MANANG LIM NATIVE SDN BHD V MANANG SELAMAN ( 1986 ) 1 MLJ

379

1) FACTS

a) In this case the respondent was registered as the proprietor of land classified
as Native Area Land.
b) He executed two documents (a) an agreement and (b) a declaration of trust.
In the latter document he declared that he held the land in trust for the
appellant.
c) No authorization of the Yang di-Pertua Negeri had been obtained. A caveat
was lodged by the appellant in respect of the said land and this was duly
registered.
d) The respondent applied for an order to remove the caveat.
e) The High Court allowed the application and awarded costs to the respondent
( [1986] 1 MLJ 312). The appellant appealed.

2) HELD

a) Having regard to the definition of "native" in the Sarawak Interpretation

Ordinance it would appear that the clear intention of Parliament is to confine
the meaning of native to a natural person. The word "native" is therefore
limited to only a natural person;
b) The agreement made between the respondent and the appellant was an
agreement made in contravention of section 8(b) of the Sarawak Land Code.
As such it was entered into for an illegal consideration and was therefore a
void agreement within the meaning of section 2(g) of the Contracts Act,
1950;
c) Since the appellant lodged the caveat to protect an agreement which is
expressly prohibited by statute it follows that the appellant cannot lawfully
assert any interest in the said land. The consideration being deemed to be
illegal, an order must be made for the removal of the caveat.
 ARUMUGAM V SOMASUNDRAM ( 1934 ) FMSLR 322

1) FACTS

a) Object or consideration of the agreement must be lawful

b) Defendant’s motorcar was licensed only for private use but he employed the
plaintiff to drive it for both private use and for hire contrary to the Motor
Vehicles Enactment.
c) Def failed to pay pff’s wages, pff claimed for his money.An unlicensed car
for hire was an unlawful object of agreement.
d) The plaintiff failed in his claim.
 AROOMOOGUM CHITTY V LIM AH HANG ( 1894 ) 2 SSLR 80

1) FACTS

a) The plaintiff lent money to the defendant for the purpose of running a brothel.
The court held that the plaintiff could not recover his money from the
defendant because the agreement made was illegal as it was immoral.
 PEARCE V BROOKS ( 1866 )

1) FACTS

a) The defendant was a prostitute who hired a carriage from the plaintiff, who
was a coachbuilder, on hire purchase terms to be paid for in instalments.
b) She wanted the carriage to attract customers.
c) The defendant did not pay the second instalment on the carriage and returned
it in a damaged condition, in breach of the agreement.
d) At first instance the jury found on the evidence that the coachbuilder knew
that she was a prostitute at the time the contract was made.
e) The coachbuilder sued for non-payment and for the damage.

2) ISSUE

a) It was argued that, as the coachbuilder knew the defendant was a prostitute,
he expected to be paid out of the profits of prostitution.
b) He, therefore, knew of the immoral purpose to which the carriage was to be
put and should not be allowed to recover on the contract.

3) HELD

a) The court found for the defendant. It was immaterial that the immoral
purpose was not part of the contract or whether the claimant was to be paid
out of the proceeds.
b) Bramwell B distinguished between a contract to supply a prostitute with a
carriage to be used to attract customers and a contract to supply her a pair of
shoes, as shoes were one of the necessities of life.
c) It was part of the principle ex turpi causa non oritur actio that anyone who
supplies something for the performance an illegal act with knowledge that it
was to be used for that purpose cannot sue for the price of it.
d) An immoral purpose was the same thing as an illegal purpose.
e) Therefore, the plaintiff could not recover.
SABABUMI ( SANDAKAN ) SDN BHD V DATUK YAP PAK LEONG ( 1998 )
3 MLJ 151

1) FACTS

a) The Sandakan Turf Club ('the club'), formed to carry out gaming activity,
granted a licence to operate 3-Digit and 4-Digit lotteries. Gaming was
prohibited by the Sabah Gaming Ordinance (Cap 50) ('the Ordinance') but
the club was exempted from the provisions of the Ordinance pursuant to s
27(a). On 26 November 1987, written agreement ('the agreement') was
concluded between the club and the appellant.
b) Under the agreement, the appellant was to buy 100 acres of land and to
construct a racecourse on the land at its own expense. The club in turn agreed
to sublease the land and the racecourse to the appellant for a period of 20
years. The appellant was given the exclusive rights to conduct and manage
all bettings on the races at the racecourse and to conduct and manage all 3-D
and 4-D operators throughout the state of Sabah.
c) The appellant was to pay 2% of its gross sale takings to the club on a joint
venture basis.The Pool Betting Act 1967 was later extended to Sabah and on
14 April 1992, the Sabah authorities cancelled the licence. On the date the
licence was cancelled, the Sabah authorities issued an amended licence. The
Ordinance was subsequently repealed by the Modification of Laws (Common
Gaming Houses, Lotteries, Betting, Betting and Sweepstake Duties and
Racing (Totalisation Board) (Extension to the States of Sabah and Sarawak))
Order 1991 which contained a proviso that the exemption and licence granted
earlier under the Ordinance remained in force. In January 1995, the federal
Ministry of Finance issued a new licence to the club under the Pool Betting
Act 1967.
d) The appellant continued to carry on off-course betting activities after the
1995 licence was issued. However, its activities were stopped by the police.
e) The High Court declared that the 1995 licence was within the scope of the
agreement by way of an implied term.
f) The Court of Appeal reversed this decision and set aside the order of the
High Court (see [1997] 1 MLJ 587).
g) On appeal, this court had to decide on the issues of the implied term and the
illegality of the agreement.

