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Lian Lee Motor Sdn Bhd

- vs -
Azizuddin Khairuddin
Coram
KC VOHRAH J 4 DECEMBER 2000

Judgment

KC Vohrah, J
1. The defendant wanted to buy a Proton Saga from the plaintiff. What he did on May 29,
1989 was to sell a car, a Toyota Corolla, bearing registration number CR 9806,
purportedly registered with the JPJ Pahang, to the plaintiff and he used almost the
whole bulk of whatever he received from the sale of that car to purchase the Proton
Saga from the plaintiff on the same date.

2. The Toyota car was seized by the police some six months later, on January 18, 1990. It
is not disputed that the car that the defendant sold to the plaintiff was a stolen car and
that the registration card in respect of the car was a forgery. Neither is it not disputed
that the plaintiff or the defendant had not known that the car was a stolen car.

3. The plaintiff sued for the refund of RM18,728.45 being the money had and received by
the defendant as consideration for the Toyota car.

4. The defendant resisted the claim on the ground that the defendant when he originally
bought the Toyota from a third party was not aware that it was a stolen car; he had
been a bona fide purchaser of the said car with no knowledge whatsoever of defects
relating to the ownership of the car and he had acquired good title in the car under s 29
of the Sale of Goods Act 1957. The defendant also relied on Soon Teck Finance (M)
Bhd v Public Finance Bhd [1988] 3 MLJ 417 for the proposition that the defendant
had a better title. With respect the case of Soon Teck Finance does not apply in this
case as the plaintiff is relying on s 14(a) of the Sale of Goods Act 1957.

5. Before I go to s 14(a) of the said Act I would like to point out to s 4(1) which states that
a
contract of sale of goods is a contract whereby the seller transfers or
agrees to transfer the property in goods to the buyer for a price.
The transfer of property as stated in the provision constitutes the essence of a contract
of sale and the seller who does not so transfer the property breaks the basic duty
created by the contract and there is a total failure of consideration. I now turn to s 14(a)
of the Sale of Goods Act 1957.

6. Section 14(a) reads as follows -


14. In a contract of sale, unless the circumstances of the sale of the
contract are such as to show a different intention there is-
(a) an implied condition on the part of the seller that, in the case of
a sale, he has a right to sell the goods, and that, in the case of
an agreement to sell, he will have a right to sell the goods at
the time when the property is to pass;
7. Section 14(a) of the said Act is equivalent to s 12 of the English Sale of Goods Act
1893. In the English Court of Appeal case of Rowland v Divall [1923] 2 KB 500 at 505
Scrutton LJ had this to say about s 12,
Section 12 says in express terms that there shall be 'An implied
condition on the part of the seller that... he has a right to sell the
goods.' It now being a condition, wherever that condition is broken the
contract can be rescinded, and with the rescission the buyer can
demand a return of the purchase money, unless he has, with
knowledge of the fact, held on to the bargain so as to waive the
condition.
8. In that case the plaintiff bought a motor car from the defendant and used it for several
months. It appeared that the car had been stolen before the defendant became
possessed of it and therefore he had no title to it. The plaintiff was compelled to
surrender it to the true owner. The plaintiff sued the defendant to recover back the
purchase money that he had paid, as on a total failure of consideration.

9. It was held by the Court of Appeal that notwithstanding that he had had the use of the
car the consideration had totally failed, and he was entitled to get the purchase money
back.

Atkins LJ had this to say at 506 and 507,


... there can be no sale at all of goods which the seller has no right to
sell. The whole object of a sale is to transfer property from one person
to another ...
... In fact the buyer has not received any part of that which he
contracted to receive - namely the property and right to possession -
and that being so, there has been a total failure of consideration.
10. Now, when, in our case, the defendant sold the said Toyota to the plaintiff there
was an implied condition on his part, under s 14(a) of the Sale of Goods Act 1957, that
he had a right to sell the Toyota. But there was a total failure of consideration; the
plaintiff had paid the purchase price in order that he might get the car and he has not
got it. The defendant did not have the right of possession to the Toyota and could not
consequently give it to the plaintiff. The plaintiff has a right to sue for the price paid as
money had and received on a total failure of the consideration.

11. We now come to the second issue: what was the price paid for the Toyota? That
would be the amount that has to be refunded.

12. Amongst the documents in the agreed bundle of documents is the "Purchase
Invoice" where the defendant had acknowledged that the agreed purchase price of the
Toyota is RM18,727.75 and that he had received the sum of RM12,127.65 and that the
balance of RM6,601 was to be paid to Maybank Finance Bhd. (The evidence was that
the RM6,601 was to be paid and in fact was paid to Maybank Finance Bhd in order to
obtain a letter of release from Maybank Finance Bhd where the defendant had
obtained financing to purchase the Corolla. The letter of release enabled the defendant
to sell the Corolla to the plaintiff). The Purchase Invoice has both the signatures of the
defendant and the plaintiffs representative.

13. The evidence shows how the money for the purchase price was applied - as
deposit for the purchase of the Proton car, payment for insurance for the Proton Saga,
payment to Maybank Finance Bhd for the letter of release on the Toyota and payment
of the balance sum to the defendant in cash. What matters is that the price for the
Corolla was RM18,728.75 and that is what the plaintiff has claimed as refund.

14. The Magistrate was wrong in law in deciding that the plaintiff had no right to
claim for the refund on the ground that the defendant had a good title to the car and
that the plaintiff had failed to show that the defendant had acquired the title of the
vehicle illegally or without proper inquiry or that he was not a purchaser in good faith.

15. The judgment of the Magistrate is reversed and judgment will be entered for the
plaintiff in terms of the statement of claim paragraphs (a) and (b). Costs here and
below.

Cases
Rowland v Divall [1923] 2 KB 500; Soon Teck Finance (M) Bhd v Public Finance Bhd [1988] 3
MLJ 417
Legislations
Malaysia
Sale of Goods Act 1957: s.4(1), s.14(a), s.29
United Kingdom
Sale of Goods Act 1893: s.12
Representation
LK Cheah (Lee & Wong) for Appellant
Preetam Kaur (Rithauddin & Azlin) for Respondent
Notes:-
This decision is also reported at [2001] 1 AMR 630

Civil Appeal No. [MT-1] 12-81-2006

HIGH COURT OF MALAYA


Tektrix Sdn Bhd
- vs -

Coram Malayan Banking Bhd


VERNON L.K. ONG JC 7 APRIL 2008
Judgment
Vernon L.K. Ong JC
1. The appellants' appeal is against the whole decision of the learned Sessions Court Judge made
on 28.4.2006 allowing the respondent's claim and dismissing the appellants' counterclaim with
costs. In the court below the appellants are the 1st and 2nd defendants respectively and the
respondent the plaintiff. In this judgment the 'plaintiff shall mean the respondent and 'the 1st
defendant' and or 'the 2nd defendant' shall mean the appellants jointly or severally, as the case
may be.

BACKGROUND FACTS

2. Pursuant to a hire-purchase agreement dated 28.4.1997 ('the HP Agreement') entered into


between the respondent and the 1st defendant, the respondent agreed to let and the 1st defendant
agreed to take on hire a second-hand conveyerised drying oven ('the Goods'). In consideration
thereof the 1st defendant agreed to pay to the plaintiff the hire purchase price of RM33,125.00
in 60 monthly installments of RM553.00 each and a final payment of RM498.00.

3. By a Guarantee of Hire Purchase Agreement dated 28.4.1997 ('the Guarantee'), the 2nd, 3rd,
4th, 5th and 6th defendants jointly and severally guaranteed the due and punctual payment of all
sums due and payable under the HP Agreement and the due performance by the 1st defendant of
its obligations under the HP Agreement.

PLAINTIFF'S CLAIM

4. By a legal notice dated 12.5.1998 addressed to the 1st defendant, the plaintiff demanded that the
1st defendant settle the outstanding arrears of 5 monthly instalments as at 9.5.1998 within 7
days failing which the HP Agreement would be terminated. Upon termination, the plaintiff
would claim the balance of the hire-purchase price together with interest amounting to
RM28,725.80. By separate legal notices of the same date issued to the 2nd, 3rd, 4th and 5th
defendants, the plaintiff gave notice of claim of the same. The defendants failed to comply with
the plaintiff's aforesaid demands. The goods were not repossessed by the plaintiff The plaintiff's
claim against the defendants is for the sum of RM28,891.02 together with interest and costs.
The computation of the said sum is set out at page 28 of the Appeal Record (Part A & B).

APPELLANT'S COUNTERCLAIM

5. The appellants contend that the HP Agreement is null and void because the plaintiff did not have
good title to the Goods. The appellants' counterclaim against the plaintiff is for the sum of
RM106,741.78 being the deposits paid under a number of other hire-purchase agreements and
the sum of RM5,530.00 being the instalments paid under the HP Agreement. In the alternative
the appellants counterclaims for damages for breach of the HP Agreement.

APPELLANTS' SUBMISSION

6. The main grounds of the appellants' appeal are as follows:

1. The respondent failed to show that it can deliver good title to the Goods and failed to
ensure that the 1st defendant will enjoy quiet possession of the Goods.

2. The respondent is unable to identify the Goods.

3. The respondent failed to prove the amount due and outstanding under the HP
Agreement.

4. All monies paid under hire purchase agreements ought to be returned to the 1st
defendant.

FIRST GROUND

7. Learned counsel for the appellants submitted that the learned trial judge erred in holding that the
Sale of Goods Act 1957 ('SOGA') did not apply to the HP Agreement. According to clause 7 of
the HP Agreement, the implied conditions and warranties relating to title and quiet possession
are not excluded and should apply. Only the implied conditions and warranties relating "to the
condition of the said Goods or to their merchantability or fitness for the particular or any
purpose ...." are excluded. Clause 7 of the HP Agreement reads as follows:

All conditions and warranties (save and except those which are implied by the Sale
of Goods (Malay States) Ordinance, 1957 and which cannot hereby be excluded
by reason thereof) relating to the condition of the said Goods or to their
merchantability or suitability or fitness for the particular or any purpose for which
they are or may be required whether such conditions and warranties are express or
implied and whether arising under this Agreement or under any prior agreement or
otherwise are hereby expressly excluded.
8. Learned counsel further submitted that the implied conditions and warranties as to title and
quiet possession pursuant to s. 14 of the SOGA should apply. Section 14 of the SOGA is
reproduced hereunder.

14. Implied undertaking as to title, etc.

In a contract of sale, unless the circumstances of the contract are such as to


show a different intention, there is:-

(a) an implied condition on the part of the seller, that, in the case of a sale, he
has a right to sell the goods, and that, in the case of an agreement to sell, he
will have a right to sell the goods at the goods at the time when the property
is to pass;
(b)an implied warranty that the buyer shall have and enjoy quiet possession of
the goods;
(c) an implied warranty that the goods shall be free from any charge or
encumbrance in favour of any third party not declared or known to the
buyer before or at the time when the contract is made.
9. It is the appellants' contention that the respondent does not have good title to the Goods and that
the respondent will not be able to deliver good title to the 1st defendant. The appellants also
contend that the respondent has not produced any evidence that it has good title or that it can
deliver good title. In support thereof learned counsel referred to ABN-AMRO Bank Bhd v
Ismail Mydinsah [2005] 5 CLJ 1; [2004] 7 MLJ 30; Public Finance Bhd v Ehwan Saring
[1996] 1 CLJ 628; [1996] 1 MLJ 331 and Ling Swee Lin v Public Finance Bhd [2007] 3 CLJ
737.

10. The appellants' contention that the HP Agreement is subject to the implied condition as
to title and warranty as to quiet possession of the Goods is consistent with the provisions of
clause 7 of the HP Agreement. Accordingly pursuant to s. 14 SOGA, there is an implied
undertaking on the part of the respondent as to paragraph (a) and (b) of s. 14 SOGA.

11. The appellants also contend that (i) the respondent did not have good title to the Goods
and (ii) the 1st defendant did not enjoy quiet possession of the Goods. It is, however, clear from
the provisions of s. 14 SOGA that the aforesaid condition and warranty are only implied. In this
instance the burden of proof is upon the appellants to prove these assertions. (see s. 101, 102
and 103 Evidence Act 1950) This the appellants have failed to do The cases cited by the
appellants can be distinguished on its facts.

12. In ABN-AMRO Bank Bhd v Ismail Mydinsah (supra) the defendant contended that a
scam was perpetrated by the plaintiff's officer, one Mr. Vega, who had the defendant's properties
transferred to himself for a nominal purchase price which was below the market rate in
exchange for him getting the facilities approved by the plaintiff. The court held that the plaintiff
owed a duty to dispel the allegations by calling Vega. As the plaintiff failed to do so the
presumption under s. 114(g) of the Evidence Act 1950 was invoked against the plaintiff. In that
case, the defendant in question gave evidence in support of the scam whereas in this case, the
appellants' assertion is unsupported. Accordingly, this case is of no aid to the appellant's
contention.

13. In Ling Swee Lin v Public Finance Bhd (supra) the plaintiff entered into a hire-
purchase agreement with the defendant for the purchase of a motor vehicle. The motor vehicle
was subsequently seized by the police on suspicion of being stolen property. The plaintiff
thereupon terminated the hire-purchase agreement and claimed for the refund of RM86,850.00
paid to the defendant. The facts of this case are quite similar to that of Public Finance Bhd v
Ehwan Saring (infra) where as a consequence of an intervening event, the owner was called
upon to produce evidence of good title.

14. In Public Finance Bhd v Ehwan Saring (supra) the respondent purchased a motor car
from T for RM82,000.00. The respondent paid RM57,000.00 out of which RM40,517.97 was
paid to T, and RM16,482.03 to the appellant. For the balance of RM25,000.00, the respondent
(as hirer) entered into a hire-purchase agreement with the appellants (as owners) whereby that
sum was advanced by the appellants to the respondent to pay T the balance of the purchase
price. Six weeks after the hire-purchase agreement was executed the motor car was seized by
the Customs and Excise Department for an alleged offence. The respondent contended that by
reason of the seizure, the appellants had breached the implied warranties and conditions
provided for under s. 7(1) of the Hire Purchase Act 1967 and that there had been a total failure
of consideration. The appellants, however, contended that there was no breach as the implied
condition that the owner should have a right to sell the goods at the time when the property was
to pass only arose when the last instalment had been paid. The court held that the implied
condition of good title applied when the owner entered into the hire-purchase agreement, and
not when the final payment was made. On the facts in this cited case, there was an intervening
event by the Customs and Excise Department which prevented the owner from passing good
title of the motor car. In this appeal, however, there was no intervening event involving a third
party which occurred which made it impossible for the respondent to pass a good title of the
Goods to the appellants. In the absence of any intervening event, it is not open to the appellants
to contend that the burden of proof is upon the respondent to prove the condition and warranty,
which is already implied by the SOGA.

15. The appellants' contention that they have always contended that the respondent did not
have good title to the Goods both at the time when the HP Agreement was entered into at any
time thereafter is unsubstantiated. The so-called discovery by the 1st defendant of this fact
during an audit carried out in early 1998 was not communicated to the respondent at all. There
was no evidence of any written communication from the appellants to the respondent notifying
of this alleged discovery. There was no written rebuttal by the appellants even after the
respondent's notices of demand to all the defendants (exhibits P12) were issued. The appellants
also attribute this discovery as a reason for the 1st defendant to stop paying the instalments.
This issue was only pleaded after the summons was filed against the appellants. Accordingly, I
hold that this contention is unsubstantiated and without merit.

SECOND GROUND

16. The appellants also contended that as the respondent have not been able to identify the
Goods, they are unable to pass good title to the Goods. This contention is premised on the fact
that the schedule to the HP Agreement did not contain the details of the dealer's invoice or any
serial or registration numbers and model or make of the Goods. Upon an examination of the HP
Agreement in question, it is clear that the Goods is described in the schedule as follows:

PARTICULARS OF GOODS:

Description : Conveyerised Drying Oven


New/Second-hand : Second-hand
Fixture/Moveable : .....................................................
Model/Make : .....................................................
Serial/Registration No : Conveyerised Drying Oven
Engine No : .....................................................
Chasis No : .....................................................
Accessories : .....................................................
17. Therefore, according to the schedule, the Goods in question is a second-hand
conveyerised drying oven. The 1st defendant has in fact acknowledged receipt of delivery of the
Goods by signing on the delivery receipt in the schedule on the following terms:

DELIVERY RECEIPT

To: Mayban Finance Bhd Description of Goods ................


50300 Kuala Lumpur. Reg./Serial No ..........................
I/We acknowledge that I/we have read/been given an explanation of Hire Purchase
Agreement made between us and fully understand the terms and conditions thereof
before signing it. I/We confirm that I/we have examined the Goods described in
the Agreement and that the same is/are in good order and condition, and to my/our
satisfaction in every respect, and that I/we have taken delivery of the Goods at this
date.

*I/We hereby further acknowledge and confirm that prior to or at the time of
signing the Agreement I/we have not made known to you expressly or by
implication any particular purpose for which the Goods are required.

OR

*I/We hereby further acknowledge and confirm that the Goods are second - hand
and the provisions of Clauses 6(2) and 7 were brought to my/our notice to the
signing of this Agreement

(*Delete whichever is not applicable)

Signature of Hirer

Date ........... ......sgd.....


18. It is important to bear in mind that the Goods in question is not new but second-hand.
Furthermore, the Goods is not an item subject to any system of registration of title. In my view,
the description of the Goods in the schedule to the HP Agreement is sufficient for the purposes
of identifying the Goods. The 1st defendant's signature on the Delivery Receipt in
acknowledgement and confirmation of delivery of the Goods contradicts the appellants'
contention. Further, learned counsel for the appellants have not furnished any authorities in
support of this contention. Accordingly, I find that this contention is also without merit.

THIRD GROUND

19. The appellants contend that the respondent have failed to prove the amount due and
outstanding under the HP Agreement. According to the Account Payment Record (exhibit P9),
the final instalment is due on 28.4.2002. The appellants contend that P9 is a computer generated
document. It is inadmissible because the certificate pursuant to s. 90A Evidence Act 1950 was
not tendered to the court. The notes of evidence revealed that no such certificate was tendered.
Accordingly, I hold that P9 is inadmissible and cannot be relied on in support of the
respondent's claim.

20. Be that as it may, I have also noted the appellants' admission that they have stopped
paying the instalments in July 1998.The respondent's witness SP2 explained that the respondent
is entitled to claim for the hire purchase price less the sums previously paid by the appellants
under the HP Agreement. This position is consistent with clause 12 of the HP Agreement read
together with clause 11. SP2's evidence on the amount of RM28,891.02 was also not challenged
by the appellants in cross-examination. I therefore accept the learned trial judge finding on this
issue. In the premises I find that the appellant's contention is devoid of merit.

FOURTH GROUND

21. The appellants counterclaim for the refund of RM106,741.78 being the deposits paid
under the HP Agreement and other different hire-purchase agreements and RM5,530.00 being
the instalments paid under the HP Agreement. The appellants contend that the HP Agreement
and the other hire purchase agreements are null and void for total failure of consideration. For
the reasons adverted to above, I find that the appellants' contention is without merit. The HP
Agreement is a valid agreement. The appellant's counterclaim is without any basis in law and in
fact.

22. According to the appellant's witness SD1, the deposit amounting to RM106,741.78 was
made by Perusahaan Peridi Sdn. Bhd in which he was also a director. The learned trial judge
found that on a balance of probabilities the appellants failed to prove that the said sum was paid
in this case I see no good reason to interfere with the learned trial judge's finding.

23. For the reasons adumbrated above the appellant's appeal is dismissed with costs.

Cases
ABN-AMRO Bank Bhd v Ismail Mydinsah (trading as Ismy Classic) [2005] 5 CLJ 1; [2004] 7 MLJ 30
Public Finance Bhd v Ehwan Saring [1996] 1 CLJ 628; [1996] 1 MLJ 331
Ling Swee Lin v Public Finance Bhd [2007] 3 CLJ 737

Legislations
Sale of Goods Act 1957: s.14

Representations
Thamil Chelevan (M/s CS Tam & Co) for Appellant.
Rosdi (M/s JS Pillay & Mohd Haaz) for Respondent.

Civil Appeal No 02–33–92

FEDERAL COURT OF MALAYSIA


Public Finance Bhd
- vs -

Coram Scotch Leasing Sdn Bhd


S.C. PEH FCJ (In Receivership)
LAMIN PCA
WAN YAHYA FCJ 19 APRIL 1996

Judgment
S.C. Peh FCJ
1. This case is a difficult one and so much confusion has been caused. Basically, there are two
claimants to some book debts of the respondent/defendant in the appeal, i.e. Scotch Leasing Sdn
Bhd, which has been engaged in the business of leasing equipment, chattels and other movable
property to hirers or hire-purchasers (the respondent/defendant is hereinafter called ‘the leasing
company’).

2. In order to let on hire or hire-purchase to customers such equipment etc, the leasing company
has in the past obtained financial assistance from the appellant/plaintiff, i.e. Public Finance Bhd,
to assist in acquiring the said equipment etc so that the same could be so let on hire etc. In
consideration of such financial assistance, the leasing company assigned to the
appellant/plaintiff, inter alia, all payments or instalment payments to be made by such hirers or
hire-purchasers to the leasing company (the appellant/plaintiff is hereinafter called ‘the
assignee’). It has not really been disputed that some book debts owing by various hirers and
hire-purchasers to the leasing company were assigned to the assignee on various dates in 1983
and 1984, and there were 21 such leasing agreements in respect of which, such debts or book
debts had already been assigned before the present originating summons was first filed in 1990
in the court below, from the decision of which an appeal has been filed and now has come up
for hearing before us. The said originating summons together with the identification numbers of
the said 21 leasing agreements and the dates of purchase of which by the assignee is set out
below:

Originating Summons

Let the defendant within 8 days after service of this summons on him, inclusive of
the day of service, caused an appearance to be entered to this summons, which is
issued on the application of the plaintiff, Public Finance Bhd, of 1st–4th Storey,
South Block, Wisma Selangor Dredging, 142–A Ampang Road, 50450 Kuala
Lumpur.

By this summons the plaintiff seeks the following orders, namely:

(a a declaration that upon the true construction of the master agreement dated 12
) May 1983 (hereinafter referred to as ‘the said master agreement’) made
between the plaintiff, Public Finance Bhd of the one part and the defendant,
Scotch Leasing Sdn Bhd as ‘dealer’ of the other part, the defendant is to hold
the contract rights and property in the goods in all of the lease agreements
purchased by the plaintiff pursuant to the said master agreement, namely:

Lease Agreement No Date

83/178 09 Sep 1983

83/181 "

83/183 "

83/187 "

83/190 "

84/36 15 Feb 1984

84/77 04 May 1985

84/79 "

84/80 "
84/89 "

84/90 "

84/93 "

84/98 18 May 1984

84/100 07 Jun 1984

84/104 "

84/105 "

84/115 16 Jul 1984

84/144 "

84/145 "

84/146 "

84/147 "
as trustees for Public Finance Bhd;
(b for an order that the defendant be directed to collect all sums under the said
) lease agreements and to remit the said sums to the plaintiff;
(c for an order that the defendant render a full account of the payments made to
) the defendants by the respective lessees;
(d for an order that the defendant pays forthwith to the plaintiff all the proceeds
) from the sale of the repossessed equipment/vehicles repossessed under the said
lease agreements;
(e) for an order that the defendant forthwith delivers up all the photocopies of the
ledger cards of the respective lessees in its possession;
(f) a declaration that the plaintiff is legally entitled to the RM37,55.80 in a fixed
deposit account No 3302016963 with Perwira Habib Bank by the plaintiff as
stakeholders pursuant to the said agreement;
(g) that the costs of and incidental to this application be taxed on a solicitor-client
basis by a proper officer of the court and paid by the defendant to the plaintiff;
and
(h) further and/or other relief as the court deems fit to grant.
Dated 8 May 1990.

–Sgd–
Senior Assistant Registrar

High Court, Kuala Lumpur


3. It is to be borne in mind that the assignment of the debts of the 21 leasing agreements listed in
the above originating summons has not been really disputed except that, very briefly for the
present, the contentions of the intervener have been, first, that the intervener in the originating
summons has a claim to the debts which prevails over the claim of the assignee for some
reasons which will be dealt with later; and secondly, that assignments have not been executed in
accordance with s 4.01(a) of a certain ‘master agreement’ in the form ‘as and when required’ of
the contract rights and property in the goods held by the leasing company on trust for the
assignee ‘in respect of agreements purchased’ by the assignee pursuant to the master agreement,
the relevant provisions of which will be set out later.

4. The intervener is Perwira Bank Bhd, the holder of a debenture executed by the leasing company
for the said intervener but subsequent to the said 21 leasing agreements, and more about this
later (the intervener is hereafter called ‘the debenture holder’).

5. The 21 leasing agreements or the book debts therein were assigned to the assignee by the
leasing company in pursuance of the terms of an anterior agreement – the type of which people
in the same trade as the leasing company has been engaged in and they are wont to call it ‘the
master agreement’, which some other people like to call a ‘facility agreement’ or other names.
Whatever label is used for such an agreement is immaterial, so long as its true legal effect is
examined and ascertained. The relevant portions of this master agreement (hereinafter called
‘the master agreement’) are set out below:

An Agreement made this 12 May 1983 between Public Finance Bhd, a company
incorporated in Malaysia and having its registered office at Fifth Floor, Wisma
Perdana, Dungun Road, Damansara Heights, Kuala Lumpur and having a branch
office at Lower Ground & 14th Floor, Public Bank Building, No 6, Sulaiman
Road, Kuala Lumpur (hereinafter called ‘PFB’) on the one part and Scotch
Leasing Sdn Bhd, a company incorporated in Malaysia and having its registered
office at Room 402, 3rd Floor, Hardware House, Nos 398–400, Tuanku Abdul
Rahman Road, Kuala Lumpur and place of business at Lot 5s & 6 Light Industrial
Area, Batu 4½, Genting Klang Road, Setapak, Kuala Lumpur (hereinafter called
‘the dealer’) of the other part.
Whereby It Is Agreed as follows:

Article I

Section 1.01 Dealer’s Request to Purchase

PFB agreed that it will at the request of the dealer from time to time consider and
if PFB at its absolute discretion thinks fit purchase from the dealer the rights of the
dealer (hereinafter called ‘the contract rights’) under the equipment lease
agreements (hereafter called ‘the agreements’) entered into by the dealer as owner
with the lessees mentioned therein and the dealer’s property in the goods
comprised therein and subject to the terms and conditions herein contained.

Section 2.01 Acceptance and Payment

If PFB at its absolute discretion decides to accept the dealer’s request to purchase
all or some of the agreements comprised in any such request it shall notify the
dealer accordingly and thereupon the contract rights and the property in the goods
comprised therein shall vest in PFB and PFB shall pay to the dealer a sum equal to
the total of all outstanding principal sum or the total of all outstanding sum at the
sole discretion of PFB due under the agreements purchased (hereinafter called ‘the
collection value’) less: Collection of Instalments

Section 3.01 Collection by the Dealer

(a To collect punctually as agent for PFB all sums due under the agreements and
) remit such sums without any deduction to PFB punctually at monthly intervals
the first remittance to be one (1) month from the date of the purchase of the
agreements by PFB pursuant to s 3.01 hereof and subsequent remittances to be
on each succeeding month of such date or at such other intervals as PFB may
require holding the same meanwhile on trust for PFB and if PFB so require
paying the same into a bank account to be opened in the name of PFB or as PFB
shall direct. Provided that PFB shall be at liberty at any time at their absolute
discretion to terminate the dealer’s authority to collect sums from lessees under
the agreements and thereupon the dealer shall cease to collect or engage in
collecting the same.
Article III

Section 4.01 Duties and obligations of dealer


The dealer hereby covenants and undertakes that it will at its own costs and
expenses

(a as and when required by PFB to execute an assignment or assignments in the


) form required by PFB of the contract rights and the property in the goods in all
or any of the agreements purchased by PFB pursuant to this agreement and until
such assignment or assignments to hold the contract rights and property in the
goods and the agreements as trustee for PFB;
(b to pay to PFB on demand the amount of all legal charges and all stamp duties
) paid or incurred by PFB on any such assignment or assignments, PFB being at
liberty to .... itself for such charges and duties out of the retention referred to in
s 2.01 hereof;
(c to maintain proper accounts on behalf of PFB in the names of the lessees
) showing the amount paid by and due from the lessees both before and after
purchase of the agreements by PFB hereunder and to punctually submit to PFB
statements pertaining thereto periodically as and when required by PFB and to
permit PFB and its agents full facilities to inspect and audit such accounts and
take copies thereof and extracts therefrom whenever PFB shall require.
Section 4.04 Power of Attorney

In consideration of the premises the dealer hereby irrevocably appoints PFB for
the time being its attorney for the purpose of execution any assignments required
to be executed by the dealer in favour of PFB under the provisions of this
agreement and for the purpose of executing all other documents necessary to vest
title in PFB to any of the agreements or any goods comprised therein and the
dealer further irrecoverably appoints such aforesaid the attorney of the dealer for
the purpose of accepting and indorsing all bills of exchange and making and
indorsing all promissory notes which the dealer is obliged to accept make or
indorse pursuant to the provisions of this agreements.
6. The debenture holder is the holder of the debenture dated 11 June 1985, a date posterior to all
the dates of purchase of the 21 leasing agreements. It has not been disputed either that:

a. a floating charge was created as on 11 June 1985 over all the undertaking and assets of
the leasing company, including all the movable and immovable property; and

b. the floating charge was crystallized on 28 October 1986 when the debenture holder
appointed a receiver and manager for the leasing company.

The debenture holder applied to intervene in the originating summons herein claiming all the
payments in respect of those 21 leasing agreements, adversely, of course, against the assignee;
viz being payments to the leasing company from those hirers or hire-purchasers of those 21
leasing agreements in respect of the said equipment etc.

7. All parties in the court below agreed before the learned judge that the question required to be
answered by the court was, whether under the master agreement, and to quote:

Defendant is to hold the contract rights and property in the goods in all of the lease
agreements from 9 September 1983 – 16 July 1984 as trustees for the Public Bank.
8. The words ‘Public Bank’, a misnomer for its subsidiary, could not possibly refer to any party
other than the Public Finance Bhd, the assignee. The lease agreements refer, of course, to the 21
leasing agreements and the ‘defendant’ refers to the leasing company.

9. In the event that has turned out, the learned judge in the court below, giving a field day to the
intervener, held that the trust in favour of the assignee did not exist in respect of the 21 leasing
agreements in pursuance of the terms of the master agreement on various grounds which would
be dealt with later, together with the grounds of decision of this court. The assignee has thus
appealed to us.

10. It is obvious that the competing claims are between the claim of the assignee of the one
part, and that of the debenture holder and the receiver and manager of the leasing company of
the other part; and not forgetting that, in this connection, the leasing company has been placed
under the said receiver and manager, the leasing company would have to listen to his master’s
voice at all times, viz that of the debenture holder through the said receiver and manager who
has, by virtue also of the terms of the debenture, become the agent of the leasing company.

11. In our opinion, the grounds on which such competing claims ought to be resolved are
based on three principles which, however, specifically, are confined to debts or book debts,
being the subject matter of the claims:

a. The first principle is nemo dat quod non habet, i.e. a person cannot give what he does
not have (hereinafter called ‘the nemo dat rule’);

b. the second principle is that in the case of an assignment of book debt, it is most desirable
(but not essential to the validity of the assignment as between the assignor and the
assignee, i.e. the vendor and the vendee of a book debt) that notice of the assignment
should be preferably given to the debtor; otherwise, the debtor, not knowing about the
assignment, can validly pay the debt in question to the assignor or any other person as
may be directed by the assignor, even in fraud of the assignee; and

c. the third principle, if we may call it as such, is that those rules in equity which normally
apply to land transactions such as those which apply to legal estates and equitable
interests of land in England should not be applied to personal property (as opposed to
immovable or real property) either at all, or without a great deal of modifications, and it
is to be remembered that a debt or a book debt is a kind of personal property.

We will state below our explanation on a number of matters somewhat discursively which may,
at first sight, appear to be disjointed but all of which, it is hoped, will add up to a sufficient
explanation as stated.

12. The first confusion of all the parties in the appeal, we observe, is about the identity of
the debtors involved in the present appeal. The debenture holder has, through its learned
counsel, argued on the implied basis that the debtor was the leasing company. Now, the leasing
company may be a debtor in the normal sense to the debenture holder for money borrowed by
the leasing company, but the leasing company is not the debtor of the debts, the subject matter
of the assignment, for the purpose of giving notice to, in respect of specifically, the assignment
of debts of the 21 leasing agreements: please see the second principle above-mentioned. Thus,
the debtors in respect of the assignment of those 21 leasing agreements are the hirers and hire-
purchasers who have never been parties to the originating summons and neither has there been
any evidence as to whether any party involved herein has given notice to such hirers and hire-
purchasers. This appeal, therefore, has to be dealt with without regard to the debtors in these 21
leasing agreements.

13. Personal property, otherwise known as personalty or movable property is different from
real property – otherwise known as immovable property or land – in one important aspect for
the purpose of the nemo dat rule: more about this later. Personal property includes such diverse
things as money, goods, stocks and shares, cattle and choses in action.

14. All choses in action are categorized under personal property: examples of choses in
action being stock and shares, debts (as stated above), life insurance policies, bills of lading,
patents and copyrights etc.

15. Subject to statutory intervention and modifications, all kinds of personal property are
subject to the nemo dat rule from which flows the consequence that nobody can claim any
personal property against the real owner of that personal property. We are of the opinion that the
operation of the nemo dat rule to certain specific types of personal property has been modified
by statutes, and a ‘debt’ is not one of them: more about this later.

16. Speaking of statutory modifications, in the case of sale of goods, the nemo dat principle
is modified by various sections in the Sale of Goods Act 1957 such as ss 27, 29 etc therein, in
which a bona fide buyer for value without notice, e.g. of the lack of title of the seller, is
protected in certain situations.

17. We may just as well mention here that choses in action are expressly excepted from the
definition of the word ‘goods’ in the Sale of Goods Act 1957 – this is to be borne in mind when
speaking of choses in action in connection with the nemo dat rule.

18. A number of choses in action (categorized under personal property) have also been
modified by various statutes, such as stock and shares (by the Companies Act 1965); negotiable
instruments (by the Bills of Exchange Act 1949); also by the relevant legislation in the cases of
life insurance policies, copyrights, etc respectively. For illustration, in the case of negotiable
instruments such as bills of exchange, property in them passes by mere delivery. Please see the
sections therein.

19. We might just as well mention here also that no known statute has modified debts or
book debts effectively to interfere with the application of the nemo dat rule to them; in other
words, for example, there is no known statute which protects a subsequent bona fide buyer of a
book debt for value without notice.

20. Principles of equity as regards land cannot be applied to personal property at all, or
without modifications because of the basic inherent difference between land and personal
property. It is that personal property is capable of absolute ownership while land (real property)
is not.

21. If a person buys a cow and pays for it, normally he is the absolute owner,
notwithstanding another person may claim it against the said buyer as a subsequent bona fide
buyer for value without notice pursuant to some special provisions of the Sale of Goods Act
1957. That claimant claims, not on the ground that he has ‘an equitable interest’ in the cow but
because he is a bona fide buyer for value within the ambit of certain sections of the Sale of
Goods Act 1957. To say such a claimant has an equitable interest in the cow is not quite correct,
though in theory in law, there can be equitable interest in the personal property so long as
people are fond of, for example, using the device of trust for their personal property etc. Trusts
are the principal creation of the Court of Chancery.

22. Still on the question of absolute ownership, at common law, land is not capable of such
absolute ownership because, for example, land in England is owned by the Crown, i.e. the
Queen as a body politic. This concept is perpetuated in Malaysia – e.g. in Perak, all land is
vested in the state authority, i.e. the Ruler of Perak as a body politic, and to the state authority,
all registered proprietors of land pay quit rents.

23. Continuing to speak of the difference of land in England from personal property on the
point of absolute ownership, at common law, all ‘owners’ of land are tenants of the Crown,
holding the same under various tenures; e.g. such as for life, in tail and in fee simple, the last-
named being the highest type of tenure. These tenures are called ‘estates’. Nobody can claim
therefore that he is the absolute owner of any land, thus the owners of these estates enjoy legal
rights in the land in question and all other interests in land which are short of estates in land just
explained. Such other interests in land are often called ‘equitable interests in land’. Equitable
interests in land started off first as rights in personam against another person, historically.

24. We believe that, inter alia, such inability of absolute ownership of land therefore makes
it possible for a land owner to be subjected to overlapping claims and this severely modifies the
nemo dat rule in land, except in execution cases where, e.g. a judgment creditor enforces and
executes a judgment obtained against the land of a judgment debtor (who is the registered
owner of the land) and has to fight against the owner of an equitable interest in the land, such as
a prior purchaser of the judgment creditor’s land where the purchaser has not got the land
registered yet in his own name. The nemo dat rule was held to apply by the clearest implication,
though not in so many words, against the judgment creditor in the Federal Court case of
Karuppiah Chettiar v Subramaniam [1971] 2 MLJ 116, in which the execution creditor’s
prohibitory order against the land registered in the name of judgment debtor was set aside on the
ground that the judgment debtor had, prior to the execution proceeding, already sold the land to
the purchaser who had applied to set aside the prohibitory order. The Federal Court held, in
setting aside the prohibitory order, that the judgment debtor had parted with his interest in the
land and there was, therefore, nothing that could be put up for sale. Therefore, it has been seen
that the nemo dat principle does not apply conclusively in resolving conflicting claims to land
save in execution cases, but the same cannot be said of personal property.
25. The true nature of an assignment of a debt or book debt is such that such a debt (not
being modified by any statute as regards the applicability of the nemo dat rule) can only be
transferred by way of assignment, and not, e.g. by delivery in the case of sale of goods, or in the
case of land by executing a valid and registrable transfer according to the provisions of the
National Land Code 1965. Assignment is the instrumentality of transfer or sale of a debt.

26. At common law (in the special sense now of its being distinguished from rules in equity)
contractual rights, e.g. as to debts, were not assignable, i.e. transferable to another person
without the consent of both parties to the contract conferring such contractual rights. Equity
stepped in and has long allowed such assignment of such debts to another person who is not
privy to the contract in respect of such debts, without at all the consent of the debtor: see e.g.
Brice v Bannister (1878) 3 QB 569; and even without notice to the debtor, see Kelly v Selwyn
[1905] 2 Ch 117 and Ward v Duncombe [1893] AC 369. Such assignments as so allowed by
equity are called ‘equitable assignments’.

27. The validity of such equitable assignments is not affected by any failure to comply with
requirements as laid down in s 4(3) of the Civil Law Act 1956, for an assignment that so
complies has been described as a statutory assignment; being so statutory for such an
assignment has the sole intended effect of facilitating an assignee to sue in his own name
directly, irrespective of whether the chose in action is an equitable chose in action or a legal
chose in action (not, be it noted, whether an assignment is equitable or statutory). By being a
statutory assignment itself, the ‘statutoriness’ of such an assignment, ipso facto, does not prevail
over an earlier equitable assignment, and this is so even with the added factor that the assignee
involved in a statutory assignment took the assignment for value without notice of an earlier
equitable assignment: e.g. see E Pfeiffer Weikellerei-Weinenkauf GmbH & Co v Arbuthnot
Factors Ltd [1988] 1 WLR 150.

28. We need to say a few words more about the great desirability of giving notice of
assignment of a debt by an assignee to the debtor, even though absence of such notice does not
affect the validity of the equitable assignment as between the assignor and the assignee. If
notice is not given, the assignee must give credit for any payment made to the assignor by the
debtor. This rule means that, by extension, even if the assignor assigns once more the debt to
another person in fraud or otherwise on the earlier assignee, and that other person gives notice
to the debtor; and if the debtor pays that other person or the second assignee, then the earlier
assignee must still give credit to the debtor for his payment thus, for the debtor cannot be
blamed for doing lawfully in ignorance of the title of the earlier assignee who has failed to give
notice of the assignment to the debtor. Notice to debtor is for the protection of the assignee
himself. It is this effect of what the debtor does lawfully as described that dims the view of the
true role of the nemo dat rule in the resolution of disputed claims to a same debt. The money
paid to the ‘second assignee’ can, of course, be recovered by the earlier assignee on the nemo
dat principle.

29. In the light of what has been stated above, and with further explanation where
appropriate, we now approach the task of deciding both the question posed by learned counsel
of both parties by consent in the court below, and the adverse claims of the assignee and the
debenture holder respectively.

30. When the debenture was executed by the leasing company on 11 June 1985, the
undisputed assignments of the 21 leasing agreements had taken place on various dates in 1983
and 1984, so that applying the nemo dat rule, the floating charge created by the execution of the
debenture could not cover the book debts in respect of the 21 leasing agreements for there was
nothing left then in regard to the 21 agreements for the floating charge to cover.

31. Likewise, when the floating charge was crystallized on 28 October 1986 on the
appointment of a receiver and manager, the debenture holder did not obtain a fixed charge over
the same debts in these 21 leasing agreements; for there could be no fixed charge on some
assets which the leasing company had parted to somebody else earlier, i.e. the assignee. What,
in effect, legally and in theory, the debenture holder could have obtained – by a crystallization
of the floating charge over the book debts in respect of the said 21 leasing agreements – would
have been an equitable assignment from the leasing company, i.e. of the debts paid by the hirers
or hire-purchasers if the said 21 leasing agreements had not been already assigned in 1983 and
1984 to the assignee: e.g. see George Barker (Transport) Ltd v Eynon [1974] 1 All ER 900.
The leasing company could not assign in equity to the debenture holder something which the
leasing company did not already own or have, and the nemo dat rule applied.

32. On the basis of notice of assignment to the debtors, the real competing claims (in regard,
e.g. to the debts paid by those hirers or hire-purchasers) of the debenture holder and the assignee
respectively for so-called priority has not even begun to arise in this particular appeal, because
there is no evidence before us as to whether the assignee has or has not given notice to the
debtors, i.e. those hirers or hire-purchasers; or as to whether the debenture holder has done so or
not similarly: please see the non-liability of the debtors to pay twice the same debt due to
absence of notice of the original assignment in circumstances explained above.

33. Before this court makes the necessary order, it would be necessary now to comment
directly on the other grounds of the learned judge in the court below and arguments of the
learned counsel for the debenture holder and the receiver and manager; such grounds and
arguments have prompted this court in the first place to give such a long explanation before
such commenting.

34. The learned judge held that the trust mentioned in the originating summons in favour of
the assignee in respect of payments of those hirers and hire-purchasers did not exist, despite
learned counsel for the assignee’s submission on the existence of the three certainties of trust.

35. Of the three certainties of trust, first, there is the certainty of words of creation of a trust;
thus in ‘s 3.01’ of the master agreement, it is expressly provided that the sums paid (by the
hirers and the hire-purchasers) under the agreements (i.e. 21 lease agreements), are to be held
‘on trust’ for the assignee and to be dealt with in the ways mentioned therein. Again, under s
4.01, it is also provided expressly that the contract rights and property in the goods in respect of
the agreements are to be held by the leasing company as ‘trustee’ for the assignee. It is quite
impossible to be left in doubt about the certainty of the words in the creation of the trust, in the
face of the very words quoted.

36. There is the certainty of the subject matter, i.e. about the contract rights and property in
the goods and the payments (from the hirers and hire-purchasers).

37. There is, finally, the certainty of object, i.e. the fact of the assignee being the recipient of
the payments and beneficial owner of the contract rights and property in the goods in question
has been clearly and expressly stated.

38. The learned judge in the court below appears to rest his decision of the non-existence of
the trust solely on a question of priorities, i.e. as to which of the two would be entitled to
priority, i.e. the assignee or the debenture holder? The lower court ought to have considered on
the existence of the three certainties. On the question of the priorities, it will be presently looked
into, of course, in the light of the rather long explanation earlier.

39. The question of priorities (borrowed, rather inappropriately for the purpose of this case,
from the rules of equity in regard to competing claims of two or more holders of equitable
interests in land) may only arise between the assignee and the debenture holder herein on the
further question of notice to the debtors of the assignment of the 21 leasing agreements in the
way explained above. We have described who the debtors are, i.e. those hirers or hire-
purchasers who signed the 21 leasing agreements with the leasing company. We have referred to
this briefly earlier. The question of priorities which was discussed by the learned judge has still
not arisen in the instant appeal.

40. Guided by the nemo dat rule, once a notice of assignment from the assignee in respect of
the debts of those hirers and hire-purchasers – in turn, in respect of those 21 leasing agreements
– has reached or reaches (as the case may be) any of those debtors, i.e. the said hirers and hire-
purchasers, the entitlement of the assignee to the debts in question would be incontestable
against the assignee by anybody else including a subsequent so-called bona fide buyer for value
without notice of the purchase of the debts. Such entitlement would be incontestable against the
assignee on the it-goes-without-saying basis that the 21 leasing agreements and their purchase
or assignment are genuine or are not a device for defrauding anybody else. Such genuineness,
however, has never been disputed and what has been disputed has been largely whether the trust
in question has existed and also whether as between the assignee and the intervener, whose
claim should have priority. As stated earlier, the trust exists and that the nemo dat rule applies in
favour of the assignee.

41. We deal next with the contention of learned counsel that the master agreement has not
been registered with the Registrar of Companies under s 108 of the Companies Act 1965, and
therefore, the debenture holder took the 21 leasing agreements bona fide for value without
notice of the right of the assignee, presumably the debenture holder had checked up with the
registry of the Registrar of Companies before the execution of the debenture.

42. This is a worn-out argument against the assignee whose title in the debts as explained
above cannot be possibly affected by such ‘bona fide buyer for value without notice’ and the
intervener has claimed to be such a bona fide buyer. We do not think we could now stretch
learned counsel’s argument to mean that the assignment of the 21 leasing agreements is void for
lack of registration under the said s 108 for it was not so argued; also consequently the other
side was not invited to argue on this stretched point. We do not think that such assignment of
book debts, i.e. sale and purchase of book debts is required to be so registered. Section 108, in
any event, refers expressly to the registration of charges or other agreements on the assets of a
company which, we believe, are all executed to secure or as security for the benefit of creditors,
the repayment of money lent by such creditors to such company, either out of some fund or
money of a borrower-company, or out of the proceeds of realization of some other assets of the
company. This must be the normally desired consequence of the charges referred to in the
section requiring registration under it; we are, on the other hand, dealing with the outright sale
or transfer sale or transfer of contract rights or debts or property in the equipment etc in
question in respect of those 21 leasing agreements, involving no repayment of the purchase
price of those 21 leasing agreements to the assignee by the leasing company in the instant
appeal.

43. Arising out of the above paragraph, we also would like to say a few words about s
4.10(a) of the master agreement set out above earlier. A careful reading of the same would
clearly indicate that in the case of agreements with hirers and hire-purchasers of equipment etc
already purchased, the ‘contract rights and property in the goods’ and the purchased
‘agreements’ would be expressly held in trust by the leasing company for the assignee; and
subject to this pre-existing trust, the leasing company would be liable ‘as and when required’ by
the assignee ‘to execute such assignment or assignments’ ‘in the form required’ by the assignee.
This means that at the instance of the assignee, the leasing company is liable to sign such further
documents of the assignment of those leasing agreements already purchased in respect of rights
already created and covered by the pre-existing trust in the form desired by the assignee. This
would be supererogatory or superfluous in so far as such assignment is already valid without
any further documents. The wording of s 4.01(a) of the master agreement is, therefore, clumsy
and misleading. The motive for the reservation by the assignee of such right to have such
desired form ‘as and when required’ is a matter of speculation. By way of illustration, one
speculation may be to make such further documents more elaborate for the hirers and hire-
purchasers in question when the assignee decides to terminate the right of the leasing company
to collect money from them in future and instead, to collect from them directly these further
elaborate documents instead of mere brief notices of assignments to the hirers and hire-
purchasers. The right to collect from the hirers and hire-purchasers granted to the leasing
company could be for the reason of the assignee being able thereby to avoid engaging additional
staff, incurring more expenses and to allow the assignee to concentrate on its core business. In
this connection, the fact is that the assignment of the 21 leasing agreements was not challenged
before us, and the evidence in support of this fact, it was further pointed out to this court, in any
event came from paras 5 and 6 of the affidavit of the manager of the assignee (company)
dealing with details with the trust created in respect of money payable etc under these 21 leasing
agreements as such paras 5 and 6 were not denied by the receiver and manager in his affidavit in
reply, in which such paras 5 and 6 were not dealt with while other paragraphs of the affidavit of
the assignee’s manager were expressly referred to and replied by the said receiver and manager.

44. The learned judge, in his grounds, has apparently accepted further the submission of the
learned counsel for the debenture holder in the court below substantially, if not wholly. His
Lordship, in particular, relied on certain passages cited to him from a book on ‘factoring’ law
written by a certain accountant who does not possess any law degree or legal qualification. We
would not rely on them. We would have to decide the issues ourselves without regard to such
passages.

45. The learned judge next relied on the passage from 16 Halsbury’s Laws of England (4th
Ed) at p 882, as cited by learned counsel for the said receiver and manager in the court below.
The passage is set out below:

Where the legal estate is outstanding, the priority of equitable interests is prima
facie governed by the rule qui prior est tempore, potior est jure (he who is first has
the strongest right). The rule will be excluded if there is an act or omission by the
prior equitable owner of such a character as to justify his title being postponed
and, in certain cases, if he fails to effect registration in respect of his interest. The
rule follows from the principle that equitable interests depend on the creation of a
trust. The creation of a trust vests an interest in the subject matter of the trust in the
beneficiary, and this interest cannot be postponed to a subsequent interest except
upon grounds which justify the interference with it as a vested interest.
46. The passage starts with the sentence, ‘Where the legal estate is outstanding ....’ In the
first place, ‘legal estate’ refers to legal estate of land and not of personal property. We have
explained what a legal estate is earlier. The word ‘estate’ cannot but apply to land. Quoting the
passage applicable to land as if it were a reference to personal property, e.g. cattle, is not
appropriate in the light of the explanation above about the nemo dat rule; and about the
impossibility of absolute ownership of land in England and Malaysia in law.

47. The learned judge apparently accepted the ratio of Dearle v Hall (1828) 3 Russ 1, cited
by the same learned counsel in the court below, presumably as the basis for the importation of
rules of priority in conflict of claims from holders of equitable interests in land into personal
property. We now presently look into it with this suggested basis in mind.

48. Briefly, in that case, one Brown was entitled, during his life, to about £93 annually
arising from a share in the residue of his father’s estate, such residue comprising some
investments. Being in need of money, Brown, in consideration of receipt of a sum of money,
granted to Dearle £37 a year out of the £93 aforesaid. By way of collateral security, Brown had
assigned all his interest to Dearle in the sum of £93 pa. Both Dearle and Brown did not give
notice of this assignment to the executors of the estate of Brown’s father. This was in 1808.

49. We pause here to observe at once that the debtor in this assignment was the estate, i.e.
the estate’s executors who, unlike in our instant appeal, were trustees as well as debtors of that
assignment there. Confusion could have possibly affected learned counsel who cited this case
below by a mistaken belief that following this case, notice of assignment in the instant appeal
must be given to the leasing company, described as trustee in the master agreement.

50. In 1812, Brown publicly advertised for the sale of the same interest, i.e. the annuity of
the £93 aforesaid and the same was assigned to Hall by Brown. Hall gave notice of the
assignment to the executors of the estate and consequently, the first payment by the executors of
Brown’s father’s estate was made to Hall who, however, subsequently found out about the
earlier assignment to Dearle. Dearle took action in court, and the Master of the Rolls in the
court below there opined that Dearle, having failed to give notice of assignment to the executors
of Brown’s father’s estate had enabled Brown to commit the fraud on Hall and Dearle could not
rely on the priority in point of time. [emphasis added]

51. On appeal, the House of Lords, while upholding the decree of the Master of the Rolls
but for different reasons (through Lord Lyndhurst LC), gave judgment basing it instead on the
general principle that notice of assignment of a debt should have been given to the debtor (i.e.
the estate of the deceased father of Brown) ‘in order to take away from the debtor the right of
making payment to the assignor ....’, and not on the rule of priority in point of time frequently
employed by courts in dealing with conflict of claims of holders of equitable interests in land.
We would venture to say that by fairly clear implication the nemo dat rule was applied subject
to the rule of notice of assignment to debtor for an assignee’s own protection. We wonder why
Lord Lyndhurst did not observe that the learned Master of the Rolls there had wrongly treated:

a. a chose in action, i.e. the right of some residuary legatee to a deceased person’s estate
i.e. the said Brown, as if it was an equitable interest in land; and

b. the said Dearle and Hall as competing for such equitable interests in land. It will be
remembered that the learned Master of the Rolls there had applied the rule qui prior est
tempore potior est jure normally meant for cases of conflicting claims to land by holders
of equitable interests in it.
52. Before dealing further with other contentions, we would like to make certain
observations about the expression ‘equitable interests’. In relation to land, we have explained
above its meaning. In personal property, such equitable interests can, in theory, of course, exist
and are tenable, but we venture to suggest that in relation to personal property, the expression
should be used more as a method of description for convenience to describe any right just
falling short of that legal right accorded to the owner of personal property. Great caution is
required when attempting to employ principles in equity about equitable interests in land to
personal property for reasons given above.

53. The court therefore finds for long reasons above-mentioned the trust in terms as prayed
in the originating summons.

54. This court, therefore, allows the appeal of the appellant by setting aside the order
appealed from and making an order in terms of the originating summons herein. The intervener
is to pay costs here and below but that there be no order as to costs at all in regard to the
respondent (defendant). Further, the deposit in court is to be refunded to the appellant.

Cases
Brice v Bannister [1878] 3 QB 569
Dearle v Hall [1828] 3 Russ 1
E Pfeiffer Weikellerei-Weinenkauf GmbH & Co v Arbuthnot Factors Ltd [1988] 1 WLR 150
George Barker (Transport) Ltd v Eynon [1974] 1 All ER 900
Karrupiah Chettiar v Subramaniam [1971] 2 MLJ 116
Kelly v Selwyn [1905] 2 Ch 117
Ward v Duncombe [1893] AC 369

Legislations
Bills of Exchange Act 1949
Civil Law Act 1956: s.4
Companies Act 1965: s. 108
National Land Code 1965
Sale of Goods Act 1957: s.27, s.29

Authors and other references


Halsbury’s Laws of England (4th Ed), vol.16

Representations
LL Tan (Chooi & Co) for the appellant.
Sabithri (Adam & Co) for the intervener.
Mathias Cheng (Skrine & Co) for the respondent.

Notes:-
This decision is also being reported at [1996] 2 MLJ 369.

HIGH COURT OF MALAYA


Union Alloy (M) Sdn Bhd
- vs -
Syarikat Pembenaan Yeoh Tiong
Coram Lay Sdn Bhd
ZAKARIA YATIM J 25 MAY 1993

Judgment
Zakaria Yatim J
1. The plaintiff’s claim against the defendant is for a sum of RM56,084 being the balance of the
sum due and owing to the plaintiff under a contract for the sale of one complete set of ACE
Skyrak passenger/material hoist model MK25 (‘the said machine’). The plaintiff also claims
interest at the rate of 1% per month as from June 1979 to the date of full payment and costs.

2. In its statement of defence, the defendant alleged that the plaintiff was in breach of the
conditions on description, fitness for the purpose and merchantability implied under ss 15 and
16(1) of the Sale of Goods Act 1957 (‘the Act’). The defendant also counterclaimed against the
plaintiff for breaches of contract.

3. In its counterclaim, the defendant said that by reason of the breaches of contract on the part of
the plaintiff, the defendant had suffered loss and damage totalling RM750,800 together with
interest thereon at 6%pa from 28 April 1979 to the date of realization and costs. The defendant
also asked for a declaration that the plaintiff is liable to indemnify the defendant against all
sums which the defendant may be found liable to pay to the estate and/or dependants of the
deceased workman and to the injured workman as a result of the incident that occurred on 28
April 1979.

4. It is not in dispute that the plaintiff and the defendant entered into a contract on 10 August 1978
for the sale of one complete set of the said machine. The sale is not disputed by the defendant.
The purchase price and the question of the balance sum outstanding are also not disputed. It is
also not in dispute that on 28 April 1979 the said machine was being used to transport two
workmen to the 21st storey of the building under construction when it failed to stop at the
intended height and subsequently crashed to the ground. As a result, one workman sustained
severe injuries and died. The other workman sustained severe injuries and was hospitalized.

5. I shall now consider whether the plaintiff had been in breach of conditions on description,
fitness for the purpose and merchantability implied under ss 15 and 16(1) of the Act.

6. With regard to sale by description, Mr. LH Ng, counsel for the plaintiff, in his written
submission conceded that the sale of the said machine was a sale by description and there was
consequently an implied condition that the goods should correspond with the description under
s 15 of the Act.

7. I agree with Mr. LH Ng that there was no evidence in this case that the machine did not
correspond with the description in the sales contract and the brochure. In fact DW2, who was
employed by the defendant at the material time, confirmed that the machine as described in the
brochure and sales contract was sold by the plaintiff to the defendant and installed at the
defendant’s construction site. Mr. Radhakrishnan, counsel for the defendant, stated in his written
submission that the defendant was not relying on the breach of implied condition under s 15 of
the Act on the basis of the evidence before the court.

8. I shall next deal with the question of the condition on fitness for purpose. Section 16(1)(a) of the
Act states as follows:

Subject to this Act and of any other law for the time being in
force, there is no implied warranty or condition as to the quality
or fitness for any particular purpose of goods supplied under a
contract of sale, except as follows:

(a Where the buyer, expressly or by implication makes known to


) the seller the particular purpose for which the goods are
required, so as to show that the buyer relies on the seller’s skill
or judgment, and the goods are of a description which it is in
the course of the seller’s business to supply (whether he is the
manufacturer or producer or not) there is an implied condition
that the goods shall be reasonably fit for such purpose:

Provided that, in the case of a contract for the sale of a


specified article under its patent or other trade name there is
no implied condition as to its fitness for any particular purpose.
9. I agree with Mr. LH Ng that there are four preconditions laid down in s 16(1)(a). These
preconditions are:

(a) the buyer must make known to the seller the particular
purpose for which the goods are required;
(b)it must shown that there was reliance by the buyer on the
seller’s skill and judgment, and the buyer must in fact rely on
the seller to supply suitable goods;
(c) the goods must be of a description which it is in the course of
the seller’s business to supply; and
(d)if the goods are specific, they must not be sold under their
patent or trade name.
10. Mr. LH Ng submitted that the preconditions were not implied. He accordingly submitted
that preconditions (a) and (b) had not been satisfied. He contended that the defendant had not
shown or even suggested in evidence that the particular purpose for which the machine was
required was made known to the plaintiff or that there was reliance by the defendant on the
plaintiff’s skill and judgment.

11. Mr. Radhakrishnan submitted that the buyer could either expressly or by implication
make known to the seller the particular purpose. He relied on a passage in the speech of Lord
Wright in Grant v Australian Knitting Mills Ltd [1936] AC 85. At p 99, Lord Wright said as
follows:

The first exception, if its terms are satisfied, entitles the buyer to
the benefit of an implied condition that the goods are reasonably
fit for the purpose for which the goods are supplied, but only if
that purpose is made known to the seller ‘so as to show that the
buyer relies on the seller’s skill or judgment’. It is clear that the
reliance must be brought home to the mind of the seller,
expressly or by implication. The reliance will seldom be express:
it will usually arise by implication from the circumstances: thus to
take a case like that in question, of a purchase from a retailer, the
reliance will be in general inferred from the fact that a buyer goes
to the shop in the confidence that the tradesman has selected his
stock with skill and judgment: the retailer need know nothing
about the process of manufacture: it is immaterial whether he be
manufacturer or not: the main inducement to deal with a good
retail shop is the expectation that the tradesman will have bought
the right goods of a good make: the goods sold must be, as they
were in the present case, goods of a description which it is in the
course of the seller’s business to supply: there is no need to
specify in terms the particular purpose for which the buyer
requires the goods, which is none the less the particular purpose
within the meaning of the section, because it is the only purpose
for which any one would ordinarily want the goods.
I agree with the passage quoted above. In my view, the particular purpose for which the goods
were required may be implied.

12. In the present case, the defendant bought the said goods for use at the construction site. I
agree with Mr. Radhakrishnan that the machine had only one purpose and that was the vertical
transportation of men and materials at the worksite. Indeed, PW2, the former director of ACE
Machinery Ltd, in his evidence said, ‘Purpose of machine designed and built for vertical
transportation of men and materials on a construction site. That is the sole purpose of such
machine’.

13. With regard to ‘reliance’, it may be inferred, as in Hardwick Game Farm v SAPPA
[1969] 2 AC 31; [1968] 3 WLR 110; [1968] 2 ER 444, where Lord Pearce at p 115 said,

.... The whole trend of authority has inclined towards an


assumption of reliance wherever the seller knows the particular
purpose ....
14. On precondition (d), Mr. LH Ng submitted that as the machine in question was sold
under its registered trade name, ‘Skyrak’, there was no warranty that the machine would answer
the purpose intended by the buyer.

15. Mr. Radhakrishnan, however, submitted that the mere fact that the machine sold had a
trade name and the fact that it was described in the contract by its trade name would not exclude
the operation of the implied condition. In his submission, Mr. Radhakrishnan referred to a
passage in the judgment of Sargant LJ in Baldry v Marshall [1925] 2 KB 260, where the object
of the proviso to s 14 of the English Sale of Goods Act 1893 was discussed. At pp 269 and 270
Sargant LJ said:

The proviso rather applies to a ‘sale of a specified article under its


patent or other trade name’, and it seems to me that the sort of
mischief it was intended to prevent was this: It is well known that
patent medicines and articles sold under trade names are often
sold under puffing or laudatory names, which imply that the
article will perform a definite function satisfactorily. Suppose a
hosier were to offer for sale some hose as ‘holeproof hose’, and a
purchaser were to send him an order for holeproof hose, I think it
is clear that the purchaser would under ordinary circumstances
be relying on the skill and judgment of the vendor to sell him an
article which would have the quality implied in its name. But if
there is on the market a well-known article known as holeproof
hose, then it seems to me that the proviso is aimed at preventing
an order of that article under its laudatory name from raising the
implication that the buyer is asking the seller to supply him with
something which will fulfil the requirements indicated by the
name. I do not say that that is the only purpose of the proviso,
but I think it is the main purpose.
I agree with Mr. Radhakrishnan’s submission in the light of the passage quoted above.

16. Mr. LH Ng submitted that even if the court were to hold that the defendant had complied
with the preconditions, the defendant would still fail on the ground that the defendant had not
shown breach, i.e. that the machine was not fit for its purpose.

17. Mr. Radhakrishnan also stated in his submission that in order to succeed in its defence,
the defendant need only to prove one of the implied terms. He went on to state that the
defendant’s complaints in essence were the breach of implied conditions on fitness for the
purpose and merchantability implied under s 16(1) of the Act.

18. Mr. LH Ng summarized the evidence relied upon by the defendant to suggest that the
machine was not fit for its purpose as follows:

a. the coroner’s report on the accident in Hong Kong;

b. the fact that accidents involving similar machines occurred in other places; and

c. the few instances in which the machine stopped at various levels of the building under
construction.

19. Mr. Radhakrishnan did not dispute the accuracy of the above summary but instead went
on to reply to Mr. LH Ng’s submission which was based on the above points.

20. Mr. LH Ng submitted that the report of the coroner’s inquest was not admissible as
evidence on the fitness or otherwise of the machine for its purpose. He cited Calmenson
(Pamper) v Merchants’ Warehousing Co Ltd [1921] 125 LTR 129 and Barnett v Cohen
[1921] 2 KB 461.

21. Mr. LH Ng also said that both the defendant and the plaintiff in the present case were not
a party to the proceedings before the coroner. Mr. Radhakrishnan agreed with Mr. LH Ng
regarding the law on the admissibility of the coroner’s report. In his submission, he said,

With regard to the coroner’s report my learned friend contends


that it is settled law that the same is not admissible as
evidence .... I entirely agree with my learned friend on the law ....
Mr. Radhakrishan went on to add, however, that ‘.... evidence given at an inquest may
legitimately be used for the purposes of cross-examination of a witness .... at the present trial'.

22. In the circumstances, the court finds that the coroner’s report on the accident in Hong
Kong is not admissible in the present case.

23. The question for the court to determine here is, whether the fact that accidents involving
similar machines occurred in Hong Kong and other places has shown that the machine in Kuala
Lumpur was not fit for its purpose.

24. Mr. LH Ng submitted that the evidence of PW2 and DW4 in relation to the accident in
Hong Kong did not in any way support the defendant’s contention that the machine was not fit
for its purpose. Mr. Radhakrishnan, however, told the court that PW2 was not a reliable witness
and that his evidence relating to the accident in Hong Kong was hearsay.

