This article first appeared in The Edge Malaysia Weekly on July 13, 2020 - July 19, 2020

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.

CONSTITUTIONAL LAW

The Federal Constitution (‘Constitution’) is the supreme law of the Federation and laws that are inconsistent with the basic structure of the Constitution are invalid; the principle of separation of powers is not illusory and judicial power of the Federation vested in the Judiciary to enable it to function as a Court of Law cannot be taken away

The Constitution sets out and delineates the authority and powers of the Executive, the Legislature and the Judiciary. Article 39 vests the executive authority of the Federation in the Cabinet (‘Executive’), article 44 vests legislative authority in Parliament (‘Legislature’) and article 121 vests judicial power of the Federation in the Judiciary. In relation to the Executive, the Attorney General (‘AG’) is its adviser on legal matters and 145 (3) vests discretionary power in the AG to institute, conduct or discontinue any proceedings for an offence, other than proceedings before a Syariah court, native court or a court martial. In summary, the Constitution defines the sum total of the authority and powers of the Federation as a whole. At the same time, the Constitution divides and separates the sum total of the authority and powers between the Executive (authority to make decisions for the Federation), the Legislature (authority to enact Federal laws) and the Judiciary has judicial power to adjudicate in civil and criminal matters brought to Court and the AG has discretion to decide whether to institute, conduct or discontinue any proceedings in Court. These articles, amongst others, are the basic constituent elements forming the basic structure or fabric of the Constitution (‘ Basic Structure’).

The Basic Structure has several facets, chief of is the separation of powers between the institutions (‘Separation of Powers Doctrine’) — each institution is separate from, and independent of, the other with respect to their respective assigned constitutional roles. In context, the Judiciary cannot prospectively interfere with the authority vested in another institution, or suggest or tell the other institutions what to do or how to behave and vice versa. If the Executive makes a decision, the Judiciary may only adjudicate upon its lawfulness, reasonableness and procedural fairness at the instance of an aggrieved person in the exercise of its judicial power in Court. Similarly, if the Legislature enacts a law and it is challenged by an affected person, the Judiciary may only adjudicate upon the subject matter to determine whether it is constitutional or not by reference to article 4 of the Constitution, which declares the Constitution as the supreme law of the Federation and any law that is inconsistent with the Constitution shall, to the extent of its inconsistency, be void.

Issues

Can Parliament or the Legislature enact laws to take away, interfere with or encroach upon the judicial power of the Federation that is vested in the Judiciary in article 121 of the Constitution? If the Legislature does so, would that be an encroachment upon judicial power of the Judiciary in violation of the Separation of Powers Doctrine and is thus inconsistent with article 4 of the Constitution? These issues had previously confronted the Federal Court in various contexts and had been answered in the positive. Recently, the same issues confronted the High Court in Saminathan a/l Ganesan v Public Prosecutor [2020] 7 MLJ 681 in the context of the Security Offences (Special Measures) Act 2012 (‘SOSMA’).

Case summary and decision

In the exercise of the AG’s discretionary power in article 135(3) of the Constitution, the Public Prosecutor or AG (‘PP’) decided to charge Saminathan in the Sessions Court under s 130(1)(a) and s 130JB (1)(a) of the Penal Code — supporting a terrorist group known as the Liberation Tigers of Tamil Elaam (‘LTTE’) and having items associated with LTTE. These offences came within the ambit of the First Schedule to SOSMA, which was enacted pursuant to article 149 of the Constitution dealing with legislation against subversion, and action prejudicial to public order or security.

Section 13 of SOSMA prohibited the granting of bail to a person charged with a security offence (‘Impugned Provision’). Bail was denied by the Sessions Court and in October 2019, the matter was referred to the High Court to determine whether the Impugned Provision was unconstitutional. The two questions referred to the High Court were whether the Impugned Provision is ultra vires (a) article 121 (1) of the Constitution; and (b) article 8 of the Constitution ( all persons are equal before the law and are entitled to equal protection of the law).

Counsel for Saminathan argued that the power to grant bail is a judicial power enshrined in article 121 of the Constitution and that power is vested in the Judiciary. Accordingly, the Impugned Provision enacted by the Legislature was unconstitutional in that the prohibition against bail usurped, or encroached upon, what was essentially a judicial power. Further, the Impugned Provision infringed article 8. The PP argued that the Impugned Provision (a) did not violate article 121 because the Separation of Powers Doctrine is not a provision of the Constitution; (b) a provision of law may only be void if it is inconsistent with the Constitution as provided for under Article 4 and not if it is inconsistent with the Separation of Powers Doctrine; and (c) did not infringe article 8 because the basis for differential treatment is justifiable by reference to the fact that the object of SOSMA is to combat terrorism.

Decision of the High Court on Article 149 of the Constitution

The learned Judge of the High Court (‘Mohd Nazlan J’) agreed with the PP that SOSMA is a piece of legislation enacted under article 149 to combat terrorism and it specifically states that any law promulgated under the article is valid notwithstanding that such new law is inconsistent with four articles of the Constitution — article 5 (no deprivation of life or personal liberty), article 9 (no banishment or exclusion from the Federation), article 10 (freedom of speech, right to peaceful assembly and to form association) and article 13 (rights to property). However, Mohd Nazlan J rejected the PP’s arguments that merely because SOSMA is a special legislation dealing with terrorism, the Impugned Provision was necessarily valid and the Court in performance of its judicial duties has no discretionary power to grant bail.

