Schedule
Schedule 9 clearly provided that unutilised airtime would be “deemed to be perished”, suggestive of the construction that National Airtime Costs were payable regardless of actual utilisation. At the same time, the express words of clause 4.2(c) provided that the “maximum sum” payable for the National Airtime Costs was RM3 million per annum, which suggest that those costs could be lower 20 and would therefore be based on actual utilisation. The Applicable Principles relating to Contractual Construction [28] The principles of contractual construction was summarised in the decision of the Federal Court in SPM Membrane Switch v Kerajaan Negeri Selangor1: [27] In recent times, the restatement of principles in the landmark case of Investors 25 Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, at pp 912–913 (‘ICS’) provides a helpful starting point for the consideration of the relevant 1 [2016] 1 CLJ 177, [2016] 1 MLJ 464, [2016] 1 MLRA 1 KPerak Implementation and Coordination Corporation v Simfoni Maya 13 principles. The judgment of Lord Hoffmann is as reproduced below, where His Lordship stated that: … I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381, 1384–1386 and Reardon Smith Line Ltd v 5 Yngvar Hansen-Tangen [1976] 1 WLR 989, is always sufficiently appreciated. The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of ‘legal’ interpretation has been 10 discarded. The principles may be summarised as follows: (1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. 15 (2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have 20 affected the way in which the language of the document would have been understood by a reasonable man. (3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this 25 distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them. (4) The meaning which a document (or any other utterance) would convey 30 to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous 35 but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1995] 1 WLR 1 508. (5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ 40 reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the KPerak Implementation and Coordination Corporation v Simfoni Maya 14 background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, 201: 5 If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to conclusion that flouts business common sense, it must be made to yield to business common sense. [28] However, there are reservations to a wholesale adoption and approval of the ICS 10 principles. The applicability of the second ICS principle, specifically vis-a-vis the question of the admissibility of extrinsic evidence including pre-contractual negotiations, is doubted. This has been alluded to in the recent judgment of this court in Menta Construction Sdn Bhd v Lestari Puchong [2015] 6 MLJ 633 for reasons that I will not repeat here. Save for this reservation, the remaining ICS principles are good 15 law. [29] It is thus clear from the passage quoted above, that extrinsic evidence prior to and at the time of the contract is admissible for the purposes of construing the terms of a contract, subject to certain exceptions. The position under the Evidence Act 1950 is the same as under the common law: see section 20 92(f) of the Evidence Act 1950, and the speech of Sundaresh Menon CJ in Sembcorp Marine Ltd v PPL Holdings2 at paragraphs 45 to 48. [30] The object of the exercise of construction is to ascertain the meaning of the contract to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which 25 they were at the time of the contract. The test is thus an objective one: it does not matter what a party had in fact thought that a particular clause meant. The question is what would a reasonable person in the position of that party would have understood by the provision in question. 2 [2013] SGCA 43 KPerak Implementation and Coordination Corporation v Simfoni Maya 15 [31] The background of the transaction serves to put the transaction into context, and this context then used to ascertain what a reasonable person would have understood the words used to mean. [32] Where there is more than one possible meaning of the words, the court is to prefer the construction that does not offend good business sense. The case 5 of Prenn v Simmonds3 first articulated this concept of good business sense or good commercial sense, and is particularly instructive in the context of the facts of the present dispute. [33] In this case, Mr Prenn wished to acquire the services of Dr Simmonds, who was the managing director and the leading technician in a company known as 10 Airmec Ltd. Airmec Ltd was a leading manufacturer of radio broadcasting equipment at the time. Airmec Ltd was a wholly-owned subsidiary of another company, then known as Radio & Television Trust Limited. To effect the acquisition, Mr Prenn acquired 94% of the ordinary shares in Radio & Television Trust Limited from a public company called Crompton Parkinson Ltd. The 15 agreement to purchase the shares was entered into in July-August 1959. In July 1960, Mr Prenn entered into an agreement with Dr Simmonds granting the latter the right to purchase 4% of the ordinary shares in Radio & Television Trust Ltd subject to the fulfilment of certain conditions. One of the conditions was that: The aggregate profits of RTT during the four years ending 19 August 