1. Construction contract for a processing plant — Alleged defects in materials and workmanship — Breach of contract regarding non-certified fire-retardant panels. (Para 1 , 2 , 3 , 11 , 12 , 15 , 20 , 26 , 41 )
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2024 MarsdenLR 963
HIGH COURT (KUALA LUMPUR)
WAN MUHAMMAD AMIN WAN YAHYA, J
Tech Food Ingredients Sdn Bhd & Anor – Plaintiff
Versus
Blue Seal (M) Sdn Bhd & Ors and another – Defendant
GUAMAN SIVIL NO WA-22NCC-17-01/2021 AND WA-22NCC-518-11/2021
Important Points
A party affirming a contract induced by fraud cannot simultaneously sue for fraudulent misrepresentation and breach of contract. Additionally, in commercial relationships, contractual obligations supersede tortious duties, and privity of contract is essential for initiating contractual claims.
Subject
Civil Law - Construction & Contract Law
Act Referred
Sale of Goods Act 1957
Contracts Act 1950: S.17, S.18, S.19
Evidence Act 1950: S.114
Rules of Court 2012
Contracts Act 1950: S.17, S.18, S.19
Evidence Act 1950: S.114
Rules of Court 2012
Headnote
(A) Contracts Act 1950 - Sections 17, 18 and 19 - Fraud and Misrepresentation - A contract entered into through fraud or misrepresentation is voidable at the option of the representee. The representee may elect to rescind the contract or affirm it and insist on performance. If the contract is affirmed, the party cannot simultaneously sue for fraudulent misrepresentation and breach of contract, as the allegation of fraud is nullified by the act of affirmation (Paras 83-95).
(B) Privity of Contract - A contractual claim can only be initiated by a party who is privy to the contract. Where a project owner appoints a main contractor, who in turn appoints a nominated sub-contractor via a superseded agreement, the project owner lacks the contractual nexus to sue the sub-contractor directly (Paras 54-57).
(C) Tort vs. Contract - In commercial relationships, where parties intend their rights and obligations to be governed exclusively by a contract, the contractual analysis supersedes a duty of care in tort or negligence (Paras 132-135).
(D) Corporate Veil - The corporate veil may only be lifted in instances of actual fraud at common law or inequitable conduct. Mere directorship or employment does not render individuals personally liable for the torts or breaches of a company unless they personally ordered or procured the wrongdoing (Paras 109-119). (E) Evidence Act 1950 - Section 114(g) - Where a party fails to provide evidence or call witnesses on material facts within their knowledge, the court may draw an adverse inference, which may strengthen the opposing party's case (Paras 64-71, 202). (F) Rules of Court 2012 - Documents in an agreed bundle under Part B (authenticity agreed, contents disputed) are admissible if referred to by witnesses during testimony; there is no requirement for such documents to be read aloud in court to be admitted as evidence (Paras 176-184).
Facts of the case:
A project owner appointed a main contractor, who then engaged a nominated sub-contractor to construct a processing plant. The sub-contractor installed panels that were not fire-certified and exhibited physical defects. The project owner and main contractor sued the sub-contractor and its directors for breach of contract, fraud, deceit, and negligence, seeking rectification costs and damages. The sub-contractor admitted that the panels were not certified.
Findings of Court:
The court found that only the main contractor had privity of contract with the sub-contractor. The claims for fraud and deceit failed because the plaintiffs affirmed the contract. The negligence claims were superseded by the contractual relationship. The sub-contractor's admission of liability and expert evidence proved that the plant was defective and required rectification.
Issues: Whether the project owner had privity of contract with the sub-contractor; whether a party can claim for both fraud and breach of contract after affirming the agreement; whether the corporate veil should be lifted to hold directors personally liable; and the evidentiary requirements for documents in a Part B agreed bundle.
Ratio Decidendi: A party who elects to affirm a voidable contract cannot rely on the fraud that induced the contract to seek damages while simultaneously suing for breach of that same contract. Privity is a prerequisite for contractual claims. In commercial settings, contract law governs the relationship over tort law. Adverse inferences may be drawn against a defendant who submits "no case to answer" and fails to lead evidence.
Result: Claim by the main contractor against the sub-contractor allowed for refund of overpayment and rectification costs. All other claims and counterclaims dismissed.
(B) Privity of Contract - A contractual claim can only be initiated by a party who is privy to the contract. Where a project owner appoints a main contractor, who in turn appoints a nominated sub-contractor via a superseded agreement, the project owner lacks the contractual nexus to sue the sub-contractor directly (Paras 54-57).
(C) Tort vs. Contract - In commercial relationships, where parties intend their rights and obligations to be governed exclusively by a contract, the contractual analysis supersedes a duty of care in tort or negligence (Paras 132-135).
