The case of Sime Darby Bhd & Ors v. Dato’ Seri Ahmad Zubair @ Ahmad Zubir bin Hj Murshid & Ors (Tun Musa Hitam & Ors, third parties) [2012] 9 MLJ 464 (also reported as 2 MLRH 466) is a significant authority in Malaysian company and procedural law, particularly concerning fiduciary duties among co-directors and the limitations of third-party proceedings for indemnity or contribution.
1. Case Background
The plaintiffs, a massive multinational conglomerate known as the Sime Darby Group, initiated two separate legal actions against their former key executive directors and officers, including the 1st Defendant, Dato’ Seri Ahmad Zubair, who served as the President and Group Chief Executive. The lawsuits centered on two major undertakings: the “Qatar Project” and the “Bakun Project”.
Sime Darby alleged that Ahmad Zubair committed gross negligence, incompetence, concealment of information, and breaches of fiduciary duty during the implementation of these projects, leading to “mammoth cost overruns” totaling hundreds of millions of ringgit.
2. The Legal Conflict and Third-Party Action
Ahmad Zubair took the position that he was not solely liable. He argued that his actions were carrying out decisions approved and authorized by the Board of Directors and various specialized committees.
Consequently, he issued third-party notices against 22 individuals (including Tun Musa Hitam), who were primarily non-executive directors of Sime Darby. He sought an indemnity or contribution from them, arguing that because they sat on the boards and committees that approved the projects, they shared “collective and collegiate responsibility” for any resulting losses.
3. Key Legal Issues
The High Court had to determine:
- Whether a defendant director has a valid cause of action to claim indemnity from fellow directors in the absence of a contract.
- Whether non-executive directors qualify as joint tortfeasors from whom contribution can be sought under section 10(1) of the Civil Law Act 1956.
- Whether the third-party claims should be summarily struck out as an abuse of the court’s process.
4. Judicial Reasoning and Findings
The High Court, through Lee Swee Seng JC, struck out the third-party notices and statements of claim based on the following reasoning:
- No Right to Indemnity: The Court found no relationship recognized in law or equity that would obligate the non-executive directors to indemnify Ahmad Zubair. Critically, the Court held that a director owes no fiduciary duty to a fellow director; their duties are owed strictly to the company.
- Failed Claim for Contribution: To seek contribution, the third parties must be joint tortfeasors. The Court ruled that for joint liability to arise, a person must be directly involved and procure the tort (e.g., inciting or encouraging the wrong), as opposed to merely facilitating it or having passive knowledge.
- Executive vs. Non-Executive Distinction: The Court emphasized the different roles within a boardroom. Executive directors (like Zubair) are full-time employees involved in the “daily grind” of operations and supervision. Non-executive directors perform intermittent duties and are entitled to rely on the information provided by the executive team.
- Prerogative of the Company: The Court affirmed that it is for the plaintiff company to decide which board members to sue based on their specific action or inaction. Ahmad Zubair could not force the company to sue the entire board via third-party proceedings.
5. Final Order
The High Court concluded that Ahmad Zubair’s claims against the third parties were “obviously unsustainable” and disclosed no reasonable cause of action. The third-party notices were struck out with costs, as allowing them to continue was deemed an abuse of the court’s process.
Disclaimer: This post is for informational purposes only and does not constitute legal advice. Please consult a qualified Advocate & Solicitor for your specific legal needs.
