-examination witness statement will stand as interrogatories and answers thereto only, as the right of oral cross-examination to the litigant is preserved during the whole trial.
2. The plaintiff has acquired the rights of Sime Sec and the claim is based on the margin facility. However the plaintiff says they were acting as agent for the 1st defendant and in consequence they are liable at law pursuant to section 186 of Contracts Act 1950 which reads as follows:
“In cases where the agent is personally liable a person dealing with him may hold either him or his principal or both of them liable.
A enters into a contract with B to sell him 100 bales of cotton and afterwards discovers that B was acting as agent for C, A may sue either B or C or both for the price of cotton. ”
The plaintiff in an unusual manner had pleaded agency without setting out any particulars or nexus for such allegation, and merely stating in essence there was agency because the 1st defendant has authorised the 2nd or 3rd defendants to issue instructions for the purpose of trading of shares. There has been no claim made against the 2nd or 3rd defendant at any time or at all during the relevant material time.
The 2nd and 3rd defendants deny they are agents for the plaintiff in the manner alleged by the plaintiff but agree that at times they have been instructed by the 1st defendant to give the necessary instructions on his behalf. And say as a preliminary point, by reading the pleadings and agreed facts and without even going through the evidence the plaintiffs claim cannot be sustained in law. The relevant parts of the Additional Agreed Statement of facts read as follows:
“ In the course of conducting transaction through the said Account, the 1st defendant at all material times authorise the 2nd defendant an/or the 3rd defendant to issue instruction for the purpose of trading in shares through the said Account.
By a Letter of Offer dated 03.04.1997 and a Margin Financing Facility Agreement executed between SimeSec and the 1st Defendant, SimeSec agreed to grant the 1st Defendant a Margin Financial Facility and he accepted the same, subject to the terms and conditions therein, for the purpose of financing the purchase of marketable securities (“the Facility”). Thereupon, the said Account was opened in the 1st Defendant’s name..
Under the said Letter of Offer and Margin Financial Facility Agreement (“Offer and Agreement”), the 1st Defendant agreed, inter alia, to the following terms and conditions:-
(i) The 1st Defendant is required to maintain a margin ratio of 230% (‘the Equity Ratio’) i.e that the value of the Equity Securities (comprising both the initial security and purchased securities in the said Account) will not be less than 230% of the outstanding balance in the said Account.
(ii) In the event the margin ratio falls below Equity Ratio, SimeSec is entitled to make a margin call requesting from the 1st Defendant the provision of additional collateral for the said Account. Should the 1st Defendant fall to meet such a request, SimeSec may institute selling out procedures of the Equity Securities.
(iii) In any event, should the margin ratio fall below 150% (‘the Required Equity Ratio ’), SimeSec is entitled to institute selling out procedures of the Equity Securities without issuing a margin call and/or notwithstanding that a margin call has been issued.
(iv) The Facility may be terminated and the whole of the aggregate principal amount outstanding in the said Account together with interest and other moneys covenanted to be paid shall become due and immediately repayable inter alia upon the margin ratio falling below the Required Equity Ratio.
(v) In any event, the 1st Defendant shall repay upon demand all sums due and owing to SimeSec under the Facility including the purchase price of all shares purchased and the losses incurred in the said Account as a result of share transactions executed there under as well as interest thereon and other charges and commissions accruing thereupon.
(vi) The 1st Defendant shall pay to SimeSec a roll over fee of 1% flat on the secured sum outstanding as at the date of any renewal/extension of the Facility or at such other rate as may be determined by SimeSec.
(vii) The 1st Defendant shall indemnity SimeSec against any loss or expense which may be sustained as a consequence of his default in the payment of monies due and/or payable under the Facility or interest thereon.
(viii) In the event of any action in law, in the event SimeSec prevails in such action, the 1st Defendant shall pay SimeSec’s solicitors ’ fees on a solicitor and client basis and all other costs and expenses of such action or suit.
