Schedule
Schedule 15 of the Adjudication Reply; and ii) The Expert Report on the Architect’s assessment of the costs of rectification of defective works as contained in Schedule 17 of the Adjudication Reply. [16] On 31.5.2017, the Plaintiff filed and served the Plaintiff’s written representations made pursuant to the said Order for Directions No. 1. [17] The Adjudicator decided on 24.6.2017 as follows: 10 a) The Plaintiff shall pay the Defendant the sum of RM6,452,896.50 on or before 22.7.2017; b) The Plaintiff shall pay the Defendant simple interest on the amount of RM4,448,798.88 calculated at the rate of 5% per annum from 31.8.2016 until full payment; c) The Plaintiff shall pay the Defendant simple interest on the amount of RM2,004,097.62 calculated at the rate of 5% per annum from 17.11.2016 until full payment; and d) The Plaintiff shall pay the Defendant the cost of the adjudication proceedings in the sum of RM81,489.00. Prayers [18] Learned counsel for Emerald as the Plaintiff in applying to set aside the Adjudicator’s Decision dated 24.6.2017 relied on the following grounds: a) The Learned Adjudicator had acted in breach of natural justice when he failed to consider the Plaintiff’s counterclaim, deduction and/or set off in the sum of RM 6,356,493.20 arising from the Defendant’s breach of its Letter of Undertaking on outstanding works and defects; 11 b) The Learned Adjudicator had acted in breach of natural justice/excess of jurisdiction when he considered issues not raised by parties without giving parties an opportunity to comment and failed to consider matters referred to him for determination; and c) The Learned Adjudicator had acted in excess of his jurisdiction/breach of natural justice when he decided in respect of Progress Claim No.29 on a legal basis which is not based on the Payment Claim. [19] The parties shall be referred to as they were in the Adjudication as Claimant and Respondent and sometimes as Defendant and Plaintiff respectively in this primary consideration of the application to set aside the Adjudication Decision. Principles [20] The Respondent in the Adjudication had applied to set aside the Adjudication Decision on ground that there has been a denial of natural justice under section 15(b) of the CIPAA and that the Adjudicator had acted in excess of his jurisdiction under section 15(d). 12 [21] The main ground in setting aside the whole of the Adjudication Decision is premised on the fact that the Adjudicator had wrongly declined jurisdiction to hear the set-off for rectification works when this has been properly raised in the Payment Response. [22] The Adjudicator had explained that the matters relied on for the defence of a contractual set-off were post Payment Response events and that he must be prudent not to exceed his jurisdiction and thus he shall not consider the set-off of RM6,356,493.20 due to defective works in the Adjudication proceedings before him. [23] The position of the law has been clarified by the Federal Court in View Esteem Sdn Bhd v Bina Puri Holdings Berhad [2017] 8 AMR 167 with respect to a breach of natural justice in unduly restricting or erroneously restricting or construing one’s jurisdiction. The Federal Court approved of the principles laid down in the case of Pilon Ltd v Breyer Group Plc [2010] 130 ConLR 90 where Justice Coulson observed as follows: “[17] An Adjudicator can make an inadvertent mistake when answering the question put to him, and that mistake will not ordinarily affect the enforcement of his Decision; see Bouygues (UK) Ltd v Dahl-Jenson (UK) Ltd (2000) BLR 49. If, on the other hand, he considers and purports to decide an issue which is outside his 13 jurisdiction, then his decision will not be enforced: see the discussion in Sindall Ltd v Solland [2001] 3 TCLR 712. But there is a third category, which is where the adjudicator takes an erroneously restrictive view of his own jurisdiction, with the result that he decides not to consider an important element of the dispute that has been referred to him. This failure is usually categorized as a breach of natural justice” (emphasis added) and at page 99 as follows: “[22] As a matter of principle, therefore, it seems to me that the law on this topic can be summarized as follows: 22.1 The adjudicator must attempt to answer the question referred to him. The question may consist of a number of separate sub-issues. If the adjudicator has endeavored generally to address those issues in order to answer the question then, whether right or wrong, his decision is enforceable: see Carillion v Devonport. 22.2 If the adjudicator fails to address the question referred to him because he has taken an erroneously restrictive view of his jurisdiction (and has, for example, failed even to consider the defence to the 14 claim or some fundamental element of it), then that may make his decision unenforceable, either on grounds of jurisdiction or natural justice: see Ballast, Broadwell,and Thermal Energy. 22.3 However, for that result to obtain, the adjudicator’s failure must be deliberate. If there has simply been an inadvertent failure to consider one of a number of issues embraced by the single dispute that the adjudicator has to decide, then such a failure will not ordinarily render the Decision unenforceable: see Bouygues and Amec v TWUL. 22.4 It goes without saying that any such failure must also be material: see Cantillon v Urvasco and CJP Builders Limited v William Verry Limited [2008] EWHC 2025 (TCC). In other words, the error must be shown to have had a potentially significant effect on the overall result of the adjudication: see Keir Regional Ltd v City and General (Holborn) Ltd [2006] EWHC 848 (TCC).”(emphasis added) 15 Whether there was a breach of Natural Justice in what was alleged to be the failure of the Adjudicator to consider the Respondent’s Set-off in the Sum of RM 6,356,493.20 [24] Learned counsel for the Respondent argued that the Defence of the Respondent of the Claimant’s breach of the Letter of Undertaking as contained in the Claimant’s letter dated 31.5.2016 to make good defects and outstanding works for the all units and common properties as set out in the said Architect’s letter of 13.5.2016 and to complete such work by 30.6.2016. [25] He explained that the Claimant had issued the Letter of Undertaking to enable the Architect to issue the Certificate of Practical Completion (“CPC”) dated 31.5.2016 pursuant to Clause 15.1 (a) of the Conditions of Contract. [26] The Defence of the Respondent in the Adjudication was that the Claimant had failed to rectify the defects and complete the outstanding works by 30.6.2016. Further, despite two extension of time were given by the Respondent, the latest of which was until 15.9.2016, the Claimant had also in breach of the Letter of Undertaking failed to rectify the defects and complete the outstanding works by 15.9.2016. 16 [27] The Respondent in the Adjudication as the Plaintiff here, said it had no choice but to engage third parties to carry out the said outstanding works after calling for quotations from several third party contractors to carry out these outstanding incomplete and/or defective works and awarded to the contractors with the most reasonable quotations. [28] The Architect, by a Notice dated 10.4.2017 entitled “Assessment of Amount to be Set off by Employer under Clause 30.4 (a) and notice under Clause 30.4 (b)”, furnished to the Claimant what he said is complete details of the assessment of costs incurred by the Respondent to rectify the defects and complete the outstanding works. [29] According to learned counsel for the Respondent, pursuant to paragraph 2(g) of the Payment Response dated 25.1.2017, the Respondent had raised among other things, the Breach of Undertaking Defence. In the premises, it was a crystallized dispute which had been referred for determination in the Adjudication. [30] The Details of the Respondent’s Defence of a breach of Undertaking by the Claimant are as contained in paragraphs 19.1 to 19.20, Section L of the Adjudication Response dated 2.5.2017. [31] In reply to the Breach of Undertaking Defence, the Claimant said, inter alia, as follows: 17 a. The scope of the undertaking is limited to the works and defects of a minor nature identified during the issuance of the CPC (whereby the set-off sought to be imposed exceeded the scope of the undertaking); b. Only when there is a breach of the undertaking can there be an attempt to set-off provided the Respondent fulfills the Set-off Conditions stipulated by Clause 30.4 PAM. Clause 30.4 PAM requires that: i) The Architect or QS must first submit a Detailed Assessment (Clause 30.4(a) PAM); ii) Respondent must send a Notice of Set-off (Clause 30.4(b) PAM); iii) Claimant can dispute the amount of intended set-off, in which case parties must refer to contractual adjudication under Clause 34.1 and Respondent cannot exercise any set-off unless amount is agreed or adjudicator under Clause 34.1 issued his decision (Clause 30.4 PAM); iv) The adjudication under Clause 34.1 PAM is contractual adjudication, not CIPAA. 18 c. Therefore, the Respondent was not entitled to any set-off because: i) Project was within defects liability period, hence Claimant has the right to rectify the defects that arise from time to time (apart from the defects identified during CPC), but the defects now claimed by the Respondent exceed the scope of the undertaking. ii) There was no Detailed Assessment by the Architect. All quotations were on lump sum basis with no quantities, rendering it impossible for the Claimant to consider the rates as is required under Clause 30.4 PAM Form. iii) The Notice of Set-Off was merely intended to defeat the adjudication proceedings because there was no indication of any intention to set-off prior to the Payment Claim of 10.1.2017, and the Claimant showed that: 1. There was NO indication of any set-off prior to the Payment Claim; 19 2. The Payment Response dated 25.1.2017 indicated an estimated sum of RM6,356,493.20 to be set off, such being the estimated costs; 3. Subsequently in March 2017, Respondent purportedly received quotations from various contractors which came up to the exact sum of RM6,356,493.20 as estimated. Claimant says such coincidence between the estimate to the final costs to the cent shows the quotations were fabricated, and that was why they were made on a lump sum basis. iv) Claimant had disagreed with the Notice of Set-Off by its letter dated 25.4.2017 and by the express terms of the contract itself, there can be no set-off. v) The so-called assessment of the Architect was not reliable and is impossible to be assessed due to it being on a lump sum basis. In fact, the quotations were rejected by the Claimant’s expert QS as being totally unreliable. [32] Learned Counsel for the Respondent as the Plaintiff here had singled out as of special significance that none of the arguments put forward by the 20 Defendant touches on the issue of whether the Breach of Undertaking Defence was something which the Adjudicator cannot consider or had no jurisdiction to entertain. [33] As a matter of fact, learned counsel for the Respondent said the Claimant had in the Adjudication Reply adduced an expert report by Sr Nik Hasbi Fathi (“Expert Report”) where it was alleged that the Architect’s assessment was unreliable based on the following allegations: “(a) The lump sum quotations rendered it impossible for the QS to asses or price the rectification works. (b) The breakdown of rectification costs and the letters of award and work orders do not match. (c) The process of tender is questionable. (d) The failure to provide complete details in terms of quantities would mean that an award of tender of rectification works even to the lowest tendered would be dubious in terms of fair value of rectification. (e) There is a need when carrying out rectification works to preserve the rates of the contract, but that has not been done due to the quotations on lump sum basis. 21 (f) There is no indication that the Architect has given any consideration to apply the diminutive value instead. (g) The similarities in the various quotations, despite having been issued under the letterheads of different contractors, indicate the possible collusion of tenderers compromising the tender amounts.” [34] However, by Order for Directions No.1, the Learned Adjudicator himself had directed the Plaintiff to file and serve a written representation to answer the matters raised in the Expert Report among other things. [35] Therefore the learned Adjudicator cannot be said to be in breach of natural justice if by that, is meant that the Plaintiff had no opportunity to respond to the Adjudication Reply. [36] The Respondent in the Adjudication availed itself of the opportunity to reply by written representation dated 31.5.2017 together with further documents, which learned counsel for the Respondent had summarized as follows: (a) The defects identified by end purchasers are actually part of those which the Claimant had failed to carry out as promised under the Letter of Undertaking. 