Goh Hui Sun v Tiew Cheng Haw (WA-22NCC-170-04/2020)

This is a case of a breach of an Oral Agreement between a business owner (Plaintiff) and her business partner cum funder (Defendant). Both parties in this case allege that there has been a breach of an Oral Agreement. The Plaintiff claimed against the Defendant 50% of the sums as agreed in the Oral Agreement. The Defendant counterclaimed and sought for the rescission of the Oral Agreement and demanded for his entire investment be returned.

I decided against the Plaintiff and allowed the Defendant’s Counterclaim. S/N pbUZiYwxMkavR01aqDe9A **Note : Serial number will be used to verify the originality of this document via eFILING portal 2

The Plaintiff’s claims against the Defendant for 50% of the total costs and expenses purportedly expended or incurred for the Plaintiff’s existing business which was owned by her entity for the period from January 2017 – October 2017. The said 50% of expenses amounts to RM 981,768.56.

The Defendant’s case is that there is a total failure of consideration and as such, the Oral Agreement ought to be rescinded and have the sum of RM 1,026,693.56 (after taking into account the partial repayment by the Plaintiff) refunded.

Reliefs sought by the Plaintiff: “38. Oleh yang demikian, Plaintif menuntut daripada Defendan perintah-perintah sepertimana berikut: -

Satu deklarasi bahawa Perjanjian Perniagaan Perkongsian antara Plaintif dan Defendan adalah ditamatkan berkuatkuasa pada 01.11.2017;

(ii) Defendan memampas semula bayaran kos-kos dan perbelanjaan-perbelanjaan serta liabiliti-liabiliti Perniagaan Perkongsian pada kadar 50% daripada keseluruhan jumlah yang telah dibayarkan oleh Plaintif iaitu sebanyak RM 981,768.56; S/N pbUZiYwxMkavR01aqDe9A

(iii) Ganti rugi Teladan yang akan ditaksirkan dan dibayar oleh Defendan kepada Plaintif;

(iv) Faedah pada kadar 5% setahun bagi perenggan (i) dan (ii) di atas dari tarikh perintah sehingga penyelesaian penuh;

Kos; dan

(vi) Relif-relif lain Mahkamah fikirkan adil dan suai manfaat.” [6] The Defendant’s Counter claim sought for the following refers : “28. Oleh yang demikian, Defendan menuntut terhadap plaintif perintah-perintah seperti berikut:-

Satu deklarasi bahawa Perjanjian di antara Plaintif dan Defendan ditamatkan;

Satu perintah bahawa Plaintif mengeluarkan nama Defendan di dalam Happy Feet Enterprise (No. Pendaftaran Bisnes: SA0248067-V) dan Zen Mandarin Sdn Bhd (No. Syarikat: 1149993-W) dalam tempoh empat belas (14) hari daripada tarikh Penghakiman;

Plaintif membayar kepada Defendan jumlah wang sebanyak RM1,045,954.63;

Gantirugi teladan (“exemplary damages”); S/N pbUZiYwxMkavR01aqDe9A

Faedah pada kadar 5% per annum ke atas perenggan

(c), (d) dan (e) dari tarikh pemfailan Writ sehingga penyelesaian penuh;

Kos; dan

Lain-lain relif yang difikirkan suaimanfaat oleh Mahkamah yang Mulia ini.” Issue [7] I find the critical issue to be determined is whether there is a total failure of consideration on the part of the Plaintiff. Brief Facts [8] The Plaintiff operated a chain of foot reflexology centers and had been in the spa business for over 5 years. The Defendant was a regular customer. Their relationship then evolved as business partners. Based on an Oral Agreement, the Defendant injected a sum of approximately RM1.2 million as part of his entry into the business. In return, the Defendant would become the Plaintiff’s joint venture partner and registered as a shareholder in Zen Mandarin Sdn. Bhd. (“Zen Mandarin”) and a partner in Happy Feet Enterprise. The relationship subsequently broke down. [9] It was then discovered Zen Mandarin was a dormant company which does not own any of the Plaintiff’s existing businesses. Happy S/N pbUZiYwxMkavR01aqDe9A Feet Enterprise too did not own any of the Plaintiff’s existing branches in foot reflexology and spa business. [10] Instead the business was owned by the Plaintiff’s company called Sans Mandarin Spa and Wellness Enterprise where the Plaintiff was the sole proprietor. Analysis and Finding [11] I am of the view that the Plaintiff has failed to prove her claim for the entitlement to the 50% contribution as agreed in the Oral Agreement between parties. The primary reason being a total failure of consideration on the part of the Plaintiff. The law on total failure of consideration [12] There is a plethora of cases that discusses the law on total failure of consideration. The Federal Court in Berjaya Time Square Sdn Bhd v. M-Concept Sdn Bhd [2010] 1 MLJ 597 held that when deciding whether there is in a given case total failure of consideration, the court must first interpret the promise as a whole and next view the performance of the promise from the point of view of the party in default. The test is not whether the innocent party received anything under the contract. The test is whether the party in default has failed to perform his promise in its entirety. See also: S/N pbUZiYwxMkavR01aqDe9A