Justice Mohd Nazlan

… the Constitution must be read to mean that any new law which is promulgated pursuant to article 149 which is inconsistent with the provisions of the Constitution other than the said articles 5, 9, 10 and 13 may potentially therefore be held to be void to the extent of the inconsistency, pursuant to article 4, which affirms the Constitution as the supreme law of the Federation.

… it is erroneous to formulate the simplistic answer to the constitutional questions referred to this High Court that s 13 of SOSMA is not unconstitutional merely because SOSMA was enacted pursuant to article 149 of the Constitution … here the questions concern whether s 13 is ultra vires articles 8 or 121.

A broad-brush statement that the prohibition against bail under s 13(2) of SOSMA for an accused charged with a security offence is constitutionally valid because SOSMA is a special legislation to combat terrorism enacted under article 149 of the Constitution is thus misconceived.

Article 121(1) and the Separation of Powers Doctrine

Referring to earlier decisions of the Federal Court, it was held that the Constitution is not to be interpreted like commercial documents and must be interpreted ‘ in light of its historical and philosophical context, as well as its fundamental underlying principles’. Mohd Nazlan J reiterated the principle that the ‘background of a constitution is an attempt, at a particular moment in history, to lay down an enduring scheme of government in accordance with certain moral and political values’ and these matters must be taken into account when interpreting the Constitution.

Although the words ‘judicial power’ had been deleted from the original text of article 121(1) pursuant to an amendment made to the Constitution in 1988, the shoulder note to article 121 contain the words ‘Judicial power of the Federation’. Referring to a series of decisions of the Federal Court, Mohd Nazlan J held that (a) article 121 ‘ is to be read in connection with its shoulder note, which contains the words ‘ judicial power’, and therefore [article 121] ought to be construed in this light’; and (b) ‘judicial power’ means the ‘power which every sovereign authority must of necessity have to controversies between its subjects, or between itself and its subjects, whether the rights relate to life, liberty or property. The exercise of this power does not begin until some tribunal which has power to give a binding authoritative decision is called upon to take action.’  

Mohd Nazlan J rejected the argument that merely because the Separation of Powers Doctrine is not a provision of the Constitution, it is nonetheless, as held by several decisions of the Federal Court, a constitutional fundamental and that the ‘separation of powers between the Legislature, Executive, and the Judiciary is a hallmark of a modern democratic State … [it] is not just a matter of administrative efficiency. At its core is the need for a check and balance mechanism to avoid the risk of abuse when power is concentrated in the same hands … Whether an enacted law is constitutionally valid is always for the courts to adjudicate and not for Parliament to decide’: Semenyih Jaya Sdn Bhd v Pentadbir Tanah Daerah Hulu Langat and anor case [2017] 3 MLJ 561; Indira Ghandi a/p Pengarah Jabatan Agama Islam Perak & Ors and other appeals [2018] 1 MLJ 545; Alma Nudo Atenza v PP and another appeal [2019] 4 MLJ 1.

In other words, whilst judicial power is vested in the Judiciary and no other, judicial power is entrenched in the fundamental tenet of the independence of the Judiciary, which in turn is the mainstay of the doctrine of the separation of powers. Equally crucially, and as a corollary, the vesting of the judicial power of the federation in the courts under article 121 together with the separation of powers between the Executive, the Legislature and the Judiciary forms the basic structure of the Constitution.

This further means that the powers of one arm of the government as constitutionally delineated cannot be exercised by any other arm. Any law which violates this separation of powers offends the basic structure of the Constitution and is therefore liable to be struck down as unconstitutional…

Separation of powers thus involves the division of responsibilities between the three branches of government, which prevents any one branch from performing the powers of any other, in effect entrenching a check and balance mechanism to prevent concentration of powers in any one branch. Any usurpation of the judicial power by any other arm of the government infringes the sanctity of the doctrine of the separation of powers, violates the basic structure of the Constitution, and is therefore unconstitutional … the vesting of judicial power in the Judiciary is integral to the country’s constitutional framework and democratic system of government because it is the judicial branch which is charged with the duty of checking and balancing the powers vested in these three organs of the State. It follows that the sine qua non for an effective discharge of this duty necessarily requires a constitutional democracy that cherishes the rule of law and upholds the independence of the judiciary.

The Impugned Provision is unconstitutional

In the context of criminal law, the court possess judicial power to try a person for an offence committed by him and to pass sentence against him if he is found guilty and judicial power includes, as had been decided by the Supreme Court (now, Federal Court) in an earlier decision, (a) to accept a plea of guilty after the charge has been explained to the accused and he understood the charge; (b) to allow or refuse a plea to be retracted on judicious grounds; (c) to grant or refuse bail; (d) to grant or refuse a postponement of hearing; and (e) to transfer proceedings to any other court or to and from any subordinate court.

