Judgment

Denis J.F. Ong JCA

(delivering judgment of the court)

1. This is an appeal by the plaintiff (‘the appellant’) against the judgment dated 18 April 1995 of the Penang High Court dismissing the plaintiff’s claim by original action for, amongst others, specific performance of a contract in writing dated 3 December 1977 for the sale of the defendant’s (‘the respondent’) land together with the building thereon described as Lot No 53 Town of Balik Pulau, District of Barat Daya, Penang (‘Lot 53’) to the appellant. The judgment further ordered a sum of RM1,100 to be paid to the appellant out of the court deposit and an assessment by the senior assistant registrar of expenses incurred by the appellant in obtaining a government housing loan.

2. We heard this appeal on 27 January 1997 and on the same day made known our decision orally that we allowed the appeal with costs here and below and ordered that the balance of the purchase price be paid by the appellant’s solicitors to the respondent’s solicitor and thereupon the respondent to execute a transfer in favour of the appellant, in default whereof the senior assistant registrar of the Penang High Court be empowered to execute such transfer. We also directed that the parties be at liberty to apply.

3. Here are the facts of the case. By an agreement dated 3 December 1977 written in the Malay language, the respondent (therein described as ‘the first party’) agreed to sell and the appellant (therein described as ‘the second party’) agreed to purchase from the respondent Lot 53 for the price of RM17,500; RM500 to be paid by the appellant as deposit and the balance of RM17,000 to be settled as soon as the government housing loan was disbursed. It was a term of the agreement that transfer of title to the appellant of Lot 53 shall be effected by the respondent upon settlement of the purchase price within a period of 12 months.

4. Pursuant to the agreement, the appellant paid to the respondent a sum of RM500 as deposit and part payment of the purchase price, leaving a balance of RM17,000. On his application, the housing loan division of the Federal Treasury, by letter dated 18 October 1978, approved a loan of RM11,530 of which RM11,000 was appropriated for the land and house and the balance for incidental expenses. On 7 November 1978, the loan of RM11,000 was disbursed to M/s Kumar, Chan & Chia acting for the appellant and they informed the respondent accordingly by letter dated 20 November 1978 with a request for the certificate of title to Lot 53 in return for the release of the said sum to him. On 24 November 1978, M/s Kumar, Chan & Chia wrote by registered post to Mr. Ch’ng Theam Inn seeking confirmation from him that he was indeed the respondent’s solicitor in the sale transaction and if so, they would forward to him by return post a sum of RM17,000 being the balance of the purchase price. On the same date, i.e. 24 November 1979, M/s Ch’ng Theam Inn & Co replied to M/s Kumar, Chan & Chia’s letter dated 20 November 1978 confirming that he was acting for the respondent and informing that the respondent did not wish to sell Lot 53 to the appellant and enclosing a cheque for RM1,000 in favour of the appellant being twice the amount of deposit payable to the appellant under cl 3 of the agreement in the event that the respondent did not want to complete the sale. The reply further sought the amount of actual expenses incurred by the appellant for which the respondent was willing to pay. On 25 November 1979, a private caveat was entered against Lot 53 on the application of the appellant. By letter dated 27 November 1978, the respondent’s solicitor replied to the appellant’s solicitors’ letter dated 24 November 1978 reiterating that the respondent no longer wished to sell Lot 53 to the appellant and that he had, on 24 November 1978, despatched to their office the respondent’s cheque for RM1,000 together with a covering letter of the same date. By letter dated 27 November 1978, the appellant’s solicitors returned the cheque for RM1,000 to the respondent’s solicitor and informed him that they had caveated Lot 53 and would bring an action for specific performance of the agreement. To this, the respondent’s solicitor responded by letter dated 30 November 1978 protesting against the caveat entered and urging its withdrawal. Once again, it forwarded the cheque and at the same time justified the respondent’s change of mind and the refund by reference to express provision of the agreement without specifying it. There was no response from M/s Kumar, Chan & Chia until 6 April 1979 when M/s Allen & Gledhill wrote to the respondent’s solicitor to inform him that they had taken over from M/s Kumar, Chan & Chia as the appellant’s new solicitors. In that letter, the appellant’s solicitors referred to the respondent’s solicitor’s letters dated 24 and 27 November 1978 and to cl 3 of the agreement. They maintained that the agreement was valid and existing and in no way rescinded by the respondent taking advantage of his own default and choosing to refund the deposit and other incidental expenses. It concluded by asking the respondent’s solicitor if he had authority to accept service of process as they were instructed to commence proceeding for specific performance of the agreement.

5. By para 2 of his letter dated 9 April 1979, the respondent’s solicitor replied that under the agreement both sides were at liberty to change their minds about selling or buying Lot 53 subject to compensation payable by the party refusing to sell or to buy as the case might be. It also recounted the brief history of the cheque, threatened to ask for damages for wrongful caveat if the caveat was not removed timely and confirmed that he had authority to accept service. The cheque in question was in fact returned to the respondent’s solicitor pending settlement under cover of a letter dated 11 April 1979 from the appellant’s solicitors. This was followed by another letter dated 13 April 1979 headed ‘without prejudice’ to the respondent’s solicitor in which the appellant’s solicitors reaffirmed that there was a valid and binding contract for the sale and purchase of Lot 53 and denied para 2 of the letter of the respondent’s solicitor. On 8 June 1979, the appellant commenced action for specific performance of the agreement; alternatively or in addition thereto, damages for breach. On 3 September 1979, the respondent defended and counterclaimed for damages for wrongful caveat. The action was tried in which both the appellant and the respondent gave oral evidence on 3 April 1995 and on 18 April 1995, the court below gave its judgment and made certain orders on the original action which we mentioned before but made no order on the counterclaim.

6. It is common ground that the appellant is a tenant of the respondent and is in actual occupation of the premises of Lot 53 at all material times. It is a fact established on the undisputed oral and documentary evidence of the appellant that as at 24 November 1978, before the expiry of the 12 month period stipulated in the agreement, the appellant had sufficient funds deposited with his solicitors to pay the balance of the purchase price outstanding at RM17,000 (i.e. RM11,000 from the government housing loan and RM6,000 from his own savings). Paragraph 3 of the appellant’s solicitors’ letter dated 24 November 1978 to the respondent’s solicitor left no doubt whatever that the appellant is indeed ready and willing to tender through his solicitors the RM17,000 in fulfilment of his obligation as purchaser under the agreement. It is a fact admitted by the respondent in his defence that he was in breach of the agreement.

7. The relevant issues raised by the pleadings, the facts and the submissions of both learned counsel in the court below were three fold: 

   1. whether or not the effect of cl 3 in the agreement was to give the respondent an option or a choice of either transferring Lot 53 or paying the stipulated amount of damages to the appellant instead;

   2. whether s 19 of the Specific Relief Act 1950 applied to the facts of the present case; and

   3. whether the agreement was one proper to be specifically enforced and may be so enforced.

8. The court below dealt with these issues in its grounds of judgment and, at p 19 of the appeal record, held on Issue A that by virtue of the peculiar wording of cl 3, the respondent had that option or choice despite cl 2(b)(i) of the agreement and expressly found as a fact that the respondent retained such option or choice throughout the operation of the contract. It held further that under cl 3, the appellant also had an option or choice. On Issue B, it made no finding one way or the other. It did not entirely rule out the relevancy of s 19 to the facts of the present case but added that it was in the sole discretion of the court to decide the relief to be granted and that discretion was to be exercised upon equitable principles. On Issue C, it held that the agreement was not one proper to be specifically enforced chiefly because specific performance was not envisaged in the agreement and neither was it stated that the appellant was entitled to such relief.

9. We are in agreement with the court below that the effect of cl 3 in the agreement is a matter of construction. But first, the meaning of cl 3 [expressed in Malay language]. We agree with the court below that ‘kemungkiran’ means ‘breach’ in English. Translated into English, cl 3 reads thus:

   Breach: Any breach committed and if it is by the first party then he must pay twice the sum of money received as deposit plus other expenses incurred by the second party in connection with this matter. If that breach is by the second party then his entire deposit sum is forthwith forfeited.

10. We observe here that cl 3 speaks of a breach of the agreement and makes provision in the event of a breach by either the second party or the first party. In the case of the second party, it stipulates immediate forfeiture of his deposit and, in the case of the first party, it stipulates payment by the second party of twice the deposit sum plus incidental expenses actually incurred by the second party. As we see it, cl 3 accords with s 75 of the Contracts Act 1950 and by the very nature of its stipulation brings the agreement for a simple sale of land within the context of s 19 of the Specific Relief Act 1950, and more so, in the light of the respondent’s admission of fact that he is the party in default and is willing to pay. Thus, on Issue B, we hold that s 19 is relevant and applies to the agreement, the facts and the issues contended for the respondent.

11. The question then is whether the agreement is one that is proper to be specifically enforced and may it be so enforced as in Issue C. In this context, Issue A becomes relevant because if the effect of cl 3 in the agreement was to give the first party an option or a choice of either to transfer Lot 53 or to pay the stipulated amount to the second party instead, as the respondent contended, then specific performance of the agreement may not be appropriate. On the other hand, if on a true construction of cl 3 in terms of the agreement, there is no such option or choice given to the first party that is to say, he is bound to perform the act of transfer of Lot 53, then specific performance is available to the second party and may appropriately be enforced against the first party: see ICF Spry, The Principles of Equitable Remedies (4th Ed) at p 73; 44(1) Halsbury’s Laws of England (4th Ed, Reissue) paras 815 and 817; and also the dissenting judgment of Ali Hassan FJ in Hassan v Ismail [1970] 1 MLJ 210 at p 212.

12. It is clear from the text references and Hassan’s case that cl 3 in terms of the agreement is capable of two constructions, namely: 

    1. that the first party has an option or a choice of either transferring Lot 53 or paying to the second part the aggregate amount stipulated; and

    2. that the first party is bound to transfer Lot 53 (that is to say no option or choice).

    It is necessary for the court below to construe cl 3 in terms of the agreement and come to a conclusion as to which of the two is the true construction and to make a definite finding of fact based on the true construction.

13. As we understand the agreement, cl 2(a) fixes the purchase price of Lot 53 at RM17,500 and stipulates the mode of payment to be by way of a deposit without a transfer of possession. Clause 2(b)(i) stipulates a deposit of RM500 and the balance of RM17,000 to be settled once the loan from the government is released. By cl 2(b)(ii), the obligation is on the second party to comply with the terms of payment in cl 2(b)(i) within 12 months and the obligation is on the first party to transfer the title to Lot 53 upon compliance therewith. It is plain to us that in themselves, those terms would constitute a contract complete in itself and the first party is bound to transfer Lot 53 upon tender, by way of performance by the second party, of the full purchase price. It is also clear to us that his obligation to transfer is absolute. In other words, there is no alternative to performance by the act of transfer. Shortly stated, the first party has no option or choice but to transfer. If the transfer is not effectuated, there is non-performance i.e. a breach by the first party. If for instance, there are no express provisions like those in cl 3 or for specific performance, and the first party is unwilling to transfer Lot 53 although the second party has fulfilled the terms of payment in cl 2(b)(i), the question is may specific performance be ordered against the first party in those circumstances? Based on the Federal Court decision in Tan Suan Sim v Chang Fook Shen [1980] 2 MLJ 66, it is clear to us that the answer would be in the affirmative.

14. The issue which follows is Issue A, namely what is the effect of cl 3 in terms of the agreement? As we observed earlier, cl 3 speaks of a breach. That in our view, merely reaffirms the position in law that non-performance of the obligations in the agreement is a breach and in no sense an alternative to performance and hence, an option or a choice open to the first party as learned counsel for the respondent contended in the court below. With respect, that is not the legal issue here. In relation to the respondent, the legal issue crops up because of a money provision in cl 3 which stipulates an aggregate sum to be paid by the first party to the second party in the event of a breach by the former. It is whether or not that particular provision in cl 3 constitutes an alternative to the act of transfer in cl 2(b)(ii). That is the matter for construction. If it does, the first party can validly say that he has an option or a choice to elect either to perform the act of transfer or else to pay the aggregate sum stipulated instead. In that event, specific performance is not available to order him to transfer Lot 53 if he elects to pay the aggregate sum instead. If it does not, then he has no alternative but to perform the act of transfer in discharge of his obligation in cl 2(b)(ii). In that event, specific performance is available to order him to transfer Lot 53.

15. On the matter of construction, it is relevant to ask here what is the purpose of stipulating the aggregate sum and its payment which purpose is not stated in cl 3. It is noteworthy that that stipulation finds its counterpart in the stipulation of a deposit and its forfeiture in the case of the second party. The amount agreed for the deposit is RM500. That same amount also serves as an initial down payment towards the full purchase price leaving a balance outstanding at RM17,000. As a deposit, its sole purpose is to secure full payment of the purchase price due upon the expiration of the 12 month period. If he performs his obligation by payment in time of the balance due, there is no question of forfeiture of his deposit. Forfeiture arises only if there is non-performance on the part of the second party, i.e. he does not pay the balance after the government has released the loan so that he is in breach of his obligation. In the case of the first party, the aggregate sum agreed consists of twice the sum of deposit plus incidental expenses. That gives a figure of RM1,000 plus incidental expenses to be verified. Substantially, the first party pays only RM500 out of his own pocket, the balance of RM500 plus the expenses are in truth and in fact refunds to the second party. If he performs the transfer of Lot 53, there is no question of payment of the aggregate sum. Payment only arises if there is non-performance, i.e. a breach on the part of the first party.

