Packaging Sales & Service (M) Sdn Bhd v Kejuruteraan Pakat Perkasa Sdn Bhd (BA-12BNCvC-59-12/2023)

Every Malaysian would remember the 18th of March, 2020. That was the date the first lockdown or the Movement Control Order due to the dreaded Covid19 was enforced throughout the country. Most people found themselves in a bind. The parties in the current appeal were no exception – as they had entered into a contract less than two weeks before the lockdown. The contract which forms the subject matter of the current appeal was dated 5 March, 2020.

Hence, the matter in this appeal relates to contract law in general and to the terms, variation of the terms and the termination of the contract in particular.

Having failed in its claim at the Sessions Court, the Appellant/Plaintiff has appealed against the entire decision of the Sessions Court (after a full trial) in dismissing its claim and in partially allowing the Respondent/Defendant’s counterclaim.

The Respondent/Defendant has also cross-appealed against the decision of the Sessions Court in requiring the Appellant/Plaintiff to return RM40,744.80 (constituting only 20%) of the sum/deposit that the Respondent/Defendant has paid to the Appellant/Plaintiff when the amount of refund sought in the counterclaim was for the full 100%.

The central issue in the appeal is whether the Respondent/Defendant had validly terminated the contract that it had entered into with the Appellant/Plaintiff.

Additional issues for determination by this Court relate to questions such as • Whether time was of essence in the contract; • Whether there was an extension of time and if yes, what was the period of extension and whether the Appellant/Plaintiff had fulfilled conditions within the extended period; • Whether the Respondent/Defendant had caused or contributed to the delay; and • If the termination was valid, whether the Respondent/Defendant was entitled to a full refund of the deposit paid to the Appellant/Plaintiff.

The contract at the centre of the present appeal was for the Appellant/Plaintiff to design, supply and commission a “tip-forming machine” for the Respondent/Defendant. The said Machine was meant to be supplied to the Respondent/Defendant's client's company, Teleflex Medical Sdn Bhd (‘Teleflex’).

The contract price agreed by the parties for the above project was RM509,312.00 of which the Respondent/Defendant had made a payment to the Appellant/Plaintiff for the sum of RM203,724.80 (40% of the contract value) on 27 April, 2020. The remainder of the value of the contract was to be paid in two tranches – another 40% after the conduct of the factory acceptance test (“FAT”) of the Machine, and the final 20% after the delivery and commissioning of the Machine.

According to Clause 4 of the contract, the Appellant/Plaintiff was required to deliver the Machine on or before 1 August, 2020 and to complete the commissioning of the Machine within 15 days from the date of delivery.

What was not disputed is the fact that the Appellant/Plaintiff failed to deliver the Machine by the original deadline of 1 August, 2020.

Fast forward, on 27 November, 2020, the Respondent/Defendant issued a notice of termination of the contract to the Appellant/Plaintiff, terminating the contract with effect on 26 November, 2020.

Since the Appellant/Plaintiff had failed to deliver the Machine by the original deadline of 1 August, 2020, it would appear that the termination of the contract by the Respondent/Defendant was justified.

Instead of accepting the termination of the contract by the Respondent/Defendant as a valid termination, the Appellant/Plaintiff instituted an action in the Sessions Court on 13 August, 2021 against the Respondent/Defendant, claiming that the Respondent/Defendant had wrongfully terminated the Contract. The Appellant/Plaintiff essentially 5 sought to demand from the Respondent/Defendant the balance 60% of the value of the contract, together with interest, damages and cost.

The Respondent/Defendant counterclaimed against the Appellant/Plaintiff, sought for a declaration that the contract was correctly terminated and for the refund of the deposit together with interest, damages and cost.

The findings of Sessions Court can be traced to paragraphs [29] to [78] of the learned Judge’s grounds of judgment.

Essentially, the learned Sessions Court Judge held that the Respondent/Defendant had validly terminated the contract and dismissed the Appellant/Plaintiff’s claim with costs. The learned Sessions Court Judge also allowed the counterclaim by the Respondent/Defendant but the limited the amount claimed to only 20% of the total deposit paid to Appellant instead of the full amount.

The core contention by the Respondent/Defendant is that the Appellant/Plaintiff failed to complete the said project within the stipulated time period under the terms of the said agreement and thus it rightfully and formally terminated the agreement on 27 November, 2020.

The Respondent/Defendant argued that the Appellant/Plaintiff had committed fundamental breach by reason of the purported failure on its 6 part to adhere to extensions of time granted by the Respondent/Defendant, that time is the essence of the agreement and therefore the termination of the agreement was valid.

