The True and Finest Definition of Financial Speculation / Speculative in Legal: HIGH ACHIEVERS SDN BHD v DAR AL HANDASAH CONSULTANTS (SHAIR & PARTNERS) and NABIL NASSAR

The True and Finest Definition of Financial Speculation / Speculative in Legal

“The Plaintiff’s losses of the shares value were on a speculative basis upon a financial action that does not promise safety of the initial investment along with the return of the principal sum. The speculation is, however, an incomplete information of the projectile path that conjectures on the fluctuation of booming and depression epochs. The phenomenon is, therefore, hypothetical, in which the observable processes are rather stochastic than deterministic.”

“SP1 in his evidence states that if the JV company was able to take off, the share value could go up to RM5.00 per share. Again, this Court is bound by the decision of the learned Judge that the alleged loss of share worth is merely speculative in nature. Further, the evidence given by SP1 is really speculative as SP1 was not a stock trading expert and the Plaintiff also did not call a stock analyst to corroborate on how the futures share markets fluctuate with respect to the price-earnings ratio (P/E) and supply/demand equilibrium to be valued for the JV company which operated for only 6 months. Therefore, the data accumulated to forecast stock value fluctuation and trajectory movement is incomplete and weak.”

AINY SUHAILAH BINTI YUNUS

Senior Assistant Registrar

The Commercial Division 3

May 25, 2010

DALAM MAHKAMAH TINGGI MALAYA DI KUALA LUMPUR

(BAHAGIAN DAGANG)

GUAMAN SIVIL NO : D4 – 22 -320 TAHUN 2001

HIGH ACHIEVERS SDN BHD                                                      …        PLAINTIFF

AND

1.DAR AL HANDASAH CONSULTANTS

(SHAIR & PARTNERS)

2.NABIL NASSAR                                                                                 …  DEFENDANTS

GROUNDS OF JUDGMENT

BACKGROUND OF THE CASE

ASSESSMENT OF DAMAGES

The Plaintiff’s action herein filed on 2^nd March 2001 for breach of contract of joint venture agreement dated 5^th April 1996 entered between the Plaintiff, Defendants and one company called Master Engineers Malaysia Sdn Bhd (“JV Agreement”) to form a Joint Venture Company which was known as Modar (“JV Company”) when the 1^st Defendant failed or refused to pay RM500,000.00 as capital injection to the JV Company.

On 15.4.2008 Justice Dato’ Rohana Yusuf, the trial Judge, allowed the Plaintiff’s claim against the 1^st Defendant and ordered that the 1^st Defendant pay the Plaintiff damages to be assessed together with interests and costs.

In respect of the assessment of damages, the Plaintiff tendered:

(i)         One witness, SP1, Sheikh Dato’ Seri Mohamad Toufic Al Ozeir and the Witness Statement marked as Enclosure 21; and

(iii)       One Common Bundle of Document (“CBD”).

The Defendant has decided not to call any witness for the assessment of damages.

On 25.5.2010 the Senior Assistant Registrar had awarded a nominal damages in the sum of RM1,000.00.

On 31.5.2010 the Plaintiff filed an appeal against the decision of the Senior Assistant Registrar.

The Law

Damages for breach of contract is to place the party who suffers by the breach in the position it would have been if the contract was performed.

The measure of damages following a breach of contract is governed by Section 74 of the Contracts Act 1950 which reads as follows:

“74. (1) When a contract has been broken, the party who suffers by the breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damages caused to him thereby, which naturally arose in the usual course of things from the breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.”

In the case of Akitek Tenggara Sdn Bhd v Mid Valley City Sdn Bhd [2007] 5 MLJ 697, the Federal Court stated the law for breach of contract as follows:

“…The measure of damages following a breach of contract is governed by s 74 of the Contracts Act 1950 which reads as follows:

(1) When a contract has been broken, the party who suffers by the breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damages caused to him thereby, which naturally arose in the usual course of things from the breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.”

