LEE CHOON HEI (NRIC No.: 490928-10-5331) v CHEAH BOON HOE (NRIC No.: 571211-08-6107) (formerly the Principal Owner of the firm Messrs. Paul Cheah & Assocaites and now practising under the name of Messrs Paul Cheah Associates) (WA-22NCC-258-05/2019 (No. 2))

The Plaintiff was the branch partner of the law firm Messrs Paul Cheah & Associate (‘the Firm’) located at Port Klang from 14.7.2006 to 30.6.2008 (‘Port Klang Branch’).

Under the Partnership Agreement that he had with the Firm, clause 19.1 states: 2 ‘The Law Firm/Principal Owner shall at all material times indemnify the Branch Partner against all losses, damages, actions, negligence suit or any form of legal proceedings taken against the Partnership in respect of or any action arising from the Kuala Lumpur, Subang Jaya, and Klang branches whether by its staff or legal assistants (if any).’

On 25.1.2011, Public Bank Berhad (‘the Bank’) sued the Firm at the Kuala Lumpur High Court in Civil Suit No. D-22NCC-165-2011 (‘the 165 Suit’) for loss and damages arising from a fraudulent and or negligence action by one Frankie Tan Lyn Seang (‘Mr. Frankie Tan’), a partner in the Firm’s Kuala Lumpur branch (‘KL Branch’). The Bank subsequently obtained judgment against the Firm for the sum of RM 561,413.02 with interests and costs of RM 180,000.00 (‘the Judgment Sum’).

The Plaintiff was not aware of the 165 Suit until sometime in late 2014 when the Bank took out an application seeking leave to enforce the Judgment Sum against each of the partners of the Firm.

In this action, the Plaintiff is seeking an indemnity from the Defendant as the Principal Owner and partner of the Firm under the Partnership Agreement. The remaining partners of the Firm, Mr. Venu Nair and Encik Sulaiman bin Mohd Said have passed away. Mr. Frankie Tan himself has been made a bankrupt.

The Defendant’s main defence to the Plaintiff’s claim is that he had ceased to be a partner of the Firm as at 1.8.2006 and was merely 3 a consultant of the Firm thereafter. The Defendant further averred that the Plaintiff’s action is barred by the doctrine of res judicata.

In respect of the Plaintiff’s claim, the Court has to determine as a matter of fact and law whether the Defendant was a partner of the Firm during the period when the Plaintiff was the Branch Partner.

According to the Defendant, as at 1.8.2006 he had resigned as the Senior Partner of the Firm and took on the position as a Consultant instead. The Defendant referred to his letter to the Bar Council dated 26.6.2006 as proof of his assertion. The letter stated: ‘26th June 2006 Bar Council, No. 13, 15 & 17, Leboh Pasar Besar, 50050 Kuala Lumpur Attention: Membership Department Dear Sirs Re : CHEAH BOON HOE (BC/C/296) Kindly be informed that our Mr. Cheah Boon Hoe is appointed as a Consultant of M/s Paul Cheah & Associates with effect from 1st. August, 2006. Accordingly, our Mr. Cheah will resign as the Senior Partner of Messrs Paul Cheah & Associates. Your immediate attention and cooperation is appreciated. Thank you. Yours faithfully, 4 (signed) …………………… PAUL CHEAH & ASSOCIATES’

The Defendant also referred to the Firm’s Accountant’s Report for the Year ended 31.12.2006 dated 7.12.2007 (‘the 2006 Accountant Report’) and 31.12.2007 dated 26.12.2008 (‘the 2007 Accountant Report’). In particular, in the 2006 Accountant Report, there is a notation next to the Defendant’s name stating that he had resigned on 1.8.2006. As for the 2007 Accountant Report, the Defendant’s name no longer appeared in the particulars of solicitors of the Firm.

Further, the Defendant gave oral testimony that the Plaintiff was fully aware of the fact of his ‘retirement and resignation’ and his new role as ‘consultant’ of the Firm.

On the issue of res judicata, the Defendant referred to the Plaintiff’s Third-Party Action that was filed against him by the Plaintiff in the 165 Suit. In this Third-Party Action, the Plaintiff had similarly relied on Clause 19.1 of the Partnership Agreement to seek an indemnity against the Defendant.

