THE SETTLE OF THE ‘UNSETTLED-LAW’ IN CIPAA AS AT 2020CIPAA apply prospectively[1] with “conditional-payment” enforceable for contract prior 15th April 2014[2]; not to be “contracted-out”[3]; rarely granted “stay of adjudication” unless for specific “narrow-reasons”[4] i.e. res-judicata[5] or pre-qualify for stay requires commencement of arbitration/proceeding[6]; zerorising Respondent’s claim[7]; “non-certified”[8] claims allowed; exempting government as disputing-party[9] but exclude item not of “national-security”[10]; consultancy-contract can be adjudicated[11] including final-account[12]; setting-aside under s.15[13] includes in-existence of an arbitration-award/judgement[14]; allow new defences post payment-response[15]; must accorded “hearing”, failing which “breach of natural-justice”[16]; no-appeal on “ground of law”[17], even there is an “error of law”[18]; exclude shipping[19] and mining[20] contract, but a platform-anchored into the land, is adjudicate-able[21]; estoppel of party participated fully to raise any-objection on adjudicator’s-appointment[22]; constitutionality of CIPAA upheld[23]; rights to limit extension-of-time for submission[24], including adjudicating-EOT as “contingent jurisdiction”[25], and L&E[26]; allowing claims of “pre-award” interest[27], only if such is claimed[28]; non-mandatory for decision to be registered prior serving ‘winding-up’[29], but cautionary apply to company on “disputed-debts”[30] owing to its “temporary-finality”[31]; non-interference of court to “vary adjudication-decision”[32], awarding-costs[33] nor “supplanting” adjudicator’s-order[34]; and mandatory for principal to pay[35].
---------------------------------------------------- [1] Jack-In Pile (M) Sdn Bhd v Bauer (Malaysia) Sdn Bhd [2020] 1 CLJ 299 [2] Jack-In Pile [2020] [3] Ranhill E&C Sdn Bhd v Tioxide [2015] 1 LNS 1435 [4] Subang Skypark Sdn Bhd v Arcradius Sdn Bhd [2015] 11 MLJ 818 [5] Samsung C & T Corporation & Anor v Bauer (Malaysia) Sdn Bhd [2019] MLJU 1690 [6] Foster Wheeler E & C (Malaysia) Sdn Bhd v Arkema Thiochemicals Sdn Bhd Anor [2015] 1 LNS 632; Punj Lloyd Sdn Bhd v Ramo Industries Sdn Bhd & Anor and another case [2019] 11 MLJ 574 [7] Tenaga Poly Sdn Bhd vs Crest Builder Sdn Bhd (unreported) [8] Bina Puri Construction Sdn Bhd v Hing Nyit Enterprise Sdn Bhd [2015] 8 CLJ 728 [9] Mudajaya Corporation Bhd v Leighton Contractors (M) Sdn Bhd [2015] 5 CLJ 848 [10] ENRA Engineering and Fabrication Sdn Bhd v Gemula Sdn Bhd & Another Case [2019] 10 CLJ 333 [11] Martego Sdn Bhd v Arkitek Meor & Chew Sdn Bhd & Another Case [ 2017] 1 CLJ 101 [12] Martego [ 2017] [13] Wong Huat Construction Co v Ireka Engineering & Construction [2018] 1 CLJ 536 [14] Prestij Mega Construction Sdn Bhd v Keller (M) Sdn Bhd & Other Cases [2019] 1 LNS 1612 [15] View Esteem Sdn Bhd v Bina Puri Holdings Bhd [2017] 8 AMR 167 [16] Guangxi Dev & Cap Sdn Bhd v Sycal Bhd & Anor Appeal [2019] 1 CLJ 592 [17] VVO Construction Sdn Bhd v Bina MYK Sdn Bhd Anor [2017] 2 AMR 502 [18] SKS Pavillion Sdn Bhd v Tasoon Injection Pile Sdn Bhd [2019] MLJU 1051 [19] MIR Valve Sdn Bhd v TH Heavy Engineering Berhad & Other Cases [2017] 8 CLJ 208 [20] YTK Engineering Services Sdn Bhd v Towards Green Sdn Bhd [2017] 5. AMR 76 [21] E.A Technique v Malaysia Marine and Heavy Engineering [2020] WA-24C-96-06/2019 [22] Zana Bina Sdn Bhd v Cosmic Master Development Sdn Bhd [2017] MLJU 146 [23] Amerin Residence Sdn Bhd v Asian International Arbitration Centre ([2019] 1 LNS 904; Mega Sasa Sdn Bhd v Kinta Bakti Sdn Bhd & Ors [2019] MLJU 1043; [2019] 1 LNS 1366 [24] Binastra Ablebuild Sdn Bhd v JPS Holdings Sdn Bhd and another case [2017] MLJU 1260 [25] SKS Pavillion Sdn Bhd v Tasoon Injection Pile Sdn Bhd [2019] 2 CLJ 704 [26] Syarikat Bina Darul Aman Bhd & Anor v Government of Malaysia [2017] MLJU 2381 [27] Milsonland Development Sdn Bhd v Macro Resources Sdn Bhd [2017] MLJU 169 [28] Naza Engineering & Construction v SSL Dev [2019] [29] Bina Puri Sdn Bhd v Likas Bay Precinct Sdn Bhd [2018] MLJU 864 [30] Maju Holdings Sdn Bhd v Spring Energy Sdn Bhd [2020] MLJU 1196 [31] ASM Development v Econpile [2019] WA-24NCC-363-07/2019 [32] Naza Engineering & Construction v SSL Dev [2019] [33] TRT Engineering (M) Sdn Bhd v Hansol KNM Greentech Sdn. Bhd [2020] 1 LNS 8 [34] Multazam Development Sdn Bhd v Felda Global Ventures Plantations (M) Sdn Bhd [2020] 11 MLJU 606 [35] CT Indah Construction Sdn Bhd v BHL Gemilang Sdn Bhd [2020] 1 CLJ 75
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Postscript: An update that the Halliburton Test is also applied to CIPAA’s Adjudicators test of ‘apparent bias’[1] in a setting aside attempt[2], where the court held that the first rule of natural justice “overlaps with” but is “distinct from the Duty to be Impartial”[3], to include, the “real danger of bias” test (“Real Danger Test”) and the “real possibility of bias” test (“Real Possibility Test”)[4]. ------------------------------------------------------------------------------------------------------------------------ [1] Rosha Dynamic Sdn Bhd v Mohd Salehhodin bin Sabiyee & Ors and other cases [2021] MLJU 1222 [2] S 15 of the Construction Industry Payment and Adjudication Act 2012 (CIPAA) [3] “fair-minded and informed observer” [4] Bar Council v Tun Dato Seri Arifin bin Zakaria & Ors [2020] 4 MLJ 773 LESSONS ON ARBITRAL’S IMPARTIALITY – HALLIBURTON v CHUBBHaving now a local case employing Halliburton v Chubb on arbitrator bias and duty of disclosure, I had revamped my article that I wrote earlier this year in January, 19th.
