Seven Seas Industries Sdn Bhd v Philips Electronic Supplies

[2008] 5 MLJ (M) Sdn Bhd & Anor (Sulaiman Daud JCA) 157

A Seven Seas Industries Sdn Bhd v

Philips Electronic Supplies (M) Sdn Bhd & Anor

B
COURT OF APPEAL (PUTRAJAYA) — CIVIL APPEAL NO W–02–376
OF 2003
ZALEHA ZAHARI, KN SEGARA AND SULAIMAN DAUD JJCA
24 APRIL 2008

C
Contract — Breach — Confidentiality agreement — System devised by appellant
for assembly of loaders — Whether information on system confidential in nature
— Whether system was unique in light of usage and practice of similar trade and
industry — Whether there was breach of confidential information
D

Contract — Collateral contract — Extrinsic evidence rule — Whether collateral

contract must be viewed strictly — Whether collateral contract existed — Oral
representation — Proof — Evidence Act 1950 s 92(b)
E
Contract — Terms — Implied terms — Relationship between parties — Whether
created mplied obligation of good faith and honesty and duty to act reasonably —
Whether court will impose implied terms where terms of contract are clear and
F free from ambiguity — Whether fiduciary relationships existed between parties —
Whether mere contractual principal relationship

The principal business of the first respondent included the production of

G loaders, which formed integral components of compact disc based
equipment. The second respondent had shareholding in the first respondent
company. In late 1992, the second respondent appointed the appellant as its
subcontractor to assemble the loaders. Prior to 10 January 1996, there was no
written relationship between the parties. On 10 January 1996, the appellant
H and the first respondent executed a ‘subcontractor contract’ to formalise their
relationship. Eventually, on 14 February 1998, the first respondent served on
the appellant a six months notice under Article X1 of the contract of its
intention to terminate the same. The appellant filed a claim in the High
Court seeking damages and other declaratory relief for breach of contract
I arising out of the said termination and for wrongful appropriation and use by
the respondents of confidential information belonging to the appellant. The
High Court dismissed the appellant’s claim with costs. The appellant
appealed to the Court of Appeal. The issues that arose for determination
were: (1) whether there existed an implied term of the contract or a collateral
158 Malayan Law Journal [2008] 5 MLJ

agreement as to a minimum of 50,000 loaders to be assembled per day for the A

duration of the contract; (2) whether the contract was validly terminated; and
(3) whether the appellant had any proprietary or other right to the system of
assembly, and if so, whether the respondents had appropriated that right
wrongfully.
B

Held, dismissing the appeal with costs:

(1) The doctrine of collateral contract or agreement is recognised by virtue C
of proviso (b) to s 92 of the Evidence Act 1950 which allowed to be
admitted in evidence any separate oral agreement as to any matter on
which a document was silent and which was not inconsistent with its
terms. Unless the additional evidence sought to be introduced fell
within the scope of any of the provisos, it should not be allowed to be D
introduced as it would be to contradict, vary, add or subtract from the
terms of the agreement. Such collateral contract must be viewed strictly.
Thus, based on the facts, the learned judge had rightly considered all
the relevant factors in coming to his finding on the non-existence of the
alleged oral representation or collateral agreement (see paras 11 & 16). E

(2) The essence of a fiduciary relationship is one of trust and confidence

between the fiduciary and the beneficiary where the latter undertook or
agreed to act for, on behalf or in the interest of, the beneficiary, being
a person in a position of vulnerability. On the facts, there was no F
element of trust and confidence in the relationship between the parties,
and no party was put in a position of vulnerability under the contract.
It was true that there was a close relationship between the parties in the
carrying out of their respective functions and obligations under the
contract but it was not such giving rise to a fiduciary relationship. Their G
close relationship could be attributed to the nature of the contract
and their respective obligations thereunder. It was a mere
principal-contractor relationship (see paras 26–27).
(3) The existence of an implied obligation of good faith and honesty and H
duty to act reasonably would depend on the expressed intention of the
parties which was to be ascertained from the terms of the contract, and
on the nature of the relationship between the parties. It is a well
established principle that where the terms of a contract are clear and free
from ambiguity the court will not impose any implied terms. In the I
circumstances, the contract was validly terminated in accordance with
the clear terms thereof. Further, the internal problems experienced by
the appellant constituted reasonable grounds for the respondents to
terminate the contract by giving the requisite six months notice. The
 Seven Seas Industries Sdn Bhd v Philips Electronic Supplies
[2008] 5 MLJ (M) Sdn Bhd & Anor (Sulaiman Daud JCA) 159

