MALAYSIAN LEGAL SYSTEM, LAW OF EMPLOYMENT, LAW OF AGENCY, LAW OF PARTNERSHIP AND

SEPARATE LEGAL ENTITY

PROGRESS TEST [2] QUESTIONS

JUNE 2009 QUESTION 1

1 In relation to the Malaysian legal system:
(a) Define the concept of human rights with reference to the Human Rights Commission of Malaysia
Act 1999; and (2 marks)
(b) Explain any FOUR provisions which protect human rights as enshrined in the Federal Constitution.
(8 marks)
(10 marks)

JUNE 2008 QUESTION 1

2 In the context of the Malaysian legal system:
(a) Explain how the doctrine of judicial precedent operates. (8 marks)
(b) State TWO advantages of the doctrine of judicial precedent. (2 marks)
(10 marks)

DEC 2011 QUESTION 3

3 In relation to employment law:
(a) Explain and distinguish between a contract of service and a contract for services; and
(4 marks)
(b) Discuss the tests applied by the courts to determine the existence of a contract of service.
(6 marks)
(10 marks)
DECEMBER 2007 QUESTION 2
4 In relation to employment law:
(a) Distinguish between a lay-off and a redundancy. (3 marks)
(b) State, with reference to relevant legislation, the situations in which an employee may be said to have
been:
(i) laid-off; and
(ii) made redundant. (7 marks)
(10 marks)

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JUNE 2010 QUESTION 3
5. In relation to the law of agency explain the following types of authority of an agent:
(a) Actual authority; and (5 marks)
(b) Ostensible authority. (5 marks)
(10 marks)

JUNE 2009 QUESTION 5

6. In the context of the law of agency:
(a) Explain how an agency by ratification may arise; and (2 marks)
(b) State the requirements that have to be fulfilled in order for an agency by ratification to arise.
(8 marks)
(10 marks)

JUNE 2007 QUESTION 3

7. With reference to the Partnership Act 1961, explain the extent to which a person, who is not a
partner, can be made liable as a partner. (10 marks)

DECEMBER 2008 QUESTION 3

8. Explain, and illustrate with examples, FIVE grounds on which a court may order the dissolution of a
partnership under the Partnership Act 1961.

(10 marks)
DECEMBER 2007 QUESTION 4
9. In relation to company law:
(a) State the main differences between a non-exempt private limited company and an exempt private
limited company. (6 marks)
(b) Define a wholly-owned subsidiary. (4 marks)
(10 marks)

JUNE 2009 QUESTION 8

10(a) Two months ago, Chitto, who owned a durian orchard, agreed to sell it to Mikko for RM300,000.
The transfer of the orchard was to be completed by the end of next month. Last week, Chitto,
discovered that other orchard lands in the vicinity of his orchard were fetching much higher prices and
changed his mind about selling the orchard to Mikko. He proceeded to set up a company, Teepu Sdn

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Bhd (the company), of which he was the majority shareholder and managing director. His wife, who is
also a director, is the only other shareholder of the company.
He then transferred the orchard to the company. He then informed Mikko that he will not be able to
proceed with the sale of the property to her as it has been sold to a third party, i.e. the company, but that
he is prepared to pay damages for breach of contract.
Mikko wishes to sue both Chitto and Teepu Sdn Bhd for specific performance of the contract of sale of
the orchard.
Required:

Advise Mikko whether she will be successful in her claim for specific performance. (You are required to
confine your answer to issues relating to company law.) (4 marks)

(b) Downhill Sdn Bhd (the company) has gone into insolvent liquidation. Its liabilities far exceed its
assets.
You are required to advise the liquidator in respect of each of the situations below:
(i) The company had been formed in 2005 with three members, Abu, Baloo and Chong. Nazeem was
appointed as the manager of the company. In January 2006 Baloo transferred his shares to Abu and left
the company. In January 2008 Chongs shares were registered in Abus name when he surrendered his
shares and migrated to Canada. Since then the company had continued to operate with Abu as the sole
member under the management of Nazeem even though the company incurred heavy debts.
Required:
Advise the liquidator whether Abu could be held personally liable for all or any part of the debts of the
company. (3 marks)

(ii) In September 2008, Nazeem issued a cheque on behalf of the company in favour of Samy, a supplier
of goods, as payment for goods sold to the company. Unfortunately, the name of the company was not
correctly stated on the cheque and the bank has refused to honour it.
Required:
Advise the liquidator whether Nazeem could be made personally liable for the amount owed to Samy.
(3 marks)

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ANSWERS
June 2009

1 This question on the Malaysian legal system tests the candidates knowledge of the concept of
HUMAN RIGHTS as well as the provisions in the FEDERAL CONSTITUTION which protect such rights.

(a) Human rights may be defined as the basic rights that all human beings are entitled to enjoy.
SECTION 2 OF THE HUMAN RIGHTS COMMISSION OF MALAYSIA ACT 1999 defines human rights to
mean the fundamental liberties provided for under the Federal Constitution of Malaysia.