In Halliburton v Chubb, the legal-test that applies to duty of disclosure[1], even if “real-possibility of bias”[2] not established on facts, duty of disclosure[3] arises as-if it might "reasonably" give-rise to doubt[4]; assessment of “possibility of bias”[5] following disclosure, should be applied through the perspective of "fair-minded[6] and informed-observer"[7], in "realities of international-arbitration" context[8] and "custom and practice in the relevant-field of arbitration", i.e. provided no-breach of confidentiality[9], yet to provide as much information that if you can't disclose[10], otherwise arbitrator “must-resign”[11]; and failure to disclose[12] is that, observer can assess whether there is a “real possibility of bias”, be made at hearing-date to “remove the arbitrator”, and not at the arbitrator's acceptance-date of subsequent appointment. In Low Koh Hwa @ Low Kok Hwa (practising as sole Chartered Architect at Low & Associates) v Persatuan Kanak-Kanak Spastik Selangor & Wilayah Persekutuan and another case [2021] MLJU 430, the court set aside an award[13] on the basis of arbitrator apparent bias[14], in conflict with public-policy, breaching the rules of natural-justice. The court holds, the arbitrator must, statutorily, make full and timeous disclosure, which are likely to give rise to justifiable doubts as to the arbitrator's impartiality or independence, which would enable a 'fair-minded and informed observer' to decide objectively on whether there are justifiable doubts on the arbitrator's impartiality and/or independence[15]; estoppel cannot be relied if the applicant fails within the time-bar objection[16] when an arbitrator failed to give ‘full and timeous’ disclosure, statutorily imposed[17]; and impacted the award as the arbitrator "would have reached a different decision if not for the [failure to make full and timeous disclosure]" Concluding, the Malaysian case did not concern multiple appointment as per Halliburton. It is significant that the applied principles determine the extent of an arbitrator's duty of disclosure and set threshold for setting aside an award for apparent bias. The court acknowledged the difficulty in proving ‘apparent bias’ yet it sends signal to arbitral institution not to only limit their panel of arbitrators to a small significant number, i.e. less than 20, when the disputing parties in the construction industries are limited.[18] ------------------------------------------------ [1] S.24(1)(a)1996Act [2] Porter v Magill[2001] 1UKHL67; R v Gough[1993] AC646: bias is met as long as the court is satisfied that there is a sufficient degree of possibility of bias. [3] Davidson v Scottish Ministers(No 2)[2004]UKHL34:a legal duty of disclosure in s.33,1996Act [4] R v Sussex[1924] 1KB256 at 259:justice should not only be done, but be seen to be done; Findlay v UK[1997] 24EHRR221:tribunal must be subjectively free from personal prejudice, be impartial from an objective viewpoint; W v M[2016] EWHC422(Comm) [5] R v Gough[1993] AC646:real likelihood/danger of bias test; Re Medicaments(No.2)[2001] 1WLR700 [6] Helow v Secretary of State Home-Department[2008]UKHL62:observer not-judge on any-point before acquiring full-understanding of both sides. [7] Porter v Magill[2001]UKHL67:“The question is whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.”; Johnson v Johnson (2000)201CLR488:fair-minded and informed-observer is “neither complacent nor unduly sensitive or suspicious”. [8] A v B [2011]EWHC 2345(Comm); ASM Shipping v TTMI[2005]EWHC2238(Comm):requirement in English law that all arbitrators, appointed, comply with the same high-standards of impartiality, appears to be accepted as the legal-norm internationally. [9] Dolling-Baker v Merrett[1990]1WLR1205(CA); Ali Shipping v Shipyard Trogir[1999]1WLR314; Development of City of Moscow v Bankers Trust[2004]EWCACiv314:English-seated arbitrations are both private and confidential. [10] Halliburton v Chubb[2020]UKSC48:arbitrator’s obligation of confidentiality which prevent disclosure, is an unsettle law and case-sensitive. [11] AWG v Alexander Fraser[2005] EWHC2786(Ch); TM v. Ghana[2003] PCACaseNo.2003-03 [12] PAO Tatneft v Ukraine[2019]EWHC3740(Ch):failure of disclosure may then be a factor to establish justifiable doubts as to the arbitrator’s impartiality. [13] S.37 Malaysian Arbitration Act 2005 (MAA 2005): award may be set aside […] if - (i) a party […] was under any incapacity [14] S.14 MAA 2005 [15] Halliburton v Chubb[2020]UKSC48: the ‘real possibility of apparent bias’ by Lord Hodge [16] S.15(1) MAA 2005 [17] S.14(1) and (2) MAA 2005 [18] Reported in PAM annual report 2020/2021, p.40: 13 nos. as per Dec 2020 PAM-PRACTICE NOTES 3-2020, MY POINT OF VIEW… Update: I wrote this article way back in January 2021, as a response to PAM’s Practice Advisory No.3 on Contract Administration by the Architect should also include ultra vires obligation such as re-negotiating contracts for the parties. The findings of KL Eco City Sdn Bhd v Tuck Sin Engineering & Construction Sdn Bhd & Anor[1], ultimately seals the fate of the Architect not to move beyond its obligation under the contract. YA Dato Lim Chong Fong holds: “[46] Unless actual authority is conferred, the architect as agent of the employer in a construction contract generally does not have the ostensible authority to waive the contractual rights of the employer in respect of conditions precedent such as on notice requirement as held in City Inn Ltd v Shepherd Construction Ltd (supra). Actual authority can be specifically conferred where expressed in the construction contract; see Tropicon Contractors Pte Ltd v Lojan Properties Pte Ltd [1989][2]. There is however no waiver provision found in clause 23 of the PAM Conditions.” “[47] In the premises, I find and hold from the evidence adduced that the Architect did not have either actual or ostensible authority to waive the condition precedent set out in clause 23.1(a) of the PAM Conditions.” On this instance, the HC held that the Architect must always maintained its role as the Employer’s Agent and an impartial certifier to the Contractor and must never attempt to change the conditions of the contract, i.e. by acting ‘lenient’, to waive and by any means that will be taken or construed as changing the terms of the contract breaching the fundamental of parole evident rules. Under this basis, PAM’s Practice Advisory No.3 has ‘grossly erred’ and required immediate retraction and amendment. ----------------------------------------------------- [1] [2021], second trench judgement to KL Eco City Sdn Bhd v Tuck Sin Engineering & Construction Sdn Bhd & Anor [2020] 1 LNS 360 [2] 3 MLJ 126 and [1991] 2 MLJ 70 CA PAM has taken a bold step to invite both current presiding judges of the High Court and Federal Court, YA. Dato’ Lim Chong Fong (HCJ) and YA. Dato’ Mary Lim Thiam Suan (FCJ) to moderate a public forum - ‘Surviving Post Covid-19 – A Common Sense Approach’.[1] In the said forum, I am attracted by the PAM Past President, Datuk Ar. Tan Pei Ing’s revelation on the ‘PAM-Advisory’, now made available to members as PAM-Practice Notes 3-2020.[2] The question remain is whether such an advisory, mandating the Architect as contract administrator CA, to facilitate parties to the contract to ‘alter’ their contract, doubling up as a ‘contract-negotiator’ to re-negotiate their existing-contract, to account for the Covid-19 scenario? Let’s investigate further what the ‘advisory’ says. One, PAM contract has existing ADR clauses that parties can utilise. What is most surprising is – ‘the mediation process can be lengthy and costly’ … it means to say, PAM’s mediation are ‘lengthy and costly’? Or mediation, in general are ‘lengthy and costly’?