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Understanding Commercial Agreements-Loans, Sale of Shares, Joint Ventures Agreement

Understanding Commercial Agreements-Loans, Sale of Shares, Joint Ventures Agreement. By : LEE SWEE SENG LLB.LLM,MBA Advocate & Solicitor, High Court, Malaya Patent, Trademark & Industrial Design Agent, Certified Mediator, Notary Public sweeseng@tm.net.my www.leesweeseng.com. Introduction.

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Understanding Commercial Agreements-Loans, Sale of Shares, Joint Ventures Agreement

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  1. Understanding Commercial Agreements-Loans, Sale of Shares, Joint Ventures Agreement By : LEE SWEE SENG LLB.LLM,MBAAdvocate & Solicitor, High Court, Malaya Patent, Trademark & Industrial Design Agent, Certified Mediator, Notary Publicsweeseng@tm.net.mywww.leesweeseng.com

  2. Introduction • Some people do not mean what they say-problem with the heart. • Some people do not say what they mean-problem with the head. • Balancing text, truth and trust.

  3. Interpretation • Words are all we have to express our intention. • Sometimes the infirmity is in the words we used. • Sometimes we have failed to anticipate problems. • Faintest ink is better than the most retentive memory.

  4. Limitations to freedom of contracts • Limited by statutes. • Some statutes prohibit certain contracts or certain terms and conditions in contracts. • Any attempt to contract out of statutes will be void unless terms are more favourable than provided for in statutes.

  5. Employment Act 1955 • Section 7 Any terms and conditions of a contract of service which is less favourable than provided for in the Act shall be void and the more favourable terms in the Act shall be substituted therefor.

  6. Contracts Act 1950 Section 28.  Agreement in restraint of trade void. Every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, is to that extent void. Exception (i) of agreement not to carry on business of which goodwill is sold; (ii) of agreement between partners prior to dissolution; (iii)of during continuance of partnership.

  7. Example of restraint of trade WRIGGLESWORTH V. WILSON ANTHONY [1964] 30 MLJ 269 HIGH COURT [KOTA BHARU]   The following facts are admitted:- (a) The plaintiff is an advocate and solicitor and is the sole proprietor of the legal firm of "Wrigglesworth & Company" Kota Bharu, Kelantan. (b) The defendant is an advocate and solicitor and is the sole proprietor of the legal firm of "Wilson & Company" Kota Bharu, Kelantan. (c) On 20 September 1962 the defendant entered into an agreement of service with the plaintiff's firm.

  8. (d) On 7 December 1963 the plaintiff agreed to discharge the defendant from the terms and obligations of the said agreement with effect from 31 December 1963. (e) clause 8 of the said agreement stipulated that the defendant shall not for a period of two years after the termination of his engagement by the plaintiff practise as or carry on the business or profession of an advocate and solicitor within a radius of five miles from Kota Bharu Town without first obtaining the written consent of the plaintiff. (f) Such written consent has not been given by the plaintiff.

  9. Franchise Act 1998 Section 18 Requirements of franchise agreement. (2) A franchise agreement shall contain but is not limited to- (a) the name and description of the product and business under the franchise; (b) the territorial rights granted to the franchisee; (c) the franchise fee, promotion fee, royalty or any related type of payment which may be imposed on the franchisee, if any; (d) the obligations of the franchisor;

  10. (e) the obligations of the franchisee; (f) the franchisee's rights to use the mark or any other intellectual property, pending the registration or after the registration of the franchise; (g) the conditions under which the franchisee may assign the rights under the franchise; (h) a statement on the cooling off period as provided in subsection (4); (i) a description pertaining to the mark or any other intellectual property owned or related to the franchisor which is used in the franchise;

  11. (j) if the agreement is related to a master franchisee, the franchisor's identity and the rights obtained by the master franchisee from the franchisor; (k) the type and particulars of assistance provided by the franchisor; (l) the duration of the franchise and the terms of renewal; and (m) the effect of termination or expiration of the franchise agreement. (3) Failure to comply with subsection (2) shall render a franchise agreement null and void.

