COURT OF APPEAL, MALAYSIA
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www.ipsofactoJ.com/appeal/index.htm [2005] Part 1 Case 15 [CAM] |
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COURT OF APPEAL, MALAYSIA |
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Judgment
Nik Hashim JCA
(delivering the judgment of the court)
BACKGROUND
This appeal arose out of a sale and purchase agreement relating to several pieces of land in Sungai Petani which agreement was executed on March 20, 1997 between the appellant (plaintiff in the court below) as purchaser and the respondent (defendant in the court below) as vendor for a consideration of RM71,409,848.04. At the time of the execution of the said agreement, a sum of RM7,140,984.80 being 10% of the total purchase price, was paid by the appellant by way of deposit and to account of the total purchase price. The receipt of the said sum was acknowledged by the respondent under clause 2.1(a) of the agreement. Under clause 2.1(b) of the agreement, the balance of the purchase price were to be settled in two tranches as follows:
13% of the purchase price, i.e. RM10,711,477.20 was payable within 9 months on or before December 19, 1997; and
Final balance of 75% of purchase price i.e. RM53,557,386.04 was payable on or before December 19, 1997 but the appellant has a right to extension of time of 9 months for this payment upon payment of interest at 8%.
The appellant failed to pay the RM10,711,477.20 on December 19, 1997 nor the said RM53,557,386.04. On January 4, 1998 the respondent terminated the agreement and forfeited the deposit of RM7,140,984.80. The appellant filed a writ in the High Court applying for a declaration that the termination of the said agreement by the respondent was null and void, and the forfeited money of RM7,140,984.80 to be returned to the appellant with interest. On October 29, 2001 the learned judge dismissed the appellant's application with costs. In his judgment the learned judge found that the appellant had failed to pay the sum of RM10,711,477.20 due on or before December 19, 1997 as required under clause 2.1(b)(i) of the agreement, and that under clause 4.3, the respondent was to hand over the documents of titles only against payment of the entire purchase price. He was of the view that the time did not cease to be of the essence of the contract and that the termination of the contract and forfeiture of the deposit were not unconscionable or inequitable. Hence, this appeal.
ISSUES AND CONTENTIONS
The primary issue here is whether the respondent was entitled to terminate the contract and forfeit the deposit.
The contentions of the appellant broadly cover three areas, namely:
the respondent had failed to co-operate with the appellant to enable the completion of the contract in that the appellant had failed to meet the requirements set by the appellant's lender Maybank that the respondent was to deliver the land title to Maybank and create a lien-holder's caveat. The appellant alleged that the failure or refusal by the respondent to consent to lodgment of a lien-holder's caveat on the land in favour of Maybank for facilities granted to the appellant's associated company Country Heights Industries Sdn Bhd which was not a party to the sale agreement, is a non co-operation under clause 30; and
the time had ceased to be of the essence of the contract as the appellant was negotiating with the respondent over the mode and time of payment of RM10,711,477.20.
the conduct of the respondent was such that it would be just and equitable for the deposit to be returned to the appellant.
It is the contentions of the respondent that there was no provision in the agreement for the creation of a lien-holder's caveat and that such a caveat was inconsistent with the express terms of the agreement. The respondent was of the view that the creation of a lien-holder's caveat, by way of third party security, was unauthorized by law. With regard to time, the respondent argued that time had not ceased to be the essence of the contract as the respondent did not enter into any negotiation with the appellant but it was the appellant who wanted to meet the respondent. Further, in the circumstances of this case, the respondent's conduct was not unconscionable, and therefore, the deposit was rightly forfeited.
CLAUSES
Since the interpretations of certain clauses in the agreement are crucial in arriving at a decision in this appeal, the relevant clauses are reproduced below:
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4. |
Memorandum of Transfer ....
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6. |
Default by the Purchaser If the Purchaser fails neglects or omits to pay any sums payable under clause 2.1 herein or any part thereof within the time stipulated herein, the Vendor shall be entitled forthwith to terminate this Agreement and in such an event:–
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11. |
Time Time whenever mentioned shall be of the essence of this contract. |
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24. |
Entire Agreement This Agreement:–
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27. |
Amendments and Additions No amendment, variation, revocation, cancellation, substitution or waiver of or addition or supplement to, of any of the provisions of this Agreement shall be effective unless it is in writing and signed by the parties. |
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30. |
General Covenant Each party has entered into this Agreement in good faith and shall give all such assistance and information to the other party and execute and do and procure all other necessary person or companies, if any, to execute and do all such further acts, deeds, assurance and things as may be reasonably required so that full effect may be given to the terms and conditions of this Agreement. |
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32. |
Knowledge or acquiescence Knowledge or acquiescence by any party to or in any breach of any of the provisions of this Agreement shall not operate as or be deemed to be a waiver of such provisions and notwithstanding such knowledge or acquiescence, such party shall remain entitled to exercise its rights and remedies under this Agreement and at law and to require strict performance of all of the provisions of this Agreement. |
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33. |
Right and remedies The rights and remedies provided in this Agreement are cumulative, and are not exclusive of any rights or remedies of the parties provided at law and no failure or delay in the exercise or the partial exercise of any such right or remedy or the exercise of any other right or remedy shall affect or impair any such right or remedy. |
FINDINGS
Clause 24 is an entire agreement clause that constitutes a binding agreement between the appellant and the respondent with regard to all the matters mentioned in the contract and therefore, in our judgment, the contract does not permit any term to be implied or import any other considerations not in the contract. In Inntrepreneur Pub Co v East Crown Ltd. [2000] 3 EGLR 31 at p 32K-L right a somewhat similar provision to clause 24 is set out. In his judgment, Lightman J opined on the purpose and the effect of an entire agreement where at p 33A-B left he said:
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The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding, in the course of negotiations, some (chance) remark or statement (often long forgotten or difficult to recall or explain) upon which to found a claim, such as the present, to the existence of a collateral warranty. The entire agreement clause obviates the occasion for any such search and the peril to the contracting parties posed by the need that may arise in its absence to conduct such a search. For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that, accordingly, any promises or assurances made in the course of the negotiations (which, in the absence of such a clause, might have effect as a collateral warranty) shall have no contractual force, save in so far as they are reflected and given effect in that document. |
In that case, the learned judge ruled that evidence of a collateral contract was inadmissible. He further added at p 33D left:
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.... the formula used is abbreviated to an acknowledgment by the parties that the agreement constitutes the entire agreement between them. That formula is, in my judgment, amply sufficient to constitute an agreement that the full contractual terms to which the parties agreed to bind themselves are to be found in the agreement and nowhere else. That can be the only purpose of the provision. |
The principle on the entire agreement clause in Inntrepreneur Pub was followed by Abdul Aziz J (as he then was) in Macronet Sdn Bhd v RHB Bank Sdn Bhd [2002] 3 MLJ 11. There he ruled that the entire agreement clause precluded variation by oral agreement. At p 25G the learned judge said:
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My opinion is simply this. The entire agreement clause was an agreement between the plaintiffs and the defendants. In agreeing to the clause, the parties must be presumed to have known of the existence of s 92 and of the exceptions in it and to have intended what the clause intended, that is to exclude any attempt to vary the agreement by an oral agreement or statement, which attempt can only be made through the exceptions in s 92. By agreeing, therefore, to the entire agreement clause, the plaintiffs agreed not to resort to any of the exceptions in s 92. They cannot, therefore, be allowed to prove the second pre-contractual representation or the oral agreement and to rely on them. |
It is pertinent to note that there is no dispute on the provisions respecting payments under clause 2.1 of the agreement, and in the event of default by the appellant to pay any sums payable under clause 2.1, the respondent is entitled under clause 6 to terminate the agreement and forfeit the deposit as agreed liquidated damages. The deposit in the instant case is 10% of the purchase price and the percentage is not unusual in a contract for the sale of land. The fact that the amount of deposit is RM7,140,984.80 does not alter the position since 10% of the purchase price is normally a standard amount put as deposit. Lord Hailsham LC said in Linggi Plantations Ltd v Jagatheesan [1972] 1 MLJ 89:
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There is nothing unusual or extortionate in a 10% deposit on a contract for the sale of land. |
It is common ground that the appellant paid the deposit of 10% and the subsequent payment of RM10,711,477.20 was not paid on or before December 19, 1997 by the appellant. Both parties held each other in breach of the agreement and treated the agreement at an end save for the issue of whether the deposit was rightly forfeited or should be refunded.
