DALAM MAHKAMAH TINGGI MALAYA DI KUALA LUMPUR DALAM WILAYAH PERSEKUTUAN, MALAYSIA (BAHAGIAN DAGANG)
GUAMAN NO: D11-22-1163-2006
1. SHAHRIL ASSOCIATED ADVERTISING & DESIGN SDN BHD
(NO. SYARIKAT: 36991-U)
2. MOHD SHAHRIL BIN DATO’ HAMZAH
3. RIZAL BIN BAHAROM
IKHTIAR FACTORING SDN BHD … DEFENDAN
(NO SYARIKAT 507971-X)
GROUNDS OF DECISION
1. The 1st Plaintiff is in the business of inter alia advertising and ancillary services. On 1 July 2004, it secured a contract with Telekom Malaysia Berhad [TM] whereby TM agreed to appoint the 1st Plaintiff to provide advertising and commercial services for a two year period from 15 June 2004 to 4 June 2006 with an option given to TM to renew for a further one year period [TM Agreement]. Essentially, the 1st Plaintiff provided “below-the-line” services which according to the 2nd Plaintiff, Encik Mohd Shahril bin Dato Hamzah [PW1] who testified on behalf of the Plaintiffs meant it provided advertising services to promote products and
services of TM. There was a monetary limit of RM9 million per annum for such services.
2. The 1st Plaintiff’s work involved the services of third party suppliers such as printers, general contractors, photographers, transporters and the like. The 1st Plaintiff was expected to make upfront payments for such services. But, it had difficulties meeting such payments and so sought the services of the Defendant. On 11 October 2004, the 1st Plaintiff and the Defendant entered into a factoring agreement [factoring agreement]. Under this agreement, the 1st Plaintiff was to offer to sell to the Defendant all debts arising from the sales contracts made under the TM Agreement and made after the date of the factoring agreement.
3. Despite this arrangement, the 1st Plaintiff continued to face cash flow problems. It then entered into an arrangement with the Defendant on 4 April 2005 where the Defendant agreed to advance the 1st Plaintiff a sum of RM252,510.80 for a tenure of six months from 5 April 2005 and expiring on 4 October 2005 at 11% per annum calculated on a daily basis on the outstanding balance [advance loan agreement]. As security for the advance loan agreement, the 1st Plaintiff pledged 100% of its shares to the Defendant while the 2nd and 3rd Plaintiffs, directors of the 1st Plaintiff agreed to guarantee and indemnify the Defendant vide a guarantee and indemnity agreement dated 11 October 2005.
4. Again, despite these arrangements, the 1st Plaintiff was unable to make timely payments to its third party suppliers. Ultimately, TM stopped giving work to the 1st Plaintiff. The 1st Plaintiff claimed this was all due to the Defendant’s breach of the terms of the factoring and advance loan
agreements. This action serves to recover the Plaintiffs’ alleged losses including loss of profits and loss of reputation. In disputing the claim the Defendant contended that all payments and payment processes were in accord with the terms of the two agreements. The Defendant counterclaimed inter alia for monies owing under the advance loan agreement and, initial payment charges and loss of profits under the factoring agreement.
5. In the pleaded case, the Plaintiffs have taken the event of the advance loan agreement as the pivotal point from which two separate allegations of breach are made. Prior to the advance loan agreement, the Defendant is said to be in breach of the factoring agreement when it delayed the disbursements of payments on 18 invoices totaling a sum of RM148,231.94 until it had received payments from TM. This supposedly went against the whole intention of the factoring agreement. After the advance loan agreement was made, the Defendant is said to be in further breach by making unilateral changes to the payment procedure that the parties had practiced for the previous 18 factoring transactions; and for making unauthorized deductions for unfactored invoices.
6. For purposes of trial, the parties have however, posed the following two issues for determination, namely:
i. Whether the Defendant’s obligation to release 80% (77%) to the Plaintiffs is subject to confirmation of delivery of services contracted; and
ii. Whether the Defendant is entitled to set-off the payment received from Telekom under the factoring agreement.
