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2020 MarsdenLR 2533
HIGH COURT SABAH & SARAWAK KOTA KINABALU
HARDIE DEVELOPMENT SDN BHD – Appellant
Versus
DAVID SHEN I-TAN – Respondent
[Originating Summons No: BKI-24NCC(ARB)-3-11-2019]
Charging professional fees below statutory minimums does not automatically render an architect's contract void or deprive them of their right to recover fees.
Headnote:(A) Arbitration Act 2005 – Sections 37(1)(b)(ii) and 42 – Partial Award contested – Plaintiff seeks to set aside an arbitration award on grounds of illegality in fee structure as per Architects (Scale of Minimum Fees) Rules 1986 – Determination that charging fees lower than prescribed minimum does not void contractual engagement – Courts to exercise caution in nullifying contracts for breach of statutory provisions – Professional fees and regulatory compliance are distinct – Relevant principles elucidated in Malaysian caselaw reaffirming that contracts are not automatically void for non-compliance with statutory provisions unless expressly stated. (Paras 1-108)
Facts of the case: The plaintiff and defendant engaged in a joint venture and contractual agreement regarding development projects; disputes arose regarding fee schedules leading to arbitration and subsequent appeal against arbitral awards questioning the legality of fees based on Architects Act statutes.
Findings of Court: Court found no premise under the provided statutes to declare the agreement void; agreements remain valid irrespective of the alleged breach so long as it does not constitute fundamental injustices.
Issues: The primary issues were whether the non-compliance with prescribed minimum fees rendered the service contract void, and the interpretation of public policy in arbitration context.
Ratio Decidendi: The court held that charging lower fees does not inherently nullify an architect's entitlement to remuneration, reinforcing the understanding that statutory compliance must be inherent to the contract’s purpose rather than its execution. (Paras 100-104)
Result: Application dismissed, with costs awarded to the defendant.
JUDGMENT
Introduction
[1] By this Originating Summons (encl 1), the plaintiff is applying to set aside the Partial Award No 2 dated 7 October 2019 (hereinafter referred to as "the Partial Award No 2") made by Mr Chong Thaw Sing, the arbitrator in the arbitration between the plaintiff and the defendant.
[2] The plaintiff's application is made under ss 37(1)(b)(ii) and 42 of the Arbitration Act 2005 and/or under the inherent jurisdiction of the court.
Brief Background
[3] Sometime in 2003, the plaintiff entered into a joint venture agreement with Supernesa Sdn Bhd to develop a piece of land under title deed CL 01549434 measuring 44.28 hectares situated in Menggatal, Kota Kinabalu into a residential and commercial development (hereinafter referred to as "the said Project") for the State Government of Sabah.
[4] By a letter dated 11 August 2003 of the plaintiff issued to the defendant (hereinafter called "the Appointment Letter"), the plaintiff appointed the defendant as the architect to provide supplementary services for Land Use Planning, basis services for Development Planning, Building Planning, Contract Documentation, and Contract Implementation Phase.
[5] By the Appointment Letter, so far as relevant, it is stated that the professional fee payable to the defendant shall be a sum of RM220,500.00 in respect services for Land Use Planning.
[6] In respect of the basic services for Development Planning, Building Planning, Contract Documentation, and Contract Implementation Phase, the fee payable to the defendant shall be 2.50% of the overall construction costs.
[7] The defendant did render the initial services and sometime in September 2009, the defendant issued to the plaintiff an invoice for a sum of RM2,165,224.44.
[8] After that there were negotiations between the defendant and the plaintiff over the defendant's charges. It appears that an agreement was reached in December 2009. The plaintiff proposed that the defendant's professional fees at 2.50% be computed based on 45% work completed. That amounted to a sum of RM3,937,500.00. The plaintiff was to pay the sum to the defendant by instalment payments.
[9] The defendant accepted the plaintiff's proposals but required that the first instalment payment be paid on 31 January 2010 with the subsequent instalments to be paid on the last day of each consecutive month from February 2010 onwards. If any of the instalments dues were not paid, the defendant to reserve the right to demand for the payment of the entire balance sum to be paid in full. The defendant also required that interest at the rate of 8% per annum should be chargeable on any instalments unpaid on due date.
[10] In April 2011, the plaintiff requested the defendant to issue a letter of release so that the plaintiff's own architect could take over the job from the defendant for the completion of the said Project.
[11] However, the defendant was not agreeable to issue the letter of release until the defendant fully paid all the outstanding balance of the professional fees and reimbursable totalling sum of RM3,182,551.92 (inclusive of service tax) then.
[12] In October, 2011, the plaintiff commenced action against the defendant in Suit No: BKI-22-224-10-2011 in the High court at Kota Kinabalu claiming for inter alia, damages for failure on the part of the defendant to produce architectural drawings, for declaration that the defendant's services had been terminated and for an order to require the defendant to issue the letter of release.
[13] In April 2012, the defendant then also commenced action against the plaintiff and one, Pemaju Industries Berhad in Suit No: BKI-22-63-4-2012 to declare the termination of the defendant's service by the plaintiff as wrongful. The defendant also claimed for outstanding balance of the professional fees, damages for loss of income for premature termination of the defendant's services.
[14] These two actions were subsequently discontinued when the parties agreed to refer their disputes
