The case of NEXGRAM LAND SDN BHD v. SPACIOUS GLORY SDN BHD & ANOR [2023] 1 MLRA 492 before the Court of Appeal concerned the rescission of a Share Sale Agreement due to misrepresentation, challenging a High Court order for specific performance. The Court of Appeal ultimately allowed the Appellant’s appeal and dismissed the Respondents’ cross-appeals, setting aside the order for specific performance.The judgment focused on the interplay between misrepresentation, the voidability of a contract, and the court’s discretion to grant specific performance.
Key Legal Principles and Court Findings
1. Misrepresentation and Inducement: The Court of Appeal found clear evidence that the Appellant was induced into the Share Sale Agreement by the Respondents’ misrepresentations and material non-disclosures during the due diligence exercise.
- Finding on Misrepresentation: The 2nd Respondent (a director) was aware of pending claims, demands, and potential legal suits against Blue Hill Development Sdn Bhd (BHDSB) but “concealed and failed to disclose” them to the Appellant [para 30]. This non-disclosure tainted the Appellant’s consent to enter the agreement [para 33].
- Court Excerpt: “Based on the evidence of the various misrepresentations and omission of material facts by the respondents, we are of the considered view that the respondents had indeed misrepresented and induced the appellant to enter the Share Sale Agreement. In this case, the consent of the appellant to enter the Share Sale Agreement was tainted with misrepresentations.” [para 33]
2. Effect of Misrepresentation on Contract (Voidability)The contract was deemed voidable at the option of the innocent party (the Appellant) due to the misrepresentation.
- Finding on Voidability: The agreement was voidable by virtue of s 19(1) of the Contracts Act 1950 [para 40].
- Court Excerpt (on s 19(1)): “When consent to an agreement is caused by coercion, fraud, or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.” [para 41]
3. Specific Performance and Statutory Conflict: The High Court erred in granting the Respondents’ claim for specific performance after finding them liable for misrepresentation.
- Finding on Specific Relief Act 1950: The order for specific performance was in conflict with s 27(b) of the Specific Relief Act 1950 [para 38].
- Court Excerpt: “The learned JC’s order for specific performance was in conflict with s 27(b) of the Specific Relief Act 1950. The court’s jurisdiction to grant an order of specific performance of an agreement is discretionary. In the present case since the learned JC found that the appellant had proven that there was negligent misrepresentation, an order of specific performance should not have been granted in favour of the 1st respondent, contrary to the provisions of s 27(b) of the Specific Relief Act. The respondents should not be permitted to benefit from their misrepresentations or wrong.” [para 38]
- Relevant Statutory Text (s 27(b)): “Specific performance of a contract cannot be enforced against a party thereto in any of the following cases: … (b) if his assent was obtained by the misrepresentation (whether wilful or innocent), concealment, circumvention, or unfair practices, of any party to whom performance would become due under the contract…” [para 39]
4. Affirmation of Agreement (Correcting High Court Error): The Court of Appeal found the High Court’s finding that the Appellant had “affirmed” the agreement to be erroneous.
- Finding on Affirmation: The High Court held that the Appellant affirmed the agreement by requisitioning a meeting to appoint a director [para 3]. However, the Court of Appeal ruled that the Appellant, being only a shareholder, did not have the right to appoint a director under s 202(3) of the Companies Act 2016 [para 43]. Therefore, the Appellant had not affirmed the Share Sale Agreement [para 45].
5. Damages and Orders
- Damages Principle: Damages are available in addition to rescission because an action for negligent misrepresentation is grounded upon the tort of negligence [para 42].
- Final Orders: The Court of Appeal set aside the High Court’s nominal damages and awarded the Appellant special damages totaling RM52,660.28 [para 56]. The court also declared the Share Sale Agreement terminated and ordered the 770,000 shares to be transferred back to the 1st Respondent [para 57].
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.
