Bauer (Malaysia) Sdn Bhd v 1. ) Hundred Vision Construction Sdn Bhd (WA-22C-38-03/2017)

HUNDRED VISION CONSTRUCTION SDN BHD

BAKTI DINAMIK SDN BHD (COMPANY NO.: 474977-D) …DEFENDANTS THE JUDGMENT OF Y.A. LEE SWEE SENG [1] The exact nature of the contractual relationship between an employer and a nominated subcontractor (“NSC”) is often more than meets the eyes. Various mechanisms have been explored by an NSC to ensure, if not, secure payments for work contractually done for its main 2 of 57 contractor including some direct payment arrangements where the employer would pay directly to the NSC. [2] When that is not done and the NSC discovered that the main contractor had nevertheless been paid or had gone into liquidation, it is natural for the NSC to explore making a claim against the employer as it happened here. The NSC staged its claim under breach of representations and warranties given by the employer to it and even under a collateral contract to pay. Alternatively, it tried to claim under quantum meruit under section 71 Contracts Act 1950. [3] The employer in turn counterclaimed against the NSC for damages arising out of the damage done to an adjacent building and to delay occasioned by the NSC arising out of what it said is the NSC’s negligence. That raises an interesting question as to whether an NSC owes a duty of care in tort to the employer when all three parties had worked out their risks in providing for their respective rights and obligations under their separate contracts with each other down the chain of construction, and in this case under a standard form PAM Contract with some modifications. Parties and Project [4] The plaintiff had earlier on 6.6.2017 taken a judgment in default against the 1st defendant (“D1”) for the same claim which is the subject-matter of the trial between the plaintiff and the 2nd defendant (“D2”), Bakti Dinamik Sdn Bhd. 3 of 57 [5] The plaintiff is an NSC of D1. D1 in turn had been appointed by D2 as its main contractor for the substructure and superstructure works under a Main Contract with respect to a high-end service suites called Tribeca along Jalan Imbi in Kuala Lumpur. D1 is the owner-cum-developer of the Project. [6] The plaintiff is a substructure works specialist and it was appointed by D1 to do the substructure works as an NSC for a contract sum of about RM30 million. D1 had earlier been appointed by D2 for the same substructure works about RM50 million. Problems [7] Along the way in the execution of the works, an adjacent building to the works, owned by Wagner Piano Sdn Bhd (“Wagner Piano Building”), suffered damage, flooding and settlement such that Wagner Piano had to move out. It then commenced on 28.11.2014 an action in negligence against D2 as the first defendant and D1 as the 2nd defendant and the plaintiff as the 3rd defendant there (“the Wagner Piano Suit”). [8] The Wagner Piano Suit was settled around March/April 2015 by the 2nd defendant there who is also D2 here. D2 made a commercial decision on settlement as it could not suffer the risk of a possible injunction to stop work which Wagner Piano intended to apply for and the effect that would have on existing as well as prospective purchasers. [9] The plaintiff did not want to participate in the settlement as it took the view that it was not negligent and indeed the defence filed by D2 there was that the plaintiff here had complied with all the standard and approved 4 of 57 practice and had taken the necessary diligence in executing the substructure works. [10] The plaintiff was not paid for Interim Certificates 16 and 17 amounting to RM1,809,747.85 and RM907,654.19 making a total of RM2,717,402.04. [11] The plaintiff had obtained an adjudication decision in its favour on 15.9.2016 for these 2 certificates as well as its claim for variation works and loss and expense for a total of about RM4.2 million. [12] The plaintiff however was shocked to later learn that D1 had been struck out by the Companies Commission of Malaysia (“CCM”) on 28.5.2017. Prior to that the plaintiff had made a CCM search and discovered then that D1 was in the process of being struck out. [13] Of course the plaintiff would have cause for concern and it should have alerted the CCM as to this project pending as well as the fact that it has not been paid by D1; not to mention an adjudication decision against D1. The plaintiff did not take any action to ask for D1 to be reinstated even though there were pending claims, at least from the plaintiff with respect to the works. It is even more incumbent on them to do so when evidence appears to be that D2 had fully paid D1 for the contract sum for the substructure works. [14] As can be seen the difference in terms of profit margin is some RM20 million. 5 of 57 [15] The plaintiff is not without their remedy as it could still pursue this line of recovery from its immediate contracting party D1 here. It has first to apply for D1 to be reinstated into the register and the application has to be made within seven years from the date D1 was struck off as provided for under section 551(1) Companies Act 2016. Pleadings [16] However the plaintiff had also chosen to sue D2 on the ground of representation and warranty given as well as under a collateral contract that D2 had agreed to pay the plaintiff direct; all made and given during the negotiations that led to the finalisation of the Letter of Award issued by D1 to the plaintiff. [17] D2’s defence is that Clause 7.5 of the Letter of Award between the plaintiff and D1 spelt out clearly that any direct payment from D2 to the plaintiff does not create a privity of contract between the plaintiff and D2. [18] Furthermore there were various other emails between the plaintiff and D1 where this was again asserted and stated. [19] Moreover all payments except the last one on Interim Certificate 15 had hitherto been from D2 to D1 and then D1 would make payment to the plaintiff. [20] D2 took the stand that there being no privity of contract between the plaintiff and D2 and furthermore D2 had paid all Certificates of Payment to D1, it would be unfair and unjust for D2 now to have to pay 6 of 57 the plaintiff again, insisting always that there was never any independent contractual obligation for it to pay the plaintiff. [21] It nevertheless asserted that where its counterclaim was concerned it had a cause of action against the plaintiff as an NSC and that the plaintiff owes it a duty of care and that the breach consisted of the plaintiff executing its works after making changes to the design of the secant piles and thus assuming responsibilities for the changes and without taking the necessary precaution to ensure that no damage was caused to the Wagner Piano Building. [22] The plaintiff vehemently and vigorously denied that it owes D2 any duty of care and that D2 ought to have withheld the balance payments in Interim Certificates 16 and 17 for by then it had already known of Wagner Piano’s claim for negligence and in fact settled on an ex-gratia basis with Wagner Piano without the consent of the plaintiff. The plaintiff argued that any claim for negligence should be directed at D1 whom D2 said had received full payment under the main contract between D1 and D2. Prayers [23] In summary the scope and scale of the parties’ claims against each other are as follows: [24] The plaintiff claimed in the sum of RM4,224,024.07 against D2 as follows: 7 of 57

Certified claim in the sum of RM2,717,402.04 (Interim Certificates No. 16 and 17).

Variation works in the sum of RM561,046.10.

Loss and expense in the sum of RM915,575.93.

Measured works in the sum of RM30,000.00. [25] The heads of claims of D2 against the plaintiff amounting to RM4,856,057.56 are as follows:

RM350,000.00 ex-gratia settlement sum with Wagner Piano.

RM152,966.07 – renovation works for Wagner Piano.

RM468,394.92 – rental from July 2015-June 2016 by Wagner Piano.

RM55,838.17 – transportation.

RM245,260.20 – Advertisement for new premises.

RM2,162,098.20 – Costs to restore original premises of Wagner Piano.

RM30,000.00 – repair works done to Wisma Murni.

RM161,500.00 – legal costs.

