Leong Lai Kuen
-
vs - Sentul
Murni Sdn Bhd
HIGH COURT OF MALAYA
CONTRACT:Sale and purchase of property - Breach -
Non-delivery of vacant possession - Claim for liquidated damages -
Whether claim should be based on formulated sum stipulated in sale
and purchase agreement - Whether claim should be a reasonable sum
subject to s. 75 Contracts Act 1950
LAND LAW:Housing developers - Non-delivery of vacant
possession - Purchaser's entitlement to compensation - Whether
compensation should be based on formulated sum stipulated in sale
and purchase agreement - Whether compensation should be a reasonable
sum subject to s. 75 Contracts Act 1950
Coram
JAMES CY
FOONG J |
30 SEPTEMBER 2003 |
Judgment
James CY Foong J
INTRODUCTION
-
The plaintiff purchased a
unit of condominium (the said property) from the defendant, who
was the developer. As evidence of this purchase, a sale and
purchase agreement (S&P agreement) was executed between the
parties on February 2, 1994. The purchase price was RM99,800.
Towards this, the plaintiff had paid to the defendant, by way of
progress payments, a sum of RM44,910 which represents 45% of the
total consideration. The stage of work specified as completed on
the said property is up to "walls and partitions including
floors and window frames". This is evidenced from the last
progress claim made by the defendant on October 6, 1997. After
this, work was abandoned. Dissatisfied with this state of
affairs, the plaintiff gave notice on October 1, 2001 in writing
to the defendant to recommence construction. The defendant did
not comply. Consequently, the plaintiff by letter dated August
21, 2002 terminated the S&P agreement. This was soon followed by
a writ of summons against the defendant where the plaintiff
claims:
(a) |
a declaration that
the defendant had breached the terms of the S&P
agreement and the plaintiff is entitled to rescind
the same on August 21, 2002; |
(b) |
that the defendant
do refund to the plaintiff a sum of RM44,910;
|
(c) |
interest of 8% per
annum on the sum of RM44,910 from date of filing of
writ to date of full settlement; |
(d) |
the defendant do pay the plaintiff damages
of:
(1) |
RM55,395.84 in
accordance to clause 22(2) of the S&P
agreement; |
(2) |
RM11,079.16 in
accordance to clause 24(2) of the S&P
agreement, |
both running from
February 23, 1997 till August 21, 2002 or such date
as the court thinks fit; |
(e) |
interest at 8% per
annum on both RM55,395.84 and RM11,079.16 from date
of filing to date of full settlement; |
(f) |
costs; and |
(g) |
and any other
relief as this court thinks fit and suitable to
grant. |
-
The defendant's defence is
a plea of frustration of contract for the following reasons.
-
On April 27, 1994, the
High Court at Kuala Lumpur granted an order for the squatters on
the land where the condominium is built be evicted. Some of
these squatters appealed to the Federal Court and obtained
therefrom a stay of execution order pending appeal. The appeal
was heard but it was decided that the merits of the dispute
should be tried.
-
In 1996 the defendant
filed another action against four other remaining squatters. The
High Court granted vacant possession to the defendant on
condition that the defendant should pay compensation, which is
to be assessed by an independent valuer, to occupants of the
land. Dissatisfied, the plaintiff appealed to the Court of
Appeal against this decision. This appeal was dismissed on
August 28, 1998.
MODE
OF TRIAL
-
At the outset both parties
agreed that the trial of this suit be proceeded in the following
manner:
-
the dispensation of
oral testimony;
-
based on the agreed
facts submitted by the parties and the bundle of documents
prepared by them;
-
written and oral
submissions.
CONCEDED CLAIMS
-
At the initial stage of
the oral submission, Mr. Malcolm Fernandez, counsel for the
defendant candidly conceded to the issue of liability after this
court commented that the court orders, seemingly in favour of
the squatters, did not prevent the defendant from building on
the said land. This is reflected from the defendant's progress
claim on the plaintiff where the defendant declared that the
"walls and partitions including floors and window frames" of the
condominium are completed. If this stage of construction was
achieved despite the court orders and the disputes with the
squatters over access to the land then these circumstances would
not justify the defendant for exemption from liability under s
57(1) and (2) of the Contracts Act - an agreement to do an
impossible act.
-
With such concession, the
only issue left for discussion is the quantum of damages. Even
on this, Mr. Malcolm Fernandez submits that the sum of RM44,910
received by the defendant from the plaintiff ought to be
returned. Obviously he must have considered the doctrine of
restitution. Naturally, this comes with the interest of 8% per
annum thereon as prayed for by the plaintiff; an item this court
is minded to grant.
DISPUTED CLAIM
-
But Mr. Malcolm Fernandez
refused to concede to the plaintiffs claim for liquidated
damages of a sum of RM53,395.84 and RM11,079.16 in accordance to
clause 22(2) and 24(2) respectively in the S&P agreement. He
argued that this is untenable since damages for rescission,
according to him, should be assessed, not based on the formula
set out under the S&P agreement for delay in delivery of vacant
possession of the said property.