(D) Corporate Veil - The corporate veil may only be lifted in instances of actual fraud at common law or inequitable conduct. Mere directorship or employment does not render individuals personally liable for the torts or breaches of a company unless they personally ordered or procured the wrongdoing (Paras 109-119). (E) Evidence Act 1950 - Section 114(g) - Where a party fails to provide evidence or call witnesses on material facts within their knowledge, the court may draw an adverse inference, which may strengthen the opposing party's case (Paras 64-71, 202). (F) Rules of Court 2012 - Documents in an agreed bundle under Part B (authenticity agreed, contents disputed) are admissible if referred to by witnesses during testimony; there is no requirement for such documents to be read aloud in court to be admitted as evidence (Paras 176-184).
Facts of the case:
A project owner appointed a main contractor, who then engaged a nominated sub-contractor to construct a processing plant. The sub-contractor installed panels that were not fire-certified and exhibited physical defects. The project owner and main contractor sued the sub-contractor and its directors for breach of contract, fraud, deceit, and negligence, seeking rectification costs and damages. The sub-contractor admitted that the panels were not certified.
Findings of Court:
The court found that only the main contractor had privity of contract with the sub-contractor. The claims for fraud and deceit failed because the plaintiffs affirmed the contract. The negligence claims were superseded by the contractual relationship. The sub-contractor's admission of liability and expert evidence proved that the plant was defective and required rectification.
Issues: Whether the project owner had privity of contract with the sub-contractor; whether a party can claim for both fraud and breach of contract after affirming the agreement; whether the corporate veil should be lifted to hold directors personally liable; and the evidentiary requirements for documents in a Part B agreed bundle.
Ratio Decidendi: A party who elects to affirm a voidable contract cannot rely on the fraud that induced the contract to seek damages while simultaneously suing for breach of that same contract. Privity is a prerequisite for contractual claims. In commercial settings, contract law governs the relationship over tort law. Adverse inferences may be drawn against a defendant who submits "no case to answer" and fails to lead evidence.
Result: Claim by the main contractor against the sub-contractor allowed for refund of overpayment and rectification costs. All other claims and counterclaims dismissed.
Legal Category Hierarchy
- contract law
- tort
- practice and procedure
Advocates:
Jasbeer Singh (with Nur Hakimah Mohamad and Rachel Varghese) (Jasbeer, Nur & Lee) for the plaintiff.
K Sureindhren (with Lee Yoke Chew) (Lee Y C & Co) for the first, second, third, fourth and fifth defendants.
Lee Chan Leong (Chan Leong & Co) for the sixth defendant.
Jasbeer Singh (with Nur Hakimah Mohamad and Rachel Varghese) (Jasbeer, Nur & Lee) for the plaintiff.
K Sureindhren (with Lee Yoke Chew) (Lee Y C & Co) for the first, second, third, fourth and fifth defendants.
Lee Chan Leong (Chan Leong & Co) for the sixth defendant.
Table of Contents
2. Whether the owner has privity of contract with the sub-contractor — Whether fraudulent misrepresentation justifies lifting the corporate veil — Whether negligence claims supersede contractual obligations. (Para 17 , 18 , 38 , 43 , 44 , 79 , 123 , 124 )
3. The second letter of award superseded the first, establishing privity only between the main contractor and sub-contractor — Affirming a contract nullifies claims of fraudulent inducement. (Para 49 , 50 , 54 , 55 , 88 , 93 , 94 , 104 , 132 , 133 , 134 )
4. A party affirming a voidable contract cannot simultaneously sue for fraudulent misrepresentation — Contractual obligations supersede a duty of care in tort within commercial relationships. (Para 92 , 93 , 133 , 134 )
5. Claim for breach of contract allowed against the sub-contractor — Claims for fraud, negligence, and fiduciary breach dismissed — Counterclaim dismissed. (Para 234 , 235 )
6. Does an owner have a contractual claim against a nominated sub-contractor if the original award was superseded?
No. If the original award is superseded by a new agreement between the main contractor and sub-contractor, the owner lacks privity and cannot initiate a contractual claim against the sub-contractor. (Para 49 , 50 , 54 , 55 )
7. Can a party sue for both fraudulent misrepresentation and breach of contract regarding the same agreement?
No. A party who chooses to affirm a voidable contract instead of rescinding it cannot rely on the fraudulent inducement to sue for damages while simultaneously relying on the contract for breach. (Para 88 , 92 , 93 , 94 )
8. When can the corporate veil be lifted to hold directors personally liable for a company's torts?
The veil may be lifted where there is actual fraud at common law or inequitable conduct, provided the directors personally participated in or ordered the tortuous act. (Para 109 , 119 )
9. Can a claim for negligence be maintained alongside a breach of contract claim in a commercial relationship?
Generally, contractual obligations supersede a duty in tort. Courts avoid imposing a duty of care in tort where parties intended their rights to be governed exclusively by contract. (Para 132 , 133 , 134 )
10. How are documents in Part B of an agreed bundle treated during trial?
Authenticity is agreed but contents are disputed. To rely on the contents, a party must call evidence, oral or otherwise, to prove the truth of those contents. (Para 176 , 177 , 182 )
Wan Muhammad Amin Wan Yahya J:
JUDGMENT
(Post Trial)
[1]This was primarily a case involving a contract to construct a cGMP (Current Good Manufacturing Practice) Processing Plant (“Factory”) in Klang between the 1st Plaintiff/2nd Plaintiff (“Tech Food” / “A One Piling”) and the 1st Defendant (“Blue Seal”).
