1.0 Issue
Learned counsel for Mahadaya submitted that KPDRM’s maintained termination of SPA1 was invalid and that the land had been rightfully transferred to Mahadaya whose title thereto was indefeasible on the basis of s 340 of the National Land Code (‘s 340’). Mahadaya’s alternative argument was that if KPDRM was entitled to terminate SPA1, KPDRM could only forfeit RM 140,000 ie 10% of the purchase price and must refund RM860,000 i.e. the balance of the ‘deposit and part payment’.
2.0 Summary
Koperasi Polis Diraja Malaysia Bhd (‘KPDRM’) was the original owner of three parcels of agricultural property in Kertih, Terengganu (‘the land’). Pursuant to a sale and purchase agreement (‘SPA1’) KPDRM decided to sell the land to Koperasi Mahadaya Bhd (‘Mahadaya’) for RM1.4m. Upon implementation of SPA1 Mahadaya paid KPDRM RM1m as ‘deposit and part payment’. The balance of RM 400,000 (‘the balance’) was to be paid to KPDRM’s solicitors as shareholders within one month or such extended period as may be agreed. SPA1 also provided that in the event Mahadaya unsuccessful to pay the balance within the specified time or extended period, KPDRM was at liberty to forfeit as agreed damages, RM 500,000 ie 50% of the sum of RM1m paid, and the balance shall returned to Mahadaya. Due to Mahadaya’s failure to pay on time, KPDRM terminated SPA1 and forfeited 50% of the payment. However, the titles to the land were not refunded to KPDRM. A search exposed that the titles had been registered in Mahadaya’s name. In the meanwhile, Mahadaya had discussed with Reinco Properties Sdn Bhd (‘Reinco’) to develop the land into a housing estate. Mahadaya and Reinco had entered into a joint venture agreement (‘the JVA’) and supplemental agreement (‘the SA’) to grow the land into a housing estate (‘the project’). Reinco was to fully finance the buying price payable by Mahadaya to KPDRM under SPA1. Reinco was also to recompense Mahadaya RM15m from the proceeds of sale of the units in the project, in lieu of 20% of the units built in the project. On 1 June 2001 Mahadaya purportedly dismissed the JVA and the SA on alleged grounds of Reinco’s failure to pay RM 1.2m to Mahadaya under the SA. Learned counsel for Mahadaya submitted that KPDRM’s purported termination of SPA1 was illegal and that the land had been rightfully transferred to Mahadaya whose title thereto was indefeasible on the basis of s 340 of the national land code (‘s 340’). Mahadaya’s alternative contention was that if KPDRM was entitled to terminate SPA1, KPDRM could only forfeit RM 140,000 ie 10% of the purchase price and must repayment RM 860,000 ie the balance of the ‘deposit and part payment’. The high court held that: (i) SPA1 was terminated, null and void and that KPDRM was permitted to forfeit RM 200,000 from the deposit and part payment; (ii) Mahadaya re-transfer the land to KPDRM; (iii) the sale and purchase agreement between Mahadaya and Reinco (‘SPA2’) was null and void; and (iv) Reinco deliver vacant possession of the land to KPDRM. As against Mahadaya and KPDRM, the high court allowed Reinco’s claim for liquidated damages of RM 800,000.
3.0 Legal Principle
This contract is under discharge by frustration. If a party promises to carry out a particular act, the law will hold them to their promise. This principle is commonly known as the doctrine of absolute liability.
There are two instances of frustration, i.e. when a contract to do an act becomes difficult or unlawful. However, the frustration should be appearing and subsequent to the formation of the contract. It should be some event which the promisor could not prevent, as a ‘self-induced frustration’ does not absolution a party of his contractual obligations.
The effect of a frustrating event is to discharge a contract instantly, but only as to the future. The contract is not void ab initio, but only void from the time of the frustrating event. For the period that the contract is legal, any obligations that arise must be fulfilled. Money paid under the terms of the contract. A total failure of attention would need to be established in order that the money is recovered.
