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2024 MarsdenLR 513
HIGH COURT MALAYA KUALA LUMPUR
RHB TRUSTEES BERHAD – Appellant
Versus
ALWAYS AHEAD (M) SDN BHD – Respondent
[Originating Summons No: WA-24NCC-715-12/2023]
A binding contract can exist despite a 'Subject to Contract' clause if subsequent conduct indicates an intention to be bound, warranting specific performance.
Headnote:(A) Specific Relief Act 1950 – Sections 11, 20, and 21 – Specific performance sought for sale and leaseback of property – Applicant contended binding contract formed despite 'Subject to Contract' clause – Court found unequivocal acts of part performance established intention to be bound – Respondent's change of business plans insufficient to evade contractual obligations. (Paras 68-80)
Facts of the case: The Applicant sought specific performance against the Respondent for failing to execute agreements for the sale and purchase of a property, claiming a binding contract was formed through a Letter of Offer accepted by the Respondent. (Paras 1-12)
Findings of Court: The court found a binding contract existed despite the 'Subject to Contract' clause, supported by acts of part performance. The Respondent's reasons for withdrawal were deemed inadequate. (Paras 68-79)
Issues: Whether a binding contract was concluded and if specific performance was appropriate given the Respondent's change in business plans. (Paras 1, 68)
Ratio Decidendi: The court ruled that the 'Subject to Contract' clause did not negate the existence of a binding contract, as subsequent conduct indicated an intention to be bound. Specific performance was granted as damages were inadequate. (Paras 46-50, 68-78)
Result: Specific performance ordered against the Respondent to execute the agreements and complete the sale. (Paras 79-80)
JUDGMENT
[1] This judgment concerns an application by the Applicant, RHB Trustees Berhad, as trustees of Axis Real Estate Investment Trust ("Axis-REIT"), seeking specific performance against the Respondent, Always Ahead (M) Sdn Bhd, to compel the execution of agreements for the sale and purchase of a property located in Kulim, Kedah. The central issue is whether a binding contract was concluded between the parties through a Letter of Offer issued by Axis REIT Managers Berhad ("Axis REIT Managers") on behalf of the Applicant and accepted by the Respondent. The Applicant contends that despite being marked "Subject to Contract", the Letter of Offer together with the parties' subsequent conduct amount to a concluded bargain which the Respondent breached by refusing to sign the formal agreements. Conversely, the Respondent argues the Letter of Offer did not create binding obligations as it only obliged further negotiations until the execution of a formal contract. Additionally, the Respondent submits the leaseback arrangement spanning many years was commercially unviable and not aligned with its business plans.
Background Facts
[2] On 1 March 2023, Axis REIT Managers, acting on behalf of the Applicant as trustees of Axis-REIT, made an offer to the Respondent to purchase the remaining unexpired lease tenure on a property held under title H.S.(M) 7859, Plot 23, Kawasan Perusahaan Kulim, Bandar Kulim, Daerah Kulim, Negeri Kedah ("the Property") for RM90,000,000.00.
[3] On 6 March 2023, the Respondent made a counter-offer through their real estate agent ESP Properties Sdn Bhd to sell the Property at RM92,000,000.00 instead.
[4] On 20 March 2023, Axis REIT Managers issued a new Letter of Offer ("Letter of Offer') to the Respondent, agreeing to purchase the Property at the counter-offered price of RM92,000,000.00, subject to certain terms and conditions. The Letter of Offer was stated to be "SUBJECT TO CONTRACT" and provided that upon acceptance, the parties shall proceed to negotiate and mutually agree on all terms and conditions of a Sale and Purchase Agreement.
[5] On 23 March 2023, the Respondent accepted and signed the Letter of Offer dated 20 March 2023.
[6] On 30 March 2023, pursuant to the terms of the Letter of Offer, the Applicant paid an earnest deposit of RM1,840,000.00 to their solicitors Messrs SF Chan & Co to hold as stakeholders. On the same date, the Applicant also submitted a Legal Due Diligence Checklist and Preliminary Inquiries to the Respondent to conduct a due diligence audit on the Property.
[7] Between March to July 2023, the parties through their respective solicitors Messrs SF Chan & Co for the Applicant and Messrs Zaid Ibrahim & Co for the Respondent negotiated on the terms and conditions of the Sale and Purchase Agreement and other related agreements including a Master Sub-Lease Agreement for the Respondent to lease back the Property from the Applicant upon completion of the sale. the Respondent also obtained approval from Perbadanan Kemajuan Negeri Kedah ("PKNK') on the terms of a draft Novation cum Deed of Assignment.
[8] On 1 June 2023, in response to the Legal Due Diligence Checklist and Preliminary Inquiries, the Respondent submitted relevant documents to the Applicant. Being satisfied with the due diligence audit results, the Applicant started discussions on the terms of the Sale and Purchase Agreement on 16 June 2023.
[9] Around 22 July 2023, all terms and conditions of the Sale and Purchase Agreement, Master Sub-Lease Agreement, Novation cum Deed of Assignment and related documents ("Agreements") had been agreed upon by the parties and the Agreements were ready to be signed. RHB Trustees proposed that the parties sign the Agreements by way of counter-parts before 26 July 2023.
[10] On 25 July 2023, the Applicant signed the Agreements and made arrangements to pay the balance deposit of RM7,360,000.00 to their solicitors as stakeholders on 26 July 2023. However, on the same day, the Re
