KPERAK IMPLEMENTATION AND COORDINATION CORPORATION v SIMFONI MAYA SDN BHD

Case Significance

Restates the rule that pre-contract surrounding circumstances may be used to construe an ambiguous contract but post-contract conduct generally cannot, and allows the appeal by setting aside a RM14.5 million damages award founded on an erroneous construction.

This Court of Appeal decision concerns the construction of a commercial contract and the limits on the use of extrinsic evidence, in an appeal against a substantial damages award for breach of an agreement. The respondent had sued the appellant, a statutory corporation, alleging that it had breached the terms of an agreement described as an indoor digital media solution agreement. After a full trial the High Court allowed the respondent's claim and ordered the appellant to pay RM14.5 million in damages. The appellant appealed. The Court of Appeal addressed the principles governing the construction of contracts where the terms are ambiguous or contradictory, in particular the extent to which evidence of surrounding circumstances may be used to interpret the contract. It held that evidence of the surrounding circumstances existing before the contract is signed may be used for the purpose of construing its terms, but that evidence of matters arising after the signing cannot be used to construe those terms — subject to recognised exceptions, such as using post-contract conduct to establish the existence of a contract, or to establish estoppel, waiver or acquiescence. Applying that framework, the Court held that neither exception applied, so that the fact that the appellant had paid RM500,000 could not be used to construe the terms of the contract; at most such a payment could show that a contract existed, but the existence of the contract was not in dispute. Concluding that the High Court had erred in its construction of the agreement, the Court of Appeal unanimously allowed the appeal and set aside the High Court's order, including the RM14.5 million award, and awarded costs here and below of RM60,000 to the appellant. The decision is a useful statement of the rule that post-contract conduct is generally inadmissible to construe the terms of a written contract.