Mohd Nazlan J held that the Impugned Provision was ultra vires article 121(1) of the Constitution because ‘it divests from the courts the judiciary discretionary power to evaluate whether or not to grant bail or refuse bail applications’ in relation to a security offence under chapter V1A of the Penal Code and in violation of the Separation of Powers Doctrine. The learned Judge also explained that the real issue before him is not about which general conditions — liberty or security — that ought to be given preference. It is about constitutional supremacy that is embedded in article 4 of the Constitution.

It has been repeatedly affirmed by our apex court … judicial power encapsulates the duty of the courts to safeguard the framework of the supremacy of the Constitution, which extends to the constitutional tenets and fundamental liberties enshrined therein. The Judiciary would be failing to honour its judicial oath to defend the Constitution if it permits the usurpation of the powers of any one of the three organs of the government, contrary to the separation of powers between the three, whether or not the same is instead vested in any one other.

Judicial power thus includes the power to grant or refuse bail to an accused person. It is well established that the power to grant or deny bail is in a nature of a power inherently vested in the courts. This is also well in accord with the presumption of innocence and the objective of bail, which is to ensure the attendance of an accused at trial. The judicial power on bail cannot therefore be absolutely prohibited by any statutory provision like the one embodied in s 13 of SOSMA vis-à-vis the offences under Chapter VIA of the Penal Code because this usurpation or removal of the power of the courts to consider bail is contrary to the judicial power being exclusively vested in the Judiciary under article 121 and to the doctrine of the separation of powers.

SCANDALISING THE COURT IS A FORM OF CONTEMPT

Federal Court declines to set aside leave that was granted to commence committal proceedings against Malaysiakini and held that the substantial merits of the committal application will be adjudicated upon at a later date

The adjectival meaning of the word ‘scandalise’ is to denigrate, to bring or cause or excite disgust or revulsion against another and which are impregnated with concluding aspersions of disgrace and dishonour. In essence, it is to defame as commonly understood in the law of defamation. In the context of the institution of the Judiciary, it refers to conduct that has the effect of undermining public confidence in the administration of justice. Specifically, in the context of the Federal Constitution, it refers to the conduct of Judges corruptly exercising judicial power of the Federation vested in the Courts pursuant to article 121 of the Federal Constitution. Generally, contempt relating to scandalising the Court is an exceptional jurisdiction in the sense that it may be exercised if the Attorney General (‘AG’) in his discretion decides, under article 145(3) of the Federal Constitution, to institute action against the alleged contemnor for scandalising the Judiciary. If the AG does so, there are two stages to the contempt proceedings. The first stage requires the Court to decide on an ex parte basis whether a prima facie case of contempt has been made out to justify the grant of leave to commence contempt proceedings. If leave is granted ex parte, the alleged contemnor is at liberty to set aside the leave that was granted. At this stage, the Court is not concerned with the substantive merits of the committal proceedings. If the contemnor fails in his application to set aside the leave, the second stage requires judicial consideration of the substantive merits of the committal proceedings.  

Issues

In Peguam Negara v Mkini Dotcom Sdn Bhd & Anor, the AG in the exercise of his discretion under article 145(3) of the Federal Constitution applied for leave to commence contempt proceedings against Mkini Dotcom and its chief editor in the Federal Court (‘FC’). The FC on 17 June, 2020 granted leave to the AG. The materials upon which the AG relied upon in his application for leave were comments which appeared in the news portal of Malaysiakini on 9 June, 2020 (‘Publication’). Thereafter, Malaysiakini and its chief editor applied to the FC to set aside the ex parte order granting leave. Two principal issues arose in the application by Mkini Dotcom and its chief editor to set aside the leave that was granted. Had a prima facie case been made out against Malaysiakini based on the Publication? Is the FC the proper forum to deal with the committal proceedings?  

Case summary and decision

The Publication in verbatim in the case (extracted from the decision delivered by the FC on 2 July, 2020, which was made available to the public) pursuant to which leave was granted reads:

“(i)     Ayah Punya kata: The High Courts are already acquitting criminals without any trial. The country has gone to the dogs;

(ii)     GrayDeer0609: Kangaroo courts fully operational? Musa Aman 43 charges fully acquitted. Where is law and order in this country? Law of the Jungle? Better to defund the judiciary!

(iii)    Legit: This Judge is a shameless joker. The judges are out of control and the judicial system is completely broken. The crooks are being let out one by one in an expeditious manner and will running wild looting the country back again. This Chief Judge is talking about opening of the courts. Covid 19 slumbe kah!

(iv)    Semua Boleh – Bodoh pun Boleh: Hey Chief Justice Tengku Maimun Tuan Mat – Berapa JUTA sudah sapu – 46 corruption – satu kali Hapus!!! Tak Malu dan Tak Takut Allah Ke? Neraka Macam Mana? Tak Takut Jugak? Lagi – Bayar balik sedikit wang sapu – legal jugak. APA JUSTICE ini??? Penipu Rakyat ke? Sama sama sapu wang Rakyat ke???

