Preamble
Pursuant to Order 13 rule 8 of the Rules of Court 2012, the Court may, on such terms as it thinks just, set aside or vary any judgment entered pursuant to this Order. Where the default judgment was entered regularly, case law has been clear that the default judgment may only be set aside upon satisfying the Court that there is a good meritorious defence. See for instance the decisions 4 of the Federal Court in Bank Bumiputera Malaysia Bhd v Majlis Amanah Ra’ayat [1979] 1 MLJ 23; Supreme Court in Hasil Bumi Perumahan Sdn Bhd & Ors v United Malayan Banking Corp Bhd [1994] 1 MLJ 312; Lai Yoke Ngan & Anor v Chin Teck Kwee & Anor [1997] 2 MLJ 565; Adzmi bin Ali v Mohamed Isa bin Kasad [1987] 2 MLJ 199; and Kwong Yik Bank Bhd v Sa’adiah bte Maslan [1994] 2 MLJ 830. [8] The issue of the regularity of the judgment in default was not pursued in this appeal although there were written submissions to this effect. For the record, we find the judgment in default to be regular, in which case, the issue of the merits of the Defence becomes relevant and, because of the time lapse between the default judgment and the application to set aside, the reasons for such delay. We focused thus on the two remaining issues – whether the delay had been reasonably accounted for and whether there was a defence on the merits raised. The law is trite and we have no intention to rehash the sound principles underlying the exercise of discretion in O 13 r 8; that a regular judgment will not be set aside unless a defence of merit is established. [9] First, the matter of delay. From the submissions of the respondent before us this issue was not canvassed. Apart from the regularity of the default judgment, the respondent was really concerned only with the issue of the defence or lack of one, that “from the affidavits filed there is no proposed defence was filed by the defendant to suggest that they have a meritorious defence”. At the High Court, the respondent did submit that the appellant was “lackadaisical when he received the summons” and that he “must not be given an opportunity at this late [sic] state i.e. after 2 years 7 months to set aside the 5 judgment which is regularly obtained.” This is also a matter of complaint in the respondent’s affidavit in reply – see paragraph 13. [10] Regardless, the question is whether there is delay, and has it been accounted for. The Certificate of Non-Appearance is dated 18.1.2016 and the judgment in default was entered on that same date. [11] The learned JC referred to paragraph 15A of the appellant’s submissions where the appellant explained that after he had left the respondent’s firm around 31.10.2014, he had difficulty in obtaining supporting affidavits or evidence as none of the agents were on speaking terms with him. It was only upon the bankruptcy proceedings that one of the agents stepped forward to affirm an affidavit in support for him and that was in May 2017. He also had no access to documents having left the employment of the respondent. Again, it was only in May 2017 that he managed to obtain some assistance. [12] The appellant’s explanation was rejected. The learned JC found the reasons given, unreasonable. According to the learned JC, it was not acceptable for the appellant to blame others “in not helping him solve his problem”; that there was no reasonable explanation for the 2 years 7 months inordinate delay. Further, the plea was “nothing more than attracting this Honourable Court to be more sympathetic with such scenario”. [13] We, on our part, disagree finding ourselves satisfied with the reasons and explanations given. 6 [14] The record shows that the appellant had filed an application to set aside amongst others, the default judgment, on 8.5.2017 – see encl. 8. It is unclear what happened to that application but what is clear is that the appellant filed another application [encl. 15], similar to encl. 8 and it is the decision in respect of that application which is the subject of the appeal before us. Encl. 15 was filed on 23.2.2018. Together with the application were three affidavits, two of which were filed by the appellant himself [encl. 16 and 18] and another affirmed by one Silvarajoo a/l Appavoo [encl. 17]. These affidavits were the same affidavits filed in support of the earlier application in encl. 8. The respondent filed an affidavit in reply [encl. 19] to which the appellant filed two more affidavits in reply [encl. 20 and 21]; the last affidavit in reply was to furnish evidence of the sanction issued by the Insolvency Department. [15] These affidavits must be read and carefully evaluated for otherwise, how is one to exercise the discretion involved in deciding whether or not to set aside the judgment in default; whether delay has been adequately explained, and the question of merit of defence. Having done precisely