A appellant had in fact acquiesced in the termination when it asked the

respondents to leave its premises before the expiry of the said six
months period (see paras 28–31).
(4) The information on the system of assembly was not confidential in
nature. The system of assembly was opened to the respondents’
B representatives with the consent of the appellant. It was also clear from
the contract that the manufacturing process was regulated and
monitored by the respondents to ensure quality control set by them.
Under the contract, the respondents were also given access to the
appellant’s factory to provide training opportunities for the appellant’s
C personnel. Thus, the appellant also failed to show that the system of
assembly was unique when judged in the light of usage and practice of
similar trade and industry. The evidence clearly showed that the key
features of the system had been used in the assembly industry long
before the setting up of the appellant’s assembly plant (see paras 36–37).
D
[Bahasa Malaysia summary

Perniagaan utama responden pertama termasuk pengeluaran pemuat yang

E
membentuk komponen utama peralatan berasaskan cakera padat. Responden
kedua memiliki pegangan saham di dalam syarikat responden pertama. Pada
akhir 1992, responden kedua telah melantik perayu sebagai
subkontraktornya untuk memasang pemuat tersebut. Sebelum 10 Januari
1996, tidak terdapat hubungan yang bertulis di antara pihak-pihak. Pada
F
Januari 1996, perayu dan responden pertama telah melaksanakan satu
‘kontrak subkontraktor’ untuk memformalkan hubungan mereka. Akhirnya,
pada 14 Februari 1998, responden pertama telah menyerahkan kepada
perayu enam bulan notis di bawah Article X1 kontrak tersebut mengenai
niatnya untuk menamatkan kontrak tersebut. Perayu telah memfailkan
G
tuntutan di Mahkamah Tinggi memohon ganti rugi dan relief deklarasi yang
lain bagi kemungkiran kontrak yang timbul daripada penamatan tersebut dan
untuk salah pengambilan dan penggunaan maklumat sulit milik perayu oleh
responden. Mahkamah Tinggi telah menolak tuntutan perayu dengan kos.
Perayu telah merayu ke Mahkamah Rayuan. Isu-isu yang ditimbulkan untuk
H
dipertimbangkan adalah: (1) sama ada wujud terma tersirat dalam kontrak
tersebut atau perjanjian sampingan terhadap inimum 50,000 pemuat yang
perlu dipasang dalam sehari bagi tempoh kontrak; (2) sama ada kontrak
secara sah telah ditamatkan; dan (3) sama ada perayu memiliki apa-apa
kepunyaan atau hak yang lain kepada sistem pemasangan, dan jika benar,
I
sama ada responden-responden telah mengambil hak tersebut secara salah.

Diputuskan, menolak rayuan dengan kos:

(1) Doktrin kontrak kolateral atau perjanjian adalah diiktiraf oleh
160 Malayan Law Journal [2008] 5 MLJ

peruntukan (b) kepada s 92 Akta Keterangan 1950 yang membenarkan A

penerimaan sebagai keterangan mana-mana perjanjian lisan yang
berasingan berkenaan dengan apa jua perkara yang tidak dinyatakan
oleh dokumen dan yang tidak selaras dengan terma-termanya.
Melainkan keterangan tambahan yang hendak dikemukakan termasuk
di dalam skop mana-mana peruntukan, ia tidak seharusnya dibenarkan B
untuk dikemukakan yang mana ianya akan menjadi bertentangan,
pengubahan, penambahan atau pengurangan daripada terma-terma
perjanjian. Kontrak kolateral tersebut mestilah secara tegasnya diteliti.
Oleh itu, berdasarkan fakta, hakim bicara telah mempertimbangkan
secara wajar kesemua faktor yang relevan dalam membuat penemuan C
berkenaan dengan ketidakwujudan representasi lisan seperti yang
didakwa atau perjanjian sampingan (lihat perenggan 11 & 16).
(2) Inti pati sesebuah hubungan fidusiari adalah amanah dan keyakinan
di antara fidusiari dan benefisiari di mana kemudiannya berjanji dan D
bersetuju untuk bertindak bagi pihak atau dalam kepentingan
benefisiari yang menjadi pihak di dalam keadaan yang kerentanan.
Berdasarkan fakta, tidak terdapat elemen kepercayaan dan keyakinan
dalam hubungan di antara pihak-pihak, dan tidak ada pihak yang
diletakkan dalam keadaan kerentanan di bawah kontrak tersebut. E
Adalah benar bahawa terdapat hubungan yang rapat di antara
pihak-pihak dalam menjalankan fungsi dan kewajipan masing-masing
di bawah kontrak tetapi ianya tidak menimbulkan hubungan fidusiari.
Hubungan rapat mereka boleh dianggap sebagai bersifat kontraktual
dan kewajipan masing-masing di dalamnya. Ianya hanyalah hubungan F
prinsipal dan kontraktor semata-mata (lihat perenggan 26–27).
(3) Kewujudan kewajipan tersirat yang suci hati dan ikhlas dan
tanggungjawab untuk bertindak wajar adalah tertakluk kepada niat
yang jelas pihak-pihak yang mana perlu dipastikan daripada G
terma-terma kontrak, dan atas sifat hubungan di antara pihak-pihak.
Ianya adalah prinsip yang kukuh bahawa di mana terma-terma kontrak
yang jelas dan bebas daripada kesamaran, mahkamah tidak akan
mengenakan terma-terma tersirat. Dalam keadaan tersebut, kontrak
telah secara sahnya ditamatkan berdasarkan kepada terma-terma yang H
jelas di dalamnya. Selanjutnya, permasalahan dalaman yang dialami
oleh perayu membentuk alasan yang munasabah bagi responden
menamatkan kontrak dengan memberikan notis enam bulan seperti
yang disyaratkan. Perayu yang sebenarnya setuju dengan penamatan
apabila meminta responden meninggalkan premisnya sebelum I
berakhirnya tempoh enam bulan tersebut (lihat perenggan 28–31).
(4) Maklumat berkenaan dengan sistem pemasangan adalah tidak bersifat
sulit. Sistem pemasangan adalah terbuka kepada wakil-wakil responden
dengan kebenaran perayu. Adalah jelas daripada kontrak bahawa proses
 Seven Seas Industries Sdn Bhd v Philips Electronic Supplies
[2008] 5 MLJ (M) Sdn Bhd & Anor (Sulaiman Daud JCA) 161

