BTW

1042
Malaysian
Business
Law
Tutorial Booklet

Copyright 2016 NOT FOR RESALE. All materials produced for this course of study
are protected by copyright. Monash students are permitted to use these materials for
personal study and research only. Use of these materials for any other purposes,
including copying or resale may infringe copyright unless written permission has been
obtained from the copyrightholders.

Welcome
Welcome to a very important and interesting area of law.
Youll find many of the topics in the course to be highly relevant not just to
business and commerce but as a consumer, and thus important to your daily
life.

The purpose behind studying any unit is to gain knowledge and this is the
same for Law units obviously. Certainly, just learning the law is useful, but it
is far better if you can BOTH learn the law AND learn how to use that
knowledge in new or unexpected situations. In other words develop skills as
well as knowledge that will continue to serve you well, long after you finish
your studies. So, the unit has been designed to teach both and to assess
both in the assignment and in the final exam.
Over the years we have seen a lot of students struggle with law units
because they did not understand that they were required to master two skills
knowledge of the law and the ability to use that knowledge. Some students
even try to memorise large slabs of the text and then write out what they
have memorised in the exam. Those students almost always fail. Showing
the examiner that you know the law AND can apply it requires that you
explain and discuss the legal issues involved in the question - just copying
out the text book will never do that effectively.
Finally, we view study as very much a personal voyage/experience and not
just a simple exercise to obtain a piece of paper. So we encourage
students to become more involved in their studies than the bare minimum
needed to pass. Whilst this may appear to be a rather antiquated and
idealistic approach it is also a very successful way of obtaining the most out
of your potential.
Once again welcome, enjoy and good luck.

Responsibilities of Students
As a Monash University student you have the following responsibilities:

to apply yourself to your studies to the best of your abilities

to become familiar with the rules and regulations governing the degree
in which you are enrolled, and to ensure that the units selected meet the
degree requirements
to be aware of the policies and practices of the university and of any
faculty and department in which you are enrolled, which are contained
in the materials and information made available to you
to be aware of the rules and regulations concerning the use of university
computing, library and other facilities, as set out in published material
to meet deadlines for work to be submitted
to take the initiative and consult appropriately when problems arise
to submit original work for assessment without plagiarising or cheating
for on-campus students, to attend lectures, tutorials and seminars for
each unit in which you are enrolled
to accept joint responsibility for your own learning
to contribute to the development of university programs and policies by
participating in consultative and deliberative processes in a responsible
and ethical manner
to be aware of the university's commitment to equal opportunity and to
demonstrate tolerance and respect for all members of the university
community
to respect the right of staff members to express views and opinions
to respect the working environment of others in all areas of the
university
to retain a copy of all assignment work submitted for assessment, and
hold it until a grade for the unit has been published
to regularly scan personal computers for viruses and other destructive
software and to ensure that infections are not transmitted to computers
owned by the university, or to computers owned by other students, or by
other individuals or organisations
to regularly back-up documents, databases, presentations,
spreadsheets and other files held on a personal computer which relate
to your study at university and to arrange secure storage for these
back-up copies
to regularly check both the unit Blackboard site and your official
university email account.

Plagiarism, Cheating and Collusion

You are reminded that university rules (Statute 4.1) prohibit plagiarism, cheating
and collusion and that severe penalties may be imposed on students who engage
in, or who support other students engaged in, activities which seek to undermine the
integrity of the unit assessment process. In simple terms:
Plagiarism means to take and use another persons ideas and/or manner of
expressing them and to pass them off as your own by failing to give appropriate
acknowledgement.
Cheating means seeking to obtain an unfair advantage in an examination or
in other written or practical work required to be submitted or completed by a student
for assessment.

Collusion is the presentation of work which is the result in whole or in part of

unauthorised collaboration with another person or persons.
Within the university, plagiarism is regarded as a form of theft and is therefore a
serious offence. The Faculty will consider that plagiarism has occurred in any of the
following circumstances:
when phrases and passages are used verbatim without quotation
marks and without a reference to the author
when an author's work is paraphrased and presented without a
reference
when other students' work is copied or partly copied
when items for assessment are written in conjunction with other
students (without explicit direction by the relevant staff member)
when a piece of work has already been submitted or assessed.

Ethical Behaviour
In the course of your studies you may undertake research projects or case
studies, and otherwise discuss business issues with managers, employees or
customers of companies or other organisations. Prior to contacting any individual or
organisation, you must acquaint yourself with the universitys Ethics Policy which is
available at:
http://www.monash.edu.au/resgrant/human-ethics/index.html
You must appreciate the goodwill of the individuals and organisations that agree
to assist you and must behave in a professional and ethical manner at all times.
You must never use or divulge the confidential information of any organisation,
including your employer, in any assignment or report without the written permission
of this organisation.
Students collecting material for assignments etc. must properly represent
themselves at all times. You must disclose:

the fact that you are a student of a Monash program

the details of the project you are working on
whether or not you are employed and if you are employed, who your
employer is
whether there is the potential for a conflict of interest such as would
occur if your employer was an actual or potential competitor of the
respondents business.

You must never practise any form of misrepresentation nor use unethical
practices to collect information. If you have any doubt about whether or not the data
collection you wish to undertake falls within the universitys Ethics guidelines you
must consult your Unit Coordinator.

Teaching Staff Semester 2, 2016

Chief Examiner:
Dr. Adnan Trakic
Teaching Staff:
Lecturer:
Dr. Adnan Trakic
Telephone: (+603) 5514 6000 Extn. 6383
Email: adnan.trakic@monash.edu
Location: Room 6-5-20

Tutors:

Dr. Abdul Majid

(Contact details to be announced in tutorials)
Ms. Usha Rajan
(Contact details to be announced in tutorials)
Mr. Athirathan
(Contact details to be announced in tutorials)
Dr. Adnan Trakic
(Contact details to be announced in tutorials)

Unit Schedule

Where do
our laws
come from?
Week

Activities

Topic 1: Introduction to the

Malaysian Legal System

Topic 2: Law of Torts,

Negligent Misstatement
Topic 3a (i): Law of
Contract, Formation
Topic 3a (ii): Law of
Contract,
Consideration, Promissory
Estoppel, Intention
Topic 3b (i): Law of
Contract, Content- Express
Terms
Topic 3c:Law of ContractExemption Clauses
Topic 3d: Law of Contract,
Vitiating Factors
Topic 3e: Law of Contract,
Discharge, Breach &
Remedies
Topic 4: Agency

3
4

6
7
8

9
10

11

12

Topic 5a: Business

Organisations: Law of
Partnership
Topic 5b: Business
Organisations: Company
Law
Topic 6: Revision

Tutorial
Important Dates
Questions
Assignment Choose Assignment
Instructions
Partner
and
Expectations
Module 1
Module 2
Module 3a(i)

Module
3a (ii)
Module
3b (i)
Module 3c
Module 3d

Module 3e
Module 4

Module 5a

Module 5b

SWOT VAC

Where do
laws come
from?

Module 1:
Introduction to
the malaysian
Legal System
Topic Outline

This is a preliminary topic which examines what law is and from where it
originates. Secondly, it examines the nature and characteristics of the
Malaysian Legal system, and how commerce is regulated. Accordingly it is a
very important topic because it provides the foundation for understanding all
other topics studied this semester.
This topic focuses on:

the nature of the Malaysian Legal system and the various sources of
laws

the role of parliament as a source of law, statutes and the primary rules
of statutory interpretation

the role of courts as a source of law, and the doctrine of precedent

the Malaysian court system - the appellate structure of courts will be

used to illustrate the rules of precedent

the origins of terms such as common law and equity and the meanings
and remedies that are given by each

alternative dispute resolution systems operating in Malaysia

Learning Objectives
On completing this topic, you should be able to:

identify the sources of law in Malaysia

describe the role of parliament as a source of law

describe the role of the judiciary as a source of law

recognise the fundamental rules of statutory interpretation

identify, and describe the hierarchy of courts and the appeal system and
recognise the role of alternative dispute resolution mechanisms

understand relevant variations in the Australian legal system

Readings
Trakic et al., 2014, Law for Business

Ch 1 & 2

Wan Arfah Hamzah, Malaysian Legal System

Abdul Majid bin Nabi Baksh & Krishnan Arjunan, Business
Law in Malaysia
Sweeney and OReilly, Law in Commerce

Ch 1-8
Ch 1-4
Ch 1

Tutorial Questions
1. Does the common law of England apply in Malaysia? Give reasons for
your answer.
2. When do judges get the opportunity to make new laws?
3.

