Judgment

Abdul Kadir Sulaiman, JCA

(delivering the judgment of the court)

1. Foong Seng Fuat Sawmill Sdn Bhd (hereinafter referred to as Foong) at all material time was the owner of a sawmill. However, the running of the daily business of the sawmill was in the hand of Lampak (M) Timber Sdn Bhd (hereinafter referred to as Lampak). The capital to run the business by Lampak came in part from the respondent bank. According to the evidence, a loan of RM600,000 was given out by the respondent to Lampak. A debenture was executed on the assets of Lampak situated at the sawmill.

2. To protect their interests over the properties in the sawmill, Lampak jointly with the respondent took out a fire policy against loss caused by fire or lightning over the properties in the sawmill belonging to "the insured or held in trust or on commission or on joint account with others and for which the insured is responsible". The said properties were particularized in the policy as "All Materials and Stock-in-Trade consisting mainly of sawn timber and logs in connection with the Insured's Trade contained within the premises compound".

3. On June 14, 1985 fire broke out at the sawmill. All timbers and logs therein were destroyed. Pursuant to a consent judgment in High Court Civil Suit No 2300 of 1985 in the action by the joint assured against the insurance company, they were paid a total sum of RM700,000. The amount was apportioned in the proportion of RM607,018 to the respondent and RM92,000 to Lampak.

4. In the course of the sawmill business, the owner, Foong, entered into various written agreements with the appellant for the supply of sawn timber, the total value of which amounted to RM597,152.39. Pursuant to the said agreements with the owner, the appellant fully paid the amount to Lampak on the instruction of Foong. However, the sawn timber was never delivered to the appellants on the delivery dates agreed or at all.

5. For having paid the amount due but not receiving the sawn timber, the appellant in High Court Civil Suit No 1543 of 1985 filed a claim against Foong and Lampak for the return of the above sum paid. Lampak, however, did not enter appearance to the writ issued and by a court order of January 13, 1986, it was ordered to pay the appellant the said amount claimed with interest.

6. Of the amount ordered against Lampak, the appellant recovered only RM57.956.56 from it, leaving a balance of RM539.195.83 before Lampak was wound-up. The appellant did not pursue further against Lampak. But the appellant saw in the hand of the respondent arising out of the consent judgment in suit No 2300 of 1985 mentioned earlier, a sum of RM607,018.49 being a portion of the full amount paid out by the insurance company in respect of the fire incident at the sawmill.

7. So, by this action before the High Court, the appellant on March 26, 1987 caused a writ to be issued against the respondent for:

   1. a declaration that the respondent holds the amount it paid to Lampak in respect of the supply of sawn timber, from a total sum the respondent received from the insurance company, in trust for the appellant;

   2. that the respondent do pay the said amount to it forthwith with interests.

8. This action by the appellant against the respondent was dismissed by the learned judge with costs. Hence, this appeal before us. On January 25, 2003, we heard the arguments and at the end of it we handed down our oral decision allowing the appellant's appeal. We now provide our reasons for so deciding.

9. This appeal, therefore, revolves around the fight between the appellant and the respondent over part of the money paid out by the insurance company to the respondent as mentioned earlier.

10. The learned judge was satisfied that the sum of money arising out of the various contracts entered into between the appellant and Foong was paid to Lampak by the appellant. But he is of the view that the various contracts for the supply of the sawn timber were made between the appellant and Foong. As such Lampak was not a party to those contracts as there was no provisions in the various contracts regarding the creation of an agency between the relevant parties. The appellant's contention that Lampak was acting as an agent for Foong was not supported by any evidence. But with respect to the learned judge, there is no dispute as to the actual party operating the sawmill owned by Foong, which is Lampak. One Mr. Gan Thian Beng was the man on the ground running the show for Lampak. The sawn timbers meant for the appellant were graded by various graders who prepared grading summaries on the instruction of this Mr. Gan. These graders were paid for their services by Lampak. Those grading summaries were given to Mr. Gan for further action. The various invoices were issued under the letterhead of Lampak in favour of the appellant and the various payment vouchers carried the letterhead of the appellant made in favour of Lampak. Also in evidence which is not in dispute is that 9 cheques were issued by the appellants to the credit of Lampak being contract price for the supply of the sawn timbers ordered by the appellant amounting to RM597,152.39. All these pieces of evidence would go to suggest that Lampak was doing it for Foong who entered into contract to supply the timber from his sawmill under the operation of Lampak to the appellant. It was Foong who instructed the arrangement to be such, thereby constituting Lampak as its agent in the transaction.

