DALAM MAHKAMAH RAYUAN MALAYSIA (BIDANG KUASA RAYUAN) RAYUAN SIVIL NO: P-01-615-2010
PULAU PINANG … PERAYU
SDN BHD … RESPONDEN
(Dalam Perkara Mahkamah Tinggi di Pulau Pinang)
Usul Pemula No. 25-28-2010
Dalam Perkara Mengenai Seksyen 23 & 24 (2) Akta Timbangtara 1952 (Akta 93)
Dalam Perkara-Perkara Lain
Perbadanan Pembanguan Pulau Pinang
Trikkon Construction Sdn Bhd. … Responden
SULAIMAN BIN DAUD, JCA SYED AHMAD HELMY BIN SYED AHMAD, JCA ANANTHAM KASINATHER, JCA
ANANTHAM KASINATHER, JCA DELIVERY THE JUDGMENT OF THE COURT
1. The Appellant and Respondent are parties to an ongoing arbitration in Penang. The parties by agreement required the Arbitrator to make an interim award on several preliminary issues which the parties wanted determined prior the hearing of the arbitration proper. The Learned Arbitrator made the interim award dated 31st December 2009 (see page 562 of Bahagian Jilid 7).
2. The Appellant then applied by Motion to inter alia set aside the Interim Award, on the grounds that the Arbitrator had misconducted himself and that there are errors on the face of the record pursuant to Section 24 (2) of the Arbitration Act 1952. An alternative prayer sought in the Motion was for the award in respect of Preliminary Issue number 2 that the claims in paragraph 15.A 9 and 15.A 10 of the points of claim be remitted for the reconsideration of the Arbitrator Mr. Lim Chong Fong. Similar prayers were included in respect of Preliminary Issues numbers 3, 6 and 7.
3. Before us Counsel for the Appellant did not seriously pursue the principal prayer for the interim award to be set aside but submitted at length on the alternative prayers. Preliminary Issue number 2 as framed by the Arbitrator reads as follows:
“whether the notices of claim made by the Cliamant in relation to clause 11 (6) of the Conditions of Contract for direct loss and/ or expense arising from instructions requiring variations issued by the Architect as pleaded in paragraphs 15 A.8, 15.A. 9, 15A.10, 15.A. 11 and 15B. 5 of the Points of Claims constituted valid applications pursuant to the aforesaid clause (hereinafter referred to as ‘Preliminary Issue NO. 2”).
Clause 11 (6) reads as follows:
“If upon written application being made to him by the Contractor, the Architect of the opinion that a
variation or ….. has involved the Contractor in
direct loss and / or expense for which he would not be reimbursed by payment in respect of a valuation made in accordance with the rules contained in subclause (4) of this Condition and if the said application is made within a reasonable time of the loss or expense having being (sic) incurred, then the Architect shall either himself ascertain or shall instruct the Quantity Surveyor to ascertain the amount of such loss or expense. Any amount from time to time so ascertained shall be added to the Contract Sum, and if an Interim Certificate is issued after the date of ascertainment any such amount shall be added to the amount which would otherwise be stated as due in such Certificate”.
4. Counsel for the Appellant submitted in respect of Preliminary Issue number 2 that for the Respondent to advance such a claim before the Arbitrator, the Respondent must satisfy the following conditions:
i) The respondent must have made Written Applications to the Architect;
ii) Such Applications ought to have been made within a reasonable time of the loss or expense having been incurred;
iii) Although the written applications need not be in any particular form, they must be in sufficient detail to enable the Architect to know upon what question he was required to form an opinion;
iv) Obviously full information relating to the claims and reasons as to why the valuation under clause 11(4) was not sufficient compensations must be given;
v) The application must relate to direct loss and /or expense which has already been incurred;
vi) And successive application s must be made in respect of continuing direct loss and /or expense;
vii) Any amount ascertained under clause 11(6) must be included in the interim certificate next issued after the Architect’s decision on the claim.
(See The Malaysian Standard Form of Building Contract by Vincent Powell-Smith at page 45 -Also see the decision of English Court of Appeal
in the case of F.G. Minter Ltd v Welsh Health Technical Services Organisation  13 BLR 1).