Define the following terms:

obiter dicta
ratio decidendi
appellant
respondent
plaintiff
defendant

You may also find a legal dictionary useful to clarify the meaning of other
words and phrases you cover in this unit.

4.

5.

Explain the doctrine of precedent. How does it work?

Read the case and answer the following:

(a)

What were the facts of the case?

(b)

What did the court decide?

(c)

What reasons did the court give for deciding the way it did?

(d)

Would the decision bind:

i. The Magistrates Court;
ii. The Court of Appeal;
iii. The High Court of Malaya;
iv. The Sessions Court;

ABC PTY LTD

Appellant
v.
AHMAD BAKHIL
Respondent
COURT OF APPEAL
No. 4755 of 1997
JUDGES: WINNEKE, P., TADGELL and BATT, JJ.A.
WHERE HELD: KUALA LUMPUR
DATE OF HEARING: 6 April 1988
DATE OF JUDGMENT: 28 May 1988
CATCHWORDS:
Contract - Document signed by one party - Whether contractual Whether exemption of liability.
TADGELL, J.A.: The appellant complains of a judgment for pecuniary
damages for personal injuries, interest and costs given against it in favour of
the respondent in the High Court on 3 March 1997 after a trial before a judge
alone.
The appellant carried on the business of providing for hire to the public
"go-karts and a go-kart racing track" at West Keysborough. The evidence
indicates that a go-kart is a low-slung, open, four-wheeled, rubber-tyred
vehicle powered by a rear-end petrol engine and designed for recreational
racing on a dedicated track.
The respondent, Ahmad Bakhil, attended with his friend, Kamini
Surendran, at the appellant's racing track at about 7 p.m. on Monday, 26
April 1993. He had turned 25 years of age a couple of days before. Miss
Surendran was an employee of a local radio station, 3MP, which had booked
the appellant's racing track for a corporate promotion night for staff
members, their families and friends. She and the respondent were members
of the group attending the promotion night to which, according to his
evidence, she had invited him only that evening. He deposed that "I went
there as part of that group to compete and have fun with these particular
people on the super-kart go-kart track". The respondent swore in chief that
when he and Miss Surendran arrived at the track they called at what he
described as "like a canteen-type of set-up" which, one might gather, was
some kind of booth or office. There was no other evidence describing it. He
swore in chief that he was told (but it does not appear by whom) "... to sign a
particular form so you can register your name to be able to do a lap of the
go-kart race and once I did that I was qualified to drive the faster vehicle".
He signed the form. In cross-examination the respondent swore that he did
not read the form. He swore that he was not given enough time to read the
form or an opportunity to do so, and that "I was being rushed by the group of people and by operators and people
to get these forms signed, give it across to the right people there so we can
get out on the track and start proceedings because there was a large group
of people there ...
They were saying that I had to hurry up and sign the document to get out
there ...".

He said also in effect that he treated the form as "a marketing, probably,
or registration type of form". In re-examination, being asked to expand on
that, he said "... it's usually I feel for a marketing registration purpose (1) to
get my details for obviously issuing me with a licence as a registration form
and (2) as a marketing purpose for sending out pamphlets, things to keep to
go back with other people, other groups and things like that". In that
connexion it may be mentioned that the four opening lines at the top of the
form, in prominent, bold capitals, beginning "TO HELP WITH OUR
ADVERTISING ..." were printed in red, the rest being in black.
Miss Surendran swore that when she arrived at the premises she was
asked to sign a form "where I put my name and address". It was the same
kind of form as that signed by the respondent. When asked in chief what the
form was for, she said "I guess - we were there as a group, and it was organised by 3MP who I
work for. Everyone in the group signed a form to get our licences. You have
to get a licence before you can drive."
She swore in cross-examination that "... it was very rushed. I didn't read
my form"; and that "There was a group of us together and it was very rushed
to fill the forms out ...".
Both the respondent and Miss Surendran drove go-karts at the track on
the night in question. He swore that he qualified to race for a trophy and that
in the course of a race his vehicle overturned, when he suffered a fracture of
his arm. His story was that the overturning was attributable to a defect in the
track whereas the appellant contended that the respondent's vehicle had
collided with another while he was driving recklessly, causing it to overturn.
In his statement of claim the respondent relied on three causes of action:
breach of a contract for the hire of a go-kart; breach of s.52 of the Trade
Practices Act 1974 and of s.11 of the Fair Trading Act 1985; and
negligence. The extent to which the respondent relied at the trial on the
causes of action other than negligence was a matter of some debate before
us. Senior counsel for the respondent (who had not, but whose junior had,
appeared at the trial) told us that the case had been conducted purely as a
negligence claim, the contract claim and the statutory claims having been
abandoned. Be that as it may, it is clear enough that the appellant relied on
the document that had been signed by the respondent as constituting an
agreement, whether the respondent relied on any agreement or not. The
respondent certainly did not rely on the document.
The learned judge accepted the respondent's evidence that he had not
been in a collision with another vehicle but did not find that a defect in the
track caused or contributed to the collision. Instead, his Honour found that
the most likely explanation for the accident was that the respondent
attempted to round a corner at a speed that, because of his want of
instruction and experience, led him to take inappropriate action which
resulted in the overturning. His Honour found in effect that the appellant had
allowed the respondent to engage in go-kart racing, an inherently dangerous
pastime, when he had not had "sufficient education, instruction, experience
and testing" to do so without risk to himself and others. The judge found the
appellant to have been liable to the respondent on that footing but did not
specifically note in his reasons for judgment the cause of action upon which

10

liability was found to have been incurred. Inferentially or presumably,

however, the cause of action on which the respondent was found to have
succeeded was negligence, for the judge found the respondent to have been
guilty of contributory negligence, and he apportioned liability 75% to the
respondent and 25% to the appellant. His Honour assessed damages at
$35,000 and awarded 25% of that sum - $8,750 - to the respondent,
together with damages in the nature of interest of $2,012, and costs.
. [T]the appellant contends . . . that, because the document which was
signed by the respondent was of a kind that every driver was required to
sign before driving, and was clearly contractual on its face, we should
conclude that the respondent bound himself by it. Counsel for the appellant
was disposed to concede in his reply that contractual documents containing
an onerous exemptive provision must be brought to the notice of the party
against whom they are to be enforced, and contended that in this case the
provision in question was so brought. Assuming, without deciding, that the
term on which the appellant seeks to rely is onerous in the relevant sense,
and that the concession was well made (as to which see, for example, the
judgment of Bramwell, L.J. in Parker v. South Eastern Railway Co., supra, at
428, the judgment of Jacobs, J. referred to above and Interfoto Library Ltd.
v. Stiletto Visual Programs Ltd. [1989] Q.B. 433) I see no reason why the
proved facts of the case require a conclusion that there was a contract of
hire between the appellant and the respondent constituted by the document
that the respondent signed, or indeed any contract at all.
The following considerations tend, in my opinion, to render any such
conclusion at best speculative. There was no evidence that anyone, whether
on behalf of the appellant or 3MP, had told or suggested to the respondent,
or any other participant in the promotion night, that participation required or
concerned on the part of a participant any kind of agreement with the
appellant save for a licence to drive. Nor is there evidence that, before
participants were asked to sign the form, they were given any notice or other
indication that any contractual or other arrangement was to exist between
them and the appellant, save for a licence to drive.
In the circumstances it is unnecessary to attempt to construe the term of
the form on which the appellant seeks to rely.
I would dismiss the appeal.
__________________
WINNEKE, P.: In my opinion this appeal should be dismissed.
__________________
BATT, J.A.: The facts of this case are set out in the reasons for judgment
of
Tadgell, J.A., which I have had the benefit of reading. I regret that I
cannot share his Honour's conclusion.
. . .The circumstances referred to earlier show, in my judgment, that the
respondent's completion and signature of Ex.1 was the price or quid pro quo
for the appellant's consent, licence and permission abovementioned which
he needed. The known circumstances attending the signing of Ex.1, then,
are eloquent of contract.
The final question is whether, on its true interpretation, Ex.1, and
specifically clause 2, exempted or relieved the appellant, or rendered it
immune, from liability to the respondent in damages for the negligence on its

11

part which the trial judge found, namely, allowing the respondent to engage
in the inherently dangerous pastime when he had not had sufficient
instruction from the appellant. In my view, it is clear that on its true
interpretation clause 2 did have that effect.
For the foregoing reasons, I am of opinion that the appeal should be
allowed, the judgment below should be set aside and in lieu thereof it should
be ordered that there be judgment for the defendant (the appellant).

