BCL
MIA QE / MAC 2008
SECTION A
ANSWER 1
(a)
i)
The doctrine of frustration
Section 57(2) of the Contracts Act 1950;
A contract is frustrated when there is a change in the circumstances which
renders a contract legally or physically impossible of performance for e.g.
destruction of subject matter.
Effect of frustration; Contract is rendered void
Remedies; Section 66 of the Contracts Act 1950 and Section 15 of the Civil
Law Act 1956
Cases :
HA Berney v Tronoh Mines (1949)
Davis Contractors Ltd v Fareham UDC (1956)
Taylor v Caldwell (1863)
(3 marks)
ii)
Intention to create legal relations imputes the parties intention on their
responsibilities and liabilities towards the contract. Common law principles
prescribes that in a business agreement, the parties are presumed to have
the intention to create legal relations. Whereas in a domestic, family or social
agreement the presumption is otherwise. However these presumptions are
rebuttable.
Cases :
Merrit v Merrit, Balfour v Balfour
(3 marks)
iii)
Explain Section 15 of the Contracts Act 1950 which provides for coercion.
The effect of a contract with an element of coercion depends on the facts of
the case.
(2 marks)
i)
The implied conditions in a sale by sample.
(b)
Explain section 17 of Sale of Goods Act 1957.
State the conditions implied ;
i)
ii)
iii)
that the bulk shall correspond with the sample in quality
that the buyer shall have a reasonable opportunity of comparing the
bulk with the sample
that the goods are free from any defect rendering them
unmerchantable which would not be apparent on reasonable
examination of the sample.
(3 marks)
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BCL
MIA QE / MAC 2008
ii)
Explain section 14(a) of Sale of Goods Act 1957; That there is an implied
condition on the part of the seller, that, in the case of a sale, he has a right to
sell the goods, and that, in the case of an agreement to sell, he will have a
right to sell the goods at the time when property is to pass.
(3 marks)
iii)
Explain section 14(b) and section 14(c).
Cases :
(c)
Microbeads A.G v Vinhurst Road Markings Ltd (1975)
Steink v Edwards (1953)
(3 marks)
The doctrine states that judges are bound to follow the decisions made by their
predecessors in like cases. Decisions may contain findings of facts as well as
statements of law. The advantages include the following:
(i) Certainty and predictability
(ii) Practicality
(iii) Flexibility
The candidate is required to give a brief explanation on the advantages.
(3 marks)
(Total: 20 marks)
ANSWER 2
(a) (i) See Division 3A Part IV of Companies Act 1965.
- ss69D, 69B, 69C, 69E, 69F, 69G
(4 marks)
(ii)
Interests Disregarded - see s.6A(9)
For both answers, candidates are expected to elaborate and explain the contents
and requirements of the provisions and not merely state the sections.
(3 marks)
(b)(i)
ss 144/145 of the Companies Act - On requisition of meeting
Special notice required
s153
Table A - allows any director to convene an
EGM
s.128 - on removal of director and rights of director to be removed.
(5 marks)
(ii)
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s. 137
Companies are prohibited from giving benefits to their directors for loss of office
without disclosing details of the benefit to the shareholders and obtaining their
approval in general meeting. The director holds any such payment to him in trust for
the company if the payment is not disclosed to and approved by the company.
CONFIDENTIAL
BCL
MIA QE / MAC 2008
Although payments for loss of office cannot be made unless disclosed to and
approved by a company in general meeting, the following payments are some
exceptions to the general rule and do require general meeting approval:
(iii)
payments made under any agreement which has been disclosed and approved
by special resolution of the company;
bona fide payments being damages for breach of contract;
bona fide pensions or lump sum payments for past services to the company, but
the payment must not exceed the total emoluments of the director in the three
years immediately before his retirement or death; and
payment to a director under an agreement between the company and the director
before his appointment which secures his services as director.
(5 marks)
Refer to s. 131 of the Companies Act
A director who directly or indirectly is interested in a contract with the company shall,
as soon as practicable declare the nature of his interest at a meeting of the directors
of the company.
If Ong is unaware of the contract with Star Venture he should declare his interest in
the forthcoming meeting of directors after the situation comes to his knowledge.
