Pusat Khidmat Pembangunan Usahawan Yapeim Sdn Bhd v Peh Lian Hwa (K-02(NCvC)(W)-206-02/2023)

ENG CHONG HIM RESPONDENTS [In the High Court of Malaya at Alor Setar (Commercial Division)

Peh Lian Hwa

Khor Siang Teik

Chew Poh Eng

Eng Chong Him Defendants] CORAM HANIPAH BINTI FARIKULLAH, JCA MARIANA BINTI HAJI YAHYA, JCA MOHAMED ZAINI MAZLAN, JCA 25/02/2025 12:03:44 K-02(NCvC)(W)-206-02/2023 Kand. 42 S/N wsKvDQt4oUyFOLEidtaooQ JUDGMENT Introduction [1] The appellant's claim against the respondents stems from the forfeiture of a deposit of RM1,000,000 made under a share sale agreement. The respondents forfeited this deposit because the appellant failed to pay the remaining purchase price by the specified deadline. The appellant contended that the agreement had been frustrated and that the conditions precedent outlined in the agreement could not be fulfilled. [2] The High Court dismissed the appellant's claim for a refund of the RM1,000,000 deposit with costs after a full trial, favouring the respondents, hence, this appeal. Facts The parties [3] The appellant is a subsidiary of Yayasan Pembangunan Ekonomi Islam Malaysia (‘YaPEIM’). The respondents held shares in seven companies (‘the companies’), which are as follows:- Company Shares held Aneka Retails (M) Sdn Bhd 2,500,000 Pasaraya Aneka (Baling) Sdn Bhd 500,000 Pasaraya Aneka (Gurun) Sdn Bhd 1,000,000 Pasaraya Aneka (Kangar) Sdn Bhd 500,000 S/N wsKvDQt4oUyFOLEidtaooQ Pasaraya Aneka (Tanah Merah) Sdn Bhd 3 Pasaraya Aneka (Kuala Ketil) Sdn Bhd 3 Pasaraya Aneka (Bagan Serai) Sdn Bhd 2 Total 4,500,008 [4] The companies operate a chain of convenience stores known as “Pasaraya Aneka” in various locations in the north and east of the country They have been in business for over eighteen years. YaPEIM was interested in taking over the companies and appointed the appellant as the project executor. The Share Sale Agreement [5] The negotiations between the appellant and the respondents resulted in the execution of a Share Sales Agreement dated 26 February 2018 (‘the Agreement’) between them. Under the Agreement, the respondents agreed to sell their shares in the companies to the appellant for a total consideration of RM10,000,000. As stipulated in the Agreement, the appellant paid an initial deposit of RM1,000,000, which was credited towards the total purchase price. YaPEIM had paid the deposit on the appellant’s behalf. This deposit was subsequently apportioned among the respondents as follows: Respondents Amount (RM) 1st respondent 650,000.00 2nd respondent 150,000.00 3rd respondent 100,000.00 S/N wsKvDQt4oUyFOLEidtaooQ 4 4th respondent 100,000.00 TOTAL 1,000,000.00 [6] The remaining balance of the purchase price, amounting to RM9,000,000, was to be paid by YaPEIM on behalf of the appellant within fourteen days of fulfilling the conditions precedent outlined in clause 2.1 of the Agreement. These conditions precedent were to be satisfied within six weeks from the date of the Agreement, or within an extended period mutually agreed upon by the parties. clause 2.1 is as follows: Conditions Precedent: This Agreement shall be conditional upon the following being obtained, procured and/or fulfilled within sic (6) weeks from the date of this Agreement or such extended time as the parties herein may mutually agree (“The

the Purchasers/Purchasers’ Solicitor give a written confirmation to the Vendor’s Solicitors confirming that the Purchaser have (sic) satisfied with the outcome of a due diligence audit on the legal, financial, technical and business aspects of the Company (hereinafter referred to as “Due Dilligence Audit”) by the Purchaser at its own costs and that the management, directors and/or shareholders of the Company successfully remedied and/or rectified specific issues/concerns uncovered from the Due Dilligence Audit; S/N wsKvDQt4oUyFOLEidtaooQ