2) HELD

a) Held, dismissing the appeal

b) (per Peh Swee Chin and Zakaria Yatim FCJJ) the court may infer an implied
term from evidence that the parties to a contract must have intended to
include it in the contract though it has not been expressly set out in the
contract. Intention is determined by the officious bystander test and the
business efficacy test. In the agreement, the essence of the intention for both
parties was for the club to grant an exclusive right to the appellant to conduct
off-course and on-course betting or gaming for 20 years in consideration of
payment to the club of 2[percnt] of all gross takings from such betting
activities. Both parties had decided to commit to each other in regard to such
business on a long-term basis. At the time of negotiating for the agreement or
 signing the agreement, if the officious bystander had asked the question
whether such exclusive right to operate off-course and on-course betting for
20 years would continue if the licences and the exemption were issued or
granted by any other laws, both parties would have answered [lsquo ]Oh, of
course[rsquo ]. The answer to the officious bystander would also give
business efficacy to the business between the parties, ie it would give the
desired result of both parties under the agreement. Therefore, the High Court
was correct in implying such a term
c) (per Lamin PCA, Peh Swee Chin and Zakaria Yatim FCJJ) under
s[nbsp ]24(a) of the Contracts Act 1950, an agreement is illegal and
unenforceable when either the consideration or the object of the agreement is
to do an act forbidden by law. In this case, the illegal or prohibited act was
the breach of condition 23 of the said federal licence, which prohibited the
assignment of rights. The agreement assigned wholly or partly the rights of
the club granted by the federal licence, by granting the appellant the
exclusive right to conduct the off-course and on-course betting. As such, the
agreement amounted to a contract to do an act forbidden or prohibited by
s[nbsp ]21 of the Pool Betting Act 1967. This contradicted s[nbsp ]24(a) of
the Contracts Act 1950 and the agreement was therefore illegal and void
d) (per Lamin PCA, dissenting on the issue of implied term) there were material
differences between the conditions of the original licence and the amended
licence issued by the state authority and those contained in the federal licence
of 1995. Some of the conditions were absent in both the original and the
amended licences. Further, upon the issuance of the 1995 federal licence
under the Pool Betting Act 1967, it remains valid only for one year as
condition 1 so stipulates; the previous two licences had no time limit. Under
the federal licence, it is the Minister who approves the appointment of any
agent whereas under the 1987 agreement, the appellant had the exclusive
rights to conduct and manage all bettings.
e) Therefore, the Federal Minister[rsquo ]s powers under the federal licence
were beyond the contemplation of parties to the 1987 agreement.
f) The implication of the term by the judge was therefore wholly unjustified.
 HAJI HAMID BIN ARIFFIN V AHMAD BIN MAHMUD ( 1976 ) 2 MLJ 79

1) FACTS

a) In this case, the registered proprietor of Malay reservation

land Mahmud bin Samad, a Malay, had sold it to a Siamese lady. On
execution of the agreement, possession of the land and of the title deed to the
land was given to the purchaser. S
b) ubsequently, the Siamese lady sold the land to the appellants, who were
Malays.
c) The land was still registered in the name of Mahmud, who had since died. In
this case, the appellants who were administrators of the estate of the Siamese
lady sued the administrator of Mahmud’s estate for specific performance.
d) It was agreed that the sole question for decision was whether the sale
by Mahmud to the Siamese lady was enforceable under the provisions of the
Kedah Malay Reservations Enactment (No 63).
e) The learned trial judge held that the sale was void. The appellants appealed to
the Federal Court.

