A.

ESSENTIAL ELEMENTS OF THE MALAYSIAN LEGAL

SYSTEM [ANSWERS] [MARCH 2020]
GENERAL LAW

1. A & B – [Basically, law refers to the rules and regulations which govern human conduct. Failure
to adhere to such rules may result in adverse consequences upon the person who is in breach].

2. D – National and Customary law

3. C - The government is responsible for creating Acts of parliament [the government is

responsible for the implementation of the law].

4. D - It also concerns itself with the operation and functions of public organisations [this is a
characteristic of public law

5. C - The state does not prosecute under public law; the government does

6. (iv) – False [other forms – imprisonment; death]

(vii) - False [burden – beyond reasonable doubt]

7. (iv) – False [concept of punishment is only in criminal law]

8. A & B – [prosecution by state for drunken driving and the pedestrian may sue for compensation
for pain and suffering]

9. A. True

10. C – The owner can only bring an action in civil proceedings as it is for a claim of damages

11. A

12. C

13. B

14. C

15. C

SUBJECTIVE – ANSWERS

1. Law – rules and regulations established by a governing authority to regulate the actions of
people.

2. Breach – penalties and punishment can be imposed

3. Civil and Criminal law

4. Civil law
• Deals with the rights and obligations of individuals and organisations
• It governs the relationship between private individuals

1
5. Main aim – to compensate the victims for damages – financial compensation

6. Civil courts – Magistrates Court, Sessions Courts and High Court as well as the Superior Courts
on appeal

7. Burden of proof - plaintiff and the standard is on a balance of probabilities

8. Criminal law
• Punishes people for the wrongful acts done by them
• Focuses on punishing the accused

9. Main aim – punishment

10. Examples
• Murder
• Rape
• Drugs

11. Initiated by the State or federal government through the prosecutor [PP v Ah Kow]

12. Prosecution has the burden of proof and the standard is beyond reasonable doubt

2
THE COURT SYSTEM

1. C - The Sessions Court, The Magistrates Court

2. D - The Federal Court, The Court of Appeal and The High Court

3. D - All of them

4. C - The victim can appeal to the 2nd class Magistrates Court or to Sessions Court

5. B - They are empowered to try civil and criminal cases where the subject matter does not exceed
RM50 in civil cases

6. B – 10years ; 5years ; RM10,000; 12 strokes

7. B - Death ; 1,000,000

8. C – Appellate

9. A. - Original, appellate, advisory and referral

10. B - 1st class Magistrate; lay

11. D

12. D

3
DELEGATED LEGISLATION

1. C
2. A
3. A
4. B
5. A
6. B
7. A
8. A
9. 1. Yes
2. Yes
3. Yes
4. No
5. Yes
10. C

4
HUMAN RIGHTS

1. B
2. C
3. C
4. D
5. C
6. B
7. A
8. A – 11
B – 13
C–9
D–8
9. B
10. B
11. B

5
LEGISLATION

1. B
2. A
3. A
4. B
5. B
6. B
7. C
8. B
9. A
10. B

6
DOCTRINE OF PRECEDENTS

1. A
2. C
3. B
4. A
5. A
6. B
7. B
8. A
9. B
10. C
11. D
12. C
13. B
14. A

7
SOURCES

1. D - Written law also consists of the law made by the judges

2. C – All of them

3. B - (i), (ii) and (iii)

4. A and B only

5. D – Malaysia follows guided democracy

6. A – Yes

7. B - Federal level; State level; statutes; enactments; ordinance

8. A. – Yes

9. B – No

10. B – No [High Court; Court of Appeal and Federal Court]

8
STATUTORY INTERPRETATION

1. C
2. A
3. A
4. B – The Golden Rule – the court will take the least absurd meaning. The ordinary sense of the
word is to be adhered to, unless it would lead to a manifest absurdity
5. B
6. B
7. A – the illustration relates to all four legged animals and hence other domestic animals such as
dogs and cats can be included but not lions and tigers.
8. B
9. A
10. B
11. A
12. C
13. C

9
PART B – THE LAW OF OBLIGATIONS
OFFER

1. D – Acceptance will only be effective to create the agreement if the accepting party is
aware of it.

2. B - No – The flyer from Clarence is merely an invitation to treat

D – No – He cannot be in breach of contract since no contract has been made. He is simply
rejecting Kean Seng’s offer [which is made is response to Clarence’s invitation to treat]

3. B – No – The display constitutes an invitation to treat only

C – Yes – An offer is made by Mati when she takes the roses to the till and proffers RM6.
The shopkeeper is free to accept or reject the offer

4. C – Advertisements are generally cases of invitation to treat

5. C - There can be no acceptance, and thus no agreement, where the person who accepts an
offer is not even aware of the offer.

6. C. - Although the price is not definite, it is sufficiently clear or ascertainable to be accepted

by Tanya.

7. B.- False. Although this is normally the case there may be exceptions. The advertisement –
Carlill v Carbolic Smoke Ball Co was held to be an offer for example.
C. - True. This was also established in the case of Carlill v Carbolic Smoke Ball Co.

8. B - No. Exhibiting goods for sale constitutes an invitation to treat, not an offer.
C - Yes. Tammy made the offer when she responded to Will's invitation to treat.

9. C - No, as the advertisement of sale was a mere statement of intention to hold a sale

10. A - The communication of proposal is complete when Baby receives the letter

11. B – An advertisement is an invitation to treat. i.e an invitation to a reader to make an offer which
the advertiser can either accept or reject

12. B

13. B [as per the illustration]

14. C – section 2(g) – an agreement not enforceable by law is said to be void.

15. A Yes.
D No. There may be exceptions in either case but this is the general position in law.

16. B - Written evidence of the principal terms of the contract

17. C

18. A - The advertisement of the auction was only an invitation to treat and not an offer

19. D - The contract is unenforceable because it is not in writing

20. D - An oral guarantee needs to be evidenced in writing and signed or acknowledged by the
guarantor (Rhiannon). George's letter is therefore insufficient.

10
1(a) In order for a valid agreement to arise there must be a PROPOSAL (offer) and an ACCEPTANCE of
that offer. A proposal (offer) is said to be made when one person signifies to another his willingness
to do or abstain from doing anything, with a view of obtaining the assent of that other to the act or
abstinence. - S.2(a) CONTRACTS ACT 1950. [You can also bring in Sec 2(b)]
[OFFER AND ACCEPTANCE]

(b) An offer must be DISTINGUISHED FROM AN INVITATION TO TREAT. While an offer may be
accepted giving rise to an agreement, an invitation to treat is only an offer to receive an offer, i.e. it
is an invitation to others to make an offer.

An example of invitation to treat displays in shop windows and a case in point is PHARMACEUTICAL
SOCIETY OF GREAT BRITAIN V BOOTS CASH CHEMIST LTD. In this case the defendants were
charged with selling certain poisons in contravention of the Pharmacy and Poisons Act 1933. The
question was whether a sale had occurred when a customer in a self-service shop selected certain
items which he desired to purchase and placed them in a wire basket.

The court held that the display in the shop only amounted to an INVITATION TO TREAT. A proposal
to purchase was made when the customer selected the items he wanted to purchase. A sale would
occur only when the cashier accepted the customer’s money.
[INVITATION TO TREAT AND PHARMACEUTICAL SOCIETY OF GREAT BRITAIN]

(c) Applying the above law to the given facts, Cindy may be advised that there is NO BINDING
AGREEMENT FOR THE PURCHASE OF THE SHOES AT HALF-PRICE. The display in the shop was only
an invitation to treat. When Cindy selected the items and brought it to the cashier’s counter to pay
she was in law making a proposal to purchase the shoes that the shop assistant was free not to
accept.
[NO OFFER; ONLY A CASE OF INVITATION TO TREAT]

11
TERMINATION OF OFFERS
1. A The original offer from Matthew is terminated and this reply from Tom constitutes a new
offer that can be accepted or rejected by Matthew.

2. A Yes.
D No. His original offer was terminated by Tamsin's counter offer, which he did not accept.

3. D In the absence of an express time limit, an offer is deemed to stay open for a reasonable
time. Given Nigel would be expecting a newborn puppy, it is likely that the offer will have
expired long before the puppy reached nine months old.

4. B No. Revocation must be communicated to the offeree. The 'postal rule' applies only to
acceptance, not revocation.
D No. A revocation need not be made expressly but may be implied.

5. C – When a per-condition is satisfied

6. A – If the event on which an offer is conditional does not transpire, the offer is no longer
Capable of acceptance and is terminated.

7. B - No, Shau’s reply on Tuesday constitutes a counter offer which destroys the original
offer

8. D - The offer remains capable of acceptance. Mary is simply asking for information
about when she can make the payment.

9. B – Nathan’s reply is a counter offer which Mark accepts. He should have revoked his
counter offer on buying the tandem from eBay by communicating that fact to Mark.

10. B – False – The offeror may still revoke the offer within than 3 month period, unless he
has bound himself to keep it open by way of a separate contract.
D – The postal rule only applies to acceptance and not to revocation

11. A - It must be in writing

12. B - Since the plaintiff proposed to purchase three other lots, this amounted to a counter proposal,
and the plaintiff claim should be dismissed [Malayan Flour Mills Bhd v Saw Eng Chee [1997]

13. A - The defendant’s order was really a counter offer. The claimant had accepted this by
returning the tear off slip [Butler Machine Tool Co v Ex –cell – O – Corp 1979]

14. B There was a contract as the claimant had merely enquired as to a variation of terms
[Stevenson v McLean]

15. A - X’s offer was a continuing commercial offer which the claimant had accepted by supply of
goods after X’s death. The guarantee was binding.[Bradbury v Morgan]

16. A - Since the condition was not fulfilled by the deadline the contract became void

17. B - A may revoke his proposal at any time before or at the moment when B posts his letter of
acceptance, but not afterwards [Section 5(1) illustration]

18. C - The revocation is complete as against A when the telegram is despatched. It is complete as
against B when B receives it

12
19. A - The offer was for a reasonable time only and five months was much more than that. The
offer had lapsed. [Ramsgate Victoria Hotel Co v Montefiore]

20. A - The communication of a proposal is complete when it comes to the knowledge of the person
to whom it is made [Section 4(1) ]

1. This question raises the issue of WHETHER JENNY HAS MADE A VALID ACCEPTANCE OF THE
PROPOSAL (OFFER) MADE BY SAMY. In order for a valid agreement to come into existence there
must first be an offer and this offer must be unconditionally accepted by the offeree.

(a) An offer (proposal) is said to be made when one person signifies to another his willingness to do
or abstain from doing anything, with a view to obtaining the assent of that other to the act or
abstinence: s.2(a) Contracts Act 1950.

An acceptance takes place when the person to whom the proposal is made signifies his assent
thereto: s.2(b) Contracts Act 1950. Such acceptance must be absolute and unqualified: s.7(a).

(b) The facts indicate that Jenny wrote to Samy expressing interest, but instead of accepting the
price of RM500,000 she asked whether Samy would accept RM450,000. Based on case law she does
not appear to have made a valid acceptance. Instead she seems to have made a COUNTER-PROPOSAL
which has the effect of extinguishing the original offer.

A case of point is HYDE V WRENCH, where the defendant had made an offer to the plaintiff to sell his
estate to the plaintiff for RM1,000. The plaintiff replied offering to purchase at RM950. When the
defendant refused, the plaintiff purported to accept at the original RM1,000.

The court held that there was no valid acceptance. The plaintiff's letter indicating his desire to
purchase at RM950 amounted to a counter-proposal only and not an absolute and unqualified
acceptance.

Hence she is unlikely to be successful in her action against Samy for breach of contract based on the
law as mentioned above

(c) The Contracts Act 1950 provides for one instance where an acceptance may be revoked.
By virtue of s.5(2), 'AN ACCEPTANCE MAY BE REVOKED AT ANY TIME BEFORE THE
COMMUNICATION OF THE ACCEPTANCE IS COMPLETE AS AGAINST THE ACCEPTOR , BUT NOT
AFTERWARDS'.

An example of this is seen in the illustration to s.5 which provides as follows: A PROPOSES BY A
LETTER SENT BY POST, TO SELL HIS HOUSE TO B. B ACCEPTS THE PROPOSAL BY LETTER SENT BY
POST.

B MAY REVOKE HIS ACCEPTANCE AT ANY TIME BEFORE OR AT THE MOMENT WHEN THE LETTER
COMMUNICATING IT REACHES A, BUT NOT AFTERWARDS'

2. This question tests the candidate's knowledge on REVOCATION OF A PROPOSAL (offer) in the law
of contract.

13
A proposal (offer) will remain valid until it is revoked by the proposer as there is no legal obligation
to keep his proposal open indefinitely. SECTION 5(1) OF THE CONTRACTS ACT 1950 PROVIDES THAT
A PROPOSAL MAY BE REVOKED AT ANY TIME BEFORE THE COMMUNICATION OF ITS ACCEPTANCE IS
COMPLETE AS AGAINST THE PROPOSER.
SECTION 6 provides that a proposal may be REVOKED in the following ways:

(a) By the COMMUNICATION OF NOTICE OF REVOCATION BY THE PROPOSER TO THE OTHER PARTY.
Further, under this section the proposer is required to communicate the revocation. Communication
by third parties not authorised by the proposer will probably valid.

The following illustration provided in s.5 serves as an example:

A PROPOSES, BY A LETTER SENT BY POST, TO SELL HIS HOUSE TO B. B ACCEPTS THE

PROPOSAL BY A LETTER SENT BY POST.

A MAY REVOKE HIS PROPOSAL AT ANY TIME BEFORE OR AT THE MOMENT WHEN B POSTS
HIS LETTER OF ACCEPTANCE, BUT NOT AFTERWARDS.

(BYRNE V VAN TIENHOVEN)

(b) By the LAPSE OF TIME PRESCRIBED IN THE PROPOSAL FOR ITS ACCEPTANCE, OR IF NO TIME
IS PRESCRIBED, BY THE LAPSE OF A REASONABLE TIME, without communication of the acceptance.
What amounts to a lapse of a reasonable time depends on the facts of each case.

In RAMSGATE VICTORIA HOTEL CO V MONTEFIORE the defendant had applied for shares in the
plaintiff company in June and was informed by the plaintiff company in November that he was
allotted the shares applied for. The defendant refused to accept the shares. The court held that as the
plaintiff had not accepted within a reasonable time, the refusal was justified.

(MACON WORKS AND TRADING SDN BHD V PHANG HON CHIN & ANOR)

(c) By the FAILURE OF THE ACCEPTOR TO FULFIL A CONDITION PRECEDENT to acceptance for
example, if A offers B employment on condition that B passes a medical examination, the offer will
be revoked if B fails the medical examination.

In FINANCINGS LTD V STIMSON the court held that there was a failure by the acceptor to fulfil an
implied condition that the car (the subject matter of the contract) would be in substantially the same
condition when the offer was accepted as when it was made. In this case the car had been
substantially damaged between the time of the offer and the acceptance.

(d) By the DEATH OR MENTAL DISORDER OF THE PROPOSER, if the fact of his death or mental
disorder comes to the knowledge of the acceptor before acceptance.

Death or mental disorder of the offeror does not automatically result in the revocation of the offer.
Knowledge of the acceptor is a crucial factor. Thus if the acceptor, in ignorance of the death or
mental disorder of the offeror, accepts the offer such acceptance would be valid.

ACCEPTANCE

1. B There must be some positive act which can be construed as acceptance.

14
2. D Lucy required written notice to have reached her by lunchtime on Friday. This means that
the postal rule is not effective to render the acceptance valid when posted. By the time
Harriet's 'acceptance' is communicated, the offer has lapsed.

3. A Yes (as was the case in Carlill v Carbolic Smoke Ball Co where acceptance was made by
conduct).
D No. The offeree may choose any reasonable method.

4. B Provided a prescribed means of communication is sufficiently particular, acceptance must

comply with it in order to be effective. If the offeree chooses to reply by another method,
he does so at his own risk if it in fact turns out to be disadvantageous to the offeror.

5. C There can be no acceptance, and thus no agreement, where the person who accepts an offer
is not even aware of the offer.

6. B The postal rule does not apply for revocation of offer

D No – The acceptance takes effect when posted on 1 June [assuming postal
acceptance was within the contemplation of the parties]

7. A True
D False – the offeror may waive the requirement for acceptance to be communicated
[either express or implied]

8. B No – When acceptance is to be made by ‘notice in writing’, this means that notice is

required to be received by the offeror and the postal rule does not apply.
D No – there is no valid consideration

9. B False
C True

10. B Yes – Peter’ revocation is not effective until received by Quentin

11. B – there is a positive act on the part of the offeree [Borhanuddin V American Assurance
Company]

12. B – By the use of the word provisional, the parties had intended their agreement to be binding
until, by mutual agreement, they made another to replace. [Branco v Cobarro] Acceptance ‘subject
to contract’ means that the offeree is agreeable to the terms of the offer but proposes that the parties
should negotiate a formal contract. Neither party is bound until the formal contract is signed

13. D – Postal rule states that acceptance is valid when a letter of acceptance is posted. [other
options – counter offer – in effect is a new offer; subject to contract – means the offeree is agreeable
to the terms but the parties should negotiate a valid contract; and a tender to perform a task is an
offer.

14. B – A unilateral contract is one where there is a promise to pay money in return for an act – such
as an offer to pay a reward for the return of an item [Sec 8 – Carlil v Carbolic Smoke Ball Co]. In
such cases acceptance need not be communicated. Under postal rule, a letter of acceptance just needs
to be posted for acceptance to be valid. If two identical offers cross in the post then there is no
contract – just two offers. Where no method of communication of acceptance is required then any
method of acceptance can be used

15. B A binding contract existed as the commencement of the building work was a positive act,
enough to imply acceptance [Bryen & Langley Ltd v Boston] Acceptance may be by express words,
by action or inferred by conduct. There must be some act on the part of the offeree to indicate his
acceptance

15
16. D - There is an offer from Derek to buy at RM700 which Nicholas Cage cannot accept [Derek
had made a counter offer on 7 June, which Nicholas Cage had rejected

17. C- Battle of the forms

18. C - The telex message was printed out on the claimants’ terminal in London. Hence the contract
was made and the acceptance took place in London; hence the writ can be issued

19. A – Yes as he was aware or had knowledge of the offer

20. C - A proposal may be revoked at any time before the communication of its proposal is complete
as against the proposer but not afterwards [section 5(1) ...communication of its acceptance...

1. The legal issue in this problem is WHETHER SILENCE WILL AMOUNT TO CONSENT, thereby giving
rise to a valid contract.

(a) The general rule is that an agreement will only come into existence where one party has made a
proposal (offer) to another and that other has accepted the proposal. The acceptance must be
communicated to the proposer.

By S.7(B) OF THE CONTRACTS ACT 1950 the acceptance may 'be expressed in some usual and
reasonable manner, unless the proposal prescribes a manner in which it is to be accepted'.

While the offeror (proposer) may waive the need for communication of acceptance, the offeree must
do something positive to accept, for example, by performing the conditions of the proposal.

SECTION 2(B) OF THE CONTRACTS ACT 1950 requires the offeree to signify his assent to the
proposal.
Thus, SILENCE ON THE PART OF THE OFFEREE CANNOT AMOUNT TO AN ACCEPTANCE. Neither can
a proposer state in the proposal that if the offeree does not reply within a stipulated time, the offer is
deemed to be accepted.

(b) This may be highlighted by the case of FELTHOUSE V BINDLEY. In this case the plaintiff wrote to
his nephew offering to buy his horse at a certain price. The letter also stated, "If I hear no more
about him, I consider the horse mine at that price". The nephew did not reply the letter. The court
held that there was no valid acceptance. The silence on the part of the nephew did not amount to
consent.

Applying the law to the present problem, Ali may be advised that he will not be successful in suing
Bidin for breach of contract.

2. The main issue here is whether there has been a valid acceptance by Bing of Ding's proposal
(offer) before Ding revoked his offer, so as to create a binding contract between them.

(a) By s.2(a) of the Contracts Act 1950, a proposal (offer) is said to be made when one person
signifies to another his willingness to do or abstain from doing anything with a view to obtaining
the assent of that other to the act or abstinence.

By s.2(b) an acceptance takes place when the person to whom the proposal is made signifies his
assent thereto.

16
Further, as a general rule, the acceptance must be communicated to the proposer. It will only be
complete upon such communication. Section 7 states that the acceptance must be expressed in some
usual and reasonable manner, unless the proposal prescribes the manner in which it is to be
accepted.

(b) However, s.4(2) of the Contracts Act 1950 provides an exception to this general rule where the
parties have contemplated the use of the post as a means of communication. By this section the
communication of the acceptance is complete as against the proposer when it is put in a course of
transmission to him so as to be out of the power of the acceptor. [Entores v Miles Far East
Corporation (1965)]

In the present problem, Bing first accepted by SMS sent on 3 August 2003 followed by letter on 4
August 2003.

(c) It is uncertain whether the acceptance by SMS is valid as there is no decided case on this point. It
is arguable that s.4(2) does not merely contemplate the use of the post as a means of communication
as the section refers to a 'course of transmission so as to be out of the power of the acceptor'. An
SMS is nowadays a very common mode of communication. It is possible that in future the courts will
hold that an SMS will constitute an effective means of communication so as to bring such
acceptances within the postal rule. On the other hand, the SMS may well be equated with
communication by telephone or telex which has been classified by case law as instantaneous
communication, not falling within the postal rule. [Brinkibons case (1983)] .

However, even if the court does not accept the SMS as a valid communication, the letter of
acceptance sent on 4 August 2003 will constitute a valid acceptance.

d) The last point to consider is the EFFECT OF THE REVOCATION OF THE OFFER MADE BY DING ON
4 AUGUST 2003.

By s.5(1), a proposal may be revoked at any time before the communication of its acceptance is
complete as against the proposer but not afterwards.

Further, by s.4(3)(b) the communication of a revocation is complete as against the person to whom it
is made when it comes to his knowledge.

Applying this to the given problem, Bing's acceptance was complete as against Ding on 4 August
2003 whereas Ding's revocation was effective only on 8 August 2003. Thus there is a contract
between Ding and Bing. Bing may therefore sue Ding for breach of contract. Ignatius v Bell (1913) .

17
INTENTION TO CREATE LEGAL RELATIONS
1. A Yes.
D No. This was the conclusion of the court in Edwards v Skyways Ltd 1964 on similar facts.
The presumption is very difficult to rebut in commercial situations.

2. A True
D False – there is a rebuttable presumption

3. C The fact that the arrangement concerns property does not mean that the
presumption does not apply, but is evidence of its rebuttal

4. A - The documents were not legally binding and the ouster clause is recognised by the
law
A – Yes – [Rose and Frank Co v Crompton Bros]

5. A - There is an intention to create legal relations as evidence showed that it was a joint
exercise and the parties expected to share any prize money that was won. The
defendants must pay the claimant his share of the prize money

6. A - The agreement was enforceable because the circumstances of the case clearly
indicate that the parties had an intention to enter into a legally binding agreement
7. B - There is no binding agreement as there is no intention to create legal relations

8. D - It shows an intention to create legal relations but is not recognised as the clause has
rebutted the intention to create legal relations

9. B - A domestic contract does not presume an intention to create legal relations

10. A. The letter of comfort was a statement of existing policy and not a promise that the
policy would continue in the future; therefore there was no intention to create legal
relations

11. A There were two agreements to consider; the daughter’s agreement to read for the bar in
exchange for a monthly allowance and the agreement by which the daughter lived in her
mother’s house and collected the rent from the tenants. Neither agreement was intended to
create legal relations

1a) Parties to an agreement must have had the intention to create legal relations. This is another
essential requirement for a valid contract. INTENTION TO CREATE LEGAL RELATIONS MEANS THAT
THE PARTIES MUST HAVE INTENDED THAT THE AGREEMENT BE LEGALLY ENFORCEABLE. The
Contracts Act 1950 is silent on this matter and English law may thus be applied.

b) There are TWO PRESUMPTIONS that apply:

(i) in BUSINESS AGREEMENTS there is a rebuttable presumption that the parties have
the intention to create legal relations.
(ii) in SOCIAL OR DOMESTIC agreements there is a presumption that the parties do not
have the intention to create legal relations. This is also rebuttable.

