Dynamic Mould Sdn Bhd

- vs -

Ideal City Development Sdn Bhd

Judgment

Faiza Tamby Chik J

1. The summons-in-chambers dated May 19, 1998 (Encl 4) is for summary judgment under Order 81 r 1 (1)(c) of the High Court Rules 1980 inter alia for a refund of the deposit sum of RM608,751 which was paid pursuant to a sale and purchase agreement dated July 21, 1997. The plaintiff and the defendant have entered into a sale and purchase of an industrial land held under GM 443 Lot No 1010 in the Mukim of Cheras, in the district of Hulu Langat ("the said property") at the total purchase price of RM6,087,510 subject to the terms and conditions as stated in the agreement (Exh CJK-4). The said agreement is conditional upon the FIC's consent / approval for the sale being obtained and the same shall be obtained within three (3) months from the date of the agreement which was on or before October 20, 1997. In the event the said consent / approval was not obtained or rejected within the stipulated time, the deposit sum shall be refunded to the plaintiff and the agreement shall be deemed as null and void. The plaintiff claimed that they were entitled to the refund of the deposit sum of RM608,751 pursuant to Clause 16(d) of the said agreement on the grounds that:

   1. The said agreement was void and frustrated when the Foreign Investment Committee (FIC) did not approve the sale through FIC's letter dated October 17, 1997 which neither the plaintiff nor the defendant had control over and;

   2. The reply from the FIC was received by the plaintiffs solicitors on October 22, 1997 which the same was obtained after three (3) months period provided which did not comply with Clause 16(b) of the agreement which stated that time shall be the essence of the agreement and;

   3. The FIC through the letter dated February 17, 1998 rejected the plaintiff s appeal to waive the condition and maintained the refusal for the said sale and;

   4. The defendant was in breach of the agreement by prematurely terminating the said agreement and therefore unlawfully forfeiting the said deposit sum.

2. Enclosure 4 is supported by an affidavit of Chan Jan Kow affirmed on July 18, 1998 (Encl 5) and the defendant had filed their affidavit-in-reply affirmed on July 13, 1998 (Encl 10). The writ of summon is in Encl 2 and the defence and the counterclaim are in Encl 3.

3. The terms and conditions as stipulated in the said agreement inter alia stated that:

   1. The defendant acknowledged receive a sum of RM608,751 paid to the defendant as earnest deposit of 10% towards the total purchase price (Clause 1(a)(i) of Exh CJK-1  Encl 4);

   2. The balance of the purchase price shall be paid to the defendant's solicitors as stakeholder within six months from the date of the agreement which was on or before January 20, 1998 (the completion date) (Clause (a)(ii) of Exh CJK-1 of Encl 4).

   3. The defendant expressly agreed to allow the plaintiff an automatic extension of two (2) months to settle the balance sum which was on or before March 20, 1998 (extended completion date) (Clause 1 (b) of Exh CJK-1 of Encl 4).

   4. The defendant has a right to forfeit the deposit sum in the event of the infringement of Clause 1 of the agreement by the plaintiff (Clause 6(a) of Exh CJK-1 of Encl 4).

   5. Time shall be the essence of the said agreement (Clause 14 of Exh CJK-1 of Encl 4).

   6. The said agreement was conditional upon the relevant consent / approval being obtained from the FIC for the sale of the said property (Clause 16(a)(i) of Exh CJK-1 of Encl 4).

   7. The said consent / approval shall be obtained within three (3) months from the date of the said agreement which was on or before October 20, 1997 (Clause 16(b) of Exh CJK-1 Encl 4)

   8. In the event the said approval / consent were not obtained or rejected within the stipulated time through no fault or omission of the plaintiff or the defendant, the plaintiff shall have option of either:

      1. to grant an extension of time for the duration it deems fit; or

      2. to terminate this agreement in which event all money paid to the defendant shall be immediately refunded to the plaintiff free from interest and the agreement shall be deemed to be cancelled and of no effect. (Clause 16(d) of Exh CJK-1 of Encl 4).

   9. The defendant authorised and consented to a private caveat being lodged by the plaintiff against the said property to prevent any further dealings affecting the same (Clause 17 of Exh CJK-1 of Encl 4).

   10. Any notice, request or demand requiring to be served by either party hereto to the other under this agreement shall be in writing and shall be deemed to be sufficiently served (Clause 20 of Exh CJK-1 of Encl 4).

4. The plaintiff through his solicitors M/s Kong Kim Leng & Co had on August 6, 1997 applied to the FIC for the said consent / approval to the sale (Exh CJK-2 of Encl 4). The plaintiff's solicitors received the reply from the FIC on October 22, 1997 which was after the three (3) months period (Exh CJK-3 of Encl 4). The FIC in their reply dated October 17, 1997 stated as below:

   FIC tiada halangan terhadap cadangan seperti diperenggan 1.1 tertakluk kepada syarat Dynamic Mould Sdn Bhd mengadakan sekurang-kurangnya 30% ekuiti Bumiputra sebelum 31.12.1998. [Exh CJK-3 of Encl 4] [Translation: The FIC does not object the proposal in paragraph in 1.1 subject to the condition that Dynamic Mould Sdn Bhd has at least 30% bumiputra equity before 31.12.1998.][a]

5. The plaintiff through their solicitors, appealed to the FIC to waive the condition imposed on the grounds stated in their letter dated October 27, 1997 (Exh CJK-4 of Encl 4). The plaintiffs solicitors on January 2, 1998 wrote to the defendant's solicitors to invoke Clause 16 of the said agreement on the ground that the FIC had refused to give consent / approval for the sale through the FIC's letter dated October 17, 1997 (Exh D-4 of Encl 7). The plaintiff through their letter dated January 6, 1998 wrote to the defendant's estate agent Ng Chan Mao Co to 'seek an amicable consent to cancel the purchase deal' due to the economic slowdown but neither the defendant nor the defendant's solicitors had replied to the said letter (Exh CJK-3 of EncI 8).

6. Before the extended completion date expired which was on or before March 20, 1998, the defendant through their solicitors wrote to the plaintiffs solicitors in their letter dated February 10, 1998 to forfeit the 10% deposit amounting to RM608,751 on the ground that the plaintiff had failed to pay the balance sum within the stipulated time (Exh CJK-6 of EncI 4).

7. At about the same time the FIC through their letter dated January 17, 1998 rejected the plaintiff's appeal to waive the FIC's condition and maintained their refusal as stated in their first letter dated October 17, 1997 (Exh CJK-5 of Encl 4). Then, on February 25, 1998 the plaintiffs solicitors wrote to the defendant's solicitors informing them that the plaintiffs appeal to waive the condition imposed was rejected by the FIC and that also the conditional approval did not amount to an approval and that the agreement was thereby frustrated (Exh CJK-7 of EncI 4). In reply to the plaintiffs solicitors letter dated February 25, 1998, the defendant's solicitors wrote a letter dated February 25, 1998 informing them about the forfeiture of the deposit sum on the ground that the plaintiff chose not to comply with the condition imposed by FIC (Exh CJK-8 of Encl 4).

8. In this case the plaintiff and the defendant were bound with the terms and conditions as stipulated in the sale and purchase agreement dated July 21, 1997 and the said agreement was conditional upon the FIC's consent / approval being obtained within the stipulated time for the sale of the said property. A 'conditional agreement' or 'contingent contract' (i.e. the expression used in the Contracts Act 1950) is defined in the Concise Dictionary of Law, Oxford Reference, 2nd Edn, 1991, p 85 as:

   an agreement that will take effect, if at all, upon the happening of some uncertain event.

   Section 32 of the Contracts Act 1950 provides that,

   'Contingent Contract’ is a contract to do or not to do something, if some event, collateral to the contract, does or does not happen.

   The word "condition" in the Concise Dictionary of Law, p 84 is defined as:

   1.	A major term of a contract. It is frequently described as a term that goes to the root of a contract or is of the essence of a contract;
   2.	A provision that does not form part of a contractual obligation but operates either to suspend the contract until a specified event has happened (a condition precedent) or to bring it to an end in specified circumstances (a condition subsequent)...

9. In the case of National Land Finance Co-operative Society Ltd v Sharidal Sdn Bhd [1983] 2 MLJ 211 the Federal Court defined the word "condition" in two senses in which the word is used, that is:

   • First, it is used in the sense of a condition as opposed to a warranty.

   • Secondly, it is used in the sense of a contingent contract (precedent or subsequent) as opposed to a promissory condition.

   In the case of National Land Finance Co-operative Society Ltd, the sale and purchase agreement was also conditional upon the FIC's approval for the completion of the sale, and the court had discussed the word 'condition' in the second sense, whether the condition to obtain the FIC's approval as stated in the said agreement is a contingent condition or a promissory condition. The Federal Court stated as follows:

   A contingent condition ... is a provision in a contract to the effect that the contract shall not take effect unless and until the condition is fulfilled, and the non fulfillment of the condition does not render either party liable in damages to the other; whilst a promissory condition... is an essential term of the contract, the breach of which entitles the innocent party to break itself as discharged from the contract and to sue for damages.

   and accordingly decided that the requirement of FIC's approval for the completion of sale is a contingent condition and said:

   It is therefore obvious that the parties have entered into a contract of sale contingent upon the approval of the transaction by the FIC over which the parties had no control. There was no promise, nor guarantee that such approval would be given. Such a condition, in our judgment, is more than a mere essential stipulation of the contract, a breach of which entitles a innocent party to regard itself as discharged from further performance and to sue for damages.

10. In point of fact, National Land Finance Co-operative Society Ltd had followed the principles held in the case of Aberfoyle Plantations Ltd v Khaw Bian Cheng [1960] 2 MLJ 47, where the condition to obtain the renewal of lease from the State Authority in Aberfoyle was the same with the condition to obtain FIC's approval in the National Land Finance case, where both conditions were in the category of contingent condition and not promissory condition:

11. In the National Land Finance case, it was held that:

    whether it is held that the requirement as to approval is a contingent condition or as a mere promissory condition the result would not be different. In the first case there was no agreement to enforce until the requirement was satisfied and the deposit was returnable under the provision of the agreement itself as there was no ground for withholding it any longer; whereas in the second case although there was a subsisting contract, it was, however, defeated or frustrated by a supervening event, which is the non-fulfillment of the requirement, and in this case also the deposit was refundable as money held and received for the use of the appellants who paid it.

12. The National Land Finance case also ruled that the effect of the non-fulfillment of the contingent contract as a condition which is known in the law of contract as a contingent condition is that a contract shall not take effect unless and until the condition is fulfilled.

13. In the case of Jaafar lbrahim v Gan Kim Hin [1985] 2 MLJ 24, the appellant failed to obtain an approval for conversion and subdivision to the land from the State Authority within the specified time and the court held that:

    the agreement (to obtain the approval from the State Authority within the specified time) was a conditional agreement or contingent contract, and as the dead line for performance of the contingent condition has lapsed, the agreement was null and void and the appellant had no claim against the respondent.

14. Section 36(1) of the Contract Act 1950 provides that:

    Contingent contracts to do or not to do anything if a specified uncertain event happens within a fixed time become void if, at the expiration of the time fixed, the event has not happened, or if, before the time fixed, the event become impossible.

    and s 33 of the Contracts Act 1950 provides that:

    (a)	Contingent contracts to do or not to do anything if an uncertain future event happens cannot be enforced by law unless and until that event has happened.
    (b)	If the event becomes impossible, such contracts become void.

15. In the instant case they did not obtain the FIC approval and that meant that the contingent event became impossible and the agreement therefore, became void and frustrated pursuant to Clause 16(d) of the agreement.

16. This is a straight forward case, where the plaintiff and the defendant entered into and signed the said agreement which was conditional upon the FIC's consent / approval being obtained within the stipulated time; it is a contingent contract. And the requirement of the FIC's approval to the sale is also a condition precedent. Therefore, when the FIC refused to approve the sale through the FIC's letter dated October 17, 1997, the said agreement was deemed to be suspended and of no effect pursuant to Clause 16(d) of the said agreement. Since the FIC had refused to approve the sale which neither the plaintiff nor the defendant had control of the plaintiff in exercising their right and / or option pursuant to Clause 16(d) of the agreement, wrote to the defendant's solicitors on January 2, 1998 to exercise their option to terminate the agreement on the ground of the FIC's refusal.

17. The agreement was conditional upon the FIC's approval for the sale being obtained within the stipulated time. This meant that the said agreement cannot be enforced unless and until the approval was obtained. When the FIC refused to give the approval to the said sale, the agreement was void and frustrated by itself and the plaintiff and the defendant had no right to claim against each other since neither of them had control of it. The same situation obtained with the FIC's letter, where the FIC's letter was conditional upon the plaintiff to fulfill the condition imposed. So, when the plaintiff was unable to fulfill the said FIC's condition, no approval was given by the FIC to the sale and as a result the agreement was void and frustrated and cannot be enforced and both parties also cannot proceed with the said agreement.

18. This principle was enumerated in the case of National Land Finance Co-operative Society Ltd where it was stated at p 218:

    Until the FIC approval was given liability for further performance remained unenforceable i.e. suspended although neither the respondents nor the appellants could resile from it until it could be definitely ascertained that the condition could not be fulfilled.

19. The defendant claimed that the FIC's letter dated October 17, 1997 was an approval letter, in fact it was not. Even if the FIC's letter dated October 17, 1997 was construed as a conditional approval, the same did not amount to an approval as required under Clause 16(d) of the agreement. In the case of National Land Finance Co-operative Society Ltd, it was decided that, a conditional approval did not amount to an approval as provided under Clause 2(a) of the agreement which was the same as Clause 16(a)(i) of the agreement in the instant case. The Federal Court stated:

    In our judgment too even if the FIC's letters are construed as conveying a conditional approval, it is still not an approval within the meaning of Clause 2(a) of the Agreement.

20. The FIC's letter dated October 17, 1997 stated:

    ... FIC tiada halangan terhadap cadangan seperti di perenggan 1.1 tertakluk kepada syarat Dynamic Mould mengadakan sekurang-kurangnya 30% ekuiti Bumiputra sebelum 31 hb. Disember, 1998. [Translation: see paragraph 4]

21. In the National Land Finance case the vendor (plaintiff) and the purchaser (defendant) entered into a conditional agreement upon the FIC's approval being obtained for the sale. The purchaser (defendant) applied to the FIC and the FIC in their reply said that, they have no objection but on condition that a Bumiputra holding at least 30% of the company's equity to own the company. The purchaser (defendant) appealed to the FIC to waive the condition and to allow the purchaser to buy the said property without condition but the FIC dismissed the appeal. It was held that, 'the approval was not approved through the first letter of the FIC which the FIC says 'has no objection'. And due to the refusal of the FIC to approve the sale, the agreement was void and frustrated with neither the purchaser nor the vendor having control of it. The Federal Court stated:

    the agreement became void because of the refusal of Foreign Investment Committee to approve the sale over which neither the appellants nor the respondents had control...

22. It is observed that the same facts and issue in the instant case when the plaintiff and the defendant entered into a conditional agreement upon the FIC's approval being obtained. Then the plaintiff applied to the FIC, and the FIC in their reply said that they 'have no objection but subject on condition that a Bumiputra holding at least 30% of the Company's equity to own the property'. The plaintiff appealed but the FIC rejected the appeal through the FIC's letter dated February 17, 1998. What is being understood here is that the word 'have no objection' means that, it is FIC's policy to give an approval to the sale but in certain cases there is a condition to be fulfilled, if the condition is not fulfilled there is no approval.

23. It is observed that the plaintiff was interested to purchase the said property and that was the reason why the plaintiff appealed to the FIC to waive the condition through their letter dated October 27, 1997 Exh CJK-4 of Encl 4) but the same was rejected by the FIC through their letter dated October 17, 1998 (Exh CJK-5 of Encl 4). The plaintiffs solicitors letter dated October 27,1997 to the FIC was merely an appeal letter and cannot be construed as to waive the condition as stated in Clause 16(b) of the agreement (that is to obtain the FIC's approval within three (3) months from the date of agreement) and / or to revoke the condition as stated in Clause 16(d) of the agreement (that is to give an extension of time to obtain the FIC's approval).

24. In the case of Aberfoyle Plantations Ltd the Privy Council had laid down some ratio applicable to a conditional or contingent contract which inter alia was stated as follows (see p 47):

    Where a conditional of sale fixes (whether specifically or by reference to the date fixed for completion) the date by which the condition is to be fulfilled then the date so fixed must be strictly adhered to and the time allowed is not to be extended by reference to equitable principles.

25. I am in full agreement with the above-mentioned ratio and therefore in the instant case, I am of the view that there was no waiver or revocation on the part of the plaintiff of Clause 16(b) and Clause 16(d) of the agreement. Besides a close perusal of the agreement will show that if the plaintiff had any intention to grant such an extension of time to obtain the said approval, it must be done in writing to the defendant pursuant to Clause 20 of the agreement but there was no such documentary evidence here. In point of fact, the rejection letter by the FIC to the plaintiff s appeal supported the plaintiff s claim that the FIC through their letter dated October 17, 1997 had disapproved the sale of the said property.