In Toeh Kee Keong v Tambun Mining Co Ltd [1968] 1 MLJ 39 it was held that s 74 is the statutory enunciation of the rule in Hadley v Baxendale [1854] 9 Exch 341. The principle underlying the award of damages is that where a party sustains a loss by reason of a breach of contract, he is, as far as money can do it, to be placed in the same position with respect to damages, as if the contract had been performed. In Houweling Nurseries v Governor and Company of Adventures of England Trading Into Hudson’s Bay [1984] 13 DLR (4^th) (BCCA) it was observed that in some cases the exercise wll be analogous to that of assessing damages for future losses arising from a tortuous act…”

In Birendra Nath Dhar v Food Corporation of India AIR 1978 Cal 362 there was a breach of a contract for a specified period for the provisions of services. It was held that the plaintiff was entitled to damages for the unexpired period. …”

Whenever there is a breach of contract by the defendant but the plaintiff suffers no actual loss or fails to sufficiently prove such loss, the plaintiff is generally entitled to nominal damages. This stems from the principle that the violation of a right at common law entitles the plaintiff to damages without proof of special loss.

Nominal damages thus protects a plaintiff’s legal right and recognizes that it has been infringed. In The Owners of The Steamship “Mediana” v The Owners, Master And Crew of The Lightship “Comet”[1900] AC 113 Lord Halsbury LC stated:

“Essentially, nominal damages affirm that there has been an infraction of a legal right…though it gives you no right to any real damages at all, yet [it] gives you a right to the verdict or judgment because your right has been infringed.”

Nominal damages usually consists of a small sum. In the case of Hilbourne v Tan Tiang Quee [1972] 2 MLJ 94, the defendant-solicitor breached his duty to the plaintiff-claimant when he failed to inform the latter of the completion date for the purchase of a piece of land. The Plaintiff sued the defendant for the loss of opportunity to purchase the land. On the facts, the Court of Appeal recognized that there was a breach of contract. However, as the plaintiff did not suffer any pecuniary loss, the court only awarded nominal damages of $10.

In the other decided case of Bee Wah Plastic Factory Sdn Bhd v Francis Soh Kai Shuen (b/s Shatin Marketing & General Agencies) [1997] 4 MLJ 545, although the respondent had proved the appellant’s failure to supply the plastic gum bottles, there was insufficient proof regarding the loss profits. Thus, the High Court reduced the magistrate court’s award of RM20,982.00 to RM2,000.00 as fair and reasonable nominal damages.

In Letrik Bandar Hup Heng Sdn Bhd v Wong Sai Hong [2002] 5 MLJ 247, the Sessions Court’s award of RM27,217.86 was set aside and nominal damages of RM10 was awarded.

From these cases, it is also seen that there is no standard monetary figure for nominal damages although it is usual to find RM10 nominal damages award.

The Grounds of the Judgment

The Plaintiff’s claims for damages which appears from the Witness Statement of SP1 Sheikh Dato’ Seri Mohamad Toufic Al Ozeir are the following:-

a)         Loss in share value                                                             RM200,000.00

b)         Losses in prospective gains                                              RM1,000,000.00.

c)         Budget for setting up the office

of JV Company for the first 6 months

i)          Budgeted for office Furniture

and equipment including

telephone line                                 RM6,000.00

ii)         Budgeted for operation

including secretary, driver,

telecommunications, faxes,

electricity etc                                     RM27,000.00

RM33,000.00

d)         Administrative budget for first

6 months                                                                               RM50,000.00

e)         Petty cash for 6 months at

RM5,000.00 per month                                                       RM30,000.00

f)          Legal cost and costs to collect

money from 1^st Defendant through

a third party                                                                           RM500,000.00

Total                                                                                      RM1,813,000.00

The items of claims of the Plaintiff:

a) Loss of share value

In paragraph 13 of the Statement of Claim the Plaintiff had pleaded that the Plaintiff had suffered damages in losses in the value of its shares in JV company, but had not claimed under this item in the prayers under paragraph 15 of the Statement of Claim.

