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Federal Court of Malaysia |
] [Hide Context] [CIVIL APPEAL NO.: 02()-18-2011(W)]
[CIVIL APPEAL NO.:W-02-1063-2007]
[CIVIL NO.: D2-24-3-2003]
JUDGMENT OF THE COURT
INTRODUCTION
[ 1 ] This is an appeal by the appellant against the decision of the Court of Appeal dated 23.8.2010 dismissing the appellant’s
appeal. Leave to appeal was granted by this Court on 22.2.2011 on the following questions:
Question 1
“In a contract for the sale and purchase of shares, does the beneficial ownership in shares pass to the purchaser upon delivery of the shares to and registration thereof in the name of the purchaser when the full purchase price has not been paid?”
Question 2
“In construing settlement agreements, where a claim is not expressly stipulated for by the party asserting that claim, does a general release clause bar such a claim?”
In this judgment, the respondent will be referred to as the plaintiff and the appellant as the defendant, as in the trial court.
THE FACTS
[ 2 ] The facts relevant to this appeal are briefly as follows:
By an agreement dated 19.8.1996 (“the Principal Agreement”) the plaintiff agreed to sell to the defendant 119,301,616 shares in
Pernas International Holdings Berhad (“PIHB”) (“the subject shares”) at the agreed price of RM2.05 per share amounting to
RM408,568,312.80 (“the purchase price”).
[ 3 ] Pursuant to the Principal Agreement, the defendant provided the plaintiff with an Irrevocable Bank Guarantee for the
purchase price. The defendant was required to pay the purchase price to the plaintiff on or before 16.10.1997. On 16.10.1996, the
subject shares were registered in the name of the defendant on the understanding that payment of the purchase price would be
made on or before the agreed date. The defendant failed to make such payment.
[ 4 ] On 14.10.1997, the parties entered into a Supplemental Agreement (“the 1st Supplemental Agreement”) whereby the plaintiff granted the defendant an extension of one year to pay up, which expires on or before
16.10.1998. However, before the due date, the parties entered
into another Supplemental Agreement dated 29.7.1999 (“the 2nd
Supplemental Agreement”).
[ 5 ] In the 2nd Supplemental Agreement, it was agreed as follows:
(i) the plaintiff granted the defendant yet another extension of one year, and the payment to be made on or before 16.10.1999;
(ii) the defendant made interest payment of RM19,882,815.31 to the plaintiff by reason of the defendant’s failure to
pay the purchase price; and
(iii) parties agreed to open a Sinking Fund Account in a bank or financial institution approved by the plaintiff in the joint
names of the defendant and the plaintiff; and the purpose of the “Sinking Fund” was to utilize the monies in
that Account towards the payment of the purchase price and interest.
[ 6 ] Notwithstanding the second extension, the defendant still failed to meet its commitment to make payment of the purchase price.
[ 7 ] On 22.10.2001, the parties entered into a Settlement Agreement whereby:
(i) the sale and purchase of the subject shares was terminated;
(ii) the defendant re-transferred the subject shares to the plaintiff; (iii) the monies amounting to RM20,231,955.73 million
in the
Sinking Fund Account were released to the plaintiff; and
(iv) all but one of the directors nominated by the defendant shall resign from the Board of Directors.
[ 8 ] During the period of some five years from 16.10.1996 to 22.10.2001, even though the defendant did not pay for the subject
shares, the subject shares were registered in the defendant’s name. The company, PIHB was controlled and managed
by the defendant’s representatives. This was because the sale was part of a
‘Management Buy Out’.
[ 9 ] Between 8.11.1996 to 16.1.2001, the PIHB dividends were paid to the defendant being the registered holder of the
subject shares, amounting to RM100,527,735.12.
