Amtrustee Berhad v the Store (Malaysia) Sdn Bhd (W-02(NCVC)(W)-2230-11/2017)

In the High Court, the plaintiff seeks for a declaration that the termination notice issued by the defendant is void and consequently the Tenancy Agreements are valid.

In response, the defendant brought a counterclaim for a declaration that the renewal of the Tenancy Agreements is subject to an increase in respect of the rate of 10% and that the termination by the defendant is valid.

We shall be referring to parties in this judgment in their respective capacity in the High Court, the appellant as the defendant and the respondent as the plaintiff.

The High Court had after a full trial, allowed the plaintiff's claim and dismissed the defendant's counterclaim.

We heard the appeal. At the conclusion of the hearing of the appeal, by unanimous decision, we allowed it. The decision of the High Court is set aside.

This appeal concerns the plaintiff's tenancies at two (2) shopping malls known as Central Square and Landmark Central which are owned by the defendant and managed by Hektar Property Services Sdn. Bhd. (The two Tenancy Agreements)

Despite the existence of two (2) separate Tenancy Agreements, the wordings of the renewal clauses were similar in nature. Proceedings At The High Court

This case came for trial before the learned judge for 2 days. The learned judge heard the factual evidence of 1 witness by the plaintiff and 3 witnesses by the defendant. As we have stated earlier, the learned judge allowed the plaintiff's claim and dismissed the defendant's counterclaim.

We would summarize the learned judge's findings and reasoning as follows:

(i) The plaintiff had given the defendant the requisite notices of their intention to renew the tenancies. The plaintiff's notices for renewal was undisputedly coupled with a request to maintain rental at the current rate;

(a) the plaintiff does not agree with the defendant's conditional proposal as the renewal of the tenancy is to be made in accordance with the provisions of Clause 3.04 of both the Tenancy Agreements; and

(b) as the $ 1^{\mathrm{st}} $ renewal term is to be effected from 23.1.2015, the defendant was to confirm the unconditional monthly rate to enable the plaintiff to make the necessary payments.

(v) The Notice of Termination is void for the following reasons:

(a) The Notice of Termination states that the plaintiff had rejected the defendant's offer of a new rate of increment at 8%. However, the said offer is subject to the plaintiff entering into a fresh tenancy agreement ("conditional offer") which was later rejected by the plaintiff. This is because the new tenancy agreement had terms which are materially different especially in regards to the calculation of rental. The learned judge took the view that the rejection by the plaintiff is the correct position to be taken as the conditional offer clearly departs from the terms of the Tenancy Agreements to which the defendant had agreed to be bound by virtue of the Deed of Novation dated 2.10.2012.

(b) Whereas, the plaintiff's letter dated 12.1.2015 had clearly requested the defendant to confirm the unconditional monthly rate to enable the plaintiff to make the necessary payments. The contents of the defendant's letter dated 5.1.2015 stating that the defendant "shall reserve their right to impose the maximum increment of 10% over the monthly rental payable", can only be viewed as a statement showing the extend of increment which the defendant as landlord can impose. In other words, the defendant had never offered any unconditional increment at the rate of 8% or 10% and that the plaintiff had never rejected any offer of increment whether at the rate of 8% or 10%.

(c) As there was no such unconditional offer of increment in the monthly rent, despite the existence of evidence of negotiations which fell through, the Notice of Termination and the termination was issued and carried out prematurely.

(d) In this regard, the defendant's pleaded Defence and Counterclaim that the plaintiff has breached the Tenancy Agreements by refusing to pay the increment of 10% or 8% as envisaged in the Notice of Termination is obviously unsustainable.

By notice of appeal dated 25.10.2017, the defendant appealed against the learned judge decision premised on 12 grounds. However, we would summarise the grounds as follows:

(i) The learned judge erred in law and/or in fact in failing to hold that every renewal for the tenancy agreements for Central Square and Landmark Central Tenancy Agreement is subject to a maximum rental increment of 10%.

(v) The learned judge erred in law and/or in fact in not allowing the defendant's Counterclaim for:

(a) A declaration that every renewal under the Central Square Tenancy Agreement and the Landmark Central Tenancy Agreement was subject to a maximum 10% increase in rent; and

(b) A declaration that the defendant's Notice of Termination dated 23.5.2016 was lawful.

