HIGH COURT OF MALAYA
Lebbey Sdn Bhd
- vs -
Tan
Coram
FAIZA TAMBY CHIK J
7 OCTOBER 1999
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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