Malaysia: Disputes Over Terms Of Settlement Underscore The Importance Of Robustly Drafted Settlement Agreements

Last Updated: 22 August 2019
Article by Peter Godwin, Nicholas Hoh, Daniel Chua and Rebecca Pang

As the spotlight shines on mediated settlements with the signing of the Singapore Convention on Mediation on 7 August 2019, it is timely to recall that settlement agreements, like any other contract, are only as useful as they are enforceable. While parties may often feel that they have completed the hard work in reaching a negotiated settlement, it is crucial that the settlement is documented carefully to avoid subsequent disputes. Two recent decisions in the Malaysian courts are instructive examples of how ambiguity in settlement agreements can be the cause of further costly and time-consuming litigation rather than putting an end to it.

Peter Godwin, Nicholas Hoh, Daniel Chua and Rebecca Pang of our Kuala Lumpur office consider the decisions below.

Reebok (M) Sdn Bhd v CIMB Bank Berhad (Civil Appeal No. W-02(NCVC)(W)-2459/2017)

On 24 September 2010, the High Court granted summary judgment against Reebok in the sum of:

  1. RM5,329,067,93 and interest due under CIMB Bank's overdraft facilities; and
  2. RM589,074.67 and interest due under CIMB Bank's term loan facilities
    (together the
    Judgment Sum).

On 18 March 2011, the parties entered into a settlement agreement for the payment of the outstanding Judgment Sum, which included the following terms:

  • That the amount of "RM4,990,000 as at 18 [March] 2011" be repaid in 71 monthly instalments of RM50,000 per month, and a final bullet payment of the balance of the total outstanding sum in the 72nd month.
  • That CIMB Bank will proceed to execute the judgment of the High Court by foreclosing on Reebok's property in the event of default of payment.

CIMB Bank attempted to foreclose on Reebok's property in 2015, alleging that Reebok had failed to make timely payments. However, this action was discontinued when it was discovered that a competing creditor had already foreclosed on the property. In response, Reebok claimed against CIMB Bank that it had paid RM532,746.75 in excess of the agreed settlement amount of RM4,990,000, on the basis that the settlement agreement did not refer to interest on the principal sum of RM4,990,000.

Among the issues before both the High Court and the Court of Appeal were as follows:

  • First, whether CIMB Bank was entitled to claim interest on the Judgment Sum when its repayment was subject to the terms of the settlement agreement
  • Second, whether CIMB Bank must first terminate the settlement agreement before executing the judgment by commencing foreclosure proceedings

Both the High Court and Court of Appeal rejected Reebok's claim for repayment, finding that:

  • CIMB Bank was entitled to claim interest on the Judgment Sum as there were no express words in the Settlement Agreement stating that RM4,990,000 was a final sum. Instead, the Settlement Agreement expressed the Judgment Sum to be the amount "as at 18 [March] 2011". This meant that the terms of the Settlement Agreement were sufficiently broad to include interest on the sums payable under it.
  • There was no need to expressly terminate the Settlement Agreement prior to executing the judgment, given that the Settlement Agreement expressly provided that CIMB Bank could proceed to execute the judgment in the event of default upon any instalment payment. This fell squarely within the Court of Appeal's requirement that, "[a] party who wishes to revive his original claim in the event of the other party's inability to comply with his obligation under the terms of the settlement should incorporate such term in the settlement agreement to give effect".

Kamil Azman bin Abdul Razak & Ors v Amanah Raya Berhad & Ors (Civil Appeal No. 02(f)-110-10/2017(W)

In 2009, the Appellants (consisting of Abdul Razak and Kamil Azman, amongst others) commenced proceedings against the Respondents (consisting of Amanah Raya Berhad (ARB), Amanah Raya Development Sdn Bhd (ARD) and Amanah Raya Capital Sdn Bhd (ARC) for breach of trust, alleging that the Respondents mismanaged a trust (Trust) settled by one of the Appellants. A consent judgment was recorded in 2010 to compromise the suit, on the following terms (Consent Judgment):

  • The maturity of the loan facilities granted by ARC to both Abdul Razak and Kamil Azman respectively is extended to 27 July 2012 on an interest-free basis (Clauses 1 to 3).
  • In the event that only part payment(s) of the amount(s) payable are made by the Abdul Razak and Kamil Azman on 27 July 2012, and subject only to the condition that the amount remaining outstanding as at 27 July 2012 from Abdul Razak and Kamil Azman do not exceed RM2,000,000, the parties shall within three months from 27 July 2012 (unless mutually extended by the parties) enter into negotiations to restructure their respective Loan Facilities which shall take into account the Abdul Razak's 25% interest in the Joint-Venture Agreement referred to in Clause 9 of the Consent Judgment (below) and the assignment of the said interest to ARC towards the repayment of the outstanding sums under the Loan Facilities (Clause 5).
  • Abdul Razak, Kamil Azman, and their nominated entity (the Trust) shall enter into a Joint Venture Agreement (JV Agreement), in form and substance as pre-agreed between the Appellants and ARD by 11 August 2010 (Clause 9).
  • The parties agree that they shall have no further claims against each other and undertake not to raise the allegations raised in this action in the future (Clause 10).

