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2022 MarsdenLR 1754
COURT OF APPEAL PUTRAJAYA
MAJU HOLDINGS SDN BHD – Appellant
Versus
PERWAJA TERENGGANU SDN BHD – Respondent
[Civil Appeal No: W-02(NCC)(W)-1439-08-2019]
Set-off rights are unsustainable without express contractual provisions for recovery of amounts paid, especially under management agreements lacking repayment clauses.
Headnote:(A) Contracts Act 1950 – Sections 70 and 71 – Claim for set-off – Defendant's claim stemmed from payments provided as working capital to subsidiaries – High Court found no contractual recovery provisions under the agreements – Appellate court affirmed that set-off was unsustainable. (Paras 22, 30, 67)
(B)
Best Endeavour Clause – Interpretation of contractual obligations – Defendant not entitled to set off amounts expended under non-repayable agreements – Payments characterized as self-serving rather than for Plaintiff's benefit. (Paras 40-67)
Facts of the case:
The Plaintiff claimed RM197,990,000.00 against the Defendant for unpaid amounts under the Equal Concept Share Sale Agreement. The Defendant asserted a right of set-off for RM191,300,000.00, claiming it provided funds for subsidiaries' working capital.
Findings of Court:
The Defendant's right to set-off was deemed unsustainable as the relevant agreements lacked provisions for recovery of the amounts claimed.
Issues
: Primary issue centered on whether the Defendant could invoke a right of set-off against the Plaintiff’s claim despite the absence of express recoverability provisions.
Ratio Decidendi:
The court determined that without explicit repayment obligations in the management agreements, the Defendant could not claim set-off for expenses incurred; the payments were deemed self-serving and not gratuitous.
Result:
Appeal dismissed with costs.
JUDGMENT
Background
[1] The Respondent/Plaintiff is a locally incorporated company and its shareholders are Tabung Amanah Warisan Negeri Terengganu and the Government of Malaysia, through the Ministry of Finance.
[2] The Respondent/Plaintiff was previously the holding company of a group of companies known as the Perwaja Group of companies ("PGC") which was in the steel industry.
[3] In the mid-nineties, the privatization of PGC was initiated and the Appellant/Defendant participated in such privatization.
[4] The privatization of PGC involved the incorporation and participation of a special purpose corporate vehicle known as Equal Concept Sdn Bhd ("ECSB"). The Appellant/Defendant owned 51% of the issued share capital of ECSB, while the balance 49% was owned by the Malaysian Ministry of Finance.
[5] The Respondent/Plaintiff first entered into a written agreement with ECSB entitled "Perwaja Group Share Sale Agreement", dated 16 May 1997 ("PGSSA").
[6] The PGSSA provided for the sale by the Respondent/Plaintiff of all its shares in its subsidiaries listed in Schedule 2 thereto, to ECSB. There were 20 companies listed in Schedule 2. In consideration, ECSB was to allot to the Respondent/Plaintiff, two billion fully paid up ordinary shares of RM1 each in ECSB and one unit of "Class A" fully paid up ordinary share in ECSB with special rights attached as per Schedule 6 of the PGSSA.
[7] At the same time, the Respondent/Plaintiff entered into another written agreement with the Appellant/Defendant described as the Equal Concept Share Sale Agreement which was also dated 16 May 1997 ("ECSSA").
[8] Under the ECSSA, the Respondent/Plaintiff was to sell its shares in ECSB to the Appellant/Defendant for a total consideration of RM1.02 billion.
[9] Subsequently, the Respondent/Plaintiff and ECSB entered into a written agreement described as the Perwaja Group Share Sale Supplemental Agreement dated 18 November 2002 ("PGSSA Supplemental Agreement"). The PGSSA Supplemental Agreement provided for certain amendments to be made to the PGSSA, among which was the reduction of the number of companies listed in Schedule 2 of the PGSSA from 20 to 18 (collectively the "Subsidiaries").
The Management Agreements
[10] Pending the finalisation and completion of the privatisation, the following Management Agreements were executed whereby the Respondent/Plaintiff appointed ECSB and the Appellant/Defendant to provide the necessary management operational and business expertise to the Respondent/Plaintiff and its subsidiaries.
[11] There were 3 management agreements executed by the Respondent/ Plaintiff namely:
(a) A Management Agreement between the Respondent/Plaintiff and ECSB dated 12 July 1996 ("1st Management Agreement");
(b) A Management Agreement entered into between the Respondent/Plaintiff and ECSB dated 31 December 1996 ("2nd Management Agreement"; and
(c) A Management Agreement entered into between the Respondent/Plaintiff and the Appellant/Defendant dated 19 January 2001 ("3rd Management Agreement").
[12] There was also a 4th Management Agreement made between the Respondent/Plaintiff and the Appellant/Defendant ("4th Management Agreement"). However, this 4th Management Agreement was never signed by the parties, namely, the Respondent/Plaintiff and the Appellant/Defendant.
[13] Under the 3rd and 4th Management Agreements, the purpose of the Appellant's/Defendant's appointment was set out under cl 2.1 which stated as follows:
"2.1 Appointment
Perwaja (in its own capacity and as the holding company and for and on behalf of the Group) appoints Maju to provide the services described in Schedule 1 (the "Services") through their participation in the EXCO in respect of the day to day business and affairs of the Group, and Maju Accepts such appointment, on the terms and subject to the conditions set out in this Agreement."
[Emphasis Added]
Schedule 1 of the 3rd and 4th Management Agreements provided as follows:
"SCHEDULE 1
The Services
The services to be undertaken b
