DALAM MAHKAMAH
PERSEKUTUAN
(BIDANG KUASA
RAYUAN)
RAYUAN
SIVIL N0: 02 – 9-2005 (W)
Antara
Malayan
Banking Berhad … Perayu
Dan
Basarudin Bin
Ahmad Khan … Responden
Dalam Perkara
Mahkamah Rayuan
Bidang Kuasa
Rayuan
Rayuan Sivil No:
W–02–59-2002
Antara
Malayan Banking Berhad … Perayu
Dan
Basarudin B. Ahmad
Khan … Responden
Dalam Perkara Mengenai Guaman No. S1-22-46-1995
dalam Mahkamah Tinggi Malaya di Kuala Lumpur
Antara
Malayan Banking Berhad … Plaintiff
Dan
Basarudin b. Ahmad
Khan … Defendan
Coram: Richard Malanjum, CJSS
Arifin bin Zakaria, FCJ
Nik
Hashim bin Nik Ab. Rahman, FCJ
This is an appeal pursuant to the
leave granted by this court on three questions of law which read as follows:
a) In a contract that contains a promise by a
party (the promisor) to indemnify the other party (the promisee) for loss if
there is a breach of the contract by the promisor, whether the promisee has a
right to sue the promisor either for breach of contract or on the indemnity, if
there is breach of the contract by the promisor. (“First Question”)
b) Where loss is an ingredient of a cause of
action but the parties have agreed, with the concurrence of the trial judge, to
try only the issue of liability first-
i) Whether having agreed that the trial is
only to determine liability first, a party is precluded from subsequently
saying that liability has not been established as loss has not been proved. (“Second
Question”)
ii) Whether
proof that loss has been sustained without proof of the actual amount of the
loss is sufficient for the purpose of completing the cause of action. (“Third
Question”)
Before proceeding to consider the
questions posed to us, it is necessary to state in brief the facts of the case.
The Facts
The appellant is a bank. The
respondent was in the employment of the appellant. At all material time he was
the Branch Manager of the Tanah Merah branch of the appellant. On joining the appellant
the respondent executed the Employee’s Service Agreement dated 16th
June 1979 (“the service agreement”), the pertinent part of which reads as
follows:
“I ….. hereby agree that I will,
during all the time that I continue in the employment of the Bank in any
capacity, faithfully, diligently and carefully attend to the business of the
bank, and to the best of my skill and
ability perform all duties which may be required of me, and observe and
execute all such instructions or regulations as have been or may be given to me
from time to time by any one in the employment of the Bank who may be set over
me… that I will on demand pay and make
good to the Bank the amount of all loss, damage and expense which may be
sustained or incurred by the Bank by or through the non-fulfilment of any of
the obligations hereinbefore contained, or by or through any act, neglect or
default done, permitted or suffered by me at any time while I continue in the
employment of the Bank”. (emphasis
added)
The respondent served as Branch
Manager of the appellant’s Tanah Merah branch (“the branch”) from 27th
March 1989 to 2nd August 1991. In his capacity as Branch Manager the
respondent approved banking facilities to numerous borrowers. On 3rd
November 1992, an internal audit was carried out at the branch. Following which
a report was prepared. The report disclosed that the respondent had been guilty
of several breaches of his contractual duties. Disciplinary action was
subsequently taken against him, culminating in his dismissal with effect from 1st
September 1994. The appellant then commenced this action against the respondent.
The Claim
The claim is premised on the alleged
breaches of duty committed by the respondent which may be summarized as
follows:
1. The respondent had approved and
granted loans to 4 joint applicants who were not immediate family members
contrary to the standard practice instructions of the bank;
2. The respondent failed to reduce the
credit limit of 2 borrowers (M.M.Timur Trading
and Sy. Pemborong Ekonomi) after each repayment in respect of the overdraft
facilities granted to the two borrowers, contrary to the condition imposed by
the appellant; and
3. The respondent breached his implied
contractual duty of care and skill by grossly overvaluing properties pledged as
collaterals for loans given to 12 borrowers.