the approval of the board of directors of the Company for the transfer of the Sale Shares;

the approval of the board members of the Purchaser for the purchase of the Sale Shares; and

such other consents or approvals as may be required (or deemed necessary by the parties hereto) from any third party or governments, regulatory body or competent authority having jurisdiction over the acquisition of the Sale Shares or the transactions contemplated under this Agreement. [7] On 20 April 2018, the appellant's solicitors sent a letter to the respondents’ solicitors stating that:

the appellant is satisfied with the outcome of the due diligence audit; and

the balance purchase price of RM9,000,000 will only be paid to the respondent's solicitors as stakeholders if they undertake that the funds will only be released to the respondents after the appellant’s company secretary confirms that the shares have been registered in the appellant’s name. [8] The respondent's solicitors provided the required undertaking in their letter to the appellant's solicitors dated 24 April 2018. S/N wsKvDQt4oUyFOLEidtaooQ [9] However, the appellant requested two extensions of time from the respondent to pay the balance purchase price of RM9,000,000. The first request for an extension of fourteen days was made through the appellant’s solicitors’ letter dated 21 July 2018. The second request was through its solicitors’ letter dated 16 August 2018, where the appellant requested an extension until 31 October 2018. [10] Through their solicitors’ letter dated 23 September 2018, the respondents stated that they were only agreeable to extend the time to 8 October 2018, failing which the deposit of RM1,000,000 will be forfeited. YaPEIM’s financing [11] The appellant contended that the Ministry of Finance (‘MOF’) had, in a letter to YaPEIM dated 8 May 2018, stated that RM10,000,000 will be allocated to the latter for the purchase of shares. This amount is intended to be part of a larger financing scheme that YaPEIM has requested from MOF. [12] YaPEIM requested RM10,000,000 from MOF in a letter dated 6 June 2018, to facilitate the payment of the remaining balance for the shares. However, YaPEIM was unable to meet some of the conditions set by MOF, which led to the termination of the requested financial scheme. As a result, the appellant was unable to fulfil its obligation to pay the remaining balance for the shares to the respondent. S/N wsKvDQt4oUyFOLEidtaooQ The deposit [13] The appellant then requested the return of the RM1,000,000 deposit through several letters sent to the respondents. The respondents, however, refused to comply with these demands. They contended that they were unaware of the appellant’s arrangements with MOF vis-à-vis YaPEIM. They emphasised that the appellant had previously sought an extension of time, thus acknowledging that the condition precedents outlined in clause 2.1 of the Agreement had been satisfied. The respondents also contended that the appellant had breached the Agreement in failing to pay the balance purchase price within the extended period, entitling them to forfeit the deposit as specified in the Agreement. This disagreement ultimately prompted the appellant to file a claim against the respondent in the High Court. The High Court’s findings [14] Four issues were canvassed before the High Court at trial:

Whether the conditions precedent under clause 2.1 had been fulfilled;

(ii) Whether the Agreement had been frustrated due to MOF’s cancellation of the funds sought by the appellant;

(iii) Whether the respondents were entitled to forfeit the deposit; and S/N wsKvDQt4oUyFOLEidtaooQ

