Wire & Wireless Sdn Bhd v Wire & Wireless Sdn Bhd (W-02(NCVC)(W)-1060-06/2017)

This is an appeal against the decision of the learned High Court Judge dated 03.05.2017, delivered after full trial, which dismissed the Plaintiff’s claim against the Defendant. The Plaintiff had instituted a claim for damages in consequence of the Defendant’s termination of an Agreement between the Plaintiff and the Defendant.

For ease of reference, parties will be referred to as they were in proceedings before the High Court.

The following facts are not disputed. Pursuant to a Letter of Award (‘LA’) dated 15.9.2011, Telekom Malaysia (‘TM’) had appointed the Defendant as its main contractor to supply WiFi equipment for WiFi TM or Access Point (‘access point’) for a project known as, “Collaboration Between TM and Other Licensed Application Service Providers (ASP) Network Facilities Providers (NFP) and Network Service Providers (NSP) On WIFI Development For TM’s Retail Services” (‘the project’).

On 17.10.2011, the Defendant entered into an Agreement with the Plaintiff (‘the Collaboration Agreement’), wherein the Plaintiff was appointed as a sub-contractor of the Defendant. Clause 1.4 of the said Agreement provides as follows: “The parties agree that, notwithstanding anything in this Agreement, all rights and obligations accruing to and/or obtained by Eminent pursuant to 3 the LA shall apply to Wire and Wireless as if Wire and Wireless were a contracting party to the Project”. Clause 4.1 further provides as follows: “The parties hereby acknowledge that Wire & Wireless shall perform all the works under the Project and representatives of Wire & Wireless shall take instructions, obtain necessary approvals, communicate, liaise and corporate directly with the representatives of Eminent as well as TM in the execution and completion of the Project.” [5]

The sum of RM163,455.20 pursuant to invoices for the Completed Spots up until December 2014;

The sum of RM927,391.60 for payment for the Completed Spots from January 2015 until the expiry of the Services

The sum of RM1,530,662.40 for the Completed Spots under the Services Extended Term;

The sum of RM1,010,080.00 for Uniten Spot under the

The sum of RM520,128.00 for Uniten Spot under the

The return of the amount for the Performance Bond of RM129,600.00. 6 The Defence [13] The crux of the Defendant’s defence was that there was a valid termination of the Collaboration Agreement by the Defendant as a consequence of the Plaintiff’s refusal to adhere to a subsequent letter of Award issued by TM wherein TM had introduced a “new TM WiFi Architecture”, in which digital based equipment would replace analogue based equipment. TM had entered an Agreement to that effect with the Defendant. The Plaintiff had however, refused to migrate to the new TM WiFi Architecture. [14] In support of the position taken, the Defendant had referred to clause 1.4 of the Collaboration Agreement. The Defendant‘s contention is that pursuant to clause 1.4 above stated, the obligations of the Defendant to TM to install digital equipment instead of analogue by the subsequent TM Letter of Award had effectively transferred the obligations of the Defendant to TM to the Plaintiff. Thus, the Plaintiff’s failure to abide by clause 1.4 of the Collaboration Agreement was a breach of the Plaintiff’s obligation which entitled the Defendant to issue the Termination Notice to the Plaintiff. The High Court [15] At the High Court, the learned Judge determined the primary issues to be tried were as follows:

Whether the Notice of Termination issued by the Defendant to the Plaintiff was valid? 7

(ii) Whether the Plaintiff was entitled to the amount claimed? Findings and Decision [16] According to the learned Judge, in the course of trial, the parties had agreed that the Defendant had paid the Plaintiff a Performance Bond in the sum of RM129,600.00 and a sum of RM163,455.20 for completed works in respect of 412 access point at 74 designated spots (refer to para 74 of the ‘Penghakiman’). Thus, the trial proceeded in respect of the other claims of the Plaintiff, as stated in (b), (c), (d) and (e) of para 10 aforementioned. [17] The learned Judge’s findings may be summarised as follows:

The Notice of Termination issued by the Defendant to the Plaintiff was valid as the Plaintiff was bound to adhere to clause 1.4 of the contract between the Defendant and TM, which in effect stipulates that, “all rights and obligations accruing to and/or obtained by Eminent pursuant to the LA shall apply to Wire and Wireless as if the Wire and Wireless were contracting party to the project”. Thus, the contractual obligations of the Defendant pursuant to the TM Agreement had been transferred to the Plaintiff.

