Richallenge Corporation Sdn Bhd v Poteck Enterprise Sdn Bhd (S-02(NCvC)(W)- 2545-12/2017)

The learned Judicial Commissioner misdirected himself in law and fact by deciding that the Defendant lawfully terminated the SCA when clause 10 of the SCA expressly states that the Defendant shall not determine the agreement unless the Main Contract with the Employer is determined in consequence of any breach of the SCA. The Defendant‘s Main Contract has not been terminated by the Employer at that material time.

(ii) The Defendant was in breach of clause 10 SCA.

(iii) The Defendant‘s allegation that the Plaintiff delayed the completion of the Project was unsubstantiated as EOT was granted by the Employer extending the completion date to 6.9.2015. A further EOT was granted extending the 7 completion date to 10.4.2017. The Plaintiff did not breach the terms of the agreement.

(iv) The learned Judicial Commissioner failed to appreciate that the Plaintiff had obtained a stay of the winding up order on 5.11.2014. Whether there was a fundamental breach of the terms of SCA [13] Having considered the facts and evidence before him the learned Judicial Commissioner found that there was a fundamental breach of the agreed terms. The Defendant had the right under the sub-contract to terminate on the grounds that the Plaintiff persistently failed to commence the works despite clear written request to do so. This amounts to a fundamental breach that goes to the root of the contract. The learned Judicial Commissioner in his Grounds of Judgment gives his reasons as follows: 59….. Based on the finding of facts on the above matters, I find that there was failure to commence the sub-contract works and there was no reasonable justification that had been adduced by the Plaintiff in its evidence to support its claim that it intended to continue with the performance of the sub-contract works. In the circumstances, this court is of the view that there was a breach of the SCA. The said breach although did not come within clause 10 of the SCA, the defendant in my view may still rely on the provision “without prejudice to any right of action or other remedies that the Main Contractor may have against the Sub-Contractor” in clause 11.3 to exercise its rights against the plaintiff if there is a breach of the term of the contract. (See: pg 30 of the Grounds of Judgment). 8 [14] The learned Judicial Commissioner further explained and concluded: Applying the principles in the above case to the present facts and the findings as stated earlier, this Court has to determine whether the failure or refusal to commence the sub-contract works is a breach of such a fundamental nature that goes to the root of the contract and not merely a breach of a subsidiary matter that does not entitle the defendant to put an end to the contract. In respect of this issue, I am of the view that the refusal to commence or continue with the works in this case amounts to a fundamental breach that goes to the root of the contract as the main obligation of the plaintiff under the SCA is to complete the sub-contract works. In this respect, even though the plaintiff has stated that it was willing and had the intention to continue with the works, this in my view are mere promises with no concrete evidence to support its intention to continue with the sub-contract works does not do so much to support the Plaintiff’s case. (See: pg 36 of the Grounds of Judgment) [15] The Plaintiff took the position that it was waiting for the 2nd EOT to be approved before continuing with the works. The Defendant disputed this and contended that there was no justification to wait for the 2nd EOT to be approved. In respect of this issue the learned Judicial Commissioner agreed with the Defendant’s contention that there was no justification for the extension of time: 59 (I)……In respect of this issue, I agree with the defendant’s contention that there was no justification for the plaintiff to wait for the extension of EOT

