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Malaysia – The Retrospective Application Of CIPAA.

22 January, 2015

 
 
When the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”) came into force on 15 April 2014, the main question that followed was whether CIPAA applied retrospectively to payment dispute and construction contracts that were made prior to 15 April 2014.
 
In its press release dated 15 April 20141, the Kuala Lumpur Regional Centre for Arbitration (“KLRCA”) informed that CIPAA is to apply retrospectively, although the regulations do not specifically say so. If the effect is retrospective, CIPAA applies to all construction contracts save for those that have been exempted.
 
On 31 October 2014, Malaysia’s court first pronouncement on matters involving CIPAA and its operation was made in the case of UDA Holdings Berhad v Bisraya Construction Sdn Bhd (Originating Summons No: 24C-6-09/2014) and Capitol Avenue Development Sdn Bhd v Bauer (Malaysia) Sdn Bhd (Originating Summons No: 25C-5-09/2014) (“the Two Suits”). High Court judge YA Dato’ Mary Lim Thiam Suan had the opportunity to deal with the above question and thus put to rest the issue of whether CIPAA applies retrospectively.
 
In light of the Court’s decision, the KLRCA then issued a Circular2 dated 11 November 2014 on the scope of application of CIPAA and the administration of adjudication cases by KLRCA.
 
This Client Alert aims to highlight the court’s decision and its reasons below:
 
Two Suits Heard Together
 
  • YA Dato’ Mary Lim had directed that the two unrelated suits be heard together as there were novel points of law raised.
  • The KLRCA also assisted the Court as amicus curiae3.

 

The Facts
 
1st Suit
 
  • A construction contract for the construction of a service apartment was entered into between UDA Holdings Bhd (“UDA”) and Bisraya Construction Sdn Bhd and MRCB Engineering Sdn Bhd (“Bisraya Construction –MRCB Engineering Consortium”) on 16 October 2009.
  • A payment dispute arose and an adjudication proceeding against UDA was initiated pursuant to section 9 of CIPAA.
  • UDA contended that:
    • 1) the Consortium, does not have a locus standi as it is an unregistered entity;
    • 2) that the claim in the Adjudication Notice is outside the purview of CIPAA which has no retrospective application as the Adjudication Claim arose and crystallised before the coming into effect of CIPAA and as such, an Adjudicator has no jurisdiction to adjudicate on the said claim under CIPAA; and
    • 3) the Adjudication Claim brought by the Consortium concerns issues of Extensions of Time (EOT) which is not a payment claim that comes under the purview of CIPAA.
 
2nd Suit
 
  • A revised tender for earthwork, pilings, construction of diaphragm walls and basement sub-structure for the “Proposed Integrated Commercial Development” was submitted sometime in January 2013.
  • A Letter of Award dated 13 May 2013 was signed between Capitol Avenue Development Sdn Bhd (“Capitol Avenue”), Bauer (Malaysia) Sdn Bhd (“Bauer”) and Sara-Timur Sdn Bhd. The contract sum is MYR 61,690,000.00.
  • A payment dispute arose in relation to the rates for bored piling work rates and an Adjudication Claim was issued against Capitol Avenue.
 
Similarities
 
  • Both cases relate to two adjudication claims which are amongst the first to be conducted under CIPAA.
  • Both involved parties entering into contracts for the construction of a project and the contracts were entered into before 15 April 2014.
  • One of the central issues in both cases concerns the operation of CIPAA, whether it applies to payment disputes and construction contracts that were made prior to the coming into force of CIPAA.
  • Other issues raised included:
    • 1) that the Adjudicator which was appointed by the KLRCA pursuant to CIPAA does not have jurisdiction to hear and decide the disputes;
    • 2) that the Claimants did not have locus standi in the adjudication proceedings; and
    • 3) that CIPAA did not apply retrospectively.
  • Each of the parties involved put forth their respective submissions to the Court in respect of their own interpretations of CIPAA whereby KLRCA submitted that CIPAA applies retrospectively to all payment claim and not construction contracts and UDA submitted that CIPAA does not apply retrospectively in all aspects. Bisraya Construction on the other hand, submitted that CIPAA applies retrospectively to construction contracts and payment disputes.
 
The Court Ruled
 
  • YA Dato’ Mary Lim ultimately agreed with Bisraya Construction’s submission i.e. that CIPAA applied retrospectively to construction contracts and payment disputes.
  • If proceedings have been commenced however, in relation to a payment dispute which arose under a construction contract in any Court or arbitration before 15 April 2014, then those proceedings are excluded from the application of section 24 of CIPAA read together with section 415. These proceedings are expressly excluded or preserved from the effect of the new law; and are expected to continue as if the Act never came into force for the related payment dispute.
  • In coming to her decision, YA Dato’ Mary Lim observed that based on the experiences of other jurisdictions such as Singapore, Australia, New Zealand and United Kingdom, Her Ladyship found that the legislative bodies of these respective jurisdictions had substantially the same common intention, object and purpose in enacting their own versions of CIPAA i.e. adjudication is the most viable option in addressing payment disputes in the construction industry.
  • CIPAA was however distinguished from the statutes of the mentioned jurisdictions as those statutes expressly provided that the application shall only apply to construction contracts made after the coming into force of the respective statutes.
  • CIPAA was even compared to the Consumer Protection Act 1999 (“CPA”). The CPA expressly provides that it shall not apply to contracts made before the date on which the CPA came into force but there is no such provision in CIPAA. YA Dato’ Mary Lim therefore took the view that Parliament must have intentionally excluded such a provision to allow CIPAA to apply retrospectively.
 
“ It is the undoubted intention of Parliament that CIPAA applies to all construction contracts made in writing regardless of when those contracts were made so long as those contracts are to be carried out wholly or partly within the territory of Malaysia” – YA Dato’ Mary Lim Thiam Suan

 

  • YA Dato’ Mary Lim also held that when the payment dispute arose or crystallised is immaterial.
  • In Her Ladyship’s judgment, the decisions in New India Insurance Co Ltd v Smt Shanti Misra AIR [1976] SC 237 and Westcourt Corporation Sdn Bhd v Tribunal Tuntutan Pembeli Rumah [2004] 4 CLJ 203 were relied upon heavily for the following reasons:
    • 1) Since CIPAA is a procedural and adjectival legislation, it must apply retrospectively save for clear contrary intention. In the event it is not a procedural legislation, it is a social legislation by which the Parliament intends the prevention and speedy resolution of disputes for the benefit of society; in line with the decision in Westcourt;
    • 2) Since CIPAA provides for a change of forum in the form of an additional forum known as adjudication, which relates to procedure and not substantive law, it makes CIPAA retrospective.
 
“If by express words the new forum is made available only 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.” – Untwalia J in New India Insurance Co. Ltd v Shanti Misra AIR [1976] SC 237
 
  • With regard to other issues on locus standi and jurisdiction of the Adjudicator, YA Dato’ Mary Lim declined to deliberate on them and left those issues to be determined by the Adjudicator.
 
End Notes:
 
1 Kuala Lumpur Regional Centre for Arbitration (KLRCA), ‘The Construction Industry Payment and Adjudication Act 2012 comes into operation’ (Press Statement, 15 April 2014). [Date accessed: 20 January 2015]. Available from http://klrca.org/press-statement/construction-industry-paymentadjudication-act-comes-operation/
 
2 Kuala Lumpur Regional Centre for Arbitration (KLRCA), KLRCA CIPAA Circular 1A – ‘The Scope of Application of CIPAA and the administration of adjudication cases by KLRCA’, 11 November 2014. [Date accessed: 20 January 2015]. Available from http://klrca.org/cipaa/
 
3 Latin: Friend of the court. Counsel who assists court by putting arguments in support of an interest – Oxford Dictionary of Law.
 
4 Section 2 provides that the Act applies to every construction contract made in writing relating to construction work carried out wholly or partly within the territory of Malaysia including a construction contract entered into by the Government. It does not apply to a construction contract entered into by a natural person for any construction work in respect of any building which is less than four storeys high and which is wholly intended for his occupation by virtue of Section 3.
 
5 Section 41 is a saving provision which provides that nothing in CIPAA shall affect any proceedings relating to any payment dispute under a construction contract which had been commenced in any court or arbitration before the coming into operation of this Act.
 
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For further information, please contact:
 

Sabarina Samadi, Partner, ZICOlaw
sabarina.samadi@zicolaw.com

 

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