1. Zhao Dongming v 1. ) Zhao Khai (WA-22C-52-04/2017)

ZHAO DONGMING

ZHAO XIAO QING … PLAINTIF- (PASPOT NO: E53656207) PLAINTIF

ZHAO KAI

GALAXY CENTURY BUILDERS SDN BHD

FU YUPING

UE E&C SANJIA (M) SDN BHD … DEFENDAN- (NO. SYARIKAT: 1023369-T) DEFENDAN 2 of 56 THE JUDGMENT OF YA LEE SWEE SENG [1] This is an investment by the plaintiffs and in particular the 1st plaintiff (“P1”) that went wrong. The 2nd plaintiff (“P2”) Zhao Xiao Qing is the younger brother of P1. Parties and Project [2] The plaintiffs and in particular P1 were the main funder of a mixed development project which the 2nd defendant (“D2”) Galaxy Century Builders Sdn Bhd (“Galaxy”) had been awarded. The project consists of a 2 tower block of 30-storey service apartments and 3-storey of facilities and recreation together with 2 levels of semi-basement car parks and 5 multi-levels car parks called the Sovereign Bay Project in Johor Bahru (“the Project”). The terms of the joint-venture were contained in a Construction Cooperative Agreement (“CCA”) between Galaxy D2 on the one hand and plaintiffs and the 1st defendant Zhao Kai (“D1”) on the other hand. [3] Both the plaintiffs are not directors or shareholders of D2. D1 is a director of D2 and now the controlling shareholder and together with his wife, owns 90% of the company. [4] Under the CCA, the plaintiffs and D1 were supposed to work together for the successful completion of the Project where D2 had been 3 of 56 appointed as the main contractor by the 4th defendant (“D4”) UE E&C Sanjia (M) Sdn Bhd D4 (“Sanjia”) under a Letter of Award. [5] D1 is not related to P1 though they all carry the same surname of “Zhao” but coincidentally they all came from the same village in Chengdu, China. [6] The third defendant (“D4”) is a lady called Fu Yuping who is the chairman and controlling shareholder and director of D4. The individuals in the plaintiffs, D1 and D3 are all nationals of China. This is by far the first substantial development project overseas for them in Malaysia. Problem [7] A cash performance bond was required in the contract between D2 and D4 for the sum of Renminbi RMB3.2 million (all parties agree that it is equivalent to RM2 million). This was procured by D2 from P1 though D1 for the benefit of D4 and the cash was banked into the account of D3. [8] It is not disputed that the requirement of the cash bond had been satisfied in favour of D4. [9] The cash bond was only required for 2 months after the commencement of the construction works and, according to the plaintiffs, should have been refunded by D4 to D2 thereafter, if not directly to P1. 4 of 56 [10] However it has not been refunded so far to P1 as far as P1 is concerned and more so when now the contract between D2 and D4 had been mutually terminated, as alleged by the defendants. [11] Central to the plaintiffs’ case is that the so-called mutual termination is a charade and a cloak to cover the connivance and conspiracy amongst all the defendants to injure the plaintiffs and to defraud and deprive them of their getting paid for what they had contributed towards the development of the Project before the termination of D2 by D4. [12] P1 did not intend the cash bond sum to be kept for the benefit of D4 after the expiry of 2 months as above stated and certainly not after the termination of the contract between D2 and D4. [13] P1 further argued that this Court may order D4, or for that matter, D3 to return this bond sum direct to P1 as D4 and D3 are the ones who ultimately received the benefit of it and that this Court may do so under section 71 of the Contracts Act 1950. [14] D4 on the other hand argued that the bond sum had been forfeited for failure of D2 to complete the Project. [15] P1 further said that the order should be that D4 should refund this sum to P1 as he is not confident that D2, a dormant company, could pay back P1. P1 further argued that this can be done, as though the contractual relationship is not between P1 and D4, but rather between the P1 and D2, yet a claim under section 71 of the Contracts Act 1950 deals precisely with such a situation so as to avoid unjust enrichment in a 5 of 56 restitutionary claim as it would be unconscionable for D4 or D3 to retain the benefit of the bond sum. Prayers [16] Besides P1 claiming for a refund of the cash performance bond of RM2 million from the defendants, the plaintiffs also prayed for an accounts inquiry claim against D1 and D2 under the CCA with respect to the Project and against D3 and D4 under the Letter of Award for work done by the plaintiffs for the Project or alternatively the following sums against all the defendants as they had conspired to injure the plaintiffs:

the sum of RM6,300,845.82 being the value of work done as assessed by their Quantity Surveyor as at the date of termination of the contract between D2 and D4;

the sum of RM977,357.67 being the value of the balance material on site;

the loss of profit at RM24,503,941.85;

Alternatively, the sum of RMB15,959,597.46 being the expenses incurred by the plaintiffs for the Project. [17] Meanwhile D1 and D2 also counterclaimed for losses arising from the plaintiff’s breach of the CCA in failing to raise and channel the investment funds into D2 and they claimed as follows:

expenses incurred with respect to pre-contract costs of RM340,812.00; 6 of 56

expenses during the period of construction of June 2016 to 30.1.2017 being operating costs of RM521,102.40;

Loss of profit in the management construction fee of 2% and agency fee of 1.5% amounting to 3.5% of RM263,700,000.00 of RM9,229,500.00;

Loss of RMB 2,994,600.00 arising of cancellation of contract with an Elevator supplier;

Loss of reputation of D1 and D2 of RM1,250,000.00. [18] At the trial P2 could not come to testify and as explained by P1, his younger brother could not leave China because of some immigration offences that he was being investigated for. I have no reason to doubt his explanation and his authority to testify on behalf of P2 as well. There was hardly anything that P2 needed to add because all the matters that P1 testified with respect to the joint-venture were matters within his personal knowledge. [19] At any rate D2 in its letter to P1 dated 2.11.2016 exploring settlement had proceeded on the footing that the benefits of P2 shall be undertaken by P1. Principles [20] Sanjia D4 issued through its architect a Letter of Award dated 23.5.2016 to Galaxy D2 for the Sovereign Bay Project. Under the Letter of Award Galaxy was required to furnish a performance bond of 7 of 56 RM12,750,000.00 in the approved form of a bank guarantee with Sanjia as the principal beneficiary. Whether the bond sum of RMB3.2 million (RM2 million as agreed) should be paid back to P1 by D2 or D4 [21] I agree with learned counsel for the plaintiffs that based on the letter dated 3.6.2016, Sanjia agreed to a cash performance bond of RM2 million (equivalent to RMB3.2 million) by way of a cash bond. See CBOD 1 pages 17-18. The relevant part of the said letter reads: “5. Since the project from car park level until transfer beam to be financed by Galaxy UE E&C Sanjia (M) Sdn Bhd agreed that RM2,000,000.00 to reimburse to Galaxy Century Builders Sdn Bhd in stages after 2 months from commencement of work. .....

Due to time constraint, we agree to accept the payment of the cash performance bond in two different currency either Ringgit Malaysia or Chinese Renminbi.

The account details are as follows: Beneficiary bank: Bank of Chengdu, Yindu Branch Beneficiary Name: Madam Fu Yu Ping Account Nos.: xxxxxxxxxx” [22] Galaxy by its letter dated 3.6.2018 informed Sanjia that the performance bond in a cash bond would be paid by P1 to D3 into her personal account in China. See CBOD 1 page 19. 8 of 56 [23] Then on 8.6.2016 Sanjia D4 and Galaxy D2 entered into a Supplemental Agreement (pages 31-36 CBOD 1) to vary certain terms in the Letter of Award. It stated clearly that due to special circumstances, Sanjia agreed not to impose the 5% bank guarantee on Galaxy but instead Sanjia will deduct 5% from every progress claim by Galaxy as performance security. See CBOD 1 pages 31-36. This is of course nothing unusual in the construction industry for a contractor that might face a cash flow challenge. [24] On 27.6.2016 the CCA was executed by Galaxy as Party A on the one hand and the plaintiffs and D1 as Party B on the other hand. See CBOD 1 pages 37-41 and CBOD 2 pages 180-185. [25] There was a reference in the CCA that Sanjia shall collect a site entrance deposit of RM2 million to be arranged by Party B, and Sanjia shall refund the bond 2 months after the commencement of the work. [26] This site entry bond can only refer to the same cash bond of RM2 million for it would be stretching to incredulity to say that it happened to coincidentally be for the same amount and to be refunded after the same period of 2 months after commencement of work. [27] I am further fortified in this interpretation as there was no evidence of any letter where Sanjia had subsequently asked for the site entry bond before D2 was allowed entry into the site. [28] There is however some dispute as to when D2 was given site entry and with that possession of the site. The plaintiffs said it was in September 2016 but the defendants said it was in early June 2016. 9 of 56 [29] Nothing turns on this at the moment because there was a mutual termination as this Court would subsequently find, as evidenced in a letter dated 5.12.2016 between D2 and D4 in CBOD 2 pages 191-192. [30] In any event more than 2 months had passed whether the date of site entry was in early June 2016 or in September 2016. There is no dispute on the terms of the bond and a bond secured for one purpose cannot be converted into another purpose and its terms for return changed without the consent of the party that was obligated to furnish the Bond. [31] Learned counsel for the defendants argued that as the project was not completed by P1 then D4 was entitled to forfeit the Bond sum and cited in support the Court of Appeal case of Metro Luxury Sdn Bhd v PKNS Engineering & Construction Bhd [2018] 1 LNS 655 where it was observed as follows: “[32] According to the terms of the first letter of award or the original contract, the provision of the performance bond was a condition precedent. Clause 1.1(a) of the original contract reads as follows:

The following conditions shall serve as a conditional precedence to this Award:

To provide a Performance Bond in the form of a Bank Guarantee or an approved insurance Guarantee for an amount of RM1,173,505.55 (being 5% of the Contract Sum). This guarantee shall expire upon end of defect liability period or upon furnishing to us a Bank Guarantee for the construction system warranty as per clause 2.0(e) below, whichever is the later. 10 of 56 ........ [36] Having examined the terms of the main contract and reading it together with the terms and conditions of the original contract and the amended contract, we are of the view that the performance bond was intended to secure due performance of the works. The provision of the performance bond itself was a condition precedent to the award of the contract works to the appellant. Once that was fulfilled, once the performance bond was provided in the terms required under the cl. 1.1 of the original contract, the application of the performance bond itself was dependent on the substantive terms of the original contract, the amended contract and the main contract. ....... [39] And, in this regard, cl. 43.6 is relevant. Clause 43.6 provides that the appellant is not entitled to the release of the performance bond or any part thereof notwithstanding partial occupation or possession of the works by the employer. In such circumstances, certificates of partial occupation may be issued where there are implications on the defect liability period, the certificate for making good defects, and reduction in any LAD imposed. Clause 43.6 provides that notwithstanding this partial occupation, the appellant as the contractor, is still not entitled to the release of the performance bond as the intention to release or refund it only six months after the issue of the certificate of practical completion for the whole of the works under cl. 40. In the absence of any express provision to the contrary, and there is none, this clause must be read to implicitly apply to the respondent. The respondent too, cannot utilise or ask for the release of the performance bond at any earlier time. [40] The exception to this would be where there has been no due performance of the works. This would be where the appellant has not completed the works by the completion date.” (emphasis added) 11 of 56 [32] Clearly there the performance bond was exacted and furnished to ensure the completion of the works whereas here it was more of a site entry bond which is expressly stated to be returned by Sanjia to Galaxy “in stages after 2 months from commencement of work” as stated in D4’s letter to D2 dated 3.6.2016 at pages 17-18 CBOD 1. [33] The purpose of this cash bond of RM2 million was definitely different from the performance bond. The performance bond for the purpose of ensuring the completion of the project would, under the Supplemental Agreement, took the form of 5% of the progress claim to be made and so if the deduction is made before the release of each progress claim that would amount to the same as the original performance bond in the form of Bank Guarantee of RM12,750,000.00 amounting to 5% of the contract sum. Clause 9.0 on “Performance Bond” in the Letter of Award specifically made this option available to D4 which D4 now appeared to have exercised in the Supplemental Agreement for it reads: “...In the event the contractor does not submit the Bank Guarantee, we reserve the right to withhold the value of the guarantee from progress payment certificate or any money due to the contractor.” [34] The performance bond of RM12,750,000.00 in the form of a Bank Guarantee in Clause 9.0 of the Letter of Award “shall remain valid and effective until issuance of certificate of practical completion (CPC).” [35] When that option is exercised then the cash sum retained would be so retained until the event stipulated for its release which under the Supplemental Agreement in Clause VI “Retention” thereof would be upon practical completion and so certified by D4 2.5% of the retention sum 12 of 56 would be released and the balance 2.5% upon the issuance of the certificate of making good defects. [36] There was a further rationale stated for this condition of refund of the RM2 million cash bond as reflected in the letter of 3.6.2016 from D4 to D2 at pages 17-19 CBOD 1 and it was because the project from car park level until transfer beam shall be financed by Galaxy. In other words, Galaxy would not be paid until it had built to the transfer beam which is some 7 floors of car park plus another 2 floors where the transfer beam is. [37] Learned counsel for the defendants further argued that there was no agreement reached between D2 and D4 at the time of mutual termination of the Letter of Award as the matter was still at the proposal stage as can be seen on the letter from D2 to D4 dated 5.12.2016 at pages 76-77 DBOD 5 as follows: “Documents regarding all actual capital costs invested by Galaxy directly into the construction such as any construction costs, material costs, management expenses, the performance bond and so forth and regarding the current quantity of completed works shall be well prepared to facilitate the process of settlement by both parties.” (emphasis added) [38] Then there was also a letter dated 28.12.2016 from D4 to D2 as follows: “Trust to have kept you informed and your co-operation is very much appreciated, should you fail to withdraw from site as per our agreement we reserved our right to forfeit your cash performance bond and imposed LAD.” (emphasis added) 13 of 56 [39] It is more probable than not that D2 had withdrawn from the site and that a new contractor Hua Xi had taken over as there was no further matter on the subject of the cash performance bond. [40] The fact remains that Sanjia did not forfeit the cash performance bond and that Galaxy would be able to claim for a return of it if it had not already been returned to Galaxy. [41] P1 should be allowed to claim from Galaxy D2 the cash performance bond that Galaxy had procured P1 to pay to Sanjia D4 by way of payment into the personal account of Fu Yuping D3. [42] Learned counsel for the defendants also raise another argument that there was no payment of the cash performance bond as what was stated in one of the bank transmission slips was “loan” and hence it is a loan given by P1 to D3. It must be pointed out that the description “loan” appeared in one of the 4 bank transmission slips and in one of them the words “performance bond” were written with 2 others with nothing written with respect to the purpose of the transmission. [43] I accept P1’s explanation that it was more a suggestion by the processing bank officer as to what would be an acceptable description for the transmission of funds to someone in China. [44] There is no truth in the allegation of a loan as there is no good reason for P1 to lend D3 that sum of money and in any event D3 had admitted that the cash performance bond was paid into her account with her knowledge and instruction. 14 of 56 [45] Further if indeed it was a loan then surely Sanjia would not be keeping quiet when the site entry bond was not paid as it would not be allowed the site possession or at least there would be a formal letter asking for payment. [46] Instead the last relevant letter dated 28.12.2016 from Sanjia to Galaxy was on the undisputed premise that the cash performance bond had been paid for otherwise there would be a disturbing dissonance arising from a lack of credibility in threatening to forfeit that which had not been paid in the first place! [47] At any rate Galaxy had confirmed the payment made for the purpose of the cash performance bond at CBOD 4T at pages 22,24 and 26. [48] Learned counsel for the plaintiffs submitted that this Court should order Sanjia D4 to make direct payment to P1 as there is much doubt as to whether Galaxy has any funds or assets within Malaysia seeing that it was a dormant company utilised for the Project and might not be in a position to pay. Moreover, it is D4 that had benefitted under the arrangement of payment of the cash performance bond from P1 to the personal account of D3 who is the Chairman and controlling shareholder of D4. [49] Learned counsel said that under section 71 of the Contracts Act 1950 this Court may make such an order. 15 of 56 [50] Section 71 of the Contracts Act 1950 provides for the obligation of a person enjoying the benefit of non-gratuitous act to make compensation. Section 71 reads as follows: “Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered.” [51] The Federal Court in Usima Sdn Bhd v Lee Hor Fong (trading under the name and style of Pembinaan LH Fong) [2017] 5 MLJ 273 referred to the Privy Council decision in Siow Wong Fatt v Susur Rotan Mining Ltd & Anor [1967] 2 MLJ 118 that laid down the requirements of section 71 of the Contracts Act 1950 as follows: “It has been common ground before their Lordships that four conditions must be satisfied to establish a claim under section 71. The doing of the act or the delivery of the thing referred to in the section:

must be lawful.

must be done for another person.

must not be intended to be done gratuitously.

must be such that the other person enjoys the benefit of the act or the delivery. In their Lordships' judgment these matters must be answered at the time that the act is done or the thing delivered and this, their Lordships think, is of fundamental importance.” (emphasis added) [52] Clearly at the time that payment was procured by Galaxy from P1, it was clear to all that this payment by P1 was on behalf of Galaxy. 16 of 56 Sanjia has no contractual relationship with the plaintiff and that includes P1. The parties in a contractual relationship are P1 and D2 where the procurement of the bond is concerned in the context of the CCA between D2 on the one hand and the plaintiffs and D1 on the other hand. There is also a contract between D2 and D4 where the construction contract in the Letter of Award is concerned. [53] Where D2 is very much around and as later it shall be shown that D4 owes D2 for the works already done up to the date of mutual termination, there is no cogent reason to resort to section 71 of the Contracts Act 1950 for a claim under quantum meruit. [54] Even in a case where the direct contracting party has gone into liquidation, the Court would still be reluctant to rewrite the bargain for the parties as illustrated in the Australian High Court case of Lumbers & anor v W Cook Builders Pty Ltd (In Liq) 247 ALR 412; [2008] HCA 27 where it dismissed a claim for quantum meruit against a beneficiary for work done where there is a clear contractual relationship between the parties that can be identified. [55] The appellants (the Lumbers) entered into a contract with W Cook & Sons Pty Ltd (Sons) under which Sons was to build a house for the Lumbers. W Cook Builders Pty Ltd (in liq) (Builders) claimed that it entered into a contract with Sons, pursuant to which Builders was to build the house and the benefit of Sons’ contract with the Lumbers was transferred to Builders. The Lumbers were not aware of the contract between Sons and Builders. About 4 years after the construction of the house was completed, the liquidators of Builders made a claim to the Lumbers, alleging that the Lumbers had not paid all that should have been 17 of 56 paid for building the house. The Lumbers did not pay to Builders the money claimed. [56] Builders’ claims were in contract and also in “restitution/unjust enrichment”. An order was made that Builders provide security for Sons’ costs. Builders did not do so, and the proceeding as against Sons was stayed. Builders proceeded against the Lumbers, and was not successful. Builders appealed, and the Full Court of the Supreme Court of South Australia allowed the appeal on the basis that Builders’ restitution claim should succeed. [57] Dissatisfied with such decision, Lumbers appealed further to the High Court of Australia. In allowing the appeal and setting aside the orders of the Full Court of the Supreme Court of South Australia, the High Court of Australia referred to the case of Steele v Tardiani (1946) 72 CLR 386; [1946] HCA 21 and Pan Ocean Shipping Co Ltd v Creditcorp Ltd, The Trident Beauty, [1994] 1 All ER 470 (HOL) and observed as follows: “[79] The doing of work, or payment of money, for and at the request of another, are archetypal cases in which it may be said that a person receives a “benefit” at the “expense” of another which the recipient “accepts” and which it would be unconscionable for the recipient to retain without payment. And as is well apparent from this court’s decision in Steele v Tardiani, an essential step in considering a claim in quantum meruit (or money paid) is to ask whether and how that claim fits with any particular contract the parties have made. It is essential to consider how the claim fits with contracts the parties have made because, as Lord Goff of Chieveley rightly warned in Pan Ocean Shipping Co, “serious difficulties arise if the law seeks to expand the law of restitution to redistribute risks for which provision has been made under an applicable contract”. In a 18 of 56 similar vein, in the comments upon §29 of the proposed Restatement (3d), “Restitution and Unjust Enrichment”, the reporter says: Even if restitution is the claimant’s only recourse, a claim under this Section will be denied where the imposition of a liability in restitution would overturn an existing allocation of risk or limitation of liability previously established by contract.” (emphasis added) [58] In allowing the appeal, the High Court of Australia held that: “[125] First, the Lumbers accepted no benefit at the expense of Builders which it would be unconscionable to retain. The Lumbers made a contract with Sons which either has been fully performed by both parties or has not. Sons made an arrangement or agreement with Builders which again has either been fully performed or it has not. If either the agreement between Sons and the Lumbers or the agreement or arrangement between Sons and Builders has not been fully performed (because all that is owed by one party to the other has not been paid) that is a matter between the parties to the relevant agreement. A failure of performance of either agreement is no reason to conclude that Builders should then have some claim against the Lumbers, parties with whom Builders has no contract. To now impose on the Lumbers an obligation to pay Builders would constitute a radical alteration of the bargains the parties struck and of the rights and obligations which each party thus assumed. There is no warrant for doing that. [127] The second observation to be made is more general. It is that identification of the rights and obligations of the parties, in this as in any matter, requires close attention to the particular facts and circumstances of the case. Necessarily that requires close attention to what contractual or other obligations each owes to the other.” (emphasis added) [59] In a chain of construction contract it is of course the ultimate owner or employer of the project that is the final beneficiary but the Court 19 of 56 should not change the law of insolvency to make a non-contracting party liable whenever a contracting party might not have the means to pay. [60] That would amount to rewriting the bargains that the parties have struck with one another down the chain of construction contracts. [61] It is a truism that there is no new human problem and the only difference lies in the manifestation of it; that which the plaintiffs encountered is not novel. The Federal Court in Seloga Jaya Sdn Bhd v UEM Genisys Sdn Bhd [2010] 3 MLJ 721 observed as follows with respect to a subcontractor’s position in the chain of construction contracts: “[21] But such arrangement has various legal consequences. Since there is no privity of contract between the employer and the subcontractor, going by the general principle of the law of contract, the subcontractor cannot seek redress against the employer in the event of the main contractor failing to pay the subcontractor for the job done after the main contractor had collected payment from the employer. Or what would happen if there is a dispute between the main contractor and the employer unrelated to the subcontract resulting in the employer withholding payment to the main contractor who in turn refused to pay the subcontractor. There might also be a situation where the employer only made partial payment to the main contractor giving rise to a dispute as to a fair amount for distribution to the subcontractor. These are only some of the problems. There may be many others. This list is not exhaustive.” (emphasis added) [62] Learned counsel for the plaintiffs cited the Court of Appeal case of Tanjung Teras Sdn Bhd v Kerajaan Malaysia [2015] MLJU 2161 as justifying a claim in quantum meruit under section 71 of the Contracts Act

