DALAM MAHKAMAH RAYUAN
(BIDANGKUASA
RAYUAN)
RAYUAN
SIVIL NO: W-02-625-1995
ANTARA
1. AVEL CONSULTANTS SDN BHD
…
RESPONDEN-
2. ELMEC CONSULTANTS SDN
BHD
RESPONDEN
(Dalam perkara Saman Dalam Kamar
bertarikh 28hb April 1988 (Encl. 62 & 64) Guaman No. C336-1984
dalam
Mahkamah Tinggi Malaya di Kuala
Lumpur
Antara
1. Avel Consultants
Sdn Bhd
…
Plaintif-
2. Elmec Consultants
Sdn Bhd
Plaintif
Dan
1.
Mohd Zain
Yusoff
2.
Abdahir Abdul
Majid
… Defendan-
3.
Jaginder Singh
Defendan)
Coram: Mokhtar bin Hj. Sidin,
J.C.A.
Azmel bin Hj. Maamor, J.C.A.
Zulkefli bin Ahmad Makinudin, J.C.A.
JUDGMENT OF THE
COURT
Introduction
On 1-4-1985 the Supreme Court on an appeal by the respondents [“the
plaintiffs in the Court below”] entered summary judgment on liability against
the appellants [“the defendants in the Court below”] for breach of fiduciary
duty, with damages to be assessed [“the Judgment’]. The salient part of the Order of the
Supreme Court reads as follows:
“AND THIS COURT BOTH DECLARE that the
Defendants abovenamed had acted in breach of the fiduciary duty owed to the
Plaintiffs AND IT IS FURTHER ORDERED that the Senior Assistant Registrar
of the High Court at Kuala Lumpur do inquire into and assess the damages payable
by the Defendants to the Plaintiffs by reason of the breach as aforesaid AND
IT IS ALSO ORDERED that the Defendants do pay to the Plaintiffs the damages
so assessed AND IT IS FURTHER ORDERED that the Defendants do account to
the Plaintiffs all income in respect of all contracts for services secured by
them or Perunding AJZ between the 30th day of November 1983 and the
1st day of March 1984 AND IT IS FURTHER ORDERED that the
Senior Assistant Registrar of the High Court at Kuala Lumpur do inquire into the
account aforesaid and determine the sum payable by the Defendants or Perunding
AJZ to the Plaintiffs…”
Pursuant to the Judgment, on
Before the High Court Judge, the appellants contended that the SAR should
have only awarded the respondents the profits, instead of the gross income
derived by the appellants from their breach. The respondents on the other hand
contended that the SAR should have awarded them RM6,654,699.24 and not
RM1,119,867.25. Both appeals were
dismissed by the High Court Judge on
On
The Deputy Registrar of the High Court duly recorded the further evidence
of expenditure and the additional evidence adduced before the Deputy Registrar
is now before the Court of Appeal again [See Appeal Record (Vol. 2) at pages 10 –
55].
Facts of the
Case
The relevant facts of the case are as follows:
(1) The respondents were in
the business of engineering consultancy and advisory services. The first and second appellants were
Directors of the first respondent (the first appellant was also Managing
Director) and all three appellants were Directors of the second
respondent.
(2) On
(3) The TV3 Project was
divided into five Phases. Phase 1
involved setting up a Studio Complex at Jalan Liku, Off Jalan Bangsar, Kuala
Lumpur and the main transmitter station for the Klang Valley at Bukit Sungei
Besi at a cost of RM20 million.
Most of the work in Phase 1 was in relation to the Studio Complex. Phases 2 to 5 involved setting up
additional transmitter stations to extend coverage nationwide at a cost of RM5
million per station.
(4) The first respondent’s
appointment placed no limitation on the contract period, save that termination
was provided in the event of the resignation of key personnel or a break-up in
the partnership of the first respondent.
(5) On
(6) On
(7) On
(8) On
(9) On
(10) In their Judgment, the Supreme Court
expressly stipulated that the accounting period for the assessment of damages
was in respect of “all contracts for
services secured by them [the appellants] or Perunding AJZ between the
30th day of November 1983 and the 1st day of March
1984.”
(11) The only contract secured by the
appellants within the said accounting period was the appointment of Perunding
AJZ by STMB on
(12) Between
Decision of the Court on
Appeal
The main issue to be decided in this appeal by the appellants is whether
the respondents are only entitled to profits, and not gross income derived by
the appellants from their breaches.
