SKS Builders Trading Sdn Bhd v Hospital Penawar Pandan City Sdn Bhd (JA-22NCVC-190-08/2017)

This case concerns a claim for outstanding rentals in a lease agreement entered into between the plaintiff and the defendant. The plaintiff is the lessor, and the defendant is the lessee. On 28.5.2018, this Court allowed the plaintiff’s claim and dismissed the defendant’s counter claim. The reasons for the decision are set out as below.

On 31.12.2012, one Mahabuilders Berhad entered into a lease agreement with the defendant (hereinafter ‘the Lease Agreement’). Mahabuilders Berhad agreed to let and the defendant agreed to rent four units of four storey shop-offices (the details of the properties can be found in the Lease Agreement – see Exhibit ‘B1’ at pp. 1-22) (hereinafter ‘the premises’).

The salient terms in the Lease Agreement are, inter alia, as follows: “1A. The Lessor hereby lets and the Lessee hereby accepts a lease of the Demised Premises (hereinafter referred to as „the Lease‟) for a period of ten (10) years („Term‟) commencing on or deemed to have commenced on 01.03.2013 („Commencement Date‟) and expiring on 28.02.2023 („Expiry Date‟) upon the terms and conditions contained herein.

The Lessee shall use the Demised Premises for the purpose of supporting space for Hospital Penawar (Equipments) only (hereinafter referred to as „the Purposes‟) and the Lessee shall apply and obtain at its own costs and expense all permits, permissions and approvals required by any Page 3 of 19 government or public or local authority under the provisions of any Act, Enactment or of any regulations or by-laws of the public and/or local authorities or of any written law in respect thereto.

Subject to clause 1D herein, the Lessee shall pay to the Lessor for each and every month of the Term monthly rental for the Demised Premises in the following sums („Monthly

1C.1 for the period commencing on 01.03.2013 and expiring on 29.02.2016 a monthly rental of RM32,000.00;

1C.2 for the period commencing on 01.03.2016 and expiring on 28.02.2019 a monthly rental of RM35,000.00;

1C.3 for the period commencing on 01.03.2019 and expiring on 28.02.2022 a monthly rental of RM38,000.00; and

1C.4 for the period commencing on 01.03.2022 and expiring on 28.02.2023 a monthly rental of RM41,000.00.” …

Without prejudice to the Lessor‟s rights under this Agreement in particular the provisions of clause 12A, the Lessee shall pay to the Lessor interest on the Monthly Rental which remains unpaid on its Due Date at the rate of ten per centum (10.00%) per annum on the outstanding Monthly Rental or any part thereof calculated on a daily basis from the day immediately after the Due Date to the date of receipt thereof by the Lessor (hereinafter the interest payable shall be referred to as „the interest‟). Page 4 of 19 [4] Sometime after the Lease Agreement was entered, Mahabuilders Bhd had changed its status of the company to a private limited company, which became known as ‘Mahabuilders Sdn Bhd’. [5] On 29.8.2013, Mahabuilders Sdn Bhd wrote to the defendant informing the defendant that it had sold the premises to one MB Builders Trading Sdn. Bhd., and directed that all future rental payments are to be made direct to MB Builders Trading Sdn. Bhd. (see Exhibit ‘B1’, p. 23). [6] On the same date (29.8.2013), MB Builders Trading Sdn. Bhd. also wrote to the defendant informing the completion of the sale of the premises, and authorised all future rental to be made payable to it. In the same letter, the defendant was reminded that rental for the month of August 2013 was overdue (see Exhibit ‘B1’, p.24). [7] Sometime later, MB Builders Trading Sdn. Bhd. has changed its name to ‘SKS Builders Trading Sdn. Bhd.’, the named plaintiff in the present suit. The Plaintiff‟s Claim [8] The plaintiff averred that the defendant has breached the Lease Agreement because the defendant had defaulted in payment of the monthly rental since February 2014. The plaintiff demanded from the defendant payment of all the outstanding rentals. The defendant had between the period August 2016 and December 2016 made five payments, each payment amounting to RM30,000.00 (see Exhibit ‘B1’, pp. 78-79 – five MBB cheques made payable to the defendant). In total a sum of RM150,000.00 was paid to the plaintiff for the outstanding Page 5 of 19 rentals since February 2014. After taking into account the five payments made by the defendant to the plaintiff, the defendant still owed the plaintiff a sum of RM1,042,120.00 as accumulated outstanding rentals up to end of December 2016. [9] On 29.5.2017, the plaintiff through its firm of solicitors demanded the defendant to pay a sum of RM1,227,620 being the total accumulated outstanding amount for the rentals as at 1.5.2017. The said outstanding amount is calculated as below: Rental from 1.2.2014 to 31.3.2015 (RM32,000.00 x 14) RM448,000.00 Rental (with GST) from 1.4.2015 to 28.2.2016 (RM33,920 x 11) RM373,120.00 Rental (with GST) from 1.3.2016 to 1.5.2017 (RM37,100.00 x 15) RM556,500.00 Less payment (RM150,000.00) ---------------------- Total amount remains outstanding RM1,227,620.00 ============= [10] The plaintiff through its only witness, Wong Weng Ho (PW1), has adduced a statement of account dated 8.5.2017 showing the records of the defendant’s payments and the plaintiff’s charges for the rentals for the period between 1.7.2013 and 1.5.2017 (see Exhibit ‘B1’, pp. 33-34). The amount outstanding in the said statement of account is consistent with the amount claimed in the plaintiff’s statement of claim. Page 6 of 19 Defendant‟s defence and counter claim [11] In gist, the defendant raised two defences. Firstly, the defendant alleged that the plaintiff had breached the Lease Agreement in that the plaintiff had promised to build an access road to link the premises with a nearby highway – PLUS Highway. However, that did not materialise until today. [12] The defendant averred that one Mr. Sim and Mr. Steve Wong (PW1) from Mahabuilders Berhad had represented to one Dr. Adnan and Encik Azizan Bin Sulaiman (DW3) from the defendant company that Mahabuilders Berhad will apply to the relevant authority(ies) to obtain the approval to allow vehicles from the PLUS Highway to go into and come out from the road leading to the premises. The proposed road would not only benefit the defendant but other users from the same vicinity. [13] The defendant further averred that before the execution of the Lease Agreement, they went to the site and saw a newly built access road linking the PLUS Highway and the premises, but it was not officially open, and there was obstruction constructed by the highway authority between the link from the newly built access road and the PLUS Highway. [14] The defendant also averred that the defendant had relied on the representation made by the Mahabuilders Berhad that it will apply for the necessary approval to open-up the access road into the PLUS Highway, and relying on that representation the defendant decided to enter into the Lease Agreement. Page 7 of 19 [15] The defendant stated that it had brought up the issue concerning the opening of the access road to the PLUS Highway in several meetings with the plaintiff’s representatives, but to no avail. The defendant further stated that since the plaintiff had failed to ensure there is an access road linking the premises to the PLUS Highway, the plaintiff has breached its promise. As such, the defendant is entitled to end the Lease Agreement. [16] Secondly, the defendant, in the alternative, raised the defence of negligent misrepresentation. The defendant pleaded that the statements made by the plaintiff’s representative, i.e. there will be an access road to link the premises with the PLUS Highway in the future, were negligent misrepresentation. The defendant entered into the Lease Agreement because the defendant had relied on those negligent misrepresentation. As a result of the negligent misrepresentation, the defendant has suffered losses. [17] Relying on the above defences, the defendant has filed a counterclaim against the plaintiff. The defendant claimed against the plaintiff as follows: i. A declaration that the plaintiff has in breach of the Lease Agreement; ii. In the alternative, a declaration that the Lease Agreement has been terminated and not enforceable against the defendant; iii. A declaration that the defendant does not owe the plaintiff; iv. An order that the plaintiff to refund all monies paid by the defendant to the plaintiff under the Lease Agreement; Page 8 of 19 v. The plaintiff to pay damages to the defendant as a result of the breach of contract, and damages to be assessed by the court registrar; vi. In the alternative, the plaintiff to pay damages for the negligent misrepresentation, and the damages to be assessed by the court registrar; vii. Interest at the rate of 5% per annum on the sum awarded by this Honourable court and calculated from the date of judgment until the date of full settlement; viii. Costs; and ix. Any reliefs and orders as this court deems fit to grant. The Findings of this Court [18] The parties have agreed the issues to be tried are as follows:

Whether the defendant has breached the Lease Agreement dated 31/12/2012?

