MPM Project Management Sdn Bhd v Kin Keong Electric Engineering Sdn Bhd (AB - 12B NCVC - 19 - 09/2019)

Albeit the defendant having submitted list of defects to be repaired to the plaintiff, it remained so. The plaintiff had showed its willingness to carry out remedial work. It requested for details as to how, when and whom to contact to start the remedial work, but there was no reply and affirmative action from the defendant.

(ii) There was communication between parties on the remedial work needed but there was no response from the defendant. Moreover, Novotel Hotel had started operations, as such 5 permission was needed for the plaintiff to enter and carry out works.

(iii) There were no details on how defendant had spent the claimed RM35,000.00 for repair works, specifically on the escalated cost of repair for some of the work done. Thus, claim by the defendant seems dubious, as the amount claimed for cost of repairs is not supported by evidence. In fact, the court had found as a fact that the cost of repairs, if had to be carried out by the plaintiff, would have probably cost only RM4,000.00. (See evidence of SP1 as well as SD4). On omission of works

The defendant had attempted to make out a case that it had the right to set off RM386,526.21 from the contract sum because of omission of works. This according to the defendant, is provided by clause 20(b) of the Letter of Acceptance, and seemingly based on the difference between tender and built drawings.

(ii) The defendant, MPM asserted that the works carried out should be based on the shop/built drawing which it had approved and not on tender drawing. It had depended on a third-party consultant to work out the cost. But the fact remains 6 that there was no consultation nor discussion with the plaintiff on the nature of the work omitted as well as its cost. It was only at a meeting during closing of accounts, the defendant had informed the plaintiff of it.

(iii) It was averred by the plaintiff that its claim is premised on work done. It had argued that the defendant had the right to subtract from the contract sum if work was not completed but not to make adjustment of cost based on differences in completion of work in comparison with tender and built drawings. This would go against Clause 7 of the Letter of Acceptance. Claim for Liquidated and Ascertained Damages (LAD)

The plaintiff made it clear that phase 1 and phase 2 of project were completed and handed over to defendant on 26.10.2016 and 14.11.2016 respectively. However, defendant had asked plaintiff to do additional work from October to December 2016, which had consequently delayed the project. Testing and verification of the work was only undertaken by the defendant on 29.12.2016 and the hotel had started operations in April 2017.

(ii) After the additional works were carried out, the defendant started certification process on 29.12.2016. At this juncture it 7 has to be pointed out that the delay as alleged was caused due to the carrying out of the additional work as required by the defendant. Thus, the delay was caused by defendant’s own action and it had caused no losses to it, since there is no proof of such loss. Concomitantly, the SCJ had found as a fact supported by law that onus is on the defendant to prove the loss incurred, if any, pursuant to section 75 of the Contracts Act 1950 (Act 136).

