Back
2020 MarsdenLR 2481
HIGH COURT (KUALA LUMPUR)
LEE SWEE SENG, J
Bauer (Malaysia) Sdn Bhd – Plaintiff
Versus
Hundred Vision Construction Sdn Bhd & Anor – Defendant
CIVIL SUIT NO WA-22C-59-05/2017
Sanjay Mohan (Wong Li Wei with him) (Sanjay Mohan) for the plaintiff.
Faisal Moideen (Priscilla Tan and Daphne Rethual with him) (Moideen & Max) for the defendant.
The absence of privity of contract between the nominated subcontractor and the employer precludes direct claims or responsibilities, reaffirming standard legal interpretations within construction law.
Headnote:(A) Contracts Act 1950 - Section 71 - Privity of Contract - Legal obligations of parties in construction contracts - The court established that there was no privity of contract between a nominated subcontractor and the employer. The subcontractor's claims against the employer were dismissed based on Clause 7.5, which stated that direct payments did not create a privity of contract - The subcontractor’s claim for quantum meruit and a counterclaim for negligence by the employer were also dismissed, as there were issues of duty of care and no breach proven. (Paras 181-183)
(B) Duty of Care - The court explored whether the subcontractor owed a duty of care to the employer in tort. It affirmed that given the contractual arrangements, the subcontractor did not owe a direct duty to the employer and also noted the absence of negligence. (Paras 123-185)
(C) Collateral Contracts - The court found no evidence supporting claims of collateral contracts for direct payment obligations from the employer to the subcontractor, emphasizing the strict interpretation of privity of contract. (Paras 43-55)
Lee Swee Seng J:
THE JUDGMENT OF Y.A. LEE SWEE SENG
[1]The exact nature of the contractual relationship between an employer and a nominated subcontractor (“NSC”) is often more than meets the eyes. Various mechanisms have been explored by an NSC to ensure, if not, secure payments for work contractually done for its main contractor including some direct payment arrangements where the employer would pay directly to the NSC.
[2]When that is not done and the NSC discovered that the main contractor had nevertheless been paid or had gone into liquidation, it is natural for the NSC to explore making a claim against the employer as it happened here. The NSC staged its claim under breach of representations and warranties given by the employer to it and even under a collateral contract to pay. Alternatively, it tried to claim under quantum meruit under section 71Contracts Act 1950
[3]The employer in turn counterclaimed against the NSC for damages arising out of the damage done to an adjacent building and to delay occasioned by the NSC arising out of what it said is the NSC’s negligence. That raises an interesting question as to whether an NSC owes a duty of care in tort to the employer when all three parties had worked out their risks in providing for their respective rights and obligations under their separate contracts with each other down the chain of construction, and in this case under a standard form PAM Contract with some modifications.
Parties and Project
[4]The plaintiff had earlier on 6.6.2017 taken a judgment in default against the 1st defendant (“D1”) for the same claim which is the subject-matter of the trial between the plaintiff and the 2nd defendant (“D2”), Bakti Dinamik Sdn Bhd.
[5]The plaintiff is an NSC of D1. D1 in turn had been appointed by D2 as its main contractor for the substructure and superstructure works under a Main Contract with respect to a high-end service suites called Tribeca along Jalan Imbi in Kuala Lumpur. D1 is the owner-cum-developer of the Project.
[6]The plaintiff is a substructure works specialist and it was appointed by D1 to do the substructure works as an NSC for a contract sum of about RM30 million. D1 had earlier been appointed by D2 for the same substructure works about RM50 million.
Problems
[7]Along the way in the execution of the works, an adjacent building to the works, owned by Wagner Piano Sdn Bhd (“Wagner Piano Building”), suffered damage, flooding and settlement such that Wagner Piano had to move out. It then commenced on 28.11.2014 an action in negligence against D2 as the first defendant and D1 as the 2nd defendant and the plaintiff as the 3rd defendant there (“the Wagner Piano Suit”).
[8]The Wagner Piano Suit was settled around March/April 2015 by the 2nd defendant there who is also D2 here. D2 made a commercial decision on settlement as it could not suffer the risk of a possible injunction to stop work which Wagner Piano intended to apply for and the effect that would have on existing as well as prospective purchasers.
[9]The plaintiff did not want to participate in the settlement as it took the view that it was not negligent and indeed the defence filed by D2 there was that the plaintiff here had complied with all the standard and approved practice and had taken the necessary diligence in executing the substructure works.
[10]The plaintiff was not paid for Interim Certificates 16 and 17 amounting to RM1,809,747.85 and RM907,654.19 making a total of RM2,717,402.04.
[11]The plaintiff had obtained an adjudication decision in its favour on 15.9.2016 for these 2 certificates as well as its claim for variation works and loss and expense for a total of about RM4.2 million.
[12]The plaintiff however was shocked to later learn that D1 had been struck out by the Companies Commission of Malaysia (“CCM”) on 28.5.2017. Prior to that the plaintiff had made a CCM search and discovered then that D1 was in the process of being struck out.
[13]Of course the plaintiff would have cause for concern and it should h
