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1. Chia Tien Foh & Ors v Lo Man Heng & Ors

[2015] MLJU 2238
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 CHIA TIEN FOH & ORS v LO MAN HENG & ORS
CaseAnalysis
| [2015] MLJU 2238

Chia Tien Foh & Ors v Lo Man Heng & Ors

[2015] MLJU 2238
Malayan Law Journal Unreported

COURT OF APPEAL (KOTA KINABALU)

MOHD ZAWAWI SALLEH, VERNON ONG LAM KIAT AND PRASAD SANDOSHAM ABRAHAM JJCA
CIVIL APPEAL NO S-02-326-02/2014
18 December 2015

David Fung (Ryan Soo with him) (Alex Pang & Co) for the appellant.
Marina Tiu (Yap Chin & Tiu) for the respondent.

Vernon Ong JCA:

GROUNDS OF JUDGMENT

INTRODUCTION

[1] The appeal and cross-appeal herein arose from the decision of the High Court sitting in Kota Kinabalu. The
plaintiffs’ appeal relates to the learned judge’s decision that (i) the termination of the Sale & Purchase of Shares
Agreement by the 2nd plaintiff is invalid, and (ii) that there was an oral agreement between the 1st plaintiff, the 1st
defendant and Chong Siak Nyen that the 1st plaintiff was to transfer his 1/3rd shares in the dwelling house to the 1st
defendant for RM400,000.00. The defendants’ cross- appeal relates to the learned judge’s finding that (i) there was
no misrepresentation by the 1st plaintiff to the 1st defendant relating to the timber coupes and/or the share in
Eramewa Sdn Bhd, (ii) the defendants had breached their warranty under the Mutual Agreement and awarded
damages to be assessed to the plaintiff, dismissing the defendant’s counterclaim for damages for misrepresentation
and the wrongful transfer of shares in Goodwill Alliance Sdn Bhd, (iii) costs of RM50,000.00 to the plaintiffs.

BACKGROUND FACTS

[2] The salient background facts relating to this appeal have been succinctly captured in a few paragraphs of the
judgment of the learned judge and are reproduced below:

“1st Plaintiff and 1st Defendant are businessmen and played the key role in their business ventures while the 2nd and 3rd
Plaintiff and 2nd and 3rd Defendants are their respective nominees. Sometime in 2008, 1st Plaintiff and 1st Defendant had
agreed to cease their business association after Chong Siak Nyen had ceased from their business association. With Chong
Siak Nyen acting as intermediary, both 1st Plaintiff and 1st Defendant had negotiated and had ultimately reached their
consensus and executed written agreements for their separation. It appears that 1st Defendant wanted for the purpose of
the separation, inter alia, the company known as Tamabina Sdn Bhd (“Tamabina”) with the timber coupe and the public
listed company known as Nakamichi Corporation Bhd which had committed contractually earlier to purchase a controlling
stake in Tamabina. Hence 1st and 2nd Plaintiff who were privies to the said contract would have to execute a novation in
order that the 1st Defendant and his nominee could replace the 1st and 2nd Plaintiff to be able to gain control over those 2
companies. In addition, 1st Defendant wanted ownership of Indajadi Sdn Bhd, Mekabina Sdn Bhd, Arabina Sdn Bhd,
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Sinajuta Sdn Bhd and Everjuta Sdn Bhd. 1st Plaintiff on the other hand, would like to take ownership of Wangsa Jadi
(Sabah) Sdn Bhd, Sabapioneer Sdn Bhd, Sinabumi Sdn Bhd, Danaraba Sdn Bhd, Dangaya Sdn Bhd and Rimba Kita Sdn
Bhd. On 29.11.2008, at the then Renaissance/Ramada Hotel (now Sabah Hotel) in Sandakan, parties held a final meeting
wherein the Mutual Agreement and a Sale & Purchase of Shares Agreement (“SPSA”) for 4,650,000 Nakamichi shares
to be purchased by the 1st Defendant within 2 years from the date of the agreement for the purchase price of RM13 million,
were signed by the parties together with several agreements to replace 1st Plaintiff and his nominee by the 1st Defendant
and his nominee. Both parties were legally represented.” (Emphasis and parenthesis supplied)

[3] In this judgment, the parties shall be referred to as they were in the court below.

PLAINTIFFS’ CLAIM

[4] In essence, the plaintiffs’ claim is that pursuant to the Mutual Agreement they have transferred the shares in the
companies to the defendants except for the company known as Wangsa Jadi Sdn Bhd. However, the defendants
have not fulfilled their part of the obligation to divest all the other companies to the plaintiffs. It is also alleged that
the 1st defendant had not paid the RM13 million or alternatively if the sum of RM6.5 million was set-off being the
‘debt’ due by Rimba Kita Sdn Bhd to the 1st defendant, the 2nd plaintiff claims the balance of RM6.5 million.

DEFENDANTS’ REPLY AND COUNTERCLAIM

[5] The defence is predicated on: (i) an oral misrepresentation by the 1st plaintiff on the timber coupes relating to
the Mutual Agreement, (ii) the wrongful termination of the Shares Sales and Purchase Agreement by the 2nd
plaintiff. The defendants’ counterclaim is for: (i) the dwelling house at No. 8, Taman Eksekutif, Penampang, (ii)
damages for wrongful termination of the SPSA by 2nd plaintiff, (iii) damages for misrepresentation by the 1st plaintiff
in relation to Danagaya Sdn Bhd and wrongful transfer of 13,330 shares in Goodwill Alliance Sdn Bhd, (iv) an
indemnity of the 1st defendant’s legal fees in relation to the cheating and corruption charges faced by him.

FINDINGS OF THE HIGH COURT

[6] The findings of the learned judge may be summarised as follows:

(A) There is no misrepresentation by the 1st plaintiff to the 1stdefendant in respect of:

(i) the excluded area of logging as reflected in the plan for the timber coupes to be granted to Danagaya
Sdn Bhd, and
(ii) the issue of the shares sale in the shares of Eramewa Sdn Bhd;

(B) The defendants are in breach of the Mutual Agreement:

(i) due to the defendants’ failure and/or refusal to transfer those companies intended for the plaintiffs to
the plaintiffs, and
(ii) for failing to disclose the pre-existing liabilities of Rimba Kita Sdn Bhd prior to the date of the execution
of the Mutual Agreement (clause 9.1) ;

(C) The termination of the Shares Sale and Purchase Agreement by the 2nd plaintiff is wrongful. The 2nd
Plaintiff had breached the condition of acquiring the 4,650,000 Nakamichi shares from third parties.
Consequently, the 1 and 2nd plaintiffs are liable to pay to the 1st defendant the sum of RM6.5 million in
damages; (D) There is no misrepresentation by the 1st plaintiff that he and his brother were holding 60%
shares in Goodwill Alliance Sdn Bhd on trust for the Chief Minister. PW2 was the nominee for the 1st
plaintiff and not for the 1st defendant in holding the 13,330 shares in Goodwill Alliance Sdn Bhd; (E) There
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is an oral agreement between the 1st plaintiff, 1st defendant and Chong Siak Nyen whereby it was agreed
that all three of them was to be co-owners of the dwelling house at No. 8 Taman Eksekutif, Penampang in
equal shares and that whosoever of the three wanted ownership of the same, it could be transferred to him
upon payment of RM400,000.00 to the remaining two for their settlement of the account with Rimba Kita
Sdn Bhd; and (F) The 1st defendant has failed to prove the existence of an agreement between himself and
the 1st plaintiff whereby the 1st plaintiff had agreed to pay the 1st defendant’s legal fees in defending the
corruption and cheating charges because the criminal charges arose out of their common ventures.

THE APPEAL AND CROSS-APPEAL

[7] The appellants’ appeal is against part of the decision and they relate to:

(i) The finding that the termination of the Shares Purchase and Sale Agreement by the 2nd plaintiff on
3.12.2010 is wrongful; and
(ii) The finding that there was an oral agreement between the 1stplaintiff, the 1st defendant and Chong Siak
Nyen that the 1stplaintiff was to transfer his 1/3rd share in the house at No. 8, Taman Eksekutif, Penampang
to the 1st defendant in consideration of the 1st defendant paying RM400,000.00 to the 1st plaintiff and
Chong Siak Nyen.

[8] The respondents’ cross-appeal is against the following findings of the learned judge:

(i) That there is no misrepresentation by the 1st plaintiff to the 1stdefendant pertaining to the timber coupes
and/or the shares in Eramewa Sdn Bhd for tax payment which allegedly vitiate consent to the Mutual
Agreement thereby rendering it voidable;

(ii) That the defendants had breached clause 9.1 of the Mutual Agreement so as to give rise to damages;

(iii) That there was no oral agreement between the 1st plaintiff and the 1st defendant relating to the
reconstitution of their shareholding in Goodwill Alliance Sdn Bhd and that the alleged wrongful transfer of
its 13,330 shares claimed to be belonging to the 1st defendant is not proven; and
(iv) (iv) Costs of RM50,000.00 awarded to the plaintiffs.

PLAINTIFFS’ SUBMISSION

[9] Before us, learned counsel advanced the plaintiff’s appeal on three main points. They are: (i) termination of the
SPSA by 2nd plaintiff, (ii) the legal consequences that follow in the event the termination of the SPSA is invalid, and
(iii) the division of the ownership of the dwelling house.

[10] On the first point, it was submitted that the learned judge erred in fact and in law when he ruled that the 2nd
plaintiff had breached the SPSA for the sale of 4,650,000 Nakamichi shares and had wrongfully terminated the
SPSA. In construing Recital (1) of the SPSA, the learned judge ruled that it must be shown that the 2nd plaintiff had
so acquired the block of shares before the 1st defendant as purchaser could effectively purchase those shares.
Learned counsel argued that the learned judge has interpreted Recital (1) to mean something that the parties could
not have intended. Clause 1 contains the obligation to sell and the obligation to purchase at the stated price. Clause
2 sets out the 2 year timeline for performance. Recitals are not an operative part of an agreement and cannot
override the terms of the agreement where there is no doubt in the construction of the agreement (Lee Chin Cheng
Dengkil Oil Palm v Kaplands Sdn Bhd [2003] 1 MLJ 177, 186-187). Recitals are not promises to be enforced but
are usually statements of facts which set out the background against which the parties had agreed to enter into a
legally binding agreement. Learned counsel also argued that if the SPSA is interpreted objectively, the 2nd plaintiff
has the shares to sell when the SPSA was entered into. If the learned judge’s ruling that the condition precedent
was not fulfilled because the 2nd plaintiff did not have the shares is correct, then there is no binding obligation to sell
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the shares (Aberfoyle Plantations v Khaw Bian Cheng [1960] MLJ 47, 50 (PC)). As such, there is no claim for
damages from either party to the agreement.

[11] The second point relates to the issue of damages which flows from the wrongful termination of the SPSA.
Learned counsel argued that the learned judge erred in treating the RM6.5 million debt as damages for wrongful
termination of the SPSA even though there is no independent assessment of damages. The sum of RM6.5 million is
a disputed debt allegedly owing by Rimba Kita Sdn Bhd to Rasanmewa Sdn Bhd. Further there was no
consideration for the so-called debt of RM6.5 million. The said sum was meant to be set-off against part of the
purchase price of the shares. At any rate, the only debt owed by Rimba Kita Sdn Bhd was the sum of
RM100,000.00 to Rasanmewa Sdn Bhd or to the 1st defendant. Learned counsel also argued that the right of set-off
being conditional on a sale going through the alleged debt, which is owned by another party, Rimba Kita Sdn Bhd,
could only be applied as a set-off against the payment of the purchase price of RM13 million. As the SPSA is no
longer on foot, the claim for damages must be proved; a right of set-off cannot apply to compute damages. Lastly, it
was also argued that in awarding damages in the sum of RM6.4 million, the learned judge erred in dispensing with
the proof of quantum altogether; a party seeking damages must prove their damage (Tan Sri Khoo Teck Puat v
Plenitude Holdings Sdn Bhd [1995] 1 CLJ 15, 20 (FC)).

[12] The third point relates to the division of the ownership of the dwelling house. The learned judge found the
existence of an oral agreement between the 1st plaintiff, the 1st defendant and Chong Siak Nyen that whosoever of
the three of them wanted ownership of the same, it could be transferred to him upon payment of RM400,000.00 to
the other two co- owners for their settlement of the account with Rimba Kita Sdn Bhd. The learned judge’s finding
was predicated upon the re-amended Statement of Claim filed by the 1st plaintiff in a previous suit which alluded to
such an oral agreement under which the 1st plaintiff made his claim of his 1/3rd share of the RM400,000.00. Learned
counsel argued that the learned judge ought to have appreciated that the previous pleading was inconclusive and
belonged to a suit which that was struck out without being tried. Further, the learned judge ought to have carefully
considered the evidence of Chong Siak Nyen especially since the 1st plaintiff’s and the 1st defendant’s evidence on
the oral agreement is at variance. As such, learned counsel submitted that the learned judge’s decision ought to be
varied to the extent that the 1st defendant pays the sum of RM400,000.00 to the 1st plaintiff and Chong Siak Nyen
each rather than jointly; in the alternative, learned counsel submitted that the Court order the 1st defendant to
deliver up the house as a trust for sale to be carried out by a court appointed auctioneer at a public auction and the
proceeds of sale after deduction of all incidental expenses to be divided and paid out to each of the co-owners in
equal shares.

DEFENDANTS’ SUBMISSION

[13] The first point relates to clause 9.1 of the Mutual Agreement which provides an undertaking and warranty by
the transferors of the shares in the respective companies that there are no liabilities save as disclosed in writing
prior to the execution of the Mutual Agreement.

[14] Learned counsel for the defendants argued that the learned judge’s finding was that the liability under clause
9.1 was strict and that it did not matter even if the plaintiffs had knowledge of the liabilities. Sub-clause 9.1(l)
provides that “there are no liabilities to any creditor (save as disclosed in writing by the transferors to the
transferees prior to the execution of this Agreement).” Sub-clause 9.1(r) refers to the liability of the transferors to
discharge and indemnify the company against the possibility of undisclosed creditor’s debts or liabilities being
discovered subsequent to the execution of the Mutual Agreement. It was submitted that a reading of sub-clauses
9.1(l) and (r) show that it is not as strict as the learned judge held them to be. Learned counsel argued that the
words “... discovered subsequent to the date hereof ...” in sub-clause 9.1(r) indicates something where the parties
were unaware of at the time of making the agreement and which they gained sight of or detected subsequently
(Soh Eng Keng v Lim Chin Wah [1979] 2 MLJ 91, 92; Mustafa Osman v Lee Choa [1996] 3 CLJ 494 (CA)).
Further, the words “... or if there is any claim in court of otherwise ...” in sub-clause 9.1(r) must mean that the
alleged debt or liability would still have to be verified.

[15] To buttress the first point, learned counsel argued that in order to determine whether the defendants breached
clause 9.1, it is also necessary for the plaintiff to prove the existence and genuineness of the alleged debts. The
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only document produced by PW2 is a statement of accounts allegedly printed from the computer of Rimba Kita Sdn
Bhd on 20.3.2012; there is doubt as to the statement and its maker (Popular Industries Limited v Eastern Garment
manufacturing Sdn Bhd [1989] 3 MLJ 50; KPM Khidmat Sdn Bhd v Tey Kim Suie [1994] 3 CLJ 1). There were no
documents to prove the alleged debts owing to Rakyat Berjaya Sdn Bhd.

[16] The second point relates to Eramewa Sdn Bhd. Learned counsel argued that the learned judge failed to
consider that (i) the actual purchase price of the Eramewa shares was RM20 million, and that (ii) the entire
shareholding in Eramewa was transferred to the buyers, Ngui Ing Chung and Ling Ding Dieng. As such, the fact
and existence of the sale and purchase of the Eramewa shares for RM20 million had been proven. Further, the
learned judge’s finding that the status quo of the shares in Eramewa Sdn Bhd remains unchanged is wholly
contradicted by the evidence of the 1st plaintiff and the Form 49. Consequently, the burden of proof shifted on the
plaintiff to prove that the agreement had been terminated.

[17] Learned counsel also argued that the learned judge erred in finding that the SPSA was terminated by the
buyers because of an alleged misdescription of the timber concession area. Apart from the evidence of the 1st
plaintiff, there was no evidence to prove termination. It was also contended that the learned judge failed to
appreciate that there is evidence to show that the 1st plaintiff made a misrepresentation of fact when he informed
the 1st defendant that RM19 million arising from the sale of Eramewa shares would be utilised to pay the tax
liabilities accruing to both the 1st plaintiff and the 1st defendant. Lastly, learned counsel argued that the learned
judge erred in ruling that the 1st defendant failed to produce any evidence to rebut the evidence of the 1st plaintiff
and Chong Siak Nyen. The documents as well as the alleged facts of termination are facts within the knowledge of
the 1st plaintiff and the burden of proving those facts are on the plaintiffs (s 106 of the Evidence Act, 1950).

[18] The third point relates to the 13,330 Goodwill Alliance shares. The learned judge found that PW2 (Wong Siau
Yee) was an independent witness who was cogent and affirmative that she was the nominee for the 1st plaintiff and
not for the 1st defendant of the said shares. Learned counsel argued that the learned judge misdirected himself in
wholly accepting the evidence of PW2. PW2 was at the material time an employee of the 1st plaintiff. PW2 was
evasive in material areas of her cross-examination. The 1st defendant had transferred the shares to PW2 after the
raid by the MACC on 12.9.2007. Even though PW2 admitted to this fact, PW2’s assertion that she held the shares
actually belong to the 1st plaintiff is not probable. According to a list of directors of the company, the 1st defendant
had been holding shares in Goodwill Alliance together with the 1st plaintiff and one Ho Kian Kok who was the
nominee of Chong Siak Nyen. Learned counsel also argued that the fact that the 1st defendant had possession of
the share transfer form signed by PW2 shows that PW2 was holding the shares for the 1st defendant.

[19] Finally, on the issue of costs, learned counsel submitted that costs should also have been given to the
defendants as the defendants have partially succeeded in their counterclaim.

DECISION

Whether termination of the SPSA wrongful?

[20] We shall first deal with the plaintiff’s appeal relating to the termination of the SPSA. In essence, the plaintiff’s
argument is that the recitals should not be construed as part of the SPSA. In the alternative, the plaintiffs’ argument
is that the recitals are a condition precedent of the SPSA and that the SPSA never came into force until the
condition precedent was satisfied.

[21] On this issue, the learned judge found as a fact that when the 2nd plaintiff terminated the SPSA, the 2nd
plaintiff had not acquired the shares in question. This finding is confirmed by the evidence of the 1st plaintiff under
cross-examination.

[22] We do not agree with the proposition submitted by learned counsel for the plaintiffs that the recitals are not an
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operative part of an agreement. The plaintiffs’ argument that according to the SPSA the 2nd plaintiff had the shares
is not consistent with the clear and plain wordings of Recital (1) which reads as follows:

1. The Vendor is desirous to acquire from certain third parties and thereafter to sell Four Million Six Hundred and
Fifty Thousand 4,650,000 shares (hereinafter referred to as “the said Shares”) of NAKAMICHI CORPORATION BERHAD
& to the Purchaser, and the Purchaser is agreeable to purchase all the said Shares from the Vendor at the agreed price of
Ringgit Malaysia Two and Cents Seven Nine Five Seven (RM2.7957) only per share for a total consideration of Ringgit
Thirteen Million Only (RM13,000,000.00) only upon the Vendor having acquired the said Shares. (Emphasis supplied)

[23] The law on the construction of recitals in an agreement as opposed to its operative parts is quite settled. The
governing principles have been succinctly set out by Gopal Sri Ram JCA (as he then was) in Luggage Distributors
(M) Sdn Bhd v Tan Hor Teng @ Tan Tien Chi & Anor [1995] 3 CLJ 520 (CA) at page 540 as follows:

“It is a cardinal rule in the interpretation of contracts that recitals may be taken into account as an aid to construction and
this is all the more so where there is ambiguity in the document. Further, in an appropriate case the Court may construe a
recital as carrying with it an obligation to carry into effect that which is recited. In Orr v Mitchell [1893] AC 238, Lord
Macnaghten laid down the following principle in relation to the use to which recitals may be put when interpreting a
contractual document: When the words in the dispositive or operative part of a deed of conveyance are clear and
unambiguous they cannot be corrected by reference to other parts of the instrument. When those words are susceptible of
two constructions the context may properly be referred to for the purpose of determining which of the two constructions is
the true meaning. In order to justify a reference to the context for this purpose, it is not necessary that the language
of the dispositive or operative clause should be ambiguous in the sense that without some help you cannot tell
which of the two meanings should be taken. The rule applies though to one or the two meanings is the more
obvious one, and would necessarily be preferred if no light could be derived from the rest of the deed. For the
purpose of construing the dispositive or operative clause, the whole of the instrument may be referred to though the
introductory narrative or recitals leading up to that clause are, perhaps, more likely to furnish the key of its true construction
than the subsidiary clauses of the deed.” (emphasis is mine.)

[24] On a true construction of Recital (1), we hold that to be plain and obvious that it was the intention of the parties
that the 2nd plaintiff agreed to acquire the 4,650,000 Nakamichi shares; and that in the context of the SPSA, that
agreement amounts to an obligation to do so (Luggage Distributors (M) Sdn Bhd v Tan Hor Teng @ Tan Tien Chi &
Another (supra); Aspdin v Austin [1844] 1 QB 671 ; Sampson v Easterly [1830] 9B. & C. 505). There is no
provision in the SPSA to say that the acquisition of the shares by the 2nd plaintiff is a condition precedent. Our view
is fortified by the plaintiff’s stand that the 1st defendant failed to perform his obligation to pay the purchase price
within the 2 year period under clause 2 of the SPSA. The plaintiff’s aforesaid stand is also inconsistent with their
argument that the recital is only a condition precedent. At any rate, the plaintiff’s argument that the recitals are a
condition precedent is a non-starter as it was not their pleaded case. As such, Aberfoyle Plantations v Khaw Bian
Cheng (supra) is distinguishable as in that case the contract in question was a conditional agreement whereby it
was expressly stipulated that the purchase is conditional on the vendor obtaining a renewal of the seven leases so
as to be in a position to transfer the same to the purchaser.

[25] For the foregoing reasons, we agree with the finding of the learned judge that the termination of the SPSA by
the 2nd plaintiff is wrongful.

Legal consequences of wrongful termination of SPSA

[26] The learned judge’s finding was that the 1st defendant has proved the sum of RM6.5 million to be his damages
which can be construed to have been allegedly paid as set-off for the share price of RM13 million if the deal had
gone through but that the SPSA was terminated. The finding is premised on that the agreed debt in writing dated
29.11.2008 signed between the 2nd plaintiff as vendor and the 1st defendant as purchaser serve as an addendum to
the SPSA.
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[27] On this point, we agree with the submission of learned counsel for the plaintiffs that the learned judge ought to
have appreciated that the right of set-off being conditional on a sale going through the alleged debt, which is owed
by another party, Rimba Kita Sdn Bhd, could only be applied as a set-off against the payment of the purchase price
of RM13 million. Since the 1st defendant has elected to accept the breach of contract, the acceptance of the breach
discharges the contractual parties from performance of future obligations in the SPSA (Berjaya Times Square Sdn
Bhd v M-Concept Sdn Bhd [2010] 1 CLJ 269 (FC)).

[28] It is settled law that damages flowing from a breach of contract is subject to strict proof; in other words, the
burden is on the 1st defendant to prove the amount of damages arising from the breach (Tan Sri Khoo Teck Puat v
Plenitude Holdings Sdn Bhd (supra)). We are satisfied on perusing the appeal record and the judgment that the
1st defendant did not produce any evidence to prove the loss flowing from the breach. We are constrained to hold
that the learned judge’s decision in awarding the amount of RM6.5 million as damages for wrongful termination is a
misdirection in law and in fact.

