Gerbang Alaf Restaurants Sdn. Bhd. (Formerly Known as Golden Arches Restaurants Sdn. Bhd.) v Chai Su Lin (Q-02(NCvC)(W)-1058-08/2020)

CHAI SU LIN

MAIN BAZAAR RESTAURANT SDN BHD (Company No. 1022357-V) … RESPONDENTS [In the matter of Civil Suit No: KCH-22NCvC-27/6-2019 In the High Court of Sabah and Sarawak at Kuching Between GERBANG ALAF RESTAURANTS SDN BHD (formerly known as GOLDEN ARCHES RESTAURANTS SDN BHD) (Company No. 65351-M)] … Plaintiff 01/08/2023 09:33:56

CHAI SU LIN (NRIC No. 710209-13-5018) … 1st Defendant 2. MAIN BAZAAR RESTAURANT SDN BHD (Company No. 1022357-V) … 2nd Defendant] CORAM AZIZAH BINTI NAWAWI, JCA S. NANTHA BALAN, JCA HASHIM BIN HAMZAH, JCA GROUNDS OF JUDGMENT (GERBANG ALAF No.2) Introduction [1] For ease of reference, the parties to the present appeal shall be referred to as they were in Civil Suit No: KCH-22NCvC-27-6/2019. [2] The Plaintiff was granted the right to sub-franchise McDonald’s Restaurant in Malaysia under the McDonald’s System through a Master Franchise Agreement with McDonald’s dated 1.2.2009. [3] On 31.7.2012, the Plaintiff entered into a Tenancy Agreement dated 31.7.2012 (“TA”) with Plaza Merdeka Management Sdn. Bhd. (“PMM”) in which the Plaintiff had accepted the tenancy of Parcels No: G-12, G13 and Alfresco Area on the ground floor of Plaza Merdeka and Parcel No: L1-15 on the first floor of Plaza Merdeka (“the Demised Premises”). [4] By way of a Franchise Agreement dated 27.12.2012 (“FA”), the Plaintiff had granted the right, license and privilege to adopt and use the McDonald’s System at the Demised Premises (“Plaza Merdeka Restaurant”) to the 1st Defendant. On the same day, the Plaintiff and the 1st Defendant entered into an Operator’s Tenancy Agreement (“OTA”) to enable the 1st Defendant to operate the Plaza Merdeka Restaurant. On the same day, the 1st Defendant assigned all her rights, title and interest in the FA and OTA to the 2nd Defendant through two Deeds of Assignment (“DOA”). [5] In the first instance, the Plaintiff initiated this action in the Sessions Court to claim an outstanding sum of RM448,814.90 allegedly due from the Defendants to the Plaintiff. Of the total sum claimed, RM180,534,51.00 was for the unpaid royalty, advertising, miscellaneous expenses, and base rent. The other RM268,280.39 was claimed to reimburse the electricity payments made by the Plaintiff to PMM on the Defendants’ behalf. [6] The parties agreed for this action to be jointly tried with the other two civil suits filed in the High Court, i.e., Civil Suit No: KCH-22NCvC-7/2-2018 and Civil Suit No: KCH-22NCvC-11/3-2018. [7] After the commencement of the action, the Defendants paid RM180,534,51.00 to the Plaintiff and refused to pay for the reimbursement for electricity payments. The Plaintiff’s writ and statement of claim were subsequently amended and re-dated to 17.9.2017. The total amount claimed was reduced to RM268,280.39, i.e., the reimbursement for electricity payments made by the Plaintiff to PMM on the Defendants’ behalf. [8] This is the crux of the Plaintiff’s claim against the Defendants in the present case. On the other hand, the Defendants counterclaimed, among others, that the Plaintiff's termination of the OTA and FA was wrongful or unlawful and claimed damages arising from the wrongful or unlawful termination. [9] The parties have agreed before the High Court to proceed on the liability issue first. After a full trial, the learned trial judge found in favour of the Defendants. The learned trial judge dismissed the Plaintiff’s claim and allowed the Defendants’ counterclaim. Hence this appeal before us. Issues In This Appeal [10] In the Memorandum of Appeal, the Plaintiff raised 14 issues to be determined by this Court. Before us, the Plaintiff had focused on the following issues, namely, whether the learned trial judge erred both in fact and in law – a. in holding that the Plaintiff’s Notice of Termination dated 26.10.2015 was wrongful, null and void; b. in holding that the Plaintiff is not entitled to the reliefs under section 66 of the Contracts Act 1950; and c. in holding that the Plaintiff’s claim for payments of the electricity charges before 21.8.2014 is barred by limitation under para. of the Schedule to the Sarawak Limitation Ordinance (“SLO”). Our Analysis and Findings [11] First and foremost, the obligation to pay electricity charges for the Plaza Merdeka Restaurant or the Demised Premises lies on the Defendants. In particular, Article 7.02 of the OTA states: “7.02 Payment of Utilities Tenant will pay directly all deposits and charges for gas, electricity, water or other utilities, sewer charges, taxes and telecommunication charges, if applicable, as and when such charges become due.” [12] The Defendants are also obliged to pay directly to the relevant authorities the relevant utility charges, which include electricity charges. Article 6.03 of the OTA reads: “6.03 Maintenance Charges, Service Charges & Other Charges In addition to the Rent payable in article 6.01, any other charges or expenses of any nature which the Landlord may be required by the Owner to pay by virtue of the Landlord’s interest in the Demised Premises (including but not limited to common area maintenance charges, service charges, promotional charges, merchant’s association’s dues, utility deposit and charges, fees and taxes) will be payable by the Tenant to the Landlord as additional charges. The Landlord may, at its discretion but not obliged, pay these charges (save and except for the utility deposits and utility charges which shall be payable by the Tenant directly to the relevant authorities for the utilities consumed by the Tenant on the Demised Premises as and when the same is due) and the Tenant will promptly reimburse the Landlord upon receipt of a bill or statement from the Landlord.” [13] In the present case, during the subsistence of the OTA and the FA until their termination on 30.10.2015, the Defendants did not pay for any electricity charges, regardless of having used and benefitted from the electricity supplied to the Plaza Merdeka Restaurant or the Demised Premises to operate its daily business. [14] Due to the Defendants’ continuous non-payment of the electricity charges, PMM disconnected the electricity supply to the Plaza Merdeka Restaurant for four days, i.e., from 2.7.2013 to 5.7.2013. The Plaza Merdeka Restaurant did not conduct business operations during those days. [15] According to the Plaintiff, this is a clear breach of the terms of the OTA. In particular, Article 3.05 of the OTA reads: “3.05 Continued Operation of the Demised Premises The Tenant shall continuously occupy the Demised Premises and conduct the business of a McDonald’s Restaurant daily for not less than 11 hours a day or such other hours as may from time to time be prescribed by the Landlord. A breach of this provision is deemed to be substantial.” [16] Even though the Plaintiff had no obligation to pay for the outstanding electricity charges under the OTA, the Plaintiff did nevertheless pay a total sum of RM268,180.39 to PMM to avoid the disconnection of the electricity supply to the Plaza Merdeka Restaurant and ultimately the termination of the TA. [17] Article 10.09 of the OTA states that – “10.09 Right to Perform for Tenant If the Tenant should fail to perform any of its obligations under the provisions of this Agreement, the Landlord, at its option, may (but will not be required to) do the same or cause the same to be done. In addition to any and all other rights and remedies of the Landlord, the cost incurred by the Landlord in connection with such performance by the Landlord will be an additional charge due from the Tenant to the Landlord, together with interest thereon at base lending rate plus two percent points calculated on a daily basis.” [18] Since the Defendants refused to reimburse the Plaintiff for the electricity charges paid on their behalf, the Plaintiff had, by way of a letter dated 16.6.2015, notified the Defendants that from May 2015 onwards, the Plaintiff would no longer be paying electricity on behalf of the Defendants. [19] On 6.10.2015, the Plaintiff discovered that Plaza Merdeka Restaurant was again closed for business. The Plaintiff conducted inspections on 7.10.2015, 8.10.2015 and 9.10.2015, finding that the Plaza Merdeka Restaurant remained closed. Again, the Defendants were in breach of Article 3.05 of the OTA. The cause of the electricity supply disconnection was again due to the failure of the Defendants to pay the outstanding