June 2009 Answers - ACCA

Answers

Fundamentals Level – Skills Module, Paper F4 (MYS)
Corporate and Business Law (Malaysia) June 2009 Answers
1 This question on the Malaysian legal system tests the candidates’ knowledge of the concept of human rights as well as the
provisions in the Federal Constitution which protect such rights.
(a) Human rights may be defined as the basic rights that all human beings are entitled to enjoy. Section 2 of the Human Rights
Commission of Malaysia Act 1999 defines human rights to mean the fundamental liberties provided for under the Federal
Constitution of Malaysia.
(b) The provisions of the Federal Constitution which protect human rights are the fundamental liberties stated in Part II. These
are listed and explained below:
1. No person may be deprived of his life or personal liberty except in accordance with the law.
By this provision, individuals are protected from being unlawfully imprisoned or put to death. An individual who is
unlawfully detained, may obtain an order of the court through a writ of ‘habeas corpus’. This is an order of the court
requiring that he be lawfully charged in court or be released. However, this right is not absolute. A person may still be
deprived of his life or liberty in accordance with the law. Thus the Internal Security Act 1960, which was passed under
powers conferred by Art.149 of the Constitution permits, among other things, preventive detention.
2. No person may be subject to slavery or forced labour.
The constitution recognises that individuals should not be regarded as the property of others and thus bans all forms of
slavery and forced labour.
However, this right of the individual is given subject to the paramount interest of the nation. Thus, Parliament may make
laws providing for compulsory national service.
3. No person can be punished under a law which was not in force when the alleged crime was committed. This protects
the individual from being charged with a crime that was not recognised as a crime at the time the alleged wrongful act
was done. Thus, laws against crimes cannot be passed with retrospective effect.
4. A person cannot be tried more than once for the same crime of which he has already been acquitted or convicted earlier.
This right recognises that an individual should not be placed in a position of double jeopardy, where he is made to
undergo more than one trial for the same offence if he has already previously been tried and either acquitted or
convicted. However, this does not apply in cases where a higher court has quashed an earlier trial and ordered a
re-trial.
5. All persons are equal before the law and entitled to its protection. However, this right is subject to some exceptions.
These include, among other things:
(i) any provision regulating personal law
(ii) any provisions or practice restricting matters connected with religion to persons professing that religion only
(iii) any provision for protection, well being or advancement of the aboriginal peoples of the Federation
(iv) any provision restricting enlistment in the Malay regiment to Malays.
In addition, State laws may provide for reservation of land for Malays. See: Art 89 and 90.
6. Citizens cannot be discriminated against in relation to appointment to any office or employment under a public authority,
or in relation to acquisition of property, establishing or carrying on of any trade, business, profession, vocation or
employment, merely on grounds of religion, race, descent or place of birth. However, this right is subject to Article 153
of the Federal Constitution, which permits the granting of special privileges to bumiputras.
7. Citizens cannot be discriminated against in relation to the providing of education, merely on grounds of religion, race,
descent or place of birth. This again is subject to Article 153 as stated above. (Art 153 is discussed below)
8. Freedom of religion
The constitution also entrenches the right of the individual to profess, practice and propagate his own religion. However,
as Islam is the religion of the country, restrictions may be placed upon the propagation of other religions among Muslims.
9. No citizen may be banished from the country. However, this right is subject to exceptions whereby the Federal
Government is permitted to deprive a person of his citizenship under certain circumstances.
10. Every citizen has the right to freedom of speech, peaceful assembly and association. However, in the interests of security,
public order or morality, Parliament may impose certain restrictions. For example, the Sedition Act 1948 provides that
it is an offence to question the sovereignty, powers and prerogatives of the rulers and the special position of the Malays.
Further, the freedom of speech does not entitle a person to defame another. A person defamed has a right to sue under
the law of defamation.
