Ms Elevators Engineering Sdn Bhd v Jasmurni Construction Sdn Bhd (W-02(C)(W)-627-03/2018 & W-02(C)(W)-645-03/2018)

Kensington Vision Sdn Bhd, developer of a project in Bandar Putra Permai, Selangor (the employer), appointed the defendant as its main contractor. By a letter of acceptance dated 31.1.2013 (LOA), the defendant appointed the plaintiff as a nominated subcontractor for the supply, installation, testing and commissioning of 22 lifts for Blocks A, B and C and shoplots in the project for a contract sum of RM4,005,760.00 plus maintenance contract of RM294,240.00 during 24 months defect liability period.

The plaintiff claimed a balance sum of RM1,337,989.74, as amended, including variations, after it had completed the works. The defendant did not pay but countered that the plaintiff had delayed in completing the works which entitled the defendant to set-off against its claim for liquidated and ascertained damages (LAD) at the contractual rate of RM68,000.00 per day. The defendant contended that due to the delays, it had to pay LAD amounting to RM3,910,000.00 to the employer which exceeded the plaintiff’s claim. The defendant set-off and counterclaimed for this sum against the plaintiff. Page 3 of 13 [4] After a trial, the learned judge ordered the defendant to pay the plaintiff a sum of RM1,235,670.74 with interest thereon at 5% per annum from the date of the final account statement dated 28.03.2017 until full settlement. In respect of the counterclaim, the learned judge ordered the plaintiff to pay the defendant a sum of RM977,500.00 with interest thereon at 5% per annum from the date of the counterclaim from 11.10.2016 until full settlement and for the parties to bear their own costs.

The plaintiff appealed against the judgment in allowing the LAD of RM977,500.00 and the defendant appealed against the whole decision of the learned judge. Both appeals were heard together. The plaintiff’s submission [6] The plaintiff submitted that it filed the suit on 7.9.2016 based on its records without the benefit of the final account for works done. On 24.2.2017 the final account was made available which was approved by all parties, namely the employer, defendant, plaintiff and the M&E engineer and then amended its claim to incorporate the figures of the final account for the balance of RM1,337,989.74. It submitted that it was not precluded to claim based on the final account.

The plaintiff referred to the defendant’s position that the plaintiff should not be paid on the progress claims which were not certified by the architect because the plaintiff should submit the progress claims to the defendant which would submit to the architect, M&E engineer and the quantity surveyor (QS) and for the M&E engineer to verify the value of work done. The M&E engineer would issue his certificate to the QS for him to do his valuation of works done and then for the Page 4 of 13 architect to issue the progress certificate before the plaintiff was entitled to be paid. The plaintiff submitted that it was the fault of the defendant because DW3 had testified that the defendant did not send the plaintiff’s progress claims to the M&E engineer for certification.

The plaintiff submitted that on 15.3.2016 the architect had issued the certificate of practical completion (CPC) that the works had been satisfactorily completed and the final account had been issued which was verified by all parties including the defendant. It submitted that it was therefore entitled to claim based on the final account.

The plaintiff referred to the defendant's counterclaim premised on the LAD at RM68,000.00 per day which alleged that the plaintiff did not adhere to the completion date stipulated in the 3rd work program. The plaintiff submitted that despite overwhelming evidence that the defendant was not entitled to the LAD, the learned judge had allowed a portion of the LAD amounting to RM977,500.00 and had erred. It was submitted that the learned judge failed to appreciate that the defendant had caused delay and did not give possession of the lift related areas to the plaintiff for it to carry out its works which resulted in the plaintiff being unable to adhere to the 3rd work program which was not its fault.

It was submitted that the defendant had the burden but failed to prove any such subsequent date wherein possession as per contract was granted to the plaintiff and the learned judge ought to have dismissed the defendant's claim. It submitted that the defendant failed to prove that the actual loss suffered was attributable to the plaintiff. Page 5 of 13 The defendant’s submission [11] The defendant submitted that the plaintiff’s claim was based on the statement of final account which was not a payment certificate. It was submitted that a final payment certificate must be issued before payment of the final accounts under clause 26.9 which was a condition precedent for payment. It was submitted that the plaintiff did not produce the final payment certificate which entitled the plaintiff to the payment claimed.

