Chapter 9 - Damages, LAD, Deposits & Part-Payments

Question 1

DAMAGES

overview

Answer 1

1) Scope of claim for damages
2) Types of damages
3) Remoteness of damages
4) Mitigation of damages

Question 2

SCOPE OF CLAIM FOR DAMAGES

Overview

Answer 2

1) Scope of S.74
2) Action in damages for breach vs action for indemnity
3) What can be claimed
4) Who can claim

Question 3

SCOPE OF CLAIM FOR DAMAGES

Scope of S.74

Answer 3

Malaysian Rubber Development Corp Bhd v Glove Seal Sdn Bhd:

• Naturally arose in the usual course of things; or
• Which the parties knew, when they made the ctt, to be likely to result from the breach.
• No actual knowledge is necessary, in contemplation is sufficient.

Originally:

Hadley v Baxendale:

• Naturally arose in the usual course of things; or
• Which the parties knew, when they made the ctt, to be likely to result from the breach.
• No actual knowledge is necessary, in contemplation is sufficient.

Question 4

SCOPE OF CLAIM FOR DAMAGES

damages vs indemnity

Answer 4

Malayan Banking Bhd v Basaruddin Ahmad Khan:

1) damages:

• compensation for loss or injury suffered;
• arising from the breach of ctt & not a subject of the contract.

2) indemnity:

• right which has to be provided for in the original bargain;
• formal legal acceptance of responsibility for damages or loss.
• does not take away right to claim for damages.

Question 5

SCOPE OF CLAIM FOR DAMAGES

Types of damages that can be claimed

Answer 5

Ismail v Hj. Taib:

General damages - first limb S.74:

• to protect expectation of interest;
• based on dimunition of value and costs of care & loss of profits.

Special damages - second limb S.74:

• to protect reliance interest;
• parties have not suffered any loss of profits, but has incurred expenses in reliance of contract.
• based on wasted expenditure or damages in preparation of the performance of the contract.

Question 6

SCOPE OF CLAIM FOR DAMAGES

Who can claim

Answer 6

Lim Foo Yong & Sons Realty Sdn Bhd v Datuk Eric Taylor:

• The word “party” under S.74 can only mean a party who is a signatory to the contract or his estate.

Question 7

TYPES OF DAMAGES

Overview

Answer 7

1) Compensatory damages

2) Non-compensatory damages

Question 8

COMPENSATORY DAMAGES

Types & scope

Answer 8

1) Pecuniary loss:
- loss of profit or reliance expenditure.
2) Non-pecuniary loss:
- e.g. damages for inconvenience, distress or anxiety.

Watts v Marrow:

• General rule: a contract-breaker is not liable for any distress, frustration or anxiety which his breach may cause;
• Exception: When the very object of the ctt provide for pleasure, relaxation & peace of mind.
• Example: Holiday CTT (Jarvis Swan Tours Ltd), CTT with solicitor to prevent further distress (Heywood v Wellers);
• in such a case, damages may be recoverable if the breach & mental suffering are directly related to that inconvenience & discomfort.

Question 9

NON-COMPENSATORY DAMAGES

Overview

Answer 9

1) Nominal damages

2) Exemplary damages

Question 10

NON-COMPENSATORY DAMAGES

Nominal damages

Answer 10

Popular Industries Limited v Garment Manufacturing Sdn Bhd:

• P seeking for damages must prove the damages & the amount of damages;
• If he proves contravention of rights, he will be awarded nominal damages;
• If he proves damages but not the amount, he may be awarded nominal damages.

Question 11

NON-COMPENSATORY DAMAGES

Exemplary damages - when

Answer 11

Rookes v Barnard:

• there has been oppressive, arbitrary & unconstitutional conduct; or
• D’s conduct has been calculated by him to make a profit for himself which may well exceed the compensation payable by himself; or
• Where a statute has expressly authorised it.

Question 12

NON-COMPENSATORY DAMAGES

Exemplary damages - example

Answer 12

Breach of promise to marry - Dennis v Sennyah:

• Damages in action for breach of promise to marry is not to repay the P for the temporal loss but to punish the D in an exemplary manner.

Question 13

REMOTENESS OF DAMAGES

First limb S.74 - naturally would arise - general damages

Answer 13

1) Bee Chuan Rubber Factory Sdn Bhd v Loo Sam Moi:

• Damages recoverable for delay in completion of an ordinary house required for personal occupation include reasonable cost of living accommodation elsewhere and storing furniture.
• i.e. the cost to store furniture & accommodation to live somewhere is damages that naturally would arise due to the breach.

2) Bank Bumiputra Bhd Kuala Terengganu v Mae Perkayuan Sdn Bhd:

• the loss of of profits on the housing project which the customer would suffer was the natural & probable result of the breach of agreement by bank.
• i.e. the loss of profits is damages that naturally would arise due to the breach.

Question 14

REMOTENESS OF DAMAGES

Second limb S.74 - which the party knew to be likely to result from the breach - special damages

Answer 14

1) Teoh Kee Keong v Tambun Mining Co Ltd:

• Appellant claims for the value of work done, outlay and materials used as well as labour and expenses.
  FC held:
• Claims allowed;
• It was clearly in contemplation of the contracting parties that the appellant should not be denied the fullest opportunity to recoup all the monies he had invested into the enterprise.

2) Tham Cheow Toh v Associated Metal Smelters Ltd:

• From the evidence it is clear that the defendant had special knowledge regarding the required temperature.
• When the specification was not complied with, judge made an award for loss of profit of P who required the furnace for his business;
• Damages for loss of profit in this case is made under 2nd limb (instead of 1st limb) as D had special knowledge of the required temperature.

Question 15

MITIGATION OF DAMAGES

Duty to mitigate damages

Answer 15

Kabatasan Timber Extraction Co v Chong Fah Shing:

• General rule: party seeking damages is under duty to mitigate his losses.
• P cannot claim to be compensated for something that is not due to the breach of D, but to his own failure to behave unreasonably after the breach.

Question 16

MITIGATION OF DAMAGES

Meaning of “duty”

SGCA, 2010

Answer 16

The Asia Star:

• legal requirement imposed on aggrieved party to take measures to minimise avoidable losses.
• Breach of duty to mitigate does not entitle aggrieved party to claim the part of the loss.

Question 17

MITIGATION OF DAMAGES

Basic rules on mitigation

SGCA, 2010

Answer 17

The Asia Star:

• Aggrieved party must take all reasonable steps to mitigate losses;
• Cannot recover damages for any loss which it could have avoided;
• Aggrieved party who goes beyond what the law requires will not be entitled to any damages;
• May recover expenses incurred in the course of taking reasonable steps to mitigate its loss;
• Burden of proving failure to mitigate is on the defaulting party.

Question 18

MITIGATION OF DAMAGES

Sales of goods

Answer 18

Tansa Enterprise Sdn Bhd v Temenang Engineering Sdn Bhd:

• proportion of bricks not supplied by P were so small compared to total value of contract;
• D should have mitigated as bricks were common goods & no shortage at the market;
• D who bought the bricks from cheaper supplier cannot be allowed to counter-claim.

Question 19

MITIGATION OF DAMAGES

Recovery of losses or expenses

Answer 19

Malaysian Rubber Development Corp Bhd v Glove Seal Sdn Bhd:

• P taking steps to mitigate & incur expenses while at it may recover damages to indemnify him in respect of the expenses;
• the fact that D does not know or expect the expenses incurred by P in the course of mitigating his losses does not make D not liable to compensate P.

Question 20

MITIGATION OF DAMAGES

Anticipatory breach & mitigation of losses

Answer 20

Ban Chuan Trading Co Sdn Bhd v Ng Bak Guan:

• CA disallowed P’s claims for general damages;
• P should have minimised his losses by taking steps to terminate the agreement as soon as it was made known to him that the premise is not available, i.e. as soon as he can anticipate the breach.

Question 21

ASSESSMENT OF DAMAGES

date of assessment

Answer 21

1) General rule - Eikobina (M) Sdn Bhd v Mensa Mercantile Pte Ltd:
- on the difference between the contract price & market price at the time of breach.
2) Claims for breach of warranty - Lee Heng & Co v C Melchers & Co:
- values are assessed on the date of delivery of goods ordered.

Question 22

ASSESSMENT OF DAMAGES

taxation of damages

Answer 22

Daishowa (M) Woods Products Sdn Bhd v Kepong Products Co Sdn Bhd:

• deductions should be made for any sum which P would have been liable to pay in taxes.
• conditions:

1) The money for the loss of which damages are awarded would have been subject to tax as income; and
2) Damages awarded should not be liable for another taxation.

Question 23

LAD

Whether proof of loss is necessary

Answer 23

1) the law:

S.75

2) Whether proof of loss is necessary - Cubic Electronics Sdn Bhd v Mars Telecommunications Sdn Bhd:

• To claim for LAD under S.75, proof of actual loss is not necessary or mandatory.
• Onus is on the party seeking to enforce LAD clause to adduce evidence of breach & evidence of the existence of the clause.
• Once these two are established, he is entitled to the sum stipulated in the clause.
• To raise the disputes, defaulting party may show that the damages are unreasonable or demonstrate by evidence the reasonable amount for his breach.

