The Edge Court Judgments Report

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

 

 

 

INTELLECTUAL PROPERTY: UNREGISTERED TRADEMARK

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.

From left: Tengku Maimun CJ, Mohd Zawawi and Hasnah Hashim FCJJ

[47] On the factual matrix of the present appeal… the learned High Court Judge was correct to find that the goodwill in the name ‘Hafiz Hamidun’ belongs to the plaintiff and not HSB. The findings indicate that the unregistered trademark is identified with the plaintiff, that he uses it and it has accumulated goodwill…

[49] … case law… [accepts] that a celebrity (which is what the High Court accepted the plaintiff is) had locus standi to maintain an action in passing off even if some other business uses his or her name…the arrangement between the plaintiff and HSB is purely a matter of a license between them. It is a technicality about which the defendant has no interest in or business to complain…

[55] … it is one thing to say that the goodwill ‘belongs’ to [the company] and another thing to say that the goodwill can exist because [the company is] involved in the carrying out of the trade… ultimately, the existence of the goodwill was owed entirely to [Hafiz Hamidun’s] own achievements in the industry and the clout that he had built for himself…

[64] …On the evidence, the learned Judge accepted that members of the public comprising the plaintiff’s ‘fans’ were… led to believe that the goods sold by [Kamdar] under the name ‘Hafiz Hamidun’ were the plaintiff’s or that he had somehow endorsed them. There was clearly deception on the part of [Kamdar] by misappropriating the goodwill in the plaintiff’s name, Hafiz Hamidun.

Chief Justice Tengku Maimun

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.

[73] … [Kamdar] would not be allowed to evade liability for the tort of passing off on the mere technicality of not joining [Haje Sdn Bhd] as co-plaintiff…The fact that a businessman/woman whose name or business indicium is used by a company or companies (typically used as vehicles of trade and nothing more) changes nothing in the general conclusion of ownership.

 

LAND LAW

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.

From left: Abdul Rahman Sebli,

Zabariah Yusof and Hasnah Hashim FCJJ

[45] …when it comes to land alienated by the State Authority, the respective rights of the State Authority and the occupier of the lands is very much regulated by the provisions of the NLC and it cannot be at variance with the same. Even if we are to accept the interpretation by learned Judge… that the defendant is bound by Clause 7 “thereby giving up the discretion it may have in respect of renewing the lease”… that cannot be valid because it does not conform to section 90A of the NLC, which allows for the discretion by the State Authority whether or not to approve the renewal of the lease…

[48] …Clause 7 is contained in a statutory lease which is subject to the provisions of the NLC as the lease is alienated by the State Authority pursuant to the provision of the same. The Court of Appeal did not err when it said that the lease is not a product of bargaining between the plaintiff and the State Authority. The conditions of the land were imposed by the State Authority when it alienated the land pursuant to the provisions of the NLC. Hence the alienation of the lease and renewal thereof is guided by the provisions of the NLC…

[55] The construction accorded to Clause 7 as suggested… would create an absurd situation, which is, even without approval of the right to renew of the lease by the State Authority, the plaintiff automatically is given the renewal of the lease for a further term of 30 years upon the plaintiff exercising the [Renewable Option]…

[123] … the alienation of land by way of section 76 of the NLC read with Clause 7 does not give rise to a contractual lease between the State and the lessee, the consequence of which, private law remedy is available to renew the lease for another 30 years. Clause 7 does not originate from a contractual bargain in the usual context of contract law which relates to private law remedy. It is part of the Conditions that came with the lease granted to the lessee which is subject to the provisions of the NLC.

Justice Zabariah Yusof

 

JOINT LIABILITY VS JOINT AND SEVERAL LIABILITY

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.

From left: Rohana Yusuf PCA, Azahar Mohamed CJM and Nallini Pathmanathan FCJ

[17] Several liability, on the other hand, arises when two or more persons make separate promises to another, whether by the same instrument or by different instruments. There is more than one obligation or promise, as compared to joint liability where there is one obligation or promise.

[18] A joint and several promise is different from a joint promise. Joint and several liability arises when two or more persons in the same instrument jointly promise to do the same thing and also severally make separate promises to do the same thing. Joint and several liability gives rise to one joint obligation and to as many several obligations as there are joint and several promisors…

[29] This brings us to the underlying rationale for joint liability as opposed to joint and several liability. Each of these doctrines relates to the number of promises made, and not the number of promisors who made a particular promise. In the case of joint liability, there is one promise and two or more promisors. Each is liable to the extent of the promised amount. In the case of a joint and several liability, there is more than one promise. The promisors make two or more promises and thus several liability arises. [Original emphasis]

Justice Nallini Pathmanathan

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.

[36] …Of primary importance is section 46 of the EPF Act which imposes joint and several liability on the directors of a company for unpaid contributions. These provisions must be given full effect, as they comprise statutory law. It is not open to the Courts to stultify, vary or whittle down the clear provisions promulgated by Parliament in relation to liability for EPF contributions, by construing judgments in a manner which is not consonant with the EPF Act. In short, the EPF Act prevails over the terms of the judgment…

[38] …section 44 of the Act is also relevant… It is manifestly clear that the liability of the judgment debtors in the present appeal is both joint and several by operation of law.

[39] …the courts below erred in law in invoking the presumption that joint liability means liability for only half the debt and not the full amount…

 

ISLAMIC FINANCING FACILITIES

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.

Top row, from left: Tengku Maimun CJ, Rohana Yusuf PCA, Mohd Zawawi FCJ

Second row: Zabariah Yusof and Hasnah Hashim FCJJ

[69] The intention in grouping the words ‘transfer, convey and dispose of’ and their derivatives therefore was to tighten the prohibition of transfer of land in all ways thinkable which explains the even more stringent use of the word. But the general intent remains that the purpose of section 214A is to prevent transfers in any form whatsoever or fragmentation of estate land to the extent that proprietorship or ownership in that estate land cannot be effected without prior approval of the Estate Land Board…

[72] The undisputed fact remains in this case that there has been no actual transfer of ownership of the Land from the 1st appellant to the respondent. No memorandum of transfer was executed and the 1st appellant remained the registered proprietor of the Land at all material times. Even if the BBA agreement purports to vest beneficial ownership in the respondent, it is clear that in fact no such vesting ever took place. The respondent never in law or in equity became the owner of the land as the arrangement was merely a means to finance an Islamic facility. Our courts have held that Islamic Financing Facilities transacted in this way, for example the BBA in this case, are valid and are recognised financial transactions…

[92] … the [1972] amendments… fortify our approach to section 214A that it ought to be read strictly and that the words ‘transfer, convey and dispose of’ being analogous words, should have their meaning confined to the intention of Parliament to prevent dispossession of land whether in law or equity. This in our view does not render those words tautologous as argued by the appellants. The words read independently still mean different things… But, whatever be those minute differences, they were only meant to cater to a comparatively narrow intent of preventing actual or attempted outright transfers and fragmentation. Reading the law this way also avoids any imputation of contravention of the law and favours commercial transactions such as the one entered into in this case.

Chief Justice Tengku Maimun

 

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