MEDCELLENCE MANUFACTURING v 1. ) GETHA (1969) SDN. BHD 2. ) GET GLOVE SDN BHD PENCELAH DICADANGKAN MEDGLUV INC

Case Significance

Illustrates the objective test for contract formation and the principle that an intermediary who facilitates payment to a third-party supplier does not thereby assume liability to refund a deposit.

This High Court decision at Kuala Lumpur concerns a claim to recover deposits paid in a failed transaction for the supply of nitrile gloves, and it turns on whether the defendants were contracting principals or merely intermediaries facilitating payment to a third-party supplier. The plaintiff, a sole proprietorship, claimed that the first defendant had failed to deliver 125,000 boxes of nitrile gloves under a sale and purchase arrangement at an agreed price of about RM8.23 million; the plaintiff had paid RM4,952,500.00 but received only partial refunds of RM2,323,250.00, leaving an outstanding balance of RM2,629,250.00 which it sought to recover from the first and second defendants. The second defendant was a company connected to the plaintiff's principal as a business venture, incorporated only shortly before the transaction and without a functional bank account at the material time. The court had to decide, applying an objective test of the parties' intention drawn from their conduct and the burden of proof under section 101 of the Evidence Act 1950, whether a valid and binding contract had been formed with each defendant, whether the deposits were deposits or part payments, and, critically, whether an intermediary that merely facilitates payment to a third-party supplier assumes contractual liability to refund the sums. Applying authorities on the formation of contract, the intention to create legal relations, the distinction between a deposit and a part payment, and the position of an agent or intermediary, the court found that the sums paid were passed on to facilitate payment to the actual supplier and that the defendants had acted in the nature of intermediaries rather than as principals assuming liability to refund. It concluded that the plaintiff had not established a contractual liability to refund against either defendant and dismissed the claim against the first and second defendants, awarding costs of RM25,000.00 against the plaintiff in respect of each. The judgment is a useful illustration of the objective test for contract formation and of the principle that an intermediary who facilitates payment to a third-party supplier does not thereby assume liability to refund a deposit.