Is a Member of Parliament Your Trustee?

Is an MP disqualified from being an MP because he accepts wages from a third party? This is the wrong question to ask. Why?

[1]. We start here…
Let us start with the basics: Constitutional Law is the subset of General Law; would you not agree?

Under the General Law, is an MP responsible to the people?

If an MP breaches the general law, what remedy do the citizens have?

As usual, we start with the general, and head towards the specific.

[2]. But that is not the right set of questions:
The real questions are: –

(1). Is an MP a trustee of the people?
(2). What are an MP’s legal duties?
(3). What can he not do?
(4). What happens if he breaks those duties?

[3]. Who is a ‘trustee’? What are his or her duties?
A trustee is known in law as a ‘fiduciary’.

He is someone trusted to hold some property, for a ‘beneficiary.’

He must act solely in the interest of the beneficiary. He bears a heavy responsibility.

If he does not perform his duty, he is said to have ‘acted in breach of trust’.

That means the fiduciary cannot be trusted.

He can be sued.

[4]. Now, should an MP act in the best interest of the nation?

Do you have any idea what an MP swears when he takes office?

These are the words:

“2. Oath as Member of Parliament and of Allegiance
“I, YB ABC., having been elected as a member of the House of Representatives (or the Senate) do solemnly swear (or affirm) that I will faithfully discharge my duties as such to the best of my ability, that I will bear true faith and allegiance to Malaysia, and will preserve, protect and defend its Constitution.””1see Article 59(1) of the Federal Constitution and its Sixth Schedule: Forms of Oaths and Affirmations

To what – and to whom – does an MP swear allegiance?

He swears ‘To Malaysia’.

And he swears to do what?

To ‘defend its Constitution’ under Article 59, of the Federal Constitution, and Sixth Schedule, Forms of Oaths and Affirmations.

[5]. The Executive, the Government, is answerable to the House of Representatives, and hence to every MP

Members of the Executive, including the cabinet and the civil service, are answerable to Parliament.

So, an MP is in law a superior to every member of the Executive. Dewan Rakyat is the Boss.

The Executive and the MPs and each of them must act within the law (see here, here and here).

If they do not act within the law, then MPs can be called out by both the judiciary, and in a larger sense, the people – you.

But to whom does an MP answer?

Hold that thought!

[6]. What happens when an MP becomes a servant to his servant?

Suppose your servant owns – or controls – Company-A.

And suppose your servant appoints you a director of Company-A.

Imagine this MP sitting as a director of Company-A.

Is it not true that the MP – as director, is Company A’s servant?

So, on the one hand the MP has to act in the best interest of the nation, and on the other, he must act in the best interest of Company-A.

[7]. Who is now the servant?
The MP or his servant?

Take another example: suppose the Government owns 15% of Company-A’s shares.

Any director of any company is always a trustee or a fiduciary.2Green v Walkling and others [2007] EWHC 3251 (Ch)

I introduce a new word ‘Fiduciary’.

‘Fiduciary’ is an important word – so important that we shall use it from now on.

A fiduciary must act in the best interest of the company.[Guinness plc v. Saunders [1990] 2 AC 663]. He has no choice.

[8]. What happens if suppose an MP sits as a director of a government-controlled company.

Under company law, the director of every company has a legal duty to fight for the well-being and profit of that company.

In fact, the law is so strict that a director of Company-A must act to his own prejudice, so that he can advance the interest of Company-A.3(Keech v. Sandford (1726) Sel Cas T King 61)

[9]. To answer the question: are MPs the trustees of the people?

A principle of democracy is that a man who is elected as a member of Parliament, is not only responsible – and answerable – for the people of his constituency.

This is the intent behind Article 59 of the Federal Constitution.

That is why when he takes the Oath of Allegiance the MP swears to ‘Malaysia’ and to protect and defend the Federal Constitution – Not Company-A!

Not some NGO! Not to his party!

He is also responsible for the affairs of the entire nation. (Government of Malaysia v Lim Kit Siang; United Engineers (M) Sdn Bhd v Lim Kit Siang [1988] 2 MLJ 12 at 34).

An MP receives emoluments from Parliament. That comes from the money taxed from the people.

[10] Let’s take an example …

Imagine that an MP becomes a director of a company in Industry-X.

He doesn’t care about his electorate.
He doesn’t care about the constituency.
He doesn’t care about the country.

At Parliament he argues in favour of the Industry-X.

He asks that factories making Material-X be allowed to operate in residential areas.

He fights for the Industry-X.

Would you be happy with such an MP?