"indirectly' interested refer to his son, Henry being a substantial shareholder of Star
Ventures Sdn Bhd.
(3 marks)
(Total: 20 marks)
SECTION B
ANSWER 3
(a) Explain the meaning of agency relationship - as per section 135 of the Contracts Act
1950 (Revised 1974). State and explain the duties of an agent as provided by sections
164 to 178 with relevant cases:
a)
b)
c)
d)
e)
f)
g)
h)
i)
j)
To obey the principal’s instructions.
In the absence of instructions from the principal, to act according to the customs.
To exercise care and diligence in carrying out his work.
To render proper accounts when required.
To pay to his principal all sums received on his behalf.
To communicate with the principle.
Not to let his own interest conflict with his duty.
Not to make any secret profit
Not to disclose confidential or documents entrusted to him by his principal.
Not to delegate his authority.
(5 marks)
(b) The remedies available;
a) the principal may repudiate the contract
b) the principal may recover the amount of the bribe from the agent
c) refuse to pay agent his commission or other remuneration
d) dismiss the agent
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BCL
MIA QE / MAC 2008
e) sue the agent and third party for loses he may have sustained through entering
into the contract.
(5 marks)
(c)
Define a partnership agreement as stated in the Partnership Act, 1961 and the
circumstances a partnership may be dissolved with reference to the Partnership Act
1961 and decided cases.
State the definition as provided by Section 3(1) of the Partnership Act 1961 and
elaborate on the key words as follows;
a) Relation
b) Persons-Section 14(3) of the Companies Act 1965 and Section 47(2) of the
Partnership Act.
Cases
:
Tan Teck Hee v Cheng Tian Peng (1915) 2 FMSLR
Shim Fatt v Leila Bus Road Co (1957) SCR 3
c) Business - as defined by section 2 of the Partnership Act 1961.
Cases
:
Customs & Excise Commissioner v Lord Fisher (1981) 2 All
ER 262.
d) In Common - involvement of the partners in the same venture for a common
Purpose.
e) With a view of profit - Re Spanish Prospecting Co. Ltd. (1911) 1 Ch 92
(5 marks)
(d)
Circumstances of dissolution of partnership:
i.
ii.
iii.
iv.
v.
vi.
By agreement
By operation of law (s 34 PA)
Dissolution by death, bankruptcy or charge (s 35 PA).
By charging on shares
By supervening illegality (s 36 PA)
Dissolution by order of court (s 37 PA)
a)
Mental disorder
b)
Permanent incapacity
c)
Conduct prejudicial to the business
d)
Persistent breaches of partnership agreement and destruction of
mutual confidence e.g. :
physical assault - Greenaway v Greenaway (1940)
groundless accusation of fraud - Re Venidge Tobacco Co LTD
(1916)
use of partnership property for private purposes - Smith v Jeyes
(1841).
e)
Partnership being carried on at loss
f)
The dissolution being just and equitable
(5 marks)
(Total: 20 marks)
ANSWER 4
(a)
Define who is a promoter ; Twycross v Grant (1877).
State the fiduciaries duties :
• to act in the interests of the company
• to exercise powers for proper purposes
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BCL
MIA QE / MAC 2008
•
•
to avoid conflicts of interest
to exercise care, diligence and skill.
Erlanger v New Sombrero Phosphate Co (1878),
Gluckstein v Barnes (1900).
The validity of pre incorporation contracts in Malaysia is governed by section
35(1) and (2) of the Companies Act 1965.
By section 35(1), a company may after its incorporation ratify the preincorporation contract. Once ratified the contract becomes valid and binding
between the parties. Both the company and other party will be able to enforce it.
By section 35(2), before the contract is ratified, it will be regarded as personally
binding between the third party and the person who acted on behalf of the future
company, unless there is an express agreement to the contrary.
(10 marks)
(b)
The effect must be explained as provided in Section 33(1): “Subject to this Act the
memorandum and articles when registered bind the company and the members
thereof to the same extent as if they respectively had been signed and sealed by
each member and contained covenants on the part of each member to observe all
the provisions of the memorandum and of the articles.” The effect of the contract
must be discussed on the three sets of relationship:
i) between members;
ii) between company and members; and
iii) between company and outsiders.
