Legal Insights Issue 4/2017, December 2017 – “DOCTRINE OF PRIME NECESSITY”


THE DOCTRINE OF PRIME NECESSITY

Geraldine Goon analyses the Court of Appeal decision adopting the doctrine of prime necessity into Malaysian law


In the recent case of Labuan Ferry Corporation Sdn Bhd v Chin Mui Kien & Ors & Another Appeal [2017] 1 LNS 497, the Court of Appeal unanimously applied the common law doctrine of prime necessity, subject to the qualification that the doctrine applies only where no statutes exist to exclude the applicability of the doctrine.

In short, the doctrine of prime necessity means that in the absence of good cause to the contrary, where a business is a monopoly providing an essential service, that business must make the service available to all and at a reasonable price.

BRIEF FACTS

The Plaintiffs were owners or operators of lorries or trailers whose business was to transport goods. The Defendant was the sole operator of ferry services between Menumbok and Labuan under a contract with the State Government of Sabah which prevented the Defendant from unilaterally increasing fares without the prior written consent of the State Government. Although the Defendant’s contract with the State Government expired on 20 June 2010, it remained the sole operator of ferry services between the two points until the middle of 2012. The Plaintiffs in both suits complained of the following:

(a) That in January 2011, the Defendant unilaterally and unlawfully increased the charges for its ferry services for a 9-ton laden lorry from RM270.00 to RM1,080.00 for the Menumbok-Labuan route and RM1,120.00 for the Labuan-Menumbok route; and

(b) Due to the Plaintiffs’ complaints regarding the increased charges, some Plaintiffs were denied use of the ferry’s services leading to the loss of use of vehicles stranded in Labuan.

The Plaintiffs’ main argument was that the Defendant, being the sole provider of an essential service, had a duty to ensure the availability of the service to all and charge a reasonable price for that service pursuant to the doctrine of prime necessity. The Plaintiffs’ basis for the application of the doctrine as part of Malaysia’s common law was its application in the common law jurisdiction of England supported by persuasive decisions from New Zealand and Canada. The doctrine was to be imported by way of section 3(1) of the Civil Law Act 1956 (“Civil Law Act”) which states as follows:

“Section 3. Application of U.K. common law, rules of equity and certain statutes.

(1) Save so far as other provision has been made or may hereafter be made by any written law in force in Malaysia, the Court shall—

(a) in Peninsular Malaysia or any part thereof, apply the common law of England and the rules of equity as administered in England on the 7 April 1956;

(b) in Sabah, apply the common law of England and the rules of equity, together with statutes of general application, as administered or in force in England on 1 December 1951;

(c) in Sarawak, apply the common law of England and the rules of equity, together with statutes of general application, as administered or in force in England on 12 December 1949, subject however to subparagraph (3)(ii):

Provided always that the said common law, rules of equity and statutes of general application shall be applied so far only as the circumstances of the States of Malaysia and their respective inhabitants permit and subject to such qualifications as local circumstances render necessary.”

The Defendant’s position was that the doctrine had no place in Malaysian law as there are in existence written laws that govern the Plaintiffs’ claims, namely the Contracts Act 1950 (“Contracts Act”), the Competition Act 2010 (“Competition Act”) and the Merchant Shipping Ordinance 1952 (“Merchant Shipping Ordinance”).

THE DECISION OF THE HIGH COURT

The High Court held that there was no reason for the non-application of the doctrine in Malaysia and such application was not precluded by any existing legislation. The Defendant appealed.

THE DECISION OF THE COURT OF APPEAL

The Court of Appeal charted the following framework to reach their conclusion. Firstly, the service being considered must be an essential service. Secondly, if there is no statute which deals with or encapsulates the doctrine, it must follow that the doctrine “shall” be applied in Malaysia pursuant to section 3(1) of the Civil Law Act, subject to any “qualifications as local circumstances render necessary”.