SP1 has given evidence that it has been agreed by the parties who entered into the JV Agreement that the Plaintiff was entitled to 200,000 units of shares which were at the value of RM1.00 each so the 1^st Defendant has to pay RM200,000.00 for the damages of losses of share value (At page 17 and 18 of the Enclosure 21).

The Learned Judge Justice Dato’ Rohana Yusuf had made a finding of fact that the Defendant has clearly in breach of the joint Venture Agreement by not making payment for the intial capital which resulted in the JV Company’s objectives fail due to lack of fund (At page 39 of the CBD).

The Learned Judge also found as a fact that the Plaintiff did suffer losses and expenses in setting up of the JV Company but the alleged loss of share worth is merely speculative in nature. The learned Judge further reiterated that the Plaintiff has to prove actual damages suffered as a result of the failure of the breach of the Defendants.

This Court, in assessing the damages, is bound by the decision of the learned Judge which reiterated that the Plaintiff has to prove actual damages suffered as a result of the failure of the breach of the Defendants.

The Plaintiff’s losses of the shares value were on a speculative basis upon a financial action that does not promise safety of the initial investment along with the return of the principal sum. The speculation is, however, an incomplete information of the projectile path that conjectures on the fluctuation of booming and depression epochs. The phenomenon is, therefore, hypothetical, in which the observable processes are rather stochastic than deterministic.

As such this claim is not allowed since it is neither pleaded in the prayers in the Statement of Claim nor it is proved by the Plaintiff.

b) Losses in prospective gains

The Plaintiff had pleaded that the Plaintiff had suffered losses in profits in paragraph 14 of the Statement of Claim and in paragraph 15(b) of the same had prayed for general damages for loss of profits in the sum of RM1 million.

In order to prove this type of losses, SP1 has stated that the losses of prospective gains comprised of profits from the share value if the JV company is in operation and make profits and also the profits from the future construction and construction management contracts with the Government of Malaysia by tendering the following documents:

i)          Letter dated 21.5.1996 addressed to Menteri Besar of Pahang for an offer to develop the water resources of the state and a letter dated 19.6.1996 from Unit Perancang Ekonomi Negeri Pahang which stated that the proposed provatisation of water resources is still under consideration (Page 43, 44, 46 and 47 of CBD).

ii)        Letter dated 14.7.1996 to Deputy Minister at the Prime Minister Department soliciting for work (Page 60 CBD).

iii)        Letter dated 16.7.1996 to a company known as Perspec Prime (Malaysia) Sdn Bhd offers for cooperation with them in all fields and discipline of engineering and construction management (Page 61-66 CBD).

iv)        Letter dated 22.7.1996 to a company known as Perspec Prime Magma Sdn Bhd offering co-operation with them in the South Kelang, Valley Expressway (SKVE) Project. Perspec replied by their letter dated 12.8.1996 stating that they have commissioned Rankill Bersekutu for engineering design (Page 67-69 CBD).

SP1 in his evidence states that if the JV company was able to take off, the share value could go up to RM5.00 per share. Again, this Court is bound by the decision of the learned Judge that the alleged loss of share worth is merely speculative in nature. Further, the evidence given by SP1 is really speculative as SP1 was not a stock trading expert and the Plaintiff also did not call a stock analyst to corroborate on how the futures share markets fluctuate with respect to the price-earnings ratio (P/E) and supply/demand equilibrium to be valued for the JV company which operated for only 6 months. Therefore, the data accumulated to forecast stock value fluctuation and trajectory movement is incomplete and weak.

For the losses of making profits from the future contract, the Plaintiff has failed to prove that it, in fact, was successful in obtaining any job or contract for the JV company.

Hence this claim should not be allowed for the above reasons.

c) Budget for office furniture, equipment and telephone and Budget for operations

According to Concise Oxford English Dictionary Eleventh Edition, Revised 2006, the word budget is defined as an estimate of income and expenditure for a set period of time or the amount of money needed or available for a purpose.

