CITY INVESTMENT SDN. BHD. V. KOPERASI
SERBAGUNA CUEPACS TANGGUNGAN BHD.
FEDERAL COURT, KUALA LUMPUR
LEE HUN HOE CJ (BORNEO), MOHD. AZMI FJ, EUSOFFE ABDOOLCADER
FJ
[CIVIL APPEAL NO. 30 OF 1984]
17 DECEMBER 1984
JUDGMENT
Mohd. Azmi FJ:
This is a claim by respondents/purchasers for specific performance
of immovable property and also for damages and other ancillary reliefs for
breach of contract. The appellants/vendors, a limited company, were the registered
owners of 49.871 acres of agricultural land held under Grant 15947 for Lot
3902 in the Mukim of Rasah in the District of Seremban. Some time in 1976
they decided to develop the whole land and for this purpose they applied to
the appropriate authority for conversion and subdivision of the property into
housing lots. In the meantime they entered into two separate agreements both
dated 24 November 1976 with the purchasers a Co-operative Society of civil
servants - for the sale of a small portion of the land to be developed. In
the first agreement the vendors agreed to sell and the purchasers agreed to
buy 60 terrace lots, each having an approximate area of 1,760 sq. ft. and
at the request of the purchasers the vendors also agreed to appoint themselves
or a third party as a licensed housing developer with whom the purchasers
could execute a building contract for the construction of terrace houses on
each of the said lots.
The purchasers have paid a sum of RM720,000 to the vendors
consisting of RM300,000 as land price and RM420,000 as development price.
The construction price which the purchasers have yet to pay is RM840,000.
In the second agreement the vendors agreed to sell and the purchasers agreed
to buy 25 subdivided lots - 14 semi-detached lots of 5,000 sq.ft. each and
11 bungalow lots of 7,000 sq. ft. per lot. The purchasers have also paid RM426,300
for these lots comprising of RM172,000 as land price and RM254,300 as development
price. The purchasers have thus paid a total sum of RM1,146,300 to the vendors
under the terms of the two agreements. It is common ground that the second
agreement only concerns sale of vacant developed lots, but there is a serious
dispute regarding the first agreement as to whether it should be construed
as a sale of vacant developed lots only as averred by the vendors, or sale
of developed lots with houses as alleged by the purchasers so as to bring
the agreement within the ambit of the Housing Developers (Control and Licensing)
Act, 1966.
The learned trial Judge held that the first agreement is
a sale of land with houses and therefore caught by the Housing Developers
legislation. Out of 85 lots sold, the vendors have transferred to the purchasers
only one terrace lot under the first agreement and one semi-detached lot under
the second agreement. Ten of the bungalow lots under the second agreement
were found to be commercially useless as it would cost about RM13 million
to level the land. The learned Judge found the appellants/vendors were in
breach of both the written agreements for their failure to transfer the various
lots to the purchasers. In respect of the first agreement, he ordered specific
performance for the transfer of the remaining 59 terrace lots to the purchasers
and he also awarded compensation for consequential loss which inter alia
included RM960,000 damages for additional costs of constructing the 60 terrace
houses and RM187,200 as indemnity under r. 12(1)(r) of the Housing Developers
(Control and Licensing) Rules 1970.
As to the second agreement; specific performance was also
ordered for the transfer by the vendors to the purchasers of the remaining
13 semi-detached lots and 1 bungalow lot. For the 10 useless bungalow lots,
the vendors were ordered to refund the contract price of RM203,000 with interest.
In addition to specific performance the learned Judge also awarded damages
for increased cost of construction - RM117,000 for 9 semi-detached houses
and RM148,500 for 11 bungalows i.e., for loss of opportunity to have the bungalows
built according to 1978 costs. The vendors have appealed against the finding
of liability for breach of contract on their part and as well as against the
reliefs granted to the purchasers particularly the decree ordering specific
performance of part of the contract and as well as awarding damages which
according to them is prohibited by s. 14 Specific Relief Act 1950 (Revised
1974).
There is also a cross appeal by the purchasers on quantum
and the refusal of the learned Judge to award them certain ancillary reliefs.
On the issue of liability for breach of the first agreement, it is contended
by the appellants/vendors that on the true construction of the document the
contract involves only the sale of vacant developed lots. Their liability
is merely to assist the respondents/purchasers in the construction of the
houses and that unless the building contract as envisaged under Clause 3 is
executed by the purchasers, the vendors are not obliged to build the houses.
It is said that preamble (E) read with Clauses 2 and 3 support the appellants'
argument that the construction part of the agreement is not binding unless
the Clause 3 contract becomes enforceable. Since the respondents/purchasers
have refused to execute the Clause 3 building contract, the Housing Developers
Act cannot be applicable.
The first issue to be determined in this appeal is whether
the learned Judge erred in law and in fact in holding that the first agreement
is a "housing development" contract within the meaning of the Housing Developers
Act and the 1970 Rules made thereunder. In this connection the learned Judge
made the following finding:
On a true construction of Agreement No. 1, I find, first,
that the Vendors were selling both Terrace Lots and Terrace Houses by Agreement
No. 1, secondly the Agreement No. 1 was within the purview of the Act and
the Rules, and thirdly the Agreement No. 1 constituted or incorporated a binding,
concluded and sufficiently well-defined building contract in regard to the
Terrace Houses, not dependent for its enforceability on the subsequent signing
of the draft building contract, (A40), which merely reflected the desire of
the parties hereto as to the form in which their transaction was to take place.
Parties hereto would be deemed to be bound by those statutorily mandatory
provisions such as those in r. 12 of the Rules as if the same were engrafted
or added to the Agreement No. 1 by consent.