The refusal of the Plaintiff to replace analogue based equipment with digital equipment, as agreed to by the Defendant in the TM Agreement had destroyed the purpose of 8 the Collaboration Agreement between the Plaintiff and the Defendant.

In the circumstances, the Defendant was entitled to terminate the Collaboration Agreement without notice pursuant to clause 5 of the Agreement. The notice dated 2.12.2014 was a sufficient and effective notice of termination. [18] At paras [25] to [28] of the ‘Penghakiman’ the learned Judge had given his reasons as follows: “[25] Berdasarkan kontrak yang dimasuki di antara Defendan dan TM, Defendan terikat mematuhi apa-apa terma yang dinyatakan di dalam surat anugerah kepada Defendan yang akan dikeluarkan dari semasa ke semasa. Surat anugerah baru telah dikeluarkan oleh TM adalah berdasarkan perjanjian tersebut. Berdasarkan surat anugerah baru itu, Defendan perlu memasang peralatan yang berasaskan digital dan bukan lagi analog seperti ditentukan terdahulu di bawah surat anugerah asal. [26] Kontrak yang dimasuki di antara Plaintif dan Defendan memindahkan tanggungjawab Defendan di dalam kontrak TM kepada Plaintif. Berdasarkan klausa 1.4 di atas, Plaintif juga terikat mematuhi kehendak tersebut. [27] Oleh yang demikian, apabila Plaintif enggan menyertai kontrak baharu yang wujud di antara Defendan dan TM, Plaintif sebenarnya menjadikan kontrak yang dimasuki di antara Plaintif dan Defendan tidak lagi dapat dilaksanakan. Berdasarkan keengganan Plaintif, kerja yang akan dijalankan oleh Plaintif bagi memenuhi tanggungjawab Defendan di bawah kontrak yang dimasuki di antara Defendan dan TM adalah berdasarkan analog, yang tidak dapat dipersetujui oleh TM. Tujuan kontrak dimasuki oleh Defendan dan Plaintif adalah untuk Plaintif menjalankan tugas-tugas 9 Defendan di dalam kontrak TM dan apa-apa yang dilakukan oleh Plaintif adalah bagi melaksanakan tugas mengikut architecture baru berasaskan digital telah memusnahkan tujuan kontrak dimasuki di antara Plaintif dan Defendan. [28] Di dalam keadaan tersebut, Defendan berhak untuk menamatkan kontrak tersebut tanpa memberi notis di bawah klausa 5 perjanjian. Notis bertarikh 2.12.2014 yang diberikan oleh Defendan adalah mencukupi dan secara berkesannya menamatkan kontrak tersebut. Saya memutuskan kontrak tersebut telah ditamatkan secara sah oleh Defendan”. [19] Premised on the finding that there was a valid termination of the Collaboration Agreement, the learned Judge was of the view that the Plaintiff was not entitled to payment in respect of works that have not been completed. Thus, the Plaintiff’s claim for the amount of RM1,530,662.40 in para 21 and the claim for RM520,128.00 in para 28 was dismissed. [20] The Plaintiff’s claim for the amount of RM927,391.60, represents the balance sum for the completed spot calculated from December 2014 till the end of the duration of the service which is 3 years from 15.9.2011. The learned judge found that the abovementioned claim was confusing and unsubstantiated as the period of service had ended on 14.09.2014. There were also no invoices issued for the alleged completed works. This claim was thus dismissed. [21] In respect of the Plaintiff’s claim for the amount of RM1,010,080.00 alleged to be completed works at Uniten Spot, the learned Judge found that the Plaintiff had failed to prove that the said works had been completed. TM has not issued a certificate called the User Acceptance Test (‘UAT’) to certify that the works had been tested and completed. The 10 learned Judge refused to accept the usage of such spots as evidence of completion as UAT had not been issued. Thus, this claim was dismissed. Memorandum of Appeal [22] The Plaintiff’s grounds to appeal against the decision of the High Court may be summarised as follows:

The Defendant’s termination of the Collaboration Agreement by Notice of Termination dated 1.12.2014 is bad in law as it did not comply with the requirements of a valid notice pursuant to clause 5.1 (a) and/or (b) of the Agreement.

The learned Judge had erred in law in ruling that the Defendant was entitled to terminate the Collaboration Agreement without giving written notice as stipulated in clause 5 of the Agreement.

The learned Judge had erred in his finding that the Defendant was bound to adhere to the terms of the TM Agreement. The TM Agreement did not impose an obligation on the Defendant to participate in the New TM WiFi Architecture. Thus, the Plaintiff was not in breach of clause 1.4 of the Collaboration Agreement by its refusal to participate in the New TM WiFi Architecture.

As a consequence of the unlawful termination of the Collaboration Agreement by the Defendant, the Plaintiff is entitled to the damages claimed in the Statement of Claim, 11 details of which have been stated earlier in paragraph [11] of this judgment. OUR DECISION [23] After careful consideration of counsels’ oral and written submissions and the Appeal Records, we were of the unanimous opinion that there are merits in this appeal that warrant appellate intervention. We therefore allowed this appeal with costs and set aside the decision of the learned High Court Judge. We give our reasons for doing so below. [24] To our minds, the primary issues before us are as follows:

Whether the non-compliance of the Notice of Termination dated 1.12.2014 with the requirements of Clause 5.1 of the Collaboration Agreement between the Plaintiff and the Defendant renders the termination unlawful?

Whether clause 1.4 of the TM Agreement entered into between TM and the Defendant subsequent to the Collaboration Agreement binds the Defendant who was not a party to the TM Agreement? [25] Clause 5.1 of the Collaboration Agreement had stipulated specific events which would trigger the right of either party to terminate the Collaboration Agreement. These events listed from clause 5.1 (a) to (e) are as follows: 12

5.1 If either party shall:

consistently fail to perform their obligations under the Project within thirty (30) days from the service of any written notice by any other party hereto complaining of such breach;

fail to take all necessary action to remedy any material and/or persistent breach of this Agreement within thirty

days from the service of any written notice by any other party hereto complaining of such breach;

go into voluntary liquidation, otherwise than for the purpose of reconstruction or amalgamation or an order of the Court is made for its compulsory liquidation or enter into a compromise or arrangement with its creditors or a provisional, Receiver or a Receiver and Manager is appointed to carry on its business for the benefit of its creditors or any of them;

cease or threaten to cease to carry on the whole or any substantial part of the business other than in the course of reconstruction or amalgamation; or

have made any material representation or untrue warranty to induce the other party to enter this Agreement, then in any such event the other party may by written notice, forthwith determine this Agreement but, 13 without prejudice to any right of either party to sue for any antecedent breach of this Agreement by the other. (Emphasis added) [26] It is not disputed that the Defendant’s position is that the Notice of Termination of the Collaborative Agreement dated 1.12.2014 was the failure of the Plaintiff to participate in TM’s New WiFi Infrastructure which had migrated from Analog to Digital Equipment. According to the Defendant, the Plaintiff’s refusal was a breach of its obligation pursuant to clause 1.4 of the Collaboration Agreement which imposes an obligation on the Plaintiff to undertake any obligations of the Defendant pursuant to the Letter of Award issued by TM to the Defendant. [27] We are of the view that the Notice of Termination was invalid for the following reasons. On perusal of clause 5.1 it is clear that the purported breach of clause 1.4 abovementioned does not fall within any of the events stipulated in clause 5.1 of the Collaborative Agreement. Therefore, the Defendant is not entitled to terminate the Collaborative Agreement. [28] In any event, the proviso to clause 5.1 stipulates that even if the Plaintiff had failed to perform their obligations under the project, the Defendant is only entitled to terminate the Collaboration Agreement after the Defendant has served the Plaintiff with a written notice of the breach and the Plaintiff had failed to remedy the breach within 30 days from the service of the written Notice. [29] In this case, there was no such written notice that was served on the Plaintiff. The absence of notice as stipulated by clause 5.1 (a) and (b) of the Collaboration Agreement was admitted by DW1 in cross-examination. 14 Thus, there was a failure by the Defendant to comply with the termination clause, which renders the Notice of Termination bad in law. The learned trial Judge had erred in law when he ruled that the Defendant was entitled to terminate the Collaboration Agreement without giving prior written notice as stipulated in clause 5 of the Collaboration Agreement. [30] In the case of SPM Membrane Switch Sdn Bhd v Kerajaan Negeri Selangor [2016] 1 CLJ 177, the Federal Court had emphasised the importance of giving effect to the specific requirements of a termination clause, failing which a notice of termination would be defective. The Federal Court had held as follows: “Upon a true construction of the contract, cl. 9 must be invoked and satisfied before termination under cl. 8.1 (b) may be validly exercised in order to ensure that the meaning and purposes of the two clauses were not lost or rendered nugatory by operation of the other. Thus, particularized reasons had to be provided for cl. 9, since they were there to provide the opportunity to meaningfully remedy any unsatisfactory performance or situation. Therefore, termination under cl. 8.1 (b) would require particularized reasons to have been expressed earlier (i.e.30 days before) and with the notice of termination since the failure to remedy would be the basis upon which 8.1