LIEN HOLDER'S CAVEAT
With regard to the respondent's refusal to consent for the creation of a lien holder's caveat in favour of Maybank, we are of the view that in the circumstances of this case, the refusal was justified. Clause 30 of the agreement which the appellant called a "good faith" clause, is confined to co-operation for doing acts or things authorized or permitted under the terms set out in the agreement and certainly does not extend to matters not provided for in the agreement. The clause does not mean that the respondent must do whatever to please the appellant even to the extent of exposing the respondent to loss and detriment. The interpretation of the clause along the line of business common sense and customary practice as suggested by the appellant are not supported by authority. The agreement does not provide for the creation of a lien and by the omission in the agreement for such a lien, it is not open to the appellant to request for the creation of the lien. The only reference to security in the agreement is a charge. The terms in the agreement are exhaustive and mandatory in nature. It follows that the court has no alternative but to interpret the agreement strictly in accordance with its own terms.
The creation of a lien is also inharmonious with the express terms of clause 4.3 of the agreement that the original document of titles and memorandum of transfer only be handed over to the appellant against the payment of the full purchase price, and not earlier. Pending full payment of the purchase price, the respondent's solicitors shall hold the original titles as stakeholder. If the titles are delivered to the purchaser before full payment of the purchase price i.e. contrary to clause 4.3, then the respondent's solicitors shall be in breach of their duty as stakeholder and shall be exposed to liabilities.
The appellant contends that there is nothing in the National Land Code 1965 (NLC) to prohibit the creation of third party lien holder's caveat. Whilst it is true that there is no prohibition as such in the NLC, but, quite apart from the absence of an obligation relating to the lien-holder's caveat in the agreement, the plaintiff had not shown why the respondent should allow its land to be used as security under a lien to the appellant to finance the commercial operations of the appellant and or its associated company, Country Heights Industries Sdn Bhd, when the respondent was not immediately paid the 15% and 75% of the purchase price.
Further, the creation of a lien holder's caveat, by way of third party security, would prejudice the respondent. The lender Maybank in return for an offer of a credit facility of RM80m to Country Heights Industries Sdn Bhd in its letter dated August 30, 1997 at p 285 of the appeal record, required a lien-holder's caveat from the respondent pending the creation of a charge by the appellant. Pending the creation of the charge, the respondent's land becomes security for the loan to Country Heights Industries Sdn Bhd. The respondent would not be paid the 15% and 75% of the purchase price immediately but would be paid according to the terms stipulated in the agreement even though the full loan sum was released to and used by Country Heights Industries Sdn Bhd. The facility far exceeded the purchase price. The obvious risk is that in the event of default by Country Heights Industries Sdn Bhd, the respondent's land would be sold and the respondent would not be paid the balance of the purchase price. Thus, the respondent would be exposed to unnecessary risk of parting with the titles without the payment.
Consequently, we agree with the respondent's stand that since a lien holder's caveat is not provided for in the agreement and is inconsistent with the express terms of the agreement, nor is there any such implied term to create a lien pleaded in the appellant's statement of claim, the issue of lien holder's caveat is wholly irrelevant in the present case. Therefore, there was nothing unreasonable in the respondent's conduct in protecting its own position and its own land to refuse to execute a lien holder's caveat. The appellant, through Tan Sri Lee Kim Yew's letter dated January 2, 1998 (at p 379 record of appeal) to the respondent even accepted the position that a lien-holder's caveat cannot be created.
TIME
We now deal with the question of time. The appellant claimed that there were negotiations and therefore without reinstating time to be of the essence by giving the appellant reasonable notice to complete the purchase, the respondent ran foul of the principle in Wong Kup Sing v Jeram Rubber Estates Ltd [1969] 1 MLJ 245 where Raja Azlan J (as he then was) at p 247G right said:
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Once the time for completion was allowed to pass and the parties went on negotiating, then time was no longer of the essence of the contract and the defendants must give a reasonable notice of their intention to abandon the contract if the balance of the purchase money was not paid .... |
And at p 248C left His Lordship continued:
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It would therefore be inequitable, in view of the dealings which had taken place between the parties, to allow the defendants to enforce his strict legal rights against the plaintiff which he had been led to believe would not be enforced against him. |
The facts in that case are readily distinguishable, and therefore, it follows that the principle therein is not applicable to the present case. Unlike in that case, the respondent here never allowed any extension of rime for completion but insisted on payment on the due date. The respondent by letter dated November 15, 1997 reminded the appellant that the 13% payment was due on December 19, 1997. The appellant by letter dated December 15, 1997 sought an extension of time to pay due to the "current economic situation" but the request was rejected by the respondent in its letter dated December 16, 1997. It is to be noted that economic slowdown is not a good reason for failing to pay the balance of purchase price. Further, in the present case, the appellant's witness, SP2 in his testimony, maintained that the appellant had the cash to pay the 15% payment on December 19, 1997 and yet the appellant did not pay. Since the appellant confirmed that it had the money to pay, the alleged failure on respondent to co-operate to consent for the creation of a lien holder's caveat is therefore irrelevant as it is the appellant who refused to pay the 15% of the purchase price on the due date.
The importance of time with regard to payment of purchase price needs no emphasis. If emphasis is still needed we can do no better than to refer to the Privy Council case in Union Eagle Ltd v Golden Achievement Ltd [1997] 2 All ER 215 where it was held that a 10-minute delay in tendering the purchase money on account of traffic congestion was fatal. In the instant case, the learned judge found as a fact that there was no extension of time granted or even no negotiation for extension of time. As such, the parties were bound by clause 11 of the agreement which states very clearly that time shall be of the essence of the contract.
The learned judge also found as a fact that there was no negotiation between the parties. The meeting on January 2, 1998 was initiated and requested by the appellant and Tan Sri Lee Kim Yew, the only person who spoke on behalf of the appellant at the meeting, had chosen not to testify in this proceeding. On the other hand, SD2 the only person who spoke on behalf of the respondent, testified that there was no negotiation whatsoever and at the commencement of the meeting, SD2 had made clear to Tan Sri Lee Kim Yew and the appellant that the respondent's representative had no mandate or power to negotiate. This is what the learned judge said on the meeting at pp 7-8 of his judgment [translation[a]:
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According to that letter at p 123 ABD, the meeting of January 2, 1998 was at the request of the plaintiff and was admitted by SP1 during trial. The meeting did not result in any negotiation, as unfortunately the defendant's representative has no mandate to make any decision. I have studied the plaintiff's letter of January 2, 1998 concerning the negotiation at the meeting. I found that the plaintiff's representative spoke. Defendant's representative only listened. Plaintiff's representative explained the lien holder's caveat. Defendant's representative only listened. In my opinion, in such situation the defendant was not negotiating for extension of the payment period for balance purchase price. |
Thus, on the facts, the learned judge was correct to conclude that there was no negotiation.
Furthermore, clause 27 of the agreement expressly provides that any variation to the agreement must be in writing. Until an agreement in writing is reached by the parties, all rights and obligations under the agreement remain valid and enforceable. The meeting on January 2, 1998 did not result in any agreement in writing, hence the provisions of the agreement remained intact and unaltered. Besides, clause 32 prevents the operation of waiver or acquiescence on the rights of the parties; and that the parties are entitled to demand strict performance of the provisions of the agreement.
TERMINATION
On the question of termination, the appellant complained that the respondent did not terminate the agreement immediately, but allowed the date of December 19, 1997 to pass and participated in the meeting of January 2, 1998. And as such, there would have been a clear need to fix a new date for payment.
With respect, we do not agree with the appellant. We agree with the respondent that there is no need for immediate termination. The termination of the agreement took place on January 4, 1998, i.e. 16 days after the due date December 19, 1997. On the evidence, there was no waiver by the respondent on its rights with regard to the payments on the due date under the agreement. Under clause 33, failure or delay to exercise the right to forfeit immediately shall not affect or impair the respondent's right to forfeit. Hence by the provision, the respondent's right to forfeit under the agreement is not lost by the delay.