In the statement of claim the
plaintiff alleged that by reason of the breaches of duty, his incompetence and
negligence the appellant has suffered loss and damage and had been put to expense
which up to 31st March 1995 is estimated to be RM1,583,616.62.
Consequently the appellant claims the said sum and other damages together with
interest and costs.
The Finding of The High Court
The learned judge of the High Court
agreed with the submission of counsel for the appellant that the respondent had
been in breach of the implied term of the contract in failing to carry out his
duties with proper care and skill. However,
he held that being a claim in indemnity, it is incumbent for the appellant to prove
its losses, which it failed to do. In the
circumstances the plaintiff’s claim was dismissed.
The Finding of The Court of Appeal
The Court of Appeal in a majority
decision of two to one dismissed the appellant’s appeal. However, in coming to
its decision the Court of Appeal disagreed with the learned judge of the High Court
on the invocation of an implied term into the contract requiring the respondent
to carry out his duties as employee of the appellant with proper care and
skill. This is found in the following passage of the judgment of the Court of Appeal
-
‘7.
The relationship between an employer and employee being contractual, it
is subject to the general principles governing the implication of a term in a
contract. One such principle is that a
term will not be implied if there is no necessity to do so. And the test of necessity is not met where
the contract already contains a clear express stipulation to the same effect as
that sought to be implied. As Gibbs J
said when delivering the judgment of the British Columbia Court of Appeal in Vic Van Isle Construction Ltd. v. School
District No. 23 (Central Okanagan) 69 ACWS (3d) 1051:
“There is a constant theme running
through implied term cases and that is that a term will not be implied in the absence
of necessity being shown. For a
discussion of the necessity factor see p. 429 et. seq. of Canadian Pacific Hotels v. Bank of
8. In
the present instance, there is an express promise in terms of the one which the
plaintiff seeks to have implied. Here,
the defendant has expressly promised that he will – to quote from the contract
in this case – “to the best of my skill and ability perform all duties which
may be required of me”. There is
therefore no necessity to imply a term to the identical effect. For, it is a principle of great antiquity
that a court will not act in vain. It is
therefore my judgment that the submission of learned counsel for the plaintiff
on this point is without merit. With
that I now turn to the principal issue in this case.’
In short the Court held that the
relevant terms binding on the parties are that as expressly provided in the
service agreement and there is no room for any implied term as contended by
learned counsel for the appellant. Based on the agreement the Court of Appeal
held that the appellant is only entitled to a right in indemnity as provided
under the agreement. Being a claim in indemnity the court held that “…. it was
imperative for the plaintiff bank to prove that it suffered the losses in the
pleaded case. That is what the learned judge held: and I am in agreement with
him. It is common ground that the plaintiff did not prove its case.”
The Appeal
We will now consider the first
question posed to us in this appeal. The issue as put by the appellant is
whether the appellant in this case is only confined to suing on indemnity
because the agreement contains an indemnity clause, or does the appellant have
a choice to sue for either breach of contract or, on the indemnity. The learned
counsel for the appellant submitted that it has such a choice. It is also the
appellant’s contention that at common law, the right of a contracting party to
claim damages for breach of contract may only be excluded by express or implied
terms of the contract.
It is settled law that a contract may
give rise to several distinct causes of action. (See Telfar Shipping Corporation v Inersea Carriers S.A. [1983] 2
Lloyd’s Rep. 351.) The right to sue for damages for breach of contract is a
distinct cause of action to that of right to sue for indemnity provided that
the agreement or arrangement entered into is one of a contractual relationship
as ordinarily understood in law and not a contract of indemnity
simpliciter. It is therefore a matter of
construction on the nature of the relationship created in the first place. This is clearly recognized by the authorities
cited to us. Take the case of Birmingham
and District Land Company v London and North Western Railway Company [1886]
34 Ch D 261. There at pg. 274 Bowen LJ stated the position as follows:
“But it is quite clear to my mind
that a right to damages, which is all that the Defendants have here if they are
entitled to anything, is not a right to indemnity as such. It is the converse of such a right. A right to indemnity as such is given by the
original bargain between the parties.
