Pelle International Limited v Xfyre (M) Sdn Bhd (BA-22NCC-34-03/2021)

As noted by the World Bank, the dreaded COVID-19 pandemic not only infected millions around the world but also brought economic activity to almost a near-standstill. However, one area of trade and commerce that thrived was the one related to the production and distribution of gloves, masks and personal protective equipment. The effects of the rise in business activities relating to these products continue to reverberate to the present day. One such ensuing consequence comes in the form of suits filed by the contracting parties for reliefs resulting from alleged breaches of contracts entered into between the parties. The present suit 2 is one of the many of such cases that has found its way into this Court’s docket.

The Plaintiff, Pelle International Ltd, is a private limited company incorporated in Hong Kong.

The Defendant, XFYRE (M) Sdn Bhd, is a Malaysian company.

The Plaintiff had entered into a contract with one Formogen Co Ltd for the purchase of 150,100 boxes of gloves. It is not disputed that the Plaintiff made the full purchase price to Formogen Co Ltd.

Formogen Co Ltd then entered into a separate contract with the Defendant for the supply of the gloves. Formogen Co Ltd then made the full payment for the gloves to the Defendant and these monies were held in an escrow account.

As the Defendant had failed to deliver 104,307 boxes of the gloves (out of the 150,100 boxes as promised and contracted), the Plaintiff commenced this action to recover from the Defendant:

a refund of the sum of USD677,995.50 for the 104,307 boxes of gloves that have not been delivered;

