Tri Pacific Engineering Sdn Bhd v Kl Eco City Sdn Bhd (WA-24C-15-01/2024)

that the balance Adjudicated Sum in the amount of RM192,970.76 to be paid by the Defendant, as the principal under s 30 of the Construction Industry Payment and Adjudication Act 2012 [Act 746] (‘CIPAA’), to the Plaintiff pursuant to the Adjudication Decision dated 8.5.2023 (‘AD’) delivered by the learned Adjudicator Shaun Asok Kumar under the CIPAA; and

that, in the event any payment was made by the Defendant to Ireka Engineering & Construction Sdn Bhd (‘Ireka’) as the main contractor after the Plaintiff’s notices of direct payment dated 9.5.2023 and 23.5.2023 under sub-s 30(1) CIPAA, the Defendant should make the same payment again to the Plaintiff. [2] After having considered the cause papers and the oral and written submissions of the parties, I had dismissed the Plaintiff’s application. [3] The Plaintiff is dissatisfied with my decision and I now provide my full grounds of judgment. The Cause Papers [4] The cause papers are as follows:

the Plaintiff’s Originating Summons (‘O.S.’) dated 30.1.2024 (encl. 1);

the Plaintiff’s Affidavit In Support (‘AIS’) affirmed by its Director, Ong Kian Joo on 26.1.2024 (encl. 2);

the Defendant’s Affidavit In Reply (‘AIR’) affirmed by its Director, Tan Siow Chung on 1.3.2024 (encl. 4);

the Plaintiff’s AIR affirmed by the same deponent on 15.3.2024 (encl. 5);

the Defendant’s AIR affirmed by the same deponent on 1.4.2024 (encls. 7 - 8); and

the Plaintiff’s AIR affirmed by the same deponent on 25.4.2024 (encl. 12). [5] At the outset, it is observed that the AIS was affirmed before the filing of the O.S.. O. 41, r. 1(1) of the Rules of Court 2012 (‘RC 2012’) provides that every affidavit sworn in a cause or matter shall be entitled in that cause or matter. In the past, a technical view was taken that an affidavit cannot be affirmed before the filing of the application it is intended to support. However, the current approach appears to be more liberal (see the discussion in Malaysian Civil Procedure 2021, Volume I, Sweet & Maxwell at p 588). [6] Affidavits for use in West Malaysia must be made in the national language and a translation in English is optional. It is further observed that the Plaintiff’s counsel had inserted the translations in English after each paragraph of the affidavits in encls. 2, 5 and 12. In my opinion, this renders the affidavits as being irregular. It also casts doubt as to which language the deponent made his affirmations. [7] However, no objection or issue was raised by the Defendant on the two matters as aforesaid. Background Facts [8] By way of a contract dated 27.3.2015, the Defendant appointed Ireka as the main contractor to carry out works for a mixed development project known as Parcel C, Office Tower 2 on Government land at Seksyen 95A & 98, Kampung Haji Abdullah Hukum, Jalan Bangsar, Wilayah Persekutuan for the joint venture project between Kuala Lumpur City Hall and KL Eco City Sdn Bhd (‘Project’). [9]

17.2 The adjudicated amount shall be paid to the Claimant on or before 22.05.2023 being 10 working days from the date of this decision.

17.3

17.4

17.5 The cost of the adjudication proceedings shall be paid by the respondent to the claimant by the 22.05.2023 for the full amount.

17.6 All other cost of claim preparation and incidental charges are to be borne respectively by the Respondent for the costs of the Claimants representatives for RM 30,000.00 only.