22 (b) In light of the time period expressly committed by the Claimant to complete these outstanding rectification works under the Letter of Undertaking, it was baseless for the Claimant to ignore the time frame committed under the Letter of Undertaking and contend that these defects could be done during 24 months defects liability period. (c) The contents of the Expert Report were disputed. (d) The Expert failed to give his costs quantification. (e) No basis in the allegation of a difference in the sum of RM13,694.20 as the Expert had misconstrued the relevant work order and quotations and the Architect’s Summary. (f) No basis in the allegation that the awards were not corresponding to quotation received as shown in table of comparisons in Appendix R-2, R-3, R-4 and R5. (g) The quotations received contained sufficient information for a fair assessment to be made. (h) It is not acceptable to apply diminutive value and expect end purchasers to accept defective workmanship. (i) The suggestion of possible collusion by tenderers was unsubstantiated and without basis. 23 (j) There was no evidence that the Claimant had posted or delivered the Claimant’s letter of 25.4.2017 to Respondent in relation to the Claimant’s disagreement with the Architect’s assessment. [37] Learned counsel for the Respondent contended that the learned Adjudicator did not request the parties to address the issue of his purported lack of jurisdiction to entertain this defence at all. [38] It was argued for the Respondent in the Adjudication as the Plaintiff here that notwithstanding that the Defendant did not raise the issue of lack of jurisdiction, the Learned Adjudicator decided that he cannot consider the Plaintiff’s counter claim, deduction and/or set off in the sum of RM 6,356,493.20 arising from the Defendant’s breach of Letter of Undertaking without giving the parties an opportunity to comment. [39] It was further submitted that the Learned Adjudicator had committed a serious breach of natural justice when he had gone on his own frolic to decide that he had no jurisdiction to consider the Respondent/Plaintiff’s defence based on the matters as contained in paragraphs 4.29 and 4.30 of the Adjudication Decision notwithstanding that these matters were NOT the legal basis which had been argued or put forward by either side. 24 [40] Moreover, it was argued for the Plaintiff here that the Learned Adjudicator failed to give the parties an opportunity to comment on these matters which formed the basis of his decision. [41] Learned counsel for the Plaintiff referred to the following impugned paragraphs of the Adjudication Decision below: “4.29 Turning to the operation of CIPAA, s6(2) requires the non-paying party who disputes the amount claimed in the payment claim, either wholly or partly, to serve a payment response in writing on the unpaid party. My jurisdiction then rests on s27(1) CIPAA in relation to any dispute to the matter referred to adjudication by the parties pursuant to s5 and s6 CIPAA only and otherwise extended in writing by the parties pursuant to s27(2) CIPAA. I am not given any written agreement to extend jurisdiction beyond s27(1) CIPAA, therefore to limit my jurisdiction on the matters in relation to s5 and s6 CIPAA, I consider that the matters must have been occurred before serving the payment claim and payment response under s5 and s6 CIPAA. 4.30 On the facts, the Respondent mentioned about the set-off of RM 6,356,493.20 due to defective works in the payment response dated 25 January 2017. The procedures of set-off under Cl. 30.4 PAM was concluded by the Respondent’s letter dated 10 April 2017 addressed to the Claimant with the detailed assessment under 25 Clause 30.4(a) PAM Form and notice of set-off on 25 January 2017 under Clause 30.4(b) PAM Form. Moreover, some of the quotations for defect rectification were evidently made after 25 January 2017. I must be prudent as to not exceed my jurisdiction to decide on the dispute and therefore I shall not consider the set-off of RM 6,356,493.20 due to the defective works in these proceedings.” (emphasis added) [42] Learned counsel for the Respondent as Plaintiff here, said that the defence was material, decisive and of considerable importance to the outcome of the dispute since the amount counterclaimed would have extinguished a substantial if not all the Claimant’s claims (if established) by the Claimant. [43] The legal proposition in support of of the Respondent’s argument can be found in Cantillon Ltd v Urvasco Ltd [2008] 117 ConLR 1 Akenhead J summarized the principles in page 20 as follows: “[57] From this and other cases, I conclude as follows in relation to breaches of natural justice in adjudication cases: (a) It must be first established that the Adjudicator failed to apply the rules of natural justice. 26 (b) Any breach of the rules must be more than peripheral; they must be material breaches. (c) Breaches of the rules will be material in cases where the adjudicator has failed to bring to the attention of the parties a point or issue which they ought to be given the opportunity to comment upon if it is one which is either decisive or of considerable potential importance to the outcome of the resolution of the dispute and is not peripheral or irrelevant. (d) Whether the issue is decisive or of considerable potential importance or is peripheral or irrelevant obviously involves a question of degree which must be assessed by any judge in a case such as this. (e) It is only if the adjudicator goes off on a frolic of his own, that is wishing to decide a case upon a factual or legal basis which has not been argued or put forward by either side, without giving the parties an opportunity to comment....” (emphasis added) 27 [44] Learned counsel for the Plaintiff submitted that the above principles were applied in the case of Herbosh-Kiere Marine Contractors Ltd v Dover Harbour Board [2012] 140 Con LR 47 in page 110 as follows: “[32] ...Whilst the principle which he puts forward is unchallengeable, and although it could be said that the adjudicator has arguably gone wrong in fact or in law in assessing the financial entitlement as he did, it is not that which is the subject of legitimate criticism. What he can be criticized for is deciding something not only on a basis which was not argued in the adjudication proceedings but also without giving either party the opportunity to address the point. … [33] In essence, and doubtless for what he believed were good and sensible reasons, the adjudicator has gone off “on a frolic of his own” in using a method of assessment which neither party argued and which he did not put to the parties. In some cases, this may not be sufficient to prevent enforcement of the decision where the “frolic” makes no material difference to the outcome of the decision. Thus, an adjudicator who refers to a legal authority which neither party relied upon, may have his or her decision enforced nonetheless if the application of that legal authority 28 obviously makes no difference to the outcome. The breach of the natural justice has to be