25. Mr. LH Ng, in his submission, stated that

.... According to PW2, the accident in Hong Kong occurred


because the user there fitted an extra part, known as the
“drawbridge”, to the machine, which continuously collided with
the mast of the machine, thereby causing excessive stress on
certain parts of the machine ....
PW2 in his evidence said:

Q. If you were asked to consent to the fittings of drawbridge,


would you have consented?
A. Definitely not.
Q. Mr. Elliot in fact said that you personally examined those
machine in Hong Kong and these machines you had examined
were fitted with drawbridge?
A. I did examine a hoist in Hong Kong which was re-erected by
the general manager who unfortunately died shortly after that,
to enable to show both he and his staff after he carried out
drop tests, etc and how to erect and install the hoist. On this
machines, without any question of doubt, did not have a
drawbridge fitted.
Q. You are a mechanical and electrical engineer?
A. Yes.
Q. If such a drawbridge was in fact fitted to the machines, what is
the effect?
A. If the drawbridge was such that the cage could move with the
drawbridge in a lowered position it could strike objects in the
hoist way.
Q. What would be the effect if that happens?
A. This would cause excessive stress on the hoist cage.
Q. Were these excessive stress have any effect on the bracket?
A. Yes, it could. As I said earlier being part of the hoist stresses
will be imposed.
Mr. Elliot, DW4, in his evidence said, ‘The drawbridge could have contributed to the accident’.
26. DW4 conceded that the machine in Hong Kong was not fitted with a modified bracket as
recommended by the manufacturers. In any event, DW4 did not appear to be a person qualified
to comment on the fitness of the machine for its purpose. This was admitted by him under cross-
examination:

Q. You are not an electrical or mechanical engineer, you are


qualified as a construction manager and you were an
apprentice carpenter. Strictly, you are not qualified to
comment on the machine?
A. Technically or professionally, no.
27. I agree with Mr. LH Ng that it is not possible to determine the cause of the accident in
Hong Kong from the evidence of PW2 and PW3.

28. I find that the fact that accidents occurred in Hong Kong and elsewhere does not prove
that the machine in Kuala Lumpur was not fit for its purpose. In Hong Kong, the drawbridge
could have contributed to the accident. There is no evidence to suggest that the ‘drawbridge’
was the cause of the accident in Kuala Lumpur. I also find that PW2 is a reliable witness.

29. I shall now consider the instances when the machine stopped at different levels of the
building under construction.

30. DW2 gave two instances when the machine stopped at the sixth floor and the ninth floor,
respectively. Both instances occurred in November 1978. In examination-in-chief, DW2 said as
follows:

Q.After it was installed in October, November 1978, did this


pinion hoist perform satisfactorily?
A. No, there was some breakdowns, in between there were some
breakdowns and we need to call in Union Alloy for repair.
Q.So it doesn’t perform satisfactorily and what did you do?
A. Every time if there is a breakdown I will call up Union Alloy
then they will sent their mechanic or their representative to
come to the site and attend to the problem. Then after that
they will repair then only they inform us it is okay then we start
using. From my record there was one instance on 8 November,
there was a jam at the sixth floor where the operator informed
me then I called Union Alloy and they came to attend to the
defects. After they have attended they informed us then only
we use again. On the eight when it break down then we
informed them they will get it repaired on the ninth. There was
another incident on 27 November 1978, again jammed at the
ninth floor and the same thing after my operator informed me I
called up Union Alloy again and they sent their people who
came and repaired it and it was ready on 27 November 1978.
Then only we use again but there are few instances that I
didn’t record but I remember there are another one or two
times in between.
31. In cross-examination, he said that after the machine was repaired by the plaintiff, it was
in use by the defendant at the construction site for the purpose of transporting workers and light
materials up and down until the date of the accident. His evidence is as follows:

Q. Now, in your statement you referred to a few instances where


the machine did not function. Each time the machine did not
function you called some representative from Union Alloy who
repaired it and you use it again?
A. Yes.
Q. Each time there was a fault it was repaired and it was used
again; is that correct?
A. Yes.
Q. So between the period of November 1978 when the machine
was first installed right up to the time when the accident
happened, the machine was in use?
A. Yes.
Q. Except for a few instances where some repair were needed?
A. Yes.
Q. What is the purpose of this machine?
A. This machine is to carry workers up to the upper floor to
attend the work.
Q. To carry workers as well as goods, materials up and down?
A. Materials only very light materials because we have steel
hoist for materials.
Q. For that period of time November 1978 right up to the date of
accident that machine was used for that purpose?
A. Yes.
32. From the evidence of PW2, the machine was jammed on two occasions, but it was
repaired by the plaintiff and was used again by the defendant.

33. From the evidence, I find that there is nothing to suggest that the machine was not fit for
its purpose.

34. The defence contended that at the material time, there was no British standard in relation
to the said machine.

35. In cross-examination, DW2 said:

Q. This standard BS465.69 was used in 1978 and this standard


used to cover pinion hoists.
A. I agree.
Q. I put it to you in 1978 there was no such standard for pinion
hoists.
A. Yes. The standard deals with principle whether it be the
suspension — principle is the same.
Q. This test BS4465/69 was applied in 1978.
A. Yes.
Q. After 1978 BS standard specification was introduced to cover
pinion hoists and the 1969 standard was repealed. See
BS4465:1986.
A. The Standard B/S4465 was amended in 1986. It was merely
updated in 1986. (BS4465/1969 produced and marked D5.
BS4465:1986 produced and marked D6.)
36. Mr. Radhakrishnan submitted that D5 did not cover pinion hoists. He said that the
standard covering pinion hoists was only published in 1986 (i.e. D6).

37. According to PW2, the British standard in 1978 was in draft form and the said machine
complied with it. In re-examination, PW2 said:

The requirements for British standard for rack and pinion were
known in draft at that time and machine complied with it.
38. Mr. LH Ng submitted that British standards are not enforceable whether in draft or in
completed form. He said that the British Standards Institute does not have enforcing powers.
According to Mr. LH Ng, the British standards merely serve as a guide to British manufacturers
and as some kind of ‘stamp’ or ‘mark’ of quality.

39. I respectfully agree with Mr. LH Ng’s submission. In any event, PW2 has testified that
the said machine complied with the relevant standards in draft form at the material time.

40. Since there is no evidence to show that the machine was not fit for its purpose, what then
was the cause of the accident on 28 April 1979?

41. In his report (P1), the machinery inspector (PW1), said:

The normal stopping device had failed to stop the hoist cage at
the 21st floor. When the cage descended, both the emergency
hand release and the speed governor had failed to function as
designed.
42. These conditions are the direct result of lack of routine maintenance. It is good
engineering practice and a well-known fact that such machinery require regular maintenance
which the owner had failed to provide.

43. PW1 confirmed his report above in his evidence given in this court. He said that the
maintenance of the machine should have been carried out by the defendant.

44. Mr. Radhakrishnan in his submission said that PW1 was not a reliable witness.

45. With respect, I think PW1 is a reliable witness and I accept his evidence and his report.

46. Mr. LH Ng contended that the plaintiff installed the machine up to a height of 30m but
the accident occurred at the 21st floor at a height of approximately 55m. He said that the
balance of the parts necessary for installation of the balance of the height were delivered by the
plaintiff to the defendant on 14 February 1979.

47. Mr. Radhakrishnan submitted that there was no justification for Mr. LH Ng’s contention
as the plaintiff’s own document speaks for itself. He then referred to a letter written by the
plaintiff to the defendant dated 5 December 1978. The letter states as follows:

Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd

Site Office

Lorong Parry

Kuala Lumpur
Dear Sir

Re: Skyrak passenger and material hoist model MK25 (20


persons)

We shall be much obliged if you could kindly certify below that


the above equipment now in operation at the 21st storey, Lorong
Parry site has undergone service, maintenance and repair by our
Mr. Victor Yee and technicians thereafter, installation and
commissioning.

Thank you.

Yours faithfully

Union Alloy (M) Sdn Bhd

—Sgd—

Soo Peng Kong

General Manager

Certified by:

—Sgd—

Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd

Site Representative
48. In my view, irrespective of what the above letter states, it is not known who actually
installed the machine up to the height of 55m. Mr. LH Ng rightly submitted, whoever installed
the balance of the 25m did so without the manual. The defendant did not appear to have the
manual at the material time. In his evidence, PW2 said:

To install machine one would require the manual. It will be unsafe


and unsatisfactory to install machine without manual. The tower
or the mast — to install and to extend the tower or mast, one
would require the manual. It’s possible to install without manual
but very, very dangerous procedure.
49. In my opinion, the accident could also have been caused by improper installation of the
machine from the height of 30m to the height of 55m. PW1 also said in his report, that his
department was not advised by the defendant on the installation of the machine. In P1 he stated:

The owner had also failed to advise the Factories and Machinery
Department of the existence of this machine. Otherwise, the
unfortunate death of the person and the injury suffered by
another could have been prevented.
50. In his evidence, PW1 said:

When they installed the machine after they have installed


machine with the approval of F & M Department the owner or his
agent will then advise F & M Department and the director will
direct an inspector to carry out inspection and necessary test to
ensure that machine is fit for operations. For all machines the
inspector inspect all the safety features in the machine built by
the manufacturer. On machine of this type we also carry out load
test whereby the machine is loaded with full capacity and the
brakes are then tested in the free fall situation.
51. Mr. LH Ng referred to s 19 of the Factories and Machinery Act 1967 and reg 10 of the
Factories and Machinery (Notification, Certificate of Fitness and Inspection) Regulations 1970.
Section 19(1) of the Factories and Machinery Act 1967 states:

No person shall operate or cause or permit to be operated any


machinery in respect of which a certificate of fitness is
prescribed, unless there is in force in relation to the operation of
the machinery a valid certificate of fitness issued under this Act.
52. Regulation 10 states:

(1 The owner of every steam boiler, unfired pressure vessel or


) hoisting machine other than a hoisting machine driven by
manual power shall hold a valid certificate of fitness in respect
thereof so long as such machinery remains in service.
53. It is not disputed that the defendant did not report the use and operation of the machine
to the Factories and Machinery Department and no certificate of fitness had been issued. In my
view, it is the responsibility of the defendant to get the necessary approval from the said
department. See Ryoden (M) Sdn Bhd v San Chong Land Development [1992] 1 CLJ 503.
This, the defendant has failed to do.
54. For the reasons stated above, I give judgment for the plaintiff as prayed in the statement
of claim and dismiss the counterclaim.

Cases
Grant v Australian Knitting Mills Ltd [1936] AC 85; Hardwick Game Farm v SAPPA [1969] 2 AC 31;
[1968] 3 WLR 110; [1968] 2 ER 444; Baldry v Marshall [1925] 2 KB 260; Calmenson (Pamper) v
Merchants’ Warehousing Co Ltd [1921] 125 LTR 129; Barnett v Cohen [1921] 2 KB 461; Ryoden (M)
Sdn Bhd v San Chong Land Development [1992] 1 CLJ 503

Legislation
Factories and Machinery Act 1967: s.19
Sale of Goods Act 1957: s.16
Factories and Machinery (Notification, Certificate of Fitness and Inspection) Regulations 1970: Reg.10

Representations
LH Ng (Skrine & Co) for the plaintiff.
S Radhakrishnan (Shearn Delamore & Co) for the defendant.

Notes:-
This decision is also being reported at [1993] 3 MLJ 167.

SUPREME COURT OF MALAYSIA


Eikobina (M) Sdn Bhd
- vs -
Mensa Mercantile (Far East) Pte
Coram Ltd
HARUN HASHIM SCJ
S.C. PEH SCJ
WAN YAHYA SCJ 4 FEBRUARY 1994
Judgment
S.C. Peh SCJ
(delivering the judgment of the court)
1. This is an appeal against an assessment of damages in respect of a vendor who failed to deliver
goods to the buyer. An acquaintance with the brief history and material facts leading to this
appeal will be essential.

2. The appellant (hereafter ‘the said vendor’), was sued by the respondent, (hereafter ‘the said
buyer’), for failure to deliver 24 units of heavy construction equipment such as ‘truck cranes’,
‘pile drivers’, etc, (hereafter ‘the goods in question’ wherever it is appropriate) for specific
performance of the agreement to sell and deliver the goods in question, general damages for
breach of contract and for damages, specifically, for loss of agency to sell for the said vendor,
other units of similar equipment left at the said vendor’s ‘yard’ in Kapar, Port Klang. The claim
was disputed by the said vendor who also counterclaimed for work done and materials supplied.
The action was tried and the learned judge found against the said vendor. The learned judge
discretionally declined however, to grant specific performance, but instead awarded damages
for breach of contract and costs to the said buyer, at the same time dismissing the counterclaim
of the said vendor, with costs.

3. From the learned judge’s decision, an appeal was lodged against it to the Supreme Court which
dismissed the appeal and confirmed the decision of the learned judge, upholding the learned
trial judge’s order for the said vendor to pay the said buyer:

a. general damages for breach of contract to be assessed; and

b. for damages ‘on the loss of agency rights’ over the other units of equipment at Kapar.

The damages fell to be assessed by a registrar of the High Court.

4. In the events that have turned out, the learned registrar assessed the damages as follows:

a. loss of profit at RM1,766,429;

b. loss of sale commission at RM150,000 (in respect of loss of agency rights); and

c. ‘loss of opportunity’ at RM456,000.

5. On appeal by the said vendor before the learned trial judge, the damages aforesaid were
confirmed except that the loss of sale commission was reduced from RM150,000 to
RM120,000.
6. On further appeal by the said vendor before us against the award of all damages as assessed, the
part of the appeal as related to loss of sale commission was abandoned, while the appeal against
the other two heads as stated above, was vigorously pursued.

7. On the award for the loss of profits, for the purpose of this judgment, it will not be necessary to
set out the details of the evidence which preoccupied a great deal of time of the learned
registrar, apart from saying that out of the goods in question and agreed to be sold, namely, 24
units of the equipment, the said buyer had resold, after agreement of sale and purchase but
before delivery of the same to the said buyer, 15 of them to other sub-buyers leaving nine units
remaining unsold. The loss of profits was arrived at RM1,766,400 by deducting the original
purchase price agreed by both parties from a combined figure of proceeds of sub-sales of 15
units sold by the said buyer before delivery and the total value of the unsold nine units as given
by PW1, the said buyer’s chief executive officer, in his evidence in March 1990 before the
learned registrar as the value or price (as in March 1990) at which he could have sold and
realized. The value or price he gave was higher than the fair market value fixed by an appraiser,
who was called by the said buyer itself as a witness, on the remaining unsold nine units as at 1
February 1989, a date adopted by the appraiser at the request of the said buyer. The appraiser of
the said buyer in his report gave the fair market value at RM1,509,000 as the value as at 1
February 1989, a figure lower than the RM1,700,000 claimed by the said buyer’s chief
executive officer in evidence.

8. It will be pertinent to refer to such evidence or findings of the learned judge who tried the main
case in so far as they are relevant to the instant appeal before us. The learned judge found that
the date of completion of the contract between the parties was 27 July 1987 and that the said
vendor was in breach on 27 July 1987 when payment tendered by the said buyer was not
accepted by the said vendor; in other words, failure or refusal by the said vendor to deliver the
goods in question on 27 July 1987. The learned judge further declined to grant specific
performance to the said buyer who obtained judgment in its favour, for the learned judge found
to the effect, inter alia, that the said buyer had failed to show that machines of the same kind as
the goods in question were not easily available in the market and the said buyer’s chief
executive officer himself testified that it was possible to buy such machines in large quantities
in the market. After considering other evidence the learned judge found: ‘Since such goods can
be located in the market, either singly or in bulk .... I consider that damages is an equally
adequate remedy for the defendant’s breach,’ i.e. instead of granting specific performance.
9. As regards other evidence having some bearing on this claim for loss of profit, the date of the
contract or the ‘memorandum’ as referred to by the parties hereto was 6 May 1987. Of the 24
units of the goods in question, 15 units were sold on various dates beginning from 20 May 1987
to 20 July 1987 to some sub-buyers from the said buyer, a period after the date of the contract
and before the said completion date. Except that in cross-examination, it emerged that the said
buyer bought and sold similar machines or goods, there is nothing from the printed evidence
recorded before both the learned judge and the learned registrar to show that the said vendor
was put on notice, before or at the time of contract, that these machines would be sold at the
particular prices at which they were later sold, and, or to be sold to particular persons. Such
evidence, by its very nature could not possibly be available as the sub-sales were transacted by
the said buyer after the date of contract and before the anticipated delivery.

10. As regards the damages for loss of opportunity at RM456,268, the evidence from the
said buyer’s chief executive officer was quite brief. The gist of such evidence is as follows. He
said before the said buyer became acquainted with the said vendor, the said buyer and one Seng
Choon Construction Pte Ltd (hereafter ‘Seng Choon’) had a ‘joint venture agreement’ on a
50:50 basis on profit in buying and selling heavy equipment, with the said buyer being in charge
of buying and selling and Seng Choon being responsible for financing. On a date in March
1987, around 9 March 1987, the joint venture group bought and sold heavy equipment, making
a profit, 50% of which went to the said buyer as its share of profits amounting to RM150,943.
The second sale transacted by the joint venture group was with a named party this time, viz
Kumagai Gumi Co Ltd of Japan, and the said buyer’s share of profits was RM293,250. The
third business transaction was with the said vendor herein, who breached the contract and as a
result, the said buyer’s business associates and customers lost confidence in the said buyer. The
next time, Seng Choon went it alone to buy directly from another seller called Sem Wah Corp
and the said buyer’s role this time was reduced to that of ‘a witness’ and received S$83,269
representing a mere 10% of the total profit. The said buyer said that it suffered a loss of 40%
profit, i.e. RM456,268 in Malaysian currency.

11. Again from the evidence before the learned registrar and the evidence before the learned
judge in the main trial, there is not an iota of evidence to show that the said vendor was put on
notice before or at the time of contract, of this joint venture with Seng Choon. Being put on
notice means at least and includes a situation where the said vendor can be said to have any
actual knowledge of such joint venture, such knowledge having been conveyed to the said
vendor with a sufficient degree of deliberateness in giving to the said vendor, at least a very
clear hint that there was a prospect of such loss that could be caused to the said buyer for which
compensation would be payable by the said vendor in case of default by the said vendor.

12. Perhaps it was due to an undue and in fact, the only emphasis on the part of the said
buyer before the learned registrar of a submission similar to the usual formulation that a
plaintiff is to be put in the same position as far as money can do as he would have been in had
the breach not been committed that the result appears to be these rather astronomical figures
that were awarded by the learned registrar approaching the proportion of those ludicrous
American awards one reads about so often in the newspapers. The learned registrar has erred on
a vital point, in that he has totally failed to apply his mind to the question of the remoteness of
damages, an error which has been by no means at all rare on which we will express our view a
bit more elaborately.

13. After liability on a contract is established and when it comes to assessment of damages,
two questions are always involved. The first is that no compensation can be awarded for
damage that is too remote and the second is that in assessing damage that is not too remote, the
correct measure of damages must be adopted, i.e. the correct and usual principles of quantifying
the monetary compensation must be employed.

14. The courts have long recognized that a contract breaker could not be liable for all
consequences which flow naturally from a breach of contract and that they must draw a line
somewhere, otherwise the consequences would be, inter alia, ruinous to the contract breaker.
Thus, certain of such ensuing consequences would be regarded as too remote to be claimable,
‘not perhaps on ground of pure logic but simply for practical reasons’, to quote a dictum of Lord
Wright in Liesbosch Dredger v Edison SS [1933] AC 449 made in a similar vein.

15. The meaning of remoteness of damage was finally settled in the landmark case of
Hadley v Baxendale [1854] 9 Ex 341 as follows:

When two parties have made a contract which one to them has broken, the
damages which the other party ought to receive in respect of such breach of
contract should be such as may be fairly and reasonably considered either arising
naturally, i.e. according to the usual course of things from such breach of contract
itself or such as may reasonably be supposed to have been in the contemplation of
both parties, at the time they made the contract, as the probable result of the breach
of it ....
There are two distinct rules in the above passage. The above passage is followed in fact by
another passage in the same paragraph of the case report, which is reproduced below for a better
understanding of the above passage:

Now, if the special circumstances under which the contract was actually made
were communicated by the plaintiffs to the defendants, and thus known to both
parties, the damages resulting from the breach of such a contract, which they
would reasonably contemplate, would be the amount of injury which would
ordinarily follow from a breach of contract under these special circumstances so
known and communicated. But, on the other hand, if these special circumstances
were wholly unknown to the party breaking the contract, he, at the most, could
only be supposed to have had in his contemplation the amount of injury which
would arise generally, and in the great multitude of cases not affected by any
special circumstances, from such a breach of contract. For, had the special
circumstances been known, the parties might have specially provided for the
breach of contract by special terms as to the damages in that case; and of this
advantage it would be very unjust to deprive them. Now the above principles are
those by which we think the jury ought to be guided in estimating the damages
arising out of any breach of contract.
16. The meaning was further explained extremely well by Asquith LJ in Victoria Laundry
(Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528; [1949] 1 All ER 997. According
to Asquith LJ, the loss recoverable ought to be reasonably foreseeable by the contract breaker.
Whether the contract breaker can reasonably foresee such loss depends on the knowledge
possessed by him. There are two kinds of knowledge, first, the imputed knowledge, i.e. that as a
reasonable person, he is taken to know the sort of loss resulting from the breach in the usual
course of things, and this is the first rule in Hadley v Baxendale (supra).

17. There is another type of knowledge which is actual knowledge (instead of the imputed
knowledge mentioned earlier), and the contract breaker has such actual knowledge of special
circumstances outside the usual course of things that a breach in these special circumstances
would be liable to cause more or additional loss which can be recovered in place of the ordinary
loss; this much for the remoteness of damage first.

18. Next, what is the normal measure of damages in the instant case in respect of sale of the
goods in question between the said vendor and the said buyer?

19. The relevant sections in our Sale of Goods Act 1957 are ss 57 and 61. They are set out
below:

57. Where the seller wrongfully neglects or refuses to deliver the goods to the
buyer, the buyer may sue the seller for damages for non-delivery.
61. (1)Nothing in this Act shall affect the right of the seller or the buyer to recover
interest or special damages in any case where by law interest or special
damages may be recoverable, or to recover the money paid where the
consideration for the payment of it has failed.
(2)In the absence of a contract to the contrary, the court may award interest at
such rate as it thinks fit on the amount of the price –

(a) to the seller in a suit by him for the amount of the price – from the date
of the tender of the goods or from the date on which the price was
payable;
(b) to the buyer in a suit by him for the refund of the price in a case of
breach of the contract on the part of the seller – from the date on which
the payment was made.
20. Apparently, almost corresponding sections appear in ss 51 and 54 of the UK’s Sale of
Goods Act 1893 (‘the Act’) which are set out as follows:

51. Damages for non-delivery

(1 Where the seller wrongfully neglects or refuses to deliver the goods to the
) buyer, the buyer may maintain an action against the seller for damages for
non-delivery.
(2 The measure of damages is the estimated loss directly and naturally
) resulting, in the ordinary course of events, from the seller’s breach of
contract.
(3 Where there is an available market for the goods in question the measure of
) damages is prima facie to be ascertained by the difference between the
contract price and the market or current price of the goods at the time or
times when they ought to have been delivered, or, if no time was fixed, then
at the time of refusal to deliver.
54. Interest and special damages
Nothing in this Act shall affect the right of the buyer or the seller to recover
interest or special damages in any case whereby by law interest or special
damages may be recoverable, or to recover money paid where the
consideration for the payment of it has failed.
21. It has been often correctly said that s 51(2) and (3) of the UK Act are a mere enactment
of the first rule in Hadley v Baxendale (supra) and s 54, of the second rule.

22. In our s 57, we do not have s 51(2) and (3) of the UK Act but our s 61 is the more
detailed corresponding section of s 54 of the UK Act. Therefore, English common law as
embodied in the said s 51(2) and (3) applies and in this connection, please see a similar
observation by the Court of Appeal in Lee Heng & Co v Melchers & Co [1963] MLJ 47 in
dealing there with another section, i.e. s 59 of our then Sale of Goods Ordinance 1957, in
connection with the application of English common law.

23. Having regard to the foregoing paragraphs, the normal measure of damages from the
case law is, as stated in s 51(3) of the UK Act as set above, basically the difference between the
contract price and market price at the time of the breach where there is an available market for
the goods in question.

24. It is pertinent to point out straightaway that the market price in the instant case would be,
according to the normal measure of damages, the market price or current price of the goods in
question as at 27 July 1987 (date of breach as found by the learned judge at the main trial) when
the said vendor ought to have delivered the goods in question.

25. The said buyer submitted otherwise, however, that the market price should be based not
on the date of the breach and the learned registrar appears to have totally agreed with such
submission. Thus 15 units of the goods in question had their market value assessed by the
learned registrar as at the date of trial in March 1990, and also at 1 February 1984, which the
appraiser, called by the said buyer to court to testify, adopted as instructed by the said buyer.

26. The court may at this stage just as well deal with such submission described above
which the lower court found acceptable. After consideration, we would however have to reject
this submission for the following reasons.

27. This buyer’s submission about the basis of time for evaluating market price not being the
time of breach, was said to be first supported by Bulsing Ltd v Joon Seng & Co [1972] 2 MLJ
43 and Popular Industries Ltd v Eastern Garment Manufacturing Sdn Bhd [1989] 3 MLJ
360. On an examination of these cases, the normal measure of damages was found not
applicable totally because there was an abnormal absence of an essential element for the normal
measure of damages to apply, viz the goods concerned respectively in both cases were not
available in the market. In the instant case, there was evidence from even the said buyer and
also the said vendor which supported the finding of learned judge at the main trial that goods
similar to the goods in question in the instant case were readily available at the market, and we
would add, should the said buyer bother to buy them, on failure by the said vendor to deliver
them.

28. This erroneous submission was further said to be supported by the case from House of
Lords in Johnson v Agnew [1979] 1 All ER 883; [1980] AC 367; [1979] 2 WLR 487,
particularly by an obiter dictum of Lord Wilberforce at p 896 as follows:

The general principle for the assessment of damages is compensatory, i.e. that the
innocent party is to be placed, so far as money can do so, in the same position as if
the contract had been performed. Where the contract is one of sale, this principle
normally leads to assessment of damages as at the date of the breach, a principle
recognized and embodied in s 51 of the Sale of Goods Act 1893. But this is not an
absolute rule; if to follow it would give rise to injustice, the court has power to fix
such other date as may be appropriate in the circumstances. Johnson v Agnew is
an extraordinary case in which to do justice in a very unusual situation, a normal
principle of the common law rule was departed from. The plaintiff there had
obtained a decree of specific performance of a contract for the sale of land (not
goods) in a case in equity, but the default of the defendant in failing to pay the
balance of the purchase price after the date of the decree had caused the ultimate
impossibility of completion of the contract or the implementation of the decree.
The plaintiff there was held entitled by the House of Lords to apply subsequently
after such impossibility, and to obtain an order of discharge of the decree of
specific performance, an order terminating the contract and an order also for
damages for breach of contract, to be assessed as at common law, because the
plaintiff, who had earlier elected for specific performance, was electing simply for
the contract to be continued under the court’s control, according to Lord
Wilberforce. When discussing the damages to be assessed, Lord Wilberforce in the
obiter dictum stated that the normal measure of damages for breach of contract of
sale of land in assessing the market value at the date of breach was a principle
which had (incidentally) by then been embodied in s 51 of the UK Act. The obiter
dictum of Lord Wilberforce cannot be taken to mean that a normal measure of
damages can be departed from at one’s whim and fancy in the face of normal
circumstances responsive to or attracting the application of such normal measure
of damages even though the law is not always strait-jacketed. In our instant appeal,
the normal circumstances were there, viz especially that goods similar to the goods
in question were readily available at the market at the time of breach, i.e. at the
time when the goods in question ought to have been delivered or, if no time was
fixed, then at the time of refusal to deliver the goods in question.
29. Basically, this erroneous submission of the said buyer ignored the finding of the learned
judge in regard to the aforesaid normal circumstances so that the normal measure of damages
ought to apply, i.e. damages ought to have been assessed as on the date of breach, i.e. 27 July
1987.

30. Thus the assessment of damages for loss of profit as on the date of trial or on any date
other than the date of breach cannot stand in the circumstances of the instant case.

31. We now revert further to the two important questions aforesaid when it comes to
assessment of damages.

32. First, on the question of remoteness, we will have to apply Hadley v Baxendale. In this
case there was an available market for the goods similar to the goods in question, a loss of profit
as claimed is not a loss resulting from the first rule in Hadley v Baxendale, i.e. a loss that
follows in the usual course of things, a proposition that is supported by a very strong and
discernible trend in the cases as to be beyond argument for us unless any given case is
distinguishable on some exceptional ground. Thus, in Thol v Henderson (1882) 8 QBD 457,
such loss of profit was not claimable even if a seller knew that the buyer had bought with a
general intention to resell; and in Williams v Reynolds [1865] 6 B & S 495, when the seller
knew the buyer would resell before delivery. In Kwei Teck Chao v British Traders [1954] 2
QB 459; [1954] 1 All ER 779; [1954] 2 WLR 365, the ratio was stressed again that resale
profits are not recoverable when there is a market, since normally what is contemplated in the
usual course of things on non-delivery is that a plaintiff/buyer will go into the market and buy
similar goods to honour his resale contracts when there is an available market.

33. If the first rule of Hadley v Baxendale does not apply, we now examine the
circumstances if they could qualify for the second rule; the actual knowledge of special
circumstances, viz whether details of such potential loss were made known to the contract
breaker before or at the time of contract so that the contract breaker can be said to have taken
the risk of such loss into the bargain of the contract. For example in Hall v Pim [1928] All ER
Rep 763, in which the contract for the sale, as found by Viscount Haldane, between the parties
provided for sub-contracts of resale of the same goods and showed that the seller had contracted
to put the buyer in a position to fulfil his sub-contracts. Thus, sub-contracts were in our view,
brought to the express notice of the seller at that time of the contract and the sub-contracts were
in the contemplation of both parties and therefore damages for loss of profit for sub-contracts
were allowed in that case.

34. Here, the matter of sub-sales was not communicated to the said vendor at the time of the
contract and this is beyond dispute from the evidence for the sub-sales were in fact transacted
after the date of contract between the parties herein but before delivery. Thus the specific loss of
profit on 15 units of the goods in question sold before delivery and after contract could not be
claimed as it was too remote by virtue of both rules in Hadley v Baxendale. The specific loss
of profit for the remaining unsold nine units of goods in question could not be claimed for the
same reason, specifically because of the first rule in Hadley v Baxendale.

35. It is regretted that the case of Hadley v Baxendale (supra) was not cited by anybody
before the learned registrar and the learned judge.

36. The award of loss of profit in the sum of RM1,766,429 made by learned registrar and
upheld by the learned judge below cannot stand due to the remoteness and has to be set aside.

37. Having disallowed the loss of profit, we next consider if the said buyer is entitled to any
damages for breach of contract other than the loss of profit which we have just rejected. We
look at the evidence, bearing in mind the normal measure of damages, i.e. the difference
between contract price and market price at the date of the breach, i.e. on 27 July 1987, and
bearing in mind also the date of 6 May 1987, i.e. the date of contract. DW2 testified that from
the period of May 1987 up to December 1987, there was in fact no increase in price for goods
similar to the goods in question. DW1 said in fact that for the similar period, business in
second-hand equipment similar to the goods in question was very bad. Such evidence was not
even challenged. The said buyer has thus failed to prove any damage for the non-delivery of the
goods in question, apart from proving a breach of contract for such non-delivery.

38. It will have been noticed, in passing, that the normal measure, i.e. the difference between
contract price and market price, etc, is in fact the first rule in Hadley v Baxendale, or in other
words, it is applied for assessing compensation for damage which is not excluded by Hadley v
Baxendale.

39. On the award for loss of opportunity, we have set out the gist of evidence in regard
thereto, such loss cannot pass the test of remoteness laid down in Hadley v Baxendale (supra),
either on the first rule or the second rule in question.

40. The award for loss of opportunity at RM456,268 cannot stand and has to be set aside.

41. Though the said buyer has failed to prove damage for both loss of profit and loss of
business opportunity, it has succeeded in proving loss of sale commission when the challenge
against such award was withdrawn before us at the outset of the hearing, and the award of
RM120,000 for such loss of sale commission therefore stands. In view of this award, any other
separate award by way of nominal damages for the infraction of the legal right, i.e. breach of
contract for non-delivery of the goods in question, would be unnecessary.