(b) The provisions of the Federal Constitution which protect human rights are the FUNDAMENTAL
LIBERTIES stated in Part II. These are listed and explained below:

1. NO PERSON MAY BE DEPRIVED OF HIS LIFE OR PERSONAL LIBERTY EXCEPT IN ACCORDANCE WITH
THE LAW.

By this provision, individuals are protected from being unlawfully imprisoned or put to death. An
individual who is unlawfully detained, may obtain an order of the court through a writ of habeas
corpus. This is an order of the court requiring that he be lawfully charged in court or be released.
However, this right is not absolute. A person may still be deprived of his life or liberty in accordance
with the law. Thus the Internal Security Act 1960, which was passed under powers conferred by
Art.149 of the Constitution permits, among other things, preventive detention.

2. NO PERSON MAY BE SUBJECT TO SLAVERY OR FORCED LABOUR.

The constitution recognises that individuals should not be regarded as the property of others and thus
bans all forms of slavery and forced labour. However, this right of the individual is given subject to the
paramount interest of the nation. Thus, Parliament may make laws providing for compulsory national
service.

3. NO PERSON CAN BE PUNISHED UNDER A LAW WHICH WAS NOT IN FORCE WHEN THE ALLEGED CRIME
WAS COMMITTED. This protects the individual from being charged with a crime that was not
recognised as a crime at the time the alleged wrongful act was done. Thus, laws against crimes cannot
be passed with retrospective effect.

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4. A PERSON CANNOT BE TRIED MORE THAN ONCE FOR THE SAME CRIME OF WHICH HE HAS ALREADY
BEEN ACQUITTED OR CONVICTED EARLIER. This right recognises that an individual should not be
placed in a position of double jeopardy, where he is made to undergo more than one trial for the same
offence if he has already previously been tried and either acquitted or convicted. However, this does not
apply in cases where a higher court has quashed an earlier trial and ordered a re-trial.

5. ALL PERSONS ARE EQUAL BEFORE THE LAW AND ENTITLED TO ITS PROTECTION. However, this right
is subject to some exceptions.
These include, among other things:
(i) any provision regulating personal law
(ii) any provisions or practice restricting matters connected with religion to persons professing that
religion only
(iii) any provision for protection, well being or advancement of the aboriginal peoples of the Federation
(iv) any provision restricting enlistment in the Malay regiment to Malays.
In addition, State laws may provide for reservation of land for Malays. See: Art 89 and 90.

6. CITIZENS CANNOT BE DISCRIMINATED AGAINST IN RELATION TO APPOINTMENT TO ANY OFFICE OR

EMPLOYMENT UNDER A PUBLIC AUTHORITY, or in relation to acquisition of property, establishing or
carrying on of any trade, business, profession, vocation or employment, merely on grounds of religion,
race, descent or place of birth. However, this right is subject to Article 153 of the Federal Constitution,
which permits the granting of special privileges to bumiputras.

7. CITIZENS CANNOT BE DISCRIMINATED AGAINST IN RELATION TO THE PROVIDING OF EDUCATION,

MERELY ON GROUNDS OF RELIGION, RACE, DESCENT OR PLACE OF BIRTH. This again is subject to
Article 153 as stated above. (Art 153 is discussed below)

8. FREEDOM OF RELIGION
The constitution also entrenches the right of the individual to profess, practice and propagate his own
religion. However, as Islam is the religion of the country, restrictions may be placed upon the
propagation of other religions among Muslims.

9. NO CITIZEN MAY BE BANISHED FROM THE COUNTRY. However, this right is subject to exceptions
whereby the Federal Government is permitted to deprive a person of his citizenship under certain
circumstances.

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10. EVERY CITIZEN HAS THE RIGHT TO FREEDOM OF SPEECH, PEACEFUL ASSEMBLY AND ASSOCIATION.
However, in the interests of security, public order or morality, Parliament may impose certain
restrictions. For example, the Sedition Act 1948 provides that it is an offence to question the
sovereignty, powers and prerogatives of the rulers and the special position of the Malays. Further, the
freedom of speech does not entitle a person to defame another. A person defamed has a right to sue
under the law of defamation.

It is important to note that a number of these liberties may be overridden by Art 149 and 150 of the
Constitution. Among other things, Article 149 empowers parliament to make laws against subversion,
whether or not an emergency is proclaimed. Such laws may be inconsistent with a number of the
entrenched fundamental liberties such as liberty of the person, free movement and freedom of speech,
assembly and association. An example is the Internal Security Act 1960.
(Candidates are only expected to explain any FOUR of the above rights).

2.
This question tests the candidates knowledge of the ADVANTAGES AND OPERATION OF THE DOCTRINE
OF BINDING JUDICIAL PRECEDENT IN MALAYSIA.

