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[1984] Part 5 Case 15 [HCM] |
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www.ipsofactoJ.com/archive/index.htm
[1984] Part 5 Case 15 [HCM] |
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HIGH COURT OF MALAYA |
MAA Holdings Sdn Bhd
- vs -
Ng
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Coram GEORGE J |
11 OCTOBER 1984 |
Judgment
George J
On 28 September 1981 M/s Skrine & Co Advocates and Solicitors of Kuala Lumpur wrote their letter (AB2) to M/s Shook Lin & Bok informing them that they act for one Mr. Zachariah Mohd. Tasa, the nominee of the intending purchaser of the “Company and the property belonging to the Company”, the company being one Leeng Land Sdn Bhd and requiring M/s Shook Lin & Bok as the vendors’ solicitors to “prepare the agreement as soon as possible ...” A clearer picture of what was happening is provided by the sale and purchase agreement prepared (presumably pursuant to AB2) by M/s Shook Lin & Bok and entered into by the said Zachariah Mohd. Tasa as purchaser on the one part and the five persons who between them owned all the issued shares in the said Leeng Land Sdn Bhd as vendors on the other part, for the sale and purchase of all the issued shares in the company for $8.1m.
The instant action for specific performance of the agreement was brought against the vendors by Zachariah Mohd. Tasa as well as by one MAA Holdings Sdn Bhd who, the plaintiffs claim, were the real purchasers and who had nominated Zachariah Mohd. Tasa to enter into the sale and purchase agreement. The plaintiffs seek to read the said letter dated 28 September 1982 as part of the evidence. For the defendants it has been contended that by s 91 of the Evidence Act, the letter is inadmissible, and without which the first plaintiff has no locus standi. Reference was also made in para 2 of the statement of defence to cl 17 of the agreement that prohibited the purchaser from parting with the rights given to him by the agreement. However, the plaintiffs’ claim is not on that basis but that ab initio the first plaintiff was the undisclosed principal of the second plaintiff and that at all relevant times the defendants were aware that the second plaintiff in fact was acting as agent for an undisclosed principal. Counsel for the defendants did not pursue with the cl 17 prohibition point.
It is not uncommon that in mercantile transactions one party acts as agent for an undisclosed principal. The law recognises that and the rights of the parties to a contract made by an agent of an undisclosed principal have been codified in ss 183 to 186 of the Contracts Act. Section 184 goes to the extent of providing that the undisclosed principal may require the performance of the contract even though the other party to the contract neither knew or had reason to suspect that the person he had dealt with was in fact an agent.
In the instant case it is not irrelevant to observe that in the said written agreement, the plural is used with reference to the purchaser at least four times, once in cl 1, twice in cl 4 and once in cl 3(b).
In my judgment, on the facts of the case, the fact (and not more) that the agent was at all relevant times functioning as an agent for an undisclosed principal may be proved without offending against the provisions of ss 91 and 92 of the Evidence Act which sections, in the context, have to be read with ss 183 and 186 of the Contracts Act. Such a fact per se does not tantamount to contradict, vary, add or subtract from the terms of the contract.
Accordingly I hold that the document AB2 was properly admitted and read. I find as a fact that at all relevant times the first plaintiff was the principal of the second plaintiff who entered into the sale and purchase agreement with the defendants as agent for the first plaintiff. The contention that the first plaintiff has no locus standi fails.
At the time or prior to executing the sale and purchase agreement the defendants had been paid $2m of the agreed purchase price of the shares. By cl 3 of the agreement the balance of $6.1m was to be paid “to the vendors’ solicitors M/s Shook Lin & Bok ... on or before 31 December 1981...”
There was provision for the extension of the time in which event certain agreed interest had to be paid. The extension was sought and obtained and within the extended period the sum of $6.1m (and the amount of agreed interest for the extension) was paid to M/s Shook Lin & Bok who issued a receipt dated 23 January 1982 for the same “being payment of balance purchase price ...”