It was submitted that the plaintiff’s claim was premature. It submitted that the learned judge erred in failing to distinguish that the statement of final accounts was conclusive of the final contract sum and not a payment certificate. It submitted that in allowing the plaintiff’s claim without the payment certificate, the learned judge failed to apply the contractual terms which jeopardised the defendant’s interest in that the defendant had lost the right of set-off under clause 26.13 and 16.1 of the Sub-Contract. It submitted that this would set a precedent for litigants to claim payment before the final payment certificate was issued.

The defendant submitted that it was a prerequisite for the plaintiff to obtain an extension of time pursuant to clause 21.5 of the PAM Sub Contract for any delay to complete its work program as stipulated otherwise LAD would apply. The defendant contended that the plaintiff did not obtain the necessary extension and therefore was entitled to the LAD. It submitted that once the delay ended, the plaintiff was required to issue a notice under Clause 21.5(b) to claim the final extension of time but did not do so. Page 6 of 13 [14] The defendant submitted that it claimed a delay of 292 days for LAD of RM3,910,000.00. The defendant submitted that the learned judge took the simplistic view that the delay on part of the plaintiff was counted from the day the plaintiff’s letters of complaint ceased on 23.9.2015 until the date the PMA license was obtained on 16.2.2016. It submitted that the learned judge had erred in arriving at 146 days of delay only and erred in awarding only RM977,500.00 to the defendant. The court’s decision [15] Based on the appeal records, we set out the salient facts which will form the basis of our judgment. By a letter of award dated 24.10.2012, the employer appointed the defendant as its main contractor for the project for a fixed lump sum price of RM138,000,000.00 to be completed within 24 months from date of commencement of 17.12.2012, completion date on 16.12.2014. The defendant in turn appointed the plaintiff as its nominated subcontractor for the installation and commissioning of the lifts for the project. The terms and conditions of the subcontract including LAD were based on those in the main contract.

Pursuant to the letter of acceptance (LOA), the plaintiff entered into the subcontract based on the PAM Form of Agreement and Schedule of Conditions of Building Contract 2006, (without quantities). The dates of commencement and for completion would follow the main contractor’s work program and all the works physically, practically and satisfactorily completed would be certified by the M&E engineer and architect. The plaintiff was to prepare and submit detailed work program subject to architect’s approval before commencing work. Some of the terms were amended via two letters, dated 6.3.2013 and Page 7 of 13 16.4.2013. In the event the plaintiff’s work program did not correspond with the defendant’s work program, the plaintiff was prepared to reschedule its work program to suit the defendant’s work program provided that reasonable time frame be allowed for the plaintiff to deliver, install, test and commission the lifts.

It was not in dispute that other subcontractors were involved in the project and that the defendant could not complete the project within the 24 months contract period, namely by 16.12.2014. The completion date was extended to 30.4.2015, which was further extended. The employer wrote a letter dated 19.3.2015 to the plaintiff complaining that Bomba lift for all three blocks were not delivered and installed on site up to date. By a letter dated 25.3.2015, the plaintiff submitted a revised lift installation work schedule (3rd work program) to the defendant. The dispute between the plaintiff and the defendant was in respect of the 3rd work program. The plaintiff complained that it was not given possession of the site to enable it to proceed.

The records showed that by a letter dated 18.8.2015, addressed to the defendant, the architect refused to issue the certificate of practical completion (CPC) because all the lifts for Blocks A, B, C and the 12 units of shops were not completed. The employer gave notice to the defendant to impose LAD of RM7,820,000.00 incurred up to 23.9.2015. By an email of 23.11.2015, the employer required the plaintiff to coordinate closely with the main contractor (defendant) to remedy the defects for JKKP inspection within two days. The architect finally issued the certificate of completion, dated 15.3.2016, certifying that the works were practically completed on 29.2.2016. Page 8 of 13 [19] On 4.12.2015 the plaintiff submitted its final claim amounting to RM1,058,644.00 to the defendant for payment. The claim was adjusted, as amended, after it received the statement of final account dated 24.2.2017. The defendant contended that the plaintiff’s claim was premature because there was no payment certificate issued which would entitle the plaintiff to claim payment. The defendant submitted that the issuance of the certificate was a prerequisite to payment, citing several authorities including Ling Heng Toh Co v Borneo Development Corp. Sdn Bhd [1973] 1 MLJ 23; Renofac Builder (M) Sdn Bhd v Chase Perdana Berhad [2000] MLJU 752 and Tuck Sin Engineering & Construction Sdn Bhd v Yee Heng Manufacturing (M) Sdn Bhd [2007] MLJU 416 in support.

Under paragraph 23 of the LOA, with the heading ‘Method of Payment for Nominated Sub-contractor’, the plaintiff was required to submit progress claim to the defendant every 1st day of 3rd week of each month to be incorporated into the defendant’s progress claim to be certified by the architect. The payment would be made by the employer in separate cheque drawn in favour of the plaintiff forwarded through the defendant as the main contractor. The LOA did not provide nor referred to any payment certificate. This was provided for in clause 26.0 of the PAM Subcontract 2006. Clause 26.3 stated that when issuing any payment certificates, the architect ‘shall also indicate separately any amount due to the Sub-contractor’ and the payment ‘shall be made within seven (7) days’ after the period of honouring the certificates.

Based on the plaintiff’s 13th progress claim for RM656,904.00, the previous claims had been certified amounting to RM3,229,856.00 Page 9 of 13 for payments. RM2,754,770.26 had been paid. The plaintiff submitted its final claim dated 16.11.2015 and 4.12.2015. The records showed that the defendant did not submit the claim to the M&E engineer, QS and architect for valuation and certification. Therefore no payment certificate was issued and no payment made. However the architect had issued the certificate of completion. The defendant could not then argue that since there was no payment certificate, the subcontractor was not entitled to payment. On the facts and circumstances of the case, the payment certificate was not a prerequisite for payment to be made.

Under clause 26.7, within three months after practical completion of the subcontract works, the subcontractor ‘shall send to the contractor with copies to the architect and consultant all documents necessary for preparing the final account. The final account shall be completed within six months from receipt of all the documents’. In this case the statement of final account was issued on 24.2.2017, after the suit was filed. The plaintiff applied to amend its claim which was allowed. On the facts, the learned High Court Judge was correct in allowing the amendment.

The statement of final account valued the final contract sum at RM4,092,760.00. This statement was signed by the architect, employer, plaintiff and the defendant. The defendant did not challenge the statement of final account or that it was entitled to set-off against defective works. The defendant did not submit that it was obtained fraudulently or that there were arithmetical errors in the computation. The parties did not refer their dispute to arbitration. The parties had Page 10 of 13 accepted the final account. Clause 26.10 stated that the final account shall be conclusive on the final value of the subcontract works.

Based on the final account, the learned High Court Judge allowed the plaintiff’s claim, as amended, after deducting the retention sum, in the sum of RM1,235,670.74. On the appeal records, he was not plainly wrong and there was no reason for us to interfere with his decision as such.

Regarding the appeal on the LAD, on the facts, in particular the correspondence above referred to, clearly there were delays in completion of the works, with each blaming the other for the delays. The 3rd work program set out the commencement date and completion date with JKKP certification for each phase of work. The plaintiff complained that it was not given possession of the site and not provided with sufficient electricity to enable it to install, test and commission the lifts and should not be penalized with the LAD. The defendant among others submitted that the notes in the 3rd work program in respect of the hand over were not part of the contract. Whether they should be implied or part of the contract, under the LOA the plaintiff was required to prepare and submit detailed work program to the defendant and employer for approval by the architect. The plaintiff had proceeded with the works under the 3rd work program although there were delays in completion. Some of the delays were due to other subcontractors because the lift shafts were yet to be completed.

The plaintiff was to complete the 3rd work program on 30.5.2015. On 30.9.2015 the defendant wrote to the plaintiff complaining on the Page 11 of 13 delay. By 15.10.2015, the employer expressed disappointment and dissatisfaction to the plaintiff on the current status of the lifts for the shops till to date. The defendant sent reminders, for example on 21.10.2015, 11.11.2015 and 4.12.2015 for delays and the consequent LAD to be imposed. The plaintiff obtained PMA certification for lift A2 on 31.10.2015 and finally, certification for the shops on 16.2.2016. It was clear there were delays on the part of the plaintiff in completing the works. The plaintiff did not apply for any extension of time.

As stated above, by a letter dated 21.10.2015, the employer imposed LAD amounting to RM7,820,000.00 (RM68,000.00 x 115 days) incurred up to 23.9.2015 on the defendant. After several discussions, the employer and the defendant agreed to reduce the LAD to 57.5 days calculated at RM3,910,000.00, which was deducted from the contract sum due to the defendant. This was not in dispute. The defendant claimed this sum as actual loss against the plaintiff. The parties and the learned High Court Judge had referred to Selva Kumar a/l Murugiah v Thiagarah a/l Retnasamy [1995] 2 CLJ 374 and Johor Coastal Development Sdn Bhd v Constrajaya Sdn Bhd [2009] 4 MLJ 445 on damages under section 75 of the Contracts Act (CA). These two cases must be read in the light of the latest decision of the Federal Court in Cubic Electronics Sdn Bhd (in liquidation) v MARS Telecommunications Sdn Bhd [2019] 1 AMR 737.

The burden was on the party seeking to enforce a damage clause under s.75 of CA to adduce evidence that there was a breach and that the contract contained a clause specifying a sum to be paid upon breach. In the event of a dispute as to what constituted reasonable compensation, the burden was on the defaulting party to Page 12 of 13 show that the damage clause including the sum stated was unreasonable: Cubic Electronics (supra). After the LOA and the plaintiff had entered into the subcontract, the plaintiff did not complain that the LAD clause or that the sum specified therein were illegal or unfair or unreasonable.

Based on the letter dated 23.9.2015 by the consulting engineer, the M&E works had been completed save for the lift works for the shops and the learned High Court Judge found that the CNC dated 30.6.2015 was issued by the defendant to 7 other subcontractors including the plaintiff. The delays were not due solely to the plaintiff. The defendant and the other subcontractors were also responsible for the delays. The defendant was unable to pinpoint the specific number of days of delay due solely to the plaintiff. However the defendant claimed for 292 days calculated from 30.4.2015 to 16.2.2016.

The LAD for 115 days up to 23.9.2015 had been reduced to 57.5 days only, which was a negotiated and arbitrary figure. The 115 or 57.5 days did not support the defendant’s claim for 292 days and the defendant was not entitled to the 292 days. In any event, a simple calculation showed that 292 days did not add up to RM3,910,000.00. The defendant also could not use the 115 or 57.5 days to claim the LAD. The defendant did not produce any other proof of reasonable loss or compensation that it was entitled to. The learned High Court Judge was entitled to adopt a common sense approach in assessing the damages. On the evidence before him, the learned High Court Judge assessed the LAD at RM977,500.00 and had given his reasons for his assessment. This was based on proportionality. On the facts and circumstances, he was not plainly wrong.

For the reasons we have given, we have dismissed both the appeals and parties to bear their own costs. Dated: 20th June, 2019 signed STEPHEN CHUNG HIAN GUAN (delivering judgment of the court) Court of Appeal Judge Putrajaya For Appellant : David Samuel Messrs. Chambers of Firdaus For Respondent : CC Kok Messrs. Ong & Kok