Court: Federal Court, Kuala Lumpur Judges: Salleh Abas CJ (Malaya), Abdul Hamid and George Seah FJJ Date of Judgment: 16 May 1983
1. Background and Facts
The respondents entered into an agreement dated 19 September 1980 to sell a property known as Sharidal Complex to the appellants for $8.5 million. The appellants paid a deposit of $850,000 upon execution.
Clause 2(b) of the agreement made the transaction subject to the approval of the Foreign Investment Committee (FIC). The clause explicitly provided that if such approval was not given, all monies paid by the purchaser would be returned. On 30 April 1981, the FIC issued a letter stating it was “not agreeable to the transaction to proceed as proposed” but suggested it would approve the sale if the property was transferred to a joint-venture company with at least 30% Bumiputra equity.
The respondents contended that the agreement became null and void upon this rejection. The appellants argued that the FIC’s response was a conditional approval and that the contract subsisted. After the FIC reaffirmed its stance on 8 July 1981, the appellants tendered the balance purchase price on 20 July 1981, which the respondents rejected.
2. Key Legal Issues
The primary issues before the Federal Court were:
- Whether the requirement for FIC approval was a contingent condition or a promissory condition.
- Whether the FIC’s letter dated 30 April 1981 constituted a rejection or an approval within the meaning of the agreement.
- Whether the agreement became void under Section 33(b) of the Contracts Act 1950 due to the non-fulfillment of the condition.
3. Judicial Findings
The Federal Court affirmed the High Court’s judgment based on the following determinations:
- Classification of Conditions: The court defined two senses of the word “condition”:
- Contingent Condition: A provision where the contract shall not take effect unless and until the condition is fulfilled; non-fulfillment does not render a party liable for damages, but the contract becomes unenforceable or void.
- Promissory Condition: An essential term of the contract, the breach of which entitles the innocent party to treat themselves as discharged and sue for damages.
- The Nature of the FIC Requirement: The court held that the FIC approval was a contingent condition. Further performance of the contract “hung upon the decision of the FIC,” over which neither party had control. Until approval was given, liability for further performance remained suspended.
- The FIC Decision as a Rejection: The court ruled that the FIC letter was a rejection. The FIC’s suggestion for a joint-venture company was a new proposal that was not within the original contemplation of the parties. The court noted that if the respondents were required to refund the deposit, they were under no obligation to complete the transaction.
- Legal Consequence of Rejection: Because the FIC refused the deal as proposed, the contingent event became impossible. Consequently, the agreement became void in accordance with Section 33(b) of the Contracts Act 1950.
- Procedural Appropriateness: The court rejected the argument that the matter should have been brought by writ rather than Originating Summons, holding that the issue was purely a matter of construction of the sale agreement based on voluminous correspondence.
4. Conclusion
The Federal Court dismissed the appeal. It held that the agreement was void through no fault of either party due to the FIC’s refusal to approve the sale as proposed. The respondents were ordered to refund the deposit as there was no longer any ground for withholding it.
Disclaimer: This post is for informational purposes only and does not constitute legal advice. Please consult a qualified Advocate & Solicitor for your specific legal needs.