The right to damages is given in consequence of the breach of the
original contract between the parties. It is an incident which the law attaches to
the breach of a contract and is not a provision of the contract itself.” (emphasis added)
Fry LJ in the same case at pg. 276
observed as follows:
“Now in my view the word ‘indemnity’
in the rule which we have now to construe, means to express a direct right
either at law or in equity to indemnity as such, and I think that this right
has to be contrasted, and not to be confounded, with the right to damages which
arises either from a breach of contract or from tort. A breach of contract gives rise, or may give
rise, to a right to damages, but those damages are not the subject of the
contract. They arise from the breach of
the contract, and therefore they are in no sense the subject of the contract
itself… It is the common law right which everybody has to damages for a wrong
which has been done to him. Therefore
the right to such damages is not a right to indemnity, although when you come
to ascertain what the measure of damages is, it may be that indemnity will
properly express that measure of damages.” (emphasis added)
The Indian case of Krishnaswami Iyer v Thathia Raghaviah Chetty
and Others AIR 1928
“Now in the case of contracts, right
to indemnity must be carefully distinguished from right to damages. A right to indemnity is given by the original
contract, whereas a right to damages arises in consequence of the breach of
that contract. These two rights are
confounded and one reason for the confusion is, that when a contract is broken,
indemnity is often found to coincide with the measure of damages. In these cases, whether the right is called
right to indemnity or right to damages, practically the same result follows,
and it is forgotten that these two words express two fundamentally different
legal ideas.”
This very point was given recognition
by the Court of Appeal. This is plain from the judgment of the Court but the Court
was of the view that the parties’ rights are governed by the service agreement
and as such the appellant is only entitled to claim for indemnity and not for
damages.
The law on damages has moved a long
way since the decision of the House of Lords in Attorney–General v Blake [2001] A.C. 268. But that is not our
concern here. The traditional view is that damages for a breach of contract
committed by the defendant are compensation to the claimant for the damage,
loss or injury suffered through that breach. (See Chitty On Contracts Vol. 1 29th
Ed. Para. 26-001.) This is the common
law right arising from the breach of a contract and it is not the subject of
the contract. In other words it need not be provided for in the contract. (See
the judgment of Fry LJ in Birmingham and
District Land Company v London and North Western Railway Company (supra).) This right is contained in s.74(1) of the
Contracts Act 1950 which reads:
“S.74(1) 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.”
By contrast indemnity is a right
which has to be provided for in the original bargain between the parties. It is a formal legal acceptance of
responsibility for damage or loss. Indemnity
springs from contract express or implied.
(See P. Ramanatha Aiyur’s The Law Lexicon 2nd Ed.) As stated earlier indemnity and damages as
incidence to breach of contract or tortious act are not synonymous but
distinct. On the above analysis, therefore,
the fact that the agreement provides for indemnity, that alone, in the absence
of any express or implied term in the agreement taking away the appellant’s
right for damages, in our view, would not prevent the appellant from making a
claim for damages for breach of contract. In short the indemnity clause as
contained in the service agreement in the present case does not take away the
right of action for damages for breach of contract: the s.74 (1) right. Our
view found support in the Singapore Court of Appeal case of Management Corporation Strata Title Plan No
1933 v Liang Huat Aluminium Ltd [2001] 3 SLR 253.
In that case the claim by the
appellant was for breach of contract under a deed called “Indemnity For
Aluminium & Glazing Works”. The High Court dismissed the claim on the
ground that the claim under the deed was one for an indemnity and such claim
had not arisen, and that on the construction of the terms of the deed the
appellant was not entitled to claim damages for breach of contract. On appeal,
the decision of the High Court was reversed by the Court of Appeal. The
decision in that case turns essentially on the construction of clause 4 of the
deed which reads as follows:
“Should the Contractor or the
Sub-Contractor fail to perform their obligations under Clauses 2 and 3 above
within the time directed by the Employer or in the absence of such direction,
within a reasonable period, the Employer shall [sic] entitled to remedy the
said defects and the Contractor and the Sub-Contractor shall forthwith on
demand reimburse the Employer all costs and expenses incurred by the Employer
for making good the said defects including all legal costs on a Solicitor and Client
basis incurred by the Employer in enforcing this Clause.”
