Poteck Enterprise Sdn Bhd v Richallenge Corporation Sdn Bhd (S-02(IM)(NCvC)-151-01/2022)

This is an appeal on the assessment of damages pursuant to a terminated construction contract.

The Appellant, who is the defendant in the High Court, is a private limited company.

The Respondent, also a private limited company, is the plaintiff in the High Court.

We heard the appeal on 14th March 2025 and subsequently adjourned the decision to allow time for deliberation on the arguments presented by the parties.

Now having done so, we hereby give our decision below together with our supporting grounds.

The Appellant was awarded the main contract by the Ministry of Education of the Federal Government of Malaysia ( ) to construct a school named Sekolah Menengah Kebangsaan Tandek 2, located in Kuala Marudu, Sabah, with a contract value of RM42,750,000.00 ( ).

The Appellant thereafter sub-contracted the carrying of the whole of the building works to the Respondent via a written sub-contract agreement dated 28th July 2009 ( - ). The sub-contract sum of the Respondent is determined at RM35,228,250.00 ( - ), to wit, 85% of RM41,445,000.00 being the Main Contract Sum less contribution and levy charges of RM1,305,000.00. Thus, the balance of RM6,216,750.00 being 15% of the Main Contract

During the course of construction of the school, there were disputes that arose that resulted in the Appellant on 11th November 2014 terminating the Sub-Contract Agreement complete the construction of the school.

Consequently, the Respondent commenced the action in the High Court ( ) and claimed damages against the Appellant for wrongful termination of the Sub-Contract Agreement. The Appellant counter-claimed damages against the Respondent especially the extra costs incurred to complete the building works by Bangkit Energy Pro Logistic (EM) Sdn Bhd ( ).

After trial of the Suit, the High Court on 15th November 2021, found in favour of the Appellant.

On appeal by the Respondent, this Court in Civil Appeal No. S- 02(NCvC)(W)-2545-12/2017, reversed the High Court's decision on 21st March 2019 (see Richallenge Corp Sdn Bhd v. Poteck Enterprise Sdn Bhd [2020] 3 MLJ 704). The High Court was then ordered to assess the damages suffered by the Respondent due to the Appellant's unlawful termination of the Sub-Contract Agreement.

Consequently, upon assessment, the High Court on 14th December 2021 allowed damages under the following headings: No. Damages Amount (RM)

Work done RM 2,029,035.00

(ii) Variations RM 2,884,288.00

(iii) Advance payment RM 500,000.00

(iv) Performance bond RM 2,137,500.00

Loss of profit RM 1,449,074.27 Thus, the High Court ordered the Appellant to pay the total amount of RM8,999,897.27, with interest at the rate of 8% per annum from 29th September 2014 to the date of judgment and thereafter statutory interest on the said sum at the rate of 5% per annum from the date of judgment to the date of full payment and costs of RM10,000.00 subject to allocator. [13] The Appellant is dissatisfied with the assessment made by the High Court and, therefore, filed an appeal with the Court of Appeal on 11th January 2022. FINDINGS OF THIS COURT [14] Although this is an appeal arising from the assessment of damages, our function here is no different from that of an appeal on liability after trial in the High Court. [15] It is therefore a review of the High Court decision and we are guided by the case of Ng Hoo Kui & Anor v. Wendy Tan Lee Pheng, Administrator of the Estates of Tan Ewe Kwang, Deceased & Ors [2020] 10 CLJ 1 (FC) where Zaleha Yusof FCJ held as follows with emphasis added by us: due to a lack of judicial appreciation of evidence is plainly wrong. The Federal case of Gan Yook Ching (P) & Anor v. Lee Ing Chin @ Lee Tuck Seng & Ors [71] From the aforesaid authorities, there appears to be a difference in approach taken and applied by the UK Supreme Court and the approach taken by the Malaysian courts. Whilst Lord Reed in Henderson (supra) separated the four non-exhaustive identifiable errors of a trial judge from the plainly wrong test:

a material error of law;

