IN THE HIGH COURT OF MALAYA AT KUALA LUMPUR
(CIVIL DIVISION)
CIVIL SUIT NO. S-22-550-2009
BETWEEN
BERJAYA TIMES SQUARE SDN. BHD. (119614-V)
…PLAINTIFF
AND
1.
TWINGEMS SDN BHD (213302-D)
2.
NG TEAK SIANG
(NRIC NO: 661231-01-5487)
Judgment of Judicial Commissioner
Y.A Tuan Lee Swee Seng
Judgment
…DEFENDANTS
Prologue
This is a story of a man who wanted to start a teahouse and so went about
sourcing and searching for a strategic spot to start his business. He had
even thought of a queer and quaint name for his teahouse. It was to be
called ‘SAINT’s ALP TEAHOUSE’. He stumbled upon a commercial
premises in Berjaya Times Square. There he was met by the
representatives who painted a rosy picture as to the suitability of the place
for his business and induced by such representations both orally as well as
in writing, his company signed a Tenancy Agreement for the premises of
1,362 square feet on the third floor (the Premises) with the Plaintiff as the
Landlord. He stood as a guarantor of all the rental and other outstanding
charges that may be incurred.
The representations according to him turned out to be false and he lasted
hardly 6 months there and could not see himself or his company bleeding
for the total duration of the tenancy of 3 years. He thought he could cut
losses by going for a mutual termination but the Landlord was unrelenting
and commenced a whopping claim of close to RM800,000.00 taking into
consideration the rental for the unexpired period as well. His monthly rental
was only RM14,982.00 .
Parties
The man who found himself now in travail is the 2nd Defendant who as a
director of the 1st Defendant, had signed a Tenancy Agreement on behalf of
the 1st Defendant with the Plaintiff. It was one of those standard form
Tenancy Agreement and here, running into 43 pages up to Schedule 4 and
Schedule 5 consists of the Shopping Complex Rules and that run into
another 21 pages. The Tenancy Agreement was dated 15.10.2003 and the
2nd Defendant also had to sign a Letter of Guarantee and Indemnity dated
12.7.2003 in favour of the Plaintiff with respect to indemnifying the Plaintiff
against any breach or non-performance of the Tenancy Agreement by the
1st Defendant. The tenancy was for a fixed period of 3 calendar years
commencing, and here there is some doubt, from10.11.2003 and expiring
on 9.11.2006 at least as pleaded in the Plaintiff’s statement of claim.
Problem
The Plaintiff had earlier filed a similar claim in Kuala Lumpur High Court
Civil Suit No:S2-22-482-2005 which is identical to the present action.
Though the Plaintiff in the previous action failed in their summary judgment
application before the Registrar, the Plaintiff appealed to the High Court
and before the decision of the High Court, the Plaintiff withdrew their
appeal on 7.12.2007. The Defendants had also filed a counter-claim in the
previous action for inter alia damages for fraud and misrepresentation and
that remains for setting down for trial. Subsequently the Plaintiff applied to
withdraw their claim against the Defendants with liberty to file afresh and
the High Court allowed it on 16.4.2009. However there is an appeal against
the High Court’s decision by the Defendants in the previous case as the
Defendants have objected to the Court allowing the Plaintiff the liberty to
file afresh. The appeal inter alia is on ground of a lack of locus standi on
the part of the Plaintiff to sue as they have absolutely assigned all their
interest in the property to AmMerchant Bank Berhad and even if there had
been a re-assignment back to the Plaintiff no notice of that has been given
to the Defendants.
The High Court had also ordered the Plaintiffs to pay costs to the
Defendants. As the Plaintiff did not pay the costs when this present
proceeding was filed, the Defendants had by Enclosure 5 applied for a stay
of this proceeding until costs is paid. Costs was agreed at RM18,000.00
and presumably it had been paid as there was no objection to the current
summary judgment application in Enclosure 4 from being heard.
In the previous Action the Plaintiff attempt to apply for summary judgment
was met with a counter claim by the Defendants who had also raised the
defences of:
(a)
misrepresentation;
(b)
fraud;
(c)
uncertainty in the contract;
(d)
breach of Section 75 Contracts Act 1950;
(e)
lack of locus standi by the Plaintiff; and
(f)
duty to mitigate losses.
The Plaintiff then filed the present Action and has applied for summary
judgment again based on the same facts and the Defendants have raised
the same defences and issues.