Agreements between spouses are often held as not having been made with the intention to create
legal relations.

18
c) For example in BALFOUR V BALFOUR the defendant who was posted to Sri Lanka promised to
pay a monthly allowance to his ailing wife who could not accompany him. His wife later sued for
breach of contract for failure to pay the allowance. The court held that there was no binding
contract as there was no intention to create legal relations.

On the other hand in MERITT V MERITT where the husband had promised to pay his wife a
monthly sum upon his leaving the matrimonial home, the court held that there was intention to
create legal relations.

In the present case, as the parties were happily married when the husband made his promise, the
presumption will be that there was no intention to create legal relation and therefore no valid
contract. The fact that the parties separated at a later date would be irrelevant.

19
CONSIDERATION
1. B False. Consideration does not need to be adequate (meaning that it does not need to equal
or exceed the value of the consideration received in return).
C True. This means that it must have some identifiable value.

2. A Yes, as it is an alternative means of payment to which Michaela was not already entitled.
C Yes, as payment of a lesser sum earlier than the date when payment is due is sufficient.

3. B No. Paying cash instead of cheque is not sufficient to support the waiver of debt by
Michael.
C Yes. The promise of payment from a third party, against whom the creditor previously had
no claim, is sufficient.

4. C Each statement is true but the doctrine is the rule stated in C.

5. C Alain and Brenda are parties to the contract. Clarissa is not

6. A True. Under the Electronic Communications Act, an electronic signature can constitute
evidence of a valid contract in the same way as a signature written in the normal way.
D False. What constitutes the terms of any contract between the parties will be a question of
fact in all the circumstances.

7. A True.
D False. It may be that neither party’s standard terms and conditions will apply. It will be a
question of fact in all the circumstances.

8. C - Executive consideration

9. C - Consideration must be sufficient but need not be adequate

10. A – Yes such a rent may be adequate but it is sufficient in law

C – Yes – this is valid consideration
11. B - No, as the claimant had not provided consideration for G’s promise
[Tweddle v Atkinson – for eg if A promises B that A will confer a benefit on C, then C cannot as a
general rule enforce A’s promise since C has given no consideration for it.]

12. A - As the wife was not a party to the contract, she cannot sue and cannot claim for the losses
suffered [Lim Foo Yong v Datuk Eric Taylor]

13. B - Executory consideration [Murugesu v Nadarajah] - that which is to take place at some
future time. The consideration for the delivery of goods would be executor if it is a promise to pay at
a future date

14. D - Is a promise to compensate for something to be done [section 26 CA 1950]

15. C - No as they did not fall under the exceptions to the general rule of consideration [the adopted
children did not satisfy the test of ‘near relation’ – section 26(a)

16. a) No – void
b) Yes – valid
c) Yes – valid
d) Yes - valid
e) Yes – valid [illustrations to section 26]

17. A - No because consideration was sufficient in law and need not be adequate [Phang Swee Kim
v Beh I Hock]

20
18. B - No as there was no sufficient consideration in law
[Collins v Godefroy – performance of an existing legal obligation imposed by statute is no
consideration for a promise of a reward

19. B - Yes, as the police had done more than what they were required to do under their duties and
this is deemed as sufficient consideration
[ Glasbrook Bros v Glamorgan CC – extra service is deemed to be sufficient consideration]

20. C - Yes, as the defendants had derived the added practical benefit of not having to engage
somebody else to complete the work and also of avoiding a penalty clause for the late performance.
[Williams v Roffey Bros & Nicholas (Contractors) Ltd – a slightly different line on payment of
additional consideration. It may be that where the party promising the additional reward has
received a ‘practical benefit’ – that will be treated as consideration even if, in law, he has received no
more than what he is already entitled to under the contract]

21. B - The plaintiff would not be successful as payment of a smaller sum will extinguish the balance
[Kerpa Singh v Bariam Singh Section 64]

22. A; C [Illustration c and d of the CA 1950]

1(a) Consideration is defined in s 2(d) of the Contracts Act 1950 as follows:

‘When at the desire of the promisor, the promisee or any other person has done or abstained from
doing or promises to do or abstain from doing , something, such act or abstinence or promise is
called consideration of the promise.’ Basically, consideration refers to the price paid by one party to
another in order to obtain the other’s consent to the agreement.

Consideration need not be in the form of money. It may be in the form of an act done or even an
abstinence or forbearance from doing something. Osman bin Abdul Ghani & Others v United Asian
Bank.

[DEFINITION OF CONSIDERATION – SECTION 26 AND SECTION 2(d)]

(b) SECTION 26 OF THE CONTRACTS ACT 1950 states that an agreement without consideration is
void. However, there are several EXCEPTIONS to this rule provided for by s.26 itself as follows:

(i) Agreements made on account of NATURAL LOVE AND AFFECTION between parties standing in
near relation to each other. Such agreements must be made in writing and must be registered under
the law (if any) for the time being in force for the registration of such documents.

The following example is provided in s.26 as an illustration of this exception:

‘A, for natural love and affection, promises to give his son, B, $1,000. A puts his promise to B in
writing and registers it under a law for the time being in force for the registration of such
documents. This is a contract.’
However, the phrase ‘near relation’ is not defined. Thus, it would be left to the courts to decide on
the facts of a particular case whether the parties were in near relation. In RE TAN SOH SIM, it was
held by the Court of Appeal that Chinese adopted children could not be regarded as being in ‘near
relation’ to the uncles and aunts of their adoptive mother.

[SECTION 26(a); TAN SOH SIM]

21
(ii) An agreement to compensate wholly or in part a person who has already VOLUNTARILY DONE
SOMETHING FOR THE PROMISOR. The following illustration is provided by the section:

‘A finds B’s purse and gives it to her. B promises to give A $50. This is a contract’.

An agreement to COMPENSATE WHOLLY OR IN PART a person who has done something which the
promisor was LEGALLY COMPELLABLE TO DO. The following illustration is provided by the section;

‘A supports B’s infant son. B promises to pay A’s expenses in so doing. This is a contract’.

[SECTION 26(b); ILLN]

(iii) An agreement to pay wholly or in part a STATUTE-BARRED DEBT. The agreement must be in
writing and signed by the person to be charged therewith or his lawfully authorised agent.

The following illustration is provided by the section:

‘A owes B $1,000 but the debt is barred by limitation. A signs a written promise to pay B $500 on
account of the debt. This is a contract’.
[SECTION 26(c); ILLN]

2) This question touches the issue of SUFFICIENCY OF CONSIDERATION.

(a) The law requires that consideration needs only to be SUFFICIENT AND NEED NOT BE ADEQUATE.
This means that so long as there is valuable consideration the courts will not question its adequacy.
EXPLANATION 2 OF S.26 may be cited as authority for this.

It states, 'An agreement to which the consent of the promisor is freely given is not void merely
because the consideration is inadequate; but the inadequacy of the consideration may be taken into
account by the court in determining the question whether the consent of the promisor was freely
given'.

[CONSIDERATION NEED NOT BE ADEQUATE BUT MUST BE SUFFICIENT; EXPLANATION 2 TO

SECTION 26]

(b) In the present case, Muthu agreed to give his calculator worth RM500 to Alice in return for
Alice's story book worth only RM 10. He now refuses to give the calculator to Alice on the ground
that the consideration is inadequate. As discussed above, consideration needs only to be sufficient.
The fact that Alice's book is worth only RM10 will not invalidate the contract.

An example is provided in ILLUSTRATION (f) OF S.26 as follows:

'A agrees to sell a horse worth $1,000 for $10. A's consent was freely given. The agreement is a
contract notwithstanding the inadequacy of the consideration'.

PHANG SWEE KIM V BEH I HOCK (1964)

In the given problem there is nothing to indicate that Muthu's consent was not freely given.
Therefore it can be concluded that there is a binding contract between Muthu and Alice. Alice may
therefore successfully sue him for breach of contract.

[ILLN f; PHANG SWEE KIM V BEH I HOCK]

22
CAPACITY
1. B – The plaintiff would succeed as the transaction is deemed to be void in law [Tan Hee Juan v
Teh Boon Kiat

2. B
D

3. B

4. B

5. A

6. A
D

7. B

8. C

9. B

10. B

11. D - A sane man, who is delirious from fever or who is so drunk that he cannot understand the
terms of the contract or form a rational judgement as to its effects on other persons interests cannot
contract whilst under such delirium
[Illustration (b) to Section 12 – effects on his interests not other persons interests]

12. B - Yes, marriage contracts is an exception to the general rule on minors’ capacity [Rajeswary v
Balakrishnan]

1(a) A minor, in the context of the law of contract, is a person who has not attained that age of
majority for the purposes of entering into a valid contract. Section 11 Contracts Act 1950 states that
only a person who is of sound mind and the age of majority is competent to contract. Further, he
must not be disqualified from contracting by any law to which he is subject. By virtue of the Age of
Majority Act 1971, the age of majority for purposes of contractual capacity is 18 years.

(b) The general rule under Malaysian law is that a contract entered into by a minor (i.e. person who
has not attained the age of 18 years) is void – MOHORI BIBEE V DHURMADOS GHOSE (1903); TAN
HEE JUAN V TEH BOON KEAT (1934). However, this general rule that minors cannot validly enter
into a contract is subject to a number of exceptions as follows:

(i) MARRIAGE CONTRACTS

Minors have been held capable of entering into marriage contracts, and are therefore liable for
breach of such a contract. This is illustrated in the case of Rajeswary & Anor v Balakrishnan &
Others (1958).

In this case, the parties to the action were Hindus. The first plaintiff was a minor and she had agreed
to marry the first defendant. Later the first defendant repudiated the contract. In an action for

23
damages for breach of promise of marriage, the first defendant pleaded that the first plaintiff did not
have the capacity to contract and that, as a consequence, the contract was void.

The court held that the contract was valid and that marriage contracts differed from other classes of
contracts. Thus the principle laid down in Mohori Bibee’s case was not applicable.

(ii) CONTRACTS FOR NECESSARIES

This exception provided for under s.69 Contracts Act 1950 states, ‘If a person, incapable of entering
into a contract, or anyone whom he is legally bound to support, is supplied by another person with
necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be
reimbursed from the property of such incapable person’.

There is no statutory definition of what amounts to necessaries. While it certainly would include
bare essentials such as food, clothing, shelter and medical attention, what constitutes necessaries
would vary from case to case depending on the minor’s station in life. Education has also been held
to be included in the term, ‘necessaries’ – Govt of Malaysia v Gurcharan Singh (1971).

(iii) SCHOLARSHIP AGREEMENTS

By virtue of the Contracts (Amendment) Act 1976, scholarship agreements between a minor and an
‘appropriate authority’ cannot be invalidated on the ground of his minority. Appropriate authority
refers to the Federal Government, State Government, statutory authority or an educational
institution, e.g. university.

(iv) CONTRACTS OF INSURANCE

By virtue of s.153(1) Insurance Act 1996, a minor may enter into a contract of insurance, if he is
aged above 10 years. However, if he is below 16 years, he has to have the consent of his parent or
guardian.

2(a). The question that arises here is the validity of the contracts entered into by Dizzie who suffers
from some kind of mental illness. One of the essential elements of a valid contract is that the
contracting parties must have the CAPACITY to enter into a contract. Section 11 of the Contracts Act
1950 states.

'EVERY PERSON IS COMPETENT TO CONTRACT WHO IS OF THE AGE OF MAJORITY AND

OF SOUND MIND AND WHO IS NOT DISQUALIFIED FROM CONTRACTING BY ANY LAW TO
WHICH HE IS SUBJECT'.

(b) Section 12 states what is a sound mind for purposes of contracting. By s.12(I ) a person is said to
be of sound mind for the purpose of contracting if at the time when he makes it, he is capable of
understanding it and of forming a rational judgment as to its effect upon his interests.

Further, by s.12(2),'a person who is usually of unsound mind but occasionally of sound mind may
make a contract when he is of sound mind'.

Section 12(3) goes on to state 'that a person who is usually of sound mind but occasionally of
unsound mind may not make a contract when he is of unsound mind.

Applying this law to the problem, it must first be determined whether Dizzie was of sound mind at
the time of entering into the contract. The question is silent on this. If she was, the contract is
clearly valid. However, if she was not of sound mind at the relevant time, there is a possibility that
she could avoid the contract.

24
(c) The Act itself does not state whether such contracts are void or voidable. There is no Malaysian
case on this point. It is likely that English law will be followed. Under English Law such contracts
are voidable at the option of the person of unsound mind if that fact is known to the other party.
(IMPERIAL LOAN CO V STONE )

Hence, if Dizzie was indeed of unsound mind at the time of entering into the contract and Mr
Queekdeal was aware of this, the contract could be avoided by Dizzie.

3.
a) ‘person’ refer to minor or a lunatic

b) ‘anyone else’ refers to if the minor or lunatic is married; then any necessities supplied to the
spouse and children – Illustration to 69

c) ‘condition in life’ refers to the minor’s station in life and his actual requirements at the time of sale
and delivery – NASH V INMAN

d)’reimbursed’ – to be paid a reasonable sum of money – GURCHARAN SINGH V GOVT OF MALAYSIA

e) ‘property of incapable person’ refers to the property of the minor; minor only pays if he has the
money to pay

f) ‘scholarship contracts’ is explained under Section 4(a) CONTRACTS (A) ACT 1976 – any agreement
or contract between an appropriate authority and any person with respect to any scholarship,
awards, bursary to a course of study,...for the purpose of education or learning.

25
CONSENT CLAUSES

1. A and C
2. C
3. B
4. A and C
5. D
6. A
7. A and C
8. A and D
9. C
10. A and C
11. B - The agreement was voidable as there was no free consent [Kesarmal v Valiappa
Chettiar]
12. A – Yes as she was an old woman and relied heavily on her nephew for everything [Inche
Noriah v Shaik Allie bin Omar]
13. C - No they were not able to discharge the burden as there was pressure
14. C - Silence or non disclosure may not amount to fraud
15. A – Yes [illn (c) to section 17]
16. B – [illn (d) to section 17]

26
TERMS OF A CONTRACT
1. A
2. A
3. A

4. D – they may be implied by statute as well by courts

5. B
6. C

7. A - Yes, the representation as to the absence of sulphur was intended to be a term of the contract
[Bannerman v White] the court will look at the importance the recipient of the information
attached to it

8. A – Where a term of a contract is found to be untrue then the party can sue for breach of contract.
A party can sue for misrepresentation when a representation proves to be untrue

9. A – A representation is something said before a contract is formed, that induces the formation of
the contract, but does not become a term of the contract

10. C - There was no binding contract because the language used was very vague to construe the
existence of a contract [Scammel v Ouston ] A binding agreement must be complete in its terms to
be a valid contract

11. A - It was an implied term that the sale of timber was subject to the obtaining of licence and
since the licence was refused, the contract became impossible to perform, leading to frustration
[Yong Ung Kai v Enting] implied terms

12. B - Yes as the tenants can only occupy the buildings with access to stairs and lifts as these are
implicit in the tenancy agreement

13. A. - Yes, if the statement is not true

14. A. Yes – Alan would not have agreed to buy the car if the model of the car was of a later period

15. C – Express terms are expressly agreed by the parties. The others are implied terms.

16. C – Previous consistent dealings and a person is deemed to have read a document if they have
signed it

1(a) The issue in this problem is whether the TERMS OF THE CONTRACT WHICH HAVE BEEN
BREACHED ARE CONDITIONS OR WARRANTIES. If the terms in question are CONDITIONS, then
Amarjit will be entitled to RESCIND THE CONTRACT. However, if the terms are only WARRANTIES,
then he will only be ENTITLED TO DAMAGES.

b) A CONDITION may be said to be a term of a contract which is so important to the main purpose of
the contract that the breach of it by one party will entitle the other to terminate it altogether
(POUSSARD V SPIERS). Although the Contracts Act 1950 does not define a condition, the SALE OF
GOODS ACT 1957, SECTION 12(2) states that, ‘a condition is a stipulation essential to the main
purpose of the contract, the breach of which gives rise to the right to treat the contract as
repudiated.’( a claim for damages as well)

27
c)A WARRANTY, on the other hand, is a term of a contract which is not important to the main
purpose of the contract (BETTINI V GYE). It is defined in the SALE OF GOODS ACT 1957, SECTION
12(3) as ‘a stipulation collateral to the main purpose of the contract, the breach of which gives rise to
a claim for damages but not a right to reject the goods and treat the contract as repudiated.’ A
breach of warranty will entitle the innocent party to claim damages only. (not a right to repudiate
the contract)

d) In the given problem, Amarjit had stipulated that he wanted the car to be fitted with a green sun
tint and an Anaconda alarm system. However, the car was in fact fitted with a grey sun tint and a
Python alarm system. THIS BREACH ON THE PART OF BESCARS BHD IS NOT ONE THAT DEFEATS
THE MAIN PURPOSE OF THE CONTRACT. THE BREACH CAN EASILY BE REMEDIED. THUS IT MAY BE
CONCLUDED THAT THE BREACH IS ONLY A BREACH OF A WARRANTY AND NOT A CONDITION.

Therefore, Amarjit will not be entitled to rescind the contract. He may only claim for damages for
breach of warranty.

28
CONTENTS OF CONTRACT

1. B Void

2. A Valid

3. A Valid

4. B Void

5. A Valid

6. B Section 30

1.
a) SECTION 30 provides that agreements, the meaning of which is not certain, or capable of being
made certain, are void.

b) This is illustrated in ILLUSTRATION (A) of the section as follows:

'A AGREES TO SELL TO B 'A HUNDRED TONS OF OIL'. THERE IS NOTHING WHATEVER TO SHOW
WHAT KIND OF OIL WAS INTENDED. THE AGREEMENT IS VOID FOR UNCERTAINTY.'

c) In the given problem Tan granted to Lim a lease, 'for as long as Lim wishes'. Applying the case of
Karuppan Chetty v Suah Thian; [KARUPPAN CHETTY V SUAH THIAN, where the agreement was
for a lease for 'AS LONG AS HE LIKES'] Tan may be advised that the purported lease is void for
uncertainty. Tan is therefore not bound by it.

d) Two main elements are AGREEMENT and CONSIDERATION.

29
CONTENTS OF CONTRACTS – EXCLUSION CLAUSES

1. A – Yes [no fraud or misrepresentation]

C - Yes

2. C - The party whose rights it restricts must be made ‘sufficiently aware’

3. A - Olley v Marlborough Court

4. A – L’Estrange v Graucob

5. A – Curtis v Cleaning & Dyeing Company

6. A – Chapelton v Barry UDC

7. A – When construing an exemption clause, the court will consider the main purpose clause. By
this, the court presumes the clause was not intended to defeat the main purpose of the contract

8. B
C

9. A

10.A

1.
(a) An exemption clause is a clause inserted in a contract which AIMS TO EXCLUDE OR LIMIT THE
PARTY’S LIABILITY IN THE EVENT OF A BREACH OF CONTRACT OR NEGLIGENCE

b) As a general rule, the courts will not interfere with the terms that parties to a contract have
agreed upon. This is illustrated in the case of PLAYING CARDS (M) SDN BHD V CHINA NAVIGATION
CO LTD.

The court held that the clause was valid. [CHARTERED BANK OF INDIA, AUSTRALIA AND CHINA V
BRITISH INDIA STEAM NAVIGATION CO LTD ]

c) The courts do intervene if the terms of the EXCLUSION CLAUSE ARE AMBIGUOUS OR CAPABLE OF
MORE THAN ONE MEANING. In such cases the courts will apply a rule of construction known as the
CONTRA PROFERENTEM RULE to interpret the exemption clause.

d) The contra proferentum rule is a rule where the EXCLUSION CLAUSE IS AMBIGUOUS OR CAPABLE
OF MORE THAN ONE MEANING, THE COURTS WOULD CONSTRUE THE CLAUSE AGAINST THE PARTY
FOR WHOSE BENEFIT IT WAS INSERTED.
A good example is the case of WALLIS SON & WELLS V PRATT & HAYNES. The court held that the
term describing the seeds was a condition of the contract. The exclusion clause related only to
warranties and not to conditions. Hence the supplier could not rely on the exclusion clause.

30
BREACH OF CONTRACT AND REMEDIES
1 B False. There will be no liability if he has a lawful excuse, for example if the contract is
discharged by frustration.
D False. The other party may seek redress in respect of that part of the performance which
did not match the contractual obligations completely.
2 D Jane has prevented complete performance and so Esther's offer to perform is sufficient
discharge of her obligations. She is entitled to be paid for duties already completed.
3 C A reasonable deduction must be made in respect of the use of the wrong paint for the hull
and wrong material for the tow straps.
4 B No. the company's obligation is to arrange accommodation. That has not been rendered
impossible, even if it has been made more difficult and/or more expensive.
C Yes.
5 B No. Express provision will prevail.
C Yes.
6 B False. This is only true where the breach is very serious.
C True.
7 B Even if the damages at (ii) are considered exceptional or abnormal, they will still be
recoverable because Barney knew about the special contract. The damages at (iii), however,
will be considered too remote.
8 B No. Normally only financial loss can be recovered but other losses may be recoverable in
exceptional circumstances: for example a sum for mental distress, where this is the main
consequence of the breach of contract.
D No. The burden of proof is on the defendant to show that the claimant failed to do so.
9 A Specific performance. Damages are normally regarded as an inadequate remedy.
C RM110,000, since this is the difference between the contract price and the market value of
the property.
10 A
11 A
12 C
13. C
14. C it is difficult to perform but not impossible
15 C
16. A and C
17. A and D [treat it as discharged and sue for damages]
18. B – such breach entitles the innocent party to treat the contract as discharged or to affirm the
contract

19. B – False – Damages are intended to put the plaintiff in a position he would have been in
If the contract had been performed
D - False – The claimant is only required to take reasonable steps

20. D – as the sum appears to be excessive based on the facts of the case
21. B – unlikely to be given

31
22. D – negative promise [A – can be positive or negative; B – not relevant; C – SP –
Difficulty in enforcement]

23. B and D

24. B

25. A

26 D - Discharge by execution

27. B - The buyer could reject the consignment as the goods did not match the description

28. C – Greater expense or difficulty than anticipated does not result in frustration

29. A – Nothing – Roti has completely mitigated his loss by selling the car

30. A - As this a genuine pre-estimate of loss, it is likely that this would be construed as an
enforceable provision for liquidated damages

1(a) Frustration may be said to occur, 'whenever the law recognises without the default of either
party a contractual obligation has become incapable of being performed because circumstances in
which performance is called for would render it a thing radically different from that which was
undertaken by the contract'. [DAVIS CONTRACTORS LTD V FAREHAM UDC]
.
SECTION 57(2) OF THE CONTRACTS ACT 1950 states that a contract to do an act which after the
contract is made, becomes impossible, or by reason of some event which the promisor could not
prevent, unlawful, becomes void when the act becomes impossible or unlawful.

(b) It is well established that DESTRUCTION OF THE SUBJECT MATTER OF THE CONTRACT results
in frustration of the contract. The contract may therefore be said to be discharged by impossibility of
performance.

A case in point is TAYLOR V CALDWELL, where a music hall hired by the defendant to the plaintiff
for a series of concerts was accidentally burnt down before the date of the concert. The court held
that there was frustration and the contract was therefore void.

(c) By S.66 OF THE CONTRACTS ACT 1950, when an agreement becomes VOID, any person who has
received any advantage or benefit under it is bound to restore it, or make compensation for it to the
person from whom he received it.
Further, by S.15(2) OF THE CIVIL LAW ACT 1956, MONEY DUE BUT NOT PAID BEFORE
FRUSTRATION, CEASES TO BE PAYABLE. Any money actually paid must be restored. S.57 of the
Contracts Act also provides for RESTITUTION when a contract becomes impossible to be performed.

Applying the above law to the given problem, Khalid may be advised that he will be successful in
suing ABC Sdn Bhd for a refund of the deposit of RM 1000 as the contract is frustrated and void.

2(a) The contract which Jana made with Prefab Construction Sdn. Bhd may be said to have been
discharged by FRUSTRATION. The doctrine of frustration in relation to contracts is dealt with in
section 57(2) OF THE CONTRACTS ACT 1950.

