Judicial Admissions – A Costly Oversight In Pleadings

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The recent Court of Appeal decision in SPM Energy Sdn Bhd & 1 Ors v Multi Discovery Sdn Bhd [2025] MLJU 515 underscores a crucial lesson for litigants and practitioners – namely, the importance of careful drafting in pleadings. This case highlights how admissions, once made in pleadings, cannot be easily retracted or explained. It also demonstrates the far-reaching consequences of such admission on the outcome of the hearing.

Brief Facts

The contractual relations between the parties began when System Protection Sdn Bhd (SP) was awarded the Pengerang Project by PRPC Utilities and Facilities Sdn Bhd, a subsidiary of Petronas, in September 2016. On 12 October 2016, SP, the parent company of SPM Energy Sdn Bhd (SPME), awarded the project to SPME, which then subcontracted the work to Multi Discovery Sdn Bhd (MDSB).

As the project progressed, MDSB faced financial difficulties, leading to significant delays in completing the work. Since January 2017, SPME had repeatedly chastised MDSB for its underperformance and failure to pay subcontractors. Despite multiple demands, MDSB failed to fulfil its contractual obligations. Consequently, in March 2017, SPME had to make direct payments to MDSB’s subcontractors to prevent further project delays. Despite these efforts, MDSB continued to default its contractual obligations.

In an attempt to extricate itself from the project, MDSB proposed a novation agreement to transfer its obligations under the contract to another party, citing financial constraints. However, SPME rejected this proposal and MDSB remained in default.

Unknown to SPME at that time, MDSB’s team surreptitiously demobilised from the site in April 2018 and abandoned the project without notice. In May 2018, SPME issued a notice of intention to terminate the contract and proceeded to terminate the contract in June 2018.

In October 2018, MDSB initiated an action against SPME, SP and its directors to claim for the alleged outstanding sum totalling to RM34,043,413.37. In response, SPME and SP filed a counterclaim, alleging that MDSB had abandoned the project site since April 2018, causing losses to SPME.

The core issue revolved around the validity of SPME’s termination of the contract and whether SP and its directors should be held liable.

The High Court’s Decision

In response to SPME’s counterclaim, MDSB expressly stated in its pleadings that its demobilisation was necessary to mitigate its losses due to SPME’s alleged failure to pay outstanding invoices.

Despite this admission, the High Court ruled that SPM had wrongfully terminated the contract and that MDSB had proven its entitlement to approximately RM11 million in outstanding sums. Further, the High Court held SP liable for SPME’s breach, reasoning that SPME “was merely a shelf company” of SP. However, the High Court found that MDSB had failed to establish fraud or conspiracy on the part of the directors.

Aggrieved by the decision, SPM and SP appealed. Notably, MDSB did not appeal or cross-appeal against the High Court’s findings regarding the absence of fraud or conspiracy.

The Court of Appeal’s Decision

On appeal, the Court of Appeal reversed the High Court’s decision.

The Court of Appeal found that the High Court’s omission to consider the admission by MDSB constituted a legal error which has caused an injustice to SPME, which warranted appellate intervention. Regardless of MDSB’s justification for demobilisation, the admission unequivocally established MDSB’s breach of contract.

“[41]  The omission of the High Court to consider the Judicial Admission (Plaintiff’s Demobilization), in our view -

(1)  constituted a legal error which had caused an injustice to the 1st Defendant (High Court’s 1st Legal Error); and

(2)   warrants appellate intervention.

[42]  Secondly, the Judicial Admission (Plaintiff’s Demobilization) proved on a balance of probabilities that irrespective of the reason or reasons for the Plaintiff’s Demobilization, the Plaintiff had breached the LA (1st Defendant-Plaintiff) [Plaintiff’s Breach (Demobilization)]…” 

Further, the Court of Appeal held that the High Court had wrongly exercised its discretion in piercing the corporate veil of SPME based solely on its status as a “shelf company”. Not only is this not an exception to the separate legal personality but there was also no proof of actual fraud.

Dissatisfied with the decision, MDSB sought leave to appeal to the Federal Court, which was subsequently dismissed.

Commentary

Judicial admission is a statement made by a party in their pleadings that unequivocally acknowledge the truth of a particular fact. It carries significant weight and can decisively impact the outcome of a dispute. A seemingly innocuous statement can inadvertently create a binding admission that adversely affects the case.

For instance, MDSB’s admission of demobilisation rendered the fact undisputed, which had a direct bearing on the lawfulness of SPME’s termination of the contract. MDSB had admitted to the very breach that formed the basis of the SPME’s termination. Despite MDSB’s attempts to justify its actions, the admission remained conclusive.

It is trite that judicial admission stands on a higher footing than evidentiary admission and carry significant weight in legal proceedings. The Federal Court in Yam Kong Seng v Yee Weng Kai [2014] 4 MLJ 478 explained the effect of judicial admission:

“[17]  Having perused the defence in particular para 8, we find that there is clear judicial admission of the debt owed…

[18]… With there being judicial admission by the respondent sufficient to hold him liable to the amount claimed the answer to the first question of law in this appeal must be answered in the positive.”

Similarly, in YK Fung Securities Sdn. Bhd. v James Capel (Far East) Ltd [1997] 2 MLJ 621, the Court of Appeal held that a party who admitted a fact is estopped from taking a position different from that pleaded on its pleadings.

“For the record, however, we must state that it is the opinion of this court that once a party to litigation has admitted a fact in his pleadings he shall not be heard to contend the contrary in the trial and in any appeal therefrom.”

This case underscores that drafting pleadings is not just a procedural step; it is a strategic exercise with profound implications. Judicial admissions can bind a party in ways that may be difficult to overcome later. Thus, litigants must exercise meticulous scrutiny over every statement in their pleadings, ensuring that admissions are made with full awareness of their legal consequences.

8 APRIL 2025