RM1.23 million – LAD to purchasers as a guide to assess damages for delay caused by the plaintiff. 8 of 57 Principles Whether there is an independent obligation under an oral representation and or warranty given by D2 to pay the plaintiff for work done or under an oral collateral contract [26] Learned counsel for the plaintiff said that one must look at the exchange of documents, emails and generally the correspondence between the parties to ascertain what was foremost on the plaintiff’s mind and especially the foreboding that it might not be paid considering that D1 does not appear to have any track record and was only incorporated in January 2012. From the CCM search results the description of the business of D1 does not engender confidence that comes from being experienced contractors. [27] The plaintiff highlighted that initially there were direct negotiations between the plaintiff and D2 with the intention to be awarded the contract for the substructure works directly. Later D2 had a change of plans and informed the plaintiff that D2 will enter into a main contract with D1 and D1 will appoint the plaintiff as its NSC. [28] The main contract between the defendants was entered into on 26.4.2013. According to the plaintiff based on the interim valuation documents the value of the superstructure works which was intended to be undertaken by D1 was RM155,953,340.00 and a separate amount of RM48,382,270.00 was payable to D1 for the substructure works. [29] Simple math tells the plaintiff that there is some RM20 million more than the amount payable to the plaintiff for these same works which was agreed at RM29,976,300.00. Learned counsel for the plaintiff 9 of 57 submitted that the above arrangement lends credence to his argument that there exists a relationship between D1 and D2 that goes beyond that which the defendants are prepared to admit. [30] When it came to the negotiations on the terms of the contract between the plaintiff and D1, it was D2 that took the lead apparently on behalf of D1 through D2’s Consultant Quantity Surveyor (“QS”) PKT and that D1 did not surface at all until the Letter of Award was finalised and issued on 26.8.2013. [31] That apparently is nothing unusual in the construction industry as attested to by the Federal Court in Seloga Jaya Sdn Bhd v UEM Genisys Sdn Bhd [2010] 3 MLJ 721 in the following observation: “[20] It is our view that deliberation of this appeal requires us to understand the peculiarities of the building industry concerning nominated subcontractors, their appointment, their roles and legal implications. It is not uncommon for an owner or employer, aside from having appointed a contractor (whom we shall refer to as the main contractor) for a building project, to nominate a subcontractor for the same project in order to carry out certain specific work or works which require certain specialised skill or technique or who possesses a certain type of plant adapted for a certain kind of work in the project. It is also not unusual, like in this instant case, for the consultant to inform the main contractor of such nomination. As the price for such subcontracted job has not been included in the main contract but will be adjusted with such nomination, the main contractor normally would not object to the appointment imposed upon him. The reasons why an employer would prefer this approach rather than leaving it to the main contractor to select his subcontractor for the same kind of job are firstly, to give the employer a greater flexibility to select the person he prefers; secondly, to allow the employer to negotiate directly with the 10 of 57 subcontractor for the price and terms while at the same time avoids the multiplicity of any direct contract with the subcontractor; thirdly, by the subcontractor coming under the wings of the main contractor would allow the main contractor to coordinate the different types of work to be carried out in the project.” (emphasis added) [32] On 20.6.2013 the Consultant QS emailed the plaintiff attaching a draft Letter of Award and a corporate guarantee for the plaintiff to comment on. The following clauses 1 and 2 of the draft corporate guarantee to be given by D2 reads as follows: “1. Guarantee to pay all outstanding sums due and payable under the Contract by HVC to you which are hereafter be owing to you by reason on the part of HVC to pay such outstanding sums.

This Guarantee shall be a continuing guarantee to you (within the limits aforesaid) for the debt due and owing by HVC to you in respect of the aforesaid payments under the contract.” [33] However the plaintiff and D2 could not agree on the clauses in the corporate guarantee and the Letter of Award. [34] I agree that based on the exchange of emails between the plaintiff and D2 and or its consultant QS, D1 did not appear to be in the loop of the negotiations. [35] The various rounds of meetings and emails correspondence finally culminated with the Consultant QS emailing the plaintiff on 20.8.2013 as follows: 11 of 57 “In view of the corporate warranty issue, on behalf of our client, we would like to incorporate the below amended LOA’s clause 7.4 in lieu of the corporate warranty for your agreement.

