The Court of Appeal was criticised in the Federal Court today for its "failure to adhere to established contract law principles" in awarding RM65 million plus interest to Fawziah Holdings for loss of signage rights.

The lawyer for toll concessionaire Metramac Corporation Sdn Bhd, which is appealing the award, submitted that the lower appellate court had departed from the findings of the high court and had applied contractual damages incorrectly.

"It is an established principle of law that damages are compensatory in nature," said Muhammad Shafee Abdullah.

"The judgment of the Court of Appeal which departed from the judgment of the high court granted Fawziah Holdings a larger sum than had the contract been performed."

Metramac - the concessionaire of the East-West Link Expressway and the Sungai Besi Expressway - is appealing against the ruling to pay Fawziah Holdings RM65 million for the breach of contract on advertising rights.

Shafee was arguing on one of the three pre-determined issues before the court - contract, trust and judicial bias.

The court also heard his submission on whether creation of an express private trust under the sale agreement amounts to an illegal reduction of capital.

The contentious issue is whether a clause in the restructure sale agreement between the parties amounted to an express trust that 'all profits, moneys in other benefits from future contracts' would be held by Metramac for the shareholders in Fauziah Holdings.

Shafee argued that the creation of such a trust is a breach of the law.

"The net effect of an express trust is that there will be an indefinite and sustained depletion in the assets of Metramac in favour of Fawziah Holdings," he said.

"This simply means that all receivable and revenue of Metramac are actually held on trust for Fauziah Holdings, while all costs and expenses needed to generate the revenue is to be borne by Metramac."

Difference in terms

Fawziah Holdings' counsel Dr Cyrus Das responded by saying that an express trust does not mean real returns of capital or assets to Fawziah.

He also distinguished the term 'capital' from 'revenue'.

"The profits cannot be 'capital' before they are received. When they are received, they would be no more than 'revenue', which is distinct from capital," he argued.

He added that each of the three questions should be considered separately, in that judgment on one issue should not affect any of the others.

Das will submit in relation to the contractual damages and judicial bias tomorrow.

The country's highest court is to decide on following issues in hearing the appeal:

- Whether the creation of trust under the sale agreement amounts to an illegal reduction of capital;

- Whether the test adopted by the Court of Appeal was correct in its determination that clause 8 of the Signage Agreements is a stipulation by way of penalty named in contract for purposes of Section 75 of the Contract Acts 1950; and

- Whether the Court of Appeal's adverse remarks or findings show a real danger of bias in the judgment arrived at against Metramac.

A five-member panel of judges led by Chief Justice Ahmad Fairuz Sheikh Abdul Halim is hearing the appeal.

Hearing continues tomorrow.