Following the birth of a statutory adjudication scheme in the UK under the Housing Grants, Construction and Regeneration Act 1996[i] (the “1996 UK Act”), on 1 June 2015, many countries within the commonwealth had taken the similar bold steps to enact the similar Security of Payment Legislation SOPL within their own legislation. Fundamentally SOPL, as its name suggested, is a piece of legislation to ensure that payment to the contractors are secured as payment is a fundamental ‘life-line’ to any business of construction, without it the entire machinery of construction will collapse and such will create detrimental ripple effects to both the downstream and upstream of the economy. In a nutshell, the theory behind SOPL is to ‘pay first, argue later’ based on ‘rough justice’ with legally binding decision that has no ‘finality’ thus providing only temporal relief.
Prior to the eventful year of 2012, the Pertubuhan Arkitek Malaysia (PAM) has taken the initial steps to initiate a version of the SOPL for the Malaysian construction industry owing to the fact that via its collaborations with various stakeholders, especially with the Construction Industry Development Board (CIDB), various issues pertaining to non-payments to the contractors had been raised. A joint working committee has been deployed to draft the framework for this SOPL. As the matter at hand, was largely attributed to the issues faced by contractors, it was naturally befitting CIDB to take the lead[ii]. This effort has since, taken a setback when the Kuala Lumpur Regional Centre for Arbitration (KLRCA) as it was known then before it was rebranded as the Asian International Arbitration Centre (AIAC), has taken the ‘idea’ and forged ahead to be passed and enacted in the Parliament as the Construction Industry Payment and Adjudication Act 2012 (CIPAA 2012), enforced in 2014, adopting the New Zealand’s Security of Payment Legislation model (NZ Act)[iii] with modification to suit ‘document only’, ‘fast track’ and ‘chess time’ procedural. Unlike other commonwealth jurisdictions, the CIPAA 2012 has the term ‘Adjudication’ included as the only statutory means to dispense ‘rough justice’ in recouping any unpaid claims in the construction industry, virtually monopolize by the AIAC as the sole appointing body[iv].
In the beginning, any claims put forth by the claimant, in CIPAA, will stand an 80% chances of winning due to its ‘rough justice stance’ with no ‘finality’. ‘I will CIPAA you’, became the common phrase in town. The ‘fast and furious’ approach in dispensing rough justice via CIPAA has received various challenges in the Courts of law, notably with regards to the following issues: -
1) PROSPECTIVE OR RETROSPECTIVE?
Question, can CIPAA applies retrospectively or prospectively? Came 2015, as in UDA Holdings Bhd vs Bisraya Construction Sdn Bhd, CIPAA applies retrospectively[v] and take precedents over any contractual provisions that state otherwise nullified any substantive rights under the pre-existing contract agreements. However, this High Court’s decisions were later in 2018, overturned by the Court of Appeal as in the Bauer (Malaysia) Sdn Bhd vs Jack-In Pile (M) Sdn Bhd that held, the CIPAA applies prospectively and not retrospectively[vi]. What this judgment meant was, any applicable construction contracts that were entered into prior to 15th April 2014 would not be subjected to the operation of CIPAA. This matter has yet to be challenged in the Federal Court.
2) CONTRACTING OUT OF CIPAA?
Question, can parties contracting out (opt-out) of CIPAA based on the doctrine of ‘free-to contract’? In Ranhill E&C Sdn Bhd vs Tioxide (Malaysia) Sdn Bhd  and it was held that the terms of CIPAA as a legislation prohibits the parties from contracting out of its application, notwithstanding that there is no express-term within the Act. Any forms of contractual arrangement for dispute resolution would not exclude the application of CIPAA.
3) STAY OF ADJUDICATION DECISION?
Question, can parties apply for the stay of an adjudication decision? In Subang Skypark Sdn Bhd vs Arcradius Sdn Bhd , it was held that a party seeking to stay a CIPAA decision under section 16 must show credible evidence that the financial impecuniosity on the part of the other party, being the sole “exceptional circumstances” that the probable inability of repayment of the adjudicated sum that may follow from concurrent court or arbitration proceedings. The merits of the case before the arbitration or the court and the chances of success in setting aside the adjudication decision are not relevant considerations. The Court retains the discretion as to whether or not to grant a stay.
4) PRE-QUALIFICATION FOR STAY
Question, can parties pre-qualify for the stay of an adjudication decision? In Foster Wheeler E & C (Malaysia) Sdn Bhd vs Arkema Thiochemicals Sdn Bhd & Another Case , the Claimant sought to enforce the CIPAA decision while the Respondent wanted to apply for a stay but cannot fulfil the condition for a stay of an adjudication decision due to the elaborate multi-tiered dispute resolutions. It was held that the expression of ‘pending final determination by arbitration or the court’, which is a condition for a stay of an adjudication decision under section 16(1)(b) of CIPAA, requires the parties to have commenced arbitration or court proceedings. For such, arbitration cases in PAM has been increased by leaps and folds, to pre-qualify for the stay of an adjudication decision.
