1. Shoppoint Sdn. Bhd. v Catajaya Sdn. Bhd. (22NCVC-32-01/2015)

SHOPPOINT SDN. BHD.

TEE HUAT

TEE CHEE CHONG (IC NO: 770928-10-5637) ... PLAINTIFFS AND CATAJAYA SDN. BHD. (COMPANY NO: 555443-U) … DEFENDANT BEFORE Y.A. TUAN GUNALAN A/L MUNIANDY JUDGE, HIGH COURT Page 2 of 41 GROUNDS OF JUDMENT [1] This action arises out of an Originating Summons (‘OS’) wherein the Plaintiffs sought various declaratory orders to validate the termination of a Share Sale Agreement (‘SSA’) entered into between the 1st Plaintiff company(‘Shoppoint’) and the Defendant and for the removal of a private caveat lodged by the Defendant (‘Catajaya’). Chronology of Events [2] The history of this case leading to this action arising for trial is summarized in the Plaintiff’s submission as follows: “The Defendant in turn, filed a Defence and Counter Claim (since amended and re-amended) seeking for various declarations which include the following that: a) the SSA is valid and binding; and b) the 1st Defendant is entitled under this SSA to conduct Due Diligence on the 1st Plaintiff and therefore, the Vendors in Page 3 of 41 the SSA namely the 2nd and 3rd Plaintiffs respectively are in breach of the SSA; In addition to the above declaratory orders, the Defendant also prayed for the following consequential orders, namely that: a) the Defendant be permitted within thirty (30) days to conduct Due Diligence on Shoppoint with the delivery of certain identified documents; b) once Due Diligence is done, the Defendant be permitted to elect to either complete the SSA or terminate the same; c) in the event of termination, the Defendant seeks a refund of all monies paid pursuant to the various agreements together with interests and damages for breach of the SSA; or d) if the Defendant elects to complete the SSA, an order for specific performance and an injunction restraining the 2nd and 3rd Plaintiffs from dealing with the relevant property pending completion. Essentially, the above reflects the competing claims of the parties where the Plaintiffs are simply exercising their right of Page 4 of 41 termination of the SSA whilst the Defendant intends to specifically perform this 2008 agreement in 2017. By virtue of the contest of facts, on 25.3.2011, this Honourable Court accordingly converted the Originating Summons into a Writ pursuant to Order 28 rule 8 of the Rules of Court 2012 and all Affidavits were to be treated as pleadings.” Agreed Facts “On or around 29.8.2008, the 2nd and 3rd Plaintiffs (the ‘Vendors’) and the Defendant had entered into a Share Sale and Purchase Agreement (the ‘Share Sale and Purchase Agreement’) to purchase 2 shares (the ‘Sale Shares’) in the 1st Plaintiff. On or around 29.8.2008, the Vendors and the Defendant also entered into a Power of Attorney Agreement (the ‘Early Surrender of the Vacant Possession Agreement’) for the early surrender of the vacant possession of the Property (hereinafter defined) by the 1st Plaintiff to the Defendant to enable the Defendant to develop the Property. Page 5 of 41 The 1st Plaintiff’s sole asset has been the property held under Geran Mukim 817, Lot 1423, Tempat 3 ½ Petaling Road, Mukim Kuala Lumpur, Negeri Wilayah Persekutuan (the ‘Property’). The total purchase price payable by the Defendant to the Vendors was

RM9,963,660.00 for the Sale Shares under the Share Sale and

RM5,000,000.00 as repayment for shareholders’ advances, which the Vendors had advanced to the 1st Plaintiff for the purchase of the Property; and

RM2,100,000.00 under the Early Surrender of Vacant Possession Agreement for granting the Defendant immediate access to the Property. Between 5.08.2008 and 29.08.2008, the Defendant made a total deposit payment of RM1,706,366.00 to the Vendors as follows:

on or around 5.08.2008, pursuant to section 2.1.1 of the Agreement, the Defendant paid the Earnest Deposit of RM360,000.00; and

on or around 29.08.2008, pursuant to section 2.1.2 of the Agreement, the Defendant paid the Vendors the balance deposit of RM1,136,366.00. The Defendant lodged a private caveat on the said Property on 5.1.2009 with the presentation No 13/2009 (the ‘said Caveat’).”

