Court of Appeal – Tanjung Teras Sdn Bhd v Kerajaan Malaysia [2015] MLJU 2161

1. Case Summary

This case concerned a construction project to build 226 medium-cost apartments to be used as staff quarters for the Fire and Rescue Department of Malaysia. The main contract was between the Government and Jeram Permata Cheras Sdn Bhd (“JP”)). JP later appointed another company as its subcontractor to carry out the superstructure works.

The main contract was terminated after JP failed to complete the project on time. The subcontractor then refused to leave the site and claimed payment for the work it had completed. It had no direct contract with the Government, and its appointment as subcontractor had not been approved by the Government. The subcontractor therefore relied on section 71 of the Contracts Act 1950, arguing that the Government had benefited from its work and should pay reasonable compensation.

The High Court dismissed the subcontractor’s counterclaim. It found that the work had been done for JP, rather than for the Government, and that the Government had not benefited from the work because the project was unfinished. The subcontractor appealed to the Court of Appeal.

1. What Does Section 71 of the Contracts Act 1950 Say?

Section 71 deals with a situation where a person lawfully does something for another person, or delivers something to that person, without intending to do it for free, and the other person enjoys the benefit. In that situation, the person who receives the benefit must compensate the person who provided it, or return what was delivered.

Obligation of person enjoying benefit of non-gratuitous act

71. Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered.

ILLUSTRATIONS

(a) A, a tradesman, leaves goods at B’s house by mistake. B treats the goods as his own. He is bound to pay A for them.

(b) A saves B’s property from fire. A is not entitled to compensation from B, if the circumstances show that he intended to act gratuitously.

In simple terms, a person may be entitled to reasonable payment even where there is no direct contract, provided the legal requirements are met. The purpose is to prevent unjust enrichment. In other words, to stop someone from keeping a benefit received from another person without fairly compensating that person.

1. The Legal Principles Applied by the Court of Appeal

The Court explained that section 71 means that a person may claim reasonable compensation for work actually done. The claim is not based on enforcing a contract between the parties. Instead, it is based on restitution and the need to prevent one party from being unfairly enriched at another’s expense.

The Court referred to Siow Yong Fatt v Susur Rotan Mining Ltd (1967) 2 MLJ 118 and identified (4) four conditions for a claim under section 71:

The doing of the act or the delivery of the thing:

(a) must be lawful;

(b) must be done for another person;

(c) must not be intended to be done gratuitously;

(d) must be such that the other person enjoys the benefit of the act or the delivery.

The Court stressed that the second condition should not be read too narrowly. The fact that the subcontractor expected to receive payment from JP did not automatically mean that the work was done only for JP. The Court looked at the wider facts. The apartments were being built for the Government, and the subcontractor’s superstructure work formed part of that project.

The Court also found that a project does not need to be fully completed before a benefit can be recognised. The evidence showed that the Government later revived the project and appointed new contractors who continued building on the superstructure work already carried out by the subcontractor. There was no evidence before the Court that this work was defective or had to be demolished. The Government had therefore benefited from the work.

Unjust enrichment is one of the key principles behind this case to prevent a person from receiving or enjoying a benefit at another person’s expense without providing fair compensation. In this case, although the Defendant was appointed by JP and had no direct contract with the Government, the Defendant had carried out the superstructure works for the housing project. The Court recognised that the Government, as the ultimate owner of the project, could benefit from those works even though the original contract had been terminated.

The principle of unjust enrichment is particularly relevant because the project was later continued by new contractors, who used the superstructure works previously carried out by the Defendant. If the Government were allowed to retain and benefit from those works without paying reasonable compensation, it would be unfair to the Defendant. However, the Court did not simply award the full amount claimed. Instead, it awarded RM1,241,022.56, which represented the proven value of the actual physical work done. This shows that the principle of unjust enrichment seeks to achieve fairness by ensuring that a party does not unfairly benefit at another’s expense, while requiring the claimant to prove the value of the benefit received.

1. The Court’s Decision

The Court of Appeal allowed the appeal and set aside the High Court’s decision. It held that the subcontractor had proved its entitlement to compensation under section 71. The absence of a direct contract between the subcontractor and the Government did not, by itself, defeat the claim.

1. Why This Case Matters

The case shows that the lack of a direct contract does not always mean that payment cannot be claimed. Where work is lawfully carried out, was not intended to be free, and another party receives and keeps the benefit, section 71 may provide a remedy. The Court will look at the real nature of the work and who ultimately benefited from it, rather than relying only on the formal chain of contracts or the identity of the party expected to make payment.

In short, Tanjung Teras is a useful reminder that the law may provide fair compensation where one party has benefited from another’s work without a direct contract between them. But the claimant must prove both that the benefit was received by the other party and the reasonable value of the work for which payment is sought.