Failed Software Development, Refund Claims & Unpaid Invoices in Malaysia
Note: Lessons from Skyworld Holdings v Neurogine – Court of Appeal Confirms Developer’s Right to Payment
Introduction: When Technology Projects End Up in Court
Disputes involving software development contracts, failed IT projects, and refund versus payment claims are becoming increasingly common in Malaysia. As businesses rely heavily on mobile applications, cloud systems, and e-wallet infrastructure, disagreements frequently arise over functionality, scope of work, change requests, timeline, and payment obligations.
The Malaysian Court of Appeal decision in Skyworld Holdings Sdn Bhd v Neurogine Sdn Bhd is a landmark case that provides crucial guidance on:
- When a customer is not entitled to a refund despite alleging a “failed” app
- How documentary evidence outweighs oral testimony
- The legal consequences of change requests and part-payments
- Why courts enforce unpaid invoices even when projects are incomplete
This article analyses the decision in detail and explains how experienced litigation lawyers can protect businesses, recover unpaid fees, or defend against unjust refund claims.
Background of the Dispute
The Software Development Agreement
Skyworld Holdings Sdn Bhd engaged Neurogine Sdn Bhd to design and develop a social lifestyle mobile application known as:
Design & Development of Sky Chat, Wallet & Payment Gateway with Cloud Base Project
The project involved:
- A SkyChat messaging module
- An e-wallet and Red Packet feature
- Cloud-based infrastructure
- Android and iOS deployment
The initial quotation dated 5 February 2018 placed the project value at RM2,316,100.
Between March and October 2018, Skyworld paid RM1,666,050.
Disputes arose when:
- Skyworld alleged the app was non-functional
- Neurogine issued additional invoices following change requests
- Skyworld refused further payment
- Each party sued the other in separate High Court actions
The Competing Claims Before the High Court
Skyworld’s Claim: Refund for Total Failure of Consideration
Skyworld alleged that:
- The app was not functional
- Specifications were not met
- Delivery timelines were breached
- The project amounted to a total failure of consideration
Skyworld sought a full refund of RM1,666,050 already paid.
Neurogine’s Counterclaim: Payment for Work Done
Neurogine maintained that:
- The SkyChat module was completed and tested
- User Acceptance Tests (UAT) and Functional Acceptance Tests (FAT) were signed off
- Additional features were requested outside the original scope
- A second quotation of RM980,000 was issued and partially paid
- Skyworld defaulted on invoices totalling RM1,606,887
High Court Decision: Developer Succeeds
The High Court:
- Dismissed Skyworld’s refund claim
- Allowed Neurogine’s claim for unpaid invoices
- Awarded interest and costs against Skyworld
Skyworld appealed to the Court of Appeal.
Issues Before the Court of Appeal
The Court of Appeal narrowed the appeal to two factual issues:
- Whether Neurogine failed to deliver a functional app, entitling Skyworld to a refund
- Whether Neurogine was entitled to payment for work done amounting to RM1,606,887
Court of Appeal’s Legal Analysis
1. Functionality of the App Is a Question of Evidence, Not Allegation
The Court emphasised that software disputes are evidence-driven, not opinion-based.
Neurogine successfully proved:
- Signed User Acceptance Tests
- Signed Functional Acceptance Tests
- App deployment on Google Play Store and Apple App Store
- Email correspondence confirming progress
- Specification documents approved by Skyworld’s technical consultant
Skyworld, in contrast, relied heavily on oral assertions.
The Court reaffirmed that documentary evidence prevails over hindsight complaints, echoing the principle from Tindok Besar Estate Sdn Bhd v Tinjar Co.
2. No Timeline = Time Not of the Essence
A crucial finding was that:
- The quotation did not specify a completion deadline
- The project evolved with ongoing communications
- Timeline adjustments were mutually accepted
The Court held that time was not of the essence, and Skyworld could not retrospectively impose a deadline.
3. Total Failure of Consideration Was Not Pleaded
Skyworld attempted to argue total failure of consideration, but:
- It was not pleaded
- It contradicted Skyworld’s own evidence of partial delivery
Under Malaysian civil procedure, unpleaded causes of action must fail.
4. Change Requests Create Additional Payment Obligations
The Court found overwhelming evidence that:
- Skyworld requested new features
- Written “Change Request” documents existed
- A second quotation was issued
- RM490,000 was paid, exactly 50% of the additional amount
This part-payment was decisive.
The Court applied principles of:
- Acceptance by conduct
- Estoppel
- Commercial reality
5. Invoices Not Disputed Are Deemed Accepted
Each invoice contained a clause stating that failure to dispute within 15 working days constituted acceptance.
Skyworld:
- Did not dispute the invoices
- Did not reject the second quotation in writing
- Issued payment consistent with the payment terms
The Court upheld Neurogine’s claim in full.
Burden of Proof Under Malaysian Law
The Court reaffirmed Section 101 of the Evidence Act 1950, placing the burden on the party asserting a fact.
Skyworld failed to discharge that burden.
Neurogine succeeded because its evidence was:
- Contemporaneous
- Documentary
- Corroborated
Court of Appeal’s Final Orders
The Court unanimously:
- Dismissed the appeal
- Affirmed the High Court’s findings
- Ordered Skyworld to pay costs
- Confirmed Neurogine’s entitlement to RM1,606,887 with interest
Key Legal Lessons for Businesses in Malaysia
1. “The App Doesn’t Work” Is Not Enough
Courts require technical proof, not dissatisfaction.
2. Sign-Off Documents Are Legally Powerful
UAT and FAT sign-offs can defeat refund claims.
3. Change Requests Cost Money
Additional features = additional fees.
4. Part-Payment Can Bind You
Even one cheque can legally confirm acceptance.
5. Refund Claims Must Be Properly Pleaded
Courts will not entertain afterthought arguments.
How Our Law Firm Helps in Similar Disputes
Our firm regularly acts for:
- Software developers
- Tech startups
- Corporate clients
- Business owners
- Service providers
We handle:
- Failed project disputes
- Refund claims
- Unpaid invoices
- Contractual interpretation
- Trial and appellate litigation
Whether you are:
- A business seeking to recover unpaid fees
- A company facing a refund demand
- A developer accused of breach
- A client disputing scope and quality
We provide strategic, evidence-driven litigation advice grounded in current appellate authority.
Why Choose Us
- Strong trial and appellate experience
- Proven success in complex commercial disputes
- Deep understanding of technology contracts
- Aggressive yet pragmatic litigation strategy
- Clear advice on risk, recovery, and enforcement
Conclusion
The decision in Skyworld Holdings v Neurogine confirms a powerful message from the Malaysian courts:
Commercial dissatisfaction does not override documentary evidence and contractual conduct.
Businesses that document, invoice properly, and manage change requests stand on strong legal footing. Conversely, parties who withhold payment without legal basis risk significant liability, interest, and costs.
If you are facing a similar dispute—or want to avoid one—early legal advice makes all the difference.
Written on: 30th December 2025
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Disclaimer: The above proposition is subject to actual facts and circumstances and shall never be referred as the actual law without seeking legal advice. Consult us for more information!