Ireka Engineering & Construction Sdn Bhd v PWC Corporation Sdn Bhd (W-02(C)(A)-1982-10/2017 Didengar Bersama W-02(C)(A)-1983-10/2017)

DALAM MAHKAMAH RAYUAN MALAYSIA (BIDANG KUASA RAYUAN) RAYUAN SIVIL NO: W-02(C)(A)-1982-10/2017 DAN RAYUAN SIVIL NO: W-02(C)(A)-1983-10/2017 ANTARA IREKA ENGINEERING & CONSTRUCTION SDN BHD (No. Syarikat: 381566-U) … PERAYU DAN PWC CORPORATION SDN BHD (No. Syarikat: 233329-T) … RESPONDEN [Dalam Mahkamah Tinggi Di Kuala Lumpur berkenaan Saman Pemula No: WA-24C-98- 06/2017 dan Saman Pemula No: WA-24C-124-07/2017 Dalam Perkara Adjudikasi antara PWC Corporation Sdn Bhd sebagai Penuntut dan Ireka Engineering & Construction Sdn Bhd sebagai Responden menurut Akta Pembayaran dan Adjudikasi Industri Pembinaan 2012 Dan Dalam Perkara Keputusan Adjudikasi bertarikh 18.5.2017 oleh Steven Seah Chu Keen, Adjudikator Dan Dalam Perkara menurut Seksyen 15 dan 28 Akta Pembayaran dan Adjudikasi Industri Pembinaan 2012 Page 2 of 14 Dan Dalam Perkara menurut Seksyen 16 Akta Pembayaran dan Adjudikasi Industri Pembinaan 2012 Dan Dalam Perkara Aturan 7 dan 28, Kaedah-Kaedah Mahkamah 2012 Antara Ireka Engineering & Construction Sdn Bhd (No. Syarikat: 381566-U) … Plaintif Dan PWC Corporation Sdn Bhd (No. Syarikat: 233329-T) … Defendan] CORAM: MOHD ZAWAWI SALLEH, JCA VERNON ONG LAM KIAT, JCA HASNAH DATO’ MOHAMMED HASHIM, JCA Page 3 of 14 GROUNDS OF JUDGMENT INTRODUCTION [1] Ireka Engineering & Construction Sdn Bhd was the main contractor in a development project in Mont Kiara. Pursuant to a letter of award dated 15.9.2009, Ireka appointed PWC Corporation Sdn Bhd as a subcontractor for the supply and installation of aluminum composite panels under the project. After the completion of the sub-contract works, it was agreed that the final claim due and payable to PWC amounted to RM521,929.67 of which PWC received part payment of RM387,060.42. The balance sum of RM134,869.25 remained unpaid. [2] PWC served a Payment Claim on Ireka for the balance sum. In Ireka’s Payment Response, Ireka raised a set-off/cross-claim for RM3,740,790.00 arising from a Liquidated Ascertained Damages claim in a Sandakan project and an overpayment of RM17,790.45 in a KL Sentral project. [3] Subsequently, PWC initiated adjudication proceedings under the Construction Industry Payment and Adjudication Act 2012 (CIPAA) when it served a Notice of Adjudication on Ireka. In its Adjudication Response, Ireka contended that the Adjudicator had no jurisdiction to adjudicate on the matter as the amount claimed by PWC is not disputed. Page 4 of 14 [4] Notwithstanding the aforesaid, the Adjudicator after having considered the cause papers delivered his decision on 18.5.2017 whereby Ireka was ordered to pay PWC the balance sum within 7 days together with Adjudicator’s fees and expense of RM8,900.00 and the KLRCA administrative fees and expenses of RM2,469.80. [5] As no payment was forthcoming, PWC filed an Originating Summons (OS1) at the High Court to enforce the Adjudicator’s decision. In response, Ireka filed another Originating Summons (OS2) to set aside the Adjudicator’s decision. By consent, both OS1 and OS2 were heard together. The learned judge dismissed Ireka’s OS2 to set aside the Adjudicator’s decision and allowed PWC’s OS1 to enforce the Adjudicator’s decision. Dissatisfied with the outcome, Ireka appealed against both High Court’s decisions. Hence, these appeals before us. [6] Both appeals were heard together. There are two main issues and they are as follows: i. Whether the Adjudicator had acted in excess of his jurisdiction by adjudicating on a matter which was not in dispute; and ii. Whether the Adjudicator had breached the rules of natural justice by refusing to consider the cross contract set-offs which is tantamount to depriving Ireka of its right to be heard and to a fair hearing. Page 5 of 14 FINDINGS OF THE HIGH COURT [7] The learned judge found that the Adjudicator had the jurisdiction to hear and determine the dispute on the following grounds: i. There is a dispute between the parties as Ireka has refused to pay the balance sum to PWC and had instead raised set-off for matters which were totally unrelated to the current adjudication proceedings to avoid their responsibilities to PWC (Halki Corporation v Sopex Oils Ltd [1997] EWCA Civ 3062 CA UK); ii. Ireka has failed to fulfil the requirement of making payment of the amount admitted together with the payment response pursuant to s 6 of CIPAA; and iii. Absent the accompaniment of payment with the admission of the Payment Claim, Ireka is deemed to have disputed the Payment Claim under subsection 6(4) of CIPAA; [8] The learned judge also found that there was no breach of natural justice when the Adjudicator refused to consider the set-off/cross-claim raised in different contracts pending in different adjudications for the following reasons: i. Notwithstanding clause 13.1 of the contract, it would be inappropriate for the Adjudicator to decide on the set-off/cross-claim; Page 6 of 14 ii. The set-off/cross-claim was essentially outside the scope of the adjudication proceedings because there were two other adjudication proceedings pending before two different adjudicators relating to the Sandakan and KL Sentral projects; iii. The Adjudicator was correct in holding that he could only decide on a construction contract and not on multiple contracts pursuant to s 5 of CIPAA; iv. An Adjudication Decision is of interim finality and any adjustments and corrections can be done in the arbitration that has already been commenced and which would yield a final result in that it would supersede the Adjudication Decision in the three adjudications (s 13 CIPAA); and v. The set-off under clause 13.1 of the contract relates to a contractual set-off and not an equitable set-off (Econet Satellite Services Ltd v Vee Networks Ltd [2006] EWHC 1664 (Comm)); Pembenaan Leow Tuck Chui & Sons Sdn Bhd v Dr Leela’s Medical Centre Sdn Bhd [1995] 2 CLJ 345). IREKA’S SUBMISSION [9] Learned counsel for Ireka took two main points. First, there was no dispute at any point of time as PWC’s claim for the balance sum was not disputed (ss 7(1) and 27(1) CIPAA). Further, the definition of the word ‘dispute’ should be given its plain and ordinary meaning (Beck Peppiatt Ltd Page 7 of 14 v Norwest Holst Construction Ltd [2003] QBD 316 (TCC); Witney Town Council v Beam Construction (Cheltenham) Ltd [2011] EWHC 2332 (TCC)). As such, it was submitted that the Adjudicator had wrongly construed the application of the CIPAA. [10] Secondly, it was argued that the Adjudicator had committed a breach of natural justice on 3 grounds: i. The Adjudicator had wrongly applied s 5 CIPAA retrospectively in deciding that Ireka was not entitled to exercise the cross contract set-offs. The contract was entered into before the coming into force of CIPAA. Clause 13.1 should prevail over any provision of CIPAA. The application of s 5 in the circumstances would have the effect of excluding Ireka’s contractual right to set-off and this would amount to a legislation taking away a substantive right of a party. At any rate, CIPAA is only applicable and effective from the date of the legislation and not retrospectively (Tenaga Nasional Bhd v Kamarstone Sdn Bhd [2014] 2 MLJ 749 FC; Bauer (M) Sdn Bhd v Jack-In Pile (M) Sdn Bhd [Civil Appeal No: B-02(C)(A)-1187-06/2017). As such, clause 13.1, which has the effect of enabling Ireka to exercise a contractual right to set-off, should have been given its true effect by the Adjudicator; ii. By virtue of the retrospective application of CIPAA in determining Ireka’s right of set-off, the Adjudicator had erroneously misdirected himself into refusing to consider the cross contract Page 8 of 14 set-offs (Pilon Ltd v Beyer Group [2010] EWHC 837 (TCC); View Esteem Sdn Bhd v Bina Puri Holdings Bhd [2017] 1 LNS 1378 FC; Thermal Energy Construction Ltd v AE and E Lentjes UK Ltd [2009] EWHC 408 (TCC)); and iii. The Adjudicator failed to consider that PWC did not deny Ireka’s entitlement to the KL Sentral set-off. DECISION [11] We will deal with the first issue relating to jurisdiction. In our considered view, the fact that the amount of the balance sum is not disputed is really a non-starter. We say this because firstly, the proceedings in question are governed by the CIPAA. Second, there is a clear provision in subsection 6(1) which stipulates that if Ireka (the non-paying party) admits to the Payment Claim, Ireka is required to serve a Payment Response to PWC (the unpaid party) together with the whole undisputed balance sum. Third, as Ireka has failed to respond to PWC’s Payment Claim in accordance with subsection 6(1), Ireka is deemed to have disputed the entire payment claim: subsection 6(4). At any rate, even though the balance sum was not disputed, the undeniable fact is that Ireka failed to pay the same. Ireka’s failure prompted PWC to issue the Payment