32
By the section, 'A CONTRACT TO DO AN ACT WHICH, AFTER THE CONTRACT IS MADE, BECOMES
IMPOSSIBLE, OR BY REASON OF SOME EVENT WHICH THE PROMISOR COULD NOT PREVENT,
UNLAWFUL, BECOMES VOID WHEN THE ACT BECOMES IMPOSSIBLE OR UNLAWFUL.'

In the given problem the contract has become impossible to perform as a result e compulsory
ACQUISITION OF THE LAND BY THE STATE GOVERNMENT (LEE KIN V CHUAN SUAN ENG). Hence the
contract has become VOID.

(b) The effect is seen under SECTION 66 OF THE CONTRACTS ACT 1950 which provides that when
‘AN AGREEMENT IS DISCOVERED TO BE VOID, OR WHEN IT BECOMES VOID, ANY PERSON WHO HAS
RECEIVED ANY ADVANTAGE UNDER IT IS BOUND TO RESTORE IT OR MAKE COMPENSATION FOR IT
TO THE PERSON FROM WHOM HE RECEIVED IT.

Further, by S.15(2) OF THE CIVIL LAW ACT 1956 MONEY DUE BUT NOT PAID BEFORE FRUSTRATION
CEASES TO BE PAYABLE. IF THE MONEY HAS ACTUALLY BEEN PAID, IT HAS TO BE RESTORED. Thus,
Jana will be entitled to claim from Prefab Construction Sdn. Bhd the amount of RM200,000 paid by
her as an initial payment.

However this may be unfair to Prelab Construction Sdn Bhd which has expended RM200,000 in the
purchase of building materials prior to the frustrating event.

Section 15(2) OF CIVIL LAW ACT 1956 ALSO TAKES THIS SITUATION INTO CONSIDERATION BY
GIVING THE COURT A DISCRETION TO ORDER PAYMENT NOT EXCEEDING THE AMOUNT OF
EXPENSES SO INCURRED, IF IT CONSIDERS IT JUST TO DO SO HAVING REGARD TO ALL THE
CIRCUMSTANCES OF THE CASE.

Thus, while Jana may be entitled to recover the amount of RM200,000 from Prefab Construction
Sdn Bhd, he may also have to pay Prefab Construction Sdn Bhd such amount as the court considers
just for the expenses incurred by it.

3.(a) SPECIFIC PERFORMANCE is an ORDER OF THE COURT REQUIRING THE PARTY WHO IS IN
BREACH OF THE CONTRACT TO PERFORM HIS PART OF THE CONTRACT EXACTLY AS HE HAD
PROMISED. Specific performance is an equitable remedy as it was first recognised by the courts of
equity. It is granted at the discretion of the courts. In Malaysia the remedy of specific performance is
provided for under the SPECIFIC RELIEF ACT 1950.
(b) By S.11 (1) SPECIFIC RELIEF ACT 1950, specific performance of any contract may be granted at
the discretion of the court in the following circumstances:

(i) When the ACT AGREED TO BE DONE IS IN THE PERFORMANCE WHOLLY OR IN PART OF A TRUST.
For example, A holds certain stock in trust for B. A wrongfully disposes of the stock. B may sue for
specific performance, compelling A to repurchase the shares.
(ii) Where there EXISTS NO STANDARD FOR ASCERTAINING THE ACTUAL DAMAGE CAUSED BY THE
NON-PERFORMANCE OF THE ACT AGREED TO BE DONE.
For example, A agrees to buy and B agrees to sell, a picture by a dead painter and two rare China
vases. A may obtain specific performance as there is no standard for ascertaining the actual damage
which would be caused by its non-performance.

(iii) When the ACT AGREED TO BE DONE IS SUCH THAT PECUNIARY COMPENSATION FOR ITS NON-
PERFORMANCE WOULD NOT AFFORD ADEQUATE RELIEF.
For example, a contract of sale of land.
(Note: Candidates are only required to state TWO of the circumstances above.)

33
(c) SECTION 20 SPECIFIC RELIEF ACT 1950 stipulates that the following contracts cannot be
specifically enforced:

(i) A contract for the NON-PERFORMANCE OF WHICH COMPENSATION IN MONEY IS AN ADEQUATE

RELIEF;

(ii) A contract which runs into SUCH MINUTE OR NUMEROUS DETAILS OR WHICH IS SO DEPENDENT
ON THE PERSONAL QUALIFICATIONS, OR VOLITION OF THE PARTIES,

(iii) A contract the TERMS OF WHICH THE COURT CANNOT FIND WITH REASONABLE CERTAINTY;
(Note: Candidates are only required to state two of the circumstances above.)

4.(a) Raja may be advised that he may sue Watamoto for breach of contract as he (Watamoto) now
refuses to sell the car. The most appropriate remedy for Raja is that of SPECIFIC PERFORMANCE.
THIS IS AN ORDER OF THE COURT BY WHICH THE PROMISOR IS ORDERED BY THE COURT TO
PERFORM AS HE PROMISED. This is an equitable remedy which may be granted at the DISCRETION of
the court.

(b) The grant of specific performance is governed by the SPECIFIC RELIEF ACT 1950 and,

by SECTION 11 (1) of the said Act, it may be granted by the court, inter alia, in the following
circumstances:

• where there exists NO STANDARD FOR ASCERTAINING THE ACTUAL DAMAGE CAUSED BY
THE NON-PERFORMANCE of the act agreed to be done.

An illustration given in the Specific Relief Act 1950

• 'A AGREES TO BUY AND B AGREES TO SELL A PICTURE BY A DEAD PAINTER AND TWO RARE
CHINA VASES. A MAY OBTAIN SPECIFIC PERFORMANCE AS THERE IS NO STANDARD FOR
ASCERTAINING THE ACTUAL DAMAGE WHICH WOULD BE CAUSED BY ITS NON-
PERFORMANCE'.

• WHEN THE ACT AGREED TO BE DONE IS SUCH THAT PECUNIARY COMPENSATION FOR ITS
NONPERFORMANCE WOULD NOT AFFORD ADEQUATE RELIEF.

A case in point is GAN REALTY SDN BHD & ORS V NICHOLAS & ORS, where the court granted
specific performance to enforce a promise to sell certain shares which were not available in the open
market.

Further, SECTION 20 of the said Act states, inter-alia, that specific performance would not be
granted where compensation in money would be an adequate relief.

In the given problem, Raja has contracted for a rare car. It is likely that he will be unable to obtain
another car of the same kind. Compensation in money may not provide adequate relief. Hence
SPECIFIC PERFORMANCE is the most appropriate remedy for Raja.

c) However, the remedy of specific performance may be lost in certain circumstances, for example
WHERE A THIRD PARTY HAS ACQUIRED THE PROPERTY IN GOOD FAITH AND FOR VALUE, WITHOUT
NOTICE OF THE ORIGINAL CONTRACT.

34
d) In the event he is unable to obtain the remedy of specific performance an alternative remedy for
Raja is to seek DAMAGES for breach of contract.

Damages, refers to monetary compensation for the loss arising from the breach of contract.
SECTION 74 OF THE CONTRACTS ACT 1950 stipulates the measure of damages recoverable which is
the same as that laid down in tile case of HADLEY V BAXENDALE, i.e:

• DAMAGES WHICH AROSE NATURALLY IN THE USUAL COURSE OF THINGS FROM THE
BREACH
• DAMAGES WHICH THE PARTIES KNEW WHEN THEY MADE THE CONTRACT TO BE
LIKELY TO
RESULT FROM THE BREACH.

Thus Raja may be able to claim as damages the difference between the contracted price and market
price at which he may be able to purchase another car of that type.

5. The REMEDIES are discussed as follows;

A) RESCISSION
This is essentially a remedy that entitles one party to a contract to put an end to it due to the breach
or default of the other party.

This remedy is found in S.40 OF THE CONTRACTS ACT 1950 WHICH STATES THAT WHEN A PARTY
TO A CONTRACT HAS REFUSED TO PERFORM OR DISABLED HIMSELF FROM PERFORMING HIS
PROMISE, THE PROMISEE MAY CHOOSE TO PUT AN END TO THE CONTRACT.

The EFFECT is seen under section S.65 OF THE CONTRACTS ACT 1950; WHEN A PERSON AT WHOSE
OPTION A CONTRACT IS VOIDABLE RESCINDS IT, THE OTHER PARTY NEED NOT PERFORM ANY
PROMISE MADE BY HIM UNDER THE CONTRACT THE PARTY RESCINDING THE CONTRACT MUST
RESTORE TO THE OTHER PARTY ANY BENEFIT RECEIVED FROM HIM.

THE PARTY RIGHTFULLY RESCINDING THE CONTRACT IS ENTITLED TO COMPENSATION FOR ANY
DAMAGE SUSTAINED BY HIM AS A RESULT OF THE BREACH OF THE CONTRACT BY THE OTHER
PARTY.
HSU SENG V CHOI SOI FUA

B) INJUNCTION
This is AN ORDER OF THE COURT DIRECTING THE DEFENDANT TO REFRAIN FROM DOING
SOMETHING IN BREACH OF THE CONTRACT. This is a preventive relief.

An example of this remedy is found in ILLUSTRATION (A) OF S.52 OF THE SPECIFIC RELIEF ACT
1950 as follows:

• A LETS CERTAIN LAND TO B. B CONTRACTS NOT TO DIG SAND OR GRAVEL THEREON. A MAY
SUE FOR AN INJUNCTION TO RESTRAIN B FROM DIGGING IN VIOLATION OF HIS CONTRACT.
Injunctions may be ‘TEMPORARY' OR 'PERPETUAL’ - S.50 SPECIFIC RELIEF ACT 1950.

• A TEMPORARY INJUNCTION is granted at the discretion of the court pending the final
outcome of the trial proper. The temporary injunction serves to preserve the status quo of
the parties until then.

35
 • The PERPETUAL INJUNCTION is granted only after the case has been heard on its merits at a
full trial. The perpetual injunction serves to permanently prohibit a defendant from doing
something. (AMERICAN CYNAMID CO V ETHICON)

C) QUANTUM MERUIT
This means ‘AS MUCH AS HE DESERVES’. This is a remedy by which a plaintiff may be able to obtain a
reasonable sum for the work already performed by him, in situations where the contract does not
provide for the amount or where the contract has been discharged by the conduct of the defendant.

The aim of such an award is to restore the claimant to the position he would have been in if the
contract had never been made, and therefore is known as a RESTITUTORY award. As it is restituory
in effect, it is usually a smaller amount than an award of damages.

This is illustrated by the case of CRAVEN ELLIS V CANONS LTD. In this case a person was appointed
as a managing director under a void agreement. He had rendered services to the company for which
he had not been paid. He could not sue on the contract, as it was void. The court held that he could
still recover a reasonable amount for the services.

6(a) In layman’s terms BREACH is defined as the NON PERFORMANCE OF ONE’S CONTRACTUAL
OBLIGATIONS WITHOUT ANY LAWFUL EXCUSE.

Section 40 of the Act defines it as; ‘WHEN A PARTY TO A CONTRACT HAS REFUSED TO PERFORM OR
DISABLED HIMSELF FROM PERFORMING HIS PROMISE, THE PROMISEE MAY CHOOSE TO PUT AN END
TO THE CONTRACT, UNLESS HE HAS SIGNIFIED, BY WORDS OR CONDUCT, HIS ACQUIESCENE IN ITS
CONTINUANCE.’

(b) The EFFECT is seen under section S.65 OF THE CONTRACTS ACT 1950; WHEN A PERSON AT
WHOSE OPTION A CONTRACT IS VOIDABLE RESCINDS IT, THE OTHER PARTY NEED NOT PERFORM
ANY PROMISE MADE BY HIM UNDER THE CONTRACT THE PARTY RESCINDING THE CONTRACT
MUST RESTORE TO THE OTHER PARTY ANY BENEFIT RECEIVED FROM HIM.

THE PARTY RIGHTFULLY RESCINDING THE CONTRACT IS ENTITLED TO COMPENSATION FOR ANY
DAMAGE SUSTAINED BY HIM AS A RESULT OF THE BREACH OF THE CONTRACT BY THE OTHER
PARTY.

(c) The contract is not automatically discharged; the injured party has the right to:

• HE CAN ELECT TO TREAT THE CONTRACT AS REPUDIATED BY THE OTHER, RECOVER

DAMAGES AND TREAT HIMSELF AS BEING DISCHARGED FROM HIS PRIMARY OBLIGATIONS
UNDER THE CONTRACT [HOCHESTOR V DE LA TOUR];
• HE CAN ELECT TO AFFIRM THE CONTRACT [AVERY V BOWDEN]

36
LAW OF TORTS
1. A There is potential liability in crime (offences of dangerous driving or driving whilst over
the alcohol limit) and potential liability to Franz in tort (negligence).

2. B False. His liability will extend only to damage and loss that is not considered to be too
remote.
D False. Negligence is one part of the law of tort.

3 D The claimant need only establish A, B and C.

4 A The test is whether the damage was reasonably foreseeable at the time, not whether it was
actually in the contemplation of the parties themselves.

5 B No. The standard is that of a reasonable qualified doctor.

D No. The test is one of knowledge and general practice existing at the time, not affected by
the benefit of hindsight or a subsequent change in practice (as there was in July).

6 A True. A higher standard of care is expected, where the defendant is aware of the claimant's
special vulnerability.
C True.

7 B The parties may be complete strangers

C The question of public policy applies; but if public policy dictates that no duty shall
exist, then none shall exist.

8. A Res ipsa loquitor is an argument by the claimant that ‘the facts speak for
themselves’ in pointing to a breach on the part of the defendant. The burden of proof
then shifts to the defendant to show that he was not negligent

9. A Volenti applies

10. D

11. A
D – This is unlikely to be sufficient. He must provide evidence of a body of professional opinion
which the court considers to be reasonable.

12. D - That there should be a special relationship of some sort between the parties [this was the
principle established by the case of Hedley Byrne – negligent misrepresentation

13. D – Nuisance

14. A - Public and private nuisance

15. A and C

16. A and C

17. A

18. B [Paris v Stepney Borough Council]

19. A and C

37
1. (a) Tort does not have a fixed definition.

It has been variously defined by scholars and judges. A learned writer on torts has defined a tort as a
CIVIL WRONG FOR WHICH THE REMEDY IS A COMMON LAW ACTION FOR UNLIQUIDATED DAMAGES
AND WHICH IS NOT EXCLUSIVELY THE BREACH OF A CONTRACT OR THE BREACH OF A TRUST OR
OTHER EQUITABLE OBLIGATION [SALMOND].

A tort may also be said to be a civil wrong which arises by operation of the law and not through the
agreement of the parties concerned. The basis of liability in tort is that no one has the right to cause
injury or damage to a person or his property. The person suffering the injury or damage has the
right to claim monetary compensation (damages) from the party who caused such injury. Trespass,
negligence and defamation are examples of torts.

(b)
(i) Negligence may be simply described as the FAILURE OF A PERSON TO DO WHAT A REASONABLE
MAN WOULD DO OR THE DOING OF SOMETHING THAT A REASONABLE MAN WOULD NOT DO .
[BLYTH V BIRMINGHAM WATERWORKS CO ].

The tort of negligence contains three elements:

(1) THE DUTY OF CARE

This means that a person (the defendant) has a duty to take reasonable steps to avoid acts or
omissions which he can reasonably foresee is likely to injure someone else.

(2) BREACH OF THE DUTY OF CARE

A breach of the duty of care is said to occur when the defendant has failed to do what a reasonable
person would have done, or has done something which a reasonable person would not have done.

(3) RESULTANT DAMAGE

This means that the defendant’s act or omission must have caused the plaintiff to suffer damages.
The damages must also be reasonably foreseeable and not too remote.

(ii) Defamation may be described as THE PUBLICATION OF A STATEMENT WHICH TENDS TO LOWER
THE REPUTATION OF A PERSON IN THE EYES OF RIGHT THINKING MEMBERS OF SOCIETY . Thus, for
example, the publication of a statement which attacks the moral character of the plaintiff, associating
him with crime, dishonesty, untruthfulness or sexual immorality would amount to defamation.
[SYED HUSIN ALI V SYARIKAT PENCHETAKAN UTUSAN MELAYU BHD & ANOR].

Defamation may be of two types, namely, LIBEL AND SLANDER.

LIBEL refers to defamation in a permanent form, for example in writing.
SLANDER, on the other hand is defamation which is not in permanent form.
Thus defamatory words which are spoken but not written will amount to slander. It must also be
noted that in an action for LIBEL THE PLAINTIFF DOES NOT HAVE TO PROVE DAMAGE whereas in AN
ACTION FOR SLANDER, THE PLAINTIFF HAS TO PROVE DAMAGE.

PROFESSIONAL NEGLIGENCE

38
1. C The accountants owe a duty of care to the body of shareholders as a whole but not to
existing or potential investors in respect of their considering whether to invest or to sell
their shareholdings (Caparo Industries plc v Dickman and others 1990).

2. D The facts are similar to Galoo Ltd v Bright Grahame Murray 1995. In such circumstances,
the court is likely to consider that the accounts were prepared for the purpose of assisting
the takeover and not just for audit purposes.

3. A Provided the type of injury is reasonably foreseeable, it does not matter that the extent of
the injury was greater.
D Provided the type of injury is reasonably foreseeable, it does not matter that it came about
in a different way.

4. A Sharon is not acting in the course of her employment when the negligent act takes place
and so there is no vicarious liability on the part of her employer. The client company has
no liability because it is not her employer.

5. A Yes. Despite taking a detour, Paddy is still acting in the course of his employment.
C Yes.

6. A Yes
D They would not have suffered any loss
7. B There can be no liability for advice given on social or informal occasions unless
there are exceptional circumstances

8. C The facts are similar to Caparo

9. B No – as the accounts were specifically drawn for the chairman [draft]

C Yes – a duty of care would be owed

10. A Yes – Galoo Ltd v Bright Grahame Murray

C Yes – Morgan’s case

11. B [Barings plc v Coopers & Lybrand 1997

12. A

1. Ali may be advised that in order to succeed in an action in the TORT OF NEGLIGENCE, a
PLAINTIFF is required to prove the following:

(i) that the defendant owed the plaintiff a DUTY OF CARE;

(ii) that the defendant BREACHED THAT DUTY OF CARE; and
(iii) that the PLAINTIFF SUFFERED DAMAGES as a consequence of that breach.

These THREE REQUIREMENTS may be further explained as follows:

DUTY OF CARE
This means that a person has a duty to take reasonable steps to avoid acts or omissions which he can
reasonably foresee are likely to injure his neighbour. The term ‘NEIGHBOUR’ refers to any person
who is so closely and directly affected by the defendant’s act or omission that the defendant must
have him in mind when he does the act or omission in question [DONOGHUE V STEVENSON ]
BREACH OF THE DUTY OF CARE

39
In addition to proving that the defendant owed the plaintiff a duty of care, it has to be shown that
the defendant has breached that duty. A breach of the duty of care is said to occur when the
defendant has failed to do what a REASONABLE PERSON WOULD HAVE DONE, OR HAS DONE
SOMETHING WHICH A REASONABLE PERSON WOULD NOT HAVE DONE. The test is one of
reasonableness. [BOURHILL V YOUNG].

RESULTANT DAMAGE
The plaintiff has to further prove that it was because of the breach of duty by the defendant that he
(plaintiff) has suffered damages. The damages must also be REASONABLY FORESEEABLE AND NOT
TOO REMOTE.[THE WAGON MOUND (No 1)].

(2) The given problem concerns the LIABILITY OF AUDITORS for negligence towards persons who
may have bought shares in a company relying on the audited accounts of a company which later turn
out to be inaccurate and misleading resulting in loss to those persons.

The facts are similar to the case of CAPARO INDUSTRIES PLC V DICKMAN (1990) where the
The House of Lords held, inter alia, that the AUDITORS DID NOT OWE ANY DUTY OF CARE TO A
MEMBER OF THE PUBLIC WHO RELIED ON THE AUDITED ACCOUNTS TO BUY SHARES IN THE
COMPANY. Further, the auditors also did not owe any duty of care to an individual shareholder who
wished to buy more shares in the company. THE AUDITOR’S DUTY WAS TO THE BODY OF
SHAREHOLDERS AS A WHOLE.

Applying the law to the current problem, Ali may be advised that he is unlikely to be successful in
his claim against the AUDITORS IN THE TORT OF NEGLIGENCE AS THEY DO NOT OWE A DUTY OF
CARE

40
PART C - LAW OF EMPLOYMENT

1. A The labels attached by the parties will be relevant but are not critical or conclusive.
2. B Mutuality of obligations needs to be present in order for a contract of service (or contract
of employment) to exist.
3. B This is because the ability to delegate the performance of his work appears to be unlimited.
If his contract only permitted him to delegate in the event that he was ill, on the other
hand, then he could be regarded as an employee, employed under a contract of service.
4. B The obligation to work as-and-when required means that mutuality of obligations is not
present and she cannot, therefore, be an employee.
5. B An employee would not register for VAT independently of his employer.
6. B Provided the instruction is lawful and reasonable, the employee is bound to comply with it.
7. A Yes.
D No. However, if he does provide one, he must exercise reasonable care and skill to ensure
that it is accurate and fair, and provides a fair overall impression of the employee
concerned.
8. C No such duty is employed at common law.
9. C Self employed
10. D This suggests a contract for services
11. D Only to obey lawful and reasonable orders
12. A Faithful service – Employer can recover the commissions
13. C
14. B and C
15. B
16. B
17. A
18. A
19. A
20. B
21. B and D
22. B
23. A and C
24. A and C
25. A
26. A and C

41
1. Jack may be advised as follows:

(a) By S.60A(1) an employee may be required to work up to EIGHT HOURS IN ONE DAY but
where the number of hours of work on one or more days of the week is less than eight, the limit of
eight hours may be exceeded on the remaining days of the week. However this is further subject to a
LIMIT OF NINE HOURS A DAY OR 48 HOURS A WEEK. Several exceptions to this general requirement
are provided under s.60A

(b) By S.60A(2) the limit may be exceeded in the case of:

o ACCIDENT, ACTUAL OR THREATENED, IN OR WITH RESPECT TO HIS PLACE OF WORK; OR

o WORK, THE PERFORMANCE OF WHICH IS ESSENTIAL TO THE LIFE OF THE COMMUNITY;
o WORK ESSENTIAL FOR THE DEFENCE OR SECURITY OF MALAYSIA; OR
o URGENT WORK TO BE DONE TO MACHINERY OR PLANT; OR
o AN INTERRUPTION OF WORK WHICH IT WAS IMPOSSIBLE TO FORESEE; OR
o WORK TO BE PERFORMED BY EMPLOYEES IN ANY INDUSTRIAL UNDERTAKING ESSENTIAL
TO THE ECONOMY OF MALAYSIA OR ANY ESSENTIAL SERVICE AS DEFINED IN THE
INDUSTRIAL RELATIONS ACT 1967.

(c) He is required to pay the employees for such overtime work and by virtue of s.60A(3)(a) the
overtime rate cannot be less than ONE AND A HALF TIMES THE HOURLY RATE OF PAY OF THE
EMPLOYEE, irrespective of the basis on which his rate of pay is fixed.

(d) By S.60 an employee is entitled to PAID SICK LEAVE at his ordinary rate of pay as
follows:

o where no hospitalisation is necessary:

o OF 14 DAYS IN THE AGGREGATE IN EACH CALENDAR YEAR, IF THE EMPLOYEE HAS

BEEN EMPLOYED FOR LESS THAN TWO YEARS;
o OF 18 DAYS IN THE AGGREGATE IN EACH CALENDAR YEAR, IF THE EMPLOYEE HAS
BEEN
EMPLOYED FOR TWO YEARS OR MORE BUT LESS THAN FIVE YEARS;
o OF 22 DAYS IN THE AGGREGATE IN EACH CALENDAR YEAR, IF THE EMPLOYEE HAS
BEEN
EMPLOYED FOR FIVE YEARS OR MORE; or

o Where hospitalisation is necessary, 60 days in the aggregate in each calendar year.

2. Koolie may be advised as follows:

(a) By S.2, 'CONTRACT OF SERVICE, MEANS ANY AGREEMENT WHETHER ORAL OR IN WRITING.
THUS BY THIS SECTION THERE IS NO REQUIREMENT THAT CONTRACTS OF SERVICE MUST BE IN
WRITING.

