Sole Proprietors – Do you have the legs to stand on your trade names?
01 November 2022
Sole proprietors often resort to using various business or trade names in an effort to promote the business, make it more marketable or perhaps under the assumption that the name would bring them luck. While entering into contracts with clients or suppliers under these trade names is not prohibited under the law, these trade names lack the necessary legal capacity to commence legal proceedings.
In the recent decision of Global Built Sdn Bhd v LKL Ceiling Enterprise & Anor (and Another Originating Summons)  6 AMR 313, the High Court deliberated over whether an adjudicator acted without jurisdiction on the basis that the claimant in the adjudication proceedings lacked the necessary legal capacity to initiate the same.
The case concerned cross applications to set aside as well as enforce an adjudication decision pursuant to the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”).
Global Built Sdn Bhd (“GB”) is the main contractor for the development of a 33-storey twin tower hotel with an indoor theme park, commercial area and basement car park in Genting Highlands, Mukim Bentong (“Project”).
LKL Ceiling Enterprise (“LKL”) was appointed by GB as its plaster ceiling sub-contractor of the Project (“Sub-Contract”).
Disputes and differences arose between the parties under the Sub-Contract that were referred to statutory adjudication under the CIPAA.
In the CIPAA proceedings, LKL pursued its payment claims in the name and capacity of LKL Ceiling Enterprise. The adjudicator appointed by the Asian International Arbitration Centre on 2 December 2021 made her decision in favour of LKL (“Decision”).
Dissatisfied, GB instituted proceedings in the High Court to set aside the Decision (“Setting Aside Proceedings”). LKL on the other hand also instituted proceedings in the High Court to enforce the Decision (“Enforcement Proceedings”).
Basis to Set Aside
GB’s primary arguments in favour of the Setting Aside Proceedings are two-fold:
- First, that the adjudicator acted without jurisdiction pursuant to Section 15(d) of the CIPAA because LKL had no locus standi to commence the adjudication proceedings.
- Alternatively, that the adjudicator denied GB natural justice pursuant to Section 15(b) of the CIPAA because the adjudicator decided on several matters which were not in issue in the adjudication proceedings.
For purposes of this commentary, we will consider only GB’s first argument on locus standi.
By way of background, it is to be noted that LKL is the trade name of sole proprietor, Wong Yen Feng who is the First Defendant in the Setting Aside Proceedings and the First Plaintiff in the Enforcement Proceedings.
Essentially, GB contended that the adjudication proceedings were commenced not by Wong Yen Feng but by LKL that is not a legal entity with capacity notwithstanding that LKL had been named as the sub-contractor in the Sub-Contract. As the result, the adjudicator did not have the jurisdiction to decide the dispute and the Decision must accordingly be set aside.
Reasoning of the High Court
Claimant in CIPAA proceedings must be party with legal capacity
Relying on his previous decision in KLIA Associates Sdn Bhd v Mudajaya Corporation Bhd  1 LNS 1253, Justice Lim Chong Fong held that the claimant that institutes adjudication proceedings must be the correct and proper party with legal capacity and standing/status.
In KLIA Associates (supra), His Lordship held that although the contract therein was signed on behalf of KLIAA-KLIACS Consortium, it did not, ipso facto, confer legal status on KLIAA-KLIACS Consortium for purposes of legal proceedings. The correct and proper parties must still be named in the legal proceedings.
The learned Judge considered arbitrations and statutory adjudications as legal proceedings because the decision and award emanating from these proceedings were binding in law and required direct court assistance for their respective enforcements.
Registered trading name is not a legal entity
As far as sole proprietors are concerned, His Lordship relied on the Supreme Court decision in Wong Yoon Yar v Lin Yin Thai  2 MLJ 714, which held that a firm or ‘chop’ name, notwithstanding that it may be registered under other legislation, is nothing more than a convenient name or label for a sole proprietor carrying on a business. A sole proprietor may wish to carry out business with a ‘chop’ name which is more colourful or meaningful to bring luck or prosperity, but he does not by doing so create an entity separate from himself.
As held by Abdul Malik Ishak J (later JCA) in Tan Thoo Yow v Chia Kim San & Anor  MLJU 142, if a sole proprietor of a firm is suing, he must sue in his own name and add below his own name within parenthesis, the name of the firm of the sole proprietor so as to inform the defendant that he is suing as a sole proprietor.