7. Imagine a hypothetical statute called the Road Traffic Act 1985.

Section 18 reads:
(1) It is an offence for any person to drive any vehicle on any footpath.
(2) The penalty for breach of subsection (1) is 2 Penalty Units.
(3)This section will not apply if the relevant Roads Authority or municipal
council have specifically authorised the conduct in quest ion either in
writing or by way of posted signs.
Would the Road Traffic Act 1985 s 18 apply to each of the following scenario
s? Give reasons for your answers:
a)
b)
c)
d)

Venus was caught galloping a horse along a footpath.

Michael was caught riding a motorbike on a footpath.
Cassy was caught riding her tricycle on a footpath.
Sekars grandmother was stopped driving her motorised wheelchair
footpath.

12

Module 2A:
The Law of
Take care or
Torts,
else!?
Negligence
and negligent
Misstatement (Advice)
Topic Outline
This topic examines careless advice that results in a victim suffering a purely
financial loss: NOT a physical injury: eg poor advice regarding investments
from a financial planner.

Learning Objectives
On completing this topic, you should be able to:

state the common law rules developed for negligent misstatement and
apply these rules to a practical situation;

state and apply the rules relevant for auditors and the giving of advice to
a third party.

draw comparisons between Malaysian and Australian case-law.

Readings
Trakic et al., 2014, Law for Business

Ch 14

Abdul Majid bin Nabi Baksh & Krishnan Arjunan, Business

Law in Malaysia
Sweeney and OReilly, Law in Commerce

Ch 21
Ch 3

Tutorial Questions
1. What must be shown before a person can have an action against another
for negligent misstatement?
2. Mrs. Nguyen asked her accountant Mr. Wu for investment advice. On
behalf of his client Mr Wu telephoned the City of Dandenong, and asked
them about their plans to redevelop the suburb of Doveton. In particular

13

he asked them about any road widening or other construction proposals

that may affect the value of real property in the area being redeveloped.
He was told by a clerk that To the best of my knowledge there are no
specific road widening proposals that may affect any part of the area, but
I cannot be 100% sure as at this stage the redevelopment is in the early
planning stages, and the situation may change.
Mr. Wu then advised Mrs. Nguyen in a letter dated 1 April 2005 to
purchase land in the suburb of Doveton because the area was about to
be redeveloped, and land values would triple because of the
redevelopment. He did not mention anything about the current position of
the redevelopment plans.
On the basis of this advice, Mrs. Nguyen then purchased land for
$500,000, and a few months later was horrified to discover that due to an
access road to the Monash freeway being built, the land purchased by
her had decreased in value to $150,000.
Advise Mrs. Nguyen of her non-contractual rights, if any, against Mr Wu
and the City of Dandenong

3. Video case study/problem 1

Watch the video problem titled Video 1: Defective Advice and also view
the Defective Advice Brochure. The script of the video scenario and the
brochure are reprinted at the end of these Study Materials.(a) Having
viewed the video, advise Wayne (the client) whether he is likely to
succeed in suing Steve (the accountant) in negligence to recover the tax
penalties he has suffered.(b) Advise Primrose (the florist) whether she is
likely to succeed in suing Steve (the accountant) for negligent
misstatement.

14

Enforcin
g a contract
is simple: a
BIG, BIG
Stick!!

Module 3: The Law of

Contract
Introduction

This topic covers the legal aspects that relate to

making contracts. A contract is essentially an agreement
between two or more persons that will be enforced by a
court of law. A contract may be entirely in writing or
entirely oral or partly written and partly oral.
A large part of contract law revolves around ascertaining the intention of
the parties. To do this the courts will apply an objective test. What would a
reasonable person, observing the behaviour of the parties, conclude?
Most of the rules governing contracts are derived from the common law,
however the Contracts Act 1950, the Sale of Goods Act, the Consumer
Protection Act and the Specific Relief Act introduce some legislative
variations and these will be studied.
Another area important to business is the use of exemption clauses,
where one party will seek protection from legal action by including a term
into the agreement that seeks to deny their liability or exempt them from
liability. Such clauses have an important impact upon the remedies available
other injured party.
In order to make it easier for you this topic has been divided into 4 subtopics as follows.

Sub-topics
Topic 3a: Formation
This will deal with forming valid contracts.
Topic 3b: Contents
Terms, both express and implied within the contract will
be examined in this topic
.
Topic 3c: Exemption Clauses
This will examine exclusion clauses and limitation clauses
Topic 3d: Vitiating factors
How an agreement can be legally terminated due to
factors that vitiate or affect a partys consent to the
contract.
Topic 3e: Breach of contract & Remedies
This sub-topic will cover the different forms of breach and
remedies available.
15

3a: Formation
Topic Outline
This will deal with forming valid contracts. It will be divided into two parts:
(1) offer and acceptance; (2) intention to be bound and consideration. (There
are other aspects to formation such as legality of the agreement and
capacity of the parties but we will only focus on the 4 listed here.)
When analysing whether a contract is formed it is useful to bear in mind
the concept of consensus ad idem. In order to determine whether an
agreement is reached (offer and acceptance), and secondly, whether such
an agreement is intended to be legally binding (intention to be bound) and is
legally binding (consideration).

Part 1: Offer and Acceptance

Learning Objectives
On completing this sub-topic, you should be able to:

define the elements of a simple contract

define the terms offeror and offeree

identify and distinguish between an offer and an invitation to treat, or a

request for information

recognise and apply the rules of offer and acceptance to a practical

problem, including revocation of an offer, termination of an offer, lapse of
an offer, and communication of acceptance

make comparisons between Malaysian and Australian case-law

Also you will consider:
What is an invitation to treat?
How does it differ from an offer?
What is the purpose of retaining the concept of an invitation to
treat?
A business may enter into many different commercial contracts.

Readings
Trakic et al., 2014, Law for Business
Syed Ahmad Alsagoff, Principles of the Law of Contract in Malaysia
Adnan Trakic, An Offer Vis-a-Vis An Invitation to Treat: A
Comparative Analysis with Reference to Malaysia, [2012] 5 MLJ i
Adnan Trakic, Offer and Its Significance for Formation of Contracts:
The Malaysian Perspective, [2012] 5 MLJ cxlvii
Abdul Majid bin Nabi Baksh & Krishnan Arjunan, Business Law in

Ch 3 & 4
Ch 1-4

Ch 8&9

16

Malaysia
Sweeney and OReilly, Law in Commerce

Ch 4

Tutorial Questions
1. What are the elements that make up a legally enforceable
agreement?
2. Alan needed money quickly. He owned an original 1886 edition of
Kidnapped by Robert Louis Stevenson, a book which he advertised
in the newspaper for sale for $1000. Cate saw the advertisement.
She telephoned Alan, saying that she would buy the book for $1000.
Alan, however, replied that he had reconsidered the matter and that
he could not sell the book for less than $2000.
Cate replied that she would give him $1500. Alan replied that he
would only sell the book for $2000 but that he would keep his offer
open for seven days. He also said that Cate could fax her
acceptance to him if she wanted. The next day Alan sold the book to
his friend David because David loved the book so much and because
he paid $7000 for it. Two days later Cate decided to purchase the
book for Alans price of $2000. She posted her acceptance to Alan.
The next day David told Cate that he had bought a copy of
Kidnapped from Alan for $7,000. Cate rang Alan to confirm that she
had accepted his offer. Later that day Alan received Cates
acceptance. Is there a contract between ay of the parties? Explain
why using IRAC.
3. Video case study/problem
Watch the video problem titled Video 2: Forming a contract? The
script of the video scenario is available at the end of this Unit Guide.
Advise Gerrie whether there is a binding contract to buy/sell the car.
Give full reasons for your answer.

17

Part 2: Intention/Consideration

Topic Outline
This topic examines the second series of rules for formation of contract and
the elements for making a valid contract. It examines:

the intention to be bound to a contract

the rules relating to consideration and,

the doctrine of promissory estoppel.