However, by S.10(1), 'A contract of service for a SPECIFIED PERIOD OF TIME EXCEEDING ONE
MONTH OR FOR THE PERFORMANCE OF A SPECIFIED PIECE OF WORK where the time reasonably
required for the completion of the work exceeds or may exceed one month shall be in writing.'

42
(b) By S.18(1) a contract of service may specify WAGE PERIODS NOT EXCEEDING ONE MONTH.
By S.19, every employer shall pay to each of his employees NOT LATER THAN THE SEVENTH DAY
AFTER THE LAST DAY OF ANY WAGE PERIOD, the wages less lawful deduction.

As Koolie's monthly wages is RM700 he must be paid that sum less lawful deductions by the
seventh of the following month. As such, payment between the 15th and 20th of the following
month is not lawful under the Employment Act 1955.

(c) By S.8 employees CANNOT BE RESTRICTED BY THEIR CONTRACTS OF SERVICE FROM

JOINING A REGISTERED TRADE UNION OR FROM PARTICIPATING IN THE ACTIVITIES OF
SUCH TRADE UNION, OR FROM ASSOCIATING WITH ANY OTHER PERSONS FOR THE PURPOSE
OF ORGANISING A TRADE UNION IN ACCORDANCE WITH THE TRADE UNIONS ACT 1959.

3(a) A contract of service may be terminated under the provisions of the EMPLOYMENT ACT 1955 in
the circumstances mentioned below:

(i) By s.11(1), a contract of service for a specified period of time, or for the PERFORMANCE OF A
SPECIFIED PIECE OF WORK, will terminate automatically when the specified period of time has
elapsed, or the specified piece of work has been completed.

(ii) By s.12(2), a contract of service may also be terminated by one party giving to the other NOTICE
OF HIS INTENTION TO TERMINATE IT. By s.12(4) such notice must be in writing. It must also
comply with the period of notice stated in s.12(2).

(iii) By s.13(1), either party to a contract of service may TERMINATE IT WITHOUT NOTICE (or if
notice has already been given in accordance with s.12, without waiting for the expiry of the notice)
by paying an indemnity to the other.

(iv) By s.13(2), either party to a contract of service may TERMINATE IT WITHOUT NOTICE IN THE
EVENT OF A WILFUL BREACH, by the other party, of a condition of the contract of service.

(v) By s.14, an employer may terminate the contract of service without notice, ON GROUNDS OF
MISCONDUCT OF THE EMPLOYEE, AFTER DUE INQUIRY.

(vi) Section 14(3) also allows an employee to TERMINATE HIS CONTRACT OF SERVICE WITHOUT
NOTICE, WHERE HE OR HIS DEPENDANTS ARE IMMEDIATELY THREATENED BY DANGER OF
VIOLENCE OR DISEASE, which was not undertaken by the employee in his contract of service.
(Candidates are only required to explain FOUR of the above)

(b) CONSTRUCTIVE DISMISSAL refers to a situation where the EMPLOYEE HIMSELF HAS RESIGNED
BECAUSE THE EMPLOYER HAS MADE THE WORKING ENVIRONMENT INTOLERABLE FOR THE
EMPLOYEE TO CONTINUE WORKING FOR THE EMPLOYER. By making the working conditions
intolerable the employer is deemed to have breached the contract of employment, thereby entitling
the employee to resign.

In WONG CHEE HONG V CATHAY ORGANISATION (M) SDN BHD it was stated that whether there
has been a constructive dismissal is to be determined by two factors.

o THE FIRST IS WHETHER THE EMPLOYER’S CONDUCT AMOUNTED TO A BREACH OF THE

CONTRACT OF EMPLOYMENT GOING TO THE ROOT OF THE CONTRACT , OR, WHETHER THE
EMPLOYER HAD SHOWN AN INTENTION NOT TO BE BOUND BY THE CONTRACT.

43
 o THE SECOND IS WHETHER THE EMPLOYEE MADE UP HIS MIND TO LEAVE THE
EMPLOYMENT AND ACTED WITHIN A REASONABLE TIME AFTER THE EMPLOYER ’S
CONDUCT. [BUMPUS V STANDARD LIFE ASSURANCE CO LTD]

4(a) By s 59 of the Employment Act 1955, every employee is entitled to a REST DAY OF ONE WHOLE
DAY IN EACH WEEK AS MAY BE DETERMINED BY THE EMPLOYER. Where the employee is allowed
more than one rest day in a week the second of such rest days will be considered as the rest day for
the purposes of the Act.

Section 60(1) states that an EMPLOYEE CANNOT BE COMPELLED TO WORK ON A REST DAY unless he
is engaged in work which by reason of its nature requires to be carried on continuously or
continually by two or more shifts.

Section 60A(2) permits an employer to require the employee to work on a rest day in the following
situations:

o If there is accident, actual or threatened, in respect to his place of work;

o If the performance of the work is essential to the life of the community;
o If the work is essential for the defence or security of Malaysia;
o If it involves urgent work to be done to machinery or plant;
o If there has been an interruption of work which it was impossible to foresee;
o If the work to be performed by the employees is in relation to an industrial
undertaking which is essential to the economy of Malaysia or is an essential service
as defined in the Industrial Relations Act 1967.

(b) Section 60(3) states the rate of pay of employees who are required to work during a REST DAY as
follows:

1. In the case of a DAILY OR HOURLY RATED EMPLOYEE, he must be paid:

(i) One day's wages at the ordinary rate of pay if the period of work does not exceed half his
normal hours of work, or
(ii) Two day's wages at the ordinary rate of pay if the period of work exceeds half his normal
hours of work (but does not exceed his normal hours of work).

2 In the case of a MONTHLY RATED EMPLOYEE, he must be paid:

(i) Half the ordinary rate of pay for work done on that day if the period of work does not
exceed half his normal hours of work, or
(ii) One day's wages at the ordinary rate of pay for work done on that day, if the period of
work exceeds half his normal hours of work, (but does not exceed his normal hours of work).

3 Where work is carried out in EXCESS OF THE NORMAL HOURS OF WORK, both the above categories
of employees are entitled to a rate of not less than twice their hourly rate of pay.

4. In the case of an employee employed on PIECE RATES who works on a rest day, he must be paid
twice his ordinary rate per piece.

44
5. A ‘LAY OFF’, refers to a situation, where the remuneration of the employee depends on his being
provided by the employer with work of the kind he is employed to do, and the employer is unable to
provide him such work.

By regulation 5(1) OF THE EMPLOYMENT (TERMINATION AND LAY - OFF BENEFITS)

REGULATIONS 1980 (REVISED 1983) such an employee is deemed to be laid off if:

(a) The employer does not provide such work for him on at least a total of 12
normal working days within any period of four consecutive weeks; and

(b) The employee is not entitled to any remuneration under the contract for the
period or periods (within such period of four consecutive weeks) in which he
is not provided with work:

Provided that any period during which an employee is not provided with work as a result of a rest
day, a public holiday, sick leave, maternity leave, annual leave, any other leave authorised under any
written law, or any leave applied for by the employee and granted by the employer, shall not be
taken into account in determining whether an employee has been laid off.

The AMOUNT OF TERMINATION OR LAY-OFF BENEFITS which an employee is entitled to receive

cannot be less than:

(a) 10 days' wages for every year of employment under a continuous contract of
service with the employer, if he has been employed by that employer for a period
of less than two years; or

(b) 15 says' wages for every year of employment under a continuous contract of
service with the employer, if he has been employed by that employer for two
years or more but less than five years; or

(c) 20 days' wages for every year of employment under a continuous contract of
service with the employer, if he has been employed by that employer for five years or more;

and pro - rata basis as respects an incomplete year, calculated to the nearest month. The regulations
require that such lay-off benefits must be paid by the employer to the employee not later than seven
days after the relevant date, i.e. the date on which the period of four consecutive weeks referred to
above has expired

45
PART D – THE FORMATION AND CONSTITUTION OF BUSINESS
ORGANIZATIONS

1. LAW OF AGENCY
1. B Alan effectively drops out of the picture.
2 A True.
C True.
3 C When a partner retires, a partnership should notify its creditors and usual business
suppliers etc of the retirement and should also produce new letterhead without the retired
partner's name. Agency by estoppel (or 'holding out') arises as a result of the principal's
representations (or acquiescence), not the agent's.
4 A Yes.
D No. There is also no suggestion that Emma tried to contact Natasha, or that there was no
practical way of contacting her. This would be a requirement for an agency of necessity to
arise.
5 B No. He must have capacity at both points in time.
C Yes. This is where ratification is relevant to establish an agency relationship where none
existed.
6 B No. The company did not exist when the contract was made.
C The Companies Act provides that the person who makes a contract on behalf of a company
which has not yet been formed, is liable on the contract and it is thought that that person
can also sue on the contract.
7 A True.
D False. Duties may be implied by common law and by statute.
8 A True.
D False. A contract of agency may permit limited delegation, in specific circumstances for
example, and such a provision would prevail.
9 B No, because it is an instruction to do an illegal act (since he is only 16).
D No. He cannot disobey instructions unless they are unlawful or unreasonable. Believing
(however sincerely or reasonably) that an instruction should not be carried out because it is
not in the principal's best interests, is not a permissible reason to disobey the instruction.
10 C William cannot claim for expenses incurred whilst acting outside his authority.
11 A Yes. Advertising the car falls within Walter's implied incidental authority.
D No. Specifying a sale price of RM10,000 acts as a restriction on Walter's authority and he
should seek Boris's instructions before accepting a lesser amount.
12 B False. Usual authority is authority which arises by virtue of the office that the agent holds.
C True.
13 B Karmel's acquiescence has the effect of representing to others that Chloe has the relevant
authority. This is ostensible, or apparent, authority.
14 B Reasonable advertising is usually seen as incidental to an appointment to sell goods.

46
15 B False. Such an estoppel arises only where such representation is made by the principal and
relied upon by the third party.
D False. His liability continues in respect of a third party who continues to rely on the
representation, unaware of the agent's authority having ended.
16 A Yes. Tamsin can select to sue either Abigail or Phoenix.
C Yes. Abigail is also entitled to sue, although her rights are subordinate to those of Phoenix.
17 B No. Pauline has no liability since there is no actual agency relationship.
C Yes. Thelma can sue Arthur for damages in the tort of deceit.

18 B No, he is not a sub agent for the conduct of the sale [Section 147; Illn (a)]

19 A B is not but the surveyor is, responsible to A [Section 148; Illn (a)

20. B Yes; Julie as the principal has the capacity, while Jack as the agent has also the capacity even
though he is a minor

21. A Yes; as the cigars were purchased in the course of the normal authority given to the manager
in his normal course of work [Watteau v Fenwick]

22. C No, as the position of MD gave him implied authority to bind the company on the
transaction. [Hely Hutchinson v Brayhead Ltd]

23. A. Bobby had ratified the contract made by Sunny

24. B

25. B - No, there was no agency by necessity since no emergency had arisen [Sach v Miklos – no
agency of necessity since no emergency had arisen – the defendant had sold the furniture for his own
convenience.

26. B – In the absence of instructions from the principal the agent should act according to customary
practises. [Soloman v Barker]

27. C - The defendant was bound to account for the profits gained by him for resale of the ship as it
was wrong on the part of the agent to buy the property himself, which he received from the principal
for sale unless he has disclosed this fact to the principal [De Bushe v Alt] If he does not disclose this
fact to the principal, the principal is entitled to avoid the transaction and may also recover any profit
which the agent makes from such a transaction.

28. A. - The agents cannot keep the discounts as it amounts to a secret profit since there is no
disclosure [Happisley v Knee Brothers] An agent cannot make secret profits

29. D – Frustration [operation of law]

1(a) By S.125 OF THE CONTRACTS ACT 1950, an agency is the relationship which subsists between
the principal and the agent who has been authorised to act for him or represent him in dealings with
others.

47
(b) An agency may come into existence in the following ways:

(i) BY RATIFICATION BY THE PRINCIPAL

An agency by ratification arises where the agent acts outside the scope of his authority but the
principal subsequently, accepts or ratifies the act of the agent.

Reference may be made to S.149 OF THE CONTRACTS ACT 1950 which states, ‘where acts are done
by one person on behalf of another but without his knowledge or authority, he may elect to ratify or
to disown the acts. If he ratifies them, the same effect will follow as if they had been performed by
his authority.’

(ii) BY NECESSITY
Sometimes an agency may arise as a result of an emergency or urgency of the situation. This may be
referred to as an agency by necessity. This is provided for IN S.142 OF THE CONTRACTS ACT 1950.

An agency by necessity will arise if the following conditions are satisfied:

(1) It must be impossible to obtain the principal’s instruction.

(2) The agent’s action must be necessary in the given circumstances, to prevent loss to the principal.
(3) The agent must have acted in good faith.

(iii) BY ESTOPPEL
An agency by estoppel will arise where a person (the principal) has led a third party to believe that
someone (B) was his agent when in fact he (B) was not; and the third party has relied on that
representation to his detriment.

This is provided for in S.190 OF THE CONTRACTS ACT 1950. Illustration (a) of s.190 provides the
following example:

‘A consigns goods to B for sale, and gives him instructions not to sell under a fixed price. C, being
ignorant of B’s instructions, enters into a contract with B to buy the goods at a price lower than the
reserved price. A is bound by the contract.’

2.
(i) A 'NAMED' PRINCIPAL is a principal whose identity has been brought to the knowledge of the
third party. Thus the third party would be fully aware of who exactly the agent is contracting on
behalf of.

(ii) A 'DISCLOSED' PRINCIPAL is a principal whose existence is made known to the third party but
whose identity has not been disclosed to the third party. Thus the third party would know that the
agent is contracting on behalf of someone else but does not know who exactly that principal is.

(iii) An 'UNDISCLOSED' PRINCIPAL is a principal whose existence is not made known to the third
party. Thus the third party would be contracting with the agent under the impression that he is
contracting personally with the agent and that there is no third party involved. It is only
subsequently brought to the knowledge of the third party that the person with whom he was
contracting was in fact acting on behalf of someone else.

48
(b) The general rule is that where the agent has acted on behalf of the principal he incurs no liability
under the contract. The contract is regarded as one between the principal and the third party. Only
the principal can sue or be sued upon it: S.179 CONTRACTS ACT 1950.

However, this general rule is subject to SEVERAL EXCEPTIONS. The agent may be held personally
liable to the third party by virtue of S.183 OF THE CONTRACTS ACT 1950;

(a) WHERE THE CONTRACT IS MADE BY AN AGENT FOR THE SALE OR PURCHASE OF GOODS FOR A
MERCHANT RESIDENT ABROAD.
(b) WHERE THE AGENT DOES NOT DISCLOSE THE NAME OF THE PRINCIPAL AND
(c) WHERE THE PRINCIPAL, THOUGH DISCLOSED, CANNOT BE SUED.

3(a) A person is said to be in a FIDUCIARY POSITION towards another when the relationship between
the two is one of trust and confidence. As such a person in a fiduciary position has to act honestly
and in utmost good faith in all his dealings with the other and his undertakings on his behalf. He
must in no circumstances make use of his position to obtain an advantage for himself without the
principal's consent.

One of the most common situations where an agent is likely to BREACH HIS FIDUCIARY DUTY IS
WHERE HE MAKES A PROFIT OUT OF HIS POSITION AS AGENT WITHOUT THE KNOWLEDGE OF THE
PRINCIPAL. This is known as a SECRET PROFIT. This may take the form of a bribe received by the
agent from the third party or any other form of financial advantage over and above the commission
or other remuneration agreed to between the agent and the principal.

An example of a secret profit made by a agent may be seen in the case of TAN KIANG HWA V
ANDREW S.A.CHANG. In this case the plaintiff had authorized the agent to sell a flat for RM45,000.
The agent sold it for RM54,000, without the plaintiff's knowledge. The court held that the difference
of RM9,000 amounted to a secret profit.

(b) There are SEVERAL REMEDIES available to a principal where the agent has breached his fiduciary
duty and made a secret profit. These may be summarized as follows:

(i) The PRINCIPAL MAY REFUSE TO PAY THE AGENT HIS COMMISSION OR OTHER REMUNERATION,
or recover any commission already paid. [Andrews v Ramsay & Co [1903].

(ii) The PRINCIPAL MAY SUE THE AGENT AS WELL AS THE THIRD PARTY FOR DAMAGES FOR ANY
LOSS he may have sustained through entering into the contract. [Mahesan v Malaysian Govt
Officers Co-operative Housing Society Ltd [1978]

(iii) The PRINCIPAL MAY ALSO DISMISS THE AGENT FOR BREACH OF HIS DUTY.
[Boston Deep Sea Fishing & Ice Co v Ansell (1888)]

2. LAW OF PARTNERSHIP

49
1 A A partnership business can be for a single transaction. As long as it is established with a
view to making a profit, it does not matter that it actually makes a loss. The inclusion of ‘&
Co' in the name of the business does not mean that it is a company.
2 B No. Peter bears 60% of the loss and Kieran 40%
D No. There is no implied right to receive remuneration.
3 B No. Unanimous agreement is required.
C Yes. Ordinary management decisions can be made by a majority of partners.
4 D The firm is bound by a partner's acts in the course of the business, unless he has no
authority and the third party either knows that he has no authority, or does not know or
believe him to be a partner.
5 A True.
C True.
6 B No. The assets would normally be owned by the company.
C Yes. In the event of liquidation, their liability would be limited to any amount outstanding
on their shares, together with the whole of any outstanding share premium.
7 B No. Ordinary partnerships do not need to be registered.
D No. There is no such requirement for an ordinary partnership.
8 B No (although it could be a business name). The name of the limited liability partnership
must end with 'LLP' or 'Limited Liability Partnership' in accordance with the Limited
Liability Partnerships Act 2012.
D No, this is not required.
9 D This information is not required.
10 B Unanimous agreement to the admission of new members is required.
C Yes
11 D In such cases, the member (who is an agent of the LLP) will not bind the LLP.
12 A True.
C True. Withdrawals made at any time within 2 years prior to a winding up can be claimed
back.
13. A and D

14. B and D

15. D – Partner’s act bind the firm and the partners as they agents unless the third is aware of the
lack of authority

16. A and C

17. D
18. D - This is a limited partnership under common law as the liability of one partner for the
partnership debt is limited to her capital contribution to the partnership

19. C - The firm is affected in its working by a limited partner’s death, bankruptcy or death
20. D - Some partners may not be allowed to participate in the control of the business

21. B – No Section 4(c) Partnership Act

50
 D – No – No common joint business activity

22. A. – sleeping partner

23. D - LLP’s are available to charities [LLP must be formed with the objective of making profits]

24. D - On conversion

1(a) A person who is NOT A PARTNER OF A FIRM may sometimes, either by WORDS SPOKEN OR
WRITTEN, REPRESENT HIMSELF AS A PARTNER IN THE FIRM OR KNOWINGLY ALLOW HIMSELF TO
BE REPRESENTED AS A PARTNER IN THE FIRM. In such cases there is said to be a 'holding out' that
the person is a partner.

This may be illustrated by the case of BEVAN V THE NATIONAL BANK LTD. In this case Bevan
carried on business as MW & Co and employed MW as the manager of the business. It was held by
the COURT THAT THESE FACTS AMOUNTED TO A 'HOLDING OUT' THAT MW WAS A PARTNER.

(b) By S.16 OF THE PARTNERSHIP ACT 1961, persons may be made liable as partners for such
'holding out'. The liability is based on the DOCTRINE OF ESTOPPEL.

To make a person so liable under s.16, the following REQUIREMENTS must be satisfied:

o there must have been a REPRESENTATION BY A PERSON that he is a partner or he must have
knowingly allowed someone else to represent that he was a partner when in fact he was not;

o the representation could be ORAL, WRITTEN OR BY CONDUCT;

o the third party must have RELIED on the representation;

o the THIRD PARTY MUST HAVE GIVEN CREDIT to the firm on the strength of that
representation.

It is not necessary that the representation be communicated to the person giving credit by or with
the knowledge of the apparent partner. That apparent partner will be liable as a partner even if it
was communicated to the person giving credit without his knowledge. See: Martyn v Gray (1863).

(c) However, it must be noted that the apparent partner's liability is ONLY TOWARDS PERSONS WHO
HAVE GIVEN CREDIT TO THE FIRM ON THE STRENGTH OF THE REPRESENTATION.

Section 16 further LIMITS THE LIABILITY IN RESPECT OF THE ESTATE OF DECEASED PARTNERS. It
states that where, after a partner's death the partnership business is continued in the old firm-name,
the CONTINUED USE OF THAT NAME OR OF THE DECEASED PARTNER'S NAME AS PART THEREOF
SHALL NOT MAKE THE DECEASED PERSON'S ESTATE LIABLE FOR ANY PARTNERSHIP DEBTS
CONTRACTED AFTER HIS DEATH.

2(a) By S.3(1) OF THE PARTNERSHIP ACT 1961, a partnership is, ‘the RELATION that SUBSISTS
BETWEEN PERSONS carrying on BUSINESS IN COMMON WITH A VIEW OF PROFIT’.

51
(b) The INTERESTS OF PARTNERS in the partnership property and their rights and duties in relation
to the partnership, shall be determined, subject to any agreement, express or implied, between the
partners, by the FOLLOWING RULES:

o All the partners are entitled to SHARE EQUALLY IN THE CAPITAL AND PROFITS of the
business, and must contribute equally towards the losses, whether of capital or otherwise,
sustained by the firm;
o The firm must INDEMNIFY EVERY PARTNER IN RESPECT OF PAYMENTS made and personal
liabilities incurred by him:

o in the ordinary and proper conduct of the business of the firm; or

o in or about anything necessarily done for the preservation of the business or the
property of the firm;

o A partner making, for the purposes of the partnership, any actual payment or ADVANCE
beyond the amount of payment which he has agreed to subscribe, is entitled to INTEREST AT
THE RATE OF 8% PER ANNUM from the date of the payment in advance.

(c) By SECTION 37 OF THE PARTNERSHIP ACT 1961 the court may order a dissolution of the firm in
the following circumstances:

(a) When a partner is found to be LUNATIC OR IS SHOWN TO THE SATISFACTION OF THE COURT TO
BE OF PERMANENTLY UNSOUND MIND. The application can be made to the court either by the
partner who has become lunatic or of unsound mind (through his next friend or person having title
to intervene) or through the other partner.

(b) When a partner, other than the partner suing, becomes in any other way, PERMANENTLY
INCAPABLE OF PERFORMING HIS PART OF THE PARTNERSHIP CONTRACT. Where there is a
reasonable possibility that the incapacity is only of a temporary nature, the court will refuse to order
dissolution.

(c) When a partner, other than the partner suing, has been GUILTY OF CONDUCT WHICH, IN THE
OPINION OF THE COURT IS CALCULATED TO AFFECT PREJUDICIALLY THE CARRYING ON OF THE
BUSINESS.

(d) When a partner, other than the partner suing, WILLFULLY OR PERSISTENTLY COMMITS A
BREACH OF THE PARTNERSHIP AGREEMENT OR CONDUCTS HIMSELF IN RELATION TO THE
PARTNERSHIP BUSINESS, in such a way that it is not reasonably practicable for the other partner or
partners to carry on the business in partnership with him.

(e) When the BUSINESS OF THE COMPANY CAN ONLY BE CARRIED ON AT A LOSS. Cases have held
that the loss must not be of a temporary nature.

3.(a) A partner who retires from the firm, IS NOT THEREBY AUTOMATICALLY FREED OF HIS
LIABILITY FOR PARTNERSHIP DEBTS WHETHER INCURRED BEFORE OR AFTER HIS RETIREMENT .
This is made clear by virtue of SS.19(2) AND 38(1) OF THE PARTNERSHIP ACT 1961.

By s.19(2), ‘a partner who retires from the firm, does not thereby cease to be liable for partnership
debts or obligations incurred before retirement’.

Further by s.38(1), ‘where a person deals with a firm after a change in its constitution, he is entitled
to treat all apparent members of the old firm as still being members of the firm, until he has had
notice of the change’.

52
Thus, in the case of future debts, a partner may be liable unless he has given notice in the form
prescribed by the Partnership Act.

(b) A retiring partner may, by taking appropriate measures, be released from his liability from both
existing as well as future debts of the firm.

