20^th August 2019

Issues

Since leave was given to Martego Sdn Bhd on 02.01.2018 to appeal against the majority decision in the Court of Appeal case of Martego Sdn Bhd v Arkitek Meor & Chew Sdn Bhd & Another Appeal [2018] 2 CLJ 163, adjudication practitioners and by extension, the construction industry, have been looking forward to the Federal Court’s answers to, amongst others, these important questions of law:-

“(i)    Whether an adjudicator acts within his jurisdiction in deciding on a matter referred to him under CIPAA 2012 when, at the time of service of the payment claim pursuant to section 5(1) of CIPAA, the construction contract had been terminated and the termination was accepted by both parties and the claim was for determination of sums finally due to the unpaid party?;

(ii)     Whether CIPAA applies to final payments when the mischief which CIPAA intends to cure, based on its Explanatory Statement and Preamble, was the timely payment for work related to progress payments and not final accounts?

(iii)    Whether the rule laid down by this Honourable Court in Arkitek Tenggara Sdn Bhd v. Mid Valley City Sdn Bhd [2007] 6 CLJ 93; [2007] 5 MLJ 697 that disputes between an architect and his client is to be resolved by the specific provision enacted for such purpose i.e rule 21 of the Fourth Schedule to the Architect Rules 1973(as amended in 1986) is still good law?”

Undoubtedly, the answers to these questions of law will give much clarity to the application of the Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”).

The Federal Court had recently made available its Grounds of Judgment dated 01.08.2019 in this much anticipated appeal of Martego Sdn Bhd v Arkitek Meor & Chew Sdn Bhd and Another Appeal [2019] 1 LNS 1067.

Principle Grounds of Appeal

The 3 principle submissions lead by the Appellant against the majority’s decision in the Court of Appeal are as follow:-

“[4]    Learned counsel for the appellant mounted a root and branch attack on the majority. Stripped to its essentials, the nub of the appellant’s submission in assailing the majority may be summarised as follows –

(a)     The majority erred in fact and in law in failing to hold that the respondent could not have made a valid claim under CIPAA 2012 when the payment claim was served after the construction contract dated 22.8.2014 between the appellant and respondent had been terminated and the respondent accepted the termination of the said contract on 7.8.2015 (“jurisdiction issue”);

(b)     The majority erred in fact and in law in holding that CIPAA 2012 applied to both “interim and final claims”; and

(c)     The majority erred in fact and in law in failing to hold that where a statute created a right, in plain language, which gave a specific remedy or appointing a specific tribunal for its enforcement, a party seeking to enforce the right must resort to that remedy or that tribunal and not to others.”

 A.  Jurisdiction : Terminated Contract

In addressing whether a valid CIPAA claim can be framed on a terminated construction contract, the Federal Court notes that this issue turns on the proper interpretation of the construction contract in the context of CIPAA.

“[13]       This issue concerns the Adjudicator’s jurisdiction and turns on the proper interpretation of the construction contract in the context of CIPAA 2012.

[14]         Jurisdiction is everything and without it, a court or an adjudicator has no power to take one more step. A court of law or an adjudicator downs its or his tools in respect of the matter before it the moment it holds the opinion that it is without jurisdiction. (See Pentadbir Tanah Daerah Seberang Perai Tengah & Anor v. Bagan Serai Housing Estate Sdn Bhd [2016] 8 CLJ 846 (CA)). The critical issue here is whether the Adjudicator had jurisdiction to adjudicate when the payment claim was served after the construction contract has been terminated.”

[Emphasis added]

The Federal Court recognised that both parties accepted that the construction contract had been lawfully terminated and that clause 6 of the construction contract expressly contemplates payment being made after the contract has terminated.

However, it is important to note that the Federal Court also finds that the absence of an express provision for entitlement of payment post termination will not deprive the party of such payment as the parties’ past rights and obligations prior to termination are not affected by the termination.

“[16]       In our view, Clause 6 of the construction contract expressly contemplates payment being made after the said contract has been terminated as it sets out the mechanism for the parties to value works done up to the date of determination. We do not regard the absence of an express provision that a party is entitled to make a payment claim after the construction contract has been terminated as warranting a different conclusion. That Clause 6 equates the rights and liabilities of the parties to the general law of contract situation where the parties’ past rights and obligations prior to the termination are not affected by the termination and therefore the appellant is not relieved from its obligation to pay the respondent.”