(ix) The 1st Defendant also agreed that interest would be chargeable as follows:-
(a) Interest at the rate of 13.25% or at such other rate or rates as SimeSec may from time to time stipulate (“the Prescribed Rate”) calculated on a daily basis with monthly rests (capitalised) and together with other usual banker’s charges and commissions;
(b) Interest on any principal monies including capitalised interest shall at the description of SimeSec be capitalised and added for all purposes to the principal sum then owing and thenceforth bear interest at the Prescribed Rate;
(c) If the 1st Defendant defaults in payment on demand or on the date of any of the monies covenanted to be paid, the 1st Defendant shall pay to SimeSec default interest at the rate of 1% per annum.
All rights, title and interests of SimeSec under the Offer and Agreement have been acquired by and vested with the Plaintiff, whereby any reference to SimeSec in the said documents are now substituted by a reference to the Plaintiff.
By a letter dated 24.06.1997, upon the written request of the 1st Defendant dated 19.05.1997, SimeSec agreed to increase the Facility from RM10,000,000.00 to RM25,000,000.00.
The Prescribed Rate of interest from 10.06.1999 is at the rate of 2% above Maybank Bhd’s Base Lending Rate per annum (“Maybank’s BLR + 2%”), wherein Maybank’s BLR is currently at 6%per annum.
From the inception of the said Account, the 1st Defendant had at all material times authorized the 2nd Defendant and/or the 3rd Defendant to give instructions for the execution of the trading transactions in the said Account.
(As a result of the aforesaid transactions, outstanding balances were incurred in the said Account and the margin ratio of the said Account was breached. As a result thereof, the Plaintiff issued margin calls requiring regularisation of the said Account. The 1st Defendant did not comply with the same.
On or about 03.06.1998, SimeSec issued a final demand to the 1st Defendant inter alia demanding full settlement of all outstanding balances due and payable under the said Account. In breach of the terms of the Offer and Agreement, the 1st Defendant failed to settle the amount demanded.
Thereupon, SimeSec through its solicitors Messrs. Che Mokhtar & Co. Issued a letter of demand dates 05.04.1999 to the 1st Defendant, recalling the Facility and demanding full settlement of the outstanding balance in the said Account as at 31.03.1999 of RM9,680,461.13 together with interest accruing thereupon as stated therein.
The 1st Defendant has to date failed, refused and/or neglected to settle the outstanding sums due and owing.
The 1st Defendant is indebted to the Plaintiff for the outstanding balance due and owing under the Facility comprising unpaid purchase contract together with interest, rollover fees, accumulated interests and other charges. ”
3. I have heard the evidence, read the pleadings, agreed facts, documents, submission etc in detail. I do not think it is necessary to deal with the evidence and submission in detail as parties have adequately dealt with them and it will serve no useful purposed in repeating the same. I also do not propose to go into detail submission of the plaintiff who attempted to show in law the 2nd and 3rd defendants are liable though none of the cases cited by the plaintiff has any close resemblance to the
plaintiff’s pleading, agreed facts and the defence of the 2nd and 3rd defendants. After careful thought to the said submissions, I take the view the plaintiffs claim against the 2nd and 3rd defendant must be dismissed in limine. My reasons are as follows:
(a) Agency concept generally will not arise just because some persons or employee are authorised by the 1st defendant to give instructions to the 2nd and/or 3rd defendant. To be an agent the law as a general rule requires the principal to employ the said agent though the consideration may not be necessary and it may be express or implied (see Section 138 and 139 of Contract Act 1950). Section 135 of CA1950 reads as follows:
“135 “Agent” and “principal”
An “agent ” is a person employed to do any act for another or to represent another in dealings with the third persons. The person for whom such act is done, or who is so represented, is called the “principal” “
The definition of ‘agent’ and ‘principal’ under our act appears to be wider than the English Law. The Learned author of Halsbury Laws of England say:-
“The term agency’ and agent’ have in popular use a number of different meanings, but in law the word agency’ is used to connote the relation which exists where one person has an authority or capacity to create legal relations between a person
occupying the position of principal and third parties. The relation of agency arises, whenever one person, called the agent’ has authority to act on behalf of another called the principal’ and consents to act. . Whether that relation exists in any situation depends not in the precise terminology employed by the parties to describe their relationship. If an agreement in substance contemplates the alleged agent acting on his own behalf and not on behalf of the principal, then although he may be described in the agreement as an agent, the relation of agency will not have arisen. Conversely, the relation of agency may arise despite a provision, in the agreement that it shall not. A servant or an independent cotractor, though not necessarily the employer’s agent, may often have authority to act as such when relations with authority are involved. Nevertheless an agent as such is not a servant.”