In the case of EXISTING DEBTS, he may not be liable if there is an AGREEMENT BETWEEN HIMSELF,
THE NEW FIRM AND THE CREDITORS TO THE EFFECT THAT HE SHALL NO LONGER BE LIABLE FOR
SUCH DEBTS. Such an agreement may either be express or implied.

The authority for this is s.19(3), which states, ‘a retiring partner may be discharged from any
existing liabilities by an agreement to that effect between himself and the firm as newly constituted
and the creditors, and this agreement may be either express or inferred as a fact from a course of
dealing between the creditors and the firm as newly constituted.’

In the case of FUTURE DEBTS, the retiring partner may protect himself from liability towards new
creditors by ADVERTISEMENT IN THE FEDERAL GAZETTE, SABAH GAZETTE, OR SARAWAK
GAZETTE. s.38(2) Partnership Act 1961.

In so far as EXISTING CREDITORS ARE CONCERNED ACTUAL NOTICE IS NECESSARY.

(c) A case that illustrates this is RE SIEW INN STEAMSHIP (1934). In this case a retired partner had
placed a notice of his retirement in certain newspapers which were regularly read by some old
customers. Subsequent to his retirement these old customers lent money to the firm. They had not
read the notice in the newspapers. The court held that the retired partner was liable. The newspaper
advertisement was insufficient.

It was held in PHILLIPS SINGAPORE PRIVATE LTD V HAN JONG KWANG & ANOR (1989) that even a
notice to the Registrar of Business, of the retirement of a partner, is not sufficient notice towards old
customers of the firm. Thus, a retiring partner will be liable for the firm’s debts despite his
retirement, except to the extent discussed above.

53
3. PROMOTERS
1. A and C

2. A and D

3. A and D

4. B

5. A and C

6. A and D

7. A and C

8. A

9. A and C

10. A and C

11. A and C

12. A and C

13. B No, because it did not exist at the time the contract was made.
C Yes. The contract is between Ben and Land Managers Ltd.

14. A- The manager had made the contract on behalf of the proposed company; therefore he should
be liable [Phonogram Ltd v Lane]

15. D - It is conclusive evidence that all registrable charges are duly registered

1(a) In the words of COCKBURN C.J. IN TWYCROSS V GRANT, a promoter is ‘ONE WHO UNDERTAKES
TO FORM A COMPANY WITH REFERENCE TO A GIVEN PROJECT AND TO SET IT GOING AND WHO
TAKES THE NECESSARY STEPS TO ACCOMPLISH THAT PURPOSE'. Promoters are persons who are
likely to influence or affect the future of the company after its incorporation.

SECTION 2 defines a promoter in relation to a prospectus as ‘a person who was a party to the
preparation of a prospectus or a relevant part of the prospectuses but does not include any person by
reason only of his acting in a professional capacity’

(b) Promoters are regarded as FIDUCIARIES in relation to the company. As such they are in a
POSITION OF TRUST AND MUST AT ALL TIMES HONESTLY and for the benefit of the future company.
Very importantly, PROMOTERS MUST NOT TAKE A PROFIT FROM THE PROMOTION OF THE
COMPANY UNLESS THEY MAKE ADEQUATE DISCLOSURE. Such DISCLOSURE MUST BE MADE EITHER
TO AN INDEPENDENT BOARD OF DIRECTORS OR TO ALL THE PRESENT AND INTENDED
SHAREHOLDERS (if necessary through a prospectus).

54
(c) Remedies - First the company may seek to RESCIND the contract made with the promoters;
Erlanger v New Sombrero Phosphate Co where the promoters had bought an island for RM55,000
and later sold it to a company they formed, for a price of RM110,000. No disclosure had been made
as to the profit they were making. The court held that the company was entitled to rescind the
contract of sale. (Habib Abdul Rahman v Abdul Cader)

The company may also seek to RECOVER THE SECRET PROFIT made by the promoters. This is
illustrated in the case of Gluckstein v Barnes, where promoters had made a profit of some RM20,000
without making the necessary disclosure. The court ordered them to repay such profit to the
company.

The promoters may also be held liable for DAMAGES for breach of fiduciary duty; Re Leeds & Hanley
Theatres of Varieties Ltd.

2(a) A PRE-INCORPORATION CONTRACT is one which is purportedly made by or on behalf of a

company at a time when the company has not yet been formed. At common law such contracts were
totally void. This was because until a company was incorporated it had no capacity to contract.
Further it also could not ratify the contract after its incorporation; [KELNER V BAXTER]

(b) The Malaysian position is governed by s.65 of the Companies Act 2016.

SECTION 65(1) - ‘provides that the person who signs the pre-incorporation contract will be
personally liable for the contract.

SECTION 65(2) – ‘permits the company to ratify the contract after its incorporation’. If the company
does ratify, ‘the company shall be bound by the contract or transaction as if the company had been in
existence at the date of the contract and had been a party to the contract’.

55
4. CORPORATIONS AND LEGAL PERSONALITY

1. A
2. A and C
3. A
4. A and D
5. B
6. A and C
7. A and C
8. C Lush leather Ltd is a separate legal person, liable without limit for its own debts. Jack's
shares are fully paid up and he has no further liability. The company does not appear to be a
sham.

9. B No. On occasions the veil may be lifted in groups of companies, where a subsidiary can be
said to be acting as an agent of its holding company for example, but group companies are
not regarded as a single entity as a general rule.
C Yes. For example where a director is guilty of fraudulent or wrongful trading or is
disqualified, he may be jointly or severally liable for the company's debts. These statutory
provisions are sometimes described as instances of the veil of incorporation being lifted.

10. B No. In the absence of fraud of an agency relationship based on business activities of the
company, the separate legal personality of each company within the group will be
recognized
C. In such cases, the veil will be lifted in order to identify the company as a Neverland company

11. C - Yes, because Mr.Lee was an employee of the company and the company and Mr.Lee are two
different entities in law. A person can be both an employee [director] and a major shareholder of the
company.[Lee v Lee Air Farming]

12. C - No, as the company and the claimant were two separate entities in law and the claimant has
no insurable interest in the property [Macaura v Northern Assurance]

13. A - The claim of the minority shareholders will be rejected, as if a wrong is done to the company
the proper plaintiff would be the company itself [Foss v Harbottle]

14. C - Yes, as Mr.Horne was perpetrating a fraud by incorporating s new company and the new
company is regarded as a cloak to hide this fraud [Gilford Motor Co v Horne]

General Answer
(i) By CA2016, A PRIVATE COMPANY is one which has the follows characteristics;

(a) restricts the right to transfer its shares

(b) limits the number of members to 50
(c) prohibits any invitation to the public to subscribe for any shares in or
debentures of the company
(d) prohibits any invitation to the public to deposit money with the company for
fixed periods or payable at call, whether bearing or not bearing interest.

56
(ii) A PUBLIC COMPANY is ANY COMPANY OTHER THAN A PRIVATE COMPANY: Thus the public
company has no limitation on the number of members, nor any restriction in the memorandum or
articles on the right to transfer shares. It may invite the public to subscribe for shares or debentures,
or to deposit money with the company.

(iii) A COMPANY LIMITED BY SHARES is defined to mean A COMPANY FORMED ON THE

PRINCIPLE OF HAVING THE LIABILITY OF ITS MEMBERS LIMITED BY THE MEMORANDUM TO THE
AMOUNT (IF ANY) UNPAID ON THE SHARES RESPECTIVELY HELD BY THEM.

Thus in a company limited by shares, each member will have no further liability if he has fully paid
for his shares.

(iv) A COMPANY LIMITED BY GUARANTEE is defined in s.4 to mean A COMPANY FORMED ON

THE PRINCIPLE OF HAVING THE LIABILITY OF ITS MEMBERS LIMITED BY THE CONSTITUTION TO
SUCH AMOUNT AS THE MEMBERS MAY RESPECTIVELY UNDERTAKE TO CONTRIBUTE TO THE ASSETS
OF THE COMPANY IN THE EVENT OF ITS BEING WOUND UP.

Thus in a company limited by guarantee, the members would only have to pay up on the amount
guaranteed by them, if the company goes into liquidation.

(v) HOLDING AND SUBSIDIARY COMPANIES - A company is deemed to be the subsidiary of

another company if:

(a) THAT OTHER COMPANY:

• CONTROLS THE COMPOSITION OF THE BOARD OF DIRECTORS OF THE FIRST MENTIONED
CORPORATION;
• controls more than half of the voting power of the first mentioned corporation;
• holds more than half of the issued share capital of the first mentioned corporation (excluding
any part thereof which consists of preference shares) or

(b) the first mentioned corporation is a subsidiary of any corporation which is that other
corporation's subsidiary.

Thus for example if A Sdn Bhd, is the subsidiary of B Sdn Bhd, which itself is the subsidiary of C
Sdn Bhd, then A Sdn Bhd will be considered the subsidiary of C Sdn Bhd.

(vi) An EXEMPT PRIVATE COMPANY is A PRIVATE COMPANY IN WHICH NO BENEFICIAL INTEREST IS

HELD DIRECTLY OR INDIRECTLY BY ANY CORPORATION AND WHICH HAS NOT MORE THAN TWENTY
MEMBERS NONE OF WHOM IS A CORPORATION

1. (a) The main differences between a NON-EXEMPT PRIVATE LIMITED COMPANY and an EXEMPT
PRIVATE LIMITED COMPANY are as follows:

(i) The MAXIMUM NUMBER OF MEMBERS of a non-exempt private limited company is 50 whereas for
an exempt private company, the limit is 20.

(ii) In the case of the exempt private limited company, the MEMBERSHIP must consist only of
individuals and not corporations. Further, corporations cannot have any direct or indirect beneficial
interest in it. This restriction does not apply to non-exempt private limited companies.

57
(iii) There is also a difference in relation to FILING OF ACCOUNTS WITH THE COMPANIES
COMMISSION. A non-exempt private limited company must include an audited copy of its last
balance sheet and profit and loss account with its annual return. An exempt private limited company
is not required to do so, though it must include an auditor’s certificate. This does not mean that an
exempt private company does not have to prepare the balance sheet and profit and loss account. It is
only exempted from filing them with the Companies Commission of Malaysia.

(iv) The exempt private limited company also enjoys a DIFFERENCE IN RELATION TO LOANS TO
DIRECTORS AND LOANS TO PERSONS CONNECTED WITH DIRECTORS. Subject to certain exceptions,
the CA2016 generally prohibits a company from giving loans to its directors. Both of these sections
do not apply to exempt private companies. Exempt private companies are therefore free to give
loans to their directors and persons connected with them.

(b) A WHOLLY-OWNED SUBSIDIARY is defined in THE COMPANIES ACT 2016. It states that a
corporation is deemed to be the wholly-owned subsidiary of another corporation if none of the
members of the first mentioned corporation is a person other than:

(i) the second-mentioned corporation;

(ii) a nominee of the second-mentioned corporation;
(iii) a subsidiary of the second-mentioned corporation, being a subsidiary none of the members of
which is a person other than the second-mentioned corporation or a nominee of the second-
mentioned corporation; or
(iv) a nominee of such a subsidiary.

[is a subsidiary in which all the shares are owned by the holding company, nominees, its wholly
owned subsidiaries and the nominees of its wholly owned subsidiaries].

2(a)
(i) The COMPANY CAN SUE AND BE SUED IN ITS OWN NAME. As the company is a legal person
(though an artificial one) it has the right to institute legal proceedings in its own name.

(ii) PROPERTY OF THE COMPANY BELONGS TO THE COMPANY AND NOT ITS MEMBERS. As the
company is a separate legal person, it has the power to own property in its own name. This is quite
unlike unincorporated business associations, where the property may have to be registered in the
names of some or all of its members;[MACAURA V NORTHERN ASSURANCE CO LTD ].

(iii) A company MAY BE FORMED WITH LIMITED LIABILITY. This means that the members of the
company will not be liable for the debts of the company beyond the amount of capital they had
agreed to subscribe. This is quite unlike an unincorporated association where the members will be
liable to the full extent of its debts.

(b)
A PRIVATE COMPANY IS ONE WHICH HAS A SHARE CAPITAL AND ITS CONSTITUTION:

(i) restricts the right to transfer its shares;

(ii) limits to not more than 50 the number of its members (counting joint holders of shares as one
person and not counting any person in the employment of the company or of its subsidiary or any
person who while previously in the employment of the company or of its subsidiary was and
thereafter has continued to be a member of the company);
(iii) prohibits any invitation to the public to subscribe for any shares in or debentures of the
company; and
(iv) prohibits any invitation to the public to deposit money with the company for fixed periods or
payable at call, whether bearing or not bearing interest.

58
A PUBLIC COMPANY IS DEFINED AS ANY COMPANY OTHER THAN A PRIVATE COMPANY. Therefore a
public company is one that does not need to have a share capital, is free to invite the public to
subscribe for its shares or debentures and does not need to restrict the right of its members to
transfer their shares.

3(a). On incorporation, A COMPANY BECOMES A SEPARATE LEGAL ENTITY DISTINCT FROM ITS
MEMBERS. THE COMPANY IS DIFFERENT AND DISTINCT FROM ITS MEMBERS IN LAW. IT HAS ITS
OWN NAME, ITS ASSETS AND LIABILITIES ARE SEPARATE AND DISTINCT FROM THOSE OF ITS
MEMBERS. It is capable if owning property, incurring debt, and borrowing money, having a bank
account and entering into contracts etc [Salomon v Salomon]

(b) The legal issue in the given problem concerns the concept of the company as a separate legal
entity and the lifting of the veil of incorporation. THE GENERAL RULE IS THAT ONCE A COMPANY IS
INCORPORATED, IT IS CLOTHED WITH A VEIL OF INCORPORATION AND BECOMES A SEPARATE
LEGAL ENTITY DISTINCT FROM ITS MEMBERS AND OTHERS. This may be illustrated by the well-
known case of SALOMON V SALOMON & CO LTD (1897) as well as S.20 OF THE COMPANIES ACT
2016.
However, at COMMON LAW, courts recognised the need to lift the veil of incorporation in certain
circumstances and treat the company and its members as one and the same, in the INTERESTS OF
JUSTICE AND EQUITY. One such situation, which applies to the present problem is where the
COMPANY WAS SET UP TO PERPETRATE A FRAUD OR EVADE A LEGAL OBLIGATION.

This may be illustrated by the case of JONES V LIPMAN (1962). [In this case, Lipman agreed to sell a
piece of property to Jones. Later, Lipman decided not to sell the property. He then transferred the
property to a company which he formed, with the intention of evading a possible claim for specific
performance by Jones. When Jones sued for specific performance, Lipman argued that the property
had already been sold to a third party, i.e. the company.

The court lifted the veil of incorporation of the company, holding that Lipman and the company
were one and the same and ordered specific performance against Lipman and the company.][Facts
are not necessary]

Applying the law to the present problem, Mikko may be advised that the court is likely to lift the
veil of incorporation of Teepu Sdn Bhd and treat Chitto and Teepu Sdn Bhd as one and the same
because the COMPANY WAS FORMED BY CHITTO FOR A FRAUDULENT PURPOSE I.E. TO EVADE HIS
LEGAL OBLIGATION TOWARDS MIKKO. Thus, Mikko is likely to be successful in her claim for
specific performance against both Chitto and Teepu Sdn Bhd.

59
5. THE COMPANY’S CONSTITUTION
1. A
2. A & C
3. A
4. A & C
5. A & C
6. A
7. C
8. C
9. A
10. A & C

1(a) Any alteration of the constitution must be made bona fide for the benefit of the company and its
members as a whole. In normal circumstances an alteration of the constitution to give directors
power to compulsorily acquire the shares of a member will not be permitted by the court: BROWN V
BRITISH ABRASIVE WHEEL CO (1919). Such a resolution will be considered as an unlawful
expropriation of members’ property and as a fraud on the minority.

However, an alteration to allow directors to compulsorily acquire the shares of members who are in
competition with the company may be considered to be for the benefit of the company. In
SIDEBOTTOM V KERSHAW, LEESE AND CO (1920) such an alteration was held to be valid as it was
for the company’s benefit not to have competing members.

Mat may be advised that on the authority of Sidebottom’s case, the alteration will be valid.

(b) The company may alter the constitution by the passing of a SPECIAL RESOLUTION.

However, any such alteration is subject to the following RESTRICTIONS:

(i) The alteration must not contain anything illegal.

(ii) The alteration cannot authorise anything forbidden by the constitution.
(iii) The alteration must not require members to take, or subscribe for more shares or increase their
liability to the company unless they have given their written consent
In addition, any alteration must be done bona fide for the benefit of the company as a whole.

Basically this means that THE ALTERATION MUST BE FAIR TO ALL THE MEMBERS AND MUST NOT
DISCRIMINATE BETWEEN CLASSES OF SHAREHOLDERS. - GREENHALGH V ARDERNE CINEMAS
(1951); BROWN V BRITISH ABRASIVE WHEEL CO LTD (1919).

In Brown v British Abrasive Wheel Co Ltd, the court held that this was not bona fide for the benefit
of the company. It amounted to a FRAUD ON THE MINORITY AND THE ALTERATION WAS NOT
VALID.

Applying this law to the present problem, Kechik may be advised that the proposed alteration could
be challenged on the ground that it is not bona fide for the benefit of the company because such

60
alteration will only benefit Mr Kam and Mr Goh and will not be for the benefit of all the
shareholders.

2(a) THE COMPANIES ACT 2016 provides that the name of the company is one of the matters which
must be stated in the constitution. THE COMPANIES ACT provides that a company may alter its
name by passing a SPECIAL RESOLUTION. Thus, if the three-fourths majority required for a special
resolution can be achieved, the name of a company can be altered. This right of the majority to alter
the name of a company cannot be taken away by a clause in the constitution as such a clause will
conflict with a statutory right of the members.

Manis may be advised that the clause in the constitution which provides that the name of the
company is unalterable is void and is not binding on ABC Bhd and its members. Manis will therefore
be unsuccessful if she challenges the validity of the alteration.

4(b) By THE COMPANIES ACT 2016, a company may by special resolution resolve that its name
should be changed to a name by which the company could have been registered without
contravention of the Act

A company shall not be registered by a name which, in the opinion of the Registrar, is undesirable or
is a name, or a name of a kind, that the Minister has directed the Registrar not to accept for
registration, unless the consent of the Minister is obtained.

Further a limited company must have the word 'Berhad' or the abbreviation 'Bhd' as part of and at
the end of its name. If the company is a private company it must have the word 'Sendirian' or the
abbreviation 'Sdn' as part of its name immediately before the word 'Berhad' or abbreviation 'Bhd'.

Thus, Ainon and Banu may be advised that, subject to the restrictions mentioned above, they could
have the name of the company altered by special resolution. Upon approval by the Registrar, a
certificate of incorporation under the new name will be issued to the company.

3. By virtue of S.33(1) COMPANIES ACT 2016, the constitution, when registered bind the company
and the members to the same extent as if they have signed and sealed covenants to observe all the
provisions of the constitution.

As a result of this it has been held that where a company has breached the articles, the member may
sue the company to enforce the constitution and likewise where the member has breached the terms
of the constitution, the company may sue.

The constitution also may be enforced by one member against another because the constitution also
form the basis of a contract between members inter se: BORLAND'S TRUSTEE V STEEL BROS & CO
LTD ; GREENHALGH V ARDERNE CINEMAS LTD

Thus, Emma may be able to enforce the constitution against Chan and insist on the right to
purchase his shares.

The articles, however, do not form a contract between the company and the outsider: ELEY V
POSITIVE LIFE ASSURANCE CO. Thus, Ahmad may be advised that he would not be able to enforce
the article against the company to insist that he be appointed as solicitor of the company.

61
GENERAL QUESTIONS ON COMPANY LAW

1. A and C
2. A
3. A
4. A
5. B
6. A

62
PART E – CAPITAL AND FINANCING OF COMPANIES
SHARE CAPITAL
1. B. False. Class rights are those rights enjoyed by a category of shares (a ‘class') that are not
enjoyed by other shares in the company.

2. B A special resolution is required, or written consent from at least 75% in nominal value of
the issued shares of that class.

3. A Yes.
D No. The court may only confirm or cancel the variation. It may not alter it.

4. A and C

5. A and C

6. C

7. C

8. A and C

9. B

10. A

11. C

12. A and C

13. A and C

14. A

15. B

16. D

17. B

18. C

19. A

20. D

1.(a) The rights which may be given to preference shareholders may be stated and explained as
follows:

(I) RIGHT TO A FIXED PREFERENTIAL DIVIDEND.

Preference shareholders are usually given a fixed rate of dividend which will be paid to them before
any dividend is paid to the ordinary shareholders. However, this right is subject to the overriding
principle that dividends can only be paid out of profits.
(II) RIGHT TO CUMULATIVE DIVIDENDS.

63
This refers to the right of a preference shareholder who has not been paid his dividend in a
particular year to have that dividend paid in a subsequent year from profits made in that year. Thus,
if a company was unable to pay the preference shareholders their fixed dividend in 2015 it would
have to pay that dividend from profits made in 2016 or any subsequent year. Preference shares are
deemed to be cumulative unless the articles state otherwise

(b) (i) Where a company has adopted THE COMPANIES ACT 2016, in relation to a variation of class
rights. By this article, the class rights attached to any class of shares may be varied by one of the
following ways:

(1) by the written consent of the holders of three-fourths of the issued shares of that class; or
(2) by a SPECIAL RESOLUTION passed at a separate meeting of that class of shareholders.

2. Yusof may be advised as follows.

(i) It is legal for private companies to restrict the right of shareholders to transfer their shares.
Indeed it is a requirement of THE COMPANIES ACT 2016 that there must be a restriction on the right
to transfer shares, in the case of a private company limited by shares.

The right to restrict the transfer of shares may be in the form of a power given to the directors, or in
the form of a pre-emption right in the constitution, which requires members wishing to sell their
shares, to first sell to other members willing to buy.

(ii) By VIRTUE OF THE COMPANIES ACT if a company refuses to register a transfer of any
shares, debentures or other interests in the company, it must send a notice of the refusal to both the
transferor and the transferee within one month after the date on which the transfer was lodged with
the company.

(iii) When the directors have been given a DISCRETION TO REFUSE TO REGISTER A TRANSFER
OF SHARES, SUCH DISCRETION IS IN THE NATURE OF A FIDUCIARY POWER AND MUST BE EXERCISED
BONA FIDE FOR THE BENEFIT OF THE COMPANY power and they have exercised it in such a manner
is a question of fact.

In situations where the constitution empower the directors to refuse to transfer on certain
prescribed grounds, and the directors have refused on other grounds, the refusal may be challenged -
KESAR SINGH V SEPANG OMNIBUS BUS CO LTD; LIM OW GAIK V SUNGAI MERAH BUS CO LTD.

However, where the constitution confer an unfettered power upon the directors to refuse to register
a transfer, it is unlikely that the court will interfere unless the plaintiff can prove that the directors
did not exercise their discretion bona fide for the benefit of the company as a whole.

In RE SMITH & FAWCETT LTD (1942) the court held that since the director had an absolute
discretion and the plaintiff did not satisfy the court that it was not exercised in the best interests of
the company, the plaintiff failed.

Encik Yusof may therefore be advised that as the constitution of Happy Trading Sdn Bhd gives the
directors an absolute discretion, it would be difficult to challenge the decision of the directors.

3. CLASS RIGHTS are rights attached to a class of shares. The usual classes of shares are ordinary
shares and preference shares. A variation of class rights means an alteration or abrogation of the
rights attached to a class of shares.

64
It is important to DISTINGUISH BETWEEN A VARIATION OF CLASS RIGHTS AND A MERE VARIATION
OF THE ENJOYMENT OF CLASS RIGHTS. Such a distinction can be seen in the cases of WHITE V
BRISTOL AEROPLANE CO LTD [1953] AND GREENHALGH V ARDERNE CINEMAS [1946]

In the White v Bristol Aeroplane case, the court held that there was no variation of the rights of the
preference shareholders. They would have exactly the same rights after the proposed issue as before.
At the most it only affected the enjoyment of the class rights.

Where there is indeed a VARIATION OF CLASS RIGHTS, the proper procedure for variation has to be
followed. The PROCEDURE is usually provided for in the constitution.

By this article the variation of class rights may be effected either by obtaining the written consent of
the holders of three fourths of the issued shares of that class or by a SPECIAL RESOLUTION PASSED
AT A SEPARATE MEETING OF THAT CLASS OF SHAREHOLDERS.

Applying the law to the given problem it may be concluded that the second issue of preference
shares carrying the same dividend and voting rights as the first will not amount to a variation of the
class rights of the holders of the first issue of preference shares. [if the procedure had been
undertaken]

(b) If the proposed second issue of preference shares were TO RANK PARI PASSU WITH THE FIRST
ISSUE, IT WOULD AMOUNT TO A VARIATION OF THE CLASS RIGHTS ATTACHED TO THE FIRST ISSUE .
This is stipulated in S91(5) THE COMPANIES ACT 2016 which states that the issue of preference
shares ranking pari passu with existing preference shares shall be deemed to be a variation of the
rights of the existing preference shareholders, UNLESS the terms of the first issue expressly
authorised future issues ranking pari passu with the earlier issue.

65
2. LOAN CAPITAL
1. A Yes.
D No, (prior to the floating charge crystallising).
2. D In addition, the occurrence of an event specified in the charge (for example non-payment of
debenture interest on the due date) may also result in crystallisation.
3. A Yes. No special form of words is essential to create a floating charge.
C Yes. Any label attached to a charge by the parties to it is not conclusive. Whether a
charge is fixed or floating will depend on all the circumstances.
4. A True.
D False. Failure to register is an offence but punishable by a fine only.
5. B and C (applies for the future assets as well)
6. C (30 DAYS – S 108)

7. D

8. A AND C

9. B

10. A

11. B AND C

12. A AND C

13 B – floating charge [r in right of British Columbia v Federal Business Development Bank

14. D - Fixed charge followed by a floating charge and then another fixed charge– the floating
charge will have the priority over the fixed charges [fixed will always have priority if in compliance
with the law]

15. B - A fixed charge can be created by any person on any asset owned by him; while floating
charges can be created only by an incorporated body

1. (i) According to Romer LJ in RE YORKSHIRE WOOLCOMBERS ASSOCIATION LTD (1903) 2 CH

284, a charge would be a floating charge if it has the following characteristics.

(a) IT IS A CHARGE ON A CLASS OF ASSETS PRESENT AND FUTURE.

(B) THE CLASS FLUCTUATES FROM TIME TO TIME IN THE ORDINARY COURSE OF BUSINESS;
(C) IT IS CONTEMPLATED BY THE PARTIES THAT UNTIL THE LENDER TAKES STEPS TO
ENFORCE HIS SECURITY, THE COMPANY IS FREE TO DEAL WITH THE ASSETS IN THE ORDINARY
COURSE OF BUSINESS.

Thus, the floating charge is a type of charge that does not immediately attach to the assets subject to
the charge. Unlike a fixed charge it gives the company the freedom to deal with the assets until the
lender chooses to enforce the security or some other crystallising event takes place.

66
(ii) Yes, the fixed charge and the floating charge have to be registered with the Registrar of
Companies. The CA 2016 requires the charge to be lodged for registration by the company
concerned or by any person who is interested in the documents. It also REQUIRES THAT SUCH
REGISTRATION BE DONE WITHIN 30 DAYS AFTER THE CREATION OF THE CHARGE.

(iii) By CA 2016 where the charge is not registered as required by the section, the charge shall so far
as the security is concerned be VOID AGAINST THE LIQUIDATOR AND ANY CREDITOR OF THE
COMPANY. Further by CA 2016 when a charge becomes void under the section, the money secured
thereby becomes immediately repayable; i.e. the lender need not wait till the due date for repayment
to claim the sum lent.

(iv) Yes, it is possible- CA 2016 ALLOWS FOR AN EXTENSION OF TIME FOR REGISTRATION, AS WELL
AS A RECTIFICATION OF THE REGISTER OF CHARGES. An application would have to be made to the
court. Before the court allows the extension of time, it must be satisfied that the omission to register
on time was accidental or due to inadvertence or to some other just cause, or not of a nature to
prejudice the position of shareholders and creditors or that it is otherwise just and equitable to grant
relief.

2. (a) A FIXED CHARGE is a charge on a specific asset or assets of a company. The fixed charge
attaches immediately to the asset concerned. After the creation of a fixed charge, the company
cannot dispose of the said asset free of the charge. Fixed charges are most commonly given over
land.

The FLOATING CHARGE, on the other hand, is one which does not immediately attach to the assets
concerned and gives the chargor freedom to continue to deal with the assets in the ordinary course
of business.

In RE YORKSHIRE WOOLCOMBERS’ ASSOCIATION (1903), it was stated that a charge will be a

floating charge if it has the three characteristics mentioned below.
(i) It is a charge on a class of assets present and future.
(ii) The class of assets fluctuates in the ordinary course of business.
(iii) Until such time that the lender takes steps to enforce his security, the company is free to deal
with the assets in the ordinary course of business.

(b) COMPANIES ACT 2016 lists the charges that require registration. Among them are the following:

(i) a charge to secure any issue of debentures;

(ii) a charge on uncalled share capital of the company;
(iii) a charge on land wherever situate or any interest therein;
(vi) a charge on book debts of the company;

(c)The CONSEQUENCES OF THE FAILURE TO REGISTER a registrable charge are stated in the CA
2016. By the Act, the charge will, in so far as any security on the company’s property or undertaking
is thereby conferred, be VOID AGAINST THE LIQUIDATOR AND ANY CREDITOR OF THE COMPANY. It
further provides that when a charge becomes void under the section, the money secured thereby
becomes immediately repayable.

3. A DEBENTURE is essentially an evidence of a debt owed by a company. Chitty J in the case of

LEVY V ABERCORRIS SLATE AND SLAB CO (1887) stated that ‘…a debenture means a document
which either creates a debt or acknowledges it, and any document which fulfils either of these
conditions is a ‘debenture’…’

67
COMPANIES ACT 2016 defines debenture to include ‘debenture stock, bonds, notes and any other
securities of a corporation whether constituting a charge on the assets of the corporation or not’.

(c) The FLOATING CHARGE SUFFERS FROM A NUMBER OF DISADVANTAGES as a security to a lender.
These are summarised below:

(i) The value of the security will be uncertain as the company is free to deal with the assets in the
ordinary course of business.

(ii) The floating charge ranks lower in priority in comparison with a fixed charge over the same
assets, even if the floating charge was created before the fixed charge, unless the floating charge
restricts the creation of subsequent charges ranking in priority to the floating charge and the
subsequent fixed chargee has notice of it.

(iii) Assets subject to a floating charge may themselves be subject to a retention of title clause in
favour of a seller of goods. In such a case, if the chargor had not paid for the goods, the seller of the
goods may be entitled to those goods and the floating chargee would have no claim to them.

(iv) The assets subject to a floating charge may be lost to judgement creditors, who have levied and
completed execution on the goods charged. Prior to crystallisation the floating chargee cannot
prevent judgement creditors from levying execution.

(v) Prior to crystallisation, the assets may be seized and sold by a landlord who has taken distress
proceedings for overdue rent.

(vi) The assets subject to a floating charge may be utilised to pay off certain preferential creditors, if
the company does not have sufficient funds to pay them..

(vii) Floating charges created within six months of the commencement of a winding up will be
invalid except to the amount of cash paid to the company at the time of, or subsequent to, the
creation of the charge, unless the company was solvent immediately after the creation of the charge.

68
CAPITAL MAINTENANCE
1. A – all of them
2. D – only limited companies
3. B
4. B
5. B – cash dividends are not payable out of the share premium account
6. A and C – it is the majority shareholders who will initiate the move
7. B
8. A and C
9. A and C
10. A and C
11. B
12. C
13. a) False – As a general a company is prohibited from issuing shares at a discount
b) False – A company make not as a general rule make a distribution except out of profits
available for distribution
c) True – The share premium account contains the amount equivalent to the share premium
collected by the company
d) False – Shareholders cannot increase the amount of capital; they can however the reduce the
capital

14. D - Declaring or recommending a dividend after honesty relying on the facts and figures which
reasonably disclose an apparent distributable profit out of which the dividend could be properly paid

15. A - Imprisonment of 5 years or a fine of RM3,000,000 or both

16. B - Members voting in the general meeting can authorise the payment of an unlawful dividend

1(a) The LEGAL ISSUE that arises in this problem is whether the company can give any form of
financial assistance to anyone to enable him/her to purchase its shares. SECTION 123 of the
Companies Act 2016 clearly states that a company cannot, whether directly or indirectly, give any
form of financial assistance to facilitate the purchase of its shares.

FINANCIAL ASSISTANCE includes the giving of loans as well as the provision of security in respect of
loans given by any other party to facilitate such a purchase.

1(b) However, S.123 allows for some exceptions as follows:

(i) The company may lend money if LENDING IS PART OF ITS ORDINARY BUSINESS and the money is
lent in the ordinary course of its business.
(ii) The company may provide financial assistance under an EMPLOYEE SHARE SCHEME for the
benefit of employees of the company or its subsidiary (including directors).

69
(iii) The company may provide FINANCIAL ASSISTANCE TO EMPLOYEES TO ENABLE THEM TO BUY
SHARES in the company for their own benefit.

Applying the above law to the given problem, the directors may be advised that they cannot legally
proceed with their proposals as they contravene s.123 and do not fall within any of the exceptions in
123

1(c) In the event the directors proceed with their proposed course of action, the following are the
CONSEQUENCES

(i) Each officer in default will be guilty of an offence and be liable to imprisonment for up to five
years or a fine of 3.000,000 ringgit.

(ii) The person so convicted may also be ordered to pay compensation to the company or other
person for the loss or damage suffered by them as a result of the contravention.

2. (a) An issue of shares at a DISCOUNT REFERS TO AN ISSUE OF SHARES AT A PRICE BELOW THE PAR
VALUE OF THE SHARES. [For example, where the company issues a one ringgit share at the price of
eighty sen]. The purpose of the rule was to ensure that a company's capital is maintained in line
with the doctrine of maintenance of capital which was primarily designed for the protection of
creditors of the company. Indirectly it would also serve the purpose of protecting shareholders in
the sense that capital would not be unnecessarily wasted away and their chances of getting a return
of their capital are much better.

3(a) A share buy-back refers to a purchase by a company of its own shares. Such purchase was
generally prohibited at common law under the rule in TREVOR V WHITWORTH. SECTION 123 OF
THE COMPANIES ACT 2016 also prohibits such purchases. However, following the recent economic
recession, amendments were made to the Companies Act allowing for companies to purchase their
own shares subject to certain conditions.

(b) This relaxation of the prohibition against such purchase has been seen to have a number of
ADVANTAGES for the company

o It may allow for majority shareholders to retain control of the company.

o It is likely to stabilise share prices on the stock market, especially during times of economic
downturn.
o It may help prevent excessive speculation.
o It may help to prevent potential take-overs of the company.
o It would strengthen investor confidence in the company.

(c) THE COMPANIES ACT 2016, provides that a company may purchase its own shares subject to the
following conditions:

(i) It must be a public company with a share capital.

(ii) The constitution of the company must permit such purchase.
(iii) The company must be solvent at the date of the purchase and must not become
insolvent as a result of the purchase.
(iv) The purchase must be made through the stock exchange on which the shares
are quoted and must be in accordance with the relevant rules of the stock
exchange.
(iv) The purchase must be made in good faith and in the interests of the company.

70
Applying the law to the present problem; the directors may be advised that they may proceed to
make the company purchase the shares subject to the conditions stated above in particular, the
directors must be reminded that the PURCHASE MUST BE MADE IN GOOD FAITH AND FOR THE
BENEFIT OF THE COMPANY.

In so far as they wish to arrest the fall in the share price and restore investor confidence, they would
certainly be acting in good faith for the benefit of the company. But the facts indicate that they
might also have an intention to ultimately profit themselves. If that were so, they may not be acting
in good faith and the validity of the intended purchase may be challenged as not being in good faith
for the benefit of the company.

4.(i) In Malaysia, only preference shares may be issued as redeemable. Ordinary shares cannot be
issued as redeemable. The law is stated in the act which provides that a company having a share
capital may, if so authorised by its articles, issue preference shares which are, or at the option of the
company are to be, liable to be redeemed.

(ii) Redeemable preference shares may be redeemed subject to the following CONDITIONS:

(a) The redemption must be effected in the terms and the manner provided by the articles

(b) The shares must be fully paid up

(c) The shares may only be redeemed out of profits or a fresh issue of shares made for the
purpose of redemption
(d) If the shares are redeemed out of profits, then a sum equal to the nominal amount of the
shares redeemed must be transferred to an account called the Capital Redemption Reserve -
(e) The company must give notice to the Registrar within 14 days of the redemption of
redeemable preference shares, specifying the shares redeemed:

5. The issue in this problem is whether Uphill Bhd has the right to REDUCE ITS CAPITAL by
returning excess capital to its members and if so, whether the PROPER PROCEDURE for doing so has
been adhered to by the company.

(a) Although an important rule designed to ensure that companies maintain their capital is that they
must not reduce their share capital, THE COMPANIES ACT 2016 does permit reduction of capital,
subject to certain conditions being satisfied. By that section, before a company may reduce its
capital;

o THERE MUST BE AUTHORITY TO DO SO UNDER ITS ARTICLES,

o A SPECIAL RESOLUTION MUST BE PASSED BY MEMBERS IN A GENERAL MEETING AND
o A CONFIRMATION BY THE COURT MUST BE OBTAINED.

If the company can satisfy those conditions, it may reduce its capital in any way, including returning
capital in excess of its needs to its members.

(b) Section 116 also provides some PROTECTION FOR CREDITORS who might be prejudiced by such
reduction.

o By s.116, where the proposed reduction involves either diminution of liability in respect of
unpaid share capital or the payment to any shareholder of any paid-up share capital, then
every creditor who is entitled to any debt or claim is entitled to object to the reduction.
o The court would only make an order for the reduction of capital if it is satisfied that the
valid claims of each creditor has been discharged or has determined or has been secured or
that his consent to the reduction has been obtained.

71
Applying the law to the given problem, it is clear that the requirements of the act have not been
complied with by the company. Thus, the board may be advised that the proposed reduction, if
implemented next week, will contravene the Companies Act.

Thus, EZ Bank’s objection is valid.

6. By s 131, a company may only pay dividends out profits. However, the Act does not indicate how
profits are to be determined for purposes of paying a dividend. Therefore recourse has to be made to
relevant case law.

The first question that arises is WHETHER THE COMPANY MAY LEGALLY PAY OUT A DIVIDEND
WITHOUT MAKING GOOD PREVIOUS YEARS' LOSSES OF CIRCULATING CAPITAL. As a general rule a
company must make good losses of circulating assets in the current accounting period before a
dividend is paid. However, it was held in AMMONIA SODA LTD V CHAMBERLAIN that a company
which has lost circulating capital in the previous years may distribute revenue profit of the current
year without making good past years losses.

The second issue is WHETHER LOSSES OF FIXED CAPITAL HAVE TO BE MADE GOOD BEFORE THE
PROFITS MAY BE UTILISED FOR PAYING A DIVIDEND. It was held in LEE V NEUCHATEL ASPHALT
CO that there is no such legal requirement. Therefore there is no need for Deevi Denz Son Bhd to
offset the losses arising from the depreciation to its plant and machinery from its profits for the year
2000.

The third issue is WHETHER THE PROFIT OF RM8 MILLION FROM THE SALE OF THE LAND CAN
ALSO BE TREATED AS PROFITS AVAILABLE FOR DISTRIBUTION. As a general rule the company may
utilise realised profits from the sale of a fixed asset for payment of dividends. (LUBBOCK V BRITISH
BANK OF SOUTH AMERICA)

However, in the given problem the articles of the company provide that dividends may only be paid
from the profits of the business of the company. Therefore, as the profit of RM8 million arose from
the sale of the land and not from the business of the company, it cannot be used for the payment of
dividends ( WALL V LONDON AND PROVINCIAL TRUST CO LTD).

The Board of Directors of Deevi Denz Sdn Bhd may be advised accordingly.

72
PART F – MANAGEMENT, ADMINISTRATION AND REGULATION OF
COMPANIES

DIRECTORS
1 B Although not formally appointed, a de facto director has the same powers as one who is.
2 A A defective appointment will not render a director's actions invalid.
3 B No. A director can be removed by a simple majority.
C Yes. Removal from office does not lawfully terminate any service contract.
4 C This is not usually the case, although the articles may set a maximum borrowing limit,
above which directors must seek members' approval.
5 A Yes. He is likely to be in breach of the duty to exercise reasonable care, skill and diligence.
D No. The standard is that of a reasonably diligent person with the general knowledge, skill
and experience that may reasonably be expected of a person performing his functions as
director.

6. A

7. A and D

8. A and C

9. B and C

10. A

11. B

12. A

13. A and C

14. C

15. A - Yes, there was a clear abuse of powers and the directors were not acting in the best interest
of the company [Howard Smith v Amphol Petroleum – directors should act in the interests of the
company]

16. B - Yes, they were in breach of their fiduciary duties as directors cannot make a profit out of
their position unless they have disclosed it to the company in general meeting and have obtained
their consent

17. B - The ratification was valid as even though there was a breach of fiduciary duty, this act has
been validated by an ordinary resolution passed at the general meeting [Bamford v Bamford]
18. A - Yes, he will be accountable for the profits (IDC v Cooley]

19. A. - Yes as he had made a full disclosure and consent was given

73
1. (a)
By THE COMPANIES ACT 2016 [Section 196] every company must have at least two directors
(public) or 1 (private) being natural persons of full age who each has his principal or only place of
residence within Malaysia.

Further by S.198, UNDISCHARGED BANKRUPTS cannot be appointed directors, unless they obtain the
leave of the court. If they act as directors of or otherwise directly or indirectly take part in the
management of any corporation, without obtaining such leave they would be guilty of an offence,
punishable with imprisonment for five years or a fine of RM1,000.000,00 or both.

By s.198 where a person is convicted of any offence in connection with the promotion formation or
management of a corporation, or of any offence involving fraud or dishonesty punishable on
conviction with imprisonment for three months or more or of any offence under the companies act,
he cannot be a director of or otherwise in any way take part of the management of a corporation,
within five years of conviction or if he is imprisoned, from the date of his release, unless he gets the
leave of the court. Breach of the section will result in the person being guilty of an offence
punishable with five years imprisonment or a fine of RM1,000,000.00 or both.

SECTION 124 states that where the articles require the directors to have a certain minimum number
of shares, then the directors would have to obtain the said share qualification within two months of
appointment or such shorter period as is provided under the articles. However, this would not apply
to the present case, as the articles are in the form of Table A, which does not require a share
qualification. [old law – not reflected in the CA2016]

(b) Therefore presuming Alan and Barry are not caught by the above sections it would appear that
they may be appointed directors, so long as they SATISFY THE REQUIREMENTS of the new act. at
least two directors must have their only or principal place of residence in Malaysia. If they
themselves do not satisfy this requirement they may appoint Chandra and Daud (the Malaysians) as
directors in addition to themselves.

2. (i) The issue here is WHETHER A NON-MALAYSIAN NATIONAL CAN BE APPOINTED AS A DIRECTOR
OF A MALAYSIAN COMPANY. By THE COMPANIES ACT 2016, every company must have at least one
or two directors (public companies) who each has his principal or only place of residence within
Malaysia.

In the given problem, ABC Sdn Bhd wishes to appoint Jessie, who is resident in South Africa, as a
director. As Jessie is resident in South Africa, ABC Sdn Bhd may be advised that she cannot be
appointed if she is to be the only director of the company. Jessie may however be appointed as an
additional director, even though she may not be resident in Malaysia.

(ii) The issue here is WHETHER A PERSON WHO HAS BEEN DECLARED A BANKRUPT CAN BE
APPOINTED AS A DIRECTOR OF A CORPORATION. By S.198 COMPANIES ACT 2016, if an undischarged
bankrupt acts as director of or directly or indirectly takes part in the management of any
corporation, he shall be guilty of an offence, unless he has obtained the leave of the court.

In the given problem, Joe was declared a bankrupt six years ago. The question does not state
whether he has been discharged as a bankrupt. If he has been so discharged, there would be no
obstacle to him being appointed as a director of ABC Sdn Bhd. On the other hand, if he is still an
undischarged bankrupt ABC Sdn Bhd may be advised that he cannot be appointed as a director
unless he obtains leave of the court.

3(a) By THE COMPANIES ACT 2016, A DIRECTOR OF A PUBLIC COMPANY MAY BE REMOVED FROM
OFFICE BY AN ORDINARY RESOLUTION BEFORE THE EXPIRY OF HIS TERM OF OFFICE ,

74
notwithstanding anything in its memorandum or articles of association or in any agreement between
it and him. [Tuan Haji Ishak bin Ismail v Leong Hup Holdings Bhd (1996)]

Further, a director of a public company shall not be removed by, or be required to vacate his office
by reason of, any resolution, request or notice of the directors or any of them, notwithstanding
anything in the articles or any agreement.

Before such a director can be removed by ORDINARY RESOLUTION, SPECIAL NOTICE MUST BE GIVEN
TO THE COMPANY OF THE RESOLUTION TO REMOVE A DIRECTOR . Upon receiving such a notice, the
company is required forthwith to send a copy of the said notice to the director concerned. The
director concerned has the right to make written representations of a reasonable length and require
that copies of them be forwarded to the members. If the company does not comply either because it
received the representations too late or due to its own default, the director may require the
representations to be read out at the meeting.

He is also entitled to attend the meeting and to be heard orally.

3(b)Where a director is removed pursuant to the procedure above but such removal results in a
BREACH OF CONTRACT BETWEEN THE DIRECTOR AND THE COMPANY, the director is entitled to
damages. [Southern Foundries Ltd v Shirlaw (1940)].

Hence, Joe may be advised that his removal is not valid.

4. Serena may be advised that as a GENERAL RULE THE CONTEMPLATED LOAN MAY BE PROHIBITED
UNDER S.224 OF THE COMPANIES ACT 2016. By s.224 a company (other than an exempt private
company), may not make a loan to a director of the company or a related company or enter into any
guarantee or provide any security in connection with a loan made to such a director.

(b) However, THREE EXCEPTIONS are provided for under 224 as follows:

(i) The company may provide such a director with funds to enable him to meet expenditure incurred
or to be incurred by him for the purpose of enabling him to properly perform his duties as an officer
of the company.

(ii) The company may provide such a director who is in full-time employment with the company or
its holding company with funds to meet expenditure incurred or to be incurred by him in purchasing
or otherwise acquiring a home.

(iii) The company may give a loan to a director who is in full-time employment with the company or
its holding company, where the company has, at a general meeting of the company, approved of a
scheme for the making of loans to employees of the company and the loan is in accordance with that
scheme.

By s224 the first two exceptions may be exercised by the company either with the prior approval of
the company in a general meeting or, alternatively, on condition that if the approval of the company
is not given at or before the next annual general meeting, the loan shall be repaid or the liability
under the security or guarantee shall be discharged, within six months of the conclusion of that
meeting (public company) [Private companies – 12 months from the making of the loan].

Thus, Serena will be caught by the prohibition in s.224 unless any of the three exceptions apply. On
the facts of the case, none are applicable as the loan is not required either for purposes of enabling
the director to properly perform his duties or to purchase or otherwise acquire a home. Further, as
Serena is a non-executive director she will also not qualify under the third exception.

75
(c) The advice would differ if Minibiz Sdn Bhd is an exempt private company as such companies are
not prohibited from giving loans to directors. Serena may be able to obtain a loan from Minibiz Sdn
Bhd if it is an exempt private company.

THE COMPANIES ACT 2016 defines an EXEMPT PRIVATE COMPANY as one which has not more than
20 shareholders none of whom is a corporation, and no beneficial interest in its shares is held
directly or indirectly by a corporation. Thus, if the five shareholders of Minibiz Sdn Bhd are
individuals who do not hold any shares for the benefit of any corporation, then Minibiz Sdn Bhd will
be an exempt private company and it is free to give loans to its directors.

