Citation: [2012] 9 MLJ 464 HC Court: High Court (Kuala Lumpur) Judge: Lee Swee Seng JC Date of Judgment: 6 March 2012
1. Brief Background Facts
The plaintiffs, a large multinational conglomerate, initiated two lawsuits (the Qatar Project suit and the Bakun Project suit) against their former keys directors and officers, including the first defendant (Dato’ Seri Ahmad Zubair, former President and Group CEO) and the second defendant (Dato’ Mohamad Shukri bin Baharom). The plaintiffs alleged that these defendants breached their fiduciary duties and were negligent in the discharge of their duties, leading to colossal financial losses in the projects.
The defendants took the position that they were not liable because all their actions had been approved by the plaintiffs’ Boards and specialized committees. They further contended that if they were to be held liable, then the members of those Boards and committees who authorized their actions should also be held responsible. Consequently, the first and second defendants issued third-party notices and statements of claim against 22 and 13 third parties respectively—mostly non-executive directors and committee members—seeking indemnity or contribution. The third parties applied to strike out these third-party claims.
2. Legal Issues
- Indemnity: Whether a relationship existed between the defendants and the third parties that gave rise to a right of indemnity in law or equity.
- Contribution: Whether the third parties could be considered joint tortfeasors with the defendants, thereby entitling the defendants to a contribution toward any damages awarded.
- Reasonable Cause of Action: Whether the defendants’ claims against the third parties disclosed a reasonable cause of action or were an abuse of the court’s process.
3. Court’s Holding and Reasoning
The High Court allowed the third parties’ applications and struck out the third-party notices and statements of claim in both suits.
A. No Right to Indemnity The Court found that no relationship existed between the third parties and the defendants that would obligate the third parties to provide an indemnity. A right to indemnity must arise from an express contract, a statute, or be implied from legal principles (such as an agent acting at the request of a principal). The Court held that a director owes no duty to their fellow directors, only to the company. The defendants were never “requested” by the third parties to commit the alleged wrongs; if they were acting on Board instructions, that was a matter of defence against the plaintiffs, not a basis for indemnity from individual co-directors.
B. No Right to Contribution (Not Joint Tortfeasors) Under Malaysian law, a defendant can only claim contribution if the third party is a joint tortfeasor. The Court emphasized that for a party to be a joint tortfeasor, there must be more than passive presence in decisions; there must be active and purposeful procurement of the tort. The third parties were non-executive directors whose duties were intermittent and not co-extensive with the hands-on, daily operational responsibilities of the executive defendants. Furthermore, mere knowledge of a potential wrong does not render a director a joint tortfeasor.
C. Plaintiffs’ Liberty to Choose Defendants The Court ruled that when a company sues its directors for breach of duty, it has the right and liberty to decide which specific directors it holds responsible for the losses. The defendants cannot force the inclusion of other directors via third-party proceedings simply to share the burden of liability.
D. Abuse of Process The Court concluded that the claims against the third parties were obviously unsustainable and did not disclose a reasonable cause of action. Allowing the third-party proceedings to continue was deemed an abuse of the court’s process as they were designed to cause embarrassment and delay the trial of the main action.
4. Conclusion
The High Court struck out all third-party notices and statements of claim, ordering the first and second defendants to pay costs to the third parties. The case clarifies that non-executive directors cannot be easily roped into fiduciary duty suits as third parties through the doctrine of collective responsibility unless there is proof of active procurement of a tort.
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.
