Mahkota Technologies Sdn Bhd[a]

- vs -

BS Civil Engineering Sdn Bhd

Judgment

Vincent KK Ng, J

1. The present appeal arises from the learned Senior Assistant Registrar's dismissal of the appellants' / plaintiff (plaintiffs) application for summary judgment against the respondents / defendant (defendants).

2. On the date of the hearing of the appeal, Mr. Kartar Singh, the learned counsel for the defendants raised two preliminary objections.

   • Firstly, that the notice of appeal was irregular and

   • Secondly, that the service of the summons-in-chambers (Encl 7) and the affidavit filed in support of Encl 7, (Encl 8) were bad in law.

   I do not propose to deal in detail the latter objection. It suffices to say that I agree with Mr. Siau Suen Miin, the learned counsel for the plaintiffs, that it cannot stand as the defendants' conduct in filing several affidavits-in-reply in the wake of Encl 8, and its failure to raise the mater before the Senior Assistant Registrar amounts to a waiver.

3. On the issue of the notice of appeal, Mr. Kartar Singh submits that there was no-compliance of Order 56 r 2 of the Rules of the High Court 1980, in that the plaintiffs had substituted the phrase "dismissed with costs" for the phrase "refusing to order" in Form 114 prescribed under the provision. To my mind, this difference in terminology is, at most, a slight irregularity, and as there is no evidence that the defendants were either misled or prejudiced, I dismissed this preliminary objection too. Now, the appeal proper.

4. There is no dispute that the plaintiffs had been appointed by the defendants to supply and to install four units of lifts and twenty-two units of escalators at a premise known as Plaza Putra, Alor Setar. And, that two contracts were executed in relation to this appointment namely, the main contract of March 16, 1996 (Exh MKT-1 to Encl 7), and the sub-contract of January 14, 1997 (Exh MK.T-2 to Encl 7) to which the current claim is primarily focused.

5. However, whilst the plaintiffs claim that they are entitled to payment as they had fulfilled their contractual obligations to the satisfaction of the architect, the defendants contend otherwise. They allege, amongst other things, that the plaintiffs' work was shoddy and that the plaintiffs failed to complete the contract work within time. The defendants further allege that they had suffered a loss as they were forced to appoint another contractor to rectify the plaintiffs' shoddy work. And, towards the recovery of their loss, they filed a counterclaim wherein the amount sought was in excess of the plaintiffs' claim. They were, therefore, entitled to withhold payment.

6. Mr. Siau, in his reply, submits that the defendants' allegations are baseless and ought to be dismissed on two grounds. The first ground being that the common law right of set-off in contracts of this nature had been extinguished by the case of Pembenaan Leow Tuck Chui & Sons Sdn Bhd v Dr Leela's Medical Centre Sdn Bhd [1995] 2 AMR 1289. Secondly, the defendants do not have any evidence to support their counterclaim. It is Mr. Siau's contention that in order to succeed on their claim, the defendants, by virtue of Clause 8 of the sub-contract, is required to produce the architect's certification that there was delayed and/or shoddy work. And, no such certificate was ever produced at the hearing of the application.

7. I shall deal with the first ground. The dispute in Dr Leela's Medical Centre arose out of the employer's refusal to make payments to the builder despite being served with the penultimate progress payment certificate. The employer had alleged that not only was the builder's work shoddy, the builder had also over-valued the work done. The High Court hearing the builder's application for summary judgment gave the employer leave to defend on the grounds that there were triable issues which had to be determined at a trial. On appeal by the builder, the Supreme Court allowed the appeal. It is Mr. Siau's contention that the appeal was allowed by the Supreme Court chiefly on the grounds that the Supreme Court held the view that the common law right of set-off had no place in building contract cases.

8. On the strength of that decision, Mr. Siau contends that the defendants had no right to withhold any sum of money whatsoever but was obliged to pay RM988,777.14 upon the expiry of 14 days after the service of each of the architect's certificates i.e. certificates No 8, 9, 10 and 12 on them, especially, as Clause 11(b) of the sub-contract mandated that:

   Within fourteen days of the receipt by the contractor of any certificate or duplicate copy thereof from the Architect the contractor shall notify and pay to the sub-contractor the total value certified therein in respect of the sub-contract works.

9. With respect, Mr. Siau appears to have misread the principle expounded in Dr Leela's Medical Centre Sdn Bhd when he contended that the Supreme Court had made a blanket ruling ousting in toto the common law right of set-off in all building contract cases. Indeed, in that case, Edgar Joseph Jr FCJ, who delivered the judgment of the Supreme Court cited with ready approval and adopted the following passage in the judgment of Lord Morris in the Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 at p 699G-700A; [1973] 3 All ER 195 at pp 200J - 201A:

   When parties enter into a detailed building contract there are, however, no overriding rules or principles covering their contractual relationship beyond those which generally apply to the construction of contracts ... Nor, if a contract provides for the issuing of interim certificates, should it be supposed that debts of a special class will come into existence, i.e. debts in relation to which there cannot under any circumstances be any defence or set-off. Provisions governing such interim certificates will probably be found in the contract. [emphasis added]

10. Thus, following the ratio decidendi in the Gilbert-Ash case, our Supreme Court rejected the obiter dictum of Lord Denning in Dawnays Ltd v FG Minter Ltd [1971] 2 All ER 1389; [1971] 1 WLR 1205 which enunciated that there was a special rule of construction applicable to cross-claims in building contract cases which ran counter to the principle pertaining to the right of set-off as originally laid down in Mondel v Steel (1841) 8 M & W 858 at pp 871-872; (1835-42) All ER 511 at p 516, and subsequently entrenched in common law. In the words of Lord Denning, in Dawnays:

    An interim certificate is to be regarded virtually as cash, like a bill of exchange. It must be honoured. Payment must not be withheld on account of cross-claims whether good or bad - except so far as the contract specifically provides. [emphasis added]

11. Clearly, in Dr Leela's Medical Centre, the Supreme Court had held that parties to a building contract may by express words or ' by clear implication' provide for the ouster or exclusion of the common law right of set-off; in other words, each case would turn upon the particular wording of the contract. And, in that particular case the Supreme Court did find that the provisions of that governing PAM-formulated contracts showed an implicit intention of the parties to exclude the right of set-off. Thus, the issue for this court to determine is whether from the wording of the sub-contract entered into in the present case, it can be implied that the parties had intended to exclude the right of set-off. It is my finding that no such exclusion was intended. Indeed, defendants' rights to set-off against any sum or sums due has been clearly preserved by Clause 13 of the sub-contract, which appears as follows:

    The Contractor shall notwithstanding anything in this sub-contract be entitled to deduct from or set-off against any money due from him to the Sub-contractor (including any Retention Money) any sum or sums which the Sub-contractor is liable to pay to the Contractor under this Sub-Contract.

    And, as the defendants' counterclaim is far in excess of the plaintiffs' claim, I am of the view that the learned SAR was right in allowing unconditional leave to defend.

12. Due to the provisions of Clause 2 of the sub-contract, the instant case is also distinguishable from Dr Leela's Medical Centre Sdn Bhd, in that whereas the architect in Dr Leela's Medical Centre Sdn Bhd was given the sole control over the supervision of the works, Clause 2 of the sub-contract in the current case requires the plaintiffs to ensure that the work done is to the satisfaction of both the architect and the defendants. Clause 2 states:

    The Sub-Contractor shall execute and complete the sub-contract works subject to and in accordance with this sub-contract in all respects to the reasonable satisfaction of the Contractor and of the Architect for the time being under the main contract (hereinafter called "the Architect" which expression where the context of the main contract to requires (sic) shall mean and include the supervising officer) and in conformity with all the reasonable directions and requirements of the Contractor including all reasonable rules of the contract or (so far as the may apply) for the time being regulating the due carrying and the main contract works. [emphasis added]

13. And, it is clear from the list complied by the defendants (see defendants' Exh 'D' in Encl 14) that the defendants had, quite early after the alleged completion of the works, made known to the plaintiffs their dissatisfaction of the plaintiffs' work. I further find that there is also a triable issue in relation to the plaintiffs' alleged defective work. It is the plaintiffs' stand that their work had been satisfactorily performed which they say has been confirmed ipso facto by the issuance of the architect's certificate. However, as pointed out by Mr. Kartar, even the appointed architect was of the view that there were certain defects in the plaintiffs ' work. The said architect had written to the plaintiffs a letter expressing dissatisfaction over the plaintiffs' work. This letter was exhibited as 'MTK-8' in the plaintiffs' second affidavit in support (Encl 16). It reads as follows:

    Dear Sir, LIFTS & ESCALATORS We refer to your letter dated 30/l 1/97 ref: GEC/AS/CO-1151/1844 and the attached fax from B.S. Civil Engineering Sdn. Bhd., dated 1/12/97 1/041/97 for your reference. Re your paragraph 3 please be informed that repair works are still incomplete and not acceptable to that consultants / owners' s satisfaction. Please rectify all the defective works without any further delay. By this copy of fax Jurutera Perunding Valdun Sdn. Bhd., is to assist and monitor the rectification works. Thank you. Yours faithfully, CHUA KA SENG PARTNERS CHARTERED ARCHITECTS Enc: cc Binaan Sentosa Sdn. Bhd. (Attn: Mr. Lee Chuck Kee ) By fax Jurutera Perunding Valdun Sdn. Bhd., (Attn: Mr. Chow ) By fax [emphasis added]

14. To be fair to the plaintiffs, it has to be noted that they did carry out some remedial works and they also appointed an independent lift and escalator consultant firm known as Atwell International Ltd to undertake a survey. Atwell International Ltd did come up with a report namely Exh ' MKT-11' to Encl 14, which was favourable to the plaintiffs. But the crux of the matter is that the plaintiffs have failed to adduce any evidence to show that this report was acceptable to the architect. Thus, whether or not the architect was wholly satisfied with the plaintiffs' work is also questionable.

15. The plaintiffs had exhibited, as Exh 'MKT-4' to Encl (8), a statement of accounts of the amount they are seeking. This statement was deposed by the plaintiffs to be a true and correct statement obtained from their books. Amongst the details shown in this statement is a certification of the value of the plaintiffs' work by Jurutera Perunding Valdun Sdn Bhd, a consultant firm appointed by the defendants. In another column is a certification of the same works by the said architect. Although the certification of progress Claim 1 to 5 tallied in both certification, the amount certified for progress payment No 6 differed, in that Valdun had certified the amount due as RM194,700, whereas the architect's certification showed the amount as RM312,200. This difference was unexplained.

16. Mr. Siau submitted that such difference and the absence of an explanation was immaterial, as the parties had contracted to make payments based on the architect's certificates, thereby making Valdun's certificate redundant. Mr. Siau's submission at first sight appears reasoned. However, I note from Exh 'MTK-8' in Encl 14, that the architect had indeed relied on Valdun's report as a guide in the rectification works. By that letter, the architect had instructed the plaintiffs to comply strictly with Valdun's report. Under such circumstances, I am of the view that Valdun's role cannot be totally discounted and that the difference in the certification calls for an explanation.

17. As evidence of delay, the defendants exhibited the certificate of practical completion dated December 29, 1997 (Exh 'B' to Encl 14) issued by the architect. By that certificate, the architect had certified that the date of completion was October 15, 1997. Mr. Siau submitted that this certificate was misleading as the certification was not restricted to only the plaintiffs' work but was in respect of all works on the whole project. It is trite that it is the maker who should clarify and enlighten the court on the contents of the certificate, that is, the architect himself. And, since there was no clarification by way of affidavit, the architect's explanation should be heard at the trial.

18. I am conscious of the position in law, that merely to allege the existence of defects in the works, or a claim for damages for delay without in each case giving some reasonable amount of detail and of quantification is unlikely to result in leave to defend. The ordinary practice is that there must be some real basis, not a shadowy basis, for showing that there is an issue worthy of investigation by the courts. In the current case, I am completely satisfied that there are some real basis worthy of investigation.

19. The plaintiffs' appeal is largely grounded and premised on their contention that the architects' "interim certificate is to be regarded virtually as cash, like a bill of exchange". With this debunked, and the defendants' submission that they had suffered loss on rectification works only feebly resisted at this stage, the appeal naturally collapses.

20. Accordingly, this appeal is dismissed with costs.

Cases

Dawnays Ltd v FG Minter Ltd [1971] 2 All ER 1389; [1971] 1 WLR 1205; Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689; [1973] 3 All ER 195; Mondel v Steel (1841) 8 M & W 858; (1835-42) All ER 511; Pembenaan Leow Tuck Chui & Sons Sdn Bhd v Dr Leela's Medical Centre Sdn Bhd [1995] 2 AMR 1289

Legislations

Rules of the High Court 1980: Ord.56 r 2, Form 114

Representation

Siau Suen Miin (Siau Suen Miin & Co) for Appellants / Plaintiffs

Kartar Singh (Kartar Singh Dhaliwal & Co) for Responents / Defendants

Notes:-

[a] formerly known as The General Electric Company of Malaysia Sdn Bhd

This decision is also reported at [2000] 4 AMR 2917