(ii) Damansara Realty Bhd v Bungsar Hill Holdings Sdn Bhd & Anor [2011] 6 MLJ 464 (FC)

(iii) Fabulous Range Sdn. Bhd. v Helena a/p K Gnanamuthu [2021] 5 MLJ 736 (COA) [13] It can be concluded from the above cases that a total failure of consideration arises when one party to a contract fails to receive the promised benefit in exchange for what they offered. This essentially means the other party walks away without holding up their end of the bargain. [14] In this current case, I find total failure of consideration for two reasons.

Failure to register the Defendant as a partner/shareholder of the company that operates the operating outlets [15] The fact that the Defendant was not registered as a partner/shareholder of the company that was operating the entire foot massage business (namely Sans Mandarin Spa and Wellness Enterprise) is never disputed. Therefore, there is a failure on the Plaintiff to perform her part of her bargain under the said agreement. [16] I find the Defendant’s complaint of a total failure of consideration to be valid. He would not have expanded the sums of money had it not been for the promise that he will be made a business partner. It defies business logic to only have the Defendant finance the business venture without any consideration being passed. In this S/N pbUZiYwxMkavR01aqDe9A case, it was the expectation of the Defendant that he will be formally made a partner/shareholder in the company. [17] The failure to register the Defendant as a partner/shareholder is a breach of a fundamental term of the Oral Agreement. [18] The transfer of the consideration is a 'fundamental term', a breach of which constitutes a fundamental breach i.e the failure by one party to perform a primary obligation which has the effect of depriving the other party of substantially the whole benefit which it was the intention of the parties (see Photo Production Ltd v. Securicor Transport Ltd [1980] 2 WLR 283 (HL) per Lord Diplock at p 294. [19] The failure to make the defendant a partner/shareholder of the company which operated the business was clearly a breach of a fundamental term of the agreement.