(v)     Victim: The Judiciary in Bolihland is a laughing stock.”

In a unanimous decision of a 7-member bench of the FC delivered by Rohana Yusuf PCA (Azahar Mohamed CJM, Abang Iskandar CJSS, Mohd Zawawi Salleh, Nallini Pathmanathan, Vernon Ong and Abdul Rahman Sebli FCJJ concurring), it was held that in deciding whether or not a prima facie case had been made out, the Court ‘will not venture into or purport to decide the substantive merits of the committal application, which is properly the subject matter of the second stage of the adjudication’. The FC held that the AG had made out a prima facie case. The FC also dismissed the argument that the FC was not the proper forum to commence the committal proceedings because the impugned comments in the Publication implicated the Judiciary as a whole, including the Chief Justice.

Clockwise from top left: Rohana Yusuf PCA, Azahar Mohamed CJM, Abang Iskandar CJSS, Mohd Zawawi, Nallini Pathmanathan, Vernon Ong and Abdul Rahman Sebli FCJJ

In respect of [the prima facie] issue, we are of the view that the following facts … revealed (a) The 1st respondent facilitates publication; (b) The editorial policy allowing editing, removing and modifying comments; (c) Upon being made aware by the police, the 1st respondent indeed removed the comments; (d) Evidence revealing that the editors of the 1st respondent reviews postings on a daily basis.

Based on all these facts inter alia, we are of the view that the respondents had published the impugned comments and that a prima facie case had been made out.

We are also of the view that furthermore by virtue of section 114A of the Evidence Act 1950 the respondents are presumed to have published the impugned comments. The presumption is a rebuttable one.

We are of the view that a prima facie case has been made out inter alia for the following reasons (a) The words read out above are contemptuous; (b) Prima facie there has been publication by Malaysiakini as these statements appeared on their news portal…

Looking at the nature of the impugned comments earlier elaborated, which implicate the judiciary as a whole, which also include the Chief Justice of the Federal Court, we are of the view that the court is the right forum to commence these proceedings.

INDUSTRIAL RELATIONS

Federal Court declares that (a) all workers, local or foreign, are equal before the law and are entitled to equal protection of the law; and (b) inappropriate cases, the corporate personality of a company within a unified group of companies may be disregarded to do justice

The law also draws a distinction between a permanent employee and a fixed term contract (‘FTC’) employee. In a FTC, the employee’s services may be terminated at the expiry of the fixed term, or earlier for serious misconduct or by mutual consent. The use of FTC is very common in Malaysia for the employment of expatriates and in the construction industry where employees are engaged on a project basis. The FTC may be renewed at the expiration of the fixed term. If a FTC is continuously renewed, the law may treat the employee as a permanent employee.  

In the context of industrial relations, an employee of a company within a group of companies may be transferred or assigned to perform services from one company to another within the group. This may take place following restructuring or reorganisation of the group structure. When transfer or assignment takes place from Company A to Company B, it does not automatically follow that the transferee becomes the employee of Company B and on different terms, if any.

Issues  

Where the contract of an expatriate is a FTC and the same had been consecutively renewed or extended, is he a genuine FTC employee or is he a permanent employee dressed up as a non-permanent employee by several successive FTC? In considering this issue, is the citizenship or the fact that the expatriate requires a work permit, a relevant consideration? If the services of the expatriate is transferred or assigned from Company A to Company B within a group of companies, does it mean that there is fresh or new contract with Company B? These issues confronted the Federal Court in Ahmad Zahri bin Mirza Abdul Hamid v Aims Cyberjaya Sdn Bhd.

Case summary and decision

The appellant (‘Ahmad’) is a Singapore citizen. He was invited to join and invest in AIMS Data Centre 2 Sdn Bhd (‘ADC’). He was appointed as a consultant in ADC under a yearly FTC since 2009 and was entitled to a performance bonus scheme (‘Original Contract’). The Original Contract with ADC was continuously renewed on the same terms and conditions and the letters of renewal were signed by the CEO of ADC (‘Chiew’). In October 2012, Ahmad received a renewal contract of 12 months as a consultant of Aims Cyberjaya Sdn Bhd (‘Aims’), the respondent. This was due to the phasing out of ADC within the group companies of Aims. The letter of renewal was signed by Chiew, also the CEO of Aims, and was on the same terms and conditions as the Original Contract. In September 2013, Ahmad received a letter of offer from Chiew as CEO of Aims for further employment up until September 2014 but it excluded the performance bonus. Ahmad did not agree to the change in the terms. Chiew sent another offer to Ahmad. This time, the offer was for 3 months of employment and it also excluded Ahmad’s entitlement performance bonus as contained in the Original Contract. Ahmad declined the offer and he was dismissed.

The Industrial Court (‘IC’) (a) disregarded the corporate forms of Aims and ADC by treating ADC and Aims as a single economic unit within a group of companies; and (b) held that Ahmad was a permanent employee — the FTC were not genuine fixed-term contracts and awarded back wages and compensation to Ahmad. On judicial review by the High Court (‘HC’), the decision of the IC was upheld. On appeal to the Court of Appeal (‘CA’), the decisions were reversed. The CA held that ADC and Aims are different legal entities. Accordingly, the earlier contracts of employment between Ahmad and ADC in ADC were disregarded and further held that an expatriate or non-citizen requiring a work permit to work in Malaysia cannot be a permanent employee in Malaysia.

