In construction projects, there is no privity of contract between a sub-contractor and the employer of the project, even if the subcontractor is a nominated sub-contractor.
However, suing a party for negligence does not require the existence of a contract. As such, would it be possible for an employer to sue a sub-contractor for negligence?
We explore the case of Bauer (Malaysia) Sdn Bhd v Hundred Vision Construction Sdn Bhd & Anor [2020] MLJU 543 which discussed this issue.
Brief facts
- The Plaintiff, Bauer (Malaysia) Sdn Bhd, is the nominated sub-contractor (“NSC”) appointed by the 1st Defendant, Hundred Vision Construction Sdn Bhd (“Main Contractor”) for substructure works in a high-end services suites called Tribeca.
- The Main Contractor in turn was appointed by the 2nd Defendant, Bakti Dinamik Sdn Bhd (“Employer”).
- The owner of an adjacent building (“Building Owner”) commenced an action against the Employer, Main Contractor and NSC for negligence, for damage allegedly caused to the adjacent building.
- A settlement was entered between the Employer and the Building Owner. The NSC did not want to participate in the settlement as it took the view that it was not negligent.
- Later, the NSC commenced a claim against the Main Contractor and Employer in respect of outstanding payments for work done by the NSC. The Employer counterclaimed against the NSC for negligence due to the damages that arose to the adjacent building.
- A judgment in default was entered against the Main Contractor. One of the live issues remained is whether the Employer’s counterclaim against the NSC should be allowed.
Decision of the High Court
- There were a few issues before the High Court but the focus of this article is the Employer’s counterclaim. The question is whether the NSC owed a duty of care under the tort of negligence to the Employer, due to the damage caused to the adjacent building.
- The High Court began by asserting that it would be slow to impose any duty of care on the NSC particularly when parties have “allocated their risks and liabilities exhaustively” under the contract. In other words, parties have already determined that contractually, the Main Contractor is liable to the Employer while the NSC is liable to the Main Contractor.
- The Court would only impose such duty of care in tort if that duty is co-extensive with the duties of the parties under contract. An example given by the Court was the relationship between banker and customer, whereby there is both a contractual relationship and a duty of care by the bank in respect of the tort of wrongful dishonour of a cheque drawn by the customer on his account with the bank.
- In the present case, there is no contractual relationship between the NSC and the Employer. The High Court took the view that it would not be fair, just or reasonable to impose such a duty of care in tort on the NSC, especially when the Employer did not claim against the Main Contractor for negligence and had also released the retention sum to the Main Contractor.
- As such, the Employer’s counterclaim against the NSC for negligence was dismissed.
Key Takeaways
The position of a nominated sub-contractor is often contractually misconceived in the construction industry. As a nominated sub-contractor is nominated by the employers themselves, there is often an assumption that a legal relationship must exist between the employer and the nominated sub-contractor.
The above case highlights the importance placed by the Courts on the contractual relationship that were crafted and formed by the parties themselves, and that Courts would uphold the bargains struck between parties. Where parties have exhaustively enumerated and arranged their rights and obligations and allocated their risks in the contract, the Court will not impose a duty of care between non-contracting parties who did not do the work directly for the other.
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This article was written by Sean Ferdinand Ng (Associate) from Donovan & Ho’s dispute resolution practice.
Donovan & Ho is a law firm in Malaysia. Our dispute resolution provides advice and legal representation in the civil and industrial courts. We also represent clients in both domestic and international arbitration, as well as other forms of alternative dispute resolution. Our experienced lawyers are also able to assist in commercial and civil disputes (such as debt recovery, shareholders’ or directors’ disputes, breach of contract and claims for injunctive relief), constructive disputes (arbitration and/or adjudication proceedings, disputes relating to delays, liquidated damages, defects and rectification work) and employment disputes (unfair dismissal claims, judicial review proceedings, and employment-related civil claims). Have a question? Please contact us.
