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2020 MarsdenLR 184
COURT OF APPEAL PUTRAJAYA
REDHA RESOURCES SDN BHD – Appellant
Versus
MAJLIS AGAMA ISLAM SELANGOR & ORS – Respondent
[Civil Appeal No: B-01(NCVC)(W)-51-01-2018]
Estoppel applies when a party condones breaches through their conduct; thus, they cannot later terminate the contract for those breaches.
Headnote:(A) Contracts Act, 1950 – Sections 40, 56(1) and (2) – Contract termination – Plaintiffs sought to terminate the Concession Agreement (CA) based on alleged breaches by D1, including failure to obtain the Certificate of Completion and Compliance (CCC) and building approval – Court found D1 had substantially performed the CA and that plaintiffs had condoned any breaches through their conduct – Court determined that plaintiffs were estopped from terminating the CA due to their acquiescence in the breaches and participation in the project without formal approval – Decisions of lower courts regarding the breach and damages assessed contained legal errors. (Paras 1-162)
(B)
Fundamental Breach – The court held that mere breaches of contract, particularly when the innocent party had participated in the alleged illegality, do not necessarily entitle the innocent party to terminate the contract. (Paras 116-140)
JUDGMENT
[1] This appeal raised the important question as to whether a party may terminate a contract on ground that the alleged defaulting party had failed to comply with some provisions in the contract that resulted in an illegal act being committed when the party seeking to terminate had participated in the illegality as this court shall find.
[2] The illegality in question is that whilst no Certificate of Completion and Compliance ("CCC") had been obtained yet, and this the plaintiffs said was not told to them, the 1st defendant ("D1") had allowed students of the 2nd plaintiff ("P2") to occupy the hostels and student centre built by it and collected rental from P2 as a concessionaire under a Concession Agreement (" CA ") between the plaintiffs and D1.
[3] However the undisputed fact is that, assuming the plaintiffs were unaware of the lack of a CCC when the hostels were completed, the plaintiffs continued to allow students of P2 to occupy the hostels even after being informed by the local authority that the CCC had not been obtained for the hostels.
[4] The plaintiffs sought to terminate the CA on the ground of the failure of D1 to obtain the CCC and also on the ground of having commenced construction of the hostel without the relevant building and development plans being approved by the authorities. Once the is terminated, the concession period of 33 years would have been terminated as well.
[5] During the concession period, D1 had been allowed to collect the rentals and at the end of the concession period, to hand over possession of the hostels to the plaintiffs, subject to the terms and conditions of the CA .
[6] D1 said the termination of the CA is an excuse to end the concession and to deprive D1 of recouping its investments in the hostels and to the profits it was entitled had the being allowed to run its full course. D1's stand is that with the CCC finally being obtained before the trial was concluded, the ground for termination was no longer a live issue and that the termination was unlawful to begin with.
[7] D1 was not seeking specific performance of the CA but rather damages for unlawful termination by the plaintiffs who had also failed in paying rental to D1 and after taking over possession of the hostel, to pay the rentals to the second defendant ("D2"), from whom D1 had taken financing for the hostels.
Project And Parties
[8] The appellant who was D1 in the High court below, is the Main Contractor and Concessionaire for a build, operate and transfer project ("the Project") in a public sector and private sector partnership with respect to the development of student hostels and a student centre for Kolej Universiti Islam Antarabangsa Selangor Sdn Bhd ("KUIS") which is P2. KUIS is registered under the Private Higher Educational Institutions Act 1996 and it offers Islamic higher education programmes to its students.
[9] The Project is on a piece of land in Kajang owned by the 1st plaintiff ("P1") which owns wholly P2. P1 is a statutory body established under the Administration of the Religion of Islam (State of Selangor) Enactment 2003 ("Enactment").
[10] Under the CA dated 7 March 2006 between the plaintiffs and D1, the period of the concession was for 33 years from the date of the . A Supplementary Agreement was signed between the parties dated 25 July 2007 whereby the plaintiffs' guarantee of the full rental based on 100% occupancy of 6,504 students under the would also be extended to the inter-semester periods.
[11] For the purpose of financing the Project D1 took a syndicated loan of RM125,800,000.00 from D2 Bank and two other banks ("the Banks"); with D2 being the facility agent of the syndicated loan. D1 and the Banks executed various Islamic financing facility agreements to secure the financing and repayment of financing by D1 to the Banks ("Facility Agreements") dated 3 August 2007.
[12] D1 as security for the financing provided by the Banks, had executed an Assignment of Concession Agreement dated
