Preamble
Pursuant to clause 9 of the MAA, in the event of default under the MAA or any other agreement, the appellant had a right to terminate the MAA by notice in writing to the respondent. In the event of such termination, the respondent was to repay to the appellant within 60 days, a portion of the marketing assistance and all other outstanding sums (if any); and in exchange the appellant would return the memorandum of charge. The marketing assistance was to be repaid using a formula prescribed in clause 9.2 as follows: MA x R P where MA = actual amount of marketing assistance R = number of months of remaining period of the RTA (whether terminated or not) P = number of months of original total period of the RTA 5 [8] Aside from the RM1.2 million financial marketing assistance provided under the MAA, the respondent sought and was given additional funding of RM90,282.00 to cover the costs of designing, constructing and erecting the canopy signage at the Tok Bali Station. The total assistance under the MMA was thus a sum of RM1,290,282.00. This financial assistance was to be amortized over a 10-year period during which the respondent was obliged to continue operating the Tok Bali Station under the RTA. [9] As required under the RTA, the respondent obtained the necessary licences including licences under the Petroleum Development Act 1974 and the Control of Supplies Act 1961. On 18.6.2010, the respondent commenced operations at the Tok Bali Station. [10] Vide solicitors’ letter dated 26.11.2012, the respondent requested from the appellant a mutual termination of both the RTA and the MAA. The reason offered by the respondent was that Zainal had left AZ MY Enterprise and that the respondent was not keen on carrying on with the operations [tidak berminat untuk menguruskan dan meneruskan perniagaan stesen minyak tersebut]. The appellant refused. [11] So, in May 2013, the respondent filed an action at the High Court in Kota Bahru seeking inter alia that the RTA and the MAA be terminated forthwith. On the appellant’s application, the suit was struck out with costs on 7.11.2013. The respondent did not appeal. 6 [12] On 3.1.2014, the respondent approached the Ministry of Domestic Trade, Co-operatives and Consumerism for a cancellation of the licences issued for the operation of the Tok Bali Station. On 14.3.2014, the Ministry approved the application and the licences were cancelled. [13] The appellant treated the respondent’s act of applying for and obtaining the cancellation of the licences as amounting to a repudiatory breach of the RTA which had caused the appellant loss and damage. The appellant then exercised its rights of termination under clauses 9.1 and 16.1 of the MMA and RTA respectively and informed the respondent accordingly vide letter dated 29.4.2014. The appellant called on the bank guarantee for the sum of RM63,370.77 and demanded the balance of RM3,547,953.41 being the refund of the sums expended under the MMA [a sum of RM526,865.15] and the loss of potential earnings under the RTA [being a sum of RM3,021,088.26]. The respondent refused to pay up and the appellant sued. [14] A third agreement, known as the ‘Signage Agreement” as evidenced in letter dated 5.10.2009 from the respondent arose subsequently when upon the respondent’s request, the appellant advanced the respondent a sum of RM90,282.00. This money was for the costs of fabrication and installation of signage at the Tok Bali Station. The respondent repaid part of this advance leaving a sum of RM42,949.69 still outstanding for which the appellant sued. The Statement of Claim was later re-amended to reflect a claim of RM490,000.00 under the MMA and the Signage Agreement and a sum of RM2,977,288.00 under the RTA. 7 [15] The claims were substantially denied by the respondent who took the position that: i. the licences were cancelled on his application as he was no longer interested or able to carry on the business of managing the Tok Bali Station when Zainal left resulting in a change of licence conditions; ii. there was no Signage Agreement; iii. the monies for the signage were part of the RM1.2 million provided under the MAA; iv. the RTA and MAA automatically terminated upon the cancellation of the licences; v. there were no provisions in the RTA and MAA for the claims made by the appellant; vi. the claims were unreasonable and without basis. [16] The respondent counterclaimed for damages for loss of use of his lands, that the Court declare that he only owed the appellant RM442,667.69; and that the appellant be ordered to discharge the charge upon the respondent’s payment of RM442,667.69. Decision of the High Court [17] After a full trial, the claim was dismissed and the counterclaim was allowed in terms of the 2nd prayer; that is the respondent was to pay the appellant the sum of RM442,667.69. The remaining orders in the 8 counterclaim were treated as “consequential. It is unfortunate that the remaining orders were so treated as the charge agreed between the parties was only in relation to one lot, that is, only Lot PT 2671 was charged. But, the learned Judge erroneously ordered a discharge in respect of both plots of land. There was no appeal or cross-appeal by the respondent. Insofar as the appeal against the order of discharge was concerned, the respondent agreed that there was an error which must be rectified and the order of the High Court needed to be varied accordingly. [18] The appellant’s claim was dismissed basically on want of proof. The learned Judge inter alia found that– i. the figures relied on by the appellant varied substantially because the appellant did not have a special formula for calculating loss of future profits; ii. the appellant was not allowed to lead evidence of losses or sums which were different from those pleaded; iii. as a claim for special damages, there must be strict proof; and the appellant had failed in that respect; iv. under the RTA, the respondent was only required to pay whatever was outstanding; v. the existence of the Signage Agreement not established. 