5) CONDITIONAL PAYMENT
Question, can a party imposed a payment condition to another party as a reason of non-payment? A very common pay when paid, pay if paid or any form of back to back payment, probably known as conditional payment clause that is found in most construction contract, notably with regard to clause 25.4(d) of the PAM 2006 Form. Section 35(1) of CIPAA prohibits conditional payment terms and provides that a conditional payment provision in a construction contract is void. In BM City Realty & Construction Sdn Bhd vs Merger Insight (M) Sdn Bhd , the plaintiff in its application to set aside an adjudication decision, argued that it was not bound to make any further payment to the defendant until a final account is determined as the contract had been determined. Relying on Econpile (M) Sdn Bhd v IRDK Ventures Sdn Bhd , it was held that Section 35(1) of CIPAA prohibits conditional payment terms and construed such to be void. However, the BM City appeal is presently pending in the Court of Appeal. The High Court decision in Jack-In Pile has recently been overturned in 2018 by the Court of Appeal which held that a conditional payment clause prior to the commencement of CIPAA remains valid and is not affected by section 35. It is believed that an application is being made to the Federal Court for leave to appeal against the Court of Appeal’s decision.
6) ZERORISING A PARTY’S CLAIM
Question, can the adjudicator awards the winning party Liquidated Damages LD? In Tenaga Poly Sdn Bhd vs Crest Builder Sdn Bhd (unreported), it was held that LD is not a ‘payment claim’ within the meaning of sections 4 and 5 of CIPAA, therefore party cannot initiate adjudication proceedings under CIPAA to recover LD. Any successful defence based on LD by a non-paying party will ‘zero-rise’ an unpaid party’s claim and no payment is to be made to the non-paying party.
7) NON CERTIFIED CLAIM
Question, can a party claim for payment based on progress of work that is not certified? In Bina Puri Construction Sdn Bhd v Hing Nyit Enterprise Sdn Bhd , the applicant sought to set aside the adjudication decision based on the argument that the payment claim was premature as the interim claims by the respondent were not certified. It was held that the adjudicator’s jurisdiction under sections 25 of CIPAA entitled him to decide or declare on any matter notwithstanding no certificate has been issued and to review and revise any certificate issued or to be issued. In the absence of certification, the non-paying party cannot deprive the unpaid party from availing the adjudication process.
8) EXEMPTION ORDER
Question, whether the expression encompasses construction contracts entered by statutory bodies and government-linked companies or is it to be limited to contracts entered into by the ‘Government’? In Mudajaya Corporation Bhd v Leighton Contractors (M) Sdn Bhd , it was held that for it to fall within the meaning of a ‘Government construction contract’, it must be one where the government, be it the Federal or State, is a party to it.
9) CONSULTANCY CONTRACT
Question, can a consultancy contract be claimed under CIPAA? In Martego Sdn Bhd vs Arkitek Meor & Chew Sdn Bhd [ 2017], it was held that architect rendering architectural services may claim his outstanding fees under CIPAA, notwithstanding the provision in the Architect’s Act. CIPAA applies to consultancy contracts which provide purely consultancy services. This judgement was re-affirmed by the Federal Court on 1st August 2019.
10) INTERIM OR FINAL?
Question, can the adjudicator determine on Final Account Claims in view of the ‘rough justice’ nature of CIPAA without ‘finality’? In Martego Sdn Bhd vs Arkitek Meor & Chew Sdn Bhd [ 2017], it was held that CIPAA is applicable to disputes pertaining to interim claims and to disputes relating to final claims[vii]. The Federal Court, on 1st August 2019, referred to several Singapore Court decisions where the term of progress payment was wide enough to include the final payment. As long as there are payment claims relating to a construction contract, CIPAA would apply.
11) SETTING ASIDE
Question, under what grounds could the CIPAA decision be set aside? Section 15 of CIPAA provides limited grounds on which an adjudication decision may be set aside, namely:
(a) The adjudication decision was improperly procured through fraud or bribery;
(b) There has been a denial of natural justice[viii];
(c) The adjudicator has not acted independently or impartially; or
(d) The adjudicator has acted in excess of his jurisdiction[ix].
The effect of setting aside as in Wong Huat Construction Co v Ireka Engineering & Construction Sdn Bhd , it was held that the setting aside of an adjudication decision will restore all parties to their original positions and parties are free to adjudicate.
12) JURISDICTIONAL LIMIT
Adjudicator’s jurisdictions are limited to matters referred to in the payment claim and payment response, as prescribed in section 27(1) of CIPAA. However, the Court of Appeal in View Esteem Sdn Bhd vs Bina Puri Holdings Sdn Bhd  held that the adjudicator must now, also consider matters referred in an adjudication response even if such defences were not included in the payment response. In other words, respondent can raise new claims or defences post the payment response, allowing a possible ambush in view that the claimant has only 5 days to reply. Adjudicator who fails to consider the defences raised in the adjudication response could have acted in breach of natural justice and risked decision being set aside under section 15 of CIPAA.
13) DOCUMENT ONLY ADJUDICATION?
Question, can either party request for hearing? In Permintex JSK Resources Sdn Bhd vs Follitile (M) Sdn Bhd , respondent applied to set aside the adjudicator’s decision on ground that there had been a breach of natural justice as the adjudicator had failed to conduct a hearing. The court held that it is within the jurisdiction of the adjudicator to conduct a documents-only adjudication.
14) APPEAL ON ADJUDICATION DECISION ALLOWED?
Question, can party appeal on the adjudication decision on the ground of law? VVO Construction Sdn Bhd v Bina MYK Sdn Bhd , respondent appealed against the adjudication decision under Order 55A rule 1 of the Rules of Court 2012 and it was held that under CIPAA, there is no provision for appeal. If parties are allowed to appeal, it will contravene the purpose of CIPAA in disposing rough justice. In other word, you cannot adjudicate the same matter twice.
