BAUER (MALAYSIA) SDN NBHD V JACK-IN PILE (M) SDN BHD
Civil Appeal No: B-02(C)(A)-1187-06/2017
Coram: David Wong Dak Wah, HMR
Dr. Haji Hamid Sultan Bin Abu Backer, HMR
Rhodzariah Binti Bujang, HMR
Adjudication – Construction Industry Payment and Adjudication Act 2012 – section 35 – pay when paid – legislation affective substantive rights must be given prospective effect
Brief Facts:
The Respondent was awarded with a Subcontract by the Appellant for the supply and installation of spun piles for a contract sum of RM1,850,000.00. The Employer of the project was unfortunately wound up in 2012. In the circumstances, payment claims by the Respondent had stalled in view the predicament of the Employer, and this gave rise to payment disputes between the parties.
On 23.8.2016, the Respondent commenced adjudication proceedings against the Appellant under the Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”). In allowing the Respondent’s adjudication claim, the learned Adjudicator found that Section 35 of CIPAA 2012 applied. Thus, the learned Adjudicator did not take into account Clause 11 of the construction contract which provides that payments were to be made “within 7 days from the date [the Appellant] received their related progress payment and subjected to 5% retention”, which is essentially a “pay when paid” clause.
Thereafter, the Appellant filed an application to set aside the Adjudication Decision pursuant to Section 15 of CIPAA 2012. On the other hand, the Respondent sought to enforce the Adjudication Decision pursuant to Section 28 of CIPAA 2012.
The Appellant sought to set aside the Adjudication Decision on, among others, the ground that the learned Adjudicator had acted in excess of jurisdiction in ignoring Clause 11 of the construction contract.
Decision of the High Court:
The learned High Court Judge dismissed the setting aside and enforced the Adjudication Decision. The learned High Court Judge referred and followed to the decision of UDA Holdings Bhd v Bisraya Construction Sdn Bhd & Anor [2015] 5 CLJ 527 where it was held that CIPAA 2012 applies retrospectively.
The learned High Court Judge thus found that Section 35 of CIPAA 2012 applied and therefore, clause 11 of the construction contract had been rendered void.
Dissatisfied with the decision of the learned High Court Judge, the Appellant appealed to the Court of Appeal.
Decision of the Court of Appeal:
In deciding whether the Adjudication Decision ought to be set aside on the ground that the learned Adjudicator had acted in excess of jurisdiction, the central issue was whether Section 35 of CIPAA 2012 has retrospective effect, and consequently whether the learned Adjudicator had acted in excess of jurisdiction in ignoring clause 11 of the construction contract on the basis of Section 35 of CIPAA 2012.
Firstly, the Court of Appeal considered the issue of whether CIPAA 2012 was intended to have a retrospective provision. The Court of Appeal held that CIPAA 2012 did not have a retrospective but only prospective effect, and stated as follows:
- In line with the general rule of statutory interpretation, unless there are clear words in the legislation to the contrary, any legislation affecting substantive rights must be given a prospective effect. On the other hand, if the legislation is procedural in nature, that legislation must be given a retrospective effect unless clear words in the same show to the contrary.
- The Court of Appeal opined that with the introduction of CIPAA 2012, parties in a construction contract have an additional avenue to claim for payments. As such, CIPAA 2012 which in effect provides an access to justice, would definitely affect substantive right of individuals.
- Although there also exist a procedural regime in CIPAA 2012 as to the procedure of adjudication, the Court of Appeal held that the procedural regime is nothing but a by-product or the consequence of the substantive right created by CIPAA 2012.
- As for Section 35 of CIPAA 2012, the Court of Appeal was of the view that it also relates to a substantive right of an individual as it affects the right to freedom of contract. Section 35 of CIPAA 2012, in essence, takes away the right of the parties to have their payment regime regulated by the “pay when paid” mode.
- In light of the above, the Court of Appeal concluded that CIPAA 2012 is prospective in nature and took a different view to that taken in UDA Holdings Bhd v Bisraya Construction Sdn Bhd & Anor [2015] 5 CLJ 527.
Given that CIPAA 2012 is prospective in nature, the Court of Appeal held that the learned Adjudicator had exceed his jurisdiction when he ignored clause 11 of the construction contract. Consequently, the Court of Appeal allowed the appeal and set aside the Adjudication Decision.
Conclusion:
This Court of Appeal’s decision that CIPAA 2012 is prospective in effect has a far reaching effect. Not only will parties in construction contracts entered into before 15 April 2014 (when CIPAA 2012 came into effect) be excluded from commencing adjudication under CIPAA 2012, but this may potentially be a ground for parties to set aside previous adjudication decisions. It will definitely be interesting to see the development of this issue in coming cases.
*Leave to appeal to the Federal Court had been granted. The matter is pending appeal in the Federal Court.
For further enquiries, please contact:
LAM WAI LOON (lam@hlplawyers.com)
SERENE HIEW (serene@hlplawyers.com)