7.4 Notwithstanding the conditions of the subcontract, Bakti Dinamik Sdn Bhd (hereinafter referred to as the Employer), Hundred Vision Sdn Bhd (hereafter referred to as the Main Contractor) and Bauer Sdn Bhd (hereinafter referred to as the Nominated Sub Contractor) have agreed that the payment cheques shall be made in the name of the Nominated Subcontractor and shall be made payable to them through the Main Contractor within the Period of Honouring Certificate of Payment of thirty seven (37) dates from the date of the Certificate issued by the Architect.” [36] I can accept the plaintiff’s submission that it was D2 that proposed the inclusion of what ultimately becomes Clause 7.5 in the Letter of Award of 26.8.2013 and that it was to replace the corporate guarantee or warranty that D2 was not prepared to give to the plaintiff. [37] However it was the plaintiff via its email of 23.8.2013 that put the following finishing touch to Clause 7.5 of the Letter of Award at pages 73- 80 PBOD 1 by suggesting to be inserted the words in bold as follows: “Notwithstanding the conditions of the Sub-Contract, Bakti Dinamik Sdn Bhd (hereinafter referred to as the Employer), Hundred Vision Sdn Bhd (hereinafter referred to as the Contractor) and Bauer Sdn Bhd (hereinafter referred to as the Sub Contractor) agree that all payments to be made by the Contractor to the Sub-Contractor in accordance with the Sub Contract shall instead be made directly by the Employer to the Sub-Contractor for and on behalf of the Contractor within the Period of Honouring of Certificate of Payment. All direct payments made under this provision shall not 12 of 57 create a privity of contract between the Employer and the Sub-Contractor.” (emphasis added) [38] This was agreed by D2 and D1 issued to the plaintiff this final version of the Letter of Award dated 26.8.2013. [39] It was also agreed by the parties that the PAM Form Contract 2006 would govern the terms and conditions of the subcontract between D1 and the plaintiff though not formally executed. [40] As it was the plaintiff at whose behest the expression “shall not create a privity of contract between the Employer and the Subcontractor” was inserted and accepted in the Letter of Award between the plaintiff and D1, the plaintiff must be deemed to know what this legal term “privity of contract” and its absence mean. It was the plaintiff that unreservedly renounced and rejected any idea or implication of a privity of contract having being created by the above arrangement in Clause 7.5. [41] The term “privity of contract” in law has come to attain a universally consistent meaning in the law of contract. It expresses the concept that only parties who are privy to the contract may sue and be sued by each other. Parties not privy as in not a party to a contract cannot sue under the contract even though it might suffer a wrong or a grievance under the contract. The rights given in the contract would entitle one to sue the defaulting party in the contract and likewise the liability arising under the contract would expose one to being sued. No one but the parties to a contract can be bound by it or entitled under it. See the Court of Appeal’s decisions in Boustead Naval Shipyard Sdn Bhd v Dynaforce Corp Sdn Bhd [2015] 1 MLJ 284; [2014] 5 CLJ 533; and 13 of 57 Tsang Yee Kwan v Majlis Perbandaran Batu Pahat [2011] 8 CLJ 913 and the Privy Council’s case of Kepong Prospecting Ltd & Ors v Schmidt [1968] 1 MLJ 170. [42] Thus for the purpose of Clause 7.5 of the Letter of Award between the contracting parties i.e. the plaintiff and D1, as D2 is not a party to the Letter of Award, any failure to comply with the direct payment arrangement would expose D1 to being sued by the plaintiff for breach of contract. [43] For Clause 7.5 to operate there must first of all be payment due from D1 to the plaintiff and then D2 would pay on behalf of D1 direct to the plaintiff the amount that is so owing. [44] If for some reasons D1 said that it has a valid set-off against the works executed by the plaintiff either negligently or delayed then D2 is not obliged to pay the plaintiff for the simple reason that whatever that D2 pays the plaintiff is on behalf of D1 and would be a debt owing by D1 to D2 to be contra-ed in the running account between D1 and D2. [45] The plaintiff cannot sue D2 as it is expressly declared and clarified by way of removal of all doubts that the direct payment arrangement does not create a privity of contract between D2 as the Employer and the plaintiff as the Subcontractor. [46] Learned counsel for the plaintiff submitted strenuously that the very fact of D2 actively participating in the negotiations on the terms of the Letter of Award and finally agreeing to Clause 7.5 thereof would create in law a collateral contract running side by side the Letter of Award 14 of 57 consisting of the representation and warranty that D2 would make all payments due from D1 to the plaintiff direct to the plaintiff on behalf of D1. [47] The concept of collateral contract is such that generally its terms cannot run counter or contrary to the underlying contract for otherwise it would offend the exclusion of parol evidence rule to vary, add or contradict the written terms of a contract. [48] Hence in the Court of Appeal case of Seven Seas Industries Sdn Bhd v Philips Electronics Supplies (M) Sdn Bhd & Anor [2008] 5 MLJ 157, it was highlighted as follows: “The doctrine of collateral contract or agreement is recognised in this country by virtue of proviso (b) to s 92 of the Evidence Act 1950 which allowed to be admitted in evidence any separate oral agreement as to any matter on which a document is silent and which is not inconsistent with its terms. Unless the additional evidence sought to be introduced falls within the scope of any of the provisos, it should not be allowed to be introduced as it would be to contradict, vary, add or subtract from the terms of the agreement (per Chang Min Tat FJ in Tindok Besar Estate Sdn Bhd v Tinjar Co [1979] 2 MLJ 229 at p 233). Such collateral contract must be viewed strictly (see Heilbut, Symons & Co v Buckleton [1913] AC 30). No agreement would be safe from being re-written by one party in court of law if parole evidence which do not fall within the proviso of s 92 of the Evidence Act is admitted in evidence (see Tindok Besar Estate Sdn Bhd).” (emphasis added) [49] Perhaps the plaintiff had been inspired by the leading case on collateral contracts in Malaysia in the Federal Court’s case of Tan Swee Hoe Co Ltd v Ali Hussain Bros [1980] 2 MLJ 16 where Raja Azlan Shah CJ (as his Majesty then was), in allowing a collateral contract to be 15 of 57 admitted which term was inconsistent with that of the written contract, said [at p 19]: “In our view those cases are strong authority for the proposition that an oral promise, given at the time of contracting which induces a party to enter into the contract, overrides any inconsistent written agreement. This device of collateral contract does not offend the extrinsic evidence rule because the oral promise is not imported into the main agreement. Instead it constitutes a separate contract which exists side by side with the main agreement.” (emphasis added) [50] The critical point in time is the point of contracting and here at that point there was a clear addition proposed by the plaintiff and accepted by the defendants that the direct payment does not derogate from the fact that the parties to the Letter of Award did not intend to create a privity of contract between them; i.e. the plaintiff and D2. D2 was however not made a party to the Letter of Award and hence did not sign on the Letter of Award though it would be more than fair to say that D2 was fully aware of the terms and conditions of the Letter of Award. [51] The written contract in the Letter of Award is the underlying contract and it expressly clarified and confirmed that there is no privity of contract between the plaintiff and D2. By no stretch of the imagination nor ingenuity can the argument leapfrog to rope in D2 as a party to a collateral contract, supposedly founded alongside the underlying contract. It would be tantamount to including by engrafting what has been excluded and excised in the underlying contract by way of a collateral importation creating in the process a collision of clauses! 