S Quarry Sdn Bhd v Desaru Development Corporation Sdn Bhd dan 9 Lagi (J-02(NCVC)(W)-886-05/2017)

DALAM MAHKAMAH RAYUAN MALAYSIA (BIDANG KUASA RAYUAN) RAYUAN SIVIL NO: J-02(NCVC)(W)-886-05/2017 ANTARA (No. Syarikat: 898887-P) … PERAYU DAN

1. (No. Syarikat: 335402-D)

2. DESARU MARINA HOTEL SDN BHD (No. Syarikat: 191684-K)

3. DESARU PALACE HOTEL SDN BHD (No. Syarikat: 191773-P)

4. DESARU RESORT HOMES SDN BHD (No. Syarikat: 191750-W)

5. DESARU MARINA SDN BHD (No. Syarikat: 191775-H)

6. DESARU MARINA COMMERCIAL SDN BHD (No. Syarikat: 191776-T)

7. DESARU HEALTH SPA SDN BHD (No. Syarikat: 191772-A)

8. DESARU SUNNY BEACH HOTEL SDN BHD (No. Syarikat: 191858-X)

9. DESARU GOLF (LAKE ONE) SDN BHD (No. Syarikat: 192449-D)

10. VARIASI ETIKA SDN BHD (No. Syarikat: 351972-D) … RESPONDEN-RESPONDEN Page 2 of 14 [Dalam Mahkamah Tinggi Malaya Di Johor Bahru Dalam Negeri Johor Darul Takzim, Malaysia Guaman Sivil No.: 22NCVC-49-02/2013 Antara (No. Syarikat: 898887-P … PLAINTIF Dan

1. DESARU DEVELOPMENT HOLDINGS ONE SDN BHD (No. Syarikat: 952017-W)

2. (No. Syarikat: 335402-D) … DEFENDAN-DEFENDAN [TINDAKAN ASAL] DAN ANTARA

1. (No. Syarikat: 335402-D)

2. DESARU MARINA HOTEL SDN BHD (No. Syarikat: 191684-K)

3. DESARU PALACE HOTEL SDN BHD (No. Syarikat: 191773-P)

4. DESARU RESORT HOMES SDN BHD (No. Syarikat: 191750-W)

5. DESARU MARINA SDN BHD (No. Syarikat: 191775-H)

6. DESARU MARINA COMMERCIAL SDN BHD (No. Syarikat: 191776-T)

7. DESARU HEALTH SPA SDN BHD (No. Syarikat: 191772-A)

8. DESARU SUNNY BEACH HOTEL SDN BHD (No. Syarikat: 191858-X)

9. DESARU GOLF (LAKE ONE) SDN BHD (No. Syarikat: 192449-D)

10. VARIASI ETIKA SDN BHD (No. Syarikat: 351972-D) … PLAINTIF-PLAINTIF Dan (No. Syarikat: 898887-P … DEFENDAN [TUNTUTAN BALAS] Page 3 of 14 CORAM: ROHANA YUSUF, JCA VERNON ONG LAM KIAT, JCA HARMINDAR SINGH DHALIWAL, JCA GROUNDS OF JUDGMENT INTRODUCTION [1] This is the plaintiff S Quarry Sdn Bhd’s appeal against the decision of the learned judicial commissioner (JC) of the High Court in (i) dismissing the plaintiff’s claim for damages for breach of contract against the defendants Desaru Development Holdings One Sdn Bhd (the 1st defendant) and Desaru Development Corporation Sdn Bhd (2nd defendant) and (ii) allowing the counter claim of the 2nd defendant and nine related companies against the plaintiff. THE SALIENT FACTS [2] Following the plaintiff’s proposal contained in a letter dated 16.1.2012, the 1st defendant issued a letter of award dated 19.1.2012 (“the LOA”) to the plaintiff whereby the 1st defendant agreed to allow the plaintiff to carry out site clearing and excavations works on two plots of land identified jointly as ‘Phase 3 lands’. It was also agreed that the plaintiff would pay to the 1st defendant RM8.00 per tonne for rock materials extracted therefrom. The Phase 3 lands are registered in the name of the 2nd defendant company; the 2nd defendant company is a wholly-owned subsidiary of the 1st defendant company. Page 4 of 14 [3] The LOA was signed by Muhd Firdaus Azharuddin (PW2) who was at the material time the Chief Executive Officer of the 1st defendant and General Manager of the 2nd defendant. [4]

Pursuant to the LOA, the plaintiff have carried out site clearing works and extracted rock materials from the Phase 3 lands and have paid a total sum of RM419,008.80 to the 1st defendant for the rock materials. [5] On 11.12.2012, Mohd. Nadziruddin Bin Mohd. Basri (DW1) the then Chief Executive Officer of the 2nd defendant lodged a police report alleging wrongful encroachment and illegal mining on the Phase 3 lands. As a result, PW2, Lai Chee Long (PW1) the 1st defendant’s head of project development, Hassan bin Zainal (PW3) the 2nd defendant’s assistant vice president and the site representative and some of the plaintiff’s employees and workers of the plaintiff’s sub-contractors were arrested and detained for investigations. [6] However, as no criminal proceedings were initiated against any of the individuals arrested, the plaintiff requested to carry on with the excavation works. By a letter dated 18.1.2013, solicitors acting for the 1st and 2nd defendants and its subsidiaries informed the plaintiff that (i) the LOA is null and void because the LOA was signed by PW2 as the CEO of the 1st defendant company and that neither the 1st defendant nor PW2 have any authority to grant the rights over the Phase 3 lands, and (ii) in the event that the LOA is valid and enforceable, the plaintiff breached the terms of the LOA on the grounds as set out in the said letter. [7] As a consequence of the aforesaid, the plaintiff instituted the action against the 1st and 2nd defendants for breach of contract claiming for Page 5 of 14 special damages in respect of idling costs, wasted costs, value of stockpiled rock material left at the site and total costs incurred, and other heads of damages. [8] The defence of the defendants centred on the validity of the LOA. The invalidity was premised on (i) 1st defendant is not the Phase 3 lands owner, (ii) the signatory to the LOA was not authorised, and (iii) the plaintiff was at all times aware and had constructive knowledge that the Phase 3 lands did not belong to the 1st defendant. FINDINGS OF THE HIGH COURT [9] The learned JC dismissed the plaintiff’s claim and allowed the defendants’ counterclaim on the following grounds.

(ii) The LOA was not obtained above board because the plaintiff was aware that there was iron ore deposits in the Phase 3 lands but the LOA was silent on existence of the iron ore deposits.

(iii) The 1st defendant was not the owner of the Phase 3 lands but the LOA was issued by the 1st defendant, instead of the 2nd defendant. The Turquand rule does not apply to protect the Page 6 of 14 plaintiff. Even though the Turquand rule was not pleaded, the averment in the re-amended defence and counterclaim were wide enough to cover the allegation that the transaction was not bona fide.

(iv) Consequent to the finding that the LOA is null and void, the learned JC made a positive finding of trespass being committed by the plaintiff. SUBMISSION OF PARTIES [10] The plaintiff’s following arguments were made with particular reference to the background facts leading up to the issuance of the LOA, the subsequent works carried out on the Phase 3 lands, the payments made pursuant to the LOA and the stoppage and unlawful termination of the LOA by the 1st and 2nd defendants:

(ii) At the High Court, the defendants argued that the plaintiff together with PW2, PW1 and PW3 conspired to cause losses to the defendants. But learned counsel for the plaintiff contended that this was not the defendants’ pleaded case. A party to an agreement may not avoid an agreement if it was not in terms favourable to him. As long as the agreement was entered into without any element that would void it, the agreement remains valid and the parties are bound by the bargains they have made (HCS Construction Sdn Bhd v Gobonas Enterprise and Transportation Sdn Bhd [2016] 1 LNS 1251; Chartbrook Ltd & Anor v Persimmon Homes Ltd & Anor [2009] AC 1101, 1113).

(iii) The learned JC misdirected himself over the initial proposal and the LOA. Mention of iron ore was only made in the initial proposal which is in a document titled “Strategic Proposal”. The LOA was issued in response to the plaintiff’s proposal contained in the letter of 16.1.2012 which made no mention of iron ore. The learned JC erred in conflating the ‘Strategic Proposal” with the revised proposal when this was not the case. Page 8 of 14

(iv) The learned JC erred in finding that the plaintiff was aware that the 1st defendant had no authority to issue the LOA because there was no evidence to found that fact. The suspicious circumstances alluded to by the learned JC were not suspicious when put in context. According to the public records of the 1st defendant, any outsider was entitled to think that the 1st defendant was the master developer of the project and had the power to enter in any agreements in respect of the lands connected to the project. At any rate the plaintiff did enquire of the 1st defendant as to why the 1st defendant issued the LOA and was told that because the 1st defendant was the developer, the LOA should be issued by the 1st defendant. In the circumstances, the plaintiff was entitled to rely on the Turquand rule to assume that the LOA was validly issued (Pekan Nenas Industries Sdn Bhd v Chang Chin Chuen & Ors [1998] 1 MLJ 465 (FC); Bumiputra-Commerce Bank Bhd v Augusto Pompeo Romei & Anor [2014] 6 CLJ 14(CA)). [11] In reply, learned counsel for the defendants argued that the plaintiff had due notice that they were dealing with the wrong party. The LOA was invalid as PW2 did not have the power or authority to deal with the Phase 3 lands. The 1st defendant company is not the owner of the Phase 3 lands. Only the 2nd defendant company as the registered and beneficial owner of the Phase 3 lands had the authority to deal with the lands. The plaintiff had notice of the fact that the 2nd defendant was the owner of the lands since June 2011. The 2nd defendant was unaware of the LOA which was issued by the 1st defendant. Only PW2, PW1 and PW3 knew of the LOA Page 9 of 14 and they held different roles in the 1st defendant’s group of companies. Even if the LOA is valid, the plaintiff breached the LOA in making the payments to the 1st defendant instead of the 2nd defendant. DECISION [12] In our considered view, the question of the validity of the LOA turns on the facts of this case. The fact of the LOA being issued by the 1st defendant is not really in dispute. Rather, the question to be determined is whether on the totality of the evidence the LOA is binding on the 1st and 2nd defendants; put another way, whether in all the circumstances of the case, there is a valid and enforceable contract between the plaintiff and the 1st and 2nd defendants. [13] Accordingly, it falls upon this Court to determine whether or not the trial court had arrived at its decision or finding correctly on the basis of the relevant law and/or the established evidence. In so doing, this Court was perfectly entitled to examine the process of evaluation of the evidence by the trial court. The requirement for the trial judge to have made a decision which was ‘plainly wrong’ before an appellate court may intervene is well settled in our appellate jurisprudence and practice. This strict requirement underscores the rationale that the appellate court should not reverse or disturb the trial judge’s finding even if the appellate court is of the view that it would not have arrived at the same conclusion as the trial judge did on the evidence on the record before it. [14] A plainly wrong decision happens when it can be shown that there is insufficient judicial appreciation of evidence by the trial court. The requisite or correct standard to be applied is that no reasonable judge, on Page 10 of 14 the evidence on record, could have reached the conclusion of the trial judge. The adverb ‘plainly’ does not refer to the degree of confidence felt by the appellate court that it would have reached the same conclusion as the trial judge. It does not matter, with whatever degree of certainty that the appellate court considered that it would have reached a different conclusion. What matters is whether the decision under appeal is one that no reasonable judge could have reached. [15] Whilst the aforesaid principles are well-settled, it may be appropriate to set out some instances where a decision may be described as perverse such that the judgment cannot be explained or justified by the special advantage enjoyed by the trial judge by reason of having seen and heard the witnesses testify and being tested before him. Some instances demonstrative of such occasions on the part of the trial judge include the following. It should be noted, however, that the instances are not meant to be exhaustive.  Misdirected itself on the evidence;  Failed to judicially appreciate the evidence;  Failed to consider any material evidence;  Acted on some irrelevant evidence so as to render the decision wholly erroneous;  Made wrong inference from facts;  Misapprehended the facts; or  Gave reasons which are unsatisfactory or contradictory of each other; Page 11 of 14 [16] To recapitulate, the defence is premised on the validity of the LOA on the grounds that the 1st defendant is not the land owner, that the signatory of the LOA was not authorised and that the plaintiff knew and had constructive knowledge that the lands did not belong to the 1st defendant. [17] Be that as it may, it is our view necessary to consider the background facts leading to the issuance of the LOA, the performance of the obligations under the LOA, the stoppage of works and the letter of termination issued by the solicitors for the 1st and 2nd defendants. In the first place, at PW1 and PW2’s requests, the plaintiff submitted its initial proposal in a document titled “Strategic Proposal” to the 2nd defendant for land clearing and iron ore extraction on the Phase 3 lands. There was no response from the defendants. Subsequently, at PW1 and PW2’s further request the plaintiff submitted its proposal to the 2nd defendant vide a letter dated 12.1.2012; this was followed up with a revised proposal vide letter dated 16.1.2012 (“the Second Proposal”). In response thereto, the 1st defendant issued the LOA to the plaintiff. [18] When the plaintiff queried the 2nd defendant as to why the LOA was issued by the 1st defendant, they were informed that it was because the 1st defendant is the developer of all the lands comprising the Desaru Development project lands. Further, the 1st and 2nd defendants provided the plaintiff with the necessary documents to enable the plaintiff to apply for a 4C permit from the local authority for the works under the LOA. The plaintiff had carried out the land clearing and excavation works on the Phase 3 lands under the supervision and instructions of PW3, the Assistant Vice-President of the 2nd defendant. At the request of PW1 the 1st defendant’s head of development the payments under the LOA for the Page 12 of 14 rock materials were made to the 1st defendant company instead of to the 2nd defendant company. Between May 2012 and December 2012, the plaintiff made five payments for the rock materials to the 1st defendant aggregating RM419,008.08. On 18.12.2012, acting on the 2nd defendant’s police report the police arrested the plaintiff’s employees and seized the plaintiff’s machinery and equipment and sealed the site. After the individuals arrested were subsequently released without any charges being initiated against any of them, the plaintiff through their solicitors wrote to the defendants on 31.12.2012 and 11.1.2013 asking to be allowed to resume their clearing and excavation works. In response thereto, the 1st and 2nd defendant through their solicitors replied stating that the LOA was null and void for the reasons stated in para. [6] above. [19] On the totality of the evidence, we are constrained to agree with the plaintiff that the learned JC has misdirected himself on the evidence. It is quite clear from the written judgment of the learned JC that he had premised his finding on that the plaintiff could not say that the LOA was obtained above-board and that the plaintiff had strong reasons to suspect that the LOA was irregular and yet took advantage over it. With respect, we think that the learned JC attached undue weight to the fact that the LOA did not refer to iron ore. This finding is inconsistent with the fact that the LOA was issued in response to the Second Proposal and that there is no reference to iron ore in the Second Proposal. The Second Proposal and the LOA referred to site clearing and extraction of rock materials for which the plaintiff agreed to pay RM8.00 per tonne to the defendants. The learned JC also found that the plaintiff took a simple way out by turning a blind eye to the irregularity. In our view, the learned JC did not accord sufficient judicial appreciation of the evidence of circumstances placed before him and had overlooked the inherent probabilities of the case. Page 13 of 14 Consequently, we are constrained to hold that the learned JC had made an unwarranted deduction based on faulty judicial reasoning from the established facts. We also note that before us, learned counsel for the defendants also argued that the plaintiff breached the LOA in making payment directly to the 1st defendant instead of the 2nd defendant even though it is not one of the grounds stated in the notice of termination. In our considered view, this issue is an afterthought and devoid of merit. [20] In conclusion, we agree with the plaintiff that the learned JC has misdirected himself and that the circumstances and conduct of the parties as manifested in the evidence do not permit us or any reasonable court which had properly directed itself and asked the correct questions to hold the LOA invalid. We find that on the uncontroverted evidence that the LOA was validly made and that the Turquand rule applies in favour of the plaintiff. In any event, the fact that the plaintiff queried the 2nd defendant and was given reasonable explanations as to why the LOA was issued by the 1st defendant did in our view negative or neutralise the circumstances of suspicion. It must also be borne in mind that at all material times, the plaintiff was dealing with PW2, PW1 and PW3, individuals who were acting in different capacities in both the 1st defendant and 2nd defendant companies. At any rate, the plaintiff as an outsider is entitled to enforce the LOA as there is nothing in the evidence to show that the plaintiff has not acted in good faith and without notice that the authority is being abused. It must therefore follow that the termination made by the defendants was not lawful. [21] For the foregoing reasons, we allowed the plaintiff’s appeal in respect of the claim and counter-claim with costs. The order of the High Court is set aside. On damages, as clarified during the oral submission Page 14 of 14 before us, we allowed prayers as stated at prayers 78(a), (b) and (d) in the written submission of the plaintiff. sgd (Vernon Ong) Judge Court Of Appeal Malaysia Dated : 29th January 2019 Counsel: For the Appellant: Gopal Sreenevasan (Kelvin Ng and Lee Sze Ying with him) Messrs. Vin & Isaac Lee For the Respondent: Wong Kah Hui (Emily Chin J.S. with him) Messrs. Kadir, Andri & Partners