17.7 The total amount payable by the Respondent to the Claimant is RM1,739,651.44.”. [12] Subsequently, the Plaintiff, through its representative, MAC Construction Consultant Sdn Bhd (‘MAC’), issued and served the Notice To Request Direct Payment made pursuant to s 30 CIPAA to the Defendant on 9.5.2023 for the sum of RM1,191,624.42 (‘First Notice’), which is computed as follows: NO. PARTICULARS

Adjudicated amount (after deducting payment of RM532,940.70) 998,653.65 2. Late payment interest 130,289.73 3. Adjudication proceedings cost 32,681.04 4. Claim preparation and incidental charges cost 30,000.00 Total Adjudicated Amount 1,191,624.42 [13] On 23.5.2023, MAC issued another Notice To Request Direct Payment made pursuant to s 30 CIPAA to the Defendant for the same amount of RM1,191,624.42 (‘Second Notice’). In the Second Notice, MAC referred to the Defendant’s reply dated 17.5.2023 and had disagreed to the Defendant’s contention that the First Notice is premature, presumably because the First Notice was issued before the time for payment of the adjudicated amount under the AD had lapsed. [14] The Defendant then sent the Notice to Show Proof of Payment under sub-s 30(2) CIPAA to Ireka on 25.5.2023. In this Notice, the Defendant referred to the First Notice and the Second Notice and stated that it has been served “Notices” under sub-s 30(1) CIPAA by the Plaintiff. [15] The Defendant requested Ireka to show proof of payment of the adjudicated amount under the AD within 10 working days from 25.5.2023, failing which it shall exercise its rights under sub-s 30(4) CIPAA in respect of the adjudicated amount and all its rights under the contract to back-charge or set-off the adjudicated amount from the Plaintiff to Ireka. [16] On 16.6.2023, MAC wrote to the Defendant stating that the 10-working day period stipulated under sub-s 30(2) CIPAA has expired and the Plaintiff has not received the adjudicated amount from Ireka (‘Demand Notice’). MAC demanded that the Defendant pay the adjudicated amount within 14 days from the date of receipt of the Demand Notice. [17] The Defendant replied to MAC vide the letter dated 30.6.2023 to inform that the Defendant was still reviewing the Plaintiff’s claim in the Demand Notice and a response will be given within 14 days. The Defendant made no admission to the contents of the Demand Notice and strictly denied that there are monies due and owing from the Defendant to the Plaintiff in the sum of RM1,191,624.42 under s 30 CIPAA. [18] On the same date, MAC wrote back to the Defendant to inform that the Plaintiff agrees to await the Defendant’s response to the Demand Notice within 14 days from 30.6.2023. [19] By way of the letter dated 17.7.2023, the Defendant sought the Plaintiff’s indulgence to grant a final extension of time (‘EoT’) until 31.7.2023 to enable the Defendant to review and assess the Plaintiff’s claim. The Defendant reiterated that its letter does not amount to an admission to the Demand Notice and that the amount referred to under s 30 CIPAA should not include interest and adjudication cost. [20] MAC replied on 18.7.2023 to convey that the Plaintiff agrees to the EoT until 31.7.2023 and disagrees that the direct payment should not include interest and adjudication cost. [21] On 31.7.2023, the Defendant wrote to MAC stating, among others, that it has reviewed the Plaintiff’s claim in the Demand Notice and that – “…

Under the Main Contract, there is only an outstanding sum of RM998,653.66 in relation to your client to be released. Hence, we are agreeable to make payment of RM998,653.66 only being the balance of the 2.5% of the retention sums referred to in the Adjudicated Amount in the Adjudication Decision as the expression ‘Adjudicated Amount’ under Section 30 does not include interest and adjudication cost;

We do not agree with your Client's claim for interest in the Adjudication Decision as you Client is only entitled to the release of the residue of the retention sum upon issuance of the Certificate of Making Good Defects under the Main Contract between us and Ireka

Upon acceptance of the sum referred to in paragraph

above, your Client shall not have any further claim against our Client under the Adjudicated Decision and the Project. As such, we enclose herewith our HSBC Amanah Malaysia Berhad cheque No. 013268 dated 25 July 2023 in the sum of RM998,653.66 for payment of the 2.5% of the retention sums to your Client. …”. [22] MAC responded by the letter dated 1.8.2023, inter alia, that “…

Despite your letter dated 31.07.2023 being addressed to us, we have noted that your office contacted our Client to collect the letter dated 31.07.2023 along with the attached cheque. We would like to express our concern and protest against the direct contact made by your office with our Client as our Client is a layman in legal matters and does not possess the necessary understanding of the legal implications involved.