(iii) The court too had raised an issue as to why MPM, the defendant did not see it fit to lodge a claim for compensation from the owner of the project, Unifortune Holding Sdn Bhd, if at all there has been a delay by the plaintiff to complete its part of the works. Contention of the defendant [9] The defendant stood its ground to state that there was no money owing to the plaintiff based on the aforesaid three factors, namely: defective work; omission of work; and delay. These were woven by the defendant to form an interplay of circumstances which worked against the plaintiff, KKEE. [10] It claimed that the SCJ had erred on the issue as to omission of works. Reference is made to clause 11.1 of the Letter of Award that 8 stated changes in the design amounted to variation. As such, due to the variation, there was no reason for the plaintiff to be entitled to the whole contract sum. [11] Apparently, the defendant had informed the plaintiff of the omission of work, at the time when the final accounts were prepared. However, the plaintiff had requested for a detailed list from the defendant, which resulted in the defendant consulting a third party to prepare a list with reference to the technical report. From here, it was calculated that the omission works costs RM400,000.00 [12] The core of the matter was that the defendant claimed it was entitled to claim for omission of works resulting in cost reduction. The cost of the omission of works amounted to RM386,256.21. The defendant states the SCJ had the incorrect perspective on the shop/built and tender drawings when considering that the actual work done would be different from the initial design or drawing, and that changing the drawing would actually reduce the total contract value. There were also claims made by the defendant that a lump sum contract did not necessarily mean that a contractor would receive the same amount of money on completion of work, as there would be adjustments made such as extra work, fluctuations with sub-contractors etc. 9 [13] The defendant further argued that it was entitled to claim for LAD if the project was delayed as per Clause 9 of the Letter of Award. It went on to say that the project was delayed for a total of 60 days, which amounted to RM154,000.00 or 5% of the contract sum. [14] Added to the conundrum was the defective work in the project. The defendant alleged the plaintiff refused to carry out the repairs that amounted to RM35,000.00. To support this, the defendant affirmed that the plaintiff did not deny these works remain unrectified. [15] On claim for LAD, it defended itself by stating that the SCJ erred as it was the plaintiff that should prove the amount of damage was unreasonable, but it had failed to do so. Conversely, it pointed out that delay had been proven and it was not refuted by the plaintiff as evidenced by its weekly minutes. This according to the defendant, could be considered as breach of contract. [16] Further on the issue of LAD, the defendant submits if a reasonable compensation could be worked out, so that there is no large difference between level of damages as in the contract compared to actual damages suffered. [17] At this stage of the narrative, a poser which has to be cleared is on the issuance of Certificate of Practical Completion which was never given to KKEE. It could be surmised that, probably MPM held on to 10 it to somehow justify the delay, omission and defective work plot. However, the mantle of the case is, MPM, the defendant refused to pay plaintiff the remaining progressive payment of RM107,993.05. albeit many reminders, including a final meeting where both parties met to finalise their accounts and no payment was forthcoming. Principles of law [18] After referring to cases on Building Contract Litigation like, CM Indah Sdn. Bhd. v UB Usahabina Sdn. Bhd (2006) MLJU 426; Ohbayashi-Gumi Ltd v Kian Hong Holdings Pt. Ltd. (1987) 2 MLJ 110; CS International Design Consortium Sdn. Bhd. v HSB Development Sdn. Bhd. (2014) 11 MLJ 751, it is submitted by counsel for defendant that the total value of contract sum has to be reduced when there is omission of works due to alteration of design, and such a reduction is permitted under the contract and the law. [19] Counsel for defendant/appellant had misread those authorities. In those cases, it was decided that in ordinary lump sum contracts (like the present case) the contractor is entitled to be paid the pre-agreed lump sum as and when he substantially complete the works. It was further decided that substantial completion does not necessarily entail the perfect execution of every detail of the works, and if the contractor is guilty of only comparatively minor defects and/or 11 omissions then he is entitled to be paid the lump sum less a set-off in respect of his failings. In fact, this has been advanced by the defendant, that there are in fact omission of works. Surely, this principle of building construction law is subject to law of evidence wherein, the omission of works has to be proven by the defendant on a balance of probabilities. This is so pursuant to section 103 of the Evidence Act 1950 (EA; Act 56) which renders that burden of proof as to any particular fact lies on that person who wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person. In the absence of any such legal provision, the burden of proof in the present case, rests on the defendant to prove there are omission of works decided by the defendant at the outset. As omission of works is pleaded as a counter claim against the plaintiff, the defendant has to prove of its existence on a balance of probabilities, otherwise the law does not entitle the defendant to such a claim. [20] Is there such proof by the defendant? The answer lies in the finding of fact made by the SCJ, who had the advantage of audible evidence from witnesses both for plaintiff and defendant. He had arrived at the finding of fact after carefully combing through oral and documentary evidence proffered in the case. 12 [21] On omission of works, defendant claims that it is entitled to an amount of RM386,256.21. It is premised on clause 20(b) of the Letter of Acceptance between the plaintiff and defendant before the building contract of works commenced. Clause 20(b) is explicit, when it provides – “The Project Manager reserves the right to omit any part of the works and omission will be deducted from your contract accordingly. You shall not be entitled to claim for any loss and expenses as a result of the omission.” [22] With regard to claim for omission of works by the defendant, the following had transpired –

