𝐏𝐑𝐎𝐏𝐄𝐑𝐓𝐘 𝐋𝐀𝐖 𝐔𝐏𝐃𝐀𝐓𝐄 – 𝐄𝐏𝐈𝐒𝐎𝐃𝐄 50
Court of Appeal: A Developer May Recover Lost Profits After The Wrongful Termination Of Financing Facilities
By the Property, Projects and Conveyancing Team of Miranda & Samuel
In Bank Kerjasama Rakyat Malaysia Berhad v Kamuja Hartamas Sdn Bhd, the Court of Appeal considered whether a developer could recover lost profits after a bank wrongfully terminated Islamic bridging facilities granted for a housing development project.
The Bank’s liability had already been established in earlier proceedings. Although the High Court initially dismissed Kamuja’s counterclaim, the earlier Court of Appeal overturned that decision, held that the Bank’s termination of the Islamic bridging facilities was wrongful and ordered damages to be assessed.
During the assessment proceedings, the central issues were whether the wrongful termination had caused the project to fail, whether the anticipated profits were foreseeable and whether the amount claimed was properly supported. On appeal against the Deputy Registrar’s assessment, the High Court found in Kamuja’s favour and assessed the lost profits based on the difference between the Gross Development Value and Gross Development Cost.
The present Court of Appeal substantially upheld those findings but revised the deduction relating to the project land. After deducting the net land benefit and income tax at 24%, Kamuja was awarded RM8,299,318.67, together with interest and costs.
Background and Financing Structure
The Bank granted Kamuja Islamic financing facilities totalling RM9,846,000.00. This comprised RM3,346,000.00 for the land purchase, RM500,000.00 for infrastructure works and RM6,000,000.00 for construction.
The facilities were bridging finance for a proposed development comprising 110 terrace houses and 34 semi-detached houses. The Bank’s feasibility study also contemplated funding from purchasers, end-financiers and Kamuja’s internal resources.
Only the first tranche was disbursed, enabling Kamuja to acquire the project land which was charged to the Bank as security. The remaining tranches were withheld following Kamuja’s alleged default. Kamuja also faced difficulties obtaining a Development Order.
In 2012, Kamuja sought a restructuring of the facilities and submitted a revised 4th Proposal. The revised development comprised 66 semi-detached houses, with 40 units under Phase 1, supported by financial information, cash-flow projections and proposed repayment schedules.
Chronology of the Financing, Dispute and Court Proceedings
9 July 2008 — Before approving the facilities, the Bank completed a feasibility study on the proposed development and financing structure.
Date not stated — Following the feasibility study, the Bank granted Kamuja Islamic financing facilities totalling RM9,846,000.00 for the land purchase, infrastructure works and construction costs.
Date not stated — Only the first tranche was disbursed, enabling Kamuja to purchase the project land. The second and third tranches were not released following Kamuja’s alleged default.
Date not stated — At an earlier stage, the Bank commenced an action against Kamuja but later withdrew it, with liberty to file afresh, to allow negotiations to take place.
18 June 2012 — Kamuja submitted the revised 4th Proposal, involving 66 semi-detached houses, with 40 units under Phase 1.
25 September 2012 — The Bank demanded full repayment and threatened foreclosure.
5 October 2012 — Kamuja proposed restructuring and requested a three-month grace period.
20 November 2012 — Kamuja furnished financial information and cash-flow projections.
28 February 2013 — Kamuja requested a redemption statement to preserve the project land.
6 June 2013 — The Bank terminated the financing facilities.
Date not stated — Following the termination, the Bank commenced proceedings to recover its losses, and Kamuja counterclaimed for wrongful termination and damages.
15 May 2014 — Kamuja paid RM3,684,694.25 to redeem the project land.
Date not stated — In the High Court proceedings, Kamuja’s counterclaim was dismissed and its claim for damages was not assessed.
20 April 2015 — The earlier Court of Appeal held that the Bank’s termination of the financing facilities was wrongful and ordered damages to be assessed.
4 July 2017 — The Federal Court dismissed the Bank’s application for leave to appeal.
Date not stated — During the assessment proceedings, the Deputy Registrar found that causation had not been proved and awarded RM5,000 in nominal damages.
5 January 2024 — On appeal from the Deputy Registrar’s assessment, the High Court awarded RM7,506,518.67 after deductions.
17 July 2026 — The present Court of Appeal substantially upheld the High Court’s findings but varied the land deduction, resulting in a final award of RM8,299,318.67.
Causation and the Bank’s Defences
The High Court initially dismissed Kamuja’s counterclaim without assessing damages. On appeal, the earlier Court of Appeal overturned that decision, held that the Bank had wrongfully terminated the financing facilities and ordered damages to be assessed.