  12. Hire Purchase Act 1967 Section 4 Requirements relating to hire-purchase agreements. (1) Before any hire-purchase agreement is entered into in respect of any goods - (a) in a case where negotiations leading to the making of the hire-purchase agreement is carried out by any person who would be the owner under the hire purchase agreement to be entered into, or by any person, other than the dealer, acting on his behalf, such person shall serve on the intending hirer a written statement duly completed and signed by him in accordance with the form set out in Part I of the Second Schedule;

  13. (b) in a case where negotiations leading to the making of the hire-purchase agreement is carried out by a dealer, such dealer shall - (i) serve on the intending hirer a written statement duly completed and signed by him in accordance with the form set out in Part I of the Second Schedule; and (ii) at any time after the service of the written statement referred to in subparagraph (i) but before the hire-purchase agreement is entered into, serve on the intending hirer a written statement duly completed and signed both by him and the prospective owner in accordance with the form set out in Part II of the Second Schedule. (4) A hire-purchase agreement entered into in contravention of subsection (1) shall be void.

  14. Moneylenders Amendment Act 2003 • moneylender” means any person who lends a sum of money to a borrower in consideration of a larger sum being repaid to him’ • Person here includes a body of persons, corporate or unincorporated: Interpretation Acts 1948 and 1967 (Act 388) s 3

  15. Prosecution on moneylenders not entering into an agreement • Moneylenders must enter into a moneylending agreement with the borrower and that agreement shall be in a prescribed form. Any moneylender who contravenes this section shall be guilty of an offence - s 10P

  16. New Part V – Conduct of moneylending business • New section 10P - deals with moneylender and borrower who must enter into a moneylending agreement in the prescribed form. Contravention of this section is an offence. And if it does not comply with the prescribed form, it is void and will have no effect.

  17. Section 15 : Contract by unlicensed moneylender unenforceable The wording was changed from: • No contract for the repayment of money lent … unlicensed moneylender… enforceable to • No moneylending agreement in respect of money lent … unlicensed moneylender… enforceable

  18. S 16 – Moneylender agreement to be given to the borrower Where previously the Note or memorandum of the moneylenders' contract was to be given to the borrower, now the moneylender’s agreement must be signed by all parties, duly stamped and be delivered to the borrower before the money is lent.

  19. New S 17A – Interest for secured or unsecured loan • There is now a cap on the interest for secured loans not exceeding 12% per annum and unsecured loans not exceeding 18% per annum

  20. Section 23: Prohibition of charges for expenses on loans by moneylender • This was as in the previous section except the amendment to the word ‘any agreement’ to ‘any moneylending’ agreement. • The payment “of any sum on account of costs, charges or expenses other than stamp duties, fees payable by law and legal costs incidental to or relating to the negotiations for or the granting of the loan or proposed loan shall be illegal”

  21. Prescribed Forms – Moneylenders (Control & Licensing) Regulation 2003 Came into operation simultaneously with the Amendment Act, ie on 1 November 2003 Regulation 10 prescribes the Moneylending Agreement. • For moneylending transactions without security - Schedule J form • For moneylending transactions with security - Schedule K form

  22. It is an offence if not in the prescribed form • Any waiver, modification, change, alteration, variation, addition or omission of any provision in Schedule J or K without the prior consent of the Registrar shall render the agreement to be void and have no effect and shall not be enforceable. • No moneylender shall collect any payment by whatever name called except as prescribed in the moneylending agreement – Regulation 10(4)

  23. National Land Code • KIMLIN HOUSING DEVELOPMENT SDN. BHD v. BANK BUMIPUTRA MALAYSIA BHD. & ORS. [1997] 3 CLJ 274 SUPREME COURT, KUALA LUMPUR “The provisions of ss. 254 to 265 of the Code are designed to protect the chargor and they cannot be waived or contracted out by him. These provisions, as well as those other provisions in Part XVI of the Code setting out the rights and remedies of parties under a statutory charge over land, are exhaustive and exclusive, and any attempt at contracting out of those rights, unless expressly provided for in the Code, would be void as being contrary to public policy.”

