The learned Judge went on to hold that the payment clause was a conditional payment clause and therefore void under Section 35 of CIPAA.
His Lordship’s view differs from the earlier position taken by Lee Swee Seng J (as His Lordship then was) in
Bond M & E (KL) Sdn Bhd v Isyoda (M) Sdn Bhd (Brampton Holdings Sdn Bhd, third party) [2017] AMEJ 1620 where it was held that such a conditional payment clause is only void for the purpose of adjudication. The learned High Court Judge in
Bond M & E (KL) opined that if Parliament had wanted the prohibition to be of general application in the construction industry, it would have amended the Contracts Act 1950 and not confine and restrict its operation to statutory adjudication under CIPAA.
East is East, and West is West
Tekun Cemerlang Sdn Bhd v Vinci Construction Grands Projects Sdn Bhd [2021] 11 MLJ 50 is a case involving a Sabah-based company and a Kuala Lumpur-based contractor. Disputes arose over progress claims owing to the contractor. The Kuala Lumpur-based contractor appointed and instructed a Kuala Lumpur-based solicitor to demand for payment. When payment was not forthcoming, the Kuala Lumpur-based solicitors issued a notice of adjudication under CIPAA. A Sabah-based adjudicator was appointed, and following the adjudicator’s directions, the Kuala Lumpur-based solicitor served the adjudication claim on the Sabah-based company.
On receiving the said adjudication claim, the Sabah-based company filed a court application to stay the adjudication proceedings on grounds that the Kuala Lumpur-based solicitors were prohibited by the Sabah Advocates Ordinance from acting as advocates for the contractor in the adjudication proceedings.
The High Court granted a stay of the adjudication proceedings. It found that by acting for the contractor, the Kuala Lumpur-based solicitors were practising as advocates in Sabah, which is prohibited by the provisions of the Sabah Advocates Ordinance. The circumstances therefore warranted a stay of the adjudication proceedings to enforce the aforementioned prohibition.
In the vast majority of disputes, parties would appoint someone to represent them. Under section 8(3) of CIPAA, a party to the adjudication proceedings may choose self-representation or appoint someone to represent them, be that a lawyer, surveyor, consultant or engineer.
It will be interesting to see if the prohibition against West Malaysian law firms will likewise be imposed on East Malaysian law firms representing parties in adjudication proceedings based in Peninsular Malaysia.
Claim for Loss and Expense arising from Extension of Time is generally not within the purview of CIPAA
One of the issues that was decided by the High Court in
Integral Acres Sdn Bhd v BCEG International (M) Sdn Bhd & other cases [2021] MLJU 1889 was whether the adjudicator had the jurisdiction to decide on, among others, the loss and expense incurred by BCEG during the period of extension of time for BCEG to complete the works.
In holding that the adjudicator had exceeded his jurisdiction when he allowed the loss and expense claim, the learned High Court Judge Wong Kian Kheong referred to his decision in
Rosha Dynamic Sdn Bhd v Mohd Salehhodin bin Sabiyee & Ors [2021] MLJU 1222 and emphasised that, unless there is a written agreement extending the adjudicator’s jurisdiction, an adjudicator’s jurisdiction under CIPAA is confined to an adjudication of a claim for “
payment” for “
work done or services rendered” under a “
construction contract”.
As the case of
Integral Acres is being appealed, it remains to be determined whether an adjudicator can decide on claim for loss and expense arising from extension of time.
AIAC Rules are not legislative in nature
The question as to whether the AIAC Adjudication Rules and Procedure is a subsidiary legislation arose in
MRCB Builders Sdn Bhd v SMM Resources Sdn Bhd [2021] 1 LNS 1779.
The plaintiff in that case applied to set aside the adjudication decision, contending that the adjudicator acted in contravention of a subsidiary legislation i.e. the AIAC Adjudication Rules and Procedure (“
AIAC Rules”).
Upon closer scrutiny, the learned High Court Judge Lim Chong Fong found that the plaintiff’s true complaint was that the adjudicator failed to notify the parties to pay the adjudicator’s fee and expenses within the time prescribed by Rule 9(4) of the AIAC Rules, and consequently, the adjudicator had acted in contravention of a subsidiary legislation that nullified the adjudication decision.
Rule 9(4) of the AIAC Rules provides that if any party fails to make payment within the time ordered by the adjudicator, the adjudicator shall within seven days thereafter issue such direction as he thinks fit including inviting another party or other parties to make such payment and notify the Director of the AIAC accordingly.
Whilst recognising that the definition of ‘subsidiary legislation’ in the Interpretation Act 1967 is wide enough to encompass rules and circulars made by the AIAC pursuant to CIPAA, the learned High Court Judge found that such rules and circulars must be gazetted and commenced to come into operation in order to have the force of subsidiary legislation. As the AIAC Rules have not been gazetted, it was held that the non-compliance of the AIAC Rules, which lacks the force of subsidiary legislation, was not fatal to the adjudication decision. The learned Judge further opinionated that “
the ‘shall’ provision [under Rule 9(4) of the AIAC Rules] is not mandatory by only directory; thus it is inconsequential here if the provision has not been complied.”
Adjudication Decisions as the basis to present winding up petitions
The advent of the Court of Appeal’s decision in
Likas Bay Precinct Sdn Bhd v Bina Puri Sdn Bhd has [2019] MLJU 49 laid down the law entitling a successful party to commence winding up or bankruptcy proceedings against the unsuccessful party based on an adjudication decision without having to enforce the same under Section 28 of CIPAA.
In the subsequent case of
Sime Darby Energy Solutions Sdn Bhd (sebelum ini dikenali sebagai Sime Darby Offshore Engineering Sdn Bhd) v RZH Setia Jaya Sdn Bhd [2021] MLJU 1494, the Court of Appeal noted that the decision in
Likas Bay pronounced in no uncertain terms without qualification that a party who obtained an adjudication decision in its favour would be entitled to present a winding up petition based on the award.
In the context of Fortuna Injunctions, the Court of Appeal in
Sime Darby took the view that a party challenging the debt under an adjudication decision with an unproven cross-claim is not a basis for restraining the filing of a winding up petition based on a valid and enforceable adjudication decision. It was held that until and unless the adjudication decision is set aside, it can in law form the basis for the statutory notice under Section 466(1)(a) of the Companies Act 2016.
The Court of Appeal’s decisions in
Likas Bay and
Sime Darby signal a departure from the conclusions reached in, amongst other cases,
ASM Development (KL) Sdn Bhd v Econpile (M) Sdn Bhd [2020] MLJU 282 where an order was granted to restrain a party from presenting a winding up petition based on an adjudication decision.
Conclusion
The past year has witnessed notable legal developments brought about by cases pursuant to CIPAA which continues to have wide-ranging impact on construction disputes in Malaysia.
Article by Jocelyn Lim Yean Tse (Partner) and Joanna Tan Li Pheng (Senior Associate) of the Construction and Arbitration Practice of Skrine.