Target Resources Sdn Bhd v Putrajaya Holdings Sdn Bhd

[2016] MLJU 683

HIGH COURT (SHAH ALAM)

Adnan bin Abd Rahim (Siti Fatimah bt Ali Asgar with him) (Adnan Rahim & Co) for the plaintiff.
Alan Wong (Andrew Heng and Roger Leong with him) (Zain Megat & Murad) for the defendant.

See Mee Chun J:

[1]Plaintiff had entered into a contract with Defendant through letter of

Award dated 22-6-2012 (B1 1-6, LA) for a project The Proposed Construction and Completion of 50 Units 3 Storey
Semi-Detached Houses, 10 Units 2 Storey Semi-Detached Houses and Associated Works at Plot 8R7 Presinct 8
Putrajaya (project). Articles of Agreement and Conditions of Contract were duly executed on 12-12-2012. The value
of the contract is RM65.420 million.

Claim and counterclaim

[2]This is Plaintiff’s claim for value of work done of 25.42% amounting to RM16,629,764.00, the sum of
RM3,271,000.00 under a bank guarantee (BG) called upon by Defendant and a declaration the notice of
termination is invalid. Defendant disputed the claim and counterclaimed for costs of completion, indemnity for
further costs in completion and indemnity for late payment charges payable by Defendant to its purchasers.

[3]Witnesses for Plaintiff were Abdul Jamal bin Abd Karim (PW1, project manager) and witness statements marked
as WSP1 and WSP1A, Elyza bte Abdul Rahim (PW2, Senior Quantity Surveyor) and witness statement marked as
WSP2 and Raden Muhd Pujaseti bin Hj Asnawi (PW3, Quantity Surveyor) and witness statement marked as WSP3.
Witnesses for Defendant were Ir. R. Subramaniam (DW1, Residential and Infra Division Head for the project) and
witness statement marked as WSD1, Razali Rashid (DW2, Architect) and witness statement marked as WSD2 and
Shanta Arumugam (DW3, Quantity Surveyor) and witness statement marked as WSD3.

Undisputed facts

[4]As per LA date of site possession was 16-7-2012, contract duration 20 months from date of site possession and
completion date 15-3-2014. Although Plaintiff had applied for extension of time none was given. However by letter
dated 15-10-2014 (B6 1087-1088) Defendant agreed to extend completion date from 15-3-2014 to 31-12-2014
subject to 3 conditions. Defendant issued a notice to remedy default dated 11-12-2014 (B6 1093-1094). Defendant
then issued its notice of termination dated 9-2-2015 (B6 1148) terminating Plaintiff’s employment forthwith. 2
Certificates of Non Completion (CNC) had earlier been issued, dated 27-3-2014 (B6 1076-1078) and dated 6-1-
2015 (B6 1144-1147). By letter dated 13-2-2015 in B6 1151-1152 Plaintiff had proposed a mutual cessation/
termination. This was agreed to by Defendant by letter dated 24-2-2015 in B6 1154-1156 wherein certain conditions
were put forth which were ultimately not accepted.

Plaintiff’s claim (a) Claim for work done

[5]Plaintiff’s claim arises from the physical completion of work at 57.62% but having been paid an equivalent of
32.20% thereby leaving a balance of the equivalent of 25.42% amounting to RM16,629,764.00 not paid. DW1 was
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referred to a letter in B6 1154 and agreed the letter mentioned Plaintiff has executed the works 57.62% and that
Defendant had paid RM20,011,654.00 (page 61 of NOP). DW1 however disagreed the RM20 million represents
27% of the construction amount. He added that the RM20 million is what was paid for the work that was done and
verified and certified by the consultant (page 62 of NOP).

[6]The letter in B6 1154 dated 24-2-2015 states among others the following-

To date, it has been certified that you have completed approximately 57.62% of the Works against the targeted percentage
completion of 99.78%. The certified claim paid to date amounts to Ringgit Malaysia Twenty Million Eleven Thousand Six
Hundred Fifty Four and Sens Thirty Nine (RM20,011,654.39).”.

[7]DW3 was the Quantity Surveyor (QS) in charge of the project for QS Consultant appointed by Defendant as the
independent consultant. She confirmed Defendant’s interim payment certificate (IPC) in B6 1095-1141 certifying the
amount of work carried out by Plaintiff as well as value of the same (Q&A 5 WSD3). She further stated the amount
valued was pursuant to the agreed contractual rates under LA.

