SUGGESTED ANSWER
MALAYSIAN BUSINESS LAW
JUNE 2004
SECTION A
1. “Necessaries’ is not defined in the Contracts Act 1950 and one has to refer to case
law to determine what constitutes necessaries. In Government of Malaysia v
Gurcharan Singh & Ors the court came to the conclusion that the word ‘necessaries’
must be construed broadly and in so interpreting, a court would have regard to the
facts of the case, the conditions and the circumstances in which the goods were
supplied. The legal definition is thus wider that bare essentials of life and includes
goods and services reasonably necessary to the minor’s actual requirements such as
food, shelter, clothing, medical services. However, these must be tested against the
minor’s station in life. Thus what may constitute ‘necessaries’ may vary according to
the position of the minor. The test is to look at the nature of the goods or services
supplied, the minor’s actual needs and his station in life.
2. A bill of exchange is defined in section 3(1) of the Bills of Exchange Act 1949 as an
unconditional order in writing addressed by one person to another, signed by the
person giving it, requiring the person to whom it is addressed to pay on demand or at
a fixed or determinable future time a certain sum in money, to the order of a specified
person, or to bearer. A bill of exchange thus has the following characteristics:
• There are three parties involved – the drawer, drawee and payee;
• The order to pay is unconditional;
• The bill is addressed to one person who can be identified with
reasonable certainty;
• The bill must be in writing and signed by the drawer or his agent;
• The bill must order payment of a sum which is certain in money and
not in services
• The bill is payable on demand on sight or presentation;
• The bill is payable to the order of a specified person or bearer.
3. The reasons why parties may still prefer to refer their disputes in a court of law
include the following:
• Judgments by the court are enforceable through the resources of the State;
• Witness can be compelled to attend without special application to the court;
• The courts can order disclosure of documents;
• The courts can order the consolidation of actions, such as third party
proceedings or joinder of parties, other multi-party disputes or class actions
thus saving time and costs;
• A defendant can be compelled to enter an appearance or defence under a
court order;
Diploma in Corporate Administration – Suggested Answer
Page 1 of 9
•
When an authoritative decision is required on a matter of public interest, a
judgment, unlike an arbitrator’s award, may be preferred.
4. A ‘cooling-off period’ is defined under section 2 of the Direct Sales Act 1993 as the
period of ten working days commencing on the day after the date of the making of a
direct sale contract. A purchaser is protected under section 26 of the Act which
provides that he can rescind or withdraw from the contract at any time before the
expiry of the cooling-off period without being liable for breach of contract. The
purchaser merely has to serve a notice of rescission (Form AJL-3) by either
delivering it in person to the vendor or by registered post addressed to the vendor.
Where the notice is posted, it is deemed to have been served on the expiry of 3 days
from the date it is posted – section 26(3).
5. The employees listed in the First Schedule of the Employment Act 1955 include:
•
•
Any person, irrespective of his occupation, who has entered into a contract of
service and his monthly wages do not exceed RM1,500.00;
Any person who, irrespective of the amount of his monthly wages, who has
entered into a contract of service of which
i. He is engaged in manual labour including such labour as an artisan or
apprentice;
ii. He is engaged in the operation or maintenance of any mechanically
propelled vehicle used for the transport of passengers or goods or for
reward or for commercial purposes;
iii. He supervises or overseas other employees engaged in manual labour
employed by the same employer;
iv. He is engaged as a domestic servant.
6. In Helby v Matthews (1895) the House of Lords ruled that a hire-purchase agreement
was not an agreement to buy under the Sale of Goods Act 1893 (UK). Thus in a hirepurchase agreement, the hirer does not have title to the goods. The owner lets goods
out on hire (ie a contract of bailment) AND agrees that the hirer may either return the
goods and terminate the contract or he may exercise his option to purchase the goods
on the completion of payments. This fundamental principle is enacted under section
2(1) of the Hire-Purchase Act 1967 which states that a hire-purchase agreement
includes ‘a letting of goods with an option to purchase.’ It further goes on to exclude
transactions where the property in the goods passes at the time the agreement or upon
or before delivery of the goods, thereby indicating that a hire-purchase agreement is
not an agreement for the sale of goods.
7. Illustration (f) of Section 26 of the Contracts Act 1950 illustrates the concept that
consideration need not be adequate with the following example:
‘A agrees to sell a horse worth $1,000 for $10. A’s consent to the agreement was
freely given. The agreement is a contract notwithstanding the inadequacy of the
consideration.’
Diploma in Corporate Administration – Suggested Answer
Page 2 of 9
Explanation 2 of Section 26 states that an agreement is valid even though the
consideration is inadequate provided the consent of the promissory is freely given.
Thus in Phang Swee Kim v Beh I Hock (1964) the Federal Court applied Explanation
2 and Illustration (f) of section 26 and held that the agreement to transfer the land was
valid despite the fact that the consideration was inadequate. In addition there was no
evidence of suppression of the value of the property, misrepesentation, or fraud.
8. Section 3 of the Copyright Act 1987 defines ‘live performance’ to include
performances of works eligible for copyright such as dramatic, musical or literary
works, and others such as improvised dramatic, musical or literary works, dances,
circus act, variety act, puppet shows or performance in relation to expressions of
folklore given live by one or more persons in Malaysia. The performance must be
given live by one or more persons in Malaysia but whether it was given in the
presence of an audience is not material. Certain activities are excluded from the
definition of ‘live performance’ such as any reading, recital or delivery of any item of
news or information, any performance of a sporting activity or a participation in a
live performance by a member of an audience.
9. ‘Riba’ is an Arabic word which literally means ’increase’, ‘growth’ or ‘to rise’. From
the Syariah or Islamic point of view, ‘riba’ technically refers to the ‘premium’ or
interest that must be paid by the borrowed to the lender along with the principal
amount as a condition for the loan. However, Muslims are prohibited from dealing
with ‘riba’. This is particularly so in Islamic banking and such banks are not allowed
to conduct any banking business with an element of ‘riba’ or
‘interest’.
10. It is important to determine when property, that is, title or ownership, passes in a sale
of goods because section 26 of the Sale of Goods Act 1957 provides that ‘risk prima
facie passes with property’. In other words, when property in the goods has passed
from the seller to the buyer, the buyer will have to bear all losses, damages or
destruction to the goods, irrespective whether delivery has been made or not. In
addition, when property has passed, title has passed as well. Thus by determining
whether property has passed from the seller to the buyer, one is also determining
whether the buyer has the right to pass title to another person. Finally, the passing of
property is important because the right to sue a third party for damages to, or loss of
the goods, may depend on who has the property.
Diploma in Corporate Administration – Suggested Answer
Page 3 of 9
SECTION B
1
(a)
An offer once communicated, remains open unless it has been withdrawn or
revoked. Under normal circumstances, there is no obligation for the proposer
to keep his proposal open indefinitely. He may revoke it at any time so long
as it has not been accepted by the offeree. Under section 5(1) of the Contracts
Act 1950, a proposal may be revoked at any time before the communication
of the acceptance is complete as against the proposer but not afterwards.
Section 6 further provides that a proposal is revoked by the communication of
notice of revocation by the proposer to the other party.
In this case, although Jimmy promised to keep the offer open until 29.1.2004,
he is under no obligation to do so. When Chris purported to accept the offer
by sending a telegram on 25.1.2004, he was aware of the fact that Stan had
already purchased the computer, indicating that the offer has already been
accepted. It is thus essential to determine whether Chris can still accept the
offer even though he is aware of the fact that offer has been revoked.
Section 6 states that a proposal is revoked by the communication of notice of
revocation by the proposer. In this case, Jimmy did not communicate the
revocation. It was his friend, Stan, who had communicated that he had
purchased the computer to Chris. In the case of Dickinson v Dobbs (1876)
the English court held that communication of revocation need not be made by
the proposer personally so long as the offeree becomes aware that the
proposer has withdrawn the proposal or changed his mind. This case
however, seems to be at variance with the specific wording of section 6 which
states that the proposal may be revoked by the communication of notice of
revocation by the proposer (which may include his agent acting on his
behalf).
