The time for payment in an agency agreement is not of the essence unless explicitly stated; wrongful termination requires proof of overdue payments not present in this case.

Case Summary

The plaintiffs in Suit No 22–125 of 2008 (‘the first suit’) were in the business of marketing and distributing wooden and leather-based furniture worldwide under the ‘Lifestyle’ brand and were part of the ‘Lifestyle Group’ of companies which included the second defendant (‘Lifestyle Holdings’) in Suit No 23-18-2011 (‘the second suit’). The first defendant in the first suit, LY Furniture Sdn Bhd (‘LY’), of which the second defendant was its founder and executive managing director, designed and manufactured furniture including a particular design collection (‘the collection’) for sale and distribution by the plaintiffs. Under its agency agreement with Lifestyle Holdings, LY could only sell certain models of that collection directly to four named companies in North America but apart from those four companies the sale and distribution of all models in the collection to the North American market could only be made through the first plaintiff in the first suit, Lifestyle Enterprise (USA) Inc. (‘the first plaintiff’). Problems developed in the business relationship between the plaintiffs and LY. The plaintiffs discovered that LY had by passed them and sold the collection furniture directly to purchasers in the North American market in breach of the terms of the agency agreement. When the plaintiffs protested, LY responded by purportedly terminating the agency agreement on the alleged ground the first plaintiff owed LY substantial arrears of payment in respect of previous sales. LY also published a notice insinuating that the first plaintiff was in financial difficulties. The plaintiffs in the first suit, inter alia, sought an injunction to restrain LY from continuing to breach the agency agreement and from publishing defamatory statements that reflected adversely on the plaintiffs’ trade and business; to require LY to provide an account of sales made and profits earned in breach of the agency agreement and for damages. In the second suit, LY sought, inter alia, a declaration that it had lawfully terminated the agency agreement.

Held:

[2013] 10 MLJ 181 at 182

(1)The plaintiffs had successfully proven on balance of probabilities that LY had breached the agency agreement. The defendants failed to tender all the documents applied for by the plaintiffs in their application for discovery of documents. Adverse inference was invoked against the defendants under s 114(g) Evidence Act 1950

(2)The purported termination of the agency agreement by LY was wrongful. On scrutinising the undisputed payment records of the first plaintiff and based on the finding that the parties had agreed to a 21-day payment term, the court found there was no breach in payment terms which meant there were no invoices of LY that were outstanding. Even if there had been a breach (which the court did not find to be so) the agency agreement did not expressly stipulate that payment time was of the essence of the contract. Thus, s 11Sale of Goods Act 1957s 56(2) Contracts Act 1950

(3)Since the first plaintiff was not in arrears in making payments to LY right up to the time the latter published the notice about the former’s financial difficulties, the words in the notice were untrue and defamatory of the first plaintiff. In their natural meaning and/or by innuendo the words were understood to mean the first plaintiff was in financial difficulties and was a financial risk to LY and to all other parties trading with the first plaintiff. However, as the first plaintiff failed to prove the damages it had suffered, a token sum of RM10,000 was awarded to it as damages. The first plaintiff had also failed to prove that the offending words were drafted personally by the second defendant in the first suit. Hence the defamation claim against him was disallowed (see para