16 of 57 [52] The direct payment procedure is nothing more than an arrangement that D1 must ensure that D2 complies with and if D2 does not comply with it, then the plaintiff is entitled to sue D1 for failing to procure that and it does not empower the plaintiff to sue D2. [53] If indeed if was intended that there be a privity of contract too between the plaintiff and D2, then parties should sign a tri-partite agreement where the plaintiff, D1 and D2 are all parties as suggested in Sigma Elevator (M) Sdn Bhd v Isyoda (M) Sdn Bhd & Anor [2016] 10 MLJ 635 as follows: “[60] Having examined the SA, Brampton’s explanations on how the SA came to pass is borne out by the contents of the SA. It is obvious from the recitals in the SA and reading the SA as a whole that the SA was intended to end and settle all disputes between Brampton and Isyoda. The details of the settlement are well set out in the SA. [61] It is equally obvious from the SA that it is an agreement that does not involve Sigma. By no means is it a tripartite agreement between the three parties before the court where it was agreed that Sigma is to be paid directly by Brampton. It is simply an agreement reached between Isyoda and Brampton for the purpose of a ’global’ settlement of the then pending disputes between the parties. The parties did not include Sigma directly as a contracting party. Nevertheless, it affects Sigma indirectly as a party who would stand to benefit, as the SA does provide for direct payments to Sigma for work it has done. [62] Be that as it may, the existence of the SA does not absolve Isyoda from its obligations to pay Sigma for work done under the subcontract. For that, Isyoda remains very much liable under the subcontract to pay Sigma for work that Sigma has completed.” (emphasis added) 17 of 57 [54] Learned counsel for the plaintiff argued that Clause 7.5 of the Letter of Award does not in any manner nullify or negate the existence of a collateral contract between the plaintiff and D2. Here is where if the terms of a written contract are clear then the Court must be careful not to import an oral term to contradict it for generally parties would act quite consistently with what they have agreed in writing. [55] We do well to follow the approach taken in Industrial & Agricultural Distribution Sdn Bhd v Golden Sands Construction Sdn Bhd [1993] 3 MLJ 433 at page 442 where Justice Visu Sinnadurai J cautioned as follows: “I do not intend to give a full discourse on the principles governing collateral contracts, except to say that a cautious approach is adopted by the courts in recognizing the existence of a collateral contract, especially in cases where it contradicts the terms of a written contract. The objective, however, of using the device of the collateral contract is usually to enforce a promise made prior to the making of the main contract, and but for which the main contract would not have been made. It is an established principle of law that the burden of proving the existence of a collateral contract is on the party alleging its existence. In Gillespie Brothers & Co v Cheney, Eggar & Co, Lord Russell of Killowen CJ said [at p 62]: '… when the parties arrive at a definite written contract the … presumption is … that [the writing was] intended to contain all the terms of their [contract; but] it is a presumption only, and … either of the parties may allege … an antecedent express stipulation … intended to continue in force with the … written [contract] …', and may contend that the written contract was not intended to include all the terms.” (emphasis added) [56] In fact the key witness for the plaintiff, Mr Paul Raymond Kirkman, PW1, who negotiated the terms of the Letter of Award and added 18 of 57 the expression of “shall not create a privity of contract” confirmed under cross-examination that the collateral contract consisted of the term in Clause 7.5 and to him the collateral contract is in writing as exhibited in Clause 7.5. PW1 further confirmed under cross-examination that whilst there were initial discussions on D2 providing a corporate guarantee, the parties did not go through that and that the parties ultimately settled with Clause 7.5 in the Letter of Award. [57] If that is the case then we cannot make Clause 7.5 as it stands to mean something different from what its natural and ordinary expression would carry for to do that would be to repeat the error of Humpty Dumpty in Lewis Carroll’s “Through the Looking Glass” where the conversation went as follows: “When I use a word, Humpty Dumpty said in rather a scornful tone, “it means just what I choose it to mean - neither more nor less.’ “The question is,’ said Alice, ‘whether you can make words mean so many different things.’ “The question is,’ said a Humpty Dumpty, ‘which is to be master - that’s all.” [58] In the field of legal interpretation of a term of art like “privity of contract” we have chosen to be governed by the standard meaning attached to that expression in legal pronouncements on it. Where the construction of a contract is concerned it is a question of law and it is not dependent on the parties’ views nor that of the witnesses’ through their oral evidence. See the Court of Appeal’s case of Silver Concept Sdn Bhd v Brisbane Rasa Development Sdn Bhd (formerly known as Ekspidisi Ria Sdn Bhd) [2005] 4 MLJ 101 and NVJ Menon v The Great Eastern Life Assurance Co Ltd [2004] 3 MLJ 38. 19 of 57 [59] The plaintiff cannot try to improve on a bargain based on a corporate guarantee by D2 that was not brought to fruition as no corporate guarantee was executed by D2. In fact, the word “guarantee” or “indemnity” is conspicuous by its absence in Clause 7.5. [60] Even if the plaintiff through PW1 had intended Clause 7.5 to represent a collateral contract creating an independent obligation on the part of D2 to pay the plaintiff, what matters materially would be what would the expression “does not create a privity of contract” convey to a reasonable person in D1 who signed the Letter of Award and D2 who was present in the negotiation through its Consultant QS, having received the suggested final amendment from the plaintiff to the Letter of Award in this case. [61] We do well to recall the dicta of Lord Hoffmann on the guideline to the interpretation of contracts in the Privy Council’s case of Attorney General of Belize v Belize Telecom Limited [2009] 2 ALL ER 1127 at page 1132 as follows: “[16] Before discussing in greater detail the reasoning of the Court of Appeal, the Board will make some general observations about the process of implication. The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed: see Investors' 20 of 57 Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at 114 – 115, [1998] 1 WLR 896 at 912 – 913. It is this objective meaning which is conventionally called the intention of the parties, or the intention of Parliament, or the intention of whatever person or body was or is deemed to have been the author of the instrument.” (emphasis added) [62] Learned counsel for D2 referred to a High Court case in KM Quarry Sdn Bhd v Ho Hup Construction Co Bhd [2006] 7 MLJ 203 where the defendant there was appointed as the contractor for certain construction works by the employer and the defendant had in turn appointed the plaintiff as its subcontractor. The subcontract agreement provided for the plaintiff to be paid directly by the employer whilst expressly providing against any privity of contract between the plaintiff and the employer. [63] An issue was then raised as to whether there existed a collateral contract between the plaintiff subcontractor and the employer wherein the plaintiff would have the right to sue the employer who had agreed to pay the plaintiff directly under Clause 6.1 of the subcontract when there was also a Clause 4.3 which reads: “4.3 Nothing herein shall be construed as creating any privity of contract between the Subcontractor and the Employer.” [64] The High Court in KM Quarry (supra) held as follows: “[13] Effect must be given to the intention of the parties in cl. 4.3 as it is clear and unambiguous in that there shall be no privity of contract between the subcontractor, ie the plaintiff and the employer. Hence, in so far as the payments on the interim certificates are concerned, the parties to the 21 of 57 contract are wholly and exclusively the plaintiff and the defendant; the employer being a third party is a stranger thereto. [14] In the context of cll 6.1 and 4.3, I am of the view that only the original parties to the contract have the right to sue or be sued upon it, so that a third party such as the employer being a stranger does not enjoy the right to sue and incurs no liability to be sued: Kepong Prospecting Ltd & Ors v Schmidt [1968] 1 MLJ 170 per Lord Wilberforce JC (PC);Tweddle v Atkinson (1861) 1 B & S 393 per Wightman J; and Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 per Lord Haldane, LC; Chitty on Contracts (27th Ed) Vol 1 para 18-065; Lim Yoh per Augustine Paul JC (now FCJ); and s 41 of the Contracts Act 1950. ...... [19] The defendant's letter is an affirmation of the direct payments by the employer to the plaintiff and is completely consistent with cl 6.1 and serves the purpose of facilitating and not frustrating such payments. Hence, cll 6.1 and 4.3 when read conjunctively do not support the submission for the defendant at all. There can be no issue of any collateral contract, less so a triable issue.” (emphasis added) [65] The High Court did not have any hesitancy in holding even at an appeal in a summary judgment matter that there was no triable issue raised with respect to a collateral contract to pay by the employer reading Clauses 6.1 and 4.3 together which are very strikingly similar to Clause 7.5 of our Letter of Award between the plaintiff and D1. [66] The plaintiff further stated that the