15) SHIPPING AND MINING CONTRACT
In MIR Valve Sdn Bhd v TH Heavy Engineering Berhad , it is held that ‘ship building’ contract is excluded from CIPAA within the meaning of “construction work”. The similar judgment is held for YTK Engineering Services Sdn Bhd v Towards Green Sdn Bhd , where a shipping contract or a mining contract does not fall within the meaning of “construction work” under section 4.
16) OBJECTION OF ADJUDICATOR APPOINTMENT
In Zana Bina Sdn Bhd v Cosmic Master Development Sdn Bhd , it was held that party who participated fully in an adjudication proceeding without raising any objection as to the validity of the adjudicator’s appointment during the proceeding was estopped from raising the objection subsequently in its setting aside application. However, in a recent case of 2019, Mega Sasa Sdn Bhd vs Kinta Bakti Sdn Bhd and Others , the plaintiff seek to set aside the adjudication decision on ground that the adjudicator’s appointment was not valid for the reason that the appointing director of the AIAC has no locus standi in view that his position as the Director of AIAC is not legitimate in accordance to the Asian African Legal Consultative Organisation AALCO Host Country Agreement. The court has yet to make a judgement on this.
17) EXTENSION OF TIME FOR RESPONSE/REPLY
Question, whether there was a breach of natural justice when an adjudicator refused to allow the respondent’s application for extension of time to submit a payment response? In Binastra Ablebuild Sdn Bhd v JPS Holdings Sdn Bhd , it was held that it is not a breach of natural justice merely because an adjudicator, after hearing both sides, refused to allow the respondent’s application for extension of time. However, an adjudicator has the power under section 25(p) of CIPAA to extend any time limit.
18) CONSIDERING EXTENSION OF TIME (EOT) CLAIM BY ADJUDICATOR
Question, can the adjudicator jurisdiction extended to adjudicate extension of time EOT? Such matter arises when there is a jurisdictional challenge, as to what is the jurisdiction of the adjudicator under CIPAA?
19) LOSS AND EXPENSE CLAIMS (Read in Tandem with ZERORISING A PARTY’S CLAIM)
In Syarikat Bina Darul Aman Berhad & Anor vs Government of Malaysia , it was held that an adjudicator who decided that he had no jurisdiction to decide on loss and expense claims was in breach of natural justice as such claims came within the ambit of CIPAA as these claims were due to the delay in completion of works and therefore payable as part of the amount claimable for the additional costs incurred for work. Not all loss and expense claims are within the purview of CIPAA, ie. Claim for special damages.
The test is:
20) PRE-AWARD INTEREST
In Milsonland Development Sdn Bhd v Macro Resources Sdn Bhd , it was held that an adjudicator has the power to grant pre-award interest pursuant to section 25(o) of CIPAA.
21) WINDING UP BEFORE REGISTERING ADJUDICATION DECISION
In Likas Bay Precinct Sdn Bhd v Bina Puri Sdn Bhd  , it was held by the Court of Appeal, that a successful claimant in adjudication need not have the adjudication decision registered before issuing a statutory notice of ‘winding up’ under section 465 of CA 2016[x].
As to date, CIPAA has been plagued with crippling complexities with more and more cases brought up in court for a finality in judgement that appears to be inconsistent and unpredictable in many areas beyond the true intention of CIPAA that is in dispensing justice based on the notion of to ‘pay first, argue later’ dispensing ‘rough justice’ with legally binding decision that has no ‘finality’ thus providing only temporal relief. The initial pro-claimant outcomes had thus swing to the other side of being pro-respondent post 2017.
As more cases move up to the court, as in Leap Modulation Sdn Bhd v PCP Construction Sdn Bhd , the court has gone as far as to interject the manner and efficacy of CIPAA in dispensing ‘rough justice’ and to the nature of AIAC being a ‘foreign entity’ with very little or no ‘check and balance’ self-regulation, had a monopoly grip on the dispensation of justice in Malaysia, no matter how ‘rough’ it is[xi]. The AIAC has since taken the same matter to the Federal Court to have this portion of the judgement expunged[xii].
The fate of CIPAA, while having put ‘off tangent’ from its initial purposes with more and more inconsistent and unpredictable judgements from the court, was plagued by alleged corruptions resulted in the former Director of the AIAC being replaced, based on the detailed insider content of just a ‘poison-penned’ letter[xiii]. However, in a recent case of 2019, Mega Sasa Sdn Bhd vs Kinta Bakti Sdn Bhd and Others , the plaintiff seek to set aside the adjudication decision on ground that the adjudicator’s appointment was not valid for the reason that the appointing director of the AIAC has no locus standi in view that his position as the Director of AIAC is not legitimate in accordance to the Asian African Legal Consultative Organisation AALCO Host Country Agreement. The court has yet to make a judgement on this.
CIPAA in itself is a two-tier processes. Winning the first-tier as in obtaining a favorable adjudication decision is not going anywhere with regards to recouping your unpaid payment claim. Subsequent enforcement of the decision as in the second-tier, is where the challenges begin as in setting aside and stay by the court. That is going to complicate matters, while many in the legal fraternity has been advocating, forget CIPAA, let’s see you in court!
