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LEBBEY SDN BHD V. TAN KENG HONG & ANOR
HIGH COURT MALAYA, KUALA LUMPUR
FAIZA TAMBY CHIK J
[CIVIL APPEAL NO: R2-12-203-99]
7 OCTOBER 1999
HIGH COURT OF MALAYA
CONTRACT: Damages - Liquidated
damages - Incorporated as term of agreement - Whether must prove loss -
Contracts Act 1950, s. 75
Judgment
Faiza Tamby Chik, J
INTRODUCTION
The appellant are developers. The respondents were the joint purchasers
of a factory known as Lot 117 in a project developed by the appellant called
Pandan Indah Industrial Park ("the said factory"). The purchase price of
RM288,000 has been fully paid. The appellant delayed in the delivery of
vacant possession of the said factory by 324 days. By this action, the respondents'
claim against the appellant liquidated and ascertained damages (LAD) as
expressly contracted for in the sale and purchase agreement dated September
14, 1993 (SPA) for such delay to the sum of RM30,677.92 plus interest and
costs. The sale and purchase agreement was prepared by the appellants themselves.
CHRONOLOGY OF EVENTS
A chronology of events pertaining to the action are as follows:
Date
Particulars
1 Sep 14, 1993 Sale and purchase agreement
(SPA) between the appellant and respondents. [see pp 16-49 appeal's
record ("AR")]
2 May 31, 1995 Appellant was to deliver
vacant possession of the said factory to the respondents, [see First Schedule
paragraph 8 at p 40 AR, Clause 15 SPA at pp 29-30 AR]
3 Apr 19, 1996 Appellant delivered vacant
possession of the said property to the respondents (after a delay of 324
days).
4 May 7, 1996 Letter from appellant
confirming that the respondents have complied with all the requirements
of the SPA. [see p 55 AR].
5 Aug 19, 1997 Letter from the solicitors
of respondents to the appellant demanding the LAD of RM30,677.92. [see pp
57-58 AR].
6 Nov 11, 1997 Issuance
of the summons and statement of claim, [see pp 1-9 AR].
7 Jan 6, 1998 Respondents
took out a notice of application under Order 26A of the Subordinate Courts
Rules 1980 for summary judgment, [see pp 10-11 AR].
8 Mac 3, 1998 Mention
in the Sessions Court. Hearing of respondents' application under Order 26A
of the Subordinate Courts Rules 1980 fixed for May 29, 1998.
9 May 22, 1998 Appellant
took out notice of application to strike out the respondents' suit.
10 May 29, 1998 Appellant's solicitors orally
applied to Sessions Court for a postponement of the Order 26A application.
Respondents' solicitors objected. Court granted the adjournment with costs
of the day to respondents. Hearing of Order 26A postponed to September 4,
1998.
11 Sep 4, 1998 Hearing of appellants'
application to strike out the suit with decision reserved to September 21,1998.
12 Sep 21, 1998 Sessions Court
ordered appellant's application to strike out the suit be dismissed with
costs which if costs cannot be agreed upon the costs to be taxed and fixed
the respondents' application for summary judgment to the November 13, 1998
for hearing.
13 Sep 30, 1998 Appellant's notice
of appeal (with regards to the decision of September 21, 1998).
14 Nov 13, 1998 Appellant's solicitors
made oral application for stay of proceedings pending appeal. Respondents'
solicitors objected and wanted application for summary judgment to proceed.
Sessions Court Judge gave two weeks mention date for appellant to file in
a formal application for stay of proceedings to December 4, 1998.
15 Dec 4, 1998 Sessions
Court directed that the appellant's formal application for stay of proceedings
be heard on January 29, 1999.
16 Jan 29, 1999 Upon the appellant's
request the formal application for stay of proceedings was fixed on March
15, 1999.
17 Feb 11, 1999 Upon of the appellant's application
to strike of the respondents' summons and statement of claim wherein the
court decided to dismiss the appellant's application with cost.
18 Mac 5, 1999 The appellant withdrew his
application for the stay of proceedings and the court fixed May 5, 1999
for the hearing of the respondents' application for summary judgment under
Order 26A of the Subordinate Courts Rules 1980.
19 May 5, 1999 The respondent's solicitors
objected to the filing of additional affidavits by the appellant on April
2, 1999 (see pp 62-65 of the AR) and April 28, 1999 (see pp 79- 85 of the
AR) in relation to respondents' application for the summary judgment. The
court postponed the hearing of the respondents' application for summary
judgment under Order 26A of the Subordinate Courts Rules 1980 to July 14,
1999, for the respondents' to file their affidavit in reply to the appellant's
affidavit of April 28, 1999.