[3] Both the Covid-19 Mediation Scheme and the AIAC is offering pro-bono mediation scheme, how costly can that be? Furthermore, it usually takes a few days (the most, 2-days), to sort out a mediation session, beyond that is simply futile. There must be basis and justification to state as to why mediation are ‘lengthy and costly’? Second, in the ‘advisory’, the CA/Architects should (rather meaning, shall being mandatory), ‘take a practical approach to mitigate dispute’. What is mean by ‘practical approach’? An ‘illegal-approach’, i.e. ultra-vires approach, can also be practical. What is ‘mitigating-dispute’? Dispute-avoidance or dispute-resolution? The latter is provided for in the contract, while the former is entirely something-else, implied rather than expressly provided for in the contract. When read together with BIPC joint advisory notes, ‘consultants are encouraged to […] facilitate […] explore options […] balance their respective interest […]’, meaning to assist parties in ‘renegotiating’ their contracts on a ‘good-faith’ basis. Also note the use of the word ‘encourage’, i.e. non-mandatory, as compared to PAM-Advisory, uses of the term ‘should’. Again, the PAM-Advisory mandated that ‘Architects should encourage contractual parties […] with the objective of preserving common-interest as opposed to insisting on strict contractual-rights’.[4] As to how one defines, ‘objective of preserving common-interest’ as ‘good-faith’ is a matter of parties’ discretion but to insist on Architects to ‘opposed to insisting on strict contractual-rights’, is absolutely, uncalled-for, or to put it in another words, architect ‘must’ unilaterally act ultra-vires as a matter of ‘practicality’? This is where the ‘trouble will arise’, for architects … ------------------------------------ [1]<https://www.facebook.com/events/391034642337065/?acontext=%7B%22event_action_history%22%3A[%7B%22mechanism%22%3A%22search_results%22%2C%22surface%22%3A%22search%22%7D]%7D> [2] <https://drive.google.com/file/d/1b4q4fNC3gj3godY9XZdtBqSZicVZGD2q/view> [3] PAM-Practice Notes 3/2020, p.1 [4] PAM-Practice Notes 3/2020, p.2 The position in law is Good faith, best endeavours and fair dealing - In many legal system, law of obligation recognises that contract has to be formed in bona fide i.e. ‘good faith’, but not with the English law.[1] Some cases may have been held against mala fide i.e. ‘bad faith’.[2] English law do not recognise, the contracting party has to act in good faith.[3] As to the reason why, traditionally, contract starts from ‘rugged individualism’, parties had to look after themselves in striking a bargain.[4] English law prefers to develop incrementally and a ‘broad general principle’ would generate too much uncertainty. Effect should therefore be given to expressly assumed obligations to act in good faith.[5] Such as an ADR clause requiring party to seek resolution in good faith.[6] A duty of good faith has to be expressly stated to be enforceable.[7] With court support.[8] However, in recent cases, English law has been seen to be ‘hostile’ towards the doctrine of good faith, although attempt to recognise such doctrine is intrinsically driven. [9] Without reliance to such doctrine, some cases are ‘difficult to reconcile’.[10] To put effect on this doctrine, the term of good faith has to be expressly stated.[11] Alternatively, court may imply a term comprising good faith.[12] Sometimes, not possible to imply such term.[13] In situation of a reduction in obligation[14], unduly onerous obligation[15], creating redundancy clauses[16] and with unintended consequences[17]. Thus the meaning of good faith will depend on its context.[18] This was the case in where a long-term PFI contract contained an express obligation of good faith, the court held that the trust has be in ‘material’.[19] Similarly, a term requiring the parties to “co-operate with each other in good faith” was interpreted as requiring a party not to exercise its discretion in an arbitrary, capricious or irrational manner.[20] Unlike the NEC contract, PAM Form has no basis on ‘good-faith’. ------------------------------------------- [1] Interfoto v Stiletto [1989] Q.B. 433 [2] Arcos v EA.Ronaasen[1933]AC470 [3] Walford v Miles[1992]2AC128 [4] Gold Group v BDW[2010]EWHC1632(TCC) [5] Compass v MidEssex Hospital[2013]EWCACiv200 [6] Emirates v Prime Mineral[2014]EWHC2104(Comm) [7] Shaker v Vistajet[2012]EWHC1329 [8] Petromec v Petroleo[2005]EWCACiv891 [9] YamSeng v International-Trade Corp.[2013]EWHC111(QB) [10] First Energy v Hungarian Bank[1993]2Lloyd’sRep194,196 [11] Chelsfield v Qatari Diar[2015]EWHC1322(Ch) [12] Fujitsu v IBM[2014]EWHC752(TCC) [13] Myers v Kestrel[2015]EWHC916 [14] Greeclose v National Westminster Bank[2014]EWHC1156(Ch) [15] Hamsard v Boots[2013]EHC3251(Pat) [16] Portsmouth v Ensign[2015]EWHC1696(TCC) [17] MSC Med.Shipping v Cottonex Anstalt[2016]EWCACiv789 [18] Walford v Miles [1992] 2 A.C. 128: Whether and to what extent the law of contract recognises enforceable obligations as to the way in which the parties are to behave? Where the parties act in a manner which conveys an intention to be bound, can there be an enforceable obligation to negotiate in good faith? [19] Medirest v Mid Essex NHS Trust [2012] EWHC 781 QB [20] Mid Essex v Compass Group [2013] B.L.R. 265 at 280 Three, the ‘advisory’ expressly mandated, ‘Architect should […] in guiding the negotiation between parties […] fair-resolution [meaning, good-faith basis]’, emphasis added. It is crystal clear that the ‘advisory’ mandated the Architect to facilitate parties to renegotiate their contract, in its capacity as a ‘para-legal’ professional, failing which, could the Architect be sued as legal-advisors, in this context of discharging its role? Fourth, the law holds that Immunity of certifier – in earlier case, certifier has immunity[1] only to be overturned later, that certifier has no immunity[2] as he holds a duty of care both as the agent to the employer and an impartial certifier to the contractor. Immunity only applies where there was dispute which called for a judicial decision such as adjudication[3] and arbitration. When the ‘advisory’ calls for ‘Architects are encouraged to be more lenient […]’[4], and ‘leniency’ is never an expressed ‘jurisdiction’ of the CA, it placed the Architects in very awkward ‘illegal’ positions, as to mean, having to consider that the PAM form has not taken a foreseeable circumstances of a pandemic, Architect could now take a ‘more lenient’ view to grant EOT, even when such is against the provision of the contract? How, sensible is such with regards to all the other roles as an impartial certifier, now subjected to challenge? ---------------------------------------------- [1] Chambers v Goldthorpe[1901]KB624 [2] Sutcliffe v Thackrah[1974]AC727 [3] S.108(4)HGCRA [4] PAM-Practice Notes 3/2020, p.2, item 1 Fifth, Loss and Expenses in the ‘advisory’ is stated that if on the basis of force-majeure, it cannot be granted, but and again, contradicted by the following, ‘parties agree that the costs […] should be shared’[1], meaning the entire contract has to be rewritten and Architect has this role to renegotiate the term for the parties … and the same can be said, to the rest of the contractual procedural-terms, if not taken with extreme-care, would rendered the architect acting ultra-vires as both an impartial-certifier and an agent of the employer. --------------------------------------- [1] PAM-Practice Notes 3/2020, p.2, item 2 Concluding, given the prima-facie meaning of the ‘advisory’ now, architects are empowered to facilitate parties of a PAM-Form Contract to renegotiate their contractual terms; and failing to exercise this ‘new-positions’ with care, will opens up ‘new-avenue’ for the architects to be sued and hopefully, with the current position of L3 Architects Sdn Bhd v PCP Construction Sdn Bhd [2019] 1 LNS 1321, Architects in Malaysia can be spared and have ‘immunity’ to do what it wishes …[1] ------------------------------------------- [1] < http://www.davidyek.com/adr/architect-has-no-duty-of-care-to-the-contractor-the-malaysian-approach> Postscript:Truly honoured to have senior and well known architectural practitioners to read my opinion on ‘matters affecting the profession’ in https://www.facebook.com/davidyekarchitect/posts/3003622449872587 and it is valuable that the comment given to me really inspiring, especially to younger-practitioners. It is a pity that he did not ‘comment’ directly in the comment section. After much persuasion, he agrees that his comment be made anonymously, and I truly thank him for his generosity and kind gesture:
Hi David. Read your review of the PAM advisory. I don’t want to comment on the contents because I think you had thought through the issues and while there are areas I might have slightly different take, it is better than a lot of opinions floating around. I had one observation to make. In all the publicised force majeure cases that come across before this advisory or indeed this pandemic, one party to the contract declare force majeure and state his basis for doing so. And then state the consequences of his declaration. So far we all assume that because the pandemic occur a force majeure event is in play. My considered opinion is force majeure has to be declared by one or both of the parties to the contract and the other party or indeed parties if more than one contract is involved; can dispute the declaration. I note your scepticism about architects being empowered to help parties to re-negotiate terms of contract and if I read it right, I will also add I agree that it is dangerous grounds we are encouraging architects to go on. Especially if they had not familiar with what they in for. Architects who will intervene as an ad hoc mediator are usually quite sure of what the limits of their contribution should be. I hope we had not encouraged some to bite off more than they can chew. Truly, hope that younger generations of architect ‘walk this path’ carefully, as the advisory is, in my mentor’s word, ‘not-gospel’ … Have a nice day, folks! UPDATE: Conspiracy theory and the architects, how often do you find this in Malaysian case law? It appears that in the recent case of Koperasi Permodalan Felda Malaysia Bhd v Icon City Development Sdn Bhd & Anor [2023][1], the architect was alleged to have breach its duty of care under negligence and the torts of conspiracy in issuing extension of time (‘EOT’). The court has taken a ‘limited role’ in reviewing the HC’s decision[2] and hold that the standard of proof for ‘conspiracy is very high beyond reasonable doubt’[3], that by ‘overt act’ in furtherance of a conspiracy by granting of EOT by ways of correspondences between the architect and the party is insufficient to prove the tort of conspiracy.[4] Concluding, it is not easy to cast doubt on an architect’s opinion and for any reason, some lawyers have pursue the path less travel in proving tort of conspiracy. -------------------------------------- [1] 2 CLJ 1 [CA] [2] Lee Ing Chin & Ors v. Gan Yook Chin & Anor [2003] 2 CLJ 19; Gan Yook Chin & Anor v. Lee Ing Chin & Ors [2004] 4 CLJ 309; Ng Hoo Kui & Anor v. Wendy Tan Lee Peng, Administrator Of The Estates Of Tan Ewe Kwang, Deceased & Ors [2020] 10 CLJ 1. [3] SCK Group Bhd & Anor v. Sunny Liew Siew Pang & Anor [2010] 9 CLJ 389 [4] Koperasi Permodalan Felda [n1], [46-47]p.17 ARCHITECT HAS NO DUTY OF CARE TO THE CONTRACTOR – THE MALAYSIAN APPROACHWhen parties to a dispute, received its decision, be it arbitration or adjudication, the losing party may be disgruntled and look for every avenue to recoup its losses; one possible mean is to find fault with the consultant, mainly the architect; for negligence as an impartial-certifier. The case whether a Main-Contractor can sue the Architect for being negligent is addressed by the Appeal Court, in PCP Construction Sdn Bhd (“PCP”) v L3 Architects Sdn Bhd (“L3”)[1] where the judgement of the HC was unanimously upheld, dismissing PCP’s claim.
Against the context that L3 has no-contractual relationship with PCP, the ‘classical-textbook’ test in tort for negligence is taken, i.e. whether L3 has a duty of care towards PCP; whether the L3 has breached the said duty of care; and whether the breach by L3 has caused the PCP to suffer losses. For such, the Session-Court held that there was indeed a duty of care vested on L3; and an appeal was follow through in the HC; on two grounds, one, there is no duty of care vested on L3 and two, there is no actual-loss incurred. The English position was clearly dealt with in Sutcliffe v Thackrah[2], that the Architect enjoys no-immunity.[3] In Arenson v. Casson Beckman Rutley[4], it was held that “there was no reason of public policy to treat the respondent valuers’ task […] to the general rule of liability for negligence whereby immunity is granted to judges and arbitrators.” In Pacific Associates v Baxter[5], it was held in contrast to Arenson; where courts should be slow to superimpose an added duty of care upon a party when the relevant rights came under a contractual framework that provided for the same; persuasively abided by Malaysia’s court[6]; that scrutinises the meaning of ‘proximity’, based on the facts and circumstances of each case, “as such, the concepts of voluntary assumption of responsibility and reliance are seen as important factors to be established for purposes of fulfilling the proximity requirement […]might lead to an indeterminate liability being imposed on a particular class of defendants, thus leading to policy issues.” [7] HC in PCP v L3, took the view that Thackrah and Pacific were of different contexts, i.e. architect sued by the employer, and should not be persuaded to follow; and held that L3 are not liable for claims for ‘pure economic loss’ in negligence when PAM-Contract has defined rights and liabilities of each party; and notwithstanding the findings of Saga Fire Engineering v Lee Yee Seng[8], where the consultants owed a duty of care to the contractor and were liable for the losses suffered; the Appeal-Court decided to agree with HC’s judgment. Arising from this judgement, it appears that when it is said that the PAM-Contract has defined rights and liabilities of each party, especially with regard to the Architect as impartial certifier and an agent to the employer, wouldn’t that automatically implied that the Architect has a duty of care in tort to the Contractor? Nope? Then, this is good-news, as Architect can thus, do what they wish! Merry Christmas and a Happy New Year! ----------------------------------------------------------------- [1] L3 Architects Sdn Bhd v PCP Construction Sdn Bhd [2019] 1 LNS 1321 [2] [1974]AC727 [3] http://www.davidyek.com/adr/is-there-such-immunity-as-a-certifier-for-the-architect [4] [1977]AC405 [5] [1989] 2 All ER 159 [6] Credit Guarantee Corp Malaysia Bhd v SSN Medical Products Sdn Bhd [2017] 2 MLJ 629; Bodibasixs Manufacturing Sdn Bhd v Entogenex Industries Sdn Bhd [2018] 9 MLJ 417 [7] Lok Kok Beng v Loh Chiak Eong [2015] 7 CLJ 1008 [8] Shah Alam High Court Civil Suit No. BA-22C-10-02/2017 I had taken the liberty to update this article. Back in 2019, The Electrical and Electronics Association of Malaysia (TEEAM) has approached The Malaysia Institute of Architects (PAM), the custodian of the PAM Form of Building Contract, the most widely used Form in the construction industry in Malaysia, to amend its clause 30.5 to include a provision that such retention sum to be placed under a ‘trust’. Subsequent dialogues with the other stakeholders i.e., CIDB, REHDA and MBAM didn’t bear fruit as each stand were taken myopically. More importantly, the lack of political will to introduce another bill, Retention Trust Account, for fear of moving the risks of the developers back to the home-buyers, compromising political status quo. In summary, it is again another showdown that ‘strength’ does matter.