It is thus submitted that based on section 6, revocation of the offer must be
made by Jimmy or his agent. Is Stan Jimmy’s agent? If he is, then the
revocation of the offer has been communicated to Chris and there is no
binding contract between Jimmy and Chris. On the other hand, if Stan is not
Jimmy’s agent, Chris can argue that the offer has not been revoked and his
acceptance will be effective to constitute a binding contract between him and
Jimmy.
(b)
Where there is a breach of contract, the party not in default may claim one or
more of the following remedies:
•
•
•
•
•
Rescission of contract;
Damages
Specific performance;
Injunction or
Quantum meruit.
Diploma in Corporate Administration – Suggested Answer
Page 4 of 9
Specific performance is a decree of the court directing that the contract shall
be performed specifically, that is, according to its terms. This remedy
however, is entirely given at the discretion of the court guided by the
provisions of the Specific Relief Act 1950. Under section 20 of the Specific
Relief Act 1950, specific performance is not given if damages are adequate or
where the contract would require supervision of the court, such as building
contracts.
On the basis of section 20, Amy is advised that she will not be able to force
Excel Sdn Bhd to complete the building of her home as this would entail the
court’s supervision. She is advised to claim for damages (which would be
adequate to compensate her) on the basis of section 74 of the Contracts Act
1950. Section 74(1) states that an injured party is entitled to damages arising
naturally from the usual course of things resulting from the breach. As such
the extra cost incurred by Amy to employ another contractor to complete the
work, would be a natural consequence of Excel Sdn Bhd’s failure to complete
the building.
2
(a)
Section 1(2) of the Hire-Purchase Act 1967(hereinafter referred to as the Act)
states that the Act shall apply in respect only of hire-purchase agreements
relating to the goods specified in the First Schedule. The goods in the First
Schedule include:
• All consumer goods which are defined in section 2 to mean goods
purchased for personal, family or household purposes;
•
(b)
Motor vehicles namely invalid carriages; motor cycles; motor cars
including taxi cabs, and hire cars; goods vehicles where the maximum
permissible laden weight does not exceed 1540 kilogram; and buses
including stage buses.
Prior to the formation of a hire-purchase agreement, an intending hirer must
be given a written statement in accordance with the form set out in Part 1 of
the Second Schedule. This is expressly provided by section 4. This Second
Schedule notice sets out the financial obligations of the intending hirer such
as the number of instalments to be paid including the amount of each
instalment. This is to ensure that the intending hirer is aware of his financial
obligations before making a commitment to be bound by the hire-purchase
agreement. The intending hirer is under no obligation to enter into any hirepurchase agreement and is not required to provide any consideration for the
preparation or service of this notice. If this notice is not given to the hirer, the
subsequent hire-purchase agreement entered into by the hirer will be null and
void.
Diploma in Corporate Administration – Suggested Answer
Page 5 of 9
(c)
Section 7(2) and (3) states that the implied terms of merchantable quality and
fitness for purpose can be excluded in respect of second-hand goods provided
the agreement contains a statement to the effect
•
•
That the goods are second-hand; and
That all conditions and warranties of quality and fitness are expressly
negatived and the owner proves that the hirer has acknowledged in
writing that the exclusion or exemption clause was brought to his
notice.
Section 34 further reiterates that the Act may itself permit the exclusion of
certain provisions of the Act. Thus it is permissible to provide exemption
clauses in respect of second-hand goods.
3
(d)
In Ming Lian Corporation Sdn Bhd v Haji Noordin (1974) the court held that
the enforceability of a hire-purchase agreement was not affected if the hirer
signed an agreement with blank spaces which were later filled in by the
owner provided the hirer was aware of the terms and knew what he was
signing. However, section 4B(2) expressly prohibits an owner, or dealer
requiring any intending hirer to sign a hire-purchase agreement unless such
hire-purchase agreement has been duly completed. The words ‘unless such
hire-purchase agreement has been duly completed’ thus suggest that the hirepurchase agreement cannot be a blank document. It is thus submitted that
Ming Lian’s case is no longer good law in the light of section 4B(2).