A pembuatan adalah dikawal selia oleh responden untuk memastikan

kawalan kualiti yang ditetapkan oleh mereka. Di bawah kontrak,
responden diberikan laluan kepada kilang perayu untuk menyediakan
peluang latihan kepada kakitangan perayu. Oleh itu, perayu juga gagal
untuk menunjukkan bahawa sistem pemasangan adalah unik apabila
B dinilai daripada penggunaan dan amalan perdagangan dan industri
yang sama. Keterangan jelas menunjukkan bahawa ciri penting sistem
tersebut telah digunakan dalam industri pemasangan lebih lama
sebelum perayu mendirikan loji pemasangannya (lihat perenggan
36–37).]
C
Notes
For a case on breach of confidentiality agreement, see 3(1) Mallal’s Digest
(4th Ed, 2006 Reissue) para 2573.
For cases on extrinsic evidence rule, see 3(1) Mallal’s Digest (4th Ed, 2006
D Reissue) paras 2987–2988.
For cases on implied terms, see 3(1) Mallal’s Digest (4th Ed, 2006 Reissue)
paras 5305–5355.

Cases referred to
E
Chow Yee Wah & Anor v Choo Ah Pat [1978] 2 MLJ 4 (refd)
Coco v AN Clark (Engineers) Ltd [1969] RPC 41 (refd)
Eastern & Oriental Hotel (1951) Sdn Bhd v Ellarious George Fernandez & Anor
[1989] 1 MLJ 35 (refd)
F Frame v Smith (1987) 42 DLR [4th] 81 (refd)
Gan Yook Chin (P) & Anor v Lee Ing Chin @ Lee Teck Seng & Ors [2005] 2
MLJ 1 (refd)
Heilbut, Symons & Co v Buckleton [1913] AC 30 (refd)
Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 (refd)
G Kluang Wood Products v Hong Leong Finance [1999] 1 MLJ 193 (refd)
Lee Ing Chin @ Lee Teck Seng & Ors v Gan Yook Chin & Anor [2003] 2 MLJ
97 (refd)
Tindok Besar Estate Sdn Bhd v Tinjar Co [1979] 2 MLJ 229 (refd)
Watt v Thomas [1947] AC 484 (refd)
H
Legislation referred to
Evidence Act 1950 s 92, 92(b)

I Appeal from: Suit No S2–22–319 of 1999 (High Court, Kuala Lumpur)

Malik Imtiaz Sarwar (Bastian Vendargon with him) (Reuben Annou & Co) for
the appellant.
Cyrus Das (K Mohan with him) (Shook Lin & Bok) for the respondent.
162 Malayan Law Journal [2008] 5 MLJ

A
Sulaiman Daud JCA (delivering judgment of the court):

[1] This is an appeal against the decision of the learned judge of the High
Court dismissing the appellant’s claim against the respondents for damages B
and other declaratory reliefs arising out of an alleged repudiation of a written
agreement and an alleged wrongful appropriation and use of confidential
information.