1963… shall have 20 amounted to £300,000 after payment or provision for income tax and profits tax… [34] In modern parlance, this would be described as a call option, intended to secure the services of a key personnel (Dr Simmonds) for a specified period after 3 [1971] 1 WLR 1381 (HL) KPerak Implementation and Coordination Corporation v Simfoni Maya 16 the acquisition. The option was to operate as an incentive to Dr Simmonds to remain with Airmec Ltd. [35] As events turned out, the profits of Radio & Television Trust Ltd was less than £300,000. However, the consolidated profits of Radio & Television Trust Ltd together with Airmec Ltd was more than £300,000. The question was thus 5 whether the precondition to the call option had been triggered, entitling Dr Simmonds to purchase the shares at a discount to the prevailing fair value. The question turned on what the parties meant by “RTT”: did this term refer only to Radio & Television Trust Ltd, or did it refer to the two companies together, taken as a consolidated economic entity? 10 [36] The House of Lords held that the latter construction was to be preferred, because it better accorded with “good commercial sense”: To sum up, Mr Prenn’s construction does not fit in any way the aim of the agreement, or correspond with good commercial sense, nor is it, even linguistically, acceptable. The converse of each of these propositions applies to Dr Simmonds’s interpretation. 15 I would accept it. [37] It made good commercial sense for the term “RTT” to mean the two companies taken together, because Dr Simmonds had an influence over performance of Airmec Ltd, the subsidiary. Accordingly, the call option agreement would have operated as an incentive for Dr Simmonds to ensure that 20 the profits of Airmec Ltd attained a particular level in order for the option entitlement to be triggered. It would have made less sense for the option trigger to be linked to a company over which Dr Simmonds had little or no influence. KPerak Implementation and Coordination Corporation v Simfoni Maya 17 [38] In Rainy Sky v Kookmin Bank4, the principles in Prenn v Simmonds were applied to a shipbuilding dispute. The UK Supreme Court held that where the parties had used unambiguous language, the court must apply it. Where, however, there are alternative constructions, the court may prefer the one that is consistent with “business common sense”. 5 [39] In the passage from the case of Investors Compensation Scheme Ltd v West Bromwich Building Society5 quoted by Zainun FCJ in SPM Membrane Switch v Kerajaan Negeri Selangor, Lord Hoffman referred to the dicta of Lord Diplock in Antaios Compania Naviera SA v Salen Rederierna AB6, where it was suggested that the words in a commercial contract may be made yield to business common 10 sense. A more recent UK Supreme Court decision suggests that the courts may not be quite so prepared to apply a commonsensical construction that accords with commercial expedience where to do so would go against the plain and unambiguous meaning of the words used. [40] In Arnold v Britton7, the claimants were tenants of chalets on a leisure 15 park. The chalets were leased for 99 years at £10 per annum, which would increase by £5 for each successive period of 25 years. The tenants had to pay an annual service charge of £90, which was expressed in some cases to increase on a compounded basis by 10% in each successive year. The tenants argued that this would lead to astronomical charges in the later years of the lease, and could 20 not have been the intention of the parties. Rather, the tenants argued that they were only obliged to pay a proportionate share of actual costs of upkeep, with the £90 operating as a cap on the service fees. 4 [2011] UKSC 50 5 [1998] 1 WLR 896 6 [1985] AC 191 7 [2015] UKSC 36 KPerak Implementation and Coordination Corporation v Simfoni Maya 18 [41] The Supreme Court gave effect to the plain words in the contract (despite the fact that £10 compounded annually would amount to more than £1 million at the end of a 99-year lease). [42] These cases establish the following principles. Commercial common sense and surrounding circumstances should not be invoked to undervalue the 5 importance of the language of the provision to be construed. The less clear the relevant words were, the more ready the court would be to depart from their natural meaning. In addition, commercial common sense was not to be invoked retrospectively. The fact that a contractual arrangement had worked out badly, or even disastrously, for one of the parties was not a reason for departing from 10 the natural language. Our Findings [43] In our view, the obligation of KPerak to pay for the National Airtime Costs would only arise if the National Airtime had been actually utilised, or at the very least, agreed to be utilised by KPerak. The reasons why we have come to this 15 decision are as follows: (a) Effect must be given to the plain words used in clause 4.2(c) of the Indoor Digital Media Solution Agreement. The use of the word “maximum” specifically anticipated that the National Airtime Costs could be lower than RM3 million per annum. The court below in 20 holding that KPerak was liable to pay RM3 million per annum regardless of actual utilisation was effectively reading the word “maximum” to mean that RM3 million was the minimum amount payable. It is