Dato' Khor Wooi Chen v Metro Supplies Marketing Sdn Bhd (P-02(NCvC)(W)-2369-12/2019)

Rasayang Food Industries Sdn. Bhd. (Company No: 463722-D)

Dato’ Khor Wooi Chen (NRIC No: 730608-08-5175) …Defendants 25/08/2022 12:59:41 P-02(NCvC)(W)-2369-12/2019 Kand. 48 CORUM KAMALUDIN BIN MD SAID, JCA GUNALAN A/L MUNIANDY, JCA AHMAD ZAIDI BIN IBRAHIM, JCA JUDGEMENT INTRODUCTION [1] This appeal arises from a claim in the High Court (“HC”) based on an Agreement to Lease Property comprising 2 Lots (“the Lease Agreement”) entered into between the Plaintiff/Respondent and the 2nd Defendant (‘D2’) / Appellant. After a trial of the action, the Learned High Court (“LJ”) allowed the Plaintiff’s claim against both Defendants (‘D1 and D2’) and granted several monetary and consequential reliefs with costs of RM35,000.00 to the Respondent. Hence, this appeal brought by the Appellant/D2 only. FACTUAL BACKGROUND [2] Rasayang Food Industries Sdn Bhd (“D1”) is a wholly owned subsidiary of EKA Noodles Bhd and one Dato’ Chin Seak Huat (“Dato’ Chin”) was the managing director of EKA and the D1. [3] At all material times, the 2nd Defendant (“D2”) and Dato’ Chin were shareholders of the company known as Ga Yee Furniture Sdn Bhd (“Ga Yee”) of which Dato’ Chin was the managing director. [4] Mr Ong Khong Heng (“the said Vendor”) was the registered proprietor of the property known as Lot Nos 50 and 51 respectively together with a single storey factory and other ancillary structures such as storage, canteen, office, boiler house, guardhouse, toilet and silo buildings erected thereon (“the said Property”). [5] The said Vendor let the said Property to D1 to enable D1 to continue to operate a noodle factory wherein D1 installed about 7 to 8 of their own machineries (“the said Machineries”). [6] Ga Yee continued to default payment to the Plaintiff and its related company known as Metro Components Sdn Bhd (“Metro Components”). When the Plaintiff and Metro Components demanded payment from Ga Yee and refused to supply further goods to Ga Yee, D2 and Dato’ Chin represented to and requested the Plaintiff’s directors to pass a resolution as follows:

the value of the said Property was RM6.0 million and the forced sale value was RM4.2 million.

They will cause the said Vendor to sell the said Property to the Plaintiff at the sale price of RM4.2 million and requested the Plaintiff to purchase the said Property at the said price.

A sale and purchase agreement will be entered into between the Plaintiff and the said Vendor to purchase the said Property for RM6.0 million and that the differential sum of RM1.8 million (“the said Differential Sum”) shall be deemed as settled or shall be settled by D2 or Dato’ Chin to the said Vendor.

In the circumstances, they will request the Plaintiff and Metro Components to continue to supply goods to Ga Yee and to give time to settle the said Debt. [7] A Sale and Purchase Agreement (SPA”) was entered into between the Plaintiff and the said Vendor to purchase the said Property for RM6.0 million. On the application of the Plaintiff, Maybank Islamic Bhd (“MIB”) granted financing via a loan to the Plaintiff (“the said Facility”). The said Facility had been released to the said Vendor as full and final settlement of the purchase price for the said Property which had been duly transferred and registered in favour of the Plaintiff and the charge was duly registered in favour of MIB. [8] An Agreement to Lease dated 1.7.2013 (“the Lease Agreement”) was entered into between the Plaintiff and D1 as follows:

D1 shall take a lease for a period of 10 years.

D1 agreed to promptly pay the monthly rental of RM40,000.00 per month in advance on the 7th day of every month.

In the event the said Monthly Rentals are not paid on time and in the manner as stated above, D1 agreed to pay interest thereon at the rate of 10.6% per annum being the effective rate charged by MIB.

