Majlis Amanah Rakyat (MARA) v Naguib Bin Mohd Nor

Appellant(s): Majlis Amanah Rakyat (MARA)

Respondent(s): Naguib Bin Mohd Nor

• YA Datuk Wong Kian Kheong
• YA Dato' Dr Alwi Bin Abdul Wahab
• YA Dato' Ahmad Kamal Bin Md. Shahid

• The plaintiff purchased shares in a company from the defendant under a Share Sale Agreement (SSA), which contained a profit guarantee for FY2014 and FY2015, with any shortfall to be settled by the defendant assigning his dividend entitlements, capped at RM6.6 million.
• The company substantially failed to meet the guaranteed profits, and no dividends were ever declared to satisfy the shortfall, despite the defendant issuing two dividend payment instructions prior to the 2015 shortfall crystallising.
• The plaintiff sued for RM6.6 million upon the defendant's failure to pay, while the defendant counterclaimed for losses allegedly caused by the plaintiff's refusal to accept a third-party funding proposal for the company.

• Whether the defendant breached clauses 6.1(b) and 6.2(b) of the SSA by failing to validly assign his dividend entitlement to cover the profit shortfall, including whether the dividend payment instructions issued were effective and timely.
• Whether, in the absence of an express term addressing non-declaration of dividends, a term could be implied requiring the defendant to be personally liable for the shortfall, and whether the defendant's own conduct (diverting business to another entity) defeated the assignment.
• Whether the plaintiff's rejection of a third-party funding proposal for the company, and its alleged failure to transfer shares upon exercise of a call option, amounted to a waiver of its contractual rights or otherwise disentitled it to relief.

• The Court of Appeal held that the defendant breached clauses 6.1(b) and 6.2(b) of the SSA because the dividend payment instructions were issued before the 2015 shortfall had crystallised, rendering the purported assignment ineffective and, in substance, a sham as no dividends had in fact been declared.
• The Court found that the defendant's conduct in diverting the company's business to a separate entity impaired its ability to generate profits and declare dividends, further defeating the assignment and constituting a breach of the profit guarantee; applying business efficacy principles, the Court implied a term holding the defendant personally liable for the shortfall notwithstanding the absence of an express cash payment clause.
• The Court ruled that the plaintiff's rejection of the third-party funding proposal was irrelevant to the defendant's antecedent breach and that no valid waiver existed absent a written waiver as required by clause 13.3 of the SSA; the appeal was allowed, the High Court's decision set aside, and judgment entered for the plaintiff for RM6.6 million with interest and costs.