Catherine Cheong Poh Lin v Nanopac (M) Sdn Bhd (BA-12B-71-08/2022)

Be it a commercial undertaking or a personal engagement between entities or individuals, the promise of a fruitful business endeavour or a blissful future may not always pan out as envisioned. In some instances, the breakdown in the relationship may occur after many years of cordial rapport. Others, like the present dispute, may happen at an early stage in the affiliation. The outcome in the collapse of these relationships are bitter contestations with police reports made and civil suits filed by the parties against one another.

The plaintiff and the defendant had agreed to set up a joint venture company to launch a new business project called Shots Café.

Disputes had arisen between the parties before the Joint Venture Company could be formed and the plaintiff, Nanopac (M) Sdn Bhd, commenced a civil suit in the Sessions Court.

In the suit against the defendant, Catherine Cheong Poh Lin, the plaintiff sought (i) over RM14,000 in cash that the defendant had allegedly taken from the plaintiff, (ii) USD 1,050.00 as payment by the defendant to a third party without authority of the plaintiff company and (ii) interests of 5% from the date of the issuance of the Writ until full settlement of judgment sum.

In addition to the above, the plaintiff had also sought RM500,000.00 as general and exemplary damages.

The Sessions Court had considered 9 issues. The first three principal issues were in relation to the questions of (i) whether the defendant had taken an amount of RM14,601.97 from the company without authorisation; (ii) whether the defendant was responsible for making a payment of USD1,050 to a third-party claimant, ScentAir Technologies Hong Kong Ltd, without proper authorisation and thus should reimburse the plaintiff for the said amount; and (iii) whether the plaintiff was entitled to RM500,000.00 as general and exemplary damages.

The remaining issues considered by the Sessions Court include the following questions, namely (i) whether the defendant had been appointed as a director, an employee and an agent of the plaintiff; (ii) whether the defendant was a shareholder of the plaintiff company; (iii) whether the defendant had wrongfully and without the knowledge and consent of the plaintiff used the company seal in dealing with third parties; (iv) whether the claims by the plaintiff ought to be allowed; (v) whether the defendant was entitled to manage the business at Café Shots Sunway based on the Joint Venture Agreement; and (vi) whether the defendant had wrongfully and without the knowledge and consent of the plaintiff used the company seal in dealing with a few specific third parties.

On 22 July 2022, the Sessions Court made a finding that the defendant had never been appointed nor employed by the plaintiff either as a director, employee or agent of the plaintiff. The learned Sessions Court Judge also made a finding that the defendant was not a shareholder of the plaintiff company.

The Sessions Court allowed the plaintiff’s claims for (i) RM14,601.97; (ii) USD1,050 and (iii) interests of 5% from the date of the issuance of the Writ until full settlement of judgment sum (under paragraphs (a), (b) and (d) of the reliefs sought by the plaintiff in its Statement of Claim).

The Sessions Court also awarded general and exemplary damages of RM200,000.00 with costs of RM10,000.00.

The hearing of the Appeal before me was on 4 April, 2023.

This appeal required me to consider a number of key issues. The first being whether the defendant had indeed been authorised to use the plaintiff company’s seal or chop in dealing with third parties. On this issue of authorisation, the issue of pleadings, or more accurately, the failure to plead a point, was raised and had to be considered.

The second important issue was whether monies withdrawn from the plaintiff company were indeed used for the business of the company or had in fact been “pocketed” by the defendant.

The second issue in a way was related to the third issue, that is, whether the award of general and exemplary damages of RM200,000.00 with costs of RM10,000.00 by the Sessions Court were justified under the circumstances of the case.

It is the defendant’s case that there was an understanding between the defendant and the plaintiff that until the proposed joint venture company is established, the plaintiff company will be used as the “vehicle” for all dealings pertaining to the project involving Shots Café. Hence the use of the plaintiff company’s name and seal, according to the defendant, were at all material times, done with the knowledge and authorization of the plaintiff.

The defendant further averred that the defendant had been charged to manage the project, that is, Shots Café, and the withdrawal of the sum of RM14,601.97 from the cash register was utilised as payments for expenses incurred by Shots Café. More importantly, the defendant avowed that this fact was within the knowledge of the plaintiff.

On the use of the plaintiff company’s official seal or chop, it was the defendant’s contention that the chop was left at Shots Café by one of the plaintiff’s employees for use by Shots Café in its dealings with third parties.

