In this case, the first plaintiff company owned a sawmill and the second plaintiff was the chairman of the company. The first plaintiff company required additional machinery to expand its operations and placed four orders with the first defendant for the supply of the machinery. Payment was stated in the orders to be by leasing to be arranged with a credit corporation. The leasing arrangements with the credit corporation fell through and the first plaintiff company through the second plaintiff then arranged for leasing facilities with the second defendant. It was agreed in effect that the first defendant would sell the machinery to the second defendant which would in turn enter into a five year lease of the machinery with the first plaintiff company subject to the first defendant guaranteeing all payments due to the second defendant under the leasing arrangement to be entered into by the first plaintiff company and indemnifying the second defendant against all loss, damage, costs and expenses incurred or suffered and purchasing the machinery on the termination of the lease. The first plaintiff company defaulted in its dues for the lease rentals after making two payments and eventually the second defendant terminated the lease agreement and the first defendant acting as agents for the second defendant repossessed the machinery. The first defendant pursuant to the agreements purchased the machinery and indemnified the second defendant against all loss, damages and expenses incurred in the sum of $527,039.37. The plaintiffs sought a declaration that (a) the documents relating to the lease are bills of sale and therefore void under the Bills of Sale Ordinance 1950 and (b) the lease documents were a sham and invalid and of no effect. At the trial the plaintiffs indicated that they would not proceed with the claim based on the Bills of Sale Ordinance 1950. The first defendant counterclaimed for the sum of $415,572.10, that is $527,039.37 which it paid to the second defendant plus $165,660.73 for loss and expenses incurred, less the sum of $277,128 realised from the sale of the machinery.

Held: (1) there is no substance whatever in the contention of the plaintiffs that the first plaintiff was at any time the owner of the machinery in question or that the arrangement entered into to provide finance to the first plaintiff was other than what the documents show it to be, namely, the provision of lease financing to the first plaintiff by the second defendant by way of a lease of the machinery by the latter which had purchased it from the first defendant. The claim of the plaintiffs to the effect that the documents were a sham because they were a device to cover a transaction whereby goods were given as security for a loan must accordingly fail; (2) in regard to the counterclaim, the second defendant and in turn the first defendant were entitled to recoupment and to recover all loss naturally arising as a result of the breach of contract on the part of the first plaintiff. The first defendant was also entitled to recover for any damages or loss sustained by it beyond what it had to pay to the second defendant under the guarantee.

Tan Chin Kim Sawmill and Factory Sdn Bhd & Anor v Lindeteves-Jacoberg (M) Sdn Bhd & Anor [1980] 2 MLJ 204 High Court, Ipoh (Abdoolcader J).

In this case, at the request of the respondents (LESSEE) , the appellant (LESSOR) purchased a photostat copier machine and leased it to them for a term of 36 months for the total rental of $13,623.84 payable in the sum of $378.44 per month. At the expiration or sooner determination of the lease the appellant as the owner was entitled to take back the machine and dispose of it. Two days after installation in the respondents' premises the machine broke down. It became defective thereafter in spite of constant servicing, repairs and replacement of parts by the supplier at the request of the respondents and with the knowledge of the appellant. As a result, the respondents' business was adversely affected, resulting in losses. The respondents stopped paying the monthly instalments. The appellant exercised its right under the agreement and took custody of the machine. The appellant brought an action and claimed the total rental as specified in the agreement less that already paid. The President of the Sessions Court gave judgment for two months' arrears of rental and the appeal of the appellant was dismissed in the High Court. The appellant appealed to the Federal Court.

Held, dismissing the appeal: (1) in the circumstances, there was more than sufficient ground for the appellant to have taken action against the suppliers for damages and the respondents were not obliged to continue paying the total specified rental; (2) the appellant had also committed a breach of the agreement in failing to dispose of the machine by means of a bona fide sale according to the stipulation therein.

Credit Corp (Malaysia) Bhd v KM Basheer Ahamed & Anor [1985] 1 MLJ 208 Federal Court, Kuala Lumpur (Abdul Hamid CJ (Malaya).