It is the appellants’ case that the respondents are only entitled to
profits and that the appellants should be allowed to make deductions for the
expenditure incurred by them to earn the income. We are in agreement with the contention
of the appellants and it is for this reason that this Court had earlier ordered
the SAR to take an account of the income and expenses incurred by the appellants
and submit his findings to the Court. On this point we find support in
the principle as applied in the Australian High Court case of Warman International Limited & Anor.
v. Brian Dwyer & 2 Ors. [1995] 2 CLJ 326. In that case there was a breach of
fiduciary duty by the General Manager of the company [“the former employer”]
when he formed new companies to carry out the business of the former
employer. The court inter alia held
that in ascertaining the damages the former employer would be entitled, the
appropriate order is for an account of profits of the business of the new
companies before tax less an appropriate allowance for expenses, skill,
expertise, effort and resources contributed by them.
Both the SAR and the High Court Judge awarded the respondents the total
gross income received by the appellants from Phase 1, but did not give the
appellants any credit for the expenditure incurred by them to earn the
income. Both the SAR and the High
Court Judge were of the view that the appellants had failed to adequately prove
this expenditure.
It is the contention of the appellants that there is sufficient credible
evidence of the expenditure incurred by the appellants in earning the income,
and hence credit should be given for the same. On the other hand, the respondents
contended that the appellants have not adduced admissible evidence on its
expenditure and consequently no reduction should be given on account of
expenditure.
Perunding AJZ’s role in Phase
1
On the evidence adduced we find that Perunding AJZ’s main involvement in
Phase 1 was in setting up the Studio Complex. In this regard, Perunding AJZ acted as
Project Manager, systems designer and integrator for the studio equipment. At the same time, Perunding AJZ engaged
third parties to carry out other input and supervisory work in relation to inter
alia acoustics and transmitter systems.
As for Phases 2 to 5, Perunding AJZ’s involvement was primarily as a
Project Manager, engaging third parties to set up the additional transmitter
stations.
STMB had informed Perunding AJZ that they had secured the rights to
broadcast the Olympic Games scheduled to be held in
In addition, from December 1983 to the end of June 1984 Perunding AJZ
only had one project, namely Phase 1, and hence all of its personnel and
resources during this period were focused on Phase 1. From July 1984 until March 1985,
Perunding AJZ continued working on Phase 1 while simultaneously working on Phase
2 although most of Perunding AJZ’s personnel and resources were still focused on
Phase 1.
The appellants contended that the expenditure incurred by the appellants
can be divided into 2 categories namely:
(i)
expenditure incurred from
(ii)
expenditure incurred from
The breakdown of the expenditure from
As for the breakdown of expenditure from
The appellants also contended that they incurred further expenditure for
Phase 1 from July 1984 to March 1985 which is when Phase 1 was completed. However, the appellants are limiting
their claim to expenses incurred from
The appellant’s witnesses in their evidence at the trial had stated that
they have attempted to locate the source documents based on which the Profit and
Loss Statement and Summary were prepared. However, they have been unable to
locate the source documents as they have been lost or destroyed given the long
time lapse of over 20 years during which time Perunding AJZ has also moved
office four or five times. On this
point we took the view that the Profit and Loss Statement and the Summary
prepared for the appellants’ case to show the breakdown of expenditure from
Expenditure incurred from
The details of the Profit and Loss Statement are set out in the document
headed “Accounts for Legal Case” [See
Appeal Record (Vol. 2) at pages 95-98]. The Accounts for Legal Case was prepared
in 1985 by the accounts personnel of Perunding AJZ as explanatory notes to the
Profit and Loss Statement for review by Messrs Y.L. Lim & Co. Below are the claims of the appellants
for the breakdown of the items of expenditure in both the Accounts for Legal
Case and the Summary and our findings on them:
Professional
fees
Perunding AJZ had engaged the
services of the following third parties for Phase 1 as
follows:
(1)
Marshall Day Acoustics Limited
[“MDA”] were the consultants appointed for the acoustical design, supervision
and commissioning of the Studio Complex.
