Can A Court Amend An agreement?

Lee Li Hoong examines the High Court's decision in Alexander John Shek Kwok Bun v Rich Avenue Sdn Bhd & Anor

 

 

The question to be answered in Alexander John Shek Kwok Bun v Rich Avenue Sdn Bhd & Anor [2008] 7 CLJ 754 was ‘Can vacant possession of a property be deemed delivered when water and electricity supply have not been connected, on the basis that the agreement did not stipulate a need for connection of water and electricity supply before delivery of vacant possession?

 

 

FACTS

On 31st March 1997, Alexander John Shek Kwok Bun, the Plaintiff entered into an agreement with Rich Avenue Sdn Bhd, the Defendant, to buy a piece of land together with a building to be constructed thereon (“the Agreement”).

 

The Plaintiff was a lawyer, but the Agreement was a standard agreement provided by the Defendant.

 

Pursuant to Clause 21.1 of the Agreement, the building had to be ready for delivery of vacant possession within 30 months of the date of the Agreement, failing which the Defendant was required to pay agreed damages to the Plaintiff.

 

The connection of water and electricity supply was not included in the Agreement’s definition of ‘vacant possession’. Clause 21.3 of the Agreement provided that the certificate of practical completion could be issued notwithstanding that water and electricity supply is not connected to the building, and the Plaintiff could take vacant possession of the said property then.

 

The Agreement further provided that such possession would not entitle the Plaintiff to occupy the property until the Certificate of Fitness for Occupation (“CFO”) was issued by the appropriate authorities. The CFO would only be issued after water and electricity were connected.

 

The Agreement neither stipulated a time frame for the Defendant to connect the water and electricity supply, nor to obtain the CFO for the property.

 

Eventually, the Plaintiff brought an action claiming for late delivery of the said property and contended that he was only obliged to take vacant possession after he had received the CFO. The Defendant’s defence was clear – they had complied with the terms of the agreement.

 

 

THE HIGH COURT'S DECISION

The Court though mindful of the dictum of Abdul Kadir Sulaiman, JCA in Setapak Heights Development Sdn Bhd v Tekno Kota Sdn Bhd [2006] 3 MLJ 131 that the courts must generally give effect to the plain meaning of words of a contract even if it leads to an unreasonable result, departed from the earlier case of South East Asia Brickworks Sdn Bhd v Maria Antonette [1979] 1 MLJ 46 and held as follows -

 

the Court has a constitutional duty to ensure that the dominant party in a standard form agreement is not to abuse its position to the detriment of the weaker party bearing in mind we in Malaysia do not have as in England, the Fair Trading Act 1977 or as in Australia the Trade Practices Act.

 

The learned Judge further held that Clauses 21.1 to 21.3 of the Agreement were not only unreasonable but were absurd terms for various reasons, including the following –

 

1. It did not make business sense that that the purchaser is not able to obtain physical possession of the property with all the usual amenities after fully payment of the purchase price;

2. The delivery of the property with the full benefit of water and electricity supply and a CFO after full payment of the purchase price is a fundamental term of the SPA which goes to the root of the contract. To exempt the Defendant from this fundamental term would contradict the objective, aim and purpose of the transaction;

3. Public policy requires the Court to be vigilant to ensure that ordinary consumers are not burdened with unconscionable terms in standard form contracts, and in this instance intervene.

 

The Court further held that the fact that Clauses 21.1 to 21.3 and 22 of the Agreement did not specify any definite time frame for the Defendant to obtain the water and electricity connection and the CFO was one of the considerations that compelled the Court to intervene.

 

The Court held that the obligation imposed on the Defendant under Clause 21.2 to "use its best endeavours" to obtain water and electricity connection did not assist the Defendant and merely provided "seeds for arguments".

 

The Court accordingly amended Clauses 21 and 22 of the Agreement and imposed an obligation on the Defendant to deliver vacant possession of the property together with the CFO within 30 months from the date of the Agreement and awarded damages to the Plaintiff for late delivery of vacant possession of the property.

 

The Court observed that the fact that the Plaintiff was a qualified solicitor was of no relevance in the case of standard agreements and that it was duty bound to ensure that consumers are not burdened with unconscionable terms.

 

 

CONCLUSION

From this decision it would appear that freedom of contract has taken a backseat to the desire for fairness. However the High Court judge’s decision reflects his appreciation of the fact that the wide use of standard agreements has vastly eroded the freedom of contract and in appropriate circumstances, justifies judicial encroachment on this freedom.

 

 

LEE LI HOONG ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it )

 
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LEONG WAI HONG Leong Wai Hong
Partner, Dispute Resolution Division
SKRINE

CONTACT DETAILS:
Tel: 603 - 2081 3999
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E-mail: lwh@skrine.com

 
Ashok Kumar Mahadev Ranai Ashok Kumar Mahadev Ranai
Partner, Dispute Resolution Division
SKRINE

CONTACT DETAILS:
Tel: 603 - 2081 3999 ext 744
Fax: 603 - 2094 3211
E-mail: amr@skrine.com