42. We therefore allow the appeal by setting aside the order of the court below dated 12
March 1992 and substitute therefore an order that the appellant do pay RM120,000 only to the
respondent as damages for loss of sale commission, with interest thereon at 8%pa from the date
of the original registrar’s order, i.e. 24 May 1991, until satisfaction and that the respondent do
pay to the appellant costs of this appeal here, but that the costs in the court below are to be paid
by the appellant to the respondent instead.

Cases
Liesbosch Dredger v Edison SS [1933] AC 449; Hadley v Baxendale [1854] 9 Ex 341; Victoria
Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528; [1949] 1 All ER 997; Lee Heng &
Co v Melchers & Co [1963] MLJ 47; Bulsing Ltd v Joon Seng & Co [1972] 2 MLJ 43; Popular
Industries Ltd v Eastern Garment Manufacturing Sdn Bhd [1989] 3 MLJ 360; Johnson v Agnew [1979]
1 All ER 883; [1980] AC 367; [1979] 2 WLR 487; Thol v Henderson (1882) 8 QBD 457; Williams v
Reynolds [1865] 6 B & S 495; Kwei Tek Chao v British Traders & Shippers [1954] 2 QB 459; [1954] 1
All ER 779; [1954] 2 WLR 365; Hall v Pim [1928] All ER Rep 763
Legislations
Sale of Goods Act 1957: s. 57, s. 61
Sale of Goods Act 1893 [UK]: s. 51, s. 54
Representations
M Nagarajah & SC Lim with him (Shook Lin & Bok) for the appellant.
KF Wong (Gulam & Wong) for the respondent.
Notes:-
This decision is also being reported at [1994] 1 MLJ 553.

COURT OF APPEAL, MALAYSIA


Firstcrest Global Ltd
- vs -

Coram Indexia Assets Ltd


ABDUL AZIZ MOHAMAD JCA
JAMES C.Y. FOONG JCA
ZULKEFLI AHMAD MAKINUDIN JCA 13 JULY 2006
Judgment

James C.Y. Foong JCA


(delivering judgment of the court)

INTRODUCTION

1. This appeal is associated with another registered under W–02–786 of 2005 (case 786).
Before I disclose the nature of this appeal, it is necessary to set out the facts of this
case in a chronological manner.

FACTS

FIRST SET OF AGREEMENTS FOR THE SALE OF QSR SHARES

2. The first respondent held 15,731,010 ordinary fully paid up shares in a company known
as QSR Brands Bhd (QSR). On the 20 April 2005, the first respondent entered into an
agreement to sell 6,173,110 of these shares to the first appellant at a purchase price of
RM2.80 per share.

3. On the same day, the first respondent also entered into another agreement to sell
9,557,900 of these shares to Chain Valley Management Limited (Chain Valley), the first
appellant in case 786, also at a purchase price of RM2.80 per share.
4. The second respondent held 5,416,200 ordinary fully paid up shares in QSR. On the
20 April 2005, it entered into an agreement to sell this entire lot of shares to the second
appellant at a purchase price of RM2.80 per share.

5. The third respondent held 8,143,400 ordinary fully paid up shares in QSR. On the 20
April 2005, it entered into an agreement to sell all these shares to the third appellant for
a sum of RM2.80 per share.

6. For convenience, I shall refer to these agreements collectively as ‘Sale of Shares


Agreement’ since they contain identical terms and conditions.

Pertinent features of these sale agreements

7. The Sale of Shares Agreement contains these pertinent terms:

1. Recital B states:

The Vendor is desirous of selling, and the Purchaser is desirous of


purchasing, the Sale Shares at the Agreed Price (as defined below), on
terms that if the Purchaser sells any of the Sale Shares within the
Applicable Period (as defined below) at a price higher than the Agreed
Price, the Net Gain (as defined below) will be shared between the Vendor
and the Purchaser as provided in this Agreement.
2. The ‘Applicable Period’ is defined as the period commencing from the date of
the agreement (20 April 2005) and expiring on the first anniversary thereof.

3. ‘Net Gain’ is defined:

in respect of any Further Sale of any of the Sale Shares by the Purchaser
at a price higher than the Agreed Price (as contemplated by clause 3.5) the
net amount of the gain, calculated as the amount of the sale price of the
Sale Shares in question actually received by the Purchaser, less:

(a) RM2.80 per Sale Share in question; and


(b) the amount of expenses actually incurred in effecting such sale,
including commission, brokerage, stamp duty and legal fees actually
incurred.
4. Clause 3.5 stipulates that:

(a) if the Purchaser sells a Sale Share pursuant to a Further Sale at a price
higher than the Agreed Price, then to the extent there is a Net Gain, the
amount of the Net Gain shall be shared as follows:

(i) In favour and for the benefit of the Vendor, 85% of the Net Gain;
and
(ii) in favour and for the benefit of the Purchaser, 15% of the Net Gain;
or
(b) if the Purchaser sells a Sale Share pursuant to a Further Sale at a price
lower than the Agreed Price, then the Purchaser shall bear the amount
of the shortfall.
5. Clause 3.4 states:

For the purpose of giving effect to the intentions set out in this clause 3, the
Vendor shall execute and deliver (simultaneously with its execution of this
Agreement) the Power of Attorney in favour of the Purchaser, such Power
of Attorney to be in the form mutually agreed between the Parties.
Pertinent features of the power of attorney

8. The Power of Attorney mentioned in the Sale of Shares Agreement is granted to each
purchaser by the respective vendors to, primarily, ‘negotiate and enter into, on behalf of
the shareholder, such agreement or agreements for the sale or other disposal of all or
any of the relevant shares on such terms as it deems fit, and to complete such sale ....’
It is irrevocable for a period of 14 months from 20 April 2005.

KULIM PURCHASES

9. On 20 June 2005, the fourth respondent (Kulim) entered into sale and purchase
agreements with the first, second, third respondents respectively to purchase their
respective QSR shares. Since these are the same shares agreed to be sold to the first,
second and third appellants (as well as to Chain Valley in case 786) we shall describe
them as ‘the block of disputed shares’. This block forms 12.73% of the entire
shareholding of QSR.

10. On the same day, Kulim, through its merchant banker, made a public
announcement of this purchase.

11. Also included in this announcement is Kulim’s purchase from another QSR
shareholder known as Wisdom Technology Sdn Bhd (Wisdom) which held 20.4% of
QSR total shareholding.
REACTIONS OF FIRST, SECOND, THIRD AND FOURTH APPELLANTS

12. Upon hearing Kulim’s public announcement, the first, second and third
appellants together with the fourth appellant (who declares itself as the current
beneficial and/or legal owner of the first, second and third appellants) filed a Writ of
Summons in the High Court at Kuala Lumpur against the first, second, third
respondents, Kulim and one UOB Kay Hian Pte Ltd (UOB) for the following reliefs:

(1 A declaration that the Agreements entered into between Kulim and the
) first, second and third respondents are void ab initio.
(2 An injunction to restrain the first, second, third and fifth defendants (first,
) second, third respondents and UOB), whether by themselves or their
servants or agents or otherwise howsoever, from doing the following
acts or any of them, that is to say selling, negotiating for the sale,
disposing, parting and/or dealing with any manner whatsoever the said
Shares or any part thereof to any party (inclusive but not limited to the
fourth defendant (Kulim)) other than to the first, second and third
plaintiffs (first, second, third appellants).
13. UOB is described by the appellants in their statement of claim as ‘a licensed
stockbroker in the Republic of Singapore and has the like requisite licensing to carry
out such a business’. UOB is brought into this suit for allegedly holding the block of
disputed shares for and on behalf of the second and third respondents.

14. Aside from this action, Chain Valley and the fourth appellant (who also declares
itself as the beneficial and/or legal owner of Chain Valley) filed case 786 against first
respondent, Kulim and UOB for similar reliefs regarding the QSR shares sold by the
1st respondent to Kulim which forms part of the disputed block of shares.

INTERIM INJUNCTION

15. Simultaneous to the filing of the above actions, the appellants applied for an ex
parte injunction against the first, second, third respondents, Kulim and UOB to restrain
them from selling or dealing with the said QSR shares. (Similar kind of application was
also made by Chain Valley against the first respondent, Kulim and UOB mentioned in
that transaction.)

16. This application was heard on 30 June 2005 by Justice Ramly who granted the
order requested on the usual undertaking as to damages. (Similar order was also
granted to Chain Valley in its application mentioned above.)

INTER PARTES INTERIM INJUNCTION

17. As the ex parte injunction has a limited life span, the appellants also applied for
the same interim relief inter partes. This application (as well as that similarly made by
Chain Valley) was heard by Justice Ramly. He dismissed the appellants’ application (as
well as that of Chain Valley) on 22 July 2005. It is from this decision that the appeal
before us lies.

18. Soon after this decision of Justice Ramly on the 22 July 2005, the disputed block
of shares were duly transferred and registered in the name of Kulim who subsequently
pledged them to Cimsec Nominees (Tempatan) Sdn Bhd (Cimsec).

APPEAL TO THE COURT OF APPEAL

19. Dissatisfied with the decision of Justice Ramly, the appellants appealed to this
Court (similar appeal is filed in case 786). By consent of parties in this appeal, the
decision of this appeal will bind case 786.

THE APPLICABLE LAW

20. As this appeal involves the granting or refusal to grant an interim injunction, the
basic principle applicable is that stated by Lord Diplock in the locus classicus case of
American Cyanamid Co v Ethicon Ltd. [1975] AC 396 at pp 407–408:

The court no doubt must be satisfied that the claim is not frivolous or
vexatious; in other words, that there is a serious question to be tried.

It is no part of the court’s function at this stage of the litigation to try to


resolve conflicts of evidence on affidavit as to facts on which the claims of
either party may ultimately depend nor to decide difficult questions of law
which call for detailed argument and mature considerations. These are
matters to be dealt with at the trial. One of the reasons for the introduction
of the practice of requiring an undertaking as to damages upon the grant of
an interlocutory injunction was that ‘it aided the court in doing that which
was its great object, viz. abstaining from expressing any opinion upon the
merits of the case until the hearing’ .... So unless the material available to
the court at the hearing of the application for an interlocutory injunction
fails to disclose that the plaintiff has any real prospect of succeeding in his
claim for a permanent injunction at the trial, the court should go on to
consider whether the balance of convenience lies in favour of granting or
refusing the interlocutory relief that is sought.

As to that, the governing principle is that the court should first consider
whether, if the plaintiff were to succeed at the trial in establishing his right
to a permanent injunction, he would be adequately compensated by an
award of damages for the loss he would have sustained as a result of the
defendant’s continuing to do what was sought to be enjoined between the
time of the application and the time of the trial. If damages in the measure
recoverable at common law would be adequate remedy and the defendant
would be in a financial position to pay them, no interlocutory injunction
should normally be granted, however strong the plaintiffs claim appeared
to be at that stage. If, on the other hand, damages would not provide an
adequate remedy for the plaintiff in the event of his succeeding at the trial,
the court should then consider whether, on the contrary hypothesis that the
defendant were to succeed at the trial in establishing his right to do that
which was sought to be enjoined, he would be adequately compensated
under the plaintiffs undertaking as to damages for the loss he would have
sustained by being prevented from doing so between the time of the
application and the time of the trial. If damages in the measure recoverable
under such an undertaking would be an adequate remedy and the plaintiff
would be in a financial position to pay them, there would be no reason
upon this ground to refuse an interlocutory injunction.

It is where there is doubt as to the adequacy of the respective remedies in


damages available to either party or to both, that the question of balance of
convenience arises. It would be unwise to attempt even to list all the
various matters which may need to be taken into consideration in deciding
where the balance lies, let alone to suggest the relative weight to be
attached to them. These will vary from case to case.

Where other factors appear to be evenly balanced it is a counsel of


prudence to take such measures as are calculated to preserve the status
quo. If the defendant is enjoined temporarily from doing something that he
has not done before, the only effect of the interlocutory injunction in the
event of his succeeding at the trial is to postpone the date at which he is
able to embark upon a course of action which he has not previously found
it necessary to undertake; whereas to interrupt him in the conduct of an
established enterprise would cause much greater inconvenience to him
since he would have to start again to establish it in the event of his
succeeding at the trial.
21. From the grounds of judgment I noted that the learned High Court Judge has
applied this principle in his deliberation though he has relied on this Court’s decision in
Keet Gerald Francis Noel John v Mohd Abdullah [1995] 1 MLJ 193, which, in my
view, is a restatement of the proposition in the American Cyanamid Co v Ethicon
Ltd, a House of Lords decision that has long been accepted by our Supreme Court as
the authority on this area of the law in this country.

ANALYSIS

22. Firstly, as all parties have agreed with the finding of the learned High Court
judge that the appellants have established a serious question to be tried in this case,
the first requirement to be satisfied in order to succeed in an application for an
interlocutory injunction, I shall move on to the next consideration: whether, if the
appellants were to succeed at the trial in establishing their right to a permanent
injunction, they would be adequately compensated by an award of damages for the
loss they would have sustained as a result of the respondents doing what was sought
to be enjoined between the time of the application and the time of the trial. On this
issue, the learned High Court judge has this to say [translation]:

In these cases, the Plaintiffs' basic interest in QSR Brands' shares is in


dispute. QSR Brands is a public company listed in the Stock Exchange of
Malaysia where its shares are being traded in open market. At any one
time, the worth of its shares is being determined by the market price in the
Stock Exchange. The number of shares claimed by the Plaintiffs are also
fixed. This is to say, the Plaintiffs' interest in these cases can be measured
in monetary terms. The Plaintiffs' interest here takes the form of financial
interest which can be valued and determined at any time certain. If the
Plaintiffs' application was dismissed, they may still get what they claimed
(i.e. in monetary form) at the final determination of their Writ of Summons.
Their basic interest at the end of the day would not be jeopardised. There
are no evidence to show that the Defendants are incapable to paying
damages if ordered to do so by the Court at the end of the trial of the said
Writ. There are no other damages (which cannot be measured in money
terms) which the Plaintiffs may suffer if their application was dismissed.
There are no evidence or submission to suggest that the Plaintiffs would
lose control of the QSR Brands company considering that the number of
shares concerned that are in dispute is not large enough to enable the
Plaintiffs to secure control over QSR Brands. The features of control do not
arise under such situation.
23. In brief, the learned High Court Judge felt that:

1. since damages can be ascertained;

2. that it is an adequate compensation for the loss to appellants if they were to


finally succeed at the trial and;

3. there being no evidence that the respondents are not in a financial position to
pay such damages, if awarded, this application should be dismissed.

24. Against this finding, Mr. Manjit Singh, counsel for the appellants, attempted to
convince this court that the block of disputed shares is a ‘strategic stake’ and damages
as compensation is an inadequate remedy. He pointed out that this phrase (strategic
stake) appears in cl 9.1 of the Sale of Shares Agreement. But when enquired by this
court as to the context of this, he said that it must be ascertained from the four corners
of the Sale of Shares Agreement. This prompted me to immediately examine cl 9.1 of
the Sale of Shares Agreements which reads:

9.1 Investment

The Vendor acknowledges that the Agreed Price has been agreed by
the Purchaser on the basis, inter alia, that the Purchaser invests in the
Sale Shares as part of a strategic stake in the Company and to obtain
the powers conferred under the Power of Attorney for the duration
provided therein.
25. As can be seen, on its own, this clause gives no indication on why these shares
are a strategic stake. This prompted me to examine other clauses in the Sale of Share
Agreement for enlightenment. Apart from: (a) allowing the purchaser of the disputed
shares to dispose off the shares mentioned in the agreement and (b) if the price for this
disposal is higher than a certain amount the difference would be shared by the parties,
I also could not find any indication as to why this disputed block of shares is strategic.

26. Aware of my concern over this matter, Mr. Malik Imtiaz, junior counsel for the
appellants, responded by declaring that this disputed block of shares is strategic to
gain control over the management of QSR, and damages as compensation would not
be an adequate remedy for this purpose. He cited Dobell v Cowichan Copper Co Ltd
65 DLR (2d) 440 and Alor Janggus Soon Seng Trading Sdn Bhd v Sey Hoe Sdn
Bhd [1995] 1 MLJ 241 for support.

27. But over this claim, both Dr Cyrus Das, counsel for the first, second and third
respondents, and Mr. Logan, counsel for Kulim, were quick to point out that this claim
for management control over QSR was not even pleaded in the appellants’ original
statement of claim and there was no prayer for specific performance which is normally
requested in situation where pecuniary compensation is not an adequate remedy.

28. I find these observations of the two respondents’ counsel compelling. If the
disputed block of shares is strategic in the manner as described by Mr. Malik Imtiaz,
then I would have thought that the appellants would have foremost disclosed this in
their pleadings and demanded specific performance of the Sale of Shares Agreement.
Then at the hearing of the inter partes injunction pressed on with this fact. But none of
these took place. It was only after Justice Ramly’s refusal of the inter partes injunction
that the appellants amended their statement of claim to include a claim for specific
performance, but still there was no assertion of management control over QSR or of
the strategic stake. The absence of this claim at the material time as discussed has
cast grave doubt over the explanation advanced by Mr. Malik Imtiaz on the context of
the strategic stake. To me, what he has disclosed, perhaps, may be an event
subsequent to the said decision of Justice Ramly. But such subsequent events cannot
be resorted to construe a meaning of a certain term in the agreement — see Mewah
Plus Property Sdn Bhd v Kluang District Government Servants Co-operative
Housing Society Ltd [2000] 2 MLJ 456. If the appellate court were to accept such
subsequent event, then there would be no limit as to the extent to which these
(subsequent events) are to be received for consideration. I feel that the appellate court,
in the role of a reviewer of decision from the High Court, must confine itself to a fixed
set of materials for consideration, and this must be those ‘as argued’ in the court below.

29. Having perused the terms of the Sale of Shares Agreement, I am of the view
that it is primarily, by nature, a monetary contract. The purchaser of the disputed block
of shares is allowed to resell the shares at a higher price and if the sub-sale fetches a
higher price the parties will share the difference. The tone expressed in the agreement
certainly does not imply, in any manner whatsoever, that the shares to be sold to the
appellants are for leverage to gain control of the management of QSR. In fact, the
factual situation at the material time of the Sale of Shares Agreement does not even
support this claim. The first, second and third appellants (including Chain Valley in case
786) were never in a position at that time to control QSR. They simply held no shares
of their own to mount such management control exercise. As for the fourth appellant, it
only came into the scene seven days after Kulim’s public announcement. This is
evidenced by the pay-in-slip showing the parting of consideration by the fourth
appellant to the various vendors for acquisition of the first, second and third appellants.

30. Apart from the above, Mr. Logan has also brought to this court’s attention that
since the Sale of Shares Agreement involves a transaction of shares, the Sale of
Goods Act 1957 (‘the Act’) applies. According to him, under the terms of the Sale of
Shares Agreement, the sale of the shares will only be completed at a later date, not at
the time of the execution of the agreement. Under such circumstances, the transaction
is a contract to sell, not a sale. When it is a contract to sell, the purchaser has only a
personal remedy against the seller. The goods remain with the seller and the seller
continues to possess the right of disposal over the goods. In short, this means that the
first, second and third respondents (and first respondent in case 786) can dispose off
the disputed block of shares to Kulim and the appellants’ remedy, even if they may
have a valid and existing contract with these vendors, is only for damages. They have
no proprietary right to the shares.

31. I find much force in this argument. The distinction between a contract to sell and
an actual sale contract is well illustrated by Hepworth J in Malayan Credit Ltd v
Mohamed Kassim [1965] 2 MLJ 134 at p 135:

The term ‘contract of sale’ includes both actual sales and agreements for
sale. It is important to distinguish clearly between the two classes of
contract. An agreement to sell, or, as it is often called, an executory
contract of sale, is a contract pure and simple; whereas a sale, or, as it is
called for distinction, an executed contract of sale is a contract plus a
conveyance. By an agreement to sell a jus inpersonam is created, by a
sale a jus in rem also is transferred. Where goods have been sold, and the
buyer makes default, the seller may sue for the contract price, but where
an agreement to buy is broken, the seller’s normal remedy is an action for
unliquidated damages. If an agreement to sell be broken by the seller, the
buyer has only a personal remedy against the seller. The goods are still the
property of the seller, and he can dispose of them as he likes. But if there
has been a sale, and the seller breaks his engagement to deliver the
goods, the buyer has not only a personal remedy against the seller, but
also the usual proprietary remedies in respect of the goods themselves.
32. By the nature of the Sale of Shares Agreement, I hold that it is a contract to sell
rather than an executed contract of sale. Being only a contract to sell, the proprietary
right to the shares remained with the first, second and third respondents. And even if
these respondents have breached their obligation by refusing to sell this disputed block
of shares to the appellants, the appellants’ remedy is restricted to a personal claim
against the respondents for damages, not for the proprietary right to the shares. When
their relief is confined to damages, and such damages can be assessed, and the
respondents are able to pay for them, then according to the principle laid out in
American Cyanamid v Ethicon Ltd, no interim injunction should be granted, however
strong the case of the appellants may be.

33. Refusing to concede, Mr. Malik Imtiaz argued that aside from the Sale of Shares
Agreement, there is also the Power of Attorney. This instrument gives certain powers to
the appellants in respect of the disputed block of shares. But it is my view that this
instrument (Power of Attorney) is only a subsidiary document to the Sale of Shares
Agreement. Without the Sale of Shares Agreement, which is the principal instrument,
the Power of Attorney cannot subsist. It does not have a life of its own. It is appendant
to the Sale of Shares Agreement. So when the principal agreement cannot give
proprietary right in law then the Power of Attorney, a subsidiary instrument, also
confers no such right.

34. The next contention of the appellants relates to the adequacy of damages for
the disputed block of shares. According to Mr. Malik Imtiaz, when stock and shares are
the subject matter of an interim injunction, damages as a form of compensation are
inadequate. He cited the Supreme Court case of Alor Janggus Soon Seng Trading
Sdn Bhd v Sey Hoe Sdn Bhd [1995] 1 MLJ 241 where at p 269, Jemuri Serjan CJ
(Borneo) declares:

The majority of these damages clearly do not admit of easy quantification


and it would not be right for us to venture into the realm of speculation as
to what the exact quantum would be at this stage of the proceedings.
Besides, the value of the shares fluctuate from time to time. In this regard
we find support in the observation of Sach LJ in the case of Evans
Marshall & Co Ltd v Bertola SA [1973] 1 All ER 992 at p 1005; [1973] 1
WLR 349 at p 380 thus:

The courts have repeatedly recognized that there can be


claims under contracts in which, as here, it is unjust to
confine a plaintiff to his damages for their breach. Great
difficulty in estimating these damages is one factor that can
be and has been taken into account. Another factor is the
creation of certain areas of damage which cannot be taken
into monetary account in a common law action for breach of
contract: loss of goodwill and trade reputation are examples
— see also, in another sphere, the judgment of Jenkins LJ
in Vine v National Dock Labour Board [1956] 1 QB 658 at
p 676 which, albeit a dissenting judgment, was unanimously
adopted in toto in the House of Lords. Generally, indeed,
the grant of injunctions in contract cases stems from such
factors.
35. But the facts in Alor Janggus Soon Seng Trading Sdn Bhd v Sey Hoe Sdn
Bhd are distinguishable in one crucial aspect. It concerned shares in a private limited
company whilst in our instant case, the disputed block of shares is that of a public
company listed in the Kuala Lumpur Stock Exchange. QSR shares are freely traded in
the Kuala Lumpur Stock Exchange. This exposure makes quantification, for purpose of
assessing damages, an easy exercise, quite unlike the shares in a private limited
company where such facility is not available. This fact was appreciated by the learned
High Court judge when he adopted a commentary in 10 Halsbury’s Laws of Malaysia
para 180.403 which says:

If, however, there is a free market in the shares in question such as on the
Kuala Lumpur Stock Exchange (KLSE) and perhaps the Malaysian
Exchange of Securities Dealing and Automated Quotation Bhd (MESDAQ),
specific performance of a contract to purchase shares will not be granted,
as damages are an adequate remedy.
36. The second case cited by Mr. Malik Imtiaz on this issue is the British Columbia
(Canada) Supreme Court case of Dobell v Cowichan Copper Co Ltd, where Mr.
Justice Seaton declared:

In this case the evidence indicates that damages are in fact an inadequate
remedy. There are numerous cases as to the appropriate remedy for the
taking of shares (see, among others demonstrating the doctrine) ....
37. But we wish to point out that the shares sought to be enjoined in Dobell v
Cowichan Copper Co Ltd were required for a take-over battle in a company.
Furthermore, there was evidence that the corporation concerned in that case would not
be able to pay damages. This, as discussed at length, is not the situation here. Dobell
v Cowichan Copper Co Ltd is therefore distinguishable.

38. For reasons aforesaid, on the issue of adequacy of damages, I would uphold the
High Court’s finding that since damages are an adequate remedy, that it could be
ascertained with no evidence to imply that the respondents are not in a position to pay
them in the event of the appellants eventually succeeding in this action, then no
injunction will be granted in favour of the appellants at this stage of the proceedings
however strong the appellants’ case may be.

39. Though there is no necessity for me to consider in whose favour the balance of
convenience lies now that damages have been ruled to be an adequate remedy but,
for sake of completeness, I would like to point out that it leans against the appellants
for these reasons:

40. First, the appellants have not suffered any hardship. They have not paid for the
disputed block of shares. Unlike Kulim, who has spent approximately RM126m for the
acquisition of this disputed block of shares. Disagreeing, Mr. Malik Imtiaz argued that
Kulim brought this hardship upon itself. Kulim need not indulge in such an undertaking.
But I find this argument baseless when in an open market system anyone is free to
invest in whatever he likes as long as it is in accordance with the law. Kulim has
acquired these shares for valuable consideration on a willing buyer and willing seller
basis and the vendors verily believed that they had a right to dispose of their respective
shares to Kulim.

41. Second, Kulim after the acquisition of this disputed block of shares, as well as
those from Wisdom and some from the open market, has made a mandatory general
offer for the remaining QSR shares as required by the Malaysian Code on Takeovers &
Mergers, 1998. By this announcement, there would be reasonable expectation from
minority shareholders of QSR for Kulim to take up their shares at the price specified in
the general offer. All this would have to be called off if the acquisition of the disputed
block of shares is enjoined. This would have serious repercussions on the investing
public where trust in an open offer made by a particular party will be carried out is one
of the hallmarks for reliable stock market. This, in fact was taken into account by the
learned High Court judge as a factor in refusing the appellants’ request for the interim
injunction.

42. Third, the disputed block of shares is now duly registered in the name of Kulim.
This was effected soon after the High Court refused to grant the appellants’ application
for the interim injunction and these shares have now been pledged to Cimsec. If this
situation is reversed there would be enormous repercussions and many people would
be severely affected as compared to those relatively minor set backs faced by the
appellants which, as elaborated, could be compensated by damages. Thus on the
balance of convenience, I hold that the interim injunction sought by the appellants
ought not to be granted.

CONCLUSION

43. Accordingly, I am of the view that this appeal should be dismissed with costs
and the deposit for this appeal be given to the respondents towards taxed costs.

44. These grounds of judgment have the concurrence of my learned brothers, Abdul
Aziz Mohamad JCA and Zulkefli Ahmad Makinudin JCA.
Cases
Alor Janggus Soon Seng Trading Sdn Bhd v Sey Hoe Sdn Bhd [1995] 1 MLJ 241
American Cyanamid Co v Ethicon Ltd [1975] AC 396
Dobell v Cowichan Copper Co Ltd 65 DLR (2d) 440
Keet Gerald Francis Noel John v Mohd bin Abdullah [1995] 1 MLJ 193
Malayan Credit Ltd v Mohamed Kassim [1965] 2 MLJ 134
Mewah Plus Property Sdn Bhd v Kluang District Government Servants Co-operative Housing
Society Ltd [2000] 2 MLJ 456

Legislations
Sale of Goods Act 1957

Representations
Manjit Singh Gurcharan Singh (C Sri Kumar, Malik Imtiaz Sarwar and H.L. Ang with him)
(Malik Imtiaz Sarwar) for the appellant in Civil Appeals No W-02–785 of 2005 and No W-02–
786 of 2005.
Brijnandan Singh Bhar (Lee Noushi with him) (Gideon Tan Razali Zaini) for the first and third
respondents in Civil Appeal No W-02–785 of 2005 and for the first respondent in Civil Appeal
No W-02–786 of 2005.
Logan Sabapathy (Logan Sabapathy & Co) for the second respondent in Civil Appeal No W-
02–785 of 2005.
Raja Addruse (Dr Cyrus Das, Ambiga Sreenevasen and Rita Elisabeth Iype with him) (Zainal
Abidin & Co) for the fourth respondent in Civil Appeal No W-02–785 of 2005 and for the
second respondent in Civil Appeal No W-02–786 of 2005.
H.L. Chan (Azim Tunku Farik & Wong) for the fifth respondent in Civil Appeal No W-02–785 of
2005 and the third respondent in No W-02–786 of 2005.

Notes:-
This decision is also being reported at [2006] 5 AMR 304 and [2006] 5 MLJ 723.

HIGH COURT OF MALAYA


Inter Diam Pte Ltd
- vs -
PJ Diamond Centre Sdn Bhd
Coram 2 OCTOBER 2002
MOHD HISHAMUDIN MOHD YUNUS J

Judgment

Mohd Hishamudin Mohd Yunus, J


1. This is an appeal by the plaintiff against the decision of the learned Senior Assistant
Registrar of the High Court, Shah Alam, who, on June 30, 1999, dismissed the
application of the plaintiff for summary judgment against the defendant pursuant to
Ord. 14 of the Rules of the High Court 1980.

2. The plaintiff is a company incorporated in Singapore. They are a wholesaler, an


exporter and importer of diamonds. The defendant is a company incorporated in
Malaysia and has been buying loose diamonds from the plaintiff from time to time. The
claim of the plaintiff against the defendant is for payment due for diamonds ("the
goods") allegedly sold and delivered by the plaintiff to the defendant, from the months
of May 1997 until October 1997. The amount claimed by the plaintiff comprise:

a. a sum of RM215,479.10; and

b. a sum of USD86,488.10, or its equivalent in Malaysian ringgit as of the date of


judgment.

3. The plaintiff's claim is supported by eight invoices, as exhibited in the supporting


affidavit.

4. In the present case, having considered the pleadings, the affidavits and submissions, I
was fully satisfied that there were no triable issues and accordingly I allowed the
appeal of the plaintiff with costs.

5. The defendant, in resisting the plaintiff's application for summary judgment, raises four
issues. However, I think, only three of them deserve consideration, namely -

a. the issue as to whether or not the defendant, being a buyer, had accepted the
goods;

b. if the answer to A above is in the affirmative, the issue as to whether or not the
defendant had made partial payments by contra by returning some of the
diamonds to the plaintiff, and

c. the issue as to whether or not part of the claim of the plaintiff, expressed in the
statement of claim in US dollars, is bad in law by reason of omission on the part
of the plaintiff to convert that sum claimed from US dollars into Malaysia ringgit.

A. WHETHER DEFENDANT HAD ACCEPTED THE GOODS


6. It is the contention of the defendant that the goods were delivered on an "on approval'
basis, as stated on each of the invoices: and that they had never communicated to the
plaintiff that they (the defendant) had agreed to the prices quoted by the plaintiff. The
defendant, therefore, argues that there had been no acceptances of the goods by
them.

7. There is clearly no merit in this argument.

a. First, it docs not appear to be disputed that, as between the plaintiff and the
defendant, there was a seller and buyer relationship.

b. Second, there is a letter from the defendant to the plaintiff dated March 18, 1998
admitting owing the plaintiff the sum of RM215.479 in respect of invoices No
955, 963, 975 and 983.

c. Third, the defendant has never rejected nor returned the goods to the plaintiff.

Therefore, by virtue of s 24 of the Sales of Goods Act 1957, the property in the goods
passes from the plaintiff to the defendant. Section 24 reads:
24. Goods sent on approval or "on sale or return"
When goods are delivered to the buyer on approval or "on sale or
return", or other similar terms, the property therein passes to the
buyer
(a)when he signifies his approval or acceptances to the seller or
does any other act adopting the transaction;
(b if he does not signify his approval or acceptances to the seller
) but retain the goods without giving notice of rejection, then, if a
time has been fixed for the return of goods, on the expiration of
such time, and if no time has been fixed, on the expiration of a
reasonable time.
B. IF ANSWER TO A ABOVE IS AFFIRMATIVE, WHETHER DEFENDANT
HAD RETURNED THE GOODS TO PLAINTIFF
8. The defendant next argues that the sum alleged by the plaintiff as being the sum owed
to them by the defendant is far in excess of the amount that they owed the plaintiff
because they had returned some of the diamonds to the value of RM172,565 to the
plaintiff on March 18, 1998 as contra payment, and this substantially reduced the
amount owing. This argument too must be rejected. The evidence shows that the
plaintiff had on April 3, 1998 returned the diamonds (earlier returned by the defendant
to the plaintiff on March 18, 1998) to the defendant. The return of the diamonds by the
plaintiff to the defendant was accepted by one Jeff Khor on behalf of the defendant and
there is also a note dated April 3, 1998 addressed to the plaintiff by one Kent Chong,
the executive director of the defendant, confirming the return of the diamonds worth
RM172,565 by the plaintiff to the defendant.

C. WHETHER PART OF PLAINTIFF'S CLAIM EXPRESSED IN


FOREIGN CURRENCY IS BAD IN LAW BY REASON OF OMISSION
TO CONVERT SUM CLAIMED TO MALAYSIAN RINGGIT
9. It is further argued by the defendant that a part of the plaintiff's claim must be
dismissed on the grounds that the plaintiff in their statement of claim has omitted to
convert the sum of USD86,488.10, (a claimed in US dollars) into ringgit. In order to fully
appreciate the argument, it is necessary to refer to the statement of claim. The relevant
parts read:
4.The Plaintiffs claim is for the sum of RM215,479.10 and
USD86,488.10 being the price of loose diamonds sold and delivered
to the Defendant within the months of May 1997 until October 1997.
Further particulars of the delivery of the loose diamonds are as
follows:
Amount Due Amount Due
Date Invoice No.
(RM) (USD)

21/5/97 0955 37,957.20


20/6/97 0963 62,942.80
7/7/97 0975 27,880.00
16/7/97 0983 86,699.10
12/9/97 0879 40,875.50
24/9/97 1202 35,580.60
27/10/97 1206 10,032.00

Amount 215,479.10 86,488.10


Due
5.As the Defendant has failed to make any payments to the Plaintiff.
The Plaintiff through their solicitors Messrs Lee Ong & Kandiah had
claimed for the sums of RM215,479.10 and USD86,488.10 through
an A.R. Registered Letter dated 23rd June 1998 from the Defendant.
6.Notwithstanding the above-mentioned claim by the Plaintiff' s
solicitors for the sum of RM215,479.10 and USD86,488.10 but to
date, the Defendant has failed, refused or otherwise neglected to
pay the said sums or any part thereof and the said sums remains
due and payable by the Defendant to the Plaintiff.
7.AND the Plaintiff claims from the Defendant:-
7.1 the sum of RM215,479.10;
7.2 the sum of USD86,488.10 or its equivalent in Ringgit Malaysia
on the date of judgment;
7.3 interests on the said sum mentioned in paragraph 7.1 and 7.2
above at the rate of 8% per annum from the date of this Writ
until date of full realisation;
7.4 costs; and
7.5.1any further relief which is deemed fit and just by this Honorable
Court.
10. In support of their contention, the defendant relied on Ascot International Pte
Ltd v Elevic Trading Sdn Bhd [1996] 2 CLJ 645. In this case cited, the plaintiff was a
Singapore company and the defendant, a Malaysia company, and the action against
the latter was filed in Malaysia. The claim was for goods sold and delivered and the
value of the goods was stated in the invoices and delivery orders in the currency of
Singapore: $600,715.27. The plaintiff's statement of claim only stated the amount claim
in Singapore dollars: $600,715.27. The amount was not converted to the Malaysian
ringgit. KL Rekhraj JC (as he then was), in dismissing the plaintiff's claim for summary
judgment, held that the amount claimed in the statement of claim should have been
expressed in Malaysian currency and the failure on the part of the plaintiff to do so was
fatal to its Ord. 14 application. In words of the learned Judge (at p 648):
The plaintiffs statement of claim is made in foreign currency - being
Singapore Dollars. It was held in the case of Overseas Chinese
Banking Corporation Ltd v Firm of Yaik Joo Ann [1936] MLJ Rep
88 by Terell J that-
when a statement of claim is endorsed upon a specifically
endorsed writ. In respect of an amount due upon a foreign
judgment, the claim should be expressed in Straits
Settlement Currency; and it should show the amount in
Straits Settlement which is the equivalent of the amount of
the foreign currency due on the foreign judgment,
calculated as on the date when the foreign judgment was
obtained.
Relying upon Terrell J's decision I hold that the writ filed in the
Malaysian court by the plaintiffs on October 13, 1994 should have
shown the conversion of the Singapore dollars with the equivalent
value in Malaysian currency before filing the writ in court; to crystallize
the liability of the defendants in local currency; in the face of the
continuous exchange loss to the defendant by the fluctuating foreign
currency market. Purely on this ground, the Ord. 14 application for
summary judgment must be dismissed for want of conversion of the
equivalent value into Malaysian ringgit before filing.
11. At this juncture, I shall refer to Overseas Chinese Banking Corporation,
decided in 1936, the authority relied upon by Rekhraj JC. In this case, Terrell J said in
his judgment (at p 89):
The plaintiffs applied for summary judgment. The application was
opposed on three grounds:
(1) that the statement of claim indorsed on the writ was not signed;
(2) that the sum claimed was not in Straits currency; and
(3) on the merits.
At the hearing before the Registrar the second objection was upheld
and at the request of the plaintiffs the application was referred to a
Judge.
At a later part of the judgment, the learned Judge ruled (at p 89):
As regards the second objection, I have felt some doubt. The rule is
that a judgment can only be in local currency, and from this it would
appear to follow that the claim must also be expressed in local
currency.
12. On the basis of precedent, Rekhraj JC was legally right in his decision. But the
pertinent question is: Is such a principle of law enunciated way back in 1936, still
suitable under the present international economic environment? In my opinion, the
answer must emphatically be "No". I shall give my reasons.

13. First, it has been agreed between the parties that, in respect of some of the
transactions between them, the payment should be by US dollars (and this is shown by
the fact that the relevant invoices issued by the plaintiff to the defendant stated the
amount due in US dollars) and it would be wrong in principle to allow mere precedents
to deny the plaintiffs right to be paid in US dollars, or to be paid in the manner as
prayed in the pleading where the sum claimed can alternatively be paid in the local
currency (i.e. the Malaysian ringgit).

14. Second, as far as I can see, there is nothing impractical, nor any legal
impediments that I know of (apart from the two case law precedents cited), with regard
to giving judgment in US dollars, or to giving judgment in the manner as prayed for in
the statement of claim ('the sum of USD86,488.10 or its equivalent in Ringgit Malaysia
on the date of judgment'). US dollars, like many other major currencies (e.g. sterling,
Swiss francs, the Japanese yen and the Singapore dollars, just to name a few) are,
presently, commonly used in international trade and finance and are, indeed, as we all
know, easily purchased from the banks and moneychangers. And in this regard it must
be appreciated here that, as I have just pointed out, the plaintiff is not insisting that they
must be paid in US dollars. They are flexible. They have stated in their statement of
claim that, as an alternative, they are claiming for payment in Malaysian ringgit
equivalent to the sum claimed as stipulated in US dollars.

15. Third, our law must keep abreast with developments and changes in the world
economy and with current practices in international trade and finance, including
changes and developments in international economic law (or transnational economic
law) that have taken place since the 1930s. Under the present international economic
order, our courts can no longer adhere to such a narrow and outdated perception of the
law, as exhibited by the 1936 decision of Overseas Chinese Banking Corporation.

16. It must be pointed out that the principle in Overseas Chinese Banking
Corporation is no longer regarded as good law in other jurisdictions, e.g. in the United
Kingdom and in Singapore.

17. In the United Kingdom, prior to Schorsch Meier GmbH v Hennin [1975] All ER
152, the principle applied by the courts was the same as in Overseas Chinese
Banking Corporation. In Re United Railways of the Havana & Regla Warehouses
[1960] 2 All ER 332 the House of Lords held that, on a foreign currency claim,
judgment can only be given in sterling, to which the foreign currency must be converted
as at the date when the debt became due. In Havana Railways, the claim was for a
debt in US dollars, due under a contract the proper law of which was held to be the law
of Pennsylvania. The debtor (the United Havana Railways Co) was English, whilst the
creditor was American. In their judgment, the House of Lords decided that the provable
sum in US dollars had to be converted into sterling at the rate of exchange prevailing
when the relevant sums fell due and were not paid. They rejected the counter-
suggestion that conversion should be made at the date of judgment.

18. In Havana Railways, the leading judgment was delivered by Viscount


Simmonds who said (at p 340):
The question summarily stated is what sum in sterling is recoverable
by a plaintiff suing in the courts of this country for a sum of money
payable in foreign currency in a foreign country under an instrument of
which the proper law is a foreign law. Admittedly, the claim must be for
a sterling sum and the judgment must be in sterling. It is established
by authority binding on this House that a claim for damages for breach
of contract or for torts in terms of a foreign currency must be
converted into sterling at the rate prevailing at the date of breach or
tortious act; see e.g., SS Volturno [1921] 2 AC 544.
19. In the same case Lord Reid explained the reason for the principle (at p 345):
The reason for the existing rule is, I think, primarily procedural. A
plaintiff cannot sue in England for payment of dollars and he cannot
get specific performance of a contract to pay dollars - it would not be
right that he should. So, at best, he could only have the dollars
converted to sterling at the date of the judgment.
20. Lord Denning, in the same case, stated the law in clear terms (at p 356):
And if there is one thing clear in our law, it is that the claim must be in
sterling and the judgment given in sterling. We do not give judgments
in dollars anymore than the United States courts give judgments in
sterling.
21. However, in the later case of Schorsch Meier, the English Court of Appeal
declined to follow Havana Railways. Although faced with a unanimous decision of the
House of Lords in Havana Railways, the Court of Appeal in Schorsch Meier, by a
majority, held that an English court could give a money judgment in a foreign currency,
when that currency was the currency of the contract. The majority of the Court of
Appeal held that changed circumstances had nullified the reasons which had led to the
formulation of the sterling-judgment rules, and that the legal maxim cessante ratione
cessat ipsa lex permitted the court to declare that the rule of law so established were
no longer of binding force, and, accordingly, to discard the rule. The English Court of
Appeal approved the procedure under which orders can be made for payment of
foreign currency debts in the foreign currency. The form as approved is as follows:
It is adjudged ... that the defendant do pay to the plaintiff [the sum in
foreign currency] or the sterling equivalent at the time of payment.
22. In Schorsch Meier, Lord Denning MR, departing from his earlier views as
expressed in Havana Railways, explained the origin of the sterling - judgment rule (at
p 155):
So far as I can discover, no one has ever before asked an English
court to give judgment in a foreign currency. It has always been
assumed that it cannot be done. As long ago as in 1605 a merchant
sold some cloth to another for 60 Flemish pounds. He brought an
action of debt in which he claimed the English equivalent, namely, 39
pounds sterling. The defendant said he was not indebted in English
pounds. The court overruled his objection, and said:
... and the debt ought to be demanded by a name known,
and the Judges are not apprised of Flemish money; and
also when the plaintiff has his judgment, he cannot have
execution by such name; for the sheriff cannot know how
to levy the money in Flemish.
See Rastell v Drapper [1605] Yelv 80 at 80, 81. A few years later this
was re-affirmed. In 1626 it was agreed by all the Judges that 'in the
case of foreign coin, such as Flemish, one must declare the value in
English': see Ward v Kidswin [1662] Latch 77 which is reported in
Norman French but translated in the Havana [Railways] case.
From that time forward it has always been accepted that an English
court can only give judgment in sterling. Judges and text writers have
treated it as self-evident proposition. No advocate has ever submitted
the contrary. The modern cases start with Manners v Pearson & Son
[1898] 1 Ch 581 at 587 in which Lindley MR said:
Speaking generally, the courts of this country have no
jurisdiction to order payment of money except in the
currency of this country.
23. Then, interestingly, Lord Denning proceeded to explain the rationale for the rule
(at p 155):
Why have we in England insisted on a judgment in sterling and
nothing else? It is, I think, because of our faith in sterling. It was a
stable currency which had no equal. Things are different now. Sterling
floats in the wind. It changes like a weathercock with every gust that
blows. So do other currencies. This change compels us to think again
about our rules. I ask myself: why do we say that an English court can
only pronounced judgment in sterling? Lord Reid in the Havana case
thought it was 'primarily procedural'. I think so too. It arises from the
form in which we used to give judgment for money. From time
immemorial the courts of common law used to give judgment in these
words:
it is adjudged that the plaintiff do recover against the
defendant X pounds in sterling.
On getting such a judgment the plaintiff could at once issue a writ of
execution of X pounds. If it was not in sterling, the sheriff would not be
able to execute it. It was therefore essential that the judgment should
be for a sum of money in sterling: for otherwise it could not be
enforced.
24. Having so explained Lord Denning went on to declare that the reason for the
rule no longer existed, at the same time acknowledging the validity of criticisms against
the rule (at p 156)-
Seeing that the reasons no longer exist, we are at liberty to discard
the rule itself. Cessante ratione legis cessat ipsa lex. The rule has no
support amongst the juridical writers. It has been criticised by many.
Dicey [Conflict of Laws (9th Edn, 1973, p 883)] says:
Such an enforcement of the law of procedure upon
substantive rights is difficult to justify from the point of view
of justice, convenience or logic.
25. The next part of Lord Denning's judgment is crucial, for it contains a
pronouncement of the new principle (at p 156):
The time has now come when we should say that when the currency
of a contract is a foreign currency - that is to say, when the money of
account and the money of payment is a foreign currency; they can
make an order in the form: It is adjudged this day that the defendant
do pay to the plaintiff so much in foreign currency (being the currency
of the contract) 'or the sterling equivalent at the time of payment'. If
the defendant does not honour the judgment, the plaintiff can apply for
leave to enforce it. He should file an affidavit showing the rate of
exchange at the date of the application and give the amount of the
debt due converted into sterling at that date. Then leave will be given
to enforce payment of that sum.
26. There has been no appeal to the House of Lords on the above decision of the
Court of Appeal.

27. Then, significantly, in the same year (1975) as the decision in Schorsch Meier,
came the case of Miliangos v George Frank (Textiles) Ltd [1975] 3 All ER 801, which
further developed the law on the subject. In this case, by a majority decision, the
House of Lords refused to follow Havana Railways. In Miliangos, the facts are as
follows. By an agreement the plaintiff, a national of Switzerland, agreed to sell, and the
defendants, an English company, agreed to buy, a quantity of polyester yam. The
proper law of the contract was Swiss law and the money of account and payment was
Swiss francs. The yarn was produced by the plaintiff in Switzerland and delivered to the
defendants under invoices which stated the price in Swiss francs, payment to be made
within 30 days to a Swiss bank. The defendants did not make the payment. So, the
plaintiff issued a writ claiming payment, but because by then the sterling fell in value
against the Swiss francs, the claim was made in Swiss francs. The defendants did not
dispute liability but contended that the plaintiff was not in law entitled to judgment for a
sum of money expressed in a foreign currency.

28. The House of Lords by a majority decision declined to follow Havana Railways.
Instead, after having considered Schorsch Meier (and, of course, many other cases)
the House of Lords held that where a plaintiff brought an action for a sum of money
due under a contract, he was entitled to claim and obtain judgment for the amount of
the debt expressed in the currency of a foreign country if the proper law of the contract
was the law of that country and the money of account and payment was that of the
same country. If it was necessary to enforce the judgment that amount was to be
converted into sterling at the date when leave was given to enforce the judgment. It
followed that the plaintiff was entitled to an order that the defendants should pay him
the sum due in Swiss francs or the sterling equivalent at the time when leave was
given to enforce the judgment.

29. Thus, there was also changing of the rule by the House of Lords. The sterling-
judgment rule was again declared to be no longer good law. Lord Wilberforce said (at p
812)-
To change it [the sterling-judgment rule] would enable the law to keep
in step with commercial needs and with the majority of other countries
facing similar problems.
30. And this is the crucial part of Lord Wilberforce's judgment (at p 813):
Can a better rule be stated? I would make it clear that, for myself, I
would confine my approval at the present time of a change in the
breach-date rule to claims such as those with which we are here
concerned, i.e. to foreign money obligations, obligations of a money
character to pay foreign currency arising under a contract whose
proper law is that of a foreign country and where the money of
account and payment is that of that country, or possibly of some other
country but not of the United Kingdom.
31. Then the learned law Lord further ruled (at pp 813-814):
As regards foreign money obligations (defined above), it is necessary
to establish the form of the claim to be made. In my opinion
acceptance of the argument already made requires that the claim
must be specifically for the foreign currency - as in this case for a sum
stated in Swiss francs. To this may be added the alternative 'or the
sterling equivalent at the date of ... ' (see below). As regards the
conversion date to be inserted in the claim or in the judgment of the
court, the choice, as pointed out in the Havana Railways case, is
between
(i) the date of action brought,
(ii) the date of judgment,
(iii the date of payment. Each has its advantages, and it is to be
) noticed that the Court of Appeal in Schorsch Meier and in the
present case chose the date of payment, meaning, as I understand
it, the date when the court authorises enforcement of the judgment
in terms of sterling. ...
This date gets nearest to securing to the creditor exactly what he
bargained for ... So I would favour the payment date, in the sense I
have mentioned.
32. The principle in Miliangos has been accepted by the courts of our neighbour,
Singapore (see Wardley Ltd v Tunku Adnan [1991] 3 MLJ 366).

33. Back home, Miliangos and Schorsch Meier were cited with approval by LC
Vohrah J in Re P Suppiah, (Tara Rajaratnam, Judgment Creditor) [1989] 2 MLJ 479
(although the issues there were different from the present case) when the learned
Judge commented (at p 482)-
Although these two cases concern international contracts, the trend
has been for courts 'to give the law a new direction in a particular case
where, on principle and in reason, it appears right to do so'.
34. Dr Mann in his book, Legal Aspect of Money, 1971, 3rd Edn gives a list of many
countries in which a plaintiff can claim payment of a sum of money in a foreign
currency and get judgment for it.

35. In the light of the authorities cited, I am strengthened in my conviction that the
principle as enunciated by Terrell J in Overseas Chinese Banking Corporation, and
relied upon by Rekhraj JC in Ascot International, is no longer maintainable but must
be changed.

36. But how should it be changed? If the principle in Schorsch Meier were to be
followed, our courts can only give judgment in a particular foreign currency where such
currency is the currency of the contract.

37. But if the principle in Miliangos were to be adopted, then the requirements are
more stringent: our courts can only give judgment in a particular foreign currency if two
conditions are satisfied:

a. where such currency is the currency of the contract; and

b. the proper law of the contract is the law of the country of that currency.

38. On my part, I prefer the less strict principle as enunciated in Schorsch Meier.
The advantage of applying this principle is that the court is spared the task of
determining the proper law of the contract. However, in applying either the principle in
Schorsch Meier or the principle in Miliangos, there is a matter to be addressed for the
sake of completeness. It is to be recalled that in Schorsch Meier the Court of Appeal
ruled that the order should be in the form (to repeat):
It is adjudged ... that the defendant do pay to the plaintiff [the sum in
foreign currency] or the sterling equivalent at the time of payment.
[Emphasis added]
39. This means that if, alternatively, the defendant were to pay the judgment sum in
the local currency, the rate of conversion has to be the rate as prevailing on the date of
payment. But in the present case, however, it is to be observed that the alternative part
of the prayer refers - not to the date of payment - but to the date of judgment. As we
have noted, it is in the form -
... or its equivalent in Ringgit Malaysia on the date of Judgment.
[Emphasis added]
40. Be that as it may, in my judgment, notwithstanding what is stated in the
judgment in Schorsch Meier or in Miliangos, there is nothing wrong in principle for the
alternative claim (payment in local currency) to refer to the date of judgment (as an
alternative to the date of payment) for the purpose of the rate of conversion. In fact, it is
to be recalled that three choices were recognized in Havana Railways and Miliangos.
I need only to repeat here what was said by Lord Wilberforce in Miliangos (at pp 813-
814):
As regards the conversion date to be inserted in the claim or in the
judgment of the court, the choice, as pointed out in the Havana
Railways case, is between
(i) the date of action brought,
(ii) the date of judgment,
(iii) the date of payment.
41. In Miliangos, although Lord Wilberforce, as regards the conversion date,
favoured ("I would favour") the date of payment, nevertheless. His Lordship did not
appear to have any objection to the date of judgment being the conversion date. For,
as regards the date of judgment, the comment of the learned Judge was merely that (at
p 814):
The date of judgment is shown to be a workable date in practice by its
inclusion in the Carriage by Air Act 1961, which gave effect to the
Hague Convention 1956 varying, on this point, the Warsaw
Convention 1929, but, in some cases, particularly where there is an
appeal, may again impose on the creditor a considerable risk. So I
would favour the payment date, in the sense I have mentioned.
42. I would sum up my judgment on the third issue as follows:

a. This court does not propose to follow the decisions in Overseas Chinese
Banking Corporation and Ascot International as there is no sound rationale
for such a principle as enunciated therein. The decisions, if followed, would
cause injustice to the plaintiff. Moreover, such decisions are no longer in accord
with modem judicial trend or pronouncements on the subject.

b. A plaintiff suing under a contract may make a claim in foreign currency provided
such currency is the currency agreed upon by the parties to the contract for the
purpose of payment under the contract. Thus, in the present case, the claim in
US dollars in the statement of claim is, legally, in order since it has been agreed
by the parties, as shown by the relevant invoices, that payment should be in US
dollars.

c. The alternative claim in equivalent local (Malaysian) currency in the manner as


stated in the statement of claim in the present case (i.e. without actually
specifying the amount in Malaysian ringgit) is also legally proper, and the date of
conversion can either be the date of judgment or the date of payment.

Cases
Ascot International Pte Ltd v Elevic Trading Sdn Bhd [1996] 2 CLJ 645; Miliangos v George
Frank (Textiles) Ltd [1975] 3 All ER 801; Overseas Chinese Banking Corporation Ltd v Firm of
Yaik Joo Ann [1936] MLJ Rep 88; P Suppiah, (Tara Rajaratnam, Judgment Creditor), Re
[1989] 2 MLJ 479; Schorsch Meier GmbH v Hennin [1975] All ER 152; United Railways of the
Havana and RegIa Warehouses, Re [1960] 2 All ER 332; Wardley Ltd v Tunku Adnan [1991] 3
MLJ 366
Legislations
Rules of the High Court 1980: Ord.14
Sales of Goods Act 1957: s.24
Authors and other references
Dr Mann, Legal Aspect of Money, 1971, 3rd Edn
Representation
CH Hoe (Lee Ong & Kandiah) for Plaintiff
S Murthi (S Murthi & Associates) for Defendant
Notes:-
This decision is also reported at [2002] 4 AMR 4613

HIGH COURT OF MALAYA


Ng
- vs -
Arab-Malaysian Finance Bhd
Coram 29 AUGUST 1988
SITI NORMA YAAKOB J

Judgment

Siti Norma Yaakob J


1. The subject matter in dispute in this originating summons is a Honda Accord motor
vehicle, bearing registration number MP228, over which ownership is claimed by both
the plaintiff and the first defendant. Both maintain that they had obtained a good title
over the car as they had purchased it from the registered owner, the second defendant,
who, however, has not entered any appearance to this originating summons despite
having been served with all the necessary papers.

2. The events leading to the filing of this originating summons started when the second
defendant agreed to sell the car to the plaintiff for $18,800. The plaintiff was introduced
to him by a motor mechanic named Yap Kam Weng. This was sometime on 22
September 1986 and at that point of time ownership of the car was claimed by MUI
Finance as they had financed the purchase of the car. Because of this, ownership of
the car can only be transferred to the plaintiff, once the second defendant has settled
the balance due to MUI Finance under the hire-purchase agreement executed by him
with MUI Finance. It is also from the proceeds of the sale of the car to the plaintiff that
the second defendant was able to settle the amount due to MUI Finance.

3. Following their oral agreement, the plaintiff issued a cash cheque drawn on Public
Bank Bhd dated 22 September 1986 for $8,500 which was received by Yap on behalf
of the second defendant. The $8,500 represented the down payment for the car,
receipt for which is evidenced by an acknowledgment issued by Yap. On the same day,
Yap passed the cash cheque to the second defendant and this is evidenced by a
written notification titled ‘cash payment voucher’ dated 22 September 1986 signed by
the second defendant.

4. The following day, 23 September 1986 the plaintiff settled the balance of the purchase
price in full by issuing another cash cheque drawn on Public Bank Bhd for $10,300,
receipt of which is evidenced by another acknowledgment by the second defendant
dated 23 September 1986 and witnessed by Yap.

5. Both cheques were cleared by Public Bank, the $8,500 cheque on 22 September 1986
and the $10,300 cheque on 26 September 1986 as evidenced by the endorsements
made by the bank at the back of both cheques.

6. With the purchase price paid in full, all that remains to be done by the second
defendant to effect the transfer of ownership of the car into the plaintiff’s name is to pay
off MUI Finance. For this purpose he retained possession of the registration card and
he also indicated to the plaintiff that as the car was registered with the RIMV Malacca,
he also needed the registration card to effect a transfer of the files on the car to the
RIMV Selangor after which he would return the registration card to the plaintiff. The
second defendant must have paid MUI Finance whatever balance was due under the
hire-purchase agreement as the endorsement of MUI’s ownership claim in the
registration card was subsequently cancelled.

7. From another endorsement dated 15 October 1986 on the registration card, it is very
clear that all files relating to the car were transferred from the RIMV Malacca to the
RIMV Selangor and all that remains to be done by the second defendant was to return
the registration card to the plaintiff.

8. This the second defendant failed to do but instead a car dealer called Anthony Joseph
from Cantraza Sdn Bhd approached the first defendant and requested them to finance
the purchase of the car from the second defendant for one Bok Kok Kai. Having
satisfied themselves that there was no prior claim to the car, the first defendant
executed a hire-purchase agreement dated 22 October 1986 with Bok, and purchased
the car for $21,000, payment for which was made on 24 October 1986 directly to the
dealer as evidenced by the plaintiff s bank paying voucher. Accordingly, on 27 October
1986, a change in the name of the registered owner was effected on the registration
card with Bok’s name inserted as the new registered owner and an endorsement that
ownership is claimed by the first defendant.

9. To determine who has a better title to the car, I consider that the following issues need
to be answered.

1. On 23 September 1986, when the plaintiff paid the second defendant the full
purchase price, did he obtain any title to the car?

2. When the amounts due to MUI Finance were settled in full, did the plaintiff
obtain the legal title to the car?

3. On 24 October 1986, when the first defendant paid $21,000 to the dealer, did
they also obtain good title to the car?

10. It is my considered opinion that on 23 September 1986 when the plaintiff paid
the full purchase price of $18,800 to the second defendant, the plaintiff did not obtain
any title to the car as at that point of time such title was vested with MUI Finance with
whom the second defendant had executed a hire-purchase agreement. As a hirer, the
second defendant had no title to the car and he cannot therefore pass any better title to
the plaintiff than what he had at that point of time. This is recognized by s 27 of the
Sale of Goods Act 1957 and in this respect, s 20 of the same Act is not applicable as it
provides for ‘an unconditional contract for the sale of specific goods’. In Benjamin’s
Sale of Goods, “unconditional contract” has been interpreted to mean ‘not subject to
any condition suspensive of the passing of the property’. On the facts of this case, the
presence of the hire-purchase agreement prevented the property passing to the
plaintiff and at most whatever rights the plaintiff had on 23 September 1986 was an
immediate right to possession.

11. However, I view the situation differently after the second defendant had paid off
MUI Finance and the endorsement of ownership claim by MUI Finance had been
cancelled from the registration card. There is evidence that the plaintiff had ascertained
from MUI Finance, five days after he had settled the purchase price in full, that the
second defendant had paid all sums due to MUI Finance and the cancellation of the
endorsement of MUI’s ownership claim in the registration card is further confirmation of
this fact but unfortunately, it is not clear from the registration card when the cancellation
of the endorsement was made. In any event, based on the plaintiff’s undisputed
testimony, on 28 September 1986 or thereabouts, MUI Finance had relinquished all
claims of ownership over the car and this fact is in no way disputed by the first
defendant either, as when they had sight of the registration card for the first time which
I would place sometime on or before 22 October 1986 when the hire-purchase
agreement with Bok was executed, the endorsement of MUI’s ownership claim had
already been cancelled.
12. Putting that time sometime between 28 September 1986 and 22 October 1986,
and as between the second defendant and MUI Finance, the second defendant had
acquired a good title to the car and the title so acquired enured to the benefit of the
plaintiff as the purchaser of the car. I am fortified by my conclusion from the authority of
Butterworth v Kingsway Motors Ltd [1954] 2 All ER 694, where the same issue was
raised and decided. Thus as from 28 September 1986 or thereabouts after full payment
was made and MUI Finance had relinquished all rights of ownership over the car, the
plaintiff had acquired ownership of the car and the second defendant’s further dealings
on the car with Anthony Joseph and the first defendant after 28 September 1986 or
thereabouts are therefore illegal. To that end, the first defendant acquired no title or
interest over the car when they purchased it on 24 October 1986 and their only
remedy, if any, is against the second defendant personally, for the return of the
purchase price but as against the plaintiff they cannot claim any right of ownership over
the car.

13. The first defendant has also pleaded estoppel by negligence against the plaintiff
by alleging that the plaintiff had been negligent in allowing the second defendant to
retain possession of both the car and the registration card thereby clothing the second
defendant with the ostensible authority of ownership and by his own conduct the
plaintiff is precluded from denying the second defendant’s authority to sell the car to the
plaintiff. As the first defendant claims to be a bona fide purchaser for value without
notice of the plaintiff’s prior interest, the plaintiff is estopped from denying the first
defendant’s title to the car.

14. Since possession of the car is disputed by both the plaintiff and the first
defendant with both of them claiming that they had possession of the car at the time of
its respective purchases, oral evidence was led to determine who had possession of
the car since 23 September 1986.

15. The plaintiff’s testimony is that after he had settled the purchase price in full on
23 September 1986, the second defendant had allowed him the uninterrupted use of
the car until the road tax expired on 1 February 1987 when he could no longer use the
car on the road but nonetheless the car had remained in his house to this very day.
Efforts on his part to get the second defendant to return the registration card were of no
avail and out of desperation he lodged a police report on 27 January 1987.

16. The credit officer in the first defendant company who had dealt with Anthony
Joseph over the purchase of the car could not categorically state whether he had
inspected the car, before committing the first defendant to finance its purchase. His
evidence is that under normal circumstances, if there had been no inspection, he would
have prepared a report to his manager to seek the latter’s direction as to whether to
waive the company’s policy of inspecting the car before purchase. Since the file does
not enclose any such report, he had concluded that he must have viewed the car.

17. Admittedly the transaction happened two years ago but the first defendant
should at least support the evidence of their credit officer by calling the dealer, Anthony
Joseph, who after all was instrumental in getting the first defendant to finance the
purchase of the car. He would be the best person who could testify that he had
produced the car to be inspected by the first defendant but by failing to do so, I can
only conclude that his evidence would run contrary to the best interests of the first
defendant and to that extent, I invoke the provisions of s 114(g) of the Evidence Act
1950.

18. Since the evidence of the credit officer is based only on assumptions concluded
from what would have happened normally and not based on what had happened, for
which I find most unsatisfactory and unacceptable, I can only conclude that the car
ceased to be in the possession of the second defendant after 23 September 1986 and
that he could not have produced it to Anthony Joseph for inspection by the first
defendant. This stands to reason for after all, the plaintiff had already paid the second
defendant fully on that date and it would be utterly foolish of the plaintiff not to insist
upon the car being delivered to him immediately.

19. Apart from the plaintiff’s testimony, there is also the unchallenged corroborated
evidence of his wife and sister that the car had remained in his possession throughout,
since counsel for the first defendant chose not to cross-examine, them when they were
offered to him for cross-examination. From the evidence, I am fully satisfied that the
plaintiff had assumed possession of the car since 23 September 1986 until today.

20. As for the second defendant continuing to retain the registration card after 23
September 1986, the plaintiff has explained that the second defendant needed it to
have the endorsement of ownership claim by MUI Finance in the registration card
cancelled and also to have the file pertaining to the car transferred from the RIMV
office in Malacca to the RIMV office in Selangor.

21. I have already held that the endorsement of ownership claim by MUI Finance
was cancelled sometime between 28 September 1986 and 22 October 1986. The
relevant transfer of the file was effected also on 15 October 1986 as evidenced by an
endorsement to that effect in the registration card and the second defendant should,
had he kept his promise, return the registration card to the plaintiff after 15 October
1986, but he did not do so and this should not be taken against the plaintiff as he had
made every effort to get it back from the second defendant as the road tax of the car
was due to be renewed on 1 February 1987. When all his efforts failed he even lodged
a police report on 27 January 1987. Thus by his own conduct the plaintiff had not
shown that he had been in any way negligent in allowing the second defendant to
retain possession of the registration card after he had purchased the car.

