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MALAYSIA: TRADERS CAN BE FOUND LIABLE FOR THE TORT OF PASSING-OFF

12th June, 2020

On 12 February 2019, the Malaysian Court of Appeal delivered a judgement in a case of Lifomax Woodbuild Sdn Bhd v Amsteel Mills Sdn Bhd concerning tort of passing-off.

Lifomax Woodbuild Sdn Bhd (hereinafter referred to as “the Appellant”) appealed against decision of the High Court dated 24 September 2013, which had ruled in favour of the claim of Amsteel Mills Sdn Bhd (hereinafter referred to as “the Respondent”) for the tort of passing-off. The Respondent is a steel manufacturer, particularly in manufacturing and marketing of steel bars and wire rods. On the other hand, the Appellant’s business nature is trading of building materials including steel products for, but not limited to, construction companies.

Previously, the Respondent brought an action against the Appellant in the High Court for the tort of passing-off as the Appellant had reportedly supplied deformed steel bars with interior quality to a construction company called Mammoth Empire Construction Sdn. Bhd. (hereinafter referred to as “Mammoth”), in which the deformed steel bars with interior quality were represented to Mammoth as products originated from the Respondent, resulted in Mammoth lodging a complaint to the Respondent. The Respondent was then sued the Appellant for passing off after the Respondent found out that the Appellant had passed off the products as that of the Respondent’s own by using fake Mill Test Certificates and Product Tags of the Respondent.

The High Court ruled that the Appellant had indeed committed the act of passing-off by misrepresenting the products supplied to Mammoth as having originated from the Respondent. Further, the Appellant had misled Mammoth that the Appellant was supplying products manufactured by the Respondent, which led to a likelihood of damage to the Respondent’s goodwill and reputation caused by the Appellant’s misrepresentation. As such, the High Court had allowed the Respondent’s claim.

In the appeal, the main issue for consideration raised by the counsel for Appellant was that the High Court judge had erred in her judgement in ruling the tort of passing off. More particularly, the counsel for Appellant argued on two grounds of appeal as follows:

  1. the Appellant was merely a trader that selling goods, not the manufacturer of the deformed steel bars. The deformed steel bars were purchased from NBH Marketing Sdn. Bhd. (hereinafter referred to as “NBH”), which were then on-sold by the Appellant. As the deformed steel bars were not manufactured by the Appellant, the deformed steel bars should not be considered as the Appellant’s goods and hence the element of the tort of passing off was not established; and
  2. the High Court judge failed to approach testimonies and contradictory evidence of the principal witnesses for the Respondent with caution, namely PW2 and PW3 that came from Mammoth. At the time of the High Court trial, there were proceedings going on between Mammoth and the Appellant in the High Court at Shah Alam for goods sold and delivered. As such, the counsel for Appellant claimed that both PW2 and PW3 were witnesses with a purpose to serve as a positive outcome that would benefit Mammoth in the aforementioned proceedings.

On the other hand, the counsel for Respondent counterclaimed that although the goods were not manufactured by the Appellant, the goods were nevertheless sold by the Appellant and hence liable for the tort of passing off. In addition, the High Court judge did not rely entirely on PW2’s evidence, but also on DW1’s admission, documentary evidence adduced during the trial including the Malaysian Standards (MS standards), the Purchase Order (P.O.), test results conducted on samples of the products, and photographs taken by the police which showed the product tags attached to the deformed bars. As such, the Respondent had succeeded in establishing the act of misrepresentation on the part of the Appellant when the Appellant sold the deformed bars to Mammoth.

The Court of Appeal concurred with the Respondent’s counterclaim, where the tort of passing off was indeed made out as concluded by the High Court. The tort of passing off can be committed by traders that represent goods of others as their goods, where the goods sold not necessarily must be manufactured by them. In this case, although the deformed steels were originally NBH’s goods, the deformed steels were considered as the Appellant’s goods when they were on-sold to Mammoth and hence committed the tort of passing off.

The Court also concurred with the Respondent’s counterclaim, where the High Court judge had arrived at her findings after a thorough evaluation of DW1’s admission, documentary evidence adduced during the trial including the MS standards, the P.O., the test results, and photographs of the product tags. The Court held that the High Court judge was fully aware of the aforementioned proceedings between Mammoth and the Appellant. In addition, the Court pointed out that the Appellant had never made allegation on the credibility of PW1 and PW2 during cross examination at the High Court. As such, the Appellant cannot complain during the appeal that the High Court judge had erred in not exercising caution when evaluating evidence from PW1 and PW2. Further, the Court is of the view that the Appellant’s complaint as the Shah Alam High Court was for goods sold and delivered, whereas the present case was for the tort of passing off. As the outcome of the present case has no bearing on the Appellant’s claim as alleged; hence, the Court found no merit on the ground of the Appellant’s complaints.

The Court of Appeal held that the High Court judge did not erred in her judgement for the tort of passing off, where the Respondent had successfully proven the act of misrepresentation by the Appellant. As a result, the Court of Appeal decided that the appeal was dismissed with cost and the High Court’s decision was retained.