evidence clearly supports the proposition that D2 had represented and/or agreed to pay to the plaintiff for work done. However, it cannot be seriously disputed that what had happened on the ground was that all payments for the plaintiff’s works were made by D1 and the plaintiff did not insist that Clause 7.5 be resorted 22 of 57 to or complied with. In the words of learned counsel for D2 Clause 7.5 with respect to the payment arrangement became a dead letter. [67] PW2 Mr Robert Cho, under cross-examination, agreed that from Interim Certificate 1 right up to Certificate 14 the plaintiff did not insist on the application of Clause 7.5. [68] Moreover the plaintiff in its dealings with D1 had proceeded consistently with what it had stated that the arrangement “does not create a privity of contract” between the plaintiff as subcontractor and D2 as the employer. One such letter is that from the plaintiff to D1 dated 29.9.2014 at pages 11-12 PBOD 2 where the plaintiff had stated unreservedly in paragraph 5 that “In fact there is no privity of contract between us and the Employer.” (emphasis added) [69] Analysing the evidence as a whole this Court had no problem concluding that there was no privity of contract between the plaintiff and D2 and neither was there any collateral contract in any representation or warranty agreeing to pay the plaintiff as an independent obligation for work done by the plaintiff under the Letter of Award for D1. Whether D2 in applying for a fortuna injunction against the plaintiff had admitted to a contractual set off [70] Under the threat of winding up D2 had issued a letter dated 16.7.2015 to the plaintiff’s former solicitors (pages 18-21 PBOD 2) stating that Interim Certificates 15-17 are not due and payable as D2 is entitled to deduct liquidated and ascertained damages (“LAD”) and damages 23 of 57 arising out of the plaintiff’s works which caused damage to the Wagner Piano Building arising out of its negligence. [71] D2 had, in a knee jerk reaction and acting under an abundance of caution, stated that it had exercised the “right of set off which is available to us in contract, in law and/or in equity” because of the damage caused by the plaintiff arising out of negligence with respect to the works that had damaged the Wagner Piano Building and two other adjacent building known as Wisma Murni and Henry Goh bungalow. [72] There was also subsequently a reference by D2 that the matter had been novated to them and that the plaintiff should not fear for the financial capability of D2 with respect to payment if indeed it is due. [73] I accept the fact that the test at the fortuna injunction application is merely to show that there is a bona fide dispute on the debt, the subject matter of the intended winding up petition against D2. [74] The word “novated” in the absence of documents supporting it and against the weight of all the other documents and correspondence negating it, must be understood as a layman would understand it, referring to the arrangement encapsulated in Clause 7.5 of the Letter of Award. [75] If indeed there had been a “novation” as the plaintiff was heard to be asserting during submission, then the plaintiff could not even sue D1 but must look solely to D2 for payment. [76] It was thus open for D2 to harness every possible defence to show that there is a bona fide dispute on the debt constituted in Interim 24 of 57 Certificates 16-17 be it contractual, legal or equitable set-off. It is a plea in an abundance of caution and not necessarily that D2 is conceding that there is a contractual relationship with the plaintiff. It is harnessed to meet the plaintiff’s contention that there is a contract between the plaintiff and D2 and if the Court should agree then conversely D2 would have a contractual set-off against the plaintiff. D2’s primary plank is still that there was no privity of contract between the plaintiff and D2 for the plaintiff to proceed to windup D2 and even then on a disputed debt. [77] Therefore the Court must also look at, more appropriately, how the fortuna injunction was fought and granted by the High Court and affirmed by the Court of Appeal. It was fought on the ground of no privity of contract and that was accepted by Justice Nazlan Ghazali J in his written judgment in Bakti Dinamik Sdn Bhd v Bauer (Malaysia) Sdn Bhd [2016] MLJU 916 as follows: “[23] On the evidence before me in this application, whilst the Defendant’s claim as the sub-contractor in respect of work done is premised on the interim certificates no. 15, 16 and 17 and the certificate of practical completion, these were issued by the Architect to the main contractor (HVC) in respect of the contract between the plaintiff and the main contractor (the Main Contract). Although the contract between the Defendant and HVC, being the Letter of Award from the latter to the former dated 26 August 2013 (“the Letter of Award”) in clause 7.5 expressly provides for the payment by the main contractor to the sub-contractor to be made by the Plaintiff on behalf of the main contractor, in my view it is fundamental that the doctrine of privity of contract must be firmly upheld. Here, the Plaintiff is not privy to the Letter of Award contract between the Defendant and the main contractor, and even that clause 7.5 states to the effect that it does not in any event give the defendant the contractual right against the Plaintiff. 25 of 57 ....... [27] Further, Clause 24.1(c) of the Agreement and Conditions of PAM Sub-Contract 2006 (For Use Where the Sub-Contractor is Nominated Under The PAM Contract 2006) which expressly permits the Defendant to end his appointment in the event of non-payment by the main contractor clearly supports what is already plain and obvious that the Defendant’s recourse is only against the main contractor, not the Plaintiff. Additionally, this Clause 24.1(c) specifically provides that such payment obligation by the main contractor in respect of any certificate is however subject to any set off the main contractor could be entitled to under the same contract with the Defendant. [28] In my judgment, accordingly, in the absence of a contractual relationship between the Plaintiff and the Defendant, the claim of unpaid debt made by the latter is thus unsustainable. The Defendant cannot premise its Section 218 Notice on a debt which is not due from the Plaintiff. Even if a debt is established given non-payment of the said interim certificates, it would be for HVC, the party which is seized of the contractual nexus with the Defendant that must answer the claim. In order to vindicate its right for payment under the Letter of Award, the Defendant’s avenue is to first make a claim against HVC. Even if that is successfully established, still, it is not for the Defendant to enforce the same against the Plaintiff directly, for the same overarching reason of the Plaintiff not being contractually privy to the relationship between the Defendant and HVC.” (emphasis added) [78] This Court is of course free to decide on whether there was a collateral contract eventhough a previous court had decided that there is no privity of contract between the plaintiff and D2 for the test in a fortuna injunction is to show that prima facie there is a bona fide dispute on the debt whereas in this suit this Court would perforce be pivotally positioned to examine the issue of a collateral contract as pleaded by the plaintiff and 26 of 57 at the trial, to discharge the burden on it to so prove. This the plaintiff had failed to do. [79] Looking at the overall circumstance of the case where all payments in the past have been made direct from D2 to D1 and then D1 had made separate and subsequent payments to the plaintiff, the evidence points towards a consistency in the approach initially taken by the plaintiff that there was no privity of contract between the plaintiff and D2. [80] What the plaintiff had wanted to exact from the defendants was more a comfort that there would be some arrangement where the plaintiff was to be ensured some payments as and when D1 was paid. In any event that Clause 7.5 is in the Letter of Award between the plaintiff and D1 and as such, any breach of that arrangement of payment would be a contractual cause of action by the plaintiff against D1. [81] The Court must be careful not to impose liability on a non-contracting party and if indeed there should be a collateral independent obligation on the part of D2 to pay the plaintiff, then this must be clearly spelt out especially when parties have exhaustively addressed their respective rights and obligations by reference to the standard PAM 2006 contract and subcontract for NSC which are industry-based standard form contracts. [82] This Court had no compunction in holding that there is no privity of contract between the plaintiff and D2 that would enable it to look to D2 for payment and that there is no collateral contract here as well. 27 of 57 Whether the plaintiff may claim under quantum meruit against D2 as an NSC against the employer [83] The plaintiff submitted that it has an alternative claim against D2