In that case, the Court of Appeal allowed the claim by the Appellant subcontractor against the Respondent, the owner of the project. The 20 of 56 Respondent entered into a Sale and Purchase Agreement dated 24.3.2003 with a company (JP), in which, in consideration of JP agreeing to sell a piece of land and constructing on the said land 226 medium cost apartments, the Plaintiff will pay a purchase price of RM50,548,000 (out of which RM4.44 million represents the price of the said land) to JP. A sum of RM16 million had been paid to JP by the Respondent under the Agreement, which included the price of the said land. The said land had since been transferred to the Respondent. [63] However, there was delay in the project resulting in the termination of the contract between the Respondent and JP. The Appellant is a subcontractor appointed by JP on 15.2.2007 to construct “super structure works” under the project. Upon termination, the Appellant refused to leave the project site. The High Court dismissed the counterclaim of the Appellant for quantum meruit. On appeal however, the Court of Appeal while agreeing that the subcontractor is to be paid on back-to back basis and there is no direct contractual relationship between the owner and the subcontractor in that case, however, the Court of Appeal was of the view, given the wide juristic basis of application of section 71 of the Act which is premised on the equitable principle of restitution, good conscience and prevention of unjust enrichment, the subcontractor may still claim provided the requirements under the said provision are met. The Court of Appeal allowed the subcontractor’s claim. [64] Whilst the relationship in Tanjung Teras case is similar to the present case, there is also a stark difference in that in the former the employer had not paid anything to the main contractor with respect to the superstructure works whereas here there would be a sum still owing by 21 of 56 D4 to D2 for work done until the date of mutual termination for which D4 has to pay D2. [65] In Tanjung Teras, the main contractor was paid RM16 million (out of RM50,548,000 as per the Sale and Purchase Agreement) beginning from 19.6.2003 until 2.2.2005 whilst the sub-contractor was appointed only on 15.2.2007. Hence, the said payment could not have included payment for super structure work done by the subcontractor. [66] Learned counsel for the plaintiffs also referred to the Court of Appeal case of Krass Solutions Sdn Bhd v Konsesi Kota Permatamas Sdn Bhd [2018] 3 AMR 790. The plaintiff there was the employer of the project. The plaintiff engaged Tech Art as the main contractor. Tech Art in turn appointed Novanexus Design Studio as a sub-contractor. Novanexus Design Studio entered into an arrangement with Novanexus Design and Build. Then Novanexus Design Studio and Novanexus Design and Build engaged the defendant as a sub-contractor. Thus it can be said that the defendant was many levels down the contractual chain from the plaintiff. Be that as it may, it was pointed out that the Court of Appeal allowed the defendant’s counterclaim against the plaintiff for work done. This was also on the basis of section 71 and unjust enrichment. [67] The facts there were that there was a retention of title clause in the supply and carpentry work agreement (‘CSA”) between the defendant and Novanexus companies and as the plaintiff had taken possession of the goods delivered and had not paid Tech Art or to Novanexus companies or to anyone for that matter, the defendant was entitled to compensation or be restored the goods delivered. As the plaintiff wishes to retain the goods or the benefit, the plaintiff has to pay the defendants 22 of 56 for the amount claimed by the defendant both under section 71 of the Contracts Act 1950 and on the principle of restitution for unjust enrichment. [68] To be very clear in the chain of contractual relationships here, work was done under the contract by D2 for D4 and by the plaintiffs in particular P1 for D2 including furnishing the cash performance bond. It is no different from P1 paying to D2 and D2 then paying to D4. To save time and a step the payment was made direct by P1 to D3 in fulfilment of the contractual requirement as varied by the Supplemental Agreement by D2 to D4. In fact, this is not unusual as in the main contractor asking its subcontractor to furnish the cash performance bond sum. [69] There was as such no gratuitous work done by P1 for D4 and if there is anyone who could sue D4 for the return of the cash performance bond of RM 2 million, it is D2. Conversely only P1 could sue D2 for the return of the cash performance bond of RM2 million. [70] The fact that the cash performance bond could be traced as having originated from P1 and having settled into the account of D3 for the benefit of D4 at the instruction of D2 does not create a privity of contract between P1 and D4 or D3 for that matter. [71] In the absence of a contractual relationship between P1 and D4 or D3 and more importantly in the light of the contractual relationship between P1 and D2, the requirements of section 71 have not been fulfilled and there is no basis for this Court to order D4 or D3 to pay P1. 23 of 56 [72] This Court is disinclined to invoke section 71 of the Contracts Act 1950 in the guise of doing of substantial justice when here, contractually D4 would in all probabilities have to pay D2 for work done up to the date of mutual termination including the issue of the cash performance bond. This is not a case where D4 could be said to have been unjustly enriched such that restitution has to be made by D4 to P1. [73] If at all there is anyone who has been unjustly enriched it is D2 and the correction is made here contractually by making D2 pay P1 the said cash sum constituted in the cash performance bond. [74] I would allow judgment to be entered by P1 against Galaxy D2 for the sum of RM2 million together with interest at the rate of 4% per annum from date of the Statement of Claim to realisation. [75] In the event that D2 fails to pay P1 then P1 can always wind up D2 and appoint a liquidator to pursue D2’s claim against D4 for the cash performance bond of RM2 million. [76] Where the Court has found for contractual liability against D2, it would be rare for the Court to find some other parties up in the chain of construction contracts liable under quantum meruit or unjust enrichment. Whether and what sum the plaintiffs are entitled to claim based on an accounts inquiry into work done for D2 and from who [77] Next is the claim for work done because it is evident that the work had been done and financed by the plaintiffs by way of materials, labour, 24 of 56 equipment and machinery, especially tools and tower cranes brought in from China. [78] This is where both under the CCA and under section 71 of the Contracts Act 1950, the plaintiff must be paid by D2. [79] Under the CCA signed on 27.6.2016, P1, P2 and D1 have 48, 23 and 29 respectively in the Project. [80] It was provided that P1 shall provide an advance of RMB10 million to kick start the Project inclusive of building materials to be purchased. D2 shall liaise with D4 on all matters relating to the Project. It was further provided that upon receiving the 1st progress payment after the completion of the car parks, RMB5 million shall be paid back to P1. The Project shall be managed by a project management team consisting of the plaintiffs and D1 collectively. There shall also be a designated bank account open where all working capital shall be deposited and it shall be operated by one representative from Party B who would be P1 as he was the one contributing the funds and a representative from Party A D2 who would be D1 for proper accountability and transparency. [81] D1 who is DW 6 at the trial, by his own admission, confirmed that he did not come up with or advance any money for the Project. It was P1 who had fulfilled his contractual obligation under the CCA to come up with more than RMB10 million to purchase equipment, machinery including tower cranes, raw materials, all from China, and staff salaries, insurances, construction of site office and hostels for workers from China and all that is necessary to commence construction work of the Project. 25 of 56 [82] There is more than sufficient evidence to show that the plaintiffs did commence mobilisation including the purchasing of site offices, tower cranes, workers’ quarters and all necessary buildings materials and equipment which were shipped to Malaysia from a China in mid-July 2016. [83] Learned counsel for the defendants tried to create doubt on the supporting documents by stating that there was no proof of receipts by D2. There is no evidence that the plaintiffs had other projects in Johor Bahru or other parts of Malaysia at that time and one must avoid throwing out the baby together with the bath water just because the “t” is not properly crossed or the “i” dotted. There are sufficient photographs and attestation to the fact that these materials were so delivered and the project manager of D4 Mr Yeo Yong Huang DW1 and the general manager of D4 Mr Wong See Poh PW2 did not deny that these were the equipment, machinery, tower cranes, site offices, workers’ quarters and materials that were at the site. [84] Granted they are not the best persons to know the costs of these items but where there may be some truth in the assertion by the defendants that some of these equipment and machinery including the tower cranes may be second hand, the necessary adjustments would be made by the Court-appointed expert witness in JUBM QS whose evidence shall be referred to shortly with respect to his opinion and assessment as to the value of these equipment, machinery and materials left behind at the site when the contract between D2 and D4 was terminated in December 2016. [85] Learned counsel for the defendants had spent much time to cross-examine PW1 who is P1 with respect to the veracity of his evidence 26 of 56 on his contribution of RMB 10 million as may be initially required to kick start the construction works for the Project. I am satisfied on the balance of probabilities that all the expenses have been satisfactorily explained with reference to his bank statements showing withdrawal of funds from his account. [86] The fact that P1 had made more than his initial contractual commitment is reflected in also in the voluminous documents filed herein and referred to by P1 in his evidence mainly in CBOD 2 and CBOD 3 including bank remittances, receipts, documents of site expenses, bank statements and photographs. According to P1 he had contributed to the tune of RMB 15,958,597.46 at page 310 CBOD 2 with supporting documents in CBOD 2 and CBOD 3 with the breakdowns as follows:

Main summary of expenses at CBOD 2 pages 310-311;

List of materials purchased to the tune of RMB7.8 million for the Project at CBOD 2 pages 312-339;

List of remaining materials expenses for the Project at CBOD 2 pages 340-356;

Total expenses tabulated with supporting documents for the payments at CBOD 3 at pages 372-649;

List of equipment and machinery and together with photographs at CBOD 4 pages 650-820. [87] There was also evidence that some RMB 2.5 million was transferred into the account of D1’s mother-in-law Madam Zhang Qing Fang at the instruction of D1 which D1 would then cause the funds to be 27 of 56 transferred to Malaysia for the Project. I am satisfied that these are not loans given to her but rather expenses for the Project for a quick purchase in China or Malaysia as the case may be. Why would P1 be giving a loan to a person he hardly knows and when the Project requires all the finding that it would need seeing that D1 was not readily coming up with any contribution from his end? [88] I am satisfied with the explanation given by P1 that some of the transmission slips filled in by the bank officers for payment from P1’s bank account in China to the account of D1’s mother-in-law the word “loan” stated for the “purpose” of the fund transfer is more likely a default entry by the bank officer to facilitate the transfer more than anything else. I can take cognizance of the fact that in some countries with tight exchange control with respect to outflow of fund overseas, some description might entail a lot of explanation and slow down the process of fund transfer when it is urgently required for some purchases to be made. [89] Finally, in the written submission of learned counsel for the defendants there was nothing raised with respect to P1 not having made the contributions or paid for the expenses as agreed in the CCA and the focus then was on the true value of the work done by the plaintiffs and who is to make the payments to the plaintiffs. [90] P1 accepted the fact that if his contribution could not be returned to him because the Letter of Award had been terminated, then he should be paid back according to what the QS said is the proper value of the works done up to the date of termination of the Letter of Award. 28 of 56 [91] It is in the nature of a joint-venture agreement such as this in the CCA that there would be risks involved including not being able to get any returns in one’s investment if the Project is terminated by the Project Owner or Employer and in this case it is Sanjia D4. [92] In fact there is an expressed provision in the CCA that P1 would only be returned the sum of RMB 5 million upon D2 receiving the 1st progress payment after completion of the 7 levels of car parks. It is an accepted fact that the car parks had not been completed when the contract between D2 and D4 was terminated. [93] Learned counsel for the plaintiffs submitted that this is perfectly permissible under section 71 of the Contracts Act 1950 for it was certainly not done gratuitously and that Galaxy D2 had definitely derived a benefit from the works done for which it had submitted its progress claim to Sanjia D4 and would expect to be paid. [94] When mistrust set in arising chiefly from D1 not opening a designated account for the Project to be operated by P1 and D1 or their representatives, the plaintiffs were reluctant to come up with more contributions when already suspicion had arisen on account of a lack of transparency of how the monies contributed were being utilised. [95] D1’s explanation on why a designated account was not opened was that the bank would not allow as P1 is not a director or employee of Galaxy D2 but there was no letter from the bank to that effect. Surely if that is the problem there would be ways to overcome it such as in making P1 an employee with D2 and being given some glorified consultant’s designation. 29 of 56 [96] The lack of trust degenerated into police reports being made by P2 for misappropriation of some funds by D1. Apparently D1 had represented to P1 that he needed a sum of RM331,783.57 to pay for the insurance and contractors ’all risk insurance policy. However, only a sum of RM235,748.54 was paid by way of a cheque dated 6.09.2016. D1’s explanation was that the initial quote was true but that later a discount was given by the insurer. [97] When there is room for mistrust to fester, a molehill can easily become a mountain and it would only take a spark to fan a conflagration! I can accept the proposition that there must be some degree of good faith and the duty of mutual trust and confidence in a joint venture of this nature and that it behooves D1 and D2 to at least have a management account prepared to engender confidence in the continuing enterprise. D1 could not produce the accounts at all and finally admitted that he had not prepared one. [98] D1 and D2 on the other hand were facing pressure from Sanjia D4 on the slow progress of the works. Matters came to a hilt and Galaxy D2 wrote a letter suggesting a possible solution to the impasse in its letter dated 2.11.2016 to P1 at pages 44-45 of CBOD 1. [99] The preamble to the letter with the caption of “Solutions for the Sovereign Bay Construction Project” speaks eloquently of the need to find a mutually satisfactory agreement to the problem that had arisen as follows: “The construction works in Johor Bahru is currently progressing slowly since you have been withholding the project funding for thirty days. Both of us 30 of 56 here have been deliberating on this issue and [have] yet to reach a mutually satisfactory agreement. Hence we write this letter to offer the following suggestions to you in order to settle this issue as soon as possible.

A new investor will be joining this project. Your investment amount will be returned in three tranches: payment for the first tranche of Malaysian Ringgit One Million Only (RM1,000,000.00) will be made upon signing of the contract, the second tranche of Malaysian Ringgit One Million Ringgit (RM1,000,000.00) upon receipt of the first disbursement of progress claim by our Company, lastly the third tranche if Malaysian Ringgit Nine Hundred Thousand Only (RM900,000.00) upon receipt of the second disbursement of progress claim by our Company......

For the construction works financed by yourself, our Company will settle the payments in advance to the suppliers of reinforcement bar, concrete and scaffold provided that the payment period allowed is up to five (5) months with the Developer’s guarantee and the total sum of advance does not exceed Malaysian Ringgit Ten Million Only (RM10,000,000.00 only).in addition, benefits to Mr Zhao Xiaaqiang shall be undertaken by your good self. Please make decision to confirm the above suggestions within two (2) days from the date of this letter. If you cause any further delay, you shall then bear the resulting responsibilities.” [100] Whilst there was no settlement reached but instead this suit was filed in April 2017, it does reflect D1 and D2’s acknowledgment of the fact that as at the date of the letter, P1 had contributed not less than RM2.9 million under the CCA and that there is another sum not exceeding RM10 million expended by P1 for construction works funded by him. 31 of 56 [101] The parties could not agree on the value of work done; the plaintiffs’ QS valued it at about RM6.3 million whereas D’4 QS valued it at RM2.2 million in the statement of final accounts. The Court, with the consent of learned counsel for the plaintiffs and the defendants, agreed to have a Court Expert Quantity Surveyor (“QS”) appointed to carry out a valuation of the works done and they further agreed to be bound by his decision. Parties could agree to the appointment of JUBM Sdn Bhd (“JUBM”) for this purpose and to equally share the costs of the expert’s fees and disbursements. This was duly minuted. [102] The Court gave directions as to the terms of reference of the Court expert under Order 40 of the Rules of Court 2012 (“ROC”). The expert appointed by the Court was to evaluate the works which had been completed by D2 at the time of the notice of termination of the contract between D2 and D4. JUBM in its report set out the terms of reference with respect to its scope of work as follows:

Producing an Independent Valuation Report;

Analysis and/or desktop studies if the two (2) separate Valuation Reports produced by the QS do the plaintiffs and of the defendants in particular of D4;

Issuance of query to request for clarification, details and information required for the Report;

Gathering and/or collating information, details and clarification; [103] The evaluation was carried out based on the priced Bill of Quantities and/or Schedule of Work incorporated in the Final Account between the parties; there being no dispute between the parties on these. 32 of 56 [104] I am satisfied that the Court expert QS in JUBM had engaged with the QS of the plaintiffs Messrs Total QS Services and the QS of D4 JQS International in their replies to the questionnaires issued by JUBM. [105] The Court-appointed expert in JUBM Sdn Bhd completed their valuation with documents furnished by the plaintiffs and the defendants and the works had been valued at RM4,716,667.60 as stated in its Supplemental Expert Report marked ER 2. In its detailed Expert Report marked ER1 and Supplemental Report ER 2, JUBM had dealt with each item that the 2 Quantity Surveyors could not agree and gave his reasons why he had agreed or disagreed with one or both of them. The Report ER 1 ran into some 780 pages together with Appendixes and relevant drawings and photographs setting out in detail his evaluation, assessment, verification and analysis. [106] The parties were allowed to cross-examine the Court-appointed expert as permitted under Order 40 rule 4 ROC. [107] Learned counsel for the plaintiffs cross-examined mainly on why certain items in the Variation Orders (“VOs”) were not allowed and the explanation given by the Court expert witness, CEW 1 Sr Syed Mahadzir Bin Syed Ahmad, was that the variation works’ had to be in writing from the architect in the form of Architect’s Instructions (“AI”) as required under the PAM Contract to which the contracting parties had referred as governing the Letter of Award in Clause 2.0. It reads as follows: “This Contract for Building works is a fixed price lump sum contract based on Drawings and Specifications. The Conditions of Contract shall be based on the Agreement and Conditions of Building Contract (Without Quantities) 33 of 56 Edition 2006, published by Pertubuhan Akitek Malaysia subject to amendments, amplifications and supplementary clauses as set out in the contract. (Refer to LA/App.B). [108] With regard to the VO recommended by the plaintiffs QS, where there were no AI records found, these works were excluded from the Court expert’s valuation report. [109] The defendants disputed mainly that the plywoods were worth RM946,778.29. However, there is no perverse error by the expert in their valuation and even the defendants’ witness in Mr Yeo Yong Huang, the Project Manager of D4 who is DW1, had confirmed that the materials at site including the plywood were used by the new contractor HuaXi. [110] As stated in the ER 1 and as explained by the Court expert witness, he had taken into consideration the response of D4’s QS JQS International that the timber and plywood were not recommended for payment due to it being formwork material which is not part of permanent works. However, JUBM was of the opinion that the value of the material and goods delivered to the site shall be recorded and form the basis of evaluation for works executed. It was also stated that this is in line with PAM 2006 Contract, Clause 25.5 (Determination of Employment by Employer) and Clause 26.5 (Determination of Own Employment by Contractor). The details of materials on site and the recommendation were tabulated in Appendix D page D/1 of ER 1. [111] Therefore the Court was prepared to accept and indeed the parties are bound, by the Court expert’s valuation on D2’s works. See the Court of Appeal case of Folin & Brothers Sdn Bhd (in liquidation) & 34 of 56 Ors v Folin Food Processing Sdn Bhd & Ors [2011] 6 MLJ 585 where an expert’s decision, whose appointment had been by consent of the parties, could only be challenged for fraud, collusion, partiality or lack of independence and here nothing coming near to these iniquities and infirmities had been shown. [112] D1 and D2 are not disputing that the works done as at date of termination of D2’s contract with D4 were done by the plaintiffs. I therefore ordered that judgment be entered for the plaintiffs against D2 for the said sum of RM4,716,667.60. [113] Again the same argument was raised that I could actually enter judgment against D4 under section 71 of the Contracts Acts 1950. I do not agree as where there is a clear contracting party that is liable and here it is D2, the Court should not have recourse to section 71 Contracts Act to make a non-contracting party liable. [114] The immediate party that receives a benefit is D2 and not D4. D2 is very much around and the Court should not circumvent the rule of privity of contract just because one contracting party may not have the means to satisfy a judgment. There are procedures in law with respect to garnishment and winding up where debts owing by a third party to a judgment debtor may be pursued further. [115] The evidence of D1, who now together with his wife, owns substantially D2, is that he believed D4 still owes D2 for the work done by D2 under the Letter of Award before the mutual termination. 35 of 56 [116] Then there is also a claim for loss of profit of RM24,503,941.85 which later at submission stage was reduced to RM16,335,961.20. This claim by the plaintiffs is as frivolous as it is fickle. Learned counsel for the plaintiffs explained that the reduction is because it should be just 2/3 of the estimated loss of profit of RM24,503,941.85 as D1 would be entitled to his 1/3 share as well. [117] The very explanation for the reduction underscores the speculative nature of this claim. When the substratum of the joint-venture fell through because of the termination of the construction contract, it was hardly 4 months into the contract. It is still too early to predict what would be the profit or loss that might result from the works done. Already 4 months into the contract and there was only the 2-storeys of semi-basement carparks completed for works valued at about RM4.7 million. This is to be contrasted against the contract sum of RM263,799,000.00 for a contract period of 30 months with an LAD of RM100,000.00 per day for each day of delay in completion. See clause 8.0 of the Letter of Award. [118] Apparently the loss of profit is calculated based on what a contractor can expect as his profit margin if he does a proper job on time as testified by the plaintiff’s QS Sr Yeo Ann Kiat PW3 of Total QS Services. He said that for projects of this nature, profit allowed by contractors for the builder’s work section of the contract is in the region of 10% to 15% of the value of the builder’s work. He had allowed 12% profit being the lower end of the average point at 10% to 15%. [119] He confessed that no one had done any empirical study that had been published in any authoritative reference books on the subject. 36 of 56 [120] I think each case must be assessed based on its own peculiar and particular facts and here we have a case where the employer D4 had been complaining about delays. There is evidence of mutual termination in the contract in the letter dated from D4 to D2 as shall be explored shortly. [121] The Court cannot conclude that mutual termination is unwise or detrimental to the joint-venture that the parties had entered into. In fact, looking at the footing that the parties had started off and the facts of the case, it would be more tending towards cutting one’s losses and preventing further bleeding of one’s investment rather than continuing full-steam in a hope against hope for the plaintiffs in as much as it is for D1 with D2 as well. [122] The fact that there is no payment until the semi-basement car parks and 5 levels of multi-storeys car park as provided in Clause 12.0

