Resolution Of Construction Industry Disputes : Arbitration, Statutory Adjudication Or Litigation In The Construction Court?

Introduction

Malaysian construction disputes are traditionally resolved in arbitration1, otherwise in the normal courts of law2. These construction disputes are often technically complex involving mixed issues of fact and law. Both modes of dispute resolution have in recent years been increasingly perceived as inadequate and unsatisfactory by the users especially in respect of cost and time taken to dispose the dispute.

It is observed from the United Kingdom experience that construction justice is best served by the trinity of construction arbitration, statutory adjudication and the specialist construction court3. Thus by the initiative of the Construction Industry Development Board (CIDB) to transform the Malaysian construction industry dispute resolution landscape in line with the vision of the Construction Industry Master Plan, the Construction Industry Payment and Adjudication Act 20124 (CIPAA) is finally enacted in June 2012 after several years of debate. The specialist construction court is also established by the Malaysian Judiciary on 1st April 2013 in the High Courts in Kuala Lumpur and Shah Alam at the joint request of the CIDB and the Bar Council Malaysia. In the meanwhile, the Kuala Lumpur Regional Centre for Arbitration (KLRCA) has in the last couple of years also undergone rapid transformation and is actively promoting arbitration as the preferred ADR way. The Arbitration Act5 has been revised by the Government to strengthen arbitration.

The transformed landscape and availability of these alternative modes of construction dispute resolution pose a challenge for both counsel and client to determine and select the mode that is best suited for the dispute. This paper seeks to discuss the pros and cons as well as the limitation of each of these alternative modes of construction dispute resolution to facilitate the selection.

Construction Arbitration

Arbitration is only available as a mode to resolve the dispute if there is an arbitration agreement6 between the parties. The agreement must be in writing7. The existence of the arbitration agreement is seldom a problem in construction contracts at the higher level of construction contracting pyramid where standard forms of contract are used. Problems are often seen in sub contracts especially bespoke ones at the lower level of the pyramid. The arbitration is confined to the parties to the arbitration agreement and there cannot be the inclusion of other third parties except by consent even though the disputes may be related ones.

The arbitrability of the subject matter in dispute is dependent on the width of the arbitration agreement. Most contractual issues are encompassed by the agreement but related issues in tort such as negligence may not necessarily be so included. Hence in such situations, the dispute cannot be satisfactorily resolved together in the arbitration.

As often prescribed in the arbitration agreement in the construction contract, there are limitations in the commencement of arbitration. The commencement is usually postponed till completion of the works or termination of the contract8. Besides, the referral and obtaining the decision of the contract administrator9 or adjudicator10 is made the condition precedent to the commencement of the arbitration proceedings. There are also other forms of contract for large projects that require reference to mediation as the condition precedent to the initiation of arbitration. The limitation to the commencement or initiation of arbitration proceedings is an important consideration particularly when speed of obtaining the arbitration award is an essential consideration.

The arbitration award is recognized and enforceable as a judgment of the High Court11. Very importantly, the award is often enforceable abroad by virtue of the New York convention. This is the distinct superiority of arbitration over the other modes of dispute resolution. The enforceability of the dispute resolution outcome has to be considered when one of the disputing parties is a foreign entity since there are many international contractors and developers operating in Malaysia and their assets are housed in their home country.

Subject to the provisions of the Arbitration Act and agreement of the parties, the arbitration award is final and binding12. Finality generally connotes absence from interference by the High Court. Nevertheless, it must be appreciated notwithstanding that the award is final, there is still a limited challenge to the award available in the High Court on grounds of invalidity of the arbitration agreement, excess of jurisdiction, procurement of award induced through fraud or corruption, denial of natural justice in the course of the arbitration proceedings, etc13. The Arbitration Act further gives the option14 to the parties via the arbitration agreement whether to seek the High Court's intervention by way of determination of preliminary points of law and post award reference on questions of law. If the arbitration is domestic15, the parties are at liberty to opt out whereas in a non domestic or international arbitration16, the parties are at liberty to opt in. By opting for court intervention, the parties are deemed to prefer a legally correct result instead of finality of the award. Otherwise, there is no recourse if the arbitrator has misdirected himself in law or that the award is bad in legal reasoning. The choice of a legally correct result over finality naturally affects the...