The defendant also submitted, nor surprisingly, that the award of general and exemplary damages amounting to RM200,000.00 by the learned Sessions Court Judge was without any basis.

The defendant had relied on Imej Tenggara Sdn Bhd v Sealion Hotel Sdn Bhd [2017] 2 CLJ 651; [2016] MLJU 999 to remind this Court that it is “duty bound to analyse the evidence and decide” and that this Court is “not entitled under the law to disregard the evidence and decide for the 6 parties”. I hasten at this juncture to add that this Court is cognizant of its legal obligations and wish to reassure parties that it will indeed decide based on the facts and evidence before the Court.

The defendant also relied on Sambaga Valli a/p KR Ponnusamy v Datuk Bandar Kuala Lumpur & Ors and another appeal [2018] 4 AMR 745; [2017] 1 LNS 500; [2018] 1 MLJ 784 (“Sambaga Valli”).

The plaintiff submitted that the defendant had indeed taken the sum of RM14,601.97. However, the plaintiff submitted that there were “absolutely no letters, documents or whatsapp messages from the Plaintiff to the Defendant backing up the Defendant’s assertion that the Plaintiff did give her permission”.

More importantly, the plaintiff submitted that the point on the defendant having withdrawn the sum of RM14,601.97 from the cash register supposedly with the permission of the plaintiff was never pleaded by the defendant in her Statement of Defence. The plaintiff referred to paragraph 5 of its Statement Claim which had averred that the money had been removed from the case register “tanpa pengetahuan atau persetujuan daripada pihak Plaintiff”.

On the use of the plaintiff company’s seal with the supposed permission of the plaintiff, the plaintiff once again relied on the rules of pleadings which state that parties are bound by their pleadings and failure to plead a point, in this case by the defendant in her Statement of Defence, 7 meant that evidence relating to permission having been given by the plaintiff must be disregarded by this Court.

There is a long line of authorities that had enunciated the principle that parties are bound by their pleadings and the plaintiff relied on Yew Wan Leong v Lai Kok Chye [1990] 1 CLJ 1113; [1990] 1 CLJ Rep 330; [1990] 2 MLJ 152 (“Yew Wan Leong”).

On the claim by the plaintiff for RM500,000.00 as damages, the plaintiff had relied on Clause 6.2 of the Joint Venture Agreement entered into between the plaintiff and the defendant which provides for RM500,000.00 as agreed liquidated damages if any party were to withdraw from the Joint Venture during the Joint Venture period.

As for the amount of RM200,000.00 awarded by the learned Sessions Court Judge as general and exemplary damages, the plaintiff submitted that the amount was fair and reasonable as “this is clearly heinous conduct by the Defendant who was entrusted by the Plaintiff to take care of their café and cash collections and this trust was abused by the Defendant to the Plaintiff’s detriment”.

As the plaintiff had submitted before this Court: “ … this case does not raise any novel or difficult issues of law. It is quite factual in nature.”

On the issue of authorisation for the withdrawal of the sum of RM14,601.97 from the cash register, the learned Sessions Court Judge concluded that the defendant had indeed taken that sum of money from the cash register and had failed to object to and denied the allegation made in the plaintiff’s Statement of Claim at paragraph 5 that the money was taken without the knowledge of nor with the consent from the plaintiff.

With regards to the use of the plaintiff company’s seal in dealings with third parties, the learned Sessions Court Judge once again made the findings that these dealings were carried out without the consent of the plaintiff.

The Sessions Court rejected attempts by the defendant to show evidence of consent on the part of the plaintiff, implicit or otherwise, on the ground that this point was never pleaded in the defendant’s Statement of Defence.

The importance of pleadings cannot be overstated. Besides Yew Wan Leong, the sole case cited in this appeal, cases such as Lee Ah Chor v Southern Bank [1991] 1 CLJ 667; [1991] 1 CLJ Rep 239; [1991] 1 MLJ 428, Janagi v Ong Boon Kiat [1971] 2 MLJ 196, Chartered Bank v Yong Chan [1974] 1 MLJ 157, Hj Mohd Dom v Sakiman [1956] MLJ 45 and Anuar bin Mat Amin v Abdullah bin Mohd Zain [1989] 3 MLJ 313 serve not just as important reminders but lessons to parties and their solicitors in the civil litigation process to pay heed to, lest they pay a heavy price for the neglectful way in which they approach this aspect of the law.

