Macvilla Sdn Bhd v Mervyn Peter Guan Yin Hui (W-01(A)-218-03/2018)

Content

1 DALAM MAHKAMAH RAYUAN MALAYSIA (BIDANG KUASA RAYUAN) RAYUAN SIVIL NO: W-01(A)-218-03/2018 ANTARA MACVILLA SDN BHD … PERAYU [NO. SYARIKAT: 599978-A]

Preamble

Pursuant to the said power, the Minister has prescribed the SPA under

Schedule

Schedule H of the HD Regulations. 19. However, nowhere in the HDA expressly states that the SPA (as prescribed by the Minister) shall override the Contracts Act. Nowhere in the Contracts Act expressly states that any form of statutory contract prescribed under any other legislation is exempted from the Contracts Act. 20. Further, looking at the contents of the SPA under Schedule H, there is nothing to expressly suggest that the terms therein or the contracting parties thereto have contracted out of the Contracts Act. 21. As such, though the SPA under Schedule H may be a statutory form, which the contents therein cannot be changed BUT the application and interpretation of the terms therein remain governed by the Contracts Act. 22. In addition, it was stipulated in Section 23 of the Interpretation Act 1948 and 1967 that in the event any subsidiary legislation is inconsistent with an Act, the subsidiary legislation will be void to the extent of inconsistency. "23 Avoidance of subsidiary legislation in case of inconsistency with Act 25 (1) Any subsidiary legislation that is inconsistent with an Act (including the Act under which the subsidiary legislation was made) shall be void to the extent of the inconsistency." 23. In fact, in the two High Court cases of Sakinas Sdn Bhd v Siew Yik Hau & Anor [2002] 5 MU 497 and Outlet Rank (M) Sdn Bhd v MBB & Anor [2013] 1 LNS 554, the learned High Court Judges had referred to the Federal Court of Selva Kumar A/L Murugiah v Thiagarajah A/L Retnasamy 1995 1 MU 817 (a case involving Section 75 Contracts Act) and held that claims for LAD based on the SPA under Schedule H fell within the 1st class of cases as laid down in Selva Kumar (supra). Pertinently, His Lordship Lee Swee Seng in Outlet Rank (M) Sdn Bhd (supra) was quick to agree that "the method of calculating the liquidated damages for failure to hand over vacant possession in time is prescribed in the agreement by regulations made by the Minister and that the method being prescribed by subsidiary legislation, is incapable of overriding s. 75 and its effect." 24. The High Court in Hariram A/L Jayaram & Ors v Sentul Raya Sdn Bhd [2003] 1 MLJ 22 and Brisdale Resources Sdn Bhd v Law Kim [2004] 6 MLJ 76 decided that the SPA under Schedule H takes precedence over the Contracts Act. 25. It is pertinent to note that Brisdale Resources Sdn Bhd (supra) was not appealed against and hence there was no affirmation by this Honourable Court. 26. While Hariram A/L Jayaram (supra) was subsequently affirmed on Appeal by the Court of Appeal in Sentul Raya Sdn Bhd v Hariram A/L Jayaram & Ors and Other Appeals [2008] 4 CLJ 618, we respectfully submit that the Court of Appeal did not address the reasonings of the learned High Court Judge. Instead, the Court of Appeal in one paragraph (page 628) merely held as follow:- 26 "[14] The third ground raised by the appellant is that the respondents are under a duty to prove the damages, if any that they have suffered. This they have not done and their claims should therefore be disallowed. A short answer to this submission is to be found in cl. 22(2) itself. The damages are liquidated and calculated in accordance with the formula prescribed by the clause. No further onus lies upon the respondents in the appeals before us." 27. It is unfortunate that the Court of Appeal did not consider the Federal Court case of Selva Kumar (supra). 28. If S.75 Contracts Act 1950 is found to be applicable to the Sale and Purchase Agreement prescribed under the Schedules of the Housing Development (Control and Licensing) Regulations 1989, it would mean that the SPA despite being a statutory form is caught under S.75 Contracts Act 1950. Then, the principles for application of S.75 Contracts Act 1950 as laid down in the recent Federal Court case of Cubic Electronics Sdn Bhd (In Liquidation) v Mars Telecommunications Sdn Bhd [2019] 2 CLJ 723 would apply to our present case. 29. The Federal Court in Cubic Electronics (supra) held that:- "66. As for our reasons we begin by saying that in view of the legislative history of section 75 of the Act which need not be elaborated in this Judgment, we are of the considered opinion that there is nothing objectionable in holding that the concepts of "legitimate interest" and "proportionality" as enunciated in Cavendish (supra) are relevant in deciding what amounts to "reasonable compensation" as stipulated in section 75 of the Act. Ultimately, the central feature of both the Cavendish case (supra) and section 75 of the Act is the notion of reasonableness. Indeed, the ParkingEye v Beavis [2015] UKSC 67 judgment is replete with instances where the United Kingdom Supreme Court conflated 27 "proportionality" with "reasonableness"(see: ParkingEye (supra) at paragraphs [98], [100], [108], [113] and [193]). … 74. In summary and for convenience, the principles that may be distilled from hereinabove are these: viii. If there is a breach of contract, any money paid in advance of performance and as part-payment of the contract price is generally recoverable by the payer. But a deposit paid which is not merely part payment but also as a guarantee of performance is generally not recoverable. ii. Whether a payment is part-payment of the price or a deposit is a question of interpretation that turns on the facts of a case, and the usual principles of interpretation apply. Once it has been ascertained that a payment possesses the dual characteristics of earnest money and part payment, it is a deposit. iii. A deposit is subject to section 75 of the Act. iv. In determining what amounts to "reasonable compensation" under section 75 of the Act, the concepts of "legitimate interest" and "proportionality" as enunciated in Cavendish (supra) are relevant. v. A sum payable on breach of contract will be held to be unreasonable compensation if it is extravagant and unconscionable in amount in comparison with the highest conceivable loss which could possibly flow from the breach. In the absence of proper justification, there should not be a significant difference between the level of damages 28 spelt