(iv) Whether the respondents had been unjustly enriched in forfeiting the deposit. [15] The High Court ruled in favour of the respondents at the conclusion of the trial. Regarding the first issue, the High Court held that there was no dispute that the conditions outlined in clause 2.1(a), (b) and (c) had been satisfied. The contention centred on whether approval from MOF constituted a condition under clause 2.1(d). The court determined that MOF’s approval for the necessary funds to complete the appellant's purchase was not a condition under clause 2.1(d). The court noted that the appellant had never informed the respondents of any requirement for MOF’s approval to finalise the purchase. By examining the correspondences between the parties' solicitors, the court found that the appellant, through its solicitors, had acknowledged the fulfilment of the conditions precedent, particularly when the appellant sought an extension of time to pay the remaining balance for the shares. [16] On the second issue, the High Court concluded that the appellant could not invoke the doctrine of frustration, as MOF’s approval was not considered a condition precedent under clause 2.1(d) of the Agreement. This decision was based on the court's findings of fact from the first issue. Furthermore, the court determined that the primary reason MOF declined to grant funds to YaPEIM was due to the latter’s S/N wsKvDQt4oUyFOLEidtaooQ failure to meet MOF’s requirements, particularly by not providing the requested information. [17] On the third issue, the High Court held that the respondents were entitled to forfeit the deposit under clause 5.4 of the Agreement, as the appellant had failed to pay the balance purchase price within the stipulated timeframe. This failure constituted a breach of the Agreement, thereby justifying the respondents’ action to forfeit the deposit. [18] Regarding the fourth issue, the court ruled that the respondents had lawfully forfeited the deposit under clause 5.4 of the Agreement. The court found that the respondents had fulfilled all their obligations under the Agreement, whereas the appellant had not. The court further held that the respondents had incurred costs, expenses, and losses due to the appellant’s default, making the forfeiture of the deposit both reasonable and justified. The appeal [19] The appellant raised five grounds in the memorandum of appeal. However, counsel for the appellant candidly admitted that these grounds revolved around a single key issue: whether the High Court erred in concluding that the Agreement had not been frustrated and that clause 2.1(d) of the Agreement had been fulfilled. S/N wsKvDQt4oUyFOLEidtaooQ [20] The arguments advanced in this appeal mirror those presented before the High Court. The appellant submitted that the High Court had improperly conflated two distinct issues: the fulfilment of conditions precedent and the doctrine of frustration, asserting that these two issues are mutually exclusive and should be treated separately. [21] The appellant emphasised that it was undisputed that MOF had decided to cancel the funds applied for by YaPEIM, which the appellant intended to use to purchase the respondents’ shares. In support of its argument, the appellant referred to the case of Guan Aik Moh (KL) Sdn Bhd & Anor v Selangor Properties Bhd [2007] 4 MLJ 201 (CA), where the Court of Appeal identified three key elements of the doctrine of frustration as encapsulated in section 57 of the Contracts Act 1950 (‘CA 1950’). The elements are as follows:

The event upon which the promisor relies as having frustrated the contract must have been one for which no provision has been made in the contract;