Mr. Sethu, Counsel for the appellants, strenuously argued
that the first agreement is only for the sale of vacant land and not for housing
development. He contended that written agreement cannot be construed by subsequent
event but must be construed as at the date of its execution. The agreement
was executed in 1976 and merely because the appellants had appointed themselves
as `the developer' on 12 April 1978 under Clause 2 read with preamble (E),
cannot transform the agreement from sale of land albeit developed land into
a housing development agreement as envisaged under the Act. According to the
appellants, the key factor in Clause 2 which will be reproduced is that it
does not identify the developer. The appellants could either appoint themselves
or any third person to be the licensed housing developer. Preamble (E) and
Clause 2 and 3 are in the following terms:
(E) The Purchaser has requested and the Vendor has agreed
to appoint a Licensed Housing Developer with whom the Purchaser can execute
a Building Contract for the construction of the proposed building on each
of the said Plots.
(2) Within two (2) months commencing on the date of the
receipt by the Vendor of the written notification by the Appropriate Authorities
of the approval of the conversion and sub-division of the said Land, the Vendor
shall appoint a Licensed Housing Developer (hereinafter referred to as "the
Developer") for the construction of the proposed building in accordance with
the provisions and requirements of the Housing Developers (Control and Licensing)
Act, 1966 and the rules thereunder and subject to the provisions and requirements
of any Act, Enactment, Ordinance, by-law or regulation for the time being
in force and the sanctions of the Appropriate Authorities, for the sum specified
in s. (9) of the First Schedule hereto (hereinafter referred to as "the Construction
Price").
(3) The Purchaser hereby covenants to enter into a Building
Contract with the Developer for the construction of the proposed building
for the Construction Price within two (2) months commencing on the date of
the receipt by the Purchaser of the Vendor's notice in writing of the appointment
of the Developer.
The construction price under the first schedule is at RM14,000
per terrace house - thus making a total of RM840,000 for 60 units (see p.
277 of appeal record).
The general principle of construction of contract applies
to all contracts whether they are building contracts or not and in each case
the meaning of any clause in a particular contract has to be ascertained by
looking at the contract as a whole and giving effect so far as possible to
every part of it (see National Coal Board v. Wm Neill & Son (St Helens)
Ltd. [1984] 1 All ER 555). Mr. Sethu has drawn our attention to p. 560,
the judgment of Piers Ashworth QC which states:
The first two issues involve the construction of the contract.
I bear in mind the principles of construing a contract. The relevant ones
for the purpose of this case are: (1) construction of a contract is a question
of law; (2) where the contract is in writing the intention of the parties
must be found within the four walls of the contractual documents; it is not
legitimate to have regard to extrinsic evidence (there is, of course, no such
evidence in this case); (3) a contract must be construed as at the date it
was made: it is not legitimate to construe it in the light of what happened
years or even days later; (4) the contract must be construed as a whole, and
also, so far as practicable, to give effect to every part of it.
We have no quarrel with the principle of construction that
a contract must be construed as at the date it was made. To ascertain whether
this principle can assist the appellants' case, it is necessary to consider
whether without Clause 3 contract being executed, the first agreement can
nevertheless constitute a binding contract to sell land with houses.
The effect of preamble (E), Clauses 2 and 3 is that the
appellants agreed to appoint themselves or a third party as a licensed housing
developer to construct the houses on the 60 terrace lots; that the appointment
should be made by the appellants within two months from the date of receipt
of approval of conversion and subdivision of the whole land; that the developer
so appointed shall construct the terrace houses in accordance with the 1966
Act and 1970 Rules for the sum of RM840,000; and the respondents agree to
enter into a building contract with the said developer.
The question is, what exactly is the purpose and the nature
of the Clause 3 building contract that is envisaged should the appellants
appoint themselves as `the developer' which in fact turns out to be the case?
Indeed, could a third party be appointed at all as a housing developer, and
what really would be the purpose of such a contract whether it is executed
with the appellants or a third party?
The naming of the developer by the appellants under Clause
2, in our view, serves no real purpose as it is difficult to envisage how
a third party can be appointed as the developer in the housing scheme except
perhaps as a sub-contractor or agent of the appellants since both the land
price and the development price have already been paid by the respondents
to the appellants. Further, the construction price of RM840,000 together with
other charges have already been finalized in the first schedule to the Sale
and Purchase Agreement so as to leave the respondents with nothing of importance
to negotiate with Clause 3 developers be they the appellants or any other
licensed housing developer.
Reading the agreement together with the four schedules as
a whole, it is difficult and perhaps impossible to disagree with the conclusion
of the learned Judge that the agreement is not purely for the sale and purchase
of land but also for 60 terrace houses as alleged in paragraph 2 of the respondents'
Statement of Claim. Otherwise there is no conceivable purpose in the appellants
being given so much powers in the development and construction of the houses.
Effect must be given to all these terms and not merely to clauses 2 and 3.
For instance under Clause 24, the first, second, third and
fourth schedules must be taken, read and construed as essential parts of the
agreement. Separate costs of land, development and construction have been
agreed under the first schedule, and as stated earlier, the land price and
development price have in fact been paid to the appellants. The architect's
standard plan of the terrace houses, their specifications and the site plan
have also been agreed and finalized in the second, third and fourth schedules
respectively.
If the agreement is intended purely for the sale of vacant
developed land, there is also no purpose in providing under Clause 28.2 that
the appellants shall in their absolute discretion appoint any architect or
consulting engineer of their own choice without reference to the respondents,
and for the respondents to be bound by such appointments and any decision
or certificate of such architect or engineer.
This and other provisions in the agreement including the
four schedules can leave no room for doubt that on the true construction of
the written instrument, it is an agreement for sale and purchase of land with
houses and it cannot be said that on the basis of preamble (E) the appellants
were merely assisting the respondents in the construction of the houses. In
fact preambles (B) and (C) of the agreement make reference to "building lots"
and preamble (D) to "the proposed building". As correctly pointed out by Mr.Humfrey
Ball in his submission, even if a third party had been appointed as a developer
he would get his money from the appellants and not from the respondents and
he would be under the effective control of the appellants under Clause 28.