that including examining the exhibits attached, we found the delay satisfactorily accounted for; that the appellant had taken various steps to resolve the matter with the respondent including negotiating with the respondent but, was unsuccessful. His was not a case of an indolent litigant who did not warrant the aid of the Court. His explanation of the difficulties encountered both in accessing documentation and obtaining assistance of corroborative evidence are actually borne out. The documentation is the property of the respondent’s since the appellant was at all times, a legal assistant of the respondent. This may be seen from the terms of the contract for services signed between the parties, a matter which we will 7 return to for more discussion shortly. The appellant’s explanation that he was attempting to resolve the matter with the respondent is also reflected in the letters sent to the respondent. See the letters dated 26.7.2016; 6.9.2016 and 8.3.2018 [pages 255 to page 259 of the record of appeal] were all received by the respondent; but the respondent did not reply to any of them; and there is no explanation offered by the respondent. [16] Contrary to the learned JC’s view that the appellant was putting blame on others and that he was merely seeking the sympathy of the Court; that is in fact far from the truth. The appellant was simply telling his side of the matter, offering evidence in support; and it was the duty of the learned JC to examine those evidence which he failed to do. We, as we have said, are satisfied with the explanation on the delay and of the steps taken by him. The peculiar circumstances that the appellant found himself in, with the difficulties faced are not imagined and the letters sent contemporaneously confirm the action taken by the appellant at the material time. We therefore, are satisfied that delay has been satisfactorily accounted for. [17] More critically is the matter of whether the appellant had put up a good defence on merits. The learned JC understood the defence to be that the respondent was not satisfied with the appellant’s work and had a grudge against him; that there was misappropriation of the firm’s funds by others; and that there was an element of fraud and cheating in how the respondent had obtained judgment. After examining the affidavits, the learned JC found none of these defences to be of merit; that the appellant ought to have been made 8 a police report and since he did not, chose not to believe him. Again, we must disagree. [18] First, the nature of the respondent’s claim, as pleaded– see pages 40 to 44 of the record of appeal. [19] The respondent who wanted to expand its legal portfolio to include motor insurance claims appointed the appellant specifically for this purpose, supposedly based on the appellant’s representation of having the necessary expertise and skill. An agreement was drawn up between the parties on 3.10.2012 [contract for service] where it was inter alia agreed that– i. the appellant would take all reasonable efforts to develop the motor insurance work in the respondent’s firm; ii. the appellant would contribute towards the firm’s funds at its branch at Petaling Jaya for the payment of bills at that branch; iii. the respondent would give all necessary financial assistance for the development of the motor insurance work but for all intents and purposes, that assistance is to be treated as a personal loan to the appellant which the appellant must repay by a fixed date; iv. in return for the appellant’s efforts, the appellant is allowed to retain as his commission, a portion of fees collected from the clients. [20] The respondent provided the funds as and when required by the appellant and according to the number of files opened by the appellant. The respondent claimed that he had lent the appellant a total sum of 9 RM1,620,730.00. On 30.9.2014, the appellant suddenly stopped coming to work. Despite efforts on their part to contact the appellant including sending 3 letters asking the appellant to return to work, the appellant failed to report for work; and his services were then terminated. Following an internal investigation, the respondent found that the appellant had failed to carry out his obligations as agreed and that the respondent had suffered loss from the files handled or managed by the appellant. The respondent’s reliefs were for the immediate payment of the sum of RM1,620,730.00 together with general damages, interest and costs. In the respondent’s affidavit in reply [encl. 19 at pages 94 to 99 of the record of appeal], the respondent reiterated that its claim of RM1,620,730.00 was for breach of agreement and/or understanding – see paragraph 11. [21] At this point in time, the merits of the appellant’s defence to the respondent’s claim can only be ascertained from the