The Supreme Court of India in Lakshiminarayan Ram Gopal & Sons v
Hyderabad Government adumbrated on the word “agent” and “servant”
and made the following observations:-
(a) An agent has the authority to act on behalf of his principal and to create contractual relations between the principal and a third party. This kind of power is not generally enjoyed by a servant.
(b) A principal has the right to direct what the agent has to do; but a master has not only that right, but also the right to say how it is
to be done. A servant acts under the direct control and supervision of his master and is bound to conform to all reasonable orders given to him in the course of his work. But an agent is not subject in its exercise to the direct control or supervision of the principal.
(c) The mode of remuneration is generally different. A servant is paid by way of salary or wages, an agent receives commission on the basis of work done. (d) A master is liable for a wrongful act of his servant if it is committed in the course of the servant’s employment. A principal is liable for his agent’s wrong done within the “scope of authority.” (e) A servant usually serves only one master, but an agent may work for several principals at the same time. (f) An independent contractor, on the other hand, is entirely independent of any control or interference and merely undertakes to produce a specified result, employing his own means to produce that result.
In Kalyanji Kunwarji v Tirkaram Sheolal Vivian Bose J, in relation to a similar provision as section 135 in India, made the following observations:-
“It may embrace even a servant pure and simple, even a casual employee, a man who is engaged by me in the streets to black my boots, but it cannot for a moment be contended that they are therefore all to be placed in the same category.”
In the instant case the contract is between the Sime Sec and the 1st defendant. The contract per se does not give rise to agency relationship with the 2nd or 3rd defendant. Even if there is such a relationship the law as a general rule will not allow the plaintiff to enforce the contractual terms between the Sime Sec and the 1st defendant. The remedy if any is not based on the contractual terms but through the relevant provisions of the Contracts Act relating to Agency.
For example, the illustration to section 186 of Contract Act 1950 which the Plaintiff say is relying on relates to the price of the goods only. The illustration reads as follows:
“A enters into a contract with B to sell him a bales of cotton, and afterwards discovers that B was acting as agent for C. A may sue B or C, or both, for the price of the cotton. ’
Prima facie the plaintiff has not pleaded the relevant claim limited to the loss in respect of the purported “agency or principal” claim in respect of the specific transaction relating to the 2nd or 3rd defendant. What the plaintiff attempts to do is to seek indemnity on the entire transaction inclusive of the various contractual terms of the 1st defendant account relating interest penalty etc. Such indemnity in a running account is not envisaged under the Contract Act 1950 relating to agency.
In addition, the section particularly says “in cases where the agent is personally liable.” This the plaintiff has not established or pleaded on what transaction the 2nd and/or 3rd defendant are liable. And cannot
simply say that the authority to give instruction will trigger the provision of section 186 of Contract Act 1950.
Further, the plaintiff cannot in law allege various alternatives i.e agent, principal etc when at the time of the dealing parties knew the actual status. In essence, the ‘goal post’ cannot be shifted to cover any form of negligence or otherwise which may have been self inflicted by the employees of Sime Sec, in breach of the Margin Finance Facility terms and try to recover the loss in the pretext of agent or principal relationship. Proper election must be made. Support for the proposition can be found in the case of Thomson v Davenport(1829) 109 ER 30, where Lord Tenterden made the following observations:-
“If at the time of sale, the seller knows not only that the person who is dealing with him is not principal but agent and also knows who the principal really is, and notwithstanding all that knowledge chooses to make the agent his debtor, dealing with him and him alone, then the seller cannot afterwards on the failure of the agent turn round and charge the principal, having once made his election at the time when he has the power of choosing between the one and the other.”