material. Here, for the reasons indicated above, the breach is material and has or has apparently led to a very substantial financial difference in favour of HKM but necessarily against the interests of DHB. [34] It follows from the above that the adjudicator’s decision cannot be enforced because not only has he exceeded his jurisdiction by addressing and finding a method of assessment which formed no part of the dispute referred to him but also he has breach the rules of natural justice, doubtless unwittingly, by deciding the case not only on the basis not argued by either party at any stage but also without giving each party the opportunity to make submissions at least on the method of assessment which the adjudicator considered that he should adopt.” (emphasis added) [45] I do not for a moment quibble with or question the soundness of the above principles. However to be fair to the Adjudicator we must read his Adjudication Decision as a whole and appreciate his argument en-route to his Adjudication Decision. A one-liner in the last sentence of paragraph 4.20 of the Adjudication Decision must thus be read in the context of the whole Decision to see if it is just an additional and alternative argument 29 after having considered the merits of the Defence of a breach of the Claimant’s Letter of Undertaking and dismissed it based on his finding of facts coupled with mixed question of law and fact that the Adjudicator had tried to answer. [46] The Adjudicator in paragraph 3.1 of the decision identified the “Costs of rectifying defective works” (i.e. the Breach of Undertaking Defence) as being an issue of the adjudication proceedings. The Adjudicator rightly stated the issue or dispute for him to decide which is whether there was a breach of the Letter of Undertaking by the Claimant and if so, what is the rectification cost that the Respondent had incurred. [47] The Adjudicator then dealt with this issue starting from paragraph 4.22 to 4.30 of the Adjudication Decision. I would agree with learned counsel for the Claimant that this is certainly not a case where the learned Adjudicator was washing his hands completely in considering the defence of the set-off raised by the Respondent. The Respondent had not explained away the reasoning employed by the Adjudicator in setting out his reasons en-route to dismissing the Respondent’s defence of contractual set-off from paragraphs 4.22 - 4.30 of his Decision. [48] I agree with learned counsel for the Claimant that it was NOT a one-liner denying his own jurisdiction. One must not miss the woods for the trees for that would be rather myopic! 30 [49] Learned counsel for the Claimant as Defendant, had helpfully harvested the following excerpts from the Adjudication Decision disclosing that the Adjudicator had indeed carefully considered all the defences raised by the Respondent in the Adjudication: a. He agreed with the Defendant that the scope of the undertaking was limited to the works and defects identified during the issuance of the Certificate of Practical Completion (“CPC”), and not to the ongoing defects raised by purchasers from time to time (paragraph 4.25 of the Decision); b. He agreed with the Defendant that the provisions of Clause 30.4 PAM Form must apply for any set-off to be claimed (paragraph 4.22 of the Decision); c. He agreed with the Defendant that there must be an assessment submitted under Clause 30.4(a) PAM, but he decided that there was no need for “detailed” assessment and hence the Plaintiff had complied with Clause 30.4(a) PAM (paragraph 4.23 Decision); d. He could not figure out how the individual quotations submitted by the Plaintiff added up to the set-off amount (paragraph 4.23 Decision); 31 e. He disagreed with the Defendant that there must be contractual adjudication under Clause 30.4 PAM before CIPAA can be invoked (paragraph 4.26 Decision); f. He noted that the assessment was sent to the Defendant on 10.4.2017 (paragraph 4.27 Decision), but before the time-frame under Clause 30.4 expired, the Plaintiff had already entered into contracts with third parties (paragraph 4.28 Decision) - this effectively meant that the full provisions of Clause 30.4 PAM had not been complied with by the Plaintiff; g. He noted that the procedures for set-off under Clause 30.4 PAM (which he had already decided was mandatory) was only concluded by the Plaintiff’s letter dated 10.4.2017, and that all quotations relied upon by the Plaintiff were made after 25.1.2017 (date of Payment Response), and in this context, he made the comment that he would not exceed his jurisdiction to decide on the dispute and shall not consider the set-off (paragraph 4.30 of the Decision). [50] Very pertinently the learned Adjudicator had observed and made the following finding of facts at paragraph 4.28 of his Decision as follows: 32 “Despite the Respondent claimed (sic) that they did not receive the Claimant’s letter dated 25 April 2017 disagreeing the set-off amount, some of the contracts with third parties were made earlier than the submission of detailed assessment to the Claimant. The Claimant could only respond to disagree (sic) the set-off amount on 25 April 2017, which defeated the purpose of giving adequate advance notice together with the detailed assessment so that the Claimant would have a fair opportunity to comment on the assessment.” (emphasis added) [51] Under Clause 30.4 it is provided at the end of the clause the following: “.....The Employer shall not be entitled to exercise any set-off unless the amount has been agreed by the Contractor or the adjudicator has issued his decision.” (emphasis added) [52] This was a case where the Contractor in the Claimant had not agreed on the amount to be set-off for rectification works and further that there had been no contractual adjudication. The Adjudicator had correctly held that the provision for Contractual Adjudication is no bar to the Claimant proceeding with Statutory Adjudication and one must then respect the Decision of the Adjudicator with respect to the Decision unless there is a 33 breach of natural justice or that there is a question of wrongful exercise or declining to exercise jurisdiction. [53] In the case of a proper set-off which had properly crystallized there is the avenue of deduction from the Performance Bond under Clause 30.4 or from the Retention Sum under Clause 30.6 of the PAM Conditions of Contract. [54] I can see for myself that the Breach of Undertaking Defence put forth by the Respondent was considered, deliberated upon, discussed and reasoned out, and ultimately dismissed. [55] In other words the factual basis of the case had been argued by both sides with respect to the validity of the defence of set-off for rectification works pursuant to the Letter of Undertaking in disputing the amount owing under the Claimant’s Claim represented by the unpaid Certificates of Payment and Interim Claim No. 29. [56] At the very worst, he committed an error of law by couching his Decision in terms of jurisdiction, when the simple fact is that he decided Clause 30.4 PAM which had to be complied with was not complied with as at the date of the Payment Response. The procedure was not completed until way after, and all quotations were dated post-Payment Response. 