If there is a need for the evidence to show it was not justified, the evidence can be seen from the cross-examination of the Plaintiff’s own witness, PW1. PW1 is the lead consultant of the project and his evidence on the matter in my view carries weight and can safely be relied by the Court. (See: pg 25 &26 of the Grounds of Judgment) 9 Financial difficulties [16] The Defendant submitted that from the very beginning of the construction of the Project the Plaintiff was already in dire straits and was always late, and as a result delayed the completion of the Project. The contemporaneous evidence shows that the Plaintiff was in financial difficulties and incapable of completing the Project as scheduled. It was not disputed that the Plaintiff was wound up. The Plaintiff had refused or was not able to commence the works despite repeated requests by the Defendant and assurances made by the Plaintiff itself to do so. The learned Judicial Commissioner accepted the evidence given of the Plaintiff’s own witnesses confirming the status of the Plaintiff as well as its reluctance to commence the works: 59(ii)…. In respect of the issue of financial difficulties, I prefer to rely on the evidence of the Plaintiff’s own witnesses that was called to give evidence. Again, PW1’s (sic) evidence in the cross-examination, support this proposition. I prefer to accept his evidence as he is a neutral witness and had first-hand knowledge and background of the project at the material time as he was the lead consultant. (See: pg 27 of the Grounds of Judgment) The Stop Work Order by the Department of Environment (DOE) [17] In respect of the stop work order the learned Judicial Commissioner found no merit in the contention and was of the considered view that the order relates to earth work and not the works under the SCA, the Plaintiff cannot rely on this contention as an excuse for the delay and refusal to commence with the works under the SCA. There was a failure to commence works and no reasonable justification adduced by the Plaintiff in its evidence 10 to support the claim that it intended to continue with the performance of the sub-contract works. The Counter-Claim [18] In respect of the counter-claim it was not disputed that the Plaintiff did not seriously challenge the evidence of the defendant on the basis that the termination was unlawful. However, since the learned Judicial Commissioner found that the termination of the SCA was lawful, there was sufficient evidence adduced by the Defendant that it was entitled to the claim. The Defendant had to engage a new contractor to complete the works, Bangkit Energy & Pro Logistics (EM) Sdn Bhd (‘Bangkit Energy’). The Defendant adduced evidence to show that there were 10 interim claims submitted by Bangkit Energy totaling the sum of RM19, 831,800.00 and out of this amount 8% (RM1,437,544.00) was paid to the Defendant. The learned Judicial Commissioner found that the Defendant had proved its counterclaim on the balance of probabilities and allowed the sum of RM1,537,226.00: In this respect since I have made a finding that the termination of the SCA is lawful, I now will consider the evidence for the purpose of the counterclaim. As the evidence was unrebutted, I think it would suffice to say that sufficient evidence had been adduced by the defendant in the present case to show that it was entitled to the claim therein. (See: pg 37&38 of the Grounds of Judgment) The Appeal [19] The Plaintiff appealed to this Court, essentially against the termination of the SCA by the Defendant and allowing the counterclaim; that the learned 11 Judicial Commissioner misdirected himself in law and fact by deciding that the Defendant as the Main Contractor had lawfully terminated the SCA. Our Analysis and Decision The Terms of the Sub-Contract Agreement (SCA) [20] Under the terms of the SCA, the Plaintiff was to commence and complete the works in accordance with the period as stated in the Letter of Award and/or the Main Contract subject to any extensions allowed by the

7.1 The Sub-Contractor shall commence and complete the Project in accordance with the time stated in the Letter of Award and or Main Contract and subject to any extensions allowed by the Employer. [21] The Plaintiff must strictly adhere to the approved Work Schedule of the Project and in the event the Plaintiff falls behind 5% or more of the works as scheduled due to whatever reasons, and a notice is issued by the Employer to the Defendant as the main contractor to that effect, the Plaintiff under the terms of the SCA shall immediately upon being informed by the Defendant in writing rectify the breach within 14 days from the date of the notice in writing:

11.3 The Sub Contractor shall in carrying out the work on the Project strictly adhere to the approved Work Schedule of the Project. In the event the Sub Contractor shall fall behind 5% (or more) of the Work Schedule due to whatsoever reasons, and a notice is issued by the Employer to the Main Contractor to that effect, the Sub Contractor 12 shall immediately upon being informed by the Main Contractor in writing rectify the breach within 14 days… [22] If the Plaintiff failed to complete the Project or any part thereof within the period specified under the Main Contract or any extended period and/or periods, the Plaintiff shall pay to the Defendant a sum equivalent to the liquidated damages suffered or incurred by the Defendant caused by the failure of the Plaintiff as the Defendant may be liable to pay the Employer for the failure to complete the Project or any part thereof:

9.1 If the Sub-Contractor fails to complete the Project or any part thereof within the period specified in the Main Contract or any extended period or periods as thereinafter provided it shall pay to the Main Contractor a sum equivalent to the liquidated damage suffered or incurred by the Main Contractor… [23] The salient terms of the SCA must be examined against the background as stated above. In determining whether there was a fundamental breach by the Plaintiff the learned Judicial Commissioner as reflected in his Grounds of Judgment did not examine and consider in great detail the terms of the SCA except to state as follows:

In respect of clause 10, from the submissions by the plaintiff, it was contended that the SCA in the present case can only be determined under the circumstances as stated in the clause and as this clause was inserted and agreed by the parties, the Court ought not to interpret and interfere with the intention of the parties. Furthermore, at the material time when the contract was signed, the parties had the benefit of legal advice. It was 13 impressed upon the Court that strict interpretation ought to be given to the clause as the responsibilities imposed on the plaintiff was a heavy one as the whole project had to be borne by the plaintiff while the defendant merely enjoys the passive income from the project. [24] The Court found that the Plaintiff’s alleged refusal to commence works was a fundamental breach. With respect, we do not agree with the analysis and finding of the learned Judicial Commissioner that the Court ought not interpret and interfere with the intention of the parties as agreed under the terms of the SCA. In order to determine whether there was a fundamental breach he must first ascertain whether the parties strictly complied with the terms of the SCA. Instead the learned Judicial Commissioner opined that before determining whether there was a fundamental breach it is necessary for the Court to consider and make findings of fact without analysing the terms of the SCA. In this case the factual matrix of the case must be considered together with the terms of the SCA. By doing so the learned Judicial Commissioner will be able to determine whether there was indeed a fundamental breach of the terms of SCA justifying the termination by the Defendant. [25] The Defendant had pleaded in its Statement of Defence (‘SOD’) that by the terms of the SCA they are expressly and/or implied permitted to terminate the agreement on 20.10.2014:

…..The Defendant however avers that clauses 10 and 11.3 when read together allows and/or impliedly allows the Defendant to terminate the said Agreement due to any delay by the Plaintiff and/or the Plaintiff’s failure to rectify 14 the breach by allowing the Defendant to engage additional workers or contractor to complete the said Project. [26] The Defendant through its solicitors, Messrs. J. Tan, Teoh Associates issued a letter dated 29.9.2014 due to the breach by the Plaintiff notifying the Defendant’s intention to terminate the SCA with immediate effect and that it will proceed to appoint a new contractor. The letter, however, did not state or make any reference to any specific clause of the SCA forming the basis of the termination. It reads: Further we have on 15th September, 2014 wrote to your good office enclosing the letter from the Ministry of Education instructing our Clients to commence work on the said Project, again there was no reply from your Clients. In view of the aforesaid, it is our Clients’ contention that your Clients do not wish to continue with the said Project thus are in breach of the abovementioned Subcontract Agreement. By reason of the aforesaid, we are instructed by our Clients to write to your good office to give notice that our Clients hereby proceed to terminate the said Subcontract Agreement with immediate effect and will proceed with appointing a new contractor to undertake the said Project and our Clients reserve their rights to take and actions necessary to recover any losses and damages that our Clients may suffer due to your Clients’ breach of the terms and conditions of the Subcontract Agreement. (emphasis added) [27] The Plaintiff through its solicitors responded by a letter dated 30.9.2014 stating that the purported termination of the SCA was unlawful and that at the material time there was no confirmation in writing from MOE as the Employer, agreeing to extend the date of completion of the Project. 15 By a letter dated 7.10.2014 the Plaintiff forwarded to the Defendant the Plaintiff’s proposed work program for the outstanding works as requested. The Plaintiff through its solicitors vide a letter dated 10.10.2014 requested for confirmation in writing from the MOE of its agreement to extend the time for completion of the Project by 1,227 days as indicated in the Defendant’s letter dated 4.9.2014. The Defendant responded by issuing a letter dated 20.10.2014 and it states: Further your Clients have delayed and fall behind more than five per centum (5%) of the work schedule and despite repeated reminder from our Clients your Clients has still failed to rectify the same. By reasons of the aforesaid, our Clients hereby invoke Clause 11.3 of the Subcontract Agreement……. [28] Clause 10 SCA expressly states that the Defendant shall not terminate the SCA unless the Main Contract itself between the Employer has been determined, and the determination was in consequence of a breach of the said Main Contract. Clause 11.3 expressly stipulates that the Plaintiff in carrying out the Project shall strictly adhere to the approved work schedule and in the event the Plaintiff fall behind 5% (or more) of the approved work schedule due to whatever the reasons may be, and notice was issued by the Employer to the Defendant, the Plaintiff shall, if he had been duly informed, rectify the breach: “11.3 ……. In the event the Sub Contractor shall fall behind 5% (or more) of the Work Schedule due to whatsoever reasons, and a notice is issued by the Employer to the Main Contractor to that effect, the Sub Contractor shall immediately upon being informed by the Main Contractor in writing rectify the breach 16 within 14 days from the date of Notice. Notwithstanding Clause 11 above, in the event the Sub Contractor shall fail to rectify the breach, the Main Contractor shall at the expiration of the Notice reserve the right to engage additional workers……without prejudice to any right of action or other remedies that the Main Contractor may have against the Sub Contractor. (emphasis added) [29] In any written agreement there must be strict adherence to the terms of the agreement unless provided otherwise. Under the SCA if the Plaintiff as the sub-contractor fall behind 5% or more, then the following steps can be taken by the Defendant as the Main Contractor:

a notice is issued by the Employer to the Main Contractor that the completion of works by the Sub-Contractor is behind 5% or more;

(ii) the Sub-Contractor shall immediately upon being informed by the Main Contractor in writing rectify the breach within 14 days from the date of Notice; and

(iii) in the event the Sub-Contractor fails to rectify the breach, the Main Contractor shall at the expiration of the Notice reserve the right to engage additional workers. [30] Learned Counsel for the Plaintiff argued that there was in fact no written notice by the Employer that the Plaintiff’s performance was 5% or more behind the approved works schedule. No evidence was adduced before the High Court that the Plaintiff was immediately informed by the Defendant in writing to rectify the breach within 14 days from the date of Notice and that the Plaintiff had failed to rectify the breach. 17 [31] Given that the Employer had granted the 2nd EOT this means that the parties were given more time to complete the Project. The Main Contract between the Employer and the Defendant was not terminated but the completion date was extended giving time to the Defendant and necessarily thus to the Plaintiff to complete the Project. [32] Clause 10.1 SCA provides that: “The Main Contractor shall not determine this Agreement unless the Main Contract has been determined by the Employer in consequence of any breach of this Sub Contract Agreement by the Sub Contractor.” ( emphasis added ) [33] Under clause 10 SCA the Defendant shall not terminate the SCA unless the Main Contract has been determined by the Employer. In this case the Main Contract was still subsisting and there was no evidence adduced that the Employer had any intention or had terminated the Main Contract. There was evidence adduced that the Plaintiff had complied with more than 5 % of the approved work schedule. DW3, the General Manager of the Defendant had on 29.10.2013 in the minutes of meeting, reported that the physical progress of the works was in fact more than 81%. The letter dated 20.10.2014 from the Defendant did not make any reference of an intent to terminate but a request for additional security in order for the Plaintiff to continue with the project. In the SOD the Defendant had stated that the SCA was terminated on 20.10.2014 but this was not expressly stated in the letter. The letter dated 20.10.2014 merely indicated the intention to invoke Clause 11.3 SCA. We observed by the letter dated 20.10.2014 the Defendant had taken an entirely different position from its earlier letter dated 29.9.2014 18 which had expressed the Defendant’s intention to terminate the SCA with immediate effect. [34] Whether there was a valid termination would be based on whether in the first place there was a valid reason to terminate as stipulated by the terms of the agreement. There must be a proper construction of the terms of the agreement, in this case the SCA. The reasons or grounds for termination are particularised in the agreement and the agreement gives a right of notice to rectify the breach. If no notice is given the party allegedly in breach would not have any knowledge of the breach complained of and thus unable to take the necessary steps to rectify. Having examined the terms of the SCA in its entirety, we are of the view that in this instant appeal before us the termination is bad in law. Firstly, termination is not permitted unless as stipulated under clause 10 SCA; that termination can only take place if the main contract was terminated, which was not the case in this instant appeal. Secondly, Clause 11.3 SCA is the termination clause but it allows the Plaintiff to appoint another contractor to complete the works only if notice is given to the Plaintiff to rectify an identified breach and the Plaintiff must rectify that breach within the prescribed time given. If the Plaintiff fails to rectify then the Defendant can appoint another contractor. [35] The Defendant had ignored the express contractual term on termination when it decided to terminate the SCA. This Court has repeatedly stated that the Court cannot rewrite the terms of the contract agreed by the parties. In Attorney General of Belize v Belize Telecom [2009] UKPC 10, delivering the advice of the Board, Lord Hoffman said: 19 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. If 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... 