Learning Objectives
On completing this sub-topic, you should be able to:

recognise and apply the presumptions regarding the intention to create

legal relations to a factual problem

define consideration, including what constitutes valid consideration

apply the rules on consideration to a practical problem,

describe and apply the elements of promissory estoppel

identify how
consideration

make comparisons between Malaysian and Australian case-law

deed

overcomes

potential

problems

regarding

Readings
Trakic et al., 2014, Law for Business

Ch 5-7

Syed Ahmad Alsagoff, Principles of the Law of Contract in Malaysia

Abdul Majid bin Nabi Baksh & Krishnan Arjunan, Business Law in
Malaysia
Sweeney and OReilly, Law in Commerce

Ch 5 & 6
Ch 10 & 11
Ch 5

Tutorial Questions
1.

(a) You and your friends form the Sunway Photographic Society in
order to pursue your hobby of photography. You need to find a place
where you can hold meetings. Luckily one of the groups fathers lets
you use his garage (on his residential property) for 6 months provided

18

you pay him the sum of RM10 per month, and promise not to wreck
the property. Is this a legally binding agreement?
(b) You decide to organise a raffle to raise money. Is it possible to take
steps to ensure that there is no legally binding agreement between the
Sunway Photographic Society and the contestants? Provide an
example of what you would do.

2.

X has several outstanding debts, including:

RM10,000 owing to B

RM 5,000 owing to C

Y, Xs father, offers to pay B the sum of RM2,500 on the understanding

that B will not make any claims against X for the balance of the
RM10,000 debt. B agrees, but later changes his mind and claims the
balance of the debt owed by X.
C agrees to accept a sweepstake ticket in the Melbourne Cup in
settlement of the debt. Later C thinks that the ticket was not sufficient
and wants repayment of half the RM5,000 debt in addition to the ticket.
Would B and/or C be successful?

3.

Answer the following question using IRAC:

Albert is a builder. Bea is the owner of a block of land upon which she
intends to build a house. Albert and Bea enter into a contract for Albert to
build a house for RM75,000. The contract contains no provision for the price
to increase in line with price rises in materials. The price of materials rises
significantly. Albert wants an extra RM10,000 to continue. Bea agrees and
Albert builds the house.
Does Bea have to pay the extra RM10,000?

19

3b: Contents
Topic outline
This topic examines the content of the contract, in other words the terms
of the contract. Terms are divided into two general categories: (1) express
terms; and (2) implied terms. We will also examine exemption clauses,
which are a very important type of term, and, thus they deserve separate
attention.
Thus this topic will be divided into three parts: (1) express terms; (2)
implied terms; and (3) exemption clauses.

Part 1: Express Terms

In Part 1 we will examine:

the concept and nature of terms in a contract

how a court may characterise statements as terms, representations or

mere puffery

problems involved in including oral statements as express terms where a

written contract exists

Learning Objectives
On completing this sub-topic, you should be able to:

distinguish between a term and a representation and list the

consequences that flow from the distinction

define and apply the parol evidence rule and the exceptions to this rule

explain and apply the criteria of a collateral contract

apply the tests for determining whether a term is a condition, warranty or

intermediate term

distinguish between an express and implied term

make comparisons between Malaysian and Australian case-law.

Readings
Trakic et al., 2014, Law for Business
Syed Ahmad Alsagoff, Principles of the Law of Contract in
Malaysia
Abdul Majid bin Nabi Baksh & Krishnan Arjunan, Business Law in
Malaysia
Sweeney and OReilly, Law in Commerce

Ch 8
Ch 9
Ch 13
Ch 6

20

Tutorial Questions
1. In Oscar Chess Ltd v Williams [1957] 1 WLR 370 the statement
about the age of the car was held to be a mere representation,
whereas in Esso Petroleum Co Ltd v Mardon [1976] 2 WLR 583 the
statement about the turnover of the petrol station was held to be a
term.
What is the difference between a term and a mere representation?
Why is the difference crucial? What factors do the courts take into
account when differentiating between terms and mere
representations?
2. What is the parol evidence rule? What effect does it have on
determining the contents of a contract? What are the major
exceptions to the parol evidence rule?
3. You are the legal compliance team who work for The Southern Cross
Hospital which is in conflict with Zapit Ltd and wants your help
resolving the following problem.
The hospital hired an X-ray machine from Zapit Ltd. At the time of
hiring, the hospital manager enquired about maintenance of the Xray and was told that all maintenance was the responsibility of the
hospital during the period of hire. At the same time the hospital
manager was presented with a three page pre-typed document for
signature. The manager only read parts of the document. One clause
that the manager did not read said:
Any maintenance must be carried out by Zapit Ltd. Strict compliance
with this condition is of the essence of the contract.
The hospital repaired the X-ray using its own hospital maintenance
staff. The staff are highly skilled and able to carry out such repairs.
When Zapit heard of the hospitals actions it notified the hospital that
the contract was terminated and the machine had to be returned
immediately. The hospital is unable to replace the machine at short
notice and wants to know if it has to return the X-ray.
(a) Advise the hospital regarding its rights and obligations, and make
suggestions as to how it might avoid this problem in the future.
(b) Would your answer be different if the manager had read the
document in full?
(c) Would your answer be different if the manager queried whether
the hospital could perform the maintenance and was told by a
secretary at Zapit: 'Im not totally sure but I think it should be ok.'

21

Part 2: Implied Terms

In Part 2 we will examine situations where the law allows terms to be
implied. Implied terms are divided into two sub-categories:
terms implied by the courts, eg for business efficacy, past
dealings and trade custom; and:
terms implied by statute, such as terms relating to the
merchantable quality or fitness of the purpose of goods and
consumer protection laws

Learning Objectives
On completing this sub-topic, you should be able to:
describe when the courts are prepared to fill in the gaps in the express
contract;
identify those contracts where the courts commonly imply terms;
explain what happens with terms implied by statutes
apply the concepts and rules examined in this topic to practical situations

make comparisons between Malaysian and Australian law

Readings
Trakic et al., 2014, Law for Business
Syed Ahmad Alsagoff, Principles of the Law of Contract in Malaysia
Abdul Majid bin Nabi Baksh & Krishnan Arjunan, Business Law in
Malaysia
Sweeney and OReilly, Law in Commerce

Ch 8
Ch 9
Ch 13
Ch 6

Tutorial Questions
1. How are terms implied into contracts?
2. Charlie enters R Pty Ltds shop. He speaks to a salesperson, Look,
Im going climbing in the Himalayas and I need a warm sleeping bag.
What have you got?
The salesperson shows Charlie three sleeping bags, one of which is
the tent manufactured by X. The salesperson is called away. Charlie
selects Xs tent and pays the cashier $750.

22

Charlie goes to the Himalayas and suffers frost-bite because the tent
is totally inadequate. In fact the tent is designed for use in mild
climates. Charlie hobbles into Rs store and demands an explanation
and compensation.
The manager says, Well you selected the tent and whats more the
sign at the cashiers desk clearly states that R Pty Ltd makes no
promises, warranties or conditions in relation to the goods sold and
shall not be liable for any damages save and except replacement of
goods proved to be faulty at the time of sale.
C remembers reading the sign at the time he bought the goods.
Does C have a good cause of action against R Pty Ltd.?

23

3c: Exemption Clauses

In Part 3 we will examine exemption clauses which are divided into: (1)
exclusion clauses; and (2) limiting clauses.

Learning Objectives
On completing this sub-topic, you should be able to:

tests and limitations applied to the inclusion and interpretation of

exemption clauses; and

the effect of an exemption clause.

Readings
Trakic et al., 2014, Law for Business
Syed Ahmad Alsagoff, Principles of the Law of Contract in Malaysia
Abdul Majid bin Nabi Baksh & Krishnan Arjunan, Business Law in
Malaysia
Sweeney and OReilly, Law in Commerce

Ch 9 & 10
Ch 9
Ch 14
Ch 6

Tutorial Questions
1. Where a person signs a document that contains an exemption
clause, is that party bound by the exemption clause? Where the
document containing an exemption clause is unsigned, what must
the party seeking to rely on the clause show before they can rely on
the clause?
2. Annie takes her expensive coat to Simons Dry Cleaning. She is
handed a ticket, the face of which contains a number, her name, a
description of the coat and an annotation to the effect that the coat
will be available for collection the following Friday. On the reverse
side in small print are the words: Conditions apply. On the rear wall
facing the counter is a sign written in even smaller print which reads:
Simons Dry Cleaning will not be liable for any stains or other
damage to any clothing whatsoever. On Annies return she discovers
the coat has bad stain marks on it. Advise her.
3. Jim runs a small cartage operation in Kuala Lumpur. One of his best
customers is ABC Ltd, which operates a chain of retail stores
throughout the metropolitan area. ABC uses Jim to transfer goods
from one store to another as the situation requires. The agreed
procedure is always the same.
ABC telephones Jim and gives him the collection point and the
destination. Jim picks up the goods. An employee of ABC and Jim fill
in and sign a collection docket. ABC keeps the duplicate. Jim takes

24

the goods directly to the drop off point and has the docket
countersigned by another employee of ABC.
Jims Cartage Company
Sir John Monash Drive, Caulfield
Collection Docket
Date:

This receipt is an acknowledgment that the

goods were delivered to Jim in
reasonable condition.
Consignor must arrange own
insurance. Under no circumstances is
Jim to be regarded as a common
carrier.