Defendant’s witness SD1 had testified that the contract works has to be premised on Shop Drawing (D24) which was agreed upon by both plaintiff and defendant. It cannot be based on the Tender drawing. As such, all variation in sizes or length of cable installed is done on instruction of defendant and not by plaintiff on its volition.

(ii) For claim of omission of works, defendant had based it on a consultant’s report (D26) to show there were differences between Tender Drawing and As Built Drawing. It is pursuant to D26, the defendant via SD1 had calculated a figure of 13 RM386,256.21 as deduction from the lump sum contract payment to plaintiff. The calculation is found in D18.

(iii) What the defendant had done is to embark on a re-measurement unilaterally without consulting the plaintiff. Further it was done based on works already completed by plaintiff by comparing the Tender Drawing and As Built Drawing.

(iv) The defendant by doing so, has forgotten that it contravenes clause 7 of the Letter of Acceptance which renders that – “This is a Lump Sum contract and not subject to any final re-measurement upon completion of the contract works on the site. The Bill of Quantities as per Appendix C shall serve as basis in the evaluation of your monthly progress claim.” In the context of clause 7, the plaintiff is only claiming for works done and completed, the basis being the Bill of Quantities as per Appendix C to the Building Contract of Works. It is also apparent that any re-measurement done by defendant after completion of works by plaintiff goes against the Letter of Acceptance which had been agreed upon by both parties at the onset before commencement of contract works.

It is also apparent from the record of proceedings, that the omission of works which forms the counter claim by the 14 defendant is not part and parcel of the claim by the plaintiff. In this regard the trial judge had in a nutshell summarize as the following – “Keterangan SD4 yang menyediakan eksibit D24 mengakui bahawa :- a) Sebahagian besar perbezaan kerja antara Tender Drawing dan As Built Drawing adalah melibatkan perubahan saiz dan panjang kabel yang telah digunakan; b) Item-item yang telah dikecualikan dan tidak perlu dilaksanakan hanya melibatkan item diperenggan 3.0 (b) dan (c) eksibit D26. Eksibit D26 menunjukkan perenggan 3.0 (b) adalah melibatkan kerja di perenggan 2.3.40 (j) dan 2.3.40 (k) Appendix C dan perenggan 3.0 (c) pula adalah melibatkan kerja diperenggan 2.3.5 (d) Appendix C yang sama. Mengikut pengiraan oleh SD1 sendiri dalam eksibit D18, pemotongan dan penolakan daripada harga kontrak hanyalah seperti mana berikut:- i) Item 1(a)(iv) to omit item 2.3.40 berjumlah RM12,643.4 ii) Item 1(a)(v) to omit item 2.3.40 berjumlah RM11,96.05 iii) Item 1(a)(iii) to omit 2.3.5 berjumlah RM12,842.12 …”