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. [36] Lord Pearson in Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973]1WLR 601 remarked: ….the court does not make a contract for the parties. The court will not even improve the terms which the parties have made for themselves, however desirable the improvement might be. The court's function is to interpret and apply the contract which the parties have made for themselves. If the express terms are perfectly clear and free from ambiguity, there is no choice to be made between different possible meanings: the clear terms must be applied even if the court thinks some other terms would have been suitable. An unexpressed term can be implied if and only if courts finds that the parties must have intended that term to form part of their contract. [37] As Lord Pearson in Trollope (supra) said the courts will not even improve the terms which the parties have made themselves, however desirable the improvement may be. In this regard the learned Judicial Commissioner made findings of fact without taking into consideration the terms of the SCA as agreed to by the parties. We agreed with the learned counsel for the Plaintiff that clause 11.3 cannot be read independently of clause 10 in order to subvert the true intent of that clause. Based on the terms and conditions of the SCA the termination by the Defendant is wrong in law for non-compliance with clauses 10 and 11.3 of the SCA. 20 Section 40 of the Contracts Act 1950 (CA) [38] Before us learned counsel for the Defendant argued that section 40 CA gives the right to the Defendant to terminate the SCA when there is fundamental breach by the Plaintiff. The Plaintiff failed to commence works despite the repeated reminders and also the fact that the Plaintiff was wound up. The Defendant is entitled to exercise its right under common law to terminate the SCA. We do not agree with the approach the learned Judicial Commissioner adopted in his interpretation of section 40 of the CA. With respect, the conclusion and understanding by the learned Judicial Commissioner is plainly erroneous and demonstrates a misapplication of section 40 of the CA. Section 40 CA reads: When a party to a contract has refused to perform, or disabled himself from performing his promise in its entirety, the promisee may put an end to the contract, unless he has signified by words or conduct, his acquiescence in its continuances. [39] Gopal Sri Ram JCA (as he then was) in Ching Yik Development Sdn Bhd v Setapak Heights Development Sdn Bhd [1997] 1 CLJ 287 explained the application of section 40 CA. From the provision of section 40 CA, it is apparent that a contract is not automatically brought to an end by a repudiatory breach. The right to terminate or rescind a contract is not available in every case of repudiation. That right is dependent on, inter alia, the nature of the term breached, and the conduct of the parties, to ascertain whether the breach is of sufficient gravity to allow the other party to rescind the contract. In the Court of Appeal's decision in Ching Yik (supra) the principles were reminded that it is the function of the trial court to 21 examine all the evidence led and determine the real facts in order to come to a decision on those material first principles: Now, in every contract, be it for the sale of land or any other commodity, there are, generally speaking, some terms that are of fundamental importance and others of less or minor importance. The law creates the distinction for the purpose of determining the kind of remedy that is to be made available to an innocent party, ie, the party who is not guilty of the breach. Where the term that has been flouted is fundamental to the contract, the innocent party is entitled to treat himself as being discharged from further obligations under it. But where the obligation that has been breached is only subsidiary or minor in nature, the innocent party may not treat himself as being free of his obligations under the contract, although he may sue and recover damages for the non-performance of the subsidiary term. The rules that operate in this area of the law of obligations produce a further consequence. A party who terminates a contract or treats it as having come to an end in reliance upon the breach of a non-fundamental term is himself guilty of a breach of a contract. Whether a particular term is fundamental to the contract or merely a term of subsidiary importance depends very much on the way in which the particular contract is constructed. [40] The Court of Appeal further opined at page 296: Another approach to the problem in cases that involve synallagmatic contracts is to look at the consequences of the breach of the term in question. If the breach is of such a nature that it goes to the root of the contract, then the term broken is fundamental in nature. On the other hand, if the consequences of the breach complained of are not serious in the sense that they do not go to the root of the contract, then the term in question is a subsidiary one entitling the innocent party to recover damages but not to treat the contract as being at an end. [41] In the case of Sim Chio Huat v Wong Ted Fui [1983] 1 CLJ 178; [1983] CLJ (Rep) 363 the Federal Court examined the conduct of the parties to see if the right to rescind the contract upon the occurrence of a repudiatory breach had been waived by the other party. Upon examination, the Federal 22 Court found that there was evidence of waiver; consequently, the right to rescind was no longer available and the contract was deemed to be still subsisting. [42] The Supreme Court observed in Gimstern Corp (M) Sdn Bhd & Anor v Global Insurance Co Sdn Bhd [1987] 1 CLJ 123; [1987] CLJ (Rep) 102,: The rule is that if a stipulation in a contract be that the contract shall be void on the happening of an event which one or either of the parties can by his own act or omission bring about, then the party who by his own act or omission brings that event about, cannot be permitted either to insist upon the stipulation himself or to compel the other party who is blameless, to insist upon it, because to permit the blameable party to do either would be to permit him to take advantage of his own wrong to put an end to the contract, vide the judgment of Lord Atkinson in New Zealand Shipping Company Ltd v. SDAECD France [1919] AC 1. [43] We are of the view that there was no judicial appreciation of the evidence by the learned Judicial Commissioner in coming to the conclusion that the Defendant had lawfully terminated the SCA. Under section 40 CA the right of a non-defaulter to repudiate a contract only accrues when the defaulter has refused to perform or has disabled himself or herself from performing the whole of his promise. If there is part performance by the Plaintiff, the Defendant may not put an end to the contract. In this case, on the facts the Plaintiff had partially performed it obligations under the SCA. Conclusion [44] In conclusion after having heard the parties at length and upon careful perusal of the records of appeals, we were of the considered opinion that appellate intervention was warranted. In the circumstances, and for the 23 reasons we have given, we were of the view that the decision of the High Court was plainly wrong. Accordingly, we unanimously allowed the appeal and set aside the order of the High Court with costs of RM50,000.00 here and below to the Appellant subject to payment of allocator. We entered judgment for the Appellant. As a necessary consequence of the appeal, we ordered that the case be remitted to the High Court before the same Judge to deal with the assessment of damages. sgd (HASNAH DATO’ MOHAMMED HASHIM) Judge Court of Appeal, Malaysia Putrajaya Date: 10.02.2020 24 Counsel for the Appellant Brenddan Soh Messrs. Ronny Cham & Co. Advocate and Solicitors Unit No. 6-9, Menara MAA, 6 Lorong Api-Api 1, 88000 Kota Kinabalu, Sabah Counsel for the Respondent Joan Goh Messrs. Goh & Associates Advocate and Solicitors S-3-23, Lot 23, 3rd Floor, Block E, City Mall, Jalan Lintas, 88300 Kota Kinabalu, Sabah