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2024 MarsdenLR 411
HIGH COURT MALAYA PENANG
GLOBEWAY LAGOON SDN BHD – Appellant
Versus
PASARAYA ST BM SDN BHD & ORS – Respondent
[Civil Suit No: PA-22NCvC-33-03/2023]
The court upheld the validity of the Settlement Agreement, finding no evidence to support claims of fraud or misrepresentation, and confirmed that directors are not liable for company debts unless fraud is proven.
Headnote:(A) Settlement Agreement - Allegations of fraud - Breach of contract - Defendants claimed to have settled RM3 million debt through a Settlement Agreement and an SPA - Court found that goods were delivered and the RM1 million balance debt remains unpaid - Counterclaim dismissed - No cause of action against directors of the company established. (Paras 5, 15, 95)
(B) Evidence - Parol Evidence Rule - Entire Agreement Clause - Court held that oral agreements cannot contradict written terms of the Settlement Agreement - No evidence to support claims of misrepresentation or fraud. (Paras 28, 34, 41)
(C) Corporate Veil - Separate Legal Entity - Directors not personally liable for company debts unless fraud is established - No evidence of fraud against directors found. (Paras 75, 84)
Facts of the case:
The Plaintiff claimed RM3 million from the Defendants for breach of a Settlement Agreement. The Defendants counterclaimed RM500,000, asserting debts were settled through an SPA and oral agreements. (Paras 1, 4, 5)
Findings of Court:
The Plaintiff proved the RM1 million balance debt is unpaid; however, the claims regarding RM2 million were dismissed. The counterclaim by D1 was also dismissed. (Paras 95, 97)
Issues: Whether the RM3 million debt is owed, the validity of the counterclaim, and the liability of the directors. (Paras 15, 95)
Ratio Decidendi: The court emphasized the importance of written agreements and the inability to introduce oral agreements that contradict them. Additionally, the court found no evidence of fraud by the directors to pierce the corporate veil. (Paras 28, 75, 84)
Result: Plaintiff's claim allowed in part; RM1 million awarded. (Para 96)
Legal Category Hierarchy
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civil law
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contract law
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settlement agreement
- fraud (Para 2, 9, 10, 85, 87)
- misrepresentation (Para 9, 85, 86)
- breach of contract (Para 11, 16, 27)
- parol evidence rule (Para 28, 34, 40, 41, 43)
- entire agreement clause (Para 28, 31, 32, 34, 35)
- oral agreement (Para 17, 28, 32, 36, 46, 50)
- debt
- counterclaim (Para 13, 51, 52, 54, 57, 58, 59, 60, 61, 62, 97)
- liability (Para 96, 97, 98)
- privity of contract (Para 36, 54, 55, 56, 57)
- sale and purchase agreement (Para 4, 13, 14, 30, 45, 52, 53)
-
settlement agreement
-
corporate law
- corporate veil
- company law
- evidence
- practice and procedure
-
contract law
JUDGMENT
Introduction
[1] The Plaintiff's ("P") claim against the Defendants is for breach of a Settlement Agreement dated 18 September 2018 ("Settlement Agreement"). The Settlement Agreement was entered into between P and the 1st Defendant ("D1"), to settle a debt of RM3 million owing by D1 to P ("debt").
[2] P alleges that the 2nd Defendant ("D2") and the 3rd Defendant ("D3"), who are the directors of D1, along with D1, have perpetrated fraud against P. By inducing P to enter into the Settlement Agreement, which they never intended to perform. P seeks to recover the debt of RM3 million from the Defendants.
[3] In defence, the Defendants contend that they have settled the RM3 million debt in the following manner:
(a) D1 has fully discharged its obligation under the Settlement Agreement to offset the debt of RM2 million; and
(b) The balance debt of RM1 million ("balance debt") has been settled through a transfer of property ("property"), under a sale and purchase agreement dated 30 July 2018 ("SPA") entered into between P and the former directors of D1.
[4] Under the SPA, the purchase price of the property is RM1.5 million. D1 filed a counterclaim against P to repay RM500,000.00, which is the excess amount of the purchase price under the SPA, used to settle the RM1 million balance debt.
[5] After a full trial, I allowed P's claim in part, ie to the extent of the RM1 million balance debt. Even then, only as against D1, but not D2 and D3. I dismissed the other part of P's claim in relation to the RM2 million portion of the debt, which was offset under the Settlement Agreement. I also dismissed D1 's counterclaim for RM500,000.00. Here are the grounds of my judgment.
Background Facts
[6] D1 operated a supermarket business. It was initially managed by two former directors ("former directors"), prior to the appointment of the current directors, ie D2 and D3, on 20 March 2018. The former directors are the parents of D2 and D3.
[7] D1 was using P's logistics services for the supply of goods. As at 18 September 2018, there exists an outstanding debt of RM3 million owing by D1 to P for the goods supplied. On 18 September 2018, D1 and P entered into the Settlement Agreement to resolve the debt.
[8] The salient terms of the Settlement Agreement are:
(a) The parties acknowledge that D1 is indebted to P in the amount of RM3 million as of 18 September 2018. (As per Recital E and cl 1.1 of the Settlement Agreement);
(b) D1 shall transfer to P all the goods ("goods") contained in D1's fourteen business premises and stores ("premises"), as listed in the First Schedule of the Settlement Agreement. In return, P agrees to reduce and offset a sum of RM2 million from the debt, leaving a balance debt of RM1 million. (As per cl 2.1 of the Settlement Agreement);
(c) In the event D1 fails to deliver possession of the goods, P is entitled to reinstate the sum of RM2 million to the debt owing by D1 to P. (As per cl 5.1 of the Settlement Agreement); and
(d) The Settlement Agreement constitutes the entire agreement between the parties. It supersedes all previous agreements, representations and warranties expressed or implied made orally or in writing or by conduct between the parties. (As per cl 18.1 of the Settlement Agreement).
The Plaintiff's Case
[9] P claims that it was deceived by the Defendants. Who induced P to enter into the Settlement Agreement, through fraudulent misrepresentation that the goods are worth RM2 million. P alleges that D1 failed to deliver the goods to P. D1 also failed to pay the RM1 million balance debt owing to P.
[10] It is P's case that the Defendants committed fraud by inducing P to enter into the Settlement Agreement. As they never intended to deliver the goods to P. They also never intended to settle the RM1 million balance debt. On 11 November 2019, D1 issued thirteen cheques totalling RM761,640.87 to P, as partial payment towards the RM1 million balance debt. All the said cheques were dishonoured.
[11] P claims that D1 has b