(ii) a critical finding of fact which has no basis in the evidence;

(iii) demonstrable misunderstanding of relevant evidence; and

(iv) a demonstrable failure to consider relevant evidence; (all of which justifies appellate intervention of a trial judge's decision), this court in Gan Yook Chin (supra) effectively included them under what amount to the trial judge as being "plainly wrong". [72] The phrase "lack of judicial appreciation of evidence" used in Gan Yook Chin (supra) could very well encompass three out of four errors of a trial judge (other than the "material error of law") said to be identifiable by Lord Reed in Henderson (supra), namely:

critical factual finding which has no basis in evidence;

(ii) demonstrable misunderstanding of relevant evidence; and

(iii) demonstrable failure to consider relevant evidence. [73] Given that the issue at present is about identifying situations where the findings of fact by a trial court justify appellate intervention, the other identifiable error of "material error of law" listed by Lord Reed in Henderson (supra) can occur when a trial judge erroneously apply legal principles (eg rules of evidence) in the course of making a finding of fact, thus resulting in a lack of judicial appreciation of evidence. For example, when a trial judge erroneously placed a burden of proof on a party, that will lead the judge to misdirect himself when he attempts to interpret the factual matrix before him. The commission of material error of law by the trial judge in arriving at his conclusions (e.g., the requirement of proof of intention in constructive trust as opposed to express trust), also justifies an appellate court reversing such conclusions. [148] Given the aforesaid, we form the view that rather than adopting a rigid set of rules to demarcate the boundaries of appellate intervention insofar as findings of fact are concerned, the "plainly wrong" test as espoused in decisions of this court should be retained as a flexible guide for appellate courts. As long as the trial judge's conclusion can be supported on a rational basis in view of the material evidence, the fact that the appellate court feels like it might have decided differently is irrelevant. In other words, a finding of fact that would not be repugnant to common sense ought not to be disturbed. The trial judge should be accorded a margin of appreciation when his treatment of the evidence is examined by the appellate courts. See also Perembun (M) Sdn Bhd v. Conlay Construction Sdn Bhd [2012] 1 LNS 1416 (CA). [16] Besides, it is also instructive to refer and rely on the case of Popular Industries Ltd. v. The Eastern Garment Manufacturing Co Sdn Bhd [1990] 1 CLJ 133 (affirmed and applied in Sony Electronics (M) Sdn Bhd v. Direct Interest Sdn Bhd [2007] 1 CLJ 611 (CA)) on assessment of damages where Edgar Joseph Jr. J (later FCJ) held as follows: for damages as alleged or at all? With regard to this part of the case, I would preface what I have to say by referring to certain well-established principles. It is axiomatic that a plaintiff seeking substantial damages has the burden of proving both the fact and the amount of damages before he can recover. If he proves neither, the action will fail or he may be awarded only nominal damages upon proof of the contravention of a right. Thus, nominal damages may be awarded in all cases of breach of contract. (See Marzetti v. Williams [1830] 1 B & Ad 415. And, where damage is shown but its amount is not proved sufficiently or at all, the Court will usually decree nominal damages. See, for example, Dixon v. Deveridge [1825] 2 C & P 109 and Twyman v. Knowles [1853] 13 CB 222. On the question of the quality of evidence expected of a plaintiff it is well to remember what Devlin J said in Biggin v. Permanite [1951] 1 KB 422, expects to have it, where it is not, the Court must do the best it can. " Nevertheless, it remains true to say that generally " difficulty of proof does not dispense with the necessity of proof " (see Aerial Advertising Co. v. Batchelors Peas [1938] 2 All ER 788, 796 per Atkinson J). A case which affords an illustration of the requirement of reasonable certainty in this area is Ashcroft v. Curtin [1971] WLR 1731 (CA) in which the plaintiff claiming for diminution of profits of his one-man business failed in his claim even though the evidence pointed to a decrease in the company's profitability due to the injury, the records produced being too rudimentary and the accounts too unreliable to quantify the loss. So also, when, as here, the claim is for the difference between the contract price and a clear and undoubted market price, absolute certainty in proving damages is possible and therefore the Court will expect precise evidence to be given. (See para. 345 McGregor on Damages [17] Based on these principles, we will undertake our review on all the five headings awarded by the High Court seriatim. Work Done [18] It is not disputed that the proof of the value of work done by the Respondent is based on the testimony and report produced by its expert witness, PW3 who is a chartered quantity surveyor. Upon our review of we are satisfied that he is a competent witness as required by s. 45 of the Evidence Act 1950. [19] without the supporting evidence of a factual witness on the foundational fact of the actual building works done. [20] In rebuttal, the Respondent counter-contended that the foundational factual evidence of building works done has been made available to the High Court by the Appellant through its witnesses DW1, its quantity surveyor who supervised the building works and DW5, the chief executive officer of the Completion Contractor. [21] That notwithstanding, the Appellant contended before us the IPC ) jointly issued by the consultant architect and quantity surveyor of the Employer that has been relied by PW3. [22] The Respondent however replied that the adoption of IPC 14 relied upon by PW3 and by the High Court is correct and ought to be maintained. In this regard, the learned High Court judge held as follows in the grounds of decision: termination by PESB, so it would therefore, be reasonable as a minimum, to base the cumulative value of work done carried out by RCSB up to the wrongful termination as valued in IPC#14 being RM25,519,000.00 to which RCSB are entitled to 85% less the agreed deductions of RM1,305,000.00 as stated in the Subcontract Agreement Clause 2.1, equivalent to RM20,851,900.00. After taking into consideration the various payments that had been received by the Plaintiff in the various IPC she came to the conclusion (sic) that the amount of work done but not paid is therefore RM2,029,035.00. awarded this amount of RM2,029,035.00 as the Plaintiff has been overpaid by the Defendant based on the evidence of DW3, DW2A and also DW5. In regard to this issue, I am more inclined to agree with the position taken by the Plaintiff that the issue of overpayment has been dealt with by the COA when Based on the reasons above, I find that there is no reason for me to reject the . [23] Upon our review, we noted as alluded by the learned High Court judge that there is no joint measurement and valuation of the work done carried out by the parties after the termination of the Sub-Contract Agreement which would have been the ideal and most accurate foundational factual basis to undertake the valuation of work done by the Respondent. [24] In the premises, the learned High Court judge accepted the valuation done by PW3 which has been based on IPC 14 being the relevant interim payment certificate. The value of work done based on IPC 14 is RM25,519,000.00. [25] We are satisfied that in the absence of precise joint measurement of the work done, the usage of the interim payment certificate would have been the next best course the Court can take following Popular Industries Ltd. v. The Eastern Garment Manufacturing Co Sdn Bhd (supra). We have borne in mind that the parties have throughout the currency of the Sub-Contract Agreement also relied on the interim and quantity surveyor all along for payment purposes between them. [26] The pivotal question is then whether it is appropriate to rely on IPC

In this respect and upon our scrutiny of the documentary evidence, we observed that the learned High Court judge relied on IPC 14 because it was the interim payment certificate most proximate with the time the Sub-Contract Agreement is terminated. However, the learned High Court judge overlooked that IPC 14 has been subsequently revised by the issuance of IPC 14R by the consultant architect and quantity surveyor of the Employer. The value of work done based on IPC 14R is RM24,283,700.00 [27] In the premises, we find that the learned High Court judge plainly erred in adopting and relying IPC 14 which should have been IPC 14R instead and this warranted appellate intervention by us. [28] After considering the previous payment of RM18,552,865.00 made by the Appellant to the Respondent as found by the learned High Court judge, the value of outstanding work done is therefore RM783,200.00 ((RM24,283,700.00 x 85% RM1,305,000.00) RM18,552,865.00). [29] We are mindful that the Appellant also contended that the Respondent has instead been overpaid by RM9,443,800.00 because of the substantial payment that the Appellant has further paid the Completion Contractor to complete the building works. However, upon our reading of the pleadings, this is b the conspiracy between the Respondent and the project consultants which has been dismissed by the Court of Appeal in Richallenge Corp Sdn Bhd v. Poteck Enterprise Sdn Bhd (supra). Thus, and as found by the learned High Court judge, we agree that this contention and counterclaim of overpayment is baseless. Be that as it may, we are unable from the materials available before us discern as to exactly how much of the alleged RM9,443,800.00 is attributed to work not done by the Respondent but by the Completion Contractor in the absence of joint measurement of the work done upon the termination of the Sub-Contract Agreement. The joint measurement exercise ought to have been initiated by the Appellant. Variations [30] prove that the variation work which involved rock excavation was indeed done by the Respondent. In this respect, the Appellant merely relied on the valuation of PW3, its expert witness that was accepted by the learned High Court judge uncritically without the foundational fact of the rock excavation done prior proved. [31] This is of course refuted by the Respondent who relied on the following grounds of decision of the learned High Court judge: accept the testimony of PW3 as above because PW3 is not only an expert and impartial witness, but his testimony that any excavation works is one of the first thing to be carried out on the construction site remains unchallenged. His evidence that it is the customary practice in the industry with late valuation of variations in my view lends credence to his testimony and it is more probably in [32] It is axiomatic in civil litigation that he who asserts must prove his claim; see ss. 101 and 102 Evidence Act 1950. [33] Consequently, it is the Respondent's responsibility to provide sufficient evidence that the rock excavation was indeed completed as a variation to the Sub-Contract Agreement. However, after reviewing the oral and documentary evidence, we find no variation instruction from the Employer's architect, nor do we find job sheets documenting the actual rock excavation work performed by the Respondent as proof of the variation work at the relevant time. In our view, the following testimony of PW 3, who is not a factual witness but was primarily relied upon by the learned High Court judge, is insufficient: at is done on site. So, before construction can begin, the excavation has to be completed. So, I deduced that the rock excavation must have been carried out by the Plaintiff before the works [34] As the result, we find that the learned High Court judge plainly erred in law as well as in not having judicially appreciated the evidence here which again warrants appellate intervention. Since this head of claim has not been proved, we find and hold that there should be no award. Advance Payment [35] At the hearing of the appeal, the Appellant re-affirmed that it has conceded to this head of award of RM500,000.00 on advance payment refund. It is therefore unnecessary for us to further deal with it. Performance Bond [36] Again, at the hearing of the appeal, the Appellant has conceded on the performance bond refund except that it ought to be 85% of RM2,137,