2) HELD

a) Held, dismissing the appeal:

b) By virtue of s 6(2) of the Kedah Malay Reservations Enactment, the
purported sale was void ab initio and it could not be enforced by the
purchaser nor could the purported purchaser pass a good title to another, even
if he be a Malay.
 HEE CHENG V KRISHNAN ( 1955 ) MLJ 103

1) FACTS

a) The plaintiff and the defendant entered into an agreement for the sale and
purchase of the plaintiff’s house built upon a land in respect of which the
defendant was the holder of a temporary occupation license.
b) The plaintiff claimed specific performance of the agreement or alternatively
damages for the defendant’s breach of contract.

2) HELD

a) The court held that the contract entered into was an attempt to sell and to
purchase the defendant’s rights under the TOL license which is contrary to
Rule 41 of the Land Rules 1930 which stated that “No license for the
temporary occupation of State land shall be transferable”.
b) As such the contract was unlawful as it being of such nature to defeat the
provision of any law (Section 24 of Contract Act) and therefore is void.
LIM KAR BEE V DUOFORTIS PROPERTIES ( M ) SDN BHD [1992] 2 MLJ
281[1993] MLJU 83

1) FACTS

a) In this case a scheme was devised whereby the appellant, the registered
owner of some valuable land in Penang, agreed to sell the land to a company
and also executed a trust deed declaring that he held the land in trust for the
company.
b) The said company was incorporated together with another
company, Lim Kar Bee & Sons Sdn Bhd, the holding company, and were
formed in pursuance of a scheme devised by a tax consultant to avoid
payment of estate duty payable in regard to the said land if the
appellant/landowner died. In the original application before the High Court
the issues that were raised and contested were that the various documents
prepared, though signed by the appellant, were not explained to him; that
there was misrepresentation by his daughter and that there was also undue
influence.
c) In respect of these issues, the learned trial judge came to conclusions against
the appellant and granted the order as prayed in the originating summons.
The appellant appealed and raised the question of illegality for the first time.

2) HELD

a) On a detailed consideration of the pleadings and issues in the former and

present actions, I found the plea of res judicata raised by the defendant to be
well taken and the attempt to reagitate the questions formally adjudicated
upon by the Supreme Court a scandal and an abuse of the process of the court
and I therefore made an order in terms of the defendant's application.
CHUNG KHIAW BANK LTD V HOTEL RASA SAYANG SDN BHD ( 1990 ) 1
MLJ 356

1) FACTS

a) In this case, the appellants ('the bank') had, by letter dated 29 October 1980,
agreed to grant to a company, Johore Tenggara Sdn Bhd, a fixed loan of
$1,250,000 to facilitate the purchase by the directors of the company of the
shares of Hotel Rasa Sayang Bhd ('the hotel'). This fixed loan was secured.
An agreement for this purpose was entered into on 19 November 1980 by the
parties concerned. The hotel executed the securities and the bank disbursed
the loan.
b) On 28 September 1982, the bank granted an overdraft facility and a further
loan of $2,500,000 to the hotel secured by a first legal charge for an amount
up to $4,000,000 over the hotel's land and a further first legal supplementary
charge of the same sum on land comprised in Grant No 753 for lot no 218
situated also in the township of Johore Bahru owned by Upaya Ladang
Koko Sdn Bhd, a subsidiary company of the hotel.
c) As further security for the term loan, the hotel was to issue a debenture in
favour of the bank over its property and undertaking and also to obtain joint
and several guarantees secured from all the directors.
d) Proceedings in the High Court against the hotel commenced with Civil Suit
No 23-1086 of 1986 which was the main action by the bank against
the hotel to recover the sum of $3,785,000.39 and interest thereon. Civil Suit
No 23-1085 of 1986 was against the guarantors to recover the same said sum
of $3,785,000.39 based on a document of guarantee dated 2 October 1982.
e) The bank also took several actions to realize the securities provided by
the hotel to recover the sum of $3,785,000.39 and interest thereon. Civil Suit
No 23-1085 of 1986 was against the guarantors to recover the same said sum
of $3,785,000.39 based on a document of guarantee dated 2 October 1982.
The bank also took several actions to realize the securities provided by
the hotel. These actions were consolidated by order of court.
f) At the commencement of the trial on 22 December 1987, the issue of the
alleged illegality of both the 1980 and 1982 loans granted by the bank was
agreed upon to be tried as a preliminary question of law. After hearing
submissions and considering the affidavits and documents produced, the trial
judge found for the defendants/respondents on the ground that both the 1980
and 1982 loan agreements were illegal and unenforceable.
g) The appellants appealed.
h) The appeal centred on two broad questions:
i. First, whether the 1980 loan agreement is void for being a contract
prohibited by statute, namely, s 67 of the Companies Act 1965 or a
contract entered into to defeat the object of the statute and
ii. Secondly, whether the 1982 agreement is tainted with illegality and
therefore should not be enforced.