electricity charges. [20] On 9.10.2015, the Plaintiff issued a Notice to Remedy (“NTR”) to the Defendants and demanded that all breaches therein mentioned be remedied by 23.10.2015. The exact provision in the NTR reads: “8. It is our Client’s contention that the failure and/or continued failure to operate the Plaza Merdeka Restaurant, to pay all electricity charges as and when they fall due and/or to reimburse our Client for payment made on behalf amount to breaches/defaults of the OTA on the part of MBRSB and/or Su Lin… … 10. TAKE NOTICE that our Client hereby give MBRSB and Su Lin until 23rd OCTOBER 2015 to remedy all the breaches of the OTA, as set out hereinabove, which are capable of being remedied, failing which our Client expressly reserve their rights to exercise Clause 10.04 of the OTA, including the right to terminate the OTA and/or any other legal rights available to our Client.” [21] The Defendants did not comply with the NTR. As a result, the Plaintiff issued a Notice of Termination on 26.10.2015 (“NOT”) under Article 10.04 of the OTA with seven days written notice. Upon termination of the OTA, the FA shall also end as stipulated in Clause 3(b)(iv) of the FA. Consequently, the Plaintiff received vacant possession of the Demised Premises on 6.11.2015 from the Defendants. [22] On the other hand, the Defendants contended that they were not legally obliged to pay for the electricity charges since they were illegal. Therefore, the Defendants had no obligation to reimburse the Plaintiff for the electricity charges paid to PMM. Evidence was adduced to support the Defendants’ contention and grounds for their refusal to pay. [23] It can be seen from the evidence that PMM owns or operates the Plaza Merdeka Shopping Mall. PMM obtained its electricity supply for the mall from Syarikat Sesco Berhad (“SESCO”). SESCO is the authorised licensee to supply electricity and issue invoices for its electricity supply under the Sarawak Electricity Ordinance (“SEO”). PMM obtained its electricity supply through a main meter, then distributed it within the mall to each outlet. A sub-meter was placed to monitor and determine the electricity consumption of each outlet from the main supply. These sub-meters were not appropriate and were not provided or approved by SESCO. [24] On this issue, we agree with the learned trial judge that – a. it was never disputed that SESCO is the only authorised licensee under section 4 of the SEO to supply and transmit electricity and fix any tariffs which may be approved by the Yang di-Pertua Negeri as can be seen under section 4A of the SEO; b. neither PMM nor the Plaintiff is allowed to issue any invoice in any form of electricity bill for the use of electricity as confirmed by the Director of Electricity Supply, Ministry of Public Utilities (PW1); c. PW1 confirmed the efforts to rectify the situation by having all the metering systems inside Plaza Merdeka Mall under SESCO; and d. the sub-meters were not appropriate meters as SESCO did not provide them, contravening section 4E of the SEO. [25] In our view, even though the method of billing for the electricity charges did contravene the SEO, and SESCO did warn PMM regarding this matter, the issue here is whether the contravention of the statute here was such that it rendered the Plaintiff’s claim for reimbursement illegal and liable to be struck down. [26] In this regard, it is important to keep in mind that the Defendants are not complaining of overcharging. In fact, they are prepared to pay for the electricity charges provided SESCO’s meters are used. In their view, the charges based on the meter installed by Merdeka Plaza are not claimable. We are of the view that illegality due to contravention of the SEO has no nexus to the Plaintiff’s claim for reimbursement. [27] We agree that the court will not lend its aid to an illegal transaction, especially in contracts impliedly or expressly forbidden by common law or statute (see Cope v Rowlands (1836) 150 ER 707 and Datuk Ong Kee Hui v Sinyium Anak Mutit [1983] 1 MLJ 36 (FC)). [28] In particular, section 24 of the Contracts Act 1950 [Act 136] states – “24. What considerations and objects are lawful, and what not The consideration or object of an agreement is lawful, unless—

