1. Background and Facts Urban Domain Sdn Bhd (UDSB) initiated a common-law derivative action on behalf of PINS OSC & Maintenance Services Sdn Bhd (OSC), a joint-venture company, against Perak Integrated Network Services Sdn Bhd (PINS) for “loss of profit arising out of a breach of a Management Agreement (‘MA’) and First Supplemental Agreement (‘1st SMA’)”. PINS failed to remit maintenance fees due to OSC for telecommunications towers. A liability judgment was entered against PINS in 2013, followed by a bifurcated process to assess quantum. Two primary issues arose during the quantum stage: whether OSC’s subsequent winding up limited the period for which damages were payable, and whether operating costs should be deducted from gross revenue to determine the final award.
2. The “Subsequent Winding Up Issue” OSC was wound up on 27 October 2016, after the liability judgment but before the completion of the quantum assessment. PINS argued that the assessment period should terminate on the winding-up date.
The Federal Court rejected this, holding that the winding up was not a relevant terminating event because “OSC’s winding up was an avoidable event contributed to by PINS’ non-payment and was therefore irrelevant to reducing damages.” The Court reasoned:
“PINS should not be allowed to rely on OSC’s winding up, which in all probabilities would not have happened if PINS had paid OSC regularly and punctually… It is an extended application of the principle that a party cannot take advantage of its default.”
3. The “Interpretation of Liability Judgment Issue” The High Court and Court of Appeal had previously disallowed the deduction of operating costs (except for specific MCMC fees) based on a literal reading of the 2013 liability judgment.
The Federal Court found this approach flawed, stating:
“A liability judgment must be interpreted consistently with established principles of law, the pleadings, the contractual scheme, and the compensatory principle, and not in a manner that would over-compensate the injured party or rewrite the parties’ agreements.”
The Court emphasized the “compensatory principle”, which dictates that “compensation is determined on the basis of putting the injured party back to the position as if the contract had not been broken but rather performed.” Regarding the distinction between revenue and profit, the Court noted:
“It is however a loss of profit and not a loss of revenue that the injured party would be compensated, as had it performed the contract, it would only be able to reap a profit after deducting its costs and expenses.”
Citing SPM Membrane Switch Sdn Bhd v. Kerajaan Negeri Selangor, the Court reaffirmed that loss of profit must be calculated as revenue “net of all expenses that would be reasonably incurred.”
4. Outcome The Federal Court dismissed the appeals concerning the winding-up date (Appeals 5 and 6) but allowed the appeal regarding the deduction of costs (Appeal 26). The Court set aside the order disallowing deductions and remitted the matter to the High Court for assessment of quantum “allowing for the deduction of the Heads of Costs and Expenses” over the full period, including the Extended License Period.
Disclaimer: This post is for informational purposes only and does not constitute legal advice. Please consult a qualified Advocate & Solicitor for your specific legal needs.
