Catajaya Sdn Bhd v Shoppoint Sdn Bhd & Ors [2021] 2 MLJ 374

Federal Court

Construction of termination clause

1.     Mampu Jaya was the previous owner of a piece of land measuring approximately 1.189 hectares held under Geran No GM 817 Lot 1423, Tempat 3 1/4 Petaling Road, Mukim Kuala Lumpur (“the Land”).

2.     The Land was later purchased by Shoppoint Sdn Bhd (“the First Respondent”) on 9 January 2008.

3.     The Land was the sole asset of the First Respondent at the material time with Tee Huat (“Second Respondent”) and Tee Chee Chong (“Third Respondent”) as the shareholders of the First Respondent, holding one share each.

4.     After 7 months of the purchase of the Land, the Respondents offered the sale of the entire issued and paid up shares in the First Respondent to the Appellant.

5.     A sale share agreement (“SSA”) was executed between the parties where the Appellant agreed to buy all of the First and Second Respondents’ issued and paid-up capital of RM 2.00 for a total consideration of RM 17,063,660.00.

6.     A power of attorney (“PA”) to surrender vacant possession of the Land was also executed simultaneously by the Second and Third Respondents with the execution of SSA.

7.     A total of RM 1,706,366.00 was paid by the Appellant between 5 August 2008 and 29 August 2008 as the agreed deposits to the Respondents.

8.     However, the Appellant has failed to pay the balance purchase price by the agreed completion date of 31 December 2008 as per the SSA.  The Appellant vide a letter dated 24 December 2008, had applied for an extension of time, but was rejected by the Respondents on the basis that time was an essence of the SSA.

9.     A private caveat was lodged by the Appellant on 5 January 2009 upon the rejection of the extension of time vide Presentation No 13/2009.

10.  Vide a letter dated 12 January 2009, the Second and Third Respondents notified the Appellant that they wanted to exercise their right of termination pursuant to section 11 of the SSA and to forfeit the deposit.

11.  Provisional liquidators of Maju Jaya (“the Liquidator”) were appointed in relation to the liquidation of Maju Jaya on 22 September 2008, which was after the SSA and PA were executed.

12.  The Appellant’s legal advisor testified that he had requested due diligence documents from the Respondents’ solicitor and a written confirmation by the Liquidators that there would not be any action to set aside the sale of the Land by Mampu Jaya to the First Respondent.

13.  Regardless of the letter of termination of the SSA dated 12 January 2009, the parties continued to negotiate with regards to the completion of SSA.

14.  Later on 19 January 2009, a payment of 20% of the total purchase price as well as the late interest as consideration for any extension of time had been requested by the Second and Third Respondents.

15.  The Second and Third Respondents vide a letter dated 16 February 2009, notified the Appellant of their intentions to terminate the SSA due to the failure of the Appellant to settle the balance purchase price on or before the completion date.

16.  At the High Court

(a) It was held that provision of section 11 of the SSA is an independent and stand-alone provision with the primary purpose to effect a valid termination of the SSA in the event of a fundamental breach of the agreement, i.e the instant failure of the Appellant to settle the full purchase price by the agreed completion date.

(b) The learned High Court judge came into conclusion that the termination of the SSA by the Second and Third Respondents was valid and effective.

17.  At the Court of Appeal

(a) The Court of Appeal concurred with the learned counsel for the Respondents with regards to the reading of section 11 and section 12 of the SSA which allowed 2 different termination scenarios.

(b) Section 11 of the SSA is applicable in the circumstance that the agreement has been completed, whereas section 12 termination may be made by either party prior to the completion date.

1.     Whether the law in Malaysia should be that termination clauses ought to be construed strictly.

2.     Whether headings in a contract can be used to assist in the interpretation of the contract.

1.    The termination clause

(a) The interpretation of the written agreement must reflect the parties’ intention in the agreement.  Thus, the terms of the SSA must reflects the parties’ true intention by expressing their obligations and commitments of the parties under the agreement.

(b) According to the SSA, if the Appellant breached any of its obligations, the Respondents may, by written notice, terminate the SSA and forfeit as agreed liquidated damages a sum equal to 10% of the purchase price, shareholders advances and payment made under the PA as well as refund any other monies as expressly provided under section 11 of the SSA.

(c)  Meanwhile, section 12 of the SSA stipulated that the SSA shall remain valid and binding until the Respondents have received the full purchase price, shareholders advances, and payments made under the PA, as well as the transfer of sale shares to the Appellant as purchaser and full effective control of the First Respondent by the Appellant.

(d) The Court’s role in construing the terms of an agreement is limited to giving its meaning by analysing the words and language used and the factual matrix of the case.  The Court must not even attempt the words used in the provision that the parties have agreed to.

(e)  As in the case of Lucy Wong Nyuk King (F) & Anor v Hwang Mee Hiong (F) [2016] 3 MLJ 689, the court in its judgment held that the terms and conditions of an agreement that have been agreed to by the parties of the agreement cannot be simply put aside and ignored.

(f)   The provision of section 11 and section 12 of the SSA are clear, unambiguous and complement each other and must be read in its entirely and none of the provisions under the SSA should be interpreted in isolation of the other clauses.

(g) The Court held that there is no latent ambiguity in the SSA and therefore the obligations of the parties are specifically defined.  Termination is not allowed unless specifically expressed in the SSA.  Notice must be given to the Appellant to rectify the identified breach and take steps to rectify that breach within a specified time.  The provision relating to termination must be strictly follows.

(h)  To conclude, the termination clause in agreement ought to be construed strictly.

2.     Headings of the contract

(a) Similar to marginal notes in a statute, the function of heading is to provide a brief guide to the content of the section and as a tool for identification and reference only.

(b) Therefore, the headings to a particular provision in an agreement had no effect on the interpretation of the agreement and had no substantive meaning or interpretative value.

1.    The Federal Court set aside the orders of the Court of Appeal and High Court.  The appeal was allowed with costs of RM 150,000.00, subject to payment of allocator.

1.      The parties to any written agreement must strictly adhere to the agreed terms in the agreement, unless expressly provided otherwise.

2.      Generally, a termination clause provides the circumstances under which the said agreement can be terminated.