In the event D1 shall terminate the said Lease prematurely before the expiry of the said Tenure, the Deposit sum of RM80,000.00 (“the said Deposit”) paid by D1 under the said Lease Agreement shall be forfeited absolutely and D1 shall also pay the said Monthly Rentals for the unexpired tenure as agreed liquidated damages. [9] A Tripartite Agreement dated 2.5.2013 (“the Tripartite Agreement”) was entered into between the Plaintiff, the said Vendor and the D2 as follows:

D2 shall pay the said Differential Sum of RM1.8 million which is made up of RM600,000.00 being the 10% deposit payable under the said SPA and RM1.2 million being the differential sum between the balance purchase price and the said Facility.

Out of the said 10% deposit of RM600,000.00, D2 is required to pay to the Plaintiff, RM120,000.00 being the 2% retention sum for real property gains tax (“RPGT”) payable on the disposal of the said Property to the Plaintiff.

Within 5 years from the date of the Tripartite Agreement, i.e. on or before 2.5.2018, D2 shall re-purchase or cause his nominee(s) to re-purchase the said Property from the Plaintiff at a price of not less than RM6.0 million (“the said Repurchase Price”) provided that in the event D2 shall fail to re-purchase or cause his nominee(s) to re-purchase the said Property within the said period, then the Plaintiff shall thereafter be entitled to sell the said Property to any third party at such price as the Plaintiff shall deem fit.

All legal costs and disbursements payable by the Plaintiff in respect of the said SPA and the transfer of the said Property to the Plaintiff and in respect of the said Facility approved by MIB shall be paid and settled by D2.

D2 agreed to pay all processing fees, takaful/insurance, valuation report and all other charges payable by the Plaintiff under the terms of the said Letter of Offer.

In the event, D2 shall purchase or cause hi nominee(s) to purchase the said Property or the Plaintiff sells the said Property to any third party as aforesaid, all legal costs and disbursements including the Plaintiff’s solicitors fee in respect of the sale and transfer of the said Property, the discharge of the said Property, RPGT if any, shall be paid by D2.

As an independent covenant, D2 guarantees that D1 will not default the payment of the said Monthly Rentals of RM 40,000.00 under the terms of the Lease Agreement and indemnify and keep the Plaintiff indemnified against all losses, damage and costs which may at any time hereafter suffered or otherwise incurred by the Plaintiff arising out of the default in the payment of the said Monthly Rentals of RM 40,000.00 by D1. [10] The Plaintiff avers that:

in breach of the terms of the Tripartite Agreement, D2 failed and/or neglected to pay the Plaintiff, the said sum of RM120,000.00 being the 2% retention sum for RPGT payable by the said Vendor on the disposal of the said Property to the Plaintiff.

In breach of the terms of the Lease Agreement, as at 30.10.2016, D1 failed to pay the said Monthly Rentals for the months of September and October 2016 totalling RM80,000.00. On 4.11.2016, the Plaintiff’s directors discovered that D1 had already ceased their noodle factory at the said Property. [11] D1’s above acts were anticipatory and/or repudiatory breaches of the terms of the said Lease Agreement as these acts clearly evinced their intention to terminate the said Lease and/or not to continue with the said Lease. The Plaintiff accepted the said breach and terminated the said Lease Agreement and took possession of the said Property. [12] Since D2 did not show any interest to purchase the said Property and/or to cause his nominee to purchase, the Plaintiff took steps to sell the said Property in order to mitigate the loss. In this regard, the Plaintiff found a purchaser who was willing to purchase the said Property for RM5.0 million on ‘as is where is basis’. [13] The Plaintiff filed an action against the Defendants. D1 was wound up prior to the commencement of trial. The Insolvency Department did not participate in the hearing with its attendance being dispensed with. There was also no defence filed on behalf of D1. [14] D2 filed Issues to Be Tried as follows:

Whether the Agreement to Lease dated 1.7.2013 (hereinafter referred to as “the said lease agreement”) and the Tripartite Agreement dated 2.5.2013 (hereinafter referred to as “the said tripartite agreement”) are valid or are sham agreements and unenforceable.

In the event there is any liability on the second Defendant’s part, whether the Plaintiff has mitigated their losses.

Whether the sale of the property known as Lot No.50 and 52, Pekan Semeling, Daerah Kuala Muda, Kedah comprised in Geran Mukim Nos.1 & 2 (hereinafter referred to as “the said property”) was below market value, and, in the event there is any cause of action against the second Defendant, the same is extinguished.