26. Following the FIC's refusal for the sale, the plaintiff in exercising their right and / or option under Clause 16(d) of the agreement through their solicitors' letter dated January 2, 1998 wrote to the defendant's solicitors for the purpose of invoking Clause 16(d) of the agreement. The defendant had not replied or responded to the said letter for more than one (1) month until the plaintiffs solicitors received the defendant's notice of termination dated February 10,1998 from the defendant's solicitors. Meanwhile, the plaintiff’s letter dated January 1,1998 which was addressed directly to the defendant's estate agent Ng Chan Mao Co was merely a proposal letter 'to seek an amicable consent to cancel the purchase deal' due to the economic slowdown at that time which situation was beyond the control of the plaintiff and also that the defendant. Therefore, I hold that the said letter did not amount to an act of termination by the plaintiff (Exh CJK-3 of Encl 8). The letter reads:

    In the light of this unprecedented crisis which is beyond our control we have no alternative but to seek your amicable consent to cancel this purchase deal and refund us the deposit monies of RM608,750. Your kind consideration and acceptance of our proposal is very appreciated.

27. It is noted that neither the defendant nor the defendant's solicitors had raised or responded to this letter until the plaintiff had taken the legal proceeding against the defendant. Therefore, there was no termination act or notice as such from the plaintiff.

28. The defendant through their solicitors' letter dated February 10, 1998 had terminated and forfeited the deposit sum of RM608,751 on the ground that the plaintiff had failed to pay the balance sum within the stipulated time. But, the time period to pay the balance sum i.e. the completion date for the sale had not expired yet. It was on or before March 20, 1998 (Clause 1(b) of the agreement). And for the second time, the defendant through their solicitors' letter dated February 26, 1998 had terminated and forfeited the deposit sum on the other ground that the plaintiff chose not to comply with FIC's condition. But the fact is, the agreement was void and frustrated because of non-approval by the FIC.

29. It can be observed that under the agreement dated July 21, 1997, the defendant had no right at all to forfeit the deposit sum when the time period of the completion date was not over or expired yet. Clause 6(a) of the agreement stated that, the defendant had a right to forfeit the deposit sum only if the plaintiff had infringed Clause I of the agreement, which was failure to pay the balance sum within the stipulated time. But there was no breach of Clause 1 of the agreement by the plaintiff. I am of the opinion that the defendant actually had no valid reasons to forfeit the said deposit sum. The fact was the defendant had wrongly calculated the actual time period of the completion date which was on or before March 20, 1998 and not January 20, 1998 (see Clause 1 (a)(i), (ii) and (b) of the agreement). In the circumstances, both letters can be considered as premature termination notices by the defendant and it amounted to a fundamental breach of the terms and conditions of the agreement.

30. Hence, the defendant had unlawfully forfeited the deposit sum and prematurely terminated the said agreement.

31. The issue whether the plaintiff was interested or not to purchase the said property is not relevant at all in the instant case, because until to date the plaintiff s intention to purchase the said property has been frustrated by the FIC's condition and moreover, the plaintiffs appeal to purchase the said property without condition was also rejected by the FIC. Even if the plaintiff and the defendant were still proceeding with the sale and purchase of the property, the transaction cannot be effected and / or completed since the said property cannot be registered in favour of the plaintiff. This is because the FIC had made a carbon copy of their refusal letter dated October 17, 1997 to the Pengarah, Pejabat Tanah dan Galian, Selangor for the purpose of preventing any transaction made between the plaintiff and the defendant without getting prior approval from the FIC (Exh CJK-3 of Encl 4).

32. Time shall be the essence of the agreement. The agreement is conditional upon the FIC's approval being obtained for the sale. And the said approval shall be obtained within three (3) months from the date of the agreement which was due on or before March 20, 1998. Unfortunately, the plaintiff's solicitors only received the said letter on February 22, 1997 which was after the stipulated time in the agreement. Therefore, even if the defendant claimed that the FIC's letter dated October 17, 1997 was an approval or construed it as a conditional approval, the fact is that time shall be the essence of the agreement. In the case of Aberfoyle Plantations Ltd it was held that:

    1. Where a conditional contract of sale fixes a date for the completion of the sale, the condition must be fulfilled by that date;

    2. Where a conditional contract of sale fixes no date for completion of the sale, then the condition must be fulfilled within a reasonable time;

    3. Where a conditional contract of sale fixes (whether specifically or by reference to the date fixed for completion) the date by which the condition is to be fulfilled then the date so fixed must be strictly adhered to and the time allowed is not to be extended by reference to equitable principles.

33. In the case of Jaafar lbrahim v Gan Kim Hin [1985] 2 MLJ 24, the Federal Court held that:

    the time was not merely of the essence of the contract, but fulfillment of the promise of the appellant to obtain the approval on or before December 31, 1997 was a condition precedent of the whole contract; The event had not happened by the deadline, and therefore under s 36(1) of the Contracts Act 1950, the contract became void.

34. Further, in the case of Kumarasamy Sengainy v Ravathy Development (M) Sdn Bhd [1995] 1 AMR 701 which followed the case of Jaafar lbrahim v Gan Kim Hin and the case of National Land Finance Co-operative Society Ltd, it was held that:

    It was clear that under the terms of the agreement, once the approvals were not obtained within the period stipulated or extension thereof, both parties were relieved from their obligations which remained unperformed. It was also clear that time was not merely the essence of the contract, but that the fulfillment of the defendant's promise to obtain the approvals on or before November 14, was a condition precedent of the whole agreement. The approvals were not obtained by the deadline and so, upon a true construction of the agreement, it had become void.

35. The question or issue in the instant case was purely a matter of construction of the sale and purchase agreement between the plaintiff and the defendant and that question or issue can be decided on the basis of the said agreement alone, and there were no issues relevant to the question or issue raised which would require evidence to be called at the trial. The terms and conditions stipulated in the said agreement were clear and straight forward to be decided.

36. In the circumstances of the case, I hereby order in terms of the summons-in-chambers dated May 19, 1998 in Encl 4.

37. In the instant case there is a preliminary objection raised by the plaintiff towards the defendant's counterclaim and summons-in-chamber under Order 14 of the Rules of the High Court (RHC) for removal of caveat. The defendant's statement of defence and counterclaim are in Encl 3 and the defendant's summons-in-chambers is in Encl 7 and the defendant's affidavit in support is in Encl 6.

38. Pursuant to Clause 17 of the sale and purchase agreement dated July 21, 1997, the defendant authorised and consented to a private caveat being lodged by the plaintiff on the said property on July 25, 1997 to prevent any further dealings affecting the same. In other words, the said lodgment of caveat was for the purpose of protecting the plaintiffs right and interest on the said property since the plaintiff had paid the deposit sum to the defendant. And now, the defendant had applied to court for an order to remove the said caveat on the grounds as stated in their pleadings. Basically, there are two preliminary objections raised by the plaintiff:

    1. First, the defendant's application by counterclaim for removal of caveat is irregular and wrong in law;

    2. Second, the procedure applied by the defendant in their summons-in-chambers under Order 14 of the RHC for removal of caveat does not fall within the ambit of Order 14 of the RHC, and further it is not applicable in our common practice.

    FIRST PRELIMINARY OBJECTION

39. The procedure adopted by the defendant by counterclaim in applying to this court for an order to remove the caveat is irregular and wrong in law. It should be applied by way of originating summons or summons-in-chambers under Order 32 of the RHC. This is supported by the Malaysian Court Forms in Proceedings Vol 17, Malayan Law Joumal Sdn Bhd 1998, XVIII 1530 and 1531 which stipulates that:

    The application for removal of a caveat may be made by way of originating summons, originating motion or summons in chambers in a pending suit.

    Further, at number 3 of the footnote of the journal it also stipulates that:

    RHC Order 32 for the provisions relating to applications and proceedings in chambers, particularly rule 1 with regard to the form of summons. For an application to remove or extend a caveat by summons-in-chambers see form 21 (XVIII (3233).

40. This principle also was laid down in the case of Gabriel Ngu Choo Kiong v Julia Voon Jan Choo [1998] 1 AMR 69, where the main and the only issue being discussed was the proper procedure for removal of a caveat which shows that the issue of procedure can be a fundamental issue in certain cases. This case has discussed about the silence of s 177 of the Land Code which is similar to s 327(1) of the National Land Code 1965 as to what form application to the High Court for removal of caveat should take. The court held that, the application of removal must be by way of originating summons and since there was no pending suit in this case:

    Section 177 of the Code which empowers a registered proprietor or any other person having a registered interest or interest in a particular estate to apply to the High Court to remove a caveat lodged on such estate, is silent as to the form of such an application. Order 5 r 3 and r 5 of the RHC therefore comes into play, and it is clear from these specific and express provisions that the application for the removal of caveat must be by way of originating summons.

41. The court in this case also had referred to Order 5 r 3 of the RHC which have expressly provided the procedure for such application.