The Federal Court (‘FC’) in a unanimous decision delivered on 23 May, 2020 by Mohd Zawawi Salleh FCJ (Tengku Maimun CJ, Idrus Harun FCJ (as he then was), Nallini Pathmanathan and Abdul Rahman Sebli FCJJ concurring) reversed the decision of the Court of Appeal and restored the decisions of the HC and the IC.

On the issue of whether an expatriate or non-citizen foreigner can be a permanent employee or not, the FC held that (a) the citizenship of an employee has no bearing in deciding whether a person was in permanent employment or under a FTC; (b) the Industrial Relations Act 1967 does not discriminate between citizens and non-citizens; and (c) to treat non-citizens differently is against article 10 of the International Labour Organisation Migrant Workers (Supplementary Provisions) Convention 143 of 1975, of which Malaysia is a member country.

Clockwise from top left: Tengku Maimun CJ, Mohd Zawawi Salleh FCJ, Idrus Harun FCJ (as he then was), Abdul Rahman Sebli and Nallini Pathmanathan FCJJ

… The citizenship of the appellant/claimant has no bearing in deciding whether the appellant/claimant was in permanent employment or in employment under a fixed-term contract. We also note that the Industrial Relations Act 1967 does not make any distinction between citizens of Malaysia and non-citizens …

… we take the view that all workers should be treated with fairness, dignity and equality without distinction whether they are local or foreigners. This is also consonant with Article 8(1) of the Federal Constitution, which essentially provides that all persons are equal before the law and entitled to the equal protection of the law.

Justice Mohd Zawawi Salleh

In the context of industrial relations, it is recognised in Malaysia that group companies with a unified structure will be treated as a single economic entity or unit — on the facts, ADC is the same as Aims as a single economic unit. This treatment is consistent with the preponderance of case laws emanating from Commonwealth jurisdictions. Accordingly, it was wrong for the CA not to take into account the earlier contracts in determining whether Ahmad was a genuine FTC employee or his employment was on a permanent basis dressed up by several and successive FTCs. On the facts, the FC held that Ahmad was a permanent employee and his dismissal by Aims was unlawful.

LIQUIDATION LAWS

Federal Court restates and clarifies principles affecting liquidators when performing their statutory duties

Liquidators of companies appointed by the Court have many statutory duties to perform, chief of which are to collect and get in the assets of the company in liquidation and realise the same to generate funds to settle the liabilities of the company in liquidation (‘CIL’). To enable them to discharge their duties, the Companies Act 2016 (‘CA 2016’) and its predecessor (the Companies Act 1965 (‘CA 1965’)) confer several statutory powers upon liquidators. At the same time, the Court has powers to control or supervise the activities of liquidators.

Issues

Is a liquidator personally liable for losses arising from alleged breaches of contract entered into by the CIL prior to its liquidation with a third party when performing his statutory duties under the CA 1965? If so, may non-creditors and persons who are not contributories sue the liquidator? These principal issues confronted the Federal Court (‘FC’) in Tee Siew Kai (liquidator of Merger Acceptance Sdn Bhd) v Machang Indah Development Sdn Bhd (in liquidation) and in a judgment dated 17.2.2020, the FC restated and clarified the applicable principles.

Case summary and decision

Company A (‘Merger’) was a landowner. It entered into a joint-venture agreement (‘JVA’) with Company B (‘Machang’) to develop its land (‘Project’). Merger appointed Machang as its attorney pursuant to an irrevocable power of attorney (‘PA’) and project manager of the proposed Project development. Under the JVA, any profit or loss was to be divided between the parties — 60% (Merger):40% (Machang) (‘ Sharing Formula’). Machang, as attorney, charged the land of Merger to a bank to obtain finance to develop the Project. Subsequently, Merger was liquidated. This was followed by the liquidation of Machang and prior to that, Machang had abandoned the Project.

The banking facilities granted to Machang, which was secured by the charge over Merger’s land, went into default. The bank’s attempts to sell the Merger’s land comprising 124 unbuilt lots by auction failed. Merger’s liquidator (‘Tee’) had a private offer to purchase the unbuilt lots at RM9 million against Henry Butcher’s market valuation at RM9.5 million and RM6.65 million at forced sale value from a prospective purchaser (‘Purchaser’). Machang’s liquidator obtained a market valuation at RM16.5 million for the unbuilt lots by Laurelcap and which was RM7 million higher than the market value derived by Henry Butcher. Tee accepted the offer of RM9 million and sold the unbuilt lots to the Purchaser and paid off the redemption sum due to the bank. Machang sued Tee in his personal capacity for causing Merger to act in breach of the JVA and the PA, alleging a loss of in excess of RM3 million based on the Sharing Formula and Larelcap’s valuation. In essence, the claim was alleged breaches of the JVA and the PA by Merger.  

