[2019] 1 LNS 1705 Legal Network Series

IN THE HIGH COURT OF MALAYA

AT KUALA LUMPUR
[ORIGINATING SUMMONS No. WA-24C-196-10/2019]

BETWEEN

KAYANGAN KEMAS SDN BHD ... PLAINTIFF

AND

TMT SOLUTIONS SDN BHD ... DEFENDANT

GROUNDS OF DECISION

Introduction

[1] This is an application for stay of the enforcement of an adjudication

decision pursuant to s. 16 of the Construction Industry Payment and
Adjudication Act 2012.

[2] The Applicant is a private limited company involved in the

construction business.

[3] The Respondent is also a private limited company involved in the

electrical installation business.

[4] For ease of reference, they will be referred below by the acronym
KK and TMTS respectively.

Salient background facts

[5] By a letter of award dated 23 March 2016 (“Sub Contract”), KK

appointed TMTS as sub contractor to carry out the supply of labour,
material, installation and completion of the extra low voltage system
(ELV) in respect of a project described as the Cadangan Membina Hospital

1
[2019] 1 LNS 1705 Legal Network Series

(268 katil) Kuala Krai, Kelantan (Reka & Bina) at the lump sum of
RM4,600,000.00.

[6] There were disputes and differences that arose between them under
the Sub Contract and as a result, TMTS on 10 January 2019 initiated
adjudication proceedings pursuant to the Construction Industry Payment
and Adjudication Act 2012 (“CIPAA”).

[7] The Director of the Asian International Arbitration Centre on 8

February 2019 appointed a Wong Kee Them as the adjudicator
(“Adjudicator”).

[8] The Adjudicator on 24 May 2019 made his decision (“Decision”) in

favour of TMTS for the adjudicated sum of RM415,191.00 and interest and
costs as itemized in detail therein.

[9] As the result, KK on 12 June 2019 filed Originating Summons no.

WA-24C-100-06/2019 (“OS 1”) to set aside the Decision whilst TMTS on
27 June 2019 filed Originating Summons no. WA-24C-111-06/2019 (“OS
2”) to enforce the Decision.

[10] On 22 August 2019, I disallowed OS 1 but allowed OS 2.

[11] KK has since commenced a suit in KL Sessions Court suit no. WA-
B52C-43-08/2019 (“Suit”) for final determination of the same disputes and
differences that have arisen pursuant to the Sub Contract.

[12] In consequence, KK has on 3 October 2019 filed this originating

summons (“Application”).

[13] The affidavits that were filed in respect of the Application are as
follows:

(i) KK’s affidavit in support affirmed by Khor Chee Yong dated

3 October 2019; and

2
[2019] 1 LNS 1705 Legal Network Series

(ii) TMTS’s affidavit in reply affirmed by Chew Sun Foong dated

9 October 2019.

[14] The Application came before me for hearing on 22 October 2019.

After having read the written submissions filed by the parties and hearing
oral arguments of counsel, I ordered that RM222,363.16 be paid to TMTS
within 7 days from the date of the service of the order and the balance
RM222,363.17 of the adjudicated sum be deposited in an interest bearing
account to be opened and maintained by Messrs. Rose Hussin within 7 days
from the service of the order pending the conclusion of the Suit. There
shall be no order as to costs.

[15] I now furnish below the grounds of my decision.

Contentions and Findings

[16] It is provided in s. 16 of the CIPAA as follows:

“16. Stay of adjudication decision

(1) A party may apply to the High Court for a stay of an

adjudication decision in the following circumstances:

(a) an application to set aside the adjudication decision

under section 15 has been made; or

(b) the subject matter of the adjudication decision is pending

final determination by arbitration or the court.

(2) The High Court may grant a stay of the adjudication decision
or order the adjudicated amount or part of it to be deposited with the
Director of the KLRCA or make any other order as it thinks fit.”

[17] KK submitted that by having instituted the Suit, it has met the
threshold requirement of s. 16 of the CIPAA as interpreted by Lee Swee

3
[2019] 1 LNS 1705 Legal Network Series

Seng J (now JCA) in Terminal Perintis Sdn Bhd v. Tan Ngee Hong
Construction Sdn Bhd & Other Case [2017] 1 LNS 177 as follows:

“[159] However the condition that there is a pending arbitration

is only a threshold condition for the Court to consider stay. In
Subang Skypark Sdn Bhd v Arcradius Sdn Bhd [2015] 10 CLJ 801;
[2015] MLJU 286, Justice Mary Lim J (now JCA) in deciding on
whether to grant a stay of the Adjudication Decision under CIPAA,
examined the cases in other jurisdictions namely; England,
Singapore, New South Wales, Australia and found that the Malaysian
context of CIPAA is no different. The Judge further held:

“[27] Since the defendant has itself issued a notice of arbitration in

which it has raised the very same matters that it had raised in the
adjudication, sub-s. 16(2) operates. That is not to say that simply
because the dispute or subject matter of the adjudication decision is
now in the arbitration mode regime, the grant of stay is automatic.
It is not, let alone as of right or as a matter of course. Being in
arbitration merely puts the plaintiff’s case as one within s. 16 for
consideration; or one which has crossed the threshold. The existence
of concurrent proceedings merely prequalifies the plaintiff for this
application.

