Salutary Reminder to Litigators: Crucial Importance of Well-Researched Arguments Before the Court

The Court of Appeal issued its grounds of judgment dated 19 September 2018 in the case of Mak Siew Wei v Yeoh Eng Kong and other appeals. The Court of Appeal took the unusual step of issuing a post-script to remind counsel of the need for well-researched briefs and advocacy. The Court reminded us that it is a cornerstone of the administration of justice. In our adversarial system, the Courts would rely significantly on the arguments of counsel and on the truth of the legal arguments.

Background Facts

This was a suit filed by the plaintiff who is a director and shareholder of Scan Associates Berhad (Scan). The 1st to 8th defendants were directors of Scan, and the 10th defendant was the auditor of Scan. The plaintiff’s claim was on misrepresentation and deceit where the plaintiff claimed there were misrepresentations when he purchased a substantial stake in Scan. Scan later was classified as a GN3 company and was delisted from the stock exchange.

The plaintiff later applied for re-amendments to his Statement of Claim to continue the action not only in his personal capacity as shareholder, but to add a new cause of action as a derivative action for and on behalf of Scan and all the shareholders (save for the 3rd and 4th defendants).

This decision is important from the point of explaining the reflective loss principle, the derivative action, the pleading of different causes of action from a shareholder’s perspective and the issue of how the Companies Act 2016 has now removed the common law derivative action.

However, the decision is also an important reminder to litigators, as officers of the Court. Our duty is to ensure well-researched arguments and written submissions are placed before the Courts.

I extract below selected passages from the decision which led to the post-script at the end.

Extracts from the Court of Appeal Grounds of Judgment:

[14] As stated at the outset, vide the proposed re-amendments the plaintiff sought to: (a) continue the action not only in his personal capacity qua shareholder, but to add a new and separate cause of action namely a derivative action for and on behalf of SCAN and all the shareholders save for the 3rd and 4th defendants; (b) plead events transpiring between 8 September 2016 and 22 April 2017 when SCAN was de-listed. Item (b) is not of great consequence. It is in fact item (a) that comprises the crux of the appeal.
..

[24] Accordingly, at the first date fixed for the hearing of this appeal, we asked the defendants to specifically address us on the following issue, namely whether it was appropriate for a shareholder to sue in his personal capacity i.e. for losses he had suffered personally, and also on behalf of the company i.e. losses suffered by the company, by way of a derivative action in the same suit.

[25] In this context, we requested that the research on this point not be confined solely to this jurisdiction but to other jurisdictions as well.

[30] Learned counsel for the plaintiff referred us to Prudential Assurance Co Ltd v Newman Industries Ltd and others [1979] 3 All ER 507 (‘Prudential Assurance’), stating that a joinder of both a personal shareholder action and a derivative action on behalf of the company could be brought. Unfortunately the reference to this case in itself did not reflect the entire legal position correctly. Neither was there any submission from legal counsel for the other appellants that could assist us.

[31] We were therefore constrained to undertake further research ourselves to ascertain the correct legal position. What we learnt was that Prudential Assurance, the case referred to us by learned counsel for the plaintiff, was decided by the English High Court where a judgment was handed down by Vinelott J.

[32] However, Vinelott J also determined the cases of Prudential Assurance Co Ltd v Newman Industries Ltd and others [1980] 2 All ER 841 (‘Prudential Assurance v Newman Industries No. 1’). It is this case which is the relevant judgment for the purposes of ascertaining whether a personal action and a derivative action should be brought together in one action, and not Prudential Assurance.

[33] However the judgment of Vinelott J in Prudential Assurance v Newman Industries No. 1 was reversed, in part, on appeal to the English Court of Appeal in the case of Prudential Assurance v Newman Industries No. 2 [1982] 1 Ch 204 (‘Prudential Assurance v Newman Industries No. 2’) And the portion of the judgment that was reversed, was specifically on the point of whether a personal shareholder action should be brought together with a derivative action. It is therefore Prudential Assurance v Newman Industries No. 2 that is the correct point of reference.