Pick-up address:
Destination:
Goods:
Consignors signature:
Jims signature:
See Over Terms

Jim will use best endeavours to

ensure goods delivered safely.
Jim does not accept any
responsibility for any loss or damage
to any goods carried pursuant to this
contract however such loss or
damage may arise or be caused
whether by negligence or otherwise.

At 12.30 pm on June 5th Jim collects a quantity of expensive goods

from one of ABCs shops. The usual procedure on collection is
followed. The docket is filled in, signed and a duplicate kept by ABC.
As it is nearly lunch time Jim decides to have lunch before delivering
the goods. He travels a number of kilometres off the direct route to
another suburb to collect a friend. Together they then go to a hotel
which has a great counter lunch. Jim parks on a steep hill.
Unfortunately Jim hasnt checked his brakes lately. They slip and the
vehicle races down the hill smashing into a number of obstacles on the
way. The goods belonging to ABC are totally destroyed. ABC
maintains that Jim must pay for the goods. Jim denies liability on the
basis of the exclusion clause. Advise the parties. Do you need extra
information? If so what would it be?

25

3d: Vitiating factors

Topic outline

This topic examines:

how an agreement between parties may be unenforceable because
there was no genuine agreement dues to the existence of vitiating
factor(s)

actionable duress, unconscionable conduct and/or undue influence

misrepresentation that may be actionable under common law

(fraudulent, negligent and purely innocent misrepresentation) and the
remedies available

regulation of misleading or deceptive conduct under legislation

the instances in which contracts created by a minor will and will not be
enforceable against the minor due to the minors limited contractual
capacity.

Learning Objectives
On completing this sub-topic, you should be able to:

define the term vitiating factors

list the elements of a misrepresentation

apply the different types of misrepresentation, both common law and

statutory, to a practical situation

list the remedies available for each type of misrepresentation

define and recognise conduct that is unconscionable and describe its

effect

define duress and its effect on a contract

define incapacity of a minor and describe the rules regarding the liability
of minors for contracts involving necessaries and beneficial contracts of
service

apply the rules applicable to minors to a practical problem

make comparisons between Malaysian and Australian law

26

Readings
Trakic et al., 2014, Law for Business
Syed Ahmad Alsagoff, Principles of the Law of Contract in Malaysia
Abdul Majid bin Nabi Baksh & Krishnan Arjunan, Business Law in
Malaysia
Sweeney and OReilly, Law in Commerce

Ch 11
Ch 11,
12, 13, & 14.
Ch 15
Ch 8

Tutorial Questions
1. Answer the following questions, using cases to support your answer:
a. What are the elements of misrepresentation?
b. When is a misrepresentation fraudulent? What are the
remedies for a victim of such a fraudulent misrepresentation?
What are the remedies for a victim of such an innocent
misrepresentation? What is negligent misrepresentation?
c. Explain the legal concept of duress, coercion, undue
influence and mistake.
d. Explain the remedy of rescission. In what circumstances is
the right to rescind lost?
2.

In 2001 Bill Baxter decided he wanted to move out of Kuala Lumpur

and live on a small farm. He inspected several properties before he
found one that truly suited his purposes a 50-hectare property
situated about 100 kilometres from Kuala Lumpur. As Bill was
inspecting the property he noticed that a creek ran through the bottom
paddock. When he asked the owner whether the creek was
permanent, the owner told him that it had never run dry.
This pleased Bill because he knew how important it was to have a
permanent source of water. He signed a contract of sale the following
day. Bill moved into the property in November but to his great
annoyance the creek ran dry only one month later. Furthermore,
neighbours have advised him that the creek always dries up in July.
Bill comes to you for advice. You discover that the signed contract
does not refer to the owners comments about the creek
Advise Bill of all the legal grounds upon which he can sue the vendor
and discuss any remedies that may arise from each of these grounds.
Please refer to relevant legislation and cases.

27

3e: Discharge, Breach of

contract and remedies
Topic outline
This topic examines how a contract is discharged, in particular what
happens when a party breaches a term of the contract:
the different types of discharge

the different forms of breach that can occur in a contract

the relevant remedies available to the party to seek relief for that form of
breach.

Learning Objectives
On completing this sub-topic, you should be able to:

list the ways that a contract may be discharged

define and recognise when a contract has been breached

list the types of breach and the consequences that flow from each type

list the rules relating to the award of damages with particular emphasis
on the two limbs of Hadley v Baxendale

make comparisons between Malaysian and Australian law

Readings
Trakic et al., 2014, Law for Business
Syed Ahmad Alsagoff, Principles of the Law of Contract in Malaysia
Abdul Majid bin Nabi Baksh & Krishnan Arjunan, Business Law in
Malaysia
Sweeney and OReilly, Law in Commerce

Ch 12 & 24
Ch 17, 18 &
19
Ch 18 & 19
Ch 8

Tutorial Questions
1. On 1 March 2015, the Monash Soccer Team booked a flight to
London to participate in the World Universities Football Cup from 21
to 26 March 2015. Their travel agents, Freedom Flight Sdn Bhd,
gave a discount fare of RM2000 per person, 50% of the price was

28

paid upon booking and the balance of the price was to be paid on 19
March 2015 upon collecting the tickets.
On 18 March 2015, the air traffic controllers of KLIA declared a strike
when the airport management refused to reduce their retirement age
to 45 years old.
When the Monash Soccer Team went to Freedom Flight Sdn Bhd on
19 March 2015, he refused to pay the balance unless it is confirmed
that the team can fly out of Kuala Lumpur on 19 March 2015.
The strike lasted for three days. By that time it was too late for the
team to compete in the competition.
The Monash Soccer Team claims for the return of the sum paid to
Freedom Flight Sdn Bhd. Freedom Flight Sdn Bhd refused to return it
and instead sued for the balance 50% to be paid by the Monash
Soccer Team.
Decide.

2. Alpha Pty Ltd hires a machine from Beta Machines Ltd. The machine
has been negligently maintained by Beta. It breaks down, and it will
take Beta three weeks to repair the machine. A replacement can be
hired, but none is available for a week.
Normal losses amount to RM1,000 a day. [Alphas factory operates 7
days a week.] Alpha Pty Ltd has also lost a lucrative government
contract worth a further RM50,000. The hire of the replacement
machine is RM5,000 in total. What damages can Alpha Pty Ltd
claim?

3. On 1 July, Mary, a builder, ordered building materials from Sancho, a

building materials supplier. The materials were to be delivered on
1 October. However, on 1 September Sancho advised Mary that he
would be unable to supply the materials on the due date.
(a) What options are available to Mary in these circumstances?
(b) What would your answer be if Sancho had advised Mary that he
may be unable to supply the materials.
(c) Consider the following. What if when Sancho advised Mary that
he is unable to supply the materials, Mary replied: Thats ok,
have another 3 days. Could Mary change her mind the next day
and demand that the deadline be met?

29

4. Sara engages Bob to dress up as a clown and roam the streets of

Melbourne advertising her novelty shop. The contract, which is to last
for one year, states that Bob must advise Sara at the start of each
day the route he plans to take.
On the tenth day Bob did not advise Sara of the route he was taking.
Unfortunately Bob took a route past a cemetery where mourners at a
funeral took offence to his antics.
Sara has subsequently received many complaints and many people
have chosen to boycott her store. This has happened during the
Christmas buying season and she has suffered many thousands of
dollars of lost profits. Sara wishes to repudiate the contract. Can she
do this?

30

Module 4:
AGENCY,
Agency!