out in the contract and the level of loss or damage which is likely to be suffered by the innocent party. vi. Section 75 of the Act allows reasonable compensation to be awarded by the court irrespective of whether actual loss or damage is proven. Thus, proof of actual loss is not the sole conclusive determinant of reasonable compensation although evidence of that may be a useful starting point. vii. The initial onus lies on the party seeking to enforce a damages clause under section 75 of the Act to adduce evidence that firstly, there was a breach of contract and that secondly, the contract contains a clause specifying a sum to be paid upon breach. Once these two elements have been established, the innocent party is entitled to receive a sum not exceeding the amount stipulated in the contract irrespective of whether actual damage or loss is proven subject always to the defaulting party proving the unreasonableness of the damages clause including the sum stated therein, if any. viii. If there is a dispute as to what constitutes reasonable compensation, the burden of proof falls on the defaulting party to show that the damages clause including the sum stated therein is unreasonable." 30. As such, in the instance case where the principles of S.75 of Contracts Act 1950 apply, then the Appellant should be allowed to disprove that the 1st Respondent has suffered any actual loss or damages and hence cannot claim for the full amount based on the formula stated in the SPA. 31. Being so, it is then wrong for both the 2nd Respondent and High Court to disregard the Appellant's Defence and to allow the 1st Respondent's claim and dismissing the Appellant's JR Application even though the 1st 29 Respondent did not suffer any actual loss or damage since it was the Appellant under the DIBS that paid for the 1st Respondent' full/substantial interest to his financier. 32. We respectfully submit that based on this ground alone, the HC Order and the Award ought to be set aside and the 1st Respondent's claim ought to be reheard before the 2nd Respondent before a fresh panel and/or president. 33. Wherefore, we humbly pray for the Appellant's Appeal be allowed with costs to be paid forthwith.” [33] In our view, the statutory provisions related to sections 74 and 75, though simple and straight forward with a number of illustrations - case laws have developed the jurisprudence to the sections inconsistent with the clear meaning of the said sections for reasons we have stated earlier. [See Ho Ching Kong v. Yip Fook Mun & Anor [2017] SGHC 286]. Jurisprudence as to Damages – Sections 74 and 75 of Contracts Act 1950 and Statutory Contracts – Our Analysis Statutory Contract [34] To appreciate the jurisprudence related to statutory contract in the proper perspective, it is necessary to say that statutory contract and common law (private) contracts are not one and the same. Statutory contract is one imposed by the will or fiat of Parliament and the voluntariness or consensus ad idem of parties unlike common law contract may be absent. [See Thermal Power Limited v. State of M.P. (2000)(3) SCC 379]. 30 [35] Sections 74 and 75 of the CA 1950 primarily address the quantification of compensation for breach of common law type of contracts as envisaged by CA 1950 and not statutory contract. The criteria for valid and enforceable contract stated in CA 1950 is largely related to common law type of contracts and not agreements per se. The Act makes it clear that all contracts are agreements but not all agreements are contracts. The court is only obliged to recognize contract, enforceable in law. [36] Statutory contract under the CA 1950 can vary some of the specific provisions of the Act. That is to say if all being equal, the CA 1950 provision will be applicable to the particular dispute. However, if the statutory contract for example says that ‘any breach of this statutory contract will entitle the innocent party to a liquidated sum of RM1 million’, the court will be obliged to enforce the statutory sum and reject any argument related to assessment of damages under section 74 or arguments as to penalties under section 75. [37] It is not unusual for such Acts which makes provision for statutory contracts to allow the ministers to formulate rules and regulations, etc. When a challenge is to be taken on the propriety of the Act or regulations, with a purpose to strike it down or not to give recognition to it as opposed to court making statements by way of ruling and/or obiter or ‘interpreting it’, then all necessary and interested party must be present before the court and in particular the representatives of the Attorney General Chambers. This distinction is an important distinction and often lawyers fail to appreciate its importance. This ignorance is also reflected in this case. 31 S.74 [38] Section 74 sets out the methodology to assess compensation for breach of contract. It has nothing to do with ‘Prepaid Payments’. It imposes the burden on the innocent party to prove compensation. It also does not deprive the defaulting party to rebut the assessment as to compensation. [See sections 101 to 103 of EA 1950; Janab’s Key To The Law of Evidence, Advocacy And Professional Ethics, 5th ed. (2019) – Revised by: Dato’ Mah Weng Kwai, Arun Kasi, Datuk Joy Appukuttan]. [39] Section 74 is said to be partly a statutory enunciation of the rule in Hadley v. Baxendale [1854) 9 Ex Ch 341. [See Khoo Than Sui v. Chan Chiau Hee [1976] 1 MLJ 25; Tham Cheow Toh & Associated Metal Smelters Ltd [1972] 1 MLJ 171; Toeh Kee Keong v. Tambun Mining Company Ltd [1968] 1 MLJ 39]. However, the section itself imposes a number of restrictions to estop the innocent party from enriching himself from unjustly benefitting for breach of the contract by the defaulting party. This is also further evidenced by the illustrations to the section as well as the proviso stated as ‘Explanation’ to the section which we normally say that ‘there is a duty for the plaintiff to mitigate the loss’. [See British Westinghouse v. Underground Electric Rlys. [1912] AC 673 HL]. The said sections’ ‘Explanation’ as well as the ‘Illustrations’ read as follows: “Compensation for loss or damage caused by breach of contract 74. (1) When a contract has been broken, the party who suffers by the breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual 32 course of things from the breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. (2) Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach. Compensation for failure to discharge obligation resembling those created by contract (3) When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default as if the person had contracted to discharge it and had broken his contract. Explanation— In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account. ILLUSTRATIONS (a) A contracts to sell and deliver 50 gantangs of saltpetre to B, at a certain price to be paid on delivery. A breaks his promise. B is entitled to receive from A, by way of compensation, the sum, if any, by which the contract price falls short of the price for which B might have obtained 50 gantangs of saltpetre of like quality at the time when the saltpetre ought to have been delivered. (b) A hires B’s ship to go to Telok Anson, and there take on board, on the 1st of January, a cargo, which A is to provide, and to bring it to Port Dickson, the freight to be paid when earned. B’s ship does not go to Teluk Intan, but A has opportunities of procuring suitable conveyance for the cargo upon terms as advantageous as those on which he had chartered the ship. A avails himself of those opportunities, 33 but is put to trouble and expense in doing so. A is entitled to receive compensation from B in respect of the trouble and expense. (c) A contracts to buy of B, at a stated price, 50 gantangs of rice, no time being fixed for delivery. A afterwards informs B that he will not accept the rice if tendered to him. B is entitled to receive from A, by way of compensation the amount, if any, by which the contract price exceeds that which B can obtain for the rice at the time when A informs B that he will not accept it. (d) A contracts to buy B’s ship for RM60,000, but breaks his promise. A must pay to B, by way of compensation, the excess, if any, of the contract price over the price which B can obtain for the ship at the time of the breach of promise. (e) A, the owner of a boat, contracts with B to take a cargo of tin to Singapore, for sale at that place, starting on a specified day. The boat, owing to some avoidable cause, does not start at the time appointed, whereby the arrival of the cargo at Singapore is delayed beyond the time when it would have arrived if the boat had sailed according to the contract. After that date, and before the arrival of the cargo, the price of tin falls. The measure of the compensation payable to B by A is the difference between the price which B could have obtained for the cargo at Singapore, at the time when it would have arrived if forwarded in due course, and its market price at the time when it actually arrived. (f) A contracts to repair B’s house in a certain manner, and receives payment in advance. A repairs the house, but not according to contract. B is entitled to recover from A the cost of making the repairs conform to the contract. (g) A contracts to let his ship to B for a year, from the 1st of January, for a certain price. Freights rise, and, on the 1st of January, the hire obtainable for the ship is higher than the contract price. A breaks his promise. He must pay to B, by way of compensation, a sum equal to the difference between the contract price and 34 the price for which B could hire a similar ship for a year on and from the 1st of January. (h) A contracts to supply B with a certain quantity of iron at a fixed price, being a higher price than that for which A could procure and deliver the iron. B wrongfully refuses to receive the iron. B must pay to A, by way of compensation, the difference between the contract price of the iron and the sum for which A could have obtained and delivered it. (i) A delivers to B, a carrier, a machine, to be conveyed, without delay, to A’s mill, informing B that his mill is stopped for want of the machine. B unreasonably delays the delivery of the machine, and A, in consequence, loses a profitable contract with the Government. A is entitled to receive from B, by way of compensation, the average amount of profit which would have been made by the working of the mill during the time that delivery of it was delayed, but not the loss sustained through the loss of the Government contract. (j) A, having contracted with B to supply B with 1,000 tons of iron at RM100 a ton, to be delivered at a stated time, contracts with C for the purchase of 1,000 tons of iron at RM80 a ton, telling C that he does so for the purpose of performing his contract with B. C fails to perform his contract with A, who cannot procure other iron, and B, in consequence, rescinds the contract. C must pay to A RM20,000, being the profit which A would have made by the performance of his contract with B. (k) A contracts with B to make and deliver to B, by a fixed day, for a specified price, a certain piece of machinery. A does not deliver the piece of machinery at the time specified, and, in consequence of this, B is obliged to procure another at a higher price than that which he was to have paid to A, and is prevented from performing a contract which B had made with a third person at the time of his contract with A (but which had not been then communicated to A), and is compelled to make compensation for breach of that contract. A must pay to B, by 35 way of compensation, the difference between the contract price of the piece of machinery and the sum paid by B for another, but not the sum paid by B to the third person by way of compensation. (l) A, a builder, contracts to erect and finish a house by the 1st of January, in order that B may give possession of it at that time to C, to whom B has contracted to let it. A is informed of the contract between B and C. A builds the house so badly that, before the 1st of January, it falls down and has to be rebuilt by B, who in consequence, loses the rent which he was to have received from C, and is obliged to make compensation to C for the breach of his contract. A must make compensation to B for the cost of rebuilding the house, for the rent lost and for the compensation made to C. (m) A sells certain merchandise to B, warranting it to be of a particular quality, and B, in reliance upon this warranty, sells it to C with similar warranty. The goods prove to be not according to the warranty, and B becomes liable to pay C a sum of money by way of compensation. B is entitled to be reimbursed this sum by A. (n) A contracts to pay a sum of money to B on a day specified. A does not pay the money on that day. B, in consequence of not receiving the money on that day, is unable to pay his debts and is totally ruined. A is not liable to make good to B anything except the principal sum he contracted to pay, together with interest up to the day of payment. (o) A contracts to deliver 50 gantangs of saltpetre to B on the 1st of January, at a certain price. B afterwards, before the 1st of January, contracts to sell the saltpetre to C at a higher price than the market price of the 1st of January. A breaks his promise. In estimating the compensation payable by A to B, the market price of the 1st of January, and not the profit which would have arisen to B from the sale to C, is to be taken into account. 