7. Looking at these two issues, it would appear that the allegations of delay in disbursements of payments have been abandoned. Upon clarification, Miss Sharmala, learned counsel for the Plaintiffs confirmed that the allegations of delay were no longer relevant for consideration. In which case, the arguments are now necessarily confined to the breaches that occur after the advance loan agreement. These arguments relate to the unilateral changes to the payment procedure and the making of unauthorized deductions. PW1’s testimony on delay which to a large extent runs contrary to the pleaded case must therefore be disregarded.
i. Whether the Defendant’s obligation to release 80% (77%) to the Plaintiffs is subject to confirmation of delivery of services contracted
8. This issue pertains to the manner in which all debts arising from the sales contracts under the TM Agreement were presented for factoring. The parties have provided for this at clause 3.2 in the factoring agreement. Clause 3.2 reads as follows:
3.2 Every such offer shall be substantially in such form and contents as may be prescribed by the Factor from time to time and shall be accompanied by:
(a) the original and one signed copy of the invoice relating to each Debt the subject of the offer, endorsed with a notice in such
form and content prescribed by the Factor from time to time directing that the proceeds of the invoices shall be paid to the Factor, the Factor’s agent or such other account as may be nominated by the Factor and stating that such payment when made in full by the Debtor shall constitute a valid discharge of such Debtor’s obligation to make payment to the Client. All invoices shall bear the name and address of the Debtor in full, the amount of the Debt and the description of the goods and/or services provided there under, the date of the invoice and the terms and Conditions of the sale and of payment thereof;
(b) such evidence as the Factor may require of the delivery of the goods or the performance of the services in respect of which each Debt has been incurred;
(c) true copies of documents evidencing the Sale Contract and such other documents relating thereto as the Factor may require;
(d) particulars of credit granted to a Debtor and the original and a copy of every credit issued in respect thereof; and
(e) in the case of receivables due from foreign Debtors arising out of the export of goods and/or services, the relevant Bills of Lading. And/or other satisfactory evidence of export of the goods or performance of the services;
Provided that no such offer shall contain Debts previously offered to the Factor and each offer of such Debts shall be in accordance with the terms of this Agreement.
9. Under clause 3.2(b), the Defendant may require “such evidence … of the delivery of the goods or the performance of the services in respect of which each Debt has been incurred”. Although this clause gives the Defendant liberty to ask for evidence, the Plaintiffs say that prior to 4 April 2005, the Defendant had never sought proof or evidence of delivery or performance for the 18 sales invoices which had been submitted. At paragraph 3.6 of the Statement of Claim, the Plaintiffs pleaded that the payment process under the factoring arrangement and thereby the understanding of clause 3.2 was as follow:
a. the 1st Plaintiff issues a quotation to its debtor;
b. the debtor then gives approval by signing the quotation and issuing Letter of Offer [LO] to the 1st Plaintiff;
c. the 1st Plaintiff will accept the LO and issues 2 copies of invoices;
d. the 1st Plaintiff will then compile the quotation, invoice and LO for the Defendant’s verification and signature;
e. the debtor will acknowledge the LO and invoice and return a copy of the LO and invoice to the 1st Plaintiff;
f. the 1st Plaintiff will compile the quotation, LO and invoice and forward them to the Defendant for disbursement;
g. the Defendant disburses to the 1st Plaintiff 80% of the value of the invoice after deducting 3% being the factoring fee within 2 to 4 weeks;
h. out of the sum of 77% of the invoice received from the Defendant, the 1st Plaintiff pays to its suppliers;
i. the debtor then pays the full invoice price to the Defendant;
j. out of the full invoice price, the Defendant deducts the initial processing fee before remitting the balance to the 1st Plaintiff.
10. It is the Plaintiffs’ case that from 4 April 2005, the Defendant changed this payment procedure. From this date, the 1st Plaintiff was required to produce the relevant delivery orders before payment of 80% of the invoice sum would be made to the 1st Plaintiff. This requirement which was alleged to be in violation of clause 3.2(b) affected sales contracts amounting to RM331,000.00. The Plaintiffs submitted that having adopted a particular procedure where delivery orders for 18 sales invoices were not required, it was unconscionable of the Defendant to have made this unilateral change. The principle of estoppel ought to apply to prevent the Defendant from making this change.
