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Understanding the Evolution of CIPAA in Malaysian Construction Industry

By:


Bryan Lui (Co-Managing Partner) [bryanlui@luibhullar.com]

Harneshpal Karamjit Singh (Co-Managing Partner) [harnesh@luibhullar.com]


CIPAA
CIPAA

The Construction Industry Payment and Adjudication Act 2012 ("CIPAA") became effective on April 15, 2014. Since then, Malaysian courts have had several opportunities to deliberate on various aspects of CIPAA. This article analyzes some significant rulings made by the courts over the past 2½ years and offers insights into the legal principles established in these cases.


RETROSPECTIVE APPLICATION OF CIPAA

Before CIPAA took effect, there were debates within the construction industry regarding its scope. Key questions revolved around whether CIPAA applies to contracts signed before its enactment and whether it covers payment disputes predating its implementation.


On October 31, 2014, Malaysia's initial judicial interpretation of matters concerning CIPAA was provided in the case of UDA Holdings Berhad v Bisraya Construction Sdn Bhd & Anor. The High Court, presided by Dato' Mary Lim, ruled on the retrospective application of CIPAA. The decision, later upheld by the Court of Appeal, granted retrospective validity to CIPAA.


This implies that all payment disputes under construction contracts, except those falling under statutory exceptions in sections 3, 40, and 41 of CIPAA, can be referred for adjudication under the Act, irrespective of when the contract was signed or when the disputes arose.


EXPANSIVE vs. RESTRICTIVE INTERPRETATION

Government Construction Contract

Similarly, there was a debate on what constitutes a "Government construction contract," a term used but not defined in the Construction Industry Payment & Adjudication (Exemption) Order 2014 ("2014 Exemption Order"). Questions arose regarding whether it includes contracts by statutory bodies and government-linked companies or is limited to contracts involving the defined "Government" in section 4 of CIPAA.


This issue was addressed in Mudajaya Corporation Bhd v Leighton Contractors (M) Sdn Bhd, where the court ruled that for a contract to qualify as a "Government construction contract," the government, whether Federal or State, must be a party to it.


Construction Consultancy Contract

The case of Martego Sdn Bhd v Arkitek Meor & Chew Sdn Bhd & Another Case examined whether an architect providing architectural services for a construction project can claim outstanding fees under CIPAA.


The High Court disagreed with the claimant, stating that the term "construction consultancy contract" in CIPAA is not limited to contracts providing only consultancy services. The court held that the word "includes" in the definition is expansive, encompassing various examples, thus applying CIPAA to consultancy contracts offering purely consultancy services.


EXEMPTION FROM CIPAA

Although CIPAA has a broad scope, it has exceptions. Section 41 states that CIPAA does not affect proceedings related to payment disputes under construction contracts commenced in court or arbitration before CIPAA came into force. According to View Esteem Sdn Bhd v Bina Puri Holdings Sdn Bhd, this means that only disputes identical to those already pending in court or arbitration are exempted, preserving the law prior to April 15, 2014, for such disputes.


CONTRACTING OUT OF CIPAA?

The application of CIPAA to every written construction contract in Malaysia was considered in Ranhill E&C Sdn Bhd v Tioxide (Malaysia) Sdn Bhd. The court held that parties cannot contract out of CIPAA's application, even if there is no express term to that effect. An agreement to arbitrate does not exclude CIPAA's application; it merely indicates arbitration as the final dispute resolution mechanism.


IS CLAUSE 25.4(d) OF PAM CONTRACT 2006 VOID?

The legality of conditional payment clauses, like clause 25.4(d) of PAM Contract 2006, was examined. Section 35(1) of CIPAA renders conditional payment provisions void. BM City Realty & Construction Sdn Bhd v Merger Insight (M) Sdn Bhd explored this issue, suggesting that clause 25.4(d) may be void under CIPAA.


ZERORISING AN UNPAID PARTY’S CLAIM

Tenaga Poly Sdn Bhd v Crest Builder Sdn Bhd established that successful defense based on liquidated damages (LAD) by a non-paying party nullifies the unpaid party's claim. However, it does not compel the unpaid party to pay the non-paying party.


LACK OF PROGRESS OR INTERIM CERTIFICATION

Bina Puri Construction Sdn Bhd v Hing Nyit Enterprise Sdn Bhd clarified that lack of certification of progress or interim claim does not hinder adjudication under CIPAA.


SETTING ASIDE OF ADJUDICATION DECISION

Section 15 of CIPAA outlines limited grounds for setting aside adjudication decisions, such as fraud, denial of natural justice, lack of independence or excess of jurisdiction.


STAY OF ADJUDICATION DECISION

Subang Skypark Sdn Bhd v Arcradius Sdn Bhd established that a stay of adjudication decision requires exceptional circumstances, primarily concerning the financial status of the party. The court must balance the need for speedy dispute resolution and cash flow injection with the request for a stay.


PRE-QUALIFICATION FOR STAY

Foster Wheeler E & C (Malaysia) Sdn Bhd v Arkema Thiochemicals Sdn Bhd clarified that a stay under section 16(1)(b) of CIPAA necessitates the commencement of arbitration or court proceedings.


LIMIT OF ADJUDICATOR’S JURISDICTION

An adjudicator's jurisdiction is limited to matters in the payment claim and response, as per sections 27(1) and 27(2) of CIPAA.


PRINCIPAL TO MAKE DIRECT PAYMENT

Murni Environmental Engineering Sdn Bhd v Eminent Ventures Sdn Bhd & Anor confirmed that principals are obligated to make payments upon written request, irrespective of their involvement in adjudication proceedings.


CONCLUSION

Although statutory adjudication in Malaysia is still developing, local court decisions are gradually providing clarity on CIPAA's provisions.



Please contact us for a free consultation via WhatsApp (+60143000960) or E-mail (admin2@luibhullar.com) for any queries regarding CIPAA or construction matters.



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