36 (p) A contracts to sell and deliver 500 bales of cotton to B on a fixed day. A knows nothing of B’s mode of conducting his business. A breaks his promise, and B, having no cotton, is obliged to close his mill. A is not responsible to B for the loss caused to B by the closing of the mill. (q) A contracts to sell and deliver to B, on the 1st of January, certain cloth which B intends to manufacture into caps of a particular kind, for which there is no demand, except at that season. The cloth is not delivered till after the appointed time, and too late to be used that year in making caps. B is entitled to receive from A, by way of compensation, the difference between the contract price of the cloth and its market price at the time of delivery, but not the profits which he expected to obtain by making caps, nor the expenses which he has been put to in making preparation for the manufacture. (r) A, a shipowner, contracts with B to convey him from Kelang to Sydney in A’s ship, sailing on the 1st of January, and B pays to A, by way of deposit, one-half of his passage-money. The ship does not sail on the 1st of January, and B, after being, in consequence, detained in Kelang for some time, and thereby put to some expense, proceeds to Sydney in another vessel, and, in consequence, arriving too late in Sydney, loses a sum of money. A is liable to repay to B his deposit, with interest, and the expense to which he is put by his detention in Kelang, and the excess, if any, of the passage-money paid for the second ship over that agreed upon for the first, but not the sum of money which B lost by arriving in Sydney too late.” [40] Section 74 is related to compensation for actual damage and not for speculative loss of profit or economic loss with a caveat that the claimant must demonstrate that he had taken steps to mitigate the loss and the type of loss envisaged, though not exhaustive in the illustrations, must be one any reasonable tribunal appraised of the facts and supporting evidence will be in a position to attest that the compensation sought is for actual loss and/or 37 damage for breach of contract. For example, claiming loss of profit for breach of contract, as of right may be misconceived proposition as all business or ventures do not end up in profits. Thus, there must be a track record by the innocent party to say he had made profits in the past when he claims for a loss of profit to show that indeed he would have made the profit or at least compelling evidence within the parameters of section 74 to demonstrate that he would have made the profit. [See William Bros v. ET Argius Ltd [1914] AC 510]. This point is emphasised in section 74(1) of the 1st limb itself by asserting “compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things”. The 2nd limb says ‘which the parties knew when they made the contract’. The 2nd limb is restricted in contrast to the 1st limb. The 1st limb is objective in nature and the 2nd limb is subjective in nature and knowledge, is an important ingredient. [41] Both the limbs are related to special as well as general damages. As far as the special damages are concerned, it is well established it must be specifically pleaded and proved. Thus, the ‘actual damage’ concept envisaged in section 74 is easier for courts to assess when it relates to special damage and proved according to law. However, on the issue of general damages, there must be evidence of actual damage or loss. Courts have also said that damages will not be refused by the mere fact that it is impossible to assess them with precision. Thus, strict proof is not a requirement in the pleading sense under section 74. The illustrations to section 74 will also support that strict proof is related to actual loss and damage and not to the quantum. The issue of quantum must be determined by the court after hearing both parties. [See Javis v. Swan Tours Ltd [1973] QB 233]. 38 However, the strict rule is that a person who has not suffered loss or damage in consequence of a contractual breach, is not entitled to compensation. To emphasise the point of actual damage, section 74(2) as well as subsection (3) emphasises that claim which are remote, indirect loss or more specifically economic loss are not recoverable. These propositions are supported by the illustrations to the section itself. [42] Section 74 inter alia also imposes an important caveat on the courts, that is to say the court must be satisfied before assessing compensation or ordering assessment of compensation, that the breach was indeed a breach of a contract as opposed to an agreement which may not be enforceable in law. Here, the distinction between an agreement and contract under the CA 1950 must be appreciated. The Act defines a contract as an agreement enforceable by law. The key word is ‘law’ and to sustain the rule of law, the court cannot just accept the parties’ admission that it is a contract and there was a breach. This is so because it is well settled that all contracts are agreements but all agreements are not contracts. Thus, agreement in the nature of Letter Of Intent (LOI), Joint Venture Agreement (JVA), etc. even though the parties may claim it as an agreement, need not necessarily be a contract. For example, an agreement which has elements related to illegality, contingency or uncertainties as to its terms are void, etc. may be good only as an agreement but not good as an enforceable contract to attract section 74 of CA 1950. Even parties to the agreement admitting it is a contract is not good for the purpose of the law, if the court takes the view, that it is not a contract. This statement is fortified by section 2(h) which states: “an agreement enforceable by law is a contract.” 