Aset Nusantara Sdn Bhd V Ekran Berhad


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GUAMAN NO: D7-22-847-2006


(dahulu dikenali Guaman Sivil No. S2-22-1034-2005)


Dalam perkara Perjanjian Jual Beli Bertarikh 30.03.2001 dan Perjanjian-Perjanjian Tambahan berikutannya




Dalam perkara Akta Kontrak 1950






(No Syarikat: 368149-W)






(No. Syarikat: 224747-K)




(Didakwa sebagai sebuah firma DEFENDAN


Peguambela & Peguamcara)




Background Facts


1. The Plaintiff and one KPRJ Astaka Puri Sdn Bhd [KPRJ] respectively owned 49% and 70% of two companies known as Bayou Bay Development Sdn Bhd [Bayou Bay] and Tebrau Bay Sdn Bhd [Tebrau Bay]. Granite Industries Berhad [Granite Industries], a public-listed




company wholly-owned a company known as Diamond League Sdn Bhd [Diamond League] which in turn owned four hotel companies, namely Mashyur Mutiara Sdn Bhd; Home and Hotel Holdings Sdn Bhd; Accruvest Management Sdn Bhd and Vital Orient Sdn Bhd [collectively known as the ‘Hotel Companies’].


2. On 22.2.2001, the Plaintiff and KPRJ on the one part and Granite Industries and Diamond League on the other entered into a sale and purchase agreement where it was inter alia agreed that the Plaintiff and KPRJ were to sell their entire share in Bayou Bay and Tebrau Bay to Granite Industries for RM546,886,000. In consideration, Granite Industries was to issue 495,551,429 new shares valued at RM0.70 sen per share to KPRJ and the Plaintiff [379,502,123 and 116,049,306 shares respectively] of the total value of RM346,886,000; and the balance of RM200 million to be settled in the form of transfer of the Hotel Companies to the Plaintiff as payment in kind. This agreement which will be referred to as the “Granite Agreement” was subject to a number of conditions precedent including obtaining approvals from the Securities Commission, KLSE and the shareholders of Granite Industries at an Extraordinary General Meeting. As it turned out, the Securities Commission approved this deal on conditions, one of which was a reduction of the price from RM546,886,000 to RM453,179,000. This required a revision in the number of new shares to be issued but the balance of RM200 million to the Plaintiff remained to be satisfied through the disposal of the Hotel Companies either directly to the Plaintiff or to any third party for at least RM200 million with the proceeds of sale to be paid to the Plaintiff. Granite Industries opted to sell directly to the Plaintiff who decided to sell the Hotel Companies to the 1st Defendant.




3. A second agreement dated 30.3.2001 was then drawn up where the Plaintiff agreed to sell its entire beneficial share of the Hotel Companies to the 1st Defendant for RM200 million. This purchase price was to be satisfied by the assignment to the Plaintiff of a debt of the same amount owing from one Tan Sri Ting Pek Khiing [Tan Sri Ting] to the 1st Defendant and subject to the provision of security reasonably required by to the Plaintiff. This agreement, which for ease of reference shall be called the “Hotel Agreement” was also subject to several conditions precedent.


4. It can be seen that the two agreements are interrelated as the subject-matter of the Hotel Agreement is part of the consideration to the Plaintiff in the Granite Agreement. Since the Hotel Companies could not be transferred to the 1st Defendant until the Plaintiff received title from Granite Industries, the parties agreed that the completion date for the Hotel Agreement be “on the same date as the date of completion of the Principal Agreement’, that is the Granite Agreement. The completion date for the Granite Agreement was one month from the date of the fulfillment of the last condition precedent or such other date as may be mutually agreed in writing.


5. The 2nd Defendant stood as stakeholder in both agreements. In keeping with that role, the 2nd Defendant’s presence in court was dispensed with by the court on 13.1.2006. All documents including relating to the sale of Bayou Bay and Tebrau Bay, the issue of the new shares in Granite Industries, the sale of the Hotel Companies, resolutions approving the various sales, transfers and registration of shares as well as the deed of assignment executed in escrow were to be delivered by the




appropriate parties to the 2nd Defendant. In substance, the 2nd Defendant was to deal with these documents in accordance with the terms of the two agreements on the completion date of the respective agreements. Two years after the agreements were executed there was still non-completion of either Agreement. This was despite extensions agreed by way of a supplemental agreement and later through two letters exchanged between the parties.


6. A second Supplemental Agreement was then signed on 16.4.2003. In this Supplemental Agreement, subject to the fulfillment of the conditions precedent in clause 2 of the Hotel Agreement, the parties fixed the date of completion as at 16.4.2003. The Hotel Agreement was deemed completed on this date and the beneficial ownership of the Hotel Companies passed to the 1st Defendant. The Supplemental Agreement further inter alia allowed the 1st Defendant to exercise control over the business and affairs of the Hotel Companies and appoint directors to the Board of Directors. The Plaintiff was also allowed to appoint a director to the Board but only for so long as Tan Sri Ting did not furnish the refined security. It was further expressly provided that the related documents, such as share certificates and the deed of assignment were not to be dated or released until and unless the securities were furnished. Several terms of the Hotel Agreement were also amended through the Supplemental Agreement. Clauses 2.3, 4.1,4.4, 4.5 and 4.6 were deleted and substituted with new clauses whereas 4.2 was deleted and substituted with new clauses 4.2A, 4.2B, 4.2C and 4.2D. Generally, these clauses provided for matters relating to completion date, time period for completion and post-completion rights and obligations.




7. On the same date of the Supplemental Agreement, two other events took place. First, the Plaintiff wrote to the 1st Defendant specifying the security required. The 1st Defendant was required to deliver to the Plaintiff “… a memorandum of deposit and charge of shares in the form set out in the Appendix hereto in respect of 70,889,979 ordinary shares in Granite Industries Berhad (“GIB”) duly executed in escrow by TPK and the transfer of such ordinary shares to such securities accounts as ANSB may notify Ekran in writing, within 9 months from the Completion Date”. Second, a General Announcement was issued by the merchant bankers acting for the 1st Defendant to the effect that “the Proposed BBDSB and TBSB Acquisitions and the Proposed Hotel Company Disposals had been completed in accordance with the agreements” – see page 549 of Bundle B2.


8. Despite being given nine months, Tan Sri Ting failed to furnish the security, the 70,889,979 Granite Shares. This is an undisputed fact. So, by letter dated 6.1.2004, the Plaintiff gave notice to the 1st Defendant of its intention to terminate the Hotel Agreement unless the securities was delivered to the Plaintiff before 16.1.2004. By separate letters written through their solicitors, both the 1st Defendant and Tan Sri Ting requested for extensions of time for compliance. The Plaintiff refused vide letter dated 20.1.2004 and proceeded to invoke clause 4.6 as amended vide the Supplemental Agreement. Clause 4.6 inter alia provided for the release to the Plaintiff items or documents it received from the Plaintiff. The 1st Defendant disputed the Plaintiff’s right to invoke clause 4.6 and accordingly demanded the 2nd Defendant not to release any of the documents sought by the Plaintiff. Faced with such a dilemma, the 2nd Defendant informed the Plaintiff’s solicitors of its intention to seek the




court’s directions by way of an interpleader application. This was not followed through. Instead the Plaintiff filed an originating summons which was later converted to this current writ action.


Issues for Determination


9. In these proceedings, the Plaintiff is seeking a return of the Hotel Companies. The 1st Defendant in its Defence and by way of a Counterclaim is seeking to keep them. Principally, the 1st Defendant relies on the existence of a collateral contract where the real consideration for the sale of the Hotel Companies is not RM200 million but the shares in Granite Industries held by Tan Sri Ting. From the facts already set out, the issues requiring determination are –


i. whether there is a collateral oral contract;


ii. whether clause 4.6 of the Supplemental Agreement is a penalty clause under section 75 of the Contracts Act 1950 [Act 136]; contravenes the Companies Act 1965 [Act 125] and is against public policy;


iii. whether clause 4.6 of the Supplemental Agreement may be invoked.


Issue i: Whether there is a collateral oral contract


10. The plea of a collateral contract can be found at paragraphs 13 and 15 of the Re-Amended Defence which read as follows –




“13. At the same time as the execution of the Main SPA it was orally agreed between the parties that the Deed of Assignment of Tan Sri Ting’s debt of RM200 million will in due course be substituted or replaced by the delivery of 70,889,979 Granite Shares by Tan Sri Ting.


15. There is now a collateral contract between the parties in that the Plaintiff will reassign the RM200 million debt to Tan Sri Ting in exchange for 70,889,979 Granite Shares. In real terms, clause 4.4 of the Hotel Companies SPA which provides for the provision of security is in actual fact a reference to the 70,889,979 Granite Shares.”


11. It is an irrefutable fact that the parties have reduced their relationship into writing and the primary documents that set out their relationship are the Granite Agreement, Hotel Agreement and the Supplemental Agreement. The fundamental rule when dealing with written agreements is clear. No parole evidence is allowed to vary or amend those written terms. Recognizing this and the constraints of section 92 of the Evidence Act 1950, Mr. Sivaneindiren, learned counsel for the 1st Defendant submitted that the 1st Defendant was not seeking to admit any evidence to contradict the terms of the agreements made. Section 92 of the Evidence Act is therefore said to have no application. Rather, in determining the Plaintiff’s claim and the 1st Defendant’s Counterclaim, the court is invited to look for the real commercial bargain between the parties. That bargain cannot be found by merely looking at the written agreements before the court, in particular the Hotel Agreement, but to look at those agreements together with a collateral contract that




was made simultaneously against a factual matrix presented by the 1st Defendant. Once that exercise is done and once that factual matrix is objectively examined, it will reveal that all the agreements, written and collateral are all in fact part and parcel of one of the same transaction -see Manks v Whiteley [1912] 1 CH 735, Sri Kelangkota-Rakan Engineering JV Sdn Bhd & Anor v Arab-Malaysian Prima Realty Sdn Bhd & Ors [2001] 1 CLJ 779, PR SP Periakaruppan Chettiar v Yong Book Fong [1972] 1 MLJ 160, Tan Tien Choy v Kiaw Aik Hang Co Ltd [1966] 1 MLJ 102 and Kwan Chew Holdings Sdn Bhd v Kwong Yik Bank Bhd [2006] 6 MLJ 544.


12. This is how the 1st Defendant pitted the factual matrix as put together by the written and collateral agreements in order to determine the real commercial bargain between the parties. It is the submission of the 1st Defendant that actually the whole deal did not start with the Plaintiff or the 1st Defendant. Rather, it started with Tan Sri Ting. In fact, the 1st Defendant’s case revolves around Tan Sri Ting. There is therefore a need to clarify Tan Sri Ting’s role as presented by the 1st Defendant. According to Peter Ling Ee Kong [DW1], the Executive Director of the 1st Defendant at the material time, Tan Sri Ting was the Executive Chairman of the 1st Defendant and Granite Industries. He also held controlling interests in these two companies. DW1 testified that Tan Sri Ting had an urgent need to reduce his substantial indebtedness to the 1st Defendant which was said to be in excess of RM700 million. There was mounting pressure from the Securities Commission on both the 1st Defendant and Tan Sri Ting to settle this substantial debt. Several options were considered before it was finally decided that the Hotel Companies valued at RM200 million and belonging to Granite Industries through its subsidiary, Diamond League




would be injected into the 1st Defendant to partially settle the debt. However, for the exercise to work, Tan Sri Ting would have to give up his controlling interest in Granite Industries. The 1st Defendant would also have to find a party that was interested in acquiring the listed status of a main board company. Feelers were sent out and the Plaintiff and KPRJ were identified as interested parties. After several meetings and negotiations, the parties agreed on the main structure of the deal and left the actual mechanics to the lawyers and merchant bankers to craft and reflect that agreement in writing and ensure the necessary approvals were obtained. The lawyers proceeded to draft two agreements which the parties later signed. Those agreements were the Granite and the Hotel Agreements which are really two phases or parts serving Tan Sri Ting’s whole objective of reducing his level of indebtedness to the 1st Defendant.


13. According to Mr. Sivaneindiren, the Granite Agreement was to allow the Plaintiff and KPRJ to inject their businesses into Granite Industries. These businesses which involved land development would become the new business of Granite Industries. For its part, Granite Industries was supposed to dispose all its existing businesses and companies as the Plaintiff and KPRJ were said to be only interested in a shell-listed vehicle. The Hotel Agreement on the other hand, was specifically to allow for the Plaintiff’s on-sale of the Hotel Companies to the 1st Defendant bearing in mind these companies had come to the Plaintiff as part consideration in the Granite Agreement. The consideration in the Hotel Agreement was the assignment of Tan Sri Ting’s debt of RM200 million with security as required by the Plaintiff. The security was Tan Sri Ting’s shares in Granite Industries.




14. Tang Yow Sai [DW3], the General Manager, Corporate Finance of the 1st Defendant at the material time gave evidence that the Plaintiff was really interested in the security as securing those shares would give the Plaintiff controlling interest in Granite Industries. The Plaintiff was never supposed to keep the Hotel Companies. It did not have the expertise to run hotels nor was it interested. This is evidenced in the Plaintiff’s letter to the Securities Commission when the latter sought the Plaintiff’s reasons for “firstly obtain the Hotel Companies pursuant to the proposed acquisition of Bayou Bay Development Sdn Bhd and Tebrau Bay Sdn Bhd by GIB and, subsequently on-sell the said assets to Ekran Berhad”. In that letter, the Plaintiff’s lawyers explained that the Plaintiff “does not have the expertise in the hospitality industry and would like to remain as an investment company’ – see pages 553 and 554 of Bundle B2. Though the whole deal was to serve Tan Sri Ting’s purpose, it nevertheless met the Plaintiff’s objective of a back-door listing for Bayou Bay and Tebrau Bay.


15. It was DWI’s evidence that the Supplemental Agreement was signed because the Plaintiff’s group was anxious to complete the transaction. Under the Supplemental Agreement, the deemed completion clause had the effect of giving the Plaintiff’s group control of Granite Industries and the 1st Defendant, the Hotel Companies. All that was left to be done was for Tan Sri Ting to transfer his lot of shares in Granite to the Plaintiff within the extended nine months. As far as the 1st Defendant was concerned, it took the position that it had performed its obligations under the Hotel Agreement when it executed and delivered the Deed of Assignment to the 2nd Defendant. It was the 1st Defendant’s case that the Plaintiff’s remedy was with Tan Sri Ting for the shares. After all, it was




further submitted that those shares were the true consideration in the Hotel Agreement and what the Plaintiff at the end of the day was really interested in.


16. I see no dispute in the principles as evinced from the several authorities cited. Agreements reduced into writing will have to be interpreted according to the plain words and language used – see Bank of Credit and Commerce International SA (in Liquidation) v Ali and Others [2001] 1 All ER 961. When there are several agreements, the observation in Glamour Green Sdn Bhd v Ambank Bhd & Another Appeal [2007] 3 CLJ 413 must be heeded. In that decision, the Court of Appeal opined a well-settled principle in construction and interpretation of contracts and said at page 423:


“ It is a settled principle that where in a transaction more than one document or instrument is involved, courts usually construe those documents together. The point was made by Raja Azlan Shah J in Mohamed Isa & Ors v Abdul Karim & Ors [1970] 2 MLJ 165 in a language that cannot be rivaled. This is what Raja Azlan J (as His Royal Highness than was) said:


It is a settled rule of construction that where several documents forming part of one transaction are executed contemporaneously, all the documents must be read together as if they are




17. In Tan Tien Choy v Kiaw Aik Hang Co Ltd Bhd, the Federal Court


at page 104 said “… the true nature of the transaction, as disclosed by this analysis, remains the test by which the rights of the parties to it must be determined”. When determining this true nature of the bargain


between the parties by analyzing the relevant facts surrounding the transaction, indeed an objective approach ought to be adopted as reminded in Kwan Chew Holdings Sdn Bhd by the Court of Appeal at page 554 –


“When a court is asked to determine the true nature of the bargain between the contracting parties it is required to take an objective approach. It must have regard to the factual matrix forming the background to the contract to determine the objective aim or purpose of the transaction. It is the objective view based on the test of the reasonable man that is the determining factor and not the subjective view of a party to the contract. The authorities on the point are legion.”


18. The Court of Appeal then went on to examine the first of such authorities, Prenn v Simmonds which was applied by the Federal Court in Citibank NA v Ooi Boon Leong & Ors [1981] 1 MLJ 282 and where the Federal Court “accepted that evidence of the ‘genesis’ and objectively the ‘aim’ of the transaction was admissible to interpret a contract’.


19. But the 1st Defendant’s proposition goes beyond looking at the factual matrix in order to determine the true purpose of the transaction or the real bargain between the parties. Although it was submitted that the 1st Defendant is not seeking to admit any evidence to contradict the terms




of the written agreements, it cannot be denied that the long and short of the submission is that learned counsel for the 1st Defendant’s point here is that the written agreements do not “accurately set out the deal between the parties as it took place and at the time when it took place, or whether the facts, or some of them, therein recorded do not truly represent that which happened, but give the transaction what I may call an innocent appearance” – see Michael v Soon Teck Finance Co Anor [1962] 28 MLJ 53, 55. In other words, the agreements do not bear the real commercial bargain or the real consideration. That commercial bargain can only be found in the written agreements understood together with a collateral agreement whilst the consideration for the Hotel Agreement is not the stipulated RM200 million but Tan Sri Ting’s 70,889,979 Granite Shares and this can be found in the collateral contract .


20. In my judgment, the starting point or the genesis of the whole analysis of the factual matrix for determining the real commercial bargain between the parties must begin with the written agreements which form part of the documentary evidence at trial. This is quite unlike the circumstances in PR SP Periakaruppan Chettiar where the respondent was seeking reimbursement of monies advanced on behalf of the appellant towards settlement of a judgment debt. The respondent had borrowed from a firm of chettiars in Muar using two plots of land as security in order to settle that judgment. The appellant failed to make monthly payments to the chettiars who then threatened to sell the two plots of land. There was much uncertainty even from the pleadings as to what was the cause of action. Since the appellant denied all knowledge of the transaction and did not give evidence, the court was obliged to look at the entire transaction and circumstances in order to determine the




relationship between the parties before it could determine the rights of the parties.


21. In the facts of this case, the written agreements were painstakingly and professionally drawn up, presented for scrutiny of the relevant authorities, passed muster of such authorities, and approved by the shareholders of in particular the 1st Defendant before being signed by the parties. Yet, it is the 1st Defendant’s submission that those agreements are but a façade. The real transaction is behind that façade, in a collateral contract. I find such this argument difficult to accept and my reasons are as follow.


22. Firstly, the doctrine of collateral contracts itself. This doctrine has been well-explained in Tan Swee Hoe Co Ltd v Ali Hussein Bros [1980] 2 MLJ 16, 19, where the Federal Court held “that an oral promise, given at the time of contracting which induces a party to enter into the contract, overrides any inconsistent written agreement. This device of collateral contract does not offend the extrinsic evidence rule because the oral promise is not imported into the main agreement. Instead it constitutes a separate contract which exists side by side with the main agreement.” Whether or not there is a collateral contract is a finding of fact. All its terms must be clearly shown and proved and the burden of doing just that lies on the 1st Defendant who made that plea and is relying on its terms -see SamaWorld Asia Sdn Bhd & Anor, Industrial & Agricultural Distribution Sdn Bhd and Utama Merchant Bank Berhad v Dato’ Mohd Nazmi Bin Mohd Salleh [2009] 6 CLJ 371.




23. Despite the protestations of the 1st Defendant, one must not lose sight that collateral contracts invariably allow one party to avoid abiding by the terms of the written agreement. This case is no exception. The very invitation of the 1st Defendant to look away from the written agreements is one that must be treated with caution. Hence, it is oft reminded that by their very nature, collateral contracts must be rare. For this alone, one ought to be cautious in approach and “in recognizing the existence of a collateral contract, especially in cases where it contradicts the terms of the written contract’ as advocated by Visu Sinnadurai J in Industrial & Agricultural Distribution Sdn Bhd v Golden Sands Construction Sdn Bhd [1993] 3 MLJ 433, 442. Similarly, in SamaWorld Asia Sdn Bhd & Anor, the Court of Appeal opined that the “law views with suspicion collateral contracts, the sole effect of which is to vary or add to the terms of the principal contract. Collateral contract must be proved strictly. The terms of such contracts and the existence of a contrary intention on the part of all the parties must be clearly shown.” This view has long been subscribed since the decision of the House of Lords in Heilbut, Symons & Co v Buckleton [1913] AC 30 and can be found in yet another recent decision of the Court of Appeal in Seven Seas Industries Sdn Bhd v Philips Electronic Supplies (M) Sdn Bhd & Anor [2008] 4 CLJ 217, 226. This principle is codified in statute under section 92 of the Evidence Act 1950. Unless one is able to come within the provisos in section 92 which in effect are exceptions, parole evidence is simply prohibited. There are obvious sound logical reasons for such a rule. In the words of the Chang Ming Tat FJ in Tindok Besar Estate Sdn Bhd v Tinjar Co [1979] 2 MLJ 229, 233 – “No agreement would then be safe from being re-written by one party in a court of law.” Business efficacy where certainty and confidence are paramount would be much eroded.




24. On an objective evaluation of the evidence adduced, I find the plea must fail. The evidence led by the 1st Defendant’s witnesses pertain not to background facts or context which fill in the factual matrix but is in fact testimony of ongoing or pre-contract negotiations that took place over several meetings, not often attended by the same personnel on both sides – see evidence of DW1, DW2, DW3 and DW4. Tan Sri Ting did not give evidence. According to DW1 who attended the negotiations, it took several meetings by their respective representatives before both parties agreed on the main structure of the agreement. Even in the fax dated 14.12.2000 sent by DW3 to the 2nd Defendant [exhibit D1] it is clearly stated that “the current understanding is that the signing of the agreement for the disposal companies by ANSB to Ekran and the agreement between ANSB and TPK will be after receipt of all approvals for Granite’s proposed acquisitions.” (emphasis is mine).


25. It is evident that the parties left it to the experts to process and


reflect the structure in the written agreements. This can be found in the testimonies of the 1st Defendant’s own witnesses. DW1 testified that “The actual mechanics of what had been agreed to was then crafted by the lawyers and merchant bankers ensuring that the necessary approvals could be obtained.” This was confirmed by DW3 who said in his


evidence-in-chief that the “mechanics of achieving all this was worked out by the merchant bankers and lawyers”. Similarly, Dato’ Stanley Isaacs [DW4], one of the directors of the 1st Defendant, testified that the detailed workings of the terms and mechanics to implement the understanding and intention of the parties reached after meetings and negotiations were left to the professionals – the external lawyers and the merchant bankers. It was DW4’s evidence that these professionals had advised against




assigning the Hotel Companies directly to the 1st Defendant because “of existing laws”. To overcome the “rules strictures”, this was the “indirect means, the only way to achieve the object’ and he went along with it.


26. Another piece of enlightening evidence is exhibit D1 where the 1st Defendant is seen instructing the 2nd Defendant “… If you could look how to lock the proposed arrangement between ANSB, Ekran and TPK now after taking into consideration the GO implication for ANSB and related party transaction between Ekran and TPK. It is best not to trigger any one of them.” The written agreements were therefore clearly intended “to lock the proposed arrangement’ between the parties. To me, contrary to the postulation of the 1st Defendant, this evidence further proves that the parties always intended and had agreed that the agreements between them be reduced into writing. In fact, nowhere in the testimonies of the 1st Defendant’s witnesses is there even the suggestion that there was some other contract or arrangement running alongside the written agreements. In any case, while the meetings and negotiations may explain the written agreements were drawn up, by no means are these meetings or negotiations evidence of an oral collateral contract.


27. It is abundantly clear from the evidence of the 1st Defendant’s own witnesses that the details of the terms of the written agreement were matters yet to be worked out by the professionals. These professionals, the merchant bankers and the lawyers, were instructed to craft the agreements within the rules strictures, “to lock the proposed arrangement’, to work out the “mechanics of achieving all this”. Drafts of agreements were prepared, perused and agreed before being duly signed by the parties. There were reasons why these agreements had to be




properly crafted. These agreements had to be submitted to the appropriate authorities such as the Securities Commission for approval. These agreements too had to have the approval of the shareholders. DW4 testified that he was not happy with the arrangements in the written agreements but that was how the whole deal was to be structured in order to be within the legal framework and that it may secure the approval of the Securities Commission. As it turned out, the draft written agreements were approved by the shareholders and by the Securities Commission, the latter with some modifications before these agreements were duly signed by the parties. It cannot be denied that the parties were well-advised at all times and had the benefit of specialized expertise. For the 1st Defendant, in-house and out-sourced legal expertise, and merchant bankers were engaged. These experts hammered the details into written agreements and I do not see the agreed structure absent from either the Hotel Agreement or Supplemental Agreement. On the contrary, these written agreements are unambiguous and consistently bear the agreed structure. There is obvious mention of Tan Sri Ting’s shares in Granite Industries but as security. The terms in the written agreements may have been ‘‘indirect’ towards achieving the aims of the respective parties but that was how the transaction or deal was to be achieved as testified by DW4 and those terms apply and bind – see Silver Concept Sdn Bhd v Brisdale Rasa Development Sdn Bhd [2005] 3 CLJ 259.


28. A further reason why this plea must fail is this. Following the amendments to the Hotel Agreement vides the Supplemental Agreement, the Plaintiff wrote on 16.4.2003 stipulating the nature of the security in precise terms. The letter clearly identified the shares as the security sought and not as the consideration. Correspondence thereafter, namely




the notice of termination and requests for extensions sought by both the 1st Defendant and Tan Sri Ting, further confirm that the shares were intended to be security for the assignment of the debt and not at all representing the consideration as submitted by the 1st Defendant. The Plaintiff may well be prepared to accept the security in the event the debt is not honored but that does not convert the security to being the consideration itself.


29. Yet another reason why I reject the argument of collateral contract is the presence of the “entire agreement clause” in the Hotel Agreement. When time was extended for the completion of the Hotel Agreement through a Supplemental Agreement of 16.4.2003, several critical terms were also amended but the entire agreement clause remained intact. The relevant clauses in the respective agreements are clause 14.1 in the Granite Agreement, clause 13 in the Hotel Agreement and clauses 2.1 and 2.2 in the Supplemental Agreement and these clauses read as follow:




14.1 This Agreement herein embodies all the terms and conditions agreed upon amongst the Parties hereto as to the subject matter of this Agreement and supersedes and cancels in all respects all previous agreements and undertakings, amongst the parties with respect to the subject matter hereof whether be written or oral.




13.1 This Agreement herein embodies all the terms and conditions agreed upon amongst the Parties hereto as to the




subject matter of this Agreement and supersedes and cancels in all respects all previous agreements and undertakings, amongst the parties with respect to the subject matter hereof whether be written or oral.


13.2 This Agreement shall not be altered, changed, supplemented, or amended except by written instruments signed by the Parties.




2.1 Except to the extent expressly varied or amended by the provisions of this Supplemental Agreement, the terms of the Principal Agreement are hereby confirmed and shall remain in full force and effect.


2.2 The Principal Agreement and this Supplemental Agreement shall be read and construed as one document and this Supplemental Agreement shall be considered to be part of the Principal Agreement, and, without prejudice to the generality of the foregoing, where the context so allows, references in this Supplemental Agreement to the “Principal Agreement” and references in the Principal Agreement to “this Agreement” however expressed, shall be read and construed as references to the Principal Agreement as varied or amended and supplemented by this Supplemental Agreement.


2.3 In the event that any provisions in this Supplemental Agreement and the Principal Agreement shall be inconsistent with one another, the provisions of this Supplemental Agreement shall prevail.”


30. These are what are known as “entire agreement” clauses. It is the Plaintiff’s submissions that such clauses evinced the intention of the parties that the written agreements portray the entire and only agreement




between them in relation to the subject-matter at hand. These clauses exclude parties from harking back to oral agreements or collateral agreements with the intention in particular of disputing or contradicting the contents of the written agreements.


31. In Master Strike Sdn Bhd v Sterling Heights Sdn Bhd [2005] 2 CLJ 596, the Court of Appeal refused to permit any term to be implied or import any other considerations not in the contract holding at page 607 that:


“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.


32. At page 608, the Court of Appeal added that 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”. In this regard, the Court of Appeal adopted and applied the rationale and interpretation of entire agreement clauses decided in Innterpreneur Pub Co v East Crown Ltd [2000] 2 Lloyd’s Rep 611 where Lightman J opined on the purpose and the effect of an entire agreement clause:


“The purpose of an entire agreement clause is to preclude a party to 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 effects as a collateral warranty) shall have no contractual force, save in so far as they are reflected and given effect in that document.


…. 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.”


33. This reasoning was applied by Abdul Aziz J (as he then was) in Macronet Sdn Bhd v. RHB Bank Sdn Bhd [2002] 4 CLJ 729. At page


740 where in precluding evidence and thereby the oral agreement the learned judge said:




“My opinion is simply this. The entire agreement clause was an agreement between the plaintiffs and 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 is to exclude any attempt to vary 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 precontractual representation or the oral agreement and to rely on them.”


34. Having regard to the fact that the parties before me are astute businessmen, not ordinary people who had at the material time the necessary and appropriate legal and technical expertise to draft the written agreements so that such agreements reflect the true intention of the parties, it is perfectly in order for this court to conclude that the inclusion of the entire agreement clauses are conscious and deliberate choices and decisions of the parties. Looking at the factual background and the subsequent conduct of the parties, in particular the subsequent inclusion of confirmation and incorporation clauses in the Supplemental Agreement, it is my judgment that the parties clearly intended that the full terms agreed between them are to be found solely in the written agreement and not elsewhere and that these terms bind the parties – see Petroleum Nasional Bhd v Kerajaan Negeri Terengganu & Another Appeal [2003] 4 CLJ 337 and Sri Kelangkota-Rakan Engineering JV Sdn Bhd & Ors v Arab-Malaysian Prima Realty Sdn Bhd & Ors.




These clauses are in fact a complete answer to the defence of collateral contract. Contrary to the submission of learned counsel for the 1st Defendant, the deliberate inclusion of such clauses clearly demonstrates the intention of the parties that any oral promises or collateral contracts that may have been in the course of negotiations do not in fact have any contractual force. Otherwise, such clauses will have no purpose.


35. There is yet another more compelling reason why I must reject the submission of a collateral contract. Since the agreements concern a public listed company, there was much supervision and coordination by the proper authorities including the Securities Commission who had to approve the whole deal before these agreements could be executed let alone completed. Public announcements and circulars to shareholders were issued – see pages 227, 240 and 550 of Bundle B2. In the various exchanges and documents, the details of the agreements, in particular the consideration is repeatedly highlighted and scrutinized, even by independent advisers, Horwath Mok & Poon [HWP] in view of the presence of interested parties or parties deemed interested in the deal. HWP concluded that the proposals were fair and reasonable so far as the shareholders are concerned and not to the detriment of the minority shareholders and favourably recommended the proposals to be implemented – page 324 of Bundle B2.


36. At pages 279 and 280 of Bundle B2, it was explained in the Circular to Shareholders that Granite Industries was undertaking the exercise because it had “recorded losses for two consecutive financial years… due to stiff competition and unfavorable economic conditions”. The exercise was “expected to provide GIB with a new profitable core




business in property development that is expected to generate a stream of earnings to the Company in the immediate and long term. With this new business direction, the Company expects to be better positioned to meet a more challenging business environment as well as to capitalize on new profitable ventures”. The disposal of the Hotel Companies on the other hand represented “an opportunity to GIB to divest its non-complementary assets/investments to allow the GIB Group to venture into property development cum construction business. In respect of its investment in resort business, the Board believes that in the short to medium term, the prospects of the hotel industry are at best expected to remain at its current level in view of stiff competition and are expected to take a longer time to recover. Further, the Proposed Hotel Company Disposals are undertaken in conjunction with the Proposed BBDSB and TBSB Acquisitions to part finance the purchase consideration for the Proposed BBDSB and TBSB Acquisitions.”


37. In all these exchanges and documents the consideration has consistently been the payment of RM200 million as payment in kind to the Plaintiff for the sale of Bayou Bay and Tebrau Bay; and later as the consideration for the sale of the Hotel Companies by the Plaintiff to the 1st Defendant. Even in the response to the Securities Commission’s query of the Plaintiff’s purpose in acquiring the Hotel Companies, it was stated that “the acquisition by Aset Nusantara Sdn Bhd (ANSB) of the “Hotel Companies” forms part of the purchase consideration due from GIB to AN SB for the disposal of AN SB’s equity interest in Bayou Bay Development Sdn Bhd and Tebrau Bay Sdn Bhd to GIB. ANSB’s disposal of the Hotel Companies to Ekran is merely to liquidate the Hotel Companies to cash.” – see page 553 of Bundle B2. Nowhere is there




any mention that the actual consideration was the 70,889,979 Granite Shares. I am constrained in allowing the contention of a collateral contract bearing the details as raised by the 1st Defendant as it would amount to the court lending credence to a matter which is highly irregular. Such conduct must never be condoned.


38. I therefore do not find any or any evidence of collateral contract in the circumstances of this case.


Issue ii: Whether clause 4.6 of the Supplemental Agreement is a penalty clause under section 75 of the Contracts Act 1950 [Act 136], contravenes the Companies Act 1965 [Act 125] and is against public policy


39. This is what clause 4.6, as amended, says:


“4.6 Post-Completion Rights and Obligations


If TPK fails to furnish the security within the period as described


in Clause 4.4:-


(i) the Deed of Assignment shall be deemed not to have been duly delivered by the Purchaser to the Vendor and the Stakeholder shall, on written request by the Purchaser, forthwith release the Deed of Assignment to the Purchaser and the Deed of Assignment shall be deemed terminated ab initio;


(ii) the Stakeholder shall, upon written request by the Vendor, release the items received by it pursuant to Clause 4.2A to the Vendor;




(iii) the beneficial ownership of the Sale Shares shall be deemed to revert from the Purchaser to the Vendor as at the date immediately after the last day of the said period; and


(iv) the Purchaser shall immediately upon expiry of the said period procure the resignation of the Directors appointed to the Board of Directors of the Companies, and cease from having any right to exercise control over the business and affairs, of the Companies.”


40. As seen from the wording in Clause 4.6, the operation of this clause is dependent on “If TPK fails to furnish the security within the period as described in Clause 4.4”. Clause 4.4 which provides for a nine month period for compliance states as follows:


“The Stakeholder is hereby irrevocably and unconditionally authorized to forthwith deliver to the Purchaser the items received by it pursuant to Clause 4.2A, and the Deed of Assignment dated as at Completion Date to the Vendor, upon receipt by the Stakeholder of written confirmation from the Vendor that TPK had furnished to the Vendor such security for the Debt as the Vendor may reasonably require, such security to be furnished no later than nine months from the Completion Date.”


41. I shall now examine this clause from the three perspectives as


posed by the 1st Defendant.


Section 75 Contracts Act 1950 [Act 136]


42. The submissions of the 1st Defendant may be summed up as


follows. Once again, central to the 1st Defendant’s submission in this




respect is the argument that the real commercial bargain between the parties is not as set out in the written agreements but in the collateral contract where the real consideration for the sale of the Hotel Companies is the 70,889,979 Granite Shares from Tan Sri Ting. However, this time round the argument focuses on the value of those shares. It was contended by the 1st Defendant that the value of those shares is RM28 million. To allow the Plaintiff’s claim for a reversion of ownership in the Hotel Companies bearing a value of RM200 million when the real consideration is only RM28 million is said to be grossly disproportionate, excessive, extortionate and unreasonable and in violation of section 75 of the Contracts Act. It would further be unreasonable to grant the orders sought since the beneficial ownership in the Hotel Companies had already passed to the 1st Defendant and it was Tan Sri Ting and not the 1st Defendant who had failed to furnish the security required. The relief ought not to be made against the 1st Defendant who had performed its obligations by duly assigning the debt owed by Tan Sri Ting to the Plaintiff. Lastly, it was argued that the Plaintiff had failed in any event to prove actual loss or damage.


43. The law on the interpretation of section 75 of the Contracts Act 1950 [Act 136] and penalty clauses is settled – see Selva Kumar a/l Murugiah v Thiagarajah a/l Retnasamy [1995] 1 MLJ 817. Recently in Johor Coastal Development Sdn Bhd Constrajaya Sdn Bhd [2009] 6 AMR 733, 746, the Federal Court once again stated in clear terms that “Selva Kumar is still good law”. Where it is found that the provision is one of a penalty, then only reasonable compensation may be awarded upon proof of damage that results from the breach. The consideration of whether clause 4.6 is a penalty clause is one viewed from the perspective of the




parties’ intention at the time when the clause was drawn up and not at the time of breach – Metramac Corporation Sdn Bhd v Fawziah Holdings Sdn Bhd; Tan Sri Halim Saad & Che Daim Hj Zainuddin (Intervenors) [2007] 4 CLJ 725.


44. In Else (1982) Ltd v Parkland Holdings Ltd [1994] 1 BCLC 130


the English Court of Appeal had occasion to address a similar issue, whether a reversion of shares and retention of monies paid clause in a settlement agreement amounted to a penalty clause or a mere forfeiture clause. Russell LJ quoted from Stockloser v Johnson [1954] 1 ALL ER 630 where Denning LJ said at page 637:


‘There is, I think, a plain distinction between penalty cases, strictly so called, and cases like the present. It is this. When one party seeks to exact a penalty from the other, he is seeking to exact payment of an extravagant sum either by action at law or by appropriating himself moneys belonging to the other party, as in Public Works Comr v Hills [1906] A.C.


368. The claimant invariably relies, like Shylock, on the letter of the contract to support his demand, but the courts decline to give him their aid because they will not assist him in an act of oppression: see the valuable judgments of Somervell and Hodson L.JJ. in Cooden Engineering Co. v Stanford [1953] I Q.B. 86. In the present case, however, the seller is not seeking to exact a penalty. He only wants to keep money which already belongs to him. The money was handed to him in part payment of the purchase price and, as soon as it was paid, it belonged to him absolutely. He did not obtain it by




extortion or oppression or anything of that sort, and there is an express clause – a forfeiture clause, if you please – permitting him to keep it. It is not the case of a seller seeking to enforce a penalty, but a buyer seeking restitution of money paid. If the buyer is to recover it, he must, I think, have recourse to somewhat different principles from those applicable to penalties, strictly so called.”


45. Similarly, Lord Hoffman opined at page 144 –


“ In my judgment, the provision by which Mr Brearley could recover the shares was not a penalty but a forfeiture. The jurisdictions to relieve against penalties and forfeitures have a common equitable origin but the modern law distinguishes between them. The distinction has probably arisen because the common law developed its own doctrine of not enforcing penalties at a time when relief against forfeiture was still the exclusive province of equity. The penalty rule looks at the position when the contract is made and asks whether the clause is a stipulation for payment on breach intended to operate in terrorem or whether it is a genuine preestimate of damage. If the latter, the clause is enforceable only to the extent of the actual damage: see Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79, [1914-15] ALL ER Rep 739. The rule is mechanical in effect and involves no exercise of discretion at all. The forfeiture rule looks at the position after the breach when the innocent party is enforcing the forfeiture. It asks




whether in all the circumstances it would be unconscionable to allow the forfeiture to take effect. This is an exercise of discretion to grant equitable relief.


The essence of a penalty is the imposition of an additional or different liability on breach of a contractual term. Jobson v Johnson [1989] I ALL ER 621, [1989] I WLR 1026 shows this may include having to transfer property, as well as a more common case of having to pay a sum of money. But the condition entitling Mr Brearley to retake the shares if the £860,000 was not paid on the due date was in my judgment no more than an express statement of what in any event would have been his right to rescind the contract for breach of an essential term. This may result in a forfeiture but has never been regarded as a penalty.


The point is clearly made by Mason CJ and Deane J in their joint judgment in Legione v Hateley (1983) 152 CLR 406 in the High Court of Australia. Dealing with an express right of rescission for breach their Honours said (at 445):


‘True it is that condition 5 expressly regulated the vendor’s right of rescission in the present case and provided for rescission on non-compliance with the prescribed notice on expiration of the time limited. However, the presence of this contractual stipulation, which merely regulates the vendor’s common law right to rescind, does not alter the essential character of the forfeiture of the purchase’s interest which




occurs when rescission takes place. No doubt the risk of forfeiture is a strong inducement to completion of the contract, that being the primary intention of the parties, but it is incorrect to describe the rescission for which condition 5 provides and the forfeiture of the purchaser’s interest which it entails as a penalty or as being in the nature of a penalty.’


In Jobson v Johnson [1989] I All ER 621, [1989] I WLR 1026 the contract imposed upon the purchaser in the event of breach a liability to transfer shares which legally and beneficially belong to him. In the present case the effect of breach was to entitle the vendor to be released from this obligation to transfer the shares and to terminate the escrow. By right of ownership he can then recover the share certificate which in law has never ceased to be his. If this seems a somewhat formal distinction I would answer that the penalty doctrine, being an inroad upon freedom of contract which is inflexible compared with the equitable rules of relief against forfeiture, ought not to be extended.”


46. It is not in dispute that the consideration in the Hotel Agreement is RM200 million. It was to be satisfied by an assignment on terms. Since the terms, namely the security, was not provided there is a total failure of consideration. It is undeniable that the Hotel Companies belonged to the Plaintiff otherwise there would have been no sale of the same to the 1st Defendant. Since the 1st Defendant has not been paid for their purchase, clause 4.6 merely provides for the return of the Hotel Companies. This is distinct from a penalty clause where the “sum” being appropriated does not belong to a claimant in the first place. This was clearly the parties’




intention at the time when the clause was incorporated. I do not see how such a provision can be construed as a penalty clause. It may well not be inserted but it was, and parties are generally free to make such provisions.


47. In Robophone Facilities Ltd v Blank [1996] 1 WLR 1428, 1449,


Diplock LJ saw “… no reason in public policy why the parties should not enter into so sensible an arrangement under which each know where they stand in the event of a breach by the defendant, and can avoid the heavy costs of proving actual damage if litigation ensues. And I see no ground in authority which would permit, much less compel, me to hold that this clause is a “penalty clause” and so unenforceable by the courts.” Subject to public policy, parties have every right to make a stipulation in the nature of clause 4.6. In this regard, the observation of the Privy Council in Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514 when commenting on the boundaries of equitable jurisdiction to relieve against contractual penalties and forfeitures ought to be heeded –


“The notion that the court’s jurisdiction to grant relief is “unlimited and unfettered” (per Lord Simon of Glaisdale in Shiloh Spinner Ltd. v. Harding [1973] A.C. 691, 726) was rejected as a “beguiling heresy” by the House of Lords in Scandinavian Trading Tanker Co. A.B. v. Flota Petrolera Ecuatoriana (The Scaptrade) [1983] 2 A.C. 694, 700. It is worth pausing to notice why it continues to beguile and why it is a heresy. It has the obvious merit of allowing the court to impose what it considers to be a fair solution in the individual case.


The principle that equity will restrain the enforcement of legal rights when it would be unconscionable to insist upon them has




an attractive breadth. But the reasons why the courts have rejected such generalisations are founded not merely upon authority (see per Lord Radcliffe in Campbell Discount Co. Ltd. v. Bridge [1962] A.C. 600, 626) but also upon practical considerations of business. These are, in summary, that in many forms of transaction it is of great importance that if something happens for which the contract has made express provision, the parties should know with certainly that the terms of the contract will be enforced. The existence of an undefined discretion to refuse to enforce the contract on the ground that this would be “unconscionable” is sufficient to create uncertainty. Even if it is most unlikely that a discretion to grant relief will be exercised, its mere existence enables litigation to be employed as a negotiating tactic. The realities of commercial life are that this may cause injustice which cannot be fully compensated by the ultimate decision in the case.”


48. Clauses such as clause 4.6 lend certainty to rights and obligations of parties upon the occurrence of any event or contingency and ought therefore to be recognized and enforced. Unlike a penalty clause where its essence is the imposition of an additional or different liability where there is a breach of a contractual term, clause 4.6 merely looks at the position after the breach. There is no additional liability sought to be enforced. Its inclusion as part of the terms of the Supplemental Agreement does not alter the character and effect of the clause. It is an expression of the Plaintiff’s rights and leaves no doubt as to the position of the parties should there be a breach where the security is not furnished. It may be said that the clause was intended to serve as a strong inducement




to the 1st Defendant to fully and properly complete the Hotel Agreement, but it would be wrong to suggest that such a clause is in the nature of a penalty clause.