We are instructed by our Client to state the following: a. Our Client acknowledges receipt of the RM998,653.66 payment vide HSBC cheque dated 25.07.2023 and your refusal to pay interest and adjudication cost awarded under the adjudication decision dated 08.05.2023. b. Our Client maintains that the direct payment under Section of 30 of CIPAA 2012 shall include interest and adjudication costs. c. Our Client disagrees with paragraph (c) of your letter and will treat the RM998,653.66 as part payment of the RM1,191,624.42 direct payment sum. The balance of the direct payment sum is therefore RM192,970.76. …”. [23] On 11.9.2023, the Plaintiff’s solicitors issued a notice of demand to the Defendant demanding for the balance direct payment in the sum of RM192,970.76 (‘Balance Adjudicated Amount’). [24] The Defendant then issued a Notice to Show Proof of Payment under sub-s 30(2) CIPAA to Ireka on 21.9.2023 wherein reference was made to the Plaintiff’s solicitors demand dated 11.9.2023 and for Ireka to – “TAKE NOTICE that we hereby serve on you, Ireka, a Notice to Show Proof of Payment of the Adjudicated Amount under the Adjudication Decision, within ten (10) working days from the date herein, failing which direct payment amounting to RM87,916.92 would be made towards the Adjudicated Amount after the expiry of the said ten (10) working days pursuant to Section 30 (2) and (3) of CIPAA 2012 and the same shall be set-off from the total remaining balance sum of RM87,916.92 due and payable by us to Ireka under the contract pursuant to Section 30 (4) of CIPAA 2012.”. [25] The Plaintiff’s solicitors issued the letter dated 22.9.2023 to the Defendant’s solicitors to put across the following positions: “2. We wish to clarify that KL Eco City’s Notice, pursuant to Section 30(2) of the CIPAA 2012, was already served by your client (i.e., KL Eco City) via their letter dated 25th

The 10-working-day period stipulated under Section 30(2) of the CIPAA 2012 has long lapsed.

Section 30(2) of the CIPAA 2012 does not require nor allow KL Eco City, the principal, to issue a fresh notice. Therefore, we believe that the KL Eco City's Notice is redundant. For the avoidance of doubt, we state that the KL Eco City’s Notice does not qualify as a notice made under Section 30(2) of the CIPAA 2012.

Our client's right to demand direct payment was triggered by their consultant’s notices dated 9th May 2023 and 23rd May 2023, as outlined in Attachments 2 and 3 of Our Notice of Demand.

Furthermore, we acknowledge that in the KL Eco City’s Notice, KL Eco City alleged that the remaining balance is only RM87,916.92. With no agreement regarding this sum, we are instructed by our client to request that your client (i.e., KL Eco City) discloses all payment records directly or indirectly associated with Ireka's payment since 9th May 2023 (i.e., the date of the first direct payment notice dated 9th May 2023) WITHIN SEVEN (7) DAYS FROM THE DATE OF RECEIVING

Furthermore, we are instructed by our client to demand the remaining balance for direct payment of RM192,970.76 WITHIN

DAYS OF RECEIVING THIS LETTER. Failing compliance, our client reserves the right to commence direct payment proceedings under Section 30 of the CIPAA 2012 against your client (i.e., KL Eco City).”. [26] The Defendant’s solicitors replied on 29.9.2023 stating, among others, that: “…

2.1 Our client takes cognizance of your client's position in paragraph 5 of Your 2nd Letter that your client has triggered the right to seek direct payment under Section 30 of the CIPA Act through your client’s consultant’s, namely MAC Construction Consultant Sdn Bhd's (“MAC”) letters dated 9.5.2023 and 23.5.2023 (collectively as “Section 30 Demands”) and not Your 1st Letter.

2.2. As at the time when Section 30 Demands were made, other than the retention sum amounting to RM 998,653.66 (“Retention Sum”) which was due and payable by our client to Ireka …, there was no further sum that was due or payable by our client to Ireka.

2.3 The Retention Sum, being the only outstanding sum that was due and payable to Ireka at the time of the Section 30 Demands, was paid in full by our client to your client via a cheque dated 25.7.2023 in satisfaction of the Section 30 Demands and discharge of our client's obligations under Section 30 of the CIPA Act. A copy of our client's letter dated 31.7.2023 to MAC is enclosed herewith for your reference.

2.4 That being the case, our client is not obliged to pay the Demanded Sum (or any part thereof) to your client as demanded in the Your Letters as there was no further sum that was due and payable from our client to Ireka when the Section 30 Demands were made (which is the basis of Your Letters). …”. [27] The Plaintiff then filed the O.S. to seek the prayers as set out in paragraph 1 above. [28] On 1.3.2024, the Defendant and Ireka entered into an agreement (‘Settlement Agreement’) for purposes of reaching a full and final settlement in relation to the utilisation and manner of payment of the contract sum which is due and payable to Ireka under the OT2 Contract in full to settle and set off the contract sum which is due and payable to Ireka under the OT2 Contract and the RT1 Contract in full. Based on the First Schedule in the Settlement Agreement, the OT2 Contract is the contract mentioned in paragraph 8 above whilst the RT1 Contract is the mixed development project known as Parcel A on the same piece of land. The Legal Principles [29] Section 30 CIPAA is re-produced below for the ease of reference: “Direct payment from principal

(1) If a party against whom an adjudication decision was made fails to make payment of the adjudicated amount, the party who obtained the adjudication decision in his favour may make a written request for payment of the adjudicated amount direct from the principal of the party against whom the adjudication decision is made.

Upon receipt of the written request under subsection

(1), the principal shall serve a notice in writing on the party against whom the adjudication decision was made to show proof of payment and to state that direct payment would be made after the expiry of ten working days of the service of the notice.

In the absence of proof of payment requested under subsection (2), the principal shall pay the adjudicated amount to the party who obtained the adjudication decision in his favour.

The principal may recover the amount paid under subsection (3) as a debt or set off the same from any money due or payable by the principal to the party against whom the adjudication decision was made.

This section shall only be invoked if money is due or payable by the principal to the party against whom the adjudication decision was made at the time of the receipt of the request under subsection (1).”. [30] Both the learned counsels representing the parties had cited the case of Cabnet Systems (M) Sdn Bhd v Dekad Kaliber Sdn Bhd & Anor [2020] MLJU 311 (HC) where it was held that four conditions must be fulfilled when direct payment from the principal is requested. The four conditions are as follows:

the main contractor has failed to pay the adjudicated amount to the plaintiff;

the plaintiff has made a written request for the defendant (principal) to pay the adjudicated amount directly to the plaintiff;

there is a sum of money due from the defendant to the main contractor at the time of the defendant’s receipt of the plaintiff’s written request; and

the defendant did not comply with the plaintiff’s written request and did not pay the adjudicated amount directly to the plaintiff. [31] Mr. Reno Nga who appeared for the Plaintiff, also drew support from the following cases:

Chong Lek Engineering Works Sdn Bhd v PFCE Integrated Plant and Project Sdn Bhd and another case [2020] MLJU 2389 where the High Court held that when the party requesting for direct payment under s 30 CIPAA proves the 1st, 2nd and 4th Conditions explained in Cabnet Systems (supra), the evidential burden concerning the 3rd Condition shifts from the party requesting for direct payment to the principal. Section 106 of the Evidence Act 1950 [Act 56] applies in respect of the 3rd Condition because the party requesting for direct payment does not have any access to the contract between the principal and the main contractor.

Progress Centre Engineering Sdn Bhd v Desaru Corniche Hotel Sdn Bhd & Anor [2023] 12 MLJ 597 where the High Court held that the principal could not rely on a dispute resolution agreement where the plaintiff was not a party to override the plaintiff’s right to invoke the direct payment mechanism as statutorily provided in the CIPAA.

Fulloop Sdn Bhd v Seal Properties (KL) Sdn Bhd [2023] MLJU 1861 where the High Court held that a consent judgment entered into between the principal and the defendant is evidence that there was payment due and payable from the principal to the defendant at the material time.

