CIPAA ' Is It To Have Retrospective Or Prospective Effect?

Publication Date21 December 2020
SubjectCorporate/Commercial Law, Litigation, Mediation & Arbitration, Real Estate and Construction, Contracts and Commercial Law, Arbitration & Dispute Resolution, Construction & Planning
Law FirmCecil Abraham & Partners
AuthorMr Dato' Sunil Abraham and Syukran Syafiq

INTRODUCTION

The enactment of the Construction Industry Payment and Adjudication Act 2012 (Act 746) ("CIPAA") which came into force on 15th April 2014 was greeted with much fanfare in Malaysia, particularly amongst those in the construction industry. As provided for in the long title to CIPAA, the introduction of this statute was and is to "facilitate regular and timely payment, to provide a mechanism for speedy dispute resolution through adjudication, to provide remedies for the recovery of payment in the construction industry and to provide for connected and incidental matters."

Whilst the introduction of CIPAA has been generally been viewed favourably by the construction industry as well as by the legal fraternity, several issues have arisen as a consequence of the manner in which some of the specific statutory provisions within CIPAA have been drafted. To this end, one of the burning issues which has plagued CIPAA since its inception is whether the Act is to be applied retrospectively or prospectively. Given the absence of an express statutory provision within CIPAA addressing this issue, it has been left to the courts in Malaysia to ascertain whether CIPAA is to be applied retrospectively or prospectively particularly given that a number of constructions contracts would have been entered into in writing prior to 15th April 2014.

The courts in Malaysia for a significant period of time arising from the decisions in UDA Holdings Bhd v Bisraya Constructions Sdn Bhd & Anor and another case [2015] 11 MLJ 499, View Esteem Sdn Bhd v Bina Puri Holdings Bhd [2018] 2 MLJ 22 and Bauer (M) Sdn Bhd v Jack-In Pile (M) Sdn Bhd and another appeal [2018] 4 MLJ 640 took conflicting positions. On 16th October 2019, the Federal Court first delivered its decision in Ireka Engineering & Construction Sdn Bhd1 v PWC Corporation Sdn Bhd2 and thereafter delivered its decision in the related appeals in Jack-in Pile (M) Sdn Bhd v Bauer (Malaysia) Sdn Bhd3 by way of Federal Court Civil Appeal No. 02(f)-58-07/2018(B) and Federal Court Civil Appeal No. 02(f)-59-07/2018(B). The decisions of the Federal Court in Ireka Engineering and Jack-in Pile have put the issue of whether CIPAA is to have retrospective effect or is to only apply prospectively to rest.

Before examining the decisions of the Federal Court in both Ireka Engineering and Jack-in Pile, it is first necessary to take cognisance of the decision in UDA Holdings as well as in View Esteem to enable one to have a full understanding of the legal arguments pertaining to whether CIPAA ought to have retrospective or prospective effect.

UDA HOLDINGS

The decision of the High Court in UDA Holdings must be given due consideration. In UDA Holdings, one of the principal issues raised by the plaintiffs (who were the respondents in the adjudication proceedings) was that the adjudication notices were outside the purview of CIPAA which has no retrospective application as the adjudication claims arose and crystallized before the coming into effect of the said Act. As such, it was asserted that the adjudicator had no jurisdiction to adjudicate the claims under CIPAA.

Madam Justice Mary Lim (as she then was) in delivering the judgment of the High Court in UDA Holdings embarked on a detailed analysis of the (i) the statutory framework and provisions of CIPAA as a whole, (ii) the intention of Parliament by reference to debates recorded in Hansard and the application of the purposive approach to the construction of statutes, (iii) a comparative analysis of the experiences in other jurisdiction with specific regard to the United Kingdom, Australia, Singapore and New Zealand and (iv) the notion of 'the substantive rights argument'.

The High Court was of the view that it was necessary to ask the burning question as to why Parliament had seen it fit to enact such an elaborate piece of legislation for just this aspect of the construction industry?

In answering this question, the High Court was of the view that the objectives of CIPAA relate to or is connected with payment, be it to facilitate regular and timely payment, provide speedy dispute resolution through adjudication which is about payment and remedies for the recovery of payment in the construction industry4.

