Dear valued clients and business partners,
We are pleased to highlight the following legal updates for March 2019.
DISPUTE RESOLUTION
The doctrine of res judicata applies to statutory adjudication under the Construction Industry Payment and Adjudication Act 2012
A. PWC Corporation Sdn Bhd v Ireka Engineering & Construction Sdn Bhd [2018] 1 LNS 164 (High Court)
Brief facts
PWC Corporation Sdn Bhd (“PWC”) commenced adjudication proceedings pursuant to the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”) against Ireka Engineering & Construction Sdn Bhd (“Ireka”) for the balance sum for works done under a construction contract.
It was not in dispute that the balance sum remained due under the contract. However, it was Ireka’s position that it had no obligation to pay the balance sum to PWC as it is extinguished by Ireka’s claims for set off, cross claim and/or counterclaim in two other separate contracts. The adjudicator delivered a decision in favour of PWC and dismissed Ireka’s set off, cross claim and/or counterclaim.
Ireka then applied to the High Court to set aside the adjudication decision under section 15 of CIPAA on the grounds that, amongst others, the adjudicator had acted in breach of natural justice by wrongly declining jurisdiction to consider the contractual set off it raised with respect to the two separate contracts in other projects.
The issue to be determined by the High Court was whether there was a breach of natural justice when the adjudicator declined to consider the contractual set offs raised with respect to other contracts which are the subject of other adjudications.
It was not in dispute that the construction contract in the present case contained a set off clause providing for set offs from other construction contracts between the parties. However, the Court held that adjudication under CIPAA is for a matter arising under a construction contract. If it is sought to be heard together with two or more adjudications in respect of the same subject matter under the same construction contract in one adjudication, then the parties must expressly consent to it.
The Court held that the adjudicator had not acted in excess of her jurisdiction in declining to consider Ireka’s set off, cross claims and/or counterclaims. The same set off or issues raised by Ireka were also raised in separate adjudications involving those contracts. The Court held that there would be a clear duplicity of proceeding if the adjudicator was to decide on the same subject matter.
It would also avoid the embarrassment of two separate adjudicators coming up with two different and conflicting findings as to whether the set offs should be allowed and, if so, the quantum. Once decided, the defence of res judicata would be available to the claimant as in one adjudication vis-a-vis another adjudication, though not so with the arbitrator or the judge hearing the matter de novo in a concurrent or separate proceeding.
Further, there would also be a danger that the same subject matter which is being raised in separate adjudications may result in a double payment or excessive awards where they overlap.
Ireka’s appeal to the Court of Appeal was dismissed and the Court of Appeal affirmed the decision of the High Court (see Ireka Engineering & Construction Sdn Bhd [2019] MLJU 35).
B. Kining Exeton Sdn Bhd v Majlis Perbandaran Kuantan [2017] 1 LNS 1905
Brief facts
Kining Exeton Sdn Bhd (“Kining Exeton”) commenced an adjudication proceeding against Majlis Perbandaran Kuantan (“MBK”) for costs of variation works arising out of a construction contract. An adjudication decision was delivered in favour of Kining Exeton (“CIPAA 1”)
Kining Exeton brought another claim vide adjudication against MBK for costs of variation works. An adjudication decision was also delivered in favour of Kining Exeton (“CIPAA 2”).
MBK, being dissatisfied with both the adjudication decisions delivered in CIPAA 1 and CIPAA 2, filed originating summons to set aside the decisions on the grounds that the adjudicator had acted in excess of his jurisdiction under section 15 of CIPAA.
It was MBK’s contention that, amongst others, one of the claims by Kining Exeton in CIPAA 2 had been decided by the adjudicator in CIPAA 1. Hence, the adjudicator has no jurisdiction to decide on the same claim in CIPAA 2 and that the doctrine of res judicata applies to bar the claim from being re-adjudicated.
Decision
The Court held that in deciding whether the doctrine of res judicata applies to bar a claim from being re-adjudicated would depend on whether the dispute in the two adjudication proceedings is substantially the same. This is a question of fact and degree to be determined by the adjudicator. Hence, it is pertinent to consider what had actually and finally been decided in CIPAA 1.
In the adjudication decision for CIPAA 1, the adjudicator dismissed Kining Exeton’s claim on the ground that he had no jurisdiction to decide on the claim as it did not form part of the payment claim. Following that, Kining Exeton’s claim was not decided on its merit in CIPAA 1.
As such, the High Court held that an adjudicator has jurisdiction to decide on a claim which was not decided on its merits, albeit raised in an earlier adjudication proceedings. The defence of res judicata is not applicable to MBK and the adjudicator in allowing the Kining Exeton’s claim in CIPAA 2 had not acted in excess of his jurisdiction.
Conclusion
These two cases suggest that the principle of res judicata would apply to adjudication proceedings commenced under CIPAA. This is consistent with the approach adopted in other jurisdictions such as the United Kingdom, Singapore and Australia.
For further information regarding dispute resolution matters, please contact our Dispute Resolution Practice Group.
EMPLOYMENT AND ADMINISTRATIVE LAW
The Introduction of the Industrial Appeals Court
The Malaysian Minister of Human Resource has recently announced that the Industrial Relations Act 1967 will be amended to introduce an Industrial Appeal Court to allow appeals directly from the Industrial Court. The Bill is scheduled to be tabled in the parliament in June this year.
As it stands, parties aggrieved by the decision of the Industrial Court may only challenge the decision by way of judicial review application in the High Courts. The introduction of the Industrial Appeals Court aims to introduce an expeditious disposal of unfair dismissal claims.
For further information regarding employment and administrative law matters, please contact our Employment and Administrative Law Practice Group.
FINANCIAL SERVICES
Securities Commission Malaysia seeks feedback on its proposed regulatory framework for initial coin offerings
The Securities Commission Malaysia (“SC”) has published its Public Consultation Paper No. 1/2019 (the “Consultation Paper”) to seek public feedback on the formulation of a framework for the issuance of digital assets through initial coin offerings (“ICOs”).
The SC highlights in the Consultation Paper:
- what is an ICO;
- the risk associated with an ICO; and
- its proposed regulatory framework for ICOs, among others, the eligibility of ICO issuers, the need for transparent and adequate disclosures as well as utilisation of proceeds of the ICOs.
Comments from the public on the Consultation Paper are due by 29 March 2019.
For further information regarding financial services matters, please contact our Financial Services Practice Group.
INTELLECTUAL PROPERTY
Dart Industries Inc v CMN International Sdn Bhd [2019] MLJU 120 Suit Nos WA-22IP-16-04 of 2017 and WA-22IP-17-04 of 2017
The salient facts
The first plaintiff, Dart Industries Inc (“Dart Industries”), an American company, and the second plaintiff, a Malaysian company holding a licence from Dart Industries, initiated proceedings against the first defendant, CMN International Sdn Bhd (“CMN International”) and the individual defendants (comprising individual Malaysian customers participating in CMN International’s Entrepreneur Program) for infringement of Dart Industries’s registered industrial designs (“RIDs”) by distributing and selling bottles and food container covers, as provided for under section 32(2) of the Industrial Designs Act 1996 (“IDA 1996”).
CMN International counterclaimed, seeking the Court’s declaration that the alleged infringing products did not infringe Dart Industries’s RIDs. The individual defendants claimed “innocent infringement” and asserted that they are customers of CMN International and do not have the expertise or the capability to exploit Dart Industries’s RIDs. Interestingly the individual defendants did not testify at the trial.
Question raised for the Court
A novel issue raised in this case pertained to the individual defendants’ defence that they were “innocent infringers” under section 35(3) IDA 1996 and therefore not liable for infringement of Dart Industries’s RIDs.
Section 35(3) IDA 1996 provides that:
“The Court may refuse to award damages, or to make an order for an account of profits, in respect of an infringement, if the defendant satisfies the Court:
(a) that, at the time of the infringement, he was not aware that the industrial design was registered; and 26 Laws of Malaysia ACT 552
(b)that he had, prior to that time, taken all reasonable steps to ascertain whether the industrial design had been registered.”
The Court’s decision
The fact that the individual defendants did not testify at the trial meant they were unable to rebut evidence in support of Dart Industries’s claim that they had sold the infringing products.
The Court further found that the individual defendants, contrary to section 35(3)(b) IDA 1996, had failed to adduce evidence supporting their assertions that prior to the infringement, they had taken all reasonable steps to ascertain whether the industrial designs had been registered. The Court therefore rejected the defence of innocent infringement put forward by the individual defendants.
For further information regarding intellectual property law matters, please contact our Intellectual Property Practice Group.
TAX AND REVENUE
Income tax
The Inland Revenue Board of Malaysia (“IRB”) has issued the following technical guidelines on 26 February 2019:
- Garis Panduan Permohonan Pelepasan Duti Setem Di Bawah Seksyen 15, Akta Setem 1949 (available in Malay language only);
- Garis Panduan Permohonan Pelepasan Duti Setem Di Bawah Seksyen 15A, Akta Setem 1949 (available in Malay language only).
The IRB has also issued a new public ruling on Director’s Liability (Public Ruling No. 2/2019) on 14 March 2019.
Service tax
The following Industry Guides have been published on the Royal Malaysian Customs Department’s MySST website:
- Broking and Underwriting Services (as at 27 February 2019)
- Customs Agent Services (as at 15 March 2019).
For further information regarding tax and revenue matters, please contact our Tax and Revenue Practice Group.
Copyright © 2019 Shearn Delamore & Co. All rights reserved.
This Alert is issued for the information of the clients of the Firm and covers legal issues in a general way. The contents are not intended to constitute any advice on any specific matter and should not be relied upon as a substitute for detailed legal advice on specific matters or transactions.