Glocal Tech Engineering Sdn Bhd v Panzana Enterprise Sdn Bhd (WA-24C-153-07/2020)

This is an application by the Plaintiff pursuant to s 30 of the Construction Industry Payment and Adjudication Act 2012 [Act 746] (‘CIPAA’) for an order that all monies due and owing by the Defendant 2 as the principal to MKP Builders Sdn Bhd (‘MKP’), being the party against whom an Adjudication Decision dated 31.1.2020 (‘Said AD’) was made in favour of the Plaintiff pursuant to the CIPAA, be paid directly by the Defendant to the Plaintiff for the purpose of satisfying the amounts due and owing by MKP under the Said AD namely, the Adjudicated Amount of RM2,202.495.05 and costs of adjudication proceeding of RM119,622.15 together with interest on the said amounts at the rate of 5% per annum from 31.1.2020 until full payment is made.

In addition, the Plaintiff prayed for an order that the Defendant produces to the Plaintiff all claims and proof of payments between the Defendant and MKP within 7 days from the date of the order by the Court for the purpose of justifying the Defendant’s obligation pursuant to s 30 CIPAA.

The cause papers for this application are as follows: 3

the Plaintiff’s Affidavit In Support (‘AIS’) affirmed by one of its Directors, Mohd Izham bin Mohd Isa on 3.7.2020 (encl. 2);

the Defendant’s Affidavit In Reply (‘AIR’) affirmed by its Project Director, Ahmad Arifin bin Kasah on 10.8.2020 (encl. 4);

the Plaintiff’s AIR affirmed on 24.8.2020 (encl. 5); and

the Defendant’s AIR No. 2 affirmed on 2.9.2020 (encl. 6). [4] Having read the above said cause papers and written submissions filed and upon hearing the oral submissions by Mr. Mohd Azmani representing the Plaintiff and Mr. Ganesh who appeared for the Defendant, the Court had dismissed the Plaintiff’s application with costs of RM5,000.00, subject to the payment of the allocator fees. [5] I now provide the full grounds for the decision. 4 Background facts [6] The Defendant was awarded the contract to carry out the project known as “Projek Penswastaan Lebuhraya Bertingkat Damansara - Shah Alam (DASH)”. [7] By a Letter of Award dated 20.1.2017, the Defendant awarded the sub-contract for “Package CA4: Construction and Completion of Mainline and Other Associated Works from CH. 4983 to CH. 9307 – Elevated Structures & Ramps” (‘Project’) to MKP for a sum amounting to RM383,271,000.00 (exhibit “AA-1” in encl. 4). [8] Subsequently, by a Letter of Award dated 25.7.2018, MKP appointed the Plaintiff as its piling sub-contractor to carry out the bored piling works for the Project (‘Sub-Contract Works’) for the sum of RM19,957,530.00 (exhibit “MI-1” in encl. 2). [9] The Plaintiff alleged that MKP failed to make certain payments to the Plaintiff for the Sub-contract Works and therefore the Plaintiff initiated 5 an adjudication proceeding against MKP under the ClPAA. The initial amount claimed in the Payment Claim dated 1.7.2019 was RM8,292,817.66 but this was reduced to RM7,683,045.05 in the Adjudication Claim dated 21.10.2019. [10] On 31.1.2020, the learned Adjudicator, Jacob Chong Sun Keong delivered the said AD (exhibit “MI-2”). However, MKP failed to make any payment within 14 working days from the date of the Said AD as decided by the Adjudicator. [11] The Plaintiff then sent a written request dated 23.3.2020 to the Defendant for direct payment of the Adjudicated Amount pursuant to sub-s 30(1) CIPAA (‘Request’; exhibit “MI-3”). However, the Defendant did not respond nor show any proof that it has served a notice in writing on MKP pursuant to sub-s 30(2) CIPAA (‘Said Notice’) to show proof of payment and to state that direct payment would be made after the expiry of 10 working days of the service of the Notice. 6 The Plaintiff’s Submission [12] Mr. Mohd Azmani submitted that the Plaintiff has fully satisfied the conditions under s 30 CIPAA to entitle it to the orders as prayed. It was contended that the Plaintiff is the “principal” within the meaning of CIPAA. [13] It was further argued that despite having received the Request, there was no response from the Defendant and no evidence was produced to show that it had issued the Said Notice to MKP. Hence, following the decision of the Court of Appeal in CT Indah Construction Sdn Bhd v BHL Gemilang Sdn Bhd [2020] 1 CLJ 75 and this Court in B Cor Geotechnics Sdn Bhd v Panzana Enterprise Sdn Bhd [2019] 1 LNS 1393, it was contended that once a successful claimant in an adjudication proceeding chooses to invoke the remedy under s 30 CIPAA, then it is mandatory for the principal pursuant to sub-s 30(2) and 30(3) to follow through with the action as prescribed under the said subsections. 7 [14] Learned counsel emphasised that applying the decision in CT Indah (supra, in particular at p 80), the Defendant has no discretion at all but to pay the Adjudicated Amount to the Plaintiff since, in the absence of proof of payment by MKP, sub-s 30(3) CIPAA imposes a statutory obligation on the Defendant to do so. The Defendant’s Submission [15] The Defendant sought to defend the application by submitting that the Plaintiff has failed to meet the pre-requisites under s 30 CIPAA for the following reasons:

the Plaintiff did not produce any evidence to show that MKP has failed to pay the Adjudicated Amount;

the Request is invalid and has no legal effect on the Defendant because it is no longer the principal of MKP in view of the termination of the Sub-Contract between the Defendant and 8 MKP vide the Notice of Termination dated 15.4.2019 issued by the Defendant to MKP pursuant to Clause 20.1 of the Sub-Contract (exhibit “AA-4”). There is thus no contract in force between the Defendant and MKP on 9.6.2020, the date on which the Defendant received the Request (exhibit “AA-7” shows the proof of receipt of the Request by the Defendant on 9.6.2020 and this date is not disputed by the parties); and

the Plaintiff has failed to prove that on 9.6.2020, there was an amount due or payable by the Defendant to MKP as required by sub-s 30(5) CIPAA. MKP has initiated Civil Suit No. WA-22NCC- 421-07/2019 (‘Suit 421’) against the Defendant and two of its Directors and shareholders (see the Amended Statement of Claim in exhibit “AA-5”) seeking, among others, declaratory reliefs and payment of monies arising from the agreement between the Defendant and MKP. The Defendant has counterclaimed against MKP for, inter alia, liquidated and ascertained damages, back charges and additional completion cost whereby the total amount of the counterclaim exceeds MKP’s claims (refer to the Defendant’s Re-Amended Defence 9 and Re-Amended Counterclaim in exhibit “AA-6”). The main issues for resolution in Suit 421 are whether the termination of the Sub-Contract by the Defendant is valid and what are the amounts due and payable by the Defendant and MKP, respectively. Suit 421 is pending trial. The mere fact that MKP has instituted Suit 421 against the Defendant does not mean that there is money due or payable by the Defendant to MKP. [16] Mr. Ganesh stressed that the Defendant is not obliged to reply to the Request and to make payment directly to the Plaintiff when the Plaintiff itself has failed to meet the conditions as prescribed in s 30 CIPAA. [17] As for the Defendant’s contention premised on the fact that MKP was not named as a co-defendant in the instant application, this can be immediately rejected as it is trite that there is no legal requirement for the Plaintiff to do so. 10 The Findings of the Court [18] For ease of reference, s 30 CIPAA reads as follows: “Direct payment from principal

30.

If a party against whom an adjudication decision was made fails to make payment of the adjudicated amount, the party who obtained the adjudication decision in his favour may make a written request for payment of the adjudicated amount direct from the principal of the party against whom the adjudication decision is made.

Upon receipt of the written request under subsection (1), the principal shall serve a notice in writing on the party against whom the adjudication decision was made to show proof of payment and to state that direct payment would be made after the expiry of ten working days of the service of the notice. 11

In the absence of proof of payment requested under subsection (2), the principal shall pay the adjudicated amount to the party who obtained the adjudication decision in his favour.

The principal may recover the amount paid under subsection (3) as a debt or set off the same from any money due or payable by the principal to the party against whom the adjudication decision was made.