The High Court
[10] The plaintiff filed an Originating Summons in the Kuala Lumpur High
Court against the defendant for the following reliefs –
(i) A declaration that the subject shares which were, for the period August 1996 to 7.12.2001, registered in the name
of the defendant, were held by the defendant on trust for and on behalf of the plaintiff by reason of the defendant’s
failure or inability to pay the full consideration for the subject shares;
(ii) A declaration that any sums received by the defendant as dividends that was declared on the subject shares ought
to have been held by the defendant as a constructive trustee for and on behalf of the plaintiff;
(iii) That an account be taken of all monies that had come into the hands of the defendant, and if the same were paid over by the
defendant to any person or persons that an account of such payments be made by the defendant;
(iv) For an order that the defendant to pay over to the plaintiff such monies that have come into the defendant’s hands by reason
of the matters aforesaid;
(v) The cost of and occasioned by this application be paid by the defendant to the plaintiff; and
(vi) Further and/or any other relief that the court would deem fit and just to grant.
[11] At the end of the trial, the learned trial Judge found for the plaintiff and held that:
“…the registration of the subject shares in the Defendant’s name merely confers legal ownership on the Defendant but not the beneficial interest which remained with the Plaintiff. Since the Defendant failed to pay as agreed in all the relevant agreements between the parties, the subject shares were held on trust by the Defendant for and an (s.i.c) on behalf of the Plaintiff. Therefore the dividend that accrued on the subject shares during the five (5) years period must be paid over to the Plaintiff.”
The Court of Appeal
[12] On appeal, the Court of Appeal narrowed down the issue in the appeal to this:
“Given the above factual background, was the defendant holding the shares on constructive trust for the plaintiff so that the plaintiff has a claim in equity against the defendant in respect of the dividends received by the defendant?”
“We find that in Parway Estates Ltd, supra, the distinguishable fact which is of critical importance is that the transfers were executed in consideration of the payment of the sum due under the agreement. In effect, that authority militates against the defendant herein. The defendant had never paid the purchase price to the plaintiff to support the transfer of the shares. Clearly, no equitable and beneficial interest in the shares can ever become vested in the defendant. If at all, only the legal ownership was vested in the defendant, and the defendant was holding the shares on constructive trust for the plaintiff. The defendant, being the plaintiff's constructive trustee, was in no position whatsoever to beneficially claim the dividends declared for the shares. In equity, the defendant was accountable to the plaintiff for the dividends.”
[14] The Court of Appeal also asked this question:
“Would the retention of the dividends by the defendant, as purchaser of the shares, without paying the purchase price therefore, amount to unjust enrichment?”
“The doctrine of unjust enrichment applies to the facts in the instant appeal, more specifically when the defendant has never paid the purchase price for the shares, in which case, the defendant is not entitled to retain the dividends declared for the shares. The plaintiff has proved that the defendant has been unjustly enriched at the plaintiff's expense. The plaintiff has the right to recover the dividends from the defendant by way of restitution as it is unjust for the defendant to keep them. We therefore answer the above question in the affirmative.”
[16] At the end of the hearing of the appeal, the Court of Appeal dismissed the defendant’s appeal with costs.
The issues before this Court
[17] This Court had on 22.2.2011 granted leave to the defendant to appeal against the decision of the Court of Appeal
on the questions of law set out earlier.
[18] The answer to the questions posed to us turns essentially on the construction to be given to the agreements entered
between the parties starting with the Principal Agreement and culminating with the Settlement Agreement. The main thrust of the
defendant’s case was that under clause 5.1 of the Principal Agreement, the plaintiff was to deliver to the defendant the PIHB shares
certificate together with the documents required to give good title “upon payment of the Purchase Price in accordance with Clause 5.1(c)” of the Principal Agreement.
[19] What concerns us here is the dividends that were paid out to the defendant between 8.11.1996 to 16.1.2001, totalling
RM100,
527,735.12.
[20] The issue is whether the plaintiff is entitled to the dividends upon the termination of the agreement pursuant to the Settlement
Agreement dated 22.10.2001. The answer to this depends on the terms of the various agreements between the parties. It is not in
dispute that the sale of the subject shares to the defendant was part of “Management Buyout Offer” by the defendant who was managing
the hotels which formed the core business of PIHB. It is not an outright sale of shares. The subject shares were registered in the
name of the defendant on a deferred payment basis against delivery of a Bank Guarantee.
