Kuala Dimensi Sdn Bhd v Port Kelang Authority (02(f)-7-04/2024(B))

Federal Court of Malaysia2 Sept 2024

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1 IN THE FEDERAL COURT OF MALAYSIA AT PUTRAJAYA CIVIL APPEAL NO: 02(f)-7-04/2024(B) Between Kuala Dimensi Sdn Bhd …..Appellant And Port Kelang Authority ….Respondent CORAM: Zabariah binti Mohd Yusof, FCJ Hasnah binti Mohammed Hashim, FCJ Abdul Karim bin Abdul Jalil, FCJ BROAD GROUNDS [1] We have heard oral as well as read the written submissions of both parties on 21.8.2024, as well as perused the cause papers. We had adjourned for deliberation. After due consideration, we are now ready to deliver our decision, which is unanimous. Below are our reasons for the decision. [2] The issue in the appeal before this Court is whether the Agreement on the Supplemental Agreement for the Additional Development Works dated 26.4.2006 (ADW 2) between the respondent/plaintiff (PKA) and the 09/09/2024 16:00:27 02(f)-7-04/2024(B) Kand. 41 appellant/defendant (KDSB) was made without consideration and therefore null and void pursuant to section 26 of the Contracts Act 1950 (CA). [3] It is the plaintiff’s stand that ADW 2 was entered between the parties without consideration and therefore is null and void under section 26 of the Contracts Act 1950. [4]

Preamble

Whereas the defendant is of the view that ADW 2 was executed for the practical benefit of the plaintiff from the defendant to the plaintiff. [5] The High Court held that ADW 2 should be read together with ADW 1 and therefore the consideration for increasing the interest rate in ADW 2 for the defendant is the completion of additional works under ADW 1 for the plaintiff. [6] The Court of Appeal however reversed the findings of the High Court and declared that the ADW 2 is null and void for want of consideration. Our decision: [7] Interestingly, both counsel for the plaintiff and the defendant agreed that the learned High Court Judge erred when His Lordship held that ADW 2 should be read together with ADW 1 and therefore the consideration for increasing the interest rate in ADW 2 for the defendant is the completion of additional works. We concur on this point with both counsel as it was never pleaded in the defence, be it expressly or impliedly, suggesting that the consideration for the interest rate increase for the defendant under the ADW 2, was the completion of works for the plaintiff under ADW1. [8] In fact, what was pleaded in the defence is that, in consideration of the defendant agreeing to complete additional works and the added financial burden undertaken under NADW, the plaintiff agreed to increase the interest rate in ADW 1. [9] It is trite law that a contract without consideration is void (Section 2(d) of CA). There are exceptions which are stipulated under the proviso of section 26 CA. However, it is not the stand of the defendant that ADW 2 falls under any of the provisos of section 26 of the CA. [10] For ADW 2 to be valid there must be consideration. [11] ADW 2 was entered into, solely for the purpose of varying the interest chargeable by KDSB to PKA under the Supplemental Agreement for Additional Development Works dated 30.11.2005 (ADW 1) from 5% per annum to 7.5% pa. [12] In consequence of ADW 2 entered into by the parties, the last repayment sum due in July 2011 by PKA to KDSB under ADW 1 was increased from RM107,123 million to RM156.49 million (approximately RM49,367 million). KDSB did not carry out any additional works for this increased payment beyond the scope of works under ADW 1 which KDSB was already contractually obliged to perform. [13] It is our finding that, in making the additional payment of RM49,367 million, PKA received no additional benefit or consideration from KDSB. [14] PKA had already agreed, under ADW 1 to pay KDSB for the works carried out under ADW 1. There is no mention of any consideration provided by KDSB to PKA for the additional RM49.367 million which PKA was obliged to pay KDSB, within the 4 corners of ADW 2. The sole witness of KDSB also testified that ADW 2 did not contain any mention of PKA receiving any consideration for entering into the same. There is already a valid consideration provided by PKA to KDSB under NADW which is the agreed payment for the works completed by KDSB under NADW. [15] There was no mention in ADW 2 of any financial difficulties faced by KDSB carrying out the works under ADW 1 and/or NADW. [16] We were urged to look for extrinsic evidence to support the contention by the defendant that there was consideration in ADW 2 because it would not be able to carry out the works under ADW 1 or NADW if ADW 2 was not entered into. Counsel for the defendant referred us to the letter dated 19.4.2006 from PKA to KDSB to support the contention in seeking for extrinsic evidence. However, such letter failed to state any nexus between ADW 2 and NADW as asserted by KDSB. [17] The defendant contends that all contracts relating to PKFZ should be looked at as a whole and to be read together as they formed one composite contract. We found no merits in this argument for the following reasons: • The contracts, except ADW 2 and NADW, were not executed simultaneously. Despite ADW 2 and NADW were executed on the same day, the additional works to be carried out by the defendant in ADW 1 and NADW were totally different. There was no mention by the parties to incorporate into, or even mention ADW 2 in NADW, and vice versa. • ADW 1 and NADW involved separate and distinct scopes of works for separate and distinct considerations, even though they are of the same PKFZ Project. • The considerations and obligations and terms are different and the works to be carried out by parties are at different times. • There is no common objective to be achieved from these contracts. • A breach of any of the terms of the contracts would not trigger a breach of all of the contracts relating to the PKFZ project. [18] As the terms of the contracts, namely ADW 1, ADW 2 and NADW are separate and distinct, hence they should be construed separately. [19] The argument by counsel for the defendant that it must be inferred from all the contractual documents that consideration exists, which we view as being too far fetched. Hence, the defendant has not made out the relevant circumstances to admit any extrinsic evidence to interpret ADW