The High Court drew support for the above by reference to Parliamentary debates recorded in Hansard held on 2nd April 2012 and 7th May 2012 with specific regard to statements made by the Deputy Minister that the construction industry experienced problems over payments, be it non-payment, late payment or insufficient payment, which necessitated the introduction of CIPAA to alleviate these cash flow problems in the construction chain5 . In addition, the High Court embarked on a comparative analysis to the statutory provisions in the United Kingdom, Australia, Singapore and New Zealand.

Having adopted the above approach as a basis for its judicial analysis, the High Court then made the following findings:

  1. At paragraph 136:

"[136] Seen in its proper perspective, it cannot be denied that adjudication is nothing more than a dispute resolution mechanism. It is a regime, a process or procedure before which the parties' disputes or differences over payments claimed by one party against the other party will be determined by an adjudicator. That adjudicator's decision (as opposed to an award or an order) though enforceable, is only provisional for the intervening period, commonly referred to as 'temporary finality'. Through CIPAA, adjudication is offered on a statutory framework and it is offered as an additional alternative to existing payment dispute resolution forums such as the courts and arbitrations specially and specifically for the construction industry. This is clear from the speeches of the Deputy Minister as reported in Hansard; the regimes practiced in other jurisdictions, case law discussed; as well as reading of the provisions of CIPAA, in particular ss 13 and 37."

  1. At paragraph 155:

[155] I am of the respectful view that this is artificial and a fallacy. Adjudication and the Act for that matter, is but a piece of legislation emplaced by Parliament to provide for, inter alia, a mechanism to speedily settle payment disputes which in reality are disputes over interim and final progress claims. The payment disputes arise under the construction contract that underpins the relationship between the parties; and Parliament has decided to legislate by reference to the construction contract and not, the payment dispute. That is the material or relevant point of reference; and not the date of the payment dispute. We should not attempt to rewrite those terms lest the court be accused of trespassing on the jurisdiction of Parliament to legislate. See the decision of NKM Holdings Sdn Bhd v Pan Malaysia Wood Bhd [1987] 1 MLJ 39 in this regard."

  1. At paragraph 160:

"[160] For this, I return to the ethos of CIPAA. Since it is to provide a speedy procedure for the temporary resolution of payment disputes in construction contracts through the introduction of a fresh or new forum called 'adjudication', it would be appropriate to say that such legislation is in character, truth and substance, procedural and adjectival legislation. Such legislation or statute is presumed in law to be applied retrospectively unless there is clear contrary intention in the statute itself. Support for this principle of statutory interpretation can be found in the Indian Supreme Court's decision in New India Insurance Co Ltd v Smt Shanti Misra AIR 1976 SC 237 at p 240, where it was held:

On the plain language of Sections 110A and 110F there should be no difficulty in taking the view of the change in law was merely a change of forum i.e., a change of adjectival or procedural law and not of substantive law. It is a well-established proposition that such a change of law operates retrospectively, and the person has to go to the new forum even if his cause of action or right of action accrued prior to the change of forum. If by express words the new forum is made available to causes of action arising after the creation of the forum, then the retrospective operation of the law is taken away. Otherwise the general rule is to make it retrospective."

  1. At paragraph 170 to 173:

"[170] Similarly, these aspects are present in CIPAA and they are immensely important, and one must not lose sight of what CIPAA essentially is - a choice of forum. That being so, and applying the well-established principle that legislation providing for this change of forum in the form of an additional forum known as adjudication, retrospective in operation unless there is provision to the contrary, and there is none here, CIPAA is indeed retrospective. There are clear provisions to the contrary in the legislations of those jurisdictions that Parliament and now, this court have looked at. The existence of those clear provisions to the contrary may be said to further confirm the opinion of this court on this point. CIPAA therefore applies to construction contracts regardless the dates when such contracts were made. Obviously, the construction contracts in the two cases before the court today come under the operation of the Act.

[171] Even if this court is in error in considering CIPAA as procedural legislation, this court will nevertheless consider CIPAA as falling within the category of 'social legislation' as described by the Court of Appeal and affirmed by the Federal Court in Westcourt Corp Sdn Bhd. While there is no definition of what exactly 'social legislation' is, it would be fair and reasonable to say that it would refer to legislation which is for the good and benefit of society.

[172] Going back to where we started on all the reasons why CIPAA was contemplated in the first place, the ills and stagnation of projects because of the starving of cash flows suffered by subcontractors and sub-sub contractors along the construction chain that Parliament had every intention of overcoming so that the...

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