39 [43] To put it mildly, the parties to an agreement cannot come to the court and admit there is a breach of contract and request for assessment of compensation. The court, on such facts, has an obligation to make the necessary inquiries and peruse the terms of the contract and record in its notes of proceedings that it is satisfied that it is a contract in law to be fit for assessment under section 74 or even in case of section 75 if assessment need to be done. Thus, assessment of compensation or order for assessment of compensation cannot be done as a mechanical process as it is one related to judicial power. This is to avoid wrongful assessment as well as fraud, etc. as the case may be. In addition, if the contract is related to the government and/or government agencies, there is a greater obligation for the court to ensure that the rule of law is not compromised and ensure that the exchequer is not burdened with wrongful assessment. [See Majlis Perbandaran Subang Jaya v. Laguna De Bay Sdn Bhd [2015] 1 CLJ 357]. S.75 [44] Section 75 methodology to assess reasonable compensation is not applicable to section 74 of CA 1950. The confusion in judicial precedents have arisen in consequence of failure to appreciate the distinction. Section 75 reads as follows: 75. “Compensation for breach of contract where penalty 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 proved to have been caused thereby, to 40 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. Explanation—A stipulation for increased interest from the date of default may be a stipulation by way of penalty. Exception—When any person enters into any bail-bond, recognizance, or other instrument of the same nature, or, under the provisions of any law, or under the orders of the Federal Government or the Government of any State, gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein. Explanation— A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested. ILLUSTRATIONS (a) A contracts with B to pay B RM1,000, if he fails to pay B RM500 on a given day. A fails to pay B RM500 on that day, B is entitled to recover from A such compensation, not exceeding RM1,000, as the court considers reasonable. (b) A contracts with B that, if A practises as a surgeon within Calcutta, he will pay B RM5,000. A practises as a surgeon in Calcutta. B is entitled to such compensation, not exceeding RM5,000, as the court considers reasonable. (c) A gives a recognizance binding him in a penalty of RM500 to appear in court on a certain day. He forfeits his recognizance. He is liable to pay the whole penalty. (d) A gives B a bond for the repayment of RM1,000 with interest at 12 per cent at the end of six months, with a stipulation that, in case of default, interest shall be payable at the rate of 75 per cent from the date of default. This is a stipulation by 41 way of penalty, and B is only entitled to recover from A such compensation as the court considers reasonable. (e) A who owes money to B, a moneylender, undertakes to repay him by delivering to him 10 gantangs of grain on a certain date, and stipulates that, in the event of his not delivering the stipulated amount by the stipulated date, he shall be liable to deliver 20 gantangs. This is a stipulation by way of penalty, and B is only entitled to reasonable compensation in case of breach. (f) A undertakes to repay B a loan of RM1,000 by five equal monthly instalments, with a stipulation that, in default of payment of any instalment, the whole shall become due. This stipulation is not by way of penalty, and the contract may be enforced according to its terms. (g) A borrows RM100 from B and gives him a bond for RM200 payable by five yearly instalments of RM40, with a stipulation that, in default of payment of any instalment, the whole shall become due. This is a stipulation by way of penalty.” [45] Section 74 assessment applies in cases where a sum as to damages is not fixed. In practical terms, section 75 applies to a case where a sum as to damages has been fixed but the defaulting party complains, it is a penalty clause. Once there is a complaint that it is a penalty clause, then the said section presumes it is penalty clause and sets out the methodology for assessment; and in that methodology section 74 also becomes relevant in all aspects. What is important to note in section 75 and its illustrations is that it is aimed at assessment of reasonable compensation for breach and not for recovery of monies paid under the agreement. It is also important to note that the section itself creates a presumption that the ‘stipulated sum’ is a penalty. We have explained this earlier. 42 [46] The methodology for calculation of assessment of compensation under section 75 can be summarised as follows: (a) When there is an objection by the defaulting party that the sum stipulated towards damages for breach of contract is a penalty, the innocent party has the duty to prove the actual damage or loss. For this purpose, section 74 becomes relevant as it relates to ‘Compensation For Loss Or Damage Caused By Breach Of Contract’. (b) Even if the actual damage or loss is proved by the innocent party, the section does not permit to recover more than the stipulated sum, and the compensation awarded must only be a reasonable compensation. To arrive at what is reasonable, the court must take into consideration all criteria set out in section 74, inclusive of the explanation as well as the illustrations to the section. Thus, section 75 does not give the innocent party the full right to recover all loss and damage arising from the breach. The position in England is different and we have explained earlier. (c) Even if the innocent party is not able to prove the actual damage or loss, the court is obliged to award a reasonable compensation which must not exceed the stipulated sum. [See Ultratech Cement v. Sunfield Resources Pty Ltd [2016] Bombay H.C. – Arbitration Appeal No. 881 of 2005]. This requirement alters the common law position as well as section 74 in a case of breach of contract. Under section 74, if the innocent party cannot prove loss or damage then only a nominal sum 43 as damages will be awarded with a caveat that it is not related to strict proof as explained earlier. (d) There are a number of decisions which have or are causing confusion in this