IN THE HIGH COURT OF MALAYA AT JOHOR BAHRU
IN THE STATE OF JOHOR DARUL TA’ZIM
CIVIL SUIT NO. 22-689-2007
_______________________________________________________
BETWEEN
TAIZAH BT. ABD SAMAD
(Berniaga atas nama dan gaya CIRCLE T. CONCEPT
No. Syarikat: JM 0395622-A)
…
Plaintiff
AND
HEALWELL PHARMACEUTICALS SDN. BHD
(No. Syarikat: 606185-P)
…
Defendant
JUDGMENT
GUNALAN A/L MUNIANDY, J.C:
Factual Background Of Claim
[1]
The defendant (‘D’) was a locally incorporated manufacturer and
supplier of health products marketed under the brand name of “Healin’ by a
wide network of outlets spread throughout the states of Malaysia.
Concessionaires specially appointed by D ran the outlets as authorised
distributors of Healin products which could not be retailed by unauthorised
parties. Plaintiff (‘P’) was appointed as D’s concessionaire and a chief
distributor of D’s products for the state of Johor or “Pengedar Utama
Negeri” under an agreement [ Exhibit P2 ] for a one year period from
26.04.2004 – 25.04.2005. P appointed 23 retail outlets to market the
Healin range of products. P2 was renewable yearly subject to the terms
contained therein.
[2]
Some 2 years after the expiry of P2, on 05.06.2007, D issued a
show cause notice to P. [ Exhibit P12 ] alleging breach of condition of the
concession. P, in her reply vide her solicitor’s letter on 12.06.2007 [ Exhibit
P9 ] denied all the allegations in P12. D did not reply to P9 but without
further ado terminated supply of its products to P and refunded the money
that P had paid for the products in September 2007.
[3]
It was common ground that there was no formal written extension
of the contract P2. P, however, averred that P2 was renewed annually by
conduct and custom. That, as it was still in force at the material time, D
was in breach of agreement by their conduct in wrongfully terminating P’s
appointment on the grounds as set out in the Statement of Claim (‘SOC’)
as per paragraphs 8, 9, 12 and 14.
[4]
D denied having breached the contract by wrongful termination of
P as their appointed concessionaire or chief distributor. It was further
denied that P2 was renewed annually by conduct or custom. The
arrangement was merely for D to continue supplying their products to P on
condition that the latter did not abuse the sale contrary to D’s usual practice
known to P.
Issues For Determination
[5]
1. Whether the Plaintiff is a main state distributor or
concessionaire of the Defendant and what are the terms of
appointment of the Plaintiff?
2. Whether the Plaintiff had violated the Defendant’s concession
terms under the Healin Agreement?
3. Whether the Defendant had violated the Plaintiff’s concession
terms in the Healin Agreement?
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4. Whether there were renewals of the contract from year to year
by conduct and custom between the Plaintiff and the
Defendant?
5. Whether the Defendant had terminated the Healin Agreement
illegally?
6. Whether the Defendant was entitled to terminate the Plaintiff’s
concession?
[6]
I agree with defence counsel (‘D/C’) that the first and fourth issues
are fundamental issues that ought to be dealt with at the outset as they
would determine the claim.
Whether P was chief distributor of D’s product for the state and
whether the concession contract was extended annually?
[7]
It was undisputed that P was the ‘main distributor’ or
‘concessionaire’ for Johor during the subsistence of the agreement P2 from
26.04.2004 – 25.04.2005. The two terms have been used interchangeably
but nothing turned on it. Reference can be made to the relevant clause in
P2 where the position of P is termed “Pengedar Utama Negeri”. Whatever
the description, the more crucial point is the terms and conditions (‘T & C’)
of the appointment which are contained in the letter of appointment [ Exhibit
P1 ] and the agreement [ Exhibit P2 ]. It is clearly spelt out that the
appointment was for a one year term only, upon expiry of which it was
required to be renewed annually for the concession to continue.
[8]
That there was no renewal after the expiry on 25.04.2005 was
self-evident. However, the plaintiff (PW1) relied on her evidence of conduct
and custom as the basis of her assertion that her appointment as D’s
concessionaire for Johor was thereafter renewed annually subject to the
original T & C. P bore the onus of proving affirmatively the entire assertion,
particularly the existence of a custom or a course of conduct attesting to
renewal of the contract. These are peculiar facts, the existence of which P
wished the court to believe and as such, the evidential burden lay on P to
prove their existence [ s. 102, Evidence Act, 1950 ]. There was no similar
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onus placed on D to disprove the existence of these facts until and unless
P had satisfied the onus of proof borne by her.
[9]
Before proceeding further, it would be useful to state the position
in law that in interpreting the T & C of a contract, construing the real and
true intention of the parties is paramount. The law is that no custom or
trade usage that is inconsistent with the express terms of the contract may
be implied as it would be repugnant to the terms and tenor of the contract
[Cheng Keng Hong v. Govt. of the Federation of Malaya [1966] 2 MLJ
33H/C]. In Sababumi (Sandakan) Sdn. Bhd. v. Datuk Yap Pak Leong F/C,
[1998] 3 MLJ 151, Peh Swee Chin, FCJ observed (at p. 169):
“The third kind of an implied term is one that is implied by custom
or usage of any market or trade which is reasonable, and again it
is not dependent on a court’s inference explained above but by
virtue of such a custom or usage from the market or trade.
Interestingly, s. 92(e) of the Evidence Act 1950 seems to be
custom-made to provide logistical support for this particular type of
implied term. It will be remembered that s. 92 (e) aforesaid is one
of the exceptions to the rule against evidence to contradict or vary
any terms of a written contract.”.
[10]
In this case, it can be clearly discerned that the parties intended
for the distributorship agreement to run for a one year period only subject to
renewal annually. As rightly argued by D/C, the burden was on P to prove
not only that the contract was renewed by D from time to time until the
material date of termination but also that upon the extension of the
concession, the same T & C as per P1 and P2 continued to be effective
and binding on both parties after 26.04.2005.
[11]
The defence conceded that P continued to be D’s concessionaire
after 26.05.2005 as borne out by the evidence that supply of D’s products
to her continued and she enjoyed the usual discounts and benefits that a
concessionaire was entitled to. However, the extent of her evidence was
only this. She was not able to prove further of the existence of any practice
custom or course of conduct that the original terms under P1 and P2
continued to apply after 26.04.2005 in respect of the extended concession.
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Where a party relies on the fact of any practice or custom being in
existence, the requirements of s. 13 and s. 48, Evidence Act, 1950 need to
be met. S. 13 provides that where the question as to right or custom arises
the relevant facts are:
“(a)
Any transaction by which the right or custom in question was
created, claimed, modified, recognized, asserted or denied
or which was inconsistent with its existence;
(b)
particular instances in which the right or custom was
claimed, recognized or exercised or in which its exercise
was disputed, asserted or departed from.”.
There was not even an attempt by PW1 to prove any of these relevant
facts. It was only her assumption that the original T & C remained in force
by reason of the distributorship of D’s products not having been terminated.
Neither did she produce opinions of persons likely to know of the existence
of the right or custom said to exist which are admissible under s. 48,
Evidence Act. The evidence on record was plainly inadequate to prove
renewal of the original contract by conduct and/or custom between the
parties.
[12]
A leading case in point would be Amalgamated Investment &
Property Co. Ltd (In liquidation) v. Texas Commerce International Bank Ltd
[1982] 1 Q 84 where the Court of Appeal of England stated at p. 120:
“Although subsequent conduct cannot be used for the purpose of
interpreting a contract retrospectively, yet it is often convincing
evidence of a course of dealing after it. There are many cases to
show that a course of dealing may give rise to legal obligations. It
may be used to complete a contract which would otherwise be
incomplete; see Brogden v. Metropolitan Railway Co, [1877 ] 2
App. Cas 666,682, per Lord Hatherley … it must also be available
… to interpret them. If parties to a contract, by their course of
dealing, put a particular interpretation on the terms of it – on the
faith of which each of them to the knowledge of the other – acts
and conducts their mutual affairs – they are bound by that
interpretation just as much as if they had written it down as being a
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variation of the contract. There is no need to inquire whether their
particular interpretation is correct or not – or whether they had in
mind the original terms or not. Suffice it that they have, by the
course of dealing, put their own interpretation on their contract,
and cannot be allowed to go back on it.”.
[13]
This case was cited with approval in our Federal Court case of
Boustead Trading (1985) Sdn. Bhd. v. Arab-Malaysian Merchant Bank Bhd
[1995] 4 CLJ 283 FC where Gopal Sri Ram, JCA (as he then was) stated:
“The width of the doctrine has been summed by Lord Denning in
the Amalgamated Investment case [1982] 1 QB 84 at p. 122;
[1981] 2 All ER 577 at p 584; [1981] 3 WLR 565 at p 575) as
follows:
… When the parties to a transaction proceed on the basis of an
underlying assumption – either of fact or of law – whether due
to misrepresentation or mistake makes no difference – on
which they have conducted the dealings between them –
neither of them will be allowed to go back on that assumption
when it would be unfair or unjust to allow him to do so. If one of
them does seek to go back on it, the Courts will give the other
such remedy as the equity of the case demands.”.
[14]
Applying the above principles to the instant case, there was, on
the present facts, no indication that the parties in the course of their
dealings had put a ‘particular interpretation on the terms’ that would bind
them subsequent to the expiry of the written contract. This was merely the
understanding and expectation of one party (Plaintiff) without proof pointing
to the particular fact in issue. Neither was there any evidence that both
parties had proceeded on an “underlying assumption” that the terms of the
written contract would subsist without any formal renewal, especially so up
to the material time in year 2007 when DW1 said there was no further
renewal in force. The evidence that the only applicable terms were as per
the show cause notice was not rebutted by P.
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[15]
The defence case as per the evidence of the Managing Director of
D (DW1) was that the parties intended the concession to be on a year to
year basis as borne out by P1 – P2. This was to proceed through annual
renewals until D converted their conventional business practice into a fully
franchised business system which they intended to do in 2007. This was
precisely the reason D did not renew the contract in year 2007 compared to
the previous years. DW1 said that an appointment letter was issued to P in
2006 but could not produce it as it was no longer traceable. PW1’s
evidence was that there was no written reappointment or renewal of the
contract but that the T & C continued to apply by practice or custom
between the parties. Neither party could produce any appointment or
extension letter.
[16]
It thus appeared that after 26.04.2005 (expiry of P1 – P2), PW1
continued to purchase products from D as a distributor/concessionaire of D,
who duly maintained the supply to the former until the termination.
However, there was on record, no documentary evidence whatsoever from
which it could be gleaned what were the actual T & C in force in respect of
the extended concession. There was merely the bare assertion by PW1 of
understanding between the parties that P1 – P2 would subsist until proper
termination in accordance with its provisions. There was not even an iota
of evidence in support of this particular fact said to exist. S. 103, Evidence
Act, 1950 states:
“103. The burden of proof as to any particular fact lies on that
person who wishes the court to believe in its existence, unless it is
provided by any law that the proof of that fact shall lie on any
particular person.”.
[17]
Under the circumstances, it was, in my view, reasonable that the T
& C for the sale of D’s products by P after 26.05.2005 can be gathered
from the show cause letter. That these were applicable was not disputed
by PW1 as there was a reply to the letter vide her solicitor’s letter, which
only denied the allegations made.
This was the only available
documentary evidence of the nature of the arrangement between the
parties after 25.04.2005 as neither party had produced any letter of
reappointment or renewal setting out the T & C operative after that date.
Due to the paucity of evidence, DW3’s evidence that there was no renewal
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of the contract in year 2007 as D wished to go fully franchise was not
rebutted. The facts that could be gathered from the show cause letter were
that there was a restriction on the sale and retail prices of the products; P
was not entitled to sell products other than those of D; and the products
could only be sold at the prices fixed by D.
[18]
I, therefore, found that although P remained as D’s concessionaire
after 26.04.2005, and enjoyed discounts and benefits in this capacity, the
contract P1 – P2 had no further application and its clauses did not bind the
parties. The agreement had expired and there was no evidence of renewal
or reappointment on the same terms as before. The dealings thereafter
between the parties on the continued sale of D’s products were a different
arrangement of which the exact terms and conditions agreed upon
remained vague and unknown except as stated in the show cause letter
[Exhibit P12]. Hence, it was my view that D was no longer bound by the
restrictive clauses in P1 – P2 in terminating the concession awarded to P.
The procedure for termination, particularly the requirements of warning and
notice as set out, had no further application. D had, thus, validly terminated
P as a concessionaire of its products with reasonable notice. As a result of
this finding, the issue of breach of agreement (2nd and 3rd issues) did not
arise for determination.
Right To Terminate Concession
[19]
From P12, it would appear that D was convinced that P had
breached the conditions of the concession as extended and thereby, gave
an opportunity to D to show cause, failing which the appointment would be
revoked. Even though D did not reply to P’s denial and explanation
through her solicitors by letter dated 12.06.2007 [ Exhibit P9 ], D, by
conduct, terminated the appointment by discontinuing supply of its products
to P and returning P’s payments for goods ordered.