It is important to note that a number of these liberties may be overridden by Art 149 and 150 of the Constitution. Among
other things, Article 149 empowers parliament to make laws against subversion, whether or not an emergency is proclaimed.
Such laws may be inconsistent with a number of the entrenched fundamental liberties such as liberty of the person, free
movement and freedom of speech, assembly and association. An example is the Internal Security Act 1960.
(Candidates are only expected to explain any FOUR of the above rights).
7

2 This question on employment law contains two parts. Part (a) tests the candidates’ knowledge on the ways in which contracts of
employment may be terminated under the Employment Act 1955. Part (b) tests the candidates’ knowledge on what constitutes
‘due enquiry’ for the purpose of dismissing an employee for misconduct.
(a) Under the Employment Act 1955 a contract of service may be terminated as follows:
(i) A contract of service for a specified period of time or for the performance of a specified piece of work will terminate
automatically when the specified period of time has elapsed or the specified piece of work has been completed (s.11(1)).
(ii) A contract of service may also be terminated by one party giving to the other notice of his intention to terminate it
(s.12(1)). Section 12(4) requires the notice to be in writing. The notice may be given at any time but must comply with
the period of notice stated in s.12(2).
(iii) Either party to a contract of service may terminate it without notice (or if notice has already been given in accordance
with s.12, without waiting for the expiry of the notice) by paying an indemnity to the other (s.13). The indemnity must
be a sum equal to the amount of wages that would have accrued to the employee during the period of notice required
under s.12 or during the unexpired term of such notice.
(iv) Either party to a contract of service may terminate it without notice in the event of a wilful breach, by the other party,
of a condition of the contract of service (s.13).
(v) An employer may terminate the contract of service, without notice, on the grounds of misconduct of the employee after
due inquiry (s.14). The section also allows an employee to terminate his contract of service without notice, where he
or his dependants are immediately threatened by danger of violence or disease which was not undertaken by the
employee in his contract of service.
(b) By s.14 of the Employment Act 1955 the employer may dismiss the employee without notice on the ground of misconduct
by an employee. However, the employer may only do so after ‘due inquiry’.
The Employment Act does not state what constitutes ‘due inquiry’. However, reference may be made to the following
guidelines laid down by the Industrial Court in the case of KJJ Cleetus and Unipamol (M) Sdn Bhd (IC Award 66 of 1975):
(i) the inquiry is to be instituted as early as possible after the suspension of the complainant;
(ii) the complainant is to be given particulars of the misconduct, preferably in writing; and a reasonable time is to be given
to him before the inquiry to enable him to prepare his case;
(iii) where applicable, the complainant is to be accompanied by his Union or Committee Representative, if any, at the
inquiry;
(iv) the inquiry is to be conducted, as far as possible, by such officer(s) as not directly connected with the investigation of
the misconduct, so as to give the hearing impartiality;
(v) examination of relevant witnesses is to be allowed at the reasonable discretion of the officer-in-charge of the inquiry; and
(vi) notes in the form of questions and answers and the final decision are to be recorded to show that the inquiry was proper,
and that the decision arrived at was fair.
3 This question tests the candidates’ knowledge on the main elements of a valid contract.
The main elements of a valid contract are the following:
(a) Proposal (Offer)
(b) Acceptance
(c) Consideration
(d) Capacity
(e) Certainty.
An explanation of each of these elements is given below.
(a) Proposal (offer)
Section 2(a) of the Contracts Act 1950 states that a proposal is made, ‘when one person signifies to another his willingness
to do or abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence’. Thus an
offer/proposal can consist of a promise to do something or to refrain from doing something.
(b) Acceptance
The second essential requirement is that the proposal/offer must be unconditionally accepted by the person to whom it was
made. By s.2(b) of the Contracts Act 1950, an acceptance is said to occur, ‘when the person to whom the proposal is made
signifies his assent thereto …’
Acceptance therefore must be communicated to the proposer/offeror.
