View Esteem Sdn Bhd v Bina Puri Holdings Bhd*

Transcription

1 CIDB Construction Law Report 2016 View Esteem Sdn Bhd v Bina Puri Holdings Bhd* COURT OF APPEAL, PUTRAJAYA CIVIL APPEAL NO: W 02(C)(A) /2015 HAMID SULTAN BIN ABU BACKER JCA, PRASAD SANDOSHAM ABRAHAM JCA, ASMABI BINTI MOHAMAD JCA 22 AUGUST 2016 [2017] 1 CIDB-CLR 62 As a result of a payment dispute the Contractor/Respondent filed an adjudication claim against the Employer/Appellant. After commencement of the adjudication process, the Employer applied to challenge s 41 of the Construction Industry Payment and Adjudication Act 2012 ( CIPAA ) with a view to challenging the jurisdiction of the Adjudicator. Before the s 41 application was disposed of in the High Court, the Adjudicator delivered the award. The award was in favour of the Contractor. The Contractor applied to the High Court for an order to enforce the award as a judgment of the High Court, pursuant to s 28 of CIPAA. The Employer applied to set aside or stay the award pursuant to ss 15 and 16 of CIPAA. The High Court dismissed both the Employer s applications and allowed the Contractor s application. The Employer appealed to the Court of Appeal. Held, dismissing the appeal with costs: (1) CIPAA 2012 has been formulated to provide summary relief in relation to construction related claims. It was not the function of the Court to review the decision of the Adjudicator relating to quantum in detail as the Act itself provided a mechanism by way of arbitration or litigation to sort out the final accounts of the parties, wherein the Adjudicator s award can be reviewed. It was important for the Courts to take cognisance of the short title and commentary to the Act, which strictly provides inter alia, that the Court should for all intents and purposes facilitate regular and timely payment and ought not to be engaged by dilatory or abusive applications to oppose the award or to stay the award, as evident also by case laws in many other jurisdictions. (2) The award adjudication process under CIPAA is a two-stage process. The first stage is related to payment claims and payment responses. Parties at this stage may settle the matter and if the matter is not settled, the dispute as borne out in the payment claim and response can only be referred to the Adjudicator. This is statutorily a strict requirement (subject only to s 26) as set out in s 27, thereby making the first stage an important stage in the adjudication process. The relevant sections for the first stage are ss 5, 6 and

2 View Esteem Sdn Bhd v Bina Puri Holdings Bhd (3) The second stage is related to the adjudication claim and response. It is a strict requirement under s 5 of CIPAA that the unpaid party may refer a dispute arising from a payment claim under s 5. It is a strict requirement because the law provides for parties to extend the Adjudicator s jurisdiction only in writing and in consequence the unpaid party cannot unilaterally extend the scope of its claim. The non-paying party also cannot extend the scope of its defence for the Adjudicator s consideration without a written agreement between the parties as set out under s 27(2). The time frame set out in ss 5, 6, 9, 16, etc. (subject to s 26) need to be strictly complied with, failing which the parties will not be able to benefit from the statutory rights provided in CIPAA. If any claim or defence has been left out in the payment claim or in the payment response, it may be taken up later in the arbitration proceedings if the construction contract has an arbitration clause, or else during litigation proceedings. (4) Once the adjudication is triggered, the only way to challenge the Adjudication Award in Malaysia is to make an application to set aside the award. There is no provision, unlike the Arbitration Act 2005, to make separate challenges on the issue of jurisdiction, biasness, qualification of adjudicator, etc. There cannot be an application as in the instant case to challenge the jurisdiction of the Adjudicator purportedly under s 41 of CIPAA. The trial judge ought to have dismissed the purported s 41 application at limine. There is no jurisdiction for the Court to hear a purported application under s 41 of CIPAA. The purported s 41 complaint (if any) could only be raised in an application to set aside the adjudication award. (5) In the instant case, the Employer had made a single application to set aside the adjudicating order as well as sought for stay of the adjudication decision. Such an application was embarrassing as well as flawed and ought to have been dismissed at limine. The reason being that s 16 envisages that there is already in existence an application to set aside the adjudication award. In consequence, a stay application can only be filed upon having filed an application for setting aside. Further, trial Court must be extremely slow in granting an application for stay as the purpose of CIPAA is to ensure that the contractor gets his due immediately. (6) CIPAA relates to interim payments and not the final accounts between the parties. The Employer s complaint (if any) that the stay must be granted because the contractor is insolvent, etc. may not be a justifiable ground when an Adjudicator who normally will be an expert in the construction field and chosen by reputable institution has issued the award for just payment. Unless there is overwhelming evidence that the contractor will not be able to complete his contractual obligations as well as meet up with the financial obligation to the Employer, a stay should not be granted. Even if a stay is granted, it must be on condition that the money is paid to Court and/or stakeholders account as the Court deems fit. 63