Whether the said lease agreement and the said tripartite agreement are frustrated, terminated, not valid and unenforceable against the Defendants on the grounds that the said property was sold before 2.5.2018.

In the event the said lease agreement is valid and/or can be enforced, whether the said lease agreement had been terminated wrongly by the Plaintiff amongst others when the Plaintiff had locked up the said property without notice and prevented the first Defendant from its production process and business and at the same time wrongly confining the first Defendant’s workers in the said property.

Whether as a result of the Plaintiff’s wrongful act as mentioned in paragraph 5 above, the first Defendant suffered losses, including but not limited to business loss and damage to the first Defendant’s good reputation.

Whether all the items and/or machines in the said property belongs to the first Defendant and ownership of all the items and/or machines was never transferred to the Plaintiff or anyone else.

Whether the 2nd Defendant is entitled to the claims as prayed for in paragraph 22 (a-d) of the Amended Defence and Counter Claim (2nd Defendant).

All issues pleaded in the Pleadings by the Plaintiff and the Defendants respectively. [15] The Learned Judge allowed the Plaintiff’s claim against D2 as follows:

D2 shall pay the Plaintiff a sum of RM120,000.00 which is 2% retention sum for real property gains tax which has to be paid for disposal of the property to the Plaintiff;

declaration that all legal cost and expenses including Plaintiff’s solicitor’s fee incurred or will be incurred by the Plaintiff has to be paid by D2 to the Plaintiff immediately;

D2 shall indemnify and continue to indemnify the Plaintiff against all claims, requests, losses, proceedings, actions, damages and cost (based on solicitor-client cost) which will be claimed later and/or initiated by MIB at any time or incurred or otherwise done by Plaintiff which arise from default of the monthly rental of RM40,000.00 by D1.

the 1st Defendant and the 2nd Defendant shall jointly and severally pay as follows:

total difference between RM6.0 million and the purchase price of RM5.0 million RM1,000,000.00

(ii) loss of monthly rentals for the months from September 2016 to 13.7.2018 - RM896,774.20

(iii) renewal of insurance for the duration from September 2016 to September 2018 - RM55,504.14

(iv) solicitor fees and expenses in respect of sale of the property RM36,270.00

interest at the rate of 5% per annum

(vi) cost of this proceeding - RM35,000.00 OUR DECISION [16] We must first have in mind the Respondent’s material averments in their pleading as follows:

In breach of the terms of the Tripartite Agreement, (‘TA’) the 2nd Defendant failed and/or neglected to pay the Plaintiff, the said sum of RM120,000.00 being the 2% retention sum for RPGT payable by the said Vendor on the disposal of the said Property to the Plaintiff.