[20] It is also contended by the defendant that ADW 2 was executed to vary the interest rate and repayment sum in ADW 1. Hence, parties are still bound by the terms of ADW 1 except for the provision of the increase in interest rate and repayment sum payable by the plaintiff, which should follow what has been agreed upon. [21] However, even if ADW 2 is to be taken as a variation of ADW 1, that does not absolve of the requirement of a valid consideration from the defendant to the plaintiff in ADW 2. In this respect we refer to section 63 of the CA which states, if parties agree to alter the said contract, the original contract need not be performed. When the plaintiff and the defendant here altered the rate of interest in the original contract ADW 1, essentially, they are altering the original contract. As a result, a new contract is formed, i.e. ADW 2. If the parties cannot establish all the elements of a valid contract in ADW 2, the agreement is void and the parties’ obligations are only confined to the original contract (refer to the FC case of Yong Mok Hin v United Malay States Sugar Industries Ltd [1967] 2 MLJ 9, at p 16) [22] It is trite that in contract law, “the agreement to vary a contract will need to be supported by consideration, namely, something of value must be given in exchange for the variation. If there is no such consideration, then the validity of the variation can be subject to challenge” (refer to 555 Film Sdn Bhd & Ors v Adamancy Construction Sdn Bhd [2023] 1 LNS 884). In the Supreme Court case of LYL Hooker Sdn Bhd v Tevanaigam Savistri & Another [1987] 2 MLJ 52 which held that “novation is a new contract. It extinguishes rights and obligations under the old contract for which the new contract is made. Being a new contract, there must be consent by all parties and there must be consideration, the rights and obligations under it are not those transferred from the old contract which is already extinguished.” [23] Therefore, even if ADW 2 is a variation of ADW 1 as was termed by the defendant, it still requires consideration for it to be valid. [24] We were also urged to infer from the documents and the conduct of parties especially on the part of the plaintiff that has agreed, without coercion or influence, to enter into ADW 2 with the defendant. Payments were also made to the defendant as a result of the increase in the rate of interest in ADW 2. In other word, there was compliance by the plaintiff with its obligations under ADW 2. Hence the plaintiff is estopped from challenging the validity of ADW 2. [25] On this point, we held that estoppel cannot be used to defeat clear statutory provision, namely the requirement for consideration in a valid contract (refer to Silver Corridor Sdn Bhd v Gallant Acres Sdn Bhd & Anor [2016] 7 CLJ 823) [26] Given the aforesaid, we proceed to answer the questions posed as follows: Question 1: [27] The question is not premised from the facts of the case. There is no extrinsic evidence relied upon by the COA and neither is there any extrinsic evidence to support the assertion that ADW 2 is supported by consideration. [28] We decline to answer Question 1. Question 2: [29] There was no practical benefit to PKA by KDSB by entering into the ADW2. KDSB Never asserted at any material time that it would not be able to carry out the works under ADW 1 or NADW if ADW 2 was not entered into. [30] The case of Williams v Roffey Bros and Nichollas (contractors) Ltd 1991 1 QB 1 was never addressed nor discussed by the HC and COA. The decision in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1989] EWCA Civ 5 decided that in varying a contract, a promise to perform a pre-existing contractual obligation will constitute good consideration so long as a benefit is conferred upon the 'promisor'. This decision is inconsistent with the long standing rule that consideration, being the price of the promise sued upon, must move from the promisee (refer to Stilk