6 CLJ 155 a cashier’s cheque which was non-negotiable was made out in the name of “The Director of Lands and Surveys Department” as payment for land premium for the sum of RM4,125,000.00. The cheque was cashed in the clients’ account of the 4th Defendant, who were a firm of solicitors. Upon clearance of the cheque, the 4th Defendant paid out the proceeds to Isamaju, its clients, in accordance with Isamaju’s instructions and the balance was used to pay its legal fees. The 1st Defendant was the partner of the law firm. The law firm tried to argue that they did not receive the monies for their own benefit, except for their legal fees. This argument was rejected by the Court of Appeal in upholding the 21 finding of liability against the law firm and the partner concerned. Per Clement Skinner JCA (at p 164): “According to the defendants they did not receive the monies comprised in the cashier’s cheque for their own benefit. The defendants say that out of the RM4,125,000 they only benefitted to the extent of RM206,250.00 which was paid as their fees, therefore they cannot be said to have received the monies for their own benefit. We do not agree. In Barnes v Addy [1874] LR 9 Ch 244 at p 251- 252 the court stated: That responsibility (of a trustee) may no doubt be extended in equity to others who are not property trustees, if they are found … actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But … strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions, within their legal powers transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive or become chargeable with some of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees. 22 It is clear from the above passage that a stranger or agent who receives some part of the trust property cannot escape liability.” (emphasis added) [28] In our present case, I agree with the plaintiff that that the defendant had used the entire proceeds of the said cheque to purchase a takaful product in his name. At that point in time of using the said cheque, he was already liable for breach of his fiduciary duty as an agent of the Plaintiff. In the Canadian case of Citadel General Assurance Co & Anor v Lloyds Bank Canada & Anor (1998) 3 LRC 389, the Supreme Court held that the principal-agent relationship between an insurance company and its agent was to create a trust in respect of the collection of premium. La Forest J has this to say (at p 398): “The arrangement in the present case was based on the collection of insurance premiums by the insurance agent, Drive On, and the remittance of these premiums, subject to adjustments, to the insurer, Citadel. The intent to create a trust clearly follows from this principal-agent relationship. The object of the trust is the insurer, Citadel. Finally, the insurance premiums constitute the subject matter of the trust. … [17] The intention of the parties in the present case was to create a trust relationship… … 23 [18] Having found that the relationship between Citadel and Drive On was one of trust, it is clear that Drive On’s actions were in breach of trust…” [29] In the premise, I am of the considered opinion that the defendant had acted in breach of fiduciary duty and trust when he abused the said cheque by using the same to buy a takaful product in his own name. Issue - that defendant had acted on instruction from a senior management officer of the plaintiff [30] The last issue is that if the defendant had committed an act of conversion, breach of Agency Agreement and/or breach of fiduciary duty and trust, the defendant’s defence is that he was acting upon an instruction given by a senior management of the plaintiff. [31] The evidence of the defence is that the said Cheque was given to the defendant by En. Azrin bin Ariffin (DW1), a former Assistant Vice President Corporate Agency of the Plaintiff. En. Azri has since been dismissed by the plaintiff. [32] The defendant said that he was directed by En. Azrin to make the single investment and this was confirmed by DW1. Therefore, the defendant submits that since he had acted on the instruction of En. Azrin, he has not committed an act of conversion. 24 [33] However, it must be noted that the owner of the said Cheque is SPWP and there is no evidence that SPWP had consented to its cheque being used for the defendant’s takaful contribution. In fact, in his evidence the defendant had admitted that he had used the said cheque for his own benefit: Kamu dapat cek SPWP. Kamu guna chek untuk kepentingan kamu sendiri beli single invest produk untuk kamu, Haris. Cek itu SPWP bayar ke MAA Takaful untuk Takaful contribution SPWP sendiri. Guna prosed itu untuk beli polisi untuk Haris, kamu sendiri. DW2: setuju. Tidakan kamu itu dalam bual-bual itu kamu tidak bertindak dalam kepentingan SPWP. Setuju? DW2: Setuju.” [34] Therefore, I find that based on the above admission, the defendant had converted the said Cheque for his own takaful contribution. The fact that some payments were channeled back to pay SPKP’s takaful contribution does not detract the fact that the defendant had committed the act of conversion of the cheque in the first place. [35] The defendant further submits that he had acted on the instruction of En. Azri, a former employee of the plaintiff. This is admitted by En. Azrin himself. 25 [36] However, it is also En. Azrin’s evidence that the plaintiff had no knowledge of the misappropriation and that the plaintiff only knew about this when En. Azrin affirmed an affidavit on 16.11.2016 for this case: Adakah Encik Haris ingat Encik Haris telah buat satu affidavit? Sorry. En. Azrin. Adakah kamu ingat kamu buat satu affidavit? Ya. Dalam affidavit itu kamu telah mengatakan kamu yang telah mengarahkan Defendan buat perkara ini. Ingat. Saya cadangkan adalah itulah kali pertama Plaintif dapat tahu penglibatan kamu dalam misappropriation cheque ini. Setuju, tak setuju? Setuju. (pg 221-222 NOP) …. Saya juga mencadangkan kepada kamu jikalau apa yang kamu katakana itu benarlah saya akan mencadangkan tidak benar. Jikalau benar pihak plaintif tidak mempunyai apa-apa pengetahuan 26 mengenai perbuatan kamu itu. Setuju, tak setuju? Ulang sekali, saya tak berapa faham. Saya mengata kalau jawapn kamu tadi jikalau benar saya cadangkan. YA: Kamu arahkan Defendan itu buat ‘single investment’ ini, Ok dia katakan Plaintif tak tahu mengenai perkara ini. Setuju kah tak setuju? Setuju, setuju.” (pg 229-230 NOP) [37] Therefore, the plaintiff had no knowledge of the misappropriation of the SPWP cheque by the defendant, as it was only within the knowledge of the defendant and En. Azrin. In fact, under cross examination, En. Azrin also agreed that his purported instruction to the defendant was issued without the consent of the plaintiff: Saya juga cadangkan bahawa arahan yang kamu telah dikatakan yang kamu kata sini telah mengarahkan Defendan, saya kata kalau benar kamu buat arahan tersebut, arahan tersebut tidak dibuat dengan kebenaran atau persetujuan Plaintif? 27 Tanpa kebenaran, setuju.” (pg 231-232 NOP) [38] Added to that, En. Azrin had also admitted that he had no authority to give instruction on the use of the plaintiff’s client’s cheque: Encik Azrin setuju dengan saya dalam masa, semasa Encik Azrin kerja untuk pihak Plaintif, masa tersebut, cek tersebut digunakan, kamu bekerja dalam bahagian korporat ejensi Plaintif? Setuju. Saya cadangkan kepada kamu sebagai pekerja dalam korporat ejensi Plaintif pada masa tersebut kamu tidak diberi sebarang kuasa untuk memberi arahan mengenai penggunaan cek yang telah dikeluarkan oleh sebarang klien Plaintif dan disini SPWP. Setuju, tak setuju? Ulang sekali. Sebagai seorang pekerja korporat ejensi Plaintif, saya cadangkan kamu tidak mempunyai kuasa untuk memberi sebarang arahan mengenai penggunaan cek yang telah dikeluarkan oleh klien Plaintif. Di sini SPWP. Setuju, tak setuju? Setuju.” (pg 230 NOP) 28 [39] In his evidence, En. Azri has also admitted that they were able to use the SPWP’s cheque due to the weakness in the plaintiff’s process: Keterangan kamu tadi, kamu kata: oleh kerana terdapat kelemahan dalam processing, kamu katakan 3 bulan. Oleh itu kamu telah menggunakan peluang ini untuk menggunakan cek tersebut yang telah dikeluarkan oleh SPWP. Setuju, tak setuju? Setuju.” (pg 218 NOP) [40] Therefore, I am of the considered opinion that both the defendant and En. Azrin had acted on the weakness in the plaintiff’s process by using the SPWP’s cheque without the consent and knowledge of SPWP and the plaintiff. As En. Azri has no authority over the use of third party cheques, then his purported instruction to the defendant amounts to a breach of his duties towards his employer, the plaintiff. Therefore, the purported instruction to the defendant to use SPWP’s cheque for the defendant’s takaful contribution does not in any way legitimize the defendant’s acts of conversion. [41] In Hollins v Fowler (1875) LR 7 HL 757, the court held that where a person who innocently obtains possession of goods of another, who in turn has been fraudulently deprived of them, and 29 subsequently disposes of them, whether for his benefit or otherwise, is guilty of conversion. [42] The principle in Hollins v Fowler was followed by our Court of Appeal in Development and Commercial Bank Berhad v Liew Weng Hang & Ors [2007] 6 CLJ 260, where the court held that even if the goods were obtained innocently, if the owners have been deprived of them and that the goods were used other than the owner’s benefits, this amounts to conversion: “In the first place it is important to bear in mind the nature of the causes of action that the plaintiff's relied upon. One of them is the tort of conversion. It is a tort of strict liability. Lord Chelmsford defined it as follows in Hollins v Fowler [1875] LR 7 HL 757 : Any person who, however innocently, obtains possession of the goods of a person who has been fraudulently deprived of them, and disposes of then, whether for his own benefit or that of any other person, is guilty of a conversion. It follows that mistake of law and, generally speaking, mistake of fact will not afford a defence to the tort. In Hollins v Fowler, Blackburn J when delivering his judgment in the Court of Exchequer said: 30 However hard it may be on those who deal innocently and in the ordinary course of business with a person in possession of goods, yet, as long as the law as laid down in Hardman v Booth 1 H & C 803, is unimpeached, I think it is clear law, that if there has been what amounts in law to a conversion of the plaintiff's goods, by any one, however innocent, that person must pay the value of the goods to the real owners, the plaintiff's…” (emphasis added) [43] In any event, the defendant has admitted under cross examination that his action in using SPWP’s cheque is not in the interest of SPWP and that he has used the said cheque for his own benefits. [44] In the premises, I am of the considered opinion that the plaintiff has proven its case on the balance of probabilities against the defendant. [45] On the issue of damages, I accepted the evidence of PW1, a Chartered Accountant who was in charge of the forensic investigation into the misappropriation of the SPWP cheque. PW1 had given evidence that the plaintiff has suffered the minimum losses of RM689,891.25, which comprises of the following: