SKYWORLD HOLDINGS SDN BHD v Neurogine Sdn Bhd (BA-22NCC-163-11/2019)

The claims of the parties were filed in two suits, which have been consolidated in these proceedings. Skyworld Holdings Sdn. Bhd.(“Skyworld”) filed Civil Suit: BA-22NCC-163-11/2019 (“Suit 163”), whereas Neurogine Sdn. Bhd. (“Neurogine”) filed BA- 22NCC-174-12/2019 (“Suit 174”).

Skyworld engaged Neurogine to develop a social lifestyle mobile application system (“the app”) for Skyworld’s use. The app was intended for the use of Skyworld’s customers by allowing them to interact with one another through an electronic messaging platform and also to make payment online. The app was to be developed in 2 phases. Skyworld was billed during the progress of the app development, to which it made part payments.

The dispute between parties was triggered when Neurogine requested for further payments for work done. Several invoices were issued demanding payment. Skyworld refused to make payment towards the invoices. Instead it alleged that the app Neurogine developed failed to fulfill the specification parties agreed upon. It further claimed that the app could not be used and requested for refund of the monies paid thus far to Neurogine.

Skyworld then filed the instant suit to claim for a refund. Neurogine on the other hand, sued for the balance sum owing for developing the app, which had yet to be paid by Skyworld.

Sometime in early 2018, Skyworld requested the services of Neurogine to develop an app titled Design & Development Of Sky Chat, Wallet & Payment Gateway with Cloud Base Project. (“the Project”). Pursuant thereto, on 5.2.2018, Neurogine issued a quotation to the Skyworld detailing the specifications of the Project and the costing involved. The total cost of the Project stipulated in the quotation was RM 2,316,100.00.

The Project comprised of two phases, the development of the SkyChat module and the e-wallet and Red Packet function module. The Project was to be completed and delivered to the Plaintiff within 6 months.

Between March 2018 and October 2018, Skyworld made various payments to Neurogine totaling RM 1,666,050.00, towards the total cost of the Project.

As Skyworld did not have the necessary expertise on the development of applications, it appointed iNetSOHO as its technical adviser and consultant. The representatives of iNetSOHO were responsible in engaging with Neurogine in the development of the app.

On 2.7.2018, when the design and development of the app was handed over by Neurogine to be tested by iNetSOHO, it was found to be not functional, and failed to meet the specifications of the Project. Thereafter, in spite of several requests by iNetSOHO to 4 improve on the app, Neurogine still failed to deliver a fully functional app.

In this action, Skyworld claims that Neurogine’s failure was a breach of its obligations under the contract. It thereupon seeks a refund of the amount of RM 1,666,050.00, which had been paid to Neurogine. The delivery of a non-functioning app resulted in a total failure of consideration and Neurogine is obliged to refund the amount paid thus far. To allow Neurogine to retain the monies would be tantamount to an unjust enrichment.

Neurogine denies Skyworld’s claim that the app was not functional. It also denies that there was a time line of six months for completion. The app was delivered in several stages from August 2018 to December 2018.

The first phase of the Project comprising the SkyChat module, had been completed. It had undergone several User Acceptance Tests and Functional Acceptance Tests which was eventually signed off by iNetSOHO. What remained to be attended to were merely bug fixes, which did not affect the functioning of the Skychat module.

However, Neurogine then encountered problems with the second phase of the Project involving the development of the e-wallet and Red Packet. Skyworld refused to make further payment. Although Neurogine was the app developer, it was denied user access to Google Play Store by iNetSOHO sometime in February 2019. In view of this, it could not proceed to develop the app further.

The Project cost of RM 2,316,100.00 represented by Neurogine’s quotation issued on 5.2.2018 (“first quotation”), is not disputed by the parties. Neurogine’s case is that the Project cost was increased subsequently when Skyworld requested for additional services and changes to be made to the Project. These changes were outside the scope parties agreed upon when the first quotation was issued. Pursuant thereto, Neurogine issued another invoice on 1.8.2018 for the sum of RM 980,000.00 (“second quotation”), which was acknowledged and accepted by Skyworld. Skyworld even made part payment of RM 490,000.00 towards this invoice.

As work progressed, Neurogine issued several invoices for payment of the work done. The details of the invoices issued are as follows:- Invoice No. Invoice Date Total I-000051 5.2.2018 RM 300,000.00 I-000055 1.6.2018 RM 876,050.00 I-000062 1.8.2018 RM 490,000.00 I-000075 12.2.2019 RM 1,087,487.00 I-000080 1.5.2019 RM 144,690.00 I-000091 1.10.2019 RM 374,710.00 TOTAL RM 3,272,937.00

The first three invoices issued in 2018 totaling RM 1,666,050.00 have been settled by Skyworld. However, no payment was issued for the invoices issued in 2019 totalling RM 1,606,887.00. This amount forms the basis of Neurogine’s claim in Suit 174.