In relation to the present appeal, the Respondent/Defendant submitted, inter alia, that the Sessions Court did not err in finding that: • The Covid 19 pandemic and the national lockdown did not prevent the Appellant/Plaintiff from performing its contractual obligations; and • The Respondent/Defendant was entitled to and did terminate the contract with effect from 26 November, 2020;

On the other hand, the Appellant/Plaintiff averred that: • Its business was affected by the Movement Control Order (MCO) where it had experienced delays in obtaining machine parts from the its suppliers; • It obtained partial approval to operate somewhere in June 2020 under the essential product manufacturing support service; • It had via an email requested the Respondent/Defendant to revise the original timeline to enable it to complete the machine works; • Approximately five weeks later, the Respondent/Defendant via a letter dated 24 August, 2020 gave it an extension of time until 25 September, 2020 (“first EOT”) for it to deliver the Tip Forming Machine to Teleflex and proposed to conduct FAT on/before 21 September, 2020; • It could not complete the said project within the extended time period provided by the Respondent/Defendant through first EOT as the said extended timeline was not adequate for it to complete the machine works “because 5 weeks were lost” and “there were only 3 weeks of time left from the original requested time” rendering that 3-week period as insufficient for it to complete the work; • Additionally, it had several times verbally requested the Respondent/Defendant to send sample materials to complete the machine design and to test the Tip Forming Machine, but the Defendant did not comply with its request; • The Respondent/Defendant had deliberately withheld sample material and glass formers and attempted to delay the said project despite knowing that it was ready for machine testing since October 2020; • The Respondent/Defendant via a letter dated 22 November, 2020 had given another extension of time to it but it could not agree to the conditions attached to the said extension of time since it will need to obtain the sample materials and glass formers from the Respondent/Defendant first to enable it to confirm the 8 timeframe the Plaintiff would take to complete the Tip Forming Machine; • The Respondent/Defendant's obligation under the said agreement is not limited in making the payment but also must ensure that the Respondent/Defendant supplied the sample materials and glass formers to the Plaintiff for the machine test (FAT); • The Respondent/Defendant had terminated its services under the said project via a letter dated 27 November, 2020 wherein the termination of the contract made by the Respondent/Defendant was wrongful and not in accordance with the law; • Any delay in completing the said project within the stipulated time was solely due to the Respondent/Defendant's failure in not providing it with the sample materials and glass formers at the beginning of the said project itself and the delay attributed to circumstances beyond the control of the parties (force majeure) (Covid lockdown); • Further, the Respondent/Defendant through its director, Vicnes and its employee, Jega had established a company called Orbit Manufacturing (M) Sdn Bhd (“Orbit”) as early as May 2020 which was used to take over the works that had been given and/or should have been given to the Plaintiff; • Vicnes is currently one of the directors in the Respondent/Defendant’s company and also in Orbit; • Orbit was formed to sabotage its business by copying the machine design that had been planned from scratch by it; • Orbit has now completed the machine works based on its design and drawings wherein the Respondent/Defendant's director, Vicnes had conspired with Jega to ensure that it could not fulfil its obligations under the said project and caused it to suffer losses in its business; and • The Respondent/Defendant had given the priority to Orbit to complete the Tip Forming Machine and to deliver it to Teleflex.

It is important to recall the following two dates, that is: 1 August, 2020 – the original deadline in the contract for the delivery of the Machine; and 27 November, 2020 – the termination of the contract by the Respondent/Defendant.

If the above were the only facts, this Court would have no difficulty in dismissing this appeal. It would evidently be a case of a breach of the agreement by the Appellant/Plaintiff and the Respondent/Defendant would be entitled to terminate the contract by invoking section 56(1) of the Contracts Act 1950. That relevant provision provides as follows: Effect of failure to perform at fixed time, in contract in which time is essential