(dd) of the Letter of Award and 2 levels of connecting service floors as provided in the Supplemental Agreement, are constructed, would mean that the plaintiffs had to literally finance the Project at least with respect to some RM30 million worth of works based on the Court expert’s breakdown of the Project in items A.1 and 2 at page 11 of ER 1. Clause 12.0 (dd), strange as it may seem, reads: “You shall fully provide financial credit facilities for the project until the completion of the semi-basement and multi-levels car parks ....” [123] It takes both gumption and guts to take up such a grilling gamble with all its attendant risks. The projection and expectation of a 10% to 15% profit based on the building costs or construction costs is without 37 of 56 factoring in risks and this particular peculiarity of no payment from employer until the 9 levels are completed. [124] The prognosis, early as it may be in the day, was already quite cloudy and far from promising. The claim for loss of profit is premised on there being profits to share after recouping capital outlay and already there are a host of problems faced and the subject matter in the Project has now been awarded to HuaXi to complete the remaining works. [125] I would dismiss this claim of a loss of profit as been too speculative and in any event not proved. Whether there is evidence of conspiracy to injure or defraud the plaintiffs by all the defendants such that all the defendants should be made liable to the plaintiffs [126] Learned counsel for the plaintiffs argued that the defendants had all conspired to injure the plaintiffs. It was stated that D1 had started off by using a vehicle controlled by him which had no track record, to take up this massive project when he knew that he does not have the capital and financial resources for it. [127] To begin with there is nothing sinister in using a relatively new entity in a company bought off the shelf to begin a new project. If capital requirement as in having a minimum paid-up capital is important then the employer/owner would specify that to the main contractor before awarding a project to the new contractor. 38 of 56 [128] A CCM search of D2 done on 29.12.2016 and exhibited at pages 81-87 CBOD 1, showed the company to be “Dormant”. It was incorporated on 26.9.2011 and has a paid-up capital of RM1 million. The last filing was for financial year end 31.12.2014 with the accounts being table on 30.6.2015. It had current assets of RM344,617.00 and non-current liabilities of RM3,250.00 with a share capital then of RM350,000.00 and a negative reserve of RM8,633.00. [129] According to D1, D2 had a development project in Triang prior to this Sovereign Bay Project and it now has an arbitration with the employer for non-payment for works done. [130] Whilst its financial position is not promising at all, it is up to the developer in D4 to decide what is its comfort level before deciding to grant D2 the project. [131] According to D3, the chairman of D4, she was quite satisfied with the projects that D1 had undertaken before in Chengdu, China and that D1 had assured her that he had managed to secure some investors. [132] P1 himself was aware of the terms in the Letter of Award that there would be no payment made by the developer in Sanjia D4 until the completion of 2 levels of semi-basement car parks and 5 multi-levels of car parks. That explains why in the CCA P1 is to come with up at least RMB10 million. [133] D2 subsequently negotiated with D4 to waive the requirement of a 5% of the purchase price by way of a bank guarantee performance bond and in lieu thereof to allow D4 to deduct and retain 5% of the purchase 39 of 56 price from the progress claims. This was stated in a supplemental agreement between D2 and D4. On top of that there was a site entry security deposit of RM2 million which shall be returned to D2 at the expiry of 2 months from the site possession. [134] Having been aware and appraised of the fact that whoever does the works has to be literally funding the Project for the developer Sanjia D4, the plaintiffs cannot say that they were misled in anyway with respect to their financial commitment. [135] It is precisely because D1 does not have the financing that he had to seek out the plaintiffs and in particular P1. P1 as a business man would have done his risk assessment and calculation before summoning enough courage to take on the challenge. [136] The fact that D4 had not paid D2 yet for the works done up to the semi-basement carparks when the disputes arose between the plaintiffs and D1 and D2 was precisely because it was not due for payment yet. [137] At any rate after the matter had been filed in court in April 2017 the plaintiffs had obtained a Mareva Injunction to prevent D1 and D2 from dissipating its assets exceeding the amount claimed as well as preventing D3 and D4 from making payments to D2 for the works done until after the disposal of the suit. [138] The only payment made by D4 to D2 was a sum of RM200,000.00 after the termination of the contract to help D2 defray some wages to the workers. 40 of 56 [139] Therefore I do not think that the non-payment by D4 to D2 can be concluded to mean that the parties together with the personalities behind them i.e. D1 and D3 are conspiring to defraud the plaintiffs. [140] Even at the height of the crisis with a stalemate standing there was the proposal referred to earlier where D2 in its letter dated 22.11.2016 at pages 44-45 CBOD 1 was prepared to pay and to get the developer to guarantee the payment back to P1 of the acknowledged RMB3.2 million cash performance bond and a further payment of RM1 million upon completion of the works “as a reward.” [141] As regards the amount contributed by P1 it was proposed to be returned in 3 tranches of RM1 million upon signing of the contract with a new investor, another RM1 million upon receipt of the first disbursement of the progress claim and the last tranche of RM900,000.00 upon receipt of the second disbursement of progress claim by D2. [142] As regards the construction works financed by P1, D2 proposed to settle the payments in advance to the suppliers of reinforcement bar, concrete and scaffold provided that the payment period allowed is up to five (5) months with the Developer’s guarantee and the total sum of advance does not exceed Malaysian Ringgit Ten Million (RM10,000,000.00) only. [143] The plaintiffs did not accept the offer perhaps thinking that they could get much more by suing. The reasons P1 gave was that he did not think D1 or D2 would have the money to pay him and P2 and moreover he had lost all trust in D1. It is then a case of choosing a joint venture partner that turned out to be the wrong one. 41 of 56 [144] Whilst P1 is entitled to come to that conclusion that is no justification to say that D3 and D4 are also liable. There was nothing done or said by D3 and D4 that had induced the plaintiffs to enter into a joint-venture with D1 and D2. From the unfolding of events D3 and with that D4 did not know of the plaintiffs and in particular P1 until the time when P1 was asked by D2 to help with the cash performance bond of RMB3.2 million. [145] For all intents and purposes the Sovereign Bay Project is a genuine project and after the termination of D2, D4 appointed HuaXi to replace D2 and was continuing to completion when the trial ended in November 2019. As far as D4 is concerned, if its main contractor is not performing then there shall be termination of the main contractor and a new contractor be appointed. As for cash flow it did not have to pay D2 until the 7 levels of car parks are completed together with the 2 levels of transfer beam making 9 floors altogether. This is not a case where D2 surreptitiously continued on with the Project through HuaXi and the plaintiffs had not suggested that, much less led any evidence on that. [146] As for why D4 is not returning to D2 the RMB 3.2 million cash performance bond, that would very much depend on the terms of the mutual termination as there were allegations of late progress in the works and prima facie there seems to be some evidence pointing towards that in the letter prior to the first termination and subsequent mutual termination. [147] As the terminations were said by the plaintiffs to be a charade, it contents and sequence shall now be examined. 42 of 56 [148] First there was a letter dated 9.11.2016 (pages 48-49 CBOD 1) from Sanjia D4 to Galaxy D2 stating that the progress of the construction works had been slow and it gave 14 days to Galaxy to complete the following:

complete all the structure of Lower Ground 2,

complete the columns from Lower Ground 2 to Lower Ground 1 for Tower B1, Tower B2 and Tower B3,

complete the Lower Ground 1 Floor Slab for Tower B1 and Tower B2. [149] It went on to state that if the above was not complied with, Sanjia D4 would be terminating Galaxy. It was done quite openly as the said letter was carbon copied to the architect, engineer, QS and the consultants of the Project. [150] Three days later on 11.11.2016 (pages 50-51 CBOD 1), Sanjia once again wrote through its Project Manager Mr Yeo Yong Huang DW 1, another letter to Galaxy stating inter alia, as follows:

There was no improvement to the works at the site;

D1 had on 9.11.2016, during the meeting signed the minutes of meeting and agreed to withdraw from the Site and terminate the LOA if works did not improve;

With this, Sanjia, hereby terminated Galaxy with immediate effect. 43 of 56 [151] Yeo DW 1 also gave evidence that what was stated in the 9.11.2016 letter was unrealistic to be carried out. It was merely sent as a threat. This too was agreed by Ar Thomas Tiang, the Project’s Architect. [152] Learned counsel for the plaintiffs described as “strange” that even with the letter dated 11.11.2016 terminating Galaxy, Sanjia on 14.11.2016 issued two (2) letters to Galaxy, informing them of the slow progress of works and had asked Galaxy to speed up. [153] The first was a letter dated 14.11.2016 again issued by Mr Yeo specifically referring to the non-receipt of method statement for Anti-Termite and also the non-acceptance of casting of lean concrete after a rain shower. Again it was carbon copied to all the other professionals involved in the Project. [154] Then there was a second letter dated also on 14.11.2016 issued by the same Mr Yeo to Galaxy this time highlighting the fact that since its letter of 9.11.2016 it was disappointed to observe that on 12.11.2016 and 13.11.2016 there was no sign of efforts being shown by Galaxy to catch up with its being behind schedule by increasing manpower, machinery at site and working extra hours throughout the weekend. D4 also urged D2 by that letter to engage extra work forces and resources to accelerate the work at the site and in order to avoid further delay and damage to D4 and reminding D2 that it shall be fully responsible for any losses and expenses if it should fail to catch up with the progress at the site. [155] These 2 letters of 14.11.2016 would lend credence to the explanation given by Mr Yeo that the termination by D4’s letter of 11.11.2016 was more a threat to terminate and that it had been 44 of 56 superseded by the subsequent letters of 14.11.2016. I would attribute it to a lack of experience in managing projects and that Mr Yeo should just leave it to the Architect to issue a proper Notice to Rectify Breach and a subsequent Notice to Terminate to avoid allegations of wrongful termination by D2. [156] Nothing was done surreptitiously as the letters were all carbon copied to all those who should be kept in the loop like the architects, engineers, QS and consultants. [157] On 15.11.2016 Galaxy wrote to Sanjia (pages 187-189 CBOD 2) to state that there was late site possession given by Sanjia which Galaxy claimed to be given only on 23.9.2016. In the trial the court was referred to a letter by the piling contractor handing over possession of the site back to Sanjia after completion of the piling on 23.9.2016. Galaxy also referred to its encountering 2 deviated columns which caused the delay in carrying out the works. [158] P1 asked to liaise with D4 directly on the delay perceived by D4 and was finally allowed to do so by a letter dated 15.11.2016 from D1 to P1 authorising P1 to approach Sanjia D4 to negotiate and settle all outstanding issues. [159] At the meeting on 16.11.2016 P1 met with D3, Mr Yeo and Mr Wong See Poh the General Manager of D4 at D4’s office. At that meeting there was the suggestion raised that P1 should continue with the works single-handedly but nothing materialised in terms of a concluded agreement. 45 of 56 [160] The fact that there was a second termination letter dated 22.11.2016 (pages 65-74 CBOD 1) and a rather long one at that setting out in details all the various grounds relied on for termination under Clause 25.0 of the PAM 2006 Contract would mean that impliedly the first letter of termination had been withdrawn. [161] More importantly this second termination letter was in response to the purported “Determination of Own Employment by Contractor” by Galaxy bearing reference number GCB/UE/LETTER/012 which Sanjia said was invalid. [162] This letter of termination dealt with the following issues:

Late Hand Over of Site Possession D4 took the stand that D2 had agreed to accept partial hand over of Tower B and Tower A on 15.7.2016 and 30.7.2016 respectively and that it had been minuted in site minutes of meeting no. 1 on 30.6.2016.

Works Obstructed by Others D4 took the view that the problem was caused by D2’s failure to engaged a registered licensed surveyor as required under the Letter of Award and to so site verification and assessment prior to work commencement.

Site Activities With respect to the deviated column D4 said that its Structural Engineer and Architect had agreed and accepted on the deviation and that it Is within the tolerance allowed. 46 of 56 [163] D4 further reiterated that the construction works is extremely slow in progress and that D2 had not kept up with the speed of construction of the building and that it is exercising its right to terminate the contract as an Employer for the failure of D2 to:

provide the method statement for all construction works as required under clause 5(f) of the Letter of Award;

obtain approval of all proposed site layout plan and traffic flow layout plan;

remedy the delay in the works programme;

submit works programme within 2 weeks of receipt of Letter of Award;

recommence work after having suspended works in spite of D’s letter of 21.10.2016;

remedy delay of 115 days behind schedule in spite of D4’s letter of 27.10.2016;