BACKGROUND FACTS C

[2] The factual background can be stated briefly. The second respondent is
a company limited by shares with shareholding in the first respondent’s
company. The principal business of the company includes the production of D
loaders which forms integral components of compact disc based equipments.
In 1991 the second respondent subcontracted the assembly of the loaders to
a company called Singamip Industries Sdn Bhd (‘Singamip’) which had its
operation in Tampoi. At the same time it appointed one of its officers by the
name of Allan Netto (‘SP2’) to supervise the assembly at the plant. E
Subsequently in late 1992 the second respondent appointed the appellant to
replace Singamip as its subcontractor to carry out the assembly of the loaders.
After the phasing out of Singamip and until 1995, the appellant was the only
subcontractor carrying out such assembly for the respondents in this region.
F
[3] In 1993 the appellant commenced operation at its assembly plant
known as Seven Seas 1 (‘SS1’) in Desa Cemerlang, Johore which later
expanded to Seven Seas 2 (‘SS2’) in Senai. Prior to 10 January 1996 there was
no written relationship between the parties. Their relationship only evolved
out of constant and continuous dealing between them. The volume of loaders G
required to be assembled was determined at logistic meetings. So too, issues
pertaining to charges for down time and under capacity. Ultimately on
10 January 1996 the appellant and the first respondent executed a
‘subcontractor contract’ (‘the contract’) to formalise their relationship. The
annexure to the contract which formed an integral part thereof was executed H
later on 15 August 1996. In April 1996 the appellant established its third
assembly plant known as Seven Seas 3 (‘SS3’) replacing SS1 and SS2.

[4] Eventually on 14 February 1998, the first respondent served on the

appellant the requisite six months notice under Article X1 of the contract of I
its intention to terminate the same. The appellant did not challenge the
termination but however stopped operation before the expiry of the six
months period, and at the same time asked the respondents to vacate its
premises in SS3.
 Seven Seas Industries Sdn Bhd v Philips Electronic Supplies
[2008] 5 MLJ (M) Sdn Bhd & Anor (Sulaiman Daud JCA) 163

A [5] From the pleading it is apparent that the appellant’s causes of action
against the respondents in the present suit are for breach of contract arising
out of the said termination, and for wrongful appropriation and use by the
latter of confidential information belonging to the appellant. The issues that
arose for determination in the court below which are now pursued in this
B appeal are as follows:
(i) Whether there exist an implied term of the contract, or a collateral
agreement, as to a minimum of 50,000 loaders to be assembled per day
for the duration of the contract?
C
(ii) Whether the contract was validly terminated?
(iii) Whether the appellant has any proprietary or other right to the system
of assembly, and if so, whether the respondents have appropriated that
D right wrongfully?

[6] The learned judge found for the respondents in respect of all the
aforesaid issues. The present appeal substantially relates to the findings of fact
by the learned judge. The function of an appellate court in hearing an appeal
E on questions of fact is well established. In Watt v Thomas [1947] AC 484,
Lord Thinkerton, in a well known passage of his speech summarises the
principles to be adopted as follows: ‘(i) where a question of fact has been tried
by a judge without a jury, and there is no misdirection of himself by the
F
judge, an appellate court which is disposed to come to a different conclusion
on the printed evidence, should not do so unless it is satisfied that any
advantage enjoyed by the trial judge by reason of having seen and heard the
witnesses, could not be sufficient to explain or justify the trial judge’s
conclusion; (ii) the appellate court may take the view that, without having
G seen or heard the witnesses, it is not in a position to come to any satisfactory
conclusion on the printed evidence; and (iii) the appellate court, either
because the reasons given by the trial judge are not satisfactory, or because it
unmistakably so appears from the evidence, may be satisfied that he has not
taken proper advantage of his having seen and heard the witnesses, and the
H matter will then become at large for the appellate court’.

[7] In Gan Yook Chin (P) & Anor v Lee Ing Chin @ Lee Teck Seng & Ors
[2005] 2 MLJ 1, the Federal Court affirmed the test of ‘insufficient judicial
I appreciation of evidence’ as a ground for appellate intervention adopted by
the Court of Appeal in Lee Ing Chin @ Lee Teck Seng & Ors v Gan Yook Chin
& Anor [2003] 2 MLJ 97. In holding that such a test is consistent with the
established ‘plainly wrong test’, Steve Shim CJ (Sabah & Sarawak) said,
at p 10, as follows:
164 Malayan Law Journal [2008] 5 MLJ

In our view, the Court of Appeal in citing these cases had clearly borne in mind A
the central features of appellate intervention is to determine whether or not the
trial court had arrived at its decision or finding correctly on the basis of the relevant
law and/or the established evidence. In doing so the Court of Appeal was perfectly
entitled to examine the process of evaluation of the evidence by the trial court.
Clearly, the phrase ‘insufficient judicial appreciation of evidence’ merely related to B
such a process. This is reflected in the Court of Appeal restatement that a judge
who was required to adjudicate upon a dispute must arrive at his decision on an
issue of fact by assessing, weighing and, for good reasons, either accepting or
rejecting the whole or part of the evidence placed before him. The Court of Appeal
further reiterated the principle central to appellate intervention, ie that a decision
arrived at by a trial court without judicial appreciation of the evidence might be C
set aside on appeal …

[8] With this guiding principle in mind we will now proceed to consider
whether there was an insufficient judicial appreciation of evidence by the D
learned trial judge in coming to his finding in respect of the three identified
issues aforesaid.