11. In reply, Mr. Krishnakumar, learned counsel for the Defendant submitted that clause 3.2(b) of the factoring agreement had always been interpreted and applied in the manner in which it was written. Even in respect of the earlier 18 sales invoices, evidence of delivery or performance had been sought and the 1st Plaintiff had provided the necessary evidence without complaint. He further argued that the evidence of the PW1 “to contradict the terms of the factoring agreement by saying that the factoring facility is to provide them with funds to pay their suppliers upfront even before the commencement of the job under the Telekom’s contract and this intention had been communicated to the
Defendant” should be disregarded as this was a plea of collateral oral contract which was never pleaded.
12. Before dealing with the procedure understood and adopted under the factoring agreement, there is a need to appreciate the operations under the TM Agreement. This is important as it is the debts arising from these sales contracts that are factored. Hence, there is a real correlation between the factoring agreement and the TM Agreement.
13. According to PW1, for each service contract required under the TM Agreement, the 1st Plaintiff first prepared a design, proposal or creative for TM’s approval together with a quotation. It is a two-staged job. This is evident from clauses 4.5 (d) and 6 of the TM Agreement which required the 1st Plaintiff to “obtain estimates of costs of submission to TMB before producing the Work” and “prepare proposals and cost estimates in respect of the Work … for submission to TMB”. TM would then signify its approval by signing on the quotation and issuing a letter of offer [LO]. Work however has yet to be delivered or performed. Performance or delivery was only possible if there was approval of the proposal. Once the LO or purchase order was received by the 1st Plaintiff, the 1st Plaintiff would issue an invoice in which was stipulated that 50% of the professional fee indicated was due with the balance due upon delivery of the approved proposal, design or creative. In either case, TM had time to pay, 45 days from the date of receipt of the invoice to be exact.
14. The 1st Plaintiff could not wait till the expiry of the credit period for payment and so decided to enter into the factoring agreement. Under this agreement, the invoice was sold to the Defendant who would pay a
percentage of the face value of the invoice, in this case agreed to be 80%. This was called the “initial payment”. TM who had knowledge and who had approved the factoring would then pay the Defendant the whole amount due under the invoice. Thereafter, the Defendant would pay the 1st Plaintiff the 20% balance after deducting what was known as the “initial payment charge” or factoring fee, which was 3%.
15. However, approvals given by TM may be withdrawn. In which case, clause 6.3 of the TM Agreement provides that if “the proposal is rejected, the Agency shall use its best endeavour to terminate any contracts entered into with a third party relating thereto, at the earliest date”. There is clear stipulation in the invoice reflecting this two-stage process. The terms of payment under the invoice required payment of 50% of the sum invoiced upon approval of creative and 50% upon delivery of creative with 30 days from the date issued. But, these invoices which were already issued were available for factoring. Indeed, they were factored in this case.
16. Having regard to these various factors, it is clear that the parties understood and were aware of the two-staged process involved in the performance of the sales contracts under the TM Agreement. Encik Haris Bin Md Jaafar [DW1], the Executive Director of the Defendant had further testified that the factoring agreement was made after the Defendant had verified with TM about the project awarded to the 1st Plaintiff. It would be fair and reasonable to say that the Defendant was at the material time, acquainted or familiar with the type and conditions of the particular sales contract that it would be factoring. After all, the agreement to factor implies an assumption of risk of non-payment from the debtor, TM. More
so where the 1st Plaintiff was obliged to offer to the Defendant all sales contracts under the TM Agreement for factoring by the Defendant.
17. Now, factoring agreements are specialized forms of contract where the factor such as the Defendant makes prepayment against sales invoices so that businesses like the 1st Plaintiff have available and flexible working capital. Cashflow is certainly improved if invoices are factored. Factoring transactions were recognized in Ngui Mui Khin & Anor v Gillespie Bros & Co Ltd  2 MLJ 9 and Boustead Trading (1985) Sdn Bhd v Arab-Malaysian Merchant Bank Bhd  3 MLJ 331 as one “of great benefit to manufacturers and suppliers of goods because it provides them with a steady stream of cashflow. The courts should, as far as possible, uphold such transactions. … For purposes of enforcement, the law generally places factoring arrangements in the category of assignments. They may be legal or equitable.”