The High Court granted leave to Machang to commence a personal action against Tee, holding that Machang had locus standi to sue and there was inherent jurisdiction to grant leave to sue. The Court of Appeal affirmed the decision. In a unanimous decision of the FC delivered by Nallini Pathmanathan FCJ (Tengku Maimum CJ, Azahar Mohamed CJM, David Wong CJSS (as he then was) and Idrus Harun FCJ (as he then was) concurring), the decisions of the Courts below were reversed.

The FC held that a liquidator is an agent of the CIL and although the acts of the liquidator bind the CIL, it is not the personal acts of the liquidator. In cases of negligence, or a sale at undervalue, the persons with locus standi to sue are the creditors and contributories of the CIL. They are persons who are entitled to a distribution of the assets of the CIL and not strangers to the liquidation who have interests adverse to the liquidation and the interests of creditors or contributories of the CIL. Machang, at best, was a contingent creditor and until and unless it is adjudicated that Machang had suffered loss, it was a contingent creditor. Also, a liquidator carrying out his statutory duties to sell immovable assets cannot be said to have abused his office or committed misfeasance without more.

Clockwise from top left: Tengku Maimun CJ, Azahar Mohamed CJM, David Wong Dak Wah CJSS (as he then was), Nallini Pathmanathan FCJ and Idrus Harun FCJ

(as he then was)

As an agent of the company in liquidation, the acts of the liquidator are binding on the company. But the liquidator is not personally liable for those acts that he carries out in his capacity as liquidator, even though his principal, the company, may be liable … In the instant case, that means that when the liquidator carried out his statutorily stipulated function of selling the lands, he did so on behalf of the company, in his capacity as agent of the company. As such, while the sale so effected is binding on the company, it is not and does not amount to an act by the liquidator personally. The consequence is that a third party, such as Merger, cannot sue the liquidator for negligence, save for misfeasance or personal misconduct on his part …

[Under section 236(2)(c) of the Companies Act 1965], the liquidator is empowered to sell immovable property of the company in liquidation via private contract. It is clear from the foregoing that the liquidator here was simply carrying out his duties in accordance with statute. Therefore, the liquidator cannot be alleged to have abused his office, nor committed misfeasance by selling the lands …

… Any remedy that Machang seeks to obtain must necessarily be procured from the company, i.e. Merger. However, such a remedy can only arise if Machang is able to prove liability on the part of Merger, qua company. In other words, Machang enjoys, at its highest, a contingent claim against the company, Merger. It is only if it succeeds in its contingent claim premised on an alleged breach of contract, that it can seek damages against Merger.

Justice Nallini Pathmanathan

PRINTING PRESSES AND PUBLICATIONS

Court of Appeal (‘CA’): The exercise of executive discretion under the Printing Presses and Publications Act 1984 (‘Act’) banning circulation of publications must be a ‘real exercise’ of discretion and the affected party must be given a right to be heard

Section 7 of the Act is broadly worded — if the Minister is satisfied that a publication is likely to be prejudicial to public order, morality, security, or is or is likely to alarm public opinion or likely to be prejudicial to public or national interest, the Minister may in his absolute discretion by order published in the Gazette prohibit absolutely or on conditions the printing, production, reproduction, sale, issue, circulation distribution or possession of that publication.

Issues

Can the Minister be said to have made a rational or real decision under section 7 of the Act if the materials upon which the Minister is said to have made his decision are not fully disclosed to the affected party? Additionally, does the affected party have a right to be heard before an absolute or conditional prohibitive order is made? These two issues confronted the CA in Islamic Renaissance Front Berhad v The Minister of Home Affairs.

Case summary and decision

The Islamic Renaissance Front Berhad (‘Appellant’) promotes itself as a body interested in youth empowerment and encouraging Muslim intellectual discourse. It published altogether three books (‘Publications’), a publication each in the year 2012, 2014 and 2016 respectively. After the Publications, the Minister (‘Respondent’) made two absolute prohibitive orders banning the Publications in September 2017 under the Act — the first order was in respect of the 2012 and 2014 Publications and the second order was in respect of the publication in 2016 (‘Prohibitive Orders’). In November 2017, the Respondent was informed that the Prohibitive Orders were issued pursuant to reports made by Jabatan Kemajuan Islam Malaysia (‘Jakim Reports’). The Jakim Reports state that the materials in the Publications ‘contained confusing matters which may deviate from the teachings of Islam practiced in Malaysia’ and therefore, the publications ‘are likely to prejudice public order, alarm public opinion and prejudice public interest’. Aggrieved by the Prohibitive Orders of the Minister, the Appellant filed a judicial review application in the High Court (‘HC’) to review the decision of the Minister said to be based on the Jakim Reports. The essence of the application was to quash the Minister’s decision to issue the Prohibitive Orders on various grounds. The HC allowed the Appellant’s application for discovery to produce the Jakim Reports, which included the recommendations and comments of the Publication and Quranic Text Control Division of Jakim (‘Discovery Order’). The Respondent produced the Jakim Reports in respect of the 2012 and 2014 Publications, an incomplete report in respect of the 2016 publication and did not provide the Appellant with the recommendations and comments of the Publication and Quranic Text Control Division of Jakim.