The general rule is that an acceptance must be communicated to the offeror in some usual and reasonable manner. However,
this is subject to some exceptions as explained in s.7(b) Contracts Act 1950. When the proposal has been properly accepted
an agreement is said to have come into existence. However, the agreement itself is not a binding contract unless the other
elements are also present.
8

(c) Consideration
Consideration may be said to be the price paid by one party to the contract, to the other party, in return for that other party’s
promise. The price need not be in monetary form. It could be in the form of a positive act of doing something, or even a
forbearance, i.e., abstinence from doing something.
Consideration is defined in s.2(d) of the Contracts Act 1950 as, ‘when at the desire of the promisor, the promisee, or any
other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing,
something, such act or abstinence or promise is called a consideration of the promise’.
It must be noted that consideration needs only to be sufficient but need not be adequate. Thus, so long as the consideration
is of some value, the court will not question its adequacy.
(d) Intention to create legal relations
Another pre-requisite for a valid contract is that the parties to the contract must have intended that the agreement be legally
enforceable. The Malaysian Contracts Act 1950 does not contain any provision pertaining to this and English law on this
point is applicable. Two rebuttable presumptions may be applied in relation to intention to create legal relations:
(i) in business agreements, the presumption is that the parties did have such intention; and
(ii) in social or family agreements there is a presumption that there was no such intention.
(e) Capacity
The general rule is that only persons of full age and sound mind have the capacity to contract. This is reflected in s.11 of the
Contracts Act 1950, by which, ‘Every person is competent to contract who is of the age of majority according to the law to
which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject.’
The age of majority is 18 years and this is by virtue of the Age of Majority Act 1971.
Note: Other elements include certainty of subject matter and the need for free consent. Candidates should be given credit for
discussing them.
4 This question on company law contains two parts. Part (a) requires the candidates to identify any three persons who may petition
for the winding up of a company by the court. Part (b) tests the candidates’ knowledge and understanding of the difference between
schemes of arrangement and reconstruction of companies as well as the provisions of the Companies Act 1965 for facilitating a
reconstruction.
(a) The persons who may petition the court to wind up a company are stated in s.217(1) of the Companies Act 1965. Among
them are:
(i) the company;
(ii) any creditor;
(iii) a contributory;
(iv) the liquidator;
(v) the Minister, for example, where the membership of the company falls below two; and
(vi) the Registrar, for example, where the company is being used for unlawful purposes.
(Candidates are only required to state any THREE of the persons stated in s.217(1)).
(b) (i) A scheme of arrangement is basically a scheme under which the rights of creditors and/or members are varied for the
benefit of both the company and its members/creditors. It is usually resorted to when the company is insolvent but there
is some possibility of avoiding liquidation. It may involve the need to reorganise the share capital of the company and
envisages a compromise with creditors and/or members. Usually the term ‘scheme or arrangement’ is used where there
is an internal arrangement within the company and does not involve any other company. In this context, under the
Companies Act 1965, an ‘arrangement’ is defined in s.176(11) to include a reorganisation of the share capital of a
company by the consolidation of shares of different classes or by the division of shares into shares of different classes
or by both these methods.
A reconstruction, on the other hand, usually refers to a scheme of arrangement which involves the transfer of assets and
liabilities by one company to another within a group of companies. A reconstruction may involve a merger where one
company takes over another company and the operations are merged.
(ii) Section 178(1) of the Companies Act 1965 states the matters that the court can provide for in any order approving the
compromise or arrangement, or in any subsequent order, so as to facilitate a reconstruction or amalgamation of
companies. These may be summarised as follows:
(1) It may provide for the transfer of the undertaking and property of one company (the transferor company) to another
(transferee company). It may also provide for the transfer of liabilities of the transferor company to the transferee
company.
(2) It may provide for the allotting or appropriation by the transferee company of any shares, debentures or other similar
interests in that company to or for any other person in compliance with the terms of the compromise or
arrangement.
9

(3) It may also provide that legal proceedings which are pending by or against the transferor company be continued
by or against the transferee company.
(4) The order may provide that the transferor company be dissolved without the need for a winding up of it.
(5) The order may make provision for those persons who dissent from the compromise or arrangement.
(6) It may provide for any necessary incidental, consequential and supplemental matters to ensure that the
reconstruction or amalgamation will be fully and effectively carried out.
(Candidates are only required to state any TWO of the above matters)
5 This question tests the candidates’ knowledge of agency by ratification as one of the ways in which an agency may arise.
(a) An agency by ratification arises when an agent has done something for the principal without authority but the principal
accepts or confirms what the agent has done. This is provided for in s.149 of the Contracts Act 1950 which states, ‘Where
acts are done by one person on behalf of another, but without his knowledge or authority, he may elect to ratify or disown
the acts. If he ratifies them, the same effects will follow as if they had been performed by his authority’.
(b) The requirements which must be satisfied in order for an agency by ratification to arise are as follows:
(i) The act or contract must be unauthorised.
(ii) The unauthorised act must not be unlawful. Thus, void or illegal contracts cannot be ratified.
(iii) The agent must, at the time of the contract expressly act as agent for the principal. He must not allow the third party to
believe that he is the principal. See: Keighly Maxted & Co v Durant [1901]. The principal must be in existence when
the contract is made.
The general rule is that contracts cannot be made on behalf of non-existing principals. However, this rule does not apply
to pre-incorporation contracts in Malaysia as s.35(2) of the Companies Act 1965 allows companies to ratify
pre-incorporation contracts after they have been incorporated.
(iv) The principal must have contractual capacity at the time the contract is made and at the time of ratification – s.136
Contracts Act 1950.
(v) The principal must have full knowledge of all material facts. Section 136 of the Contracts Act 1950 states that no valid
ratification can be made by a person whose knowledge of the facts is materially defective.
(vi) The principal must ratify the whole act or contract. He cannot ratify one part and reject another part. If he does so he
is deemed to have ratified the whole transaction – s.152 Contracts Act 1950.
(vii) The ratification must be made within a reasonable time. See: Metropolitan Asylum Board v Kingham & Sons (1890).
(viii) The ratification must not have the effect of subjecting a third person to damages, or of terminating any right or interest
of a third person – s.153 and Illustration (a) of s.153 Contracts Act 1950.
6 This question, on company law, contains two parts. Part (a) tests the candidates’ knowledge on the meaning of a preference share
and the rights which may be attached to preference shares. Part (b) tests the candidate on the procedure for the variation of class
rights as found in Table A of the Fourth Schedule to the Companies Act 1965.
(a) Preference share is defined in s.4 of the Companies Act 1965 to mean a share by whatever name called which does not
entitle the holder to vote at a general meeting or to participate beyond a specified amount in any distribution whether by way
of dividend or on redemption, in a winding up or otherwise. Essentially, a preference share is a share that has some preference
or priority over the ordinary shares. Commonly, a preference share carries the right to a fixed dividend. In addition, the
following rights may be attached to preference shares:
(i) right to cumulative dividends.
This refers to the right to receive arrears of dividends in respect of those years where no dividend is declared.
(ii) right to participate in surplus profits.
This refers to the right of the preference shareholder to enjoy a higher dividend in those years where the company has
made higher profits and is able to give a higher dividend to its ordinary shareholders.
(iii) right to participate in surplus assets in a winding up.
This refers to the right of preference shareholders to share in the surplus assets of the company when the company is
wound up.
(iv) priority to repayment of capital.
This refers to the right of the preference shareholders to be repaid their capital ahead of the ordinary shareholders in a
winding up of the company.
10

(v) limited voting rights.
Although s.4 defines a preference share as a share that does not carry the right to vote at general meetings, they can
and often are, given limited voting rights. See for example s.148(2) Companies Act 1965.
(Candidates are required to mention only THREE of these rights).