The legislation in this case is talk about to Civil Law Act 1956 S15(1), (2), Part VI, Contracts Act 1950 S75, and National Land Code S340, 340(3), 340(3)(a). In Civil Law Act 1956 Part VI is about adjustment of rights and liabilities of parties to frustrated contract. S15 (1) explained that where a contract has become difficult of performance or been otherwise frustrated, and the parties thereto have for that reason been discharged from the further performance of the contract, subsections (2) to (6) shall, subject to section 16, have effect in relation thereto. While S15 (2) explained about all sums paid or payable to any party in pursuance of the agreement before the time when the parties were so discharged shall, in the case of sums so paid, be recoverable from him as money received by him for the use of the party by whom the sums were paid, and in the case of sums so payable, cease to be so payable. Provided that, if the party to whom the sums were so paid or payable incurred expenditures before the time of discharge in, or for the purpose of, the performance of the contract, the court may, if it considers it just to do so having regard to all the circumstances of the case, allow him to retain or, as the case may be, recover the whole or any part of the sums so paid or payable, not being an amount in excess of the expenses so incurred.
Another contract is Contracts Act 1950 S75 which is compensation for breach of contract where punishment stipulated for. 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 shown 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 last contract is National Land Code S340, 340(3), 340(3)(a) is registration to confer indefeasible title or interest, except in certain situations. The section is about the title or interest of any person or body is defeasible by purpose of any of the circumstances specified. It shall be liable to be set in the hands of any person or body to whom it may subsequently be moved.
4.0 Decision by the Court
These two relatively multifarious appeals arose from two consolidated suits in the Kuala Lumpur High Court viz Civil Suit S2-(S5)-21-182 of 2001 (‘Civil Suit S2’) and Civil Suit S3-22-1150 of 2001 (‘Civil Suit S3’). They involve substantially the same parties, and the same properties viz three parcels of agronomic land held under Geran No 9743 Lot 2675, Geran No 9744 Lot 2676; and Geran No 9745 Lot 2677, in the mukim of Kertih, district of Kemaman, Terengganu.
In Civil Suit S2, the accuser is Koperasi Polis Diraja Malaysia Bhd (‘KPDRM’). After a full trial, as against the first defendant Koperasi Mahadaya Bhd (‘Mahadaya’), the High Court made the following orders:
(1) Declaration:
a) That the sale and purchase agreement executed between KPDRM and Mahadaya on 21 December 2000 (‘SPA1’) is terminated, null and void;
b) That KPDRM is entitled to forfeit RM 200,000 from the deposit and part payment of RM 1million;
c) That KPDRM is at all times the rightful owner of the land;
d) That any dealing by any party using SPA 1, Transfer Form and Title Deeds (collectively ‘the Transfer Documents’) after the date of SPA 1 is null and void;
e) That all entries of transfers of title and memorial effected by any party using the Transfer Documents after the date of SPA 1 are null and void;
(2) Injuction
a) That Mahadaya retransfer the Land to KPDRM;
b) That Mahadaya return the Transfer Documents to KPDRM within 14 days of service of this order;
c) Restraining Mahadaya from using the Transfer Documents to deal with any person whatsoever;
(3) An order that Mahadaya deliver vacant possession of the land to KPDRM; and
(4) Costs.
Meanwhile, the High Court dismissed Mahadaya’s counterclaim for:
a) A declaration that Mahadaya is the rightful registered owner of the land;
b) An injunction restraining KPDRM from interfering with the affairs, management and administration of Mahadaya;
c) Specific performance of SPA1;
d) General damages; and
e) Costs
As against the second defendant, Reinco Properties Sdn Bhd (‘Reinco’), KPDRM obtained the following orders:
(1) Declaration:
a) That the sale and purchase agreement executed between Mahadaya and Reinco (‘SPA 2’) is null and void;
b) That KPDRM is at all material times the rightful owner of the land;
c) That any dealing by any party using the Transfer Documents after the date of SPA 2 is null and void;
d) That all entries of transfers of title and memorial by any party after the date of SPA 2 is null and void;
(2) Injunction:
a) That Reinco return forthwith the Transfer Documents to KPDRM;
b) Restraining Reinco from dealing with any person by using the Transfer Documents and SPA 2;
(3) An order that Reinco deliver vacant possession of the land to KPDRM; and
(4) Costs.
Civil Suit S3 was filed by Reinco against Mahadaya and KPDRM, based on the joint venture agreement (‘the JVA’) and supplemental agreement (‘the SA’) entered into between Mahadaya and Reinco. Reinco claims, inter alia, beneficial ownership of the land on the ground that, pursuant to the JVA, it had provided RM1.8m to Mahadaya to purchase the land. In addition, Reinco sought the following reliefs:
(1) Declaration:
a) That KPDRM’s purported termination of SPA 1 is null and void;
b) That KPDRM’s remedy in personal against Mahadaya, or Mahadaya solicitors who gave their undertakings, for the balance purchase price;
c) That by its letter dated 1 June 2001, Mahadaya was in default by not performing the JVA and the SA, but purporting to terminate the same;
(2) A vesting order pursuant to cl 2 of the SA to vest the Land from Mahadaya to Reinco; and a further order directing the Registrar of Titles Terengganu to give effect to the prayer herein;
(3) Damages for breach of contract to be assessed by the Senior Assistant Registrar;
(4) Liquidated damages in the sum of RM 800,000 with interest at 8% pa from 21 December 2000 to the date of full realization; and
(5) Costs in Civil Suit S2 and Civil Suit S3 to be paid by Mahadaya to Reinco.
As against Mahadaya and KPDRM, the High Court allowed Reinco’s claim for liquidated damages of RM 800,000 with interest at 8% pa from 21 December 2000 to the date of full realization, and costs to be taxed. However, Reinco’s other prayers were dismissed.
Mahadaya and Reinco have, vide these appeals viz Nos W-02-2653 of 2009 and W-02-2677 of 2009, respectively appealed against the aforesaid orders.
5.0 Conclusion
On the foregoing grounds, the court allow Mahadaya’s in Civil Suit S2 in part by varying the forfeiture sum of RM 200,000 (from the RM1m paid pursuant to SPA1) and replacing it with the forfeiture sum of RM 140,000 as the true deposit being 10% of the total purchase price of RM1.4m, and order KPDRM to refund the balance of RM 860,000 to Mahadaya. By consent, each party is to bear its own costs in this appeal rising from Civil Suit S2.
In Civil Suit S3, the court allows Reinco’s appeal to the extent that the sum of RM 800,000 presented to Reinco is varied to the sum of RM1.8m, but only against Mahadaya and not against KPDRM. All the other orders of the High Court (including costs) are hereby confirmed. The parties have agreed that both Reinco and KPDRM shall respectively accept from Mahadaya the sum of RM 500,000 as costs.
Learned counsel for Mahadaya submitted that KPDRM’s maintained termination of SPA1 was invalid and that the land had been rightfully transferred to Mahadaya whose title thereto was indefeasible on the basis of s 340 of the National Land Code (‘s 340’). Mahadaya’s alternative argument was that if KPDRM was entitled to terminate SPA1, KPDRM could only forfeit RM 140,000 ie 10% of the purchase price and must refund RM860,000 i.e. the balance of the ‘deposit and part payment’.
2.0 Summary
Koperasi Polis Diraja Malaysia Bhd (‘KPDRM’) was the original owner of three parcels of agricultural property in Kertih, Terengganu (‘the land’). Pursuant to a sale and purchase agreement (‘SPA1’) KPDRM decided to sell the land to Koperasi Mahadaya Bhd (‘Mahadaya’) for RM1.4m. Upon implementation of SPA1 Mahadaya paid KPDRM RM1m as ‘deposit and part payment’. The balance of RM 400,000 (‘the balance’) was to be paid to KPDRM’s solicitors as shareholders within one month or such extended period as may be agreed. SPA1 also provided that in the event Mahadaya unsuccessful to pay the balance within the specified time or extended period, KPDRM was at liberty to forfeit as agreed damages, RM 500,000 ie 50% of the sum of RM1m paid, and the balance shall returned to Mahadaya. Due to Mahadaya’s failure to pay on time, KPDRM terminated SPA1 and forfeited 50% of the payment. However, the titles to the land were not refunded to KPDRM. A search exposed that the titles had been registered in Mahadaya’s name. In the meanwhile, Mahadaya had discussed with Reinco Properties Sdn Bhd (‘Reinco’) to develop the land into a housing estate. Mahadaya and Reinco had entered into a joint venture agreement (‘the JVA’) and supplemental agreement (‘the SA’) to grow the land into a housing estate (‘the project’). Reinco was to fully finance the buying price payable by Mahadaya to KPDRM under SPA1. Reinco was also to recompense Mahadaya RM15m from the proceeds of sale of the units in the project, in lieu of 20% of the units built in the project. On 1 June 2001 Mahadaya purportedly dismissed the JVA and the SA on alleged grounds of Reinco’s failure to pay RM 1.2m to Mahadaya under the SA. Learned counsel for Mahadaya submitted that KPDRM’s purported termination of SPA1 was illegal and that the land had been rightfully transferred to Mahadaya whose title thereto was indefeasible on the basis of s 340 of the national land code (‘s 340’). Mahadaya’s alternative contention was that if KPDRM was entitled to terminate SPA1, KPDRM could only forfeit RM 140,000 ie 10% of the purchase price and must repayment RM 860,000 ie the balance of the ‘deposit and part payment’. The high court held that: (i) SPA1 was terminated, null and void and that KPDRM was permitted to forfeit RM 200,000 from the deposit and part payment; (ii) Mahadaya re-transfer the land to KPDRM; (iii) the sale and purchase agreement between Mahadaya and Reinco (‘SPA2’) was null and void; and (iv) Reinco deliver vacant possession of the land to KPDRM. As against Mahadaya and KPDRM, the high court allowed Reinco’s claim for liquidated damages of RM 800,000.