Introduction

So far we have been looking at

situations where the parties to the
contract were the ones that were
involved in making the contract. This
topic looks at agency. Agency is a term
widely used in commercial circles. We
are all familiar with terms such as real
estate agent, authorised agent, licensed agent, and many others.
Agency is also a legal term. It describes a particular relationship between
two persons the principal (Pr) and the agent (A) and the third person
(TP).
Important point: Not all relationships which wider commercial usage calls
agencies are in fact agencies within the meaning of the law. We are
concerned only with what makes up an agency relationship in law.
Agency law is very important. In this complex, commercial environment
many transactions are not conducted between principal and principal.
Intermediaries are widely used to act on behalf of the principals. In fact some
business entities would find it impossible to operate without using an agent.
The most common way that an agent acts on behalf of the principal is by
making a contract on the principals behalf. In this respect the agency
situation is an exception to the doctrine of privity of contract. A principal may
also become liable for an agents misrepresentations.

Topic outline
This topic will examine:

the definition of an agent and how an agency relationship is established

how the agents actions may affect the principals rights and obligations
in relation to a third party

the agents authority, how the law determines the scope of that authority

the rights and duties owed by the agent to the principal, the concept of
fiduciary duties

situations in which an agent may become liable to the principal and/or to

the third party

31

termination of agency.

Learning Objectives
At the end of this topic you should be able to:

list the ways that an agency may be created

define and recognise an agency situation

define and apply the rules of an agents authority to a practical problem

and derive a conclusion

list and apply the rules regarding an agents duties to the principal to
determine if the agent breached these duties

understand the rights and duties of an agent.

make comparisons between Malaysian and Australian law

Readings
Trakic et al., 2014, Law for Business
Abdul Majid bin Nabi Baksh & Krishnan Arjunan, Business Law in
Malaysia
Sweeney and OReilly, Law in Commerce

Ch 13
Ch 20
Ch 10

Tutorial Questions
1.

Andrew used to work for Peter. His job primarily consisted of

collecting debts from Peters clients. One of Peters clients, Trevor,
who did not know that Andrew had been dismissed, paid Andrew
$200 which he owed Peter. Andrew disappeared with the money.
Peter wants to know whether he can compel Trevor to pay him again,
or must he seek the money from Andrew?

2.

Sam, the Accountant of XYZ Ltd, often acted as the Acting Manager of
the company while the Managing Director and other senior staff were
absent. His normal duties when in such a position involved overseeing
internal company matters and ensuring that his own Accounting
Department operated well. While acting as Acting Manager, Sam
purchased land at auction from TP on behalf of the company for $1
million.
Advise the company whether it may withdraw from the contract on the
ground that he acted outside his authority.

32

3.

Video case study/problem

Watch the video problem titled Video 3: Agency. The video is
included on the CD-ROM that accompanies your unit materials (or for
on-campus students, these may have been viewed in class and/or
available for loan on CD from your campus library reserve desk). The
script of the video scenario is available at the end of this Unit Guide.
Advise Steve whether he is liable to pay for the painting purchased by
Primrose. Give full reasons for your answer.

4.

Patrick appoints Adolf as his agent to sell his original art work by Tom
Wesselmann entitled Bathtub Collage. Patrick and Adolf enter a
written contract which states Adolf is entitled to a commission of 10%
of the sale price. Adolf is approached by the Galerie Sonnabend (GS)
in Paris. GS agreed to purchase the work for $950,000. In addition,
they paid Adolf an additional commission of 15% of the purchase price
to ensure that their offer was accepted by Patrick. The Tate Gallery in
London offered $1,000,000 to Adolf to purchase the painting but did
not agree to give him an additional personal commission, saying his
commission was to be paid by Patrick. Patrick sold the work to GS
unaware that the Tate Gallery had offered a higher price. After the sale
Patrick becomes aware that Adolf obtained a secret commission of
15% of the sale price from the GS.
(a)
(b)

Advise Patrick if he is bound to sell the art work to GS.

Does Patrick have any cause of action against Adolf?

33

Not all BUSINESS

STRUCTURES
are
ideal.some
provide
little legal protection

Module 5:
business
Structures:
Partnership and
Corporations
Introduction

This topic examines the advantages

and disadvantages of each of the different
forms of business structures, in particular
partnerships and corporations and the liability associated with that business
structure.
In order to make it easier for you to work through this topic, it has been
divided into three sub-topics that discuss the common types of business
structures you will encounter.
o
o

Topic 5a: Partnerships

Topic 5b: Companies

Part 5a: Partnerships

Topic outline
This topic examines the creation, structure, operation and dissolution of
partnerships, as well as the interaction between partnerships and
outsiders. Furthermore, the rights and duties of partners under the
Partnership Act will be examined.

Learning Objectives
At the end of this topic you should be able to:

define the requirements for establishing a partnership under common

law and by statute (formal and informal)

list the factors courts have considered in the interpretation of the

definition of partnership

define the concept of fiduciary relationship and its application to a

partnership

34

define the principles of actual and apparent authority of a partner

list the acts of a partner that bind the other partners

determine whether and to what extent partners are liable for their copartners contractual and/or tortious acts

determine when a partnership can be dissolved and the consequences

of dissolution

list the advantages and disadvantages of a partnership structure

make comparisons between Malaysian and Australian law

Readings
Trakic et al., 2014, Law for Business
Abdul Majid bin Nabi Baksh & Krishnan Arjunan, Business Law in
Malaysia
Sweeney and OReilly, Law in Commerce

Ch 20
Ch 26
Ch 11

Tutorial Questions
1.

Answer the following questions using cases as well as the relevant

sections of the Partnership Act 1961
a. A is owed RM5,000 by the business. The amount is to be
repaid by instalments out of the accruing profits of the
business.
b. B is an employee of the business. As part of her remuneration
package she receives a share of the profits.
c. What is the interest rate payable for any advance made by a
partner beyond the amount of capital that partner has agreed
to subscribe?
d. What notice should a retiring party give in order to avoid
being liable for partnership debts incurred after their
retirement?
e. Describe the nature of a partnerships contractual and noncontractual liability to outsiders.

2.

During a particularly hot summer, Fred, Cedric and Desmond

commence a business together making sandwiches using the name
Soggy Sangers as their trading name. They also sell coffee and
cakes.

35

Only Desmond has put capital into the business, and no formal
agreement exists between them. However, on many occasions Fred
has purchased stock, such as bread, and fresh vegetables, for the
business from their various suppliers by using his own money, and he
has also set up an account with the suppliers in the name of Soggy
Sangers. Cedric also has often placed orders on behalf of the
business with their various suppliers for stock.
At their next meeting Fred, suggests selling alcoholic ice cream.
Desmond likes the idea but Cedric, being a teetotaller, does not. Such
a change would require extensive renovation of the shop, and also
obtaining a licence to sell alcohol. This requires an application to the
relevant government authority, which may reject the application.
Finally Desmond wishes to leave in two months but wants to make
sure that he has no further obligations and commitments once he
leaves the business.
Answer the following questions:
(a) Is the business a partnership? Yes/No (explain).
(b) Can Fred and Desmond validly make a decision to embark
on the ice cream making venture without Cedrics consent?
(d) What should Desmond do before he leaves the business?
3.

Albert and Beatrice carry on a business in partnership as hairdressers.

(a)

Albert buys a hair dryer, RM100 for the business from X on

credit.

(b)

Albert borrows from Y RM3,000 which he claims will be used for

partnership purposes.

(c)

Albert buys from Z on behalf of the partnership two dogs, an

Alsatian and a poodle.

The partnership agreement between Albert and Beatrice expressly

forbids Albert from entering into any of these transactions. X, Y and Z
were ignorant of these restrictions.
Advise X, Y and Z as to their rights against Beatrice and/or Albert.
What would the result be if X, Y, Z had notice of the restrictions?
4.

Video case study/problem

Watch the video problem titled Video 4: Partnership. The script of the
video scenario is available at the end of this Unit Guide.
Advise Steves partner, Gerrie, to what extent (if any) she will be liable
for the losses by the firms clients due to Steves negligence and breach
of contract involved in Steves defective tax advice.

36

Part 5b: Companies

Topic outline
This topic examines corporations, their nature and functions. It also
examines the roles played by participants in the operation of a company,
and the directors duties under common law and under the Companies Act.