I find no reason to disagree with the learned Sessions Court Judge on the findings and reasons advanced as outlined in paragraphs [28] – [30] above.

As for the award of RM200,000,00 for general and exemplary damages, the learned Sessions Court Judge had not provided any reasoning as to how she had reached her decision. Perhaps the learned Judge was influenced by or had accepted the plaintiff’s argument that the conduct of the defendant was one that was “heinous” and that there was the element of “trust being abused”.

The only authority cited to this Court was Sambaga Valli. The parameters that govern the award of exemplary damages was very ably explicated by the Court of Appeal and it is apt that the instructive paragraphs in the judgment be reproduced:

The remaining issue to be determined is the amount of damages. In Rookies v Barnard, Lord Devlin set out three basic principles of the assessment of quantum in exemplary damages cases. His Lordship held that in order to recover damages, the plaintiff must have been the victim of the punishable behaviour involved. This stipulation was necessary since ‘the anomaly inherent in exemplary damages would become an absurdity if a plaintiff totally unaffected by some oppressive conduct which the jury wish to punish obtained a windfall in consequence’. Secondly, Lord Devlin specified that exemplary damages should be assessed with restraint and, thirdly, that the means of the parties should be taken into consideration. In addition to these rules, Lord Devlin also stipulated that exemplary damages should be awarded ‘if but only if’ 10 the sum of compensatory (including aggravated) damages to be awarded had an insufficient punitive or deterrent effect.

The principle of moderation was again stressed in John v MGN Ltd [1997] QB 586, where the court stated that the quantum of an exemplary damages award should be the minimum ‘necessary to meet the public purpose’ of the damages.

It is interesting to note that in the United States, one of the principles of moderation which has been enunciated by the Supreme Court as indicative of whether a punitive award is constitutionally acceptable as not being excessive, is whether the award is proportionate to the harm suffered by the plaintiff, and therefore the sum awarded in compensatory damages in the same case. In BMW of North America, Inc v Gore (1996) 116 SCt 1589, the US Supreme Court for the first time struck down an award of punitive damages on the grounds that it was excessive and therefore unconstitutional. The Supreme Court established three ‘guideposts’ by which to judge whether an award of punitive damages was excessive. These were: the degree of reprehensibility of the defendant’s conduct; the disparity between the harm to the plaintiff and the damages awarded; and the difference between the exemplary damages imposed and the civil penalties imposed in comparable cases.

The principles of moderation and restraint has been followed by other jurisdictions as well. The Irish courts, for example, held that exemplary damages should be in proportion to the compensatory damages awarded in the same case. In McIntyre v Lewis [1991] 1 IR 121, O’Flaherty J stated this principle and found that the exemplary award made in that case, which was twelve times the compensatory damages, did not bear a sufficient relation to compensation. O’Flaherty J observed: The award of exemplary damages is anomalous and where such damages are awarded … the judge or jury must keep them on a tight rein. If the compensatory amount awarded includes aggravated damages then I believe if any award is made by way of exemplary damages it should properly be a fraction rather than a multiple of the amount awarded by way of compensatory damages (including aggravated damages). Hederman J, in the same case, also stated that the exemplary damages should bear some relation to the damages awarded in compensation, and reduced the exemplary award accordingly.

So too in United Kingdom. In Thompson v Commissioner of Police of Metropolis [1997] 2 All ER 762, Lord Woolf observed: … We do not think it is possible to indicate a precise arithmetical relationship between basic damages and aggravate damages because the circumstances will vary from case to case. In the ordinary way, however, we should not expect the aggravated damages to be as such as twice the basic damage except perhaps where, on the particular facts, the basic damage are modest.

In the same vein, the Singapore Court of Appeal in Koh Sin Chong Freddie v Chan Cheng Wah Bernard and others and another appeal [2013] 4 SLR 629 stated at p 652: … we are nonetheless of the view that there should be some semblance of proportionality between the quantum of damages and aggravated damages awarded …; and … Aggravated damages are meant to compensate for the aggravation of the injury; they are not an arbitrary top-up unrelated to the desire of the court to compensate the plaintiff for the aggravation.

… Applying the principles in Sin Heap Lee - Marubeni Sdn Bhd that the award for exemplary damages should be calculated at 25% of the award for compensatory damages, the amount of exemplary damages to be awarded to the plaintiff in these appeals is RM703,025.