This section shall only be invoked if money is due or payable by the principal to the party against whom the adjudication decision was made at the time of the receipt of the request under subsection (1).”. (emphasis added) 12 - Is the Defendant the principal to MKP? [19] The word “principal” is defined in s 4 CIPAA to mean “a party who has contracted with and is liable to make payment to another party where that other party has in turn contracted with and is liable to make payment to a further person in a chain of construction contracts;”. The expression “another party” refers to the losing party in an adjudication decision, whilst the “further person” refers to the winning party. A “principal” can be an employer, main contractor or subcontractor in a chain of construction contracts (see Construction Adjudication in Malaysia, Second Edition, Sweet & Maxwell, 2018 by Lam Wai Loon and Ivan YF Loo at pp 478 - 479). [20] In HMN Nadhir Sdn Bhd v Jabatan Kerja Raya Malaysia & Ors [2018] MLJU 1859, the High Court held that so long as the main contractor is contractually liable to pay the subcontractor under the subcontract in a chain of construction contracts in which the employer is liable to pay the main contractor, the employer would fall within the meaning of “principal”. 13 [21] In para 7 of the AIS, the deponent affirmed that the Defendant as the principal to MKP “… bertanggungjawap untuk menanggung segala pembayaran yang wajib dibayar oleh MKP kepada saya melalui keputusan tersebut.” whilst in para 5 of the Plaintiff’s AIR, the same deponent stated that the Defendant is the principal to MKP by virtue of the fact that the Defendant had appointed MKP as its sub-contractor and MKP subsequently appointed the Plaintiff as MKP’s sub-contractor for the Project. It was further averred that since the Defendant is the principal to MKP, the Defendant is liable to pay the Adjudicated Amount to the Plaintiff. [22] The Defendant denied that it is the principal to MKP on the ground that the Defendant had terminated MKP’s employment on 15.4.2019. In my view, this argument does not hold water as there is no express provision in the CIPAA stating either that the Act in general or s 30 in particular does not apply in the situation where the construction contract has been terminated. There has been extensive discussions on this issue and convincing reasons were given in the judgments in Econpile (M) Sdn Bhd v IRDK Ventures Sdn Bhd and another case 14 [2017] 7 MLJ 732; Terminal Perintis Sdn Bhd v Tan Ngee Hong Construction Sdn Bhd and another case [2017] MLJU 242; and Binastra Ablebuild Sdn Bhd v JPS Holdings Sdn Bhd and another case [2018] 8 MLJ 190 and suffice to say that I concur with the same. [23] It is thus incontrovertible that the Defendant and MKP had a contractual relationship, and MKP in turn entered into the Sub-Contract with the Plaintiff in relation to the Project. The termination of the contract between the Defendant and MKP does not affect the Defendant’s position as the principal to MKP. The Defendant falls squarely within the definition of “principal” under CIPAA. - Has MKP failed to pay the Adjudicated Amount to the Plaintiff? - Is there money due or payable by the Defendant to MKP at the material time? [24] Proceeding next to the conditions which have to be satisfied before the Plaintiff can invoke the remedy in s 30 CIPAA, there is an ever-growing body of case law on point (see among others, Murni Environmental 15 Engineering Sdn Bhd v Eminent Ventures Sdn Bhd & Anor and other suits [2016] MLJU 691; CT Indah Construction Sdn Bhd v BHL Gemilang Sdn Bhd [2017] MLJU 2275 (HC); HMN Nadhir (supra); B Cor Geotechnics (supra); Cabnet Systems (M) Sdn Bhd v Dekad Kaliber Sdn Bhd & Anor [2020] 3 MLRH 83 which are listed in footnote 41 at p 201 in Lim Chong Fong, Malaysian Specialist Intellectual Property and Construction Courts: Practice and Procedure, Sweet & Maxwell, 2020). The conditions are that –

there must be an adjudication decision whereby the winning party is entitled to an adjudicated amount which is to be paid by the losing party;

the losing party has failed to pay the adjudicated amount to the winning party;

the winning party has made a written request to the principal for the adjudicated amount to be paid directly to the winning party; 16

the principal did not serve a written notice to the losing party to show proof that the losing party has paid the adjudicated amount to the winning party or having served such notice, the losing party has failed to furnish the proof of payment and in any event, the principal did not pay the adjudicated amount directly to the winning party; and