(a) The doctrine of binding judicial precedent is a doctrine which requires decisions of higher courts to
be followed by courts which are lower in the hierarchy of the court structure. It must be noted that it is
actually the ratio decidendi that binds future courts. The ratio decidendi refers to the rationale or
principle of law on which the decision is based. The ratio decidendi must be distinguished from obiter
dicta, which refers to opinions or other matters expressed by the judge, which are not directly relevant
to the case before him.

In order to better understand the operation of the doctrine, the hierarchy of the courts must be borne in
mind. The Federal Court is the highest court in Malaysia. Below it is the Court of Appeal. Below the
Court of Appeal is the High Court. Below the High Court are the lower courts comprising the Sessions
Courts, Magistrates Courts and the Penghulus Courts, which are referred to as the Subordinate
Courts.

The doctrine operates as follows:

(i) Decisions of the Privy Council (which was formerly the highest court of appeal for Malaysia) given
on appeal from Malaysia or from another Commonwealth country where the law is in pari materia to

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Malaysia are binding on the Malaysian courts. [Khalid Panjang and Ors v PP [1964] MLJ 108.
D.G.I.R. v Kulim Rubber Plantation Ltd [1981] 1 MLJ 214.]

(ii) Decisions of the Federal Court (the highest court in Malaysia) are binding on all courts below it. In
the same way as the House of Lords of England is not bound by its own decisions, the Federal Court is
also not bound by its own decisions and may depart from them. [ Arulpragasan v Public Prosecutor
[1997] 1 MLJ 1]. However, this will only be sparingly done. [Tunde Apatria v Public Prosecutor
[2001] 1 MLJ 259.]

(iii) Decisions of the Court of Appeal will be binding on all the courts below it. As this courts position is
analogous to the Court of Appeal of England, it is bound by its own previous decisions to the same
extent as the latter.[Young v Bristol Aeroplane Co Ltd [1944] K.B. 718].

(iv) Decisions of the High Court are binding on all Subordinate Courts, but one High Court judge is not
bound to follow the decision of another. [Sundralingam v Ramanathan Chettiar [1967] 2 MLJ 211.]

Subordinate Courts are bound by precedents laid down by the Superior Courts but their own decisions
do not bind any court.

(b) The ADVANTAGES OF THE DOCTRINE OF JUDICIAL PRECEDENT are the following:

(i) It helps to achieve certainty and uniformity in the law as like cases will be treated alike.

(ii) The law developed through the cases is more practical as it is based on actual situations rather than
on hypothetical ones.

(iii) Flexibility in the application can also be achieved. Although judges of the lower courts are generally
bound by the decisions of the higher courts, they do not always have to be so. For example, a judge may
avoid following an earlier precedent if the case was decided per incurium i.e. without taking into
account a relevant legal principle or statute. He could also avoid it by distinguishing the precedent from
the facts of the present case. This flexibility allows the law to be adapted to the changing needs of
society.

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3. (a) A CONTRACT OF SERVICE is a contract between an employer and an employee under which the
employee agrees to work for the employer. The EMPLOYMENT ACT 1955 defines a contract of service
as, any agreement whether oral or in writing and whether express or implied, whereby one person
agrees to employ another as his employee and that other agrees to serve his employer as employee and
includes an apprenticeship contract.

The INDUSTRIAL RELATIONS ACT 1967 also defines such a contract but refers to it as a contract of
employment. Under this Act, a contract of employment is defined as, any agreement whether oral or
in writing and whether express or implied, whereby one person agrees to employ another as a workman
and that other agrees to serve his employer as a workman.

It has generally been accepted that there is no distinction between the two definitions.

A contract for services, on the other hand, is essentially different from that of a contract of
service/employment. It does not create an employeremployee relationship and does not therefore come
within the purview of the Employment Act and the Industrial Relations Act. It merely creates a
contractual relationship between an employer and an independent contractor.

(b) It is sometimes difficult to DISTINGUISH A CONTRACT OF SERVICE FROM A CONTRACT FOR SERVICES.
The criteria applied by the courts in order to determine if a contract of service has in fact arisen are the
following tests as explained below:

(i) THE CONTROL TEST.

This test relates to the extent of control which the employer has over the employee in relation to the
manner in which the employee was to do his work. The greater the control, the greater the possibility
that there is a contract of service. The control test has been seen as inadequate especially in occupations
of a skilled or professional nature because the employer may be unable to exercise such control.

(ii) THE INTEGRATION TEST.

This test relies on the extent to which a person can be considered as part and parcel of an organisation.
The greater the integration with the organisation the greater the possibility of a contract of service.

(iii) THE MULTIPLE TEST.

This test, which is more relied upon nowadays, takes into account multiple considerations in order to
determine whether a contract of service exists. Among other things, the courts will take into

8
consideration the extent of control, the power of selection and appointment, the power to suspend and
dismiss the employee, the intention of the parties and the nature and contents of the agreement between
them.

4. This question which contains two parts tests the candidates knowledge on LAY-OFF AND
REDUNDANCY in the context of employment law.

The term LAY-OFF refers to a situation where an employee has not been able to provide his employee
with the kind of work the employee was employed to do, and the employees remuneration is dependent
on being provided with such work.

