When 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>

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>