Before departing, we would like to emphasis again that exemplary damages are not intended to compensate the plaintiff and are not recoverable as a matter of right. The amount of the exemplary damages award is left to the judge’s discretion and is determined by considering the character of the defendant’s misconduct, the nature and extension of the plaintiff’s injury and the means of the defendant. The quantum of exemplary damages to be awarded must be appropriate to the wrongdoing inflicted to the parties involved. Exemplary damages must not be uncontrolled or 13 arbitrary; they must be of an amount that is the minimum necessary to achieve their purpose in the context of the particular case.

Trite as it may seem, we must not lose sight of the overriding principle governing the award of damages and that dominant principle governing the award of damages in a civil action is premised on the notion of compensation. It is compensatory in nature.

The Federal Court in Taiping Poly (M) Sdn Bhd v Wong Fook Toh [2011] 1 AMCR 781; [2011] 3 CLJ 837; [2011] MLJU 1523, at para [18] in no uncertain terms underscored the point that such a principle will be the basis for the assessment of damages in Malaysia.

Reference can also be made to section 74 of the Contracts Act 1950 where it provides as follows: Section 74(1) Contracts Act 1950: When a contract has been broken, the party who suffers by the breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from the breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Section 74(2) Contracts Act 1950: Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.

Where criminal elements are involved, those aspects (involving the criminal elements) will be matters for the criminal court. Having said that, it is now recognised that the civil Courts are also vested with the power to sanction or punish a recalcitrant party, albeit in a civil suit, with an award of exemplary or punitive damages.

As evident from the principles enunciated by the Courts across various jurisdictions, an award of exemplary damages should only be ordered in the most exceptional of cases. The tendency to award exemplary damages when these are prayed for should be re-appraised.

If we accept the argument of the plaintiff that the conduct of the defendant was one that was indeed “heinous” and that there was the element of “trust being abused”, do these facts serve as justification for an award of (general and) exemplary damages amounting to RM200,000.00?

When a party reneges on his, her or its promise as agreed in a contract, it simply means that the party is not trustworthy or dishonest. In a cause of action premised on breach of trust, the element of “trust being abused” is present. Likewise, in an action based on the tort of conspiracy to defraud.

In the event that a party suffers loss as a result of a breach of contract, breach of trust or tortious act, the Court will intervene and provide the innocent party with the appropriate remedy. An award of exemplary damages should not be made as a matter of course.

Even in cases where an award of exemplary damages is called for, “there should be some semblance of proportionality between the quantum of damages and aggravated damages awarded” (Koh Sin Chong Freddie v Chan Cheng Wah Bernard and others and another appeal).

In Thompson v Commissioner of Police of Metropolis, Lord Woolf had observed that “we should not expect the aggravated damages to be as such as twice the basic damage except perhaps where, on the particular facts, the basic damage are modest”.

According to O’Flaherty J in McIntyre v Lewis, exemplary damages “should properly be a fraction rather than a multiple of the amount awarded by way of compensatory damages (including aggravated damages)”.

In our own jurisdiction, the Court of Appeal in Sin Heap Lee - Marubeni Sdn Bhd v Yip Shou Shan [2005] 3 AMR 570; [2004] 4 CLJ 35; [2005] 1 MLJ 515, had laid down the principle that an award for exemplary damages should be calculated at 25% of the award for compensatory damages.

Compensatory damages in the present appeal was less than RM20,000.00. The award of RM200,000.00 could not be justified by any stretch of the guidelines articulated in all the cases outlined above.

The appeal against the decision of the Sessions Court in awarding the plaintiff’s claims for (i) RM14,601.97; (ii) USD1,050 and (iii) interests of 5% from the date of the issuance of the Writ until full settlement of judgment sum is dismissed.

The costs of RM10,000.00 as awarded by the Sessions Court is affirmed.

The appeal against the award of general and exemplary damages of RM200,000.00 is allowed. The award of RM200,000.00 is set aside.

As this appeal is allowed in part, I make no order as to costs. Parties to bear their own costs for this appeal. Dated: 21 June, 2023 sgd [CHOONG YEOW CHOY] Judicial Commissioner High Court of Malaya Shah Alam Counsel: Siva Ganish with Jennifer Ang for the Appellant (Messrs. Davis & Low) Fredrick Kong for the Defendant (Messrs. S P NG & Assoc.)