difficult for us to accept that the word could be construed as having the opposite meaning to its natural and ordinary meaning; 25 KPerak Implementation and Coordination Corporation v Simfoni Maya 19 (b) In addition, parties have agreed in clause 1.2(d) that, in the event of a conflict, the provisions of the main clauses in the Indoor Digital Media Solution Agreement would prevail over the provisions of the schedules to the agreement. Thus, the provisions of the schedules must yield to the main operative clauses in the agreement, or else the word 5 “maximum” would be contorted in a manner offensive to its natural meaning; and (c) We are of the view that this construction would not be opposed to business common sense or good business sense. The commercial effect of the Indoor Digital Media Solution Agreement must be 10 examined holistically. Even though Simfoni Maya would at its own cost and expense install the equipment in the premises identified by KPerak, it was to be entitled to sell 65% of the total airtime of the Media Network (referred to by the parties as PerakTV) to its advertising clients, and would be entitled to keep 80% of the revenue 15 so generated. Thus, it was not as though commercial sense dictated that a minimum RM3 million per annum was necessary in order to make the enterprise viable for Simfoni Maya. It had an alternative source of revenue. [44] It was advanced for Simfoni Maya that the fact that KPerak had paid 20 RM500,000 in satisfaction of an invoice issued for the National Airtime shows that the parties had intended for the obligation to pay the RM3 million annually to subsist regardless of whether there had been utilisation of airtime. [45] In our view, this contention is impermissible, because evidence of post-contract events cannot be used for the purposes of construing the terms of the 25 contract in question. KPerak Implementation and Coordination Corporation v Simfoni Maya 20 [46] While the extrinsic evidence of the circumstances existing before and up to the formation of a contract may validly be taken into account for the purposes of construing the intention of the parties, conduct subsequent to the contract may not be. This was explained by Court of Appeal in Semenda Sdn Bhd & Anor v CD Anugerah Sdn Bhd & Anor8 in the following terms: 5 On the issue of construction and conduct of parties subsequent to the execution of contract see, James Miller and Partners Ltd v. Whitworth Street Estates (Manchester) Ltd [1970] 1 All ER 796 where the House of Lords said: In construing a contract (eg for purposes of ascertaining any intention of the parties thereto as to the proper law) it was not proper to have regard to the 10 conduct of the parties after the contract had been made. [35] Lord Reid in his judgment said at p. 798: I must say that I had thought that it now well settled that it is not legitimate to use as an aid in the construction of the contract anything which the parties said or did after it was made. Otherwise one might have the result that a contract 15 meant one thing the day it was signed, but by reason of subsequent events meant something different a month or a year later. [36] With respect we agree with the sentiments expressed above and accept it as the correct principle of law. Hence the letters made after the 6 February Letter cannot be taken into account to ascertain the intention of the parties. Furthermore s. 73A(3) 20 of the Malaysian Evidence Act 1950 (Act 56) says, "Nothing in this section shall render admissible as evidence any statement made by a person interested at a time when proceedings were pending or anticipated, involving a dispute as to any fact which the statement might tend to establish." [47] There are however two important qualifications to this rule: 25 (a) first, post-contract extrinsic evidence may be adduced not for the purposes of construing the terms of the contract but to show that a contract had existed: (per Edgar Joseph Jr SCJ in Ayer Hitam Tin Dredging Malaysia Bhd v YC Enterprises9); and 8 [2010] 6 AMR 414, [2010] 8 CLJ 49, [2010] 4 MLJ 157, [2010] 2 MLRA 328 9 [1994] 2 AMR 1631, [1994] 3 CLJ 133, [1994] 2 MLJ 754, [1994] 1 MLRA 201 KPerak Implementation and Coordination Corporation v Simfoni Maya 21 (b) secondly, post-contract extrinsic evidence may be adduced for the purposes of establishing estoppel, waiver or acquiescence: Amalgamated Property v Texas Bank10. [48] None of the two exceptions applied in the present case. Thus, the fact that RM500,000 had been paid by KPerak cannot be used for the purposes of 5 construing the terms of the contract. It can, however, be used to establish that a contract did exist between the parties, but here the existence of the contract was not a disputed fact. [49] For the reasons explained, we unanimously allowed the appeal by KPerak and set aside the order of the High Court. We awarded costs here and below to 10 the appellant in the amount of RM60,000, such costs to be subject to an allocatur. 14 March 2025 15 Azizul Azmi Adnan Judge of the Court of Appeal 20 For the appellant: En Wafiy Azman, Ms Marina Tiwol & Woo J Enn— Messrs Azmi & Associates 10 [1982] 1 QB 84 KPerak Implementation and Coordination Corporation v Simfoni Maya 22 For the respondent: Mr Joseph Yeo, Ms Arifah Abdul Aziz, Ms Sharon Juliat & Ms Pavitra Apparao—Messrs Tengku Azlina, Rao, Low & Associates