Tan Chee Hoe & Sdn Bhd v Code Focus Sdn Bhd

[2014] 3 MLJ (Ramly Ali FCJ) 301

A Tan Chee Hoe & Sdn Bhd v Code Focus Sdn Bhd

FEDERAL COURT (PUTRAJAYA) — CIVIL APPEAL NO 02(F)-32–06

OF 2013(W)
B
RAUS SHARIF PCA, ABDULL HAMID EMBONG, AHMAD
MAAROP, ABU SAMAH NORDIN AND RAMLY ALI FCJJ
4 MARCH 2014

C
Civil Procedure — Interests — Pre-judgment interest — Restitution of deposit paid
under a void and unenforceable agreement — Whether interest on refunded deposit
to be calculated from date of payment or date of filing of writ

D Companies and Corporations — Shares — Sale of shares — Whether sale of shares

without shareholders’ approval under s 132C of the Companies Act 1965 is invalid
or void — Whether shareholders’ approval a mandatory requirement — Whether
requirement for shareholders’ approval may be waived — Companies Act 1965
s 132C
E

Contract — Sale and purchase of shares — Agreement — Whether valid and

enforceable — Sale of shares without shareholders’ approval under s 132C of the
Companies Act 1965 — Whether sale and purchase agreement void and
F unenforceable — Whether purchaser may claim damages under the sale and
purchase agreement — Whether purchaser may claim restitution of deposit paid

Contract — Void contract — Restitution — Sale and purchase agreement for sale
G of shares — Sale of shares without shareholders’ approval under s 132C of the
Companies Act 1965 — Whether agreement void and unenforceable — Whether
purchaser may claim restitution of deposit paid — Contracts Act 1950 s 66

The appellant/defendant (as vendor) had entered into a sale and purchase
H agreement (‘the SPA’) with the respondent/plaintiff (as purchaser) for the
purchase of the total issued and paid-up shares of Choo Hoe SdnBhd (‘CHSB’)
for a purchase price of RM16m. The plaintiff had agreed to purchase the said
shares because it was interested in a piece of land owned by CHSB. The said
land was the only asset of CHSB. Pursuant to the SPA the plaintiff paid the
I defendant 10% deposit of RM1.6m. The salient terms of the SPA were as
follows: (a) The balance 90% of the purchase price was to be paid on or before
9 February 1996 (the completion date); (b) the completion of the SPA was
subject to two conditions precedent, namely: (i) approval of the Foreign
Investment Committee (‘the FIC’) within 75 days from the date of the SPA;
302 Malayan Law Journal [2014] 3 MLJ

and (ii) approval of the defendant’s shareholders in an extraordinary general A

meeting (‘EGM’) approving the sale of the shares to the plaintiff (cl 3.5); (c) the
defendant was to evict all squatters at its own costs and deliver vacant
possession of the said land in question to the plaintiff by the completion date
(Recital I and cl 8.1 (21)(d)); (d) the defendant was to refund the deposit in the
event the FIC approval was not obtained (cl 3.4); (e) in the event the plaintiff B
failed to pay the balance of the purchase price on or before the completion date,
the SPA shall automatically terminate and the defendant shall be entitled to
forfeit the deposit (cl 11 A); and (f ) time shall be the essence of the SPA (cl
12.11).The balance of the purchase price was not paid by the plaintiff by the
C
completion date. Consequently the defendant treated the SPA as having been
terminated by virtue of cl 11A and forfeited the deposit. The plaintiff thus
commenced the present action claiming for a refund of the deposit or
alternatively for the defendant to pay damages as agreed liquidated damages
and interest. The plaintiff disputed the forfeiture of the deposit and claimed D
that the defendant was in breach of the SPA on the grounds that the defendant
had failed to: (i) deliver vacant possession of the land to the plaintiff by the
completion date and therefore the plaintiff ’s obligation to pay the balance of
the purchase price did not arise; (ii) get the FIC approval within 75 days and
the approval of the defendant’s shareholders for the sale of the shares. The E
defendant contended that all encroachments on the land had been removed by
the completion date and it was ready to deliver vacant possession on that date.
As for the FIC approval and shareholder approval, the defendant contended
that these obligations had been waived by a side letter dated 10 November
1995 issued by the plaintiff to the defendant. The High Court dismissed the F
plaintiff ’s claim. The Court of Appeal reversed the decision of the High Court
and allowed the plaintiff ’s claim. Hence, this appeal.

Held, allowing the appeal in part:

G
(1) Section 132C(1) of the Companies Act 1965 (‘s 132C’) statutorily
emplaces the power of disposal of company’s substantial property and
undertaking in the hand of the shareholders at the general meeting and
declares transaction as ‘invalid’ and ‘void’ without such shareholders’
approval. The agreement between the plaintiff and the defendant H
involved an agreement to dispose of a substantial portion of the
defendant’s asset. The mandatory requirement of shareholders’ approval
under s 132C(1) had not been obtained by the defendant by the
completion date (see paras 24–25)
(2) The side letter was signed with the plaintiff ’s approval and authority. I
Hence, the plaintiff had actual notice of the non-compliance or
contravention of the mandatory statutory requirement under s 132C.
The side letter showed that the plaintiff had agreed to consciously waive
the provision of s 132C. Therefore, the side letter invalidated the SPA.
 Tan Chee Hoe & Sdn Bhd v Code Focus Sdn Bhd
[2014] 3 MLJ (Ramly Ali FCJ) 303

A Such waiver clearly contravened the mandatory requirement under

s 132C and was invalid in law (see para 30).
(3) The plaintiff expressly based its entire claim on the terms of the SPA. The
SPA became void when the mandatory statutory requirement of
B shareholders’ approval was not obtained and was consciously waived by
the parties at the time when it was executed. Therefore, s 66 of the CA
1950 came into play ie that defendant who had received an advantage
(the deposit of RM1.6m) under the void SPA was bound to restore it to
the plaintiff (see para 41).
C (4) The SPA was void right from the day of its execution when both parties
knowingly and consciously agreed for the waiver in the side letter. The
10% deposit was willingly paid by the plaintiff to the defendant with that
background. It was thus unconscionable for the plaintiff to be allowed
interest from 10 Februray 1996 as fixed by the Court of Appeal. The
D interest to be awarded for the refunded deposit should be at the rate of
8%pa calculated from the date when the writ was filed in the High Court
by the plaintiff ie on 24 January 2002 until the date of full settlement (see
paras 43–44).
E (5) The mandatory statutory provisions under s 132C must be complied
with and cannot be waived by agreement of the parties. Non-compliance
or contravention of the requirement renders the contract as void and
invalid; and thus cannot be enforceable by law (see para 58).

F [Bahasa Malaysia summary

Perayu/defendan (sebagai penjual) telah memasuki perjanjian jual beli (‘PJB’)
dengan responden/plaintif (sebagai pembeli) untuk belian keseluruhan saham
terbitan dan saham berbayar Choo Hoe Sdn Bhd (‘CHSB’) bagi harga belian
RM16 juta. Plaintif telah bersetuju untuk membeli saham-saham tersebut
G kerana ia berminat dengan sebidang tanah yang dimiliki oleh CHSB. Tanah
tersebut merupakan satu-satunya aset CHSB. Menurut PJB itu plaintif telah
membayar defendan deposit 10% sejumlah RM1.6 juta. Terma-terma penting
PJB itu adalah seperti berikut: (a) baki 90% daripada harga belian perlu
dibayar pada atau sebelum 9 Februari 1996 (tarikh siap); (b) penyempurnaan
H PJB itu tertakluk kepada dua prasyarat iaitu: (i) kelulusan Jawatankuasa
Pelaburan Asing (‘JPA’) dalam tempoh 75 hari dari tarikh PJB itu; dan (ii)
persetujuan pemegang-pemegang saham defendan dalam mesyuarat agung
luar biasa (‘MALB’) yang meluluskan jualan saham kepada plaintif (fasal 3.5);
(c) defendan hendaklah mengusir semua penduduk setinggan dengan kos
I mereka sendiri dan menyerahkan milikan kosong tanah tersebut yang
dipersoalkan kepada plaintif pada tarikh siap itu (Perihal I dan fasal
8.1(21)(d)); (d) defendan hendaklah membayar balik deposit sekiranya
kelulusan JPA tidak diperoleh (fasal 3.4); (e) sekiranya plaintif gagal membayar
baki harga belian pada atau sebelum tarih siap, PJB itu hendaklah secara
304 Malayan Law Journal [2014] 3 MLJ

automatik tamat dan defendan hendaklah berhak melucut hak deposit itu A
(fasal 11A); dan masa hendaklah menjadi inti pati PJB itu (fasal 12.11). Baki
harga belian tidak dibayar oleh plaintif pada tarikh siap itu. Akibat daripada itu
defendan menganggap PJB itu telah ditamatkan menurut fasal 11A dan
melucut hak deposit itu atau secara alternatif untuk defendan membayar ganti
rugi sebagai ganti rugi jumlah tertentu dan faedah yang dipersetujui. Plaintif B
mempertikaikan pelucutan hak deposit itu dan mendakwa bahawa defendan
telah melanggar PJB itu atas alasan bahawa defendan telah gagal untuk: (i)
menyerah milikan kosong tanah tersebut kepada plaintif pada tarikh siap itu
dan oleh demikian tanggungjawab plaintif untuk membayar baki harga belian
tidak timbul; (ii) memperoleh kelulusan JPA dalam tempoh 75 hari dan C
persetujuan pemegang-pemegang saham defendan untuk jaulan saham-saham
itu. Defendan berhujah bahawa semua sekatan atas tanah itu telah dialihkan
pada tarikh sipa itu dan ia sedia untuk diserah milikan kosong pada tarikh
tersebut. Berhubung kelulusan JPA dan persetujuan pemegang saham,
defendan berhujah bahawa tanggungjawab tersebut telah diketepikan oleh D
surat sampingan bertarikh 10 November 1995 yang dikeluarkan oleh plaintif
kepada defendan. Mahkamah Tinggi telah menolak tuntutan plaintif.
Mahkamah Rayuan telah mengakas keutusan Mahkamah Tinggi dan
membenarkan tuntutan plaintif. Justeru, rayuan ini.
E
Diputuskan, membenarkan sebahagian daripada rayuan:
(1) Seksyen 132C(1) Akta Syarikat 1965 (‘s 132C’) secara statutori memberi
kuasa jualan sebahagian besar harta syarikat dan aku janji atas tanah itu
kepada tanggungjawab pemegang-pemegang di mesyuarat agung dan F
mengisytiharkan transaksi sebagai ‘tidak sah’ dan ‘terbatal’ tanpa
persetujuan pemegang-pemegang saham tersebut. Perjanjian antara
plaintif dan defendan melibatkan perjanjian untuk menjual sebahagian
besar aset defendan. Keperluan mandatori untuk persetujuan
pemegang-pemegang saham di bawah s 132C(1) tidak diperoleh oleh G
defendan pada tarikh siap itu (lihat perenggan 24–25).
(2) Surat sampingan itu telah ditandatangani dengan persetujuan dan kuasa
plaintif. Justeru, plaintif mempunyai notis sebenar berhubung
ketidakpatuhan atau pelanggaran keperluan statutori yang mandatori di H
bawah s 132C. Surat sampingan itu menunjukkan bahawa plaintif telah
bersetuju untuk sengaja mengetepikan peruntukan s 132C. Oleh itu,
surat sampingan itu menjadikan PJB itu tidak sah. Penepian sebegini
jelas melanggar keperluan mandatori di bawah s 132C dan adalah tidak
sah dari segi undang-undang (lihat perenggan 30). I
(3) Plaintif telah menyatakan dengan jelas asas keseluruhan tuntutannya
berdasarkan terma-terma PJB itu, PJB itu menjadi terbatal apabila
keperluan statutori mandatori berhubung persetujuan
pemegang-pemegang saham yang tidak diperoleh dan sengaja
 Tan Chee Hoe & Sdn Bhd v Code Focus Sdn Bhd
[2014] 3 MLJ (Ramly Ali FCJ) 305

A diketepikan oleh pihak-pihak tersebut pada masa itu apabila ia

dilaksanakan. Oleh itu, s 66 Akta Kontrak 1950 terpakai yang mana
defendan yang telah menerima kelebihan itu (deposit RM1.6 juta) di
bawah PJB yang terbatal itu adalah terikat untuk mengembalikannya
kepada pkaintif (lihat perenggan 41).
B
(4) PJB itu adalah terbatal dari mula ia dimasuki apabila kedua-dua pihak
mengetahui dan bersetuju dengan penepian dalam surat sampingan itu.
Deposit 10% itu telah dibayar dengan rela oleh plaintif kepada defendan
berdasarkan latar belakang tersebut. Oleh itu adalah tidak berpatutan
untuk plaintif dibenarkan faedah dari 10 Februari 1996 sebagaimana
C
ditetapkan oleh Mahkamah Rayuan. Faedah yang diawardkan untuk
bayaran balik deposit itu patut diletakkan pada kadar 8% dikira dari
tarikh apabila writ difailkan di Mahkamah Tinggi oleh plaintif iaitu pada
24 Januari 2002 sehingga tarikh penjelasan penuh (lihat perenggan
43–44).
D
(5) Peruntukan-peruntukan statutori mandatori di bawah s 132C hendaklah
dipatuhi dan tidak boleh diketepikan melalui persetujuan pihak-pihak.
Ketidakpatuhan atau pelanggaran keperluan itu menyebabkan kontrak
itu terbatal dan tidak sah; dan oleh itu tidak boleh dikuatkuasakan oleh
E undang-undang (lihat perenggan 58).]

Notes
For a case on agreement, see 3(1) Mallal’s Digest (4th Ed, 2013 Reissue) para
6307.
F For a case on pre-judgment interest, see 2(3) Mallal’s Digest (4th Ed, 2012
Reissue) para 4263.
For cases on restitution, see 3(3) Mallal’s Digest (4th Ed, 2013 Reissue) paras
6925–6927.
For cases on sale of shares, see 3(1) Mallal’s Digest (4th Ed, 2013 Reissue) paras
G 1052–1072.

Cases referred to
Ahmad bin Udoh & Anor v Ng Aik Chong [1969] 2 MLJ 116 (refd)
Chase Perdana Bhd v Md Affendi bin Hamdan [2009] 6 MLJ 783, FC (refd)
H Cope v Rowlands (1836) 2 M&W 149 (refd)
Harnath Kaur v Inder Singh [1922] LR 50 (refd)
Holman v Johnson [1775–1802] All ER Rep 98, KBD (refd)
Hughes and others v Asset Managers plc [1995] 3 All ER 669, CA (refd)
K/S Lincoln v CB Richard Ellis Hotels Ltd [2009] EWHC 2344, QBD (refd)
I Menaka v Lum Kum Chum [1977] 1 MLJ 91, PC (folld)
National Land Finance Co-operative Society Ltd v Sharidal Sdn Bhd [1983] 2
MLJ 211, FC (refd)
Rimba Muda Timber Trading v Lim Kuoh Wee [2006] 4 MLJ 505, FC (distd)
Sajan Singh v Sardara Ali [1960] 1 MLJ 52, PC (distd)
306 Malayan Law Journal [2014] 3 MLJ

Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR A
410 (refd)

Legislation referred to
Companies Act 1965 ss 132C, 132C(1), (1)(b), (3), (5)
Contracts Act 1950 ss 2(g), 24, 54, 55, 56, 66, 66(d) B
Indian Contracts Act 1872 [IND] s 65
National Forestry Act 1984
Appeal from: Civil Appeal No W-02–1062 of 2010 (Court of Appeal,
Putrajaya) C
Loh Siew Cheang (Yap Mong Jay with him) (Cheang & Ariff ) for the appellant.
Gopal Sri Ram (Harpal Singh Grewal and Amrit Pal Singh, Reny Rao with him)
(AI Nathan) for the respondent.

Ramly Ali FCJ (delivering judgment of the court): D

[1] The appellant, Tan Chee Hoe & Sons Sdn Bhd, was the defendant in the
High Court, and the respondent, Code Focus Sdn Bhd, was the plaintiff there.
For the purpose of this judgment, the appellant will be referred to as the E
defendant and the respondent as the plaintiff, as they were referred to at the
High Court.

[2] The present appeal before us is by the defendant against the unanimous
decision of the Court of Appeal on 14 August 2012 in allowing the plaintiff ’s F
appeal against the decision of the High Court, and ordering the defendant to
refund the plaintiff ’s deposit of RM1.6m and damages to be assessed or
alternatively the defendant to pay the plaintiff damages in the sum of RM3.2m
as agreed liquidated damages stipulated in the sale and purchase agreement
(‘SPA’) dated 10 November 1995 between the parties. G

[3] On 23 May 2013, leave to appeal was granted by this court to the
defendant on the following questions of law, namely:
(a) where the Court of Appeal makes a decision on a subject matter affecting H
the rights and liabilities of litigants based on a non-existing statutory
provision, whether or not the Federal Court should, as a matter of course,
review that decision as a whole on appeal proper by granting leave to
appeal?;
(b) where contracting parties waive a mandatory statutory provision prior to I
the entering of a contract, whether a court of law may order restoration of
consideration paid under that contract and further order damages for
breach of contract in favour of one of the contracting parties
notwithstanding s 66 of the Contracts Act 1950?; and
 Tan Chee Hoe & Sdn Bhd v Code Focus Sdn Bhd
[2014] 3 MLJ (Ramly Ali FCJ) 307

A (c) where in law the expression ‘vacant possession’ concerning property

transactions means freedom from physical impediment which
substantially interferes with the enjoyment of substantial part of a
property or any physical impediment however slight and affecting any
part of the property however insubstantial?.
B

FACTUAL BACKGROUND

C [4] The defendant (as vendor) had entered into an agreement dated 10
November 1995 with the plaintiff (as purchaser) for the purchase of the total
issued and paid-up shares of Choo Hoe Sdn Bhd (‘CHSB’) which comprised of
931,002 ordinary shares for a purchase price of RM16m (the SPA). The
plaintiff had agreed to purchase the said shares because it was interested in a
D piece of land owned by CHSB. The land in question was to a piece of freehold
land measuring 1 a or 24.5 poles (50,230sqft) held under Certificate of Title
No 12920 lot 92, Section 46 in the Town of Kuala Lumpur along Jalan Putra
(the said land). The said land was the only asset/property of CHSB.

E [5] Pursuant to the SPA the plaintiff paid the defendant 10% deposit of
RM1.6m. The balance 90% of the purchase price was to be paid on or before
9 February 1996 (the completion date). Other salient terms of the SPA are as
follows:
(a) the balance purchase price was to be paid to the defendant on or before
F the completion date (cl 2.2(c));
(b) the completion of the SPA was subject to two conditions precedent,
namely: (i) approval of the foreign investment committee (‘the FIC’)
within 75 days from the date of the SPA; and (ii) approval of the
G defendant’s shareholders in an extraordinary general meeting (‘EGM’)
approving the sale of the shares to the plaintiff (cl 3.5);
(c) the defendant was to evict all squatters at its own costs and deliver vacant
possession of the said land in question to the plaintiff by the completion
date (Recital I and cl 8.1 (21)(d));
H
(d) the defendant was to refund the deposit in the event the FIC approval was
not obtained (cl 3.4);
(e) in the event the plaintiff failed to pay the balance of the purchase price on
or before the completion date, the SPA shall automatically terminate and
I
the defendant shall be entitled to forfeit the deposit (cl 11 A); and
(f ) time shall be the essence of the SPA (cl 12.11).

[6] It is not in dispute that there were several encroachments on the said land.
308 Malayan Law Journal [2014] 3 MLJ

The plaintiff averred that in breach of cl 8.1 of the SPA, the defendant had A
failed to remove the encroachments or prepare for delivery of vacant possession
of the said land on or before the completion date to the plaintiff.

[7] The balance of the purchase price was not paid by the plaintiff to the
B
defendant by the completion date. Consequently the defendant treated the
SPA as having been terminated by virtue of cl 11A of the SPA, and in
accordance with the terms of the SPA, the 10% deposit of RM1.6m already
paid by the plaintiff was forfeited by the defendant.
C
[8] The plaintiff disputed the forfeiture of the deposit. It claimed that the
defendant was in breach of its obligations under the SPA, as it had failed to
deliver vacant possession of the said land in question to the plaintiff by the
completion date and therefore the plaintiff ’s obligation to pay the balance of
the purchase price did not arise. D

[9] The plaintiff also claimed that the defendant had failed, refused and /or
neglected to fulfill the conditions precedent ie to get the approval of the FIC
within 75 days from the date of the SPA; and the approval of the defendant’s
E
shareholders in an EGM approving the sale of the shares to the plaintiff.

[10] The defendant on the other hand claimed that all the encroachments on
to the said land had been removed by the completion date and it was ready to
deliver vacant possession on that date. In any event, the defendant contended F
that the obligation to deliver vacant possession of the said land was only a
warranty.

[11] As for the two conditions precedent, the defendant contended that such
obligation to perform them had been waived by a side letter dated G
10 November 1995 issued by the plaintiff to the defendant.

THE PLAINTIFF’S SUIT: AT THE HIGH COURT

H
[12] The plaintiff commenced the present suit in the Kuala Lumpur High
Court on 22 October 2002. After a full trial, the learned High Court judge
dismissed the plaintiff ’s claim with costs. In her judgment, the learned High
Court judge made the following findings, namely:
(a) that on the balance of probabilities, the side letter dated 10 November I
1995 (the same date when the SPA was executed) was in fact signed with
the authority or approval of the plaintiff and therefore the waiver was
valid and effective where the parties had in fact agreed to waive the
performance of the conditions precedent and that there was no legal
 Tan Chee Hoe & Sdn Bhd v Code Focus Sdn Bhd
[2014] 3 MLJ (Ramly Ali FCJ) 309

A impediment to such waiver; and the non-performance of the conditions

precedent did not cause the SPA to be void;
(b) that on the issue of vacant possession, the defendant was able to deliver
vacant possession of the said land to the plaintiff on the completion date;
B and in any event, the failure to deliver vacant possession of the said land
on the completion date did not amount to a breach of condition of the
SPA; it was only a breach of warranty; and
(c) that, in the circumstances of the case, upon the failure of the plaintiff to
pay the balance of the purchase price as required by cl 2.2(c), the
C provisions of cl 11A kicked in and the SPA became automatically
determined and the deposit became absolutely forfeited to the defendant.
There was therefore no issue of any act of termination or forfeiture by the
defendant; and the forfeiture of the deposit was therefore lawful and in
accordance with the terms of the SPA.
D

AT THE COURT OF APPEAL

E [13] The Court of Appeal, after hearing submissions from both sides,
unanimously reversed the decision of the High Court. In doing so, the Court
of Appeal, inter alia, made the following findings, namely:
(a) that the side letter dated 10 November 1995 (exh P5) was void by virtue
F of s 132C of the Companies Act 1965 and the mandatory statutory
requirement of the section could not be waived by agreement of the
parties; therefore cll 3.1 to 3.6 of the SPA (which were allegedly waived by
the side letter) were thus operative and the conditions precedent had to
be complied with; bereft of the compliance, the SPA became voidable at
G the option of the plaintiff and the plaintiff was entitled to the refund of
the deposit and to obtain damages;
(b) reading the terms of the SPA, the plaintiff need not pay the balance of the
purchase price by the completion date because on that date, the
defendant could not deliver vacant possession of the said land to the
H plaintiff in breach of cl 8.1 of the SPA; and
(c) that it was unconscionable to allow the defendant to retain the deposit on
the ground that there was a fundamental breach by the defendant in not
delivering vacant possession of the said land by the completion date
I which went to the root of the agreement coupled with the voidability of
the SPA at the instance of the plaintiff.

[14] For the various reasons as highlighted in the judgment, the Court of
Appeal unanimously allowed the plaintiff ’s appeal with costs of RM50,000,
310 Malayan Law Journal [2014] 3 MLJ

and made an order for the deposit of RM1.6m together with interest at the rate A
of 8%pa calculated from 10 February 1996 to the date of full settlement or in
lieu of assessment, the sum RM3.2m as agreed liquidated damages, which was
stipulated in cl 11B of the SPA to be paid by the defendant to the plaintiff.

AT THE FEDERAL COURT B

[15] Before us, the defendant raised two issues, namely:

(a) where contracting parties waive a mandatory statutory requirement to
the entering of a contract, whether a court of law may order refund or C
return of consideration paid under that contract and further order
damages for breach of contract in favour of one of the contracting parties
notwithstanding s 66 of the Contracts Act 1950?
(b) whether in law the expression‘vacant possession’ concerning property
transaction means freedom from physical impediment which D
substantially interferes with the enjoyment of substantial part of the
property or any physical impediment however slight and affecting any
part of the property however insubstantial?
E
[16] Learned counsel for the defendant, submitted at the outset that the
statutory principles contained in s 132C of the Companies Act 1965 would
determine the appeal before the court; and the legal principles explained by the
Federal Court in Rimba Muda Timber Trading v Lim Kuoh Wee [2006] 4 MLJ
505 as well as ss 2(g), 24 and 66 of the Contracts Act 1950, will determine the
F
propriety of the orders on recovery of deposit and substantial damages, made
by the Court of Appeal in the plaintiff ’s favour.

[17] To strengthen its argument, learned counsel for the defendant relied on
the following contentions, namely: G
(a) the Court of Appeal erred in law in finding that in the absence of
shareholders’ approval for the disposal of substantial assets of a company,
the underlying transaction or contract is only ‘voidable’ under s 132C;
and in law, the provisions of s 132C(3) expressly specified that in
consequence of its non-compliance the contract is void, simply upon the H
fact of absence of shareholders’ approval as required under s 132C(1);
(b) the Court of Appeal erred in law in not giving effect to the statutory
requirement under s 132C(3) whether the plaintiff had actual notice of
the contravention of s 132C or had consciously contravened the same, a I
necessary issue for the purpose of ascertaining the availability of the
exception to the plaintiff provided for in s 132C(3) and right to
restitution and damages; and
(c) the Court of Appeal erred in law in assisting the plaintiff, a willing and
 Tan Chee Hoe & Sdn Bhd v Code Focus Sdn Bhd
[2014] 3 MLJ (Ramly Ali FCJ) 311

A knowing participant to a breach of s 132C, by ordering restitution and

payment of substantial damages or in lieu thereof, liquidated damages in
its favour, contrary to the common law, ss 24 and 66 of the Contracts Act
1950.

B [18] In his submissions, learned counsel for the plaintiff agreed that the
requirement to obtain shareholders’ approval was a mandatory statutory
requirement under s 132C(1) of the Companies Act 1965 and must be
complied with even if not contractually provided for. The plaintiff further
submitted that ‘it is undisputed that the need to obtain the defendant’s
C shareholders’ approval for the sale of the shares was a condition precedent to the
SPA; it is a well-established principle of law that if a condition precedent is not
fulfilled and/or satisfied, then there is no valid contract’. However, the plaintiff
contended that the Court of Appeal was correct in giving effect to ss 54 and 55
of the Contracts Act 1950 which provide that the party that prevents the other
D party from performing its promise is liable to compensate the other party for
any loss which it may sustain.

[19] In supporting the Court of Appeal’s decision, the plaintiff argued that
the defendant had breached two fundamental terms of the SPA ie failure to
E
obtain shareholders’ approval and failed to deliver vacant possession of the said
land to the plaintiff. On that premise, the plaintiff claimed that the defendant
had no right to forfeit the plaintiff ’s 10% deposit of RM1.6m and the plaintiff
is entitled to the agreed liquidated damages as provided for in the SPA.
F SECTION 132C OF THE COMPANIES ACT 1965

[20] We shall now deal with the provisions of s 132C of the Companies Act
1965; its intended purpose, scope, and the effect of its non-compliance. The
G current s 132C provides:
132C Approval of company required for disposal by directors of company’s
undertaking or property
(1) Notwithstanding anything in the memorandum or articles of association of
H the company, the directors shall not carry into effect any arrangement or
transaction for —
(a) the acquisition of an undertaking or property of a substantial value;
or
(b) the disposal of a substantial portion of the company’s undertaking or
I property,
unless the arrangement or transaction has been approved by the
company in a general meeting.
(1A) For the purpose of sub-s (1), in the case of a company where all or any of
312 Malayan Law Journal [2014] 3 MLJ

its shares are listed for quotation on the official list of a Stock Exchange as A
defined in the Securities Industry Act 1983, the term ‘substantial value’ or
‘substantial portion’ shall mean the same value prescribed by the
provisions in the listing requirements of the Exchange—
(a) which relates to acquisitions or disposals by a company or its
subsidiaries to which such provision applies; and B
(b) which would require the approval of shareholders at a general
meeting in accordance with the provisions of such listing
requirements.
(1B) In the case of any company other than a company to which sub-s (1A) is C
applicable, an undertaking or property shall be considered to be of a
substantial value and a portion of the company’s undertaking or property
shall be considered to be a substantial portion if —
(a) its value exceeds twenty-five per centum of the total assets of the
company; D
(b) the net profits (after deducting all charges except taxation and
excluding extraordinary items) attributed to it amounts to more than
twenty-five per centum of the total net profit of the company; or
(c) its value exceeds twenty-five per centum of the issued share capital of
the company, E
whichever is the highest.
(2) The Court may, on the application of any member of the company, restrain
the directors from entering into a transaction in contravention of sub-s (1).
(3) Where an arrangement or transaction is carried into effect in contravention of F
sub-s (1), the arrangement or transaction shall be void except in favour of any
person dealing with the company for valuable consideration and without actual
notice of the contravention.
(4) This section shall not apply to proposals for disposing of the whole or
substantially the whole of the company’s undertaking or property made by G
a receiver and manager of any part of the undertaking or property of the
company appointed under a power contained in any instrument or by a
Court or a liquidator of a company appointed in a voluntary winding up.
(5) Any director who contravenes the provision of this section shall be guilty of
H
an offence against this Act. Penalty: Imprisonment for five years or thirty
thousand ringgit or both.
(6)] In this section, ‘director’ includes the chief executive officer, the chief
operating officer, the chief financial controller or any other person
primarily responsible for the operation or financial management of a I
company, by whatever name called.

[21] The current s 132C was inserted by the Companies (Amendment) Act
2007 (Act A1299/07) which came into effect on 15 August 2007. Under the
 Tan Chee Hoe & Sdn Bhd v Code Focus Sdn Bhd
[2014] 3 MLJ (Ramly Ali FCJ) 313

A provisions of the sub-s (1)(b) directors cannot carry into effect any proposal or
execute any transaction for the disposal of a substantial portion of the
company’s undertaking or property unless the arrangement or transaction has
been approved by the company in a general meeting. The approval of the
shareholders in a general meeting must first be obtained before the transaction
B or disposal is carried into effect. A transaction or disposal entered into in
contravention of this subsection is invalid and void except in favour of any
person dealing with the company for valuable consideration and without
actual notice of the contravention. Any director of a company who contravenes
this section shall be guilty of an offence and liable to imprisonment for five
C years or a RM30,000 fine or both. This statutory requirement is mandatory,
notwithstanding anything in the company’s memorandum or articles of
association. If the directors decide to make a disposal of a substantial portion of
the company’s undertaking or property, a disclosure of the proposed
transaction must be made to the shareholders to enable the shareholders to
D make an informed decision on the transaction in a general meeting.

[22] Section 132C(1) statutorily emplaces that intra vires power of disposal
of company’s substantial property and undertaking in the hand of the
E shareholders at the general meeting and declares transaction as invalid and void
without such shareholders’ approval. In actual fact, shareholders are owners of
a company. They raise capital for operational requirement of the company as a
going concern, while directors, who may or may not be shareholders are only
involved in the day to day management of the company.
F
[23] Under the present sub-s (3), an arrangement or transaction carried into
effect in contravention of sub-s (1) ‘shall be void except in favour of any person
dealing with the company for valuable consideration and without actual notice
of the contravention.’ However, under the amended 1987 provisions, a
G transaction entered into in contravention of sub-s (1) ‘shall, in favour of any
person dealing with the company for valuable consideration, and without
actual notice of the contravention, be as valid as if that sub-s has been complied
with.’ In effect the present sub-s (3) changed the wordings of the exception
from the positive approach to the negative approach. The present provisions
H were to make clear on issue of ambiguity that relates to the penalty in criminal
liability on directors who fail to comply with the mandatory prohibition of
sub-s (1), as stipulated under sub-s (5). In effect the new sub-s (3) penalises
contravening directors regardless of whether a third party in dealing with the
company for valuable consideration had actual notice or not of the
I contravention.

[24] However, the effect of both the provisions on the status of a third party
dealing with the company is still the same ie it loses the benefit of the statutory
rule in s 132C(1) if it had actual notice of the contravention or non-compliance
314 Malayan Law Journal [2014] 3 MLJ

of the requirement. In other words if a third party (in this case the plaintiff ) had A
actual notice ofthe non-compliance of s 132C(1), then it cannot rely on the
exception under s 132C(3) to enforce the transaction or agreement in question
(in this case is the SPA dated 10 November 1995); and the transaction or
agreement is void, and invalid (not voidable) as against the whole world as well
as the third party (the plaintiff ). (Under s 2(g) of the Contracts Act 1950 a void B
agreement cannot be enforceable by law; while voidable agreement is only
enforceable by law at the option of one or more of the parties, but not at the
option of the other).

[25] In the present case, it is not in dispute that the transaction or agreement C
between the plaintiff and the defendant involved an agreement to dispose of a
substantial portion of the defendant’s asset or property ie the total issued and
paid up shares of CHSB for a purchase price of RM16m, by the defendant (as
vendor) to the plaintiff (as purchaser). It is also not in dispute that the
mandatory requirement of shareholders’ approval under s 132C(1) of the D
Companies Act 1965 had not been obtained by the defendant, by the
completion date.

[26] In order to determine the validity of the SPA, the issue which must be
considered is whether the plaintiff (as the third party dealing with the E
defendant company) came under the exception to the void rule under
s 132C(3). The pertinent question to ask is whether the plaintiff had actual
notice of the non-compliance. If it had actual notice of the non-compliance of
s 132C, then, the exception does not apply and the result is clear — that the
SPA is void and invalid; and cannot be enforced by the plaintiff. When an F
agreement is void or invalid the whole agreement is void; and the whole
agreement cannot be enforceable by law (see: s 2(g) of the Contracts Act 1950).

[27] The defendant relied on the contents of the side letter dated G
10 November 1995 issued by the plaintiff and addressed to the defendant. The
side letter was issued contemporaneously ie on the same date with the
execution of the SPA. To better understand the effect of the side letter, we shall
reproduce its contents in full:
H
CODE FOCUS SDN BHD
NO 9 JALAN DORAISAMY, OFF JALAN DANG WANGI
50300 KUALA LUMPUR
TEL: 03-2985288 FAX: 03-2985028 I
-------------------------------------------------------------------------------------------------
10 November 1995
TAN CHEEHOE & SONS SON BHD
 Tan Chee Hoe & Sdn Bhd v Code Focus Sdn Bhd
[2014] 3 MLJ (Ramly Ali FCJ) 315

A Nos. 6&8 J a Ian Gereja (2nd Floor)

50100 Kuala Lumpur
Dear Sirs,

Re: Sale Purchase Agreement

B dated 10 November 1995 Sale and Purchase of Shares ofChoo Hoe Sdn
Subject matter: Bhd
Vendor: Tan Chee Hoe & Sons Sdn Bhd
Purchaser: Code Focus Sdn Bhd