22. The fact that the registration card was still in the second defendant’s possession
after 23 September 1986 is not disputed but mere possession alone does not give the
second defendant the apparent authority to sell the car, as the registration card itself is
not a document of title and it cannot be assumed that a person in possession of it is the
legal owner of the car. This was so decided in Central Newbury Car Auctions Ltd v
Unity Finance Ltd [1956] 3 All ER 905 a decision that had been adopted by our own
courts in PP v Europe Motors Sdn Bhd [1981] 2 MLJ 93. Furthermore all registration
cards of vehicles registered under the Road Traffic Act 1958 carry an endorsement of
like effect [ in Bahasa Malaysia] as follows [translation[a]]:
The Registered owner is a person who has possession of the vehicle.
He may or may not be the legal owner of the vehicle.
23. As such the plaintiff owes no duty of care to the first defendant and neither can it
be said that he had been guilty of a breach of such a duty or that he had in any way
induced the first defendant to purchase the car. On the contrary, the evidence seems to
point to the first defendant being negligent in placing absolute trust in the dealer, who,
however, has not been called as a witness to account for his conduct in this
transaction. To that end the first defendant have only themselves to blame for the loss
suffered when they parted with the purchase price and that being purchasers for value
without notice is of no relevance to the facts of this case.

24. As the plaintiff has pleaded for a number of declaratory reliefs, I accordingly
declare:

1. that the property in the vehicle MP228 was transferred to the plaintiff upon full
settlement of the purchase price and the amounts due to MUI Finance; and

2. that the first defendant has no lawful right, title, interest or claim to the said
vehicle.

25. Consequent to these declarations, I also direct that RIMV Selangor cancel the
endorsement of ownership claim by the first defendant on the registration card as well
as the name of Bok Kok Kai as the registered owner and in its place substitute the
name of the plaintiff as the absolute owner of the vehicle MP228. In this respect the
first defendant is to deliver the registration card to the RIMV Selangor to facilitate the
necessary cancellations and substitution. Lastly, I also order that the first defendant
pay the plaintiff all costs occasioned by this application.

Cases
Butterworth v Kingsway Motors Ltd [1954] 2 All ER 694; Central Newbury Car Auctions Ltd v
Unity Finance Ltd [1956] 3 All ER 905; PP v Europe Motors Sdn Bhd [1981] 2 MLJ 93
Legislations
Evidence Act 1950: s.114(g)
Sale of Goods Act 1957: s.20, s.27
Authors and other references
Benjamin’s Sale of Goods
Representations
MS Murthi for the plaintiff.
FT Yip for the first defendant.

COURT OF APPEAL, MALAYSIA


Nanyang Union Sdn Bhd
- vs -
Gloveline Industries (M) Sdn
Coram Bhd
ABDUL AZIZ MOHAMAD, JCA
AZMEL MAAMOR, JCA 17 FEBRUARY 2006
ZALEHA ZAHARI, JCA

Judgment

Abdul Aziz Mohamad JCA


(delivering the judgment of the court)

1. On 20 April 1988 Gloveline Industries (M) Sdn. Bhd (“Gloveline”) and Nanyang Union
Sdn Bhd (“Nanyang”) entered into an agreement for the sale, supply and installation by
Nanyang to and for Gloveline of an E.G. Plant, which was a plant for the manufacture
of examination gloves, consisting of one production line comprising, as clause 2.1
termed them, the “machines and equipment” which were described in a schedule to the
agreement. In the High Court, Nanyang sued Gloveline for the balance of the purchase
price, and Gloveline, alleging that the plant was defective and incapable of proper
operation, counterclaimed for the refund of the partial payment that they had made and
for losses that they claimed to have suffered. Nanyang’s claim was struck out. After a
full trial, Gloveline’s counterclaim was allowed, and this gave rise to the present appeal
by Nanyang. The learned trial judge, who gave his decision on September 12, 2000,
has gone on retirement without preparing his grounds of judgment. So we heard the
appeal without the benefit of the trial judge’s findings of fact and reasoning.

2. Since, to our understanding, the plant was the production line, and the production line
was the plant, we shall use either the term “plant” or “production line” (or just “line”),
according as to which is felt more apt for the context, to refer to the same thing. We
shall refer to the “machines and equipment” as “the components”.

3. The production line was to be capable of producing, per hour, 4,500 pieces of rubber
examination gloves of the prescribed standard.

4. Although the agreement was only in respect of one production line, for which the
contracted price was USD305,000, clause 5 contemplated the installation of another
production line. Clause 5.3 provided as follows:
5.3 If after the installation of the First Production [Line] it is found that the
Machine is defective and in the opinion of the Buyer it is incapable of
proper operation the Buyer shall have the right to refuse to have the
Second Production Line installed at the factory and in such a situation
the Buyer is entitled to request the Seller to take back the machinery
and refund the purchase price to the Buyer.
5. The first part of clause 7.2 provided as follows:
7.2 The Seller shall design, construct, supply and install the Machinery and
equipment and shall guarantee that the commissioning of each of the
two (2) Production Lines are capable of meeting the Production
quantity and Quality Targets of E.G. Plant ....
It has not been in dispute that one of Nanyang’s obligations under the agreement was
to install and commission the production line and that, by the guarantee as to
commissioning that they gave under that clause, Nanyang undertook, by the
commissioning, to ensure that the production line, as installed, was actually capable of
producing, per hour, 4,500 rubber examination gloves of the prescribed standard. For
this appeal, we accept the definition of “commissioning” given in a publication called
Mechanical Completion Handbook by A. Dynowski (October 2000 Edition) at page 6,
where it is said that the term –
Means the testing and adjustment of an assembly or plant sections and will
comprise of Operational testing under real or simulated conditions to
ensure that it meets all applicable Rules, Regulations, Codes and
Standards and that it fulfils it’s [sic] intended duty and ready for start-up.
Installation and commissioning were therefore two different things. Mere installation
would serve no purpose if the production line could not function to produce the result
that it was agreed it should produce. There must also be commissioning.

6. Gloveline were to pay for the plant in three instalments: the first, of USD150,000, when
the components of the production line were ready for shipment; the second, of
USD120,000, upon completion of “installation and commissioning of the Machine and
equipment” – which effectively meant upon commissioning of the production line – “at
the Buyer’s factory” [clause 4.1(b)]; and USD35,000 upon expiry of the guarantee
period, which, according to clause 6, was six months from the date of commissioning.

7. Before dealing with the arguments advanced by Nanyang in this appeal, and in order
that the arguments may be conveniently dealt with, it is well to set out certain relevant
matters that are revealed by the oral and documentary evidence. As far as oral
evidence is concerned, it comprises the testimonies of Gloveline’s sole witness, Mr.
Mohd Radwan Alami (“Radwan”), a director of Gloveline, and of Nanyang’s two
witnesses, Mr. Chin Ping Sang (“Chin”), a director of Nanyang, and Mr. Kuan Teck
(“Kuan”), the person whom Nanyang appointed to install the production line. As regards
Radwan, it should be mentioned that in this appeal Nanyang’s counsel has abandoned
his intention to question this witness’s credibility. This means that in this appeal
Radwan’s credibility is not in issue.

8. The components were shipped from Taiwan on or about August 2, 1988. The first
instalment of USD150,000 had been paid. There is no evidence of the precise date
when installation at Gloveline’s premises commenced. But of the second instalment of
USD120,000, which was due upon commissioning, Gloveline made a part-payment of
USD80,000 (RM200,000) on November 10, 1988, and it is clear from Radwan’s
evidence that on that date installation had commenced. So installation would have
commenced sometime before that date.

9. Radwan’s evidence as a whole painted a gloomy picture of the installation of the


production line. Problems kept arising from the start, so that in 1989 the line was still
being tested. Every time the installers, Kuan and his men, tried to run it, certain parts of
it did not function. The installers lacked the know-how, and whenever a problem arose
they made themselves scarce. They ran away. They disappeared. The consequence of
all that was that the production line never achieved a production rate of 4,500 gloves
per hour. Radwan said in cross-examination that he was actually present when the line
produced only 1,000 to 2,000 gloves per hour. Apart from that, there was a high rate of
rejection of gloves. At first, out of a batch produced, there was a 30 percent rejection of
gloves that did not satisfy the prescribed standard, but even after another “unit” was
installed, the rejection rate dropped to only between 15 to 30 percent, whereas the
acceptable rate was a mere 1.5 to 4 percent. Radwan in cross-examination said that
he was sometimes actually present at the counting of rejected gloves. Gloveline had to
call in a researcher from the Rubber Research Institute, a Dr. Shukri, who ultimately
formed the opinion that the plant could not do better than produce rejects at 15 to 18
percent. Gloveline had to employ a foreigner as a Technical Director, Amer Hariri
(“Amer”), to solve the problems with the production line by looking into its design and
operation, but his finding was that there was no way that the line could perform as it
was expected to. Radwan said that complaints were made on many occasions, to
Chin, but mostly to the men who were doing the installation, but to no avail. Radwan, in
cross-examination, said that he learned about the malfunctioning of the system and of
the rejection of gloves mostly from information given by Amer, but on many occasions
he was actually present to witness those occurrences.

10. To come back to the matter of payment, Radwan said that he paid the
USD80,000 of the second instalment of USD120,000 before Dr. Shukri of the RRI
confirmed that the production line could not perform any better, and that he did so in
order to help Nanyang with their cash flow, but after that payment Nanyang became
careless. According to Chin, with the payment of USD80,000 (RM200,000) or shortly
after that, Radwan also gave a cheque for RM100,000 to settle the balance of
USD40,000. This cheque was postdated January 25, 1989. From Radwan’s answers in
cross-examination at page 18 of the judge’s notes it would appear that, according to
Radwan, it was agreed that by that date the line would be commissioned and Nanyang
promised to cash the cheque only after the line was commissioned and subsequently –
the notes do not mention the date – because the line was still not commissioned
Nanyang themselves asked that the cheque be replaced by another cheque. That was
in fact done. Another cheque was issued, this time postdated November 3, 1989.
Taking Radwan’s testimony to be true – which we must do because his credibility is not
in issue – this must mean that by January 25, 1989, the line had still not been
commissioned and that the new expected date of commissioning would be before
November 3, 1989. It also stands to reason that Radwan could not have got back the
cheque postdated January 25, 1989, unless Nanyang voluntarily surrendered it, and
Nanyang would not have surrendered it but would have banked it if the plant had been
commissioned by January 25, 1989.

11. It is therefore strange that on January 12, 1989, Chin wrote to Gloveline a thank-
you letter in which he said that Nanyang “are happy that the installation undertaken at
your factory is now completed”. The letter mentioned only “installation”. In view of what
we said earlier, and as the letter did not mention about commissioning, that letter,
contrary to the contention of Nanyang’s counsel, cannot be accepted as evidence that
the plant was commissioned on January 12, 1989. As to Gloveline’s reaction to this
letter, Radwan said he could not recall whether he responded to the letter.

12. In the letter Chin praised Amer for his “co-operation” and his “controlling and
brushing systems” which Chin said “has given us and [sic] invaluable knowledge of
engineering design, which could be improved in our plant in future”. That may be
viewed as an indirect and unconscious admission that Nanyang were deficient in
knowledge of engineering design and that the plant that was installed needed
improving, which lends support to, or at least is consistent with, Radwan’s evidence
that the men installing the plant lacked technical know-how and that the plant was
defective.

13. According to Radwan, he instructed the bank to stop payment on the cheque
postdated November 3, 1989, because Nanyang refused to complete the
commissioning or rectify defects or replace defective parts.

14. There is evidence of a letter from Nanyang to Gloveline dated January 19, 1990,
well after the new expected date of commissioning, November 3, 1989, which Radwan
said in cross-examination he had not seen before. On the date of the letter, Chin, as he
admitted in cross-examination, was still in possession of the cheque postdated
November 3, 1989. He had not banked it in. The letter demanded payment of the entire
balance, claiming that the plant had been successfully commissioned “for more than a
year”, which seems to be a reference to the date January 12, 1989, of the earlier letter,
which we said cannot be accepted as evidence of commissioning on that date. The
sum demanded was RM263,750, which, by our reckoning, covered the USD40,000
that the cheque postdated November 3, 1989, was intended to pay, USD35,000 that
was due six months after commissioning, and USD20,000 for a hot-air heating system,
the inclusion of which can be seen in paragraph 6 of the amended statement of claim
and which Chin admitted in cross-examination was outside the scope of the
agreement. To explain why he made the demand before banking in the cheque
postdated November 3, 1989, for settling the USD40,000, and which was in his
possession and which he could have banked in, he said in re-examination that he knew
that the cheque would bounce. Yet in examination-in-chief he had said, as is also
proved by banking evidence, that he did after all bank in the cheque on January 24,
1990, not knowing that payment had been ordered to be stopped. Chin’s explanation
for not banking in the cheque on November 3, 1989, or before he demanded payment
on January 19, 1990, is not satisfactory.

15. Next followed letters of demand from Nanyang’s solicitors dated February 5 and
13, 1990, to which, on February 26, 1990, Gloveline’s solicitors replied denying that
Gloveline owed the sum demanded, contending that the plant had not been
“commissioned properly”, and saying that “your clients may take back the said
Machine”. But Nanyang did not do so. Radwan said that all operation of the plant
stopped, Gloveline stopped paying rental for the factory, and the landlord put up the
factory, including the plant, for auction, but there were no bidders.
16. In this appeal, Nanyang, by their counsel, presented argument on two matters.
The first matter concerns proof of breach of agreement on the part of Nanyang. It was
argued that the evidence of Radwan, Gloveline’s only witness, as to breach was not
supported by documentary proof, such as records of the percentage of rejection of
gloves, and was, moreover, hearsay evidence and therefore inadmissible, because it
consisted of what he had been informed by Dr Shukri of the RRI and by Amer,
Gloveline’s Technical Director, neither of whom had been called to testify.

17. We agree that insofar as Radwan’s evidence was as to what he was informed
by those two persons, the evidence was hearsay and was inadmissible as proof of the
truth of the information. But on the whole we are satisfied that there was sufficient
admissible evidence on which the trial judge could have correctly concluded, as he
must have done, that the plant failed to achieve a production rate of 4,500 gloves per
hour and that the rate of rejection of gloves was unacceptably high, and that therefore
the plant could not have been truly commissioned and was not commissioned. As has
been related, there were occasions when Radwan himself was present to witness the
fact that the plant failed to produce 4,500 gloves per hour and the fact that the
percentage of rejection was high. The former fact is a fact that does not require
expertise in order to perceive. As to the latter fact, we are unable to accept that
Radwan would not have been able to judge whether a glove satisfied the prescribed
standard. It would appear from the notes that he was not cross-examined as to what he
observed the defects in the rejected gloves to be. Then, as has been related, there is
the evidence of the exchange of the postdated cheques, which shows that the
expected commissioning on or before January 25, 1989, did not take place and that
another date, a date before November 3, 1989, was targeted for it.

18. On the other hand Nanyang did not produce evidence that the plant did, after
installation, produce gloves at the rate of 4,500 per hour and that the rate of rejection of
gloves was within acceptable limits. There was therefore no evidence on Nanyang’s
part of commissioning. Chin, the director, merely kept insisting that the plant was
commissioned, but he could not say on what date it was commissioned. The fact was
that there was no commissioning. Kuan, the person in charge of installation, merely
said in examination-in-chief that he tested the plant to ensure that the rate of
production was about 4,000 to 5,000 gloves per hour, but he did not go on to state that
the plant actually did produce gloves at that rate, and he was not sure when the plant
began to run or operate. In cross-examination, in answer to a question about damaged
gloves, he gave an answer that we are not able to make sense of:
At first damages – Yes. 1% or 2% spott (sic: probably “spoilt”). After
correction, 1-2% damages.
Later on, while affirming that he did test-run the plant, he admitted that he did not make
a report of the test run; and as to quality, he said that he did not know the quality of the
product, that his concern was only to see to it that the plant could produce hand-
gloves, and that he did not conduct tests on the product.

19. After balancing the evidence of Radwan against that of Chin and Kuan the judge
would clearly have been right if he concluded, as he must have done, that the plant
was not performing as it was expected to and that there was no commissioning. While
documentary evidence on Gloveline’s part would have strengthened their case, its
absence was not fatal to it. Nanyang’s argument as to proof of breach of contract
therefore fails.

20. The second matter that Nanyang presented argument on was the question of
Gloveline’s entitlement to the refund of the moneys that they had paid. It will be
recalled that Gloveline had paid USD150,000 and RM200,000 (for USD80,000, at the
exchange rate of 2.5). The High Court ordered Nanyang to pay back to Gloveline the
two sums, the sum of USD150,000 being converted to RM375,000, applying the
exchange rate of 2.5. The total sum ordered was therefore RM575,000. Nanyang’s
counsel contended that Gloveline were estopped from denying that the plant had been
properly installed and commissioned and must be deemed to have waived their right to
reject it and claim the refund. The reasons offered for that contention were that
Gloveline rejected the plant only on February 26, 1990, the date of their solicitors’ letter
mentioned earlier, but at that date the warranty period had expired; that Gloveline had
already installed a second production line; and that more than one year had elapsed
since the plant in this case was installed and commissioned. That contention cannot
stand because the reasons offered for it are not valid. Since the plant was not
commissioned, the warranty period of six months from the date of commissioning
never commenced and the question of the lapsing of any period since commissioning
could not arise.

21. A few words need to be said about the reason that a second production line had
been installed. There is evidence of an invoice from Nanyang dated February 25, 1989,
for the supply of another production line. That date was one month after the date of
Gloveline’s first postdated cheque for RM100,000, namely January 25, 1989, which, as
we said, Radwan’s evidence indicated was the expected date of the commissioning of
the line that was the subject of the agreement in this case. The invoice was, however,
not to Gloveline but to a company called Safeline Industries (M) Sdn Bhd (“Safeline”).
From Radwan’s answer in cross-examination at page 22 of the notes, which included
an admission that he was also a director of Safeline, Nanyang’s counsel submitted that
Radwan admitted that Safeline had purchased a second production line and installed it
at Gloveline’s factory. It was argued that the supposed admission constituted proof that
the line that was the subject of the agreement in this case was capable of normal
operation. This argument must be rejected for several reasons. Safeline was a different
entity from Gloveline even though Radwan was a director of both companies. The plant
ordered by Safeline was not the second production line contemplated by clause 5 of
the agreement because clause 5 contemplated the purchase of a second production
line by Gloveline, not Safeline. Radwan maintained at page 22 of the notes that
Safeline’s production line was not functioning and was not even completed. Finally,
whatever may be said about the line that Safeline ordered, the fact remains that on the
evidence the line that was the subject of the agreement in this case was defective and
was not commissioned.

22. It was further submitted that Gloveline were not entitled to the refund because
they failed to give notice of termination of the agreement under clause 8.1(c). Clause
8.1 provided as follows:
8.1 Either party shall be entitled at any time by giving notice in writing to
the other party to terminate this Agreement forthwith at the happening
of any of the following events:-
(a)If the other party shall go into liquidation other than voluntary
liquidation for the purpose of reorganization;
(b)If the other party shall cease to carry on its business; or
(c) If the other party shall commit any material breach of any of the
provisions of this Agreement and shall fail within sixty (60) days
after being notified thereof in writing to remedy such breach.
23. Gloveline’s claim to the refund was made by virtue of clause 5.3, which we shall
quote again:
5.3 If after the installation of the First Production [Line] it is found that the
Machine is defective and in the opinion of the Buyer it is incapable of
proper operation the Buyer shall have the right to refuse to have the
Second Production Line installed at the factory and in such a situation
the Buyer is entitled to request the Seller to take back the machinery
and refund the purchase price to the Buyer.
Our understanding of the clause is that in the event stated in the clause, despite the
words “and in such a situation”, Gloveline were entitled to refuse the second production
line and also to claim a refund of the payment for the first production line, that is the
production line that was the subject of the agreement. We are also of opinion that the
operation of the clause, which was special in nature, was not dependent on the
termination of the agreement under clause 8.1, which was general in nature. We
should mention that Gloveline’s counsel submitted that because of the words “in the
opinion of the Buyer”, whether the plant was defective and incapable of proper
operation depended entirely on Gloveline’s opinion, that is to say, that Gloveline had
the last say, so that, relying on the clause, Gloveline did not have to prove that the
plant was in fact so. We do not have to decide on that contention because there is
evidence that the plant was in fact defective and was not commissioned.

24. Section 42 of the Sale of Goods Act 1957 was relied on for arguing that since
the rejection of the plant was unduly delayed, Gloveline must be deemed to have
accepted the plant and were therefore not entitled to reject it. The relevant part of the
section says:
The buyer is deemed to have accepted the goods .... when, after the lapse
of a reasonable time, he retains the goods without intimating to the seller
that he has rejected them.
It is only a presumption. In our opinion the presumption does not apply in this case
because right from the beginning Nanyang knew that Gloveline were not satisfied with
the production line because it failed to achieve the rate or level of performance that
was agreed and because the line was in fact not commissioned. This was not merely a
sale of the components of the production line. It was the sale of those things as
installed and commissioned to become a plant. What was agreed to be sold and
purchased according to clause 2.1 was essentially “the E.G. Plant”. Until the plant was
commissioned, what with its being defective to the knowledge of Nanyang, it is
inconceivable that Gloveline would have accepted it and that Nanyang would have
been led into thinking that Gloveline had accepted it.

25. In our judgment, therefore, Nanyang fail in their argument as to Gloveline’s


entitlement to the refund.

26. Nanyang also disputed other items of losses allowed by the trial judge.

LOSS OF OPPORTUNITY TO MAKE A PROFIT

27. Because the plant could not produce gloves to meet orders made to them,
Gloveline had to buy gloves from Nanyang and other sources to satisfy the orders. It
can be seen from page 49 of his notes that the judge made his award of this item on
the basis of one million gloves that Gloveline bought from Nanyang for USD27,000
(USD27.00 for 1,000 gloves). The notes seem to indicate that the judge found that
were Gloveline to produce the gloves themselves the cost to them would have been
USD24,500 (USD24.50 for 1,000 gloves). The difference of USD2,500 was the profit
that Gloveline would have made had they been able to manufacture one million gloves
and sell them for USD27,000. At the exchange rate of 2.5, the difference came to
RM6,250, which was what the judge awarded. Nanyang’s counsel submitted that there
was no proof for this item of loss and that the loss was too remote. We do not think that
the loss was too remote. As to proof, the fact of purchase by Gloveline of one million
gloves from Nanyang for USD27,000 is Gloveline’s letter dated October 17, 1989, at
page 192 of the appeal record. For the production cost of USD24,500, the judge
referred to “C – pg 39”. It has not been shown to us where in the appeal record this
page is. But Nanyang’s counsel has not attempted to show that that page does not
support the judge’s finding. We assume therefore that the finding is correct.

RENTAL OF PREMISES

28. We understand this to be the rental of the factory premises for the plant. The
judge awarded RM24,000 (RM16,000 per month) for the period of one month and a
half from May 15, 1990, to the end of June 1990. That period was after Gloveline
asked Nanyang to take back the components of the production line. May 15, 1990, was
the date when Gloveline were evicted by the landlord. But the plant remained on the
premises and Gloveline still had to pay rental. Nanyang’s only submission against this
item was virtually to say that since Gloveline had accepted the plant they should bear
the rental. The submission fails because Gloveline had not accepted the plant.

COST OF REPLACING LATEX DIPPING TANK

29. The judge awarded RM7,500, being the cost of the new tank. Nanyang’s
counsel submitted that Nanyang should not be liable for the cost because no notice
was given to them that the tank supplied by them was defective and because Chin
maintained that the tank was damaged by Gloveline. We do not think that a notice was
necessary to entitle Gloveline to claim the cost of the new tank. Chin’s contention that
Gloveline damaged the tank seems to be a bare allegation. Radwan’s evidence was
that when the tank, which was made of stainless steel, was put to the test, which must
have been by Nanyang’s men, it bulged out of shape. It was part of the evidence of the
defect in the production line. Chin did not say in what manner Gloveline damaged the
tank. Radwan was not questioned in cross-examination to show that it was Gloveline
that had damaged the tank.

COST OF RAW MATERIALS FOR TESTING THE LINE

30. The trial judge awarded RM37,387.45 for this. Nanyang’s counsel submitted that
no award should have been made because the documents to prove the purchase of
the raw materials were non-agreed documents the makers of which were not called to
testify. Gloveline’s counsel submitted that when testifying on this item Radwan referred
to those documents in support of Gloveline’s claim, but there was no objection from
Nanyang or insistence by them that the makers be called. Therefore the documents
were admitted collectively as exhibit D24. Further, it was submitted that Radwan was
not cross-examined on the documents. Gloveline’s submission amounted to saying
that impliedly the documents had become agreed documents. We accept Gloveline’s
submission.

31. Nanyang’s counsel further submitted that Gloveline had “received a certain sum
of money” from the gloves that were produced from the raw materials. We think the
point was that the amount received should have been deducted from the sum awarded.
There is no evidence of the actual amount that Gloveline received. Radwan in cross-
examination did not give the amount. Page 21 of the notes was referred to by
Nanyang’s counsel, where Radwan said that maybe the production line produced a few
thousand pieces. But it does not appear that he was asked in cross-examination to
state the amount that Gloveline received from the gloves produced. On the other hand,
at page 25 of the notes Radwan in re-examination said that Gloveline only got “a few
dollars” out of the raw materials. In the circumstances, it was not unjust on the judge’s
part not to have allowed any deduction.

GENERAL DAMAGES

32. From the submissions of both counsel, we gather the position to be as follows.

33. Originally, Gloveline claimed RM380,000 in their amended statement of defence


and counterclaim for their loss of opportunity to fulfil their commitments to deliver
gloves to their “waiting customers”, and there was no claim for general damages.
During the trial, after Radwan had been cross-examined, Gloveline’s counsel applied to
amend the counterclaim to include a prayer for general damages. Nanyang’s counsel
said that he did not object, and the amendment was allowed. At the end of the trial, the
learned trial judge awarded RM250,000 as general damages, stating that the sum was
fair and reasonable. He had earlier reduced to RM6,250 the award under the head
under which Gloveline had claimed RM380,000. We have dealt with the award of
RM6,250.

34. A point raised by Nanyang’s counsel was that it did not make sense that after
reducing the claim of RM380,000 to RM6,250 the trial judge should award RM250,000
as general damages. Obviously counsel meant to say that the judge, by making the
reduction, had decided that Gloveline were not entitled to more than RM6,250 for loss
of opportunity to fulfil orders that had been made.

35. As has been seen, the award of RM6,250 was related to the purchase of gloves
by Gloveline from Nanyang in order to fulfil an order or orders and was based
specifically on the price at which Nanyang sold the gloves to Gloveline. But there were
other orders that Gloveline were not able to fulfil at all. Gloveline’s counsel submitted
that the general damages to include which the amendment was allowed was to cover
those other orders, that is, the remainder of the RM380,000 claimed. We agree with
Gloveline’s counsel and we reject the submission of Nanyang’s counsel that awarding
general damages of RM250,000 made no sense.

36. The main argument of Nanyang’s counsel was that there was no evidence to
prove the existence of orders that Gloveline claimed they were not able to fulfil as a
result of Nanyang’s breach of the agreement. As we understand Gloveline’s counsel,
there were documents tendered during the trial to prove the existence of the orders or
contracts, but Nanyang had not included them in the appeal record and therefore
Gloveline should not be prejudiced by Nanyang’s neglect. Furthermore, according to
Gloveline’s counsel, Radwan had referred to a calculation for the sum of RM380,000,
which appears at page 241 of the appeal record, but he was not challenged on the
calculation.

37. We are not disposed to conclude that the trial judge had no evidence on which
to base the award of RM250,000 or that the amount was unreasonable.

38. We therefore dismiss this appeal with costs and order that the deposit be paid to
Gloveline on account of taxed costs.

Legislations
Sale of Goods Act 1957: s.42
Authors and other references
A. Dynowski, Mechanical Completion Handbook (October 2000 Edition)
Representations
CH Foong, Mohamad Zaidi Othman with him ( Messrs L.C. Chong & Co.) for appellant.
Dominic Puthucheary, Feroz Hussain and Shanti Abraham with him (Messrs Muhammad &
Co.) for respondent.

COURT OF APPEAL, MALAYSIA


Medicon Plastic Industries Sdn
Bhd
- vs -
Coram Syarikat Cosa Sdn Bhd
GOPAL SRI RAM JCA 8 MAY 1995
V.C. GEORGE JCA
ABU MANSOR JCA

Judgment
Gopal Sri Ram JCA
1. I have had the benefit of reading the judgment of my learned brother Justice VC George JCA
and respectfully agree that for the reasons stated therein this appeal must be dismissed with
costs. All orders made by the learned Judge in the court below are affirmed. The deposit paid
into court by the appellant is to be paid out to the respondent towards account of its taxed costs.

V.C. George JCA


2. The appellants as plaintiffs had sued the defendants, the respondents here, for damages said to
have been suffered as a result of their purchase of two items of machinery, referred to in the
proceedings as an Alpla hs 40/2000 blow moulding machine and a Boe-Therm temperature
controller respectively, the contract in respect of which sales was entered into by the defendants
as agent for their foreign principals, which machinery it was alleged, in respect of the Alpla hs
40/2000 failed to meet specifications, was not merchantable and was not fit for the purpose it
was bought and in respect of the Boe-Therm was supplied minus what was referred to as a
heating element and as such was not fit for the purpose it was bought. The defendants’ response
to the plaintiffs’ claim, shortly stated, are that they were not liable because they were only
agents for the vendor their principals and that in any event both the machine met the
specifications, were merchantable and fit for the purposes for which they were purchased. It was
further contended that the contract for the sale of each of the machines was for a specified
article under its patent or trade name and that accordingly (invoking the proviso to s 16(1)(a) of
the Sale of Goods Act 1957) or in any event, the plaintiffs had not relied on the defendants’ skill
and judgment and as such there was no implied condition as to the fitness of the equipment. The
defendants contend that if there was anything wrong with the Alpla it was caused by defects in
the fabrication of certain parts needed to commission the machinery the fabrication of which
was the responsibility of the plaintiffs and which in fact were fabricated locally at the instance
of the plaintiffs. In any event the allegation that the plaintiffs suffered damages was denied and
put into issue.

3. The case was initially disposed of by Abdul Razak J who had found in favour of the plaintiffs.
On appeal a retrial was ordered. This was conducted before Shaik Daud J who dismissed the
claim on the first of the many grounds taken by the defendants, that the defendants were not
liable as they were only agents for their principal and had themselves not entered into any
contract with the plaintiffs. Having arrived at that conclusion the learned judge did not
adjudicate the other issues raised although all the evidence that the parties wanted to adduce in
respect of all the issues had been adduced and submissions in respect of them had been made.
The Supreme Court allowed the plaintiffs’ appeal against Shaik Daud J’s decision holding that
the defendants were in fact agents for a merchant resident abroad and were by s 183(a) of the
Contracts Act 1950, presumed to have contracted to be bound by the contract entered into by
their principals and were liable. The case was remitted to the judge for him to adjudicate on the
rest of the issues raised in the trial.

4. This the learned judge did and held:

i. (once again ignoring the s 183(a) presumption) that there was no implied condition of
fitness under s 16 of the Sale of Goods Act 1957 because it was not the defendant who
sold the equipment to the plaintiff;

ii. that in any event the equipment was purchased under its patent or trade mark and
accordingly by virtue of the proviso to s 16(1)(a) of the Sale of Goods Act 1957 there
was no implied condition as to its fitness;

iii. that the major defects complained of in respect of the Alpla were in respect of the mould
fabricated here, not by the defendants but by mould makers commissioned by the
plaintiffs;

iv. that the Alpla functioned perfectly without the moulds and the defendants should not be
held responsible for the malfunctioning of the machine when it was operated with the
moulds;

v. in respect of the allegation that the other machine i.e. the Boe-Therm Temperature
Controller, had been supplied without what was referred to as a heating element, that the
plaintiffs had failed to prove that the machine was to be supplied with such heating
element;

vi. in respect of damages claimed that the plaintiffs had failed to prove the special damages,
that that part of the claim based on a guarantee was untenable and that the claim for loss
of profits is based on mere ‘conjecture’ and fails.

