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K22-155 OF 2009-II

MALAYSIA
IN THE HIGH COURT IN SABAH AND SARAWAK AT KOTA KINABALU
SUIT NO.: K22-155 OF 2009-II

BETWEEN

ESAJADI SDN BHD


(Company No. 184728-H) … PLAINTIFF

AND

YBS TENAGA SDN. BHD.


(Company No. 589987-H) … DEFENDANT

BEFORE THE HONOURABLE JUDICIAL COMMISSIONER


YANG ARIF STEPHEN CHUNG HIAN GUAN

IN OPEN COURT

JUDGMENT

1. By a Letter of Acceptance dated 6.1.2004, the Defendant was awarded a

contract by Sabah Electricity Sdn Bhd (SESB) for the design,

manufacture, testing, supply, delivery, installation, commissioning and

maintenance of the proposed 132kV Underground Cable from UMS and

the 132kV/11kV Substation at Northern Town (these portions of the

contract being known as the Northern Town project) and the proposed

33kV Overhead Line & 33kV/11kV Substation at Lok Kawi, Sabah. The

Defendant appointed Perunding Timur Sdn Bhd (PTSB) as the project

consultant to design and prepare the conceptual engineering, structural

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and other requisite plans and specifications for the Northern Town

project.

2. By a Sub-contract Agreement dated 10.5.2004 (Agreement), the

Defendant appointed the Plaintiff as the sub-contractor for the Northern

Town project for a sub-contract price of RM67,727,142.00. The Plaintiff

contended that it had carried out and completed the project and that it

had also carried out additional or variation works amounting to

RM496,183.00. The scope and particulars of these variation works are

set out in paragraphs 7 (3) (a), (b), (c), (d) and (e) of the Statement of

Claim which included an extension of the Substation Control System

(SCS) to the 11kV Northern Town Substation, to change the relays on the

11kV switchgear to the Integrated Protection and Control Units, to add a

Circuit Breaker Fail (CBF) protection at the 132kV GIS at Northern Town

and to add CBF relays and timers for every 132kV GIS bays and

teleprotection channeling to the communication system between UMS

and the Northern Town Substations (the variation works). The costs

incurred to carry out these variation works are set out in paragraph 8 of

the Statement of Claim. The Plaintiff claims against the Defendant the

sum of RM496,183.00 and damages for breach of the Agreement and or

breach of duty of care.

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3. The Defendant denied the Plaintiff’s claim on the ground that the

contract was on a design and build basis and for a fixed lump sum. The

Defendant contended that the additional works carried out by the

Plaintiff were within the scope of works to be carried out by the Plaintiff

pursuant to the Agreement and were not variation works in the context

of the design and build contract.

4. The Defendant also contended that the Plaintiff’s representatives had

attended technical meetings for the project where it was agreed that the

Plaintiff was responsible to carry out the requirements of SESB in order

to comply with the latest TNB code of practice. The Defendant submitted

that pursuant to clause 19 of the Agreement, the Plaintiff was to submit

in writing a reasonable price for all variation works prior to the

Defendant agreeing to any such variation works. The Defendant

contended that the Plaintiff in failing to comply with the provisions of the

Agreement and in failing to submit its claims at the material times was

and is estopped from claiming these sums.

5. The Agreement between the Plaintiff and the Defendant did not set out

any specific scope of works or specifications nor annexed to it any plans

or drawings in respect of the project works to be carried out by the

Plaintiff. The Agreement in clause 2 (i) however provided that the

Plaintiff was to carry out and complete the sub-contract works in

compliance with the Agreement, the project plans, the contract between

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SESB and the Defendant and in conformity with all directions and

requirements of the Defendant, SESB and all relevant authorities. The

“project plans” were defined in the Agreement to include the plans,

drawings, specifications in respect of the project whether prepared by or

on behalf of SESB and or prepared by or on behalf of the Defendant and

“ specifications” were defined to mean the specifications and the

schedules annexed to or issued with the contract between SESB and the

Defendant.

6. Item2 (3) of the Letter of Acceptance (LA) stated that the LA did not imply

approval and or acceptance of any of the drawings and data submitted

with the Defendant’s submission which approval and or acceptance

would be at the discretion of SESB. All drawings required by the

specifications must be forwarded to the Engineer, who was SESB’s

project manager, for his approval. Item2 (4) stated that a formal contract

document would be prepared in due course for execution, pending

completion of the formal contract the LA, pre-award meeting minutes

and correspondence would form part of the contract. Apparently no

formal contract was signed between SESB and the Defendant because

the parties did not exhibit any such contract. The parties also did not

exhibit any approval by the Engineer. Did that mean that no approval

was given for the plans and drawings? That would be an unreasonable

conclusion because the contract works had been carried out and handed

over to SESB.

