Pleading collateral contract / liability for inducing breach of contract is not dependent on judgment against contract-breaker – Jaya Sudhir a/l Jayaram v. Dato’ Seri Timor Shah Rafiq & Ors and another appeal [2025] MLRAU 199

Introduction

Three decades post the seminal decision of the (then) Supreme Court in Eushun Properties Sdn Bhd & Ors v. MBF Finance Bhd [1992] 1 CLJ Rep 104, the defence of a collateral agreement remains very much in fashion - when faced with a clear breach of an express term in a written agreement. 

In Jaya Sudhir a/l Jayaram v. Dato’ Seri Timor Shah Rafiq & Ors and another appeal [2025] MLRAU 199, the appellant pleaded a “collateral understanding” both as a cause of action in his suit for breach of the so-called collateral understanding and as a defence to a suit for inducing the breach of a pre-emption clause in a shareholders’ agreement.The decision of the Court of Appeal affirming the judgment of the High Court is instructive on two issues i.e., the importance of properly pleading a collateral contract and whether a tort-feasor can be found liable for inducing breach of contract without judgment against the contract-breaker for breach of contract.

Facts

The appellant (Sudhir) was the plaintiff in Suit 165 and the defendant in Suit 113. In Suit 165, he sued for various reliefs premised on alleged breaches of the collateral understanding by the first and second respondents (Timor and NSSB respectively). The third and fourth respondents (AMSB and NTT respectively) are not Sudhir’s real adversaries and do not oppose his claim. 

In Suit 113, NSSB claimed against Sudhir for the tort of inducing AMSB to breach the pre-emption clause in the shareholders agreement with NSSB regarding their jointventure in NTT, T, by procuring AMSB to transfer shares in NTT to Sudhir without offering such shares for sale to NSSB. Sudhir pleaded the collateral understanding as his defence.

Decision

After 19 days of trial, the High Court delivered its judgment in Jaya Sudhir a/l Jayaram v. Dato’ Seri Timor Shah Rafiq & Ors and another case [2020] CLJU 1975 and found that: (1) the existence of the alleged collateral understanding is not proven; and (2) Sudhir is liable for the torts of inducing breach of contract and knowing assistance.

Regarding Sudhir’s pleadings, the High Court found that he failed to properly plead the collateral understanding to be an enforceable contract, which in any event, was not proven. The Court of Appeal affirmed this finding. 

The torts of inducing breach of contract and knowing assistance are torts of secondary liability, with primary liability being the breach of contract and breach of fiduciary dutyrespectively. Sudhir raised as a preliminary point that there cannot be judgment for these torts of secondary liability when the issue of primary liability is pending determination in arbitration between NSSB and AMSB.

The High Court dismissed this preliminary point on several grounds: (1) the absence of a party does not invalidate prior court proceedings; (2) in this case, both Suit 165 and Suit 113 were tried together and AMSB and NTT participated in the trial with full knowledge of the nature of Suit 113; (3) AMSB and NTT could have but did not apply to intervene in Suit 113; (4) the objection was not for Sudhir to take, but either AMSB or NTT who did not do so; and (5) a tort-feasor may be sued alone without naming the joint wrong-doer. The Court of Appeal agreed with this reasoning.

Commentary

This appellate decision highlights the importance of expressly pleading a collateral “contract”, and not merely a collateral “understanding”. It also illustrates that whilst a plea of collateral contract might satisfy the low threshold of a bona fide serious issue to be tried for interim injunction purposes, proving it at trial is another matter altogether.Finally, this case clarifies that a claimant can obtain judgment against a tort-feasor for secondary liability without suing or obtaining judgment against another joint wrongdoer for primary liability in the same action or at the same time.

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Chok Zhin Theng 
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