(b) By article 4 of Table A of the Fourth Schedule to the Companies Act 1965, the rights attached to any class of shares (unless
otherwise provided by the terms of issue of the shares of that class) may be varied by one of two methods, i.e., either by the
passing of a special resolution at a separate meeting of that class of shareholders or with the written consent of the holders
of at least three fourths of the issued shares of that class.
Minority shareholders who did not vote in favour of the variation are given a measure of protection by virtue of s.65(1) of the
Companies Act 1965. This section applies where the memorandum or articles of association permit a variation or abrogation
of the rights attached to any class of shares, subject to the consent of any specified proportion of the holders of the issued
shares of that class or the sanction of a resolution passed at a separate meeting of the holders of that class. Where, in
pursuance of such provision, the rights attached to a class of shares has been varied or abrogated, the holders of not less in
the aggregate than 10% of the issued shares of that class may apply to the court to have that variation or abrogation
cancelled. The application must be made within one month after the date on which the consent was given or the resolution
was passed or such further time as the court allows. When such an application is made, the variation or abrogation will be
of no effect until confirmed by the court.
7 This question tests the candidates’ knowledge of the business judgment rule in the context of company law and duties of directors
in the light of the amendments to the Companies Act 1965 introduced by the Companies (Amendment) Act 2007.
The business judgment rule, which is of American origin, is a rule which prevents the courts from questioning the merits of
business decisions made by company directors in certain circumstances. It is a form of ‘safe harbour’ provision in that if the
decision had been made within the boundaries of that rule, the director will be ‘safe’ from liability. The American Law Institute
observed that the rule was developed as a result of a desire to protect honest directors and officers from the risks inherent in
hindsight reviews of their unsuccessful decisions and because of a desire to refrain from stifling innovation and venturesome
business activity.
The rule serves to remove some of the difficulties in determining whether a director has carried out his duties with the requisite
level of skill, care and diligence. Although courts have never failed to assert that directors do owe such duties, the scope of such
duties were not sufficiently clear. Older cases such as Re City Equitable Fire Insurance Co (1925) seemed to impose only a mild
duty upon directors, whereas later cases such as Re D’Jan of London Ltd (1994) have indicated that their duties are more stringent.
The High Level Finance Committee on Corporate Governance recommended that a statutory business judgment rule be introduced
in Malaysia. This recommendation was implemented in Malaysia via the Companies (Amendment) Act 2007, which has
introduced a new s.132(1B) which encompasses the business judgment rule.
It must be noted that s.132(1B) complements a newly introduced s.132(1A) which requires a director to exercise reasonable care,
skill and diligence with (1) the knowledge, skill and experience which may reasonably be expected of a director having the same
responsibilities and (2) any additional knowledge, skill and experience which the director in fact has.
By the new s.132(1B), a director who makes a business judgment is deemed to meet the requirements of the duty under
s.132(1A) and the equivalent duties under the common law and equity if he satisfies the following requirements:
(i) He makes the business judgment in good faith for a proper purpose;
(ii) He does not have a material personal interest in the subject matter of the business judgment;
(iii) He is informed about the subject matter of the business judgment to the extent the director reasonably believes to be
appropriate under the circumstances; and
(iv) Reasonably believes that the business judgment is in the best interest of the company.
Thus, the director who made business decisions in the above circumstances will not be in breach of his duties under s.132(1A)
mentioned above.
8 This question on company law contains two parts. Part (a) tests the candidates’ knowledge and ability to identify and apply the
law relating to one instance of lifting the veil of incorporation under common law while part (b) tests the candidates’ ability to
identify and apply two instances of lifting the veil of incorporation under the Companies Act 1965.
(a) The legal issue in the given problem concerns the concept of the company as a separate legal entity and the lifting of the veil
of incorporation.
The general rule is that once a company is incorporated, it is clothed with a veil of incorporation and becomes a separate
legal entity distinct from its members and others. This may be illustrated by the well-known case of Salomon v Salomon &
Co Ltd (1897) as well as s.16(5) of the Companies Act 1965.
However, at common law, courts recognised the need to lift the veil of incorporation in certain circumstances and treat the
company and its members as one and the same, in the interests of justice and equity. One such situation, which applies to
11

the present problem is where the company was set up to perpetrate a fraud or evade a legal obligation. This may be illustrated
by the case of Jones v Lipman (1962). In this case, Lipman agreed to sell a piece of property to Jones. Later, Lipman decided
not to sell the property. He then transferred the property to a company which he formed, with the intention of evading a
possible claim for specific performance by Jones. When Jones sued for specific performance, Lipman argued that the property
had already been sold to a third party, i.e. the company. The court lifted the veil of incorporation of the company, holding that
Lipman and the company were one and the same and ordered specific performance against Lipman and the company.
Applying the law to the present problem, Mikko may be advised that the court is likely to lift the veil of incorporation of Teepu
Sdn Bhd and treat Chitto and Teepu Sdn Bhd as one and the same because the company was formed by Chitto for a
fraudulent purpose i.e. to evade his legal obligation towards Mikko. Thus, Mikko is likely to be successful in her claim for
specific performance against both Chitto and Teepu Sdn Bhd.
(b) This question relates to the lifting of the veil of incorporation under the Companies Act 1965. The liquidator may be advised
as follows:
(i) By s.36 of the Companies Act 1965, if the number of members of the company falls to one and the company carries
on business with only one member for a period longer than six months, that remaining member will become personally
liable for all the debts incurred by the company after those six months. However, he will only be liable if he was aware
that the company was carrying on business with only one member.
In the given problem all the shares of Downhill had become registered in Abu’s name by January 2008. Thereafter Abu
was the sole member of the company. As the company continued to operate after this date with only Abu as its member,
he can be held personally liable for all the debts incurred by the company from July 2008 onwards (i.e. six months from
the time Abu became the sole member of the company) unless he was unaware that the company was operating with
him as the sole member (which is highly unlikely).
(ii) By s.121(2), where an officer of a company has signed on behalf of the company any bill of exchange, promissory note
or other negotiable instrument, and the name of the company is not properly stated therein, he can be made personally
liable to the holder of that instrument for the amount stated therein, if the company does not pay.
In the given problem Nazeem, the manager, was responsible for the issue of the cheque. The name of the company was
not properly stated on it. The company, being insolvent, will not be able to pay. Therefore, Nazeem may be made
personally liable to pay Samy the amount stated on the cheque. See: Atkins & Co v Wardle (1889).
9 This question, tests the candidates’ knowledge and application of the law under the Companies Act 1965 in relation to the
prohibition on loans by companies to their directors.
Serena may be advised that the contemplated loan may be prohibited under s.133 of the Companies Act 1965. By s.133 (1), a
company (other than an exempt private company), may not make a loan to a director of the company or a related company or
enter into any guarantee or provide any security in connection with a loan made to such a director.
However, three exceptions are provided for under s.133 (1) as follows:
(i) The company may provide such a director with funds to enable him to meet expenditure incurred or to be incurred by him
for the purpose of enabling him to properly perform his duties as an officer of the company.
(ii) The company may provide such a director who is in full-time employment with the company or its holding company with
funds to meet expenditure incurred or to be incurred by him in purchasing or otherwise acquiring a home.
(iii) The company may give a loan to a director who is in full-time employment with the company or its holding company, where
the company has, at a general meeting of the company, approved of a scheme for the making of loans to employees of the
company and the loan is in accordance with that scheme.
By s.133 (2) the first two exceptions may be exercised by the company either with the prior approval of the company in a general
meeting or, alternatively, on condition that if the approval of the company is not given at or before the next annual general meeting,
the loan shall be repaid or the liability under the security or guarantee shall be discharged, within six months of the conclusion of
that meeting.