Whether the Lease Agreement was frustrated by law? First Issue - Whether the defendant has breached the Lease Agreement dated 31/12/2012? [19] The plaintiff through PW1 had adduced contemporaneous documents to support its claim. They are the Lease Agreement (Exhibit ‘B1’, pp. 1-22), plaintiff’s invoices and official receipts in relation to the monthly rentals and payments made by the defendant (Exhibit ‘B1’, pp.35-79) and a statement of account that reflects the date of the invoices and the payments received from the defendant (Exhibit ‘B1’, Page 9 of 19 pp.33-34). All these documents were not challenged by the defendant. On the face of it, the plaintiff has established its claim on a balance of probabilities. The plaintiff has discharged its burden to prove its claim based on the written terms and conditions of the Lease Agreement. [20] The defendant did not refute the contents of the Lease Agreement, neither did the defendant challenge the parties’ fulfilment of their obligations in the Lease Agreement. The only challenge raised by the defendant was that there was an oral agreement made between the parties besides the Lease Agreement which they have entered into. [21] Turning to the defendant’s case. The defendant’s witness DW3 gave evidence that the plaintiff’s representatives knew the importance of the need to have an access road to link the premises to the highway because of the nature of the defendant’s business (see DW3’s witness statement [DW3-WS], Q&A 6). He also stated that the defendant had relied on the representations made by the plaintiff’s representatives that there will be an access road before entering into the Lease Agreement (see DW3-WS, Q&A 8). DW3 further stated that the defendant did not use the premises and had left it vacant (see DW3-WS, Q&A 14). [22] The defendant had harped on the importance of the access road throughout the trial. The defendant witness DW3 kept emphasising the need for an access road. If the defendant regarded the requirement for an access road to be a condition for entering into the Lease Agreement, the defendant ought to have insisted on a clause to state so. Ironically, nothing was mentioned in the Lease Agreement in relation to any road access issue. Page 10 of 19 [23] Based on the contemporaneous documents, the issue of access road was only been brought up around August 2014 onwards, after two years had passed since the parties entered into the Lease Agreement. The defendant began to raise the issue of access road when it was facing financial problems. The defendant wrote a letter dated 18.8.2014 to the plaintiff, where the defendant admitted that rental payments had been outstanding and mentioned the road access issue. The contents of the defendant’s letter in Exhibit ‘B1’, p. 80, are as follows: “We are working towards paying additional RM60,000.00 every month on top of monthly rental of RM120,000 for the overdue rental of No. 2,4,6,8,10,12,14,16 and 18, Jalan Pandan Ria 7, Kangkar Tebrau. Based on our present cash flows position, we will not been able to pay the rental for No. 20, 22, 24 and 26, Jalan Pandan Ria 7 and we expect our cash flow will back to normal in April 2015 and we will pay the overdue accordingly. MB Builders is to solve the access road from the PLUS highway as been agreed and communicated earlier urgently as it has been long overdue for completion. Access road is crucial factor for the success of Hospital Penawar Pandan City Sdn Bhd business and / or to avoid unnecessary operating licence by Authorities.” Page 11 of 19 [24] The aforesaid letter was signed by Encik Hazimin bin Ahmad (DW1), the Finance and Administration Manager of the defendant company. [25] In the letter dated 18.8.2014, the defendant acknowledged the Lease Agreement although there was still no access road linking the premises to the PLUS Highway. The defendant had admitted it owed the plaintiff outstanding rentals for the premises (No. 20, 22, 24 and 26). The defendant further stated it will pay the overdue rentals accordingly. [26] It is ostensibly clear from the defendant’s letter that the defendant was facing financial constraint, and therefore, could not keep up with the payment of the rentals. The issue of there being no access road to the PLUS Highway was not the reason as to why the defendant did not pay the outstanding rentals. [27] The plaintiff had written to the defendant on 27.11.2014 informing the defendant of the developments relating to the access road, and informed the defendant it was willing to continue to assist. On 2.7.2015, the plaintiff again wrote to the defendant informing the defendant of the latest development relating to the access road (see Exhibit ‘B1’, pp. 82- 83, 84-85) [28] Although the plaintiff did not resolve the access road issue with the relevant authority until the later part of 2016, the defendant did not terminate the Lease Agreement. Ironically, the defendant continued to pay the outstanding rentals (see Exhibit ‘B1’, pp. 33-34, 78-79) without any protest. Page 12 of 19 [29] The defendant asserted it was because of the representation made by the plaintiff that there will be an access road linking the premises with the highway, that the defendant had entered into the Lease Agreement. But, the defendant had continued with the Lease