[11]. What if there is a ‘conflict of interest’ between what Company-A wants, and what the nation needs?

Suppose the Government owns 55% of Company-A.

In sitting as a director of Company-A, an MP, who is technically the boss of the Executive, is getting paid by his own servant.

So, will such an MP protect the national interest, or fight for Company-A?

This was made obvious in a 1910 case, Amalgamated Society of Railway Servants v Osborne [1910] A.C. 87.

It was a case that dealt with the UK Trades Unions Act.

One of its provisions allowed a trade union to collect contributions from its members. These contributions were used to secure parliamentary representation.

One of the provisions of the Labour Party was that its candidates were ‘responsible to the party’ and had to agree ‘to abide by the decision of the party in carrying out the aims of the party’s constitution’, even in parliament.

The House of Lords was asked to determine whether the power to ask members of a union to pay for political purposes, had been illegal.

The court said ‘Yes.’

It said such a provision was in violation ‘of that sound policy which is essential for the working of a representative government.’
The House of Lords ruled that these rules were “fundamentally illegal” because ‘these were in violation of that sound policy which is essential for the working of a representative government’.

Lord Shaw of Dunfermline gave his reasoning in three simple paragraphs.

That became a hallmark of many cases.

It is this passage which clearly tells us that an MP is a fiduciary.

4Lord Shaw said this:

“Further, the pledge [to the Labour Party] is an unconstitutional and unwarrantable interference with the rights of the constituencies of the United Kingdom. The Corrupt Practices Acts, and the proceedings of Parliament before such Acts were passed, were but machinery to make effective the fundamental rule that the electors, in the exercise of their franchise, are to be free from coercion, constraint, or corrupt influence; and it is they, acting through their majority, and not any outside body having money power, that are charged with the election of a representative, and with the judgment on the question of his continuance as such.
Still further, in regard to the member of Parliament himself, he too is to be free; he is not to be paid mandatory of any man, or organization of men, nor is he entitled to bind himself to subordinate his opinions on public questions to others, for wages, or at the peril of pecuniary loss; and any contract of this character would not be recognized by a Court of law, either for its enforcement or in respect of its breach. Accordingly, as it is put … in the words of Fletcher Moulton L.J.,
“Any other view of the fundamental principles of our law … leave it open to any body of men of sufficient wealth or influence to acquire contractually the power to exercise that authority to govern the nation which the law compels individuals to surrender only to representatives, that is, to men who accept the obligations and the responsibility of the trust towards the public implied by that position.”

[12] Now let’s look at cases concerning ‘conflict of Duties’

Amalgamated Society was followed in Boulting And Another v. Association of Cinematograph Television And Allied Technicians [1963] I All E.R. 716 at 723.

“LORD CRANWORTH there refers to a conflicting interest. But the principle also applies to a conflicting duty. It seems to me that no one, who has duties of a fiduciary nature to discharge, can be allowed to enter into an engagement by which he binds himself to disregard those duties or to act inconsistently with them.

No stipulation is lawful by which he agrees to carry out his duties in accordance with the instructions of another rather than on his own conscientious judgment; or by which he agrees to subordinate the interests of those whom he must protect. to the interests of someone else. Suppose a member of Parliament should be in the pay of some outside body, in return for which he binds himself to vote as he is directed to do. The agreement would clearly be void as against public policy (see Osborne v. Amalgamated Society of Railway Servants (7), per FLETCHER MOULTON, L.J., and per LORD SHAW OF DUNFERMLINE (8)). Or take a nominee director, that is, a director of a company who is nominated by a large shareholder to represent his interests. There is nothing wrong in it. It is done every day. Nothing wrong, that is, so long as the director is left free to exercise his best judgment in the interests of the company which he serves. But if he is put on terms that he is bound to act in the affairs of the company in accordance with the directions of his patron, it is beyond doubt unlawful (see Kregor v. Hollins (9), per AvoRY, J.), or, if he agrees to subordinate the interests of the company to the interests of his patron, it is conduct oppressive to the other shareholders for which the patron can be brought to book (see Scottish Go-operative Wholesale Society, Ltd. v. Meyer (10))…. It is contrary to public policy that any director should be made to deny his trust and throw over the interests-of those whom he is bound to protect…’

Thus, if an MP does not exercise his duty for the benefit of the nation, he must therefore be considered as being in breach of his fiduciary duties.

So, also MP who acts in breach of his duty to the nation, acting in a way that is contrary to national interest, and binds himself to act in favour of a commercial entity.

[13]. How should fiduciaries behave?