Neurogine’s claim for RM 1,606,887.00 as outstanding payment for the Project is resisted by Skyworld. Apart from contending that the app was not functional, Skyworld also contends that it had no knowledge of the second quotation issued by Neurogine for the amount of RM 980,000.00.

The Plaintiff denies requesting for additional changes which were outside the scope of work agreed upon by parties. It also denies acknowledging the second quotation by making a part payment of RM 490,000. It contends that this payment was in fact towards the contract sum of RM 2,316,100.00 stated in the first quotation.

Skyworld further contends that Neurogine’s claim is without basis as the contract sum parties agreed upon was only RM 2,316,100.00. The claim of RM 1,606,887.00 in Suit 174 is unreasonable as Skyworld had already paid RM 1,666,050.00 for the Project.

Two issues arise for this court’s determination. The first is whether the Neurogine failed to deliver a functional app in breach of its obligations under the contract, which would entitle Skyworld to a refund of the sums paid towards the Project as claimed in Suit 163. If it is proven otherwise, whether Neurogine is entitled to be paid the value of the work done for the Project, billed at RM 1,606,887.00.

At the outset, I observed that the issues for determination are factual issues rather than questions of law, requiring an evaluation of the oral evidence and documentary evidence adduced at the trial.

It is trite law that the burden of proof lies throughout on the party who asserts that the facts exists. It is only when the party on whom the burden of proof lies has discharged that burden that the evidential burden shifts to the other party (See: Section 101 of the Evidence Act, 1950, Hong Yik Trading v Liziz Plantation Sdn. Bhd. [2017] 8 CLJ 491, Federal Court).

As both Skyworld and Neurogine are Plaintiffs in Suits 163 and Suits 174 respectively, the burden lies on them to establish some preponderance of evidence in their favour if their claims are to succeed. I shall now deal with the issues arising from both suits.

PW1, a director and shareholder of Skyworld stated in his evidence that the parties had agreed that the Project was to be completed and the app delivered within 6 months from the issuance of the quotation dated 5.2.2018. However, notwithstanding that RM 1,666,050.00 had been paid, Neurogine failed to deliver a functional app within the stipulated time frame as per the specification agreed upon.

In support of its claim that Neurogine failed to deliver a functional app, Skyworld called PW2 and PW3 to testify on this fact. Both were in the employment of iNetSOHO at the material time. iNetSOHO has since ceased operations.

PW3 was involved with the Project from its development stage until October 2018. PW3 stated in his evidence that by October 2018, Neurogine yet to revert to Skyworld with a working app together with its source code. At the time he left the employment of iNetSOHO in October 2018, PW3 had yet to see the app published in Google Play or Apple Store.

PW2 who employed by iNetSOHO from November 2018, took over the handling of the Project from PW3. He testified that when he was assigned to the Project, it was at the User Acceptance Test stage as the product features were found to be still problematic during testing. Some of the intended features were not in a deliverable stage, and the Project had exceeded its timeline for completion.

To counter the allegations of Skyworld, Neurogine called DW1 who was the solution architect and the subject matter expert for the Project. DW1 stated that the Project was intended as a mobile app supported by Android and IOS operating system. There were 3 components to be developed, i.e the SkyChat Module, the cloud hosting service and the e-wallet. He added that the Project was to be completed in two phases. The SkyChat Module was in Phase 1, whereas the e-wallet and Red Packet was in Phase 2. Phase 1 was completed when two User Acceptance Tests on 2.7.2018 and 23.7.2018 were signed off by iNetSOHO, with only minor bugs fixes to be attended to. iNetSOHO also signed off the Functional Acceptance Test on 8.10.2018. The SkyChat Module was then published on Google Play Store and Apple App Store on 30.1.2019.

Upon completion of the SkyChat Module, Neurogine proceeded to Phase 2 of the Project, which involved the development and implementation of the e-wallet and Red Packet. However, upon completion of the user interface for e-wallet and Red Packet, Skyworld refused to make further payment as invoiced. To compound matters, Neurogine’s access as the mobile application developer to Google Play Store was removed by iNetSOHO on February 2019. As a result of this, Neurogine could not proceed to implement the e-wallet features into the Project.

Notwithstanding that it was denied access by iNetSOHO, Neurogine continued with its services of bug fixes, updating the SkyChat module version and also maintenance work of the Project, for which the invoices in 2019 were issued to Skyworld. No payment was made towards these invoices.

In his evidence, he also stated that there were additional change requests made by the iNetSOHO team which led to the issuance of the second quotation on 1.8.2018.

In addition to DW1, Neurogine called DW2, its Business Development Manager. She was directly involved in the Project. She explained that contrary to Skyworld’s claim, there was no deadline stipulated for completion of the Project. The quotation issued by Neurogine dated 5.2.2018 did not specify the completion date. However, there was an internal timeline set by iNetSOHO which was subject to change as the Project progressed due to change requests and the need to secure registration with the relevant authorities.

