The Continuing Rise Of Statutory Adjudication In 2019

Publication Date24 November 2020
SubjectCorporate/Commercial Law, Litigation, Mediation & Arbitration, Real Estate and Construction, Contracts and Commercial Law, Arbitration & Dispute Resolution, Construction & Planning
Law FirmSKRINE
AuthorMs Jocelyn Lim Yean Tse and Joanna Tan Li Pheng

The year 2019 witnessed a myriad of statutory adjudication disputes in Malaysia. The surge in the number of disputes involving the statutory adjudication mechanism in the Construction Industry Payment and Adjudication Act 2012 ("CIPAA") has also led to a significant number of consequential challenges to adjudication decisions in the courts. This article highlights the notable pronouncements by the Malaysian courts in 2019 and their effect on the future application of CIPAA.

A. PROSPECTIVE EFFECT OF CIPAA

Top of the charts, the noteworthy saga of appeals of Jack-In Pile (M) Sdn Bhd v Bauer (M) Sdn Bhd and another appeal [2020] 1 MLJ 174 ("Jack-In Pile") and Ireka Engineering & Construction Sdn Bhd v PWC Corp Sdn Bhd and other appeals [2020] 1 MLJ 311 ("Ireka") marked the beginning of a dramatic departure from the retrospective effect of CIPAA since its enactment in April 2014.

The case of Jack-In Pile concerned a construction contract entered into between the appellant (subcontractor) and the respondent (main contractor) in 2011, prior to the coming into force of CIPAA. The contract included a conditional payment clause, allowing the respondent to withhold payment from the appellant until and unless the respondent had received the related progress payments from the employer. It was undisputed that the parties had agreed and complied with the mode of payment under the conditional payment clause. Unfortunately, the employer spiralled into liquidation which brought payments between the respondent and the appellant to a standstill.

The appellant subsequently commenced adjudication proceedings against the respondent and an adjudication decision was delivered in favour of the appellant.

In 2016, the High Court, in deciding to enforce the adjudication decision on an application by the appellant, held that the conditional payment clause in the construction contract wherein payment from the respondent to the appellant is conditioned on the respondent having received payment from the employer, was prohibited by virtue of section 35 of CIPAA. In arriving at its decision, the High Court relied on the legal proposition in UDA Holdings Bhd v Bisraya Construction Sdn Bhd & Anor and another case [2015] 11 MLJ 499 that CIPAA, including section 35, applied retrospectively to all construction contracts or disputes notwithstanding whether the construction contracts were made or the disputes arose before or after the enforcement date of CIPAA.

However, in 2018, the Court of Appeal found that there was no express provision in CIPAA excluding or including construction contracts made prior to the commencement of CIPAA. The Court of Appeal affirmed the trite legal position that unless there were clear words in the legislation to the contrary, any legislation affecting the substantive rights of parties must be given a prospective effect. In the same vein, the Court of Appeal found that CIPAA was a legislation relating to a substantive right.

The Federal Court, in affirming the Court of Appeal's decision, unanimously ruled that CIPAA operated prospectively as there is no express intention by Parliament that it was to be applied retrospectively. It was held that CIPAA was a piece of legislation which affected the substantive rights of parties as it provided an avenue for claimants to claim for contractual debts due and owing to them. In the context of section 35 of CIPAA, the prohibition on conditional payment clauses stipulated therein affected the substantive rights of the parties to enforce an agreed conditional payment clause. Therefore, the Federal Court concluded that section 35 of CIPAA could not apply retrospectively to deprive parties of those substantive rights without a clear legislative intention to that effect.

The case of Ireka was decided alongside Jack-In Pile. Similarly, the question of law for determination by the Federal Court in Ireka was whether CIPAA as a whole affected the substantive rights of parties and hence, was prospective in effect. In Ireka, the subcontracts between the appellant and the respondent were entered into prior to the enactment of CIPAA. These subcontracts allowed the appellant the right to set off against any claims made by the respondent. The appellant contended that its substantive right to raise any set-offs existed before CIPAA came into force and as such, CIPAA could not apply retrospectively to extinguish the appellant's substantive right.

The Federal Court in Ireka found that the clause in the construction contracts providing for the right to raise cross-contract set-offs was a substantive right which the parties had acquired pursuant to their agreement before CIPAA came into force. Therefore, CIPAA could not apply retrospectively to strip away the parties' substantive rights.

Since the Federal Court's rulings on the prospective effect of CIPAA in Jack-In Pile and Ireka, the courts have readily set aside adjudication decisions primarily on the ground that the adjudicator has no jurisdiction in law to determine a dispute arising from construction contracts entered into before the enactment of CIPAA. This is illustrated in the High Court cases of Kiarafield Sdn Bhd v Pembinaan Perisai Hebat Sdn Bhd [2019] MLJU 1245 and Bond M&E (KL) Sdn Bhd v Prinsiptek (M) Sdn Bhd [2019] MLJU 1665 ("Bond").

In the case of Bond, the High Court dealt with the preliminary issue as to the date on which the parties entered into the construction contract. The complicating factor therein, as in most construction contracts, was that the construction contract was not made up of one document but...

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