[2]The Factory was intended to be a refrigerated storage facility which includes cold rooms, freezer rooms and food processing rooms.
[3]Tech Food and A One Piling’s claim was essentially that the Factory which was constructed by Blue Seal was not done in accordance with the contract, contained various defects in terms of the material used and workmanship and that the construction was not completed.
[4]This case took some time to dispose given multiple interlocutory applications filed by parties.
Nomenclature
[5]As this case involves two cases and several parties, the cases and the respective parties will be referred to as follows:
Suits
i) Main suit (WA-22NCC-17-01/2021) - “Suit 17”;
ii) Second suit (WA-22NCC-518-11/2021) - “Suit 518”;
Parties
iii) 1st Plaintiff (in Suit 17) - “Tech Food”;
iv) 2nd Plaintiff (in Suit 17) and 2nd Defendant (in Suit 518) - “A One Piling”;
v) 1st and 2nd Plaintiffs (in Suit 17) – collectively as “Plaintiffs”;
vi) 1st Defendant (in Suit 17) and Plaintiff (in Suit 518) - “Blue Seal” or “1st Defendant”;
vii) 2nd to 6th Defendants (in Suit 17”) - “2nd, 3rd, 4th, 5th and 6th Defendants”. The 2nd to 5th Defendants are directors of Blue Seal while the 6th Defendant is the Project Coordinator of the Project employed by Blue Seal;
viii) The 1st to 6th Defendants (in Suit 17) – collectively referred to as “the Defendants”.
ix) Truepro Consult Sdn Bhd (in Suit 518) - “Truepro”. Truepro is the Consultant and Superintending Officer (“SO”) appointed by Tech Food for the Project.
A] CHRONOLOGY OF PROCEEDINGS
[6]By Order dated 20.10.2021 Suit 518 was transferred from the Kuala Lumpur Sessions Court to this Court to be heard together with the main suit, Suit 17.
[7]Suit 518 contained a Counterclaim by the Defendants therein, A One Piling and Truepro.
[8]On 20.6.2022, the following transpired in respect of Suit 518:
i)Blue Seal withdrew its entire claim against both the Defendants, A One Piling and Truepro. Blue Seal’s main claim was then struck out with costs of RM40,000.00 in favour of A One Piling and Truepro;
ii)A One Piling withdrew its entire Counterclaim against Blue Seal. A One Piling’s Counterclaim was then struck out with costs of RM40,000.00 in favour of Blue Seal; and
iii)Truepro withdrew part of its Counterclaim against Blue Seal and only the reliefs in paragraphs 73.11, 73.14, 73.17 and
iv)20 of the Amended Defence and Amended Counterclaim remained, they are mainly:
a)Special damages of RM10,207,614;
b)General damages to be assessed for loss of income and business opportunity
[9]Given this turn of events what remained in respect of this case is:
i)For Suit 17: Tech Food and A One Piling’s claim against the Defendants; and
ii)For Suit 518: The remainder of Truepro’s Counterclaim against Blue Seal.
[10]At the trial of this action and at the end of the Tech Food and A One Piling’s case, Blue Seal together with the 2nd to 5th Defendants and the 6th Defendant submitted “no case to answer” and no evidence was led by any of their respective witnesses listed in the 1st to 5th and 6th Defendants’ list of witnesses.
B] SALIENT BACKGROUND FACTS
[11]By way of a Letter of Award dated 6.5.2019 (“1st LOA”) Tech Food appointed Blue Seal as its Nominated Sub-Contractor (“NSC”) in respect of a project known as “Cadangan Membina Sebuah Kilang Di atas Lot 158490 (HSD 135860), Jalan Sungai Pinang 4/10, Kawasan Perindustrian Pulau Indah, Mukim Klang, Daerah Klang, Selangor Darul Ehsan Untuk Tetuan Tech Food Ingredients Sdn Bhd” for the construction and completion of a factory (“Project”) or otherwise known as a cGMP Processing Plant (“Factory”) subject to the terms and conditions of the 1st LOA and Blue Seal’s quotation dated 26.4.2019 (“Quotation”).
[12]T
