Dispute Resolution Update: 59 Contracts, One Cause of Action? A Director Certifying Claims? The Court of Appeal Clarifies
Introduction
The Court of Appeal in Merchant Synergy Sdn Bhd v Cempaka Johan Sdn Bhd1 decided that claims made in toto2 for separate contracts are permissible when the cause of action is the same, and the claim is based on multiple contracts as a whole. The Court also clarified that a director has no ostensible authority to sign documents where such authority has been expressly vested in the Project Architect.
Brief facts
The Appellant (“Merchant Synergy”) is a main contractor who appointed the Respondent (“Cempaka Johan”) vide 59 similarly worded Letters of Award as a subcontractor for the construction of bungalows.
Cempaka Johan claimed for RM9,210,013.04, together with interest and costs, for the outstanding claims for work done pursuant to the 59 Letters of Award. Cempaka Johan’s claim rested on various progress claims and payment statements which were signed by Merchant Synergy’s director.
The High Court allowed Cempaka Johan’s claim raised in toto and found that Cempaka Johan had proven that Merchant Synergy owed the sum of RM9,210,013.04, which was supported by the various progress claims.
Merchant Synergy appealed the High Court’s decision to the Court of Appeal.
Key legal issues
The key legal issues in this case are as follows:
- Whether the claims under the 59 Letters of Award could be made in toto instead of pleading a separate and distinct cause of action for each letter of award/contract?
- Whether Merchant Synergy’s director bound the company to an account stated of RM9,210,013.04 by signing progress claims and payment statements when the 59 Letters of Award reserved certification power exclusively to the Project Architect?
Failure to plead separate and distinct causes of action for each contract
According to Merchant Synergy, the 59 Letters of Award constitute a separate and distinct contract. This required Cempaka Johan to plead a separate breach for each contract and to prove them on a balance of probabilities. However, Cempaka Johan’s statement of claim did not state from which particular letter of award the breach arose, resulting in the loss claimed.
The Court of Appeal found that there was no error in Cempaka Johan’s approach in not pleading a separate cause of action, that is, breach of contract for every letter of award. This is because Cempaka Johan’s claim was premised on the failure of Merchant Synergy to pay the balance of the sums due under the 59 Letters of Award as a whole.
Ostensible authority of Merchant Synergy’s director
The Court of Appeal held that the High Court had erred in finding that Merchant Synergy’s director had ostensible authority to sign and/or certify Cempaka Johan’s progress claims, payment statements, applications for extension of time and the certificate to make good defects. It had been expressly provided under each Letter of Award that the power to do so can only be exercised by the Project Architect.
Therefore, the High Court had failed to consider the contractual provisions governing the contract between the parties, as well as the fact that the scope of Merchant Synergy’s director’s duties did not encompass the running of the Project or its accounts. The Court of Appeal found that there was no judicial appreciation as to how Merchant Synergy’s director signed the documents at the behest of Cempaka Johan when the director did not have any knowledge as to what was being signed.
Accordingly, the Court of Appeal set aside the decision of the High Court and dismissed Cempaka Johan’s claim.
Key takeaways
The Court of Appeal affirmed that claims made in toto are permissible provided that the cause of action is the same, and the claim is based on the multiple contracts as a whole.
Further, this decision clarified that a signature has no value and does not amount to an admission where the signatory does not have ostensible authority. In this case, merely because a director had signed a document does not amount to there being a valid admission that payments were due to Cempaka Johan. Such powers are vested in the party specified by the contract, here being the Project Architect, and mere job titles do not automatically grant someone the authority to create binding contractual admissions.