The plaintiffs’ claim was dismissed with costs. The plaintiffs appealed.
5. Counsel for both the appellants and the respondents in the course of the appeal, lead us in the
course of the submissions made, through the whole of the evidence lead and the submissions
that had been made in the court below and we decided that the best way to approach this appeal,
in the circumstances, was to initially ignore, as it were, the learned judge’s written judgment and
review the whole case ourselves always having in mind that the learned judge had had the
advantage of having seen and heard the witnesses.

6. Medicon Plastic Industries Sdn Bhd, the appellants, had been interested in producing in
Malaysia plastic bottles with screw-on caps for the use of medical practitioners for dispensing
medicine. Syarikat Cosa Sdn Bhd, the respondents, were agents for the Austrian manufacturers
of the Alpla hs 40/2000, said to be suitable for the production of plastic bottles that the
appellants intended to produce. By a letter dated 1 March 1977 the respondents gave some
particulars of the machine and the terms of the proposed sale. What was offered was stated to be
an ‘Alpla blow moulding machine type hs 40/2000 suitable for production of plastic hollow
articles, including extruder 40mm diameter, built-in hydraulic system, without additional
attachments’. However, in fact there were some additional attachments specified in the offer,
namely two ‘nitralloy steel screws’ and a ‘single extrusion head’. The price quoted was
DM66,560 CIF Port Klang. The machine was stated to be covered by a “manufacturer’s
guarantee” of six months from date of delivery. The respondents were also agents of the Swiss
manufacturers of the other machine, the Boe-Therm Temperature Controller Type Cool-10
which also was said to have a manufacturer’s guarantee of six months from date of delivery.
This machine was to be operated in conjunction with the Alpla blow moulding machine to
control the temperature of the water used in the Alpla.

7. Orders were placed with the respondents for one Alpla and one Boe-Therm. Soon after delivery,
and before the machines were commissioned, the appellants complained in respect of the Alpla,
both to the respondents and to their principals the Austrian manufacturer. In respect of the Alpla,
the complaints made were that:

i. an instruction manual had not been supplied;

ii. ‘there were no blow pins or cutting sleeves with the machine – ....’; and

iii. there was no ‘bottom deflashing device with the machine’.

A demand was made for the immediate supply of the said three items as well as ‘an assortment
of spare parts’ and ‘a twin cavity 203 blow mould’. It was also pointed out to the respondents
that the ‘blow heads’ as referred to in the packing list were not the ones ordered and that a part
of the machine referred to as a ‘screw’ was rusty. The petitioners also demanded a set of
‘machine tools’. They warned the manufacturers and the respondents that they would hold them
responsible for the delay caused in commissioning the machine because of the lack of the
manual and the said parts.

8. Before moving on, we would straightaway dispose of the invocation by the respondents of s
16(1)(a) of the Sale of Goods Act and the proviso thereto which we reproduce here:

Subject to the provisions of this Ordinance and of any other law for the time being
in force, there is no implied warranty or condition as to the quality or fitness for
any particular purpose of goods supplied under a contract of sale, except as
follows –

(a Where the buyer, expressly or by implication makes known to the seller the
) particular purpose for which the goods are required, so as to show that the buyer
relies on the seller’s skill or judgment, and the goods are of a description which
it is in the course of the seller’s business to supply (whether he is the
manufacturer or producer or not) there is an implied condition that the goods
shall be reasonably fit for such purpose.
(b Provided that, in the case of a contract for the sale of a specified article under its
) patent or other trade name there is no implied condition as to its fitness for any
particular purpose.
9. In England, where there used to be a similar provision and proviso, the cases restricted the
proviso to the point where it only applied if an article was ordered by its trade name – see
Benjamin’s Sale of Goods (3rd Ed) at para 830 where reference is made to Baldry v Marshall
[1925] 1 KB 260 in which Bankes LJ suggested the following test for the operation of the
proviso:

Did the buyer specify it under its trade name in such a way as to indicate tat he is
satisfied, rightly or wrongly, that it will answer his purpose, and that he is not
relying on the skill or judgment of the seller, however great the skill or judgment
may be?
In that same case, Sargant LJ said:

It seems to me that the articles which are dealt with in that proviso are primarily
things like patent medicines and common articles sold under well-known trade
names. In my judgment the proviso does not apply to an article like a motor car,
which is sold under a very elaborate and specific description.
10. In the instant case, PW2 had visited the manufacturer’s factory in Austria to inspect the
type of machines to be ordered. The Alpla that was eventually ordered was ordered because it
was recommended to the plaintiffs by PW2 who, when he had been with a company called
JAAF Trading had purchased and used an Alpla machine. It was ordered with specifications to
meet the plaintiffs’ special requirements. PW2 testified (at p 50 of the record of appeal):

I bought the machinery from defendant. Specifications for the ABM machines was
agreed between me and defendant company (see p 38 of A). This agreement was
reached after some negotiations. This was a continuation of my previous order as
in p 8 of D.
and again at p 51:

I do not agree that I bought a standard ABM. Certain parts of the machine had to
be made specially for us like the double blow head, the bottom deflashing system,
two arms twin cavity mould and associated parts which will include the blow pins,
cutting sleeves, the pins and dies and dye holding brackets, stripper plates.
11. Clearly the plaintiffs had relied on the seller’s skill resulting in there being an implied
condition that the machines would be reasonably fit for the purposes for which they were
required. The situation here was a far cry from a purchase of a bottle of patent medicine or some
common article like an electric iron or even a television set, sold under a popular brand name
where you pick it off the shelf as it were, which is the sort of situation where the proviso could
be successfully invoked. In our judgment the learned judge was wrong in applying the proviso
to s 16(1)(a) on the facts of the instant case.

12. I pause to note that in England, in 1973, as a result of the test suggested in Baldry v
Marshall, the proviso was removed by an amendment to the Act.

13. In respect of the Boe-Therm, the written complaint to the respondents was that it did not
have a ‘separate control device on the left side of the equipment as shown in the leaflet’. Some
time later, the petitioners complained that it did not include a heating element which they
contended was to be included in the machine they had ordered.

14. In response it was pointed out that in respect of the former of the complaints, that the
model delivered was the improved model which did not need the missing control device and as
to the other complaint, that what the respondents had offered, in response to the enquiries by the
appellants, was ‘the Type Cool 10 without heating’. That the machine was to be without the
heating element or section is indeed seen to be the position in the respondents’ letter of 1 March
1977 at p 473 of the record of appeal. The particulars of the Bio-Therm set out in the packing
list sent to the appellants together with the invoice and other shipping documents (at p 496 of
record of appeal) also state that the machine supplied was without the heating element. PW2 the
managing director of the plaintiffs who was the main witness for the plaintiffs relied on the
invoice at p 495 of the record where the words ‘without heating element’ were omitted from the
description of the machine. However the offer (which was accepted) was for the machine
‘without heating’. The invoice in any event does not say otherwise and was delivered with the
packing list in which it was clearly stated that the equipment was without the heating element.
The appellants also sought to rely on what PW2 called a leaflet and on an instruction manual
each of which appears to be for a machine with the heating equipment.

15. However there can be any number of leaflets, brochures, advertisements, letters and so
on but in the final analysis what it comes down to is, what was offered and what was accepted.
Here, as has been seen, the offer expressly excluded the heating section or element and that
appears to be the offer that was accepted. It is important to note that consistent with that, there is
no record of the petitioner taking issue contemporaneously with the respondents or the
manufacturers in respect of the ‘without heating’ aspect of the machine. In his testimony PW2,
referring to the Boe-Therm, said at p 68 of the record of appeal, ‘I agree that nowhere in the
correspondence did I say that the BT–10 should come with the heating system’.

16. In our judgment the plaintiffs had failed to prove that the Bio-Therm was to be supplied
with the heating section or element. The finding of the judge on this aspect of the matter has to
be and is affirmed. Further, and in any event how and to what extent the lack of the heating
element in the Boe-Therm affected the plaintiffs has not been explained or explained with the
clarity expected of a plaintiff suing for damages.

17. Apparently having the heating element in the Boe-Therm would have enabled the
appellants to manufacture the caps for the bottles in the Alpla simultaneously as the bottles were
being made. At p 87 of the record PW2 went on to testify that, ‘If the BT (i.e. the Boe-Therm)
came with heating I could use both the BT as well as the ABM (i.e. the Alpla) simultaneously.’

18. However he went on to say in the next sentence, ‘Even without the heating I could still
use both simultaneously with the aid of my own equipment.’

19. It follows that even if the Boe-Therm was to have come with the heating element,
without any evidence of any reduction of the intrinsic value of the equipment, about all that the
appellants are entitled to in damages is the cost of mitigating the damage i.e. the cost of
bringing to aid PW2’s ‘own equipment’. There is no evidence of such reduction of value or of
such costs or of what using other equipment entailed, in respect of time, inconvenience and so
on. We are of the opinion that the learned trial judge was justified in finding no merit in the
plaintiffs’ complaints (and on the claims arising therefrom) in respect of the Boe-Therm.

20. As to the alleged missing items in respect of the Alpla, the contention of the respondents
was that they were ‘additional attachments’ which it was pointed out, and as has been seen,
were specifically excluded from the written offer made by the respondents. The blow heads, it
was explained without challenge, were in fact the ones required by the petitioners and were as a
result of a typing error erroneously described in the packing list.

21. The manual was replaced on or about 16 December 1977 but the appellants again
complained that it appeared to be for some other model of machine and in any event ‘technical
specification’ with regard to the die, blow pins and cutting sleeves were not included and the
last few pages of the manual appeared to be missing. In respect of this the respondents
contended that the manual was meant for the hs 40/2000 as well as the other model and the die,
blow pins and cutting sleeves had to be fabricated by whoever makes the moulds on the basis of
measurements to be taken by the mould maker.

22. Now the Alpla was eventually commissioned by one Lim Chim Sing who testified as
PW5. He had been at the relevant time a ‘service engineer’ with the respondent company and
testified that he had been sent by the respondents to commission the Alpla.

23. One of the problems in this case was that the witnesses were testifying in 1991 in respect
of events that had taken place well over ten years earlier i.e. from about the end of 1977 and up
to mid 1978. Fortunately, at least as far as the role played by Lim was concerned, there were his
service reports which were produced from which, supplemented by the oral testimony, a fairly
clear picture of the events vis-à-vis the commissioning and malfunctioning of the Alpla can be
discerned. PW2 can be deemed to have expressed his agreement with the contents of each of the
reports, save one, by countersigning them particularly as in one report, in countersigning it,
PW2 noted his disagreement with part of Lim’s opinion.

24. Lim’s earliest report, of 29 November 1977, shows that he ascertained that all the
components of the Alpla as per the packing list has been delivered. The machine was put
together but he notes that it could not be commissioned because of the lack of ‘nozzle blow pin
mould’ and of water and electricity supply.

25. As to the electricity supply, three-phase wiring was required and was not available in
November 1977 at the plaintiffs’ premises where the Alpla was to be installed.

26. Special moulds were needed for each type of bottle to be produced. Each mould had to
be attached to the Alpla with components referred to as a die, a blow pin or nozzle and cutting
sleeve all of which, according to the respondents, had to be fabricated by the mould maker. The
moulds themselves were designed by the manufacturers of the Alpla who supplied the
appellants with drawings of the design on the basis of which the mould maker was to fabricate
the moulds. It was the respondents’ case that it was for the appellants to employ a mould maker
to fabricate the mould as well as the related die, blow pin or nozzle and cutting sleeve. The
plaintiffs on the other hand contend, but not seriously, that it was for the manufacturers to
supply the moulds. The moulds did not come cheap. There is some evidence that some
RM86,792 was incurred by the appellants for the fabrication and supply of moulds that they
needed which alone suggests that it could not have been in the contemplation of the parties that
the fabrication of the moulds were included in the agreed cost of the Alpla of DM66,560 (in
1977 the Ringgit was almost at par with the DM).

27. Consistent with the respondents’ contention that it was for the plaintiffs as a separate
exercise to have the moulds and the related components which had to be custom-made,
fabricated, is the fact that the plaintiffs did ask the respondents to give a quotation for certain
moulds and for the relevant components. But they eventually placed orders with a local mould
maker (who had been recommended to them by the respondents) to manufacture various types
of moulds for them. At p 601 of the record is a letter of the plaintiffs to the mould maker dated
14 August 1981 upbraiding the mould maker in respect of the poor quality of the moulds that
had been fabricated by him for the plaintiffs from as far back as March 1978. We could find
nothing in the contemporaneous correspondence that suggests that the responsibility for
providing the moulds, save one-one ounce mould was that of the respondents. The submissions
made by counsel for the plaintiffs in the court below suggest that it was accepted by the
plaintiffs that the moulds were not part of the contract for the supply of the Alpla.

28. It is our judgment, on the totality of the evidence, that it was for the appellants to have
had the moulds fabricated. It is also our judgment that each set of the pin, die and blow pin or
nozzle and cutting sleeve had to be fabricated together with the relevant mould by the mould
maker, which the plaintiffs caused to be effected using the local mould maker Lee Kum Chuen
who testified as PW4. The one-one ounce mould which was also made by the mould maker,
Lee, but at the instance of the manufacturers of the Alpla was given to appellants gratuitously.
The related pin, die and nozzle and cutting sleeve in respect of this mould does not appear to
have been provided by the respondents and appears to have been fabricated by Lee on the
instructions of the plaintiffs.

29. Now, there is no doubt that the appellants ran into a whole host of problems in respect of
the production of bottles. They put the blame on defects in the Alpla but the manufacturers
contend that there was nothing wrong with their machine. They contend that the problems that
the appellants encountered were, in respect of the initial delay, that the appellants did not have
both the water supply and three-phase electrical wiring which were required for the safe and
proper running of the machine. In respect of the rest of the problems other than delay the
manufacturers and the respondents blamed the poor quality of the component parts of the
moulds i.e. the die, blow pin or nozzle and cutting sleeves. PW2 contended that the poor quality
of those components was because the design drawings of the mould provided by the
manufacturers were faulty. Neither he nor anybody has explained to the court what in fact was
wrong with the drawings that could result in the components to the moulds being faulty. The
mould maker in his testimony had referred to the design drawings. Even he was not asked
whether there was anything wrong with the drawings. Further he had testified that on the
instructions of PW2 he had not followed the drawings ‘100%’ because PW2 had wanted him to
have the shoulders of the bottles ‘more rounded’ than as prescribed in the design drawings.

30. Apart from fabricating the moulds according to the drawings, the mould maker had to
take measurements of the Alpla to fabricate the die, nozzle and blow pin which had to be, as has
been seen, custom made and aligned to fit the machine. Measurements were taken. Lim’s report
of 7 December 1977 shows that he accompanied Lee to the machine for Lee to take the relevant
measurements.

31. It would appear that it was only on 10 January 1978 that the required water supply was
available (electricity was available earlier on 20 December 1977). The report of 10 January
1978 shows that the components for the mould were by then available but they were found to be
‘too big’ and one component fabricated by Lee, that presumably had to be screwed on, had a
right hand thread instead of a left hand thread. The mould maker Lee in his testimony denies
that there was a problem with the thread. But he admitted that one component did not fit
because its diameter was too big. He had to and modified it. He also testified that he had been
ordered by PW2 to modify the one ounce mould. It was put to him that the problems that the
plaintiffs encountered with the Alpla were because of the defects in the fabrication by him of the
moulds and their component parts. He said that they were not defective ‘as they were made
according to the diagram’. However it has to be remembered that earlier in his testimony he had
said that he had not followed the ‘diagram’ 100%. He went on to testify that the component
parts ‘could go wrong in about 10% of the cases and if it went wrong it could be easily
rectified’.

32. Lim’ service report of 12 January 1978 shows that he was back with the mould maker
Lee at the machine, for measurements to be taken to rectify the error in the components Lee had
made. On the next day, 13 January 1978, it was found that the blow pin was still incorrect. Lim
reported, ‘this time the screw in length too short’. On 17 January 1978, Lim reports ‘Blow pin
tested OK and machine running fully automatic on dry cycle’. However on running it on 18
January 1978 with the plastic material that was to be ‘blown’ into bottles, Lim reported:

The material came out from and around the nozzle. It was found that the sealing of
die was incorrect causing it to slant against the pin. Informed client of the mistake
made with the pin and die.
We pause to note again that all these reports were countersigned by the plaintiffs’
representatives PW2.

33. On 19 January 1978, it was again found that the pin was ‘very much slanted’. Some
adjustments were made. Then it was found that the cutting knife which to be effective had to be
heated was not getting heated. Lim found that this was because a electrical relay contact was
dirty.

34. The report of 20 January 1978 shows that at least the machine functioned well until a
faulty switch caused it to come to a stop. On replacing the switch Lim reported that ‘the
machine was running perfectly OK. Customer was very happy with the performance of the
machine’.

35. In countersigning the report two days later on 23 January 1978, PW2 stated ‘the machine
is running well but the material not coming out evenly due to slanting of the “pin”’.

36. The next visit of Lim to the machine appears to have been on 21 February 1978 when
according to his report there were problems which he attributed to the pin and die having been
incorrectly made resulting in the plastic material that ‘extruded’ i.e. forced through the die and
the nozzle, ‘is either slanted or oozing out at the side of the nozzle’. He also wrote that there
were problems because the plaintiffs were using ‘100% recycle material’. This is the one report
that PW2 had refused to sign. By a letter dated 22 February 1978 to the plaintiffs the
respondents reiterated Lim’s opinion that the problems were caused by the incorrectly made pin
and die. Going by the reports, Lim’s next visit was in April 1978. On 4 April 1978 an electronic
switch was changed. Problems found on 7 April 1978, according to Lim were caused by an
electrical short circuit that was caused by the removal of some part of the machine by the
plaintiffs. PW2 noted that that was not true. However it would appear that the machine was
effectively repaired by Lim. On 19 April 1978, Lim found that there was again something
wrong with the electrical supply resulting in ‘shorting’. He also found that one of the three
phases of the electricity supply was not working. On 26 April 1978, he appeared to have
reconfirmed that to be the problem and advised the plaintiffs to refer the matter to the National
Electricity Board. Lim, according to the report, brought in an expert on compressors who on 26
April 1978 confirmed that the motor had been blown out or ‘burnt’ because it was run on only
two phases. All these reports were signed by PW2 without comment. All PW2 could say in his
testimony in respect of this was that he could not understood how this could have happened.
Clearly neither the respondents nor the manufacturers of the machines can be blamed for the
delay in having the machines commissioned. And apart from the dirty electrical contact point
that caused problems in respect of the heating of the cutting knife (which problem was rectified
by cleaning the point) and the faulty switch (which was replaced) all the problems encountered
before the report of 1 August 1978 appear to have been due to either faulty electrical supply
and/or the faulty fabrication of the component parts of the moulds for neither of which the
respondents and/or their principals can be held to be responsible.

37. The next report, the last by Lim, which was dated 1 August 1978, also countersigned by
PW2, sets out the complaints by the plaintiffs which are referred to as ‘minor problems’.

1 August 1978

Presently the m/c is on production but with minor problems still has to be solved.
Problems given by client is as follows:

(1) Intermittent heating of the parrison cutting knife.


(2) Material oozes out through the nozzle together with the support air.
(3) Blow mandrel automatically comes down slowly thus hitting against the
mould after a few cycles of operation.
(4) Extruder screw varies in speed.
(5 Extruder gear box is with only a little quantity of grease as has been removed
) by client during their service. The reason is because the grease tend to seep into
the screw. Advised client as this is not advisable as it might cause further
damage to the gear box. Date for service for the abovementioned has still to be
fixed by client.
38. PW2 in his testimony said the problems set out in this report were never solved. He said:

For the whole of 1978 and 1980 we tried and believed we could call others to
repair the machine as the defendant’s technician was grossly incompetent and did
not know the machine properly, not supplied with proper manual. Every time we
call a technician from other companies first thing he would ask is for the
instruction manual, otherwise they refuse to touch the machine. After that we did
not operate the machine.
39. In cross-examination Lim said that he prepared his reports after he had rectified all the
complaints but on re-examination he said that the defects set out in the 1 August 1978 report
were not rectified ‘because it comes intermittently’. He also said that he did not know if there
were similar complaints after 1 August 1978. ‘It is possible’ he said that the client had attended
to the complaints themselves without reference to him. Items (2) and (3) of the complaints, he
thought, were matters not the problem of the manufacturers.

40. DW1 Durangor Markus was a mechanical engineer working with the people who at the
time of the trial were the manufacturers of the Alpla hs 40/2000 machines. In his testimony he
explained with some clarity as to how the machine functioned. He was referred to the Lim
report of 1 August 1978. In his testimony he dealt with each of the problems. He shared Lim’s
view that the problems were minor problems.

41. As to item (1) the intermittent heating of the parrison cutting knife, he thought that it
must have been a defect in a component called a sleeve and that there could have been a
electrical contact problem both of which he considered minor problems that could have been
easily rectified, by changing the sleeve in respect of the one and by cleaning the contact in
respect of the other.

42. As to item (2) he thought it could have been a mistake in reassembling what is called the
parrison head which in his opinion could easily have been rectified. He also thought it could be
a defect in the nozzle which as has been seen was fabricated as a component of the mould.
43. Item (3) was caused by something being damaged or wrongly adjusted. He thought that
it could have been rectified by changing certain switches.

44. Item (4) he thought should not happen in that in his opinion it was simply a question of
adjusting the speed.

45. As to item (5), i.e. escape of grease from the gear box, he explained that the gear box
was sealed and in any event did not contain grease.

46. In cross-examination this witness testified that all the defects shown in the 1 August
1978 report could have been easily rectified except item 3. We pause here to look again at the
further amended statement of claim to find that the plaintiffs plead that after July/August 1978
the only remaining complaint they had was the lack of the heating element in the Boe-Therm.
Paragraph 10 and 11 of the statement of claim are as follows:

(10 On 28 February the plaintiffs gave notice to the defendants that the (if)
) defendants were unable to correct the defects and put the equipment in
working condition over a period of almost three (3) months the plaintiffs
would itself purchase the missing/defective parts from other suppliers and
repair the equipment as far as was possible to put it in working condition and
thereafter claim all losses sustained from the defendants.
(11 The plaintiffs practically completed the remedial work on the equipment
) which involved fine and tedious adjustments from time to time and began
production in July/August 1978 but one equipment the Boe-Therm
temperature controller continues to be without heating requiring the blow
moulding and injection moulding to be done separately instead of
simultaneously.
47. Paragraph 11 is an unequivocal statement that the difficulties with the Alpla were
surmounted by August 1978. DW1 Durangor Markus’s testimony that the problems set out in
the 1 August 1978 report (referred to therein as minor problems) could easily be rectified is
consistent with the plaintiffs’ said para 11. Significantly the items in the particulars of special
damage claimed in the statement of claim is restricted to the eight months ending in August
1978:

Particulars of special damage

(1) Bank interest for eight months at approximately 10%pa on 5,000


RM75,000 (part purchase price)
(2) Rental paid for premises (RM550 x 7 months + RM750 for
4,600
July 1978)
(3) Salaries and wages to employees for eight months 21,600
(4) Repairs and modifications/ improvisation of parts 15,000
RM46,200
48. It would seem that by ‘repairs modification and improvisation of parts’ the plaintiffs had
surmounted the problems with the Alpla within eight months of the installation of the machines,
i.e. by August 1978 which narrows down the period for judicial enquiry to November 1977 to
August 1978. We pause to note that what exactly was repaired and modified and improvised for
RM15,000 has not been disclosed to the court. Apart from the evidence of DW1, the court had
the opinion of another engineer, PW4 Lim Kim Seng, in respect of the technical aspects of the
Alpla. However, we did not find this expert’s evidence particularly helpful. For one thing he had
not examined the machine while it was operating. Inter alia he pointed out to various aspects of
the machine which he thought were not properly installed. No doubt he ended his testimony by
informing the court, in answer to a question put by the court, that the defects he had highlighted
may have contributed to the malfunctioning of the machine. However there is nothing in the
record which suggests that he was aware what the problems were. Startlingly we find that he
wrote his report on 5 January 1978 at which stage there had been no attempt to commission the
machine because inter alia the required water supply and the moulds and the components of the
moulds were not available!

49. The evidence suggests that at least up to August 1978, each time there was a problem
with the Alpla the service engineer Lim was sent for and as he has set out in written reports
what the complaints were and what if anything he did in respect of them, the court is in a
position to come to a conclusion as to what was the cause of the problems. We have examined
the reports and the related evidence including that of PW2 and we cannot but reiterate that apart
from problems with the electric supply (not the fault of the respondents or the manufacturers),
the substantial part of the problems were caused by defects in the moulds and/or the
components that came with the moulds. Consistent with this finding is the letter to the mould
maker by the plaintiffs’ managing director PW2 dated 14 August 1981 referred to earlier in this
judgment, where he is seen writing with relevance to orders made in early 1978 for moulds:

You have billed us for moulds that have been completed/partly completed or
unsatisfactorily in accordance with our technical drawings and specifications.
The letter goes on to give some particulars of defects in some seven different moulds that had
been fabricated by the mould maker.

50. There was no evidence for the court to hold that the manufacturers’ design drawings
caused the mould maker to make defective moulds and in any event as has been seen the mould
maker’s evidence which was not contradicted was that he had been instructed by the plaintiffs
not to follow ‘100%’ the drawings.

51. Another complaint of the appellants was that the Alpla did not have what was referred to
as a deflashing device. This is a device to cut the ‘tails’ of each bottle as it was blow moulded.
The evidence is far from clear whether the plaintiffs were contending that the device was to be
part of the machine or that the machine did not have a provision for the attachment of such a
device.

52. The respondents had contended without any effective challenge that this deflashing
device was another additional part that had to be ordered separately and which, like the
components to the moulds, had to be fabricated by the mould maker one for each mould
because it had to ‘fit’ the mould concerned if it was to function effectively. In any event there
was no evidence of the extent of damages suffered (if any) as a result of the alleged omission to
provide the alleged missing component.

53. In the face of the lack of clarity in the plaintiffs’ contention in respect of this aspect of
the case and the lack of evidence to support either of the two stands that can be said to have
taken by the plaintiffs in respect of the deflashing device, we have to and hold that there was no
merit in this aspect of the plaintiffs’ complaints.

54. It is our judgment the plaintiffs failed to prove liability on the part of either of the
manufacturers or the respondents. We uphold the learned judge’s judgment ‘that (he) was
satisfied on a preponderance of evidence that the plaintiffs has failed to show that the defendant
or the manufacturers of both the equipment were liable’.

55. The learned judge had gone on to hold that in any event the plaintiffs had failed to prove
the damages as prayed or at all.

56. A claim for damages special and/or general has to be based on evidence of damages
suffered.

57. In respect of the special damages claimed, the learned judge pointed out that ‘sad to say
not one iota of evidence was led by the plaintiffs on any part of the items claimed under special
damages’. In Sum Kum v Devaki Nair [1964] MLJ 74 at p 75, Thomson LP said:

I would, however, add one observation of a general nature. This is by no means the
first appeal this court and its predecessor have had to deal with in which somewhat
insufficient attention has been given at the trial to the question of giving adequate
evidence on the question of quantum of damages. It is for counsel in such cases to
devote a little more attention to that aspect of the matter in future. As Lord
Goddard said in the case of Bonham-Carter v Hyde Park Hotel, Ltd (1948) 64
TLR 177 at p 178:

Plaintiffs must understand that if they bring actions for damages it


is for them to prove their damage; it is not enough to write down
the particulars, and, so to speak, throw them at the head of the
court, saying: ‘This is what I have lost; I ask you to give me these
damages.’ They have to prove it.
58. No attempt or effective attempt had been made to prove the special damages claimed.
The rejection by the learned judge of the claim for special damages is affirmed.

59. There were three heads of damages claimed as general damages. First there is a claim of
RM275,000 said to be reimbursement to be paid to PW1 in respect of a guarantee. Apparently
the plaintiffs had borrowed money from Bank Buruh on the security of a guarantee given by
PW1. The bank had called on the guarantee and PW1 had paid up and apparently expects the
appellants to reimburse him. There is no evidence of any claim in respect of the amount or at all
by the guarantor on the appellants. And in any event the appellant plaintiffs have failed to prove
the nexus between that guaranteed amount and the alleged breaches of the contract vis-à-vis the
Alpla and the Boe-Therm. We agree with the learned judge that this claim as presented was
untenable.

60. Similarly the nexus (if any) between the next claim for 'RM200,000 being paid up
capital .... which was complete dissipated’ and the contract for the purchase of the two machines
(or breaches thereof) has not been shown and it follows that there is no basis for this head of
damages as against the defendants.

61. The last head of the claim for general damages was loss of expected profits of
RM626,606.92 as aggregated for the three years: 1978, 1979 and 1980. Here again what the
plaintiffs did was to throw the figures at the head of the court without proving any of the items
that make up the amount. Further, as has been seen, by para 11 of the statement of claim the
plaintiffs have stated that the problems with the Alpla were surmounted by August 1978. It
follows that if there was loss of profits thereafter it must have been for reasons which have
nothing to do with the respondents or their principals. And even for the period up to August
1978, as far as the evidence goes, it was not as if there was no production at all.

62. Now, what the plaintiffs had relied on were projections made by one Sandanamsamy
(who was not called) and Anthony Segamony, PW2, for the years 1978, 1979 and 1980. These
projections appear to have been made to support the plaintiffs’ application to the bank for credit
facilities and which appears to have been made sometime before the plaintiffs decided to invest
in the machines. In cross-examination, PW1 the chairman of the plaintiff company, said with
reference to the projections:

The projections were prepared by Anthony Segamony – when he made the


projections the company had not secured any contracts for the supply (of) plastic
bottles. The projections were made partly for the purposes of bank facilities.
63. There is no evidence of contracts for the supply of bottles having been entered into,
before or after the machines were commissioned or at all. Actual figures in respect of inter alia
production and sales in 1978 were not divulges to the court. It would seem that there were no
audited accounts after 1976. The explanation given for this is startling – they did not have the
funds to have the accounts audited!

64. In Cullinane v British ‘Rema’ Manufacturing Co Ltd [1954] 1 QB 292 on the failure
of a clay pulverising machine to pulverise at the warranted rate, it was held that the buyer of the
machine was not entitled to claim damages based both in respect of the capital expended and
also for loss of profits. Which is what the plaintiffs here have tried to do, claiming both the
capital ‘dissipated’ as well as loss of profits. As to loss of profits Jenkins LJ said at p 308 of
Cullinane:

.... the case is one in which the plaintiff can claim damages for the breach of
warranty, the loss of profit he can show that he would have made if the plant had
been so warranted.

[emphasis added]
65. The projections to be worth anything should have been backed by evidence of inter alia
wages to be incurred; for example employment contracts, costs of materials e.g. quotations
from suppliers, actual prices at which medical practitioners purchased bottles and so on. In the
absence of such evidence or of the like, the basis of the projections and the projections
themselves appear to be mere speculation on the part of PW2 and Sandanamsamy. The learned
judge was perfectly justified in rejecting them as being mere ‘conjecture’.

66. The plaintiffs having failed to prove liability and in any event having failed to prove that
damages were suffered, we uphold the learned judge’s decision that the claim should be
dismissed with costs. It follows that the appeal has to be and is dismissed with costs.

Abu Mansor JCA


67. As a member of this panel, I have considered this appeal. My decision is the same as that
of my learned brother, VC George JCA. I have had the benefit of reading his judgment, and I
respectfully agree that for the same reasons stated therein this appeal must be dismissed with
costs. All orders made by the learned judge in the court below are affirmed. The deposit paid
into court by the appellant is to be paid out to the respondent towards account of its taxed costs.

Cases
Baldry v Marshall [1925] 1 KB 260
Cullinane v British ‘Rema’ Manufacturing Co Ltd [1954] 1 QB 292; [1953] 2 All ER 1257; [1953] 3
WLR 923
Sum Kum v Devaki Nair [1964] MLJ 74

Legislations
Contracts Act 1950: s.183
Sale of Goods Act 1957: s.16

Authors and other references


Benjamin’s Sale of Goods (3rd Ed)

Representations
A Kanesalingam (Kanesalingam & Co) for the appellants.
Y.M. Chin (Allen & Gledhill) for the respondents.

Notes:-
This decision is also being reported at [1995] 2 MLJ 257.
Suit No S2–22–57 of 1996

HIGH COURT OF MALAYA


Sunrise Bhd
- vs -

Coram L & M Agencies Sdn Bhd


R.K. NATHAN J 24 MAY 1999
Judgment[a]
R.K. Nathan J
1. FACTS
1. The first plaintiff is a developer and was responsible for the development of a mixed
condominium and commercial development known as the Mont Kiara Pines (‘the project’). The
second plaintiff was at all material times a related company of the first plaintiff and was
engaged by the first plaintiff as the main contractor for the construction of the said project. The
second plaintiff acquired two new tower cranes from the defendant to facilitate the construction
of the two condominium towers within the said project known as Scott and Everett Towers. The
acquisition of the said two tower cranes from the defendant was subject to an equipment sales
agreement dated 12 February 1991 and a maintenance service agreement dated 31 May 1991.
Many meetings were held between the second plaintiff and the defendant prior to the execution
of both the said agreements.

2. The tower cranes purchased by the second plaintiff from the defendant were manufactured in
China under licence from the French Potain Company and known as Yangong-Potain Topkit
F0/23B. The defendant admitted through one Chan Fook Meng (DW1) and who represented the
defendant both in the pre-agreement negotiations and in court, that the tower cranes sold were
new. It is also undeniable that the defendant knew that the said tower cranes were required for
the construction of the said project and that the second plaintiff was the main contractor. The
said tower cranes were brought in pieces and assembled on the first plaintiff’s site sometime in
July 1991 and the Factories and Machineries Department’s approval was subsequently obtained.
The full purchase price of RM1,378,000 was paid by the second plaintiff to the defendant for
the said two tower cranes. The said two tower cranes were commissioned at the work site on 15
May 1991 and stationed at the Scott & Everett tower blocks of the said project.

3. The second plaintiff’s case is that the two tower cranes frequently broke down and were
inoperable for long periods of time causing serious loss and delay in the completion of the said
project. The plaintiffs contended that there was a 42-day delay.

4. The plaintiffs also contended that in breach of the sale and purchase agreement the tower cranes
were not reasonably fit for the said purpose or that they were of merchantable quality. The
second plaintiff thus relied on s 16(1)(a) of the Sale of Goods Act 1957 (‘the Act’).

5. The second plaintiff also rested its case upon a breach of the preventive maintenance service
contract for failing to provide trained and experienced technicians to service and to repair the
defects in the said two cranes.

6. By a letter dated 18 March 1992 from its solicitors, the second plaintiff notified the defendant
through its then solicitors that the preventive maintenance service agreement was terminated
and that the second plaintiff would hold the defendant liable for the damages suffered by the
plaintiffs. It is also the case of the second plaintiff that because of the said 42-day delay in
completing the project the second plaintiff had to extend the services of its main sub-contractor,
one Mivan Far East Sdn Bhd (Mivan) (formerly known as Spire Far East Sdn Bhd) and claimed
the sums it had paid to Mivan. Alternatively the second plaintiff argued its case based on
negligence and breach of statutory duty on the part of the defendant or its servants or agents.

7. In its pleadings the first plaintiff based its claim for loss and damages suffered by it consequent
to the 42-day delay and prayed for general damages to be assessed. However, in its submission
the first plaintiff argued for a claim based on pure economic loss.

2. THE CLAIMS
8. The second plaintiff therefore claimed as follows:

1. (a) Additional costs of repairs and rectification works on the tower crane at
Scott Tower amounting to RM62,749.06.
(b) Additional costs of repairs and rectification works on the tower crane at
Everett Tower amounting RM35,452.33.
(c) Additional costs of payments to Mivan for the extended completion of 42
days amounting to RM524,331.12.
2. Alternatively a claim based on negligence/ breach of duty for the loss and
damages suffered.
9. The first plaintiff claimed for damages arising out of pure economic loss.

10. Both parties prayed for interest and costs.

3. THE DEFENCE AND COUNTERCLAIM


11. The defence pleaded that the said two tower cranes were sold as second-hand used
cranes of Chinese make and that there was no condition or warranty as to fitness as alleged or at
all. The defendant contended that the breakdowns if any were caused or contributed to by the
acts and/or omissions on the part of the second plaintiff and/or its servants or agents and alleged
various particulars of negligence as against the second plaintiff. Whilst denying the second
plaintiff’s claim to negligence the defendant also argued that it owed no legal duty to the first
plaintiff. The defendant also argued that there is no privity of contract between the first plaintiff
and the defendant and that the first plaintiff had no locus standi to claim against the defendant.

12. The defendant thus counterclaimed for a sum of RM105,215.45 being the outstanding
sum due for services rendered and goods sold and delivered to the second plaintiff and also
sought interest at the rate of 1.5% per month on the said sum claimed to be calculated
commencing 30 days after the invoices were dated and until full settlement with costs.

4. COURT'S FINDINGS

4.1 THE FIRST PLAINTIFF'S CLAIM


13. I shall deal with the first plaintiff’s claim of economic loss against the defendant. This
claim although not pleaded as such in the statement of claim is only taken up in submission.

14. Firstly it is trite law that a defendant must know the case he has to face. By merely
pleading ‘general damages to be assessed in respect of loss and damages suffered by the first
plaintiff company’ does not entitle the first plaintiff to launch a claim for pure economic loss, by
way of its submission.

4.1.1 Economic loss

15. The claim of economic loss has its origin in tort.

16. There are numerous ways whereby one party might interfere with another party’s
finance or property. Intentionally interfering with a person’s business can give rise to a claim of
passing off, of contract, of conspiracy to injure. However, a mere intention to inflict a business
loss ‘without anything more’ cannot be actionable for it is obvious that the very purpose one
enters into competitive trade with others is to make a profit at the expense of one’s rival.
However, the court will scrutinise the conduct of the party to see if there is any act or omission,
upon the conduct of the defendant that is likely to give his conduct the characteristics of a tort;
this is what is meant by ‘without anything more’. A clear case of a claim for financial loss or
economic loss is an instance where such loss is caused by an ultra vires administrative conduct,
or where a solicitor’s negligence causes loss to a person who is not a client or where a builder or
manufacturer is sued by a subsequent purchaser for the cost of putting right a defect in a
building. Case law is rife with authorities that show that a claim for economic loss is founded in
tort.

17. But in this case the only plea in negligence as found in the pleadings is a claim in the
alternative made on behalf of the second plaintiff in negligence/breach of duty as against the
defendant. There is no plea in negligence made by the first plaintiff as against the defendant. In
its submission the first plaintiff relies on ‘breach of the duty by the defendant’ but unfortunately
there is nothing pleaded as against the defendant in respect of this alleged breach of duty. On
this ground alone this claim by the first plaintiff must fail.

4.1.2 Remoteness

18. Even if I were to consider this claim by the first plaintiff, I must also hold that it fails on
the principle of remoteness. The first plaintiff contends that the second plaintiff was its related
company as there were common directors and common shareholders and no doubt this was
supported from the extracts of the annual return of the first plaintiff and the share allotments and
directorships of the second plaintiff. It was because of this relationship that there was no written
contract between the first plaintiff and the second plaintiff. The first plaintiff’s argument, that if
it had sued the second plaintiff for the delay it would seem improper as the parties were
interrelated and allegations of manipulation and doctoring of records could be levelled against
both the plaintiffs by the defendant and that in any event, surely if there had been a claim by the
first plaintiff as against the second plaintiff, the latter would have conceded to the claim, thus
reinforcing the suspicions of conspiracy are totally unacceptable arguments. Even if the first
plaintiff had indeed obtained consent judgment as against the second plaintiff, by no stretch of
the imagination can such consent judgment be enforced against the defendant. The first plaintiff
when seeking recovery as against the defendant must still prove its claim as against the
defendant.

19. Here there is clear admission by the first plaintiff that it had suffered no loss. There was
no evidence of any claim made against the first plaintiff by the individual condominium
purchasers. Whilst no doubt there exists the proximity relationship between both the plaintiffs
as to tie the defendant into falling in line with the decision of the House of Lords in Junior
Books Ltd v Veitchi Co Ltd [1982] 3 All ER 201, yet that alone is insufficient. It was the case
of the first plaintiff that if both the plaintiffs were not related companies there would have been
a claim instituted for damages for late delivery against the second plaintiff by the first plaintiff
and that such damages would have been recoverable from the defendant. But the truth of the
matter is there is no claim instituted against the second plaintiff by the first plaintiff for late
delivery and there is no way in which this court can therefore consider the eligibility of the first
plaintiff to launch this claim by way of economic loss. There is no known loss suffered by the
first plaintiff. I do not have to therefore even consider the evidence of PW6, the Finance
Manager of the first plaintiff, in respect of such alleged loss. Even if I were to consider the
evidence of PW6, his evidence is purely based on suppositions. He testified that the first
plaintiff suffered loss caused by the delay because payments by purchasers are usually
progressive and therefore any delay on the part of the second plaintiff in getting the works
certified by the architect would mean that the first plaintiff would not be able to receive the
progress payments from the purchasers. Surely such evidence if existing could have been easily
available to the first plaintiff who could have tendered as an agreed document the details of the
progress payments of its purchasers showing any late payment, if any. Again he testified that
10% of the purchase price usually paid upon signing of the agreement, is also not paid
progressively. But again there is no evidence of this. He gave guess-work evidence of the
interest paid by the first plaintiff on the financial facilities it had obtained for the project. He
said the interest rate was in the region of 10.5%. He also guessed that the prevailing interest
rates for fixed deposit during that period was between 6-8% p.a. I reject his computation of the
first plaintiff’s loss at RM18,540.05 per day which based on the 41-day delay, he computed at
RM760,141.99. I therefore dismiss the first plaintiff’s claim as against the defendant with costs.

4.2 THE SECOND PLAINTIFF'S CLAIM


4.2.1 Section 16(1)(a) of the Act

20. The said section reads as follows:

16.Implied condition as to quality or fitness.

(1 Subject to this act and of any other law for the time being in force, there is
) no implied warranty or condition as to the quality or fitness for any
particular purpose of goods supplied under a contract of sale, except as
follows –

(a Where the buyer, expressly or by implication makes known to the seller


) the particular purpose for which the goods are required, so as to show that
the buyer relies on the seller’s skill or judgment, and the goods are of a
description which it is in the course of the seller’s business to supply
(whether he is the manufacturer or producer or not) there is an implied
condition that the goods shall be reasonably fit for such purpose:

Provided that, in the case of a contract for the sale of a specified article
under its patent or other trade name there is no implied condition as to its
fitness for any particular purpose.
21. The second plaintiff relied on this section on the basis that the said two tower cranes
were purchased and that the express terms and conditions of the purchase are clearly spelt out in
the equipment sales agreement dated 12 February 1991 and the maintenance agreement dated
31 May 1991.

22. In s 16(1)(a) there would be an implied condition that the goods purchased shall be
reasonably fit for the purpose for which it was acquired. Summarising the provisions of the said
section, Zakaria Yatim J (as he then was) held in Union Alloy (M) Sdn Bhd v Sykt
Pembenaan Yeoh Tiong Lay Sdn Bhd [1993] 3 MLJ 167 that there were four pre-conditions
which must be satisfied before s 16(1)(a) of the Act could be applicable. He itemised the said
four pre-conditions as follows:

(a) The buyer must make known to the seller the particular purpose for which the
goods are required;
(b) It must be shown that there was reliance by the buyer on the seller’s skill and
judgment, and the buyer must in fact rely on the seller to supply suitable
goods;
(c) The goods must be of a description which it is in the course of the seller’s
business to supply; and
(d) If the goods are specific, they must not be sold under their patent or trade
name.
23. As found by the learned judge in Union Alloy, I too am of the view that condition (a)
which relates to the particular purpose for which the goods are required can be implied by the
buyer making known to the seller either expressly or by implication the particular purpose for
which the said two tower cranes were needed. I accept the evidence of the plaintiffs’ witnesses,
namely, PW3, PW4 and PW5, that they had at all times during the negotiations, informed DW1,
the defendant’s representative, that the tower cranes were required for the construction of the
condominium towers at the project. In fact it was a condition of the sale of the tower cranes that
the defendant would be responsible for the commissioning of the tower cranes and obtaining the
approval from the Factories and Machineries Department. Although the second plaintiff was
only incorporated on 22 January 1991 the parties involved in the negotiations were from the
first plaintiff and seconded to the second plaintiff on incorporation.

24. As for the second pre-condition relating to ‘reliance by the buyer of the seller’s skill and
judgment’, I also accept the view expressed by Zakaria Yatim J (as he then was) when he
accepted Lord Pearce’s views in Hardwick Game Farm v SAPPA [1968] 3 WLR 110 at p 115
wherein the latter said:

.... The whole trend of authority has inclined towards an assumption of reliance
wherever the seller knows the particular purpose ... .
25. To my mind it is nothing more than common sense. If the defendant knows the purpose
for which the plaintiff needs the particular goods then it is clear that the plaintiff is relying on
the seller’s skill and judgment to supply the suitable goods to cater for the particular purpose for
which the goods were required. There is no doubt in my mind that the defendant well knew that
the second plaintiff wanted the tower cranes to facilitate the construction of the condominium
tower blocks at the project. The defendant also well knew that the sole purpose of the tower
cranes was the vertical transportation of materials and equipment to the upper construction site
to facilitate the building of the tower blocks. PW1’s expert evidence on this is very clear.

26. With regard to pre-condition (c) it is clear from the pre-sale negotiations and the
brochure from the defendant, that the two tower cranes fitted the description of the goods which
were sought for and supplied by the defendant. In fact DW1 readily admitted in cross-
examination that the defendant was in the business of selling tower cranes. As to the pre-
condition (d), it is my judgment that the mere fact that the tower cranes sold had a trade name
and the fact that it was described in the contract by its trade name of Yangong-Potain, would not
exclude the operation of the implied condition. In Union Alloy Zakaria Yatim J (as he then was)
accepted and adopted the speech of Sargant LJ in Baldry v Marshall [1925] 1 KB 260 at p 269
wherein his Lordship said as follows:
The proviso rather applies to a ‘sale of a specified article under its patent or other
trade name’, and it seems to me that the sort of mischief it was intended to prevent
was this: It is well known that patent medicines and articles sold under trade
names are often sold under puffing or laudatory names, which imply that the
article will perform a definite function satisfactorily. Suppose a hosier were to
offer for sale some hose as ‘holeproof hose’, and a purchaser were to send him an
order for holeproof hose, I think it is clear that the purchaser would under ordinary
circumstances be relying on the skill and judgment of the vendor to sell him an
article which would have the quality implied in its name. But if there is on the
market a well-known article known as holeproof hose, then it seems to me that the
proviso is aimed at preventing an order of that article under its laudatory name
from raising the implication that the buyer is asking the seller to supply him with
something which will fulfil the requirements indicated by the name. I do not say
that that is the only purpose of the proviso, but I think it is the main purpose.
27. This passage very succinctly describes the applicability of the two tower cranes for the
purpose of the project which was to transport materials to the required height. In so far as the
second plaintiff is concerned it is well content and rests assured that the defendant had bought
the right goods and of good quality. I am of the view that since the plaintiffs were familiar with
the French-made Potain tower cranes and since they were informed that these China-made
Yangong-Potain cranes were made in China under licence, the plaintiffs were entitled to assume
that the said two tower cranes were of similar merchantable quality. In any case in respect of the
proviso to s 16(1)(a) of the Act the Court of Appeal in Medicon Plastic Industries Sdn Bhd v
Syarikat Cosa Sdn Bhd [1995] 2 MLJ 257 held that the plaintiffs had relied on the defendants’
skill resulting in there being an implied condition that the machines would be reasonably fit for
the purposes for which they were required and that the situation in the said case was a far cry
from the purchase of a common article sold under a popular brand name which is picked off the
shelf, and which is the sort of situation wherein the proviso under s 16(1)(a) of the Act could be
invoked. In fact the plaintiffs relied on the assurances of DW1 that after replacing the various
electrical components the said two China-Potain tower cranes would be reliable and be of
similar quality as that of the French-made Potain tower cranes. In fact by their letter dated 6
October 1990 (see 1 CABD 31) the defendant confirmed that all fuses would be replaced with
circuit breakers when the crane would arrive in Singapore. I therefore have no hesitation in
holding that the second plaintiff had relied on the seller’s skill in that upon replacement of
certain electrical parts the tower cranes would be reliable and thereby raising an implied
condition that the said two tower cranes would be reasonably fit for the purpose for which they
were required.

28. I have no hesitation in accepting the evidence of PW1, Lesley Peter Shaw, a registered
Electrical Inspector from New Zealand, called by the plaintiffs as an expert to testify with
regard to the cranes. He had inspected the two tower cranes. He confirmed having worked
extensively on tower cranes in New Zealand, Australia, Fiji, Singapore, Malaysia, Thailand and
Vietnam and had also worked with various different makes of tower cranes. He confirmed
preparing a report although the introduction and closing paragraphs of the said report were
written by someone else. However, the technical details in the report were written by him.

29. This witness confirmed that he was of the opinion that the tower cranes were second-
hand stuff based on the general deterioration of the cranes in common with previous use and
further there was paint damage, rust, corrosion, parts were broken and parts missing. This
witness categorised eight major problems after inspecting the tower cranes. They were:

(1 Wrong transformer installed in the cabin control panel which meant that the
) tower cranes were working on the wrong voltage different from that specified
by the manufacturer.
(2
The weather vane system would not work.
)
(3 The crane drives could not select the third speed ‘In’ for the trolley which
) meant that the second speed was being used in excess of normal operation,
contributing to overheating of the trolley motor and slowing down the operation
of the crane.
(4 two of the three phase terminations of the main supply cables were burnt and
) was intermittently short circuiting between the metal parts of the terminals. In
effect because of this problem, the cable was under strain and severely stressed
by the incomplete cabin entry ladder and could result in severe damage to the
hoist electrical components, damage to the main cables and hoist operations
failure. The phase imbalance may also result in a burnt-out motor.
(5) There was a burnt-out short circuited resistor in the hoist speed control circuit.
There was a wire wound resistor connected across the diode bridge which
could cause the failure of the hoist speed control.
(6) The electrical protection and safety device was by-passed and because of this
the crane would be prone to overheating problems.
(7) The hoist motor was overheating when the tower cranes were in operation and
the motors smelled to be very hot.
(8) The wiring in the hoist control was burnt and short circuited and could result in
the tower cranes being inoperable.
30. PW1 explained and I accept that the defects in the tower cranes meant that their
operations would be considerably reduced in efficiency by the ‘downtime’ caused by trip outs
due to the overheating and not counting of course the time lost due to the resultant repairs and
subsequent maintenance. There was no challenge from the defendant’s own operators of the
cranes to PW1’s evidence that the tower cranes were poorly maintained and that the persons
involved in the setting up of the cranes did not fully understand the electrical systems and that
the mechanical cooling system and overheating motor problems were design flaws which did
not work as required in the ambient temperature at the site with a reading of 30C. I also accept
PW1’s unchallenged evidence that the Chinese made Potain tower cranes were not as well
constructed mechanically nor electrically as the French built cranes. In respect of the tower
cranes he had inspected there was evidence of poor welding and distorted mast panel
fabrication, and that the hoist motors’ overheating problem was an indication of poor design and
manufacture. He also established that there was also hoist gearbox noise and vibration and
indications of a bent hoist drum shaft which he opined emanated from poor construction. Under
cross-examination he maintained that his inspection was carried out after the said two tower
cranes had been in use for about six months. He maintained that the length of time of use and
the frequency of use would have no effect in assessing the workability of tower cranes, but the
quality of the parts, the manner of the operations of the tower cranes and their maintenance
would affect their performance. In respect of the eight problems he had earlier identified, he
maintained that items (1) and (3) would make the crane operate poorly or inefficiently. Items
(4), (6), (7) and (8) would render the crane inoperable whereas item (5), although not rendering
the tower cranes inoperable would cause difficulty for the driver to control it. Since the
condition of the tower cranes was so bad, he opined that they were second-hand tower cranes.
This testimony was not challenged.

31. DW1 was subjected to serious cross-examination regarding the maintenance work
carried out by the defendant. If this was indeed so, I fail to understand why the defendant did
not call any of its technicians to show proof of consistency of maintenance. Although reference
was made by DW1 to the existence of technical personnel of the defendant, yet none was called.
In any case the only witness called, namely, DW1, admitted that he was not an expert in tower
cranes and was only involved in the sales and was partly involved with the maintenance.

32. PW2, the Group Maintenance Manager of the first plaintiff and who was seconded to the
second plaintiff to take charge of the maintenance work in respect of the development of the
said project testified that the two China-made Potain tower cranes at the Scott and Everett
Towers were always giving problems. He also testified that the said tower cranes frequently
broke down and that the response time from the defendant in respect of general maintenance
and repairs were inadequate and that the electrical circuits tripped and that the motors were
always giving problems. He also confirmed having sent numerous letters of complaints to the
defendant, which letters he identified in the Common Agreed Bundle of Documents (CABD).
PW3, a civil engineer by profession, testified for the plaintiff that despite the preventive
maintenance service contract with the defendant, the defendant had delayed in sending the
repair crew to make good the repairs to the cranes and even when they came, the said
technicians who attended to the repairs could not handle the problem. That was why the said
agreement was terminated.

33. Finally, I must point out that whilst DW1 led evidence that the two tower cranes were
new the defence pleaded states that ‘the tower cranes were sold as second hand used cranes of
Chinese make and there was no condition or warranty as to fitness as alleged or at all’. The
defendant’s evidence, totally contradicts the pleaded defence. I am satisfied that the second
plaintiff has indeed established a case against the defendant under s 16(1)(a) of the Act.

4.2.2 Can the second plaintiff also sue in tort?

34. In its statement of claim the second plaintiff stated in para 24 as follows:

24. In the alternative, the loss and damage suffered by the second plaintiff was
caused by the negligence/breach of duty of the defendants, their servants or
agents.

Particulars

(1) The defendant company failed to ensure that the tower cranes provided
were of suitable quality for the construction of the tower blocks.
(2) The technicians provided under the maintenance contract were not
sufficiently trained or skilled to handle the breakdowns suffered in the
tower cranes.
(3) The service technicians failed, neglected or refused to carry out their
duties.
(4) The service technicians failed to make prompt repairs and rectification.
35. Having so pleaded, the second plaintiff submitted that in the light of the defendant’s full
knowledge of the user of the tower cranes purchased from the defendant, the defendant could
reasonably have foreseen the damage that the second plaintiff would suffer in the event the
tower cranes supplied were not of good quality and not maintained properly. This imposed a
proximity direct enough to impose a duty of care by the defendant to the second plaintiff.

36. In response to this the defendant referred the court to the Privy Council decision in Tai
Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1985] 2 All ER 947 (PC) and repeated
the words of Lord Scarman at p 957 which reads:

Their Lordships do not believe that there is anything to the advantage of the law’s
development in searching for a liability in tort where the parties are in a
contractual relationship. This is particularly so in a commercial relationship.
Though it is possible as a matter of legal semantics to conduct an analysis of the
rights and duties inherent in some contractual relationships including that of
banker and customer either as a matter of contract law when the question will be
what, if any, terms are to be implied or as a matter of tort law when the task will be
to identify a duty arising from the proximity and character of the relationship
between the parties, their Lordships believe it to be correct in principle and
necessary for the avoidance of confusion in the law to adhere to the contractual
analysis: on principle because it is a relationship in which the parties have, subject
to a few exceptions, the right to determine their obligations to each other, and for
the avoidance of confusion because different consequences do follow according to
whether liability arises from contract or tort, e.g. in the limitation of action. Their
Lordships respectfully agree with some wise words of Lord Radcliffe in his
dissenting speech in Lister v Romford Ice and Cold Storage Co Ltd [1957] 1
All ER 125 at 139, [1957] AC 555 at p 587. After indicating that there are cases in
which a duty arising out of the relationship between employer and employee could
be analysed as contractual or tortious Lord Radcliff said:

Since, in any event, the duty in question is one which exists by


imputation or implication of law and not by virtue of any express
negotiation between the parties, I should be inclined to say that
there is no real distinction between the two possible sources of
obligation. But it is certainly, I think, as much contractual as
tortious. Since, in modern times, the relationship between master
and servant, between employer and employed, is inherently one of
contract, it seems to me entirely correct to attribute the duties
which arise from that relationship to implied contract.
Their Lordships do not, therefore, embark on an investigation whether in the
relationship of banker and customer it is possible to identify tort as well as
contract as a source of the obligations owed by the one to the other. Their
Lordships do not, however, accept that the parties’ mutual obligations in tort can
be any greater than those to be found expressly or by necessary implication in their
contract. If, therefore, as their Lordships have concluded, no duty wider than that
recognised in Macmillan and Greenwood can be implied into the banking contract
in the absence of express terms to that effect, the respondent banks cannot rely on
the law of tort to provide them with greater protection than that for which they
have contracted.
37. The defence thus argued that based on this decision it would be wrong for the second
plaintiff to mix its causes of action with tort when what the second plaintiff essentially is
seeking is a contractual remedy.

38. To my amazement, counsel for the second plaintiff readily conceded to his submission
relying upon Tai Hing Cotton Ltd that ‘the second plaintiff cannot proceed in tort against the
defendant’. I do not think that Lord Scarman intended to state that where there is a contractual
relationship existing between two parties, their respective remedies lie in contract and not in
tort. It is just that as a point of avoiding confusion the Privy Council did not wish to embark
upon an investigation as to whether there can also be a cause of action in tort when the
relationship seems clearly indicative of a contractual liability. That there can also be
consideration towards obligations similarly arising in tort is shown by the readiness of their
Lordships to confine the mutual obligations arising in tort, to be no ‘greater than those to be
found expressly or by necessary implication in their contract’.

39. In the light of the second plaintiff’s concession and subsequent abandonment of its claim
in tort I shall make no further comment on this issue.
4.2.3 Loss suffered by the second plaintiff

40. The second plaintiff contends that because of the breach of s 16(1)(a) of the Act the
tower cranes were rendered inoperable for a total of 41 days and this resulted in losses to them.
PW3, the Project Manager of the first plaintiff and who was seconded to the second plaintiff
upon the latter’s incorporation, informed the court that the second plaintiff appointed Mivan
(formerly known as Spire Far East (M) Sdn Bhd) as the main contractor for the project.

41. PW3 testified that cl 7.1 of the agreement read together with Part 5 of the appendix
governs the computation of payments based on the unit price in the Bill of Quantities for each
tower sub-contracted would be reduced by 1/6th of 1 sen for each day of delay, and that there
would be a fixed down time compensation of RM2,200 per day for Mivan for overheads
incurred on the formwork equipment.

42. PW3 also testified that there was a final payment certificate No 18 in respect of the
contract between the second plaintiff and Mivan. He also explained that variation order No 4
was for the purpose of paying compensation to Mivan for the delay caused in completing the
project. PW3 referred to Mivan’s letter dated 24 February 1996. The total number of days of
delay was agreed at 64 days and amounted to a sum of RM963,833.80 for Scott and Everett
Towers and this amount was reduced to RM817,706.88 which was paid by a variation order No
4. PW3 further testified that out of the 64 days’ delay 41 days were attributable to the tower
cranes and this was based on the summary provided by Mivan. He also testified that after
receiving the claim by Mivan he proceeded to check with the second plaintiff’s site record and
confirmed personally that 41 days were attributable to the down time in the tower cranes. The
second plaintiff merely submitted that the second plaintiff paid Mivan compensation amounting
to RM523,843.47 and that therefore for 41 days’ delay the average was at the rate of
RM12,776.67 per day of down time.

43. I am at a loss to understand how counsel arrived at this figure. No reference has been
made to any payment or voucher in the six volumes of CABD relating to the sum of
RM523,843.47. It is totally improper to make such a submission without guiding the court.

44. The main complaint of the second plaintiff was the alleged frequent breakdown of the
cranes. In its statement of claim the second plaintiff set out the particulars of delay and alleged
that between November 1991 to 19 January 1992 there were 42 days of delay which they
attributed to the breakdown of the tower cranes. It is to be noted that the said particulars were
extracted from the records kept by Mivan. However, under cross-examination PW2, the
Maintenance Manager, testified that in respect of the tower crane at the Scott Condominium site
according to the records kept by Mivan a total of 15 days were attributable to crane breakdown
for the month of November 1991 to January 1992 and for the tower crane at the Everett
Condominium, the total number of days was 14.

45. I find that the second plaintiff did not produce or keep any record of the alleged delay
caused by the breakdown of the tower cranes. The second plaintiff chose to rely on the records
kept by Mivan and yet the second plaintiff failed to call anyone from Mivan to testify in respect
of the said records. This is all the more relevant when the particulars of delay pleaded in the
statement of claim are different from the amount of days of delay admitted in court.

46. In Bank Bumiputra (M) Bhd Kuala Terengganu v Mae Perkayuan Sdn Bhd [1993]
2 MLJ 76, the then Supreme Court held that:

The consequences of a breach of contract are governed by s 74 of the Contracts


Act 1950, which states:

(1 When a contract has been broken, the party who suffers by the breach is entitled
) to receive, from the party who has broken the contract, compensation for any
loss or damage caused to him thereby, which naturally arose in the usual course
of things from the breach, or which the parties knew, when they made the
contract, to be likely to result from the breach of it.
(2 Such compensation is not to be given for any remote and indirect loss or
) damage sustained by reason of the breach.
47. However, it is my judgment that the second plaintiff has failed to establish the precise
number of days of delay that can be attributable to the defendant’s breach. To illustrate, at 2
CABD 105 Mivan made a claim of 6 days’ delay for the period from 2 November 1991 to 24
November 1991 in respect of the Scott Block, yet it is obvious from a perusal of the said
document that out of the six days’ delay only three days have been attributed to tower crane
breakdown.

48. This court is therefore unable to ascertain the actual number of days of delay caused
directly by the defendant’s fault and further this court is unable to accept the plaintiffs’
quantification of the sum of RM523,843.47 in the absence of satisfactory proof of how they
arrived at that figure. Even if that sum is hidden somewhere in the labyrinth of the six volumes
of Agreed Documents it has not been shown to me how much of loss is to be calculated per day.
The second plaintiff’s arbitrary division of the sum of RM523,843.47 by 41 days to arrive at
RM12,776.67 loss per day is unacceptable.

49. In respect of the other two claims amounting to RM62,749.06 and RM35,452.33 being
the sums claimed as rectification costs, under the equipment sales agreement the warranty
period against manufacturer’s defects was 12 months from the date of receipt of the written
consent from the Factories and Machineries Department. In respect of parts which are required
to be replaced through normal wear and tear and consumable items such as fuses, the second
plaintiff has to bear its own costs. There is no evidence before me as to which item comes under
normal wear and tear or whether such rectified items fell within the warranty period. I have
been shown a number of payment vouchers and I have been asked to make these awards. It is
trite law that a plaintiff must know that not only is it its duty to prove liability, it has also to
prove damages. Merely showing that it had made payment of the sum claimed to a third party
and based on that payment, seeking to claim from the defendant the said full sum are two
different issues. The defendant herein is entitled to challenge the various payments made. As I
said there has been no proper itemising of the sums paid.

50. Having considered the case of the second plaintiff much as I sympathise with the second
plaintiff, I am unable to make any award of damages, notwithstanding the fact that the second
plaintiff has proved its case against the defendant under s 16(1)(a) of the Act. In the
circumstances I order that each party is to pay its own costs of the main action.

5. THE COUNTERCLAIM
51. In its counterclaim, the defendant claims a sum of RM105,215.45 together with interest
at 1% per month. The statement of account is set out clearly at 3 CABD 206-207. Each invoice
is clearly identified in 4 CABD and 7 CABD. The second plaintiff has pointed out vouchers
amounting to RM16,010.60 which do not appear to refer to the two tower cranes in question. I
accept this and therefore deduct the sum of RM16,010.60 and give judgment for the balance
amounting to RM89,204.85. There will be a flat interest at 4% from date of filing the
counterclaim to date of judgment and costs.

Cases
Baldry v Marshall [1925] 1 KB 260
Bank Bumiputra (M) Bhd Kuala Terengganu v Mae Perkayuan Sdn Bhd [1993] 2 MLJ 76
Hardwick Game Farm v SAPPA [1968] 3 WLR 110
Junior Books Ltd v Veitchi Co Ltd [1982] 3 All ER 201
Medicon Plastic Industries Sdn Bhd v Syarikat Cosa Sdn Bhd [1995] 2 MLJ 257
Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd [1985] 2 All ER 947
Union Alloy (M) Sdn Bhd v Sykt Pembenaan Yeoh Tiong Lay Sdn Bhd [1993] 3 MLJ 167

Legislations
Sale of Goods Act 1957: s.16

Representations
R Kesavan (S Kumaran)(Md Tajuddin & Co) for the plaintiffs.
Joseph Yeo (Joseph Yeo) for the defendant.

Notes:-
[a] Numberings for headings and sub-headings are added for easy reading and they are a part of the
judgment.
This decision is also reported at [1999] 3 MLJ 544.