Kamuja was still required to prove causation. This meant showing that the Bank’s wrongful termination was the effective cause of the project’s failure and the resulting loss of profits.
The Bank argued that the earlier Court of Appeal had already found that Kamuja lacked the financial capacity to complete the project and that the remaining RM6.5 million facilities were insufficient. It therefore contended that the claim for lost profits was barred by res judicata.
The Court rejected this argument. It held that the earlier Court of Appeal had not made a final determination on Kamuja’s claim for loss of profits. That decision established the Bank’s liability for wrongful termination and directed that damages be assessed, leaving causation, financial capacity, foreseeability and quantum to be determined during the assessment proceedings.
The Bank’s Financial Capacity Argument
The Bank argued that Kamuja could not have completed the development because only RM6.5 million remained available under the facilities, while the project required substantially more funding. It also relied on Kamuja’s request for a redemption statement and its attempt to obtain alternative financing.
The Court rejected this argument. The Bank’s own feasibility study showed that the facilities were intended as bridging finance and were never meant to be the sole source of funding for the entire development.
Under the feasibility study, RM21.668 million, representing 61% of the project funding, was expected to come from purchasers and their end-financiers. The Bank’s facilities amounted to RM9.846 million, or 27%, while the remaining funding was expected to come from the land contribution and Kamuja’s internal resources.
Kamuja’s ability to pay RM3,684,694.25 to redeem the project land showed that it had access to its own financial resources. The Court therefore found that the project failed because the Bank wrongfully terminated the bridging facilities, rather than because Kamuja lacked financial capacity.
Foreseeability, the 4th Proposal and Estoppel
The Bank argued that profits under the 4th Proposal were outside the parties’ reasonable contemplation. The revised proposal involved 66 semi-detached houses, unlike the original mixed terrace and semi-detached scheme.
The High Court held that the Bank was estopped from denying the 4th Proposal. The Bank had received the revised plans, cash-flow projections and financial information but remained silent while Kamuja pursued the Development Order.
The Court of Appeal agreed that the 4th Proposal was not a new case introduced during the assessment proceedings. The Bank knew of the revised proposal before terminating the facilities and produced no evidence that the proposal was commercially unviable.
The Bank could not later argue that the profits were unforeseeable after remaining silent. The lost profits were within the parties’ reasonable contemplation and recoverable under section 74 of the Contracts Act 1950.
Loss of Profits, the Cross-Appeal and Final Orders
The High Court applied the Gross Development Value less Gross Development Cost method. A GDV of RM49,660,000.00 and GDC of RM34,519,843.85 produced gross lost profits of RM15,140,156.15.
The Bank appealed on causation, remoteness, quantum and interest, while Kamuja filed a cross-appeal against the land and income-tax deductions. The Court upheld the GDV and GDC but varied the land deduction to RM4.22 million.
The RM4.22 million deduction represented the net benefit obtained from the project land. It was calculated by deducting the RM4.78 million acquisition cost, which was already included in the GDC, from the land value of RM9 million. This deduction was necessary to prevent Kamuja from receiving double recovery in respect of the land.
The Court dismissed Kamuja’s cross-appeal and upheld the 24% income-tax deduction. After the land and tax deductions, the final award was RM8,299,318.67, with interest at 5% per annum from 6 June 2016 until payment and costs of RM70,000 against the Bank.
Key Takeaways
- A developer may recover substantial lost profits where the wrongful termination of financing is proven to have caused the development project to fail.
- The Court assessed the developer’s gross lost profits using the following formula:
Gross Development Value (GDV) – Gross Development Cost (GDC) = Gross Lost Profits
RM49,660,000.00 – RM34,519,843.85 = RM15,140,156.15
- In this case, the developer successfully established gross lost profits of RM15,140,156.15.
- The Court made only two deductions from the gross lost profits:
- Net land benefit arising from the subsequent sale of the project land; and
- Income tax at 24%.
- After these deductions, the developer was awarded RM8,299,318.67, together with interest at 5% per annum from 6 June 2016 until payment and costs of RM70,000 against the Bank.
- This decision highlights that lost profits are recoverable where the developer proves a clear causal link and supports the claim with reliable financial evidence.
This case is an important reminder that in property transactions, substance may prevail over form. Where the parties have already agreed on the essential terms, the absence of formal execution may not necessarily prevent the Court from finding that a binding contract exists.
For further information, please contact Dato’ George Miranda at george@mirandasamuel.com.
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– By George Miranda, Joy Sam Jia Qian, Amir Faiz –
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.