there is money due or payable by the principal to the losing party at the time when the principal receives the written request for payment from the winning party. [25] In this case, only the conditions as stated in subparas 24(b) and (e) above need to be further scrutinised as the Court accepts the Plaintiff’s submission that the other requirements have been fulfilled. [26] Firstly, it is evident from the Plaintiff’s AIS that it did not aver that MKP has failed to pay the Adjudicated Amount to the Plaintiff. The same can be said of the Plaintiff’s AIR. 17 [27] Secondly, in para 7 of the Plaintiff’s AIR, the deponent affirmed as follows: “I denied paragraph 8.6 of the said Affidavit in Reply and reiterate that there is no necessity for me to name MKP as co-defendant. What is required for me to proof is the Defendant is the Principal and there is money due and owing by MKP to me. I further reiterate that the Defendant needs to proof to this Court that there is no outstanding sum due by them to MKP which they failed to do.”. [28] The Plaintiff has correctly stated that it bears the legal burden to prove that the Defendant is the “principal”, to which this Court is satisfied that it has discharged this burden. The Plaintiff also averred that it is the Defendant that has to prove that there is no sum of money which is due or payable by the Defendant to MKP on 9.6.2020, which is the date when the Defendant received the Request. 18 [29] In PCOM Pacific Sdn Bhd v Apex Communications Sdn Bhd & Anor [2020] MLJU 118, Lim Chong Fong J held that the first defendant’s failure to issue the mandatory notice under sub-s 30(2) CIPAA to the second defendant was fatal to the defence that there was no monies due and owing from the former to the latter. His Lordship further found that the first defendant’s attempts to justify that there is no money due and payable were dubious and an afterthought and concluded that in the circumstances of the case, the first defendant has not discharged its burden of proof under sub-s 30(5) CIPAA that there is no monies due and owing to the second defendant at all material times. [30] In the later case of HSL Ground Engineering Sdn Bhd v Civil Tech Resources Sdn Bhd and another summons [2021] 8 MLJ 347 which was also decided by His Lordship, the defendant similarly did not serve the notice as required under sub-s 30(2) CIPAA and opposed the plaintiff’s application for direct payment on the ground that there is no money due or payable by the defendant to the principal. It was held, following PCOM Pacific (supra) that this fact is likewise fatal to the 19 defendant’s defence but His Lordship went further to say that even if sub-s 30(3) has to be read together with sub-s 30(5), it would be presumed that the plaintiff has not been paid by the principal. [31] The Plaintiff’s case is predicated on the contention that once the Defendant has received the Request pursuant to sub-s 30(1) CIPAA, it is mandatory for the Defendant to serve the notice as required under sub-s 30(2) CIPAA, failing which the Defendant is bound to pay the Adjudicated Amount directly to the Plaintiff as provided for under sub-s 30(3) CIPAA. [32] However, the Defendant takes the position that sub-s 30(5) CIPAA must be fulfilled before the statutory obligation under sub-s 30(2) and

are triggered. The Defendant relied on the following excerpt from the decision of the High Court in CT Indah Construction (supra) to support its submission: “[80] With the greatest of respect, I therefore cannot agree with learned counsel for the Plaintiff when he said that upon a 20 section 30 of the CIPAA’s obligation arising, it is an independent obligation to pay the subcontractor, which is independent of whether the main contractor is liquidated. He said that this approach would be consonant with the intent of making section 30 mandatory but I would say that section 30 is only mandatory if section 30(5) precondition has been fulfilled for otherwise section 30 cannot be invoked.” It is observed that sub-s 30(5) CIPAA was not one of the provisions that needed to be considered by the Court of Appeal in CT Indah Construction (supra). [33] In another decision by the High Court, it was held that the principal would not be obliged to make payment if he can show with credible evidence that there is no money due or payable to the losing party. Furthermore, it is not necessary that the money due and payable by the principal to the losing party must be in reference to the subject matter of the claim adjudged in the adjudication decision [see Murni Environmental (supra)]. 21 [34] In my view, the opening words in sub-s 30(5) CIPAA viz. “This section shall only be invoked if …” clearly denote a mandatory condition that an applicant seeking direct payment from the principal can only invoke the provision under s 30 CIPAA if there is money is due or payable by the principal to the party against whom the adjudication decision was made at the time when the principal received the written request for direct payment of the adjudicated amount. Since the applicant has no contractual relationship with the principal and thus would have no knowledge or information as to whether there is indeed money due or payable by the principal to the losing party in the adjudication proceeding, the evidential burden then falls on the principal to show that there is in fact no such money which is due or payable. [35] In the present case, the Defendant explained the background which led to the issuance of the Certificate of Non-Completion dated 15.3.2019, Notice of Default dated 29.3.2019 and Notice of Termination dated 15.4.2019 (exhibits “AA-2”, “AA-3” and “AA-4”, respectively) in its AIR and thereafter averred that: 22 “7.5 Subsequently, on 26.7.2019, MKP commenced the Kuala Lumpur High Court Civil Suit No. WA-22NCC- 421-07/2019 (“Suit 421”) against Panzana. In this regard:-

MKP is claiming for amongst others, the following:-

RM30,126,289.38 for purported “value balance of the works”;