The Defendants stated that when they were offered the tenancy in June
2003 the said shopping complex was not even opened and most business
lots were still empty. It was thus difficult to make a business evaluation as
to the suitability of the said Premises and the business potential of the
shopping complex other than basing it purely on the promises and
representations made by the three representatives of the Plaintiff namely
Ms Abby Choo (the Plaintiff’s Marketing and Rental Executive), Ms
Amanda Lim (the Plaintiff’s Marketing and Rental Manager) and Wayne
Wong (the Plaintiff’s Senior Manager for Marketing and Rental) which
representations were collaborated by the website information , press
releases and news report of the Plaintiff. The representations were inter
alia that:-
(a)
the Berjaya Times Square complex (BTS) will have 3 million visitors
a month;
(b)
BTS will have more than 1,000 specialty shops, 1,200 service suites
and 65 food outlets;
(c)
A multiple screen Cineplex will be opened in December, 2003 or
January, 2004;
(d)
An IMAX 2 D and 3D theatre, the first in Malaysia will be operational
at BTS early 2004;
(e)
BTS will have a 48 lane bowling centre among the biggest in
Malaysia;
(f)
all 8 lots surrounding the first Defendant’s rented lot will be opened
fully and developed into a food court with an Italian restaurant with
opera shows; and
BTS will be a vibrant and thriving commercial centre.
The Plaintiff also sent a letter to the 1st Defendant promising visitors of 3
million a month (Exhibit AN-9, encl 3).
The Defendants stated that they were induced to enter into the Tenancy
Agreement as a result of the representations. It is not disputed that the
Plaintiff could not deliver on its promises within the period represented. The
Defendants have kept a catalogue of his complaints and displayed them as
follows:
The number of visitors to BTS from September 2003 to April, 2004 for 7
months is only 6 million i.e. less than 1 million a month (see press
release of the Plaintiff, encl 3 exhibit AN-13).
Less than half of the specialty shops had opened (para 20 encl 3)
The 2D and 3D I-MAX theatre promised opening in early 2004
happened only in December 2004, with the multi screened Cineplex
opening more than a year late in early 2005 (para 21 encl 3).
The 48 lane bowling centre was not opened as at 2005 (para 22 encl 3).
BTS is also not a vibrant and thriving complex as promised (para 23 encl
3).
As a result of the misrepresentations, the 1st Defendant who opened its tea
house in October 2003 could not sustain its business because of a lack of
human traffic and in February 2004, it made the painful decision to close
down the tea house. It said it suffered massive losses and so it decided to
bite the bullet and gave the Plaintiff a proposal of mutual termination which
proposal was rejected by the Plaintiff.
The Defendants were to realise how true the old saying that it doesn’t rain
but it pours! They have now been summoned to court to answer a claim
close to RM800,000.00 .
Prayer
The details of the Plaintiff’s claim by way of summary judgment in
Enclosure 4 for RM785, 891.21 are tabulated in the statement of account
as at 31st December 2007 as follows together with interest at the rate of
12% per annum on RM550,088.51 from 1.1.2008 till date of realization and
costs:-
a)
Outstanding due on date of vacant possession
- RM 116,795.49
b)
Outstanding due for balance unexpired term
- RM 669,095.72
-------------------RM 785,891.21
============
Details of the outstanding due on date of vacant possession are as follows:
PARTICULARS OF CLAIM
Arrears of remtal from 18.1.2004
17.6. 2004
b)
Outstanding service charge from
1.3.2004 to 17.6.2004
c)
RM 1,220.09
Late Interest charges from 25.1.2004
to 17.6.2004
e)
RM 4, 066.96
Outstanding advertising charge
from1.3.2004 to 17.6.2004
d)
RM 75,183.86
RM 2, 143.18
Late Interest charges from 18.6.2004
to 31.12.2007
RM 34, 181.40
-----------------------RM 116, 795.49
==============
Details of Outstanding due for balance unexpired term of tenancy are as
follows:
PARTICULARS OF CLAIM
a)
Rental from 18.6. 2004 to
9.11. 2006
b)
RM430, 482.80
Service charges from 18.6.2004
to 9.11.2006
c)
RM 39, 134.80
Late Interest charges from 18.6. 2004
to 31.12.2007
RM199, 478.12
------------------------
RM 669,095.72
==============
Principles
In a summary judgment application all that the Plaintiff needs to show is
that it has complied with the preliminaries of service of writ and statement
of claim on the Defendants and that the Defendants have entered an
appearance and further that the Plaintiff’s application is being supported by
an affidavit stating that it verily believes there is no defence to the action or
that there are no triable issues that justify the action going for trial. The
Plaintiff having complied with that it is for the Defendants to show that there
is at least a triable issue raised that justify the action doing for trial.
Issue 1: Whether the Tenancy Agreement was entered into by the 1st
Defendant as a result of the misrepresentation of the Plaintiff.
According to Section 18 Contracts Act 1950, “Misrepresentation” includes:“(a) the positive assertion, in a manner not warranted by the
information of the person making it, of that which is not true,
though he believes it to be true;
(b)
any breach of duty which, without an intent to deceive, gives an
Advantage to the person committing it, or anyone claiming under him,
by misleading another to his prejudice, or to the prejudice of anyone
claiming under him; and
(c)
causing, however innocently, a party to an agreement to make a
mistake as to the substance of the thing which is the subject of the
agreement.”
In Kheng Chwee Lian v. Wong Tak Thong [1983] 2 MLJ 320, the Federal
Court held that an agreement executed as a result of misrepresentation is
voidable under Section 19 Contracts Act 1950.
In Weber v. Brown [1908] 1 F.M.S.L.R. 12(CA), the Court of Appeal held
that the respondent who had entered into the agreement as a result of
misrepresentation can claim damages if he chooses not to terminate the
agreement.
In Senanayake v. Annie Yeo [1965] 2 MLJ 241, the Privy Council ruled
that where a contract is entered as a result of misrepresentation the
Plaintiff can terminate the contract and seek a refund of all payments
made.
Defendants’ counsel submitted that here the Defendants have terminated
the Tenancy Agreement and are seeking a refund of all payments made
amounting to RM61, 357.80 in deposits and also all rents already paid.
In Tay Tho Bok & Anor v. Segar Oil Palm Estate Sdn Bhd [1996] 3 MLJ
181 the High Court held that where there is misrepresentation it is not open
to the Defendant to argue that the Plaintiff had the means of discovering
the truth with reasonable diligence.
Defendants’ counsel said that here the misrepresentations were made
before the Tenancy Agreement dated 15.03.2003 was executed and there
is no way to determine if the representations made by the Plaintiff is true
until much later when all the features promised did not materialise by the
promised dates.
The Plaintiff relied on Clause 26 of the Tenancy Agreement which stated
that the Tenancy Agreement supersede the letter of offer and cancel all
previous contracts, agreements, representations, undertaking and prior
negotiations.
Apparently the Plaintiff had successfully raised the same argument in the
unreported case of Berjaya Times Square v. One Nation Development
Sdn Bhd & Ors vide Kuala Lumpur Civil Suit No. S3-22-1465-2007.
However, as pointed out by the Defendants’ counsel, there no affidavit in
reply was filed by the defendants and hence no particulars of the alleged
representation and inducement were made under oath. Further the
defendants there did not seem to have raised any authorities to counter the
application of the clause.
I am intrigued by the Defendants argument that where the very agreement
is being challenged as being entered into as a result of any inducement
arising out of misrepresentation and hence voidable, the guilty party can no
longer
rely
on
the
provisions
of
the
impugned
agreement
if
misrepresentation is proven at the trail because the innocent party can void
that very agreement. In any event as the alleged misrepresentations are
both orally and in writing I am inclined to allow the matter to go for trail.
The Defendants argument above is consonant with the attitude of the Court
to lean in protecting the weaker party in a case where there is ostensibly an
inequality of bargaining powers. We have often heard that our word is to be
our bond and more so in a commercial transaction where the weaker party
cannot make even an iota of change in a standard form tenancy agreement
prepared by the Landlord. The Court should ever be more vigilant to protect
the rights of the weaker party bearing in mind that the words used in the
written media of the Plaintiff in general and in the specific correspondence
to the Defendants are words purposefully crafted to attract prospective
tenants and not mere words penned perfunctorily but pungent words
impregnated with persuasive power enticing prospects to take the plunge.
The Court of Appeal has ushered in this breath of fresh air in Saad Mawi v.
Chan Hwan Hua & Anor [2001] 3 CLJ 98 where at p. 114 his Lordship
Gopal Sri Ram JCA (as he then was) said:
“In my judgment, the time has arrived when we should recognise the
wider doctrine of inequality of bargaining power.”
and at p. 115:
“What is therefore called for is a fairly flexible approach aimed at
doing justice according to the particular facts of the case. Historically,
that is what equity is all about. This brings me to the third alternative.
This is to adopt the English doctrine but apply it in a broad and liberal
way as in Canada. I find this the most just solution. It is a method by
which practical justice may be achieved within a framework of
principles.”
I cannot accept the argument that the Plaintiff as Landlord can make all
representations that it wanted to entice and encourage the Defendants to
sign the Tenancy Agreement and then say in the next breath, that all It has
said so far amount to nothingness, and that none of what has been said is
to be relied upon, that it should have no bearing in their making the
decision to sign the agreement and perhaps even that all the impression
that those words might have had on the Defendants are to be expunged
from their memory and in any event, those representations as conveyed by
the words used by the Plaintiff are not to be referred to when the
representations turn out to be false! It begs the simple question: Why make
a representation when it is not to be depended upon in a commercial
transaction?
In Lowe v. Lombank Ltd [1960] 1 All ER 611, the Court of Appeal held
that the defendants could not rely on the exclusion clause in a hire
purchase agreement which purported to exclude the implied conditions as
to the fitness of the goods for the purpose for which it was required even
though the hirer has signed the acknowledgement in the delivery receipt
that the goods were in good order and conditions when in fact they were
not.