  24. Different parts of a commercial agreement • Designation of the parties • Recitals • Definitions • Substantive clauses • Schedules • Appendices • Signature section • Counterparts and copies • Headings and contents pages • Contract numbering systems Source :- Boilerplate: Practical Clauses 3rd Edition Richard Christou

  25. Designation of the Parties • Names and identifying details of each parties to the agreement are set out at the head of the contract Source :- Boilerplate: Practical Clauses 3rd Edition Richard Christou

  26. Recitals • Set out the background to the transaction and the purpose for which the parties are entering into the transaction. • Not legally necessary but it is customary to do so. Source :- Boilerplate: Practical Clauses 3rd Edition Richard Christou

  27. Definitions • Form part of the substantive agreement because they prescribe that certain terms shall mean certain things • Besides pure definitions, this section will also contain general interpretation clauses Source :- Boilerplate: Practical Clauses 3rd Edition Richard Christou

  28. Substantive Clauses • Main clauses of the agreement • Matters upon which the parties are agreeing Source :- Boilerplate: Practical Clauses 3rd Edition Richard Christou

  29. Schedules • Consists of more detailed substantive provisions • Substantive and integral part of the agreement Source :- Boilerplate: Practical Clauses 3rd Edition Richard Christou

  30. Appendices • Where documents are referred to in an agreement they are often attached as appendices so that they can be easily referred to • Such documents are not necessarily part of the agreement Source :- Boilerplate: Practical Clauses 3rd Edition Richard Christou

  31. Signature section • Comes after the schedules and before the appendices • Commercial agreements do not normally need witnesses to the signature Source :- Boilerplate: Practical Clauses 3rd Edition Richard Christou

  32. Counterparts and copies • Copies of commercial documents are usually supplied for each of the parties; these are signed by all the parties and include a special counterpart clause inserted to make each of them fully signed original copies for purposes of enforcement. Source :- Boilerplate: Practical Clauses 3rd Edition Richard Christou

  33. Headings and contents pages • Often introduced into long documents for ease of reference. Source :- Boilerplate: Practical Clauses 3rd Edition Richard Christou

  34. Contract numbering systems • To provide a unique and easy way of referring to each part of each clause of the contract • This is best achieved by using a system of arabic numerals separated by decimal points : clause 1, sub-clause 1.1, paragraph 1.1.1, sub-paragraph 1.1.1.1 Source :- Boilerplate: Practical Clauses 3rd Edition Richard Christou

  35. Loans • Repayable on Demand - Overdraft facility - Example of such clauses “This facility is subject to periodic review and payable on demand”

  36. OVERSEAS UNION BANK LTD. V. MING ANN HOLDINGS SDN. BHD. [1995] 2 CLJ 287 HIGH COURT MALAYA, KUALA LUMPUR Ordinarily an overdraft is repayable on demand. If the borrower has agreed to repay on demand, the bank has a right to demand full repayment at any time without giving any reason or period of notice. That is what I understand the position to be from the passages under

  37. the heading "(i) Nature of an overdraft" at pp. 182 and 183 of Paget's Law of Banking, 10th Edn., (1989), and the footnotes thereto, to which my attention was drawn by learned Counsel for the defendant. Learned Counsel for the defendant's main concern about the right to repayment on demand of an overdraft is really the unfairness to a borrower who has just used his overdraft facility to the full and is immediately asked to repay the whole amount without any reason or notice. The borrower then simply would not have any money to pay.

  38. But the likelihood of such a mean and silly thing actually happening to an innocent borrower is more imagined than real. That kind of concern does not find anything to entertain it in the passages referred to. If there is such a risk, a person who goes for an overdraft, whose terms must necessarily be controlled by the bank, simply must accept the risk. Paragraph 1 of the annexure is the provision that gives to the plaintiff the right to repayment on demand. By it the defendant convenants that "the chargor(s) will on demand pay to the Bank all sums of money

  39. which are now or shall from time to time or at any time hereafter be due or owing by the Chargor(s) ...". It simply means that whatever may be owing to the plaintiff at any time, the defendant promises to pay all of it whenever demanded by the plaintiff.