Learning Objectives
At the end of this topic you should be able to explain:

how a company comes into existence, the various types of company

how they differ; why chose one and not another
the nature of a company
list the consequences of a company having a separate legal identity to
the participants in the company and the mysterious rite called lifting the
corporate veil
how a company operates
how a company will be bound by the actions of its directors, employees
and agents
duties of directors and other officers of the company
recognise and apply the remedies for the breach of these directors
duties to a practical problem

Readings
Trakic et al., 2014, Law for Business
Abdul Majid bin Nabi Baksh & Krishnan Arjunan, Business Law in
Malaysia
Sweeney and OReilly, Law in Commerce

Ch 20
Ch 25
Ch 12

Tutorial Questions
1. A company is a person separate from its members and its directors.
Explain what this means.
2. Sam, Brian and Ah Kau intend to set up a company known as Setia
Sdn Bhd. They seek your advise on the following:
a) How is a company incorporated?
b) What is the effect of incorporation?

3. Jack and Jill are 2 directors and shareholders of Jakun Sdn. Bhd.
Jakun Sdn Bhd would like to borrow RM100,000 from Asia Bank
Berhad. Asia Bank Berhad asked for the Memorandum of
Association and Articles of Association of Jakun Sdn Bhd.

37

a) Explain what is a Memorandum of Association and Articles of

Association
b) Why is it important for Asia Bank Berhad to obtain a copy of
these documents?

4. Sally and Jacob are undecided whether to set up a company or a

partnership. Explain to Sally and Jacob 5 legal differences between a
company and a partnership
5. What are a directors statutory duties? What are a directors common
law duties?

6. Corina Parsons was the company secretary of Grand Pty Ltd. The
terms of her authority were set out in her employment contract
these were rather restrictive since the managing director was her
uncle who did not have a great deal of confidence in his young
eighteen-year-old niece (who in fact looked a lot older than her age).
Without the permission of the company Corina hires a car in the
companys name from Exec Hire Car Company. In fact she uses the
car for her own personal use neither Grand Pty Ltd nor Exec Hire
Car Company was aware of this until later on.
Advise Grand Pty Ltd whether it is responsible for the debt to Exec
Hire Car Company.

7. Video case study/problem

Watch the video problem titled Video 5: Companies. The script of the
video scenario is available in the e-Unit Guide.
Advise the manufacturer whether Wayne is personally liable for the
outstanding invoice.

38

Additional Materials
The following section contains additional materials to assist your study in this unit.
Following, you will find the scripts and associated material for video scenarios 15.
The statutory materials are reprinted in your unit Reader.

Video 1: Defective advice

[SETTING: The scene takes place in the office of a tax accountant.]
Characters:

Steve (the professional-looking accountant)

The client, Wayne, average-looking person (the proprietor of a small caf business,
Waynes World)

Primrose another small-business owner (florist)

[The scene opens with Steve (accountant) and Wayne (client) sitting in
Steves office.]
Steve:
I understand that you want to reduce your tax bill this year?
Wayne:
You bet I do.
Steve:
Well, there is a way, and its perfectly legal. As a small business run by
a sole proprietor, the tax man doesnt distinguish between your
business expenses and your personal expenses, right? Its not like a
company. So what you should do is have all your business bills put into
your name, and then you can claim things like your home phone bills,
gas, electricity and the like against the business income. The tax man
cant tell the difference between home ones and work ones, see?
Wayne:
But how can that be legal?
Steve:
Look, its a bit technical, got to do with the concept of legal personality.
Ever heard of it?
Wayne:
No
Steve:
Well, dont you worry about it. Leave the worrying to me! Thats what
you pay me for! Here is a brochure* setting out all the details of what
you have to do.
[Wayne reads the brochure* briefly. The camera films the brochure
briefly. The brochure begins Want to pay less tax?]
Wayne:
Okay, where do I sign? (Chuckles)
Steve:
No, theres nowhere to sign, just do like Ive just told you and youll be
fine.
[The two men shake hands and Wayne leaves Steves office.]
[New scene]
[After leaving Steves office, Wayne immediately sees his friend, Primrose
the florist who seems to be delivering flowers.]
Primrose:
What are you up to, Wayne?
Wayne:
Just been to the accountant to save myself a whole lot of tax.
Primrose:
Not possible, Wayne. You cant beat those guys.
39

Wayne:

Oh yes you can. Have a look at this brochure*. You could use the
same method for your florist business.
[Primrose examines it and looks impressed.]
Primrose:
Can I keep this for a few days?
Wayne:
Sure. Just let me have it back when youve finished, because I might
show some of my friends at the pub.
Primrose:
Thanks. Bye.
[Scene closes.]
[New scene.]
[Scene opens with Wayne and Primrose together, looking different (six
months have passed).]
Primrose:
(Turns to Wayne, clearly upset/angry): Thanks for nothing, Wayne. I
followed your accountants advice six months ago and now the tax
department is claiming I owe them heaps of money in unpaid tax and
penalties.
Wayne:
Yeah, I got a huge tax bill too. The same thing happened to my friends
at the pub who followed the advice in that brochure too.
It seems that accountants advice was totally wrong, maybe even
negligent. But I dont think its fair that I have to pay tax penalties when
it was my accountants fault. Were going to see if weve got rights to
make him pay for this problem.
Primrose:
That sounds fairer. Let me know what happens.
[Scene closes,]
End of scenario.
friends at the pub: a colloquial expression meaning friends with whom he
socialises frequently.
*Brochure: the brochure referred to in this scenario is shown below.

40

41

Video 2: Forming a contract?

[SETTING: The scene takes place in the street.]
Characters:

Gerrie, trying to sell a car

Wayne, potential car buyer

Primrose, potential car buyer

[The scene opens with Gerrie and Wayne standing beside Gerries car with
a For Sale $15,000 sign on it. Bonnet of car is up. Wayne has just finished
inspecting the car.]
Gerrie:

So now that youve seen the car, are you interested?

Wayne:

Well, I like the car, but I cant afford 15,000 dollars right now.

Gerrie:

Well, I could give it to you for 14,000, but thats as low as I can go.

Wayne:

I could give you 10,000 dollars now, and the other 4,000 when I get
paid next month.

[Primrose approaches.]
Primrose:

Hi Gerrie. I heard you were selling your car and Im looking for a car
like this. How much would you take for it?

Gerrie:

Well, Primrose, Ill take 14,000 no less than that.

Wayne:

Just a minute Im buying the car. We just agreed.

Gerrie:

No we didnt, Wayne. I wanted 14,000 now, but you said youd pay on
10,000 now and the other 4,000 next month.

Primrose
interrupts:

Ill give you $14,000 today, but the cars got to pass my
mechanics tests Im no mechanical expert, so Id have to get my
mechanic to check out the engine.

Gerrie:

[talking now to Primrose] Thats OK. You can take it to your mechanic
for a check and if he says its in good condition, you take the car.

Wayne:

No, its not OK, I am buying the car. We agreed.

Gerrie:

[talking to Wayne] No we didnt I wanted all the money now, and you
wanted to pay in a month.

Wayne:

Oh, OK, Ill pay you all $14,000 this afternoon.

42

Gerrie:

14,000 it is then and no mechanics check: a definite sale. Yes, OK

you have a deal.

Primrose interrupts again: (urgently) Ill give you the full 15,000, but the cars still
got to pass my mechanics tests.
Gerrie:

(Excited) You have a deal $15,000 it is. Here are the keys, you go
and get your mechanic to look at it.

[Gerrie hands the car keys to Primrose, who drives away. Gerrie and Wayne
remain standing at the kerbside. Wayne is NOT happy.]
Wayne:

Thats not right. [pause] Thats just not right we had a deal: 14,000
for me to buy the car. You agreed to sell me the car. We had a contract
and you broke it!

Gerrie:

Im sorry, but thats rubbish. I hadnt actually given you the keys to the
car yetand you hadnt paid me the money yet. We didnt have a
contract. Sorry, but I did nothing wrong here.

[At that instant, the car returns with Primrose driving. We see Primrose get out of
the car and hand the car keys back to Gerrie.]
Gerrie:

That was quick.

Primrose:

Well, my mechanic is just around the corner and she took one look at
the radiator and said the car has blown a head gasket. Fixing a head
gasket is not a cheap job. Sorry, but Im not taking the car.

[Primrose immediately walks away.]

Gerrie:

(calling after Primrose) But we had a deal, Primrose!

[Gerrie turns back to Wayne.]

Gerrie

OK Wayne, so the car is yours after all for 14,000 like you wanted.

Wayne:

I dont think so, Gerrie.

[Scene closes.]
End of scenario.