Looking at clauses 4.4 and 4.5 of the Principal Agreement, we are of the view that the Bank Guarantee was not intended to be treated
as payment of the full purchase price for the subject shares. The full purchase price shall be paid by the defendant on or before
the date falling 12 months from the completion date. Clause 4.5 of the Principal Agreement requires the defendant, on the
completion date, to furnish to the plaintiff a Bank Guarantee for an amount equivalent to the full purchase price. The Bank Guarantee
will be returned to the defendant upon payment of the full purchase price. Thus, it is amply clear that the Bank Guarantee cannot
be treated as payment of the full purchase price as contended by learned counsel for the defendant. It is merely a form
of security for payment of the full purchase price. Further, clauses 11.1 and 11.2 of the Principal Agreement provide that,
in the event the defendant defaults in making full payment of the purchase price, the plaintiff is entitled to terminate the agreement
and upon such termination, the defendant shall transfer the subject shares back to the plaintiff.
[21] As it turns out, no payment was made within the period stipulated in the Principal Agreement and in the two Supplemental Agreements.
By the 2nd Supplemental Agreement, the date for payment was finally
extended to 16.10.1999. But no payment was made and the Principal Agreement was eventually terminated pursuant to the Settlement
Agreement dated 22.10.2001. Two important provisions in the Settlement Agreement were that:
(i) The subject shares were transferred back to the plaintiff; and
(ii) The monies in the Sinking Fund Account amounting to RM20,
231,955.73 were released to the plaintiff.
[22] In this case, the defendant seeks to rely on the general principle as stated in Parway Estates Ltd. v. Commissioners of Inland Revenue (1958) 45 T.C. 135, where Jenkins L.J. stated, “once a contract for sale is executed, the subject – matter – the shares in the present case – becomes in equity the property
of the purchaser”. But in that case, the learned L.J did observe that “there is nothing in this agreement to take the case out of the general rule”. Therefore, the learned L.J. did anticipate that, depending on the particular circumstances, a case may be taken
out of that general principle. Is this present case one such case? We would have thought so. This is because from the general tenor
of the agreement, it was never the intention of the parties that the beneficial interest in the subject shares was to
pass to the defendant upon the transfer of the subject
shares to the defendant without the full payment of the purchase price. It is the term of the agreement that the full purchase price
shall be paid on or before the date falling twelve (12) months from the completion date. Unless and until that payment is made, we
do not think, it is the intention of parties that the beneficial interest in the subject shares were to pass to the defendant, bearing
in mind that the defendant has not made any payment towards the purchase price of the subject shares. In Parway Estates Ltd. (Supra), the obligations were on the vendors to perform before they could call upon the purchaser to pay the purchase money. Therefore,
on the facts, Parway Estates Ltd. (Supra) is clearly distinguishable from the present case.
[23] From the Principal Agreement, it would appear that the defendant was given the right to manage the PIHB prior to payment
of the purchase price of the subject shares. The transaction in the present case, as we understand it, is a management buyout
scheme, whereby the managers of a corporate entity buy the subject shares in that entity. (See plaintiff’s second affidavit).
It is also to be noted that by the terms of the Principal Agreement itself, the defendant was not free to deal with the subject shares
and in the event the defendant
failed to make payment of the full purchase price, the defendant may be required to re-transfer the subject shares to the plaintiff
(See clause 11.2 of the Principal Agreement).
