This article first appeared in The Edge Malaysia Weekly on August 16, 2021 - August 22, 2021

This monthly report is compiled and briefly summarised by a group of lawyers on a voluntary basis for the benefit of readers of The Edge.

Please consult your own lawyers if you need advice on the cases, issues and related matters highlighted here.

Federal Court (‘FC’) rules on the circumstances and applicable principles pursuant to which a plaintiff may successfully sue a defendant at common law for passing off an unregistered trademark

It is common that celebrities in a particular field venture into other businesses such that their other businesses draw goodwill from the celebrity’s name or stature. If they do not do so personally, they may establish their own companies or engage third party companies to do so. In the latter situation, it may be argued that the goodwill no longer belongs to the relevant celebrities and therefore a common law action for passing off an unregistered mark cannot be sustained.

Issues

How does one go about establishing goodwill? Does it necessarily follow that the goodwill attaching to the celebrity’s name or stature is lost if the celebrity establishes a company to carry out his or her other businesses? In such cases, is it the law that only the company may sue based on the separate legal entity? Also, is it necessary for the celebrity to join his company as a plaintiff in a common law action for passing off an unregistered trademark? The FC was called upon to resolve these issues in Mohd Hafiz bin Hamidun v Kamdar Sdn Bhd (Judgment dated 20.5.2021).

Case summary and decision

The appellant (‘Hafiz Hamidun’) is a popular Nasyid singer and song composer. Nasyid is a genre of traditional music incorporating Islamic elements and notions. In addition to being an artist, he ventured into the business of selling fabrics, including Baju Melayu and Kurtas, online and in boutiques under the label of ‘Hafiz Hamidun’ through a company in which he owned 80% and has been a director since incorporation (Haje Sdn Bhd) in 2014. The respondent (Kamdar) is primarily engaged in the business of selling fabrics since 1972, with 29 stores throughout various locations in Malaysia. Hafiz Hamidun received messages from his fans and followers on social media asking him whether certain goods sold by Kamdar with the label ‘Hafiz Hamidun’ were actually his. The goods carrying that label sold by Kamdar were not his. Upon his complaint, Kamdar stopped using the name or words ‘Hafiz Hamidun’ and instead replaced it with ‘Afiz Amidun’, dropping the alphabet ‘H’ in the first letter of each word. Aggrieved by Kamdar’s conduct, Hafiz Hamidun sued Kamdar to cease entirely from using ‘Hafiz Hamidun’ and ‘Afiz Amidun’. In sound, style and substance, the latter label is the same as the former.

The learned Judge of the High Court (‘HC’), on application of the requirements in a common law action, found that the goodwill belongs to the appellant — the name ‘Hafiz Hamidun’ is inextricably linked to the appellant and it was instrumental to the business he had personally established goodwill to that label. Alternatively, the technical contention that he had no standing to sue and it was fatal that Haje Sdn Bhd was not joined as a plaintiff was unmeritorious in that the facts justified the Court to disregard the doctrine of separate legal entity. The Court of Appeal (‘CA’) allowed the appeal of Kamdar — the goodwill belongs to Haje Sdn Bhd as a separate legal entity. Thus, the passing off action became academic.

In the FC, in a unanimous decision delivered by Tengku Maimun CJ (Mohd Zawawi bin Salleh and Hasnah Mohammed Hashim FCJJ concurring), the appeal was allowed. The FC held that in cases having the nature and factual characteristics as in the appeal, the arrangement between Hafiz Hamidun and his company, Haje Sdn Bhd, the use of the goodwill is a matter between the two parties and an outsider, Kamdar, has no business to use the unregistered mark without consent to generate profit through deception.

The FC concluded that the CA had wrongly concluded that it was Haje Sdn Bhd and not Hafiz Hamidun who owns the goodwill in law. The doctrine of separate legal entity relied upon by the CA in setting aside the decision of the HC in the circumstances was wrong.

Federal Court (‘FC’) rules that an option contained in a leasehold title does not create a contractual lease between the State Authority and the lessee that is enforceable in private law

In alienating lands, the State Government (‘SG’) may impose conditions under s 120 of the National Land Code 1965 (‘NLC’). Lands alienated under a lease usually contains an option clause to renew the lease prior to its expiry for a further period subject to conditions (‘Renewal Option’). Section 90A empowers the State Authority to grant or reject applications for extensions at its discretion.

Issues

Is alienated land under a leasehold title a statutory or contractual lease? Is a Renewable Option capable of creating legitimate expectation in a lessee and binding the State Authority to renew the lease, which is enforceable in private law? These issues came before the FC in YKK (Malaysia) Sdn Bhd v Pengarah Tanah dan Galian Johor (Judgment dated 16.7.2021).