In satisfaction of the first limb, the Court of Appeal accepted that the ferry service was indeed an essential service. Unfortunately, the Court of Appeal did not elaborate on the basis upon which the ferry service was found to be essential. Guidance may be sought from the High Court decision (reported in [2016] 1 CLJ 866) where Stephen Chung J was convinced by the following factors:

(1) the Defendant was, at all material times the sole operator and had a monopoly over the ferry services between Menumbok and Labuan;

(2) there is no bridge or land connection or link between the two points; and

(3) such ferry services are essential to trade, commerce and transportation between Labuan and Sabah.

The Court of Appeal then moved on to consider the origin of the doctrine from the 18th century English case, Allnut v Inglis (1810) 12 East 527. The doctrine had been laid down as follows:

“Every man may fix what price he pleases upon his own property or the use of it but if for a particular purpose, the public have a right to resort to his premises and make use of them, and he has a monopoly in them for that purpose, if he will take the benefit of that monopoly, he must as an equivalent perform the duty attached to it on reasonable terms …”

The Court of Appeal then went on to consider section 3(1) of the Civil Law Act and said:

“It is thus mandatory to apply the common law of England as administered or in force in England on the dates specified in section 3(1)(a)(b)(c) of the Civil Law Act where no provision “has been made … by any written law in force in Malaysia.””

The Court of Appeal clarified that the “common law” referred to in section 3(1) of the Civil Law Act is the common law of England. Any development in Malaysian common law after the dates specified in the Civil Law Act is entirely in the hands of the Malaysian courts (Chung Khiaw Bank Ltd v Hotel Rasa Sayang Sdn Bhd [1990] 1 MLJ 356).

In the opinion of their Lordships, “the mere existence of the Competition Act, Contracts Act and the Merchant Shipping Ordinance is not key to determining whether the common law doctrine of prime necessity applies to Malaysia. The key to determining the issue is whether the three statutes encapsulate the common law doctrine of prime necessity.”

As none of the three statutes cited by the Defendant contained provisions that regulate the monopoly of essential services, these statutes are not “other provision ... made under any written law in Malaysia” within the meaning of section 3(1) of the Civil Law Act which have the effect of excluding the application of the common law doctrine of prime necessity.

The Court of Appeal took the view that the object of the Competition Act is to protect the interests of consumers by prohibiting anti-competitive conduct among competitors and not to regulate monopolies of essential products and services. Thus, the Competition Act has nothing to do with the doctrine of prime necessity, which is concerned with the obligation imposed on monopoly suppliers of essential products and services to supply their products and services in consideration for fair and reasonable payments.

Based on the facts and circumstances of the case, the Court of Appeal agreed with the High Court that the doctrine of prime necessity could and did apply. The Court of Appeal also found that the increased fares imposed by the Defendant were excessive and unreasonable in the circumstances.

CONCLUSION

Although this was not the first time the doctrine has been argued and considered in Malaysia, it marks the very first positive application and acceptance of the doctrine as part of Malaysian common law. The only other reported decision that has considered the doctrine is Tsen Heng That v Sabah Fish Marketing Sdn Bhd & Ors [2015] 1 LNS 585, which incidentally was also presided over by Stephen Chung J.

In Tsen Heng That, one of the issues raised during an application for an interim injunction was whether the fisheries complex owned by the 1st Defendant was a business invested with the “monopoly of a public privilege”. The High Court declined to consider the issue as there was insufficient evidence at that interlocutory stage of proceedings to determine the issue and took the view that it was a matter to be decided at trial. Unfortunately, there is no further reported decision on the outcome of the trial and whether a case for the doctrine was made out or not.

It must be noted that in coming to its decision, the Court of Appeal in Labuan Ferry was careful to clarify that there is no statute that they were aware of that deals with the cause of action of the nature brought by the Plaintiffs. Hence, a party who seeks to invoke the doctrine of prime necessity must canvass all available legislation before pursuing an action on this ground lest the cause of action be stymied by an applicable statutory provision.


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SUBJECT MATTER: CASE COMMENTARY


WRITER’S NAME: GERALDINE GOON


WRITER’S PROFILE:

Geraldine is an Associate in the Dispute Resolution Division of Skrine. She graduated from University College London in 2012.

 

 
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