She confirmed the evidence of DW1 that Neurogine’s part in the Project was completed as the SkyChat Module had gone live on Google Play Store and Apple App Store on 30.1.2019. As for the e-wallet and Red Packet module, specification documents for e-wallet was signed off by iNetSOHO on 9.8.2018. Thereafter, specification documents for e-wallet & Red Packet API was signed off on 18.12.2018. The SNS Top-Up API allowing for transfer and top-up points for the Project was made ready on 16.1.2019.

As for the change request referred to in the second quotation, the latest version of the SkyChat module had incorporated the requested features and presented to iNetSOHO on 23.4.2019.

In the course of developing the app, the relationship between the parties had become less than amicable as a dispute arose on the non-payment of Neurogine’s fees. Several letters were exchanged between their solicitors. DW2 stated that as payments were not forthcoming after February 2019, it became impossible for Neurogine to continue rendering their services for free.

Having considered the evidence by both parties on the question whether the app was functional, I find that Neurogine had performed its part of the contract. The oral assertion of Neurogine’s witnesses as to the progress of work was supported by the documentary evidence referred to in the evidence of DW1 and DW2. There is documentary evidence showing the signing off by iNetSOHO after the User Acceptance Test and the Functional Test. The SkyChat module was also shown to have been published on Google Play Store Apple App Store. In addition, the specification documents for the e-wallet module were signed off by iNetSOHO.

There was no credible challenge by Skyworld to the contents of these documentary evidence. Skyworld’s claim that the app was not functioning relies on the mere oral assertion of its witnesses. In contrast, Neurogine’s defence as to the progress of its work for the Project is borne out by documentary evidence. I therefore find Neurogine’s evidence to be more convincing and plausible.

With regard to the timeline of six months for the completion of the Project, I accept the evidence of DW2. She explained that there was no timeline specified in the quotation. Further the evidence 12 shows that the parties were in constant communication on the progress of the app until early 2019. This supports DW2’s evidence that the timeline was revised as work progressed and parties adopted a flexible approach with regard to the timeline for completion.

Skyworld relied on the evidence of PW3 that the app was not functional as the source code was not given by Neurogine for the app to be downloaded from Google Play Store or Apple App Store. However, in cross examination, he conceded that the requirement as to source code was not mentioned in the quotation. When pressed further, he agreed that the contract sum of RM 2,316,100.00 did not include the source code for the app.

PW3 was then asked as to the User Acceptance Test conducted in October 2018. He admitted that based on the test, the majority of the functions for the Project fulfill the specification documents. What was left to attend to, were merely bug fixes.

PW2 who subsequently took over from PW3 in handling the Project, conceded in cross examination that on 17.12.2018, he sent an email to DW2 to arrange for the app to be uploaded on the Apple App Store. He further admitted that bug fixes could be dealt with even after the app was uploaded.

The evidence viewed in its entirety, clearly substantiates Neurogine’s case that they had done all that was required on their part to launch the app. The failure to complete the Project particularly the e-wallet and Red Packet module was not due to 13 any breach on their part. Rather, it was consequent upon iNetSOHO’s actions in denying access to Google Play Store due to payment issues.

On a balance of probabilities, I find that Neurogine had fulfilled its part in developing the app. It was only when Skyworld failed to make further payment towards the Project that the dispute as to the functionality of the app was raised. I note that it was Neurogine’s solicitors who first issued a demand for payment for payment in January 2019. The demand was resisted by Skyworld. A series of discussion ensued thereafter in an attempt to resolve matters so that work could progress. Unfortunately, these efforts were unsuccessful. Sometime in October 2019, Neurogine made another demand for payment. It would appear that Skyworld’s response was to commence Suit 163.

Upon duly evaluating the evidence, I am not convinced of the congency of the evidence in support of Skyworld’s allegation that a non-functioning app was delivered due to Neurogine’s failure. It was more probable that Neurogine had fulfilled their obligations under the contract but could not progress further due to Skyworld’s default. Consequently, Skyworld’s claim for a refund of RM 1,666,050.00 due to a total failure of consideration must fail.

Having dealt with the first issue, I shall now consider the merits of Neurogine’s claim in Suit 174.

Neurogine contends that after work had commenced on the Project, there were change requests made by Skyworld. This entailed additional costs on its part for which the second quotation was issued. Skyworld made part payment, acknowledging the increased contract sum. Neurogine therefore claims that Skyworld is liable to pay towards the total value of the work done of RM 3,272,937.00. As Skyworld had paid RM 1,666,050.00, an amount of RM 1,606,887.00 is still outstanding.