Question 24

DEPOSIT

Overview

Answer 24

1) Meaning of deposit
2) Scope of deposit
3) Right to forfeit deposit
4) Whether prove of actual damage is necessary
5) Right to sue for unpaid deposit & recovery of unpaid deposit
6) Relief against forfeiture of deposit
7) Equitable relief against forfeiture of deposit

Question 25

DEPOSIT

Meaning of deposit

Answer 25

Howe v Smith:

• Money paid as a guarantee that the contract shall be performed;
• Cannot be refunded unless there is clause to the contrary;
• failure to complete performance in accordance with the terms of the contract will entitle the other party to forfeit the deposit.

Question 26

DEPOSIT

scope of deposit

Answer 26

Cubic Electronics Sdn Bhd v Mars Telecommunication:

• earnest money + part-payment = deposit;
• deposit is subjected to reasonable compensation under S.75;
• innocent party must prove that it is reasonable to forfeit the deposit & the value forfeited is also reasonable (test of legitimate interest & proportionality in Cavendish).
• once innocent party satisfies this, onus then shifts on the defaulting party to show that the forfeiture was excessive.

Question 27

DEPOSIT

Right & condition to forfeit deposit

Answer 27

1) Right - Skyline Trading Co v Tiow Yoke Lan:

• rights only arise on breach of contract;
• deposit paid under a void or ineffective contract is recoverable either based on intention of parties or on restitutionary grounds.

2) condition - Cubic Electronics Sdn Bhd v Mars Telecommunication:

• deposit is subjected to reasonable compensation under S.75;
• innocent party must prove that it is reasonable to forfeit the deposit & the value forfeited is also reasonable (test of legitimate interest & proportionality in Cavendish).
• once innocent party satisfies this, onus then shifts on the defaulting party to show that the forfeiture was excessive.

Question 28

DEPOSIT

Whether proof of actual damages is necessary

Answer 28

1) Linggi Plantations Ltd v Jagatheesan:

• GR: deposit can be forfeited, whether or not actual damages is proven;
• Exception: where deposit is unusual or extortionate, deposit may be considered as penalty & in such a case, actual damages / loss must be proven.
• See: Principles in Cubic Electronics Sdn Bhd v Mars Telecommunication.

2) Sun Properties Sdn Bhd v Happy Shopping Plaza Sdn Bhd:

• if it is a true deposit or earnest money, the sum is irrecoverable;
• it can be lawfully forfeited whether or not loss or damages is proven.

Question 29

DEPOSIT

Right to sue for unpaid deposit & recovery of unpaid deposit

Answer 29

Morello Sdn Bhd v Jaques (International) Sdn Bhd:

• party is entitled to recover any unpaid deposit which is payable under the contract;
• no need to prove his damage & no duty to mitigate his loss.
• may recover damages for breach also, but must set-off with the deposit paid.
• even if there is no provision for forfeiture, this does not preclude seller from recovering the unpaid deposit.

Question 30

DEPOSIT

Relief against forfeiture of deposit

Answer 30

1) General:

If the deposit is excessive or unreasonable, it may be subjected to S.75, i.e. must prove loss.

2) Linggi Plantations Ltd v Jagatheesan:
- where deposit is unusual or extortionate, deposit may be considered as penalty & thus S.75 is applicable.
3) Cubic Electronics Sdn Bhd v Mars Telecommunication:

• deposit is subjected to reasonable compensation under S.75;
• innocent party must prove that it is reasonable to forfeit the deposit & the value forfeited is also reasonable (test of legitimate interest & proportionality in Cavendish).
• once innocent party satisfies this, onus then shifts on the defaulting party to show that the forfeiture was excessive.

Question 31

DEPOSIT

Equitable relief against forfeiture of deposit

Answer 31

1) English courts - Stockloser v Johnson:
- Court has jurisdiction to grant relief against forfeiture of deposit if the forfeiture clause is PENAL in nature & it is UNCONSCIOUS for the party to retain the money.
2) Malaysian courts - K Umar Kandha Rajah v EL Magness:
- FC referred to the case of Stockloser v Johson & allowed the equitable relief against the forfeiture of the deposit.

Question 32

PART-PAYMENT

Recovery of part-payment

Answer 32

Mayson v Clouet:

• Forfeiture of money in contract is only for deposit only;
• all instalments & progressive payments, like any other part-payments, are recoverable by party.
• the basis for recovery are:

1) The part-payment was conditional upon subsequent completion of the contract (i.e. since there is no completion, it ought to be returned); or
2) There is total failure of consideration (i.e. money paid is for consideration to perform obligation, no performance = ought to be returned).

Question 33

PART-PAYMENT

Equitable relief against forfeiture of part-payments

Answer 33

Chen Chow Lek v Tan Yew Lai:

• MY courts will grant equitable relief in certain cases.
• OTF, forfeiture would become a penalty since the appellant has almost fully paid up the sum when the vendor wanted to terminate the contract.
• The appellant has acquired an equity of restitution.