(a)it is forbidden by a law;

(b)it is of such a nature that, if permitted, it would defeat any law;

(c)it is fraudulent;

(d)it involves or implies injury to the person or property of another, or

(e)the court regards it as immoral, or opposed to public policy. In each of the above cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.” [29] However, section 66 of Act 136 provides a relief of restitution against the party who had received any advantage under an agreement which is discovered to void or becomes void. The provision reads – “66. Obligation of person who has received advantage under void agreement, or contract that becomes void When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under the agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it.” [30] The relief of restitution under this provision is subject to the exception that the parties were not aware of the illegality at the time when the agreement was entered into. [31] In Menaka v Lum Kum Chum [1977] 1 MLJ 91, the Privy Council held as follows: “Their Lordships are therefore of opinion that the contract and the security, having been made in contravention of section 8, are unenforceable. As the contract is not enforceable by law, it is void under section 2(g) of the Contracts (Malay States) Ordinance, 1950. Neither party was aware of the illegality at the time of making the loan transaction and the documents were prepared and executed on both sides in complete good faith. The contract was "discovered" to be void only after these proceedings had been started. Section 66 of the Contracts Ordinance therefore applies and both parties before this Board accepted that it does…” [32] On a similar note, His Lordship Edgar Joseph FCJ (as he then was), in delivering the judgment of the Federal Court in Lori (M) Bhd (Interim Receiver) v Arab-Malaysian Finance Bhd [1999] 3 MLJ 81, had this to say: “Section 66 of the Contracts Act Similarly, if a breach of s 67 of the Companies Act has civil consequences, then the fact that the financier had no knowledge of the alleged illegality and the true nature of the transaction will not convert a void, illegal and unenforceable transaction into a legal one (see s 24 Contracts Act and Re an Arbitration between Mahmoud and Ispahani [1921] 2 KB 716). Though, of course, in such a situation, it would be possible for the financier to recover under s 66 of the Contracts Act 1950 which is a restitutionary provision having no direct counterpart in English Law. Section 66 provides: When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under the agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it. The 'advantage' under the section would, no doubt, include a loan, thus enabling a financier, with no knowledge of the illegality to recover (see Menaka v Lum Kum Chum [1977] 1 MLJ 91). Professor Visu Sinnadurai in his helpful work on the Law of Contracts in Malaysia and Singapore (2nd Ed) has neatly summarized the effect of s 66 thus: … section 66 is a restitutionary provision and any remedy granted under the section is not based strictly on contract. The general principle under English law is that the courts will not enforce nor grant any remedy under an illegal contract. However, one of the main exceptions to this rule is that an innocent party may obtain certain remedies, whereas no remedy is available to a guilty party. Section 66 is a wide provision which has no direct parallel under English law. English cases are, therefore, not relevant in determining the scope of s 66. If the agreement 'is discovered to be void', s 66 will apply. 'Discovered' has been interpreted to mean that the illegality must not have been known to the party seeking restitution under s 66 at the time the agreement was made. In other words, no remedy will be granted to the guilty party under s 66. In each case, therefore, the courts have to examine the facts of the case to determine whether the party was aware of the illegality at the time the agreement was entered into.” [33] On this issue, the learned trial judge found as follows: “42. In the present case, I find that the facts are however different. After the FA and OTA dated 27.12.2012 were executed, the 2nd Defendant commenced business and operations at the Demised Premises. The Defendants did not pay Plaza Merdeka for electricity supply to the Demised Premises which resulted in the Plaintiff issuing the Plaintiff’s Invoice for the electricity charges to the 2nd Defendants. The 1st Invoice from the Plaintiff to the 2nd Defendant, can be found at page 152 of Bundle BOD1. The said invoice is for “ELECTRIC CHARGES DEC’ 12 – JUN’ 13” and the said invoice is dated “8/08/13”. Thus, as at 8.8.2013, the Plaintiff and the Defendant were already aware of the issue of illegality. This can be ascertained from the Witness Statement of Premita Kaur Dhaliwal (WS3-DW4) where she testified at Q&A 22 to Q&A 25 of WS3-DW4 that the Plaintiff had to pay Plaza Merdeka for the electricity charges on or about 3.7.2013 because the Defendants refused to pay on the ground that the electricity supply was illegal.

