Huashi (Malaysia) Sdn. Bhd. v Alfranko Development Sdn. Bhd. (WA-24C-78-05/2024)

Originating Summons No. WA-24C-70-05/2024 (OS 70) is Alfranko Development Sdn Bhd (“ADSB”) application pursuant to section 15(a), (b) and (d) of the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”) to set aside the Adjudication Decision dated 26.4.2024 (“AD”) given in favour of Huashi (Malaysia) Sdn Bhd (“HMSB”).

On the other hand, Originating Summons No WA-24C-78-05/2024 (OS 78) is HMSB’ s application to enforce the AD under section 28 CIPAA.

By a Letter of Award dated 5.10.2017 (“LOA”) which adopted the Agreement and Conditions of PAM Contract 2006 (Without Quantities) PAM Contract along with the conditions of Contract (Amendments, Amplifications and Supplementary Clauses) (collectively referred to as the “Construction Contract”, ADSB appointed HMSB as a S/N h2itdswO/E29pTtQFcjhw **Note : Serial number will be used to verify the originality of this document via eFILING portal 6 contractor to construct and complete the project works for the following project (“the Project”) – “SUPERSTRUCTURE WORKS FOR CADANGAN PEMBANGUNAN 1 BLOK PANGSAPURI SERVIS 39 TINGKAT (421 UNIT) YANG MENGANDUNGI: 1) PANGSAPURI SERVIS 8-37 (30 TINGKAT) 2) 1 TINGKAT RUANG PERNIAGAAN DI ARAS BAWAH DAN SEBAHAGIAN DI ARAS PODIUM 1 3) 7 TINGKAT ARAS PODIUM TEMPAT LETAK KERETA 4) 4 TINGKAT ARAS BAWAH TANAH TEMPAT LETAK KERETA 5) 1 TINGKAT RUANG KEMUDAHAN BESERTA KOLAM RENANG DI ARAS 31 6) PENCAWANG TNB DAN TEMPAT PEMBUANGAN SAMPAH DI ATAS BAWAH DI ATAS LOT 5, SEKSYEN 89, JALAN AMPANG, DALAM BANDARAYA KUALA LUMPUR UNTUK TETUAN ALFRANKO DEVELOPMENT SDN BHD”

The parties also signed a Milestone Payment Agreement dated 5.10.2017 (“MPA”) where the parties agreed for any certified amount (excluding Retention Fund) under the Construction Contract due and payable by ADSB to HMSB up to a limit of RM25,000,000.00 + RM10,000,000.00 are to be settled in accordance with the MPA:

4.1

4.2

4.3

4.4. The Certificate of Compliance and Construction was issued on 14.10.2022.

4.5 At all material times, HMSB requested for the Security Units to be released to HMSB to settle the outstanding amounts under the MPA. In turn, ADSB alleges that it had taken all the necessary steps towards the disposal of the Security Units.

4.5.1 By letter dated 27.7.2023, HMSB wrote to ADSB and the third-party law firm under the MPA to demand for the crystallization and disposal of the Security Units in favour of HMSB pursuant to Clause 2.3(c) MPA. S/N h2itdswO/E29pTtQFcjhw 9 4.5.2 By letter dated 11.8.2023, the third-party law firm delivered to HMSB the following documents in respect of the Security Units:

14 sets of sale and purchase agreement which have been dated 27.7.2023.

14 sets of deed of mutual covenant which have been dated 27.7.2023.

4.5.3 By letter dated 16.8.2023, HMSB confirmed that they have received the Sales and Purchase Agreements (“SPAs”) and Deed of Mutual Covenants (“DMCs”) in relation to the Security Units.

4.5.4 By letter dated 23.8.2023, ADSB informed HMSB that the SPAs and the DMCs for the Security Units need to be re-executed due to a change of director in ADSB, change in layout plan for the Project, and the issuance of strata title. It was alleged that at all material times, HMSB did not dispute ADSB’s letter dated 23.8.2023.

4.5.5 By letter dated 6.10.2023, ADSB forwarded 4 copies of the revised SPAs and DMCs in relation to the Security Units under the MPA to HMSB. S/N h2itdswO/E29pTtQFcjhw 10 4.5.6 However, to date, HMSB has allegedly failed, refused and/or neglected to execute and return the SPAs and DMCs to ADSB for ADSB’s further action.