was relied upon. In the circumstances, the notice of termination was bad in law.” [31] The second issue pertains to the construction of clause 1.4 of the Collaboration Agreement which provides as follows: “The parties agree that, notwithstanding anything in this Agreement, all rights and obligations accruing to and/or obtained by Eminent pursuant to the LA shall apply to Wire and Wireless as if Wire and Wireless were a contracting party to the Project”. 15 [32] We are of the view that the clause 1.4 stated above in its plain and unambiguous meaning, when construed objectively in the context of the Collaboration Agreement, provides that “all rights and obligations accruing to and obtained” by the Defendant pursuant to the Letter of Award between TM and the Defendant, is available to and applicable to the Plaintiff as if the Plaintiff were a contracting party thereto. [33] The fact of the matter is that there are three separate contracts. The Letter of Award from TM to the Defendant. The Collaboration Agreement between the Plaintiff and the Defendant, and the TM Agreement between TM and the Defendant. The established doctrine of privity of contract stipulates that only parties to a contract are bound by its terms and conditions. Thus, the Plaintiff who is not a party to the Letter of Award or the TM Agreement cannot be bound by the terms of contracts to which he is not a party. The learned Judge had clearly erred in law in his construction that clause 1.4 of the Collaboration Agreement can be extended to incorporate the Plaintiff as a contracting party to both the Agreements between TM and the Defendant. [34] In addition, there is nothing in the Letter of Award or TM Agreement that requires the Plaintiff to participate in the new TM WiFi Architecture or any new Agreement. Thus, in the absence of an express obligation of the Plaintiff to participate in the new TM WiFi Architecture, the Plaintiff cannot be said to breach clause 1.4 of the Collaboration by its refusal to participate in the abovementioned new TM WiFi Architecture. The learned trial Judge had erred in law in his finding that the Plaintiff had breached clause 1.4 of the Collaboration Agreement. 16 [35] In conclusion, for the reasons stated above, it is our considered view that the Defendant’s termination of the Collaboration Agreement was bad in law. In consequence thereof, the Plaintiff is entitled to claim damages from the Defendant for wrongful termination of the Collaboration Agreement pursuant to section 74 (1) and (2) of the Contracts Act, 1950. Thus, we find that an assessment of damages would be appropriate in this appeal. Following the SPM Membrane case (supra), we order that this claim be remitted to the High Court for the assessment of damages, by a High Court Judge. [36] This appeal is allowed with costs of RM10,000.00. The decision of the High Court Judge is hereby set aside. Dated: 8 November 2019. (DATUK DR. BADARIAH SAHAMID) COURT OF APPEAL PUTRAJAYA 17 Parties Appearing: For the Appellant: Christopher Vun Tetuan L Y Lu & Co. Peguambela & Peguamcara C-8-1, Block C 8th Floor, Unit 1 Megan Avenue 2 Jalan Yap Kwan Seng 50450 Kuala Lumpur For the Respondent: Mohammad Imran bin Adam Nurul Muhaniza binti Hanafi Sharifah Kalsom binti Syed Sidki Tetuan Abu Zahar Syed Mohd Fuad & Partners Peguambela & Peguamcara E-05-3, Block E