Dynasty Dragon Seafood v Sstwo Mall Sdn. Bhd. (W-02(NCVC)(W)-359-02/2018)

DYNASTY DRAGON SEAFOOD RESTAURANT (PJSS2) SDN. BHD. (Company No: 900540-D)

BLOOMGATE EDUCATION SDN. BHD. (Company No: 976780-P)

MR D.I.Y.(M) SDN. BHD. (Company No: 860671-D) … APPELLANTS AND SSTWO MALL SDN. BHD. (Company No: 747488-W) … RESPONDENT (IN THE HIGH COURT OF MALAYA AT KUALA LUMPUR CIVIL SUIT NO: 22NCVC-199-04/2015

DYNASTY DRAGON SEAFOOD RESTAURANT (PJSS2) SDN. BHD. (Company No: 900540-D)

BLOOMGATE EDUCATION SDN. BHD. (Company No: 976780-P)

MR D.I.Y.(M) SDN. BHD. (Company No: 860671-D) … PLAINTIFFS AND SSTWO MALL SDN. BHD. (Company No: 747488-W) … DEFENDANT) Page 2 of 17 CORAM IDRUS HARUN, JCA SURAYA OTHMAN, JCA STEPHEN CHUNG HIAN GUAN, JCA JUDGMENT OF THE COURT Factual background of case [1] The Respondent was the owner of SSTwo Mall (Mall) located at Jalan 19/16 Seksyen 19, Petaling Jaya, Selangor. The Appellants were tenants and operated their business in the Mall. Each Appellant executed a standard tenancy agreement with the Respondent. [2] The 1st Appellant operated a Chinese restaurant under the name ‘Dynasty Dragon’ in Units L3-03 and L3-04 which commenced business in early 2011. The tenancy was to expire on 14.12.2016. The 2nd Appellant operated a language centre under the name ‘LEA English Centre’ in Unit L2-01 which commenced business in September, 2013. The tenancy was to expire on 30.04.2016. The 3rd Appellant operated a retail outlet under the name ‘Mr. DIY’ in Unit L1- 03 and commenced business in 2012. The tenancy was to expire on 30.11.2014. Their respective tenancy agreement gave them an option to renew their tenancy. [3] Upon signing their tenancy agreement the Appellants carried out renovations for the purposes of their business in the Mall. The Appellants averred that they had incurred expenses as follows: The 1st Appellant RM3,094,270.60 The 2nd Appellant RM 692,026.30 The 3rd Appellant RM 464,998.00 The Appellants averred that their business was good and profitable. Page 3 of 17 [4] In October 2014, the Respondent informed the Appellants of its intention to change the use of the Mall and issued letters dated 10.10.2014 pursuant to clause 7.2.5 of the tenancy agreements of its intention to recover possession of the respective demised premises. In January 2015, the Respondent issued letters to the Appellants terminating the tenancies. The Appellants challenged the legality of the terminations. [5] The Appellants claimed against the Respondent for declaratory orders and damages for breach of contract and unlawful termination of the agreements whereas the Respondent counterclaimed against the Appellants for outstanding rentals and holdover charges due for failing to deliver vacant possession after the Respondent had terminated the tenancies. [6] The Appellants contended that the terminations were wrongful for two reasons. First, the decision to change the use of the whole Mall did not fall within the limited and restricted instances provided in clause 7.2.5. Second, there never was any intention to change the use of the Mall and that the alleged change of use was merely a ploy to bring the termination within clause 7.2.5. In the High Court [7] The issue before the High Court was whether the Respondent's termination of the tenancy agreements was unlawful. The learned High Court Judge in referring to the provisions of the tenancy agreements was of the view that clause 7.2 must be read as a whole and not in isolation and that clause 7.2.5 should not be read to be restricted on its own as submitted by the Appellants. Page 4 of 17 [8] The learned High Court Judge also referred to clause 7.10 and concluded that the Respondent’s right to change the use of the entire building was not restricted and that there were no provisions in the tenancy agreements which required the Respondent’s proposed change of use must be approved by the authorities first prior to the Respondent’s issuing the notice of termination. [9] The learned High Court Judge found that the Appellants had been informed of the intended change of use as early as October, 2014 and that the best endeavor clause in clause 7.2.5(b) did not make it obligatory for the Respondent to try to relocate the Appellants in a different part of the Mall as under clause 7.2.5(d). He was of the view that the Respondent retained the right to terminate in the event the parties could not agree on a substitute premises. [10] At the end of the trial, the learned High Court Judge found that the Respondent did not breach the provisions of the tenancy agreements and that the act of the Respondent in terminating the respective tenancy agreements was lawful and dismissed both reasons as submitted by the Appellants. Accordingly, the Appellants' claim was dismissed and the Respondent's counterclaim was allowed. The Appellants’ submissions [11] In this appeal, as in the High Court, the Appellants put forward the same two reasons why the termination was wrongful. First reason, the decision to change the use of the whole Mall did not fall within the limited and restricted instances provided in clause 7.2.5 and accordingly the termination was unlawful. Second reason, there never was any intention to change the use of the Mall and that the alleged Page 5 of 17 change of use was merely a ploy to bring the termination within clause 7.2.5. [12] The