Oral Promises and Written Agreements:
Lessons From The Abd Ghani Golamdin v Universiti Utara Malaysia Case
In the realm of contractual agreements, the interplay between oral promises and subsequent written agreements often becomes a focal point of legal scrutiny. The Federal Court in Abd Ghani Golamdin v Universiti Utara Malaysia & 2 Ors [2023] 6 MLJ 1 examined a scenario wherein an employee received an oral commitment of additional remuneration from his superiors, and this commitment was subsequently documented in writing. A key question emerged - Would this written “agreement” stand as sufficient evidence to enforce such a commitment?
Background Facts
Abd Ghani Golamndin (Appellant) held the position of "Pengarah Pusat Komputer" at Universiti Utara Malaysia (1st Respondent). In this capacity, he played a pivotal role in developing information technology systems, ultimately leading to the establishment of the "SerindIT" computer.
In 2002, he was seconded to Uniutama Management Holdings Sdn Bhd (2nd Respondent) where he assumed the same position, and later to Uniutama Solution Sdn Bhd (3rd Respondent), as the Managing Director. During these secondments, he received special allowances, bonuses and one-off incentives. Upon completing his secondments in December 2011, the Appellant returned to the 1st Respondent. It is to be noted that throughout the secondments, he has always remained as the 1st Respondent’s employee.
In 2014, the Appellant filed a suit against the Respondents, claiming RM15,619,916.09. He alleged a breach of the oral promise of additional remuneration, asserting that the agreement was made between him and the 1st Respondent’s Vice Chancellor and later reduced to a written agreement dated 1.7.2004 (Agreement). The Respondents denied the existence of such an agreement. Both the High Court and the Court of Appeal ruled in favour of the Respondents. Aggrieved, the Appellant appealed to the Federal Court.
Authenticity And Validity Of The Agreement
The key legal question was whether the authenticity and validity of an agreement be challenged in the absence of vitiating factors such as fraud, forgery, misrepresentation, or conspiracy to defraud?
The Federal Court deemed that authenticity and validity ought to be analysed separately. The validity of a contract falls under Section 2(e) Contracts Act 1950, which stipulates that “Every promise and every set of promises, forming the consideration for each other, is an agreement.”
As such, in cases involving agreements entered between corporations, crucial considerations include:
(i)The parties’ authority to enter into the agreement.
(ii)Compliance with internal procedures, i.e. Board resolutions/approvals.
(iii)The potential applicability of Turquand Rule if internal procedures were not followed.
Only after establishing the agreement’s validity does the issue of enforceability come into play.
The Federal Court held that the Agreement lacked authenticity. Firstly, a clear absence of authority was evident as the internal procedures of the respective Respondents were not followed. The Appellant failed to prove that the terms of the alleged additional remuneration were in fact offered or authorised and there was no evidence of approval from the 2nd and 3rd Respondents or a contemporaneous board resolution.
Although the Appellant amended the Statement of Claim, asserting that the said Agreement was a contract between him and the 2nd Respondent, witnesses testified that the terms in the Agreement were approved by the 3rd Respondent in the 3rd Respondent’s Board of Directors’ minutes. However, discussions, approvals or any form of authorisation in this regard were notably absent from the minutes of the said Board Meetings.
Secondly, the Federal Court also dismissed the Appellant’s attempt to invoke the Turquand Rule to “save” the Agreement. To invoke the said rule, a minimum duty is imposed on an “outsider” to perform basic checks in order to be afforded such protection. (see Kang Hai Holdings Sdn Bhd & Anor v Lee Lai Ban (trading as the sole proprietor under the name and style of ‘Sang Excavating Services’) [2018] 2 MLJ 574).
Given the Appellant’s role as an “insider”, having served as the Managing Director of the 3rd Respondent, reliance on the Turquand Rule was deemed misplaced as the said rule applies to an “outsider”, which is clearly not a label befitting of the Appellant.
Admissibility Of The Agreement Under The Evidence Act 1950
The second issue centres on the admissibility of the Agreement under Section 91 and 92 of the Evidence Act 1950 (EA 1950) and whether the Respondents can challenge its validity.
The Federal Court aptly noted that the Respondents have consistently disputed the authenticity, existence and contents of the Agreement. During the trial, the learned trial judge marked the Agreement as an exhibit, indicated that the Respondents could subsequently cross-examine on its existence and validity. The Federal Court clarified that Section 91 and 92 of EA 1950, when read together, exclude only oral evidence contradicting the terms of the Agreement. Since the Respondents contested not just the terms but the entire existence and validity of the Agreement, these sections were deemed inapplicable.
Conclusion
In conclusion, the case of Abd Ghani Golamdin sheds light on the intricate interplay between oral promises and written agreements in contractual disputes. The Federal Court's analysis emphasises the importance of both authenticity and validity in the enforcement of agreements. This case also underscores the imperative of due authority and compliance with internal procedures, particularly in corporate agreements.
Additionally, the Federal Court's clarification regarding the applicability of the Turquand Rule accentuates the pivotal distinction between insiders and outsiders in contractual matters. The case serves as a notable precedent, illustrating the meticulous scrutiny applied by courts in evaluating the enforceability of agreements, especially those derived from prior oral assurances.
24 November 2023