34 [57] There was thus nothing wrong if the Adjudicator in dismissing the set off for rectification flowing from his finding of fact that Clause 30.4 PAM had not been fulfilled as at the date of the Payment Response. [58] The Claimant at L.4 and paragraphs 63-64 of its Adjudication Reply had raised the point that there was no indication of any intention to set-off prior to Payment Claim of 10.1.2017. The first time the Respondent alluded to a potential sum of RM6,356,493.20 to be set-off being “estimated costs” to rectify defects was in their Payment Response, and that all quotations were dated after the Payment Response. [59] As there is no need to couch and craft one’s Reply or argument in strict legal language and jargon, seeing that a party may even represent himself or by his representative and not necessarily by a lawyer under section 8(3) of the CIPAA, one should not be fixated to a strict formulation as in legal pleadings for here, in not so many words, the Claimant had raised a challenge that goes towards the jurisdiction of the Adjudicator to determine the set-off based on documents put forward by the Respondent which were all post-date the Payment Response. [60] The Respondent in the Adjudication did not address this challenge, and neither did they even write to the Adjudicator to indicate that they wanted to address the same. 35 [61] Very clearly the Respondent had every opportunity to respond to the Adjudication Reply, but did not address the issue. [62] The Adjudicator in the course of his decision making had to consider what was raised by the Claimant with respect to whether he could consider the matter of a contractual set-off under the PAM Form when it had not accrued or crystallized yet at the point when the Payment Claim or Payment Response was served. Framing that issue in legal language, it would be whether he could as a matter of contingent jurisdiction, consider a defence of set-off that would only arise and accrue after the Payment Claim and Payment Response were served. The Adjudicator felt obliged to consider this for the issue had been raised though not couched and crafted in jurisdictional language. It is here more a case of contingent jurisdiction for an Adjudicator would ordinarily have jurisdiction to hear the defence of contractual set-off for rectification if that defence had already accrued when the Payment Response was served. [63] Here it was the Adjudicator’s findings that the defence of contractual set-off had not accrued or crystallized yet until 10.4.2017 when the procedures of set-off under Clause 30.4 PAM Form was concluded by the Respondent addressing the Claimant via its letter of 10.4.2017 with the detailed assessment under Clause 30.4(a) PAM Form. It was in that context that he made the finding of mixed fact and law that he ought not to 36 exceed his jurisdiction to consider the set-off of RM6,356,493.20 due to defective works which could only be supported by events after the Payment Response and quite obviously had not accrued or crystallized yet when the Payment Response was served. [64] In this respect the observation of Justice Lim Chong Fong in the case of Penang High Court OS No.: PA-24C-06-10/2017 in Mecomb Malaysia Sdn Bhd v VST M & E Sdn Bhd is apposite and applicable to the factual matrix of the present case: “36. The notice of adjudication in the Adjudication was filed on 17 April 2017. However the Defendant’s statement of final account was only issued on 20 April 2017 or even later. In this regard, s.7 in particular s. 7(3) of the CIPAA provides as follows: “7. Right to refer dispute to adjudication 37 Ordinance [Cap. 72] or Sarawak Limitation Ordinance [Swk. Cap. 49] as the case may be.” It is provided in s. 31 of the Limitation Act 1953 as follows: “31. Provisions as to set off or counterclaim For the purposes of this Act, any claim by way of set-off or counterclaim shall be deemed to be a separate action and to have been commenced on the same date as the action in which the set-off or counterclaim is pleaded.” Plaintiff’s payment claim. In other words, it wasn’t an adjudicatable defence within the core jurisdiction of the Adjudicator. In the circumstances, I find and hold that the Adjudicator not only didn’t fall into error but was actually correct in refusing to assume jurisdiction to entertain the Defendant’s statement of final account. As stated by him, the position might be different if the 38 Defendant had issued such as a negative penultimate payment certificate after payment certificate no. 15 before the issuance of notice of adjudication by the Plaintiff. Adjudicator or clear error seen in the Decision.” (emphasis added) [65] I would consider this issue of jurisdiction that of contingent jurisdiction rather than core jurisdiction in that ordinarily the Adjudicator would have jurisdiction if the defence of set-off had already accrued when the Payment Response was served. The Adjudicator may even have interpreted the accrual of the defence of set-off incorrectly, but that is not a ground for setting it aside. He had asked himself the right question with respect to whether the defence of contractual set-off was applicable based on the facts as found by him. His answer was that it was not applicable on the facts. [66] He then further went on to hold that the cause of action in the set-off had not arisen yet when it was raised in the Payment Response and it was in the narrow ground of contingent jurisdiction that the Adjudicator had held that nevertheless he had no jurisdiction to consider a defence which facts only arose after the Payment Response was filed. 