Claim demanding for the balance sum. Instead of making payment of the balance sum together with their Payment Response, Ireka withheld payment citing set-off/cross claims on matters unrelated to the adjudication. Without imputing any ulterior motive on Ireka’s actions, this Court is bound to hold that in these circumstances a dispute is deemed in law and in fact to have arisen under the CIPAA. In the light of the Page 9 of 14 aforesaid, it is clearly untenable for Ireka to argue that there is no jurisdiction to adjudicate on the ground that there is no dispute. In our view, the learned judge correctly applied the law to the facts of the case. Accordingly, we find no merit in Ireka’s argument on the want of jurisdiction on the part of the Adjudicator to adjudicate on PWC’s claim as there was in existence a dispute within the scope of the CIPAA. [12] The second issue relating to breach of natural justice. The general rule is that if the adjudicator fails to consider the issues raised before him because he has taken an erroneously restrictive view of his jurisdiction, for example, failed to consider the defence to the claim or some fundamental element of it, then that may make his decision unenforceable, either on grounds of jurisdiction or breach of natural justice (Thermal Energy, supra). Ireka’s argument is that they were wrongly deprived of their right to set-off under Clause 13.1 by the Adjudicator; that in so doing, the Adjudicator wrongly applied CIPAA retrospectively to their detriment and prejudice. A perusal of the Adjudicator’s Decision shows that Ireka’s argument is misconceived. The Adjudicator did consider the two set-offs raised by Ireka. But he declined to decide on the merits of the set-offs because of the fact that the set-offs were pending determination in two separate adjudication proceedings. In our view, the Adjudicator decided correctly in the circumstances. There is no issue of the Adjudicator depriving Ireka of its substantive rights or of the CIPAA overriding clause 13.1. Ireka was not deprived its right to set-off under clause 13.1 because Ireka had commenced separate adjudication proceedings before different adjudicators claiming for the same. In the particular circumstances of this case, it would, in our considered view, be wholly inappropriate for the Adjudicator to have Page 10 of 14 adjudicated on the validity of the two set-offs. We agree with the learned judge’s findings on this issue. The following authorities cited by Ireka’s counsel are distinguishable on the facts and the law. [13] Kamarstone (supra) is the Federal Court’s affirmation of the settled principle that a statute should not be interpreted retrospectively to impair an existing right or obligation unless such a result was unavoidable by reason of the language used. Bauer (supra) relates to whether the CIPAA has affected the substantive rights of the parties to a construction contract made prior to CIPAA. In that case, the construction contract contained a “pay when paid” clause. The question was whether s 35 of CIPAA takes away the right of the parties to have their payment regime regulated by a “pay when paid” mode. Holding that (i) the CIPAA relates to a substantive right, and (ii) that the CIPAA is prospective in nature, the Court of Appeal held that notwithstanding s 35, the “pay when paid” clause in the construction contract remains afoot and valid. In our view, Bauer is distinguishable on the facts as there is no question of Ireka’s substantive rights being prejudiced or denied. Ireka’s substantive rights under the set-offs against PWC were being pursued in separate adjudication proceedings. [14] In Pilon (supra) the claimant carried out works for the defendant under a project known as the Ealing Project. The work was divided into two separate batches, batches 1-25 and batches 26-62. The claimant issued an interim application for payment in respect of batches 26-62. As the claim was not met, the matter went to adjudication. The adjudicator gave an award in favour of the claimant. As the award was not paid, the claimant sought enforcement at the High Court. The defendant’s argument was that they had Page 11 of 14 argued in the adjudication that they have overpaid the claimant in respect of batches 1-25. The adjudicator took the view that his jurisdiction was limited to batches 26-62. The High Court held that the adjudicator’s decision to ignore batches 1-25 was wrong. The notice of