2) HELD

a) Held, dismissing the appeal:

b) The object of s 67 of the Companies Act 1950 ('the Act') is to save the
company and no one else.
c) The rationale behind s 67(6) of the Act is to preserve the right of the
company to recover any loan made by it in contravention of that section.
d) Section 24 of the Contracts Act 1950 is an explicit statutory direction and
must be applied by our courts.
e) Because the principle of the common law has been incorporated into
statutory law as contained in s 24 of the Contracts Act 1950, the trend or any
change in the common law elsewhere is not relevant. Any change in the
common law after 7 April 1956 shall be made by our own courts.
f) Since the doctrine of severance is to be applied according to the facts of each
case, and that to some extent each case must depend on its own
circumstances and on the nature of the illegality itself, the application of the
doctrine of severance should have been pleaded and argued in the court of
first instance and not at this late stage.
 NAFSIAH V ABDUL MAJID ( 1969 ) 2 MLJ 175

1) FACTS

a) The plaintiff brought an action for damages for breach of promise to marry,
contending that damages should be aggravated by reason of the fact that she
had been seduced by the defendant.
b) It was argued upon the court that because the plaintiff knew that the
defendant was already married, even if the defendant had made any promise
to marry the plaintiff such promise was void ab initio.

2) HELD

a) The plaintiff’s knowledge that the defendant was already married did not
invalidate the promise as the defendant was, under his own personal law,
entitled to more than one wife
b) There was sufficient evidence that the defendant had promised to marry the
plaintiff. Damages was assessed at [dollar]1,200.
 DATUK ONG KEE HUI V SINYIUM ANAK MUTIT ( 1983 ) 1 MLJ 36

1) FACTS

a) The respondent was a member of a political party and was nominated to

stand for a parliamentary constituency His election expenses were borne by
the party.
b) The respondent signed a document undertaking to donate the allowance paid
to him as a Member of the Dewan Rakyat to the party. He also agreed that in
the event of his doing any act which was seen to be against the interests of
the party he would forfeit his seat in the Dewan Rakyat and the party could
then submit the letter of resignation, signed by him, to the Speaker of the
Dewan Rakyat.
c) The respondent was elected as a member and at first he kept to his
undertaking and requested his Parliamentary remuneration to be paid to the
party. The party in turn gave him a monthly sum of $300.00. Subsequently
he asked the party to increase the allowance to $600.00 but receiving no
reply, he resigned from the party. The party thereupon sent the letter of
resignation to the Speaker. The result was that the respondent lost his seat in
the Dewan Rakyat.
d) He brought an action against the party claiming the refund of $8,024.70
being his parliamentary remuneration retained by the party and the payment
of $41,325.80 being the amount of parliamentary remuneration which he
would have received had it not been for the party's submission of the letter of
resignation.
e) The learned trial judge held that the undertakings were illegal, but held
notwithstanding the illegality that the respondent was entitled to the refund of
$8,024.70 and to the special damages of $41,325.80, subject to the deduction
of $15,000.00 for the election expenses [1982] 1 MLJ 36 .
f) The appellant appealed.

2) HELD

a) In whatever way the matter was looked at the respondent’s claims must be
dismissed. If the arrangements were not illegal and therefore valid, it goes
without saying that what was done by the party and the appellant with regard
to the remuneration and the resignation were fully authorised by the
arrangement and no claim could arise therefrom, unless it could be shown
that the appellant was in breach of the agreement, which was not the case
here
b) If on the other hand the arrangement was illegal, as correctly found by the
trial judge, the respondent should not be entitled to the claim also, because
the court will not lend its aid to an illegal transaction. No attempt was made
by the respondent to show that he had nothing to do with the arrangement or
that he was an innocent party. The appellant as the defendant was allowed by
law to rely on the illegality in order to reject the respondent’s claim
c) The arrangement was not a fraud and neither were the facts constituting the
alleged causes of action for malicious falsehood, fraudulent
misrepresentation or conspiracy separable from those constituting the
illegality. Nor were the acts of the appellant done otherwise than in
 pursuance of the arrangement so as to exclude the maxim volenti non fit
injuria
d) Even if the arrangement was held to be a friendly or gratuitous one, the
respondent was still not entitled to recover any claim because of the maxim
volenti non fit injuria.
PET FAR EASTERN ( M ) SDN BHD V TAY YOUNG HUAT & ORS [1999] 5
MLJ 558[1999] MLJU 172