[8]In cross examination DW3 explained that once a progress claim is received from Plaintiff all parties will gather on
site to assess the claim as to whether that is the work done on site. When Plaintiff submits the claim they can
deduct the claim if the work is done on site; they assess and pay according to work done in accordance with the
contract rates. The certificate of claim reflects the work done for the month based on joint measurement. They do
not have the final say as it is a joint measurement; if contractor objects he can go back to them and since he has
gone to the site it is deemed he accepts the joint valuation. She agreed there were a few claims submitted by
Plaintiff which they had not approved as certain sections were subject to re measurement. She agreed Plaintiff had
done the physical project work more than 55%, had been paid about 30% of the contract sum and that RM20 million
is equivalent to 30%. She disagreed a balance of the construction work had not been paid to Plaintiff.

[9]In re examination as to why if 55% physical work had been done Defendant had been paid RM20 million
equivalent to 30% of the contract sum, she explained as follows-

This project is actually high end residential and if you look at a construction building, you have the carcass and you have
the finishing. The carcass is very light where monetary value is concern. The finishing is high ended. So because of that
priority, that is why we says that no doubt he may have done 55% but the value that he has done is only RM20 million. If he
had completed his job, he would have got the full amount but due to the non-completion he was only given that cost of
building that he constructed.”.

(Page 76 of NOP).

DW1 too had explained the correlation between percentage of physical work done versus percentage of total
contract sum whereby physical and financial do not fall in the same path and that payment was certified based on
work done (page 53 of NOP).

[10]It is not disputed Plaintiff had been paid RM20,011,654.39 and this was in fact the sum total of all invoices
submitted. However it is this Court’s finding percentage of physical completion does not translate into an equivalent
percentage of contract value. This has been explained by DW1 and DW3. As put forth succinctly by DW3
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percentage of physical work is distinct from value of work in a high end project such as this project where the
finishing is high ended in terms of monetary value and so even if 55% was completed, the value may be RM20
million and if the job had been completed the contractor would have got the full amount.

[11]The invoices submitted by Plaintiff are those in B6 1095-1141 as confirmed by DW3. These add up to
RM20,011,054.40 a figure confirmed by PW1 and further confirmed to have been paid. PW2 had also given
evidence Plaintiff had not challenged the valuation made by Defendant is less and/or under certified (page 39 of
NOP). Hence whatever payment due to Plaintiff has been paid accordingly.

[12]According to Plaintiff whatever differential value between value of work completed and payments made was
due to back loading. PW2 was referred to a letter dated 13-2-2015 from Plaintiff to Defendant (B6 1151-1152)
where it was stated-

After the rationalization of the rate with PJH it was unfortunate that the bill of quantities resulted in back loading”. Hence,
the financial progress is lower than the actual construction progress.”.

[13]He explained how back loading had happened-

Back loading ini kita alami di masa proses pembayaran kerana pembayaran BQ kontrak rate of contract yang digunapakai
di dalam conditions contract. So back loading a lot of element of progress claim, pass at the back of the contract. At that
stage of contract. Means our progress is not tally with our amount that we recoup daripada kemajuan di tapak. Itu yang
saya faham.”.

(Page 21 of NOP).

[14]This meant Plaintiff’s claim pursuant to rationalization of rates in BQ will be lesser than what Plaintiff will be
entitled to get from the work completed i.e the differential value.

[15]It was also PW1’s evidence he was not directly involved in the tender process, the contract sum was based on
Plaintiff’s tender as was the summary of contract sum, certification was based on BQ and rates stated in contract
and BQ was based on rates submitted by Plaintiff during tender stage. PW1 also stated there was no back loading
in the contract. To a question as per B1 65 that the rationalization of rates only involved 2 items of general
conditions and preliminaries and building works he replied he didn’t know as he was not involved in the
negotiations. His explanation on interim progress claim and certification were essentially the same as that of DW3
in that Plaintiff submits progress claim, joint measurement and parties will agree on amount of work executed.

[16]Certification was based on bills of quantities as per rates stated in the contract and were in fact the rates
submitted by Plaintiff during the tender process. There was no evidence on back loading especially when PW1 had
agreed it was not stated in contract. There was no underpayment for work done more so when Plaintiff had been
paid the amount as per its invoices. Under the circumstances Plaintiff had been paid for the work it had done.

(b) Termination

[17]On the validity of termination, the notice of termination dated 9-2-2015 has to be read together with the notice to
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remedy dated 11-12-2014. 3 defaults were specified of which Plaintiff was required to remedy. The defaults in the
notice to remedy were-

i. without reasonable cause suspended the carrying out of the whole or any part of the Works before final
completion;

ii. failed to proceed regularly and diligently with the Works; and

iii. failed to execute the Works in accordance with the Contract and have neglected to carry out your obligations
under the Contract”.

[18]The evidence is clear especially through PW1 that Plaintiff did not complete the works by the original
completion date of 15-3-2014 or the revised completion date of 31-12-2014. Plaintiff had not remedied the defaults.
Even by Plaintiff’s own pleaded case it had completed 57.62% of the works. Under the circumstances Defendant
was entitled to issue the notice of termination and it is legal and valid. Clause 59 of the contract entitles Defendant
to terminate when Plaintiff has committed default in any one or more of the defaults as stated in that aforesaid
clause. Here Plaintiff had failed to proceed regularly and diligently with the Works and failed to execute the Works in
accordance with the contract which is the timeline as given by Defendant. The issue of unilateral termination and its
willingness to continue does not therefore arise.

[19]The cause of delay was attributed to financial problems as pleaded. In this regard the court agrees with
Defendant’s submission Plaintiff cannot rely on any other ground for delay in completion of work. Plaintiff’s
application for extension of time (EOT) dated 29-6-2013 and 23-8-2013 where the August application was a
resubmission was not premised on financial issues and the court is not obliged to consider this. In any event DW1
had given evidence no EOT was granted as although 3 grounds, 2 of which were changes of RC detail and
changes to swimming pool, could have entitled Plaintiff to EOT, these were not in the critical path.

[20]As observed in Sutcliffe v Chippendale & Edmondson 18 BLR 149 in pages 161 and 162 when the contractor
had neither the ability, competence or the will to complete the work, the plaintiff was justified in determining the
contract. The same goes for this instant case where Plaintiff has not shown its ability or competence to complete
the work having only completed 57.62% of the work on the revised complete date.

[21]The next EOT dated 3-10-2014 was on the ground of its banker providing facilities if EOT was granted. Refer to
the aforesaid letter in B6 1082-1086 where it is stated-

We hereby wish to seek an EOT from 16th March, 2014 until 31st December, 2014 on the following reasons:

1. With this utilization of facility from RHB Bhd. The cashfow for this project will be improved tremendously.

2. Maybank has also imposed the same condition for the EOT to be approved by PJH on our other project as well, a
copy of the letter is attached herewith.

Thus, without this EOT our bank facilities for the whole Group will be grossly affected.”.

[23]Nevertheless financial reason is not a ground for EOT. This was a fact acknowledged even by PW1 in cross
examination when he agreed to the suggestion that keperluan kewangan bukanlah satu sebab ataupun alasan
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untuk membuat permohonan lanjutan masa” (page 17 of NOP). Refer too to clause 7.2 of Conditions of Contract,
section 3 of Articles of Agreement (B4 717) where Plaintiff had already warranted that Plaintiff is adequately and
properly financed to meet all financial obligations under the contract.

That provision states-

The Contractor represents and warrants that it has the expertise, experience and ability to carry out and complete the
Works fully in accordance with the contract and that he possess the highest level of competence, knowledge and skill
expected of an experienced contractor and in particular but without prejudice to the generality of the foregoing, that:-

...

b) he is adequately and properly financed to meet all the financial obligations which is may be required to assume
hereunder.”.

[24]Plaintiff had alleged Defendant had delayed in making payment thereby contributing to its delay in progress.
However as stated by DW1 at the most they had delayed 3 times in making payment. This delay could not have
contributed to Plaintiff’s delay in progress as this was a delay of 3 payments out of 23 interim payment certificates.
No evidence was led as to how much this delay amounted to. Further it was never Plaintiff’s pleaded case delayed
payment had led to delayed progress.

(c) Bank Guarantee

[25]Hence with the valid termination of the contract Defendant was entitled to call upon the BG pursuant to clause
8.2. The aforesaid clause states as follows-

Further to the provisions in Clause 8.1 if the Contractor commits any breach of his obligations under the Contract, the
Employer or the E.R. on its behalf, notwithstanding whether any dispute arises between the Parties as to such breach may
utilize and make payments out of or deductions from the Performance Bond (if applicable) or any part thereof and receive
payments thereto in accordance with the terms of this Contract or forfeit the same.”.

BG has already been called upon Defendant on 8-5-2015 as per letter dated 11-5-2015 (B6 1175).

Defendant’s counterclaim (a) Costs of completion

[26]The sum being claimed by Defendant is RM17,804,708.39. In Q&A 25 of WSD1 DW1 explained this
counterclaim as follows-

...the value of works completed by the Plaintiff is only RM20,011,654.39, which was fully paid by the Defendant. Hence, the
Balance Contract Price for the uncompleted works would be of RM45,408,345.61.

After taking into account the cost of completion to date in appointing 3rd contractors to complete the balance works of
RM63,213,054.00 (including 6% GST) as well as deducting Performance Bond called by the Defendant of RM3,271,000.00,
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there is still an outstanding sum of RM14,533,708.39 owing by the Plaintiff to the Defendant.”.

[27]Regard must be had to clause 59 of contract which provides as follows-

59. TERMINATION FOR DEFAULT

59.3 Without prejudice to any other rights and remedies which the Employer may possess, in the event of the Contractor’s
employment under this Contract being terminated under Clause 59.1 or 59.2 irrespective of the validity of such termination:-

...

(b) The Employer may itself or employ and pay a contractor or contractors or other persons to carry out and complete the
Works and he or they may enter upon the Works and use all temporary buildings, plant, tools, Equipment, goods and
materials intended for, delivered to and placed on or adjacent to the Works, and may purchase all Equipment, materials
and goods necessary for the carrying out and completion of the Works.

[28]Plaintiff had not disputed that Defendant is required to appoint 3rd party contractors to complete the
uncompleted works by Plaintiff. Plaintiff also did not dispute that Defendant had appointed the 3rd party contractors
to conduct the contract work through the Letters of Award to Trans Resources Sdn Bhd dated 23-3-2015 at B6
1161-1165 and to Lion Pacific Sdn Bhd dated 03-04-2015 at pages B6 1169-1174.

[29]The total costs of completion incurred by Defendant in completing the uncompleted work by Plaintiff amounted
to RM59,634,956.60. This can be seen from the 2 letters of award granted to the 3rd party contractors by
Defendant.

[30]What was disputed by Plaintiff was the cost of appointment of the 3rd party contractors which was said to be
unreasonable. The contract to Trans Resources was RM53,935,000.00 and to Lion Pacific was RM5,699,956.60.
PW3 said this was unreasonable and explained the following in his Q&A 13 of WSP3-

Nilai kontrak tersebut sangat tidak munasabah dan tidak rasional berbanding dengan nilai yang diawardkan kepada Plaintif
iaitu berjumlah RM65,420,000.00.

Malahan Plaintif telah menyempurnakan projek tersebut sebanyak 57.62% dan meninggalkan baki sebanyak 42.38%
sahaja.

Adalah tidak munasabah untuk mengawardkan kontrak berjumlah RM53,935,000.00 dan RM5,599,956.60 bagi
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menyempurnakan baki kerja sebanyak 42.38% sahaja.”.

[31]In cross examination of PW3 the following was stated-

Qn: Because its luxury semi-detached houses most of the cost of the project is actually in the finishing at the end.

SP3: Not necessary.

Qn: You agree or disagree?

SP3: Disagree.

Qn: You agree that because there are construction of luxury semi detached houses, less costs is actually to structural
works as compared to lets say construction of building?

SP3: Not necessary.

Qn: You will agree that when this contract was tendered for and awarded in 2012, the cost of material as well in
construction is substantially lower than in 2015.

SP3: Agree.

Qn: You also agree that since then 2015, there also an issue of the Government implementing Good and Services tax
which increases the cost of the construction and material?

SP3: I am aware.

Qn: And would you agree that the cost of rescue contractors are going over is always more expensive than just the sum of
the balance of the contract sum.

SP3: Agree nominal increase.

Qn: I will suggest to you that the cost of rescue contractor is not merely nominal taking into account increase in cost
material in construction as well the fact that in rescue the new contractor have to take on assume the responsibility of the
defect of the pervious contractors.

SP3: How to answer? Yes or no?

Qn: Yes, you agree or disagree.

SP3: Disagree.

Qn: One of factors in which increases the costs rescuing the contractor to finish the work is also is the acceleration to
complete the project. That’s one factor. Would you agree with that?

SP3: Yes, agree.”.

(Page 46 and 47 of NOP).

[32]In re examination PW3 explained his reason for disagreeing to the increase of costs as it was a lump sum
contract and not subject to fluctuation. He agreed to 6% GST and contractor’s project margin will shoot up and that
overall the increase should be less than 10%,

[33]The evidence of DW1 in re examination revealed that-

Qn: You were asked whether you agree that the price awarded to the rescue contractor was excessive and you
disagree with that proposition. Explain to Court why you disagree with that suggestion.

Ans: Based on the three submission that were made by the bidders. As a matter of fact, this was the lowest and I
think it was a competitive bid based on the price that was submitted based current material time.

Qn: ...Can you just explain to Court what you meant when you agree to suggestion that appointment of third party is
not in normal course?

Ans: On the normal course of appointment in all Putrajaya contracts being a GLC, we normally go through an open
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tender process. In this particular case because the due date has lapse so we went with slightly faster approach
which was invited selected bid...”.