v Myrick [1809] 2 Camp 317 and Foakes v Beer [1881-85] AER Rep 106). It departed from the previously established principle that promises to perform pre-existing contractual obligations could not be good consideration. A different constituted English Court of Appeal in Re Selectmove Ltd [1995] 2 AER 531 declined to follow Williams v Roffey. Similarly the English Commercial Court in South Caribbean Trading Ltd v Trafigura Beheever BV [2004] AER 334 (Nov) set out its hesitance on the application of the principle as enunciated in Williams v Roffey. Even in Australia, in Slipper v Berry Buddle Wilkins Lawyers [2015] NSWSC 810 affirmed the general rule that to perform an existing duty is not fresh consideration. [31] There are no reported Malaysian cases that have accepted the application of the “practical benefit” principle as set out by William v Roffey. The Court of Appeal in Aspac Lubricants (M) Sdn Bhd (Formerly known as Castrol (M) Sdn Bhd) v Ketua Pengarah Dalam Negeri [2007] 6 MLJ 65 prefer to exercise caution on its applicability, due to the criticism and the hesitancy of the commonwealth jurisdiction in accepting the principle enunciated in William v Roffey. We agree with the submission by the plaintiff that it would not be appropriate to apply the principle in William v Roffey to the present appeal as it was never raised nor the full impact of the case argued in the Courts below and the lack of clarity on the application of the principle. [32] In any event the facts in William v Roffey can be distinguished with the present appeal. There the facts are such that, in the event the plaintiff was unable to complete the works, the defendant would be liable under a penalty clause to the main contract. There it was a practical benefit to the defendant to ensure the plaintiff completed its contractual obligation. In our case there was no practical benefit to PKA by KDSB by entering into the ADW 2. [33] Hence, we decline to answer Question 2. Question 3: [34] We answer in the negative. Question 4: [35] We answer in the negative. Estoppel cannot operate against a statute to legitimize an agreement which is void under the CA CONCLUSION: [36] We do not find any error on the part of the COA in arriving at its decision. We therefore, dismissed the appeal and affirmed the decision of the Court of Appeal with costs. So, we grant cost at RM100,000.00 to be paid to the Respondent subject to allocator. Zabariah binti Mohd Yusof, FCJ Hasnah binti Mohammed Hashim, FCJ Abdul Karim bin Abdul Jalil, FCJ Dated: 2.9.2024 COUNSEL: Dato’ Prem Ramachandran together with Porres P. Royan, Shaarvin Raaj a/l Selva Kumar and Craig Ho Wai Ping for the Appellant. (Messrs. Kumar Partnership) Nimalan Devaraja together with Wong Shun Yong for the Respondent. (Messrs. SKRINE)

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Case metadata

Court: Federal Court of Malaysia
Decision date: 2 Sept 2024
Case number: 02(f)-7-04/2024(B)
Coram: YA Dato' Zabariah Binti Mohd Yusof; YAA Tan Sri Hasnah binti Dato' Mohammed Hashim; YA Datuk Abdul Karim Bin Abdul Jalil
Practice area: Validity of supplemental agreement under contract law. Extrinsic evidence in proving considerations. Practical benefit test. Variations or contractual agreements. Contractual estoppel and variations agreements
Version: Alasan Penghakiman 1
Published: 9 Sept 2024
Source ID: ee55c376-efba-423e-9e0b-72575c286be4

Catchwords

Validity of supplemental agreement under contract law. Extrinsic evidence in proving considerations. Practical benefit test. Variations or contractual agreements. Contractual estoppel and variations agreements

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KUALA DIMENSI SDN BHD - appellant - ejudgment_parties
PORT KELANG AUTHORITY - respondent - ejudgment_parties

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Kuala Dimensi Sdn Bhd v Port Kelang Authority (02(f)-7-04/2024(B))

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