In breach of the terms of the Lease Agreement, as at 30.10.2016, the 1st Defendant failed to pay the said Monthly Rentals for the months of September and October 2016 totalling RM80,000.00. On 4.11.2016, the Plaintiff’s directors discovered that the 1st Defendant had already ceased their noodle factory at the said Property. [17] The Appellant’s primary contention was that the LJ had erred in arriving at his decision for having failed to take into account the relevant law, facts and/or evidence and despite having had the advantage of seeing and hearing. Hence, judicial intervention is necessary by this Honourable Court of Appeal. [18] In support of their contention that this is an appropriate case for appellate judicial intervention, the Appellant placed reliance on the following leading authorities: 1) Siti Aisha binti Ibrahim v Goh Cheng Hwai [1982] 2 MLJ 124 where it was decided that the question for determination by the learned President in this case was essentially one of fact. The finding of the trial court should not have been disturbed as there was no valid reason to show that the trial judge had not taken advantage of his having seen and heard the witness. The court is aware that an appellant court would be loath to interfere with the findings of fact by a trial court. It is only in a rare case that an appellate court, lacking the advantage of seeing and hearing the witnesses, was justified in coming to a different conclusion from the trial Judge on the question of credibility. 2) Sivalingam a/l Periasamy v Periasamy & Anor [1995] 3 MLJ 395 where it was decided that it is trite law that an appellate court will not readily interfere with the findings of fact arrived at by the trial court to which the law entrusts the primary task of evaluation of the evidence. [19] The defence put forth by the Appellant, in essence was that they are not liable to the Respondent for the total sums claimed and that the TA is not a guarantee nor does it give rise to liability on the part of the Appellant. Further, that the agreements entered between parties are sham agreements, designed for financing purposes only. [20] Both parties were on common ground that the core document that would determine the rights and obligations of the Appellant would be the TA. [21] In respect of the TA, the Appellant’s basic proposition was that the Appellant’s obligations pursuant to this agreement cannot exceed what is contained within its four corners in support of which reference was made to the authority Antara Vista Sdn Bhd v Rumaya Properties Sdn Bhd [2017] MLRAU 495 where it was remarked that: “[19] One of the cardinal rules of interpretation of a contractual document has been that the court ought not to look beyond what was contained within the four walls of the contract document. The contract document must contain within its four walls what the parties have agreed to be bound for, in the performance of the contract. What is not contained within its four walls would necessarily mean that such omission was intentionally so omitted by the contracting parties. It is not the role of the Court to read into the contract documents what was not expressly spelt out in the contract. The Court’s role is to interpret, not to re-write, the contract document for the parties. In the Federal Court case of Tractors Malaysia Bhd v Kumpulan Pembinaan Malaysia Sdn Bhd [1978] 1 MLRA 345; [1979] 1 MLJ 129 learned Justice Chang Min Tat FJ had occasion to state that ‘where a contract has been reduced to writing, it is in the writing that we must look for the whole of the terms made between the parties.’ [20] Once the agreement has found expression in the written form, no parole evidence is permitted nor admissible to contradict what was already written therein. In the Malaysian context, ss91 and 92 of the Evidence Act 1950 has provided for such statutory embargo against admissibility of such parole evidence.” [22] For convenience, the relevant parts of the TA are reproduced below: NOW THIS AGREEMENT WITNESSETH AS FOLLOWS: 1) In consideration of the above Premises and Metro agreeing to enter into the said SPA and accepting the said Letter of Offer, Khor shall, iii) Within five (5) years from the date hereof, re-purchase or cause his nominee(s) to re-purchase the said Property from Metro at a price of not less than RM 6.0 million subject to the like terms as contained in the said SPA, PROVIDED that in the event Khor shall fail to re-purchase or cause his nominee(s) to re-purchase the said Property within the said period, then Metro shall thereafter be entitled to sell the said Property to any third party at such price as it shall deem fit. iv) Pay and settle all legal costs and disbursements payable by Metro including the followings: .… [23] In our view, the Appellant correctly interpreted the relevant and important clause of the TA as follows:

The Appellant has a period of five (5) years from date of the TA namely on or before 01/05/2018 to repurchase or cause to be repurchased the said property at the price of RM 6 million failing which Respondent can sell it at the price deemed fit by the Respondent; and

In the event the Respondent sells the property to a third party, in this case be being the said Chew Hong, then the Appellant only has to pay the Respondent’s solicitor fees in respect of the discharge of the property from MIB (the financiers) and the Appellant also having to pay RPGT, if any for the sale to the said Chew Hong (3rd party). [24] It was also highlighted to us that clause 2, sub-clauses (i), (ii) & (iii) TA only provide for payment of fees if and only if the sale of the property is in favour of the Appellant or his nominees (and not to Chew Hong as in our case). [25] An independent covenant was also given by the Appellant wherein he guaranteed that the D1 would not default in payments of rental so that the Respondent can pay to MIB and also indemnified the Respondent for potential claims by MIB or incurred as a result of non payment of the RM40,000.00 monthly rental. [26] We would pause here to look at the order made by the LJ that in this appeal is the subject of the LJ’s dissatisfaction. The LJ ordered the Appellant (“D2”) to pay the Respondent RM120,000.00 being 2% retention sum for RPGT payable on the disposal of the said Property by the Vendor on the basis that Clause 1(1)(i)(a) of the TA requires D2 to pay RM120,000.00 for RPGT but he failed to do so and in any case, D2 did not lead any evidence as to this payment of RM120,000.00. Hence, prima facie, the Plaintiff (Respondent) would be entitled to judgement in respect thereof. [27] One of the grounds raised by the Appellant in this appeal is that RPGT is payable by the Vendor but not the Plaintiff and that in any case, there will not be any liability because there was no claim by LHDN and that RPGT would be required to be paid if it was imposed or when it was paid to LHDN. [28] In regard to this issue, the LJ rejected the Appellant’s contention for these reasons:

S 21B of RPGT Act requires P to retain the 2% (now 3%) of the purchase price (i.e. RM120,000.00) and to pay to Director General within 60 days of date of disposal and if P fails to pay that amount, it will be increased by 10% and both of them shall be a debt due from P to the Government.