5(a) Snowyte may be advised that there may have been a breach of S.228 OF THE COMPANIES ACT
2016. This section states, interalia, that a company cannot carry into effect any arrangement or
transaction where the director or substantial shareholder of the company or its holding company, or
a person connected with such director or substantial shareholder acquires from, or disposes to the
company, any shares or non-cash assets of the ‘requisite value’ UNLESS THERE IS PRIOR APPROVAL
BY A RESOLUTION OF THE COMPANY AT A GENERAL MEETING, or a resolution of the holding
company if it relates to the director, substantial shareholder or connected person of the holding
company.

(b) What amounts to ‘REQUISITE VALUE’ is defined in THE COMPANIES ACT 2016. In the case of
companies other than those whose shares are listed on a Stock Exchange, e.g. private companies
such as J-J Sdn Bhd and unlisted public companies, requisite value means any value above RM
250,000 or if it does not exceed RM 250,000 but exceeds 10% of the company’s asset value, provided
it is not less than RM 50,000.

(c) Failure to comply with the requirements of the section will result in the transaction being VOID.
Further, where there has been a contravention of the above requirement, the director, substantial
shareholder or connected person concerned, and any director who knowingly authorised the
arrangement or transaction, will be liable to account to the company for any gain made by such
arrangement or transaction. Further he will be jointly and severally liable with any other person to
indemnify the company for any resulting loss or damage.

(d) In the given problem, the value of the transaction is RM 300,000. The transaction is between the
company and Jenny, who is the sister-in-law of the director, Jill. By virtue of s.197 of THE
COMPANIES ACT 2016, she is regarded as a member of Jill’s family and is therefore a person
connected with a director.

(e) Applying the law as stated above, the company has to obtain prior approval of the members by a
resolution at a general meeting as the value of the transaction exceeds RM 250,000. From the facts
it is clear that no prior approval had been obtained. Snowyte may therefore be advised that Jack and
Jill are in breach of THE COMPANIES ACT 2016.

6(a) The issue in this problem concerns the duty of a director to avoid A CONFLICT OF DUTY AND
PERSONAL INTEREST. One of the aspects of this duty is that a director must not be interested in a
contract with the company. Where he does have an interest, he must disclose his interest. If he fails
to do so, the contract is voidable at the option of the company.

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(b)This can be illustrated by the case of ABERDEEN RLY CO V BLAIKIE BROS (1854), where the
Railway company had entered into a contract with Blaikie Brothers only to discover later that one of
the directors of the Railway company was also a partner in Blaikie Bros. The court held that the
company was entitled to avoid the contract.

(c) Further, the COMPANIES ACT 1965 STATES, a director who is in any way, whether directly or
indirectly, interested in a contract with the company, is required to disclose the nature of his interest
to the company or at a meeting of the directors of the company. Failure to do so will result in him
committing an offence. He need not make such disclosure if his interest can be regarded as not being
a material interest.

(d) Applying the law to the given problem, XYZ Sdn Bhd may be advised that as BEN WAS A
SUBSTANTIAL SHAREHOLDER IN LMN BUILDING CONTRACTORS SDN BHD HE HAD A MATERIAL
INTEREST IN THE CONTRACT IN QUESTION AND HE SHOULD HAVE DISCLOSED HIS INTEREST.

As he had failed to do so, XYZ Sdn Bhd would be entitled to avoid the contract with LMN Building
Contractors Sdn Bhd. The fact that Ben did not participate in the discussion or vote at the board
meeting does not affect the duty to disclose his interest in the contract.

7.
(a) It has been long established under common law that DIRECTORS OCCUPY A FIDUCIARY POSITION
IN RELATION TO THEIR COMPANY. Thus they owe fiduciary duties to the company. This includes,
among other things, THE DUTY TO ACT BONA FIDE IN THE BEST INTERESTS OF THE COMPANY, THE
DUTY TO EXERCISE THEIR POWERS FOR A PROPER PURPOSE AND THE DUTY NOT TO PUT
THEMSELVES IN A POSITION OF CONFLICT BETWEEN THEIR DUTY TO THE COMPANY AND THEIR
PERSONAL INTEREST.

(b) Following the recommendations of the High Level Finance Committee on Corporate
Governance, the Companies Act 1965 was amended in 2007 by virtue of the Companies
(Amendment) Act 2007, which has now given STATUTORY FORCE to many of the fiduciary duties of
directors. The duties were retained under THE COMPANIES ACT 2016.

By s.213 THE COMPANIES ACT 2016, a director of a company must at all times exercise his powers
for a proper purpose and in good faith in the best interests of the company.

(c) Further, in particular, by THE COMPANIES ACT 2016 a director or officer of a company shall not,
without the consent or ratification of a general meeting, engage in business which is in competition
with the company.

(d) The CONSEQUENCES OF A BREACH is that, the officer shall be liable to the company for any profit
made by him, or for any damage suffered by the company as a result of the breach. In addition, the
officer shall be guilty of an offence and can be imprisoned for five years or fined RM 3,000,000.00.

(e) Applying the law to the given problem, it can be seen that Jack has set up a business which is
clearly in competition with the business of J-J Sdn Bhd of which he is a director. Thus, unless he had
obtained the CONSENT OR RATIFICATION OF THE GENERAL MEETING OF THE COMPANY, he is in
breach of s.213 and will face the consequences stated above.

Snowyte may be advised accordingly.

77
8. (a) It is to be noted that Ali and Balu intend to issue the shares to Danny by passing a board
resolution. Their proposed action, if carried out, will contravene the Companies Act 1965. SECTION
S75 of the Act provides that notwithstanding anything in the company’s memorandum or articles,
the directors shall not, without the prior approval of the company in a general meeting, exercise any
power of the company to issue the shares of a company.

SECTION 75 provides that any issue of shares in breach of s.75 is void. Thus, unless Ali and Balu
obtain the prior approval of ABC’s general meeting, the proposed issue of shares to Danny will be
void.

(b) Further, the resolution may also be challenged on the ground that Ali and Balu had breached the
fiduciary duty to act for a proper purpose. A case in point is HOGG V CRAMPHORN (1967). In this
case, the directors had issued shares for the purpose of frustrating a take-over bid for the company.

(c) The court held that the directors had not acted for a proper purpose and thus breached their
fiduciary duty. Following THE COMPANIES ACT 2016, S.213 TODAY STIPULATES THAT DIRECTORS
MUST AT ALL TIMES EXERCISE THEIR POWERS FOR A PROPER PURPOSE AND IN THE BEST
INTERESTS OF THE COMPANY.

As they had not exercised their powers for a proper purpose in that their purpose of issuing the
shares was to dilute the shareholding of Chan, they would also be in breach of s.213.

78
COMPANY OFFICERS – COMPANY SECRETARY AND AUDITORS

1. B – A company secretary is appointed by the BOD

2. C – Accountancy firms often audit the accounts. Employees and their partners are prevented from
doing so

3. C – appointed done by directors

4. B –

5. D – BOD – set the specific duties for the Company Secretary

6. C – administrative side of company’s affairs

7. A –

8. C – company auditors have such rights

9. B –

10. C -

CASE STUDIES

1. (a) Best Systems Sdn Bhd may be advised that the appointment, qualifications and
disqualifications of a company secretary are governed by SECTIONS 235 AND 241; WHILE THE
DISQUALIFICATIONS ARE STATED IN SECTION 238

(i) By S.235 every company must have at least one secretary. Each secretary must be a natural
person of full age. He must have his principal or only place of residence in Malaysia.

The first secretary is required to be named in the constitution of the company:

A person may be QUALIFIED to act as secretary of a company only if he is:

(1) LICENSED BY THE REGISTRAR for that purpose, or

(2) is a MEMBER OF A PROFESSIONAL BODY prescribed by the Minister by notification published in
the gazette.

The professional bodies which have been prescribed include the Malaysian Institute of Accountants,
the Malaysian Association of the Institute of Chartered Secretaries and Administrators, the
Malaysian Bar and the Malaysian Association of Company Secretaries.

The Companies act states that a licence may be granted by the Registrar only if, after considering
the character, qualification and experience of the applicant as well as the interest of the public, he is
of the opinion that the applicant is a fit and proper person to hold a licence.

(ii) The DISQUALIFICATIONS of a company secretary are stipulated in s238. By this section, a person
will be disqualified to act as a company secretary if:

(1) he is an undischarged bankrupt;

(2) he is convicted of an offence under the Companies Act2016 which relates to offences in
connection with the promotion, formation or management of a corporation, offences involving fraud

79
or dishonesty punishable with imprisonment for a period of three months or more, offences
involving dishonesty and lack of reasonable diligence, insider dealing, and offences involving
situations where proper company accounts are not kept);

(3) he ceases to be a member of the body prescribed by the minister or

(4) he ceases to be a holder of a valid licence.

(iii) Applying the law to the given facts, Terry does not automatically qualify to be a company
secretary. His master’s degree in public and corporate administration is not one of the recognised
qualifications under s.235. Thus he may only become a company secretary if he obtains the
necessary licence from the Registrar.

2(b). As for the MAIN DUTIES OF A COMPANY SECRETARY, they are largely administrative in nature.
The duties are not fixed by law but are usually assigned to him either by the articles of association
or his contract of employment. The duties may vary from company to company depending on the
size and operations of the company.

The MAIN DUTIES may be summarized as follows:

(i) To carry out the functions of the chief administrative officer of the company;

(ii) To maintain the different registers required by the Companies Act 2016 to be maintained by the
company, e.g. Register of members, Register of substantial shareholders; Register of charges, etc;

(iii) To prepare and lodge with the Registrar all returns required to be lodged under the Companies
Act 1965;

(iv) To organise and attend shareholders' and directors' meetings, including the preparation of the
agendas, sending out of notices and the maintenance of minute books;

(v) Safekeeping of the company seal and legal documents; and

(vi) Authentication of documents.

3(a) By s.263 of the Companies Act 2016 (the Act), an APPROVED COMPANY AUDITOR is a person
who has been approved by the Minister of Finance as a company auditor for the purposes of the Act.
The Minister of Finance may approve an applicant as a company auditor if he is satisfied that the
applicant is a person of good character and competent to perform the duties of an auditor under the
Act and upon payment of a prescribed fee.

(b) The persons who are empowered to appoint the auditors of the company are stated in s.264 of the
Companies Act 1965. By s.264 the directors of the company may appoint the auditors at any time
before the first annual general meeting of the company to hold office until the conclusion of the first
annual general meeting. If they fail to do so, the company at a general meeting may appoint the
auditors to hold office until the end of the first annual general meeting.

By s.264 the company shall appoint the auditors at each annual general meeting of the company to
hold office until the end of the next annual general meeting. By s.264 the directors may appoint an
approved company auditor to fill any casual vacancy in the office of auditor of the company.

80
By s.264 the Registrar may make the appointment of the auditor on the application in writing of any
member of the company, if the company does not appoint the auditors as required by the section.

4. The Companies Act 2016 provides that a person shall not knowingly consent to be appointed or
knowingly act as an auditor for a company in a number of situations.

Inter alia, it provides that a person may not act as auditor if:
(1) he is not an approved company auditor;
(2) he is indebted to the company or to a corporation that is deemed to be related to that
company in an amount exceeding twenty five thousand hundred ringgit.

Further, by section 264, the directors may appoint the auditors at any time before the first annual
general meeting failing which the company may do so at a general meeting. By section 264, if the
appointment is not made by the company as required by the section, the Registrar may, on the
application in writing of any member of the company makes the appointment.

The question does not state whether Bistari is an approved company auditor. If he is not, then his
appointment may be challenged on that ground. The fact that he owes 1,000 ringgit to the company
does not invalidate the appointment as the amount owed is below 25,000 ringgit.

However, the question states that it was the secretary who appointed the auditor. As stated above
the APPOINTMENT MAY ONLY BE MADE BY THE DIRECTORS, THE MEMBERS IN GENERAL MEETING
OR BY THE REGISTRAR

Thus Rajini may successfully challenge the appointment of Bistari as auditor of the company.

(ii) Even if the appointment is valid, an auditor may be REMOVED from office following the
procedure prescribed in section 284 . By section 284 an auditor of a company may be removed from
office by RESOLUTION OF THE COMPANY AT A GENERAL MEETING OF WHICH SPECIAL NOTICE has
been given but not otherwise. A special notice is a notice of not less than 28 days given to the
company by those proposing to pass the resolution.

By section 284, where such special notice is received by the company it must forthwith send a copy
of the notice to the auditor concerned and to the Registrar. The auditor may within seven days after
the receipt of such notice make written representations of a reasonable length and request that
copies of such representations be sent by the company to the members. The auditor may request that
the representations be read out at the meeting. He is also allowed to make oral representations at
the meeting itself.

By section 284, a company shall forthwith after the removal of an auditor from office, give notice in
writing of the removal to the Registrar.

Rajini may be advised accordingly.

81
COMPANY MEETINGS
1. B
C

2. B
C

3. A
C

4. A
D

5. A
C

6. A

7. D

8. A

9. A

10. B

11. A
D

12. B and D

13. A and C

1(a) The board of directors may be advised that members have a right to be given notice of every
general meeting. This is stipulated in THE COMPANIES ACT 2016 (which has been adopted by the
company). Such notice may be sent by the company by post. In such a case service of the notice is
deemed to have been effected by properly addressing, prepaying and posting the letter containing
the notice and to have been effected on the day after the date of its posting. However, Rubini has not
received the notice though the company has in fact posted the notice to all the shareholders. She
now threatens to invalidate the proceedings at the meeting.

SECTION 316 OF THE COMPANIES ACT STATES THAT THE ACCIDENTAL OMISSION TO GIVE NOTICE
OF A MEETING TO OR THE NON-RECEIPT OF NOTICE OF A MEETING BY ANY MEMBER SHALL NOT
INVALIDATE PROCEEDINGS AT A MEETING.

Thus the board of directors may be advised that the meeting was properly held and Rubini cannot
invalidate its proceedings.

(b) The issue that arises here is WHETHER A NON-MEMBER MAY BE APPOINTED AS A PROXY. Section
334 provides that a member who is entitled to attend and vote at a meeting is entitled to appoint
another person or persons as his proxy to attend and vote on his behalf. Therefore Ah Meng may be
advised that his appointment as a proxy is valid.

82
(c) The question here is WHETHER ALADDIN AS CHAIRMAN OF THE COMPANY HAS THE RIGHT TO
PRESIDE AT THE MEETING EVEN THOUGH HE WAS 10 MINUTES LATE. Section 329 provides that so
far as the constitution does not make other provisions in that behalf any member elected by the
members present at a meeting may be chairman thereof.

By that section, the chairman, if any, of the board of directors shall preside as chairman at every
general meeting of the company or if there is no such chairman or he is not present within 15
minutes after the time appointed for the holding of the meeting or is unwilling to act, the members
present shall elect one of their number to be chairman of the meeting. As Aladdin was only 10
minutes late, he still has the right to preside as chairman of the meeting.

(d)SECTION 334 provides that on a show of hands every person present who is a member or
representative of a member shall have one vote and on a poll every member present in person or by
proxy or by attorney or other duly authorised representative shall have one vote for each share he
holds. Thus Ah Meng may not vote on a show of hands.

(e) a company may alter its objects clause by passing a SPECIAL RESOLUTION. The Companies Act
provides that a resolution shall be a special resolution when it has been passed by a majority of not
less than three fourths (75%) of such members as being entitled so to do vote in person or where
proxies are allowed by proxy at a general meeting of which not less than 21 (twenty-one) days
notice specifying the intention to propose the resolution as a special resolution has been duly given.

As the resolution, was approved only by a 70% majority; it does not amount to a special resolution.
Hence the chairman may be advised that the company cannot validly proceed with the alteration of
the objects clause.

83
PART G - INSOLVENCY AND CORPORATE RESTRUCTURING

1. A
2. A
3. A
4. A
5. B
6. B
7. A
8. A
9. A
10. D
11. A
12. A
13. A
14. B
15. B
16. B
17. B
18. B
19. A
20. B and C

1. This question on company law tests the candidates’ knowledge on some basic aspects of
liquidation of companies.

(a) The persons who can petition for the winding up of a company by the court are listed in
Companies Act 2016.

Among the persons listed are:

o the company itself;
o any creditor, including a contingent or prospective creditor of the company;
o a contributory or his or her personal representative or a trustee in bankruptcy or the Director-
General of Insolvency of the estate of a bankrupt contributory;
o the liquidator;
o the Minister in the circumstances specified under the Act;
o Bank Negara Malaysia
o The Registrar of Companies

84
(b) Companies Act 2016 deals with the circumstances in which a company may be wound up by the
court.

One of the circumstances is that the company is unable to pay its debts. Section 466 provides that a
company shall be deemed to be unable to pay its debts in three circumstances:

(i) if a creditor to whom the company owes RM10,000 or more has served on the company a written
demand by leaving the same at the company’s registered office requiring the company to pay the
debt and the company has neglected for three weeks thereafter either to pay or secure or compound
it to the reasonable satisfaction of the creditor; or

(ii) if a creditor has obtained from the court an execution or other process and this is returned
unsatisfied in whole or in part; or

(iii) if it is proved to the satisfaction of the court that the company is unable to pay its debts as they
fall due and this includes the situation where it is proved to the satisfaction of the court that the
value of the company’s assets is less than the amount of its liabilities, including its contingent and
prospective liabilities.

2. This question, which contains two parts, tests the candidates’ knowledge on certain basic aspects
of winding up of companies.

(a) By the Companies Act 2016, a company may be wound up voluntarily:

(i) when the period, if any, fixed for the duration of the company by the memorandum or articles
expires, or
(ii) the event, if any, occurs, on the occurrence of which the memorandum or articles provide that the
company is to be dissolved, and the company in general meeting has passed a resolution requiring
the company to be wound up voluntarily; or
(iii) if the company so resolves by special resolution.

(b)
(i) By the CA 2016 a company may be wound up by the court in a number of circumstances.
These include the following:

1) if the company has, by special resolution, resolved that it be wound up by the court;
2) if default is made by the company in lodging the statutory report or in holding the statutory
meeting;
3) if the company does not commence business within a year from its incorporation or suspends
its business for a whole year;
4) the number of members is reduced in the case of a company below two;
5) if the company is unable to pay its debts; and
6) if the court is of the opinion that it is just and equitable that the company be wound up.

(ii) By the CA 2016, where before the presentation of the petition, a resolution has been passed by
the company for voluntary winding up, the winding up shall be deemed to have commenced at the
time of the passing of the resolution. The CA 2016 provides that winding up shall be deemed to have
commenced at the time of the presentation of the petition for the winding up.

(iii) The effects of the commencement of a winding up are stated in the CA2016.

o any disposition of the property of the company including things in action and any transfer of
shares or alteration in the status of the members of the company made after the

85
 commencement of the winding up by the court shall, unless the court otherwise orders, be
void.
o any attachment, sequestration, distress or execution put in force against the estate or effects
of the company after the commencement of the winding up by the court shall be void.

86
PART H – ETHICAL ISSUES RELATING TO BUSINESS
1. B
2. D
3. B
4. A
5. A and C
6. A
7. A
8. A
9. A
10.
11. A
12. A
13. D
14. A

1(a) The issue in this problem concerns the offence of FRAUDULENT TRADING. Fraudulent trading
occurs when the business of the company is carried on with intent to defraud creditors of the
company or for some other fraudulent purpose. Fraudulent trading is dealt with in S.540
COMPANIES ACT 2016.

It is necessary to prove a dishonest intention for the section to apply (RE PATRICK & LYON LTD
(1933), H ROSEN ENGINEERING BV V SIOW YOON KEONG (1997)).

By s.540 where there has been such fraudulent trading every person who was knowingly a party to
the carrying on of the business with that intent or purpose shall be guilty of an offence. The section
imposes a PENALTY OF TEN YEARS’ IMPRISONMENT OR A FINE OF RM1,000,000.00 OR BOTH.

Applying the law to the given problem it is clear that the directors, Ali and Badri, ordered goods on
credit from EZ with the intention of defrauding it. Thus, as they were the persons who were
knowingly parties to the carrying on of the business with that intent, they would be guilty of an
offence as discussed above.[criminal liability]

(b) SECTION 540 applies where in the course of the winding up of a company or in any proceedings
against a company it appears that the business of the company has been carried on with intent to
defraud creditors of the company or creditors of any other person or for any fraudulent purpose. In
such a case, the court on the application of the liquidator or any creditor or any contributory of the
company may, if it thinks proper to do so, declare that any person who was knowingly a party to the
carrying on of the business in that manner shall be personally responsible, without any limitation of
liability, for all or any of the debts or other liabilities of the company as the court directs. In doing
so, the court would in fact be lifting the veil of incorporation of the company to impose personal
liability for what would ordinarily be the liability of the company.

87
Applying the law to the given problem, as Ali and Badri are the PERSONS WHO WERE KNOWINGLY
PARTIES TO THE FRAUDULENT TRADING, THE COURT COULD LIFT THE VEIL OF INCORPORATION
AND DECLARE THEM TO BE PERSONALLY LIABLE FOR THE DEBTS AND OTHER LIABILITIES OF THE
COMPANY AS THE COURT CONSIDERS FIT.[CIVIL LIABILITY]

(c) (i) If Ali and Badri DID NOT HAVE THE INTENTION OF DEFRAUDING EZ, it would not be possible
to find them guilty of fraudulent trading and they would not incur personal liability under S.304(1).
However, it is possible that they might have committed an offence under S.539 which is generally
treated as the section on wrongful trading. This section applies where, in the course of the winding
up of the company or in any proceedings against a company, it appears that an officer of the
company, who was knowingly a party to the contracting of a debt, had at the time the debt was
contracted, no reasonable or probable grounds of expectation after taking into consideration the
other liabilities of the company at the time, of the company being able to pay the debt. In such a case
the officer concerned shall be guilty of an offence. The penalty is imprisonment for five years or a
fine of RM500,000.00 or both

Applying this law to the given problem, it can be seen that at the time the goods worth RM2 million
were ordered on credit from EZ, Miskin was hopelessly insolvent and Ali and Badri could not have
had reasonable or probable grounds of expectation of the company being able to pay the debt. Thus
they are likely to be guilty of an offence under s.539

(ii) They may incur PERSONAL LIABILITY under S.540. By this subsection, where a person has been
convicted of an offence under S.539 the court may on the application of the liquidator, creditor or
contributory of the company, declare that the person shall be personally responsible without any
limitation of liability for the payment of the whole or any part of that debt. Thus, if Ali and Badri are
convicted of an offence under s.539 they may also become personally liable for the debt in question.

2. CAPITAL MARKETS AND SERVICES ACT 2007 (‘CMSA’) applies.

(a) By S.188(1) CMSA an insider is a person who:

(i) possesses information which is not ‘generally available’, which on becoming ‘generally available’ a
reasonable person would expect it to have a ‘material effect on the price or value of the securities’;
and

(ii) knows, or ought reasonably to know, that the information is not generally available. SECTION
184(1) states when information may be considered as ‘generally available’ to investors. It may be
noted that information would not be considered as generally available unless a reasonable period had
elapsed for its dissemination and assimilation.

Under s.185 information which would have a ‘material effect on the price or value of securities’ is
such information which when it becomes generally available would influence a reasonable investor
to acquire or to dispose of the relevant securities.

b(i) By s.188(2) CMSA, the insider is prohibited, in respect of any securities to which information in
part (a) above relates, from:

(i) acquiring or disposing of, or entering into an agreement for or with a view to the acquisition or
disposal of such securities; or

(ii) procuring, directly or indirectly, an acquisition or disposal of, or the entering into an agreement
for or with a view to the acquisition or disposal of such securities.

88
Further, by s.188(3), where trading in the securities is permitted on a stock market of a stock
exchange, the insider is also prohibited from, directly or indirectly,

(i) communicating the information (referred to in part (a) above) to another person; or
(ii) causing such information to be communicated to another person, if he (the insider) knows or
ought reasonably to know that the other person is likely to:
(i) acquire or dispose of, or enter into an agreement for or with a view to the acquisition or disposal
of such securities; or
(ii) procure a third person to acquire, dispose of, or enter into an agreement with a view to the
acquisition or disposal of such securities.

b(ii) Section 188(4) provides that a person who contravenes s.188(2) or 188(3) stated above commits
a criminal offence punishable with imprisonment not exceeding ten years and also to a fine of not
less than RM1 million.