1) FACTS

a) The first defendant — the finance and accounts manager of the plaintiff
company — while in the plaintiff’s employment, had embezzled the
plaintiff’s bank account of RM4.5m (‘the sum’) by arranging for the issue of
bankers drafts which were subequently deposited in Malaysia at the Malayan
Banking Bhd in favour of the second defendant.
b) The second defendant explained that the sum was paid to the second
defendant by the first defendant in consideration of gambling activities which
the second defendant provided on board a vessel known as MV Amusement
World in international waters and in which the first defendant took part
unabasedly.
c) The second defendant submitted that since the gambling activities took place
in international waters, there was no requirement for the second defendant to
hold a licence under Malaysian law. Therefore, the second defendant applied
to strike out the plaintiff’s case under O 18 r 19 of the Rules of the High
Court 1980 (‘the RHC’).
d) The senior assistant registrar dismissed the application. Hence this appeal.
e) The issues were:
(i) Whether the plaintiff was required to plead exactly the circumstances
which led to the second defendant having knowledge of the fraud
perpetrated by the first defendant; and
(ii) Whether the monies paid to the second defendant was made in
pursuance of an illegal contract, the illegality of which would render the
second defendant a constructive trustee of the monies so received.
f) It was also argued that the second defendant was precluded from invoking
the operation of O 18 r 19(1) after having entered an unconditional
appearance and served on the plaintiff a statement of defence.

2) HELD

a) Held, dismissing the appeal

b) It would be next to impossible for any person in the plaintiff[rsquo ]s
position to be able to give details of information within the personal
knowledge of the second defendant which would give rise to a constructive
trust. Evidence of this nature can only be elicited at a trial by viva voce
evidence. Moreover, the pleadings had sufficiently identified the
plaintiff[rsquo ]s cause of action against the second defendant
c) The gambling on the casino of MV Amusement World by the first defendant
using the bankers drafts lodged with the second defendant[rsquo ]s account at
Malayan Banking Bhd was not only illegal but void, since Malaysian law
does not recognize a gambling contract. There was thus no contract at all.
The fact that the second defendant conducted the gambling activities in
international waters was totally irrelevant since the second defendant
received the sum within jurisdiction in pursuance of the gambling activities.
The second defendant was not a bona fide holder for value who could hold
 onto the bankers drafts. Therefore, the second defendant must be deemed to
be a constructive trustee for the plaintiff
d) A case should only be struck out if it is obviously unsustainable. Looking at
the available affidavit evidence, the plaintiff[rsquo ]s case cannot be said to
be obviously unsustainable. There were issues [mdash ] both of fact and law
[mdash ] that require to be tried
e) Since the second defendant had entered an unconditional appearance, the
second defendant was precluded from applying under O 18 r 19(1) of the
RHC for striking out the plaintiffs claim.
f) Therefore, the appeal was dismissed.
 SHAW BROTHERS LTD V KESATUAN KEBANGSAAN PEKERJA
WAYANG GAMBAR ( 1968 )

1) FACTS

a) Restraint of marriage agreements : S27

 WRIGGLESWORTH V WILSON ANTHONY ( 1964 ) 20 MLJ 269

1) FACTS

a) By section 28 of the Contracts (Malay States) Ordinance, 1950 "Every

agreement by which anyone is restrained from exercising a lawful profession,
trade, or business of any kind, is to that extent void."
b) Accordingly an agreement whereby an advocate and solicitor is restrained
from practising his profession within 5 miles from Kota Bharu town for a
period of 2 years after the termination of his service agreement with his
employer is void.
c) The distance and place in respect of the restraint are irrelevant.

2) HELD

a) The plaintiff claims an injunction to restrain the defendant from practising or