Appellants submitted that clause 7.2.5 provides very restrictive conditions for the exercise of the Respondent's discretion to terminate the tenancy. At the core of clause 7.2.5 is the determination to "change of use for the Demised Premises or that part of the Building in which the Demised Premises is situated". However, the Respondent's termination of these tenancies was not to change use of the Demised Premises or that part of the Building. Instead their termination was purportedly to change use of the whole Building which was an attempt to interpret or extend the phrase to include or mean the ‘whole Building’. [13] It was submitted that clause 7.2.5 could not be interpreted to apply to change of use of the whole Building for the reasons that to do so would not accord clause 7.2.5 its plain and ordinary meaning. Secondly, the omission of any reference in the clause to the 'whole Building' confirmed that this clause was never intended to apply to change of use of the whole Building. In the event clause 7.2.5, or any other clause in the tenancy agreements, was meant to apply to change of use of the whole building, the agreements would have expressly stated so whereas clause 7.10 was clearly intended to apply to change of use of the whole Building and has accordingly stated so in the clause. It was submitted that the glaring omission of the 'whole Building' from clause 7.2.5 confirmed that this clause did not, and was never intended to apply to change of use of the entire Mall. Page 6 of 17 [14] Thirdly, in the event the Respondent was allowed to extend clause 7.2.5 to apply to change of use of the whole Building, this would essentially tantamount to re-writing the clause to add the phrase 'whole Building' therein. In the event clause 7.2.5 was allowed to apply to change of use of the whole building, it would render part of the clause ineffective because under paragraph (b) the Respondent must use its best endeavours to find alternative premises within the Mall building to relocate the Appellants before the tenancy could be terminated. The Appellants submitted that the Respondent's construction of clause 7.2.5 was not commercially sensible and could not be accepted. [15] The Appellants submitted that it was not uncommon for tenancies to carry clauses which allow either party to terminate by simply giving notice but in this case the tenancy agreements did not incorporate such clauses. It was submitted that it made commercial sense because in entering the tenancy agreements the Appellants could not be asked to invest heavily and then be expected to accept termination arbitrarily. In return for their financial investments, as tenants they would expect to be allowed to continue with the tenancy at least until the expiry of the tenancy or option. [16] The Appellants submitted that the learned High Court Judge failed to consider, evaluate or appreciate the aforementioned reasons on the interpretation of clause 7.2.5 but instead misinterpreted the Appellants’ position that "clause 7.2.5 should not be read to be restricted on its own as submitted by the Plaintiffs". On the contrary, the Appellants submitted that clause 7.2.5 must be interpreted in harmony with the whole agreement. Page 7 of 17 [17] The Appellants contended that there was no determination or intention to change the use of the Mall by the Respondent but merely asserted 'change of use' to allow the Respondent to terminate the tenancies under clause 7.2.5. The Respondent's purported claim that they intended to change the use of the Mall was merely a ruse or a ploy to enable them to rely on clause 7.2.5 to terminate the tenancies. [18] It was submitted that the Respondent purportedly decided to change the use of the Mall in May 2014 but after more than four years, the alleged change of use had not taken place and that the Mall was shut in May 2015 and remained shut. It was submitted that this confirmed that there never was an intention to change the use of the Mall but an excuse alleged by the Respondent to terminate the tenancies. [19] The Appellants submitted that a change of this nature required approvals from the relevant authorities before it could be carried out but the Respondent had not obtained any approvals which allow them to change the use of the Mall. In fact the Respondent had not even applied for the approvals to effect this change of use. The Respondent’s submission [20] The Respondent submitted that it had decided to change the use of the Mall from a shopping mall to a mixed-use development which necessitated the closure of the entire Mall and had given notice and meetings with the tenants including the Appellants. [21] It submitted that based on the plain and ordinary meaning of clause 7.2.5, as long as the change of use affected the demised Page 8 of 17 premises or the part of the building in which the demised premises was located, the Respondent was entitled to recover possession of the demised premises and terminated the tenancy agreements. [22] It was submitted that based on the plain and ordinary meaning of the preceding clauses in clause 7.2, the Respondent had the right to deal with all other parts of the Mall as it thinks fit, including the right to change the use of such other parts without limitation or restriction and to recover such other premises from other tenants. It submitted