[28] At all times, the court retains the discretion as to whether or

not to grant a stay and that is obvious from the language and terms
of s. 16. In fact, sub-s. 16(2) vests the court with discretion whether
to grant the stay sought; whether to order the adjudicated amount or
part of it to be deposited with the Director of KLRCA; or make any
other order as the court thinks fit. Upon overcoming the threshold
set in sub-s. 16(1), the plaintiff still has to show how the discretion
is to be exercised in its favour.

...

4
[2019] 1 LNS 1705 Legal Network Series

[56] ...The purpose of the (CIPAA) Act is to ensure that successful

claimants are paid and paid promptly even though the adjudication
decisions are provisional in nature. The Defendant must pay the
adjudicated sum failing which it is available to the successful
claimant to consider the next appropriate course of action.
Notwithstanding these provisions, the Court retains the power to
grant stay of the enforcement of the adjudication decision. It does so
in order to secure the ends of justice.

[57] Therefore, to allow stay to be explored in any other

circumstances may be argued to stymie the efforts of Parliament
where payment disputes in construction contracts are concerned. It
may even render the laudable benefits which the Act is intended to
bring, illusory and unachievable.

[58] Here, the Court finds that the Plaintiff has simply not offered
any reason, cogent or worthy of examination, to warrant a stay. As
amply shown in case law from other jurisdictions, reasons must be
offered. Each of those reasons will be examined. If those reasons
pertain to the financial status of the Defendant as one of doubtful
solvency or near insolvency, the Court still needs to examine why
that may be the case. In our present case, the Plaintiff has not even
offered those reasons for the Court’s consideration. Instead, it has
offered evidence of its own financial status; that it is in the position
to pay up.”

[18] Accordingly, KK contended that since the Sub Contract has been
completed, the Court should grant a stay by reason that the cash flow which
is required for the works under the Sub Contract is no longer critical
following the Singapore Court of Appeal case of SA Shee & Co Pte Ltd v.
Kaki Bukit Industrial Park Pte Ltd [2000] 1 SLR (R) 192 where Chao Hick
Tin JA held as follows:

5
[2019] 1 LNS 1705 Legal Network Series

“It is true under cl 31(11), as construed in Tropicon Contractors Pte

Ltd v. Lojan Properties Pte Ltd [1989] SLR 610 [1989] 3 MLJ 216,
the existence of a cross-claim by an employer is no ground to refuse
payment on an interim certificate. As stated by Warren KhooJ in Aoki
Corp v. Lippoland (Singapore) Pte Ltd [1995] 2 SLR 602 at 619:

…Progress payments are the lifeline of a building contractor’s

business. The object of giving interim certificates temporary finality
is to enable the contractor to be paid during the progress of the
works so as to minimise cash flow problems. However, the position
here was different…

Furthermore, the rationale for giving temporary finality to an

interim certificate could no longer hold good when the contract had
come to an end. The contractor would not be carrying out any more
work. So the need to minimise “cash flow problems” for the project
no longer existed.”

[19] Moreover, KK contended that the financial standing of TMTS is

questionable in that it is unlikely TMTS would be able to repay KK in the
event the Suit is decided in favour of KK. This is borne by the fact that
TMTS is indebted to 2 banks secured by 4 open charges and the current
liabilities of TMTS is RM6,920,308.00 as disclosed in the financial
accounts for the year ending 31 December 2017 lodged with the Companies
Commission.

[20] In the premises, KK concluded that TMTS is probably unable to

repay the adjudicated sum that is enforceable as ordered in OS 2. There are
special circumstances and KK is hence entitled to an absolute stay or
otherwise a conditional stay that the adjudicated sum be deposited with the
director of the Asian International Arbitration Centre pending the disposal
of the Suit.

6
[2019] 1 LNS 1705 Legal Network Series

[21] On the other side, TMTS submitted that it is incumbent upon KK to

establish that there are special circumstances in justification of the
Application. In PWC Corporation Sdn Bhd v. Ireka Engineering &
Construction Sdn Bhd & Other Case (No. 2) [2018]1 LNS 163, Lee Swee
Seng J (now JCA) held as follows:

“[118] To allow a Stay merely on ground of a pending arbitration in

the absence of special circumstances would be to defeat the purpose
of the CIPAA as all that the Respondent needs to do is to commence
Arbitration with serving on the Claimant a Notice to Arbitrate. That
would be to send the wrong message to the construction industry that
a Stay of an Adjudication Decision is granted as of right the moment
there is a pending Arbitration or Litigation.

[119] That would undo all that the construction industry had sought
to do including changing the culture and mindset of deliberate or
designed delay in making payments to the Contractor the Work
already done and to do so with impunity. That would be to turn back
the hands of the clock to pre-CIPAA regime and it would be a great
disservice done to the CIPAA.”

[22] TMTS contended that the merits of KK’s case in the Suit is
irrelevant. The nature of the adjudication decision is purely monetary and
hence the general principles stay of enforcement as set out in the Federal
Court case of Kosma Palm Oil Mill Sdn Bhd v. Kooperasi Serbausaha
Makmur Berhad [2004] 1 MLJ 257 apply here.

[23] According to TMTS, the concerns of KK on the financial standing of

TMTS are misplaced. This is because it is plain from the same financial
accounts that TMTS has current assets of RM8,894,917.00 and hence net
current assets of RM1,974,609.00 after taking into account the current
liabilities pointed out by KK. The adjudicated excluding ancillary costs
awarded is however only RM415,191.00. In addition, TMTS is a subsidiary
company of Thunder Match Technology Sdn Bhd which has net current

7
[2019] 1 LNS 1705 Legal Network Series

assets of RM13,138,508.00 as disclosed in its financial accounts for the

year ending 31 December 2017. In Southern Builders (J) Sdn Bhd v. MRCB
Builders Sdn Bhd [2018] MLJU 2023, Mohd Ivan JC held as follows:

“[19] The Defendant had also demonstrated its financial superiority

against the lesser financial status revealed by the statutory records
of the Plaintiff filed with the Companies Commission of Malaysia. I
do not think in a business environment, such a consideration should
weigh heavy against the Plaintiff. CIPAA was introduced to ease
cash flow issues and to be met with an application for a stay of
execution post adjudication would ex facie, before considering the
merits, already seem to be a detraction from its goals.”

[24] In the premises, TMTS concluded that KK did not demonstrate the
existence of any special circumstance. The Application is hence without
merit and must be accordingly dismissed.

[25] It is not in dispute that KK met the threshold requirements set out in
s. 16 of the CIPAA.

[26] As to the need for cash flow, it is axiomatic that every construction
project requires cash flow. Malaysian construction industry contracting
financing is pyramidal and layered. Project cash flow is not synonymous
with corporate cash flow. Project cash flow is part of the larger corporate
cash flow. The project cash flow which is derived from progress payments
generally sustains the execution of the project to completion only.
However, the continuing subsistence and survival of the construction
company as an ongoing concern to undertake projects is dependent on
corporate cash flow. Besides progress payments, corporate cash flow is
critically dependent too on the penultimate and final payment after the
project completion. The profit of the construction company realizable from
the project is often only recovered in the final payment after settling the
debts of sub contractors and suppliers. These are the harsh Malaysian
construction industry realities. Without corporate cash flow, it is therefore

8
[2019] 1 LNS 1705 Legal Network Series

not possible for the construction company to continue to undertake further

ventures including bidding or executing other new projects. The purpose
and need for cash flow in connection with final payment have also been
deliberated and acknowledged in the recent Federal Court case of Martego
Sdn Bhd v. Aktitek Meor & Chew Sdn Bhd and Another Appeal [2019] 8
CLJ 433 within the CIPAA context.

[27] I am hence of the view that there is neither a difference nor lesser
importance of cash flow needs after the project completion contrary to that
as contended by KK. The Singapore case of SA Shee & Co Pte Ltd v Kaki
Bukit Industrial Park Pte Ltd (supra) relied on by KK is distinguishable
because it concerned a summary judgment application prior to the advent
of statutory adjudication. More pertinently and with respect, I hold that the
discussion and determination therein based just on project cash flow
without corporate cash flow considerations is artificially restrictive and
simplistic.

[28] Consequently, I am not persuaded that a stay of enforcement ought

to be granted merely because TMTS’s project work has been completed
and there is no longer the pressing need for cash flow.