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7. The parties referred to a letter dated 25.1.2003 from SESB which was an

invitation for proposal for the project. Annexed to this letter were

Lampiran 1 and Lampiran 2 which included a scope of works at pages 9-

12 of ABD (Agreed Bundle of Documents). However this scope of works

was in respect of a project at Kinarut Selatan and not for the Northern

Town project. The Plaintiff has tendered as exhibit P1 the “turnkey

proposal of Northern Town substation project- scope of works” and as

exhibit P2 the drawing of the “turnkey proposal for Northern Town

substation project” dated 25.3.2003, both prepared by or on behalf of the

Defendant. The Defendant submitted that these were not approved by

SESB at the times SESB awarded the project to the Defendant and when

the Defendant appointed the Plaintiff as its sub-contractor.

8. The implication was that the Plaintiff was aware that there would be

changes and amendments to the drawings and scope of works and to be

bound by any such amendments. Clause 1 of the Agreement provided

that the Plaintiff would be deemed to have obtained all necessary

information regarding or in respect of the Northern Town project and

would be under an obligation to examine and keep itself informed in

respect of the LA, the contract, the project plans and schedules and all

other information necessary for the due completion of the Northern Town

project. The Defendant also referred to its letter dated 6.5.2003 to SESB

which stated that its tender price would include any works which were

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not included in the scope of works but necessary in order to complete

and commission the project.

9. The second paragraph of this letter referred to the approved technical

proposal submitted earlier. This letter was in reply to SESB’s letter dated

12.4.2003 which stated that it had no objection to the Defendant’s

proposed turnkey scope of works for the Northern Town project. The

said SESB’s letter was in reply to the Defendant’s earlier letter dated

31.3.2003 which submitted their technical proposal in three volumes for

SESB’s approval. In other words, P1 and P2 had been approved by SESB

and the Plaintiff’s scope of works would be as described in P1 and P2.

10. Were the variation works within the scope of works as described in P1

and P2? Paragraph (b) vi of P1 referred to the SCS system but it was not

specifically stated whether it was for the 132kV or for the 11kV.

Similarly, paragraph (c)i provided for “132kV, 1250 A, three-phase circuit

breaker complete with operating mechanism”. The requirements for the

variation works were brought up by SESB at a technical meeting on

18.1.2005. SESB informed the Defendant of these requirements by a

letter dated 27.1.2005 enclosing a copy of the minutes of that meeting.

PTSB advised the Defendant of these 5 requirements via its letter dated

24.1.2005.

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11. In paragraph 1 of the letter PTSB advised that the original offer

submitted was to have SCS at 132kV only and this meant that the SCS

itself had to be extended and the relays on the 11kV switchgear had to be

changed to Integrated Protection and Control Units. In paragraph 2 of

the letter it advised that CBF protection had to be added for the 132kV

GIS at Northern Town and it meant that additional CBF relays and

timers had to be added for every 132kV GIS bay and teleprotection

channeling had to be added to the communication system between UMS

and Northern Town Substations. One of the reasons for these

requirements was because the lack of the additional CBF protection was

one of the weaknesses of the SESB system. This was a requirement in

the new TNB protection code of practice. PTSB said that these had cost

implication. The letter was copied to the Plaintiff. The Defendant by its

letter dated 25.1.2005 directed the Plaintiff to accommodate the SESB’s

requirements.

12. It was part of the agreed facts between the parties that PTSB had by a

letter dated 3.2.2005 to SESB stated that these variations works were

additional works and not within the scope of works as approved by

SESB. Notwithstanding these comments from PTSB, SESB by a letter

dated 15.4.2005 confirmed the requirements and directed that these

requirements be implemented. The Defendant by a letter dated 20.4.2005

informed PTSB of SESB’s reply and to implement the requirements and

PTSB by a letter dated 28.4.2005 submitted the drawing of the Northern

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Town Optical communication system for breaker fail protection for

SESB’s approval. SESB’s letter dated 2.8.2005 inter alia confirmed that

the Ethernet facilities were not included in the scope of work and the

Defendant by a letter dated 8.7.2005 had requested the Plaintiff to

submit an estimated cost of the Ethernet facilities to be installed.

13. The above correspondence clearly established that the variation works

were additional works to be carried out and not part of the original scope

of works as described in P1 and P2. The correspondence also established

that SESB wanted the variation works to be implemented and the

Defendant had directed PTSB and the Plaintiff to do so.

14. Was the Plaintiff entitled to be paid for the variation works carried out?

As stated above, these variation works were not included in the original

scope of works and therefore were not included in the price of the

contract provided for in the Agreement. Item 11.2 of the LA provided

that the protection scheme was to be designed in accordance with TNB’s

code of practice. As the letter from PTSB dated 10.3.2007 indicated, the

Defendant’s proposals for the project, which were in compliance with the

then TNB code of practice, were submitted and already approved by

SESB prior to the new TNB code of practice which was revised only in

September 2003.

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15. I refer to the second paragraph of the Defendant’s letter dated

16.12.2004 addressed to PTSB where PTSB had stated that the Plaintiff

was to be responsible to undertake whatsoever comments if any from

SESB so as to be in compliance with the latest TNB code of practice. The

Defendant tried to restrict these requirements and instructed PTSB that

comments from SESB must be in writing or otherwise it would take no

responsibilities.