20 Jul 14, 1999 Hearing of the respondents'
application for summary judgment under Order 26A of the Subordinate Courts
Rules 1980 at the Session's Court wherein the Sessions Court ordered that
summary judgment be entered in favour of the respondents with costs.
21 Jul 20, 1999 The appellant filed their
notice of appeal against the Sessions Court's decision of July 14, 1999.
22 Aug 10, 1999 The appellant filed their record of appeal
in respect of their appeal against the Sessions Court's decision of July
14, 1999
THE ISSUES
Briefly, the appellant had raised and relied on three issues in the further
affidavits dated April 2, 1999 and April 28, 1999 namely:
that Clause 16 of the sale and purchase agreement between the appellant
and the respondents was to be interpreted in accordance with the law and
more specifically with s 75 of the Contracts Act 1950 (see paragraph 5 on
pp 63 and 64 of the AR).
that the respondents had not suffered any loss and / or proved that they
have incurred any loss due to the alleged breach of agreement (see paragraph
9 on p 64 of the AR).
that the respondents had only paid the full purchase price of the said property
to the appellants after 18 days of the delivery of vacant possession, therefore
the appellants were not obliged to deliver vacant possession within 24 months
(see paragraph 9 and 10 on pp 81 and 82 of the AR).
Section 75 of the Contracts Act 1950 states:
When a contract has been broken, if a sum is named in the contract as the
amount to be paid in the case of such breach, or if the contract contains
any other stipulation by way of penalty the party complaining of the breach
is entitled, whether or not actual damage or loss is proved to have been
caused thereby, to receive from the party who has broken the contract reasonable
compensation not exceeding the amount so named or, as the case may be, the
penalty stipulated for.
Based on the literal interpretation of s 75 of the Contracts Act 1950 and
Clause 16 of the sale and purchase agreement, the parties have agreed to
liquidated damage if one party breaches the said agreement, whether or not
actual damage or loss is proved to have been caused thereby, the complaining
party will be entitled to reasonable damages not exceeding the amount agreed
to by the parties as liquidated damages.
In Bumiputra Merchant Banker Bhd v The Melewar Corporation Bhd [1990] 2
CLJ 30 the court held:
[5] In relation to the imposition of interest at 2% per annum over the prescribed
rate of default as being contrary to ss 74 and 75 of the Contracts Act 1950;
since this additional interest at 2% per annum was an agreed term which
was incorporated into the loan agreement, the defendants cannot now raise
any objection to the imposition of such a rate and therefore, ss 74 and
75 of the Contracts Act do not apply.
Therefore based on the interpretation of s 75 of the Contracts Act above,
the appellants averments that the respondents have not suffered loss and
or proved loss as a consequence of the said breach is irrelevant since,
if the parties have agreed to liquidated damages then damages need not be
proven. The appellant submitted that according to Order 26A r 4(1) of the
Subordinate Courts Rules 1980 the appellant may not less than four clear
days before the date of hearing show cause against an application (for summary
judgement) by affidavit or otherwise to the satisfaction of the court and
in this case the respondents' application for summary judgement ought to
be dismissed as the respondents have failed to prove actual loss or damages
consequent to the breach of contract.
It may be observed that the provisions / language and meaning of the s 75
of the Contracts Act 1950 is clear in that if parties have agreed to liquidated
damages if one party breaches the said agreement, whether or not actual
damage or loss is proved to have been caused thereby, the complaining party
will be entitled to reasonable damages not exceeding the amount agreed by
the parties as liquidated damages. Therefore the court should interpret
this section by giving it a literal, plain and ordinary interpretation.
A contrary interpretation would be against the express provisions of the
section.
In Zainuddin Dato Seri Paduka Hj Marsal v Pengiran Patera Negara Pengiran
Hj Umar Pengiran Dato Penghulu Pg Hj Apong [1997] 4 CLJ 233, the Court of
Appeal Brunei Darussalam held:
[1] In the interpretation of statutes, the task of the court is to consider
the whole of the legislative provisions in their proper context to ascertain
the intention of the legislature as expressed by the wording employed. In
doing so, effect has to be given to the common law prima facie rule that
existing rights are not impaired unless such a construction is unavoidable.
The court will apply the presumption that where some retrospective operation
is intended, the statute is not to be construed so as to give it a wider
retrospective operation than the language used makes necessary.
[2] If only one meaning can be given to the provisions under review, the
court must disregard any apparent anomaly or seeming absurdity and construe
the words used in their ordinary sense. But where this is not so, the court
will seek to interpret the provisions in a way that does not result in absurdity.
I am of the opinion to limit the application of s 75 of the Contracts Act
1950 to cases where damages are difficult to assess is illogical and cannot
be accepted for the following reasons:
The illustrations provided by s 75 of the Contracts Act 1950 in particular
illustration (a) clearly shows that liquidated damages is permissible even
when the actual damages suffered by the complaining party can be easily
proved.