[i] Craig J Enderbury, “Changes to the Construction Act: Payment certainty…uncertain terms”, Chartered Institute of Building CIOB (UK), reference from https://www.ciob.org/sites/default/files/Hill%20Intl%20CIOB%20slides.pdf
[ii] A survey was conducted to coincide with the Construction Industry Development Board’s plan to incorporate the survey’s outcomes in the Cabinet Paper which includes the Construction Industry Payment and Adjudication Bill 2006 which is targeted for submission to the Ministry of Works of Malaysia in March 2006, see M.S. Mohd Danuri , M.E. Che Munaaim , H. Abdul Rahman , M.Hanid, “LATE AND NON-PAYMENT ISSUES IN THE MALAYSIAN CONSTRUCTION INDUSTRY – CONTRACTORS’ PERSPECTIVE”, Center for Project and Facilities Management, Faculty of the Built Environment, University of Malaya. Reference from https://www.irbnet.de/daten/iconda/CIB4392.pdf
[iii] Philip Davenport, “SECURITY OF PAYMENT IN NEWZEALAND” reference from http://www.austlii.edu.au/au/journals/AUConstrLawNlr/2002/79.pdf
[iv] The seed of discontent has been raise as to the nature of the AIAC as the sole appointing body for adjudication under CIPAA is well reflected in the judgment of Leap Modulation Sdn Bhd vs PCP Construction Sdn Bhd, see “AIAC: Judge Hamid Sultan diverged from case facts in judgment”, Malaysiakini reference from https://www.malaysiakini.com/news/465089
[v] In attempts to challenge the jurisdiction of the adjudicator appointed by KLRCA under CIPAA 2012, the respondents in at least two adjudications have taken issue with the retrospective application of CIPAA 2012 to construction contracts entered into before 15 April 2014. UDA Holdings Berhad v Bisraya Construction Sdn Bhd & MRCB Engineering Sdn Bhd (Originating Summons No: 24C-6-09/2014) (“UDA v Bisraya”) was heard together with Capital Avenue Development Sdn Bhd v Bauer (Malaysia) Sdn Bhd (Originating Summons No: 24C-5-09/2014) (“CAD v Bauer”). The applications were heard in the Construction Court of the Kuala Lumpur High Court and were decided by Mary Lim J on 31 October 2014. The grounds of judgment is reported as UDA Holdings Berhad v Bisraya Construction Sdn Bhd & MRCB Engineering Sdn Bhd & Another Case  1 LNS 1584., “Construction Adjudication: Prospective, Retrospective or Somewhere in-between?” reference from https://mahwengkwai.com/construction-adjudication-prospective-retrospective-or-somewhere-in-between/
[vi] Read “Bauer (Malaysia) Sdn Bhd v Jack-In Pile (M) Sdn Bhd – CIPAA 2012 applies prospectively not retrospectively”, reference from https://www.zicolaw.com/resources/alerts/bauer-malaysia-sdn-bhd-v-jack-in-pile-m-sdn-bhd-cipaa-2012-applies-prospectively-not-retrospectively/”
[vii] The Federal Court in its grounds of judgment dated 1 August 2019 in Martego Sdn Bhd v Arkitek Meor & Chew Sdn Bhd decided on important points of law on adjudication and final payments under a construction contract. https://themalaysianlawyer.com/2019/08/13/case-update-federal-court-decides-on-final-payments-adjudication/
[viii] See WRP Asia Pacific Sdn Bhd v NS Bluescope Lysaght Malaysia Sdn Bhd , the unilateral communication of the adjudicator was found to be a material breach of natural justice.
[ix] See Skyworld Development Sdn Bhd v Zalam Corporation Sdn Bhd, the Adjudicator had issued his Adjudication Decision one day out of time and this rendered the decision void.
[x] Reference from https://www.zainmegatmurad.com/2019/02/20/cipaa-adjudication-466-statutory-notice-winding-up/
[xi] Reference from http://judgments.my/ca/leap-modulation-sdn-bhd-v-pcp-construction-sdn-bhd-and-another-appeal/10309 and https://www.malaysiakini.com/news/465089
[xii] Read “AIAC: Judge Hamid Sultan diverged from case facts in judgment”, Malaysiakini, reference from https://www.malaysiakini.com/news/465089
[xiii] Read “AIAC director resigns over MACC investigation”, Edge Markets, reference from https://www.theedgemarkets.com/article/aiac-director-resigns-over-macc-investigation
Many professionals, especially from the legal fraternity, had written about this matter but more importantly, what is the sentiment of an architect with regards to this matter? As mentioned, it is call the ‘battle[i]’ of the standard forms of building contract[ii] and as to why it is indeed, a battle, has a long stories date back to the late sixties.
As a former colonized country of the colonial British Empire, we had adopted many of the common law jurisdictions and our construction law is built upon such as its core foundation. In UK, “under the sanction of the RIBA and in agreement with the Institute of Builders and the National Federation of Building Trades Employers of Great Britain and Northern Ireland”, in the 1903 the standard form of building contract was produced[iii]. In the late 60s, the Pertubuhan Arkitek Malaysia (PAM) came together with the Institution of Surveyor (ISM) formalized the first standard forms of building contract, called PAM-ISM Form 69 closely modeled on the UK Joint Contract Tribunal (JCT) Form 63 edition. It has its fair share of backlash from the industries due to its ‘farrago of obscurities’ legal draftsmanship[iv], tested in court and throughout the years for the next 30 years withstand the storms and set many precedents in the construction law of the country. It was so widely used in the private construction sectors[v], almost everyone knows this ‘devil’, practically inside out. As being an architect, administering this ‘devil’ has been our daily jobs and without fail, one must admit, this ‘devil’ has given the architect enormous power via its archaic ‘farrago of obscurities’ terminologies, one being the personal favorite, ‘to the satisfaction of the architect’. Honestly, nobody appreciate this phrase better than the architect and if you were to rephrase it, ‘how to satisfy the architect?’ such question opens a floodgate of legal entanglements that the current legal maxim such as ejusdem-generis could not well explained such!