[Emphasis added]

Having considered the above, the Federal Court finds that the right to payment under the construction contract (clause 6) survives the termination:-

“[17]       We entertain no doubt that the right to payment under Clause 6 of the construction contract survives the termination. The respondent had carried out works prior to the termination and the past rights and obligations of the appellant are not discharged due to termination (see Berjaya Times Square Sdn Bhd v. M-Concept Sdn Bhd [2010] 1 CLJ 309 (CA)).”

B. CIPAA confined only to interim claim?

Having examined the intent behind the legislation, Federal Court agreed with the findings of the majority in the Court of Appeal and held that interpretation expounded by the majority in the Court of Appeal is consistent with the purpose and structure of the adjudication process outlined in CIPAA 2012.

 “[38] With respect, we are unable to agree with the minority and we are in full agreement with analysis of the majority that as long as they are payment claims relating to a construction contract as defined in section 4, CIPAA 2012 would applied. In our view, it is difficult to fathom any basis for concluding that Parliament intended a bifurcated approach depending on the type of claim. We could see no conceivable basis and/or logical reason that the Parliament would have intended a different approach between the interim payment and final payment. If the Parliament had intended to exclude final claims from the adjudicatory ambit of CIPAA 2012, it could have clearly included a proviso or provisions to that effect. Further, if the Parliament had intended a different approach for interim and final claims, the Parliament would have deliberately utilised a different language evincing such an intention.

[39]    In our view, the interpretation expounded by the majority is consistent with the purpose and structure of the adjudication process outlined in CIPAA 2012. The modern approach to interpretation of statute mandates that a construction of a statute which promotes the purpose or object of an Act is to be preferred to a construction which does not. For this purpose, all extrinsic materials may be consulted. For example, courts are prepared to consider the Hansard debates, the Preamble, the Explanatory Notes to the bill and Law Commission Report. However, that does not mean that ordinary meaning or clear language may be discarded, for construction and/or interpretation is not divination and courts must respect separation of powers when construing the Acts of Parliament.”

As for the reason for CIPAA 2012’s enactment, the Federal Court finds as follow:-

“[46]  At the risk of repetition, we say that the raison d’être of CIPAA 2012 regime lie in facilitating and providing remedies for the recovery of payment in the construction industry. CIPAA 2012, brings three major changes to the construction industry in Malaysia:-

(a)     a “right to progress payment”, unless otherwise agreed to by the parties;

(b)   a speedy resolution through adjudication for construction disputes relating to payment for works carried out under the construction contract; and

(c)  a determination which has temporary finality. A party, which executes construction work and which is unpaid in whole or in part, under the construction contract may serve a payment claim on non-paying party to the construction contract.”

Having examined the Preamble to CIPAA 2012, the Explanatory Statement to the CIPAA Bill 2011 as well as the Deputy Minister’s speech during the Second Reading of the Bill to introduce CIPAA 2012 in Dewan Rakyat on 02.04.2012, the Federal Court found that CIPAA 2012 have the following characteristic, in tandem with the primary objective of the said legislation, i.e. to alleviate cash flow issue in the construction industry:-

“[50]  It can be clearly discerned from the Deputy Minister’s speech that CIPAA 2012 is enacted by the Parliament to provide an easily accessible, faster and cheaper resolution forum i.e. the adjudication. The following characteristics of CIPAA 2012 is in tandem with the said intent –

(a)     it involves tight time constraints. The deadline for each step is fixed and the timeline for each stage is relatively short to ensure that the disputes are resolved rapidly and quickly;

(b)     it involves a significant degree of informality;

(c)     it gives adjudicator’s determination a degree of conclusiveness;

(d)     it involves rights which are interim only. The rights and liabilities under the Act do not affect other entitlement a person may have under a construction contract or any other remedy a person may have for recovering such entitlement;

(e)     the standard adjudicator’s fee is introduced and the charges are cheaper than arbitration. Low-cost decision making is a core object of the scheme in the Act; and

(f)      the grounds on which the court can rely upon to set aside the adjudicator’s determination are limited. The court primary duty must be to uphold the adjudicator’s determination and not to revisit the factual or legal matters canvassed before the adjudicator.