In addition, a civil remedy is available to a person who has suffered loss or damage as a consequence
of a breach of the insider trading provisions of the CMSA 2007 by another person. Section 201
which refers to this remedy states that civil proceedings may be instituted against the person who
contravened the provisions, whether or not that person has been charged with an offence in respect
of the contravention or whether or not a contravention has been proved in criminal proceedings.

MONEY LAUNDERING

1 (a) Money laundering is defined in the Anti-Money Laundering and Anti-Terrorism Financing
Act 2001 s.3(1) as, among other things, ‘the act of a person who acquires, receives, possesses,
isguises, transfers, converts, exchanges, carries, disposes, uses, removes from or brings into
Malaysia proceeds of any unlawful activity’, where:

(1) as may be inferred from objective factual circumstance, the person knows or has reason to
believe, that the property is proceeds from any unlawful activity; or

(2) in respect of the conduct of a natural person, the person without reasonable excuse fails to take
reasonable steps to ascertain whether or not the property is proceeds from any unlawful activity.
As James received the money from an unknown source and he failed to take reasonable steps to
ascertain whether or not the money was proceeds from any unlawful activity, he has committed the
offence of money laundering.

(b) In the case of Jack, s.4(1) Anti-Money Laundering and Anti-Terrorism Financing Act 2001
applies.

This section states that ‘any person who:

(a) engages in, or attempts to engage in; or
(b) abets the commission of money laundering,
commits an offence.’

As Jack, the bank officer, has assisted James by having the money deposited into James’ account with
the knowledge that the money was from an unknown source, he has abetted the commission of
money laundering and has thus also committed an offence.

89
OBJECTIVE SETS
SET 1- ANSWERS

1. C
2. C
3. A
4. B
5. D
6. D
7. A
8. B
9. B
10. B
11. C
12. C
13. B
14. C & A
15. B
16. B
17. A
18. A
19. B
20. B
21. C
22. A
23. C
24. A
25. D
26. A
27. B
28. D
29. B
30. A
31. C
32. C
33. A

90
34. D
35. A
36. B
37. D
38. A
39. D
40. C
41. A
42. D
43. C
44. B
45. B
46. C
47. A
48. A
49. B & C
50. A

91
SET 2

1. C Advertisements are generally invitations to treat

2. C When a pre-condition is satisfied, the offer becomes unconditional

3. C

4. C Consideration must be sufficient but need not be adequate

5. A Revocation may be express or implied and made orally or in writing. The important
thing is that it is communicated to the offeree before acceptance

6. B An offer

7. C A severable contract

8. B A warranty

9. B

10. A. When B receives the letter.

11. C Consideration need not be adequate

12. A The agreement is a valid contract

13. A. This is a discharge of the whole debt, whatever maybe the amount

14. B. It was not a legally enforceable agreement because the parties did not intend that they
should be attended by legal consequences

15. D. The minor having the capacity to pay for the necessities

16. A. English law states that such contracts are voidable at the option of the person who is of
unsound mind, if that fact is known to the other party

17. D. Section 23 of the Contracts Act 1950

18. D. Valid

19. D. Practices

20. A. Construe the clause against the party for whose benefit it was inserted

21. C. The contract is made more difficult to perform but is not rendered illegal or impossible to
perform

22. C. The Civil Law Act aims to reflect the fact that neither party is to be blamed for the contract
coming to an end
23. A. The contract is obviously severable/divisible, so that the court will treat them as separate
contracts. This will allow A to payment of the first two items as they have not been frustrated.
The principle for recovery under frustration may be applied to the third item.

24. A. True
D. False – He may treat the contract as discharged and sue for damages

92
25. B. False – Damages are intended to put the party in the position he would have been in had the
contract been performed.
D. False – The claimant is required to take only reasonable steps, not ones that carry undue risk
or that are discreditable.

26. D A penalty clause – as it is excessive and arbitrary and does not reflect as a genuine pre-
estimate of the loss

27. B. Such a breach entitles the innocent party to treat the contract as discharged or to affirm the
contract

28. C. The contract need not be signed, in which case it must be shown that the persons whose right
it restricts was made sufficiently aware of the exclusion clause at the time of making the contract

29. B
D

30. C. Damage not arising in the ordinary course of things is only recoverable to the extent that it is
in the reasonable contemplation of the parties at the time of making the contract as the probable
result of the breach

31. B. Specific performance is unlikely to be awarded due to the difficulties in supervising in

compliance with the award

32. B. False
C. True

33. A
C

34. A. The postal rule applied – Section 4(2)(a) Contracts Act

35. A. Consideration need not be adequate but must be sufficient

C. Yes This is valid consideration

36. B. No ‘notice in writing’ means actual communication, therefore postal rule does not apply
D. No - there is no valid acceptance

37. A. True
C. False - The offeror may waive this requirement expressly or by implication

38. D – Serious mistake

39. A - The rehearsals clause amounted to a warranty.

40. A. Yes as it was sufficient in law to constitute a valid consideration even though they were
clearly past.

41. A. The court may set the bond aside, ordering B to repay the $100 with such interest as may
seem just

42. A. The contract is voidable at the option of B.

43. A. The contract was void for mutual mistake.

44. D. Masai is simply asking for information about when she can make the payment
45. D. Offeror must be aware of the offer in order to accept it.

93
SET 3

1. B
2. C
3. A
4. A
5. A
6. B
7. B
8. C
9. A
10. A
11. B
12. B
13. B
14. B
15. B
16. B
17. A
18. B
19. A
20. B

21. A – A principal appoints an agent to carry out a specific task

C – Yes the principal can ratify a contract entered into between his agent and third party,
subject to certain conditions being satisfied

22. C – Ostensible authority can arise through acquiescence of the other partners; it can also be
wider than implied authority

23. A and C

24. C – Ostensible or apparent authority

25. A and D

26. B
27. D

94
28. A and D

29. C

30. B and D

31. D

32. B

33. B
34. B

35. B

36. C

37. D

38. C

39. B

40. C

41. C

42. D

43. D

44. C

45. A and D

95
SET 4

1. C
2. C
3. B
4. B
5. A
6. B
7. A
8. B
9. B
10. B
11. C
12. C
13. B
14. C
15. C
16. A
17. C
18. B
19. C
20. C

21. D
22. B & C
23. C
24. A
25. A
26. D
27. A
28. A
29. D
30. C
31. B
32. D
33. D
34. A
35. A

96
36. C
37. C
38. C
39. A
40. A
41. C
42. C
43. C
44. A
45. A

97
SET 5

1. A – the illustration relates to all four legged animals and hence other domestic animals such as
dogs and cats can be included but not hen and cockerel [2 legged]

2. B

3. A & B – [Basically, law refers to the rules and regulations which govern human conduct. Failure
to adhere to such rules may result in adverse consequences upon the person who is in breach].

4. C – National and Customary law

5. C - The government is responsible for creating Acts of parliament [the government is

responsible for the implementation of the law].

6. A. – Yes
7. B – No
8. B
9. A
10. B

11. B The parties may be complete strangers

C The question of public policy applies; but if public policy dictates that no duty shall
exist, then none shall exist.

12. A Res ipsa loquitor is an argument by the claimant that ‘the facts speak for themselves’ in
pointing to a breach on the part of the defendant. The burden of proof then shifts to the
defendant to show that he was not negligent

13. C The accountants owe a duty of care to the body of shareholders as a whole but not to
existing or potential investors in respect of their considering whether to invest or to sell their
shareholdings (Caparo Industries plc v Dickman and others 1990).

14. A Sharon is not acting in the course of her employment when the negligent act takes place and
so there is no vicarious liability on the part of her employer. The client company has no liability
because it is not her employer.

15. C Each statement is true but the doctrine is the rule stated in C

16. C - Consideration must be sufficient but need not be adequate

17. A and C
18. A and D

19. C The fact that the arrangement concerns property does not mean that the presumption
does not apply, but is evidence of its rebuttal

20. A - The agreement was enforceable because the circumstances of the case clearly
indicate that the parties had an intention to enter into a legally binding agreement

21. B
22. B - No – The flyer from Clarence is merely an invitation to treat
D – No – He cannot be in breach of contract since no contract has been made. He is simply
rejecting Kean Seng’s offer [which is made is response to Clarence’s invitation to treat]

23. B – No – The display constitutes an invitation to treat only

C – Yes – An offer is made by Mati when she takes the roses to the till and proffers RM6.

98
 The shopkeeper is free to accept or reject the offer

24. B There must be some positive act which can be construed as acceptance

25. D Lucy required written notice to have reached her by lunchtime on Friday. This means that
the postal rule is not effective to render the acceptance valid when posted. By the time Harriet's
'acceptance' is communicated, the offer has lapsed

26. A The original offer from Matthew is terminated and this reply from Tom constitutes a new
offer that can be accepted or rejected by Matthew

27. A Yes.
D No. His original offer was terminated by Tamsin's counter offer, which he did not accept.

28. B
29. B

30. A Faithful service – Employer can recover the commission

31. B
32. C
33. C
34. D
35. A

36. B False – it also refers to future assets

C True

37. C whether a loan is secured or not, the written acknowledgement is known as a debenture

38. A and D

39. A and D

40. B and D

41. D – Partner’s act bind the firm and the partners as they agents unless the third is aware of the
lack of authority

42. B

43. A and C

44. B and D
45. D

99
SET 6

1. C – Setting conditions is a counter offer

2. A – The advertisement is an invitation to treat [Ann’s offer is therefore an offer – not a

counter offer. Tee Ltd has no obligation to sell because there is no contract]

3. C – 30 July is when the acceptance is accessible to the offeror [eventhough he does not
access to it until 4 August]

4. A – The letter of revocation is inoperative because it must reach the offeree before
acceptance

5. D – The car has been validly sold to Sophia

6. D – Early payment of a smaller sum than due provides adequate consideration

7. A - Clauses that exclude liability for negligence for personal injury are void under the act
(UCTA)

8. C – The claimant can walk away but is not compelled to do so the contract is not necessarily
terminated

9. B & D – A contract can be rescinded for breach of condition but not warranty. Hence Den
should not have rejected the goods and is therefore liable for having done so. D - SOGA

10. D - A, B and C would be inequitable or cannot be supervised

11. A – as established by common law

12. A – This duty arises in claims in contract and provides that an injured party cannot recover
damages for any loss which could have been avoided by taking reasonable steps

13. A - once an offer is accepted, it comes into force

14. B – damages can never be punitive but only compensatory

15. B

16. B – the claim is for liquidated damages

17. C – Rose is contractually bound as she had signed the order form. The car dealer has lost a
sale. It has sold only one car where it could have sold two

18. B

19. D – in construction contracts it is extremely difficult to measure damage, so the sum fixed
will not unusually be a penalty

20. A - The innocent party is not discharged from any contractual obligations that are due or
outstanding at the time of termination

21. B. - False. This is only true where the breach is very serious.
C. – True

22. D. - Jane has prevented complete performance and so Esther's offer to perform is sufficient
discharge of her obligations. She is entitled to be paid for duties already completed.

100
23. C. - Christian made an untrue pre-contractual statement of fact with the intention of causing
Howell to enter into the contract and Howell did so, relying on his misrepresentation. He
can therefore choose to avoid the contract

24. B - No. the company's obligation is to arrange accommodation. That has not been rendered
impossible, even if it has been made more difficult and/or more expensive.
C. - Yes.

25. DELETED

26. D – Legal capacity is necessary when the contract is formed

27. B - implied authority [Watteau v Fenwick]

28. D – the letterhead is said to hold out the individual as having authority

29. D – agents must only lawful instructions

30. C – the doctrine of undisclosed principal

31. D – Agency by necessity arises when a person in possession of another’s property and
unable to take the owner’s instructions is obliged to do something with the assest to protect
the owner’s interest.

32. B – Actual authority may be express or implied

33. B – This is where an agent is appointed to a certain position and the principal has impliedly
agreed with them that they should do what a person holding the same position would
usually do or be expected to do.

34. A – it is the agent who should have disclosed that he was acting as agent

35. D – Apparent authority arises when the principal represents to a third party that the agent
has authority

36. B Karmel's acquiescence has the effect of representing to others that Chloe has the
relevant authority. This is ostensible, or apparent, authority.

37. B - Reasonable advertising is usually seen as incidental to an appointment to sell goods.

38. B - False. Such an estoppel arises only where such representation is made by the principal
and relied upon by the third party.
D - False. His liability continues in respect of a third party who continues to rely on the
representation, unaware of the agent's authority having ended.

39. A - Yes. Tamsin can select to sue either Abigail or Phoenix.

C - Yes. Abigail is also entitled to sue, although her rights are subordinate to those of
Phoenix.

40. B - No. Pauline has no liability since there is no actual agency relationship.
C - Yes. Thelma can sue Arthur for damages in the tort of deceit.

41.C – cross offers

42. D – reduction of damages

43. B – Carlil v Carbolic Smoke Ball Co

101
44. B

45. B

46. B

47. A

48. C

49. A

50. A

102
SET 7

1. A - the reasonable person must have the same skill or expertise but not the same level of
expertise

2. D – decision of the case

3. A – the facts speak for themselves

4. B – if personal injury is foreseeable to a foreseeable claimant, the defendant is liable for it

even if some unusual weakness of the claimant’s makes it worse than might have been
expected

5. A - concepts of various liability is between principal and agent and between business
partners

6. A – to a willing party only

7. C – A claimant’s own negligence in causing the loss reduces his damages

8. D – The main element is proximity but some element of foresight should be there.

9. B – Under the rule – Gerry will be liable whether the blood disorder could have been
foreseen or not [it was not a new disease as he was already suffering from it]

10. A – The reasonable driver is not a careless driver and has a duty to himself as well as to the
safety of others

11. A – The auditor’s contractual relationship is with the company. Only the company may sue
its auditor for a breach of the duty of care

12. B - The damages payable by the defendant would be reduced

13. D –

14. B

15. B

16. B – the shares may or may not be quoted

17. D – Macaura ‘s case – the company should have insured the property

18. D – 1 and 2 [features of separate personality] 3 – Foss v Harbottle

19. B – Gilford Motors v Horne

20. B & C – a requirement of company’s legislation

21. D – though there may be some limitations – conflict of interests

22. B – Council – connection with the local public sector

23. B – denoted by the word “ltd”

24. C – the investor becomes a member when registered by the company

A

103
25. D – as the company was not in existence at the time of the contract and therefore it cannot
ratify – Kelner v Baxter [no contractual capacity]

26. D

27. D – although the loan is ultra vires, the transaction is valid; the directors become personally
accountable for exceeding their authority

28. D – ‘never’ can be amended subject to a special resolution

29. C – 1 – Eley’s case; 2 – New British Iron

30. B

31. C

32. C

33. A – IDC v Cooley

34. B – since there is no fraud on the minority

35. C

36. D – Panaroma Developments

37. D

38. D – every company must keep accounting records – accountability lies with the directors
collectively

39. C – auditors have a contractual duty with their clients. Their duty of care is to the company;
they as experts have a duty of care when giving advice on a professional capacity

40. A

41. D

42. D – 10%

43. A

44. B This statement is included in the auditor's report.

45. A

46. A No. A private company is required to have a company secretary.

D No. An auditor of a private company is deemed to be re-appointed each year unless
the company decides otherwise.

47. B Although not formally appointed, a de facto director has the same powers as one
who is.

48. A A defective appointment will not render a director's actions invalid.

49. B No. A director can be removed by a simple majority.

104
 C Yes. Removal from office does not lawfully terminate any service contract

50. C This is not usually the case, although the articles may set a maximum borrowing
limit, above which directors must seek members' approval.

105
SET 8

1. D – There is no intention to defraud

2. C – Jambu may be personally liable as wrongful trading is a civil offence here
3. B – Naming previous employees may contravene the Data protection Acts
4. B – This is price sensitive information; not available in the public domain
5. D – He had a defence as he has already reported as per the Reporting Obligations. There is
no tipping off as tipping off is committed when a disclosure is made to a 3rd party that is
likely to prejudice any resulting investigations

6. A – It is not sufficient to show that the officer suspected it

7. C – The creditors have a right to appoint their own liquidator otherwise they make take the
liquidator appointed by the court.

8. A – the current directors who knew or should have known

9. A – Companies Act
10. A – the others are the roles played by the liquidator/or administrator
11. A – An agent has a duty to recover all monies received.
12. A – The company must register within 30 days; must keep a register of charges. The
company should register the charge, not the charge holder unless the company did not do
so; a charge not registered becomes void

13. B – All fixed charges rank ahead of the floating charges; rank according to date of creation

14. A – It can deal with the assets

15. D – 30 days

16. D – Crystallisation occurs in the event of default

17. B – All payments from debtors goes into an account which the company cannot touch –
therefore it is a fixed charge

18. D – this is a statutory requirement – non members may make a company search

19. C – bonus issues are new shares issued to shareholders from reserves

20. C – cannot be used to fund dividends unless it is share dividends

21. D – Howard’s case

22. B
23. C – members will be liable if they were aware of it; directors liability – joint and several

24. C – under S 33 – member inter se and member and member

25. A – the subscribers to the company

26. B – the PA – in equal proportions

106
27. B – the requirement of 2 persons

28. C – implied liability

29. D

30. C – investor but does not take part in the running of the business

31. D

32. D

33. C

34. C

35. C

36. A

37. D

38. A – contract of service not contract for service

39. C

40. C – cross offers

41. A
42. A and C
43. B
44. B
45. B
46. A
47. B
48. C
49. D
50. A

107
SET 9

ANSWERS

1. A
2. B
3. B
4. C
5. A
6. D
7. B
8. B
9. C
10. A
11. D
12. C
13. B
14. B
15. B
16. A
17. D
18. C
19. A
20. C
21. A
22. A
23. B
24. B
25. B
26. A
27. A
28. A
29. C
30. C
31. B
32. B
33. B
34. B
35. C
36. B
37. B and C
38. B
39. A
40. C
41. C
42. A
43. D
44. A
45. C

108
SET 10 - SECTION A

1. B
2. A
3. A
4. B
5. A
6. C
7. A
8. C
9. C
10. A
11. C
12. A
13. C
14. A
15. A
16. B
17. B
18. A
19. B
20. A
21. D
22. A
23. C
24. D
25. C
26. D
27. A
28. D
29. A
30. B
31. B
32. D
33. D
34. D
35. C
36. D
37. B
38. D
39. B
40. A
41. B
42. D
43. C
44. C
45. A

109
EXTRA QUESTIONS
Dec 1996 – 11(b)

Yusof may be advised as follows.

(i) It is legal for private companies to restrict the right of shareholders to transfer their shares.
Indeed it is a requirement of s.15 of the Companies Act 1965 that there must be a restriction on the
right to transfer shares, in the case of a private company limited by shares.

The right to restrict the transfer of shares may be in the form of a power given to the rectors, or in
the form of a pre-emption right in the articles of association, which requires members wishing to sell
their shares, to first sell to other members willing to buy.

(ii) By the Companies Act 1965 if a company refuses to register a transfer of any shares,
debentures or other interests in the company, it must send a notice of the refusal to both the
transferor and the transferee within one month after the date on which the transfer was lodged with
the company.

(iii) When the directors have been given a discretion to refuse to register a transfer of shares,
such discretion is in the nature of a fiduciary power and must be exercised bona fide for the benefit of
the company. power and they have exercised it in such a manner is a question of fact.
In situations where the articles empower the directors to refuse to transfer on certain prescribed
grounds, and the directors have refused on other grounds, the refusal may be challenged - Kesar
Singh v Sepang Omnibus Bus Co Ltd (1984) M.L.J.122; Lim Ow Gaik v Sungai Merah Bus Co
Ltd.
However, where the articles confer an unfettered power upon the directors to refuse to register a
transfer. It is unlikely that the court will interfere unless the plaintiff can prove that the directors
did not exercise their discretion bona fide for the benefit of the company as a whole.

In Re Smith & Fawcett Ltd (1942) 1 All ER 542, the company had an article which stated that the
directors, 'may In their absolute and uncontrolled discretion, refuse to register a transfer of shares.'
One of the shareholders, who held 4,001 shares in the company, died and his son applied for a
transfer of those shares to himself. The directors were prepared to transfer only 2,001 shares to him
and that too upon condition that he first transfers 2,000 shares to another director.

The court held that since the director had an absolute discretion and the plaintiff did not satisfy the
court that it was not exercised in the best interests of the company, the plaintiff failed. Encik Yusof
may therefore be advised that as the articles of Happy Trading Sdn Bhd give the directors an
absolute discretion, it would be difficult to challenge the decision of the directors.

June 1997 -11(a)

A forged transfer is a total nullity and no title can pass under such transfer. Therefore High Hopes
Sdn Bhd is bound to restore the true owner to the register of members. As Samy has been removed
from the register of members, High Hopes Sdn Bhd can be compelled to put him back on the
register. A case in point is Barton v London & North Western Railway (1889) 24 QBD 77.

(ii) The issue of a share certificate by a company is a representation by the company that the
person named therein is the owner of the shares. Thus it gives rise to estoppel as to title. As Molly
had relied on the share certificate issued by High Hopes Bhd to Jolly, it would be estopped from
denying Molly's right to the shares.

110
A case to illustrate this point is Daily Telegraph Co v Cohen (1905 5 SR (NSW) 520. where as a
result of a forged transfer the original owner was removed from the register of members and
replaced by the first transferee. X, who was duly issued with a new share certificate by the company.
X in turn transferred the shares to Y, who was the registered shareholder when the forgery was
discovered. The court held that the original owner was to be restored to the register of members,
but Y was entitled to damages from the company as it was estopped from denying Y's title.

Therefore High Hopes would have no rights at all against Molly.

On the other hand it does appear to have a right to claim indemnity from Jolly who obtained her
share certificate by lodging a forged transfer, even though she is innocent.

Cases have held that when a person lodges a transfer with the company, he impliedly promises that
the transfer is genuine. When it is later discovered that it was not so genuine he has to indemnify
the company for the loss that it suffers. A case in point is Sheffield Corporation v Barclay (1905)
AC 392

June 2002 – 9(a)

(i) By s.2 of the Companies Act 2016 accounting records include invoices, receipts, orders for
payment of money, bills of exchange, cheques, promissory notes, vouchers and other documents of
prime entry and also include such working papers and other documents as are necessary to explain
the methods and calculations by which accounts are made up. Therefore, these constitute the
relevant accounting records, which must be maintained by the company.

By s.245(1), every company and the directors and managers must cause to be kept such accounting
and other records as will sufficiently explain the transactions and financial position of the company
and enable true and fair profit and loss accounts and balance-sheets and any documents required to
be attached thereto to be prepared from time to time, and shall cause those records to be kept in such
manner as to enable them to be conveniently and properly audited.

(ii) By s.245(3), such records must be kept at the registered office or such other place in Malaysia as
the directors think fit. However, by s.245(5), accounting records of operations outside Malaysia may
be kept at a place outside Malaysia provided statements and returns are sent to and kept in
Malaysia. Such records are required to be retained for a period of seven years after the completion of
the transactions or operations to which they respectively relate: s.245(3).

(iii) By s.245 the accounting records must be open to inspection by the directors at all times and the
court may order the accounting records to be open to inspection by an approved auditor acting for a
director, provided the auditor gave an undertaking not to disclose any information so obtained to
any person other than the director.

As regards the shareholder, there is no provision in the Companies Act that allows him to have
access to accounting records. Thus, he is not entitled to inspect such records.

(iv) The Companies Act does not stipulate that board meetings must be held in Malaysia. Therefore,
unless the constitution of the company require that such meetings be held within Malaysia; they
may be held in Singapore.

Penalty – RM500,000.00 or 3 years imprisonment or both

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June 2002 – 10(d)

By s.227(1) of the Companies Act 2016, it is not lawful for a company to make to a director any
payment by way of compensation for loss of office as an officer of that company or a subsidiary of
that company or as consideration for or in connection with his retirement from any such office
unless particulars with respect to the proposed payment (including the amount thereof) have been
disclosed to the members of the company and the proposal has been approved by the company in
general meeting.

Where any such payment has been made in contravention of the section, the amount received by the
director shall be deemed to have been received by him in trust for the company.

Thus, Alpha Bhd may be advised that unless it obtains the necessary approval from the company in
general meeting it will not be lawful to make the proposed payment to Devan. In the event payment
is made to Devan without such approval, it will be able to recover the amount from him.

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