As stated elsewhere in this judgment, the terms for the
construction of the houses are already covered fully by the executed agreement
and it is not dependent on the draft building contract under Clause 3. The
appellants and the respondents have already bound themselves contractually
under the main agreement in all material aspects of the construction of the
terrace houses. Therefore the learned Judge did not err in law or in fact
when he concluded that the first agreement to sell land with houses was binding
on the parties and not dependent on the execution of another building contract
under Clause 3 which in effect became entirely unnecessary when the appellants
appointed themselves as `the developer'. We therefore reject the appellants'
submission that there must be execution of Clause 3 contract before there
can be a breach.
There is a second and stronger ground why the first agreement
should in law be construed as a contract of sale and purchase of land with
houses. In our judgment even if the execution of the Clause 3 contract is
intended by the parties to be crucial and a condition precedent to the construction
part of the agreement, such intention has been rendered nugatory by force
of the housing developers legislation. The agreement as it stands constitutes
a statutorily binding `housing development' contract and the appellants a
`housing developer' within the meaning of s. 3 of the Housing Developers (Control
and Licensing) Act 1966, the relevant parts of which provide:-
3. In this Act unless the context otherwise requires:
"housing developer" means any person, body of persons, company,
firm or society (by whatever name described) engaged in or carrying on or
undertaking a housing development or desirous of
doing so;
"housing development" means the business of developing ...
more than four units of housing accommodation which will be or are erected
by such development; and for the purposes of this definition "develop" means
to construct or cause to be constructed, and includes the carrying on of any
building operations for the purpose of constructing housing accommodation
in, on, over or under any land with the view of selling the same or the land
which would be appurtenant to such housing accommodation.
The non-execution of the Clause 3 contract is therefore
not a crucial factor in construing the agreement as a contract of sale and
purchase of land with houses. The agreement when construed as a whole at the
date of its execution in 1976 shows a clear intention by the parties that
the appellants are at all material times desirous of undertaking, or carrying
on, or engaging themselves in the construction of the 60 terrace houses within
the meaning of "housing developer" and "housing development" as defined in
the Act. T
hus, what is crucial is the desire of the appellants to
be a housing developer and this is clearly expressed in the enabling provision
in Clause 2 read together with the rest of the agreement particularly Clauses
24 and 28.2 and the contents of the four schedules. This "desirous of doing
so" on the part of the appellants as provided in the definition of "housing
developer" is sufficient to bring them and the agreement within the purview
of the Act. It makes no difference that the appellants only appointed themselves
as the actual housing developer later in 1978 after the conversion and subdivision
of the land have been approved.
From the agreement there can be no doubt that the appellants
are clearly desirous of undertaking a housing development of more than four
units of housing accommodation which will be erected with a view to selling
the same to the respondents for the benefit of their members. This desire
has subsequently crystallized into actual deed when they appointed themselves
as the developer. In the circumstances, the terms and conditions under the
Housing Developers (Control and Licensing) Rules 1970 and in particular r.
12(1) must be read into the agreement as if they were part and parcel of what
the parties have bargained for. Under r. 12 (1)(o) the appellants are accordingly
bound to deliver vacant possession of the 60 terrace lots with houses not
later than 18 months after the date of signing the agreement. In the absence
of any certificate by the Controller waiving or modifying the date of delivery
of vacant possession under r. 12(2) the appellants have committed a breach
of contract by failing to deliver vacant possession by 24 May 1978. The application
of the Act and the Rules is in fact consistent with the intention of the parties
as expressed in Clause 2 of the agreement.
The refusal of the respondents to sign a building contract
with the appellants under cl. 3 of the agreement is also justified in view
of the two offending clauses referred to in the respondents' Reply to the
Statement of Defence. It should be emphasized that the respondents' case has
never been founded on any allegation that the first agreement is a sham, but
this subsequent attempt by the appellants to contract out of the 1966 Act
and the 1970 Rules even if successfully executed would be null and void and
of no effect. As such the principle enunciated by Geoffrey Lane LJ in Aldrington
Garages v.Fielder [1978] 7 HLR 52 @ 62 has no application. A device to
avoid possible consequence to statutory provision is not wrong if and only
if it can be done legitimately. The attempt of the appellants to contract
out of the Act is clearly not a device which can be described as legitimate.
It is an open defiance of the Housing Developers legislation. Having regard
to the policy and objective of Housing Developers Act 1966 and the 1970 Rules
made thereunder the protection afforded by this legislation to house buyers
is not merely a private right but a matter of public interest which Parliament
has intended to protect from being bargained away or renounced in advance
by an individual purchaser (see the principle enunciated by the House of Lords
in Johnson v. Moreton [1978] 3 All ER 37 @ 56 and applied by this Court
in S.E.A.Housing Corporation v. Lee Poh Choo[1982] CLJ 305 (Rep). As
stated by the learned Judge at p. 12 of his judgment:
Now the insertion by the Vendors of Clauses (1) and (2)
of the draft building contract was at the heart of the problems in the case,
the immediate and main causes of the refusal of the Purchasers to approve
and sign the draft building contract. From the undoubtedly clear meaning of
the words of the disputed clauses themselves, it was a clear attempt to get
around the Act and the Rules and to remove any protection available under
the Act or the Rules to the Purchasers. The clauses were also inconsistent
with the Act and the Rules. They were illegal or against the public policy,
for to use the words of Lord Simon in Johnson & Anor. v. Moreton (supra)
in connection with the attempted avoidance there of provision of Agricultural
Holdings Act, 1948 of England, that to allow such clauses to stand, `it would
be to reinstate the mischief which the statute was designed to remedy and
to render the statutory provisions a dead letter.'
Accordingly, the Defence raised by the appellants in paragraph
4(ii) that they were prevented from constructing the houses as a result of
the respondents' failure to enter into the building contract under Clause
3 of the agreement cannot be sustained. Under Clause 7 of the agreement read
with the first schedule, the development price of RM420,000 which the respondents
have paid must be for the clearing and levelling of the land and as well as
for the construction of the infrastructure of the land in the housing scheme.
The appellants have done only the clearing and levelling but not the infrastructure
work which by virtue of r. 12(1)(k) should include the construction by the
appellants at their own costs of roads, driveways, drains, culverts, etc.
Apart from breach of contract for not carrying out the infrastructure
work of the land and the erection of the houses, the appellants are also in
breach of the statutory term of the contract for delay in the completion and
delivery of vacant possession of the houses to the respondents as required
by r. 12(1)(r). Since only one terrace lot has been transferred, the appellants
are liable not only for refusal to transfer the remaining 59 lots under the
first agreement but also for failure to build and give vacant possession of
the houses to the respondents. Mr. Sethu has submitted that the real reason
for respondents' refusal to execute the Clause 3 contract is as stated in
ground 3(b) Amended Memorandum of Appeal and not because of the two offending
clauses. These have been fully set out by the learned Judge at p. 7 of his
judgment and we do not wish to reproduce them. We see no reason to disturb
the finding of fact of the learned Judge that the actual reason for the breakdown
in relationship between the two parties was due to the two offending clauses.
In any event, for reasons already stated, the non-execution of the Clause
3 building contract is not at all material, and does not excuse the appellants
from performing their obligation under the first agreement as supplemented
by the Housing Developers legislation.
As regards the second agreement also dated 24 November 1976,
it involves the sale and purchase of 25 vacant lots - 14 semi-detached and
11 bungalow lots. As in the first agreement it is also part of a larger scheme
of development undertaken by the appellants on their land but unlike the first
agreement, the sale is in respect of vacant developed land without any building.
By para. 6 of the Statement of Claim, the respondents allege that the appellants
are in breach of the contract for not carrying out the development or the
infrastructure of the said land.
The element of housing construction is therefore absent
in the second agreement. It is common ground that of the 14 semi-detached
lots, only one had been transferred to the respondents by the appellants.
On the pleadings and evidence, the appellants have refused to transfer the
remaining 13 lots because of non-payment by the respondents of excess land
in four of the lots as subsequently disclosed in the sub-divisional documents
of title.
The appellants relied on Clause 9 and 13 in their argument
that the 14 lots were sold enblock and not as individual lots and as such
they are entitled in refusing to transfer the remaining 13 lots until extra
payments are made in respect of the four excess lots. The learned Judge rejected
the appellants' arguments. We think that he is amply justified in rejecting
them. Clause 9 makes provision to cover the situation where a lot subsequently
found to be in excess or in deficit of the original area sold for each lot
for adjustment to be made as to the purchase price of the land. Clause 13
merely provides that such adjusted payments should be settled before transfer.
The undisputed facts show that out of the remaining 13 semi-detached
lots still not transferred, 6 lots are not at all affected by Clause 9 as
no adjustment is required. In 3 of the lots, there was a deficit which means
there had been overpayment made to the appellants. It is only in the 4 lots
that there was excess land for which payment has not been made. The finding
of the learned Judge is that the deficit or excess would appear to range between
500 and 2,393 sq. ft. and in terms of payment between RM1,305 and RM6,939.70.
Since only 4 lots are affected, we see no reason why the 6 unaffected lots
and the 3 deficit lots should not be transferred to the respondents.
The `sale by enblock' argument cannot succeed as the appellants
must or ought to have known that the sale to the respondents is in fact a
sale for members of the respondents' Co-operative Society and the appellants
have in fact waived such right, if any, by transferring one of the 14 lots
without waiting for extra payment in respect of the 4 excess lots. In our
view the learned Judge was therefore right when he found the appellants to
be in breach of contract for refusing to transfer the 9 unaffected lots.
As regards 10 of the 11 bungalow lots, the learned Judge
also found the appellants to be in breach for not complying with Clause 28
of the agreement which imposes an obligation on their part to convey lands
that are "flat enough to erect a building thereon". No reasonable explanation
was given why the remaining 1 bungalow lot was not transferred to the respondents.
Having regard to the nature of the breach, the learned Judge
was also right in holding that Clause 7 of the second agreement pertaining
to appellants' right to offer alternative lots does not apply. This provision
only applies in the event of any alteration in the overall development of
appellants' land which materially affects the lots sold to the respondents.
Ten of the bungalow lots are admittedly useless commercially because of the
steep terrain and not caused by any change in the overall development of appellants'
land.
Having paid for the full purchase price and development
price of RM426,300 as agreed in the first schedule (RM172,000 land price and
RM254,300 development price) the Defence of frustration of contract raised
in para. 7 of Statement of Defence is untenable. Such defence cannot be raised
merely because the cost of levelling 11 of the bungalow lots turns out to
be RM13 million and therefore too costly for the appellants. As such, the
defence raised in para. 7 of their pleading cannot also succeed since the
appellants have no right under the agreement to offer alternative lots under
such circumstances. Mr. Sethu has not seriously attacked the finding of liability
of the appellants in respect of the second agreement. The appellants have
clearly committed breach of contract by transferring to the respondents only
one of the 25 building lots. Their failure and refusal to transfer the remaining
24 lots is a serious breach although the respondents have not all along abandoned
the agreement, and are willing and able to perform their part of the contract.
We must in the circumstances state clearly that there is no merit at all in
the appeal against liability in respect of both agreements.
As regards the appeal against reliefs granted to the respondents
for the breach of contract, the main bone of contention is that under s. 14
Specific Relief Act, 1950(Revised 1974), the learned Judge should either order
specific performance or award compensation for damages for all loss resulting
from the breach of contract, but not both. At the date of trial one terrace
lot under the first agreement and one semi-detached lot under the second agreement
had been transferred by the appellants to the respondents. Further 10 of the
bungalow lots under the second agreement are commercially useless.
Hence the learned Judge in exercising his discretion was
only able to order specific performance in respect of 73 out of 85 lots purchased
under the two agreements viz: (i) 59 terrace lots under the first agreement
(ii) 13 semi-detached lots and 1 bungalow lot under the second agreement,
the particulars of which are set out in schedule 1 of the Court Order (see
pp. 246-248 of appeal record). The learned Judge ordered the appellants to
refund to the respondents a sum of RM203,000 in respect of the 10 useless
bungalow lots i.e. the price paid by the respondents for the land at RM8,000
per unit and for development at RM12,300 each under the schedule to the second
agreement (see p. 296 of appeal record) together with interest at 4% per annum
from 9 August 1978 to date of judgment and thereafter at 8% per annum until
date of satisfaction. As for the remaining 15 lots under the second agreement
it is ordered that a sum being the difference between extra payment for excess
land and excessive payment for any deficient land be paid by either party
to the other party under Clause 9 with liberty to apply. With regard to compensation
the following orders were made:
(a) RM960,000 damages for additional costs the respondents
would have to incur in erecting 60 terrace houses under the first agreement
(4th order);
(b) RM187,200 indemnity for delay of 18 months (from 12
June 1978 to 11 December 1979) payable under r. 12(1)(r) read with r. 12(1)(o)
of the Housing Developers (Control and Licensing) Rules 1970 calculated at
8% per annum on the total contractual price of RM1,560,000 for the 60 terrace
houses under the first agreement (5th order);
(c) RM117,000 damages for increased cost of construction
of 9 semi-detached lots under the second agreement calculated at RM13,000
increase per unit (6th order);
(d) RM148,500 damages for increased cost of construction
in respect of 11 bungalow lots under the second agreement at RM13,500 increase
per unit (6th order).
The learned Judge however did not allow respondents' claim
for damages for loss of rentals in respect of all the 85 lots for being too
remote and therefore failed to measure up to the test established in the case
of Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd. [1949]
1 All ER 997 CA. Nor did he allow any consequential damages for loss in respect
of the 10 useless bungalow lots on the ground that the contractual price of
the land was in fact higher than the market price and as such no loss was
in fact suffered by the respondents under this particular head of damages.
In granting damages in addition to specific performance,
the learned Judge had this to say in his judgment:
The remedy of specific performance is discretionary, such
discretion to be exercised according to well-settled rules. The right to sue
for specific performance in equity is quite distinct from a cause of action
at common law. Thus a breach of contract which gives rise to an action for
damages is not always a prerequisite for an action for an order for specific
performance which is granted when there are circumstances justifying it. Please
see the case of Hasham v. Zenab [1960] AC 316. Further, since law and
equity are administered concurrently by our Courts, this means that the Court
can award damages and grant specific performance in the same case, or grant
specific performance as to part of a contract and damages as to the rest.
In this connection land is always deemed by law to have a special value the
loss of which may not be adequately measured or compensated by damages or
money.
The distinction between cause of action at common law and
equity for breach of contract is not affected in England by the Judicature
Act. Although the Act enabled every Division of the High Court to give both
legal and equitable remedies the effect is only on procedure. This is fully
explained by Lord Blanesburgh in Mama v. Sassoon [1928] LR IA 360.
As far as our law is concerned s. 11 of Specific Relief Act gives the discretion
to the Court to order specific performance in four categories of cases and
s. 11 (2) provides that unless and until the contrary is proved, the Court
shall presume that the breach of a contract to transfer immovable property
cannot be adequately relieved by compensation in money. The burden of proof
is therefore on the appellants in this case to show that the failure to transfer
the various housing lots can adequately be compensated in damages, which in
our view the appellants have not been able to do. The power of the Court to
award compensation in addition to specific performance is derived from s.
18 Specific Relief Act 1950. Of particular relevance to this case is subsection
3 of that section which provides:
If in any such suit the Court decides that specific performance
ought to be granted, but that it is not sufficient to satisfy the justice
of the case, and that some compensation for breach of the contract should
also be made to the plaintiff, it shall award him such compensation accordingly.
The following illustration is given under this subsection:
A contracts with B to sell him a house for RM1,000 the price
to be paid and the possession given on 1st January. A fails to perform his
part of the contract, and B brings his suit for specific performance and compensation,
which is decided in his favour. The decree may besides ordering specific performance,
award to B compensation for any loss which he has sustained by A's refusal.
Thus in the present case the learned Judge has the discretion
to order specific performance of the transfer of the 59 terrace lots under
the first agreement, and to satisfy the justice of the case he can unless
s. 14 applies, also award the respondents compensation for any consequential
loss which they have sustained as a result of the breach. The same applies
to the second agreement except for the 10 useless bungalow lots for which
the learned trial Judge has in the exercise of his discretion ordered a refund
of the purchase price instead of specific performance. Since the first agreement
is a housing development contract under the Housing Developers Act, the respondents
are also statutorily entitled to indemnity for delay under r. 12 (1) (r) of
the 1970 Rules.
One of the exceptions to s. 11 is s. 16 which prohibits
specific performance of a part of a contract unless the case comes under s.
13 or 14 which deal with indivisible contracts or s. 15 which deals with divisible
contracts. Whether a contract is indivisible or divisible must of course depend
on the facts of each particular case, the terms of the contract and the nature
of the property. Mr. Sethu did not refer to ss. 11 and 18. His argument is
purely based on s. 14 which he says is the correct section to be applied in
this particular case and as such the learned Judge must elect either to grant
specific performance of the transfer of the various lots to the respondents
or award compensation for damages but not both. Section 14 provides:
Where a party to a contract is unable to perform
the whole of his part of it, and the part which must be left unperformed forms
a considerable portion of the whole, or does not admit of compensation in
money, he is not entitled to obtain a decree for specific performance. But
the Court may, at the suit of the other party, direct the party in default
to perform specifically so much of his part of the contract as he can perform,
provided that the plaintiff relinquishes all claim to further performance,
and all right to compensation either for the deficiency, or for the loss or
damage sustained by him through the default of the defendant.
It must be obvious that not all claims for specific performance
must come under s. 16, and whether a case properly falls under ss. 13,14 or
15 must again depend on the facts of each particular case. For the purpose
of ss. 13 and 14, the appellants must be unable to perform the whole of their
part of the contract i.e., they are able and willing to perform only part
of the indivisible contract. If the part which must be left unperformed bears
only a small proportion in value to the whole contract and admits of compensation
in money then s. 13 applies, and the Court may direct specific performance
of so much of the contract as can be performed and award compensation in money
for the deficiency. But where the part of the indivisible contract which must
be left unperformed is large or does not admit of compensation in money, the
case comes under s. 14 and the Court cannot order both specific performance
and compensation. The Court however may order specific performance at the
instance of the plaintiff provided he renounces all rights to damages and
to further performance. On the other hand s. 15 deals with divisible contracts.
The question for determination is whether the present two agreements under
consideration come under s. 14. As far as the first agreement is concerned,
Mr. Sethu says it comes under s. 14 because a part of the contract which the
appellants were unable to perform viz the construction part forms a considerable
portion of the whole contract and therefore the respondents should not be
entitled to specific performance of the part which they could perform viz
the transfer of the land titles, unless the respondents agreed to relinquish
all claim to further performance and all right to compensation for any loss
or damage sustained by them. In short, the Court having ordered specific performance
of the transfer of the various lots should not in addition award damages.
In our view there is fallacy in that argument. Admittedly, no one can dispute
that in the first agreement the part of the contract relating to the construction
of the houses forms a considerable and indeed a major portion of the housing
development contract. But that by itself is insufficient to bring the case
under the provision of s. 14. We are dealing with a housing development contract
where the appellants/vendors can but are unwilling to convey both the lands
and houses i.e. they are unwilling and not unable to perform the whole contract.
It is not a case where for some reasons or other they are unable through really
no fault of their own to perform the whole contract in which case the Court
may nevertheless at the suit of the plaintiff direct the party in default
to perform specifically so much of his part of the contract as he is able
to perform. Section 14 is one of three exceptions to the rule which prohibits
the remedy of specific performance of a part of a contract. In this context,
s. 14 must be read together with ss. 13, 15 and 16. These four sections constitute
a separate code within the Specific Relief Act and the language of each section
must prevail. As stated by Lord Sumner in Graham v. Krishna Chunder Dey
[1924] LR Vol LII Indian Appeals 90; [1925] AIR PC 45:
Sections 14 to 17 inclusive of the Specific Relief Act,
1877 (which are equivalent to our ss. 13 to 16) are both positive and negative
in their form. Taken together they constitute a complete code, within the
terms of which relief of the character in question must be brought, if it
is to be granted at all. Although assistance may be derived from a consideration
of cases upon this branch of English Jurisprudence, the language of the section
must ultimately prevail. Section 17 prescribes that there shall be no grant
of specific performance except in cases coming within one or other of the
three previous sections.
Thus, in Parthasarathi v. Venkata Kondiah [1965]
AIR Vol 52 Madras 188, the appellant entered into a contract to sell two items
of immovable property, but it was later found that the contract was incapable
of performance as the vendor had no title to sell one of the items, and this
item formed considerable portion of the whole property. The purchaser relinquished
his claim for further performance in respect of this item of property. It
was held that s. 15 of the Indian Specific Relief Act (which is equivalent
to our s. 14) applied to the case, since the vendor was actually unable to
perform the whole contract and not because he was unwilling to perform in
total breach of the contract. Whereas in this case, Mr. Sethu says the lapse
of time and the Housing Developers Act are the inabilities which prevent the
appellants from performing the whole contract. We fail to understand how these
two factors can constitute inabilities.
The delay was due to the appellants' own conduct in trying
to vary the terms of the first agreement by introducing two clauses in the
proposed Clause 3 contract and as well as to contract out of the Housing Developers
Act and Rules. The Act came into force on 29 August 1969 well before the first
agreement was executed in 1976 and they could not be taken by surprise by
the Act. As stated earlier, it is not a case where the appellants are unable
to perform the whole contract but they are able but unwilling to do so on
account of the disharmonious negotiations culminating in the respondents'
refusal to abandon the statutory protection given to them by the Housing Developers
legislation as purchasers of housing accommodation. Section 14 of the Specific
Relief Act is enacted for the benefit of the purchaser and cannot operate
to his detriment (see Sultan Kani Rowthen v. Md. Meera Rowthen [1929]
AIR Madras 189). We agree with Mr. Humfrey Ball's submission that this is
a case where both parties are able to perform the whole of their respective
obligations. The respondents are able and willing to perform their part but
the appellants are unwilling though able to perform their part of the bargain.
We have been referred to the case of Hiralal Lachmiram Pardeshi v. Janardan
Govind Nerlekar [1938] AIR Bombay 134 where in holding that s. 15 of the
Indian Specific Relief Act did not apply, Broomfield J at p. 136 said:
Sections 14 and 15, Mr.Thakor says, should be confined to
the case where the inability to complete the contract is due to a legal defect
such as want of title, whereas, here defendant 1 has not parted with any legal
interest in plot (d). There are merely equities arising in favour of defendant
2. Whether this is so as a matter of fact the record does not show. As I have
mentioned, the decree of 1 September 1930, directed a sale deed to be executed
within fifteen days. But, apart from that, this argument, although undoubtedly
ingenious is, in our opinion, unconvincing. The question before the Court
in such a case must always be whether the contract can be executed in substance.