REPRESENTATION AS TO THE VOLUMES OF 50,000 UNITS A

DAY/EXCLUSIVITY E

[9] The claim that there was a representation as to the said volumes was set
out in para 16.2 of the statement of claim which read as follows:

16.2 It had been represented by the second defendant that at all material times F
during the said operation of the said agreement, the volume of loaders required by
the first and/or second defendants was between 50,000 and not exceeding 70,000
units per day and this volume was to be exclusively manufactured by the plaintiff.
This representation was an intrinsic element, either expressed or implied, of the
agreement and/or any collateral agreement thereto. As a result of the said
G
representation, the plaintiff agreed to the reduction of the unit price from $0.83
to RM1.48 as fixed by the second defendant giving a reasonably and legitimately
income of RM74,000 per day to the plaintiff.

[10] Learned counsel for the appellant submitted that the said oral H
representation on the volume of loaders formed an essential element in the
relationship between the parties on the basis that the written contract
document was not intended to form the entire agreement between the
parties. In other words such representation amounted to an express term of
the contract so as to constitute a collateral agreement between them. I

[11] The doctrine of collateral contract or agreement is recognised in this

country by virtue of proviso (b) to s 92 of the Evidence Act 1950 which
allowed to be admitted in evidence any separate oral agreement as to any
 Seven Seas Industries Sdn Bhd v Philips Electronic Supplies
[2008] 5 MLJ (M) Sdn Bhd & Anor (Sulaiman Daud JCA) 165

A matter on which a document is silent and which is not inconsistent with its
terms. Unless the additional evidence sought to be introduced falls within the
scope of any of the provisos, it should not be allowed to be introduced as it
would be to contradict, vary, add or subtract from the terms of the agreement
(per Chang Min Tat FJ in Tindok Besar Estate Sdn Bhd v Tinjar Co [1979] 2
B MLJ 229 at p 233). Such collateral contract must be viewed strictly
(see Heilbut, Symons & Co v Buckleton [1913] AC 30). No agreement would
be safe from being re-written by one party in court of law if parole evidence
which do not fall within the proviso of s 92 of the Evidence Act is admitted
C in evidence (see Tindok Besar Estate Sdn Bhd).

[12] The question, then, whether there is such a representation made on

the minimum requirement of 50,000 units of loaders per day to be
exclusively manufactured by the appellant as pleaded. The learned trial judge
D answered in the negative, where in that part of his judgment he said:

It is my opinion that for the oral evidence to be accepted the credibility of the
witness has to be solid. Unfortunately the evidence given are either self serving or
because of disappointment with Philips. I treat the evidence given by Jos Sanders
E (SP1) or Allan Netto on the ‘promises’ of the volume with suspect.

[13] Learned counsel for the appellant criticised the learned judge’s finding
on two main grounds. His first argument was directed to the learned judge’s
F finding on the credibility of SP1 and SP2, the appellant’s witnesses. It is
submitted that the learned judge had no basis to conclude that the relevant
witnesses as not credible. It is further submitted that the learned judge
misapplied the test in Eastern & Oriental Hotel (1951) Sdn Bhd v Ellarious
George Fernandez & Anor [1989] 1 MLJ 35 in that he failed to take into
G
consideration the objective facts concerning the nature of the relationship
between the parties and placed too much weight on the purported motives of
SP1 and SP2. His second argument is related to the learned judge’s evaluation
of the circumstantial evidence as to the relationship between the parties, the
H element of exclusivity and the establishment of SS3.

[14] We will firstly deal with the issue of credibility. It is trite law that
where the question before the appellate court relates to the credibility of
witnesses, the court has always been reluctant to differ from the judge who
I has seen and heard the witnesses, unless it can be clearly shown that he has
fallen in error. It would not be sufficient to warrant any interference merely
because the appellate court entertains doubt whether such finding is right
(see Kluang Wood Products v Hong Leong Finance [1999] 1 MLJ 193). The
appellate court is also reluctant to interfere in a case where the learned judge
166 Malayan Law Journal [2008] 5 MLJ

has announced as part of his judgment that he believes one set of witnesses A
and disbelieves the others (see Chow Yee Wah & Anor v Choo Ah Pat [1978]
2 MLJ 4).

[15] From the judgment it appears to us that the learned judge has rejected
B
the evidence of SP1 and SP2 on three main grounds. First of all he found that
SP2 and SP3 have given conflicting evidence as to how the two shareholders
of the appellant first met SP1 to start Seven Seas. He also found SP2 to have
wavered and faltered under cross-examination on the setting up of Seven Seas
by making specific reference to that part of SP2’s testimony on
C
cross-examination. Secondly, SP2, while in the employment of Philips, had
negotiated with SP1 in the setting up of Seven Seas, and as such the learned
judge found his evidence to be self serving for his own benefit and that of
SP3, his brother. Thirdly the learned judge formed the opinion that SP1 had
an axe to grind for two reasons, ie (i) he was not given a free hand to be the
D
man in Philips; and (ii) his association with Allan Netto was not well received
in Philips. Having considered the judgment as a whole we are satisfied that
the learned judge has not erred in his finding on the credibility of SP1 and
SP2 to warrant any interference by this court.
E
[16] Apart from the issue of credibility, we are also satisfied that the learned
judge has rightly considered all the relevant factors in coming to his finding
on the non-existence of the alleged oral representation or collateral
agreement. He has considered the event and the background leading to, and
the purpose for, the establishment of SS3. He also took into account the fact F
that the appellant has all the expertise at hand in the drafting of the
agreement to reflect the true intention of the parties.

[17] The learned judge also referred to Article IV.5 of the contract which
deals with the requirement of loaders. He found nothing therein which G
guarantee the volume or quantity of loaders to be assembled by the appellant
per day. The said article reads as follows:

Each month Philips will provide call-off requirement. In the first month the
volume will be fixed and in the second and third months a fluctuation within H
+/-10% will be allowed. Additionally, Philips will provide a non-binding forecasted
call-off requirement for the subsequent three months;
Philips will be legally bound by this three months call of requirement;
Philips will not be liable for any firm quantities above this three months call-off
I
requirement. This would mean the quantities could fluctuate to zero while the
agreement can remain effective;
This call-off requirements will be supplied by Philips to Seven Seas each second
week of the month according to the Philips production calendar.
 Seven Seas Industries Sdn Bhd v Philips Electronic Supplies
[2008] 5 MLJ (M) Sdn Bhd & Anor (Sulaiman Daud JCA) 167

A [18] Learned counsel for the appellant argued that the said article is not
intended to define volume but a provision setting out a ‘call off ’ procedure
for the purpose of optimising resources. With respect we do not agree with
him. Even if the said clause is not intended to define volume but it is very
much related to the volume of loaders required to be assembled per day. It
B sets out the formula in determining such volume. If it is the intention of the
parties to provide for the minimum requirement of loaders to be assembled
per day we find no reason for the same to be omitted in the contract. As
mentioned earlier, the appellant has all the expertise, legal and technical, in
the drafting of the contract. Further we are of the view that the alleged oral
C terms on the minimum volume of loaders is also in disharmony, if not in
contradiction, with the express terms of the said article which specifically
provide ‘for the quantities could fluctuate to zero’.

D [19] It is to be noted that the contract also provide for under capacity claim
for the purpose of compensating the appellant for the excess labour if the
volume required is less than the order. From the evidence and other
contemporaneous documents relating to this matter, it is apparent that all
such claims by the appellant were based on orders and the call off
E requirement made at the logistic meetings. No claim was ever made on the
alleged promise of 50,000 loaders per day. The basis on which the under
capacity claim was made is in our view consistent with the procedure set out
in the said Article IV.5 as to the daily requirement of loaders by the
respondents. This further fortified our view that the parties never intended to
F specify the minimum amount of loaders required per day in the contract.

[20] With regard to the claim of exclusivity, we failed to see how such an
assurance is relevant to the claim on the alleged implied terms as to the
minimum requirement of loaders per day. It is clear from the words of the
G contract that the requirement of loaders by the respondents is not constant
but subject to ‘a non-binding forecasted call off requirement’ which could
fluctuate to zero. Further it is to be recalled that the under capacity claim
made by the appellant was never based on these figures. In any event we are
in agreement with learned counsel for the respondents that the objective
H evidence is also inconsistent with any exclusive arrangement. First, there is the
minute of Seven Seas Industries management meeting held on 15 May 1996
where it is clearly recorded that ‘Seven Seas is currently investigating and
having preliminary discussions with other customers concerning
manufacturing of other products and possible joint ventures’. Then there is
I the evidence of SP5 who confirmed that the second respondent not only
requested one floor to be reserved for them but also agreed for other
customers to use the appellant’s factory. Further it is to be noted that the
appellant did not complain of any breach of its alleged exclusive right when
the respondents’ own factory commenced operation in 1996 for the assembly
168 Malayan Law Journal [2008] 5 MLJ

of their own loaders. For the reasons aforesaid we agree with the finding of A
the learned judge that the appellant has failed to show the existence of such
oral representation or collateral agreement, or the element of exclusivity as
pleaded.

