Cuckoo partly wins appeal against ex-sales contractor

 The Court of Appeal rules that any entitlement to commissions and passive income must be determined by contractor-agent agreements.

Court of Appeal judge Firuz Jaffril said the High Court had erred by treating the issue as one involving broader considerations such as natural justice and unequal bargaining power. (Reuters pic)

PUTRAJAYA:

The Court of Appeal has allowed part of an appeal by Cuckoo International Bhd against key High Court findings that allowed a former independent sales contractor and its sole director to claim passive income under the company’s rental plans for water filters and home appliances.

A three-member bench, comprising Justices Firuz Jaffril, Ismail Brahim and Dean Wayne Daly, unanimously allowed the appeal in part and ordered Starmax Century Sdn Bhd and Wong Tze Ming to pay RM20,000 in costs.

The court also set aside the High Court’s order requiring Cuckoo to render accounts for passive income allegedly owed from March 2020 onwards.

Firuz, who delivered the broad grounds, said the dispute over passive income was fundamentally contractual and should be determined solely by the terms of the contractor-agent agreements between the parties.

He said the High Court had erred by treating the issue as one involving broader considerations such as natural justice, unequal bargaining power, public policy, penalty clauses and Wong’s constitutional right to a livelihood.

Firuz said those issues were neither pleaded nor argued by the parties and should not have formed the basis of the High Court’s decision.

The dispute stemmed from an internal investigation by Cuckoo, which uncovered irregular sales involving phantom customer accounts within its contractor-agent network.

Wong admitted to the misconduct and entered into a settlement agreement under which she paid RM535,313.80 to Cuckoo as full and final settlement of losses identified during the investigation.

Starmax and Wong later sued Cuckoo, seeking, among other things, the return of the settlement sum, unpaid commissions and passive income.

Cuckoo denied liability and counterclaimed for additional commissions and incentives it alleged had been wrongfully obtained.

After a trial, the High Court dismissed the claim to recover the RM535,313.80 settlement payment but ruled that the settlement had effectively “wiped the slate clean” of the earlier misconduct, as described in its judgment.

It also dismissed Cuckoo’s counterclaim, ordered the company to refund RM1,000 in commissions, pay Wong RM57,520.03 in February 2020 commissions and render accounts for passive income from March 2020 onwards.

In reversing the passive income ruling, Firuz said Starmax and Wong had accepted and become bound by the contractor-agent agreements through Cuckoo’s electronic contracting process and their conduct. This included receiving commissions and other benefits under those agreements, despite not physically signing them.

He said the respondents could not rely on the agreements to claim commissions and passive income while simultaneously denying their validity and enforceability.

Firuz added that any entitlement to passive income must arise from and remain subject to the terms of the contractor-agent agreements, rather than broader concepts of fairness or constitutional considerations.

He said judges must decide disputes based on the cases presented by the parties and cannot rewrite contractual terms or introduce issues that were never raised by litigants.

Lawyers Leonard Yeoh, Pua Jun Wen, Sharon Teo and Stella Beh appeared for Cuckoo while R Rishikessingam, S Khisok Kumaar and Nur Azmina Izzati Aini Azman represented Starmax and Wong.

As Cuckoo is a publicly-listed company that operates a nationwide network of more than 10,000 independent sales and service contractors, the ruling may have implications for businesses that engage large numbers of independent contractors. - FMT