SHASHI RAJ A/L MOHAN v 1. ) DATO ROSAL AZIMIN BIN AHMAD 2. ) TETUAN SHAMSUDDIN & CO

Case Significance

Applies section 183 of the Contracts Act 1950 to strike out a claim against a law firm that merely received funds into its client account as agent for its client, confirming that an agent is not personally liable for the principal's debts absent an express contract.

This High Court decision at Kuala Lumpur concerns an application to strike out a claim against a law firm sued alongside its client, and turns on the settled principle that an agent is not personally liable for sums incurred by its principal. The plaintiff had advanced a principal sum of RM2,500,000 to the first defendant, a natural person, after representations that the money would be used for investment and repaid. At the first defendant's request, the money was deposited into the client account of the second defendant, Tetuan Shamsuddin & Co, a law firm. When only part of the sum was repaid, the plaintiff sued both the first defendant and the law firm. The law firm applied under Order 18 rule 19(1)(a), (b), (c) and (d) of the Rules of Court 2012 to strike out the writ and statement of claim against it. Leong Wai Hong J examined the pleaded case and found that, on the plaintiff's own pleading, the debt was owed by the first defendant and not the firm, the confirmation letter acknowledging the debt was sent on the first defendant's personal email and letterhead, and the firm's only role was to receive the monies as an agent. Applying section 183 of the Contracts Act 1950, the judge held that, absent a contract to that effect, an agent is not personally liable for sums incurred by its principal, so no cause of action was disclosed against the firm. The court reiterated, following Bandar Builder Sdn Bhd, that a claim may be struck out where affidavit evidence shows it has no chance of success, and that pleaded facts inconsistent with undisputed contemporaneous documents may be rejected. Satisfied that the claim against the firm was frivolous or vexatious, and that a trial would add nothing where the pleaded facts were inconsistent with the undisputed contemporaneous documents, the court allowed the striking out of the claim against the second defendant with costs of RM7,000, subject to allocatur. The decision is a clear illustration that, absent a contract to the contrary, a law firm that merely receives a client's monies into its client account does not thereby assume personal liability for the client's debts to a third party.