[20]
D’s complaints are listed out in the SOC (para 8). As I have found
that the contract had lapsed, I would not deal with these allegations, except
to touch on the complaint in para 8 (g) that P12 was unreasonably issued.
In any event, no evidence was led in support of most of the items and need
no further comment. As regards para 8 (g), P’s contention is based on the
8
procedure for termination set out in clause 9.0 of the contract P1 – P2 that
requires 3 warnings to be given before notice of termination. D admittedly
did not issue the requisite notices but only gave oral warnings which DW1
admitted. This contention was no longer relevant as the said procedure
was operative only during the subsistence of the contract which had since
expired at the material time. There was no evidence that it continued to
apply to the subsequent arrangement between the parties. In the
circumstances, I would reiterate that a reasonable notice to show cause
would suffice for the purpose of terminating the distribution arrangement.
[21]
Assuming that D’s failure to reply to P9 could be regarded as an
issue, it did not, in my view render the termination unreasonable or
unlawful. A party that terminates a contract on certain grounds is entitled to
justify the termination or other grounds at the trial, which was precisely
what was done by D in this case through DW1. A perusal of P12 would
show that P was asked to explain certain specific detailed allegations
pertaining to non-observance by D of the restrictions of sale of D’s
products, failing which firm action would follow on the concession. D was
duly informed that as at the date of P12 the concession stood suspended
and supply of D’s products would be halted until further notice. In P’s reply
through her solicitors [ Exhibit P9 ] no answer or explanation was provided
for the allegations. Instead, PW1 put D to strict proof saying that the
allegations were based on hearsay evidence and made counterallegations. Further, that D was in breach of clause 9 of agreement P1 for
not issuing the requisite warnings. As D had been duly notified of
suspension of the concession and had not provided any appropriate
explanation for the expressively stated allegations, it was not unreasonable
for D not to issue a written notice of cancellation. The clear intention to end
the dealings with P could be implied from the sequence of events.
[22]
As to the breach of clause 9 in connection with non-issuance of
the requisite warning notices, D/C submitted that D could also act under
Clause 9.2 which did not require the aforesaid notices in the event of
breach of agreement by the concessionaire. In support of the defence
case that there was sufficient evidence of breach by D, D/C referred to the
following aspects of the evidence in summary form:
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a)
selling products other than the Defendant’s.
This was
admitted by PW1 who admitted that other products were sold
and used in the spa.
b)
in her re-examination she admitted that the outlets were in
breach of the terms and conditions of the agreement.
c)
the evidence in the photograph in Exhibit D17 in Bundle J.
d)
the letter written by DW3 in Exhibit D18 in which she stated
that she bought a product which was being sold at the pasar
tani bearing a reference number 00000034. DW1 confirmed
that this was the reference number assigned to the Plaintiff
and products sold to the Plaintiff would bear this reference.
Pasar tani was not one of the Plaintiff’s outlets.”.
[23]
P’s counsel, (‘P/C’) disputed the above as being proof on a
balance of probabilities of the alleged breach by P. He submitted that
DW1’s evidence on these issues was mainly hearsay. DW1 was said to
have relied on the report of a complainant who was not called as a witness.
The alleged breach by P was on 2 main grounds: that D’s products
supplied to P had been sold at outlets not approved by D, and that, P did
not comply with the restriction that P had to have display counters that only
displayed ‘Healin’ brand products without being mixed together with other
brands. It was argued that the complaint received by D did not prove that P
was the party that had committed the breach. Further, that minutes of the
relevant concession meeting [ Exhibit D16 ] did not disclose that PW1 had
been given warnings on her conduct in this respect. DW1’s evidence that
verbal warnings had been given should be rejected by virtue of the Parol
Evidence Rule in s. 92, Evidence Act Reference was made to the Federal
Court case of Lee Soh Hua v. Kow Lup Piow & Ors [ 1984 ] 2 CLJ 85;
[1984] 1 CLJ (Rep.) 19/1, where it was held:
“On the facts of the case, oral evidence should not be admitted.
When a contract has been reduced to the form of the document, s.
91 of the Evidence Act excludes the admission of oral evidence
unless otherwise expressly provided in the Act. Similarly, oral
evidence is excluded under s. 92 to contradict, vary, add to or
subtract from the terms expressed in the document.”.