(10 marks)
(Total: 20 marks)
ANSWER 5
(a)
5
See s. 176 for scheme of arrangement or compromise
(i)
Application to court to hold meeting - if court finds the scheme generally
suitable for consideration as a 'scheme of arrangement' it will order meeting
to be held to consider.
(ii)
The scheme must receive the company's approval.
(iii)
Explanatory notices to be sent accompanying the notices, to explain the effect
of the scheme, etc - see s. 177
(iv)
Accountants' or advocates' reports (s176(8))
(v)
Holding the meeting - scheme must receive approved by members or
creditors (as the case maybe) who represent three fourths in value of the
creditors or class of creditors/members or class of members present and
voting either in person or by proxy.
CONFIDENTIAL
BCL
MIA QE / MAC 2008
Candidates to explain the procedures involved in detail and expand on the feasibility of the
scheme.
(7 marks)
(b)
Advantages/Disadvantages of Scheme of Arrangement.
Used in situations where s.180 (takeovers) does nor apply. Must be an
arrangement/compromise of some sort with members or creditors.
Requires more than 75% majority of votes cast at each meeting. Easier to get
more than 90% acceptance by all shareholders. Use the specific takeover
procedure.
Court order under s178 to implement scheme often saves substantial
spouses which could otherwise be incurred if the arrangement were effected
in some other way.
Disadvantage
Requires preparation of elaborate documents/observance of procedures including
court applications and holding of many meetings, can be expensive, hence scheme
of arrangement is suitable for large companies where substantial values or assets
are affected. Otherwise may be uneconomic.
(6 marks)
(c)
Restraining Order - see ss 176(10), (10A), (10B), (10C), (10D) & (10E).
Why need for Restraining Order
Length of Restraining Order
Effect of Restraining Order
(7 marks)
(Total: 20 marks)
ANSWER 6
(a)
Powers of receiver generally:
Borrow money and give security
Carry on the business of the company
Sell the company's assets
Transfer the business of the company to a subsidiary.
Whether appointed by court or not, a receiver is personally not liable for certain debts
incurred by him in the course of the receivership. In respect of services rendered,
goods purchased and properly hired, leased or used or occupied.
Receiver required to lodge a detailed account with the ROC every 6 months during
the receivership or within 1 month where he ceases to be receiver, failing which he
has to make good the default. If he has misapplied or retained or become
liable/accountable for any money or property of the company or is guilty of any
misfeasance or breach of trust the court may compel him to repay or restore the
money or property.
(6 marks)
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BCL
MIA QE / MAC 2008
(b)
Four circumstances whereby an approved liquidator is disqualified from acting as
liquidator - refer to s.10 of the Companies Act. Candidates to state relevant section
of the Act and elaborate the rules.
(6 marks)
(c)
The four rules as enunciated by the courts include the following:
Lee v Neuchatel Asphalte Co - where the court held that a dividend may be paid
even if the total assets of the company are less than the original capital subscribed
by the shareholders so long as the company makes a profit on the revenue account
i.e. its income exceeds its outgoing;
Verner v General & Commercial Investment Trust Ltd - circulating capital included
profits and could be distributed as dividends even though there may be a
considerable loss in the value of the fixed assets;
Dimbula Valley (Ceylon) Tea Ltd v Lauriem - unrealized profits arising from a surplus
created by the revaluation of assets can be distributed as dividends so long as the
revaluation was made in good faith by competent valuers and not likely to be subject
of short-term fluctuations;
Ammonia Soda Co Ltd v Chamberlain - dividends may be declared from current year
profits without having to make good losses of circulating capital in previous years.
If the directors of the company infringe the rules as laid down by the courts, they will
be held responsible since they have recommended the dividend in general meeting.
The directors will have to make good to the company the amount unlawfully paid,
they will; be guilty of an offence under the Act and can be penalised with
imprisonment for 10 years or fine of RM250,000 or both - s.365(2).
(8 marks)
(Total: 20 marks)
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