(a)
As the sale is conducted through home parties, and not through the usual
retailers or a fixed place of business, it would be deemed to be a door-to-door
sale and thus be deemed to be a direct sale.The Direct Sales Act 1993 would
be the regulating legislation. Section 2 of the Direct Sales Act 1993 defines a
direct sale to include a door-to-door sale. A door-to-door sale is further
defined as the sale of goods conducted by a person or any person authorized
by him who goes from place to place not being a fixed place of business
seeking out for purchasers. Goods are further defined as every kind of
movable property other than choses in action, negotiable instruments, shares,
debentures and money.
(b)
To ensure that the business can be carried out legitimately, Angeline is
advised that by virtue of section 4 of the Direct Sales Act 1993, the business
must be carried out by a body incorporated under the Companies Act 1965. In
addition, a licence must be obtained from the Ministry of Domestic Trade and
Consumer Affairs under section 6. The licence will only be issued provided
that the business is a genuine direct sale and not an illegal pyramid scheme.
Section 7 defines an illegal pyramid scheme as one where the commission
given to the vendors is not dependent on sales volume but merely by the
recruitment of members.
Diploma in Corporate Administration – Suggested Answer
Page 6 of 9
Angeline is thus advised that the first thing she has to do is to register a
company under the Companies Act 1965. An application for a licence should
then be made by filing the documents required under section 6 which includes
not only the company’s memorandum and articles of association, but also the
marketing and trading scheme. Upon the issuance of the licence, it has to be
renewed yearly in order to ensure that the business remains legitimate. The
licence may be revoked by the Controller of Direct Sales for various reasons
such as in the event that the company deviates from its marketing scheme or
the company is wound up.
In addition, Angeline is advised that the manner of conducting door-to-door
sales must comply with the Direct Sales Regulations 1993.
(c)
Any person who, in the course of a trade of business, applies a false trade
description to any goods or who supplies or offers to supply any goods to
which a false trade description is applied shall be guilty of an offence under
the Trade Descriptions Act 1972. A false trade description as defined under
section 4 includes the place of manufacture. Thus in this case, when the goods
are described as being manaufactured in the United States whereas they are
manufactured in Taiwan, the offence of applying a false trade description has
been committed.
On conviction, the person shall be liable to a fine not exceeding
RM100,000.00 or to imprisonment for a term not exceeding 3 years or both.
For a second or subsequent offence, the fine imposed shall not exceed
RM200,000.00 or imprisonment not exceeding 6 years or more.
(d)
There is a presumption of liability on advertisers under section 7A of the Act.
Thus Success Sdn Bhd would be guilty of the committing an offence.
However, the company can raise the defence under section 23 on the ground
that the commission of the offence was due to the fault of another person, in
this case, Angeline.
Similarly, Lim & Co will also be held to have committed the offence but they
can easily claim the defence under section 24 that the commission of the
offence was to the reliance of information supplied to them by Angeline.
However, for this defence to apply, they must prove that they had taken all
reasonable precautions and had exercised all due diligence to avoid the
commission of the offence.
4 (a)
Section 20 of the Patents Act 1983 provides that in the absence of any
provisions to the contrary in any contract of employment, the rights to a
patent for an invention made in the performance of the contract of
employment shall be deemed to accrue to the employer. Sub-section 2 further
states that if the employee’s contract of employment does not require him to
engage in any inventive activity but nevertheless the employee makes an
invention using the data or means placed at his disposal by the employer, the
right of the invention belongs to the employer unless otherwise provided in
his contract of employment. As the employee makes use of the employer’s
data and means, it is fair to say that the invention should belong to the
Diploma in Corporate Administration – Suggested Answer
Page 7 of 9
employer. Where the employee is employed to make inventions, he is said to
be paid by the employer to make inventions and since the employer has
expended money for this purpose, it is just to say that the invention should
belong to the company. However, an employee can expressly provide in his
contract that the invention belongs to him. It will be up to him to negotiate
with his employer and the Patent Act 1983 does recognize the right of the
employee to expressly provide that the invention belongs to him.
Where an invention acquires an economic value much greater than the parties
could reasonably have foreseen at the time of concluding the agreement or the
execution of the work, the Act further provides that the inventor (ie the
employee) may be entitled to equitable remuneration which may be fixed by
the court in the absence of agreement between the parties. What is equitable
remuneration is for the court to decide and it is possible that a court of law
may adequately compensate an employee.
Section 26 of the Copyright Act 1987 similarly recognizes that copyright
belongs to the employer so long as the work was made in the course of the
employee’s employment. However unlike the Patents Act 1983, there is no
express provision for equitable remuneration in the event that the work
becomes highly successful and profitable. A court may perhaps be persuaded
to follow the Patents Act 1983. This is yet to be seen.
5
(b)
Unlike copyright protection which does not have a system of registration, the
exclusive rights of the owner of a patent under section 36 will only be
enjoyed by him when the patent has been registered. An application must be
filed in the Patent Registration Office and when the Registrar is satisfied that
the application complies with the Act, he shall grant the patent and issue a
certificate of grant and record the patent in the Register. Thereupon, the
owner has the exclusive right to exploit his patent.
(a)
Section 26 of the Sale of Goods Act 1957( referred to as the Act) states that
the goods remain at the seller’s risk until the property is transferred to the
buyer. It is thus important to determine whether property has passed to the
buyer, Ali, for if it has, then Ali will have to bear the risk of the loss of the
painting. Section 19(1) of the Act states that where there is a contract for the
sale of specific or ascertained goods, property in the goods is transferred to
the buyer at such time as the parties of the contract intend it to be transferred.
In this case, the agreement between Ali and John specifically states that the
painting will not pas to the buyer until the last and final payment. As Ali has
not made the last and final payment, property has not passed to him. Property
remains with the seller, John, who thus will have to bear the risk of the loss of
the painting.
(b)
In this case, the parties Tanya and Vanessa did not indicate expressly when
property is to pass. In such a situation, the rules for ascertaining the intention
of the parties are found in sections 20 to 24 of the Act. Section 21 states that
where there is a contract for the sale of specific goods but the goods are not in
Diploma in Corporate Administration – Suggested Answer
Page 8 of 9
a deliverable state (ie ready to be taken by the buyer) and the seller is bound
to do something to put the goods into a deliverable state, the property does
not pass to the buyer until the seller has taken the steps to put the goods in a
deliverable state and the buyer has notice of it. Here the wheel on the
mountain bicycle had to be repaired, thus indicating that the bicycle is not in a
deliverable state. Since the bicycle was damaged while at the workshop,
property and risk thus remains with the seller, Vanessa. She will have to bear
the risk.
(c)
Section 31 of the Act states that it is the duty of the seller to deliver the goods
and the duty of the buyer to accept and pay for them in accordance with the
terms of the contract of sale. It is thus essential that parties keep to what has
been agreed upon. Thus section 37(3) states that where the seller delivers to
the buyer the goods he contracted to sell mixed with goods of a different
description not included in the contract, the buyer do any of the following:
•
•
accept the goods which are in accordance with the contract and reject
the rest or
reject the whole.
Peter is advised that he can, if he wishes, refuse to accept the goods.
(d)
Salim, as an unpaid seller, has essentially two rights ie
•
•
rights in relation to the goods under section 46 which includes a lien
on the goods, right of stopping the goods when the goods are on
transit to the buyer or a right of resale;
or to sue for the price of the goods under section 55.
In this case, Salim is no longer in possession of the goods as the 10 cartons
have been delivered to Saad’s office. His only remedy is to sue for the price
of the goods.
Diploma in Corporate Administration – Suggested Answer
Page 9 of 9