(ii) Failure to apply the various operating licenses [20] Before this court, there were arguments as to who was responsible for obtaining various operating licenses. The licences included approvals from the local authority and other licencing bodies. [21] I find that duty was on the Plaintiff to make the necessary applications. This is because of the experience and expertise was with the Plaintiff. S/N pbUZiYwxMkavR01aqDe9A [22] To my mind, the Defendant was purely a funder. Furthermore, the tenancy for the premises where the outlets were to be were all taken up by the Plaintiff’s company. This can be seen especially in the Ipoh Branch. The failure to make such applications therefore, also amounts to a total failure of consideration. Without the approvals being obtained, the venture that was agreed upon can never take off. Conduct of the Plaintiff [23] I also find as a fact that the Defendant was enticed to into entering into the Oral Agreement after he was convinced with the Plaintiff’s promise to make him a partner/shareholder. This was clear as it came out in evidence that the Puchong Branch was indeed under Happy Feet Enterprise when both parties were negotiating the Oral Agreement. However, after the Oral Agreement was reached, without the consent of the Defendant, the Plaintiff then caused to have Puchong Branch transferred to the Plaintiff’s sole proprietorship, namely Sands Mandarin Spa & Wellness Enterprise. This relevant fact was stated by the Defendant in his witness statement. This evidence was not challenged. [24] The Plaintiff’s act of just making the Defendant a director in a company Zen Mandarin Sdn. Bhd. and Happy Feet Enterprise instead of San Mandarin was evidence that the Plaintiff did not fulfill the terms of the Oral Agreement. It also displays bad faith on the part of the Plaintiff. S/N pbUZiYwxMkavR01aqDe9A [25] It is my finding that the Plaintiff who has been operating the said business, consciously and deliberately did not do what was required of her. However, despite her failure to do so, the Plaintiff continued to demand for the Defendant’s contribution based on the said Oral Agreement. [26] I find that the excuse given by the Plaintiff that she did not register the Defendant in the operating company because “it had not reached the right stage due to funding issues” was never a pleaded case of the Plaintiff. The law is trite that parties are bound by their pleadings (Janagi v. Ong Boon Kiat [1971] 2 MLJ 196). It cannot amount to a valid defence or even an explanation. I therefore I reject it. Finding [27] In the foregoing, it does not lie with the Plaintiff to claim that the Defendant needs to pay the 50% contribution when she herself has not come out clean to demonstrate her part in performing her bargain. I am therefore, firm in my finding that the Plaintiff has failed in her claim premised on a total failure of consideration and I accordingly dismiss the Plaintiff’s claim. Counter claim [28] The Defendant has successfully proven his entitlement to be restituted for the sums he expanded during the subsistence of the Oral Agreement. S/N pbUZiYwxMkavR01aqDe9A [29] As earlier discussed, the failure of the Plaintiff to register the Defendant as a partner/shareholder is a breach of a fundamental term of the Oral Agreement. The breach goes to the root of what parties agreed upon under the said Oral Agreement. Effect of a breach of a fundamental term of an agreement [30] Breach of a fundamental term or repudiatory breach is a breach of contract that goes to the very core of the contract and gives the innocent party the right to treat the contract as being disregarded and entitling the innocent party to refuse to be bound by its terms. [31] Not all breaches are equal. For a breach to be considered fundamental, it must go to the "root of the contract." This means the breach is so serious that it defeats the core purpose of the agreement and makes it impossible for the non-breaching party to receive what they were promised. [32] In other words, the terms are so essential to its very nature that their non-performance may fairly be considered by the non-defaulting party as a substantial failure to perform the contract at all. [33] The non-defaulting party has the alternative of treating the contract as being completely broken by the non-performance and he can refuse to perform any of the obligations resting upon himself and sue the other party for a total failure to perform the contract. (see Court of Appeal in See Ching Yik Development Sdn. Bhd. v. Setapak Heights Development Sdn. Bhd [1996] 3 MLJ 675). S/N pbUZiYwxMkavR01aqDe9A [34] That fundamental breach entitled the non-defaulting party to rescind the contract and to have the parties restored to a position where they will stand as if the contract had never been made i.e the return of the property by way of restitutio in integrum (see Berjaya Times Square Sdn Bhd (formerly known as Berjaya Ditan Sdn Bhd) v. M Concept Sdn Bhd [2010] 1 MLJ 597 at p 281B per Gopal Sri Ram FCJ) [35] I find clear evidence of the expenses incurred by the Defendant during the course of the business relationship. This is clearly shown by the receipts and the banking transaction slips all of which had been proven by the Defendant. [36] As a result of the total failure of consideration and the fundamental breach that has occasioned, the Defendant is entitled to a rescission of the Oral Agreement and an order that a restitution for the sum of RM 1,026,693.56 being the sums expanded by the Defendant during the tenure of the agreement. [37] I therefore allow the Defendant’s counterclaim. However, this is not an appropriate case to award Exemplary or General Damages. Sgd. (AHMAD FAIRUZ BIN ZAINOL ABIDIN) Judge High Court of Malaya Kuala Lumpur Dated: 25th September 2024 S/N pbUZiYwxMkavR01aqDe9A Counsel Mohd Shahril bin Madisa for the Plaintiff Messrs. Shahrul Hamidi & Haziq Jeff Ng Qin Lian, together with Ian Hannibal Liang, Damien Chan, Lee Yu Jun (PDK) and Hoo Sit Huey (PDK) for the Defendant Messrs. Damien Chan, Hannibal & Ng Chambers S/N pbUZiYwxMkavR01aqDe9A