Mn Permai Netcom Sdn Bhd v Smcc Malaysia Sdn Bhd (WA-24C-47-03/2024)

Originating Summons No. WA-24C-47-03/2024 (OS 47) is MN Permai Netcom Sdn Bhd (“MNPN”) application to enforce the AD in accordance with section 28 of CIPAA.

In brief SMCC had in support of Enclosure 1 of OS 40 submitted that there were breaches of natural justice and actions in excess of jurisdiction in the Adjudicator’s decision.

SMCC is a contractor for the Tiger Factory Project (the “Project”) for the construction of a contact lens factory in Kulim, Kedah.

By a Letter of Award dated 12 September 2022 (the “LOA”), SMCC appointed MNPN as a subcontractor for structure work for the building package of the Project.

The LOA provided for the subsequent execution of a formal subcontract document. In line with this, SMCC on 7th November 2022 forwarded to MNPN a Work Order, being the proposed formal 5 subcontract document. Subsequently, the parties negotiated over the same, and by 3rd March 2023 the parties had agreed on revised terms of the Work Order except for clause 18 relating to liquidated damages. The phrase “Modified Work Order” used in the adjudication proceedings refers to the agreed revised terms of the Work Order. Accordingly, the Modified Work Order also formed part of the subcontract between the parties (the “Subcontract”), apart from the LOA.

Under the Subcontract, MNPN was to commence its works on 19th September 2022 and complete the same by 31st May 2023.

Due to its financial difficulties since February 2023, MNPN failed to pay wages to its workers leading them to stop work and strike. This resulted in delays to MNPN’s works. There were more than 10 strikes by MNPN’s workers since February 2023.

MNPN failed to complete its works by 31st May 2023.

On 26th June 2023, MNPN allegedly admitted to SMCC that it has “no money in hand to worker wages”, it is in “very bad shape” and has “no answer / direction for worker wages” and “are really desperate and sorry on this”.

SMCC on 3rd July 2023 issued to MNPN a notice to terminate the Subcontract due to fundamental breaches of the Subcontract by MNPN. Those breaches include MNPN failing to have sufficient financial means to pay its workers and suppliers, and failing to 6 ensure its workers do not go on strike. Those breaches have delayed the works but SMCC is unable to seek any extension of time from the project employer, thereby exposing SMCC to substantial losses including liquidated damages.

MNPN disagreed with SMCC’s termination and purported to terminate the Subcontract by its letter of 11th July 2023.

On 4th August 2023, MNPN submitted its final claim to SMCC.

On 12th September 2023, MNPN issued its Payment Claim to SMCC, to pursue its final claim.

By this time, it is common ground that the Subcontract had already been terminated; the dispute was as to whose termination was the valid one.

SMCC did not serve a Payment Response.

MNPN later issued its Notice of Adjudication. This led to AIAC appointing Ms Elaine Koh May Yong as the Adjudicator, followed by the usual exchange of Adjudication Claim, Response and Reply.

The Adjudicator issued her Adjudication Decision on 5th March 2024 in which she found that MNPN was entitled to RM4,193,996.20, interest and costs. She also directed for payment of the said RM4,193,996.20 to be made on or before 25th March 2024. 7 Findings

The first contention made by SMCC was that there was a breach of natural justice when the Adjudicator had decided on reasons vis a vis the defences of set off and cross claimed raised by SMCC, which were not raised by either party when considering the issue of additional costs to complete the remaining works as the cross claim was not raised in the Payment Response.

It was also submitted by counsel for SMCC that since the cross claim of RM7,529,219.82 which was raised in the Adjudication Response exceeded the adjudicated amount of RM4,193,996.20, the Adjudicator had simply brushed off this cross claim in 2 paras in the AD and gave her reasons being the “contract terminated and MNPN not paid for remaining works “ and “cross claim not raised in Payment Claim or Response” to which SMCC did not have the opportunity to address those reasons.

In this regard SMCC also alleged that the Adjudicator had disregarded its defence due to the fact that it was not raised in the payment response. I have since viewed SMCC’s Adjudication Response and find that SMCC had raised its set off and counter claims under its headings “Respondent’s Set Off’s and Counterclaims” and which were elaborated in detail at paragraphs 220 to 279. 8 [22] In any event after reading the AD in toto, I do find on this issue that the Adjudicator had concluded in the AD under the heading “Additional Costs incurred for Completion of the Remaining Sub Contract Works on behalf of the Claimant’s behalf” that “contract terminated and MNPN not paid for remaining works” and “cross claim not raised in Payment Claim or Response”.

I must state that the Court does not normally intervene in the decision of the Adjudicator save for very exceptional cases, see ACFM Engineering & Construction Sdn Bhd v Esstar Vision Sdn Bhd and another appeal [2016] MLJU 1776.

In the decision of our Apex Court in View Esteem Sdn Bhd v Bina Puri Holdings Bhd [2017] MLJU 1852 it was held that “[74] For the reasons above stated it is our considered view that an Adjudicator is not excluded from considering all the defences raised by a respondent in the Adjudication Response whether found in the first response under section 6 of CIPAA or not. In the circumstances of this case, the Adjudicator had acted in breach of natural justice in excluding and refusing to consider certain defences raised by the appellant, and his decision cannot stand for that reason.”

Based on the decision of View Esteem Sdn Bhd (Supra), I do hold from the reasons given in the AD as described above, that the Adjudicator had excluded and disregarded in its entirety SMCC’s set off and counter claims. It was the obligation and duty of the Adjudicator to consider and decide on these set off and counter 9 claims as they appeared in the Adjudication Response despite these issues not being raised in the Payment Response as there was no Payment Response filed by SMCC.

With respect, I cannot agree nor accept learned counsel for MNPN’s contention that as SMCC has put these set offs and counter claims in a separate heading as a distinct claim, these are therefore new claims which were never referred to in the Payment Claim itself and thus outside the Adjudicator’s jurisdiction, as they are not what MNPN alleges are ‘pure defences’.

I hold that whether they are to be termed ‘pure defences’ or are not are irrelevant, as it is for the Adjudicator to consider and decide any defence raised whether it is a pure defence or a set off or a counter claim.

Accordingly, a breach of natural justice has been occasioned and SMCC is entitled to set aside the AD as this is a substantive error made by the learned Adjudicator.

Thus, the other contention made by SMCC that there was an excess of jurisdiction by the Adjudicator in her decision as per the AD regarding amongst others with regards section 36(4) CIPAA being applicable for final claims are therefore now academic.

Having fulfilled the condition under section 15(b) CIPAA that there has been a denial of natural justice, I hereby grant order in terms for prayers 1 and 2 in enclosure 1 of OS 40. Enclosure 2 for the stay of 10 the AD is no longer a live issue and is dismissed with no order as to costs.

In the circumstances as the AD has been set aside, I hereby dismiss enclosure 1 of OS 47 with costs. Dated: 8th day of October 2024 sgd. NADZARIN WOK NORDIN HIGH COURT JUDGE CONSTRUCTION COURT 1 COUNSEL FOR THE PLAINTIFF (OS 40)/DEFENDANT (OS 47): Chen Mian Kuang and Ngo Hsiao May (Messrs MK Chen & Leong) COUNSEL FOR THE DEFENDANT (OS 40)/PLAINTIFF (OS 47): See Jooi Hong (Messrs Belden]