resolve the problem of site idling and work suspended referred to in D4’s letter of 11.11.2016. [164] The said letter of termination ended with this, in less than perfect English, being a translation from the Chinese version: “From all the above mentioned, it clearly stated that your company is fail (sic) to perform the works diligently and regularly. We would like to exercise 47 of 56 our right to terminate this contract as per PAM 2006 Clause 25.0 “Determination of Contractor’s Employment by Employer.” [165] The said letter of termination was carbon copied to all the related professionals of the Project. [166] This was followed by a letter of termination from the Architect dated 30.11.2016 (page 75 CBOD 1) to D2 which reads: “We are regret (sic) to inform you that the contract between GCB and UE E&C Sanjia (M) Sdn Bhd shall be terminated based on PAM Contract 2006, clause 25 “Determination of Contractor’s Employment by Employer.” [167] By a letter dated 5.12.2016 D2 referred to a meeting on 21.11.2016 at 3 pm and wrote to mutually terminate the Letter of Award with D4. See pages 191-192 CBOD 2. [168] On 9.12.2016 D4 replied to confirm the mutual termination. See page 76 CBOD 1. It referred to D2’s letter of 5.12.2016 as well as the Architect’s letter of 30.11.2016. As the Architect’s letter was written in the future tense “shall be terminated” there was room to discuss further and it is always a better way for the parties in dispute to mutually resolve the dispute and in this case, to mutually terminate the Letter of Award. [169] There is no need to read anything sinister or be suspicious of this letter accepting the mutual termination for it came with conditions to be fulfilled which D4 was looking to D2 to comply as follows: “We urge you to complete the work done for LG 2 slab as soon as possible and demobilise all your plants and equipment including your sub-contractor, 48 of 56 general workers and site staff by 26th December 2016 so that we can proceed with the site valuation between your good self and our Quantity Surveyor.” [170] There was a genuine intention as can be discerned from the exchange of correspondence that as between D2 and D4, they were trying to close a chapter and move on with their respective lives; D4 with its commitments to purchasers to complete the units on time. [171] Learned counsel for the plaintiffs said that had the mutual termination been genuine and real, then there would not have been a need for another letter from Sanjia to Galaxy dated 7.2.2017 whereby Sanjia once again terminated Galaxy. See page 156 DBOD 5. [172] I can accept what learned counsel for the plaintiffs said in his submission that the terms of the mutual termination were not met. Like all contracts even that of a mutual agreement to terminate, there would be conditions attached and if those conditions are not met then the parties are at liberty to sue each other. That by itself does not mean that there was no mutual termination to begin with but rather that the terms of the mutual termination were not complied with by one of the parties. [173] As to whether a mutual termination would be more beneficial for both D2 and D4 and with that D1 and D3 as their principal mover, we must proceed from the premise that given human nature for what it is, no one would want to prejudice his rights and interests if a mutual termination is going to result in that. There is nothing wrong or improper for parties to attempt to settle their differences amicably especially in an uncompleted construction project where uncertainty can be debilitating and depleting 49 of 56 especially when as an employer one wants to focus on completing the project and as a contractor one does not want to expose oneself to a colossal claim of LAD and additional costs of the employer to complete the project. [174] D2’s liability to the plaintiffs remain in as much as anything not fully resolved between D2 and D4 would have to be sorted out through negotiations or litigation including the issue of the cash performance bond of RMB3.2 million (RM2 million). [175] P1 said he only came to know of the mutual termination of the employment of D2 after the event but then it is for the directors of D2 to decide what is in the best interest of the company and granted P1’s interest in the joint-venture would be affected, it is for P1 and the plaintiffs as a whole to sue based in the CCA or under section 71 of the Contracts Act 1950 if they satisfy the requirements there. [176] Whatever it is the law is fair in that no one should be unjustly enriched at the expense of another. [177] P1 also tried to introduce a letter written to him by a previous director of D2 one Mr Du Yin Chuan DW5 where Du apologised for him and informed him that he (P1) had been cheated in the Project. I can accept the evidence of Du in the police report that he had made at page 74 DBOD 5 lodged some 12 days after he wrote the letter that he had been threatened by P1 who said he would call four Chinese men to beat him up if he does not cooperate by writing the letter. 50 of 56 [178] Lodging a false police report is an offence and so is criminal intimidation. P1 did not lodge any police report upon coming to know of the allegation of criminal intimidation against him. [179] At any rate to prove the tort of conspiring to injure, P1 would have to do better than rely on a letter from a previous director of D2 who had explained that the letter was written under threat and duress. [180] Learned counsel referred to the Court of Appeal case of MGG Pillai v Tan Sri Dato Vincent Tan Chee Yioun & Other Appeals, [1995] 2 MLJ 493, where it was observed as follows: “...Conspiracy is a tort that is not always capable of proof by direct evidence. Like so many other facts, an agreement to do an unlawful act or a lawful act by unlawful means may be established by evidence of circumstances from which such an agreement may be inferred: Barindra Kumar Ghose & Ors v The Emperor (1909) 14 CWN 1114. It is axiomatic that there must be proof and not mere conjecture. In the present case there was sufficient evidence from which a conspiracy could be properly inferred. The learned judge was therefore right in drawing the inferences he did. In this state of affairs, it is not surprising that the ground of appeal directed upon this point was not pursued.” [181] He also referred to the dicta of the Court of Appeal in the case of SCK Group Bhd & Anor v Sunny Liew Siew Pang & Anor [2011] 4 MLJ 393 where it was said as follows: “[14] The tort of conspiracy is not constituted by the conspiratorial agreement alone. For conspiracy to take place, there must also be an unlawful object, or, if not in itself unlawful, it must be brought about by unlawful means: see Davies v Thomasper Warrington LJ, and Seah Siang 51 of 56 Mong v Ong Ban Chai & Another Case [1998] 1 CLJ Supp 295 (HC) per Ghazali J (now FCJ). There must be a co-existence of an agreement with an overt act causing damage to the plaintiffs. Hence, this tort is complete only if the agreement is carried into effect, thereby causing damage to the plaintiffs. In order to succeed in a claim based on the tort of conspiracy, the plaintiffs must establish:

an agreement between two or more persons;

for the purpose of injuring the plaintiff; and

acts done in the execution of that agreement resulted in damage to the plaintiff: Marrinan v Vibart [1962] 1 All ER 869 at p 871 per Salmon J; and Halsbury’s Laws of England (4th Ed) Vol 45 at p 271, as applied by Ghazali J (now FCJ) in Seah Siang Mong.” [182] The above tests and caution are no doubt valid and the Court must weigh and consider the factual matrix of each case carefully for while there is nothing new under the sun, there are always differences in the web of deceptive designs that those bent on injuring others would pursue clandestinely to avoid being caught. [183] I am however satisfied that in the present case, the overall evidence of mutual termination, the non-payment of the plaintiffs and the circumstances of the case taken as a whole do not add up to proving on a balance of probabilities a conspiracy to injure the plaintiffs by the defendants. [184] The plaintiffs’ claim against D1, D3 and D4 must stand dismissed. 52 of 56 Whether D1 and D2 had proved their counterclaim against the plaintiffs [185] Even though neither D1 nor D2 had filed any appeal on the dismissal of their counterclaim, yet for completeness I shall deal very briefly with it below. [186] To recapitulate D1 and D2 are counterclaiming for the following:

expenses incurred with respect to pre-contract costs of RM340,812.00;

expenses during the period of construction of June 2016 to 30.1.2017 being operating costs of RM521,102.40;

Loss of profit in the management construction fee of 2% as agency fee of 1.5% amounting to 3.5% of RM263,700,000.00 of RM9,229,500.00;

Loss of RMB 2,994,600.00 arising of cancellation of contract with an Elevator supplier;

Loss of reputation of D1 and D2 of RM1,250,000.00. [187] They had not proved how the sum of RM340,812.00 was incurred and D1 had himself admitted that he had not needed to put any money into the Project. 53 of 56 [188] In any event there is no provision in the CCA for claiming for this pre-contract costs. It at all it was incurred it is part of the costs of doing business and securing the contract which they might want to take into account when dividing the profits for distribution after deducting all costs incurred. [189] Again it had not been proved how D1 and D2 had incurred the operating costs of RM521,102.40 June 2016 to 30.1.2017. If at all it had been incurred it is derived from D2’s contribution into the project which losses had to rest where it lies in as much as whatever that the plaintiffs had contributed into the costs of construction is all sunken costs in the joint-venture with the only recoverability being confined to the value of work done by the plaintiffs as assessed and verified by the Court expert. [190] With respect to D1 and D2’s claim for the loss of profit in the management construction fee of 2% and agency fee of 1.5% amounting to 3.5% of RM263,700,000.00 of RM9,229,500.00, again they are too speculative and spurious at the stage of termination and they must be deemed to have absorbed this after having weighed and considered the merits and demerits of a mutual settlement without consulting or getting the consent of the plaintiffs. [191] The so-called loss of RMB 2,994,600.00 arising of cancellation of contract with an Elevator supplier had not been proved and any gain should in any event go to the company D4 and the balance profit shared out in accordance to the respective parties’ share in the joint-venture project. 54 of 56 [192] The claim for loss of reputation is not sustainable in a case that is fought on the basis of a breach of contract. Long time ago in the Federal Court’s case of Fung Keong Rubber Manufacturing (M) Sdn Bhd v Lee Eng Kiat & Ors [1981] 1 MLJ 238 it was held as follows: “In the case of a claim for wrongful dismissal, a workman may bring an action for damages at common law. This is the usual remedy for breach of contract, e.g., a summary dismissal where the workman has not committed misconduct. The rewards, however, are rather meagre because in practice the damages are limited to the pay which would have been earned by the workman had the proper period of notice been given. He may even get less than the wages for the period of notice if it can be proved that he could obtain similar job immediately or during the notice period with some other employer. He cannot sue for wounded feelings or loss of reputation caused by a summary dismissal, where for instance he was dismissed on a groundless charge of dishonesty.” (emphasis added) [193] Whilst that was spoken of in the context of an employment contract, it applies equally well to a joint-venture contract. The proper place to claim for a loss of reputation is in the tort of defamation if D1 and D2 are serious in pursuing. Little wonder that there is hardly any written submission on this head of claim. [194] Finally for all the above heads of counterclaim, D1 and D2 had not shown how contractually speaking they are causatively linked to the plaintiffs’ breach of the CCA. [195] I need not labour further as D1 and D2 had not appealed against the dismissal of their counterclaim. 55 of 56 Pronouncement [196] The above sums of RM2 million for which I had ordered judgment to be entered in favour of P1 against D2 and the further sum of RM4,716,667.60 in favour of the plaintiffs against D2 shall both carry interest at 4% per annum from date of the Statement of Claim to realisation. [197] As for costs, since the plaintiffs’ claims had failed against D1, D3 and D4 but succeeded against D2, I exercise my discretion and make the parties bear their own costs. [198] There was a mareva injunction previously granted to restrain D1 and D2 from dissipating their assets and D3 and D4 from making any payments to D1 and/or D2 until the disposal of this suit. I had extended the said injunction for another 14 days from the date of the judgment and the plaintiffs were at liberty to apply for a post-judgment mareva if they were able to satisfy the Judge hearing the application of the need for such an injunction. Dated: 31 March 2020. Sgd. LEE SWEE SENG Judge Construction Court High Court in Malaya Kuala Lumpur 56 of 56 For the plaintiffs : Ling Hua Keong and Audrey P. Y. Chong (Messrs Ling & Mok) For the defendants : Gary Wong Kok Yih and Siti Zubaidah Binti Jemadi (Messrs Farid, Wong & Wee) Date of Decision: 8 November 2019.