Sir Harry Gibbs (delivering the judgment of the Board) :

This is an appeal brought pursuant to leave granted by the Federal Court of Malaysia (Appellate Jurisdiction) from a judgment of that Court which upheld an appeal by the present respondents against a decision of the High Court in Malaya given in an action brought by the appellant company against the respondents claiming delivery of possession of the ground floor (excluding the mezzanine floor) of the premises at No. 32 Jalan Silang, Kuala Lumpur, and certain ancillary relief.

By a Memorandum of Lease dated 19 May 1964, made between Lam Kee Ying and Lam Yoo Chu as lessors and Lam Shes Tong trading as Lian Joo Company (the first respondent) as lessee, the lessors leased to the lessee all the ground floor excluding the mezzanine floor of the building at No. 32 Jalan

Silang for the term of twenty five years from 1 May 1964 at a yearly rental of $6,000 payable monthly in advance at the rate of $500 per month. By cl. 1 of the Lease the lessee covenanted with the lessors inter alia as follows:

(g) Not to assign, underlet or part with the possession of the demised premises or any part thereof without the prior written consent of the lessors such consent not to be unreasonably withheld

(i) To use the demised premises for carrying on business as general merchants whether trading as a sole-proprietor or in partnership thereof."

By cl. 2 the lessors covenanted with the lessee inter alia as follows:

(d) In the event of Mr. Lam Kee Ying or his nominee is desirous of letting out the mezzanine floor, the lessee shall be given the first option to rent it at an additional monthly rental of $100, failing which the lessors are entitled to let it to others."

By cl. 3(a) the lessors were given a right of re-entry upon any default by the lessee in the observance or performance of any of his covenants.

Subsequently, on 18 November 1966, Lam Kee Ying, who had become the sole owner of the reversion, assigned it to the appellant Lam Kee Ying Sdn. Bhd, a company controlled by Lam Kee Ying. Before that date, namely on 25 November 1964, the mezzanine floor had been let by Lam Kee Ying to Tyma Company Ltd, as the appellant company was then known-its name has since been changed. Lam Shes Tong discovered this fact in 1966 and complained to Lam Kee Ying that he had not been given the first option. In evidence given in the High Court Lam Kee Ying, said:

When first defendant questioned me why I did not give him the first option I told him Tyma Company was mine. There is no difference between me and Tyma Co. Ltd."

Although the Memorandum of Lease described the lessee as Lam Shes Ton, trading as Lian Joo Company, it was conceded by Counsel for all parties during the proceedings in the High Court that it was intended that the lease should be given to Lam Shes Tong personally, although it was known that he was carrying on business in partnership and intended to continue to do so. The Lian Joo Company was a firm of which Lam Shes Tong was the managing partner. It carried on the business of general merchants, principally dealing in textiles, on the demised premises. On 30 June 1969 Lam Shes Tong and his partners, of whom at that time there were only two, entered into a written agreement which recited that the parties had agreed -

to form a company for the purpose of acquiring as a going concern the business (hereinafter called the business) of textiles now carried on by them in partnership under the name of Lian Joo Company atNo. 32 Jalan Silang, Kuala Lumpur."

It was provided by cl. 4(1) of this agreement that upon the formation of the company the parties would take steps to procure that the parties and the company would enter into an agreement (therein referred to as the "sales agreement") "for the sale of the said business to the company". The company - Sharikat Lian Joo Textiles Sdn. Bhd, the second respondent - was incorporated on 13 August 1969. One of the objects for which it was esta