(1) When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified times, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract. [23] However, events that had taken place between 1 August, 2020 and 27 November, 2020 have important bearing on the matter under consideration and must be examined in detail. [24] According to the Respondent/Defendant, subsequent to communications between the parties, an extension of time was extended by the Respondent/Defendant to allow the Appellant until 25 September, 2020 to deliver the Machine, with the FAT of the Machine to be held on or by 21 September, 2020 This, according to the Respondent/Defendant, was the first extension of time. [25] The Respondent/Defendant also averred that on or around 22 November, 2020, it again extended a second extension of time to the Appellant/Plaintiff, amending the deadline to deliver the Machine to 8 December, 2020 and the conduct of the FAT to be carried out by 1 December, 2020. The deadlines in this second extension of time were contained in a draft sent to the Appellant/Plaintiff. [26] The Appellant/Plaintiff did not accept the deadlines as outlined in the draft and a second draft of the second extension of time was extended by the Respondent/Defendant to the Appellant/Plaintiff on or around 24 November, 2020, further amending the deadline to deliver the Machine to 20 December, 2020 and the conduct of the FAT to 15 December, 2020. This second draft of the second extension of time was also rejected by the Appellant/Plaintiff. [27] In short, the second extension of time (in the form of two draft proposals) was never accepted by the Appellant/Plaintiff. [28] In view of these developments and communications between the parties relating to the extension of time, do these events render the contract as one where the time was never or no longer regarded as the essence of the contract? [29] The Appellant/Plaintiff argued that such was the case and relied on Nirwana Construction Sdn Bhd v Pengarah Jabatan Kerja Raya Negeri Sembilan Darul Khusus & Anor [2008] 4 MLJ 157; [2008] 3 MLRA 814 where Court of Appeal enunciated as follows: [69] In view of the above, and as case laws have shown, the several delays caused by the appellant were not so dire as to frustrate the entire consideration of the contract. I find nothing in the contract that had placed any condition, (special or otherwise) the breach of which would entitle the innocent party to repudiate the contract. [70] If delay by the appellant is to be the main factor for termination (quite apart from unsatisfactory work, defective workmanship etc) that particular reason cannot be said to be a condition or warranty going to the root of the contract. Although a period of time for completion is necessarily in place here, one has to construe the entire contractual terms and conduct of parties for its effect and consequence. Time was a factor but in my view time no longer became the essence and in fact was vitiated when the respondent had acquiesced several times to the extensions of time asked for by the appellant. … [118] in my view, when the respondent allowed the appellant continued performance of the contract on more than one occasion, and even entering into a supplementary contract, the respondent had thereby elected to affirm the contract to run its course. The appellant is entitled to regard it as such especially when the respondent accepted the contract from the appellant on 5 June 1996, which the appellant is entitled to treat as the respondent having waived its right to terminate. Nothing would be more clear and equivocal than this conduct of the respondent (see Berry v Hodson [1988] 1 Qd R 361; Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305). [30] The Appellant/Plaintiff submitted that when the Respondent/Defendant had in fact given three extensions that could only mean that time was not of the essence. It was also argued that the Respondent/Defendant did not terminate the contract effective from 1 August, 2020 and instead had given a chance to the Appellant/Plaintiff to mitigate the issue, the conduct of which demonstrating that the Respondent/Defendant had in fact affirmed the contract. [31] The Appellant/Plaintiff also relied on the case of Berjaya Times Squares Sdn Bhd (formerly known as Berjaya Ditan Sdn Bhd) v M Concept Sdn Bhd [2010] 2 AMR 205; [2010] 1 CLJ 269; [2010] 1 MLJ 597; [2009] 3 MLRA 1 where the Federal Court remarked as follows: [40] The appellant relies on Hind Construction Contractors v State of Maharashtra AIR 1979 SC 720 in support of its case. There, the appellant/plaintiff was employed to undertake the construction of an aqueduct. Construction had to be completed within twelve months. The appellant failed to do so and the respondent/defendant treated the contract as at an end. The issue was whether time was of the essence of the contract. The court of first instance held that time was not of the essence of the contract. On appeal, the High Court reversed on other grounds not relevant for the present discussion. On further appeal the Supreme Court set aside the judgment of the High Court and restored the finding made at first instance. Tulzapurkar J when delivering the judgment of the court (Chandrachud CJ (India) and AP Sen J concurring) quoted the following passage from Halsbury's Laws of England at (4fh Ed) Vol 4 at para 1179 The expression time is of the essence means that a breach of the condition as to the time for performance will entitle the innocent party to consider the breach as a repudiation of the contract. Exceptionally, the completion of the work by a specified date may be a condition precedent to the contractor's right to claim payment. The parties may expressly provide that time is of the essence of the contract and where there is power to determine the contract on a failure to