10
I did not see how the above evidence of DW1 could be considered as an
attempt to contradict, vary, add to, etc. the terms expressed in a document.
The minutes of a meeting cannot be equated to the terms of a document.
DW1 merely referred to verbal warnings that admittedly had not been
recorded. He did not seek to contradict, vary or add to the minutes.
[24]
Similarly, it was submitted that photograph D17 did not disclose
that the premises shown belonged to P as it did not show P’s logo.
Neither did it show clearly the brands of goods displayed. Further, that
there was no evidence that it was P who had distributed the products to
unauthorised outlets as any purchaser of the products from P could also
have done so. The presence of the code number assigned to P on these
products [ see Exhibit D18 ] by itself did not implicate P who had been
assigned other code numbers as well. In brief, the contention was that
none of the defence witnesses could prove affirmatively that P had sold
Healin products to or at the unauthorised outlets and that, the relevant
evidence was, and a whole, hearsay. Reference was made to s. 60,
Evidence Act, 1950 and Evidence “Practice and Procedure 2nd Edition” by
Augustine Paul in support of the contention that this evidence amounted to
hearsay.
[25]
In view of my decision that the T & C of the original contract had
no further application to the dealings between the parties after its expiry,
my view was that it was not necessary for D to prove on a balance of
probabilities that P had breached the terms of sale of D’s products in order
to terminate the concession. D had allowed P to continue selling its
products subject to certain restrictions to protect its interests with P
continuing to enjoy certain benefits and privileges as a concessionaire.
Upon investigation and information received, of which evidence was
adduced by calling witnesses, D was satisfied that the conduct of P was in
breach of the restrictions of sale imposed. P’s reply to D’s show cause
notice did not provide any satisfactory explanation for the specific
allegations made, whether or not these were based on hearsay. On the
evidence as it stood, D was not unjustified in acting as they did in revoking
the concession upon due notice having been given. The conditions
precedent and the procedure for termination under the contract P1 – P2
could no longer be invoked to restrict the right to terminate on proper
grounds, which were existent in this case. D had on record taken into
11
account relevant and pertinent factors to their interests to discontinue
dealings with P. Hence, on the facts, the termination could not be
considered unlawful or unreasonable as pleaded.
[26]
Based on my decision that the written agreement ceased to apply
after its expiry on 26.04.2005 and that, the course of dealings between the
parties was governed by a separate arrangement, the 5th issue whether the
Healin agreement had been validly terminated had no further relevance.
As for the 6th issue, I found on the facts and evidence as alluded to that,
after having given sufficient notice, D was at liberty to terminate the
concession on the grounds set out in the notice.
Conclusion
[27]
In view of the foregoing analysis, a summary of my decision on the
claim is as follows. This suit is founded on a concession agreement that
was in force for a one year period from 26.04.2004 to 26.04.2005. At the
material time when D terminated the concession, the contract had expired
and was no longer in force. The onus was on P to prove the fact pleaded
in the statement of claim that the terms and conditions of the contract
continued to apply after its expiry based on practice and custom. P failed
to discharge this onus of proof. The weight of evidence pointed to P
remaining as a concessionaire of D based on a separate arrangement and
understanding between the parties independent of the contract. The
subsequent concession was not based on extension of the original contract
[ Exhibit P2 ] but by separate appointment. In any event, no documentary
evidence was available either way. As such, what the precise terms of the
subsequent appointment or arrangement were was not clear. However, it
was plain that the terms and conditions of P2, including the procedure for
termination, did not bind D if they did not wish to continue the concession
on reasonable grounds, more so on due notice being given as was done by
D.
[28]
The
discontinuing
allegation of
exercise was
question of D having breached the provisions of P2 in
the concession, therefore, did not arise. Accordingly, the
breach of contract as pleaded by D in carrying out this
without basis and had no merits. The termination was valid
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and D could not be held liable for the alleged losses suffered by P as a
result of it. I, therefore, dismissed this claim with costs.
Dated: 20th April 2011
( GUNALAN A/L MUNIANDY )
Judicial Commissioner
High Court of Malaya
Johor Bahru.
…………… for the Plaintiff
Mr. Khairul Azwad
Messrs Rosli Kamaruddin & Co.
Advocates & Solicitors
Johor Bahru.
..…………. for the Defendant
Mr. Joseph Yeo
Messrs Joseph Yeo
Advocates & Solicitors
Kuala Lumpur.
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