In Watford Electronics Ltd v. Sanderson CFL Ltd [2001] 1 All ER
(Comm) 696 at p. 711 c-e, the Court of Appeal held:
“… It is true that the acknowledgement of non-reliance does not
purport to prevent a party from proving that a representation was
made, nor that it was false. What the acknowledgement seeks to do
is to prevent the person to whom the representation was made from
asserting that he relied upon it. If it is to have that effect, it will be
necessary ….for the party who seeks to set up the acknowledgement
as evidential estoppel to plead and prove that the three requirements
identified by this court in Lowe v. Lombank Ltd [1960] 1 All E R 611,
[1960] 1 WLR 196 are satisfied.
That may present insuperable
difficulties; not least because it may be impossible for a party who
has made representations which he intended should be relied upon to
satisfy the court that he entered into the contract in the belief that a
statement by the other party that he had not relied upon those
representations was true.”
Though the above dicta was said in the context of the Unfair Contracts
Terms Act 1977 in UK, the position here in the absence of such a specific
statute cannot be different as concepts of fairness, reasonableness and
estoppels permeates our whole jurisprudence. The Defendants are not
prevented from proving that representations were made or that it was false
and in fact the Defendants were induced to enter into the Tenancy
Agreement as a result of those representations. At any rate this is a matter
that should go for trial-whether the Defendants were so induced by the
Plaintiffs through the representations made; whether the Defendants knew
that they cannot depend on the representation and whether the
representations were false or not.
In any event in Malaysia, the Courts have consistently upheld oral collateral
agreements which is admissible under Section 92(c) of the Evidence Act
1950. In Ganesan & Anor v. Baskaran [1986] 2 MLJ 27, the Supreme
Court held that the issue of whether the respondent did make an oral
promise is an issue to be tried.
Plaintiff’s counsel referred to the following authorities in arguing that the
misrepresentation raised in the Defendants’ Affidavits are without any
merits and does not constitute a triable issue for the following reasons:
a)
It is trite law that the 1st Defendant and the Plaintiff are strictly bound
by the terms of the Tenancy Agreement. The 1st Defendant cannot
vary the terms of the Tenancy Agreement by oral evidence (see:
Tractors Malaysia Bhd v. Kumpulan Pembinaan Malaysia Sdn
Bhd [1979] 1 MLJ 129), where at page 130 it was stated:“In dealing with the issue before us, we bear in mind the
following:Where a contract has been reduced to writing,
“It is in the writing that we must look for the whole of the terms
made between the parties.”
per Viscount Haldane L.C. in Dunlop v. Selfridges at page 854.
And in such a circumstance, section 92 of the Evidence Act
1950 does not enable any party to that agreement to lead
evidence contradicting varying adding to or subtracting from its
terms.”
b)
Further reference can be made to the case of Keng Huat Film Co.
Sdn Bhd v. Makhanlall (Properties) Pte Ltd [1984] 1 MLJ 243 at page
247 where it was decided that:-
“It should be noted that in Prenn’s case (ante) the House of
Lords refused to extend the court’s interpretative power by
allowing pre-contract negotiations to be looked at in aid of the
construction of a written document, by emphasizing “the
disadvantages and danger of departing from established doctrine
and the virtue of the latter”. For the construction of a written
agreement the established doctrine is firstly to exclude evidence
of negotiations leading up to the contract on the ground that it is
only the final agreement which records a consensus and as such
evidence of negotiations is unhelpful; and secondly to exclude
evidence of the parties’ subjective intentions so that any
individual purpose which either of them hopes to achieve by the
agreement and their own interpretation and understanding of the
agreement is not admissible.”
It was submitted by the Plaintiff’s counsel that from the aforesaid cases, it
would be evident that the Courts would not admit parol evidence to
contradict a written document unless it comes within the exceptions in
Section 92 of the Evidence Act 1950.
Plaintiff’s counsel pointed out that in our present case, the exceptions to
the rule against parol evidence are also excluded by virtue of Clause 26 of
the Tenancy Agreement which is known as the ‘Entire Agreement’ clause.
Clause 26 clearly excludes any representation, undertakings and
negotiation, prior to the execution of the Tenancy Agreement. Clause 26
states:
“Clause 26: Letter Of Offer
This Tenancy Agreement shall upon its execution thereof supersede the
Letter of Offer and also further supersede and cancel in all respects all
previous contracts, agreements, representations, undertakings and prior
negotiations amongst the Parties hereto with respect to the subject matter
hereof whether such be written or oral.”
Prior to the execution of the Tenancy Agreement, the 1st Defendant had
also executed the Letter of Offer dated 4.8.2003 which has the ‘Entire
Agreement’ clause and the said clause is herein reproduced:
“Entire Agreement
This letter of offer to take the tenancy upon the terms contained herein
supersedes all prior understandings, agreements, negotiations and
representations whether oral or written between the landlord and tenant
with respect to the subject matter herein contained.”
Plaintiff’s counsel submitted confidently that the effect of the Clause 26 of
the Tenancy Agreement and the ‘Entire Agreement’ clause in the Letter of
Offer
is
to
exclude
all
“the
previous
contracts,
agreements,
representations, undertakings and prior negotiations amongst the
Parties hereto with respect to the subject matter hereof whether such
be written or oral” and therefore the parties are only bound by the terms
of the formal Tenancy Agreement (emphasis added).
Plaintiff’s counsel said that in Macronet Sdn Bhd v. RHB Bank Sdn Bhd
[2002] 3 MLJ 11, Abdul Aziz J (as he then was) on a similar entire
agreement had said in clear and certain terms at page 25 that:
“The Plaintiffs raised two arguments against the defendants’
reliance on the entire agreement clause. The first is that the
second precontractual representation and the oral agreement
were separate collateral agreements which ran side by side with
the agreement and did not contradict or vary it. I have already
said that the second precontractual representation and the oral
agreement did contradict the agreement. The other argument is
that the entire agreement clause is no more than what is laid
down in s 92. That clearly is no right. As I have indicated, the
effect of the entire agreement clause was to exclude any
variation of the agreement by an oral agreement. Any variation
must be by another written agreement. But s 92 would allow the
agreement to be contradicted or varied by an oral agreement or
statement if it falls within any of the exceptions.
The Plaintiffs have, therefore, not shown that the entire
agreement clause does not disqualify them from attempting to
resort to exceptions (b) or (c) in s 92.
My opinion is simply this. The entire agreement clause was an
agreement between the Plaintiffs and the Defendants. In
agreeing to the clause, the parties must be presumed to have
known of the existence of s 92 and of the exceptions in it and to
have intended what the clause intended, that is to exclude any
attempt to vary the agreement by an oral agreement or
statement, which attempt can only be made through the
exceptions in s 92.By agreeing, therefore, to the entire
agreement clause, the Plaintiff agreed not to resort to any of the
exceptions in s 92. They cannot, therefore, be allowed to prove
the second precontractual representation or the Oral agreement
and to rely on them.”
Plaintiff’s counsel continued that argument that as decided in Macronet’s
case (supra), by agreeing to the ‘Entire Agreement’ clause, the 1st
Defendant in the present case had agreed not to resort to any exceptions in
Section 92 and therefore the 1st Defendant cannot be allowed to rely on the
alleged misrepresentations (which are being denied).
The principle of law in the Macronet’s case (supra) was applied by the
Court of Appeal in the case of Master Strike Sdn Bhd v. Sterling Heights
Sdn Bhd [2005] 3 MLJ 585, whereby YA Nik Hashim JCA (as he then was)
at pages 593 to 594 decided that:
“[7] Clause 24 is an entire agreement clause that constitutes a
binding agreement between the appellant and the respondent
which regard to all the matters mentioned in the contract and
therefore, in our judgment, the contract does not permit any term
to be implied or import any other considerations not in the
contract. In Innterpreneur Pub Co v East Crown Ltd [2000] 3
EGLR 31 at p 32K-L right a somewhat similar provision to cl 24 is
set out. In his judgment, Lightman J opined on the purpose and
the effect of an entire agreement where at p 33A-B left he said:
The purpose of an entire agreement clause is to preclude a party
to a written agreement from threshing through the undergrowth
and finding, in the course of negotiations, some (chance) remark
or statement (often long forgotten or difficult to recall or explain)
upon which to found a claim, such as the present, to the
existence of a collateral warranty. The entire agreement clause
obviates the occasion for any such search and the peril to the
contracting parties posed by the need that may arise in its
absence to conduct such a search. For such a clause constitutes
a binding agreement between the parties that the full contractual
terms are to be found in the document containing the clause and
not
elsewhere,
and
that,
accordingly,
any
promises
or
assurances made in the course of the negotiations (which, in the
absence of such a clause, might have effect as a collateral
warranty) shall have no contractual force, save in so far as they
are reflected and given effect in that document.”
I think there is a place to extol the virtues and indeed virility of ‘Entire
Agreement’ clause especially in the context of negotiations where parties
are in the same league as in having bargaining powers to negotiate the
best terms for themselves. A slightly different complexion emerges where it
is in the context of inequality of bargaining powers as in the one here where
the Plaintiff in effect is saying ‘here is our standard form agreement and
please sign at the dotted lines and give us an Indemnity and Guarantee
through your director’, the 2nd Defendant here. The context in which the
words were used in the representation would give it the connotation and
the colour and the words may well prove to be colorable. At any rate this is
something that can only be established at trial and I do not think that the
Defendants should be shut out from defending themselves and putting up a
Counter-Claim in the process.
Issue 2: Whether the Plaintiff is entitled to forfeit the sum of RM61,357.80
being deposits paid in the light of section 75 Contracts Act 1950 or for that
matter to claim for the whole amount of rental for the unexpired period of
tenancy or is the Plaintiff under a duty to mitigate its loss.
Clause 10(2) of the Tenancy Agreement clearly states that in the event if
the 1st Defendant vacates the Premise before the expiry date, 1st Defendant
is liable to pay the agreed liquidated damages for the monthly rentals and
services charges for the entire duration of the tenancy. The clause in its
entirety reads:
“In the event that the Tenant unilaterally determines and /or terminates this
Tenancy Agreement before the expiry of the Term hereby created, or in
the event of this Tenancy having been renewed for the Extended Term
under Clause 7 hereof before the expiry of the Extended Term of the
Tenancy, then and in such an event the Landlord shall be entitled to
forthwith re-enter upon and take possession of the Demised Premises and
shall be entitled to forfeit absolutely the Security Deposit and all other
monies paid by the Tenant herein and in addition thereto the Tenant shall
pay forthwith to the Landlord as agreed liquidated damages the whole of
the Monthly Rental and Service Charges for the duration of the unexpired
and remaining Term hereby created or in the event of the Extended Term
having been extended, for the duration of the unexpired and remaining
term of the Extended Term and without prejudice to the Landlord’s right of
action against the Tenant for any antecedent breaches of this Agreement.”
The claim for the unexpired period was from 18th June 2004 to 9th
November 2006. The computation for the outstanding sum from date of
vacant possession to the expiry date gives the sum of RM669, 095.72.
Section 75 Contracts Act 1950 provides as follows:
“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, of 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.”
The Federal Court in Selva Kumar a/l Murugiah v. Thiagarajah a/l
Retnasamy [1995] 1 MLJ 817 , had ruled that under Section 75 Contracts
Act 1950, the Court must determine in every case what is reasonable
compensation and the Plaintiff is not entitled to forfeit the deposit paid at
will even though it is stipulated in the agreement. Peh Swee Chin FCJ said
at pages 823 F-I and 824 A:“We have long known the object for which the section in question
was enacted first in India and later here in our country. Thomson J
(as he then was) in Maniam v. The State of Perak [1957] MLJ 75,
commenting on arguments advanced before him as to whether a
certain sum was to be regarded either as a penalty or as liquidated
damages, said [at p 76]:
In the first place, in this country there is no difference between
penalty and liquidated damages. Section 75 of the Contract
Ordinance which is the same as s 74 of the Indian Contract Act
reads as follows:
‘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.’
As is said in Pollock and Mulla on the Indian Contract Act (7th Ed) at p
410, ‘This section boldly cuts the most troublesome knot in the
common law doctrine of damages’. In brief, in our law in every case if
a sum is named in a contract as the amount to be paid in case of
breach it is to be treated as a penalty. See Bhai Panna Singh v. Bhai
Arjun Singh AIR 1929 PC 179.
It is obvious that any submission as to whether a certain clause in a
contract is a penalty or liquidated damages is an exercise in futility.
Clause 15(b) of the agreement before us is therefore unenforceable
and is to be regarded as a penalty, void in equity for being
unconscionable.”
On the other hand, Plaintiff’s counsel referred me to the cases of Sun
Properties Sdn Bhd v. Happy Shopping Plaza Sdn Bhd [1987] 2 MLJ
711 and Johor Coastal Development Sdn Bhd v. Constrajaya Sdn Bhd
[2009] 3 MLJ 349 which clearly state that the landlord is entitled to forfeit
the deposits paid by the tenant in the event where there is nonperformance of the terms of the Tenancy Agreement.
On the issue of mitigation of losses as raised by the Defendants, the
Plaintiff’s counsel submitted that there is no obligation on the Plaintiff’s part
to mitigate the loss and he referred to Teh Wan Sang & Sons Sdn Bhd v.
See Teow Chuan [1984] 1 MLJ 130 where it was decided by Peh Swee
Chin J. (as he was then) at page 133 that:
“Now, the governing principle is that the need or duty to mitigate
one’s losses can only arise if there is a breach of contract. This is
self-evident, but when did the duty to mitigate losses in the
instant case arise? Bearing in mind that the contract in this case
was a three year tenancy and bearing in mind the ratio in the
Carter’s case above, it would seem that the breach arose when
the landlord finally accepted the anticipatory repudiation, i.e.
when the landlord finally took in a new tenant as from May 16,
1977. The claim of the landlord for loss of rent up to May 15,
1977 is therefore valid and proper, and there was no need for the
landlord to try to reduce the losses for which the tenant would be
responsible.”