9 Decision of the Court of Appeal [19] We find that there has been a serious misapprehension of the claim and a misapplication of the principles on the award of damages, especially when the learned Judge proceeded almost without question, that liability and cause of action had been established. That may well be so, that parties do not contest the issue of liability and that it is only a case for assessing the quantum of damages. If that be the case, there must be a clear and inescapable finding or record of the same so that it is beyond dispute. But, even then, the Court must always appraise itself, properly and fully, as to the cause of action, circumstances and factual matrix of the claim, the pleas and arguments before proceeding with the assessment exercise itself. The danger with moving straight into the matter of quantum of damages, which is what happened here, is that one gets lost in the figures and details without appreciating and knowing what to look for, why and whether any head or item of claim or damage may be considered, what the fundamental principles are. Thus, we shall examine this appeal with that same caution in the forefront of our minds. [20] To begin with, this was a claim for breach of three underlying agreements between the parties, the existence of at least two of those agreements is admitted but not the third. Following from the breach is the exercise of a purported right to terminate the agreements and the claim for damages represented by monies expended and future losses. The counterclaim is for declaratory orders to the effect that the charge entered against the respondent’s lands was only to guarantee the repayment of 10 RM1.2 million, and that the respondent only owed the appellant a sum of RM436,583.15 [a figure that was later changed to RM442,667.69 for which judgment was entered]; and consequential orders for general damages and a discharge of the charge. Only the order on the charges were allowed; and there is no appeal by the respondent. [21] From the contents of the Defence and the Counterclaim, and the submissions made, the existence of the breach by the respondent and the lawfulness of the termination by the appellant do not appear to be in contest. After all, the respondent himself wanted to terminate the underlying agreements between him and the appellant, not once but thrice. Aside from sending letters through his solicitors, he filed a civil action seeking declaratory orders to the effect that the RTA and the MAA had been automatically terminated. That High Court civil suit was struck out with costs on the application of the appellant with costs to the appellant. There was no appeal. The third time was when he went to the Ministry to have his licences cancelled. Furthermore, the fact that the respondent was seeking a declaratory order on the amount of damages that he had to pay the appellant also indicated that the dispute was really over the quantum. [22] It was imperative that the learned Judge appreciated this fact as the right to damages, whether of reliance expenses or future losses are rights and remedies that can only flow from a valid termination. The appellant’s claim was dismissed not because the termination was invalid but because the damages were not proved. There were however, no deliberations on this crucial aspect. 11 [23] We, on our part, found the respondent to be in breach. The RTA, amongst others, was an agreement which provided for the construction and operation of the Tok Bali Station as an “Esso-branded” petrol and service station and convenience store on terms and conditions found in the RTA; and where the respondent had agreed to buy from the appellant motor fuels, lubricating oils and other petroleum products for resale at the station. It was not an agreement for the sale of the appellant’s petroleum products as misunderstood by the learned Judge; it was much more as is evident from its extensive terms and conditions. The RTA was also a ten-year arrangement, see clause 1.2 of the RTA, and unless earlier terminated or extended would expire only in June 2020. [24] Pursuant to clause 2 of the RTA, the respondent was obliged to obtain the relevant licences under the Petroleum Development Act 1974 [PDA] and the Control of Supplies Act 1961 and such other licences stipulated in clause 3 of the RTA. The respondent applied for and was granted a licence under PDA for a period of 5 years [see page 191 of the record of appeal]. We agree with the submissions of the appellant that the respondent was in breach of the RTA when he applied for and obtained a cancellation of the very licences he had to have before commencing operations of the Tok Bali Station [see page 410 for cancellation]. In our view, this was a material undertaking on the part of the respondent, a failure or breach of which will grant substantive remedies to the appellant. [25] The respondent had argued that the licence was automatically revoked when Zainal resigned. We do not agree. Contrary to the 12 submissions of the respondent, we are of the view that the change of business structure in AZ MY Enterprise [from partnership to sole proprietorship], when Zainal left him, did not automatically revoke the respondent’s PDA licence. The Ministry’s letter of approval of licence dated 31.5.2010 clearly provided that any change in the business structure of AZ MY Enterprise needed its prior approval, the failure of which may render the licence liable to be cancelled or revoked. Nothing mentioned about automatic revocation or cancellation. [26] The evidence also showed that Zainal had actually left the respondent 3 years prior to the respondent’s application for cancellation - see records filed with the Companies Commission of Malaysia, pages 237 – 240 of the records of appeal. If what the respondent said was true, that the cancellation was automatic, then it also made no sense why the respondent had to apply for the cancellation in the first place. In any event, the appellant’s second witness [SP2], Zaiful Azlan bin Abu Zarim, Retail Area Manager for Central and East Coast Regions had testified that the respondent never asked for the appellant’s letter of support for change of business structure which is the usual practice in ensuring a continuance of the PDA licence; this would have enabled the continuance of the licence. [27] In rebuttal, the appellant led evidence to the effect that actually the cancellation of the PDA licence had nothing to do with the Ministry’s terms and conditions of licence, as claimed by the respondent. Through his solicitors’ letter dated 2.11.2012 to the appellant where the respondent broached for the first time, a mutual termination, the respondent informed 13 that the termination was proposed because of a change in business structure due to a falling out between himself and his brother-in-law, Zainal. It seemed he could no longer work with Zainal [kerana anak guam kami sudah tidak boleh bekerjasama lagi dengan En. Zainal Abidin bin Yusoff iaitu abang ipar anak guam kami]. The letter went on to explain that it was Zainal who ran the Tok Bali Station and that the respondent did not have the know-how to run the station, and that he was not interested. [28] As it turned out, even that was not the true reason. Zainal testifying for the respondent said in his evidence-in-chief that the respondent had voiced his concerns to him about the viability of the station given that another petrol station was opening up nearby; that he was planning to sell the lands. For those reasons, Zainal resigned from AZ MY Enterprise. The respondent himself did not testify. [29] Since the cancellation was at the respondent’s own request when the possession of a valid PDA licence was one of his material undertakings under the RTA without which the respondent could not commence operations at all, the respondent was clearly in breach of the RTA when he asked for and obtained a cancellation of his licence thus prematurely ceasing operations at the Tok Bali Station. As a defaulting party, the respondent was not entitled to take advantage of his own breach – see Gimstern Corporation (M) Sdn Bhd & Anor v Global Insurance Co Sdn Bhd [1987] 1 CLJ 123; Sim Kui Seng Realty Sdn Bhd v Sam Yep Foo & Anor [2014] 1 MLJ 410. 14 [30] On the other hand, the appellant is entitled to treat the respondent’s breach as an act of repudiation as the respondent had clearly evinced an intention not to comply with such essential term of the RTA. Learned authors, Krishnan Arjunan and Abdul Majid bin Nabi Baksh of “Contract Law in Malaysia” [2008] had explained that “repudiation” is where “the breach must evidence either a failure to comply with or an intention not to comply with an essential terms of the contract.” [31] In Rasiah Munusamy v Lim Tan & Sons Sdn Bhd [1985] 2 MLJ 291, the Supreme Court explained that “not every refusal to perform some part of a contract will amount to a renunciation… It is not a mere refusal or omission of one of the contacting parties to do something which he ought to do that will justify the other in repudiating the contract but there must be an absolute refusal to perform his part of the contract (See Freeth v Burr). If there is an absolute refusal to perform, the other party may treat himself as discharged. Short of an express refusal, however, the test is to ascertain whether the action or actions of the party in default are such as to lead a reasonable person to conclude that he no longer intends to be bound by its provisions.” [32] We find the conduct of the respondent, the facts of which are not in dispute, is clearly evidence not of a mere refusal to perform but evidence that he no longer intends to be bound by the terms of the underlying agreements. Such conduct amounts to a wrongful repudiation entitling the appellant to the rights as set out in clauses 16 and 9 of the RTA and MAA respectively. 15 [33] Clause 16.1(a) provides that the appellant has a right to terminate the RTA by notice in writing where, inter alia, “there is any breach of any of the covenants, stipulations or provisions” of the RTA. In our view, the appellant was within its contractual rights when it terminated the RTA. Where the RTA is terminated, clause 9.1(e) of the MAA in turn entitles the appellant the right to terminate the MAA upon a written notice to the respondent. [34] By exercising those rights of termination, the appellant, as the innocent party is nevertheless entitled to damages– see Berjaya Times Square Sdn Bhd [formerly known as Berjaya Ditan Sdn Bhd v M Concept Sdn Bhd [2010] 1 MLJ 597. The breach entitles the appellant to “accept the repudiation, treat the contract as at an end and sue for damages. The rationale is that the primary obligation to perform the promise made is substituted with a secondary obligation to compensate the promise for the breach.” See also the Court of Appeal decision in Poh Geok Sing v HB Enterprise Sdn Bhd [2006] 1 MLJ 617. [35] This right to damages exists regardless whether there is a specific provision or formula for such compensation. In Malayan Banking Bhd v Basarudin bin Ahmad Khan [2007] 1 MLJ 613, the Federal Court held that there is no need to provide specifically for a common law right to damages in the event of breach. That right in any case, is statutorily enunciated in section 74 of the Contracts Act 1950: 16 “The traditional view is that damages for a breach of contract committed by the defendant are compensation to the claimant for the damage, loss or injury suffered through that breach (see Chitty on Contracts Vol 1 (29th Ed) para 26- 001). This is a common law right arising from the breach of a contract and it is not the subject of the contract. In other words, it need not be provided for in the contract (see the judgment of Fry LJ in Birmingham and District Land Company v London and Northern Western Railway Company). This right is contained in s 74(1) of the Contracts Act 1950 which reads: