October 2019
The Federal Court recently decided in the case of Jack-In Pile (M) Sdn Bhd v Bauer (Malaysia) Sdn Bhd (Civil Appeal No. 02(f)-58-07/2018(B)) that:-
- The Construction Industry Payment and Adjudication Act 2012 (“CIPAA”) does not apply to construction contracts entered into before the coming into operation of CIPAA i.e. 15.4.2014;
- Section 35 of CIPAA, which prohibits conditional payment provisions – such as pay if paid or pay when paid clauses, does not apply to construction contracts entered into before the coming into operation of CIPAA i.e. 15.4.2014.
This decision essentially makes it clear that CIPAA only applies to construction contracts entered into after 15.4.2014, and consequently adjudication proceedings and decisions in respect of construction contracts entered into before 15.4.2014 are void.
The decision was made on the basis that CIPAA is a piece of legislation that has a number of provisions which affect the substantive rights of parties, one example of which is section 35 on prohibition of conditional payment arrangements. In coming to its decision, the Federal Court also explored the approach in construing whether, in the absence of express words to such effect, an Act of Parliament is retrospective or prospective. In concluding that it not just a question of classifying the statute as procedural or substantive, the Federal Court held that the question to be asked is whether a retrospective application of CIPAA would substantially affect or impair the rights of the parties to the construction contract.
Other than section 35, the new regime of adjudication created by CIPAA is a new avenue of access to justice which is a substantive right and not just a change of forum. On top of this, the provisions on post issuance of an adjudication decision which allows an adjudication decision to be enforced as if it is a judgment of the High Court (in section 28), which allow a party to suspend performance or reduce the rate of progress or performance of any construction contract where adjudication amount has not been wholly paid or has been partly paid (in section 29) and which allows a subcontractor to seek direct payment from the principal of the party against whom an adjudication decision is made and who has failed to make payment of the adjudicated amount (in section 30), are provisions which affect the substantive rights of a party – only triggered or activated after the enforcement of CIPAA.
The Federal Court also on the same day delivered a similar decision in another case of
Ireka Engineering & Construction Sdn Bhd v PWC Corporation Sdn Bhd (Civil Appeal No.: 02(f)-124-12/2018(W)) which concerns a claim based on multiple construction contracts and cross-contract set offs, and in which adjudicators had declined to exercise jurisdiction on the basis that they were only able to make determination on a single construction contract and not empowered to decide on multiple construction contracts – that CIPAA does not apply to construction contracts entered into before 15.4.2014.
In light of the recent Bauer and Ireka decision, questions now arise in regard to adjudication proceedings and adjudication decisions in respect of construction contracts entered into before 15.4.2014 – are they now void due to the Bauer and Ireka decision, and if so, what are the steps to be taken. Whilst the latter remains to be seen, the only certainty is adjudication decisions in respect of construction contracts entered into before 15.4.2014 have now been rendered void.
This material is for general information only and is not intended to provide legal advice. If you have any queries regarding the above, please feel free to contact us at insights@chooi.com.my.