(ii) RM13,750,212.45 for alleged retention sum; and

(iii) RM48,418,115.24 for purported works done. 23

On the other hand, Panzana also has a counterclaim against MKP in Suit 421. Panzana’s counterclaim is for, amongst others, the sum of RM147,951,550.60 (excluding interests). Amongst others, Panzana is seeking the following against MKP:-

RM16,575,616.05 being the liquidated and ascertained damages for the failure on the part of MKP to complete its Works by the

(ii) RM21,141,879.84 being back charges for amongst others the works done by other sub-contactors engaged by Panzana to complete MKP’s scope of works; 24

(iii) RM4,025,369.62 for debit notes issued by Panzana to MKP for amongst others, overtime of consultant inspector of works, safety penalty charges and supply of machineries (“Debit Notes”);

(iv) RM106,208,685.09 for additional completion cost incurred and/or to be incurred to complete the outstanding works left by MKP.

7.6 Whilst Suit 421 is still pending, on 9.6.2020, GTE, through the use of courier service, delivered to Panzana a notice dated 23.3.2020 purportedly pursuant to Section 30 CIPAA (“23.3.2020 Notice”)”. 25 [36] In its reply, the Plaintiff merely denied para 7 in the Defendant’s AIR followed by the statement as above mentioned in para 27 of this judgment. No submission was made by the Plaintiff’s counsel on the Defendant’s averments either. [37] Based on the affidavit evidence produced, it is my considered opinion that the Defendant has discharged the evidential burden to prove, that there is no money due or payable by the Defendant to MKP as at 9.6.2020 since no decision has been made by the Kuala Lumpur High Court on MKP’s claims in Suit 421. Conclusion [38] In the upshot, the Plaintiff’s application pursuant to s 30 CIPAA was dismissed with costs primarily due to the non-fulfillment of the conditions that (i) MKP has failed to pay the Adjudicated Amount to the 26 Plaintiff; and (ii) there is money due or payable by the Defendant to MKP at the material time. Dated: 5 February 2021 (ALIZA SULAIMAN) Judge Construction Court 2 High Court Kuala Lumpur Counsels/ Solicitors: For the Plaintiff: Mohd Azmani Abdul Hamid Messrs. Mohd Azmani & Co. Advocates & Solicitors No. 31, Tingkat 1 Tingkat Kikik 7 Taman Inderawasih 13600 Perai Pulau Pinang For the Defendant: Ganesh Magenthiran (Wan Nurul Amalina Abu Hanifah with him) Messrs. Hakem Arabi & Associates Advocates & Solicitors No. 15-1 & 15-2, Jalan Seksyen 3/9 27 Taman Kajang Utama 43000 Kajang Selangor Cases referred to: B Cor Geotechnics Sdn Bhd v. Panzana Enterprise Sdn Bhd [2019] 1 LNS 1393 Binastra Ablebuild Sdn Bhd v JPS Holdings Sdn Bhd and another case [2018] 8 MLJ 190 Cabnet Systems (M) Sdn Bhd v Dekad Kaliber Sdn Bhd & Anor [2020] 3 MLRH 83 CT Indah Construction Sdn Bhd v BHL Gemilang Sdn Bhd [2017] MLJU 2275 (HC) CT Indah Construction Sdn Bhd v. BHL Gemilang Sdn Bhd [2020] 1 CLJ 75 (CA) Econpile (M) Sdn Bhd v IRDK Ventures Sdn Bhd and another case [2017] 7 MLJ 732 HMN Nadhir Sdn Bhd v Jabatan Kerja Raya Malaysia & Ors [2018] MLJU 1859 28 HSL Ground Engineering Sdn Bhd v Civil Tech Resources Sdn Bhd and another summons [2021] 8 MLJ 347 Murni Environmental Engineering Sdn Bhd v Eminent Ventures Sdn Bhd & Anor and other suits [2016] MLJU 691 PCOM Pacific Sdn Bhd v Apex Communications Sdn Bhd & Anor [2020] MLJU 118 Terminal Perintis Sdn Bhd v Tan Ngee Hong Construction Sdn Bhd and another case [2017] MLJU 242 UDA Holdings Bhd v Bisraya Construction Sdn Bhd & Anor and another case [2014] MLJU 1738 Legislation referred to: Construction Industry Payment and Adjudication Act 2012, ss 4 & 30 29 Other source(s) referred to: Lam Wai Loon and Ivan YF Loo, Construction Adjudication in Malaysia, Second Edition, Sweet & Maxwell, 2018 Lim Chong Fong, Malaysian Specialist Intellectual Property and Construction Courts: Practice and Procedure, Sweet & Maxwell, 2020