Sunway City Sdn Bhd v Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd (No. Saman: WA-24C(ARB)-33-07/2017)

(i)

(ii) Pending the High Court’s determination of this reference, that the Award be stayed on condition that the monies payable under the Award be secured in a ‘joint-solicitor’ interest bearing account or on such terms as may be directed by this Court. [2] Having considered the application and the submission of the parties, this Court has ordered that the Award dated 23.6.2017 be set aside and the case be remitted back to the Arbitrator for reconsideration of the same together with the Court’s determination of the Questions of Law as submitted by the plaintiff. The Salient Facts 3 [3] Both the plaintiff and the defendant are private companies incorporated in Malaysia. [4] By a Letter of Award dated 18.9.2007 (the “LOA dated 18.9.2007”), the plaintiff (as the Employer)had appointed the defendant to be the main contractor for the construction and completion of earthworks, piling and main building works (the “Works”) of an apartment project, known as the Palazzion Apartment (the “Project”) at Sri Hartamas, Kuala Lumpur. [5] The parties then entered into a written building contract based on PAM form (Private Edition with Quantities) (1998 Edition) with amendments dated 2.3.2009 (the “Main Contract”). The LOA dated 18.9.2007, which forms part of the Main Contract dated 2.3.2009 provides that the Works shall be completed by 21.12.2009. [6] The defendant then appointed Nominated Sub-Contractors (the “NSCs”) pursuant to various letters of award and formal written contracts based on PAM form (Private Edition with Quantities) (1998 Edition) with amendments. The Nominated Sub-Contracts were for stone works, timber flooring works, glazing and aluminium works, electrical works, lift installation, swimming pools installation, fire protection, kitchen cabinets, air conditioning and many others (see Exhibit AKP - 8). 4 [7] It is also to be noted that the appendix entry for the stipulation of the amount of liquidated damages (LAD) under these NSC subcontracts have been intentionally left blank and crossed out. [8] The original contract sum was RM209,500,000.00. The Arbitrator made a finding of fact that the value of works with reference to the Contract Sum to be executed by the defendant contractor was 49%, whilst the value of works with reference to the Contract Sum to be executed by the NSCs was 51%. Thus, the percentage of the NSCs’ work portion, in relation to the overall contractual work, is significant. [9] The commencement of the contract was 22.10.2007 for a duration of twenty-six (26) months, and the Works are to be completed by 21.12.2009. The NSCs works were scheduled from May 2008 to November 2009. The Arbitrator states that much of the work undertaken by the NSCs were in the latter half of the contract period. In my opinion, this is because the implementation of the NSC works were contingent upon the completion of the defendant’s structural works under the Main Contract. [10] By a Supplementary Agreement dated 17.7.2009 (“Supplementary Agreement dated 17.7.2009”) at the defendant’s request, the plaintiff had agreed to revise the time for completion to 20.4.2010 (“1st Revised Completion Date”). 5 [11] Despite the extended 1st Revised Completion Date to 20.4.2010, the defendant could not complete the Works. The defendant took the position that the NSCs were responsible for the delays. By this date, the defendant’s liability to pay Liquidated Ascertained Damages (“LAD”) under the Main Contract dated 2.3.2009 had arisen. [12] However, at the defendant’s request, the plaintiff had agreed to revise the completion date to 30.10.2010 (“2nd Revised Completion Date”) vide a Supplementary Agreement dated 19.8.2010. As a consideration, the defendant has agreed to pay a compensation sum of RM11,600,000.00 (“Compensation Sum”) to the plaintiff. The said LAD would however be imposed after the 2nd Revised Completion Date if the defendant failed to complete the Works by the 2nd Revised Completion Date (“Supplementary Agreement dated 19.8.2010”). [13] However, the defendant took the position that the NSCs have caused the delay. In two letters dated 12.4.2010 and 2.9.2010, the defendant had written to the NSCs informing them that they have failed to complete their works on time. These letters also requested the Architect to certify that particular Nominated Sub-Contract works ought to have been completed pursuant to Clause 27.2 (vi) of the Main Contract. [14] The Architect had refused to issue the Certificate of Non-Completion (“CNC”) under Clause 27.2(vi) of the Main Contract on these 6 occasions as the Architect took the position that the time for completion of works by the NSCs had not lapsed. [15] In the meantime, the defendant had not been paying the NSCs. In a letter dated 3.9.2010, the Architect advised the defendant to pay the NSCs the payments that are due within 7 days of receipt of payment from the plaintiff, failing which the plaintiff would then exercise its right to make direct payment to the NSCs under clause 27.4 of the Main Contract dated 2.3.2009. The said letter reads: “… In accordance with Clause 27.3 of the Building Contract, SPYTL is hereby advised to make payments due to the NSCs within 7 days of the receipt of payment from the Employer. Should SPYTL fail to comply with their contractual obligation, please be further advised that the Employer reserves the right to exercise Clause 27.4 of the Building Contract and make the due payments directly to the NSCs accordingly.” (emphasis added) [16] In another letter dated 7.9.2010, the Architect requested the defendant to furnish reasonable proof of payment for Interim Payment Certificate (“IPC”) Nos. 30 and 31 to the NSCs, failing which the Architect may issue a certificate pursuant to clause 27.4 which allows the plaintiff to make payment to the NSCs directly. 7 [17] In a letter dated 22.9.2010, the Architect sent a letter to the plaintiff certifying that the defendant had failed to provide the Architect with reasonable proof that the defendant has discharged payments due to the NSCs under IPC Nos. 30 and 31 respectively. [18] On 23.9.2010, the Architect sent two (2) letters to the plaintiff stating that the plaintiff may exercise its rights under clause 27.4 of the Main Contract dated 2.3.2009 to pay directly to the NSCs for the amounts due under IPC No. 30 and 31 in IPC No. 32R and IPC No. 33 respectively (see Exhibit AKP-10 and AKP-11) [19] In exercising its rights under clause 27.4 of the Main Contract dated 2.3.2009, in a letter dated 24.9.2010 the plaintiff had informed the defendant that due to the defendant’s failure to make payments to the NSCs, the plaintiff would exercise its rights to make direct payments to the NSCs. Therefore, the amounts of payment due to the NSCs as stated in the Architect’s letter dated 23.9.2010 would be deducted from IPC No. 32R. [20] Three (3) days later, on 27.9.2010, the defendant terminated the Main Contract dated 2.3.2009 on the ground that it had not received payment for IPC 32R. [21] The plaintiff took the position that the defendant’s termination of the Main Contract was wrongful but had accepted the defendant’s wrongful repudiation of the contract. Thus the Main Contract was determined at common law. 8 [22] The dispute was referred to arbitration on the defendant’s claim against the plaintiff and the plaintiff filed its counterclaim for rectification works. The Arbitration Proceedings and Findings [23] The arbitration proceedings commenced on 3.12.2012, and was completed on 30.5.2016, about 4 years later. The Award was handed on 23.6.2016 in favour of the defendant. [24] The salient features of the Award are:

That the defendant was awarded RM90,232,373.55 (inclusive of pre-award interest;

(ii) That the plaintiff was awarded the sum of RM15,226,608.80 (inclusive of pre-award interest). Therefore, the plaintiff has to pay the defendant the sum of RM75,005,764.75 (inclusive of pre-award interest);

(iii) Interest at 4% pa from 24.6.2017; and

(iv) The plaintiff is to pay the cost of the arbitration. [25] From the Summary of Monetary Sums Awarded in paragraph 174 of the Award, the details are as follows: 9

Sum awarded to the defendant/claimant: Item Amount (RM) Pre-award interest

Balance value of works executed 39,573,903.86 9,736,763.31 49,310,667.17

Interim Certificates No. 32R and 33 20,440,783.96 5,517,376.41 25,958,160.37 3. Performance Bond 10,475,000.00 2,706,740.00 13,181,740.00

Loss of Profit 1,429,974.97 351,831.04 1,781,806.01 Total sum 90,232,373.55

(ii) Sum awarded to the plaintiff/respondent: Item Amount (RM) Pre-award interest Total 1. Remedial works 120,000.00

Latent defects 500,000.00

Compensation sum 11,600,000.00 12,220,000.00 3,006,608.80 Total sum 15,226,608.80

(iii) Defendant/Claimant’s Entitlement: 10 Total sum awarded to the defendant/claimant RM90,232,373.55 Total sum awarded to the plaintiff/respondent RM15,226,608.80 Total sum awarded to the defendant/claimant RM75,005,764.75 [26] In respect of the plaintiff’s counterclaim for rectification works, the Arbitrator dismissed the same because he is of the opinion that if the works were indeed defective, then the Architect ought to have issued a Non – Conformance Report. [27] Being aggrieved by the Award, the plaintiff filed this application under section 42 of the AA 2005 to refer eight (8) Questions of Law:

Whether as a matter of law the plaintiff can be held responsible to the defendant for the delays of the Nominated Sub-Contractors (NSCs), which was the starting point of the Arbitrator’s chain of reasoning that led to his finding that there was a valid determination of the main contract by the defendant, in the face of Clause 27.7 of the main contract in the form of the PAM form (Private Edition with Quantities) (1998 Edition) (“Main Contract”) [which provides that the responsibility of the Nominated Sub-Contractors lies with the Defendant and under no circumstances that the Plaintiff could be held liable for the same]. 11

(ii) Where the parties to a nominated sub-contract under the PAM Nominated Sub-Contract form (Private Edition with Quantities) (1998 Edition) (“Nominated Sub-Contracts”) have expressly agreed by amendment thereto, to remove the provision for liquidated and ascertained damages, and/or have not provided for the payment of the same, whether as a matter of law the Arbitrator was correct to find that:

The Architect is obliged to issue a Certificate of Non-Completion in respect of the NSCs under the Main Contract, in view of the fact that it would no longer be of any consequence as a condition precedent to the recovery of liquidated damages by the Defendant from the

the non-issuance of the same deprived the Main Contractor of its recourse against the Nominated Sub-Contractor which were essential parts of the Arbitrator’s chain of reasoning that led to his finding that there was a valid determination of the main contract by the Defendant.

(iii) Whether the Arbitrator was right in law in concluding that by reason of the Architect’s failure to amend Certificates 30, 31, 32R and 33 to reflect deductions for delay compensation from 12 payments due to the Nominated Sub-Contractors, which under the Main Contract was only possible if the mechanism for recovery of liquidated damages by the Defendant from the NSCs was still operative:

the Defendant had lost its right of recourse against the

inferring from this and his consequent certificate of direct payment that the Architect in this instance had failed to administer the contract in an independent and impartial manner;

consequently, invalidating the Architect’s certificate of direct payment; and

the Defendant’s termination of the Main Contract premised upon (a), (b) and (c) was valid.