[29] As to the relative financial adequacy considerations, both sides

referred me to the case of Mecomb Malaysia Sdn Bhd v. VST M&E Sdn Bhd
[2018] 12 MLJ 446 where I held as follows:

“[39] I will next move on to the financial status or standing of the

plaintiff. The relevant test and its considerations are that as applied
by Lee Swee Seng J in Econpile (M) Sdn Bhd v. IRDK Ventures Sdn
Bhd (No. 2) (supra) as follows with emphasis added by me:

[62] The following guidelines propounded by Justice Peter Coulson

QC in the Wimbledon Construction Company ‘s case (supra ) are
helpful in deciding how discretion for stay of a judgment that has

9
[2019] 1 LNS 1705 Legal Network Series

proceeded from an adjudication decision ought to be exercised

having in mind always the special circumstances of each case:

26. In a number of the authorities which I have cited above the point
has been made that each case must turn on its own facts. Whilst I
respectfully agree with that, it does seem to me that there are a
number of clear principles which should always govern the exercise
of the court’s discretion when it is considering a stay of execution in
adjudication enforcement proceedings. Those principles can be set
out as follows:

(a) Adjudication (whether pursuant to the 1996 Act or the

consequential amendments to the standard forms of building
and engineering contracts) is designed to be a quick and
inexpensive method of arriving at a temporary result in a
construction dispute.

(b) In consequence, adjudicators’ decisions are intended to be

enforced summarily and the claimant (being the successful
party in the adjudication) should not generally be kept out of
its money.

(c) In an application to stay the execution of summary

judgment arising out of an Adjudicator’s decision, the Court
must exercise its discretion under Order 47 with
considerations a) and b) firmly in mind (see AWG).

(d) The probable inability of the claimant to repay the

judgment sum (awarded by the Adjudicator and enforced by
way of summary judgment) at the end of the substantive trial,
or arbitration hearing, may constitute special circumstances
within the meaning of Order 47 rule 1(1)(a) rendering it
appropriate to grant a stay (see Herschell).

10
[2019] 1 LNS 1705 Legal Network Series

(e) If the claimant is in insolvent liquidation, or there is no

dispute on the evidence that the claimant is insolvent, then a
stay of execution will usually be granted (see Bouygues and
Rainford House).

(f) Even if the evidence of the claimant’s present financial

position suggested that it is probable that it would be unable
to repay the judgment sum when it fell due, that would not
usually justify the grant of a stay if:

(i) the claimant’s financial position is the same or similar

to its financial position at the time that the relevant
contract was made (see Herschell); or

(ii) The claimant’s financial position is due, either

wholly, or in significant part, to the defendant’s failure
to pay those sums which were awarded by the adjudicator
(see Absolute Rentals). (emphasis added)

[63] It would appear that about the only special circumstance in the
context of justifying a stay of execution of such a judgment would be
when there is cogent evidence pointing to a reasonable probability
that the successful Claimant might not be in a position to pay back
the judgment sum should the Respondent in the adjudication succeed
on appeal or that the Claimant is already in liquidation.”

[30] From the affidavit evidence adduced by TMTS, I find that albeit
TMTS has a positive current assets position which is a few times larger
than the adjudicated sum, the financial status is derived from that of its
audited balance sheet for the financial year ending 2017. TMTS did not
disclose its audited balance or even its draft balance sheet for the financial
year ending 2018 which should have been produced by now. No
explanation for its failure to do so has been put forth by TMTS. In addition,
I noticed that 2 new open bank charges have been added to secure loans

11
[2019] 1 LNS 1705 Legal Network Series

taken by TMTS in new 2019 but the borrowed sums have not been
disclosed.

[31] That notwithstanding and if TMTS is indeed presently insolvent, I

find that TMTS did not disclose its financial status at the time it secured
the Sub Contract as well as explain how its cash flow has been adversely
affected by KK’s non payment of the adjudicated sum to resist the stay.

[32] I am aware that TMTS also adduced evidence of the financial

position of its parent company Thunder Match Technology Sdn Bhd.
However, the financial status is similar to the financial year 2017 only and
a new charge of RM8,000,000.00 has been created in favour of Al Rajhi
Banking & Investment Corporation (Malaysia) Bhd in 2018. Hence its
actual financial health is presently uncertain, just like for TMTS. In any
event, there is a moral but no legal obligation of the parent company to
rescue its insolvent subsidiary unless a parent corporate guarantee has been
given to the creditor. There is no evidence of any provided here to KK.

[33] Consequently and since there is only possibility but no cogent

evidence of actual insolvency balanced with the need for corporate cash
flow, I am of the view that the just approach in the circumstances is to
order part payment of the adjudicated sum to TMTS with the balance of
the other part of the adjudicated sum held in escrow pending the disposal
of the Suit.

Conclusion

[34] It is for the foregoing reasons that I decided the Application as so

ordered.

Dated: 29 OCTOBER 2019

(LIM CHONG FONG)

Judge
High Court Kuala Lumpur

12
[2019] 1 LNS 1705 Legal Network Series

Counsel:

For the plaintiff - K. Selva Kumaran, G. Shankar & Yan Jie Luan; M/s
Rose Hussin

For the defendant - James Ding Tze Wen, Tey Siaw Ling; M/s C. H. Tay &
Partners

13