area of law. Some examples are as follows: (i) Selva Kumar’s case is related to ‘Prepaid Payments’ and recovery by the purchaser who was himself in breach of the contract. Section 75 does not envisage such recovery. Section 75 envisages assessment of compensation against a person who was in breach of contract. The facts of the case have been summarised by learned authors of MLJ and it reads as follows: “Both the appellant and respondent in this case are medical practitioners. The appellant entered into an agreement in writing ('the agreement') with the respondent whereby the respondent sold his clinic to the appellant for a total purchase price of RM120,000. Pursuant to the agreement, the appellant paid to the respondent RM12,000 on signing the agreement, and thereafter paid a further sum of RM48,000. The balance of RM60,000 was to be paid by 15 monthly instalments of RM4,000 each. However, at the stage when the appellant had paid up to a total sum of RM96,000 towards the total purchase price, he refused to go on paying the remaining six monthly instalments. The respondent sought to forfeit the RM96,000 by relying on a clause in the agreement which in effect, provided that if the appellant defaulted, all moneys paid to date of such breach would be forfeited absolutely to the respondent as agreed liquidated damages, and the agreement would be terminated. The respondent successfully obtained a declaration from the High Court that the clause was valid and enforceable. The appellant appealed.” 44 The Federal Court allowing the appeal and ordering refund of the sum of RM84,000.00 had held inter alia: “(a) In Malaysia, there is no distinction between liquidated damages and penalties as understood under English law. (b) In view of s 75 of the Contracts Act 1950 which provides that in every case the court must determine what is the reasonable compensation, 'whether or not actual damage or loss is proved to have been caused thereby' ('the words in question'). (c) However, the words in question must be given a restricted construction. (d) 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. (e) Any failure to prove such damages will result in the refusal of the court to award such damages. (f) However, for cases where the court finds it difficult to assess damages for the actual damage as there is no known measure of damages employable, and yet the evidence clearly shows some real loss inherently which is not too remote, the words in question will apply. (g) The court ought to award substantial damages as opposed to nominal damages which are reasonable and fair according to the courts good sense and fair play. In any event, the damages awarded must not exceed the sum so named in the contractual provision.” 45 The problem in the decision is that there is no provision in section 75 or its illustrations for refund of money paid. In addition, item (d) above even attempts to alter the methodology in section 74 to say that if the innocent party cannot prove in cases related to section 74, the court must provide reasonable compensation. The position under the common law and as per the case laws is that if the innocent party cannot prove damages as per section 74, he is only entitled to nominal damages with a caveat as we have stated earlier. Further, the court held that if there is a failure to prove damages, the court will not award damages. Such a statement goes against the provision of section 75, which makes it obligatory to provide at least reasonable compensation whether or not actual loss or damage is proved. Whether Selva Kumar’s decision is per incuriam and/or unconstitutional is debatable and even to date many are confused and/or amazed with the decision of the court which in our view as well as article writers - does not reflect the statutory intent. (ii) Johor Coastal Development Sdn Bhd v. Constrajaya Sdn Bhd [2009] 4 CLJ 569, was a majority decision of the Federal Court. The court heavily relied on Selva Kumar’s case. The issue was also related to recovery of money paid similar to Selva Kumar’s case, where the defaulting party wanted to recover the ‘Prepaid Payment’ under the contract. Both the majority and the dissenting judgment even of the Federal Court were not able to 46 be consistent with what Selva Kumar decided on the issue of reasonable compensation. The majority inter alia held: “(1) The appellant could not retain the moneys paid as reasonable compensation without proof of loss or damage as envisaged by s. 75 CA. In Selva Kumar it was held that actual damages or reasonable compensation must be proved in accordance with the principles set out in Hadley v. Baxendale.” The dissenting judgment of Hashim Yusof FCJ inter alia stated: “(3) It is trite law that it is up to a plaintiff to prove his loss. The respondent was the plaintiff in the High Court that sought to claim the moneys it paid the respondent after the latter terminated the SPA. Therefore, the burden lay on the respondent to prove its loss and not on the appellant which was the innocent party. Even if wrong the finding as to who the actual plaintiff was, Selva Kumar decided that where the court found it difficult to assess damages, the court ought to award substantial damages as opposed to nominal damages which were reasonable and fair according to good sense and fair play.” (iii) The recent Federal Court’s decision in Cubic Electronics does not attempt to bring the law within the statutory mandate of section 75. The court attempting to advocate the concept of ‘legitimate interest’ as well as ‘proportionality’ relying on recent decisions in UK does not fall within the strict statutory formula, stated in section 75 and this in our view is bound to create uncertainty in the commercial sense. Cubic Electronics is a difficult judgment to comprehend, especially with so many propositions as well as 47 affirmation. Commenting on the decision of Cubic Electronics, David Cheong Zhao Yee observes: “Recoverability of LAD in Malaysia post-Cubic Electronics In a departure from Selva Kumar, the Federal Court in Cubic Electronics held, amongst others, that:  Section 75 allows reasonable compensation to be awarded by the court regardless of whether actual loss or damage is proven. Reasonable compensation is not confined to actual loss, although evidence of that may be a useful starting point.  