carrying on the business or profession of an advocate and solicitor within a
radius of 5 miles from Kota Bharu, Kelantan until 31st December, 1965.
b) The following facts are admitted:–
(a)The plaintiff is an advocate and solicitor and is the sole proprietor of
the legal firm of "Wrigglesworth & Company" Kota Bharu, Kelantan.
(b)The defendant is an advocate and solicitor and is the sole proprietor of
the legal firm of "Wilson & Company" Kota Bharu, Kelantan.
(c)On 20th September, 1962 the defendant entered into an agreement of
service with the plaintiff's firm.
(d)On 7th December, 1963 the plaintiff agreed to discharge the defendant
from the terms and obligations of the said agreement with effect from
31st December, 1963.
(e)Clause 8 of the said agreement stipulated that the defendant shall not
for a period of two years after the termination of his engagement by the
plaintiff practise as or carry on the business or profession of an advocate
and solicitor within a radius of 5 miles from Kota Bharu Town without
first obtaining the written consent of the plaintiff.
(f)Such written consent has not been given by the plaintiff.
c) Mr. Wrigglesworth for himself referred to a string of English cases on the
question of reasonableness in respect of the phrase "restraint of trade".
d) Mr. Coomaraswamy for the defendant relied mainly on section 28 of the
Contracts (Malay States) Ordinance, 1950. He also relied on the first
paragraph of plaintiff's letter dated 7th December, 1963 which is marked as
Exhibit "C", attached to the amended statement of defence. This paragraph
reads:–
e) "I refer to your letter dated 29th November, 1963 confirming our mutual
agreement that you 'quit from the services of (my) firm as a legal assistant as
from 31st December, 1963'. I note your present request to discharge you
from the terms and obligations of the service agreement and I now agree to
discharge you from the terms and obligations of the agreement as effectually
as had you served as a legal assistant with my firm for the full period of three
years stipulated in the agreement."
f) Mr. Coomaraswamy contended that this letter discharged the defendant from
the terms and obligations of the agreement including clause 8 of the
 agreement. Mr. Wrigglesworth, on the other hand, contended that the letter
did not discharge the defendant from clause 8 of the agreement.
g) Now, section 28 of the Contracts (Malay States) Ordinance 1950 reads as
follows:–
h) "Every agreement by which anyone is restrained from exercising a lawful
profession, trade, or business of any kind, is to that extent void."
i) Mr. Coomaraswamy contended that section 28 of the Ordinance prevented
clause 8 of the agreement from being enforceable. Mr. Wrigglesworth, on the
other hand, contended that exception 2 to section 28 of the Ordinance applied
because clause 9 of the agreement intended to make defendant a partner of
plaintiff's firm.
j) In my opinion this case should be decided on the interpretation of section 28
of the Contracts (Malay States) Ordinance, 1950, and on the first paragraph
of plaintiff's letter to defendant dated 7th December, 1963. With great respect
I do not think the English cases are applicable as the Contracts (Malay States)
Ordinance, 1950, is not based on the English law of contract. Section 28 is
quite clear. Except in respect of the three exceptions, every agreement by
which anyone is restrained from exercising a lawful profession is to that
extent void. The defendant is an advocate and solicitor and can lawfully
practise his profession in Malaya. Therefore, in my opinion, any agreement
to restrain him from exercising his lawful profession is void. I agree with Mr.
Coomaraswamy that the distance and place in respect of the restraint are
irrelevant. As regards Mr. Wrigglesworth's contention that exception 2
applies, I am of the opinion that exception 2 does not apply in this case as at
the time of the execution of the agreement defendant was not then a partner
of plaintiff's firm. The marginal note to exception 2 refers to agreement
between partners prior to dissolution.
k) I next deal with the interpretation of the first paragraph of plaintiff's letter to
defendant dated 7th December, 1963.
l) In my opinion, the English used is very clear and unambiguous. It says what
it says, that plaintiff discharges the defendant from the terms and obligations
of the service agreement. One of the terms of the agreement is clause 8 of the
agreement and in my opinion clause 8 is included in the phrase "terms and
obligations of the service agreement". The contention of
Mr. Wrigglesworth that clause 8 of the agreement does not include in that
phrase is not tenable. If plaintiff had so desired he would have so expressed
himself in that first paragraph of his letter to the defendant. I would also refer
to the last paragraph of the letter which reads as follows:–
m) "I do not know what you intend to do when you leave my firm but may I take
this opportunity of wishing you every success in your future career."
n) This last paragraph of the letter would appear to strengthen the view that
plaintiff had no desire to place any restraint on the defendant.
o) For the above reasons I am of the opinion that plaintiff must fail in this action
and I dismiss it with costs.
POLYGRAM RECORDS SDN BHD V THE SEARCH & 5 ORS ( 1994 ) 3 MLJ
127

1) FACTS

a) The plaintiffs, Polygram Records Sdn Bhd, entered into a written agreement
('the first contract') with a rock group, The Search ('the group'), on 7 October
1984. They were signed on by Eric Yeoh ('Eric'), the then artiste and
repertoire manager of the plaintiffs. The first contract was for a period of two
years, with an option for two further periods of one year each, exercisable at
the discretion of the plaintiffs, and not the group.
b) On 12 June 1985, a new contract ('the second contract') was entered into
between the plaintiffs and the group, purportedly for the reason that there
were some changes in the composition of the group. Although the second
contract contained many provisions which were identical to that contained in
the first contract, there was a major modification, which the group claimed
was not brought to their attention. The modification was that the period of
option which the members of the group granted to the plaintiffs was extended
to two additional periods of 24 months each, instead of the two additional
periods of 12 months each under the first contract. It was established during
the trial that no copy of the second contract was ever given to the group until
1987, when the solicitor acting for the group requested a copy of it for the
purposes of the present action.
c) After the release of the third album with Polygram in February 1987, it was
clear that the group was dissatisfied with their existing arrangements
with Polygram and sometime at the end of 1987, the group made
the recording of an album under a new company, Go-Search. Go-Search was
a company incorporated by the members of the group themselves. The
company did only the recordings, whilst another company, Pacific Music
Corp (M) Sdn Bhd ('the sixth defendant') did the distribution.
d) In 1988, Polygram commenced proceedings against the group for breach of
contract and against the sixth defendant for inducing the group to breach
their contract with Polygram. The group counterclaimed, inter alia, for a
declaration that both the contracts were voidable on the grounds of undue
influence; for the assignment of the relevant copyright in all the
songs recorded by the group with the plaintiff; and for a declaration that a
clause in the second contract was void in restraint of trade.
e) The issue before the court was whether at the time when the group
began recording for Go-Search, in late 1987, they were still contractually
bound to Polygram, either under the terms of the first contract or the second
contract.