a return of the sum of USD250,000.00 being the air freight costs; and

a claim for the sum of USD12,315.50 which the Plaintiff had paid to their own forwarder. The Principal Issues [7] The first of two primary issues for determination is whether there has been a novation of the contract from Formogen Co Ltd to the Plaintiff. [8] If the answer to the above question is in the negative, the Plaintiff’s claim fails. [9] However, if the answer is in the affirmative, the second major issue then is whether there was a breach of the terms of the contract by the Defendant. The Parties’ Contention [10] It is the Plaintiff’s submission that there was a novation of the contract. [11] The Plaintiff submitted that the contract between Formogen Co Ltd and the Defendant dated 9th September 2020 had been handed-over to the Plaintiff and this was within the knowledge of the Defendant. [12] The Plaintiff further averred that by a letter dated 11 October, 2020, the Plaintiff had informed the Defendant that Formogen Co Ltd will no longer be involved in the said transaction whereby the Defendant did not deny nor oppose at any time to the said letter. Reference was made to another letter dated 3 November, 2020 from Formogen Co Ltd to the Defendant. According to the Plaintiff, the content in this letter about the “handover” of the contract from Formogen Co Ltd to the Plaintiff “is in tandem with the letter of the Plaintiff dated 11 October, 2020. [13] More importantly, the Plaintiff alluded to the fact that after receiving the instructions in the letter dated 11 October, 2020 from the Plaintiff, the Defendant via a letter dated 15 October, 2020 did not rebut the contents of the letter dated 11 October, 2020 and had instead promised to arrange the delivery. In a delivery order dated 20 November, 2020, the Plaintiff claimed that the Defendant had named the Plaintiff as the “Buyer”. [14] After the delivery of 45,640 boxes of gloves, the Plaintiff alluded to evidence of the Defendant having issued a letter dated 26 November, 2020 acknowledging the “handover” of the contract and testimony by the Defendant that there was contract handover. [15] The Plaintiff thereafter referred to section 63 of the Contracts Act 1950 and cited H&R Johnson Tiles Ltd v H&R Johnson (M) Bhd [1998] 4 MLJ 13 (“H&R Johnson Tiles Ltd”) in support of its contention that there was a valid novation of the contract from Formogen Co Ltd to the Plaintiff. [16] Crucially, the Plaintiff submitted that the requirements for a novation have been fulfilled in this case. [17] This novation point was challenged by the Defendant. [18] The account by the Defendant was that Formogen Co Ltd had introduced the Plaintiff as Formogen Co Ltd’s authorized associate and that at all material times, there was no mention of any existence of contract between the Plaintiff and Formogen Co Ltd nor was that established. [19] The Defendant’s version was that through a letter dated 3 November, 2020, Formogen Co Ltd had informed the Defendant of its intention to novate the contract to the Plaintiff and the Plaintiff would be required to negotiate with the Defendant “for the release of the price of the products”. The Defendant then claimed that through its letter dated 26 November, 2020, it had informed to the Plaintiff that they had received the letter sent by Formogen Co Ltd and started negotiation with the Plaintiff for the release of the price. However, the Defendant highlighted that the Plaintiff did not respond to the letter dated 26 November, 2020. [20] This non-reply, according to the Defendant, meant that there was no novation of contract between the parties. [21] The Defendant also relied on section 63 of the Contracts Act 1950 for the proposition that a novation of contract can only take place when it has been agreed by all parties. The Defendant reasoned that since the Plaintiff and the Defendant had failed to agree on the terms of the new contract, “the novation of contract had failed”. [22] Reliance was placed on the decision in Daya Cmt Sdn Bhd v Yuk Tung Construction Sdn Bhd [2018] MLJU 871 (“Daya Cmt Sdn Bhd”) where the learned Judge has quoted from Chitty on Contract, Vol 1, (1983 Ed), at paras 1315- 1316, that is: “Novation is a new contract. It extinguishes rights and obligations under the old contract for which the new contract is made. Being a new contract, there must be consent by all parties and there must be consideration, and rights and obligations under it are not those transferred from the old contract which is already extinguished.” [23] On the consequential issue of whether there had been a breach of the terms of the contract if this Court were to find that there was a novation of the contract, the Plaintiff asserted that the Defendant had not only failed to deliver 104,307 out of the 150,100 boxes of the gloves that had been agreed upon under the contract, but had also unilaterally changed the contract price and logistics payment which the Plaintiff had never agreed to. That too, as pointed out by the Plaintiff, was after the full purchase price had been paid to the Defendant. It is thus the Plaintiff’s contention that the above constituted as a breach of the terms of the contract. [24] Since there was failure to deliver the outstanding boxes of the gloves despite repeated requests from both Formogen Co Ltd and the Plaintiff through two Delivery Orders and three letters dated 4 September, 2020, 17 September, 2020, 20 September, 2020, 11 October 2020 and 26 January, 2021, only 45,793 out of the 150,100 boxes of gloves as contracted were shipped out. [25] The Plaintiff referred to evidence of admission by the Defendant of having received USD250,000.00 from the Plaintiff being the air freight costs and submitted that since the Defendant had failed to arrange any air freight and failed to fully deliver the gloves after receiving the sum of USD250,000.00, the amount received should be refunded to the Plaintiff. [26] As for the remaining claim for the sum of USD12,315.50, the Plaintiff explained that this amount was a result of it having arranged their own forwarder, namely, Chu Kong Logistics (M) Sdn Bhd to pick up the gloves when it was the Defendant who was responsible for payment of the freight charges. [27] The Plaintiff also relied on section 71 of the Contracts Act 1950 and the following cases, namely, Dream Property Sdn Bhd v Atlas Housing Sdn Bhd [2015] 2 AMR 601; [2015] 2 CLJ 453; [2015] 2 MLJ 441; [2015] 2 MLRA 247 (“Dream Property”), Sediperak Sdn Bhd v Baboo Chowdhury [1999] 5 CLJ 31; [1999] 5 MLJ 229; [1998] 3 MLRH 886 (“Sediperak”), Siow Wong Fatt v Susur Rotan Mining Ltd & Anor [1967] CLJU 161; [1967] 2 MLJ 118; [1967] 1 MLRA 53; (“Siow Wong Fatt”) and Intergos spolka z organiczona odpowiedzialnosca v Xfyre (M) Sdn Bhd & Anor [2022] AMEJ 1150; [2022] 9 CLJ 418; [2022] MLJU 1909 to substantiate its claim on the principle of unjust enrichment. [28] The crux of the Defendant’s case in response to the breach of the terms of the contract issue is simply that the contract for the delivery of the 150,100 boxes of Xfyre Theracom Powder-free Nitrile Examination Gloves was a contract between the Defendant and Formogen Co Ltd. The Defendant underscored the fact that until the date of the filling of this suit, Formogen Co Ltd had not requested nor demanded for any return of monies from the Defendant. [29] Interestingly, the Defendant also argued that there was no evidence of the monies being paid by the Plaintiff to Formogen Co Ltd. [30] Following the above, the Defendant submitted that since the Plaintiff had failed to prove that they had made payments to Formogen Co Ltd and/or the Defendant for the purpose of the contract between the Plaintiff and Formogen Co Ltd, the Defendant’s position is that the Plaintiff is not entitled to claim for the amount of USD677,005.50, being the sum for the boxes of gloves that have not been delivered. [31] Correspondingly, the Defendant insisted that the payment of USD250,000.00 was also in relation to the contract between Formogen Co Ltd and Defendant. Since the Plaintiff had failed to prove that the purpose of payment of USD250,000.00 was for the purpose of the contract between Formogen Co Ltd and the Plaintiff, the latter, according to the Defendant, is not entitled to claim for the return of this sum of USD250,000.00. [32] Finally, on the freight charges of USD12,315.50 incurred by the Plaintiff, it is the Defendant’s contention that this claim should also fail on the ground that the Plaintiff had failed to prove that payment was made by the Plaintiff to Chu Kong Logistics (M) Sdn Bhd. As pointed out by the Defendant, what was relied by the Plaintiff to show that payment was made to Chu Kong Logistics (M) Sdn Bhd was merely an invoice billed to the Defendant. The Applicable Law and Principles [33] As the issue of novation features prominently in this matter, it is apt the relevant provision in the Contracts Act 1950 relied on by the parties are set out. [34] Section 63 of the Contracts Act 1950 provides as follows: Effect of novation, rescission and alteration of contract

If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. [35] In H&R Johnson Tiles Ltd, it was explained that in order for there to be a valid novation, the following requirements must be present, namely:

There must be an intention to novate;

Novation may be expressed or may be implied from conduct;

There must be consideration; and

There must be consent of all the parties concerned.” [36] As the Plaintiff has invoked section 71 of the Contracts Act 1950 in support of its claims for the sums which it says that the Defendant are liable for, it is appropriate that this provision is set out and examined. Section 71 of the Contracts Act 1950 reads as follows: Obligation of person enjoying benefit of non-gratuitous act

Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered. [37] As explained by cases such as Dream Property, Sediperak and Siow Wong Fatt, the provision in section 71 of the Contracts Act is triggered if the following four conditions, namely:

must be lawful,

must be done for another person,

must not be intended to be done gratuitously,

must be such that the other person enjoys the benefit of the act or the delivery are fulfilled. The Decision of this Court [38] The trial of this matter was conducted on 7 and 8 August, 2023. A total of two witnesses testified in this trial, one for the Plaintiff and one for the Defendant. For the Plaintiff it was Li Feng Juan (PW-1) and for the Defendant it was Khamil bin Ismail (DW-1). [39] The Defendant had raised a preliminary objection that the Plaintiff through the evidence of PW-1 had in her witness statement, made hearsay statements in questions and answers 6,7, 8, 21 and 22. [40] The objection was raised on the premise that documentary hearsay evidence was made by PW-1 (in providing her own opinion on the documents) when the makers of the documents, that is, Formogen Co Ltd and/or Chu Kong Logistics (Malaysia) Sdn Bhd were not called by the Plaintiff. [41] This Court is of the considered view that the answers to the questions emphasized by the Defendant are not hearsay evidence. As the Plaintiff had merely stated what is contained in the documents the evidence is to establish the facts in issue instead of the truth of what is contained in the statement. This Court is also in agreement with the observations by the High Court in Maruthiah Chillayah v Hydro Aluminium Malaysia Sdn Bhd [2011] 1 LNS 841; [2011] 8 MLRH 309 that evidence pertaining to the contents of a document that has properly been admitted is not hearsay. As explained by the learned Judge: [13] In this case, Exhibit P2 was undisputed documentary evidence from the records of D itself. What P heard from the two directors may be hearsay but the contents of P2, which was properly admitted, was not hearsay. The inherent dangers of hearsay evidence, such as inaccuracy, fabrication and concoction did not apply to P2. P could as such, place reliance on P2 to sustain his claim founded on the decision of the B/D. It was indisputable that the BID made the decision claimed but D asserted the decision was not binding until further resolutions and directions. However, the available evidence did not support this assertion. [42] What is obvious is that the present matter would have been one that is straightforward if Formogen Co Ltd had commenced an action against the Defendant. However, since it is the Plaintiff that is the party that has filed this action against the Defendant, the novation point becomes contentious. [43] Based on the evidence before the Court and the case of H&R Johnson Tiles Ltd, this Court is satisfied that pre-requisites for a valid novation have been satisfied. The intention to novate is evident from the conduct and contemporaneous evidence before this Court. So too are the elements of consideration and consent. [44] This Court acknowledges that the effect of a valid novation is a “new contract”. This authority for this proposition is section 63 of the Contracts Act 1950 itself and the reminder by Lee Swee Seng J (as his Lordship then was) in Daya Cmt Sdn Bhd. [45] The question then is what are the terms in the new contract. The Defendant claimed that the Plaintiff and the Defendant had failed to agree on the terms of the new contract, rendering the novation of contract as having “failed”. This Court is unable to agree with this submission. This Court is of the view that the terms of the new contract is similar to those in the “old contract”. [46] As this Court has concluded that there was a valid novation of the contract, the following issue for consideration is whether there has been a breach of the terms of the contract. As noted in paragraphs [23] and [24] above, the Plaintiff’s assertation was that the breaches in the form of the unilateral change of the contract price and logistics payment by the Defendant coupled with the failure to deliver the outstanding boxes of the gloves were clear breaches of the terms of the contract. [47] The Defendant did not deny to the above except to raise the arguments that there was no contract between the Plaintiff and the Defendant and the right party to commence proceedings against it is Formogen Co Ltd. [48] As this Court has concluded that there was a valid novation based on the same terms, the arguments raised by the Defendant in the preceding paragraph are not defences that rebut the allegation of breaches of the terms of the contract. [49] Order in terms is granted to the Plaintiff as per the Plaintiff’s Statement of Claim. [50] As the monies are in the escrow account of Messrs Fahmi Zhafri Ashraf & Co which holds the money as stakeholder, the prayer for an order that Messrs Fahmi Zhafri Ashraf & Co to release the sum of USD677,995.50 and USD250,000.00 to the Plaintiff being the consequential order is allowed. [51] The First Defendant to pay Plaintiff costs of RM30,000, subject to allocator. Dated: 2 February, 2024 sgd [CHOONG YEOW CHOY] Judicial Commissioner High Court of Malaya Shah Alam Counsel: Lim Soo Zee for the Plaintiff (Messrs. Tee Wei Fong & Co.) Isa Aziz Ibrahim with Wong Yun Loong for the Defendant (Messrs. M. Raman & Associates)