4.5.7 To date, it has been alleged that HMSB had not rejected and returned the SPAs and DMCs which were forwarded to them. [5] There were also alleged numerous breaches and/or negligence on the part of HMSB including that despite the issuance of the Certificate of Practical Completion (“CPC”) dated 16.11.2022, to date, HMSB had allegedly failed, refused and/or neglected to rectify the numerous defects in their works consisting of the following:

5.1.1 Water seepage from the aluminium windows, wall, ceiling door, polycarbonate roofing and slab soffit;

5.1.2 Timber and homogenous tiles setting alignment;

5.1.3 Timber floor deforming;

5.1.4 Main stopcock not functioning;

5.1.5 Low water pressure at pantry;

5.1.6 Pipe leakage at wall;

5.1.7 Switch and intercom gap and stain;

5.1.8 Bathroom water discharge issues; S/N h2itdswO/E29pTtQFcjhw 11 5.1.9 Cracked and broken windows;

5.1.10 Doorbell not functioning;

5.1.11 Cracked lintel;

5.1.12 Missing sliding glass door;

5.1.13 Damaged/cracked/chipped shower screen;

5.1.14 Air conditioner not cold;

5.1.15 Air conditioner compressor not installed;

5.1.16 No current in ventilation fan;

5.1.17 Missing toilet paper holder;

5.1.18 Missing towel holder;

5.1.19 Damaged sanitary fittings boxes;

5.1.20 Missing sky bar stopcock;

5.1.21 Riser room water meter not installed for sky bar kitchen and toilet.

5.2 Numerous letters and reminders were also allegedly issued by ADSB to HMSB to rectify the defects. [6] By the Notice of Adjudication dated 19.10.2023, HMSB commenced the Adjudication against ADSB where HMSB sought for the following claims: S/N h2itdswO/E29pTtQFcjhw No.

Outstanding Certified Sum 14,681,020.92 2. MPA Interest 3,008,086.82 3. Performance Bond + Interest 2,767,901.91 Total 20,457,009.65 [7] ADSB sought for a set-off in the sum of RM4,323,714.50, being the amount incurred and/or to be incurred by ADSB in rectifying parts of the defects in the works executed by HMSB. [8] By the Adjudication Decision dated 16.4.2024 and the Supplemental Adjudication Decision Dated 26.4.2024, the Adjudicator ordered ADSB to pay HMSB the following amounts by 16.5.2024: No.

Outstanding Certified Sum 14,681,020.92 2. MPA Interest 3,008,086.82 3. Performance Bond + Interest 2,767,901.91 4. Costs 89,100.00 Total 20,546,109.45 Analysis & Findings [9] ADSB had in support of OS 70 submitted that: S/N h2itdswO/E29pTtQFcjhw 13 9.1 the Adjudication ought not to be at the expense of a fair hearing to the parties;

9.2 there has to be a full consideration of a party’s case by the

9.3 the Milestone Payment Agreement dated 5.10.2017 (“MPA”) is not a ‘Construction Contract’ within CIPAA;

9.4 ADSB is not the non paying party as there is inter alia no outstanding payment and there is no due date for payment under section 5 CIPAA;

9.5 the Adjudicator has relied on and referred to contractual provisions not stated in the Payment Claim;