Thus, Serena will be caught by the prohibition in s.133 (1) unless any of the three exceptions apply. On the facts of the case, none
are applicable as the loan is not required either for purposes of enabling the director to properly perform his duties or to purchase
or otherwise acquire a home. Further, as Serena is a non-executive director she will also not qualify under the third exception.
Therefore she will not be able to obtain a loan from Lotsamunny Bhd, which is a public company.
The rules mentioned above also apply to a private company like Minibiz Sdn Bhd unless it is an exempt private company. The
advice would differ if Minibiz Sdn Bhd is an exempt private company as such companies are not prohibited from giving loans to
directors. Serena may be able to obtain a loan from Minibiz Sdn Bhd if it is an exempt private company. Section 4 defines an
exempt private company as one which has not more than 20 shareholders none of whom is a corporation, and no beneficial
interest in its shares is held directly or indirectly by a corporation. Thus, if the five shareholders of Minibiz Sdn Bhd are individuals
who do not hold any shares for the benefit of any corporation, then Minibiz Sdn Bhd will be an exempt private company and it is
free to give loans to its directors.
12

10 This problem question on contract law contains two parts testing the candidates’ ability to identify and apply two different aspects
of the law relating to the validity of a contract. Part (a) concerns exclusion clauses while part (b) deals with one issue relating to
consideration.
(a) The issue in this case is whether the exclusion clause in the contract between Sally and Kosmetrix Sdn Bhd is valid.
As a general rule, the courts will not interfere with the terms that parties to a contract have agreed upon. This is illustrated
in the case of Playing Cards (M) Sdn Bhd v China Navigation Co Ltd (1980). In this case the appellants had ordered paper
board from a company overseas. The goods which were to be loaded onto the respondent’s ship which were to arrive on
25 December 1973, were in fact loaded onto another ship which only arrived on 13 June 1974. The appellant sued for
breach of contract. In defence the respondent sought to rely on an exclusion clause, which exempted the carrier from liability
for ‘any loss or damage arising or resulting from delayed or early arrival…’
The court held that the clause was valid. Thus, the respondents were not liable. See also: Chartered Bank of India, Australia
and China v British India Steam Navigation Co Ltd (1906).
However, the courts do intervene if the terms of the exclusion clause are ambiguous or capable of more than one meaning.
In such cases the courts will apply a rule of construction known as the contra proferentem rule to interpret the exemption
clause. By this rule the courts will construe the clause against the party asserting it. A good example is the case of Wallis Son
& Wells v Pratt & Haynes (1911). In this case there was a contract for the sale of seeds described as ‘common English
Sanfoin’. An exclusion clause in the contract stated that the seller gave, ‘no warranty express or implied as to the growth,
description, or any other matters’. The seeds supplied were of a much inferior variety. The supplier sought to rely on the
exemption clause to avoid liability. The court held that the term describing the seeds was a condition of the contract. The
exclusion clause related only to warranties and not to conditions. Hence the supplier could not rely on the exclusion clause.
As Sally has been supplied a skin lotion that is of very poor quality and unsuitable for skin care the seller has breached a
condition of the contract. Since the exclusion clause only refers to a warranty and not a condition as in the Wallis case above,
it is likely that the exclusion clause will be similarly interpreted as in that case. Therefore the supplier may not be able to rely
on the exclusion clause.
Sally may be advised that she is likely to be successful in an action for breach of contract against Kosmetrix Sdn Bhd.
(b) The issue in this part of the question is whether a payment of a lesser sum is sufficient consideration to settle a debt of a
larger sum.
The general rule under English law, which was established in Pinnel’s Case (1602), is that a waiver of a contractual right is
void if it is not supported by valuable consideration.
However Pinnel’s Case is not applicable in Malaysia, where a strikingly different legal position is created by the Contracts Act
1950. The Malaysian position is governed by s.64 of the Contracts Act 1950, which states that every promisee may dispense
with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance,
or may accept instead of it any satisfaction which he thinks fit.