[34] As such the reference to the High Court decision in Prudential Assurance was not of assistance to us. More importantly, it failed to address the concern underlying our query. It will be recalled that our question was whether it was appropriate to join a personal shareholder claim with a derivative action in the same suit. And there was a reason for our query.

[35] We were therefore constrained to re-call all counsel for the various parties and ask them whether they wished to submit on the law relating to reflective loss in the context of the present appeal, as pursuant to our research such an issue was relevant to this appeal. We took this course of re-calling counsel in order to afford the parties an opportunity to be heard on this issue. Learned counsel all responded that they wished to submit on this issue of reflective loss which they did. Learned counsel for the plaintiff and all the appellants, save for the 10th defendant took the position that the rule on reflective loss made no difference in the context of this appeal. They submitted in essence that the joinder of these causes of action ought not to be refused on this ground. However they reiterated their earlier objections against the re-amendment, namely relating to the retrospective effect of the 2016 Act.

[36] Learned counsel for the plaintiff in his submissions set out the three Prudential Newman cases and sought to argue that the reversal of the English High Court decision in Prudential Assurance v Newman Industries No. 1 by the Court of Appeal did not materially affect the present appeal. It was contended that there was no legal bar or procedural bar to combining these two causes of action. As for the reflective loss principle, it was argued that it did not concern the question of whether an amendment may be made to a personal action to include a derivative action which comprises the subject matter of this appeal. In short, as we understand it, learned counsel submitted that as this was not a striking out action, it was not open to this Court to rule on the amendment on the basis of the reflective loss principle.

[37] Learned counsel for the 10th defendant took a different stance and submitted that the re-amendment proposed by the plaintiff sought in effect to introduce a derivative action seeking damages on behalf of SCAN for the exact same losses as that claimed in his personal action. Further it was submitted that the plaintiff’s amendment was filed in order to “save” his suit as the proper party to claim such losses was SCAN and not the plaintiff. The reamendment, if allowed to remain, would result in a double recovery of damages against the defendants which was contrary to the reflective loss principle.

[69] However we are equally cognisant of the fact that these issues were not ventilated in the Court below, albeit inadvertently or by intention. To that extent Her Ladyship was not accorded an opportunity to consider these arguments. As remitting the matter back to the High Court for a consideration of this legal issue pertaining to reflective loss and its application to the facts of the instant matter was not a tenable option, given that the matter has already been delayed considerably we had no option but to deal with the appeal in the manner stated above.

Post-Script

[73] It is with some hesitancy that we bring up this post-script, applicable not only in the instant case, but recently in many cases that this Court has had occasion to deal with. When learned counsel cite case-law to this Court, albeit domestic or foreign cases, it is essential that they have ensured that the case cited has not been overturned, criticised or even distinguished by subsequent court decisions. The importance of doing so needs no underscoring. The correct standard to be adhered to albeit by counsel from the Bar or judicial officers from the Attorney-General’s office is simply that it is inexcusable for a lawyer to fail as a matter of routine to study and examine all cited cases to ensure that there is no citation of a case as a ‘precedent’, when it no longer qualifies as such. Given the technology present today that duty is no longer as onerous as it once was. The use of Westlaw or Lexis Nexis and numerous other legal research engines allows this to be done with ease, so much so that a failure to carry out this exercise warrants genuine judicial concern as to whether an incorrect citation is inadvertent or deliberate. Both give rise to negative impressions and consequences, although the latter is considerably worse as it amounts to misleading the Court. In short, the standard of reasonable diligence or inquiry into the law is expected of all lawyers addressing the courts.

[74] The rationale underlying the need for well-researched appellate advocacy is obvious. The courts are overburdened at the best of times, and in the context of the adversarial system, judges rely upon legal arguments and authorities put forward by counsel in writing their judgments. Any slack in legal research or incorrect citations of case-law, particularly in novel or difficult areas of the law, may well result in a misstatement of the correct position in law.

[75] The need for well-researched briefs and advocacy is a cornerstone of the administration of justice. In Malaysia, where the profession is fused such that any lawyer may appear before any level of the hierarchy of the courts, it is even more imperative that standards of advocacy are maintained at the highest levels, so as to ensure accuracy in the development of the law.</blockquote.

Leave a Reply