[21] We will next deal with the validity of the termination. B

TERMINATION OF CONTRACT, WHETHER VALID

[22] The learned judge held that the contract was validly terminated
C
pursuant to Article X1 by giving six months prior notice as required therein.
He also rejected the appellant’s contention on the existence of a fiduciary
relationship between the parties to disentitle the respondents from
terminating the contract pursuant to the said article. Learned counsel for the
appellant raised two main issues which he contended to be relevant to the
D
issue of termination. First, whether there exist a fiduciary relationship
between the parties; and secondly, if such relationship existed, whether there
is implied in the contract an obligation of good faith between the parties to
render the termination clause ineffective.
E
[23] We will first deal with the issue of fiduciary relationship. The guideline
in determining the existence of a fiduciary relationship was laid down by
Wilson J in Frame v Smith (1987) 42 DLR [4th] 81, where Her Ladyship said
at p 99:
F
Relationship in which a fiduciary obligation have been imposed seem to possess
three general characteristics:
(1) the fiduciary has scope for the exercise of some discretion or power;
(2) the fiduciary can unilaterally exercise that power or discretion so as to G
affect the beneficiary’s legal interest;
(3) the beneficiary is peculiarly vulnerable to, or at the mercy of, the
fiduciary holding the discretion or power.
H
[24] In Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR
41, Mason J classified the critical feature of these fiduciary relationship as
being that ‘the fiduciary undertakes or agrees to act for on behalf of or in the
interest of another person in the exercise of a power or discretion which will
affect the interests of that other person in a legal or practical way’. I

[25] Before us, learned counsel for the appellant submitted that the
relationship between the parties went beyond that of a mere
contractor-principal relationship. It is one of trust and confidence, in the
 Seven Seas Industries Sdn Bhd v Philips Electronic Supplies
[2008] 5 MLJ (M) Sdn Bhd & Anor (Sulaiman Daud JCA) 169

A nature of partnership. It is asserted that the respondents have full access to the
financial information of the appellant and participated in making structural
changes at SS1 and SS2 and in the setting up of SS3. It is also submitted the
existence of the fiduciary relationship is evidenced in the unequal bargaining
position between the parties.
B
[26] Having examined the evidence on the nature and character of their
relationship, we agree with the learned judge that such relationship as
aforesaid did not give rise to a fiduciary relationship. As correctly stated by
C
learned counsel for the appellant the essence of fiduciary relationship is one
of trust and confidence between the fiduciary and the beneficiary where the
latter undertakes or agrees to act for, on behalf or in the interest of, the
beneficiary, being a person in a position of vulnerability. In the present case
there is no element of trust and confidence in the relationship between the
D parties, and no party is put in a position of vulnerability under the contract.

[27] It is true that there is a close relationship between the parties in the
carrying out of their respective functions and obligations under the contract
but it is not such giving rise to a fiduciary relationship. Their close
E relationship can be attributed to the nature of the contract and their
respective obligations thereunder. The terms of the contract stipulate that the
appellant will provide labour force, manufacturing facilities and office space,
while the respondents will provide the material required for the manufacture
of loaders. The respondents also set out the manufacturing process, and
F determine the technical and other specifications, to be complied by the
appellant. It also appears to us that the other terms of the contract are
substantially similar to other form of contracts for service with provisions on
claims for late delivery, payment and calculation of fees payable. For the
reasons aforesaid, we agree with the learned judge that the parties’
G
relationship is not based on trust and confidence. It is a mere
principal-contractor relationship.

[28] We will pass on to the next issue as to whether the termination is

H justified. Learned counsel for the appellant submitted that in view of the
relationship between the parties there shall be an implied obligation of good
faith and honesty and the duty to act reasonably. For the said reason it is
argued that the contract could not be terminated by notice simpliciter.

I [29] It is observed that the termination clause as contained in Article X1 of

the contract provides for three modes of termination. Firstly, by either party
giving a written six months prior notice. Secondly, the contract will be
terminated forthwith in the event either party ceases to carry on business,
becomes insolvent, suffers the appointment of receiver and manager or
170 Malayan Law Journal [2008] 5 MLJ

becomes subject to any proceedings under bankruptcy laws, etc. Thirdly, A

termination in the event of change of ownership of the appellant.