LP Thean JA in delivering the
majority judgment stated as follows:
“Now, that being the provision of cl 4
and construing cll 2, 3 and 4 together, the crucial question is: has cl 4, by its express terms or by necessary
implication, taken away the right, which the MC has at law, namely, the right
of action for damages for breach of contract? The answer is clearly a
resounding ‘No’. There is nothing in cl
4, expressly or impliedly, which suggests that such a right of the MC has been
taken away.
20 In P & M Kaye v Hosier & Dickinson [1972] 1 All ER 121 at 139;
[1972] 1 WLR 146 at 165-166, Lord Diplock, in discussing the question of a
building owner recovering consequential loss or damage arising from the
contractor’s breach of contract in respect of defects in workmanship or
materials, said:
‘ At
common law a party to a contract is entitled to recover from the other party
consequential damage of this kind resulting from that other party’s breach of
the contract, unless by the terms of the contract itself he has agreed that
such damage shall not be recoverable. In
the absence of express words in the contract a Court should hesitate to hold
that a party had surrendered any of his common law rights to damages for its
breach, although it is not impossible for this to be a necessary implication
from other provisions of the contract.’
His
Lordship then continued:
‘ I
can read no such necessary implication into cl 15 or any other clause of the
RIBA contract … the contractor is under an obligation to remedy the defects in
accordance with the architect’s instructions.
If he does not do so, the employer can recover as damages the cost of
remedying the defects, even though this cost is greater than the diminution in
value of the works as a result of the unremedied defects.
But there are no express
words in cl 15 which deal with consequential damage at all, notwithstanding
that the clause is dealing with breaches of contract, ie ‘materials or
workmanship not in accordance with this Contract’, discovered in circumstances
in which it could be foreseen they would be likely to cause some consequential
damage beyond that which is capable of mitigation by remedying the defects. I can see nothing in the provisions of cl 15
to which I have referred to give rise to any necessary implication that the
employer was surrendering his right at common law to recover damages for any
consequential loss sustained by him as a result of latent defects discovered
during the defects liability period.’
At pg. 264 he continued:
“We find further support in the
following passage in Vol 1 of Hudson’s Building and Engineering Contracts (11th
Ed) at ¶5-053:
‘ It
is always a question of construction whether the rights under the maintenance
clause are intended to supplant the right to damages at common law
altogether. In the absence of express
provision, the remedies under these clauses are in addition to and not in
substitution for the common law rights, and even where the defects have
appeared within the period the owner may sue for damages rather than call on
the contractor to do the work, subject, in that event, to the possibility of
the owner’s damages being limited, if he has acted unreasonably in the light of
the discussion in the preceding paragraphs, to the cost to the contractor of
doing the work at that time, rather than the possibly greater cost of bringing
in another contractor either then or at a later date.’
In our judgment, the MC has a right
of action against Liang Huat for damages for breach of contract and this right
has not been taken away by cl 4 of the deed.
We therefore allow the appeal with costs here and below, and set aside
the judgment below. We enter
interlocutory judgment in favour of the MC with damages to be assessed and
award interest on the damages so assessed at the rate of 6% pa from the date of
the writ to the date of final judgment.
The deposit in court as security for costs, with interest, if any, is to
be refunded to the MC or its solicitors.”
It is true the Management Corporation
case and the cases referred to therein are building contract cases, but we are
of the view that the same principle would apply to contract of employment cases.