(iv) Where as in the present case, the Nominated Sub-Contracts and Main Contract were designed to work together, with the Architect being the certifier in both, whether as a matter of law the suspension of the extension of time mechanism in the Main Contract by way of the Supplemental Agreements entered into by the Defendant and the Plaintiff, would similarly suspend the extension of time mechanisms in the Nominated Sub-Contracts by necessary implication or otherwise. 13

If so, whether a Certificate of Non-Completion could have been issued by the Architect against the Main Contractor or Nominated Sub-Contractors before the period specified for completion of works, as amended by the Supplemental Agreements, had lapsed.

(vi) Whether as a matter of the law the Arbitrator was right in holding that the Architect lacked impartiality and independence by reason that inter alia the Architect’s professional services agreement contained a stipulation whereby the Architect is required to refer to the Plaintiff for comments on all contractual matters.

(vii) Whether the Employer’s contractual right to make direct payment under the Main Contract survived the determination of the Main Contract.

(viii) Whether non-conformance reports under the terms of the Main Contract are the exclusive means of proving defects. In this regard, whether the Arbitrator if entitled to consider other evidence apart from the non-conformance reports in determining the existence of defects, liability for the same and/or quantum for rectification works. The Findings of the Court [28] The plaintiff’s application is premised on section 42 of the AA 2005, which reads: 14 “42. Reference on questions of law

Any party may refer to the High Court any question of law arising out of an award.

The High Court shall dismiss a reference made under subsection

unless the question of law substantially affects the rights of one or more of the parties.” [29] The latest authority on section 42 of the AA 2005 is the decision of the Federal Court in Far East Holdings Bhd & anor v. Majlis Ugama Islam dan Adat Resam Melayu Pahang& Other Appeals [2018] 1 CLJ 693, where the Federal Court held that: “Test Under s. [117] Under s. 42(1), any party may refer to the High Court "any question of law arising out of an award". And under s. 42(1A), "The High Court shall dismiss a reference made under sub-s. (1) unless the question of law substantially affects the rights of one or more of the parties". The question of law must not only arise out of the award, but must substantially affect the rights of one or more of the parties. Short of one and the reference shall be dismissed.” (emphasis added) 15 [30] On the issue of what amount to a Question of Law, the Court held as follows: [150] "The question of law must be one of law and not fact" (The Arbitration Act 2005 supra at p. 198). "An error of fact alone is insufficient" (Dept of Education v. Azmitia [2015] WASCA 246 per Mazza JA). But there is no universal definition of 'question of law'. Nonetheless, from our survey of the authorities, we would conclude that one of the following, which is not an exhaustive list, would meet the paradigm of 'any question of law' in s. 42:

a question of law in relation to matters falling within

of Mustill J's three-stage test;

a question as to whether the decision of the tribunal was wrong (The Chrysalis);

a question as to whether there was an error of law, and not an error of fact (Micoperi): error of law in the sense of an erroneous application of law;

a question as to whether the correct application of the law inevitably leads to one answer and the tribunal has given another (MRI Trading);

a question as to the correctness of the law applied; 16

a question as to the correctness of the tests applied (Canada v. Southam);

a question concerning the legal effect to be given to an undisputed set of facts (Carrier Lumber);

a question as to whether the tribunal has jurisdiction to determine a particular matter (Premiums Brands): this may also come under s. 37 of AA 2005;

a question of construction of a document (Intelek).” [31] Applying the principles in Far East Holding’s case, I will now deal with the plaintiff’s application. [32] The Arbitrator has decided that the determination of the Main Contract by the defendant is valid premised of the following grounds:

That the delay of the completion of the Works were caused by both the defendant and the NSCs, as can be seen from paragraph (29) of the Award, which reads: “29. Based on my findings herein, I hold that there were delays in both the Builder’s work undertaken by the Claimant and the Nominated Sub-Contract works, under the Contract, and that the responsibility 17 for the delay to the completion of the Works, ought to be borne by both the Claimant and the Nominated Sub-Contractors who had caused such delay.”

(ii) That the NSCs had not obtained an extension of time from the 1st Revised Completion Date (20.4.2010) to complete the Works. Thus the defendant had a right of recourse against the NSCs for the delay compensation. This can be found in paragraph (63) of the Award, which reads: “63. ……. Knowing that the Nominated Sub-Contractors had not obtained an extension of time, from 20 April 2010, to complete their contractual works and that the Claimant would have recourse under the Contract to recover any loss and/or damages suffered, from the Nominated Sub-Contractors and thereby deny the Claimant’s contractual right….”

(iii) That the Architect in: -

not issuing the Certificate of Non-Completion (“CNC”)

refusing to amend the IPCs No. 31, 32, 32R and 33 to reflect the deductions for delay compensation due to the NSCs; and 18 interfered with the defendant’s right to recourse against the NSCs. This can be seen from paragraphs (48), (49) and (63) of the Award: “48. I have determined earlier in this Final Award that the Nominated Sub-Contractors too, had caused significant delay, and thus were responsible for the delay to the Works completion, and that the Architect ought to have issued the Certificate of Non-Completion to the Nominated Sub-Contractors, who had not completed their contractual works, as provided for in the Contract.

Clause 27.2 (vi) of the Conditions of Contract infers to the Nominated Sub-Contract provision, which allows the Claimant to recover any loss and/or damage suffered or incurred, which had been caused by the failure of the Nominated Sub-Contractors to complete the sub-contract works. This provision is subject to the Architect issuing the Certificate of Non-Completion …. … It is therefore my determination that the Architect ought to have certified non- 19 completion of specific nominated sub-contract works which had not been completed in accordance with the Contract and that the Claimant is entitled to recover any loss and/or damage suffered, as per the contractual stipulation… …..

Premised on findings herein and my determination that the Claimant had a right of recourse against the Nominated Sub-Contractors under the Contract, to recover and loss and/or damage suffered, I am disinclined to accept the Respondent’s submission that the direct payment machinery in Clause 27.4 of the Contract had been properly exercised. Despite the Claimant’s repeated request to the Architect, for Interim Certificate No. 30, 31, 32R and 33 to be amended to reflect the deduction for delay compensation to be made from payments due to the Nominated Sub-Contractors under the said Certificates, the Architect failed to do so. The Architect’s failure in this regard, interfered with the Claimant’s right of recourse against the Nominated Sub-Contractors..” 20

(iv) Therefore, the Certificate of Direct Payment of the Architect was invalid as it was wrongful for the Architect to invoke Clause 27.4 of the Main Contract to effect direct payments to the NSCs and thereby deny the Claimant its contractual right. Consequently, the defendant was entitled to payment under the IPC 32R. The failure of the plaintiff to honour the said payment entitles the defendant to lawfully determine the Main Contract. This conclusion can be seen from paragraph (63) and (86) of the Award: “63. …… It is therefore my determination that the Architect’s Certificate of Direct Payment dated 22 September 2010, addressed to the Respondent, is invalid. Consequently, the Architect’s letters, both dated 23 September 2010, to the Respondent, advising the latter that direct payments may be effected for the Interim Payment Certificates No. 32R and 33, are also invalidated. ……

The Claimant has proved, on the balance of probabilities, that payment under Interim Payment Certificate No. 32R was in fact due, when it issued its notice of determination on 27 September 2010. Based on my findings herein, it is determined that the Claimant was entitled to determine its employment under the Contract and did so in accordance with 21 contractual stipulations, specifically clause 26.1(1) of the Contract. The Claimant’s determination of its employment under the Contract, vide its letter dated 27 September 2010, was lawful and valid. The Respondent’s assertion that the Claimant’s determination was unlawful and therefore a repudiatory breach of the contract, is without merit, and therefore dismissed.” [33] The plaintiff takes the position that the Arbitrator’s conclusions above are legally flawed, and give rise to the Questions of Law referred to in this application. The plaintiff submitted the following errors of law to justify the intervention of this court pursuant to section 42 of the AA 2005 (see paragraph 47 of the Written Submission):

Firstly, the Arbitrator erred in law in failing to recognised that the Nominated Sub-Contracts and Main Contract were designed to work together and the administration of both the Main Contract and the Nominated Sub-Contracts in respect of the Project cannot be treated separately and independently. The Supplementary Agreements which suspend the extension of time mechanism and revised the completion dates for the Project apply, by way of necessary implication, to the Main Contract as well as the Nominated Sub-Contracts. This is particularly so when most of the nominated sub-contract works were contingent upon the defendant first 22 completing its Main Contract works. This is the only reasonable interpretation of the Supplementary Agreements, the interpretation of the Arbitrator in the respect is absurd and ought to be correct by this Court. (1st Error of Law – Question 4 & 5).

(ii) Secondly, the Arbitrator further erred in failing to appreciate that as a matter of law, the defendant has no recourse to liquidated and ascertained damages under the Nominated Sub-Contract by reason that the Nominated Sub-Contract provision relating to the payment of LAD has been deliberately struck out/or left empty. In law, this means that the defendant will be precluded from recovering any LAD from the nominated sub-contractors. (2nd Error of Law – Question 2 & 3)

(iii) Thirdly, the Arbitrator erred in law in failing to appreciate the proper division of risk between the plaintiff and the defendant, i.e. that the Main Contract provides that the defendant is responsible for the Nominated Sub-Contractors. The acts or breaches of the Nominated Sub-Contractors cannot be used to justify the determination of the Main Contract as that would tantamount to rewriting the Main Contract to hold the Plaintiff responsible for the Nominated Sub-Contractors. (3rd Error of Law – Question 1)

(iv) Fourthly, the Arbitrator erred in law in concluding that the Architect lacked impartiality and independence by the sole reason that Architect was required to refer to the Plaintiff for 23 comments on all contractual matters. In law, the fact that a contract administrator obtains the owners’ view does not by itself suggest unfairness on the part of the contract administrator. (4th Error of Law – Question 6)

Fifthly, the Arbitrator erred in law in failing to appreciate that the plaintiff’s contractual right to make direct payment under the Main Contract does not survive the determination of the Main Contract. (5th Error of Law – Question 7)

(vi) Lastly, the Arbitrator erred in law in failing to appreciate that Non-Conformance Reports are not the exclusive means of proving defects. (6th Error of Law – Question 8) 1st Error of Law –Question 3 & 4 [34] The plaintiff takes the position that the Arbitrator has made an error in law for his failure to recognise that the Main Contract and the Nominated Sub-Contracts were designed to work together. The Main Contract was for the construction and completion of earthworks, piling and main building works of the said Project. The Nominated Sub-Contracts are for stone works, timber flooring works, glazing and aluminium works, electrical works, lift installation, swimming pools installation, fire protection, kitchen cabinets, air conditioning and many others (see Exhibit AKP -8). All these Nominated Sub-Contract Works were contingent upon the defendant first completing its Main Contract Works, that is the earthworks, piling and main building 24 works. If the main structural Works by the defendant had not been completed, it goes without saying that the Nominated Sub-Contract Works will face grave difficulties. [35] The defendant had obtained the 1st Revised Completion Date to 20.4.2010 and the 2nd Revised Completion Date to 30.10.2010 from the plaintiff. But with regards to the NSCs, the Arbitrator finds that the NSCs had not obtained an extension of time from the 1st Revised Completion Date (20.4.2010) to complete the Works. The Arbitrator had accepted that only 1st Revised Completion Date (to 20.4.2010) applies to the NSCs, but finds that the NSCs did not obtain the extension of time thereafter. Thus, the Arbitrator finds that the 2nd Revised Completion Date to 30.10.2010 is not applicable to the NSCs. The relevant part of the Award in paragraph [63] reads: “63. ……. Knowing that the Nominated Sub-Contractors had not obtained an extension of time, from 20 April 2010, to complete their contractual works and that the Claimant would have recourse under the Contract to recover any loss and/or damages suffered, from the Nominated Sub-Contractors and thereby deny the Claimant’s contractual right….” (emphasis added) [36] I am of the considered opinion and I agree with the plaintiff that if the 1st Revised Completion Date is applicable to the NSCs (as decided 25 by the Arbitrator), then the 2nd Revised Completion Date must equally apply to the NSCs. [37] In fact, both the Supplementary Agreements dated 17.7.2009 and 19.8.2010 must necessarily apply to the Nominated Sub-Contract. This is because both the Main Contract and the Nominated Sub-Contracts were designed to work together as the Nominated Sub-Contracts were consequential upon the defendant completing their works, such as the structural works. Therefore, if the Main Works have been given an extended time line, the extended time line must equally apply to the Nominated Sub-Contracts. [38] As such, it must necessarily be implied that the extension of time granted to the defendant under the Main Contract under both the Supplementary Agreements dated 17.7.2009 and 19.8.2010, be extended to the Nominated Sub-Contracts as well. The test for implying a term into the contract can be found in the case of Sababumi (Sandakan) Sdn Bhd v Datuk Yap Pak Leong [1998] 3 CLJ 503, where the Federal Court held that before a Court could infer the term, the following conditions must be satisfied:

that the term implied must be “something so obvious that it goes without saying, so that, if while the parties were making their bargain, an officious bystander were o suggest some express provisions for it in the agreement, they would testily suppress him with a common ‘Oh, of course’.”; and 26

that the implied term should be of a kind that will give business efficacy to the transaction of the contract of both parties. Business efficacy means the desired result of the business in question. [39] I am of the considered opinion that the test in Sababumi case (supra) applies in this case, as it is so obvious without saying that the revision of the completion date as agreed in both Supplementary Agreements would also apply Nominated Sub-Contracts as the Nominated Sub-Contracts were consequential upon the defendant completing their works. Thus, implying such a term would also give business efficacy to the Project. [40] If the extension of time under the Supplementary Agreements were not extended to the Nominated Sub-Contract, it will lead to an absurd situation, in that the works by the Nominated Sub-Contractors cannot be completed as they were contingent upon the defendant having to complete their structural works. As such, I agree with the plaintiff that the Arbitrator should have read the contract in a reasonable manner, which does not result in an absurdity. In Lee Chin Huat & Anor v Choo Keng Hee & Anor [2013] 3 MLJ 94, the Court of Appeal held as follows: “[10] In interpreting the undertaking, there was a requirement to interpret the undertaking in such a manner that would lead to a reasonable rather than an absurd result (see ICI Paints (Canada) Inc. v. JM Breton Plastering (1984) Co. [1992] NSJ No. 473). "A court is 27 entitled to consider the logical consequences of each. When one interpretation would lead to an absurdity and the other would not, the courts are entitled to conclude that the contract was not intended to produce an absurd result" (see Brinkerhoff International Inc. v. Numac Energy Inc. [1996] AJ No. 883). "Contracts should be interpreted to produce a common-sense interpretation in keeping with the purpose of the contract and the intention of the parties" (see Kubota Canada Ltd. v. Merchant Private Ltd. [1997] O.J. No. 2028). "An interpretation which defeats the intentions of the parties and their objective in entering into the commercial transaction in the first place should be discarded in favour of an interpretation of the policy which promotes a sensible commercial result" (see Consolidated-Bathurst Export Ltd. v. Mutual Boiler & Machinery Insurance Co (1979), 112 DLR (3d) 49 at p. 58). [11] And in our opinion, it was an absurd result which could not have been the intention of the negotiating parties that the appellants would be left without RM600,000 or document of title. That result must be put right. Since the title had been wrongly released by the respondents to Zinma who would not return the same to the respondents (see 41-48AR), it would therefore seem that the respondents could only be ordered to honour their 28 undertaking by the only doable mode, by payment of the sum of RM600,000 to the appellants.” (emphasis added) [41] Added to that, the Arbitrator failed to explain why he had accepted that the 1st Revised Completion Date (to 20.4.2010) applied to the NSCs, yet he did not accept the 2nd Revised Completion Date under the Supplementary Agreement dated 19.8.2010 being applicable to the NSCs as well. Without any reason to explain either way, the Arbitrator’s decision seemed to be self-contradictory. [42] The defendant takes the position that both Questions 4 and 5 are premised on findings of facts by the Arbitrator and therefore falls outside the ambit of section 42 of the AA 2005. However, I am of the considered opinion that these Questions are on the interpretation of the contracts herein, the application of the Supplementary Agreements and their interactions with the Main Contract and the Nominated Sub-Contracts. In Far East Holding’s case, the Federal Court held that a question of construction of a document is a question of law within the ambit of section 42 of the AA 2005. Added to that, in Bintulu Development Authority v Pilecon Engineering Bhd [2007] 2 MLJ 610, the Court of Appeal held as follows: “It is trite law that the construction of a written document is a question of law and not fact ….” 29 [43] Therefore, I am of the considered opinion that the Arbitrator has made an error in law when he failed to interpret that both the Supplementary Agreements apply to the NSCs, and not just the Supplementary Agreement dated 17.7.20019, which extended the completion date to 20.4.2010. As such, the answer to Question 4 and 5 are as follows:

Question 4 – positive – that the suspension of the extension of time mechanism in the Main Contract by way of the Supplemental Agreements entered into by the defendant and the plaintiff, would similarly suspend the extension of time mechanisms in the Nominated Sub-Contracts.

(ii) Question 5 – negative – that a Certificate of Non-Completion could not have been issued by the Architect against the Main Contractor or Nominated Sub-Contractors before the period specified for completion of works, as amended by the Supplemental Agreements, had lapsed. 2nd Error of Law – Question 2 & 3 [44] It is the submission of the plaintiff that the Arbitrator had erred in law in concluding that the failure of the Architect to issue the CNC for the NSCs’ delay and the Architect’s refusal to amend Certificate 30, 31, 32R and 33 to reflect the deductions for the delay compensation from payments due to the NSCs had interfered with the defendant’s right to recourse to recover liquidated damages from the NSCs. This can be seen from paragraphs (48), (49) and (63) of the Award: 30 “48. I have determined earlier in this Final Award that the Nominated Sub-Contractors too, had caused significant delay, and thus were responsible for the delay to the Works completion, and that the Architect ought to have issued the Certificate of Non-Completion to the Nominated Sub-Contractors, who had not completed their contractual works, as provided for in the Contract.

Clause 27.2 (vi) of the Conditions of Contract infers to the Nominated Sub-Contract provision, which allows the Claimant to recover any loss and/or damage suffered or incurred, which had been caused by the failure of the Nominated Sub-Contractors to complete the sub-contract works. This provision is subject to the Architect issuing the Certificate of Non-Completion …. … It is therefore my determination that the Architect ought to have certified non-completion of specific nominated sub-contract works which had not been completed in accordance with the Contract and that the Claimant is entitled to recover any loss and/or damage suffered, as per the contractual stipulation… …..

Premised on findings herein and my determination that the Claimant had a right of recourse against the 31 Nominated Sub-Contractors under the Contract, to recover and loss and/or damage suffered, I am disinclined to accept the Respondent’s submission that the direct payment machinery in Clause 27.4 of the Contract had been properly exercised. Despite the Claimant’s repeated request to the Architect, for Interim Certificate No. 30, 31, 32R and 33 to be amended to reflect the deduction for delay compensation to be made from payments due to the Nominated Sub-Contractors under the said Certificates, the Architect failed to do so. The Architect’s failure in this regard, interfered with the Claimant’s right of recourse against the Nominated Sub-Contractors...” (emphasis added) [45] However, I agree with the plaintiff that the Arbitrator has failed to appreciate that the defendant has no right of recourse for LAD from the NSCs because the Nominated Sub-Contracts provisions relating to payment of LAD have been deliberately struck out and/or left empty. In Temloc Ltd v Errill Properties Ltd (1987) 110 12 Con LR 109, the English Court of Appeal held at page 115-116: “I think it is clear, both as a matter of construction and as one of common sense, that if (1) clause 24 is incorporated in the contract and (2) the parties complete the relevant part of the appendix, either by stating the rate at which the sum is to be calculated or, as here, by stating that the sum 32 is to be nil, then that constitutes an exhaustive agreement as to the damages which are or are not payable by the contractor in the event of his failure to complete the work on time ..” [46] Therefore, I am of the considered opinion and I agree with the plaintiff that in the Nominated Sub-Contacts, where the provision on LAD has been struck out and/or left empty, it shows the intention of the parties that the LAD provision shall not apply. Since the provision on the LAD has been struck out and/or left empty, then the defendant has no right of recourse for LAD against the NSCs in the first place. [47] Consequently, there is no necessity for the Architect to issue the CNC, as the defendant has no right of recourse for LAD against the NSCs in the first place. As such, I find that the Arbitrator has made an error in law in the interpretation of the provision on LAD in the Nominated Sub-Contract. In Ganda Edible Oils Sdn Bhd v Transgrain B.V [1988] 1 MLJ 428, the Supreme Court held at page 431: “…. if it appears on the face of the award that the arbitrator has proceeded illegally, as for instance, by deciding on evidence which was not admissible, or on principles of construction which the law does not countenance, there is an error of law which may be ground for setting aside the award” (emphasis added) 33 [48] It is the submission of the defendant that Questions 2 was not raised during the arbitration proceedings. However, Exhibit AKP-17 shows that this issue was raised before the Arbitrator. [49] The defendant added that on the issue of the absence of the provision of LAD, the Arbitrator made reference to both Clause 27.2(vi) of the Main Contract and Clause 7 of the Nominated Sub-Contract, which provides for loss and/or damages for non-completion. However, I agree with the plaintiff that the loss and/or damages refer to general damages and the right to recover the same is under section 74 of the Contracts Act 1950. But in this arbitration claim, the defendant’s claim is premised on delay, that is the LAD. And Clause 7.2 of the Nominated Sub Contract must be read with the Appendix, which shows that the payment of LAD has been deliberately struck out and/or left empty. [50] In respect of Question 3, the defendant submits that the determination of the Main Contract by the defendant was made under Clause 26 of the Main Contract, which is contrary to the plaintiff’s contentions in Question 3. [51] However, I agree with the plaintiff that if we look at the Arbitrator’s decision, he has found that the defendant had validly determined the Main Contract on the following chain of reasoning:

that the Arbitrator had a right of recourse which was denied by the Architect’s failure to issue a Certificate of Non-Compliance; 34

(ii) consequently, the Certificate of Direct Payment was invalidated by the Arbitrator; and

(iii) therefore, the defendant was entitled to be paid and the failure of the plaintiff to pay the defendant entitles the defendant to determine the Main Contract. [52] It is my considered opinion and I agree with the plaintiff that by leaving the provision on LAD blank, the parties to the Nominated Sub-Contracts have agreed that the LAD provision is not applicable. Therefore, it cannot be said that the defendant was denied of its recourse for LAD against the NSCs. Likewise, the issue of the non-issuance of the CNC is rendered academic. Therefore, the Arbitrator’s chain of reasoning in this respect is flawed. [53] Therefore, I am of the considered opinion that the Arbitrator has made an error in law in arriving at his conclusion and the answers to Question 2 and 3 are as follows:

Question 2 – negative

(ii) Question 3 – negative 3rd Error of Law – Question 1 35 [54] On this issue, the Arbitrator made a finding that the defendant was entitled to determine the Main Contract because he finds that the NSCs were also responsible for the delay. The Arbitrator has held that the defendant was justified in determining the Main Contract by relying on the NSCs’ delay and the non-issuance of the CNC by the Architect to the NSCs. This simply means that the plaintiff as the employer is held responsible for the delays of the NSCs. [55] However, this finding is contrary to Clause 27.7 of the Main Contract, which reads: “The Contractor shall be fully responsible for all Nominated Sub-Contractors or Suppliers and for any default or breach of contract on their part and the Employer shall in no circumstances be liable to the Contractor. Neither the existence nor the exercise of the foregoing powers nor anything else contained in these Conditions shall render the Employer in any way liable to any Nominated Sub-Contractors.” (emphasis added) [56] Therefore, the above clause clearly provides that the defendant is wholly responsible for the actions of the NSCs, including the issue of delay. This is clearly a misinterpretation of Clause 27.7 of the Main Contract and therefore Question 1 falls within the ambit of section 42 of the AA 2005. The answer to Question 1 is in the negative. 36 [57] However, it is the submission of the defendant that Question 1 is based on the Arbitrator’s finding of facts the NSCs were also responsible for the delay and therefore the breaches by the NSCs justify the determination by the defendant. The plaintiff does not dispute that the Arbitrator’s finding of fact that the NSCs were also responsible for the delay, together with the defendant. But, the breaches of the NSCs cannot be afforded to the plaintiff, as this is clearly against Clause 27.7 of the Main Contract. This falls within the construction of Clause 27.7 of the Main Contract and is a question of law, not of facts. 4th Error of Law – Question 6 [58] The defendant submits that the Arbitrator’s findings on the Architect’s impartiality and independence are matters of facts and it is not open for the plaintiff to invite this court to re-evaluate the Arbitrator’s findings of facts. [59] However, it is the submission of the plaintiff that the Arbitrator has erred in concluding that the stipulation in the professional services agreement whereby the Architect is required to refer to the plaintiff for comments on all contractual matters means that the Architect lacked independence and impartiality. Paragraph [34] of the Award reads: “34. …….. I take cognizance of the fact that the Architects professional services agreement with the Respondent contains 37 a stipulation whereby the Architect is required to refer to the Employer (Respondent) for comments on all contractual matters. Such a requirement could bring into question the ability of the Architect to administer the Contract in an independent and impartial manner.” (emphasis added) [60] The Arbitrator’s questioning of the independence and impartiality of the Architect is not a finding of fact adduced from the evidence of parties, but premised on his interpretation of the Architect’s professional services agreement with the plaintiff. On this, I am of the considered opinion that the Arbitrator has failed to give a correct interpretation with regards to the Architect’s professional services agreement. The fact that a contract administrator has to obtain the owner’s view does not by itself suggest unfairness in the part of the contract administrator. In Construction Law by Julian Bailey, the author opined at page 322: “The fact that the contract administrator may have communicated or met with the owner unilaterally, to obtain the owner’s views on a matter in respect of which the contract administrator is required to make a decision, does not by itself suggest unfairness. This is to be contrasted with the position of a judicial officer deciding a dispute, where unilateral communications could (and ordinarily would) give rise to the appearance of bias. A contract administrator is not required – unlike a judge – to give the appearance of being impartial. What matters is that the contract administrator is not actually partial between the 38 contracting parties, or at least there is not a material probability of the contract administer being biased.” [61] In the premise, I am of the considered opinion that the Arbitrator has erred in law in his interpretation of the Architect’s professional services agreement, resulting in his questioning the ability and impartiality of the Architect. Consequently, the answer to Question 6 is in the negative. 5th Error of Law – Question 7 [62] The plaintiff takes the position that the Arbitrator has erred in concluding that the plaintiff did not honour payment for Certificate No. 32R for failing to make actual payment to the defendant or the NSCs pursuant to the direct payment mechanism. In paragraph [77] of the Award, the Arbitrator held as follows: “Given the unambiguous language of Clause 27.4, I am inclined to accept the argument that without actual payment being made either to the Claimant or the Nominated Sub-Contractors, the Respondent would not have honoured Payment Certificate No. 32R. The Respondent’s course of action in this matter, is clearly not in conformity with the specific stipulations in Clause 27.4 of the contract conditions. It is not disputed that the Respondent did not effect payment, in Interim 39 Payment Certificate No. 32R, either to the Claimant or the Nominated Sub-Contractors.” (emphasis added) [63] The defendant had issued the letter to determine the main Contract on 27.9.2010. This is only about three (3) from the letter dated 24.9.2010 issued by the plaintiff informing the defendant that the plaintiff will exercise its right under the Main Contract to make direct payment to the NSCs due to the defendant’s failure to make payment to the HSCs, pursuant to the Architect’s letter dated 23.9.2010. Therefore, since the Main Contract had come to an end, the plaintiff had placed the sum deducted in respect of Payment Certificate No. 32R in an escrow account pending the determination of the issues, inter alia, whether the plaintiff has the right to make direct payment. [64] Therefore, I am of the considered opinion that since the direct payment is based on Clause 27.4 of the Main Contract, this provision does not survive the termination of the Main Contract. In Lezzi Construction Pty Ltd v Watkins Pacific Ltd [1995] 2 Qd 350, the Supreme Court of Queensland held as follows: “With the contract out of the way, there is no reason in principle why the limitation imposed by cl. 10(d) should continue to control the plaintiff’s right to be paid remuneration for work it has done. It is true that particular contractual provisions sometimes survive 40 termination of the contract whether occurring by reason of performance, repudiation, or otherwise. Of this, the decision in Heyman v Darwins Ltd [1942] AC 56 is perhaps the most prominent example. But in those cases the contractual provision survives because it is apparent from the terms of the agreement itself and of the particular provision that it is intended to continue governing the relations of the parties even after the rest of the contract is gone.” (emphasis added) [65] In the Main Contract, there is no clause that allows Clause 27.4 to survive upon the termination of the Main Contract. As such, I am of the considered opinion that the Arbitrator has made an error of law in his conclusion that the plaintiff ought to have made actual payment to the NSCs, notwithstanding that the Main Contract had been determined. Therefore, the answer to Question 7 is in the negative. 6th Error of Law – Question 8 [66] The defendant submits that the Arbitrator’s findings on the defects, liability and quantum are matters of facts and it is not open for the plaintiff to invite this court to re-evaluate the Arbitrator’s findings of facts. 41 [67] However, I agree with the plaintiff that even though the Arbitrator had acknowledged the extensive documents with photographs and a pen drive relating to the defective works submitted by the plaintiff, the Arbitrator’s findings on failure of the plaintiff to prove its counterclaim is premised on the sole reason that the Non-Conformance Reports were not issued by the Architect. [68] In Far East Holding’s case, a question of law includes ‘a question as to the correctness of the law applied’. The law to be applied in civil cases, including arbitration cases, is to consider all the admissible evidence, such as the documents tendered and is not limited only to the non-issuance of Non-Conformance Reports. Therefore, with regards to Question 8, the Non-Conformance Reports are not exclusive and the Arbitrator is legally required to consider other admissible evidence tendered in the arbitration proceedings. Conclusion [69] Premised on my reasons enumerated above, the Questions of Law referred by the plaintiff falls within the ambit of section 42 of the AA 2005, as they are questions of law that arise from the Award which substantially affects the rights of parties. In the premise, the application is allowed with costs and the Award is hereby set aside and be remitted back to the Arbitrator for reconsideration of the same with this Court’s determination on the questions of law. 42 (AZIZAH BINTI HAJI NAWAWI) JUDGE HIGH COURT MALAYA (Appellate and Special Powers Division 2) KUALA LUMPUR Dated: 26 July 2018 For the Plaintiff : Rajendra Navaratnam /Mak Hon Pan Messrs Azman Davidson & Co Kuala Lumpur. For the Defendant: Logan Sabapathy/Felix Dorairaj/Alithea Wong Messrs Dorairaj, Low & Teh Kuala Lumpur. Cases referred:

Far East Holdings Bhd & anor v. Majlis Ugama Islam dan Adat Resam Melayu Pahang& Other Appeals [2018] 1 CLJ 693.

Sababumi (Sandakan) Sdn Bhd v Datuk Yap Pak Leong [1998] 3 CLJ

503.

Lee Chin Huat & Anor v Choo Keng Hee & Anor [2013] 3 MLJ 94.

Bintulu Development Authority v Pilecon Engineering Bhd [2007] 2

Temloc Ltd v Errill Properties Ltd (1987) 110 12 Con LR 109. 43

Ganda Edible Oils Sdn Bhd v Transgrain B.V [1988] 1 MLJ 428.

Lezzi Construction Pty Ltd v Watkins Pacific Ltd [1995] 2 Qd 350.