The initial burden lies on the party seeking to enforce a damages clause under Section 75 to show that there was a breach of contract and that the contract contains a clause stipulating a sum to be compensated upon breach. Once these two elements are established, the innocent party is entitled to receive a sum capped to the amount specified in the contract regardless of whether actual damage or loss is proven.  The defaulting party, of course, is entitled to dispute the reasonable compensation by discharging the burden of proving the unreasonableness of the damages clause including the sum stipulated therein. In essence, the courts should be slow to refuse to give effect to a damages clause for contracts negotiated at arm's length between parties who have been properly advised. To require that the innocent party proves that a damages clause is not excessive would undermine the damages clause in a contract, which is intended to promote business efficacy and reduce litigation between the parties. 48 Conclusion The crux of the decision in Cubic Electronics is the shift of the burden of proof pertaining to a damages clause from the innocent party to the defaulting party. In the construction context, this means the contractor, and not the employer, will have to prove that the LAD clause and the sums stated therein are unreasonable. That said, the employer continues to bear the burden of proving the contractor's breach of his completion obligations and the applicability of the LAD clause.” [47] We have read the appeal records and the able submissions of the parties and after giving much consideration to the submission of the learned counsel for the appellant, we take the view that the appeal must be dismissed. Our reasons inter alia are as follows: (1) Learned counsel for the appellant concedes that the contract under the Regulations are statutory contracts. However, says: (a) the contract under the HD Regulations has to be read in conformity with sections 74 and 75 of CA 1950; (b) in the event of inconsistences between CA 1950 and HD Regulations, the subsidiary legislation is void to the extent of the inconsistency. 49 (c) Learned counsel for one of the respondents, Ms. Viola Lettice De Cruz, asserts that ‘Schedule H’ is a statutory agreement prescribed under the said Act; and asserts the said Act is a specific legislation for housing; the Contracts Act 1950 is inapplicable applying the maxim ‘General Specialibus Non Derogant’. In support of the argument the counsel relies on the following cases: (a) Golden Bay Realty Pte Ltd v. Orchard Twelve Investments Pte Ltd [1991] 2 SLR (R) 222; (b) Phoenix Heights Estate (Pte) Limited v. Lee Kay Guan & Anor [1982] 2 MLJ 86; (c) Lim Lay Bee and another v. Allgreen Properties Ltd [1988] 3 SLR (R) 1028; (d) Veronica Lee Ha Ling & Ors v. Maxisegar Sdn Bhd [2009] 6 CLJ 232; (e) Sentul Raya Sdn Bhd v. Hariram Jayaram & Ors and Other Appeal [2008] 4 CLJ 618. [48] We take the view that section 24(2)(c) of the Housing Developers (Control and Licensing Act 1966) amply empowers the Minister to prescribe the form or forms of the contracts. The said section 24(2)(c) reads as follows: “(c) prescribe the form of contracts which shall be used by a licensed housing developer, his agent, nominee or purchaser both as a condition of the grant of a licence under this Act or otherwise.” ‘Forms’ in respect to section 24 will include terms and conditions of the contract. [See Construction Contracts and Standard Form of Construction Contracts – PAM – CIDB, etc.]. In formulating the ‘Form’, it is not abhorrent to notion of justice and fair play to make provision for breach of contract. The appellant seeking the court to strike out and/or not to give effect to the clause on the grounds of section 75 is misconceived. The agreed liquidated 50 sum provision does not offend section 75 as ultimately it is for the court to decide what should be reasonable compensation which is one of statutory discretion and this discretion is much wider than the one suggested in Cavendish case. Thus, section 75 on ‘statutory discretion’ is far ahead than the current development of the English common law. [See Cavendish case]. Case laws in this area of jurisprudence related to homebuyers have also affirmed that in the absence of the purchasers proving damages, the sum stipulated as liquidated damages related to statutory contracts or its like should be sustained as reasonable compensation, not only because the parties have agreed to be bound by the statutory contract but also because in the courts view it reflects a sum to be awarded as reasonable compensation. [49] It is important to note that the jurisprudence related to ‘penalty’ was developed a few hundred years ago when literacy level was low and parties were not represented by lawyers. Today, it is not the case. Penalty rule must necessarily have less significance in genuine commercial dealings represented by lawyers in contrast with single transactions - when one person is a ‘weak party’ to the contract. [50] As we have stated earlier, the cases of Selva Kumar, Johor Coastal as well as Cubic Electronics, deals with mixed jurisprudence related to ‘Prepaid Payments’ and ‘Post Payment as to Damages’, without making a distinction to its applicability according to the statutory mandate. For example, justifying a cause of action and relief in contract and tort to be the same when corpus of literature says otherwise will lead to jurisprudential flaw as well as criticism. In conclusion, we take the view that the ‘Three cases’ has no relevance to the facts of this case as well as section 75 of CA 1950. 