16. Although it was the Defendant’s case that the variation works were to

comply with the new TNB code of practice, the Defendant was still

ultimately responsible to comply with them as the contractor. The

Plaintiff as the sub-contractor was merely to implement and carry out

these works as directed by the Defendant.

17. Further, the fact that the Defendant had requested the Plaintiff to submit

the estimated costs for the works to be carried out meant that these were

additional works which were not provided for in the Agreement and to be

paid for separately. Obviously the Plaintiff was entitled to be paid for the

variation works otherwise why bother to request the Plaintiff to submit

the estimated costs for the works to be carried out.

18. There was no time-frame provided in the Agreement within which the

Plaintiff must submit the claims. By a letter dated 4.5.2006, the Plaintiff

submitted its claim for the variation works for the sum of RM496,183.00

together with billing vouchers to the Defendant. The Plaintiff also

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submitted a claim for other civil and M&E works as additional variation

works. By a letter dated 29.8.2006, the Defendant replied that it was in

the process of verifying the claim for submission to SESB and requested

for full details which the Plaintiff did via a letter dated 18.9.2006. The

Defendant then referred the claims to PTSB for comments. The

Defendant by its letter dated 16.2.2007 advised that it was still waiting

for PTSB’s reply before it submitted the claim to SESB. All these whiles,

the Defendant did not reject the Plaintiff’s claims.

19. The Defendant was contended that the Plaintiff did not comply with

clauses 18 and 19 of the Agreement and was not entitled to be paid.

Clause 19 (iv) of the Agreement provided that prior to the Defendant

agreeing to any variation or additional work to be effected, the Defendant

would consult with the Plaintiff and where possible the Plaintiff was to

submit a report to the Defendant setting out a reasonable price for each

variation and supported by evidence of cost for materials and current

rates of labour. It was up to the Defendant as the main contractor

whether to consult with its sub-contractor. As stated above, the

Defendant on 25.1.2005 had directed the Plaintiff to comply with SESB’s

requirements and only subsequently requested the Plaintiff to put in the

estimated costs. I find that there were no merits on these contentions.

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20. The Defendant as the main contractor was ultimately responsible to

SESB under the contract. It was the Defendant’s responsibility to deal

with SESB in respect of any problems under the contract including the

issues of variation works and any claims for such variation works. The

correspondence between the Plaintiff and the Defendant on the Plaintiff’s

claims for the variation works showed that the Defendant did not submit

any such claims to SESB for consideration and payment. Paragraph 2.1

of the minutes of meeting dated 15.7.2008 of SESB for the closure of the

project confirmed that no variation order was applied for this project.

21. It was up to the Defendant whether it wanted to apply for any variation

order for the variation works. If it did not apply, SESB would not

consider and would not pay. However, the Defendant was still obliged on

the facts and circumstances of this case to pay the Plaintiff. Since it

chose not to submit the Plaintiff’s claims to SESB, it had to pay the

Plaintiff out of its own pockets for the variation works.

22. The Defendant then contended that the Plaintiff had agreed with SESB

and PTSB not to pursue the claims. The fact that the Defendant had

requested the Plaintiff to submit the estimates indicated that the Plaintiff

did not agree. The fact that the Plaintiff had submitted its claim for the

variation works on 4.5.2006 again indicated that there was no such

agreement. In the correspondence between the Plaintiff and the

Defendant on the Plaintiff’s claim for the variation works, the Defendant

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did not raise this as an issue or that the Plaintiff had agreed not to claim.

Even on 16.2.2007, the Defendant was still explaining to the Plaintiff the

need to wait for PTSB’s reply so that the claims could be confirmed by

the consultant before being submitted to SESB for approval. On the facts

before the court, The Plaintiff did not agree not to pursue the claim and

no estoppel would arise against the Plaintiff. The facts showed that it

was the Defendant who failed to submit the claim to SESB for approval

and payment.

23. I refer to paragraph 8 of the Statement of Claim. Items (6), (7) and (8)

were not included in the 5 requirements stated in PTSB’s letter and the

Defendant did not instruct the Plaintiff to carry out these works. These

additional works must be approved by the Defendant before it became

liable for these works. The Plaintiff’s claim for items (6), (7) and (8) is not

allowed and the Plaintiff’s claim is accordingly adjusted and allowed at

RM398,282.00. The Plaintiff’s claim for damages for breach of contract is

dismissed.

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24. For the reasons given, I enter judgment for the Plaintiff against the

Defendant in the sum of RM398,282.00 with interest at 8% per annum

from 29.7.2009 until full payment and costs to be taxed.

Dated this on 25th February, 2011.

( Y.A. STEPHEN CHUNG HIAN GUAN )


Judicial Commissioner,
High Court Kota Kinabalu.

For Plaintiff: Mr. Henri Cheu


M/s Cheu, Adnan & Razi, Advocates.

For Defendant: Mr. Chung Jiun Dau


M/s Chung & Associates.

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