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2015 MarsdenLR 836
FEDERAL COURT PUTRAJAYA
MENTA CONSTRUCTION SDN BHD – Appellant
Versus
LESTARI PUCHONG SDN BHD – Respondent
[Civil Appeal No: 02-72-09-2014]
Rectification of contracts can be granted when the document fails to reflect the true intention of the parties, considering mutual mistakes.
Headnote:{ "Statute Analysis": "Sections 30 to 32 of the Specific Relief Act 1950 empower courts to rectify written instruments that do not reflect mutual intentions due to mistake.", "Facts of the Case": "The respondent was a company within the Talam Group which owed the appellant RM57.4 million. They entered into a Global Settlement Agreement (GSA) on 29 July 2005, whereupon the appellant agreed to accept RM56 million in settlement, including properties valued at RM36 million. Disputes arose concerning the clauses in the sale and purchase agreements regarding redemption of properties charged to banks.", "Findings of Court": "The court found that Clause 2.2 was a mistake and did not reflect the parties’ intentions during the execution of the agreements.", "Issues": "Whether the court properly considered the mutual mistake in including Clause 2.2 in the SPA and the implications of the GSA on the agreement. ", "Ratio Decidendi": "The court held that the intention of the parties, as reflected in the GSA, must prevail over the conflicting clauses that arose during documentation, thus rectifying the agreement by removing Clause 2.2 as it did not express the real intention. ", "Result": "We unanimously allow this appeal with costs to the appellant and rectify the pertinent SPA by erasing cl 2.2 from the SPA." }
| Table of Content |
|---|
| 1. the necessity of rectifying contractual clauses to reflect mutual intention. (Para 1 , 2 , 3 , 4) |
| 2. analysis of prior agreements and their relevance in determining intention. (Para 5 , 6 , 7) |
| 3. principles for rectification based on mutual mistakes. (Para 10 , 11) |
[1] The action, to have cl 2.2 of the sale and purchase agreement dated 29 July 2005 rectified, was dismissed. Leave was granted to the appellant/ plaintiff to appeal against the concurrent findings of the trial court and the court of Appeal on the following questions of law:
(a) When a written contract is sought to be rectified on the ground of mutual mistake, whether the test under ss 30 to 32 of the Specific Relief Act 1950 under principles of rectification is the objective test to ascertain intention of parties and not the subjective denial of the defendant.
(b) Whether the existence of an antecedent agreement between the same parties should be considered the most reliable basis of determining the true intention of the parties in executing the impugned agreement.
(c) Whether the fact that the parties had willingly executed the impugned agreement or that the complaining party was careless in doing so is a bar to rectification if the impugned clause does not accord with the true agreement between the parties.
[2] The background facts, as found by the trial court and the court of Appeal, could be summarised as follows: The respondent was a company in the Talam Group of Companies (Talam). Between April 1997 and September 2004, the appellant, a construction company, undertook construction and related works for Talam who could not pay for the said works to the value of RM57,425,697.82 that was due and payable to the appellant. By a "Global Settlement Agreement" (GSA) dated 29 July 2005, the appellant agreed to accept, and Talam agreed to pay RM56m, in cash and kind, to the appellant, in full and final settlement of all dues. Pursuant to the GSA, Talam agreed to pay RM20m and to transfer three lands, namely Lots 50603, 50608 and 50609, all in the district of Petaling, with an agreed combined value of RM36m, to the appellant. Concurrently, the appellant entered into three sale and purchase agreements (SPAs) to purchase those three lots from the respondent and Expand Factor Sdn Bhd, another company in Talam, for RM36m. Also, at the same time, the appellant entered into development agreements with the respondent and Expand Factor Sdn Bhd, whereby the appellant was given all rights to develop those lots and to receive all proceeds from the development thereof as the developer in place of the respondent and Expand Factor Sdn Bhd who granted a power of attorney to the appellant for the purpose of the development of the said lots by the appellant.
[3] At the material time of execution of the SPAs, two charges were registered against the respondents Lot 50603, in favour of Pengurusan Danaharta Nasional Bhd (Danaharta) and Malayan Banking Berhad (MBB). One of those charges would prove to be the bone of contention. By letter dated 22 August 2007, the respondent asserted that the appellant had not redeemed Lot 50603 in accordance with cl 2.2 of the SPAs, and demanded that the appellant, under the threat of termination of the pertinent SPA, to pay the redemption sum of RM7m to redeem Lot 50603 from Danaharta. The appellant contended that cl 2.2 of the SPA, which provided for the appellant to redeem Lot 50603, was a mistake which did not embody the parties intention when they executed the agreements, and that Lot 50603 should be transferred to the appellant at Talams cost and expense.
[4] At the trial court, the appellant sought, inter alia, to have cl 2.2 rectified, by its removal from the SPA. The issues were (i) whether the said cl 2.2 was a mistake and ought to be rectified by its deletion, (ii) whether the GSA, the SPAs and the Power of Attorney were intended to be read together, and, (iii) whether the appellant was entitled to specific performance of