complete by the specified date, the stipulation as to time will be fundamental. Other provisions of the contract may, on the construction of the contract, exclude an inference that the completion of the works by a particular date is fundamental, time is not of the essence where a sum is payable for each week that the work remains incomplete after the date fixed, nor where the parties contemplate a postponement of completion. Where time has not been made of the essence of the contract or, by reason of waiver, the time fixed has ceased to be applicable, the employer may by notice fix a reasonabie time for the completion of the work and dismiss the contractor on a failure to complete by the date so fixed. (Emphasis added.) The learned judge then proceeded: it will be clear from the aforesaid statement of law that even where the parties have expressly provided that time is of the essence of the contract such a Stipulation will have to be read along with other provisions of the contract and such other provisions may, on construction of the contract, exclude the inference that the completion of the work by a particular date was intended to be fundamental; for instance, if the contract were to include clauses providing for extension of time in certain contingencies or for payment of fine or penalty for every day or week the work undertaken remains unfinished on the expiry of the time provided in the contract such clauses would be construed as rendering ineffective the express provision relating to the time being of the essence of contract. The emphasised portion of the aforesaid statement of law is based on Lamprell v Billericay Union (1849) 3 Exch 283 at p 308; Webb v Hughes (1870) 10 Eq 281 and Charles Rickards Ltd v Oppenheim [1950] 1 KB 616. It is in light of the aforesaid position in law that we will have to consider the several clauses of the contract Ex 34 in the case. [41] I respectfully accept that the foregoing passages are an accurate statement of the law governing s 56(1) of the Act. In my judgment, while individual contracts will fall to be interpreted in accordance with their own terms, it is a useful guide to construction that a stipulation as to time must be read along with other provisions of the contract to determine if time is truly of the essence of the contract. Further, a clause providing for the payment of a sum whether as a fine, a penalty or as liquidated damages calculated on a daily basis for the period that the work undertaken remains unfinished on the expiry of the time provided in the contract would, in the absence of a contrary intention to be gathered from the contract, point to time not being of the essence. [32] The Appellant/Plaintiff further referred to Berjaya Times Squares Sdn Bhd (formerly known as Berjaya Ditan Sdn Bhd) v M Concept Sdn Bhd [2010] 2 AMR 205; [2010] 1 CLJ 269; [2010] 1 MLJ 597; [2009] 3 MLRA 1 for the proposition that: As regards the law on rescission of contract … that s 56(1) should be read together with s 40 of the Act in determining the question as to whether the appellant as the party that was obliged to perform its promise had refused to perform its promise in its entirety by not doing any of the things it promised to do within the time specified by the contract. A reference to ss 40 and 56(1) of the Act clearly showed that the right to rescind a contract by way of termination only arises when there has been a total failure of consideration. and TTDI Jaya Sdn Bhd v Yew Hong Teng & Anor [2017] 1 CLJ 436; [2016] MLJU 1772; [2017] 1 MLRA 143 where Court of Appeal expounded on the meaning of total failure of consideration. [33] On the issue of whether time was of essence in the contract, a perusal of the terms would indicate that the answer is in the affirmative. [34] Critically, questions have arisen as to whether the Appellant/Plaintiff could be absolved of all blames for failing to meet the deadline. [35] This Court has considered the background facts and evidence before it and it is this Court’s findings that, first, It is true that the Appellant/Plaintiff could not adhere to the initial timeline agreed between the parties in the agreement dated 5 March, 2020 to complete the said project and to deliver to Telefiex on/before 1 August, 2020 as the Plaintiff's business was affected in the lockdown announced by the Malaysian Government on 18 March, 2020. Be that as it may, by June 2020, the Appellant/Plaintiff had received approval to operate and the lockdown was no longer a supervening factor (coupled with the EOT(s) that had been granted). [36] Second, this Court is of the considered view that the delay was not caused by the Respondent/Defendant. The allegations suggesting that the Respondent/Defendant conspired with a third party to undermine the project or that the Defendant neglected to furnish sample materials for the Appellant/Plaintiff's testing lack validity. [37] Third, it has been established that the first extension of time had been agreed by the parties. Time continued to remain as essence of the contract and the termination of the contract was valid (and had not run afoul of the provisions of the Contracts Act 1950). [38] On the issue of the counterclaim, the learned Sessions Court Judge had erred in allowing part of the counterclaim (a return of 20% of the sum paid by the Respondent/Defendant to the Appellant/Plaintiff). The entire sum should be repaid to the Respondent/Defendant. [39] This appeal is dismissed and the cross-appeal is allowed. [40] The Appellant/Plaintiff to pay costs of RM20,000 to the Respondent/Defendant, subject to allocatur. Dated: 18 August, 2024 sgd [CHOONG YEOW CHOY] Judicial Commissioner High Court of Malaya Shah Alam Counsel: Archanaa a/p Balasubramaniam for the Appellant (Messrs. Rastam Singa & Co.) Daniel Bock for the Respondent (Messrs. Shukor Baljit & Partners)