Pali PTP Sdn Bhd v Bond M&E Sdn Bhd and another appeal [2023] 6 MLJ 176 where the Court of Appeal held that the adjudicated amount includes interest and costs awarded in the adjudication decision. Analysis and Findings of the Court [32] In the Plaintiff’s Written Submission (encl. 13) and the Table of Comparison (encl. 23; prepared jointly by the learned counsels), the Plaintiff listed four issues for the determination of the Court, namely –

Issue No. 1: Whether the sum due or payable to the Main Contractor by the Defendant on the date of receipt of the Plaintiff’s notice of demand made under s 30 CIPAA is more than RM998,653.65;

Issue No. 2: Whether the Defendant is liable under s 30 CIPAA to pay the Balance Adjudicated Amount of RM192,970.76 to the

Issue No. 3: Whether the Defendant is allowed to rely on the Settlement Agreement made during judicial management and includes another contract to resist the Plaintiff’s direct payment application under s 30 CIPAA; and

Issue No. 4: Whether the Defendant is allowed to enter into a Settlement Agreement with the Main Contractor to extinguish the Plaintiff’s right for payment in the context of PAM Contract 2006 and PAM Sub-Contract 2006. [33] However, on the date of hearing, the Plaintiff’s counsel informed that the Plaintiff will not pursue Issue Nos. 3 and 4 above. Hence, only Issues Nos. 1 and 2 will be discussed in this judgment. Issue No. 1: Whether the sum due or payable by the Defendant to Ireka on the date of receipt of the Plaintiff’s notice of demand made under s 30 CIPAA is more than RM998,653.65 Issue No. 2: Whether the Defendant is liable under s 30 CIPAA to pay the Balance Adjudicated Amount of RM192,970.76 to the Plaintiff [34] Both these Issues can be addressed together. [35] The gist of the Plaintiff’s submission is that there is a distinction between the words “due and payable” and “due or payable”. Under sub-s 30(5) CIPAA, the Defendant is only obliged to make direct payment if there is money due or payable to the Plaintiff. “Due” means a debt exists, while “payable” means there is an obligation to pay. “Due” is stricter; if it is “payable”, it suffices as long as the obligation to pay arises when properly claimed (see HSL Ground Engineering Sdn Bhd v Civil Tech Resources Sdn Bhd & Another Case [2020] CLJU 526). [36] The Plaintiff had served the notices for direct payment to the Defendant in May 2023. According to the Final Certificate dated 10.6.2023 (see exhibit “TSC-9”, encl. 4) the amount due to Ireka is RM5,461,068.37 as of 10.6.2023. The Plaintiff argued that the Settlement Agreement serves as concrete evidence that there were payments due or payable when the First Notice and Second Notice were issued by the Plaintiff to the Defendant. By applying the principles laid down in Fulloop’s case, the Defendant is liable to pay the balance adjudicated amount. [37] Mr. Reno Nga vehemently submitted for the Plaintiff that the 1st, 2nd and 3rd Conditions as explicated in Cabnet Systems have been met and the burden then shifts to the Defendant to prove that there is no sum due or payable to Ireka. It was contended that the Defendant has failed to discharge this burden. [38] Firstly, although in paragraph 9.3 of the Defendant’s AIR (encl. 4), the Defendant has referred to the First Notice and the Second Notice as the “Section 30 Demand” and the Plaintiff had, by way of its solicitors’ letter dated 22.9.2023, taken the position and confirmed that “[the Plaintiff]’s rights to demand direct payment was triggered by [MAC]’s notices dated 9.5.2023 and 23.5.2023”, in my view, the valid Notice of Request under s 30 CIPAA is the Second Notice because on the date when the First Notice was issued by MAC, the time frame for Ireka to pay the adjudicated sum to the Plaintiff based on the AD had not expired. [39] Therefore, the relevant question is whether there is any money due or payable by the Defendant to Ireka at the time of receipt of the Second Notice i.e. on 23.5.2024. [40] Secondly, the Final Certificate shows the amounts due to 12 NSC including the Plaintiff. The total sum due to these NSC is RM4,345,109.04, out of which, RM998,653.66 is due to the Plaintiff. Hence, The total amount due under the Final RM9,806,178.31 Certificate of Payment No. 53 (Final) The total amount due to NSC RM4,345,109.04 - Amount due to Ireka RM5,461,068.37 [41] In its AIR (encl. 4), the Defendant averred as follows: “10.1. Prior to the Section 30 Demand, by way of an Agreement dated 27.2.2023 executed between the Defendant and Ireka (“Settlement Agreement”),

The Defendant and Ireka had agreed to a full and final settlement of (i) the sum due and payable by the Defendant to Ireka pursuant to the OT2 Contract and (ii) the sum due and payable by Ireka to the Defendant a pursuant to the RT1 Contract, in accordance with the terms and conditions stated therein.