The appeal was heard on 27.11.2018. Tan Sri Dato' Cecil Abraham appeared for the defendant and Mr. Gideon Tan appeared for the plaintiff. We are grateful to all counsel for their assistance.

The first three grounds of appeal are closely linked. We shall therefore deal with them collectively before turning to the other grounds of appeal. Whether Every Renewal Of The Tenancy Is Subject to Maximum Rental Increment Of 10%

The question before us calls for some analysis of the effect of Clause 3.04 of the Tenancy Agreements. Learned counsel for the defendant submitted that:

(i) The learned judge failed to construe or construe properly clause 3.04 of the Tenancy Agreements which entitled the defendant to increase the rental at a maximum of 10% over the rate of the last preceding term;

Learned counsel for the plaintiff resisted these arguments. He pointed out that the defendant has never informed the plaintiff of its intention to increase by 10% in the rental rate and the defendant only intended to force the plaintiff to enter into a new set of tenancy agreements with an increment in rental of 8%.

It is not disputed between the parties that on 20.11.2014 the plaintiff wrote to the defendant to renew the Tenancy Agreements pursuant to clause 3.04 of the Tenancy Agreements.

It is necessary to refer to clause 3.04 of both the Tenancy Agreements which provide as follows: (3.04)(a) The Landlord hereby agrees to grant the Tenant an option to renew the tenancy of the Demised Premises on expiry of the term hereby created for six (6) separate but consecutive terms of three (3) years each with rental increment at maximum of ten per centum (10%) over the rate of the last preceding term (which terms shall hereinafter be separately but in successive order referred to as the "Second Term", "Third term", "Fourth Term", "Fifth Term", "Sixth Term" and "Final Term") as specified in and at the monthly rental and subject to the Security Deposits as stated in Section 9 of the First Schedule herein, provided that if the Tenant shall be desirous of exercising the option to renew the said consecutive terms, it shall exercise the same separately and in successive order and shall not less than three (3) calendar months of each of the aforesaid consecutive terms (except the Final Term) give a written notice to the Landlord of such desire and if it shall have paid all the rents reserved and shall have performed and observed the several stipulations contained and on its part to be performed and observed up to the termination and subsisting immediately before the commencement of the tenancy so desired to be renewed, then the Landlord shall let the Demised Premises to the Tenant for such further term(s) and at such rental(s) as determined in the manner provided by Section 9 of the First Schedule hereto and payable as therein provided and subject in all other respects to the same stipulations as are herein contained expect that the covenant to renew as in this Clause shall not be contained in the agreement for the Final term. Notwithstanding anything aforesaid, if the Tenant shall omit or howsoever fail to renew or exercise the option to renew any of the said consecutive terms in the manner aforesaid then the Tenant shall be entitled to automatic renewal(s) of the tenancy SAVE where the Tenant gives a six (6) months written notice prior to the expiry of the fixed term or extended term or renewed term (whichever may apply) of the Tenant's intention not to exercise the option to renew the tenancy and the Landlord shall refund the Security Deposit free of interest to the Tenant but without prejudice to the right of action of the Landlord in respect of any antecedent breach of the Tenant's covenants herein contained.

We regret that we are unable to accept the learned judge's construction of clause 3.04 of the Tenancies Agreements.

On this issue, in our view, the judge was plainly wrong for the reasons which we will set out below when he said, at para 32 of his judgment that clause 3.04 of the Tenancy Agreements mean the extent of the increment that the defendant can impose is as follows: "[32] ..

(a) ... It is an uncontroverted fact that apart from relying on the contents of their letter of 5.1.2015 stating that the defendant shall reserve their right to impose the maximum increment of 10% to the monthly rent payable", the defendant never informed the plaintiff what the unconditional monthly rate is. This statement surely cannot be relied upon to say that the defendant is imposing an increment of 10% over the monthly rental payable. At most, it can only be viewed as a statement showing the extend of increment which the defendant as landlord can impose. In other words, I took the position that the defendant had never offered any unconditional increment at the rate of 8% or 10% as the case may be (see pages 112 & 113 NOP) and that the plaintiff had never rejected any offer of increment whether at the rate of 8% or 10%...