An illustration is the case of Kerpa Singh v Bariam Singh (1966). In this case the creditor accepted from the debtor a payment
of a lesser sum in full satisfaction of a debt of a larger sum. It was held that s.64 applied and that the acceptance of the
lesser sum discharged the whole debt.
In the given situation, Kah Yah had agreed to accept from Miss Kin the sum of RM1,000 in full settlement of the debt of
RM3,000. This is a valid agreement by virtue of s.64 of the Contracts Act 1950.
Hence, Miss Kin may be advised that Kah Yah’s claim for the balance of RM2,000 is not valid.
13

Fundamentals Level – Skills Module, Paper F4 (MYS)
Corporate and Business Law (Malaysia) June 2009 Marking Scheme
1 (a) 0–2 An accurate answer clearly defining ‘human rights’ will fall into the upper part of this band while an inaccurate
one will fall into the lower part.
(b) 0–8 Two marks for each provision correctly explained.
2 (a) 0–5 One mark for each way in which a contract of employment may be terminated.
(b) 3–5 Very good answer explaining what constitutes ‘due enquiry’ for the purposes of dismissing an employee for
misconduct.
0–2 Incomplete or inaccurate answer.
3 0–10 Approximately two marks for each element of a contract correctly explained.
4 (a) 0–3 One mark for each person correctly identified.
(b) (i) 0–3 An accurate answer clearly distinguishing a scheme of arrangement from a reconstruction will fall into the upper
part of this band while an incomplete or inaccurate one will fall into the lower part.
(ii) 0–4 Two marks for each matter correctly stated.
5 (a) 0–2 An accurate answer will fall into the upper part of this band while an incomplete or inaccurate one will fall into
the lower part.
(b) 0–8 One mark for each condition correctly stated.
6 (a) 5 Excellent answer accurately defining a preference share and stating any three rights that may be attached to
preference shares.
3–4 Average to good answer sufficiently explaining what is a preference share and stating at least two rights that may
be attached to preference shares.
0–2 Incomplete or inaccurate answer.
(b) 5 Excellent answer on the procedure under Table A.
3–4 Average answer on the procedure.
0–2 Incomplete or inaccurate answer.
7 7–10 Excellent answer correctly explaining the concept of the business judgment rule and the recently introduced
provisions of the Companies Act which encompass that rule.
5–6 An average answer sufficiently explaining the concept of the business judgment rule and the recently introduced
provisions of the Companies Act which encompass that rule.
0–4 Incomplete or inaccurate answer.
8 (a) 0–4 An accurate answer identifying the issue of lifting the veil of incorporation under common law on the ground that
the company was formed for a fraudulent purpose will fall into the upper part of this band while an incomplete
or inaccurate one will fall into the lower part.
(b) (i) 0–3 An accurate answer correctly identifying the issue of lifting the veil under s.36 of the Companies Act 1965 will
fall into the upper part of this band while an incomplete or inaccurate one will fall into the lower part.
(ii) 0–3 An accurate answer correctly identifying the issue of lifting the veil under s.121 of the Companies Act 1965 will
fall into the upper part of this band while an incomplete or inaccurate one will fall into the lower part.
15

9 7–10 Excellent answer identifying the issue of prohibition on companies giving loans to directors, with proper
explanation of the law and the exceptions thereto, and accurate advice to Serena.
5–6 Average answer identifying the issue, with a reasonable explanation of the law and correct application to the given
problem.
0–4 Incomplete or inaccurate answer.
10 (a) 3–5 Average to good answer accurately identifying the issue of exclusion clauses in relation to contract law, with
accurate application to the given problem.
0–2 Incomplete or inaccurate answer.
(b) 3–5 Average to good answer accurately identifying the issue of whether payment of a lesser sum is sufficient to
discharge a debt of a larger sum with proper application to the given problem.
0–2 Incomplete or inaccurate answer.
16