C -------------------------------------------------------------------------------------------------
We refer to the above matter.
Pursuant to our discussions, we hereby agree that cls 3.1, 3.2, 3.3, 3.4, 3.5 and 3.6
of the sale and purchase agreementshall no longer apply.
We enclosed herewith our banker’s cheque MBB No. 012408 for RM1,440,000.00
D favouring your Solicitors M/S P.G. Lim & Co. which together with the earlier
payment of RM160,000.00 shall form the deposit payment of 10%.
Yours faithfully,
CODE FOCUS SON BHD
E sgd sgd
……………………………… ………………………………
DIRECTOR We, Tan Chee Hoe & Sons Sdn Bhd
hereby agree to the a bo vementioned
terms and hereby acknowledge receipt
F of the banker’s cheque

[28] The High Court, after hearing the witnesses and evaluating the
evidence given during trial, found that the side letter was signed with the
G plaintiff ’s approval and authority; and that it had been validly executed. The
learned judge concluded that ‘the parties had in fact agreed to waive the
performance of the Conditions Precedent by way of a valid side letter signed on
10 November 1995, and that there was no legal impediment to such waiver
…the non-performance of the Conditions Precedent did not therefore cause
H the SPA to be void.’

[29] The Court of Appeal reversed this finding and maintained that
mandatory statutory requirements under s 132C of the Companies Act 1965
cannot be waived. The Court of Appeal held that the side letter ‘is ineffective
I and void’ and further held that the SPA was voidable at the plaintiff ’s option.
Accordingly, the Court of Appeal found that the defendant had breached the
SPA and it must refund the 10% deposit of RM1.6m and pay damages to be
assessed, or in lieu thereof, the agreed liquidated damages of RM3.2m as
stipulated in the SPA, to the plaintiff.
316 Malayan Law Journal [2014] 3 MLJ

[30] As found by the learned High Court judge, the side letter was in fact A
signed with the plaintiff ’s approval and authority; and was validly executed.
The learned judge was satisfied that the side letter was signed by one Mr Ng
Chen Foo, a director of the plaintiff, who was present at the time when the SPA
was to be signed. In short, the effect of the finding of the learned High Court
judge on this issue is clear that the plaintiff had actual notice of the B
non-compliance or contravention of the mandatory statutory requirement
under s 132C at the time when the SPA was executed on 10 November 1995.
The side letter in effect shows that the plaintiff had agreed to consciously waive
the provision of section 132C. Therefore, we are of the view that the side letter
invalidated the SPA. Such waiver clearly contravenes the mandatory C
requirement under section 132C and invalid in law.

[31] The authorities on this matter are clear. Section 24 of the Contracts Act
1950 stipulates in effect that the consideration or object of an agreement is
unlawful if it is forbidden by law or if it is such a nature that if permitted, would D
defeat any law. Every agreement of which the object or consideration is
unlawful is void; and a void contract cannot be enforceable by law.

[32] His Lordship Parke B in Cope v Rowlands (1836) 2 M&W 149 at p 157;
had stated: E

It is perfectly settled, that where the contract which the plaintiff seeks to enforce, be
it express or implied, is expressly or by implication forbidden by the common law or
statute, no court will lend its assistance to give effect.
F
The above principle was adopted by Hirst LJ in Hughes and others v Asset
Managers plc [1995] 3 All ER 669.

[33] To knowingly and consciously waive the mandatory statutory

requirement of s 132C of the Companies Act 1965 is unlawful. The court of G
law will not entertain such unlawful act by allowing claim based on the void
agreement. The same principle was adopted by Coulson J in K/S Lincoln v CB
Richard Ellis Hotels Ltd [2009] EWHC 2344 where it was held that ‘it seems
clear that the underlying principle or policy is one of deterrence; that the courts
will not encourage illegal acts by allowing claim based upon them.’ H

[34] The Federal Court in Chase Perdana Bhd v Md Affendi bin Hamdan
[2009] 6 MLJ 783 had affirmed and adopted the same principle as follows:
The law on this is quite established. Once it is enacted by legislation that parties are I
required to comply with any provision, parties must comply with such provision. It
is not for any person to waive legislative requirements by an agreement unless the
legislation allows it to be done. Legislation enacts laws which in its opinion are for
the benefit of the public. It is not for the courts, or anybody for that matter, to say
that it need not be followed.
 Tan Chee Hoe & Sdn Bhd v Code Focus Sdn Bhd
[2014] 3 MLJ (Ramly Ali FCJ) 317

A [35] The interest of the shareholders of the defendant company, must be

protected. That is the intention of s 132C of the Companies Act 1965;
particularly as in the present case there were a number of shareholders of the
defendant company at the material time. The shareholders then were Tan Eng
Teong, Tan Tack Lin, Tan Eng How, the Estate of Tan Chee Hoe and Tan Eng
B Sin (Tan Eng Teong, Tan Teck Lin and Datin Chan Woi Choo as trustees).

[36] Based on the above considerations, it is clear that the SPA in question
was not merely voidable at the option of the plaintiff as found by the Court of
Appeal but invalid and void. The plaintiff cannot make any claim based on the
C terms of the said void agreement. The SPA, although lawful on its face
according to its own terms, was unlawful as it was to be performed in a manner
which the law or statute prohibits, (see Yango Pastoral Company Pty Ltd v First
Chicago Australia Ltd (1978) 139 CLR 410). The plaintiff had knowingly
participated in the contravention of the statutory requirement under s 132C;
D and therefore not entitled to the protection under the exception in sub-s (3).

SECTION 66 OF THE CONTRACTS ACT 1950

[37] The effect of a void contract or agreement is provided for under s 66 of

E
the Contracts Act 1950, which reads:

66 When an agreement is discovered to be void, or when a contract becomes void,

any person who has received any advantage under the agreement or contract is
bound to restore it, or to make compensation for it, to the person from whom he
F received it.

[38] The facts of the present case do fit the meaning of the words ‘discovered
to be void’ or ‘becomes void’ as found in section 66 above. The Privy Council
G in Harnath Kaur v Inder Singh [1922] LR 50, 1 A 69 in considering a claim
based on s 65 of the Indian Contracts Act 1872 (which was identical to our s 66
of the Contracts Act 1950) ruled:
an agreement, therefore, discovered to be void is one discovered to be not
enforceable by law, and on the language of the section, would include an agreement
H that was void in that sense from its inception as distinct from a contract that
becomes void.

The above principle was followed by Wan Suleiman J in Ahmad bin Udoh &
Anor v Ng Aik Chong [1969] 2 MLJ 116.
I
[39] A right to restitution may arise out of a failure of a contract though the
right itself be not a matter of contractual obligation. It appears to be based on
the principle exemplified in the Roman Law condictio causa data causa non
secuta (contract becoming impossible to perform owing to the outbreak of war
318 Malayan Law Journal [2014] 3 MLJ

in 1914). The Privy Council in Menaka v Lum Kum Chum [1977] 1 MLJ 91, A
in dealing with s 65 of the Indian Contracts Act 1872 (which is identical to our
s 66 of the Contracts Act 1950) ruled:
In that way effect will be given to section 65 under which each party is bound to
restore any advantage which he has received to the person from whom he received it B
— see Govindram Seksaria v Radbone where Lord Morton of Henry ton said:
The result of section 65 of the Indian Contract Act was that, as from (the date on
which the contract became void) each of the parties became bound to restore to the
other any advantage which the restoring party had received under the contract of
sale. C

[40] The plaintiff in the present case, expressly based its entire claim on the
terms of the SPA. The plaintiff, inter alia, alleged that the defendant was in
breach of the said SPA in failing to deliver vacant possession of the said land in D
question to the plaintiff; and to obtain shareholders’ approval under s 132C of
the Companies Act 1965 on or before the completion date, as stipulated in
various cls of the SPA. At the same time, the plaintiff expressly in para 12 of its
statement of claim claimed that it was ‘at all material times ready, willing and
able to honour its obligations under the SPA, subject to the SPA becoming E
unconditional …’ Clearly, the plaintiff in this case, was trying to enforce a void
contract.

[41] The SPA in this case became void when the mandatory statutory
requirement of shareholders’ approval was not obtained and was consciously F
waived by the parties at the time when it was executed. Therefore, s 66 of the
Contracts Act 1950 came into play ie that defendant who had received an
advantage (in the form of the 10% deposit of RM1.6m) under the void
agreement or contract (the SPA) is bound to restore it to the plaintiff from
whom he received it. G

[42] The failure of an agreed or statutory condition precedent frees

contracting parties from their further obligations. The contract become void.
The decision of the Federal Court in National Land Finance Co-operative
Society Ltd v Sharidal Sdn Bhd [1983] 2 MLJ 211 is enlightening on this issue. H
In that 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 I
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
non-fulfilment of the requirement and in this case also the deposit was refundable as
money had and received for the use of the appellants who had paid it.
 Tan Chee Hoe & Sdn Bhd v Code Focus Sdn Bhd
[2014] 3 MLJ (Ramly Ali FCJ) 319

A [43] On this issue, we are in agreement with the Court of Appeal that the
10% deposit of RM1.6m was to be refunded by the defendant to the plaintiff.
However we cannot agree on the issue of interest on the deposit ‘at the rate of
8%per annum calculated from 10 February 1996 to the date of full settlement’
as ordered by the Court of Appeal.
B
[44] In this case, the SPA was void right from the day of its execution (10
November 1995) when both parties knowingly and consciously agreed for the
waiver in the side letter of the same date. The 10% deposit of RM1.6m was
willingly paid by the plaintiff to the defendant with that background. It is
C unconscionable for the plaintiff to be allowed interest from the date
10 February 1996 as fixed by the Court of Appeal. (Apparently, the date
10 February 1996 was based on the completion date of the SPA — 9 February
1996).
D
[45] The award of interest is a discretion of the court. If at all an interest is to
be awarded on the 10% deposit, it should start from the date when the action
was first filed by the plaintiff at the High Court, claiming for the refund of the
deposit. The Privy Council in Menaka v Lum Kum Chuan had the opportunity
to deal with the same issue ie on the issue of interest to be awarded on the
E
refund of money paid under a void or illegal contract which had contravened
the provision of s 8 of the Moneylenders Ordinance 1951. Lord Fraser of
Tullybelton, delivering the judgment of the Board, aptly said:

Their Lordships therefore do not consider that it would be right to award interest
F from a date before the institution of these proceedings. But after that date different
considerations apply and the award of interest is a matter for the discretion of the
court. It is true that apparently Harnath Kaur, (supra) was cited before Mohamed
Azmi J, but the learned judge gave no reason for not awarding any interest and their
Lordships therefore do not consider that he can be taken to have exercised his
G discretion on the point. The Federal Court made an award of interest at 6% from the
date of raising the action (February 17, 1971) after reference to Harnath Kaur, supra
and they clearly did exercise their discretion. Their Lordships see no reason to think
that the Federal Court committed any error of law in their exercise and they will
therefore not interfere with the decision of the Federal Court on this point. The
result is that the respondent is bound to pay to the appellant the sum of $19,400
H with interest at 6% from February 17, 1971.

[46] Applying the above principle, we are of the view that the interest to be
awarded for the refunded deposit of RM1.6m to the plaintiff should be at the
I rate of 8%pa calculated from the date when the writ was filed in the High
Court by the plaintiff on 24 January 2002 until the date of full settlement.

[47] Learned counsel for the defendant in challenging the restitution order
made by the Court of Appeal referred to the ruling of the Federal Court in
320 Malayan Law Journal [2014] 3 MLJ

Rimba Muda Timber Trading v Lim Kuoh Wee [2006] 4 MLJ 505. In that case, A
the plaintiff filed an action against the defendant for trespass and conversion
relating to timber concession area in Pahang. The High Court dismissed the
claim, however on appeal the Court of Appeal allowed the claim for conversion
and directed that damages be assessed by the SAR of the High Court. On
appeal to the Federal Court, the defendant contended that the property in the B
logged timber could not in law pass to the plaintiff on the ground that the
underlying contract with the licence holder was illegal being in breach of the
provisions of the National Forestry Act 1984. The defendant’s appeal to the
Federal Court was dismissed. In doing so, the Federal Court made, inter alia,
the following rulings: C

(a) the fact that the contract was illegal would not prevent the property in the logged
timber passing to the respondent who had fully paid for the timber. In the
circumstances, this court therefore agree with the Court of Appeal that even if the
contract was illegal that did not prevent the property right in the logs from being
D
vested in the respondent The claim by the respondent could not be defeated purely
on the ground that the relevant contract was illegal as the respondent did not ground
his claim on the illegal contract. The respondent here merely relied on the contract
as a basis for his claim to the property right in the logs; and
(b) in an action founded on the tort of conversion, property rights could pass under E
a contract even though the contract is tainted with illegality, provided that the action
is not grounded on the illegal contract.

[48] Our view is that Rimba Muda can easily be distinguishable from the
present case. In Rimba Muda the cause of action was based on tort of F
conversion where the contract in question was fully concluded and executed by
the parties concerned. The plaintiff had fully paid for the timber; and the
plaintiff had fully discharged his part of the bargain and there was nothing
more for him to do under the contract. On this context, the Federal Court
affirmed that the contract ‘was fully executed once the plaintiff paid the full G
sum of RM140,000 to Chan and the property right in the logs immediately
passed to the respondent (plaintiff ) upon the issuance of the license to extract
the timber to the licence holder.’

[49] The Federal Court in that case also referred to the Privy Council’s case H
of Sajan Singh v Sardara Ali [1960] 1 MLJ 52 (PC) (which was also cited by
learned counsel for the defendant in the present appeal in supporting that
restitution or refund of deposit is barred in such circumstances). In that case,
the Privy Council held, inter alia, that although the transaction between the
plaintiff and the defendant was illegal being in contravention of certain I
regulations governing the transfer and use of motor vehicles, nevertheless it was
fully executed and carried out and on that account it was effective to pass the
property in the lorry to the plaintiff. Lord Denning in delivering decision of the
Board that restitution is barred, said:
 Tan Chee Hoe & Sdn Bhd v Code Focus Sdn Bhd
[2014] 3 MLJ (Ramly Ali FCJ) 321

A The reason is because the transferor, having fully achieved his unworthy end, cannot
be allowed to turn round and repudiate the means by which he did it — he cannot
throw over the transfer. And the transferee, having got the property, can assert his
title to it against all the world, not because there is not one who can assert a better
title to it. The court does not confiscate the property because of the illegality — it
has no power to do so — so it says, in the words of Lord Eldon: ‘Let the estate lie
B
where it falls.’

[50] Both Rimba Muda and Sajan Singh dealt with situation where the
contracts or agreements in dispute, though found to be illegal, were fully
C executed and fully carried out by the parties. The contract was fully concluded
and completed; and the plaintiff ‘had fully discharged his part of the bargain
and there was nothing more for him to do’. The situation in the present case
before us is different and distinguishable. Here, the SPA was not completed by
the completion date; a mandatory pre condition statutory requirement under
D s 132C of the Companies Act 1965 had not been obtained or fulfilled; the
parties have not fully discharged their obligations under the SPA; and the
subject matter of the sale ie the transfer of the shares of CHSB from the
defendant (as vendor) to the plaintiff (as purchaser) had not been affected yet.
There was no binding agreement to be enforced until the requirement was
E satisfied and fulfilled.

[51] The Court of Appeal, after finding that the mandatory statutory
requirement under s 132C of the Companies Act 1965 could not be waived by
agreement of the parties had erroneously found that ‘bereft of that compliance,
F the SPA become voidable at the option of the plaintiff and the plaintiff was
entitled to the refund of the deposit and to obtain damages.’ In the grounds of
judgment of the Court of Appeal, it is stated:

[54] cl 12.11 of the SPA stipulates that time is of the essence. That being the case, we
G will activate section 56 of the Contracts Act 1950. This section states that when time
is of the essence and the contractual obligation is not performed on the stipulated
time frame, the contract is voidable at the option of the promisee.
[55] As alluded to earlier, the defendant’s contractual obligation under the SPA was
to deliver vacant possession on the completion date because time was of the essence
H and an essential condition of the SPA. And the failure of the defendant to deliver
vacant possession of the land to the plaintiff on the completion date, made the SPA
voidable at the plaintiff ’s option.

The SPA was void, not voidable at the option of the plaintiff.
I
[52] In allowing the appeal by the plaintiff, the Court of Appeal made a
further order that the defendant to pay the plaintiff damages to be assessed by
the Registrar of the High Court together with interest at the rate of eight 8%pa
calculated from 10 February 1996 to the date of full settlement or in lieu of
322 Malayan Law Journal [2014] 3 MLJ

assessment, the sum of RM3.2m as agreed liquidated damages, which was A

stipulated in cl 11B of the SPA to be paid by the defendant to the plaintiff.

[53] The issue before us now is whether the Court of Appeal could make
such an order for damages to be assessed in favour of the plaintiff or in lieu of
B
that, to enforce cl 11B of the void SPA for the defendant to pay the plaintiff an
agreed RM3.2m as liquidated damages.

[54] As stated earlier in this judgment, a void contract or agreement cannot

be enforced by law. When a contract or agreement is void, the whole terms in C
the contract are void and cannot be enforced. No term of the said contract can
be spared. By making the above order for damages, the Court of Appeal clearly
was enforcing the void SPA. There is no legal basis for that order. It is perfectly
settled, that where the contract which the plaintiff seeks to enforce, is expressly
or by implication forbidden by the common law or statute (as in the present D
case) no court will lend its assistance to give effect, more so where both parties
to the contract (as in the present case) were consciously and willingly agreed to
the contravention of the law by not complying with the requirement of section
132C. Both parties were equally at fault (potior est conditio defendantis) (see:
Hughes and others v Asset Managers [1995] 3 All ER 669; Cope v Rowlands E
(1836) 2 M&W 1491, 150 ER 707; and Holman v Johnson [1775–1802] All
ER Rep 98).

[55] Section 66 of the Contracts Act 1950 is clear on this point, that when F
a contract becomes void (as in the present case) the party who has received any
advantage under the contract or agreement is bound to restore it to the person
to whom he received it. The advantage to be restored under the section refers to
the advantage that he had actually received from the other person. If the
advantage received was in the form of 10% deposit of RM1.6m, that same G
advantage must be restored or refunded to the plaintiff. If that cannot be done
for whatever reason, then the defendant is bound to make compensation for it
— either one, not both. In this regard illustration (d) to s 66 is instructive:

(d) A contracts to sing for B at a concert for RM1,000, which are paid in advance. H
A is too ill to sing. A is not bound to make compensation to B for the loss of the
profits which B would have made if a had been able to sing, but must refund to B the
RM1,000 paid in advance.

[56] The above illustration reflects the clear principle of contract law that I
consequential damages can only be claimed when there is in existence a valid
and enforceable contract between the parties; and one of the parties have
breached any one of the fundamental terms of the contract, as a result of which
the claimant suffers loss or damage. In a case where the contract is void there is
 Tan Chee Hoe & Sdn Bhd v Code Focus Sdn Bhd
[2014] 3 MLJ (Ramly Ali FCJ) 323

A no enforceable term and therefore the question of breach of the contract to

support claim for consequential damages does not arise.

[57] The question relating to ‘vacant possession’ as stipulated in the SPA was
also raised in the appeal before us. However, learned counsel for the defendant
B submitted that it was unnecessary to deal with this question if the Court of
Appeal was wrong on the issue concerning contravention of section 132C
particularly where the plaintiff was not an innocent third party within the
meaning of s 132C(3) of the Companies Act 1965. No submission was
canvassed before us by the defendant’s solicitors on this ground. In effect,
C learned counsel for the defendant only relied on the question concerning
non-compliance of s 132C of the Companies Act 1965, in support its appeal
before us.

[58] We are in agreement with the learned counsel for the defendant on this
D
point. As we have stated earlier, non-compliance or contravention of the
mandatory statutory requirement under s 132C of the Companies Act 1965
rendered the SPA to be void and not enforceable by law. Therefore the question
on ‘vacant possession’ is no longer relevant. To deal with it would means we are
dealing with the terms of a void agreement or contract which ultimately cannot
E
be enforced by law.

CONCLUSION

F [59] Based on the above considerations, we would answer the questions

posed to us in the following manner:
(a) the mandatory statutory provisions under s 132C of the Companies Act
1965 must be complied with and cannot be waived by agreement of the
parties;
G
(b) non-compliance or contravention of the requirement renders the
contract as void and invalid; and thus cannot be enforceable by law;
(c) being a void contract, by virtue of s 66 of the Contracts Act 1950, the
court of law may order restoration of whatever consideration or
H advantage paid or given under that contract; and
(d) being a void contract, a court of law cannot order damages for breach of
any terms of the contract in favour of one of the contracting parties.

I [60] In the upshot, we allow the appeal in part, in that the order of the Court
of Appeal relating to the issue of damages to be assessed together with its
interest or in lieu of assessment, the sum of RM3.2m as agreed liquidated
damages (which was stipulated in cl 11B of the SPA) to be paid by the
defendant to the plaintiff, is set aside. We however dismiss the appeal against
324 Malayan Law Journal [2014] 3 MLJ

the order of the Court of Appeal relating to the refund of the 10% deposit of A
RM1.6m to the plaintiff. That order is therefore upheld with a variation that
the interest of 8%pa payable on the refund is to be calculated from 24 January
2002 (being the date of filing of the writ) to the date of full settlement. We now
invite the parties to address us on costs.
B
Appeal allowed in part.

Reported by Kanesh Sundrum

C