49. I therefore find no merit in this argument put forth by the 1st Defendant.


Section 132G of the Companies Act 1965 [Act 125]


50. Moving on to whether clause 4.6 is in fact a repurchase of the Hotel Companies by the Plaintiff which is prohibited by section 132G of the Companies Act 1965, that section reads:


“132G. Prohibited transactions involving shareholders


and directors


(1) Notwithstanding the provisions of sections 132C and 132E, a company shall not enter into any arrangement or transaction to acquire the shares or assets of another company in which a shareholder or director of the acquiring company, or a person connected to such shareholder or director has a substantial shareholding as defined in section 69D whether or not for the benefit of such shareholder, director or connected person or for any other person unless the arrangement or transaction was entered into three years after such shareholder, director or connected person as the case may be, first held the shares in that other company or after the assets were first acquired by the said company, as the case may be.


(2) An arrangement or transaction entered into in contravention of subsection (1) shall be void and any consideration given for the shares or assets shall be recoverable accordingly.






(4) For the purposes of subsection (1)—


(a) a “person connected with a shareholder or a director” shall have the same meaning as the assigned to a “person connected with a director” in section 122A, except that a reference to a member of that shareholder’s or director’s family shall be limited to that shareholder’s or director’s spouse and child (including adopted child and step-child); and


(b) a reference to a shareholder of an acquiring company is a reference to a shareholder who has a substantial shareholding, as defined in section 69D, in the acquiring company.


(5) If there is any contravention of this section, the acquiring company and every director of the said company shall be guilty of an offence against this Act save in respect of any arrangement or transaction which is pending completion at the time of coming into force of this section.


(6) …


Penalty: Imprisonment for three years or fifty thousand ringgit or both.”


51. Learned counsel for the 1st Defendant submitted that section 132G is triggered because the Plaintiff [Dato’ Amirullah, PW1] and Tan Sri Ting are persons connected to each other through their common shareholding in Granite Industries. With respect, I disagree. For the reasons already discussed when examining Clause 4.6 from the perspective of section 75 of the Contracts Act, this clause merely deals with the consequences of a failure to furnish the required security. It must not be forgotten that in the




original Hotel Agreement, the parties had agreed that the security was to be furnished by the 16.4.2003. When the security was still not furnished by that date, the Supplemental Agreement was drawn up to provide for the extension of nine months for the security to be furnished. However, special arrangements were drawn up to accommodate the parties during the interim period as can be seen in the new clauses inserted.


52. In my opinion, the new clauses provide special arrangements with the security as the focal point. No less than three clauses are dedicated on it. Pending the furnishing of the security, the 1st Defendant was allowed to run the Hotel Companies. But the Plaintiff was not excluded. The Plaintiff had a similar right to appoint a director to the board. A closer examination of clause 4.6 shows that it not only deals with the matter of reversion of the beneficial ownership in the Hotel Companies, the clause also addresses other matters such as the appointments of the directors made by the 1st Defendant, and the cessation of the 1st Defendant’s control and operation in the business and affairs in the Hotel Companies. In other words, the special arrangements cease. This fortifies my view that special for limited duration arrangements were made to accommodate the respective parties, especially the 1st Defendant.


53. Looking at the implications of section 132G and in view of the penal consequences for any violation or non-compliance, I agree with the submission of Dato’ Naban that a strict interpretation is required. In Actacorp Holdings Bhd & Anor [Applicants] [1993] 1 MLJ 246, 252, Abdul Aziz J [as his lordship then was] held the view that the mischief that section 132G was intended to prevent arose from the substantial shareholdings in target companies by directors of acquiring companies




persons connected to such directors – “Pemegang saham yang tidak substantial tidaklah menjadi perkara kebimbangan bagi seksyen itu”. In the facts of this case, I do not find the Plaintiff, PW1 or even Tan Sri Ting holding substantial shareholding in Granite Industries as required under section 132G read together with section 122A(3) and for that provision to operate.


54. With respect, I also do not see the Hotel Companies as representing part of the assets of the 1st Defendant to be the subject-matter of the alleged repurchase or acquisition. In my understanding, as said earlier, the deemed completion clause was only for limited purposes and for a limited time. That being so, the Hotel Companies cannot become part of the assets of the 1st Defendant to be negotiated for sale or resale to the Plaintiff or acquisition by the Plaintiff. This is quite unlike the facts in Thong Foo Ching & Anor v Shigenori Ono [1998] 3 CLJ 674 and Tenaga Nasional Bhd v Dolomite Industrial Park Sdn Bhd [2000] 1 CLJ 695. The submissions in this regard must also fail.


Public Policy


55. It is the 1st Defendant’s submission that it would be contrary to public policy if the Plaintiff were permitted to reverse a transaction of the nature in this case. Public announcements had been made and the Securities Commission had been informed of the completion of the agreements. A temporary or false completion of the Hotel Agreement would be against the public interest and set a commercially unacceptable precedent where completed transactions announced by public-listed companies could actually be temporary in nature liable to be reversed




later. It was submitted that to allow such a proposition would result in loss in confidence to the Kuala Lumpur Stock Exchange and no court should condone or further such deception, be it on the authorities or on the public.


56. The concern of the 1st Defendant is good but it is not founded in the facts of this case. When it comes to avoidance of contract by reason of public policy, the Federal Court in Theresa Chong v Kin Khoon & Co [1976] 2 MLJ 253, 255 expressed its extreme reservation to hold contracts as being void as against public policy and “… should only do so when the contract is incontestably and on any view inimical to the public interest’. The Federal Court went on to quote from Cheshire & Fifoot on the Law of Contract where it opined two observations on the doctrine of public policy:


“First, although the rules already established by precedent must be moulded to fit the new conditions of a changing world, it is no longer legitimate for the Courts to invent a new head of public policy.


Secondly, even though the contract is one which prima facie falls under one of the recognized heads of public policy, it will not be held illegal unless its harmful qualities are indisputable.


The doctrine, as Lord Atkin remarked in a leading case, ‘should only be invoked in clear cases in which the harm to the public is substantially incontestable, and does not depend upon the idiosyncratic inferences of a few judicial minds. In




popular language … the contract should be given the benefit of the doubt.”


57. My reasons for not accepting the 1st Defendant’s submission requires a scrutiny of the announcements made to the Securities Commission and to the public. The evidence shows that two public announcements were made. In the first announcement dated 16.4.2003 made by the merchant bankers on behalf of Granite Industries, the completion of amongst others the Hotel Companies in accordance with the agreements was made known – see page 550 of Bundle B2. It is this announcement that the 1st Defendant takes issue with. Together with clause 4.2C which deems the beneficial ownership in the shares in the Hotel Companies to have passed from the Plaintiff to the 1st Defendant on the completion date, it was argued by learned counsel for the 1st Defendant that to revert ownership of the Hotel Companies to the Plaintiff would run contrary to this announcement. It may be said that the public may have been misled and the relief sought by the Plaintiff ought not to be granted.