The recent decision of the Federal Court’s case of SK M&E Bersekutu v Pembinaan Legenda Unggul[1] has been a novelty, depart from the traditional view as in Qimonda v Sediabena[2], as the FCJ has drawn upon some, on-going debates for legislative-reform on the ‘retention-money’ in the UK and abroad, to hold that the ‘retention-money’ cannot be construed as a ‘trust’ unless it has been deposited in a ‘trust-account’ or something similar to that of the escrow-account[3] and that the contract has to specifically state-so, i.e. “a positive duty on the Employer to hold the Retention Fund as trust monies irrespective of whether or not the Retention Fund is segregated into a separate trust account. Further the Retention Fund shall at all times remain as trust monies even after the Employer has gone into liquidation or bankruptcy and shall not form part of the general funds upon liquidation or bankruptcy of the Employer.”[4] Thus, the general issue here is whether such a ‘maverick’ move by the FCJ will give any repercussion to the industrial player and if so, what are these against the experience felt by the other common-law jurisdiction particularly from the UK, where the ‘inspiration’ was derived from? A lot have been written about the ‘novel-shift’ of the ‘retention-money’, previously thought to have been the contractor’s money, arising from SK M&E Bersekutu, it is now, found to be solely, the employer’s money instead. The position of the common law pertaining to the law of trusts - “the employer’s interest in the retention is fiduciary as trustee for the contractor and for any nominated sub-contractor”, impose an obligation on the employer to appropriate and set aside a sum equivalent to the retention money in a separate trust fund.[5] As there was no trust until a sum of money was set aside in a separate account and until that was done the contractor was merely an unsecured creditor[6], of which the contractor can obtain a mandatory injunction for the employer to set up a trust.[7] The trust is not payable until the retention becomes payable and the employer retains all rights of set-off.[8] A trust is a legal relationship, enforceable in equity where the trustee holds the property on behalf of another.[9] To establish this, it must be shown that the promisee intended the benefits to be enjoyed by third party and such promise is irrevocable.[10] As such the 1999 Act[11] offers greater flexibility compared to trust as trust is irrevocable and not subject to defence and set-off, of which we do not have such Act in Malaysia. Retention can be huge and may cause cash-flow issues to contractors, in the UK, and such clause in standard-form may not comply with HGCRA, on requirements for the withholding of payments. In the UK, the proposal is to put retention in a ‘trust-account’, thus abolishing retention by 2025. In 2017, the UK government published the Pye-Tait Review[12], seeking to assess costs and benefits of retention and alternative mechanisms and found that reasons of non-payment; delayed-payment were disputes over defects; insolvency of contractors; non-payment to higher-tier of the supply-chain; an off-set of claims, thus results in higher-overheads; poor-relationships; risks of insolvencies. As a result, a consultancy under the practice of cash-retention for construction-contract was launched by the UK government.[13] In 2018, the collapse of Carillion sent shock-waves throughout the construction-industry in the UK[14], with contractor-bodies urged the government to pursue on ‘zero-cash retention’ no later than 2025. In 2018, a bill was introduced in the UK Parliament to ensure that the retentions are now statutorily required to be held under a third-party trusts.[15] In 2019, saw a ‘surprising-twist’ to the debate of the Bills, with introduction of minimum-standards use of retention in the building-industry[16]; consultation launched in the Scotland; and the Construction Leadership Council (CLC) endorsing the ‘zero-cash retention’ road-map[17]. In 2020, arising from the Covid-19 pandemic, the debate took a step-backward with many other ‘considerations’. In short, it is not settled-law in the UK. Apparently the ‘novel-approach’ or the ‘maverick-attempt’ of the FCJ, in holding to such a judgement, is to push the construction industry into a quantum-leap, towards ‘zero-cash retention’ or as a ‘trust’, if the parties to the contract, agreed to such, but very unlikely, as the developer, now has an ‘upper-hand’ not to partake. Why should they agree to, in the first place? Money in ‘my’ pocket, is better than in ‘yours’! ‘Knee-jerk’ reactions can be felt, when sub-contractors associations begin lining-up to knock on the doors of PAM, IEM, CIDB, and the others to seek for an amendment to their published standard-form of contract, to mandatorily, include a clause, that ‘the employer shall put the retention-money into a trust-account’. --------------------------------------------------------------- [1] (2019) 4 CLJ 590 [2] (2012) 3 MLJ 422 [3] An escrow account is an account where funds are held in trust whilst two or more parties complete a transaction. This means a trusted third party will secure the funds in a trust account. The funds will be disbursed to the merchant after they have fulfilled the escrow agreement. [4] Jaspal, “New Normal on Retention Sum – A Judicial Paradigm Shift” (QSLINK, 2020): clause 30.6(c) of AIAC Standard Form of Building Contract 2019 Edition [5] Wates v Franthom (1991) 53 B.L.R. 23 [6] MacJordan Construction v Brookmount (1991) 56 B.L.R. 1. [7] Rayack Construction v Lampeter Meat Co (1979) 12 B.L.R. 30 [8] Hussey v Palmer [1972] 1 W.L.R. 1286 [9] Les Affreteurs Reunis v Walford[1919]AC801 [10] Vandepitte v Preferred Accident[1933]AC70 [11] Third Party Rights Act 1999 (UK) [12<https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/654399/Retention_Payments_Pye_Tait_report.pdf> [13] <https://www.gov.uk/government/consultations/retention-payments-in-the-construction-industry> [14] <https://www.theconstructionindex.co.uk/news/view/carillion-report-the-summary> [15] Construction (Retention Deposit Schemes) Bill 2017-19 [16] <https://builduk.org/news/2019/06/build-uk-moves-forward-on-achieving-zero-retentions/> [17]<http://www.constructionleadershipcouncil.co.uk/wp-content/uploads/2019/12/Press-Release-09_12_19.pdf> Postscript (2): Further s.7Covid-Act HC tests:
-------------------------------------------------------------- [1] Malaysian Federal Court in SPM Membrane Switch Sdn Bhd v Kerajaan Negeri Selangor [2016] 1 CLJ 177; Ginma Industries Sdn Bhd v Xin He Feng (M) Sdn Bhd [2021] MLJU 1675 [2] Ravichanthiran A/L Ganesan v Lee Kok Sun (2021) MLJU 1876 [3] Armada Petroleum Sdn Bhd v Alam Maritim Resources Bhd [2021] Postscript: As at to date [Sept 2021], there were very limited case-law demonstrating the operation of the Covid-19 Act. So far courts had demonstrated that settlement agreement entered post termination of a tenancy fall outside the Act[1]; tenancy agreement expired within the publication of the Act, with prior notice to renew and eventually terminated, such agreement is deemed to have been validly terminated[2]; a consistent breach of payment obligations prior to the Act, will not be protected by the Act[3]; the Act provides protection to future ability to fulfil obligations and not existing obligation to pay[4]; and the Act provides extension to the time-bar to sue[5]. ---------------------------------------------------------------------------------- [1] WPP Business Services Sdn Bhd v Cosmopolitan Avenue Sdn Bhd [2021] MLJU 1042: s.7 Covid-19 Act [2] Ang Pi Kui & Anor v Lee Wee Teck & Anor [2021] 1 LNS 58: s.10 Covid-19 Act [3] Pilecon Engineering Bhd v Malaysian Trustees Bhd [2021] MLJU 1167 [4] Armada Petroleum Sdn Bhd v Alam Maritim Resources Bhd [2021] [5] Uni Construction & Realty Sdn Bhd v Tersaim Lall [2021] Having to term with the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Bill (“COVID Bill“), the reality of “Building Contract is ‘pregnant’ with disputes”[1], are very-very real. Not only that the Parliament, via its sovereignty- within the three-pillars of democracy[2], has in-interim, ‘re-wrote’ the contracts for the parties, not even by the courts[3], in certain ways[4], coupled with multiple ‘flip-flop’ conundrums from the Government of the day[5], impacted the construction industries with ‘gapping’ trench that the construction industries stakeholders are having difficulties to fill[6].