affidavits filed and exchanged, namely: i. appellant’s affidavit in support [encl. 16 at pages 70 to 79]; ii. appellant’s 3rd supplementary affidavit [encl. 18 at pages 86 to 93]; iii. appellant’s affidavits in reply [encl. 20 & 21 at pages 100 to 105]; iv. respondent’s affidavit in reply [encl. 19 at pages 94 to 99]; v. affidavit by Silvarajoo a/l Appavoo [encl. 17 at pages 80 to 85]. [22] This was the appellant’s version of the matter. According to him, he was a legal assistant with the respondent from June 2009 to October 2014. Initially, he was paid RM5,500.00 per month but from July 2011, he was paid on a 10 commission basis. In October/November 2011, Gregory Santiago, the principal partner of the respondent and the appellant discussed going into motor insurance claims with the appellant appointed as “share partner bersama pihak yang membawa kes (agents)” where they would be paid on a commission basis of 10:10:10. An agreement was drawn up with provisions for the respondent to provide the necessary “modal”. All this took place at the respondent’s branch office at Kelana Jaya. [23] Under this arrangement, the respondent brought in two agents, Suresan a/l Murugesan and Raajip while the appellant brought in Silvarajoo a/l Apavoo. The “modal” which was provided by the respondent was to “mendapatkan kes-kes dan sebenarnya akan diberikan kepada agents untuk mendapatkan kes” and for the agents to spend on: i. Pembayaran pihak polis; ii. Pembayaran kos perubatan klien; iii. Pembayaran loan klien; iv. Pembayaran agent fee. [see paragraph 4(h) of affidavit in support at page 72 of the record of appeal]. The appellant claimed that he spent the money from the respondent on medical and specialist reports; staff remuneration, and his own costs. The appellant explained that the ‘modal’ was not given as a lump sum; the amount given depended on appellant’s monthly status reports put together from reports from the agents. Apparently, the respondent gave a monthly average of 11 RM71,400.00 and from November 2011 till August 2013, gave a total sum of RM1,632,000.00. [24] The working relationship between the parties was good until early September 2013 when upon his return from India, he was alleged to have misused or misappropriated [menyeleweng] the ‘modal’. In August 2014, the respondent appointed a new legal assistant named Hemashri Mohney to handle the motor accident claims. The appellant claimed he had no prior notice of this. Things escalated and the appellant left the respondent in October 2014 after informing them that he was setting up his own legal practice. The appellant claimed that he had the consent of the respondent to leave the firm. He thus refused to return when the respondent wrote asking him to return to work. In any case, he took the position that the respondent was in breach of the agreement. [25] On the matter of paying back, the appellant explained that together with his agent, he handled over 140 cases out of which 50 cases had been resolved by the time he left the firm in October 2014. Accepting that about 20 files may have been transferred out by the agents, the 140 files brought in a total award of RM1,600,000.00. This sum was paid into the respondent’s account with Gregory Santiago as its signatory and the respondent would then deduct and recoup its ‘modal’ from such payments. In the appellant’s estimation, the respondent would have recouped over RM700,000.00. A further sum of around RM1.2 million would have been recouped when the 50 files left by the appellant were handled or managed by Hemashri leaving thus nothing outstanding or due from the appellant. 12 [26] We do not see any evaluation of these matters, especially against the exhibits tendered; and this becomes more prominent when we ourselves evaluate all the pieces of evidence before the High Court. One of those pieces of evidence which obviously slipped the scrutiny of the learned JC is the Supplementary affidavit of Silvarajoo a/l Appavoo [Silvarajoo] affirmed on 16.5.2017 [see encl. 17 at pages 80 to 85 record of appeal]. Broadly, this is what SiIvarajoo said in his affidavit. [27] He confirmed that that there was an arrangement between the respondent, appellant and himself for claims arising from motor-vehicle accidents. Under the arrangement, the respondent would provide the financial and logistical support, the appellant will do the legal work while Silvarajoo, as the main agent with 2 sub-agents, Maya and Madhu will source motor-vehicle accident cases and refer them to the respondent. According to Silvarajoo, the respondent provided the ‘modal’ to be spent as follows: i. Loan client; ii. Kos perubatan klien di hospital; iii. Kos pembelian kes; iv. Pembayaran untuk polis/staff hospital; v. Entertainment sub agents/saya/polis/staff hospital; vi. Kos pentadbiran saya sendiri. [28] Silvarajoo averred that he was paid 10% commission from every award; we would understand that to be from every successful claim as he went on to 13 explain that for every client who left or if there was a loss [kes telah hilang klien ataupun mengalami kerugian], he would replace with another client. This arrangement worked well from January 2012 to July 2013 where a total of RM850,000.00 was drawn from the ‘modal’ on an average of RM50,000.00 per month. On top of the RM850,000.00, Silvarajoo confirmed that he had also borrowed from the respondent by taking from the ‘modal’, RM67,000.00. SIlvarajoo gave the respondent monthly reports on the status of expenditure. Apparently, the respondent suddenly stopped providing funds in September 2013 and that had severe ramifications in the supply chain [keseluruhan supply line musnah]. This led to losses. Silvarajoo claimed that it was the respondent who ‘sabotaged’ his own business. [29] Silvarajoo further averred that the respondent’s claim of RM1,603,200.00 was a fraudulent claim. He explained that between June 2013 and 31.10.2014; over 20 cases were resolved with the full knowledge of the respondent and all awards or monies were paid into the respondent’s account where its principal partner, Gregory was the sole signatory. The respondent would deduct from such monies received the sum payable for its fees before paying the balance to the clients. Under such an arrangement, the respondent would have thus received the return of its ‘modal’. Since he and his sub-agents had referred at least 92 files to the respondent’s firm [exhibit “S-1”], as at 31.10.2014, the total award stood at RM720,000.00. This meant that the respondent would have recouped about RM220,000.00 alone from this sum [see paragraph 12(iv) of his affidavit]. Then, there was the 50 to 55 cases referred by him but handled by the respondent’s new lawyer, Hemashri Mohney from 31.10.2014 to October 2015. The total award under these cases would have been around 14 RM1.2 million out of which the respondent ought to have been able to recoup a further sum of RM600,000.00 in which case, the respondent’s claim of RM1.6 over million was false and/or fraudulent. [30] The respondent filed one affidavit in reply [encl. 19 at pages 94 to 99 of the record of appeal] and while it responded to the appellant’s affidavit in support and 3rd supplementary affidavit dated 16.5.2017 [encl. 16 and 18], it did not at all respond or made any reference to Silvarajoo’s affidavit [encl. 17]. This is extremely important but it was not dealt with or even commented on by the learned JC. [31] Apart from denying the appellant’s allegations which the respondent claimed were bare allegations, the respondent claimed that the appellant had misconstrued [salah tafsir] its claim, and proceeded to reiterate its claim as appearing in the Statement of Claim; allege that the application would “unnecessarily delay the plaintiff’s right to the amount owed by the defendant and further escalate cost”. [32] Thus, in a nutshell, the respondent was suing the appellant for a refund of the cash advances that it had given the appellant under the contract for service dated 3.10.2012 – see page 236 of the record of appeal. And, in essence, the defence is that the cash advances have been repaid in full, through a system of deductions from compensation and awards received. [33] Without delving into the merits of the claim or the defence, the respondent’s case is that it had given the appellant these cash advances in 15 order to “develop manage and build the Motorcar Accident Case Portfolio including granting interest free loans to client – see definition at clause 2.2. Under clause 4.1.3, the appellant would employ such persons and/or personnel necessary for the management and running of the portfolio while under clause 4.1.5, the appellant would manage and be responsible to collect all loans granted to the clients. [34] Although the appellant was responsible for repaying the cash advances – see clause 4.1.9, he explained that through the collections and deductions system, the respondent has already been repaid in full. The appellant had explained his mathematical calculations offering the list of clients and the awards received as corroborative documentary evidence. His version of the facts, his numbers, and his calculations are also backed up by the affidavit evidence of SIlvarajoo. [35] Then, again without making any finding on the substantive merits of his defence, we notice that there is an extensive provision under clause 18 on how fees and disbursements and also recovery of any loans to clients will be settled from any “Compensation Award”. This seems to lend much credence to the appellant’s version of the facts and more importantly, to his defence. The term “Compensation Award is defined in clause 2.1 as “the damages and payments agreed to be paid by way of settlement or as awarded by the Courts in their Judgment or offered paid and accepted as compensation by the clients (of the Motor Accident Case Portfolio) in settlement of the claims or any other such payment or settlement. Essentially, under clause 18.1.1, before releasing any award to the client from the Client’s Account in the respondent firm, the 16 appellant is required to deduct or collect directly from the compensation award any loan or advance that may have been granted to the client out of the cash advances given by the respondent. In other words, before the client receives the compensation award, all loans, fees and disbursements must be settled first; and such settlement will be way of direct deductions from the award. [36] In his 3rd supplementary affidavit [page 100 of the record of appeal], the appellant set out the calculations upon which he asserted that the respondent had already recouped its monies; and that his whole explanation would be borne out by the records kept by the respondent itself. Those records included the award letters from the insurance companies; e-payments by the insurance companies; the respondent’s fees for each file; and the respondent’s bank statements and proofs of payments to clients. [37] In our view, the appellant’s explanation that all compensation awards or monies were paid to the respondent and into the respondent’s accounts [clients’ account] and it was the respondent’s principal partner, as signatory to the respondent’s account who would make all the necessary deductions including deductions for its own cash advances before issuing any payment to the client, is entirely plausible and makes perfect sense. And, according to the appellant’s record and understanding, that was being done all along leaving nothing outstanding or due from the appellant. [38] Both the appellant and Silvarajoo have alleged that there was fraud involved but have not quite explained what the fraud or wrong-doing was. We, on our part, view with grave concern the contract for service surrounding the 17 appellant’s appointment, the terms of the appointment, how the cash advances were given, why they were given, what or how the cash advances were utilized especially in the manner as claimed by the appellant and by Silvarajoo; that loans, though interest free, were being given to clients of motor accident insurance claims for various use or purposes; and the whole system of the use of agents and sub-agents to bring in files, cases or clients. We are concerned of the propriety and validity of such arrangements; and whether a claim founded on such contractual arrangements are at all recoverable in law. [39] Another point that struck us was how the cash advances became a personal loan to the appellant given that the advances were intended to be used and were used to set up the motor accident insurance portfolio. That portfolio was housed in the respondent’s firm and premises, using the respondent’s staff and where all files or cases were the property of the respondent and the clients were the respondent’s. We noticed too, that the correspondence related to the clients handled by the appellant were all on the respondent’s letterhead. Taking all these into consideration and assuming the respondent had advanced the sum claimed, it was advanced over a period of nearly 2 years during which time, there were settlements and awards from which the respondent received a “commission” apart from the repayments for the cash advances. [40] All these matters are serious issues and substantive defences of merit which cannot be given such short shrift by the learned JC as amounting to naught. The learned JC did not even take into account Silvarajoo’s supporting affidavit which was not challenged by the respondent; or even addressed. In 18 our regard, the learned JC had wholly misapprehended the respondent’s claim and the defences raised. [41] The appellant has thus satisfactorily displayed a good defence of merit and he must be allowed to defend the claim brought against him by the respondent and upon which a default judgment was entered. That defence must be allowed to be tested against the full weight of evidence and be fully dealt with in a trial. [42] Accordingly, we allow the appeal with no order as to costs and set aside the decision of the learned JC; and we grant order in terms of prayer (1) in enclosure 15. Dated: 17 June 2020 sgd (MARY LIM THIAM SUAN) Judge Court of Appeal Malaysia 19 Counsel/Solicitors For the appellant: Dzaki Ezhar Bahar Messrs Krish & Kiew No 17B (2nd Floor), Jalan Mewah 25/63 Seksyen 25, Taman Sri Muda, Shah Alam 40400 Selangor For the respondent: Shamesh Jeevaretnam Messrs Jeeva Partnership D-22-03, Menara Suezcap 1 KL Gateway, No. 2 Jalan Kerinchi Gerbang Kerinchi Lestari 59200 Kuala Lumpur