REDUNDANCY, on the other hand, refers to a situation where an employer has surplus of labour and has
to downsize his labour force.

(a) A LAY-OFF may be said to occur in the circumstances stated in REGULATION 5(1) OF THE
EMPLOYMENT (TERMINATION AND LAY-OFF BENEFITS) REGULATIONS 1980 (Revised 1983), i.e,
where:

(1) The employer does not provide work for the employee on at least a total of 12 normal working days
within any period of four consecutive weeks; and

(2) The employee is not entitled to any remuneration under the contact for the period or periods (within
such period of four consecutive weeks) in which he is not provided with work. However, in determining
whether an employee has been laid-off, any period during which an employee is not provided with work
as a result of a rest day, a public holiday, sick leave, maternity leave, annual leave, any other leave
authorised under any written law, or any leave applied for by the employee and granted by the
employer, shall not be taken into account.

(b) A REDUNDANCY may be said to occur in the circumstances mentioned in S.12 (3) (A)(D) OF THE
EMPLOYMENT ACT 1955 i.e. where:

(1) The employer has ceased, or intends to cease to carry on the business for the purposes of which the
employee was employed;

9
(2) The employer has ceased or intends to cease to carry on the business in the place at which the
employee was contracted to work;

(3) The requirements of that business for the employee to carry out work of a particular kind have
ceased or diminished or are expected to cease or diminish;

(4) The requirements of that business for the employee to carry out work of a particular kind in the
place at which he was contracted to work have ceased or diminished or are expected to cease or
diminish. [Food Specialities Sdn Bhd v Esa bin Mohamad (Award 74 of 1989); Gold Coins Feedmills
Sdn Bhd v Ibrahim Shah (Award 657 of 2001) and PBR Automotive Sdn Bhd v Subramaniam Andi &
Others (Award 237 of 2002). ]

5. (a) ACTUAL AUTHORITY

Actual authority refers to the authority that is given to an agent by agreement. Actual authority
comprises both EXPRESS AUTHORITY as well as IMPLIED AUTHORITY. Express authority may be given
either orally or in writing (ss.140 and 141 of the Contracts Act 1950). For example, if the principal
appoints an agent with express instructions to buy for him a piece of land at a price not exceeding
RM100,000, then the agents actual authority is to purchase such land for any price not exceeding
RM100,000.

The principal will be bound so long as the agent has acted within this express authority. Actual
authority also includes those matters that may be properly implied in the circumstances. For example,
the implied authority will include all such powers as are proper or necessary to carry out the express
instructions of the principal. Thus, in the example given earlier, if the agent has to obtain the services of
a valuer in order to assess the true value of the property, the principal will be bound to pay for the
services of the valuer so incurred.

IMPLIED AUTHORITY may also arise from:

(i) the circumstances of the case,

(ii) the custom or usage of trade, or,
(iii) the situation or conduct of the parties.

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The case of WATTEAU V FENWICK (1893), serves as an example. In this case, the defendant appointed a
manager to run a public house and the licence, which appeared over the door, was taken out in the
managers name. The manager was forbidden by the defendant to buy cigars on credit. In disregard of
this the manager bought cigars from the plaintiff, who now sued for the price. It was held that the
defendant as principal was liable because a manager of a public house would usually have authority to
make purchases of that kind, and the plaintiff could rely on such usual authority in the absence of
express knowledge of the restrictions imposed by the principal. [ Tunku Ismail bin Md Jewa & Anor v
Tetuan Hisham, Sobri and Kadir (1989).]

(b) OSTENSIBLE AUTHORITY

Ostensible authority (which is sometimes also referred to as apparent authority), refers to the authority
which the agent is said to have as a result of the principals words or conduct which leads a third party
to believe that the agent has the authority to act on behalf of the principal. This is clearly illustrated in
s.190 of the Contracts Act 1950.

Ostensible authority may also arise where the agent has previously acted on behalf of the principal, but
such authority had been terminated by the principal, without notice to the third party. Where ostensible
authority arises, the agent is presumed to have the authority that the principal causes him to appear to
have. The element of estoppel applies as the principal is precluded from denying that the agent had such
authority.

The case of GRAPHIC LINES PTE LTD V CHAI CHEE MEIN AND ORS (1987) serves as an example. In this
case, the assistant manager of a nightclub had placed advertisements for the nightclub with the
plaintiffs. He did not have the actual authority to do so but the general manager, who was one of the
partners of the nightclub had represented to the plaintiffs that advertisements should be authorised
through the assistant manager. Since the general manager had actual authority to authorise the
assistant manager to place advertisements on behalf of the club, the defendants were bound by his act. It
was clear that the assistant manager had apparent authority to place such advertisements.

It must be noted that where the third party knew, or ought to have known, that the agent did not have
the authority in question, he cannot rely on apparent authority of the agent to enforce the transaction.
[OVERBROOK ESTATES V GLENCOMBE PROPERTIES LTD (1974)].

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6. This question tests the candidates knowledge of AGENCY BY RATIFICATION as one of the ways in
which an agency may arise.

(a) An agency by ratification arises when an agent has done something for the principal without
authority but the principal accepts or confirms what the agent has done. This is provided for in s.149 of
the Contracts Act 1950 which states, Where acts are done by one person on behalf of another, but
without his knowledge or authority, he may elect to ratify or disown the acts. If he ratifies them, the
same effects will follow as if they had been performed by his authority.

(b) The REQUIREMENTS which must be satisfied in order for an agency by ratification to arise are as
follows:

(i) The act or contract must be unauthorised.

(ii) The unauthorised act must not be unlawful. Thus, void or illegal contracts cannot be ratified.

(iii) The agent must, at the time of the contract expressly act as agent for the principal. He must not
allow the third party to believe that he is the principal. [Keighly Maxted & Co v Durant [1901]. The
principal must be in existence when the contract is made. The general rule is that contracts cannot be
made on behalf of non-existing principals. However, this rule does not apply to pre-incorporation
contracts in Malaysia as s.35(2) of the Companies Act 1965 allows companies to ratify pre-incorporation
contracts after they have been incorporated.

(iv) The principal must have contractual capacity at the time the contract is made and at the time of
ratification s.136 Contracts Act 1950.

(v) The principal must have full knowledge of all material facts. Section 136 of the Contracts Act 1950
states that no valid ratification can be made by a person whose knowledge of the facts is materially
defective.
(vi) The principal must ratify the whole act or contract. He cannot ratify one part and reject another
part. If he does so he is deemed to have ratified the whole transaction s.152 Contracts Act 1950.

(vii) The ratification must be made within a reasonable time. See: Metropolitan Asylum Board v
Kingham & Sons (1890).

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(viii) The ratification must not have the effect of subjecting a third person to damages, or of terminating
any right or interest of a third person s.153 and Illustration (a) of s.153 Contracts Act 1950.

7. This question on partnership law, tests the candidates knowledge on THE EXTENT TO WHICH
PERSONS WHO ARE NOT PARTNERS MAY BE HELD LIABLE AS PARTNERS TOWARDS THIRD PARTIES.

Candidates are expected to discuss the concept of holding out under s.16 of the Partnership Act 1961.

A person who is not a partner of a firm may sometimes, either by words spoken or written, represent
himself as a partner in the firm or knowingly allow himself to be represented as a partner in the firm. In
such cases there is said to be a holding out that the person is a partner.

This may be illustrated by the case of BEVAN V THE NATIONAL BANK LTD (1906) 23 TLR 65. In this
case Bevan carried on business as MW & Co and employed MW as the manager of the business. It was
held by the court that these facts amounted to a holding out that MW was a partner.
By s.16 of the Partnership Act 1961, persons may be made liable as partners for such holding out. The
liability is based on the doctrine of estoppel.

To make a person so liable under s.16, the following REQUIREMENTS must be satisfied:

(i) there must have been a representation by a person that he is a partner or he must have knowingly
allowed someone else to represent that he was a partner when in fact he was not;
(ii) the representation could be oral, written or by conduct;
(iii) the third party must have relied on the representation;
(iv) the third party must have given credit to the firm on the strength of that representation.

There is no requirement that the representation be communicated to the person giving credit by or with
the knowledge of the apparent partner. That apparent partner will be liable as a partner even if it was
communicated to the person giving credit without his knowledge. Martyn v Gray (1863).

The apparent partners liability is only towards persons who have given credit to the firm on the
strength of the representation. Credit does not only refer to monies lent to the company. It has been
given a wider interpretation.

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This may be illustrated by the case of Lynch v Stiff (1944). In this case, the plaintiff had placed some
money with a firm of solicitors for investment purposes relying on a representation that the defendant
was a partner (when in fact he was only employed as a solicitor). The court held that the plaintiff had
given credit to the firm and that the defendant was liable as a partner for holding out. It must be
further noted that the liability in respect of the estate of deceased partners is limited by s.16.

It states that where, after a partners death, the partnership business is continued in the old firm name,
the continued use of that name or of the deceased partners name as part thereof shall not make the
deceased persons estate liable for any partnership debts contracted after his death.

8. By S.37 OF THE PARTNERSHIP ACT 1961, a partner may apply to the court for dissolution of the
partnership in six different situations. The power of the court under this section is entirely discretionary
as the section states that the court may decree a dissolution. The various situations are as explained
below.

(a)
INSANITY OF A PARTNER
Section 37(a) provides that when a partner is found to be a lunatic or is shown to be of permanently
unsound mind, an application may be made to the court for a dissolution of the partnership. The
application can be made not only by the other partners but also on behalf of the partner who is of
unsound mind, by his committee, next friend or any person having title
to intervene.