[24] On those factual matrix, both the High Court and the Court of Appeal held it is highly unconscionable on the part of the defendant
to lay a claim on the dividends attached to the subject shares during the relevant period when the defendant had not at all
paid for the subject shares. It is their concurrent findings that in the circumstances, equity would construct a trust in favour
of the plaintiff as regards the dividends. The plaintiff as beneficial owner of the subject shares is therefore entitled to
the said dividends. Eves v. Eves (1975) 3 All ER
[25] Learned counsel for the defendant further contended that clause
5.1(c) stipulates that the defendant is to deliver to the plaintiff “an irrevocable Bank Guarantee for the amount equal to the full purchase price”, therefore, upon furnishing the Bank Guarantee to the plaintiff, the transaction was completed and the plaintiff was to transfer the
subject shares to the defendant. With that transfer, learned counsel maintained that both the legal and the beneficial interest
in the subject shares passed to the defendant, and the relationship between the defendant and the plaintiff became that
of creditor and debtor. Hence, the plaintiff is only entitled to the purchase price of the subject shares, and in the event of default
by the defendant, the only remedy open to the plaintiff is to claim for the same. Learned counsel relied on s.55 of the Sales of
Goods Act 1957 (Revised 1989)(“the Act”) in support of his contention. Section 55(1) of the Act reads:
“55. Suit for price.
(1) Where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may sue him for the price of the goods.”
It is not in dispute that under the Act, “shares” come within the definition of the word “goods”. But for s.55(1) of the Act to apply, we have to be satisfied that the property in the goods has passed to the purchaser pursuant to the contract. To determine whether the property in the goods has passed to the purchaser, regard must be had to s.19 of the Act, which reads:
“19. Property passes when intended to pass.
(1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.
(2) For the purpose of ascertaining the intention of the parties
regard shall be had to the terms of the contract, the
conduct of the parties and the circumstances of the case.”
(Emphasis added)
This section is a codification of the common law principle as enunciated in Ogg & Another v. Shuter (1875) LR 10 CP 159. In that case, Lord Coleridge C.J. observed, “The rule as deducible from
all the cases, and as it is laid down in the learned works of Mr.Justice Blackburn and Mr. Benjamin on Sale, is, that the question
whether the property has passed being one of intention to be collected from all the circumstances, no single circumstance is necessarily
conclusive in all cases, but the conclusion to be drawn must depend on a balance of the various circumstances on one
side and the other”. (See also Mc Entire v. Crossley Bros. Ltd. [1895] AC 457 and Agricultural Market Committee v. Shalimar Chemical Works Ltd. [1997] 5
SCC 516). S.19 of the Act was applied in our court in a number of cases (See Pemunya Kargo atas Kapal ‘Istana VI’ v. Pemilik Kapal atau Vesel ‘Filma Satu’ dari Pelabuhan Jakarta Indonesia and
other actions [2011] 7 MLJ 145; Amfinance Bhd v. KT Steel Sdn Bhd & Ors [2008] 1 CLJ 290; and Aqua Logistics Pte. Ltd. v. Sasacom
Sdn Bhd [2008] 8 CLJ 405).
[26] In the present case, based on what we have alluded to earlier, it is evident that the subject shares were never intended to
pass to the defendant, save upon payment of the full purchase price. Therefore, we are of the view that s.55(1) of the Act could
not apply to this case.
[27] The second question posed to us is whether the plaintiff is precluded by the Settlement Agreement from bringing a claim
against the defendant for the dividends paid prior to the Settlement Agreement. Much reliance was placed on clauses 3.3 and 9.1
of the Settlement Agreement which read:
“3.3. The parties hereto further agree that upon the completion of the matters set forth in Clause 3.2 (a) to (d), neither parties
shall have any further rights or claims against the other and in particular, the Total Outstanding shall for all intents
and purposes be deemed repaid to PNS upon completion of the matters set forth in Clause 3.2, and PNS shall have no further claim
against Fernrite in respect of the Purchase Price or Accrued Interest.
…
9.1. Upon completion of this Agreement, in particular, upon completion of the matters set out under Clause 3.2 above, the parties hereto agree that neither party shall have any further action or claim against the other in respect of any matter arising out of this Agreement or the Principal Agreements.”