The HC declined to quash the Prohibitive Orders notwithstanding the Respondent’s claim that the Prohibitive Orders were based on the Jakim Reports and what was produced pursuant to the Discovery Order was incomplete. The HC also held that the Appellant did not have a right to be heard before the Prohibitive Orders were issued. On appeal, the CA in a unanimous decision delivered by Abu Bakar Jais JCA (Abdul Karim Abdul Jalil and Nor Bee Ariffin JJCA concurring) on 23 June, 2020, held that two legal issues were sufficient to justify the reversal of the decision of the HC — (a) failure to produce the recommendations and comments of the Publication and Quranic Text Control Division of Jakim, which was said to have been relied upon by the Respondent in issuing the Prohibitive Orders; and (b) breach of natural justice, or the failure to give the Appellant the right to be heard before the orders were issued. Since incomplete materials were produced pursuant to the Discovery Order, the discretionary power of the Respondent to issue the Prohibitive Orders could not be described in law as a ‘real exercise of discretion’ in accordance with settled principles. As to the breach of natural justice, there was no evidence that the Respondent had ever given consideration to the right to be heard before making the Prohibitive Orders and the Act does not say there is no right to be heard. Further, a statute need not expressly provide for a right to be heard for the rules of natural justice to apply.

From left: Abdul Karim Abdul Jalil, Nor Bee Ariffin and Abu Bakar Jais JJCA

First is the undeniable fact that both the High Court and the Respondent chose to avoid the issue that the Respondent failed to comply with the order of discovery made by the High Court itself. The learned High Court Judge, with respect, did not address this issue at all in His Lordship’s grounds of judgment. And likewise, the counsel for Respondent, for reasons only known to them, chose not to address this issue both during the oral hearing and in the written submission.

It is undisputed that because of the order of discovery, the Appellant is entitled to Jakim’s reports and the recommendations and comments of the Publication and Quranic Text Control Division. There is also no dispute that part of Jakim’s reports and the recommendations and comments of the Publication and Quranic Text Control Division were never provided to the Appellant. And it cannot be disputed these are crucially relevant documents because the Respondent had relied on the same to issue the orders affecting the publications. The Respondent must show these documents to allay the suspicion these documents do not exist …

As indicated there is no dispute that the Respondent did not give any right of hearing to the Appellant before issuing the orders. This right should have been given … a right of hearing need not be expressly provided in a statute …

Justice Abu Bakar Jais

HOMEBUYERS’ CLAIMS FOR LATE DELIVERY

Court of Appeal: Time for delivery of vacant possession runs from the date a ‘booking fee’ was paid

Developers at times collect what is termed as a ‘booking fee’ from homebuyers of apartments prior to the parties signing the statutory sales and purchase agreement provided for in Schedule H of the Housing (Control and Licensing ) Regulations 1989 (‘Statutory SPA’). The Regulations were made pursuant to the Housing Development (Control and Licensing ) Act 1966 (‘HDA). Clause 25 of the Statutory SPA provides for delivery of vacant possession (‘VP’) within 42 months of the date of the SPA.

Issues

In cases where a booking fee is paid, should time for delivery of VP be calculated from the date of the SPA, or from the date the ‘booking fee’ is paid? This issue had come before the Courts several times. In a 2017 decision of Vazeer Alam J (now, JCA), it was held that time runs from the date the booking fee was paid. However, this decision was reversed on appeal. The same issue came before the Court of Appeal (‘CA’) in Sri Damansara Sdn Bhd v Voon Kuan Chiew and Tribunal for Homebuyer Claims. Is the CA bound by its earlier decision? The additional issue was whether liquidated damages should be calculated on the ‘discounted purchase price’.

Case summary and decision

The developer, Sri Damansara, collected a sum of RM10,000 from the homebuyer, Voon, as booking fee on 6.1.2012. The stated SPA price was RM731,080.00 and upon signing the SPA, Sri Damansara gave Voon a credit note in the sum of RM63,108. This credit note device, in the words of the CA, was to ‘attract sales’ and this resulted in a ‘discounted purchase price’ of RM667,972.00. The Tribunal decided that the date for calculating time for delivery of VP was the date of payment of the booking fee and it should be calculated on the price stated in the SPA. On judicial review, the High Court (‘HC’) affirmed the decision of the Tribunal. On appeal to the CA, the CA declined to follow its earlier decision. In a unanimous decision delivered by Lee Swee Seng JCA (Hasnah Dato Mohamed Hashim and Kamaluddin Md Said JJCA concurring) the HC’s decision was affirmed.

The CA held that the HDA is a social piece of legislation intended for the protection of homebuyers. In particular, regulation 11 (2) of the Regulations prohibits the collection of any sum of money by whatever name called except for the sums payable under the instalment payment scheme set out in the Statutory Contract. Once the booking fee is paid, the contract came into existence and the subsequent dating of the Statutory Contract and the giving of the credit note do not have the effect of altering the proper date of the contract. The developer’s argument that the booking fee was to assist the purchaser in obtaining a bank loan and this was beneficial because if the purchaser fails to obtain a loan, only an administrative fee of only RM600 would be deducted from the booking fee was dismissed — the terms of the Statutory Contract provides that an application for loan may only be made after the Statutory Contract had been signed and duly stamped.

