MELBOURNE SUNRISE SDN BHD v HOW NAM HUI PENCELAH CHONG VOON KEONG

Case Significance

Illustrates that a claim for legal fees incurred in the same proceedings cannot be repackaged as a substantive claim in damages, the court striking out a counterclaim founded entirely on such fees because, following Golden Star v Ling Peek Hoe, costs are distinct from damages and governed by the costs regime under Order 59.

This High Court decision concerns an application to strike out a defendant's counterclaim in a suit arising from a construction-related arrangement. The plaintiff company had engaged subcontractors and alleged that the defendant, a director and the controlling mind of the companies involved, had acted so as to cause it loss. The defendant filed a defence and counterclaim, but the counterclaim did not seek any substantive relief arising from the underlying transaction; instead, it was confined to a claim to recover the legal fees the defendant said he had incurred in defending the action, together with unparticularised references to other damages. The plaintiff applied under Order 18 rule 19(1)(a), (b) and (d) of the Rules of Court 2012 to strike it out. The court held that a claim for legal fees cannot, in law, constitute a valid claim in damages. It relied on the Federal Court's decision in Golden Star v Ling Peek Hoe, which established that costs — including legal fees and litigation expenses — are distinct from damages and are governed by a separate statutory and procedural regime, so that legal fees incurred in the same proceedings between the same parties are recoverable, if at all, only through the costs regime under Order 59 and not as damages, and that such costs cannot by themselves give rise to a cause of action without opening the door to satellite litigation. Because the counterclaim was founded entirely on legal fees, with no other viable head of claim and no pleaded contractual or statutory basis for recovering them as damages, the court held that it disclosed no reasonable cause of action, was legally unsustainable and could not be cured by amendment, and bore the hallmarks of an improper use of the court's process. It allowed the application and struck out the counterclaim with costs of RM3,000. The judgment illustrates that litigation costs cannot be repackaged as a substantive claim in damages.