-
Mr. Leong, counsel for the
plaintiff, was adamant on his view that the law allows the
plaintiff to claim such liquidated damages with interest
attached thereto as set out in prayers (d) and (e) above. He
stressed that repudiation of the S&P agreement does not prevent
the plaintiff from claiming such sums formulated on the basis of
late delivery of the said property as set out in the S&P
agreement. He cited a number of authorities in support which I
shall deal with shortly in my analysis of this issue.
-
But before I venture
further, it is best to explain why specific dates and certain
provisions of the S&P agreement were selected by the plaintiff
for calculation of her liquidated damages.
-
Under clause 22(2) of the
S&P agreement vacant possession of the said property is to be
delivered to the plaintiff within 36 months from date of
agreement. This would put the last date for delivery of vacant
possession to February 1, 1997. The agreed damages stipulated
for late delivery is 10% per annum of the purchase price
calculated on daily basis.
-
Under clause 24(2) of the
S&P agreement there is a separate provision for the defendant to
complete the common facilities of the condominium. It is also 36
months from date of agreement and the last date for completion
was February 1, 1997. Any delay will subject the defendant to
pay the plaintiff a penalty of 10% per annum of the last 20% of
the purchase price calculated on daily rest. This 20% amounts to
RM18,960.
-
Having set out the facts
and figures, I shall now proceed to analyse whether such claim
by the plaintiff should be entertained.
-
Firstly, s 76 of the
Contracts Act 1950 provides:
A person who
rightly rescinds a contract is entitled to
compensation for any damages which he has sustained
through the non-fulfilment of the contract.
|
-
The principle for the
award of compensation is: the injured party should as far as
possible be placed in the same position in terms of money as if
the contract had been performed by the party in default - see
Pollock and Mulla on Indian Contract and Specific Relief Acts,
11th edn, vol 2 at p 801. But in cases where the breach of the
contract consist in a failure to transfer property, according to
McGregor on Damages, 16th edn at p 25, the basis for
ascertainment of loss is the market value of the property,
always deducting the contract price if it has not already paid
to the person in breach. But this is not what the plaintiff
wants. She is asking for damages based on calculation of
interest on a day to day basis for delay in handing over vacant
possession of the said property as specified in the aforesaid
provisions of the S&P agreement. Can she succeed especially when
the S&P agreement is rescinded?
-
On the question of her
right to claim under the contract after the same is rescinded
the following cases provided the answer in the positive. In
Johnson v Agnew [1979] 1 All ER 883 the House of Lords
accepted this dictum of Dixon J of Australia in the Australian
case of McDonald v Dennys Lascelles Ltd [1933] 48 CLR 457
at 476:
When a party to a
simple contract, upon a breach by the other
contracting party of a condition of the contract,
elects to treat the contract as no longer binding
upon him, the contract is not rescinded as from the
beginning. Both parties are discharged from the
further performance of the contract, but rights are
not divested or discharged which have already been
unconditionally acquired. Rights and obligations
which arise from the partial execution of the
contract and causes of action which have accrued
from its breach alike continue unaffected. When a
contract is rescinded because of matters which
affect its formation, as in the case of fraud, the
parties are to be rehabilitated and restored, so far
as may be to the position they occupy before the
contract made. But when a contract, which is not
void or voidable at law, or liable to be set aside
in equity, is dissolved at the election of one party
because the other has not observed an essential
condition or has committed a breach going to its
root, the contract is determined as far as it is
executory only and the party in default is liable to
damages for its breach. |
-
Our courts have adopted
this proposition through a series of cases beginning with
Chye Fook v Teh Teng Seng Realty Sdn Bhd [1989] 1 MLJ 308.
In this case, the plaintiff was the purchaser of a house to be
built by the defendant. The completion date for the house was 24
months from the date of signing of the sale and purchase
agreement and failure to comply would subject the defendant to
liquidated damages of 10% per annum of the purchase price
calculated on a day to day basis. The defendant failed to
complete within the stipulated date and the defendant rescinded
the agreement. Arguing against the plaintiffs rights to rescind
the contract, the defendant contended that the presence of the
default clause which provided liquidated damages demolishes such
recessionary right of the plaintiff. This did not find favour
with the court which accepted the proposition of Johnson v
Agnew, supra.
-
Chye Fook v Teh
Teng Seng Realty Sdn Bhd, supra,
was favourably cited in Tan Yang Long v Newacres Sdn Bhd
[1991] 1 MLJ 289 and Xavier Kang Yoon Mook v Insun
Development Sdn Bhd [1995] 1 AMR 667; [1995] 2 MLJ 91.
-
Having established that
the plaintiff has a right to claim damages specified under a
rescinded contract, the next issue is whether she is entitled to
the liquidated damages specified in the S & P agreement for non
delivery of possession of the said properly?