[30] In our view the existence of the said obligation or duty again depend
on the expressed intention of the parties which is to be ascertained from the
B
terms of the contract, and on the nature of the relationship between the
parties. It is a well established principle that where the terms of a contract are
clear and free from ambiguity the court will not impose any implied terms.
In the present case the contract was terminated in accordance with the first
mode aforesaid by giving the six months prior notice which in our view is C
reasonable. Further the contract also provide for the protection of the rights
and obligations of the parties regarding delivery, warranty, payment and
confidentiality for the duration of the six months’ period. For these reasons
we agree with the learned judge that the contract was validly terminated in
accordance with the clear terms thereof. D

[31] We would add that there is also justification in the termination of the
contract. The appellant in its letter dated 4 November 1997 to the
respondents admitted that it faced manpower problem to meet substantial
volume increases apart from the problem with its contractor. Then there are E
the minutes of the meeting held on 8 November 1997 between the appellant’s
management and the representative of the respondents which showed that the
appellant was facing manpower crisis coupled with shortage of trained staff
and high turnover. These internal problems experienced by the appellant in
our view constitute reasonable grounds for the respondents to terminate the F
contract by giving the requisite six months notice. Further, we are also in
agreement with the learned counsel for the respondents that the appellant has
in fact acquiesced in the termination when it asked the respondents to leave
its premises before the expiry of the said six months period.
G

[32] We will next consider the issue on breach of confidence.

BREACH OF CONFIDENCE
H
[33] This issue centers on whether there was misuse of confidential
information concerning a system devised by the appellant for the assembly of
loaders (referred to as ‘system of assembly’). It is the appellant’s pleaded case
that it has devised a unique system of assembly allowing it to achieve a high
state of efficiency and state of control by the incorporation of several key I
features as particularised in para 8 of the statement of claim, including the use
of specially designed assembly line with anti-static conveyor belt and
anti-static immovable table, the installation of red and yellow calling lights to
alert material shortage, the installation of red pilot lamp to highlight line
 Seven Seas Industries Sdn Bhd v Philips Electronic Supplies
[2008] 5 MLJ (M) Sdn Bhd & Anor (Sulaiman Daud JCA) 171

A failure, the use of bowls and plates to hold the compact discs, the
introduction of the use of stickers and the use of conveyor belts (‘the key
features’).

[34] It is the appellant’s case that such a system falls within the rubric of
B
confidential information which the respondents have copied and used in their
factory in breach of a duty of confidence. The learned judge in dismissing the
appellant’s claim referred to Coco v AN Clark (Engineers) Ltd [1969] RPC 41
which sets out the three elements to be established in order to succeed in an
C action for breach of confidence, that is to say, firstly, the information sought
to be protected has the necessary quality of confidence; secondly, the
information was communicated in circumstances importing an obligation of
confidence; and, thirdly, there must be unauthorised use of that information
to the detriment of the party communicating it. We are of the view that the
D learned judge has adopted the right approach in the determination of this
issue.

[35] Having evaluated the evidence before him, the learned judge held as
follows:
E
Allan Netto was employed by Philips to be their man at Singamip. It has always
been the arrangement that Philips would place their man at sub-contractors
premises. This practice was accepted in the plaintiff ’s factories. SS Leong was
placed in SS3 with the consent of the plaintiff. The unique system claimed by them
F was open to Philips who were at SS3 with the consent of the plaintiff. They can
see the set up in the factory. I do not recall any evidence as being led or put that
the unique system that Philips employee see every working day was confidential …

[36] The first question is whether the appellant can show that the
G
information sought to be protected has ‘the necessary quality of confidence’.
On this issue, we agree with the learned judge that information on the system
of assembly is not confidential in nature. As correctly pointed out by the
learned judge the system of assembly was opened to the respondents’
H representatives who were at SS1, SS2 and SS3 with the consent of the
appellant. It is also clear from the contract that the manufacturing process
was regulated and monitored by the respondents to ensure quality control set
by them. Under the contract the respondents were also given access to the
appellant’s factory to provide training opportunities for the appellant’s
I personnel.

[37] We are also in agreement with learned counsel for the respondents that
the appellant has failed to show that the system of assembly is unique when
judged in the light of usage and practice of similar trade and industry. The
172 Malayan Law Journal [2008] 5 MLJ

evidence clearly shows that the key features of the system as aforesaid have A
been used in the assembly industry long before the setting up of the
appellant’s assembly plant in SS1.

[38] For the reasons aforesaid, we unanimously dismissed this appeal with
costs and make further order for the deposit to be paid to the respondents B
towards the account of taxed costs.

Appeal dismissed with costs.

C
Reported by Brendan Navin Siva