By para 9 of the statement of defence, the defendants had denied that the balance had been paid. All they were prepared to concede to was that they had been informed by M/s Shook Lin & Bok that “a sum equivalent to the balance ... was deposited with them as stakeholders.”
The issue as to whether the balance had been duly paid appeared to have been abandoned by Counsel for the defendants, no doubt because the relevant correspondence (AB39, AB43, AB47 and AB50) and the receipt AB40 make it abundantly clear, and I so hold, that the balance of the agreed Purchase price had in fact been duly paid which the same documents show was the position that had been accepted by the parties themselves at all relevant times.
The next issue for consideration is the effect of the alleged breach of cl 2 of the agreement which reads as follows:
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The Purchaser shall forthwith after execution of this Agreement apply to the Foreign Investment Committee for approval of the transaction herein and shall endeavour to obtain such approval within three (3) months from the date hereof. It is hereby agreed that the sale of the said Shares shall not be affected by the late approval or non-approval of the Foreign Investment Committee and all the terms of payment shall continue to be effective and binding notwithstanding any late approval or non-approval of the Foreign Investment Committee. |
The application for the approval was never made.
Now, cl 5(a) has a reference to cl 2 viz:
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It is hereby expressly agreed between the parties hereto that if the Purchaser fails to pay any of the instalments within the stipulated time or any extension thereof as mentioned under cl 2 hereof, the Vendors shall be entitled to forfeit all sums thencetofore paid by the Purchaser to the Vendors ... |
Clearly there is a typographical error. Clause 2 does not provide the stipulated time for the payment of the purchase price. It does not provide for any extension of the stipulated time for payment either. It is cl 3 that does that. A perusal of the agreement as a whole shows that to give a meaning that is not absurd to cl 5(a) and which will be in harmony with the rest of the terms of the agreement “cl 2” in cl 5(a) should be read as “cl 3”. Accordingly what in fact cl 5(a) provides is for forfeiture of the deposit of $2m in the event the balance of $6.1m is not paid within the three months stipulated by cl 3 or within four months if there had been the extension provided for by cl 3 which in fact was the position in that the extension was sought and obtained. The balance of $6.1m (and the interest for the extension) was, as has been seen, duly paid within the stipulated period. The vendors were and are not entitled to forfeiture pursuant to cl 5(a).
Another typographical error is seen in cl 8 where, reference is made to “any of the warranties given by the Vendors in cl 6 hereof ...” That this is an obvious typographical error can be seen from the fact that cl 6 does not provide or have reference to any warranties. The warranties given by the vendors are in cl 7. Clearly the agreement should be read with the words “cl 6” in cl 8 being replaced with the words “cl 7”.
Raja Abdul Aziz Addruse, counsel for the plaintiffs in contending that the non-application for the Foreign Investment Committee (FIC) approval did not entitle the defendants to treat the contract as discharged contends that there is yet anther typographical error which is in cl 6 where he says the reference to cl 2 should in fact be a reference to cl 3. It is contended that without such an amendment cl 6 is not in harmony with the rest of the terms and in fact makes for some absurdity. Clause 2 has been reproduced above. Clause 6 as follows:
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It is also further agreed between the parties hereto that if the Purchaser complies with cl 2 hereof and the Vendors fail to comply with their obligations under this Agreement to complete the sale the Purchaser shall be entitled to specific performance and all other legal remedies and damages available to them or alternatively at the choice of the Purchaser the return of all sums paid to the Vendors without interest. |
I find that it is indeed odd that the purchasers could insist on specific performance simply because they had sent in an application for FIC approval when cl 2 itself shows that the parties took the view that the outcome of the application was not important. This entitlement, at the option of the purchaser, for specific performance on the failure on the part of the vendors to complete the sale when the requirements of cl 2 had been met and when the requirement of cl 3 to pay up the balance of the agreed purchase price may not have been met, makes for an absurdity. To my mind it is clear that the most important obligation on the part of the purchasers in the instant case, as is the position in most sale and purchase agreements, was to effect payment of the agreed purchase price.