Whether the Defendant has breached the terms of the two (2) agreements both dated 29.2.2008;

Whether the Defendant had a caveatable interest when it lodged a private caveat over the Property vide Presentation No. 13/2009 (the ‘Private Caveat’);

Whether the Plaintiffs are entitled to damages in the event the Court rules that the Defendant had wrongfully entered the Private Caveat;

Whether the Due Diligence Condition is a condition precedent of the Share Sale and Purchase Agreement dated 29.02.2008 (‘Share Sale and Purchase Agreement’); and that the completion date is subject to the Due Diligence condition being satisfied; Page 7 of 41

Whether the Plaintiffs’ Vendor’s notice of termination dated 12.01.2009 is invalid and of no effect; and

Whether the alleged Oral Extension was granted by the Plaintiffs to the Defendant such that the Completion Date should be extended to 28.2.2009 (‘Extended Completion Date’). Analysis of Facts and Evidence [3] Briefly, from the evidence, the factual matrix as correctly set out in the Plaintiff’s submission is as follows: “On 5.8.2008, representatives of the Defendant which include DW1, DW2 and DW3 met up with PW1 at the law offices of Messrs. Norhafiza & Yap in anticipation of negotiating the purchase of a plot of land in Taman Desa (‘the Taman Desa Land’). This meeting was arranged by a property agent immediately after a viewing of the Taman Desa Land. Page 8 of 41 The parties had reached a broad understanding on the terms of the proposed sale as reflected in a letter dated 5.8.2008 issued by PW1 under the letterhead of Messrs. Norhafiza & Yap. A perusal of the letter reveals that, inter alia, the parties had agreed to the following: a) The purchase of the Taman Desa Land is by way of acquiring the shares in the 1st Plaintiff; b) purchase price shall be RM18 million on an as is where is basis; c) balance purchase price to be paid on or before 31.12.2008; d) the 1st Plaintiff to bear conversion premium which shall not be more than RM936,337.50; e) upon execution of the SSA, early access shall be granted to the Defendant to demolish the existing structures and buildings at the Defendant’s cost and expense; and f) the 1st Plaintiff shall allow due diligence exercise by the Defendant. Page 9 of 41 g) Subsequently, there was an exchange of draft agreements between PW1 and DW4, the respective solicitors. On or about 29.8.2008, the SSA and Power of Attorney (‘PoA’) were duly executed and a deposit of approximately RM1.7 million was paid to PW1. Under the documentation, the parties had expressly agreed that the Completion Date of the SSA would be 31.12.2008 and there was no provision for any extension of time in the agreement. By letter dated 22.12.2008, Messrs. Norhafiza & Yap issued a reminder to the Defendant stating that the Completion Date was approaching and that they were advised to arrange for settlement of the Balance Purchase Price. It should be highlighted that this reminder letter contained the following caution: “Kindly take note that time shall be of the essence and there shall be no extension of time whatsoever” Upon expiry of the Completion Date on 31.12.2008, the Defendant failed to make payment of the Balance Purchase Price and amount outstanding under the PoA. Page 10 of 41 On 5.1.2009, the Defendant entered a Private Caveat on the Taman Desa Land which is supported by a Statutory Declaration dated 31.12.2008. By letter dated 12.1.2009, Messrs. Norhafiza & Yap exercised the 2nd and 3rd Plaintiffs’ right of termination and forfeited the deposit.” [4] To deal first with the issue of whether the Plaintiff’s notice of termination (‘the Notice’) dated 12.01.2009 is invalid and of no effect, the Defendant pointed out that the Plaintiff’s pleaded case was that by a letter dated 12.1.2009, the Plaintiffs terminated the SSA and forfeited all payments made under the Agreements (‘the 12.1.2009 Letter’). This right was purportedly exercised pursuant to section 11.1 of the SSA. [5] Also, that the Plaintiff’s contention was that SSA could be terminated by merely issuing a termination letter pursuant to Section 11.1 of the SSA without the need to comply with section 12 of the SSA [6] The Defendant contended otherwise that to lawfully terminate the SSA, the Plaintiffs must issue a notice to Catajaya to remedy the defect within thirty (30) days as prescribed by sections 12.1 and 12.2 before the Page 11 of 41 SSA could be lawfully terminated. In short, section 11 must be read together with section 12 of the SSA. [7] Catajaya relied on the case of SPM Membrane Switch Sdn. Bhd, v Kerajaan Negeri Selangor [2016] 1 MLJ 464 where the Federal Court adopted the principle enunciated by Lord Hoffman in the leading case of Investors Compensation Scheme Ltd. v West Bromwich Building Society Ltd. [1998] 1 All ER 98 (‘ICS case’): “The principles may be summarised as follows:

Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

The background was famously referred to by Lord Wilberforce as the "matrix of fact," but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned Page 12 of 41 next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are Page 13 of 41 ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax. (see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 2 WLR 945