While the government or the public sector adopted the Public Work Department (PWD) or commonly also known as the Jabatan Kerja Raya (JKR) 203A Form. Architects who has worked in the public sector projects would have known well the intricacies of this JKR 203A Form. The construction of this form was largely contributed from the RIBA form of Building Contract 1931 Edition. By the same token, the Institution of Engineers (IEM) standard forms of contract called the IEM Form are mainly used for engineering matters. In all purpose, most of the IEM standard forms modified from the International Federation of Consulting Engineers (FIDIC) contract[vi]. At this time, various forms were tailor suit for their purposes and failure to adopt or to advise the correct use of these standard forms will ultimately result in costly, if not ‘painful’ legal disputes.
Bombarded with the onslaughts of mounting pressures from the contractors, developers, the legal fraternities, end users and notably the government, PAM for the very first time, after 30 years, decided to make revision to its PAM 69 Form just to make it ‘relevant’ in view of its popularity among the industry players. In hope that the ‘devil’ becomes much of a lesser ‘evil’, the PAM council at that time, commissioned[vii] its own sole council member at his own personal capacity, to redraft the PAM Form. As a result, the PAM 98 Form was born. In substance, the PAM 98 Form was an improvement to the PAM 69 Form with less ‘farrago of obscurities’ in legal draftsmanship, however, it was view as a unilateral revision (drafted by one person) without participation from the stakeholders of the construction industries and to a larger degree, ‘pro-employers’[viii]. In forms, the first issuance of the PAM 98 Form was ‘technically challenged’ and a re-launch was made in 1998. The PAM 98 Form being a relatively new form, was yet to be tested in court, but like the saying goes, is better to be with ‘the devil you know than the devil you don’t know[ix]’, through time the industry took it stock load and barrel.
The Construction Industry Development Board (CIDB) took the opportunity to make its presence felt. Collaborated with the other stakeholders (for all-inclusive policy, it was a strange sight to notice that PAM was not represented in the drafting committee) in the industry and through their newly minted Procurement Policy Committee, they came out with their very own version of standard forms called CIDB 2000 Form[x]. Differ from PAM 98 Form, any of the allied professionals such as engineers or quantity surveyors could be the named contract administrator or commonly known as the Superintendent Officer (SO). The most peculiar point of this form is the risk allocation that has been shifted to the employer, meaning, it is ‘extremely pro-contractors’. CIDB 2000 Form, conceived as the ‘knight in shiny armors’ was rarely employed in the private sector. To many of the allied professionals, especially the architects, it has since faded into oblivion[xi].
The PAM 98 Form has since continued to be the ‘preferred choice’ among the industrial players. As approaching 2006, the PAM 98 Form has since been tested in court, deliberated at length and constructively criticized by the stakeholders of the construction industries. It has come to a point that PAM needs to re-look into the PAM form again, to make it ‘watertight’. Instead of a sole member’s commissioned work, a committee was set up to undertake the revision. The new PAM 2006 Form was born with a more ‘regimented’ approach where ‘time is of the essence’ is given to almost every specific performance, failing to comply may amount to a breach. Gone were the days of archaic ‘farrago of obscurities’, such as ‘to the satisfaction of the architect’. More documentation work and liabilities were placed onto the shoulders of the architect as contract administrator. Legal implication with regards to ‘conditions precedents’ and ‘specific performance’ were introduced, almost making the architect’s ‘freedom to administer’, almost non-existence. The so called ‘devil’ was beyond recognition, making contract administration a ‘full time and painful job’ fit for a ‘keyboard administrator’ architect. Very pitiful with regards to its remuneration against the quantum of liabilities vested upon it[xii]. Strangely, recognizing the fact that failure to adopt or to advise the correct use of these standard forms will ultimately result in costly, if not ‘painful’ legal disputes, the act of omission was now, transferred to someone else probably liked the ‘poor’ architect as there was an exclusion clause finely printed in the PAM 2006 Form that read, ‘all parties must rely upon their own skill and judgement … when using this document and PAM assumes no liability to any user … in connection with such use’[xiii], classic indeed.
Came 2012, the year of reckoning with the Construction Industry Payment and Adjudication Act 2012 (CIPAA), spearheaded by the Asian International Arbitration Centre (AIAC), the construction industries were thrown to its tipping point, welcomed by the contractors, sub-contractors and to a far degree, consultants too[xiv] and shunned by some employers notably developers, any claims put forth by the claimant, in CIPAA, will stand an 80% chances of winning due to its ‘rough justice stance’ with no ‘finality’. ‘I will CIPAA you[xv]’, became the common phrase in town. No doubt that the pendulum of wining, has since shifted to the respondents post the ‘View Esteem Case[xvi]’, adjudication decisions had been making rounds in the court of law without consistent and predictable outcomes. In the matter of the PAM 2006 Form, the ‘commercial agreement to any conditional payment’ has been made void as in the ‘Econpile Case[xvii]’. Now, the newly minted, PAM 2006 Form, with regard to its clause 25.4(d) on conditional payment upon determination, has been made completely unenforceable.
