Progress Centre Engineering Sdn Bhd v Desaru Corniche Hotel Sdn Bhd & Anor [2023]
Introduction
The High Court in the case of Progress Centre Engineering Sdn Bhd v Desaru Corniche Hotel Sdn Bhd & Anor [2023] 12 MLJ 597 emphasised that:
- both the plaintiff and MRCB had established the existence of a principal-agent relationship between MRCB Builders and MRCB and that this relationship was recognised and accepted by Desaru at all material times during the construction period;
- by its conduct, Desaru had treated MRCB and MRCB Builders as one and the same. Consequently, MRCB and MRCB Builders were placed on the same lateral level in the chain of construction contracts as the main contractor for the project. This meant that Desaru was the employer of the project and the ‘principal’ for the purposes of s 30 of the CIPAA; and
- the facts of the case showed that there were monies due and payable by Desaru to MRCB in respect of certain variation works and this was conceded to by Desaru’s counsel during the hearing.
Facts
The first defendant (“Desaru”) had appointed the second defendant (“MRCB”) as the main contractor for a building project. In turn, MRCB, through its wholly-owned subsidiary and agent, MRCB Builders Sdn Bhd (“MRCB Builders”) appointed the plaintiff as the subcontractor to carry out the mechanical and electrical works in the project.
When MRCB Builders failed to pay the plaintiff RM1,071,856.25 (“the claimed sum”) due under an interim payment certificate, the plaintiff commenced adjudication proceedings under the Construction Industry Payment and Adjudication Act 2012 (“the CIPAA”) for recovery of the said sum.
Following a hearing, the adjudicator ordered MRCB Builders to pay the plaintiff the claimed sum together with interest, party-and-party costs and the costs and expenses of the adjudication (collectively called “the adjudicated sum”) within 14 days.
Since the plaintiff failed to obtain payment of the adjudicated sum from either MRCB Builders or MRCB (the plaintiff considered them both as one entity), it requested settlement of the sum from Desaru.
When Desaru also failed to respond to the payment request, the plaintiff filed the instant originating summons (“OS”) for a determination of who was the “principal” within the meaning of s 4 of the CIPAA that was liable to settle the adjudicated sum under s 30 of the CIPAA.
Decision
The High Court found that –
- it is undisputed that:
- there is the AD wherein the plaintiff is entitled to the total adjudication sum which is to be paid by MRCB Builders and MRCB Builders has failed to pay the same to the plaintiff as at the date of filing of the OS.
- irrespective of whether Desaru or MRCB is the “principal” within the meaning of s 4 of the CIPAA, the plaintiff has taken the safe path by sending the Request — Desaru and Request — MRCB to pay the total adjudication sum directly to the plaintiff.
- as Desaru and MRCB are each claiming that the other is the principal in the chain of construction contracts, neither party had served the written notice to MRCB Builders to show proof that MRCB Builders has paid the total adjudication sum to the plaintiff in accordance with the provision in sub-s 30(2) of the CIPAA. It is irrefutable that neither Desaru or MRCB has paid the total adjudication sum to the plaintiff.
First Issue: Who Is The ‘Principal’ In This Matter?
- MRCB Builders and MRCB have both taken the consistent position that MRCB had appointed MRCB Builders to act as MRCB’s agent to carry out all matters necessary relating to the project. MRCB affirmed that it has given MRCB Builders ostensible authority to enter subcontracts with subcontractors for the construction and completion of the project and that MRCB Builders operates as a single economic unit as part of MRCB. Similarly, the plaintiff’s stand is that MRCB has appointed the plaintiff through its agent, MRCB Builders and therefore the employer and the principal for the project is Desaru.
- The non-production of an agency agreement between MRCB and MRCB Builders is not fatal to MRCB’s contentions on this issue, and nor should an adverse inference be drawn against MRCB, as the existence of a relationship of principal and agent can be inferred from the circumstances of the case.
- The relationship between MRCB and MRCB Builders was within the full knowledge of Desaru and accepted by Desaru as evidenced by the fact that Desaru had accepted MRCB Builders’ signature on the “Contractor’s Acknowledgement” portion of the employer’s representative’s instructions which was issued by Desaru to MRCB even though the contract is ostensibly between MRCB and Desaru.
- In the circumstances, the court is satisfied that a principal-agent relationship between MRCB and MRCB Builders has been established by the plaintiff and MRCB, and this relationship was recognised and accepted by Desaru at all material times during the construction period.
Second Issue: Whether There Are Monies Due And Owing By Desaru As The Principal To Mrcb Builders At The Time Of Desaru’s Receipt Of The Request — Desaru On 27.7.2022
- The plaintiff’s claim for payment under IPC No 31 is for six variation orders pursuant to the Engineer’s Instructions (“EI”). However, Desaru has certified and made payments only in respect 3 EI.
- MRCB has averred that for each outstanding EI, there is a corresponding ERI issued by Desaru to confirm and formalise the EI.
- In the premises, it can be safely concluded that there are monies due or payable by Desaru to MRCB in respect of the variation orders under 3 EI and this was conceded by Desaru’s counsel during the hearing on 16.1.2023.
For further information on this topic please contact Jolin Yew Chee It (Senior Associate) at Messrs. Jeff Leong, Poon & Wong by telephone (+603 2203 3309) or email (jolin.yew@jlpw.com.my). The Jeff Leong, Poon & Wong website can be accessed at www.jlpw.com.my. \