These ‘lacuna’[7] opportune upon many ‘fringe-parties’ to institutionalise their ‘relevancy’ from promoting mediation as not a dispute-avoidance mechanism but a dispute-resolution that has no statutory-bites[8]; to ‘creatively’ re-package ‘new-professionals’, i.e. ‘facilitative-negotiators’ to assist parties to ‘re-negotiate’ their existing-contract, often making them-murkier; the traditional core-consultants, i.e. the Architects, Engineers and QS having to find ways to ‘salvage’ the unprecedented-events as they are the parties that were hit the most, with the contract-terms that had never foresee such pandemic, at such a scale[9]. The Covid-Bill has left many questions unanswered; came rather-late when the damage has already been done[10]; ‘tapestry’ and temporal in nature[11] with no ‘statutory-solutions’ in place, even mediation is non-mandatory[12]. There also arise for the fact that many agencies are running to provide ‘mediation’ as dispute-resolution provider, with or without a single-idea as to the real issues faced by the construction-industry stakeholders, central on the cardinal-issues of payment and time.[13] Similarly, there are other quarters that question the ‘conflicting-interest’ and the effective roles of the Architects, Engineers and QS as ‘mediators’ for construction-related matters, especially those projects under their watch.[14] Who on earth, would not have been in a better position, for dispute-avoidance in the first place, if not for the role of the Architect, whom from the onset has been ‘statutorily-empowered’ to self-regulate[15]; statutorily-regulated[16]; and in common law provision, the impartial certifier[17]? Do the industry wish to re-invent the wheel, perhaps by introduction of another breed of specialist, ‘neutral-evaluator’ to provide ad-hoc ‘instant-expert’ non-binding recommendations for non-technical mediators to mediate dispute, thus additional costs and time required? Furthermore, a facilitative approach in the construction industries is a ‘waste of time’. “A strictly facilitative mediation seems like such a waste of time. If they are in dispute and at gridlock it doesn't provide any avenues for resolution except further discussions which presumably they've already exhausted which is why they are still in dispute avenues.”[18] Some legal fraternity recognise such, as a way to mitigate, another new-breed of professionals are brought into facilitative-ly re-negotiate existing-contracts of the parties[19]; often mutilating standard-forms beyond its recognisable-forms into ‘bespoke-contract’, possibly untested, ambiguous and so much foreign to the Architects, Engineers or QS to administer.[20] As to the existing standard-form, i.e. PAM-Form has provided ‘force-majeure’ a civil-law jurisdiction clause that is so foreign in our common law traditions; where applications become rather awkward as the pre-condition of ‘epidemic’[21] has narrower ambit compared to ‘pandemic’ of a global-scale, thus the question in law, should ‘pandemic’ be construed as ‘epidemic’ as envisioned by the parties when they enter into their contract, or entirely unforeseeable that such an unprecedented change in the contract conditions warrant repudiation under ‘frustration’[22]? We have yet to see the findings of the court, although PAM has been too-quickly to conclude such[23]; impacting many contractors ‘desolate’ without any recourse for loss and or expenses which are very-very real[24]. Mirrored the advice from the JCT, which is absent in the long-awaited PAM-advisory, it was instead suggested that as a matter of procedural-rule, within the stipulated conditions of the contract, the Covid-19 situation shall be viewed as pre-governmental intervention and governmental intervention.[25] In situation of pre-governmental intervention, if the site has been affected by Covid-19, it is deemed to fall within the provision of force-majeure, a neutral-event qualifies for EOT but not loss and expenses[26]. Whereas, with the governmental intervention, i.e. the MCO, CMCO or others, it is a compulsory-order from the government, thus delay-prevention is no longer a choice of the contractor, warrants EOT with automatic loss and expenses[27]. This is a ‘just, fair and reasonable’ approach in extra-contractual, i.e. tort relationship governing this industry[28], without to succumb for any ‘maverick’ or novel approach such as ‘good faith’ that is not the ‘overarching principle’ of our common law. Having to say that, we have really yet to see any substantive, concrete, workable and detail proposals from PAM on the interim-measures for contract administrator to work on immediately especially on procedural-matters, leaving the substantive-issues to be agreed upon by the parties, failing which, again arbitration, adjudication and the court, are the only options; of which technical mediation as provided by PAM shall easily have avoided such disputes.[29] A lot have been spoken thus far, but political-will to act upon such has yet to be seen. There is no walking the talk at the moment, unfortunately. ---------------------------------------------------------- [1] Linden Gardens Trust Ltd v Lenesta Sludge Disposal Ltd [1994] 1 AC 85, per Lord Browne-Wilkinsonat, p.105E [2] <https://www.parliament.uk/about/how/role/sovereignty/>: Mirrored that of Westminster [3] Arnold v Britton [2015] UKSC 36, per Lord Neuberger, p.18 [4] P.II,Covid-Bill [5] <https://www.straitstimes.com/asia/se-asia/muhyiddins-government-seen-flip-flopping-on-covid-19-battle-as-its-fate-hangs-in-the> [6] <https://www.edgeprop.my/content/1762708/council-welcomes-covid-19-act> [7] <https://www.freemalaysiatoday.com/category/nation/2020/10/23/covid-19-act-too-little-too-late-says-house-buyers-group/> [8] <https://en.wikipedia.org/wiki/Non_liquet >: In law, a non liquet (commonly known as "lacuna in the law") is any situation where there is no applicable law. Non liquet translates into English from Latin as "it is not clear" [9] <http://www.davidyek.com/adr/movement-control-order-mco-from-the-lens-of-an-architect> [10] <https://www.theworldlawgroup.com/news/covid-19-bill-2020-affecting-housing-developers-and-homebuyers> [11] P.II,Covid-Bill: 18 Mar 2020 - 31 Dec 2020 [12] Cl.9,Covid-Bill: use of the word “may”, the mediation option is voluntary [13] <https://www.scl.org.uk/resources/delay-disruption-protocol> [14]<https://www.ibanet.org/Document/Default.aspx?DocumentUid=e2fe5e72-eb14-4bba-b10d-d33dafee8918> [15] S.24.A.UBBL 1984 [16] Housing Development Act 1966 HDA: Reg.11,Cl4.P.2 [17] Sutcliffe v Thackrah [1974] AC 727 [18] RICS’s ACRE-Model of Evaluative Mediation [19] Facilitative Negotiator, mooted by MMC Bar-Council Malaysia [20] Some Institutional Administered Arbitration only administer dispute based on the standard-form that the institute has published. [21] Article 7(ad)PAM2006 [22] Treitel, Frustration and Force Majeure, (3rdEd.,2014), 7-001 [23]<http://pam.org.my/images/announcements/2020/PAM_Advisory_Note_Covid19_MCO_18.3.2020.pdf> [24] <https://www.nst.com.my/news/nation/2020/04/586175/mco-reducing-construction-workforce-will-affect-projects> [25] <https://corporate.jctltd.co.uk/coronavirus/> [26] Cl.23.8(a)PAM2006 [27] Cl.24.3(n)PAM2006 [28] Caparo Industries v Dickman [1990] 2 AC 605 [29] <http://www.davidyek.com/adr/roles-of-architects-as-construction-mediators-in-post-mco-recovery-in-malaysia> WARRANTY, DEFECT LIABILITY, LONGSTOP … WHERE IS THE LIMIT?The 2 years’ Defect Liability Period (DLP), commencing from Vacant Possession (VP), is not a warranty? If so, what is a warranty?