It is the defendant’s submission that clause 9.1 (the release clause) of the Settlement Agreement is wide enough to cover any claim
for dividends received by the defendant prior to the date of the Settlement Agreement. It is common ground
that a sum of RM100,527,735.12 was received by the defendant as dividends in respect of the subject shares. And during
the currency of the agreements the defendant had made a total payment of RM60,042,095.99, made up of:
(i) RM39,711,305.98 payment of overdue interests; and
(ii) RM20,330,790.01 being part of the dividends payment paid out of the Sinking Fund Account.
[28] In law, no particular form or word is necessary to constitute a valid release, and any words which show an evident intention
to renounce a claim or discharge the obligation are sufficient. And the normal rules relating to the construction of a written
contract apply equally to a release, and so a release in general term is to be construed according to the particular
purpose for which it was made. (Bank of Credit and Commerce International SA v. Ali (2002) 1 A.C. 251)
In clause 3.3 of the Settlement Agreement, particular reference is made to the “Total Outstanding” and to “Purchase Price” or “Accrued
Interest”. The words “Total Outstanding” are in turn defined as “… the aggregate of the Purchase Price and the Accrued Interest amounting to Ringgit Malaysia Five Hundred and Eighty Eight Million Two Hundred and Twenty Seven Thousand, One Hundred and Fifteen and Sen Twenty Five (RM588,227,115.25) only”. Therefore, the focus of the Settlement Agreement was principally on the Purchase Price or/and Accrued Interest. The issue of dividends received by the defendant during the pendency of the agreement was not anywhere mentioned in the Settlement Agreement. Clause 5.1 of the Settlement Agreement encompasses the right to dividends subsequent to the Settlement Agreement. It was contended for the defendant that since the Settlement Agreement was silent on the issue of past dividends, therefore, it was the intention of the parties to allow the defendant to keep the dividends received prior to the date of the Settlement Agreement. However, in view of our finding that the defendant has no beneficial interest in the subject shares, therefore, it necessarily follows that, the defendant could not likewise claim beneficial interest in the dividends. Thus, any agreement to extinguish the plaintiff’s right to the dividends ought, in the circumstances, to be expressed in clear and unequivocal terms in the Settlement Agreement: a general
release clause as in the present case in our opinion, would not be sufficient to extinguish such a right. In The Directors, &C., of the London and South Western Railway Company and George Clement v. Richard Doddridge Blackmore (1870) L.R. 4 H.L. 610, it was observed that, “The general words in a release are limited always to that thing or those things which were specially in the contemplation of the parties at the time when the release was given. But a dispute that had not emerged, or a question which had not at all arisen, cannot be considered as bound and concluded by the anticipatory words of a general release.” per Lord Westbury. (See also Mostcash plc & Others v. Fluor Limited [2002] EWCA Civ
[29] The Court of Appeal further found in favour of the plaintiff on the principle of unjust enrichment. The Court of Appeal opined
that the
defendant would be unjustly enriched if it was allowed to retain the dividends which were derived from the subject shares
when the defendant has never paid the purchase price for those shares. Before us, learned counsel for the defendant argued that
the principle of unjust enrichment has no application to the present case. In view of our earlier findings, we do not think it is
necessary for us to consider this issue.
[30] For the reasons stated above, we accordingly dismiss the appeal by the defendant with costs. We will now invite counsel to
address us on the issue of costs.
Counsel for the Appellant : Mr. Porres Royan
Solicitors for the Appellant : Messrs. Shook Lin & Bok
Advocates & Solicitors
Tingkat 20, Bangunan Kumpulan
Ambank, 55 Jalan Raja Chulan
50200 Kuala Lumpur
Counsel for the Respondent : Mr. Robert Lazar
Mr. T. T. Toi
Solicitors for the Respondent: Messrs. Shearn Delamore
Advocates & Solicitors
7th Floor, Wisma Hamzah Kwong-Hing
No. 1, Leboh Ampang
50100 Kuala Lumpur
] [Hide Context]
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