that the express terms of clause 7.2 read in its entirety allowed for the same and a change of use of the entire Mall showed that the determination made by the Respondent was bona fide and not "spurious nor was it merely conjured up to remove the Appellants”. [23] It submitted that commercial reality dictated that a shopping mall simply could not operate with only a handful of tenants and without regular human traffic and it made business sense to allow the Respondent to rely on clause 7.2 to change the use of the Mall from a shopping mall to a mixed used development. The Appellant submitted that it did not arbitrarily and unilaterally change the use of the Mall to "close down" the operation of a mall that was sustainable. [24] It was submitted that the Respondent's conduct in holding meetings with all its tenants including the Appellants in October, 2014 to notify them of the decision to change the use of the Mall into a mixed-use development consisting of residential serviced apartments and smaller retail units with reference to the architectural master-plan, which was still at design and concept stage. The Respondent submitted that the Appellants' own witnesses and letters confirmed Page 9 of 17 that the Appellants were informed in the October 2014 of the decision made to change the use of the Mall from a shopping mall into a development consisting of residential units which would entail the closure of the Mall making relocation impossible which required the tenancies to be terminated. Our decision [25] In this appeal we were referred to the letters dated 10.10.2014 in the common core bundles of documents for this appeal. In the letters the Respondent gave notice to the Appellants to recover possession of the demised premises in the Mall on the ground that the Respondent intended to embark on a change of use of the Mall and that it had no option but to exercise its right under clause 7.2.5 for recovery of possession of the demised premises. [26] The letters went on to say that in the event there was an opportunity to relocate to suitable premises in the building (within clause 7.2.5(b)) via the intended exercise, it would write separately and have the necessary letter of offer issued but in the event it was unable to offer suitable alternative premises or the Appellants refuse or fail to accept the offer within three months of the date of the notice, the Respondent had no alternative but to proceed with clause 7.2.5 to terminate the tenancy by giving not less than one month’s notice. [27] We were next referred to the letters, dated 12.1.2015, wherein the Respondent gave notice that pursuant to clause 7.2.5(d) of the tenancy agreement, it was exercising its right to terminate the tenancy and upon expiry of one month from the date of the notice, the tenancy of the demised premises would stand terminated. Page 10 of 17 [28] The Appellants submitted that the termination was wrongful because the decision to change the use of the whole mall did not fall within the limited and restricted instances provided in clause 7.2.5 and there never was any intention to change the use of the Mall which was merely a ploy to bring the termination within clause 7.2.5. [29] It is not in dispute that the Respondent exercised its right to recover the demised premises and terminate the tenancies under clause 7.2.5. Therefore the crux of this appeal is in respect of the construction of the provisions of the tenancy agreements, in particular that of clause 7.2.5. [30] Where the terms of a contract are clear, precise and unambiguous, it must be applied according to its plain meaning. The aid of the heading or preamble can only be taken when there is some doubt about the meaning of the terms or provisions in the contract: see Tan Boon Liat v Menteri Hal Ehwal Dalam Negeri, Malaysia & Ors [1976] 2 MLJ 83. Clause 7.2.5 is part of clause 7.2. Its heading reads “Power for Landlord to deal with Demised Premises, adjoining property andIor the Building”. [31] Clause 7.2.1 provides that the landlord may deal as it thinks fit with other property belonging to the landlord adjoining or nearby and to erect or suffer to be erected on such property any buildings whatsoever. Under clause 7.2.2, the landlord shall have the right at all times without obtaining any consent from or making any arrangement with the tenant to alter, reconstruct or modify in any way whatsoever or change the use of the parts of the Building. Clause 7.2.3 states that the landlord shall be entitled to improve, extend, vary, Page 11 of 17 renovate, retrofit, refurnish, reduce or carry out any other works to the Building as it shall deem fit in its absolute discretion, notwithstanding that such works and structures may affect the tenant's enjoyment of the demised premises whereas clause 7.2.4 states that nothing contained in this agreement shall confer on the Tenant any right to enforce any covenant or agreement relating to the other parts of the Building demised by the landlord to others, or limit or affect the right of the landlord in respect of any such other premises to deal with the same and impose and vary such terms and conditions in respect thereof in any manner as the Landlord may think fit. [32] We set out clause 7.2.5 in full because the construction or meaning of this particular clause is in dispute. It reads as follows:

7.2.5 Recover Possession

In the event the Landlord determines at its sole and absolute discretion that (i) due to the Landlord's trade mix policy) as determined by the Landlord from time to time); or (ii) the Building or any part thereof is to be renovated, retrofitted, refurbished and/or altered; or (iii) there be a change of use of the Demised Premises or that part of the Building in which the Demised Premises is situated, the Landlord shall be entitled to issue to the Tenant a written notice of the Landlord's intention to recover possession of the Demised Premises ("Notice to Recover Possession") pursuant to this Clause 7.2.5 (a).

Upon issue of the Notice to Recover Possession, the Landlord shall use its best endeavours to find alternative premises in the Building ("Substitute Premises") as the Landlord deems suitable for the Tenant, to re-locate the Tenant. If the Landlord finds a suitable Substitute Premises, the Landlord shall issue a letter of offer to the Tenant for the Substitute Premises.

In the event the Tenant shall accept the Landlord's offer, the Tenant shall surrender its tenancy of the Demised Premises and shall at the same time enter into and execute an agreement with the Landlord for the tenancy of the Substitute Premises and the Page 12 of 17 provision of maintenance and other services to the Substitute Premises upon such terms and conditions as may be mutually agreed.

In the event (i) the Landlord is unable to offer to the Tenant a suitable Substitute Premises, or (ii) the Tenant shall refuse or fail to accept the Landlord's offer for the Substitute Premises within the period stipulated in the offer, or (iii) the Parties shall fail to agree on the terms in respect of the tenancy of the Substitute Premises, within three (3) months of the date of the Notice to Recover Possession, the Landlord shall be entitled to terminate the tenancy of the Demised Premises by giving to the Tenant not less than one (1) month's written notice ("Termination Notice") to such effect and upon the expiry of the period specified in the Termination Notice, the tenancy of the Demised Premises shall cease and determine but without prejudice to any right of action or other remedies which the Landlord has or otherwise could have for arrears or in respect of any antecedent breach of any of the provisions thereof. [33] The Appellants placed particular reliance on clause 7.2.5(a)(iii) and that this is at the core of clause 7.2.5. Clause 7.2.5(a)(iii) reads ‘there be a change of use of the demised premises or that part of the Building in which the demised premises is situated’. The Appellants submitted that the Respondent’s termination of the tenancies was not to change the use of the demised premises or part of the Building but instead the termination was purportedly to change the use of the whole building, putting emphasis on the word ‘whole’ in ‘whole building’. [34] The Appellants submitted that clause 7.2.5 could not be interpreted to apply to change of use of the whole Building because to do so would not accord clause 7.2.5 its plain and ordinary meaning. It was submitted that it is trite that contracts ought to be interpreted according to their plain and ordinary meaning and that from a plain Page 13 of 17 reading of this clause, it is confined to change of use of the demised premises or part of the Building where the demised premises is situated which is literally and grammatically different from the change of use of the whole Building. [35] The Appellants submitted that clause 7.2.5 envisages a scenario that in the event of change of use of the demised premises, the landlord must find an alternative premise for the tenant within the Building whereas in the event it applies to change of use of the whole Building, relocation is impossible. The Appellants argued that the omission of any reference in the clause to the ‘whole Building’ confirmed that this clause was never intended to apply to change of use of the whole Building because if it was meant as such, it would have been expressly stated so. It was submitted that if clause 7.2.5 was extended to apply to change of use of the whole Building, it would not only render part of the clause ineffective, but would tantamount to re-writing the clause. [36] The Appellants submitted that it is trite that contracts must be interpreted to ensure that each clause is in harmony with all the clause of the contract and that contracts must be given commercially sensible construction. However, the Appellants in putting emphasis on clause 7.2.5(a)(iii) without taking account of the other provisions which precedes or follows it will give a skewed or unintended result: see LKM Investment Holdings Pte Ltd v Goh Chin Soon Ricky [1998] SLR(R)

