Opinion for Cosec

Issues

1. How can a company secretary (cosec) be held negligent towards its client (i.e. a company), and then subsequently be liable for damages suffered by its client?
2. Does a cosec holds a duty of care towards its client to inform the receipt of legal documents from the authority in the registered address? (in our present case: writ of summons from the court)
3. Would a cosec be held liable for damages upon failure in observing that duty of care?
4. Can a cosec refuse acceptance of service of legal documents?

Opinion

1. 1. First Issue.

      A cosec may be held liable for negligence if the party alleging it is able to establish the three elements required in law to prove a case of negligence. In summary, in order to succeed in a claim for negligence, the claimant (in this case, the company) must prove the three elements. The three elements are:-

      1. that there must exist a duty of care owed by the cosec;
      2. that there is a breach of that duty of care by the cosec; and
      3. that the damage suffered was caused by the cosec’s breach of that duty.

      When all three elements of negligence are fulfilled and proven in court, then the cosec will be held liable for negligence and be held responsible for damages.

   2. Second Issue.

      The appointment of a cosec is a part of the legal requirement according to s. 235 of the Companies Act 2016. A cosec bridges the gap between the authority and the company. Given the extensive role that a cosec plays in a company, a reliable and trustworthy cosec will ensure all various legal aspects of the business is taken care of. It is essential that a cosec performs its duty with due diligence and abstain from being negligent in its course of discharging it.

      To understand the function and the scope of duty of care expected from a cosec, it is relevant to refer to decided cases concerning it. In the case of Lai Ban Guan v Chan Phaik Boi & Ors [2011] MLJU 1192, the learned Judge referred to Company Law Second Edition by Walter Woon where it states that:-

      “The company secretary is the person who ensures compliance with the many regulations affecting companies. He is the one who keeps the necessary registers, sends out notices, organizes meetings, takes down minutes and files whatever forms are required by the Registry of Companies and Businesses. The secretary’s function basically is to handle all the paperwork and procedural matters that running an incorporated company involves. However, he is today more than just a glorified office manager. The company secretary occupies a pivotal role in the management of the company. To a large extent, the smooth running of the company depends upon his efforts. His duties are not fixed by law, but are generally those assigned to him by the articles or his contract of employment. He is expected to follow the instructions of the board of directors.”

      The Judge also went further to state that:-

      “What is the duty of care of company secretaries? The starting point is the Good Governance Guides No 2.1 on Roles and Duties of the Company Secretary issued by MAICSA (P79) which states the company secretary should adhere to “The Company Secretary’s Code of Ethics developed by the Companies Commission of Malaysia”. Paragraph D (1) and (2) of the Code of Ethics (P38) provides that:

      “ln the performance of his duties, a company secretary should always observe the following codes:

      1. Strive for professional competency and at all times exhibit a high degree of skill and proficiency in the performance of the duties of his office.
      2. At all times, exercise the utmost good faith and act both responsibly and honestly with reasonable care and due diligence in the discharge of the duties of his office.”

Conclusion

From the authorities above, it can be understood that a cosec holds an important duty of care towards the company. It functions, among others, to ensure that company is complying with the legal requirements and regulations affecting it and discharge its duty towards the company with reasonable care and due diligence.

Therefore, a cosec holds a duty of care to inform the company about a receipt of a document, let alone a time-sensitive document (i.e. legal document). Failure on the part of cosec to inform amounts to a breach of that duty of care. As a consequence, the company may held the cosec liable for damages for losses suffered by the company due to that breach of duty of care.

Opinion

3. Third Issue.

   However, in order to make the cosec liable for damages, the company must first prove that the losses suffered by the company was caused directly by the cosec’s breach of duty. As highlighted above, to prove causation is the third element of negligence. The company has to prove that there is a connection between the breach of duty and the losses suffered. The company must also show that the connection is not remote.

   At present, the losses suffered by the company are the demands made against it as prayed for in the legal document. The cosec’s failure to notify the company of the receipt of the legal document does not cause the company to be automatically liable for the demands made against it. In other words, had the cosec notified the company of the receipt of the legal document, the company will still need to have its day in court and defend the case made against it with merit. The company has to go through the due process in law before the court reaches its decision on liability. The cosec’s failure to inform the receipt of the legal document has little to no bearing in influencing the judge’s decision.

   Further, we were informed that the same legal document has also been served on the company’s business address. The company has reasonable opportunity to take notice of the receipt of the legal document. The company then has no excuse in stating that it is unaware and not notified on the existence of the legal document.

Conclusion

The cosec is not automatically liable for damages for the losses suffered by the company. The company must prove causation; that there is a connection between the losses suffered by the company and the cosec’s breach of duty. From the explanation above, we can deduce that there is little to no connection between the losses suffered by the company arising from the demands in the legal document and the cosec’s breach of duty (i.e. failure to inform the company of the receipt of the legal document). Therefore, the cosec cannot be said to be liable for damages for the losses suffered by the company.

Opinion

4. Fourth Issue.

   A cosec may refuse acceptance of service of a legal document from a process server. A process server cannot force the acceptance of service to its intended recipient. In the case of Re Azizul Nizam bin Bidin; ex parte Solsis (M) Sdn Bhd [2017] 11 MLJ 459, the learned Judge shed the following matter in point:

   “…it would be impractical for the law to insist that actual physical personal service must still be made on a judgment debtor who for no good reasons refuses to accept service despite being in the proximity of the process server, and already having been identified as well as informed by the process server about the issuance of the bankruptcy notice.”

   The case above highlights the impracticality of forcing acceptance of service of a bankruptcy notice (a type of legal document) onto its recipient. However, the law grants an alternative to perfect the service when there is an instance of refusal of service. Order 62, rule 5 of the Rules of Court 2012 provides for the alternative of substituted service where it states:

   “5. (1) If, in the case of any document which in accordance with these Rules is required to be personally on any person, it appears to the Court that it is impracticable for any reason to serve that document personally on that person, the Court may make an order in Form 133 for substituted service of that document.”

Conclusion

It is almost impossible for a party to refuse the acceptance of service of a legal document. A party may refuse it at the first instance but the law provides for an alternative to perfect the service (i.e. substituted service). If at all, this would only serve as a delay tactic to prolong the date of effective service. On the foresight, the refusing party may also be liable to bear the costs for the substituted service if he/she fails to provide a reasonable excuse in refusing service at the first instance.

Important Note.

On a side note, it is crucial to establish early on in detail the duties and obligations of parties in a professional relationship such as that of between a cosec and a company. This can be enshrined through the creation of a Letter of Engagement between a cosec and a company. By doing so, parties will be made aware of each other’s duties and obligations and manage the expectation accordingly. Indirectly, this would also protect parties from being liable for matters that is too remote. Therefore, professional bodies such as a company secretary are advised to seek qualified legal advice in structuring agreements that serves to protect its rights.