I pause here to look at cl 4 of the agreement. This provides for the vendor to deposit with stakeholders the share certificates together with the relevant memoranda of transfer duly executed in escrow in favour of the purchasers, the resignation of the vendors as directors of the company also executed in escrow and a resolution also executed in escrow appointing “the purchaser or their nominees as directors”. These documents have to be deposited after execution of the agreement. Clause 4 also provides a mandatory requirement that the stakeholders release the documents to the purchasers “upon their full settlement of the balance of the purchase price”. The usage of the plural with reference to the purchaser, that had been pointed out herebefore, is to be noted. However the real importance of this clause in the context of this trial is that it shows that once full payment was effected the vendors were committed to complete the sale. And it seems obvious to me that what the parties intended was to provide by cl 6 for specific performance in the event the whole of the $8.1m had been duly paid and not to provide for specific performance in the event FIC approval had been applied for. The stipulation for payment of the balance of the purchase price is in cl 3. It follows that the compliance required by cl 6 has to be a compliance with cl 3 of the agreement and not of cl 2. That would do away with the absurdity referred to herebefore and give a meaning to cl 6 that harmonises with the rest of the agreement and is in accord with common sense. Mrs. De Silva of Counsel for the defendants has contended that this aspect of the matter was not pleaded and since it was not, is not an issue. I, however, think that para 4 of the Reply covers the point.
In my judgment there is a typing error in cl 6 and in construing the agreement I have to and do read cl 6 by substituting the words “cl 2” therein with the words “cl 3”.
Mrs. De Silva has relied on the reading of cl 6 without the said substitution to submit that because of cl 6 the compliance of cl 2 of the agreement is a condition precedent to the purchaser seeking specific performance of the agreement in that there was interdependence between the two clauses. Australian Hardwoods Pty Ltd v Commissioner for Railways [1961] 1 WLR 425 and Measures Brothers Ltd v Measures [1910] 2 Ch 248 were cited.
However in view of my finding that there was that typographical error in the agreement as typed out, the interdependence is in fact between cll 6 and 3 and not between 6 and 2.
Wickman Machine Tool Sales Ltd v L Schuler A-G [1972] 1 WLR 840 is authority for the proposition that the function of the Court (in the context) is a strictly limited one namely, to give effect to the intention of the contracting parties as expressed in the language they employed in their concluded agreement, and that it is competent to the contracting parties to make the actual existence of anything a condition precedent to the inception of any contract and provided that has been made with clarity it is needless to inquire into the materiality of a breached term to the main purpose of the contract.
However the materiality of the breached term to the main purpose of the contract becomes relevant where the contract has not expressly or by clear implication made the term a condition precedent. In Wickman Sales (supra) a reference was made to the Hongkong Fir [1962] 2 QB 26 case, viz:
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... In the Hongkong Fir case Diplock LJ was dealing with circumstances where, regarding the contract as a whole, it was impossible to determine satisfactorily whether certain of its terms fell into either (and, if so, which) of the categories of ‘conditions’ and ‘warranties’; and he held that in such circumstances regard should be had to the consequences of non-compliance, pointing out that it is the drastic effect of the breach upon the contractual objectives which may in such cases release the innocent party from further performance of his obligations. It was in that way that the decision was regarded in Harbutt’s ‘Plasticine’ Ltd v Wayne Tank & Pump Co Ltd [1970] 1 QB 447. |
Particularly as I have corrected what I have held to be a typographical error in cl 6 by substituting “cl 2” there with “cl 3” and in any event the materiality of the purchaser not making the application required to be made by cl 2 of the agreement has to be enquired into to arrive at a decision as to whether, there having been a breach of cl 2, the vendors were entitled to rescind since not every failure to perform entitles the other party to treat the contract as discharged.
