ABD GHANI GOLAMDIN v UNIVERSITI UTARA MALAYSIA & ORS [2023] 6 MLJ 1

Federal Court

Breach of Contract

1.      The Appellant worked as “Pengarah Pusat Komputer” at Universiti Utara Malaysia (the First Respondent) and played a major role in developing the Information and Technology (‘ICT’) system in such university.

2.      Due to his expertise in ICT, in February 2002 he was seconded to Uniutama Management Holdings Sdn Bhd (the Second Respondent) which was wholly owned by the First Respondent and the Appellant received his usual salary and allowance from the First Respondent as well as special allowance as seconded staff from the Second Respondent.

3.      Later in October 2002, the Appellant’s secondment at the Second Respondent ended and the Appellant was subsequently seconded to Uniutama Solution Sdn Bhd (the Third Respondent), a company wholly owned by the Second Respondent as its Managing Director in which he had received a ‘one off’ allowance twice apart from his special allowance and bonus until his period of secondment ended in December 2002.

4.      However, in December 2014 the Appellant sued the Respondents for breach of contract and claimed a total sum of RM 15,629,926.09 for what to be contended as the sum for arrears of salary, compensation, commission and bonus.

5.      The Appellant’s cause of action was on the ground that the Respondents had breached the oral agreement that was purported to be made in 2002 and the same had been reduced to a written form vide exhibit P22 in 2004 promising the Appellant for additional remuneration during his secondment period.

6.      However, the Respondents denied the existence of both oral and written agreement.

7.      This appeal was against the Court of Appeal’s decision which upheld the decision of the High Court in dismissing the Appellant’s claim.

1.   Whether the authenticity and validity of an agreement can be
challenged in the absence of any vitiating factors such as fraud,
forgery, misrepresentation or conspiracy to defraud?

2.  Whether an agreement which had been properly adduced as
evident in accordance to Section 91 and Section 92 of the
Evidence Act 1950 (Act 56) can be challenged on the basis that
such agreement does not exist thus unenforceable?

1.  Whether the authenticity and validity of an agreement can be challenged in the absence of any vitiating factors such as fraud, forgery, misrepresentation or conspiracy to defraud?

(a)     To consider a contract as a valid contract, it is essential that
it can be enforced by law specifically under the Contracts Act
1950 (Act 136). Section 2 (e) of Act 136 provides that –

“2. (e) every promise and every set of promises, forming
the consideration for each other, is an agreement.”

(b)   In determining the essential elements of a valid contract,
there must be an offer, acceptance, consideration and parties’ consent and intention to enter into a contract. However, for agreement that is made on behalf of the corporations, two important issues that must be taken into consideration are –

(i)      Whether the parties have due authority to enter into the
agreement;

(ii)     Whether internal procedures such as Board approvals or
resolutions have been obtained;

(iii)   If the answer to the second question is negative, whether the
Turquand rule would apply as a safeguard to the agreement.

(c)  In this present case, the Court held that the written agreement that was admitted as exhibit P22 was not authentic not because of the existence of any vitiating factors but because it did not fulfil the first and second element required where there is an absence of authority as well as non-compliance with the internal procedures of the Respondent’s companies.

(d)  The application of Turquand rule was raised by the Appellant. The concept of Turquand rule is derived from the case of Royal British Bank v Tuquand [1856] 6 E&B 327, a landmark company law case that established this rule to protect the right of bona fide third parties who enter into transactions with a company, allowing them to be entitled to assume that the internal procedures of the company have been complied and fulfilled.

(e)  However, In order to invoke Turquand’s Rule, the law imposes a minimum duty upon an “outsider’ to perform the necessary checks for example by carrying out a company search to ensure that the person we are dealing with has the authority to enter into such transaction.

(f)     In this present case the Court held that such rule did not apply since the Appellant was not an outsider.  In fact, he was an insider as he was the Managing Director of the said institution for seven years.

2.            Whether the validity of an agreement which had been properly adduced as evident in accordance to Section 91 and Section 92 of the Evidence Act 1950 (Act 56) can be challenged on the basis that such agreement does not exist thus unenforceable?

(a)  The general rule of the parol evidence rule in which when
there is a contract, any other evidences which are not stated in
the written contract are not acceptable to be brought into the
court if there is any breach of terms of contract. Section 91 of
the Evidence Act 1950 (Act 56) provides that –

“When the terms of a contract or of a grant or any other disposition of property have been reduced by or by consent of the parties to the form of a document, and in all cases which any matter is required by law to be reduced to the form of a document, no evidence shall be given in proof of the terms of the contract, grant or other disposition of property or of the matter except the document itself, or secondary evidence of its contents in cases in which secondary evidence is admissible under the provisions hereinbefore contained.”.

(b)  But in a case where one is entering a contract with a company, Turquand rule may apply where a person contracting with a company in good faith is entitled to assume that the internal requirements and procedures have been complied with.

(c)  Meanwhile Section 92 of the Act 56 provides that when a contract is in the form of written document, no evidence of any oral statement shall be admitted to contradict, vary, add or deduct from the said written contract unless it falls under the exceptions provided under this section. In Section 92 of the Act 56, it is stated that-

“92. When the terms of any such contract, grant or other disposition of property, or any matter required by law to be reduced to the form of a document, have been proved according to Section 91, no evidence of any oral agreement or statement shall be admitted as between the parties to any such instrument or their representatives in interest for the purpose of contradicting, varying, adding to, or subtracting from its terms.”.

(d)  However, it is important to note that Section 92 of the Act 56 only excludes oral evidence in the event one is trying to contradict the terms of the agreement, not when the existence and validity of the agreement is in question.

(e)  In this present case, the Respondents did not argue to contradict the terms of the agreement but in fact, they denied the existence of the said agreement as it was never in their knowledge thus no authorization had been given by the Respondents. Therefore, Section 92 of the Act 56 did not apply in this case.

(f)     Although the said agreement was admitted and marked as exhibit by the learned trial judge in High Court, the document was later found to be an afterthought and it is not an authentic agreement due to the absence of authority as well as non-compliance with internal procedures of the respective Respondent companies.

1.      In general, oral agreement has legal effect and is enforceable as long as the legal requirements are fulfilled which are offer, acceptance, consideration and capacity. Such agreement is enforced by law and binding upon the parties although it was not reduced into writing.

2.      However, there is a situation where oral agreement shall not be admitted especially in the event where the purpose is to contradict, vary, add or subtract from the terms of the written contract.

3.      This is because every written contract is protected under the parol evidence rule where this rule excludes any evidence that does not appear in the written agreement. The rationale behind the rule is to deter untruthful attack on contracts between parties.

4.      The same goes to the situation when someone is making a contract with a company. In reality, many people when dealing with companies do not routinely conduct background checks on the company. Hence, an outsider who did not have actual knowledge or means of discovering that the irregularities had taken place in the internal management could rely on the Turquand rule as it protects from being harmed and affected by a company’s non-compliance with the internal formality and requirements.