(b)
PERMANENT INCAPACITY
Section 37(b) provides that the court may also order a dissolution where one partner becomes, in any
other way, permanently incapable of performing his part of the partnership contract. The application in
such a case can only be made by the other partner. Thus, if A and B are partners in a hairdressing
business and A suffers from permanent paralysis of his arms, B may
apply to the court for a dissolution on this ground.

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(c)
PREJUDICIAL CONDUCT
Section 37(c) provides that a partner may apply to the court for a dissolution of the partnership when
another partner has been guilty of such misconduct as, in the opinion of the court is calculated to
prejudicially affect the carrying on of the business, regard being had to the nature of the business.

This may be illustrated by the case of Carmichael v Evans (1904). In this case, C and E were partners. C
was convicted of travelling on the railway without a ticket with intent to defraud. It was held by the
court that as the conviction was for dishonesty, it was calculated to be detrimental to the partnership
business.

(d)
WILFUL OR PERSISTENT BREACH
Section 37(d) provides that where one partner wilfully or persistently commits a breach of the
partnership agreement or otherwise conducts himself in matters relating to the partnership business
that it is not reasonably practicable for the other partner or partners to carry on business in partnership
with him, then they (the other partners) may apply to the court for a
dissolution. This may be illustrated by the case of Cheeseman v Price (1865). In this case, the offending
partner had failed to enter small sums of money received from customers into the accounts as he was
required to do under the agreement. This had happened 17 times. The court held that there was
persistent breach and ordered a dissolution.

(e)
CARRYING ON THE BUSINESS AT A LOSS
Section 37(e) provides that the court may order a dissolution if the business can only be carried on at a
loss. It must be shown that there is no more possibility of making a profit. Where there is still some
possibility that the business could be made profitable if more attention is given in the future, the court
will not order a dissolution.

(f)
JUST AND EQUITABLE GROUND
Section 37(f) provides that the court may order a dissolution of the partnership when the circumstances
of the case are such that, in the opinion of the court, it is just and equitable to do so. An example of a
situation where the court would consider it just and equitable to wind up the company is where the
partners can no longer work together and have reached a deadlock.

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[ Re Yenidge Tobacco Co Ltd [1916] 2 Ch 426; Ebrahimi v Westbourne Galleries Ltd [1973] AC
360].
(Candidates are only required to explain any FIVE of the above grounds)

9. (a) The MAIN DIFFERENCES BETWEEN A NON-EXEMPT PRIVATE LIMITED COMPANY AND AN EXEMPT
PRIVATE LIMITED COMPANY are as follows:

(i) The maximum number of members of a non-exempt private limited company is 50 whereas for an
EXEMPT PRIVATE COMPANY, the limit is 20. See: ss.4 and 15 of the Companies Act 1965.

(ii) In the case of the exempt private limited company, the membership must consist only of individuals
and not corporations. Further, corporations cannot have any direct or indirect beneficial interest in it.
This restriction does not apply to non-exempt private limited companies. See: ss.4 and 15 of the
Companies Act 1965.

(iii) There is also a difference in relation to filing of accounts with the Companies Commission. A non-
exempt private limited company must include an audited copy of its last balance sheet and profit and
loss account with its annual return. An exempt private limited company is not required to do so, though
it must include an auditors certificate in accordance with s.165A. This does not mean that an exempt
private company does not have to prepare the balance sheet and profit and loss account. It is only
exempted from filing them with the Companies Commission of Malaysia.

(iv) The exempt private limited company also enjoys a difference in relation to loans to directors and
loans to persons connected with directors. Subject to certain exceptions, s.133 generally prohibits a
company from giving loans to its directors while s.133A prohibits loans to persons connected with
directors. Both of these sections do not apply to exempt private companies. Exempt private companies
are therefore free to give loans to their directors and persons connected with them.

(b) A WHOLLY-OWNED SUBSIDIARY is defined in s.5B of the Companies Act 1965. It states that a
corporation is deemed to be the wholly-owned subsidiary of another corporation if none of the members
of the first mentioned corporation is a person other than:

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(i) the second-mentioned corporation;
(ii) a nominee of the second-mentioned corporation;
(iii) a subsidiary of the second-mentioned corporation, being a subsidiary none of the members of which
is a person other than the second-mentioned corporation or a nominee of the second-mentioned
corporation; or
(iv) a nominee of such a subsidiary.

10. (a) The legal issue in the given problem concerns the concept of the COMPANY AS A SEPARATE
LEGAL ENTITY AND THE LIFTING OF THE VEIL OF INCORPORATION. The general rule is that once a
company is incorporated, it is clothed with a veil of incorporation and becomes a separate legal entity
distinct from its members and others. This may be illustrated by the well-known case of Salomon v
Salomon & Co Ltd (1897) as well as s.16(5) of the Companies Act 1965.

However, at COMMON LAW, courts recognised the need to lift the veil of incorporation in certain
circumstances and treat the company and its members as one and the same, in the interests of justice
and equity. One such situation, which applies to the present problem is where the company was set up to
perpetrate a fraud or evade a legal obligation.

This may be illustrated by the case of Jones v Lipman (1962). In this case, Lipman agreed to sell a piece
of property to Jones. Later, Lipman decided not to sell the property. He then transferred the property to
a company which he formed, with the intention of evading a possible claim for specific performance by
Jones. When Jones sued for specific performance, Lipman argued that the property had already been
sold to a third party, i.e. the company. The court lifted the veil of incorporation of the company, holding
that Lipman and the company were one and the same and ordered specific performance against Lipman
and the company.

Applying the law to the present problem, Mikko may be advised that the court is likely to lift the veil of
incorporation of Teepu Sdn Bhd and treat Chitto and Teepu Sdn Bhd as one and the same because the
company was formed by Chitto for a fraudulent purpose i.e. to evade his legal obligation towards Mikko.
Thus, Mikko is likely to be successful in her claim for specific performance against both Chitto and
Teepu Sdn Bhd.

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(b) This question relates to the lifting of the veil of incorporation under the COMPANIES ACT 1965. The
liquidator may be advised as follows:

(i) By s.36 of the Companies Act 1965, if the number of members of the company falls to one and the
company carries on business with only one member for a period longer than six months, that remaining
member will become personally liable for all the debts incurred by the company after those six months.
However, he will only be liable if he was aware that the company was carrying on business with only
one member.

In the given problem all the shares of Downhill had become registered in Abus name by January 2008.
Thereafter Abu was the sole member of the company. As the company continued to operate after this
date with only Abu as its member, he can be held personally liable for all the debts incurred by the
company from July 2008 onwards (i.e. six months from the time Abu became the sole member of the
company) unless he was unaware that the company was operating with him as the sole member (which
is highly unlikely).

(ii) By s.121(2), where an officer of a company has signed on behalf of the company any bill of exchange,
promissory note or other negotiable instrument, and the name of the company is not properly stated
therein, he can be made personally liable to the holder of that instrument for the amount stated therein,
if the company does not pay.

In the given problem Nazeem, the manager, was responsible for the issue of the cheque. The name of the
company was not properly stated on it. The company, being insolvent, will not be able to pay.
Therefore, Nazeem may be made personally liable to pay Samy the amount stated on the cheque.
[Atkins & Co v Wardle (1889)].

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The objects clause of Zam Zam Sdn Bhd states the following:

(i) To manufacture WOODEN FURNITURE AND WOOD RELATED PRODUCTS;

(ii) to carry on any other business which in the opinion of the directors of the company may be
advantageously carried on in CONNECTION WITH OR AS ANCILLARY TO THE GENERAL BUSINESS
OF THE COMPANY.'

The directors of Zam Zam Sdn Bhd have recently entered into a contract with Alakazam Sdn
Bhd for the supply by Alakazam Sdn Bhd to Zam Zam Sdn Bhd of RM5 million worth of steel
with the view of making steel furniture and steel related products.

Manjit Singh, a shareholder of Zam Zam Sdn Bhd is not happy with this development and wants
to know whether the validity of this contract can be challenged.

Advise him. (10 marks)

INTRODUCTION
This question tests the candidates' knowledge of the APPLICATION OF THE ULTRA VIRES

DOCTRINE IN MALAYSIA.

DEFINE THE DOCTRINE?

The ultra vires doctrine is the doctrine which dictates that a company must act in accordance
with the objects clause stipulated in its memorandum of association. Any activity of a company
which is beyond the scope of its object clause is said to be ultra vires, i.e. beyond its capacity.

STATE THE POSITION IN COMMON LAW AND STATUTE:-

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COMMON LAW:- [NARROW VIEW] any ultra vires activity of the company was held to be totally
void. Neither the company itself nor the third party could sue to enforce such a transaction:
ASHBURY RAILWAY CO V RICHE
JUSTIFICATION
This doctrine was justified on the grounds of CONSTRUCTIVE NOTICE, i.e. persons dealing with a
company were deemed to have constructive notice of the memorandum and articles of
association of the company which were registered public documents which could be inspected by
anyone dealing with the company.

COMMON LAW - [WIDE VIEW] However companies used various methods to expand the scope of
their permitted objects. One such method was by relying on what was called the Bellhouses'
clause, following its successful application in a case called BELLHOUSES LTD V CITY WALL
PROPERTIES LTD

The issue which arose was whether the agreement was ultra vires the company. The court held
that it was not, as the company could rely on the above clause.

STATUTE:-
The ultra vires doctrine caused some hardship to persons contracting with the company and who
had inadvertently failed to make the relevant search. At the same time it was rather restrictive to
the company itself because it could not undertake ventures outside the scope of the objects clause
unless it first took the necessary steps to alter its objects clause.

In Malaysia, the harshness of the ultra vires doctrine has been reduced to a large extent by virtue
of SECTION 20 OF THE COMPANIES ACT 1965.

BY S.20(1),
ANY ACT OR TRANSACTION DONE BY A COMPANY CANNOT BE INVALIDATED SOLELY ON THE

GROUND THAT THE COMPANY WAS WITHOUT CAPACITY OR POWER TO DO SO.