5. Counsel for the Respondent on the other hand countered the submission of the Appellant by contending that there was nothing in clause 11 (6) which precluded the Arbitrator from adopting a 2 stage approach to the Respondent’s claim. Counsel referred the Court to the case of Cairn Energy India Pty Ltd & Anor v. The Government of India  6 MLJ 795. In truth, the decision of Suriyadi JCA (as His Lordship then was) in this case concerned whether there was manifest error on the face of the award and had nothing to do with the 2 stage approach. The Arbitrator, on the other hand, appears to have accepted the 2 stage approach based on the article “Demystifying Direct Loss and / or Expense Claims”  4 MLI xxix by Ir. Harbar Singh KS.
6. Counsel for the Respondent also relied on the conduct of the architect as affording a justification, alleging that there was no complaint whatsoever by the Architect that the claims had been submitted late and/or that because of delay he was unable to form any opinion on the Respondent’s claims. In any case, the Architect was not a stranger to the said contract or the contract works. Furthermore, that the Architect could have called for supporting documents or directed the Respondent to produce the documents within a certain period of receipt of the said notification, which he did not do at all.
7. The facts of this case reveal that the Respondent did not make any application for direct loss and / or expense at anytime immediately following the variation orders originating from the Architect. Instead, what the Respondent did was to reserve his right to make such a claim each time he was served with a variation. The Respondent did this by using the following words:
“These Architect’s Instructions and Site instruction have affected our site programme and revised construction period. We will submit expenses, losses and other claims incurred as a result of the said architect’s instruction and side instruction in due course” (see page 548 Jilid 6 Bahagian C)
8. The Arbitrator considered this reservation of right as amounting to an application for the purposes of clause 11 (6) of the Contract. The Arbitrator’s reasons were that there was no specific express requirement that the application must take a particular form or be accompanied with particulars of document in substantiation of the application. The Arbitrator also made reference to clause 30 (5) of the contract and ruled that to the extent that the final valuation is undertaken within a reasonable time after practical completion there is no reason why the Respondent should not be allowed to pursue a 2 stage approach. Under this 2 stage approach, the Arbitrator opined that the initial onus on the contractor was to make an initial
application containing information of the heads and amount claimed and to thereafter at a subsequent point of time provide documentary evidence of the claim (see paragraph 16 of the Interim Award).
9. With respect, we are unable to agree with the 2 stage approach adopted by the Arbitrator. In our view, on a proper construction of clause 11. (6) of the contract, there is an obligation on the Respondent to lodge a formal application containing his claim with the Architect as soon as it becomes apparent to the Respondent that the particular variation ordered by the architect for the project has caused loss to the contractor. We concede that the contractor may not be able to produce all of the supporting documents when making the application and should therefore be allowed to produce further documents at a subsequent stage. However, in our opinion, this concession does not detract from the fact that under clause 11 (6) of the contract the lodging of the claim by way of application to the architect for the project is a pre-requisite to the pursuit of a claim under this clause. The Respondent’s act of merely reserving its right to make such a claim at such time as it unilaterally deemed fit clearly does not meet this pre-requisite.
10. On the facts of this case, it is not in dispute that the works were completed on 14th January 1987 and the certificate of practical completion issued on 17th February 1987. The variation orders which pursuant to the Clause 11 (6) required applications under
clause 11 (6) were all issued on diverse dates in 1986 (see page 548 of Bahagian C Jilid 6). The claims were lodged purportedly pursuant to clause 11 (6) with the architect only on 18th April 1987 and 19th September 1987 (see paragraph 17 of the Interim Award at page 575 of Bahagian C Jilid 7).