(See illustration (a) of s 75 of the Contracts Act 1950).
ILLUSTRATIONS
(a) A contracts with B to pay B $1,000, if he fails to pay B $500 on a given
day. A fails to pay B $500 on that day, B is entitled to recover from A
such compensation, not exceeding $1,000, as the court considers reasonable.
If the application of s 75 of the Contracts Act 1950 is limited to cases
where damages are difficult to assess then parties need not agree and enter
into terms that provide for liquidated damages as they will not be bound
with such a clause. On the contrary, the respondents submit that the purpose
of s 75 of the Contracts Act 1950 is to allow parties to enter into contracts
that provide for liquidated damages so long as such terms are reasonable.
The appellant's construction of s 75 of the Contracts Act 1950 cannot be
accepted as it offends the principle that "parties are bound by their agreement".
In Perdana Finance Bhd v Azmi Ahmad [1997] 2 CLJ 325 at 326 the court held:
[3] A court may distinguish an earlier decision when it finds that the case
before it does not fall within the ratio decidendi of the earlier decision
because of some material difference of fact. This apart, it can also distinguish
an earlier decision by cutting down the ratio decidendi of that earlier
decision. By the latter method the Court cuts down the ratio decidendi of
the earlier case by treating as material to the earlier decision some fact,
present in the earlier case which the earlier court regarded as immaterial,
or by introducing a qualification or an exception into the rule stated by
the earlier court.
The facts in this case differ from Selva Kumar Murugiah v Thigarajah Retnasamy
[1995] 2 AMR 1097, in that in Selva Kumar the clause pertaining to liquidated
damages was unreasonable. In that case the said clause stated that in the
event the purchaser defaults all monies paid by the purchaser may be forfeited
by the vendor. The purchaser had paid 80% of the purchase price to the vendor
and subsequently defaulted. The vendor sought to forfeit all the monies
paid by the purchaser. Therefore, surely the court in that case was minded
to find that s 75 of the Contracts Act 1950 would not apply in the strict
sense in that instance. However in this case, the agreed liquidated damages
is 12% of the purchase price. It is submitted that this is reasonable in
view of the fact that the appellant himself charges the respondents 12%
of the purchase price per annum on payments due. (see Clause 3 of the sale
and purchase agreement, p 21 of the appeal record).
Further the respondents state that the terms of the sale and purchase agreement
were drawn up by the appellants themselves. The appellants have also admitted
that the parties (see paragraph 8 on p 87 of the AR) agreed upon the said
terms, therefore the appellants are bound and estopped from breaching the
agreement.
In Boustead Trading (1985) Sdn Bhd v Arab Malaysian Merchant Bank Bhd [1995]
3 AMR 2871 the Federal Court held:
(2) The doctrine of estoppel is a flexible principle by which justice is
done according to the circumstances. It is a doctrine of wide utility and
has been resorted to in varying fact patterns to achieve justice. The maxim
'estoppel may be used as a shield but not a sword does not limit the doctrine
of estoppel to defendants alone. Plaintiffs too may have recourse to it.
Estoppel may assist a plaintiff in enforcing a cause of action by preventing
a defendant from denying the existence of some fact which would destroy
the cause of action.
(5) Even though estoppel was not pleaded as required under Order 18 rr 7(1)
and 8(1) of the Rules of the High Court 1980, the material facts giving
rise to the estoppel were sufficiently pleaded without actually using the
term 'estopped'. Furthermore, considerable evidence on the point was led
at the trial by the respondent without objection from the appellant.
(6) A court may permit a litigant to argue an unpleaded estoppel if it is
in the interest of justice to do so. It is a matter within the discretion
of the judge who must have due regard to all the circumstances of the case,
including any prejudice that may be caused by the affected party being taken
by surprise. Nevertheless, such departures should rarely be permitted, for
otherwise, the rule that a party is bound by its pleadings will be rendered
meaningless.
In Sia Siew Hong v Lim Gim Chian [1996] 3 AMR 3651 the Court of Appeal stated
obiter dictum:
Under the doctrine of estoppel, it would be unjust and inequitable to permit
the appellants to raise the defence of limitation as the appellants had
agreed that the respondents could enforce the guarantee at any time'. In
regard to written law, the maxim can also be stated as 'equity will not
permit statute to be used as an engine of fraud' to prelude the appellants
who were guilty of unconscionable conduct from relying upon the Limitation
Act 1953.
Therefore, I am of the view that because the terms of the sale and purchase
agreement were drawn up by the appellants themselves, they cannot rely on
s 75 of the Contracts Act 1950 to avoid paying the agreed "liquidated damages".
It is observed that the respondent's contention
that the respondents had only paid the full purchase price of the said property
to the appellants after 18 days of the delivery of vacant possession, therefore
the appellants are not obliged to deliver vacant possession within 24 months,
I am of the view that the appellants are estopped from relying on this averment
based on the following:
The appellants voluntarily gave vacant possession to the respondents to
facilitate the appellants to obtain a loan from Perwira Affin Bank;
The letter dated April 19,1999 from the appellant to the respondents (see
pp 51-53 of the AR) states that the respondents will be deemed to have taken
vacant possession seven days from the date of the said notice. Therefore
the appellants are also bound by the effect of the said notice;
The letter dated May 7,1999 from the appellants to the respondents (see
p 55 of the AR) states that the respondents have complied and fulfilled
all the terms and obligations. Therefore the appellants are estopped from
alleging that the respondents have taken vacant possession without fulfilling
their obligations because this would seem that the appellant is now contradicting
the express contends of their letter. Therefore the appellant should not
be allowed to make allegation to their whims and fancies.
In addition to the above I see that the respondents have also been charged
interest for late payment, as shown in the statement of accounts (in the
enclosure of the letter dated April 19, 1996) marked as Exh "L-2" in the
respondents affidavit of March 2, 1998 (which the appellant has not included
in their record of appeal). This is the mode of payment agreed by the appellant
and Perwira Affin Bank. The effect of the agreement is that the appellant
has impliedly granted the respondents an extension of time to settle the
balance price. Therefore the appellant is estopped from relying on the issue
of late payment and to breach their obligation.
In Paramount Corporation v Mulpha Pacific Sdn Bhd [1999] 5 CLJ 539 @ pp
540 and 541, the court held:
[8] In fact and in law, the accrued agreed interest is not a penalty but
is actually consideration for the plaintiff having so granted the additional
time to the defendant.
Obiter-
[1] When an agreement has been reduced into writing, the parties are bound
by the terms and conditions of the written document. They are bound by the
four comers of the written document. The words and expressions used in a
written document such as the SAP agreement should be given their literal
and natural interpretation.
It is to be noted that the appellant itself charges interest at the rate
of 12% per annum on any unpaid sums (refer to Clause 3 of the sale and purchase
agreement at p 21 of the AR). It does not now lie in the mouth of the appellant
now to complain that damages on late delivery of the factory should not
be at 12% per annum of the purchase price. In fact, if the appellant's argument
were to be accepted, the appellant would have given the impression to members
of the public that it shall pay 12% per annum on the purchase price for
every day of delay.
Therefore based on the above, the respondents believe that the appellant
does not have a defence in this action and the facts of this case are undisputed
and clear in that there is a valid sale and purchase agreement between the
respondents and the appellant and that, inter alia it is a term of the agreement
that the parties have agreed to liquidated damages in the event of a breach.
Hence it is only reasonable and justifiable that summary judgment ought
to be granted in favour of the respondents based on the said agreement.
In Malayan Insurance (M) Sdn Bhd v Asia Hotel Sdn Bhd [1986] 2 MLJ 183,
the Supreme Court held:
(2) Where the issue raised is solely a question of law pure and simple without
reference to any facts or where the facts are clear and undisputed the court
should exercise its duty under Order 13 as in any other cases and decide
on the question of law. This is so even if the issue of law raised is a
difficult one. If the court after considering the argument is satisfied
that it is really unarguable then the court should grant summary judgment.
In the premise, I find that the appellant's appeal is not only inherently
flawed but is totally devoid of merits and I therefore dismiss it with costs.
Cases
Selva Kumar Murugiah v Thigarajah Retnasamy [1995] 2 AMR 1097; Boustead
Trading (1985) Sdn Bhd v Arab Malaysian Merchant Bank Bhd [1995] 3 AMR 2871;
Bumiputra Merchant Banker Bhd v The Melewar Corporation Bhd [1990] 2 CLJ
30; Malayan Insurance (M) Sdn Bhd v Asia Hotel Sdn Bhd [1986] 2 MLJ 183;
Paramount Corporation v Mulpha Pacific Sdn Bhd [1999] 5 CLJ 539; Perdana
Finance Bhd v Azmi Ahmad [1997] 2 CLJ 325; Sia Siew Hong v Lim Gim Chian
[1996] 3 AMR 3651; Zainuddin Dato Seri Paduka Hj Marsal v Pengiran Patera
Negara Pengiran Hj Umar Pengiran Dato Penghulu Pg Hj Apong [1997] 4 CLJ
233
Legislations
Subordinate Courts Rules 1980: Ord.26A r 4(1)
Contracts Act 1950: s.75
Representation
CJ Tam (Rajinder Singh Veriah & Co) for Appellant
Linda Lopez (De Costa & Co) for Respondents
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