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BUMIPUTRA MERCHANT BANKERS BHD v SUPREME QBE INSURANCE BHD the
section has ABOLISHED THE ABSOLUTE EFFECT OF THE ULTRA VIRES DOCTRINE SUBJECT TO THE

RESIDUAL EFFECT UNDER SUB SECTION (2) VC George

EXCEPTIONS - REFER

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Alexis has recently been appointed as a clerk in a legal firm called 'Jack and Jill Partners'. Her contract
of employment contains, inter alia, the following terms.

Working hours:
(a) Monday - Fridays - 8.00 a.m.- 5.30 p.m.
(b) Saturdays - 8.00 a.m. - 2.00 p.m.

2. Lunch/leisure break:
(a) Monday- Fridays - 2.00 p.m. - 2.30 p.m.
(b) Saturdays - 11.45 a.m. - 12.00 noon.

3. Annual leave:
1 st year - 7 days per year
2nd year - 10 days per year

3rd year onwards - 14 days per year.

Alexis is not very happy with these terms but she accepted employment as she was badly in need of a
job. The contract of employment does not contain anything about overtime pay or maternity leave.

She wishes to know:

(a) Whether the above terms as to working hours, lunch/leisure break and annual leave are permitted
under the Employment Act 1955. (15 marks)

(b) Whether she will be eligible for any overtime pay and if so at what rate.
(3 marks)

(c) Whether female employees would be eligible for maternity leave and if so, the duration.
(2 marks)
Advise her.
__________________________________________________________________________________

This question tests the student's knowledge on the provisions of the Employment Act 1955 in relation
to HOURS OF WORK, ANNUAL LEAVE, MATERNITY LEAVE AND OVERTIME PAY.

(a) By s.60A(1) an employee cannot be required to work:

(i) more than five consecutive hours without a leisure period of at least 30 minutes
(ii) more than eight hours in one day
(iii) in excess of a spread of 10 hours in one day
(iv) more than 48 hours in one week.

However this is subject to the following:

(i) An employee who is engaged in work which must be carried on continuously and which requires
his continual attendance may be required to work for eight consecutive hours inclusive of a period or
periods of not less than 45 minutes during which he has the opportunity to have a meals ;60A(1) (i)

(ii) An employee can be required to work more than eight hours a day if the number of hours on one
or more days of the week is less than eight. However they still cannot be required to work more than
nine hours a day or 48 hours in one week: s.60A(1)(ii);

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(iii) An employee who is engaged in shift work may be required to work more than eight hours in
one day or more than 48 hours in one week, but the average number of hours worked over any period of
three weeks shall not exceed 48 hours per week: s.60C(1)

Further, s.60A(2) provides that an employee may be required by his employer to exceed the limit of
hours stated above, and to work on a rest day in case of:

(i) accident. actual or threatened. in or with respect to his place of work;

(n) work, the performance of which is essential to the life of the community;
(iii) work essential for the defence or security of Malaysia;
(iv) urgent work to be done to machinery or plant;
(iv) an interruption of work which is was impossible to foresee; or
(vi) work to be performed by employees in any industrial undertaking essential to the economy of
Malaysia or any essential service as defined in the Industrial Relations Act 1967.

In the light of the law stated above, the working hours on Mondays to Fridays i e 9 1/2 hours per day is
unlawful. Further, the requirement to work between 8 00 am to 2 00 p.m. on Saturdays would exceed
the permitted total of 48 hours per week. Therefore the prescribed working hours are unlawful, unless
falls under any of the exceptions stated above.

The lunch/leisure break of 1/2 hour on Mondays to Fridays between 2 and 2.30 p.m. is also unlawful as
it requires the employee to work more than five consecutive hours prior to the break. Even if the nature
of his work requires him to work for eight consecutive hours, this can only be done if he gets a total of
45 minutes break.
The break of 15 minutes on Saturdays is also unlawful as s.60A(1)(a) requires the a break of at least 30
minutes be given where the employee works more than five consecutive hours.

As regards annual leave, s.60E stipulates that an employee shall be entitled to paid annual leave as
follows:
(i) Eight days for every 12 months of continuous service if he has less than two
years service.
(ii) Twelve days for every 12 months of continuous service for a period two years or
more but less than five years.
(iii) Sixteen days for every 12 months if he has been employed for five years or more.

Thus it is clear that the terms in Alexis's contract of service pertaining to annual leave are also not in
keeping with the Employment Act 1955.

(b) In relation to overtime (i.e. work done in excess of normal hours of work s.60A(3)(a) provides
that an employee shall be paid 11/2 times his hourly rate o pay irrespective of the basis on which his
rate of pay is fixed. But ordinarily an employee cannot be required to work for more than 12 hours per
day. However this is subject to the provision of s.60A(7) and 60A(8).

(c) By s.37(1)(a) every female employee shall be entitled to maternity leave for a period of not less
than 60 consecutive days m respect of each confinement.

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