58. However, I note that two days after that announcement was another public announcement issued by the 1st Defendant explaining the position of the Hotel Companies. It reported that the purchase consideration of RM200 million will be satisfied by the absolute assignment to the Plaintiff by the 1st Defendant of the debt of RM200 million owing by Tan Sri Ting to the 1st Defendant. This proposal had been approved by the shareholders on 28.9.2001. It was further announced that the “sale and purchase agreement for the Proposed Acquisition of Hotel Companies has been completed in accordance with the said agreement on 16.4.2003




(“Completion Date”). As provided in the supplemental agreement dated 16.4.2003, the beneficial ownership of the shares in the Hotel Companies is deemed to pass from ANSB to Ekran on Completion Date. However, the transfer documents of the Hotel Companies shall remain with the stakeholder until Tan Sri Ting meets the conditions of the security for the Assigned Debt.” – see page 551 of Bundle B2. A letter of undertaking to the same effect was executed by the 1st Defendant – page 114 of Bundle B1.


59. In my view, this second announcement by the 1st Defendant itself clearly sets straight the position of the completion of the Hotel Agreement, that such completion is still dependent on Tan Sri Ting meeting the conditions of the security for the assigned debt, as required and stipulated in the Hotel and Supplemental Agreements. These announcements taken together show that the completion of the Hotel Agreement is still conditional on the security being met. This is consistent with earlier announcements and circulars issued to shareholders and the approvals granted by the Securities Commission. From the facts, I therefore find that the arguments of the 1st Defendant in this regard without merit and must be rejected.


Issue iii: Has the 1st Defendant performed its obligations under the Hotel Agreement and Supplemental Agreement


60. In this final issue, the 1st Defendant took the position that once it had deposited the Deed of Assignment with the 2nd Defendant, it had performed all its obligations under the Hotel and Supplemental Agreements. The agreements are silent as to who should actually obtain




the required security from Tan Sri Ting – was it the responsibility of the Plaintiff, the 1st Defendant or even Tan Sri Ting himself?


61. The same principles of construction and interpretation of agreement that Mr. Sivaneindiren advocated for the determination of the real commercial bargain of the parties will be deployed to answer this poser. The issue of whether there has been any performance by the 1st Defendant of its obligations under the Hotel Agreement and the Supplemental Agreement can only be addressed by applying a business common sense approach to the factual matrix within which these agreements were executed – see MBf Insurans Sdn Bhd v Lembaga Penyatuan Dan Pemulihan Tanah Persekutuan (FELCRA) [2007] 6 CLJ 639 and Chooi Siew Cheong v Lucky Height Development Sdn Bhd & Anor[1995] 2 CLJ 11. One cannot look at one clause in isolation and suggest its meaning and application as is proposed by the 1st Defendant. Just like the “deemed-to-be-trust” clause in Chooi Siew Cheong was to be considered and given its appropriate effect but was capable of being rebutted by other provisions in the context of the whole agreement and the facts of the case, so is the position in this case.


62. Having carefully and objectively examined the factual matrix of this case, I find that in the first place, the consideration of RM200 million is from the 1st Defendant. It was the 1st Defendant who offered to settle the purchase price of the Hotel Companies by way of an assignment of the debt from Tan Sri Ting. The Plaintiff was prepared to accept this assignment on terms – security was required. According to PW1, the identity of the security was not specified in the Hotel Agreement because it was uncertain at the time of the Hotel Agreement. This, however does




not reduce the need for such security nor does it transform the assignment to one that is absolute within the meaning of section 4(3) of the Civil Law Act 1956. Since it was in the 1st Defendant’s interest that the assigned debt is accepted by the Plaintiff in settlement of the purchase price of the Hotel Companies, it lies on the 1st Defendant to procure the security. I agree with Dato’ Naban, learned counsel for the Plaintiff that if the obligation was not with the 1st Defendant to procure this security, there would have been some suggestions from the 1st Defendant that the request for security ought to have been directed to Tan Sri Ting or a reply disputing such obligation. There was no protest or clarification from the 1st Defendant to the Plaintiff. The undisputed evidence shows the 1st Defendant instead seeking the security from Tan Sri Ting every day.


63. This subsequent conduct of the 1st Defendant is relevant and can be taken in evidence to disallow an assertion of a different interpretation or meaning from that as contained in the written agreement – see Sri Kelangkota-Rakan Engineering JV Sdn Bhd & Anor v Arab-Malaysian Prima Realty Sdn Bhd & Ors where the Court of Appeal stated at page 796 –


“It will be noticed that Lord Wilberforce left the door slightly ajar by reserving estoppel as an exception to the rule as to subsequent conduct. This has enabled us to look at subsequent conduct, not to interpret an agreement, but to prevent parties from asserting that an agreement had a different meaning from the meaning that they had proceeded upon, albeit mistakenly. In such circumstances, neither side




will be permitted to say that the document meant something else on its true construction.”


64. Similar views were shared by the Court of Appeal in MBf Finance Bhd v Low Ping Ming t/a Low Peng Enterprise [2005] 3 MLJ 208 and Pinsia Development Sdn Bhd & Ors v Hj Abdul Hadi Ahmad & Ors [2005] 1 CLJ 416. In Pinsia Development, Gopal Sri Ram JCA [as his


lordship then was] said at page 419 –


“We accept that it is settled law that an agreement may not be interpreted by reference to subsequent conduct of the parties thereto (see Wickman Tools v Schuler A.G. [1974] AC 235).


But it is equally well settled that parties may by their subsequent conduct give a term in an agreement a particular meaning. See, American Surety Co of New York v Calgary Mining Co Ltd [1919] 48 DLR 295, a decision of the Privy Council. In such an event it is that meaning which binds the court and the court is not then entitled to discover some other meaning in the exercise of its interpretative jurisdiction. See Amalgamated Investment & Property Co Ltd (In Liquidation) v Texas Commerce bank [1982] QB 84; Boustead Trading (1985) Sdn Bhd v Arab Malaysia Merchant Bank Bhd [1995] 4 CLJ 283.”


65. With the Deed of Assignment prepared in escrow ineffective until dated and delivered, the full obligations of the 1st Defendant under the agreements have yet to be completely performed. In WM Cory & Son Ltd v Inland Revenue Commissioners [1964] 3 All ER 66, 74 Lord




Diplock when discussing about escrows becoming deeds and attracting liability to stamp duty observed:


“A deed delivered as an escrow, which is no more than an old word for scroll, … So long as it remains in escrow it is not yet executed as a deed; for delivery again as a deed is required before it becomes one. While an escrow it conveys nothing, it transfers nothing.


66. Not only was the deed executed in escrow, undated and undelivered, the 2nd Defendant was further constrained from delivery unless it had received written confirmation from the Plaintiff that the security had been furnished within the time period prescribed under clause 4.4 of the Supplemental Agreement. From the evidence adduced, including the conduct of the parties subsequent to the signing of the agreement, I find that the obligation remained with the 1st Defendant and remains unperformed. The 1st Defendant is now estopped from disputing this obligation. The Hotel Agreement and the Supplemental Agreement have not been effectively completed and this was clearly understood by the 1st Defendant as explained in its public announcement of 18.4.2003 which was referred to earlier.


67. In the circumstances, it is my finding that the 1st Defendant has not performed its obligations under the two agreements and this last issue must also be answered in the Plaintiff’s favour.






68. For the reasons set out above, I find the Plaintiff is entitled to the relief sought and I hereby allow the Plaintiff’s claim and dismiss the 1st Defendant’s Counterclaim. I further award the Plaintiff costs of RM 100,000. This sum was proposed by both counsel as reasonable costs.


Dated: 24th December 2009








Dato’ D.P. Naban, Niti Nadkarni, SM Shanmugam and Raphael Kok for the Plaintiff Messrs. Lee Hishamuddin Allen & Gledhill


S Sivaneindiren, Lim Cheng Bok, Puteri Shehnaz Majid, Daniel Chong and JF Read for the Defendants Messrs. Cheah Teh & Su



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