(ii) The event must be one for which the promisor is not responsible; and

(iii) The event which is said to discharge the promise must be such that renders it radically different from that which was undertaken by the contract. The court must find it practically unjust to enforce the original promise. S/N wsKvDQt4oUyFOLEidtaooQ [22] The appellant argued that all three elements of the doctrine of frustration were satisfied. Firstly, the Agreement contained no terms or provisions indicating that the appellant relied on MOF’s funds to purchase the respondents’ shares. Secondly, the appellant was not responsible for MOF’s cancellation of the funds; instead, the cancellation resulted from YaPEIM’s failure to meet MOF’s requirements. Thirdly, the appellant reiterated that the obligation to pay for the shares rested with YaPEIM, and the appellant’s inability to pay was due to YaPEIM’s failure to secure funding from MOF. The appellant contended that enforcing the Agreement and requiring it to pay the balance purchase price without YaPEIM’s funding would be unjust. It further submitted that the Agreement had become void due to the impossibility of performance under section 57 CA 1950. As a result, the appellant argued that it was entitled to a refund of its deposit, as section 66 of CA 1950 mandates that when a contract becomes void, the other party is obligated to restore the appellant to its original position. [23] As for the conditions precedent, the appellant asserted that the High Court erred in concluding that clause 2.1(d) had been fulfilled when, in fact, it could not have been. The appellant argued that clause 2.1(d) required consent or approval from the government, in this case, MOF. Since MOF did not approve the funding, the clause, according to the appellant, could not be satisfied. Additionally, the appellant contended that its solicitors had never confirmed the fulfilment of the conditions precedent outlined in the Agreement. S/N wsKvDQt4oUyFOLEidtaooQ Findings [24] YaPEIM's inability to secure the requested funds from MOF should not be considered a frustrating event that would render the Agreement void, as it was not a stipulated condition. Although clause 1.2(b) states that YaPEIM shall pay the remaining purchase price on behalf of the appellant, the ultimate obligation to pay rests with the appellant, as outlined in clause 1.1. The provision in clause 1.2(b), that allows YaPEIM to pay on behalf of the appellant is merely a method of payment and should not be interpreted to mean that the obligation to pay lies on YaPEIM. Thus the responsibility to pay remains with the appellant. [25] Furthermore, YaPEIM is not a party to the Agreement, and securing funds from MOF was not a term of the Agreement. Additionally, the respondents were unaware of any arrangement between YaPEIM and MOF. It would be unjust to deprive the respondents of their rights under the Agreement due to an arrangement of which they had no knowledge or obligation. Therefore, the High Court correctly determined that YaPEIM's failure to obtain the funds from MOF could not be seen as an event that frustrates the Agreement. [26] In any event, YaPEIM’s inability to obtain the funds was self-inflicted, as it failed to provide the necessary information requested by MOF. It is significant to note that MOF had initially approved the requested funds but later revoked this approval due to YaPEIM’s failure to comply with the former’s S/N wsKvDQt4oUyFOLEidtaooQ conditions. This is evident from MOF’s letter to YaPEIM dated 12 October 2018. The pertinent part of the letter is as follows: “2. Kementerian Kewangan (MOF) telah meneliti Surat Balasan YaPEIM serta permohonan perlanjutan tempoh masa sehingga komposisi Lembaga Pemegang Amanah YaPEIM disahkan bagi mengemukakan kesemua maklumat tambahan berhubung isu-isu yang dibangkitkan dalam surat MOF bertarikh 31 Julai 2016 berkaitan cadangan perlaksanaan projek RCDC. Dimaklumkan bahawa MOF tidak dapat mempertimbangkan permohonan perlanjutan tempoh masa kepada YaPEIM kerana kesemua maklumat tambahan yang dipohon oleh MOF adalah maklumat asas yang sepatutnya ada di pihak YaPEIM pada peringkat awal dalam menganalisis projek RCDC bagi memastikan pelaksanaan projek ini memberikan kesan positif kepada kedudukan kewangan YaPEIM dan tidak akan menjejaskan core business YaPEIM. Selain itu, MOF juga telah memberi masa yang mencukupi kepada pihak YaPEIM bagi menyediakan maklumat tambahan tersebut. Selaras dengan keputusan ini, Surat Tawaran Penstrukturan Semula baki bayaran balik pembiayaan Ar-Rahnu berjumlah RM90 juta bertarikh 8 Mei 2018 adalah terbatal.” [27] In essence, MOF has declined to grant any further extensions of time to YaPEIM as requested. MOF believes that YaPEIM should have obtained the additional information sought during the initial analysis of its project. In MOF’s view, the information sought is crucial to ensure that the project's execution will S/N wsKvDQt4oUyFOLEidtaooQ positively impact YaPEIM's finances and will not adversely affect its core business. [28] Consequently, the failure lies entirely with YaPEIM. This failure was self-induced and cannot be classified as frustration. A similar situation arose in Maxissegar Sdn Bhd v Silver Concept Sdn Bhd [2005] 3 CLJ 238 (CA). In that case, the appellant was unable to secure the loan from the bank because it did not comply with Bank Negara's guidelines. The Court of Appeal held that the appellant’s non-compliance was effectively a "... self-induced frustration, if at all to be called frustration.” The case of Yee Seng Plantations Sdn Bhd v Kerajaan Negeri Terengganu & Ors [2000] 3 CLJ 666 (CA) was referred to where the following passage was cited: “Now, it is well-settled that the doctrine of frustration has no room where there is fault on the part of the party pleading it. Another way of putting it is that self-induced frustration is no frustration. See Dato’ Yap Peng & Ors v Public Bank Bhd 7 Ors [1997]4 CLJ 115.” (emphasis added) [29] Regarding the consent or approval required under clause 2.1(d), the High Court correctly concluded that the appellant's claim requiring MOF’s consent was an afterthought. This argument was only raised when the appellant sought an extension of time to pay the balance purchase price. Clause 2.1(d) specifies that consents or approvals must come from parties "having jurisdiction over the acquisition of the Sale Shares or the transactions contemplated under this S/N wsKvDQt4oUyFOLEidtaooQ Agreement." Therefore, MOF cannot be considered a party with jurisdiction over the Agreement. Consent or approval from any "third party or government, regulatory body, or competent authority having jurisdiction over the acquisition of the Sale Shares or the transactions contemplated under this Agreement," as outlined in clause 2.1(d), cannot reasonably be interpreted to mean that MOF's approval of the requested funds is required. There are several key reasons supporting this conclusion. First, the consent or approval mentioned in clause 2.1(d) logically pertains to parties with jurisdiction over the share sale transaction. For example, companies owned by government entities typically need approval from their governing entities before proceeding with any share sales. This interpretation aligns with the intended purpose of clause 2.1(d). Second, it has never been suggested, nor can it reasonably be argued, that MOF has jurisdiction over the sale of the respondents’ shares, as the transaction in question was a private sale between the appellant and the respondents. The requirement for MOF’s consent was never considered an obligation to be fulfilled under the Agreement. [30] In any event, the appellant provided a warranty under clause 4 of the Agreement, confirming that it had obtained the necessary approvals and consents to purchase the shares, as outlined in clause 2.1 of the Third Schedule, which states the following: WARRANTIES AND REPRESENTATIONS GIVEN BY THE PURCHASER S/N wsKvDQt4oUyFOLEidtaooQ (Given Pursuant to Clause 4.2 of this Agreement) …..

