Adya Enterprises (Hk) Ltd v Xfyre (M) Sdn Bhd (BA-24NCvC-1090-09/2021)

XFYRE (M) SDN BHD (No. Syarikat: 1050175-D)

TETUAN FAHMI ZHAFRI ASHRAF & CO. … DEFENDAN-DEFENDAN JUDGMENT Introduction [1] It is common for parties to a contract to stipulate the specifications of the goods or products ordered. It is also not uncommon to find requests made relating to the manner and timeline in which these products are to be delivered. For example, if a contract calls for the delivery of a particular goods in three batches, with the delivery dates specified, for example, on the 8th day of the month over a period of three given months, is the purchaser entitled to repudiate the contract if the vendor fails to make any delivery in the first two months in the agreed period? Can the vendor insist that she is able to and indeed will make the delivery at one go before the 8th day of the third month? After all, the purchaser will ultimately be receiving everything that she has ordered. While the vendor may say that delivery of the products at one go is no different from delivery in three batches, to a purchaser, this is a case of “same same but different”. [2] The present case brings into focus the application of significant principles relating to fundamental terms, repudiation and remedies under contract law based on the scenario outlined above. The Issues [3] The issues for determination in this case are straightforward. This Court is required to unravel firstly, the fundamental terms, if any, as agreed by the parties. [4] This would then be followed by a determination of the second issue of whether there was a repudiatory breach of any of these terms by the First Defendant, entitling the Plaintiff to terminate the contract. [5] If the answer to the second question is in the affirmative, the consequential poser is whether the Plaintiff is entitled to the remedies sought. The Parties and the Background Facts [6] The Plaintiff, Adya Enterprises (HK) Ltd, is a company incorporated in Hong Kong. It is involved in the business of trading in goods, including the purchasing and supplying of gloves to its customers. [7] The First Defendant, XFYRE (M) Sdn Bhd, is a Malaysian company. [8] The Second Defendant, Tetuan Fahmi Zhafri Ashraf & Co, is a legal firm. [9] The Plaintiff’s case is premised on a Purchase Order dated 23 February, 2021 that it had issue to the First Defendant. This Purchase Order was for the purchase of nitrile disposable gloves by the Plaintiff from the First Defendant. [10] The terms as contained in this Purchase Order are as follows: "SPECIAL INSTRUCTIONS ALL DETAILS REGARDING, QUALITY COLOUR, SIZE, LABEL, STICKER AND PACKING IS TO BE FOLLOWED AS REQUESTED. We will conduct a Full Inspection of the Product before Shipment-Each Per Design Must be Submitted As Samples Fully Packed. Nitrite Disposable Gloves (Brand Xfyre I Theracom) PRODUCT SIZE AS FOLLOWS Per Container: [Page intentionally left blank] Ratio: S, M, L, XL = 1:4:4:1 S 3200 BOXES (320 ctns) M 12800 BOXES (1280 ctns) L 12800 BOXES (1280 ctns) XL 3200 BOXES (320 ctns) 32000 BOXES (3200 ctns) I 1*40 HQ Total 192000 BOXES (19200 ctns) I 6*40 HQ Packing: 100 pcsllnner box, 10 inner boxes/carton Schedule of Delivery End March Shipment Note: $182400. 00 as 30% deposit revolving and 100% per Shipment, Deposit to be deducted on final shipment. End April Shipment Note: $182400.00 as 30% deposit revolving and 100% per Shipment, Deposit to be deducted on final shipment. End May Shipment Note: $182400.00 as 30% deposit revolving and 100% per Shipment, Deposit to be deducted on final shipment. Note: Made in China under license of Xfyre Malaysia" [Page intentionally left blank] [11] Following the acceptance of this Purchase Order, the First Defendant issued to the Plaintiff a Proforma Invoice confirming the following details. "Nitrite Gloves Powdered Free, 240mm, Textured, Blue, No Flavour, Non-Sterile, General Formulation Brand: XFYRE-THERACOM Packing: 100 pcs/box; 10 box/ctn Carton: 360x250x250 (mm) Inner: 240x120x70 (mm) 3.5-4.5g per piece, 6 kg/ctn Size S,M,L,XL (1/4/4/1) ASTMD6319/EN420/EN455/EN374 HS Code: 4015-19-0090 1x 40' HQ, 32,000 boxes Estimated Delivery Month Boxes Pieces USO/Box Amount (USD) MAR 2021 64,000 6,400,000 9.50 608,000 APR 2021 64,000 6,400,000 9.50 608,000 MAY 2021 64,000 6,400,000 9.50 608,000 [12] The first sign of trouble in this contractual relationship was when the First Defendant informed the Plaintiff that the first delivery initially agreed to be in the end of March would be revised to 10 April, 2021. The Plaintiff averred that it had reluctantly accepted the revised delivery date upon assurance that the other two deliveries would be as per the agreed schedule. [13] The Plaintiff thereafter then said that when it received sample boxes of the nitrile gloves, they were blue in colour instead of medium blue as in the original samples initially received. [14] An Order Delivery Confirmation dated 9 April, 2021 was received by the Plaintiff confirming that 64,000 boxes were already at the First Defendant’s warehouse but this turned out as not to be the case and a fresh Order Delivery Confirmation was issued on 15 April, 2021, assuring the Plaintiff that the First Defendant will (i) arrange a minimum weekly delivery of 16,000 boxes for the month of April, 2021; (ii) see to it that the volume to meet the delivery quota for April would be met within the month of April 2021; and (iii) ensure that a volume of 16,000 boxes will be ready for inspection and will be delivered on 19 April, 2021. [15] The Plaintiff was then informed by the First Defendant on 16 April, 2021 that the 16,000 boxes were not in the ratio of S:M:L:XL = 1:4:4:1 and all the boxes were also made up of a mixture of light blue and medium blue colour gloves. [16] The Plaintiff did inform the First Defendant that it will accept a minimum of shipment of 32,000 boxes at the ratio of S:M:L:XL = 1:4:4:1 in medium blue colour. However, the Plaintiff claimed that the First Defendant breached the terms of the contract when it was informed by the First Defendant that the size ratio for all shipments will be unilaterally adjusted to S:M:L:XL = 2:4:4:0 and that the XL size will only resume production from mid-May onwards. [17] Another modification to the terms came in the form of the number of boxes to be delivered in each consignment, namely that it would be in 13,000 boxes per batch. [18] As a result of the above events, the Plaintiff regarded the conduct by the First Defendant as a complete contravention and repudiation of the terms stipulated in the Plaintiff’s Purchase Order and the First Defendant’s Proforma Invoice. Henceforth, the Plaintiff on 28 April, 2021 wrote to the First Defendant, accepting the First Defendant’s repudiation of its obligations, terminated the contract of sale between the Plaintiff and the First Defendant and sought for a refund of the deposit. [19] As evident from the above, the key terms that relate to the delivery requirements concern (i) the colour of the nitrate gloves, with the colour being blue; (ii) the sizes of the nitrate gloves and the ratio, in that each container should have a ratio of S, M, L, XL sizes of 1:4:4:1; (iii) the quantity for delivery, in that each 40’ High Cube Container will contain 32,000 boxes with each box containing 100 pieces of the gloves; and (iv) the total number of shipments and the schedule for delivery. [20] The involvement of the Second Defendant is a result of a Stakeholder Agreement executed by the Plaintiff with both the First and the Second Defendants. The Second Defendant had agreed to act as a stakeholder in relation to the transaction between the Plaintiff and the First Defendant. The Reliefs Sought [21] The Plaintiff had initially commenced this suit by way of an Originating Summons. It was subsequently converted into a Writ action. The reliefs sought by the Plaintiff are, inter alia:

A declaration that the First Defendant had committed a repudiatory breach of the contract entered into between the Plaintiff and the First Defendant vide the Plaintiff’s Purchase Order No. AD # 4067 dated 23 February, 2021 and the First Defendant’s Proforma Invoice No. Q00008231 dated 3 March, 2021 (“the Contract”);

A declaration that the Contract was lawfully terminated by the Plaintiff on 28 April, 2021 on the basis of the repudiatory breach of the Contract by the First Defendant;

That the First Defendant and Second Defendant jointly and severally shall pay to the Plaintiff a sum of US Dollar 182,400.00 (“the Deposit”) being the refund of the revolving deposit paid by the Plaintiff to the Second Defendant to be held as stakeholders; and

That the First Defendant and Second Defendant jointly and severally shall pay to the Plaintiff a sum of US Dollar 24,403.56 being the special damages suffered by the Plaintiff as a result of the First Defendant’s repudiatory breach of the Contract and/or the failure, refusal and/or omission of the First Defendant and/or Second Defendant to refund the Deposit to the Plaintiff. The Opposing Contentions by the Parties [22] The Plaintiff’s submission is that there was a concluded contract between the Plaintiff and the First Defendant. It pointed to the certainty as to the subject-matter, that is, the nitrile disposable gloves; certainty as to the parties, namely the Plaintiff and the First Defendant; and consensus ad idem, based on the evidence before this Court. Hence, the requirements for the presence of the 3 “Cs” for the formation of a contract as stated by the Court of Appeal in Emas Kiara Sdn Bhd v Michael Joseph Monteiro (Receiver and Manager of Lembah Beringin Sdn Bhd) & Ors (Farcoll Estate Sdn Bhd & Ors, Interveners) [2018] 5 MLJ 54, according to the Plaintiff, have been fulfilled. [23] The Plaintiff’s contention is that the First Defendant had committed the following material breaches pursuant to the contract, namely:

That the 16,000 boxes of nitrile disposable gloves supposedly ready for inspection and delivery on 19 April, 2021 were not in the ratio of S:M:L:XL = 1:4:4:1 as stipulated in the Plaintiff’s

The 16,000 boxes of nitrile disposable gloves were also made up of a mixture of light blue and medium blue colour gloves. [24] The Plaintiff reasoned that the above amounted to a material breach as the significant deviation of the nitrile glove ratio would have caused significant logistical problems. This is because the Plaintiff would have to allocate significant labour resources to reorganise the goods to meet the Plaintiff’s needs as and when the deliveries come in. In addition, the delivery that deviates from the agreed ratio of sizes will also disrupt all the order arrangements made by the Plaintiff with the Plaintiff’s customers. [25] Reliance was placed on the Court of Appeal decision in Ching Yik Development Sdn Bhd v Setapak Heights Development Sdn Bhd [1997] 1 AMR 89; [1997] 1 CLJ 287; [1996] 3 MLJ 675; [1996] 2 MLRA 69 which laid down the propositions that “if the breach is of such a nature that it goes to the root of the contract, then the term broken is fundamental in nature” and “where the term that has been flouted is fundamental to the contract, the innocent party is entitled to treat himself as being discharged from further obligations under it”. [26] This Court was then referred to the decision of the Federal Court in Berjaya Times Squares Sdn Bhd (formerly known as Berjaya Ditan Sdn Bhd) v M Concept Sdn Bhd [[1010] 2 AMR 205; [2010] 1 CKH 269; [2010] 1 MLJ 597; [2009] 3 MLRA 1 where the apex court explicated the application of the doctrine of repudiation. [27] In Dream Property Sdn Bhd v Atlas Housing Sdn Bhd [2013] 2 AMCR 814; [2013] 7 CLJ 969; [2013] 6 MLJ 836; [2013] 6 MLRA 650 the Court of Appeal explained that: [18] The significance of the breach amounting to a repudiation is that upon the acceptance of repudiation, the respondent is entitled to treat the contract as repudiated. [28] The point underscored by the Plaintiff is that the First Defendant cannot approbate and reprobate by on the one hand reciprocating the specific instructions in the Plaintiff’s Purchase Order vide the Proforma Invoice and on the other hand unilaterally adjusting the size ratio to S:M:L:XL =2:4:4:0 to their convenience. On this issue of approbating and reprobating, the Plaintiff cited the Federal Court decision in Bato Bagi & Ors v Kerajaan Negeri Sarawak & Another Appeal [2011] 5 AMR 493; [2011] 8 CLJ 766; [2011] 6 MLJ 297; [2012] 1 MLRA 1. [29] In view of the material breach on the part of the First Defendant that went to the heart of the contract between both parties, the Plaintiff argued that it was entitled to accept the First Defendant’s repudiation, treat the contract as at an end and sue for damages. [30] The Plaintiff also averred to the Second Defendant’s fiduciary duties and liability as a stakeholder. As a remittance of USD182,400.00 has been made into the Stakeholder Account which was operated and under the control of the Second Defendant at all material times, it is the Plaintiff’s assertion that the Second Defendant has wrongfully withheld the deposit funds from being returned to the Plaintiff and has failed to act fairly, even-handedly and in accordance with the duties applicable to a person engaged as a stakeholder. In this regard, the Plaintiff cited the Federal Court case of Datuk M Kayveas & Anor v Bar Council [2013] 4 AMR 802; [2013] 7 CLJ 533; [2013] 5 MLJ 640; [2013] 5 MLRA 437. [31] As against the Second Defendant, the position adopted by the Plaintiff is that, first, the former at all material times had knowledge pertaining to the termination of the contract between the Plaintiff and the First Defendant. Second, and to further exacerbate the Second Defendant’s misconduct, the Second Defendant had then taken the unilateral decision of transferring the deposit funds to the First Defendant. [32] The Plaintiff also raised the doctrine of unjust enrichment in arguing that if the First Defendant were to be allowed to keep hold of the deposit funds amounting to USD182,400.00, it would be unjustly enriched following from its repudiatory breach of the contract. The authority relied by the Plaintiff is Dream Property Sdn Bhd v Atlas Housing Sdn Bhd [2015] 2 AMR 601; [2015] 2 CLJ 453; [2015] 2 MLJ 441; [2015] 2 MLRA 247. [33] Last but not least, the claim by the Plaintiff for special damages is premised of penalties payable to its respective clients, which are as follows:

Plaintiff incurring loss of USD9,520.00 as penalty of non-shipment of gloves to Deesons Ltd;

Plaintiff incurring loss of USD6,000.00 as penalty of non-shipment of gloves to International Trading Company; and

Plaintiff incurring interest in the amount of USD6,183.56

When a contract has been broken, the party who suffers by the breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from the breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.

Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach. [35] The Defendants’ primary contention is that the pertinent Purchase Order, which is a formal and binding agreement, is the one dated 3 March,

According to the Defendants, this Purchase Order was based on a Proforma Invoice that has been finalised and agreed by the Plaintiff and the First Defendant and the parties are thus bound by the terms stated therein. [36] The Defendants maintained the position that the terms under the Purchase Order dated 3 March, 2021 does not mention that the delivery ratio be fixed at 1:4:4:1. The First Defendant further submitted that there is no also ambiguity as to the terms relating to the schedule for deliveries. [37] The crux of the Defendants’ submission is that Purchase Order dated 3 March, 2021 must be treated as a stand-alone contract which the Plaintiff and the First Defendant had entered into to deal with the subject matter of this case. [38] This Court was urged to take judicial notice of the decision in Catajaya Sdn Bhd v Shoppoint Sdn Bhd [2021] 2 AMR 1; [2021] 3 CLJ 159; [2021] 2 MLJ 374; [2021] 2 MLRA 46 (“Catajaya”) on the role of the courts when construing the terms in an agreement. The principle being that courts must give effect to the terms as agreed by the parties and not attempt to “improve the words used in clauses”. Another principle is that a contract must be construed as a whole [see: Wong Nyuk King (F) & Anor v Hwang Mee Hiong (F) [2016] 3 AMR 101; [2016] 4 CLJ 813; [2016] 3 MLJ 689; [2016] 3 MLRA 367 (“Wong Nyuk King”)] [39] By relying on the Federal Court in SPM Membrane Switch Sdn Bhd v Kerajaan Negeri Selangor [2015] AMEJ 1795; [2016] 1 CLJ 177; [2016] 1 MLJ 464; [2016] 1 MLRA 1 (“SPM Membrane Switch”) the Defendants further impressed upon this Court that the approach that this Court should adopt when asked to determine the true nature of the bargain between contracting parties is an objective approach. [40] The Defendants further submitted that the First Defendant at all times was ready to deliver the gloves in the ratio of S:M:L:XL=1:4:4:1 in the three-month period and that there was no requirement which subjects the First Defendant to deliver the gloves in the size ratio of 1:4:4:1, in the month of April 2021. [41] It was further asserted by the Defendants that even if there were communications made by the First Defendant on the interferences regarding to the relocation of the factories from China and Vietnam to Malaysia and also on the unavailability of the gloves for size XL for a limited period, the First Defendant was entitled to rely on Clauses 7(c) and 7(d) of the Proforma Invoice. Clause 7(c) allows the Seller to make changes in the specification of goods at any time so long as it does not affect the quality and performance of the goods and Clause 7(d) allows the Seller in the event of force majeure, to revise the terms of the Proforma Invoice. [42] The Defendants repeatedly contended that the First Defendant was at all material times “in the capability to deliver the nitrile gloves in the ratio of 1:4:4:1 in the estimated period of 3 months delivery period”; that there was never a breach of contract by the First Defendant against the Plaintiff; and that the Plaintiff was not entitled to terminate the contract when the First Defendant informed the Plaintiff on the adjustment of sizing of 2:4:4:0 for the initial shipment and then for the sizing XL to continue to in Mid-May. [43] On the issue of special damages, it was the Defendants’ contention that there was no documentary evidence tendered by the Plaintiff which specifically shows that due to the First Defendant’s action, the Plaintiff had suffered losses and damage as a result of the termination of Proforma Invoice by the Plaintiff. The Decision of this Court [44] The Trial was conducted on 7 September, 2023. [45] A total of three witnesses testified in this trial. Vora Anshul Dushyant (PW-1) was the sole witness who testified on behalf of the Plaintiff. PW-1 is a director of the Plaintiff company. [46] The Defendants called two witnesses, namely, Khamil bin Ismail (DW-1), who is a director of the First Defendant company and Mohd Zhafri Bin Aminurashid (DW-2), a partner in the Second Defendant’s legal firm. [47] On the issue of the fundamental terms, if any, as agreed between the parties, this Court has perused the documents and evidence before it. After a careful consideration of the testimonies of the witnesses, together with the submissions and authorities cited by the parties, this Court is satisfied that the sizes of the gloves to be delivered at an agreed ratio of 1:4:4:1, together with the number of boxes and the batches and period for delivery form the fundamental terms of the contract. [48] This Court is not just in agreement but is bound by the principles as propounded in cases such as Catajaya, Wong Nyuk King and SPM Membrane Switch. In applying and adopting the principles and approaches as advocated in these decisions, the conclusion is that the terms as spelled out in the preceding paragraph form the fundamental terms of the contract between the Plaintiff and the First Defendant. [49] This Court is unable to agree with the First Defendant that it should only confine itself to merely looking at the Proforma Invoice dated 3 March, 2021. The documents exchanged and executed between the Plaintiff and the First Defendant should be construed in totality. Support for the adoption of such an approach can be drawn from cases such as Affin Bank Bhd v Mohd Kasim @ Kamal bin Ibrahim [2013] 2 AMR 273; [2013] 1 CLJ 465; [2018] supp MLJ 106; [2013] 1 MLRA 259, Synergy Spectacular Sdn Bhd v Teratas Petroleum Sdn Bhd [ 2022] 1 AMR 871; [2022] CLJU 5; [2022] 2 MLJ 227; [2022] 2 MLRA 580 and Synergy Spectacular Sdn Bhd v Deleum Primera Sdn Bhd [2022] AMEJ 0110; [2022] CLJU 248; [2022] MLJU 216; [2022] MLRHU 196. [50] On the second issue of whether there was a repudiatory breach of any of these terms by the First Defendant, entitling the Plaintiff to terminate the contract, this Court answers the question in the affirmative. [51] It was the First Defendant’s contention that it had not committed any repudiatory breach of the terms of the agreement in that it had merely made “adjustments” on the ratio for the sizes of the gloves and it was the Plaintiff that had wrongfully terminated the contract. [52] More importantly, the First Defendant is relying on Clause 7(c) – which allows the Seller to make changes in the specification of goods at any time which does not affect the quality and performance of the goods – and Clause 7(d) – which allows the Seller in the event of force majeure, to revise the terms of the Proforma Invoice. [53] The gist of the Defendants’ arguments is that so long as the size ratio is met and so long as all the gloves are delivered at the end of the day, there is no breach of the terms. [54] The Defendants also cited the Federal Court case of Catajaya as reminder to this Court that it “must not even attempt to improve the words used in the clauses which parties have made themselves”. In other words, Courts should not rewrite contracts for the parties. [55] Adhering to the above principle and far from making any attempt to rewrite the contract for the parties, this Court is of the considered view that the First Defendant had breached the fundamental terms of the contract. The “adjustments” made for the sizes of the gloves may not affect the “quality” of the goods but they do have an adverse effect on the “performance” of the goods. Hence the provision in Clause 7(c) is of no avail to the Defendants. [56] Likewise, this Court is also not convinced that the force majeure clause has been triggered. [57] As this second question has been answered in the affirmative, the ensuing question is whether the Plaintiff is entitled to the remedies sought. [58] This Court is of the considered view that the First and/or the Second Defendant is required to return the Plaintiff the deposit of USD182,400.00. [59] However, the claim by the Plaintiff for USD24,403.56 from the First and/or Second Defendant as special damages is disallowed. [60] The Defendants to pay the Plaintiff costs of RM30,000.00, subject to allocator. Dated: 28 February, 2024 sgd [CHOONG YEOW CHOY] Judicial Commissioner High Court of Malaya Shah Alam Counsel: Daniel Bock Jr Wei with Aaron Thangarajoo for the Plaintiff (Messrs. Shukor Baljit & Partners) Isa Aziz Ibrahim with Wong Yun Loong for the First Defendant and Second Defendant (Messrs. Isa Aziz Ibrahim)