11. In our opinion, the construction placed by the Arbitrator on clause 11 (6) of the contract is erroneous on the face of the record for the following reasons:
a. The Arbitrator whilst acknowledging in paragraph 16 of the Interim Award that there was an initial onus on the contractor to “at least state the heads and amount claimed” before the onus shifts to the architect, failed to realize that the initial notice originating from the Respondent’s contractor merely purported to reserve the right of the Respondent to make claims and did not contain any heads of loss or approximate quantum of the claim;
b. The Arbitrator erroneously sought to construe clause 11 (6) in the context of clause 30.5 of the Contract. We opine to this effect because clause 11 (6) imposes the need for the Respondent to make an application making known its losses arising from any variation at the earliest possible time to ensure that the owners and architect of the project are not surprised by any
late claims. The need to make the claim expeditiously is evident from the fact that clause 11 (6) contemplates the contractor being compensated for such loss / expense in the next interim certificate. Clause 30 (5), on the other hand deals with the measurement and valuation of works pending issuance of final certificate. In other words, clause 11 (6) exist to deal with the ascertainment by the architect or the quantity surveyor as the case may be, of losses and expenses incurred by a contractor arising from a variation to the contract whereas clause 30(5) deals with measurement and valuation of completed works by the Quantity Surveyor only.
12. Accordingly, the Arbitrator, in our view, completely misdirected himself on the law as regards the construction to be placed on clause 11 (6) of the contract and this constitutes an error on the face of record which warrants the intervention of this Court under Section 24 of the Arbitration Act. In our judgment, the construction of the clause in the contract between the parties to this appeal is clearly a question of law and consequently a matter that enables us to exercise our jurisdiction arising from the error on the face of the record pursuant to Section 24 (2) of the Arbitrator Act 1952. (see Intelek Timur Sdn Bhd v. Future Heritage Sdn Bhd  1 MLJ 401).
13. With respect, we do no not consider the conduct of the architect upon receipt of the late claims to be relevant on the facts of this case. We opine to this effect because clause 11 (6) exist for the protection of the Appellant and not the architect. Accordingly, if the application / claim is not made in the manner required by clause 11 (6), in our opinion, it is well within the right of the Appellant to object to the inclusion of such a claim pursuant to clause 11 (6) in the pending arbitration proceedings.
14. As regards Preliminary Issue number 6, we observe that the Arbitrator ruled that any claim by the contractor “arising from a variation ordered by the architect cannot be separately maintained at common law. Accordingly the Arbitrator ruled that insofar as claims for losses arising from variation orders issued by the architect were concerned, the Respondent could only maintain the claim paragraph 15.B5 of the points of claim (see paragraphs 26 & 27 of the Interim Award at 578 of Jilid 7 Bahagian C). We find no reason to interfere with this aspect of the Interim Award.
15. Accordingly, we make the following orders in respect of the motion before us:
i. The notice of claims made by the Respondent / Claimant in relation to Clause 11 (6) of the conditions of contract for direct loss and/ or expense arising from instructions requiring variations issued
by the Architect as pleaded in paragraphs 15.A 9 and 15.A 10 of the Points of Claim did not constitute valid applications pursuant to the aforesaid clause and consequently the Respondent/ Claimant is not entitled to maintain the said claims in the arbitration;
ii. We make no orders on prayer b (ii) since the order of the Arbitrator on Preliminary Issue Number 6 precludes the Respondent from pursuing points of claim 15.A 9 and 15.A 10 under common law.
iii. We make no order on prayer b (iii) since matters relating to pleadings in the Arbitration proceedings are matters to be determined by the Arbitrator.
iv. The Respondent to pay cost of RM 10,000 to the Appellant. Deposit refunded to the Appellant.
Court of Appeal Malaysia PUTRAJAYA
Dated this : 18th November 2011
Date of Decision : 2nd November 2011
COUNSEL FOR THE APPELLANT :
Dato’ V. Sithambaran (together with Mr. P. Navaratnam) Tetuan Sitham & Associates Peguambela & Peguamcara No. 4-B, Borwn Road,
COUNSEL FOR THE RESPONDENT:
Mr. M. Kanesan
(together with Mr. Clement Cheng) Tetuan Clement, Dawn & Associates Bilik 5 & 6, Tingkat 1, Mutiara I & P No. 47, Green Hall 10200 Pulau Pinang
1. F. G. Minter Ltd v Welsh Health Technical Services Organisation  13 BLR 1
2. Cairn Energy India Pty Ltd & Anor v. The Government of India  6 MLJ 795
3. Intelek Timur Sdn Bhd v. Future Heritage Sdn Bhd  1 MLJ 401