Cuckoo partly wins appeal against ex-sales contractor

The Court of Appeal has allowed in part Cuckoo's appeal against a former sales contractor, setting aside a High Court order that required the company to render accounts for passive income allegedly owed from March 2020 onwards.

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.

Delivering the broad grounds, Firuz 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. Those issues, he said, were neither pleaded nor argued by the parties and should not have formed the basis of the 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 the losses identified.

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 trial, the High Court dismissed the claim to recover the RM535,313.80 but ruled that the settlement had effectively "wiped the slate clean" of the earlier misconduct. 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.

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, including receiving commissions and other benefits, despite not physically signing them. They could not rely on the agreements to claim commissions and passive income while denying their validity.

Judges, he added, must decide disputes based on the cases presented and cannot rewrite contractual terms or introduce issues 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 operating 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.