(vi) On this, his finding of fact is - “ Dapatan keterangan SD1 telah mengambilkira jumlah ketiga-tiga item tersebut sebagai sebahagian dari jumlah RM386,256.21 yang perlu 15 ditolak/potong walaupun tuntutan progresif Plaintif dalam eksibit P3(j) jelas dan nyata menunjukkan Plaintif tidak menuntut apa-apa untuk ketiga-tiga item tersebut. Ini bermakna mengikut Klausa 20 (b) dan Klausa 7 Letter of Acceptance tersebut, Defendan hanya berhak membuat potongan harga kontrak untuk kerja-kerja di item diperenggan 3.0 (b) dan (c) eksibit D26 sahaja dan bukannya item-item yang lain. Defendan juga tidak berhak memotong dan menolak harga kontrak untuk item-item diperenggan 3.0(b) dan (c) eksibit D26 tersebut kerana Plaintif langsung tidak pernah menuntut bagi kerja-kerja tersebut. Malahan Defendan hanya memaklumkan niatnya untuk memotong harga kontrak ketika mesyuarat penutupan akaun bersama Plaintif, iaitu selepas kesemua kerja telah dilaksanakan. SD1 juga mengakui dalam keterangannya bahawa pengiraan semula tersebut telah dibuat tanpa persetujuan Plaintif dan eksibit D17 dan eksibit D18 hanyalah sekadar “Draft for Discussion” antara pihak-pihak. Adalah jelas dan nyata As Built Drawing adalah berbeza dari Tender Drawing setelah kerja-kerja dilaksanakan. SD1 juga mengakui dan bersetuju bahawa Shop Drawing juga membolehkan Plaintif dan Defendan mengetahui jenis, bahan material atau kabel apakah yang perlu dibeli dan kosnya sebelum kerja-kerja dimulakan. Mengapakah pada ketika mulanya (sebelum kerja-kerja dijalankan) Defendan tidak mendapatkan persetujuan daripada Plaintif untuk mengurangkan kos? Keterangan ini berbeza untuk kerja variasi seperti dalam eksibit P2 16 dimana Plaintif perlu mendapatkan persetujuan daripada Defendan sendiri terlebih dahulu untuk kos kerja-kerja tambahan sebelum Plaintif boleh memulakan kerja-kerja tambahan. Berdasarkan keterangan tersebut, Defendan tidak boleh sesuka hati dan tanpa persetujuan daripada Plaintif untuk terus menolak dan mengurangkan harga kontrak begitu sahaja setelah semua kerja-kerja kontrak telah disiapkan. Ini adalah bertentangan dengan Klausa 7 Letter of Acceptance yang memperuntukkan bahawa tuntutan Plaintif adalah berdasarkan kos harga di Appendix C, dan bukannya daripada apa-apa kos baharu kemudiannya …”

(vii) It is contended by the plaintiff that defendant is only entitled to deduct from the contract sum works not completed by the plaintiff and omitted from the contract works (meaning it is not required to be completed by the defendant).

(viii) The plaintiff in its claim against the defendant, is only pursuing with the sum to be paid for contract works embarked upon and completed and not works which were not required to be completed on the instruction of the defendant.

(ix) Plaintiff views its claim as legitimate as the defendant had in fact already paid an amount of RM2,631,475.50 leaving a balance of RM107,993.05. Hence it is submitted by the plaintiff that the amount paid to them would have in fact covered the amount counter claimed by the defendant which 17 is RM386,256.21. It is further submitted that if that amount ought to have been deducted, allegedly for omission of works, then it should have been made upstart and not after all contract works had been completed, leaving an amount so much lesser than the amount counter claimed. This according to plaintiff smacks on an afterthought. It is so as counter claim made for omission of works is not proven by the defendant as its entitlement on a balance of probabilities. Even if the premise of the claim is the Shop Drawing, it has been existent even at the point of time when the amount for contract works done was paid to the plaintiff. It is not something which came about later in their contractual relationship. Hence, the finding of fact by the trial judge that the counter claim by the defendant to have the plaintiff’s claim set off, is only an excuse to thwart and avoid the principal claim by the plaintiff for works done which is legitimate and in accord with contract P1 and the law pertaining building contract which applies to both parties equally. [23] On defective works, the trial judge had made the following findings after having referred to SD1’s testimony who was the witness for the 18 defendant who was supposed to have embark on the rectification works – “… Melalui keterangan SD1; Chaw Kar Woh (Senior Manager Defendan) mengakui telah menerima e-mail Plaintiff (eksibit P8) tersebut, tetapi gagal membalas e-mail Plaintiff tersebut dan tanpa memberikan masa, tarikh dan nama pekerja Defendan untuk Plaintif hubungi untuk kerja-kerja defektif baik pulih yang dimaklumkan oleh Defendan terdahulu … Keterangan ini jelas dan nyata menunjukkan Plaintif tidak pernah diberikan peluang untuk menjalankan kerja-kerja baik pulih defektif sekalipun Defendant mengakui pernah menerima pertanyaan daripada Plaintif untuk menjalankan kerja-kerja baikpulih defektif seperti dalam aduan Defendan dalam eksibit D12 dan sebutharga (eksibit D13) oleh Defendan … Tambahan pula, SD1 telah mengakui dalam keterangannya bahawa Defendan belum lagi membelanjakan kos untuk membaikpulih defect. Defendan hanya bergantung kepada eksibit D13 bahawa kononnya kos baik pulih berjumlah RM35,000/ yang mana tiada kos sebenarnya dibelanjakan oleh Defendan sehingga ke hari ini. SD1 juga mengakui dalam keterangannya bahawa sama ada kerja baikpulih dijalankan atau tidak, operasi perniagaan premis hotel tersebut tetap boleh beroperasi … Defendan telah gagal membuktikan keterangan bahawa D13 telah dihantar kepada Plaintif sebagai makluman atau notis bahawa sekiranya Plaintif gagal membaikpulih defect, maka Defendan akan melantik SD4 untuk berbuat demikian. Eksibit D13 tidak patut malah tidak perlu disediakan lebih-lebih lagi sehingga ke hari ini kerja-kerja baikpulih defect masih belum dijalankan oleh Defendan …” 19 [24] From the above, it is patently clear that the trial judge had evaluated testimony of SD1 and documentary evidence tendered by him before arriving at the finding of fact. Hence to conclude, on the defects and thereon rectification works, although there was intimation on it to the plaintiff, there was no follow-up further, even after the plaintiff had requested for details in order to carry out the works. But the defendant had refused to communicate but instead issued D13 which was solely prepared by SD4 to contain the rectification works which were in fact not carried out at all. Further fortified by the fact that Novotel Hotel had proceeded to carry on with its business without the alleged need to rectify the alleged defects purportedly left by the plaintiff. Conduct of the defendant smacks on mala fide, seemingly to thwart the claim by the plaintiff. In that regard the counter claim by the defendant for the alleged rectification works has not been proved on a balance of probabilities for the court to consider. [25] On the issue of delay and claim for LAD, it is apparent on face of the record pursuant to P5(a) and (b) which was acknowledged receipt by the defendant that the plaintiff had completed the electrical works for Phase 1 on 26.10.2016 and Phase 2 on 14.11.2016. The testing and commissioning works were completed by the defendant on 20

29.12.2016, which is evidenced by P2(h), (i) and (j). The testing and commissioning works took some time as the plaintiff was instructed to carry out some additional works at the site. It is also a glaring fact that Novotel Hotel Taiping commenced its full operation since April