3 CIDB Construction Law Report 2016 (7) The trial judge had considered the relevant principles relating to setting aside as well as stay and had come to the conclusion that the application must be dismissed. The setting aside and stay application had no merits and were rightly dismissed by the trial Court. The trial judge was correct in allowing the enforcement application for the enforcement of the adjudication award. * For the case summary on the High Court decision, see [2016] 1 CIDB-CLR 301 (published in CIDB Construction Law Report 2015). COMMENTARY 1 by Darshendev Singh Partner at Lee Hishammuddin Allen & Gledhill Advocate & Solicitor Adjudicator, ACIArb (UK) Chairperson, Young Members Group CIArb Malaysia Introduction The Court of Appeal, in dismissing the appeal against the High Court s judgment in this case, made the following observations. (1) Timelines under the CIPAA need to be strictly complied with; (2) The scope of what the Adjudicator can and cannot rule is dictated by the matters raised in the Payment Claim and Payment Response; (3) The Courts will generally not interfere with an Adjudication Decision; (4) The only remedy available in challenging an adjudication is pursuant to s 15 of CIPAA which deals with setting aside the Adjudication Decision; (5) Separate applications ought to be filed in seeking to set aside and stay the Adjudication Decision, with the former being filed prior to the latter; (6) The Courts must be slow in granting stay of Adjudication Decisions; (7) CIPAA relates to interim payments and not the final accounts between the parties. For comprehensiveness, this decision by the Court of Appeal must be read with the High Court s decision. 64

4 View Esteem Sdn Bhd v Bina Puri Holdings Bhd Lessons learnt from the case (a) Timelines under CIPAA need to be strictly complied with. Failing which, one may not be able to benefit from the statutory rights provided in CIPAA. The exception to this is s 26 of CIPAA where any non-compliance by the parties with the provisions of CIPAA whether in respect of time limit, form or content or in any other respect shall be treated as an irregularity and shall not invalidate the power of the Adjudicator to adjudicate the dispute nor nullify the adjudication proceedings or Adjudication Decision. In the event of non-compliances, the Adjudicator may (i) set aside either wholly or partly the adjudication proceedings; (ii) make any order dealing with the adjudication proceedings as the Adjudicator deems fit; or (iii) allow amendment to be made to the document produced in the adjudication proceedings. (b) The scope of what the Adjudicator can and cannot rule is dictated by the matters raised in the Payment Claim and Payment Response This is enshrined in s 27(1) of CIPAA. This scope cannot, unilaterally, be extended by one party. Unless the parties agree in writing to extend the scope of the Adjudicator s jurisdiction, claims or defences left out in the Payment Claim or Payment Response may have to be taken up in subsequent proceedings between the parties be it in litigation or arbitration. (c) The Court will generally not interfere with an Adjudication Decision The Court will only interfere with an Adjudication Decision where it is plain that the question the Adjudicator has asked was not the question referred to him or the manner in which he has gone about his task is "obviously unfair". It is not the function of the Court to review the decision of the Adjudicator in detail as the parties would be able to avail itself of litigation or arbitration to sort out the final accounts between the parties, wherein the Adjudicator s decision can be reviewed. Not all Adjudicators are chosen for their expertise as lawyers. They come from different disciplines. Due to time constraints under CIPAA, the Adjudicator is not expected to act as an arbitrator or a judge but to find an interim solution which meets the needs of the case. In other words, the need to have the right answer has been subordinated to the need to have an answer quickly. In short, in the overwhelming majority of cases, the proper course for the party who is unsuccessful in an adjudication under the scheme must be to pay the amount that he has been ordered to pay by the adjudicator. If he does not accept the adjudicator s decision as correct (whether on the facts or in law), he can take legal or arbitration proceedings in order to establish the 65