The sum of RM6,000.00 was budgeted for office furniture, equipment and telephone. Further, the sum of RM27,000.00 was for operations budget which includes claim for secretary, driver, telecommunications, faxes, electricity etc.

The Plaintiff states that it was entitled to the claim since the 1^st Defendant has agreed for the budget in the meeting (Page 49 of CBD).

However   it is doubtful on whether the money have been spent for purchasing the office furniture, equipment and telephone as no invoices, bills and receipts whatsoever produced by the Plaintiff.

The Plaintiff also did not produce any documentary evidences in order to show that the secretary and the driver were employed. The same goes for the telephone/fax bills and electricity bills. No company accounts books or ledgers produced.

The other reasons are these claims were not pleaded by the Plaintiff in the Statement of Claim and that the items of these claims are special damages which should be specifically proven.

This is best supported with the case of Yew Wan Leong v Lai Kok Chye [1990] 1 CLJ 1113 where the Supreme Court held that the trial of a suit shouldbe confined to the pleas on which the parties are at variance. As the High Court had made decision on an issue which was not raised by the parties in their pleadings the appeal in this case has been allowed and the order of the learned judge dismissing the Plaintiff’s claim was set aside.

The Court is of the view that these claims should not be allowed.

d) Administrative Budget for first six months

The Plaintiff claimed for the administrative budget for the sum of RM50,000.00 which according to SP1 has been incurred by him. The Plaintiff only produced a copy of fax dated 5.2.1997 in regards to this claim (Page 105 CBD).

If the JV company is really operated for six months at very least it should have kept the accounting records, books, ledger cards etc for the companys’ expenses. However none of these were produced.

Further, this claim is special damages which according to the principles of law, it should be specifically proven.

The claim is not allowed as it has not been proven.

e)         Petty cash for 6 months

The Plaintiff claimed for the sum of RM5,000.00 per month and for the six months the petty cash claimed was for RM30,000.00.

SP1 has said that this claim should be allowed since it was agreed by the 1^st Defendant in the meeting conducted on 26^th June 1996 (Page 54-55 CBD).

Mere agreement by 1^st Defendant which according to the Plaintiff constituted as consent could not be regarded as the Plaintiff’s entitlement for the petty cash. The Plaintiff still need to prove that the sum of RM5,000.00 was the amount needed and spent for the daily management of the JV company.

The Courtis in the opinion that this claim is one of the special damages or quatified claim.

Thus, the Plaintiff has failed to prove the actual damages for this claim, therefore the claim is not allowed.

f)          Legal costs and costs to collect the money from the 1^st Defendant

The claim for legal costs and costs to collect the money from the 1^st Defendant is in the sum of RM500,000.00. SP1 has stated that the Plaintiff has to obtain the services of a third party for the collection of money from the 1^st Defendant which is located at overseas.

The Court is in the opinion that the legal costs should be determined by way of taxation. Further, no sum should be allowed for collection of money through a third party because this not damages incurred by the Plaintiff which is virtually impossible to be assessed if no evidence adduced. This is also a future claim which yet to be proven.

In this case, the Plaintiff would have mitigated its losses if it has taken steps to terminate the JV Agreement upon the failure of the 1^st Defendant to make payment in the sum of RM500,000.00 for the intial capital for the JV company.

For the completeness of this judgment, I have to put down that the Court has not considered the submissions put forward by the Defendants’ counsels about the issue that the JV company was not registered under the Registration of Engineers Act 1967 since this issue has been dealt at length and dismissed by the learned trial Judge.

Applying the above principles of law, the Court decided that the Plaintiff is  only entitled to nominal damages in the sum of RM1,000.00 because the Plaintiff has proved that the 1^st Defendant has breached the JV Agreement by failure to pay RM500,000.00 as initial capital for the JV company.

AINY SUHAILAH BINTI YUNUS

Senior Assistant Registrar

The Commercial Division 3

May 25, 2010