Iskandar Regional Development SJIC Bina Sdn Bhd

5 DALAM MAHKAMAH TINGGI MALAYA DI JOHOR BAHRU DALAM NEGERI JOHOR DARUL TAKZIM SAMAN PEMULA NO: JA-24C-(ARB)-4-06/2019 Dalam perkara_ Prosiding Arbitrasi 10 antara Iskandar Regional Development Authority dan SJIC Bina Sdn Bhd Dan Dalam perkara Keputusan Arbitrasi bertarikh 21.12.2018, yang 15 kemudiannya_ diperbetulkan dengan suatu Award Pembetulan Tambahan bertarikh 12.3.2019 Dan Dalam perkara Seksyen-seksyen 20 37(1)(b)(ii) dan 37(2)(b)(i) dan (ii) Akta Timbang Tara 2005 Dan Dalam perkara Aturan-aturan 7, 28, 69 dan 92(4) Kaedah-kaedah Mahkamah 25 2012 ANTARA 30 . ISKANDAR REGIONAL DEVELOPMENT AUTHORITY __ ...PEMOHON DAN SJIC BINA SDN BHD ...RESPONDEN 35 40 45 50 55 60 65 ALASAN PENGHAKIMAN Introduction [1] Enclosure 1 is the Applicant's application that the Arbitral Award made on 21-12-2018, and subsequently corrected by way of a Corrective Supplementary Award dated 12-3-2019 (collectively reterred to as the award) be set aside as the award is in conflict with the public policy of Malaysia and/or is in breach of the rules of natural justice amounting to a conflict with the public policy of Malaysia. [2] The Applicant subsequently filed enclosure 19 for discovery. The application was pursuant to section 41A of the Arbitration Act 2005, Order 24 rules 3 and 11 of the Rules of Court 2012, and/or under the inherent power of the Court for the orders inter alia that the Respondent be ordered to discover and produce for inspection the Final Accounts together with all supporting documentation between itself and Kumpulan Prasarana Rakyat Johor (KPRJ) — Layang Cekap JV Sdn Bhd in relation to Package 2 for the project known as the ‘Projek menaiktaraf Jalan Abu Bakar — Jalan Skudai, Johor Bahru, Johor Secara Rundingan Terus ‘Design & Build’ (Project). Background facts [3] The Applicant had appointed the Respondent as its main contractor for the Project. The Project was one of 7 road packages and was marked as Package 2 with a contract sum of RM195,417,908.69. The Respondent appointed Kumpulan Prasarana Rakyat Johor (KPRJ) - Layang Cekap JV Sdn Bhd as its sub contractor (sub contractor). 70 75 80 85 90 Arbitration proceedings [4] During the course of the Project, the Applicant issued Perakuan Pelarasan Harga Kontrak (PHK) where deductions were made to the contract sum based on work performed. [5] Disputes arose whereby the Respondent issued a notice of arbitration seeking payment of RM15,943,087.58. Pursuant to the award (exhibit “MBS-4", enclosure 20) the Applicant was ordered to pay the Respondent a sum of RM16,317,741.87. According to the Applicant, the award was despite a Scotts Schedule (exhibit “MBS-5", enclosure 20) mutually agreed on which confirmed an omission of RM17,498,632.20 as works not done by the Respondent. Enclosure 1 to set aside the award [6] The premise of the Applicant's application to set aside was that the Arbitrator in disallowing the PHKs had allowed the Respondent to pocket a windfall of RM15,869,291.67 and unjustly enriched itself, whereby such a windfall was in conflict with the public policy of Malaysia as the funds of the windfall came from the government's coffers; i.e. the taxpayers’ money. Enclosure 19 for discovery [7] The grounds for discovery are as set out below- “4. In the Respondent’s Affidavit in Reply dated 9.8.2019, it was averred that there is a “windfall” from the Project, however the beneficiary of the “windfall” is not the Respondent; 2. The payment to the Respondent is from the coffers of the government. Therefore, the discovery of the Final Accounts is a relevant and important document to assist this Honourable Court in identifying 95 100 105 110 115 120 who is the beneficiary of the “windfall”, wherein the issue of the “windfall” is the Applicant’s main ground to set aside the arbitral award.”. [8] In paragraph 8 of the affidavit in support (enclosure 20) it was stated the project was awarded to the Respondent on a cost-plus basis. The Respondent was to profit from Project Management Attendence (PMA) and Cost Plus Element (CPE). As a percentage based on the builders work and preliminaries, PMA at 1.75% was RM3,218,647.91 and CPE at 4.5% was RM8,276,523.19. [9] In paragraphs 16 and 17 of the affidavit in support it was stated as follows- “16. Having filed the Originating Summons and Affidavit in Support which | had affirmed highlighting this issue of “windfall”, the Respondent in its Affidavit in Reply affirmed by one Sharina Mohd Yusof averred at paragraph 24 as follows: With regard to the above contentions, firstly, because of the procurement structure, | wish to state that the Respondent was not the beneficiary of any “windfall” or “cost-savings” so the Applicant’s premise for this argument is flawed to begin with. Pursuant to the procurement structure, the Respondent was to be paid the PMA and CPE. 17. Based on the foregoing averment by the Respondent that it was not the beneficiary of any “windfall” or “cost-saving”, it then begs the question as to WHO was the beneficiary of any “windfall” or “cost- savings’? Logic would dictate that it is either the Respondent or the Subcontractor as the only other party involved.”. [10] It was then averred the question of who benefitted from the windfall could only be answered through the discovery of the downstream Final 125 130 135 140 145 150 Accounts between the Respondent and the sub contractor (paragraph 18). Paragraph 19 then stated the Final Accounts is a relevant and important document to shed light on the windfall and the issue of windfall was the crux of the application to set aside. [11] The Applicant also referred to a precedent of impropriety in package 3B where final accounts between the Respondent and its sub contractor Kimlun Sdn Bhd (Kimlun) were produced. That final accounts showed the Respondent claming about RM4.8 million from the Applicant for direct loss and expense due to the extended contract period. The final accounts also showed an extension of time to Kimlun on condition of no additional cost to the contract. If the Respondent had not incurred any cost to pay Kimlun, its claim under Package 3B may also be a windfall. This fact is only intended to show if there was a windfall sought to be made by the Respondent in Package 3B, one cannot discount a similar windfall sought by the Respondent for this Package 2 under dispute. The Respondent has not denied any windfall, only that it was not the one to benefit. [All in paragraphs 21-29]. Enclosure 22 — Affidavit in reply of the Respondent [12] The Respondent denied it was only to profit from PMA and CPE and stated the Arbitrator had decided the contract was a lump sum design and build contract (paragraph 10). With regard to the Scotts Schedule, this was not relevant to the discovery application and the merits of the award and the findings of the Arbitrator cannot be challenged (paragraph 12). [13] On the award being contrary to public policy and/or breach of the rules of natural justice thereby amounting to a conflict of public policy vis-a vis the windfall, the Respondent responded in paragraph 13 with 155 reference to the Arbitrator’s decision as follows- “Unfortunately, that is the nature of a lump sum contract, where the contractor takes both the risk of deviations in quantities being greater where he makes a loss, or as in here where quantities are less and the contractor gets a windfall profit. The Respondent cannot cry foul and hold 160 the Claimant to building the estimated quantities in the Bills of Quantities by casting them as representations or warranties, when, as | have found based on the contemporaneous document that they were simply there as the basis for negotiations and would necessarily be required to satisfy the MoF that the baseline costs had been obtained by a competitive tender for 165 the subcontractors-this is what | understand the “audit” by MoF would have had to mean.”. [14] With regard to the windfall, it was stated to be of no relevance. Specifically on paragraph 16 of the affidavit in support with reference to 170 paragraph 24 of the affidavit in reply to the application to set aside, it was stated as follows- “14.2... | was merely questioning the basis upon which the Applicant's arguement rested on in light of the procurement structure which has not been denied by the Applicant. 175 14.3. The Applicant cannot be allowed to go on fishing expedition on the basis of a tenuous arguement the “windfalls” or “cost-saving” should not be allowed in lump sum contracts where it involves government funds.”. [15] The issues and disputes in the Kimilum sub contract were stated to 1s0 be of no relevance to the setting aside application. 185 190 195 200 205 210 Analysis and finding [16] The application is premised on O24 R3 of Rules of Court 2012 (RHC 2012) as a result of the Respondent’s averments the due to the procurement structure it was not the beneficiary of the windfall arising from the award. According to the Applicant, if the Respondent did not receive the windfall, it would be the sub contractor. This thus justified the discovery of the Final Accounts between the Respondent and its sub contractor. [17] The Respondent's contention was that a setting aside application was not an appeal such that further evidence was not allowed; and if allowed, the threshold had not been met as O24 RHC 2012 did not apply. [18] With regard to the nature of an application to set aside an arbitration award, it is clear from Huawei Technologies (Malaysia) Sdn Bhd v Maxbury Communications Sdn Bhd & Another Appeal [2019] 6 CLJ 588 at page 600 that- “It is trite that an application to set aside an award is NOT an appeal and an approach akin to that utilised in an appeal is fundamentally erroneous.”. [19] Further at page 604 it was stated- [42] It is a fallacy to label the failure to accept the existence of a collateral agreement, or even an incorrect application of the law by the arbitrator, as amounting to a transgression of the arbitrator, such that it can be said that the award handed down deals with a dispute not contempiated by or not falling within the terms of submission to arbitration. Errors, such as those sought to be put forward by the applicants, even if they had merit, have no nexus with s. 37(1)(a)(iv) which deals with the issue of jurisdiction and not errors of law. If at all they are errors of fact and/or law, they are errors committed within the scope of his jurisdiction or 215 mandate. Indeed, to hold otherwise would result in every award being subject to review, and in effect, appeal by the courts. That is precisely what the AA 2005 seeks to preclude.”. [20] In Infineon Technologies (M) Sdn Bhd v Orisoft Technology 220 Sdn Bhd (previously known as Orisoft Technology Bhd) [2011] 7 MLJ 539 it was stated at page 571 that- ‘(71] ... Nevertheless, there is always a danger that the court, when applying the concept of public policy in relation to breach of the rules of natural justice, might willy-nilly encroach upon the merits of the award and 225 thus offend the basic principle that a setting aside proceeding must never be in the nature of an appeal. See the latest Court of Appeal decision in Cairns Energy India Property Ltd v Government of India [2009] 1 LNS 1128 and the very strong holding on this basic principle as can be found, for instance, in the following passage: 230 Generally, to reopen or re-examine the merits of the case and in effect determine and replace, the findings of the majority arbitrators ... would fly against all established principles.”. [21] The above 2 cases not only establish the principle that an 235 application to set aside an arbitration award is not an appeal but that it cannot encroach on the merits of the award. [22] Here the discovery application is for the Final Accounts which would show whether there was a windfall and to whom. 240 245 250 255 260 265 270 [23] In a setting aside, the Applicant is not entitled to re litigate the merits of the award. As such, the Court found that the Final Accounts are not relevant to the discovery application. [24] In any event, the Applicant had not cleared the requirement for fresh evidence as laid out in Westacre Investments Inc v Jugoimport SDRP Holding Company Limited and 4 Ors [1998] 3 WLR 770 at page 808- “... The introduction of fresh evidence in order to disturb an English award is subject to requirements similar to those relating to the introduction of fresh evidence to challenge an English judgment: see Mustill and Boyd pp 562-563. In particular, the fresh evidence must be of sufficient cogency and weight to be likely to have influenced the arbitrator’s conclusion and the evidence must not have been available or reasonably obtained at the time of the hearing. The principles of finality and justice are nicely balanced by that rule. The authorities do not suggest that any different rule applies to English arbitrations in those cases where it is alleged that the consequence of permitting fresh evidence to be adduced would be that evidence given at the hearing by the successful party could be shown to have been perjured.”. This was confirmed by the English Court of Appeal. [25] The principles as set out above are akin to the criteria set out in Ladd v Marshall [1954] EWCA Civ 1, namely- (1) If it is shown that the evidence could not have been obtained with reasonable diligence for use at the trial; (2) If the further evidence is such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; and (3) _ If the evidence is such as is presumably to be believed. 275 280 285 290 295 [26] If this application is considered as an 024 R3 matter, Yekambaran s/o Marimuthu v Malayawata Steel Bhd [1993] MLJU 96 at page 7 has set out the following- “The essential elements for an order for discovery are threefold; namely, first, there must be a “document”, secondly, the document must be “relevant” and thirdly, the document must be or have been in the “possession, custody or power” of the party against whom the order for discovery is sought.”. [27] The Court was of the considered view that “relevance” has not been met. Yekambaran (supra) at page 8 states the following- “As to “relevance”, our Rules of the High Court limit discovery to documents which are “relevant to” or “relate” to the factual issues in dispute. More particularly, the discovery obligation applies to documents ‘relating to matters in question in the action’ or ‘relating to any matter in 207 question in the cause or matter’...”. [28] With regard to the requirement under Order 24, ruie 13 that the order for discovery must be necessary either for disposing fairly of the cause or matter of for saving costs, the Court found the production of the Final Accounts was not necessary either way because the question as to whether or not the Respondent had gained a windfall is irrelevant to begin with. {29] In the arbitration proceedings, the issues and determination as stated in the award were as follows- “9.0 DETERMINATION OF THE ISSUES Issue 1: | Whether or not the Contract is a lump sum contract; 10 300 Issue 2: If not, whether it is of a hybrid, nature. Determination of Issues 1 & 2 160. | therefore answer Issues 1 and 2 as follows- Issues 1: the Contract is a lump sum contract; Issues 2: it is not of a hybrid nature. 305 (heading 9.0 and paragraph 160, exhibit “MBS-4°/23 and 37, enclosure 20) [30] The findings leading to the Arbitrator’s award were as follows- “450. However, when the evidence and the documents are examined 310 carefully, it is clear that the procurement scheme was such that the Claimant was to sub-contract the Building Works on a competitive tender basis, this would be the “cost” to the Claimant, and the contract sum would then be uplifted by the profit and project management margins, all of which would be then directly negotiated with the MoF. 315 154. It then makes sense that the Bill of Quantities, which would necessarily contain the Sub-contractor’s rates, and which formed the starting point of the negotiations, be bound into the Contract for audit purposes [by the MoF] as recorded in the minutes of meeting dated 320 8.1.2008 [sic] which should be 8.1.2009. 155. it also explains why both parties accept that the Bill of Quantities does not form part of the Contract, and why despite its costs plus nature the Respondent did not require proof of actual costs expended in the main for payment purposes. 325 156. |The Respondent only became aggrieved when it realized that there were significant deviations in quantities constructed from those in the Bills of Quantities, which it felt that the Claimant had represented in those documents it would build. 157. Unfortunately that is the nature of a lump sum contract, where the 330 contrators take both the risk of deviations in quantities being greater 11 335 340 345 350 355 360 where he makes a loss, or as in here where quantities are less and the contractor gets a windfall profit. The Respondent cannot cry foul and hold the Claimant to building the estimated quantities in the Bills of Quantities by casting them as representations or warranties, when, as | have found based on the contemporaneous documents that they were simply there as the basis for negotiations and would necessarily be required to satisfy the MoF that the baseline costs had been obtained by a competitive tender for the subcontractors- this is what | understand the “audit” by MoF would have had to mean. 158. It would also be illogical to require the Claimant to build estimated quantities that were not required when actually built, as there is no dispute that the road to be built under the Contract has been completed, taken over and put into use with no evidence of shortcomings in functionality. 159. | therefore accept the Claimants submission that the term ‘cost plus model’ employed in this context referred to the procurement structure, where the PMA and CPE elements were to be added to the sub- contractors lump sum tender which represented the Claimant's cost, which was then subject to negotiation to arrive at a final lump sum figure entered as the contract sum in the Contract, which is presented as a classic lump sum contract.”. [31] Thus the finding of the Arbitrator was clear that the contract was the classic lump sum where by its very nature, the contractor takes risk of deviations in quantities being greater where he makes a loss, or as in here where quantities are less and the contractor gets a windfall profit. [32] Thus even if one were to consider “relevance” within the context of an 024 R3 application, it would not be relevant. The issues were as set out namely as to the nature of the contract which was found to be lump sum and windfall was not relevant. 12 365 370 375 380 385 390 395 Conclusion [33] For the above reasons in that a setting aside application was not an appeal such that further evidence was not allowed; and even if 024 RHC 2012 was to apply, the threshold of relevance had not been met; the application for discovery of the Final Accounts, was dismissed. Dated: 26th April 2020 See Mee Chun Hakim Mahkamah Tinggi Johor Bahru Counsel for the Applicant Mr James Monteiro & Mr Buddy Low Tetuan James Monteiro Kuala Lumpur Counsel for the Respondent Mr T. Kuhendran & Ms Michele Chong Tetuan Zul Rafique & Partners Kuala Lumpur 13