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) [87] Applying the above test to the present case, when the substructure works were being done, the contractual chain of relationship as to rights and liabilities had already been set in place; the plaintiff to bill the main contractor D1 for work done and D1 in turn to bill the employer D2. D2 were to make payment to D1 and then D1 would make payment to the plaintiff. [88] To be very clear in the chain of contractual relationships work was done under the contract by plaintiff for D1 and D1 in turn, for the work done for it by the plaintiff, could then invoice D2. There was as such no gratuitous work done by the plaintiff for D2 and indeed all the substructure works done were done under the contract; be it under the main contract as between D1 and D2 and under the subcontract in the letter of Award between the plaintiff and D1. 29 of 57 [89] Whilst ultimately it is the owner/employer that derives the benefit of the work done yet parties have sorted out their contractual relationships in a chain of construction contracts so to speak. Conversely if there is any delay or defects or negligent works then it is for the employer to sue the main contractor and the main contractor to in turn sue the NSC. [90] I do not see how a section 71 claim can be brought when contractually all aspects of the substructure works including variation works had been contractually parcelled out from D2 to D1 and then from D1 to the plaintiff. [91] In fact the plaintiff had sued D1 and had obtained a judgment, albeit in default, against D1 and so could proceed with execution against D1 or to wind them up. The fact that D1 was subsequently struck off the Register of CCM does not bar the plaintiff from applying to reinstate D1 and then to wind them up and appoint a liquidator to trace what happened to the RM50 million or thereabout said by D2 to have been paid over to D1, who apparently had no other projects at that time other than the Tribeca Project and whose substructure works from D2 were totally subcontracted over to the plaintiff. [92] Having not done, the plaintiff now wanted to prevail upon this Court to activate section 71 of the Contracts Act 1950 which was not designed for a situation where the contractual relationships have been carefully carved out and provided for exhaustively with respect to the parties’ rights and obligations together with the allocation of risks in the PAM standard form contracts with respect to the main contract and the subcontract with some minor modifications. 30 of 57 [93] The Supreme Court in New Kok Ann Realty Sdn Bhd v Development & Commercial Bank Ltd New Hebrides (In Liquidation) [1987] 2 MLJ 57, held that section 71 is not confined to the services rendered or work done or to the delivery of goods only. The Supreme Court said the section is not founded on contract but embodies the equitable principle of restitution and unjust enrichment and that it is unquestionably wide and to be applied with discretion to enable the Courts to do substantial justice in cases where it would be difficult to impute to the persons concerned relations actually created by contract. (See Suchard v Belaram (1910) ILR 38 Cal 1 quoted with approval in State of West Bengal v BK Mondal & Sons AIR 1962 SC 779 790 [1962] SCR 876). [94] While accepting that the application of section 71 of the Contracts Act 1950 is wide to cover both contractual and non-contractual nature of dealing between the parties, nevertheless the four requirements mentioned must be fulfilled before a claim in quantum meruit can be activated. [95] Learned counsel for the plaintiff submitted that the claim for quantum meruit under section 71 of the Contracts Act 1950 was allowed in Tanjung Teras Sdn Bhd v Kerajaan Malaysia [2015] MLJU 2161. In that case, the Court of Appeal allowed the claim by the Appellant subcontractor against the Respondent, the owner of the project. The Respondent entered into a Sale and Purchase Agreement dated 24.5.2003 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 31 of 57 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. [96] 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 counter claim 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. [97] Whilst the relationship in Tanjung Teras’ case is similar to the present case in that it is the subcontractor claiming against the employer, there is a stark difference in that in the former the employer had not paid anything to the main contractor with respect to the superstructure works. [98] 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. 32 of 57 [99] In the present case, D2 had produced evidence of the full payment of about RM50 million was made to the main contractor. The Interim Certificates of Payments 1 to 17 certifying that sums under the main contract are due to be paid by D2 to D1 are found at pages 155 to 171 of PBOD 8. The official receipts issued by D1 to D2 for all payments made by D2 towards the Interim Certificates 1 to 17 are from pages 175 to 196 of PBOD 8. [100] The plaintiff tried to call in question the validity of an official receipt AR 50035 at page 191 of PBOD 8 dated 21.4.2015 when the bank statement shows that withdrawal was only made on 3.6.2015. I do not think that undermines the credibility of the payment concerned. There is nothing wrong with issuing a receipt upon the receipt of the physical cheque though payment would be effected upon the presentation of the cheque subsequently. [101] Likewise too the bank statements of D2 from different banks where some banks do not in the statements issued by them referred to the payee by name such as D1’s name. [102] The Court is not inclined to invoke section 71 of the Contracts Act 1950 in the name of doing substantial justice, having satisfied itself that D2 as the employer had in all probabilities paid D1, its main contractor. This is not a case where the employer D1 had been shown to have unjustly enriched itself. If at all there is anyone that had been unjustly enriched it is D1. [103] In Lumbers & anor v W Cook Builders Pty Ltd (In Liq) 247 ALR 412; [2008] HCA 27, the High Court of Australia dismissed a claim 33 of 57 for quantum meruit where there is a clear contractual relationship between the parties. [104] 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 paid for building the house. The Lumbers did not pay to Builders the money claimed. [105] 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. [106] 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: 34 of 57 “[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 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) [107] 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 35 of 57 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) [108] The Court must guard against granting a claim in quantum meruit under our section 71 of the Contracts Act 1950 under the guise of doing substantial justice when parties have carefully thought of and provided for the allocation of risks under the respective main contracts and subcontracts where the rights and remedies of the parties affected can be pursued fullest to its final end. Otherwise the Court runs the risk of being accused of rewriting the bargain of the parties. [109] The problem encountered by the plaintiff is not new or unique. The Federal Court in Seloga Jaya (supra) observed as follows with respect to an NSC’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 36 of 57 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) [110] Overall there is no basis for the plaintiff to stage an alternative claim under quantum meruit under section 71 of the Contracts Act 1950. Whether D2 was under a legal obligation to inform the plaintiff of payments that D2 paid to D1 and had acted fraudulently against the plaintiff in making full payment under the main contract to D1 [111] The plaintiff through PW1 had confirmed under cross-examination that payments for Interim Certificates 1-17 were all made direct by D1 to the plaintiff and that D2 did not inform the plaintiff when D2 had made the payments to D1. He also confirmed that D2 has no duty to inform the plaintiff as and when it made payment to D1. [112] Having taken that position there is no place for the plaintiff to now say that D2 nevertheless acted fraudulently when it failed to inform the plaintiff of payments made under Interim Certificates 16-17 after the Originating Summons had been filed by D2 to obtain a fortuna injunction against the plaintiff who had earlier issued a section 218 Companies Act 1965 Notice to wind up D2. [113] The position taken by D2 is that as there is no privity of contract with the plaintiff then there is consistent with that, no legal obligation to inform the plaintiff as to when payments were made under the various Certificates and indeed it had not done so from the beginning. 37 of 57 [114] Of course the fact that D2 was prepared to pay D1 in full and in particular Interim Certificates 15-17 when by then the problem of delay and damage to the Wagner Piano Building had become a live issue would doubtless show an unusually close relationship between D1 and D2 such that D2 was prepared to look to the plaintiff as the ultimate person who should make good any compensation paid by D2 to Wagner Piano for what seemed to be a commercial settlement on an ex-gratia basis which the plaintiff refused to consent to or join in. [115] Perhaps that is consistent with D2 realising that the plaintiff being an NSC and this being a total subcontracting, the party that ultimately did the work, and if negligently done, would be liable would be the plaintiff. [116] The fact that D2 could further persuade D1 to pay a sum of RM1.258 million to the plaintiff for Interim Certificate 15, and that D2 had in its cover letter dated 28.12.2015 (page 151 of PBOD 7) enclosing D1’s cheque for that amount after having paid D1 in full based on Interim Certificate 15, would further arouse suspicion of their uncomfortably close relationship. The payment was made apparently to diffuse the pressure placed on D2 in the wake of the section 218 Notice issued by the plaintiff to D2 and the threat of presentation of a winding-up petition which would doubtless have serious ramifications for D2. [117] As to why the employer would want to pay some RM20 million more through the intermediary of a main contractor in D1, having negotiated the terms with the plaintiff as an NSC, is of course a matter between D1 and D2. The plaintiff cannot complain because it had negotiated to do the substructure works for the agreed sum and had settled for being an NSC with D1. Indeed, it had obtained judgment 38 of 57 against D1 who was not interested in defending the suit. D1 in all probabilities thought that it is immune from any claims after having applied for or allowed itself to be struck out or expunged and with that exterminated and extinguished where its corporate life is concerned! [118] All monies paid into its account would in all probabilities have been taken out before the striking out and with that its ceasing to exist. [119] Whilst suspicion is there the plaintiff had not proved on the balance of probabilities that fraud had been perpetrated on the plaintiff by D2. The sore point excruciatingly felt by the plaintiff must surely be that it had not been paid for work done to the tune of about RM4.2 million including variation works and a loss and expense claim and yet it had to face and defend a counterclaim by the employer D2 for alleged negligence! [120] That unfortunately is what is involved in the construction business when one decides to take on a job as a subcontractor; the headache of securing payment for work done and the risk of being sued for defective work and negligence when things go wrong. [121] The Court cannot change the bargain that the parties had struck with each other down the chain of construction contracts and here there is no basis of lifting the corporate veil or making the D2 liable under fraud which has not been proved. [122] Learned counsel for the plaintiff sheepishly admitted that the plaintiff could not show that the directors and shareholders of D1 are 39 of 57 related to or under the control and direction of D2 or its directors or shareholders. Whether the plaintiff as a subcontractor owed a duty of care in a claim in tort for negligence by the employer for the damage caused to the adjoining buildings and ancillary claims for damages for delay [123] Consistent with D2’s stands that there is no privity of contract with the plaintiff, D2 nevertheless staged a counterclaim against the plaintiff under the tort of negligence for the damage caused to the Wagner Piano Building and the losses arising from the delay caused by the plaintiff in tort to the tune of RM4,856,107.56. [124] The plaintiff’s defence is that it does not owe D2 a duty of care and more so when the parties had provided for and parcelled out the allocation of risks in the main contract and the subcontract vis-a-vis the employer, main contractor and subcontractor. [125] Moreover the plaintiff pleaded, even if it did owe D2 a duty of care, it was nevertheless not in breach of that duty but that in all probabilities it was D2’s consultant engineer who was negligent for he did not even know the footing of the Wagner Piano Building when it decided on where to position the piles and how near to the adjacent building D2’s Tribeca development should be. 40 of 57 Whether there is a duty of care owed by the plaintiff to D2 [126] First back to basics and as expounded in Clerk & Lindsell on Torts (21st Edition) at page 8-04, there are four requirements that must be fulfilled before a tort of negligence can exist namely:

The existence in law of a duty to care;

The breach of that duty of care;

The causal link between the careless conduct and the damage; and

The damage must be foreseeable and not too remote. [127] The law of negligence with respect to the neighbour principle and the proximity test first propounded in Donoghue v Stevenson [1932] AC 562 has morphed and matured to a more refined postulation with life’s increasing complexities. More than just foreseeability of damage is the relationship between the parties as in whether it is one which the Court would consider it fair, just and reasonable for the law to impose a duty of care as was held in Caparo Industries PLC v Dickman [1990] AC 695 where Lord Bridge propounded as follows: “What emerges is that, in addition to foreseeability of damage, necessary ingredients in any situation giving rise to duty of care are that there should exist between the party owing the duty and to whom it is owed a relationship characterised by the law as one of ‘proximity’ or ‘neighbourhood’ and that the situation should be one in which the court considers it fair, just and reasonable that the law should impose a duty of a given scope on the one party for the benefit of the other.” (emphasis added) 41 of 57 [128] The Caparo three-tier test can be summarised as, (i) foreseeability of damage, (ii) proximity of relationship, and (iii) reasonableness. This test is the current test applicable in the assessment of the first requirement of duty of care in negligence cases. [129] The Court would be slow to impose or identify a duty of care especially where the parties have allocated their risks and liabilities exhaustively especially with reference to standard form contracts used in their particular industry and in this case the PAM 2006 Contract and Subcontract. [130] Whilst it can be fairly said that in the event the subcontractor in the plaintiff is negligent in executing its substructure works, it is foreseeable that D2 would eventually suffer some damage, the more pertinent question is whether it is fair, just and reasonable for the law to impose such a duty seeing that contractually D2 had provided for its main contractor D1 to be liable and that its main contractor had provided for its NSC, the plaintiff, to be liable consistent with the benefit to be conferred on each party for the payment made for the work done. [131] As a matter of policy the Court would generally not impose or identify a duty of care in tort unless that duty is co-extensive with its duties in contract between the party suing and the party being sued in the negligence claim. Examples of co-extensive duties would be perhaps one in contract between a banker and customer as well as in tort for wrongful dishonour of a cheque drawn by a customer on his account with the bank. The customer’s cause of action would be in tort for negligence or in contract for wrongfully dishonouring the cheque when there were sufficient funds in his account. Another example would be a claim by a 42 of 57 client against his solicitor for professional negligence in the professional discharge of his duty under the warrant to act which is contract and under the tort of negligence in failing to exercise due care as a professional. [132] Here as between the plaintiff and D2 there is no contractual relationship and to impose and import a duty in tort when consideration is actually paid by D2 to D1 for work done by D1 for which D1 had invoiced D2 and not the plaintiff, would be to lead to an anomaly and an aberration; a dissonance that does present practical difficulties and more so when the parties have sorted that the rights and liabilities as well as the risks and remedies between the parties down the chain of construction contracts. In short, simply put, it would not be fair, just and reasonable so to do. [133] The matter arose for consideration in Simaan General Contracting Co v Pilkington Glass Ltd (No 2) [1988] 1 All ER 791; [1988] QB 758; [1988] 2 WLR 761 where the Court refused to allow direct claim between non-contracting parties in a chain of contract relationships where the risks have been regulated by the parties’ respective contracts with their contracting party. [134] In that case, the plaintiffs were the main contractor for a building to be erected in Abu Dhabi owned by a Sheikh who was not a party to the action. The plan and specifications of the building requires, among others, that a particular type of glass manufactured by the defendant be used for the curtain walling. The supply and erection of the curtain walling was sub-contracted by the plaintiffs to another company which, as required by the specifications and sub-contract, ordered the glass panel from defendant. 43 of 57 [135] The problem arose when the defendant supplied un-uniformed glass panels thus causing the withholding of payment by the building owner to the plaintiff until the all glass panels be changed to uniform ones. The plaintiff sued the defendant for pure economic loss caused by the withholding of payment by the owner of the building. The preliminary issue was whether the defendants owed the plaintiff a duty to take reasonable care to avoid defects in the units. The trial judge held that the defendant did owe such duty, hence the appeal to the Court of Appeal. [136] In allowing the appeal, Bingham LJ, in his judgment at page 803 stated that: “Just as equity remedied the inadequacies of the common law, so has the law of torts filled gaps left by other causes of action where the interests of justice so required. I see no such gap here because there is no reason why claims beginning with the sheikh should not be pursued down the contractual chain, subject to any short cut which may be agreed on, ending up with a contractual claim against Pilkington. That is the usual procedure. It must be what the parties contemplated when they made their contracts. I see no reason for departing from it.” (emphasis added) [137] Dillon LJ held, in respect to duty of care at page 804 as follows: “.....foreseeability of harm or loss does not of itself and automatically lead to a duty of care. Foreseeability of harm is a necessary ingredient of a relationship in which a duty of care will arise, but not the only ingredient. Foreseeability of harm does not become enough to make a harm recoverable by the plaintiff just because what was foreseeable was harm to the plaintiff as an individual rather than a member of a general and unascertained class......” (emphasis added) 44 of 57 [138] It was further suggested that unless one voluntarily assumed responsibility which thereby creating a special relationship between the parties as in Hedley Byrne, there was nothing in the facts of the case that justify a finding that Pilkington had voluntarily assumed a direct responsibility to Simaan for the colour and quality of Pilkington’s glass panels. On the contrary, all the indications are the other way and show that a chain of contractual relationships was deliberately arranged the way it was without any direct relationship between Simaan and Pilkington. [139] His Lordship went on to say that at page 805 that “…in truth, to allow Simaan a direct claim against Pilkington where there is no contract between them would give rise to formidable difficulties.” [140] I would say here to as a matter of policy and where parties have exhaustively enumerated and arranged their respective rights and obligations and allocated their risks in their respective bargains, this Court should not be imposing or importing a duty of care between non-contracting parties who did not do the work directly for the other and hence was not paid directly by the other. See also the cases of Lok Kok Beng & 49 Ors v Loh Chiak Eong & Anor [2015] 4 MLJ 734, Man B&W Diesel S E Asia Pte Ltd and anor v PT Bumi International Tankers and another appeal [2004] 2 SLR (R) 300 and Henderson v Merret Syndicates Ltd [1995] 2 AC 145. [141] In Henderson v Merret Syndicates Ltd [1995] 2 AC 145. Lord Goff at page 195 (paragraphs G-H) made the following observation: “I wish however to add that I strongly suspect that the situation which arises in the present case is most unusual; and that in many cases in which a 45 of 57 contractual chain comparable to that in the present case is constructed it may well prove to be inconsistent with an assumption of responsibility which has the effect of, so to speak, short circuiting the contractual structure so put in place by the parties. It cannot therefore be inferred from the present case that other sub-agents will be held directly liable to the agent’s principle in tort. Let me take the analogy of the common case of an ordinary building contract, under which main contractors contract with the building owner for the construction of the relevant building and the main contractor sub-contracts with sub-contractors or suppliers (often nominated by the building owner) for the performance of work or the supply of materials in accordance with standards and subject to terms established in the sub-contract. I put on one side cases in which the sub-contractor causes physical damage to property of the building owner, where the claim does not depend on an assumption of responsibility by the sub-contractor to the building owner; though the sub-contractor may be protected from liability by a contractual exemption clause authorised by the building owner. But if the subcontracted work or materials do not in the result conform to the required standard, it will not ordinarily be open to the building owner to sue the sub-contractor or supplier direct under the Hedley Byrne principle, claiming damages from him on the basis that he has been negligent in relation to the performance of his functions. For there is generally no assumption of responsibility by the sub-contractor or supplier direct to the building owner, the parties having so structured their relationship that it is inconsistent with any such assumption of responsibility.” (emphasis added) [142] The plaintiff had claimed against the immediate contracting party in D1 and indeed had obtained judgment against D1. It would not be fair, just and reasonable to hold that the plaintiff also owed D2 a duty of care and more so when D2 had not seen fit to claim against D1 under negligence nor withhold D1’s retention sum but instead had released it. 46 of 57 [143] The provisions of the main contract cannot be circumvented by this action in negligence. It would be within D2’s right under the main contract with D1 to have withheld the monies due from Certificates 15-17 if indeed it was serious in alleging that D1 had delivered shoddy and substandard work such as to cause damage to the Wagner Piano Building and had caused delay in the works. Strangely, though perhaps not so strange after all because of the especially close relationship between them, D2 did not do so and opted to claim against the plaintiff. Surprisingly though perhaps not so surprising for the same reason, D2 proceeded to pay in full to D1 the whole sum contractually agreed for the substructure works done by the plaintiff. Whether there was a breach of duty of care by the plaintiff [144] For completeness I would proceed to consider if assuming for a moment there is a duty of care owed by the plaintiff to D2, then has that duty been breached. [145] I agree with the plaintiff that from the evidence of the witnesses of D2, regardless of which design is being used, the structural failure at the Wagner Piano Building was inevitable. There is simply no causal link between the plaintiff’s proposed design and the manner in which the works were carried out by the plaintiff and the structural failure at the Wagner Piano Building. [146] As a subcontractor the plaintiff had to follow the preference of D2 with respect to where the piling should be done where the positioning is concerned and the spacing between each pile as well as the type, size and dimension of the piles. 47 of 57 [147] Indeed during the course of carrying out the works up to the filing of the Wagner Piano Suit (in November 2014), D2 did not contend that the plaintiff did not carry out its works properly. This is evident from the pleadings filed in the Wagner Piano Suit. Neither was there any issue taken with respect of the works carried out by the plaintiff at the Wagner Piano Building upon the instructions from D2’s civil and structural consultants, Dr CC Wong Consulting Engineers. [148] Evidence was led by the plaintiff that well before the plaintiff commenced works on site, D2 had access to the site and during this period D2 proceeded to demolish the property adjacent to the Wagner Piano Building and had every opportunity to assess the conditions at the site. [149] The original design was carried out by D2’s consultants. This design did not vary significantly if compared to the alternative design which was later proposed by the plaintiff. Save for in two instances which related to the use of 2 as opposed to 3 struts and a slight increase in the size of the secant pile wall (by 8cm) there were no other changes. [150] It is for D2 to prove, since it was the one asserting, that the minor changes in the above to the secant piles had caused the deflection in the Wagner Piano Building and its subsequent cracks, subsidence, flooding and damage. Surely as an expert witness DW5 Dr Chin was not able to explain how those minor changes resulted in an increase force being used on the secant piles such that it caused damage to the Wagner Piano Building. No comparison in terms of calculation was made with respect to the effect of the Wagner Piano Building based on Dr CC Wong’s unamended design as opposed to the amendments carried out by the 48 of 57 plaintiff all with the consent of Dr CC Wong DW 3, D2’s civil and structural consultant for the Project. Whilst Dr Chin said that it was the vibration that caused the damage to the Wagner Piano Building in that cracks started to appear, he was unable to assist the Court as to whether if the secant wall had remained at 800 mm instead of 880 mm, the vibrations caused would not have led to any cracks in the said Building. [151] Likewise he was in no position to explain how a 2 strut instead of the 3 strut to the secant wall would have caused the cracks to appear on the Wagner Piano Building. Being an expert witness he needed to substantiate his theory with calculations showing the assumptions he had used for otherwise it appears like a convenient scapegoat to blame everything on the plaintiff because of a minor change in design agreed to by Dr CC Wong DW3 and accepted by him that a 2 strut secant piles would allow for more work space in the already limited space available because of the close proximity to the Wagner Piano Building. [152] The witnesses for the plaintiff testified that no sooner had it commenced piling works at the site, albeit some distance away from the Wagner Piano Building the owners of Wagner Piano raised their concerns. This was in November of 2013. At this point in time the excavation works had not commenced and the only works that were on-going were the bore piling works. [153] The narration of the unfolding of events was that the bore piling works continued for a period of time until February 2014 when the works clearly were getting closer to the Wagner Piano Building and this was obviously causing greater concern to Wagner Piano. The plaintiff took the 49 of 57 view that the cracks appeared at the Wagner Piano Building as a result of the works being carried out on the site. [154] The plaintiff took the view that the changes to the design proposed by it cannot be the ‘effective cause’ of the structural failure at Wagner Piano Building for even prior to the struts were being placed on site or the excavation works being carried out, the cracks had already appeared in the Building. See the case of Chua Seng Sam Realty v Say Chong Sdn Bhd & Ors and other appeals [2013] 2 MLJ 29. [155] It must be noted that any remedial or rectification works carried out at the Wagner Piano Building can only be executed by the plaintiff upon being instructed by D2’s consultants. It is not in dispute that during the material time, the plaintiff had carried out the necessary remedial or rectification works at the Wagner Piano Building upon receiving such instructions from D2’s consultant Dr CC Wong. [156] Neither D2 nor its consultants raise any issue or complains during that material time. At the trial Dr Wong raised the fact that there was delay in doing the pressure grouting work and that a high pressure grout should have been used instead of a low pressure grout. [157] However the evidence showed that on 7.4.2014 the plaintiff submitted its method statement for the grouting works (page 102 -119 PBOD 10) and the said method statement was approved by the consultant engineer on 15.4.2024 (page 121 PBOD 10 and thereafter the plaintiff commenced grouting works on 28.4.2014 (pages 123-138 PBOD 10. I cannot see how that could be said to be any significant or substantial delay affecting the stability of the Wagner Piano Building. 50 of 57 [158] Furthermore, in his evidence Dr Wong admitted that from the records all cavities in the ground were properly filled even by low pressure grouting and indeed he had consented to the use of a low pressure grout and that a low pressure grout was cheaper. [159] Under cross-examination Dr Wong also confirmed that the drawdown to the water table said to have been responsible for the flooding of the Wagner Piano Building would have been the same between his design and the changes proposed by the plaintiff. [160] Dr Wong also reluctantly agreed under cross-examination that the struts were properly designed and that he had no issue with the 2 struts instead of 3 and that there was nothing wrong in utilising 2 struts as opposed to 3 struts and in fact it has the advantage of allowing for more working space at the site. [161] When finally pressed for an answer Dr Wong agreed that the cause of the damage was the construction activity in general and this is consistent with the evidence that the damage to the Wagner Piano Building started as soon as the works started in the Tribeca site. [162] Even though the excavation works had not commenced at this point in time and neither were the secant piles or the strutting in place, cracks had already appeared as early as November 2013 and there was no explanation forthcoming from D2 as to why that had happened. In fact, 76% of the settlement had taken place by June 2014 before the excavation works commenced. 51 of 57 [163] In October 2014 the plaintiff’s appointed consultant engineer, T-Corp Engineers Sdn Bhd, determined that the Wagner Piano Building had structurally failed and it was no longer safe for occupation. [164] Dr Chin DW 5, D2’s expert witness, agreed that the location of the secant pile wall had been determined by Dr CC Wong, D2’s civil and structural consultant, based on the site location plan in collaboration with the architect. [165] Looking at the overall evidence I am inclined to conclude that this is a case where the architect and Dr CC Wong had prepared the design for the Tribeca Project by utilising the site to the maximum permitted by the applicable law and regulations so as to maximise and optimise the limited space for D2’s profitability and return on the investment of building costs. As a result of maximising the utilisation of the site, the secant pile was very close to the Wagner Piano Building. Dr Wong under cross-examination candidly admitted that to be quite correct and he added that there is a 2.3 metre margin between Wagner Piano Building and Tribeca and within that narrow space no subsurface work was done. That is hardly 7.5 feet! [166] Dr Chin, D2’s expert, also agreed under cross-examination that when the cracks worsened from November 2013 to January 2014 the plaintiff was only carrying out works in relation to the secant and bored piles and that excavation works had not commenced at this juncture. He further agreed that the cracks had already emerged in the Wagner Piano Building well before the struts were on site and hence the struts could not be the cause of the cracks. Dr Chin could only say that it was the vibration that caused the damage to the Wagner Piano Building and that he would 52 of 57 not be in a position to say that Dr Wong’s design would not have the vibrations that would cause damage to same Building. [167] An issue was also raised by D2 on the socketing of the secant piles. D2 alleged that the plaintiff failed to ensure that the secant piles are socketed to the limestone rock to prevent groundwater seepage and/or potential soil flowing under the toes of these piles during basement excavation works. [168] I am inclined to accept the explanation of the plaintiff’s witness (PW5) that all primary piles are terminated at its design maximum pile length when no bedrock is encountered. These few piles are far away from the Wagner Piano Building. As the rock levels are above the maximum pile termination depth, all the secant piles at the Wagner Piano area are terminated into the limestone bedrock. In the event the toe level of the secant pile is insufficient, flow of water and soil into the excavation area would have been observed and sink hole would have occurred immediately. This did not happen. [169] As further explained by the plaintiff the fact that the Tribeca Project has been completed and currently in occupation means that there is no issue with the manner in which the works were carried out. [170] The expert witness of D2 Dr Chin did not produce any evidence as to whether the ground water level had any impact on the Wagner Piano Building. After all the location of the secant pile was determined by Dr CC Wong and that the plaintiff has no role in determining the location of the secant piles but merely to carry out the piling as instructed. 53 of 57 [171] D2 also alleged that the construction method used by the plaintiff was such that it failed to provide and did not ensure adequate protection against vibration. However, it must be remembered that the system used by the plaintiff is in fact determined by the consultant engineer, i.e. Dr CC Wong to be the best method to be used for this Project. Dr CC Wong accepts that the construction method used would cause the least or minimal vibration. [172] Wagner Piano filed a legal proceeding including for an injunction and this was resolved amicably by D2 and Wagner Piano in April 2015. Very pertinently, in the defence filed by D2 in these legal proceedings, it did not in any way suggest that the plaintiff was at fault and neither did it take out indemnity proceedings against the plaintiff. [173] More than that, D2 pleaded positively that the plaintiff who was the 3rd defendant there had complied with all the standard and approved practice and had taken the necessary diligence in executing the works. [174] It seems to be an about-turn that D2 has taken in the present suit by the plaintiff in now claiming that the plaintiff was being negligent. Either D2 was not stating the truth in its defence in the Wagner Piano Suit or that it did not believe what it said there or more likely that it is an afterthought in that should the plaintiff succeed in its claim for balance sum not paid and for variation works and for loss and expense, then at least that would be set-off against its counterclaim for negligence should it succeed. [175] However, D2 unilaterally chose to settle the matter with Wagner Piano for its own commercial purposes and this is clearly evident and 54 of 57 admitted to by its own witnesses. It was just too much of a risk to that should there be an injunction granted against D2 to stop work for then the delay arising from it in an LAD claim by the purchasers would be increasing by the days and not to mention the effect of a work stoppage on other prospective purchasers for such a high-end service suites Project as marketed and touted by D2. [176] D2 of course could not charge all that it had paid to settle the Wagner Piano suit to the plaintiff for the issue of the liability of the plaintiff in negligence was not embarked upon there as it was settled without any admission as to liability and on an ex-gratia basis. [177] I had also not lost sight of the fact that D1 was issued a Certificate or Practical Completion dated 13.3.2015 certifying the practical completion of the Works on 28.2.2015 and followed later with a Certificate of Making Good Defects dated 29.11.2017 by the architect. All retention sums retained by D2 were also released to D1 which would not be the case if D1 had failed to execute the Works properly or had been negligent under the main contract with D2. After all, D1’s Works were carried out by the plaintiff under the Letter of Award and the standard form PAM Nominated Sub-Contractor’s Contract 2006. [178] It was left to D2 to prove at the trial the alleged negligence of the plaintiff and having examined the evidence presented I am satisfied that D2 had failed to prove this on the balance of probabilities. The Wagner Piano Building was on pad footing, a fact that was realised much later by Dr CC Wong after piling works had started and with hardly a 7.5 feet between the 2 buildings, with the towering building of Tribeca being erected with a deep foundation preceded by excavation works, it surely 55 of 57 does not take much imagination to appreciate that there is every possibility that the adjacent Wagner Piano Building would be susceptible to damage and its structural foundation compromised. After all the Wagner Piano Building, like most adjoining buildings there, is an old 2 storey building. [179] The Tribeca has to arise from its foundation as its owner D2 had planned and any damage done to the Wagner Piano Building and the rectification and restoration costs associated with it had to be costed as part of the construction costs for such a massive project. [180] As D2’s consultant Dr CC Wong is not a party to the action, I shall say no further on whether he could be liable. All I can say is that when one is constructing a 37-storey of two blocks of serviced suites on a 0.75 acres land with an old low rise building immediately adjacent to the development, one cannot discount the damage that would in all probabilities be caused to small structure of such close proximity. Pronouncement [181] To recapitulate, having found that there is no privity of contract between the plaintiff and D2 and that there is no collateral contract wherein D2 had assumed an independent obligation to pay the plaintiff, the plaintiff’s claim against D2, for work done was dismissed. [182] D2’s counterclaim for negligence against the plaintiff was also dismissed. 56 of 57 [183] As for D2’s counterclaim in negligence, the plaintiff does not owe D2 a duty of care. The plaintiff’s obligation is contractually to D1 in as much as D1’ obligation is to D2. Where parties in the chain of construction contracts had addressed their mind on the risks and remedies and how to allocate them, this Court would be slow in finding a separate cause of action in tort between non-contracting parties. [184] Even assuming that there was a duty of care owing by the plaintiff to D2, this Court had, for the reasons given, found that the duty of care had not been breached. [185] In the upshot both the plaintiff’s claim and D2’s counterclaim was dismissed with each party bearing their own costs. Dated: 23 March 2020. Sgd. LEE SWEE SENG Judge Construction Court High Court in Malaya Kuala Lumpur 57 of 57 For the plaintiff : Sanjay Mohan and Wong Li Wei (Messrs Sanjay Mohan) For the 2nd defendant : Faisal Moideen, Priscilla Tan and Daphne Rethual (Messrs Moideen & Max) Date of Decision: 8 November 2019.