COURT OF APPEAL MALAYSIA
(APPELLATE JURISDICTION)
5
CIVIL APPEAL NO. R-02-830-06
BETWEEN
KRISHNAN NAIR & SONS … APPELLANT
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AND
KEN GROUTING SYSTEM SPECIALIST SDN BHD … RESPONDENT
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Coram:
Sulong Matjeraie, JCA
Jeffrey Tan, JCA
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T Selventhiranathan, JCA
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GROUNDS OF JUDGMENT
[1]
This is an appeal by the Appellant against the decision of the
learned High Court Judge handed down on 25th September
2007.
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[2]
The crux of this appeal relates to an agreement between the
parties on Liquidated Ascertained Damages and whether the
Respondent is entitled to be compensated on the agreed
amount as provided in the contract.
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Brief facts of the case
[3]
Pursuant to an agreement dated 21st January 1999, the
Appellant was appointed as a sub-contractor by the
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Respondent to carry out road works, clearing works, turfing
works, construction of games court and drainage in respect
of a project known as “The Construction and Completion of
Teachers
Training
College
at
Kangar,
Perlis”
(‘sub-
contract’).
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[4]
Clause 10.1 of the sub-contract provides as follows:“In the event that the works is delayed and partly or wholly due to
your works, then KGSS shall recover any loss or expenses incurred
25
through the Liquidated Ascertained Damages. The Liquidated
Ascertained Damages for this subcontract shall be for the amount of
RM1,000.00 per day.”
2
[5]
It was agreed therefore that the Respondent can recover
loss and expenses from the Appellant through Liquidated
Ascertained Damages which amounts to a fixed figure of
RM1,000.00 per day of delay. According to Clause 9.1 of the
sub-contract, the Appellant was required to complete the
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contracted works by 25th February 1999. It is common
ground that the Appellant only completed the contracted
works on 30th September 1999.
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[6]
The Appellant commenced an action in the High Court for
outstanding payments due and payable under the subcontract.
The
Respondent,
among
other
things,
counterclaimed a sum of RM217,000.00 being Liquidated
Ascertained Damages for every day of delay in completing
the contracted works calculated from 25th February 1999 to
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30th September 1999.
[7]
At the High Court, the learned High Court Judge allowed
both
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the
Appellant’s
claim
and
the
Respondent’s
counterclaim of RM217,000.00. The Appellant’s appeal
before us is only in respect of the award on the
Respondent’s counterclaim by the learned High Court
Judge.
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3
[8]
Before us, a majority decision was reached on the appeal.
Justice T Selventhiranathan and I were in the majority while
Justice Jeffrey Tan dissented. We now give the reasons for
the decision of the majority.
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[9]
There are three main grounds of appeal in the Memorandum
of Appeal and these are as follows:-
(i)
The learned High Court Judge erred in concluding that
Clause 10.1 of the sub-contract was a Liquidated
10
Ascertained Damages clause and not a penalty.
(ii)
The learned High Court Judge erred in concluding that
the Respondent need not prove actual loss as required
by the Federal Court decision in Selva Kumar a/l
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Murugiah v Thiagaraj a/l Ramasamy [1995] 1 MLJ 817.
(iii)
The learned High Court Judge erred in concluding that
the Respondent need not give notice to the Appellant
before making a counterclaim.
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[10]
To dispose of the third ground of appeal first, we note that
there were two letters at pages 212 and 213 of the Appeal
Record dated 8th October 1996 and 6th December 1996
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respectively from the Respondent giving notice to the
Appellant of their intention to make a counterclaim.
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[11]
The learned High Court Judge made a finding in his
judgment at page 614 of the Appeal Record that the
Liquidated Ascertained Damages clause is not a penalty
clause. As to whether Clause 10.1 of the sub-contract is a
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penalty or Liquidated Ascertained Damages provision is no
longer an issue in view of section 75 of the Contracts Act
1950 (‘the Act’) and the case of Selva Kumar (supra) in that
both are recoverable subject to proof of reasonable
compensation, whether or not actual damage or loss is
10
proved to have been caused thereby.
Section 75 of the Act says –
“When a contract has been broken, if a sum is named in the contract
15
as the amount to be paid in case of such breach, or if the contract
contained 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
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exceeding the amount so named or, as the case may be, the penalty
stipulated for.”
(Emphasis added)
The words “whether or not actual damage or loss is proved
25
to have been caused thereby” (‘the words in question’) was
considered by Peh Swee Chin FCJ when his Lordship
delivered the judgment of the Court in Selva Kumar (supra).
It was the view of his Lordship that the words in question
must be given a restricted construction. Hence despite the
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words in question, a Plaintiff who is claiming for actual
damages in an action for breach of contract must still prove
the actual damages or the reasonable compensation in
accordance
with
the
settled
principles
in
Hadley
v
Baxendale (1854) 9 Exch 341; [1843-60] All ER Rep 461. Any
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failure to prove such damages will result in the refusal of the
court to award such damages.
[12]
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For ease of reference pages 827 onwards of the said
judgment of Peh Swee Chin FCJ are reproduced in extenso
hereunder:“But what is far more interesting in that case is that the Indian
Supreme Court, when referring to the words in question, i.e. “whether
or not actual loss or damage was proved to have been caused
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thereby” stated that the words in question were intended to cover 2
kinds of contracts. In the first kind, the Court would find it very
difficult to assess such reasonable compensation. In the second kind,
the Court could access such reasonable compensation with settled
rules. Such dichotomy of contracts by the Indian Supreme Court
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represents, in our view, a logical basis for the words in question,
words added by the legislature to the section in question without
seemingly any thoughtfulness about the desirability of some
appropriate limitations thereto. We agree with the Indian Supreme
Court’s dichotomy of such contacts.
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Secondly, we therefore further hold that the words in question viz.
“whether or not actual damage was proved to have been caused
thereby”, are limited or restricted to those cases where the Court
would find it difficult to assess damages for the actual damage or
30
loss as distinct from or opposed to all other cases, when a plaintiff in
each of them will have to prove the damages or the reasonable
compensation for the actual damage or loss in the usual ways.
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However, there remains to be done further work, for their Lordships
in the Indian Supreme Court did not identify or elaborate the
contracts of the kind for the breach of which the Court finds it difficult
to assess damages or “the reasonable compensation” for actual loss
5
or damage. The search will have to continue for the precise attributes
of this kind of contract.
Conceivably the archetype of cases of the kind just mentioned, in our
view, is undoubtedly the well-known case of Chaplin v Hickso [1911] 2
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KB 786; [1911-13] All ER Rep 224. In that case Miss Chaplin, an actress
agreed with Hicks, a theatrical manager, for Miss Chaplin to be at a
meeting for him to interview her and also 49 other actresses where he
could select 12 out of such 50 actresses for giving remunerative
employment to. He was in breach of contract for not giving Miss
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Chaplin a reasonable opportunity to attend the interview. It was also
argued for him in the Court of Appeal that only nominal damages
were payable and the award for substantial damages by the High
Court was wrong. The submission of nominal damages was to the
effect that she would have had only a chance of one in four of being
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successful, a
chance which
itself further depended on
the
imponderables. The argument for nominal damages was rejected by
the Court of Appeal and the High Court’s award was upheld.
Very clearly Miss Chaplin failed to prove the damages for the actual
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damage i.e. the amount of such damage or loss, and one may query
as to why she should be given substantial damages and not merely
nominal damages as would have been seemingly and normally the
case. We feel we ought to explain even further below.
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A few words may first be necessary to explain the nature of nominal
damages, which are damages, say RM10, (traditionally of about 40
shillings in England), which could be awarded in each and every
breach of contract, in the absence of actual loss or damage,
inherently in such a case, or alternatively in the absence or failure of
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proof of such actual loss or damage.
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To revert to the poser above about Miss Chaplin, basically, the
evidence in Miss Chaplin’s case indubitably suggested a real loss, a
loss that was not too remote, going by the rules in Hadley v Baxendale
[1854] 9 Ex. 341; [1843-60] All ER Rep 461, but at the same time it was
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quite difficult to assess the damages or the amount of money that
should be given to her for such loss of such opportunity to be
selected.
In a good number of cases, rules for quantifying amounts of money
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for damages have evolved in Courts for some but not all but not all
types of cases, in other words, a measure of damages for some of
these cases has been respectively established e.g. the measure of
damages in a sale of goods being the difference between the market
value and contract price etc. However, a measure of damages i.e. a
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settled rule for assessing damage, has not been developed for cases
of the type of Miss Chaplin’s and such measure for her case has still
not been established, it would still be left to the good sense and fair
play of the Court to fix a reasonable amount as compensation. Thus,
it will mean that for lack of an established measure of damages in any
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particular case, the case will be one in which the Court finds it
difficult to ascertain the amount of actual loss or damage. The Court
will not shirk its duty, however, when such actual loss or damage is
manifested from the evidence and it is not too remote, to find a
reasonable sum for the Plaintiff.
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It is significant to add that there are cases of contract in which
evidence therein shows there can be no real loss inherently and in
such event, nominal damages will be the only damages for judgment
obtained by a successful plaintiff either to use it “as a peg to hand his
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costs on”, or to establish a right or a declaration of right. It is not
difficult to imagine such a case when the evidence shows clearly
there can be no real loss.
For illustration, for such a case clearly showing no real damage or
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loss where nominal damages would be the only remedy, let us say,
eg. that A, a doctor promises to examine the next day, B, a regular
patient of his, who is very keen to have A examine him routinely on
8
the following day, A fails to do so the next day. Here A is in breach of
contract; but the evidence here clearly shows no actual loss or
damage. Whether in any particular case the evidence shows any real
damage or not appears to be largely a matter of common sense.
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Thirdly, therefore, we hold that the precise attributes of such
contracts in which it is difficult for a Court to assess damages for the
actual damage or loss are cases where there is no known measure of
damages employable, and yet the evidence clearly shows some real
10
loss inherently and such loss is not too remote, then the Court ought
to award, not nominal damages, but instead, substantial damages not
exceeding the sum so named in the contractual provision; a sum
which is reasonable and fair according to the Court’s of good sense
and fair play.
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Fourthly, we hold that in any case where there is inherently any actual
loss or damage from the evidence or nature of the claim and damage
for such actual loss is not too remote and could be assessed by
settled rules, any failure to bring in further evidence or to prove
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damages for such actual loss or damage, will result in the refusal of
the Court to award such damages despite the words in question.”
[13]
In this instant case we are of the view that the losses
suffered are all measurable: “over head”, “machinery cost”,
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“delay in receiving payment”, “interest” and “goodwill”
could reasonably be assessed. However, the learned High
Court Judge said at paragraph 34 in page 612 of the Appeal
Record thus:
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“Menurut peguamcara Defendan kerugian sedemikian adalah sukar
untuk dibuktikan secara terperinci.”
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(Our translation:
“According to the counsel for the
Defendant such loss is difficult to prove in detail.”)(‘those
words’)
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[14]
However, learned counsel for the Respondent, Mr. Choong
Fui-Yu, admitted that he was unable to show to this Court
exactly in the evidence where those words were conveyed to
the High Court. Although considerable effort had been
made, in earnest, to locate those words in the notes of
proceeding, we are satisfied that no phrase containing those
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words was found in the evidence.
[15]
The Respondent also failed to produce any documentary
evidence of the actual loss suffered and could not therefore,
based on the authority of the above cited Selva Kumar
15
(supra),
be
entitled
to
claim
under
the
Liquidated
Ascertained Damages clause. It is interesting to point out
here that the ultimate employer to the sub-contract, i.e. the
Government of Malaysia, did not impose any Liquidated
Ascertained Damages on the Respondent. Likewise there is
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therefore no reason why the Appellant should now be
required to pay Liquidated Ascertained Damages to the
Respondent.
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[16]
Further it may be necessary to point out here that the term
“the goodwill” mentioned by the learned High Court Judge
at page 612 of the Appeal Record was not substantiated in
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the evidence of the Respondent either. In the event “the
goodwill” appearing in the judgment of the learned High
Court Judge was not proved either.
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[17]
We are of the considered view that by virtue of the doctrine
of stare decisis we are compelled to stand by and follow
what has been decided by the Federal Court in Selva Kumar
(supra). What Arifin Zakaria FCJ (as his Lordship then was)
said in Johor Coastal Development Sdn Bhd v Constrajaya
Sdn Bhd [2009] 4 MLJ 445 at page 460 fortified our view
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when he reaffirmed that “…I am of the view that Selva
Kumar is still good law.”
[18]
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For the above reasons, we allowed the appeal with costs
and set aside the order of the learned High Court Judge in
respect of the counterclaim of RM217,000.
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Sulong Matjeraie
Judge, Court of Appeal Malaysia
3rd August, 2010.
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Counsel for the Appellant:
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Mr Murali Achan
M/s Devandran & Co.
Advocates & Solicitors
No. 12B, Tingkat Atas
Lorong Seruling
Kompleks PKNPs
01000 Kangar
Perlis
Counsel for the Respondent:
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Mr Choong Fui-Yu
M/s Gananathan Loh
Suite 9-1, Level 9, Wisma UOA Damansara II
No. 6, Changkat Semantan
Damansara Heights
50490 Kuala Lumpur
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