[29] Accordingly, we would set aside the decision of the learned judge on the award of damages in the sum of
RM6.5 million and order that the 1st and 2nd plaintiffs pay to the 1st defendant damages for wrongful termination of
the SPSA to be assessed by the Deputy Registrar of the High Court.

Ownership of the dwelling house

[30] We have perused para. 29 of the re-amended Statement of Claim dated 10.9.2009 in the previous suit. We
note that the pleading was prepared by the same set of solicitors and must have been prepared on the instructions
of the 1st plaintiff. In particular, para. 29 refers to an oral agreement between the 1st plaintiff, the 1st defendant and
Chong Siak Nyen that the dwelling house would be transferred to whomsoever of the three co-owners who wanted
ownership of the house upon payment of RM400,000.00 to the other two for their settlement of the account with
Rimba Kita Sdn Bhd.

[31] We agree with the learned judge that existence of the oral agreement is supported by the 1st plaintiff’s own
pleadings is more probable. The bare denial of the oral agreement by the 1st plaintiff and PW4 is of no avail.
Accordingly, we do not think there is any appealable error in the decision on this issue.

[32] We will now address the defendants’ cross-appeal.

Whether the 1st plaintiff misrepresented to the 1st defendant on the timber coupes to be granted to
Danagaya Sdn Bhd and shares in Eramewa for tax payment?

[33] On the issue relating to the timber coupes, it is contended that the 1st plaintiff had misrepresented to the 1st
defendant by showing him the plan for the timber coupes which induced him to sign the Mutual Agreement, when in
fact the steep areas were far less in acreage. The learned judge found the plan in question prepared by Yayasan
Sabah Group expressly stated that the proposed area for the logging concession was “15,067 Ha approx..” and the
steep area was “7,156 Ha approx..” which was almost half of the concession area. The plan was annexed to the log
extraction and timber sale agreement dated 29.5.2007 between Sabah Pioneer Sdn Bhd and Rakyat Berjaya Sdn
Bhd. The 1st defendant was a director of Sabah Pioneer Sdn Bhd and had signed the said agreement for Sabah
Pioneer Sdn Bhd. As such, the 1st defendant had sight and full knowledge of the steep slope within the logging
area. The same plan was referred to by the 1st plaintiff and the 1st defendant signed the Mutual Agreement without
any query over the plan. We find no appealable error on the part of the learned judge’s finding. The finding is
consistent with the evidence that there is no misrepresentation as alleged.

[34] The second part relates to the alleged promise by the 1st plaintiff to use the RM19 million to pay taxes and for
KPMG to settle their tax liabilities. The learned judge found that as the agreement relating to the Eramewa shares
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was terminated and that the RM19 million derived from such sale was not shown to have been paid or received. We
do not think that there is any reason to disturb the said finding of fact.

[35] It is settled law that a claim premised on misrepresentation must be a representation of fact relating to an
existing state or situation. It is not a promise to do something in the future. The principles governing an actionable
misrepresentation have been spelled out by the Court of Appeal in Sim Thong Realty Sdn Bhd v Teh Kim Dar
[2003] 3 CLJ 227 (CA) at 234 as follows:

Now the elements of an actionable misrepresentation are well settled. They are set out as follows in Professor
McKendrick’s Contract Law, 3rd edn, a leading work on the subject: A misrepresentation may be defined as an
unambiguous, false statement of fact which is addressed to the party misled and which materially induces the contract. This
definition may be broken down into three distinct elements. The first is that the representation must be an unambiguous
false statement of fact, the second is that it must be addressed to the party misled and the third is that it must be a material
inducement to entry it the contract.

[36] In the circumstances of this case, the alleged misrepresentation is not one of fact; instead, it relates to a promise by
the 1st plaintiff to apply the RM19 million to pay off the tax liabilities. This misrepresentation, even if proved, is not a
statement of fact which is untrue at the time of the representation. Accordingly, such a promise cannot sustain a claim in
misrepresentation. We therefore agree with the findings of the learned judge on this issue.

Whether the defendants failed to disclose pre-existing liabilities of Rimba Kita Sdn Bhd?