The Courts have distinguished between conditions and warranties, a breach of a condition entitling the other party to treat the contract as discharged while a breach of warranty sounding only in damages.
Another test applied has been to decide whether the provisions are independent or dependent. Independent provisions are illustrated by a tenant’s covenant to pay rent and the landlord’s covenant to repair: each is independent of the other and it has long been established that the tenant is not excused from paying rent even though the landlord has failed in his covenant to repair.
In order to provide for a more just test the Courts began to distinguish the more serious breach (which entitles the party to rescind) from the less serious breach (which entitles the other party only to damages). The question asked was whether the term breached is a fundamental or essential term. Lord Blackburn in Mersey Steel & Iron Co v Naylor Benzon & Co (1884) LR 9 App Cas 434 asked whether the failure to perform one part of the contract went to the root of the contract.
In the Hongkong Fir case Upjohn LJ thought (at p 63) that the rule was best stated by Lord Ellenborough CJ in Davidson v Gwyne 12 East 380, 389; 104 ER 149.
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The principle laid down in Boone v Eyre has been recognised in all the subsequent cases, that unless the nonperformance alleged in breach of the contract goes to the whole root and consideration of it, the covenant broken is not to be considered as a condition precedent, but as a distinct covenant, for the breach of which the party injured may be compensated in damages. |
In Vishram Arjun v Shankariah AIR 1957 Andhra Pradesh 784 the test applied was whether the term in the contract that was breached was essential to the main purpose of the contract.
As has been seen, the parties having by cl 2 provided for the purchaser to “forthwith” apply to the FIC for approval of the transaction, qualified and watered down that requirement by the second limb of that clause itself by the proviso that the sale of the shares was not to be affected by the late approval or even “non-approval” of the Foreign Investment Committee.
My attention has been drawn to the “Guidelines for the Regulation of Acquisition of Assets, Mergers and Takeovers” issued by the Government. The “guideliness” are no more than just that, that is, guidelines for the implementation of the Government’s policy of achieving a more balanced Malaysian participation in ownership and control of certain assets, business and companies, an aspect of the so-called New Economic Policy (NEP).
Now, the establishment of the FIC and the provision in the guidelines for obtaining the FIC approval are simply means to try and ensure that the NEP is implemented.
No doubt some aspects of the guidelines have been the motivating factor for the passing of relevant laws but the “guidelines” themselves have not the force of law and the need to obtain FIC approval for the acquisition of assets is not a statutory requirement. In fact a transaction could be in full accord with the NEP although FIC approval was not sought and obtained.
The public policy aspect of the matter was discussed by Counsel for the plaintiffs. Reference was made (in the context of illegality of a contract) to the scope of public policy as set out in Chitty on Contracts (25 Ed) para 1034 at page 548:
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Scope of public policy. Objects which on grounds of public policy invalidate contracts may, for convenience, be generally classified into five groups: first, objects which are illegal by common law or by legislation; secondly, objects injurious to good government either in the field of domestic or foreign affairs; thirdly, objects which interfere with the proper working of the machinery of justice; fourthly, objects injurious to marriage and morality; and, fifthly, objects economically against the public interest. |
Chitty itself recognises that certain cases do not fit clearly into any of these categories but here we need not have to be concerned with that. For the purposes of the instant case it can be said that the second and fifth of the said categories may be relevant.
The defendants have to show that the object of the contract falls into one or both those categories (or of any of the other categories). To do which they would have had to satisfy the Court that the NEP has come to be accepted as public policy and is not just the Government’s political policy — see Wan Hamzah J’s judgment in Ho Kok Cheong Sdn Bhd v Lim Kay Tiong [1979] 2 MLJ 224 and that the object of the contract runs foul of the NEP. This they have not tried to do or if they had, have not succeeded in doing.
