Ssn Medicial Products Sdn. Bhd. v Chin Hin Helmet Sdn. Bhd. (B-02(NCvC)(W)-1370-07/2018)

1 DALAM MAHKAMAH RAYUAN MALAYSIA (BIDANG KUASA RAYUAN) RAYUAN SIVIL NO.: B-02(NCvC)(W)-1370-07/2018 ANTARA SSN MEDICIAL PRODUCTS SDN. BHD. (No. Syarikat: 441893-K) ... PERAYU DAN CHIN HIN HELMET SDN. BHD. (No. Syarikat: 770726-V) ... RESPONDEN (Dalam Mahkamah Tinggi Malaya Di Shah Alam Guaman Sivil No. 22NCVC-365-07/2014 Antara CHIN HIN HELMET SDN. BHD. (No. Syarikat: 770726-V) ... Plaintif 2 Dan SSN MEDICIAL PRODUCTS SDN. BHD. (No. Syarikat: 441893-K) ... Defendan CORUM: MARY LIM THIAM SUAN, JCA (NOW FCJ) HAS ZANAH BINTI MEHAT, JCA S. NANTHA BALAN, JCA JUDGEMENT OF THE COURT INTRODUCTION [1] This is an appeal by the appellant/defendant (“appellant”) against the High Court decision dated 18.5.2018 in assessing RM2,848,648.80 as damages for wrongful occupation of the premises at No. 1 Jalan Tandang 203, off Jalan Tandang Section 51 Petaling Jaya Selangor (“the Subject Premises”) to the respondent/plaintiff (“respondent”). 3 [2] After perusing the appeal records, considering the submissions, both oral and written, we allowed the appeal with costs. We now give our reasons for the same. BACKGROUND FACTS [3] The respondent bought the Subject Premises through a public auction on 13.2.2014. At that time, the appellant was already in occupation of the Subject Premises under a tenancy agreement with the previous owner, a company known as Damai Adil Sdn. Bhd. (“the previous owner”). [4] On 5.12.2014, the High Court ordered the appellant to deliver vacant possession of the Subject Premises to the respondent and damages to be assessed up to the date of the delivery of vacant possession. Having failed to obtain vacant possession, the respondent sought leave to execute the judgment using a writ of possession. The writ was issued on 26.1.2016 and executed on 3.3.2016. Vacant possession was eventually delivered to the respondent on 17.3.2016. The appellant then sought an extension of time of one month until 17.4.2016 to remove the machineries, and as requested by the respondent, paid the respondent RM70,000.00 4 for the one month extension. The removal of the machineries was completed by 16.4.2016. Hence, the assessment period is only for 20 months and 20 days (“the assessment period”). [5] Two structures constituted the whole Subject Premises: a five-storey office building and a single-storey warehouse. Both buildings are attached. It is the case of the respondent that the assessment is for the whole Subject Premises as opposed to the appellant’s that the assessment should be confined only to the single-storey warehouse. [6] Before the assessment of damages proceedings, the appellant was not aware that the five-storey building had not been issued with a Certificate of Fitness (“CF”). Evidence of the witnesses from the local authority, namely the Majlis Bandaraya Petaling Jaya (“MBPJ”), PW1, the Pengarah Jabatan Kawalan Bangunan with MBPJ, and her subordinate PW2, a Senior Technician who prepared the letter to Tetuan A Jalil Sdn. Bhd. dated 14.3.2017 (page 636 Volume 1 of the Appeal Record), on the status of the CF for the Subject Premises, both confirmed that the five-storey office building had not been issued with a CF. According to the letter signed by PW1, there was an approved plan for the proposed construction of a four-storey building; however, the construction of the 5 four-storey building was abandoned in 1985. The letter further stated that MBPJ did not know when the five-storey building was completed as that building has no CF. The letter also confirmed that based on MBPJ’s record, there was no record of a CF being issued for the five-storey building, and there was no correspondence between the building owner, the consultant, and MBPJ. As for the single-storey warehouse, PW1 confirmed in her letter that the CF was issued to Malayan Terrazzo Ltd. dated 