adjudication gave the adjudicator the jurisdiction to consider what, if any, further sum should be paid by way of interim payments from the defendant to the claimant and that issue, of necessity, involved a consideration of the defendant’s defence based on the alleged overpayment on batches 1-25. In that case the claim and the alleged defence of overpayment related to batches of works done under the Ealing Project unlike the set-offs in our case which related to different contracts and are the subject matter of interim claims pending in different adjudication proceedings. [15] In View Esteem (supra) one of the questions of law posed to the Federal Court was whether the adjudicator has the right to exclude the defences raised by the appellant. The three defences raised by way of set-off and cross-claims were (i) RM2m advance to the respondent, (ii) defective works and cost of rectification, and (iii) encroachment into adjoining land by the flyover bridge causing damage. The adjudicator justified the exclusion of the defences as they were not set out in the first payment response. However, the three defences were subsequently pleaded in the Adjudication Response pursuant to s 10 of CIPAA. In short, the appellant was seeking to include set-offs and cross-claims that were not raised in its Payment Response under s 6 of CIPAA. The Federal Court held that an adjudicator must look to the “notice of adjudication” to first determine the jurisdiction of the dispute that is referred to him. On the facts of View Esteem, the Adjudication Response was “a document produced in the adjudication Page 12 of 14 proceedings” under s 26 of CIPAA and it had carried all the defenses sought to be relied on by the appellant. As such, an adjudicator is not excluded from considering all the defences raised by a respondent in the Adjudication Response whether found in the Payment Response under s 6 of CIPAA or not. The adjudicator’s decision was therefore set aside as the adjudicator had acted in breach of natural justice in excluding and refusing to consider the defences raised by the appellant. [16] Thermal Energy (supra) is also distinguishable on the facts. In that case, the adjudicator had failed to consider the set-off and counterclaim raised by the defending party. Consequently, the court declined to enforce the adjudicator’s decision. In the instant appeal, however, the Adjudicator did not refuse to consider the set-offs under the same contract. The set-offs were raised in two different contracts which claims are pending in different adjudication proceedings before different adjudicators. [17] We have also considered the other issues raised by Ireka’s counsel in their written submission and found that they are without merit in law and in fact. [18] In conclusion, the fact that the claim is not disputed may not necessarily preclude a claimant from initiating adjudication proceedings. It is incumbent upon a respondent who admits to a claim under a Payment Claim to comply with subsection 6(1) of CIPAA by serving a Payment Response together with the whole amount claimed or any amount as admitted by him. The failure to comply with subsection 6(1) is tantamount in law to the respondent disputing the entire payment claim; whereupon the Page 13 of 14 claimant is entitled to initiate adjudication proceedings under the CIPAA by the issuance of a Notice of Adjudication to the respondent. We do not find that there is any breach of natural justice on the part of the Adjudicator. The Adjudicator has properly considered the issues raised before him. He had declined to decide on the set-offs as they were the subject matter of two different adjudication proceedings before different adjudicators. On the peculiar facts of this case there was no question of Ireka being deprived of their right under clause 13.1 to the set-off. CONCLUSION [19] For the foregoing reasons, we dismissed Ireka’s appeals against the High Court’s decisions (i) allowing PWC’s application to enforce the Adjudicator’s decision and (ii) dismissing Ireka’s application to set aside the Adjudicator’s decision. We awarded costs of RM5,000.00 subject to allocator in respect of each appeal to PWC. sgd (Vernon Ong) Judge Court Of Appeal Malaysia Dated : 29th May 2019 Page 14 of 14 Counsel: For the Appellant: Dominic Ng Ken Ming (Wajdi bin Mohamad with him) Messrs. Wajdi Mohamad Yusri & Co For the Respondent: Daniel Lau Hsien Yuong Messrs. Amrit & Company