Accordingly it is my judgment that the provision for seeking FIC approval in cl 2 of the agreement was an independent term not essential or fundamental to the primary object of the contract. It is a provision the breach of which does not go to the root of the contract. As has been seen the parties themselves have by cl 2 itself expressed their views on the effect of FIC approval:
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... all the terms and conditions herein inclusive of the terms of payment shall continue to be effective and binding notwithstanding any late approval or non-approval of the Foreign Investment Committee. |
The vendors were not entitled to consider themselves as discharged from their obligations under the contract because of the breach on the part of the purchasers of the requirements of cl 2 of the agreement. The breach of cl 2 sounds only in damages if any such damage had occurred by the breach.
An alternative plea by the plaintiffs is that contained in para 6 of the Reply — that the defendants’ conduct, particulars of which are given in para 6, was such that in any event they are estopped from alleging that the second plaintiff had breached cl 2 of the agreement or from relying on the alleged breach.
As has been seen, cl 4 provides for the release to the purchasers of the share scripts with duly executed memoranda of transfer (and all the necessary documents duly executed necessary to complete the transaction) forthwith upon settlement of the balance of the purchase price. Clause 3 refers to the date of payment as being the completion date. The contract clearly provides for the transaction to be completed on the completion date. Full payment of the balance was effected as required by cl 3 of the agreement. This was on 23 January 1982. 23 January 1982 thus became the completion date.
If the vendors had duly met their obligations they would have had deposited with the stakeholders those documents after the execution of the agreement and in good time to enable the stakeholders to “forthwith release ... the documents ... upon ... full settlement of the balance of the purchase price.” It is to be noted that the only condition precedent to the release of the documents imposed by cl 4 is the full settlement of the balance of the purchase price.
The documents, if they had been with the stakeholders, would have been released on or soon after 23 January 1982. However the documents had not been deposited as required by cl 4 or at all.
Even after that large amount of $6.1m (and interest) had been paid on 23 January 1982 there was no reaction of any sort from the vendors. Some 20 days later on 13 February 1982 the second plaintiff wrote two letters to the vendors’ solicitors each copied to Lee Kok Kuang who was considered by him to be the “spokesman” for the vendors. By one of those two letters the second plaintiff reminded the vendors of the need to pay to Asia Commercial Finance (M) Bhd some $2.5m by March 1982. In both the letters he shows his anxiety at the total lack of reaction on the part of the vendors. The next thing that happened seems to have been the discharge of M/s Shook Lin & Bok from acting as the solicitors for the vendors. This was at or about the end of February 1982. On 1 March 1982 the second plaintiff’s solicitors wrote to the said Asia Commercial Finance (M) Bhd enquiring what was owing to them. This letter was copied to the former solicitors for the vendors (and stakeholders) M/s Shook Lin & Bok, their new solicitors M/s Sri Ram & Co and to Lee Kok Kuang.
On 2 March 1982 there was at last a reaction from the erstwhile silent vendors. By a letter of that date they enquired whether the second plaintiff had applied for FIC approval. It is to be noted that this was some 38 days after the said date of completion.
I entirely agree with Raja Abdul Aziz Addruse’s submission that even if the vendors’
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silence & indifference could be excused for the period up to the payment of the balance, there can be no excuse for their continued indifference after the payment was made because upon the payment being made —
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Having silently stood by and allowed the purchasers to find and pay the balance of the purchase price and then wait for another 38 days before insisting on compliance of the requirement to apply to the FIC although the parties had expressly agreed that whether the FIC approval was obtained or not was not to have any effect on the contract is I think the height of inequity. Robert Goff J stated the principle of this aspect of equitable estoppel in Societe Italo-Belge v Palm Oils [1982] 1 All ER 19, 26, 27 thus:
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The fundamental principle is that stated by Lord Cairns LC, viz. that the representor will not be allowed to enforce his rights where it would be inequitable having regard to the dealings which have thus taken place between the parties. To establish such inequity, it is not necessary to show detriment; indeed, the representee may have benefited from the representation, and yet it may be inequitable, at least without reasonable notice, for the representor to enforce his legal rights. Take the facts of Central London Property Trust Ltd v High Trees House Ltd (1946) [1956] 1 All ER 256, [1947] KB 130, the case in which Denning J breathed new life into the doctrine of equitable estoppel. The representation was by a lessor to the effect that he would be content to accept a reduced rent. In such a case, although the lessee has benefited from the reduction in rent, it may well be inequitable for the lessor to insist on his legal right to the unpaid rent, because the lessee has conducted his affairs on the basis that he would only have to pay rent at the lower rate; and a court might well think it right to conclude that only after reasonable notice could the lessor return to charging rent at the higher rate specified in the lease. Furthermore it would be open to the court, in any particular case, to infer from the circumstances of the case that the representee must have conducted his affairs in such a way that it would be inequitable for the representor to enforce his rights, or to do so without reasonable notice. |
Lord Denning in WJ Alan & Co Ltd v El Nasr Export & Import Co [1972] 2 QB 189 said:
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If one party by his conduct, leads another to believe that the strict rights arising under the contract will not be insisted upon, intending that the other should act on that belief, and he does act on it, then the first party will not afterwards be allowed to insist on strict legal rights when it would be inequitable for him to do so. |
Another relevant fact in the instant case is the admission by the fourth defendant in his testimony that he had known about a month before 12 March 1982 (the defendants had by a letter of 12 March 1982 purported to repudiate the contract on the ground that FIC approval had not been applied for) that in fact application had not been made for FIC approval. If the defendants were all that concerned about the application for FIC approval, I would have expected them to have made enquiries on the position sometime prior to the completion date 23 January 1982.
Yet another matter is that the least one would have expected is that the purchase price of which $2m had been with the vendors since 1981 and the balance of $6.1m since 23 January 1982 would be released with the letter of repudiation. But that was only done about a month later on 9 April when $6.161m was returned. Explanations were given for the retention of $2m and for the delay. The explanation for the delay demonstrated a cavalier attitude on the part of the defendants — in fact the behaviour and conduct of the defendants right through showed a cavalier attitude not calculated to weigh in favour of the defendants when the equities are looked at.
This is a case involving the purchase of land by means of the purchase of the shares of the corporation owning the land and as such is a proper case for specific performance. On the facts and for the reasons given herebefore the plaintiffs are entitled to specific performance and to damages for the delay in completing the contract.
Accordingly there will be judgment for the plaintiffs. I order specific performance of the agreement of 6 October 1981. I further order that the defendants pay damages to the plaintiffs upon assessment of such damages in respect of which assessment directions will be given on application. The defendants will pay the costs of the action and of the assessment of damages.
Cases
Commissioner for Railways v Australian Hardwoods Pty Ltd [1961] 1 WLR 425; Measures Brothers Ltd v Measures [1910] 2 Ch 248; L Schuler A-G v Wickman Machine Tool Sales Ltd [1972] 1 WLR 840; Kawasaki Kisen Kaisha Ltd v Hongkong Fir Shipping Co Ltd [1962] 2 QB 26; Naylor Benzon & Co v Mersey Steel and Iron Co [1884] 9 1 LR App Cas 434; Gwyne v Davidson 12 East 380; 104 ER 149; Shankariah v Vishram Arjun [1957] AIR Andhra Pradesh 784; Lim Kay Tiong v Ho Kok Cheong Sdn Bhd [1979] 2 MLJ 224; Palm Oils v Societe Italo-Belge [1982] 1 All ER 19; El Nasr Export & Import Co v WJ Alan & Co Ltd [1972] 2 QB 189
Legislations
Contracts Act 1950: s. 183, s.184, s.185, s.186
Authors and other references
Chitty on Contracts (25 Ed)
Representation
Zainur Zakaria for the plaintiffs.
Izabella EH De Silva for the defendants.
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