2) HELD

a) Held, dismissing the plaintiffs' claim and allowing part of the group's
counterclaim:
b) Considering the circumstances and the evidence adduced, the members of the
group understood the nature of the first contract; the duration of the contract;
their obligations to record for Polygram; and that royalties would be paid to
them. There was,therefore a clear intention on their part to enter into
 the recording contract with Polygram and was therefore no misrepresentation
and least of all undue influence when the group entered into the first contract.
c) A party who signs a written contract is bound by the terms of the contract,
except in the limited cases where fraud, undue influence or misrepresentation
may be established. Therefore, the argument by the group that the first
contract was not binding on them since they did not 'agree to the terms' could
be dismissed summarily.
d) Whilst it was true that the initial period of the first contract expired on 6
October 1986, and there was no evidence that the plaintiffs had exercised
their rights under the option to extend the duration of the first contract, the
plaintiffs themselves never contemplated any extension of the first contract
as they had always acted on the belief that the first contract was substituted
by the second.
e) If a new contract is entered into by the parties, whatever its terms, the old
contract is extinguished. In the present case, the clear intention of both the
parties was to replace the first contract with the second contract. The group,
therefore, was under no obligation to perform their part of the bargain under
the first contract, as the first contract had been extinguished. After
substitution by the second contract, no rights or liabilities could arise out of
the first contract.
f) Therefore, the first contract was not in force at the time when the group
began recording for Go-Search and no question as to the group having
breached their obligations under the first contract arose in this case.
g) There was insufficient evidence to find that the second contract was voidable
by reason of false misrepresentation.
h) By virtue of s 28 of the Contracts Act 1950 ('the Act'), agreements entered
into under undue influence are voidable. In this case, there was evidence to
show that there existed a close relationship between the group and Eric
which was a relationship of trust and confidence. Therefore, Eric was in a
position to procure them to enter into the second contract. For these reasons,
the presumption of undue influence arises. However, before the group may
set aside the contract on the grounds of undue influence, they must prove that
the contract was 'unconscionable' or one of manifest disadvantage to them.
The terms in the second agreement were not new terms, but merely those
which were already known to the group, by virtue of the first contract.
Although the period of the contract was extended under the second contract,
the duration was not such as to render the entire contract manifestly
disadvantageous to the group. Although the second contract was valid and
legally binding between the parties, there was no evidence at all to indicate
that the plaintiffs had exercised their rights to extend the period of the second
contract for a further term of two years. Therefore, the contract had lapsed
before the group began recording for Go-Search.
i) The covenant, whereby the group undertook to provide
exclusive recording rights to the plaintiffs during the currency of
their recording contract, was not a covenant in restraint of trade and was
therefore not rendered void under s 28 of the Act. Section 28 is only
applicable in cases where a person is restrained from carrying on his trade or
profession in the post-contract period and not during the currency of the
contract. It therefore follows that a clause in the second contract which was a
 covenant in restraint of trade was void ab initio and not binding on the group
when they began recording for Go-Search.
j) Therefore, the group was not in breach of any contract with Polygram when
they began recording for Go-Search. The plaintiffs claim against the group
failed. As a result of that, the plaintiffs' claim against the sixth defendant for
inducing the group to breach their contract with Polygram must necessarily
fail.
k) Under the law relating to copyright of sound recordings, the copyright to the
sound recordings belongs to the plaintiffs, and as such no question of
reassignment of such copyright to the group arises in this case.
l) The plaintiffs were to pay the group all royalties due to them under the
second contract, in respect of the sales of all the four albums recorded by the
group, in accordance with cl 5(1) of the second contract even though cl 5(6)
states that where the group was no longer contractually bound by the
plaintiffs, they were only entitled to receive 50% of the royalty rates payable.
This was because where a later clause in a contract destroys the effect of an
earlier clause, or where a clause in a contract is inconsistent with the main
object of the contract, the later clause may be rejected as being repugnant to
the earlier clause or to the main object of the contract.
m) Clause 5(6) was therefore void.
 NAGADEVAN A/L MAHALINGAM V MILLENNIUM MEDICARE
SERVICES [2011] 4 MLJ 739