39 [67] I would confine core or original jurisdiction to matters falling under section 2 of the CIPAA as in it is a Construction Contract within the meaning of section 4, in writing and that the Contract was carried out wholly or partly in Malaysia. Correspondingly it would be outside the core or original jurisdiction if it falls under the exempted or non-application contracts as provided for in section 3 of the CIPAA in that it is a construction contract entered into by a natural person for any construction work in respect of any building which is less than four storey’s high and which is wholly intended for his occupation. [68] It would also be outside the core or original jurisdiction if it comes within the exemption envisaged in section 40 of the CIPAA where the Minister has granted an exemption order. [69] Cases involving contingent jurisdiction would be one where there is a need to comply with some provisions of the CIPAA where ordinarily the Adjudicator has the core or original jurisdiction already. One example would be where the Adjudicator has no contingent jurisdiction because the Payment Claim was not properly served on the non-paying party or that the defence raised was not available when the Payment Response was served but only accrued as in a contractual set-off after the Payment Response was served. 40 [70] Another example would be where the Adjudication Response was served out of time and no application has been made to extend the time to serve it out of time. [71] Cases where there was a breach of natural justice when the Adjudicator had wrongly declined jurisdiction were cases where the facts supported the defence had arisen before the Payment Response and so even though raised for the first time in the Adjudication Response, it nevertheless should be considered if it relates to the same dispute raised in the Notice of Adjudication irrespective of whether it was raised earlier on the Payment Response. [72] Thus in the case of Syarikat Bina Darul Aman Berhad & Anor v Government of Malaysia [2017] MLJU 673 the Court decided in page 11 as follows: “[70] A refusal to assume jurisdiction and decide on the matter submitted to it on the erroneous understanding of his lack of jurisdiction would be equally a breach of natural justice in that the Claimant’s Claim, in this case, under Claim No.4 for “Loss and Expense Claim” was not heard at all when it has been properly submitted for Adjudication.” 41 [73] There is no breach of natural justice if the dispute raised in the Notice of Adjudication as gleaned from the Payment Claim and Payment Response is not the one properly submitted for Adjudication and the Adjudicator declined to consider it as in this case the defence of contractual set-off which contractual provisions in Clause 30.4 have not been met and indeed were only put into operation after the service of the Payment Response of 25.1.2017 and completed only on 10.4.2017. Even so the Claimant still had a right to disagree to the amount sought to be set-off as was so indicated by the Claimant in the Adjudicator’s finding of fact. [74] I am satisfied that in this case the Adjudicator had rightly declined jurisdiction to consider matters that took place after the dispute had been referred to Adjudication in the Notice of Adjudication and that the reference here to the quotations given after the Payment Response was designed to shore up and support the defence of a contractual set-off which had not arisen yet as the condition in Clause 30.4 PAM Form has not been complied with until 10.4.2017. [75] To hold otherwise would be to open the floodgates to the non-paying party to resort to after event as in events that are organized and even orchestrated after the Payment Response to be taken into consideration including the issuance of negative Certificate of Payments and LADs that is premised on Certificates of Non-Completion (“CNCs”) issued after the 42 Payment Response. That would have the reverse effect of stalling and skirting the Payment Claim altogether by devices such as an after-event contractual set-off of rectification works and LADs. [76] Reading the Adjudication Decision as a whole, the Adjudicator had dismissed the set-off on merits as well as on jurisdiction. With respect to merits this Court would not interfere as it involves a mixed finding of fact and law. With respect to jurisdiction, I am satisfied that the Adjudicator had come to the right conclusion as the facts supporting the set-off were matters that arose post the service of the Payment Response and the Adjudicator had rightly declined to consider for the reasons above stated. Whether there was a Breach of Natural Justice or that the Adjudicator had acted in Excess of Jurisdiction in respect of Progress Claim No.29 [77] In the Payment Claim, the Claimant’s claim in respect of Progress Claim No. 29 is on the following terms: “On 4.10.2016, we have also issued our progress claim No.29 to the sum of RM2,206,213.59 to you for which the progress claim has fallen due and you have failed to make payment of the same”. [78] In the Adjudication Claim, the amount claimed in respect of Progress Claim no. 29 was also RM2,206,213.59. 43 [79] However, in the Adjudication Reply, the Defendant contended that the amount claimed under Progress Claim No.29 was in the sum of RM2,965,875.70 instead of RM2,206,213.59 as was stated in the Payment Claim and Adjudication Claim as follows: “However, if one were to consider Progress Claim No.29, it would be clear that the Variation Order only amounts to RM 961,778.08 whereas the Progress Claim No.29 is for a total of RM2,965,875.70”. [80] In the Adjudication Decision, the Learned Adjudicator decided that the Plaintiff shall pay the sum of RM 2,004,097.62 to the Defendant (in respect of Progress Claim No.29) based on the legal basis that the total sum claimed by the Defendant in respect of Progress Claim No. 29 was RM2,965,875.70 as stated in the Adjudication Reply instead of RM2,206,213.59 as stated in the Payment Claim and Adjudication Claim after deducting for variation orders in the sum of RM 961,778.08 which the Learned Adjudicator held the Defendant was not entitled to. [81] In the circumstances, the Respondent submitted that the Learned Adjudicator had acted in excess of jurisdiction when he decided the dispute in relation the Progress Claim No.29 based on a legal basis which is inconsistent with or NOT stated in the Payment Claim and/or Adjudication Claim. 44 [82] In support, the Respondent referred to WRP Asia Pacific Sdn Bhd v NS Bluescope Lysaght Malaysia Sdn Bhd [2015] MLJU 1125 wherein Justice Mary Lim Thiam Suan held at page 30 as follows: “[120] Learned counsel for WRP has contended that the Adjudicator has also made a decision which was based on matters that are to be found in the Adjudication Reply to which WRP had not had the chance or opportunity to respond. This is not only a denial of natural justice but a case of exceeding his jurisdiction. [121] Upon perusal, it is quite clear that the Adjudicator had relied and heard the adjudication dispute on matters that were not only not found in the Adjudication Claim but not in the payment claim. That runs clearly contrary to the provisions of section 27(1). With that, the Adjudicator had indeed exceeded his jurisdiction and has breached the rules of fair play.” (emphasis added) [83] If it is a case where the Claimant had sought to increase its claim to cover a matter not found in its Progress Claim No. 29 as originally claimed, then such a claim in excess of the original claim but only added in at the Adjudication Reply would generally not be allowed. 