11.6.1960 and one “Sijil Perakuan Selesai Tambah Binaan”, in 1974 for a store and cold room. On the “Sijil Perakuan Selesai Tambah Binaan”, PW2 confirmed that it is equivalent to CF for the additional building of the single-storey warehouse. APPELLANT’S CASE [7] The appellant was not aware that the five-storey building had no CF when entering the tenancy agreement with the previous owner. Damages, if any, should be based on the rental paid to the previous owner. DW1 was the appellant’s registered valuer, who was called to comment on the methods employed by PW4 (registered valuer called by the respondent). In his oral testimony, DW1 commented that PW4’s report was flawed as it was based on assumption with no reference to the building plan, and not 6 based on the net lettable area. There was no suitable comparable. Further, the illegal structures and interest were also included in the valuation. The opinion of DW1 should be considered even though he did not tender his own report. RESPONDENT’S CASE [8] The CF issued to Malayan Terrazzo Ltd. dated 11.6.1960 tendered through PW1 refers to the Subject Premises making no distinction between the single-storey warehouse and the five-storey building. [9] The respondent relied on the valuation report by PW4 (pages 570- 627 of Part C, Volume 2 of the Appeal Record) and a supplementary valuation report (at pages 628- 640 of Part C, Volume 2 of the Appeal Record). The supplementary valuation report was to determine the market rental value for the Subject Premises with and without CF. A different valuation was put up for the structure with the CF and without CF, namely, RM2,848,648.80 without CF (both the single-storey warehouse and the five-storey building) and RM2,783,625.30 with CF (the single-storey warehouse). The gross monthly rental was valued at RM131,770.83 and RM128,763.02 respectively. There was no rebuttal valuation report 7 produced by the appellant’s valuer. Therefore, The High Court was correct in accepting the respondent’s valuation. [10] The user principle applied in this case as the appellant has benefitted from using the subject Premises as their factory. FINDINGS OF THE HIGH COURT [11] His Lordship rejected the appellant’s argument that the appellant did not rent the whole Subject Premises as the order for sale obtained by Affin Bank, the action against the appellant for vacant possession, and more importantly, the tenancy agreement with the previous owner, was for the whole of the Subject Premises. [12] His Lordship had also rejected the argument on illegality concerning the part of the building with no CF, which should be excluded from the assessment. The reason being that His Lordship was of the view that the user principle applies to the case. [13] On PW4’s valuation report, His Lordship accepted PW4’s opinion as an expert. His Lordship was satisfied that PW4 had considered the 8 recognised methods of valuation and had come up with a separate valuation for the single-storey and the five-storey building in his suplementary valuation report. The methods are as provided in the Malaysian Valuation Standards. His Lordship opined that the appellant had not rebutted PW4’s valuation report as the appellant has not tendered any valuation report. [14] His Lordship rejected the opinion of DW1 on PW4’s valuation report. The reasons being that DW1 did not enter the Subject Premises; hence, he was unable to conduct a careful and detailed examination of the Subject Premises as required by sub-rule 76 (2) of the Valuer’s Appraisers and Estate Agent Rules 1986, which states that in preparation for an appearance in court the valuers should make a careful and detailed examination of the property concerned after taking into consideration all relevant factors which might tend to influence the value. ISSUES IN THE APPEAL [15] The appellant raised three main issues in the memorandum of appeal, namely: 9

(ii) whether the valuation report dated 15.05.2017 and the supplementary valuation report dated 15.06.2017 are relevant for the court to consider; and

(iii) whether the market rental for the Subject Premises should be determined solely based on the valuation report dated 15.05.2017 and the supplementary valuation report dated 15.06.2017. [16] However, before us, the appellant’s main contention was the issue of illegality of the five-storey building; whether the respondent is allowed to claim for the market rental for the entire Subject Premises despite a part of the Subject Premises being an illegal structure under the Act and UBBL. 10 APPELLANT’S SUBMISSION [17] The dispute was in assessing damages on the value of market rental of the Subject Premises, which consists of a single-storey warehouse with the CF being issued and the five-storey building with no CF issued. The assessment was only for the assessment period namely, for 20 months and 20 days. Learned counsel for the appellant submitted that the respondent should not be allowed to claim for the market rental of the entire Subject Premises as part of the Subject Premises consisted an illegal structure under the relevant provisions of the Act and the UBBL. The contravention of the Act and the UBBL constitutes offence. The Court should not consider the illegal act. [18] On the valuation report by PW4, the valuation is flawed as it is based on the assumption that the whole Subject Premises has CF. PW4 admitted during cross examination that he did not know the net lettable area of the illegal structure namely the five-storey building. Learned counsel further submitted that PW4’s supplementary valuation report would not assist the respondent as the valuation remained inclusive of the illegal structure (the five-storey building without the CF). Thus, the Learned Judge was wrong in awarding the market rental value of 11 RM2,848,648.80 based on the supplementary valuation report. Any value to be given should be based on the legal structure only. Based on the previous tenancy rental of RM12,500.00 per month, learned counsel submitted that the market rental value should be based on RM12,500.00 per month. Therefore, for the period of 20 months and 20 days, the amount to be awarded is only RM258,000.00. [19] The respondent relied heavily on the user principle based on this Court decision in Othman bin Ali & 290 Others v. Bukit Lenang Development Sdn. Bhd. [2016] 3 MLJ 708 at page 718 and Amm a/l Joy (suing as Chairman Committee Members of Wat Boonyaram) v. Chuan Seng Sdn. Bhd. [2018] 5 MLJ 255. In accepting the respondent’s submission on user principle, the Learned Judge had also fallen into error as in the two cases cited, no issue of illegality or illegal structure was involved. RESPONDENT’S SUBMISSION [20] During the assessment period, the appellant admitted to using the Subject Premises for their manufacturing purposes with 200 workers and heavy machineries latched to the underground gas pipes. Therefore, 12 counsel submitted that the Learned Judge had correctly applied the user principle in the assessment of damages and the market rental for the Subject Premises based on the respondent’s supplementary valuation report of RM131,770.83 per month, and also taking into account the market value of RM23 million for an industrial land (with the area of 2.11 acres with main road frontage) within the heart of Petaling Jaya. The appellant’s argument was merely an afterthought when they had in fact enjoyed using the Subject Premises for 20 months and 20 days without paying anything. The appellant must pay market rental value for the assessment period as they had fully utilized the Subject Premises for commercial gain. [21] The appellant also admitted that they were not “interrupted” by the local authority due to the CF issue. The appellant also had continued to have water, electricity and gas supply without interruption by the local authority, MBPJ. Upon becoming aware that CF was not issued for the five-storey building, PW4 revised his valuation in his supplementary valuation report for the total market value from RM30,000,000.00 to RM23,000,000.00, a reduction of 23.33%, and the gross monthly rental was also reduced from RM171,875.00 to RM131,770.00 which was also a reduction of 23.33%. Consequently, the total market rental value for 13 the assessment period was revised from RM3,720,699.90 to RM2,848,648.80. The reduction of the market value and the gross monthly rental of the Subject Premises took into account the costs of RM6,909,822.61 to legalise the five-storey building. Counsel submitted that the Learned High Court Judge was correct in accepting the respondent’s supplementary valuation report based on His Lordship findings that PW4 had used the correct valuation method, namely the capitalization of market income approach, the comparison method and the cost approach. Counsel further submitted that the appellate court should be slow to interfere with the award of damages. Counsel relied on the Federal Court case of Tan Kuan Yau v. Suhindrimani [1985] 2 MLJ 22. ANALYSIS AND DECISION [22] The Learned High Court Judge allowed the respondent’s claim for the market rental for the entire Subject Premises based on the valuation report dated 15.06.2016 and the supplementary valuation report dated 15.05.2017 for the sum of RM2,848,648.80 although there were clear statements from the respondent’s witnesses, namely PW1 and PW2 that the five-storey office building has no CF with only the single-storey warehouse having an original CF issued in 1960 and the Sijil Persiapan 14 for the additional renovations/extensions carried out in the single-storey warehouse. PW2 confirmed that the Sijil Persiapan is equivalent to CF. [23] We find that the High Court did not consider the illegality issue when awarding the property market rental value for the assessment period. His Lordship rejected the appellant’s defence that the Subject Premises (the object of the contract) contained an illegal structure under the Act and the UBBL thereby, contravening section 24 of the Contract 1950. [24] In our view, we cannot ignore the presence of illegality and the terms of section 24 of the Contracts Act 1950. It is well encoded in the said section that consideration or object of an agreement or contract cannot contravene a statute or if it is of such a nature that, if permitted, it would defeat any law. Section 24 of the Contract Act 1950 provides as follows:

24. What considerations and objects are lawful, and what not The consideration or object of an agreement is lawful, unless-

70. Notice of new buildings

(1) No person shall erect any building without the prior written permission of the local authority.