9.6 the Adjudicator had failed to properly or at all consider the matters raised by ADSB in relation to the outstanding certified sum and /or the Performance Bond and/or the set off of the rectification costs which has resulted in a breach of natural justice. Allegation That The Milestone Payment Agreement Dated 5.10.2017 (“MPA”) Is Not A ‘Construction Contract’ Within CIPAA [10] ADSB had inter alia contended that the Milestone Payment Agreement dated 5.10.2017 is not a ‘Construction Contract’ within S/N h2itdswO/E29pTtQFcjhw CIPAA and therefore the outstanding certified sum and the interest thereto are not claimable under CIPAA as the said MPA merely forms part of the ‘contract documents’ referred to in the MPA. [11] It is therefore noted that Section 2 and 4 of CIPAA provides as follows: Section 2 This Act applies to every construction contract made in writing relating to construction work carried out wholly or partly within the territory of Malaysia including a construction contract entered into by the Government. Section 4 construction contract” means a construction work contract or construction consultancy contract; [12] I have examined the MPA at enclosure 7 of OS 70 and observed amongst others that pursuant to the same: a. Clause 1.1 states that the MPA shall form part of the Contract Documents; b. Clause 1.2 states that the Contract Documents are to be read mutually explanatory to one another; c. The priority in the interpretation of such documents were in the following order: i. The MPA S/N h2itdswO/E29pTtQFcjhw ii. The LOA iii. The CoC iv. The Contract Drawings v. The Contract Bills vi. The Work Programme vii. The Other Appendices d. ADSB is to pay within 30 days of receipt of the certificates issued by the Architects for the completion of each stage, 95% of the certified amount to HMSB with 5 % being retained by ADSB as the retention sum; e. When the amounts as certified become due, HDSB agreed to a milestone payment as per clause 2.2 therein; f. Under clause 2.3, ADSB is to provide security to HMSB via selected unsold units in the Project to HMSB (Security Units); g. Pursuant to the above clause 2.3 (c), the parties were to execute pre signed sale and purchase agreements (SPA’s) in escrow in respect of the disposal and acquisition of the Security Units. [13] HMSB submits inter alia that the MPA refers to the Project which is the same construction works and that the MPA is only a S/N h2itdswO/E29pTtQFcjhw supplementary agreement to vary the terms of the underlying Construction Contract and forms part of the Construction Contract. [14] ADSB on the other hand contends that the fact of the MPA refers to the Project is irrelevant since any settlement agreement would refer to the Project which forms the subject matter of the settlement and that clause 2.3(c) is sufficient to prove that the MPA has the characteristics of a settlement agreement. [15] In the AD, the Adjudicator had in respect of this point stated “…that the MPA itself stated that the MPA shall form part of the Contract Documents” and that “the parties intention at the material time of the formation of the Construction Contract had been for the MPA to supplement the underlying Construction Contract …. and that the MPA cannot exists as a stand alone or independent agreement”. [16] The fact that both the PAM Contract and the MOA have different resolution clauses and therefore could not be part of the Construction Contract as contended by ADSB is in my view untenable and not a reason to consider the MPA as not being part of the Construction Contract as there is nothing in this to prevent the non payment issues herein being adjudicated under CIPAA. S/N h2itdswO/E29pTtQFcjhw [17] After due consideration of the parties submissions on this point and more importantly examining the Adjudicator’s reasonings for his decision, I hold that the learned Adjudicator did analyze and consider the MPA as a whole after which he came to a considered decision. I hold that this Court therefore cannot intervene in such a decision of the Adjudicator on this point as there is nothing objectionable in law to the same. [18] In any event I have, after looking at and perusing the MPA as a whole, been satisfied that it is a Construction Contract under CIPAA as it satisfies the requirement under sections 2 and 4 of CIPAA as amongst others the MPA refers to the payments arising from the certified sums by the Architect for work done based on interim certificates issued by the Architect and the MPA is to be read with the Contract Documents. For the aforesaid reasons, this therefore does not take the dispute outside the ambit of the Construction Contract and/or CIPAA. Allegation That The Adjudicator Had Relied On And Referred To Contractual Provisions Not Stated In The Payment Claim S/N h2itdswO/E29pTtQFcjhw [19] In dealing with the contention that the Adjudicator had relied on and referred to contractual provisions not stated in the Payment Claim which in essence were clauses 1.1 and 1.2 of the MPA which relate to and is under the heading “Contract Documents” in the MPA, I have read the Payment Claim and the AD, both of which are seen in enclosure 7 and enclosure 4 respectively of OS 70, and found that in the Payment Claim express reference was made to clause 2.2(a) and

of the MPA as well as clause 37.3 of the PAM Contract 2006 whilst the Adjudicator had in the AD referred to the “Construction Contract” which he found to include ‘..the MPA itself had stated that the MPA shall form part of the Contract Documents together with the Letter of Award, the conditions of Contract etc..” and that he further found that “..in clause 1.2 of the MPA, the parties had agreed that the Contract Documents (which include the MPA) are to be read as mutually explanatory to one another…” [20] After having read both the Payment Claim and the AD, I agree with learned counsel for HMSB that these clauses were merely raised in the Adjudication Claim to show the relationship between the MPA and the other contract documents and the relevant clauses with regards Certificates and Payment i.e clause 2.2(a) and (d) of the MPA as well as clause 37.3 of the PAM Contract 2006 with regards the cause of S/N h2itdswO/E29pTtQFcjhw action and the payment were already set out as per the Payment Claim. [21] I do agree that the Adjudicator derives his jurisdiction from the Payment Claim and the Payment response. [22] However, in the case before me I hold that as clauses 1.1 and 1.2 of the MPA were neither related to the cause of action and the amount claimed and due date for payment as well as the provision in the said construction contract which relates to the payment, and that the reference by the Adjudicator to the said clauses was only in relation to his finding that..” the MPA shall form part of the Contract Documents..”, it is my decision that the requirement to specify them under section 5 CIPAA was not required. For the record section 5 (2) CIPAA provides:

The payment claim shall be in writing and shall include:-

the amount claimed and due date for payment of the amount claimed;

details to identify the cause of action including the provision in the construction contract to which the payment relates; S/N h2itdswO/E29pTtQFcjhw

description of the work or services to which the payment relates; and

a statement that it is made under this Act. [23] I therefore hold and reject ADSB’s contention on the issue of the Adjudicator having relied on and referred to contractual provisions not stated in the Payment Claim on the ground that such issue is misconceived and there has been no excess of jurisdiction thereto. Is ADSB a Non Paying Party under CIPAA [24] In addressing the issue raised by ADSB that ADSB is a non paying party under CIPAA, I have observed after looking at the documents before me from a series of correspondences at exhibit A-11 to exhibit A-15 in enclosure 7 between the parties starting from 27.7.2023 to 6.10.2023, that there were various exchanges of letters pertaining to the SPA’s and Deed of Mutual Covenants (DMC) in relation to the Security Units, consisting of 14 units, culminating in the revised SPA’s and DMC’s being forwarded to HMSB on 6.10.2023 due to a change of directors in ADSB, change in layout plans and the issuance of strata titles. S/N h2itdswO/E29pTtQFcjhw [25] The evidence before me however shows that HMSB had not executed or returned the said revised SPA’s and DMC’s to ADSB for the latter’s further action as there is no evidence before me that HMSB has rejected or returned the said documents. [26] HMSB argues that by the revised SPA’s and DMC’s being forwarded to HMSB indicated that ADSB had not intended to proceed with the original executed SPA’s and DMC’s and thus ADSB had breached section 40 of the Contracts Act 1950 which amounted to a fundamental breach. HMSB further contends that they are not bound to execute the revised SPA’s and DMC’s and since the outstanding certified sums and MPA interest have yet to be settled, HMSB is entitled to initiate the CIPAA adjudication proceedings. [27] Having examined the AD, I find no reference to this issue of ADSB being a non paying party under CIPAA raised therein. Be that as it may, I will have to consider whether HMSB is estopped, as contended by ADSB, from taking the position that the Security Units have yet to be disposed. [28] After consideration of the documentary evidence before me, I do find that ADSB had taken all necessary steps towards the disposal of the S/N h2itdswO/E29pTtQFcjhw Security Units under the MPA and that from the facts before me, HMSB did fail to execute and return the revised SPA’s and DMC’s as requested by ADSB. It is therefore my decision that HMSB is estopped from asserting the fact that ADSB had not intended to proceed with the original executed SPA’s and DMC’s and thus ADSB had breached section 40 of the Contracts Act 1950. [29] With respect any alleged failure to dispose the Security Units is due to the non fulfillment of HMSB’s failing to execute and return the revised SPA’s and DMC’s as requested by ADSB. Accordingly, I hold that the provisions of the MPA has not been fulfilled so as to enable HMSB to make its claim under CIPAA. [30] It is also my decision that for HMSB to be able to obtain the benefit of the Security Units under the MPA and for them to be able to obtain payment for the outstanding certified sums under the AD would tantamount to HMSB being unjustly enriched at the expense of ADSB by obtaining double payment. [31] Thus, ultimately from my findings above, I do hold that ADSB is for the purpose of CIPAA not a paying party as per section 4 of CIPAA which reads: S/N h2itdswO/E29pTtQFcjhw "non-paying party" means a party against whom a payment claim is made pursuant to a construction contract; Allegation That The Adjudicator Had Failed To Properly Or At All Consider The Matters Raised By ADSB In Relation To The Outstanding Certified Sum And / Or The Performance Bond And / Or The Set Off Of The Rectification Costs Which Has Resulted In A Breach Of Natural Justice [32] As I have made a decision that ADSB is not a paying party under CIPAA as above, I will not consider the other issues raised by ADSB that the Adjudicator had failed to properly or at all consider the matters raised by ADSB in relation to the outstanding certified sum and/or the Performance Bond and/or the set off of the rectification costs which has resulted in a breach of natural justice.

[33] In the circumstances, I do hold that this Court can and will exercise its jurisdiction under section 15 of CIPAA to set aside the AD with costs and I will grant Order In Terms of prayers 1, 2 and 3 in enclosure 1 of OS 70. S/N h2itdswO/E29pTtQFcjhw [34] Accordingly, OS 78 is dismissed with costs. Dated: 22nd day of November 2024 sgd. NADZARIN WOK NORDIN HIGH COURT JUDGE CONSTRUCTION COURT 1 COUNSEL FOR THE PLAINTIFF (OS 70)/DEFENDANT (OS 78): Darshendev Singh, Leong Chee Weng, Zephyrus Chong Saow Ching and Jewel Shreya Naidu (Messrs Tuang, Chu & Co.] COUNSEL FOR THE DEFENDANT (OS 70) PLAINTIFF (OS 78): Chai Kai Ling (Messrs Hew, Lee & Co.) S/N h2itdswO/E29pTtQFcjhw