Announcement

Appeal Court Upholds Retention of Non-Refundable Earnest Deposit in Share Sale

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24 July 2024

Our Litigation Partner, Idza Hajar Ahmad Idzam, and Legal Associate, Ng Ying Ci, and Julianne John had on 10.07.2024, acted for TH Ladang (Sabah & Sarawak) Sdn Bhd and TH Plantations Berhad in securing a favourable outcome in respect of an appeal by the Appellants.

The appeal revolved around the issue on whether the Appellants were entitled to the refund of the earnest deposit duly paid to the Respondents for the sale and transfer of shares of Ladang Jati Keningau Sdn Bhd (“LJK”).

Case Recap
The Appeal
The issue before the Court of Appeal was whether the Respondents were entitled to retain a non-refundable deposit paid by the Appellants to the Respondents amounting to RM1.14 Million for the aborted sale and transfer of shares of LJK. The shares were held by TH Ladang (Sabah & Sarawak) Sdn Bhd. It was not disputed that the transaction eventually fell through and did not materialise.

The Appellant raised new points in support the appeal which was not raised in the High Court and was not included in the Memorandum of Appeal which are as follows:-
 
(i) the issue of illegality; and
(ii) the applicability of Section 472 of the Companies Act 2016.

It was argued by the Appellant that the subject matter of the transaction was allegedly tainted with illegality as LJK did not comply with the conditions of the lease granted to it by the state authority.

It was further argued that as LJK at the material time was in the process of undergoing voluntary liquidation, Section 472 of the Companies Act 2016 would be applicable to the aborted transaction.

Decision
The Court of Appeal in dismissing the appeal held new issues cannot be introduced at the appellate stage and this practice must be heavily discouraged for it undermines the judicial process and compromises the integrity of the High Court’s judicial making authority. The Court of Appeal for completeness also dealt with the new issues raised by the Appellant.

The Court of Appeal held that given that there was no effective transfer and/or disposition of shares between the Appellants and Respondents, section 472 of the Companies Act 2016 is inapplicable.

The Court of Appeal emphasized that the subject matter of the dispute concerns the purchase of the shares of LJK. As such, any purported non-compliance in the condition of the lease for the land owned by LJK did not necessarily render the Sale Share Agreement void for illegality.

The High Court case is reported here Dato’ Khoo Chee Hiong & Anor v TH Ladang (Sabah & Sarawak) Sdn Bhd & Anor [2022] MLJU 2993.

For more insights into this area of law, please contact our Litigation Partners:
P Jayasingam
Wong Keat Ching
Thavaselvi Pararajasingam
Idza Hajar Ahmad Idzam
Nan Muhammad Ridhwan Rosnan
Nur Syafinaz Vani Abdullah

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