In
Geo Win Sdn. Bhd. v CC Land Resources Sdn. Bhd. & Another (Civil Appeal No.: W-02(NCVC)(W)-1080-07/2023), the Court of Appeal was called upon to interpret the terms of a Letter of Undertaking that served as a collateral contract to a Joint Venture Development Agreement (
“JVA”) entered into between the Appellant, Geo Win Sdn. Bhd. (
“Geo Win”) and the 1
st Respondent, CC Land Resources Sdn. Bhd. (
“CCL”).
CCL owned a plot of land of approximately 2.5 acres which was the subject of the JVA. Under the JVA, shop houses were to be built and developed by Geo Win on the subject land. Upon completion, CCL would relinquish its ownership over the land in exchange for cash payments.
As additional consideration to the JVA, CCL and Geo Win also entered into a Letter of Undertaking (
“LOU”) where Geo Win promised to provide one complimentary shop-house unit to CCL’s nominee, namely the 2
nd Respondent (
“CCL’s Nominee”). The terms of the LOU were ratified through a directors’ resolution issued by CCL’s Board of Directors.
As for the specifications of the shop-houses that would be built, it was a condition to the LOU that the development must consist of either:
| (i) |
In the event that the frontage of all shop-houses does not exceed 38 feet, 16 units of shop-houses which were approved for development by the relevant authorities; or |
| (ii) |
In the event that the frontage of some shop-houses does exceed 38 feet, any number of shop-houses as approved by the relevant authorities. |
The development was completed with 14 shop-houses, three of which had a frontage which was between 0.3 to 1.01 feet less than 38 feet. Upon completion, CCL wrote to Geo Win to initiate the transfer of property to CCL’s Nominee. However, Geo Win refused to comply with the terms of the LOU on the grounds that (i) the LOU was void and unenforceable due to illegality and (ii) the 14 shop houses that were built did not meet the agreed specifications under the LOU.
Consequently, CCL initiated an action against Geo Win in the High Court, claiming, among other things, specific performance of the LOU. The High Court allowed the claim, hence the present appeal brought by Geo Win.
Was the LOU an illegal agreement?
The focus of Geo Win’s submission that the LOU was an illegal agreement was the scope of the directors’ resolution issued by CCL’s Board of Directors to ratify the terms of the LOU. Geo Win sought to argue that the LOU was in contravention of sections 221 and 223 of the Companies Act 2016 (
“CA 2016”), for the following reasons:
| (i) |
CCL’s Nominee’s interest in the LOU was not declared to CCL’s Board of Directors and therefore the LOU was in contravention of section 221, which requires a director of a company who has an interest, whether directly or indirectly, in a contract or proposed contract with the company to declare the nature of his interest at a board meeting as soon as practicable after the relevant facts giving rise to such interest come to the relevant directors knowledge; and |
| (ii) |
the LOU was an agreement which substantially disposes of CCL’s property without approval via CCL’s resolution, which was argued to be a breach of section 223, which provides, among other things, that the directors of a company shall not enter or carry into effect a transaction for the disposal of a substantial portion of the company’s property unless the transaction is approved or made subject to the approval of the company through a directors’ resolution. |
It was noted by the Court of Appeal that Geo Win had abandoned its argument insofar as section 221 was concerned. Nevertheless, the Court of Appeal found that there was no basis for Geo Win’s submissions on either section 221 or section 223 of the CA 2016, noting at the outset that the primary purpose of these sections was to serve as internal safeguards for the company in question. In this regard:
| (i) |
The Court of Appeal considered Geo Win’s submission under section 221 to be an afterthought, particularly as neither CCL or its shareholders had mounted any action or complaint against any of CCL’s directors for an alleged undisclosed interest regarding the LOU. |
| (ii) |
Further, it was emphasised by the Court of Appeal that pursuant to section 221(10) of the CA 2016, any effect of a contravention of section 221 would render the LOU voidable (not void) at the option of CCL, and not Geo Win. The Court found that since CCL sought to enforce the specific performance of the LOU, it was clear that CCL had elected to continue with its terms. |
| (iii) |
As for section 223 of the CA 2016, the Court of Appeal also emphasised that Geo Win was not challenging the validity of the JVA, which the Court of Appeal made clear was the actual agreement which disposed of a substantial portion of CCL’s property. In this regard, the Court of Appeal held that Geo Win should be estopped from relying on section 223 to renege on its own prior admission and agreement, as this would contradict Geo Win’s own admission and acquiescence to the disposal of the property by CCL as agreed under the JVA. |
| (iv) |
The Court of Appeal further emphasised that the LOU, which was the agreement Geo Win was attempting to invalidate, was not an agreement whereby CCL was agreeing to dispose of its property, but rather an agreement whereby it was Geo Win that would be relinquishing its proprietary right, gained through the JVA, over one shop-house unit. Thus, there was no relinquishing or disposal of property by CCL under the LOU that would engage section 223 of the CA 2016. In any case, even if there was, the Court of Appeal did not consider one shop-house unit out of the 14 to be a “substantial portion”. |
Did the Development Fail to Meet the Specifications under the LOU, and if so, what was the effect of this?
Geo Win also sought to argue, based on a reading of the terms of the LOU, that the conditions giving rise to the transfer of the one shop-house unit to CCL were not complied with, as 3 of the 14 shop-houses had a frontage less than 38 feet. In this regard, the Court of Appeal was called upon to interpret the salient terms of the LOU, which were as follows:
“the Unit will be granted to [CCL’s Nominee]
in the event:-
…
(aa) sixteen (16) or more unit of shops, each of which has a maximum front width of 38 feet, are capable of being approved or are approved by the Appropriate Authorities on the Project of the said Land; OR
(bb) the Defendant decides to develop or has developed the commercial shops with shoplot front width exceeding 38 feet (i.e more than 38 feet)”
The Court of Appeal held that the salient features of these terms were that the units must be approved by the relevant authorities and that Geo Win was entitled to construct less than 16 shop-house units if the approved plan entailed units with a frontage exceeding 38 feet. The Court of Appeal held that in either circumstance, it remained a constant that one complimentary unit would be relinquished to CCL.
Further, in dismissing Geo Win’s submissions in this regard, the Court of Appeal also held that Geo Win’s rigid interpretation of the LOU would be contrary to business common sense, stating, among others, that such an interpretation would
“allow and incentivize [Geo Win] to abuse and stake its own intentional breach of the LOU as a ground to unfairly escape the performance of [Geo Win’s] promise under the LOU and unjustly deprive the 2nd Respondent off of its entitlement over the complimentary unit”. The Court of Appeal found that “
no sane businessman of sound mind would intentionally enter into the LOU to allow the Appellant to deprive him of the complimentary unit out of the Appellant’s own wilful default and breach against the LOU”, noting that this finding aligns with the principle that no party ought to be permitted to take advantage of its own breach.
In any case, it was further held that even if Geo Win’s interpretation of the terms of the LOU were to prevail, the fact that the 3 shop-houses in question were only 0.3 to 1.01 feet short of the 38 feet frontage, which the Court of Appeal found to be exceedingly small, minute and insignificant, meant that the
de minimis principle ought to apply such that the Court ought not to take action. In this regard, the Court of Appeal did not consider the development of the shop-houses to be one that required extreme precision in order to enable them to be functionable shop-houses, citing the case of
Samado Sdn Bhd v Kerajaan Malaysia [2020] MLJU 274, where the
de minimis principle was applied similarly in the context of the construction of a building.
Accordingly, the Court of Appeal dismissed Geo Win’s appeal and ordered that costs of RM30,000 be paid to CCL and CCL’s Nominee.
Case Note by Arif Umar Faruq bin Faiz (Associate) of the Dispute Resolution Practice of Skrine.
This article was originally published in the Malaysian Bar Council’s Circular No. 357/2024 and is republished with the kind permission of the Malaysian Bar Publications Committee.