Two years after the Consent Judgment was recorded, no JV Agreement had been concluded in light of disagreements between the parties as to the legal capacity of the Trust to be a party to the intended JV Agreement. Nor was any payment on the Loan Facilities made. As a result, the Appellants and Respondents commenced a series of cross-claims against each other. The Appellants sought, amongst other claims, specific performance of the JV Agreement, whereas the Respondent sought, amongst claims, a declaration that ARB was released from any obligation to enter into the JV Agreement, and that Abdul Razak and Kamil Azman repay the loan facilities with interest.

The High Court and Court of Appeal held that:

  • The Respondents were released from their obligation to conclude the JV Agreement.
  • The Appellants were to repay the Respondents the loan amount with interest.

On appeal to the Federal Court, the critical issue for determination was whether the Consent Judgment consisted of mutual promises and obligations which were dependent upon each other, to the effect that the performance of one (the repayment of the loan facilities) was dependent upon the fulfilment of the other (the conclusion of the JV Agreement between the parties). In support of this, the Appellants argued:

  • First, that the Consent Judgment created mutual obligations on the basis that (i) the parties agreed to extend the loan repayment date to post-date the envisaged signing of the JV Agreement, and (ii) Clause 5 of the Consent Judgment envisages the restructuring of the loan facilities would include Abdul Razak's 25% interest in the JV Agreement as some form of collateral.
  • Second, that the clauses in the Consent Judgment depict a particular order of performance so as to enable the court to either apply section 53 of the Contracts Act 1950 (Act), or to employ a common sense order of precedence set out in section 55 of the Act. These provisions read as follows:

"53. Order of performance of reciprocal promises

Where the order in which reciprocal promises are to be performed is expressly fixed by the contract, they shall be performed in that order; and, where the order is not expressly fixed by the contract, they shall be performed in that order which the nature of the transaction requires.

55. Effect of default as to that promise which should be first performed, in contract consisting of reciprocal promises

When a contract consists of reciprocal promises, such that one of them cannot be performed, or that its performance cannot be claimed till the other has been performed, and the promisor of the promise last mentioned fails to perform it, the promisor cannot claim the performance of the reciprocal promise, and must make compensation to the other party to the contract for any loss which the other party may sustain by the non-performance of the contract."

The Federal Court dismissed the appeal, finding "nothing from all these clauses that can be construed to say that the performance of one condition (such as repayment of loan) may be subject to a pre-condition that the JV Agreement." In particular, the Federal Court observed that "the Consent Judgment does not say that the repayment of loans would be made from the proceeds of the Joint Venture". As a result, there was no express or implied order of performance under sections 53 and 55 of the Act, which meant that Abdul Razak and Kamil Azman's obligation to repay the loan was not conditional upon the conclusion of the JV Agreement. Tellingly, the Federal Court opined that "the appellants had woven some legal intrigues, bereft of credible facts and legal findings by the Court below, in characterising the Consent Judgment as they did".

As regards the release of the Respondent's obligation to enter into the JV Agreement, the Federal Court considered the declaration of release as consistent with the principle "that, where one party refuses to perform an agreement, the counterparty may treat himself as discharged". This was on the basis that the Appellants insistence on nominating the Trust as party to the JV Agreement, which was found to be legally impossible given the Trust's absence of any legal capacity.

The Federal Court also affirmed the principle that a settlement agreement recorded as a judgment:

"... must be construed as a commercial instrument. The aim is to ascertain the contextual meaning of the relevant contractual language. It must be done objectively as to what a reasonable person, circumstanced as the actual parties in a commercial environment were, would have understood it to mean. This must be gathered from the language used and its relevant contextual sense."

Comment

Notably, Article 1(3) of the recently inked Singapore Convention (which Malaysia signed as one of 46 day-one signatories) excludes the Singapore Convention's application to settlement agreements: (i) that are approved by a court or concluded in the course of proceedings and are enforceable as a judgment in the state of that court; or (iii) that are recorded and enforceable as an arbitral award. The rationale for this carve out is the existence of other international instruments such as The Hague Convention on Choice of Court Agreements and the New York Convention, which govern the enforceability of some court judgments and of arbitral awards respectively (the former of which Malaysia is not a signatory). However, this does not diminish the importance of ensuring that settlement agreements, whether concluded before or during the course of formal proceedings, are properly negotiated and drafted. These cases stand as a reminder of the risks of protracted and costly disputes arising from vague terms of a settlement agreement. These can be avoided through effective settlement advocacy in negotiating and concluding a clear and unambiguous settlement agreement. As the adage goes, "nothing is agreed until everything is agreed".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions