CASE 1: CALTEX OIL MALAYSIA LTD v.

SURIA MURNI (SELANGOR) SDN BHD & ANOR

Facts of the Case The price of diesel in Malaysia depends upon the end-user concerned, namely inland use, retail inland use, commercial inland use, for use by National Fishermens Association (NEKMAT), foreign bunkering and bunkering. Vide a letter dated 2 November 1999 to six major oil companies, the Government informed that the Automatic Pricing Mechanism (APM) only applies to diesel sold for inland use and to NEKMAT and not for bunkering of the purpose. It is an undisputed fact that in order to claim for the reimbursement of the subsidy, the oil companies (including the plaintiff) would on a monthly basis lodge a claim with the Customs Department by completing a form titled Statement of Claim for Subsidy Payments on Diesel in respect of the diesel sold by that oil company for commercial inland use in that particular month. The Customs Department would then process the claim and upon ascertaining that the claim is related to diesel sold for commercial inland use, reimburse the subsidy to the oil company in question. In February, March and April 2000, the plaintiff sold 2,169,360 litres of diesel to the plaintiff through the defendants Commercial Inland Account maintained with the plaintiff. At all material times and in order to facilitate the defendants purchase of diesel from the plaintiff, the defendant had 3 separate accounts with the plaintiff consisting of: (i) An account for the purchase of diesel for commercial inland use bearing account number SAP 161352957 (Commercial Inland Account) An account for the purchase of diesel for bunkering bearing account number SAP 161352627; and An account for the purchase of diesel for foreign bunkering bearing account number SAP 161352612.

(ii)

(iii)

According to PW4, it was a term of each of the sales purchase of the diesel by the defendant through its Commercial Inland Use Account that: (i) The diesel would be utilized whether by the defendant or otherwise solely for commercial inland use; and The plaintiff would be able to claim the subsidy payable for commercial inland use diesel sales from the Government of Malaysia.

(ii)

It is the plaintiffs case that in regards to the oral agreement, the terms were agreed to in telephone conversations between PW4 or PW5 with DW1 and or DW2 acting for and on behalf of the defendant prior to each and every purchase whereby the defendant asked for and was quoted the commercial inland rate for diesel offered by the plaintiff on that particular day. The agreement was made in writing and the plaintiffs second witness Perumal a/l Munusamy (PW2) testified that vide its letter dated 19 April 2005, the Customs Department have rejected a portion of the plaintiffs claim amounting to RM665, 797.28. The rejection by the Customs Department was premised on the ground that a portion of the diesel purchased by the

defendant from the plaintiff was in fact utilized for bunkering purposes. Hence, the plaintiff alleged that the defendant has breached the terms of the sales, namely that the diesel would be utilized solely for commercial inland use. The plaintiff claimed against the defendant for loss of reimbursement of diesel subsidy of RM609, 520.20 from the Customs Department as a result of the breach. The defendant disputed this. Issues The issues to be determined by the court are as follows: (i) Whether the sale of diesel to the defendant is for the purpose of inland commercial use. Whether the delivery orders and invoices in C2 and C3 were for bunkering. Whether both parties expressly and/or impliedly agreed that the plaintiff would be entitled to claim reimbursement of subsidy from the sale of diesel. Whether the defendant has breached the terms of the contract.

(ii) (iii)

(iv)

Judgment (i) Since the prices written in the purchase orders were the price of diesel for commercial inland use, it was an implied term that the diesel in the purchase orders would be purchased for commercial inland use. The word INLAND A/C confirmed that the diesel was sold to the defendant for purposes of commercial inland use. In light of the totality of the evidence adduced, the parties had agreed that the diesel sold by the plaintiff to the defendant was for commercial inland use. It was completely illogical for the plaintiff to agree to sell the diesel to the defendant for bunkering at the price of commercial inland use (which is lower than for bunkering) since this kind sale would clearly result in the loss of reimbursement of subsidy from the Government. It was an implied term of the sale of diesel to the defendant that the plaintiff would be able to claim reimbursement of subsidy. The evidence showed that the sale during the material time period was agreed to be for commercial inland use. By using the said diesel for bunkering, the defendant had breached its contract with the plaintiff and the plaintiff was entitled to claim damages for any losses which arose in the usual course of things. The loss of reimbursement of subsidy suffered by the plaintiff was clearly within the ambit of s. 74 of the Contracts Act, 1950 because such loss naturally arose from the defendants breach of the terms of the contract since the defendant had used the diesel for bunkering which precluded the plaintiff from getting the subsidy from the government or when the contract was made, the defendant knew it was for the purchase of diesel for commercial inland use, which is subsidized by the

(ii)

(iii)

(iv)

(v)

Government. Therefore, the plaintiff could claim the sum of RM609,950.20 from the defendant. Commentary For the first and second issue, I agreed with the judgment that the diesel was sold to the defendant for the purposes of commercial inland use. This is because, in this case, the plaintiff made typographical errors as the words Duty-Paid Bunkering which appeared on the invoices was supposed to be Inland Account-ex Pulau Indah. As in my opinion, if the diesel was sold for the purposes of bunkering, then the defendant must notify to the plaintiff about the name of the ship and the plaintiff also must notify the defendant about the loading date of the diesel and lastly the defendant should give the plaintiff, customs declaration prior to every purchase. However, from the evidence adduced in this case, there is none of purchase orders that contain the name of any ship or the loading date of the diesel. Therefore, I agreed that the diesel in the purchase orders was purchased for commercial inland use. For the third issue, in my view, the fact that the defendant by their own admission conceded that they used the diesel for the purposes of bunkering, shows that they have breached the contract with the plaintiff. In this case, I would agree with the judgment that it was an implied term that the plaintiff would be able to claim for reimbursement of subsidy. This is because, the defendant who had many experience in the business involving of buying diesels, it was highly unlikely that the defendant did not know about the existence of the subsidy scheme at all. Even if the plaintiff had failed to notify them about the subsidy scheme, but, for someone who had many experienced, this matter should be certainly be known by all players in the industry, including the defendant. For the last issue, the court has finds out that the plaintiff was succeeded in proving their case. This is because, the evidence shows that the sale of the diesel was agreed to be commercial inland use. However, by using the diesel for bunkering, the defendant was clearly breached the contract with the plaintiff. Therefore, the plaintiff is entitled to claim damages for any losses as it is clearly within the ambit of Section 741 of the Contract act. The principle of remoteness of damage is provided under Section 74 which states that, when a contract has been broken, the party who has suffers by the breach of the contract was entitled to receive any compensation or damages, from the other party who has broken down the contract, which naturally arose in the usual course of things from the breach, or which they knew, when they made a contract, to be likely to result from the breach of it. In the case of Hadley v Baxendale2, Alderson B has laid down the test of remoteness of damage in 2 limbs. Where the 1st limb provides for compensation or damages of losses which naturally arose in the usual course of things from the contract while the 2nd limb in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. In this case, the loss of reimbursement of subsidy suffered by the plaintiff is clearly under Section 74 because such loss was naturally arose from the defendants breach of contract and therefore, the plaintiff is entitles to claim for the sum of Rm 609,950.20 from the defendant.

1 2

Contracts Act 1957 s 74 [1854] EWHC J70

CASE 2: AMBANK (M) BHD v. TAN YU HOCK

Facts of the Case The defendant here is a purchaser who had signed a tripartite sale and purchase agreement dated 22 December 1994 with Spring Crest (M) Sdn Bhd as the vendor/developer and Dacing Emas Sdn Bhd as the owner. It was for the purchase of a 11/2 storey semi-detached factory to be built on a piece of land designated as Lot 226 in what is to be called Taman Perindustrian Puchong Seksyen 5, for a purchase price of RM855,165. The defendant said he entered into the sale and purchase agreement based on the promotion of MBf Property Services Sdn Bhd in that if the defendant were to take a loan from MBf Finance Bhd then MBf Property Services Sdn Bhd would pay all the interest accrued on the loan disbursed to him to pay for the purchase price of the factory during the period of construction until the loan is fully drawn down with the CF being issued. The said letter dated 22 December 1994 from MBf Property Services Sdn Bhd to the defendant is at p. 6 of the common bundle of documents (CBD) filed for the purpose of O. 14A of the RHC application. The letter was signed off by MBf Property Services Sdn Bhd as the attorney for Spring Crest (M) Sdn Bhd and Dacing Emas Sdn Bhd. Indeed the sale and purchase agreement had been signed by MBf Property Services Sdn Bhd as attorney for both the vendor/developer and the owner. The plaintiff herein was formerly known as AmFinance Berhad and is the successor-in-title to MBf Finance Bhd. The defendant herein had in 1998 together with other purchasers as the plaintiffs brought an action in the Shah Alam High Court in MT3-24-1802-1998 against MBf Finance Bhd as the 1st defendant and MBf Property Services Sdn Bhd as the 2nd defendant. The orders granted by the Shah Alam High Court on 7 July 1999 by His Lordship Low Hop Bing J (later JCA) were as follows: 1. That the plaintiffs shall not be required to make any payments in relation to the loan from the 1st defendant for so long as the buildings purchased have not had a certificate of fitness of occupation issued; 2. That the 1st defendant whether by itself, its agents or servants or howsoever, be restrained from making a claim or bringing any action against any or all of the plaintiffs to recover the loan including enforcing any of its rights under the loan agreements against any or all of the plaintiffs for the purchase of the factory units in the designated titles until the certificate of fitness of occupation is obtained. After the CF was issued on 10 December 2010, the plaintiff herein had on 23 November 2011 filed this suit against the defendant to claim for the amount outstanding in the loan made up as follows: 1. The sum of RM2,667,264.98 as at 31 August 2011; 2. Interest on the sum of RM2,667,264.98 at the rate of 3.4% per annum above Base Lending Rate of the plaintiff (currently 6.60% per annum) on a monthly rest with default interest at 1% per annum on the arrears outstanding calculated from 1 September 2011 to date of settlement and costs.

Issues (i) Whether the plaintiff can impose and claim interest on the said loan from the date the loan was disbursed till the date of the order of the Shah Alam High Court; Whether the plaintiff could impose and claim interest from 8 July 1999 till 10 December 2010 which is the date the CF was issued; Whether the plaintiff could impose and charge interest from 11 December till date of settlement; and Whether the plaintiff was under a duty, contractual or otherwise, to inform the defendant of the issuance of the CF to the premises.

(ii)

(iii)

(iv)

Judgment (i) The contractual links in the relationship between the borrower, the developer and the financier was that the financier could only require the borrower to commence the instalment payments only after a permanent CF was obtained. The plaintiff gave assurance to the defendant as the purchaser that the plaintiff would be looking to the developer to pay the interest during the period prior to the issuance of the CF. Hence the plaintiff was not entitled to claim interest from the defendant for the loan disbursed for the period before the CF was issued. The words of the order of the Shah Alam High Court were clear and unambiguous. There was nothing stated in the order that the rights of the plaintiff to claim interest for the period before the CF was issued was only held in abeyance and postponed to a later date which is after the CF was issued. In light of this, the plaintiff could not impose and claim interest on the loan from the date the loan was disbursed until the date of the Shah Alam High Court order and also from 8 July 1999 till 10 December 2010. Once the CF had been issued and there was agreement that it was issued on 10 December 2010, the obligations of the defendant as borrower under the loan agreement would apply with full force. The obligation would include payment of the loan and the interest on the full loan disbursed. However it did not include the interest on the loan disbursed for the period before issuance of CF. Pursuant to cls. 16, 17 and 18 of the SPA, it was the developer who had to inform the defendant about the issuance of the CF following the delivery of vacant possession to the property. However, in the instant case, there was no evidence that the developer had informed either the purchaser or the financier (as absolute assignee) of the issuance of the CF. The defendant as the purchaser had the right to sue the developer for damages for late delivery of possession or for losses suffered as a result of having to pay interest without realizing that CF had been issued.

(ii)

(iii)

(iv)

(v)

Commentary

In the aspect of damages, the issues arose whether the defendant as the purchaser could sue the developer for damages for late delivery of possession or for the losses suffered as a result of having to pay interest without realizing that the CF has been issued? Under the sale and purchase agreement, the developer is the one who should inform the defendant about the issuance of the CF following the delivery of vacant possession to the property. However, in this case, there was no evidence that the developer had informed the purchaser about the issuance of the CF. In the situation where there is no evidence of the developer having informed the purchaser or the financier, it can be seen in the case of Sakinas Sdn Bhd v Siew Yik Hau & Anor3, where the agreement is more in the nature of a charge or security only, had a separate title been issued, the financier could have taken charge over the Property. In that case, the court held that the purchaser still can sue the developer on damages for late of delivery even though the rights had been absolutely assigned to the financier. The principle is the same with the judgment in this case where the court held that the defendant can has the right to sue the developer for damages for late delivery of possession and for the lost suffered. In the agreement of sale and purchase, there will always be a risk of a building not being completed on time. Therefore, in my view, it would be better if there is a system of built first and sell later rather than built and sell. If this system implemented, then it can reduce the incidents where the purchasers not being able to take practical completion on time.

[2002] 3 CLJ 275