(b) I also find the pleadings to be obscure in relation to 2nd and 3rd defendants and no particulars of the purported agency relationship was set out although evidence was given which was inconsistent to the Margin Facility Agreement, agreed facts. And the court is not
obliged to consider such evidence which has gone out of the pleadings. I have dealt with this area of law in Recalvia Design Steel (M) Sdn Bhd v. Vista Access Sdn Bhd & Anor  MLJ 98;  1LNS 88.). I do not wish to repeat the same.
(c) There is much merit in the evidence of the 2nd defendant and the submission of the learned counsel for the 2nd and 3rd defendants which reads as follows:
(i) the conclusion that one can derive from the above admitted and unchallenged evidence are that, the 1st defendant is the principal. If the 2nd defendant is the principal, and the 1st defendant is only a nominee as alleged, the plaintiff would have sent the statement, the status and the demand to the 2nd defendant and not the 1st defendant.
(ii) there is no evidence shown by the plaintiff to support the contention that the 2nd defendants was corresponding as the principal of the Said Account. The documents mentioned earlier (except those at page 765 and 768) were issued by the 3rd defendant in the 3rd defendant letterhead. The documents were signed by the 2nd defendant because she is the director of the 3rd defendant, a company. There is nothing unusual about this. The 2nd defendant submits that the plaintiff’s presumption that those documents give inference that the 2nd defendant is the principal is erroneous and far-flung.
(iii) if there is any inference to be drawn from those letters, the inference should be that the 3rd defendant was corresponding with Sime as the principal and not the 2nd defendant. My Lord, it is a settled law that the 2nd defendants, being the shareholder of the 3rd defendant is still a different entity (See Salomon v Salamon & Co Ltd  AC 22). Shareholder only owns the shares in the company and not the company itself or its assets (See Macaura v Northern Assurance Co Ltd  AC 619). The plaintiff cannot equate the liability between the two.
(iv) the allegation that the 2nd and/or 3rd defendants are the principal are not supported and run counter to all the contemporaneous documents produce. If at all, the documents merely suggest that the 3rd defendant did step in to regularize the Said Account. Again, this is not something unusual. Anybody can step in as ‘white knight’ and not necessarily be deemed the beneficiary. The plaintiff needs to establish positively that the 2nd or 3rd defendants are the principal behind the Said Account, and this has not been done.
4. For reasons stated above I dismiss the plaintiff’s claim against the 2nd and 3rd defendant with costs. The getting up fees shall not exceed RM70,000.00. If costs cannot be agreed the 2nd and 3rd defendants are at liberty to tax costs. In respect of the 1st defendant I note that the plaintiff has not filed the necessary papers to enter default judgment notwithstanding the fact the 1st defendant has not entered appearance. The reason the plaintiff says is as follows:
(i) the 1st Defendant has not entered appearance and the Plaintiff has duly filed a Notice of Non-Appearance on 7 April 2005.
(ii) the Plaintiff stayed its hands on the entering of judgment against the 1st Defendant until trial of this action in abundance of caution to avoid any preliminary objection that there was been an election by reason of so entering judgment against the 1st Defendant.
(iii) the Plaintiff prays that the judgment be signed against the 1st Defendant not only in default of appearance but on the merits.
In consequence I make the following order:
(a) The plaintiff is at liberty to enter judgment against the 1st defendant as prayed in the amended statement of claim within 7 days from the date of this judgment.
(b) The costs shall be limited to costs for default judgment pursuant to the High Court Rules 1980 as the 1st defendant did not defend the action and on merits the plaintiff is entitled to judgment.
I hereby order so.
(Y.A. DR. HAJI HAMID SULTAN BIN ABU BACKER) Judicial Commissioner High Court (Commercial Division)
Date: 05th June 2009
For the Plaintiff: Ms Prita Pillai; Messrs. Skrine
For the Defendant: Puan Hariyati Ibrahim; Messrs. PM Tan Yaty Chin