[37] The second point relates to learned judge’s finding of the defendants’ breach of warranty in clause 9.1 of the
Mutual Agreement. The defendant’s case is that the 2nd plaintiff had knowledge about the pre existing debts of
Rimba Kita Sdn Bhd before entry into the Mutual Agreement. We agree with the learned judge in holding that it
matters not whether the 2nd plaintiff had prior knowledge or otherwise of the same; the defendants as transferors of
Rimba Kita Sdn Bhd are not relieved from their obligations under clause 9.1 of the Mutual Agreement to disclose
the liabilities unless the plaintiffs agreed to waive it. Be that as it may, the key issue is whether the defendants have
disclosed in writing the pre-existing debts of Rimba Kita Sdn Bhd prior to the execution of the Mutual Agreement.
We find no evidence to show that the defendants have made such disclosure to the 2nd plaintiff as required under
clause 9.1. In our view, the learned judge had correctly applied his mind to the relevant considerations, construed
the clauses and weighed the evidence before arriving at a decision. As such, there is no appealable error to warrant
appellate intervention on this finding.

Whether the 13,300 Goodwill Alliance shares belong to the 1st defendant?

[38] The 1st defendant’s claim is predicated on an alleged oral agreement in 2007 whereby the 1st plaintiff agreed
to re-constitute the 1st plaintiff’s shareholding in Goodwill Alliance. Both the 1st plaintiff and the 1st defendant claims
that PW2 held the shares as their nominee. We agree with the plaintiff’s submission that in making the finding of
fact the learned judge had the audio-visual advantage of observing the witnesses. The learned judge found PW2 to
be an independent witness whose evidence is cogent. The learned judge also considered the pre-signed share
transfer form which did not contain the name of the transferee but the race of the intended transferee was ticked as
‘Chinese”; it is common ground that the 1st defendant is a Sino-Kadazan whereas the 1st plaintiff is a Chinese. As
such we are not satisfied that the learned judge’s finding is open to appellate intervention.

Costs

[39] The final point in the defendants’ cross-appeal relates to the award of RM50,000.00 costs in favour of the
plaintiffs.

[40] The power of the court to award costs is provided under Item 15 of the Schedule in the Court of Judicature Act
 Page 9 of 9
Chia Tien Foh & Ors v Lo Man Heng & Ors
....

1964. It is a discretionary power which must be exercised judicially, i.e. in accordance with established principles
and in relation to the facts of the case, which includes any matter relating to litigation, the parties’ conduct in it and
the circumstances leading to the litigation, but nothing else. If there are no grounds for departing from the normal
rule or the judge acts on extraneous grounds he has in effect not exercised his discretion at all (see Scherer & Anor
v Counting Instruments Ltd & Anor [1986] 2 All ER 529 (CA)).

[41] As a general rule, costs follow the event and the successful party is entitled to be paid his costs unless there
are special grounds to order otherwise, and those grounds, it is well settled, must be grounds connected with the
cause of action (per Parker LJ in Ottway v Jones [1955] 2 All ER 585 at page 591).

[42] According to the judgment, the learned judge awarded the said costs to the plaintiffs as the cause of action
arose basically from the breach of the Mutual Agreement by the defendants. In all the circumstances, we take the
view that the learned judge was perfectly entitled to make the order for costs. There is nothing to show that the
learned judge failed to exercise his power judicially. We would therefore affirm the order for costs.

CONCLUSION

[43] In consequence of the above, the plaintiffs’ appeal is allowed in part. The finding of the learned judge that the
termination of the SPSA by the 2nd plaintiff is wrongful is affirmed. The order that the 1st and/or the 2nd plaintiffs pay
to the 1st defendant RM6.5 million in damages is set aside and substituted with an order that the 1st and/or 2nd
plaintiffs pay to the 1st defendant damages for wrongful termination of the SPSA to be assessed by the Deputy
Registrar of the High Court. The order of the High Court allowing the defendants’ counterclaim for the dwelling
house to be transferred to the 1st defendant upon payment of the sum of RM400,000.00 to the 1st plaintiff and
Chong Siak Nyen jointly is affirmed.

[44] The defendants’ cross-appeal is dismissed in toto.

[45] In all the circumstances, we order costs of this appeal in the sum of RM10,000.00 to be paid to the plaintiffs.

End of Document