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2021 MarsdenLR 3953
HIGH COURT MALAYA KUALA LUMPUR
BUILTAMONT INTERNATIONAL SDN BHD – Appellant
Versus
JUMARNI ABDULLAH – Respondent
[Appeal No: WA-12BNCvC-50-07/2020]
Failure to disclose contingent liabilities in a share purchase agreement qualifies as a breach of warranty, obligating the vendor to indemnify the purchaser.
Headnote:(A) Contract Law – Share Sale and Purchase Agreement dated 22 January 2015 – Plaintiff purchased shares in a company without knowledge of outstanding liabilities – Defendant failed to disclose the Vaicon Liability, resulting in the Plaintiff incurring damages of RM306,440. (Paras 1, 4, 18, 30, 60, 92)
(B) Warranties and Representations – The Defendant warranted no outstanding debts or liabilities – The knowledge of the Plaintiff regarding any liabilities affects claims under the agreement. (Paras 26, 41, 60)
(C) Indemnity – Plaintiff claims indemnity for undisclosed liabilities – Contractual obligations of the Defendant under the agreement remain. (Paras 29, 61) (
Facts of the case: The Plaintiff, having entered into the share sale agreement, was not informed about existing liabilities of the company, leading to legal proceedings against the Plaintiff due to undisclosed debts to Vaicon.) (
Findings of Court: The Session Court erred in not recognizing the breach of warranty regarding undisclosed liabilities.) (
Issues: Whether the Defendant breached the SPA by not disclosing the Vaicon Liability and how Plaintiff's knowledge impacts the claims.) (
Ratio Decidendi: The Court found the Defendant liable for indemnity due to breach of warranty regarding undisclosed contingent liabilities.) (
Result: The appeal was allowed, and judgment was entered in favor of the Plaintiff for RM306,440 against the Defendant.)
JUDGMENT
Introduction
[1] This is an appeal against a judgment after full trial of the learned Sessions Court Judge ("SCJ") dated 24 June 2020. The SCJ had dismissed the Appellant's claim, with cost of RM5,000 to the Respondent.
[2] I allowed the appeal. These are the grounds of my decision.
[3] I will refer to the parties as they were in the Court below. Where the Appellant was the Plaintiff ("P"), and the Respondent was the 1st Defendant ("D1").
Background
[4] By way of a Share Sale and Purchase Agreement dated 22 January 2015 ("SPA"), P purchased an aggregate of 400,000 shares ("Sale Shares") in a company called I EPU Holding Sdn Bhd ("Company"). 200,000 Sale Shares were purchased from D1, and 200,000 Sale Shares were purchased from the 2nd Defendant ("D2").
[5] The purchase price of the Sale Shares was RM3 million ("Purchase Price"), payable to D1 and D2 in equal proportion. D1 and D2 are collectively referred to as the "Defendants".
[6] At the time of the SPA, the Defendants were directors of the Company. P then did not have any representation on the board of directors of the Company. Pursuant to cl 4A 1 of the SPA, a nominee of P shall be appointed to be an additional director of the Company with effect from the Completion Date of the SPA.
[7] According to Schedule IV of the SPA, the Completion Date of the SPA shall occur upon payment of the third (and final) instalment of the Purchase Price. The Purchase Price is to be paid progressively in the following manner:
(a) (Deposit): a sum of RM500,000 shall be paid upon execution of the SPA;
(b) (First Instalment): a sum of RM500,000 shall be paid within 45 days from the date of the SPA;
(c) (Second Instalment): a sum of RM1 million shall be paid within 12 months from the date of payment of the sum of RM8,100,000 as provided in Item 1(i)(ii) of the Development Agreement;
(d) (Third Instalment): a final sum of RM1 million shall be paid within 6 months from the date of disbursement of the aforesaid Second Instalment (referred to as the "Completion Date").
[8] The SPA was duly completed. The Purchase Price was paid in full to the Defendants. The Sale Shares were transferred to P.
Development Agreement
[9] Clause 4B.1 of the SPA referred to a Development Agreement dated 10 December 2014 ("Development Agreement") between the Company and Perbadanan Kemajuan Negeri Pahang ("PKNP"). The Development Agreement is for the purpose of developing a piece of land by building a new township with mixed development consisting of residential and commercial known as 'Gebeng International City Centre' ("Development Site").
[10] Under cl 4B.2 of the SPA, P "warrants to comply with the terms and conditions of the Development Agreement".
[11] In a letter dated 4 August 2016 from PKNP to the Company, PKNP alleged that there was an agreement for the Company to pay a sum of RM4,335,822 to PKNP. It was further alleged that the Company then had only paid RM1 million. And that a balance sum of RM3,335,822 was still unpaid. PKNP demanded that the Company pay the said balance sum within 2 weeks. Failing which, PKNP will terminate the Development Agreement.
[12] By way of a letter dated 6 September 2016 from PKNP to the Company, PKNP terminated the Development Agreement with immediate effect. The stated reason was that the Company had failed to pay the aforesaid balance sum within the stipulated deadline.
Suit By Vaicon
[13] By way of a letter dated 4 June 2013 ("Vaicon Appointment Letter"), the Company had appointed Vaicon Sdn Bhd ("Vaicon") to clear shrubs and extract trees on the Development Site. The Vaicon Appointment Letter was signed by Suziana binti Mohd Yamin, who was then the Managing Director of the Company ("Former MD").
[14] The Vaicon Appointment Letter (from the Company to Vaicon) reads:
"Letter of Appointment/Award to clear shrubs and remaining trees at Development site for valuable consideration of RM700,000.00 on 1,109.42 acres of land at Kawasan Perindustrian Gebenq Phase IV, Mu kirn Sunoai Kar