3.0 Legal Principle
This contract is under discharge by frustration. If a party promises to carry out a particular act, the law will hold them to their promise. This principle is commonly known as the doctrine of absolute liability.
There are two instances of frustration, i.e. when a contract to do an act becomes difficult or unlawful. However, the frustration should be appearing and subsequent to the formation of the contract. It should be some event which the promisor could not prevent, as a ‘self-induced frustration’ does not absolution a party of his contractual obligations.
The effect of a frustrating event is to discharge a contract instantly, but only as to the future. The contract is not void ab initio, but only void from the time of the frustrating event. For the period that the contract is legal, any obligations that arise must be fulfilled. Money paid under the terms of the contract. A total failure of attention would need to be established in order that the money is recovered.
The legislation in this case is talk about to Civil Law Act 1956 S15(1), (2), Part VI, Contracts Act 1950 S75, and National Land Code S340, 340(3), 340(3)(a). In Civil Law Act 1956 Part VI is about adjustment of rights and liabilities of parties to frustrated contract. S15 (1) explained that where a contract has become difficult of performance or been otherwise frustrated, and the parties thereto have for that reason been discharged from the further performance of the contract, subsections (2) to (6) shall, subject to section 16, have effect in relation thereto. While S15 (2) explained about all sums paid or payable to any party in pursuance of the agreement before the time when the parties were so discharged shall, in the case of sums so paid, be recoverable from him as money received by him for the use of the party by whom the sums were paid, and in the case of sums so payable, cease to be so payable. Provided that, if the party to whom the sums were so paid or payable incurred expenditures before the time of discharge in, or for the purpose of, the performance of the contract, the court may, if it considers it just to do so having regard to all the circumstances of the case, allow him to retain or, as the case may be, recover the whole or any part of the sums so paid or payable, not being an amount in excess of the expenses so incurred.
Another contract is Contracts Act 1950 S75 which is compensation for breach of contract where punishment stipulated for. 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 shown 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 last contract is National Land Code S340, 340(3), 340(3)(a) is registration to confer indefeasible title or interest, except in certain situations. The section is about the title or interest of any person or body is defeasible by purpose of any of the circumstances specified. It shall be liable to be set in the hands of any person or body to whom it may subsequently be moved.
4.0 Decision by the Court
These two relatively multifarious appeals arose from two consolidated suits in the Kuala Lumpur High Court viz Civil Suit S2-(S5)-21-182 of 2001 (‘Civil Suit S2’) and Civil Suit S3-22-1150 of 2001 (‘Civil Suit S3’). They involve substantially the same parties, and the same properties viz three parcels of agronomic land held under Geran No 9743 Lot 2675, Geran No 9744 Lot 2676; and Geran No 9745 Lot 2677, in the mukim of Kertih, district of Kemaman, Terengganu.
