Conflict of Interest and the importance of a well-conducted DI

LEE GIM ENG v HICOM HOLDINGS BERHAD/ HICOM NETWORK SERVICES SDN. BHD. AWARD NO. : 1434 OF 2012 (25th Oct 2012)

The Ministerial reference in this case required the Court to hear and determine the Claimant’s complaint of dismissal. At the time of her dismissal, the Claimant was the Chief Executive Officer (CEO) of Hicom Network Services Sdn Bhd (HNS).

Background Facts

The Claimant joined the Company on the 1 March 1995 as a General Manager with a basic salary of RM9,000.00 pursuant to a letter of confirmation upon appointment dated 1 March 1995. The Claimant’s last drawn basic salary was RM22,107.00 excluding other allowances and benefits. The Claimant was suspended from her position as the CEO of the Company from 14 August 2006 to 21 August 2006 pending investigations into nine allegations against her.

On 29 August 2006, the Company sent the Claimant a letter which stated that it had found her explanations to the Company’s Show Cause letters to be not satisfactory. The Claimant was then officially notified that it proposed to hold a Domestic Inquiry (DI) into the allegations made against her in her capacity and during her tenure as the CEO of HNS. The nine charges related to a “conflict of interest”, whereby (inter alia) the Claimant allegedly awarded contracts to her sister’s companies iTopia Services Sdn Bhd and iTopia Sdn Bhd, diverted HNS revenue to her sister’s companies, allowed her sister’s companies to use HNS property, allowed her sister’s companies to tap electricity from HNS supply, supplied HNS confidential information to her sister’s company. She was alleged to have committed the above acts without disclosing that her sister owned iTopia and as such did not obtain approval from HNS board of Directors.

The starting point of the investigation into the Claimant’s alleged misconduct resulted from a routine audit. The audit team had noticed some discrepancies that linked to a situation of conflict of interests. It was also not disputed by the parties that one Mimi Lim is the sister of the Claimant. Mimi was also the director and shareholder of iTopia Sdn Bhd (iTSB) and iTopia Services Sdn Bhd (iTSSB).

The Domestic Inquiry

The DI was subsequently conducted and the Claimant had attended it. DI notes were taken verbatim (which was signed by the Claimant) and typed out, and showed the Company had called seven witnesses. A 10-page report was prepared and signed by the Chairman and members of the DI panel. The panel of inquiry unanimously found the Claimant guilty of all the charges against her and recommended that the Management took severe action against her in view of the seriousness of the offences committed by her.

The Claimant was dismissed on 4 October 2006. The Claimant submitted that the DI held was arbitrary, improper, unfair, unjust, including objecting to the composition of the panel members and Chairman alleging that they were selected with a purpose to victimize the Claimant, in breach of the principles of natural justice so rendering it unlawful and its findings void. The court had taken time to read and peruse the typewritten notes as well as those notes which were taken verbatim. It was revealed in the midst of the hearing that some of the handwritten notes were not typed and filed. Nevertheless, the court held the view that this does not render the notes of the DI defective since the handwritten notes were signed off by both parties and thus prevail. It was also raised that the Claimant was not told she could call her witnesses and that those options and questions were not posed to her as they were not stated in the DI notes. All the Claimant’s rights were conveyed to her in the Company’s Notice of DI letter which the Claimant had duly acknowledged receipt of.

It was clearly stated that at the inquiry, she was to be given the full opportunity to conduct her defence by examining her witnesses and cross-examining the Company’s witnesses. The Claimant was also told that she could bring along documentary evidence that could help her in her defence. In the third last paragraph of the said letter, the Claimant was informed the repercussions of the inquiry that due to the seriousness of the charges, should the inquiry found against her, she could be dismissed for gross misconduct without notice or pay in lieu of notice. The Claimant was accorded ample notice of the DI to be conducted against her and given the opportunity to be heard and to defend herself by being given the charges well before the DI.

Thus, the court was satisfied that the DI was fairly conducted and it had not in any way prejudiced the Claimant and there was no proof that they were biased in their decisions or were put in the panel of inquiry to victimise her, in breach of any rules of natural justice.

Findings of Fact

The court found that there was no documentation to show that the Claimant had made any declaration about the fact that Mimi Lim was a director in iTSB and iTSSB. On top of that the Claimant was the signatory to iTSB’s cheques and bank account. The Court held that the Claimant knew of the existence of the conflict of interest and did not produce any written disclosure to the Chairman with regards to the engagement of iTSB and iTSSB in which the Claimant’s sister was a shareholder and director nor any written approvals of the engagement of the companies to do business with HNS, nor had Company condoned the business relationship between HNS and iTopia. As such, the Claimant was in breach of the Company’s work ethics as contained in the DRB-HICOM’s Code of Ethics. From the oral and documentary evidence disclosed, it was also evident that the Claimant’s involvement with iTSB and iTSSB inevitably had brought her personal interest in conflict with HNS’ interest. The Claimant had undoubtedly betrayed the trust and confidence the Company had in her.

Finding of Law

Premised upon the aforesaid reasons, the evidence before the court and the findings of the DI, this court affirmatively confirmed the DI’s findings that the Claimant was guilty of each and every charge of the nine charges brought against her. The court is satisfied that the Company has brought cogent and convincing evidence to prove the misconduct of the Claimant and it has discharged its onus on a balance of probabilities.

It is well established in industrial jurisprudence that a contract of employment is a contract of confidence and trust, to the extent that it is sometimes labelled as a contract of fidelity. It means that the employee must not place himself in a position where his interest conflicts with the interest of his employer. She was subjected to the Company’s rules and Code of Ethics and could not conduct HNS’ business. Consequently, she had to comply with those rules or face and suffer dire consequences due to the severity of those charges. In totality, the court is convinced that the Claimant was guilty of the misconduct alleged against her and the disciplinary sanction of her dismissal was warranted and for a just cause or excuse. Accordingly, her claim was dismissed.

From the above case, the following tips can be derived:

It is prudent for all companies, big or small, to undertake routine audits.
DI proceedings must be taken down verbatim and signed off by both parties. It is however not compulsory to have the notes typewritten thereafter.
The accused must be issued a Notice of DI letter, which must contain the following:
- All the Claimant’s rights as enumerated below must be conveyed in the said letter and duly acknowledged receipt of.
- The DI letter must clearly state that at the inquiry, the accused is to be given the full opportunity to conduct her defence by examining her witnesses and cross-examining the Company’s witnesses.
- The accused must also be told that she could bring along documentary evidence that could help her in her defence.
- The accused must be informed the repercussions of the inquiry that due to the seriousness of the charges, should the inquiry found against her, she could be dismissed for gross misconduct without notice or pay in lieu of notice.
- Should the accused choose not to attend, the DI will proceed ex-parte.
- The accused should be accorded ample notice of the DI to be conducted against her and given the opportunity to be heard and to defend herself by being given the charges well before the DI.
- The accused bears the burden of proof that DI panel were biased in their decisions or were put in the panel of inquiry to victimise her, in breach of any rules of natural justice.
The Prosecution must ensure there is a proper chain of evidence to prove the charges albeit on the balance of probabilities.
The benefits of ensuring a well-documented and conducted DI are manifest in that, should the matter be escalated to Court, the company would have saved a considerable amount of the Court’s time and the legal fees accruing.

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Conflict of Interest and the importance of a well-conducted DI