For the avoidance of doubt, OT2 Contract is the Contract stated in paragraph 4 above which is for the same project as referred to in the Letter of Appointment.

(c)

In accordance with Second Schedule of the Settlement Agreement, the amount specified in the Second Schedule shall be subject to the confirmation of the Statement of Final Account.

As at the date when the Final Certificate was issued by GDP to the Defendant on 10.6.2023 ("Final Certificate"), the amount due and payable under the OT2 Contract and the RT1 Contract respectively were as follows: RT1 OT2 Total Outstanding Amount RM 5,275,472.29 (refer to the Second Schedule of the Settlement Agreement) RM 5,363,389.21 (refer to the breakdown of amount payable to Ireka (“Breakdown”) (RT1) - (OT2) RM 87,916.92” [42] The Defendant’s averment (see subparagraph 11.3, encl. 4) and submission regarding the sum of RM87,916.92 is as an alternative argument to the main defence that there was no money due or owing at the time when the Plaintiff made the request for direct payment from the Defendant on 23.5.2024. [43] In its Written Submissions (encl. 16), the Defendant had shown the Chronology of Main Events in APPENDIX A. I have considered these events, which have largely been narrated under the “Background Facts” above, and I find that at the time of the Defendant’s receipt of the Second Notice on 23.5.2024, it was only the balance outstanding retention sum in respect of the Plaintiff’s portion of the works amounting to RM998,653.66 which was due and payable by the Defendant to Ireka. The Defendant had paid the Plaintiff the sum of RM998,653.66 on 25.7.2023. [44] The Final Certificate was issued on 10.6.2023, after the Second Notice was received by the Defendant. Pursuant to the Final Certificate, after taking into account the set-off/ deduction made in accordance with the Settlement Agreement, the amount due or payable by the Defendant to Ireka is RM87,916.92. [45] The Plaintiff had disputed the steps taken by the Defendant to issue a fresh notice under sub-s 30(2) CIPAA for the purpose of making direct payment of RM87,916.92 on the basis that the Plaintiff’s right to demand direct payment was triggered by the First Notice and the Second Notice. Hence, the Defendant is not in a position to make direct payment to the Plaintiff in the sum of RM87,916.92. [46] The money which is due or payable by the Defendant to Ireka as at the date of MAC’s letter dated 1.8.2023 was only in the sum of RM87,916.92, and not RM192,970.76 as demanded by the Plaintiff. [47] The Court is satisfied that the Defendant has proven, on a balance of probabilities that, apart from the sum of RM998,653,66 which has been paid by the Defendant to the Plaintiff by way of direct payment, there is no further sum due or payable by the Defendant to Ireka at the time of receipt of the Second Notice i.e. on 23.5.2024. Conclusion [48] Premised on the aforesaid considerations, the Plaintiff’s application was dismissed with costs of RM6,000.00 to be paid by the Plaintiff to the Defendant, subject to allocator. Dated: 18 December 2024 (ALIZA SULAIMAN) Judge High Court in Malaya Kuala Lumpur Counsels/ Solicitors: For the Plaintiff: Reno Nga Chee Leang Messrs. Nga Chambers Advocates & Solicitors B-29-05, Residensi Rabung KL Timur (The Ridge KL East) No. 5, Persiaran Melati Kuarza 53100 Kuala Lumpur For the Defendant: Hor Shirley (Tan Ser Wei with her) Messrs. Raja, Darryl & Loh Advocates & Solicitors Level 26, Menara Hong Leong No. 6, Jalan Damanlela 50490 Bukit Damansara