51 [51] In our view, a literal interpretation of section 75 is beneficial to the commercial world and the said section for reasons stated earlier should be interpreted as follows: (a) Section 75 is related to a claim by an innocent party against the defaulting party. (b) The phrase ‘penalty’ is not defined in the said section inclusive of the jurisprudence related to the phrase. In consequence, we are obliged to look at its historical background under the common law. Thus, it is not totally correct to say that there is no difference between a penalty and liquidated damages clause as advocated in a number of cases. [See SS Maniam v. The State of Perak [1957] 1 MLJ 75]. There is indeed a difference when it relates to section 75. The difference is that of an apple and orange when it comes to assessment of damages for breach of contract. At common law, if the party is not able to satisfy that it is a penalty the court will have little hesitation in confirming the agreed liquidated sum. In Robophone Facilities Ltd v. Blank [1996] 1 WLR 1428 at pg 1447, Diplock LJ. Observed: "The court should not be astute to descry a 'penalty clause' in every provision of a contract which stipulates a sum to be payable by one party to the other in the event of a breach by the former. The onus of showing that such a stipulation is a 'penalty clause' lies upon the party who is sued upon it. The terms of the clause may themselves be sufficient to give rise to the inference that it is not a genuine estimate of damage likely to 52 be suffered but is a penalty. Terms which give rise to such an inference arc discussed in Lord Dunedin's speech in Dunlop Pneumatic Tyre Co. v. New Garage & Motor Co. [1915] AC 79 at 87. But it is an inference only and may be rebutted. Thus it may seem at first sight that the stipulated sum is extravagantly greater than any loss which is liable to result from the breach in the ordinary course of things, i.e. the so-called 'first rule' in Hadley v. Baxendale (1834) 9 Exch 341. This would give rise to the prima facie inference that the stipulated sum was a penalty. But the plaintiff may be able to show that owing to special circumstances outside 'the ordinary course of things' a breach in those special circumstances would be liable to cause him a greater loss of which the stipulated sum docs represent a genuine estimate." Even though section 75 creates a presumption of ‘penalty’ reversing the burden of proof on the innocent party, unlike the English cases where the party who alleges penalty must prove. The section itself, does not restrict the discretion of the court to give a reasonable sum as compensation whether or not the innocent party is able to prove loss or damage. The intent of section 75 is clear and unequivocal to give the court the statutory discretion to accept an agreed liquidated sum as reasonable sum as compensation or give a lesser sum than the stipulated sum and not just a nominal sum. (c) If there is a stipulated sum as agreed damages, there is a presumption that it is a penalty. If the defaulting party agrees to the clause there is no issue. (d) If the defaulting party objects to the clause, the plaintiff has an obligation to prove loss and damage. If he does not succeed wholly or partly, the courts have a statutory discretion to provide 53 reasonable compensation as opposed to nominal damages. The discretion cannot be exercised arbitrarily. In addition, the sum awarded cannot exceed the stipulated sum. [52] On the issue of how to exercise the discretion, we take the view that the common law cases on the ‘2nd class of cause of action’ which we have stated earlier may be helpful. [See Ho Ching Kong v. Yip Fook Mun & Anor [2017] SGHC 286]. For example, (a) an agreed liquidated sum of 10 percent of the value of the property may be a reasonable compensation or one according to the market practice; (b) in case of industry related to construction and/or Housing Developers, etc. governed by Standard Form Contract pursuant to an Act or by reputable institutions of the industry, such as PAM or CIDB - which aims to protect the employer as well as the contractor, the courts should give due weight to the agreed terms and the liquidated sum stipulated should be recognized, unless there are compelling reasons not to do so. [53] In addition, as a matter of policy, the courts should not put the innocent party to strict proof at the expense of the public purse to benefit the defaulting party. This is an important consideration to be taken into account as in cases of major construction contract it will take much of courts’ time and expense for the innocent party to prove his damage. Thus, it is best for the court to deal with the issue of compensation summarily to satisfy the stipulated sum is reasonable, according to the market practice. The said section 75 itself does not literally require strict proof - a jurisprudence which the apex court has missed in the process of dealing with section 75 and the 2nd class of cases we have mentioned earlier. Judicial experience will highlight that the defaulting party who objects will often be a company of 54 insolvent status or its like, attempting to avoid liability when the contract was signed voluntarily and all parties had legal advice. [54] To put it mildly, by this judgment, we trust that we have sowed the seed of renaissance to section 75 - for the apex court to reap the fruits for the benefit of the public as well as institutional players and not to fall prey to defaulters who simply do not agree to the ‘stipulated sum’, if the court takes the view it is reasonable. Adhering to the defaulting parties’ request for strict proof may in actual fact lead to travesty of justice when it is not a requirement under section 75 at all. [55] In our view, the learned trial judge had rightly applied the jurisprudence related to ‘Post Payment as to Damages’ within the spirit and intent of section 74 as well as section 75 of CA 1950 and the explanation and illustrations thereof and had come to the correct conclusion. In consequence, we take the view it is not plainly wrong or perverse decision and appellate intervention is not warranted. [56] This appeal is dismissed with costs, with a consequential order (as agreed by the parties) that the remaining appeals are to be dismissed with costs. We hereby order so. 55 Dated: 26 July, 2019 sgd (DATUK DR. HJ. HAMID SULTAN BIN ABU BACKER) Judge Court of Appeal Malaysia. Note: Grounds of judgment subject to correction of error and editorial adjustment etc. Counsel for Appellant: Ms Cheyenne Chan Pui See [with Ms Vanessa Yap Yoong Wei] Messrs. Shui-Tai Advocates & Solicitors Entrance 2, Suite 1308, 13th Floor Block A, Damansara Intan No. 1, Jalan SS20/27 47400 Petaling Jaya Selangor Darul Ehsan. [Ref: ST/3240(e)/2016/APPEAL(CC/ho)] Counsel for 1st Respondent: Mr. Kung Khai Hang [with Mr. Freddy Lim] Messrs. K.G. Chan, Freddy Lim & Company Advocates & Solicitors No. 38-3, Jalan 5/101G, Off Jalan Kaskas 5th Mile, Jalan Cheras 56100 Kuala Lumpur [Ref: FL/MPGYH/MSB/GLIT/07-17/L1179] 56 Counsel for 2nd Respondent: TRIBUNAL TUNTUTAN PEMBELI RUMAH Kementerian Kesejahteraan Bandar Perumahan dan Kerajaan Tempatan Level 3-4, No. 51, Persiaran Perdana Presint 4 62100 Putrajaya.