Every law student knows the answer – ask one!

Back in 1896, Lord Herschel said, that:

“A person in a fiduciary position (he meant a ‘trustee’)… is not… entitled to make a profit; he is not allowed to put himself in a position where his interest and his duty conflicts. … This rule is… founded upon principles of morality.…(It is) based on the consideration that human nature being what it is, there is danger, in such circumstances, of the person holding a fiduciary position being swayed by interest rather than duty, and thus prejudicing those whom he was bound to protect…’ 5Bray v. Ford [1896] AC 44.

[14]. Type of trust properties
The situations in which a trust relationship arises is not easy to list, and the courts have held that it is often ‘pointless, if not impossible’ to do so.[Re Coomber [1911] 1 Ch 723, per Moulton J]

Judges have tried to divide Fiduciaries into sub-categories, but the categories are not closed.

Fiduciary relationship exists in:-

a.one group of persons who ‘repose trust and confidence in another’ (Tate v. Williamson (1866) 2 Ch App 55;
b.as between an MP, his constituency and the nation;
c.trust properties (Boardman v. Phipps);
d.the relationship of directors to a company (Regal (Hastings) Ltd v. Gulliver [1942] 1 All ER 378);
e.between principal and agent; and
f.the responsibility of partners to each other (Clegg v. Edmonson (1857) 8 De GM & G 787.

[15]. How do UK MPs declare their interest?

In the United Kingdom, there are Acts of Parliament which require every MP to disclose when they become members of the House of Commons; or afterward when they acquire any interest in any business entity – at the first available opportunity.

When there is a debate in the House of Commons over the business activities of any entity, members of Parliament – who have any interest in that business, as a matter of honour and integrity, immediately declare their interest – and before they cast votes on motions raised in the House.

When it is discovered that any voting member has an interest in a matter voted on, that vote is not counted.6 https://www.parliament.uk/documents/commons-information-office/p09.pdf see page 6, Pecuniary interests

[16]. What a trustee cannot do?

A fiduciary cannot make secret profits, cannot put himself in a position of conflict, and cannot act in breach of his duties to his beneficiaries, and so on. Let us look at some examples.

[17]. Conflict of Interest
The principle that a trustee cannot allow his interests and duties to conflict is demonstrated in the case of Keech v. Sandford (1726) Sel Cas t King 61.

There, a man created a trust in favour of his son, a minor. He appointed a trustee. One of the assets of the trust was a lease.

The lease was about to expire. The trustee applied to renew the lease.

The lease, the owner said, would only be extended if the trustee held the lease ‘in his own name’ and ‘to his own benefit.’

To keep the lease, the trustee complied with these directions: he renewed the lease for his own benefit, in his own name.

Could he keep the benefit of the lease?

The court said No. It held that because he was a fiduciary, he was required to account to the beneficiary for all the profits.

[18]. Cannot exploit information relating to a Trust
Where trustee comes into information that will give him an opportunity to make personal profits, he cannot abuse that opportunity. If he does, the trustee must account to the beneficiary for the property so acquired, plus any profits: Boardman v. Phipps. The position is the same when he misuses information for his own benefit (see Barrett v. Hartley (1866) LR 2 EQ 789.

[19]. A related concept: cannot make ‘Secret profits’
A fiduciary cannot make secret profits: Boardman v. Phipps [1967] 2 AC 46.

The estate of the testator was held on trust for his wife for life with reminders over to his children.

One of the trust properties was minority shareholding in a company. The trustees were dissatisfied with the returns on the shares.

As a result of failed negotiations to buy over the company, so as to make it profitable, the trustees’ solicitor, Boardman(B), gained information about the company’s business and asset value. In the course of such negotiations B and one Beneficiary, Phipps (P) found the opportunity to make a profit.

B and P successfully bought the remaining shares. As shareholders, B and P made substantial profits.

One of the beneficiaries sued B and P to recover the profits they had made.

The House of Lords found that B and P had placed themselves in a ‘special position’ which was of a ‘fiduciary character.’

The court upheld the claim.

[20]. So, let us apply the law here:
If an MP accepts a position of remuneration while he is receiving Parliamentary remuneration – unless allowed by statutory law – and no such law exists to my knowledge, in this country – then he acts in breach of his duty as trustee.

[21]. So, what happens to an MP who breaches these ‘Fiduciary Duties’?

[22]. Disqualification
We spoke of the fact that if an MP contravenes the Federal Constitution [Article 48] he can be disqualified.

There has been a great deal of technical arguments.

