Judgment

Siti Norma Yaakob, JCA

(delivering the judgment of the court)

1. The respondent is one of two guarantors who was sued by Rakyat Merchant Bankers Bhd ("Rakyat") together with his co-guarantor and the principal borrower in the court below for the return of a term loan facility granted by Rakyat to the principal borrower. The writ was filed by Rakyat's solicitors, Messrs Lee Hishammuddin on July 12, 1995, and the respondent, together with his co-guarantor, filed a joint statement of defence dated February 27, 1996. In paragraph 2 of the statement of defence, the respondent questioned the status of Rakyat on the ground that it had no locus standi to institute and continue the proceedings against him and his co-guarantor.

2. The filing of the statement of defence was immediately followed by the filing of a summons-in-chambers dated February 28, 1996, where in respondent applied under Order 18 r 19 of the Rules of the High Court 1980, to have the writ and statement of claim struck out on the following grounds.

   1. That Rakyat had no legal right or locus standi to file and continue prosecuting him.

   2. Messrs Lee Hishammuddin, Rakyat's solicitors had no legally constituted authority to continue representing Rakyat.

   3. That the instant proceedings against him was an abuse of process.

3. The Senior Assistant Registrar who heard the respondent and allowed his application agreed with the respondent and allowed his application on terms. On appeal, the Judge confirmed that decision and dismissed the appeal with costs and it was under those circumstances that the parties came before us.

4. It is not disputed that as at July 12, 1995, when the writ and statement of claim was filed, Rakyat, a licensed merchant bank, was already declared insolvent. This was so as on March 2, 1994, the Minister of Finance, acting under s 73(2)(a) of the Banking and Financial Institutions Act 1989, ("BAFIA") and on the recommendation of Bank Negara Malaysia, made an order cited as the Banking and Financial Institutions (Rakyat Merchant Bankers Bhd) (Assumption of Control) Order 1994 ("the 1994 order") authorising Bank Negara to assume control of the whole of the property, business and affairs of Rakyat and to carry on the whole of its business and affairs. The 1994 order was published in the Government Gazette the same day it was issued and came into force on March 3, 1994.

5. On July 22, 1995, on the joint application of Rakyat and BSN Merchant Bank Bhd, the present appellant before us, the High Court made a vesting order vesting the entire assets and liabilities of Rakyat to the appellant including the right to continue with proceedings in any court of law in which Rakyat was a party. The vesting order was made to give full effect to an agreement entered into a month earlier, dated June 15, 1995, between Rakyat and the appellant, wherein Rakyat transferred all its assets and liabilities standing in its name as at August 1, 1995, to the appellant.

6. It was under those circumstances that the appellant came into the picture and took over the conduct of this suit by notice dated April 5, 1996, a week before the application to set aside was heard and nine months after the vesting order was made.

7. In his affidavit supporting his application, the respondent raised two issues.

   1. That Rakyat was no longer a legal entity as it has been struck off the register by the Registrar of Companies and that its licence to operate its business as a merchant bank had been withdrawn by Bank Negara and that the instant proceedings is an abuse of the process of court.

   2. Consequently Messrs Lee Hishammuddin can no longer continue to represent Rakyat, a non-existent entity.

8. The same contentions were canvassed before us and with regard to the first issue, we need to consider Rakyat's legal status, firstly at the time it instituted proceedings against the respondent and secondly after the vesting order was made on July 22, 1995.

9. As at July 12, 1995 when Rakyat filed the writ action against the respondent, the 1994 order was already in existence having been issued sixteen months earlier. What was Rakyat's legal status then? In the absence of any proof that it had been placed under receivership or wound up either voluntary or by the court, we say that the respondent cannot be heard to say that the Registrar of Companies had struck Rakyat off his register. Likewise the respondent must establish by way of documentary proof that Rakyat's licence had been revoked, surrendered or withdrawn by Bank Negara. This is so as we say that the 1994 order does not have the effect of rendering Rakyat a non-entity and neither does it empower Bank Negara to withdraw its licence automatically.

10. The law relating to the winding up of a company is governed by Part X of the Companies Act 1965, and before us no reference was made to any provision of that part of the Companies Act to establish that Rakyat had become incapacitated by a winding up or dissolution order made against it.

11. On the same token we have gone through the BAFIA to consider under what circumstances can a licence granted to a financial institution be revoked, surrendered or withdrawn. The provisions of ss 7, 12 and 13 of the BAFIA are relevant but we do not have the proof nor are we made aware whether any action had been taken against or by Rakyat to bring itself within the relevant provisions of the BAFIA to enable the respondent to hold out that Bank Negara had cancelled or revoked Rakyat's licence to operate as a merchant bank.

12. On the contrary, by the very tenor and language of the 1994 order, it merely empowers Bank Negara to assume control of the property, business and affairs of Rakyat and to carry on with its business and affairs as Rakyat was in no position to manage its affairs financially. What this means in practice is that all the powers and functions of Rakyat's Board of Directors are suspended and such powers and functions are assumed by Bank Negara, who would carry on the business and affairs of Rakyat in the name and on behalf of Rakyat until such time the 1994 order is revoked. We say that the 1994 order does not have the effect of conferring or vesting in Bank Negara any title or any beneficial interest in any property registered in Rakyat's name. See ss 76(1)-(5) of BAFIA.

13. As such, Rakyat continued to exist as a legal entity despite the 1994 order although it had no say in the control and management of its business and affairs. That had become the responsibility of Bank Negara at least until it was taken over by the appellant following the granting of the vesting order. Under these circumstances we say that any cause of action that accrued to Rakyat was not taken away and surrendered to Bank Negara. It still accrued to Rakyat. But can Rakyat legally enforce or pursue that right by instituting proceedings in its own name as was done in this case?

14. We say it can as firstly Rakyat was and is still a legal entity despite the 1994 order and there was no necessity to drag in Bank Negara. Rakyat had a valid cause of action against the respondent based on the guarantee dated June 14, 1993, executed by the respondent with it. However considering the circumstances in which Rakyat had been placed and in view of the 1994 order, it would have been desirable had Rakyat impleaded the 1994 order and condescend to some particulars in its statement of claim particularly whether it had the authority to institute the writ action in its name.

15. We fully appreciate and agree with the trial Judge's finding that filing the writ action was very much an exercise of a function which, under the 1994 order had been assumed by Bank Negara. Nevertheless when considering that what is being complained of is Rakyat' s conduct in filing a suit in its own name and is not concerned with the accrual of the cause of action to Rakyat, we say that such conduct is only defective as to form only and not in substance and we consider that such defect is not fatal but curable by the proper and prospective plaintiff rectifying and continuing with the action in place of Rakyat.

16. That proper and prospective plaintiff is the appellant who rightly took over the conduct of the proceedings after the vesting order was made. By so adopting the action on behalf of Rakyat, the appellant had cured whatever defect was present at the time the action was commenced.

17. That same analogous position was present in Danish Mercantile Co Ltd v Beaumont [1951] 2 All ER 925 where a solicitor had started proceedings in the name of a company without verifying whether he had the proper authority to do so. The English Court of Appeal held that as long as the matter rested there, the action was not properly constituted and in that sense a nullity. However it was open to the purported plaintiff at any time to rectify the act of the solicitor who started the action to adopt the proceeding and to instruct him to continue them. When that was done then under the law of principal and agent and under the doctrine of ratification, the defect in the proceedings originally constituted was cured and it was cured and it was no longer open to the defendant to object that the proceedings thus ratified and adopted were in the first instance brought without proper authority.

18. After discussing a number of cases cited before the court, Jenkins, LJ had this to say:

    I find nothing in any of those cases to constrain me to hold that the issue of a writ and the commencing of an action without the authority of the purported plaintiff is a matter which admits of no validation by subsequent ratification of the act of the solicitor concerned. So to hold would be to introduce, as I see it, an entirely novel doctrine into the ordinary law of principal and agent, and to make a new exception to the general rule that every ratification relates back, and is deemed equivalent, to an antecedent authority. In the absence of any decision compelling me to do so, I, speaking for myself, decline so to hold.

19. Likewise we consider that the moment the appellant stepped into Rakyat's shoes to continue the proceedings on behalf of Rakyat, the issue of Rakyat's locus standi, if any, ceased to exist.

20. Turning to the respondent's second objection and this relates to the lack of authority on the part of Messrs Lee Hishammuddin to represent Rakyat, we find that there has been some confusion as to the scope and extent of the objection. Since it was raised for the first time in the respondent's joint statement of defence, we reproduce that particular averment for ease of reference [translation]:[a]

    3.

    Therefore, Messrs Lee Hishammuddin, solicitors for the Plaintiff named in this action has no proper legally constituted authority to continue the action for Rakyat Merchant Bankers Bhd, the Plaintiff which is named as Rakyat Merchant Bankers Bhd in this action had ceased to exist as a legal entity and it is an abuse of the process of this court for Messrs Lee Hishammuddin to continue the action for Rakyat Merchant Bankers Bhd and I challenge them to obtain a proper legal authority from Rakyat Merchant Bankers Bhd now to continue this action for Rakyat Merchant Bankers Bhd.

    That same averment is again pleaded as paragraph 3 in the respondent's affidavit-in-support of his application to set aside.

21. It is our understanding that what that averment means is that Messrs Lee Hishammuddin had no proper legally constituted authority to continue with the proceedings on behalf of Rakyat as Rakyat had become non-existent following its cancellation as a legal entity by the Registrar of Companies and the cancellation of its licence by BankNegara as pleaded in paragraph 2 of the respondent's joint statement of defence and again in his affidavit in support.

22. It is trite law that parties are bound by their pleadings. So if we go by the objection as pleaded, it is our opinion that such objection is a non-issue as we have already shown that Rakyat continues to be a legal entity as only its business and affairs have been taken over firstly by Bank Negara under the 1994 order and finally by the appellant following the vesting order. Its identity and standing have always remained intact and have not been disintegrated.

23. That argument would have disposed of the respondent's objection as pleaded. But that was not to be as in the court below, the respondent extended the scope of his objection by submitting that Messrs Lee Hishammuddin had no authority to file and commence this action on behalf of Rakyat.

24. This forced Rakyat to apply successfully for leave to introduce fresh evidence by the filing of an affidavit exhibiting proof of authority in the form of two Powers of Attorney, one dated August 30, 1994, ("the first P/A") and the other dated December 19, 1995 ("the second P/A").

25. It must be noted that the first P/A was executed after the 1994 order was made but before the writ action was filed. By the terms of the first P/A, Bank Negara appointed one Tay Bin Chat ("Tay") with full power of substitution to be its attorney for and on behalf of Rakyat to do all those acts and things as specified in five numbered paragraphs. Paragraph 3 which was never considered by the court below, is relevant, as it empowers Tay, inter alia, to do the following:

    3.	To take proceedings in bankruptcy .... and other process against .... persons for any debt, demand or claim due to or claimed by Rakyat Merchant Bankers Bhd and to take all steps and do all things requisite for recovering and making good any debts, demand or claim against any person ....

26. In a follow-up letter dated April 27, 1996, which is exhibited, Tay, as Attorney of Rakyat, had formally written to Messrs Lee Hishammuddin confirming his earlier instructions made on or before February 6, 1995, for Messrs Lee Hishammuddin to proceed against the respondent, the other co-guarantor and the principal debtor to recover the term loan made by Rakyat.

27. Reading paragraph 3 of the first P/A, which empowers Tay as attorney of Rakyat to file proceedings on behalf of Rakyat and the letter dated April 27, 1996 which confirmed that he had instructed Messrs Lee Hishammuddin on or before February 6, 1995, to file proceedings on behalf of Rakyat, it is clear that as at July 12, 1995, when the writ action was filed and commenced, Messrs Lee Hishammuddin had the necessary authority to act on behalf of Rakyat.

28. We need say no more of the second P/A as it was executed to cover the situation after the vesting order was made and therefore not relevant to the respondent's objection that Messrs Lee Hishammuddin had no legally constituted authority to file and commence this action on behalf of Rakyat. In the circumstances of this case we find that there is no question of any abuse of process when Messrs Lee Hishammuddin filed this writ action on behalf of Rakyat.

29. For the reasons given in this judgment, we cannot support the findings of the trial judge and to that end, we set aside such findings and allow this appeal with costs here and below. The deposit is to be refunded to the appellant.

Cases

Danish Mercantile Co Ltd v Beaumont [1951] 2 All ER 925

Legislations

Banking and Financial Institutions Act 1989: s.7, s.12, s.13, s.73, s.76

Companies Act 1965: Part X

Rules of the High Court 1980: Ord.18 r19

Representations

DP Nathan and KA Gan (Lee Hishammuddin) for Appellant

Tan Lip Yip (Tan Lip Yip) for Respondent

Notes:-

[a] Translation into English texts is not a part of the original judgment.

This decision is also reported at [2000] 2 AMR 1926