Syarikat Pembinaan Woh Heng Sdn Bhd

- vs -

Meda Property Services Sdn Bhd

Judgment

Azmel Maamor, J

1. In this case the plaintiff applied for an order that the defendant preserve a sum of RM7,750,000 being the retention monies withheld by the defendant and that the said retention monies be deposited into a separate identifiable bank account and further that the defendant be directed to produce the audited accounts as proof that the said retention monies have been so preserved.

2. The brief facts that led to the plaintiff bringing this action against the defendant are as follows. Pursuant to the letter of award dated March 9, 1996 the plaintiff was appointed by the defendant for the execution and completion of a main building and external works of the proposed commercial development consisting of a six storey shopping complex (podium), 1 block of hotel tower (17 storey) with three levels of basement car park on Lot PT 12202 and part of Lot PT 12201, Mukim Damansara, Daerah Petaling Jaya, Selangor ("the said project"). The terms and conditions of contract between the plaintiff and the defendant were based on the Standard PAM Contract. The total contract sum of the said project was RM155,000,000. A sum amounting to 5% of the total contract sum which is equivalent to RM7,750,000 had been retained by the defendant as the retention monies.

3. After the works on the said project had been completed and progress payments had been received the defendant still refused to release the retention monies to the plaintiff. It was the defendant's contention that the defendant was entitled to claim liquidated and ascertained damages (LAD) due to the delay on the part of the plaintiff to complete the said project. The amount of LAD claimed by the defendant was RM9,589,999.20. As such the defendant claimed that it was entitled to set-off part of its LAD claim from the retention monies. And since the LAD claim was more than the retention monies the question of the defendant setting aside the retention sum would not arise any more.

4. However the plaintiff strenuously disputed the defendant's claims for LAD. It was argued by the plaintiff that the architect for the said project had granted the extension of time and as such the defendant's calculation for LAD was completely wrong. The plaintiff claimed that taking into consideration the allowed extension of time, there was no delay in its completion of the works on the said project. It was finally agreed by both parties that this dispute be referred to an arbitrator in accordance with the terms of the contract. And the arbitration proceedings is still pending.

5. Such being the brief facts and circumstances of this case, the question to be determined by this court was whether it would be proper to grant the order as applied by the plaintiff. I have invited both counsels to give their written submissions. After having considered their submissions in the light of the facts and circumstances of this case I decided to allow the plaintiffs application. My reasons are as follows.

6. Firstly as had been clearly stressed by the counsel for the plaintiff, what the plaintiff was seeking was not that the retention monies be paid to the plaintiff. The plaintiff only sought that the retention monies be preserved. It was not disputed that the retention monies did not belong to the defendant. The defendant only held it in trust for the plaintiff. It is true that the defendant would be able to deduct any amount of the retention sum if that the defendant has legitimate claims against the plaintiff in respect of the said project. The defendant alleged that it had LAD claim against the plaintiff for the delay in completing the works on the said project. But the plaintiff had disputed such LAD claim by the defendant. And the matter is still pending before the arbitrator.

7. Therefore at this point of time there is a dispute as to how much, if at all, the defendant is entitled to claim the LAD. As at this point of time there is no certainty that the defendant would succeed in its claim it is therefore only proper that the retention monies be preserved and set aside by the defendant who held it on trust for the plaintiff, until the outcome of the arbitration proceedings. On this issue I only need to refer to the case of Concorde Construction Co Ltd v Colgan Co Ltd 29 BLR p 20 where Justice Rhind in his judgment said:-

   I do not think that an employer is entitled to have recourse on the trust fund of retention monies simply on the strength of his own belief that he has a good claim which entitles him to such monies.

8. Secondly, on the defendant's argument that since there is currently winding-up proceedings against the defendant this action taken by the plaintiff for the preservation of the retention monies would tantamount to a preferential payment and as such would be prohibited by s 223 of the Companies Act 1965. In respect of this argument I fully agree with the submission of the counsel for the plaintiff in that s 223 of the Companies Act 1965 is inapplicable because the retention monies do not belong to the defendant at all. The retention monies are held on trust in a fiduciary capacity by the defendant as the employer for the benefit of the plaintiff who was the contractor. Hence this argument by the defendant had no merits whatsoever.

9. Finally, the dispute as to whether the defendant is entitled to claim LAD is to be decided by the arbitration. At this stage it is only a claim by the defendant. It is only proved if the arbitrator allows the claims. On the other hand if the arbitrator decides not to allow it then the plaintiff would be entitled to claim the retention monies. Therefore if the retention monies are not preserved now, having regard to the current financial and business situation of the defendant, there is great possibility that the plaintiff would not be getting paid on the retention monies. Hence the plaintiffs action would become nugatory. It must be borne in mind that the retention monies do not belong to the defendant. They were held by the defendant in trust for the benefit of the plaintiff. Such being the status of the retention monies in my view, it is only fair and just that the said retention monies be preserved in the manner as applied by the plaintiff. And the defendant is obliged to comply with the request of the plaintiff.

10. Having considered all the relevant circumstances of this case I granted the plaintiffs application with costs.

Cases

Concords Construction Co Ltd v Colgan Co Ltd 29 BLR

Companies Act 1965: s.223

Representation

N Chandran, Ranjan Chandran and S Dhanaraj (Hakem Arabi & Associates) for Plaintiff

Ringo Low and Grace Chong (SC Lim & Partners) for defendant

Notes:-

This decision is also reported at [2002] 3 AMR 3587