In 2018, the PAM Committee that has since went into overdrive while waiting for the Federal Court’s decision on ‘Econpile Case’ did not see any light at the end of the tunnel, proceeded to account for such a decision, came with a minor revision, with complicated rewording of its clause 25.4(d) and called it the PAM 2018 Form. The content of the PAM 2006 Form, no doubt, were intact and fortified with numeral annotation rearrangement, however, more documentation work and liabilities were placed onto the shoulders of the architect as contract administrator such as having the architect to certify such breach so to allow the employer to cash the performance bond as in clause 39.5 and having the architect spelt out what were the outstanding works while issuing its CNC, almost suggesting to the contractor that ‘they don’t even know what is their work, and has to be reminded by the architect’. As the architect, one feels it is liken to use a ‘sledgehammer to nail a nail’.
The story didn’t quite end here. In the same year 2018, the Asian International Arbitration Centre (AIAC) took the PAM 2006 Form, almost word by word and adopted the same as their AIAC 2018 Form of building contract. Needless to say ‘dispute’ arise on matter of copyright and subsequently a revise AIAC 2019 Form[xviii] of building contract with a total revamp has been introduced. In this AIAC 2019 Form anyone can be the contract administrator including anyone from the legal fraternity. Without prejudice, what would you think when anyone from the legal fraternity without technically trained, administer the contract? Often one may asked, how would anyone from the legal fraternity acquire his 7 years’ experience in the construction industry? Doing litigation works on behalf of the contractors or employers accounts for such including reading up construction case laws?
When someone[xix] pointed that in 2016, as published by the AIAC (there was no such breakdown analysis anymore), there were 363 CIPAA adjudicators and out of these, 177 were lawyers, 59 were Engineers while QS made up 51 and others accounted for 65. Architects, only 11! Does it means to say that architects were so incompetent to even pass the adjudication examination let alone competent enough to administer a construction contract? I overheard someone is telling that majority of the arbitration awards that were thrown out of court were written by ‘non-legal trained’ arbitrators. Frankly, as an architect, one cannot, not ask, as to these 177 lawyers seating as CIPAA adjudicators, where do they obtain their 7 years’ experiences in the construction industries as a fundamental prerequisite to be a CIPAA adjudicator? As an architect, one may view that having the AIAC 2019 Form, it is an avenue for the legal fraternity to acquire their 7 years’ experience in the construction industries as a fundamental prerequisite to be a CIPAA adjudicator. Not long thereafter, there could also be many from the legal fraternity, claiming to be expert in architecture, construction, engineering and so forth.
In 2017, other forms of contract such as the New Engineering Contract (NEC-4)[xx] were also making its round in the market, just a ‘keyboard button’ away that may set you back RM4,000.00[xxi] poorer. In essence NEC-4 fundamental principles of risk and costs collaborations[xxii] between the contractor and the employer was only popular in HongKong Government’s Public Funded Projects.
While penning this personal reflection of an architect’s sentiment on the forms of the building contract (now, they fashionably called it suite) the construction industries are in disarray with regards to the less predictability of the Court’s decision on CIPAA, damages such as LD and the multitudes of pitfalls contractors and employers come to face maneuvering the intricate nexus of the conditions of contract that may not necessarily reflects the parties true intentions. Contract administrators such as the architects now having to perform multiple roles that they themselves were not familiar with including the ‘devil’s advocate’ just to make sure that the building is built according to his design and intention. Why so difficult?
[i] ‘Battles of the Forms’ is a legal term for the common situation in which one business firm makes an offer in the form of a pre-printed form contract and the offeree responds with its own form contract, see www.fenwickelliott.com/research-insight/annual-review/2011/battle-forms. At common law, any discrepancy between the forms would prevent the offeree's response from operating as an acceptance. However, for the purpose of this article, it takes the literal meaning of the standard forms of building contract one ‘outdoing’ one another to garner a larger acceptance in the building industry.
[ii] Standard Form Contracts are agreements that employ standardised, non-negotiated provisions, usually in pre-printed forms; retrieved from www.designingbuildings.co.uk/wiki/Standard_form_of_contract
[iii] History of the JCT, retrieve from www.corporate.jctltd.co.uk/about-us/our-history
[iv] Powell-Smith, Vincent, “The Malaysian standard form of building contract (PAM/ ISM 69)”, Malayan Law Journal, (1990).
[v] It is estimated that 90 per cent of the building contracts in the private sector are based on the PAM form (Sundra, 2010), Zarabizan bin Zakaria, Syuhaida binti Ismail and Aminah binti Md Yusof ; “An Overview of Comparison between Construction Contracts in Malaysia: The Roles and Responsibilities of Contract Administrator in Achieving Final Account Closing Success”, Proceedings of the 2013 International Conference on Education and Educational Technologies (2013), retrieved from http://www.inase.org/library/2013/rhodes/bypaper/EET/EET-02.pdf
[vi] Oon CheeKeng, “Standard Construction Contracts in Malaysia Issues and Challenges”, retrieve from www.academia.edu/5722671/STANDARD_CONSTRUCTION_CONTRACTS_IN_MALAYSIA_Issues_and_Challenges_CK_OON_and_CO._Advocates_and_Solicitors_STANDARD_CONSTRUCTION_CONTRACTS_IN_MALAYSIA_Issues_and_Challenges_BY
[vii] P Kasi reported that Sundra Rajoo has offered his services in his personal capacity to complete the task of revising the PAM Formof Contract from where the late KC Cheang had left off… Council accepted Sundra Rajoo’s offer to complete the revision … for a fee of RM 30,000.00; disclosed by Ezumi, PAM Council Minute of Meeting.