Capacity

2.1 The Purchaser is entitled to purchase or acquire the full legal and beneficial interest in the Sale Shares from the Vendors on the terms set out in this Agreement, and the Purchase has taken all actions necessary to enable the Purchaser to enter into and perform this Agreement and have secured all approvals and consents (governmental or otherwise) required for the performance of the transactions contemplated by this Agreement. (emphasis added) [31] The High Court correctly determined that the appellant had acknowledged the fulfilment of all conditions precedent, as evident from their correspondences. Through their solicitors, the appellant repeatedly requested extensions of time to pay the outstanding balance. Notably, the appellant did not assert that these extensions were necessary to meet the condition outlined in clause 2.1(d). [32] We agree with the High Court’s decision that the respondents are entitled to forfeit the deposit under clause 5.4 of the Agreement. The RM1,000,000 deposit, which represents 10% of the purchase price, is reasonable and appropriate. S/N wsKvDQt4oUyFOLEidtaooQ Conclusion [33] The factual findings of the trial court should not be disturbed, especially when the conclusions were primarily based on the credibility of the witnesses and the impression formed by the trial judge. The learned Judge had the advantage of observing the witnesses' demeanour and assessing their honesty and accuracy, as established in China Airlines Ltd. v Maltran Air Corp. Sdn Bhd & another appeal [1996] 3 CLJ 163. We are also satisfied that the trial Judge’s factual findings were not plainly erroneous and that no errors which would warrant appellate intervention. Therefore, we affirm the decision of the High Court, and consequently dismiss the appeal with costs of RM20,000 to the respondent, subject to allocatur. Dated: 21 February 2025. - sgd - (MOHAMED ZAINI MAZLAN) JUDGE COURT OF APPEAL, MALAYSIA Counsel for the Appellant Abu Daud Abd Rahim, Mohd Wafiy bin Azman, Wardah Yumma binti Yunus & Ahmad Iqbal Rohaizan [Messrs Azmi & Associates] Counsel for the Respondent Victor Paul A/L Doraj Raj & Koay Jun Hui [Messrs Burhan & Co] S/N wsKvDQt4oUyFOLEidtaooQ