M9 COMPLETE TECHNOLOGY SDN BHD (Dahulunya dikenali sebagai M7 Complete Technology Sdn Bhd) v 1. ) KUM MENG WEI 2. ) SOLUMIE BINTI ODIAH 3. ) ARSHAD BIN ASRI 4. ) MILLIE JUSTINES BAHARUM

Case Significance

Illustrates the enforcement of a contractual profit guarantee in a shareholders' agreement: guarantors who undertake to make good a profit shortfall are held jointly and severally liable where the shortfall is proved by the best available evidence, and the outcome is confined to the case the parties have pleaded.

This High Court decision in the Commercial Division at Kuala Lumpur concerns a claim under a profit guarantee contained in a shareholders' agreement. The plaintiff company sued four individual defendants, jointly and severally, for a sum said to be due under the profit guarantee in a shareholders' agreement dated 24 December 2017. A profit guarantee of this kind is a contractual promise, typically given in the context of a share transaction or joint venture, that the target business will achieve a stated level of profit, with the guarantors becoming liable to make good any shortfall. Two evidential principles featured in the court's reasoning. The first was that the company's secretarial documents represented the best evidence of the corporate facts in issue, so that the formal records maintained under company law were to be preferred over less reliable accounts. The second was that the parties are bound by their pleadings, so that a party cannot succeed on, or defeat a claim by, a case it has not pleaded. Applying these principles to the terms of the shareholders' agreement and the evidence of the company's performance, the court found the defendants liable under the profit guarantee. It entered judgment for the plaintiff for the sum claimed, with interest at five per cent per annum from the date of filing of the suit until full and final settlement, and ordered the defendants to pay RM50,000 in costs. Delivered by Ahmad Fairuz bin Zainol Abidin J, the judgment is a useful illustration of the enforcement of a contractual profit guarantee in a shareholders' agreement: guarantors who undertake to make good a profit shortfall will be held jointly and severally liable where the shortfall is proved by the best available evidence, and the outcome is confined to the case the parties have pleaded. The decision shows the court preferring the objective record of the company's affairs to the parties' competing narratives, and confining each side to the case set out in its pleadings, so that the guarantee is enforced according to its terms on evidence the court regards as reliable.