18. It must be appreciated that the interpretation and construction of the factoring agreement must never be conducted as if it is an exercise in linguistics or syntax. This is a commercial or trade arrangement between parties who are in business and the contractual documents must be objectively interpreted in a common business sense. The law journals are replete with binding authorities on this. See for example Cipta Cermat Sdn Bhd v Perbandaran Kemajuan Negeri Kedah  2 MLJ 746 and Glamour Green Sdn Bhd v Ambank Bhd & Another Appeal  3 CLJ 413 where at page 429, Gopal Sri Ram JCA [as he then was] cited with approval the House of Lords’ decision of Investors Compensation Scheme Limited v West Bromwich Building Society  1 WLR 896
where Lord Hoffman had famously proposed five guidelines on contractual interpretation and said:
“…We begin by recognizing that there are no rules of construction. It is true that at one point in time courts did refer to the principles they applied when interpreting bilateral documents as being “rules”. But the modern approach is different. It is set out in Chitty on Contracts, (28th edn) Vol 1 p 604, para 12-045:
Certain rules of construction have been formulated by the courts. Previously, these rules were applied somewhat rigidly and adhered to tenaciously (even though the application of one rule in preference to another might lead to an opposite result). However, it was pointed out that the modern approach in construction is ‘to assimilate the way in which (contractual) documents are interpreted by judges to the common-sense principles by which any serious utterance would be interpreted in ordinary life’. As a result, most rules of construction nowadays better regarded as guidelines or assumptions as to what the court may regard as the normal use of language and which assist judges to arrive at a reasonable interpretation of the parties’ intentions, though subject to examination of the relevant circumstances surrounding the transaction.
Some rules, on the other hand, such as the contra
proferentum rule, are of a different nature in that they are less obviously designed to ascertain the intentions of the parties and are more closely assimilated to ‘rules’ in the traditional sense.”
19. The Plaintiffs have suggested that by its own conduct, the Defendant had consented to a variation of the conditions in clause 3.2(b). They sought to rely on the decision in Paul Murugesu a/l Ponnusamy sebagai wakil Nalamah a/p Sangapillay (P) (Simati) v Cheok Toh Gong & 4 Ors  2 CLJ 397, 408 where the Federal Court reminded that:
“In the first place, both parties to an agreement are entitled to vary any term of the agreement, in writing, or orally, where oral evidence of such variation can of course, be given, to quote s. 92(d) of the Evidence Act 1950, “save in cases in which the contract, grant or disposition of property is by law required to be in writing, or has been registered according to the law in force for the time being as to registration of documents”. The above agreement is not of those excepted cases.
It is important to remember that when it is sought to prove a variation, not by an express agreement, by a course of conduct, that both parties have understood the variation and intended to be bound by it. In the instant case, the variation in question was sought to be proved by a course of conduct, vide the evidence set out earlier, and the Court would have to be satisfied that the variation to clause 3 in question was both
understood by the purchaser and the vendors, and that they all intended to be bound by it. What the Court would have to be so satisfied would depend on the surrounding circumstances.”
20. In my view, this is not a case of variation but a situation where the parties have by their conduct subsequent to the agreement given a particular meaning to the clause 3.2(b). In Pinsia Development Sdn Bhd & Ors v Hj Abdul Hadi Ahmad & Ors  1 CLJ 416, Gopal Sri Ram JCA [as his lordship then was] said at page 419 –
“ We accept that it is settled law that an agreement may not be interpreted by reference to subsequent conduct of the parties thereto (see Wickman Tools v Schuler A.G.  AC 235).
But it is equally well settled that parties may by their subsequent conduct give a term in an agreement a particular meaning. See, American Surety Co of New York v Calgary Mining Co Ltd  48 DLR 295, a decision of the Privy Council. In such an event it is that meaning which binds the court and the court is not then entitled to discover some other meaning in the exercise of its interpretative jurisdiction.
21. In Sri Kelangkota-Rakan Engineering JV Sdn Bhd & Anor v Arab-Malaysian Prima Realty Sdn Bhd & Ors  1 CLJ 779, 796
the Court of Appeal held that subsequent conduct of the Defendant can be taken in evidence to disallow an assertion of a different interpretation or meaning from that as contained in the written agreement:
“ It will be noticed that Lord Wilberforce left the door slightly ajar by reserving estoppel as an exception to the rule as to subsequent conduct. This has enabled us to look at subsequent conduct, not to interpret an agreement, but to prevent parties from asserting that an agreement had a different meaning from the meaning that they had proceeded upon, albeit mistakenly. In such circumstances, neither side will be permitted to say that the document meant something else on its true construction.”
22. I am further in agreement with learned counsel for the Plaintiffs that the principle of estoppel operates against the Defendant and in this regard, the decision and elucidation of this principle in the landmark case of Boustead Trading (1985) Sdn Bhd v Arab-Malaysian Merchant Bank Bhd 3 MLJ 331 needs no repeating.
23. Having regard to my observations on the nature and manner of performance of these sales contracts under the TM Agreement, the suggestion of the Defendant is, with respect, not tenable. From the documents in Bundle A, other than delivery orders in respect of sales contracts in May and June 2005 [see pages 105 and 106], there are no others. When the Defendant suggested that proof of deliveries or performances had always been sought and given without protest from the 1st Plaintiff, the Defendant appears to be referring and relying on the acknowledgments or certification [perakuan mengenai mutu] in the LO. In any case, DW1 himself has also admitted that only the quotation, letter of offer [LO] or purchase order and the invoice need to be presented at the material time to the Defendant for consideration as to whether the relevant
sales invoice is to be accepted for factoring or not. The acknowledgment at the bottom half of the purchase order is to be understood by reference to the delivery of the proposal, as explained by PW1 and not to the final services having been performed or the goods delivered.
24. The existence of the advance loan agreement dated 4 April 2005 makes no difference to this consideration and finding. The advance loan was disbursed in one lump sum of RM252,510.80. It was provided for as the 1st Plaintiff’s working capital and payable to a list of vendors. The list was attached to the advance loan agreement. Repayment of this advance is “from proceed of invoice due to Borrower and/or direct deduction through the factoring of all current and/or future Invoice(s)/Contracts of Shahril Associates Advertising & Design Sdn Bhd with Telekom Malaysia Berhad – Advertising Agreement (P1090/2004) with the minimum total amount of RM10.0 million”. There are no provisions in this advance loan agreement that authorized the Defendant to request for evidence of delivery or performance of the services or make “such enquiries as it thinks fit”.
25. Be that as it may, I note that the delivery orders or evidence of performance were sought in relation to the fourth set of sales contracts in exhibit P1 involving a sum of RM331,000.00. Although the Defendant is estopped from requiring evidence of delivery or performance, it did ask for the same. But, it is too late now for the Plaintiffs to complain for two reasons. First, the 1st Plaintiff complied without protest at the material time. Next, from exhibit P1, it is clear that there has been payment by the Defendant within 7 days from presentation to the Defendant. This is well-within the time period of 2 to 4 weeks envisaged by the parties and as
pleaded by the Plaintiffs. PW1’s testimony that payments a day after presentation is late payment may well be good argument in the context of factoring agreements generally, more so when no time-lines are provided in the factoring agreement. However, since the Plaintiffs have pleaded at clause 3.6 of the Statement of Claim what the arrangements are, that is 2 to 4 weeks, then that arrangement and pleading binds all parties and the Defendant’s payment within this time period is good and regular.
