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CENTRE OF STUDIES FOR QUANTITY SURVEYING FACULTY OF

ARCHITECTURE, PLANNING AND SURVEYING
UNIVERSITI TEKNOLOGI MARA

CONSTRUCTION LAW II (QSM507/BQS507)

COURSEWORK 1 – CONSTRUCTION CONTRACT

(FASDA HEIGHTS SDN BHD v SOON EE SING CONSTRUCTION SDN BHD)

PREPARED BY:
1) MUHAMM AD HAIKAL IQBAL BIN KHAMARUDDIN (2021459797)
2) MUHAMMAD AZRIE BIN MAT NAWI (2021476938)
3) AISYA SYAZLIN BINTI YUSUF (2021899422)
4) AZLINAH BINTI AZIZE (2021467642)
5) AHMAD FA’IZZUN BIN ABDIAH (2021871292)
6) WAN NURSHAHEDA HANUM BINTI WAN IDZHAR (2021854046)
 LIST OF CONTENT

1.0 INTRODUCTION 1
Contract Law 1

2.0 ANALYSIS OF CONTRACT ISSUE 2

3.0 DECISION BY THE COURT 3

Fact: 3
Related Case: 4
Application: 5
Court Held: 6

4.0 CONCLUSION AND LESSON LEARNT 7

REFERENCE 8
1.0 INTRODUCTION

Contract Law

The Malaysia law of contract is governed and codified under the Contracts Act 1950.
Contract law can be delineated as an agreement that is binded between parties and creation of
mutual obligations that are enforceable by law. According to Malaysian Contract Law, the
essential elements that lie under its contract law are Offer, Acceptance, Intention to create legal
relations and Consideration. Azizan (2022), stated that “legislation governing contract in
Malaysia is the Contracts Act 1950 (Act 136) (Rev. 1974) and if there is no provision that lies in
the Act to deal with a particular subject, English Law applies as well as if any provision in the
Contracts Act differs from the English Law, Act will prevail.” The key to drive better
comprehension on the mechanism of how contract law works is through the appreciation of the
significance that relates to ideas of agreement and promise. Contract Law exists by the means
of agreement that is binded by parties as mentioned under Section 2(h) of the Contract Act, ‘an
agreement enforceable by law is a contract. Mulcahy and Tillotson (2004) simplified that
“agreement has conventionally been viewed as coming through the interlocking mechanism of a
precise offer from one party unequivocally accepted by the other while the idea of promise about
something they are going to do which will bring benefits for the parties involved.” In order to
have a legitimate agreement by law, an offer must be capable of being transformed into an
agreement by its acceptance.

In Law of Contract, there are four types of major discharge; Discharge by Performance,
Discharge by Frustration, Discharge of Agreement and Discharge by Breach. Nevertheless for
the case law that we are going to dive into which is Fasda Heights Sdn Bhd v Soon Ee Sing
Construction Sdn Bhd (1999) that was bound to Discharge by Breach. The fundamental of
Discharge by Breach is built on contract violation by one of the parties involved in the
legitimately binded contract. According to Azizan (2022), he stated that “when a party shows to
the other party by conduct or terms an intention not to go on with the contract, the party is said
to have rejected the contract.” Breach of contract comes with its remedies cleaved into five
basic remedies; Damages, Quantum Meruit, Special Relief, Specific Performance and
Injunction. As they serve different approaches in their nature, the goal is always the same,
which is to give solutions to the breach that has been conducted on the contract.

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2.0 ANALYSIS OF CONTRACT ISSUE

In terms of case law, Fasda Heights Sdn Bhd v Soon Ee Sing Construction Sdn Bhd
(1999), was erupted from Discharge by Breach of contract. In this case, the developer (plaintiff)
allegedly canceled the contract of a contractor (first defendant) after finding that the latter had
not carried out the work appropriately and had not corrected any issues in line with the
architect's instructions. The Developer then sent a letter of demand to the bank (second
defendant), which had provided a performance guarantee for the first defendant's compliance
with the terms of the contract. As a result of the first defendant's breach of the contract, the
plaintiff was now asking the court to rule that the second defendant must pay the amounts
specified in the performance guarantee. The primary defendant asserted that the performance
guarantee was contingent upon the contractor violating the agreement at the time the demand
was made. Therefore, we will discuss further regarding this case through its analysis, parties
that engaged in the case, proof of the loss, remedies and decision by the court.

The contract was between the plaintiff which is Fasda Height Sdn. Bhd. and the
defendants, Soon Ee Sing Construction Sdn. Bhd. and RHB bank. The conflict was sought for
relief on 20th August 1998. The plaintiff is developer company, and the first defendant is
contractor. Plaintiff offered a contract to the defendant to construct development and a 10 storey
building consisting of low cost flats in Seberang Perai Tengah, Penang. The conflict between
both parties occurred when Soon Ee Sing Construction Sdn. Bhd. was not able to execute the
construction works and in breach of the contract. It was also claimed that the contractor (first
defendant) failed to rectify defect based on the architect instruction. So, the plaintiff decided to
terminate the contract.

Due to the issue, the plaintiff issued a demand to the RHB Bank (second defendant) for
claiming performance guarantee on behalf of the Soon Ee Sing Construction Sdn. Bhd. (first
defendant). The plaintiff was voiced to the court to issue that Soon Ee Sing Construction Sdn.
Bhd. (first defendant) should pay the total cost that stated in the performance guarantee
because the first defendant had failed to respect the contract. However, the first defendant
wanted to prevent the plaintiff from contacting the guarantor due to the claim that the breaching
contract and demand was made after the bond had expired.

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 The plaintiff also issued a demand against the RHB Bank (second defendant) due to the
bank guarantee. Two notices were given to the defendant but there was no response given.
Plaintiff is asking for orders in the form of a mandatory injunction requiring the second defendant
to transfer the funds to the plaintiff in accordance with the bank guarantee dated 12 March 1997.

3.0 DECISION BY THE COURT

Fact:
On 20 August 1998 the plaintiff, Fasda Heights Sdn Bhd issued a summons on the
defendant, Soon Ee Sing Construction Sdn Bhd with the reliefs as bellow:
1) A declaration that the second defendant is liable pursuant to its bank guarantee
dated 12 March 1997 to the plaintiff in the sum of RM2,658,425.
2) A declaration that the second defendant is liable to pay interest on the
RM2,658,425 from 14 August 1998 till the date of judgment or Order.
3) For an order that the second defendant did make a payment of RM2,655,425 to
the plaintiff, failing which interest shall accrue on the said sum till the date of
payment.

In this case, the plaintiff, Fasda Heights Sdn Bhd seeks for relief against the first
defendant due to the fact that the first defendant did not comply with the contract as promised
when they did not finish the work issued by the contractor on 15 December 1997 and 2 July
1998 which is to rectify various defaults on the construction of mix development and 10 story
house contract entered. Also, against the second defendant, the bank when they did not reply
to any of the plaintiff’s written demands on the bank guarantee despite having promised to
provide it in favour of the plaintiff in case there was an event of breach or non-performance to
the contract. The claim sought against the second defendant was a mandatory injunction that
compels them to pay the money based on the promise of bank guarantee made on 12 march
1997.

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 Instead of the first defendant, the case focused more on the issue between the plaintiff
and the second defendant whereby in counterclaiming, the second defendant argued that the
bank guarantee was a conditional one and that the plaintiff had not complied strictly with the
conditions required at the time demand was made on the bank guarantee.

The other issued raised by the first defendant :

1. The bank guarantee lapsed at the time demand made
2. That is that it was unconscionable and inequitable for the plaintiff to receive
the proceeds under the bank guarantee.

Related Case:

Teknik Cekap Sdn Bhd v Public Bank Bhd [1995] 3 MLJ 449

As both parties have different opinions about bank guarantee, we can refer to the case
which Shaik Daud JCA has said about the nature and scope of a performance bond: .... what
therefore is a performance bond. As I see it there is nothing special or unique in a performance
bond. It is in fact a written contract of guarantee by a bank, other financial institutions or in some
cases an insurance company, whereby they guarantee the due performance of a contract and in
the event of a breach or non-performance of the contract, they guarantee to pay, on a written
demand being made, the sum stipulated in the guarantee. Therefore a performance bond is
nothing more than a written guarantee, and in order to interpret the obligations of the bank, one
need only to look at the written bond itself to determine what are the terms and conditions
agreed upon between the parties. A great deal, therefore, depends on the wording of the bond
itself.

Bocotra Construction Pte Ltd v Attorney General (No 2) [1995] 2SLR 733 (CA)
It can be supported with a statement from Karthigesu JA which we can highlight is the
real issue was one of the contractual interpretation of the performance bond and not of the
nature of the transaction. We consider this to be the correct approach to adopt.

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Esal (Commodities) Ltd & Reltor Ltd v Oriental Credit Ltd & Wells Fargo Bank NA [1985] 2
AC 546
In this case, it dealt with performance bonds and similar to our case bank guarantee
issue. In this case the bond follows ‘we undertake to pay the said amount on your written
demand in event that the supplier fails to execute the contract in perfect performance.
It was held that there 3 possible meaning for those word and the third possible meaning was
rejected by the Court of Appeal:
1. that no more than a written demand was required.
2. that the demand must assert a failure to perform the contract; or
3. that there must in fact have been a failure to perform.

Application:

From those two cases, we can conclude that bank guarantee is one of the performance
bonds. His lordship has approved this kind of performance bond and said that banks, other
financial institutions and insurance companies, do not need to be told if the contract has been
breached. So they cannot challenge the demand. Plus, the banks in fact do not need to be told
the nature of the breach or who breach it. That is not the bank to be concerned about but it
should be emphasized that the demand was made as a result of a breach by the subcontractor.
From what has been understood, we need to review back the bank guarantee by RHB
Bank and it is the court's responsibility to read each word that has been used in the bank
guarantee since the deal depends on the wording of the bond itself. Here is some of the bond:
.... which shall become payable by us immediately on receipt of notice in writing given to us by
the Employer M/s Fasda Heights Sdn Bhd or its authorized representative in the event of the
contractor M/s Soon Ee Sing Construction Sdn Bhd failing to execute the works and/or in
breach of contract.
With the bank guarantee above, it is clearly said that RHB Bank will respond to release
the monies to the plaintiff immediately only with the ‘condition’ below:
1) that the demand is in writing; and
2) the contractor fails to execute the works and/or in breach of the contract

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 The first condition, the demand must be in writing, the plaintiff already issued this
demand twice to the second defendant but left with no reply. It was decided that the condition
does not render a guarantee conditional in the true sense, by adopting previous case Bocotra
Construction Pte Ltd v A-G

The second condition, i.e. the contractor fails to execute the works and/or in breach of
the contract. The same method can be considered based on Esal (Commodities) Ltd & Reltor
Ltd v Oriental Credit Ltd & Wells Fargo Bank NA, in that case it held that from every word are
used very clear and was a failure to perform the contract. In our case it was clear in word 'in the
event the contractor fails to execute the works and/or in breach of the contract' and the amount
of the band guarantee can be released.

Court Held:

The court held that it was clear that the contractor failed to execute the work under the contract,
and the condition of bank guarantee has been applied. Thus the second defendant has to
release the sum of the amount to the plaintiff.

The court held that there’s no merit in the first defendant’s contention for the issue being raised
by them i.e. that the bank guarantee has lapsed. The plaintiff issued the demand on 31 July
1998 still valid because of the bank guarantee stated that it effective from the 12 March 1997 to
the 11 March 1998 and is to remain in force until one month after the issue of the Certificate on
Practical Completion of the works by the Architect or until a notice in writing to discontinue the
said Security Deposit Fund is given by the Employer M/s Fasda Heights Sdn Bhd. Therefore,
the bank guarantee is still valid, it was made within the validity period since the architect did not
issue the Certificate on Practical Completion.

The Court held that the act of terminating the contract from the plaintiff did not affect the validity
period of the bank guarantee.

The court held that the second issue raised by the first defendant i.e. that it was unconscionable
and inequitable for the plaintiff to receive the proceeds under the bank guarantee. It was
decided not directly relevant to the present application.

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4.0 CONCLUSION AND LESSON LEARNT

In the case of Fasda Heights Sdn Bhd v Soon Ee Sing Construction Sdn Bhd, we can
learn that the words 'in the event the contractor fails to execute the works in breach of the
contract' in the bank guarantee amount to a condition precedent. It means that when a claim is
made on the bank guarantee by the plaintiff, this requirement must be met before the second
defendant can release the funds. We may add that at this stage, the recipient is not required to
prove anything, and the bank is not obligated to look into the circumstances surrounding the
condition or demand proof of it. There is a need to look more closely at the demand made by
the plaintiff on the bank guarantee in the current case in light of the cited authorities where it
was determined sufficient in such a situation for the beneficiary to assert clearly in the demand
the condition or conditions stipulated in the performance bond. Other than that, we have learned
that in the formation of a contract, there must be an offer, acceptance, and then consideration
from both parties so that there will be a concluded contract between the two parties. Therefore,
even with the knowledge of the other party, one party cannot start the preliminary works
because they are not necessarily agreed upon by the other party, which means that there is no
contract between them. In addition, we learned that the bank guarantee condition had been
imposed since the first defendant, Soon Ee Sing Construction Sdn Bhd, had not completed the
work specified in the contract. This is owing to the fact that a breach of contract happens if one
party disobeys any stipulation of the contract. As a result, if a contract is broken, the other party
is entitled to compensation in the form of damages.

In conclusion, we can sum up that a contract in general is an agreement between two

parties that spined from offer and acceptance which will lead to a legitimate contract that abides
the rules of law. Furthermore, contract itself can be discharged by different ways which cleaved
into four major discharges which are Discharge by Performance, Discharge by Agreement,
Discharge by Frustration and Discharge by Breach and as for the Discharge by Breach, it will
come together with its remedies that can be listed into five types; Damages, Quantum Meruit,
Special Relief, Specific Performance and Injunction. Each and every type of the remedies will
present different situations and various approaches that depend on the breach from the
contract. From the case law of Fasda Height Sdn Bhd v Soon Ee Sing Construction Sdn Bhd,
we can see where Discharge of Contract by Breach had taken place between them and how the
situation had influenced the decision by the court.

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REFERENCE

Azizan, S. (2022). Law Management Under Malaysian Construction Contract. Print Expert Sdn.
Bhd.

Mulcahy, L. & Tillotson, J. (2004). Contract Law in Perspective. Cavendish Publishing Limited.

STEVE L.K. SHIM J, Fasda Heights Sdn Bhd - vs - Soon Ee Sing Construction Sdn Bhd, 25
MARCH 1999

Contracts Act 1950 (Act 136)