500.00 because of the understanding as set out in the Sub-Contract Agreement pertaining to the 85%-15% payment sharing. [37] However, the Respondent replied that the performance bond refund must be made in full by reason of the termination of the Sub-Contract Agreement wherein the Respondent is no longer responsible for the completion of the building works. In this regard, the Respondent relied on the following ground of decision of the learned High Court judge: claim made on the performance bond, and there is no clear evidence to show that the performance bond deductions are related to the 15%-85% distribution specified in the subcontract agreement, I am more inclined to agree with the for the refund of the perf [38] We noted that the performance bond in issue here is not a guarantee given by a third party such as a banker in most construction contracts. It is actually by way of a prescribed fixed deduction from the payments paid to the Appellant by the Employer. In the premises, we agree with the findings of the learned High Court judge that the performance bond refund must be made in full to the Respondent. The replacement performance bond must logically have been provided by the Completion Contractor and this, in our view, further justifies that the Respondent is entitled to a full refund. [39] There is thus no error here by the learned High Court judge that warrants appellate intervention. Loss of Profit [40] The Appellant contended that the Respondent failed to prove with substantiating direct evidence that it is entitled to a loss of profit of RM1,499,074.27 on the balance unperformed building works due to the termination of the Sub-Contract Agreement. In this respect, the Respondent merely relied on the opinion of PW3, its expert witness that a 5% profit is expected to be generated on the balance of the remaining building works. [41] In response, the Respondent relied again on the following finding of the learned High Court judge in the grounds of decision: circumstances, he had in his testimony clearly stated that the 5% is based on the normal profit in the industry. As he is an expert in the industry and there is no other evidence that was adduced to show that figure claimed is excessive [42] Just like in the award of variation, we are of the view that the award of loss of profit is subject to strict proof; see Kembang Serantau Sdn Bhd v. YBK Usahasama Sdn Bhd [2018] 1 LNS 206. Otherwise, it must fail in limine. [43] It is clear to us that a claim for loss of profit due to the wrongful termination of a construction contract can be proven by direct evidence (both documentary and testamentarily explained), namely: the difference between the contract value of the remaining unfinished work and the expected costs incurred to complete that work. We find that the Respondent failed to provide any convincing reason why such direct evidence could not be presented. The use of a mere estimated percentage of profit on the balance of the unfinished work is unacceptable, as similarly noted in Kembang Serantau Sdn Bhd v. YBK Usahasama Sdn Bhd (supra). [44] Thus the Respondent, in the circumstances, is only entitled to nominal damages following Kokomewah Sdn Bhd v. Desa Hatchery Sdn Bhd [1995] 3 CLJ 511 (FC). [45] The learned High Court Judge hence plainly erred here and that justifies appellate intervention. [46] Consequently, we find that the Respondent ought fairly to be awarded nominal damages of RM10,000.00 for the loss of profit claim. CONCLUSION [47] For the foregoing reasons, we hereby unanimously allow the appeal in part. Thus, in respect of work done, the award is substituted to RM783,200.00 only. As for variations, the award is substituted to nil. Finally, with regard to the loss of profit, the award is substituted to RM10,000.00 only. The High Court order shall be so varied accordingly and reads: The Plaintiff be entitled to damages assessed in the sum of RM3,430,700.00 together with interest at the rate of 8% per annum from 29.09.2014 to the date of judgment, and statutory interest on the said sum at the rate of 5% per annum from the date of judgment to the date of full payment and cost of RM10,000.00 against the Defendant subject to the payment of allocator. [48] We further order costs of RM15,000.00 to be paid by the Respondent to the Appellant subject to allocator. Dated this 14th May 2025 Sgd. LIM CHONG FONG JUDGE COURT OF APPEAL

Counsels for Appellant

Joan Goh Pean Nee Solicitors for Appellant MESSRS. GOH & ASSOCIATES. Advocates & Solicitors S-3-22, Lot 22, 3rd Floor, Block E, City Mall, Jalan Lintas, 88300 Kota Kinabalu, Sabah.

Counsels for Respondent

Chleo Teo Solicitors for Respondent MESSRS. RONNY CHAM & CO. 11, 2nd Floor, Block E, Lintas Jaya Uptownship, Jalan Lintas, Kepayan Highway, 88300 Kota Kinabalu, Sabah. STATUTE/LEGISLATION REFERRED TO: ss. 101 and 102 Evidence Act 1950. CASES REFERRED TO: Ng Hoo Kui & Anor v. Wendy Tan Lee Pheng, Administrator of the Estates of Tan Ewe Kwang, Deceased & Ors [2020] 10 CLJ 1; Perembun (M) Sdn Bhd v. Conlay Construction Sdn Bhd [2012] 1 LNS 1416; Popular Industries Ltd. v. The Eastern Garment Manufacturing Co Sdn Bhd [1990] 1 CLJ 133; Sony Electronics (M) Sdn Bhd v. Direct Interest Sdn Bhd [2007] 1 CLJ 611; Kembang Serantau Sdn Bhd v. YBK Usahasama Sdn Bhd [2018] 1 LNS 206; and Kokomewah Sdn Bhd v. Desa Hatchery Sdn Bhd [1995] 3 CLJ 511.