From left: Hasnah Hashim JCA (now FCJ), Kamaludin Md Said and Lee Swee Seng JJCA

We… note that if developers were allowed to collect booking fees or any sum called by any name without the need to sign an SPA, then there is no protection afforded to the purchaser in the event the SPA is not signed. Some unscrupulous developers might want to forfeit the whole of the booking fee or deposit paid whereas under the Schedule H SPA, if the purchaser’s loan is not approved, he would be allowed to terminate the SPA and under Clause 5(3), only 1% of the purchase price would be forfeited to the purchaser and the balance refunded the purchaser …

Being a social piece of legislation, the Court should interpret the standard form Schedule H SPA in a manner in which the purchaser would not be taken advantage of or exploited in any way or made to bear an unconscionable term …

… The whole landscape of the Schedule H SPA and the HDA as well as the Regulations does not countenance a different category or classification of “purchase price” be it a “discounted purchase price” or a “reduced purchase price” or “actual purchase price”.

Justice Lee Swee Seng

STRATA MANAGEMENT ACT 2O13 (‘SMA’)

Court of Appeal: House rules prohibiting use of residential strata units as homestay are lawful

Residential strata units are commonly advertised on various internet platforms for tourists and vacationers looking for temporary or short-term accommodation (‘Activity’). In certain strata title development projects, the Activity has given rise to conflicting interest between owners of strata units — owners and their tenants or lessees who are against the Activity and owners who carry out such Activity through various internet platforms promoting the Activity.

Issues

Section 70(5)(a) of the SMA forbids the making of additional by-law prohibiting or restricting the transfer, lease or charge of or “any other dealing” with any parcel of a sub-divided building or land. What is meant by the words ‘any other dealing’? Can house rules be made by the management corporation to prohibit the Activity and impose penalties against infringers of the house rules? These issues confronted the Court of Appeal (‘CA’) in Innab Salil & Ors v Verve Suites Mont Kiara Management Corporation [2020] 2 MLJ 163.

Case summary and decision

At a general meeting of unit owners of Verve Suites Mont Kiara, a house rule prohibiting the use of residential units for business and the Activity was enacted by an overwhelming number of residents present and voting (‘HR’). The HR also provided for a penalty of RM200 for each day of infringement. Nonetheless, the Activity was continued by the defendants — renting out their units on a short-term basis to tourists and transient visitors. The defendants’ case was that the Activity falls within the meaning of ‘any other dealing’ under section 70(5)(a) of the SMA. Accordingly, it was argued that the Activity is in law a ‘tenancy exempt from registration’ within the meaning of the National Land Code 1965 (‘NLC’) and in this respect, the NLC does not provide for the minimum period in relation to tenancies exempt from registration. Thus, the HR was invalidly passed.

The High Court (‘HC’) dismissed the defendants’ arguments, holding that (a) booking of a parcel unit through the internet platform is not a ‘dealing’ within the meaning of the NLC; (b) there is no relationship of landlord and tenant created in short term rentals; and (c) the short-term house guests are akin to hotel guests and are mere licensees of their hosts. The defendants appealed to the Court of Appeal (‘CA’).

In a unanimous decision delivered by Zabariah Mohd Yusof JCA (Badariah Shahamid and Nor Bee Ariffin JJCA concurring), the CA held that the HR prohibiting the Activity was validly made in general meeting of the unit owners of Verve Suites Mont Kiara and upheld the decision of the HC. The CA rejected the argument that short-term rentals of the kind under consideration can be statutorily considered as ‘dealings’ as envisaged under the NLC. According to the CA, the short-term rentals under consideration are of such a temporary nature that it does not give rise to a true relationship of landlord and tenant. Also, any other construction given to the term ‘dealings’ in the NLC will be contrary to the purpose of the SMA.

From left: Badariah Sahamid, Zabariah Mohd JCA (now FCJ) and Nor Bee Ariffin JJCA

It is undisputed that house rule No 3 was passed by a special resolution by an overwhelming majority of the residents by way of an EGM on 25 March, 2017. The EGM was convened pursuant to a directive by COBKL, to prohibit the use of the residential units in Verve Suites advertised for short-term rentals on various internet platforms for tourists and vacationers seeking temporary accommodation. The prohibition in the house rules No 3 is strictly confined to short-term rentals but it never was meant to apply to genuine agreements for rental between the parcel owners as landlord and tenants, which is explained in the deeming provision of the short-term rental activities falling within the prohibition as stated therein …

The legislative intent of the SMA 2013 as can be discerned from the preamble of the Act is to advance interest in communal living within a strata scheme. Therefore, it would defeat the spirit and purpose of the SMA 2013 for the proprietors such as the defendants to use their residential units in the form of a business enterprise such as short term rentals. The majority of the residents have voted against the same.

Justice Zabariah Mohd (now, FCJ)

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