We do not think the above opinion of Broomfield J can carry
the appellants' argument any further having regard to the facts of the above
case. In that case A who owned four plots (a), (b), (c) and (d), agreed to
sell plot (d) to B for a certain price. Later on, A agreed to sell all the
four plots to P. B filed a suit against A claiming specific performance of
the agreement in respect of plot (d) and P also filed a suit claiming specific
performance of all the four plots. P was unwilling to purchase plots (a),
(b) and (c) only, without compensation for A's inability to convey the plot
(d) to him. It was held that A by reason of his prior agreement with B was
just as much unable to carry out the whole of his part of original agreement
within the meaning of ss. 14 and 15 as if he had no legal title to plot (d).
Section 15 (which is equivalent to our s. 140) was held to be not applicable.
In our case the first agreement can in substance be performed,
and there is no legal impediment to prevent the appellants from transferring
the land with houses. In Hiralal Lachmiram case (ante) the vendor
could not sell the plot to the purchaser because it had been sold to a previous
purchaser. We therefore reject the argument that the delay that has occurred
and the Housing Developers Act constitute `inabilities' under ss. 13 and 14
of Specific Relief Act. We therefore find that s. 14 does not apply to the
facts of the present case.
On issue of liability we have decided that the first agreement
is binding as a housing development contract and that its enforceability does
not depend on the execution of the proposed Clause 3 building contact. Be
that as it may we are of the view that the first agreement is a divisible
contract in that its terms draw distinction between the subdivided lots and
the terrace houses to be built on them. Separate prices are provided for in
the first schedule in respect of land and houses and each part appeared to
stand on a separate and independent footing so as to be within the terms of
s. 15.The housing construction part is governed primarily by terms and conditions
provided by r. 12(1) of the Housing Developers (Control and Licensing) Rules
which are deemed to be incorporated in the agreement; whereas the terms governing
the subdivided lots are almost wholly spelt out by the terms of the written
agreement itself. Section 15 provides:
When a part of a contract which, taken by itself, can and
ought to be specifically performed, stands on a separate and independent footing
from another part of the same contract which cannot or ought not to be specifically
performed, the Court may direct specific performance of the former part.
On the facts of the present case, the part of the first
agreement dealing with the subdivided lots can and ought to be specifically
enforced as it stands on a separate and independent footing from the construction
part which cannot or ought not to be specifically enforced. Thus on the part
which can be specifically enforced, the Court can in addition award damages
in appropriate cases under s. 18(3). Whether a contract is divisible or not
must depend on the particular circumstances of each case, the terms of the
contract and the nature of the property (see Harendra v. Nandalal [1933]
AIR Calcutta 98). The distinction between Privy Council case of Graham
v. Krishna Chunder Dey (ante) and our case is this. In Graham
case two plots of land were sold at one price and the other terms of the contract
also dealt with the two plots together. Thus not only the price but the other
terms were indivisible. Whereas in the first agreement of our case the contract
draws distinction between the land and the construction part. Not only the
price but the other terms are divisible and based on a separate and independent
footing. As stated earlier the lands are mainly governed by terms provided
in the instrument itself and whereas the construction part is principally
governed by terms and conditions incorporated into the agreement by the Housing
Developers legislation. In relation to our s. 15 (which is equivalent to s.
16 of the Indian Specific Relief Act 1877 which has since been repealed by
the Specific Relief Act 1963), Lord Sumner had this to say at pp. 92 and 93:
Accordingly, s. 16 (which appears to be novel in the width
of the power which it confers) afforded the only ground on which the Court
could help him. To make this section applicable it had to be shown that there
was a part of the contract, to wit, that relating to plot A which (a) `taken
by itself could and ought to be specifically performed', and (b)' stood on
a separate and independent footing' from the other part of the contract, which
admittedly could not be performed.
Their Lordships think (1) that before a Court can exercise
the power given by s. 16 it must have before it some material tending to establish
these propositions, and cannot apply the section on a mere surmise that, if
opportunity were given for further inquiry, such material might be forth-coming
and possibly might be found to be sufficient; and (2) that the words of the
section, wide as they are, do not authorize the Court to take action otherwise
than judicially, and in particular do not permit it to make for the parties
or to enforce upon them a contract, which in substance they have not already
made for themselves.
One of the underlying principles in the Privy Council judgment
is the reluctance of the Court to rewrite a contract for the parties. In that
case, two Judges of the Indian High Court had allowed an appeal and held that
s. 16 (our s. 15) applied, but since there was no evidence before them of
the value or character of the two plots, they remitted the case to the trial
Judge in order that he might take evidence and assess the abatement of price
to be allowed in respect of the failure to make title to one of the plots.
The Privy Council allowed the appeal and restored the judgment of the trial
Judge in holding that s. 16 did not apply. If the effect of granting specific
performance is to enforce upon the parties a new contract as to the price
or other terms which go to the root of what they have already bargained for
themselves, then the Court would refuse to make the section applicable. Applying
the test laid down by Lord Sumner to the facts of the present appeal, it is
self-evident that there is a part of the first agreement viz the transfer
of the terrace lots "taken by itself could and ought to be specifically performed",
and secondly, this particular part of the contract "stood on a separate and
independent footing" from the other part of the contract to wit the construction
part which clearly could not and should not be specifically performed as it
would involve the Court with lengthy and laborious supervision as to its performance.
For the same reasons, s. 14 does not apply to the second
agreement although it concerns only the sale of vacant land. It can therefore
be specifically enforced under s. 11 and in addition damages can be awarded
under s. 18(3). In respect of the 10 useless bungalow lots, we think the learned
Judge has exercised his discretion judicially by not ordering specific performance
but instead ordering the appellants to refund the contractual price and also
awarding consequential damages arising from the breach of contract.
This ground of appeal that the respondents are not entitled
to specific performance and as well as compensation for damages must therefore
fail.
As regards appeal against quantum of damages, the argument
of the appellants is that the respondents have in fact not suffered any loss
under the first agreement on the ground that the submission of plans was held
up by the respondents. As stated elsewhere in this judgment, we find no reason
to disturb the finding of fact by the learned Judge that the real cause of
breakdown of relationship between the two parties is the failure of the appellants
to persuade the respondents to agree to the two offending clause in the proposed
Clause 3 contract.
As regards the argument that indemnity under r. 12(1)(r)
only applies where the building has been completed but delivered late, we
find such interpretation is contrary to the intention of the legislature.
Under r. 12(1)(r) the appellants as a licensed housing developer are liable
to indemnify the respondents for delay in delivery of vacant possession of
the housing accommodation. The amount of indemnity shall be calculated from
day to day at the rate of not less than 8% per annum of the purchase price
commencing immediately after the date of delivery of vacant possession as
specified in the contract of sale. Since the date of such delivery is not
specified in the first agreement, it must be deemed in accordance with r.
12(1) (o) to be not less than 18 months after the date of signing of the first
agreement. Mr. Sethu however submits that for r. 12(1) to apply, the vendor
must be a licensed housing developer. The licence is issued on the basis of
a particular project. It is put forward in argument that the appellants have
a licence over Lot 3902 but excluding the portions sold to the respondents.
In our view this argument fails to take into account the acknowledgment in
Clause 9 of the first agreement that the property sold formed part of the
overall development of the "said land" which by virtue of preamble (A) has
reference to Lot 3902 comprising the whole area of approximately 49.8 acres.
Since the appellants have been issued with a licence over the whole of the
Lot, it must, in our view, include the property sold which only formed a small
part of the whole area. With regard to the second agreement, the appellants,
naturally agree with the order to refund the price in respect of the 10 useless
bungalow lots and in the learned Judge making no price even at the time of
breach. As to the refusal of the respondents to accept alternative lots we
have already given our reasons why Clause 7 of the second agreement does not
apply. The appeal against quantum by the appellants must therefore fail.
We now deal with the cross appeal of the respondents. The
first ground of appeal is that the indemnity under r. 12 (1)(r) ought to be
calculated not for a period of 18 months only from 12 December 1979 but should
at least be up to 21 January 1984 - date of judgment. This is a statutory
relief given for delay in giving vacant possession and as such the learned
Judge is justified in assessing the indemnity for 18 months only on the basis
that if the appellants had commenced building the terrace houses on 12 June
1978 i.e., two months after appointing themselves as the licensed developer
under the first agreement, the construction work would have been completed
within 18 months as envisaged by r. 12(1)(o), and therefore they would have
been in a position to deliver vacant possession by 11 December 1979. As such
the argument that the appellants had used respondents' money for several years
should not arise since the basis of calculating the indemnity must necessarily
assume that the money paid by the respondents had been expended by the appellants
before the houses could be constructed. The fact that the said sum of RM1,46,000
is far in excess of the 10% deposit permissible to be demanded under the Housing
Developers Legislation should also not be taken into account in assessing
the indemnity. We therefore reject this ground of appeal.
The next ground concerns the interests on the refund of
RM203,000 i.e., the contract price for the 10 useless bungalow lots under
the first schedule to the second agreement (see p. 296 of appeal record).
The learned Judge has awarded interest on this sum at the rate of 4% per annum
from 9 August 1978 ( being the date on which the balance of such contract
price was paid by respondents) to date of judgment - 21 January 1984 and thereafter
at 8% per annum until date of satisfaction. It is submitted on behalf of the
respondents that the learned Judge ought to have awarded 13% to 13.5% per
annum instead of mere 4%. We find no merit in this ground of appeal in the
absence of any evidence that 13% to 13.5% is the current interest rates applicable
to borrowers of money from commercial banks. Having ordered the refund, we
think it is only right that specific performance of the 10 alternative bungalow
lots offered under Clause 7 should not be ordered. Further, Clause 7 of the
second agreement (which is identical with Clause 9 of the first agreement)
could not be invoked in this particular case for reasons already stated elsewhere
in this judgment. We accordingly find no merit also in this ground of appeal.
The next ground of appeal relates to the award of RM117,000
damages being the increased cost of construction for the semi-detached bungalows
at RM13,000 per unit. It is argued for the respondents that the learned Judge
ought to have awarded RM169,000 under this head of damages since 13 units
were involved and not merely 9. In our view the 4 units were rightly excluded
since there was excess land in these lots for which the respondents have not
paid as required under Clause 9 of the second agreement. This ground must
also fail.
Lastly, it is argued that all sums paid by the respondents
towards development charges should be refunded as no development work has
in fact been carried out. As acknowledged by the respondents, the appellants
must have done work in clearing and levelling the various lots except levelling
of the 10 useless bungalows lots. Since specific performance has been ordered
for the transfer of 73 out of 85 lots purchased, and damages awarded on the
assumption that the houses could be erected thereon, we are of the view that
this ground of appeal should also be rejected. Under s. 18(4) Specific Relief
Act, the method of assessing damages is left to the discretion of the trial
Judge. Since the method has not been shown to be wrong in principle, his award
must stand.
From the learned Judge's 35-page painstaking judgment, we
are satisfied in this case that there is no merit in this appeal both on the
issues of liability and quantum of damages. The learned Judge did not err
in law or in fact. In the circumstances, we dismiss both the appeal and cross
appeal with costs. The deposit shall be paid to the respondents on account
of taxed costs.