(Page 65 of NOP).

[34]DW3 too had explained the rates would be different in 2012 and 2015 and there was an escalation in price.
Plaintiff’s contract was lump sum and the new contract was provisional and subject to re measurement.

[35]Defendant had proved the 3rd party costs through the letters of award to the respective contractors. The
challenge mounted by Plaintiff was the excessive costs as testified by PW3. After considering the evidence of PW3,
DW1 and DW3 this court finds it to be not excessive given the difference in construction costs in 2012 and 2015
and that rescue contractors will cost more due to the need to accelerate work.

[36]Despite the challenge on the increase in prices for the contract entered between Defendant and the 3rd party
contractors, Plaintiff had not produced any evidence i.e. a quotation from other 3rd party contractors, report from
professional independent quantity surveyor to show the contract sums is in any way unreasonable. What Plaintiff
had was the evidence of PW3 who did not sufficiently explain why the increase could only be 10%.

[37]The breakdown of the counterclaim is as tabulated in page 29 of Defendant’s counsel submission which this
court accepts-

CONTRACT SUM :RM 65,420,000.00

LESS

VALUE OF WORK COMPLETED BY PLAINTIFF :(RM20,011,654.39)

AND PAID BY THE DEFENDANT

-----------------------------

UNCOMPLETED WORKS BY THE PLAINTIFF RM 45,408,345.61

LESS

COST OF COMPLETION : (RM 59,634,956.60)

% GST : (RM 3,578,097.40)

ADD

BANK GURANTEE : (RM 3,271,000.00)

BALANCE : (RM 14,533,708.39).”.

(b) Late payment charges to Defendant’s purchasers

[38]On the claim for the losses suffered by Defendant in compensating its purchasers for late delivery, clause 13 of
LA (B1 4) provides Plaintiff shall indemnify Defendant for all damages and losses suffered by Defendant due to
Plaintiff’s breach or default. It states the following-

You shall indemnify us for all claim, actions, damages, liabilities, outgoings, losses, costs and expenses which we may
directly or indirectly suffer or incur or are liable for in respect of any breach or default on your part in the provision of the
Works.”.

Pursuant to Defendant’s S&P with purchasers there is a provision for damages for late delivery. That provision is to
be found in clause 22(2) of S&P (B6 1052)-

If the Vendor fails to deliver vacant possession of the said Building in the manner stipulated in clause 23 within the time
stipulated in subclause (1), the Vendor shall be liable to pay to the Purchaser liquidated damages calculated from day to
day at the rate of ten per centum (10%) per annum of the purchase price from the expiry date of the delivery of vacant
possession in subclause (1) until the date of Purchaser takes vacant possession of the said Building. Such liquidated
damages shall be paid by the Vendor to the Purchaser immediately upon the date the Purchaser takes vacant possession
of the said Building.”.

Plaintiff is thus liable for this damages incurred by Defendant.

[39]Further in the course of revising the completion date to 31-12-2014 Defendant had in its letter dated 15-10-2014
(B6 1087-1088) inserted an indemnity condition provision which was to include late payment charges to purchasers.
This had been acknowledged and accepted by Plaintiff as evident in B6 1089 and was termed a Supplement Letter
to the Agreement. Condition number 3 states as follows-

3. Indemnity

You shall indemnify us in full and at all times against all losses, costs. Charges, expenses, actions, proceedings, claims,
demands, damages, liabilities whatsoever and howsoever sustained or incurred by Putrajaya Holdings Sdn. Bhd. which
shall include but not limited to late payment charges payable to the respective Purchasers by reason or as a result of or
arising from the aforesaid Revised Completion Date.”.
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[40]In relation to Plaintiff’s contention that Defendant did not provide details of the late charges payable by
Defendant to its purchasers, the project is still on going and that the same can only be quantified upon completion,
hence the claim for an indemnity herein. This however doesn’t detract from the fact that Plaintiff is liable to
indemnify the Defendant for the same, pursuant to the contract as well as Plaintiff’s own agreement as stated in the
Supplemental Letter to Agreement.

[41]Pursuant to the Supplemental Letter to Agreement, Plaintiff has in fact agreed to indemnify Defendant in full
and at all times against the late charges payable to Defendant’s purchasers by reason or as a result of or arising
from the revised completion date on 31-12-2014.

Conclusion

[42]Plaintiff’s claim is dismissed and Defendant’s counterclaim in paragraphs 38(a) to (c) and (e) allowed. As
Defendant has called on BG of RM3,271,000.00 this amount shall be deducted from the amount due to Defendant.
Costs to Defendant.

End of Document