Clause 9.3 of the Share Sale Agreement is void under Section 35 of the CIPAA as it contains a conditional payment provision.

Introduction

[1] The Plaintiffs sue the Defendants for breach of cl 9 of a share sale agreement dated 13 October 2020 ("SSA"). The Defendants in turn counterclaim for a declaration that cl 9 of the SSA is void. After a full trial, I dismiss the Plaintiffs' claim and allow the Defendants' counterclaim. Here are the grounds of my judgment.

Background Facts

[2] The 1st Plaintiff ("P1") and the 2nd Plaintiff ("P2") are the directors of the 3rd Plaintiff ("Hong Poh"). P1 is the sole shareholder of Hong Poh. Both P1 and P2 were former shareholders of the 1st Defendant ("SLite"). The 2nd Defendant ("D2") is the director and shareholder of S Lite.

[3] On 13 October 2020, P1 and P2 entered into the SSA to sell their 50% shareholding in S Lite to D2 for a consideration of RM120,000.00. The SSA was entered into between P1 and P2 (as vendors) and D2 (as purchaser). SLite, the target company, is also a signatory to the SSA. Hong Poh however is not a party to the SSA.

[4] Clause 9.3 of the SSA contains a conditional payment provision. Where SLite agrees not to pursue Hong Poh for the outstanding sum of RM2,912,637.88 ("outstanding sum") owed by Hong Poh to SLite under various construction projects ("construction projects"). Unless Hong Poh successfully recovers the outstanding sum from the owners of the construction projects.

[5] Clause 9.2 of the SSA stipulates that SLite agrees to share 50% of the legal fees and disbursements incurred by Hong Poh in taking legal action to recover the outstanding sum from the employers of the construction projects.

Clause 9 Of The Ssa

[6] Clause 9 of the SSA reads:

"9. Outstanding Sum

9.1 From the books of the Company [ie SLite], there is a sum of Ringgit Malaysia Two Million Nine Hundred Twelve Thousand Six Hundred Thirty Seven and Sen Eighty Eight (RM2,912,637.88) only ("the Outstanding Sum") due and payable by Hong Poh Engineering Construction Sdn Bhd (714939-T) ("Hong Poh") to the Company as at 5 August 2020 for works done in respect of certain projects ("the Project(s)") as set out in Appendix A and whereby Hong Poh is a private company wholly owned and controlled by the Vendor(s).

9.2 As the owner(s) of the Project(s) has delayed / defaulted in payment of the amount due to Hong Poh, Hong Poh is commencing legal action(s) against the owner(s) of the Project(s) for recovery of the debt equivalent to the Outstanding Sum and the Company agrees to absorb fifty per centum (50%) of the legal fees and disbursements incurred in the legal action(s) to recover of the debt due provided that:

(a) if the legal action(s) is filed in a civil Court , the Vendor(s) shall furnish the relevant details and documents of the legal action(s) so taken, in particular the Writ and Statement of Claim, to the Company within one (1) month of the filing date;

(b) if the legal action(s) is taken by way of any other legal proceedings, the Vendor(s) shall furnish the relevant details and documents of the relevant proceedings, in particular the document(s) making out the Vendor(s)' claim, to the Company within one (1) month of the filing date; and

(c) in either scenario, the Vendor(s) shall keep the Purchaser(s) informed of the progress and development of the action taken.

9.3 The Parties agree that the Outstanding Sum or any part thereof less the portion of the costs agreed at cl 9.2 above will only be repaid by Hong Poh to the Company upon recovery and receipt of the amount from the owner(s) of the Project(s).

9.4 The parties agree that the provisions above, in particular Clause 9.1, 9.2 and 9.3 shall not be prejudicial in any manner to the rights of the Company to take its own appropriate legal action(s) agains