These arguments overlook the larger principle that a man who acts in breach of his duties as a trustee is liable to be sued by any person who is a beneficiary.

[23] Can the Common Law disqualify an MP?
‘Constitutional’ Disqualification is not the only answer.7Art 48(1)(c) of the FC but ignores Articles 160, 132, 138, 140, 141A. The expression ‘office of profit’ primarily refers to office in government departments. Government-Linked Companies and statutory bodies are legally separate entities.”

[24]. Resignation
The second, and the most obvious relief for any MP who is a gentleman, or a gentlewoman, when confronted with allegations of a breach of general law or breach of duty is – as a matter of honour – to resign.

This principle of resignation on the principle of honour, exists and is seriously practised in all other civilised countries, but not in Malaysia.

Why is that? I have no idea.

It would be that our leaders feel no sense of honour and feel not at all obliged to resign on a question of principle.

This principle of refusing to resign as a matter of honour was practiced in this country since 1971: and so, who was responsible for that change?

[25]. Criminal Misconduct
A man who acts in breach of trust breaches the criminal law: see section 409 of the Penal Code.

A man who is guilty of a crime and is sentenced to a fine of RM2,000.00 or imprisonment of 1 years is automatically disqualified under Article 48(1)(e).

And he cannot stand for election.

[26]. The third route is a civil suit – but who can sue an MP?
He can also be sued in a civil action for breach of the law of trusts.

In 1987, Lim Kit Siang, being an MP, sued a corporate entity, United Engineers (M) Berhad for various reasons.

He alleged that the government’s award of the privatisation project to UEM be declared void.

He alleged that this was because it was ‘improper’ and the government had misconducted itself in the award of the project.

Lim alleged corrupt practices [see p.42 paragraphs B to D of the report].

The Government said Lim had ‘no locus standii’ to sue.

He was neither a shareholder nor a director of the company.

When the matter reached the Supreme Court, there was a split of opinions: three judges (Salleh Abas L.P., Abdul Hamid CJ, and Hashim Yeop A. Sani SCJ), held that Lim had no right to sue.

Two judges dissented.

One was the George Seah SCJ, one of the most honourable judges who ever walked the hallowed halls of the Malaysian judiciary .

The other was the equally great, and erudite Eusoffee Abdoolcader SCJ.

They both, in dissent, ruled that Lim not only had a right to sue, but that he had a positive duty because, being a Member of Parliament, he not only was responsible to the people of his constituency but also for the affairs of the nation.

There the law remained until 2014, when a series of local cases held that any person could sue any other in the matters of public interest, or in the interest of the nation.

This modern view was founded in a number of English cases.8Inland Revenue Commissioners v. National Federation of Self-Employed and Small Businesses Ltd [1982] AC 617 and Regina v. Secretary of State For Foreign And Commonwealth Affairs, Ex parte World Development Movement Ltd [1995] WLR 386.

In Malaysia, the principle was accepted in the case of BALKIS, a body comprised wives of Assemblymen.

The Selangor Government had given large sums of monies.

When there was a change of Government, the State demanded an account of how, when and where these monies were expended.

Finding the need to answer these charges overly inconvenient, the members of BALKIS attempted to dissolve the company, which the State challenged.9Kerajaan Negeri Selangor & Ors v. Pendaftar Pertubuhan Malaysia & Another Appeal [2014] 6 CLJ 471 at 483 at para 25.

The defendant said the Plaintiffs had no right to sue. They cited the Lim kit Siang case.

The Court of Appeal disagreed.

In fact, the cases have gone so far as to state that any individual has a right to sue any other person in matters involving public interest.

Some courts before, and after, have supported the IRC position.

Courts also have supervisory jurisdiction over trustees and power to remove a trustee.10Arumugam a/l Ponusamy v Karupiah a/l Ramasamy & Ors [2006] 1 MLJ 563 at 566.

Therefore, technically these MPs could be sued by anybody. And if a court is asked to declare them unfit to be MPs or declare them to be in breach of their duties if proof is shown, there is nothing to stop any court from granting such an order

[27] Conclusion
First, we need a law that stops MPs from breaching their fiduciary duties:

Any breach, not only those listed in the Constitution but also those which breach the General Law, should result in immediate disqualification or dismissal.

Second, MPs – no matter to which party they belong – need to put their hands in their hearts, and ask themselves if they have acted with honour, and have carried out their duties in the best interest of the people – not their respective parties, or for personal interests!

If an MP is in breach of his Fiduciary Duty – he or she should do the right thing. The MP must resign.

Will the MPs act in honour, or be led by their noses by their party?

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