Skyworld on the other hand, denies knowledge nor any agreement to the additional contract sum of RM 980,000.00. It maintains that the contract sum was at all material times, only RM 2,316,100.00.

In support of Neurogine’s contention, it referred to various change requests made by Skyworld for additional services. They were chat enhancements on the Chat Module which included broadcast, multimedia attachment, voice recording, mute, search keywords, hide contract and share function. These requests were made in writing.

Work pertaining to the change requests were completed when Neurogine released the Chat Module version 3.1.6. The relevant reports were also tendered in evidence.

I have also examined the various documents titled “Change Request” referred to by Neurogine’s witnesses, and find them to substantiate Neurogine’s claim that the requests were at the instance of Skyworld. However, Skyworld claims that these 15 requests were within the scope of the original works for the contract sum of RM 2,316,100.00.

Neurogine on the other hand, contends that the change requests were additional work done beyond the scope of the first quotation, for which it issued the second quotation. Skyworld’s conduct in making payment towards the second quotation is relevant.

Having examined the documentary evidence as to payment made by Skyworld, I find it to establish the following facts. The terms of the first quotation stipulated the payment term as “50% upon receipt of PO and 50% upon UAT signed off within 30 days from the invoice date.” The fact that there was no Purchase Order is not an issue in this case. Neurogine issued the first 2 invoices namely no. I-000051 and no. I-000055 on 5.2.2018 and 1.6.2018 for a total amount of RM 1,176,050.00. Skyworld paid this sum.

Subsequent to the abovementioned invoices, a third invoice no. I- 000062 was issued for the amount of RM 490,000.00. The date of the invoice was the same date of the second quotation stating an amount of RM 980,000. Again, the same payment terms were stated wherein 50% was payable upon receipt of the Purchase Order. Subsequent to the third invoice, Skyworld issued a cheque for the sum of RM 490,000.00 on 3.10.2018, an amount equivalent to 50% of the additional contract sum. It is by no means a coincidence that the amount paid was consistent with the payment terms of the second quotation.

Skyworld’s defence to Neurogine’s contention was given through the evidence of PW1, its director and also shareholder. He denied any knowledge of the second quotation. He claimed that the amount of RM 490,000.00 could not possibly be payment towards the second quotation as the cheque was issued earlier on 10.3.2018.

However, when he was challenged in cross-examination, he admitted that the date on the cheque was in fact 3.10.2018. The cheque was tendered in evidence. Having examined CIMB cheque no. 000192 for the amount of RM 490,000.00, I find it to be clearly issued on 3.10.2018. It was probably issued towards the second quotation. This fortifies Neurogine’s contention that Skyworld acknowledged the increased cost of the Project.

The evidence relating to the cheque is material evidence, one which I would not expect PW1 to have made a mistake about, particularly where it would have an impact on his credibility.

PW1’s oral evidence is thus inconsistent with the documentary evidence. In this regard, I am guided by the oft quoted judgment of the Federal Court in Tindok Besar Estate Sdn Bhd v Tinjar Co [1979] 2 MLJ 229, which held that it is safer to rely on the evidence of documents which are contemporaneous with the event, than the recollection of a witness.

In the circumstances, I am convinced that the payment of RM 490,000.00 was towards the second quotation. This would demolish the Skyworld’s claim that it had no knowledge of the 17 second quotation. This in turn renders plausible Neurogine’s case that the contract sum had been increased by RM 980,000.00.

This leaves me to consider if Neurogine has succeeded in proving its claim for work done to the value of RM 3,272,937.00 of which RM 1,606,887.00 remains unpaid.

Neurogine’s claim is based on three invoices issued in 2019. There is ample documentary evidence that work continued to be done in 2019. Parties were still in communication on the development of the app.

Apart from denying that it agreed to the second quotation, Skyworld adduced no evidence to rebut the value of the work done. This is not surprising in view of its stance that the contract sum was only RM 2,316,100.00. In the absence of any credible challenge as to the claim based on the three invoices, the evidence therefore weighs in favour of Neurogine. I therefore find its claim based on the invoices to be proven.

Premised on the foregoing reasons, the following orders are made:-

Skyworld’s claim in Suit 163 is dismissed; Payatu t

(ii) Neurogine’s claim in Suit 174 for the amount of RM 1,606,887.00 is allowed, with interest at the rate of 5% from the date of judgment until realization;

(iii) Skyworld is to pay Neurogine costs of RM 30,000 in respect of Suit 163 and Suit 174. Dated : 14th November 2023 -sgd- ...………………..….... Alice Loke Yee Ching Judge High Court of Malaya at Shah Alam Counsel for the Plaintiff : Mr. Bani Prakash (Miss S. Shanti and Miss Deva Premila Devadasan with him) Messrs S.San & Co Counsel for the Defendants : Mr. Alex Anton Netto (Mr. Heng Kian Tee with him) Messrs Anton & Chen