According to the Defendant, the Third-Party Action was dismissed by the High Court on 11.11.2015 and there was no appeal by the Plaintiff against the dismissal. On this ground, the Defendant says that the Plaintiff’s present action is no longer sustainable by reason of the doctrine of res judicata. 5

The Defendant’s other ground is that the Plaintiff’s claim for indemnity is pre-mature as the Plaintiff has yet to make any payment of the Judgment Sum to the Bank.

Another point that was taken up relates to an event that took place after the completion of the trial. During the oral submissions, it was disclosed by learned counsel for the Plaintiff that a bankruptcy order had been made against the Plaintiff on 9.12.2019. The Court had directed the attention of the Plaintiff to Section 38(1)(a) of the Insolvency Act 1967 which states that a bankrupt shall be incompetent to maintain any action without the previous sanction from the Director General of Insolvency (‘DGI’). Learned counsel for the Plaintiff then informed the Court that he would be seeking the sanction from the DGI to permit the Plaintiff to continue with the action.

Learned counsel for the Defendant thereafter filed further submission seeking for the action to be dismissed based on the Plaintiff’s bankruptcy.

The Plaintiff maintained that his relationship with the Defendant had continued to be governed by the terms of the Partnership Agreement throughout the period from the time he signed the agreement on 14.7.2006 until his resignation on 30.6.2008.

The Defendant had continued to be entitled to 50% of the profit of the Port Klang Branch even after 1.8.2006 when the Defendant 6 had purportedly become a consultant of the Firm. In fact, the Defendant himself did not dispute that he had continued to draw the monthly sum of RM 2,000 as provided in the Appendix to the Partnership Agreement.

The Plaintiff maintained that neither the Defendant nor the Firm had ever informed him of the Defendant’s resignation as the Senior Partner of the Firm and assuming the role as a consultant as at 1.8.2006.

As regards the Third-Party Action, it is the Plaintiff’s case that the merits of his Third-Party Action against the Defendant was never considered and determined by the High Court when the same was dismissed. As such, the doctrine of res judicata simply does not apply.

The Defendant has not been able to adduce any evidence before the Court that his relationship with the Plaintiff during the period from 14.7.2006 to 30.6.2008 was no longer regulated by the terms of the Partnership Agreement. In fact, the Defendant admitted during cross examination that the Partnership Agreement was not varied or amended at all after he assumed the role as consultant to the Firm on 1.8.2006.

It is pertinent to note that the Defendant was identified as the ‘Principal Owner’ of the Firm and under clause 6.1(b) of the 7 Partnership Agreement, he was entitled to 50% of the profits and losses of the Port Klang Branch.

Further, under clauses 7 and 13 of the Partnership Agreement, it is clear that the Defendant played a significant role in the financial and management matters of the Port Klang Branch as well. These roles continued to be exercised by the Defendant notwithstanding his ‘resignation’ as Senior Partner of the Firm and assuming the designation as ‘consultant’ to the Firm since the Partnership Agreement was never varied or amended. This is acknowledged by the Defendant when he confirmed that he continued to received RM 2,000 a month because the parties had agreed to the same under the Partnership Agreement.

I find that notwithstanding the Defendant’s oral testimony that the Plaintiff was informed of his resignation as Senior Partner of the Firm, the Plaintiff was in fact not told of the same throughout the period when he was the Branch Partner of the Firm.

The letter dated 26.6.2006 that was issued by the Defendant to the Bard Council was never copied to the Plaintiff. There is also no evidence that the 2006 Accountant Report and the 2007 Accountant Report were ever furnished to the Plaintiff whilst he was the Branch Partner of the Port Klang Branch.

In fact, there is evidence that suggests that the Defendant’s designation as ‘consultant’ of the Firm was more form than substance. My reasons for saying so are as follows: i. When the Plaintiff ceased as the Branch Partner of the Port Klang Branch and left the Firm, the Defendant caused to be 8 issued to the Manager of Public Bank Berhad, Klang Branch that the Plaintiff had withdrawn from the Firm and was no longer authorised to sign any cheques for the Firm. However, no such similar letters were issued when the Defendant ceased to be Senior Partner of the Firm. In fact, during cross examination, the Defendant confirmed that neither he nor the Firm had issued any letter or notice to the Firm’s clients of his retirement from the Firm; ii. The Defendant continued to be entitled to share in the profits and losses of the Firm without any change despite his purported ‘retirement’. As can be seen from clause 6.1 of the Partnership Agreement, the Defendant was entitled to 100% of the profits and losses of the Firm’s KL Branch which was regarded as the Head Office and he shared only with Frankie Tan in the profit and losses of the Firm’s Subang Jaya Branch and the Klang Branch; iii. The Defendant has not produced any documents on his arrangement with the Firm as its consultant as at 1.8.2006 to show that he was no longer a partner of the Firm; iv. The Defendant has not produced any documents to show that all or any of his entitlements as a partner of the Firm had ceased upon his assumption of his role as the consultant of the Firm; v. There is no evidence to show that the Defendant’s shares in the Port Klang Branch had been transferred out to another partner. Throughout 2006 to 2008, the Plaintiff had continued 9 to deal with the Defendant as the partner entitled to 50% of the profit and loss of the Port Klang Branch.

The Plaintiff who is asserting that the Defendant had continued to be a partner of the Firm, bears the burden to prove on the balance of probabilities that the Defendant’s status had in truth not changed notwithstanding his new designation as ‘consultant’. In my mind, the Plaintiff had discharged his burden when he established that the terms of the Partnership Agreement had continued to govern his relationship with the Defendant. The evidential burden then shifts to the Defendant to show that his position in the Firm had indeed changed.

The issue of the existence of a partnership is not to be decided merely by what the parties called each other or by the manner in which the party labelled his position. Whether a person is to be treated in law as a partner depends on an examination of the real substance of his relationship with others. Where the necessary elements of a partnership exist in fact, a relationship will be construed as a partnership in law even though the parties may say no.

In the present case, I find that the Defendant was indeed a partner of the Firm notwithstanding his letter to the Bar Council on 26.6.2006 notifying his retirement as Senior Partner and his re-designation of his role as consultant to the Firm. In every aspect, the Defendant’s position as the Principal Owner had not changed. Accordingly, I agree with the Plaintiff that the Defendant is liable to indemnify him for the Judgment Sum. 10

On the issue of res judicata, the burden is on the Defendant to show that the High Court had in the 165 Suit determined the Plaintiff’s Third-Party Action on its merits. No evidence has been placed before the Court that this was the case. A perusal of the written submissions of counsel for the Defendant in respect of the Third-Party Action shows that a good part of the same had dealt with procedural irregularities in the Third-Party Action. The minutes of the learned Judge who dismissed the Third-Party Action was not produced before the Court.

However, based on the order dated 11.11.2015, it is apparent that the Third-Party Notice filed by the Plaintiff in Suit 165 was terminated pursuant to Order 16 Rule 4(3) of the High Court Rules 2012 following the Court’s order setting aside the Plaintiff’s Notice for Third Party Directions dated 20.1.2015. This suggests that the merits of the Plaintiff’s Third-Party claims were never considered and determined by the Court at all.

On the question as to whether the Plaintiff’s claim is pre-mature as he has not made any payment of the Judgment Sum to the Bank, I need only refer to the Federal Court case of Mat Abu bin Man v. Superintendent, General Hospital, Taiping, Perak & Ors [1989] 1 MLJ 226 where it was held that for an indemnity claim, the cause of action should begin to run from the date the defendant is held liable.

Finally, on the issue of the Plaintiff’s bankruptcy, the Plaintiff has on 23.12.2019 obtained an order staying the adjudication order 11 and receiving order dated 9.12.2019 until 27.12.2019 which is the date fixed for further submission and decision by this Court.

Given that the bankruptcy order has been stayed, the Defendant’s objection to the action is no longer valid.

Accordingly, I allow the Plaintiff’s action against the Defendant and hereby grant the Plaintiff order in terms of prayers (i) (a), (b) and

(c), prayer (ii) of paragraph 15 of the Statement of Claim with costs fixed at RM 25,000.00. Dated: 27th December 2019 …………………………. Ong Chee Kwan Judicial Commissioner High Court of Malaya NCC2, Kuala Lumpur 12 COUNSEL:

Mr Jerry Ling Ting Yuen for Plaintiff. (Messrs. Lee Ling & Partners)

Mr. Koo Thean Chiap for Defendant. (Messrs. Paul Cheah Associates)

Section 38(1)(a) of the Insolvency Act 1967.

Mat Abu bin Man v. Superintendent, General Hospital, Taiping, Perak & Ors [1989] 1 MLJ 226.