1) FACTS

a) Pursuant to a partnership agreement (‘the agreement’)

between Nagadevan a/l Mahalingam (‘the appellant’), a registered medical
practitioner, and Millenium Medicare Services (‘the respondent’), a
partnership of medical practitioners, the appellant became a partner of the
respondent firm. Clause 11(3) of the agreement, which was in the nature of a
restrictive covenant, restrained the appellant from practising as a medical
practitioner within a radius of 15km of any partnership clinic.
b) In February 2007 the appellant exercised his right to resign from the
partnership by serving a three-month notice (‘the notice’) on the managing
partner of the respondent firm. However, before the expiry of the notice, the
appellant left the respondent and practised as a medical practitioner at Klinik
Medic Care, which was situated within a 15km radius from one of the
respondent’s clinic.
c) On 2 October 2007, the respondent commenced legal action against the
appellant for breach of the said restrictive covenant. Subsequently on 21
November 2007, the appellant applied to strike out the writ and statement of
claim but the application was dismissed by the SAR. The appellant appealed
to a judge in chambers, who affirmed the decision of the SAR.
d) This was the appellant’s appeal against the decision of the High Court judge.
In his appeal, the appellant submitted that cl 11 (3) of the agreement was a
restraint covenant and therefore void and unenforceable against him under s
28 of the Contract Act 1950 (‘the Act’). He further submitted that as the
covenant to be enforced was void, the respondent’s claim herein was
obviously unsustainable and ought to be struck out under any limb of O 18 r
19 of the Rules of the High Court 1980
e) In response the respondent argued that even if cl 11(3) was a covenant in
restraint of trade the exception in s 28(2) of the Act was applicable, as the
parties had agreed to the restraint in anticipation of the dissolution of the
partnership.
f) As such, the respondent contended that the issue as to the application of s
28(2) of the Act was a matter for decision at a trial and that the appellant’s
striking out application ought to be dismissed.

2) HELD

a) Held, allowing the appeal with costs:

b) Section 28 of the Act clearly provides that a contract in restraint of trade is
void unless it falls under any of the exceptions thereto. In the instant case it
was apparent that the covenant in cl 11 of the agreement, which had the
effect of restricting the liberty of the appellant to carry on the practice of a
medical practitioner, by himself or with others, for such period and within
such limit as specified therein, was an agreement in restraint of trade within
the meaning of s 28 of the Act (see paras 11 & 12).
c) According to the wording of s 28(2) of the Act this exception only applied to
an agreement made between the partners when the same was made upon or in
anticipation of the dissolution of the partnership. In the present case the
appellant was not a partner of the respondent firm at the time of the
execution of the agreement, and was only admitted as a partner pursuant to
the agreement. Since the appellant was not even a partner of the respondent
firm when he entered into the agreement it could not be said that the said
agreement was made in anticipation of the dissolution thereof. Further it was
not pleaded in the statement of claim that the restrictive covenant sought to
be enforced herein was made with such an objective. As such, cl 11 was a
covenant in restraint of trade, which was void under s 28 of the Act
 NORDENFELT V MAXIM NORDENFELT GUNS & AMMUNITION
COMPANY HL ( 1894 )

1) FACTS

a) The appellant, Thorsten Nordenfelt, was a Swedish gun manufacturer with a

valuable, world-wide business.
b) He sold the business to a company, the respondents, and agreed to enter into
a restrictive covenant not to work for any rival business for a 25 year period
in an unlimited geographical area.
c) Later, he worked for a rival business.
d) The respondents brought an action to enforce the covenant by inunction.
e) The case came to the House of Lords.

2) ISSUE

a) The appellant argued that clause was a restraint of trade clause and had to be
reasonable to be upheld. He argued that a worldwide geographical limitation
was unreasonable.
b) The respondents argued that the restraint was only such as was necessary to
protect themselves.

3) HELD

a) Lord McNaughton said a clause by which someone restrains themselves from

the exercise of his trade was prima facie unlawful. It was a principal of
English law all trade should be free. However, it would discourage trade if
someone who has built up a valuable business could not dispose of it to his
best advantage. Therefore, restraint of trade clauses would be upheld if they
were reasonable (at 564):
b) “in reference to the interests of the parties concerned and reasonable in
reference to the interests of the public, so framed and so guarded as to afford
adequate protection to the party in whose favour it is imposed, while at the
same time it is in no way injurious to the public.”
c) It was not disputed that this particular clause was reasonable, as a huge sum
had been paid for the business. Nor was it injurious to the public.
d) Therefore, the clause was upheld.