45 [84] I can see that in the Summary of proposed Progress Claim No. 29 at page 164 of the Respondent’s Affidavit, which was annexed to the Payment Claim, the amount claimed is RM2,965,875.70 and that at page 167 under Progress Claim No. 29 with the title of Final Summary of Works is RM2,206,213.59. [85] I am satisfied that it is the Progress Claim No 29 that forms the legal basis for the claim and that the difference in the 2 amounts is more a matter of presentation, namely: a. The sum of RM2,206,213.59 comes from the Final Summary of Works for the particular certificate; whereas b. The sum of RM2,965,875.70 comes from the Cumulative Final Summary taking into account all works to date. [86] It can be seen that at page 164 with the bigger amount of RM2,965,875.70, that had not taken into account the payment made for Progress Claim No. 28 for it is clearly stated that previous Certified Amount taken into consideration is only from Certificates No.1-27. [87] Therefore taking into account the amount paid under Certificate No. 28 of RM 644,897.67 and GST of RM38,693.86 the balance is RM2,282,284.17. 46 [88] The Adjudicator had not allowed the Claimant’s Claim for VO of RM961,778.08 having found that the Claimant was not able to furnish evidence to justify the VO Claim. [89] Therefore the correct sum should have been the sum of RM2,282,284.17 minus RM961,778.08 = RM1,320,506.09 which should have been the sum allowed after taking into consideration the other sums allowed by the Adjudicator. [90] Learned counsel for the Claimant reiterated that an Adjudicator may make a decision that is “wrong in points of law or fact”, yet that is accepted as being “inherent in the scheme that injustices will occur, because from time to time adjudicators will make mistakes”, even if “those mistakes will be glaringly obvious and disastrous in their consequence for the losing party”, yet the decisions will be upheld. Such was the case of Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd [2000] BLR 49; [1999] Lexis Citation 3672 wherein the Adjudicator calculated the net amount payable to include retention monies which were not due at the time. [91] I agree that the court should guard against characterizing a mistaken answer to an issue, which is within the Adjudicator’s jurisdiction, as being an excess of jurisdiction. Instead, the court is to give a fair, natural and sensible interpretation to the decision in the light of the disputes that are 47 the subject of the reference - Sherwood & Casson Ltd v MacKenzie [1999] Lexis Citation 4769. [92] Learned counsel for the Claimant had initially tried to persuade the Court that though the calculation on Progress Claim No. 29 may have been wrong having proceeded from the wrong amount claimed, that can be justified nevertheless on the ground that the higher sum claimed for is merely a further refinement of the Payment Claim and Adjudication Claim in the Adjudication Reply when a higher sum is claimed based on Progress Claim No. 29. [93] He cited the case of William Verry (Glazing System) Ltd v Furlong Homes Ltd [2005] EWHC 138 (TCC) where the Claimant initially sought for extension of time for Section D until 2 July 2004, and then subsequently changed it to 27 July 2004. The learned judge held that this did not constitute a new claim but was a refinement or an enhancement of the claim that have been made at the time the adjudication started, and therefore the learned adjudicator was entitled to give regard to the same. [94] He also cited the case of OSC Building Services Ltd v Interior Dimension Contracts Ltd [2009] EWHC 248 (TCC) where the notice of adjudication sought for further payment in the gross sum of £21,646.26, but this was subsequently adjusted to £24,401.26. This was held not to be an expansion of the dispute under the notice of adjudication and was upheld. 48 [95] However learned counsel for the Claimant was finally prepared to concede that justice would have been served if this Court were to sever the affected part in Progress Claim No. 29 from the unaffected part of the Payment Claim consisting as it is in the Certificates of Payment No.1-28 duly certified by the Architect. Furthermore, the Respondent is still holding on to the retention sum (including the first moiety that has been due to be released). [96] I agree with the Claimant that this is not a fit and proper case where the whole of the Adjudication Decision should be set aside on account of the Adjudicator having proceeded to deduct the sum of RM961,778.08 being the VO not allowed from RM2,965,875.70 instead of RM2,206,213.59. The part that is not contaminated has arisen from Certificate of Payments No. 1-28 duly certified by the Architect and so that should be retained. [97] Here is also a case where the offending parts of an Adjudication Decision in Progress Claim No. 29 can be severed from the non-offending part where Certificate No. 29 is concerned as the Respondent had not given any reason for not certifying Progress Claim No. 29. [98] In PCP Construction Sdn Bhd v Leap Modulation Sdn Bhd and other suits [2017] MLJU 905 this Court had allowed a severance to be done such that the part that is in breach of natural justice or as in this case, 49 in excess of jurisdiction, be severed from the part not affected by the breach of natural justice and not in excess of jurisdiction. [99] Where the good can be separated from the bad and the wheat from the chaff, the Court should try to save an Adjudication Decision if by doing so, no prejudiced is caused to the parties as weighed against the prejudice caused to the Claimant if the whole Adjudication Decision as in this case, is set aside. One must bear in mind the overriding purpose of the CIPAA to facilitate cash flow which certainly is not advanced by allowing a little leaven leavens the whole lump when severance can be neatly and nicely done within the ambit of section 15 of the CIPAA. [100] The trend to save an Adjudication Decision if need be by severance is discernible in the UK and Australia. In the decision of UK Technology and Construction Court in Paice and another v MJ Harding (t/a MJ Harding Contractors) [2016] EWHC 2945 (TCC), the Court held that: “Jurisdiction [64] The issue is whether the adjudicator had jurisdiction to determine the claimants' entitlement to deduct the sum of £6,049.60 from the amount otherwise due to the defendant on account of design provided by the