The judge agreed with the plaintiff's submissions and further the learned judge was of the view that the defendant did not set any increment as to the monthly rental in accordance with the terms of the Tenancy Agreements save for the fact that the defendant did assert that they are entitled to an increase in rental to the maximum of 10% of the monthly rental rate.

A literal reading of clause 3.04 of the Tenancy Agreements shows that: a. The defendant agrees to grant the plaintiff an option to renew the tenancy upon expiry for certain separate but consecutive terms of three (3) years each with rental increment at a maximum of ten per centum (10%) over the rate of the last preceding term; b. Provided that, if the plaintiff is desirous of exercising the option to renew, it shall exercise the same separately and in successive order not less than three (3) calendar month of each of the consecutive terms by giving written notice to the defendant of such desire. c. If the plaintiff omits or howsoever fails to renew or to exercise the option to renew any of the consecutive terms in the manner aforesaid then the defendant shall be entitled to automatic renewal(s) of the tenancy.

We, therefore, agreed with the defendant submission that the learned High Court Judge had clearly erred in finding that the Tenancy Agreements were automatically renewed without any increment in rental for the following reasons: a. The plaintiff did, in fact, confirm the renewal of the tenancy by way of letter dated 20.11.2014. b. Defendant's letter dated 5.1.2015 stating that if their Proposal is not agreeable, defendant reserves their rights to impose the maximum increment of 10% to the monthly rent payable during the renewed term. c. The parties were in negotiations on the fresh tenancy agreements which failed. d. The negotiations failed as the plaintiff could not agree on the Proposal or the fact that the plaintiff unilaterally decided that the Tenancy Agreements were renewed with no increment. As per clause 3.04, the defendant would be entitled to the rental at a maximum of 10% over the rate of the last preceding term as every renewal for the Tenancy Agreements is subject to a maximum rental increment of 10%.

It is well to discuss at this stage the chain of agreements or alleged agreements relied upon by the plaintiff. As the Tenancy Agreements were close to expiry, the plaintiff and the defendant started negotiating on the renewal terms of the Tenancy Agreements. The plaintiff wrote a letter dated 20.11.2014 to the Appellant informing them that they intended to renew the Tenancy Agreements and requested for the monthly rental for the renewal term to be maintained as per the last preceding term's monthly rental.

The defendant in response wrote a letter dated 5.1.2015 expressly stating that: (i) they do not agree to any renewal without increment; (ii) nevertheless and as a gesture of goodwill, they are agreeable to impose only 8% if, among others, the plaintiff enters into a fresh tenancy agreement with the defendant ("Proposal"); and (iii) should the plaintiff disagree with the Proposal, defendant shall reserve the right to impose the maximum increment of 10% of the monthly rent payable during the renewed term.

In response, the plaintiff wrote a letter dated 12.1.2015 stating amongst others, that: (i) they do not agree with the Proposal; (ii) the defendant to confirm the unconditional monthly rental rate for the renewal term to enable them to make the payment; and (iii) on a strictly without prejudice basis, should the defendant insist on the proposal, to send the draft fresh tenancy agreement or reference and consideration.

Thereafter from 12.1.2015 to 18.11.2015, parties continued negotiations on the renewal and on the prospect of a fresh tenancy agreement, however, evidence shows that matter was prolonged due to the lack of urgency on the part of the plaintiff to expedite the resolution of the negotiation.

On 23.12.2015, the plaintiff's sole witness during the trial, PW1 sent an e-mail to the defendant stating amongst others, that:

(i) The tenancy for the demised premised at Central Square has been renewed for the $ 1^{\mathrm{st}} $ renewal term from 23.1.2015 until 22.1.2018 in accordance to clause 3.04 of the tenancy agreement dated 10.1.2012 with no increment to the renewal monthly rental;

It is worth noting that the defendant wrote by way of a letter dated 2.2.2016 to the plaintiff's Group Managing Director stating amongst others, that:

(i) The good working relationship with plaintiff which now seems to be changing;

(v) On the other hand, defendant has in good faith continued to bill plaintiff at the old monthly rental rate only on the mutual understanding that once the parties agree on the new rental rate for the renewal term, the plaintiff will pay the difference in rental between the old and new rate commencing from the expiry of the previous tenancy term.

The evidence adduced during the course of the trial clearly shows that the defendant was unable to agree with the plaintiff's unilateral position and as such, the defendant issued a Notice of Termination dated 23.5.2016. The said Notice of Termination stated amongst others, that: "We refer to the above matter. Reference is also made to our letter dated 2.2.2016 and your reply dated 5.4.2016 ("Letters"). Further to the said Letters, we regret to note that despite ample opportunities given to resolve the long outstanding issue surrounding the renewal of your tenancies at Landmark Central and Central Square ("Tenancies"), parties are still unable to agree on the renewal terms for the said Tenancies. On this note, we have offered you a new rate at 8% increment over the last preceding term's monthly rental in accordance with Clause 3.04(a) of the Tenancy Agreement, however the same was rejected by you. Therefore, your Tenancies are deemed to be on a monthly rollover basis and are subject to termination with 1 month's prior notice.

After a careful examination of the correspondences between the parties, we have no hesitation in reaching a different conclusion on the matter concerned as was reached in the court below.

We, therefore, agreed with the defendant submission that the learned Judge had clearly erred in the above finding that the Tenancy Agreements were automatically renewed without any increment in the rental for the following reason: a. As stated above, the issue here is not that plaintiff failed or omitted to renew the Tenancy Agreements for the learned Judge to rely on the second part of clause 3.04 in the first place as it is not relevant. b. Plaintiff did, in fact, confirm the renewal of the tenancy by way of letter dated 20.11.2014. c. Defendant's letter dated 5.1.2015 stating that if their Proposal is not agreeable, defendant reserves their rights to impose the maximum increment of 10% to the monthly rent payable during the renewed term. d. The parties were in negotiations on the fresh tenancy agreements which failed. e. As the negotiations failed as the plaintiff could not agree on the proposal or the fact that plaintiff unilaterally decided that the Tenancy Agreements were renewed with no increment. As per clause 3.04 of the Tenancy Agreements, the defendant would be entitled to the rental at a maximum of 10% over the rate of the last preceding term as every renewal for the Tenancy Agreements is subject to a maximum rental increment of 10%.

In fact, PW1 in cross-examination admitted that pursuant to clause 3.04 of the Tenancy Agreements, the defendant is entitled to a rental increment at the maximum of 10% over the last proceeding term.

The second ground of appeal by the defendant is that the Notice of Termination is valid. The Intention Of The Parties

We now come to the final issue. In our opinion, the crux of the whole matter depends upon whether there was consensus ad idem between the plaintiff and the defendant to renew the Tenancy Agreements without any rental increment. This is in our view, was really the central issue of the present disputes.

It is at the material time pertinent to highlight that parties were still in negotiations and that negotiations broke down when the plaintiff took the unilateral position that the Tenancy Agreements were renewed with no increment. In this connection, the learned judge erred in law and in fact by failing to fully evaluate and consider the evidence tendered by parties in relation to this issue based on the following reasons:

(i) The defendant had expressly informed plaintiff at the earliest opportunity in 5.1.2015 that they are not agreeable to waive any rental increment for the renewal. They further informed that if the plaintiff is not agreeable to the defendant's Proposal, the defendant reserved their rights to impose the maximum increment of 10% to the monthly rent payable during the renewed term.

Having decided that the Agreements Tenancy was renewed without increment, the learned judge held that the defendant's Notice of Termination was void for the following reasons: a. The NOT states that the plaintiff had rejected the defendant's offer of a new rate of increment at 8%. This is entirely wrong. The defendant never made such offer of increment at the rate of 8%. What the defendant did was to offer the 8% increment subject to the plaintiff entering into a fresh tenancy agreement ("conditional offer") (see evidence of SP3 at pages 112 and 113). This is was accordingly rejected by the plaintiff. The new tenancy agreement had terms which are materially different on the issue of calculation of rental. Under the TAs, rental of the Demised Premises is calculated inclusive of service and promotional charges. The new tenancy agreements separate the rental charges from the service charges, promotional charges, advertising charges and other further charges which are subject to increase at the sole discretion of the defendant (see clause 11.3 and 11.4 of the new tenancy agreement). To my mind, the rejection by the plaintiff is the correct position to be taken as the conditional offer clearly departs from the terms of the TAs to which the defendant had agreed to be bound by virtue of the Deed of Novation date 2.10.2012.

On this issue, learned counsel for the plaintiff supported the learned judge's reasoning and on the other hand learned counsel for the defendant disputed it. In considering the issue, we have looked at the evidence adduced by the parties and we found that the learned judge is plainly wrong as there is clearly no consensus ad idem between plaintiff and defendant to renew the Tenancy Agreements without any rental increment based on the following facts: i) The Tenancy Agreements clearly allows for rental increment at a maximum of 10% over the last preceding term wherein even the rental rate for the renewal term is expressly stated in the $ 1^{\mathrm{st}} $ Schedule of the Tenancy Agreement for Central Square; ii) Defendant expressly informed plaintiff that defendant is not agreeable to the waiver of any rental increment and would reserve the right to impose maximum rental increment. Subsequently, the defendant was negotiating with plaintiff on the renewal particularly on the prospect of the signing of a new Tenancy Agreement by plaintiff wherein defendant would then impose only 8% increment which is why defendant continue to impose old rental during this period; iii) The defendant then expressly informed that if the plaintiff is not agreeable to sign a new Tenancy Agreement, the defendant would impose the maximum 10%; iv) The plaintiff, however, took the position that the Tenancy Agreements were renewed automatically with no rental increment. This position is detrimental to the defendant and is a blatant disregard of the defendant's rights under the Tenancy Agreements. This eventually led to the termination of the Tenancy Agreements by the defendant in which the defendant clearly entitled to do so.

The evidence adduced during trial shows that despite the rent for the renewed term was expressly stated in the 1 $ ^{1 \mathrm{st}} $ Schedule to the Tenancy Agreements, there are a clear dispute and disagreement between plaintiff and defendant when plaintiff took the position that the Tenancy Agreements were renewed with no increment which is contrary to defendant's position and the express wording of the Tenancy Agreements.

Accordingly, it is wrong for the plaintiff to argue that the same can be automatically renewed with no increment or with no regard as to how much the increment rate would be.

This court had decided in Wisma Sime Darby Sdn. Bhd. v Wilson Parking (M) Sdn. Bhd. [1996] 2 MLJ 81 where His Lordship VC George JJCA said that: The question is whether there was a concluded agreement. If no agreement had been arrived at on that most crucial element of the agreement-rent-there cannot be said to be a concluded agreement. That the parties might eventually agree on the rent does not make for a concluded agreement. The question 'what if they never arrive at an agreement as to the new rent?' brings home the lack of merit in the submission. (See also: Seni Jaya Sdn. Bhd. & Anor v Dato' Hj Ahmad Tarmizi Hj Puteh & Anor [2019] 1 CLJ 713 (FC); Deutsche Bank (Malaysia) Bhd v MBF Holdings Bhd & Anor [2015] 8 CLJ 1068 (FC); Ayer Hitam Tin Dredging Malaysia Bhd v YC Chin Enterprise Sdn Bhd [1994] 2 MLJ 754 (SC))

As such, we are of the view that it is only reasonable for the defendant to terminate the Tenancy Agreements which have already expired as the same were rolled over on a monthly tenancy basis while parties were actively negotiating on the renewal.

Having regards to our conclusion on the above issues, it follows that the termination of the tenancy Agreements was valid.

For the reasons set out above, we would allow the defendant's appeal with cost of RM100,000 for here and below subject to the payment of allocator. Accordingly, the decision of the High Court Judge is set aside. Dated 13 June 2019 Signed HANIPAH BINTI FARIKULLAH Judge Court of Appeal Malaysia Putrajaya For the Appellant: Tan Sri Dato' Cecil Abraham (Aniz Ahmad Amirudin, Phang Soon Mun, Noor Muzalifah binti Shabudin, Chew Chun Wei) Messrs. Han & Partners Advocates & Solicitors 23-8, Menara Oval Damansara No.685, Jalan Damansara 60000 Kuala Lumpur (Ref: LKH/2817/16/PS) For the Respondent: Mr. Gideon Tan (Ya Yoon Jan) Messrs. Gideon Tan Razali Zaini Advocates & Solicitors No. 812, 8th Floor, Block A Kelana Square 17, Jalan SS 7/26 47301 Petaling Jaya, Selangor (Ref: GT/JAN/9376/2016)