The defendant is the proprietor of a parcel of land known as Lot 6984, Mukim Dengkil, Daerah Sepang, Selangor ("the said land"), sold the said land to the plaintiff and pursuant to a Sale and Purchase Agreement between the plaintiff and the defendant dated 2/7/97 (the S & P Agreement) the plaintiff had paid the defendant a deposit, RM3,930,875.00 (10% of the purchase price) thereto.

According to clause 2 of the S & P Agreement the balance of the purchase price of RM35,377,875.00 (90% of the purchase price) shall be paid in 3 months of the date of the S & P Agreement and within 7 days after an approval of the Foreign Investment Committee was obtained. [Page 2] Subsequently, the parties mutually agreed that the balance of the purchase price to be paid on 19/2/98 (i.e. the completion date). Clause 2.1 of the S & P Agreement provided that the said land must be free from all encumbrances and with vacant possession on the completion date. There were 3 private caveats lodged in the said land; viz:

(1) MPI Paper Mill Sdn. Bhd. dated 9/1/95 (the MPI caveat);

(2) Straw Paperboard Industries dated 24/10/97 (the SPI caveat); and

(3) Golden Skyline Sdn. Bhd. dated 18/12/98 (the GS caveat).

The plaintiff had still not paid the balance of the purchase price of the said land by 19/2/98 as agreed because the said land was not free from encumbrances in accordance with the terms of the S & P Agreement. In a letter dated 20/2/98 the plaintiff terminated the S & P Agreement. The plaintiff brought this action against the defendant for the recovery of the deposit in accordance with the terms of the S & P Agreement.

The plaintiff claimed that the payment of the balance of the purchase price was due on 19/2/98 but it did not pay because the said land was not free from encumbrances, i.e. the MPI caveat had not been removed. That being so, the plaintiff had exercised the option to terminate the S & P Agreement, and claimed for the refund of the money which it had paid as a deposit with the plaintiff upon signing the S & P Agreement.

The defendant submitted that the MPI caveat was lodged on 9/1/95 and its existence was known to the plaintiff at the time when the S & P [Page 3] Agreement was signed by the parties on 2/7/97. The defendant alleged that at a meeting (after the S & P Agreement had been signed) between the parties solicitors, where K. K. Chew (a Director of the plaintiff) was also present, they had agreed to vary a term of the S & P Agreement that the MPI caveat was not to be regarded as on encumbrance in the said land. Further, it was agreed that on 19/2/98 the plaintiff would pay the balance of the purchase price and the defendant would hand over the completed transfer form of the said land to the plaintiff. Thus, the plaintiff had breached the S & P Agreement and the defendant was entitled to forfeit the deposit.

The defendant submitted that "a private caveat is not an encumbrance to the land", and in support he cited the Privy Council case of Damodaran v Choe Kuan Him (1979) 2 MLJ 267.

It is abundantly clear that the parties had intended in the S & P Agreement that on the completion date (i.e. 19/2/98), the said land would be handed over by the defendant (vendor) to the plaintiff (purchaser) "free from all encumbrances and with vacant possession". This is well reflected in the S & P Agreement:

Clause 2.1 thereof, inter alia, states:

"....the Vendor hereby agrees to sell and the Purchaser agrees to purchase the said Property ..... free from all encumbrances and with vacant possession....." (emphasis provided)

Clause 11.1 therein states: [Page 4]

"Vacant possession of the said property shall be delivered by the Vendor to the Purchaser on the completion date".

The recital (B) states:

"Whereas:

(B) The Vendor has agreed to sell and the Purchaser has agreed to purchase the said property free from all encumbrances and with vacant possession and it is in its present state and condition but subject to all conditions of title whether exp