The "rule" that words should be given their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in The Antaios Compania Neviera SA v Salen Rederierna AB [1985] 1 AC 191, 201: “... if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.” Page 14 of 41 [8] Catajaya contended that the only qualification is the 2nd principle of the ICS case and by virtue of our sections 92(f), 93 and 94 of the Evidence Act, 1950 (‘EA’) extrinsic evidence of the surrounding circumstances is generally admissible save and except for the parol evidence of the drafters’ intention. [See also Berjaya Times Square Sdn. Bhd. v M. Concept Sdn. Bhd. [2010] 1 MLJ 597 [FC] where the principle on the ICS case was followed]. [9] Catajaya also referred to the English’ Supreme Court case of Arnold v Britton and Ors. [2016] 1 All ER 1 at pp 6-8 on the correct approach to be adopted in the construction of a contract and the factors that are relevant, as follows: “When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to ‘what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean. The meaning has to be assessed in the light of the natural and ordinary meaning of the words used as the parties have control of the language therein.” Page 15 of 41 [10] Reference was also made to the principle that in interpreting a contract, the nomenclature used by the parties is not conclusive but merely indicative of the parties’ intention [See L. Schuler AG v Wickman Machine Tool Sales Ltd. [1974] AC 235]. [11] Lastly, reference was again made to the Federal Court case of SPM Membrane (supra) where it was cautioned that “… in interpreting a contract, the court must approach it holistically. No term is to be taken or interpreted in isolation.” [12] Sections 11 and 12 of the SSA which are crucial to the resolution of the present issue provide as follows: “Section 11 – Purchaser’s Breach 11.1 In the event that the Purchaser shall breach any of its obligations herein, the Vendors may by notice in writing terminate this Agreement and forfeit as agreed liquidated damages an amount equivalent to ten per cent (10%) of the payments for Purchase Price, shareholders advances and payment made under the Power of Attorney and to forthwith refund any other monies to the Vendors or the Vendor’s Solicitors to the Purchasers provided always that Page 16 of 41 Completion has not taken place whereupon this Agreement shall forthwith cease to have any further effect or force and neither party shall have any further claim against the other save for antecedent breach. Section 12 – Termination 12.1 This agreement shall continue to be valid and binding until completion via receipt of the full Purchase Price, shareholders advances and payment made under the Power of Attorney, by the Vendors and via the transfer of the Sale Shares to the Purchaser and the full and effective control of the Company by the Purchaser unless terminated earlier pursuant to Section 12.2 hereunder.