5 CIDB Construction Law Report 2016 true position. To seek to challenge the adjudicator s decision on the ground that he has exceeded his jurisdiction or breached the rules of natural justice (save in the plainest cases) is likely to lead to a substantial waste of time and expense. (d) The only remedy available in challenging an adjudication is pursuant to s 15 of CIPAA which deals with setting aside of the Adjudication Decision Pursuant to s 15, an Adjudication Decision can be set aside on the grounds that (i) the Adjudication Decision was improperly procured through fraud or bribery; (ii) there has been a denial of natural justice; (iii) the Adjudicator has not acted independently or impartially; or (iv) the Adjudicator has acted in excess of his jurisdiction. Unlike the Arbitration Act 2005, there is no provision in CIPAA to make separate challenges on the issue of jurisdiction, biasness, qualification of Adjudicator etc. In other words, one may need to wait until the Adjudication Decision is rendered before one can take up challenges. (e) Separate applications ought to be filed in seeking to set aside and stay the Adjudication Decision, with the former being filed prior to the latter The reason for this is that s 16 of CIPAA, which deals with staying the Adjudication Decision, envisages that there is already in existence an application to set aside the Adjudication Decision. In this case, a single application was filed to set aside the Adjudication Decision as well as for a stay of the Adjudication Decision pending disposal of the setting aside application. The Court of Appeal took the view that such an application is embarrassing as well as flawed and ought to have been dismissed at limine. (f) The Courts must be slow in granting stay of Adjudication Decisions This is because the purpose of CIPAA is to ensure that the winner gets his due immediately. Unless there is overwhelming evidence that the contractor will not be able to complete his contractual obligations as well as meet up with the financial obligation to the Employer, a stay should not be granted. Even if a stay is granted, it must be on condition that the money is paid to Court and/or stakeholders account as the Court deem fit. 66

6 View Esteem Sdn Bhd v Bina Puri Holdings Bhd Suggested best practices to be adopted It is of utmost importance that the timelines under CIPAA are strictly complied with, failing which there may be adverse consequences. Payment Claims and Payment Responses ought to be properly drafted to avoid a situation where matters which were not sufficiently, or at all, raised in the Payment Claims or Payment Responses, being precluded from consideration by the Adjudicator. In applying to stay an Adjudication Decision pending the disposal of an application to set aside the Adjudication Decision, both the applications ought to be filed separately (and not in a single application) with the setting aside application being filed prior to the stay application. In a situation of a (potential) dispute, it is always advisable to quickly have a good consultant onboard. 67

7 CIDB Construction Law Report 2016 COMMENTARY 2 by Prof. Sr Dr. Wan Maimun Wan Abdullah CQS, FRISM, PPRISM Director, Khalid Ahmad Architect Director, Ahmad Zaki Sdn Bhd Introduction In brief, the Adjudicator made an award in favour of the contractor, Bina Puri Holdings Bhd. The Employer, View Esteem Sdn Bhd disagreed and applied to the Court to set aside the Adjudicator s decision (pursuant to s 15 of the Construction Industry Payment and Adjudication Act 2012 ( CIPAA ) and / or a stay of the decision (pursuant to s 16 of CIPAA). The Court of Appeal upheld the decision of the High Court and dismissed the appeal with costs. Lessons learnt from the case In dismissing View Esteem s applications, the Court of Appeal set out some important principles, and lessons learnt and commentaries from the case are as follows: (1) The Court of Appeal was of the view that it is not the function of the court to review the decision of the Adjudicator relating to quantum in detail at a hearing for setting aside as CIPAA provides a mechanism by way of arbitration or litigation to sort out the final accounts of the parties, wherein the Adjudication s decision can be reviewed. This principle may have repercussions in the industry. Industry stakeholders have all along understood that the Adjudicator s decision is binding but not final (if the dispute does not go to trial or arbitration, then it is final). Based on normal practise, most employers concerned recognised the shortfall between their calculations to that claimed by the other party. The disagreement is seldom about the dispute itself but rather the quantum. The principle above may run against the losing party s intention for the court to review the Adjudicator s decision relating to quantum in detail at the hearing for setting aside. Since the adjudication process is swift with a concept of pay first and argue later (usually a rough justice procedure) the Act provides several mechanisms for the losing party to have the Adjudicator s decision reviewed namely: (a) apply to the court to set aside the adjudication decision when challenging the adjudicator s award (s 15); 68