Law of obligation suggests that whether a contract is held to be a condition, warranty or an innominate term is a fundamentally important distinctions. A breach in warranties, does not warrant the end of the contract, may give rise to right to sue for damages, i.e. loss due to defective work.[1] Only court could determine the kind of remedy either right to terminate or damages only. [2] In so doing, the court rely on, any detrimental cause foreseeable? Any delay caused? Value of performance not breach? Cost involved in conforming to the contract? Opportunity enjoyed by the defaulting party? Any consequences of prior-breach? Whether victim has been adequately compensated? In essence, Malaysian court held that the law do not deprive the right of the owner to claim the developers for their right for having premises in the good and workmanlike manner.[3] It implies that the warranty does not stop at DLP. It is relatively easier to claim for damages under DLP, i.e. a defect form is filled up and the contractor shall rectify the defect in the time stipulated in the Sale and Purchase Agreement (SPA), as it is contractual. Above that, it has to proof negligence under Tort.[4] Such proof of negligence is under the purview of the Limitation (Amendment) Act 2018 (Act) from its predecessor[5], actions in contract and tort shall be time-barred after the expiration of six years from the date on which the cause of action accrued; 6-year limitation period applies notwithstanding when the plaintiff discovers the damages.[6] This approach were heavily criticised being unjust where latent defects (non-visible), not immediately detectable upon inspection are discovered after the six-year limitation period.[7] The amendment of the Act, introduces s.6A, with the 6-year time-barred remains when criteria are, action brought after the expiration period; due to negligence not involving personal injury; and action be brought within three years from the "starting date" and subject to a longstop of 15 years. The amended Act provided a ‘long-stop’ to any act of negligence not amounting to personal injury for the Developer and Contractor but not the Architect. There is a catch. The amended Act defines "starting date" as “the earliest date on which the plaintiff or any person in whom the cause of action was vested before him first had both the knowledge required … and a right to bring such action.”[8] ; Commencement depends on the person’s first knowledge; deemed to have the requisite knowledge when he knows of the damage for which it is claimed; and other facts relevant to the action, […][9]; implied with external expert’s advice; i.e. the "discoverability rule". So, there is in-reality, no end to be found. DLP remains a warranty period under the contract provision but not tort liability, of just, fair and reasonable.[10] There is yet to be a finality to the issue of ‘long-stop’. Mirrored the English courts, there have not restricted application in UK's Limitation Act.[11] That is to say, for the Architects, Engineers and the allied professionals, alike, the liability under Street, Drainage and Building Act 1974 is for perpetuity and the ‘long-stop’ does not apply.[12] ------------------------------------------------------ [1] Bettini v Gye(1876)1QBD183 [2] Hong Kong Fir Shipping v Kawasaki Kisen[1962]2QB26 [3] The Ara Joint Management Body v Mammoth Land & Development Sdn Bhd [2017] MLJU 631; Fong Wan Reality v PJ Condominium S/B [2010]10 CLJ 112 [4] Donoghue v Stevenson[1932]AC562; Hedley Byrne v Heller[1964]AC465; and Junior Books v Veitchi[1983]1AC520 [5] Limitation Act 1953 (Limitation Act) [6] AmBank (M) Bhd v Abdul Aziz Hassan & Ors [2010] 3 MLJ 784 [7] Sharikat Ying Mui Sdn Bhd v Hoh Kiang Po [2015] MLJU 621 [8] S.6A(4)(a) [9] S.6A(4)(b) [10] Caparo Industries v Dickman[1990] 1AC.605 [11] s.14A, UK's Limitation Act 1980: Haward and others v Fawcetts (a firm) [2006] 3 All ER 497; and Blakemores LDP (in administration) v Scott and others [2015] EWCA Civ 999 [12] Bellefield Computer Services v E. Turner & Sons Ltd (No. 2) [2002] EWCA Civ 1823 Roles of Architects as Construction Mediators in Post MCO[1] Recovery in Malaysia
This paper attempt to answer why the Architect should be the best of position as the mediator? If so, what extend, the current Covid-19 pandemic situation, impacted the building industry and brought about the opportunity of mediation as a measure of recovery? In what role, the Architect has to play? What has the Bill provided? How was it related to mediation? If so, what else is cover under this provision of s.9 of this Act? What can PAM, as an institution do to promote ‘construction mediation’? Why s.9 needs to ‘reinvent the wheel’ on mediation when there is already a Mediation Act 2012? Why should the Architect be the best of position as the mediator? Foremost, he is the ‘man on the ground’, equipped with technical ‘know-how’ and constantly in the forefront of events happened on site. Second, in being a mediator, its role is significantly elevated in terms of his impartiality, of which he is already ‘statutory bound’ as certifier. [2] Thirdly, he is at the position to amass ‘technical advices’ from various affiliated consultants within the project team, fortifying him, an ‘expert mediator’ in the field of construction. [3] Fourthly, the Architect is a profession that is highly regulated and there is very little need to ‘reinvent the wheel’ to create additional law in governing such area. [4] On such account, what extend, Covid-19 pandemic, impacted the building industry and brought about the opportunity of mediation as a measure of recovery? In what role, the Architect has to play? The pandemic has bought about a ‘massive kneejerk’ reactions to the industry at large, placing the economy on ‘standstill’. Contractors are morbidly ‘counting losses’ confronting uncertainties and future disputes.[5] Prolonged MCO leading to CMCO[6], witnessed the government put in place SOP[7] to ‘kick-start’ the construction industry. The industry succumbed to further fear of lockdowns and potential liabilities arising from delays in completion and handing over ‘vacant-possession’.[8] No one has ‘an answer’ to this unprecedented event.[9] Lawyers are suggesting repudiation under ‘frustration’ and remedies under force majeure. Virtually ‘no one’ would consider, putting aside one’s legal rights and negotiate a win-win solution, which is mediation. Came RMCO[10], although a little ‘delay’[11] compared to the Singapore’s Covid-19 Bill, the government of Malaysia has finally passed the Temporary Measures for Reducing the Impact of Covid-19 Bill 2020[12] TMRIC. What has the Bill provided? How was it related to mediation? In a nutshell, as its name suggests, it is a ‘temporary measure’ to protect party that is unable to perform its contractual obligation during the MCO and refraining the other party to exercise its right under the terms of the contract, during the relief period[13] against the defaulting party.[14] The Bill impacted the construction industry on a wide array of matters, among them relevant point, is mediation[15], covering contracts for construction and consultancy contract; supply of materials, plants and manpower in the construction industry; and professional services, whereupon, “any dispute[…]specified in the Schedule[…]may be settled by way of mediation”.[16] If so, what else is cover under this provision of s.9? Foremost, mediation as prescribed is a ‘voluntary’ act in the operative word, ‘may’ instead of ‘shall’, so much so, the Bill does not provide sufficient ‘statutory bite’.[17] Only upon settlement, the parties ought to agree via a ‘settlement agreement’ that is binding although not without its risk of being breached.[18] Thirdly, the mediator is ‘somebody’ to be appointed by the Minister, thus who is this ‘appointing body’? Since the matter of construction is best dealt with by the construction professionals, institution like PAM[19] and having the PAM Form[20] as the most widely employed in Malaysia, in collaboration with CIArb(Malaysia)[21] shall ‘naturally’ be granted the privilege as the appointing party. Moreover, PAM has been, a stakeholders of the construction industry. What can PAM do to promote ‘construction mediation’? Foremost, PAM has been running its ‘panel of arbitrators’ since 1969 and the service of ADR[22] has since grew.[23] PAM is capable in providing ‘state of the art’ facilities for ADR proceedings at reasonable costs. PAM has a comprehensive Rules and Professional Ethics governing ADR. PAM has constantly, in collaboration with CIArb(Malaysia) to organize courses in area of ADR for its members and allied professions, and last but not least, PAM has its publication, media appearances and network to promote ADR in a seamless platform for growths. One may again ask, why s.9 TMRIC needs to ‘reinvent the wheel’ on mediation when there is already a Mediation Act 2012?[24] Party autonomy has always been the core value prescribed in the 2012Act[25], but in view of the specific nature of expertise centralize on the ‘construction industry’, no appointing body provided in the 2012Act by default in such area of emphasis. 