…

[55]    We have also perused and scrutinised the Preamble, the Explanatory Notes to the Bill and the speech of the Deputy Minister when tabling CIPAA Bill. We have no hesitation in agreeing and endorsing the interpretation expounded by the High Court and the majority. It is clear from the materials mentioned above that the primary objective of CIPAA 2012 is to alleviate cash flow issues by providing an effective and economical mechanism. The courts are consistent on the finding that CIPAA 2012 is intended to alleviate cash flow issue. Therefore, the mischief that CIPAA 2012 intends to cure is none other the cash flow in the construction industry through effective and economical mechanism; for deciding otherwise would run counter to the legislative purpose of creating an expedited adjudication process.”

Having made the above findings, the Federal Court concludes that CIPAA 2012 is not confined to interim claims only and final claims are not precluded from CIPAA 2012. Naturally, the challenge on the jurisdiction of the Adjudicator to adjudicate a claim mounted on a final claim fails.

“[56]  We are in agreement with the submission of learned counsel for the respondent that there is no rhyme or reason for this Court to confine the applicability of CIPAA 2012 to “interim claim” only. CIPAA 2012 does not mention the words “interim claim” or “final claim”. “Payment” is defined under section 4 of CIPAA 2012 to mean a payment for work done or service rendered under the express terms of a construction contract.

…

[72] In the light of the above discussion, the appellant’s challenge on the jurisdiction of the Adjudicator to adjudicate the matter is bereft of merit and, therefore, must fail.”

[Emphasis added]

C. Arbitration as Specific Remedy Pursuant to Statute (Architects Act 1967)

In relation to this issue, the Appellant contends that since the Architects Act 1967 (“AA”) provided for a specific dispute resolution mechanism, i.e. arbitration, the payment dispute ought to be arbtirated instead of adjudicated under CIPAA 2012.

“[73]  On ground (c), the main plank of the learned counsel for the appellant’s submission is that the Architects Act 1967 (“AA”) and the Architects Rules 1996 (“the Rules”) provide for a specific dispute resolution mechanism vis-ä-vis architect’s fees; the dispute is one which ought to have been arbitrated instead of adjudicated under CIPAA 2012.

[74]    Learned counsel for the appellant argued that the Rules make it mandatory for the professional architect and client to appoint an arbitrator within 124 days of receipt of a notice in writing informing the other party of the matter in dispute, failing which the President of the Board of Architect Malaysia (BAM) shall appoint an arbitrator.

[75]    Learned counsel for the appellant further submitted that this Court ought to have followed the decision of the Federal Court in Arkitek Tenggara Sdn Bhd (supra). According to him, the case is still good law.”

However, the Federal Court was not pursuaded and instead, endorsed the High Court’s decision (which was in turn endorsed by the majority in the Court of Appeal) that adjudication and arbitration are not mutually exclusive of each other as they can run concurrently and in parallel.

“[76]  We are not persuaded. We are fully in agreement with the learned High Court Judge that there is nothing to stop CIPAA 2012 from applying to the case at hand and there is no need to see adjudication and arbitration to be mutually exclusive to each other…

[78]    Further, section 37 of CIPAA 2012 provides that an adjudication proceeding, arbitration and court litigation may proceed concurrently and in parallel. It is also apparent that adjudication is a mandatory procedure under CIPAA 2012 and the right to statutory adjudication should not be circumvented by any contract where parties have agreed to arbitrate.”

Effect of Decision

In the upshot, the Federal Court answered the questions of law in the following manner:-

“[79]    In the light of what we have said thus far, our answers to the leave questions posed are as follows –

(i)      the 1st question – In the affirmative;

(ii)     the 2nd question – In the affirmative;

(iii)    the 3rd question – In the negative…”

This decision brings much clarity as to whether CIPAA 2012 applies to terminated contract and/or final claims. The Federal Court answered both these questions in the affirmative.

Viewing the Federal Court’s decision as a whole, it appears that as long as there is a sum payable under a construction contract for work done, which remained unpaid, the claim can be adjudicated under CIPAA 2012 as a payment dispute under the construction contract.

[61] There can be no doubt that so long as there is a sum payable under a construction contract for work done and as long as the party remains unpaid, the claim can still be brought against the other party through CIPAA 2012 as it is payment dispute under the construction contract. The section does not suggest that the payment claim should be confined to interim claims only.

If you have any questions or comments on this article, please contact:-