26. It is therefore my view that the Defendant was not permitted to change his requirements. However, the facts show that the Plaintiff had complied with the changed requirements and had done so without protest. The change further did not cause any damage as the sales contracts were factored and the Defendant had paid against those factored sales contracts within the time period agreed.
ii. Whether the Defendant is entitled to set-off the payment received from Telekom under the factoring agreement
27. The total amount of deductions involved is RM100,521.53. The Plaintiffs’ contention here is that there were no provisions for unfactored sales contracts. And, there were three such contracts for RM8,406.20, RM4,309.50 and RM95,419.50 respectively. In the Plaintiff’s view, these monies were not available for the Defendant to deduct or otherwise. Despite this, an initial payment charge of RM792.53 was deducted for the sales contract for RM8,406.20. In relation to the second sum, the Defendant is said to have deducted a sum of RM3,500.00 for legal fees and the balance was used to settle the account under the advance loan agreement. As for the last sales contract of RM95,419.50, the Defendant
is said to have refused to factor this sales contract. Yet, it deducted the whole amount towards settlement of the advance loan when it received full payment from TM. In addition, the Plaintiffs challenged these deductions as wrong because the monies were not due to be repaid. The advance loan agreement had a six months’ tenure clause which meant that repayments were not due until after 4 October 2005. The Defendant nevertheless proceeded to make deductions, in fact almost immediately from the date of the advance loan agreement.
28. For this issue, one needs to appreciate how the factoring in this agreements works. At the start, details of the debtor which in this case was TM were given to the Defendant – see clause 12.1. Once the Defendant had assessed the credit worthiness of the debtor, the Plaintiff is informed as to whether the debtor is approved or not. A credit limit is then set together with other terms and conditions. Here, the limit was RM3 million. Until this approval is withdrawn, all sales contracts under this approval will be considered as “approved debt”.
29. Pursuant to clause 3.1, the 1st Plaintiff is obliged to offer all debts arising from the sales contracts entered under the TM Agreement for approval or factoring. The Defendant on the other hand has under clause 4.1 an absolute discretion whether or not to accept that offer. Where it is accepted, clause 4.2 provides that the ownership of that approved debt vests in the Defendant. Bearing in mind the nature of the transactions involved in this factoring agreement as discussed earlier, I am of the view that when clause 4.1 is read together with clause 12.1, the Defendant is actually also obliged to accept all sales contracts or debts offered by the 1st Plaintiff where the conditions in clause 3 are met. This is because
clause 12.1 inter alia states the Defendant is “obliged to accept the same when offered PROVIDED ALWAYS that the offer shall be made in accordance with the provisions of Clause 3 hereof and the Client complies with all the other terms and conditions of this Agreement”. Where the conditions under clause 3 are not met, the Defendant is still obliged to factor the debt but this time, it is an “unapproved debt”. As opposed to an “approved debt” where the risks are assumed under clause 12.1, there is no such assumption in the case of an unapproved debt. Credit risks in “unapproved debts” lie with the 1st Plaintiff and this can be seen from clause 13.2 of the factoring agreement:
In respect of Unapproved Debts the Client hereby unconditionally guarantees the due and punctual payment by the Debtor of such Debts and agrees to indemnify and keep the Factor indemnified in full against any loss, damage, costs and expenses which the Factor may suffer or sustain as a result of any default in payment of such Debts (for any reason whatsoever) on the part of the Debtor and the guarantee and indemnity hereby given shall not in any way be affected, prejudiced or discharged by any lime, indulgence and concession granted to the Debtor or any other person liable for payment of such Debts.
30. In view of the respective responsibilities of the parties, the sum effect of all this is that the three sales contracts must be regarded as “debts” under the factoring agreement. From the Defendant’s perspective, two of these debts are approved while the last is not because of a lack of evidence of performance. But, having regard to the nature of the TM Agreement, I find that there is in fact, no reason for the Defendant to reject
the sales contract for the sum of RM95,419.50. The LO at page 113 relating to this sales contract is no different from that in earlier LOs and invoices. The Defendant’s rejection of this sales contract is therefore in breach of the terms of the factoring agreement. The Defendant had proceeded to deduct this sum as well as the balance of the sales contract for RM4,309.50. These deductions were made around 10 June and 12 April 2005 respectively. Under the advance loan agreement, repayments may be “from proceeds of invoices due to Borrower and/or direct deduction through the factoring of all current and/or future invoices/contracts”. This right to make such deductions can also be found at clause 18.1 of the factoring agreement which states:
The Factor shall be entitled to set off, against any amount payable by the Factor to the Client, the amount of any actual or contingent liability or prospective liability of the Client to the Factor and/or the Factor’s holding, subsidiary or associated companies (whether arising in or by contract, tort, restitution, assignment or breach of statutory duty and whether arising under this Agreement or otherwise) and where the amount of any such liability cannot be immediately ascertained, the Factor shall be entitled to make a reasonable estimate thereof.