[viii] … aspiration to produce a fair and balanced form of contract that would satisfy the role and to respond positively to the feedback from the industries…extract from the Background, “PAM Contract Drafting Committee, Handbook for PAM Contract 2006”, Pertubuhan Arkitek Malaysia, KL (2010).
[ix] used to say that it is better to deal with a difficult person or situation one knows than with a new person or situation that could be worse, retrieved from www.merriam-webster.com/dictionary/better%20the%20devil%20you%20know%20than%20the%20devil%20you%20don't
[x] Ong SeeLian and team; “Guide on the CIDB Standard Form of Contract for Building Work”, CIDB (2000). Retrieved from cidb.gov.my/images/content/pdf/p2p/guide-on-cidb-standard-form-of-contract-for-building-work.pdf
[xi] Although it appears that CIDB’s intention is to make the use of their forms commonplace, the question as to whether these CIDB Standard Forms will ultimately replace the existing JKR Standard Forms for the moment at least begets no precise answer, Sundra Rajoo, “Standard Forms of Contract – The Malaysian Position”, IBA Tokyo (2014). Retrieved from www.aiac.world/news/82/IBA-Tokyo-:-Standard-Forms-of-Contract-–-The-Malaysian-Position-by-Datuk-Professor-Sundra-Rajoo
[xii] The fees do not commensurate with the work done, response taken from an interview between the Edgeprop and Zulhamlee (former PAM President), “Why Malaysian architecture doesn't have to suffer from the Gucci syndrome”, EdgeProperty Lifestyle Edition (2015), retrieved from www.edgeprop.my/content/why-malaysian-architecture-doesnt-have-suffer-gucci-syndrome
[xiii] Sundra Rajoo, WSW Davidson and Harban Singh, “The PAM 2006 Standard Form of Building Contract”, Lexis Nexis Malaysia Sdn Bhd (2010).
[xiv] Consultants can claim for unpaid fees via CIPAA with reference to the judgement in Martego Sdn Bhd v Arkitek Meor & Chew Sdn Bhd  MLJU 1827
[xv] Sounded liked ‘I will slap you’ in the Malay language – ‘sepak’ means slap.
[xvi] View Esteem Sdn Bhd v Bina Puri Holdings Berhad, read www.lh-ag.com/wp-content/uploads/2017/11/DR-e-Alert-LHAG-update-20171113.pdf
[xvii] Econpile (M) Sdn Bhd v IRDK Ventures Sdn Bhd and anor  7 MLJ 732, also read christopherleeong.com/media/3011/clo_201804_cipaa.pdf
[xviii] Read www.lexology.com/library/detail.aspx?g=98bd7c4b-8587-406b-8506-20ad2207a981
[xix] As pointed out by David Cheah in the Joint IEM MIArb RISM and PAM’s ADR course for Practitioners held in IEM on 1st Aug 2019.
[xx] See www.designingbuildings.co.uk/wiki/NEC4#Confidentiality
[xxi] Exchange rate to Ringgit Malaysia from Pound Stirling of 812.00 see https://www.neccontract.com/NEC4-Products/NEC4-Contracts/NEC4-June-2017-Edition-including-Alliance-Contract
[xxii] Read www.fenwickelliott.com/research-insight/newsletters/insight/75
Attended a talk by the Society of Construction Law, in AIAC, on the subject matter of Liquidated Damages post Cubic Electronics Sdn Bhd (in liquidation) v. Mars Telecommunications Sdn Bhd. The speakers were mostly lawyers with only one representing the contractor, MBAM. Wonder why the Architects, QS and Engineers were excluded and not represented to give their views?
The recent Federal Court position on Liquidated Damages “LD” clause, under Section 75 of the Contract Act 1950 “CA1950”, has been shifted from the position held in the Selvakumar Murugiah v. Thiagarajah Retnasam, where the Employer would still have to prove loss to a more inclusive positions where the parties’ freedom of contract were mutually inclusive especially where parties have comparable bargaining power and are properly advised.
The court has taken an approach similar to the UK Supreme Court position in Cavendish where proper credence to the parties’ own ability to assess their own commercial position and in doing so, allowing the damages clause to be used as a “permissible risk allocation tool” of the following features: -
1. Allow the innocent party to demonstrate firstly, there was a breach of contract and secondly, the contract contains a damages clause.
2. By reversing the burden of proof to the defaulting party to show that the damages clause is unreasonable;
3. Factors such as “legitimate interest” and “proportionality” when determining damages sum to be “reasonable”.
Obviously these new sets of “tests” were taken as a purely legal point of view, such as the test of “legitimate interest”, “proportionality” and “reasonableness”. The construction industries, however, posed a different sets of complexities such as: -
1. Where the contractors were often at the receiving ends not having a greater opportunity to negotiate, especially on the quantum for LD during the tender stage, risking over-pricing and so forth.
2. Where the contractors now have to proof that the damages, imposed by the employer, are unreasonable as for most of the time, the quantum for damages were fixed by the employer based on undisclosed methodology.
3. Where arbitrators and adjudicators, whom were basically, technical professionals, now having to consider these new sets of “tests” of “legitimate interest”, “proportionality” and “reasonableness” in granting their decisions.