16. It is plain and obvious to us that if it takes the second party RM17,500 to move the first party to perform the transfer of Lot 53 and if the purpose of stipulating an aggregate sum and its payment in cl 3 is to give the first party an alternative to such transfer so that he has an option or a choice to transfer or to pay, then the figure for the aggregate sum should properly be in the region of the purchase price and its payment stipulated as an alternative to the performance of the transfer and not damages for its non-performance: see Williams on Vendor and Purchaser (4th Ed) Vol 2 at p 1048. In the present case, the actual figure for the aggregate sum, as we have mentioned, works out to be RM500. That figure is, in our view, unreasonably low as a suitable alternative to the transfer. Further, payment thereof was stipulated to be in the event of a breach.

17. Thus, from a consideration of cl 3 in the terms of the agreement, the true construction, in our view, is that the money provision (i.e. the aggregate sum) in cl 3 is not an alternative to the performance by the first party of the transfer which he is bound to do under cl 2(b)(ii). Accordingly, on Issue A we hold that the respondent who is the first party has no such option or choice and is bound to transfer Lot 53. In our view also, the true purpose of stipulating the aggregate sum and its payment is solely as liquidated damages payable by the first party in the event of his non-performance or breach and we also hold accordingly. We are of the same view as the court below in concluding that the aggregate sum is liquidated damages but we differ from its conclusion that such liquidated damages is an alternative to performance of the transfer and thus the respondent (the first party) has an option or choice which he retained throughout the operation of the contract. To that extent for the reasons given and with respect, the court below has erred.

18. In the light of our holding on Issue A, the existence of the money provision in cl 3 does not prevent the court from ordering specific performance under s 19 of the Specific Relief Act 1950: see the dissenting judgment of Ali Hassan FJ in Hassan’s case; Spry at p 74: Halsbury’s at para 815 and also Williams at p 1048.

19. Before us, learned counsel for the appellant submitted that the appellant had duly complied with his obligations under the agreement. The appellant is a tenant in occupation of the house and the RM17,000 which is the balance of the purchase price is at all times deposited with his solicitors. He is ready and willing at all times to perform his obligations. There is no restriction on the title to Lot 53 and there is nothing in the conduct of the appellant to disentitle him to specific performance. He submitted that ss 19, 12, 11(2), 11(1)(c) illustration (a) of the Specific Relief Act 1950 applied and the court below erred in disregarding them. Learned counsel for the respondent submitted that specific performance is an equitable relief and that the judgment of the court below is thorough.

20. We agreed with learned counsel for the appellant that ss 19, 11(2) and 11(1)(c) illustration (a) applied to the present case. We have dealt with s 19 at length and it is a fact that the housing loan has been disbursed before 3 December 1978 and there is no restriction on the title to Lot 53. It is no part of the case of the respondent that he is unable or unwilling to perform the transfer. The main prop of the defence of the respondent is that specific performance is not available because he has an option or a choice and by virtue of that option he is entitled to elect, which he has done so, when on 24 November 1978 he changed his mind to pay instead of to transfer. He admitted in cross examination at p 46 of the appeal record that the reason for changing his mind was because his wife did not want him to sell Lot 53. We have held that he has no such option; and in any case, his wife’s willingness or otherwise to the transfer is irrelevant. Hardship is a defence to a decree of specific performance and should be pleaded. There is no such plea in his defence and there is no evidence of hardship or to rebut the presumption in s 11(2). Thus on Issue C, we hold that the agreement is one proper to be specifically enforced and may be so enforced.

21. For these reasons stated, we were satisfied that the court below was mistaken in its application of equitable principles and consequently erred in declining or refusing to order specific performance of the agreement. We therefore decided that this appeal be allowed and made those orders on 27 January 1997 which we stated before.

22. Appeal allowed and order of specific performance made.

Cases

Hassan v Ismail [1970] 1 MLJ 210

Tan Suan Sim v Chang Fook Shen [1980] 2 MLJ 66

Legislations

Contracts Act 1950: s.75 

Specific Relief Act 1950: s.11, s.12, s.19 

Representations

S.P. Annamalai (Annamalai & Co) for the appellant.

T.I. Ch’ng (Ch’ng Theam Inn & Co) for the respondent.

Notes:-

This decision is also reported at [1998] 2 MLJ 633.