11. However, if we are wrong on this conclusion, we found that there clearly was created the contractual relationship directly between the appellant and Lampak, albeit orally which were evidenced by the various documents mentioned. The learned judge in concentrating on the various written contracts entered into between the appellant and Foong had lost sight of this distinct contractual relationship subsisting between the appellant and Lampak. To the learned judge, the various contract documents tendered on behalf of the respondent in the case before him were crucial in determining the appellant's claim against the respondent. Hence, in the circumstances, to hold that there's no privity of contract between the appellant and Lampak was clearly erroneous. With respect we feel that the learned judge in his judgment had misconstrued the decision of SC Peh J (as he then was) in KTS Sdn Bhd v Foong Seng Fuat Sawmill Sdn Bhd [1987] 1 CLJ 396 which is High Court Civil Suit No 1343 of 1985 mentioned earlier. There, SC Peh J was of the opinion that when a person signs a contract which cites his own name as a party thereto, without any qualification contained anywhere in the contract, indicative or his acting as an agent for any third person, or principal, then he must be presumed to have contracted personally. This must be so even if the other party to the contract was aware that he was signing the contract for the third person or principal. This principle would not apply in the present case in regard to the distinct independent oral contract entered into between Lampak and the appellant.

12. The learned judge also excluded the oral evidence in the case to contradict the terms of the said written agreements purportedly to be in pursuant of s 92 of Evidence Act without considering this so called oral evidence as that evidence to introduce the independent oral contract between the appellant and Lampak as so excepted by the general provision of s 92. This exclusionary provisions is applicable only in respect of an attempt to contradict the evidence found in the documents establishing the contractual relationship between the contracting parties to the written agreements. But in the present case before the learned judge, the issue is between Lampak and the appellant. The oral evidence proffered was not in anyway put in with a view to contradict the written agreements entered into between the appellant and Foong but its introduction was purely for the purpose of establishing the existence of an independent oral contract between Lampak and the appellants over the supply of the sawn timber of which full payments had been made. Therefore, on this ground alone to dismiss the claim of the appellant against the respondent in this action is clearly erroneous.

13. In holding that there is no privity of contract between Lampak and the appellant the learned judge found another reason for it in his judgment. While recognizing that there is an equitable exception to the privity of contract in law, the learned judge found there was none in the present case before him because after perusing the various written contracts between Foong and the appellant he found nothing in the said contracts to suggest that Lampak had in interest in the transaction between the appellant and Foong. However, to the contrary, there was in evidence before the learned judge of the direction by Foong, the owner of the sawmill, to Lampak, who was running the actual sawmill business at the premises, to supply the timber, the subject matter of the contracts between it and the appellant, to the appellant and was further supported by the evidence of the grading summaries, invoices and payment vouchers, and the issuing of cheques which clearly establish an independent contractual relationship between Lampak and the appellant. For that reason, we are of the view that there was established between the appellant and Lampak a valid contractual relationship albeit orally.

14. There is to be found in the judgment of the learned judge also as to why the appellant cannot make any claim on the insurance money in the hands of the respondent. The reason being that there is no nexus between the appellant and the respondent contractually. Indeed there was no contractual relationship as such between the appellant and the respondent. But, having established the contractual relationship between Lampak and the appellant, one needs to refer to the documents upon which the respondent was involved in claiming a portion of the insurance money paid by the insurance company in connection with the destruction of the property of the appellant in the fire which gutted the premises where the undelivered sawn timber was kept. That document is the fire policy referred to earlier. The property insured by the joint assured of which the respondent is one, according to the schedule provided, includes properties held in trust found on the premises. It covers all materials and stock-in trade consisting mainly of sawn timber and logs in connection with the insured's trade contained within the premises compound. As for the respondent vis-à-vis the fire policy, it might have an insurable interest in respect of some of the properties in the sawmill to cover the amount owned to it by Lampak. If such is the case, the respondent should have taken a separate policy covering that interest of his. But here, instead of doing so, the respondent chose to join in with Lampak as co-assured to obtain a fire policy to include also those properties which it very well knew did not belong to it and for that matter it had no insurable interest over it i.e. that properties held in trust by Lampak in favour of the appellant. Hence, of the money the respondent received from the insurer in respect of the fire at the sawmill, must necessarily include that amount which belong to the appellant in respect of properties held in trust by Lampak for the appellant. The respondent cannot, therefore, say that the RM607,018.49 which it received as its share by the consent order of the court mentioned earlier, represents its insurable interest. As for the amount belonging to the appellant in the hands of the respondent, we cannot but conclude that the respondent holds it in trust for the appellant.

15. It cannot be denied that certain sawn timber belonging to the appellant was in the premises compound when the fire broke out. The price for that had been paid in full by the appellant to Lampak duly supported by the grading summaries, payment vouchers, invoices and cheques to the credit of Lampak. But before that sawn timber was delivered to the appellant, they were destroyed by the fire. Pending delivery, they were in the hands of Lampak holding them on trust for the appellant. Those properties held in trust by Lampak is the subject matter of the fire policy of which the respondent is one of the assured. Therefore, part of the money paid out by the insurers on account of that fire policy belongs to the appellant beneficially. Both the respondent and Lampak settled the amount with the insurers for RM700,000 of which RM597,152.39 belong to the appellant beneficially. Without any regard to this beneficial interest of the appellant, Lampak and the respondent in their suit against the insurers by consent apportioned this RM700,000 between themselves. It is not in evidence, however, how they worked about this apportionment. Fortunate enough for the appellant, out of this RM92,982 in the hands of Lampak, it was able to recover a sum of RM57,956.56 before Lampak was wound-up. As to the balance of RM539.195.83 the appellant went before the learned judge to recover from the respondent. Having gone through the submissions and the evidence before us, we are of the view that the appellant is entitled to do so having traced the balance to be in the hands of the respondent out of the RM607,018 apportioned to it by the consent order.

16. In Hepburn v Tomlinson (Hauliers) Ltd [1966] AC 451 at p 469, Lord Read said:

    This case has been complicated by the supposed existence of a rule that, if the insurer has only a limited interest in the subjects insured, he cannot recover more than sufficient to indemnify him against his own personal loss, unless it is shown that he intended to insure for the benefit of the owner of the subjects.

17. In Maurice v Goldsbrough Mort & Co Ltd [1939] 3 All ER 63, the policy taken was against loss or damage by fire or lightning of the property described in the schedule, which is quire similar to the situation before us now. The description in the schedule was: ".... on merchandise the assureds' own property or held by them in trust or on commission for which they may be liable in the event of loss or damage by fire." Construing the contract, Lord Wright at p 69 said:

    In effect, in a policy of this nature, the policy moneys represent the goods when the goods are destroyed by fire, and the rights in these moneys are apportionable accordingly to the respective interests or property rights in the goods themselves.

18. Hence, it is erroneous to say that the appellant cannot make any claim on the insurance money in the hands of the respondent.

19. Another aspect which affects the decision of the learned judge resulting in the dismissal of the appellant's action against the respondent is this. In the judgment, the learned judge touched on the credibility of the appellant in instituting this action against the respondent. We are of the view that it was unnecessary for the learned judge to rely on the case of the appellant against Foong and Lampak in KTS Sdn Bhd v Foong Seng Fuat Sawmill Sdn Bhd [1987] 1 CLJ 596 which is High Court Civil Suit No 1543 of 1985 mentioned earlier. Admitting that the matter was never raised by the respondent, the learned judge made a point to use the case to attack the credibility of the appellant in this action before him. He noted that although the appellant had entered partial judgment (for 6 contracts) against Foong and obtained default judgment against Lampak, the appellant did not proceed to enforce the judgments. This in a sense is not true because according to the court order of August 29, 1990 at the instance of the appellant, Foong was wound-up by the court under the provisions of the Companies Act 1965 and the official receiver was ordered to be appointed as provisional liquidator for the purpose of the winding-up. As for Lampak, there is in evidence that attempts were not made to recover the judgment sum from it but managed to recover only a sum of RM57,956.36 leaving a balance of RM539,195.83 which by this action the appellant was claiming from the respondent, since Lampak had been wound-up as well. Hence, the wrong assessment of the evidence before him had indeed affected the decision of the learned judge against the appellant.

20. While recognizing that Foong was the owner of the sawmill and it was operated by Lampak with Mr. Gan in charge, the learned judge erroneously concluded that there was no formal evidence adduced to establish the nature of the relationship between Foong and Lampak. For such conclusion, the learned judge was of the view that the appellant elected to enter into a contract with Foong instead of Lampak was because Lampak was operating the sawmill without a licence. However, we do not find any evidence to support such a conclusion. To support his conclusion, the learned judge had this to say:

    In our present case, although the consideration in the contract is not forbidden by any law, I must say that the nature of the contract itself is for the purpose of defeating the provision of s 13 of the Malaysian Timber Industry Board (Incorporation) Act 1973. I therefore rule that this contract falls within the ambit of s 24(b) of the Contracts Act 1950. Such contract cannot be enforced in court simply because they infringe the provisions of s 13 of Malaysian Timber Industry Board (Incorporation) Act 1973 i.e. to regulate the timber industry in this country. Therefore, I conclude that the alleged contracts that existed between KTS and Lampak for the purchase of sawn timber was unlawful and illegal. I have perused carefully the written submission of plaintiffs counsel and I must say I cannot accept his argument chat the illegality that exists in this case is only as to the fact that Lampak was operating without a licence. He pointed out that in this case, plaintiffs are suing the bank for the insurance money that was paid to them. He distinguished the facts of the case between Mustafa Osman v Lee Chua [1996] 2 MLJ 141 and Mistry Amar Singh v Kulubya [1963] 3 All ER 499. I agree that the facts of those two cases are distinguishable, but I must point out that in the present case, the plaintiffs' claim was based on an illegal contract. No doubt the plaintiffs are suing the bank, and not Lampak, but upon perusing their statement of claim, it is clear from paragraph 3 of the claim that the sum of money claimed arose from the transaction between KTS and Lampak. Essentially, the contract between plaintiffs and Foong Seng Fuat goes to the root of plaintiffs' claim. As such plaintiffs' counsel's submission that the plaintiffs' claim is not based on an illegal contract is without substance. Mistry Amar Singh's case is of no application in our present case. For the reasons given above I dismiss plaintiffs claim with costs.

21. Therefore, the issue here is whether the arrangement entered into between the appellant and Lampak amounts to an illegal contract that should be struck down. The learned judge relied on s 13 of the Malaysian Timber Industry Board (Incorporation) Act 1973 to strike down the contract as being an illegal one within the ambit of s 24(b) of the Contracts Act 1950. According to the learned judge, the nature of the contract is for the purpose of defeating the provisions of s 13 of the Malaysian Timber Industry Board (Incorporation) Act 1973. We believe the Act mentioned by the learned judge is the Malaysian Timber Industry Board (Incorporation) Act 1973 because of his citation of the provisions of s 13 of the latter Act. Be that as it may, in so holding he relied on subsections (5), (6) and (7) thereof, because we believe he would not be able to rely on subsections (1), (2), (3) or (4) because the transaction with the appellant did not involve the export of timber or carry on business as an exporter envisaged by subsection (1) thereof. Neither did it involve the carrying on of the business as a jetty operator, grading timber or for the purpose of the export trade as a supplier, packer or manufacturer as envisaged in subsections (2), (3) or (4) thereof. From his judgment, the learned judge relied on subsections (5), (6) or (7) thereof to hold that the contract was unlawful. But subsection (5) in particular, is only an enabling provisions for the Minister from time to time, by order published in the gazette, to require specific classes, kinds or descriptions of suppliers) packers or manufacturers, not being those carrying on business as such for the purpose of the export trade to register themselves as such under the Act. However, there was nothing before him to show that the Minister had acted under that enabling provisions to include the business carried on by Lampak by any order published in the Gazette. Consequently, subsections (6) and (7) would not apply to Lampak. As such Lampak was not caught at all by the provisions of s 13 of the Act. For falling into such error, he had erroneously held that the arrangement between Lampak and the appellant was an illegal one. In any event, even if the learned judge was right in his interpretation of s 13 of the Act, it would not make the appellant to suffer the evil of Lampak as there is no evidence that in making the arrangement, the appellant was in pari delicto. There is no evidence to suggest that the appellant knew in the first place that Lampak was operating the business illegally when it entered into the arrangement with Lampak. Be that as it may, the sanction for infringing the provisions is the criminal liability to be suffered by Lampak as so provided in subsection (7) thereof without affecting its transaction with the appellant.

22. In Asia Television Ltd v Viwa Video Sdn Bhd [1984] 2 MLJ 304, the appellant, a copyright owner in certain films in video cassette form obtained ex parte anton piller orders against the respondent. The respondent applied to set aside those orders and for the return of all those materials removed from their premises pursuant to the ex parte orders. The High Court allowed the application of the respondent holding that as there was no certificate of approval for the publication of the films as required under the Films (Censorship) Act 1952 there was no valid publication of the film under the Copyright Act 1969 by the appellant. Hence, such publication by the appellant was unlawful, illegal and an offence punishable under the Act and therefore, no copyright had been acquired as a result. On appeal by the appellant to the then Federal Court, its appeal was allowed because there was no prohibition in either of the Acts which would preclude the appellants from acquiring copyright if they were otherwise qualified although they were in breach of the provisions of the Film (Censorship) Act 1952 which is concerned only with criminal liability and provides a penalty for breach of its relevant provisions. In the case before us now, it is in a worse position because in the first place, Lampak does not come within the ambit of s 13 at all.

23. In the circumstances, having considered all matters before us in this appeal we have no alternative but to allow this appeal of the appellant against the dismissal order of the learned judge. We entered judgment for the appellant as prayed in the statement of claim with costs here and below. My learned brothers, Abdul Hamid Mohamad and Richard Malanjum JJCA have read the draft and consented to it.

Cases

Asia Television Ltd v Viwa Video Sdn Bhd [1984] 2 MLJ 304, FC; Hepburn v A Tomlinson (Hauliers) Ltd [1966] AC 451, HL; KTS Sdn Bhd v Foong Seng Fuat Sawmill Sdn Bhd [1987] 1 CLJ 596, HC; Maurice v Goldsbrough Mort & Co Ltd [1939] 3 All ER 63, PC

Companies Act 1965

Contract Act 1950: s.24(b)

Copyright Act 1969

Evidence Act 1950: s.92

Films (Censorship) Act 1952

Malaysian Timber Industry Board (Incorporation) Act 1973: s.13

Representations

Ahmad Moosdeen and Paramjothy (Chan, Moosdeen & Partners) for appellant

KK Leong (Kean Chye & Sivalingam) for respondent

Notes:-

This decision is also reported at [2004] 6 AMR 145