In Civil Suit S2, the accuser is Koperasi Polis Diraja Malaysia Bhd (‘KPDRM’). After a full trial, as against the first defendant Koperasi Mahadaya Bhd (‘Mahadaya’), the High Court made the following orders:
(1) Declaration:
a) That the sale and purchase agreement executed between KPDRM and Mahadaya on 21 December 2000 (‘SPA1’) is terminated, null and void;
b) That KPDRM is entitled to forfeit RM 200,000 from the deposit and part payment of RM 1million;
c) That KPDRM is at all times the rightful owner of the land;
d) That any dealing by any party using SPA 1, Transfer Form and Title Deeds (collectively ‘the Transfer Documents’) after the date of SPA 1 is null and void;
e) That all entries of transfers of title and memorial effected by any party using the Transfer Documents after the date of SPA 1 are null and void;
(2) Injuction
a) That Mahadaya retransfer the Land to KPDRM;
b) That Mahadaya return the Transfer Documents to KPDRM within 14 days of service of this order;
c) Restraining Mahadaya from using the Transfer Documents to deal with any person whatsoever;
(3) An order that Mahadaya deliver vacant possession of the land to KPDRM; and
(4) Costs.
Meanwhile, the High Court dismissed Mahadaya’s counterclaim for:
a) A declaration that Mahadaya is the rightful registered owner of the land;
b) An injunction restraining KPDRM from interfering with the affairs, management and administration of Mahadaya;
c) Specific performance of SPA1;
d) General damages; and
e) Costs
As against the second defendant, Reinco Properties Sdn Bhd (‘Reinco’), KPDRM obtained the following orders:
(1) Declaration:
a) That the sale and purchase agreement executed between Mahadaya and Reinco (‘SPA 2’) is null and void;
b) That KPDRM is at all material times the rightful owner of the land;
c) That any dealing by any party using the Transfer Documents after the date of SPA 2 is null and void;
d) That all entries of transfers of title and memorial by any party after the date of SPA 2 is null and void;
(2) Injunction:
a) That Reinco return forthwith the Transfer Documents to KPDRM;
b) Restraining Reinco from dealing with any person by using the Transfer Documents and SPA 2;
(3) An order that Reinco deliver vacant possession of the land to KPDRM; and
(4) Costs.
Civil Suit S3 was filed by Reinco against Mahadaya and KPDRM, based on the joint venture agreement (‘the JVA’) and supplemental agreement (‘the SA’) entered into between Mahadaya and Reinco. Reinco claims, inter alia, beneficial ownership of the land on the ground that, pursuant to the JVA, it had provided RM1.8m to Mahadaya to purchase the land. In addition, Reinco sought the following reliefs:
(1) Declaration:
a) That KPDRM’s purported termination of SPA 1 is null and void;
b) That KPDRM’s remedy in personal against Mahadaya, or Mahadaya solicitors who gave their undertakings, for the balance purchase price;
c) That by its letter dated 1 June 2001, Mahadaya was in default by not performing the JVA and the SA, but purporting to terminate the same;
(2) A vesting order pursuant to cl 2 of the SA to vest the Land from Mahadaya to Reinco; and a further order directing the Registrar of Titles Terengganu to give effect to the prayer herein;
(3) Damages for breach of contract to be assessed by the Senior Assistant Registrar;
(4) Liquidated damages in the sum of RM 800,000 with interest at 8% pa from 21 December 2000 to the date of full realization; and
(5) Costs in Civil Suit S2 and Civil Suit S3 to be paid by Mahadaya to Reinco.
As against Mahadaya and KPDRM, the High Court allowed Reinco’s claim for liquidated damages of RM 800,000 with interest at 8% pa from 21 December 2000 to the date of full realization, and costs to be taxed. However, Reinco’s other prayers were dismissed.
Mahadaya and Reinco have, vide these appeals viz Nos W-02-2653 of 2009 and W-02-2677 of 2009, respectively appealed against the aforesaid orders.
5.0 Conclusion
On the foregoing grounds, the court allow Mahadaya’s in Civil Suit S2 in part by varying the forfeiture sum of RM 200,000 (from the RM1m paid pursuant to SPA1) and replacing it with the forfeiture sum of RM 140,000 as the true deposit being 10% of the total purchase price of RM1.4m, and order KPDRM to refund the balance of RM 860,000 to Mahadaya. By consent, each party is to bear its own costs in this appeal rising from Civil Suit S2.
In Civil Suit S3, the court allows Reinco’s appeal to the extent that the sum of RM 800,000 presented to Reinco is varied to the sum of RM1.8m, but only against Mahadaya and not against KPDRM. All the other orders of the High Court (including costs) are hereby confirmed. The parties have agreed that both Reinco and KPDRM shall respectively accept from Mahadaya the sum of RM 500,000 as costs.