  40. HONG LEONG BANK BERHAD V. WT INDUSTRIES SDN BHD & 2 ORS [2005] 1 LNS 60 HIGH COURT [MELAKA] Para (b) at page 8 refers to defendant 1's covenant to provide further security and states : "The Bank may recall/suspend utilisation of the Facilities in the event of non - payment of the principal/interest or breach of the Borrower of any of the terms of the Facilities or upon the occurrence of any event which Bank considers an event of default."

  41. In the light of defendant 1's default as alluded to in the factual background above, the natural consequence is that the plaintiff is entitled to enforce the terms and conditions pursuant to which the facilities has been given by the plaintiff to and utilised by defendant 1, i.e. to review and recall the facilities.

  42. Repayable on Demand - loans/overdraft for a fixed time - example of such clause “Duration:For 2 years or upon completion of the project whichever is earlier. For your information, all facilities granted by us are subject to periodical review and repayable on demand.”

  43. Bank Bumiputra Malaysia Bhd. Kuala Terengganu v. MAE Perkayuan Sdn. Bhd. & Anor [1993] 2 CLJ 495 Supreme Court, Kuala Lumpur “We consider that the Bank was not entitled to issue the recall letter purely on the ground that interest had not been serviced by the first respondent because the first respondent is not obliged under the agreement to pay interest during the bridging period.”

  44. In Eushun Properties Sdn. Bhd. V. MBF Finance Bhd. [1992] 2 MLJ 137, Mohamed Yusoff SCJ qouted what Goff J. said in an unreported case of Titford Property Co. Ltd v. Cannon Street Acceptance Ltd. on 22 May 1975– “It seems to me, where a bank allows an overdraft for a fixed time for a specific purpose - whether the time be such as the parties think is required for the achievement of the purpose, or only

  45. the most the bank will also allow, that time is binding on the bank; otherwise the customer might well be led into a disastrous position, as has happened here. The customer, on the faith of the bank's promise to a loan, an overdraft for a fixed term, commits himself and then finds the overdraft cut off, so that he cannot meet his liabilities, and in addition he had incurred indebtedness to the bank in respect of abortive expenditure .. (The bank) could not, in my judgment, with one hand grant a facility for a term for a

  46. purpose which to its knowledge clearly involves the plaintiffs in incurring expenditure and liabilities, with a view to ultimate profit, and with the other take it away by an unqualified right to require repayment on demand at any time. In my judgment, therefore, I must modify cl 9, by reading it as subject to the provision as to the duration of this facility, or ignore it altogether.”

  47. Winding-up • Upon petition of a winding up being presented, the bank has to immediately freeze the account. Section 293 Companies Act 1965 Undue preference. (1) Any transfer, mortgage, delivery of goods, payment, execution or other act relating to property made or done by or against a company which, had it been made or done by or against an individual, would in his bankruptcy under the law of bankruptcy be void or voidable shall, in the event of the company being wound up, be void or voidable in like manner.

  48. (2) For the purposes of this section the date which corresponds with the date of presentation of the bankruptcy petition in the case of an individual shall be - (a) in the case of a winding up by the Court - (i) the date of the presentation of the petition; or (ii) where before the presentation of the petition a resolution has been passed by the company for voluntary winding up the date upon which the resolution to wind up the company voluntarily, is passed, whichever is the earlier; and

  49. (b) in the case of a voluntary winding up the date upon which the winding up is deemed by this Act to have commenced. (3) Any transfer or assignment by a company of all its property to trustees for the benefit of all its creditors shall be void.

  50. Example of clauses in agreement J.B. PRECISION MOULDING INDUSTRIES SDN. BHD. (DALAM LIQUIDASI) V. SIME DIAMOND LEASING (MALAYSIA) SDN. BHD. [1995] 3 BLJ 235  HIGH COURT MALAYA, JOHOR BAHRU 14. Default 14. 1. If during the initial term or any renewed term thereof ... if: (g) ... on a petition for the bankruptcy dissolution or winding-up of the lessee being presented; ... the lessor may, without prejudice to any other rights and remedies the lessor may have under this agreement: (ii) by written notice to the lessee determine and end this lease and thereupon the lessee shall no longer be in possession of the equipment with the lessor's consent. The lessor may thereafter but shall not be obliged to retake possession of the equipment ...

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