claimants to the defendant in respect of House A, not 50 forming part of the contract; if there was no jurisdiction, whether that part of the decision is severable. … [68] The adjudicator's jurisdiction is derived from the adjudication agreement. Article 7 and cl 9.2 of the contract entitle either party to refer any dispute or difference arising under the contract to adjudication. The dispute in respect of the design fees did not arise under the contract; it arose, if at all, under a separate agreement. Therefore, the adjudicator did not have jurisdiction to determine the design fees dispute. … [70] However, that part of the adjudication decision can be severed from the other parts of the decision: Cantillon v Urvasco Ltd [2008] EWHC 282 (TCC), (2008) 117 ConLR 1, per Akenhead J at paras [63] and [76]. The defendant relies on the decision in Cleveland Bridge (UK) Ltd v Whessoe-Volker Stevin Joint Venture [2010] EWHC 1076 (TCC), (2010) 130 ConLR 159 to submit that the design fees issue cannot be severed but Cleveland can be distinguished on its facts. In that case, the adjudicator did not identify an alternative decision so as to identify the proportion that would 51 survive any excess of jurisdiction. In this case, the adjudicator identified and valued the design fees claim separately, so that there is no difficulty in severing that part of the award from the rest of the decision. [71] Accordingly, paras 3.245–3.263 of the adjudication decision are in excess of jurisdiction and are not enforceable but can be severed from the remainder of the decision.” (emphasis added) [101] In the case of Bovis Lend Lease Ltd v The Trustees of the London Clinic [2009] EWHC 64 (TCC), the UK Technology and Construction Court held that: “[39] A further issue arises between the parties as to whether or not it is legally and practically possible to 'sever' the adjudicator's decision if it be the case that he did have jurisdiction to address the dispute relating to delay, extension of time and the recovery of liquidated damages but did not have jurisdiction to address the loss and expense claim. … Discussion – severability [69] It follows from the above that, since the adjudicator had jurisdiction and there has been no breach of the rules of natural 52 justice, the question of severability simply does not arise. If I had had to decide the point, I would only have done so on the basis that the clinic had established its jurisdictional argument in relation to the loss and expense claim (which it has not). If I had formed the view that the adjudicator had simply, consciously, not given the clinic sufficient time to respond (within the constraints of the adjudication timetable available in this case), this would probably not have been a case which would have led to severance. However, on a jurisdictional basis, if I had formed the view that the crystallized dispute did not include the claim for loss and expense, I would have been of the view that that part of the decision which demonstrably related to the extension of time claim and the recovery of liquidated damages could be recovered. The award was one which was eminently severable. The adjudicator indicated clearly what 'redress' he was granting with regard to the extension and liquidated damages issues.” (emphasis added) [102] In Australia too there has been a palpable paradigm shift in favour of severance. The Supreme Court of Victoria in Gantley Pty Ltd v Phoenix International Group [2010] VSC 106, discussed the doctrine of severance at great length and I am particularly impressed with the reference to the over-arching purpose of the Act. The Court therein reasoned as follows: 53 “Is Severance of the Payment Claims Possible? “[95] In these matters, however, I did raise with counsel the possibility of severance, in the event that I found that part of the payment claims, being the claims for variations, were described in adequate detail such that these components of the payment claims ought to survive, even if the balance of the claim in each case was to be declared invalid on the ground of non-compliance with s 14(3)(a). Accordingly, I heard argument on the point, which I will now address. … [114] It was submitted by Mr Robins, who appeared for the respondent, that severance should not be permitted because the Act did not permit this to occur. Either the progress claim was fully compliant in all of its facets, or it was not, it was argued. If one part of the progress claim did not satisfy the requirements of s 14(3)(a) the whole of the progress payment would therefore fail and should be set aside as being invalid. [115] I do not accept this submission. The question should be whether the Act, either expressly or impliedly, operates to exclude the common law doctrine of severance. I find that it does not. Indeed, the 54 purposes and objects of the Act earlier described are best served by processes which, so far as possible, ought to accommodate reasonable flexibility and avoid unnecessary technicality. [116] Severance in this case would operate to achieve the purpose and objects of the Act and would not operate to diminish the attainment of these goals. A respondent to a payment claim and an adjudicator, if appointed, should be able to assess the valid part of this progress claim which sufficiently describes the work for which payment is claimed, and provide a rational response or adjudication determination in respect of that part of the claim, and exclude from consideration that part of the claim which does not comply.” (emphasis added) Pronouncement [103] Therefore the Adjudication Decision was set aside where Progress Claim No.29 was concerned and replaced with the above sum of RM1,320,506.09 and this shall carry interest at 5% per annum from 17.11.2016 to realization. The rest of the Adjudication Decision remained intact. 55 [104] Correspondingly, I had allowed the enforcement of the Adjudication Decision for the reduced sum in that paragraph 9.2 2) the amount is RM1,320,506.09 with interest at 5% per annum from 17.11.16 till realization. [105] Therefore at paragraph 9.1 of the Adjudication Decision the overall reduced sum for enforcement is RM5,769,304.97. [106] By consent a single costs of RM5,000.00 shall be paid by Emerald to Pasukhas. Dated: 31 March 2018. - Signed - YA LEE SWEE SENG Judge Construction Court High Court Kuala Lumpur For the Plaintiff in : Lim Hock Siang, Khoo Ching WA-24C-133-07/2017 : Chiat and Cheryl Tan And for the Defendant in : (Messrs Presgrave & Matthews) WA-24C-148-08/2017 : 56 For the Defendant in : Chan Kheng Hoe together with WA-24C-133-07/2017 : Yang Lee Yuen And for the Plaintiff in : (Messrs Kheng Hoe Advocates) WA-24C-148-08/2017 : Date of Decision: 4.10.2017