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Case Update: Federal Court Highlights Contract Validity vs Enforceability in Remuneration Case

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15 September 2023

LAW OF EVIDENCE
Authenticity of Agreements – Admissibility of Evidence – Turquand Rule – Indoor Management Rule – Enforcement of Contracts – Evidence Act 1950

Abd Ghani Golamdin v Universiti Utara Malaysia & Ors
Civil Appeal No. 01(f)-18-07/2020(K) | Federal Court
- see the grounds of judgment here

Facts Abd Ghani Golamdin (the ‘Appellant’) was initially employed by Universiti Utara Malaysia (the ‘1st Respondent’) as a Senior System Analyst in 1989 and later became the Chief System Analyst and the 'Pengarah Pusat Komputer' of the Respondent. In 2002, the Appellant was seconded to Uniutama Management Holdings Sdn Bhd (the ‘2nd Respondent’), a company owned by the 1st Respondent, with a special allowance payment. Subsequently, the Appellant was seconded to Uniutama Solution Sdn Bhd (the ‘3rd Respondent’), also owned by the 1st Respondent. Apart from receiving the remuneration from the 1st Respondent and a special allowance from the 2nd Respondent, during the whole period of secondment at the 3rd Respondent, the Appellant twice received a “one off” allowance of RM100,368.00 and RM19,237.14 respectively, as part of an incentive payment scheme that was given to all staff of the 1st Respondent seconded to the 3rd Respondent. The Appellant then returned to serve the 1st Respondent in 2011. In December 2014, the Appellant filed an action against the Respondents, claiming for a sum of RM15,619,916.09. The Appellant contended that the Respondents breached the oral agreement in 2002 entered into between him and the late Vice-Chancellor of the 1st Respondent, which was witnessed by the Chief Executive Officer of the 2nd Respondent. The Appellant contended that vide the oral agreement, he was promised additional remuneration during the term of his secondment. The Appellant further contended that upon oral instructions of the Vice-Chancellor, the oral agreement was reduced into a written agreement dated 1.7.2004. The respondents denied entering into such oral agreement and denied authorising the execution of the written agreement. The High Court having considered the evidence had dismissed the Appellant’s claims. Aggrieved by the decision of the High Court, the Appellant appealed to the Court of Appeal. The appeal was unanimously dismissed. Hence, this appeal.

Issues 1. Whether the authenticity and validity of an agreement can be challenged and/or disputed in the absence of any vitiating factor(s) such as fraud, forgery, misrepresentation or conspiracy to defraud?
2. Whether an agreement which had been properly adduced and admitted as evidence pursuant to section 91 and 92 of the Evidence Act 1950 can be regarded as the best evidence in proving one’s claim against another?
3. If the answer to the 2nd Question is in the affirmative, whether the agreement is still open to being challenged on the basis that the agreement does not exist and accordingly unenforceable?
4. Whether it is a pre-requisite for a claimant to prove (in writing or otherwise) that the person who executed an agreement on behalf of a company has the requisite authority to do so before the claimant can be entitled to rely on the indoor management rule as propounded in Royal British Bank v Turquand [1843-60] All ER Rep 435’?
5. Whether the concealment principle as established by the Supreme Court of the United Kingdom in Prest v Prest and Others [2013] 4 All ER 673 in making a third party liable and accountable under an agreement without having to pierce the veil of incorporation is applicable in Malaysia and if so under what circumstances?

Held In unanimously dismissing the appeal, Chief Justice Tengku Maimun Binti Tuan Mat held that the agreements were not authentic and enforceable because the Appellant had failed to prove that the terms of the alleged remuneration were offered to him and that the Respondents had authorized or approved the execution of the agreements. The Federal Court also held that the validity and enforceability of an agreement were separate issues, and while the Appellant argued that the agreements should be considered valid unless vitiating factors like fraud or forgery were proven, the Federal Court clarified that validity required more than just the absence of such factors. It involved aspects like offer, acceptance, consideration, and authority to enter into agreements. Furthermore, the Appellant's reliance on the Turquand Rule, which allows outsiders contracting with a company to assume that internal requirements and procedures have been complied with, was considered misplaced as he was an insider to the 3rd Respondent, making him ineligible for the rule's protection. The court concluded that the evidence presented, including the written agreement, had no probative value in supporting the Appellant's claims. The document did not carry sufficient weight to establish the existence and validity of the agreements. Hence the appeal was dismissed.

Zul Rafique & Partners
{15 September 2023}

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