31. At the time of acceptance of the terms of the advance loan agreement, the Plaintiffs had also agreed that such deductions may be made [see page 70 of Bundle A]. One of these terms involved the 1st Plaintiff authorising the Defendant to “deduct directly any amount outstanding in relation to this Facility from the factoring proceeds available
for the repayment of the Facility”. Such language cannot be any clearer as to the intention and understanding of the parties at the material time.
32. However, this right to deduct does not accrue until after 4 October 2005. To say that the right to make deductions immediately upon disbursement of the advance loan agreement, that is from the 5 April 2005 fails to take into consideration the nature of the loan and the factoring agreement itself. In any case, the provision of tenure of six months will have no meaning and serve no purpose since the whole amount was already disbursed in one payment to the Plaintiffs directly to the suppliers as per the list in the advance loan agreement.
33. In the circumstances, the deduction for these two amounts is wrong and is one in breach of the factoring and advance loan agreements. The deduction of an initial payment of RM792.53 for the sales contract of RM8,406.20 is however proper because it was a sales contract which the 1st Plaintiff was obliged to offer for factoring.
34. The Plaintiffs are claiming a sum of RM2,403,732.87 as their loss of profits; a sum of RM100,000.00 for loss of reputation and another sum of RM100,000.00 for hardship caused. Miss Sharmala, learned counsel for the Plaintiffs submitted that these amounts are recoverable under section 74 of the Contracts Act 1950 as losses that naturally flow from a breach or which were in the reasonable contemplation of the parties at the time of the agreements as likely to occur in the event of a breach of contract. The Plaintiffs claimed that as a result of these breaches, the 1st Plaintiff was
unable to make payments to its suppliers and accordingly TM stopped giving work until such payments were made. Further, the 1st Plaintiff was unable to achieve its sales targets as the sales volumes dropped. The freeze imposed by TM is said to have continued through 1 July 2005 till to date. The Defendant in response counterclaimed for the balance of the advance loan still outstanding and loss of factoring fees and initial payment charges.
35. Having carefully considered the evidence available, I find that while the termination by TM is a fact, there is no evidence as to the reasons for such termination, whether it was even occasioned by the Defendant. In fact, the submission is the TM Agreement appears to be in abeyance with no new work given to the Plaintiffs. Claims for loss of profits and general damages are always subject to the overriding principle of mitigation and strict proof. There is no such evidence before me. The factoring agreement and the advance loan agreement allow the 1st Plaintiff a right to seek alternative financing elsewhere with the Defendant being given the right of first refusal. There is also no evidence of such attempt.
36. In view of the foregoing, I can only allow the Plaintiffs’ claim for the sum of RM99,729.00 being monies which had been wrongly deducted. This however, is not the end of the matter. There is still the matter of the Defendant’s counter-claim.
37. Insofar as the counter-claim is concerned, the sum of RM160,704.81 is allowed by reason of the admission of the Plaintiff. The Defendant however, is not entitled to the damages claimed as it has not been shown that the 1st Plaintiff had refused to resolve the unapproved
debts. In fact, it did not afford the Plaintiffs any opportunity for that but instead made the deductions before the same was due. Returning to the Plaintiff’s claim of RM99,729.00 which I have just determined was wrongly deducted, that sum remains a debt due to the Defendant. An adjustment is therefore required.
38. The upshot of all this is that the Plaintiff shall pay the Defendant the sum of RM160,704.81 due under the advance loan agreement. In light of my findings and decision, I will not allow any interest. I further direct each party to bear its own costs.
Dated: 6th May 2010
(DATO’ MARY LIM THIAM SUAN)
JUDICIAL COMMISSIONER HIGH COURT KUALA LUMPUR (COMMERCIAL DIVISION)
Sharmala Batumalai for the Plaintiff Tetuan Hamzah, Sulaiman & Partners
Krishna Kumar for the Defendant Tetuan Firdaus Azlina & Co