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2014 MarsdenLR 817
FEDERAL COURT PUTRAJAYA
TAN CHEE HOE & SONS SDN BHD – Appellant
Versus
CODE FOCUS SDN BHD – Respondent
[Civil Appeal No: 02(f)-32-06-2013(W)]
Mandatory statutory provisions under the Companies Act cannot be waived; non-compliance renders contracts void, preventing claims based on such agreements.
Headnote:(A) Companies Act 1965 - Section 132C - Contracts Act 1950 - Section 66 - Appeal concerning validity of a sale and purchase agreement (SPA) - Court of Appeal held SPA voidable due to non-compliance with statutory provisions, while Federal Court ruled it was void ab initio, emphasizing that statutory requirements may not be waived. (Paras 14, 30, 35, 59)
(B) Legal principles established include that non-compliance with mandatory statutory provisions results in a void contract, as demonstrated in the case, where the party knowingly unable to waive these provisions forfeits their claims. (Paras 30, 59)
Facts of the case:
The defendant entered an SPA with the plaintiff for shares, where the plaintiff made a deposit of RM1.6 million. Disputes arose regarding encroachments on the land and compliance with statutory approval. High Court ruled in favor of the defendant, but the Court of Appeal reversed this decision. (Paras 4-12)
Findings of Court:
The Federal Court found the SPA void due to the defendant's failure to obtain necessary approvals as mandated, highlighting that such provisions protect shareholders' interests. Refund of the deposit upheld, interest to be calculated from the date of filing the claim. (Paras 59)
Issues: Whether a court can order damages for breach of contract in light of the contract's void nature and the implications of statutory compliance prior to contract execution. (Paras 15, 60)
Ratio Decidendi: A contract is deemed void if it contravenes mandatory statutory provisions, with the court emphasizing adherence to statutory law over contractual clauses. The party that knowingly participates in an illegal action may not benefit from it. (Paras 30, 59)
Result: The appeal was allowed in part; the SPA was declared void, deposit refund upheld with adjusted interest computation.
[1] The appellant, Tan Chee Hoe & Sons Sdn Bhd, was the defendant in the High Court, and the respondent, Code Focus Sdn Bhd, was the plaintiff there. For the purpose of this judgment, the appellant will be referred to as the defendant and the respondent as the plaintiff, as they were referred to at the High Court.
[2] The present appeal before us is by the defendant against the unanimous decision of the Court of Appeal on 14 August 2012 in allowing the plaintiff s appeal against the decision of the High Court, and ordering the defendant to refund the plaintiff s deposit of RM1.6 million and damages to be assessed or alternatively the defendant to pay the plaintiff damages in the sum of RM3.2 million as agreed liquidated damages stipulated in the sale and purchase agreement (SPA) dated 10 November 1995 between the parties.
[3] On 23 May 2013, leave to appeal was granted by this Court to the defendant on the following questions of law, namely:
(i) where the Court of Appeal makes a decision on a subject matter affecting the rights and liabilities of litigants based on a non-existing statutory provision, whether or not the Federal Court should, as a matter of course, review that decision as a whole on appeal proper by granting leave to appeal?;
(ii) where contracting parties waive a mandatory statutory provision prior to the entering of a contract, whether a Court of law may order restoration of consideration paid under that contract and further order damages for breach of contract in favour of one of the contracting parties notwithstanding s 66 of the Contracts Act 1950 ?; and
(iii) where in law the expression vacant possession concerning property transactions means freedom from physical impediment which substantially interferes with the enjoyment of substantial part of a property or any physical impediment however slight and affecting any part of the property however insubstantial?
Factual Background
[4] The defendant (as vendor) had entered into an agreement dated 10 November 1995 with the plaintiff (as purchaser) for the purchase of the total issued and paid-up shares of Choo Hoe Sdn Bhd (CHSB) which comprised 931,002 ordinary shares for a purchase price of RM16 million (the SPA). The plaintiff had agreed to purchase the said shares because it was interested in a piece of land owned by CHSB. The land in question was to a piece of freehold land measuring 1 a or 24.5 poles (50,230 sq ft) held under Certificate of Title no 12920 lot 92, Section 46 in the Town of Kuala Lumpur along Jalan Putra (the said land). The said land was the only asset/property of CHSB.
[5] Pursuant to the SPA the plaintiff paid the defendant 10% deposit of RM1.6 million. The balance 90% of the purchase price was to be paid on or before 9 February 1996 (the Completion Date). Other salient terms of the SPA are as follows:
(a) the balance purchase price was to be paid to the defendant on or before the Completion Date (cl 2.2(c));
(b) the completion of the SPA was subject to two conditions precedent, namely: (i) approval of the Foreign Investment Committee (the FIC) within 75 days from the date of the SPA; and (ii) approval of the defendants shareholders in an Extraordinary General Meeting (EGM) approving the sale of the shares to the plaintiff (cl 3.5);
(c) the defendant was to evict all squatters at its own costs and deliver vacant possession of the said land in question to the plaintiff by the Completion Date (Recital I and cl 8.1(21)(d));
(d) the defendant was to refund the deposit in the event the FIC approval was not obtained (cl 3.4);
(e) in the event the plaintiff failed to pay the balance of the purchase price on or before the Completion Date, the SPA shall automatically terminate and the defendant shall be entitled to forfeit the deposit (cl 11A); and
(f) time shall be the essence of the SPA (cl 12.11).
[6] It is not in dispute that there were several encroachments on the said land. The plaintiff averred that in breach of cl 8.1 of the SPA, the defendant had fail