Finally, His Lordship relied on Akitek Bersatu v Sempurna Cekap Sdn Bhd  7 CLJ 217 where Hishamudin Yunus J (later JCA), held that the plaintiff ought to satisfy the court that he has the legal personality to sue. If he/it has no legal personality to sue, then it must follow that he/it has no reasonable cause of action.
Registration under the Registration of Business Act 1956
The Judge took note that LKL was a registered business under the Registration of Business Act 1956 (“RBA”). However, relying on HT Maltec Consultants v Malaysian Resources Corporation Berhad & Ors  1 LNS 68, the Court found that registration under the RBA did not confer a legal personality in contrast with a registered body corporate pursuant to Sections 20 and 21 of the Companies Act 2016.
In HT Maltec (supra), Wong Kian Kheong JC (now J) found that there was no provision in the RBA equivalent to Section 16(5) of the Companies Act 2016 which provides for the effect of incorporation and specifically that an incorporated company is capable of suing and being sued.
Requirement for capacity to commence legal proceedings stems from common law
In opposing the Enforcement Proceedings, LKL relied on the Singaporean case of Sito Construction Pte Ltd (trading as Afone International) v PBT Engineering Pte Ltd  SGHC 7 wherein Tan Siong Thye J disagreed with the respondent’s reliance on Order 77 rule 9 of the Singaporean Rules of Court (pari materia with Order 77 of the Rules of Court 2012) to argue that ‘Afone International’, being a sole proprietorship, was not entitled to maintain the adjudication application for the simple reason that it had no legal capacity to do so.
In dismissing LKL’s aforesaid argument, Justice Lim Chong Fong found that the legal requirement for a sole proprietor to commence legal proceedings as plaintiff/claimant in its personal name, is not governed by Order 77 rule 9 of the Singapore and Malaysian Rules of Court. His Lordship’s reasons for this were inter alia as follows:
- Order 77 rule 9 only deals with defending legal proceedings (to be sued) as defendant/respondent and not with commencing legal proceedings;
- There is no provision in the Rules of Court 2012 which deals with the legal requirement for a sole proprietor commencing legal proceedings (suing); and
- The legal requirement on capacity or locus standi to commence legal proceedings does not stem from the Rules of Court 2012 which is meant specifically for court proceedings only (Order 1 rule 2 referred).
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According to His Lordship, this requirement is instead governed by common law as seen in the case of Mason and Son v Mogridge
 8 TLR 805 and adopted in the cases of Re Meera Hussain bin TM Mohamed Mydin; ex p Syarikat Abu Haniffa
 7 MLJ 483 and Akitek Bersatu
(supra). His Lordship referred to his decision in KLIA Associates
(supra) and stated that the correct and proper parties must be brought in and named in statutory adjudication proceedings, and the common law requirement in respect of a sole proprietor commencing proceedings as claimant (i.e. that the proceedings are to be commenced in the name of the proprietor with the name of the firm within parenthesis and not solely in the firm’s name) must be strictly complied with.
Justice Lim added that it is irrelevant if the respondent has not been prejudiced or is not under any misapprehension of the claimant's identity in the event of the claimant’s non-compliance of the common law requirement. It is also irrelevant that parties may have contracted using their business names (Narindera Pall Singh Surjeet Singh v Ecofirst Construction Sdn Bhd
 1 LNS 124.)
Decision of the High Court
Based on the foregoing, the Court found that since it was LKL that commenced the CIPAA proceedings and not ‘Wong Yen Feng (trading as LKL)’, LKL did not have the legal capacity or standing to validly do so.
The failure in naming the right party affects the capacity or locus standi
of the party and accordingly the jurisdiction of the adjudicator because the right parties were not before her.
In conclusion, His Lordship concluded that the adjudicator had unwittingly acted in excess of jurisdiction and allowed GB’s application to set aside the Decision under the Setting Aside Proceedings pursuant to Section 15(d) of the CIPAA. The Court also dismissed LKL’s application to enforce the Decision pursuant to the Enforcement Proceedings.
This decision is not ground-breaking as it applies established legal principles as to the requirements relating to the commencement of legal proceedings by sole proprietors. Nevertheless, the High Court’s decision is a reminder to parties and adjudicators in statutory adjudication proceedings as to the importance of ensuring that the correct party with the capacity to sue and be sued is named in such proceedings irrespective of how the said party is referred to under the contract.
Case summary by Tatvaruban Subramanian (Senior Associate) of the Construction and Engineering Practice of Skrine.