8 View Esteem Sdn Bhd v Bina Puri Holdings Bhd (b) apply for arbitration (s 13); (c) apply for litigation (s 13); The grounds for setting aside an adjudication decision by the courts (s 15) are limited to fraud, bribery, denial of natural justice, the Adjudicator not acting impartiality or independently and the Adjudicator acting in excess of jurisdiction. It seems that most judicial decisions uphold the Adjudicator s decision. Once the industry stakeholders begin to realise the limits of s 15, the trend will be for the losing party to go for a proper recourse and apply for a fresh hearing to have the dispute re-determined finally through arbitration or the court (s 13). (2) CIPAA sets out a two-stage process and the time frame specified in the sections need to be strictly complied with. Any claim or defence left out in the payment claim or in the payment response may only be taken up later should the dispute lead to arbitration or litigation proceedings. The two-stage process is as follows: (a) Stage 1 Payment claim and Payment response (ss 5 and 6) This stage allows the parties to the dispute to take a step back to have a helicopter overview of the dispute in isolation. It is hoped that at this stage both parties could settle amicably otherwise the unpaid party may proceed to issue the Notice of Adjudication to commence the adjudication. (b) Stage 2 Adjudication claim and Adjudication response (ss 9 and 10) This stage is for the appointment of an Adjudicator and the submission of the claim together with supporting documents by the Claimant and the Respondent s subsequent response to the claim together with the Respondent s supporting documents. The principle that sets out that any claim or defence omitted to be mentioned in the payment claim or payment response could not be taken up or added during stage 2 of the adjudication claim and adjudication response, should be a wake-up call to industry stakeholders to ensure the completeness of their claim and response at the very onset of stage 1. 69

9 CIDB Construction Law Report 2016 (3) The Court of Appeal also set out that CIPAA relates to interim payment and not final accounts between the parties. This principle is interesting as payment has been defined in CIPAA 2012 to mean payment for work done or services rendered under the express terms of a construction contract. This scope for a CIPAA dispute may thus turn ultimately on the terms used in the contract between the parties and the term payment in the said contract could be inferred to include not only interim payment but also the final account. In addition this gives rise to whether it includes variation, loss and expenses due to prolongation, disruption claim, damages and quantum meruit claims 1 (see Teong Seng Construction v Chuan Lim Construction (Suit no: OS 711/2007) (High Court, Singapore)), where progress payment was held to include final payment too). Hence the words express terms in the definition of payment in CIPAA need to be clarified and may require further judicial decisions. Suggested best practices to be adopted In reality, seldom does any party in a construction contract wish to go after their client for payment. It is almost always the last resort. However, statistics in the CIPAA Report 2017 showed that from April 2014 till April 2017 there have been 838 registered matters and decisions released indicated that most of the decisions were in favour of the Claimant with only approximately slightly more than 10% for the Respondents 2. This trend may lead to acute awareness on the importance of payment when due. The main objectives of CIPAA 2012 are to (a) facilitate regular and timely payment, (b) provide a mechanism for speedy dispute resolution through adjudication, and (c) provide remedies for the recovery of payment in the construction industry. Hence after 3 years since its full enforcement in April 2014, CIPAA and the adjudication process have taken their course and seem set to be an integral part of the Malaysian construction industry. However, it is yet to be seen whether it will be the panacea for the payment problem in the industry. It should also be noted that the time period for an Adjudicator to decide is short and limited, and it is most likely that the Adjudicator will base his decision extensively on the documents submitted. It cannot be overemphasized the importance of industry stakeholders not only maintaining proper and contemporaneous records and correspondence but also being serious in the preparation of their payment response by 70

10 View Esteem Sdn Bhd v Bina Puri Holdings Bhd compiling the important documentation upon receiving any payment claims that would lead to adjudication. In addition, they need to ensure adherence to the time frame as provided in the Act, lest these otherwise proper documentation be considered a non-submission. 1. Lim, C.F: The Legal Implication of CIPAA KLRCA Newsletter Jul-Dec 2012 Issue at pp 9 and This information is produced with the kind permission of KLRCA. For further details, see KLRCA CIPAA Report 2017 pp 5 and 10 71