Can a Claim be Made Against a Trade Referee and CTOS?

Many companies and individuals have found themselves being listed as "trade debtors" on the CTOS credit reporting database's Electronic Trade Reference (ETR) system, on account of reports from "trade referees" for their outstanding debts. To qualify as a "trade referee" on the ETR, it appears that no judgment of the court is required. All that is required is proof of a debt such as an invoice or letter demanding for payment. An entry into ETR shows up on a CTOS report of the subject company or individual, which can then be extracted by other creditors/users of the CTOS database, including banks and other financial institutions. Thus, the ETR is a powerful tool for creditors to exert pressure on debtors (including their directors) to settle any outstanding debt outstanding against the trade referee.

However, what happens if an ETR is entered for an alleged debt that is disputed or non-existent? Does the subject "trade debtor" have a cause of action to claim against CTOS or the trade referee for defamation?

Claim for Defamation

To establish a claim for defamation, three elements need to be proven, namely:-

- The statement is defamatory

- The statement refers to the claimant

- The statement is published to third parties

The first element referred to above relates to whether a statement could be said to lower the reputation of the "victim". For instance, an entry into ETR alleging that the subject owes a longstanding debt will obviously lower the reputation of the subject, since the implication/innuendo is that they are not credit-worthy or are otherwise delinquent in their payments. The question of whether a statement is defamatory is a question of fact, that is, it depends on the peculiar facts and circumstances of each case. In Soh Chun Seng v. CTOS-emr Sdn Bhd [2012] 5 MLJ 208, the court had considered whether the words published on a CTOS report (in relation to a Creditor’s Petition) could bear a defamatory meaning. The court held that the information therein could be considered defamatory as it could make any reasonable reader suspicious of the creditworthiness of the Plaintiff.

The ETR in the CTOS report will usually show the name of the subject alleged debtor, and thus the second element (the defamatory statement refers to the claimant) is usually not difficult to prove. As for the third element, in the case of Soh Chun Seng referred to above, it was not disputed by the parties that the CTOS report was published and that it referred to the Plaintiff. Additionally, in Tan Ah Hong v. CTOS Data System Sdn Bhd [2016] 3 AMR 457, the court held that for CTOS reports, there is a presumption that there was publication to third parties.

Can the Trade Referee be sued?

An interesting question is whether an action could be brought against trade referees of ETR entries - since they themselves did not publish the defamatory statement. The answer seems to be in the affirmative. In A Paramalatha a/p Arumugam v Sated Mortgage Sdn Bhd [2019] MLJU 1662, the High Court in Penang had allowed a claim for libel against the defendant for entering an ETR on CTOS against it. In that case, CTOS was not a party to the suit. Similarly, in Suriati bt Mohd Yusof v. Webe Digital Sdn Bhd (dahulu dikenali sebagai Packet OneNetworks (M) Sdn Bhd) [2020] MLJU 1923, the Plaintiff had brought a defamation action against the Defendant for reporting an ETR to CTOS. Although the claim was eventually dismissed, there was no dispute on whether the Defendant or CTOS was the publisher of the alleged defamatory material.

Possible defence: justification

Several defences are available to defendants in a defamation suit against them. For a claim based on an ETR entry, a possible defence is the defence of justification. In plain language, the defendant may argue that the alleged defamatory is true/accurate, or the allegations does not harm the Plaintiff’s reputation. For instance, in a claim for defamation based on ETR entry, the defence may be raised by the defendant by showing that there is indeed a debt owing.

In Suriati bt Mohd Yusof quoted above, the Court was satisfied that the fact that the Plaintiff owed a debt to the Defendant was accurate, and therefore the defence of justification applied. In Saharudin bin Abd Jabar v. Bank Islam Malaysia Bhd [2016] 7 MLJ 293, the defendant had contended that the plaintiff still had an amount owing, therefore they were justified in issuing their letter to the Defendant. However, the Court disagreed with the defendant’s contention, as in fact the Plaintiff had paid off its debts to the Defendant as of the date of the publication of the letter. Therefore, the defence of justification was dismissed.

Damages

It is noted that while the courts had proven defamation in both the cases of Soh Chun Seng and Tan Ah Hong (referred above), the courts did not award any damages in Soh Chun Seng, and only awarded nominal damages in Tan Ah Hong. This is due to the fact that the plaintiffs in those cases had failed to prove that they suffered any damage due to the defamatory publishing. Therefore, a plaintiff in a defamation suit must adduce evidence to prove that they suffered actual loss or damage due to the publication of this information. For instance, the plaintiff may present evidence to show that its application for financing from the bank was rejected because of the defamatory statement published on the CTOS report.

Conclusion

In closing, it is possible to succeed in a claim against both CTOS and the "trade referee" for an entry to the ETR system if the elements discussed above are satisfied, and if the defences relied upon by the defendant (if any) are rejected by the court. On the other hand, the potential claimant must consider whether any damage or loss has been suffered before launching a claim. We also note that CTOS does provide a mechanism for the ETR entry to be removed - so be sure to communicate with CTOS first before going for a claim in court, which would be far more expensive and time-consuming.

This article is co-authored by Chua Shuhui and Nicholas Hor. The views in this article is meant to be a general information, and shall not be treated as advice. © 2020 All Rights Reserved.

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