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2021 MarsdenLR 290
HIGH COURT MALAYA JOHOR BAHRU
PEARSON HARDMAN INDUSTRIES (M) SDN BHD – Appellant
Versus
MES TECHNOSERVICE MALAYSIA SDN BHD – Respondent
[Civil Suit No: JA-22NCVC-40-02-2020]
Termination of a contract requires provision of valid reasons; failure to do so renders termination unlawful.
Headnote:(A) Evidence Act 1950 – Section 103 – Termination of contract – Plaintiff's claim of unlawful termination and breach of contract for retrofitting work on RTGs – Defendant's counterclaim regarding completion of work – Termination deemed unlawful based on lack of justification and absence of reasons, contrary to established legal standards (Paras 16, 18, 20).
(B) Plaintiff established completion of work on TC13, as evidenced by tests and certifications, countering defendant's claims (Paras 44, 46).
(C) Damages awarded on quantum meruit basis recognizing the work completed, notwithstanding contract termination (Paras 75).
Facts of the case: The plaintiff claimed damages for the alleged unlawful termination and for work on RTGs while the defendant denied completion and counterclaimed for additional costs.
Findings of Court: Unlawful termination of contract proven; defendant's claims dismissed.
Issues: The main issues included the legitimacy of termination, fulfillment of contract obligations, and entitlement to damages.
Ratio Decidendi: Court found that the notice of termination lacked bona fide whereas the plaintiff continued fulfilling obligations under the contract.
Result: Plaintiff's claim allowed on a quantum meruit basis.
Key Points: - Termination of a contract requires valid reasons; lack of justification renders termination unlawful (!) (!) (!) . - A party who continues performing after unlawful termination is entitled to payment for work completed on a quantum meruit basis (!) (!) . - The burden of proof for justifying termination lies on the party who terminates the contract (!) (!) .
What is the legal effect of failing to provide valid reasons for contract termination?
What are the rights of a party who has completed work after unlawful contract termination?
On what basis can damages be awarded when a contract is unlawfully terminated?
JUDGMENT
Introduction
[1] This is the plaintiff's claim ("this application") for alleged unlawful termination and breach of contract, and the defendant's counterclaim for the plaintiff's purported failure to complete the work pursuant to such contract.
The Factual Background
[2] The plaintiff company was appointed as a sub-contractor by the defendant company to do retrofitting work on four rubber-tyred gantry cranes (RTGs) for an agreed price of RM7 million ("the Business Contract"). The work commissioned was pursuant to the defendant's contract with Johor Port Berhad ("JPB"). After a deposit of RM2.8 million had been paid to the plaintiff, it had commenced work on the first RTG ("TC13") in August 2019. The defendant, however, sometime in October 2019, terminated the Business Contract for the Second to Fourth RTGs, and instructed the plaintiff to leave the site after completing work on TC13.
[3] The plaintiff continued to work on TC13, and, according to the plaintiff, completed it in November 2019. The plaintiff left the site in December 2019, and thereafter issued a bill for RM1.2 million for the work it had done on TC13. The defendant, however, refused to pay on the basis that the plaintiff had delayed and eventually had not completed the work.
[4] The plaintiff filed its claim on 13 February 2020, for the following:
a) Damages for expenses purportedly incurred by the plaintiff for the purchase of parts, materials and various services for the Business Contract for the four RTGs;
b) Damages for parts wrongfully taken by the defendant;
c) Payment for the work completed on TC13;
d) General damages for loss of profit; and
e) Aggravated damages.
[5] The defendant, on the other hand, counterclaimed for the price difference allegedly incurred in completing the work on TC13, on the premise that the plaintiff had failed to complete such work.
[6] The plaintiff's claim was allowed only for damages to be assessed on a quantum meruit basis, whilst the defendant's counterclaim was dismissed, for the following reasons.
Contentions, Evaluation And Findings
Whether The Termination Of The Business Contract Was Lawful?
[7] The nub of the plaintiff's contention was that the termination of the Business Contract for the three RTGs was unlawful as it was not bona fide, and was premised on unsubstantiated allegations. The plaintiff further claimed that despite completing the work on TC13, it had not been paid, and was not allowed to remove its inventory, when it left the site.
[8] The defendant's case was that the plaintiff had failed to meet the deadline for delivery of the parts by the purported deadline of 12 September 2019, and had failed to complete TC13 within 50 days from the date of commencing work on it, as prescribed by the Business Contract. The defendant further claimed that the inventory belonged to the defendant, and hence it had not allowed the plaintiff to remove it. The defendant's counterclaim was premised on the additional costs incurred to complete the work on TC13.
When Was The Business Contract Terminated?
[9] A perusal of the correspondence indicated that two notices of termination were issued. The first was an email sent by the defendant's Senior Project Engineer, one Mr Amirtamanickam ("DW2") to one Madhan Kaliappan, the Operations Manager and Director of the plaintiff ("PW1") on 1 October 2019 (Notice of Termination dated 1 October 2019 found at p 81 of the Agreed Bundle of Documents), stating that the defendant had planned to manage the work on its own from the Second RTG onwards, and had instructed the plaintiff to calculate its expenses. The Notice of Termination dated 1 October read:
"Beginning 2nd RTG, we plan to manage site work and other job by our own. Please calculate the expenses for parts and site work/ labours.
We have calculated all our expenses for parts and site work.
Before the end of this week, we need to discuss the expenses for both sides.
Thus far we have released the amount mentioned below."
[10] The
