Federal Court: Kuala Dimensi Sdn Bhd v Port Kelang Authority [2025] CLJU 142 – Consideration Requirement for Contract Variations

In our previous article[1], we covered the Court of Appeal’s decision in the Port Klang Free Zone case, where the Court of Appeal ruled that ADW2 was void for lack of consideration. The Court of Appeal held that ADW1 and ADW2 could not be read together, and since ADW2 merely conferred the benefit of an increased interest rate to the Appellant without any reciprocal benefit to the Respondent, the agreement failed for lack of consideration. Consequently, the Court of Appeal ordered the Appellant to return the payments received under ADW2.

This article provides a follow-up on the case at the Federal Court stage, where the apex court was called to determine whether the Court of Appeal’s ruling should stand.

Key Issues

The Federal Court granted the Appellant leave to appeal, focusing on four key questions of law:-

1. When it is alleged that there was no consideration for an agreement between parties, must consideration be proved only within the four corners of the agreement, or can it be established through extrinsic evidence?
2. Is the practical benefit test, as laid down in Williams v. Roffey Bros and Nichollas (Contractors) Ltd [1991] 1 QB 1, good law?
3. If parties have made their intention clear by entering into legal relations, are they bound by an agreement varying their previous contract when they have acted upon the variation agreement?
4. Should the doctrine of estoppel be invoked against the Respondent when it had agreed to the proposal to increase the interest rate and made payments accordingly without reservation?

Analysis And Decision Before The Federal Court

1. Where it is alleged that there was no consideration for the agreement between the parties, is consideration to be proved only within the four corners of the said agreement or can the same be proved by extrinsic evidence?

The Appellant argued that consideration could be established through extrinsic evidence beyond the agreement’s text. However, this contention failed as ADW2 and NADW were distinct agreements with separate contractual terms. The Federal Court held that when a contract is in writing, its terms must be derived solely from the document itself, and it is not open to the Appellant to introduce evidence that would alter its terms.

Pursuant to Section 91 of the Evidence Act 1950, the contract’s terms must be gathered from within the four corners of the contract itself. Extrinsic evidence may only be admitted under specific exceptions provided in Section 92 of the Evidence Act 1950, which the Appellant failed to establish.

The Federal Court also found no factual basis supporting the claim that ADW2 had valid consideration. ADW1, ADW2, and NADW were separate contracts, each with distinct obligations and financial terms. Even if ADW2 were seen as a variation of ADW1, it still required fresh consideration from the Appellant to the Respondent. As past consideration does not constitute valid consideration, an existing contractual obligation could not justify a new agreement.

Since no extrinsic evidence substantiated the Appellant’s claim, and the Court of Appeal had reached the same conclusion, the Federal Court declined to revisit the matter.

2. Whether the practical benefit test, as laid down in Williams v. Roffey Bros and Nichollas (Contractors) Ltd 1991 1 QB 1, is good law?

The Appellant sought to rely on Williams v. Roffey Bros to argue that the Respondent derived a practical benefit from ADW2, which should constitute valid consideration. However, the Federal Court held that Williams v. Roffey Bros is inconsistent with the principle that consideration must move from the promisee.

Furthermore, no Malaysian court has expressly accepted the practical benefit principle. Since the issue was never raised or adjudicated in the lower courts, it was inappropriate to apply the principle in this case.

On a factual level, the Federal Court found no evidence that the Appellant’s ability to perform ADW1 or enter into NADW was contingent upon executing ADW2. The Court of Appeal had found that the Appellant had sufficient financing and was not financially burdened under ADW1 or NADW. Thus, the question of whether a practical benefit constituted sufficient consideration for the Respondent was irrelevant.

Accordingly, the Federal Court declined to answer this question, as the practical benefit test was neither raised nor decided in the courts below.

3. Whether parties who had made their intention clear by entering into legal relations, are bound by an agreement to vary their previous agreement when they have acted upon the former, namely the variation agreement?

The Appellant argued that the execution of ADW2 demonstrated the parties’ mutual intention to be bound by its terms, as evidenced by the Respondent’s payment under ADW2 without reservation. Accordingly, the Appellant contended that the Respondent was estopped from disputing ADW2’s enforceability.

The Federal Court rejected this argument, emphasizing that an agreement must be supported by consideration to be legally binding. It held that ADW2 was void under Section 26 of the Contracts Act 1950, as an agreement without consideration is unenforceable, regardless of the parties’ intentions and conduct. Therefore, mere execution and performance of an agreement could not override the fundamental requirement of consideration. The Federal Court answered this question in the negative.

4. Whether the doctrine of estoppel should be invoked against the Respondent when it had agreed to the proposal to increase the interest rate and made payment of the same without reservation?

The Appellant argued that the Respondent should be stopped from disputing ADW2’s validity, given that the Respondent had made payments under it. However, the Federal Court reaffirmed that estoppel cannot override a statute or validate a void agreement.

The Federal Court held that the doctrine of estoppel could not be applied to defeat the Respondent’s claim that ADW2 was void under Section 26 of the Contracts Act 1950. The Federal Court emphasized that ADW2 remained void due to the absence of consideration and could not be legitimized through the parties’ conduct or the application of estoppel.

Additionally, the Federal Court examined the English doctrine of equity and reaffirmed that promissory estoppel cannot create an enforceable contract where consideration is lacking. The Federal Court further held that the Respondent’s payment of RM49.367 million under ADW2 did not constitute a waiver of its rights, as legal proceedings had already been initiated to declare ADW2 void before the payment was made. The payment was also made with a reservation of rights following a demand from the Appellant.

Accordingly, the Federal Court ruled that the Respondent was not estopped from pursuing its claim to have ADW2 declared void under the Contracts Act 1950.

CONCLUSION

The Federal Court reaffirmed that under Section 26 of the Contracts Act 1950, a contract without valid consideration is void, regardless of party conduct or performance. It rejected the practical benefit test from Williams v. Roffey Bros and upheld that contractual validity must be determined within the four corners of the agreement, barring exceptions under the Evidence Act 1950.

This decision serves as a clear reminder that any variation or supplemental agreement must include consideration to be enforceable. It reinforces contractual certainty and prevents the enforcement of agreements lacking reciprocal obligations.

If you have any questions, please contact our Dispute Resolution & Legal Associate, Ms. Aireen Natasha (aireen@nzchambers.com), or our Pupil-in-Chambers, Ms. Najihan.

Authors:

1. Aireen Natasha
2. Najihan Kamarolzaman

References:

[1] Nurul Husna Shariff. (2024). Mutual Variation of Written Contract: Port Kelang Authority v Kuala Dimensi Sdn Bhd [2024] 1 MLJ 252. Retrieved from <https://nzchambers.com/mutual-variation-of-written-contract-port-kelang-authority-v-kuala-dimensi/>. Site accessed on 12 March 2025.