Thus, I find that the invoices for electricity charges issued by the Plaintiff to the 2nd Defendant was made in full knowledge of the illegality and on this basis, I hold that the Plaintiff’s claim which is grounded on restitution or section 66 of the Contracts Act, should be dismissed.” [34] We agree with the findings but not the conclusion of the learned trial judge above for the following reasons. [35] As correctly found by the learned trial judge, evidence has shown that the illegality issue arose only after the Plaintiff had paid the outstanding electricity charges to PMM and claimed against the Defendants through the invoice. This happened sometime on 3.7.2013. It is pertinent to note that this event occurred after the execution of the FA and the OTA. [36] There was nothing in the evidence to show that the parties had full knowledge of the illegality of the electricity supply at the time they executed the FA and the OTA. This is the requirement enunciated in both Menaka (supra) and Lori (M) Bhd (supra) to attract the applicability of section 66 of Act 136. [37] Therefore, we are of the view that the learned trial judge was plainly wrong when he looked at the illegality at the time when the invoice was issued instead of at the time when the parties had executed the FA and the OTA in dismissing the Plaintiff’s claim under section 66 of Act 136. In our mind, this error warranted appellate intervention. [38] Hence, we found that when the OTA was executed between the Plaintiff and the Defendants, they were prepared and executed in complete good faith. Thus, we hold that section 66 of Act 136 applies to the facts in the present case in favour of the Plaintiff. [39] We hasten to add that regardless of the illegality of the electricity supply to the Plaza Merdeka Restaurant, the Defendants themselves had blatantly benefited from the constant use of the supplied electricity in running the Plaza Merdeka Restaurant’s daily business without incurring any expenditures. The Defendants had received an advantage by operating the Plaza Merdeka Restaurant without paying for electricity charges at the expense of the Plaintiff settling the outstanding electricity charges on their behalf to avoid any breach of the TA, OTA and FA on its part. [40] If the Defendants deemed the electricity supply illegal, they had the option of terminating the OTA and leaving the Demised Premises so that the Defendants do not partake in what they deemed illegal activities. This, the Defendants did not do so. Instead, they reaped all the benefits but refused to pay for them. In such circumstances, it is only just and reasonable for them to reimburse the Plaintiff for the electricity charges paid by the Plaintiff on their behalf. [41] On the issue of limitation, we agree with the Plaintiff that the Plaintiff’s action against the Defendant was for compensation for an alleged breach of the contract in writing, which is within the ambit of paragraph 94 of the Schedule to the SLO. The limitation period is six years. Therefore, we found that the learned trial judge erred when he relied on paragraph 42 of the Schedule in holding that a part of the Plaintiff’s claim against the Defendants was time-barred. [42] Since the OTA was already void for illegality, we believe that the issue of wrongful termination does not arise. Conclusion [43] In conclusion, after perusing the appeal records and hearing the submission of all parties, we found merits in this appeal. The Plaintiff ‘s appeal is therefore allowed with cost. We hereby allow the claim by the Plaintiff in this case. The learned trial judge’s decision is hereby set aside. We allow costs of RM20,000 here and below to the Plaintiff, subject to allocatur. Dated: 21 July 2023 -sgd- (HASHIM BIN HAMZAH) Judge Court of Appeal, Malaysia Solicitors For The Appellant: Mekanda Singh Sandhu, Satinder Singh Sandhu, Libat Langub, Ganit Libat & Pearly Tew Siew Wei Tetuan Dr. Yaacob & Ismail Advocates & Solicitors 1st Floor, 10B & 10C Lorong 6, Jalan Rubber 93400 Kuching Sarawak Solicitors For The Respondent: Shirleen Ong & Alvin Yong Sze Lung Tetuan Alvin Yong Advocates Lot 155, (1st Floor) Lorong Datuk Abang Abdul Rahim 5A