There has been no evidence of any loss suffered as a result of the alleged delay in completion of electrical works. Moreover, the defendant has not been able to produce any evidence of claim for damages or penalty from the project owner Unfortune Holding Sdn. Bhd., who is owner of Hotel Novotel Taiping. [26] Any delay caused is due to lateness in testing and commissioning works by defendant itself with no fault of plaintiff, as plaintiff had completed the electrical works on 29.12.2016. When P5 (a) and (b) was sent to the defendant, it did not raise any issue or objection on completion of electrical works by the plaintiff. [27] Clause 9 of the Letter of Acceptance which allows claim for LAD on ground of delay in completion of electrical works by the plaintiff ought to be read in the light of section 75 of the Contracts Act 1950 (Act 136). The provision renders the following – “When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, of if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, 21 whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.” In the premise and in view of the above argument, it is again apparent from record of proceedings, that the defendant did not produce an iota of evidence to support its claim for LAD. The defendant has to be mindful that the issue at hand with regard to claim for LAD is not on the rate of LAD claimable if there is delay, as they have contended by relying on authorities like Teknik Segala Sdn Bhd v Salcon Engineering Bhd (2012) 9 MLJ 529; Camellia View Sdn. Bhd. v Envipro Sdn. Bhd. (2014) 1 MLJ 100. The pivotal issue is, has the defendant proved such a delay had occurred which entitles them to claim LAD against the plaintiff. [28] Counsel for defendant/respondent had relied upon the Federal Court case of Cubic Electronics Sdn Bhd (in liquidation) v Mars Telecommunications Sdn Bhd (2019) 6 MLJ 15, and submitted that it was propounded in that case that so long the innocent party can establish that there was a breach of contract and that secondly, the contract contains a clause specifying a sum to be paid upon breach, having been established, the innocent party (purportedly the defendant in the present case) is entitled to receive a sum not 22 exceeding the amount stipulated in the contract irrespective of whether actual damage or loss is proven. The burden then shifts to the plaintiff to prove that the amount is not reasonable. It is contended that the proverbial ball is at the plaintiff’s court to prove that the amount is not reasonable. But the defendant has failed to realize that there has been no breach of contract by the plaintiff in the first place. There was no delay occasioned by the plaintiff. The plaintiff had duly completed its electrical works and handed over P5(a) and (b) to the defendant, which was not objected to by the defendant, hence issue of the plaintiff breaching the building contract does not arise in the first place. The late testing and commissioning works by defendant is no fault of plaintiff. [29] In the premise the Federal Court case of Selva Kumar a/l Murugaiah v Thiagarajah a/l Retnasamy (1995) 2 CLJ 374 is illuminating, where it was decided – “Where there is inherently any actual loss or damage from the evidence or nature of the claim, and damage for such actual loss is not too remote and could be assessed by settled rules, any failure to bring in further evidence or to prove damages for such actual loss or damage, will result in the refusal of the Court to award such damages, despite the words “whether or not actual damage was proved to have been caused thereby” in s. 75 of the Contracts Act.” 23 Hence, it is pertinent that there has to be evidence proffered by the defendant to prove actual loss or damage that has arisen from the alleged delay caused by the plaintiff in completing the electrical works. On a balance of probabilities, it is clear that the defendant is in fact responsible for the delay in carrying out the testing and commissioning works at the site after the plaintiff had completed the electrical works. So why blame the plaintiff. Thus, the defendant has no basis again for a counter claim against the plaintiff for the LAD. Conclusion [30] To conclude, many of the concerns in the case could have been resolved as there were avenues and opportunities for both parties to discuss and make amends, for instance at the shop drawing stage so that cost reduction etc. could have been worked out at the outset of the project. That said, even the final closing of accounts meeting could have afforded the parties the space and chance to settle outstanding issues. [31] The case in its entirety rests on oral and documentary evidence. The SCJ had arrived at findings of fact premised on those evidence. As he had the advantage of audible evidence, this court exercising appellate jurisdiction shall not interfere unless there is found appealable errors on the record. I do not find such errors, as the 24 SCJ has addressed his mind to the audible evidence of the witnesses corroborated by contemporaneous documentary proof which is of sufficient weight and significance to the case of the plaintiff. It is also apparent that the plaintiff has discharged its burden on a balance of probabilities to prove its claim against the defendant, but not the defendant in respect of its counter-claim. In the premise, the appeal is dismissed with costs of RM3500. Appeal dismissed with costs to be paid by the defendant/appellant. Dated 25 February 2021 Sgd. Muniandy Kannyappan Judicial Commissioner High Court, Taiping. Miss Sui Yoke Kuen, counsel for defendant/appellant of Messrs Srileena & Sui Mr. Cheong Yau Kheong, counsel for plaintiff/respondent of Messrs. BH Koh, Soong, Zarin & Partners.