43

Video 3: Agency
[SETTING: The scene takes place in the office of a tax accountant.]
Characters:

The accountant, Steve

Primrose

[The scene opens with Primrose entering the accountants office. Steve
looks up and smiles.]
Steve:
Ah, Primrose
Primrose:
Hello Mr Cooper. I was just dropping off this weeks flowers for your
reception area, when your secretary said you wanted to see me.
Steve:
Yes, Primrose. Clients often comment on your floral arrangements and
I thought you might be able to help me out. Ive decided that the board
room here needs some new artwork and Im afraid I dont have the time
or the skill to pick something appropriate. I hear you have a background
in interior decorating and I was wondering whether you might be
interested in helping me out.
Primrose:
Well
Steve:
Id pay you for your time of course does $100 sound fair?
Primrose:
Yes it sounds fine, but how would this work?
Steve:
Well, I have the name and address of a small exclusive gallery here. I
was thinking that I could give the gallery a call and tell them to expect
you. Ive bought work from there before so they will be happy to let me
pay after delivery.
You could call in to the gallery at a time that suited you, and choose
something appropriate for the boardroom. Would that be OK?
Primrose:
That sounds fine I could go there early next week and bring the
painting with me when I come here again next Thursday.
Steve:
Excellent. Now Ill call that gallery while youre here.
[Steve picks up phone and dials number on business card. After short pause for
ringing, Steve speaks into phone.]

44

Hello Chris. How are you?Thats greatYes, Im fine too. Im ringing

because I need another painting for the office. Something substantial.
Ill be sending someone down to your gallery her name is Primrose.
Ive asked Primrose to select a painting for me and pick it up. Im
hoping that you can just send the invoice to me at my office like you did
last month. Is that possible?It is? oh thats excellentThanks for
your help. Primrose thinks that shell be in to select the painting early
next week[Steve looks at Primrose to confirm and Primrose nods
affirmatively]yes, early next week. OK, thanks Chris. Its a pleasure
doing business with yougoodbye.
[Hangs up phone.]
Primrose:
So do you have a price range in mind for this painting?
Steve:
Well, its not going to be cheap. Id prefer something original, and it will
need to be large. Lets say, a maximum amount of $10,000? Heres the
gallerys card.
[Steve hands the business card to Primrose.]
Primrose:
OK. Thanks. Ill see you next week then, with the painting.
[Steve shakes hands with Primrose.]
Steve:
Thanks for helping me. Goodbye.
[Scene closes.]
[New scene.]
Steve:

[Primrose has a painting with her, currently painting is turned away from
the camera.]
Primrose:

Mr Cooper, heres the painting you asked me to buy. Im very excited

about it. It really was an excellent buy the artist is becoming popular
and Im sure it will increase in value quickly.

Steve:

Is that right? Great. [Looks in direction of painting] Hmmm, its not quite
as large as I was expecting. Can I have a look?

Primrose:

Of course you can its your painting.

[Primrose turns the painting around to face Steve. The painting is
unusual/horrible and Steves face registers startled surprise and shock.]

Steve:

[ stunned silence]Im almost speechless. It is not very appropriate

for the boardroom! And how much did it cost by the way?

Primrose:

Like I was saying, its a bargain. Just $12,000. I saw a smaller one by
this artist on sale last month for over 20,000. Its a really good
buyand I think youll grow to like it.

Steve:

I dont think Ill ever like it and at 12,000 thats more than the limit I set.

Primrose:

[shrugging shoulders] Well, Chris at the gallery wouldnt let me bargain

the price down any lower. 12,000 is a really good price for this. Oh, and
by the way he said the invoice should reach you in todays mail.

45

Steve:

Im not paying for this piece of junk, you can be sure of thatAnd I
wont be paying you that $100 I promised either youve totally made
a mess of this, thats for sure!

[Scene closes.]
End of scenario.

46

Video 4: Partnership
[SETTING: The scene takes place in an accountants office same office
as Video 1: Defective Advice.]
Characters:

Steve, accountant and senior partner in Steves Professional Accounting firm

Gerrie, financial adviser and junior partner in Steves Professional Accounting firm

[The scene opens with Steve alone in office. There is a pile of papers/letter
on his desk or in nearby background.]
[Steve hears a knock and Gerrie appears. Gerrie seems angry or upset. She
has opened mail in her hand.]
Steve:
Come in Gerrie. Sit down.
Gerrie:
I dont understand. This was delivered to me here today. [She slaps the
document on Steves desk and points to it ] it says Im being sued.
Steve:
Sued? What for?
Gerrie:
It saysyeah, it says here [seems to read from the document]that
you gave some person incorrect tax advice that caused him to lose
$20,000 in tax penaltiesIs this true?
Steve:
[coughs embarrassedly]Well it could be who was the client ?
Gerrie:
It says something about Wayne of Waynes World Cafs.
Steve:
Wayne?Yes I remember advising Wayne. Ive got a letter from his
lawyer somewhere here. [He leafs half-heartedly through the stack of
papers on his desk]
Gerrie:
Well, is it true did you give bad advice?
Steve:
Ummm, it seems I did get the advice wrong. I got some legal advice
and it seems I might have been negligent and maybe also in breach of
my contract to clients like Steve.
Gerrie:
Oh. [shocked/deflated] Ouch!But I dont understand. If youre
responsible, then why havent you paid that client Wayne?and why
am I being sued?Id only just joined this firm at the time this event
happened.

47

Well, theres a lot of people I gave similar advice to some just relied
on a brochure I sent out and theyre all wanting me to pay for their
losses. I cant afford it all. Even if I sold my home, it still wouldnt be
enough. I guess that client, Waynes lawyer, is probably suing both me
and you to make sure Wayne gets his money.
Gerrie:
But I wasnt the one who gave the wrong advice it was you! In fact I
thought wed agreed that youd give financial planning advice to clients
and leave me to give the tax advice.
Anyway, Im only a junior partner compared to you our partnership
agreement says we share profits and losses 60-40: I only get 40% of
the profits and so Im only responsible for 40% of any losses.
I still dont understand why I should have to pay for any of your
mistakes, but if I do, then surely Im not responsible for the whole lot?
Steve:
I dont know. Maybe you should get some advice about where you
stand.
[Scene closes.]
End of scenario.
Steve:

48

Video 5: Companies
[SETTING: The scene takes place at a caf table.]
Characters:

Wayne, owner and director of a company operating Waynes World Cafs in Melbourne,
Australia

Primrose, florist

[The scene opens with Wayne and Primrose sitting opposite each other
across the caf table.]
Wayne:
Hi Primrose
[Wayne and Primrose shake hands]
Primrose:
Hello Wayne, sorry to disturb you here at the caf, but I really need to
discuss this matter with you.
Wayne:
Well, I have a little time before the lunchtime customers arrive. What
can I help you with?
Primrose:
Its about the flowers for your cafs for the last four months. I run my
florist business on a tight budget and I simply cant afford to let
accounts go unpaid for long.
Wayne:
I understand that, but
Primrose:
[Holds out a stack of papers (invoices)] These invoices alone total over
$5,000, and that doesnt include the current months orders. With your
10 cafs around the city your orders for flowers have grown
enormously
Wayne:
Yeah, I know. First I just had one and then 2, and then 5, and almost
before I knew it there were 10. Thats part of the reason why I formed
the company six months ago, rather than running all the cafs as a sole
trader.
Primrose:
and thats great for you, but my business needs to survive, and for
that I need you to pay these invoices.
\Wayne:
Well, thats just it, you see. The cafs arent doing so well. A few
months ago, business started dropping off and in the last two months,
things just seem to be getting worse. Im sure that in summer business
will pick up and the cafs will start to turn a profit again, but at the
moment my business is in the red.
[Wayne takes the invoices from Primrose and glances through them.]
Wayne:
All these orders were made after I formed the company they are all
in my companys name [POINTING DOWN TO INVOICE READS
ALOUD]: Waynes World Pty Ltd.
Primrose:
Yeah,so?
Wayne:
Like I saidthe company is in the red its not making enough
money to cover the expenses at the moment.
Primrose:
Im really sorry to hear that Wayne, but Im trying to run a business too.
I need these accounts to be paid. The way I see it, you ordered the
flowers for your company, and in any case you run the company so you
are personally responsible to pay its bills, like you did when you were a
sole trader.

49

Yes I do run the business in fact Im the only director and the sole
shareholder, but that doesnt mean I have to pay its expenses.
Primrose:
I dont think thats right or fair!If I dont get the money by the end of
the week, your company and you will be hearing from my lawyerI
want the money you owe me.
[Scene closes.]
Wayne:

End of scenario.

50