Case summary and decision

The Appellant (‘YKK’) was the registered leaseholder of alienated land in the Larkin Industrial Area (‘LIA’), expiring in 2020 (‘Lease’). The Lease contained a Renewable Option in clause 7 to renew the Lease for another 30 years subject to payment of an appropriate premium and rent. In 2014, YKK was informed that the SG would not be renewing leases in LIA. In 2015, it was further informed that lease renewals for LIA was frozen and LIA would be converted into a housing area. Nonetheless, YKK exercised the Renewal Option. The Respondent declined and YKK sued for specific performance. The High Court ordered specific performance in that the Renewal Option was a binding contractual obligation. The Court of Appeal reversed the decision and further held that YKK’s claim in private law was unsustainable. YKK appealed to the FC. In a unanimous decision delivered by Zabariah Mohd Yusof FCJ (Abdul Rahman Sebli and Hasnah Mohammed Hashim FCJJ concurring), YKK’s appeal was dismissed.

The FC held that the leases granted under s 76 of the NLC are statutory and not a contractual lease, which are enforceable under private law if the SG refuses to renew the term of a lease at its discretion under s 90A of the NLC.

Federal Court (‘FC’) clarifies the concepts of ‘joint liability’ and ‘joint and several liability’

Banking, guarantee, business and commercial contracts usually provide for either joint liability or joint and several liability of the contracting parties for breaking promises contained in the contract. Certain types of statutes also impose ‘joint and several liability’ upon designated persons for breach of the relevant statutory provisions, an example is the Employees Provident Fund Act 1991 (‘EPF Act’). Under s 46 of the EPF Act, where there is failure to make the requisite employer’s contribution, the directors of the company are jointly and severally liable.

Issues

What is meant by ‘joint liability’ as opposed to ‘joint and several liability’? What are the operating differences between the two concepts? Where a judgment is obtained under the EPF Act but the order of Court failed to include the phrase that the directors are ‘jointly and severally’ liable, does that mean that each defendant is only liable for payment of the judgment sum proportionate to his share/interest /obligation? These issues of law were posed to the FC in the case of Lembaga Kumpulan Wang Simpanan Pekerja v Edwin Cassian a/l Nagappan @ Marie (Judgment dated 19.7.2021).

Case summary and decision

The Employees’ Provident Fund Board (‘EPF Board’) sued Fix Interior Collections Sdn Bhd (‘Company’) for failure to make employer contributions on behalf of its employees. There were two directors of the Company, namely the Appellant (‘Edwin’) and Bernard. A consent judgment was entered into pursuant to which the Company, the Appellant and Bernard agreed to pay the EPF Board the arrears in the sum of approximately RM133,000 by way of instalment payments (‘Consent Judgment’). The Consent Judgment did not include the phrase that the Company, Edwin and Bernard are ‘jointly and severally’ liable for the sum stated in the Consent Judgment. The EPF Board issued bankruptcy proceedings against

Edwin alone. Edwin successfully set aside the bankruptcy notice and the creditor’s petition before the Senior Assistant Registrar (‘SAR’). On appeal to the Judge in chambers, the learned Judge affirmed the decision of the SAR. The EPF Board appealed to the Court of Appeal (‘CA’) premised on the basis that its action against Edwin was based on s 46 of the EPF Act, which provides for joint and several liability. The CA rejected the EPF Board’s reliance on the statutory provision because the CA held that it could not import into the enforcement or bankruptcy order the phrase ‘joint and several’. The CA reasoned that the consent judgment operated as if it were a contract binding upon the parties. The CA went further and held that the bankruptcy notice and creditors’ petition were defective because these papers claimed for the whole judgment sum instead of only the portion owed by Edwin. In effect, the CA held that the liability of each of the two directors was only half of the debt owed to the EPF Board.

On appeal to the FC, in a unanimous decision delivered by Nallini Pathmanathan FCJ (Rohana Yusuf PCA and Azahar Mohamed CJM concurring), the FC held that the Courts below were wrong in not drawing distinction between and mixing up the concepts between ‘joint liability’ and ‘joint and several’ liability. The FC held that in cases of ‘joint liability’, two or more persons jointly promised to do the same thing but there is only one obligation or promise, regardless of the number of joint promisors. Unlike the common law, s 44(1) of the Contracts Act 1950 (‘Contracts Act’) provides that in cases of joint liability, as follows:

(1) When two or more persons make a joint promise, the promisee may, in the absence of express agreement to the contrary, compel any one or more of the joint promisors to perform the whole of the promise. [original emphasis]

The effect of s 44(1) of the Contracts Act is that unless a contrary intention is expressed, all joint contracts effectively impose a full liability for the debt on each of the promisors, and each promise is liable for the whole sum, in respect of debts that are jointly incurred. Thus, a judgment creditor is entitled to proceed against one or any number of the judgment debtors to secure the performance of the obligation to pay in its entirety. In cases where only one judgment debtor has fully paid off the debt, that judgment creditor is entitled to claim contribution from the other joint promisor for equal contribution, meaning, liability for the full sum shared equally between the promisors. However, this right given to joint promisors under s 44(2) of the Contracts Act is a matter between the joint promisors inter-se and has nothing to do with the rights of the creditor under s 44(1).

In contrast, the concept of ‘joint and several liability’ refers to situations where two or more persons make separate promises to another pursuant to a same instrument or different instruments. In effect, there is more than one promise, with the promisors making two or more promises and thus several liability arises.

The FC therefore held that the Courts below were wrong because their respective judgments presupposes that liability is proportionate to the number of promisors from the perspective of the creditor. Concerning s 46 of the EPF Act, the FC held that s 46 must be given its full effect.

Federal Court (‘FC’): Bai Bithaman Ajil financing facilities involving asset purchase and asset sale agreements and their related instruments are valid transactions and do not involve a disposal of lands under the National Land Code

Asset Purchase Agreements (‘APA’) and Asset Sale Agreements (‘ASA’) are instruments employed in Islamic financing facilities in the Bai Bithaman Ajil (‘BBA’) transaction. The basic underlying features are that the financier ‘purchases’ the asset of the borrower under the APA at a stated price and the borrower ‘repurchases’ the same asset on deferred payment terms under the ASA at an agreed price higher than the sale price it sold the asset to the financier. The difference in the price between the APA and ASA represents profit agreed upon by the parties and it is not ‘interest’ arising from a conventional loan transaction. Where the underlying asset is land, a charge over the land is usually created under the National Land Code 1965, now the National Land Code (Revised 2020) (‘NLC’), to secure payment on deferred terms under the ASA.

Issues

If the underlying asset of a BBA agreement is estate land, are the APA and ASA (including all its related instruments employed in the BBA transaction) illegal or invalid contracts in that the BBA transaction amounts to a transfer, conveyance or disposal carried out without the prior approval of the Estate Land Board? The material portions of s 214A of the NLC provides:

214A. (1) Notwithstanding anything contained in this Act, no estate land is capable of being transferred, conveyed or disposed of in any manner whatsoever unless approval of such transfer, conveyance or disposal has first been obtained from the Estate Land Board (hereinafter referred to as “the Board”) established under subsection (3) ...

(10A) (a) Any person who transfers, conveys or disposes of or attempts to transfer, convey or dispose of in any manner whatsoever, any estate land in contravention of subsection (1), shall be guilty of an offence and shall, on conviction, be liable to imprisonment for a term of not more than five years or to a fine not less than one hundred thousand ringgit and not more than one million ringgit, or to both.

The FC was called upon to decide the issues in light of s 214A of the NLC in Maple Amalgamated Sdn Bhd and another v Bank Pertanain Malaysia Berhad (Judgment dated 23.7.2021).

Case summary and decision

Maple Amalgamated Sdn Bhd and another (‘Appellants’) defaulted on a BBA agreement and the respondent (‘Bank’) terminated the agreement. A series of litigations ensued, the latest of which was an action by the Appellants to declare the APA and ASA and all other related instruments, including the charge under the NLC, null and void by reason of illegality for breach of s 214A of the NLC. It was common ground between the parties that at all material times, no memorandum of transfer was executed over the land.

In a unanimous decision delivered by Tengku Maimun CJ (Rohana Yusuf PCA, Mohd Zawawi Salleh, Zabariah Mohd Yusof and Hasnah Mohammed Hashim FCJJ concurring), the FC rejected the arguments of the Appellants that the BBA agreement is unenforceable because it is caught by the words ‘dispose of’ in s 214A of the NLC and such disposal was carried out without the prior consent of the Estate Board and being illegal, the rest of the other instruments are also illegal and restitution should be ordered. The learned CJ held that although the words ‘convey’ and ‘dispose of’ were introduced in 1972 as additions to the word ‘convey’ (a) the words ‘ transfer, convey or dispose of’ ought to be construed having regard to the maxim of noscitur a sociis, or the associated words rule — words or phrases performing a parallel function within a provision and are linked by ‘and’ or ‘or’, the meaning of each word is presumed to be influenced by the others and this is brought out by the additional words ‘in any manner whatsoever’ in the section; (b) the insertion of the words ‘convey’ or dispose of’ in 1972 was to catch all sorts of ingenious ways to get around the prohibition of transfer as is apparent from a reading of the Dewan Rakyat Hansard; (c) on undisputed facts, there was transfer of ownership or vesting of beneficial ownership; and (b) the Islamic Financing Facilities BBA are valid and recognised financial transactions.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.