FORFEITURE
The obligation to pay the purchase price is a fundamental obligation. The Court of Appeal in Ching Yik Development Sdn Bhd v Setapak Heights Development Sdn Bhd [1997] 1 AMR 89; [1996] 3 MLJ 675 at p 682 ruled:
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Absent of any special considerations in a contract for the sale of land, the obligation to pay the purchase price is fundamental. |
Thus, any breach for non payment of the purchase price shall go to the root of the agreement thereby rendering the agreement terminated and the deposit forfeited (Siah Kwee Mow v Kulim Rubber Plantations Ltd [1979] 2 MLJ 190). In the instant case, where time was stipulated as of the essence, the respondent was entitled to forfeit the deposit on account of the appellant's breach to pay the balance of purchase price on time. (see Sun Properties Sdn Bhd v Happy Shopping Plaza Sdn Bhd [1987] 2 MLJ 711).
It is therefore irrelevant in the present case how the appellant made its arrangements to pay the purchase price. The purchase price must be paid on schedule. The economic slowdown is not relevant and does not excuse the breach of fundamental obligations to pay the balance of purchase price. Such events do not provide a basis for relief (see Re Hong Huat Realty (M) Sdn Bhd [1987] 1 MLJ 502 at p 507; Highceed Corp Sdn Bhd v Warisan Harta Sabah Sdn Bhd [2000] 5 MLJ 337). So, the appellant's failure to pay the 15% of the purchase price was clearly a breach of contract entitling the respondent to forfeit the deposit. The deposit in the instant case was 10% of the purchase price. Such sum is a reasonable sum and is not an unconscionable amount. The respondent was not required to prove that it had suffered any damage before it could forfeit the deposit (Morello Sdn Bhd v Jaques (International) Sdn Bhd [1995] 1 AMR 873; [1995] 1 MLJ 577).
The clauses in the sale and purchase agreement are complete and unambiguous in their terms that there can be no other construction possible then the one which was held by the learned judge. Lord Cottenham LC in Lloyd v Lloyd [1837] 2 My&Cr 192, 202 once said: If the provisions are clearly expressed, and there is nothing to enable the court to put upon them a construction different from that which the words import, no doubt the words must prevail, (see Delta Enterprises Sdn Bhd v Asia Commercial Finance (M) Bhd [2005] 2 AMR 297; [2005] 1 CLJ 501).
It is our judgment that on a proper reading of the various clauses of the agreement and the evidence tendered in court, the agreement was lawfully terminated, and the RM7,140,984.80 being 10% of the purchase price, is a true deposit and was validly and properly forfeited by the respondent. The respondent was not in breach of the agreement; neither it was guilty of any unconscionable conduct. The learned judge was right in dismissing the appellant's claim. The appeal is accordingly dismissed with costs and the deposit be paid to the respondent to account of taxed costs.
Cases
Ching Yik Development Sdn Bhd v Setapak Heights Development Sdn Bhd 1997] 1 AMR 89; [1996] 3 MLJ 675, CA; Delta Enterprises Sdn Bhd v Asia Commercial Finance (M) Bhd [2005] 2 AMR 297; [2005] 1 CLJ 501, CA; Highceed Corp Sdn Bhd v Warisan Harta Sabah Sdn Bhd [2000] 5 MLJ 337, HC; Hong Huat Realty (M) Sdn Bhd, Re [1987] 1 MLJ 502, HC; Inntreprenuer Pub Co v East Crown Ltd [2000] 3 EGLR 31, Ch D; Linggi Plantations Ltd v Jagatheesan [1972] 1 MLJ 89, PC; Lloyd v Lloyd [1837] 2 My & Cr 192; Macronet Sdn Bhd v RHB Bank Sdn Bhd [2002] 3 MLJ 11, HC; Morello Sdn Bhd v Jaques (International) Sdn Bhd [1995] 1 AMR 873; [1995] 1 MLJ 577, FC; Siah Kwee Mow v Kulim Rubber Plantations Ltd [ 1979] 2 MLJ 190, HC; Sun Properties Sdn Bhd v Happy Shopping Plaza Sdn Bhd [1987] 2 MLJ 711, SC; Union Eagle Ltd v Golden Achievement Ltd [1997] 2 All ER 215, PC; Wong Kup Sing v Jeram Rubber Estates Ltd [1969] 1 MLJ 245, HC.
Legislations
National Land Code 1965
Representations
Logon Sabapathy and H.M. Ooi (Logan Sabapathy) for appellant
R.R. Sethu and C.E. Chuah (Ng & Anuar) for respondent
Notes:–
[a] Translation is not a part of the original judgment.
This decision is also reported at [2005] 3 AMR 378
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