MDA completed their work by June 1984. By their letter dated
(2)
Tecas Sdn Bhd [“Tecas”] were the
consultants appointed to help the design for the supply and installation of
transmitting equipment. Tecas was
appointed by a letter dated
(3)
Bumi Permai Sdn Bhd [“BP”] were
appointed to provide additional supervisory personnel for Phase 1, given that
Phase 1 had to be completed on an urgent basis in time for the Olympic Games in
June 1984. BP completed their work
by June 1984. BP is no longer in
business and hence the appellants were unable to obtain any confirmatory letters
from them.
We are in agreement with the
contention of the appellants that it must be borne in mind that these, or
similar, third parties would in any event have to be appointed and similar
expenses incurred by the first respondent in the event that the first
respondent’s appointment had been continued by STMB since Phase 1 involved
specialist jobs. There was no
suggestion by the respondent that the expenditure would have been any different
from that incurred by the appellants.
In the circumstances of this case we
are of the view that the appellants are entitled to claim the professional fees
totaling RM197,131/-.
Partners’ salaries, allowances and
bonuses
These were the salaries, allowances
and bonuses paid to the appellants in respect of the work carried out by them on
Phase 1.
We find these payments are fair as
the appellants would have in any event received remuneration from the first
respondent for work done in respect of Phase 1. It should be noted that the appellants
were not remunerated for their services by the first
respondent.
It must also be borne in mind that
the contract depended primarily on the first appellant’s special skills and the
income could not have been earned without his skills. If the first appellant had to leave the
first respondent, they would have had to engage other experts to do the job,
which would necessarily incur expenses.
As for the bonuses, the appellants claimed that the period from
We would therefore allow the appellants’ claim for deduction under these
items for a total sum of RM87,000/-.
Staff salaries and
bonuses
These were the salaries and bonuses paid to the various employees of
Perunding AJZ identified therein in respect of work done by them on Phase
1. For the same reason stated above
in respect of partners’ salaries and bonuses, the bonuses paid during this
period represented incentive payments for completion of the work on an urgent
basis. We would allow the claim for
deductible expenditure under these items for a sum of
RM74,003/-.
Travelling
expenses
The appellants claimed that several factory inspections of equipment to
be delivered for Phase 1 had to be made abroad, and in some instances the
systems had to be pre-wired at the factories to expedite the eventual
installation at the TV3 studio in view of the tight timeline. Thirteen foreign contractors were
alleged to have been selected for tender, as set out in the list of equipment
manufactured abroad. On the claim
under this item, we agree with the submission of the respondents that the claim
of RM46,998 appears suspicious.
This was said to be travelling to source equipment. However, the letters of intent to
purchase the equipment were issued while the appellants were still with the
respondents. Further, most of all
this travel took place after the accounting period in May to July 1984. We therefore disallowed the appellants’
claim for deductible expenditure under this item.
Motor vehicles
expenses
The claim of RM7,682/- should also be disallowed as the appellants have
included in this the installments for their vehicles. This surely has nothing to do with costs
incurred in generating an income.
Entertainment
The claim of RM7,566/- for entertaining “clients and suppliers” is not
reasonably shown by the appellants to be an expense incurred in generating their
income or profit. We are of the
view it should not be allowed as such.
Other alleged
expenditure
On the other minor items the appellants had claimed for allowable
deductions, we find that these payments cannot be deducted as the evidence
produced is inadmissible or otherwise lacking in
credibility.
Expenditure incurred from
The appellants claimed that the expenditure for this period was
RM581,884.30, and the details are as set out in the Summary. We find that the claim for expenses for
the period
We also find that the issue of claims for expenses for the period
Total expenditure
allowed
Based on the above, the total expenditure claimed by the appellants that
we would allow are the sum of RM197,131/- for professional fees, the sum of
RM87,000/- for partners’ salaries, allowances and bonuses and the sum of
RM74,003/- for staff salaries and bonuses.
Hence the net profit payable to the first respondent is RM1,119,867.25 –
RM358,134.00 = RM761,733.25
and not RM1,119,867.25 as earlier awarded by the Court.