12.2 This Agreement may be terminated by either party by notice in writing to the other and wherein the consequences under Section 10 and Section 11 shall be applicable to the Purchaser and the Vendor respectively: i) If either of the parties hereto shall commit any material breach of its obligations under this Agreement and shall fail to make good such breach within thirty (30) days from the Page 17 of 41 date of receipt of notice from the other party requiring it to do so, or” [13] In construing clauses 11 and 12 of the SSA Catajaya contended that as the clauses used unambiguous language the natural meaning of the words therein must be adopted. Further, that the clauses must not be construed in isolation but in the context of the whole document. Importantly, Catajaya contended that in considering the SSA as a whole, in particular clauses 11 and 12, it is evident that the SSA is valid and binding unless properly and duly terminated pursuant to S. 12.2. It is only in the event of termination under clause 12 the consequences under S. 11 would follow as the latter is applicable to both parties. In short that there can be no termination of the SSA save if it is done in strict accordance with clauses 12 and 12.2 of the SSA whereby the innocent party should give the defaulting party a grace period of 30 days’ notice to remedy the breach under the prescribed 2 tier process. [14] The Plaintiffs (‘Shoppoint’) on the contrary contended that clause 11 is a stand-alone section which can be adopted to effect a termination of the SSA particularly where the completion period of the SSA itself has lapsed before full payment of the purchase price has taken place. In other words, Page 18 of 41 that termination can properly be effected by issuing a notice of termination via clause 11 without resorting to section 12 whereas Catajaya submitted that this mode of termination if allowed to stand would render the 2 tier process under clause 12 redundant and superfluous. It was emphasized that in SPM Membrane the Federal Court reminded that the relevant termination under clause 9 (which is similar in nature to our section 12) “leans in favour of protecting the position of the appellant against willful termination for one, and to provide an added layer of protection in that it is given the opportunity to ‘remedy the unsatisfactory situation’ in 90 days”. [15] Further, that in interpreting termination clauses in contractual relations a strict approach has to be adopted to avoid the far-reaching implications to the relationship. [See DC Contractor Sdn. Bhd. v Universiti Pertahanan Nasional Malaysia [2014] 11 MLJ 633]. [16] Having considered the law and the material provisions of the SSA, I am of the view that clause 11 of the SSA exists as an independent or stand alone clause applicable under the circumstances of this case to effect a proper and valid termination of the SSA for a breach that is fundamental in nature as that which occurred in this case. This arises from the failure by the Page 19 of 41 Defendant to fully settle the purchase price despite the completion date for the purchase under the SSA having lapsed without any extension of time (‘EOT’) having been granted by the Vendor. In fact, under the SSA, there is no provision for an EOT as time is expressly of the essence. Hence, in a situation of this nature, the Vendor is at liberty to seek recourse under clause 11 to terminate the SSA whereas insistence of the 2-tier process under clause 12 under the circumstances would lead to ludicrous consequences as it would in effect allow time to the purchaser to complete the purchase beyond the completion date under the contract binding on both parties. I, therefore, held that the termination of the SSA by the Plaintiff was valid and effective and did not breach the terms of the SSA. [17] The second issue raised by the Defendant concerns the proposition that due diligence was a condition precedent for compliance with the SSA by the Defendant. Despite the SSA stipulating strict adherence to the timelines contained therein devoid of any provision for enlarging time, the Defendant sought to circumvent the same by contending that due diligence was a central factor and condition precedent that the Plaintiff had yet to comply with. The former’s case, inter alia, was that several oral requests were made repeatedly to the Plaintiff but various important documents to carry out a due diligence were not forthcoming from the latter. As such, that time remained Page 20 of 41 at large and therefore, the completion date become indefinite until such time that due diligence was completed. The Defendant now asks to be supplied certain documents including the original sale and purchase with Mampu Jaya despite the Validation Order having dealt with the Mampu Jaya (‘MJ’) issue. Thereafter, the Defendant seeks to be given 30 days to conduct due diligence and also to be given an option whether to terminate the SSA and the related agreements together with a refund of the deposit in addition to seeking damages. Alternatively, the right to elect for specific performance of the 2008 SSA and to complete the transaction by 2017 in lien thereof. [18] It was fairly obvious that in raising the current issue Catajaya intended to keep the SSA alive despite its contractual validity having caused to exist since 31.12.2008. Additionally, Catajaya sought to prove that there was in fact an oral agreement for an EOT via telephone conversation between PW1, the advocate and solicitor representing Plaintiffs 2) and 3) in the transaction and DW1, the legal advisor of Catajaya. [19] The Plaintiff, on the other hand, highlighted the fact that the alleged oral EOT was devoid of any supporting evidence and in fact disproved by Plaintiffs’ solicitors’ letter dated 24.12.2008. Via this letter, PW1 expressly rejected any proposed EOT and referred to a certain telephone conversation Page 21 of 41 mentioned therein. In reply, the Defendant referred to their own letter of even date an extract of which as below doesn’t appear to offer much assistance to them. “We refer to the above matter and our agreement with your clients dated 29.8.2008, and shall be most grateful if your clients will be kind enough to allow us an extension up to 28th February 2009 to pay the balance purchase price, subject to such conditions as your clients may deem fair and reasonable.” [20] This letter was eventually admitted by the Defendant’s solicitors after some reluctance on the grounds of privilege. Be that as it may, certain prominent features of this letter are of significance to the important issues of alleged EOT and due diligence, namely:

No reference is made in this letter to Due Diligence which the Defendant alleges as being the central ground for an EOT to be granted; and

Nowhere in the letter is an oral extension by PW1 confirmed but instead, is merely a polite request for an extension to enable Catajaya to make full payment. Page 22 of 41 [21] In contending that the explanation proffered by DW1 for the contents of the letter was devoid of any truth or credibility, the Plaintiff rightly stressed that: “… the explanation provided by DW1 is borderline nonsensical. DW1 has explained that this letter was worded this way at the behest of PW1 who said they should write in officially to request for an extension. PW1 has denied this. As a legally trained person, surely if there was an oral agreement for an extension especially where RM1.7 million was hanging in the balance, DW1 would certainly place the oral extension in writing. The fact that he did not is probably or in fact most definitely because there was never an oral extension.” [22] Whether Due Diligence is a requirement to be fulfilled by the Plaintiffs before completion the sale of shares is an issue to be determined in accordance with the provisions of the SSA. In their pleaded case, the Defendant relied principally on the relevant clause in Schedule 1 of the SSA under the heading Representations and Warranties (‘R&W’) of the Vendors under the Agreement as the basis of their entitlement to Due Diligence. It is the Defendants’ case that the failure by the Plaintiff to adhere strictly to the Page 23 of 41 said clause would defeat the provision of time being of the essence and render the completion date inapplicable as time would be at large so long as the Defendant is unable to complete the Due Diligence exercise. [23] Clause 5.1.320 of the SSA under the said heading stipulated that: “the Vendors shall provide or cause to be provided to the Purchaser, its advisers, servants or agents all necessary information and assistance required to conduct a due diligence on the Company and/or any matter or action necessary to complete the sale of the Sale Shares” [24]