2012Act suggests technique employed to be the ‘facilitative mediation’ approach centralize more on the participants’[26] discoveries of ‘win-win solutions’ to move ahead without any ‘suggestions’ provided by the mediator, it is of paramount important for an ‘expert mediator’ to ‘prompt’ and probe participants on feasible choices that goes beyond just ‘costs and time’[27] and its ‘reality testing’ within the sphere of multiple contracting parties and collateral interests.[28] Someone from ‘ground-zero’ of the construction industry is required to ‘feel’ such pulses, and is none other than the ‘expert mediator’, himself. Thus, an evaluative meditation may just fit the mold. Concluding, there is already professional on ground such as the Architect to take up the challenge as the ‘expert mediator’ to mediate construction dispute beyond just to achieve a resolution, but an avoidance to costly legal battles, besides juggling its role as an impartial certifier. In this given ‘ecosystem’ of the pandemic resilient measures and the existing facilities and network so provided by PAM, the Architect is the better choice, as a mediator for construction disputes. ------------------------------------ [1] The Movement Control Order MCO, is a ‘cordon sanitaire’ implemented as a measure by the Malaysian government in response to the COVID-19 pandemic on 18 March 2020, known commonly as a lockdown or partial lockdown. [2] Perform ‘dual functions’ as agent to the employer and impartial certifier to the contractor. [3] Acting as superintendence on site i.e. Superintendent Officer SO, mainly for ordering variation and issuing certificates, instructions and drawings. [4] The first line of dispute avoidance is and has always been vested upon the shoulder of the ‘contract administrator’, by default such as so provided in the PAM form of building contract, the architect, http://www.davidyek.com/adr/dispute-avoidance-during-mco-what-architect-can-or-cannot-do, accessed 5 October 2020. [5] […] eventually bring about the repercussion of ‘loss and expenses’ claim by the contractor. <http://www.davidyek.com/adr/dispute-avoidance-during-mco-what-architect-can-or-cannot-do>, accessed 5 October 2020. [6] Conditional Movement Control Order. [7] Standard Operating Procedure: put together by the Ministry of Health MOH and the Ministry of International Trade and Industry MITI, requiring the contractor who wish to restart work to put in place additional preventive measures and protocols, possible without reimbursement from the employer arising from the ‘neutral event’. [8] It is important for architects to understand the liabilities annexed to these undertakings while keeping ‘your finger crossed that nothing bad actually happened while in operation’. <http://www.davidyek.com/adr/mco-03-go-to-work-mr-arcitect>, accessed 5 October 2020. [9] Having gone through the 3 phases (of MCO) everybody in the construction industries are looking at the ‘crystal ball’ to see ‘when it is going to end’, what is the ‘exit plan’ and more importantly, how to face the ‘new normal’. <http://www.davidyek.com/adr/mco-04-new-normality-bites>, accessed 5 October 2020. [10] Recovery Movement Control Order. [11] <https://www.freemalaysiatoday.com/category/nation/2020/08/25/govt-explains-delay-in-tabling-covid-19-bill/>, accessed 3 October 2020. [12] The Bill has not been gazetted in the time of writing this paper. [13] 18 March 2020 – 31 December 2020 [14] S.7 TMRIC [15] Protection from inability to perform contractual obligation; Mediation; Extension of Limiting Period; and Impact on Housing Developer’s Act HDA. [16] S.9 TMRIC [17] The stronger party or party which has more resources will still resort to the normal dispute resolution process, such as going to the courts even after this Bill becomes law. <https://www.thestar.com.my/opinion/columnists/with-all-due-respect/2020/08/16/is-our-covid-19-bill-the-panacea>, accessed 3 October 2020. [18] If mediation is chosen, then what happens if parties fail or refuse to reach a settlement or perform the settlement agreement? <https://www.thestar.com.my/opinion/columnists/with-all-due-respect/2020/08/16/is-our-covid-19-bill-the-panacea>, accessed 3 October 2020 [19] Malaysian Institute of Architects PAM [20] Pertubuhan Arkitek Malaysia PAM Standard Form of Building Contract [21] PAM has entered into a Memorandum of Understanding MOU with Chartered Institute of Arbitrators CIArb Malaysia Branch, to collaborate in the area of ADR. [22] Alternative Dispute Resolution. [23] To include expert determination, adjudication and mediation, coincides with its amendment to the PAM2018. [24] […] parties can always opt for mediation and follow the provisions of the Mediation Act, 2012 (Act 749), <https://www.thestar.com.my/opinion/columnists/with-all-due-respect/2020/08/16/is-our-covid-19-bill-the-panacea>, accessed 3 October 2020 [25] https://www.mylawyer.com.my/mediation-act-2012/ [26] Participant is the term referred to, in lieu of, party in a dispute that has a slightly negative connotation for collaboration. [27] The sole subject of dispute, generally applied to most construction related dispute. [28] S.2(1)(b)Act2012 excluded any mediation conducted by a judge, magistrate or officer of the court pursuant to any civil action that has been filed in court. Short answer is - in earlier case, certifier has immunity[1] only to be overturned later, that certifier has no immunity[2] as he holds a duty of care both as the agent to the employer and an impartial certifier to the contractor. Immunity only applies where there was dispute which called for a judicial decision such as adjudication[3] and arbitration. Good Luck, Architect!
-------------------- [1] Chambers v Goldthorpe[1901]KB624 [2] Sutcliffe v Thackrah[1974]AC727 [3] S.108(4)HGCRA A QUESTION ON ‘PROLONGATION COSTS'A question was mooted to fellows QS, “Having to consider that the contractor has now gave notice of Loss and/or Expenses L&E on the ‘prolongation costs’, how would you verify the value of Preliminaries granted in favor of the contractor?”, [Silence…]
[A moment later], one came back to say, “There are 3 parts to the Preliminaries. The first, the initial costs apply to payment such as obtaining permits and so forth, the second, the recurrent costs, such as cost of ‘maintenance of the site office’ and so forth and lastly, the final costs, inclusive of site clearance and so forth.” He furthered explained that, “While the first and last part of the Preliminaries were to be paid out in the commencement and completion of the said work, we will evaluate, as the case maybe, on the ‘prolongation costs’ by ‘dividing the number of months of EOT granted’ against the remaining of the recurrence costs and that is their entitlement.” Wait a minute, is there something amiss? You may wonder, ‘where is the prolongation costs’? ‘Prolongation costs’ is defined as ‘extra Preliminaries’ which are actually a part of the L&E arising from the EOT granted by the Architect. One may rely on an old English case of Hadley v Baxendale [1854][1] for recovering of losses based on the principle of the reasonable man’s objective and subjective test that “Where […] a contract which one of them has broken, the damages which the other party ought to receive […] may fairly and reasonably be considered either arising naturally, […]or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract,[…]”, and saying such, the extra Preliminaries had to be ‘actual costs’ incurred. Such ‘complete particulars’ are required under cl.24.1(b)PAM2006/18 for L&E purposes but such was never warranted for the purpose of monthly interim claim on Preliminaries. “Dividing the number of months of EOT granted against the remaining of the recurrence costs”, is a sheer ‘breach of duty of care’ on the part of the Architect, under the advice of the QS. It hinders the contractor to collect the amount rightfully due to him, notwithstanding the fact that the principle role of the QS is to ‘evaluate’ and having said that, ‘evaluation’ derived from the core word – to ‘value’ as one may opined “[…] appointed to make a valuation, in such manner […] he may, […] decide solely by the use of his eyes, his knowledge and his skill, he is not acting judicially: he is using the skill of a valuer, not of a judge. […]”[2]. In the same vein, the Architect, having to be a ‘quasi-arbitrator’ is not a ‘valuer’ but a ‘certifier’. Would you not think he should be ‘liable in tort’ for hindering the contractor to collect the amount rightfully due to him? Contractor should be rightfully be paid the recurrence Preliminaries on a ‘pro-rata’ against the ‘contract duration’ stated in the contract, i.e. the ‘original contract period’ not the ‘amended contract duration’ arising out of any EOT. In the event of EOT, the contractor has the right to claim L&E and that include the ‘prolongation costs’ or extra Preliminaries that for the purpose of avoidance of doubt, shall be negotiated and agreed upon before acceptance of the contract. This essay is strictly for educational use only and it does not constitute ‘legal advice’ and should not be relied upon to advice clients on legal matters. ----------------------------------------------- [1] EWHC J70 [2] Clay & Dennys (Ed),Hudson’s Building and Engineering Contracts [2019 Sweet & Maxwell], 14th.Ed.p.1602. |
DYA+CAuthorDYA+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'.
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