Agreement while waiting for the opening of the access road. If the access road was so important to the defendant, why did the defendant not terminate the Lease Agreement after many years? The defendant did not even threaten to terminate the Lease Agreement during all those years. [30] If the access road is the catalyst for the defendant to enter into the Lease Agreement, the defendant would have long terminated the Lease Agreement when the plaintiff could not deliver its promise. Further, if the access road was the main condition for the defendant to enter into the Lease Agreement, the defendant should have imposed a time frame on the plaintiff to deliver its promise. [31] The plaintiff had written two letters dated 30.9.2016 and 6.1.2017 (see Exhibit ‘B1’, pp.91-92) to the defendant refuting the defendant’s assertion that the plaintiff was to provide the access road as forming part of the terms in the Lease Agreement. The plaintiff stated the access road was not a condition of the Lease Agreement and that it was not liable to complete the access road. [32] It is not in dispute that the plaintiff’s representatives had discussed with the defendant’s representative pertaining to the access road issue. However, there is no evidence from the defendant’s case that the plaintiff had made a promise, or using the defendant’s word, ‘guarantee’, that the plaintiff will ensure the access road is available. The defendant has placed too much emphasis on the discussions and meetings between Page 13 of 19 the two parties on the issue of access road. But, the access road issue is nowhere to be found or mentioned in any contemporaneous documents before August 2014. There is no convincing oral evidence to suggest the access road was a term or condition in the Lease Agreement. [33] This Court is of the opinion that the defendant’s defence that the plaintiff had promised to provide the access road as a term of the Lease Agreement could not be sustained. As mentioned earlier, if the access road is a condition for the defendant to enter into the Lease Agreement, why was it not put in writing in the Lease Agreement? In fact, in the Lease Agreement, it was stated that the defendant was to use the premises as ‘supporting space’ for the defendant to keep its equipment, the premises were not meant to be used as clinical space which demands high flow of traffic. [34] The defendant did not adduce any correspondences between the parties to show that having the access road was part of the parties’ agreement or understanding before the execution of the Lease Agreement. There was no time frame suggested or agreed between the parties when the access road will be ready. This Court could not accept that the parties had agreed that the plaintiff was to provide the access road as part of the terms of the Lease Agreement. [35] It is evident that since 2014, the defendant had started defaulting in payments of the monthly rental. This was because the defendant ran into financial problem. The defendant then relied on the fact that the plaintiff could not provide the access road as an excuse to camouflage its Page 14 of 19 inability to keep up with the ballooned outstanding amount of the monthly rentals. [36] After having examined all the contemporaneous documents and the oral evidence adduced by both parties, this Court is satisfied that there was no such agreement, whether oral or in writing, that the plaintiff had to provide the access road from the PLUS Highway to the premises. Based on the above findings, this Court is of the considered view that the defendant has failed to prove on the balance of probabilities that plaintiff was supposed to provide the access road from the PLUS Highway to the premises as a term of the Lease Agreement. The defendant has failed to prove its first defence, namely that the plaintiff had breached the alleged ‘oral term’ of the Lease Agreement to provide the access road from the PLUS Highway to the premises. [37] In fact, from the overall evidence, this Court is satisfied that the plaintiff has proved its case that the defendant was in breach of the essential term of the Lease Agreement, in that the defendant has failed to pay the monthly rental as it is required to do in the Lease Agreement. The Lease Agreement has not been terminated, and is still subsisting. [38] On the alternative defence, the Court finds that there was no such negligent misrepresentation from the plaintiff’s representatives. The defendant did not establish the alleged statement, i.e. plaintiff will provide the access road, was made by a person who has or professes to have special knowledge or skill in relation to highway regulations and conduct to connect one slip-road into a highway or vice-versa. Page 15 of 19 [39] PW1 is a project manager in the plaintiff company. He is not a person who has or professes to have the special knowledge on the access road issue. Hence, the defendant could not merely rely on his statement, and claim the defendant’s representatives were induced into entering into the Lease Agreement. [40] The defendant’s representative DW3 is a director of the defendant company which operates many clinics around Johore Bahru and in the State of Johore, and which also provides other medical services, such as pharmaceutical and public