4. Where the QS and the Architects were to revamp the entire tendering processes, now having to deliberate the methods of quantifying LD.
5. Where the employer would now having to pass the cost, arising from the risk assessment of LD to the end user, the buyer.
As at the end of the session, there is no obvious answer as to what constitute these new sets of “tests” of “legitimate interest”, “proportionality” and “reasonableness” for immediate use by the professionals in the construction industries.
A passing remarks was made to PAM 2018 form with regard to Clause 22 but failed to deliberate further on Clause 22.2. A point to note, that Clause 22.2 was drafted to keep in mind that the LD stated in the Appendix is a genuine pre-estimate of loss and or damage which the employer will suffer in the event that the contractor is in breach… the parties agree that by entering into the contract, the contractor shall pay to the employer the said amount, if the same breaches due without the need for the employer to prove his loss and or damage unless the contrary is proven by the contractor.
The recent completed CIArb Convention started with the opening address by the Hon Chief Justice stressing on the current amended Arbitration Act 2018, with particular to sec 42, on the removal of opt-in/out of UNCITRAL provision, that may posed new challenges to the bench, as more judges needed to be informed on these aspects of the Arbitration Act and the role of AIAC to see to it as a refreshing call. The recent case of View Esteem and Leap Modulation had to be given a new perspective that the bench needed to be given more role with emphasis on Court Assisted Arbitration, in one way, to curb the widening cartel of arbitrations and to deliver justice to the masses in an affordable way as arbitration has in these days an expensive affair.
In contrary, the Director of the AIAC spoke at length on the roles that the centre has paved to speed up the arbitral process such as document only arbitration, Islamic arbitration, fast track arbitration and the sort at affordable costs and categorically denied the cartel role of the AIAC as reflected in the Appeal Court decision of Leap Modulation, citing contempt of court to anyone who would dare to cite such archaic decision that was soon to be expunged in the Federal Court.
Further discussions centralized on the 3rd Party Funding TPF in arbitration that has taken root in other arbitral jurisdictions liked in Singapore and Hong Kong and may see the light in Malaysia in the near future. The forum seek to impart the mechanism of TPF:
1. TPF as a party in arbitration;
2. to the statutory disclosure of the funders;
3. funding through insurance;
4. the amendment to the legal profession to allow lawyers to be involved in such funding;
5. mitigation of such funding;
6. the funding agreement as opposed to insurance policy agreement;
7. risk in funding as in 3 times the return of investment;
8. Multi-tier due diligent processes and so forth…
The objective of TPF is to allow access to the arbitral process to everyone making it financially manageable, in the rise of escalating commercial disputes in the road and belt initiatives and the opening of emerging markets where every arbitral regimes would want to have a lion shares on this. The Director of the AIAC is fast to ask if indeed such initiative liked the TPF would only opened more avenues for money launderings and what are the mechanism installed to manage such risk, the forum, was surprisingly, has very little answer to it but to cite for statutory disclosure of the funder and the source of the funding.
Sharing the Hong Kong Arbitral regime’s experience, aside from the TPF, the process of mediation has taken a centre stage. Managed by the HK Mediation Council, the current Civil Justice Reform 2013 has brought about mediation as a compulsory pathway before litigation, very much liked the Court assisted Mediation and as the matter of fact, Arbitrators are allowed to be the mediator. Alongside with this mediation initiative, the special administrative region has also introduced the Apology Ordinance as to promote apology, notwithstanding rights of the party to remedy, to prevent dispute. Singapore has picked up such mediation processes in their Mediation Act 2017, allowing foreign lawyers as mediators and party’s representatives. The Singapore Government has also taken up mediation as in the recent SIDP – Singapore Infrastructure Management of Dispute Protocol allowing the setting up of Dispute Board DB as a proactive dispute avoidance initiative, comprises of the 3 neutrals of Architects, Engineers, QS and Lawyers, and sits regularly in meetings and at site, dishing out options for dispute managements. The floor however, has view such initiative as adding another layers into the ever complex route for dispute resolutions with escalating costs.
In matter of the Trans-Pacific Partnership Agreement (TPPA), article 9.6 and the role of the arbitral regime post US led initiative, focused on the notion of overly biased support of trade versus the interest of the state. In any case, the state may be sued by the trading parties on matter of treatment standards that may be seen fair and equitable to the trading party but may not be the same to the state. In other words, there may be no protection to the state, unless otherwise the “umbrella clause” has been cast-in.
The last order of the day, brought the question of dependency of expert witness into the centre stage where one speaker spoke with whim and fancy on the notion of “dirty” versus “clean” experts that eventually throw the pendulum off tangent. The apex of the discussion was a suggestion to eventually “hot tubbing” these experts, until an equitable decision could be narrowed down, with emphasis on the following notable conundrums;
1. “ships passing in the night”;
2. Address different question;
3. Assuming different facts;
4. Following different facts;
5. Inadequate explanations;
6. Unintelligent explanations, among others…
As the closure, the discussions were centralized between tribunal appointed experts versus parties appointed experts and the needs for the conclave of experts with or without the presence of the lawyers that may risked making things even more complicated, before the expert report has been exchanged.
DYA+C is set up by Ar. DAVID YEK TAK WAI to undertake resolution of commercial disputes through ARBITRATION and ADJUDICATION, specializing in CONSTRUCTION PAYMENT DISPUTES.
This is an educational blog. We do not guarantee, confirm nor warrant the accuracy of the information and facts stated therein. Read at your own 'risk'.