    Order 5 r 3 of the RHC stipulates that:

    Proceedings by which an application is to be made to the High Court or a Judge thereof under any written law must be begun by originating summons except where by these rules or by under any written law the application in question is expressly required or authorised to be made by some other means. This rule does not apply to an application made in pending proceedings.

    And further, according to Order 5 r 3 (at the bottom) of the RHC, the originating summons is not the proper way to apply for removal of caveat by the defendant, if there is a pending suit.

42. The plaintiff had earlier commenced their proceedings by writ of summon against the defendant for the refund of the deposit sum in connection with the said property. Since the same property is involved in the instant case, the defendant, therefore, should continue or intervene the proceeding by way of summons-in-chambers under Order 32 of the RHC for the removal of the caveat in the case of a pending suit, or if the defendant intended to take a separate claim, then the defendant should start to commence the proceeding by way of originating summons. But unfortunately, these two alternative methods / procedures have not been done by the defendant. Although there are some cases of irregularities which may be cured by taking positive steps under Order 2 of the RHC the defendant until to date had not made any attempts to correct the said irregularity.

43. In this respect I would like to  adopt what I said on August 29, 1996 to the Selangor Lawyers and cited in lnsaf (1996) XXV No 2. In the talk I said:

    ... The exercise of the court's discretion under Order 2 would only come into play if there is an application to correct the irregularity. If through the court's own perusal of the documents and detection, some irregularity occurs, the court may 'set aside either wholly or in part the proceedings in which the failure to comply with the requirements of the rules occurred'. There is no question of exercising the court discretion to treat it as irregularity as there is no application to set aside for irregularity ... ...Therefore, where there is a failure to comply with the rules what has been done remains irregular until the court takes action whether to kill or cure the step or order in question...

    SECOND PRELIMINARY OBJECTION

44. The defendant's application for caveat does not fall within the ambit of Order 14 of the RHC because of the own nature of application. It is clear that Order 14 is a straight forward case and the main purpose is to prevent unnecessary delay in cases where there is no defence or triable issue involved. Here the plaintiff did raise some triable issues for serious arguments based on the facts and law arising from the plaintiff s affidavits which were filed here, and in fact the defendant himself had filed several affidavits in reply to the plaintiff s affidavit which prove that the bona fide triable issues involved here and need to be tried. Therefore, the defendant's application cannot be disposed of by summary proceeding under Order 14 of the RHC. In fact, the civil suit filed by the plaintiff against the defendant in the instant case is to be deemed as the plaintiffs defence on the merits and had disclosed facts and triable issues sufficient to entitle the plaintiff to defend. Moreover, the cause of action in the plaintiffs civil suit was inter related with the defendant's application.

45. Further, it is not a common practice to apply for Order 14 in the instant case since the defendant's application for the removal of caveat is a type of case for unliquidated damages and for an interim order only. It is of course not suitable for summary disposal under Order 14 which is clear cut for a case of liquidated damages.

46. In the premise I hereby uphold the two preliminary objections raised by the plaintiff.

47. The defendant's application for the removal of caveat on the said property is connected to the plaintiff's claim for the refund of the deposit sum paid to the defendant pursuant to the sale and purchase of the said property.

48. The plaintiff and the defendant have entered into a sale and purchase of the said property and the plaintiff paid the deposit sum to the defendant. Due to this deposit being paid, the defendant pursuant to Clause 17 of the agreement, authorised the consent to a private caveat being lodged by the plaintiff on July 25, 1997 against the said property to prevent any further dealings affecting the said property and at the same time to protect the plaintiff s interest on it. And now the defendant has applied to court for an order to remove the said caveat on the grounds as stated in the defendant's pleadings. There are some requirements which the plaintiff has to fulfill in order to satisfy the court before the caveat is allowed to remain on the said property. The requirements are laid down by the Court of Appeal in the case of Murugappa Chettiar Lakshmanan v Lee Teck Mook [1995] 1 AMR 958 which says that:

    In order to sustain a caveat, a caveator must first pass through three stages: whether he has caveatable interest in his application under s 323(1) of the Code; if he has established a caveatable interest, then, whether the evidence produced in support of his claim discloses a serious question to be tried; and if both questions are resolved in the caveator's favour, then, whether the balance of convenience or justice lies in favour of the caveat remaining on register pending the disposal of his suit.

49. It is observed that the plaintiff in the instant case has proved that the plaintiff has a caveatable interest on the said property by executing the sale and purchase agreement and paying the deposit sum to the defendant. But the defendant has refused to refund the said deposit sum although the agreement was null and void due to the FIC's refusal to the sale. Therefore, I hold that until to date the plaintiff shall be deemed to have a caveatable interest on the said property. Further, the plaintiff had filed a suit against the defendant and the same had disclosed a serious question to be tried and therefore, the defendant's application for removal of the caveat should not be allowed until this serious question is decided by court. This principle was laid down by the Court of Appeal in the case of Arah Cipta Sdn Bhd v Kian Kee Sawmills (M) Sdn Bhd [1997] 2 MLJ 11 which held that:

    The appellants' claim as laid out in the statement of claim, was supported by the evidence which needed to be ventilated as they all contained serious questions to be tried. It followed therefore that the caveat should have been retained to maintain the status quo pending the disposal of the whole case.

50. In fact, it can be considered here that, once the plaintiff had filed a suit against the defendant, it is good enough for the plaintiff to prove that the plaintiff had a good and valid reason to have the caveat remained on the said property in order to preserve the status quo pending the disposal of the serious issues to be decided by court. In the case of Bukit Lenang Development Sdn Bhd v Basiron Subki [1997] 4 CLJ 189, it was held inter alia that:

    It is up to the caveator to prove that he has good reasons for this alleged claim that he has a registrable interest in the land, but where he has filed a suit to vindicate his claim he does not have to prove that he has good claim when the caveatee applies to have the caveat removed. He only has to prove that he has good claim when the suit comes to trial (Kasivisvanathan Chettiar v Pereira). It follows from this that the onus on the defendant to show why his caveat should not be removed is not a heavy one. On the balance of convenience it was desirable for the caveat over the said lot to remain on the register pending the disposal of the proposed suit...

51. And finally, on the balance of convenience, it is desirable for the caveat to be retained on the said property to maintain the status quo pending the disposal of the plaintiff's suit. Further, the plaintiff s suit against the defendant for the refund of the deposit sum was filed before the defendant filed their application. It is noted that the agreement was void and frustrated by the FIC's refusal to approve the sale and therefore, the plaintiff was not seeking for a specific remedy or damages but for the refund of the deposit sum paid to the defendant which the plaintiff was entitled to get back pursuant to the terms of the agreement. The caveat is not a proper remedy but the main purpose of retaining the caveat on the said property is to preserve the status quo of the parties pending the serious issues in the plaintiff s suit to be tried in court. It would cause serious injustice and prejudice to the Plaintiff if the caveat is ordered to be removed by court since the caveat has been lodged before the dispute arose and the main purpose of the said lodgement of the caveat was to protect the plaintiff’s interest on the said property.

52. In all the circumstances, the defendant’s application for removal of the caveat is hereby dismissed with costs.

Cases

Arah Cipta Sdn Bhd v Kian Kee Sawmills (M) Sdn Bhd [1997] 1 AMR 941; Aberfoyle Plantations Ltd v Khaw Bian Cheng [1960] 2 MLJ 47; Jaafar lbrahim v Can Kim Hin [1985] 2 MLJ 24; Kumarasamy Sengainy v Ravathy Development (M) Sdn Bhd [1995] 1 AMR 701; Murugappa Chettiar Lakshmanan v Lee Teck Moot [1995] 1 AMR 958; National Land Finance Co-operative Society Ltd v Sharidal Sdn Bhd [1983] 2 MLJ 211; Bukit Lenang Development Sdn Bhd v Basiron Subki [1997] 4 CLJ 189; Gabriel Ngu Choo Kiong v Julia Voon Jan Choo [1998] 1 AMR 69

Legislations

Contracts Act 1950: s.32, s.33, s.36(1)

High Court Rules 1980: Ord.2, Ord.5 r 3, Ord.14, Ord.32, Ord.81 r 1(1)(c)

National Land Code 1965: s.177, s.327(1)

Authors and other references

Concise Dictionary of Law, Oxford Reference, 2nd Edn, 1991

Insaf, (1996), XXV, No 2

Malaysia Court Forms in proceedings, Vol 7, Malayan Law Journal Sdn Bhd 1998

Representation

Zariati Muhamed (Kong Leng & Co) for Plaintiff

R Yogeswari (Che Mokhtar & Co) for Defendant

Notes:-

[a] translation is not a part of the original judgment.

This decision is also reported at [2000] 1 AMR 615.