health care services. [41] DW3 being a director of the defendant company ought to have checked with other sources concerning the connectivity of the access road to the PLUS Highway in the future. He should not have just relied on the plaintiff’s representative’s statement, it would be naïve for him to do so. DW3 had repeatedly claimed the importance of the access road for the defendant to take up the lease of the premises, yet he did not insist for such alleged statement be made in writing. [42] Still on the negligent misrepresentation, this Court was not clear whether the defendant took the alleged negligent misrepresentation as an advice or an information, or an opinion. The defendant failed to establish in evidence what the nature of the alleged negligent misrepresentation was. Flowing from there, the defendant failed to show to the Court what was the unsound advice or misleading information or erroneous opinion (if any). [43] There is also no cogent evidence to suggest the plaintiff’s representative had the intention to induce the defendant’s representative Page 16 of 19 to enter into the Lease Agreement. The defendant had failed to establish any of the ingredients to show there was a negligent misrepresentation in fact and in law (see Esso Petroleum Co Ltd v Mardon [1976] 2 All ER 5). [44] With regard to a meeting held on the 12.1.2017 (see the minutes of meeting in Exhibit ‘B3’, p. 10-11), the meeting was attended by PW1 and the defendant’s witnesses DW1, DW2 and DW3. DW3 related what transpired before the execution of the Lease Agreement (in para 3 of the minutes). The contents of the minutes of meeting could not prove the existence of any oral agreement. Further, in the minutes, it was recorded that the defendant has terminated the Lease Agreement since June 2016 (see para 8 of the minutes), but there is no documentation proof of the termination of the Lease Agreement by the defendant. Hence, this Court is not convinced that the minutes of meeting could support the defendant’s case. [45] Based on the above findings, this Court was not satisfied the defendant has succeeded in discharging its burden of proof to establish either of its defences on a balance of probabilities. Second Issue – Whether the Lease Agreement was frustrated by law? [46] With regard to the second issue, it is a non-starter. This is because it was not pleaded in the defendant’s statement of defence and counterclaim in the first place. It is trite law that parties are bound by their pleadings. Notwithstanding the parties had agreed to be an issued to be tried, they are still bound by what they had pleaded. Be that as it may, there was no evidence adduced by the defendant to suggest the Page 17 of 19 performance of the parties’ obligations in the Lease Agreement was frustrated by the law. Other Consideration [47] The defendant in its submission raised the issue that there was no proper assignment from the previous owner (Mahabuilders Sdn Bhd) to the plaintiff. This Court observed that parties have in the Statement of Agreed Facts (marked as document ‘C’) accepted that this is a non-contentious issue in the trial. Hence, the issue raised by the defendant could not be sustained. Besides that, based on the contemporaneous documents, the defendant had made several payments direct to the plaintiff. This clearly shows that the defendant had accepted the plaintiff as the rightful party of the Lease Agreement. [48] With regards to the plaintiff’s interest claim, clause 1F of the Lease Agreement has stated clearly that the plaintiff (or Lessor) is entitled to claim 10% interest per annum on the outstanding monthly rental or any part thereof calculated on a daily basis from the day immediately after the due date to the date of payment. Hence, in respect of the plaintiff’s entitlement to claim interest, the plaintiff has proved its contractual right to do so. Conclusion [49] Based on the above findings and analysis of the evidence adduced by the parties, this Court finds that the defendant had indeed breached the Lease Agreement when it failed to pay the monthly rentals provided in the Lease Agreement – the First Issue is answered in the affirmative. Page 18 of 19 With regard to the Second Issue, it is not necessary for this Court to deal with it. Flowing from the findings of this Court, the defendant’s counterclaim ought to fail. [50] This Court has ordered and allowed the plaintiff’s claim as follows: i) The defendant to pay the plaintiff the sum of RM1,227,620.00; ii) The defendant to pay interest on the sum of RM1,227,620.00 at the rate of 10% per annum from 29.5.2017 until the date of final payment; iii) The defendant to pay all arrears of the monthly rentals from 1.6.2017 to the date of this Order, together with 10% interest based on the amount outstanding until date of final settlement; iv) The defendant to pay the plaintiff the costs of RM15,000.00; v) The defendant’s counterclaim is dismissed with costs of RM15,000.00 to be paid by the defendant to the plaintiff; -Signed- ……………………………………….. (CHOO KAH SING) Judge High Court Johor Bahru Page 19 of 19 Plaintiff’s counsels : WJ Chen (Ho Ai Ting and Nurul Aisyah Hassan with him) Tetuan WJ Chen & Company Defendant’s counsels: Mohd Najib Omar (Haffisza Ahmad with him) Tetuan Najib Omar & Co.