[37] It is an established principle of construing a contract that a contract should be construed as a whole, with each clause in an Page 14 of 17 ordinary commercial contract to be interpreted as to bring the clause into harmony with the other clauses of the contract: Lucy Wong Nyuk King (F) & Anor v Hwang Mee Hiong (F) [2016] 3 MLJ 689; Kekal Baru Sdn Bhd v Southwest Minerals (M) Sdn Bhd [2016] 1 MLJ 292. [38] It should be noted that the word “Mall” is not defined in the agreement. Nor the term “whole Building” used by the Appellants in their submission provided for in the agreement or in clause 7.2.5. However clause 1.1 provides the definition of “Building”. In clause 1.1, “Building” means the building known as “SStwo Mall” or such other name as the Landlord deems fit located in the vicinity of SS2, Petaling Jaya and includes each and every part thereof including without limitation the car parks, service, loading and any other areas the use and enjoyment of which is appurtenant to the Building. Reading the definition including the words “includes each and every part thereof” and “any other areas” in their plain and ordinary meaning, the definition of the “Building” is general and wide in terms that it must refer to and mean the Mall namely the whole building, including each and every part thereof. [39] In interpreting a commercial contract the court must not confine itself to the four corners of the document but also look at the factual matrix forming the background of the transaction, all material that was reasonably available to the parties, disregard any subjective intent and adopt an objective approach: Berjaya Times Squares Sdn Bhd (formerly known as Berjaya Ditan Sdn Bhd) v M Concept Sdn Bhd [2010] 1 MLJ 597. Page 15 of 17 [40] We refer to the letters dated 10.10.2014. In the letters the Respondent gave notice that it intended to embark on a change of use for the Mall. In the letters the Respondent did not specifically refer to nor relied on clause 7.2.5(a)(iii) but clause 7.2.5 generally. As early as 16.1.2014 the Respondent had to deal with the problem of not enough tenants in the Mall and the Mall being an on-going concern. In May, 2014 the Respondent decided to change the use of the Mall and had prepared a Redevelopment Architectural Master-plan for the Mall to change to residential serviced apartments and community-based retail centre which involved the construction of two blocks of condominium on top of the Mall which necessitated the closure of the Mall during the redevelopment. In September, 2014, the Respondent received an expression of interest for the proposed redevelopment. To reiterate, by the letters of 12.1.2015, the Respondent informed the Appellants that it was unable to offer alternative premises and gave notice to terminate the tenancies. [41] Reading clause 7.2.5(a) as a whole, which provides that in the event the landlord determines at its sole and absolute discretion that

due to the landlord’s trade mix policy; or (ii) the building or any part thereof is to be renovated, retrofitted, refurbished and or altered; or

(iii) there be a change of use of the demised premises or that part of the building in which the demised premises is situated, read together with the definition of “Building” in clause 1.1 and in the context of the factual matrix of this case, the phrases ‘the building or any part thereof’ or ‘change of use of the demised premises or that part of the building…’ in clause 7.2.5 can only mean the whole mall or the whole building and not only the demised premises. It could not be read as being restricted to the demised premises only. Page 16 of 17 [42] With these factual matrix, there was no basis for the Appellants to contend that there was no actual change of use of the Mall and also no basis that there was no proof of such change. Pursuant to clause 7.2.5, the landlord had the sole and absolute discretion to determine the use or change of use of the Mall. Since the Mall had to be closed to make way for residential serviced apartments and community-based retail centre, notwithstanding any best endeavours or all reasonable endeavours to find alternative premises in the building, the Respondent had no option but to terminate the tenancies: see KS Energy Services Ltd v BR Energy (M) Sdn Bhd [2014] 2 SLR 905. [43] We have read the grounds of judgment of the learned trial judge and we were of the view that he was not plainly wrong in his finding: see Gan Yook Chin & Anor v Lee Ing Chin & Ors [2004] 4 CLJ 309. We were also fortified in our conclusion as such when it was pointed out to us that a different panel of the Court of Appeal had decided similarly on the same issue: see Civil Appeal No. W-02(NCvC)(W)- 1130-07/2015. [44] For the reasons we have given, we affirmed the decision of the learned trial judge. The appeal was dismissed with costs subject to allocatur. Dated: 27th December 2018 signed STEPHEN CHUNG HIAN GUAN (delivering judgment of the court) Court of Appeal Judge Putrajaya Page 17 of 17 For Appellants : Kanarasan Ghandinesen with V. Jeya Kumar and Jonas Lee Messrs. Kanesalingam & Co. For Respondent : Jeyanthini Kannaperan with Sathya Kumardas and Koo Yin Soon Messrs. Shearn Delamore & Co.