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2021 MarsdenLR 2984
HIGH COURT MALAYA SHAH ALAM
MAH SAU CHEONG – Appellant
Versus
TAN ENG CHIN – Respondent
[Suit No: BA-22NCVC-408-07/2017]
Non-fulfillment of conditions in a contract does not invalidate it if the contract's formation is established through performance and actions indicating intent to proceed.
Headnote:(A) Contracts Act, 1950 – Sections 33 and 36 – Share Purchase Agreement – Plaintiff claims termination of SPA due to non-fulfillment of a condition precedent for payment; however, the court found that plaintiff's actions indicated waiver of the condition and intention to proceed – Non-materialization of specified events did not render the SPA void as they were merely conditions related to performance, not formation. (Paras 25, 43, 44)
(B) Termination of Contracts – The SPA provided the plaintiff with discretion to terminate, which was not exercised timely; hence, plaintiff is estopped from relying on termination after unreasonable delay. (Paras 46, 64)
Facts of the case: The plaintiff, having paid the consideration under the Share Purchase Agreement, claimed a refund after events relating to the Closing Date did not occur. The initial payment was acknowledged, but the second payment's conditions led to the dispute. (Paras 1, 12, 18)
Findings of Court: The court found the SPA binding despite non-fulfillment of conditions; plaintiff's delay in termination indicated intent to proceed with the contract. (Paras 64, 66)
Issues: The main questions were about the validity of the contract concerning the condition precedent and the implications of the plaintiff’s delay in exercising termination rights. (Paras 26, 58)
Ratio Decidendi: The court ruled that the non-fulfillment of certain conditions did not affect the SPA's validity as the formation of the contract was already established through performance. The plaintiff's conduct implied an intention to complete the contract. (Paras 64, 65)
Result: Claim dismissed; plaintiff to pay RM50,000.00 in costs. (Para 66)
JUDGMENT
Introduction
[1] The plaintiff's claim is for a refund of money paid to the defendant pursuant to a Share Purchase Agreement dated 7 January 2014 (hereafter "the SPA") which, according to the plaintiff's narrative, stood as terminated. The parties have gone through a full trial. On 26 July 2021, this Court dismissed the plaintiff's claim. The reasons for the decision are set out as below.
The Background Facts
[2] According to the SPA, the plaintiff agreed to purchase and the defendant agreed to sell 625,000 shares (hereafter "the shares") in a foreign incorporated company known Xianda International (HK) Limited (which was previously known as Enersave International (HK) Limited) for a consideration sum of RMB5,739,093.00. The parties agreed the amount of RMB5,739,093.00 was equivalent to RM3,000,000.00 (hereafter "the consideration sum").
[3] The payment of the consideration sum was in two tranches. The first payment totalling RM2,954,388.44 was to be paid within one month upon the signing of the SPA. The second payment or the final payment totalling RM45,611.56 was payable within two months from the "Closing Date". Article 1.3(b) of the SPA in respect of the second payment states as follows:
"1.3 Terms and Conditions of Payment
a) First Payment
....;
b) Final Payment
Ringgit Malaysia Forty Five Thousand Six Hundred Eleven And Cents Fifty Six (RM45,611.56) shall be payable within two (2) months from the Closing Date to South Malaysia Industries Berhad as designated by the Vendor subject to the execution of the relevant transfer documents by the Parties for the transfer and registration of the Sale Shares with the relevant authorities in Hong Kong."
[4] The meaning of "Closing Date" is found in art 4.1 of the SPA which states as follows:
"4.1 The closing shall take place on the day the conditions pertaining to the Nangang Project between XIANDA and the Tianjin Economic-Technological Development Area (hereinafter referred to as "TEDA") / relevant authorities as follows are obtained by 28 November 2014:
(a) the signing of the Operational Agreement; and
(b) the Approval of the Feasibility Study Report
(hereinafter referred to as the "Closing Date")"
[Note: In the SPA, "XIANDA" refers to XIANDA (Tianjin) Seawater Resources Development Co Ltd, a company incorporated in the People's Republic of China which was involved in the Nangang Seawater Desalination and Salt-Making Project known as the "Nangang Project"]
[5] According to the plaintiff, he remitted a sum of RM2,994,600.50 to a third party named South Malaysia Industries Berhad (hereafter "SMI Bhd") within a month after the SPA was executed. Although the money was paid to SMI Bhd, the payment was meant for the payment of the first tranche of the consideration sum, the plaintiff averred.
[6] The plaintiff further averred that in the SPA the defendant had agreed that the full consideration sum was to be paid to SMI Bhd This was because one of the defendant's companies, ie Enersave Projects Sdn Bhd, owed a sum of RM2,994,600.50 to SMI Bhd.
[7] The plaintiff also further averred that the amount to be paid for the first tranche of consideration sum was only RM2,954,388.44, but he had paid RM2,994,600.50 to SMI Bhd The extra sum of RM40,212.06 was meant to settle the full outstanding debt, i.e RM2,994,600.50, owing to SMI Bhd by the defendant's company. The plaintiff further averred that the extra payment of RM40,212.06 to SMI Bhd was to be treated as an advance to the defendant.
[8] There was no dispute in respect of the payment of the first tranche of the consideration sum which was paid within the stipulated time.
[9] With regard to the payment of the second tranche of the consideration sum, the payment was supposed to be made within 2 months from the "Closing Date" according to art 1.3(b) of the SPA.
[10] The definition of "Closing Date" in art 4.1 refers to two specified events having materialized on or before 28 November 2014.
[11] The first event was that Xianda (Tianjin) Seawa
