In the recent case of Inch Kenneth Kajang Rubber Public Limited Company v Tor Peng Sie t/a Pacific Landmark Real Estate Agents (Civil Appeal No. W-02-1425-2010, 11 July 2013), the Court of Appeal had occasion to consider the issue of the proper remuneration for services rendered by a real estate agent pursuant to a valid and subsisting letter of appointment.
The facts of the case were straightforward. The appellant company was interested in selling several pieces of land which formed part of an estate known as Dunedin estate, and engaged the respondent real estate agent to source for and secure potential purchasers for the land. Subsequently, the appellant entered into an agreement with a purchaser introduced by the respondent, for the sale and purchase of the said lands for a total sum of RM79,726,274.00.
The terms of the respondent’s Letter of Appointment provided that the appellant was to pay the respondent one per centum (1%) of the total sale price of each concluded individual transaction as professional fees. Therefore, the respondent claimed a sum of RM837,125.88 being 1% of the total sale price of the said lands inclusive of service tax.
The appellant refused to pay the respondent, and after full trial the High Court judge allowed the respondent’s claim for professional fees but limited the sum awarded to RM500,000.00 only. According to the Court of Appeal, the High Court judge apparently awarded the sum on a quantum merit basis as not the whole of Dunedin Estate was sold, and that the appellant had to do a substantial amount of ground work to complete the sale, in any event at a reduced sale price.
In allowing a cross-appeal by the respondent, the Court of Appeal held that the High Court judge had erred in awarding the respondent RM500,000.00 on a quantum meruit basis instead of the full sum claimed pursuant to the Letter of Appointment. The respondent was the effective cause of the sale of the said lands, and was not in breach of the terms of the Letter of Appointment. Accordingly, the respondent was entitled to the full fees even though the ultimate sale was at a lower price than initially agreed.
However, the Court of Appeal went on to observe at para 30(v) that:-
There is a plethora of cases on the obligation of the [a]ppellant to make compensation to the [r]espondent for enjoying the benefit of the services of [respondent] pursuant to Section 71 of the Contracts Act 1950. The facts of the present case clearly fulfil the requirements for the [r]espondent to invoke the provisions of Section 71. Firstly, it was undisputed that the [r]espondent had provided services to the [a]ppellant. Secondly, the services provided by [respondent] were never intended to be gratuitous and thirdly, the [a]ppellant had benefitted from the services of [the respondent]. On this point it will suffice to refer to the case of Siow Wong Fatt v Susur Rotan Mining Ltd & Anor [1967] 2 MLJ 118 PC in support.
The Court of Appeal was correct to hold that the High Court judge had erred in awarding the respondent RM500,000.00 on a quantum meruit basis. However, the observations of the Court of Appeal on section 71 of the Contracts Act 1950 are strictly speaking obiter and in any event unnecessary.
The respondent’s claim for the sum of RM837,125.88 was based on, and fell to be decided solely by reference to, the terms of the Letter of Appointment, which was at all times a valid and subsisting contract between the parties.
Part VI of the Contracts Act 1950, in which section 71 is situated, carries the heading “Of Certain Relations Resembling Those Created by Contract“. Section 71 is a restitutionary provision, and only applies in a situation where no valid or binding contract exists between the parties. This is implicit from the case of Siow Wong Fatt v Susur Rotan Mining Ltd & Anor [1967] 2 MLJ 118, PC itself.
Section 71 of the Contracts Act 1950 can be fairly described as a statutory form of quantum meruit. At common law, in the absence of any agreement or contract between the parties, where one party has enjoyed the benefit of the services of another party, which services were not rendered gratuitously, the courts will award reasonable compensation or remuneration to the party rendering the services to prevent the party enjoying the benefit of such services from being unjustly enriched: see, e.g. Way v Latilla [1937] 3 All ER 759, HL; Benedetti v Sawiris [2013] UKSC 50 (17 July 2013).
However, the legal position is different where there is a valid, binding and subsisting agreement between the parties. Where such a contract is silent as to the amount of compensation to be awarded, the law will normally imply a term into the agreement that the remuneration will be reasonable in all the circumstances: Benedetti v Sawiris [2013] UKSC 50 at [9]. Such a situation is governed by the principles of contract law, not the law of restitution. More importantly, where the parties themselves have agreed on a specific rate or method of remuneration for services provided, neither section 71 of the Contracts Act 1950 nor the law of restitution in general have any role to play in the assessment of the compensation or remuneration to the party who provided the services. All that is required to achieve full justice in such a case is to hold the parties to their contractual bargain, no more and no less.
If these distinctions are not carefully borne in mind, there is a danger that the observations of the Court of Appeal may be regarded as authority for the proposition that section 71 of the Contracts Act 1950 may apply regardless of the terms of the contract agreed between the parties.
The importance of the foregoing observations can be illustrated by modifying the facts of the case before the Court of Appeal itself. Suppose that the respondent’s Letter of Appointment stated that its commission for any sale concluded would be a sum of RM50,000.00. However, upon discovering that the concluded sale price was RM80 million, can it be said that the respondent is entitled to bring a claim for quantum meruit based on section 71 of the Contracts Act 1950, and adduce evidence to show that based on prevailing market practice, a reasonable remuneration would be 1% or even 2% of the total sale price? The answer must be in the negative, as to allow the respondent to claim for remuneration over and above that which was expressly agreed between the parties pursuant to a subsisting contract would be contrary to the principle that the principles of restitution should not be used to disturb or redistribute risks which have been allocated by the mutual agreement of the parties: see Pan Ocean Shipping Ltd v Creditcorp Ltd; The Trident Beauty [1994] 1 All ER 470, HL.
Even in a situation where no contract existed between the parties, section 71 of the Contracts Act 1950 arguably does not have the effect of defeating the subjective devaluation of the value of a benefit by the recipient: Ayer Hitam Tin Dredging Malaysia Bhd v YC Chin Enterprises Sdn Bhd [1994] 2 MLJ 754, SC.
While it has been observed that the terms of section 71 “are unquestionably wide but applied with discretion they enable the Courts to do substantial justice” (New Kok Ann Realty Sdn Bhd v Development & Commercial Bank Ltd New Hebrides (In Liquidation) [1987] 2 MLJ 57, SC), regrettably Malaysian courts have received very little authoritative guidance from the Federal Court as to the scope and limits of section 71 of the Contracts Act 1950. For a commentary on a questionable application of section 71 by the Court of Appeal in another recent decision, see “Whose Mall is it Anyway?”
The decision of the Court of Appeal in Inch Kenneth Kajang Rubber Public Limited Company v Tor Peng Sie t/a Pacific Landmark Real Estate Agents is yet another case which highlights the continuing difficulties created by Malaysian courts in the purported application of section 71 of the Contracts Act 1950.