As is often said, the facts from which the principle is derived must be
examined. In the above case, the learned Judge at p, 132 observed that:
“Learned counsel for the landlord has submitted in the first place, to the
effect, that the duty to mitigate would only arise if the landlord had
accepted the tenant’s “breach of contract” and therefore treated the
agreement as at an end. However, in this case, the landlord had not
accepted the breach (i.e. vacating before the expiry of the three years’
term). …the landlord appears to have treated the tenancy agreement as
still subsisting for the benefit of both parties. I have no doubt that the
landlord had indeed taken this stand and that the tenant was similarly left
in no doubt about this stand and the landlord’s constant claim to have the
tenant held liable for rent even after the vacation of the factory building.”
In the present case, the Landlord had accepted the breach by the
Defendants and taken back possession of the Premises on 17.6.2004. It is
a basic principle of breach of contract that the innocent party should do all it
reasonably could to mitigate his loss. Evidence of that has to be led at trial
as to what steps the Plaintiff have taken to mitigate its loss and whether or
not the Premises was vacant during the entire period of the unexpired term.
Even in Teh Wan Sang’s case (supra) the learned Judge went on to say at
p, 133 that:
“Should I be held wrong on this later, then in my judgment, the
landlord had done all it reasonably could in mitigating its losses, by
inserting advertisements in the newspapers and there was evidence which
I accepted, of the landlord passing the word round verbally about the
factory building being available for letting.”
In the instant case at this summary judgment stage I cannot say that the
Plaintiff as Landlord has done all it reasonably could to mitigate its loss.
In Kabatasan Timber Extraction Co. v. Chong Fah Shing [1969] 2 MLJ
6, the Federal Court quoted from Anson’s Principles of English law of
contract 2nd Edition the following passage at p. 8 F-I:
“It also follows from the rule that damages are compensatory
only that one who has suffered loss from a breach of contract
must take any reasonable steps that are available to whom to
mitigate the extent of the damage caused by the breach. He
cannot claim to be compensated by the party in default for loss
which is really due not to the breach but to his own failure to
behave reasonably after the breach.
Thus, although the measure of damages for breach of a contract
to deliver goods is ordinarily the difference between the contract
price of the goods and the market price at the time when delivery
should have been given, yet if the plaintiff might have mitigate his
loss, for example, by any immediate purchase at a low price of
goods or replace those not delivered, or by accepting a
reasonable offer from the defendant to make good part of the
loss, this is to be take into account in assessing his damages
(Brace v. Calder, Payzu Ltd. v. Saunders). It is a question of fact
in each case whether he has acted as a reasonable man might
have been expected to act, and he is not required to risk his
commercial reputation Finlay (Fames) & Co. Ltd. v. N.V. Kwik
Hoo Tong H.M. to embark upon complicated litigation (Pilkington
v. Wood) in order to mitigate his loss.”
Issue 3: Whether the Tenancy is void for uncertainty.
The Plaintiff’s own statement of claim (para 4) stated that the tenancy
period is from 10.11.2003 until 09.11.2006. However the Plaintiff’s
Solicitors letter of demand dated 25.05.2004 (exhibit BTS-4 encl 4A) at
paragraph one stated that the tenancy is for a fixed period from 18.12.2003
to 17.12.2006. In a letter of demand dated 07.07.009 (exhibit BTS-7 encl
4A) the Plaintiff’s solicitor’s letter stated that the tenancy is from 10.11.2003
to 09.11.2006. Section 2 Schedule 2 of the Tenancy Agreement (at page
41 BTS-1 encl 4A) itself stated that the 3 years commences 7 days after
the date of Vacant Possession. However under the Clause 3 of the
Tenancy Agreement (at page 11 BTS-1), the tenant is entitled to a 45 day
rent free fitting out period (See definition of “Fitting Period” in page 6
exhibit BTS-1 encl 4A, and Section 2 Schedule 2 at page 41 BTS-1 and
Section 3 Schedule 1 BTS-1). Therefore the question arises as to when the
tenancy takes effect and when it is supposed to terminate. Defendant’s
counsel submitted that this issue itself requires trial because it has a
bearing on the quantum claimed.
Defendants’ counsel submitted that if there is an uncertainly over the terms
of the agreement, it is void for uncertainly – Section 30 Contract Act 1950.
Further the letters of demand issued to the Defendants are void if the sum
demanded is wrong. I am of the view that though there may be some
ambiguity arising out of a comedy of errors committed by the Plaintiff, it is
not an error of such a magnitude as to throw the whole tenancy into a
confused state of flux. Perhaps the uncertainty as to the commencement of
payment of rental is a matter that can only be clear after evidence is
adduced in court during trial but that goes to quantum if at all.
Taking into consideration the 3 months rental deposit and other utilities
deposit and water deposit plus renovation deposit paid amounting to
RM61,357.80, I am prepared to allow the Defendants leave to defend by
paying the sum of RM50,000.00 into the Plaintiff’s solicitors account and
the balance of the claim to go for trial. The outstanding rental up to June
2004 together with service charges, advertising funds and late payment
interest as at 31.12.2007 as claimed by the Plaintiff is RM116,795.49 and
that includes a sum of RM34,181.40 for late interest payment from
18.6.2004 to 31.12.2007.
Issue 4: Whether Notice of Reassignment has been given to the
Defendants.
Following the signing of Deed of Reassignment Cum Undertaking dated
10.8 2006, all the rights, interests and benefits were reassigned to the
Plaintiff by the AmMerchant Bank Berhad. On this fact, it is the Plaintiff’s
submission that the Plaintiff after the previous Action was withdrawn with
liberty to file afresh had filed the present proceeding against the
Defendants to enable the Court to decide the case on the merits.
However the Defendants’ counsel took a different view and submitted that
the pertinent question that arises here is whether the Plaintiffs had given
the notice of reassignment of the rights under the Tenancy Agreement to
the Defendants prior to the filing of this present Action?
According to Section 4(3) Civil Law Act 1956:
“4(3) Any absolute assignment, by writing, under the hand of the assignor,
not purporting to be by way of charge only, of any debt or other legal chose
in action, of which express notice in writing has been given to the
debtor, trustee or other person from whom the assignor would have been
entitled to receive or claim the debt or chose in action, shall be, and be
deemed to have been, effectual in law, subject to all equities which would
have been entitled to priority over the right of the assignee under the law as
it existed in the State before the date of the coming into force of this Act, to
pass and transfer the legal right to the debt or chose in action, from the
date of the notice, and all legal and other remedies for the same, and the
power to give a good discharge for the same, without the concurrence of
the assignor.” (emphasis added)
Here the Plaintiffs claimed to have been reassigned the rights under the
Tenancy Agreement but had not adduced any proof that they have given
notice of the same to the Defendants. Page 19 of exhibit BTS-8 showed a
format of the notice reassignment to the defaulting tenants. So whilst the
Plaintiff is aware of the need for a notice of reassignment to be given to the
Defendants, none had been given to date.
Since the Plaintiff had failed to give any notice of reassignment of rights
under the Tenancy Agreement, the Plaintiff still do not have any locus
standi to file the present Action. Suffice to say that at this stage of summary
judgment this argument is very interesting and there is nothing preventing
the Defendants from applying to strike out the Plaintiffs claim if they are so
minded.
If the defendant shows that there are issues that ought to be tried, the
matter should go to trial.
In Kiwi Brands (M) Sdn Bhd v. Multiview Enterprises Sdn Bhd [1998] 6
MLJ 38, the High Court held that where the defendant’s affidavit showed an
adequate defence for trial and there is a counter claim, the matter ought to
go for trial. Interrogatories, discovery and cross examination would be
made available once the case goes for trial but would be totally shut out if
there was summary judgment.
Issue 5: Whether the 2nd Defendant is liable under the Letter of Guarantee
dated 12.7.2003.
I agree with the Defendants’ counsel submission that the 2nd Defendant’s
liability is co-extensive with that of the 1st Defendant- see section 81
Contracts Act 1950. Therefore all the arguments raised by the 1st
Defendant relating to the Tenancy Agreement apply equally to the 2nd
Defendant. There is a further point raised in that when the 2nd Defendant
signed the Letter of Guarantee it was dated 12.7.2003 with the name of the
tenant left blank whereas the Tenancy Agreement was dated 15.10.2003.
The 2nd Defendant raised the issue of whether the Plaintiff can unilaterally
insert the name of the 1st Defendant some 3 months later without the prior
consent of the 2nd Defendant.
Pronouncement
Considering all the arguments in its totality and having regard to the fact
that it is undisputed that the 1st Defendant was occupying the Premises
from November 2003 to date of delivery of vacant possession on 17.6.2004
I granted the Defendants conditional leave to defend by Defendants paying
a sum of RM50,000.00 to the Plaintiff’s solicitors client’s account within 60
days from date of this order and the said sum is to be kept in fixed deposit.
Balance of claim to go for trial. If the sum of RM50,000.00 is not paid within
60 days judgment shall be entered for the sum of RM50,000.00 only and
the balance of claim shall still go for trial. Costs in the cause.
Dated: 10.11.2010.
Sgd
Y.A. TUAN LEE SWEE SENG
Judicial Commissioner
High Court (Civil Division)
Kuala Lumpur
For the Applicants/Plaintiff: Mr. B Thangaraj (Thangaraj & Assoc.)
For the Respondents/ Defendants Mr. V L Yiew (C H Yeow & Yiew)
Date of Decision: 12.8.2010.