(13) Any person who-

(16) For the purposes of this section and of section 75 a person shall be deemed to erect a building who-

(ii) new or partly new or increased superstructure or roof on existing walls or existing foundations; 18

(ii) half the superficial area of floors (excluding ground floor) or roofs; or

28. Offence under the Act

(1) No person shall occupy or permit to be occupied any building or any part thereof, other than a singly built detached house, unless a certificate of fitness for occupation, a partial certificate of fitness for occupation or a temporary certificate of fitness for occupation has been issued under these By-laws for such building and any failure to comply with this by-law shall render such person liable to prosecution under the Act.

(2) No person shall occupy or permit to be occupied any singly built detached house unless a certificate of completion and compliance has been issued under these By-laws for the singly built detached house and any failure to comply with this paragraph shall render such person liable to prosecution under the Act. 21 [27] The conditions to be fulfilled by the building owner before any CF can be issued are provided under By-Law 25. The requirements of approval of plans by the local authority are provided under By-Laws 3 and

10. Clearly, for the erection of a particular building to be legal and before such building may be occupied, the relevant plan must be approved and CF must be issued by MBPJ. Otherwise, the erected structure will be illegal. [28] In this case before us, based on the evidence of PW1 and PW2, there was no approval applied for or plan submitted to MBPJ by the owner for the erection of a five-storey building even though there was an earlier approval for a four-storey building. Besides no approval for the plan, there was also no CF issued after the five-storey building had been erected. [29] From the evidence of PW1 and PW2, clearly, the Subject Premises, which consists of a five-storey office building, amounts to an illegal structure with no approved plan and CF. It is also pertinent to note that in Appendix C of the supplementary valuation report dated 15.06.2016 prepared by PW4 [page 640 of the Appeal Record], PW4 had included the sum of RM6,909,822.61 being the “costs to legalise the building” in the valuation. Having to include the “costs to legalise the building” in the first 22 place clearly acknowledges and confirms that the Subject Premises contained illegal structure. [30] In Network Foods (M) Sdn. Bhd. v. Syabinas Holdings Sdn. Bhd. & Anor [1997] 4 CLJ 49, His Lordship Abdul Wahab Patail J (as he then was) had held that a building that did not possess a CF, is clearly in breach of By-Law 28 of the UBBL and the building could not be occupied. It was also established that the owner of the illegal building is not entitled to receive rental from the tenant. [31] In the Federal Court case of Singma Sawmill Co Sdn. Bhd. v. Asian Holdings (Industrialised Buildings) Sdn. Bhd. [1979] 1 LNS 96; [1980] 1 MLJ 21 it was held that “it is contaminated by turpis causa and that rule has long been established that ex turpis causa oritur non actio - no person can claim any right or remedy whatsoever under an illegal transaction in which he has participated”. The Courts do not overlook the fact that they do not assist a person with unclean hands. ... Thus in the case of a lease known to the lessor to be illegal, he cannot sue for the recovery of rent, since to substantiate his claim he must necessarily rely upon the illegal transaction.” 23 [32] Similarly, in Lee Nyan Hon & Brothers Sdn. Bhd. v. Metro Charm Sdn. Bhd. [2009] 6 CLJ 626 where the Court held with regard to the maxim of ex turpis causa oritur non actio that “This is clear and well recognized legal maxim is founded in good sense. No court will enforce an illegal contract or transaction which is illegal and the illegality is duly brought to the notice of the court, and the person invoking the aid of the court is himself implicated in the illegality.” [33] The principle in Singma Sawmill (supra) was also adopted by the Court in Senga Engineering & Construction Sdn. Bhd. v. Richwin Holdings (M) Sdn. Bhd. [2016] 7 CLJ 463 where it was held that the plaintiff in that case was not entitled to claim payment for work done because it was declared that the house built by the plaintiff was illegal, every stage of the building works was carried out illegally. A cause of action that is founded on illegal act will not succeed. [34] We also find support in the Supreme Court decision in Lim Kar Bee v. Duofortis Properties (M) Sdn. Bhd. [1992] 1 CLJ Rep 173; [1992] 3 CLJ 1667; [1992] 2 MLJ 281. In Lim Kar Bee (supra) the former Supreme Court per Peh Swee Chin FCJ (as he then was), delivering the judgment of the court, said: 24 [33] Courts have always set their face against illegality in any contract. It is very well settled that the courts take judicial notice of such illegality and refuse to enforce the contract, and such judicial notice may be taken at any stage, either at the court of first instance or at the appellate stage irrespective of whether illegality is pleaded or not where the contract is ex facie illegal. When the contract is not ex facie illegal, then on the question of pleadings, there is only one situation where illegality need not be pleaded when the court can still take judicial notice of illegality and refuse to enforce it. The situation is when facts which have not been pleaded emerge in evidence in the course of the trial showing clearly the illegality, e.g. the illegal purpose of the contract, or its illegal consideration, with the presence of all relevant circumstances, see e.g. Palaniappa Chettiar v. Arunasalam Chettiar, Leong Poh Chin v. Chin Thin Sin, and North Western Salt Co Ltd v. Electrolytic Alkali Ltd just to mention a few. The existence of such a situation in the instant appeal is warranted by the facts that emerged in evidence, including affidavit evidence. [Emphasis added] [35] In our case, the facts on illegality emerged during the oral evidence of the respondent’s witnesses from the local authority (MBPJ), namely PW1 and PW2. The appellant was not aware when they entered the tenancy agreement with the previous owner. However, during the oral submission, appellant’s counsel has made a concession that, if the 25 respondent was to be liable, the amount should be based on the monthly rental that the respondent had with the previous owner that was only RM12,500.00 per month and considering that only the single-storey warehouse had been issued with the CF. Counsel submitted, the amount of damages, if any, should be only nominal damages of RM258,000.00 (RM12,500.00 x 20 months and 20 days) based on the rental with the previous owner. [36] Therefore, in our view, the respondent should not be allowed to claim for the market rental for the entire Subject Premises as part of it contained an illegal structure under the Act and the UBBL. [37] In our view, His Lordship fell into error when he concluded that the respondent was allowed to claim for the market rental for the entire Subject Premises, which consists of the five-storey office building and the single-storey warehouse where the evidence led show that the five-storey building is an illegal structure. It is also our view that the facts of this case fell squarely within the provisions of paragraph 2 (a) and (b) of section 24 of the Contract Act 1950. 26 [38] We cannot ignore the presence of illegality and the provision of section 24 of the Contracts Act 1950. We find that the Learned Judge was in error in awarding RM2,848,648.80 as damages given the illegality and the circumstances as explained in the foregoing. We agree with the submissions of learned counsel for the appellant on the issue of illegality. We find merits in the appeal. [39] Premised on illegality, we agree with the submission of learned counsel for the appellant that the user principle based on cases of Othman bin Ali (supra) and Amm a/l Joy (suing as Chairman Committee Members of Wat Boonyaram) (supra) relied upon by the respondent do not apply in this case. In Othman bin Ali (supra), the issue was trespass on the land. The case had nothing to do with an illegal structure. In accepting the respondent’s submission on the user principle, the Learned Judge had also fallen into error as no issue of illegality was involved in those two cases. We concluded that His Lordship had erred in his findings by not considering the issue of illegality and by accepting the application of the user principle, which warranted appellate intervention (see Gan Yook Chin & Anor v. Lee Ing Chin & Ors [2004] 4 CLJ 309 (FC) at p. 320). 27 [40] Thus, our above conclusion disposes of the appeal without the necessity of dealing with other secondary issues canvassed before us. We, therefore, allowed the appeal. We varied the amount of damages awarded to the sum RM258,000.00 as conceded by the appellant. We enter that sum as damages for the respondent together with interest at 5% per annum from the date of judgment to the date of realization. We make no order as to costs. DATED: 16 APRIL 2021 sgd (HAS ZANAH BINTI MEHAT) Judge Court of Appeal Malaysia Putrajaya COUNSEL/SOLICITORS: For the Appellant: Chong Ian Shin (Messrs. Arulampalam & Co) For the Respondent: HL Teh (Messrs. HL Teh & Associate)