Subsidiary
Issues
Learned Counsel for the appellants in his submission pointed out to us
that in the Statement of Claim, it was pleaded that the second respondent was
entitled to the benefits of the first respondent’s appointment as the first
respondent was a subsidiary of the second respondent. Accordingly, Judgment was granted in
favour of both the respondents and the amount payable to each respondent was not
specified therein. However, the
appellants contended PW2 had
testified that first respondent was not a subsidiary of the second
respondent. In addition STMB
appointed the first respondent, not the second respondent as Project
Managers. The second respondent was
merely appointed in a limited capacity as the consultant engineers. For these reasons the appellants
therefore contended that the income sought by the respondents and the damages
was that due to the first respondent, and not the second respondent. On this point we do not agree with the
contention of the appellants that damages should only have been awarded to the
first respondent.
It does not appear proper before us now for the appellants to reargue
that the first respondent was not a subsidiary of the second respondent. The Supreme Court in this case had made
a positive adjudication that it was indeed subsidiary. In the Judgment of the Supreme Court for
this case as reported in the case of Avel Consultants Sdn Bhd & Anor. v. Mohamed Zain Yusof &
Ors. [1985] 2 MLJ 209 his lordship Salleh Abas LP at page 210 had this to
say:
“Avel Consultants Sdn Bhd (Avel) is a
subsidiary of another company called Elmec Consultants Sdn Bhd (Elmec). The first and second respondents were
directors of both Elmec and Avel, whilst the third respondent is the director of
Elmec only, the parent company.”
In our view as these companies are
one and the same, it does not matter which role they notionally played in the
TV3 Contract. The benefits accruing
from the TV3 Contract goes to both of them.
As regards the submission of the
appellants that the third appellant ought not be liable to pay damages to the
first respondent because he was only a director of the second respondent, we say
with respect, that this is also misplaced.
Firstly, both the first and second respondents are one and the same. This is an indisputable finding of the
Supreme Court. Secondly, the third
appellant was complicit in the first and second appellants’ breach of fiduciary
duties owed to the first respondent.
They set up partnership together and stole the business away from both
respondents. Thirdly, for the
purposes of assessing the income of the appellants, it is impossible to
apportion the same into two as the appellants were appointed to do the work by a
single contract for all the work.
The notional separation of work between the first and second respondents
was not preserved after the appellants hijacked their
business.
In the circumstances of this case it is clear that all three appellants
had breached their fiduciary duties to the respondents and should bear the same
in equal parts or alternatively, in
proportion to their respective shares in Perunding
AJZ.
The Respondents’ Cross
Appeal
We shall now deal with the respondents’ cross-appeal. In their cross-appeal, the respondents
want the damages to be increased from RM1,119,867.25 to RM6,654,699.24 on the
basis that the contract in question was not limited to Phase 1 of the Project,
but also covered Phases 2, 3 and 4.
Both the SAR and the High Court Judge disagreed with the respondents and
held that the contract was limited to Phase 1 only.
Having perused the evidence adduced at the trial we find the learned High
Court Judge’s finding draws support from the evidence led before the SAR. We noted that the reference to
stages of work in the letter of appointment to Perunding AJZ as consultants
indicates that there were different phases of work [See Letter of Appointment at Appeal
Record (Vol. 1) at pages 269-270].
The evidence of Mr. Thong Tat Chou [PW3], an ex-Accountant of STMB showed
that it was clear the project for the purpose of the appellants’ case only
involved Phase 1. The letter of the
termination from STMB to the first respondent dated
Conclusion
For the grounds above stated we would allow the appellants’ appeal with
costs here and the Court below and dismiss the respondents’ cross-appeal with
costs. All orders made by the Court
below are hereby set aside. We
would also make an order that the damages to be awarded to the respondents are
hereby reduced from RM1,119,867.25 to RM761,733.25. The deposit paid by the appellants
for this appeal is to be refunded to the appellants and the deposit paid by the
respondents for the cross-appeal is to be paid to the appellants on account of
taxed costs.
My learned brothers, Mokhtar bin Hj. Sidin and Azmel bin Hj. Maamor,
JJCA, have seen this judgment in draft and they have expressed their agreement
with it.
(DATO’ ZULKEFLI BIN AHMAD MAKINUDIN)
Judge
Court of Appeal
Dated: 11th August
2006.
Counsel for the
appellants: Y.Bhg.
Dato’ Cecil Abraham and Mr. Dhinesh Bhaskaran.
Solicitors for the
appellants: Messrs. Shearn Delamore
& Co.
Counsel for the
respondents: Mr. David Morais and Mr.
Khabir
Dhillon.
Solicitors for the
respondents: Messrs. M. David
Morais.