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2023 MarsdenLR 1848
COURT OF APPEAL PUTRAJAYA
MLGH (SABAH) SDN BHD & ANOR – Appellant
Versus
RAINBOW BAY SDN BHD & ANOTHER APPEAL – Respondent
[Civil Appeal Nos: S-01(NCvC)(W)-163-04-2019 & S-01(NCvC)(W)-164-04-2019]
A joint venture contract may be frustrated by supervening legislation, rendering performance impossible, thus limiting recovery to expenses incurred prior to frustration, while speculative claims for lost profits are dismissed.
Headnote:(A) Sabah Land Ordinance - Section 9A - Joint Venture Agreement - Termination and breach of contract - Developer claimed RM2 billion in damages for breach of contract after the Vendor failed to deliver title to land - High Court found Vendor breached contract, but Court of Appeal ruled contract frustrated due to supervening legislation prohibiting alienation of land - Developer's entitlement to damages limited to RM6,355,371.00 for expenses incurred - Loss of profits claim dismissed as speculative and remote. (Paras 14, 16, 62, 163)
(B) Frustration of contract - A contract may be frustrated when supervening legislation renders performance impossible - The doctrine of frustration does not protect a party whose own breach induces the frustrating event. (Paras 70, 94)
(C) Inducement of breach of contract - A wholly-owned subsidiary is a separate legal entity; the State cannot be held liable for inducing its subsidiary to breach a contract. (Paras 146, 148)
(D) Judicial Review - Developer's challenge against the rejection of the DEIA Final Report was dismissed, and the amendment to the Sabah Land Ordinance was deemed to have frustrated the contract. (Paras 75, 92)
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What is the effect of supervening legislation on the contract's performance and the scope of damages in a frustrated contract?
What is the status of the parties’ liability when frustration is caused by a separate legal entity or by government action (alter ego and inducement considerations)?
What damages are recoverable under frustrated contracts where performance becomes legally or physically impossible due to legislative changes, including the application of s 15 Civil Law Act 1956 and s 57 Contracts Act 1950?
| Table of Content |
|---|
| 1. joint venture agreement details. (Para 1 , 2 , 3) |
| 2. entitlements under the joint venture. (Para 4 , 5 , 6 , 7) |
| 3. claims and defenses regarding breach. (Para 8 , 9 , 10 , 11 , 12 , 13) |
| 4. high court's findings on breach and damages. (Para 14 , 15 , 16 , 17) |
| 5. appeals filed by parties. (Para 18 , 19) |
| 6. obligations under the joint venture agreement. (Para 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34) |
| 7. environmental impact assessments and approvals. (Para 35 , 36 , 37 , 38 , 39 , 40 , 41 , 42) |
| 8. judicial review application and its outcome. (Para 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54) |
| 9. reasonable time for title delivery. (Para 55 , 56 , 57 , 58 , 59 , 60 , 61) |
| 10. focus on legislative changes and their impact. (Para 62 , 63 , 64 , 65 , 66 , 67 , 68 , 69) |
| 11. frustration of contract due to legislative changes. (Para 70 , 71 , 72 , 73 , 74 , 75 , 76 , 77 , 78 , 79) |
| 12. common law doctrine of frustration. (Para 80 , 81 , 82 , 83 , 84 , 85 , 86 , 87) |
| 13. self-induced frustration and its implications. (Para 88 , 89 , 90 , 91 , 92 , 93 , 94 , 95 , 96 , 97 , 98 , 99 , 100 , 101) |
| 14. separation of corporate entities and liabilities. (Para 102 , 103 , 104 , 105 , 106 , 107 , 108 , 109 , 110 , 111) |
| 15. legislative authority and contractual obligations. (Para 112 , 113 , 114 , 115 , 116 , 117 , 118 , 119 , 120 , 121 , 122 , 123 , 124 , 125) |
| 16. legislative power and its impact on contracts. (Para 126 , 127 , 128 , 129 , 130 , 131 , 132) |
| 17. absence of self-induced frustration. (Para 133 , 134 , 135 , 136 , 137 , 138 , 139 , 140 , 141 , 142 , 143 , 144 , 145) |
| 18. inducement of breach of contract analysis. (Para 146 , 147 , 148 , 149) |
| 19. damages and compensation under frustrated contracts. (Para 150 , 151 , 152 , 153 , 154 , 155 , 156 , 157 , 158) |
| 20. final decision and order of the court. (Para 159 , 160 , 161 , 162 , 163 , 164) |
[1] This is a case of a joint venture turnkey contract between a Sabah State development company and a private developer that could have been better managed to avoid the colossal claim of damages to the tune of RM2 billion that the developer now seeks to claim from both the State-owned company and the State.
[2] The dispute arose primarily from a supervening amended legislation passed by the Sabah State Legislature that prohibits any alienation of land in the affected area of some 3,830 acres fronting the Likas Bay in Kota Kinabalu. The developer says in effect that the State had engineered the amendment to the Sabah Land Ordinance (Cap. 68) to release it from its obligation in its wholly-owned subsidiary called MLGH (Sabah) Sdn Bhd ("MLGH") as the Vendor which was the entity that had entered into the Joint Venture Agreement ("JVA") dated 7 April 1997 with Rainbow Bay Sdn Bhd ("the Developer").
[3] In the High Court below, the Developer as the Plaintiff had sued both MLGH as the 1st Defendant ("D1") and the State Government of Sabah as the 2nd Defendant ("D2"). For the record, MLGH is a company limited by shares and is wholly-owned by the State Government of Sabah through the Chief Minister (Incorporation) Ordinance Cap. 23. The Plaintiff shall be referred to as the Developer and MLGH as the Vendor. MLGH and the State Government of Sabah shall be referred to collectively as the Defendants.
Brief Facts
[4] The crux and concept of the JVA is that the Developer was to construct and complete a mixed development project consisting of a City Hall, Convention Centre, a promenade with landscaping and related infrastructure on a 202- acre site ("the Project") set at a Total Development Cost of RM414 million ("the Vendor's Entitlement") and for that the Developer would be given a 150- acre land free from encumbrances ("the Developer's Entitlement") within the whole development area of a 352-acre State Land ("the Land") fronting the Likas Bay, of which the Vendor's portion would be a 202-acre land and that of the Developer, the 150-acre land.
[5] In the Supple