On contractual duty of an employee, in
Lister v Romford Ice and Cold Storage Co
Ltd [1957] AC 555, Viscount Simonds at pg. 573 observed:
“But, in deference to Denning L.J., I
think it right to say that I concur in what I understand to be the unanimous
opinion of your Lordships that the servant owes a contractual duty of care to
his master, and that the breach of that duty founds an action for damages for
breach of contract, and that this (apart from any defence) is such a case. It is trite law that a single act of
negligence may give rise to claim either in tort or for breach of a term
express or implied in a contract. Of
this the negligence of a servant in performance of his duty is a clear
example.”
And at page
579 he added:
“The common law demands that the
servant should exercise his proper skill and care in the performance of his
duty : the graver the consequences of any dereliction, the more important it is
that the sanction which the law imposes should be maintained. That sanction is that he should be liable in
damages to his master : other sanctions there may be, dismissal perhaps and
loss of character and difficulty of getting fresh employment, but an action for
damages, whether for tort or for breach of contract, has, even if rarely used,
for centuries been available to the master, and now to grant the servant
immunity from such an action would tend to create a feeling of irresponsibility
in a class of persons from whom, perhaps more than any other, constant
vigilance is owed to the community. This
was, I think, an aspect of the case which made a special appeal to Romer
L.J. It cannot be disregarded.”
Similarly in Janata Bank v Ahmed [1981] IRLR 457 following Lister v Romford the Court of Appeal held that an employer is
entitled to claim against an employee for damages for negligence in the course
of his work. The court rejected the contention of the employee that the only
duty implied by law in a contract of employment is a duty to indemnify the
employer in respect of the employer’s tortious liability to a third party
caused by the employee’s negligence.
Reverting to the present case, we
agree with the appellant that there is no express or implied term in the
agreement excluding the appellant’s right to damages for breach of contract. We would go so far to say that upon close
scrutiny of the service agreement we are of the view that it is not a contract
of indemnity per se, rather it is a contract of employment setting out the
contractual duties and obligations of the respondent as an employee of the
appellant with an indemnity clause added as an alternative remedy. In the circumstances, we agree with the
appellant’s submission that the respondent as employee of the appellant owes a
contractual duty of care to the appellant and breach of that duty would render
him liable to the appellant in damages for breach of contract. This is the
common law right of the appellant as the employer. This right cannot be taken
away without express or implied term in the contract. We find no such term in the service agreement in
the present case.
The Statement of Claim
The learned counsel for the
respondent further contended that the claim is based wholly on the service
agreement which is a complete agreement. As such there is no room for
implication of further term. He
submitted, the service agreement is the foundation of the appellant’s claim.
Let us now consider the statement of
claim filed herein. Shorn off the formal part, the material part of the claim
are essentially as follows. Paragraph 3
of the claim sets out the material terms of the service agreement. The
respondent’s duties and obligations under the service agreement and his common
law duty of care are adverted to in paragraphs 4 to 6 of the statement of
claim. The particulars of the
respondent’s breaches are housed in paragraphs 7 and 8 of the claim. The consequences of the breaches are set out
in paragraph 9. This is followed by the
estimated loss as of 31.3.1995. The
appellant prayed for, inter alia: (a) estimated loss of RM1,583,616.62 and (b)
damages, and followed by the usual prayers for interest and costs. It should be noted that there is no prayer for
indemnity.
Thus from the general tenor of the
claim we agree with the observation of Abdul Aziz Mohamad JCA (as he then was) in
his judgment that the claim in this case “…was framed as a claim for breach of
contract and not as a claim of right to indemnity.”
It is true that the statement of
claim does refer to the service agreement, which contains an indemnity clause,
but that in our view does not turn it into a claim in indemnity as urged upon
us by the respondent. Reference to the service agreement is in the
circumstances necessary in order to establish that at the material time the
respondent was in the employment of the appellant. Having scrutinized the claim
we are not persuaded that the claim is one of indemnity rather than for damages
for breach of contract. At the risk of repetition,
we must say that in the absence of express or implied term in the service
agreement excluding the appellant’s right to damages for breach of contract, the
appellant in our view is entitled to claim for damages arising from breach of any
express or implied term of the service agreement. We are satisfied that there
is no such exclusionary term in the service agreement.
The authorities referred to us by the
respondent such as Montagu Stanley And
Company v J.C. Solomon, Limited [1932] 2 KB 287 and the case of R. & H. Green & Silley Weir Ltd. v
British Railways Board [1985] to cite just a few, are strictly cases
involving indemnity claim and are of no direct relevance to the issues before
us. Similarly we think the case Loh Wai
Lian v S.E.A. Housing Corporation Sdn. Bhd. [1987] 2 M.L.J. 1, could not
assist the respondent’s case either. In that case the Privy Council held, inter
alia, that on its proper construction clause 17 of the agreement imposes an
obligation on the respondent housing developer to pay in substitution for any
other right to damages which the purchaser might have, a single sum to be
calculated and ascertained at a particular date and until that sum has been
ascertained it does not become due and cannot be sued upon. That case is no
authority for the proposition that damages is not recoverable for breach of a
contract where the agreement contains an indemnity clause. The case turns on
the issue when does the cause of action accrue on the facts of that case. Was
it at the end of the 18 calender months from the date of the agreement or on
the date of actual completion and delivery of possession of the building, the
subject matter of the agreement. On the proper construction of clause 17 the
Privy Council held that the cause of action accrued on the latter date.
The Trial before the High Court
It is common ground that by consent
of parties the trial before the learned High Court Judge proceeded on the issue
of liability alone, subject to assessment of damage. This is sometimes referred
to as the split trial procedure. This procedure is often resorted to in actions
for damages for negligence in respect of damage to persons or property. However
as stated by the House of Lords in
Yorkshire Electricity Board v British Telecommunications plc and others
[1986] 2 All ER 961, “… in any such case the plaintiff who obtains such a
judgment is already entitled to recover damages and if the court were asked to
quantify those damages it could always do so immediately even though this would
involve looking at the future as well as the past and estimating the effect of
future contingencies.” The House of
Lords deemed it unacceptable the concept of a judgment finally determining
liability in favour of a plaintiff who may in the event be entitled to nothing.
In the present case, it was not the
respondent’s case that the appellant had not incurred any loss at the material
time and would not be able to quantify its loss if required to do so. As a
matter of fact the appellant in its claim had estimated its loss as at 31. 3.
1995 being over RM1.5 million. Therefore it could not be gainsaid that the appellant
had not incurred any loss as at the date of trial. The question whether it can
prove its loss is left to be seen at the assessment of damage stage.
Based on the above, it is our finding
that the claim in the present case is one for damages for breach of contract
and not a claim for indemnity contrary to the finding of the trial court and
the majority judgment of the Court of Appeal.
In the circumstances, we agree with the minority judgment of the Court
of Appeal that judgment be entered in favour of the appellant on liability and damages
to be assessed. Accordingly we direct that
this case be remitted to the High Court for assessment of damages by the
Registrar.
The Result
On the above premise we would answer
the first question in the positive, and in the circumstances, we do not think
it is necessary for us to answer the other two remaining questions. Accordingly, the appeal herein is allowed
with costs here and in the courts below and the deposit be refunded to the
appellant.
Dated: 7th Disember 2006
( DATO’ ARIFIN BIN ZAKARIA )
Federal Court Judge
Date
of Hearing: 19 July 2006
Date
of Decision: 7th Disember 2006
Counsel for Appellant: Lambert Rasa-Ratnam/
Sean H. M. Yeow
Solicitors for Appellant: Tetuan Lee Hishamuddin Allen
& Gledhill
Tingkat 16, Menara Asia
Life
189 Jalan Tun Razak
50400
Tel: 03-21612330
Fax: 03-21613933
(Ruj: YHM/LR/3310/95)
Counsel for Respondent: Tuan Hj. Sulaiman b. Abdullah/
V. Manoharan & M.
Rajenthirakumar
Solicitors for Respondent: Tetuan Kumar
Associates
No. 5, Jalan Maran
Off Jalan Kuantan
Titiwangsa
53200
Tel: 03-40234934
Fax: 03-40234954
(Ruj: KA/1/109/ 99)