(ii) In the circumstances, this sum of RM120,000.00 is already a debt due and payable by P to LHDN which P was exposed to, due to the failure of D2 to pay the same as agreed in the TA. [29] Apart from that, the Appellant contended that D2 was liable to pay RPGT only if the sale of the subject property was to the Appellant or his nominee. However, the subsequent sale by the Respondent was to a 3rd party wherein the Respondent did not make any claim for RPGT which they could not be subject to as the property was sold at a loss. [30] We agree with the Appellant’s contention as to when their liability to pay RPGT arises under the TA, i.e., only in limited circumstances when the subject property is purchased by the Appellant or his nominee. It does not encompass a sale to a non-party by the Respondent which was what occurred in this instance. It is trite (instance) law that the terms mutually agreed upon by the contracting parties must be given effect to without any consideration being given to extraneous factors. Also that when the terms of a contract are expressly stated without any ambiguity, the literal approach to interpretation must be adopted. [31] Hence, in our view, based on a proper interpretation of the material clause of the TA relating to the sale and purchase by a 3rd party of the subject property the order directing the Appellant to pay RGPT which was not incurred by the Respondent was misconceived and stems from a misinterpretation of the relevant clauses of the TA. [32] Next for our consideration is the challenge against the LJ’s decision which adjudged that the 1st Defendant and the Appellant (“D1 and D2”) shall jointly and severally pay to the Respondent the total difference between RM6.0 million and the purchase price of RM5.0 million or RM1,000,000.00. [33] In regard to the Appellant’s challenge as above, the most crucial fact is that the TA explicitly provides that the Appellant is given a period of 5 years, namely, 01/05/2018 to repurchase or cause to be repurchased the said property at the price of RM6 million and if he fails to do so, then only can the Respondent sell it at the price deemed fit by the Respondent. [See Clause 1(i) TA] A literal interpretation would mean that no liability would be incurred by the Appellant if the property is sold at a lower price before the prescribed 5 year period. [34] From a plain reading of the wording of clause 1(i) there is no ambiguity whatsoever as to the obligation of the Appellant pertaining to repurchase of the subject property which becomes operative only after the 5 year period and it is only upon failure of the Appellant to honour the repurchase as stipulated would the right accrue to the Respondent to sell the same to a chosen 3rd party. It is only upon the occurrence of the latter event that the Appellant would become liable to pay all legal costs, disbursements, RPGT, etc incurred by the Respondent following the sale to the 3rd party. [35] It was undisputed that in the present instance the Respondent went ahead to sell the property to the said Chew Hong (“CH”) before the agreed 5 year period which the TA does not provide for. We were in agreement with the Appellant’s contention that the premature sale of the subject property by the Appellant before the expiry of the 5 year period had led to a frustration of the TA rendering the Appellant being unable to exercise the rights provided therein. As a result, it precluded any further obligations on the part of the Appellant to make the stipulated payments that could only arise if the property had been sold to the 3rd party in accordance with the express terms of the TA. It was plain and clear that the said terms had been disregarded by the Respondent. [36] We have also duly noted the fact that the Respondent had sold the property to CH at RM6 million whereas they had paid (or to pay) RM4.2 million to MIB for acquiring the property which translates to the Respondent not having suffered no loss at all. In the circumstances, these was no loss proven in respect of the sale price that the Appellant should be ordered to bear. [37] This is a fact that has to be read together with the Respondent’s claim for rental (to offset payment of instalments to MIB) which was also allowed to be borne by the Appellant. [38] It was conceded by the Respondent that under Clause 1(iii) of the TA, D2 agreed to re-purchase the said Property at the price of the RM6.0 million within 5 years of the TA. However, the Respondent alleged that in the meantime, D1 committed anticipatory repudiatory breach of the said Lease Agreement by not paying the rentals, in ceasing the operation of noodle factory; in removing the said machinery and leaving the said Property in a deplorable state which clearly evinced D1’s intention to terminate or not to continue with the said Lease and not to pay the said Monthly Rentals for the remaining tenure of 10 years as agreed therein. P accepted the said breach and put an end to the said Lease Agreement and took possession of the said Property in order to protect it from being damaged further. [Refence made to the Federal Court case of Damansara Realty Bhd v Bangsar Hill Holdings Sdn Bhd & Anor [2011] 6 MLJ 464]. [39] As such, it was submitted that pursuant to the terms of the Lease Agreement, the Respondent would be entitled to claim the Monthly Rental for the remaining period of 79 months totalling RM3,160,000.00 which was guaranteed and indemnified by the D2. Additionally, that the move by the Respondent to sell the property to a 3rd party was a correct step intended to mitigate the loss to the parties concerned: the Respondent, D1 and the Appellant. [40] With respect, we are not inclined to agree with the Respondent on the issue of anticipatory breach and the purported liability of the Appellant to settle the rentals for the remaining period of the 10 year Lease when the Respondent had disposed of the property before the expiry of the 5 year period provided for the repurchase by the Appellant. As the Respondent themselves had acted contrary to the express terms of the TA, the question of anticipatory breach by the Appellant did not arise. [41] With respect to the Appellant’s claim for the unpaid rentals by D1 which D.2 had purportedly guaranteed, the relevant provision of the TA is Clause 4 which reads as follows:

In consideration of the above premises and as an independent covenant, Khor hereby

guarantees that Rasayang will not default the payment of the said monthly rental of RM40,000.00 under the terms of the lease agreement so that Metro does not default in their repayment of the said Loan to MIB; and…. [42] On this point, the Appellant’s position was that the TA was not intended to be a guarantee and did not give rise to any liability on the Appellant’s part in the event of non-payment of rentals by D1. [43] The LJ read the above clause as a guarantee on the part of D2 for the payment of rentals by D1 for the period when the Lease was subsisting on the ground that the Respondent was dependent on the rentals for repayment of the loan to MIB and the Appellant had undertaken to indemnify the Respondent against losses and damage suffered or incurred by them arising from the default in rental payments by D1. In our view, this is not an erroneous finding that warrants our intervention except for the duration as it is supported by Clause 4 of the TA for the period when the Lease was in force. However, from the facts, the applicable period should be 15 months only. Hence, we would maintain the LJ’s order on this relief except that it would be shortened to 15 months. [44] We would conclude on the 2nd ground of challenge raised by the Appellant that the LJ had fallen into plain error in awarding the difference between RM6.0 million being the price payable by the Appellant within the 5 year agreed period and RM5.0 million which the 3rd party paid for the property in the premature sale. The error was the result of plain misinterpretation of the relevant clause of the TA pertaining to the obligation of the Appellant in regard to the repurchase of the subject property. CONCLUSION [45] Upon the conclusion of this appeal, our judgment was as follows: We have considered all the submissions, the contentions, evidence before the court below and also the issues for determination. It is our considered view that the LJ had gone plainly wrongly in fact and law in allowing the claim as pleaded and making the orders as shown in the grounds of judgment. Our decision would be to set aside the main order and to maintain some of the awards given by the LJ with some variations. On the whole we allow the appeal and set aside the decision of the LJ except for 2 awards. One is the insurance claim for which we maintain the award. The other award that we maintain is for loss of rental of RM40,000.00 per month but for only 15 months which work out RM600,000.00. The rest of the orders are set aside except for interest at 5% per annum. Costs of RM5,000.00 here only to the Appellant subject to allocator. Dated: 23 August 2022 - sgd - GUNALAN A/L MUNIANDY Judge Court of Appeal Putrajaya COUNSEL FOR THE APPELLANT: Anoop Singh (Together with Venodjit Singh) [Messrs Anoop & See] COUNSEL FOR THE RESPONDENT: M. Kanesan (Together with K.Shaarmila) [Messrs M. Kanesan & Assoc.]