-
On this, two cases throw
some light. The first is from the obiter dictum of Abdul Malek J
(as he then was) in Chye Fook v Teh Teng Seng Realty Sdn Bhd,
supra:
At this stage of
the proceedings, this court was not asked to
determine whether the rescission would result in the
plaintiffs not being able to receive the liquidated
damages but in passing I would say that, as provided
by s 76 of the Contracts Act 1950, a party who
rightly rescinds a contract is entitled to
compensation for any damage which he has sustained
through the non-fulfilment of the contact. I had in
fact made it clear in my ruling that the plaintiffs'
entitlement to liquidated damages if the developer
failed to complete within 24 months did not in any
way take away the rights of the purchaser to rescind
the contract. |
-
The second is Xavier
Kang Yoon Mook v Insun Development Sdn Bhd, supra.
The facts of this case are these: the plaintiff entered into a
sale and purchase agreement for a house to be built by the
defendant developer. The defendant failed to deliver the house
within the stipulated time specified in the agreement. The
plaintiff sought to terminate the agreement by requesting from
the court inter alia:
-
a declaration that the agreement is
terminated;
-
the return of any sum so paid by the
plaintiff under the agreement;
-
liquidated damages
calculated at the rate of 10% per annum on the purchase
price on daily rest from date when vacant possession of the
said house was supposed to be delivered to the plaintiff
until date of rescission of the agreement;
-
in the alternative
damages for breach of contract.
The court allowed prayers
(a), (b) and (c).
-
Though the facts in
Xavier Kang Yoon Mook v Insun Development Sdn Bhd, supra,
is rather similar to our present situation where the project is
abandoned, yet despite allowing a claim for liquidated damages
based on the calculation specified in the contract for late
delivery, which could easily be ascertained on the spot, the
learned judge ordered the senior assistant registrar to assess
the same. In our present case, the exact amount is even spelled
out in the statement of claim. By directing assessment to be
conducted by the senior assistant registrar, could the learned
judge in Xavier Kang Yoon Mook v Insun Development Sdn Bhd,
supra, be sharing my fear that such sum under the formula
provided for late delivery may amount to such an enormous sum
that it is not equitable to the developer. Imagine a purchaser
of an abandoned project elects to rescind his contract at a very
late date despite having advance knowledge that the developer is
not proceeding with the project. In Xavier Kang Yoon Mook v
Insun Development Sdn Bhd, supra, it was 6 years from
due date of delivery of vacant possession to date of rescission.
In our present case it is approximately 5 years. By such delay
in exercising his rights the purchaser may be taking advantage
of the more attractive benefits set out in the artificial
formula for computation for late delivery. The aggregate may
even exceed the total value of the house, if it is completed.
Would this not be defeating the very objective of compensation?
-
Though I agree with the
proposition that rescission of the S&P agreement by the
plaintiff does not disqualify her from her entitlement to
liquidated damages spelled out in the said agreement but such
formulated sum to my mind would be subjected to s 75 of the
Contracts Act 1950. This provision provides:
When a contract has
been broken, if a sum is named in the contract as
the amount to be paid in 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. |
-
In this case the contract
has been broken, A sum is named in the contract as the amount to
be paid to the plaintiff and this is derived from a technique or
method of calculation. Or alternatively, this could be
considered a penalty. But the plaintiff, under the law is only
entitled to receive from the defendant who has broken the
contract "reasonable compensation not exceeding the amount so
named or, as the case may be, the penalty stipulated for". To
determine what is reasonable the court has to decide. This is a
more equitable approach otherwise, as I have expressed, damages
due to purchaser under the artificial formulated method of
calculation stipulated in the agreement may amount to colossal
sum for abandon project where the purchaser refused to rescind
or chose to rescind at a very late stage to continue to enjoy
the higher rate for calculation of compensation.
CONCLUSION
-
For reasons stated, I
allow a claim for damages as requested for in prayer (d) but the
amount of reasonable compensation not exceeding sum so named by
the plaintiff in prayer (d) above is to be assessed by the
senior assistant registrar. Once assessed, it will carry an
interest of 8% per annum thereon from date of filing to date of
full settlement.
-
As for prayer (a), (b) and
(c), there shall be order in terms. There shall be cost to the
plaintiff.
Cases
Chye Fook v Teh Teng
Seng Realty Sdn Bhd [1989] I MLJ 308; Johnson v Agnew [1979] I All
ER 883; Mcdonald v Dennys Lascelles Ltd [1933] 48 CLR 457; Tan Yang
Long v Newacres Sdn Bhd [1992] 1 MLJ 289; Xavier Kang Yoon Mook v
Insun Development Sdn Bhd [1995] 1 AMR 667; [1995] 2 MLJ 91
Legislations
Contracts Act 1950: s.57(1),
(2), s.75, s.76
Authors and other references
McGregor on Damages, 16th edn
Pollock & Mulla, Indian Contract and Specific Relief
Acts, 11th edn, vol 2
Representations
CW Leong (Tee, Tan &
Partners) for plaintiff
Malcolm Fernandez (Norman
Fernandez & Associates) for defendant
Notes:-
This decision is also reported
at [2003] 6 AMR 481
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